TELEMONDE INC, 10-K, 2000-03-30

TELEMONDE INC
10-K, 2000-03-30

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 1999 or

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from __________ to _______________

Commission file number: 000-28113
-----------

TELEMONDE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 62-1795931
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

230 Park Avenue, 10th Floor, New York, New York 10169
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(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: (646) 435-5645
--------------

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.001 Par Value Per Share
- --------------------------------------------------------------------------------
(Title of Class)

Indicate by check whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ___ No X

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

<PAGE>

As of March 22, 2000, Telemonde, Inc. had outstanding 80,613,355 shares
of common stock, $.001 par value per share.

The aggregate market value of Telemonde, Inc. common stock held by
nonaffiliates of Telemonde, Inc., i.e., by persons other than officers or
directors of Telemonde, Inc., was $178,488,134 as of December 31, 1999 (based on
a 12/31/99 closing stock price of $3.0313/share).

Portions of the registrant's definitive proxy statement pursuant to Regulation
14A, which statement will be filed not later than 120 days after the end of the
fiscal year covered by this Report, are incorporated by reference in Part III
hereof.

TELEMONDE, INC.
--------------
1999 ANNUAL REPORT ON FORM 10-K
-------------------------------

<TABLE>
<CAPTION>
TABLE OF CONTENTS Page Number

<S> <C>
Forward-Looking Statements 1

PART I

Item 1. Business 2

Item 2. Properties 44

Item 3. Legal Proceedings 46

Item 4. Submission of Matters to a Vote of Security Holders 46

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 47

Item 6. Selected Consolidated Financial and Operating Data 50

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations 51

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 64

Item 8. Financial Statements and Supplementary Data 66

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 66

PART III

Item 10. Directors and Executive Officers of the Registrant 66

Item 11. Executive Compensation 66

Item 12. Security Ownership of Certain Beneficial Owners and Management 66

Item 13. Certain Relationships and Related Transactions 67

<PAGE>

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 67

Signatures 71

</TABLE>

<PAGE>

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K includes "forward-looking statements" within the
meaning of the federal securities laws. Forward-looking statements are any
statements other than those relating to historical information or current
condition, including without limitation, statements regarding future margin
performance, customer retention capabilities, future revenues, strategy, and
pricing of services. Forward-looking statements can often be identified by the
use of forward-looking words such as "believes," "estimates," "expects,"
"intends," "may," "will," "should," or "anticipates." In addition, from time to
time, we or our representatives have made or may make forward-looking
statements, orally or in writing. Forward-looking statements also may be
included in various filings that we have made or may make with the Securities
and Exchange Commission, in press releases or in oral statements made by or with
the approval of one of our authorized executive officers.

The forward-looking statements referred to above involve predictions. We cannot
assure you that the future results will be achieved or that, if achieved, such
results will be indicative of the results in later periods. The inclusion of
forward-looking statements in this Annual Report should not be regarded as a
representation by us or any other person that our objectives or plans will be
achieved or that our operating expectations will be realized. Actual events or
results may differ materially as a result of certain risks which are described
in this Annual Report, including but not limited to, in the Business section
under the caption "Risk Factors". Such risks include:

o Our ability to increase our capital base.
o The rate at which we add new customers and the prices those
customers pay for our bandwidth and other services.
o Our ability to obtain trans-Atlantic and other bandwidth
capacity on favorable terms.
o Customer payment terms where customers require a deferred payment
plan for their purchase or lease of our IRUs.
o The speed and extent to which we add networking and related
services, including but not limited to e-commerce services, to
our portfolio of products and services.
o The ability of our local relationships in emerging markets to
support our customers and meet our obligations.
o The completion of the planned expansion of our networks and
infrastructure.
o General economic, financial, competitive, legislative,
regulatory, and other factors that are beyond our control.

We undertake no obligation to publicly update or revise any forward-looking
statement. All subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by the cautionary statements contained in this annual report.

1
<PAGE>

PART I

ITEM 1. BUSINESS.

YOU SHOULD READ THIS DESCRIPTION OF OUR BUSINESS TOGETHER WITH OUR MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND THE
FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS ANNUAL
REPORT.

OVERVIEW

We are an international communications company that is creating a global network
which will connect developed countries and regional centers in emerging markets.
We offer voice, data and Internet services which use our network and content
capabilities. We also manage the bandwidth that we provide to our customers. One
of the aims of our services is to enable emerging markets to have access to the
telecommunications facilities of the developed world. These services will enable
people in developing countries to participate in the international
communications community. Our target customers include leading global
telecommunications carriers, public telephone operators in developing countries,
Internet service providers and multimedia service providers. We seek to
capitalize on the increasing demand for high quality international
communications services which is being driven by the globalization of the
world's economies, the worldwide trend toward telecommunications deregulation,
and growth of voice, video, data and Internet traffic.

GENERAL DEVELOPMENT OF BUSINESS

We were formed on March 10, 1998 as Telemonde Investments Limited, a British
Virgin Islands company. We began to purchase and sell trans-atlantic bandwidth
through various wholly-owned subsidiaries in April 1998.

Telemonde, Inc. (formerly Pac-Rim Consulting, Inc.) acquired Telemonde
Investments Limited on May 14, 1999. Pac-Rim Consulting, Inc. was a dormant
shell company with no operating history but was listed on the NASD
Over-the-Counter Bulletin Board. Following the acquisition, Pac-Rim Consulting,
Inc. changed its name to Telemonde, Inc. On November 9, 1999 Telemonde, Inc.
became a Delaware corporation by merging into a newly formed Delaware
subsidiary.

In August 1999, we acquired TGA (UK) Limited, which provided telecommunications
switch services.

We also established telemonde.net SA, in August 1999. telemonde.net will develop
and sell telecommunications and Internet services to Internet service providers
and multimedia service providers in Western Europe.

On November 8, 1999 we acquired EquiTel Communications Limited, a United Kingdom
company. EquiTel provides telecommunications route management services and
intelligent network services,

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which include a complete telephony card service, voice mail, fax mail, prepaid
mobile calls, premium rate services, short message services, intelligent routing
and single number services, mainly to emerging markets. The maximum aggregate
value of the consideration for the purchase of EquiTel is $69 million, which is
mostly dependent upon its future earnings and which is to be satisfied by the
issue of restricted shares of common stock in Telemonde, Inc.

In December 1998, Desert Telecommunications Services, LLC, an Oman company, was
formed through a joint venture between EquiTel and an individual. Desert
Telecommunications Services, in which EquiTel holds a 49% interest, provides
intelligent network services in Oman.

The following chart shows our current organization:

TELEMONDE, INC.
a Delaware corporation

<TABLE>

<S> <C> <C> <C> <C> <C>
telemonde.net, S.A. Telemonde TGA (UK) Limited, Telecities Limited, EquiTel Telemonde Networks,
organized in Investments Limited, a United a United Kingdom Communications Limited, a United
Switzerland a British Virgin Kingdom company Limited, a United Kingdom company
Islands company company Kingdom company

Telemonde International Bandwidth, EquiTel Card Services
Limited, a British Virgin Islands company Limited,
a United Kingdom company

Telemonde Bandwidth (Bermuda) Limited, a Teleroute Limited,
Bermuda company a United Kingdom company

Telesource Limited,
Telemonde International Bandwidth a United Kingdom company
(Bermuda) Limited,
a Bermuda company Desert Telecommunications Services, LLC
(49%), organized in Oman

</TABLE>

* ALL COMPANIES ARE 100% OWNED UNLESS OTHERWISE INDICATED

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<PAGE>

The principal operating subsidiaries of the Telemonde group are:

<TABLE>

<S> <C> <C>
o telemonde.net SA Established to sell fast Internet-related services to European
Internet Service Providers and media companies
o Telemonde Investments Holding company for three bandwidth subsidiaries
Limited
o Telemonde International Sells bandwidth capacity supplied by Gemini
Bandwidth Limited
o Telemonde Bandwidth (Bermuda) Sells bandwidth capacity supplied by Global Crossing
Limited
o Telemonde International Sells bandwidth capacity supplied by MCI WorldCom
Bandwidth (Bermuda) Limited
o EquiTel Communications Sells network and telecommunications services
Limited
o Desert Telecommunications Joint venture company, providing network services in Oman
Services LLC
o Telemonde Networks
Limited Provides technical, network, marketing
and administrative services to other Telemonde
group companies and to third party
customers.

</TABLE>

Telecities Limited, EquiTel Card Services Limited, Teleroute Limited and
Telesource Limited are dormant companies, which have no operating history.
TGA(UK) Limited is now a dormant company because its assets and business have
been transferred to other companies in the Telemonde group.

BUSINESS DESCRIPTION

INTRODUCTION

Our business consisted solely of sales of bandwidth and related services until
the acquisition of EquiTel on November 8, 1999. EquiTel is a subsidiary whose
revenue will represent a separate industry segment. The EquiTel business is
described separately from the description of the Telemonde business. However, it
is our intention to fully integrate EquiTel's operations with those of
Telemonde. We therefore describe our plan of operation and strategy as for the
combined business, towards the end of this section.

TELEMONDE'S MARKETS

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BANDWIDTH CAPACITY.

Bandwidth is the ability to transmit information, packaged as a stream of bits,
from one destination to another without losing or distorting the content of the
bits. Typically bandwidth is transmitted down systems of fiber optic lines
across oceans and land masses. Fiber optic systems use laser-generated light to
transmit bandwidth through fine strands of glass and are generally characterized
by large circuit capacity, good sound quality and resistance to external signal
interference. Recent advances in bandwidth technology called wave division
multiplexing allow us to activate the fiber and increase the transmission speed
and capacity of the fiber optic lines. Wave division multiplexing and its next
generation variation, dense wave division multiplexing take information bits and
transmit them across increasing numbers of wavelengths or light streams,
multiplying the capacity of the fiber optic line by more than one hundred times.

We believe that the demand for bandwidth will continue to grow, primarily
because of the growth of the Internet and the increase in the size and number of
private networks. We estimate that bandwidth demand will more than double in the
next two years, from approximately 1,000 Gbps in 1999 to 2,500 Gbps in 2001.

International long distance carriers are often categorized according to
ownership and use of bandwidth capacity. No carrier exclusively utilizes its own
facilities for transmission of all of its long distance traffic. Carriers vary
from being primarily facilities-based, meaning that they own and operate their
own land-based and/or undersea cable, satellite-based facilities and switches,
to those that are purely resellers of another carrier's transmission facilities.
We fall into the category of carriers that purchase transmission facilities from
other carriers and break down and sell or lease the capacity.

Under a typical operating agreement, each carrier owns or leases its portion of
the transmission facilities between two countries. A carrier gains ownership
rights in digital undersea fiber optic systems by: (1) purchasing direct
ownership in a particular system (usually prior to the time the system is placed
into service); (2) acquiring an Indefeasible Right of Use, or IRU (which is the
right to use capacity for the time and bandwidth to which the right applies;
e.g., a long term lease of a specific amount of capacity), in a previously
installed system; or (3) by leasing or otherwise obtaining capacity from another
long distance provider that has either direct ownership or IRUs in a cable. We
acquire IRUs from previously installed systems and then lease or sell the IRU to
our customers.

The cost of an IRU to Telemonde from its bandwidth suppliers depends on the
market price for bandwidth capacity at the time of purchasing or committing to
purchase the IRU. Our aggregate cost for bandwidth to date includes bandwidth
inventory not yet drawn down from suppliers. The other costs of delivering and
installing the IRU for Telemonde's customer consist of the purchase cost of
connectivity from the cable landing station or from a carrier hotel facility to
the customer's premises and of the cost of installation and testing at the
customer's premises. The customer's capacity is maintained under an annual
maintenance contract, for which the customer pays an annual or quarterly
maintenance fee. This fee is based on the annual maintenance charge which
Telemonde

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<PAGE>

pays its suppliers for the maintenance of the cable capacity of the IRU.

INTERNET AND DATA SERVICES.

Internet connectivity and enhanced Internet and data services represent two of
the fastest growing segments of the telecommunications services market. The
popularity of the Internet with consumers has driven the rapid proliferation of
the Internet as a commercial medium. Businesses are increasingly:

o establishing websites and corporate intranets and extranets to
expand their customer reach and improve their communications
efficiency;
o recognizing that the Internet can significantly enhance
communications among geographically distributed offices and
employees as well as with customers and suppliers; and
o utilizing the Internet for mission critical applications such
as sales, customer service and project coordination.

In addition, technology trends over the past decade have removed the distinction
between voice and data segments. Today, voice conversations are routinely
converted into digital signals and sent together with other data over high-speed
lines. In order to satisfy the high demand for low-cost communication, software
and hardware developers have developed technologies capable of allowing the
Internet to be utilized for voice communications. Several companies now offer
Internet telephony services which provide real-time voice conversations over the
Internet.

The rapid growth of the Internet has meant that quality of service and features
have often been overlooked. There is a market for companies providing secure and
fast Internet services for Internet Service Providers to be able to add value to
their customers as well as ensuring that the Internet is dimensioned to handle
the next generation of content which includes video, audio and software media.

We believe that there is significant market opportunity for an integrated
approach to the supply of destination-to-destination bandwidth capacity,
telehousing facilities, network management and content in order for our
customers to focus upon their core activities.

TELEMONDE'S PRODUCTS AND SERVICES

We are designing a network to enable us to offer customized products and
services to a wide range of customers with sophisticated voice and data
transmission requirements. We can provide capacity in varying amounts over all
or part of our network utilizing a variety of transmission technologies. We
believe that this range and flexibility will enable us to effectively market our
products to public telephone operators, alternative operators, Internet service
providers, resellers and other carriers comprising our target market.

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<PAGE>

Telecommunications operators and carriers seeking to acquire cross-border
bandwidth capacity have, until recently, acquired that capacity by leasing
international private leased circuits from public telephone operators.
International private leased circuits have traditionally been formed by
combining half-circuits from two public telephone operators between customer
locations. Our existing destination-to-destination products and planned
international network are designed as an alternative to these arrangements.

We offer the following options and services:

FLEXIBLE CAPACITY OPTIONS. We offer customers flexible managed bandwidth
capacity options that include multiples in varying amounts ranging from 45 Mbps
(DS-3) to multiples of 155 Mbps (STM-1). We also offer the same customer
different bandwidth capacity over different geographic segments of our network.

FAST INTERNET ACCESS. We offer our Internet customers global Internet access
services over non-overbooked circuits. This enables our customers to be able to
provide quality and direct Internet connectivity without the long delays facing
many Internet users today.

BACKHAUL CAPACITY AND LOCAL CONNECTIVITY. Backhaul is capacity on terrestrial
fiber optic cables from cable system landing stations to metropolitan areas.
Since we offer customers end-to-end management of the circuit and termination at
local sites, we must provide backhaul capacity and local connectivity. Although
certain of our trans-atlantic contracts provide associated backhaul capacity, we
are always in active negotiations to ensure that we have sufficient backhaul and
local connectivity to meet the needs of our customers. However, there can be
high and unexpected costs in providing local connections due to initial
installation costs, annual local tail rentals, lack of availability of fiber
between connection points, difficulty in obtaining permission to install fiber
and a small number of alternative suppliers.

FLEXIBLE TRANSMISSION TECHNOLOGIES. Our network can support a variety of
transmission technologies, including synchronous digital hierarchy, asynchronous
transfer mode and Internet protocol transmission technologies.

FLEXIBLE CUSTOMER AGREEMENTS. Our customers can obtain capacity on our network
either under lease or Indefeasible Right of Use terms. Our lease agreements are
typically 12 to 36 months depending on the customer's requirements. We offer our
customers the ability to upgrade and expand these agreements as their needs
evolve and grow.

SUPPORT SERVICES. In connection with our bandwidth products, we offer services
that provide us with an opportunity to develop customer loyalty and to
anticipate a customer's need. As part of our standard service package, we
provide 24-hour customer service and network management, and service level
agreements. In addition, we intend to develop a secure Internet website which
will allow customers to remotely monitor the performance of their network
configuration on our network. For an additional fee, we will also install,
configure, monitor and manage customer equipment beyond our network, thereby
providing a single point of contact for our customers.

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<PAGE>

TAILORED INFRASTRUCTURE AND CONNECTIVITY SOLUTIONS. We provide customized
capacity and Internet connectivity to Internet service providers and multimedia
service providers. This service uses our network capabilities, combined with
agreements with leading Internet connectivity providers. As part of this
service, we offer comprehensive service level agreements, as well as flexible
payment terms to ensure that the Internet service provider or multimedia service
provider has the best overall solution for its business.

EQUITEL'S MARKETS

INTERNATIONAL LONG DISTANCE.

The international long distance telecommunications services industry consists of
transmissions of voice and data that originate in one country and terminate in
another.

The industry is undergoing a period of fundamental change that has resulted, and
is expected to continue to result, in significant growth in the usage of
international telecommunications services. According to Telegeography 1999, a
leading telecommunications industry source, in 1997 the international long
distance industry accounted for $66 billion in revenues and 82 billion minutes
of use. This is an increase from $27 billion in revenues and 22 billion minutes
of use in 1988. Furthermore, the Company believes that the industry is projected
to reach approximately $80 billion in revenues and 159 billion minutes of use by
the year 2001.

We believe that a number of trends in the international telecommunications
market will continue to drive growth in international traffic, including:

o globalization of the world's economies and the worldwide trend
toward deregulation and privatization of telecommunications
markets;
o the growth of data and Internet traffic;
o declining prices and a wider choice of products and services
driven by greater competition resulting from privatization and
deregulation;
o increased telephone accessibility resulting from technological
advances and greater investment in telecommunications
infrastructure, including deployment of wireless networks; and
o increased international business and leisure travel.

The different rates at which these trends have developed in regions of the world
have presented innovative telecommunications service providers with unique
opportunities in emerging markets.

INTERNATIONAL SWITCHED LONG DISTANCE SERVICES.

International switched long distance services are provided through switching and
transmission facilities that automatically route calls to circuits based upon a
predetermined set of routing criteria.

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<PAGE>

An international long distance call typically originates on a local exchange
carrier's network and is transported to the caller's domestic long distance
carrier. The domestic long distance provider picks up the call and carries the
call to its own or another carrier's international gateway switch, where an
international long distance provider picks it up and sends it directly or
through one or more other long distance providers to a corresponding gateway
switch in the destination country. Once the traffic reaches the destination
country, it is routed to the party being called through that country's domestic
telephone network.

EMERGING MARKETS

In many emerging markets, access to bandwidth to transport voice and data
traffic remains highly constrained and continues to represent a considerable
barrier to entry into these markets. Furthermore, the public telephone operators
in these markets have been slow to introduce new intelligent network services
such as voicemail, conference calling and prepaid and postpaid calling cards.

We believe that emerging markets are attractive because their telecommunications
rates are high and remain very profitable. While settlement costs are globally
decreasing, we believe that developing countries' local authorities will be slow
to liberalize their markets in order to protect the public telephone operators
and to continue to receive high margin revenues and much needed international
currencies. We believe that working in partnership with the public telephone
operators in emerging markets will allow us to provide end-to-end,
facilities-based services to and from these markets.

In addition, as the world's economies continue to globalize, emerging markets
are increasingly focusing on the need to provide local businesses and end-users
with Internet connectivity as well as local Internet content. Through our
planned provision of point-to-point bandwidth and voice services in emerging
markets, we believe that we will be uniquely positioned to expand our service
offering to include enhanced Internet and data services.

EQUITEL'S PRODUCTS AND SERVICES

We offer a broad array of communications services through our network and
interconnections with the networks of other carriers. Our decision to offer
certain services in a market is based on competitive factors and regulatory
restraints within the market. Below is a summary of services we offer:

INTERNATIONAL ROUTE MANAGEMENT. Our international route management services
involve the development of operating agreements with the public telephone
operators of our chosen markets for delivery of international traffic in both
directions. Our route management activities effectively utilize unsold and
available bandwidth and provides us with access to competitive traffic
termination in those markets.

In addition to basic switch voice services, we provide enhanced route management
services such as:

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<PAGE>

o Development of routes for licensed international operators;

o Development of inbound settlement payment processes;

o Counter-balancing the impact of re-origination (the transfer of
international telephone traffic via a third party carrier); and

o Connection services that allow access between traditional
operators and new licensees in liberalized markets.

We currently have arrangements for route management into the Russian Federation,
the Middle East and South East Asia.

INTELLIGENT NETWORK SERVICES. Our intelligent network services include complete
telephony card services with all the necessary surrounding services such as
marketing and distribution, tariff models and traffic management. The card
platform can also be used to provide enhanced services such as voice mail, fax
mail, prepaid mobile calls, premium rate services, short message services,
intelligent routing and single number services.

Intelligent network services are well developed in the liberalized markets but
have rarely been deployed in most emerging markets. Such services are attractive
to the public telephone operators in emerging markets because they offer
significant opportunities to increase their revenues and enhance their
profitability.

We often create a joint venture with strategic local partners in an emerging
market. The joint venture then works with the public telephone operator to
deliver our intelligent network services into a particular market. For example,
as part of our joint venture in Oman, Desert Telecommunications Services LLC
(DeserTel), we are providing in partnership with OmanTel, the Omani public
telephone operator, pre-paid calling cards in Oman. The cards are currently
being marketed and distributed in the Muscat region and are useable on any
telephone in Oman. We are establishing joint ventures with local partners in
South Africa, Malaysia and Bangladesh.

ADVISORY SERVICES. We also provide advisory services to telecommunications
operators. We target our advisory services to public telephone operators in
emerging markets and provide them with the senior management expertise and
experience we have gained in developed markets. The scope of our advisory
services is flexible. However, we anticipate particular interest from customers
for:

o Board level support in strategic and general business planning;
o Support for the development of international business; and
o Development of business plans and strategies in support of
privatization and fund raising.

OUR NETWORK

BANDWIDTH. We have acquired capacity on an IRU basis on the Gemini system and on
Atlantic Crossing ("AC-1"). We take delivery of the AC-1 capacity in cable
stations at Brookhaven, New

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York, United States and at Whitesands, United Kingdom. We take delivery of the
Gemini capacity in cable stations at Manasquan, New Jersey, United States and at
Porthcurno, United Kingdom. We carry the traffic inland on a backhaul network to
Telehouse in London and 60 Hudson Street and 111 8th Avenue in New York.

Specifically, we have an agreement with Gemini Submarine Cable System Limited
dated April 3, 1998, which provides for the acquisition of two (2) STM-1's on
the Gemini system, one purchased and the other leased on a monthly basis. We
also have two agreements with MCI WorldCom for the purchase of an additional
four (4) STM-1's on the Gemini system, dated December 31, 1998 and March 31,
1999, respectively. The term of our agreements with both Gemini and MCI WorldCom
is for the life of the submarine cables, which is anticipated to be 25 years
from the date of the agreements. Finally, we have an agreement with Atlantic
Crossing dated June 10, 1998, which provides for the purchase of an aggregate of
sixteen (16) STM-1's on the AC-1 cable for a term of 25 years from the date of
the agreement. All of our capacity purchase agreements require additional annual
payments of maintenance charges and provide us with IRUs in the STM-1s until
expiration of the term of or a default under the agreements. At December 31,
1999, eleven (11) Global Crossing STM-1's remain in Telemonde's inventory, three
(3) Global Crossing and Four (4) MCI WorldCom STM-1's remain in Telemonde's
property, plant and equipment and one (1) Gemini STM-1 remains in Telemonde's
trade accounts payable (since it was leased).

We are currently negotiating an agreement which would allow us to draw down
capacity on: (1) fiber optic systems in Western Europe, including the United
Kingdom, France, Belgium, the Netherlands, Germany, Spain, Italy and Luxembourg;
(2) a continental United States system; (3) a trans-Pacific system which should
be available during the first quarter of 2000; and (4) mid-Atlantic and South
American capacity which should be available in late 2000. The enlarged network
will consist of high-capacity fiber optic cable capable of supporting high
quality voice, video, Internet protocol and data traffic.

Each of our systems will be subject to the risks inherent in a large-scale,
complex fiber optic telecommunications system. The operation, administration,
maintenance and repair of these systems require the co-ordination and
integration of sophisticated and highly specialized hardware and software
technologies and equipment located throughout the world. There can be no
assurance that our systems will function as expected or in a cost-effective
manner.

The submarine fiber optic cables are subject to additional risks. Outages can
occur at sea from anchor drag and fouling by fishing vessel gear over which we
have little or no control and for which repair times can be long. However, our
planned network will provide for transferability on both the Gemini and Global
Crossing cables. Therefore, when our network is installed, any breaks in the
cable loop will not interfere with our system's ability to transmit traffic
successfully. This will give our engineers time to work with the cable owner to
resolve the problem associated with the break in the cable loop.

INTELLIGENT NETWORK PLATFORMS. In order to provide our route management
services, we acquired TGA(UK) Limited in August 1999, which had a central switch
located in London that interfaces

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with multiple carriers. We transferred TGA assets and business to other
companies in the Telemonde group. In addition, we have developed strategic
relationships with a small number of suppliers for both satellite links and
international private circuits. Our infrastructure, which we intend to upgrade,
provides flexibility and the necessary robustness to enable us to operate in
challenging regions of the world. The enhanced operational platform increases
our ability to handle international traffic trading and improve our cost base.

Our intelligent networking infrastructure includes a multi-purpose, modular
technology platform with strong signaling capabilities to provide transit
switching facilities and high density voice compression. In addition, we
contract for a number of international private circuits with a small number of
suppliers and we work closely with public telephone operators in the markets we
enter.

NETWORK OPERATION CENTER AND SERVICES. We currently contract our network
operating services to an experienced third party supplier which provides us with
a 24 hours a day, 7 days a week network operating service and which remotely
monitors and configures our network. We are able to monitor our network
end-to-end, from customer premise to customer premise. In 2000, we intend to
shift primary network operations to our London headquarters, retaining our
incumbent third party supplier operating center as a back up and for purposes of
disaster recovery. Our network operations center at our headquarters will be the
primary point of contact for our customers, allowing them to speak directly with
our trained staff.

CARRIER HOTEL FACILITY. We have signed a lease agreement with Global Switch
Limited, a "carrier hotel" company specializing in telecommunications and
internet co-location and service management. Global Switch is a recognized
leader in the co-location business, providing high-quality, 24 hours a day,
seven days a week staffed, carrier-neutral facilities designed to house
telecommunications, Internet, data processing, data storage, and related
equipment. Pursuant to the agreement, we have leased, subject to certain
conditions, 11,775 square feet in a London carrier hotel. Once we occupy this
space we will maintain a switch, which will be used to route voice, data and
Internet traffic across our network. We also have agreed to lease space in
carrier hotels in Amsterdam and Paris.

FUTURE NETWORK ENHANCEMENTS. We intend to further enhance our network by
creating metropolitan area networks in both New York and London. This will
require the purchase of additional fiber capacity and related connectivity to
existing points-of-access. We will then be able to provide access to multiple
customers along the route of this enhanced capacity. Customers will be able to
acquire or lease bandwidth on an "as and when required" basis. This will create
the following advantages:

o a simplification in the number of systems and cost savings
associated with reduced future hardware equipment;

o it will allow us to interconnect multiple customers, thus
enabling us to offer connectivity instantly between any party;
and

12
<PAGE>

o it will allow bandwidth to be activated and de-activated
instantaneously and on a pre-set timed basis, if required. As a
result we will be able to exploit new market opportunities such
as offering short term leases for connectivity for a few days or
hours for special events. When these periods end, the
cross-connect arrangements will allow us to terminate the
bandwidth and enable it to be automatically reallocated to
another customer. In addition, we will program our cross-connects
to activate new bandwidth at set times and dates to ensure that
bandwidth intensive customers such as Internet service providers
have large amounts of continuous bandwidth of varying capacities,
allowing them to keep up with their fluctuating demands.

HISTORY OF OPERATIONS

From its inception on March 10, 1998 to December 1999, we had revenues, losses
and total assets as shown in the table below. Through November 1999, our
business comprised only one industry segment, which was the sale of
trans-atlantic bandwidth.

- ---------------------------------------- -------------------------------------- --------------------------------------
Period from March 10, 1998 to Fiscal Year
December 31, 1998 Ended
December 31, 1999
- ---------------------------------------- -----------------------------------------------------------------------------
(Dollars in thousands)
- ---------------------------------------- -----------------------------------------------------------------------------
<S> <C> <C>
Operating Revenues 29,331 8,165
- ---------------------------------------- -------------------------------------- --------------------------------------
Net Loss (11,732) (41,969)
- ---------------------------------------- -------------------------------------- --------------------------------------
Total Assets at end of period 89,688 98,573
- ---------------------------------------- -------------------------------------- --------------------------------------
</TABLE>

The above summary information has been derived from our audited financial
statements for the period to December 31, 1998 and for the fiscal year ended
December 31, 1999, which were prepared in accordance with US GAAP. These
financial statements are included in this Annual Report. The table above should
be read in conjunction with these financial statements, the notes thereto, the
selected financial information in Item 7 and the discussion under "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in this Annual Report.

The audited financial statements at December 31, 1999 show a total stockholders'
deficit of $4,474,000. The financial statements have been prepared assuming that
the Company will continue as a going concern. The report of Moore Stephens,
Chartered Accountants, shown on page F-1 indicates that there is substantial
doubt about the ability of the Company to continue as a going concern. The
Company is planning to obtain additional equity and debt financing, to provide
an increased capital base and working capital facilities. There can be no
assurances that the Company will be successful in this regard.

The audited financial statements for the fiscal year ended December 31, 1999 may
not be indicative of future operations. The Company is in the process of
expanding our services. In particular, future periods will include the business
and revenue from new industry segments. In addition the revenue and results of
our trans-atlantic bandwidth business were impacted by the rapid and severe
decline

13
<PAGE>

in market prices for this bandwidth, as set forth in more detail below. As a
result potential customers postponed orders until market price levels had
stabilized, and we were not able to sell our bandwidth inventory until we had
completed our negotiations with our suppliers of trans-atlantic bandwidth.

As a consequence of the significant fall of the market prices for bandwidth and
its impact on our operations and financial results in 1999, we have been unable
to generate sufficient cash flow to meet certain of our debt service
requirements, and have triggered events of default on those obligations. The
events of default include obligations to our two major bandwidth suppliers with
whom we had executed agreements in 1998 and early 1999, and from whom we have
not drawn down bandwidth capacity as scheduled in these agreements. In addition,
we have a debt obligation under a Capacity Option Agreement with Communications
Collateral Limited under which we have been unable to complete the repurchase of
capacity. These events of default are described in detail below and in the
Management's Discussion and Analysis of Financial Condition and Results of
Operation in Item 7.

When Telemonde was formed in March 1998, our business focused solely on sales of
bandwidth and related services. In April 1998, Telemonde, through its now wholly
owned subsidiary Telemonde International Bandwidth (Bermuda) Limited, purchased
IRUs relating to trans-atlantic capacity from Gemini Submarine Cable System
Limited. Specifically, Telemonde agreed to acquire up to a maximum of STM-16.
Due to a subsequent and rapid decline in the market for wholesale
telecommunications bandwidth, the capacity sale agreement was amended by three
letter agreements dated January 27, April 16, and April 22, 1999. These
amendments provided that an IRU for only one (1) STM-1 would be acquired, and a
second STM-1 would be leased for a lump sum payment plus monthly payments for a
three-month period ending July 16, 1999. Further negotiations between the
parties provided that the lump sum payment would fall due on October 7, 1999 in
the form of two promissory notes. Telemonde has paid Gemini the full balance
owing for the IRU relating to the first STM-1 but has not fulfilled its
obligations under two promissory notes in the amount of $2.7 million. Although
this default gives Gemini the right to immediately terminate the Indefeasible
Rights of Use, Gemini has not done so as of the date of this filing and has
continued to support Telemonde and its customers using the services.

In June 1998 Telemonde, through its now wholly-owned subsidiary Telemonde
Bandwidth (Bermuda) Limited, agreed to acquire an aggregate of 16 STM-1(s) on
Segment S-1 from Atlantic Crossing Limited. Since the summer of 1999, we have
not drawn down any capacity from Atlantic Crossing and have not made any
payments under this agreement and are in default under the payment terms in the
amount of approximately $52 million, in addition to interest and outstanding
maintenance payments. Management is in discussions with Global Crossing, the
parent company of Atlantic Crossing, to renegotiate the terms of the contract,
including the extension of capacity drawdowns to include the entire Global
Crossing system, rather than just trans-atlantic capacity. This will allow
Telemonde to expand according to its overall business strategy.

In December of 1998 and on March 31, 1999, Telemonde, through its now wholly
owned subsidiary Telemonde International Bandwidth Limited, entered into
agreements with MCI WorldCom for the purchase of four units (STM-1's) of
bandwidth capacity on the Gemini network. Specifically,

14
<PAGE>

Telemonde acquired the IRUs in three units of capacity under the December 1998
agreement, and acquired the right for an additional unit of capacity under the
March 1999 agreement. Under these agreements, Telemonde is also required to pay
annual maintenance charges. Telemonde has paid the amounts due under the March
1999 agreement; however, as a result of the Company's liquidity problems,
Telemonde was unable to fulfill its obligations to draw down and pay for the
three units of capacity under the December 1998 agreement. Furthermore,
Telemonde was delinquent on its annual maintenance charges under both
agreements, resulting in an overall default to MCI WorldCom in the amount of
approximately $26 million.

Telemonde is in negotiations with MCI WorldCom to restructure their existing
agreements. Telemonde has executed a Standstill Letter from MCI WorldCom on
December 31, 1999 in which MCI WorldCom has agreed to refrain from (a) taking
any action to enforce payment of the sums owed to MCI WorldCom under the
capacity purchase agreements; (b) taking any action to enforce or make a demand
under any guarantee, indemnity or security related to the capacity purchase
agreements; and (c) commence any insolvency proceedings against Telemonde or any
of its subsidiaries. The Standstill Letter expires upon the earlier of (i) the
full payment of the sums owed under the capacity purchase agreements; (ii) May
31, 2000; or (iii) Telemonde's failure to comply with a number of terms and
conditions, which includes the prohibition against the sale of assets, dividends
and the borrowing of any additional funds without the signed written consent of
MCI WorldCom's agent other than permitted borrowings.

Telemonde has also executed a letter of intent dated December 31, 1999 termed a
"Capacity Swap Letter" in which MCI WorldCom has agreed to enter into a binding
agreement with Telemonde to permit Telemonde to swap the bandwidth purchased
under the above capacity purchase agreements for new bandwidth on MCI WorldCom's
European Ulysses network. The Capacity Swap Letter is conditional on
satisfaction by Telemonde of its obligations under the Standstill Letter.

On April 15, 1999, Telemonde, through its now wholly owned subsidiary Telemonde
Investments Limited, entered into a series of agreements with Communications
Collateral Limited, including, among others, agreements for: (1) the sale of an
IRU for bandwidth to Communications Collateral Limited; (2) the grant of an
option to Communications Collateral Limited which, among other things, required
Telemonde to repurchase the bandwidth upon Communications Collateral Limited's
request; and (3) a $1 million loan by Communications Collateral Limited to
Telemonde due and repaid on August 12, 1999. In connection with these principle
agreements, the three subsidiaries of Telemonde Investments Limited guaranteed
the obligations of Telemonde Investments Limited under those agreements,
including its obligation to pay back the loan and to repurchase the bandwidth in
the event that Communications Collateral Limited exercised its option.

On August 14, 1999, Communications Collateral Limited exercised its option to
require Telemonde

15
<PAGE>

to repurchase the capacity. Telemonde was unable to complete this repurchase
and, at December 31, 1999, was in default in the amount of approximately $4.5
million. As a result, Communications Collateral Limited has the right to
foreclose on essentially all of the assets of Telemonde Investments Limited,
including its ownership interests in the three subsidiaries of Telemonde
Investments Limited, all of the assets in any of the foregoing subsidiaries,
including their rights under Telemonde's bandwidth sale contracts; and any
ownership interest the foregoing subsidiaries might have in any other Telemonde
entities until the default is cured. The amount of the foreclosure, however,
would not have exceeded the amount of the indebtedness.

PLAN OF OPERATION

There has been a significant fall in the prices of bandwidth, and as a result,
we find ourselves locked into extremely uneconomical contractual obligations
with our suppliers. The consequence of this has been until such a time as we are
able to complete the negotiation of these supplier contracts our sales have and
will continue to suffer. This in turn has led to severe liquidity problems,
which has obliged us to diversify our business. In November 1999, we acquired
EquiTel, which provides telephone card services and telecommunications route
management services primarily to emerging markets. Our plan of operation for
2000 is to continue to provide bandwidth but to also significantly extend our
business activities and services. In particular, we plan to offer the following
services:

BANDWIDTH. We will continue to provide bandwidth to leading telecommunications
carriers, new entrants to the developed telecommunications markets and Internet
carriers. We are in negotiations with our suppliers for the right to exchange
our existing inventory of trans-atlantic bandwidth for trans-Pacific, Central
and South American, North American and pan-European fiber capacity. This
expansion will allow us to provide our customers with both regional and global
networks at competitive prices.

INTERNET CAPABILITY. Through telemonde.net SA we intend to offer Internet
service providers and media companies cable-based network platforms, high-speed
Internet connectivity and streaming media services.

Although the basis of telemonde.net's offering to Internet service providers is
Telemonde's high speed fiber optic network, telemonde.net aims to offer its
customers tailored solutions based on a secure pan European broadband Internet
network. telemonde.net will also acquire its own content through partnerships
and an acquisition strategy in order to drive sales of its core product through
value added media packages. telemonde.net is in the process of arranging key
partnership agreements in order to support its core business. Current agreements
in place include GTE-BBN (telemonde.net is regarded as its European
Internet/multimedia partner in the Net alliance program),

16
<PAGE>

Europe Online (with a memorandum of understanding on Internet by Satellite
cooperation) and the European Carrier - GTS. telemonde.net also has begun to
work with Cisco in supporting their business development with marketing efforts
and is in the process of developing this relationship into a potential
partnership.

telemonde.net offers the following capabilities, which are packaged according to
the customers' needs:

o capacity, which solves customers' speed requirements and enables them to
deal with the projected rapid growth of the Internet in Europe.

o connectivity, providing immediate access to the Internet and web sites
world-wide.

o content, enabling customers to differentiate their offering with video,
audio and software, using the latest streaming technologies.

o e-commerce, enabling customers to transact over the Internet.

INTELLIGENT NETWORK SERVICES. Through EquiTel, we plan to place our intelligent
network services into emerging markets through joint ventures and relationships
with the public telephone operators of developing countries. By targeting
emerging markets we can use our intelligent network solutions as a foundation
from which we can improve the existing telecommunications facilities of the
developing country. We create, in partnership with public telephone operators,
incremental and new revenue opportunities through route management services and
the introduction of enhanced services such as voice mail, fax mail, prepaid
mobile calls and premium rate services.

MANAGED VOICE AND DATA SERVICES. Through EquiTel we intend to further develop
and enhance our existing switched voice and data services and route management
services. These services will generate more bandwidth sales across the network,
lower the costs per minute of our traffic and generate revenues from utilizing
the competitive international interconnect rates of developed markets.

STREAMING VIDEO. We plan to provide streaming video Internet content and
services for customers in our markets. Streaming technology enables the playing
of a video or sound extract while it is being downloaded, instead of waiting for
the entire file to be downloaded before playing the extract. By providing a
combination of streaming video and bandwidth solutions, we can become a single
source supplier for the delivery of televised services on-line. We plan to use
our streaming video platform to supply our own content services. These will be
delivered from our own planned media storage facilities to broadband Internet
service providers and media companies.

Our short-term success will depend substantially on sales of bandwidth on our
network and on the prices of such bandwidth sales. The sale of bandwidth and the
associated maintenance revenues accounted for the bulk of our revenues through
the end of 1999. We cannot be certain that we will continue to be successful in
selling capacity on our networks. Our ability to continue to sell capacity will
depend in large part upon our sales and marketing capabilities. We have
assembled an experienced and dedicated sales and marketing staff and we depend
upon the ability of such

17
<PAGE>

employees to effectively market and sell capacity. However, we cannot be certain
that we will be able to effectively sell capacity on our network. If we are
unable to effectively sell capacity on our network, our operational results
could be negatively affected.

Our plans for entering into the Internet involves several risks. Whether, and
the manner in which, the market for our products and services to Internet
service providers will continue to grow is uncertain. Any decline in the
Internet market will adversely affect our business. Our business would be
damaged if Internet usage does not continue to grow or the demand for Internet
media services does not take off as planned. Internet usage may be inhibited for
a number of reasons, including:

o access costs;
o inadequate network infrastructure;
o security concerns;
o uncertainty of legal and regulatory issues concerning the use of the
Internet;
o inconsistent quality of service; and
o lack of availability of cost-effective, high-speed service.

If Internet usage grows, the Internet infrastructure may not be able to support
the demands placed on it or the Internet's performance and reliability may
decline. Similarly, Web sites have experienced interruptions in their services
as a result of outages and other delays occurring throughout the Internet
network infrastructure. If these outages or delays occur frequently, use of the
Internet as a commercial or business medium could, in the future, grow more
slowly or decline. This could adversely affect our business.

We have recently begun offering terrestrial network platforms and high-speed
Internet connectivity, based upon the supply of fiber optic bandwidth between
New York, London and other European cities. We intend to expand our services
worldwide and we anticipate offering a full-range of global connectivity
solutions for European Internet and multimedia service providers over our
existing global network infrastructure, as well as specialist and geographic
Internet packages for our customer base in emerging markets. We have limited
experience in the Internet business and can provide no assurance that we will
successfully establish or expand the business. Currently, we only provide
capacity to two European Internet service providers.

The market for network platforms and value-added Internet services is extremely
competitive. Our primary competitors include other telecommunications businesses
that have a significant national or international presence. Many of these
carriers have substantially greater resources, capital and operational
experience than we do. We also expect we will experience increased competition
from traditional telecommunications carriers that expand into the market for
Internet services. In addition, we will require substantial additional capital
to make investments in our Internet operations, and we may not be able to obtain
that capital on favorable terms or at all.

OUR STRATEGY

18
<PAGE>

In addition to the plan of operation described above, our approach to building
an international communications company is to:

OPERATE IN MARKETS THAT RETAIN HIGH MARGINS IN VOICE RETAIL AND WHOLESALE VOICE
SERVICES. Emerging markets continue to retain high margins in retail and
wholesale voice services. We can bring technology and infrastructure developed
and tested in the liberalized markets to the emerging markets. By working with
public telephone operators to provide enhanced services, we can capitalize on
the higher margins available in the monopolistic markets. In addition, our
partnership with public telephone operators will allow us to develop our local
operations. Therefore, we believe we will be well positioned to become a second
operator in certain of these markets when the markets become liberalized.

CREATE AN INTERNATIONAL INFRASTRUCTURE CAPABILITY UPON WHICH SERVICES CAN BE
OFFERED. This network infrastructure, which will include carrier hotel
facilities, will link with the regional hubs being created in emerging markets
to provide a seamless global infrastructure. A regional hub is a point of
telephony concentration in a geographically distant location. It is created only
for reasons of economy, in that it is cheaper to send or receive traffic and
purchase bandwidth into a single distant point for onward distribution than it
is to individually reach each of the final destinations.

BUILD INTERNET CAPABILITIES AND SERVICES. Decreasing bandwidth prices in the
developed markets are allowing us to create a fiber optic network which will
support fast Internet and streaming media services. Through acquisitions and
internal development, we are building the capability to address our customers'
Internet requirements, such as business to consumer and business to business
online electronic transactions, web site development and hosting, streaming
video content and bandwidth provisioning, all of which will be provided through
our international network.

Our strategy is to develop, build, and deploy international fiber optic networks
and international carrier hotels and switch/server capabilities on a
"just-in-time" basis. This will enable us to deliver voice, data, and Internet
products and services to our chosen customers and markets. Key elements of our
strategy are to:

CONTINUE TO BUILD AND EXPAND THE REACH OF OUR INTERNATIONAL NETWORK. We have
access to trans-atlantic bandwidth capacity. Through negotiations with our
capacity suppliers, we hope to soon offer routes in Europe, the Americas, the
Pacific Rim and the Far East.

PROVIDE MANAGED VOICE AND DATA SERVICES. We intend to further develop and
enhance our switched voice services, which we use to generate more bandwidth
sales across the network and lower the costs per minute of our traffic.

PURSUE EARLY ENTRY INTO SELECTED EMERGING MARKETS. We seek early entry into
selected emerging markets worldwide where we can create significant demand for
voice, data and Internet services by introducing technology and infrastructure
already in use in the developed markets. We believe that there is, and will
continue to be for the foreseeable future, substantial growth of such services
in emerging markets. We believe that early entry into these markets will provide
us with competitive

19
<PAGE>

advantages as we develop sales channels, establish a customer base, hire local
personnel and establish a strong partnership with the monopoly public telephone
operator prior to competitors entering these markets. Our objective is to
position ourselves as the second telecommunications operator when and if
liberalization occurs in these markets.

PROVIDE ENHANCED INTERNET SERVICES. Through our wholly-owned subsidiary,
telemonde.net, we are setting up peering agreements with other leading Internet
backbone service providers. Internet peering agreements are agreements between
two carriers for the exchange of Internet traffic between their networks and
onwards. Using the latest developments in data transmission for video, audio and
software services, telemonde.net plans to become the host and carrier for
broadband content providers delivering unique full screen Internet broadcast
services to European Internet and media companies.

EXPAND THE CAPABILITIES OF OUR NETWORK WITH THE DEVELOPMENT OF REGIONAL
TELECOMMUNICATIONS CENTERS. Through the planned geographic expansion of our
network and development of regional telecommunications centers in emerging
markets, we expect to be able to increase our network traffic and thereby
continue to reduce transmission and operating costs. In addition, we intend to
make focused capital investments to deliver enhanced services and lower costs to
our customers. We will continue to invest in our network to provide a full range
of asynchronous transfer mode, frame relay and Internet protocol-based data and
voice communications over our existing network infrastructure.

FINANCIAL INFORMATION REGARDING INDUSTRY SEGMENTS

We have included in this Annual Report financial information up to December 31,
1999. From our inception on March 10, 1998 to November 1999, our business
consisted entirely of the sale of trans-atlantic bandwidth and of the management
of bandwidth through maintenance contracts with our customers. See Item 6,
"Financial Information."

CUSTOMERS AND GEOGRAPHIC CONCENTRATION

Our target customers include leading international telecommunications carriers,
public telephone operators in emerging markets, Internet service providers,
media service providers and new entrants to the telecommunications market.
Telemonde's business focus is global; while customers may have a specific
geographic location, the bandwidth Telemonde provides them may be located
anywhere in the world. Conversely, EquiTel works in specific geographic markets
through the formation of joint ventures with local partners which could be a
business, an individual or the public telephone operator in that location.

A relatively small number of customers have accounted for a significant amount
of our total revenues to date. Although we intend to expand our customer base as
our business grows and through acquisitions, this dependence on a relatively
small number of customers may continue for the foreseeable future. In 1998 we
delivered bandwidth capacity to three major customers who

20
<PAGE>

constituted more than 10% of our revenues for that period and also in 1999 three
bandwidth customer constituted more than 10% of our revenues:

<TABLE>
<CAPTION>
- ----------------------------------------------- ----------------------------------- ----------------------------------
Period from Fiscal Year
March 10, 1998 to ended
December 31, 1998 December 31, 1999
- ----------------------------------------------- ----------------------------------- ----------------------------------
<S> <C> <C>
Carrier 1 (Switzerland) $10,318,000
- ----------------------------------------------- ----------------------------------- ----------------------------------
North American Gateway Inc. (Canada) 8,206,000 827,000
- ----------------------------------------------- ----------------------------------- ----------------------------------
Unisource Carrier Services A.G. (Switzerland) 10,807,000
- ----------------------------------------------- ----------------------------------- ----------------------------------
Telecom Italia (Italy) 4,621,000
- ----------------------------------------------- ----------------------------------- ----------------------------------
Trans Global Network Services Ltd. (UK) 2,000,000
- ----------------------------------------------- ----------------------------------- ----------------------------------
</TABLE>

Although we continue to have relationships with these customers (e.g., through
our annual maintenance contracts), none has placed further orders for bandwidth.
Most of our arrangements with large customers do not provide any guarantees that
they will continue using our services at current levels. In addition, if (1) our
customers build their own facilities, (2) our competitors build additional
facilities, or (3) our customers are involved in further consolidations in the
telecommunications industry, we could experience a reduction in the use of our
services, which could have a material adverse effect on our business.

We are exposed to concentrations of credit risk to the extent that we have a
limited number of customers, all of which operate in the telecommunications
sector. We perform on-going evaluations of our customers' financial condition.

As at December 31, 1999 we have customer orders of $19 million which we believe
to be firm and which have not been included in our revenues in 1998 and 1999.
The comparable amount of backlog orders at December 31, 1998 was $5.4 million.
We believe that all of the backlog orders of $19 million should be fulfilled in
2000. However, the fulfillment of these orders is dependent to some extent upon
obtaining working capital financing. There are no seasonal or other material
aspects of the backlog at December 31, 1999.

Since its inception, EquiTel has had contracts with seven customers for its
route management services for traffic to the Russian Federation, the Middle East
and the Far East. EquiTel also operates a pre-paid card service in Oman.
EquiTel's revenue mainly derives from monthly traffic on its routes and usage of
its services. Although EquiTel has contracts for its services, the nature of
EquiTel's business means that there are no backlog orders.

We market our services to our customers through a variety of sales channels, as
summarized below:

21
<PAGE>

DIRECT SALES. We market our network services primarily through our direct sales
force. As of December 31, 1999, our direct sales force was comprised of 5
full-time employees who focus on selling wholesale services to other
long-distance carriers and resellers. We also have 6 full-time employees who
concentrate on traffic services. Our existing sales force can leverage their
long-term industry relationships and those of our senior management in securing
sales. Our sales force is trained to serve the sophisticated needs of our
customers and is in charge of maintaining existing relationships and
anticipating customers' needs. We currently have sales offices in New York City,
London, and Geneva.

MEDIA AND MARKETING. We use a variety of print and other media to increase our
name recognition and generate new customers. We have marketing programs that
include our participation in targeted industry conferences, trade shows and
seminars and targeted distributions and mailings of marketing materials.

Although we intend to expand our customer base as our business grows and through
acquisitions, our dependence on a relatively small number of customers may
continue for the foreseeable future. Most of our arrangements with large
customers do not provide any guarantees that they will continue using our
services at current levels. In addition, if (1) our customers build their own
facilities, (2) our competitors build additional facilities, or (3) our
customers are involved in further consolidations in the telecommunications
industry, we could experience a reduction in the use of our services, which
could have a material adverse effect on our business.

COMPETITION

The international communications industry in developed world markets is highly
competitive and significantly affected by regulatory changes, marketing and
pricing decisions of the larger industry participants and the introduction of
new services made possible by technological advances. Privatization and
deregulation have had, and are expected to continue to have, significant effects
on competition in the industry.

The telecommunications industry has relatively limited barriers to entry in the
more deregulated countries with numerous entities competing for the same
customers. We believe that competition in all of our markets is likely to
increase, which could result in greater competition in telecommunications
services offered in these countries. This increase in competition could
adversely affect our net revenues.

At this stage of our development, many of our competitors are significantly
larger than we are, and many of our competitors have:

o substantially greater financial, technical, and marketing resources;
o larger networks;
o a greater ability to support the portfolio of services;
o stronger name recognition and customer loyalty; and
o long-standing relationships with our prospective customers.

22
<PAGE>

Telemonde's major competitors for international communications bandwidth
services are Gemini, MCI WorldCom, Iaxis, GTS, Level 3, Viatel, KPN/Qwest,
Global Crossing and a rapidly changing number of arbitrage operators and
brokers, such as Transglobal Network Services and Band-X. Telemonde
differentiates its market offering through:

o supplier independence whereby Telemonde is able to acquire
bandwidth, telehousing and switched services from all of its
suppliers, including its competitors, at least cost;
o full network management of services from installation through
contract life, which allows our customer to concentrate their
key resource upon their core business activities; and
o flexible financial and commercial contracts, which includes
the ability to exchange bandwidth, provide flexible payment
facilities and trade bandwidth for our customers capabilities
which can be re-sold in the market at retail rates.

In addressing the Internet service provider market, our competitors are the
major European Tier 1 carriers, such as British Telecommunications, Deutsche
Telekom, France Telecom, Telecom Italia, Teleglobe and MCI WorldCom. We
differentiate through:

o the ability to customize our market offering to meet the
individual needs of our customers;
o a market positioning that does not compete with our customers
retail services, unlike many of our competitors; and
o the delivery of bundled content (Internet shopping, sport and
other broadcast services, niche programming) and
infrastructure (bandwidth, telehousing and peering facilities
to the Internet backbone network) services. This provides a
one-stop-shop for emerging Internet service providers where
financial and resource constraints exist.

EquiTel does not aim to operate in highly competitive markets and is primarily
focused upon working in partnership with the incumbent public telephone
operator. As such, we do not compete in our markets with other operators but
collaborate with the public telephone operator to enhance the service offering
in their market.

OUR COMPETITIVE STRENGTHS. We believe that we can compete effectively in the
competitive markets described above, because we have a number of competitive
strengths, including:

o ESTABLISHED PRESENCE AS A NETWORK SERVICES OPERATOR. We have
entered into major supply contracts for international bandwidth
capacity. As a result of these contracts and discussions with
prospective customers, we have established a market presence and
created a market awareness of Telemonde as a participant in the
carrier's carrier market. We are responsible for the delivery and
maintenance of our customers' capacity. Through our subsidiary,
Telemonde Networks Limited, our technical staff provide quality
network services to our customers. The recent launch of
telemonde.net, S.A., has brought our

23
<PAGE>

bandwidth and network services to the attention of European
Internet service providers to meet their demands for high volume
digital video, sound, software and high speed connectivity to the
Internet.

o SUPPLIER INDEPENDENCE. We do not construct network infrastructure.
However, our strength, through our independence, is our ability to
acquire lowest cost facilities at any point in time incorporating
the latest technology. Also we do not compete with our customer in
the retail markets, unlike most of our competitors.

o OPERATIONS AND PRESENCE IN EMERGING MARKETS. We have established
operations or a presence in the emerging markets of the Russian
Federation, the Middle East, and Africa. EquiTel has obtained and
operates several route management contracts terminating in the
Russian Federation and South East Asia. Since February 1999,
EquiTel has provided intelligent networks system in Oman. EquiTel
has signed a joint-venture agreement with local partners in
Bangladesh and is in negotiations to place intelligent network
services in Malaysia in conjunction with local partners. In
addition, EquiTel plans to establish a new entity to market
EquiTel's services in Asia, Africa and Middle East. These and
similar operations provide the markets for our advanced
communications services, that are tried and tested, enabling
EquiTel to expand its revenue base and enhance the services
available.

o ESTABLISHED INTELLIGENT NETWORKS PLATFORM. As discussed above,
EquiTel has developed and installed a national intelligent network
system in Oman. Although the Omani system currently supports
pre-paid card services, the intelligent networks system is capable
of providing other intelligent network services, including
post-paid card services and enhanced services for voice mail, fax
mail, short message services, intelligent routing and single
number services. This has provided EquiTel with the experience of
implementing and operating highly technical services in
challenging commercial environments.

o EXPERIENCED MANAGEMENT TEAM. Our executive officers have
substantial industry and management experience. Most of them have
many years of experience in senior management positions in leading
international telecommunications businesses. In addition, our
executive officers are supported by industry-experienced
management in sales, operational and technical functions. As a
result, we have the skills and ability to support business growth
and to effectively manage such growth.

o STRATEGIC IMPLEMENTATION IS PROGRESSING. Part of our strategy is
to create an extensive international infrastructure, which will
enable us to deliver a broad range of voice, data and Internet
products and services to our chosen markets. As a result, we will
be able to provide dedicated "turnkey" solutions to customers in
the United States and Western Europe, but, in particular, we will
use our infrastructure and services to enable emerging markets to
access the telecommunications and Internet services of the
developed world. We have made some progress in implementing this
strategy. Through the acquisition and

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utilization of fiber optic capacity, we are creating a network in
the developed markets of the United States and Western Europe.
Through the acquisition of EquiTel, we have developed and we are
developing business in a number of emerging markets. We are
therefore well positioned for the further implementation of our
strategy. We intend to create retail telecommunications companies
in the emerging markets, in partnership with public telephone
operators, to offer enhanced telecommunications services to those
markets. We also intend to develop Internet services for
commercial use in both the liberalized and emerging markets. In
the emerging markets, we will supply these services over our
planned international infrastructure; however, they will be
marketed and supported through local partnerships.

GOVERNMENT REGULATION

As a multinational telecommunications company, we are and will be subject to
varying degrees of regulation in each of the jurisdictions in which we provide
services. Local laws and regulations, and the interpretation of these laws and
regulations, differ significantly among each of the jurisdictions in which we
operate and intend to operate. We can offer no assurance that our interpretation
of existing applicable laws and regulations is correct. Moreover, we can offer
no assurance that future regulatory, judicial or legislative changes will not
have a material adverse effect on our business, financial condition or operating
results or that regulators or third parties will not raise material issues with
regard to our compliance or non-compliance with applicable regulations or that
any changes in applicable laws or regulations will not have a material adverse
effect on our business, financial condition or operating results.

With regard to our current operations, we either have received or have
reasonable expectations of receiving the necessary licenses which we believe are
required to undertake our business and to implement our short-term plans. In
particular in December 1999 we received a Public Telephone Operators License
from the Department of Trade and Industry in the United Kingdom, where our
international operations center and network infrastructure will be based.

We can offer no assurance that our expectations concerning our ability to
operate in compliance with all applicable laws and regulations are correct, that
we will be able to obtain, maintain or renew the required licenses,
authorizations or registrations, or that they will be issued or renewed on terms
or with fees that are commercially practicable. In addition, other licenses,
authorizations or registrations may be required in the future. The loss of, or
failure to obtain, these licenses, authorizations or registrations or
substantial limitations upon the terms of these licenses, authorizations or
registrations could have a material adverse effect on our business, financial
condition or operating results.

UNITED STATES FEDERAL REGULATIONS. Pursuant to the Communications Act of 1934,
as amended (the "Communications Act"), the FCC is required to regulate the
telecommunications industry in the United States. Under current FCC policy,
telecommunications carriers reselling the services of other carriers and not
owning their own transmission facilities are considered non-dominant and, as a
result, are subject to streamlined regulation. The degree of regulation varies
between domestic telecommunications services (services which originate and
terminate within the United States) and

25
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international telecommunications services, (services which originate in the
United States and terminate in a foreign country or vice versa).

Non-dominant providers of domestic services do not require prior authorization
from the FCC to provide service. However, non-dominant providers of
international services must obtain authorization from the FCC pursuant to
section 214 of the Communications Act. Although we do not require a U.S. license
in order to carry out our current business, we intend to apply for an
international resale license under section 214 in the near future. Once we have
obtained such authorization we will be required to file a tariff with the FCC,
setting forth the terms and conditions under which we provide international
services. The regulatory requirements in force today impose a relatively minimal
burden on us. However, we cannot provide assurance that the current regulatory
environment and the present level of Federal Communications Commission
regulation will continue.

UNITED KINGDOM REGULATIONS. The Telecommunications Act 1984 (the "1984 Act")
provides a licensing and regulatory framework for telecommunications activities
in the United Kingdom. In 1998, the UK regulatory framework was modified to
bring it in line with EU requirements, in particular its provisions on
licensing, interconnection, voice telephony and leased lines. The policy of the
Department of Trade and Industry and Office of Telecommunications, the UK
Regulator, is to grant telecommunications licenses to all operators who meet a
transparent and pre-determined set of criteria. The majority of UK licenses are
either registered to offer International Simple Voice Resale or hold an
individual fixed public telephone operator license.

We were granted in December 1999 a fixed Public Telephone Operators License,
which covers all companies in the Telemonde Group, including EquiTel. Our
subsidiary, TGA (whose assets and business were transferred to other companies
in the Telemonde group), is also licensed to offer International Simple Voice
Resale (ISVR) services, which permits it to buy network capacity from any
inter-connecting UK operator to resell to its customers. Our Public Telephone
Operators License permits us to offer a full range of fixed voice and data
services using its own facilities or through leasing or interconnection of other
operator facilities. Most operators who offer publicly available
telecommunications services and network bearer capabilities are granted
interconnection rights by the Office of Telecommunications. We received our
interconnection rights in January 2000. An operator with interconnection rights
is entitled to negotiate interconnection with every other operator with
interconnection rights.

SWISS REGULATIONS. In Switzerland, a new telecommunications act was adopted in
April 1997 and became effective on January 1, 1998. This new Act provides for
the liberalization of the Swiss telecommunications market and facilitates market
entry by various measures. These measures include:

o Notice application procedure for resellers;

o Application for a procedures for operators wishing to be granted a
license for the establishment and operation of the transmission
facilities; and

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<PAGE>

o Providing rights of way, subject to authorization, over the public domain
to facilities based carriers.

A license is required if the telecommunications service involves extensive
independent use of telecommunications installations for transmission. In the
absence of such extensive independent use a simple notification will be
sufficient. Our current operations in Switzerland do not require a license.

OTHER GOVERNMENT REGULATIONS. Telecommunications activities are subject to
government regulation to varying degrees in every country throughout the world.
To illustrate, in Malaysia our partner has informed us that no license is
required for telecommunications activities. However, in may countries where we
operate, equipment cannot be connected to the telephone network without
regulatory approval, and therefore installation and operation of our operating
platform or other equipment requires such approval. In most jurisdictions where
we conduct business, we rely on our local partner to obtain the requisite
authority. For instance, in Bangladesh our partner has informed us of the need
for a license and has applied for one on our behalf.

EMPLOYEES

At December 31, 1999, we employed a total of 43 persons. Of these, 7 are the
executive officers of the Telemonde group. Telemonde Networks employs 21
persons, EquiTel employs 8 persons, telemonde.net employs 3 persons and 11
persons are employed on behalf of the entire Telemonde group.

During 1999 we progressively built up a senior management team and a group of
employees with substantial industry experience, longstanding industry
relationship and technical telecommunications and Internet knowledge.
Competition for such personnel is intense and we may not be able to attract,
motivate and retain highly skilled qualified personnel. Loss of services of key
personnel could adversely affect Telemonde's business. We have, however, entered
into employment agreements with members of the senior management team, in
particular with Kevin Maxwell, Adam Bishop, Harry Pomeroy and with other
executive officers. We are in the process of analyzing and potentially procuring
"key person" life insurance policies covering Kevin Maxwell, Adam Bishop and
Harry Pomeroy.

RISK FACTORS

OUR BUSINESS INVOLVES A SIGNIFICANT NUMBER OF MATERIAL RISKS. THE RISKS AND
UNCERTAINTIES DESCRIBED BELOW MAY NOT BE THE ONLY ONES WE FACE. ADDITIONAL RISKS
AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL
MAY BE, OR MAY BECOME, MATERIAL AND IMPAIR OUR BUSINESS AND OPERATIONS.

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<PAGE>

DURING OUR LIMITED OPERATING HISTORY WE HAVE EXPERIENCED OPERATING LOSSES,
NEGATIVE CASH FLOW FROM OPERATIONS AND NET LOSSES.

We were organized in March 1998 and have a limited operating history. Our
financial information relates principally to a period in which we were obtaining
trans-Atlantic capacity and were establishing our business and market presence.
We have incurred operating losses and negative cash flow since our inception.
For the year ended December 31, 1998 and for the year ended December 31 1999,
Telemonde had operating losses of $11,649,000 and $41,214,000 respectively.
Despite recognizing $37,496,000 in revenues, Telemonde incurred a deficit on
total stockholders' equity of $4,474,000 for the period from March 10, 1998 (the
date of inception) through December 31 1999. We expect to continue to incur
operating losses and negative cash flow in 2000 as we build our networks and
expand our services and customer base.

The continuation and magnitude of our operating losses and negative cash flows
in the future will be affected by a variety of factors, including:

o The ability to put in place working capital facilities and to
increase our capital base.
o The rate at which we add new customers and the prices those
customers pay for our bandwidth and internet services.
o The mix of our business, including, among other factors, the
proportion of IRUs compared to leases and short term rentals
we sell to our customers.
o The ability and cost to obtain transatlantic and other
bandwidth capacity; in particular the cost of bandwidth under
the major supplier agreements currently under re-negotiation.
o Customer payment terms where customers require a deferred
payment plan for their purchase of our IRUs.
o The speed and extent to which we add networking and other
related services, including but not limited to our telehousing
facilities, to our portfolio of products and services.
o The ability to predict demand for our networking and other
related services, including but not limited to our telehousing
facilities.
o The ability of our local relationships in emerging markets to
support our customers and meet our obligations.
o The completion of our planned networks and infrastructure and
the expansion of our networks generally, with completion being
achieved by currently expected completion dates.
o General economic, financial, competitive, legislative,
regulatory, licensing, and other factors that are beyond our
control.

We have financed, and expect to continue to finance, our net losses, debt
service, capital expenditures and other cash needs through flexible supplier
payments, the issuance of debt and the proceeds from sales of shares of common
stock.

OUR BUSINESS REQUIRES SIGNIFICANT AMOUNTS OF CAPITAL AND INFRASTRUCTURE
EXPENDITURES AND OUR EXISTING WORKING CAPITAL FACILITIES ARE INSUFFICIENT TO
MEET OUR NEEDS.

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<PAGE>

We expect to continue to make capital expenditures over the next few quarters
building our infrastructure and in organizing our bandwidth and switched
services businesses. This includes the purchase of bandwidth capacity for our
own networks, for planned leasing and rental business, and to meet our
customers' requirements. We hope to fund these expenditures from short-term
bridge financing, vendor financing and from planned equity funding, as well as
from proceeds of future sales.

Beyond the initial amount, we will incur additional capital expenditures to
support our projected growth of the bandwidth business. In particular, we aim to
significantly grow our bandwidth leasing and rental business by purchasing
additional bandwidth capacity to be leased to our customers. We expect to meet
the cash requirements of our capital expenditures from:

o cash flow from fiber sales and operations;
o income from route management operations;
o income from our intelligent network services;
o additional equity and/or debt financing; and
o supplier financing, if available.

Our failure to accomplish any of the foregoing sources may significantly delay
or prevent capital expenditures. If we are unable to make our capital
expenditures as planned, our business may grow slower than expected with a
material adverse effect on our business, financial condition, results of
operations, and the value of our securities.

We currently do not have the capital base or working capital facilities to meet
our current and projected commitments. If we fail to successfully obtain
necessary capital, or to obtain an insufficient amount of capital, we would harm
our prospects and could jeopardize our existence. We have benefited from the
willingness of suppliers to reschedule commitments and payments and may continue
to require and take advantage of such flexibility in the future. However, this
reliance on supplier flexibility for short term funding inevitably leads to
pressure from suppliers which weakens our commercial position. In addition, it
could result and has resulted in formal events of default, which could endanger
us, especially if this supplier flexibility ceased to be available. It is for
this reason that we plan to seek substantial external debt and equity funding.

TELEMONDE HAS A SIGNIFICANT LEVEL OF INDEBTEDNESS.

We have incurred a high level of debt. As of December 31, 1999, Telemonde and
EquiTel had a combined $103,047,000 in total liabilities, including:

o $78,244,000 to capacity suppliers relating to undrawn
bandwidth;
o $7,284,000 to all other suppliers; and
o $4,445,000 owed to CCL under a Capacity Option Agreement.

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<PAGE>

The amount of our debt could have important consequences for our future,
including, among other things:

o cash from operations may be insufficient to meet the principal
and interest on our indebtedness as it becomes due;
o payments of principal and interest on borrowings may leave us
with insufficient cash resources for our operations; and
o restrictive debt covenants may impair our ability to obtain
additional financing.

We have been unable to generate sufficient cash flow to meet certain of our debt
service requirements, and have triggered events of default on those obligations.
We cannot assure you that we will be able to successfully renegotiate terms of
our agreements or refinance our indebtedness when required.

WE ARE CURRENTLY NEGOTIATING DEBT FINANCE AND ARE PLANNING EQUITY RAISING.

We are in discussions with investment bankers for the potential provisioning of
short-term debt and equity financing. The amount of financing which is required
to meet our commitments is significant. We cannot assure you that our current
negotiations and discussions will be successful. Failure to successfully
complete our current negotiations and discussions will not only impair our
ability to develop our business but may also result in the termination of our
operations.

WE HAVE RECENTLY NEGOTIATED THE MAIN TERMS OF OUR TWO SUPPLIER AGREEMENTS BUT
THE NEW SUPPLIER CONTRACTS ARE STILL TO BE FINALIZED.

The existing agreements with our two major bandwidth suppliers were signed in
1998 and 1999. Since then, the market prices for bandwidth have fallen
significantly. This market decline has resulted in our being unable to draw down
and sell bandwidth capacity above costs.

We have recently re-negotiated the main terms of these agreements with our two
suppliers. Letters of Intent have been executed between the two suppliers and
ourselves. Further negotiations with one of these two suppliers has recently
resulted in execution of a Standstill Letter and in execution of a Capacity Swap
Letter of Intent. The terms in these agreements enable us to draw down future
capacity at prices, and with network flexibility choices, which will enable us
to grow and develop our business. They establish new terms for drawing down
capacity, for future payments for capacity, and waive past events of default.

We cannot assure you that the two re-negotiated letters of intent will be
contractually closed. In the event that they are not closed, the existing
contracts will remain in force. We are currently behind with our payments based
upon the existing contracts and would therefore have to rely on the suppliers'
flexibility in rescheduling payment terms. The events of default under the
existing contracts could endanger our existence.

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<PAGE>

OUR RECENTLY ANNOUNCED ACQUISITION OF GLOBAL COMMUNICATION (HOLDINGS) LIMITED
HAS NOT TAKEN EFFECT AND IS UNLIKELY TO PROCEED.

In the fourth quarter of 1999, we announced that we had reached an agreement to
acquire 100% of Global Communications (Holdings) Limited, a UK based Internet
applications services provider. This agreement, which we signed, contains a
number of conditions before completion of the acquisition may occur. In
particular, the acquisition is dependent upon the ability to raise substantial
amounts of capital in order to fund the acquisition. The acquisition has not
taken effect and is unlikely to proceed.

WE DO NOT EXPECT TO PAY DIVIDENDS FOR THE FORESEEABLE FUTURE.

The loan facility between Telemonde and Communications Collateral Limited
("CCL") restricts our ability to pay dividends on our common stock. Moreover, we
plan to retain all earnings for investment in our business and do not plan to
pay dividends at any time in the foreseeable future. See Part II, Item 5,
"Dividend Policy".

WE HAVE NOT YET COMPLETED OUR TRANSITION FROM A DEVELOPMENT STAGE COMPANY TO AN
OPERATING COMPANY.

We are still a development stage company. It is anticipated that our network and
operations center will be established in 2000. Although our senior management
team has substantial industry knowledge and experience, this team has been built
up during the course of 1999 and has only recently been completed. EquiTel was
formed in late 1998, signed its initial customer contracts in 1999 and still
needs to be fully integrated into Telemonde.

The transition from a development stage company to an operating company places
significant demands on our management and operations. We are in the process of
expanding the management and operational capabilities necessary for this
transition. Our ability to manage this transition successfully will depend on,
among other things:

o expanding, training and managing our employee base, including
attracting, retaining and motivating highly skilled personnel;
o creating customer interface and operations, administrative and
maintenance systems;
o procuring terrestrial capacity to provide connectivity to
inland cities.

There can be no assurance that we will succeed in developing all or any of these
capabilities, and any failure to do so could have a material adverse effect on
our results of operations.

WE CURRENTLY RELY ON A RELATIVELY SMALL NUMBER OF MAJOR CUSTOMERS.

A relatively small number of customers currently account for a significant
amount of our total revenues. In our bandwidth business three customers
accounted for over 90% of our revenues in

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<PAGE>

1999. Although we intend to expand our customer base as our business grows and
through acquisitions, this dependence on a relatively small number of customers
may continue for the foreseeable future.

Most of our arrangements with large customers do not provide any guarantees that
they will continue using our services at current levels. In addition, if (1) our
customers build their own facilities, (2) our competitors build additional
facilities, or (3) our customers are involved in further consolidations in the
telecommunications industry, we could experience a reduction in the use of our
services, which could have a material adverse effect on our business.

THE DOMESTIC AND INTERNATIONAL TELECOMMUNICATIONS INDUSTRY IS HIGHLY COMPETITIVE
AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY.

The telecommunications industry is highly competitive and is influenced
significantly by the marketing and pricing decisions of the larger industry
participants. The industry has relatively limited barriers to entry in the more
deregulated countries with numerous entities competing for the same customers.
We believe that competition in all of our markets is likely to increase, which
could result in greater competition in telecommunications services offered in
these countries. This increase in competition could adversely affect our net
revenues.

At this stage of our development, many of our competitors are significantly
larger than we are, and many of our competitors have:

o substantially greater financial, technical, and marketing
resources;
o larger networks;
o a greater ability to support the portfolio of services;
o stronger name recognition and customer loyalty; and
o long-standing relationships with our prospective customers.

We expect that competition in the international telecommunications market will
intensify in the future. We compete with other international "carriers'
carriers" and submarine cable owners with regard to bandwidth sales, leasing and
switch services. In addition to competition from companies offering similar
services, we may also become subject to competition from existing geosynchronous
satellites as well as low-earth orbit satellite systems that are currently under
construction. The telecommunications industry will continue to experience rapid
changes in technology. Our future success may depend on our ability to adapt to
these changes in the industry. A failure by us to adopt new technology, or our
choice of one technological innovation over another, may have an adverse impact
on our ability to compete or meet customer demands.

OPERATION OF TELECOMMUNICATIONS NETWORKS INVOLVES SIGNIFICANT RISKS.

Each of our systems will be subject to the risks inherent in a large-scale,
complex fiber optic

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telecommunications system. The operation, administration, maintenance and repair
of these systems require the co-ordination and integration of sophisticated and
highly specialized hardware and software technologies and equipment located
throughout the world. There can be no assurance that our systems will function
as expected or in a cost-effective manner.

WE ARE SUBJECT TO ADDITIONAL RISKS DUE TO OUR INTERNATIONAL OPERATIONS.

We will derive substantial revenues from international operations and a key
element of our business strategy is to expand our operations in international
markets. Accordingly, our business is subject to certain risks inherent in
international operations. These risks include:

o unexpected changes in regulatory requirements, tariffs,
customs, duties and other trade barriers;
o difficulties in staffing and managing overseas operations;
o problems in collecting accounts receivable;
o political risks;
o fluctuations in currency exchange rates;
o foreign exchange controls which restrict or prohibit
repatriation of funds;
o technology export and import restrictions or prohibitions;
o delays from customs brokers or government agencies; and
o potentially adverse tax consequences resulting from operating
in multiple jurisdictions with different tax laws.

During our limited operating history we have not experienced any material
adverse effects with respect to our overseas operations arising from such
factors. However, problems associated with such risks could arise in the future.
Finally, managing operations in multiple jurisdictions will place further strain
on our ability to manage our overall growth.

In addition, EquiTel's targeted markets are in emerging markets, including
Africa, the Middle East, most of the Asia Pacific region, the Indian
sub-continent, Southern and Central America, and parts of Eastern Europe.
Political and social instability is widespread in many such areas and EquiTel is
subject to greater risks and potential losses due to unexpected changes in
political regimes.

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<PAGE>

We rely on local relationships in these emerging markets to support our
customers. Failure on the part of our local contacts to fulfill their
obligations may harm our reputation, business and operations. We, and in
particular our switched services business, utilize local persons to market our
services and provide local training and support. The quality of the local
training and support may be inconsistent and may not reach our "benchmark" of
quality service levels. In this event, customer relations, and possible future
business, may be jeopardized. In addition, our senior management may be diverted
to remedy the failure of our local relationships and this diversion may impede
other projects.

A portion of our net revenue and expenses is denominated, and is expected to
continue to be denominated, in currencies other than United States dollars.
Changes in exchange rates may have a significant effect on our results of
operations. Historically, we have not engaged in hedging transactions, and
currently do not contemplate engaging in hedging transactions, to mitigate
foreign exchange risk.

Telemonde's results of operations may be affected by fluctuations in currency
exchange rates. While all revenues have been earned in U.S. Dollars, a portion
of operating costs are incurred in currencies other than U.S. Dollars, such as
Pounds Sterling. A partial mismatch in operating revenues and expenses could
lead to fluctuations in results of operations due to changes in the value of the
U.S. Dollar relative to foreign currencies. Although we continue to have a
relationship with these customers, for instance through their annual maintenance
contracts, they have not to date placed further orders with us for bandwidth
capacity.

There will also be currency gains or losses on translation of EquiTel's
financial statements, which as a UK company are initially prepared in pounds
sterling, into US dollars for consolidation into Telemonde, Inc.'s consolidated
financial statements.

TELEMONDE'S OPERATIONS ARE SUBSTANTIALLY DEPENDENT ON KEY PERSONNEL.

Telemonde's success will depend to a significant degree upon the efforts of
senior management, particularly Kevin Maxwell, Adam Bishop, Harry Pomeroy and a
group of employees with longstanding industry relationships and technical
knowledge. Competition for such personnel is intense and we may not be able to
attract, motivate and retain highly skilled qualified personnel. Loss of
services of one or more key personnel could adversely affect Telemonde's
business. We have, however, entered into employment agreements with Kevin
Maxwell, Adam Bishop, Harry Pomeroy and with other executive officers. We are in
the process of analyzing and potentially procuring "key person" life insurance
policies covering Kevin Maxwell, Adam Bishop and Harry Pomeroy.

CERTAIN OF OUR OFFICERS AND DIRECTORS MAY HAVE CONFLICTS OF INTEREST WITH
TELEMONDE.

Certain of our directors and executive officers also serve as officers and
directors of other companies. Additionally, certain of our officers and
directors are active investors in the telecommunications industry. Although
these directors have fiduciary obligations to Telemonde

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<PAGE>

under Delaware law, service as a director or officer of Telemonde and as a
director or officer of another company could create conflicts of interest. In
particular, we have an advisory agreement with Sands Brothers, of which Mark
Hollo is the managing director. Mr. Hollo's duties as a manager at Sands
Brothers could be in conflict with his duties as a Telemonde board member. Any
of these conflicts of interest could have a material adverse effect on our
financial condition. Telemonde has not adopted special voting procedures to deal
with such conflicts of interest and resolution of these conflicts may be
unfavorable to Telemonde but intends to adopt such procedures in the near
future.

TELEMONDE MAY BE ADVERSELY AFFECTED IF WE DO NOT SUCCESSFULLY MANAGE THE
EXPANSION OF OUR BANDWIDTH AND SWITCHED SERVICES BUSINESS AND OUR EXPANSION INTO
NEW MARKETS AND SERVICES.

In conjunction with our acquisition of EquiTel, we intend to expand our switch
services business at a rapid rate. We expect switched services to be a
significant source of growth and revenues in the future. In addition, we plan to
offer new telecommunications services, expand and interconnect its service in
its existing markets, and enter new markets. If we are not successful in
implementing these changes, our operating results will be negatively impacted.

Our ability to manage this expansion depends on many factors, including the
ability to:

o attract new customers and sell new services to existing
customers;
o expand our network and available bandwidth design;
o acquire and install transmission and switching facilities;
o obtain any required governmental permits and rights-of-way;
o implement interconnection with local exchange carriers;
o expand, train and manage our employee base;
o improve our financial, operating and information systems to
effectively manage our growth;
o acquire suitable telehouse facilities; and
o accurately predict and manage the cost and timing of our
capital expenditure programs.

Even if we are successful in completing the infrastructure to support our
expanded business, that business may not be profitable and may not generate
positive cash flow.

OUR SHORT-TERM SUCCESS WILL DEPEND SUBSTANTIALLY ON OUR SALES OF BANDWIDTH,
WHICH PRICES MAY DECLINE DUE TO THE AVAILABILITY OF INCREASED CAPACITY.

We cannot be certain that we will continue to be successful in selling capacity
on our networks. Our

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<PAGE>

ability to continue to sell capacity will depend in large part upon our sales
and marketing capabilities. We have assembled an experienced and dedicated sales
and marketing staff and we depend upon the ability of such employees to
effectively market and sell capacity. However, we cannot be certain that we will
be able to effectively sell capacity on our network. If we are unable to
effectively sell capacity on our network, our operational results could be
negatively affected.

A number of companies have plans to construct new submarine and terrestrial
fiber optic systems. The additional capacity may create a glut in the market and
cause prices to drop dramatically which could have an adverse impact on our
revenues and operational results. Prices have fallen significantly in recent
quarters for trans-Atlantic bandwidth, and this trend may continue. In the
European terrestrial market, lead times are short and there is significant
competition from new or upgraded systems. Therefore, it is possible that there
will be significant over-capacity in the European market and that prices may
fall significantly in the short-term.

In particular, we have made, and will make in the future, commitments to
suppliers to obtain bandwidth capacity. Market price reductions reduce and can
eliminate the expected margin on bandwidth sales over the purchase price from
the supplier. In addition, we would need to seek price reductions from our
suppliers for future bandwidth capacity purchases in order to restore margins
and the outcome of such negotiations are inevitably uncertain. Therefore our
business, financial condition, and operation results could be materially and
adversely affected by market price declines, now and in the future. We intend to
purchase additional capacity on other cable systems around the world, but to
date have yet entered into any written agreements or negotiations with companies
to purchase this capacity. Any glut in the market or reduction in market price
could also affect our ability to obtain and sell capacity or to swap a portion
of our existing capacity for new capacity on other cable systems at the expected
margins.

WE HAVE NOT YET OBTAINED THE LICENSES WE NEED TO OFFER ALL OF OUR PROJECTED
PRODUCTS AND SERVICES.

Many of our planned products and services require licenses, registrations, and
authorizations in the relevant jurisdictions in which we operate and plan to
operate. For example, the provision of networking, leasing, and route management
services require government licenses in many jurisdictions.

One of our subsidiaries, TGA (whose assets and business were transferred to
other companies in the Telemonde group) has a ISVR license. We were granted in
December 1999 a fixed Public Telephone Operators License, which covers all
companies in the Telemonde group, including EquiTel. We also intend to apply for
a US international resale section 214 license in the near future to cover both
EquiTel and Telemonde. In addition, EquiTel sometimes needs to apply for local
licenses in overseas countries where it is providing route management and card
services contracts.

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with fees that are commercially practicable. In addition, other licenses,
authorizations or registrations may be required in the future. The loss of, or
failure to obtain, these licenses, authorizations or registrations or
substantial limitations placed upon the terms of these licenses, authorizations
or registrations could have a material adverse effect on our business, financial
condition or operating results.

WE DEPEND ON LOCAL CONNECTIONS THAT MAY BE DIFFICULT AND EXPENSIVE TO OBTAIN.

We offer customers end-to-end management of the circuit and termination at local
sites. Therefore, we must provide backhaul capacity and local connectivity.
However, there can be high and unexpected costs in providing local connections
due to initial installation costs, annual local tail rentals, lack of
availability of fiber between connection points, difficulty in obtaining
permission to install fiber and a small number of alternative suppliers. In
addition, local connection agreements may be subject to local regulations. We
may not be able to obtain backhaul and local connectivity at rates that are both
competitive and profitable.

GOVERNMENT REGULATIONS SIGNIFICANTLY AFFECT OUR BUSINESS AND NEW LAWS COULD HARM
OUR OPERATIONS.

THE EXPECTED CONTINUED GROWTH IN THE INTERNET SERVICE PROVIDER MARKET AND THE
USE OF THE INTERNET MAY NOT MATERIALIZE OR MAY MATERIALIZE IN A MANNER WE HAVE
NOT ANTICIPATED.

The Internet service provider market is new and rapidly evolving. Whether, and
the manner in which, the market for our products and services to Internet
service providers will continue to grow is uncertain. Any decline in the
Internet service provider market will adversely affect our business. Our
business would be damaged if Internet usage does not continue to grow. Internet
usage may be inhibited for a number of reasons, including:

o access costs;
o inadequate network infrastructure;
o security concerns;
o uncertainty of legal and regulatory issues concerning the use
of the Internet;

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o inconsistent quality of service; and
o lack of availability of cost-effective, high-speed service.

We have recently begun offering terrestrial network platforms and high-speed
Internet connectivity, based upon the supply of fiber optic bandwidth between
New York, London and other European cities. We intend to expand our services
worldwide and we anticipate offering a full-range of global connectivity
solutions for European Internet and Multimedia Service Providers over our
existing global network infrastructure, as well as specialist and geographic
Internet packages for our customer base in emerging markets. We have limited
experience in the Internet business and there can be no assurances you that we
will successfully establish or expand the business. Currently, we only provide
capacity to one European Internet service provider.

IF WE DO NOT RESPOND EFFECTIVELY AND ON A TIMELY BASIS TO RAPID TECHNOLOGICAL
CHANGE, OUR BUSINESS COULD SUFFER.

If we do not successfully use or develop new technologies, introduce new
services or enhance our existing services on a timely basis, or if new
technologies or enhancements used or developed by us do not gain market
acceptance, our business could be damaged. The telecommunications industry,
including the Internet, is characterized by rapidly changing technology,
industry standards, customer needs and competition, as well as by frequent new
product and service introductions. Our future success will depend, in part, on
our ability to accomplish all of the following in a timely and cost-effective
manner, all while continuing to develop our business model and rolling-out our
services:

o effectively use and integrate leading technologies;
o continue to develop our technical expertise;
o develop new products and services that meet changing needs of
telecommunications

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industry and Internet service providers;
o have the market accept our services;
o advertise and market our products and services; and
o influence and respond to emerging industry standards and other
changes.

We cannot assure you that we will successfully be able to use new technologies,
introduce new services or enhance our existing services on a timely basis, or
that new technologies or enhancements used by us will achieve market acceptance.
Our pursuit of necessary technological advances may require substantial time and
expense. In addition, we cannot assure you that, if required, we will
successfully adapt our network and services to alternate access devices and
conduits.

INCREASED COMPETITION IN THE PRE-PAID CARD BUSINESS MAY FORCE US TO LOWER OUR
PRICES AND IN TURN MAY NEGATIVELY AFFECT OUR OPERATING RESULTS.

Our operations relating to the pre-paid card business face a number of risks,
which include:

o the increased entry into the market by pre-paid card vendors,
including vendors that are larger than us;
o our reliance on independent distributors to place pre-paid
cards in retail outlets;
o our inability to create exclusive pre-paid phone card
distribution arrangements in certain markets;
o the availability of alternative telephony methods;
o the cost sensitive nature of consumer demand; and
o the lack of customer loyalty to any particular pre-paid card
company.

Many of these risks may cause prices to drop throughout the pre-paid card
industry. Because we depend on informal relationships with independent
distributors to market and sell our products, increased competition and lower
prices could force us to further lower our prices to continue to sell pre-paid
cards to these distributors. We cannot guarantee that we will be able to
continue to provide competitively priced pre-paid cards to our distributors or
that lower prices in the pre-paid card marketplace will not have a negative
effect on the results of our operations.

OUR PRE-PAID CARD BUSINESS IS DEPENDENT ON A SMALL NUMBER OF DISTRIBUTORS, AND
WE MUST RETAIN OUR CURRENT DISTRIBUTORS OR RECRUIT ADDITIONAL DISTRIBUTORS IN
ORDER TO REMAIN SUCCESSFUL.

We must distribute our pre-paid cards through wholesale distributors. As a
result, our success is largely dependent on our ability to recruit, maintain and
motivate a network of individual distributors. As part of our growth strategy we
would like to increase the retail distribution of our products and services by
expanding our distribution network in new markets. We cannot guarantee

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<PAGE>

that we will successfully recruit, maintain and motivate individual distributors
or prevent our distributors from marketing other pre-paid cards, and, if we are
unable to do this, it could have a negative effect on our business, financial
condition and result of operations.

We recruit a variety of types of distributors, including but not limited to:

o persons who currently distribute other types of products to
retail outlets; and
o individuals that we believe have the necessary sales and
marketing skills to promote our products.

We typically identify and recruit these distributors through existing
distributors, retail outlets, telemarketing and other promotional activities and
through direct inquiries from potential distributors.

WE MAY NOT SUCCESSFULLY INTEGRATE OUR RECENT ACQUISITIONS AND WE MAY NOT
SUCCESSFULLY COMPLETE OR INTEGRATE FUTURE ACQUISITIONS.

A key element of our business strategy is to acquire or make future investments
in complementary assets and businesses. A major portion of our future growth
will be as a result of such acquisitions. Acquisitions, including our recent
acquisitions of EquiTel and TGA (whose assets and business were transferred to
other companies in the Telemonde group) and strategic investments involve
financial and operational risks. In order to effect an acquisition we may incur
indebtedness and will need to service that indebtedness or we may need to issue
additional equity, which will lead to dilution. An acquisition may not provide
the benefits originally anticipated while we continue to incur operating
expenses. There may be difficulty in integrating the service offerings,
distribution channels and networks gained through acquisitions and strategic
investments with our own. Although we attempt to minimize the risk of unexpected
liabilities and contingencies associated with acquired businesses through
planning, investigation and negotiation, such unexpected liabilities
nevertheless may accompany such strategic investments and acquisitions. We
cannot guarantee that we successfully will:

o identify attractive acquisition and strategic investment
candidates;
o complete and finance additional acquisitions on favorable
terms; or
o integrate the acquired businesses or assets into our own.

We cannot guarantee that the integration of our business with any acquired
business, including the business of EquiTel and the leased carrier hotel
facilities, will be accomplished smoothly or successfully, if at all. If we
encounter significant difficulties in the integration of the existing services
or technologies or the development of new technologies, resources could be
diverted from our development, and delays in our development could occur.
Successful integration of operations and technologies requires the dedication of
management and other personnel which may distract their attention from our
day-to-day business, the development or acquisition of new technologies,

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<PAGE>

and the pursuit of other business acquisition opportunities.

In a strategic investment where we acquire less than a majority interest in a
company, we may lack control over the operations and strategy of the business,
and we cannot guarantee that such lack of control will not interfere with the
integration of services and distribution channels of the business with our own.
For example, EquiTel currently holds 49% of the issued share capital of Desert
Telecommunications Services LLC. On November 8, 1999, EquiTel entered into a
letter of intent to acquire from 16% to 51% of Desert Telecommunications
Services from our local partner. On January 1, 2000, EquiTel's profit share from
the joint venture was increased to 75%. EquiTel is responsible for the
day-to-day operations of these intelligent network services, but so long as our
local partner maintains a controlling interest in Desert Telecommunications
Services, he may be able to curtail our management. We cannot assure you that
EquiTel will successfully consummate the acquisition of a controlling interest
in Desert Telecommunications.

WHERE YOU CAN FIND MORE INFORMATION

We filed a Form 10, General Form for Registration of Securities pursuant to
Section 12(b) or 12(g) of the Securities Exchange Act of 1934, on November 15,
1999. We filed an amendment to the Form 10 (Form 10/A-1) on March 3, 2000, which
updates our information to January 14, 2000, the date the Form 10 became
effective with the SEC.

We are subject to the informational requirements of the Securities Exchange Act
of 1934, as amended, and will file periodic reports, and other information
relating to our business, financial statements and other matters with the
Securities and Exchange Commission. Our SEC filings are available to the public
over the Internet at the SEC's web site at http://www.sec.gov. You may also read
and copy any document we file at the SEC's public reference room at 450 Fifth
Street, N.W. Washington, D.C. 20549 or at the SEC's regional offices at 7 World
Trade Center, New York, New York 10048 and Citicorp Center, 5-West Madison
Street, Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms and their copy charges.

We maintain a web site on the Internet, which gives selected information about
our business. The Internet address of our web site is: http://www.telemonde.com

GLOSSARY OF CERTAIN TELECOMMUNICATIONS TERMS

ASYNCHRONOUS TRANSFER MODE (ATM) - A switching and transmission
technology that is one of a general class of packet technologies that relay
traffic by way of an address contained within the first five bits of a standard
fifty-three bit-long packet or cell. ATM-based packet transport was specifically
developed to allow switching and transmission of mixed voice, data and video at
varying rates. The ATM format can be used by many different information systems.

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<PAGE>

BANDWIDTH - The range of frequencies that can be passed through a
medium, such as glass fibers, without distortion. The greater the bandwidth, the
greater the information-carrying capacity of such medium. For fiber optic
transmission, electronic transmitting devices determine the bandwidth, not the
fibers themselves. Bandwidth is measured in Hertz (analog) or Bits Per Second
(digital).

BIT - A binary unit of information that can have either of two values,
0 or 1. Higher amounts of binary digit are:

o kilobit = 1,000 bits
o megabit = 1 million bits
o gigabit = 1 billion bits
o terabit - 1 trillion bits

BPS - Bits per second. This is the basic measuring unit of speed in a
digital transmission system. The number of bits that a transmission facility can
convey between a sending location and a receiving location in one second.

CAPACITY - The information-carrying ability of a telecommunications
system, as defined by its design (number of fibers, system length, and
opto/electronic equipment) and its deployed equipment (amount of
opto/electronics in the station) and measured in bits per second. Capacity is
sold in discrete units, usually system interface levels such as DS-3s and
STM-1s, that in the aggregate are the equivalent of total system capacity.

CARRIER - A third party provider of communications services by wire,
fiber or radio.

CARRIER HOTEL - A building (or part of a building) that has either been
specifically designed and built or has been adapted, for use by
telecommunications companies to meet their specific requirements.

DENSE WAVELENGTH DIVISION MULTIPLEXING (DWDM) - Similar technology to
WDM, except permitting a larger number of constituent spectrum colors to be
signal carrying, thus further expanding fiber optic cable capacity.

DIGITAL - A method of storing, processing and transmitting information
through the use of distinct electronic or optical pulses that represent the
binary digits 0 and 1. Digital transmission/switching technologies employ a
sequence of discrete, distinct pulses to represent information, as opposed to
the continuously variable analog signal. The precise signal transitions preclude
any distortion such as graininess or snow in the case of video transmission, or
static or other background distortion in the case of audio transmission.

DS-3 - Data transmission rate of approximately 45 Mbps.

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GBPS - Gigabit per second, which is a measurement of speed for digital
signal transmission expressed in billions of bits per second.

INDEFEASIBLE RIGHT OF USE (IRU) - A measure of currency in the fiber
optic cable business. The owner of an IRU has the right to use the capacity for
the time and bandwidth to which the IRU applies. In telecommunications, an IRU
is the effective long term lease (temporary ownership) of the capacity of an
international cable.

INTERNET - Interconnected computer networks, originally known as the
Defense Advanced Research Projects Agency connecting government and academic
sites. It currently links about 50 million people worldwide who use it for
everything from scientific research to simple electronic mail.

INTERNET SERVICE PROVIDER - A company that provides individuals and
companies with access to the Internet and to other related services such as
website access and hosting.

INTERNET PEERING - An agreement between two carriers for the exchange
of Internet traffic between their networks and onwards, covering the physical
interconnect as well as the financial terms of the interconnect where
applicable.

INTRANET - A private network that uses Internet software. An Intranet
is a private Internet reserved for use by people who have been given the
authority and passwords necessary to use that network Internet Protocol. A
standard which describes software that keeps track of Internet addresses, routes
outgoing messages and recognizes incoming messages.

LOCAL LOOP OR TAIL - The local loop or tail is that portion of the
local telephone network that connects the customer's premises to the local
exchange provider's central office or switching center. This includes all the
facilities starting from the customer premise interface which connects to the
inside wiring and equipment at the customer premise to a terminating point
within the switching wire center.

MULTIMEDIA - The electronic conversation between two or more people or
groups of people in different places using two or more types of digitally
integrated communication for voice, sound, text, data, graphics, video, image or
presence at the same time. Applications include conferencing, presentations,
training, referencing, games, etc.

MULTIPLEXING - An electronic or optical process that combines two or
more lower bandwidth transmissions into one higher bandwidth signal by splitting
the total available bandwidth into narrower bands (frequency division) or by
allotting a common wavelength to several transmitting sources one at a time in
sequence (time division).

OPTICAL FIBERS - Thin filaments of glass through which light beams are
transmitted. Enormous capacity, low-cost, low-power consumption, small space,
light-weight, insensitivity to electromagnetic interference characterize this
transport media.

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PHYSICAL POINT OF PRESENCE (POP) - A place where a telecommunications
carrier has a physical presence for access to its network.

PUBLIC TELEPHONE OPERATOR (PTO) - Originally a government owned
national provider of telecommunications services. In countries where
deregulation has occurred, the public telephone operator may be privatized
whereas in countries where deregulation has not occurred, the public telephone
operator remains government owned.

STM (SYNCHRONOUS TRANSFER MODE) - New term for traditional Time
Division Multiple switching to distinguish it from ATM.

STM-1 - The largest standard circuit unit of capacity, which consists
of 155 Mbps. Thus, each Gbps contains enough capacity for 6.4 STM-1 circuits.
While capacity is sold to the largest telecommunications companies in minimum
investment units equal to one STM-1 unit, most telecommunications companies buy
smaller units at a price higher than the equivalent STM-1 price.

SWITCH - A sophisticated computer that accepts instructions from a
caller in the form of a telephone number. Like an address on an envelope, the
numbers tell the switch where to route the call. The switch opens or closes
circuits or selects the paths or circuits to be used for transmission of
information. Switching is a process of interconnection circuits to form a
transmission path between users. Switches allow local telecommunications service
providers to connect calls directly to their destination, while providing
advanced features and recording connection information for future billing.

SYNCHRONOUS DIGITAL HIERARCHY (SDH SONET) - SDH SONET is a set of
standards for optical communications transmission systems that define optical
rates and formats, signal characteristics, performance, management and
maintenance information to be embedded within the signals and the multiplexing
techniques to be employed in optical communications transmission systems. SDH
SONET facilitates transmission between dissimilar vendors' equipment and
benefits customers by minimizing the equipment necessary for telecommunications
applications. SDH SONET also improves the reliability of the Local Loop
connection, historically one of the weakest links in the transmission of
information.

WAVELENGTH DIVISION MULTIPLEXING (WDM) - A multiplexing technique which
employs more than one light source and director operating at different
wavelengths and simultaneously transmits optical signals through the same fiber
while message integrity of each signal is preserved.

ITEM 2. PROPERTIES.

As of the date of this filing, Telemonde owned none of its office or operations
facilities. All of Telemonde's operations were located at leased properties, as
set forth below.

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LOCATION TYPE
TELEMONDE GROUP (INCLUDING EQUITEL)
London, England
40 Portman Square Office
Aylesbury Street Telehouse
Harbour Exchange, London Docklands Telehouse
Coriander Avenue, London Docklands Telehouse
New York, New York
230 Park Avenue Office
8th Avenue Telehouse
Hudson Street Telehouse
TELEMONDE NETWORKS LIMITED
London, England Switching
telemonde.net
Geneva, Switzerland Office
DESERT TELECOMMUNICATIONS SERVICES, LLC
Muscat, Oman Office

Telemonde group's executive and administrative offices are located in London.
EquiTel leased this space from its landlord on March 1, 1999 for a period of
seven (7) years. The costs of the lease are allocated between Telemonde and
EquiTel. Telemonde has recently relocated its New York office to 230 Park
Avenue. Effective March 2, 2000, Telemonde will lease this property for an
initial period of approximately four (4) months ending July 31, 2000.
Previously, the New York office of Telemonde was located at 200 Madison Avenue.
After negotiation with the property owner, Telemonde terminated this 200 Madison
Avenue lease in January 2000 and has satisfied its obligations in full to the
property owner.

In London and New York, Telemonde leases "telehouse" facilities to house the
routing and switching equipment that operates Telemonde's network and
interconnects it to the networks of other carriers. Telemonde's present
telehouse facilities also contain space that can be used to house equipment to

45
<PAGE>

operate its local networks in London and New York when those networks are
developed. Telemonde generally leases telehouse facilities for periods of one
year and renews the leases annually.

On November 8, 1999, Telemonde Networks Limited entered into a lease with Global
Switch (London) Limited for space in the London Switch Building, East India
Dock. This facility will be used for switching traffic on Telemonde's network,
as well as providing network switching services to other carriers. Telemonde's
lease with Global Switch is contingent upon the termination of a third party's
prior lease for the same space. We believe this condition will be fulfilled in
the near future, permitting Telemonde to use the switch facility.

We consider the offices and facilities described above to be appropriate for the
current position and size of the business. They enable us to market our
services, serve our customers, house our employees and fulfill our contracts in
a satisfactory manner. As our business grows, we will need to lease additional
space for our equipment, network and employees.

ITEM 3. LEGAL PROCEEDINGS.

From time to time, the Company is party to litigation or other legal proceedings
that each company considers to be a part of the ordinary course of its business.
The Company is not involved in any legal proceedings nor is it party to any
pending or threatened claims that could reasonably be expected to have a
material adverse effect on its financial condition or results of operations.

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

On November 8, 1999, the stockholders of Telemonde, Inc., a Nevada corporation
("Telemonde (Nevada)"), held a special meeting to approve the merger of
Telemonde (Nevada) with and into Telemonde, Inc., a Delaware corporation and
the existing Telemonde, Inc. corporation ("Telemonde (Delaware)"), which was
then a wholly-owned subsidiary of Telemonde (Nevada). The purpose of the merger
was to change Telemonde's domicile from Nevada to Delaware. Under the terms of
the merger, each share of common stock of Telemonde (Nevada) was converted into
and exchanged for the right to receive one share of common stock of Telemonde
(Delaware). At the special meeting, 55,930,333 shares of Telemonde (Nevada)
common stock were issued and outstanding and entitled to vote and 31,147,000
shares were represented at the special meeting by proxy. The merger was approved
by 31,147,000 shares of Telemonde (Nevada) common stock, which equaled 56% of
the voting power. No stockholder of Telemonde (Nevada) exercised his right to
dissent from the merger, which right was available under Nevada law. Stockholder
approval by Telemonde (Nevada), as the sole stockholder of Telemonde (Delaware),
was not required under Delaware law because Telemonde (Delaware) was the
surviving corporation.

No other matter was submitted to a vote of stockholders of Telemonde during the
fourth quarter of 1999.

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<PAGE>

PART II

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

HOLDERS

The approximate number of record holders of common stock of Telemonde, Inc. at
December 31, 1999 was 45.

DIVIDEND POLICY

We have never declared or paid any dividends on our common stock and we do not
anticipate paying cash dividends on the common stock in the foreseeable future.
We do not expect to generate any net income in the foreseeable future but
anticipate that future earnings generated from operations, if any, will be
retained to finance the expansion and continued development of our business.
Moreover, the loan facility between Telemonde and Communications Collateral
Limited restricts our ability to pay dividends on our common stock. Any future
dividends will be at the discretion of the board of directors and will depend
upon, among other things, our operations, capital requirements and surplus,
general financial condition, contractual restrictions and such other factors as
the board of directors may deem relevant.

PRICE RANGE OF COMMON STOCK

During 1999 our common stock was traded on the NASD Over-the-Counter Bulletin
Board under the symbol "TLMD." In January 1999 the SEC approved a proposed OTC
Bulletin Board eligibility rule, which permits only those companies that are
required to make current filings under the 1934 Act with the SEC to be quoted on
the OTC Bulletin Board. In order to be required to make filings under the 1934
Act, an issuer must register its class of securities under either the 1933 Act
or the 1934 Act. Further, the registration statement used to register the
securities must have cleared all comments with the SEC and must be effective.
Under the eligibility rule, we had until March 9, 2000 to meet these
requirements. To register our securities under the 1934 Act, we filed a
Registration Statement on Form 10 with the SEC on November 15, 1999, and
received comments from the SEC on January 4, 2000. Our Amendment to the Form 10
(Form 10/A-1), along with our formal response letter to the SEC Comments, was
filed on March 3, 2000. As of the date of this filing, we are awaiting further
comments or a no comment letter from the SEC. Accordingly, because we had not
cleared all comments with the SEC by March 9, 2000, we have been removed from
the OTC Bulletin Board and are currently trading on the National Quotation
Bureau's Electronic Quotation Service (EQS) Pink Sheets.

The following table provides the reported high and low sales prices for our
common stock on the NASD Over-the-Counter Bulletin Board for the quarterly
periods indicated. The prices reflect inter-dealer prices and do not include
retail markups, markdowns or commissions. The stock is not traded on any foreign
public trading markets.

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High Low
---- ---
Fiscal 1999
Fourth Quarter 4.25 2.13
Third Quarter 7.63 3.19
Second Quarter (May 19 (1) to June 30) 8.50 6.00
First Quarter N/A N/A

(1) Date our Common Stock began trading as "TLMD" following our acquisition of
Pac-Rim.

On March 8, 2000 (which was our last OTC Bulletin Board trading day before being
moved to the EQS pink sheets), the last reported sale price of our stock was
$0.75/share.

RECENT SALES OF UNREGISTERED SECURITIES

No securities of Telemonde which were not registered under the Securities Act of
1933, as amended (the "Securities Act"), have been sold by Telemonde, Inc. or
Pac-Rim Consulting, Inc. during 1999 except as follows:

(a) On May 14, 1999, Pac-Rim issued and sold 35,297,000 shares of its
common stock to Rhone Financial Indemnity Re. Ltd., the sole
shareholder of Telemonde Investments Limited, in exchange for all of
the issued and outstanding shares of Telemonde Investments Limited.
Exemption from registration for the sale of Pac-Rim stock to Rhone and
for the sale of Telemonde Investments stock to Pac-Rim is claimed under
Section 4(2) of the Securities Act.

(b) On August 2, 1999, Telemonde issued 33,333 shares of its common stock
to Mr. Barry F. Nathanson as compensation for executives search
services rendered by Mr. Nathanson to Telemonde. Exemption from
registration is claimed under Section 4(2) of the Securities Act.

(c) On August 13, 1999, Telemonde issued and sold 200,000 shares of its
common stock to the two shareholders of TGA(UK) Limited in exchange for
all of the issued and outstanding stock of TGA. Exemption from
registration is claimed under Section 4(2) of the Securities Act.

(d) On August 25, 1999, Telemonde issued Atlantic Crossing Ltd. a warrant
for the purchase of 1,100,000 shares of Telemonde's common stock. The
consideration for the issuance of the warrant was the execution by
Atlantic Crossing of a Capacity Purchase Agreement with Telemonde
Bandwidth (Bermuda) Limited, a subsidiary of Telemonde. The exercise
price of the warrant is $5.25 per share purchased. The warrant may be
exercised at any time prior to August 25, 2000. Exemption from
registration is claimed under Section 4(2) of the Securities Act.

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<PAGE>

(e) On September 1, 1999, Telemonde issued to Communications Collateral a
warrant for the purchase of a number of shares of its common stock
equal to seven percent of the issued and outstanding common stock as of
the date of exercise. The number of shares issuable upon the exercise
of the warrant will fluctuate; if the warrant had been exercised in
full on March 22, 2000, Communications Collateral would have received
approximately 5,642,935 shares of Telemonde's common stock. The stated
exercise price of the warrant, as amended by the Forbearance Agreement
between Communications Collateral and Telemonde, is $2.70 per share.
The warrant is exercisable at any time from September 1, 1999 until the
third anniversary of the closing date of the first transaction that
raises additional capital for Telemonde of at least $10 million through
the sale of equity securities. Exemption from registration is claimed
under Section 4(2) of the Securities Act.

(f) On October 13, 1999, Telemonde issued 60,000 shares of its common stock
to IC Capital, LLC, as consideration for IC Capital's agreement to
provide investor relations services to Telemonde. Exemption from
registration is claimed under Section 4(2) of the Securities Act.

(g) On November 8, 1999, Telemonde issued and sold 4,947,917 shares of its
common stock to the shareholders of EquiTel Communications Limited in
exchange for the acquisition of all of the issued and outstanding stock
of EquiTel. These shares were issued as initial consideration for the
acquisition of EquiTel. As additional consideration for the acquisition
Telemonde is obligated to issue to the former shareholders of EquiTel
an additional number of shares valued at $50,000,000, based upon the
average price of the Telemonde common stock during certain periods, and
subject to certain conditions relating to the financial performance of
EquiTel during 2000 and 2001. Assuming that the price of the common
stock is $1.125, the price of a share of Telemonde common stock on
March 27, 2000, and assuming that EquiTel satisfies the applicable
performance criteria, Telemonde will issue an additional 44,444,444
shares to the former EquiTel shareholders. Exemption from registration
is claimed under Section 4(2) of the Securities Act.

(h) On November 10, 1999, Telemonde agreed to issue 6,000,000 shares of its
common stock to the following persons in exchange for the forgiveness
of an aggregate of $16.25 million previously loaned by such persons to
subsidiaries of Telemonde and to EquiTel:

Name Shares of Common Stock
<S> <C>
Eaglescliff Investments Limited, a British Virgin Islands company 1,427,820

Chirone Investments Limited, a Bahamas company 1,716,360

Hamptonne Limited, a Bahamas company 1,236,180

True Blue Enterprises, Inc., a Nevis company 1,619,640

Exemption from registration is claimed under Regulation S of the
Securities Act.

</TABLE>

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(i) On November 10, 1999, Telemonde issued 166,667 shares of its common
stock to African Ventures Limited, a British Virgin Islands company,
and 166,667 shares of its common stock to National Empowerment Trust
Investment Fund, a South African public company, pursuant to a Share
Purchase Agreement among Telemonde, EquiTel, African Ventures, National
Empowerment Trust Investment Fund, and NET Industrial Holdings Limited,
a South African company. The consideration for this issuance was
EquiTel's purchase of 20% of the issued share capital of NET Industrial
Holdings Telecommunications Limited, a South African company ("NIHT"),
and EquiTel's entry into a joint venture with NIHT. Exemption from
registration is claimed under Regulation S of the Securities Act.

(j) On November 11, 1999, Telemonde issued 400,000 shares of common stock
to Mr. Ethelbert Cooper in connection with his employment as Vice
President of International Operations of EquiTel. Exemption from
registration is claimed under Section 4(2) of the Securities Act.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.

The following selected consolidated financial data as of and for the years ended
December 31, 1999 and 1998, and for the year ended December 31, 1999 and 1998,
have been derived from, and are qualified by reference to, the Consolidated
Financial Statements of the Company audited by Moore Stephens, Chartered
Accountants, included in this Annual Report and should be read in conjunction
with those Consolidated Financial Statements and Notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations.

<TABLE>
<CAPTION>
Fiscal Year Period From
Ended March 10 to
December 31, 1999 December 31, 1998
----------------- -----------------
(in thousands, except per share data)
<S> <C> <C>
Consolidated Statements of Operations Data:
Operating Revenues $ 8,165 $ 29,331
Operating Expenses:
Line Costs 28,008 32,510
Reserve for Doubtful Accounts 923 -
Cost of Contract Cancellation - 6,094
Selling, general & administrative expenses 9,857 1,055
Loan arrangement fees 1,615 1,321
Financing Costs 8,976 -
------- --------
Total Operating Expenses 49,379 40,980
Operating Loss (41,214) (11,649)
Other Income (Expense)
Interest Income 582 247
Interest Expense (1,337) (330)
------- --------

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Total Other Income (Expense) (755) (83)
Net Loss $ (41,969) $ (11,732)
Net Loss Per Share Basic and Diluted ($0.84) $ (0.33)

Consolidated Balance Sheet Data: at December 31, 1999 at December 31, 1998
Cash and Cash Equivalents: $62 $2,655
Total Assets 98,573 89,688
Total Liabilities 103,047 101,390
Total Stockholders' Equity (4,474) (11,702)

</TABLE>

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

YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS TOGETHER WITH TELEMONDE'S
FINANCIAL STATEMENTS, INCLUDING THE NOTES, APPEARING ELSEWHERE IN THIS ANNUAL
REPORT.

OVERVIEW

We are an international communications company that is creating an international
network which will connect countries in the developed world with regional
centers in the emerging markets.

Telemonde Investments Limited, a British Virgin Islands company and the holding
company for the Telemonde business, was formed in March 1998. Telemonde, Inc.
(formerly Pac-Rim Consulting, Inc.) acquired Telemonde Investments Limited on
May 14, 1999. In exchange for all of the issued and outstanding shares of
Telemonde Investments Limited, Telemonde, Inc. issued 35,297,000 restricted
shares of Telemonde, Inc.'s common stock. Pac-Rim Consulting, Inc. was a dormant
shell company with no operating history but was listed on the NASD
Over-the-Counter Bulletin Board.

The issuance of common stock by Pac-Rim was accounted for as a reverse purchase
acquisition of Pac-Rim by Telemonde Investments Limited. Although Pac-Rim was
the surviving legal entity in the Reverse, Telemonde Investments Limited is
considered to be the acquirer in the transaction because:

o the sole shareholder of Telemonde Investments Limited prior to
the acquisition became the majority shareholder of Pac-Rim
following the acquisition;
o Telemonde management became Pac-Rim management following the
acquisition; and
o Pac-Rim was simply a shell company rather than an operating
business.

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Following the acquisition by Telemonde Investments Limited, Pac-Rim Consulting,
Inc.'s name was changed to Telemonde, Inc. On November 9, 1999, Telemonde, Inc.
became a Delaware corporation by merging into a newly formed Delaware
subsidiary.

We have a limited operating history. Our financial information relates
principally to a period in which we were obtaining trans-Atlantic capacity and
were establishing our business and market presence. We have incurred operating
losses and negative cash flow since our inception. Despite recognizing
$37,496,000 in revenues, Telemonde incurred a deficit on total stockholders'
equity of $4,474,000 for the period from March 10, 1998 (the date of inception)
through December 31, 1999. We expect to continue to incur operating losses and
negative cash flow in 2000 as we continue to establish our networks and expand
our services. The continuation and magnitude of our operating losses and
negative cash flows in the future will be affected by a variety of factors,
including:

o The ability to put in place working capital facilities and to
increase our capital base.
o The rate at which we add new customers and the prices those
customers pay for our bandwidth and internet services.
o The mix of our business, including, among other factors, the
proportion of IRUs compared to leases and short term rentals
we sell to our customers.
o The ability and cost to obtain trans-atlantic and other
bandwidth capacity; in particular the cost of bandwidth under
the major supplier agreements currently under re-negotiation.
o Customer payment terms where customers require a deferred
payment plan for their purchase of our IRUs.
o The speed and extent to which we add networking and other
related services, including but not limited to our telehousing
facilities, to our portfolio of products and services.
o The ability to predict demand for our networking and other
related services, including but not limited to our telehousing
facilities.
o The ability of our local relationships in emerging markets to
support our customers and meet our obligations.
o The completion of our planned networks and infrastructure and
the expansion of our networks generally, with completion being
achieved by currently expected completion dates.
o General economic, financial, competitive, legislative,
regulatory, licensing, and other factors that are beyond our
control.

As a development stage company, we have not yet completed our transition to an
operating company. It is anticipated that our network and operations center will
be established by the end of the first half of 2000. Although our senior
management team has substantial industry knowledge and

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experience, this team has been built up during the course of 1999 and has only
recently been completed. EquiTel was formed in late 1998, signed its initial
customer contracts in 1999 and still needs to be fully integrated into
Telemonde.

o expanding, training and managing our employee base, including attracting,
retaining and motivating highly skilled personnel;
o creating customer interface and operations, administrative and
maintenance systems;
o procuring terrestrial capacity to provide connectivity to inland cities.

There can be no assurance that we will succeed in developing all or any of these
capabilities, and any failure to do so could have a material adverse effect on
our results of operations.

INDUSTRY TRENDS

The Company believes that bandwidth demand is expected to more than double in
the next two years. This future growth of bandwidth demand will be met by the
building of new cable infrastructure. This will be particularly visible in
Western Europe and in the USA, where a significant number of cable systems will
be brought into service over the next 18-24 months (including TAT-14,
Flag-Atlantic, Level 3's Yellow System, Hibernia, Southern Cross). As Asia
progresses with liberalization, we would expect to see the same broad pattern
develop during the next five years.

We believe that following the recent sharp decline in market price, existing
supply and demand are now well matched. Current prices are cost based to ensure
that existing inventories are run down prior to new cable systems becoming
operational. The future market pricing of bandwidth will be affected by any
future imbalances between supply of capacity and demand per bandwidth and
therefore by the timing of new generation cable systems.

These developments have impacted buyer behavior by shifting some purchase
decisions away from outright capacity ownership (IRUs) to short-term leases
(typically less than 1 year in duration), in anticipation of lower prices in the
near future. Buyers are balancing the cost of purchasing short term bandwidth to
meet user driven demand for bandwidth and service quality in a competitive
market against a forward view of prices for IRUs on the new cable systems and
delivery date expectations. We believe that the demand for bandwidth will be
driven primarily from Internet Protocol (IP) based services and the growing
availability of broad band capacity on the wireline and wireless access
networks. This, coupled to the radically reduced cost base for international
bandwidth, will increase the demand for new high-speed data and Internet
services over the next 18 months due to the abundance of high-quality,
cost-effective bandwidth, particularly on trans-atlantic

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and intra-European routes. Services such as high capacity streaming video and
content via the Internet, previously thought to be uneconomical, will develop
rapidly as prices for the underlying bandwidth steps down to the next,
technology driven, level.

As the Internet user market continues to be redefined into smaller and more
focused user groups, a key dynamic of this market will be the large number of
smaller service providers using the Internet as a distribution channel for their
content. This presents a major opportunity for wholesale operators to provide a
range of bandwidth, telehousing, commodity content and support services to these
service providers, enabling them to concentrate on their core capabilities. Our
subsidiary, telemonde.net, is ideally placed to exploit these increases in
demand for bundled support services.

REVENUES

Operating revenues for the fiscal year ended December 31, 1999 totaled $8.2
million compared with $29.3 million for the period beginning March 10, 1998 and
ending December 31, 1998. The principal reason for the decline in revenues for
the fiscal year ended December 31, 1999 has been the rapid decline of prices in
the trans-atlantic bandwidth capacity industry in 1999. Customers were reluctant
to purchase capacity while prices were falling, and we were unable to sell
capacity profitably until we had renegotiated terms with our suppliers.

Our medium-term contracts for the supply of trans-atlantic bandwidth were
contracted for in 1998 and early 1999 at fixed prices and before the
unexpectedly severe fall in market prices. The details of our Capacity Purchase
Agreements with suppliers are described in detail in the section on "Liquidity
and Capital Resources" below. In order to address this bandwidth price
compression, we have reached agreements in principle but have yet to sign
definitive agreements with our principal suppliers to replace old capacity with
new capacity on higher-value networks that encompass the Atlantic, Pacific,
Europe and South American regions. The Company believes that the carrying value
of the new capacity is equivalent to the cost of the old capacity and that the
final agreements will be executed within a reasonable time on the terms already
agreed upon in principle.

Although we believe that trans-atlantic market prices have now stabilized, we
can give no assurance that prices may not fall further. We have made in the
past, and may make in the future, commitments to suppliers to obtain bandwidth
capacity. Market price reductions reduce and can eliminate the expected margin
on bandwidth sales over the purchase price from the supplier. In addition, we
would need to seek further price reductions from our suppliers for future
bandwidth capacity purchases in order to restore margins and the outcome of such
negotiations are inevitably uncertain. Therefore our business, financial
condition, and operating results could be materially and adversely affected by
market price declines.

A number of companies are constructing or have plans to construct new submarine
and terrestrial fiber optic systems. The additional capacity may create
over-capacity in the market and cause future prices to drop which could have an
adverse impact on our revenues and operational results. In the European
terrestrial market, lead times are short and there is significant competition
from new or

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upgraded systems. Therefore, it is possible that there will be over-capacity in
the European market and that prices may fall.

To further offset the possible impact of future bandwidth capacity market
fluctuations, we have diversified our revenue streams through the acquisition of
EquiTel and the formation of telemonde.net S.A. We believe that these businesses
will contribute to our revenue stream in 2000.

Although we expect EquiTel's switched services to be a revenue stream in the
future, our operations relating to the pre-paid card business face a number of
risks, which include:

o the increased entry into the market by pre-paid card vendors,
including vendors that are larger than us;
o our reliance on a small number of independent distributors to
place pre-paid cards in retail outlets;
o our inability to create exclusive pre-paid phone card
distribution arrangements in certain markets;
o the availability of alternative telephony methods;
o the cost sensitive nature of consumer demand; and
o the lack of customer loyalty to any particular pre-paid card
company

RESULTS OF OPERATIONS

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMPARED WITH THE PERIOD FROM MARCH
10, 1998 TO DECEMBER 31, 1998

Operating revenues decreased $22.2 million or 72% from $29.3 million for the
period ended December 31, 1998 to $8.2 million for the fiscal year ended
December 31, 1999. Bandwidth Capacity and Leasing sales fell $23.4 million or
81% from $28.9 million for the period ended December 31, 1998 to $5.5 million
for the fiscal year ended December 31, 1999. Backhaul, maintenance and recharge
revenues increased $2.3 million or 569% from $0.4 million in the period ended
December 31, 1998 to $2.7 million in the fiscal year ended December 31, 1999.
The increase in backhaul, maintenance and recharge revenues reflects the fact
that the related sales agreements came into effect part way through the period
ended December 31, 1998 and a $0.9 million non-recurring recharge in fiscal year
1999 due to a late bandwidth drawdown by one of our European customers was also
realized. Revenues are overwhelmingly attributable to the subsidiaries of
Telemonde Investments Limited.

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Line costs decreased $4.5 million or 14% from $32.5 million in the period ended
December 31, 1998 to $28.0 million in the fiscal year ended December 31, 1999.
The decrease reflects an equivalent decrease in capacity sales partially offset
by a $21.5 million fair value adjustment taken as a reserve against the Global
Crossings inventory. Line costs are attributable to the subsidiaries of
Telemonde Investments Limited.

Provision for doubtful debts increased from nil in the period ended December 31,
1998 to $0.9 million in the fiscal year ended December 31, 1999. The provision
relates to a 1999 capacity sale made by Telemonde International Bandwidth
(Bermuda) Limited.

The cost of contract cancellation decreased from $6.1 million in the period
ended December 31, 1998 to nil in the fiscal year ended December 31, 1999. On
April 16, 1999, Telemonde terminated a Capacity Purchase Agreement with Gemini.
Under the terms of the Capacity Purchase Agreement Telemonde was committed to
drawing down capacity over a three year period. Under the termination
arrangement, the commitment, other than the capacity already drawn down, has
been cancelled. All costs connected with the termination arrangement have been
expensed in the period ended December 31, 1998 as the decision to terminate the
Capacity Purchase Agreement was made in 1998.

Selling, general and administrative expenses increased $8.8 million or 834 %
from $1.1 million in the period ended December 31, 1998 to $9.9 million in the
fiscal year ended December 31, 1999. Staff costs increased from nil in the
period ended December 31, 1998 to $2.2 million in the fiscal year ended December
31, 1999. The increase in staff costs reflects the fact that Telemonde Networks
Limited was incorporated on February 16, 1999 to perform the sales and marketing
functions previously undertaken outside the Company by Telemonde Limited and to
build infrastructure and staff. Legal fees increased $1.7 million or 258% from
$0.6 million in the period ended December 31, 1998 to $2.3 million in the fiscal
year ended December 31, 1999. The increase in legal fees reflects an increase in
corporate finance and potential acquisition activity. Other selling, general and
administrative expenses increased $4.9 million or 1,150% from $0.4 million in
the period ended December 31, 1998 to $5.3 million in the fiscal year ended
December 31, 1999, primarily as a result of an increase in travel and
accommodation costs and other costs.

Financing costs increased from nil in the period ended December 31, 1998 to $9.0
million in the fiscal year ended December 31, 1999. The increase is attributable
to the warrants issued to Communications Collateral Limited and Global Crossing
in 1999. Generally accepted accounting principles in the United States require
that the fair value of the warrants be recorded as an expense over the period of
the related financing.

Loan arrangement fees increased $0.3 million or 22% from $1.3 million in the
period ended December 31, 1998 to $1.6 million in the fiscal year ended December
31, 1999. The increase is attributable to a rise in the aggregate value of
bridging finance in 1999 compared with 1998.

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Interest income increased $0.4 million or 136% from $0.2 million in the period
ended December 31, 1998 to $0.6 million in the fiscal year ended December 31,
1999. The increase is attributable to an increase in income from sales interest
on capacity sold on deferred payment terms.

Interest expense increased $1.0 million or 305% from $0.3 million in the period
ended December 31, 1998 to $1.3 million in the fiscal year ended December 31,
1999 since average borrowings increased.

The net loss increased $30.3 million or 258% from $11.7 million in the period
ended December 31, 1998 to $42.0 million in the fiscal year ended December 31,
1999.

The increase of $30.3 million in the net loss arises principally from the
reduced sales, the line costs fair value adjustment as well as the increase in
selling, general, administrative and financing costs.

LIQUIDITY AND CAPITAL RESOURCES

Telemonde's liquidity requirements arise from:

o purchases and maintenance of bandwidth capacity and network equipment;
o development of intelligent network platforms, which includes pre-paid
calling cards and other value-added telephony services;
o interest and principal payments on outstanding indebtedness;
o net cash used in operating activities; and
o acquisitions of, and strategic investments in, businesses.

Telemonde has satisfied its liquidity requirements to date through operating
cash flows, vendor finance, short-term bridge financing, shareholder loans and
equity subscriptions.

Net cash used in operating activities was $19.4 million in the fiscal year ended
December 31, 1999, compared to net cash provided by operating activities of $2.7
million in the period from March 10, 1998 to December 31, 1998. The increase in
net cash used in operating activities was primarily due to a fall in receipts
under capacity sales agreements, an increase in payments under capacity purchase
agreements and an increase in general and administrative payments.

Net cash used in investing activities was $7.3 million in the fiscal year ended
December 31, 1999 compared to nil in the period from March 10, 1998 to December
31, 1998. Net cash used in investing activities in the fiscal year ended
December 31, 1999 comprises pre-acquisition advances to EquiTel and purchases of
property, plant and equipment.

Net cash provided by financing activities was $24.1 million in the fiscal year
ended December 31, 1999 compared with $0.03 million in the period from March 10,
1998 to December 31, 1998. Proceeds from the Communications Collateral Limited
Capacity Option Agreement increased from nil in the period ended December 31,
1998 to $4.5 million in the fiscal year ended December 31,

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1999. In the period from March 10, 1998 to December 31, 1998, Telemonde repaid
loans of $18.3 million which had been drawn down in the period.

Telemonde's ability to meet its liquidity requirements is dependent on its
ability to generate cash from operations and raise short term or permanent
finance. Since inception through December 31, 1999, Telemonde has had negative
cash flow from operating activities of $16.8 million. In addition, Telemonde
incurred net losses of $11.7 million in the period ended December 31, 1998 and
$42.0 million in the fiscal year ended December 31, 1999. On a pro forma basis,
after giving effect to the acquisition of EquiTel, Telemonde would have had a
net loss of $13.6 million in the period ended December 31, 1998 and $53.4
million in the fiscal year ended December 31, 1999.

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The independent auditors have reported that the financial statements for the
fiscal year ended December 31, 1999 have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has incurred a net loss of $42.0 million. At December
31, 1999, total liabilities exceeded total assets by $4.5 million. These
factors, and the others discussed in Note 1, raise substantial doubt about the
ability of the Company to continue as a going concern if it fails to raise
additional debt and equity financing. The financial statements do not include
any adjustments relating to the recoverability of recorded assets, or the
amounts of liabilities that might be necessary in the event the Company fails to
raise additional financing and cannot continue in existence.

We have incurred a high level of debt. As of December 31, 1999, Telemonde and
EquiTel had a combined $103,047,000 in total liabilities, including:

o $78,244,000 to capacity suppliers relating to undrawn
bandwidth. Undrawn bandwidth comprises trans-atlantic
bandwidth capacity, which we have not yet drawn-down and taken
delivery of, but to which we are committed to draw down at
scheduled dates under the terms of Capacity Purchase
Agreements with our suppliers.
o $7,284,000 to all other suppliers.
o $4,445,000 owed to Communications Collateral Limited under a
Capacity Option Agreement.

The amount of our debt could have important consequences for our future,
including, among other things:

Due to our lack of liquidity resulting from a decline on the market for
wholesale fiber optic bandwidth, we have been unable to generate sufficient cash
flow to meet certain of our debt service requirements and have triggered events
of default under our monetary obligations on a number of our material contracts.
We are, however, renegotiating our capacity purchase agreements with our two
major suppliers, MCI WorldCom and Atlantic Crossing.

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MCI WORLDCOM CAPACITY PURCHASE AGREEMENTS. In December of 1998 and on March 31,
1999, Telemonde, through its now wholly owned subsidiary Telemonde International
Bandwidth Limited, entered into agreements for the purchase of four units
(STM-1's) of bandwidth capacity on the Gemini network. Specifically, Telemonde
acquired the IRUs in three units of capacity under the December 1998 agreement,
and acquired the right for an additional unit of capacity under the March 1999
agreement. Under these agreements, Telemonde is also required to pay annual
maintenance charges. Telemonde has paid the amounts due under the March 1999
agreement. However, as a result of the Company's liquidity problems detailed
above, Telemonde was unable to fulfill its obligations to draw down and pay for
the three units of capacity under the December 1998 agreement. Furthermore,
Telemonde was delinquent on its annual maintenance charges under both
agreements, resulting in an overall default to MCI WorldCom in the amount of
approximately $26 million.

In light of these circumstances, Telemonde has executed a Standstill Letter from
MCI WorldCom on December 31, 1999 in which MCI WorldCom has agreed to refrain
from (a) taking any action to enforce payment of the sums owed to MCI WorldCom
under the capacity purchase agreements; (b) taking any action to enforce or make
a demand under any guarantee, indemnity or security related to the capacity
purchase agreements; and (c) commence any insolvency proceedings against
Telemonde or any of its subsidiaries. The Standstill Letter expires upon the
earlier of (i) the full payment of the sums owed under the capacity purchase
agreements; (ii) May 31, 2000; or (iii) Telemonde's failure to comply with a
number of terms and conditions, which includes the prohibition against the sale
of assets, dividends and the borrowing of any additional funds without the
signed written consent of MCI WorldCom's agent other than permitted borrowings.

Despite the technical defaults with Global Crossing and MCI WorldCom detailed
above, Telemonde has been in extensive negotiations with senior management in
both organizations towards the end of 1999 and continuing into March 2000. It
should also be noted that while these discussions have been held, Telemonde has
made a number of payments to both suppliers for services. It is the opinion of
Telemonde's management that the ongoing negotiations with both suppliers will
lead to a successful conclusion of the outstanding defaults and provide
Telemonde with much more flexible supply contracts.

ATLANTIC CROSSING LIMITED CAPACITY PURCHASE AGREEMENT. Telemonde, through its
now wholly-owned subsidiary Telemonde Bandwidth (Bermuda) Limited, agreed to
acquire an aggregate of 16 STM-1(s) on Segment S-1 from Atlantic Crossing
Limited, under a Capacity Purchase Agreement dated June 10, 1998. Since the
summer of 1999, we have not drawn down any capacity from Atlantic Crossing and
have not made any payments under this agreement and are in default under the
payment terms in the amount of approximately $52 million, in addition to
interest and outstanding

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maintenance payments. Management is in discussions with Global Crossing, the
parent company of Atlantic Crossing, to renegotiate the terms of the contract,
including the extension of capacity drawdowns to include the entire Global
Crossing system, rather than just trans-atlantic capacity. This will allow
Telemonde to expand according to its overall business strategy.

GEMINI CAPACITY PURCHASE AGREEMENT. On April 3, 1998, Telemonde, through its now
wholly owned subsidiary Telemonde International Bandwidth (Bermuda) Limited,
purchased Indefeasible Rights of Use relating to trans-atlantic capacity from
Gemini Submarine Cable System Limited. Specifically, Telemonde agreed to acquire
up to a maximum of STM-16. Due to a subsequent and rapid decline in the market
for wholesale telecommunications bandwidth, the capacity sale agreement was
amended by three letter agreements dated January 27, April 16, and April 22,
1999. These amendments provided that an IRU for only one (1) STM-1 would be
acquired, and a second STM-1 would be leased for a lump sum payment plus monthly
payments for a three-month period ending July 16, 1999. Further negotiations
between the parties provided that the lump sum payment would fall due on October
7, 1999 in the form of two promissory notes. Telemonde has paid Gemini the full
balance owing for the IRU relating to the first STM-1. However, Telemonde has
not fulfilled its obligations under two promissory notes in the amount of $2.7
million. Although this default gives Gemini the right to immediately terminate
the Indefeasible Rights of Use, Gemini has not done so as of the date of this
filing. Furthermore, such a termination would not substantially effect
Telemonde's bandwidth sales contracts, as it only has one customer operating on
the Gemini network under this particular capacity purchase agreement, and this
customer is protected under the agreement with Gemini.

CURRENT OBLIGATIONS TO COMMUNICATIONS COLLATERAL LIMITED. On April 15, 1999,
Telemonde, through its now wholly owned subsidiary Telemonde Investments
Limited, entered into a series of agreements with Communications Collateral
Limited, including, among others, agreements for: (1) the sale of an IRU for
bandwidth to Communications Collateral Limited; (2) the grant of an option to
Communications Collateral Limited which, among other things, required Telemonde
to repurchase the bandwidth upon Communications Collateral Limited's request;
and (3) a $1 million loan by Communications Collateral Limited to Telemonde due
and repaid on August 12, 1999. In connection with these principle agreements,
the three subsidiaries of Telemonde Investments Limited guaranteed the
obligations of Telemonde Investments Limited under those agreements, including
its obligation to pay back the loan and to repurchase the bandwidth in the event
that Communications Collateral Limited exercised its option.

On August 14, 1999, Communications Collateral Limited exercised its option to
require Telemonde to repurchase the capacity. Telemonde was unable to complete
this repurchase and was in default in the amount of approximately $4.5 million.
As a result, Communications Collateral Limited has the right to foreclose on
essentially all of the assets of Telemonde Investments Limited, including its
ownership interests in the three subsidiaries of Telemonde Investments Limited,
all of the assets in any of the foregoing subsidiaries, including their rights
under Telemonde's bandwidth sale contracts; and any ownership interest the
foregoing subsidiaries might have in any other Telemonde entities until the
default is cured. The amount of the foreclosure, however, would not have
exceeded the amount of the indebtedness.

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LIABILITIES AT DECEMBER 31, 1999. As at December 31, 1999, Telemonde and EquiTel
had a combined $103.0 million of total liabilities. This included $78.2 million
owed to capacity suppliers relating to undrawn bandwidth and $4.5 million owed
to Communications Collateral Limited. As of December 31, 1999, we therefore had
incurred events of default in respect of $82.7 million of the total liabilities.

We also had the following obligations, included in the total liabilities of
$103.0 million at December 31, 1999:

o $1 million in loans to EquiTel from Rhone Financial Indemnity Re Limited,
repayable when EquiTel's resources permit.
o $1 million in loans to Telemonde from Atlas which were repaid by
Telemonde in January 2000.
o $830,000 in loans from Dunloe of which $165,000 was repaid in January
2000.

At December 31, 1999 we had no material capital commitments. We intend to
establish our own operations center, as described in the Network Section of Item
1 of this Annual Report. This will involve capital expenditures in respect of
network equipment and connectivity. The intended sources of funds for these
types of expenditures are described below.

FUND RAISING PLANS. We currently do not have the capital base or working capital
facilities to meet our projected commitments. We are currently seeking
short-term debt finance, primarily to repay the obligations to Communications
Collateral Limited. In addition we plan to raise additional equity in order to
provide us with an increased capital base for the future.

We can give no assurance that our plans to raise additional equity will be
successful. If we fail to obtain the necessary capital, or if we obtain an
insufficient amount of capital, this would harm our prospects and could
jeopardize our existence. We have benefited in the past from the willingness of
suppliers to reschedule commitments and payments and may continue to require and
take advantage of such flexibility in the future. However, this reliance on
supplier flexibility for short term funding inevitably leads to pressure from
suppliers. In addition, it has resulted in the past and could result in the
future in formal events of default, which could endanger us, especially if this
supplier flexibility ceased to be available. It is for this reason that we plan
to seek substantial external funding.

RECENT EVENTS AND TRANSACTIONS

EQUITEL. Telemonde acquired EquiTel Communications Limited on November 8, 1999.
The maximum aggregate value of the consideration payable by Telemonde to the
shareholders of EquiTel is $69 million. The consideration is to be satisfied as
follows:

o the initial consideration of $19 million was satisfied by the
issuance to the EquiTel shareholders of restricted shares of
common stock of Telemonde.

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o on or before June 30, 2001 or within seven days thereafter, a
sum not exceeding $30 million will be paid to EquiTel
shareholders in proportion to their respective interests in
EquiTel by the issue of restricted shares of common stock of
Telemonde, which amount will be based upon its earnings.

o on or before June 30, 2002 or within seven days thereafter, a
sum not exceeding $50 million, less the amount paid on June
30, 2001, will be paid to EquiTel shareholders in proportion
to their respective interests in EquiTel by the issue of
restricted shares of common stock of Telemonde, which amount
will be based upon its earnings.

TGA LIMITED. On August 13, 1999 Telemonde acquired 100% of the issued and
outstanding stock of TGA(UK) Limited. The former shareholders of TGA received
200,000 shares of common stock of Telemonde, Inc. as consideration for the TGA
stock. TGA's assets and business were transferred to other companies in the
Telemonde group.

DESERT TELECOMMUNICATIONS SERVICES. EquiTel holds 49% of the issued share
capital of Desert Telecommunications Services LLC, an Omani company which is a
joint venture between EquiTel and a local partner to provide intelligent network
services to Oman. On November 8, 1999 EquiTel entered into a letter of intent to
increase its share of the profits of Desert Telecommunications Services from the
current 50% profit. As a result of the discussions with the local partner, it
was agreed that EquiTel's profit share from the joint venture would be increased
to 75%. An agreement to this effect was signed as of January 1, 2000. The
consideration for this transaction will be satisfied by the issuance of
1,750,000 shares of common stock of Telemonde, Inc. and by the exclusive use of
EquiTel personnel of accommodation services and facilities in Oman from January
2000 to December 2002.

GLOBAL SWITCH (LONDON) LIMITED. On November 8, 1999, Telemonde Networks entered
into a lease and service agreement, subject to certain conditions, for space in
the London Switch Building and agreed to lease space in Paris and Amsterdam upon
completion of those carrier hotels. The London facility will house Telemonde's
London switching equipment.

GLOBAL COMMUNICATIONS (HOLDINGS) LIMITED. On November 5, 1999, Telemonde and
Global Communications signed a letter of intent for the purchase by Telemonde of
the entire share capital of Global Communications (Holdings) Limited , a UK
based Internet applications service provider. The letter of intent contained a
number of conditions on both parties before completion of the acquisition might
occur. Although discussions with Global Communications are continuing some of
the conditions remain unfulfilled and as a result this acquisition is unlikely
to proceed.

REMOVAL FROM OTC BULLETIN BOARD. In January 1999 the SEC approved a proposed OTC
Bulletin Board eligibility rule, which permits only those companies that are
required to make current filings under the 1934 Act with the SEC to be quoted on
the OTC Bulletin Board. In order to be required to make filings under the 1934
Act, an issuer must register its class of securities under either the

63
<PAGE>

1933 Act or the 1934 Act. Further, the registration statement used to register
the securities must have cleared all comments with the SEC and must be
effective. Under the eligibility rule, we had until March 9, 2000 to meet these
requirements. To register our securities under the 1934 Act, we filed a
Registration Statement on Form 10 with the SEC on November 15, 1999, and
received comments from the SEC on January 4, 2000. Our Amendment to the Form 10
(Form 10/A-1), along with our formal response letter to the SEC comments, was
filed on March 3, 2000. As of the date of this filing, we are awaiting further
comments or a no comment letter from the SEC. Accordingly, because we had not
cleared all comments with the SEC by March 9, 2000, we have been removed from
the OTC Bulletin Board and are currently trading on the National Quotation
Bureau's Electronic Quotation Service (EQS) Pink Sheets.

PAUL E. DONOFRIO. Paul E. Donofrio joined Telemonde as Executive Vice President
and Chief Financial Officer on March 1, 2000. Under the terms of his employment
agreement, he will serve for three years.

COMMUNICATIONS COLLATERAL LIMITED. On January 12, 2000, Communications
Collateral Limited executed a Forbearance Agreement with Telemonde. Under the
terms of the Forbearance Agreement, Communications Collateral Limited agreed not
to exercise its rights of default under its agreements with Telemonde until
February 15, 2000, in consideration of certain additional credit enhancements,
including the issuance of additional shares and the payment of $500,000. As of
February 15, 2000, Telemonde had not fulfilled its obligations under the
Forbearance Agreement, and as a result, Communications Collateral Limited has
the right to foreclose on Telemonde's assets in order to recover amounts due
under the original agreements. As of the date of this filing, Communications
Collateral Limited has not exercised its rights of default.

MCI WORLDCOM. Telemonde has not yet fulfilled certain of its obligations to MCI
WorldCom under the Standstill Letter of December 31, 1999, which obligations had
a deadline of January 31, 2000 under the terms of the Letter. Accordingly, MCI
WorldCom is no longer bound by the Standstill Letter to refrain from taking
action against Telemonde for Telemonde's breach of its capacity purchase
agreement with MCI WorldCom. As of the date of this filing, MCI WorldCom has
taken no action against Telemonde under its agreements.

ITS (SPAIN). Telemonde, through its subsidiary EquiTel, entered into an
agreement to acquire ITS Europe, which is a Spanish registered company that
sells and distributes telecommunications products and services, including
pre-paid calling cards. This agreement was conditional on the market price of
the common stock of Telemonde being and remaining above $3 per share, since this
would impact on the value received by the sellers. As a result of the recent
decline in the Telemonde share price, the sellers exercised their right not to
proceed with the agreement.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Telemonde's primary market risk exposures relate to changes in foreign currency
rates. Telemonde is exposed to the risk of fluctuations in foreign currency
exchange rates due to the international

64
<PAGE>

nature and scope of its operations. In the future, Telemonde expects to continue
to derive a significant portion of its net revenue and incur a significant
portion of its operating costs outside the United States, and changes in foreign
currency exchange rates may have a significant effect on Telemonde's results of
operations. Telemonde historically has not engaged in hedging transactions to
mitigate foreign exchange risk.

Telemonde's main exchange risk currently arises from fluctuations between the US
dollar and pounds sterling. Its revenue from bandwidth sales is in US dollars.
Although capacity purchases are also made in dollars, Telemonde's sales, general
and administrative costs are mostly incurred in pounds sterling because most of
its employees are based in its executive and administrative offices in London
England.

EquiTel's revenues will be mainly received in the local currency of the country
of operations (for example, in Omani rigals) in the case of the current contract
in Oman). As EquiTel's contracts are mainly contracted through local joint
ventures and partnerships, much of the cots of the contract are also incurred in
the same local currency. However, there will be an exchange risk on the profit
or loss of the local operations or joint venture arising from the fluctuation of
the local currency, against the pounds sterling (in which currency EquiTel's
central sales, general and administrative costs in London are mainly incurred).

ADOPTION OF NEW ACCOUNTING STANDARDS

The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and how it is designated. For
example, gains or losses related to changes in the fair value of a derivative,
not designated as a hedging instrument, are recognized in earnings in the period
of the change, while certain types of hedges may be initially reported as a
component of other comprehensive income until the consummation of the underlying
transaction.

SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Initial application of SFAS No. 133 should be as of the
beginning of a fiscal quarter. On that date, hedging relationships must be
designated anew and documented pursuant to the provisions of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is encouraged, but
it is permitted only as of the beginning of any fiscal quarter. SFAS No. 133 is
not to be applied retroactively to financial statements of prior periods. The
Company believes that the adoption of this standard will not have a material
effect on the Company's consolidated results of operations or financial
position. The FASB has delayed the effective date of SFAS No. 133 by one year to
years beginning after June 15, 2000 by the issuance of SFAS No. 137.

65
<PAGE>

In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 provides guidance on the financial reporting of start-up
costs and organization costs, and requires that such costs to be expensed as
incurred. SOP 98-5 applies to all non-governmental entities and is generally
effective for fiscal years beginning after December 15, 1998. Earlier
application is encouraged in fiscal years for which annual financial statements
previously have not been issued. The adoption of SOP 98-5 is not expected to
have a material impact on results of operations, financial position, or cash
flows of the Company as the Company's current policy is substantially in
accordance with SOP 985.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Report of Independent Accountants, Consolidated Financial Statements and
supplemental financial data required by this Item 8 are set forth on pages F-1
through F-19 of this Report and are incorporated herein by reference.

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Information relating to our directors and executive officers will be contained
in a definitive Proxy Statement involving the election of directors which we
will file with the Securities and Exchange Commission pursuant to Regulation 14A
under the Securities Exchange Act of 1934 not later than 120 days after December
31, 1999, and such information is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION.

Information relating to executive compensation will be contained in the Proxy
Statement referred to above in Item 10, "Directors and Executive Officers of the
Registrant," and such information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Information relating to security ownership of certain beneficial owners and
management will be contained in the Proxy Statement referred to in Item 10,
"Directors and Executive Officers of the Registrant," and such information is
incorporated herein by reference.

66
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Information relating to certain relationships and related transactions will be
contained in the Proxy Statement referred to in Item 10, "Directors and
Executive Officers of the Registrant," and such information is incorporated
herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K.

(A) (1) FINANCIAL STATEMENTS

(a) The following documents are filed as part of this Annual Report on
Form 10-K:
Page
----
Consolidated Statement of Income for the year ended
December 31, 1999 and for the period from March 10,
1998 to December 31, 1998 F-2

Consolidated Balance Sheet at December 31, 1999 and
1998 F-3

Consolidated Statement of Cash Flows for the year
ended December 31, 1999 and for the period from
March 10, 1998 to December 31, 1998 F-4

Statement of Stockholders' Equity for the year ended
December 31, 1999 and for the period from March 10,
1998 to December 31, 1998 F-5

Notes to Consolidated Financial Statements F-6

(2) FINANCIAL STATEMENT SCHEDULES

The financial statement schedules included herein should be read in
conjunction with the financial statements included in pages F-1 to F-19
of this Annual Report on 10-K.

(B) REPORTS ON FORM 8-K

The Company has not filed any reports on Form 8-K.

Exhibit No. Description
- ----------- -----------
<S> <C>
3.1(a)* Certificate of Incorporation of Telemonde, Inc., filed June 29, 1999.

3.1(b)* Certificate of Merger between Telemonde, Inc., a Nevada corporation, and Telemonde, a Delaware
corporation.

3.2* By-Laws of Telemonde, Inc.

4.1* Form of Common Stock Certificate.

4.2* Registration Rights Agreement between Telemonde, Inc. and Communications Collateral Limited, dated
September 1, 1999.

4.3* Registration Rights Agreement between Telemonde, Inc. and Atlantic Crossing, Ltd., dated August 25,
1999.

67
<PAGE>

10.1* Warrant from Telemonde, Inc. to Communications Collateral Limited, dated September 1, 1999.

10.2* Warrant from Telemonde, Inc. to Atlantic Crossing, Ltd., dated August 25, 1999.

10.3* Consulting Agreement between Telemonde, Inc. and Gottfried von Bismarck, dated
November 2, 1999 and effective as of July 1, 1999.

10.4* Form of Employment Agreement between Executive Officers and Telemonde.

10.4(a)* Schedule of Employees covered by Form of Employment Agreement.

10.5* Capacity Sales Agreement between Gemini Submarine Cable System Limited and Telemonde
International Bandwidth (Bermuda) Limited, April 3, 1998.

10.5(a)* Promissory Note from Telemonde, Inc. to Gemini Submarine Cable System Limited, dated August 27,
1999 for $1,300,000.

10.5(b)* Promissory Note from Telemonde, Inc. to Gemini Submarine Cable System Limited, dated August 27,
1999 for $1,400,000.

10.6* Capacity Purchase Agreement between Atlantic Crossing Ltd. and Telemonde Bandwidth (Bermuda) Limited,
dated June 10, 1998.

10.7* Transmission Capacity Agreement among MCI WorldCom Global Networks U.S., Inc., and
MFS Cableco (Bermuda) Limited, and, EquiTel Bandwidth Limited, dated December 1998.

10.8** Transmission Capacity Agreement among MCI WorldCom Global Networks U.S., Inc., and MCI
Worldcom Global Networks Limited, and Telemonde International Bandwidth Limited, dated
March 31, 1999.

10.8(a)** MCI WorldCom Global Networks U.S., Inc. Standstill Letter to and accepted by Telemonde, Inc.,
Telemonde International Bandwidth Limited, Telemonde Networks Limited, Kevin Maxwell and Adam Bishop,
dated 31 December 1999.

10.8(b)** MCI WorldCom Global Networks U.S., Inc. Capacity Swap Letter to and accepted by Telemonde
International Bandwidth Limited, dated 31 December 1999.

68
<PAGE>

10.9* Transmission Capacity Agreement between Telemonde International Bandwidth Limited and Communications
Collateral Limited and Capacity Option Agreement between Telemonde Investments Limited and
Communications Collateral Limited, both dated April 15, 1999.

10.10* Composite Guarantee and Debenture, among (1) Telemonde Investments Limited, (2) Telemonde
International Bandwidth (Bermuda) Limited, Telemonde Bandwidth (Bermuda) Limited, Telemonde
International Bandwidth Limited, and (3) Communications Collateral Limited, dated April 12, 1999.

10.11* Loan Facility Agreement between Telemonde Investments Limited and Communications Collateral Limited,
dated April 15, 1999.

10.12** Forbearance Agreement, dated 12 January 2000, entered into by and among Communications Collateral
Limited, Telemonde Investments Limited, Telemonde International Bandwidth Limited, Telemonde, Inc.
and Kevin Maxwell.

10.13** Advisor Agreement between Sand Brothers & Co., Ltd. and Telemonde, Inc., dated October 27, 1999, and
Amendment No. 1 to Advisor Agreement, dated November 10, 1999.

10.14 Executive Services Agreement by and between Telemonde, Inc. and Paul E. Donofrio,
dated February 22, 2000.

21* Subsidiaries of Registrant.

23 Consent of Independent Auditors.

27 Financial Data Schedule.

99.1* Heads of Agreement between Telemonde, Inc. and the shareholders of Global Communications Holdings
(Limited) and Telemonde, Inc., dated November 5, 1999.

99.2* Agreement relating to a Lease and Services Agreement between Global Switch (London) Limited and
Telemonde Networks Limited, dated November 8, 1999.

99.3* Term Sheet for the purchase of 16% to 51% of DeserTel, dated November 8, 1999.
</TABLE>

69
<PAGE>

*Previously filed as an exhibit to the Registration Statement on Form 10, as
filed with the SEC on November 15, 1999.

**Previously filed as an exhibit to the Registration Statement on Form 10/A-1,
as filed with the SEC on March 3, 2000.

70
<PAGE>

SIGNATURES
TELEMONDE, INC.

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.

TELEMONDE, INC.

By: /s/ Adam N. Bishop
--------------------------------
Adam N. Bishop, President and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signatures Title Date

/s/ Kevin Maxwell Chairman and Director March 29, 2000
- ----------------------------------------
Kevin Maxwell

/s/ Adam Bishop President, Chief Executive Officer, March 29, 2000
- ---------------------------------------- Treasurer and Director
Adam Bishop

/s/ Paul E. Donofrio Executive Vice President and Chief March 29, 2000
- ---------------------------------------- Financial Officer
Paul E. Donofrio

/s/ Gottfried von Bismarck Director and Secretary March 29, 2000
- ----------------------------------------
Count Gottfried von Bismarck

/s/ Miguel D. Tirado Director March 29, 2000
- ----------------------------------------
Miguel D. Tirado

Director March _____, 2000
- ----------------------------------------
Mark Hollo

</TABLE>

71
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----

Consolidated Statement of Income for the year ended December
31, 1999 and for the period from March 10, 1998 to December
31, 1998 F-2

Consolidated Balance Sheet at December 31, 1999 and 1998 F-3

Consolidated Statement of Cash Flows for the year ended
December 31, 1999 and for the period from March 10, 1998 to
December 31, 1998 F-4

Statement of Stockholders' Equity for the year ended December
31, 1999 and for the period from March 10, 1998 to December
31, 1998 F-5

Notes to Consolidated Financial Statements F-6

<PAGE>
TELEMONDE INC

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1999 AND 1998

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Stockholders of
Telemonde Inc

We have audited the accompanying consolidated balance sheets of Telemonde Inc as
of December 31, 1999 and 1998, and the related consolidated statements of
income, and cash flows for the periods then ended. These consolidated financial
statements are the responsibility of the corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Telemonde Inc as of December 31, 1999 and 1998, and the consolidated results of
operations and cash flows for the periods then ended, in conformity with
accounting principles generally accepted in the United States.

The accompanying consolidated financial statements have been prepared assuming
that the Corporation will continue as a going concern. As discussed in note 1 to
the financial statements, the Corporation has incurred accumulated losses of
$53.7 million and at December 31, 1999, total liabilities exceeded total assets
by $4.5 million. Management plans in this regard are also disclosed in note 1.
There is substantial doubt about the ability of the Corporation to continue as a
going concern. The financial statements do not include any adjustments relating
to the recoverability of recorded assets, or the amounts of liabilities, that
might be necessary in the event the Corporation cannot continue in existence.

MOORE STEPHENS
Chartered Accountants
St. Paul's House February 7, 2000
London EC4P 4BN (Notes 14 and 17 as of
March 21, 2000)

F-1

<PAGE>

TELEMONDE INC
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR
THE PERIOD FROM MARCH 10, 1998 (DATE OF INCEPTION) TO
DECEMBER 31, 1998
(US DOLLARS EXPRESSED IN THOUSANDS)

<TABLE>
<CAPTION>
Note 1999 1998
---- ---- ----
<S> <C> <C> <C>
OPERATING REVENUES
Bandwidth revenues 5 $ 8,165 29,331
------ -------
Operating revenues 8,165 29,331
------ -------
OPERATING EXPENSES
Line costs 28,008 32,510
Cost of contract cancellation -- 6,094
Reserve for doubtful debts 923 --
Selling, general & administrative expenses 6 9,857 1,055
Loan arrangement fees 1,615 1,321
Financing costs 17 8,976 --
------ -------
Operating expenses 49,379 40,980
------ -------
Operating loss (41,214) (11,649)
------ -------
OTHER INCOME (EXPENSE)
Interest income 582 247
Interest expense (1,337) (330)
------ -------
Other (expense) income (755) (83)
------ -------
Net loss $(41,969) $(11,732)
====== ======
Net loss per share - basic and diluted $ (0.84) $ (0.33)
====== =======
</TABLE>

See note 1 and other accompanying notes to
consolidated financial statements

F-2
<PAGE>

TELEMONDE INC
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 1999 AND 1998
(US DOLLARS EXPRESSED IN THOUSANDS)

<TABLE>
<CAPTION>
Note 1999 1998
---- ---- ----
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 62 2,655
Trade accounts receivable, net of allowance
for doubtful debts of $923 4,852 9,518
Prepayments and other debtors 1,605 -
Inventory 8 21,465 77,515
Property, plant and equipment 9 39,462 -
Investments 10 - -
Goodwill 11 31,127 -
-------- --------

Total assets $ 98,573 89,688
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Trade accounts payable 12 85,528 76,888
Other creditors and accrued expenses 5,721 20,902
Deferred income 2,657 3,600
Other loans 9,141 -
-------- --------

Total liabilities 103,047 101,390
======== ========

STOCKHOLDERS' EQUITY
Capital stock 13 73 30
Retained earnings (deficit) (53,701) (11,732)
Additional paid in capital 49,154 -
-------- --------

Total stockholders' deficit (4,474) (11,702)
-------- --------

Total liabilities and stockholders' equity $ 98,573 89,688
======== ========
</TABLE>

See note 1 and other accompanying notes to
consolidated financial statements

F-3
<PAGE>

TELEMONDE INC
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE
PERIOD FROM MARCH 10, 1998 (DATE OF INCEPTION) TO
DECEMBER 31, 1998
(US DOLLARS EXPRESSED IN THOUSANDS)

<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
NET LOSS $(41,969) (11,732)

Adjustments to reconcile net income to net cash provided by operating
activities:
Reserve for doubtful debts 923 --
Reserve for inventory 21,465 --
Amortisation of goodwill 452 --
Financing costs satisfied by issuance of warrants 8,976 --
Depreciation 742 --
Fees satisfied by issuance of stock 404 --
(Increase) decrease in trade accounts receivable 3,792 (9,518)
(Increase) decrease in prepayments & other debtors (1,120) --
(Increase) decrease in inventory (3,865) (77,515)
Increase (decrease) in trade accounts payable 8,680 76,888
Increase (decrease) in accrued expenses (16,920) 20,902
Increase (decrease) in deferred income (943) 3,600
------- -------
Net cash provided by (used in) operating activities (19,383) 2,625
------- -------
INVESTING ACTIVITIES
Pre-acquisition advances to subsidiary (6,014) --
Purchase of property, plant & equipment (1,330) --
Cash acquired in acquisitions 6 --
------- -------
Net cash provided by (used in) investing activities (7,338) --
------- -------
FINANCING ACTIVITIES
Proceeds from long term debt 10,941 18,340
Repayment of long-term debt (3,100) (18,340)
Issuance of stock 16,287 30
------- -------
Net cash provided by (used in) financing activities 24,128 30
------- -------
Net increase (decrease) in cash and
cash equivalents and at end of year $ (2,593) $ 2,655
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 844 $ 330
======= =======
</TABLE>

See note 1 and other accompanying notes to
consolidated financial statements

F-4

<PAGE>

TELEMONDE INC
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE
PERIOD FROM MARCH 10, 1998 (DATE OF INCEPTION) TO
DECEMBER 31, 1998
(US DOLLARS EXPRESSED IN THOUSANDS)

<TABLE>
<CAPTION>
Additional
Capital Retained Paid in
Stock Earnings Capital Total
----- -------- ------- -----
<S> <C> <C> <C> <C>
At March 10, 1998 -- -- -- --

Loss for the period -- (11,732) -- (11,732)

Share capital issued 30 -- -- 30
------ ------- -------- --------
At December 31, 1998 $ 30 $(11,732) $ -- $(11,702)

Net loss -- (41,969) -- (41,969)

Common stock issued 43 -- 16,244 16,287

Stock issued to acquire
subsidiaries and investments -- -- 23,530 23,530

Financing costs satisfied by
issuance of warrants -- -- 8,976 8,976

Fees satisfied by issuance
of stock -- -- 404 404
------ ------- -------- --------
At December 31, 1999 $ 73 $(53,701) $ 49,154 $ (4,474)
====== ======= ======== ========
</TABLE>

See note 1 and other accompanying notes to
consolidated financial statements

F-5

<PAGE>

TELEMONDE INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998

1. LIQUIDITY

The consolidated financial statements have been prepared assuming the
Corporation will continue as a going concern which contemplates the
realization of assets and the satisfaction of liabilities in the normal
course of business.

The Corporation's ability to fund its commitments to draw down capacity
in 2000 is dependent on its ability to raise equity finance to cover
working capital requirements. Operating revenues are unlikely to
provide sufficient immediate working capital.

Of note:

(a) In the year ended December 31, 1999 the Corporation incurred a
net loss of $42.0 million which has resulted in a deficit of
$4.5 million as at the balance sheet date. Net cash used in
operating activities amounted to $19.4 million and cash
provided by financing activities amounted to $24.1 million. At
December 31, 1999 the Corporation had net cash of $0.1
million.

(b) At December 31, 1999 the Company had liabilities of $78.3
million to capacity suppliers. The Corporation is currently
behind with its payments based upon the existing contracts and
is relying on the suppliers' flexibility in rescheduling
payment terms. The events of default under the existing
contracts could endanger the Corporation's existence.

(c) The Corporation has failed to meet its obligations to
Communications Collateral Limited which at December 31, 1999
amounted to $4.5 million. As a result Communications
Collateral Limited has a right to foreclose on substantially
all of the Corporation's assets.

Management plans to address the above issues include:

(a) The Corporation has retained investment bankers to assist in
raising finance to include equity capital and issuing debt.
During 1999 the Corporation has been successful in raising
over $25 million of debt of which $16.3 million has been
converted to equity. Based on the management's plans, the
Corporation estimates that there will be new equity and new
debt available in 2000.

There can be no assurance that the Corporation will be
successful in raising finance to cover working capital
requirements and financial commitments. In March 2000, the
Corporation's listing on the NASDAQ OTC Bulletin Board was
suspended and it is unlikely that new equity will be available
until such time as the listing is reinstated.

F-6

<PAGE>

TELEMONDE INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998

1. LIQUIDITY (CONTINUED)

(b) The Corporation has reached agreement in principle but is yet
to sign final agreements with its principal suppliers to
replace the Atlantic capacity with new capacity on higher
value networks in the Atlantic, Pacific, Europe and South
America. The management are of the opinion that the carrying
value of the new capacity is at least equivalent to the
carrying value of the old capacity and that the final
agreements will be signed within a reasonable time on terms
already agreed in principle.

(c) Despite the technical defaults with its two bandwidth
suppliers, Telemonde has been in extensive negotiations with
senior management in both organizations. Whilst these
discussions have been held, Telemonde has made a number of
payments to both suppliers for services rendered and both
suppliers have:

o agreed to continue to provide services to existing Telemonde
customers, including maintenance of the cable systems;

o not taken up the option to enact the default;

o actively supported Telemonde in the development of its
strategy and network deployment;

o allowed further capacity to be taken on a leased basis to
assist in fulfilling Telemonde's order book;

As part of these negotiations, Telemonde has recently executed
a Standstill Letter from MCI WorldCom in which MCI WorldCom
has agreed to refrain from (a) taking any action to enforce
payment of the sums owed to MCI WorldCom under the capacity
purchase agreements; (b) taking any action to enforce or make
a demand under any guarantee, indemnity or security related to
the capacity purchase agreements; and (c) commence any
insolvency proceedings against Telemonde or any of its
subsidiaries. The Standstill Letter expires upon the earlier
of (i) the full payment of the sums owed under the capacity
purchase agreements; (ii) May 31, 2000; or (iii) Telemonde's
failure to comply with a number of terms and conditions, which
includes the prohibition against the sale of assets, dividends
and the borrowing of any additional funds without the signed
written consent of MCI WorldCom's agent other than permitted
borrowings.

It is the opinion of Telemonde's Management that the ongoing
negotiations with both suppliers will lead to a successful
conclusion of the outstanding defaults and provide Telemonde
with much more flexible supply contracts.

(d) As at December 31, 1999 the Corporation had customer orders of
$19 million which they believe to be firm and which will be
included in revenues in 2000. The Corporation will require
working capital in order to meet the orders.

F-7

<PAGE>

TELEMONDE INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998

2. DESCRIPTION OF BUSINESS AND ORGANISATION

The Corporation, through its operating subsidiaries, is a
telecommunications carrier supplying fiber optic bandwidth and added
value services to the global telecommunications industry.

On May 14, 1999, the Corporation acquired Telemonde Investments Limited
in a reverse purchase stock transaction. Pursuant to the Stock Purchase
Agreement, the corporation issued 35,297,000 shares of common stock to
the sole shareholder of Telemonde Investments Limited, in exchange for
all of the issued and outstanding shares of Telemonde Investments
Limited. As a result, Telemonde Investments Limited became a wholly
owned subsidiary of the corporation. The Reverse has been accounted for
as a reverse purchase acquisition in a manner similar to the pooling of
interests method of accounting. The financial information presented for
periods prior to May 14, 1999 is for Telemonde Investments Limited.

During the period the Corporation operated in a single market, the
supply of fiber optics bandwidth and related maintenance services. All
services relate to bandwidth on fiber optic cables between the United
States and Europe.

3. ACCOUNTING POLICIES

(a) Basis of accounting

The consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in
the United States.

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

Estimates are used when accounting for allowance for doubtful
debts, fair value adjustments to inventory, accrued line costs
and contingencies.

The following are the significant accounting policies adopted
by the Corporation:

(b) Consolidation

The consolidated financial statements incorporate the assets
and liabilities of the corporation and its wholly-owned or
majority controlled subsidiaries. All intercompany balances
and transactions have been eliminated upon consolidation.
Minority interest in the results of operations and share of
net assets is recognised unless the relevant subsidiary has a
net asset deficit and there is no binding obligation on the
minority to make good the deficit.

F-8

<PAGE>

TELEMONDE INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998

3. ACCOUNTING POLICIES (CONTINUED)

Customers of the Corporation enter into capacity sales
agreements to acquire an Indefeasible Right of Use ("IRU") in
units of capacity from the Corporation's inventory of fiber
optic cable capacity. The purchase price is non-refundable
once the segment of a system related to the capacity purchased
is available for service. The IRU purchased generally entitles
the customer to all rights and obligations of ownership over
the life of the cable network. Revenues from the sale of
capacity are recognised in the period that the rights and
obligations of ownership transfer to the purchaser, which
occurs when (i) the purchaser obtains the right to use the
capacity, which can only be suspended if the purchaser fails
to pay the full purchase price or fulfil its contractual
obligations, (ii) the purchaser is obliged to pay maintenance
costs, and (iii) the segment of a system related to the
capacity purchased is available for service. Customers who
have entered into capacity sales agreements have paid deposits
toward the purchase price and such amounts have been included
as deferred revenue in the consolidated balance sheet.
Maintenance revenues due under capacity sales agreements are
recognised on a time apportioned basis.

Customers of the Corporation have entered into operating
leasing agreements to lease capacity on its fiber optic
network. These agreements grant the customer a right to use
capacity for periods of time which are substantially less than
the design life of the capacity. Revenue is recognised on a
straight line basis over the life of the lease.

(d) Expenses

Costs of acquiring capacity are expensed in the period the
sale is recognised. Related costs, including inland line costs
and local network costs are recorded at the present value of
future payments required to be made by the Corporation for
such capacity, which may be a realistic estimate of an amount
to purchase the service over the life of the contract.

(e) Inventory

Bandwidth capacity is initially recorded at cost and stated at
the lower of cost or fair value.

(f) Fair value of financial instruments

The carrying amounts for cash, cash equivalents, accounts
receivable, accounts payable and accrued liabilities
approximate their fair value.

F-9

<PAGE>

TELEMONDE INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998

3. ACCOUNTING POLICIES (CONTINUED)

(g) Cash and cash equivalents

For the purposes of the consolidated statements of cash flows,
demand and time deposits with original maturities of three
months or less are considered equivalent to cash.

(h) Property, plant and equipment

The Corporation's fiber optic cable network is recorded at
cost and depreciated on a straight line basis over the
estimated useful life of 10 years from the date of being
brought into use. Telecommunications and office equipment is
depreciated over 4 years.

(i) Goodwill

Goodwill arising on the acquisition of subsidiaries is
capitalised and amortised over its estimated useful life,
taken to be 10 years from the date of acquisition.

(j) Investments in Joint Ventures

Investments in joint ventures are accounted for under the
equity method, whereby the corporation recognises its share of
profits and losses reported by the joint venture. In cases
where the corporation's funding commitments are uncertain,
full provision is made for 100% of losses reported by joint
ventures.

(k) Financing Costs

The costs associated with short and long term debt are
amortised over the life of the related debt on a straight line
basis.

4. ADOPTION OF NEW ACCOUNTING STANDARDS

The Financial Accounting Standards Board ("FASB") has issued Statement
of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. SFAS No. 133 requires that an
entity recognise all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and how it is designated.
For example, gains or losses related to changes in the fair value of a
derivative, not designated as a hedging instrument, is recognised in
earnings in the period of the change, while certain types of hedges may
be initially reported as a component of other comprehensive income
until the consummation of the underlying transaction.

F-10

<PAGE>

TELEMONDE INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998

4. ADOPTION OF NEW ACCOUNTING STANDARDS (CONTINUED)

SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Initial application of SFAS No. 133
should be as of the beginning of a fiscal quarter, on that date,
hedging relationships must be designated anew and documented pursuant
to the provisions of SFAS No. 133. Earlier application of all of the
provisions of SFAS No. 133 is encouraged, but it is permitted only as
of the beginning of any fiscal quarter. SFAS No. 133 is not to be
applied retroactively to financial statements of prior periods. The
corporation believes that the adoption of this standard will not have a
material effect on the corporation's consolidated results of operations
or financial position. The FASB has delayed the effective date of SFAS
No. 133 by one year to years beginning after June 15, 2000 by the
issuance of SFAS no. 137.

5. BANDWIDTH INCOME AND EXPENSES

During the year the Corporation acted as a provider of worldwide long
distance telecommunications facilities and related services, and as
such is engaged in only one business and geographical segment.

The following are the customers, together with their country of
incorporation, that comprise 10% or more of operating revenues:

<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Carrier 1 (Switzerland) $ -- 10,318,000
North American Gateway Inc (Canada) $ 827,000 8,206,000
Unisource Carrier Services AG (Switzerland) $ -- 10,807,000
Telecom Italia (Italy) $4,621,000 --
Trans Global Network Services (England) $2,000,000 --
========== ==========
</TABLE>

The Corporation has entered into Capacity Purchase Agreements with two
suppliers of trans-atlantic bandwidth. All bandwidth purchases are
attributable to these two suppliers.

The Corporation is exposed to concentrations of credit risk to the
extent that it has a limited number of customers, all of which operate
in the telecommunications sector. The Corporation performs on-going
evaluations of its customers' financial condition.

6. TAXATION

The corporation has incurred operating losses. In the event that the
corporation generates taxable earnings in the future, operating losses
incurred in 1999 and 1998 would not necessarily be applied against
future taxable earnings. Accordingly, no tax provisions or deferred tax
benefit was recorded in 1999 or 1998.

F-11

<PAGE>

TELEMONDE INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998

7. EARNINGS PER SHARE

The calculation of basic earnings per share is as follows:

<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net income available to common
stockholders (41,969,000) (11,732,000)

Average common shares issued and
outstanding (1998 - as restated) 50,186,654 35,319,179
---------- ----------
Basic and diluted earnings per share $ (0.84) $ (0.33)
============ ============
</TABLE>

No adjustment to earnings per share arises on the issue of warrants as
the effect is antidilutive.

On the date of the reverse transaction referred to in Note 1 above, the
Corporation issued 35,297,000 shares of common stock in exchange for the
35,297 shares in Telemonde Investments Limited. For the purposes of
calculating basic earnings per share the increase in nominal share
capital was deemed to take place at the beginning of the period.

8. INVENTORY

Inventory consists of bandwidth capacity which is held for resale but has
not been sold at the balance sheet date. The Corporation may have
drawndown the capacity or have an obligation to do so by a set date. At
December 31, 1999 and 1998 inventory consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Capacity to be drawndown
within one year $ 40,230,000 $ 55,440,000

Capacity to be drawndown
within one to two years - 19,440,000
----------- ----------

Total undrawn bandwidth 40,230,000 74,880,000

Capacity drawndown 2,700,000 2,635,000

Fair value adjustment (21,465,000) -
----------- ----------

$ 21,465,000 $ 77,515,000
=========== ==========
</TABLE>

As stated in note 12, inventory is subject to recall by the capacity
suppliers.

F-12

<PAGE>

TELEMONDE INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998

9. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following:

1999 1998
---- ----

Fiber optic network $ 38,450,000 $ -

Telecommunications equipment 1,049,000 -

Office equipment 705,000 -
------------- -------------
40,204,000 -

Less depreciation (742,000) -
------------- -------------

$ 39,462,000 $ -
============= =============

The fiber optic network represents bandwidth the Corporation intends to
use in its own operations, either for short term leasing or for
telecommunications traffic. At December 31,1999 the asset consisted of
the following:

Bandwidth available for leasing, net of
depreciation of $304,000 $ 11,846,000

Undrawn bandwidth 26,300,000
-------------

$ 38,146,000
=============

At December 31, 1999 all leasing commitments were for twelve months or
less.

As stated in note 12, the fiber optic network is subject to recall by the
capacity suppliers.

10. INVESTMENTS

(a) On May 25, 1999 Equitel Communications Limited entered into a
Share Purchase Agreement to acquire a 20% equity interest in Net
Industrial Holdings Telecommunications Limited, a South African
company established to develop opportunities in the Sub-Sahara
telecommunications sector. On the same day the subsidiary entered
into a Joint Venture Agreement with Net Industrial Holdings
Telecommunications Limited to establish a new company, Tele
Afrique Limited, to develop telecommunications business in
Africa. Tele Afrique Limited is jointly owned by the two parties.

F-13

<PAGE>

TELEMONDE INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998

10. INVESTMENTS (CONTINUED)

The total commitment under the above agreement is (pound)2.375
million, consisting of cash payments of $1.125 million and the
balance in shares of the Corporation. At December 31, 1999 all of
the shares have been issued and $900,000 of the cash paid.

At December 31, 1999 the two companies had not commenced
operations and the investment is stated at nil.

(b) Equitel Communications Limited has a 49% interest in Desert
Telecommunication Services LLC, an Omani company. The balance
sheet of Desert Telecommunication Services LLC is summarised:

1999
------------

Assets
Cash and cash equivalents $ 104,495
Trade accounts receivable 2,813
Prepayments and other debtors 22,718
Property, plant and equipment 361,945
Inventory 111,736
------------
$ 603,707
============

Liabilities and Stockholders' Equity

Bank borrowings $ 146,521
Trade accounts payable 206,376
Accrued expenses and other payables 310,608
Shareholder loans 331,337
------------
Total liabilities 994,842
------------

Stockholders' Equity
Share capital 388,601
Accumulated losses (779,736)
------------
(391,135)
------------
$ 603,707
============
Equity share of investment $ Nil
============

F-14

<PAGE>

TELEMONDE INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998

10. INVESTMENTS (CONTINUED)

Full provision for the joint venture's losses has been made in the
financial statements of Equitel Communications Limited.

11. GOODWILL

Goodwill consists of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C>
Consideration (shares in Telemonde Inc) $ 20,312,000 -
Fair value of net liabilities acquired 11,267,000 -
------------- -------------
31,579,000 -

Amortisation charge for the period (452,000) -
------------- -------------
$ 31,127,000 $ -
============= =============
</TABLE>

The Corporation will assess the carrying value of goodwill at each
balance sheet date for impairment based on a market value comparison
method and make any necessary provisions.

12. ACCOUNTS PAYABLE

Included in accounts payable is $78.3 million due to capacity suppliers.
In the event that the corporation fails to meet its negotiated
obligations to the capacity suppliers, inventory and property to an
aggregate value of $56.8 million may be recalled by the suppliers,
without further recourse.

13. CAPITAL STOCK
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Authorised:
1999: Telemonde Inc - 145,000,000
shares of common stock $0.001 par
value per share 145,000 -

5,000,000 shares of preferred stock
$0.001 par value per share 5,000 -

1998: Telemonde Investments Ltd -
50,000 ordinary shares of $1 each $ - 50,000
============= =============
</TABLE>

F-15
<PAGE>

TELEMONDE INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998

13. CAPITAL STOCK (CONTINUED)

Issued
1999: 65,211,584 shares issued and
7,892,858 shares to be issued,
totalling 73,104,442 shares 73,104 -

1998: Telemonde Investments Ltd -
29,630 ordinary shares of $1 each $ - 29,630
=========== ============

14. RELATED PARTY TRANSACTIONS

(a) During the year the corporation made payments to Argonaut Limited
and Harley Consultants Limited amounting to $225,000 (1998:
$37,000) for directors and consultancy services. Mr. Michael
Collins, a director of Telemonde Investments Limited, is a
director of both Argonaut Limited and Harley Consultants Limited
and has a controlling interest in Argonaut Limited.

(b) During the period from March 10, 1998 to December 31, 1998
payments amounting to $452,000 were made to Westbourne
Communications Limited for the services of an executive and a
consultant and as reimbursement for expenses paid by Westbourne
Communications Limited on behalf of the Corporation.

(c) During the year the Corporation made payments to Equitel
Communications Limited amounting to $428,000 (1998: $898,000) for
commissions earned on sales contracts. The directors and
shareholders of Equitel Communications Limited include directors
of Telemonde Inc.

(d) The vendors of Equitel Communications Limited included Janet
Pomeroy, Adam Bishop and Telcoworld Limited. Kevin Maxwell is
associated with Telcoworld Limited. Kevin Maxwell and Adam Bishop
are directors of Telemonde Inc. Kevin Maxwell was a director of
Equitel Communications Limited and Harry Pomeroy is a director of
Equitel Communications Limited.

15. ACQUISITIONS

(a) Equitel Communications Limited

On November 8, 1999, Telemonde Inc, acquired the entire issued
share capital of Equitel Communications Limited, a
telecommunications services company incorporated in the United
Kingdom. The combination has been accounted for under the purchase
method and the results have been included from the date of
acquisition. Under the terms of the Share Purchase Agreement, the
consideration payable to the vendors is $19,000,000 satisfied by
the issue of 4,947,917 shares of common stock of Telemonde Inc.

F-16
<PAGE>

TELEMONDE INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998

15. ACQUISITIONS (CONTINUED)

Possible contingent consideration is listed below:

(1) An additional sum calculated by multiplying reported earnings
before interest and tax for the year ending December 31, 2000 by
6, subject to a maximum of $30,000,000, payable on June 30, 2001.

(2) A further additional sum calculated by multiplying reported
earnings before interest and tax for the year ending December 31,
2001 by 5, subject to a maximum of $50,000,000 less the amount
paid under (1) above, payable on June 30, 2002.

The additional sums under (1) and (2) above are to be satisfied by
shares in the Corporation. If any additional sums become payable,
goodwill and the related amortisation charge will increase
accordingly.

The purchase consideration has been allocated as follows:

Fair value of net liabilities acquired (11,402,000)
Goodwill 30,402,000
-------------

$ 19,000,000
=============

The pro-forma income statement for the year ended December 31,
1999, giving effect to the transaction as if it had occurred on
January 1, 1999 is summarised:
<TABLE>
<CAPTION>
Telemonde
Inc Adjustments Pro-Forma
--- ----------- ---------
<S> <C> <C> <C>
Revenues $ 8,165,000 68,000 8,233,000
Net Income $ (41,969,000) (11,440,000) (53,409,000)
Earnings per share $ (0.84) (0.23) (1.07)
</TABLE>

(b) TGA (UK) Limited

On August 9, 1999, Telemonde Inc acquired the entire issued share
capital of TGA (UK) Limited, a switching services company based in
the United Kingdom. The combination has been accounted for under
the purchase method and the results have been included from the
date of acquisition. The price paid was 200,000 shares of common
stock of Telemonde Inc, valued at $1,312,000. This has been
allocated as follows:

Fair value of net assets acquired 135,000
Goodwill 1,177,000
-------------

$ 1,312,000
-------------

F-17

<PAGE>

TELEMONDE INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998

15. ACQUISITIONS (CONTINUED)

On November 5, 1999 Telemonde Inc. entered into a Heads of
Agreement to acquire Global Communications (Holding) Limited, a UK
internet, e-commerce and telecommunications business, for
(pound)100,000,000 ($ 165 million) to be satisfied by cash of
(pound) 500,000 ($ 825,000), loan notes of (pound) 49.5 million
($81.7 million) and shares of (pound) 50 million ($ 82.5 million).
The acquisition has not taken effect and is unlikely to proceed.

16. SUBSEQUENT EVENTS

(a) On January 1, 2000 the Corporation signed an agreement to
increase its profit share in Desertel Telecommunications Services
LLC (an Omani joint venture between EquiTel and a local partner)
from 49% to 75%. The consideration was satisfied by the issuance
of 1,750,000 shares of common stock.

(b) On January 12, 2000 the Corporation entered into a forbearance
agreement with Communications Collateral Limited whereby
Communications Collateral Limited agreed to extend the terms of
the Corporation's indebtedness in exchange for up to 1.75 million
shares of common stock valued at $3.8 million. The terms of the
warrants issued to Communications Collateral Limited were amended
so as to reduce the strike price to $2.70. There is no impact on
the income statement since the value of the warrants is
materially unchanged.

(c) On February 22, 2000 the Corporation entered into an executive
services agreement with Paul Donofrio. Under the terms of the
agreement Mr. Donofrio is entitled to a base salary plus bonuses
and 5,800,000 non-qualified stock options to purchase shares of
common stock of the Corporation at a price of $.50 per share. The
options shall be vested and exercisable at dates between June 1,
2000 and March 1, 2003. The options shall have a life of ten
years. The Corporation will record a compensation expense over
the vesting period as follows:

2000 1,320,000
2001 960,000
2002 960,000
2003 240,000
------------
$ 3,480,000
------------

(d) On March 2, 2000 the Corporation entered into an office services
agreement to lease New York accommodation for four months at a
cost of $9,590 per month. The agreement can be extended for
periods of three months.

F-18

<PAGE>

TELEMONDE INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998

17. FINANCING

The Corporation has entered into the following financing arrangements:

(a) The Corporation sold capacity to Communications Collateral
Limited, although Communications Collateral Limited has exercised
an option to require the Corporation to repurchase the capacity.
Communications Collateral Limited has granted the Corporation a
facility of US $1 million (of which $500,000 has been used to pay
a facility fee) and the Corporation has granted collateral over
certain assets to Communications Collateral Limited.

In view of this option the sale has been treated as a financing
transaction and disclosed within "other loans".

Communications Collateral Limited is entitled to purchase shares
equal to 7% of the issued share capital of the Corporation at the
time of issuance. The exercise price is the lesser of (i) $5.25
per share or (ii) if the price per share is below $5.25 for 20
consecutive trading days prior to an equity offering by the
Corporation of at least $10 million, the average of the per share
price during such 20 day period. The strike price has subsequently
been amended to $2.70.

An associated Registration Rights Agreement, provides that
Communications Collateral Limited may participate as a selling
shareholder in the first underwritten public offering of at least
$10 million. In addition, Communications Collateral Limited may
have certain additional demand and piggyback registration rights.

Using the Black-Scholes option pricing model, the warrants have
been valued at $6.6 million. This has been treated as additional
paid in capital and amortised in full in 1999. The valuation model
is based on the prevailing stock price of $5.25 per share and a
65% volatility factor.

(b) On August 25, 1999 the corporation issued warrants to a bandwidth
capacity supplier which entitle the warrant holder to purchase
1,100,000 shares of common stock at a price of $5.25 per share.
The warrants expire on August 25, 2000. Using a Black Scholes
option pricing model, the warrants have been valued at $2,376,000.
This has been treated as additional paid in capital and amortized
in full in the year ended December 31, 1999. The valuation model
is based on a prevailing stock price of $6.25 per share and a 65%
volatility factor. The exercise price is subject to adjustment in
the event of, amongst other things, a merger or issuance of
warrants. The compensation expense will be adjusted in the period
any such event occurs.

F-19

<PAGE>

TELEMONDE INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998

18. OPERATING LEASE COMMITMENTS

The Corporation entered into a property operating lease agreement with
future minimum lease payments as follows:

Year ended
December 31,

2000 $ 1,372,000
2001 1,372,000
2002 1,372,000
2003 1,372,000
2004 1,372,000
Thereafter 13,005,000
--------------

Total minimum lease payments $ 19,865,000
==============

F-20

10.14

EXECUTIVE SERVICES AGREEMENT
----------------------------

THIS EXECUTIVE SERVICES AGREEMENT (the "Agreement") dated to be effective
as of the 22nd day of February 2000, by and between TELEMONDE, INC., a Delaware
corporation (the "Company"), and PAUL E. DONOFRIO, a resident of New York (the
"Executive").

In consideration of the mutual covenants herein contained and of the mutual
benefits herein provided, the Company and the Executive agree as follows:

1. Term of Employment. The Company will employ the Executive and the
Executive will accept employment by the Company on the terms and conditions
herein contained for the period (the "Employment Period") provided in Section 5.

2. Duties and Functions. The Executive shall be employed as Executive Vice
President/Chief Financial Officer for the Company, and shall perform such
services and duties for the Company as may be assigned or delegated to him from
time to time by the President and the Board of Directors of the Company. Such
duties shall include all functions customarily performed by an Executive Vice
President/Chief Financial Officer, subject to the control of the Board of
Directors of the Company. During the Employment Period, the Executive will
devote his full time and efforts to the business of the Company (developing and
operating select international voice, data and internet services through a
network of building facilities and voice and data switching infrastructure,
collectively defined herein as "the Business") and will not, on his own behalf
or otherwise, be directly or indirectly involved in any other business if such
involvement would materially interfere with his full time employment by the
Company. The Executive shall be assigned to the Company's New York, New York
offices, and shall be able, where practicable and without interfering with his
services to "telecommute" from his home office located on Long Island, New York.

3. Compensation and Related Matters.

a. Salary. The Company agrees to pay to Executive during the
Employment Period an amount in respect of base salary equal to Two Hundred Fifty
Thousand Dollars ($250,000) per year (the "Base Salary"), payable by the Company
to the Executive in equal installments in accordance with the Company's usual
payroll policies; provided, however, that the Base Salary shall be reviewed by
the Board prior to the end of each anniversary date of this Agreement, and any
increase in salary granted by the Board at such annual review, as determined in
the sole discretion of the Board, shall become effective the following month.
Participation in any deferred compensation, discretionary bonus, retirement, and
other executive benefit plans and in fringe benefits shall not reduce the Base
Salary payable to the Executive under this Section 3(a).

b. Bonuses. The Company shall pay to the Executive a signing bonus of
$40,000 within 30 days of Commencement Date. During each calendar year the
Company shall pay

1
<PAGE>

to the Executive a guaranteed bonus amount equal to $150,000 within 60 days of
the start of each calendar year commencing January 1, 2001. An additional bonus
amount of up to $50,000 may be paid to the Executive within 60 days of the start
of each calendar year commencing January 1, 2001, upon achievement of Company's
financial objectives, which objectives shall be mutually agreed upon between the
Executive and the Board of Directors of the Company.

c. Expenses. The Company shall reimburse the Executive directly, in
accordance with the Company's policy in effect from time to time, for all
reasonable travel, entertainment and other business expenses incurred by
Executive in the performance of his duties and responsibilities hereunder.

d. Non-Qualified Stock Options.

(i) Grant of Options. The Company hereby grants to the Executive
5,800,000 nonqualified stock options (the "Options") to purchase all or any part
of an aggregate number of shares of Common Stock of the Company (the "Option
Shares") at an exercise price of $.50 per share (the "Exercise Price"). The date
of the grant of the Options will be the Commencement Date.

(ii) Vesting and Options Exercise Period. 1,400,000 of the Options
shall be vested and exercisable on June 1, 2000 at which time 1,400,000 Option
Shares shall be vested and exercisable in full. There will be eleven (11)
additional vesting dates ("Vesting Date") beginning with September 1, 2000,
continuing thereafter in three (3) month intervals and ending with March 1,
2003. 400,000 of the Options shall be vested and exercisable at each Vesting
Date at which time 400,000 Option Shares shall be vested and exercisable in
full. The Options shall have a life of ten (10) years from the Commencement
Date, regardless of the Executives status in the Company. If the Executive is
terminated for cause or resigns prior to March 1, 2003, any remaining Option
Shares not yet vested shall expire. If the Executive is terminated for any other
reason whatsoever prior to March 1, 2003 (including death or disability of the
Executive) any remaining Option Shares not yet vested shall be immediately
vested and exercisable in full on such termination date.

(iii) Method of Exercise. The Executive shall exercise the Options by
delivery of a notice to the Company, Attn: Corporate Secretary.

(iv) Transferability. The Options shall not be transferable or
assignable, in whole or in part. The Options shall be exercisable only by the
Executive or his heirs. Any prohibited transfer of the Options shall be null and
void.

(v) Tax Withholding. The Company may take such steps as it deems
necessary or desirable for the withholding of any taxes that are required by
laws or regulations of any governmental authority (federal, state or local,
domestic or foreign) to withhold taxes in connection with any of the Options
subject hereto. Furthermore, the Executive is solely and entirely liable for any
tax liabilities arising out of the Employment or any of the Options subject
hereto.

2
<PAGE>

Provided however, that the Company shall be liable for the payment of any tax
liabilities, if any, imposed upon the Executive in the event that the grant of
the Options results in a tax liability to the Executive at the time of grant; in
such event however, if the Executive later exercises the Options, the Executive
shall reimburse the Company for the amount paid by the Company to (or on behalf
of) the Executive with respect to such tax liability.

(vi) No Rights as Stockholder. The Executive shall not have any rights
as a stockholder with respect to any of the Option Shares until the date of
issuance by the Company to the Executive of a stock certificate representing
such Option Shares. The Executive shall not be entitled to any dividends, cash
or otherwise, or any adjustment of the Option Shares for such dividends, if the
record date therefore is prior to the date of issuance of such stock
certificate. Upon valid exercise of the Options by the Executive, the Company
agrees to cause a valid stock certificate for the number of Option Shares then
purchased to be issued and delivered to the Executive within five (5) business
days thereafter.

(vii) Corporate Proceedings of the Company.

a. The existence of the Options shall not affect in any way
the right or power of the Company or its officers, directors and shareholders,
as the case may be, to (i) make or authorize any adjustment, recapitalization,
reorganization or other change in the capital structure or business of the
Company, (ii) participate in any merger or consolidation of the Company, (iii)
issue any Common Stock, bonds, debentures, preferred or prior preference stock
or any other securities affecting the Common Stock or the rights of holders
thereof, (iv) dissolve or liquidate the Company, or (vi) perform any other
corporate act or proceedings, whether of a similar character or otherwise.
Provided however, that in the event that the Company takes any action identified
in (i) above, the number of "Option Shares" granted pursuant to this paragraph
3(d) shall be adjusted accordingly to reflect such action, for any of the Option
Shares not yet exercised.

b. If the Company merges into or with or consolidates with
(such events collectively referred herein as a "Merger") any corporation or
corporations and is not the surviving corporation, or the Company becomes a
wholly-owned subsidiary of any corporation, then the surviving or parent
corporation must assume the Options, or substitute new options of the surviving
or parent corporation for the Options, having an equivalent value and terms.

c. In the event of a dissolution or liquidation of the
Company, the Company shall cause written notice of such dissolution or
liquidation (and the material terms and conditions thereof) to be delivered to
the Executive at least ten (10) days prior to the proposed effective date (the
"Effective Date") of such event. The Executive shall be entitled to exercise the
Options until the Effective Date. To the extent that the liquidation is
consummated after the Effective Date, the Options shall terminate and the
Company shall have no further obligations of any type hereunder. The provisions
of this and the preceding paragraph shall not apply to any merger or
reorganization, the principal purpose of which is to change the jurisdiction of
the domicile of the Company.

3
<PAGE>
d. The issuance by the Company of shares of stock of any
class of securities convertible into shares of stock of any class, including
Common Stock, for cash, property, labor or services rendered, either upon direct
sale or upon the exercise of rights, options, or warrants to subscribe
therefore, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number of Option
Shares or the Exercise Price.

(viii) Registration Rights. The Executive shall have piggyback
registration rights commensurate with those available to other senior executives
of the Company, including those who hold any shares through the Employee Benefit
Trust.

(ix) Legend. The Executive hereby agrees that the certificates
representing the Options Shares will be stamped or otherwise imprinted with
legends in such form as the Company or its counsel may require with respect to
any applicable restrictions on sale or transfer and the stock transfer records
of the Company will reflect stock-transfer instructions with respect to such
Option Shares.

(x) Sales Restrictions. The Executive undertakes to abide by and
adhere to any and all restrictions placed on the stock as a result of
regulatory requirements, including, but not limited to, management lock-up
periods, regardless of their length, provided such restrictions are on the same
terms and conditions existing for other senior management executives of the
Company.

(xi) Vesting Upon Sale of Assets or Change in Control. In the event
that during the Employment Period the Company sells all or substantially all of
its assets or there is a change of control of the Company, the Executive shall
immediately vest in all remaining Option Shares not yet vested and these Option
Shares shall be exercisable in full on such change in control date. For purposes
of this paragraph, "change of control" means:

a. acquisition in one or more transactions of fifty percent
(50%) or more of the voting power of the voting securities of the Company by any
person, or by two or more persons acting as a group, other than directly from
the Company;

b. acquisition in one or more transactions of twenty-five
percent (25%) but less than fifty percent (50%) of the voting power of the
voting securities of the Company by any person, or by two or more persons acting
as a group (excluding officers and directors of the Company), and the adoption
by the Board of Directors of a resolution declaring that a change in control of
the Company has occurred; or

c. a merger, consolidation, reorganization, recapitalization
or similar transaction, involving the securities of the Company upon the
consummation of which fifty percent (50%) or more in voting power of the voting
securities of the surviving corporation(s) is held by persons other than former
shareholders of the Company.

<PAGE>

(xii) Executive Shall Pay Excise Tax for any Excess Parachute Payment.
In the event any amount payable to the Executive under this Agreement would
constitute an amount deemed as an "excess parachute payment" under SS. Section
280G of the Internal Revenue Code, the Executive shall pay any excise tax
imposed as a result thereof.

e. Participation in Retirement and Executive Benefit Plans.
The Executive shall be entitled to participate in any plan of the Company
relating to pension, thrift, profit sharing, medical coverage, education, or
other retirement or executive benefits that the Company may adopt for the
benefit of its senior executives.

f. Fringe Benefits. During the Employment Period, the
Company shall provide Executive with the benefits described below (collectively,
the "Fringe Benefits"):

(i) A $750,000 renewable whole life insurance
policy for the Period of Employment at a
maximum annual premium not to exceed $10,000
(such policy amount to be adjusted downward
to the extent necessary to meet the $10,000
premium cap);

(ii) Long-term disability insurance coverage
subject to meeting any standard medical
preconditions with benefits at a rate of 60%
of Base Salary through age sixty-five (65),
less any disability benefits paid under any
group long-term disability plan of the
Company; and

(iii) An automobile and gasoline allowance of $700
per month.

(iv) Medical/dental coverage for the Executive
and his immediate family

(v) Three (3) weeks paid vacation (unused to be
accrued and paid to Executive upon
Termination of Employment on a pro-rata
basis).

(vi) Short-term disability coverage as required
by New York State Law.

(vii) Eleven (11) paid US Holidays

(viii) A reasonable amount of paid unavoidable
absence time subject to the control and
discretion of the Board of Directors.

(ix) Paid jury duty as required.

5
<PAGE>

The Executive shall be solely responsible for the payment of any tax
liability incurred for the fringe benefits provided to the Executive pursuant to
this Section 3(f).

4. Competition; Confidential Information. The Executive and the
Company recognize that due to the nature of his employment and his relationship
with the Company, the Executive has had and will have access to, and has
acquired and will acquire, and has assisted and will assist in developing,
confidential and proprietary information relating to the business and
operations of the Company, including, without limiting the generality of the
foregoing, information with respect to the present and prospective development
of the Company, product development and costs, business plans, services,
products, systems, customers, agents, and sales and marketing methods of the
Company. The Executive acknowledges that such information has been and will be
of central importance to the Company's business and that disclosure of it to or
its use by others could cause substantial loss to the Company. The Executive
and the Company also recognize that an important part of the Executive's duties
will be to develop goodwill for the Company through his personal contact with
the Company's customers and suppliers, and that there is a danger that this
goodwill, a proprietary asset of the Company, may follow the Executive if and
when his relationship with the Company is terminated. Accordingly, the Executive
agrees as follows:

a. He shall not:

(i) During the Employment Period, and for a period
of one (1) year following the termination of the Employment Period (provided
that the Company continues to pay to the Executive an amount equal to his Base
Salary in effect at the date of such termination, together with the Bonuses and
the Fringe Benefits, during such period), own, manage, operate, control, be
employed by, engage in or participate in the ownership, management, operation or
control of, or be connected in any manner with or have any other direct or
indirect financial interest in any business, firm, person, partnership,
corporation, enterprise or concern which is engaged in any business of the type
and character competitive with the Business conducted by the Company or any
Affiliates in any jurisdiction or marketing area of the United States or Europe
in which the Company or any of its subsidiaries or Affiliates is doing business.
Notwithstanding the foregoing, the Executive shall not be prohibited from
owning up to five percent (5%) of any class of securities of a company which is
listed on a recognized stock exchange or for which prices are quoted on the
National Association of Securities Dealers Automated Quotation System;

(ii) During the Employment Period, solicit or
attempt to solicit, directly or indirectly and in any capacity, any person or
entity that is a customer or client of the Company or any of its Affiliates, or
any potential supplier, agent, joint venture partner, investor, customer or
client, to which, during the Employment Period, the Company or any Affiliates
has made a presentation, or with which, during the Employment Period, the
Company or any Affiliates has been having discussions or doing business, not to
buy or do business with the Company or such Affiliates, or to buy from or do
business with another company with regard to products and services which are a
part of the Business of the Company or any of its Affiliates;

<PAGE>

(iii) For a period of one (1) year following the
termination of the Employment Period, solicit or attempt to solicit, directly or
indirectly and in any capacity, any person or entity that was a customer or
client of the Company or any of its Affiliates during the Employment Period;

(iv) During the Employment Period and thereafter,
make use of, disclose or divulge to any third party any trade secrets or any
other information of a proprietary, secret or confidential nature relating to
the Business of the Company or of an Affiliate, which the Company maintains as a
trade secret except for information that was lawfully learned or lawfully
acquired subsequent to the Employment Period, or information which is readily
available from public sources or otherwise in the public domain;

(v) During the Employment Period and thereafter,
use or allow to be used other than by the Company any trade or business name, or
other mark, symbol, logo or other means of identification which was, or is
confusingly similar to, one which was used by the Company or by an Affiliate and
protected by the Company's trademark, copyright or other proprietary right;

(vi) During the Employment Period and for a period
of one (1) year following the termination of the Employment Period, whether on
the Executive's behalf or in conjunction with or on behalf of any other person,
firm or company, solicit, encourage or entice away from the Company or from an
Affiliate (or attempt to do so) any officer or employee (whether or not such
person would commit a breach of contract by so doing);

(vii) During the Employment Period and thereafter,
interfere or seek to interfere with the continuance of services, equipment,
materials, supplies or other goods to the Company or to an Affiliate (or the
terms relating to such service, equipment, materials or supplies), from any
vendor, subcontractor, supplier or other person or business entity who has been
supplying services or goods to the Company or to an Affiliate.

b. For purposes of this Agreement, the term "Affiliate"
shall mean any person, corporation, subsidiary, or other business entity which,
whether directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the Company.

c. It is recognized that damages in the event of breach, or
threat of breach, of this Section 4 would be difficult, if not impossible, to
ascertain, and it is therefore agreed that the Company or any Affiliate shall
have the right to an injunction or other equitable relief in any court of
competent jurisdiction, enjoining any such breach. The existence of this right
shall not preclude any other rights or remedies at law or in equity that the
Company or an Affiliate may have. The prevailing party in any dispute arising
out of this Agreement in whatever forum shall be entitled to reasonable
attorneys' fees from the other party. The parties agree that the restrictions
and agreements contained herein are reasonable, are the product of arms-length
negotiation, and are necessary for the Company and the Affiliates to protect the
goodwill and other assets of the Company or of the Affiliates.

7
<PAGE>

d. It is agreed that a breach of any of the clauses of this
Section 4 shall automatically toll and suspend the period of the restraint for
the amount of time that the breach continues.

5. Employment Period: Termination.

a. Employment Period. The Employment Period shall commence
on March 1, 2000 (the "Commencement Date") and shall terminate on March 1,
2003; provided, however, that the Employment Period shall automatically be
extended for successive periods of one (1) year each thereafter, unless either
the Company or the Executive shall give sixty (60) days' prior
written notice to the other that it or he wishes to terminate this Agreement
upon the expiration of its then current term.

b. Death; Disability. Notwithstanding the foregoing, the
Employment Period shall terminate on the death or, upon written notice by the
Company, the disability of the Executive. "Disability" shall mean any illness,
accident or other similar situation as a result of which, in the reasonable
judgment of a physician selected by the Board of Directors of the Company,
Executive has been rendered unable to properly and substantially perform his
duties hereunder for a period of six (6) consecutive months. In the event of
sickness or illness of or accident to the Executive which prevents him from
working and Executive has exhausted all paid time-off benefits, the Company
shall have no obligation to pay Executive for time missed from work except as
may be required by applicable law.

c. Termination. In addition, nothing in this Agreement shall
be construed to prevent the Company from terminating the Executive's employment
hereunder and the Employment Period immediately and at any time either with or
without cause. As used in this Agreement, "cause" shall mean (i) the Executive's
illegal or dishonest conduct which adversely affects or may adversely effect the
reputation, goodwill, or business position of the Company or which involves the
Company's funds or assets; (ii) the failure of the Executive to carry out his
duties as an employee of the Company or any Affiliate or to devote substantially
all his working time to the business of the Company; (iii) wilful misconduct on
the part of the Executive, including, without limitation, any theft,
embezzlement, misappropriation of the Company's or any Affiliate's property or
self-dealing; (iv) Executive's conviction of a felony; (v) Executive's breach of
Section 4 hereof; or (vi) the happening of any event (except as described in
Section 5(b)) which would make it impossible for Executive to perform his
obligations hereunder. The Company shall not construe a termination with or
without cause by the Company as a breach of this Agreement.

d. No Further Liability. If the Executive is terminated for
cause or resigns, upon such termination or resignation, the Company shall have
no further liability hereunder, except to make those payments described in
paragraphs three (3) and four (4) hereof. If the Company without cause
terminates the Executive, he will be entitled to be paid by the Company his then
monthly salary together with Bonuses and with Fringe Benefits through the end of
the current Employment Period or for a period of twelve (12) calendar months
following the month in which the

8
<PAGE>

Executive is terminated, whichever is the longer (Bonuses to be prorated through
the end of such period).

e. Extension of Employment Period. The Executive and the
Company agree that the decision to extend the Employment Period shall be in
each party's sole and absolute discretion.

f. Return of Materials. Upon the termination of the
Employment Period, the Executive agrees to immediately return any and all
property of the Company in his possession, including, without limitation, any
books, records, documents, customer lists, or copies thereof, of the Company.

6. Controlling Agreement. By execution of this Agreement the Executive
and the Company agree that any existing contractual relationships for the
employment of Executive shall cease, whether said contract is with the Company
or any affiliate of the Company, and that this Agreement shall control the terms
of such employment relationship.

7. No Assignments. This Agreement is personal to each of the parties
hereto. No party may assign or delegate any rights or obligations hereunder
without first obtaining the written consent of the other party hereto, except
that this Agreement shall be binding upon and inure to the benefit of any
successor corporation to the Company.

8. Entire Agreement. This Agreement contains the entire understanding
of the Executive and the Company with respect to employment of the Executive and
supersedes any and all prior understandings, written or oral. This Agreement may
not be amended, waived, discharged or terminated orally, but only by an
instrument in writing.

9. Severability. If any one or more of the provisions contained in
this Agreement shall for any reason be held to be excessively broad as to time,
duration, geographical area, activity or subject by any court of competent
jurisdiction, it is agreed that the court may modify the offending provision to
render it enforceable, and the Company shall be entitled to enforce the
provision or provisions for such time or duration, within such geographical
area, and as to such activity or subject, as may be determined to be reasonable
by the court. If, moreover, any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect by any court of competent jurisdiction, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement, but this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained therein.

10. Notice. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered main, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below, or to such other
addresses as either party may have furnished to the other in writing in
accordance herewith, except that notice of a change of address shall be
effective only upon actual receipt; to the Company: 40

9
<PAGE>

Portman Square, London W1H 9FH, England to the attention of the Board, with a
copy to the Secretary of the Company; to the Executive: 12 Castle Court,
Nesconset, New York 11767 with a copy to his attorneys: Law Offices of Thomas L.
Costa LLP, 1 Huntington Quadrangle, Suite 3803 Melville, New York 11747.

11. Section Headings. The section headings used in this Agreement are
included solely for convenience and shall not affect, or be used in connection
with, the interpretation of this Agreement.

12. Facsimiles. This Agreement may be executed by a facsimile
signature, which shall have the same force and effect as a manually executed
signature. This Agreement may be executed simultaneously in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

13. Governing Law. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws of the
State of New York.

14. Surviving Provisions. Except as otherwise provided herein, the
obligations of the Company under Sections 3, 4 and 5 and the Executive under
Section 4 shall survive the expiration of the Employment Period.

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed the day and year first above written.

TELEMONDE, INC.
ATTEST:
By: ___________________________________
Secretary Title: ________________________________

WITNESS: EXECUTIVE

/s/ Doreen Prentess Smith /s/ Paul E. Donofrio
- --------------------------- ---------------------------------------
Paul E. Donofrio

EXHIBIT 23

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the inclusion in this Annual Report on Form 10-K
of Telemonde, Inc., of our report on the consolidted statements of financial
condition of Telemonde, Inc., dated February 7, 2000 (Notes 14 and 17 as of
March 21, 2000).

MOORE STEPHENS

March 29,2000

<ARTICLE> 5

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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 62,000
<SECURITIES> 0
<RECEIVABLES> 4,852,000
<ALLOWANCES> 923,000
<INVENTORY> 21,465,000
<CURRENT-ASSETS> 0
<PP&E> 39,462,000
<DEPRECIATION> 742,000
<TOTAL-ASSETS> 98,573,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 73,000
<OTHER-SE> 49,154,000
<TOTAL-LIABILITY-AND-EQUITY> 98,573,000
<SALES> 8,165,000
<TOTAL-REVENUES> 8,165,000
<CGS> 28,008,000
<TOTAL-COSTS> 49,379,000
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 1,337,000
<INCOME-PRETAX> (41,969,000)
<INCOME-TAX> 0
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<EXTRAORDINARY> 0
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<NET-INCOME> (41,969,000)
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