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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-K/A1

                   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                      OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended JUNE 30, 2000            Commission 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 [ ].

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

The aggregate market value of voting stock held by non-affiliates of the
Registrant's common stock, as of September 15, 2000 was approximately
$102,902,000 (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 15, 2000 was 35,836,017.

                      DOCUMENTS INCORPORATED BY REFERENCE
None

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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 supplier of advanced
telecommunications products. The combination of wireless, switched, and
Internet Protocol ("IP") technologies will enable Clariti to offer enhanced
telecommunications products to the wholesale, business-to-business, and
consumer markets in the United States and internationally.

     The current focus of Clariti's business is in two industry segments:
wireless messaging services and telephony/Internet services.  Clariti's
wireless technology will support voice messaging (including wireless voicemail
and text-to-speech), data and information services to a high-speed digital
wireless device.  Clariti's telephony/Internet business is an international
facilities-based carrier that utilizes both IP and circuit switched
technologies over a unified messaging platform, and includes the following
services:
     - prepaid phone cards;
     - residential and business long distance services;
     - fax and data services;
     - traditional dial-up Internet access, web site design and hosting; and
     - Digital Subscriber Line ("DSL") connections for business customers.

     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 messaging
       technology.

     - 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 Internet Service Provider, and NKO, Inc., a provider of
       enhanced telecommunications and IP telephony services (voice, data, fax
       and video). In December 1999, the Company acquired Tekbilt World
       Communications, Inc., a facilities-based provider of IP and conventional
       switched telecommunications services with a large distribution network.
       The Company has integrated these two acquisitions into a single advanced
       telecommunications business now known as Clariti Telecom, Inc.


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     - In October 1999, the Company acquired NKA Communications Pty, Ltd.
       ("NKA"), an Australian based provider of telephony to corporate
       clients.  The Company changed NKA's name to Clariti Telecommunications
       Pty Ltd. ("Clariti Australia").

     - In December 1998, the Company acquired GlobalFirst Holdings, Ltd.
       ("GlobalFirst").  In March 1999, the Company acquired Mediatel Global
       Communications, Ltd. ("Mediatel").  GlobalFirst and Mediatel were
       telecommunications companies that sold long distance and local telephone
       services, including prepaid phone cards, principally 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.  The United Kingdom and European telecommunications
       markets have been experiencing intensive competition as a result of the
       on-going deregulation.  This competition caused significant downward
       pressure on prices and results of operations of GlobalFirst and
       Mediatel.  As a result of the significant operating losses incurred by
       these businesses, management concluded that GlobalFirst and Mediatel
       could not pay their debts and made the decision to liquidate their
       operations. As of October 11, 1999, GlobalFirst, Mediatel and their
       subsidiaries filed for voluntary liquidation in the United Kingdom and
       all of their operations ceased as of that date.

     The Company's businesses operate on the basis of two industry segments;
Wireless Messaging and Telephony/Internet Services. Wireless Messaging consists
of the Company's efforts to develop and commercialize its wireless messaging
technology. Telephony/Internet Services consists of the telephony and Internet
services provided by Clariti Telecom, Inc. and Clariti Australia. The following
sections further describe the Company's business operations in each of these
industry segments.

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 Voice Messaging System

     The first significant application of the Company's patented technology is a
Wireless Voice Messaging System. Currently under development, the ClariCAST(TM)
digital Wireless Voice Messaging System will allow a designated FM radio station
to provide a service that transmits a message to the owner of a handheld voice
messaging player, known as a Voca(TM), in the actual voice of the person
generating the message. A subscriber to the system must first buy a Voca(TM) and
then pay a monthly subscription fee for the wireless voice messaging service.
Once a subscriber's account has been established, callers can leave voice
messages for the subscriber by calling the system's central voice messaging
terminal. The calling party's message is then digitized,


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compressed and transmitted by the radio station's FM transmitter to the
specific subscriber's Voca(TM). The ClariCAST(TM) system transmits messages
that coexist with, but do not interfere with the FM radio station's
existing commercial broadcasts.

Wireless Voice Messaging 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 patented 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 Voice Messaging System will
require significantly less investment to establish a network and acquire the
necessary hardware (expected to be between $100,000 and $200,000 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 Voice Messaging
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.

     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. International FM radio stations have been pursuing the
use of this FM-SCA bandwidth to generate additional revenues from operations.

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Wireless Voice Messaging System Design

     The Wireless Voice Messaging System is comprised of 4 major components:
          - FM radio station's transmission facility (utilized by the Company
            for its wireless infrastructure)
          - Voice Messaging Terminal
          - SCA Generator
          - Voca(TM) Wireless Voice Message Player

     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 Voca(TM) must be within receiving distance of the FM radio
station's signal in order to receive the message.

     The Voice Messaging 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
Voca(TM) 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 Voca(TM) 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 Voice Messaging System Development

     During the last fiscal year, the Company has been in the process of
completing development and testing of the Wireless Voice Messaging System. In
June 2000, the Company successfully tested the Wireless Voice Messaging System
in Milan, Italy, thus demonstrating that the system can operate effectively in
international markets as well as those in the U.S.

     The system components that are being developed and tested include the
Voca(TM), the Voice Messaging Terminal and the SCA Generator. Development of the
Voca(TM) is now substantially complete and optimizations are being made in
preparation for commercial launch. Likewise, development of the Voice Messaging
Terminal and SCA Generator also is substantially complete. The Voice Messaging
Terminal is in the final stages of being integrated with the billing and
customer care system. This integration will provide a seamless, automated
process to activate subscribers, record their message activity, and invoice them
at the end of the billing cycle. Ongoing field testing of the system on an
end-to-end basis is currently under way, as is network deployment in the first
city in which commercial launch is planned.


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     The Company expects to launch its commercial wireless voice messaging
service in one U.S. city during the current fiscal year. The Company anticipates
rolling out its voice messaging service in multiple cities and multiple
countries during 2001. 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, and technical problems. There
can be no assurance as to when, or whether, the Wireless Voice Messaging System
will be successfully completed. No assurance can be given that products can be
developed within a reasonable development schedule, if at all, or 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 Voice Messaging System

     For commercialization of the Company's Wireless Voice Messaging 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. The Company
has already secured the use of several FM radio subcarrier frequencies in the
U.S. city in which it plans to launch its first commercial voice messaging
service during the current fiscal year. However, there can be no assurance that
FM radio station owners in other targeted market areas will make their
subcarrier frequencies available for use by the Company, which would have a
material adverse effect on the Company's business.

Marketing the Wireless Voice Messaging System

     Management believes there is market potential for its wireless voice
messaging service in many international markets. With its large installed base
of voicemail users, plus users of messaging products 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. According to
Strategis Group, there are currently approximately 190 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
ClariCast(TM) 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 information
service. The Company expects to seek out partners who are experienced with
marketing and distribution of telecommunications products in their respective
geographic areas. The Company believes this approach will provide it with the
ability to address multiple markets simultaneously.

     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

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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 Voice Messaging
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 Voice Messaging products and services in various locations
worldwide. In March 2000, the Company and Albacom SpA, the Italian
telecommunications provider for businesses, signed a Memorandum of Understanding
("MOU") to explore the potential for integrating Clariti's wireless technology
and products into Albacom's services portfolio in Italy and other European
countries. In September 2000, the Company also signed a MOU with Broadnet, a
European subsidiary of Comcast Corporation that provides Internet, communication
and applications services, to explore integrating Clariti's wireless technology
into Broadnet's portfolio of services for small and medium sized businesses in
Portugal. The Company expects to enter discussions with other parties regarding
partnership opportunities in other regions. There can be no assurance however
that the Company will be successful in its efforts to execute the terms of these
MOU's, 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 Voice Messaging System over standalone voicemail accounts and other
wireless devices. In March 2000, Clariti commissioned a U.S. market research
study conducted by Strategic Resource Partners ("SRP"), a marketing and research
firm whose principals have conducted consumer surveys for other leading
technology firms such as Motorola, Apple, and Microsoft. SRP conducted in-depth
one-on-one interviews with teens, "soccer moms", and business professionals in
four U.S. cities. The screened participants either already owned a wireless
device (cellular phone or pager), or were planning to purchase a wireless device
within the next 12 months. Survey results indicated that 59% of respondents
would buy a Voca(TM) and sign up for Clariti's wireless messaging service. These
results confirm findings from Clariti's previous focus groups and consumer
testing. Of the 59% that indicated that they would purchase Clariti's wireless
product, the majority of these consumers stated that they would replace their
existing pager or answering machine with a Voca(TM). SRP observed that survey
participants quickly understood the product concept and grasped its benefits.
Upon extrapolating the research results, SRP calculated that U.S. market demand
for Clariti's wireless service could reach 15 million subscribers once the
product is available nationwide. The SRP survey had a sampling error of 10%.

     The Company expects to be able to offer its wireless voice messaging
service at a price much less expensive than cellular phone service. Although
final pricing has not yet been determined, the Company plans to offer the
Voca(TM) for under $100, with typical wireless messaging service plans of $10 to
$15 per month. As a result, management believes the Company will be able to
successfully market its Wireless Voice Messaging System; however, there can be
no assurance that success will be achieved in each market the Company chooses to
enter.

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Competition

     The Company expects its Wireless Voice Messaging products and services to
compete with those of numerous well-established companies that 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.

     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 Voice 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 Voice 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 Voice Messaging 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)


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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.  The Company is aware of no other
commercial voice messaging services similar to that which Clariti expects to
launch in the fourth quarter of 2000.

     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 the Voca(TM), the Voice Messaging Terminal, or the SCA
Generator.  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 Voice Messaging 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.

     Recently, worldwide demand for and production of wireless devices were
greater than manufacturers and component suppliers had anticipated. As a result,
there have been shortages of certain types of components used in manufacturing
wireless devices, including some of those used in the Voca(TM). If such
component suppliers are unable to meet industry demand for certain components
and thus experience delays in delivering components, 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 Messaging. In July of 2000, the U.S. Patent and Trademark Office issued
the Company a second patent on the invention with improved claim coverage. This
invention had previously been approved by government authorities in South Africa
and Taiwan, and is still pending in three additional countries. In April


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2000 the U.S. Patent and Trademark Office issued to the Company a patent,
originally filed in March 1999, on the overall design of its Wireless Voice
Messaging Player, the Voca(TM).  The Company's current patents expire between
2014 and 2016.

     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. The Company has two pending patent applications for the protection of
its proprietary wireless protocol and pending patent applications for a unique
interference-reduction technique and an improved message quality estimator.

     There can be no assurance as to the ultimate success of the Wireless Voice
Messaging System patent applications in the United States or any 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.


Telephony/Internet Services
---------------------------
     Clariti's telephony/Internet business is an international facilities-based
carrier that utilizes both IP and circuit switched technologies over a unified
messaging platform, and includes the following services:
     - prepaid and post paid phone cards;
     - residential and business long distance services;
     - fax and data services;
     - traditional dial-up Internet access, web site design and hosting; and
     - Digital Subscriber Line ("DSL") connections for business customers.

     The 1999 acquisitions of MegaHertz-NKO, NKA Communications, and Tekbilt
World Communications have provided the Company with an operating base upon
which to build a  private managed network using IP and circuit switched
technologies. In addition, the Company 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 telephony business offers prepaid phone cards, residential
and business long distance, and fax services. As a domestic ISP, the Company
offers traditional dialup access, web site design and hosting services. Server
co-location and managed server services are also available. The Company's
Internet services are currently available in all 50 states.



                                      10





<PAGE>

Circuit Switched Telephony

     The Company owns switch facilities in London, England and Philadelphia,
Pennsylvania offering traditional telephony services. The Company focuses its
switching capabilities on international destinations that provide margins
superior to industry averages. At the same time, the Company is maximizing its
margin opportunities in the U.S. by focusing on urban customers with high
international traffic volumes.

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 an international network for its
VoIP telephony business. It currently has points of presence ("POP's") in
Florida, New York, Philadelphia, Los Angeles, Brazil, Peru, and Bulgaria.

Marketing

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

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.

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Government Regulation
---------------------
     Several aspects of the telecommunications business are regulated by
federal, state, local and foreign governments.  See Management's Discussion and
Analysis of Financial Condition and Results of Operations - Risk Factors -
Government Regulation for a detailed discussion of the impact of government
regulation on the Company's businesses.

Research and Development
------------------------
     The Company's research and development costs relate exclusively to
development of its Wireless Voice Messaging System and technology. Research and
development costs incurred by the Company during the years ended June 30, 2000,
1999 and 1998 were $4,161,000, $2,465,000 and $1,188,000, respectively. The
Company has incurred cumulative research and development costs of $8,135,000 on
the Wireless Voice Messaging System through June 30, 2000.  As further
described above, the Company currently expects to launch its commercial
wireless voice messaging service in one U.S. city during the current fiscal
year.  If the commercial launch occurs as planned, the Company expects to have
spent an estimated $1,700,000 on research and development of the Wireless Voice
Messaging System between June 30, 2000 and the launch date.  Management is
aware, however, that there can be no assurances that the Wireless Voice
Messaging System will be developed into a commercially viable product, or if
developed, that it can be successfully marketed.

     After commercial launch, the Company expects to continue research and
development activities related to its wireless messaging technology. Such
efforts will be focused on improving the performance and functionality of the
Wireless Voice Messaging system components as well as development of new
applications for the technology.

     Management believes its technology has the capability to fill a need that
exists worldwide for a wireless telecommunications network that can communicate
information in an economically feasible manner without the need for significant
investment capital requirements of traditional telecommunication and cellular
infrastructure. Utilization of the existing telecommunications infrastructure
and that of FM radio towers located around the world has the capability to
provide such a network to the vast majority of the world's population. The
Company plans to continue research and development into applications of its
technology that have the potential to fill such a need.

Employees
---------
     As of June 30, 2000, the Company had a total of 139 employees, 93 of whom
were employed in Telephony/Internet Services, 30 of whom were employed in
Wireless Messaging and 16 of whom were employed in corporate administration.
Substantially all of the Company's employees work on a full time basis and none
of the Company's employees belong to a labor union.  All of the Company's
employees work in the United States with the exception of 30 employees who work
in Australia.


                                      12
<PAGE>

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 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 November 2000.
Wireless Messaging is planning to relocate its headquarters to another building
in Fort Washington, part of which it has already leased pursuant to a written
lease agreement that expires in 2005. 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 2005.

     The Company's Telephony/Internet Services group leases office facilities
in several locations.  Clariti Telecom is headquartered in an office building
in Warminster, Pennsylvania, part of which it leases pursuant to a written
lease agreement that expires in 2001.  Clariti Telecom also leases office
facilities in Jacksonville, Florida pursuant to a written lease agreement that
expires in 2002.  Clariti Australia is headquartered in an office building in
Melbourne, Australia, part of which the Company leases pursuant to a written
lease agreement that expires in 2001.  In most cases, management expects that
in the normal course of business, leases will be renewed or replaced by other
leases.


ITEM 3.     LEGAL PROCEEDINGS

     France Telecom SA v. Clariti Telecommunications International, Ltd. This
matter was initiated in a complaint filed by Plaintiff, France Telecom SA, on
May 12, 2000 before the Tribunal de Commerce de Paris (Paris Commercial Court)
in Paris, France. Plaintiff's claim relates to a debt Plaintiff claims it is
owed by Global First Communications SA, a French subsidiary of Global First
Holdings Limited, for long-distance telephone services. Plaintiff claims that
Clariti entered into negotiations with Plaintiff to resolve such debt in bad
faith. Plaintiff seeks payment from Clariti of 20,000,000 French Francs
(approximately $2,600,000). Plaintiff further claims unspecified damages
corresponding to the loss of revenue resulting from the ceasing of commercial
relations with Global First Communications SA. The Company intends to vigorously
defend the claims asserted by Plaintiff. Clariti believes (i) that it did not
negotiate with Plaintiff in bad faith, (ii) that it did not verbally or in
writing make a promise to pay any obligations of Global First Communications SA,
and (iii) that Clariti caused no damages to Plaintiff because commercial
relations with Global First Communications SA had ceased before Clariti held any
negotiations with Plaintiff. A first hearing on this complaint was held on
September 13, 2000. The Court instructed Clariti to file a defense by October
11, 2000.

     IDT Corporation v. Clariti Carrier Services, Ltd. and Clariti
Telecommunications International, Ltd. This matter was initiated by a Complaint
filed by Plaintiff, IDT Corporation on November 30, 1999 in the Court of Common
Pleas of Philadelphia, PA. Plaintiff seeks payment for long-distance


                                      13

<PAGE>

telephone services and claims, in part, that a contract, including all
obligations arising thereunder, between the Plaintiff and Global First
Communications, Ltd. ("Global First Com") was assigned to the Company.  In the
alternative, Plaintiff claims that the Company is the "alter ego" of Global
First Com and is responsible for the debts of Global First Com. The Plaintiff
has alleged damages in an amount of $690,163.07 plus interest, costs and
attorneys fees.  Company advises that it did not receive an assignment of the
contract, did not receive such telephone services, and is not the "alter ego"
of Global First Com. Preliminary objections were filed by the Company seeking
dismissal of the Complaint on a number of grounds including, without
limitation, jurisdictional issues. On March 20, 2000, the Court of Common
Pleas, Philadelphia County, Pennsylvania, sustained Company's preliminary
objections concerning the Court's jurisdiction over this matter. By sustaining
this preliminary objection (i.e., stating that it did not have jurisdiction
over this matter), it was unnecessary for the Court to decide upon the other
preliminary objections.  The Court's Order dismissed the Complaint on the basis
of jurisdiction, provided that jurisdiction lies in England.  If Clariti
objects to jurisdiction in England, it is conceivable that the Court may then
decide to hear the case subject to its decision on Company's other preliminary
objections.  On or about April 15, 2000, IDT filed an appeal with the Superior
Court of Pennsylvania appealing the decision of the Court of Common Pleas.  At
this juncture, the Superior Court will set forth a timetable for the parties to
file legal briefs regarding the appeal. The Company intends to vigorously
defend the claims asserted by Plaintiff.

     Clariti, et al. v. Frontier Corporation and Frontel Communications Limited
(collectively "Frontier"). [American Arbitration Association Case No. 50 N 181
0021399]. On or about June 17, 1999 Clariti, together with Mediatel Global
Communications Limited ("Mediatel"), Global First Communications Limited
("Global First") and Chadwell Hall Holdings Limited ("CHH") (collectively the
"Claimants"), filed a Demand for Arbitration with the American Arbitration
Association against Frontier concerning obligations arising under that certain
March 4, 1999 agreement entered into by and among Frontier and each of the
Claimants ("March 4 Agreement"). The parties entered into the March 4 Agreement
for the purpose of resolving certain billing disputes between Frontier on the
one part and Global First and Mediatel on the other part. Under the March 4
Agreement, Clariti paid $3,000,000 to Frontier during March 1999 in payment of
amounts allegedly due Frontier by Mediatel and/or Global First. Additionally,
Clariti issued to Frontier 5,000,000 shares of its common stock as security for
the remaining balance, if any, due Frontier by Mediatel and/or Global First
("Clariti Stock"). The amount due Frontier by Mediatel and Global First as
agreed to by the parties or as determined by arbitration is referred to in the
March 4 Agreement as the "Account Balance". The terms of the March 4 Agreement
provide in part as follows: that CHH is liable for and guarantees payment in
full of the Account Balance and, further, shall be obligated to purchase the
Clariti Stock from Frontier for an amount equal to the Account Balance. 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 Clariti Stock for an amount
equal to the Account Balance. In the event of a default under the March 4, 1999
Agreement, Frontier may, at its option, sell a sufficient amount of shares of
Clariti Stock in order to satisfy the Account Balance. If Frontier sells all
5,000,000 shares of Clariti Stock for less than the Account Balance, Global
First, Mediatel and CHH are liable to pay Frontier the remaining Account Balance
due to Frontier. Once Frontier collects the


                                      14

<PAGE>

Account Balance (whether by sale of Clariti Stock or payment made by any of the
parties), Frontier must surrender to Clariti any remaining shares of Clariti
Stock. Frontier, in its filings with the American Arbitration Association, has
alleged inter alia that (i) the Account Balance is at least 9,215,074.40 British
Pounds (approximately $13,800,000); (ii) Clariti had failed to disclose material
information to Frontier at the time of signing the March 4 Agreement; (iii)
Clariti and the other Claimants breached the March 4 Agreement and (iv) Clariti,
together with the other Claimants, are liable to Frontier for an amount to be
determined by the Arbitrators, but at least 9,215,074.40 British Pounds
(approximately $13,800,000). Clariti has filed a pleading with the American
Arbitration Association disputing the aforementioned allegations of Frontier.
Further, Clariti believes inter alia that (i) the Account Balance determined by
Frontier is incorrect, (ii) Clariti's liability under the March 4 Agreement is
limited to the delivery of the Clariti Stock to Frontier as collateral (which
has already been accomplished) and that Clariti has no obligation for the
Account Balance, and (iii) the allegations of Frontier that Clariti failed to
disclose material information to Frontier is incorrect. A hearing date has been
set to commence December 4, 2000.

     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 the Company to GlobalFirst and Mediatel. A liquidator was appointed and,
subject to the provisions of United Kingdom law, has endeavored to liquidate the
assets of the UK Group Companies. As of October 11, 1999, the UK Group Companies
owed in excess of $17 million to the Company for advances made to GlobalFirst
and Mediatel. The Company has been advised that this indebtedness constitutes a
priority claim under the voluntary liquidation process. In August 2000, the
Company received approximately $71,000 in proceeds from the liquidators of the
UK Group Companies in respect of this indebtedness. Future proceeds from the
liquidation process, if any, are expected to be negligible.

     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.

     Effective as of June 28, 2000, the Company received written consents from
stockholders owning 88,723,414, or 62%, of its shares outstanding, approving a
reverse stock split (the "Reverse Stock Split") pursuant to which each share of
common stock, $.001 par value per share, of the Company (the "Common Stock") was
converted into and reconstituted as one-fourth (1/4th) of a share of Common
Stock, $.001 par value per share, effective as of 4:30 p.m. EDT on July 3, 2000
(which was considered the record date for the Reverse Stock Split). No
fractional shares were issued upon such conversion and reconstitution, and the
number of shares of Common Stock issued were rounded up to the nearest whole
share.


                                      15
<PAGE>

                                 PART II

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

     The Company's Common Stock is currently quoted on the National Association
of Securities Dealers, Inc., over-the-counter market on the OTC Bulletin Board
under the symbol "CRTM." Prior to the Reverse Stock Split, the Company's stock
symbol was "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, 2000 and 1999.  All amounts have
been retroactively adjusted to reflect the Reverse Stock Split.

Year Ended June 30, 2000
------------------------                  High Bid        Low Bid
                                          --------        -------
Quarter ended:
  September 30, 1999                       $13.25          $ 9.75
  December 31, 1999                        $12.38          $ 7.75
  March 31, 2000                           $15.25          $ 6.13
  June 30, 2000                            $11.88          $ 5.50


Year Ended June 30, 1999
------------------------                  High Bid        Low Bid
                                          --------        -------
Quarter ended:
  September 30, 1998                       $13.36          $ 6.76
  December 31, 1998                        $11.36          $ 6.88
  March 31, 1999                           $ 9.88          $ 7.76
  June 30, 1999                            $13.00          $ 8.12

     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 15, 2000 the closing price for the Company's common stock was $4.75
per share.

Holders
-------
     As of September 15, 2000 the Company had 260 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 in the discretion of
the Company's Board of Directors.

                                      16
<PAGE>


Changes in Securities and Use of Proceeds
-----------------------------------------
     The following information sets forth all shares of the Company's $.001 par
value common stock issued by the Company during the period covered by this Form
10-KSB that were not registered under the Securities Act of 1933, as amended
(the "Act") at the time of issuance and were not previously reported in a
Quarterly Report on Form 10-QSB.  The share amounts set forth below have been
retroactively adjusted to reflect the 1 for 4 Reverse Stock Split that took
place effective on July 3, 2000.

                                                 Number of          Total
    Date                  Name                     Shares       Consideration
------------   ------------------------------   ------------    -------------
April 2000     Banca Popolare Commercio
                e Industria                       375,000        $4,125,000
April 2000     Banca Leonardo                     143,750        $1,581,250
April 2000     BNL Gestioni SGR p.A. - Fondo
                Investire America                 106,250        $1,168,750
April 2000     BNL Gestioni SGR p.A. - Fondo
                Investire Internazionale          100,000        $1,100,000
April 2000     Banca Commerciale Italiana
                (Suisse)                           87,500        $  962,500
April 2000     Banca Adamas                        56,250        $  618,750
April 2000     Banca Sella SpA                     50,000        $  550,000
April 2000     BNL Gestioni SGR p.A. - Fondo
                BNL Trend                          43,750        $  481,250

All shares listed above were issued in a single private placement. Commission
on the issuance of these shares consisted of $1,164,625, or 11%, of total
consideration paid in cash and the issuance of 515,000 common stock purchase
warrants.

The securities issuances set forth above were exempt from registration under
the Act pursuant to Regulation S under the Act as transactions with non-U.S.
persons or Section 4(2) of the Act as transactions by an issuer not involving
any public offering in that said transactions involved the issuance by the
Company of shares of its common stock to financially sophisticated individuals
who were fully aware of the Company's activities, as well as its business and
financial condition, and acquired said securities for investment purposes.  The
Company plans to use proceeds from the issuance of these securities, for
general corporate purposes and working capital needs of its subsidiaries.

The Company has placed a restrictive legend on all of the stock certificates
representing the shares issued above and will give appropriate "stop transfer"
instructions to its transfer agent, until such time as those shares are
registered pursuant to the Act, or a valid exemption from registration exists
under the Act. All of the share issuances were registered for resale in the
Company's Form S-3 registration statement, which was declared effective on May
16, 2000.


                                      17
<PAGE>

ITEM 6.     SELECTED FINANCIAL DATA

The following selected consolidated financial data relating to the Company and
its subsidiaries have been taken or derived from the financial statements and
other records of the Company. Such selected consolidated financial data are
qualified in their entirety by, and should be read in conjunction with, the
consolidated financial statements of the Company.  In 1998, the Company changed
its fiscal year end from July 31 to June 30.  Therefore, Fiscal 1998 consists
of the 11 months ended June 30, 1998 and all other fiscal years consist of 12
months.

                            Fiscal     Fiscal      Fiscal     Fiscal   Fiscal
                             2000       1999        1998       1997     1996
                           --------   ---------   --------   -------   -------
                             (dollars in thousands, except per share amounts)
SUMMARY OF OPERATIONS
---------------------
Revenue                    $  6,735   $     251   $      -   $   348   $     -
                           ========   =========   ========   =======   =======

Gross profit               $  1,124   $      91   $      -   $    34   $     -
Operating expenses           28,701      13,698      4,223     6,724     2,253
Loss from unconsolidated
 subsidiaries                     -      54,987(a)       -         -         -
Asset impairment charges
 and related accruals        10,441     152,214(b)       -       687         -
Other income (expense)         (356)        396        (25)       80         2
                           --------   ---------   --------   -------   -------
Net loss before
 extraordinary gain         (38,374)   (220,412)    (4,248)   (7,297)   (2,251)
Extraordinary gain on
 discharge of indebtedness   33,502           -          -         -        62
                           --------   ---------   --------   -------   -------
Net income (loss)          $ (4,872)  $(220,412)  $ (4,248)  $(7,297)  $(2,189)
                           ========   =========   ========   =======   =======

PER SHARE DATA, BASIC AND DILUTED(c)
------------------------------------
Net loss before
extraordinary gain         $  (1.14)  $  (11.86)  $  (0.81)  $ (1.67)  $ (0.65)
Extraordinary gain on
 discharge of indebtedness     1.00           -          -         -      0.02
                           --------   ---------   --------   -------   -------
Net income (loss)          $   0.14   $  (11.86)  $  (0.81)  $ (1.67)  $ (0.63)
                           ========   =========   ========   =======   =======

Cash dividends               None       None        None       None      None
                           ========   =========   ========   =======   =======



                                      18






<PAGE>

                            As of      As of       As of      As of     As of
                           June 30,   June 30,    June 30,   July 31,  July 31,
                             2000       1999       1998       1997       1996
                           --------   ---------   --------   -------   -------
BALANCE SHEET DATA
------------------
Total assets               $ 26,657   $  19,930   $  2,240   $ 1,898   $ 1,459
Long-term obligations      $    624   $       -   $      -   $     -   $     -
Stockholders' equity
 (deficit)(d)              $ 21,859   $ (19,660)  $  1,580   $ 1,524   $ 1,071


(a) Consists of the Company's equity in losses of GlobalFirst and Mediatel (see
    Note 4 to the Consolidated Financial Statements included herein).

(b) In Fiscal 2000, consists of the write-off of goodwill related to the
    acquisition of MegaHertz-NKO (see Note 6 to the Consolidated Financial
    Statements included herein).  In Fiscal 1999, consists of the write-off of
    goodwill incurred in the acquisitions of GlobalFirst and Mediatel (see
    Note 6 to the Consolidated Financial Statements included herein).  In
    Fiscal 1997, consists of asset write-offs and accruals related to the
    suspension of development of the stock information receiver (see Note 3 to
    the July 31, 1997 Consolidated Financial Statements incorporated herein by
    reference to Amendment No. 2 to the Company's July 31, 1997 Form 10-KSB).

(c) Per share data retroactively restated to reflect a 1 for 4 reverse stock
    split implemented effective July 3, 2000.

(d) As of June 30, 1999, includes $32,413,000 of excess of net liabilities over
    net assets of unconsolidated subsidiaries, GlobalFirst and Mediatel (see
    Note 4 to the Consolidated Financial Statements included herein).




                                        19
<PAGE>

ITEM 7.     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 our 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 us with control over our cost base,
       product development and quality of service
     - Achieve our goal of launching our first commercial voice messaging
       service during the current fiscal year
     - 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 Voice Messaging System
     - Select partners who will be used to help market, sell and distribute the
       Wireless Voice Messaging System
     - Develop marketing strategy of the Wireless Voice Messaging System
     - Make the Wireless Voice Messaging System affordable and appealing to its
       target markets
     - Address multiple markets simultaneously to market the Wireless Voice
       Messaging System
     - Develop manufacturing and distribution channels of the Wireless
       Voice Messaging System
     - Manage the progress and costs of additional research and development of
       the Wireless Voice Messaging 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 our goal of becoming an international telecommunications
       provider
     - Manage our growth and its effects, including the ability to attract
       additional personnel
     - Obtain financing for operations and expansion
     - Compete effectively in the markets we choose 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 Voice Messaging products and services
     - Manage the effect of the liquidation of UK Group Companies

     In addition, certain statements may involve risk and uncertainty if they
are preceded by, followed by, or that include the words "intends," "estimates,"


                                      20

<PAGE>

"believes," "expects," "anticipates," "should," "could," or similar
expressions, and other statements contained herein regarding matters that are
not historical facts.  Although we believe that our expectations are based on
reasonable assumptions, we can give no assurance that our 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 our
operating losses, risks relating to our development and expansion and possible
inability to manage growth, risks relating to our significant capital
requirements, risks relating to competition and regulatory developments, risks
relating to implementing local and enhanced services, risks relating to our
long distance business, as well as the other risks identified below under "Risk
Factors" and those referenced from time to time in our 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.
We do 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

We Need to Obtain Financing in Order to Continue Our Operations

     To date, we have funded our operations through private equity funding.
Due to operating losses and our expansion, we remain undercapitalized.

     On a prospective basis, we will require both short-term financing for
operations and longer-term capital to fund our expected growth. We have no
existing bank lines of credit and have not established any sources for
additional financing. Our ability to acquire additional operations and
facilities to grow will be dependent upon our ability to raise longer-term
capital or otherwise finance our acquisitions. Based on our current operating
plan, we have enough cash to sufficiently meet our anticipated cash requirements
through December 2000. We have recently received a commitment from a European
investment bank to secure additional financing for the Company during the 4th
quarter of 2000 that will fund the Company's operating needs at least through
June 2001. Additional financing may not be available to us, or if available, may
not be available upon terms and conditions acceptable to us. If adequate funds
are not available, we may be required to delay, reduce or eliminate product
development or marketing programs. The telecommunications industry is rapidly
evolving. Our inability to take advantage of opportunities in the industry
because of capital constraints may have a material adverse effect on our
business and our prospects.

We Have a Limited Operating History Upon Which to Base an Evaluation of Our
Performance

     We were formed in February 1988 as the successor to a music and recording
studio business. In January 1991, we became a publicly held company upon a
merger with an inactive public company incorporated in Nevada. In early 1995, we
were introduced to the concept of voice paging using FM radio frequencies, our
wireless division. In May 1999, we acquired MegaHertz-NKO, Inc. (now known as
Clariti IP Services), our providers of Internet services and enhanced
telecommunications and IP telephony services. In October 1999, we acquired NKA
Communications Pty, Ltd. (now known as Clariti IP Asia), our Australian based

                                      21
<PAGE>

provider of telephony services to corporate clients.  In December 1999,
we acquired Tekbilt World Communications, Inc. (now known as Clariti Telecom),
our provider of long distance and toll-free services, prepaid calling cards,
and e-commerce telecommunications services, both through retail and wholesale
distribution channels.  As an early stage company in the new and rapidly
evolving telecommunications industry, we face numerous risks and uncertainties.
In addition, we have had only a limited operating history in the
telecommunications industry upon which investors may base an evaluation of our
performance.

We Have a History of Losses and Expect that Losses Will Continue in the Future

     Since our inception, we have incurred significant losses, including net
losses before extraordinary items of $38,374,000, $220,412,000 and $4,248,000
for Fiscal 2000, Fiscal 1999 and Fiscal 1998, respectively. The $38,374,000
loss before extraordinary item in Fiscal 2000 included a $10,441,000 write-off
of goodwill related to the acquisition of MegaHertz-NKO.  The $220,412,000 net
loss in Fiscal 1999 included a $152,214,000 write-off of goodwill related to
the liquidation of certain foreign subsidiaries.  For Fiscal 2000, Fiscal 1999
and Fiscal 1998, we spent $4,161,000, $2,465,000, $1,188,000, respectively, on
research and development, primarily for the development of our wireless voice
messaging system. We expect that research and development, marketing and
operating expenses will increase significantly during the next several years.
In order to achieve profitability, we will need to generate significant
revenue.  We cannot assure you that we will generate sufficient revenue to
achieve profitability.  We currently project that we will continue to generate
operating losses and negative cash flow from operations at least through Fiscal
2002.  We cannot assure you that we will ever achieve, or if achieved,
maintain, profitability.  If revenue grows more slowly than we anticipate or if
research and development, marketing and operating expenses exceed our
expectations or cannot be adjusted accordingly, our business, results of
operation and financial condition will be materially adversely affected.

We Expand Through Acquisitions Which May Cause Dilution of our Common Stock and
Additional Debt and Expenses

     We regularly pursue opportunities to expand through acquisitions. We plan
on continuing to seek acquisitions and joint ventures that complement our
services, broaden our consumer base and improve our operating efficiencies.
Acquisitions 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 us.  Acquisitions also involve numerous additional risks,
including difficulties in the assimilation of the operations, services,
products and personnel of acquired companies, which could result in charges to
earnings or otherwise adversely affect our operating results.  There can be no
assurance that acquisition or joint venture opportunities will continue to be
available, that we will have access to the capital required to finance
potential acquisitions, that we will continue to acquire businesses or that any
acquired businesses will be profitable.



                                      22
<PAGE>

We Have Recently Acquired Several Companies and We May Not be Able to
Successfully Integrate Our Operations Which Could Slow Our Growth

     We acquired MegaHertz-NKO, Inc. (now known as Clariti IP Services), NKA
Communications Pty, Ltd. (now known as Clariti Australia) and Tekbilt World
Communications, Inc. (now known as Clariti Telecom) in 1999.  Our strategy is
to become an international telecommunications provider. We have limited
experience operating our businesses, individually or on an integrated basis.
Integration of our existing and acquired business involves certain risks,
including, among other things:

     - we may encounter difficulties integrating our acquired businesses,
       assimilating new employees, and integrating the acquired operations,
       services and products which may slow our revenue growth;

     - we may not be able to fund the operations of acquired businesses if
       operating losses continue;

     - we may not be able to successfully incorporate acquired technology and
       rights into our service offerings and maintain uniform standards,
       controls, procedures and policies which may prevent us from realizing
       operating efficiencies; and

     - the combination of our businesses may not be successful.

We Are in Competition With Companies That Are Larger, More Established and
Better Capitalized Than We Are

     The telecommunications industry is highly competitive, rapidly evolving and
subject to constant technological change. Other telecommunications providers
currently offer one or more of each of the products and services we offer.
Currently, there are numerous companies offering IP telephony products and
services and many have substantial presence in this market. Some of our
competitors in the telephony market include AT&T, MCI Worldcom and Sprint. We
also compete with many smaller service providers, including IP telephony and
Internet telephony companies such as DeltaThree.com, Net2Phone and ITXC. We
expect competition to increase in the future. Our Internet service provider
business also competes with well-established companies including America Online.
We also expect that our wireless voice messaging products and services will
compete with those of numerous well-established companies, including Motorola,
AT&T, Sprint PCS and Pagenet, which design, manufacture or market pagers,
cellular phones, wireless communications systems and cellular service. Many of
our competitors have:

     - greater financial, technical, engineering, personnel and marketing
       resources;
     - longer operating histories;
     - greater name recognition; and
     - larger consumer bases than us.

These advantages afford our competitors pricing flexibility.

     Telecommunications services companies may compete for consumers based on
price, quality of service and brand recognition, with the dominant providers



                                      23
<PAGE>

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
products that compete with our products and services.  In addition, competitors
with greater resources than ours may be better situated to negotiate favorable
contracts with retailers. We believe that 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, we expect that new competitors are likely to enter the
telecommunications market and attempt to market telecommunications services
similar to our services which would result in greater competition.  We cannot
be certain that we will be able to compete successfully in the developing IP
telephony market, Internet service provider market or the wireless messaging
market.

Our Success Is Largely Dependent Upon Our Key Executive Officers and Other Key
Personnel

     Our success is largely dependent upon our key executive officers, the loss
of one or more of whom could have a material adverse effect on us. We believe
that our continued success will depend to a significant extent upon the efforts
and abilities of our executive officers and our ability to (i) retain them and
(ii) attract new, highly qualified executives.  Although we believe that we
would be able to locate suitable replacements for our executives if their
services were lost, there can be no assurance we would be able to do so.

     In addition, our future operating results will substantially depend upon
our ability to attract and retain highly qualified management, financial,
technical and administrative personnel.  Competition for highly trained
technical personnel is intense. We cannot assure you that we will be able to
attract and retain the personnel necessary for the development of our business.

Independent Distributors Are a Significant Element of Our Growth Strategy

     We rely, and will rely with respect to our wireless messaging system, on
independent distributors to distribute a significant portion of our products
and services.  A significant element of our growth strategy is to increase our
sales and distribution of our products and services by expanding our presence
in our current markets and by extending this network into new markets either by
internal growth, acquisition or both.  We may not be able to develop, recruit,
maintain, motivate, retain and control a network of independent distributors.
In addition, we have little control over the resources that independent
distributors will devote to marketing our products and the amount of our
competitors products that our independent distributors choose to market.

Rapid Technological Change Makes Our Success Unpredictable

     The telecommunications services industry is characterized by rapid
technological change, new product introduction and evolving industry standards.
Our success will depend, in significant part, on our ability to make timely and
cost-effective enhancements and additions to our technology and introduce new
services that meet consumer demands. We expect new products and services, and
enhancements to existing products and services, will be developed and
introduced in order to compete with our services. We are in the process of



                                      24
<PAGE>

completing the development of technology that will permit us to market and
deliver our wireless voice messaging system.  The proliferation of new
telecommunications technologies may reduce demand for wireless voice messaging
products. There can be no assurance that we 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, we may experience difficulties
that could delay or prevent the successful development, introduction and
marketing of our existing services, or our new services or enhancements may not
adequately meet the requirements of the marketplace and achieve market
acceptance.  Delay in the introduction of new services or enhancements, our
inability to develop new services or enhancements or the failure of such
services or enhancements to achieve market acceptance could have a material
adverse effect on our business, financial condition and results of operations.

We Are Dependent Upon Telecommunications Providers

     While we own some IP switches and traditional circuit switches, we do not
own any transmission lines.  As such, we depend primarily on other carriers for
transmission and switching of our customers' calls.  We will also depend on
other carriers for transmissions of messages to our wireless voice messaging
system.  Further, we are dependent upon local exchange carriers for call
origination and termination.  Our ability to maintain and expand our business
depends, in part, on our ability to continue to obtain telecommunications
services on favorable terms from long distance carriers and other network
suppliers, as well as the cooperation of both interexchange and local exchange
carriers in originating and terminating service for our consumers in a timely
manner.  We may not be able to obtain long distance services in the future at
favorable prices.  In addition, a material increase in the price at which we
obtain long distance service could have a material adverse effect on our
operating margins.

     We depend on a small number of domestic long distance carriers to provide
our phone card users access to cost-effective long distance service. We have
agreements with these carriers to acquire long distance service for resale
through our switching facilities.  Failure to maintain continuous access to
transmission facilities and long distance networks would materially adversely
affect our business, including possibly requiring us to significantly curtail
or cease our operations.  Carriers frequently experience equipment failures and
service interruptions, which could adversely affect customer confidence, our
business operations and our reputation.  Further, because we deduct minutes
from our prepaid phone cards at fixed per-minute rates, any service
interruption that forces us to re-route calling traffic through more expensive
carriers could reduce our operating margins.  Any increase in rates charged by
our carriers also could reduce our operating margins.

We Are Subject to Uncertain Government Regulation

     We are subject to varying degrees of foreign, federal, state and local
rules and regulations.  The rules and regulations could change at any time in
an unpredictable manner, which could have a material impact on our activities
and our operating results.


                                      25



<PAGE>


Traditional Telecommunications Services

     For our traditional circuit switched services, including prepaid and other
long distance services, we will be required to file interstate and
international tariffs with the Federal Communications Commission and intrastate
tariffs with the relevant state public utility commissions listing the rates,
terms and conditions of certain services.  In most states, we are required to
obtain certification from the relevant state public utility commissions before
providing service.  Any failure to maintain proper federal and state tariffing
or state certification, or non-compliance with federal or state laws or
regulations could have a material adverse effect on us.

IP Telephony Services

     United States.  IP telephony is a recent development.  We believe that,
under United States law, the Internet-related services that we provide
constitute information services (as opposed to telecommunications services)
and, as such, are not currently actively regulated by the Federal
Communications Commission or any U.S. state public utility commission.  Thus,
for instance, our rates and terms and conditions of service for IP services are
not regulated.  Nevertheless, aspects of our operations may be subject to state
or federal regulation, including regulations governing universal service
funding, disclosure of confidential communications, copyright and excise tax
issues.  The 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 should be classified for
regulatory purposes as "information services" or "telecommunications services."
The FCC did not have, as of the date of the report, an adequate record on which
to make any definitive pronouncements, but did suggest 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. Some regional Bell operating
companies have advised Internet and IP telephony providers that they would like
to impose access charges on Internet and IP telephony traffic. It is uncertain
at this time whether these companies will actually be permitted to impose access
charges and, if so, when such charges will become effective. In addition, one of
these regional Bell operating companies filed a petition with the FCC seeking
the imposition of access charges on phone-to-phone Internet and IP telephony
services. The FCC has not acted upon this petition. If the FCC were to determine
that certain services are subject to FCC regulations as telecommunications
services, the FCC may find it reasonable to require payment of universal service
contributions or access charges or to subject these services to traditional
common carrier regulation. If Congress, the FCC, state regulatory agencies,
foreign governments or supranational bodies begin to regulate IP telephony, we
cannot be certain that any such regulation will not materially adversely affect
our business, financial condition or results of operations. Application of new
regulatory restrictions or requirements to us could increase our costs of doing
business and prevent us from delivering our services by our current
arrangements. If that were to occur, we would search for alternative
arrangements for providing our services, including obtaining required regulatory
approvals. Regulations could limit our service offerings, increase our costs and
restrict our pricing flexibility and potentially limit

                                      26
<PAGE>

our ability to compete effectively.  In addition, regulations that affect the
Internet could affect our ability to provide our services.

     International.  The regulatory treatment of IP telephony outside of the
United States varies widely from country to country.  A number of countries
that currently prohibit competition in the provision of voice telephony also
prohibit IP telephony.  Other countries permit but regulate IP telephony.  Some
countries will evaluate proposed IP telephony service on a case-by-case basis
and determine whether it should be regulated as a voice service or as another
telecommunications service.  In many countries, Internet and IP technology has
not yet been addressed by legislation or regulatory action.  Increased
regulation of the Internet or IP providers or the prohibition of IP telephony
in one or more countries could materially adversely affect our business,
financial condition, operating results and future prospects.  The European
Union, for example, distinguishes between voice telephony, which may be
regulated by the Member States, and other telecommunications services, which
are fully liberalized.  With regard to IP telephony, the European Commission
concluded in a Communication to the Member States that at present IP telephony
should not be considered voice telephony and thus should not be regulated as
such by the Member States.  However, the Commission noted that providers of IP
telephony whose services satisfied the European Union's definition of voice
telephony could be considered providers of voice telephony and could be
regulated by the Member States.  Moreover, European Commission Communications
are not binding on the Member States.  Therefore, we cannot assure you that the
services provided by us in the European Union will not be deemed voice
telephony and, accordingly, subject to heightened regulation by one or more
European Union countries in the future.  France is currently conducting an
investigation of how IP telephony should be regulated.  China limits
competition in the telecommunications industry to several government-owned
companies.  At present, IP telephony is permitted on an experimental basis only
by China Unicom, China Telecom, and Jitong Communications.  It is uncertain
whether IP telephony will continue to be permitted when the trial period ends.

         Similarly, we provide our services in other countries in which the
regulatory state of IP telephony is unclear or in the process of development,
and in countries in which regulatory processes are not as transparent as in the
United States and Europe.  Changes in the regulatory regimes of these countries
that have the effect of limiting or prohibiting IP telephony, or that impose
new or additional regulatory requirements on providers of such services, may
result in our being unable to provide service to one or more countries in which
we currently operate.  That result could have a material adverse effect on our
business, financial condition and results of operations.

Wireless Messaging

     Our wireless voice messaging 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 regulates only the FM licensee, and does not
require a separate license for the contractual use of FM-SCA channels.  There
can be no assurance that Congress, the FCC, state regulatory agencies, foreign
governments or supranational bodies will not in the future require us to obtain
a license to operate our business or impose other requirements on radio
stations that may limit our ability to operate.  Regulators in most of the
foreign markets we plan to enter may take a similar position in their countries
to that of the FCC regarding the licensing and regulation of FM-SCA channels.

                                      27
<PAGE>

There can be no assurance that foreign regulatory agencies will allow us to
operate our services.

Legal Disputes May Affect Our Financial Position and the Price of Our Common
Stock

As further described above under "Legal Proceedings," we are involved in a
dispute with Frontier Corporation that is currently pending before the American
Arbitration Association concerning obligations arising under a March 4,
1999 agreement entered into by and among Frontier and Mediatel, GlobalFirst,
Chadwell Hall and us to settle costs incurred by GlobalFirst and Mediatel for
their use of Frontier's telecommunications network.  Pursuant to such
agreement, we issued to Frontier 1,250,000 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 1,250,000 shares
of our common stock on the open market, such sale could cause a material
adverse effect on the market price of our common stock.  Further, if Frontier
is successful in the position it has taken in the arbitration, we would have a
significant obligation to Frontier if the value of the 1,250,000 shares of our
common stock is less than the account balance.

We are also involved in two other significant legal disputes which, if resolved
unfavorably to us, would have a negative effect on our financial position.  See
Item 3 "Legal Proceedings.

Operating Internationally May Expose Us to Additional and Unpredictable Risks

     We intend to enter into international markets to market our wireless voice
messaging system.  International operations are subject to inherent risks,
including:

     - potentially weaker intellectual property rights;
     - difficulties in obtaining foreign licenses;
     - changes in regulatory requirements;
     - political instability;
     - unexpected changes in regulations and tariffs;
     - fluctuations in exchange rates;
     - varying tax consequences; and
     - uncertain market acceptance and difficulties in marketing efforts due to
       language and cultural differences.

Our Common Stock Is Illiquid

     Our common stock is currently traded on the OTC Bulletin Board and, as
such, our common stock is relatively illiquid.  There can be no assurance that
an active public trading market for our common stock will be sustained.

The Exercise or Conversion of Our Outstanding Warrants, Options May Dilute the
Percentage Ownership of Our Stockholders and the Value of Our Common Stock

     As of May 1, 2000, there were outstanding warrants and options to
purchase an aggregate of 32,305,166 shares of our common stock.  The exercise
or conversion of outstanding stock options or warrants and any resulting
issuance of additional shares of common stock would dilute the percentage
ownership of our stockholders.  Further, the terms upon which we will be able

                                      28

<PAGE>

to obtain additional equity capital may be adversely affected since the holders
of the outstanding warrants or options can be expected to exercise them at a
time when we would, in all likelihood, be able to obtain any needed capital on
terms more favorable to us than those provided by the outstanding warrants and
options.

     If outstanding warrants and options are exercised in the future at prices
below the price paid by purchasers of the shares of common stock offered under
this prospectus, those purchasers will experience dilution of those shares.

Possible Depressive Effect of Future Sales of Common Stock Subject to Rule 144

     As of June 30, 2000, we had 35,836,000 shares of common stock outstanding
(43,993,000 shares if we assume all of our outstanding warrants and options had
been exercised).  33,391,000 shares, or 93% of our common stock, are freely
tradable without restriction under the Securities Act of 1933, as amended,
subject to the lock-up restrictions on transfer referred to below.  The
remaining 2,445,000 shares, or 7% of our common stock, were issued by us in
private transactions, are treated as "restricted securities" as defined under
the Securities Act. As of June 30, 2000, we also had outstanding a total of
8,157,000 options and warrants to purchase our common stock.  As of June 30,
2000, 4,075,000 (50%) shares underlying these warrants and options are freely
tradable without restriction under the Securities Act; however, 2,192,000 (27%)
warrants expire on September 30, 2000 and we do not expect them to be
exercised.  The remaining 4,082,000 (50%) shares underlying these warrants and
options are treated as "restricted securities" as defined under the Securities
Act. Restricted securities 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 (1)
one percent (1%) of our issued and outstanding common stock or (2) 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
Clariti 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
our common stock.

     As of June 30, 2000, 20,433,000 shares, or 57% of our common stock, were
subject to lock-up agreements.  The parties to the lock-up agreements are not
permitted to sell their shares until the expiration of the lock-up period
without our prior consent.  Current lock-up agreements have expiration dates
ranging from September 2000 to March 2002.  The expiration of a particular
lock-up period could have a depressive effect on the market price of our common
stock.

Future Issuances of Preferred Stock May Dilute the Rights of Common
Stockholders

     Our Board of Directors has the authority to issue up to two million shares
of a new series of preferred stock and to determine the price, privileges and
other terms of such shares.  The Board may exercise this authority without the



                                      29
<PAGE>

approval of the stockholders.  The rights of the holders of common stock may be
adversely affected by the rights of the holders of any preferred stock that may
be issued in the future.  In addition, the issuance of preferred stock may make
it more difficult for a third party to acquire control of Clariti.

SPECIFIC RISKS ASSOCIATED WITH OUR TELEPHONY AND INTERNET PRODUCTS AND SERVICES

Our Growth as an IP Telephony Service Provider Depends on the Success and
Increased Use and Acceptance of IP Technology

     The IP telephony services market is new and rapidly evolving. The demand
and market acceptance of our products is uncertain and subject to a high degree
of risk.  In order for our IP telephony products to be successfully accepted in
the marketplace, IP telephony technology must be accepted as a viable
alternative to traditional telephony services.  Because this market is new and
evolving, it is difficult to predict the size of the market and its growth
rate.  If the IP telephony market fails to develop or develops more slowly than
we anticipate, we will not be able to generate revenues from our IP telephony
services at the rate we anticipate.

The Operation of our Managed Network Is Dependent Upon Our Ability to Protect
Equipment and Data at Our Facilities

     The operation of our managed network is dependent upon our ability to
protect the equipment and data at our IP and circuit switches against damage
that may be caused by fire, power loss, technical failures, viruses,
unauthorized intrusion, natural disasters, sabotage and other similar events.
Although we have taken precautions to protect ourselves and our customers from
events that could interrupt delivery of services, our systems are vulnerable to
fire, acts of sabotage, technical failure, viruses, human errors, natural
disasters or similar events beyond our control.  Any of these events might
damage or cause our system to fail.  Any damage to or failure of our system or
operations could result in the reduction or termination of our services.

     We maintain business interruption insurance providing for coverage of
certain of our business operations.  There can be no assurance that we will be
able to maintain our insurance, that insurance would continue to be available
at reasonable prices and on favorable terms or that insurance would be
sufficient to compensate us for losses we experience due to our inability to
provide services to our consumers.  We do not currently maintain business
interruption insurance at Clariti Australia.

We Face Risks of Loss from Returned Transactions, Fraud, Bad Debt and Theft of
Services

     We utilize national credit card clearance systems for electronic credit
card settlement. We generally bear the same credit risks normally assumed by
other users of these systems arising from returned transactions caused by
closed accounts, frozen accounts, unauthorized use, disputes, theft or fraud.
Our relationships with providers of merchant card services such as VISA and
MasterCard could be adversely affected by excessive uncollectibles.
Termination of our ability to offer recharges through merchant card services
would have a material adverse effect on us.




                                      30
<PAGE>

     From time to time, persons have obtained services without rendering
payment to us by unlawfully utilizing our access numbers and personal
identification numbers (PINs).  Although we have not experienced material
losses due to such unauthorized use of access numbers and customized PINs, we
cannot assure you that we will not incur future material losses due to
unauthorized use.  Although we attempt to manage these credit, theft and fraud
risks through our internal controls, monitoring and blocking systems, our
measures may not be sufficient to effectively limit all of our exposure to
fraud in the future.

Our Growth as an Internet Service Provider Depends on the Success and Increased
Use of the Internet

     The Internet service market is new and rapidly evolving. The demand and
market acceptance of our products is uncertain and subject to a high degree of
risk.  In order for our Internet products and services to be successfully
accepted in the marketplace, the Internet must be accepted as a viable
alternative to traditional telephony services.  Because this market is new and
evolving, it is difficult to predict the size of the market and its growth
rate.  If the market for our Internet products and services fails to develop or
develops more slowly than we anticipate, we will not be able to generate
revenues from our Internet services at the rate we anticipate.  In addition, if
Internet usage grows too quickly, Internet infrastructure may not be able to
support the demands placed on it by its growth and its performance and
reliability may decline.

SPECIFIC RISKS ASSOCIATED WITH OUR WIRELESS VOICE MESSAGING SYSTEM

Consumers May Not Accept our Wireless Voice Messaging System

     The acceptance of our wireless voice messaging system is a key element to
our success and profitability.  As with all new products, there is a risk that
consumers may not accept our product.  We may not be able to demonstrate the
benefits of our product to consumers to sufficiently convince them to purchase
our system.  The development of new voice messaging services is evolving and
highly competitive.  Other companies may develop products in response to
technological changes that make our system noncompetitive, especially if the
development, introduction and marketing of our product is delayed.

We May Not Be Able to Develop Our Wireless Voice Messaging System

     Although we have successfully tested a prototype of our digital wireless
voice messaging system in selected areas, we may not be able to successfully
develop a commercially viable production model.  New product development
efforts are subject to many inherent risks, including unanticipated delays,
expenses, market acceptance, technical problems or difficulties, as well as
possible insufficiency of funding to complete development.  We cannot be
certain when our wireless voice messaging system will be completed, that our
products can be developed within a reasonable development schedule, if at all,
or that they can be produced at a reasonable cost.




                                      31



<PAGE>

We Will Be Dependent Upon Other Companies to Assist in the Manufacturing of Our
Wireless Voice Messaging System

     We plan to contract with other companies to manufacture our voice
messaging player, SCA generator or related components.  We will depend on the
ability of other companies to engineer, develop, manufacture and assemble
certain components of our system in accordance with our specifications.  These
companies may be unable to meet our specifications or may experience delays in
delivering our products to us.

We Will Be Dependent on Other Companies to Provide Us with the Parts Necessary
to Manufacture Our Wireless Voice Messaging System

     We plan to acquire the component parts of our voice messaging player and
SCA generator from other companies.  Recently, worldwide demand for and
production of wireless devices were greater than manufacturers and component
suppliers had anticipated. As a result, there have been shortages of certain
types of components used in manufacturing wireless devices, including some of
those used in our voice messaging player and SCA generator. If such component
suppliers are unable to meet industry demand for certain components and thus
experience delays in delivering components, our business would be adversely
affected.

We Have No Experience in Marketing or Distributing Our Wireless Voice Messaging
System

     While members of management have many years of marketing and distribution
experience in the wireless messaging market, we have no way to determine
whether traditional sales and marketing techniques will be effective in
marketing and distributing our wireless voice messaging system.  Establishing a
sales and marketing capability in our target markets will require substantial
efforts and significant resources.

We May Be Dependent Upon Third Parties to Market and Distribute Our Wireless
Voice Messaging System

     We intend to distribute our wireless products primarily through third
party distributors.  The success of our wireless voice messaging system depends
upon our ability to seek out partners who are experienced with marketing and
distributing wireless products in their respective geographic areas.  We have
executed a Memorandum of Understanding with Conectel, the largest paging
company in Latin America.  We will need additional arrangements to distribute
our wireless voice messaging system.  We may not be able to maintain our
arrangement with Conectel or enter into additional distribution arrangements.
In addition, we have little control over the resources that our distributors
will devote to marketing our system.

We May Be Dependent Upon Third Parties To Provide FM-SCA Channels in Areas in
Which We Intend to Operate Our Wireless Voice Messaging System

     In markets where we intend to distribute and operate our wireless voice
messaging system, we will be required to enter into contractual arrangements
with FM radio stations in order to secure the use of FM radio subcarrier
frequencies to operate our wireless voice messaging system. We may not be able


                                      32

<PAGE>

to enter into these arrangements or we may not be able to obtain sufficient
radio frequency coverage in our target market.  In addition, FM radio station
owners may develop other uses for their subcarrier frequencies which would
limit our ability to enter into these arrangements.  If we are unable to enter
into arrangements with a significant number of FM radio stations, or to do so
on economically advantageous terms, our ability to commercialize our wireless
voice messaging system and our profitability, if any, will be limited.

We Have Limited Protection of Proprietary Rights and Technology

     Our intellectual property rights include patents, copyrights, trade
secrets, trademarks and exclusive and non-exclusive licenses.  We have been
granted a U.S. patent dealing with FM Subcarrier Digital Voice Paging.  Patents
on this invention have also been granted in South Africa and Taiwan and are
pending in 10 additional countries. We have also filed for patent protection in
the United States and multiple foreign countries on a number of additional
inventions.  Our pending patent applications include:

     - aspects of our proprietary wireless protocol ClariCast(TM);
     - a unique interference-reduction technique; and
     - the overall design of our wireless voice messaging player.

     We cannot be certain that any patent applications will result in the
issuance of a patent or that our patents will withstand any challenges by third
parties.

We Face Risks of Infringement Claims

     We may be subject to legal proceedings and claims from time to time
relating to the intellectual property of others, even though we take steps to
assure that neither our employees nor our contractors knowingly incorporate
unlicensed copyrights or trade secrets into our products.  It is possible that
third parties may claim that our current or future products may infringe upon
their patent, copyright, trademark or trade secret rights.   Any such claims,
regardless of their merit, could be time consuming, expensive, cause delays in
introducing new or improved products or services, require us to enter into
royalty or licensing agreements or require us to stop using the challenged
intellectual property.  Successful infringement claims against us may
materially disrupt the conduct of our business or affect profitability.  There
are currently no legal proceedings or claims for infringement of intellectual
property rights pending against us.

Unauthorized Use of Our Intellectual Property and Trade Secrets May Affect our
Market Share and Profitability

     We rely on our patents, copyrights, trademarks, trade secrets, know how
and continuing technological advancement to establish a competitive position in
the marketplace.  We attempt to protect our proprietary technology through an
employee handbook and agreements with our employees.  Other companies may
independently develop or otherwise acquire similar technology or gain access to
our proprietary technology.  Despite our precautions, there can be no assurance
that we will be able to adequately protect our technology from competitors in
the future.  The enforcement of patent rights often requires the institution of
litigation against infringers.  This litigation is often costly and time
consuming.


                                      33
<PAGE>

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

General Operations
------------------
     The current focus of our business is in two industry segments: wireless
messaging services and telephony/Internet services.  Our wireless technology
will support voice messaging (including wireless voicemail and text-to-speech),
data and information services to a high-speed digital wireless device.  Our
telephony/Internet business is an international facilities-based carrier that
utilizes both IP and circuit switched technologies over a unified messaging
platform, and includes the following services:
     - prepaid phone cards;
     - residential and business long distance services;
     - fax and data services;
     - traditional dial-up Internet access, web site design and hosting; and
     - Digital Subscriber Line ("DSL") connections for business customers.
Further description of these businesses and their operations is included above
under Item 1, Business.

Other Developments
------------------
     We acquired GlobalFirst Holdings Limited in December 1998 and Mediatel
Global Communications Limited in March 1999.  At the time of their
acquisitions, GlobalFirst, Mediatel and their respective subsidiaries comprised
our International Telecommunications Group and were telecommunications
resellers operating in the residential, commercial and international calling
card business sectors. On October 11, 1999, the companies of International
Telecommunications Group filed for voluntary liquidation under the laws of the
United Kingdom and ceased operations.  This voluntary liquidation was
undertaken because the International Telecommunications Group could not pay its
debts, including debt the group owed to Clariti.  The liquidation proceedings
have discharged all liabilities of the International Telecommunications Group.

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.  Losses from operations of the International Telecommunications
Group between July 1, 1999 and October 11, 1999 were accrued in Fiscal 1999;
therefore, our consolidated results of operations for Fiscal 2000 do not
include the International Telecommunications Group.




                                      34




<PAGE>

Year Ended June 30, 2000 (Fiscal 2000)
vs. Year Ended June 30, 1999 (Fiscal 1999)
------------------------------------------
     For Fiscal 2000, we incurred a net loss of $4,872,000 ($0.14 per share) on
revenue of $6,735,000 compared to a net loss of $220,412,000 ($11.79 per share)
on revenue of $251,000 for Fiscal 1999. Fiscal 2000 results of operations
include an extraordinary gain from the discharge of indebtedness of $33,502,000
($1.00 per share).  Excluding the extraordinary gain, we incurred a net loss of
$38,374,000 ($1.14 per share).  The $182,038,000 decrease in net loss before
extraordinary items is primarily due to the substantial losses incurred by
GlobalFirst and Mediatel, our unconsolidated foreign subsidiaries, including
the write-off of $152,214,000 of goodwill recognized in accounting for their
acquisitions. Such goodwill was written off due to the October 11, 1999 filing
for liquidation of GlobalFirst, Mediatel and their respective subsidiaries.

     As of June 30, 1999, we had written off all assets related to GlobalFirst,
Mediatel and their respective subsidiaries and had accrued for all of their
estimated losses from operations up to the date of liquidation.  The
liquidation proceedings have since discharged all of their liabilities, and as
a result we recognized an extraordinary gain of $33,502,000 on the discharge of
such indebtedness in Fiscal 2000.

     Fiscal 2000 revenue of $6,735,000 and gross profit of $1,124,000 reflect
the operations of MegaHertz-NKO, NKA Communications for the period from October
12, 2000 (acquisition date) to June 30, 2000 and Tekbilt World Communications
for the period from December 22, 2000 (acquisition date) to June 30, 2000.
Fiscal 1999 revenue of $251,000 and gross profit of $91,000 reflect the
operations of MegaHertz-NKO for the period from May 7, 1999 (acquisition date)
to June 30, 1999. During Fiscal 1998 and Fiscal 1999 prior to the acquisition
of MegaHertz-NKO, we had no revenues from consolidated subsidiaries.

     Network operating expenses and marketing expenses in Fiscal 2000 were
$1,174,000 and $2,041,000, respectively, compared to none and $44,000,
respectively, in Fiscal 1999.  Such expenses relate to the marketing activities
and operations of the international telecommunication networks of our
Telephony/Internet Services business, substantially all of which was acquired
during Fiscal 2000.  Research and development expenses increased $1,696,000, or
69%, from $2,465,000 in Fiscal 1999 to $4,161,000 in Fiscal 2000 due to
continued acceleration of development work on our Wireless Voice Messaging
System. Included in the Fiscal 2000 R&D expense amount is $950,000 for the
purchase from a third party engineering contractor of all the technology and
related designs, schematics and know-how for one of the key components of our
Wireless Voice Messaging System.  Depreciation and amortization expenses
increased $3,825,000, from $701,000 in Fiscal 1999 to $4,526,000 in Fiscal
2000.  This increase was largely due to amortization of goodwill incurred in
the acquisitions of MegaHertz-NKO in May 1999, NKA Communications in October
1999 and Tekbilt World Communications in December 1999, as well as depreciation
expense recognized by such companies, in Fiscal 2000.  Since the end of Fiscal
2000, we reviewed MegaHertz-NKO's operations and concluded that its
revenue-generating activities could not become profitable. Therefore, we
terminated most of MegaHertz-NKO's revenue-generating activities and
consolidated those remaining operations into Tekbilt World Communications. This
action precipitated the write-off of $10,441,000, or $0.31 per share, of
goodwill related to the acquisition of MegaHertz-NKO. General and administrative
expenses increased $6,311,000, or 60%, from $10,488,000 in Fiscal 1999 to


                                      35
<PAGE>

$16,799,000 in Fiscal 2000. Most of this increase is due to the issuance of
common stock purchase warrants to consultants as further described in Note 11
to the consolidated financial statements included herein.  General and
administrative expenses of the Telephony/Internet services business
($3,674,000), substantially all of which was acquired during Fiscal 2000, also
contributed to the increase.  Partially offsetting these increases was the
absence of accruals made in Fiscal 1999 related to the liquidation of
GlobalFirst and Mediatel.

     Equity in losses of unconsolidated subsidiaries in Fiscal 1999 reflects
the Company's 100% interest in the operating losses of the following:
     - GlobalFirst, from December 8, 1998 (date of acquisition)
       to June 30, 1999
     - 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 GlobalFirst and Mediatel
strategies of gaining market share prior to building a network by aggressively
pricing its prepaid calling cards and other telecommunications services.  In
addition, it reflects their 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. These losses were a significant factor in their decision to file for
voluntary liquidation.

     During Fiscal 2000, we sold certain excess telecommunications equipment
with a net book value of approximately $957,000 for consideration of
approximately $195,000, resulting in a loss of $762,000.  This equipment was
sold to an affiliate of Chadwell Hall Holdings, formerly our majority
shareholder of record, in an arms length transaction.

Twelve Months Ended June 30, 1999 (Fiscal 1999)
vs. Eleven Months Ended June 30, 1998 (Fiscal 1998)
---------------------------------------------------
     For Fiscal 1999, we incurred a net loss of $202,412,000 ($11.79 per share)
on revenue of $251,000 compared to a net loss of $4,248,000 ($0.81 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 GlobalFirst and Mediatel,
our unconsolidated foreign subsidiaries, including the write-off of
$152,214,000 of goodwill recognized in accounting for their acquisitions. Such
goodwill was written off due to the October 11, 1999 filing for voluntary
liquidation of GlobalFirst, Mediatel and their respective subsidiaries.

     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. During Fiscal 1998 and Fiscal 1999 prior to the
acquisition of MegaHertz-NKO, we had no revenues from consolidated
subsidiaries.

     Research and development expenses increased $1,277,000, or 107%, from
$1,188,000 in Fiscal 1998 to $2,465,000 in Fiscal 1999 due to acceleration of
development work on our Wireless Voice Messaging System. Depreciation and
amortization expenses increased from $61,000 in Fiscal 1998 to $701,000 in
Fiscal 1999.  Substantially all of this $640,000 increase was due to goodwill
amortization resulting from the May 1999 acquisition of MegaHertz-NKO. General
and administrative expenses increased $7,514,000, from $2,974,000 in Fiscal

                                      36
<PAGE>

1998 to $10,488,000 in Fiscal 1999 primarily due to accruals related to the
liquidation of GlobalFirst and Mediatel, 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 in Fiscal 1999 are
described above under the comparison of Twelve Months Ended June 30, 1999
(Fiscal 1999) vs. Eleven Months Ended June 30, 1998 (Fiscal 1998).

Liquidity and Capital Resources
-------------------------------
     At June 30, 2000, we had working capital of $12,553,000 (including a cash
balance of $14,333,000) as compared to a working capital deficit of $35,500,000
(including a cash balance of $3,284,000) at June 30, 1999.  The working capital
increase of $48,053,000 is primarily due to the following:
     - the discharge of indebtedness of approximately $33,502,000 related to
       the liquidation of GlobalFirst, Mediatel and their subsidiaries; and
     - the sale of 3,914,000 shares of common stock for proceeds, net of
       commissions, of $32,373,000 during Fiscal 2000.
These working capital improvements were partially offset by use of cash in
operations during Fiscal 2000.

     We believe that existing cash balances will enable us to continue
developing our Wireless Voice Messaging System and continue to fund expected
negative cash flows and capital expenditures related to the growth of the
Telephony/Internet Services Group for the remainder of calendar year 2000. We
currently have no bank lines of credit; however, we have recently received a
commitment from a European investment bank to secure additional financing for
us during the fourth quarter of 2000 that will fund our operating cash
requirements at least through June 2001.

     Significant additional funding will be required beyond June 2001 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 us.


ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company's business does not bear significant exposures to the market
risks described in Item 305 of Regulation S-K.


ITEM 8.     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 8.




                                      37


<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, 2000                                         F-1

          B.      Consolidated Balance Sheets at June 30, 2000 and
                1999                                               F-2 to F-3

          C.   Consolidated Statements of Operations for the
                years ended June 30, 2000, 1999 and 1998              F-4

          D.   Consolidated Statement of Stockholders' Equity
                for the years ended June 30, 2000, 1999 and 1998   F-5 to F-7

          G.   Consolidated Statements of Cash Flows for the
                years ended June 30, 2000, 1999 and 1998           F-8 to F-10

          H.   Notes to Consolidated Financial Statements         F-11 to F-31



                                      38

<PAGE>




                          INDEPENDENT AUDITORS' REPORT


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

We have audited the accompanying consolidated balance sheets of Clariti
Telecommunications International, Ltd. and subsidiaries as of June 30, 2000 and
1999, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the twelve months ended June 30, 2000 and 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, 2000,
1999, and the results of their operations and cash flows for the twelve months
ended June 30, 2000 and 1999 and the eleven months ended June 30, 1998 in
conformity with generally accepted accounting principles.



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


Bala Cynwyd, Pennsylvania
September 25, 2000


                                       F-1


<PAGE>

PART I. - FINANCIAL STATEMENTS.

         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             JUNE 30, 2000 and 1999
                        (Dollars and Shares in Thousands)


                                                   June 30         June 30
                                                     2000            1999
                                                  ---------       ---------
                      ASSETS

CURRENT ASSETS
  Cash and cash equivalents                       $  14,333       $   3,284
  Trade accounts receivable, net                      1,026             286
  Prepaid expenses and other current assets           1,368             520
                                                  ---------       ---------
                                                     16,727           4,090

PROPERTY AND EQUIPMENT, NET                           4,072           3,244

INTANGIBLE ASSETS, NET                                5,858          12,596
                                                  ---------       ---------

TOTAL ASSETS                                      $  26,657       $  19,930
                                                  =========       =========


  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
  Accounts payable - trade                        $   1,064       $   4,653
  Deferred revenue                                    1,069               -
  Accrued expenses and other current liabilities      2,041             524
  Note payable to related party                           -           2,000
  Excess of net liabilities over assets of
   unconsolidated subsidiaries                            -          32,413
                                                  ---------       ---------
                                                      4,174          39,590

LONG-TERM LIABILITIES                                   624               -
                                                  ---------       ---------
TOTAL LIABILITIES                                     4,798          39,590
                                                  ---------       ---------

COMMITMENTS AND CONTINGENCIES



                                     F-2


<PAGE>

         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             JUNE 30, 2000 and 1999
                        (Dollars and Shares in Thousands)


                                                   June 30         June 30
                                                     2000            1999
                                                  ---------       ---------
          STOCKHOLDERS' EQUITY (DEFICIT)

COMMON STOCK
 $.001 par value; authorized 300,000 shares;
 issued and outstanding, 35,836 shares at
 June 30, 2000 and 31,059 shares at
 June 30, 1999                                           36              31

WARRANTS OUTSTANDING, NET                            14,062           2,322

ADDITIONAL PAID-IN-CAPITAL                          264,643         228,704

ACCUMULATED DEFICIT                                (256,937)       (252,065)

ACCUMULATED OTHER COMPREHENSIVE INCOME                   55           1,348
                                                  ---------       ---------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                 21,859        ( 19,660)
                                                  ---------       ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
 EQUITY (DEFICIT)                                 $  26,657       $  19,930
                                                  =========       =========



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



                                      F-3

<PAGE>
         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998
           (Dollars and Shares in Thousands, Except Per Share Amounts)


                                           Fiscal        Fiscal        Fiscal
                                            2000          1999          1998
                                         ---------     ---------     ---------
REVENUE                                  $   6,735     $     251      $      -
COST OF REVENUE                              5,611           160             -
                                         ---------     ---------     ---------
GROSS PROFIT                                 1,124            91             -

Network operating expenses                   1,174             -             -
Marketing expenses                           2,041            44             -
Research and development expenses            4,161         2,465         1,188
Depreciation and amortization expenses       4,526           701            61
General and administrative expenses         16,799        10,488         2,974
Loss from unconsolidated subsidiaries            -        54,987             -
Write-off of goodwill                       10,441       152,214             -
                                         ---------     ---------     ---------
LOSS FROM OPERATIONS                      ( 38,018)     (220,808)     (  4,223)
                                         ---------     ---------     ---------
OTHER INCOME (EXPENSE)
 Interest income                               488           441            33
 Interest expense                         (     82)     (     45)     (     58)
 Loss on sale of fixed assets             (    762)            -             -
                                         ---------     ---------     ---------
                                          (    356)          396      (     25)
                                         ---------     ---------     ---------
Net loss before extraordinary item        ( 38,374)     (220,412)     (  4,248)

EXTRAORDINARY ITEM
 Gain on discharge of indebtedness          33,502             -             -
                                         ---------     ---------     ---------
NET LOSS                                 $(  4,872)    $(220,412)    $(  4,248)

OTHER COMPREHENSIVE INCOME (LOSS):
  Foreign currency translation adjustment       55         1,348             -
                                         ---------     ---------     ---------
COMPREHENSIVE LOSS                       $(  4,817)    $(219,064)    $ ( 4,248)
                                         =========     =========     =========

WEIGHTED AVERAGE NUMBER OF SHARES
 OUTSTANDING                                33,599        18,580         5,227

BASIC AND DILUTED LOSS PER COMMON SHARE
   Net loss before extraordinary item    $(   1.14)    $(  11.79)    $(    .81)
   Extraordinary item                         1.00             -             -
                                         ---------     ---------     ---------
   Net loss                              $(   0.14)    $(  11.79)    $(    .81)
                                         =========     =========     =========

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

                                      F-4
<PAGE>

         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998
                        (Dollars and Shares in Thousands)


                       PREFERRED STOCK "SERIES B"   PREFERRED STOCK "SERIES D"
                       --------------------------   --------------------------
                         NUMBER           ADD'L.      NUMBER           ADD'L.
                           OF            PAID-IN        OF            PAID-IN
                         SHARES  AMOUNT  CAPITAL      SHARES  AMOUNT  CAPITAL
                         ------  ------  -------      ------  ------  -------

BALANCES, JULY 31, 1997    664    $  1   $ 3,321          -    $  -   $     -
Eleven months ended
 June 30, 1998:
  Preferred stock issued
   for cash                  -       -        -          58       1       574
  Commission on issuance
   of preferred stock        -       -        -           -       -    (   58)
  Conversion to common
   stock                  (664)     (1)   (3,321)      ( 58)    ( 1)   (  516)
                         -----    ----   -------      -----    ----   -------
BALANCES, JUNE 30, 1998      -    $  -   $     -          -    $  -   $     -
Twelve months ended
 June 30, 1999               -       -         -          -       -         -
                         -----    ----   -------      -----    ----   -------
BALANCES, JUNE 30, 1999      -    $  -   $     -          -    $  -   $     -
Twelve months ended
 June 30, 2000               -       -         -          -       -         -
                         -----    ----   -------      -----    ----   -------
BALANCES, JUNE 30, 2000      -    $  -   $     -          -    $  -   $     -
                         =====    ====   =======      =====    ====   =======


                                      F-5



<PAGE>
         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998
                        (Dollars and Shares in Thousands)


                                           COMMON STOCK     COMMON
                                         ---------------    STOCK
                                         NUMBER            WARRANTS    ADD'L.
                                           OF              OUTSTAN-   PAID-IN
                                         SHARES   AMOUNT   DING,NET   CAPITAL
                                         ------   ------  ---------  ---------
BALANCES, JULY 31, 1997                   4,727    $  5   $  1,540   $  24,062
Eleven months ended June 30, 1998:
  Preferred Series B conversion             332       -          -       3,322
  Preferred Series D conversion             144       -          -         517
  Common stock issued for cash              719       1          -       3,387
  Commission on issuance of common stock      -       -          -    (     90)
  Common stock warrants issued                -       -        645    (    156)
  Common stock warrants exercised             2       -    (     2)          2
  Common stock warrants expired/rescinded     -       -    (   340)        340
                                         ------     ----  --------   ---------
BALANCES, JUNE 30, 1998                   5,924     $  6  $  1,843   $  31,384
Twelve months ended June 30, 1999:
  Common stock issued for cash            3,492        4         -      25,096
  Commission on issuance of common stock      -        -         -    (    967)
  Common stock issued for:
    Acquisition of GlobalFirst           19,143       19         -     117,052
    Acquisition of MegaHertz-NKO          1,125        1         -      13,299
    Security for unconsolidated
     subsidiaries' potential liability
     to Frontier                          1,250        1         -      11,249
    Commission on sale of common stock       52        -         -           -
    Expenses and accrued liabilities          3        -         -          30
  Sale of Telnet                              -        -         -      31,050
  Common stock warrants issued                -        -       615           -
  Common stock warrants exercised            75        -   (   136)        511
                                         ------     ----  --------   ---------
BALANCES, JUNE 30, 1999                  31,059     $ 31  $  2,322   $ 228,704
Twelve months ended June 30, 2000:
  Common stock issued for cash            3,914        4         -      36,184
  Commission on issuance of common stock      -        -         -    (  3,815)
  Common stock issued for:
    Settlement of loan payable              125        -         -       1,000
    Acquisition of NKA                      287        -         -       3,554
    Acquisition of TWC                      323        1         -       2,907
    Settlement of MegaHertz-NKO escrow
     agreement                              128        -         -         701
  Common stock warrants issued, net of
   unearned consulting fees of $483           -        -    11,852    (  6,785)
  Common stock warrants expired               -        -   (   112)        112
  Capitalization of note payable to
   related party                              -        -         -       2,081
                                         ------     ----  --------   ---------
BALANCES, JUNE 30, 2000                  35,836     $ 36  $ 14,062   $ 264,643
                                         ======     ====  ========   =========

                                      F-6
<PAGE>

         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998
                        (Dollars and Shares in Thousands)



                                                          ACCUMULATED
                                                             OTHER
                                         ACCUMULATED     COMPREHENSIVE
                                           DEFICIT       INCOME (LOSS)
                                         -----------     -------------
BALANCES, JULY 31, 1997                   $( 27,405)       $      -
Eleven Months ended June 30, 1998:
  Net loss                                 (  4,248)              -
                                          ---------        --------
BALANCES, JUNE 30, 1998                   $( 31,653)       $      -
Twelve months ended June 30, 1999:
  Net loss                                 (220,412)              -
  Currency translation adjustment                 -           1,348
                                          ---------        --------
BALANCES, JUNE 30, 1999                   $(252,065)       $  1,348
Twelve months ended June 30, 2000:
  Net loss                                 (  4,872)        ( 1,348)
  Currency translation adjustment                 -              55
                                          ---------        --------
BALANCES, JUNE 30, 2000                   $(256,937)       $     55
                                          =========        ========


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



                                      F-7



<PAGE>

         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998
                             (Dollars in Thousands)


                                             Fiscal       Fiscal       Fiscal
                                              2000         1999         1998
                                           ---------    ---------    ---------
CASH FLOWS FROM OPERATING ACTIVITIES
 Net loss                                  $(  4,872)   $(220,412)   $(  4,248)
 Adjustments to reconcile net loss to net
  cash flows used in operating activities:
   Extraordinary gain on discharge of
    Indebtedness                             (33,502)           -            -
   Loss from unconsolidated subsidiaries           -       54,987            -
   Loss on sale of fixed assets                  762            -            -
   Write-off of goodwill                      10,441      152,214            -
   Depreciation and amortization               4,526          701           61
   Issuance of common stock warrants for
    general and administrative expenses        6,502            -            -
   Settlement of interest upon capitalization
    of loan payable to related party              81            -            -
   Other                                     (   238)         645          589
 Change in assets and liabilities which
  increase (decrease) cash, net of effects
  of acquisition:
     Trade accounts receivable               (    69)          21            -
     Prepaid expenses and other current
      assets                                 (   949)         238           43
     Accounts payable                        ( 4,020)       3,738          253
     Accrued expenses and other current
      liabilities                              1,461          297           33
     Deferred revenue                            541     (      3)           -
                                           ---------    ---------    ---------
 Net cash used in operating activities       (19,336)    (  7,574)    (  3,269)
                                           ---------    ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES
 Cash received with companies acquired net
  of cash paid for companies acquired            136        1,449            -
 Investment in unconsolidated subsidiaries               ( 15,802)           -
 Divestment of Telnet                              -     (    461)           -
 Investment in long-lived assets             ( 2,605)    (    227)    (    295)
                                           ---------    ---------    ---------
 Net cash received from (used in)
  investing activities                       ( 2,469)    ( 15,041)    (    295)
                                           ---------    ---------    ---------



                                      F-8


<PAGE>


         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998
                             (Dollars in Thousands)


                                             Fiscal       Fiscal       Fiscal
                                              2000         1999         1998
                                           ---------    ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES
 Principal payment on note payable to
  related party                                    -     (  1,000)           -
 Sale of common stock for cash                36,188       25,475        2,590
 Commission on sale of common stock         (  3,815)    (    967)    (     90)
 Sale of preferred stock for cash                  -            -          575
 Commission on sale of preferred stock             -            -     (     58)
 Proceeds from loan payable                        -            -          250
 Repayment of loan payable                  (     12)           -            -
 Increase in capital lease obligations           438            -            -
                                           ---------    ---------    ---------
Net cash received from (used in)
 financing activities                         32,799       24,508        3,267
                                           ---------    ---------    ---------

Effect of exchange rate changes on cash           55            -            -
                                           ---------    ---------    ---------

NET CHANGE IN CASH AND EQUIVALENTS            11,049        1,893     (    297)

CASH AND EQUIVALENTS, BEGINNING OF PERIOD      3,284        1,391        1,688
                                           ---------    ---------    ---------
CASH AND EQUIVALENTS, END OF PERIOD        $  14,333    $   3,284    $   1,391
                                           =========    =========    =========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Cash paid during the period:
   Interest                                 $     37    $       -    $       2
   Income taxes                             $      -    $       -    $       -




                                      F-9

<PAGE>



         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998
                             (Dollars in Thousands)


                                             Fiscal       Fiscal       Fiscal
                                              2000         1999         1998
                                           ---------    ---------    ---------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
 AND FINANCING ACTIVITIES
  Common stock issued as consideration
   For acquisitions of NKA Communications
    and Tekbilt World Communications       $   6,462    $       -    $       -
  Capitalization of note payable to
   related party                           $   2,000    $       -    $       -
  Issuance of common stock in settlement
   of loan payable                         $   1,000    $       -    $     250
  Issuance of common stock warrants for
   unearned consulting fees                $     483    $       -    $       -
  Common stock issued as security for
   unconsolidated subsidiaries' potential
   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 in acquisition
   of minority interest of subsidiary      $       -    $        -   $     200
  Issuance of common stock warrants for
   prepaid expenses                        $       -    $        -   $     326

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


                                      F-10


<PAGE>



         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 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 no longer has a significant interest in the
music and recording studio business.

Since then, the Company has taken several major steps toward becoming an
international telecommunications provider.  In April 1995, the Company acquired
its wireless messaging technology.  In May 1999, the Company acquired
MegaHertz-NKO, Inc., an Internet Service Provider ("ISP") and a provider of
enhanced telecommunications and IP telephony services. In October 1999, the
Company acquired NKA Communications Pty, Ltd. ("NKA"), an Australian provider
of telephony to corporate clients. In December 1999, the Company acquired
Tekbilt World Communications, Inc. ("TWC"), a facilities-based provider of
Internet Protocol ("IP") and conventional switched telecommunications services
with a large distribution network.

In Fiscal 1999, the Company also acquired GlobalFirst Holdings Limited
("GlobalFirst") and Mediatel Global Communications Limited ("Mediatel").  At
the time of their acquisitions, GlobalFirst, Mediatel and their respective
subsidiaries (the "International Telecommunications Group") were
telecommunications resellers operating in the residential, commercial and
international calling card business sectors in the United Kingdom and Europe.
In February 1999, the Company sold Telnet Products and Services Ltd.
("Telnet"), a wholly owned subsidiary of GlobalFirst, which operated over 100
public call offices throughout Europe.  As of October 11, 1999, all of the
remaining companies in the International Telecommunications Group filed for
voluntary liquidation in the United Kingdom and ceased operation of their
businesses as of that date (see Note 6).


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
periods ended June 30, 2000 and 1999 are referred to as Fiscal 2000 and Fiscal
1999, respectively, and the eleven month period ended June 30, 1998 is referred
to as Fiscal 1998.


                                      F-11

<PAGE>

         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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. The companies of the International Telecommunications Group have
been accounted for under the equity method of accounting. In the case of
GlobalFirst, Mediatel and their subsidiaries, equity method accounting was
required because the Company's control was deemed to be temporary due to the
liquidation proceedings initiated on October 11, 1999. In the case of Telnet,
equity method accounting was required because the Company's control was
temporary due to the sale of Telnet in February 1999.

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
----------------------------
Certain financial instruments potentially subject the Company to concentrations
of credit risk.  These financial instruments consist primarily of cash and
trade accounts receivable.  The Company places its temporary cash investments
with high credit quality financial institutions to limit its credit exposure.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of customers comprising the Company's customer
base, their dispersion across different geographic areas, and generally short
payment terms.

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 receivable, accounts payable, and accrued expenses. These balances, as
presented in the balance sheet as of June 30, 2000 and 1999, approximate their
fair value because of their short maturities.  Accounts receivable are
presented net of allowance for uncollectible accounts of $289,000 and $0 as of
June 30, 2000 and 1999, respectively.


                                      F-12


<PAGE>

         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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.

Intangible Assets
-----------------
The Company's intangible assets consist principally of goodwill, which is
amortized on a straight-line basis over a 5-year period.  Goodwill generally
relates to acquisitions made during Fiscal 2000 and 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. During Fiscal 2000 and Fiscal 1999, the Company
wrote off significant portions of its goodwill (see Note 6).

Foreign Currency Translation
----------------------------
Assets and liabilities of the Company's foreign operations 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.

Revenue Recognition and Deferred Revenue
----------------------------------------
The majority of the Company's revenue is generated through sales of prepaid
calling cards. The Company sells prepaid calling cards to distributors or
direct to retailers at a fixed price with normal credit terms. When the
customer is invoiced, deferred revenue is recognized. The Company recognizes
revenue and reduces the deferred revenue account as the end user utilizes
calling time and upon expiration of cards containing unused calling time. All
prepaid phone cards sold by the Company have expiration dates ranging up to a
maximum of six months after first use.

Research and Development Expenses
---------------------------------
Research and development expenditures, which are expensed as incurred, totaled
approximately $4,161,000, $2,465,000 and $1,188,000 during Fiscal 2000, 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


                                      F-13

<PAGE>

         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 Consolidated Statements of
Operations and Comprehensive Loss. The Company had foreign currency translation
adjustments of $55,000 and $1,348,000 during Fiscal 2000 and Fiscal 1999,
respectively.

Net Loss Per Common Share
-------------------------
Effective as of July 3, 2000, the Company implemented a 1 for 4 reverse split
of its common stock.  All amounts presented as net loss per common share have
been retroactively restated to give effect to this reverse split.

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.

                                     F-14
<PAGE>

        CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                       ELEVEN MONTHS ENDED JUNE 30, 1998


NOTE 3 - ACQUISITIONS AND DISPOSITIONS

Fiscal 2000 Acquisitions
------------------------
On October 12, 1999, the Company completed the acquisition of all of the
outstanding common stock of NKA, an Australian IP telephony company, for
consideration valued at approximately $3,554,000.  Consideration paid for NKA
consisted of 287,500 shares of Clariti common stock.  An additional 87,500
shares of Clariti common stock are being held in escrow until certain targets
are achieved by NKA over a two-year period.  The NKA acquisition was accounted
for using the purchase method of accounting. Substantially all of the
acquisition cost was recognized as goodwill.

On December 22, 1999, the Company completed the acquisition of all of the
outstanding common stock of TWC, a telecommunications company that offers long
distance and toll-free services, prepaid calling cards, postpaid calling cards,
prepaid cellular and e-commerce telecommunications services, through both
retail and wholesale distribution channels, for consideration valued at
approximately $3,206,000. Consideration paid for TWC consisted of 323,084
shares of Clariti common stock valued at approximately $2,908,000 and $298,000
in cash.  An additional 555,556 shares of Clariti common stock are issuable as
certain targets are achieved by TWC over a three-year period.  The NKA
acquisition was accounted for using the purchase method of accounting.
Substantially all of the acquisition cost was recognized as goodwill.

The following unaudited pro forma financial information presents a summary of
consolidated results of operations for Clariti, NKA and TWC as if the
acquisitions of NKA and TWC had occurred on July 1, 1998 (dollars in thousands,
except per share data):

                                              Fiscal       Fiscal
                                               2000         1999
                                            ---------    ---------
     Revenue                                 $  9,078    $   7,979
     Net loss before extraordinary item      $(39,062)   $(221,458)
     Net loss                                $( 5,560)   $(221,458)
     Net loss per share before
      extraordinary item                     $(  1.16)   $(  11.92)
     Net loss per share                      $(  0.16)   $(  11.92)

These unaudited pro forma results have been prepared for comparative purposes
only and reflect a adjustments for amortization of goodwill incurred in the
acquisitions.  They do not purport to be indicative of the results of
operations which actually would have resulted had the acquisition of NKA and
TWC occurred on July 1, 1998, or of future results of operations of the
consolidated entities.


                                     F-15



<PAGE>

         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998


NOTE 3 - ACQUISITIONS AND DISPOSITIONS (continued)

Fiscal 1999 Acquisitions and Dispositions
-----------------------------------------
On December 8, 1998 Clariti acquired 100% of the capital stock of GlobalFirst
from Chadwell Hall Holdings Ltd. ("CHH") for 19,142,875 shares of Clariti
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 maintained management control
of the operations.  The Company allocated all of the purchase price in excess
of fair market value of tangible net liabilities ($135,065,000) to goodwill. As
of October 11, 1999, GlobalFirst and its subsidiaries filed for voluntary
liquidation in the United Kingdom and ceased operation of their businesses as
of that date (see Note 6).  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.  Goodwill
associated with the acquisition of Telnet was eliminated with the sale of
Telnet in February 1999.

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, formerly the Company's majority shareholder
of record.

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 carried a fixed interest rate of 6.5% and was payable,
including 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. During Fiscal 2000 the remaining $2,000,000 balance of the note plus
accrued interest of $81,000 was capitalized as a contribution to capital of the
Company by CHH.  The Company issued no common stock to CHH in connection with
this contribution to capital. The Mediatel acquisition was accounted for using
the purchase method of accounting. The Company allocated all the purchase price
in excess of fair market value of tangible net liabilities ($31,790,000) to


                                      F-16
<PAGE>

         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998


NOTE 3 - ACQUISITIONS AND DISPOSITIONS (continued)

goodwill. As of October 11, 1999, GlobalFirst and its subsidiaries filed for
voluntary liquidation in the United Kingdom and ceased operation of their
businesses as of that date (see Note 6). As a result, all of the goodwill
associated with the acquisition of Mediatel was written off in Fiscal 1999.

On May 7, 1999, the Company acquired all of the outstanding common stock of
MegaHertz-NKO for consideration valued at approximately $13,300,000.
Consideration paid for MegaHertz-NKO consisted of 1,120,000 shares of Clariti
common stock.  An additional 255,000 shares of Clariti common stock were placed
in escrow until certain revenue and gross margin targets were achieved by
MegaHertz-NKO over a two-year period. The Company allocated all of the purchase
price in excess of fair market value of tangible net assets ($12,701,000) to
goodwill.  During Fiscal 2000, the Company entered negotiations with the former
shareholders of MegaHertz-NKO to resolve the disposition of the 255,000 shares
of Clariti common stock held in escrow.  As a result of these negotiations,
127,500, or one half, of the escrowed shares were issued to the former
shareholders of MegaHertz-NKO in settlement of the escrow agreement.  The
issuance of these shares resulted in the recognition of $701,000 being added to
the purchase price of MegaHertz-NKO in Fiscal 2000.  During Fiscal 2000, the
Company terminated most of the revenue-generating activities of MegaHertz-NKO
and consolidated those remaining into TWC. This action precipitated a write-off
of goodwill related to the acquisition of MegaHertz-NKO (see Note 6).


NOTE 4 - EQUITY IN NET LIABILITIES OF UNCONSOLIDATED SUBSIDIARIES

As of October 11, 1999, the companies of the International Telecommunications
Group filed for voluntary liquidation and ceased operation of their business
activities. The Company's control of the group was deemed to be temporary, thus
the equity method was used to account for the group. Results of operations for
Fiscal 1999 include the net losses of the International Telecommunications
Group from the date of acquisition through October 11, 1999.  Summarized
financial information of these companies for Fiscal 1999 follows (dollars in
thousands):

Condensed Statement of Operations for Fiscal 1999

     Revenues                    $10,061
     Expenses                     39,125
                                 -------
     Net loss                    $29,064
                                 =======




                                      F-17



<PAGE>

        CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                       ELEVEN MONTHS ENDED JUNE 30, 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         $ 41,515
     Stockholders' deficit        (32,413)
                                 --------
                                 $  9,102
                                 ========


NOTE 5 - EXTRAORDINARY GAIN

As of October 11, 1999, the International Telecommunications Group filed for
voluntary liquidation and ceased operation of its businesses. This voluntary
liquidation was undertaken because the International Telecommunications Group
could not pay its debts, including debt the group owed to Clariti.  The
liquidation proceedings have discharged all liabilities of the International
Telecommunications Group. All losses from operations of the International
Telecommunications Group had been provided for as of June 30, 1999, including
losses from operations during the period from July 1, 1999 to October 11, 1999.
Therefore, the Company recognized an extraordinary gain of $33,502,000, or
$1.00 per share, largely attributable to the excess of liabilities discharged
over the book value of assets of the International Telecommunications Group as
of the liquidation date.


NOTE 6 - ASSET IMPAIRMENT

During Fiscal 2000, the Company undertook a review of MegaHertz-NKO's
operations and concluded that its revenue-generating activities could not
become profitable.  The Company therefore terminated most of MegaHertz-NKO's
revenue-generating activities and consolidated those remaining operations into
TWC.  This action precipitated the write-off of $10,441,000, or $0.31 per
share, of goodwill related to the acquisition of MegaHertz-NKO.

On October 11, 1999, the International Telecommunications Group filed for
voluntary liquidation under the laws of the United Kingdom.  This voluntary
liquidation was undertaken because the Company concluded that the International
Telecommunications Group could not pay their debts.  As a result, all goodwill
related to the acquisitions of GlobalFirst and Mediatel, a total of
$152,214,000, or $8.19 per share, was written off in Fiscal 1999.


                                      F-18

<PAGE>

         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998


NOTE 7  - PROPERTY AND EQUIPMENT

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

                                             June 30      June 30
                                               2000         1999
                                            ---------    ---------
     Computer equipment and software         $ 4,236      $ 2,964
     Office equipment and furniture            1,114        1,780
     Leasehold improvements                       78            -
                                             -------      -------
     Total cost                                5,428        4,744
     Less accumulated depreciation            (1,356)      (1,500)
                                             -------      -------
                                             $ 4,072      $ 3,244
                                             =======      =======

Depreciation expense was $1,079,000, $210,000 and $32,000 for Fiscal 2000,
Fiscal 1999 and Fiscal 1998, respectively.


NOTE 8 - INCOME TAXES

There is no income tax benefit for operating losses for Fiscal 2000, 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.

The reconciliation of the statutory federal rate to the Company's effective
income tax rate is as follows (dollars in thousands):

                                         Fiscal        Fiscal       Fiscal
                                          2000          1999         1998
                                       ----------    ----------    ---------
     Statutory benefit provision        $(57,169)     $( 3,480)     $( 1,179)
     Tax differentials on foreign loss        40             -             -
     Increase in valuation allowance      57,129         3,480         1,179
                                        --------      --------      --------
                                        $      -      $      -      $      -
                                        ========      ========      ========


                                      F-19

<PAGE>

         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998


NOTE 8 - INCOME TAXES (continued)

Under FASB Statement 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases.  Deferred tax assets and liabilities are measured
using enacted tax rates.

The components of the Company's deferred tax assets (liabilities) are as
follows (dollars in thousands):
                                        June 30       June 30
                                          2000          1999
                                       ----------    ----------
     Property and equipment             $(   137)     $(   132)
     Net operating loss carryforwards     69,881        12,580
     Valuation allowance                 (69,744)      (12,448)
                                        --------      --------
                                        $      -      $      -
                                        ========      ========

Clariti Telecommunications International, Ltd. files a consolidated corporate
income tax return in the United States and its foreign subsidiaries in the
United Kingdom and Australia will be required to file income tax returns in
their respective countries.

The use of net operating loss carryforwards for United States income tax
purposes is limited when there has been a substantial change in ownership (as
defined) during a three-year period. Because of the recent and contemplated
changes in ownership of the Company's common stock, such a change may occur in
the future.  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.

At June 30, 2000 the Company had net operating loss carryforwards of
approximately $237,259,000 which if not used will expire primarily during the
years 2004 through 2015.  At June 30, 2000, the Company had net operating loss
carryforwards of approximately $1,160,000 for United Kingdom income tax
purposes, which can be carried forward indefinitely subject to continuity of
ownership and continuity of business tests.  At June 30, 2000, the Company had
net operating loss carryforwards of approximately $616,000 for Australian
income tax purposes, which can be carried forward indefinitely subject to
continuity of ownership and continuity of business tests.



                                      F-20

<PAGE>


         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998


NOTE 9 - 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. In most cases, management
expects that in the normal course of business, leases will be renewed or
replaced by other leases.  Rent expense for operating leases in Fiscal 2000,
Fiscal 1999 and Fiscal 1998 was $509,000, $108,000 and $11,000, respectively.

Some of the Company's telecommunications equipment is subject to capital leases
that expire in 2003.  Long-term liabilities consist principally of capital
lease obligations.  Property and equipment include the following amounts for
capitalized leases (amounts in thousands):

                                             June 30      June 30
                                               2000         1999
                                            ---------    ---------
     Computer equipment and software         $   604      $     -
     Less accumulated depreciation            (   89)           -
                                             -------      -------
                                             $   514      $     -
                                             =======      =======

The following is a schedule of future minimum rental payments for all
non- cancelable leases that have initial or remaining lease terms in excess of
one year at June 30, 2000 (dollars in thousands):

                       Year Ending
                         June 30,
                       -----------
                         2001                  $ 1,247
                         2002                      941
                         2003                      628
                         2004                      577
                         2005                      346
                         After 2005                159
                                               -------
             Total minimum lease payments        3,898
             Less amount representing interest  (   57)
                                               -------
             Present value of net minimum
              lease payments                   $ 3,841
                                               =======



                                     F-21


<PAGE>

         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998


NOTE 9 - COMMITMENTS AND CONTINGENCIES (continued)

Telecommunication Service Agreements
------------------------------------
The Company has telecommunications service agreements with its service
providers.  Some of these agreements contain minute volume commitments, the
amounts of which are not material individually or in the aggregate.

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.

Legal Proceedings
-----------------
France Telecom SA ("France Telecom") initiated a complaint against the Company
on May 12, 2000 before the Tribunal de Commerce de Paris (Paris Commercial
Court) in Paris, France. France Telecom's claim relates to a debt it claims it
is owed by GlobalFirst Communications SA, a French subsidiary of GlobalFirst,
for long-distance telephone services.  France Telecom seeks payment from
Clariti of 20,000,000 French Francs (approximately $2,600,000).  France Telecom
further claims unspecified damages corresponding to the loss of revenue
resulting from the ceasing of commercial relations with GlobalFirst
Communications SA.  The Company intends to vigorously defend the claims
asserted by France Telecom. Clariti believes that it did not verbally or in
writing make a promise to pay any obligations of GlobalFirst Communications SA,
and that it caused no damages to France Telecom because commercial relations
with GlobalFirst Communications SA had ceased before Clariti held any
negotiations with France Telecom.  A first hearing on this complaint was held
on September 13, 2000.  The French Court instructed Clariti to file a defense
by October 11, 2000.

On November 30, 1999, IDT Corporation ("IDT") filed a complaint in the Court of
Common Pleas in Philadelphia, Pennsylvania against the Company and Clariti
Carrier Services Limited, a United Kingdom subsidiary of the Company, seeking
payment for long-distance telephone services pursuant to a contract between IDT
and GlobalFirst Communications Limited, a subsidiary of GlobalFirst.  The
complaint seeks damages in the amount of $690,163 plus interest, costs and
attorneys fees. On March 20, 2000, the Court of Common Pleas dismissed the
complaint on the basis of jurisdiction, provided that proper jurisdiction lies
in England.  On or about April 15, 2000, IDT filed an appeal with the Superior
Court of Pennsylvania appealing the decision of the Court of Common Pleas.
This appeal is currently pending. The Company believes damages IDT may have
suffered, if any, must be recovered through the liquidation proceedings of the
International Telecommunications Group, and that neither the Company nor
Clariti Carrier Services Limited has any liability with respect to IDT's claim.


                                     F-22
<PAGE>

         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998


NOTE 9 - COMMITMENTS AND CONTINGENCIES (continued)

On or about June 17, 1999 Clariti, together with Mediatel, GlobalFirst, and
CHH, formerly the owner of record of a majority of Clariti stock (collectively
the "Claimants"), filed a Demand for Arbitration with the American Arbitration
Association (case no. 50 N 181 0021399) against Frontier Corporation and
Frontel Communications Limited (collectively "Frontier") concerning obligations
arising under that certain March 4, 1999 agreement entered into by and among
Frontier and each of the Claimants ("March 4 Agreement").  The parties entered
into the March 4 Agreement for the purpose of resolving certain billing
disputes between Frontier on the one part and GlobalFirst and Mediatel on the
other part.  Under the March 4 Agreement, Clariti paid $3,000,000 to Frontier
during March 1999 in payment of amounts allegedly due Frontier by Mediatel
and/or GlobalFirst.  Additionally, Clariti issued to Frontier 1,250,000 shares
of its common stock (5,000,000 shares before the 1 for 4 reverse split) as
security for the remaining balance, if any, due Frontier by Mediatel and/or
GlobalFirst ("Clariti Stock").  The amount due Frontier by Mediatel and
GlobalFirst as agreed to by the parties or as determined by arbitration is
referred to in the March 4 Agreement as the "Account Balance".  The terms of
the March 4 Agreement provide in part as follows: that CHH is liable for and
guarantees payment in full of the Account Balance and, further, shall be
obligated to purchase the Clariti Stock from Frontier for an amount equal to
the Account Balance.  At any time prior to the purchase of the Clariti Stock by
CHH, Clariti may purchase any portion or all of the Clariti Stock for an amount
equal to the Account Balance.  In the event of a default under the March 4,
1999 Agreement, Frontier may, at its option, sell a sufficient amount of shares
of Clariti Stock in order to satisfy the Account Balance.  If Frontier sells
all 1,250,000 shares of Clariti Stock for less than the Account Balance,
GlobalFirst, Mediatel and CHH are liable to pay Frontier the remaining Account
Balance due to Frontier.  Once Frontier collects the Account Balance (whether
by sale of Clariti Stock or payment made by any of the parties), Frontier must
surrender to Clariti any remaining shares of Clariti Stock. Frontier, in its
filings with the American Arbitration Association, has alleged that (i) the
Account Balance is at least 9,215,074.40 British Pounds (approximately
$13,800,000); (ii) Clariti had failed to disclose material information to
Frontier at the time of signing the March 4 Agreement; (iii) Clariti and the
other Claimants breached the March 4 Agreement and (iv) Clariti, together with
the other Claimants, are liable to Frontier for an amount to be determined by
the Arbitrators, but at least 9,215,074.40 British Pounds (approximately
$13,800,000).  Clariti has filed a pleading with the American Arbitration
Association disputing these allegations.  Further, Clariti believes that (i)
the Account Balance determined by Frontier is incorrect, (ii) Clariti's
liability under the March 4 Agreement is limited to the delivery of the Clariti
Stock to Frontier as collateral (which has already been accomplished) and that
Clariti has no obligation for the Account Balance, and (iii) the allegations of
Frontier that Clariti failed to disclose material information to Frontier is
incorrect.  A hearing date has been set to commence December 4, 2000.  If


                                     F-23


<PAGE>

         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998


NOTE 9 - COMMITMENTS AND CONTINGENCIES (continued)

Frontier is successful in its position, Clariti would have a significant
obligation to Frontier if the value of the Clariti Stock is less than the
Account Balance.  Further, if neither Clariti nor CHH purchases the Clariti
Stock from Frontier and Frontier is then able to sell a significant amount of
such shares in the open market, the market price of Clariti's common stock may
decline.

     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.


NOTE 10 - RELATED PARTIES

In connection with the Company's acquisition of Mediatel (see Note 3), the
Company issued a promissory note payable to CHH, the owner of Mediatel and
formerly the Company's majority shareholder of record, in the amount of
$3,000,000.  Such note carried a fixed interest rate of 6.5% and was 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. During
Fiscal 2000 the remaining $2,000,000 balance of the note plus accrued interest
of $81,000 was capitalized as a contribution to capital of the Company by CHH.
The Company issued no common stock to CHH in connection with this contribution
to capital.

During Fiscal 2000, Clariti Telecommunications Europe Limited, a United Kingdom
subsidiary of the Company, sold certain excess telecommunications equipment to
an affiliate of CHH in an arms length transaction valued at approximately
$195,000.  A loss of approximately $762,000 was realized on this transaction.

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, 1999      $1,560
      Accounts payable at June 30, 1999         $2,238
      Loans payable at June 30, 1999            $3,520
      Loans receivable at June 30, 1999         $2,579


                                     F-24
<PAGE>

         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998


NOTE 11 - STOCKHOLDERS' EQUITY

Common Stock
------------
Effective as of July 3, 2000, the Company implemented a 1 for 4 reverse split
of its common stock.  All amounts of Clariti common stock presented in these
financial statements and notes have been retroactively restated to give effect
to this reverse split.

During Fiscal 2000 the Company sold approximately 3,914,000 shares of its
common stock to several third party investors for proceeds, net of commissions,
of $32,373,000.  In addition, the Company issued 125,000 shares to an investor
in settlement of a loan for $1,000,000 such investor had made to the Company.

As further described in Note 3 above, approximately 611,000 shares of the
Company's common stock was issued in connection with the acquisitions of TWC
and NKA, and the Company recognized the issuance of approximately 128,000
shares in connection with the settlement of the MegaHertz-NKO acquisition
escrow agreement.

During Fiscal 1999 the Company sold approximately 3,567,000 shares of its
common stock to several investors for proceeds, net of commissions, of
$24,807,000.  Included in these amounts were approximately 2,857,000 shares
sold to CHH for proceeds of $20,000,000 less commission consisting of $158,000
cash and 51,550 shares of Clariti stock.  As further described in Note 3 above,
approximately 19,143,000 shares of the Company's common stock was issued to CHH
in connection with the acquisition of GlobalFirst, and another 1,120,000 shares
were issued in connection with the acquisition of MegaHertz-NKO.

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 a unit with shares of common stock, 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 the 35-month period ended June 30, 2000:



                                      F-25

<PAGE>

         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998


NOTE 11 - STOCKHOLDERS' EQUITY (continued)

                                                            Weighted Average
                                 Shares    Exercise Price    Exercise Price
                                  (000)      Per Share         Per Share
----------------------------------------------------------------------------
Warrants outstanding, 7/31/97       271    $ .04 - $14.00        $ 9.92
  Warrants issued                   203    $5.00 - $14.00        $ 6.88
  Warrants exercised             (    2)       $0.04             $ 0.04
  Warrants canceled              (   69)   $9.60 - $14.00        $10.00
----------------------------------------------------------------------------
Warrants outstanding, 6/30/98       403    $5.00 - $14.00        $ 8.44
  Warrants issued                   123    $7.00 - $14.00        $ 8.07
  Warrants exercised             (   75)       $5.00             $ 5.00
----------------------------------------------------------------------------
Warrants outstanding, 6/30/99       451    $6.00 - $14.00        $ 9.04
  Warrants issued                 4,348    $6.00 - $20.00        $12.03
  Warrants canceled/expired      (  110)   $8.00 - $20.00        $17.27
----------------------------------------------------------------------------
Warrants outstanding, 6/30/00     4,689    $6.00 - $20.00        $12.03
----------------------------------------------------------------------------

Of the 4,348,000 warrants issued during Fiscal 2000, 3,077,000 were issued as
units with common stock.  During Fiscal 2000, 85,000 of these warrants expired,
and the remaining 2,992,000 warrants have exercise prices between $12.00 and
$20.00 per share and are scheduled to expire on September 30, 2000.

The Company has adopted FASB Statement 123, "Accounting for Stock-Based
Compensation," which requires compensation cost associated with warrants issued
to parties other than employees and directors to be valued based on the fair
value of the warrants.  Such fair value was 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%. The Black-Scholes model valued the
warrants issued during Fiscal 2000 and Fiscal 1999 at $11,973,000 and $383,000,
respectively.

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 1,250,000


                                     F-26
<PAGE>

         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998


NOTE 11 - STOCKHOLDERS' EQUITY (continued)

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 during the 35-month period ended June 30,
2000:

                                                            Weighted Average
                                 Shares    Exercise Price    Exercise Price
                                  (000)      Per Share         Per Share
----------------------------------------------------------------------------
Options outstanding, 7/31/97        434    $8.00 - $15.50        $12.64
  Options granted                   523    $4.25 - $12.36        $ 6.84
  Options forfeited              (    3)       $9.50             $ 9.50
----------------------------------------------------------------------------
Options outstanding, 6/30/98        954    $4.25 - $15.50        $ 9.48
  Options granted                 1,894    $6.00 - $15.50        $10.51
----------------------------------------------------------------------------
Options outstanding, 6/30/99      2,848    $4.25 - $15.50        $10.03
  Options granted                   672    $7.50 - $12.13        $10.74
  Options forfeited              (   52)   $8.75 - $12.13        $10.98
----------------------------------------------------------------------------
Options outstanding, 6/30/00      3,468    $4.25 - $15.50        $10.15
----------------------------------------------------------------------------

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 2000, 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, the Company's results of operations would have been
affected as indicated in the schedule of pro forma amounts shown 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% (in thousands of dollars, except per share amounts).


                                     F-27




<PAGE>

         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998


NOTE 11 - STOCKHOLDERS' EQUITY (continued)

                                         Fiscal        Fiscal       Fiscal
                                          2000          1999         1998
                                       ----------    ----------    ---------
Net loss before extraordinary item:
       As reported                     $( 38,374)     $(220,412)   $( 4,248)
       Pro forma                       $( 45,524)     $(231,229)   $( 7,175)

Net loss:
       As reported                     $(  4,872)     $(220,412)   $( 4,248)
       Pro forma                       $( 12,022)     $(231,229)   $( 7,175)

Net loss per share before
 extraordinary item:
       As reported                     $(   1.14)    $(  11.88)    $(  0.80)
       Pro forma                       $(   1.35)    $(  12.44)    $(  1.36)

Net loss per share:
       As reported                     $(   0.14)    $(  11.88)    $(  0.80)
       Pro forma                       $(   0.35)    $(  12.44)    $(  1.36)


NOTE 12 - 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. Company
contributions to such plans are not material.  In Australia, the Company
provides no pension contributions above that required by the government.

The Company pays most of the cost of medical insurance for its United States
employees, the cost of which is not material. In Australia, the Company
provides no medical insurance above that required by the government. The
Company provides no post-retirement medical benefits.


NOTE 13 - SEGMENT INFORMATION

The Company has adopted FASB Statement No. 131, "Disclosures About Segments of
an Enterprise and Related Information."  The Company has divided its operations
into two reportable segments, Telephony/Internet Services and Wireless
Messaging, based on fundamental differences in their operations as well as
their products and services offered.  Amounts presented in the following tables
are in thousands of dollars, except per share amounts.



                                     F-28




<PAGE>

         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998


NOTE 13 - SEGMENT INFORMATION (continued)

                                          Fiscal        Fiscal       Fiscal
                                           2000          1999         1998
                                        ----------    ----------    ---------
Revenues
--------
     Telephony/Internet Services         $  6,735      $     251     $     -
     Wireless Messaging                         -              -           -
                                         --------      ---------     -------
     Total revenues                      $  6,735      $     251     $     -
                                         ========      =========     =======

Net Loss Before Extraordinary Item
----------------------------------
     Telephony/Internet Services         $(21,007)(a)  $(153,049)(b) $     -
     Wireless Messaging                   ( 6,375)      (  4,130)     (2,117)
     Equity in losses of unconsolidated
      subsidiaries                              -       ( 54,987)          -
     Corporate                            (10,992)      (  8,246)     (2,131)
                                         --------      ---------     -------
     Total net loss before
      extraordinary item                 $(38,374)     $(220,412)    $(4,248)
                                         ========      =========     =======

Extraordinary Item
------------------
     Telephony/Internet Services         $      -      $       -     $     -
     Wireless Messaging                         -              -           -
     Equity in losses of unconsolidated
      subsidiaries                              -              -           -
     Corporate                             33,502              -           -
                                         --------      ---------     -------
     Total extraordinary item            $ 33,502      $       -     $     -
                                         ========      =========     =======

Net Loss
--------
     Telephony/Internet Services         $(21,007)(a)  $(153,049)(b) $     -
     Wireless Messaging                   ( 6,375)      (  4,130)     (2,117)
     Equity in losses of unconsolidated
      subsidiaries                              -       ( 54,987)          -
     Corporate                             22,510       (  8,246)     (2,131)
                                         --------      ---------     -------
     Total net loss before
      extraordinary item                 $( 4,872)     $(220,412)    $(4,248)
                                         ========      =========     =======



                                     F-29

<PAGE>

         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998


NOTE 13 - SEGMENT INFORMATION (continued)
                                          Fiscal        Fiscal       Fiscal
                                           2000          1999         1998
                                        ----------    ----------    ---------
Additions to Long-Lived Assets
------------------------------
     Telephony/Internet Services         $  1,949      $      5      $     -
     Wireless Messaging                       315           190          249
     Corporate                                341            32           46
                                         --------      --------      -------
     Total additions to long-lived
      assets                             $  2,605      $    227      $   295
                                         ========      ========      =======

Depreciation and Amortization
-----------------------------
     Telephony/Internet Services         $  4,286      $    518      $     -
     Wireless Messaging                       208           163           39
     Corporate                                 32            20           22
                                         --------      --------      -------
     Total depreciation and
      amortization                       $  4,526      $    701      $    61
                                         ========      ========      =======

                                          As of         As of
                                         June 30,      June 30,
                                           2000          1999
                                       ----------    ----------
Assets
------
     Telephony/Internet Services         $ 11,095      $ 15,875
     Wireless Messaging                       839           728
     Corporate                             14,723         3,327
                                         --------      --------
     Total assets                        $ 26,657      $ 19,930
                                         ========      ========



                                     F-30

<PAGE>

         CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 AND
                        ELEVEN MONTHS ENDED JUNE 30, 1998


NOTE 13 - SEGMENT INFORMATION (continued)

The Company's operations are located in the United States, Australia and the
United Kingdom.  The following tables present geographic information for
revenues and long-lived assets (in thousands of dollars):

                                         Fiscal        Fiscal       Fiscal
                                          2000          1999         1998
                                       ----------    ----------    ---------
Revenues
--------
     United States                       $  5,241      $    251      $     -
     Australia                              1,494             -            -
     United Kingdom                             -             -            -
                                         --------      --------      -------
     Total revenues                      $  6,735      $    251      $     -
                                         ========      ========      =======

                                          As of         As of
                                         June 30,      June 30,
                                           2000          1999
                                       ----------     ---------
Long-Lived Assets
-----------------
     United States                       $  5,533      $ 13,547
     Australia                              2,827             -
     United Kingdom                         1,570         2,293
                                         --------      --------
     Total assets                        $  9,930      $ 15,840
                                         ========      ========

(a) Includes $10,441,000 write-off of goodwill related to the acquisition of
    MegaHertz-NKO.  See Note 6.

(b) Includes $152,214,000 write-off of goodwill related to the acquisitions of
    GlobalFirst and Mediatel.  See Note 6.



                                     F-31


<PAGE>

ITEM 9.  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 Amendment No. 2 the Company's Form
     10-KSB for the year ended June 30, 1999 as filed with the SEC on November
     22, 1999 (incorporated herein by reference).

     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 had not
     reported on the Company's consolidated financial statements.  PwC 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, and their 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 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 the Company 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

                                      39
<PAGE>

     caused them to make 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
     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
     undertook 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 hired a new
     Managing Director for all of its European operations and 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 agreed 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 Amendment
     No. 2 the Company's Form 10-KSB for the year ended June 30, 1999 as filed
     with the SEC on November 22, 1999 (incorporated herein by reference).

     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 would 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,


                                      40

<PAGE>

     internal controls necessary to develop reliable financial statements for
     the year ended June 30, 1999 for the Company's then recently acquired
     United Kingdom subsidiaries were not adequate at the time of their
     resignation.

     The Company advised Cogen Sklar of the internal control issues cited by
     PwC.  Cogen Sklar provided the Company with no oral or written comments
     regarding such issues. The Company requested Cogen Sklar to review the
     disclosures made in Amendment No. 2 to the Company's Form 10-KSB for the
     year ended June 30, 1999 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 the Form 8-K filed on September 13, 1999.  Cogen Sklar
     advised the Company that it would have no such comments to provide and
     therefore would not provide such a letter.




                                      41


<PAGE>

                                 PART III


PART III

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

         The following table sets forth the names, ages and positions of all
directors (including their term of service) and executive officers of the
Company and their positions in the Company as of October 15, 2000:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
Name                       Age     Current Position with the Company          Director Since
----                       ---     ---------------------------------          --------------
<S>                       <C>     <C>                                        <C>
Peter S. Pelullo           48      President, Chairman of the Board, Chief    June 1989
                                   Financial Officer and Director

--------------------------------------------------------------------------------------------
Ronald R. Grawert          51      Chief Executive Officer and Director       October 1999

--------------------------------------------------------------------------------------------
Louis C. Golm              59      Co-Vice Chairman of the Board and          April 1999
                                   Director

--------------------------------------------------------------------------------------------
John N. D'Anastasio        52      Director                                   June 1991

--------------------------------------------------------------------------------------------
Robert J. Sannelli         55      Director                                   June 1991

--------------------------------------------------------------------------------------------
Michael H. Jordan          64      Co-Vice Chairman of the Board and          October 1999
                                   Director

--------------------------------------------------------------------------------------------
Chester John Hunt          31      Director                                   October 1999

--------------------------------------------------------------------------------------------
Hans Georg Hinderling      56      Director                                   October 1999

--------------------------------------------------------------------------------------------
Abraham Carmel             67      Director                                   October 1999

--------------------------------------------------------------------------------------------
Joseph A. Smith            46      Executive Vice President and Chief
                                   Operating Executive

--------------------------------------------------------------------------------------------
James M. Boyd, Jr.         44      Vice President of Finance and Chief
                                   Accounting Officer
--------------------------------------------------------------------------------------------
</TABLE>

         All directors serve until their successors are duly elected and
qualified. Vacancies in the Board of Directors are filled by majority vote of
the remaining directors. The executive officers of the Company are elected by,
and serve at the discretion of, the Board of Directors.




                                       42

<PAGE>

         A brief description of the business experience during the past five
years or more of each director and executive officer of the Company is as
follows:

         Peter S. Pelullo became President, Chief Executive Officer and Chief
Financial Officer of the Company in 1991, and was appointed the Company's
Chairman of the Board in 1995. In October 1997, Mr. Pelullo relinquished the
title of President of the Company with the appointment of Michael P. McAndrews
to that position. In December 1998, Mr. Pelullo was re-appointed President of
the Company when Mr. McAndrews became President of the Company's Wireless
Messaging Division. In June 1999, Mr. Pelullo relinquished the title of Chief
Executive Officer of the Company with the appointment of Ronald R. Grawert to
that position. Mr. Pelullo remains Chairman of the Board, President and Chief
Financial Officer of the Company.

         Ronald R. Grawert was appointed Chief Executive Officer of the Company
in June 1999 and was elected a director in October 1999. From 1997 to 1999, Mr.
Grawert served as President and Chief Executive Officer of Mobilemedia
Communications, Inc., one of the largest paging companies in the U.S. From 1993
to 1997, Mr. Grawert served as Executive Vice President of GTE Mobilnet, one of
the largest cellular carriers in the U.S.

         Louis C. Golm was elected a director of the Company and Vice Chairman
of the Board in April 1999. Mr. Golm retired from AirTouch International and
AirTouch Corporation in 1999, at which time he was serving as President of
AirTouch International and Vice President of AirTouch Corporation., one of the
largest cellular and paging providers in the U.S. From 1994 to 1997, Mr. Golm
was President and Chief Executive Officer of AT&T - Japan, a subsidiary of AT&T,
one of the largest communications companies in the world. Mr. Golm is currently
a director of U.S. Wireless and SBS Technologies, Inc.

         John N. D'Anastasio has been the President of D'Anastasio Corp., a real
estate development company, since 1986.

         Robert J. Sannelli has served since 1986 as director of operations and
Vice President of D'Anastasio Corp., a real estate development company of which
John D'Anastasio is President.

         Michael H. Jordan was elected a director of the Company and Co-Vice
Chairman in October 1999. Mr. Jordan currently serves as Chairman of the Board
of Directors of Luminant Worldwide Corporation, a provider of internet and
electronic commerce professional services, and Chairman of eOriginal, Inc., an
electronic commerce company. On December 31, 1998, Mr. Jordan retired as the
Chairman and Chief Executive Officer of CBS Corporation (formerly Westinghouse
Electric Corporation), positions he had held since July 1993. In addition to
serving on the board of directors of Luminant Worldwide Corporation, Mr. Jordan
currently serves on the boards of directors of Dell Computer Corporation, Aetna
Inc., MarketWatch.com, and Young & Rubicam Inc.

         Chester John Hunt was elected a director of the Company in October
1999. Mr. Hunt has been a director and Chief Executive Officer of Hippo Holdings
Limited, a designer and manufacturer of golf equipment in the United Kingdom and
Europe, since 1996. From 1994 to




                                       43

<PAGE>

1996, Mr. Hunt held sales management positions with Automotive Financial Group
Limited, an automotive sales business in the United Kingdom.

         Hans Georg Hinderling was elected a director of the Company in October
1999. Mr. Hinderling has been practicing law at his own law firm in Switzerland
since 1981.

         Abraham Carmel was elected a director of the Company in October 1999.
Since 1994, Mr. Carmel has been President and owner of Carmel Associates, an
investment banking firm. Mr. Carmel is Chief Operating Officer and a director of
Atlantic Communications International, Ltd., a significant shareholder in the
Company. Mr. Carmel is also a director of Datawave Systems, Inc., Sports Prize
Entertainment, Inc. and Med Search, Inc.

         Joseph A. Smith was appointed Executive Vice President of the Company
in February 1999 and was also appointed Chief Operating Executive in August
1999. From 1994 to 1999 Mr. Smith served as Group Executive Vice President of
Metromedia International, Ltd., a worldwide telecommunications company, where he
had senior responsibility for both paging and wireless local loop operations in
a variety of foreign countries.

         James M. Boyd, Jr. was appointed Vice President of Finance and Chief
Accounting Officer in February 1997. From 1981 to 1997, Mr. Boyd worked in
several financial management roles with Sun Company, Inc., a petroleum refining
and marketing company. Mr. Boyd is a certified public accountant.

Section 16(a) Beneficial Ownership Reporting Compliance

         The Company did not have a class of equity securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended,
during the fiscal year ended June 30, 2000.





                                       44

<PAGE>


ITEM 10.     EXECUTIVE COMPENSATION

         In June 1998, the Company changed its fiscal year end from July 31 to
June 30. As a result, all data presented under Item 10, Executive Compensation,
are for the 12 months ended June 30, 2000 ("Fiscal 2000") and 1999 ("Fiscal
1999"), respectively, and the 11 months ended June 30, 1998 ("Fiscal 1998").

         The following table sets forth compensation paid or accrued during
Fiscal 2000, Fiscal 1999 and Fiscal 1998, respectively, to the Company's Chief
Executive Officer, the most highly compensated executive officers whose total
annual salary and bonus earned them more than $100,000 during Fiscal 2000
(collectively, the "Named Executives").

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                               Long-Term
                                                                                            Compensation
                                                                                                Awards
                                                                                        --------------------------------------------
                                                 Annual Compensation     Other Annual                    Securities
                                   Fiscal      -----------------------   Compensation    Restricted      Underlying      All Other
                                    Year         Salary     Bonus                       Stock Awards    Options /SARs   Compensation
  Name and Principal Position      Ended         ($000)    ($000)           ($000)         ($000)          (#000)           ($000)
------------------------------------------------------------------------------------------------------------------------------------

<S>                                   <C>         <C>      <C>               <C>         <C>            <C>             <C>
Peter S. Pelullo                    2000          741(a)       -             35(d)           -               -              -
Chairman of the                     1999          634(b)      85             33(d)           -               -              -
Board and President                 1998          506(c)       -             28(d)           -              50            49(e)



Ronald R. Grawert                   2000          408(f)       -              5(f)           -               -              -
Chief Executive                     1999           12(g)      75                 -                         1,250            -
Officer


Michael P. McAndrews(h)             2000          280(i)       -             17(i)           -              25              -
President, Clariti                  1999          253(j)       -             15(j)           -              100             -
Wireless Messaging                  1998          186(k)       -              8(k)           -              750           58(l)


Joseph A. Smith                     2000          251(m)       -              6(m)           -               -              -
Executive Vice President            1999           94(n)       -                 -           -              75              -


Daniel B. McDuffie (o)              2000          183(p)       -                 -           -               -              -
Senior Vice President               1999           47(q)       -                 -           -              50              -


James M. Boyd, Jr.                  2000          125(r)       -             6(r)            -              53              -
Vice President of                   1999          110(s)       1             7(s)           12               3              -
Finance and Chief Accounting        1998           90(t)       -             6(t)            -              15              -
Officer
</TABLE>




                                        45

<PAGE>


(a)      During Fiscal 2000, Mr. Pelullo was paid a salary of $691,000,
         including $10,000 representing the payment of accrued but unpaid
         salaries from the prior year. In addition, Mr. Pelullo was paid
         $60,000, for unused vacation pay. As of June 30, 2000, accrued but
         unpaid compensation due Mr. Pelullo was $0.

(b)      During Fiscal 1999, Mr. Pelullo was paid a salary of $572,000,
         including $24,000 representing the payment of accrued but unpaid
         salaries from the prior year. In addition, Mr. Pelullo was paid $76,000
         for unused vacation pay. As of June 30, 1999, accrued but unpaid
         compensation due Mr. Pelullo was $10,000.

(c)      During Fiscal 1998, Mr. Pelullo was paid a salary of $471,000,
         including $17,000 representing the payment of accrued but unpaid
         salaries from the prior year. In addition, Mr. Pelullo was paid $28,000
         for unused vacation pay. As of June 30, 1998, accrued but unpaid
         compensation due Mr. Pelullo was $24,000.

(d)      Other annual compensation for Mr. Pelullo consists of the following ($
         in thousands):

                         Fiscal 2000        Fiscal 1999          Fiscal 1998
                     -----------------  ------------------  --------------------
Auto expense                   $16                  $16                 $13
Travel allowance                 5                    5                   5
Health benefits                 12                    9                   7
Insurance benefits               2                    3                   3
                            ------               ------              ------
Totals                         $35                  $33                 $28
                            ------               ------              ------

(e)      During Fiscal 1997, the Company retired the remaining 97,000 shares of
         its Series C preferred stock, which had been received by Mr. Pelullo in
         lieu of salaries payable in preceding years. The Company redeemed such
         shares for $536,000, of which $49,000 was reflected as additional
         compensation to Mr. Pelullo pursuant to the terms of the Series C
         preferred stock agreement

(f)      During Fiscal 2000, Mr. Grawert was paid a salary of $411,000,
         including $5,000 representing the payment of accrued but unpaid
         salaries from the prior year. As of June 30, 2000, accrued but unpaid
         compensation due Mr. Grawert was $2,000. Other annual compensation for
         Mr. Grawert during Fiscal 2000 consisted of $5,000 of insurance
         benefits.

(g)      During Fiscal 1999, Mr. Grawert was paid a salary of $7,000. As of June
         30, 1999, accrued but unpaid compensation due Mr. Grawert was $5,000.

(h)      Mr. McAndrews resigned from the Company effective September 8, 2000.

(i)      During Fiscal 2000, Mr. McAndrews was paid a salary of $280,000,
         including $9,000 representing the payment of accrued but unpaid
         salaries from the prior year. As of June



                                       46

<PAGE>

         30, 2000, accrued but unpaid compensation due Mr. McAndrews was $1,000.
         Other annual compensation for Mr. McAndrews during Fiscal 2000
         consisted of $6,000 for health benefits, $10,000 for auto expense and
         $1,000 for insurance benefits.

(j)      During Fiscal 1999, Mr. McAndrews was paid a salary of $257,000,
         including $9,000 representing the payment of accrued but unpaid
         salaries from the prior year. As of June 30, 1999, accrued but unpaid
         compensation due Mr. McAndrews was $5,000. Other annual compensation
         for Mr. McAndrews during Fiscal 1999 consisted of $7,000 for health
         benefits, $5,000 for auto expense and $3,000 for insurance benefits.

(k)      During Fiscal 1998, Mr. McAndrews was paid a salary of $177,000. As of
         June 30, 1998, accrued but unpaid compensation due Mr. McAndrews was
         $9,000. Other annual compensation for Mr. McAndrews during Fiscal 1998
         consisted of $5,000 for health benefits and $3,000 for insurance
         benefits.

(l)      During Fiscal 1998, the Company paid moving and relocation expense of
         $44,000 on behalf of, or directly to, Mr. McAndrews. As of June 30,
         1998, accrued but unpaid moving and relocation costs due Mr. McAndrews
         were $14,000 which were paid in Fiscal 1999.

(m)      During Fiscal 2000, Mr. Smith was paid a salary of $255,000, including
         $5,000 representing the payment of accrued but unpaid salary from the
         prior year. As of June 30, 2000, accrued but unpaid compensation due
         Mr. Smith was $1,000. Other annual compensation for Mr. Smith during
         Fiscal 2000 consisted of $6,000 for auto expenses.

(n)      During Fiscal 1999, Mr. Smith was paid a salary of $94,000. As of June
         30, 1999, accrued but unpaid compensation due Mr. Smith was $5,000.

(o)      Mr. McDuffie resigned from the Company effective October 13, 2000.

(p)      During Fiscal 2000, Mr. McDuffie was paid a salary of $185,000,
         including $3,000 representing the payment of accrued but unpaid salary
         from the prior year. As of June 30, 2000, accrued but unpaid
         compensation due Mr. McDuffie was $1,000. Mr. McDuffie resigned from
         the Company on October 13, 2000.

(q)      During Fiscal 1999, Mr. McDuffie was paid a salary of $47,000. As of
         June 30, 1999, accrued but unpaid compensation due Mr. McDuffie was
         $3,000.

(r)      During Fiscal 2000, Mr. Boyd was paid a salary of $128,000, including
         $4,000 representing the payment of accrued but unpaid salaries from the
         prior year. As of June 30, 2000, accrued but unpaid compensation due
         Mr. Boyd was $1,000. Other annual compensation for Mr. Boyd during
         Fiscal 2000 consisted of $6,000 for health benefits.

(s)      During Fiscal 1999, Mr. Boyd was paid a salary of $109,000, including
         $2,000 representing the payment of accrued but unpaid salaries from the
         prior year. As of June



                                       47

<PAGE>

         30, 1999, accrued but unpaid compensation due Mr. Boyd was $4,000.
         Other annual compensation for Mr. Boyd during Fiscal 1999 consisted of
         $7,000 for health benefits.

(t)      During Fiscal 1998, Mr. Boyd was paid a salary of $88,000. As of June
         30, 1998, accrued but unpaid compensation due Mr. Boyd was $2,000.
         Other annual compensation for Mr. Boyd during Fiscal 1998 consisted of
         $6,000 for health benefits.

         The following table provides information regarding options to purchase
shares of the Company's common stock granted to the Named Executives during
Fiscal 2000:

<TABLE>
<CAPTION>
                                                  Option Grants
                                        For the Year Ended June 30, 2000
                                       Number of           % of Total
                                      Securities          Options/SARs
                                      Underlying           Granted to
                                     Options/SARs         Employees in       Exercise or Base
              Name                  Granted (#000)         Fiscal Year        Price ($/Share)     Expiration Date
---------------------------------  -----------------    ----------------   -------------------  -------------------
<S>                                     <C>                   <C>                 <C>                <C>
Michael P. McAndrews                     25(a)                 7%                  10.00         Oct. 1, 2009
James M. Boyd, Jr.                     52.5 (b)                15%                 9.75          Feb. 10, 2010
</TABLE>

(a)      Mr. McAndrew's options were vested upon issuance.

(b)      Of Mr. Boyd's options, 17,500 were vested upon issuance; 17,500 will
         vest on February 10, 2001; and 17,500 will vest on February 10, 2002.

         The following table provides information regarding
exercised/unexercised stock options held by the Named Executives:


--------------------------------------------------------------------------------
               Aggregated Option/SAR Exercises in Last Fiscal Year
                      And Fiscal Year End Option/SAR Values
                        For the Year Ended June 30, 2000
--------------------------------------------------------------------------------
                                              Number of
                                             Securities
                                             Underlying
                                            Unexercised
                                          Options/SARs at
                                               Fiscal      Value of Unexercised
                       Shares                 Year End         In-the-Money
                    Acquired on   Value     Exercisable/  Options/SARs at Fiscal
                      Exercise   Realized  Unexercisable       Year End (a)
     Name             (#000)     ($000)       (#000)             ($000)
--------------------------------------------------------------------------------
Peter S. Pelullo         0          0          238/0               3/0
--------------------------------------------------------------------------------
Ronald R. Grawert        0          0         875/375              0/0
--------------------------------------------------------------------------------
Michael P. McAndrews     0          0         238/120              8/0
--------------------------------------------------------------------------------



                                       48

<PAGE>


--------------------------------------------------------------------------------
Joseph A. Smith          0          0          50/25               0/0
--------------------------------------------------------------------------------
Daniel B. McDuffie       0          0          44/31               0/0
--------------------------------------------------------------------------------
James M. Boyd, Jr.       0          0          42/35               2/0
--------------------------------------------------------------------------------

(a)      Calculated on the basis of the fair market value of the Company's
         common stock of $5.50 per share as of June 30, 2000, minus the exercise
         price.



Compensation Plans

         With the exception of compensation in the form of certain medical,
dental, disability and life insurance benefits paid pursuant to plans that do
not discriminate in favor of officers or directors of the Company and are
available generally to all employees who are employed by the Company, the
Company has no plans pursuant to which cash or non-cash compensation was paid or
distributed during Fiscal 2000, Fiscal 1999 and Fiscal 1998, or is proposed to
be paid or distributed in the future, to the individuals and group specified
under "Executive Compensation" above, except as noted below.


Employment Contracts and Termination Arrangements

         The Company has maintained an employment agreement with Peter S.
Pelullo, Chairman and President of the Company (the "Chairman"), since April
1991. The Chairman's employment agreement, as periodically amended (the
"Agreement"), expires in May 2008 unless earlier terminated. In accordance with
the terms of the Agreement, the Executive is entitled to an initial base salary
of $250,000 per year, increasing 10% per year cumulatively. Effective July 22,
1996, the Company's Board of Directors authorized a 15% increase in the
Chairman's salary. In addition, the Agreement provides for an annual bonus to be
paid to the Chairman equal to 10% of pretax income, an automobile allowance,
health insurance and other benefits generally available to the Company's
executives. The Agreement also provides that, upon termination of the Chairman
by the Company without cause or the Chairman's resignation for "Good Reason" as
defined in the Agreement, the Chairman will be entitled to receive his base
salary plus executive bonuses prescribed by the Agreement for the longer of four
years or the remaining term of the Agreement. In addition, the Company shall
maintain in full force and effect, for the longer of four years or the remaining
term of the Agreement, all employee benefit plans and programs in which the
Chairman was entitled to participate immediately prior to termination or
resignation for Good Reason.

         Effective June 21, 1999, the Company hired Ronald R. Grawert as its
Chief Executive Officer and agreed to pay him a signing bonus of $75,000 and a
base salary of $400,000 per year increasing 8%, 9% and 10% cumulatively for each
of the next three years, plus certain fringe benefits. Mr. Grawert's employment
contract also provides for annual cash bonuses equal to 20% of his base salary
for Fiscal 2000, and 50% of his base salary in the years ended June 30, 2001
("Fiscal 2001") and June 30, 2002 ("Fiscal 2002"). Payment of the bonuses is
subject to achievement of certain performance objectives and milestones. In
addition, the Company issued to Mr. Grawert options to purchase 1,250,000 shares
of common stock at a price of $11.1248 per share, the market price as of the
date of grant. The options vest over a three-year period and




                                       49

<PAGE>

remain in effect for ten years from the date of the grant. Mr. Grawert's
employment contract also provides that, upon termination by the Company without
cause or Mr. Grawert's resignation for "Good Reason" as defined in the
Agreement, he will be entitled to receive his base salary for 12 months plus a
prorated bonus.

         Effective October 1, 1997, the Company hired Michael P. McAndrews as
its President. In connection with the Company's acquisition of GlobalFirst, Mr.
McAndrews resigned as President of the Company and was named President of
Clariti Wireless Messaging, Inc., a wholly owned subsidiary of the Company that
assumed operational responsibility for development of the Company's digital
voice messaging technology. Pursuant to Mr. McAndrews' employment agreement, the
Company agreed to pay him $240,000 per year increasing 9%, 10% and 10%
cumulatively for each of the next three years, plus certain fringe benefits. In
addition, the Company issued to Mr. McAndrews options to purchase 125,000 shares
of common stock at a price of $8.00 per share, the market price as of the date
of grant. The options vest over a three-year period and remain in effect for ten
years from the date of the grant. If Mr. McAndrews is terminated by the Company
for cause or Mr. McAndrews resigns without "Good Reason" each as defined in his
employment agreement, all vested options will become null and void thirty days
after his employment is terminated. Mr. McAndrews also is entitled to annual
bonus options to purchase a minimum of 100 thousand shares of common stock at
the market price on or around the anniversary date of the agreement. The bonus
options vest immediately upon grant and remain in effect for ten years from the
date of the grant. Mr. McAndrews resigned from the Company effective September
8, 2000.

         Effective February 15, 1999, the Company hired Joseph A. Smith as
Executive Vice President and agreed to pay him a base salary of $245,000 per
year increasing 8% on the second anniversary, plus certain fringe benefits. In
addition, the Company issued to Mr. Smith options to purchase 75,000 shares of
common stock at a price of $8.00 per share, the market price as of the date of
grant. The options vest over a two-year period and remain in effect for ten
years from the date of the grant. Mr. Smith's employment contract also provides
that, upon termination by the Company without cause or Mr. Smith's resignation
for "Good Reason" as defined in the Agreement, he will be entitled to receive
his base salary for 12 months.

         Effective January 4, 1999, the Company hired Daniel B. McDuffie as
Senior Vice President and agreed to pay him a base salary of $175,000 per year
increasing 7% on the first anniversary and 8% on the second anniversary, plus
certain fringe benefits. In addition, the Company issued to Mr. McDuffie options
to purchase 50,000 shares of common stock at a price of $11.00 per share, the
market price as of the date of grant. The options were scheduled to vest over a
two-year period and remain in effect for ten years from the date of the grant.
If Mr. McDuffie is terminated by the Company for cause or Mr. McDuffie resigns
without "Good Reason" each as defined in his employment agreement, all vested
options will become null and void thirty days after his employment is
terminated. Mr. McDuffie's employment contract also provides that, upon
termination by the Company without cause or Mr. McDuffie's resignation for "Good
Reason" as defined in the Agreement, he will be entitled to receive his base
salary for 6 months. Mr. McDuffie resigned from the Company in October 2000.

         Effective as of February 10, 2000, the Company entered into a new
employment agreement with James Boyd, the Company's Vice President of Finance
and Chief Accounting




                                       50

<PAGE>

Officer. Pursuant to such agreement, the Company agreed to pay Mr. Boyd $135,000
per year increasing at least 8% and 9%, cumulatively for each of the next two
years, plus certain fringe benefits. The Company also issued Mr. Boyd options to
purchase 52,500 shares of common stock at a purchase price of $9.75 per share.
Such options vest over a three year period. The options remain in effect for a
term of ten years from the date of grant. In the event Mr. Boyd is terminated
without cause (as defined therein), he is entitled to be paid his annual salary
for a period of six months and continue to receive all employee benefits to
which he is entitled to at the time of termination for a period of six months.

Stock Option Plan

         The Company's Stock Option Plan (the "Stock Option Plan") was approved
by a majority of the Company's stockholders in November 1991. The Stock Option
Plan is intended to qualify, in part, as an incentive stock option plan under
Section 422 of the Internal Revenue Code (the "Code") and in part as a
non-qualified stock option plan, and to provide an incentive to those directors,
key employees of the Company and its subsidiaries and certain other persons who
are contributing materially to the Company's progress. As of June 30, 2000, no
options have been issued under the Stock Option Plan.

         The Stock Option Plan is administered by a committee of the Board of
Directors, none of whom has received a discretionary grant or award under any
stock plan of the Company during one year prior to serving on the committee.

         The Stock Option Plan terminates November 2001, unless terminated
sooner by the Board of Directors. A total of 5 million shares of common stock
have been reserved for issuance under the Stock Option Plan. The Board of
Directors may terminate, modify or suspend the Stock Option Plan. The Board of
Directors may not, however, without the approval of the stockholders of the
Company, (i) increase the maximum number of shares of common stock which may be
issued under the Stock Option Plan, except pursuant to a stock split, stock
dividend, or similar transaction; (ii) change the provisions of the Stock Option
Plan relating to the establishment of the option exercise price; (iii) extend
the period during which the options may be granted under the Stock Option Plan,
except for non-qualified options; (iv) materially modify the benefits accruing
to employees participating under the Stock Option Plan; or (v) materially modify
the requirements as to eligibility for participation in the Stock Option Plan.
Since the adoption of the Stock Option Plan, no options have been granted
thereunder.

Compensation of Directors

         Outside directors receive payments of $1,000 per month plus $500 per
director's meeting attended and reasonable costs and expenses of travel and
lodging for attendance at director's meetings.

         In connection with their election to the Company's board of directors
in October 1999, directors Golm and Jordan each received options to purchase
225,000 shares of the Company's common stock at a price of $8.52 and $11.84 per
share, respectively, the market prices on the dates of the grants. The options
vest over a three-year period and remain in effect for ten years from the date
of the grant.




                                       51


<PAGE>

         In connection with their election to the Company's board of directors
in October 1999, directors Hunt, Hinderling and Carmel each received options to
purchase 25,000 shares of the Company's common stock at a price of $11.84 per
share, the market price on the date of the grant. The options remain in effect
for ten years from the date of the grant.



REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION

         The Company's Board of Directors determines the compensation of the
Company's executive officers. The Company attempts to provide its executives
with a total compensation package that is competitive with those provided to
executives who hold comparable positions or have similar qualifications in other
similar organizations. The Board of Directors works closely with management to
design a compensation program to assist the Company in attracting and retaining
outstanding executives and senior management personnel in the telecommunications
and wireless communications industry who the Company believes will be, or who
are, valuable employees. The Company has entered into employment agreements with
a number of its executive officers. See "Executive Compensation - Employment
Contracts and Termination Agreements."

                  In June 1999, the Company entered into an employment agreement
with Ronald R. Grawert, the Company's Chief Executive Officer. Pursuant to the
agreement, the Company agreed to pay Mr. Grawert a signing bonus of $75,000 and
a base salary of $400,000 per year increasing 8%, 9% and 10% cumulatively for
each of the next three years, plus certain fringe benefits. Mr. Grawert's
employment contract also provides for annual cash bonuses equal to 20% of his
base salary for Fiscal 2000, and 50% of his base salary in Fiscal 2001 and
Fiscal 2002. Payment of the bonuses is subject to achievement of certain
performance objectives and milestones. In addition, the Company issued to Mr.
Grawert options to purchase 1,250,000 shares of common stock at a price of
$11.1248 per share, the market price as of the date of grant. The options vest
over a three-year period and remain in effect for ten years from the date of the
grant. Mr. Grawert's employment contract also provides that, upon termination by
the Company without cause or Mr. Grawert's resignation for "Good Reason" as
defined in the Agreement, he will be entitled to receive his base salary for 12
months plus a prorated bonus. In determining the base salary, performance bonus
and options of the Chief Executive Officer, the Board of Directors sought to
induce Mr. Grawert to become the Chief Executive Officer of the Company and
provide Mr. Grawert a compensation package that is competitive with individuals
who hold comparable positions or have similar qualifications in other similar
organizations and link such compensation to corporate performance and returns to
stockholders.

         Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally disallows a tax deduction to public companies for annual
compensation over $1.0 million paid to their chief executive officer and other
highly compensated executive officers. The Code generally excludes from the
calculation of the $1.0 million cap compensation that is based on the
achievement of pre-established, objective performance goals. To maintain a
competitive position with the Company's peer group of corporations, the Board of
Directors retains the authority to authorize payments, including salary and
bonus, that may not be deductible.




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<PAGE>

                              By the Board of Directors

                              Peter S. Pelullo, Ronald R. Grawart, Lous C. Golm,
                              John N. D'Anastasio, Robert J. Sanelli, Michael H.
                              Jordan, Chester John Hunt, Hans Georg Hinderling
                              and Abe Carmel



ITEM 11   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth, as of June 30, 2000, certain
information with respect to beneficial ownership of the Company's common stock
by (i) each person known to the Company to be the beneficial owner of more than
5% of the Company's common stock, (ii) each director of the Company, (iii) each
named executive officer of the Company listed in the Summary Compensation Table,
and (iv) all officers and directors of the Company as a group. Unless otherwise
specified, the Company believes that all persons listed in the table possess
sole voting and investment power with respect to all shares of the Company's
common stock beneficially owned by them.

                                            Amount and
                                            Nature of
                                            Beneficial
                                            Ownership              Percent of
Name and Address                            (#000)                 Class (a)
----------------------------                --------------         -------------
Fair Springs Trust                          15,853   (b)           40.9%
Elisabethanaulage
4051 Basel
Switzerland

Hans Hinderling                             15,878(c)              41.0%

Peter S. Pelullo                            1,488(d)               4.1%

Ronald R. Grawert                           875(e)                 2.4%

Abraham Carmel                              25(f)                  **

John N. D'Anastasio                         144(g)                 0.4%

Robert J. Sannelli                          144(h)                 0.4%

Louis C. Golm                               150(i)                 0.4%

Michael H. Jordan                           150(j)                 0.4%




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<PAGE>

Joseph A. Smith                             50(k)                  0.1%

Daniel B. McDuffie                          323(l)                 0.1%

Michael P. McAndrews                        238(m)                 0.7%

James M. Boyd, Jr.                          43(n)                  0.1%

Chester John Hunt                           25(o)                  **

All officers and directors
as a group (13 persons)                     19,533(p)              47.8%


** less than 0.1%

---------------------------------
(a)  Based upon shares beneficially owned as a percent of shares of common stock
     of the Company outstanding as of June 30, 2000 (35,836,017 shares). For
     purposes of calculating each person's beneficial ownership, any shares
     subject to options exercisable within 60 days of June 30, 2000 are deemed
     beneficially owned by, and outstanding with respect to, such person.

(b)  Fair Springs Trust is the beneficial owner of (x) 11,068,567 shares of
     common stock and currently exercisable warrants to purchase 2,083,333
     shares of common stock held of record by Ansteed Investments Ltd. and (y)
     1,867,363 shares of common stock and currently exercisable warrants to
     purchase 833,333 shares of common stock held of record by ABC Corp. Hans
     Georg Hinderling, a director of the Company, is a trustee of Fair Springs
     Trust.

(c)  Includes 25,000 shares of common stock that such person has the right to
     acquire pursuant to stock options exercisable within 60 days and 12,935,930
     shares of common stock beneficially owned by Fair Springs Trust. Hans Georg
     Hinderling is a trustee of Fair Springs Trust. Fair Springs Trust is the
     beneficial owner of (x) 11,068,567 shares of common stock and currently
     exercisable warrants to purchase 2,083,333 shares of common stock held of
     record by Ansteed Investments Ltd. and (y) 1,867,363 shares of common stock
     and currently exercisable warrants to purchase 833,333 shares of common
     stock held of record by ABC Corp.

(d)  Includes 237,500 shares of common stock that such person has the right to
     acquire pursuant to stock options exercisable within 60 days.

(e)  Represents 875,000 shares of common stock that such person has the right to
     acquire pursuant to stock options exercisable within 60 days.

(f)  Includes 25,000 shares of common stock that such person has the right to
     acquire pursuant to stock options exercisable within 60 days.




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<PAGE>

(g)  Includes 125,000 shares of common stock that such person has the right to
     acquire pursuant to stock options exercisable within 60 days.

(h)  Includes 125,000 shares of common stock that such person has the right to
     acquire pursuant to stock options exercisable within 60 days.

(i)  Represents 150,000 shares of common stock that such person has the right to
     acquire pursuant to stock options exercisable within 60 days.

(j)  Represents 150,000 shares of common stock that such person has the right to
     acquire pursuant to stock options exercisable within 60 days.

(k)  Represents 50,000 shares of common stock that such person has the right to
     acquire pursuant to stock options exercisable within 60 days.

(l)  Represents 43,750 shares of common stock that such person has the right to
     acquire pursuant to stock options exercisable within 60 days. Mr. McDuffie
     resigned from the Company in October 2000.

(m)  Represents 237,500 shares of common stock that such person has the right to
     acquire pursuant to options exercisable within 60 days. Mr. McAndrews
     resigned from the Company in September 2000.

(n)  Includes 41,500 shares of common stock that such person has the right to
     acquire pursuant to stock options exercisable within 60 days.

(o)  Represents 25,000 shares of common stock that such person has the right to
     acquire pursuant to stock options exercisable within 60 days.

(p)  Includes 2,110,250 shares of common stock that such persons have the right
     to acquire pursuant to stock options exercisable within 60 days and
     12,935,930 shares of common stock and currently exercisable warrants to
     purchase 2,916,666 shares of common stock beneficially owned by Fair
     Springs Trust. Hans Georg Hinderling is a trustee of Fair Springs Trust.
     Fair Springs Trust is the beneficial owner of (x) 11,068,567 shares of
     common stock and currently exercisable warrants to purchase 2,083,333
     shares of common stock held of record by Ansteed Investments Ltd. and (y)
     1,867,363 shares of common stock and currently exercisable warrants to
     purchase 833,333 shares of common stock held of record by ABC Corp.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         In March 1999, the Company acquired all of the outstanding capital
stock of Mediatel Global Communications Limited ("Mediatel") from Chadwell Hall
Holdings ("CHH"), a former majority shareholder of the Company, 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




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<PAGE>

of $3,000,000 with a fixed interest rate of 6.5% payable in March 2000. In April
1999, the Company prepaid $1,000,000 against the principal balance of the note
payable to CHH. The Company obtained a fairness opinion from an independent
valuation firm regarding the acquisition of Mediatel and sale of Telnet. During
Fiscal 2000, the remaining $2,000,000 balance of the note plus accrued interest
of $81,000 was capitalized as a contribution to capital of the Company by CHH.
The Company issued no common stock to CHH in connection with this contribution
of capital.

         During Fiscal 2000, the Company authorized the issuance of common stock
options to certain of its directors and executive officers. Details of such
issuances are set out above in the table "Option Grants for the Year Ended June
30, 1999" for executive officers and in the section "Compensation of Directors"
for directors.

         During Fiscal 2000, Clariti Telecommunications Europe Limited, a United
Kingdom subsidiary of the Company, sold certain excess telecommunications
equipment to an affiliate of CHH in an arms length transaction valued at
approximately $195,000. A loss of approximately $762,000 was realized on this
transaction.




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<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. (g)
2.7   Agreement and Plan of Merger for the acquisition of Tekbilt World
      Communications, Inc. *
3.1   Articles of Incorporation (e)
3.1.1 Amendment to Articles of Incorporation (j)
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 (g)
10.7  Employment agreement with Joseph A. Smith (g)
10.8  Employment agreement with Daniel P. McDuffie (g)
10.9  Employment Agreement with James M. Boyd, Jr. (j)
16.1  Letter on change in certifying accountant (h)
16.2  Letter on change in certifying accountant (i)
21.1  Principal subsidiaries of the Registrant
         (i) Global Telecommunications of Delaware, Inc. (100% owned -
             incorporated in Delaware))
        (ii) Clariti Wireless Messaging, Inc. (formerly Clariti Digital Paging,
             Inc.) (100% owned - incorporated in Delaware)
       (iii) Clariti Telecommunications Europe Limited (100%
             owned - incorporated in United Kingdom)
        (iv) Clariti Carrier Services Limited (100% owned - incorporated in
             United Kingdom)
         (v) Clariti IP Services, Inc. (formerly MegaHertz-NKO, Inc.) (100%
             owned - incorporated in Delaware)
        (vi)  Clariti Telecommunications Pty Ltd. (formerly NKA Communications
             Pty Ltd.) (100% owned - incorporated in Australia)
       (vii) Clariti Telecom, Inc. (formerly Tekbilt World Communications,
             Inc.) (100% owned - incorporated in Pennsylvania)
      (viii) Clariti Ventures, Inc. (formerly Peljo Music, Inc.) (100% owned -
             incorporated in Pennsylvania)
23.1  Consent of Independent Auditors (j)
27.1  Financial data schedule (j)



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<PAGE>

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) Amendment No. 2 to Annual Report on Form 10-KSB for the year ended June 30,
    1999
(h) Form 8-K filed December 23, 1998 (earliest event reported Dec. 18, 1998)
(i) Amendment No. 1 to Form 8-K filed on September 23, 1999
(j) Form 10-K filed September 28, 2000


Reports on Form 8-K

The Company filed the following Form 8-K during the quarter ended June 30,
2000.

(a) The Company filed a Form 8-K on April 17, 2000.  The report disclosed in
    Item 5 that it had completed a private placement to several foreign
    institutional investors of 3,850,000 shares of its common stock for
    aggregate proceeds of $10,588,000 which, after commissions of $1,165,000,
    resulted in net proceeds to Clariti of $9,423,000.





                                    58

<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/ James M. Boyd, Jr.
                                  ------------------------
                                    James M. Boyd, Jr.
                                    Vice President of Finance and
                                    Chief Accounting Officer

Dated: October 30, 2000


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