<PAGE>





                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                              ---------------------
                                  FORM 10-KSB/A
                                (Amendment No. 2)


(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:

<TABLE>
<CAPTION>
            Title of Each Class                      Name of Each Exchange on Which Registered
            -------------------                      -----------------------------------------
<S>                                                 <C>
COMMON SHARES, WITHOUT NOMINAL OR PAR VALUE                  AMERICAN STOCK EXCHANGE
</TABLE>

       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. 2 on Form 10-KSB/A
as an amendment to its Annual Report on 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 Items 6 and 7 of Part II 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 II

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

OVERVIEW

         During the fiscal year ended July 31, 2000, the Company achieved
improved financial results compared to the prior fiscal year. For the fiscal
year ended July 31, 2000, the Company generated total revenues of $44.0 million,
an increase of 30% over fiscal 1999. For the fiscal year ended July 31, 2000,
the Company incurred a net loss of $3.1 million, a decrease of $1.8 million from
the fiscal 1999 loss of $4.9 million. As of July 31, 2000, the Company's
accumulated deficit was $14.7 million and its total shareholders' equity was
$25.5 million.

ACQUISITIONS

         During the fiscal year ended July 31, 2000, the Company acquired 16
hearing care centers in 10 transactions. The Company also closed or consolidated
10 centers during the fiscal year in order to more effectively allocate its
resources. The aggregate purchase price for the acquisitions consisted of cash
payments of $438,000, promissory notes issued by the Company of $521,000
generally payable over three years, and $85,000 in assumed liabilities. As a
result of the acquisitions, the Company recorded approximately $6,000 in
inventory, $157,000 in property and equipment, $10,000 in other assets, and
$795,000 in goodwill, which included costs related to acquisitions, and $85,000
for covenants not to compete.

     The 16 hearing care businesses acquired by the Company during the fiscal
year ended July 31, 2000, have combined historical revenues for their
immediately preceding fiscal years of approximately $3.9 million. The Company
expects these centers to contribute to the Company's future revenues consistent
with their historical revenues, as well as to have a positive effect on cash
flows and liquidity.

     As of July 31, 2000, the Company had recorded $20,970,000 in goodwill and
$2,311,000 in covenants not to compete. The unamortized balance totaled
$19,678,000 at July 31, 2000, which represented approximately 52% of the
Company's total assets.




                                       2
<PAGE>

RESULTS OF OPERATIONS

Year Ended July 31, 2000, Compared to Year Ended July 31, 1999

     Revenues. Net revenues for the fiscal year ended July 31, 2000, were
$43,959,000, representing a 30% increase over net revenues of $33,759,000 for
the prior fiscal year. The increase was due to the 16 centers acquired during
fiscal 2000, as well as an increase of 5% in same-store revenue compared to
1999. Product sales revenues were $37,252,000 for the 2000 fiscal year, up 28%
from the $29,044,000 for fiscal 1999. Audiological service revenues increased 6%
from $3,392,000 in fiscal 1999 to $3,589,000 for the 2000 fiscal year. Other
revenues increased 136% to $3,118,000 in fiscal 2000 from $1,323,000 in fiscal
1999 due to the rapid growth of the Company's franchise license program, The
Sonus Network, and increased revenues from the Company's Hear PO Corp.
subsidiary.

     Gross Profit on Product Sales. Product gross profit for the fiscal year
ended July 31, 2000, was $24,365,000 compared to $18,278,000 for the prior
fiscal year. Gross profit percentage on product sales increased to 65% for
fiscal 2000 from 63% for fiscal 1999. The increase in product gross profit
percentage was due to more favorable contracts with suppliers, increased
utilization of the Company's private-label hearing instruments, and better price
management.

     Clinical Expenses. As a percentage of net revenues, clinical expenses
decreased to 45% for the fiscal year ended July 31, 2000, compared to 53% for
the fiscal year ended July 31, 1999. The percentage decrease was due to the
Company's ability to cut costs, streamline its operations, and eliminate
inefficient and duplicative processes. Clinical expenses for the fiscal year
ended July 31, 2000, were $19,885,000, representing an increase of 12% over
clinical expenses of $17,795,000 for the prior fiscal year. This increase was
primarily due to clinical expenses associated with the 16 additional centers
that were acquired by the Company during the fiscal year ended July 31, 2000.
Clinical expenses include all personnel, marketing, occupancy and other
operating expenses at the center level.

     Provision for Aged Receivables. During the fourth quarter of fiscal 2000,
the Company incurred a charge of $2.3 million to increase its reserves for
accounts receivable. The Company determined that an increase in reserves was
necessary because of a deterioration of accounts receivable caused by certain
events that took place in the fourth quarter of fiscal 2000. In May 2000, the
Company received correspondence from a significant third-party customer stating
that a majority of a sample of the Company's claims examined by the customer
were ones for which the original claim submission was not received or the claims
were denied and no evidence of timely follow-up was demonstrated. Although the
Company believes that the customer's conclusions are incorrect regarding many of
these claims and continues to pursue collection, it concluded that certain
receivables aggregating approximately $544,000 were at substantially greater
risk of non-payment and that the prudent course of action was to establish a
reserve for these receivables. In addition, the Company discontinued its normal
billing and collections cycle related to new business in the fourth quarter in
order to attempt to meet an obligation under a financing agreement to collect a
specific portion of its aged receivables by July 31, 2000. The entire billing
staff was dedicated exclusively to this project during May 2000 (and a
substantial portion of the staff was dedicated to this project in June and July
2000). As a result, net accounts receivable (before the $2.3 million charge)
grew $2.4 million during the fourth quarter compared to $2.7 million for the
prior three quarters combined. The Company's diminished focus on current
business in the fourth quarter caused substantial deterioration in its accounts
receivable aging and reduced the collectibility of the fourth quarter business.
The financing agreement obligation ended on July 31, 2000, at which time the
Company returned to its normal billing cycle after determining that
concentrating its efforts on collecting receivables that were more current would
yield greater benefits. The Company therefore determined that an addition to the
reserve for doubtful accounts as of July 31, 2000, was necessary because it was
likely that a higher proportion of the receivables outstanding at that date
would not be collected.

     General and Administrative Expenses. As a percentage of net revenues,
general and administrative expenses decreased to 20% for the fiscal year ended
July 31, 2000, versus 22% for the same period in the prior fiscal year. The
decrease in general and administrative expenses as a percentage of revenues was
due to growth in the Company's revenue base as a result of its strategic
acquisition program and enhanced marketing efforts, as well as continued efforts
to cut administrative costs. General and administrative expenses in dollar terms
increased 16% from $7,583,000 for the fiscal year ended July 31, 1999, to
$8,778,000 for the fiscal year ended July 31, 2000. The increase was due to
increased personnel costs and other corporate expenses related to building the
appropriate infrastructure to support the growth of the Company.

     Depreciation and Amortization Expense. Depreciation and amortization
expense for the fiscal year ended July 31, 2000, was $3,109,000, an increase of
27% over the depreciation and amortization expense of $2,450,000 for



                                       3
<PAGE>

the prior fiscal year. The increase resulted from the depreciation of property
and equipment and amortization of goodwill and covenants not to compete
associated with the 16 additional centers acquired by the Company during the
fiscal year ended July 31, 2000.

     Interest Income and Expense. Interest income for the fiscal year ended July
31, 2000, was $260,000 compared to $261,000 for the prior fiscal year. Interest
expense for the fiscal year ended July 31, 2000, was $342,000 compared to
$300,000 for the fiscal year ended July 31, 1999, an increase of 14%, due to
higher balances of long-term debt incurred in connection with acquisitions and
capital expenditures.

     Net Loss. For the fiscal year ended July 31, 2000, the Company's net loss
decreased to $3,101,000 compared to a net loss of $4,884,000 for the fiscal year
ended July 31, 1999. The Company had income from operations before depreciation
and amortization for fiscal 2000 of $109,000 compared to an operating loss from
operations before depreciation and amortization of $2,385,000 for fiscal 1999,
an improvement of $2,494,000.

Year Ended July 31, 1999, Compared to Year Ended July 31, 1998

     Revenues. Net revenues for the fiscal year ended July 31, 1999, were
$33,759,000, representing a 51% increase over revenues of $22,368,000 for the
prior fiscal year. The increase was primarily due to the 31 centers acquired
during fiscal 1999. Net revenue was also favorably impacted by an increase of 5%
in comparable center revenue in fiscal 1999. Comparable centers are those
centers that have been open at least 24 months. Product sales revenues were
$29,044,000 for the 1999 fiscal year, up 55% from the $18,792,000 for fiscal
1998. Audiological service revenues increased from $3,311,000, or 15% of total
revenues, in fiscal 1998, to $3,392,000, or 10% of total revenues, for the 1999
fiscal year.

     Gross Profit on Product Sales. Product gross profit for the fiscal year
ended July 31, 1999, was $18,278,000 compared to $11,080,000 for the prior
fiscal year. Gross profit percentage on product sales increased to 63% for
fiscal 1999 from 59% for fiscal 1998. The increase in gross profit percentage on
product sales was primarily attributable to increased buying power with hearing
instrument manufacturers, less dependence on sales discounts, better price
management and a new tiered pricing strategy based on levels of technology.

     Clinical Expenses. As a percentage of net revenues, clinical expenses
decreased to 53% for the fiscal year ended July 31, 1999, compared to 55% for
the fiscal year ended July 31, 1998. The percentage decrease was due to the
Company's ability to cut costs, streamline its operations, and eliminate
inefficient and duplicative processes. Clinical expenses for the fiscal year
ended July 31, 1999, were $17,795,000, representing an increase of 45% over
clinical expenses of $12,297,000 for the prior fiscal year. This increase was
primarily due to clinical expenses associated with the 31 additional centers
that were acquired by the Company during the fiscal year ended July 31, 1999.
Clinical expenses include all personnel, marketing, occupancy and other
operating expenses at the center level.

     General and Administrative Expenses. As a percentage of net revenues,
general and administrative expenses decreased to 22% for the fiscal year ended
July 31, 1999, versus 26% for the same period in the prior fiscal year. The
decrease in general and administrative expenses as a percentage of revenues was
due to growth in the Company's revenue base as a result of its strategic
acquisition program and enhanced marketing efforts, as well as an administrative
restructuring and cost-cutting program implemented by the Company in fiscal
1999. General and administrative expenses in dollar terms increased 29% from
$5,896,000 for the fiscal year ended July 31, 1998, to $7,583,000 for the fiscal
year ended July 31, 1999, due to planned increases in corporate staff and other
corporate expenses related to the operation of a larger organization.

     Depreciation and Amortization Expense. Depreciation and amortization
expense for the fiscal year ended July 31, 1999, was $2,450,000, an increase of
80% over the depreciation and amortization expense of $1,361,000 for the prior
fiscal year. The increase resulted from the depreciation of property and
equipment and amortization of goodwill and covenants not to compete associated
with the 31 additional centers acquired by the Company during the fiscal year
ended July 31, 1999, as well as from depreciation and amortization associated
with businesses acquired in the second half of fiscal 1998.

     Interest Income and Expense. Interest income for the fiscal year ended July
31, 1999, decreased to $261,000 from $452,000 for the prior fiscal year. The
decrease was due to lower balances of cash and short-term investments held by
the Company. Interest expense for the fiscal year ended July 31, 1999, was
$300,000 compared to $149,000 for the fiscal year ended July 31, 1998, due to
higher balances of long-term debt incurred in connection with acquisitions.



                                       4
<PAGE>

     Net Loss. For the fiscal year ended July 31, 1999, the Company had a net
loss of $4,884,000 compared to a net loss of $4,594,000 for the fiscal year
ended July 31, 1998. The Company's loss from operations before depreciation and
amortization for fiscal 1999 was $2,385,000 compared to an operating loss before
depreciation and amortization of $3,537,000 for fiscal 1998.

LIQUIDITY AND CASH RESERVES

     For the fiscal year ended July 31, 2000, net cash used in operating
activities was $2,051,000 compared to $2,281,000 for fiscal 1999. Net cash used
in operating activities for fiscal 2000 resulted primarily from the Company's
earnings before depreciation and amortization of $8,000 and increases in
accounts receivable, other receivables, and inventory of $4,971,000, $1,141,000,
and $447,000, respectively, offset by an increase in accounts payable and
accrued liabilities of $1,839,000 and the Company's provision for bad debt
expense and provision for aged receivables of $391,000 and $2,300,000,
respectively. Net cash used in operating activities for fiscal 1999 was
primarily attributable to the Company's loss before depreciation and
amortization of $2,434,000, an increase in accounts receivable of $554,000, and
a decrease in accounts payable and accrued liabilities of $558,000, offset by
decreases in other receivables and inventory of $172,000 and $560,000,
respectively, the provision for bad debt expense of $389,000, and compensation
cost recognized for options granted to non-employees of $203,000.

     Net cash used in investing activities was $3,706,000 for fiscal 2000,
consisting primarily of the purchase of property and equipment of $3,305,000 and
net cash paid for business acquisitions of $438,000. In fiscal 1999, investing
activities provided net cash of $878,000 as a result of the sale of short-term
investments of $6,408,000, which was offset by the purchase of property and
equipment of $3,368,000, additional costs related to acquisitions of $188,000,
and net cash paid on business acquisitions of $2,062,000.

     Financing activities provided net cash of $6,038,000 in fiscal 2000,
primarily as a result of the issuance of preferred stock in October 1999 for net
proceeds of $9,860,000, offset by repayments of long-term debt and capital lease
obligations of $3,236,000 and repayments of bank loans and short-term notes
payable of $500,000. Financing activities used net cash of $821,000 in fiscal
1999, as the result of the repayment of long-term debt and capital lease
obligations of $1,626,000, offset by borrowings under bank loans and short-term
notes payable of $454,000, advances from shareholders of $190,000, and the
issuance of common stock that provided proceeds of $248,000.

     In July 2000, the Company, through its subsidiaries Sonus-USA and
Sonus-Texas, entered into a revolving line of credit agreement with a commercial
bank. The line of credit, which is primarily secured by accounts receivable,
matures on June 30, 2001, and bears interest at the bank's prime rate plus 0.5%.
The amount available for borrowing under the line of credit was $2,000,000 at
July 31, 2000, and there was no amount outstanding at that date.

     The Company believes that its cash and short-term investments, revolving
line of credit, and cash generated from operations will be sufficient to meet
its anticipated cash needs for working capital and capital expenditures for at
least the next twelve months. However, the Company's ability to generate net
cash from operations will depend heavily on its ability to collect existing
accounts receivable in a timely manner. The Company may seek additional funding
to support the Company's strategy of acquiring additional hearing care centers.
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 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.

ACCOUNTING PRONOUNCEMENTS

         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. In addition, Statement
of Financial Accounting Standard No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities" ("SFAS No. 138") was issued in June
2000. SFAS No. 138 amends the accounting and reporting standards of SFAS No. 133
for certain derivative instruments and certain hedging activities. Because the
Company does not currently hold any derivative instruments and does not
currently engage in hedging activities, the adoption of SFAS No. 133 and SFAS
No. 138 will not have a material



                                       5
<PAGE>

impact on the Company's consolidated financial position or consolidated results
of operations. SFAS No. 133 and SFAS No. 138 are effective for the Company
beginning August 1, 2000.

         In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). The Company is required to adopt the provisions of SAB 101 no later than
December 31, 2000. Based on the revenue recognition policy of the Company, the
adoption of SAB 101 will not have a material impact on the Company's financial
position or results of operations.





                                       6
<PAGE>

ITEM 7. FINANCIAL STATEMENTS

                         REPORT OF INDEPENDENT AUDITORS



TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
SONUS CORP.:


     We have audited the accompanying consolidated balance sheets of Sonus Corp.
and subsidiaries as of July 31, 2000 and 1999, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
years in the three-year period ended July 31, 2000. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the 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, 2000 and 1999, and the consolidated
results of their operations and their cash flows for each of the years in the
three-year period ended July 31, 2000 in conformity with accounting principles
generally accepted in the United States of America.


                                            /s/ KPMG LLP



Portland, Oregon
November 13, 2000




                                       7
<PAGE>

                                   SONUS CORP.
                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                            JULY 31,
                                                                                    ------------------------
                                                                                       2000          1999
                                                                                    ----------    ----------
<S>                                                                                     <C>             <C>
                                     ASSETS
Current assets:
     Cash and cash equivalents                                                       $    788        $    498
     Accounts receivable, net of allowance for doubtful
       accounts of $3,691 and $907, respectively                                        6,359           3,666
     Other receivables                                                                  1,497             346
     Inventory                                                                            952             499
     Prepaid expenses                                                                     396             340
                                                                                    ----------     -----------
                   Total current assets                                                 9,992           5,349

Property and equipment, net                                                             8,090           6,208
Other assets                                                                               24              60
Goodwill and covenants not to compete, net                                             19,678          19,768
                                                                                    ----------     -----------

                                                                                     $ 37,784        $ 31,385
                                                                                    ==========     ===========

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Note payable-related party                                                         $ ---           $ 500
     Accounts payable                                                                   5,460           3,727
     Accrued payroll                                                                    1,643           1,223
     Other accrued liabilities                                                          1,441           1,317
     Convertible notes payable                                                            ---             931
     Capital lease obligations, current portion                                           289             129
     Long-term debt, current portion                                                    2,176           2,150
                                                                                    ----------     -----------
                   Total current liabilities                                           11,009           9,977

Capital lease obligations, less current portion                                           181              96
Long-term debt, less current portion                                                    1,078           2,497
                                                                                    ----------     -----------
                   Total liabilities                                                   12,268          12,570
                                                                                    ----------     -----------

Commitments and contingencies

Shareholders' equity:
     Series A convertible preferred stock, no par
          value per share, 2,666,666 shares authorized,
          issued, and outstanding (liquidation preference of $20,340)                  15,701          15,701
     Series B convertible preferred stock, no par
          value per share, 2,500,000 shares authorized,
          issued, and outstanding in 2000 (liquidation preference of $10,667)           9,860             ---
     Common stock, no par value per share, unlimited
          number of shares authorized, 6,098,706 issued
          and outstanding (6,109,026 in 1999)                                          14,916          14,976
     Notes receivable from shareholders                                                   (93)            (93)
     Accumulated deficit                                                              (14,696)        (11,595)
     Accumulated other comprehensive loss                                                (172)           (174)
                                                                                    ----------     -----------
                   Total shareholders' equity                                          25,516          18,815
                                                                                    ----------     -----------

                                                                                     $ 37,784        $ 31,385
                                                                                    ==========     ===========
</TABLE>

          See accompanying notes to consolidated financial statements.




                                       8
<PAGE>


                              SONUS CORP.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)


                                                   Years ended July 31,
                                          ------------------------------------
                                              2000        1999         1998
                                          -----------  ----------   ----------
Revenues:
     Product                                $ 37,252    $ 29,044     $ 18,792
     Service                                   3,589       3,392        3,311
     Other                                     3,118       1,323          265
                                          -----------  ----------   ----------

     Net revenues                             43,959      33,759       22,368

Costs and expenses:
     Cost of products sold                    12,887      10,766        7,712
     Clinical expenses                        19,885      17,795       12,297
     Provision for aged receivables            2,300         ---          ---
     General and administrative expenses       8,778       7,583        5,896
     Depreciation and amortization             3,109       2,450        1,361
                                          -----------  ----------   ----------
Total costs and expenses                      46,959      38,594       27,266
                                          -----------  ----------   ----------


Loss from operations                          (3,000)     (4,835)      (4,898)


Other income (expense):
     Interest income                             260         261          452
     Interest expense                           (342)       (300)        (149)
     Other, net                                  (19)        (10)           1
                                          -----------  ----------   ----------
Net Loss                                    $ (3,101)   $ (4,884)    $ (4,594)
                                          ===========  ==========   ==========

Net loss per share of common stock:
     Basic and diluted                      $  (0.51)   $  (0.80)    $  (0.89)

Weighted average shares outstanding:
     Basic and diluted                         6,083       6,090        5,160





          See accompanying notes to consolidated financial statements.



                                       9
<PAGE>


                                   SONUS CORP.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                       (in thousands, except share data)


<TABLE>
<CAPTION>
                                                         Preferred stock - Series A  Preferred stock - Series B     Common stock
                                                         --------------------------  -------------------------- -------------------
                                                          Shares           Amount      Shares        Amount       Shares    Amount
                                                          ------           ------      ------        ------       ------    ------
<S>                                                     <C>               <C>          <C>          <C>         <C>        <C>
BALANCE AT JULY 31, 1997                                         ---        $ ---         ---           ---     5,427,657  $ 11,098
  Net loss                                                       ---          ---         ---           ---           ---       ---
       Foreign currency translation adjustment                   ---          ---         ---           ---           ---       ---
 Comprehensive loss                                              ---          ---         ---           ---           ---       ---

  Stock issued upon conversion
      of convertible note                                        ---          ---         ---           ---        25,925       128
  Stock issued in connection with acquisition
      contingent upon satisfaction of certain
      conditions                                                 ---          ---         ---           ---        22,936       ---
  Repurchase of common stock                                     ---          ---         ---           ---        (3,000)      (25)
  Proceeds from exercise of stock options                        ---          ---         ---           ---        10,000         9
  Stock issued in connection with Series A
      convertible preferred stock, net of costs of $2,299  2,666,666       15,701         ---           ---           ---       ---
  Proceeds from exercise of warrants                             ---          ---         ---           ---       373,998     1,957
  Proceeds from exercise of stock options                        ---          ---         ---           ---         2,400        18
  Advance on shareholder note                                    ---          ---         ---           ---           ---       ---
  Stock issued upon conversion
      of convertible notes                                       ---          ---         ---           ---       220,000     1,430
  Payment of cash in lieu of fractional shares                   ---          ---         ---           ---            (8)     ---
                                                           ---------    ---------  ----------     ---------     ---------- ---------
BALANCE AT JULY 31, 1998                                   2,666,666       15,701         ---           ---     6,079,908    14,615
  Net loss                                                       ---          ---         ---           ---           ---       ---
       Foreign currency translation adjustment                   ---          ---         ---           ---           ---       ---
 Comprehensive loss                                              ---          ---         ---           ---           ---       ---

  Proceeds from exercise of warrants                             ---          ---         ---           ---        39,799       248
  Repurchase of common stock                                     ---          ---         ---           ---       (10,680)      (90)
  Repayment on shareholder notes                                 ---          ---         ---           ---           ---       ---
  Payment of cash in lieu of fractional shares                   ---          ---         ---           ---            (1)      ---
  Stock options granted to non-employees                         ---          ---         ---           ---           ---       203
                                                           ---------    ---------  ----------     ---------     ---------- ---------
BALANCE AT JULY 31, 1999                                   2,666,666       15,701         ---           ---     6,109,026    14,976
  Net loss                                                       ---          ---         ---           ---           ---       ---
       Foreign currency translation adjustment                   ---          ---         ---           ---           ---       ---
 Comprehensive loss
  Stock issued in connection with Series B
      convertible preferred stock, net of costs of $140          ---          ---   2,500,000         9,860           ---       ---
  Repurchase of common stock                                     ---          ---         ---           ---       (10,320)      (86)
  Stock options granted to non-employees                         ---          ---         ---           ---           ---        26
                                                           ---------    ---------  ----------     ---------     ---------- ---------
BALANCE AT JULY 31, 2000                                   2,666,666     $ 15,701   2,500,000       $ 9,860     6,098,706  $ 14,916
                                                           =========    =========  ==========     =========     ========== =========



<CAPTION>
                                                                                       Accumulated
                                                          Shareholder                     other                            Total
                                                             notes      Accumulated   comprehensive   Comprehensive    shareholders'
                                                          receivable      deficit     income (loss)   income (loss)       equity
                                                          ----------      -------     -------------   -------------       ------
<S>                                                      <C>          <C>              <C>            <C>           <C>
BALANCE AT JULY 31, 1997                                    $ (124)      $ (2,117)         $ (22)                       $ 8,835
  Net loss                                                     ---         (4,594)           ---      $ (4,594)          (4,594)
       Foreign currency translation adjustment                 ---            ---           (207)         (207)            (207)
                                                                                                     -----------
 Comprehensive loss                                            ---            ---            ---      $ (4,801)             ---
                                                                                                     ===========

  Stock issued upon conversion
      of convertible note                                      ---            ---            ---                            128
  Stock issued in connection with acquisition
      contingent upon satisfaction of certain
      conditions                                               ---            ---            ---                            ---
  Repurchase of common stock                                   ---            ---            ---                            (25)
  Proceeds from exercise of stock options                      ---            ---            ---                              9
  Stock issued in connection with Series A
      convertible preferred stock, net of costs of $2,299      ---            ---            ---                         15,701
  Proceeds from exercise of warrants                           ---            ---            ---                          1,957
  Proceeds from exercise of stock options                      ---            ---            ---                             18
  Advance on shareholder note                                 (159)           ---            ---                           (159)
  Stock issued upon conversion
      of convertible notes                                     ---            ---            ---                          1,430
  Payment of cash in lieu of fractional shares                 ---            ---            ---                            ---
                                                          ---------     -----------     ----------                     ---------
BALANCE AT JULY 31, 1998                                      (283)        (6,711)          (229)                        23,093
  Net loss                                                     ---         (4,884)           ---      $ (4,884)          (4,884)
       Foreign currency translation adjustment                 ---            ---             55            55               55
                                                                                                     -----------
 Comprehensive loss                                            ---            ---            ---      $ (4,829)             ---
                                                                                                     ===========

  Proceeds from exercise of warrants                           ---            ---            ---                            248
  Repurchase of common stock                                   ---            ---            ---                            (90)
  Repayment on shareholder notes                               190            ---            ---                            190
  Payment of cash in lieu of fractional shares                 ---            ---            ---                            -
  Stock options granted to non-employees                       ---            ---            ---                            203
                                                          ---------     -----------     ----------                     ---------
BALANCE AT JULY 31, 1999                                       (93)       (11,595)          (174)                        18,815
  Net loss                                                     ---         (3,101)           ---      $ (3,101)          (3,101)
       Foreign currency translation adjustment                 ---            ---              2             2                2
                                                                                                     -----------
 Comprehensive loss                                                                                   $ (3,099)             ---
                                                                                                     ===========
  Stock issued in connection with Series B
      convertible preferred stock, net of costs of $140        ---            ---            ---                          9,860
  Repurchase of common stock                                   ---            ---            ---                            (86)
  Stock options granted to non-employees                       ---            ---            ---                             26
                                                          ---------     -----------     ----------                     ---------
BALANCE AT JULY 31, 2000                                     $ (93)     $ (14,696)        $ (172)                      $ 25,516
                                                          =========     ===========     ==========                     =========
</TABLE>



          See accompanying notes to consolidated financial statements


                                       10
<PAGE>

                                   SONUS CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                                      Years ended July 31,
                                                                                          -----------------------------------------
                                                                                             2000            1999           1998
                                                                                          -----------    ------------    ----------
<S>                                                                                        <C>             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss                                                                              $ (3,101)       $ (4,884)      $ (4,594)
     Adjustments to reconcile net loss to net cash used in operating
          activities:
          Bad debt expense                                                                      391             389            412
          Provision for aged receivables                                                      2,300             ---            ---
          Depreciation and amortization                                                       3,109           2,450          1,361
          Compensation cost for options granted to non-employees                                 26             203            ---
     Changes in operating assets and liabilities, net of effects of acquisitions:
          Accounts receivable                                                                (4,971)           (554)           (51)
          Other receivables                                                                  (1,141)            172           (181)
          Inventory                                                                            (447)            560          (405)
          Prepaid expenses                                                                      (56)            (59)            24
          Accounts payable and accrued liabilities                                            1,839            (558)         1,231
                                                                                          ----------     -----------     ----------
               Net cash used in operating activities                                         (2,051)         (2,281)        (2,203)
                                                                                          ----------     -----------     ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Maturity (purchase) of short-term investments                                              ---           6,408         (6,408)
     Purchase of property and equipment                                                      (3,305)         (3,368)        (1,414)
     Additional costs related to acquisitions                                                   ---            (188)          (198)
     Deferred acquisition costs and other, net                                                   37              88             (1)
     Net cash used in business acquisitions                                                    (438)         (2,062)        (3,765)
                                                                                          ----------     -----------     ----------
               Net cash provided by (used in) investing activities                           (3,706)            878        (11,786)
                                                                                          ----------     -----------     ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Net repayments of long-term debt and capital lease obligations                          (3,236)         (1,626)        (1,625)
     Deferred financing costs, net                                                              ---               3            (20)
     Net advances (repayments) of bank loans and short-term notes payable                      (500)            454            (39)
     Advances from (payments to) shareholders                                                   ---             190           (159)
     Issuance of common stock for cash, net of costs                                            ---             248          1,984
     Issuance of preferred stock for cash, net of costs                                       9,860             ---         15,701
     Acquisition of treasury stock                                                              (86)            (90)           (25)
                                                                                          ----------     -----------     ----------
               Net cash provided by (used in) financing activities                            6,038            (821)        15,817
                                                                                          ----------     -----------     ----------

Net change in cash and cash equivalents                                                         281          (2,224)         1,828
Effect on cash and cash equivalents of changes in foreign translation rate                        9               2           (207)
Cash and cash equivalents, beginning of year                                                    498           2,720          1,099
                                                                                          ----------     -----------     ----------
Cash and cash equivalents, end of year                                                     $    788        $    498       $  2,720
                                                                                          ==========     ===========     ==========
Supplemental disclosure of non-cash investing and financing activities:
  Interest paid during the year                                                            $    353        $    218       $    149
  Non-cash financing activities:
     Issuance and assumption of debt in acquisitions                                            573           2,611          1,781
     Acquisition of clinical equipment and computer hardware with
         capital lease obligations                                                              566             ---            ---
     Issuance of common stock upon conversion of convertible note                               ---             650            ---
     Issuance of debt for covenants not to compete with purchase                                ---             ---          1,557
</TABLE>

          See accompanying notes to consolidated financial statements.




                                       11
<PAGE>


                                   SONUS CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JULY 31, 2000 AND 1999


NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Description of Company

     Sonus Corp., a Yukon Territory, Canada corporation (the "Company"), through
its primary operating subsidiaries, Sonus-Canada Ltd., a British Columbia,
Canada corporation, Sonus-USA, Inc., a Washington corporation, and Sonus-Texas,
Inc., an Oregon corporation, owns and operates 106 hearing care centers in the
United States and Western Canada. The centers 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.
Each of the Company's hearing care centers provides its hearing impaired
patients with a full range of audiological products and services. The Company
intends to expand its network of hearing care centers by acquiring centers in
its existing, as well as new, geographic markets. The Company also operates a
franchise licensing program called The Sonus Network, with over 430 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. The Company, through its subsidiary Hear PO
Corp., a New Mexico corporation, also 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.

     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 ("SFAS")
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 through owned outlets
are recognized at the time of delivery. Revenue related to revenue sharing
arrangements with respect to supplier sales to franchisees are recognized when
earned and are included in other revenues. Revenues from the provision of
hearing care diagnostic services are recognized at the time that such services
are performed.

     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 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. A valuation allowance is established
when necessary to reduce deferred tax assets to the amount expected to be
realized.




                                       12
<PAGE>

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     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 SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". 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, 2000 and 1999, the Company had no short-term investments
and therefore no unrealized holding gains or losses. Gross realized gains and
losses on sales of available-for-sale securities for fiscal 2000, 1999, and 1998
were nominal. Realized gains and losses are computed by determining cost on a
specific identification basis.

     Gross proceeds from sales and maturities of available-for-sale investments
during fiscal 2000, 1999 and 1998 were $11,001,000, $6,408,000 and $18,511,000,
respectively.

     Accounts Receivable

     The Company establishes the allowance for doubtful accounts based on
historical charge-offs of accounts receivable. During fiscal 2000, the Company
also established a reserve for aged receivables based on the aging of the
accounts receivable and other factors, which in the opinion of management,
deserve current recognition.

     Inventory

     Inventory primarily consists of hearing instruments, hearing instrument
batteries, and assistive listening devices and is 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
           Computer equipment and software                   Five years

     Property and equipment purchased under capitalized leases and leasehold
improvements are amortized over the shorter of the lease term or their estimated
useful lives and such depreciation is included with depreciation expense.

Advertising Expense

     The Company defers its advertising costs until the advertisement is
actually run, at which time the full expense is recognized. Deferred advertising
costs were $60,000 and $84,000 at July 31, 2000 and 1999, respectively.
Advertising expense was $4,004,000, $3,632,000, and $2,786,000 for the years
ended July 31, 2000, 1999, and 1998, respectively.



                                       13
<PAGE>



NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


     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 as of July 31:

                                                      2000             1999
                                                      ----             ----
                                                         (in thousands)
        Goodwill                                    $20,970          $19,774
        Covenants not to compete                      2,311            2,226
        Less:  Accumulated amortization              (3,603)          (2,232)
                                                    -------          -------
                                                    $19,678          $19,768
                                                    =======          =======

     Amortization charged to operations was $1,386,000, $1,195,000, and $635,000
for the years ended July 31, 2000, 1999 and 1998, respectively.

     Deferred Acquisition and Financing Costs

     Costs related to the acquisition of centers 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.

     Impairment of Long-Lived Assets

     The Company assesses the recoverability of long-lived assets, including
goodwill, by determining whether the carrying amount of the long-lived asset
over its remaining life can be recovered through undiscounted projected future
cash flows. The Company has not recognized any impairment losses during the
years ended July 31, 2000, 1999, and 1998.



                                       14
<PAGE>

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     Net Loss Per Share

     On August 1, 1997, the Company adopted SFAS No. 128, "Earnings Per Share",
which provides that "basic net income (loss) per share" and "diluted net income
(loss) per share" for all periods presented be computed using the weighted
average number of common shares outstanding during the respective period, with
diluted net income per share including the effect of potentially dilutive common
shares. The following potential common shares have been excluded from the
computation of diluted net loss per share for the years presented because the
effect would have been anti-dilutive:

<TABLE>
<CAPTION>
                                                                            Years Ended July 31,
                                                                            --------------------
                                                                       2000         1999        1998
                                                                       ----         ----        ----
                                                                               (in thousands)
<S>                                                                    <C>          <C>         <C>
Shares issuable under stock options and warrants..................     4,263        3,629       2,001
Shares issuable upon conversion of convertible notes payable......        47          153         382
Shares of convertible preferred stock on an as converted basis....     4,743        2,667       1,600
</TABLE>

     Comprehensive Income (Loss)

     Comprehensive income (loss) consists of net income (loss) and foreign
currency translation adjustment and is presented in the consolidated statement
of shareholders' equity. SFAS No. 130 requires only additional disclosures in
the consolidated financial statements; it does not affect the Company's
financial position or results of operations.

     Stock Based Compensation

     The Company accounts for its stock plans in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation", which establishes a fair value method
of accounting for stock plans. As allowed by SFAS No. 123, the Company has
elected to continue to apply Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees", which prescribes an intrinsic value
based method of accounting for stock plans covering employees and to provide the
pro-forma disclosures of the effects of SFAS No. 123 on net income (loss) and
net income (loss) per share.

     In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation" ("FIN 44"), which provides interpretive guidance on several
implementation issues related to Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company adopted FIN 44 effective
July 1, 2000. The adoption of FIN 44 did not have a material impact on the
consolidated financial statements for the year ended July 31, 2000.

     Concentrations of Credit Risk

     Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and cash equivalents
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.



                                       15
<PAGE>

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     Fair Value of Financial Instruments

     The carrying value of financial instruments such as cash and cash
equivalents, accounts receivable, other receivables, trade payables, notes
payable, and convertible notes payable approximate their fair value because of
the short-term nature of these instruments. The carrying amount of the Company's
long-term debt approximates fair value because the interest rates approximate
the rates that management believes are currently available to the Company. The
carrying amount of capital lease obligations approximates fair value.

     Use of Estimates

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

NOTE 2.  ACQUISITIONS

     During the fiscal year ended July 31, 2000, the Company acquired 16 hearing
care centers in 10 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 $438,000,
promissory notes issued by the Company of $521,000 generally payable over three
years, and $85,000 in assumed liabilities. As a result of the acquisitions, the
Company recorded approximately $6,000 in inventory, $157,000 in property and
equipment, $10,000 in other assets, and $795,000 in goodwill, which included
costs related to acquisitions, and $85,000 for covenants not to compete.

     During the fiscal year ended July 31, 1999, the Company acquired 31 hearing
care centers in 17 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 $1,704,000,
promissory notes issued by the Company of $1,749,000 generally payable over
three years, and $900,000 in assumed liabilities. As a result of the
acquisitions, the Company recorded approximately $95,000 in accounts receivable,
$90,000 in inventory, $457,000 in property and equipment, $20,000 in other
assets, and $3,700,000 in goodwill, which included costs related to
acquisitions. In addition to the purchase price for the acquisitions, the
Company also recorded $299,000 for covenants not to compete, of which $79,000
was paid in cash at the time of closing, with the balance payable over three
years.




                                       16
<PAGE>

NOTE 2.  ACQUISITIONS (CONTINUED)

The following unaudited pro forma financial information reflects the historical
operations of the Company and the hearing care centers acquired by the Company
during the fiscal year ended July 31, 2000 (the "Acquisitions"). Such financial
information has been prepared for comparative purposes only and 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, 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.

                                                          YEAR ENDED JULY 31,
                                                          -------------------
                                                              (Unaudited)
           (in thousands,
           except per share amounts)                      2000         1999
                                                          ----         ----
           Net revenues..............................   $45,813      $37,809
           Net loss..................................   (3,044)      (4,686)
           Net loss per share (basic and diluted)....    (0.50)       (0.77)


NOTE 3.  PROPERTY AND EQUIPMENT

         Property and equipment consist of the following as of July 31:

              (in thousands)                                  2000        1999
                                                              ----        ----
              Professional equipment.................       $2,695      $2,154
              Office equipment.......................        1,155         926
              Leasehold improvements.................        1,599       1,030
              Computer equipment and software........        6,941       4,689
                                                            ------      ------
                                                            12,390       8,799
              Less accumulated depreciation.........        (4,300)     (2,591)
                                                            ------      ------
                                                            $8,090      $6,208
                                                            ======      ======


                                       17
<PAGE>

NOTE 4.  CONVERTIBLE NOTES PAYABLE

     At July 31, 1999, the Company had outstanding promissory notes in the
amount of $931,000 convertible at any time into 143,000 Common Shares at a rate
of $6.50 per share. The notes were paid in full during November and December
1999, along with interest of $37,848.

NOTE 5.  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, 2000 (in thousands):

    2001........................................................ $ 322
    2002........................................................   200
                                                                 -----
 Total minimum lease payments...................................   522
     Less:  amount representing interest........................   (52)
                                                                 -----
     Present value of minimum lease payments....................   470
     Less current portion.......................................  (289)
                                                                 -----
                                                                 $ 181
                                                                 =====

Total assets under capitalized leases at July 31, 2000 and 1999, were $462,000
and $112,000, net of accumulated depreciation of $573,000 and $375,000,
respectively.

NOTE 6.  LONG-TERM DEBT

         Long-term debt consists of the following as of July 31 (in thousands):
<TABLE>
<CAPTION>
                                                                                          1999           2000
                                                                                          ----           ----
<S>                                                                                       <C>            <C>
         Installment notes incurred in connection with acquisitions payable in
         monthly installments due from 2001 to 2004 with a weighted
         average interest rate of 6.9%, partially secured by purchased assets...........  $ 292          $ 460

         Installment notes incurred in connection with acquisitions payable in
         quarterly installments due from 2001 to 2002 with a weighted
         average interest rate of 6.5%, partially secured by purchased assets...........    249            517

         Installment notes incurred in connection with acquisitions payable in annual
         installments due from 2000 to 2005 with a weighted
         average interest rate of 6.2%, partially secured by purchased assets............ 1,733          2,167

         Non-interest bearing installment obligations for covenants not to
         compete due from 2000 to 2003 (net of discount of $41), partially
         secured by assets purchased in related acquisitions............................    350            637

         Equipment loans from suppliers with interest rates from 7.8% to 18% per annum
         due 2000 to 2003, secured by equipment.........................................    299            366

         Working capital loan from a supplier with floating interest rate of prime
         plus 0.75% due 2001, secured by certain accounts receivable....................    331            500
                                                                                        -------        -------

                                                                                          3,254          4,647
           Less current portion......................................................... (2,176)        (2,150)
                                                                                        -------        -------
                                                                                        $ 1,078        $ 2,497
                                                                                        ========       =======
</TABLE>

Annual maturities of long-term debt are as follows (in thousands): 2001 -
$2,176; 2002 - $699; 2003 - $386; 2004 - $17; 2005 - $16.




                                       18
<PAGE>

NOTE 7.  LINE OF CREDIT

     In July 2000, Sonus-USA, Inc. and Sonus-Texas, Inc. entered into a
$2,000,000 revolving line of credit agreement with a commercial bank. The line
of credit matures on June 30, 2001, and bears interest at the bank's prime rate
plus 0.5%, or 10% at July 31, 2000. The amount available for borrowing under the
line of credit was $2,000,000 at July 31, 2000, and there was no amount
outstanding at that date. The line of credit is secured by all accounts
receivable, inventory, chattel paper and general intangibles of Sonus-USA, Inc.
and Sonus-Texas, Inc. At July 31, 2000, the Company was in violation of certain
financial covenants under the line of credit but the bank has waived compliance
with such covenants until the next covenant test date, January 31, 2001. In
addition, the bank has agreed to amend certain covenants.

NOTE 8.  SHAREHOLDERS' EQUITY

     Series A Convertible Preferred Shares

     The Company has 2,666,666 Series A Convertible Preferred Shares (the
"Series A Shares") outstanding. The Company originally issued 13,333,333 Series
A Shares in a private placement in December 1997. A one-for-five reverse split
(consolidation) of the Series A Shares was effected in January 2000. All Series
A Share amounts have been restated to reflect the one-for-five reverse split.
The following summarizes certain terms of the Series A Shares:

     Voting Rights. Each Series A Share is entitled to one vote (or such other
number of votes equal to the number of Common Shares into which such Series A
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 Series A 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 $6.75
per share (the "Base Amount"). As of July 31, 2000, cumulative undeclared
dividends amounted to $2,340,000. All accrued and unpaid dividends will be
forfeited upon the conversion of the Series A 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");

     (b) The Common Shares are traded on a U.S. Principal Market at a daily
closing price greater than $8.00 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 Series A
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 $0.22 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 Series A Shares will not be counted).

     If the Triggering Conditions have not been met by:

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

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

     (3) 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.




                                       19
<PAGE>

NOTE 8.  SHAREHOLDERS' EQUITY (CONTINUED)

     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 Series A Shares
upon liquidation, the holders of Series A 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 Series A Shares upon liquidation, a
liquidating distribution in an amount equal to the greater of (i) $6.75 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 Series A 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 Series A Shares. After payment of the full
amount of the liquidating distribution to which they are entitled, the holders
of Series A Shares will have no right to any of the remaining assets of the
Company.

     Optional Redemption. The Series A Shares may not be redeemed before
December 24, 2002. Thereafter, the Series A 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) $6.75 per share plus any accrued and unpaid
dividends or (ii) the fair market value of a Series A 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 Series
A Shares. The Series A Shares are not subject to mandatory redemption or any
sinking fund provisions.

     Conversion Rights. The Series A 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 one Series A
Share 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 Series A Shares, any
accrued and unpaid dividends with respect to such shares will be forfeited. The
Company has the right to force conversion of the Series A Shares, in whole or in
part, upon satisfaction of certain conditions.

     Series B Convertible Preferred Shares

     On October 1, 1999, the Company issued 2,500,000 Series B Convertible
Preferred Shares (the "Series B Shares") in a private placement for $10,000,000
in cash. The following summarizes certain terms of the Series B Shares:

     Voting Rights. Each Series B Share is entitled to one vote (or such other
number of votes equal to the number of Common Shares into which such Series B
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. Cash dividends will accrue on the Series B Shares at an annual
rate of 8% of the conversion price then in effect until November 1, 2004,
increasing in steps thereafter to 18% 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. As of July 31, 2000, cumulative undeclared
dividends amounted to $667,000. Upon conversion of the Series B Shares, any
accumulated dividends will be forfeited.




                                       20
<PAGE>

NOTE 8.  SHAREHOLDERS' EQUITY (CONTINUED)

     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 Series B Shares
upon liquidation, the holders of Series B 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 Series B Shares upon liquidation, a
liquidating distribution in an amount equal to the conversion rate then in
effect multiplied by (i) the conversion price then in effect plus any accrued
and unpaid dividends or (ii) the amount that would have been distributable to
such holders if they had converted their Series B Shares into Common Shares
immediately prior to such dissolution, liquidation, or winding up, plus any
accrued and unpaid dividends, whichever is greater. 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 Series B Shares. After payment of the full
amount of the liquidating distribution to which they are entitled, the holders
of Series B Shares will have no right to any of the remaining assets of the
Company. The Company will be prohibited from paying cash dividends to holders of
Common Shares unless the accumulated dividends on the Series B Shares have been
paid in full.

     Optional Redemption. The Series B Shares may not be redeemed before October
1, 2004. Thereafter, the Series B 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 conversion rate then in effect multiplied by (i) the conversion price then
in effect plus any accrued and unpaid dividends or (ii) the fair market value of
a Series B 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 Series B Shares, whichever is greater. The Series B
Shares are not subject to mandatory redemption or any sinking fund provisions.

     Conversion Rights. Until October 31, 2000, the Series B Shares are
convertible at the option of the holder on a one-for-one basis into 2,500,000
Common Shares. 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. The conversion rate is
also subject to adjustment for stock dividends, stock splits, recapitalizations,
and other similar events. In addition, until the Company attains specified
quarterly earnings targets, the conversion rate will increase each fiscal
quarter. The amount of such quarterly adjustments will be based on a factor of
2% of the original purchase price plus the sum of all prior adjustments until
November 1, 2004, increasing in steps thereafter to 4.5% 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.

     Share Purchase Warrants

     The Company has outstanding share purchase warrants issued in connection
with the Series A Shares to purchase 2,000,000 Common Shares at an exercise
price of $6.75 per share until October 1, 2004. The Company may force the
exercise of the warrants upon satisfaction of all the Triggering Conditions,
except that the Company's net income before income taxes, dividends on the
Series A Shares and Series B 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 $0.35 instead of $0.22 per fully
diluted Common Share per fiscal quarter.

     In August 1998, the Company issued 39,799 Common Shares at $6.25 per share
in connection with the exercise of share purchase warrants issued in September
and December 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 2,500,000 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.



                                       21
<PAGE>

NOTE 8. SHAREHOLDERS' EQUITY (CONTINUED)

     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, 2000 or 1999.

     The activity during the years ended July 31was as follows:

<TABLE>
<CAPTION>
                                                  2000                        1999                         1998
                                       ------------------------------------------------------------------------------------
                                                       WEIGHTED-                    WEIGHTED-                   WEIGHTED-
                                                        AVERAGE                      AVERAGE                     AVERAGE
                                                       EXERCISE                      EXERCISE                    EXERCISE
                                          OPTIONS        PRICE         OPTIONS        PRICE        OPTIONS        PRICE
                                          -------        -----         -------        -----        -------        -----
<S>                                       <C>           <C>            <C>           <C>             <C>           <C>
Outstanding - beginning of year.....      2,028,000     $6.74          1,560,000     $7.54           488,400       $6.41
   Granted..........................        853,000      5.20            655,000      5.56         1,138,000        8.12
   Exercised........................             --       --                  --       --           (12,400)        2.10
   Canceled.........................      (387,000)      7.09          (187,000)      8.70          (54,000)        9.79
                                          ---------                    ---------                   --------
Outstanding - end of year...........      2,494,000      6.16          2,028,000      6.74         1,560,000        7.54
                                          =========                    =========                   =========

Exercisable at end of year                1,160,953      6.41            808,441      6.54           363,200        5.98

Weighted-average fair value of
   options granted during the year                       3.42                         4.26                          8.38
</TABLE>

     During the year ended July 31, 2000, the Company cancelled 55,000 stock
options with a weighted-average exercise price of $6.00 per share and reissued
55,000 stock options with a weighted-average exercise price of $5.08 per share.
The reissued stock options have a remaining contractual life of 9.9 years and
are accounted for using variable accounting until exercised, forfeited, or
expire unexercised.





                                       22
<PAGE>

NOTE 8.  SHAREHOLDERS' EQUITY (CONTINUED)

     The following table summarizes information about stock options outstanding
at July 31, 2000:

<TABLE>
<CAPTION>
                                       OPTIONS OUTSTANDING                              OPTIONS EXERCISABLE
                      -------------------------------------------------------   -------------------------------------
                                              WEIGHTED-
                            NUMBER             AVERAGE          WEIGHTED-            NUMBER            WEIGHTED -
                         OUTSTANDING          REMAINING          AVERAGE           EXERCISABLE           AVERAGE
     RANGE OF               AS OF            CONTRACTUAL         EXERCISE             AS OF             EXERCISE
  EXERCISE PRICES       JULY 31, 2000           LIFE              PRICE           JULY 31, 2000           PRICE
--------------------  -------------------  ----------------   ---------------   ------------------   ----------------
<S>                             <C>           <C>                    <C>                 <C>                <C>
      $1.00-- $2.00               60,000        0.39                   $1.28               60,000             $ 1.28
       2.01--  3.50               25,000        0.54                    3.36               25,000               3.36
       3.51--  5.00              475,000        9.44                    4.16              113,451               4.17
       5.01--  6.50              993,000        7.14                    5.95              395,502               6.06
       6.51--  8.00              682,400        6.26                    6.97              405,700               7.01
       8.01--  9.50               96,000        3.30                    8.66               80,000               8.76
       9.51-- 12.00              162,600        7.51                   10.70               81,300              10.70
--------------------  -------------------  ----------------   ---------------   ------------------   ----------------

     $1.00-- $12.00            2,494,000        6.98                   $6.16            1,160,953             $ 6.41
                      ===================                                       ==================
</TABLE>

   No compensation cost has been recognized for the Company's stock option
grants to employees under APB No. 25. Total compensation cost recognized in the
statements of operations for options granted to non-employees under SFAS No. 123
during the years ended July 31, 2000, 1999 and 1998, was $26,000, $203,000 and
$0, respectively. Pro forma information regarding net income (loss) and net
income (loss) per share is required under SFAS No. 123 and has been determined
as if the Company had accounted for all 2000, 1999 and 1998 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 2000, 1999, and 1998: risk-free interest
rates of 6.04%, 5.92% and 5.5%, respectively; an expected option life of 9.59
years, 9.60 years and 7.69 years, respectively; expected volatility of 106%, 90%
and 114%, respectively; and dividend yield of zero.

   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 No. 123, net loss and net
loss per share would have been as follows:

<TABLE>
<CAPTION>
                                                     2000            1999            1998
                                                     ----            ----            ----
                                                      (in thousands, except per share data)
<S>                                                <C>             <C>            <C>
  Net loss applicable to common shareholders:
      As reported................................  $(3,101)        $(4,884)       $(4,594)
      Pro forma (1)..............................  $(5,897)        $(6,176)       $(5,988)
  Net loss per share (basic and diluted):
      As reported................................   $(0.51)         $(0.80)        $(0.89)
      Pro forma (1)..............................   $(0.97)         $(1.01)        $(1.16)
</TABLE>

  (1) SFAS No. 123 applies to awards granted in fiscal years that begin after
  December 15, 1994. Consequently, the effects of applying SFAS No. 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 fiscal 1998, 1999, and 2000.




                                       23
<PAGE>



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. and its subsidiaries
file corporate income tax returns in the United States. There is no provision
for income taxes for the years ended July 31, 2000, 1999, and 1998 as the
Company incurred net operating losses.

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

                                                          2000    1999    1998
                                                          ----    ----    ----
  Tax benefit at statutory rate........................   (34)%    (34)%   (34)%
  Adjustment for higher Canadian tax rate..............     1      ---      (1)
  Expenses not deductible for tax purposes.............     7        5       3
  State taxes, net of federal..........................    (6)      (5)     (5)
  Change in valuation allowance impacting statement of
  operations...........................................    32       34      37
                                                          ---      ---     ---
  Tax rate per financial statements....................    -- %     -- %    -- %
                                                          ---      ---     ---


     The components of temporary differences that give rise to significant
portions of deferred income taxes are as follows at July 31 (in thousands):

<TABLE>
<CAPTION>
                                                                           2000           1999            1998
                                                                           ----           ----            ----
<S>                                                                   <C>            <C>           <C>
     Deferred tax assets:
      Net operating loss carryforwards...........................        $  5,371      $   4,754     $   2,698
      Allowance for doubtful accounts............................           1,462            364           277
      Capitalized financing costs................................             473            694           980
       Other.....................................................             135             32            15
                                                                          -------       --------      --------
                                                                            7,441          5,844         3,970
     Deferred tax liabilities:
       Property and equipment due to differences in depreciation.            (609)           (83)          ---
       Goodwill and start-up costs...............................            (368)          (305)         (240)
                                                                          -------       --------      --------
                                                                            6,464          5,456         3,730
     Less valuation allowance....................................        $ (6,464)     $  (5,456)    $  (3,730)
                                                                          -------       --------      --------
                                                                         $    ---      $     ---     $     ---
                                                                          =======       ========      ========
</TABLE>



                                       24
<PAGE>

NOTE 9.  INCOME TAXES (CONTINUED)

     At July 31, 2000, the Company had approximate net operating loss
carryforwards for tax purposes which, if not utilized, expire in the years ended
as follows (in thousands):

                                     CANADA       UNITED STATES       TOTAL
                                     ------       -------------       -------
      2001.....................      $   16         $   ---           $    16
      2002.....................          25             ---                25
      2003.....................         429             ---               429
      2004.....................         238             ---               238
      2005.....................         655             ---               655
      2006.....................         482             ---               482
      2007.....................         548             ---               548
      2009.....................         ---              24                24
      2010.....................         ---              29                29
      2011.....................         ---             656               656
      2012.....................         ---             781               781
      2013.....................         ---           3,932             3,932
      2019.....................         ---           4,515             4,515
      2020.....................         ---             910               910
                                     -------        -------           -------
                                     $2,393         $10,847           $13,240
                                     ======         =======           =======


     A provision of the Internal Revenue Code requires that the utilization of
net operating losses be limited when there is a change of more than 50 percent
in ownership of the Company. Such a change occurred in December 1997. This
ownership change may limit the utilization of any United States federal net
operating losses incurred prior to the change in ownership date.

NOTE 10.  RELATED PARTY TRANSACTIONS

     Gregory J. Frazer, Ph.D., an officer and director of the Company, and Mr.
Frazer's wife were shareholders in certain Hearing Care Associates corporations
that the Company acquired during the fiscal years ended July 31, 1998 and 1997.
During the fiscal year ended July 31, 1999, the Company issued a three-year
promissory note to Mr. Frazer in the principal amount of $102,000, payable in
equal quarterly installments, in connection with purchase price adjustments for
hearing care centers previously acquired from Mr. Frazer. The Company also
entered into expanded non-compete agreements with Mr. Frazer and his wife that
pay them a total of $10,758 per month until September 2001. 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.

     Mr. Frazer and his wife 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 non-cumulative 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 Mr. Frazer and his
wife for consideration of $42,084 and $56,112, respectively.




                                       25
<PAGE>



NOTE 10.  RELATED PARTY TRANSACTIONS (CONTINUED)

     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, which bore interest at 10% and 7.75%, respectively, were
repaid on July 6, 1999, along with interest of $16,077. 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 $29,187 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 was repaid 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 $32,272, in
order to pay taxes incurred as a result of option exercises in April 1996. The
current balance of the loan, which matures on December 31, 2000, and bears
interest at 7.75% per annum, is $35,760.

     On December 8, 1998, the Company loaned Scott E. Klein, President and Chief
Operating Officer 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, along with interest at 12% per
annum in the amount of $23,342, was repaid on December 10, 1999.

     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. See Note 4 "Convertible
Notes Payable."

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, 2000 (in thousands):

     Year ending July 31:
     2001.....................................................   $2,039
     2002.....................................................    1,565
     2003.....................................................    1,134
     2004.....................................................      790
     2005.....................................................      292
     Thereafter...............................................      221
                                                                 ------
     Total minimum lease payments                                $6,041
                                                                 ======

     Rental expense under operating leases was $2,528,000, $2,236,000, and
$1,426,000 for the years ended July 31, 2000, 1999, and 1998, respectively.




                                       26
<PAGE>



NOTE 12.  COMMITMENTS AND CONTINGENCIES (CONTINUED)

     Contingent Payments

     The terms of certain of the Company's acquisition agreements provide for
additional consideration to be paid if the acquired entity's revenues or results
of operations exceed certain target levels. Such additional consideration is
paid in cash and is recorded when earned as additional purchase price. The
maximum amount of contingent consideration that the Company may be required to
pay is $294,000 for fiscal 2001 and $507,000 thereafter.

     Claims

     The Company is a party to various lawsuits and claims incidental to its
business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the Company's financial
position, results of operations, or liquidity.

NOTE 13.  SEGMENT INFORMATION

     The Company adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" during fiscal 1999. In accordance with SFAS
No. 131, the Company has disclosed one operating segment: the sale and servicing
of hearing instruments and the provision of audiology services primarily to
individual consumers. No customer constituted more than 5% of total revenues.
Revenues by country were as follows for the years ended July 31:

         (in thousands)                     2000         1999           1998
                                            ----         ----           ----
         United States..............      $40,353       $30,511       $19,498
         Canada.....................        3,606         3,248         2,870
                                          -------       -------       -------
         Total......................      $43,959       $33,759       $22,368
                                          =======       =======       =======


NOTE 14.  SUBSEQUENT EVENTS

     In August and October of 2000, the Company acquired 4 hearing care centers
in 4 transactions for a total purchase price of $122,000. The Company has paid
$11,000 of the total purchase price in cash, with $25,000 due in January 2001
and the remainder over a 3-year period. Each transaction was accounted for as a
purchase.

NOTE 15.  CANADIAN VERSUS U.S. GAAP

     As of July 31, 2000, 1999, and 1998 there were no material differences
between Canadian generally accepted accounting principles ("GAAP") and U.S.
GAAP.




                                       27
<PAGE>

SUPPLEMENTARY DATA:  QUARTERLY RESULTS OF OPERATIONS  (UNAUDITED)

         In January 2001, after communication with the staff of the Securities
and Exchange Commission, the Company determined that it was necessary to restate
the interim financial information included in its Form 10-QSB filings for the
fiscal year ended July 31, 2000. The restatement was required to reflect certain
adjustments pertaining to product revenue, cost of products sold, clinical
expenses, and general and administrative expenses recorded at July 31, 2000 and
1999 which should have been recorded in the Company's interim financial
information. The following is a tabulation of the unaudited quarterly results of
operations for the years ended July 31, 2000, 1999, and 1998 that includes the
effect of the restatement (in thousands, except per share data):


<TABLE>
<CAPTION>
                                                               Quarter ended
                        --------------------------------------------------------------------------------------------

                            October 31, 1999          January 31, 2000       April 30, 2000      July 31, 2000
                            ----------------          ----------------       --------------      -------------

                                         As                         As                                      As
                                     Previously                 Previously                     As       Previously
                        As Restated   Reported    As Restated    Reported     As Reported   Restated     Reported
                        -----------   --------    -----------    --------     -----------   --------     --------
<S>                        <C>          <C>          <C>           <C>          <C>         <C>           <C>
Net revenues               $ 10,102     $ 10,142     $ 10,387      $ 10,494     $ 12,083    $ 11,387      $ 11,240
Product gross profit          5,803        5,811        6,072         6,077        6,717       5,773         5,760
Income (loss) from
operations                     (569)        (531)        (530)         (454)          86      (1,987)       (2,101)
Net income (loss)              (623)        (585)        (521)         (445)         111      (2,068)       (2,182)

Net income (loss) per
share (basic)               $ (0.10)     $ (0.10)     $ (0.09)      $ (0.07)     $  0.02     $ (0.34)      $ (0.36)
Net income (loss) per
share (diluted)             $ (0.10)     $ (0.10)     $ (0.09)      $ (0.07)     $  0.01     $ (0.34)      $ (0.36)
</TABLE>


<TABLE>
<CAPTION>
                                                               Quarter ended
                        --------------------------------------------------------------------------------------------

                           October 31, 1998         January 31,1999         April 30,1999           July 31,1999
                           ----------------        ----------------         --------------          -------------
                                        As                      As                      As                      As
                            As       Previously      As      Previously      As      Previously      As      Previously
                         Restated     Reported    Restated    Reported    Restated    Reported    Restated    Reported
                         --------     --------    --------    --------    --------    --------    --------    --------
<S>                       <C>         <C>        <C>         <C>         <C>        <C>         <C>         <C>
Net revenues              $ 7,701     $ 7,701    $ 8,486     $ 8,486     $ 9,093    $ 9,093     $ 8,479     $ 8,479
Product gross profit        4,045       4,045      4,412       4,412       4,954      4,954       4,867       4,867
Income (loss) from
operations                 (1,684)     (1,523)      (735)       (701)         41         75      (2,457)     (2,686)
Net income (loss)          (1,647)     (1,474)      (745)       (699)         19         65      (2,511)     (2,776)

Net income (loss) per
share (basic)             $ (0.27)    $ (0.24)   $ (0.12)    $ (0.11)     $  ---    $  0.01     $ (0.42)    $ (0.46)
Net income (loss) per
share (diluted)           $ (0.27)    $ (0.24)   $ (0.12)    $ (0.11)     $  ---    $  0.01     $ (0.42)    $ (0.46)
</TABLE>


<TABLE>
<CAPTION>
                                                                                 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
Product gross profit                                            2,848         1,192         2,864         4,176
Loss from operations                                              (79)       (1,135)         (778)       (2,906)
Net loss                                                          (96)       (1,085)         (581)       (2,832)

Net loss per share (basic and diluted)                        $ (0.02)      $ (0.24)      $ (0.10)      $ (0.49)
</TABLE>




                                       28
<PAGE>



                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has caused this Amendment No. 2 to its report on Form
10-KSB to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: February 2, 2001        SONUS CORP.

                               By: /s/ Paul C. Campbell
                               -------------------------------------------------
                               Paul C. Campbell
                               Senior Vice President and Chief Financial Officer
                               (Authorized Signatory and Principal Financial
                               Officer)

                               By: /s/ Douglas A. Pease
                               -------------------------------------------------
                               Douglas A. Pease
                               Controller
                               (Principal Accounting Officer)




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