SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

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

(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, 2000

                                       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)

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

   111 S.W. FIFTH AVENUE, SUITE 1620                97204
         PORTLAND, OREGON                         (Zip code)
(Address of principal executive offices)

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

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

        Title of Each Class            Name of Each Exchange on Which Registered
        -------------------            -----------------------------------------
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 no  disclosure of  delinquent  filers  pursuant to Item 405 of
Regulation S-B is 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. [X]

         State  the  issuer's   revenues  for  its  most  recent   fiscal  year:
$43,959,000.

         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 November 10, 2000: $17,029,169.

         State the number of shares  outstanding of each of the issuer's classes
of common equity: Common Shares, without nominal or par value, 6,095,706 shares,
as of November 10, 2000.

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

                    DOCUMENTS INCORPORATED BY REFERENCE: NONE

<PAGE>
                                EXPLANATORY NOTE

    Sonus Corp.  (the "Company") is filing this Amendment No. 1 on Form 10-KSB/A
as an  amendment  to its Annual  Report to Form 10-KSB for the fiscal year ended
July 31, 2000 (the "Form  10-KSB").  The purposes of this Amendment are to amend
and restate in their  entirety  Item 1 of Part I and all of Part III of the Form
10-KSB.

                           FORWARD-LOOKING STATEMENTS

    Statements  in this report,  to the extent they are not based on  historical
events,  constitute  forward-looking   statements.   Forward-looking  statements
include,  without  limitation,   statements  containing  the  words  "believes,"
"anticipates,"  "intends," "expects," and words of similar import. Investors are
cautioned  that  forward-looking  statements  involve  known and unknown  risks,
uncertainties and other factors that may cause the actual results,  performance,
or achievements  of Sonus Corp. (the "Company") to be materially  different from
those described herein. Factors that may result in such variance, in addition to
those accompanying the  forward-looking  statements,  include economic trends in
the Company's  market areas, the ability of the Company to manage its growth and
integrate new acquisitions into its network of hearing care centers, development
of new or  improved  medical  or  surgical  treatments  for  hearing  loss or of
technological  advances in hearing  instruments,  changes in the  application or
interpretation of applicable government laws and regulations, the ability of the
Company to complete  additional  acquisitions  of hearing  care centers on terms
favorable  to the  Company,  the degree of  consolidation  in the  hearing  care
industry,   the  Company's   success  in  attracting  and  retaining   qualified
audiologists  and staff to operate its hearing care centers,  the ability of the
Company to attract  audiology  centers as  franchise  licensees  under The Sonus
Network,  product and professional  liability claims brought against the Company
that  exceed its  insurance  coverage,  the  Company's  ability  to collect  its
accounts  receivable  in a timely  manner,  and the  availability  of and  costs
associated  with  potential  sources of  financing.  The Company  disclaims  any
obligation to update any such factors or to publicly  announce the result of any
revisions to any of the forward-looking  statements  contained herein to reflect
future events or developments.

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

OVERVIEW

    The  Company  was  incorporated  under the laws of the  Province of Alberta,
Canada,  in July 1993,  under the name "575035 Alberta Ltd." The Company changed
its name to HealthCare  Capital  Corp.  in October  1994,  when it acquired nine
hearing care centers in British Columbia. The Company did not begin operating in
the United  States until it purchased two hearing care centers near Santa Maria,
California,  in July 1996. By vote of the shareholders,  the Company changed its
name from HealthCare  Capital Corp. to Sonus Corp. in February 1998, and changed
its  jurisdiction of  incorporation  from Alberta,  Canada,  to Yukon Territory,
Canada, in December 1998. The Company, through its subsidiaries Sonus-USA,  Inc.
("Sonus-USA"),   Sonus-Texas,   Inc.  ("Sonus-Texas"),   and  Sonus-Canada  Ltd.
("Sonus-Canada"),  currently  owns and  operates 106 hearing care centers in the
United  States and Western  Canada.  Centers owned by the Company are located in
the states of Arizona,  California,  Illinois,  Michigan,  Missouri, New Mexico,
Oregon,  Texas, and Washington and in the Canadian provinces of British Columbia
and Alberta.

    In addition to its  company-owned  hearing  centers,  the Company  operates,
through Sonus-USA,  a franchise licensing program called The Sonus Network, with
478 current locations.  Licensees are entitled to use the Sonus name and receive
other  benefits such as practice  management  advice and training,  group buying
discounts,  and  marketing  services.  There are  currently  301  Sonus  Network
licensees located in 43 states and the District of Columbia.

    The Company, through its subsidiary Hear PO Corp. ("Hear PO"), also operates
as an independent provider  association and hearing care benefit  administrator.
Hear PO obtains contracts to provide hearing care benefits to managed care group
and  corporate  health  care  organizations   through  its  approximately  1,400
affiliated   audiologists   and  sells  Hear  PO  brand  private  label  hearing
instruments. Hear PO currently has contracts to provide hearing care benefits to
over 57 million covered lives.

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<PAGE>

    Each of the hearing care centers owned by the Company  provides a full range
of audiological  products and services to hearing impaired  individuals.  During
the fiscal year ended July 31, 2000, approximately 85% of the Company's revenues
were derived from product sales, including hearing instruments,  batteries,  and
accessories,  8% were derived from audiological services, and 7% were from other
sources,  including  The Sonus  Network  and Hear PO.  Substantially  all of the
Company's  hearing  care centers are staffed with  audiologists.  The  Company's
operating  strategy is to provide patients with high quality and  cost-effective
hearing  care  while  at the same  time  increasing  its  operating  margins  by
attracting  and  retaining   patients,   recruiting   qualified  and  productive
audiologists and hearing instrument dispensers, achieving economies of scale and
administrative   efficiencies,   and  pursuing  large  group  and  managed  care
contracts.  The Company  believes that it is well  positioned to provide  retail
hearing  rehabilitative  services to consumers while simultaneously  serving the
diagnostic  needs of  referring  physicians  and  meeting  the  access  and cost
concerns of managed care providers and insurance companies.

    The Company  sells  products  through its  internet  site at  www.sonus.com.
Products that can be purchased through  www.sonus.com include gift certificates,
hearing instrument  batteries,  assistive listening devices,  hearing protection
items, educational materials, and audiology equipment, supplies and accessories.
Audiologists  and  hearing  instrument  dispensers  can  also  purchase  hearing
instruments for resale to their patients.  The Company  believes that e-commerce
poses  substantial  opportunities  for revenue growth and intends to continue to
devote resources to enhancing its web site and increasing  product  availability
and differentiation.

INDUSTRY BACKGROUND

PROFESSIONALS  AND  CENTERS.  Hearing  instruments  may be dispensed by either a
dispensing audiologist or a hearing instrument specialist ("HIS"). Although both
audiologists  and  HISs  may  be  licensed  to  dispense  hearing   instruments,
audiologists  have  advanced  training in audiology and hold either a masters or
Ph.D. degree.

    The June 2000 issue of THE HEARING REVIEW, a hearing industry trade journal,
indicates  that  approximately  31% of HISs in the U.S. are at least 61 years of
age, 33% are 51-60 years of age, 25% are 41-50 years of age and only 11% are age
40 or under,  compared to 8%, 30%,  46% and 16%,  respectively,  for  dispensing
audiologists.  The Company believes that many HISs are facing retirement with no
formal  "exit-strategy,"  a  situation  that  creates an  attractive  investment
opportunity for the Company.

    The typical  hearing  care  practice  wields  little  purchasing  power with
manufacturers, and must spread overhead over a relatively small revenue base. In
addition,  a typical  hearing care practice  often has  insufficient  capital to
purchase new  technologies  and lacks the systems and size  necessary to develop
economies  of  scale.  As  a  result,   the  Company  believes  that  dispensing
audiologists  and  HISs  will  find it  increasingly  attractive  to sell  their
practices to or affiliate with larger organizations, such as the Company.

    Managed care  arrangements may also favor the  consolidation of hearing care
practices.  Managed care organizations  contract with health care providers such
as the Company to provide  health care  services and products to their  members.
These organizations seek to establish relationships with providers whose offices
are  convenient  for the  organization's  members  and  that can  offer  quality
services and products at very  competitive  prices.  Managed care  organizations
also typically seek to shift some of the economic risk of providing  health care
to the provider of the care.  This shifting of risk is  accomplished in a number
of ways,  including capping fees, requiring discounted fees, or paying a set fee
per patient  irrespective  of the amount of care  delivered to that patient.  As
managed care  arrangements  become more  pervasive,  the Company  believes  that
hearing care  professionals  will have an even  greater need for the  geographic
reach, economies of scale,  information resources, and management expertise that
larger organizations such as the Company can provide.  However,  managed care is
not  presently a large part of the hearing care market and hearing care products
and  services are likely to continue to be provided  predominantly  on a private
pay basis for the next several years.

HEARING IMPAIRED POPULATION. The number of persons in the United States who have
hearing loss is estimated

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to be  approximately 28 million and the percentage of individuals with a hearing
loss relative to the general  population is  approximately 2% for those under 18
years of age, 5% for those between 18 and 44 years of age, 14% for those between
45 and 64 years of age,  23% for those  between 65 and 74 years of age,  and 32%
for those over 75 years of age. In addition,  the American Tinnitus  Association
estimates that approximately 12 million American adults have tinnitus (a ringing
sensation in the ears) that is severe enough to seek medical help.

    The Company believes that the widely recognized  demographic trend toward an
aging  population  will  increase  the demand for hearing  instrument  sales and
audiological  services and that the demand for hearing instruments that are less
visible  and for newer  and  superior  hearing  instrument  technology,  such as
digital and  programmable  hearing  instruments,  will also contribute to market
growth.  In addition,  the Company believes that some individuals  forgo hearing
care  because  of the  stigma of aging  that can be  associated  with  wearing a
hearing  instrument and that the demand for hearing instrument sales and hearing
care  services can be increased by marketing  and  education  designed to reduce
that stigma.

Hearing Health Care Industry Segments.  The hearing health care industry serving
patients  with  hearing and balance  disorders  is  comprised  of four  distinct
service segments:

    -    hearing   rehabilitation   services,   including  the   evaluation  and
         rehabilitation  of  persons  with  hearing   impairments  by  assessing
         communicative impairment and providing amplification;

    -    advanced  audio-diagnostic  services,  including  the  neuro-audiologic
         evaluation and non-medical diagnosis of hearing and balance disorders;

    -    industrial and  preventative  audiological  services,  including  noise
         level measurements, dosimetry, and hearing screenings; and

    -    otolaryngologic   services,   including   surgery  and  other   medical
         treatment.

    The Company's  hearing  centers  primarily  provide  hearing  rehabilitation
services,  which  include the  assessment  and  rehabilitation  of persons  with
hearing  impairments  through  the use of hearing  instruments  and  counseling.
Rehabilitation  services,  including  amplification  systems,  are  provided  by
audiologists and HISs. The services offered include the diagnostic  audiological
testing, fitting and dispensing of hearing instruments, follow-up rehabilitative
assistance,  the  sale  of  hearing  instrument  batteries,  hearing  instrument
repairs,  and the sale of swim plugs,  custom ear plugs, and assistive listening
devices.

    Advanced  audio-diagnostic  services  include the assessment and non-medical
treatment of vestibular  and balance  disorders  and the  evaluation of patients
with specific symptoms of an auditory or vestibular disorder,  including hearing
loss, tinnitus,  and balance problems. In order to make a differential diagnosis
of hearing  disorders,  an ear,  nose and throat  physician  may employ or refer
patients  to an  audiologist  to conduct  special  diagnostic  hearing  tests to
differentiate between conductive, sensory, and neural pathology. If the cause of
the hearing loss is a medical  disorder in either the nervous system (neural) or
the middle ear  (conductive),  the physician  proceeds  with medical  treatment.
However,  if a non-treatable  conductive or sensory loss is found, the physician
will generally refer the patient to an audiologist for rehabilitation.

GROWTH STRATEGY

    The  Company's  growth  strategy   involves   expanding  its  operations  by
selectively  acquiring  hearing  centers  located  in  existing  as  well as new
geographic  markets,  increasing  the number of  licensees  under the  Company's
franchise  licensing program,  and increasing the number of covered lives served
by the Company  under  managed care  contracts.  The Company  believes  that the
fragmented  nature of the hearing care  industry,  the absence of

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<PAGE>

industry-wide  standards,  and the inexperience and limited capital resources of
many  hearing  care  providers,  combine to provide an  opportunity  to build an
expanding  network of Company-owned and licensed hearing care centers devoted to
providing high-quality hearing health care services.

ACQUISITIONS.  The Company works to expand its network of Company-owned  centers
in each new market by initially  targeting for acquisition a significant hearing
care  practice  in order  to  secure a solid  foundation  upon  which to build a
regional  network of  audiology  practices.  The  Company  then seeks to acquire
additional  individual or group practices in order to realize economies of scale
in management, marketing, and administration.  Due to the contacts of management
with  audiologists  in the industry,  the Company is frequently  presented  with
opportunities to acquire hearing care centers. From August 1, 1996, to September
30, 2000, the Company acquired 122 centers, all located in the United States.

    The Company looks at the following  factors  before  acquiring  centers in a
particular  geographic  market:  (a)  population  size  and  distribution;   (b)
audiology  practice  density,  saturation  and  average  group  size;  (c) local
competitors;  (d) level of managed care penetration;  and (e) local industry and
economy. In acquiring particular centers within a geographic market, the Company
seeks centers with the following  characteristics:  (a) an  established  patient
base drawing from a substantial metropolitan population; (b) significant revenue
and  profitability  prior to  acquisition;  and (c)  above-average  potential to
enhance center profitability after acquisition.

    Prior to  acquiring  a hearing  care  center,  the  Company  conducts  a due
diligence  investigation of the center's  operations that includes an analytical
review of the center's financial  statements,  tax returns,  and other operating
data, a review of patient  files on a random  sample  basis,  a review of credit
reports,  contracts, bank deposits, and other documents and information that the
Company deems significant,  and the preparation of financial projections.  Based
on the information  collected and analyzed during the due diligence review,  the
Company determines an appropriate purchase price for the acquisition.

    The Company generally uses cash, promissory notes,  assumption of debt, or a
combination  of the  foregoing  to fund  acquisitions.  The amount paid for each
practice  varies on a  case-by-case  basis  according  to  historical  revenues,
projected   earnings  after  integration  into  the  Company,   and  transaction
structure.   In  connection  with  each   acquisition,   the  Company   acquires
substantially  all of the assets of the  practice,  including  its  audiological
equipment and supplies, office lease and improvements, and patient files. At the
time a practice is acquired,  the audiologists and hearing instrument dispensers
associated with the practice typically become employees of the Company.

    There can be no  assurance  that the  Company  will be able to  continue  to
complete  acquisitions  consistent  with its expansion  plans,  that such future
acquisitions will be on terms favorable to the Company, or that the Company will
be able to successfully integrate the hearing care centers that it acquires into
its business.  Successful  integration is dependent upon  maintaining  payor and
customer  relationships and converting the management information systems of the
centers the Company  acquires to the Company's  systems.  Significant  expansion
could place excessive strain on the Company's managerial and other resources and
could  necessitate  the  hiring  of  additional  managerial  and  administrative
personnel.  Unforeseen  problems with future  acquisitions  or failure to manage
expansion  effectively  may have a  material  adverse  effect  on the  business,
financial condition, and results of operations of the Company.

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THE  SONUS  NETWORK.  The  Sonus  Network  was  established  in  August  1998 to
complement  the Company's  internal  growth and  acquisition  strategy and allow
additional  national  growth  without  incurring  the  added  capital  costs and
management  resources necessary for Company-owned  centers.  There are currently
301 members of The Sonus Network representing 478 locations in 43 states and the
District of Columbia.  The Company  plans on adding 240 new  franchisees  in the
next fiscal year. Unlike many traditional  franchise systems, the Company allows
its  franchisees  maximum  flexibility  in the  day-to-day  operation  of  their
businesses,  including  the  extent to which the  franchisees  wish to adopt the
Sonus name and  trademarks.  The Company  believes that the primary  benefits of
joining the Sonus Network are reduced pricing on hearing instruments and related
products,  access  to  quality  marketing  materials  and  national  advertising
programs developed by Sonus, the ability to offer Sonus private-label  products,
and exclusive protected territories for franchisees. Additional benefits include
recruiting,  training,  and operational consulting services and on-line ordering
of hearing instruments and related products.

OPERATING STRATEGY

    The  Company's  operating  strategy  is to provide  its  patients  with high
quality and cost effective  hearing care products and services while at the same
time  increasing  its operating  margins by attracting  and retaining  patients,
recruiting qualified and productive  audiologists,  achieving economies of scale
and  administrative  efficiencies,  and  pursuing  large group and managed  care
contracts.

 ATTRACTING  AND RETAINING  PATIENTS.  The Company seeks to attract new patients
and retain existing patients at each center by providing patients with friendly,
comprehensive,   and  cost-effective   hearing  care  at  convenient  times  and
locations. In addition, by educating patients about hearing health issues and by
providing quality service during office visits and consistent  patient follow-up
and  support,  the Company  hopes to foster  patient  loyalty and  increase  the
likelihood of obtaining referrals and repeat visits for examinations and product
purchases.

RECRUITING QUALIFIED AND PRODUCTIVE  AUDIOLOGISTS.  Audiologists employed by the
Company  are  primarily  responsible  for  center  profitability  as well as for
attracting and retaining customers. The Company seeks to employ audiologists who
share the Company's goal of delivering high-quality hearing care service and who
are also dedicated to expanding and enhancing their  practices.  The Company has
developed an intensive six-week training course called the Greenhouse Program(R)
for its  audiologists  that  focuses  on  clinical  audiology  skills as well as
private practice business management.  Greenhouse participants are instructed by
some  of  the  hearing  health  industry's  most  accomplished  and  experienced
professionals.   The  Company  believes  that  the  Greenhouse   Program(R)  can
significantly  increase  employee  performance  and  improve  customer  service.
Greenhouse  Program(R)  graduates  consistently  rank  among the  Company's  top
performers.  The Company also believes that it can offer significant benefits to
private practice  audiologists by providing  assistance in administrative  tasks
associated with operating an audiology practice,  thereby allowing them to focus
on serving patients and increasing productivity.

ACHIEVING ECONOMIES OF SCALE AND ADMINISTRATIVE  EFFICIENCIES.  A key operating
strategy  of  the  Company  is to  achieve  increased  economies  of  scale  and
administrative efficiencies at each of its centers. When a center is acquired by
the Company, it immediately has available to it terms and discounts with hearing
instrument  manufacturers  that  are  generally  more  favorable  than it  could
negotiate independently.  In addition, the Company believes that by centralizing
certain  management and  administrative  functions  such as marketing,  billing,
collections,  human resources, risk management,  payroll, and general accounting
services, the profitability of a center can be improved by spreading the cost of
such  functions over a larger revenue base. The Company has developed an on-line
management  information  system that links the Company's  centers located in the
United  States with the  Company's  corporate  headquarters  in order to provide
management with the ability to collect and analyze center data, control overhead
expenses,  allow detailed  budgeting at the center level,  and permit  effective
resource management.

PURSUE LARGE GROUP AND MANAGED CARE  CONTRACTS.  Although the Company intends to
continue to aggressively

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pursue  private-payor  business  because  it is  presently  more  pervasive  and
profitable  than managed care business,  the Company  believes that by providing
comprehensive   geographic   coverage  in  a  particular   market   through  its
Company-owned and franchised centers and the over 1,400 audiologists  affiliated
with  its Hear PO  subsidiary,  it is well  positioned  to  offer  hearing  care
services to managed care group and corporate  health care  organizations in that
market.  Managed care arrangements  typically shift some of the economic risk of
providing  patient care from the person who pays for the care to the provider of
the care by  capping  fees,  requiring  reduced  fees,  or  paying a set fee per
patient  irrespective of the amount of care  delivered.  With respect to hearing
care, such limits could result in reduced  payments for services or restrictions
on the types of services for which  reimbursement  is available or the frequency
of  replacements  or upgrades of equipment.  At the present  time,  managed care
penetration  of the hearing  care market is limited.  However,  if managed  care
begins to play a larger  role in  hearing  care,  the  Company  plans to develop
information  systems  to  improve  productivity,  manage  complex  reimbursement
methodologies,  measure patient satisfaction and outcomes of care, and integrate
information from multiple sources.

    Many  third-party  insurers impose  restrictions  in their health  insurance
policies on the  frequency  with which  hearing  instruments  may be upgraded or
replaced on a reimbursable  basis.  Such  restrictions have a negative impact on
hearing  instrument  sales volume.  There can be no guarantee that such insurers
will not implement  other policy  restrictions in the future in order to further
minimize reimbursement for hearing care. Such restrictions could have a material
adverse effect on the Company's business,  financial  condition,  and results of
operations.

CENTER STAFFING AND FACILITIES

    Typically,  each  Company-owned  hearing center is staffed with at least one
audiologist  and one  patient  care  coordinator,  who  handles  scheduling  and
clerical  functions.  Where volume  warrants,  a center may also be staffed with
additional  audiologists,   hearing  instrument  dispensers,  and  patient  care
coordinators.  An  audiologist  employed  by the  Company has a masters or Ph.D.
degree in audiology.  The  audiologist is licensed by the  appropriate  state or
province  to  dispense  hearing  instruments  and is a  member  of the  American
Speech-Language   Hearing   Association   or   the   Canadian   Association   of
Speech/Language Pathologists and Audiologists.

    Each of the Company's  hearing centers  operates in leased space that ranges
in size from 800 to 3,000 square feet depending on patient volume and the extent
of services  provided by the center.  Centers generally have a reception seating
area, a reception work and filing area, an office for the audiologist or hearing
instrument   dispenser,   a  laboratory  for  hearing   instrument  repairs  and
modifications,  a  technology  demonstration  room  and an  evaluation  room.  A
properly equipped office offering only hearing rehabilitation  services requires
equipment  that costs  $50,000 to $75,000.  The cost of  equipment  for a center
offering  advanced  audio-diagnostic  services  is much  greater and ranges from
$225,000 to $250,000.

PRODUCTS AND SUPPLIERS

    The hearing  instrument  manufacturing  industry is highly  competitive with
approximately 40 manufacturers  serving the worldwide market.  Few manufacturers
offer significant  product  differentiation.  The Company currently  purchases a
large percentage of its hearing instruments from six primary manufacturers based
upon criteria that include quality,  price,  and service.  The Company uses four
top hearing  instrument  manufacturers to produce its Sonus Solution(TM) line of
private-label  digital  hearing  instruments.  Hearing  instruments in the Sonus
Solution(TM)  line come  with a  three-year  warranty,  a  three-year  supply of
batteries,  and a 75-day return policy. The Sonus Solution(TM) line is available
only  at  Company-owned  and  franchised  locations.   In  addition  to  hearing
instruments,  the  Company's  centers  also offer a limited  selection  of other
assistive listening devices and hearing instrument accessories.

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MARKETING

    The Company's marketing program is designed to help its hearing care centers
retain  existing  patients and expand the  services  they  receive,  attract new
patients, and develop contracts to serve large groups of patients.

    The Company  believes that patient  satisfaction is the key to retaining and
expanding  services  to  existing  patients.  The  Company  also  believes  that
delivering  comfortable,  high quality  hearing care at times and locations that
are convenient for the patient will motivate patients to return to the Company's
centers for their future  hearing care needs.  Educating  patients about hearing
health,  prescribing only necessary  hearing enhancing  products,  ensuring that
each  patient  leaves  a center  with a  future  visit  already  scheduled,  and
maintaining  consistent  patient  follow-up  and support are key elements of the
Company's plan to build patient loyalty and patronage.

    After a patient has  obtained a hearing  instrument,  ongoing  revenues  are
generated from battery purchases and routine maintenance of the instruments. The
Company  believes that repeat  revenues are  attributable  to the length of time
that a  center  has  been  established  and  the  effectiveness  of its  patient
retention programs.

    The Company  believes that the same aspects of the  Company's  approach that
earn the  loyalty of current  patients  will also  generate  new  patients.  The
Company's  new  patient  marketing  programs  are  designed  to help the Company
generate  referrals  from  physicians  and  existing  patients  and increase the
Company's  visibility  in the  community.  The  Company  seeks  to  foster  such
visibility  by  developing  marketing  materials  and  information  sources that
communicate the Company's  philosophy of high quality  patient-oriented  hearing
care.  In July 2000,  the Company  launched  its  first-ever  national  consumer
advertising campaign. The Company estimates that the campaign, which is expected
to continue  throughout the current fiscal year,  will reach  approximately  120
million people each quarter.  Advertisements will appear in publications such as
READER'S  DIGEST  (MATURE  SELECT),  READER'S  DIGEST  LARGE  EDITION FOR EASIER
READING,  NEW  CHOICES,  PARADE  MAGAZINE,  RX REMEDY,  SATURDAY  EVENING  POST,
ROTARIAN, KIWANIS, and THE LION.

    The  Company's  large  group  marketing  approach  is designed to enable the
Company to develop contacts with self-insured employers and with health plans in
the  metropolitan  areas it serves and  emphasizes the  convenience,  quality of
care, and wide range of services offered by the Company.  The economies of scale
available to the Company may also allow health plans and self-insured  employers
served by the  Company to reduce  administrative  burdens  they might  otherwise
face. The Company  believes that it is well  positioned to respond to challenges
presented by the growth of managed care arrangements as they arise.

COMPETITION

    The  hearing  care  industry  in the  United  States  and  Canada  is highly
fragmented  and intensely  competitive.  Many of the Company's  competitors  are
small  retailers  that  focus  primarily  on the  sale of  hearing  instruments.
However,  the Company also competes on a regional  basis with other  networks of
hearing care centers such as Hearx Ltd., Helix Hearing Care of America,  Newport
Audiology  Centers,  and American Hearing  Centers,  as well as with Beltone and
Miracle-Ear,  two large  manufacturers  of hearing  instruments  that distribute
directly to consumers through national networks of franchised  centers.  Beltone
and  Miracle-Ear  place a heavy  emphasis on advertising  and enjoy  significant
consumer brand name  recognition.  There can be no assurance that one or more of
these  competitors  will not seek to compete directly in the markets targeted by
the Company,  nor can there be any assurance that the largely fragmented hearing
care market cannot be  successfully  consolidated  by other companies or through
the establishment of co-operatives, alliances, confederations or the like.

    The Sonus Network  franchise program competes for members with buying groups
such as The Audiology  Co-Op and American  Hearing Aid Associates that have been
formed to provide small hearing  instrument  retailers with shared  economies of
scale.  The Sonus  Network  also  competes  for members to a lesser  extent with
mature franchise systems such as Beltone and Miracle-Ear.

                                       8
<PAGE>

REGULATION

    The sale of hearing  instrument devices is regulated at the federal level in
the United  States by the United  States Food and Drug  Administration  ("FDA"),
which has been granted  broad  authority to regulate the hearing care  industry.
Under federal law, hearing  instruments may only be sold to individuals who have
first obtained a medical evaluation from a licensed physician,  although a fully
informed adult may waive a medical evaluation in certain instances.  Regulations
promulgated  by the FDA  also  presently  require  that  dispensers  of  hearing
instruments  provide  customers with certain  warning  statements and notices in
connection  with the sale of hearing  instruments and that such sales be made in
compliance with certain labeling requirements.

    Most  states  in the  United  States  and  many  provinces  in  Canada  have
established  formal  licensing  procedures  that  require the  certification  of
audiologists   and/or  HISs.   Although  the  extent  of  regulation  varies  by
jurisdiction, almost all states and provinces engage in some degree of oversight
of the  industry.  The Company  operates its hearing  care  centers  through its
wholly owned  subsidiaries,  Sonus-USA,  Sonus-Texas,  and  Sonus-Canada.  These
subsidiary  corporations  employ  licensed  audiologists  and HISs who offer and
perform  audiology  services and dispense  hearing  instruments on behalf of the
Company.

    In  certain  states in the  United  States,  business  corporations  such as
Sonus-USA  may not be  authorized  to employ  audiologists  and offer  audiology
services.  For example,  in California,  where the Company  operates a number of
centers,   although  the  performance  of  audiology  services  by  professional
corporations owned solely by licensed audiologists is expressly authorized under
California  law, it is unclear  whether general  business  corporations  such as
Sonus-USA  may  employ  licensed  audiologists  to perform  audiology  services.
However,  the  California  Department  of  Consumer  Affairs  has  indicated  by
memorandum that speech-language pathologists, which are regulated under statutes
and  regulations  similar to those  governing  audiologists,  may  practice in a
general business corporation and that a general business corporation may provide
speech-language  pathology  services  through licensed speech  pathologists.  In
Illinois,  where the  Company  also  operates  a number of  centers,  it is also
unclear whether general business  corporations may employ licensed  audiologists
to  perform   audiology   services.   Under  Illinois  law,  only   professional
corporations  and  individuals  are  authorized  to obtain  licenses to practice
audiology.

    The laws and regulations governing the practice of audiology are enforced by
regulatory  agencies with broad  discretion.  If the Company were found to be in
violation of such laws and regulations in one or more states,  the  consequences
could include the  imposition  of fines and  penalties  upon the Company and its
audiologists  as well as the  issuance of orders  prohibiting  the Company  from
operating  its centers  under its present  structure.  In that event,  among the
solutions  the Company might  consider  would be the  restructuring  of all or a
portion of its  operations in a manner  similar to that used by certain  medical
and dental center networks.  Under such a structure,  professional  corporations
owned by  licensed  audiologists  would  contract  with the  Company  to perform
professional  services  and the Company  would  contract  with the  professional
corporations to provide management services.

    No assurance can be given that the Company's  activities will be found to be
in compliance  with laws and  regulations  governing  the corporate  practice of
audiology or, if its  activities  are not in  compliance,  that the  operational
structure of the Company can be modified to permit compliance.  In addition,  no
assurance  can be given  that other  states or  provinces  in which the  Company
presently  operates will not enact  prohibitions  on the  corporate  practice of
audiology or that the  regulatory  framework of certain  jurisdictions  will not
limit the  ability  of the  Company  to expand  into such  jurisdictions  if the
Company  is unable to  modify  its  operational  structure  to comply  with such
prohibitions or to conform with such regulatory  framework.  Additional laws and
regulations  may be adopted in the future at the  federal,  state,  or  province
level  that  could have a material  adverse  effect on the  business,  financial
condition, and results of operations of the Company.

     A portion of the  revenues  of the  hearing  care  centers  operated by the
Company  comes from  Medicare and Medicaid  programs.  Federal law prohibits the
offer,  payment,  solicitation  or receipt of any form of remuneration

                                       9
<PAGE>


in return for, or in order to induce, (i) the referral of a Medicare or Medicaid
patient,  (ii)  the  furnishing  or  arranging  for the  furnishing  of items or
services reimbursable under Medicare or Medicaid programs or (iii) the purchase,
lease or order of any item or service  reimbursable  under Medicare or Medicaid.
Noncompliance with the federal anti-kickback legislation can result in exclusion
from Medicare and Medicaid programs and civil and criminal penalties.

    Because of its franchise licensing program,  The Sonus Network,  the Company
is  subject  to  state  and  federal  regulation  of  franchising.  Much of this
regulation  involves providing detailed  disclosure to a prospective  franchisee
and periodic registration by the franchisor with state administrative  agencies.
Additionally, some states have enacted, and others have considered,  legislation
that governs the  termination or non-renewal of a franchise  agreement and other
aspects of the  franchise  relationship.  The United  States  Congress  has also
considered legislation of this nature. The Company believes that it has complied
with all applicable franchise laws and regulations.

PRODUCT AND PROFESSIONAL LIABILITY; PRODUCT RETURNS

    In the  ordinary  course of its  business,  the  Company  may be  subject to
product and  professional  liability  claims alleging the failure of, or adverse
effects  claimed to have been caused by,  products sold or services  provided by
the Company. The Company maintains insurance against such claims at a level that
the Company believes is adequate.  A customer may return a hearing instrument to
the Company and obtain a full refund up to 60 days (75 days for certain  models)
after  the  date of  purchase.  In  general,  the  Company  can  return  hearing
instruments  returned  by  customers  within  the return  period  allowed by the
Company to the manufacturer for a full refund.

EMPLOYEES

    At  October  1,  2000,  the  Company  had  290  full-time  and 96  part-time
employees,  of which  104 are  audiologists  or  hearing  instrument  dispensers
practicing  full time and 42 are  practicing  part-time.  None of the  Company's
employees are  represented  by a labor union.  Management  believes it maintains
good relationships with its employees.

SERVICE AND ENFORCEMENT OF LEGAL PROCESS

    The Company is incorporated  under the laws of Yukon Territory,  Canada. One
of the  Company's  directors is a resident of Canada and all or a portion of the
assets of such  director  and of the Company  are located  outside of the United
States. As a result, it may be difficult for holders of the Company's securities
to effect service within the United States upon a director who is not a resident
of the United  States,  or to realize in the United  States  upon  judgments  of
courts of the United States  predicated upon the civil  liability  provisions of
the United States federal  securities  laws to the extent such judgments  exceed
such person's United States assets.  There is doubt as to the  enforceability in
Canada against the Company or against any of its directors who are not residents
of the United  States,  in  original  actions or in actions for  enforcement  of
judgments of United States courts, of liabilities  predicated solely upon United
States federal  securities  laws. The Company's  agent for service of process in
the United States is MN Service Corp.  (Oregon),  111 S.W.  Fifth Avenue,  Suite
3500, Portland, Oregon 97204, telephone (503) 224-5858.

                                       10
<PAGE>

                                    PART III

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

DIRECTORS AND EXECUTIVE OFFICERS

    The following table sets forth  information with respect to each director of
the Company,  including their names,  municipality of residence,  ages, business
experience  during the past five years,  and year of  appointment as a director.
Joel Ackerman was appointed to the Board of Directors in December 1997,  Haywood
D. Cochrane, Jr., was nominated for election at the 1998 annual general meeting,
and David J.  Wenstrup was  appointed to the Board of Directors in October 1999,
in each case at the  request  of  Warburg,  Pincus  Ventures,  L.P.  See Item 12
"Certain   Relationships  and  Related   Transactions."   There  are  no  family
relationships among the Company's  directors or officers.  The Company has three
executive  officers,  Brandon M. Dawson,  Gregory J. Frazer, and Scott E. Klein,
who are directors.
<TABLE>

Name and                                                                                  Director
Municipality of Residence           Age     Principal Occupation(*)                          Since
-------------------------           ---     --------------------                             -----

<S>                                 <C>                                                      <C>
Joel Ackerman                       36      Managing Director of E. M. Warburg,              1997
 New York, New York                         Pincus & Co., LLC, a specialized
                                            financial services organization.

Haywood D. Cochrane, Jr.            52      Chief Executive Officer                          1998
 Nashville, Tennessee                       and a director of CHD Meridian
                                            Healthcare, Inc., a specialized medical
                                            management company.

Leslie H. Cross                     49      President and Chief Executive Officer            2000
 Del Mar, California                        and a director of dj Orthopedics,
                                            LLC, a manufacturer  and distributor
                                            of  orthopedic  and   sports-related
                                            products.

Brandon M. Dawson                   32      Chairman and Chief Executive Officer             1995
 Happy Valley, Oregon                       of the Company.

Gregory J. Frazer, Ph.D.            48      Vice President-Business Development              1996
 Glendale, California                       of the Company

Hugh T. Hornibrook                  51      Acquisition consultant.                          1996
 Vancouver, British Columbia

Scott E. Klein             .        43      President and Chief Operating Officer            1999
 Clackamas, Oregon                          of the Company.

David J. Wenstrup                   36      Vice President of E.M. Warburg,                  1999
 New York, New York                         Pincus & Co., LLC, a specialized
                                            financial services organization.
-------------------------
</TABLE>

                                       11
<PAGE>

 (*)     During the past five years, the principal  occupation and employment of
         each  director  has been in the  capacity  set  forth  above  except as
         follows:

   (a)   Mr.  Ackerman has been  employed by E. M.  Warburg,  Pincus & Co., LLC,
         since 1993. Mr. Ackerman is a director of Phycor, Inc.

   (b)   Mr.  Cochrane has held his present  position  since January 2000,  when
         Corporate Health Dimensions merged with Meridian Corporate  Healthcare,
         Inc., where he was President and Chief Executive Officer since February
         1997. He was Executive  Vice  President,  Chief  Financial  Officer and
         Treasurer  of  Laboratory   Corporation  of  America   Holdings,   Inc.
         ("LabCorp"),  from  April 1995 to  November  1996 and a  consultant  to
         LabCorp from November 1996 until February 1997. From June 1994 to April
         1995,  Mr.  Cochrane was an employee of National  Health  Laboratories,
         Inc.   ("NHL"),   following   NHL's   acquisition  of  Allied  Clinical
         Laboratories,  Inc.  ("Allied").  Mr.  Cochrane was President and Chief
         Executive  Officer  of  Allied  from its  formation  in 1989  until its
         acquisition  by NHL in June 1994.  NHL was acquired by LabCorp in April
         1995. Mr. Cochrane is a director of JDN Realty  Corporation and TriPath
         Imaging, Inc.

   (c)   Mr.  Cross  has  served  as  President  of  dj   Orthopedics,   LLC,  a
         manufacturer and distributor of orthopedic and sports-related products,
         since July 1995 and as Chief Executive Officer since June 1999.

   (d)   Mr.  Dawson  served as  President  and Chief  Executive  Officer of the
         Company  from  December  1995 to June 1999.  From May 1992 to  December
         1995, he was director of U.S. sales for Starkey  Laboratories,  Inc., a
         multi-national   manufacturer,   distributor  and  marketer  of  custom
         "in-the-ear"  hearing  instruments  and related  hearing and diagnostic
         equipment.

   (e)   Mr.  Frazer has served as Vice  President-Business  Development  of the
         Company  since  October  1996,  when the Company  acquired 11 audiology
         based hearing centers that were among 22 clinics in Southern California
         of which Mr. Frazer was part owner and operator.  The Company has since
         acquired  nine of the  remaining 11 clinics.  Mr.  Frazer has spent his
         entire  career as a  hearing  care  professional  since  receiving  his
         doctoral degree from Wayne State School of Medicine in 1981.

   (f)   Mr.  Hornibrook served as Vice  President-Corporate  Development of the
         Company  from April 1996 until  January  1997.  From July 1994 to April
         1996,  and since  January  1997,  he has been an  independent  business
         consultant.  Prior to July 1994, Mr.  Hornibrook  served as director of
         corporate  development  for The Loewen Group Inc., a  consolidator  and
         operator of funeral homes and cemeteries throughout North America.

   (g)   Mr. Klein has served as President  and Chief  Operating  Officer of the
         Company  since June 1999 and was  Executive  Vice  President  and Chief
         Operating Officer from November 1998 to June 1999. Mr. Klein was Senior
         Vice President of Operations (Eastern Zone) of Hollywood  Entertainment
         Corporation from April 1997 to October 1998. He previously held various
         senior  management  positions,  including  Senior Vice President of the
         Retail  Division,  at  NordicTrack,  Inc., from August 1993 until April
         1997.

   (h)   Mr.  Wenstrup has been  employed by E.M.  Warburg,  Pincus & Co.,  LLC,
         since  1997.  From  August  1991 to May 1997,  Mr.  Wenstrup  served in
         various  positions at The Boston  Consulting  Group,  Inc., a strategic
         management consulting company.

                                       12
<PAGE>

OTHER EXECUTIVE OFFICERS

    Paul C.  Campbell,  age 45, has served as Senior  Vice  President  and Chief
Financial  Officer of the Company since February  2000.  Mr.  Campbell was Chief
Financial Officer of Famous Dave's of America,  Inc., an operator and franchisor
of full-service and counter-style restaurants located in Minneapolis, Minnesota,
from October 1999 to February 2000. From July 1995 to October 1999, Mr. Campbell
was Senior Vice President and Chief Financial Officer of Cucina!  Cucina!, Inc.,
a  restaurant  chain  headquartered  in Seattle,  Washington.  He served as Vice
President, Financial Planning, Administration,  Investor Relations, & Accounting
of Checkers Drive-In  Restaurants,  Inc., located in Clearwater,  Florida,  from
January 1993 until July 1995 and as Vice President and Chief  Financial  Officer
from March 1990 to January 1993.

    Randall E. Drullinger, age 37, has served as Vice President of Operations of
the Company since January 2000 and was Director of Operations from November 1998
to January  2000.  From April 1996 to November  1998,  Mr.  Drullinger  was Vice
President of Marketing  of the Company.  From August 1990 to April 1996,  he was
director  of  financial  management  services  at  Starkey  Laboratories,  Inc.,
Minneapolis, Minnesota.

    Daniel W.  Quall,  age 44,  has served as Vice  President  of Network of the
Company since April 2000 and was Vice  President of Education  and  Professional
Development  from January 2000 to April 2000. He was Director of Education  from
April 1998 to January 2000. Mr. Quall has also served since 1980 as President of
Western Hearing Aid Co., Inc., doing business as Earcare, an audiology clinic in
Longview, Washington.

    Nancy E. Sayles,  age 50, has served as Vice President of Human Resources of
the Company since April 2000 and was Director of Human  Resources  from February
2000 to March  2000 and  from  March  1997 to April  1999.  From  April  1999 to
December  1999, she was Senior  Manager of Human  Resources at Concentrix,  Inc.
located in  Portland,  Oregon,  and was  Director of Human  Resources at Lewis &
Clark College in Portland, Oregon from May 1990 until March 1997.

    Jeffry S. Weiss,  age 43, has served as Vice President and Chief  Technology
Officer of the  Company  since  January  2000 and was  Director  of  Information
Technology  since  March  1999.  Prior to joining  the  Company,  Mr.  Weiss was
Director of Technology  for Platt Electric  Supply located in Portland,  Oregon,
from March 1997 to March 1999 and also  served as  Director  of  Technology  for
Rodda Paint & Decor in Portland, Oregon, from February 1989 to March 1997.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

    Section  16(a) of the  Securities  Exchange  Act of 1934  ("Section  16(a)")
requires  that reports of  beneficial  ownership of Common Shares and changes in
such  ownership  be  filed  with  the  Securities  and  Exchange  Commission  by
"reporting  persons,"  including  directors,  executive  officers,  and  certain
holders of more than 10% of the  outstanding  Common  Shares.  To the  Company's
knowledge,   all  Section  16(a)  reporting  requirements  applicable  to  known
reporting  persons were complied with for transactions and stock holdings during
the fiscal year ended July 31, 2000.

ITEM 10. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

    The  following  table sets forth for the years  indicated  the  compensation
awarded or paid to, or earned by, the Company's chief executive  officer and the
Company's other  executive  officers whose salary level and bonus for the fiscal
year ended July 31, 2000, exceeded $100,000.

                                       13
<PAGE>
<TABLE>

                                                                            Long-Term
                                                                          Compensation

                                                                               Awards
                                                                       -----------------------
                                            Annual Compensation         Number of Shares         All Other
                                            -------------------
Name and Principal Position      Year(1)       Salary      Bonus       Underlying Options   Compensation (2)
---------------------------      -------       ------      -----       ------------------   ----------------
<S>                                <C>         <C>                                                 <C>
Brandon M. Dawson                  2000       $195,000       ---               ---                $20,000
 Chairman and Chief                1999        195,000       ---               ---                 20,000
 Executive Officer                 1998        167,917       ---              530,000               ---


Scott E. Klein                     2000        175,000     $21,875             ---                  ---
 President and Chief               1999        127,885      65,625            375,000               ---
 Operating Officer

Jeffry S. Weiss                    2000         91,459      10,000            100,000 (3)           ---
 Vice President and                1999         31,058      ---                50,000 (3)           ---
 Chief Technology Officer

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

(1)      Mr. Klein joined the Company in November  1998 and Mr. Weiss joined the
         Company in March 1999.

(2)      Represents  the premiums  paid by the Company for a  split-dollar  life
         insurance  policy  for  Mr.  Dawson.  See  "Employment  and  Consulting
         Agreements."

(3)      In July 2000,  the  Company  granted  Mr.  Weiss an option to  purchase
         50,000  Common  Shares at $4.00 per share and 50,000  Common  Shares at
         $5.00 per  share.  The grant of the  option  was  conditioned  upon the
         cancellation of an option to purchase 50,000 Common Shares at $5.88 per
         share that was granted to Mr. Weiss in March 1999.

OPTION GRANTS

    During  the fiscal  year ended July 31,  2000,  the  Company  granted  stock
options to employees and directors  under its Second  Amended and Restated Stock
Award Plan (the "Stock Award  Plan").  Options are granted at the  discretion of
the Board of Directors. The options are not transferable or assignable.

    The following  table sets forth  certain  information  concerning  grants of
options to purchase Common Shares to individuals who were directors or executive
officers of the Company during the fiscal year ended July 31, 2000:

                                       14
<PAGE>
<TABLE>

                        OPTION GRANTS IN LAST FISCAL YEAR

                                Individual Grants

  -------------------------------------------------------------------------------------------------------
                                                 Percentage
                                                 of Total
                                  Number of      Options
                                  Shares         Granted to
                                  Underlying     Employees in   Exercise
                                  Options        Fiscal         Price       Price Range    Expiration
              Name                Granted        Year           ($/share)   of Shares (6)  Date
              ----                ------------   -------------- ----------  -------------  ----
<S>                                <C>               <C>          <C>        <C>   <C>       <C>
  Joel Ackerman...............         --             --            --           --             --
  Paul C. Campbell............     200,000(1)        26.0%        $4.00      $4.50-3.25      02/11/10
  Haywood D. Cochrane, Jr.....         --             --            --           --             --
  Leslie H. Cross.............      50,000(2)        6.5%          4.00      3.75-3.625      01/01/10
  Brandon M. Dawson...........         --             --            --           --             --
  Randall E. Drullinger.......         --             --            --           --             --
  Gregory J. Frazer, Ph.D.....         --             --            --           --             --
  Hugh T. Hornibrook..........         --             --            --           --             --
  Edwin J. Kawasaki...........         --             --            --           --             --
  Scott E. Klein..............         --             --            --           --             --
  Larry J. Myers..............         --             --            --           --             --
  Daniel W. Quall.............       5,000(3)        0.7%          5.88      4.375-4.063     08/01/09
                                    40,000(3)        5.2%          5.88      3.75-3.625      01/01/10
                                     5,000(4)        0.7%          5.88       3.25-2.75      07/11/10
  Nancy E. Sayles.............      30,000(3)        3.9%          5.88      4.50-3.375      02/21/10
                                    20,000(3)        2.6%          5.88       5.50-4.00      04/04/10
  Jeffry S. Weiss.............      50,000(5)        6.5%          5.00       3.25-2.75      07/11/10
                                    50,000(5)        6.5%          4.00       3.25-2.75      07/11/10
  David J. Wenstrup...........         --             --            --           --             --
-----------------
</TABLE>

(1) Exercisable as to 50,000 Common Shares  immediately  following  grant and an
    additional  50,000 Common Shares on each  anniversary  of the date of grant.
    The options will become  exercisable in full in the event that,  following a
    change in control of the Company, Mr. Campbell's employment is terminated by
    the Company without cause,  or he experiences a material  demotion in status
    or position or a material change in his duties that is inconsistent with his
    position at the Company, his base salary is reduced, or his participation in
    the Company's compensation plans is not continued on a level comparable with
    other key  executives.  A change in control of the Company will be deemed to
    occur if (i) a person  acquires  beneficial  ownership of 50% or more of the
    combined  voting power of the Company,  with  certain  exceptions,  (ii) the
    incumbent  directors  (or nominees  approved by a majority of the  incumbent
    directors, including subsequently approved directors) cease to constitute at
    least a majority of the directors of the Company, or (iii) a reorganization,
    merger,  or consolidation or sale of all or substantially  all the assets of
    the Company, with certain exceptions, is consummated.

(2) Vests in three equal annual  installments  beginning one year  following the
    date of grant.

(3) Vests in five equal annual  installments  beginning  one year  following the
    date of grant.

(4) Exercisable in full.

                                       15
<PAGE>

(5)  Exercisable as to 10,000 Common Shares  immediately  following grant and an
     additional 10,000 Common Shares annually beginning March 10, 2001.

(6)  Represents  the high and low per share sale prices of the Common  Shares on
     the American Stock Exchange ("AMEX") during the 30-day period preceding the
     date of the option grant.

OPTION EXERCISES AND FISCAL YEAR-END VALUES

     The  following  table  sets  forth  certain  information  regarding  option
exercises  during the fiscal year ended July 31, 2000,  and the fiscal  year-end
value of unexercised options held by individuals who were directors or executive
officers of the Company during the 2000 fiscal year:
<TABLE>

                  AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

                                                           Number of Securities             Value of Unexercised
                                Shares                  Underlying Unexercised           In-the-Money Options at
                               Acquired                   Options at July 31, 2000           July 31, 2000(1)
                                  on         Value      ----------------------------     --------------------------
            Name                Exercise   Realized    Exercisable     Unexercisable    Exercisable     Unexercisable
            ----                --------   --------    -----------     -------------    -----------     -------------
<S>                                                        <C>             <C>            <C>
Joel Ackerman..............       ---         ---          ---              ---             ---              ---
Paul C. Campbell...........       ---         ---           50,000         150,000          ---              ---
Haywood D. Cochrane Jr.....       ---         ---           16,666          33,334          ---              ---
Leslie H. Cross............       ---         ---          ---              50,000          ---              ---
Brandon M. Dawson..........       ---         ---          287,500         227,500        $118,200           ---
William DeJong.............       ---         ---           40,000          ---             ---              ---
Randall E. Drullinger......       ---         ---           80,000          40,000          ---              ---
Gregory J. Frazer, Ph.D....       ---         ---           80,000          ---             ---              ---
Hugh T. Hornibrook.........       ---         ---           65,000          ---             ---              ---
Edwin J. Kawasaki..........       ---         ---          ---              ---             ---              ---
Scott E. Klein.............       ---         ---          176,787         198,213          ---              ---
Larry J. Myers.............       ---         ---          140,000          ---             ---              ---
Daniel W. Quall............       ---         ---            5,000          45,000          ---              ---
Nancy E. Sayles............       ---         ---          ---              50,000          ---              ---
Jeffry S. Weiss............       ---         ---           20,000          80,000          ---              ---
David J. Wenstrup..........       ---         ---          ---              ---             ---              ---

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

(1)      The value shown was calculated  based on the excess of the closing sale
         price of the Common Shares  reported on AMEX on July 31, 2000, over the
         per share exercise price of the unexercised in-the-money options.

                                       16
<PAGE>

OPTION REPRICING

    The following table sets forth certain  information  regarding  repricing of
stock  options held by any executive  officer of the Company  during the last 10
fiscal years.
<TABLE>

                                                10-YEAR OPTION REPRICINGS

                                          Number of
                                          Securities    Market Price     Exercise
                                          Underlying    of Stock at      Price at                 Length of Original
                                           Options        Time of         Time of       New       Term Remaining at
                                         Repriced or    Repricing or   Repricing or   Exercise    Date of Repricing
            Name                Date       Amended       Amendment       Amendment      Price        or Amendment
            ----                ----       -------       ---------       ---------      -----        ------------
<S>                <C>         <C>  <C>     <C>            <C>             <C>          <C>           <C>
Hugh T. Hornibrook (1)....     6-26-98      40,000         $7.25           $9.25        $7.25         2.75 years
Daniel W. Quall (2).......     7-11-00       5,000         $3.00           $7.25        $5.88          8 years
Jeffry S. Weiss (3).......     7-11-00      50,000         $3.00           $5.88        $5.00          9 years

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

(1) Mr. Hornibrook served as Vice President-Corporate Development of the Company
    from April 1996 until January 1997.

(2) Mr. Quall is Vice President of Network of the Company.

(3) Mr. Weiss is Vice President and Chief Technology Officer of the Company.

EMPLOYMENT AND CONSULTING AGREEMENTS

    In late 1997, the Company entered into an employment  agreement with Brandon
M. Dawson, its Chairman and Chief Executive  Officer.  The term of the agreement
expires on December 24, 2001, subject to automatic one-year  extensions annually
unless either party gives six months' prior written notice of non-extension. The
agreement  establishes  an annual  base  salary  of  $195,000,  subject  to such
increases (but not  decreases) as are determined  from time to time by the Board
of Directors or a compensation  committee  designated by the Board of Directors.
The  agreement  provides  for an  annual  incentive  bonus  in an  amount  to be
determined  by the Board of  Directors up to 100% of Mr.  Dawson's  base salary.
Under  the  agreement,  Mr.  Dawson is  entitled  to  participate  in all of the
Company's compensation plans covering key executive and managerial employees, as
well as reimbursement for the lease of an automobile up to $12,000 per year. The
Company has also provided Mr. Dawson with an equity  split-dollar life insurance
policy with a face amount of $2,000,000,  provided that the premiums paid by the
Company  per year  will not  exceed  $20,000,  to be  recovered  from the  death
benefits, surrender value or loan proceeds payable on the policy.

    The employment agreement includes an agreement on the part of Mr. Dawson not
to compete  with the Company  for a period of three  years after his  employment
with the Company is  terminated.  If Mr.  Dawson's  employment  is terminated by
reason of death,  the Company will pay to his personal  representative  his base
salary through the date of death,  together with any accrued benefits (including
death  benefits)  to which  he is  entitled  under  the  terms of the  Company's
compensation plans. In the event of Mr. Dawson's  termination due to disability,
he will be  entitled to receive his base  salary  reduced by any  benefits  paid
under the Company's group long-term  disability insurance plan for the remaining
term of the agreement and the portion of his annual bonus relating to the period
before his disability.  If Mr. Dawson's  employment is terminated by the Company
for "cause" or he terminates his employment  voluntarily  without "good reason,"
the Company will pay his base salary through the effective date of

                                       17
<PAGE>

termination,  together with any accrued  benefits to which he is entitled  under
the terms of the Company's  compensation plans. Cause includes a material act of
fraud,   dishonesty  or  moral   turpitude,   gross  negligence  or  intentional
misconduct.  Good reason includes a material  demotion in Mr. Dawson's status or
position,  a  material  change  in his  duties  that is  inconsistent  with  his
position,  a  reduction  in his  base  salary,  or a  failure  to  continue  his
participation in the Company's  compensation  plans on terms comparable to other
key executives.  If Mr. Dawson's employment is terminated by the Company without
cause or by Mr.  Dawson with good  reason,  the Company will pay his base salary
through the termination date, plus an amount of severance pay equal to two times
the sum of his base salary and his average annual bonus for the prior two fiscal
years payable in 24 monthly  installments.  In addition,  upon such  termination
without  cause  or  with  good  reason,   the  Company  will  afford   continued
participation  in the Company's  compensation  plans (or, if not permitted under
the general provisions of any such plan, will provide a substantially equivalent
benefit) for two additional years.

    Effective November 1, 1998, the Company entered into a four-year  employment
agreement with Scott E. Klein,  its President and Chief Operating  Officer.  The
agreement  establishes  an annual  base  salary  of  $175,000,  subject  to such
increases (but not  decreases) as are determined  from time to time by the Board
of Directors or a compensation  committee  designated by the Board of Directors.
The agreement provides for an initial bonus of $87,500 for services performed in
the fiscal year ended July 31, 1999, and an annual incentive bonus thereafter in
an amount to be  determined  by the Board of Directors up to 50% of Mr.  Klein's
base salary. Under the agreement, Mr. Klein is entitled to participate in all of
the  Company's   compensation   plans  covering  key  executive  and  managerial
employees.

    The employment  agreement includes an agreement on the part of Mr. Klein not
to compete with the Company for a period of one year after his  employment  with
the Company is terminated.  If Mr. Klein's employment is terminated by reason of
death,  the  Company  will pay to his  personal  representative  his base salary
through the date of death,  together with any accrued benefits  (including death
benefits) to which he is entitled under the terms of the Company's  compensation
plans.  In the event of Mr. Klein's  termination  due to disability,  he will be
entitled  to receive  his base  salary  reduced by any  benefits  paid under the
Company's  group long-term  disability  insurance plan for the remaining term of
the agreement.  If Mr. Klein's employment is terminated by the Company for cause
or he terminates his  employment  voluntarily  without good reason,  the Company
will pay his base salary  through the effective  date of  termination,  together
with any  accrued  benefits  to  which he is  entitled  under  the  terms of the
Company's compensation plans. Cause includes a material act of fraud, dishonesty
or moral  turpitude,  gross  negligence or intentional  misconduct.  Good reason
includes a material  demotion  in Mr.  Klein's  status or  position,  a material
change in his duties that is inconsistent with his position,  a reduction in his
base  salary,  or a failure  to  continue  his  participation  in the  Company's
compensation  plans on terms comparable to other key executives.  If Mr. Klein's
employment is terminated by the Company  without cause or by Mr. Klein with good
reason,  the Company will pay his base salary through the termination date, plus
an amount of severance pay equal to his base salary.

    Effective  January 1, 1997, the Company entered into a five-year  consulting
agreement with Hugh T.  Hornibrook,  a director of the Company,  under which the
Company  pays Mr.  Hornibrook a retainer of $65.34 per month and $81.67 per hour
for  consulting  services on an  as-needed  basis.  The total amount paid to Mr.
Hornibrook in fiscal 2000 was $784.06.

COMPENSATION OF DIRECTORS

    The  non-employee  directors of the Company receive a fee of $1,000 for each
board or committee  meeting  attended and are reimbursed for  out-of-pocket  and
travel expenses incurred in attending board and committee meetings.  The Company
has no other standard arrangement pursuant to which directors are compensated by
the Company for their services in their  capacity as directors.  The Company may
from time to time,  as it has in the past,  grant stock  options to directors in
accordance  with the policies of AMEX, the  Securities and Exchange  Commission,
and the securities laws and regulations of the jurisdictions where the directors
reside.  Options  granted  during the 2000 fiscal year are included in the table
under "Option Grants" above.

                                       18
<PAGE>

DIRECTORS AND OFFICERS LIABILITY INSURANCE COVERAGE

    The Company  maintains  insurance  for the  protection  of its directors and
officers against liabilities  incurred in such capacity with a coverage limit of
$2,000,000,  subject to a deductible  of $50,000 per claim.  The premium paid by
the Company for the annual policy period ended October 31, 2000, was $45,000 for
the directors and officers as a group.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

BENEFICIAL OWNERSHIP TABLE

    The following table gives information  regarding the beneficial ownership of
Common  Shares as of October 31, 2000, by each of the  Company's  directors,  by
certain  of the  Company's  executive  officers,  and by the  Company's  present
directors and executive officers as a group. In addition,  it gives information,
including addresses,  regarding each person or group known to the Company to own
beneficially more than 5% of the outstanding  Common Shares,  Series A Shares or
Series B Shares.  Information as to beneficial  stock ownership is based on data
furnished  by the persons  concerning  whom such  information  is given.  Unless
otherwise indicated,  all shares listed as beneficially owned are held with sole
voting and investment  power.  The numbers in the table include Common Shares as
to which a person  has the right to acquire  beneficial  ownership  through  the
exercise or conversion of options,  purchase warrants or convertible  securities
within 60 days after October 31, 2000.

                                       19
<PAGE>

                                                   Class or      Amount and Nature      % of
               Name and Address                    Series of      of "Beneficial        Common      % of Series of
              of Beneficial Owner                   Shares          Ownership"        Shares(1)(2)  Preferred Shares
---------------------------------------------------------------------------------------------------------------------
     <S>                                            <C>             <C>                   <C>               <C>
     Joel Ackerman (5)......................          ---               ---               ---               ---
     Haywood D. Cochrane, Jr................          ---              16,666              *                ---
     Leslie H. Cross........................        Common             84,598              1.4%             ---
     Brandon M. Dawson......................        Common          1,152,500             18.1%             ---
     111 S.W. Fifth Ave., Ste. 1620
     Portland, Oregon 97204
     Gregory J. Frazer, Ph.D................        Common            380,631(3)           6.1%             ---
     18531 Roscoe Blvd., Ste. 201
     Northridge, California 91324
     Hugh T. Hornibrook.....................        Common             65,000              1.0%             ---
     Scott E. Klein.........................        Common            198,811              3.2%             ---
     RS Investment Management Co. (4).......        Common          1,107,800(4)          18.2%             ---
     388 Market  Street, Ste. 200
     San Francisco, California 94111
     Warburg, Pincus & Co. (5)..............        Common          8,389,041(5)          57.9%             ---
     466 Lexington Avenue                          Series A         2,666,666(5)          ---               100%
     New York, New York 10017                      Series B         2,500,000(5)          ---               100%
     Jeffry S. Weiss........................        Common             20,000              *                ---
     David J. Wenstrup......................          ---               ---               ---               ---
     All present directors and executive....        Common          2,054,206(3)          29.7%             ---
     officers as a group (13 persons)
</TABLE>

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

* Less than 1% of the outstanding Common Shares.

    (1) "Beneficial ownership" is calculated in accordance with Rule 13d-3(d)(1)
under the Securities Exchange Act of 1934, pursuant to which Common Shares as to
which a person  has the  right  to  acquire  beneficial  ownership  through  the
exercise or conversion of options,  purchase warrants or convertible  securities
within 60 days after October 31, 2000, have been included in shares deemed to be
outstanding for purposes of computing percentage ownership by such person.

    (2) "Beneficial  ownership"  includes Common Shares that the person has the
right to acquire  through  the  exercise  or  conversion  of  options,  purchase
warrants or  convertible  securities  within 60 days after  October 31, 2000, as
follows:  Haywood D. Cochrane,  Jr., 16,666 shares;  Brandon M. Dawson,  287,500
shares;  Gregory J. Frazer,  Ph.D.,  80,000 shares;  Hugh T. Hornibrook,  65,000
shares; Scott E. Klein, 198,811 shares; Warburg, Pincus & Co., 8,389,041 shares;
Jeffry S. Weiss,  20,000 shares;  and all directors and executive  officers as a
group, 823,977 shares.

                                       20
<PAGE>

    (3)  Includes  40,058  Common  Shares and options to acquire  20,000  Common
Shares  exercisable  within 60 days  after  October  31,  2000,  held by Carissa
Bennett, Gregory J. Frazer's wife.

    (4)  Included in reliance on  information  contained  in Schedule  13G dated
February  8,  2000,  jointly  filed by RS  Investment  Management  Co.  LLC,  RS
Investment  Management,  L.P., RS Value Group LLC, The RS Orphan Fund, L.P., and
the RS Orphan  Offshore  Fund,  L.P.  RS  Investment  Management  Co. LLC is the
general partner of RS Investment Management,  L.P. and RS Value Group LLC is the
general  partner  of The RS Orphan  Fund,  L.P.  As to the  indicated  number of
shares,  RS Investment  Management Co. LLC. and RS Value Group LLC each reported
shared voting and dispositive  power. The RS Orphan Fund, L.P.,  reported shared
voting and dispositive  power as to 787,280 shares,  or 12.9% of the outstanding
Common Shares,  and the RS Orphan Offshore Fund, L.P. reported shared voting and
dispositive power as to 320,520 shares, or 5.3 percent of the outstanding Common
Shares. RS Investment Management,  L.P. reported no Common Shares as to which it
had sole or shared voting or dispositive power.

    (5)  Warburg,  Pincus  & Co.  is the  general  partner  of  Warburg,  Pincus
Ventures,  L.P.  ("Warburg"),  the record  owner of  2,666,666  Series A Shares,
2,500,000  Series B Shares and  warrants to purchase  2,000,000  Common  Shares.
Warburg is managed by E.M. Warburg,  Pincus & Co., LLC. Joel Ackerman, a general
partner of Warburg,  Pincus & Co., and David J.  Wenstrup,  a vice  president of
E.M.  Warburg,  Pincus & Co.,  LLC, each  disclaim  beneficial  ownership of the
Shares  beneficially  owned by  Warburg  except  to the  extent  of an  indirect
pecuniary  interest in an  indeterminate  number of such Shares.  Each Preferred
Share is entitled to one vote.  The  Preferred  Shares  vote  together  with the
Common Shares as a single class unless otherwise required by law or if the Board
of  Directors  otherwise  determines.  The  Preferred  Shares  held  by  Warburg
represent  approximately 51% of the combined voting power of outstanding  voting
securities.  Of the  8,389,041  Common  Shares  shown as  beneficially  owned by
Warburg,  2,666,666  shares represent the Common Shares issuable upon conversion
of 2,666,666  Series A Shares and 3,722,375  shares  represent the Common Shares
issuable upon conversion of 2,500,000 Series B Shares.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Gregory J. Frazer, Ph.D., Vice President-Business Development and a director
of the Company,  and his wife, Carissa Bennett,  have the right, until September
30, 2001, to require the Company to redeem an aggregate of 1,680 of their Common
Shares  as of the  last day of each  calendar  quarter  at a price of $8.35  per
share. The redemption rights are noncumulative and expire if not exercised as of
the end of any calendar quarter as to such quarter.  Pursuant to such redemption
rights,  the Company  redeemed  during the fiscal  years ended July 31, 2000 and
1999, a total of 5,040 and 6,720 Common Shares,  respectively,  from Ms. Bennett
and Mr. Frazer for consideration of $42,084 and $56,112, respectively.

    During 1998,  the Company  acquired three hearing care centers in California
in which Mr. Frazer and Ms. Bennett were part-owners. Mr. Frazer and Ms. Bennett
received  $242,179 of the total purchase  price of $542,268.  They also received
$80,520 in payment for  covenants not to compete.  In January 1999,  the Company
issued a three-year  promissory  note to Mr. Frazer in the  principal  amount of
$102,000 and payable in equal quarterly installments in connection with purchase
price  adjustments for hearing care centers that were  previously  acquired from
Mr. Frazer. The Company also entered into expanded  non-compete  agreements with
Mr. Frazer and Ms. Bennett that pay Mr. Frazer and Ms. Bennett $6,303 and $4,455
per month, respectively, until September 2001.

    On December 26, 1997,  the Company  loaned  Brandon M. Dawson,  Chairman and
Chief Executive Officer and a director of the Company, $29,942 in order to allow
Mr. Dawson to repay an advance in connection  with the exercise by Mr. Dawson of
options to purchase 20,000 Common Shares on April 1, 1996. Mr. Dawson repaid the
loan on March 30, 1999,  along with interest at 7.75% per annum in the amount of
$4,287. On March 19, 1998, the Company loaned Mr. Dawson $33,107 in order to pay
taxes incurred as a result of Mr. Dawson's April 1996 option exercise.  The loan
bears interest at 7.75% per annum and is due on December 31, 2000.

                                       21
<PAGE>

    On May 8, 1997,  Mr.  Dawson  exercised  options for 50,000 Common Shares at
$1.35 per share in order to allow  options  for  Common  Shares to be granted to
other employees. In connection with such exercise, the Company loaned Mr. Dawson
$67,500 to pay the aggregate exercise price of the options.  The loan was repaid
on July 6, 1999,  along with  interest at 10% per annum in the amount of $7,730.
On April 24, 1998, the Company loaned Mr. Dawson an additional  $91,000 in order
to pay taxes incurred as a result of Mr. Dawson's May 1997 option exercise.  The
loan was repaid on July 6, 1999,  along with  interest at 7.75% in the amount of
$8,347.

    On December 8, 1998, the Company loaned Scott E. Klein,  President and Chief
Operating Officer and a director of the Company, $100,000 in connection with the
purchase of his primary residence in Portland,  Oregon.  The loan, which was due
on the earlier of the sale of Mr. Klein's  residence in Minnesota or October 31,
1999,  was repaid on June 7, 1999,  along with  interest  at 8% in the amount of
$4,000.

    On July 21, 1999,  Cindy  Dawson-Austin,  mother of Mr.  Dawson,  loaned the
Company $500,000 for working capital.  The loan was repaid on December 10, 1999,
along with interest at 12% in the amount of $23,342.

    On October 1, 1999, the Company  consummated the sale of 2,500,000  Series B
Shares to  Warburg  for  $10,000,000  in cash.  Under the terms of the  purchase
agreement  for the  Series B Shares,  Warburg is  entitled  to  designate  three
nominees for election as directors.  Cash  dividends will accrue on the Series B
Shares at an annual  rate of 8 percent  of the  conversion  price then in effect
until November 1, 2004,  increasing in steps thereafter to 18 percent  beginning
November 1, 2006, provided that the Company has met specified quarterly earnings
targets.  If the  Company  has not met the  earnings  targets by July 31,  2002,
dividends will not accrue or be payable on the Series B Shares.  Upon conversion
of the Series B Shares, any accumulated dividends will be forfeited.

    The Series B Shares were initially  convertible on a one-for-one  basis into
2,500,000  Common Shares at a conversion  price of $4.00 per share.  Because the
Company's receivables as of July 31, 1999, that were collected by July 31, 2000,
totaled  less than  $4,736,000  and the Company has not yet  attained  specified
quarterly  earnings  targets,  the  conversion  rate was adjusted  such that the
Series B Shares are  convertible  into 3,722,375  Common Shares as of the fiscal
quarter ended October 31, 2000. Additional adjustments will be made each quarter
thereafter as long as the earnings targets have not been met. The amount of such
quarterly  adjustments  will be based on a factor of 2 percent  of the  original
purchase  price plus the sum of all prior  adjustments  until  November 1, 2004,
increasing in steps thereafter to 4.5 percent  beginning  November 1, 2006. Once
the Company has met the specified  earnings targets for four consecutive  fiscal
quarters, no further adjustments in the conversion rate will be made. The Series
B Shares are  subject to  mandatory  conversion  at the option of the Company if
certain share price and earnings targets are met.

    In connection with the sale, the Company agreed to reduce the exercise price
of outstanding  warrants  entitling Warburg to purchase  2,000,000 Common Shares
from  $12.00 to $6.75 per  share,  to extend the  exercise  period to October 1,
2004,  and to remove the  limitation  on the number of shares that may be issued
upon a cashless exercise.

    In April 1999, Mr. Dawson  purchased  from an unrelated  party a convertible
note in the principal  amount of $492,693 that had been issued by the Company in
October 1996. The note was repaid on December 10, 1999.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

    (a)  Exhibits  are listed in the  Exhibit  Index on page 36 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, 2000.

                                       22
<PAGE>

                                   SIGNATURES

    In  accordance  with Section 13 or 15(d) of the  Securities  Exchange Act of
1934,  the  registrant  has caused  this  Amendment  No. 1 to its report on Form
10-KSB to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 28, 2000              SONUS CORP.
                                     By

                                               /s/ Brandon M. Dawson
                                         ------------------------------------
                                                Brandon M. Dawson
                                         CHAIRMAN  AND CHIEF EXECUTIVE OFFICER


                                       23