<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                 FORM 10-KSB
                                ANNUAL REPORT
                         PURSUANT TO SECTION 13 OR 15(D)
                   OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year                                          Commission
ended JUNE 30, 1999                                      FILE NO. 33-90344

                Clariti Telecommunications International, Ltd.
----------------------------------------------------------------------------
          (Exact name of registrant as specified in its charter)

          DELAWARE                                       23-2498715
-----------------------------                      ---------------------
(State or other jurisdiction of                      (I.R.S. Employer
incorporation or organization)                       Identification No.)

        1735 MARKET STREET
  MELLON BANK CENTER, SUITE 1300
    Philadelphia, Pennsylvania                              19103
----------------------------------------            ---------------------
(Address of principal executive offices)                 (Zip Code)

Registrant's telephone number, including area code: (215) 979-3600

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

Securities registered pursuant to Section 12 (g) of the Act: NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X].   No [ ].


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

State issuer's revenues for its most recent fiscal year:    $251,000

The aggregate market value of voting stock held by non-affiliates of the
registrant's common stock, as of September 16, 1999 was approximately
$84,527,000 (based on the average closing bid and asked prices of the
registrant's common stock in the over-the-counter market).  The number of
shares outstanding of the registrant's common stock, as of September 16, 1999
was 125,275,080.


                                    1

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                               PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

Business Development
--------------------
     Clariti Telecommunications International, Ltd. ("Clariti" or the
"Company") is positioning itself to be a complete supplier of
telecommunications products. The integration of switched, Internet Protocol
("IP") and wireless technologies over a single managed network, will enable
Clariti to offer wholesale, retail and enhanced telecommunications products.
The single network topology supports switched and IP telephony, wireless
voicemail, fax, data, virtual private network ("VPN") services, and Internet
service provider ("ISP") services.

     The Company was originally formed in February 1988 as the successor to a
music and recording studio business owned and operated by Peter Pelullo, the
Company's current Chairman of the Board and President.  The Company became
publicly held upon its merger in January 1991 with an inactive public company
incorporated in Nevada. The surviving corporation changed its name to "Sigma
Alpha Entertainment Group, Ltd." and was subsequently reincorporated in
Delaware. In March 1998 the Company changed its name to Clariti
Telecommunications International, Ltd.

     In 1995, the Company began shifting its focus to telecommunications, and
as a result, no longer has a significant interest in the music and recording
business.  Since then, the Company has taken several major steps toward
achieving its goal of becoming a complete supplier of telecommunications
products:

     - In April 1995, the Company acquired its wireless voicemail technology.

     - In December 1998, the Company acquired GlobalFirst Holdings, Ltd.
       ("GlobalFirst"), a licensed telecommunications carrier in the United
       Kingdom that also sells long distance and local telephone services,
       including prepaid phone cards, in the United Kingdom and France.

     - In February 1999, the Company sold the group of GlobalFirst subsidiaries
       that had been operating public call offices ("PCO's") in Europe.

     - In March 1999, the Company acquired Mediatel Global Communications, Ltd.
       ("Mediatel"), a company that sells long distance and local telephone
       services, including prepaid phone cards, in the United Kingdom.

     - In May 1999, the Company acquired MegaHertz-NKO, Inc., a company formed
       in January 1999 to succeed to the operations of MegaHertz Communications
       Corp., an ISP, and NKO, Inc., a provider of enhanced telecommunications
       and IP telephony services (voice, data, fax and video).

     - In October 1999, the Company acquired NKA Pty, Ltd. ("NKA"), an
       Australian based provider of IP telephony to corporate clients.

     - As of October 11, 1999, GlobalFirst, Mediatel and their subsidiaries
       filed for voluntary liquidation in the United Kingdom and all of their
       operations have ceased as of that date.



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     The Company's businesses have operated on the basis of three industry
segments; International Telephony Services, IP/Internet Services and Wireless
Messaging. Prior to the liquidation of GlobalFirst, Mediatel and their
subsidiaries, International Telephony Services consisted of the international
long-distance services provided by GlobalFirst and Mediatel.  IP/Internet
Services consists of the IP telephony and ISP services provided by MegaHertz-
NKO and NKA.  Wireless Messaging consists of the Company's efforts to develop
and commercialize its wireless voicemail technology.

International Telephony Services
--------------------------------
     The following description of the Company's International Telephony Services
business should be read with the understanding that on October 11, 1999, the
Company placed GlobalFirst and its subsidiary companies and Mediatel and its
subsidiary companies into voluntary liquidation under United Kingdom law.
Consequently, the description of the Company's International Telephony Services
business is presented for historical purposes only. See MD&A - Recent
Developments.

     International Telephony Services was licensed to operate voice
telecommunications services nationally in the United Kingdom and to terminate
UK originated voice calls internationally. International Telephony Services'
operating subsidiaries were formed from the acquisition by Clariti of
GlobalFirst and Mediatel, two large telecom resellers formerly operating in the
UK residential, business to business and international calling card business
sectors.

Product Development

     The combination of regulatory and technological changes has and is
continuing to have a dramatic effect on the telecommunications industry. The
economics of the business have been significantly changed by liberalization
permitting telecom service providers to invest in overseas infrastructure
(thereby eliminating the costly settlement rates for local overseas
termination) and by technological advances in fiber-optic and transmission
technologies.

     One technology, acknowledged to have a significant effect on telecom
infrastructure, is Internet Protocol ("IP"), the dominant protocol for data-
networking throughout the internet and adapted for voice communications. The
rapid development of IP switching for voice communication has now made the
protocol a viable medium for both toll quality voice and data integrated
communications. Economic use of facilities and efficient use of bandwidth
provides for significant cost reductions over traditional circuit based
compression technologies.

Competition

     The European and United Kingdom telecommunications markets are
experiencing intensive competition as a result of the on-going deregulation
that is resulting in significant downward pressure on prices and profits.  Such
pressures have resulted in significant operating losses for the Company's
International Telephony Services business and, as a result, management has made
the decision to liquidate these operations.



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<PAGE>

IP/Internet Services
--------------------
     The May 1999 acquisition of MegaHertz-NKO and the September 1999
acquisition of NKA have provided the Company with an operating base upon which
it plans to build a global network using IP technology over a private managed
network.  In addition, MegaHertz-NKO offers nationwide Internet access for
individuals, businesses and organizations over a network backbone architecture
delivering quality and consistency of service.

Products and Services

     The Company's IP Telephony business offers prepaid phone cards,
residential and business long distance, and fax services.  As a domestic ISP,
the Company offers turnkey Internet solutions including traditional dialup
access, web hosting and e-commerce services. Server co-location and managed
server services are also available. The Company's Internet services are
currently available in all 50 states.

Voice Over IP Technology

     Voice Over IP ("VoIP") telephony utilizes IP technology to encode an
analog voice transmission into a digital Internet protocol transmission, which
is then sent along the Company's private managed network to a point where the
digital transmission is decoded back into an analog voice transmission.  The
Company's private managed network is interconnected with circuit switched
telephone networks and provides connections to telephones worldwide.  The
Company's technology provides voice quality that is comparable to conventional
switched technology, but without the high cost of conventional switching
hardware.  A typical VoIP telephony switch costs approximately 80% less than a
standard telecom switch.

Voice Over IP Network

     The Company's VoIP technology uses a private managed network to transmit
its calls, resulting in quality transmission.  No other traffic may be
transmitted over such network without the Company's permission.  By contrast,
Internet telephony companies, such as Net2Phone, use the public Internet to
transmit their calls, typically resulting in a significant reduction in
quality.

     The Company is in the process of building a global network for its VoIP
telephony business.  It currently has points of presence ("POP's") in Florida,
New York, Mexico, Brazil, Peru, Australia, Israel, and South Korea.  The
Company also has plans to expand further into Asia.

Marketing

     The Company uses a small direct sales force focused principally on
business customers and a small group of agents, resellers and retailers focused
principally on sales of prepaid calling cards.  The Company's ISP services are
marketed direct to consumers through advertising via the Internet, newspapers
and other media.



                                    4


<PAGE>

Competition

     The Company's IP Telephony business competes with those of numerous well-
established companies such as AT&T, MCI, Sprint, and IDT, all of which have
substantially greater financial, technical, personnel and other resources than
the Company, and have established reputations for success in the telephony
business.  Certain of these competitors may also have the financial resources
necessary to enable them to withstand substantial price competition or
downturns in the market for telephony services.  Likewise, the Company's ISP
business also competes with those of numerous well-established companies such
as America-On-Line, Prodigy, and Compu-serve, all of which have substantially
greater financial, technical, personnel and other resources than the Company,
and have established reputations for success in the ISP business.

Regulation

     The use of IP telephony is a recent development. The Federal
Communications Commission ("FCC") is considering whether or not to impose
surcharges or additional regulations upon providers of IP telephony. In April
1998, the FCC issued its report to Congress concerning its implementation of
the universal service provisions of the Telecommunications Act. In the report,
the FCC indicated that it would examine the question of whether certain forms
of "phone-to-phone" Internet protocol telephony are information services or
telecommunications services. It noted that the FCC did not have, as of the date
of the report, an adequate record on which to make any definitive
pronouncements, but that the record before it suggested that certain forms of
phone-to-phone Internet telephony appear to have the same functionality as non-
Internet protocol telecommunications services and lack the characteristics that
would render them information services. If the FCC were to determine that
certain services are subject to FCC regulations as telecommunications services,
the FCC noted that it may find it reasonable to require Internet service
providers to make universal service contributions, pay access charges or to be
subject to traditional common carrier regulation.  If Congress, the FCC, state
regulatory agencies, foreign governments or supranational bodies begin to
regulate IP telephony, there can be no assurances that any such regulation will
not materially adversely affect the Company's business, financial condition or
results of operations.


Wireless Messaging
------------------
     The Company is presently developing wireless telecommunications products
that utilize radio frequencies transmitted by FM radio stations.  Management
believes that a need exists worldwide for telecommunications products that
communicate information in an economically feasible manner without the need for
intensive capital investment.  The Company is developing a process that
utilizes FM radio frequencies to provide a wireless information transmission
network without the significant investment capital requirements of traditional
telecommunication and cellular infrastructure.

Wireless Voicemail System

     The first significant application of the Company's patented technology is
a Wireless Voicemail System.  Currently under development, the ClariCAST(TM)
digital Wireless Voicemail System will allow a designated FM radio station to


                                    5
<PAGE>

provide a service that transmits a message to the owner of a handheld voicemail
player in the actual voice of the person generating the message. A subscriber
to the system must first buy a handheld voicemail player and then pay a monthly
subscription fee for the wireless voicemail service.  Once a subscriber's
account has been established, callers can leave voice messages for the
subscriber by calling the system's central phone number and entering the
subscriber's personal identification number. The calling party's message is
then digitized, compressed and transmitted by the radio station's FM
transmitter to the specific subscriber. The Wireless Voicemail System provides
messages that coexist with, but do not interfere with the FM radio station's
existing commercial broadcasts.

Wireless Voicemail Technology

     The Company's technology utilizes the FM-SCA channels available on FM
radio stations throughout the world.  FM-SCA (Subsidiary Communication
Authorization) channels, also known as FM "subcarrier" channels, are the
"sideband" of an FM radio station's broadcasting frequency.  Each FM radio
station has two FM-SCA channels.  Similar to the SAP (Secondary Audio
Programming) channel in television broadcasting, the FM-SCA spectrum is
licensed to the FM radio station and can be used for broadcasting alternate
services.

     The Company has developed patent pending technology for sending digital
voice messages over FM-SCA frequencies.  A state-of-the-art voice compression
algorithm creates a compact digital representation of the original voice
message.  Using advanced coding technology, the ClariCAST(TM) system creates a
transmission waveform (modulated carrier) that enables the compact digital
voice messages to be transmitted wirelessly at high data rates over an FM-SCA
channel.  The digital signal incorporates advanced error correction schemes to
overcome the environmental distortions found in all wireless transmissions.

FM-SCA Broadcasting

     Two significant advantages of the Company's technology as compared to
conventional paging and cellular technology are (1) FM-SCA channels do not
require new radio frequency spectrum allocation and (2) the transmission
infrastructure for FM-SCA already exists in the form of the FM radio station's
equipment.  As a result, the Company's Wireless Voicemail System will require
significantly less investment to establish a network and acquire the necessary
hardware (expected to be approximately $130 thousand per city as compared to
the millions of dollars typically required for paging and cellular systems).
In addition, the existence of the FM radio station's transmission
infrastructure and the simplicity of the Company's Wireless Voicemail System
will allow for more rapid installation of the system. The Company expects to be
able to install a city-wide ClariCAST(TM) system in several days rather than
the many months required for paging and cellular systems.

     FM radio stations are assigned a frequency bandwidth of 100 kHz.  A
typical station will use 53 kHz for their commercial (main channel)
programming.  The remaining 47 kHz, which is almost half of the available FM
channel spectrum resource, is not required for broadcasting the main channel
programming.


                                    6


<PAGE>

     FM-SCA has been used in the United States for applications such as
background music without commercial interruption, reading services for the
blind, stock market quotes, sports scores, weather reports, educational
services, and religious broadcasts.  As a result, the FM-SCA channels may in
some instances be limited due to these other uses.  However, in most
international markets, especially emerging growth nations, there appears to be
little or no use of the FM-SCA band.  Chinese, Latin American, and other
international FM radio stations have been pursuing the use of this FM-SCA
bandwidth to generate additional revenues from operations.

Wireless Voicemail System Design

     The Wireless Voicemail System is comprised of 4 major components:
- FM radio station's transmission facility (utilized by the Company
            for its wireless infrastructure)
          - Voicemail Terminal
          - SCA Generator
          - Wireless Voicemail Players

     The FM radio station's transmission facility includes the antenna tower
and all the other equipment used by the FM radio station for its main channel
programming.  This facility is already in place and owned by the FM radio
station.  The Company expects to lease one or both of the SCA channels from the
FM radio station. The Wireless Voicemail Player must be within receiving
distance of the FM radio station's signal in order to receive the message.

     The Voicemail Terminal incorporates a full-featured voicemail system.  It
automatically answers incoming telephone calls with a customized greeting from
the subscriber, prompts the caller to leave a message, and records the message
in the caller's voice.  After the caller has hung up, the voice message is
digitally compressed into a compact digital packet and the appropriate Wireless
Voicemail Player address is added.  These packets are then forwarded to the SCA
Generator for modulation and mixing with the FM station's main channel
programming.  This combined signal is then sent through the FM radio station's
transmitter.

     The Wireless Voicemail Player receives the signal from the FM radio
station, extracts the messages that are addressed to it, and decodes the
message.  An audible or vibrating signal alerts the user that a message has
been received.  Upon playback the user listens to the message in the caller's
actual voice.  The user can play, fast forward, rewind, save, and delete
messages, similar to using voicemail or a home answering machine.

Status of Wireless Voicemail System Development

     In April 1998, the Company successfully tested its digital wireless voice
messaging "Beta System" in Philadelphia. The Beta System is comprised of
multiple, individually addressable, handheld, battery-operated voicemail
players receiving pages over the Company's Wireless Voicemail System.  The
pages were sent over the FM subcarrier frequencies of WIOQ 102.1 FM, a
commercial radio station in Philadelphia. The performance of the Beta System,
including the error correction algorithms and the pagers' audio quality met or
exceeded the Company's expectations. The Company also successfully tested its



                                    7

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Beta System in Brazil, Canada, and two other cities in the United States.
There can be no assurance, however, that the successful tests of the Beta
System will result in the successful development of the production model.

     The Company is now in the process of completing development of production
equipment.  This process consists mainly of miniaturizing the Wireless
Voicemail Player, finalizing the software on the Voicemail Terminal and SCA
Generator, and testing the entire system.  The Company expects to launch its
commercial wireless voicemail service and roll out into multiple cities and
multiple countries during the Year 2000.  New product development efforts are
subject to all of the risks inherent in the development of new technology and
products, including unanticipated delays, expenses, market acceptance,
technical problems or difficulties, as well as the possible insufficiency of
funding to complete development.  There can be no assurance as to when, or
whether, the Wireless Voicemail System will be successfully completed.  No
assurance can be given that products can be developed within a reasonable
development schedule, if at all, nor that they can be produced at a reasonable
cost.  There can be no assurance that the Company will have sufficient economic
or human resources to complete such development in a timely manner, or at all.

Commercialization of the Wireless Voicemail System

     For commercialization of the Company's Wireless Voicemail System, the
Company will be required to secure the use of FM radio subcarrier frequencies
in the markets it intends to enter.  Based on the experience of its management,
the Company does not expect difficulty in accessing such frequencies.  However,
there can be no assurance that FM radio station owners in targeted market areas
will not develop other uses for their subcarrier frequencies, which would have
a material adverse effect on the Company's business.

Marketing the Wireless Voicemail System

    	Management believes there is market potential for its Digital Wireless
Voicemail service in many international markets.  With its large installed base
of voicemail users, plus pager users with voicemail boxes, the U.S. represents
a significant business opportunity.  However, the opportunities may even be
greater in emerging markets such as China and Brazil.  There are currently
approximately 170 million paging subscribers worldwide, with the vast majority
of those outside the U.S., Western Europe, and Japan.  In these emerging
markets, there appears to be significant pent-up demand for communications
capabilities, yet only a small percentage of users can afford cellular phones.
The Company believes its product, with its combination of wireless
capabilities, digital voice communications, and affordability, will appeal to a
large number of potential users in these markets.  In addition, the Company's
FM-SCA technology makes it possible to rapidly deploy systems in just about any
country with FM radio stations.

     Within the United States, the Company plans to develop a network of
wireless messaging systems by negotiating arrangements with FM radio station
owners to utilize their FM-SCA channels.  Outside the U.S., the Company plans
to develop partnerships with local companies to help market the Wireless
Voicemail service.  The Company expects to seek out partners who are
experienced with marketing and distribution of wireless products in their
respective geographic areas.  The Company believes this approach will provide
it with the ability to address multiple markets simultaneously.


                                    8
<PAGE>

	The marketing strategy in each location will vary, depending on the local
market environment.  However, several elements of the strategy are likely to be
similar.  First, the Company and its local partner(s) expect to position the
product and service relative to other popular telecommunications products and
services.  Since the Company's product shares common attributes with pagers,
voicemail, and cellular phones, it is possible that Wireless Voicemail will be
positioned differently in different locations.  Second, the Company and its
local partner(s) will determine the best mix of sales and distribution.  In
most locations, the Company anticipates using a variety of distribution
channels, including selling directly to corporate accounts, through retail
electronic outlets, or through wireless dealers.

     The Company anticipates that it will, as an ongoing activity, investigate
prospective partners for the purpose of marketing, selling and distributing the
Company's Wireless Voicemail products and services in various locations.  In
April 1999, the Company signed a memorandum of understanding ("MOU") with Acme
Paging, whose subsidiary, Conectel, is the largest paging company in Latin
America.  Pursuant to the terms of the MOU, the Company and Conectel plan to
form a partnership to offer Wireless Voicemail service in Brazil. The Company
is currently involved in discussions regarding partnership opportunities for
countries other than Brazil. There can be no assurance however that the Company
will be successful in its efforts to execute the terms of the MOU, nor can
there be any assurance that the Company will be successful in its efforts to
enlist strong partners in every market it plans to enter.

     The Company has conducted market research indicating that users prefer its
Wireless Voicemail System over standalone voicemail accounts, numeric pagers,
and text pagers.  In addition, the Company expects to be able to offer its
Wireless Voicemail service at a price much less expensive than cellular phone
service.  As a result, Management believes the Company will be able to
successfully market its Wireless Voicemail System; however, there can be no
assurance that the Company will be successful in each market the Company
chooses to enter.

Competition

     The Company expects its Wireless Voicemail products and services to
compete with those of numerous well-established companies which design,
manufacture or market pagers, cellular phones, wireless communications systems,
and paging and cellular services.  Most of these companies have substantially
greater financial, technical, personnel and other resources than the Company,
and have established reputations for success in the development, licensing, and
sale of their products and services.  Certain of these competitors may also
have the financial resources necessary to enable them to withstand substantial
price competition or downturns in the market for pagers, cellular phones, and
related products.

     The demand for personal telecommunications devices has increased
dramatically in the past decade worldwide, with the major market growth focused
on two product categories: cellular phones and pagers.  Cellular phone networks
require extensive front-end investment for their initial implementation, and
continuous investment to maintain and expand their network.  Traditional paging
systems, on the other hand, require less investment, but provide only a numeric
or text message, not a digital voice message.



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     The Company believes, based upon its market research, that text paging
systems present a variety of problems with respect to cost and functionality.
First, text paging services typically employ an expensive pool of typists whose
job it is to answer phone calls and type the message into the paging system for
transmission to the text paging subscriber.  Second, these typists may not
always understand the language/dialect/accent of the caller, or the terms used
by the caller.  This results in many translation errors.  Third, many callers
are reluctant to leave a confidential or personal message with a typist due to
the lack of message security.  By contrast, the Company's Wireless Messaging
technology is entirely automated, eliminating the need for this pool of
typists.  Fourth, text messages are unable to communicate the emotion of the
caller (urgent, happy, angry, sarcastic).  In many instances, particularly in
certain cultures, there is as much information contained in the emotion or
nuance of the spoken message as there is in the words themselves.  Fifth, the
investment required to establish a conventional text paging system, while less
than that of a cellular phone system, is still substantial, and is much greater
than the investment required to deploy the Company's Wireless Messaging
technology.

     A popular add-on service for pager users is voicemail.  When a traditional
pager user receives a voicemail message, their pager notifies them that a
voicemail message has arrived, but the user does not know who the message is
from, what the message is about, or its level of urgency.  The individual
carrying the pager needs to call a telephone number to listen to their
voicemail message.  The Company believes that its Wireless Voicemail service
will be appealing to the millions of pager users with voicemail notification
service.

     Voice paging has been around for many years, but its original design
worked much like a one-way radio (i.e. a one-way walkie-talkie).  However, it
was too large and was inefficient in its use of radio spectrum.  More recently
there have been attempts by other companies to establish a commercial voice
paging technology.  The voice paging technology that reached the greatest user
base is known as InFLEXion(TM) and was invented by Motorola.  The InFLEXion(TM)
system was installed and voice paging service offered in several United States
cities by two paging carriers, PageNet and ConXus, during the late 1990's.
Although users liked the service, the system was very expensive to deploy,
similar to the cost of deploying a cellular phone system, causing both carriers
to ultimately discontinue the service.  Another company, OmniVoice, began
commercial voice paging service in Mexico City in August 1999 using a different
technology.  It is too early to tell whether OmniVoice's technology will be
commercially successful.

     In order for a wireless technology to be commercially successful, the
Company believes it must meet user requirements for cost, device size,
performance, functionality, and in the case of a voice-based product, audio
quality.  While some competing voice messaging technologies match the Company's
ClariCAST(TM) technology on one or more of these parameters, the Company is not
aware of any competing technology that can match ClariCAST(TM) technology in
all of these critical areas.

Production and Manufacturing Plans

     The Company does not presently intend to establish its own manufacturing
facilities to produce its Wireless Voicemail Player, SCA Generator, or related


                                    10
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components.  Instead, the Company plans to contract with other companies to
manufacture such items.  However, the Company may choose in the future to ship
key component parts and sub-assemblies to contract manufacturers in other
countries where its Wireless Voicemail products are being marketed in order to
minimize tariffs and to be able to respond quickly to local market demand.  In
the event the Company does not operate its own manufacturing facilities, it
will be dependent upon the ability of contract manufacturers to manufacture and
assemble products in accordance with specifications provided by the Company.
If such contractors are unable to meet these specifications or experience
delays in delivering products to the Company, the Company's business would be
adversely affected.

     The Company may in the future seek to establish its own manufacturing
facilities and/or form joint ventures with manufacturers abroad in order to
manufacture and assemble the Company's products.  In such event, the Company
may need further financing to implement such manufacturing plans.  There can be
no assurance that financing will be available to the Company at such time, or
if available, on terms acceptable to the Company.

Patents and Trade Secrets

     In March 1999, the U.S. Patent and Trademark Office issued to the Company
a patent, originally filed in January 1996, dealing with FM Subcarrier Digital
Voice Paging.  This patent had previously been approved by government
authorities in South Africa and Taiwan, and is still pending in 10 additional
countries.

     During the past fiscal year, the Company has filed patent applications in
the United States and multiple foreign countries on a number of additional
patents.  In November 1998, the Company filed a patent application for the
protection of its proprietary wireless protocol.  In December 1998, the Company
filed a patent application for a unique interference-reduction technique.  In
March 1999, the Company filed a patent application for the overall design of
its Wireless Voicemail Player.

     There can be no assurance as to the ultimate success of the Wireless
Voicemail System patent applications in the United States or any other foreign
country.  Furthermore, even if patents are issued to the Company, there can be
no assurance that such patents will not be circumvented and/or invalidated by
competitors of the Company.  Further, the enforcement of patent rights often
requires the institution of litigation against infringers, which litigation is
often costly and time consuming.  The Company also intends to rely on trade
secrets, know how and continuing technological advancement to establish a
competitive position in the marketplace.  There can be no assurance that the
Company will be able to adequately protect its technology from competitors in
the future.

Government Regulations

     The Company's proposed Wireless Voicemail operations relate to conduct of
operations in the United States and foreign countries.  Accordingly, the
Company's operations will be subject to the risks of conducting business
internationally, including possible instability in foreign governments, changes
in regulatory requirements, difficulties in obtaining foreign licenses, as well
as other general barriers and restrictions in relation to compliance with
foreign laws.

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<PAGE>

    The Company's Wireless Voicemail technology utilizes FM-SCA channels
available on nearly all FM radio stations worldwide.  In the United States, the
FCC considers FM-SCA channels to be part of the total FM frequency allocated to
a radio station and therefore does not separately license or regulate FM-SCA
channels. Regulators in most of the foreign markets the Company plans to enter
may take a similar position in their countries to that of the FCC regarding the
licensing and regulation of FM-SCA channels.  There can be no assurance that
the Company will in all cases be able to obtain the use of FM-SCA channels
outside the U.S., or that foreign regulatory agencies will allow the company to
operate its service.


Research and Development
------------------------
     The Company's research and development costs relate exclusively to
development of its Wireless Voicemail System and technology. Research and
development costs incurred by the Company during the years ended June 30, 1999
and 1998 were $2,465,000 and $1,321,000, respectively, all of which was
expended on development of the Wireless Voicemail System. The Company has
incurred cumulative research and development costs of $3,974,000 on the
Wireless Voicemail System through June 30, 1999.  The Company expects to incur
an estimated $4,000,000 to $5,000,000 of additional research and development
costs to complete development of a production ready prototype of the first
generation of the Wireless Voicemail System.  Management is aware, however,
that there can be no assurances that the Wireless Voicemail System will be
developed into a commercially viable product, or if developed, that it can be
successfully marketed.

     Although the Company has created an experienced internal development team,
the Company has subcontracted certain elements of the development of its
Wireless Voicemail System to third party engineering and development firms.
Such contracts provide for payments to be made by the Company on a time and
material basis or based on the achievement of certain engineering milestones.
Costs incurred for research and development work performed by third parties was
$264,000 and $1,245,000 in the years ended June 30, 1999 and 1998,
respectively.

     Management believes that significant progress has been made on the
development of the Wireless Voicemail System.  The Company has experienced
delays in past development efforts; however, management expects completion of a
production ready prototype of the first generation of the Wireless Voicemail
System during 2000.  Although the Company's efforts to create an experienced
in-house development team have reduced dependence on third-party development
contractors, the ultimate success of the development of Wireless Voicemail
System will be significantly influenced by how well third party development
contractors perform their functions.  The inability of, and/or delay by such
contractors in performing such developmental services could have a material
adverse effect on the Company.

Employees
---------
     As of June 30, 1999, the Company had a total of 162 employees, 117 of whom
were employed in International Telephony Services, 15 of whom were employed in
IP/Internet Services, 19 of whom were employed in Wireless Voicemail and 11 of
whom were employed in corporate administration.  Substantially all of the


                                    12
<PAGE>

Company's employees work on a full time basis and none of the Company's
employees belong to a labor union.  As a result of the Company's decision to
file for involuntary liquidation for GlobalFirst, Mediatel and their respective
subsidiaries, the International Telephony Services business has been terminated
and no longer has any employees.


ITEM 2.     DESCRIPTION OF PROPERTY

     The Company's headquarters are located at 1735 Market Street, Mellon Bank
Center, Suite 1300, Philadelphia, Pennsylvania 19103, which the Company leases
pursuant to a written lease agreement that expires in 2006.

     The Company's International Telephony Services group was headquartered in
London, England in an office building leased by Mediatel.

     The Company's Internet Services group is headquartered in Jacksonville,
Florida in an office building, part of which is leased by MegaHertz-NKO
pursuant to a written lease agreement that expires in 2002.

     The Company's Wireless Messaging group is headquartered in an office
building in Fort Washington, Pennsylvania, part of which the Company leases
pursuant to a written sub-lease agreement that expires in 2000. The Wireless
Messaging group also operates an engineering center in a corporate office park
in Boynton Beach, Florida, which the Company leases pursuant to a written lease
agreement that expires in 2001.


ITEM 3.     LEGAL PROCEEDINGS

     In March 1999 Clariti, GlobalFirst, Mediatel and CHH entered an agreement
with Frontier Corporation together with its subsidiary, Frontel Communications,
Ltd. (collectively, "Frontier") to settle costs incurred by GlobalFirst and
Mediatel for their use of Frontier's telecommunications network up to and
including March 12, 1999 (the "Frontier Settlement Agreement"). Frontier,
GlobalFirst and Mediatel are jointly analyzing the detailed records supporting
the GlobalFirst and Mediatel usage of Frontier's network to identify the
precise amount of the balance due to Frontier, if any ("Balance Due Frontier").
Pursuant to the Frontier Settlement Agreement, Clariti paid to Frontier
$3,000,000 during March 1999 against the Balance Due Frontier and issued to
Frontier 5,000,000 shares of the Company's restricted common stock valued at
$11,250,000 as security for payment of the remaining Balance Due Frontier.
Within 5 business days after the Balance Due Frontier is determined by
agreement among the parties or by arbitration, CHH must pay such amount to
Frontier, and Frontier must then transfer the 5,000,000 shares of Clariti
common stock to CHH.  At any time prior to the purchase of the Clariti stock by
CHH, Clariti (or its designee) may purchase any portion or all of the stock for
an amount equal to the Balance Due Frontier.  In the event of a default under
the Frontier Settlement Agreement, Frontier may, at its option, sell a
sufficient amount of the Clariti shares in order to satisfy the Balance Due
Frontier.  If Frontier sells all 5,000,000 shares of Clariti common stock for
less than the Balance Due Frontier, GlobalFirst and Mediatel (but not Clariti)
are contingently liable to pay Frontier the remaining Balance Due Frontier.
Once Frontier collects the Balance Due Frontier (whether by sale of Clariti


                                    13

<PAGE>

stock or payment made by any of the parties), Frontier must surrender any
remaining shares of the Clariti stock to Clariti.  On or about June 17, 1999,
Clariti, together with GlobalFirst, Mediatel and CHH filed a demand for
arbitration with the American Arbitration Association (case no. 50 N 181
0021399) against Frontier concerning Frontier's obligations arising under the
Frontier settlement agreement.

     The Company is, from time to time, during the normal course of its
business operations, subject to various other litigation claims and legal
disputes.  The Company expects none to have a material adverse impact on its
operations; however, no assurance can be given that an adverse determination of
any claim or dispute would not have an adverse impact on its operations during
any given period.


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

     None




                                    1

<PAGE>

                                 PART II

ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     The Company's Common Stock is quoted on the National Association of
Securities Dealers, Inc., over-the-counter market on the OTC Bulletin Board
under the symbol "CLRI."

Market Information
------------------
     The following table sets forth the high and low bid prices per share of
Common Stock as quoted by National Quotation Bureau, Inc.  The following table
presents data for the years ended June 30, 1999 and 1998.

Year Ended June 30, 1999
                          	            High Bid        Low Bid
                                          --------        -------
Quarter ended:
  September 30, 1998                       $3.34           $1.69
  December 31, 1998                        $2.84           $1.72
  March 31, 1999                         	 $2.47	     $1.94
  June 30, 1999                            $3.25           $2.03


Year Ended June 30, 1998
                          	            High Bid        Low Bid
                                          --------        -------
Quarter ended:
  September 30, 1997                       $2.38           $1.81
  December 31, 1997                        $2.25           $1.41
  March 31, 1998                           $1.63           $1.06
  June 30, 1998                            $3.31	     $1.22

     The above prices presented are bid prices, which represent prices between
broker dealers and do not include retail mark-ups, mark-downs or commissions to
the dealer.  The prices also may not necessarily reflect actual transactions.
On September 16, 1999 the closing price for the Company's common stock was
$2.72 per share.

Holders
-------
     As of September 16, 1999 the Company had 176 shareholders of record of its
common stock.  Such number of record holders was derived from the stockholder
list maintained by the Company's transfer agent, American Stock Transfer &
Trust Co., and does not include the list of beneficial owners of the Company
whose shares are held in the names of various dealers and clearing agencies.

Dividends
---------
     To date, the Company has not declared or paid any cash dividends and does
not intend to do so for the foreseeable future.  The Company intends to retain
all earnings, if any, to finance the continued development of its business.
Any future payment of dividends will be determined solely by the discretion of
the Company's Board of Directors.


                                    15


<PAGE>

ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS.

	Certain information included in this Annual Report may be deemed to
include forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, that involve risk and uncertainty, such as information
relating to expected capital expenditures and expected trends in operating
losses and cash flows, as well as the Company's ability to successfully do any
or all of the following:

     - Position network infrastructure investment and switch to serve the needs
       of the customer and to provide Clariti with control over its cost base,
       product development and quality of service
     - Select the timing of the installation of a city-wide ClariCAST (TM)
       system
     - Lease SCA channels from FM radio stations
     - Develop partnerships with local companies in foreign markets to help
       market, sell and distribute the Wireless Voicemail System
     - Select partners who will be used to help market, sell and distribute the
       Wireless Voicemail System
     - Develop marketing strategy of the Wireless Voicemail System
     - Make the Wireless Voicemail System affordable and appealing to its
       target markets
     - Address multiple markets simultaneously to market the Wireless Voicemail
       System
     - Develop manufacturing and distribution channels of the Wireless
       Voicemail System
     - Manage the progress and costs of additional research and development of
       the Wireless Voicemail System
     - Manage the risks, restrictions and barriers of conducting business
       internationally
     - Manage the expenditure of earnings and future payment of dividends, if
       any
     - Reduce future operating losses and negative cash flow
     - Manage the integration of acquisitions
     - Achieve its goal of becoming an international integrated
       telecommunications provider
     - Manage the Company's growth and its effects, including the ability to
       attract additional personnel
     - Obtain financing for operations and expansion
     - Compete effectively in the markets the Company chooses to enter
     - Manage the effect on operating margins of changing long distance rates
     - Manage the effect of events that interrupt delivery of services such as
       equipment failures
     - Develop new products and services and enhance current products and
       services
     - Stimulate demand for the Wireless Voicemail products and services
     - Manage the effect of the liquidation of UK Group Companies
     - Manage compliance with Year 2000 issues

     In addition, certain statements may involve risk and uncertainty if they
are preceded by, followed by, or that include the words "intends," "estimates,"
"believes," "expects," "anticipates," "should," "could," or similar
expressions, and other statements contained herein regarding matters that are


                                    16
<PAGE>

not historical facts.  Although the Company believes that its expectations are
based on reasonable assumptions, it can give no assurance that its expectations
will be achieved.  The important factors that could cause actual results to
differ materially from those in the forward-looking statements herein (the
"Cautionary Statements") include, without limitation, risks associated with the
Company's operating losses, risks relating to the Company's development and
expansion and possible inability to manage growth, risks relating to the
Company's significant capital requirements, substantial indebtedness and
possible inability to service its debt, risks relating to competition and
regulatory developments, risks relating to implementing local and enhanced
services, risks relating to its long distance business, as well as other risks
referenced from time to time in the Company's filings with the Securities and
Exchange Commission.  All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Statements.  The
Company does not undertake any obligation to release publicly any revisions to
such forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.

RISK FACTORS
------------
Limited Operating History

The Company was formed in February 1988 as the successor to a music and
recording studio business, and became publicly held upon a merger in January
1991 with an inactive public company incorporated in Nevada.  In early 1995 the
Company first entered the telecommunications industry with the concept of voice
paging using FM radio frequencies, now the Company's wireless division.  It was
not until December 1998 when the Company acquired GlobalFirst that it commenced
providing wireline telecommunications services.  Therefore, the Company has had
only a limited operating history in the telecommunications industry upon which
investors may base an evaluation of the Company's performance.  As of October
11, 1999, GlobalFirst and all of its subsidiaries filed for voluntary
liquidation and all operations ceased at that time.

History of Losses

Since the Company's inception, it has incurred significant losses, including
net losses of $220,412,000 for the 12 months ended June 30, 1999 ("Fiscal
1999")and $4,248,000 for the eleven months ended June 30, 1998 ("Fiscal 1998").
Approximately $152,214,000 of the loss in Fiscal 1999 resulted from the write-
off of goodwill related to the acquisitions of GlobalFirst and Mediatel. Losses
from operations continued in Fiscal 1999 as a result of negative margins on the
sale of telephony services by GlobalFirst and Mediatel, as well as from
research and development costs incurred on the wireless voice messaging system.
The Company expects that it will continue to generate operating losses and
negative cash flow from operations at least through Fiscal 2000.  No assurances
can be given that the Company will ever achieve, or if achieved, maintain,
profitability.

Expansion Through Acquisitions

The Company has actively pursued opportunities to expand through acquisitions,
and plans to continue to seek acquisitions that complement its services,
broaden its consumer base and improve its operating efficiencies. Acquisitions


                                    17
<PAGE>

may result in potentially dilutive issuances of equity securities, the
incurrence of additional debt and the amortization of expenses related to
goodwill and other intangible assets, all of which could have a material
adverse effect on the Company's financial results.  Acquisitions also involve
numerous additional risks, including difficulties in assimilation of the
operations, services, products and personnel of acquired companies, which could
result in charges to earnings or otherwise adversely affect the Company's
operating results. There can be no assurance that acquisition opportunities
will continue to be available, that the Company will have access to the capital
required to finance potential acquisitions, that it will continue to acquire
businesses or that any acquired businesses will be profitable.

Integration of Companies Acquired

The Company recently acquired  MegaHertz-NKO and NKA.  Management's strategy is
to become an international integrated telecommunications provider.  The Company
has limited experience operating such businesses, individually or on an
integrated basis.  Because of the inherent uncertainties associated with
integrating the assets, operations and personnel of several companies, there
can be no assurance that the Company will be able to achieve its strategic
goals or operate the business successfully, that operating efficiencies will be
realized as a result of the mergers and acquisitions or that the combination of
such businesses will be successful.

Initiation of Liquidation Proceedings for GlobalFirst and Mediatel

	On October 11, 1999, the Company placed GlobalFirst, Mediatel and  their
respective subsidiaries into voluntary liquidation primarily because such
companies were unable to pay their debts, including the advances received from
Clariti (see Recent Developments).  There can be no assurance that the Company
will re-enter the telecommunications market in the United Kingdom.  In
addition, there can be no assurance that the Company will be able to recover
all or any of such advances to GlobalFirst and Mediatel.

No Assurance of Continued Growth

Although the Company has experienced substantial growth in the last year and
intends to continue to grow rapidly, there can be no assurance that such growth
experienced will continue or that it will be able to achieve the growth
contemplated by its business strategy. The Company's ability to continue to
grow may be affected by various factors, many of which are not within its
control, including competition and federal, state and foreign regulation of the
telecommunications industry.

Management of Growth

The Company has added additional management personnel, including a new Chief
Executive Officer and a new Executive Vice President, both with extensive
experience in the telecommunications industry. The expanding nature of the
Company's business strategy has placed, and is expected to continue to place,
significant demands on all aspects of its business, including management,
financial, technical and administrative personnel and systems.  Future
operating results will depend substantially upon the ability of its executive
officers to manage such anticipated growth, to attract and retain additional


                                    18

<PAGE>

highly qualified management, financial, technical and administrative personnel
and to implement and/or improve technical, administrative, financial control
and reporting systems.  There can be no assurance that difficulties will not be
encountered in expanding financial controls and reporting systems in order to
meet future needs. If the Company is unable to respond to and manage changing
business conditions, then the quality of services, ability to retain key
personnel and results of operations could be materially adversely affected.
There can be no assurance that the Company will successfully manage its
expanding operations and continued growth.  Any difficulties in managing its
expanding operations and continued growth or in attracting additional personnel
could have a material adverse effect on the business, its financial condition
and results of operations.

Need for Additional Financing

To date, the Company has funded its operations principally through privately
raised equity funding.  Due to operating losses and the rapid pace of
expansion, the Company remains undercapitalized. In the future, the Company
will require both short-term financing for operations and longer-term capital
to fund expected growth.  To date the Company has no existing bank lines of
credit and has not established any sources for such financing. Its ability to
acquire additional operations and facilities to further accelerate growth will
be dependent upon the ability to raise longer-term capital or otherwise finance
such acquisitions. Management of the Company continues to make concerted
efforts to raise additional capital through the sale of common stock.  Since
June 30, 1999, the Company has raised an additional $10,933,000 in capital
through private placement of its common stock.  In addition, the Company has
received a firm commitment for an additional $16,166,000 of equity funding to
be received during October and November 1999.  The Company currently has no
other  arrangements with respect to, or sources of, additional financing. There
can be no assurance that additional future financing will be available, or if
available, will be available in either a timely manner or upon acceptable terms
and conditions.

Competition

The telecommunications industry is highly competitive, rapidly evolving and
subject to constant technological change. Other service providers currently
offer one or more of each of the services we offer. As a service provider in
the IP Telephony and long distance telecommunications industry, some of the
Company's principal competitors in the  long distance telecommunications
industry are MCI, AT&T, Sprint and many others, all of which are substantially
larger and have: (i) greater financial, technical, engineering, personnel and
marketing resources; (ii) longer operating histories; (iii) greater name
recognition; and (iv) larger consumer bases.  Although the Company's Wireless
Voice Messaging technology is unique, there are several well-established
wireless technologies against which the Wireless Voice Messaging service will
have to compete, including cellular phones and text paging.  Principal
competitors in these wireless technologies include Motorola, Ericson, Pagenet,
and many others, all of which are substantially larger and have: (i) greater
financial, technical, engineering, personnel and marketing resources; (ii)
longer operating histories; (iii) greater name recognition; and (iv) larger
consumer bases.  These advantages afford such competitors pricing flexibility.
Telecommunications services companies may compete for consumers based on price,


                                    19

<PAGE>

with the dominant providers conducting extensive advertising campaigns in order
to capture market share. Competitors with greater financial resources may also
be able to provide more attractive incentive packages to retailers in order to
encourage them to carry competing products and services. In addition,
competitors with greater resources may be better situated to negotiate
favorable contracts with retailers. Existing competitors are likely to continue
to expand their service offerings to appeal to retailers and their consumers.
Moreover, because there are few, if any, substantial barriers to entry, new
competitors are likely to enter the telecommunications market and attempt to
market similar telecommunications services, which would result in greater
competition.

The Company's ability to compete effectively in the telecommunications services
industry will depend upon its continued ability to provide high quality
services at prices generally competitive with, or lower than, those charged by
competitors. Certain competitors dominate the telecommunications industry and
have the financial resources to enable them to withstand substantial price
competition, which is expected to increase significantly, and there can be no
assurance that the Company will be able to compete successfully in the future.
Moreover, there can be no assurance that some competitors will not be better
situated to negotiate contracts with suppliers of telecommunications services
which are more favorable than contracts negotiated by the Company. In addition,
there can be no assurance that competition from existing or new competitors or
a decrease in the rates charged for telecommunications services by the major
long distance carriers or other competitors would not have a material adverse
effect on the Company's business, financial condition and results of
operations.


Billing Dispute With Frontier Corporation

As further described below under "Recent Developments," GlobalFirst and
Mediatel have a potentially material contingent liability related to an
agreement with Frontier Corporation to settle costs incurred by GlobalFirst and
Mediatel for their use of Frontier's telecommunications network.  In addition,
pursuant to such agreement, the Company issued to Frontier 5,000,000 shares of
Clariti common stock as security for payment of the balance, if any, that may
be due to Frontier.  If pursuant to such agreement, Frontier is permitted to
sell the 5,000,000 shares of common stock on the open market, such sale could
cause a material adverse effect on the market price of the Company's common
stock.


Rapid Technological Change

The telecommunications services industry is characterized by rapid
technological change, new product introduction and evolving industry standards.
The Company's success will depend, in significant part, on its ability to make
timely and cost-effective enhancements and additions to its technology and
introduce new services that meet consumer demands. The Company expects new
products and services, and enhancements to existing products and services, to
be developed and introduced in order to compete with its services. The Company
currently is in the process of completing development of a technology that will
permit it to market and deliver a wireless voice messaging service.  The


                                    20

<PAGE>

proliferation of new telecommunications technologies may reduce demand for
wireless voice messaging. There can be no assurance that the Company will have
the financial resources to or will be successful in developing and marketing
new services or enhancements to services that respond to these or other
technological changes or evolving industry standards. In addition, there can be
no assurance that the Company will not experience difficulties that could delay
or prevent the successful development, introduction and marketing of its
existing services or that its new services or enhancements thereto will
adequately meet the requirements of the marketplace and achieve market
acceptance. Delay in the introduction of new services or enhancements,
inability to develop such new services or enhancements or the failure of such
services or enhancements to achieve market acceptance could have a material
adverse effect on the Company's business, financial condition and results of
operations.

Market Acceptance of Wireless Voice Messaging Service

The wireless voice messaging segment of the telecommunications industry is an
emerging business characterized by an increasing number of new market entrants
that have introduced or are developing an array of new products and services.
As is typically the case in an emerging industry, demand and market acceptance
for newly introduced products and services are subject to a high level of
uncertainty.  There can be no assurance that substantial markets will develop
for wireless voice messaging in the United States or abroad or that the Company
will be able to achieve significant market acceptance in the United States or
abroad for its wireless voice messaging system.

Dependence Upon Key Personnel

The Company's success is largely dependent upon the efforts and abilities of
some key executive officers, the loss of one or more of whom could have a
material adverse effect. Although the Company expects that it would be able to
locate suitable replacements for these executives if their services were lost,
there can be no assurance it would be able to do so. Accordingly, the loss of
services of any of these individuals could have a material adverse effect on
the Company's business, financial condition and results of operations.  The
Company does not maintain "key man" life insurance on these key executive
officers.

Majority Shareholder

Chadwell Hall Holdings Limited beneficially owns approximately 88.2 million
shares (approximately 70%) of the Company's outstanding Common Stock.  As a
result, this shareholder in general, is able to exercise significant influence
over all matters requiring shareholder approval, including the election of
directors and approval of significant corporate transactions.  Such
concentration of ownership may also have the effect of delaying or preventing a
change in control.

Volatile Stock Price

The Company's common stock is currently traded on the OTC Bulletin Board.  The
market price of the Company's common stock has been highly volatile, relatively
illiquid and may continue to be subject to wide fluctuations in response to


                                    21

<PAGE>

business conditions, quarterly variations in operating results, or other events
or factors. In addition, the company's common stock has been thinly traded and
is not widely held.  There can be no assurance that an active public trading
market for the common stock will be sustained.  In addition, the U.S. stock
market has experienced significant price and volume fluctuations that have
particularly affected the market prices of equity securities of many
telecommunications companies and that often have been unrelated to the
operating performance of such companies. These broad market fluctuations may
adversely affect the market price of the Company's common stock.

Potential Future Dilution

As of June 30, 1999, there were outstanding warrants and options to purchase an
aggregate of 13,198,000 shares of the Company's common stock.  The exercise or
conversion of outstanding stock options or warrants will dilute the percentage
ownership of current stockholders.  Further, the terms upon which the Company
will be able to obtain additional equity capital may be adversely affected
since the holders of the outstanding warrants and options can be expected to
exercise them at a time when the Company would, in all likelihood, be able to
obtain any needed capital on terms more favorable than those provided by the
outstanding warrants and options.


Shares Eligible for Future Sale

As of June 30, 1999, there were 124,235,000 shares of the Company's common
stock outstanding. Assuming the exercise of the outstanding warrants and
options there would be an aggregate of 137,433,000 shares of common stock
outstanding. Approximately 80% of these shares are subject restrictions on
transfer pursuant to the various agreements that transferred such shares to the
holder and/or Rule 144 of the Securities Act of 1933, as amended (the
"Securities Act").  Rule 144 provides that shares of common stock issued in
private transactions, are treated as "restricted securities" as defined under
the Securities Act and in the future may be sold in compliance with Rule 144
under the Securities Act or pursuant to a registration statement filed under
the Securities Act. Rule 144 generally provides that a person holding
restricted securities for a period of one year may sell every three months in
brokerage transactions or market-maker transactions an amount equal to the
greater of (a) one percent (1%) of the Company's issued and outstanding common
stock or (b) the average weekly trading volume of the common stock during the
four calendar weeks prior to such sale.  Rule 144 also permits, under certain
circumstances, the sale of shares without any quantity limitation by a person
who is not an affiliate of the company and who has satisfied a two-year holding
period.  The sale of substantial numbers of such shares, whether pursuant to
Rule 144 or pursuant to a registration statement, may have a depressive effect
on the market price of the Company's common stock.


ANALYSIS OF THE BUSINESS
------------------------
     The following discussion should be read in conjunction with the
Company's consolidated financial statements appearing elsewhere in this
report.



                                    22

<PAGE>

General Operations
------------------
The Company's businesses have operated on the basis of three industry segments;
International Telephony Services, Internet Services and Wireless Messaging.
International Telephony Services consisted of the international long-distance
services provided by GlobalFirst and Mediatel, which filed for voluntary
liqudation on October 11, 1999 (see Recent Developments below). Internet
Services consists of the IP telephony and ISP services provided by MegaHertz-
NKO and NKA.  Wireless Messaging consists of the Company's efforts to develop
and commercialize its wireless voicemail technology. Further description of
these businesses and their operations is included under Item 1, Business,
above.

Recent Developments
-------------------
     On October 11, 1999, at the request of the Company, each of GlobalFirst,
Mediatel and their respective United Kingdom subsidiaries (the "UK Group
Companies") filed for voluntary liquidation under the laws of the United
Kingdom.  This voluntary liquidation was undertaken because the Company
concluded that the UK Group Companies could not pay their debts, including the
advances made by Clariti to GlobalFirst and Mediatel.  A liquidator,  has been
appointed and, subject to the provisions of United Kingdom law, will endeavor
to liquidate the assets of the UK Group Companies. As of June 30, 1999, the UK
Group Companies had aggregate liabilities of $56,391,000 and aggregate assets
of $9,102,000. Such liabilities include approximately $13,688,000 of secured
indebtedness owed to the Company.  Subsequent to June 30, 1999, the Company had
advanced an additional $3,360,000 to Mediatel.  The loss of this amount has
been provided for in the statement of operations for Fiscal 1999.  The Company
has been advised that this indebtedness will constitute a priority claim under
the voluntary liquidation process.  As a result of the liquidation proceedings,
the Company has terminated operations of the UK Group Companies.

     In March 1999 Clariti, GlobalFirst, Mediatel and CHH entered an agreement
with Frontier Corporation together with its subsidiary, Frontel Communications,
Ltd. (collectively, "Frontier") to settle costs incurred by GlobalFirst and
Mediatel for their use of Frontier's telecommunications network up to and
including March 12, 1999 (the "Frontier Settlement Agreement"). Frontier,
GlobalFirst and Mediatel are jointly analyzing the detailed records supporting
the GlobalFirst and Mediatel usage of Frontier's network to identify the
precise amount of the balance due to Frontier, if any ("Balance Due Frontier").
Pursuant to the Frontier Settlement Agreement, Clariti paid to Frontier
$3,000,000 during March 1999 against the Balance Due Frontier and issued to
Frontier 5,000,000 shares of the Company's restricted common stock valued at
$11,250,000 as security for payment of the remaining Balance Due Frontier.
Within 5 business days after the Balance Due Frontier is determined by
agreement among the parties or by arbitration, CHH must pay such amount to
Frontier, and Frontier must then transfer the 5,000,000 shares of Clariti
common stock to CHH.  At any time prior to the purchase of the Clariti stock by
CHH, Clariti (or its designee) may purchase any portion or all of the stock for
an amount equal to the Balance Due Frontier.  In the event of a default under
the Frontier Settlement Agreement, Frontier may, at its option, sell a
sufficient amount of the Clariti shares in order to satisfy the Balance Due
Frontier.  If Frontier sells all 5,000,000 shares of Clariti common stock for
less than the Balance Due Frontier, GlobalFirst and Mediatel (but not Clariti)


                                    23

<PAGE>

are contingently liable to pay Frontier the remaining Balance Due Frontier.
Once Frontier collects the Balance Due Frontier (whether by sale of Clariti
stock or payment made by any of the parties), Frontier must surrender any
remaining shares of the Clariti stock to Clariti.  On or about June 17, 1999,
Clariti, together with GlobalFirst, Mediatel and CHH filed a demand for
arbitration with the American Arbitration Association (case no. 50 N 181
0021399) against Frontier concerning Frontier's obligations arising under the
Frontier settlement agreement.


Results of Operations
---------------------
     As of June 30, 1999 and for Fiscal 1999, GlobalFirst, Mediatel and their
respective subsidiaries were accounted for under the equity method of
accounting because the Company's control was deemed to be temporary due to the
fact that the groups filed for voluntary liquidation on October 11, 1999.
Equity method accounting was also applied to Telnet and its subsidiaries
because the Company's control was temporary due to the sale of Telnet in
February 1999.


Year Ended June 30, 1999
vs. Year Ended June 30, 1998
----------------------------
     For the year ended June 30, 1999, the Company incurred a net loss of
$202,412,000 ($2.97 per share) on revenue of $251,000 compared to a net loss of
$4,248,000 ($0.20 per share) on no revenue for Fiscal 1998". The $198,164,000
increase in net loss is primarily due to the substantial losses incurred by the
Company's unconsolidated foreign subsidiaries, including the write-off of
$152,214,000 of goodwill recognized in accounting for the acquisitions of
GlobalFirst and Mediatel. Such goodwill was written off due to the October 11,
1999 filing of voluntary liquidation of GlobalFirst, Mediatel and their
respective subsidiaries (see Recent Developments).

     Fiscal 1999 revenue of $251,000 and gross profit of $91,000 both reflect
the operations of MegaHertz-NKO for the period from May 7, 1999 (acquisition
date) to June 30, 1999. Prior to the acquisition of MegaHertz-NKO, the Company
had no significant revenues from consolidated subsidiaries. The Company
anticipates revenue growth in the future as a result of the acquisition of
MegaHertz-NKO and NKA in October 1999.

     General and administrative expenses increased from $4,223,000 in Fiscal
1998 to $13,698,000 in Fiscal 1999.  The $9,475,000 increase is primarily due
to higher research and development expenses for work on the wireless voice
messaging system, expansion of the Company's staff as a result of the Company's
rapid growth and to general and administrative expenses incurred by MegaHertz-
NKO from May 7, 1999 (date of acquisition) to June 30, 1999.

     Equity in losses of unconsolidated subsidiaries reflects the Company's
100% interest in the operating losses of the following International Telephony
Services businesses:
     - GlobalFirst, from December 8, 1998 (date of acquisition)
  to June 30, 1999



                                    24

<PAGE>

     - Telnet, from December 8, 1998 (date of acquisition) to February 3, 1999
  (date of sale)
     - Mediatel, from March 16, 1999(date of acquisition) to June 30, 1999

The high level of such operating losses reflects International Telephony
Services' strategy of gaining market share prior to building a network by
aggressively pricing its prepaid calling cards and other telecommunications
services.  In addition, it reflects International Telephony Services' strategy
to change from primarily a sales and marketing focused operation to developing
a network for carrier services in the United Kingdom and Western Europe.  Such
development entailed a high cost of overhead. The losses from unconsolidated
subsidiaries were a significant factor in the Company's decision to file for
voluntary liquidation of GlobalFirst, Mediatel and their respective
subsidiaries.


Liquidity and Capital Resources
-------------------------------
     At June 30, 1999, the Company's total liabilities exceeded its total
assets by $34,536,000.  This situation has resulted from the Company's decision
to place GlobalFirst and Mediatel into voluntary liquidation.  This decision
precipitated the write-off of $152,214,000 in goodwill related to the
acquisitions of the respective companies. The net liabilities of GlobalFirst
and Mediatel ($47,289,000) have remained on the Company's June 30, 1999 balance
sheet because the voluntary liquidation proceedings were not initiated until
October 11, 1999.  The Company expects such proceedings to discharge such
liabilities.  If the net liabilities of GlobalFirst and Mediatel had been
excluded from the June 30, 1999 balance sheet, the Company would have had a
stockholders' equity balance of $12,753,000.

     At June 30, 1999, the Company had a working capital deficit of $50,376,000
(including a cash balance of $3,284,000).  As noted above, current liabilities
includes $47,289,000 in net liabilities of GlobalFirst and Mediatel on the
Company's June 30, 1999 balance sheet because the voluntary liquidation
proceedings were not initiated until October 11, 1999. During Fiscal 1999,
improvements to consolidated working capital included the sale of 2,800,000
shares of common stock to third party investors for proceeds of $4,875,000, net
of commissions.  However, this working capital improvement was more than offset
by use of cash in operations and for advances to unconsolidated foreign
subsidiaries during Fiscal 1999.

     Management of the Company continues to make concerted efforts to raise
additional capital through the sale of common stock.  Since June 30, 1999, the
Company has raised an additional $10,933,000 in capital through private
placement of its common stock.  In addition, the Company has received  firm
commitments for an additional $16,166,000 of equity funding to be received
during October and November 1999.

     Management believes that these funds will enable the Company to complete
the process of developing its Digital Voice Messaging System and continue to
fund expected negative cash flows and capital expenditures related to the
growth of MegaHertz-NKO for the remainder of the current fiscal year. The
Company currently expects to attempt to re-enter the European
telecommunications market using some or all of the UK Group Companies' assets
and employees. The Company may however choose to exit the market altogether.


                                    25
<PAGE>

     Management is aware however that significant additional funding will be
required beyond its fiscal year-end to launch the Wireless Voice Messaging
System in specified target markets and to meet expected negative operating cash
flows and capital expenditure plans.  There can be no assurances that such
funding will be generated or available, or if available, on terms acceptable to
the Company.

Year 2000
---------
     In the past a number of computer software programs were written using two
digits rather than four digits to determine the applicable year.  As a result,
date-sensitive computer software may recognize a date using "00" as the year
1900 rather than the year 2000.  This could result in major system failures or
miscalculations, and is generally referred to as the "Year 2000" problem.
Management believes that all of Clariti's digital messaging systems are Year
2000 compliant.  In particular, the software being developed for use in the
Digital Voice Messaging System has been designed specifically to be Year 2000
compliant.


     The Company has completed its analysis of Megahertz-NKO's Year 2000
readiness.  MegaHertz-NKO has substantially completed some minor modifications
at a cost of less than $50,000.  It now appears that MegaHertz-NKO is Year 2000
compliant.

     Clariti also plans to assess the readiness of its significant vendors and
financial institutions for the Year 2000 issue. Contingency plans will be
developed in the event that business-critical vendors and financial
institutions do not provide the Company with satisfactory evidence of their
readiness to handle Year 2000 issues.

     Management does not believe the costs related to Year 2000 compliance,
including the costs relating to assessing the Year 2000 readiness of vendors
and financial institutions, will be material to its financial position or
results of operations.  However, such costs are based on management's best
estimates.  Unanticipated failures by critical vendors and financial
institutions as well as failure by the Company to satisfactorily execute its
own compliance could have a material adverse effect on Clariti's financial
position and results of operations.  As a result, there can be no assurance
that these forward-looking estimates will be achieved and the actual cost and
vendor compliance could differ materially from those plans, resulting in
material financial risk.



ITEM 7.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The Consolidated Financial Statements of the Company, including the notes
thereto, together with the report of independent certified public accountants
thereon, are presented beginning at page F-1.  Such consolidated financial
statements are hereby incorporated by reference into this Item 7.




                                    26



<PAGE>

               CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD.

                       INDEX TO FINANCIAL STATEMENTS

                                                                     PAGE(S)
                                                                  ------------

          A.   Independent Auditors' report on the consolidated
                financial statements for the year ended
                June 30, 1999                                         F-1

          B.   Consolidated Balance Sheet at June 30, 1999            F-2

          C.   Consolidated Statements of Operations for the
                years ended June 30, 1999 and 1998                    F-3

          D.   Consolidated Statement of Stockholders' Equity
                for the year ended June 30, 1999                      F-4

          G.   Consolidated Statements of Cash Flows for the
                years ended June 30, 1999 and 1998                 F-5 to F-6

          H.   Notes to Consolidated Financial Statements          F-7 to F-21














                                    27




















<PAGE>




                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors
Clariti Telecommunications International, Ltd.
Philadelphia, Pennsylvania

We have audited the accompanying consolidated balance sheet of Clariti
Telecommunications International, Ltd. and subsidiaries as of June 30, 1999,
and the related consolidated statement of stockholder s' equity for the year
then ended, and the related consolidated statements of operations and cash
flows for the twelve months ended June 30, 1999 and the eleven months ended
June 30, 1998.  These consolidated financial statements are the responsibility
of the Company's management.  Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards.  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 financial
statements.  An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation.  We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Clariti
Telecommunications International, Ltd. and subsidiaries as of June 30, 1999,
and the results of their operations and cash flows for the year then ended in
conformity with generally accepted accounting principles.



                                    s/ COGEN SKLAR LLP
                                    ------------------
                                    COGEN SKLAR LLP


Bala Cynwyd, Pennsylvania
October 8, 1999
(except for Note 13, as to
which the date is October 12, 1999)



                                       F-1








<PAGE>

PART I. - FINANCIAL STATEMENTS.

         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEET
                               JUNE 30, 1999
                     (Dollars and Shares in Thousands)

              ASSETS

     CURRENT ASSETS
       Cash and cash equivalents                       $   3,284
       Trade accounts receivable                             286
       Refundable taxes                                      408
       Prepaid expenses and other current assets             112
                                                       ---------
                                                           4,090

     PROPERTY AND EQUIPMENT, NET                           3,244
     INTANGIBLE ASSETS, NET                               12,596
                                                       ---------
     TOTAL ASSETS                                      $  19,930
                                                       =========

              LIABILITIES AND STOCKHOLDERS'EQUITY

     CURRENT LIABILITIES
       Accounts payable - trade                        $   4,653
       Accrued expenses and other current liabilities        524
       Note payable to related party                       2,000
       Excess of net liabilities over assets of
        unconsolidated subsidiaries                       47,289
                                                       ---------
     TOTAL LIABILITIES                                    54,466
                                                       ---------

              COMMITMENTS AND CONTINGENCIES

              STOCKHOLDERS' DEFICIT

     COMMON STOCK
      $.001 par value; authorized 300,000 shares;
      issued and outstanding, 124,235 shares                 124
     WARRANTS OUTSTANDING                                  2,322
     ADDITIONAL PAID-IN-CAPITAL                          213,735
     ACCUMULATED DEFICIT                                (252,065)
     CUMULATIVE TRANSLATION ADJUSTMENTS                    1,348
                                                       ---------
     TOTAL STOCKHOLDERS' DEFICIT                        ( 34,536)
                                                       ---------
     TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT        $ 19,930
                                                       =========

The accompanying notes are an integral part of these consolidated financial
statements.


                                   F-2

<PAGE>

        CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                       YEARS ENDED JUNE 30, 1999 AND 1998
          (Dollars and Shares in Thousands, Except Per Share Amounts)


                                              Fiscal        Fiscal
                                               1999          1998
                                            ---------     ---------
REVENUE                                     $     251      $      -
COST OF REVENUE                                   160             -
                                            ---------      --------
GROSS PROFIT (LOSS)                                91             -

General and administrative                     13,698         4,223
Loss from unconsolidated subsidiaries          54,987             -
Write-off of goodwill                         152,214             -
                                            ---------      --------
LOSS FROM OPERATIONS                         (220,808)      ( 4,223)
                                            ---------      --------
OTHER INCOME (EXPENSE)
 Interest income                                  441            33
 Interest expense                            (     45)      (    58)
                                            ---------      --------
                                                  396       (    25)
                                            ---------      --------

NET LOSS                                    $(220,412)     $( 4,248)

OTHER COMPREHENSIVE INCOME:
  Foreign currency translation adjustment       1,348             -
                                            ---------      --------

COMPREHENSIVE LOSS                          $(219,064)     $( 4,248)
                                            =========      ========
WEIGHTED AVERAGE NUMBER OF SHARES
 OUTSTANDING                                   74,318        20,906

BASIC AND DILUTED LOSS PER COMMON SHARE      $(  2.97)     $(   .20)
                                             ========      ========



The accompanying notes are an integral part of these consolidated financial
statements.




                                    F-3








<PAGE>

        CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                            YEAR ENDED JUNE 30, 1999
                       (Dollars and Shares in Thousands)


                                                  COMMON STOCK
                                     -------------------------------------
                                      NUMBER           WARRANTS    ADD'L.
                                        OF               OUT-     PAID-IN
                                      SHARES   AMOUNT  STANDING   CAPITAL
                                     -------   ------  --------  ---------
BALANCES, JUNE 30, 1998               23,697    $ 24    $1,843   $ 31,366
Year ended June 30, 1999:
  Common stock issued for:
   Acquisition of GlobalFirst         76,572      77         -     91,727
   Partial settlement of liability
    to Frontier                        5,000       5         -     11,245
   Acquisition of MegaHertz-NKO        4,480       5         -     13,294
   Settlement with Former Chairman         7       -         -         18
   Accrued compensation                    5       -         -         12
  Common stock issued for cash         2,500       2         -      4,998
  Commission on sale of common
   stock                                   -       -         -    (   500)
  Exercise of common stock warrants      300       -    (  136)       511

Common stock warrants issued for:
   Commission on sale of stock             -       -       195    (   195)
   Expenses                                -       -       187          -
  Sale of Telnet                           -       -         -     28,703
                                     -------    ----    ------   --------
BALANCES, JUNE 30, 1999              124,235    $124    $2,322   $213,735
                                     =======    ====    ======   ========


                                                      CURRENCY
                                    ACCUMULATED      TRANSLATION
                                      DEFICIT        ADJUSTMENT
                                    -----------      -----------
BALANCES, JUNE 30, 1998              $( 31,653)       $      -
Year ended June 30, 1999:
  Net loss                            (220,412)              -
  Currency translation adjustment            -           1,348
                                     ---------        --------
BALANCES, JUNE 30, 1999              $(252,065)       $  1,348
                                     =========        ========


The accompanying notes are an integral part of these consolidated financial
statements.



                                    F-4




<PAGE>
        CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                      YEARS ENDED JUNE 30, 1999 AND 1998
                             (Dollars in Thousands)


                                                  Fiscal        Fiscal
                                                   1999          1998
                                                ----------    ---------
CASH FLOWS FROM OPERATING ACTIVITIES
 Net loss                                       $(220,412)    $( 4,248)
 Adjustments to reconcile net loss to net
  cash flows used in operating activities:
   Loss from unconsolidated subsidiaries           54,987            -
   Write-off of goodwill                          152,214            -
   Depreciation and amortization                      701           61
   Other                                              645          589
 Change in assets and liabilities which
  increase (decrease) cash, net of effects
  of acquisition:
     Trade accounts receivable                         21            -
     Other receivables                                  -            -
     Refundable taxes                                   -            -
     Prepaid expenses and other current assets        238           43
     Accounts payable                               3,738          253
     Accrued expenses and other current
      liabilities                                     297           33
     Deferred revenue                            (      3)           -
                                                ---------     --------
 Net cash used in operating activities           (  7,574)     ( 3,269)
                                                ---------     --------

CASH FLOWS FROM INVESTING ACTIVITIES
 Acquisition of GlobalFirst                         1,349            -
 Investment in unconsolidated subsidiaries       ( 15,802)           -
 Divestment of Telnet                            (    461)           -
 Acquisition of Mediatel                               19            -
 Acquisition of MegaHertz-NKO                          81            -
 Investment in equipment and patent              (    227)     (   295)
                                                ---------     --------
 Net cash received from (used in) investing
  activities                                     ( 15,041)     (   295)
                                                ---------     --------




                                   F-5











<PAGE>
        CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                    YEARS ENDED JUNE 30, 1999 AND 1998
                          (Dollars in Thousands)


                                                  Fiscal        Fiscal
                                                   1999          1998
                                                ----------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES
 Principal payment on note payable to
  related party                                  (  1,000)           -
 Sale of common stock for cash                     25,475        2,590
 Commission on sale of common stock              (    967)     (    90)
 Sale of preferred stock for cash                       -          575
 Commission on sale of common stock                     -      (    58)
 Proceeds from loan payable                             -          250
                                                ---------     --------
Net cash received from (used in) financing
  activities                                       24,508        3,267
                                                ---------     --------

NET CHANGE IN CASH AND EQUIVALENTS                  1,893      (   297)

CASH AND EQUIVALENTS, BEGINNING OF PERIOD           1,391        1,688
                                                ---------     --------
CASH AND EQUIVALENTS, END OF PERIOD             $   3,284     $  1,391
                                                =========     ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Cash paid during the period:
   Interest                                     $       -     $      2
   Income taxes                                 $       -     $      -

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
 FINANCING ACTIVITIES
  Common stock issued in partial settlement of
   liability to Frontier Corp.                  $  11,250     $      -
  Note receivable received as payment for
   the sale of Telnet                           $  21,000     $      -
  Cancellation of note receivable as partial
   consideration for acquisition of Mediatel    $  21,000     $      -
  Note payable issued as partial consideration
   for acquisition of Mediatel                  $   3,000     $      -
  Common stock issued for retirement
   of Series B Preferred stock                  $       -     $  3,322
  Common stock issued for retirement
   of Series D Preferred stock                  $       -     $    517
  Common stock issued for repayment
   of loans payable                             $       -     $    250
  Common stock issued in acquisition
   of minority interest of subsidiary           $       -     $    200
  Issuance of common stock warrants
   for prepaid consulting fees                  $       -     $    326


The accompanying notes are an integral part of these consolidated financial
statements.
                                      F-6
<PAGE>
        CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED JUNE 30, 1999 AND 1998



NOTE 1 - HISTORY AND NATURE OF THE BUSINESS

Clariti Telecommunications International, Ltd. ("Clariti" or the "Company") is
a diversified international telecommunications company with businesses that
cover voice, data, Internet and wireless communications.

The Company was originally formed in February 1988 as the successor to a music
and recording studio business owned and operated by the Company's current
Chairman of the Board and President. In 1995, the Company began shifting its
focus to telecommunications, and as a result, no longer has a significant
interest in the music and recording studio business. During Fiscal 1999, the
Company took several steps toward expanding its presence in the
telecommunications business, including the acquisitions of GlobalFirst Holdings
Limited ("GlobalFirst") in December 1998 and Mediatel Global Communications
Limited ("Mediatel") in March 1999 (see Note 3).GlobalFirst is incorporated in
the United Kingdom and owns a number of subsidiaries operating in both the
United Kingdom and Western Europe (together, the "GlobalFirst Group").
Mediatel is incorporated in the United Kingdom and owns a number of
subsidiaries operating therein (together, the "Mediatel Group").  At the time
of their acquisitions, both groups were telecommunications resellers operating
in the residential, commercial and international calling card business sectors.
As part of the GlobalFirst acquisition, the Company also acquired Telnet
Products and Services Limited. ("Telnet") and its subsidiaries (together, the
"Telnet Group"), which operated over 100 public call offices ("PCO's")
throughout Europe.  Telnet was subsequently sold in February 1999 (see Note 3).

As of October 11, 1999, the Company filed for voluntary liquidation for
GlobalFirst, Mediatel and their respective subsidiaries and ceased operation of
its International Telephony Services business.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Fiscal Year End
---------------
On June 30, 1998, the Company changed its fiscal year end from July 31 to June
30.  As a result, the statements of operations and cash flows for the period
ended June 30, 1998 consist of activity for the eleven month period from August
1, 1997 to June 30, 1998.  In these financial statements, the  twelve month
period ended June 30, 1999 is referred to as Fiscal 1999, and the eleven month
period ended June 30, 1998 is referred to as Fiscal 1998.

Principles of Consolidation and Basis of Presentation
-----------------------------------------------------
The consolidated financial statements include the accounts of the Company and
all wholly-owned subsidiaries where management control is not deemed to be
temporary.  All significant intercompany transactions have been eliminated in
consolidation.



                                      F-7

<PAGE>
        CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED JUNE 30, 1999 AND 1998


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


As of June 30, 1999 and for Fiscal 1999, the GlobalFirst Group, Mediatel Group
and Telnet Group were accounted for under the equity method of accounting. In
the case of the GlobalFirst and Mediatel Groups, equity method accounting was
required because the Company's control was deemed to be temporary due to the
fact that the groups filed for voluntary liquidation on October 11, 1999 (see
Note 14). In the case of the Telnet Group, equity method accounting was
required because the Company's control was temporary due to the sale of Telnet
in February 1999 (see Note 3).

Cash Equivalents
----------------
The Company considers certificates of deposit, money market funds and all other
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.

Concentration of Credit Risk
----------------------------
The Company maintains its cash balances in several major financial
institutions.  Accounts with such institutions generally are insured by
government authorities and/or industry consortiums up to certain maximum
amounts.  During the year the Company may have cash balances in these
institutions in excess of such limits.  At June 30, 1999, cash balances of the
Company and its consolidated subsidiaries were in excess of insurable amounts
by approximately $3,095,000.

Estimates
---------
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates based on management's
knowledge and experience.  Accordingly actual results may differ from those
estimates.

Fair Value of Financial Instruments
-----------------------------------
The Company's financial instruments consist primarily of cash and equivalents,
accounts payable, and accrued expenses. These balances, as presented in the
balance sheet as of June 30, 1999, approximate their fair value because of
their short maturities.

Property and Equipment
----------------------
Property and equipment are recorded at cost, and are depreciated primarily
using the declining balance and straight line methods over estimated useful
lives of 3 to 10 years.


                                      F-8




<PAGE>
        CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED JUNE 30, 1999 AND 1998


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Goodwill
--------
The Company amortizes goodwill on a straight-line basis over a 5-year period.
Goodwill in the consolidated financial statements generally relates to
acquisitions that were made during Fiscal 1999. Recoverability of such goodwill
is evaluated based on the estimated expected future cash flows from the
business operations of the companies acquired in relation to the net book value
of the goodwill. As of October 11, 1999, the Company filed for voluntary
liquidation for GlobalFirst, Mediatel and their respective subsidiaries and
ceased operation of its International Telephony Services business. As a result
, the Company wrote off  all of the goodwill  associated with these
acquisitions (see Note 5).

Foreign Currency Translation
----------------------------
Assets and liabilities of the Company's foreign unconsolidated subsidiaries are
translated at current exchange rates, while revenue and expenses are translated
at average rates prevailing during the year. Translation adjustments are
reported as a component of stockholders' equity.

Research and Development Expenses
---------------------------------
Research and development expenditures are expensed as incurred and totaled
approximately  $2,465,000 and $1,188,000 during Fiscal 1999 and Fiscal 1998,
respectively.

Income Taxes
------------
The Company has adopted FASB Statement No. 109, "Accounting for Income Taxes",
which requires an asset and liability approach to financial accounting and
reporting for income taxes.  Deferred income tax assets and liabilities are
computed annually for temporary differences between financial statement and tax
bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to be realized.  Income tax
expense is the tax payable or refundable for the period plus or minus the
change during the period in deferred tax assets and liabilities.

Comprehensive Income
--------------------
In 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income. This
statement establishes rules for the reporting of comprehensive income and its
components. Comprehensive income consists of net loss and foreign currency
translation adjustments and is presented in the Combined Statements of
operations and comprehensive loss. The Company had foreign currency translation
adjustments of $1,348,000 during Fiscal 1999.


                                      F-9



<PAGE>
        CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED JUNE 30, 1999 AND 1998


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Net Loss Per Common Share
-------------------------
The Company has adopted FASB Statement 128, "Earnings Per Share," which
establishes standards for computing and presenting earnings per share. Under
FASB Statement 128, net loss per common share is based upon the weighted
average number of common shares outstanding during the period. Net loss per
common share after the assumed conversion of potential common shares (warrants,
stock options and convertible debt) was not presented because the effect of
such conversions would be antidilutive.

Accounting for Stock-Based Compensation
---------------------------------------
Compensation costs attributable to stock option and similar plans are
recognized based on any difference between the quoted market price of the stock
on the date of the grant over the amount the employee is required to pay to
acquire the stock (the intrinsic value method under APB Opinion 25).  Such
amount, if any, is accrued over the related vesting period, as appropriate.

The Company has adopted FASB Statement 123, "Accounting for Stock-Based
Compensation," which encourages employers to account for stock-based
compensation awards based on their fair value on their date of grant.  The fair
value method was used to value common stock warrants issued in transactions
with other than employees during the periods presented.  Entities may choose
not to apply the new accounting method for options issued to employees but
instead, disclose in the notes to the financial statements the pro forma
effects on net income and earnings per share as if the new method had been
applied.  The Company has adopted the disclosure-only approach to FASB
Statement 123 for options issued to employees.  See Note 11.

Recently Issued Accounting Pronouncements
-----------------------------------------
In April 1998,  the AICPA Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities, "
which requires that costs of start-up activities be expensed as incurred.  The
Company already complies with the accounting and disclosure requirements of SOP
98-5 with regard to its Wireless Voice Messaging development operations.  The
Company has no other start-up operations.

In June 1998, the FASB issued Statement 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. The reporting and
disclosure requirements of FASB Statement 133 are effective for periods
beginning after June 15, 1999.  FASB Statement 133 is not currently applicable
to the Company as it does not use derivative instruments, nor does it engage in
hedging activities.


                                      F-10




<PAGE>
        CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED JUNE 30, 1999 AND 1998


NOTE 3 - ACQUISITIONS AND DISPOSITIONS

Acquisition of GlobalFirst
--------------------------
On December 8, 1998 Clariti acquired 100% of the capital stock of GlobalFirst,
a privately held telecommunications firm based in the United Kingdom, from
Chadwell Hall Holdings Ltd. ("CHH") for 76,571,500 shares of Clariti's
restricted common stock valued at $134,000,000. The transaction was accounted
for using the purchase method of accounting.  Although the original Clariti
shareholders had less than a majority ownership after the GlobalFirst
acquisition was completed, Clariti management has maintained management control
of the operations.  The Company allocated all purchase price in excess of fair
market value of tangible net liabilities ($135,065,000) to goodwill. As of
October 11, 1999, the Company filed for voluntary liquidation for GlobalFirst,
Mediatel and their respective subsidiaries and ceased operation of its
International Telephony Services business.  As a result, all of the goodwill
associated with the acquisition of GlobalFirst, except that goodwill
attributable to the acquisition of Telnet of $15,423,000, was written off in
Fiscal 1999 (see Note 5).  Goodwill associated with the acquisition of Telnet
was eliminated with the sale of Telnet in February 1999 (see below).  In
addition, GlobalFirst and Telnet have been accounted for under the equity
method because the Company's control was deemed to be temporary.


Sale of Telnet
--------------
On February 3, 1999, the Company completed the sale of all of the outstanding
capital stock of Telnet to CHH ("Telnet Share Purchase and Sale Agreement"). In
return, CHH issued to Clariti a demand note in the amount of $21,000,000
("$21,000,000 Note"), the estimated value of Telnet at the time it was acquired
by Clariti on December 8, 1998. The $21,000,000 Note carried a fixed interest
rate of 4.62% and was payable, including accrued interest thereon, within 10
days of demand by Clariti.  The $21,000,000 Note was canceled on March 16, 1999
in connection with the Company's acquisition of Mediatel as further described
below.  Clariti realized a gain of approximately $3,819,000 on the sale of
Telnet as a result of Telnet's accumulated losses from operations prior to its
sale. However, such gain was not recognized in income, but was treated as a
reduction of additional paid-in capital to reflect the fact that Telnet was
purchased from and resold to CHH, the Company's majority shareholder.

Acquisition of Mediatel
-----------------------
On March 16, 1999, Clariti acquired all of the outstanding capital stock of
Mediatel from CHH for approximately $24,000,000. Consideration paid for
Mediatel consisted of cancellation of the $21,000,000 Note received upon the
sale of Telnet, including accrued interest, and the issuance of a promissory
note payable to CHH in the amount of $3,000,000 (the "$3,000,000 Note"). The
$3,000,000 Note carries a fixed interest rate of 6.5% and is payable, including



                                      F-11


<PAGE>
        CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED JUNE 30, 1999 AND 1998


NOTE 3 - ACQUISITIONS AND DISPOSITIONS (continued)

any accrued interest thereon, on March 16, 2000. On April 7, 1999 Clariti
prepaid $1 million against the principal balance of the $3,000,000 Note. As of
June 30, 1999, there was $42,000 of accrued interest on the remaining balance
of the $3,000,000 Note.

The Mediatel acquisition was accounted for using the purchase method of
accounting. The Company allocated all of the purchase price in excess of fair
market value of tangible net liabilities ($31,790,000) to goodwill. As of
October 11, 1999, the Company filed for voluntary liquidation for GlobalFirst,
Mediatel and their respective subsidiaries and ceased operation of its
International Telephony Services business.  As a result, all of the goodwill
associated with the acquisition of Mediatel was written off in Fiscal 1999 (see
Note 5). In addition, Mediatel has been accounted for under the equity method
because the Company's control was deemed to be temporary.

Acquisition of MegaHertz-NKO
----------------------------
On May 7, 1999, the Company acquired all of the outstanding common stock of
MegaHertz-NKO for approximately $13,300,000.  Consideration paid for MegaHertz-
NKO consisted of 5,500,000 shares of Clariti common stock, of which 1,020,000
shares are being held in escrow until certain revenue and gross margin targets
are achieved by MegaHertz-NKO over a 24-month period. In the case of the
MegaHertz-NKO acquisition, the Company has allocated all of the purchase price
in excess of fair market value of tangible net assets to goodwill
($12,701,000), which is being amortized on a straight-line basis over a period
of 5 years.


NOTE 4 - EQUITY IN NET LIABILITIES OF UNCONSOLIDATED SUBSIDIARIES

As further described in Note 13, the GlobalFirst Group of companies and the
Mediatel Group of companies (together, the "UK Group Companies") filed for
voluntary liquidation under the laws of the United Kingdom on October 11, 1999.
As a result, such companies have been accounted for using the equity method
during Fiscal 1999 because the Company's control of such subsidiaries was
deemed to be temporary. The net losses of these companies have been included in
income as incurred during Fiscal 1999.  Summarized financial information of
these companies for Fiscal 1999 follows (dollars in thousands):

Condensed Statement of Operations
     Revenues                    $10,061
     Expenses                     39,125
                                 -------
     Net loss                    $29,064
                                 =======



                                 F-12



<PAGE>
        CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED JUNE 30, 1999 AND 1998


NOTE 4  EQUITY IN NET LIABILITIES OF UNCONSOLIDATED SUBSIDIARIES (continued)

Condensed Balance Sheet as of June 30, 1999

     Current assets              $  9,056
     Non-current assets                46
                                 --------
                                 $  9,102
                                 ========

     Current liabilities         $ 56,391
     Stockholders' deficit        (47,289)
                                 --------
                                 $  9,102
                                 ========


NOTE 5 - ASSET IMPAIRMENT

As further described in Note 13, the UK Group Companies filed for voluntary
liquidation  on October 11, 1999.  As a result, all goodwill related to the
acquisitions of GlobalFirst and Mediatel, a total of $152,214,000 or $2.05 per
share), was written off in Fiscal 1999. Subsequent advances to Mediatel in the
amount of $3,360,000, or $0.05 per share were also provided for in the losses
from unconsolidated subsidiaries.


NOTE 6  - PROPERTY AND EQUIPMENT

Property and equipment of the Company and its consolidated subsidiaries consist
of the following (dollars in thousands):

                                              June 30
                                                1999
                                             ---------
     Computer equipment and software          $ 2,964
     Office equipment and furniture             1,780
                                              -------
     Total cost                                 4,744
     Less accumulated depreciation             (1,500)
                                              -------
                                              $ 3,244
                                              =======

Depreciation expense was $210,000 and $32,000 for Fiscal 1999 and Fiscal 1998,
respectively.





                                      F-13



<PAGE>
        CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED JUNE 30, 1999 AND 1998


NOTE 7 - INCOME TAXES

There is no income tax benefit for operating losses for Fiscal 1999 and Fiscal
1998 due to the following:

     Current tax benefit - the operating losses cannot be carried back to
                           earlier years.

     Deferred tax benefit - the deferred tax assets were offset by a valuation
                            allowance required by FASB Statement 109,
                            "Accounting for Income Taxes." The valuation
                            allowance is necessary because, according to
                            criteria established by FASB Statement 109, it is
                            more likely than not that the deferred tax asset
                            will not be realized through future taxable income.

Deferred income taxes consist of the following as of June 30, 1999 (dollars in
thousands):


        Loss carry-forwards                    $ 68,843
        Other                                     8,000
        Less valuation allowance                (76,843)
                                               --------
        Net deferred tax asset                 $      -
                                               ========

Under FASB Statement No. 109, the Company has recorded valuation allowances
against the realization of deferred tax assets. The valuation allowances are
based on management's estimates and analysis, which include the impact of tax
laws which may limit the Company's ability to utilize such deferred tax assets.

The use of net operating loss carryforwards in the United States is limited
when there has been a substantial change in ownership (as defined) during a
three year period. Because of the recent changes in ownership of the Company's
common stock, such a change may already have occurred.  In this event, the use
of net operating losses each year would be restricted to the value of the
Company on the date of such change multiplied by the federal long-term rate
("annual limitation"); unused annual limitations may then be carried forward
without this limitation. Also, in the event the business enterprise of the loss
corporation is not continued for the two year period commencing on the change
date, the net operating loss carryforwards may no longer be available.

At June 30, 1999 the Company had net operating loss carryforwards of
approximately $191,230,000 which if not used will expire primarily during the
years 2005 through 2014.





                                      F-14


<PAGE>
        CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED JUNE 30, 1999 AND 1998


NOTE 8 - COMMITMENTS AND CONTINGENCIES

Leases
------
Some of the Company's operations use leased facilities and equipment consisting
of administrative offices, office equipment and automobiles.  Some of the
leases contain provisions for lease renewal, and also require payment of taxes,
maintenance, insurance and other occupancy expenses.

The following is a schedule of future minimum rental payments for all non-
cancelable operating leases that have initial or remaining lease terms in
excess of one year at June 30, 1999 (dollars in thousands):

                       Year Ending
                         June 30,
                       -----------
                         2000              $  253
                         2001                 206
                         2002                 136
                         2003                 102
                         2004                 108
                         After 2004           221
                                           ------
                                           $1,026
                                           ======

Rent expense for operating leases in Fiscal 1999 and Fiscal 1998 was $108,000
and $11,000, respectively.

Telecommunication Service Agreements
------------------------------------
The Company has telecommunications service agreements with its service
providers.  These agreements do not contain minute volume commitments.

Employment Agreements
---------------------
The Company maintains employment agreements with several of its executive
officers and other key employees.  Such employment agreements generally
obligate the Company to pay such executives' salaries and provide them with
certain fringe benefits until the expiration of the agreements, or until the
executive resigns voluntarily or is terminated for cause.

Separation Agreement
--------------------
As of April 27, 1995, the Company entered into a Separation Agreement with
Joseph Tarsia, the former Chairman of the Board of Directors of the Company
(the "Former Chairman"). In accordance with the terms of the Separation
Agreement, the Company was released of all obligations, claims and debts due
the Former Chairman.  These obligations, claims and debts were assumed by a
third party investor (the "Investor") in consideration for payment by the
Company of $61,000 in cash and the issuance of 395,000 shares of the

                                      F-15
<PAGE>
        CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED JUNE 30, 1999 AND 1998


NOTE 8 - COMMITMENTS AND CONTINGENCIES (continued)

Company's Series B Preferred Stock valued at $1,977,000.  In addition, the
Investor agreed to purchase the Former Chairman's 1,740,000 shares of the
Company's common stock.  The Separation Agreement required the Company to pay
to the Former Chairman $750 per week until such time as the Investor satisfied
all related obligations due to the Former Chairman.

In July 1998, the Investor completed making all required payments to the Former
Chairman, thus terminating the Company's requirement to make future weekly
payments to the Former Chairman.  As of June 30, 1998 the Company owed the
Former Chairman $43,000 reflecting a total of approximately 57 weeks
during which the Company had failed to make the required payments.  In August
1998, the Company and the Former Chairman agreed to settle such past due
obligations for the issuance of a promissory note to the Former Chairman in the
amount of $43,000 and the issuance of 6,600 shares of the Company's
restricted common stock.  The promissory note bears interest at an annual rate
of 8% and is payable in equal weekly installments of $861 over a period of 52
weeks.

The Company's June 30, 1999 consolidated balance sheet (accrued expenses and
other accrued liabilities) includes a total of $4,000 payable to the
Former Chairman reflecting the balance due on the note payable.  The 6,600
shares of restricted common stock were issued in August 1998 and the balance
due under the note payable was paid off in August 1999. As a result, the
Company has no further obligations to the Former Chairman under the Separation
Agreement.

Legal Proceedings
-----------------
In March 1999 Clariti, GlobalFirst, Mediatel and CHH entered an agreement with
Frontier Corporation together with its subsidiary, Frontel Communications, Ltd.
(collectively, "Frontier") to settle costs incurred by GlobalFirst and Mediatel
for their use of Frontier's telecommunications network up to and including
March 12, 1999 (the "Frontier Settlement Agreement"). Frontier, GlobalFirst and
Mediatel are jointly analyzing the detailed records supporting the GlobalFirst
and Mediatel usage of Frontier's network to identify the precise amount of the
balance due to Frontier, if any ("Balance Due Frontier"). Pursuant to the
Frontier Settlement Agreement, Clariti paid to Frontier $3,000,000 during March
1999 against the Balance Due Frontier and issued to Frontier 5,000,000 shares
of the Company's restricted common stock valued at $11,250,000 as security for
payment of the remaining Balance Due Frontier. Within 5 business days after the
Balance Due Frontier is determined by agreement among the parties or by
arbitration, CHH must pay such amount to Frontier, and Frontier must then
transfer the 5,000,000 shares of Clariti common stock to CHH.  At any time
prior to the purchase of the Clariti stock by CHH, Clariti (or its designee)
may purchase any portion or all of the stock for an amount equal to the Balance
Due Frontier.  In the event of a default under the Frontier Settlement
Agreement, Frontier may, at its option, sell a sufficient amount of the Clariti
shares in order to satisfy the Balance Due Frontier.  If Frontier sells all
5,000,000 shares of Clariti common stock for less than the Balance Due


                                      F-16
<PAGE>
        CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED JUNE 30, 1999 AND 1998


NOTE 8 - COMMITMENTS AND CONTINGENCIES (continued)

Frontier, GlobalFirst and Mediatel (but not Clariti) are contingently liable to
pay Frontier the remaining Balance Due Frontier.  Once Frontier collects the
Balance Due Frontier (whether by sale of Clariti stock or payment made by any
of the parties), Frontier must surrender any remaining shares of the Clariti
stock to Clariti.  On or about June 17, 1999, Clariti, together with
GlobalFirst, Mediatel and CHH filed a demand for arbitration with the American
Arbitration Association (case no. 50 N 181 0021399) against Frontier concerning
Frontier's obligations arising under the Frontier settlement agreement.

The Company is, from time to time, during the normal course of its business
operations, subject to various other litigation claims and legal disputes.  The
Company expects none to have a material adverse impact on its operations;
however, no assurance can be given that an adverse determination of any claim
or dispute would not have an adverse impact on its operations or cash flows
during any given period.


NOTE 9 - RELATED PARTIES

In connection with the Company's acquisition of Mediatel (see Note 3), the
Company issued a promissory payable to CHH, its majority shareholder, in the
amount of $3,000,000.  Such note carries a fixed interest rate of 6.5% and is
payable, including any accrued interest thereon, on March 16, 2000. On April 7,
1999 Clariti prepaid $1 million against the principal balance of the note. As
of June 30, 1999, there was $42,000 of accrued interest on the remaining
$2,000,000 balance of the note.

In the ordinary course of business, the Company's unconsolidated foreign
subsidiaries entered into various transactions with affiliates of CHH.  A
summary of such transactions, all of which were at arms length, is set out
below (dollars in thousands):

                                          Fiscal
                                           1999
                                          ------
      Revenue                             $3,756
      Cost of revenue                     $1,912
      Purchases of equipment              $  389
      Accounts receivable at June 30      $1,560
      Accounts payable at June 30         $2,238
      Loans payable at June 30            $3,520
      Loans receivable at June 30         $2,579




                                      F-17





<PAGE>
        CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED JUNE 30, 1999 AND 1998


NOTE 9 - STOCKHOLDERS' EQUITY

Common Stock
------------
In connection with the Company's acquisition of GlobalFirst (see Note 3),
GlobalFirst's parent, CHH, purchased a total of 11,428,571 shares of Clariti
common stock for $1.75 per share, or $20,000,000.  Commission on this
transaction consisted of $158,000 paid in cash and 206,197 shares of Clariti
stock.  The Company then issued to CHH 76,571,500 shares of common stock as
consideration for GlobalFirst.

During Fiscal 1999, the Company sold a total of 2,840,000 shares of common
stock for proceeds of $4,965,000, net of commissions, to private investors
other than CHH.  Of these amounts, 300,000 shares were issued for $375,000 upon
the exercise by an investor of common stock warrants at $1.25 per share.

On May 7, 1999, the Company issued 4,480,000 shares of common stock as
consideration for the acquisition of MegaHertz-NKO (see Note 3).  An additional
1,020,000 shares are being held in escrow until certain revenue and gross
margin targets are achieved by MegaHertz-NKO over a 24-month period.  Such
contingent shares will not be included in the Company's outstanding shares
until the performance targets have been met.

Warrants
--------
From time to time, the Board of Directors of the Company may issue warrants to
purchase the Company's common stock to parties other than employees and
directors.  Warrants may be issued as an incentive to help the Company achieve
its goals, or in consideration for cash, financing costs or services rendered
to the Company, or a combination of the above, and generally expire within 1 to
5 years from the date of issuance.  The following table summarizes activity for
common stock warrants outstanding during Fiscal 1999:

                                                            Weighted Average
                                 Shares    Exercise Price    Exercise Price
                                  (000)      Per Share         Per Share
----------------------------------------------------------------------------
Warrants outstanding, 6/30/98     1,611     $1.25 - $3.50        $2.11
  Warrants issued                   495     $1.75 - $3.50        $2.02
  Warrants exercised             (  300)        $1.25            $1.25
----------------------------------------------------------------------------
Warrants outstanding, 6/30/99     1,806     $1.50 - $3.50        $2.26
----------------------------------------------------------------------------

The Company has adopted FASB Statement 123, "Accounting for Stock-Based
Compensation," which requires compensation cost associated with warrants issued
to other than employees to be valued based on the fair value of the warrants.
Such fair value was estimated using the Black-Scholes model with the following


                                      F-18



<PAGE>
        CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED JUNE 30, 1999 AND 1998


NOTE 10 - STOCKHOLDERS' EQUITY (continued)

assumptions: no dividend yield, expected volatility of 80%, and a risk-free
interest rate of 5.5%. The Black-Scholes model valued the warrants issued
during Fiscal 1999 at $383,000.

Stock Option Plan
-----------------
The Company, with stockholder approval, has adopted a Stock Option Plan (the
"Plan") which provides for the granting of options to officers, key employees,
certain consultants and others.  Options to purchase the Company's common stock
may be made for a term of up to ten years at the fair market value at the time
of the grant.  Incentive options granted to a ten percent or more stockholder
may not be for less than 110% of fair market value nor for a term of more than
five years.

The aggregate fair market value of the stock for which an employee may be
granted incentive options which are first exercisable in any calendar year
shall not exceed $100 thousand.  The Company has reserved a total of 5 million
shares for issuance under the Plan.  No options have been granted under this
plan through June 30, 1999.  The Plan terminates in November 2001, unless
terminated earlier by the Board of Directors.

Stock Options
-------------
The Company's Board of Directors periodically authorizes the issuance of
options to purchase the Company's common stock to employees and members of the
Board of Directors.  These options may be exercised at the fair market value of
the common stock on the date of the grant and generally carry such other terms
as are outlined in the Company's stock option plan. The following table
summarizes activity for stock options outstanding during Fiscal 1999:

                                                            Weighted Average
                                 Shares    Exercise Price    Exercise Price
                                  (000)      Per Share         Per Share
----------------------------------------------------------------------------
Options outstanding, 6/30/98      3,816    $1.06 - $3.88         $2.37
Options granted                   7,577    $1.50 - $3.38         $2.63
----------------------------------------------------------------------------
Options outstanding, 6/30/99     11,393    $1.06 - $3.88         $2.51
----------------------------------------------------------------------------

The Company applies APB Opinion 25, "Accounting for Stock Issued to Employees,"
and related interpretations in accounting for the issuance of its stock
options.  Accordingly, no compensation cost has been recognized for its stock
options issued during Fiscal 1999 or Fiscal 1998.  Had compensation cost for
the Company's issuance of stock options been determined based on the fair value
at grant dates for options consistent with the method of FASB Statement 123,


                                      F-19



<PAGE>
        CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED JUNE 30, 1999 AND 1998


NOTE 10 - STOCKHOLDERS' EQUITY (continued)

the Company's net loss and net loss per share would have been increased to the
pro forma amounts indicated below.  Fair value amounts were estimated using the
Black-Scholes model with the following assumptions: no dividend yield, expected
volatility of 80%, and a risk-free interest rate of 5.5%.

                                                    Fiscal        Fiscal
                                                     1999          1998
                                                  ----------    ---------
          Net loss ($000)         As reported     $(220,412)    $( 4,248)
                                  Pro forma       $(231,229)    $( 7,175)

          Net loss per share      As reported      $(  2.97)    $(  0.20)
                                  Pro forma        $(  3.11)    $(  0.34)


NOTE 11 - EMPLOYEE BENEFIT PLANS

The Company and its United States subsidiaries sponsor defined contribution
pension plans for their employees in the form of 401(k) plans. GlobalFirst
employees are entitled to have 5 percent of their salaries contributed to a
private pension plan.  None of the Company's other foreign subsidiaries sponsor
pension plans for their employees. Company contributions to such plans are not
material.

The Company pays most of the cost of medical insurance for its United States
employees and for certain senior foreign employees, the cost of which is not
material.  The Company provides no post-retirement medical benefits.


NOTE 12 - SEGMENT INFORMATION

The Company has adopted FASB Statement No. 131, Disclosures About Segments of
an Enterprise and Related Information."  The Company has determined that
segment information is not required to be presented because International
Telephony Services has been placed into liquidation.  All of the Company's
Fiscal 1999 revenues were generated by IP/Internet Services. Substantially all
of the Company's revenues and assets are located in the United States.


NOTE 13 - SUBSEQUENT EVENT

Liquidation of GlobalFirst, Mediatel and Their Subsidiaries

On October 12, 1999, at the request of the Company, each company in the UK
Group Companies filed for voluntary liquidation under the laws of the United
Kingdom.  This voluntary liquidation is being undertaken because the Company
concluded that the UK Group Companies cannot pay their debts.  A liquidator has


                                  F-20


<PAGE>
        CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED JUNE 30, 1999 AND 1998


NOTE 13 - SUBSEQUENT EVENT (continued)

been appointed and, subject to the provisions of United Kingdom law, will
endeavor to liquidate the assets and liabilities of the UK Group Companies. As
of June 30, 1999, the Company was owed approximately $14,688,000 of secured
indebtedness of the UK Group Companies. Subsequent to June 30, 1999, advances
to Mediatel in the amount of $3,360,000, or $0.04 per share were also provided
for in the losses from unconsolidated subsidiaries.

At June 30, 1999, the Company's total liabilities exceeded its total assets by
$34,536,000.  This situation has resulted from the Company's decision to place
GlobalFirst and Mediatel into voluntary liquidation.  This decision
precipitated the write-off of $152,214,000 in goodwill related to the
acquisitions of the respective companies. The net liabilities of GlobalFirst
and Mediatel ($47,289,000) have remained on the Company's June 30, 1999 balance
sheet because the voluntary liquidation proceedings were not initiated until
October 11, 1999.  The Company expects the liquidation to discharge the
liabilities.  If the net liabilities of GlobalFirst and Mediatel had been
excluded from the June 30, 1999 balance sheet, the Company would have had a
stockholders' equity balance of $12,753,000.

Since June 30, 1999, the Company has received commitments for the purchase of
additional shares of common stock and warrants in the amount of $27,000,000, of
which $10,933,000 had been received as of the report date.  The balance of the
commitment will be received in October and November 1999. Management has
prepared projections which reflect cash requirements through the end of Fiscal
2000 amounting to $12,000,000 to $16,000,000.  The Company anticipates that the
funds committed will be sufficient to fund its operations through June 30,
2000.

Acquisition of NKA Communications

Subsequent to the date of the report, the Company completed the acquisition of
all of the outstanding common stock of NKA Communications Pty., Ltd. ("NKA"),
an Australian IP telephony company, for consideration valued at approximately
$3,558,000. Consideration paid for NKA consisted of 1,500,000 shares of Clariti
common stock, of which 350,000 shares are being held in escrow until certain
revenue and gross margin targets are achieved by NKA over a 24-month period.





                                  F-2

<PAGE>

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

     On December 18, 1998, the Company, with the approval of its board of
     directors, engaged the accounting firm of PricewaterhouseCoopers LLP
     ("PwC") as independent accountants for the Company for the year ending
     June 30, 1999.  The work of Cogen Sklar LLP ("Cogen Sklar") was terminated
     coincident with the engagement of PwC.  During the fiscal periods
     ended June 30, 1998 and July 31, 1997, and the quarter ended September 30,
     1998, there were no disagreements with Cogen Sklar on any matter of
     accounting principles or practices, financial statement disclosure, or
     auditing scope or procedure, which disagreements if not resolved to the
     satisfaction of Cogen Sklar would have caused them to make reference
     thereto in their report on the financial statements for such periods, or
     any reportable events (as defined in Regulation S-K Item 304(a)(1)(v)).
     Cogen Sklar's report on the financial statements for the last two
     years contained no adverse opinion or disclaimer of opinion and was not
     qualified or modified as to uncertainty, audit scope or accounting
     principles.  The Company requested that Cogen Sklar furnish it with a
     letter addressed to the SEC stating whether it agrees with the above
     statements.  A copy of Cogen Sklar's letter to the SEC, dated December 22,
     1998, is included as Exhibit 16.1 to this Form 10-KSB.

     On September 7, 1999 PwC resigned as the Company's independent
     accountants.  PwC's decision to resign was their own.  Their decision to
     resign was made with no prior notice given to the Company.  The Company
     engaged PwC on December 18, 1998 to audit its consolidated financial
     statements for the year ending June 30, 1999. As a result, PwC has not
     reported on the Company's consolidated financial statements.  PwC has
     audited the consolidated financial statements of GlobalFirst for the years
     ended June 30, 1998 and 1997. GlobalFirst was acquired by the Company on
     December 8, 1998 in a transaction accounted for as a reverse acquisition.
     GlobalFirst's audited financial statements for the years ended June 30,
     1998 and 1997, including PwC's report thereon, were filed as an exhibit to
     a Form 8-K/A filed by the Company on February 22, 1999.  PwC's report on
     such financial statements contained no adverse opinion or disclaimer of
     opinion and was not qualified or modified as to uncertainty, audit scope
     or accounting principles.  PwC also has audited the consolidated financial
     statements of Mediatel for the year ended June 30, 1998.  Mediatel was
     acquired by the Company on March 16, 1999.  Mediatel's audited financial
     statements, including PwC's report thereon, were filed as an exhibit to a
     Form 8-K/A filed by Registrant on June 1, 1999. PwC's report on such
     financial statements contained no adverse opinion or disclaimer of opinion
     and was not qualified or modified as to uncertainty, audit scope or
     accounting principles.  In connection with the incomplete audit of
     the Company's consolidated financial statements for the year ended June
     30, 1999, there were no disagreements with PwC on any matter of accounting
     principles or practices, financial statement disclosure, or auditing scope
     or procedure, which disagreements if not resolved to the satisfaction of
     PwC would have caused them to make reference thereto in their report on
     the financial statements for such period. In connection with the audits of
     GlobalFirst and Mediatel referred to above, there were no disagreements
     with PwC on any matter of accounting principles or practices, financial
     statement disclosure, or auditing scope or procedure, which disagreements
     if not resolved to the satisfaction of PwC would have caused them to make


                                    28
<PAGE>

     reference thereto in their report on the financial statements for such
     periods. PwC informed the Company that they had resigned because, in
     their opinion, internal controls necessary to develop reliable financial
     statements for the year ended June 30, 1999 for its recently acquired
     United Kingdom subsidiaries, GlobalFirst and Mediatel, were not adequate
     at the time of their resignation.  PwC expressed concern regarding the
     ability of GlobalFirst and Mediatel to ensure the adequate prevention and
     detection of fraud with respect to cash collections, properly allocate
     cash receipts to customer accounts, properly record sales, properly record
     fixed assets, and properly record compensation to employees and directors.
     PwC expressed no such concerns regarding internal controls over the
     Company or other subsidiary operations.  The Company acquired GlobalFirst
     on December 8, 1998.  On February 3, 1999, Registrant sold Telnet, a
     wholly owned subsidiary of GlobalFirst whose operations comprised the vast
     majority of GlobalFirst's revenues and expenses for the years ended June
     30, 1998 and 1997. A portion of the internal control issues cited by PwC
     relate to Telnet, a business owned by the Company for a period of less
     than two months. In spite of the fact that the Company had owned
     GlobalFirst for only nine months at the time of PwC's resignation (seven
     months as of June 30, 1999) and Mediatel for only six months at the time
     of PwC's resignation (three months as of June 30, 1999), the Company has
     undertaken initiatives to improve internal controls over the remaining
     operations of GlobalFirst and Mediatel, including a substantial overhaul
     of the senior management team.  Specifically, the Company has hired a new
     Managing Director for all of its European operations and has replaced the
     GlobalFirst Finance Director with a Chartered Accountant.  The Company
     authorized PwC to respond fully to the inquiries of the successor
     accountant, when engaged, concerning the internal control issues.  The
     Company requested that PwC furnish it with a letter addressed to
     the SEC stating whether it agrees with the above statements.  PwC's
     response provided some clarifying comments.  A copy of PwC's letter to the
     SEC, dated September 22, 1999, is included as Exhibit 16.2 to this Form
     10-KSB.

     The Company re-engaged Cogen Sklar as its independent accountants on
     September 13, 1999. Cogen Sklar engaged another independent accounting
     firm based in the United Kingdom, Morison Stoneham, to assist it in the
     audit of the Company's United Kingdom subsidiaries.  Cogen Sklar had
     previously been the Company's independent accountants for fiscal years
     ended in 1992 through 1998.  As such, the Company has within the last two
     years consulted Cogen Sklar regarding the application of accounting
     principles to transactions included in the Company's audited financial
     statements for years ended prior to 1999 and the type of audit opinion to
     be rendered on the Company's audited financial statements for fiscal
     years ended prior to 1999. For the year ended June 30, 1999, the Company
     has not consulted with Cogen Sklar regarding the application of accounting
     principles to a specific completed or contemplated transaction, or the
     type of audit opinion that might be rendered on the Company's June 30,
     1999 financial statements, and neither written nor oral advice was
     provided that was an important factor considered by the Company in
     reaching a decision as to any accounting, auditing or financial reporting
     issue. In a Form 8-K filed on September 13, 1999, the Company disclosed
     that its previous accountants, PwC, had resigned because, in its opinion,
     internal controls necessary to develop reliable financial statements for
     the year ended June 30, 1999 for the Company's recently acquired United
     Kingdom subsidiaries are not adequate at the time of their resignation.

                                    29

<PAGE>

     The Company advised Cogen Sklar of the internal control issues cited by
     PwC.  Cogen Sklar has provided the Company with no oral or written
     comments regarding such issues. The Company requested Cogen Sklar to
     review the disclosures made in this Form 10-KSB and provide it with a
     letter addressed to the SEC containing any new information, clarification
     of the Company's expression of its views, or the respects in which it does
     not agree with the statements made in this Form 8-K.  Cogen Sklar has
     advised the Company that it will have no such comments to provide and
     therefore does not plan to provide such a letter.


                                 PART III


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

     Information required to be disclosed in Item 9 will be provided in an
amendment to this Form 10-KSB within 120 days of the end of the Company's
fiscal year.



ITEM 10.     EXECUTIVE COMPENSATION

     Information required to be disclosed in Item 10 will be provided in an
amendment to this Form 10-KSB within 120 days of the end of the Company's
fiscal year.



ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information required to be disclosed in Item 11 will be provided in an
amendment to this Form 10-KSB within 120 days of the end of the Company's
fiscal year.



ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information required to be disclosed in Item 9 will be provided in an
amendment to this Form 10-KSB within 120 days of the end of the Company's
fiscal year.







                                    30





<PAGE>

                                 PART IV


ITEM 13.     EXHIBITS AND REPORTS ON FORM 8-K

     The following exhibits marked with an * are filed herewith.  All other
exhibits were previously filed by the Company:

2.1   Share Exchange Agreement for the acquisition of GlobalFirst Holdings
      Limited (a)
2.2   Share Purchase and Sale Agreement for the sale of Telnet Products &
      Services Limited. (b)
2.3   Share Exchange Agreement for the acquisition of Mediatel Global
      Communications Limited (c)
2.4   Amendment to Share Exchange Agreement for the acquisition of Mediatel
      Global Communications Limited (c)
2.5   Share Exchange Agreement for the Acquisition of MegaHertz-NKO, Inc. (d)
2.6   Share Exchange Agreement for the Acquisition of NKA Communications Pty.
      Ltd. *
3.1   Articles of Incorporation (e)
3.2   Bylaws (e)
10.1  Employment Agreement with James M. Boyd, Jr. (f)
10.4  Employment Agreement with David C. Bryan (f)
10.5  Employment Agreement with Michael P. McAndrews (f)
10.6  Employment agreement with Ronald R. Grawert *
10.7  Employment agreement with Joseph A. Smith *
10.8  Employment agreement with Daniel P. McDuffie *
16.1  Letter on change in certifying accountant (g)
16.2  Letter on change in certifying accountant (h)
21.1  Principal subsidiaries of the Registrant
      (i)   Global Telecommunications of Delaware, Inc. (100% owned -
            incorporated in Delaware))
      (ii)  Clariti Digital Paging, Inc. (100% owned - incorporated in
            Delaware)
      (iii) GlobalFirst Holdings Limited (100% owned - incorporated in United
            Kingdom)
      (iv)  Mediatel Global Communications Limited (100% owned - incorporated
            in United Kingdom)
      (v)   MegaHertz-NKO, Inc. (100% owned - incorporated in Delaware)
27.1  Financial data schedule *

Incorporated by reference to the following documents previously filed by the
Company:

(a) Form 8-K filed December 23, 1998 (earliest event reported Dec. 8, 1998)
(b) Form 8-K filed February 18, 1999
(c) Form 8-K filed March 26, 1999
(d) Form 8-K filed May 24, 1999
(e) Annual Report on Form 10-KSB for the period ended July 31, 1990
(f) Amendment No. 2 to Annual Report on Form 10-KSB for the year ended July 31,
    1997
(g) Form 8-K filed December 23, 1998 (earliest event reported Dec. 18, 1998)
(h) Amendment No. 1 to Form 8-K filed on September 23, 1999



                                    31

<PAGE>

Reports on Form 8-K

The Company filed the following Forms 8-K during the quarter ended June 30,
1999.

(a) The Company filed a Form 8-K/A on April 19, 1999.  The report amended the
    Form 8-K filed on February 18, 1999 by including the required pro forma
    financial information related to the sale of Telnet.

(b) The Company filed a Form 8-K on May 24, 1999.  The report disclosed in
    Item 2 that it had acquired MegaHertz-NKO on May 7, 1999.

(c) The Company filed a Form 8-K/A on June 1, 1999.  The report amended the
    Form 8-K filed on March 26, 1999 by including the required financial
    statements and pro forma financial information related to the acquisition
    of Mediatel.









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<PAGE>
                             SIGNATURES
                             __________

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

                             CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD.

                             By:  /s/ Peter S. Pelullo
                                  ------------------------
                                    Peter S. Pelullo
                                    Chairman and President

Dated: October 13, 1999

     In accordance with Section 13 or 15(d) of the Exchange Act, this report
has been signed below by the following person on behalf of the registrant and
in the capacities and on the dates indicated.

Signature                     Title                         Date
----------------------        --------------------------    ------------------

/s/ Peter S. Pelullo          Chairman of the Board and      October 13, 1999
----------------------        President
  Peter S. Pelullo


/s/ Ronald R. Grawert         Chief Executive Officer        October 13, 1999
----------------------        and Director
  Ronald R. Grawert


/s/ James M. Boyd, Jr.        Vice President of Finance      October 13, 1999
----------------------        and Chief Accounting
  James M. Boyd, Jr.          Officer


/s/ John N. D'Anastasio       Director                       October 13, 1999
----------------------
  John N. D'Anastasio


/s/ Robert J. Sannelli        Director                       October 13, 1999
---------------------
  Robert J. Sannelli

/s/ Abe Carmel                Director                       October 13, 1999
---------------------
  Abe Carmel



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