U.S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-KSB

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

                      For the Year Ended September 30, 1996

                           Commission File No. 0-20922


                      TOTAL WORLD TELECOMMUNICATIONS, INC.
--------------------------------------------------------------------------------
                 (Name of Small Business Issuer in Its Charter)


             Delaware                                   75-2274730
-----------------------------------      ---------------------------------------
    (State or jurisdiction of               (IRS Employer Identification No.)
  incorporation or organization)


3200 North Military Trail, Suite 300, Boca Raton, Florida              33431
--------------------------------------------------------------------------------
       (Address of Principal Executive Offices)                     (Zip Code)


                                 (561) 997-5880
--------------------------------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act:  None
                                                                ----

                                              Name of Each Exchange
      Title of Each Class                      on Which Registered

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

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

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

                        Common Stock ($.00001 par value)
--------------------------------------------------------------------------------
                                (Title of Class)

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

                               Yes   X       No
                                    ---          ---

                    

<PAGE>




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

                               Yes   X       No
                                    ---          ---

State issuer's revenues for its most recent fiscal year: $21,584,874

      State  the   aggregate   market   value  of  the  voting   stock  held  by
non-affiliates  computed by  reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days.

            Common Stock, par value  $.00001 per share  ("Common  Stock"),
      and Series M Preferred Stock and Series O Preferred Stock, par value
      $.00001  per share  ("Preferred  Stock")  were the only  classes  of
      voting  stock of the  Registrant  outstanding  on December 31, 1996.
      Based on the closing bid price of the Common  Stock on the  National
      Association of Securities  Dealers,  Inc. Automated Quotation System
      as reported on December  27, 1996  ($5.813),  the  aggregate  market
      value of the  3,409,305  shares of the Common  Stock held by persons
      other than  officers,  directors and persons known to the Registrant
      to be the beneficial  owner (as that term is defined under the rules
      of the Securities and Exchange Commission) of more than five percent
      of the Common Stock on that date was approximately  $19,818,290.  By
      the foregoing  statements,  the Registrant  does not intend to imply
      that any of these  officers,  directors  or  beneficial  owners  are
      affiliates of the Registrant or that the aggregate  market value, as
      computed   pursuant  to  rules  of  the   Securities   and  Exchange
      Commission,  is in any way  indicative  of the amount which could be
      obtained for such shares of Common Stock.

                   ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                           DURING THE PAST FIVE YEARS

      Check whether the issuer has filed all  documents and reports  required to
be filed by Section 12, 13 or 15(d) of the Exchange  Act after the  distribution
of securities under a plan confirmed by a court.

                               Yes           No
                                    ---          ---

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

      State the number of shares  outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.

                  6,231,928 shares of Common Stock, $.00001 par
                  value, as of December 27, 1996.



                                        2

<PAGE>



                                     PART I

                                    BUSINESS

ITEM 1.     DESCRIPTION OF BUSINESS
            -----------------------
    
OTHER THAN HISTORICAL AND FACTUAL STATEMENTS, THE MATTERS AND ITEMS DISCUSSED IN
THIS ANNUAL REPORT ON FORM 10-KSB ARE  FORWARD-LOOKING  STATEMENTS  THAT INVOLVE
RISKS AND UNCERTAINTIES. ACTUAL RESULTS OF TOTAL WORLD TELECOMMUNICATIONS,  INC.
AND ITS SUBSIDIARIES  (COLLECTIVELY,  THE "COMPANY") MAY DIFFER  MATERIALLY FROM
THE RESULTS DISCUSSED IN THE  FORWARD-LOOKING  STATEMENTS.  CERTAIN FACTORS THAT
COULD  CONTRIBUTE TO SUCH  DIFFERENCES  ARE DISCUSSED  WITH THE  FORWARD-LOOKING
STATEMENTS  THROUGHOUT  THIS  REPORT  AND ARE  SUMMARIZED  IN THIS  SECTION  AND
"MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS-FORWARD- LOOKING STATEMENTS-CAUTIONARY LANGUAGE."

INTRODUCTION
------------

      Total World  Telecommunications,  Inc., formerly  International  Standards
Group,  Limited  (the  "Company"),   through  various   subsidiaries,   provides
telecommunications  services,  financial services and asset management to credit
unions,   and  commercial  and  residential  real  estate  brokerage,   mortgage
origination  and title  services.  In June 1996,  the Company  sold its American
Indemnity Co. subsidiary,  a fully licensed property and casualty insurer in the
British West Indies.

      In  June  1996,  the  Company   acquired   Houston-based   Total  National
Telecommunications,  Inc., doing business as Total World Telecom, Inc ("TWT"), a
Tier 2 switch-based  interexchange carrier that utilizes digital and fiber optic
facilities,  with switches located in New York, Chicago,  Los Angeles,  Atlanta,
Houston,  Dallas,  Kansas  City  and  Miami as of  December  31,  1996,  and two
additional switches in Seattle and Washington, D.C. will be operational in early
1997.

      Through  Financial  Standards Group,  Inc.  ("FSGI"),  the Company assists
credit unions and their  supervisory  committees in performing  comprehensive or
internal  regulatory  compliance  audits  in  satisfaction  of  their  statutory
requirements.  It  also  provides  related  internal  auditing,  accounting  and
managerial  advisory  services to credit  unions.  FSGI has  proposed to provide
internal audit, accounting and managerial advisory services to commercial banks,
savings and loan  associations and other financial  institutions  requiring such
support services. The Company also plans to market asset management services for
credit unions through a joint arrangement with one or more nationally recognized
management firms.




                                        3



<PAGE>



      Through  its  Real  Estate  Services   Network   Holding  Corp.   ("RESN")
subsidiary,   the  Company  provides  commercial  and  residential  real  estate
brokerage,  mortgage  origination  and  title  services.  The  Company  is  also
evaluating other services and products to be offered including various insurance
products and specialized  services such as relocation programs and home warranty
programs.

      On October 15, 1996, the Company effected a one-for-fifteen (1:15) reverse
stock split of its outstanding Common Stock. All transactions  described herein,
and all  references  to  outstanding  Common  Stock of the  Company or rights to
acquire  Common Stock give effect to such reverse  stock split unless  otherwise
indicated.

      In  view  of the  acquisition  of  TWT  and  the  focus  of the  Company's
operations in the telecommunications  industry, the Company plans to evaluate in
the course of the current  fiscal year whether the  operations  of the Company's
FSGI and RESN subsidiaries are complementary. In the event management determines
that these  operations  are not  sufficiently  compatible  and  synergetic,  the
Company will consider the sale or other  disposition  of these  subsidiaries  or
their operations.

RECENT DEVELOPMENTS
-------------------

      On December 21, 1995, the Company and Global RE., LTD  consummated a stock
purchase and exchange agreement,  ("Agreement") subject to certain due diligence
procedures  pursuant  to which the  Company  acquired  all the  common  stock of
American Indemnity Company Limited ("AIC") in exchange for 233,333 shares of the
Company's  newly  authorized  Series G Voting  Convertible  Preferred Stock (the
"Preferred  Stock") and  options to purchase a total of 44,444  shares of Common
Stock of the Company.  On April 6, 1996, the purchase and exchange agreement was
closed out of escrow,  and 155,556  restricted  shares of the  Company's  Common
Stock were issued in conversion of the preferred stock. Thereafter,  on June 11,
1996, the Company,  Global RE., Ltd., and AIC entered into an agreement pursuant
to which the Company  exchanged with Global RE., Ltd. its capital stock interest
in AIC in return for the Company's securities previously received by Global RE.,
Ltd. as part of the  acquisition  of AIC by the Company in December  1995.  This
separation  was based on the  determination  by  respective  managements  of the
incompatibilities  of operations and  limitation of the Company's  management to
exercise sufficient oversight of AIC's officers. In addition, the parties agreed
to exchange reciprocal options to purchase 200,000 shares of Common Stock of the
Company  and  3,000,000  shares of capital  stock of AIC in  addition to certain
supplemental  rights.  At  June  30,  1996,  the  Company  had  cancelled  these
previously outstanding shares.







                                        4



<PAGE>



      On June  12,  1996,  the  Company  consummated  an  Agreement  and Plan of
Reorganization  dated May 28, 1996 for the acquisition of all of the outstanding
capital  stock of Total  National  Telecommunications,  Inc.  (d/b/a Total World
Telecom).  Pursuant to the terms of the stock exchange,  the shareholders of TWT
received  shares of newly created  Series M and Series N preferred  stock of the
Company  which are  convertible  into  1,983,333  shares of Common  Stock of the
Company. The Series M and Series N Preferred Stock,  established pursuant to the
exchange,  carry a cumulative  dividend of 2.7% per month of the stated value of
the preferred  stock which the Company is required to pay until such time as the
Company's  Registration  Statement (after which the former TWT shareholders have
agreed not to sell more than 5% of their shares per month) relating to resale of
certain of the shares of Common Stock  underlying the Series of Preferred  Stock
is registered  under the  Securities  Act of 1933. At the time the Agreement and
Plan of  Reorganization  was consummated on June 12, 1996, the Company  advanced
$5,000,000 for the working  capital needs of TWT. In addition the Company issued
35,000 shares of Series O Preferred Stock for TWT employee compensation for past
service costs which are  convertible  into 233,333 shares of Common Stock of the
Company.  The Company  also issued  267,501  shares of Series P Preferred  Stock
representing shares issued in connection with certain compensation  arrangements
for  employees  of TWT.  These shares are  convertible  into Common Stock of the
Company and have been recorded at the appraised  market value of common  shares.
Certain  consultants  received  250,000 shares of Series Q Preferred Stock which
are  convertible  into  1,111,109  shares of Common Stock of the  Company.  Such
shares  have been  valued at the fair  market  value  less  $2,625,000  (for the
redemption of 350,000 shares of Series M Preferred  Stock) and have been charged
(except for Series O and P) to the cost of the acquisition. The Series O, Series
P and Series Q Preferred Stock have no registration rights.

      On February  2, 1995,  the  Company  was named as  defendant  in a lawsuit
brought in Supreme  Court of the State of New York for the County of New York in
a case styled  MORGAN  STANLEY & CO.  INCORPORATED  V.  INTERNATIONAL  STANDARDS
GROUP, INC. (Index No. 102772/95).  Morgan Stanley & Co.  Incorporated  ("Morgan
Stanley"),  one of the  largest  and  most  preeminent  investment  banking  and
financial services firms in the world, was seeking to recover purported damages,
or, in the alternative, was seeking rescission relative to its purchase from the
Company  of certain  counterfeit  bonds  sold to Morgan  Stanley by the  Company
following  affirmation by Morgan Stanley that such bonds had been  authenticated
by Morgan  Stanley.  Morgan Stanley sought  judgment  against the Company for an
amount in excess of  $3,870,000,  together  with costs,  predicated on counts of
breach of warranty, breach of contract, unjust enrichment and mistake of fact.







                                        5



<PAGE>



      Thereafter,  the Company  initiated  litigation  against  Morgan  Stanley,
Virginia de Cristoforo,  Robert Isbitts,  Administracion  de Seguros,  S.A. ("de
Seguros"),  Consorcio  de Seguros  Polaris,  S.A.  and Michael E. Zapetis in the
United  States  District  Court for the Southern  District of Florida  (Case No.
95-0590).  The suit  claimed  federal  and state  securities  law and common law
fraud,  negligence  and other  breaches  by the parties in  connection  with the
issuance of invalid Bearer Bank Bonds purportedly issued by the Banco Central de
Venezuela in consideration for the acquisition of a controlling  interest in the
Company by de Seguros which subsequently was rescinded by the Company.

      On October 29, 1996, the litigation was settled to the mutual satisfaction
of the parties. The terms of the settlement are not expected to adversely affect
the Company's operating results for any fiscal year.

      On March 14, 1996, the Company's  wholly-owned  subsidiary  RESN,  entered
into an Agreement with Intervest, Inc. ("Intervest"),  Sidney A. Lewis ("Lewis")
and U.S.  Mortgage  Network Corp.  ("USM") pursuant to which the parties agreed,
INTER ALIA, to the rescission of the Stock Purchase Agreement dated November 21,
1995 pursuant to which  Intervest  had sold all of its stock  interest in USM to
RESN. In connection with the consummation of the Agreement dated March 14, 1996,
the shares of common Stock of the Company were terminated,  and USM relinquished
any interest it held in the Company's  Mount Vernon  distribution  facility.  In
addition,  funds  previously  advanced  by the  Company  to USM in the amount of
$300,000  are to be  repaid  no later  than  July 1,  1997  (although  no longer
included as a receivable  in the  Company's  financial  statements).  RESN's new
mortgage  banking  subsidiary,  The Financial  Group  Incorporated,  has assumed
certain liabilities associated with USM as described hereafter.

      On November 6, 1996, the Company  acquired 100 percent of the  outstanding
stock of Southwestern Telecom, Inc. ("SOW"), San Antonio, Texas, a "casual-user"
direct-dial  long distance  company.  The purchase price for the acquisition was
$1,023,765 in cash.  Southwestern  Telecom is expected to expand on a geographic
basis  where  TWT  already  has an  existing  network  to better  utilize  TWT's
origination  and  termination  facilities.   Mr.  David  Anderson,   founder  of
Southwestern  Telecom,  will  stay  on  as  President  of  the  new  subsidiary.
Southwestern  Telecom currently maintains over 50 percent of its casual users as
active   accounts  when  measured  at  six-month   intervals.   This  length  of
subscribership  is believed to be one of the highest in the casual-user  market.
Southwestern  Telecom had  revenues of  approximately  $3.1 million for its year
ended December 31, 1995 and approximately  $2.7 million for the six months ended
June 30, 1996.








                                        6



<PAGE>



      On December 16, 1996, the Company  completed the acquisition of all of the
capital stock of NETTouch Communications,  Inc., Dallas, Texas ("NETTouch").  In
consideration   for  the   acquisition,   the  Company  paid  to  the  principal
shareholders of NETTouch  $2,400,000 and issued a Common Stock Purchase  Warrant
(the "Warrants") to acquire shares of Common Stock of the Company on or prior to
December  31,  2000 at an  exercise  price  of $7.75  per  share.  In  addition,
commencing  with the month ended  November 30, 1996, the Company is obligated to
make additional  payments to such shareholders up to an aggregate of $4,800,000,
provided NETTouch  continues to generate  incremental  monthly gross revenues in
excess of the highest gross revenues received in any preceding calendar month in
accordance  with the formula  established.  The actual  number of Warrants to be
received  is  predicated  on the  level of  revenues  periodically  obtained  by
NETTouch  during the 1997 calendar year.  The principal  shareholder of NETTouch
was  Telecommunications  Resources,  Inc. ("TRI") also from Dallas, TX. TRI is a
software developer and provider of  telecommunications  platforms which converge
technologies and telecommunications  services, such as worldwide  long-distance,
voice mail, virtual fax, travel card, wireless messaging notification,  enhanced
"follow   me"   features,   conference   calling,   paging,   internet   access,
text-to-screen  e-mail,  website  development  and  hosting  and  more  into the
convenience of single 1-800/888 numbers. These services allow the user a variety
of office services  through one telephone  number.  NETTouch  currently  markets
these bundled  services under the brand name  "N'Touch."  Under the  acquisition
agreement,  N'Touch as a  wholly-owned  subsidiary  of the Company  will receive
licensing  rights to market TRI's future products and services to the home-based
business  segment,  which  management  believes  is one of the  fastest  growing
segments in our society.

TOTAL WORLD TELECOM, INC.
-------------------------

      General
      -------

      Total World Telecom was established in Houston,  Texas in 1991 as a single
switch-based long distance carrier,  and has since expanded its revenue base and
geographic  scope of  operations to become a Tier 2  switch-based  long distance
carrier with eight  Stromberg-Carlson  DCO Tandem  switches  located in Houston,
Dallas,  Miami, Atlanta, New York, Chicago,  Kansas City and Los Angeles.  TWT's
digital fiber optic network uses leased transmission  facilities and proprietary
switches to originate and  terminate  calls  between U.S.  cities  together with
utilization of overflow  facilities to other major carriers for all other areas.
In addition,  TWT has bulk purchase agreements with major international carriers
which allows it to offer  qualitative  and  competitively  priced  international
service.









                                        7



<PAGE>



      Since 1991,  TWT has grown in customer  base and annual  revenues  and has
evolved,  in the  estimation  of  management,  into one of the 20  largest  long
distance  carriers in the United States.  TWT's revenues for the 12-month period
ended September 30, 1996 were  $52,035,723.  At present,  TWT offers as products
and dedicated  long  distance  services 800 services,  calling  cards,  domestic
private  lines,  debit cards,  conference  calling,  advanced  billing  systems,
enhanced  fax  and  data  services,   international  calling  and  international
callback.  Services to be added in the proximate  future include internet access
and related telecommunications products and services.

      On December  16,  1996,  TWT  acquired  all of the  outstanding  shares of
NETTouch Communications,  Inc. from Telecommunications  Resources, Inc. NETTouch
markets  various  telecommunications  platforms  which are licensed by TRI which
effectively  converge  technologies  and  telecommunications  services  such  as
worldwide  long  distance,  voice  mail,  virtual  fax,  travel  card,  wireless
messaging  notifications,  enhanced  "follow-me"  features,  conference calling,
paging, internet access,  text-to-screen e-mail, website development and hosting
and related  technology  which afford users a variety of office services through
one telephone  number. On November 6, 1996, TWT acquired 100% of the outstanding
shares of Southwestern Telecom,  Inc., a "casual user" direct dial long distance
carrier.

      TWT  differentiates  itself from a price-only  sales  approach by offering
various  value-added  services  for its  customers  provided  by its  customized
proprietary  software.  The Company's  software  allows the bundling of multiple
products and services on a single invoice. TWT's wholesale customers are allowed
to  customize  which  products  and  services  will be bundled  into nine single
invoices  per  end  user.  TWT's  operational   services  and  customer  support
functions, including customer service, credit and collections and administrative
services,  are  located  at the  Company's  offices at 1001  Fannin,  Suite 300,
Houston, Texas 77002.

      Industry Background
      -------------------

      Today's domestic long distance telecommunications industry was principally
shaped by a 1984 court decree (the "Decree") that required the divesture by AT&T
of its 22 Bell  operating  companies  ("BOCs") and divided the country into some
200  Local  Access  Transport  Areas or  "LATAs".  The local  exchange  carriers
("LECs"),  which include the seven regional Bell operating  companies  ("RBOCs"-
the  parent  companies  of the  BOCs)  as well  as  independent  local  exchange
carriers,  were given the right to provide local telephone service, local access
service to long distance carriers and intra- LATA long distance service (service
within LATAs),  but the RBOCs were prohibited from providing  inter-LATA service
(service between LATAs).  The right to provide  inter-LATA  service was given to
AT&T and the other interexchange carriers ("IXCs").







                                        8



<PAGE>




      As a result of the Decree,  an  inter-LATA  long distance  telephone  call
begins  with the LEC  transmitting  the call by means of its local  network to a
point of connection with an interexchange  carrier.  The interexchange  carrier,
through its switching and  transmission  network,  transmits the call to the LEC
serving the area where the  recipient of the call is located,  and the receiving
LEC then  completes the call over its local  facilities.  For each long distance
call, the originating LEC charges an access fee. The interexchange  carrier also
charges a fee for its transmission of the call, a portion of which consists of a
terminating  fee  which is  passed on to the LEC used to  deliver  the call.  To
encourage the development of competition in the long distance market, the Decree
required LECs to provide all IXCs with access to local exchange services that is
"equal in type,  quality and price" to that  provided to AT&T.  These  so-called
"equal  access" and related  provisions  were  intended to prevent  preferential
treatment  of AT&T and to level the access  charges  that the LECs could  charge
interexchange  carriers,  regardless of their volume of traffic.  As a result of
the Decree,  customers of all long distance companies were eventually allowed to
initiate their calls by utilizing simple "1 plus" dialing, rather than having to
dial longer access or identification numbers and codes.

      Legislative,  judicial and technological factors have helped to create the
foundation  for  smaller  long  distance   providers  to  emerge  as  legitimate
alternatives  to  AT&T,  MCI and  Sprint  for  long  distance  telecommunication
services. The FCC has required that all IXCs allow the resale of their services,
and  the  Decree  substantially  eliminated  different  access  arrangements  as
distinguishing  features among long distance carriers. In recent years, national
and  regional  network  providers  have  substantially  upgraded the quality and
capacity of their  domestic long  distance  networks,  resulting in  significant
excess  transmission  capacity  for  voice  and  data  communications.   Due  to
anticipated   advances  in  the  technology  involved  in  digital  fiber  optic
transmission,  excess capacity is expected to continue to be an important factor
in long distance  telecommunications.  As a  consequence,  not only have smaller
long distance  service  providers  received legal protection to compete with the
network-based  carriers,  they also  represent  a valuable  source of traffic to
carriers with excess capacity.

      The large  national  carriers  generally  focus on  residential  and large
commercial  accounts,  creating  opportunities for smaller long distance service
providers. TWT believes that AT&T, MCI and Sprint engage in limited direct sales
(i.e.,  face-to-face  personal  contact)  to small and  medium-sized  commercial
users.  Industry  observers  estimate  that over 500 small firms have emerged to
compete  for these  customers,  many of whom are quickly  able to build  sizable
customer bases on the strength of their selling  skills.  However,  sustaining a
smaller  firm's  growth  generally   requires  abilities  to  manage  a  growing
enterprise,  as well as to attract the capital necessary to finance  receivables
and develop a management and systems infrastructure.






                                      9



<PAGE>



      An integral component of long distance telecommunications  transmission is
the switching  equipment  necessary to direct calls or data over the appropriate
transmission line. Facilities-based carriers maintain their own switches as part
of their networks. Smaller non-facilities-based providers generally contract for
the use of switches in connection with their  contractual  arrangements  for the
use of a network.  As an  alternative,  these  providers  may install  their own
switches in those areas where they have sufficient volume to justify the capital
expenses and ongoing maintenance costs.

      Industry Overview
      -----------------

      The  long  distance  industry  can be  separated  into  four  tiers  based
primarily on whether a company  originates,  switches and/or  terminates its own
calls.  Tier 1 is comprised of the  facilities-  based  carriers that own large,
nationwide fiber-optic networks,  including a large number of switches. Each can
effectively  terminate  a call  (i.e.  pass  to a LEC)  nationwide.  The  Tier 1
carriers  can be viewed as  nationwide  interexchange  carriers  who are able to
carry a call entirely between the originating central office and the terminating
central  office for the best  economics.  This  requires  trunking or leasing of
high-capacity lines into each central office, which in turn requires significant
amounts of traffic to justify the high monthly cost.

      Tier 3 and Tier 4 carriers  are  switchless  resellers  who do not own any
facilities at all and instead rely on wholesale  purchasers of minutes from Tier
1 and Tier 2 carriers.  Tier 3 and Tier 4 carriers  ordinarily  do not have high
fixed costs but generally experience a lack of customer and traffic control. The
distinction  between  Tier 3 and Tier 4 is based  primarily on the fact that the
Tier 3  interexchange  carrier  generally  uses its own  brand  name  and  often
undertakes a certain amount of direct sales, customer support and billing, while
the Tier 4 carrier often  outsources  most of these services and,  therefor,  is
often  referred  to as an  aggregator  since  it is  primarily  engaged  in bulk
purchasing of capacity.

      Tier 2 carriers,  such as TWT, own limited or no physical  networks except
their  proprietary  switches,  which are used for  originating  and  terminating
traffic through leased  facilities.  TWT can originate traffic via virtually any
source and route the call to an appropriate  local exchange carrier or to a Tier
1 carrier for termination. Ownership of the switches allows TWT to employ least-
cost-routing,  which  facilitates  the entry of such  variables  as time of day,
geographic location,  and type of call to help define the most economic route to
choose for the  termination of the call.  These  terminating  routes may include
facilities  directly connected to the local exchange carriers or bulk deals with
Tier 1 carriers.






                                       10



<PAGE>


      Switch and Network Facilities
      -----------------------------

      TWT maintains a digital network in all regions of the United States.  From
five Siemens-Stromberg Carlson DCO Tandem switches in place earlier in 1996, TWT
has now increased the number of active  switches to eight,  with two  additional
switches  to be  activated  in  early  1997.  TWT  utilizes  what  is  generally
recognized to be state- of-industry digital and fiber optic facilities,  and has
deployed SS7 signalling  throughout  its network to better insure prompt,  clear
connections at a competitive price. A series of inter- machine trunks connecting
each TWT switch  with  multiple  other TWT  switches  has also been  deployed to
ensure call  protection  and maximum  redundancy.  From the  operations  command
center in Houston,  TWT's switch managers and technicians  condition and monitor
the entire network on a 24-hour per day basis.

      The maximization of TWT's gross profit generated by calls transported over
its network is dependent  upon TWT's  ability to utilize its network  facilities
efficiently.  Such  facilities  are  comprised of both a fixed cost and variable
transport  cost.  Profitability  is  largely  dependent  upon  TWT's  ability to
maximize the efficiency of its fixed facilities cost. Approximately 80% of TWT's
total  traffic  is  processed  by TWT's  switches.  TWT's  goal is to obtain 90%
efficiency by the end of 1997.

      TWT is  continually  evaluating  and  reconfiguring  its  call  processing
through the utilization of least-cost-routing.  TWT has contracted with numerous
domestic and international transport carriers which allow for destination number
specific least-cost- routing and the maintenance of diverse routes.

      Products and Services
      ---------------------

      TWT offers a wide variety of long distance  telecommunications services to
its customer base.  Historically,  a substantial  portion of TWT's revenues have
been  generated  by basic  "one  plus" and "800"  long  distance  service in the
residential and small business markets.  TWT offers both switched and dedicated,
inbound and outbound long distance services.  TWT is able to effectively provide
these  services  because 80% of this  traffic is carried  over the TWT  network,
allowing for TWT to control quality, while keeping costs low. In the areas where
TWT does not  maintain  its own  network,  bulk  purchase  agreements  have been
negotiated   with  national  and  regional   interexchange   carriers.   Through
negotiations and reliable performance under its agreements,  TWT has developed a
number of underlying  carrier agreements that provide dependable quality service
at relatively low cost to TWT.








                                       11



<PAGE>



      In addition  to basic  telecommunications  services,  TWT's  product  line
includes  value-added  services  that  generate  higher  margins than basic long
distance services. At present, these value-added services include:

        o   DEDICATED ACCESS.  For  high  volume  businesses,  TWT  provides T-1
            services to further reduce long distance expenses.

        o   ACCOUNTING CODES AND PROJECT CODES.  TWT offers long distance track-
            ing by  department,  individual or group name, two to five digits in
            length, validated or invalidated.

        o   800/888 CALLING.  This service is provided for commercial  customers
            as well as large residential users.

        o   CALLING CARDS.  TWT's  services  allow customers the ability to com-
            plete  calls  away from home or office  via  800/888-access  calling
            cards.

        o   PRE-PAID PHONE CARDS.  TWT  offers  a   debit  card  platform   that
            includes voice prompting,  customized  introductions  and dollar and
            minute announcements, all possible in a variety of languages.

        o   INTERNATIONAL CALLING.  TWT provides phone service to  more than 240
            countries worldwide.

        o   INTERNATIONAL  CALLBACK. TWT offers customers the capability to call
            to and from over 240 countries.  This allows a customer  anywhere in
            the world the  ability  to obtain a dial tone in the  United  States
            which then  allows  that  customer  the  ability to make phone calls
            internationally using TWT's more favorable rates.

        o   CUSTOMIZED BILLING AND MANAGEMENT REPORTS. Customers can choose from
            a  variety  of  standardized   customer-driven  reports  that  offer
            valuable time saving  information on calls.  Bills can be customized
            to reflect names, departments or accounts.

      Marketing and Sales

      TWT seeks  growth  over the coming  years to promote  increased  revenues,
profits and stockholder  value. TWT will seek to attain these goals through four
revenue sectors:

        o   CARRIER/SWITCHLESS RESELLER SECTOR.  As  providers of  long distance
            services to end-users' retail customers,  switchless  resellers seek
            to  reduce  their   variable   cost  of  access  to  long   distance
            transmission  facilities  and  services.  Historically,   first-tier
            interexchange  carriers have  provided the bulk of the  transmission
            facilities and services to switchless resellers.  However, in recent
            years such  interexchange  carriers  have  produced  less  favorable
            pricing to  switchless  resellers  and have not  offered  all of the
            support  services  necessary,  forcing  the  latter to look to other
            providers.  Although a number of companies compete in the switchless
            reseller market,  TWT has been able to attract  resellers because of
            the  range of  transmission,  billing  and  other  support  services
            provided.

                                       12

<PAGE>


        o   AGENT SECTOR.  Master agents sign non-exclusive contracts  with  TWT
            to represent TWT and sell its long  distance  services to end users.
            TWT provides turnkey  comprehensive  long distance service offerings
            including  components  necessary  for set up of  end-user  accounts,
            transmission,  billing,  customer support, credit and collection and
            all other services. This allows companies to enter the long distance
            business   without  having  to  acquire  the  switching   equipment,
            originating  and   terminating   facilities,   back-up   facilities,
            additional  equipment  and  personnel.  Master  agents then build up
            their own  network of agents  and  initiate  a  marketing  campaign.
            Although a large  number of companies  compete in the agent  market,
            this approach has proven to be beneficial,  as TWT continues to find
            marketing groups who wish to enter the long distance business.

        o   ENHANCED SERVICES SECTOR.  The  demand for  information and telecom-
            munications  services  has grown  rapidly in recent years as society
            has become increasingly mobile. Response to this demand has resulted
            in a  device-dependent   environment   with  fragmented  access  and
            delivery  in  which  users  communicate  by  sending  and  receiving
            information through numerous unintegrated communications devices. In
            this environment, individuals require access to multiple information
            and  communications  services such as long distance,  paging,  voice
            mail, e-mail and online information services.

            NetTouch Corporation  provides a comprehensive,  integrated suite of
            information and  telecommunication  services  targeted to home-based
            customers.  NETTouch  delivers its services through a network system
            platform which provides users with a single,  user-friendly point of
            access to NETTouch's  services.  Network  access is accessible  from
            virtually  any  telephone  in the  world  and is  also  designed  to
            communicate  with PC's,  facsimile  machines and pagers.  NETTouch's
            



















                                       13



<PAGE>


            software,  together with the modular and scaleable  architecture and
            open systems  design,  enables TWT to customize  its services at the
            individual   subscriber  level.   NETTouch's   solution   integrates
            information and telecommunications  services which include worldwide
            long distance, voice mail, fax mail, travel services, active message
            notification,  financial news, headline news and conference calling.
            NETTouch  is  developing  additional  services  which it  expects to
            introduce in the first  quarter of 1997,  including  text-  to-voice
            e-mail,  additional travel services,  enhanced "follow me" services,
            electronic  banking and bill payment  services,  "meet me" services,
            Internet and paging services.  NETTouch markets its services through
            network  marketing  direct  distribution   channels.  In  co-branded
            relationships,  NETTouch  markets its services with the co- branding
            partner's  name  also  appearing  on the  face  of the  subscriber's
            communication   card.   NETTouch   believes   that  its   co-branded
            relationships  will continue to enable it to obtain subscribers more
            quickly  and retain  them more  effectively  than would be  possible
            through  direct   marketing   efforts  alone.   NETTouch  bills  its
            subscribers  by  means  of an  Electronic  Billing  and  Information
            System,  which  enables  NETTouch  to  electronically   charge  fees
            directly to a subscriber's credit card or bank account. In addition,
            it enables  NETTouch to establish a usage  threshold for each credit
            card and  electronically  charge  fees once the usage  threshold  is
            reached.

        o   CASUAL CALLING.  TWT operates and markets its casual calling through
            it wholly-owned subsidiary,  Southwestern Telecommunications,  which
            provides  long  distance  primarily to  residential  users through a
            service  known as "Casual  Calling." The end users access by dialing
            10005 before  placing a 1-plus call.  Although  Casual  Calling is a
            majority  (roughly 95%) of SOW's traffic,  it also has an additional
            1-plus long distance  customer  base.  SOW's  services are basic and
            rudimentary,  providing only direct-dialed,  station-to-station long
            distance  calling.  By utilizing  the TWT  network,  this product is
            accessible  and can be marketed  throughout the  continental  United
            States,  with  current  focus  primarily  in the  Southwestern  Bell
            region.  SOW  has  relied  on a  three-pronged  thrust  to  increase
            customer  awareness of its service:  telemarketing,  direct mail and
            newspaper  advertisements.  Direct  mail makes up a majority  of its
            marketing  expenditures  with an  efficient  process  to  mail  mass
            numbers  of  pieces  per  day.  TWT  also  utilizes   telemarketing,
            conducted  by live  operators  who contact  customers to promote the
            service and encourage  continued usage, while periodically  offering
            promotions.  Quarter-page  newspaper advertisements are run at least
           






                                      14



<PAGE>

            twice a year within each service area to support  remarketing of the
            area with new service offerings and customer incentives.

      Information Systems
      -------------------

      TWT believes  that  maintaining  sophisticated  and  reliable  billing and
customer  service  systems  that  integrate  billing,  accounts  receivable  and
customer  support is a critical  capability  necessary to record and process the
expansive  amounts of data that are  generated by a  telecommunications  service
provider.  TWT currently  processes  approximately  4.5 million call records per
month. In order to meet this demand, TWT has invested  substantial  resources to
develop proprietary  information systems which will integrate customer services,
management  information,  billing and  financial  recording.  These  systems are
designed  to: (i)  provide  sophisticated  billing  information  tailored to the
requirements  of TWT's  customer  base,  (ii) increase the accuracy and speed of
customer  billing,  (iii) respond  promptly to customer  needs,  (iv)  integrate
acquired  customer  bases,  (v)  facilitate  customer  retention by  identifying
customers which change their usage  patterns,  (vi) verify payables to suppliers
and (vii) support operations and collections efforts.

      TWT also  believes that the accuracy and speed with which data is produced
and  delivered  to the  customer  is a  critical  component  to  success  in the
wholesale marketplace.  To achieve these goals, TWT processes every call through
its network and through the  billing  platforms  on a real-time  basis,  thereby
making each call available for billing  delivery to the customer within three to
five seconds rather than the industry standard of one week.

      Customer Service and Technical Support
      --------------------------------------

      TWT believes that  effective  customer  service is essential to attracting
and retaining  customers.  TWT's customer service  department is responsible for
educating  and  assisting  customers in using TWT  services,  resolving  billing
related issues and resolving  technical  problems  subscribers may have in using
TWT's  services.  As of January 31, 1997,  TWT will staff its  customer  service
department  24 hours  per day,  seven  days  per  week  and is  accessible  by a
toll-free call. Each member of TWT's customer  service  department is trained in
all  aspects  of  customer  service  in order to enable  them to  respond to any
service related question raised by a customer.

      TWT provides customer service  representatives  with detailed  information
regarding each customer and the customer's transaction history. This information
is instantly accessible by customer service  representatives from their computer
terminals.  The  real-time  monitoring  capabilities  assure  that  subscribers'








                                       15



<PAGE>


transaction  records retrieved by customer service  representatives are current,
even if a subscriber  completed a transaction only moments before contacting the
customer  service  department.  Certain  customer  service  functions are script
driven,  providing customer service  representatives  with a preset procedure to
follow when carrying out the requested function.

      TWT employs separate  personnel who are responsible for technical  support
functions.  These  employees are responsible for consulting with TWT's strategic
partners.

      Acquisitions
      ------------

      On  November  6,  1996,  TWT  acquired  all of the  outstanding  shares of
Southwestern Telecom, Inc., San Antonio, Texas, a "casual-user" direct-dial long
distance company. SOW's customers access its network by dialing a unique carrier
identification  code ("CIC  Code")  before  dialing the number they are calling.
Using a CIC Code to access SOW's  network is known as "casual  calling"  because
customers can use SOW's  services at any time without  changing  their  existing
long distance carrier.  At the present time, SOW provides long distance services
in two states.  TWT plans to expand SOW's marketing efforts to additional states
during 1997.  Since marketing  efforts began in 1994, its revenues have grown to
approximately $2.7 million for the six-month period ending June 30, 1996.

      Although casual calling has been in existence since the mid- 1980's,  only
recently have  companies  such as SOW begun to  aggressively  pursue this market
opportunity.  SOW markets it services primarily through direct mail and outbound
telesales and marketing, and believes that this marketing strategy enables it to
attract residential customers in a cost-efficient manner. Because casual calling
customers  are not  required  to  cancel  or change  their  pre-subscribed  long
distance  carrier,  TWT  believes  that  the  aggressive   acquisition  programs
prevalent within the residential long distance market will have a limited impact
on SOW's business.

      SOW bills its casual  calling  customers  through  billing and  collection
agreements  which  enable SOW to place its  charges on the  monthly  local phone
bills of its residential  calling customers.  SOW has entered into a billing and
collection agreement with Southwest Bell and will expand to other Local Exchange
Carriers  (LECs).  TWT believes  that these  billing  arrangements  are the most
effective  mechanism  for  billings  its  residential  customers  because of the
convenience  to its customers of receiving a single bill for both local and long
distance service and the benefits  derived from the LECs' extensive  collections
infrastructure.

      On December 16, 1996,  the Company  completed the  acquisition  of all the
shares of NETTouch Communications, Inc., Dallas, Texas.






                                       16



<PAGE>



NETTouch  Communications,  Inc.,  which markets under the name of N'Touch,  is a
provider  of   telecommunications   services  which  converge  technologies  and
telecommunications  services,  such  as  worldwide  long-distance,  voice  mail,
virtual fax, travel card, wireless messaging notification,  enhanced "follow-me"
features,  conference calling,  paging, internet access,  text-to-screen e-mail,
website  development and hosting and more.  NETTouch allows every user a variety
of office services through the convenience of a single 800/888 number.

      Government Regulation
      ---------------------

      The terms and conditions under which TWT provides its services are subject
to regulation by the state and federal governments of the United States. Various
international  authorities may also seek to regulate the services provided or to
be  provided  by TWT.  Federal  laws and FCC  regulations  apply  to  interstate
telecommunications,  while state regulatory  authorities have  jurisdiction over
telecommunications that originate and terminate within the same state.

        o   FEDERAL.  On February 8, 1996, President Clinton signed into law the
            Telecommunications  Act of 1996  which  will  allow  local  exchange
            carriers,  including the RBOCs, to provide  inter-LATA long distance
            telephone  service  and which also grants the FCC the  authority  to
            deregulate other aspects of the telecommunications industry. The new
            legislation may result in increased  competition to the Company from
            others, including the RBOCs, in the future. TWT is classified by the
            FCC as a non-dominant  carrier. The FCC has jurisdiction to act upon
            complaints against any common carrier for failure to comply with its
            statutory obligations. The FCC also has the authority to impose more
            stringent  regulatory  requirements on TWT and change its regulatory
            classification.  TWT has  applied  for and  received  all  necessary
            authority  from  the FCC to  provide  interstate  and  international
            telecommunications  service.  TWT has been granted  authority by the
            FCC to provide international telecommunications services through the
            resale of switched services of U.S.  facilities-based  carriers. The
            FCC  reserves  the  right  to  condition,   modify  or  revoke  such
            international authority for violations of the Federal Communications
            Act or its rules.

            Both domestic and international, non-dominant carriers must maintain
            tariffs on file with the FCC.  Although the tariffs of  non-dominant
            carriers, and the rates and charges they specify, are subject to FCC
            review,  they are  presumed  to be lawful and are seldom  contested.
            










                                       17



<PAGE>


            Prior to a recent court  decision,  domestic  non-dominant  carriers
            were  permitted by the FCC to file tariffs with a "reasonable  range
            of rates"  instead of the detailed  schedules of individual  charges
            required  of  dominant  carriers.  In  reliance  on the  FCC's  past
            practice of allowing  relaxed  tariff filing  requirements  for non-
            dominant  domestic  carriers,  TWT did not  maintain  detailed  rate
            schedules for domestic offerings in its tariffs.  Until the two-year
            statute of limitation expires,  TWT could be held liable for damages
            for its failure to do so,  although it believes that such an outcome
            is unlikely and would not have a material  adverse effect on TWT. As
            an international  non-dominant carrier, TWT has always been required
            to  include,  and  has  included,  detailed  rate  schedules  in its
            international tariffs. Resale carriers are also subject to a variety
            of  miscellaneous   regulations  that,  for  instance,   govern  the
            documentation  and  verifications  necessary  to change a consumer's
            long  distance  carrier,  limit  the use of "800"  numbers  for pay-
            per-call  services,  require  disclosure  of operator  services  and
            restrict interlocking directors and management.

        o   STATE/COMMONWEALTH.  The intrastate long distance telecommunications
            operations   of  TWT  are  subject  to  various   State/Commonwealth
            Jurisdiction ("Jurisdiction") laws and regulations,  including prior
            certification,   notification  and  registration  requirements.   In
            certain Jurisdictions, prior regulatory approval may be required for
            changes  in  control  of  telecommunications   operations.   TWT  is
            currently   subject  to  varying   levels  of   regulation   in  the
            Jurisdictions   where  it   provides   approved   telecommunications
            services.  The vast majority of  Jurisdictions  require TWT to apply
            for  certification  to provide  telecommunications  services,  or at
            least to register  or to be found  exempt  from  regulation,  before
            commencing intrastate telecommunications service. Many Jurisdictions
            also impose reporting  requirements from various  departments within
            the Jurisdiction,  i.e.,  Secretary of State,  Department of Revenue
            and the Utility Commission.  The Jurisdiction may also require prior
            approval for transfers of control of certified carriers, assignments
            of carrier assets, including customer bases, carrier stock offerings
            and  incurrence  by  carriers  of  significant   debt   obligations.
            Certificates  of Authority can generally be  conditioned,  modified,
            canceled,  terminated  or  revoked  by  Jurisdiction  law and/or the
            rules,  regulations,  and  policies of the  Jurisdiction  regulatory
            authorities.  Fines and other penalties, including the return of all
            monies   received  for  intrastate   traffic  from  residents  of  a
            Jurisdiction, may be imposed for such violations. See "Litigation."










                                       18



<PAGE>




            TWT has made the filings and taken  actions to become  certified and
            tariffed to provide intrastate services to customers  throughout the
            United  States,  with the  exception of six  Jurisdictions.  TWT has
            received the level of authorization to provide  intrastate  services
            from 40 Jurisdictions. With the exception of pending applications in
            Arizona,   Connecticut,   Nevada  and  Oklahoma,  TWT  has  received
            authorization  to  provide  the level of service  authorized  by the
            recognized  utility  commission  in each  Jurisdiction  where it has
            applied  for  certification.  TWT  has  not  begun  the  process  of
            certification in Alaska, Hawaii,  Mississippi,  Nebraska, New Mexico
            or North Dakota.  There can be no assurance that TWT's  provision of
            services in  Jurisdictions  where it is not  licensed or tariffed to
            provide such  services  will not have a material  adverse  effect on
            TWT's business, operating results and financial condition.  However,
            TWT will not knowingly provide service in any Jurisdiction  where it
            has not applied for and received  the level of authority  authorized
            by that Jurisdiction's Utility Commission.

        o   MISCELLANEOUS. In conducting its business, TWT is subject to various
            laws and regulations relating to commercial  transactions generally,
            such as the  Uniform  Commercial  Code,  and is also  subject to the
            electronic funds transfer rules embodied in Regulation E promulgated
            by the Federal  Reserve  Board.  Because of growth in the electronic
            commerce market,  it is possible that Congress or individual  states
            could enact laws regulating the electronic  commerce market, or that
            the Federal  Reserve  Board might  revise  Regulation E or adopt new
            rules  regarding  electronic  funds  transfer.  It is  impossible to
            predict what effect such new or revised laws,  rules and regulations
            would  have on  TWT's  business,  operating  results  and  financial
            condition.  TWT's  proposed  international  activities  also will be
            subject to regulations by various international  authorities and the
            inherent risk of unexpected changes in such regulation.

      Competition
      -----------

      The   number  of   telecommunications   services   offered  by  TWT  on  a
consolidated, one-bill basis serves to some extent, to distinguish TWT from some
of its  competitors.  Distinctions  are made based  upon the number of  services
offered,  the  pricing  plans  and  commitments  necessary,  as well as  billing
information  provided.   TWT  currently  owns  switch  capacity,   develops  and
implements its own products,  monitors and deploys its  transmission  facilities
and prepares and designs its own billing and reporting  systems.  TWT is able to
provide its customers with a mix of various  carriers' services, both  outbound,







                                      19



<PAGE>



inbound  and  wireless  services  at any  customer  location,  and  combine  the
different services in one monthly bill.

      In  addition to direct  competition  from what TWT  estimates  are several
hundred  switchless  resellers,  TWT competes with the sales  organizations  and
resellers of large telecommunications companies such as MCI and Sprint, which at
any  particular  time may offer more  desirable  services  or prices  than those
offered by TWT. Many of its competitors are better capitalized than TWT and thus
able to offer  multi-year  discount  pricing and services  plans that may not be
practical for TWT.

      On   February   8,   1996,   President   Clinton   signed   into  law  the
Telecommunications  Act of  1996.  This  new  law  permits  the  Bell  Operating
Companies,  heretofore  barred by the AT&T  Consent  Decree from  offering  long
distance  services,  to offer long distance  services  outside  their  operating
regions  immediately.  The new law also  permits the BOCs,  after  satisfying  a
number of conditions,  to provide long distance  service within their  operating
regions as well.

      On October 23, 1995,  the FCC ruled that AT&T would no longer be regulated
as a dominant carrier.  Because of this ruling,  AT&T services are now regulated
in the same manner as those  provided by  non-dominant  carriers  including TWT.
Previously,  AT&T's  commercial long distance  services were regulated under the
Commission's  streamlined regulatory procedures.  As a result of the order, AT&T
is generally  free from price cap  regulations,  is permitted to file tariffs on
one day's notice,  and is free to compete  directly with TWT for low volume long
distance  customers.  Many  service  authorization  requirements  are reduced or
eliminated and AT&T is no longer required to submit cost support with its tariff
filings. AT&T is also released from a number of annual reporting requirements.

      Proprietary Rights
      ------------------

      TWT's  ability  to  compete  is  dependent  in part  upon its  proprietary
technology.  TWT relies on  confidentiality  agreements  with its  employees and
copyright  and trade  secret  laws to  protect  its  technology.  Despite  these
actions,  there  can be no  assurance  that  others  will not be able to copy or
otherwise obtain and use TWT's proprietary technology without authorization,  or
independently  develop  technologies  that  are  similar  or  superior  to TWT's
technology.  However,  TWT believes that, due to the rapid pace of technological
change in the information and telecommunications  service industry, factors such
as  the  technological  and  creative  skills  of  its  personnel,  new  product
developments,  frequent  product  enhancements and the timeliness and quality of
support   services  are  more  important  to  establishing   and  maintaining  a








                                       20



<PAGE>


competitive  advantage in the  industry.  TWT presently has no patents or patent
applications pending. TWT has applied for trademarks and has been granted notice
of allowance for Total World Telecom and the TWT logo.

      Employees
      ---------

      As of September 30, 1996, TWT employed 80 persons on a full time basis and
two on a part time basis.  None of TWT's  employees are members of a labor union
or are covered by a collective bargaining agreement.

      Litigation
      ----------

      TWT has been a party from time to time to litigation  proceedings incident
to its business primarily involving complaints before certain state agencies and
the FCC regarding  certain  marketing  and billing  issues  associated  with the
activities  of  Heartline   Communications,   Inc.   ("Heartline")  and  certain
independent   marketing  agents.   The  primary  focus  of  such  litigation  or
proceedings involve unauthorized switching incidents which concern the switching
or so-called  "slamming" of  subscribers'  long  distance  carriers as described
below. Until recently,  TWT has focused on the wholesale segment of its business
and  relied on  independent  organizations  such as  Heartline  and  independent
marketing  agents for  customers  comprising  its retail  subscriber  base.  TWT
acquired  certain  assets and  liabilities  of  Heartline in January  1995,  and
assumed in part certain responsibilities  relative to the conduct by independent
marketing  agents of Heartline.  In January 1995,  TWT  discontinued  the direct
marketing functions of Heartline, and in July 1996, terminated all relationships
with independent  sweepstakes  marketing  companies based on certain abuses that
came to light in the course of operations.

      There is  described  below  certain  proceedings  known to TWT relative to
complaints for unauthorized  switching of subscribers's  long distance carriers.
As indicated,  TWT has disassociated itself entirely from any relationships with
independent   sweepstakes   marketing   agents,   but  is   required  to  assume
accountability  for  certain  conduct  and  actions  taken  by such  independent
sweepstakes  marketing  agents  during  the  course of their  relationship  with
Heartline or TWT.  Although such  complaints  could result in  additional  legal
actions or  proceedings  being  initiated  against TWT,  TWT believes  that such
matters will be  satisfactorily  resolved  without any further  material adverse
impact upon TWT's results of operations,  although TWT cannot be certain of such
resolution.  A final determination by one or more jurisdictions that TWT engaged
in the unauthorized  switching of subscribers'  long distance  carriers or other
unauthorized  conduct  could  still have a material  adverse  effect  upon TWT's
results of operations as, among other results, TWT could be subject to financial
penalties and potential revocation of its operating authority in the particular
jurisdiction, as well as other possible restrictions.







                                       21



<PAGE>





      Heartline is a party defendant in a case initiated by the Attorney General
of the State of New York filed on July 15, 1996 in  Superior  Court for New York
County (PEOPLE OF THE STATE OF NEW YORK BY DENNIS C. VACCO,  ATTORNEY GENERAL OF
THE STATE NEW YORK V. HEARTLINE COMMUNICATIONS,  INC. AND THE NEW YORK TELEPHONE
CO. AND U.S. COMPANY BILLING, INC., Case No. 96-404365). Settlement negotiations
are proceeding to finalization, and TWT anticipates that the basis of settlement
will  be  a  rate   adjustment   for  certain   customers  and  the  payment  of
investigational fees incurred by the State of New York which are not anticipated
to exceed  $100,000  or to have a material  adverse  effect on TWT's  results of
operations  in  addition  to  amounts  presently  reserved  or on its  operating
activities.

      Heartline is also a named defendant in companion  proceedings initiated on
June 7, 1996 in the Chancellery  Division of Middlesex  County New Jersey by the
Office of Consumer  Affairs and the Attorney  General of the State of New Jersey
(OFFICE OF CONSUMER AFFAIRS, ET AL V. JOSEPH R. HARROTT, BRAD DANN AND HEARTLINE
COMMUNICATIONS, INC.; CASE NO. C-187-96 AND ATTORNEY GENERAL OF THE STATE OF NEW
JERSEY, ET AL V. HEARTLINE COMMUNICATIONS,  INC., BOBBY B. LEWIS, JOSEPH HARROTT
AND JOE  WIGGINS,  ET AL; Case No.  C260-96).  While the case has been set for a
consolidated trial likely to occur in the Spring of 1997, settlement discussions
are proceeding which would involve  adjustment to TWT's  procedures  relative to
the conduct of operations and the payment of investigative  costs, which are not
anticipated  to exceed  $80,000  and which are not  expected  to have a material
adverse  effect on the operating  activities or the results of operations of TWT
in addition to amounts heretofore reserved.

      Heartline and TWT were the subject of an Order  Instituting  Investigation
by the California Public Utilities Commission (Proceeding No. I.96-04-024) filed
on April 10, 1996 which also related to violations of state regulation governing
the manner in which long distance  customers are switched from one interexchange
carrier to  another.  As with the prior  proceedings,  this  action was based on
conduct  undertaken  by  independent  marketing  agents of Heartline and TWT. On
August 13, 1996, TWT and the PUC entered into a settlement  agreement  which was
approved  by the  Commission  on December  9, 1996.  Pursuant to the  settlement
agreement,  TWT was prohibited from offering retail long distance service in the
State  of  California  for a  period  of 40  months,  although  TWT's  wholesale
operations would not be affected by this operating restriction. While the impact
of  such  settlement  has  had  a  material  adverse  impact  on  TWT's  current
operations, the continuing growth of revenues in TWT's wholesale segment as well
as its  expanding  revenue  base in  other  jurisdictions  in its  newer  retail








                                       22



<PAGE>


segments is anticipated to more than offset the loss of revenues associated with
the limitation  regarding retail  operations in the State of California.  TWT is
also  obligated  under the  settlement  agreement  to offer  certain  refunds to
customers  which are expected to range from between  $300,000 to $600,000  which
are expected to be paid during the current fiscal year and to pay $25,000 to the
Commission's  general fund. As a result of the incidents  which were the subject
of the California proceeding, TWT also has received Notice of Apparent Liability
for  Forfeiture  (Proceeding  No.  ENF-95- 18) filed on June 20, 1996 by the FCC
proposing to assess a forfeiture against TWT in the total amount of $200,000 for
unauthorized  conversion of five long distance customer accounts which were also
the subject of the California PUC proceeding.  TWT has filed a response with the
FCC on July 29, 1996 which is  currently  being  reviewed by the SEC Staff.  TWT
anticipates  resolution of this inquiry  during the current fiscal year with the
expectation  that the resolution  will be below the amount  demanded by the FCC.
TWT  believes  it has  provided  sufficient  reserves  to cover  any  additional
liability resulting from these proceedings.

      On August 30,  1996,  TWT  received an  administrative  subpoena  from the
Orange  County,   California  District  Attorney's  Office  ("OCDA")  requesting
information regarding the marketing of telecommunications services in California
by Heartline  and TWT.  TWT has  responded  to the  subpoena.  Although a formal
proceeding has not been instituted, the OCDA asserts that Heartline/TWT may have
violated  Business and  Professions  Code sections  17200 and 17500.  These code
sections provide for civil penalties for unlawful and unfair business  practices
and false or misleading advertising. By letter dated December 11, 1996, the OCDA
demanded in excess of  $1,000,000  in return for  resolving  the matter  without
litigation.  Counsel  for the Company  believes  the OCDA's  demand  exceeds any
reasonable estimate of Heartline/TWT's liability, and has been instructed by TWT
to  vigorously  defend the Company  against  these  claims while  continuing  to
explore a reasonable  settlement.  The Company has reserved  $500,000  which has
been accrued at September 30, 1996.

      In addition, Heartline was served with a Civil Investigative Demand by the
Office of the Attorney  General of the State of Arizona on December 5, 1996. TWT
expects to  complete  its  response in the  proximate  future and is not able to
anticipate  any specific  remedies that may be sought by the Attorney  General's
Office.  Heartline has also been named as a defendant in a proceeding  initiated
by the  Attorney  General  of  Illinois  (PEOPLE  OF THE  STATE OF  ILLINOIS  V.
HEARTLINE  COMMUNICATIONS,  INC., et al; Case No.  960H013750) filed in December
1996.  TWT will  evaluate  the  complaint  and respond in due course.  As in the
previous  instances of  unauthorized  switching of  subscribers'  long  distance
carriers,  all of these  transactions  were undertaken by independent  marketing
agents who are no longer associated with TWT's operations.









                                       23



<PAGE>




      A case was filed on January  11,  1996 by the  Addison  Terry  Company,  a
business  brokering firm, against National  Telecommunications  Inc. in the 80th
Judicial District Court, Harris County,  Texas (THE ADDISON TERRY COMPANY,  INC.
V. TOTAL NATIONAL  TELECOMMUNICATIONS,  INC.; Case No. 96-01182).  The plaintiff
claims  in this  lawsuit  that it is owed a  brokerage  fee of  $95,000  for the
services it provided in connection with possible financing for TWT. TWT signed a
commitment  letter,  but no final  agreement  was reached,  and no financing was
obtained.  The plaintiff claims,  however,  that it is entitled to its brokerage
fee due to the signing of the  commitment  letter.  The  plaintiff  is seeking a
brokerage fee, attorneys' fees,  pre-judgment  interest,  post-judgment interest
and costs of suit.  TWT denies  that the  brokerage  fee is owed and  intends to
defend  itself  against  the   plaintiff's   claim.   Further,   TWT  has  filed
counterclaims  against the  plaintiff  asserting  causes of action for breach of
contract, breach of fiduciary duty, negligence,  negligent misrepresentation and
violation  of the Texas  Deceptive  Trade  Practices  Act.  TWT seeks to recover
actual damages in the total amount of $165,000, exemplary damages,  pre-judgment
and  post-judgment  interest,  attorneys'  fees and  costs of suit.  The case is
currently in the discovery stage.

FINANCIAL STANDARDS GROUP, INC.
-------------------------------

      Introduction
      ------------

      Financial Standards Group, Inc. ("FSGI") was organized on October 30, 1989
to  assist  credit  unions  and  their  supervisory   committees  in  performing
comprehensive or internal regulatory  compliance audits in satisfaction of their
statutory requirements and to provide related internal auditing,  accounting and
managerial advisory services to credit unions.  Credit unions are required under
the  Federal  Credit  Union  Act and  various  state  statutes  to  undertake  a
comprehensive  internal  annual  audit and  submit a report of that audit to its
Board of Directors and a summary of the report to its  membership at the ensuing
annual meeting of the credit union membership.  Currently, there is no statutory
requirement that the annual audit be a certified audit,  which must be performed
by a Certified Public Accountant in accordance with generally  accepted auditing
standards as published by the American Institute of Certified Public Accountants
and which results in the issuance of financial  statements and the expression of
an opinion regarding such financial  statements.  A comprehensive  annual audit,
which does not  involve  expression  of an opinion or result in the  issuance of
financial  statements,  need not be  performed  by a CPA and  ordinarily  can be
accomplished  in  significantly  less time and for less  cost  than a  certified
audit,  thereby making it feasible and cost effective to the many smaller credit
unions in existence.









                                       24



<PAGE>



      Supervisory Committees and Audit Requirements
      ---------------------------------------------

      Volunteers are responsible for making many of the decisions in most credit
unions.  The Federal  Credit Union Act requires that the board of directors of a
credit union be elected from its membership. The supervisory committee, which is
similar to an audit committee, plays a major role in monitoring a credit union's
affairs.  The  supervisory  committee is appointed by the Board of Directors and
consists of not less than three nor more than five members, one of whom may be a
Director other than a compensated  officer of the Board.  Supervisory  committee
members are appointed to terms of one to three years and may not be employees of
the  credit  union.  No  special  qualifications  are  required  of  supervisory
committee members other than they be members of the credit union.

      The supervisory  committee  members determine whether to perform the audit
themselves or use outside assistance. Although the Board of Directors authorizes
the expenses of external auditors (who may be CPAs or other individuals or firms
trained in auditing and accounting  matters  applicable to credit  unions),  the
supervisory  committee  decides whether such assistance is necessary and, if so,
whom to employ. The decision whether to employ external auditors is based on the
complexity of the credit union's  operations and the training,  proficiency  and
independence of the supervisory committee members.

      Upon  completion of an audit,  a report must be prepared which details the
audit  findings.  At a minimum,  the audit finding should include any exceptions
noted in regard to (i)  preparation  of the  financial  statements in accordance
with acceptable  accounting  principles for federal or state credit unions; (ii)
inconsistently  applied  accounting   principles;   (iii)  required  information
disclosures  in  the  financial  statements;  and  (iv)  financial,  managerial,
operational  or  procedural  matters  which might have a material  impact on the
financial condition of the credit union.

      In the case of a certified  audit conducted by a CPA, it is incumbent that
generally  accepted auditing standards as published and promulgated by the AICPA
be followed and that an opinion by the CPA be rendered  regarding  the financial
statements  taken as a whole or,  alternatively,  the CPA is  required to assert
that an opinion cannot be expressed together with the reasons therefor. There is
no  requirement  under the  Federal  Credit  Union  Act or any  other  statutory
provision  that  credit  union  audits  be  conducted  by a CPA or that  they be
conducted in accordance with generally  accepted auditing standards of the AICPA
for the purpose of rendering an opinion on the resulting financial statements.









                                      25



<PAGE>



      Operations
      ----------

      Management believes that FSGI is able to undertake a comprehensive  annual
audit more  efficiently and at less cost than certified  audits performed by CPA
firms due to its  specialization,  training,  deployment of lower cost personnel
and  less  comprehensive  auditing  standards  and  protocol,  but  with  a more
professional  format and skill than are provided by many of the audit  personnel
presently  conducting  comprehensive  annual audits for credit unions. CPA firms
also undertake comprehensive annual audits, and they may be able to perform such
audits at similar costs and efficiencies as FSGI.

      As previously  described,  FSGI will not provide  certified audits for its
clients;  however,  FSGI may assist credit unions in obtaining certified opinion
audits through joint venture  agreements with a licensed CPA or CPA firm.  Among
the categories of services FSGI will provide to its audit clients as part of its
comprehensive  annual audit  services are (i)  verification  of the existence of
assets or  liabilities at a specified  date and whether  transactions  have been
properly  recorded;  (ii) completeness of transactions and accounts reflected in
the  financial  statements  prepared  by the  supervisory  committee;  (iii) the
proprietary right of the credit union to its assets and the  responsibility  for
liabilities  and  obligations of the entity;  (iv)  evaluation and allocation of
assets,   liabilities,   revenues  and  expenses  of  the  credit   union;   (v)
determination  as  to  whether  various  assets  and  liabilities  are  properly
classified,  described and  disclosed;  (vi)  evaluation of internal  accounting
controls of the cash,  consigned  items,  loans to members,  investments  owned,
savings  accounts and the  handling of  transactions  related to those  members,
investments owned,  savings accounts and the handling of transactions related to
those items;  (vii) evaluation of material  weaknesses in the system of internal
accounting  controls;  (viii) review of the  effectiveness of EDP systems;  (ix)
compliance with applicable laws and regulations  applicable to the credit union;
and (x) loan analysis  review and  evaluation for  compliance  with  established
policies.

      Operational Plan
      ----------------

      FSGI  currently has  operations in Florida,  Kentucky,  Michigan,  Hawaii,
California,  Indiana,  Ohio and Maryland  through  agreements  with local credit
union leagues and the purchase of a private practice in California.  The Company
plans to finance expansion through operating  revenues,  strategic alliances and
the private or public  offering of its  securities.  FSGI  believes that a newly
organized branch office can become profitable after approximately  twelve months
of operation exclusive of corporate overhead,  depending on whether FSGI assumes
an ongoing operation such as previously conducted by a credit union league or an
existing  auditing  practice,  whether  the  branch  office is established in an







                                       26



<PAGE>



existing  region and  whether  the branch  office is  organized  as the  initial
operating entity in a newly organized region.

      Since trained  management is essential to the potential growth of a branch
office,  such an  office  will not be opened  until  appropriate  management  is
selected.  Once this has taken  place,  equipment is  acquired,  and  management
begins the process of locating audit and  administrative  personnel to staff the
new office.  In addition to opening new offices and using FSGI trained personnel
to staff such offices,  FSGI also plans to acquire  other smaller  comprehensive
annual  audit  practices  and recruit  other  professionally  trained  financial
personnel  to  conduct  its  regional  and  branch  operations.   The  foregoing
information  represents  estimates developed by management based upon operations
to date and management's  prior  experiences in conducting  credit union audits.
There can be no  assurance  that such  estimates  will be  accurate  once actual
operations commence for any branch office and that variances from such estimates
may be material. Accordingly, the Company cannot accurately predict when or if a
branch office will become profitable.

      FSGI has  standardized  each of its regional and local branch offices with
the same  equipment  and  integrated  all such  offices  with  FSGI's  corporate
headquarters.  Future regional offices will be staffed by a manager  possessing,
at a minimum,  a degree in accounting with suitable credit union  experience and
at  least  one   administrative   person.   Regional   management  will  provide
supervision,  technical  assistance and marketing support for the various branch
offices,   which   generally  will  be  staffed  with  two  or  more  audit  and
administrative   personnel.   Professional   staff  is  recruited   through  the
acquisition of accounting  practices and by hiring  existing credit union league
examiners,  retired federal and state credit union  examiners,  individuals with
accounting   and  finance   training  and  other  degreed   persons.   Corporate
headquarters  and  regional  offices  provide  on  a  continuous  basis  a  full
complement  of audit  programs,  work  papers,  forms,  checklists,  initial and
ongoing training and technical assistance.

      Marketing
      ---------

      FSGI's marketing program is conducted by its senior management and general
managers at each of its  regional  and branch  offices.  FSGI also  promotes its
services  within the credit  union  industry  through the  relationships  of its
senior management and members of its Board of Directors with various federal and
state credit union  organizations and by their participation in various industry
associations,  conferences,  seminars,  chapter  meetings  and  other  programs.
Management  also seeks to associate  FSGI with various of the state credit union
leagues and the National  Association of Credit Union  Supervisory  and Auditing
Committee in order to obtain  exclusive  agreements or referral audits from such








                                       27



<PAGE>


leagues and Committee.  FSGI has also developed various  brochures,  newsletters
and video cassettes  outlining its proposed  services to the small credit unions
in the credit  union  industry,  which are  distributed  and  updated at regular
intervals.  These products are sent out to various supervisory committees of the
smaller credit unions. FSGI also advertises in various industry publications and
exhibits  FSGI's  services at major  credit union  conferences  and credit union
league annual meetings.

      Competition
      -----------

      Based  on   management's   knowledge   of  the  credit   union   industry,
dissemination of information in various industry  publications and participation
in various industry  associations and educational  programs,  FSGI is unaware of
any firms or companies exclusively conducting comprehensive annual audits except
on a local or  geographically  limited basis.  At the present time,  most of the
smaller credit unions which FSGI has targeted for its services are being audited
by small auditing firms,  individual  CPAs,  retired federal or state regulatory
examiners  or state credit  union  leagues.  Depending on the success of FSGI in
respect to its intended  operations,  and in view of the potential ease of entry
which  characterizes  this  segment of the market,  it is possible  that various
medium-sized,  regional  or  national  CPA firms may seek to  establish  similar
proprietary  services which will be competitive to those provided by FSGI. While
FSGI believes that it will have available the services of skilled  professionals
to perform the comprehensive  annual audit services and will have the benefit of
being the initial  organization  to  undertake  these  services,  FSGI may be in
competition with  well-established  firms and companies,  many of which may have
greater  financial  resources  and  capabilities  than  FSGI.  There  can  be no
assurance that FSGI will be able to compete  successfully on an ongoing basis in
this segment of the market.

MOUNT VERNON DISTRIBUTION CENTER
--------------------------------

      On January 16,  1991,  the Company  acquired  all of the capital  stock of
Mount Vernon  Distribution  Center,  Inc.  ("Mount  Vernon")  from the Loveridge
Family  interests  including C. Denning  Loveridge and John  Loveridge,  who are
Directors of the Company in exchange  for cash,  Common Stock of the Company and
assumption of existing liabilities. Mount Vernon was liquidated and dissolved at
that time. The commercial  warehouse facility is located in Mount Vernon,  Ohio,
which is 45 miles  northeast  of Columbus,  Ohio and consists of 660,551  square
feet of industrial  manufacturing  warehouse  facilities on a 61-acre site.  The
property is comprised of an  assemblage  of five  buildings  consisting of up to
three-story  brick,  concrete and metal  structures  as well as various  smaller
detached improvements.  Based in part on an appraisal completed in January 1997,








                                       28



<PAGE>


(with primary  reliance on the market value  approach to valuing real  property)
the Company includes the Mount Vernon Distribution Center facility and land as a
listed asset held for resale on its consolidated  balance sheet at September 30,
1996 at a value of  $3,479,754.  At the time of  acquisition,  such facility and
land were recorded at net realizable  value,  and they continue to be carried at
net realizable  value based on  management's  best estimate of such facility and
land as of September 30, 1996. In the event the  aforementioned  appraisals  had
placed primary  emphasis on the income approach to valuing real property,  it is
possible that the valuation therefor would have been substantially less than the
market value  approach with  attendant  impairment in the carrying value of such
facility and land.

      The property is collateral for a 10-year bank installment note maturing in
December 2001.  Monthly payments of $9,659 include principle and interest at 10%
per annum. At September 30, 1996, the principal balance was $477,575.

      The Company  continues to monitor  market  conditions  and will adjust the
carrying  value of the  property as changes in market  conditions  occur.  As of
September  30, 1996,  the facility was  approximately  35% leased,  and includes
various  major  corporate   tenants   including  Power  &  Control  Systems  and
Weyerhauser Paper.  Current leases for such facility extend between January 1997
and May 2002, and current monthly rentals  aggregate to  approximately  $26,500,
which at the  present  time  represents  a positive  cash flow to the Company of
approximately $1,000 per month. While the Company believes that the market value
of the facility and land held for resale is in excess of the facility and land's
carrying value, there can be no assurances that the Company will be able to sell
such property for either its carrying value or its listing price.

REAL ESTATE SERVICES NETWORK HOLDING CORP.  (formerly  MEMBERSHIP REALTY HOLDING
------------------------------------------  ---------  -------------------------
CORP.)
------

      RESN Operations
      ---------------

      RESN  commenced  operations  in May  1992 as a full  service  real  estate
brokerage  firm that  recruited  established  agents by passing  through 100% in
commissions  earned by its member sales  agents.  RESN provides its members with
various  experienced and necessary  administrative  support personnel  services,
quality facilities and various  technology  products with which to enhance their
productivity.

      The real estate  industry has been  undergoing  dramatic  changes over the
past several months, with the advent of Hospitality Franchise Service's purchase
and  consolidation of such major  franchises as Coldwell Banker,  Century 21 and
ERA.  This trend  towards  large  consolidated  offices and  evolution  from the








                                       29



<PAGE>


smaller "mom and pop" type of  operations  has afforded RESN an  opportunity  to
establish  itself as a significant  participant in the Tri-County  area of South
Florida.

      In response to recent  trends and to develop  better  controls and revenue
generating systems, RESN has changed its business philosophy away from the "100%
concept" and has begun to establish  itself with its sales  associates on a more
traditional commission split basis. The average split between agent and RESN has
now increased  from 5% of the gross  commission to RESN under the "100%" concept
to an average of 15% presently. RESN's goal is to reach an average of 25% of the
gross  commission  paid to RESN before year end and then increase its percentage
to the industry  standard of 30% in the  following  fiscal year. In making these
changes in response to the marketplace,  RESN still maintains the "100%" concept
as an opportunity for those agents who  demonstrate the requisite  resources and
attributes   to  undertake   their   business  and  accounts   effectively   and
professionally.  These  agents  pay a base  "membership  fee" to  RESN  and a 5%
transaction fee on each sale.

      RESN is also expanding its operations to provide its sales associates with
additional service programs and income  opportunities  through the establishment
and development of mortgage origination,  title services and insurance products,
as well as other real estate related services.

      RESN currently has 10 offices in operation,  six in Broward County,  three
in Palm Beach County and one in Dade County.  With the recent  establishment  of
its tenth location,  RESN currently has approximately 300 member agents. Average
monthly  gross  sales  are  increasing,   and  the  net  company  allocation  is
increasing.  In response to strong growth in certain  markets in the  Tri-County
area and with more associates wishing to  affiliate with RESN than current space
permits, RESN has identified larger,  alternative offices in two locations which
will facilitate the addition of approximately 35 sales associates.

      In future  months,  the  Company  expects to open  additional  offices and
assumes it will expand to a total of up to approximately  600 sales  associates.
The  targeted  expansion  areas  remain  Dade,  western  Broward  and Palm Beach
Counties. As contemplated by RESN, each office will accommodate approximately 50
member sales  associates  and have in  residence  the  necessary  administrative
support  persons,  including  management  personnel,  phone  and  communications
persons,  a showing  coordinator to assist in real estate  showings and a market
support  individual  to assist with  brochure  development,  mailings  and other
public relations and marketing efforts. In addition,  each office is expected to
include at least one person who will be available to originate and assist in the
processing of mortgage  loan  applications  derived from RESN sales  associates,








                                       30



<PAGE>


independent  referrals or through the sales  efforts of RESN's own loan offices.
RESN believes that each office to be  established  will require an investment of
approximately $150,000 and $250,000.

      RESN  commenced  operations in 1992,  and by the end of 1993 it was ranked
19th in the South  Florida real estate  market at the end of its first year.  In
1994, RESN moved up to a ranking of 17, and during 1995 rose to 10th in the real
estate market according to such polls.

      The Financial Group Incorporated
      --------------------------------

      The Financial  Group  Incorporated is approved to originate and underwrite
conventional  loans  as  well as all  government-backed  programs.  They  employ
approximately  17  persons in its Boca Raton  corporate  headquarters  and three
other offices located in Memphis,  Miami and Ft.  Lauderdale.  In its first full
month of  operation  with RESN in December  1996,  The  Financial  Group  closed
approximately 50 loans totalling approximately  $5,250,000.  

      National Institute of Real Estate, Inc. ("NIRE")
      ------------------------------------------------

      In an  effort  to  increase  its share of the  marketplace  and  establish
additional  revenue  sources,  RESN has also established NIRE as its proprietary
real estate  school.  Through  NIRE,  RESN is able to contact  agents from other
companies and offer them state  required  continuing  education  courses.  It is
anticipated  that this will result in conversion of certain of these students to
become  sales  associates  with RESN.  In  addition,  NIRE will be offering  the
initial  licensing  courses during the current fiscal year, and will offer sales
positions to what it perceives to be the more promising graduates.

      Title Insurance
      ---------------

      Through Member Title  Services,  Inc., a wholly-owned  subsidiary of RESN,
agents  licensed  with RESN will have access to  comprehensive  title  insurance
through established title insurance agencies at rates that RESN believes will be
advantageous  to the home buyer.  RESN's title  division is becoming more active
this year and anticipates more involvement in support of RESN.

      RESN has recently  centralized  the  processing of sales  transactions  to
establish  tighter  controls  and  assure a  higher  success  ratio of  contract
closings.  This  centralization  will also afford RESN a better  opportunity  to
select the services of its own title company,  Member Title  Services,  Inc., to
handle the actual  closings  of the  transactions.  By so doing,  RESN will also
establish an additional revenue source for its own sales activity.






                                       31



<PAGE>



In addition, it is anticipated that, during the next twelve months, Member Title
Service,  Inc.  will begin  marketing  its services to other  realtors,  thereby
prospectively  enhancing  its  revenues.  The expanded  title  function  will be
housed,  primarily  in existing  RESN  facilities,  but it is  anticipated  that
additional  investment will be needed to facilitate the title  operation  within
the offices and to create one or two additional "outside" locations.

      Competition
      -----------

      In the past twelve months, the South Florida  marketplace has mirrored the
trend towards large national franchise consolidation of companies.  For example,
two major  independent real estate brokerage firms in Dade and Broward Counties,
Jeanne Baker, Inc. and Braun & May Realty,  Inc., were respectively  acquired by
Prudential Realty and Better Homes and Gardens. RESN will seek to take advantage
of this  opportunity to advance to one of the largest  independently  owned real
estate firms in the South Florida area.

      Competition  in the real estate  brokerage  industry is extremely  intense
with respect to prospecting for home buyers, obtaining listings from prospective
home sellers as well as the recruiting of qualified sales agents. RESN will have
to compete  with large  national  franchises  as well as small  local firms with
personal followings,  including  organizations which have similar structures and
programs as RESN. In particular,  many of the larger  national  franchises  have
significantly   greater  financial   resources,   name  recognition,   marketing
capabilities  and  administrative  services  available in support of their sales
associates than is currently available from RESN.  However,  management believes
that,  due to the  circumstance  that RESN is locally  owned and managed,  it is
attractive to sales associates who may not wish to have policies  established by
large multi-state  organizations,  as well as to seller and buyers who prefer to
work with a company that is more responsive to the needs of the local market.

      In addition,  due to the  circumstance  that RESN, as an  independent  and
non-franchise  company,  does not charge its  associates  with a franchise  fee,
management believes that might prove more attractive to sales associates seeking
to retain a higher percentage of their commissions. The savings of the franchise
fee for  associates  also  affords  them more funds to invest in  marketing  and
advertising.  Similarly,  RESN will also  experience  intense  competition  from
significantly larger national and local mortgage banking and brokerage firms and
title  insurance  companies  in this  phase of its  operations.  There can be no
assurance  that RESN will be able to  actively  compete in any of the markets it
operates  or in any of the phases of its  activities  as a result of its limited
financial  and  other  resources   required  to  successfully   engage  in  such
operations.







                                       32



<PAGE>



      Regulation
      ----------

      The  mortgage  loan  origination  operations  of The  Financial  Group are
subject to the rules and regulations of the Federal Housing Administration,  the
Veterans   Administration  or  state  regulatory  authorities  with  respect  to
originating,   processing,   underwriting,  selling  and  servicing  residential
mortgage  loans.  In addition,  there are other  federal and state  statutes and
regulations affecting such activities. These rules and regulations,  among other
things, impose licensing obligations,  establish eligibility criteria,  prohibit
discrimination,  provide for inspections  and appraisals of properties,  require
credit reports on prospective borrowers,  regulate payment features and, in some
instances,  fix maximum interest rates, fees and loan amounts. Failure to comply
with these  requirements  can lead to a loss of  approved  status,  demands  for
indemnification  or loan repurchases,  litigation or administrative  enforcement
actions.  There can be no assurance  that The Financial  Group's  operations can
obtain full  compliance  with current laws,  rules and  regulations  or any more
restrictive laws, rules and regulations which may be adopted in the future which
could make compliance more difficult, more costly or which may limit or restrict
the amount of interest and fees that may be earned or charged on mortgage  loans
originated, serviced or purchased by The Financial Group.

      Litigation
      ----------

      The Company and RESN are party  defendants  in JALMARK  REALTY,  INC.  AND
JALMARK  EAST  REALTY,  INC.,  PLAINTIFFS,  VS.  INTERNATIONAL  STANDARDS  GROUP
LIMITED,  INC., REAL ESTATE  SERVICES  NETWORK  HOLDING CORP.  F/K/A  MEMBERSHIP
REALTY HOLDING CORP., AND FRANCESCO MORELLO,  DEFENDANTS,  Case No. 96 13602-21.
On or about October 2, 1996,  Jalmark Realty,  Inc., an involuntarily  dissolved
Florida  Corporation,  and Jalmark  East  Realty,  Inc.,  a Florida  corporation
(collectively, the "Plaintiffs"),  filed a Complaint in the Circuit Court of the
17th Judicial Circuit in and for Broward County,  Florida,  against the Company,
Real Estate Services  Network  Holding Corp.,  f/k/a  Membership  Realty Holding
Corp., and Mr. Francesco Morello, an officer of the latter,  (collectively,  the
"Defendants").  The  suit  relates  to an  alleged  breach  of a 1995  agreement
pursuant  to  which  RESN had  allegedly  agreed  to  purchase  the real  estate
brokerage  business of Jalmark  Realty,  Inc. for  $250,000.  In addition to the
breach  of  contract  count,  the  Complaint   alleges  numerous  other  counts,
including,  but not  limited  to, for  fraudulent  misrepresentations,  tortious
interference  with business  relationship,  defamation and violations of Florida
real estate laws.  The  Plaintiffs  have  alleged  damages in excess of $15,000,
exclusive  of  interest  and  costs,  and have  reserved  the right to amend the
Complaint  to seek  punitive  damages.  The  Defendants  have  filed a motion to
dismiss the Complaint for failure to state a cause of action.  In addition,  the








                                      33



<PAGE>


Company  has filed a separate  motion to dismiss  the  Complaint  for failure to
state a cause of action on the basis that the Complaint fails to allege that the
Company,  or  its  officers,  directors,  employees  or  agents,  undertook  any
affirmative  action to cause harm to the Plaintiffs.  The motions to dismiss are
set for hearing in early  February  1997.  At the present time, no discovery has
been  conducted in this case.  The Company and RESN intend to vigorously  defend
against the Complaint.

      On November  21,  1995,  RESN entered into an agreement to purchase all of
the voting stock of U.S. Mortgage Network Corp., a Florida corporation, and upon
consummation of that agreement, USM became a wholly-owned subsidiary of RESN. At
the time of the stock purchase,  USM conducted a mortgage  banking  business and
was  involved in the  origination,  purchase  and sale of  residential  mortgage
loans.  On March 14, 1996,  the Company and RESN entered into an agreement  with
USM and its principal  stockholders  pursuant to which RESN  rescinded the stock
purchase  agreement  and returned the voting stock of USM to the  principals  of
USM. Following the consummation of the stock purchase agreement and prior to the
consummation  of the rescission  agreement,  upon  information  and belief,  USM
allegedly  originated and sold defective  mortgage loans,  violated federal laws
relating to the origination of mortgage  loans,  and converted third party funds
and trust  funds  for its  benefit  or the  direct or  indirect  benefit  of its
principals. From time to time, the Company and RESN have been contacted by third
parties regarding such parties'  relationships  with USM, and in some instances,
the Company and RESN have been  threatened  with litigation as a result of their
prior indirect and direct ownership of the stock of USM, including the following
matters:

            FIRST STATE BANK MOULTON,  TEXAS AND FIRST STATE BANK BREMOND, TEXAS
      - CALVERT  BRANCH.  On  January  15,  1996,  USM  entered  into a Mortgage
      Purchase  Agreement with First State Bank Moulton,  Texas ("FSB Moulton"),
      and on February 22, 1996, USM entered into a Mortgage  Purchase  Agreement
      with First State Bank  Bremond,  Texas - Calvert  Branch ("FSB  Bremond").
      Pursuant to the Mortgage Purchase  Agreements,  USM sold mortgage loans to
      FSB  Moulton  and FSB  Bremond.  Subsequent  to the  rescission  agreement
      described  above,  each of FSB  Moulton and FSB  Bremond  alleged  various
      defaults and breaches by USM under the Mortgage  Purchase  Agreements and,
      in connection  therewith,  threatened  litigation  against the Company and
      RESN. On or about August 7, 1996, FSB Moulton and FSB Bremond entered into
      Settlement  Agreements  with The  Financial  Group,  Inc., a  wholly-owned
      subsidiary of RESN ("TFG"),  to resolve all disputes  between RESN and the
      Company  and FSB  Moulton  and FSB  Bremond.  Pursuant to the terms of the
      Settlement Agreements, the Company and RESN were released from any and all
      claims that each of FSB  Moulton  and FSB  Bremond  might have had against
      them in connection with its relationship with USM.







                                       34



<PAGE>



      In  addition,  as to FSB Moulton,  TFG (i) paid FSB Moulton  approximately
      $43,500 on August 7, 1996, (ii) executed a promissory note in favor of FSB
      Moulton  in the  amount of  approximately  $102,000  and  (iii)  agreed to
      indemnify FSB Moulton against  potential  market  shortages on the sale of
      eight (8) loans. As to FSB Bremond, TFG (i) paid FSB Bremond approximately
      $1,400 on August 7, 1996,  (ii) executed a promissory note in favor of FSB
      Bremond  in the  amount of  approximately  $10,400,  and  (iii)  agreed to
      indemnify FSB Bremond against  potential  market  shortages on the sale of
      four (4) loans. Each of the promissory notes provides for monthly payments
      and is due and  payable in full on August 7, 1997.  The  Company  believes
      that it has performed, and continues to perform, all obligations under the
      Settlement  Agreements and has been released from any liability thereunder
      by FSB Moulton.

            PRINCAP  MORTGAGE  WAREHOUSE,  INC. On August 23, 1995,  USM entered
      into a Mortgage Warehouse and Security Agreement  ("Warehouse  Agreement")
      with  Princap  Mortgage  Warehouse,  Inc  ("Princap").   Pursuant  to  the
      Warehouse  Agreement,  Princap loaned monies to USM for the origination of
      residential  mortgage  loans.   Subsequent  to  the  rescission  agreement
      described  above,  Princap  alleged  various  defaults and breaches by USM
      under the Warehouse  Agreement  and, in connection  therewith,  threatened
      litigation against the Company and RESN. On or about October 31, 1996, the
      Company and RESN reached a settlement with Princap.  Pursuant to the terms
      of the settlement,  (i) Princap extended a warehouse line of credit to TFG
      in the amount of $12.0 million,  (ii) TFG agreed to repurchase 78 mortgage
      loans in the  aggregate  amount of  approximately  $7.0 million and resell
      those loans in the market,  and to execute a  promissory  note in favor of
      Princap  as to any  deficiencies  on the sale of those  loans,  (iii)  TFG
      executed  a  promissory  note  in  favor  of  Princap  in  the  amount  of
      approximately $148,000 for losses incurred by Princap on the sale of other
      defective  loans,  and (iv)  Princap  executed  a release  in favor of the
      Company and RESN.  TFG maintains  that it has not yet sold the 78 mortgage
      loans described above.

            HOMESIDE  LENDINGS,  INC. On November 15, 1995,  USM and  BancBoston
      Mortgage Corporation,  now known as HomeSide Lending,  Inc.  ("HomeSide"),
      entered  into a  Correspondent  Loan  Purchase  Agreement  (the  "HomeSide
      Agreement"),  pursuant to which  HomeSide  agreed to  purchase  qualifying
      mortgage loans from USM. The Company also executed the HomeSide  Agreement
      and agreed to become a guarantor of the obligations of USM thereunder.  In
      November  1996,  HomeSide  notified the Company of the  following  alleged
      defaults of USM under the  Homeside  Agreement:  (1) the failure of USM to








                                      35



<PAGE>


      pay FHA MIP fees and VA funding fees in the total amount of  approximately
      $24,000,  which monies were received by USM at the closing of the mortgage
      loans in question; (2) the sale by USM to HomeSide of seven mortgage loans
      totalling  approximately  $1.3 million which violated the  representations
      and warranties under the HomeSide Agreement; and (3) the failure of USM to
      turn over repair and remodeling  funds  totalling  approximately  $59,000,
      which monies were received by USM at the closing of the mortgage  loans in
      question. HomeSide has made written demand on the Company, in its capacity
      as  guarantor,  to pay over the amount of  approximately  $1.4 million and
      receive back the  aforementioned  mortgage loans as described  above.  The
      Company is presently  evaluating this situation and has requested  further
      documentation from HomeSide to verify such claims.

            REPUBLIC MORTGAGE CORPORATION/THE  PRUDENTIAL HOME MORTGAGE COMPANY,
      INC. In December  1995,  USM sold and assigned 98 mortgage loans under the
      FHA 203(K)  program (the "203K  Loans") to Republic  Mortgage  Corporation
      ("Republic") for approximately  $6.3 million.  The 203K loans were made to
      Interdenominational  Brotherhood, Inc and secured by real property located
      In Marietta,  Georgia. Upon information and belief,  Republic subsequently
      sold and assigned the 203K Loans to The Prudential Home Mortgage  Company,
      Inc.  ("PHMC").  The  Company is in receipt  of a written  demand  made by
      Republic  against  USM to  repurchase  the 203K  Loans  based on  numerous
      alleged  defaults by USM  including,  but not limited to,  breaches of the
      representations  and warranties made by USM in the sale of the 203K Loans.
      The Company has also received a written demand for  repurchase  from PHMC.
      The  Company  is  presently  evaluating  this  situation  and  intends  to
      vigorously  defend  against  any claims  made by  Republic or PHMC in this
      matter.

      On July 16,  1996,  RESN  entered into an agreement to purchase all of the
voting  stock  of TFG  from  John  Barbato  and  Barbara  Bodner  (collectively,
"Barbato"),  and upon consummation of that agreement,  TFG became a wholly-owned
subsidiary  of RESN. At the time of purchase,  TFG conducted a mortgage  banking
business and was involved in the  origination,  purchase and sale of residential
mortgage loans. TFG presently  continues to operate a mortgage banking business.
As part of the stock  purchase  transaction,  TFG entered into an agreement with
Barbato to allow them to operate a net branch and originate residential mortgage
loans under TFG's regulatory  licenses and approvals.  On December 17, 1996, TFG
received a letter  from  counsel to Barbato  which  alleged  numerous  breaches,
defaults  and  misrepresentations  by TFG in  connection  with  the  net  branch
operation. Barbato has proposed a compromise pursuant to which (i) TFG would pay
approximately  $6,400 of accounting fees and computer conversion costs allegedly
incurred by  Barbato,  (ii) TFG  would  waive  prior  advances to Barbato in the






                                       36



<PAGE>



amount of  approximately  $12,000 and (iii) the  parties  would  execute  mutual
releases of all obligations between the parties.  TFG disputes those allegations
and intends to vigorously defend against these claims.

      On July 1, 1995, the Company  executed a Convertible  Promissory Note (the
"Carlsen  Note") in the original  principal  amount of  $956,250.00  in favor of
Christian E. Carlsen,  as Trustee under a Land Trust  Agreement  dated September
19, 1992 ("Carlsen"). The Carlsen Note matured on December 31, 1996, and remains
unpaid.  On January 6, 1997, the Company received written Notice of default from
Carlsen as to the payment of principal and  interest.  The Company is evaluating
certain of the circumstances concerning the initial incurrence of the obligation
and expects to commence negotiations concerning the Carlsen Note with Carlsen in
the proximate future. In the absence of settlement,  the Company expects Carlsen
to file suit to collect on the Carlsen Note.

EMPLOYEES
---------

      As of September  30, 1996,  the Company  employed a total of 141 full time
employees including 6 executive officers and 122 administrative persons, as well
as 13 auditors located at various branch facilities of FSGI.


ITEM 2.     DESCRIPTION OF PROPERTIES
            -------------------------

      The Company's  executive offices are located at 3200 North Military Trail,
Suite 300, Boca Raton,  Florida 33431.  These premises  consist of approximately
7,700  square feet of space.  In June 1995,  the Company  purchased  this office
condominium at a purchase price of $636,000 which included  $50,000 in cash, the
issuance  of 200,000  shares of the  Company's  Common  Stock and a  wrap-around
mortgage  totalling  $520,000.  At September  30, 1996,  the  principal  balance
remaining was $329,475.  As described  above,  the Company owns a 660,551 square
foot  commercial  warehouse  facility in Mount  Vernon,  Ohio on a 61-acre site.
The Company, through its FSGI subsidiary, also has established branch facilities
at (i) 5075 Cascade Road, Grand Rapids,  Michigan 49546 consisting of 592 square
feet  of  space  under  a  lease  agreement  for  a term of 48 months concluding
December 31, 2001 at a  base  rental of $690.66 per month; (ii)  at  1654  South
King Street,  Honolulu,  Hawaii  96826  consisting  of approximately  150 square
feet of  space for a  term  of  12  months  concluding March 31, 1996, at a base
rental of  $312.50  per  month;  and  (iii)  at  3615  Newburg Road, Louisville,
Kentucky 40218 consisting of approximately 597 square  feet of  space for a term
of 12 months concluding  October 1997, at a base rental of $398 per month.








                                       37



<PAGE>



      RESN's corporate  offices are located at 3200 North Military Trail,  Third
Floor,  Boca Raton,  Florida  33431.  RESN  occupies  space that is owned by the
Company at no cost to RESN. The Fort Lauderdale  office,  for 6,000 square feet,
has a lease term  extending  through June 30, 1999 at a lease payment plus taxes
of $6,815.99 plus annual  adjustments and common area  maintenance  charges.  An
option to purchase the building is also included in the Fort Lauderdale lease.

      RESN's  office in Hollywood  has a lease term of 72 months  concluding  on
September 30, 2002 for 4,390 square feet at a base rent of $4,320.05.  The 1,390
square foot space at  Lauderdale-By-  The-Sea is leased at a base rent of $1,378
with annual increases of $100 per month for a term of 36 months.  This lease was
assumed  under the  purchase  and  expires in December  1997 with an  additional
option for five years at $1,400 per month with  annual  increases  not to exceed
five per cent per year. One of the offices in Pembroke Pines is an agreement for
1,320  square feet at a base rent of $1,301.63  per month until March 1997.  The
other Pembroke Pines office, for approximately 1,600 square feet, has lease term
extending  through  February  1999 at a base rent of  $2,637.61  per month.  The
current  lease expires in April 1997.  RESN's Coral Springs  office lease is for
6,140 square feet at a base rent of $6,815.94, and expires on June 30, 2001 with
an additional option for six years at a cost adjusted by a pricing index. RESN's
second  office in Boca Raton is 2,950  square  feet at a base rate of  $3,765.45
until  November  1999.  The Bal Harbor office lease is for  approximately  1,700
square feet at a base rent of $2,300.00  and expires on November  30, 2005.  The
Hallandale  office is 1,440 square feet at a base rent of $1,484.00  and expires
on October 14,  2000.  The Boca Raton beach  office is for  approximately  2,400
square feet at a base rent of $1,200.00 and expires on September 31, 1997.

      The Financial  Group's  corporate office is located at 3200 North Military
Trail, Suite 110, Boca Raton,  Florida.  The lease agreement is for 1,700 square
feet at a base rate of $1,967.67 for term ending in June 2000.

      TWT's corporate  offices are located at 1001 Fannin,  Suite 300,  Houston,
Texas 77002.  The lease agreement for 27,641 square feet is for a term beginning
February 16, 1995 and  concluding  on March 31, 2000.  The lease  provides for a
base rent of  $7,923.75  per  month  plus  operating  expenses  estimated  to be
$14,764.90 per month adjusted yearly. The lease allows for termination after the
36 months with no penalty.

      TWT leases  additional  office space  located at 16416  Northchase  Drive,
Suite 290,  Houston,  Texas 77060.  The lease agreement for 6,060 square feet is
for a term  beginning  February 1, 1994 and  concluding on January 31, 1999 at a
base rent of $4,042.72 plus operating expenses escalation of $332.00 per month.










                                      38



<PAGE>


      TWT's Atlanta  switch site is located at 3525 Piedmont Road,  N.E.,  Suite
515, Two Piedmont Center, Atlanta,  Georgia 30305. The lease agreement for 1,445
square feet is for a term  beginning June 1, 1994 and concluding on May 31, 1999
at a fixed rent of $1,505.00 per month.  TWT's Chicago switch site is located at
233 South Wacker Drive, Suite 2100, Chicago, Illinois 60606. The lease agreement
is for a term beginning October 15, 1994 and concluding on October 15, 1999. The
rent is based at $250 per rack,  and the current  monthly  charge is  $1,750.00.
TWT's Houston switch site is located at 500 Dallas,  Houston,  Texas 77002.  The
lease agreement is for a term beginning June 23, 1992 and concluding on June 22,
1997. The rent is $1,500 per month. TWT's New York switch site is located at Two
World  Trade  Center,  New York,  New York.  The lease  agreement  is for a term
beginning  March 21, 1994 and concluding on March 20, 1997. The space  available
is for not more than  seven  racks at  $250.00  per rack.  The  current  rent is
$2,000.00 per month.  TWT's Los Angeles switch site is located 700 South Flower,
Los  Angles,  California  90017.  The lease  agreement  is for a term  beginning
November 1, 1995 and  concluding  October 31, 2000.  The rent is $500.00 for the
first rack and $275.00 per rack for each additional rack per month.  The current
rent is $2,425 per month.


ITEM 3.     LEGAL PROCEEDINGS
            -----------------
   
      Other  than  the   litigation,   claims  and   proceedings   discussed  in
"Description of Business," the Company is unaware of any other matters  required
to be reported under this item.


ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
            ---------------------------------------------------
  
      Not applicable.

















                                       39



<PAGE>



                                     PART II

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

      The Company's Common Stock is traded on NASDAQ under the symbol "TWTI." On
October 15, 1996,  the Company  amended its  Certificate  of  Incorporation  and
undertook a  one-for-fifteen  (1:15)  reverse  split of its  outstanding  Common
Stock.  The following  table sets forth the high and low bid  quotations for the
Common Stock since the  commencement  of trading and for the periods  indicated.
These quotations reflect prices between dealers, do not include retail mark-ups,
mark-downs or commission and may not necessarily represent actual transactions.

                                              High      Low
                                              ----      ---

December 22 - December 31, 1992              $ 4.00    $1.00
January 1 - March 31, 1993                   $ 4.50    $2.75
April 1 - June 30, 1993                      $ 4.38    $2.38
July 1 - September 30, 1993                  $ 2.50    $1.00
October 1 - December 31, 1993                $ 3.06    $1.75
January 1 - March 31, 1994                   $ 4.16    $1.25
April 1 - June 30, 1994                      $ 3.81    $1.75
July 1 - September 30, 1994                  $ 3.56    $1.56
October 1 - December 31, 1994                $ 1.18    $0.50
January 1 - March 31, 1995                   $ 1.00    $0.32
April 1 - June 30, 1995                      $ 1.19    $0.38
July 1 - September 30, 1995                  $ 1.29    $0.75
October 1 - December 31, 1995                $ 1.81    $0.66
January 1 - March 31, 1996                   $ 1.56    $0.50
April 1 - June 30, 1996                      $ 1.53    $0.56
July 1 - September 30, 1996                  $ 1.16    $0.47
October 1 - October 14, 1996                 $ 0.53    $0.41
October 15 - December 31, 1996               $10.05    $4.75

On January 9, 1997, the closing bid price for the Common Stock was $5.19.

      As of  December  31,  1996,  the  approximate  number  of  holders  of the
Company's Common Stock was 7,286.

      The Company has never paid cash dividends on its Common Stock. The Company
presently intends to retain future earnings, if any, to finance the expansion of
its business and does not anticipate that any cash dividends will be paid in the
foreseeable  future.  Future  dividend  policy  will  depend  on  the  Company's
earnings,  capital requirements,  expansion plans, financial condition and other
relevant factors.

      The Company is obligated to pay semi-annual  cumulative dividends of 8% or
$58,400 on an annual basis on the 73,000 shares of its Series A Preferred  Stock




                                       40



<PAGE>

presently  outstanding.  The  Company is  obligated  to pay  monthly  cumulative
dividends of 2.7% or $452,000  until the  underlying  shares of Common Stock are
registered  under the Securities Act of 1933 on the 178,500 shares of its Series
M Preferred Stock presently outstanding.

      Pursuant to the Company's Convertible Note dated December 9, 1996 in favor
of GFL Advantage Fund Limited, the Company is precluded from paying dividends on
its capital stock during the term that such note remains outstanding.

ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
            ---------------------------------------------------------
 
YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995
-----------------------------------------------------------------------

      Results of Operations
      ---------------------
                                                     Revenue
                                                     -------
                                           Twelve Months Ended Sept 30,
                                           ----------------------------
                                              1996              1995
                                              ----              ----

Telecommunications(1)                     $15,814,779       $     -
Real Estate                                 4,934,927         3,236,571
Auditing Services                             835,168           778,515
                                          -----------       -----------

Total Revenue                             $21,584,874       $ 4,015,086
                                          ===========       ===========

                                                 Gross Profit
                                                 ------------
                                           Twelve Months Ended Sept 30,
                                           ----------------------------
                                              1996              1995
                                              ----              ----

Telecommunications(1)                     $ 1,628,424       $     -
Real Estate                                   708,837           487,474
Auditing Services                             164,877           126,083
                                          -----------       -----------

Total Gross Profit                        $ 2,502,138       $   613,557
                                          ===========       ===========

                                               Selling, General and
                                               --------------------
                                             Administration Expenses
                                             -----------------------
                                           Twelve Months Ended Sept 30,
                                           ----------------------------
                                              1996              1995
                                              ----              ----

Telecommunications(1)                     $ 3,222,625       $     -
Real Estate                                 1,920,189         1,262,028
Auditing Services                             424,812           322,753
Corporate                                   4,635,756         1,988,474
                                          -----------       -----------

Total S, G & A Expenses                   $10,203,382       $ 3,573,255
                                          ===========       ===========

                                       41


<PAGE>

                                                     Net Loss
                                                -----------------
                                                 from Operations
                                                 ---------------
                                            Twelve Months Ended Sept 30,
                                            ----------------------------
                                              1996              1995
                                              ----              ----

Telecommunications(1)                    $ (1,825,232)      $      -
Real Estate                                (1,385,470)         (858,558)
Auditing Services                            (259,935)         (224,323)
Corporate                                  (6,882,917)       (2,929,375)
                                          ------------      ------------

Total Net Loss from Ops                  $(10,353,554)      $(4,012,256)
                                         =============      ============

                                                   Net Loss
                                          Twelve Months Ended Sept 30,
                                              1996             1995
                                              ----             ----

Telecommunications(1)                     $(3,244,545)      $     -
Real Estate                                (1,452,166)       (1,539,429)
Auditing Services                            (241,655)         (226,607)
Corporate                                  (7,186,731)       (2,911,538)
                                          ------------      ------------

Total Net Loss                           $(12,125,097)      $(4,677,574)
                                         =============      ============

      For the year ended September 30, 1996, the Company had total  consolidated
revenue of $21,584,874  in contrast to $4,015,086  for the year ended  September
30,  1995.  The  primary  reason for the  increase  in  revenues  was due to the
acquisition  of  the   telecommunications   (TWT)  division  which  provided  an
additional $15,800,000  in revenue and the expansion and addition of new offices
of the  real  estate  division  whose  revenues  increased  by  $1,700,000.  The
Company's  consolidated  net loss  for the year  ended  September  30,  1996 was
$12,125,097 as compared to $4,677,574 at September 30, 1995. The fiscal 1996 net
loss includes  certain  expenses which are not expected to continue  relating to
the telecommunications  segment,  including settlements with government agencies
of $930,000,  additional  costs incurred with the phaseout of the "box business"
of  $1,300,000  in  termination   costs  relating  to  marketing   programs  and
approximately  $2,000,000 in customer  allowances.  The Company has also written
off an  additional  $700,000  of goodwill  and  $650,000 of costs of the aborted
mortgage company  acquisition,  all related to the real estate  division.  Other
charges  included  costs  incurred for the first time in 1996 such as consulting
costs of $1,400,000 and amortization of goodwill relating to the TWT acquisition
of $730,000.  Other  charges also include  $200,000 for other  aborted  proposed
acquisitions.  The remaining  increase in the loss is attributable  primarily to
expanding the real estate division.

      For the year ended  September 30, 1996,  the Company had a gross profit of
$2,502,138  compared to a gross profit of $613,557 for the year ended  September
30,  1995.  This  increase  was  attributable  to the  aforementioned  growth in
revenues  due  to  the  telecommunications   acquisition  and  the  real  estate
expansion.  For the year ended  September 30, 1996,  the Company had a loss from
operations of  $10,353,554  as compared to a loss from  operations  for the year
ended  September  30,  1996 of  $4,012,256.  


                                       42

<PAGE>
      Total other  expenses  increased to $1,771,543  from $665,318 for the year
ended  September 30, 1996 as compared to the year ended September 30, 1995. This
was due primarily to the accrual of legal  settlements  and the interest paid to
the  billing  company  for  advances on  receivables  in the  telecommunications
segment.

     During fiscal 1997 the Company expects to achieve profitability through the
growth  of  its  telecommunications  segment  and  by  increasing  revenues  and
controlling  costs.  The new marketing  plans which have been  developed and are
being  implemented  will  target  new areas of  concentration  and  attract  new
business based on the addition of switches and development of marketing programs
focused on the  residential  segment.  Management  expects  to open the  foreign
markets for both the long  distance  services and N'Touch with recent  contracts
being  completed in South Africa,  Puerto Rico,  Venezuela,  the Caribbean and a
joint venture involving the European markets which are expected to contribute to
the profit margins during the current fiscal year.

     In addition,  the  installation  and operation of the new switch sites will
substantially  lower the costs and increase  profit margins. As mentioned above,
the Company continues to evaluate the real estate and audit operations. The real
estate  division  has  acquired a mortgage  banking  company and plans to expand
those  operations  within the second quarter of fiscal 1997.  Additionally,  the
real estate  branches  have begun new marketing  programs to attract  additional
member agents.  With these  expansions and cost cutting  measures which are also
being  implemented,  the real estate  division  should be able to  significantly
curtail its losses.

      Liquidity and Capital Resources
      -------------------------------

      At  September  30,  1996,  the  Company  had  operating  cash  on  hand of
$1,358,414  as compared to cash on hand at September  30, 1995 of  $672,651.  At
September 30, 1996, the Company had a negative  working capital ratio of current
assets to current  liabilities of  approximately  .76. The long-term  portion of
debt at September  30, 1996  consisted of the mortgage note payable to Bank One,
Mansfield,  relating to the Mount Vernon property ($406,785),  a note payable on
the undeveloped Florida land ($707,450), the mortgage note payable to Boca First
National  Bank  secured  by the  corporate  office  condo  ($322,440),  and  the
long-term  portion of five capital  leases for switches  located in Los Angeles,
Atlanta, New York, Chicago and Houston.

      Net cash used in operating  activities was  approximately  $10,000,000 and
$2,400,000 for the years ended  September 30, 1996 and 1995,  respectively.  The
cash used in  operations  of the company  was  primarily  to fund the  operating
losses. Such losses are described above.

      Net cash used in  investing  activities  was $824,000 and $118,000 for the
years  ended  September  30,  1996 and  1995,  respectively.  This is  primarily
attributable to expenses  relating to the capital  expenses  associated with the
real estate expansions and renovations in both 1996 and 1995.

      Net cash provided by financing  activities was $11,162,000 (net of payment
of debt of $3,500,000  and dividends  paid  $2,400,000)  and  $2,713,000 for the
years ended September 30, 1996 and 1995, respectively.  The increase in 1996 was
primarily  attributable  to the  issuance of the  Company's  Common Stock and/or
convertible  Preferred  Stock in private  placement  offerings  and/or  sales to
accredited  offshore  investors  pursuant to Regulation S. In 1995, the increase
was  attributable  primarily  to the  receipt of a  subscription  receivable  of
$1,500,000 and the sale of preferred stock for proceeds of $1,000,000.

      During the fiscal year ended  September 30, 1996, the Company had financed
its expansion  and  operations  with equity  funding.  The Company  received net
proceeds of  $17,090,871  through the  issuance of 385,229  shares of its Common
Stock and 1,970 900 shares of  Preferred  Stock  pursuant to  Regulation  S. The
1,970,900  shares  of  Preferred  Stock  have  subsequently  been  converted  to
1,608,716  shares  of  Common  Stock.   Proceeds  were  used  for  the  dividend
requirement  ($2,300,000)  and  retirement  of debt  ($2,100,000  related to the
acquisition of TWT, the opening and  renovation/expansion of several real estate
offices.


                                      43

<PAGE>
      As  previously   announced,   the  Company's   business   focus  has  been
transforming   from  credit  union  auditing  and  related   services  and  real
estate/mortgage  brokerage services to  telecommunications  operations.  TWT has
expanded their switch sites to eight and expects to complete installation of two
additional switch sites in Seattle and Washington,  DC, by the end of the second
quarter in fiscal 1997.

      In November  1996,  The Company  acquired  100 percent of the  outstanding
stock of  Southwestern  Telecom,  Inc. for  $1,023,765 in cash.  The Company has
formulated a nationwide  expansion program to make Southwestern Telecom a leader
in the  casual-user  direct-dial  market by expanding  on a geographic  basis to
where TWT already has an existing  network to better  utilize TWT's  origination
and  termination  facilities  and to use  the  tested  marketing  techniques  of
Southwestern  Telecom.  It is anticipated  to take at least  eighteen  months to
complete the nationwide expansion program.

      In December  1996,  the Company  acquired  100 percent of the  outstanding
shares of NETTouch Communications, Inc. from Telecommunications Resources, Inc.,
("TRI"),  of Dallas,  Texas.  The Company paid to the principal  shareholders of
NETTouch $2,400,000 and issued a Common Stock Purchase Warrant to acquire shares
of the  Company's  Common  Stock at an  exercise  price of $7.75 per  share.  In
addition,  the  Company  is  obligated  to  make  additional  payments  to  such
shareholders  up to an  aggregate  of  $4,800,000  based on  NETTouch  achieving
incremental  revenues,  as defined. The actual number of Warrants to be received
is predicated on the level of revenues  periodically obtained by NETTouch during
the  1997  calendar  year.   TRI  is  a  software   developer  and  provider  of
telecommunications  platforms which converge technologies and telecommunications
services such as worldwide long distance,  voice mail, virtual fax, travel card,
wireless  messaging  notification,  enhanced  "follow me"  features,  conference
calling, paging, internet access, text-to-screen e-mail, website development and
hosting, and the convenience of single 1-800/888 numbers.

      Subsequent to year end, the Company issued 203,700 shares of its preferred
stock  pursuant to Regulation D and  Regulation S. A portion of the net proceeds
of $17,551,135 have been used for acquisition and expansions, expenses connected
with the  addition of new  switches,  and the  Company's  option to exercise its
redemption  rights on prior fundings.  Additionally,  through December 31, 1996,
the  Company has  purchased  1,531,866  shares of its common  stock in a buyback
program at a total cost of $10,409,330.

      The   Company's   plans  for   growth   include   acquisitions   of  other
telecommunications  companies  as well as the  addition  of new  technology  and
services.  Several new switches are planned to facilitate  the future growth and
enhance the profit margins on current business, and the Company will be expected
to pay the remaining legal  settlements which have been accrued at September 30,
1996. To achieve this growth and the necessary working capital, the Company will
require additional  funding.  The Company has received  preliminary  commitments
from several  institutional  investors and institutions to arrange funding of an
additional  $40 million to $50  million.  While the Company has reason to expect
the completion of these arrangements, no assurances can be given that such funds
will be provided.

      In  view  of the  acquisition  of  TWT  and  the  focus  of the  Company's
operations in the telecommunications  industry, the Company plans to evaluate in
the course of the current  fiscal year whether the  operations  of the Company's
FSGI and RESN subsidiaries are complementary. In the event management determines
that these  operations  are not  sufficiently  compatible  and  synergetic,  the
Company will consider the sale or other  disposition  of these  subsidiaries  or
their operations.

ITEM 7.     FINANCIAL STATEMENTS
            --------------------
      The financial  statements and  supplementary  data are included under Item
13(a)(1) and (2) of this Report.

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

      Not Applicable.
                                       44

<PAGE>



                                   PART III

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

      The  following  table sets forth the names,  ages and  positions  with the
Company of the executive  officers and directors of the Company.  Directors will
be elected at the Company's  annual  meeting of  stockholders  and serve for one
year or until their successors are elected and qualify.  Officers are elected by
the Board and  their  terms of office  are,  except to the  extent  governed  by
employment contract, at the discretion of the Board.

     Name                               Position                            Age
     ----                               --------                            ---
                                                                       
Joseph L. Lents                   Chairman of the Board, and                 51
                                  Chief Executive Officer              
                                                                       
Donald W. Booth                   President and Director                     43
                                                                       
Arnold Salinas                    Vice President/Sales and                   44
                                  Marketing of Total World             
                                  Telecom and Director                 
                                                                       
C. Denning Loveridge              Senior Vice President/                     53
                                  Property Division and                
                                  Director of the Company              
                                                                       
John Loveridge                    Director                                   50
                                                                       
Loretta Murphy                    Vice President of Finance,                 56
                                  Chief Financial Officer              
                                  and Secretary                        
                                                                       
Ronald Berry                      Controller of Total World                  47
                                  Telecom and Treasurer of             
                                  the Company                          
                                                                       
      JOSEPH L. LENTS has been a Director of the Company  since January 15, 1991
and Chairman of the Board, President and Chief Executive Officer since March 29,
1991.  Mr. Lents was the  founder,  Chairman of the Board,  President  and Chief
Executive  Officer of FSGI since November 1, 1989. Mr. Lents is also  co-founder
of Nearman & Lents,  CPAs which was organized in May 1979.  Mr. Lents retired as
an active  partner of Nearman & Lents on October 17, 1989.  Between July 1, 1974
and June 30,  1975,  Mr.  Lents worked with  Deloitte  Haskins & Sells,  CPAs in
Miami,  Florida.  Prior thereto commencing in 1970, Mr. Lents was a commissioned
officer in the United States Air Force and  subsequently,  beginning 1973, was a




                                       45



<PAGE>


civilian  employee of the Air Force Audit Agency until his resignation in August
1979,  at which time he was in charge of the audit  function  at  Homestead  Air
Force Base in Homestead,  Florida. In addition, during this time between January
1970 and May 1979, Mr. Lents was a credit union volunteer  providing services to
supervisory  committees of three credit unions.  Mr. Lents served as a member of
the Credit  Unions  Committee  for the AICPA which  serves as a link between the
AICPA in  Washington,  D.C.  and the  credit  union  industry.  Mr.  Lents  also
developed the concept and  co-founded  the National  Association of Credit Union
Supervisory  and  Auditing  Committees  ("NACUSAC")  which is the only  national
organization  devoted  entirely to  supervisory  committees and which includes a
membership of over 200 credit unions. Mr. Lents was formerly responsible for the
Supervisory Committee conference conducted annually by Nearman & Lents and which
is also  sponsored by NACUSAC,  which is generally  attended by in excess of 400
supervisory  committee members from throughout the United States. Mr. Lents is a
frequent  contributor  to  various  national  magazines  and  news  publications
concerning   credit  union  auditing  and  Supervisory   Committee   duties  and
responsibilities  and regularly  participates  at credit union  conferences  and
meetings.

      DONALD W. BOOTH has been a Director  of the Company  since  August 2, 1996
and President of the Company since November 1, 1996.  Prior  thereto,  Mr. Booth
founded Total World Telecom,  Inc.,  Houston,  Texas ("TWT") in 1991 and was its
president  until TWT was  acquired by the Company in May 1996.  Between 1988 and
1991 Mr. Booth was Vice President of Sales for Cypress Telecommunications, Inc.,
Houston,  Texas.  From  1986 to 1988,  Mr.  Booth  was a  District  Manager  for
Metromedia Long Distance,  Houston,  Texas,  and between 1981 and 1985, he was a
Sales Manager for S.B.S. Skyline,  Houston,  Texas, a wholly-owned subsidiary of
IBM.  Mr.  Booth has been in the  telecommunications  business  for more than 15
years,  is a graduate from Graceland  College,  received an MBA from  Pepperdine
University and a J.D. degree from South Texas College of Law.

      ARNOLD SALINAS has been a Director of the Company since August 2, 1996 and
Executive Vice  President of Sales and Marketing of Total World  Telecom,  Inc.,
Houston,  Texas  since  July  1996.  In 1993,  Mr.  Salinas  co-founded  and was
President of Global  Communications  Group, Inc., Dallas,  Texas, a company that
provided  telecommunications  services to Eastern European countries. Global was
purchased by Sector  Communications,  Inc., Reston,  Virginia,  in 1996, and Mr.
Salinas continues to serve as member of its Board of Directors.  Mr. Salinas has
more than 15 years of international and domestic  telecommunications  experience
with companies such as Sprint, MCI and AT&T.













                                       46



<PAGE>




      C. DENNING LOVERIDGE has been Senior Vice President-Property  Division and
a Director of the Company since January 15, 1991.  Prior thereto between January
1970 and the  present,  Mr.  Loveridge  has  been  engaged  in land  development
projects on behalf of his family and has managed his  family's  commercial  real
estate investments. Mr. Loveridge is the brother of John Loveridge.

      JOHN  LOVERIDGE,  a Director  of the Company  since  September  1991,  was
General Partner of Mount Vernon  Distribution  Center,  Ltd., Mount Vernon, Ohio
from October 1987 through May 1991.  Between 1983 and 1987, Mr. Loveridge worked
with Loveridge,  Inc., a family owned business,  acquiring real estate and other
investments  in Melbourne,  Florida.  Prior to 1983, Mr.  Loveridge  worked with
other family members in purchasing  coal, oil and gas properties in Kentucky and
Tennessee.  Between 1969 and 1970, he owned and operated 40 oil and gas wells in
Oil City, Louisiana. Through much of the 1960's, Mr. Loveridge worked with other
Loveridge  family members in developing 6,400 acres of farm land in Leesburg and
Belle Glade, Florida on behalf of family interests. Mr. Loveridge is the brother
of C. Denning Loveridge.

      LORETTA MURPHY was elected Vice President,  and Chief Financial Officer in
March 1993 and Secretary in May 1993. She has been employed by the Company since
December  1992.  Ms. Murphy was employed in public  practice in Rhode Island for
fifteen  years  working  with  small and  medium  size  local  Certified  Public
Accounting  firms.  She was a member  of the tax  department  in the  Providence
office of Arthur Young before  leaving Rhode Island to accept a position in Fort
Lauderdale,  Florida,  as controller  for Crowley  Financial  Services,  Inc., a
publicly  traded  company  listed on NASDAQ.  In 1990,  she  returned  to public
practice as tax manager for a medium size local Certified Public Accounting firm
in Boca Raton,  Florida.  Ms.  Murphy,  who earned her degree in  Accounting  at
Bryant College,  Smithfield, Rhode Island, is a Certified Public Accountant. She
is also a member of the American Institute of Certified Public Accountants,  the
Rhode Island Society of Certified Public Accountants, and the Florida Society of
Certified Public Accountants.

      RONALD  BERRY  has been  selected  as  Treasurer  of the  Company  pending
ratification of the Board of Directors and Mr. Berry has served as Controller of
Total World  Telecom,  Inc.  since July 1, 1996.  Prior to that,  Mr.  Berry was
self-employed  with his own accounting firm for more than 10 years. Mr. Berry is
a Certified  Public  Accountant and has vast experience in accounting as well as
auditing in both the personal and corporate sectors.










                                       47



<PAGE>




ITEM 10.    EXECUTIVE COMPENSATION
            ----------------------
 
CASH COMPENSATION
-----------------

      Total cash  compensation  paid to all  executive  officers  as a group for
services  provided  to the  Company  in all  capacities  during  the year  ended
September  30,  1996  aggregated  to  $381,000.  Set  forth  below is a  summary
compensation  table in the tabular format  specified in the applicable  rules of
the Securities and Exchange Commission.  As indicated, no officer of the Company
or any of its subsidiaries, except for Joseph L. Lents received total salary and
bonus which exceeded $100,000 during the periods reflected.

<TABLE>
<CAPTION>
                           Summary Compensation Table
                           --------------------------

                                             Other                                      All
  Name and                                   Annual  Restricted                        Other
  Principal                                  Compen-   Stock       Options/   LTIP     Compen-
  Position     Period   Salary      Bonus    sation*   Award(s)    SARs(#)   Payouts   sation
  --------     ------   ------      -----    -------   --------    -------   -------   ------
<S>             <C>    <C>        <C>        <C>       <C>           <C>      <C>     <C>
Joseph Lents,   1996   $277,500   $  -0-     $ 2,350      -          133,334    -     $  -0-
Chairman        1995    250,000     5,000      2,350      -             -       -        -0-
and CEO         1994     50,000      -0-       2,350      -          500,000    -        -0-
_______________
*Personal use of Company vehicles.

</TABLE>


EMPLOYMENT AGREEMENTS
---------------------

      On January 16, 1996, the Company  entered into a five-year  agreement with
Mr.  Joseph L. Lents which  provides a base  salary of  $250,000  per year and a
discretionary  bonus as  determined by the  Company's  Board of  Directors.  The
agreement also provides for increases in base salary based on executive salaries
in companies  acquired.  Mr. Lents is also entitled to receive  standard  health
benefits and will receive the use of a vehicle together with maintenance charges
for such  vehicle  during the term of his  employment.  Lease  payments  on such
vehicle  currently  amount to $549 per month.  Mr.  Lents will not  receive  any
retroactive  compensation  for the prior years in which he was not receiving his
salary.

      On January 11, 1996, the Company entered into a three-year  agreement with
Ms.  Loretta  Murphy which  provides a base salary of $76,000 plus increases and
bonuses as determined by the Chief Executive Officer of the Company.  Ms. Murphy
is also entitled to receive the standard benefits provided by the Company.

      The Company is in the process of negotiating  employment  agreements  with
executive management of TWT, including Messrs. Booth and Salinas.

                                       48



<PAGE>


OPTION EXERCISES AND VALUES AT YEAR END
---------------------------------------

               Aggregated Option/SAR Exercises in Last Fiscal Year
               ---------------------------------------------------
                          and FY-End Option/SAR Values
                          ----------------------------
                                                                     Value of
                                                   Number of       Unexercised
                                                  Unexercised      In-the-Money
                                                  Option/SARs       Option/SARs
                                                 at FY-End (#)       at FY-End
                    Shares
                  Acquired on       Value        Exercisable/      Exercisable/
    Name          Exercise (#)     Realized      Unexercisable     Unexercisable
    ----          ------------     --------      -------------     -------------

Joseph L. Lents        -               -            300,000             -0-

The company has  previously  granted to members of its  management and employees
options to purchase an  aggregate  of  1,253,495  shares of Common  Stock of the
Company exercisable at prices ranging from $7.50 to $30.00.

ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
            --------------------------------------------------------------
 
      The following  table sets forth Common Stock  ownership as of December 27,
1996 with respect to (i) each person  known to the Company to be the  beneficial
owner of five (5%) percent or more of the  Company's  outstanding  Common Stock,
(ii) each director of the Company and (iii) all executive officers and directors
of the Company as a group.  This  information  as to  beneficial  ownership  was
furnished to the Company by or on behalf of the persons named.  Unless otherwise
indicated,  the business  address of each person  listed is 3200 North  Military
Trail,  Suite 300, Boca Raton,  Florida 33431.  Information  with respect to the
percent of class is based on 6,231,928  shares of the Company's Common Stock and
266,000 shares of Series M and O Voting  Convertible  Preferred Stock issued and
outstanding as of December 27, 1996.

                                                  Shares            
                                               Beneficially              Percent
     Name                                        Owned(1)               of Class
     ----                                      ------------             --------
                                                                    
Joseph L. Lents (2)                               623,500                  9.5%
C. Denning Loveridge(3)                           175,633                  2.7%
John Loveridge(4)                                 175,633                  2.7%
Donald Booth(5)                                   777,549                 12.5%
Arnold Salinas(6)                                  98,889                  1.6%
Platina Technologies, Inc.(7)                     595,556                  9.5%
                                                                    
All executive officers and                                          
  directors as a group                                              
  (7 persons)                                   2,132,737                 30.6%
                                                                    
                                                          
                                       49



<PAGE>


_________________

(1)   Except as otherwise indicated in the footnotes below, each stockholder has
      sole power to vote and  dispose of all the shares of Common  Stock  listed
      opposite his name.

(2)   Mr.  Lents is  Chairman  of the Board and Chief  Executive  Officer of the
      Company. Includes 300,000 shares of Common Stock issuable upon exercise of
      certain  options by Mr. Lents,  4,633 shares of Common Stock acquired by a
      retirement program  established by Cheryl Lents, the wife of Mr. Lents, as
      to which  shares Mr.  Lents  disclaims  beneficial  ownership,  and 21,667
      shares of Common Stock acquired by Mr. Lents' children.

(3)   Mr. C. Denning  Loveridge is Senior Vice  President  and a Director of the
      Company. Includes 166,667 shares of Common Stock issuable upon exercise of
      certain options.

(4)   Mr. John  Loveridge is a Director of the Company and the brother of Mr. C.
      Denning  Loveridge.  Includes 166,667 shares of Common Stock issuable upon
      exercise of certain options.

(5)   Mr. Booth is President  and a Director of the Company and Chief  Executive
      Officer of TWT.  Includes  93,337 shares  placed in trust for Mr.  Booth's
      children.

(6)   Mr.  Salinas is Vice  President  of Marketing of TWT and a Director of the
      Company.

(7)   Platina Technologies,  Inc. is a Delaware corporation with offices at 5630
      Fairdale, Suite 4, Houston, Texas 77057.


ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
            ----------------------------------------------
  
TRANSACTIONS WITH MANAGEMENT AND OTHERS
---------------------------------------

      During  fiscal 1996,  RESN  acquired  29.63 acres of  undeveloped  land in
Melbourne,  Florida.  Currently,the  property is zoned for  commercial  use. The
property  was acquired  from a  stockholder  who had  previously  purchased  the
property from Mr. D.E. Loveridge,  Trustee.  Mr. D.E. Loveridge is the father of
Messrs.  John and C. Denning Loveridge,  directors of the Company.  The purchase
price of $2,700,000  was paid by the issuance of 294,932 shares of the Company's
Common  Stock and the  assumption  of a $707,450  note  payable  to the  Florida
Conference  of the  Seventh Day  Adventists.  The note  provides  for payment of
interest only at 9 3/4% and matures at April 2001. Through a joint venture, RESN
plans to  develop  the land for  commercial  use and  eventual  sale.  A current
appraisal values the land at between $2,600,000 and $3,000,000.



                                       50



<PAGE>


      On June  12,  1996,  the  Company  consummated  an  Agreement  and Plan of
Reorganization  dated May 28, 1996 for the acquisition of all of the outstanding
capital  stock of Total  National  Telecommunications,  Inc.  (d/b/a Total World
Telecom).  Pursuant to the terms of the stock exchange,  the shareholders of TWT
received  shares of newly created  Series M and Series N preferred  stock of the
Company  which are  convertible  into  1,983,333  shares of Common  Stock of the
Company. The Series M and Series N Preferred Stock,  established pursuant to the
exchange,  carry a cumulative  dividend of 2.7% per month of the stated value of
the preferred  stock which the Company is required to pay until such time as the
Company's  Registration  Statement (after which the former TWT shareholders have
agreed not to sell more than 5% of their shares per month) relating to resale of
certain of the shares of Common Stock  underlying the Series of Preferred  Stock
is registered  under the  Securities  Act of 1933. At the time the Agreement and
Plan of  Reorganization  was consummated on June 12, 1996, the Company  advanced
$5,000,000 for the working  capital needs of TWT. In addition the Company issued
35,000  shares of Series O Preferred  Stock for employee  compensation  for past
service costs which are  convertible  into 233,333 shares of Common Stock of the
Company.  The Company also issued 267,501 Series P Preferred Stock  representing
shares issued in connection with future  services.  These shares are convertible
into Common Stock of the Company and have been recorded at the appraised  market
value of common shares.  Certain consultants received 250,000 shares of Series Q
Preferred Stock which are convertible  into 1,111,109  shares of Common Stock of
the Company.  Such shares have been valued at the appraised  value and have been
charged  to the cost of the  acquisition.  The  Series O,  Series P and Series Q
Preferred Stock have no registration rights.

      In connection with the acquisition, Donald Booth and members of his family
received  55,400  shares of Series N  Preferred  Stock  which were  subsequently
converted into 443,333 shares of Common Stock.  In addition,  Mr. Booth received
167,499  shares of Series P Preferred  Stock which were  subsequently  converted
into 744,444 shares of Common Stock. Mr. Arnold Salinas,  a consultant of TWT at
the time of the acquisition,  received 20,000 shares of Series Q Preferred Stock
which were  subsequently  converted  into  88,889  shares of Common  Stock.  Mr.
Salinas  subsequently was employed as an executive officer of TWT and a Director
of the Company.  Mr.  Ronald Berry  received  3,500 shares of Series O Preferred
Stock which are convertible  into 23,333 shares of Common Stock and do not carry
a dividend.

      During the 12 month period  ended  September  30,  1996,  the Company paid
commissions of $32,808 to Heartline,  Inc. which is owned by Mr. Paul Booth, the
father of Mr. Donald Booth. Heartline, Inc. is the billing and collection agency
for all amounts billed through Southwestern Bell. Heartline, Inc. is not related
to Heartline Communications, Inc. from which the Company acquired certain assets
in January 1995.







                                       51



<PAGE>



      Periodically,  Mr.  Joseph  Lents has  advanced  funds to the  Company for
working capital and other  purposes.  At September 30, 1995, the Company owed to
Mr. Lents on account of such  advances  $467,940.  During the fiscal  year,  Mr.
Lents made  further  advances of $139,798  and had accrued  interest and accrued
compensation of $81,276.  During the 1996 fiscal year, the Company made payments
to Mr. Lents of $669,014 with the resulting balance due to Mr. Lents at year end
September 30, 1996 of $20,000. At December 31, 1996, such balance was $14,029.

ITEM 13.    EXHIBITS, LIST AND REPORTS ON FORM 8-K
            --------------------------------------
 
      (a)(1) and (2)  Financial Statements and Schedules
                      ----------------------------------

            The financial statements listed on the index to financial statements
on page F-1 are filed as part of this Form 10-KSB.

      (b)   Reports on Form 8-K
            -------------------

            The Company filed Form 8-K reports  dated  December 21, 1995 (item 2
and item 5),  February  21,  1996 (item 5), May 28, 1996 (item 5), June 11, 1996
(item 5), October 29, 1996 (item 1 and item 5) and November 8, 1996 (item 5).

      (c)   Exhibits
            --------
Exhibit

Number                  Description of Document
------                  -----------------------

 3.01             Articles of Incorporation1
 3.01(a)          Certificate of Amendment to Certificate of Incorporation(5)
 3.01(b)          Certificate of Amendment to Certificate of Incorporation(7)
 3.01(c)          Certificate of Amendment to Certificate of Incorporation(24)
 3.02             By-Laws(5)
 4.01             Specimen of Common Stock certificate(1)
10.02             Warrant Agent Agreement(1)
10.03             Line of Credit Agreement(1)
10.04             Stock  Purchase  Agreement  between Texas American Group, Inc.
                  and Daniel M. Boyar(2)
10.05             Stock  Purchase  Agreement    for  acquisition  of   Financial
                  Standards Group, Inc.(2)
10.06             Stock  Purchase   Agreements for  acquisition of Mount  Vernon
                  Distribution, Inc. and Eau Gallie Properties, Inc.(2)
10.06.1           Amendments to Stock Purchase Agreements referred to in Exhibit
                  10.06(7)



                                       52



<PAGE>



10.07             Stock  Purchase  Agreement for  acquisition of Bibbins  & Rice
                  Electronics, Inc. and Rice Electronics,Inc.(3)
10.08             Investment Banking Consulting Agreement with H.D. Vest Invest-
                  ment Securities, Inc.(7)
10.09             Sales and Service  Agreement with Corroon & Black  Administra-
                  tive Services, Inc.(7)
10.10             Agreement with Arkansas Credit Union League and  Service Corp-
                  oration(7)
10.11             Agreement with HCU Services Corporation (Hawaii)(7)
10.12             Agreement with KYCUL Services Incorporated (Kentucky)(7)
10.13             Agreement with League Services Corporation (Michigan)(7)
10.14             Selling Agent Agreement with Meridian Associates, Inc.(7)
10.15             Financial  Consulting  Agreement  with  Meridian   Associates,
                  Inc.(7)
10.16             Lock-Up Agreement with Selling Security Holders(7)
10.17             Rescission Offer Responses(7)
10.18             Agreement with Computer Concepts Corp.(8)
10.19             Agreement with Greg Paige and Paige & Associates Corp.(9)
10.20             Agreements with Computer Concepts Corp.(13)
10.21             Agreement with Comstator, S. A.(13)
10.22             Agreement with Allan J. Ontai(10)
10.23             Letter of  Agreement with  Servicecorp  (Indiana  Credit Union
                  League)(13)
10.24             Agreement and Plan of Merger with Membership Realty Ltd., Inc.
                  and other parties described therein(10)
10.25             Agreement with Stenton Leigh Capital Corp.(10)
10.26             Agreement  with  Universal Solutions, Inc., Investor  Resource
                  Services, Inc. and SMI Capital Corp.(12)
10.27             Amendment No. 1 to  Agreement and  Plan of Merger with Member-
                  ship Realty Ltd., Inc.(14)
10.28             Agreement with Computer Concepts Corp.(15)
10.29             Agreement and Plan of Merger with Elfworks, Inc.(16)
10.30             Stock Purchase  Agreement and Assignments with  Administracion
                  de Seguros, S.A.(17)
10.31             Letter of Intent to Purchase and Sell between  Jalmark Realty,
                  Inc. and Membership Realty Holding Corp.(19)
10.32             Amendment No. 4 To Agreement and  Plan of  Merger with Member-
                  ship Realty Ltd., Inc.(20)
10.33             Agreement with JRL Acquisition, Inc.(20)
10.34             Financial Advisory and Consulting  Agreement with  Coleman and
                  Company(20)
10.35             Stock Purchase and Exchange  Agreement with American Indemnity
                  Company Limited(21)
10.36             Stock Purchase Agreement with U.S. Mortgage Network Corp.(22)
10.37             Stock Purchase Agreement with Maraval & Associates(22)



                                       53



<PAGE>



10.38             Stock Purchase and Exchange Agreement with American  Indemnity
                  Company Limited and Global RE., Ltd.(23)
10.39             Agreement wit Real Estate Services Network Holding Corp., U.S.
                  Mortgage Network Corp.,Intervest, Inc. and Sidney A. Lewis(24)
10.40             Agreement with Total National Telecommunications, Inc.(25)
10.41             Agreement  with  Global  RE.,  Ltd.  and   American  Indemnity
                  Company, Ltd.(26)
10.42             Stock Purchase Agreement with Southwestern Telecom, Inc.(27)
10.43             Stock  Purchase  Agreement  for   the   purchase  of  NETTouch
                  Communications, Inc. and Common Stock Purchase Warrant(28)
10.44             Note  Purchase  Agreement  with  GFL  Advantage Fund  Limited,
                  Registration Rights Agreement and Promissory Note(28)
16.01             Letter from Samson, Robbins & Associates to the Securities and
                  Exchange Commission(4)
16.02             Letter  from  Grau & Registrant to the Securities and Exchange
                  Commission(6)
16.03             Letter  from  Arthur  Andersen  &  Co.  to the  Securities and
                  Exchange Commission(11)
16.04             Letter  from  Grant  Thornton to the  Securities and  Exchange
                  Commission(18)
27                Financial Data Schedule (Electronic filing only)

(1)Incorporated  by reference from  the  Registrant's  Registration   Statement,
as amended,  on Form S-18 filed with the Securities  and Exchange  Commission on
January 27, 1989 and declared effective on February 28, 1989.
(2)Incorporated  by reference to the Registrant's  report on Form 8-K filed with
the Securities and Exchange Commission dated January 11, 1991.
(3)Incorporated  by reference to the Registrant's  report on Form 8-K filed with
the Securities and Exchange Commission dated March 4, 1991.
(4)Incorporated by reference to the Registrant's report on Form 8 filed with the
Securities and Exchange Commission dated February 27, 1991.
(5)Incorporated by reference to the Registrant's  report on Form 10-K filed with
the Securities and Exchange Commission dated April 30, 1991.
(6)Incorporated  by reference to the Registrant's  report on Form 8-K filed with
the Securities and Exchange Commission dated February 6, 1992.
(7)Incorporated  by reference to the  Registrant's  Registration  Statement,  as
amended,  on Form S-1 filed with the Securities  and Exchange  Commission on May
14, 1992 and declared effective on November 12, 1992.







                                       54



<PAGE>



(8)Incorporated  by reference to the Registrant's  report on Form 8-K filed with
the Securities and Exchange Commission dated January 15, 1993.
(9)Incorporated by reference to the Registrant's  report on Form 10-K filed with
the Securities and Exchange Commission dated May 5, 1993.
(10)Incorporated  by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated April 8, 1994.
(11)Incorporated  by  reference to the  Registrant's  report on Form 8-K/A filed
with the Securities and Exchange Commission dated January 17, 1994.
(12)Incorporated by reference to the Registrant's Registration Statement on Form
S-8 filed with the Securities and Exchange Commission on March 23, 1994.
(13)Incorporated by reference to the Registrant's report on Form 10- KSB
filed with the  Securities  and  Exchange  Commission  dated  December 31, 1993.
(14)Incorporated  by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated April 21, 1994.
(15)Incorporated  by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated May 31, 1994.
(16)Incorporated  by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated July 19, 1994.
(17)Incorporated  by reference to the Registrant's  report on Form 10- QSB filed
with the Securities and Exchange Commission dated September 20, 1994.
(18)Incorporated  by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated September 12, 1994.
(19)Incorporated  by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated March 1, 1995.
(20)Incorporated  by reference to the Registrant's  report on Form 10- QSB filed
with the Securities and Exchange Commission dated August 17, 1995.
(21)Incorporated  by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated December 21, 1995.
(22)Incorporated  by reference to the Registrant's  report on Form 10- KSB filed
with the Securities and Exchange Commission dated September 30, 1995.
(23)Incorporated  by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated December 21, 1995.
(24)Incorporated  by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated February 21, 1996.














                                       55



<PAGE>



(24)Incorporated  by reference to the Registrant's  report on Form 10- QSB filed
with the Securities and Exchange Commission dated March 31, 1996.
(25)Incorporated  by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated May 28, 1996.
(26)Incorporated  by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated June 11, 1996.
(27)Incorporated  by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated October 29, 1996.
(28)Incorporated  by reference to the Registrant's report on Form 8-K filed with
the Securities and Exchange Commission dated November 8, 1996.






































                                       56



<PAGE>
                                   SIGNATURE
                                   ---------

      In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned  thereunto duly
authorized on this twenty first day of January, 1997.

                              TOTAL WORLD TELECOMMUNICATIONS, INC.


                              By:  /s/ Joseph L. Lents
                                 -----------------------------------------------
                                          Joseph L. Lents
                                       Chairman of the Board
                                    and Chief Executive Officer


      In accordance with the Exchange,  this Report has been signed below by the
following  person on behalf of the Registrant,  and in the capacities and on the
date indicated.


      Signature
      ---------
                              Chairman of the Board,
                              and Chief Executive
/s/ Joseph L. Lents           Officer                  January 21, 1997
------------------------
Joseph L. Lents


/s/ Donald Booth              President and Director   January 21, 1997
------------------------
Donald Booth
                              Vice President, Trea-
                              surer and Chief Finan-
                              cial and Accounting
/s/ Loretta A. Murphy         Officer                  January 21, 1997
------------------------
Loretta A. Murphy

                              Senior Vice President
/s/ C. Denning Loveridge      and Director             January 21, 1997
------------------------
C. Denning Loveridge

                              Vice President/Market-
                              ing/Total World Telecom
/s/ Arnold Salinas            and Director             January 21, 1997
------------------------
Arnold Salinas


/s/ John Loveridge
------------------------
John Loveridge                Director                 January 21, 1997


                                      57

<PAGE>



                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS


                      For the Year Ended September 30, 1996







                                    CONTENTS
                                    --------




                                                                    Page
                                                                    ----
                                                              
  Report of Independent Certified Public Accountants.....         F-2
                                                              
  Consolidated Financial Statements:                          
                                                              
    Consolidated Balance Sheet...........................         F-3  - F-4
                                                              
    Consolidated Statements of Loss......................         F-5
                                                              
    Consolidated Statements of Stockholder's Equity......         F-6  - F-7
                                                              
    Consolidated Statements of Cash Flows................         F-8  - F-9
                                                              
  Notes to Consolidated Financial Statements.............         F-10 - F-43
                                                           













                                       F-1



<PAGE>



                        REPORT OF INDEPENDENT AUDITORS
                        ------------------------------

To the Stockholders and Board of Directors of
  Total World Telecommunications, Inc.

We have  audited  the  accompanying  consolidated  balance  sheet of Total World
Telecommunications,  Inc. (formerly  International Standards Group, Limited) and
Subsidiaries as of September 30, 1996 and the related consolidated statements of
loss,  stockholders'  equity  and cash  flows  for each of the two  years in the
period ended September 30, 1996. These consolidated financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated  financial position of Total
World  Telecommunications,  Inc. and  Subsidiaries as of September 30, 1996, and
the consolidated  results of their operations and their  consolidated cash flows
for each of the two years in the period ended  September 30, 1996, in conformity
with generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note A to the
financial statements, at September 30, 1996 the Company has incurred substantial
losses since its  inception,  and the  accompanying  consolidated  balance sheet
reflects  an  accumulated   deficit  of  $(30,221,374)  and  a  working  capital
deficiency of  $(10,761,404).  These matters raise  substantial  doubt about the
Company's ability to continue as a going concern. Management's plan in regard to
these  matters is also  described  in Note A. The  financial  statements  do not
include any  adjustments  that might  result  from the outcome of the  foregoing
uncertainties.


Millward and Co., CPA's
Fort Lauderdale, Florida
December 30, 1996









                                       F-2



<PAGE>




                     TOTAL WORLD TELECOMMUNICATIONS, INC.
                               AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEET
                              SEPTEMBER 30, 1996



                                    ASSETS
                                    ------




CURRENT ASSETS:
  Cash and Cash Equivalents                         $ 1,358,414
  Cash - In Trust                                       345,606
  Accounts Receivable,
    net of allowance of $143,629                      8,200,085
  Due from Employees and Related Parties                962,640
  Mortgages Held For Resale                           7,442,385
  Prepaid Expenses and Other Current Assets           1,058,320
                                                    -----------
     Total Current Assets                            19,367,450
                                                    -----------

PROPERTY AND EQUIPMENT, at cost (Net of
  Accumulated Depreciation of $2,092,897)             5,125,832
                                                    -----------

OTHER ASSETS:
  Property and Plant, Held for Resale                 6,179,754
  Goodwill (net of Accumulated
    Amortization of $763,777)                        41,332,087
  Other                                                 998,921
                                                    -----------
                                                     48,510,762
                                                    -----------
     Total assets                                   $73,004,044
                                                    ===========






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




                                       F-3



<PAGE>



                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEET (Continued)
                               SEPTEMBER 30, 1996




                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------

CURRENT LIABILITIES:

  Notes Payable and Current
    Portion of Long-Term Debt                       $ 6,594,453
  Warehouse Lines of Credit                           7,864,992
  Accounts Payable                                    9,133,554
  Accrued Expenses and Other Liabilities              3,868,434
  Due for Redemption of Stock                         2,625,000
  Due to Stockholders                                    42,421
                                                    -----------

     Total Current Liabilities                       30,128,854
                                                    -----------

LONG-TERM DEBT                                        2,567,066
                                                    -----------

CREDIT ARISING FROM DISPUTED TRANSACTION              1,500,000
                                                    -----------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
  Preferred Stock, $.00001 Par Value,
    10,000,000 Shares Authorized,
    1,216,300 Shares Issued and Outstanding                  12
  Common Stock, $.00001 Par Value, 100,000,000
    Shares Authorized, 6,635,525 Shares Issued
    and Outstanding                                          66
  Additional Paid-In Capital                         74,973,115
  Unearned Compensation                              (5,203,695)
  Accumulated Deficit                               (30,221,374)
  Treasury Stock at Cost, 55,933 Shares                (740,000)
                                                    ------------

                                                     38,808,124
                                                    -----------
     Total Liabilities and
       Stockholders' Equity                         $73,004,044
                                                    ===========

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


                                       F-4


<PAGE>
                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                         CONSOLIDATED STATEMENTS OF LOSS

                                        For the Year Ended
                                           September 30,
                                      1996              1995
                                  -------------    ---------
REVENUES:
  Telecommunications               $15,814,779      $     -
  Real Estate Fees                   4,934,927        3,236,571
  Audit Fees                           835,168          778,515
                                  -------------     -----------
                                    21,584,874        4,015,086
                                  -------------     -----------
COST OF SALES:
  Telecommunications                14,186,355            -
  Real Estate                        4,226,090        2,749,097
  Direct Audit Expenses                670,291          652,432
                                  -------------     -----------
                                    19,082,736        3,401,529
                                  -------------     -----------

GROSS PROFIT                         2,502,138          613,557
                                  -------------     -----------

OPERATING EXPENSES:
  Selling, General and
    Administrative                  10,203,382        3,573,255
  Depreciation and Amortization      1,949,136          552,558
  Write off of Goodwill                703,174          500,000
                                  -------------     -----------
                                    12,855,692        4,625,813
                                  -------------     -----------
  Loss from operations             (10,353,554)      (4,012,256)
                                  -------------     ------------

OTHER INCOME (EXPENSE):
  Rental Income                        292,858          237,128
  Rental Expenses, Including
    Depreciation of $125,358 for
    1996 and $125,021 in 1995         (333,582)        (381,379)
  Interest Expense                    (835,167)        (398,313)
  Interest Income                       39,488            -
  Legal Settlement                       -              (73,000)
  Settlement with Regulatory
     Agencies                         (930,000)           -
  Other Expenses                        (5,140)         (49,754)
                                  -------------     ------------
     Total Other Expense            (1,771,543)        (665,318)
                                  -------------     ------------

NET LOSS                          $(12,125,097)     $(4,677,574)
                                  =============     ============

NET LOSS PER COMMON SHARE         $      (6.31)     $     (4.38)
                                  =============     ============

NUMBER OF SHARES USED
 IN COMPUTATION                      2,371,586        1,080,573
                                  =============     ===========




               Theaccompanying notes are an integral part of these
                       consolidated financial statements.



                                       F-5


<PAGE>
                     TOTAL WORLD TELECOMMUNICATIONS, INC.
                               AND SUBSIDIARIES
           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

                                                      PREFERRED STOCK           COMMON STOCK        
                                                     ------------------      -----------------      PAID-IN 
                                                     SHARES      AMOUNT      SHARES     AMOUNT      CAPITAL
                                                     ------      ------      ------     ------      -------

<S>                                                 <C>       <C>           <C>        <C>        <C>        
Balance, September 30, 1994                           73,000  $         1   1,060,900  $    10    $17,937,704

Issuance of Common Stock for Private Placement          -            -          4,500     -            67,500
Issuance of Common Stock Per Reg S, Net of
  Commissions of $47,500                                -            -         43,333     -           277,500
Issuance of Common Stock for Payment of Interest        -            -         28,133     -           163,480
Issuance of Common Stock to Consultants                 -            -         66,667        1        449,999
Amortization of Unearned Compensation                   -            -           -        -              -
Issuance of Common Stock for Legal Fees                 -            -            897     -             6,725
Liquidating Dividends Paid In Cash                      -            -           -        -           (58,400)
Issuance of Common Stock for Purchase
  of Office Condominium                                 -            -         13,333        1         66,009
Proceeds from Issuance of Series F
  Convertible Preferred Stock                          1,050         -           -        -         1,050,000
Net Adjustment for Shares Issued
  for Previous Private Placements                       -            -          2,112     -              -
Common Stock Repurchased and Cancelled                  -            -         (1,667)    -           (25,000)
Net Loss                                                -            -           -        -              -
                                                   ---------  -----------   ----------  ------    -----------

Balance, September 30, 1995                           74,050            1    1,218,208      12     19,935,517

Issuance of Common Stock Per Reg S,
  Net of Commissions of $31,381                         -            -         385,229       4      1,851,362
Issuance of Common Stock for
  Payment of Employee Compensation                      -            -           1,667    -            14,500
Issuance of Common Stock to Consultants                 -            -         162,367       2      1,475,508
Amortization of Unearned Compensation                   -            -            -       -              -
Dividends Paid In Cash                                  -            -            -       -        (3,117,400)
Issuance of Common Stock for Purchase of Land           -            -         294,932       3      1,995,165
Net Proceeds from Issuance of Preferred Shares
  Pursuant to Regulation S
     Series H Convertible Preferred Stock            170,900            2         -       -           763,816
     Series I Convertible Preferred Stock            200,000            2         -       -         1,643,483
     Series J Convertible Preferred Stock            300,000            3         -       -         2,468,497
     Series K Convertible Preferred Stock          1,300,000           13         -       -        10,363,327
Issuance of 137,185 shares of Common Stock
  for Conversion of Series H Preferred Stock        (170,900)          (2)     137,185       1              1
Issuance of 293,841 shares of Common Stock
  for Conversion of Series I Preferred Stock        (200,000)          (2)     293,841       3             (1)
Issuance of 463,063 shares of Common Stock
  for Conversion of Series J Preferred Stock        (300,000)          (3)     463,063       5             (2)
Shares Issued for Acquisition of Total
  World Telecom
     Series M Preferred Stock                        231,000            2         -       -        20,296,498
     Series N Preferred Stock                         66,500         -            -       -         6,583,500
     Series O Preferred Stock                         35,000         -            -       -         3,465,000
     Series P Preferred Stock                        267,501            3         -       -         5,526,048
     Series Q Preferred Stock                        250,000            3         -       -         4,333,322
Commissions Pertaining to Conversion of
  Series Q Preferred Stock                              -            -            -       -             -
Issuance of 714,627 shares of Common Stock
  for Conversion of Series K Preferred Stock        (422,700)          (4)     714,627       7             (3)
Issuance of 443,333 shares of Common Stock
  for Conversion of Series N Preferred Stock         (66,500)        -         443,333       4             (4)
Issuance of 1,188,889 shares of Common Stock
  for Conversion of Series P Preferred Stock        (267,501)          (3)   1,188,889      12             (9)
Issuance of 1,111,109 shares of Common Stock
  for Conversion of Series Q Preferred Stock        (250,000)          (3)   1,111,109      11             (8)
Issuance of 190,000 shares of Common Stock
  for Conversion of Series F Preferred Stock          (1,050)        -         190,000       2             (2)
Net Adjustment for Shares Issued for
  Previous Private Placements                           -            -          35,945    -             -
Issuance of Series G Preferred Stock for
  Acquisition of American Indemnity and
  Conversion into Common Stock and Rescission        233,333            2    2,333,333      23          -   
  of AIC acquisition                                (233,333)          (2)  (2,333,333)    (23)         -
Adjustment for Redemption of
  Series M Preferred Stock                              -            -            -                (2,625,000)
Common Stock Repurchased and Cancelled                  -            -          (4,870)   -              -
Net Loss                    
                                                   ---------  -----------  ----------  -------    -----------
Balance, September 30, 1996                        1,216,300  $        12   6,635,525       66    $74,973,115
                                                   =========  ===========  ==========  =======    ===========



                      The accompanying  notes  are  an  integral  part  of  these
                                   consolidated financial statements.
</TABLE>



                                                 F-6



<PAGE>



                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
      CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Continued)

<TABLE>
<CAPTION>
                                                                  TREASURY STOCK
                                                    UNEARNED    ------------------    ACCUMULATED
                                                  COMPENSATION  SHARES      AMOUNT      DEFICIT        TOTAL
                                                  ------------  ------      ------      -------        -----
<S>                                               <C>         <C>         <C>        <C>            <C>        
Balance, September 30, 1994                         $   -       (55,933)  $(740,000) $ (13,418,703) $ 3,779,012

Issuance of Common Stock for Private Placement          -          -           -              -          67,500
Issuance of Common Stock Per Reg S, Net of
  Commissions of $47,500                                -          -           -              -         277,500
Issuance of Common Stock for Payment of Interest        -          -           -              -         163,480
Issuance of Common Stock to Consultants                 -          -           -              -         450,000
Amortization of Unearned Compensation                (18,750)      -           -              -         (18,750)
Issuance of Common Stock for Legal Fees                 -          -           -              -           6,725
Liquidating Dividends Paid In Cash                      -          -           -              -         (58,400)
Issuance of Common Stock for Purchase
  of Office Condominium                                 -          -           -              -          66,010
Proceeds from Issuance of Series F
  Convertible Preferred Stock                           -          -           -              -       1,050,000
Net Adjustment for Shares Issued
  for Previous Private Placements                       -          -           -              -            -
Common Stock Repurchased and Cancelled                  -          -           -              -         (25,000)
Net Loss                                                -          -           -        (4,677,574)  (4,677,574)
                                                    --------- ----------  ---------- -------------- ------------

Balance, September 30, 1995                          (18,750)   (55,933)   (740,000)   (18,096,277)   1,080,503

Issuance of Common Stock Per Reg S,
  Net of Commissions of $24,781                         -          -          -              -        1,851,366
Issuance of Common Stock for
 Payment of Employee Compensation                       -          -          -              -           14,500
Issuance of Common Stock to Consultants                 -          -          -              -        1,475,510
Amortization of Unearned Compensation                 18,750       -          -              -           18,750
Dividends Paid In Cash                                  -          -          -              -       (3,117,400)
Issuance of Common Stock for Land                       -          -          -              -        1,995,168
Net Proceeds from Issuance of Preferred Shares
  Pursuant to Regulation S
    Series H Convertible Preferred Stock                -          -          -              -          763,818
    Series I Convertible Preferred Stock                -          -          -              -        1,643,485
    Series J Convertible Preferred Stock                -          -          -              -        2,468,500
    Series K Convertible Preferred Stock                -          -          -              -       10,363,340
Issuance of 137,185 shares of Common Stock
  for Conversion of Series H Preferred Stock            -          -          -              -             -
Issuance of 293,841 shares of Common Stock
  for Conversion of Series I Preferred Stock            -          -          -              -             -
Issuance of 463,063 shares of Common Stock
  for Conversion of Series J Preferred Stock            -          -          -              -             -
Shares Issued for Acquisition of Total
  World Telecom
     Series M Preferred Stock                           -          -          -              -       20,296,500
     Series N Preferred Stock                           -          -          -              -        6,583,500
     Series O Preferred Stock                           -          -          -              -        3,465,000
     Series P Preferred Stock                     (5,203,695)      -          -              -          322,356
     Series Q Preferred Stock                           -          -          -              -        4,333,325
Commissions Pertaining to Conversion of
  Series Q Preferred Stock                              -          -          -              -             -
Issuance of 714,627 shares of Common Stock
  for Conversion of Series K Preferred Stock            -          -          -              -             -
Issuance of 443,333 shares of Common Stock
  for Conversion of Series N Preferred Stock            -          -          -              -             -
Issuance of 1,188,889 shares of Common Stock
  for Conversion of Series P Preferred Stock            -          -          -              -             -
Issuance of 1,111,109 shares of Common Stock
  for Conversion of Series Q Preferred Stock            -          -          -              -             -
Issuance of 190,000 shares of Common Stock
  for Conversion of Series F Preferred Stock            -          -          -              -             -
Net Adjustment for Shares Issued for
  Previous Private Placements                           -          -          -              -             -
Issuance of Series G Preferred Stock for
  Acquisition of American Indemnity and                 -          -          -              -             -
  Conversion into Common Stock for Rescission
  of AIC Acquisition                                    -          -          -              -             -
Return of 2,333,333 shares of Common Stock
  for Rescission of AIC Acquisition                     -          -          -              -             -
Adjustment for Redemption of
  Series M Preferred Stock                              -          -          -              -        (2,625,000)
Common Stock Repurchased and Cancelled                  -          -          -              -             -
Net Loss                                                                              (12,125,097)   (12,125,097)
                                                 ------------ ---------- ----------  -------------  -------------

Balance, September 30, 1996                      $(5,203,695)   (55,933) $(740,000)  $(30,221,374)  $ 38,808,124
                                                 ============ ========== ==========  =============  ============


                      The accompanying  notes  are  an  integral  part  of  these
                                   consolidated financial statements.
</TABLE>

                                                    F-7


<PAGE>
                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                 For the Years Ended
                                                                    September 30,
                                                                1996              1995
                                                            ------------      --------
<S>                                                         <C>               <C>   
CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss                                                    $(12,125,097)     $(4,677,574)
Adjustments to reconcile net loss to net
 cash used in operating activities:
   Depreciation                                                  500,408          256,394
   Amortization of intangible assets                           1,574,086          421,184
   Write off of goodwill                                         703,174          500,000
   Issuance of common stock for payment of interest                -              163,480
   Issuance of common stock for employee compensation             14,500             -
   Issuance of common stock to consultants                     1,475,510          431,250
   Issuance of common stock for legal fees                         -                6,725
   Issuance of debt for payment of interest                        -               56,250
   (Increase) decrease in accounts receivable                 (1,722,329)         (90,933)
   (Increase) decrease in advances to employees
     and stockholders                                           (773,946)          79,906
   (Increase) decrease in prepaid expenses and
     other current assets                                       (606,576)          56,944
   (Increase) decrease in other assets                          (976,302)         (25,470)
   (Decrease) increase in accounts payable and
     accrued expenses                                          2,049,864          422,774
                                                            ------------      -----------

     Net cash used in operating activities                    (9,886,708)      (2,399,070)
                                                            -------------     ------------
CASH FLOWS FROM INVESTING ACTIVITIES:

  Capital expenditures                                          (824,052)        (118,183)
                                                            -------------     ------------

     Net proceeds used in investing activities                  (824,052)        (118,183)
                                                            -------------     ------------
CASH FLOWS FROM FINANCING ACTIVITIES:

  Proceeds from notes payable and long-term debt                   -              740,000
  Payments of amounts due to officers                           (669,012)        (202,647)
  Payments of notes payable and
    long-term debt                                            (2,891,937)        (635,912)
  Net proceeds from issuance of stock per Reg S               17,090,511          277,500
  Net proceeds from Issuance of Common Stock                       -               42,500
  Net proceeds from Issuance of Series F
    Convertible Preferred Stock                                    -            1,050,000
  Preferred stock dividends paid                              (2,367,200)         (58,400)
  Proceeds from stock subscriptions receivable                     -            1,500,000
                                                            ------------      -----------

     Net cash provided by financing activities                11,162,362        2,713,041
                                                            ------------      -----------

INCREASE IN CASH AND CASH EQUIVALENTS                            451,602          195,788

CASH RECEIVED IN ACQUISITION OF TWT                              121,575             -

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                 1,130,843          935,055
                                                            ------------      -----------

CASH AND CASH EQUIVALENTS, END OF PERIOD                    $  1,704,020      $ 1,130,843
                                                            ============      ===========

</TABLE>

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



                                       F-8



<PAGE>

                           TOTAL WORLD TELECOMMUNICATIONS, INC.
                                     AND SUBSIDIARIES
                           CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                 For the Years Ended
                                                                    September 30,
                                                                1996              1995
                                                            ------------      -----------
<S>                                                         <C>               <C>    
NON-CASH FINANCING ACTIVITIES:

  Issuance of preferred stock for purchase
     of Total World Telecom                                 $ 34,678,325      $      -
                                                            ============      ===========

  Issuance of preferred stock as deferred compensation
     relative to purchase of Total World Telecom            $  5,526,051      $      -
                                                            ============      ===========

  Issuance of common stock for legal fees                   $      -          $     6,725
                                                            ============      ===========

  Issuance of common stock for payment of interest          $      -          $   163,480
                                                            ============      ===========

  Increase in debt in lieu of payment
     of interest expense                                    $      -          $    56,250
                                                            ============      ===========

  Issuance of common stock for consulting fees              $  1,475,510      $   450,000
                                                            ============      ===========

  Dividends accrued on Series M & N Preferred Stock         $    750,200      $
                                                            ============      ===========

  Issuance of Common Stock for payment of
     employee compensation                                  $     14,500      $
                                                            ============      ===========

  Certain of the Company's convertible Preferred
     Stock has been converted to shares of Common
     Stock (see Consolidated Statement of Changes
     in Stockholders' equity) during the year ended
     September 30, 1996

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

  Interest paid                                             $    691,587      $   164,954
                                                            ============      ===========

NON CASH INVESTING ACTIVITIES:

  Debt incurred and stock issued in connection
     with the purchase of office condominium                $                 $   586,010
                                                            ============      ===========

  Debt incurred and stock issued in connection
     with the purchase of land                              $  2,702,586      $     -
                                                            ============      ===========

</TABLE>

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


                                       F-9


<PAGE>



                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         ------------------------------------------

Basis of Presentation
---------------------

Total World Telecommunications,  Inc. and subsidiaries (the "Company"), formerly
International  Standards Group,  Limited, was incorporated under the laws of the
State of Delaware on October 12, 1988.

The accompanying  consolidated  financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Financial Standards Group, Inc., Real
Estate Services Network Holding  Corporation,  and its  subsidiaries,  and Total
National  Telecommunications,  Inc. from the date of its  acquisition,  June 12,
1996.   Intercompany   accounts  and   transactions   have  been  eliminated  in
consolidation.

The  initial  objective  of the  Company  was the  establishment  of  accounting
services to assist credit unions and their supervisory  committees in performing
comprehensive  internal or regulatory compliance audits in satisfaction of their
statutory  requirements.   The  Company  also  offers  various  other  auditing,
accounting  and  managerial  advisory  services to the credit union industry but
does not perform audits of financial statements.

On  April  21,  1994,  the  Company  acquired  all of the  outstanding  stock of
Membership  Realty Limited,  Inc. and  subsequently  formed Real Estate Services
Network  Holding  Corp.  (RESN).  RESN is  primarily  engaged as a full  service
commercial  and  residential  real  estate  brokerage  firm which also  provides
mortgage origination and title services. In connection with the acquisition, the
Company  assumed a  $900,000  note to a then  related  party (See Notes G and I)
which was  modified  by  providing  for the  conversion  of the note into 24,320
shares  of  the  Company's  common  stock.  The  excess  was  amortized  on  the
straight-line  method  over 60  months.  The total cost of the  acquisition  was
$1,285,200,  and the  transaction  is  accounted  for as a  purchase.  The  cost
exceeded the fair value of the net assets of RESN by $1,987,245  (goodwill).  At
September 30, 1995, the Company  reassessed the goodwill and charged  operations
for an additional $500,000, and at September 30, 1996, because of continued loss
and an evaluation of future cash flow,  the remaining  goodwill in the amount of
$703,174 was written off. (See Intangible Assets).
                               -----------------






                                      F-10



<PAGE>



                     TOTAL WORLD TELECOMMUNICATIONS, INC.
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              September 30, 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
         ------------------------------------------------------
 
Basis of Presentation (Continued)
---------------------------------

In  June   1996,   the   Company   acquired   Houston   based   Total   National
Telecommunications,   Inc.  (renamed  Total  World  Telecom,   Inc.)  a  Tier  2
switch-based  interexchange  carrier  that  utilized  digital  and  fiber  optic
facilities,  with  switches  located in five major  United  States  cities.  TWT
through long term contracts  provides  origination and termination long distance
services to Tier 3 and Tier 4 switchless  resellers.  The Company also  provides
local  communications  services including local exchange  services,  accesses by
telephone  customers and other  carriers to local  exchange  facilities and long
distance services within specific geographical areas. These services are subject
to  different  levels  of  state  and  federal   regulations.   (See  Note  B  -
Acquisitions).

On October 11, 1995, the Company's  Board of Directors  approved an amendment to
the certificate of  incorporation  of the Company to permit the Company to issue
up to  100,000,000  shares of common stock,  $.00001 par value,  and  10,000,000
shares of preferred stock,  $.00001 par value, of the Company in order to permit
holders of various series of preferred stock and warrants and options to convert
their  preferred  stock or  exercise  their  warrants  and options for shares of
common stock of the Company.

On October 15, 1996, the Company effected a one-for-fifteen  reverse stock split
of its outstanding  Common Stock. All  transactions  described  herein,  and all
references  to  outstanding  Common  Stock of the  Company  or rights to acquire
Common Stock give effect to such reverse stock split unless otherwise indicated.

Accounting Estimates
--------------------

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







                                      F-11



<PAGE>



                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
         ------------------------------------------------------

Intangible Assets
-----------------

Intangible  assets  include  goodwill from the  acquisition of RESN and a credit
union audit practice in California ("the practice"), which represents the excess
of the cost of RESN and the practice  over the fair value of their net assets at
the date of acquisition and is being amortized on the straight-line  method over
60 months.  At September 30, 1995 and 1996, the goodwill from the acquisition of
RESN was reviewed by the Company and based upon the outcome of such review,  the
Company has recorded a reduction in the carrying value in the amount of $500,000
in 1995. The Company continues to expand the operation of RESN and increased the
number of real estate personnel; however,  consideration was given to the change
in management of this operation since the acquisition. Accordingly, that portion
of the  goodwill the Company  estimated  related to former  management  has been
charged to operations and is included in depreciation and  amortization  expense
in the consolidated statements of loss at September 30, 1995.

In 1996, the Company after implementing its expansion plans incurred  continuing
losses.  Accordingly,  the Company  determined that the goodwill related to this
acquisition was impaired,  and in the fourth quarter of the year ended September
30, 1996,  the Company  recorded an  adjustment  of $703,174  which,  based upon
managements'  review,  was required to adjust the carrying value of the goodwill
from the acquisition of RESN.

The result was to increase the net loss during the year-ended September 30, 1996
and 1995 by $.30 and $.46 per share, respectively.

In addition, as a result of the acquisition of Total National Telecom, Inc., the
Company  has  recorded  goodwill  in the  amount of  $41,935,955  which is being
amortized over a fifteen-year period.

In addition,  at September 30, 1996 goodwill  includes  $95,402  relating to The
Financial Group (Note B) and $64,457 to a prior acquisition.

Amortization   expense,   including   amortization   of  deferred   charges  and
organization  expense  charged to operations  for the years ended  September 30,
1996 and 1995 amounted to $1,574,086 and $421,184, respectively.








                                      F-12



<PAGE>




                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
         ------------------------------------------------------

Cash and Cash Equivalents
-------------------------

The Company  considers  all highly  liquid debt  instruments  purchased  with an
original maturity of three months or less to be cash equivalents.

Cash  in-trust  represents  deposits held in escrow for  customers.  The related
escrow liability is included as part of accrued  expenses and other  liabilities
on the consolidated balance sheets.

Property and Equipment
----------------------

Property,  machinery, and equipment under capital leases are stated at cost, and
property  and plant held for resale are stated at the lower of cost or estimated
net realizable  value and are depreciated over their estimated useful lives on a
straight-line basis as follows:
                                                              Useful Life
                                                              -----------

     Building and improvements                                 30  years
     Furniture and fixtures (including software)               3-5 years
     Machinery and equipment                                   5   years

While the property is held for resale,  the property is being leased, and during
the lease periods, depreciation will continue.

Lower of Cost or Market Basis
-----------------------------

Residential  mortgage  loans and mortgage  backed  securities  held for sale are
reported  at the lower of cost or market  value for the  aggregate  of all loans
within that category.

Revenue Recognition
-------------------

The Company  recognizes fee revenue earned  relating to the operations of one of
its credit  union  service  subsidiaries  as the  services  are  provided.  Fees
received in advance,  if any, are deferred  until the services are provided.  At
September 30, 1996 and 1995, no revenues were required to be deferred.

Revenue and the related costs relating to the Company's long- distance telephone
services are recognized on the accrual basis in the period the customer utilizes

                                       F-13


<PAGE>




                     TOTAL WORLD TELECOMMUNICATIONS, INC.
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              September 30, 1996

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
         ------------------------------------------------------
  
Revenue Recognition (Continued)
-------------------------------

the Company's service. The
Company bills customers based on information received from its switching network
and usage tapes received from long distance carriers.  The Company utilizes many
of the state certifications of a related party as discussed in Note F.

Marketing Costs
---------------

The Company has entered into various  marketing and commission  agreements.  The
costs are  expensed as  incurred.  In  addition,  the  Company has entered  into
various  termination  settlement  agreements  providing for cash payments by the
Company  to  commission  agents  whereby  the  Company  was  relieved  of future
commissions on certain accounts for mutual releases.

Income Taxes
------------

The Financial  Accounting Standards Board ("FASB") issued Statement of Financial
Accounting  Standards  ("SFAS") No. 109,  "Accounting  for Income Taxes",  which
requires  companies  to use the asset and  liability  method of  accounting  for
income taxes.  Under the asset and liability  method,  deferred income taxes are
recognized for the tax consequences of temporary differences by applying enacted
statutory  tax rates  applicable  to future  years to  differences  between  the
financial  statement  carrying  amounts and the tax bases of existing assets and
liabilities.  Pursuant to SFAS No. 109, the effect on deferred taxes of a change
in tax rates is  recognized  in income in the period that includes the enactment
date.  Under the deferred  method,  deferred taxes were recognized using the tax
rate  applicable  to the  year of the  calculation  and were  not  adjusted  for
subsequent changes in tax rates. The Company adopted SFAS No. 109 in 1993.

Financial Instruments and Concentration of Credit Risk
------------------------------------------------------

Financial instruments which potentially subject the Company to concentrations of
credit risk are  primarily  cash and accounts  receivable.  The Company  extends
credit based on an evaluation of the customer's financial  condition,  generally
(except for mortgages receivable) without requiring collateral.

Exposure to losses on receivables is  principally  dependent on each  customer's
financial  condition.  The Company  monitors its exposure for credit  losses and
maintains allowances for anticipated losses.


                                      F-14


<PAGE>




                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
         ------------------------------------------------------

Financial Instruments and Concentration of Credit Risk (Continued)
------------------------------------------------------------------

In  addition,  at September  30, 1996 the Company had  $422,000,  $215,000,  and
$376,000   including   certificates  of  deposit  in  three  separate  financial
institutions,  of which the excess  over  $100,000  in each  institution  is not
covered by FDIC  insurance  and which,  therefore,  did not limit the  Company's
amount of  credit  exposure.  The  Company  believes  it is not  exposed  to any
significant credit risk on cash and cash equivalents.

Recent Pronouncements
---------------------

In March 1995, the FASB issued Statement No. 121, "Accounting for the Impairment
of  Long-Lived  Assets and For  Long-Lived  Assets to be Disposed  of." SFAS 121
becomes  effective  for fiscal  years  beginning  after  December  15,  1995 and
addresses  the  accounting  for the  impairment of  long-lived  assets,  certain
identifiable  intangibles,  and goodwill  related to those assets to be held and
used and for  long-lived  assets  and  certain  identifiable  intangibles  to be
disposed of. The Company believes this pronouncement will not have a significant
impact on the Company's consolidated financial statements.

In May 1995,  the FASB  issued  Statement  No.  122,  "Accounting  for  Mortgage
Servicing  Rights." SFAS 122 becomes  effective for fiscal years beginning after
December 15, 1995 and  addresses  the  accounting  for  transactions  in which a
mortgage banking  enterprise sells or securitizes  mortgage loans with servicing
rights  retained and to impairment  evaluations  of all amounts  capitalized  as
mortgage  servicing  rights,  including those purchased  before adoption of this
statement.  During the quarter ended December 31, 1995, the Company  acquired an
entity which provided mortgage services, (prior to this acquisition, the Company
was not in the mortgage servicing business),  accordingly,  the Company expected
to implement FAS 122 commencing October 1, 1995; however, the Company terminated
this relationship.

In October 1995, the FASB issued Statement No. 123,  "Accounting for Stock-Based
Compensation."  The  accounting  requirements  of  SFAS  123 are  effective  for
transactions  entered into in fiscal  years that begin after  December 15, 1995.
The disclosure  requirements of SFAS 123 are effective for financial  statements
for fiscal years  beginning  after  December 15, 1995, or for an earlier  fiscal
year for which this statement is initially adopted for recognizing  compensation
cost. The Company believes this pronouncement will not have a significant impact
on the Company's consolidated financial statements.


                                      F-15



<PAGE>




                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996

Recent Pronouncements (Continued)
---------------------------------

In June 1996, the FASB issued  Statement of Financial  Accounting  Standards No.
125 ("SFAS 125"), "Accounting for Transfers of Servicing of Financial Assets and
Extinguishment  of  Liabilities.  FAS  125  provides  accounting  and  reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities  based on a  financial-components  approach that focuses on control.
SFAS 125 is effective  for  transfers  and  servicing  of  financial  assets and
extinguishments  of liabilities  occurring  after December 31, 1996 and is to be
prospectively  applied.  The Company believes that the adoption of SFAS 125 will
have no impact on its financial statements.

Net Loss Per Common Share
-------------------------

Net loss per common share is calculated by dividing the net loss by the weighted
average  number of common shares  outstanding.  Preferred  stock  dividends,  of
$3,117,400  in 1996 and  $58,400  in 1995,  have been  included  in the net loss
attributable  to common  shareholders.  The effect of the warrants,  options and
convertible  preferred  stock for the year ended September 30, 1996 and the year
ended  September 30, 1995 have not been included in the  computation of net loss
per common share, as the effect of their inclusion would be anti-dilutive.

Going Concern Consideration
---------------------------

Since  inception,  the  Company  has  incurred  substantial  losses  and,  as of
September 30, 1996,  has an  accumulated  deficit of  $30,221,374  and a working
capital  deficiency of  $10,761,404.  The Company  commenced  revenue  producing
operations in October 1991. A significant amount of the Company's  officers' and
directors' time has been spent in various financing  activities  including,  but
not limited to, raising private placement funds and seeking new acquisitions.

Subsequent  to year end,  the  Company  began  negotiations  for the  receipt of
additional private placement funds and has raised  $17,551,000  through the sale
of its preferred  stock,  a portion of which,  $10,409,000,  was used to acquire
treasury  shares.  The  Company  also  exercised  its  option to redeem  certain
preferred  shares,  and certain shares issued in connection with the acquisition
(see Note L - Subsequent  Events).  The Company  continues to be responsible for
dividend payments of approximately $600,000 per month pursuant to an acquisition
agreement described in Note B.







                                      F-16


<PAGE>




                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
         ------------------------------------------------------

Going Concern Consideration (Continued)
---------------------------------------

The Company plans to achieve  profitable  operations  through its newly acquired
long-distance  telephone service provider (See Note B). In addition, the Company
has made two acquisitions since September 30, 1996 which the Company anticipates
will  increase  profitability.  (See  Note  B.)  Management  believes  that  the
acquisitions  and other  activities,  coupled  with the cost cutting and revenue
raising  program  instituted  by its real estate  subsidiary,  should  result in
significant improvements in the future.

There can be no assurance that funding will be completed,  if the newly acquired
entities will be profitable,  the cost cutting and revenue raising programs will
be effective, or if the Company will not receive further claims similar to those
referred to in Note C, items 5) through 10), all of which are  necessary to meet
the Company's obligations over the next year.

NOTE B - ACQUISITIONS
---------------------

On November  21,  1995,  RESN  entered  into an agreement to purchase all of the
voting stock of U.S. Mortgage Network Corp., a Florida corporation  ("USM"), and
upon  consummation  of that agreement,  USM became a wholly-owned  subsidiary of
RESN.  At the time of the stock  purchase,  USM  conducted  a  mortgage  banking
business and was involved in the  origination,  purchase and sale of residential
mortgage  loans.  On March  14,  1996,  the  Company  and RESN  entered  into an
agreement  with  USM and its  principal  stockholders  pursuant  to  which  RESN
rescinded the stock  purchase  agreement and returned the voting stock of USM to
the  principals  of  USM.  Following  the  consummation  of the  stock  purchase
agreement  and  prior to the  consummation  of the  rescission  agreement,  upon
information  and belief,  USM allegedly  originated and sold defective  mortgage
loans,  violated federal laws relating to the origination of mortgage loans, and
converted  third  party  funds and trust  funds for its benefit or the direct or
indirect benefit of its principals. From time to time, the Company and RESN have
been contacted by third parties regarding such parties'  relationships with USM,
and in some instances, the Company and RESN have been threatened with litigation
as a result of their prior  indirect  and direct  ownership of the stock of USM.
Accordingly,  the Company has made certain settlements and issued notes to three





                                      F-17



<PAGE>



                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996

NOTE B - ACQUISITIONS (Continued)
         ------------------------

financial  institutions for possible losses in the amount of $191,141, and other
incurred losses of approximately  $448,000,  which includes  $300,000 of working
capital advances to USM. (See Note G - Debt)

In July 1996,  the company  acquired all of the shares of The  Financial  Group,
Inc.,  a recently  formed  entity in the  business  of  originating  and selling
residential  mortgage loans.  The purchase price of  approximately  $100,000 was
charged to goodwill.

On December  21,  1995,  the Company and Global  RE.,  LTD  consummated  a stock
purchase and exchange agreement,  ("Agreement") subject to certain due diligence
procedures  pursuant  to which the  Company  acquired  all the  common  stock of
American Indemnity Company Limited ("AIC") in exchange for 233,333 shares of the
Company's  newly  authorized  Series G Voting  Convertible  Preferred Stock (the
"Preferred  Stock") and  options to purchase a total of 44,444  shares of Common
Stock of the Company.  On April 6, 1996, the purchase and exchange agreement was
closed out of escrow,  and 155,556  restricted  shares of the  Company's  Common
Stock were issued in conversion of the preferred stock. Thereafter,  on June 11,
1996, the company,  Global RE., Ltd. and AIC entered into an agreement  pursuant
to which the Company  exchanged with Global RE., Ltd. its capital stock interest
in AIC in return for the Company's securities previously received by Global RE.,
Ltd. as part of the  acquisition  of AIC by the Company in December  1995.  This
separation  was based on the  determination  by  respective  managements  of the
incompatibilities  of operations and  limitation of the Company's  management to
exercise sufficient oversight of AIC's officers. In addition, the parties agreed
to exchange reciprocal options to purchase 200,000 shares of Common Stock of the
Company  and  3,000,000  shares of capital  stock of AIC in  addition to certain
supplemental  rights.  At  June  30,  1996,  the  Company  had  cancelled  these
previously outstanding shares. The Company has incurred losses based on advances
relating to this aborted acquisition in the amount of $110,793.

On  June  12,  1996,   the  Company   consummated   an  Agreement  and  Plan  of
Reorganization  dated May 28, 1996 for the acquisition of all of the outstanding
capital  stock of Total  National  Telecommunications,  Inc.  (d/b/a Total World
Telecom).  Pursuant to the terms of the stock exchange,  the shareholders of TWT
received  shares of newly created  Series M and Series N preferred  stock of the
Company  which are  convertible  into  1,983,333  shares of Common  Stock of the
Company. The Series M and Series N Preferred Stock,  established pursuant to the
exchange,  carry a cumulative  dividend of 2.7% per month of the stated value of
the preferred  stock which the Company is required to pay until such time as the



                                      F-18



<PAGE>




                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996

NOTE B - ACQUISITIONS (Continued)
         ------------------------
  
Company's  Registration  Statement (after which the former TWT shareholders have
agreed not to sell more than 5% of their shares per month) relating to resale of
certain of the shares of Common Stock  underlying the Series of Preferred  Stock
is registered  under the  Securities  Act of 1933. At the time the Agreement and
Plan of Reorganization was consummated on June 12, 1996, the Company also issued
35,000  shares of Series O Preferred  Stock for employee  compensation  for past
service costs which are  convertible  into 233,333 shares of Common Stock of the
Company.  The Company  also issued  267,501  shares of Series P Preferred  Stock
convertible into 1,188,889 shares of Common Stock representing  shares issued in
connection with future services.  Certain consultants received 250,000 shares of
Series Q Preferred Stock which are convertible  into 1,111,109  shares of Common
Stock of the Company. Such shares have been valued at the fair market value less
$2,625,000  (redemption  referred  to in Note K) which has been  accrued  and is
included in current liabilities,  and have been charged (except for Series O and
P),  to the  cost of the  acquisition.  The  Series  O,  Series  P and  Series Q
Preferred Stock have no registration rights. During the year ended September 30,
1996, the Company paid  $3,059,000 in cash dividends  pursuant to the agreement.
The Company has continued to pay dividends subsequent to September 30, 1996.

The acquisition costs consisted of the following:

  Series M Preferred Stock (231,000 shares)(a)                 $20,296,500
  Series N Preferred Stock (66,500 shares)(a)                    6,583,500
  Series O Preferred Stock (35,000 shares)(a)                    3,465,000
  Series Q Preferred Stock (250,000 shares)(b)                   4,333,325
                                                               -----------   
     Purchase Price                                            $34,678,325
     Liabilities in excess of net assets acquired                7,257,630
                                                               -----------
     Excess purchase price over
       net liabilities (goodwill)                              $41,935,955
                                                               ===========

(a)   Based on the  guaranteed  registration  rights  including the 2.7% monthly
      dividend to the M and N shareholders, the shares have been valued assuming
      conversion at the quoted market price.
(b)   Represents  the fair  value of  preferred  stock  issued  to  consultants,
      including  20,000  shares to the TWT  President,  in  connection  with the
      acquisition assuming conversion into restricted common shares. Such shares
      were  originally  convertible  into  common  shares  based on  performance
      criteria. The performance criteria was waived in September 1996 and the
      preferred shares were converted to common. The valuation at the fair value
      was based on the date the performance criteria was waived.


                                      F-19



<PAGE>




                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996

NOTE B - ACQUISITIONS (Continued)
         ------------------------

In connection with this transaction, the Company issued 267,501 shares of Series
P Preferred  Stock for future  services of which 100,000 have not been allocated
and are held in trust by TWT's president. Such shares were allocated in December
1996, and there will be a charge to operations during the quarter ended December
31, 1996,  based on the then quoted  market price of converted  common shares in
accordance with FASB 123. The remaining 167,501 preferred shares issued to TWT's
president  have  been  valued  assuming  conversion  at the  fair  market  value
($5,526,048),  and the deferred  compensation has been treated as a reduction of
stockholders'   equity  and  is  being   amortized  over  a  five-year   period.
Amortization charged to operations in 1996 aggregated $322,356.

The  acquisition has been accounted for using the purchase method of accounting,
and  accordingly,  the purchase price has been allocated to the assets purchased
and  the  liabilities  assumed  based  upon  the  fair  values  at the  date  of
acquisition  which  approximated the historical cost. The excess of the purchase
price over the fair values of the net assets  acquired was  $41,935,955  and has
been  recorded as goodwill,  which is being  amortized on a straight  line basis
over 15 years. The amount of goodwill  amortization  related to this transaction
for the year ended September 30, 1996 was $731,163.

The following are the net liabilities acquired:

      Notes payable                       $(9,132,605)
      Accounts payable and
       other liabilities                   (8,635,694)
      Current Assets
       primarily receivables                6,951,579
      Fixed Assets                          3,559,090
                                          ------------

                                          $(7,257,630)
                                          ============

The following  unaudited pro forma information for the years ended September 30,
1996 and September 30, 1995 have been prepared to reflect the acquisition of TWT
as if it had occurred on October 1, 1994.  The pro forma  financial  information
set forth below is unaudited and not necessarily  indicative of the results that
would actually have occurred if the transactions had been consummated as of that
date or the results which may be obtained in the future.







                                      F-20


<PAGE>




                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996


NOTE B - ACQUISITIONS (Continued)
         ------------------------

                                     Year Ended September 30,
                                   ---------------------------       
                                        1996          1995
                                        ----          ----

Net revenues                       $ 59,672,873    $31,328,628
Net loss                           $(18,185,457)   $(7,748,490)
Net loss per common share          $      (7.67)   $     (8.55)

(a)   The net loss gives effect to the amortization of goodwill and  a charge to
      operations in connection  with Series P Preferred Stock for past services.
      The net  loss  per  common  share  gives  effect  to the  preferred  stock
      dividends  for the  Series  M and  Series  N in each of the  periods.  The
      calculation  of net loss per  common  share  does not give  effect for the
      conversion of preferred shares to common as such conversion would be anti-
      dilutive.


NOTE C - INVESTMENT IN MORTGAGES HELD FOR RESALE
         ---------------------------------------
 
In  connection  with  the  aborted   acquisition  of  U.S.  Mortgage  (see  Note
B-Acquisitions),  the Company  acquired single family mortgage loans  receivable
collateralized  by the  underlying  property as a result of assuming a liability
for mortgage  warehousing notes payable with a bank. The Company recorded losses
of $148,000 based on the difference between the receivable and payable. Balances
at  September  30,  1996 of  these  receivables  and  the  warehouse  line  were
$7,442,485 and $7,423,381,  respectively,  and includes accounts from and due an
employee in the approximate amount of $450,000. The Company has a warehouse line
commitment of $12,000,000.

The Company is also the guarantor of debt aggregating  approximately  $1,300,000
which is collateralized by mortgages  receivable.  The Company is responsible if
there  is a  default  in  the  payment,  and  it is  determined  that  the  loan
origination   applications  and  documents  were  fraudulent.   The  Company  is
negotiating for additional mortgages which may have to be assumed;  however, the
Company  believes it can prepare  these  mortgages  for resale at which time the
Company expects to be relieved of its guarantee.







                                      F-21


<PAGE>

                     TOTAL WORLD TELECOMMUNICATIONS, INC.
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              September 30, 1996


NOTE D - PROPERTY, PLANT AND EQUIPMENT
         -----------------------------

The following is a summary of plant and  equipment,  at cost,  less  accumulated
depreciation and amortization at September 30, 1996:

     Building and fixtures                      $1,057,556
     Furniture and fixtures                        500,492
     Equipment                                   5,126,010
     Leasehold improvements                        332,428
                                                ----------
                                                 7,016,486
     Less:  accumulated depreciation             2,092,897
                                                ----------

          Total                                 $4,923,589
                                                ==========

The  following  is a summary  of  property  and  plant,  held for  resale,  less
accumulated depreciation at September 30, 1996:

     Land - Eau Gallie (b)                      $2,702,586
     Land - Mount Vernon (a)                       453,121
     Building - Mount Vernon (a)                 3,750,671
                                                ----------
                                                 6,906,378
     Less:  accumulated depreciation (a)           726,624
                                                ----------
          Total                                 $6,179,754
                                                ==========

(a)   While the Company  negotiates with potential  buyers of the property,  the
      Mount Vernon commercial building is being leased.  Leases are generally on
      a month-to-month  basis.  Rental income of $292,858 was recognized for the
      year ended  September 30, 1996,  and $237,138 was  recognized for the year
      ended September 30, 1995 in the  accompanying  consolidated  statements of
      loss. Future minimum rental income on noncancellable operating leases that
      are not on a month-to- month basis is as follows:

          Year                                   Amount
          ----                                   ------

          1997                                  $132,400
          1998                                    65,400
          1999                                    65,400
          2000                                    65,400
          2001                                    65,400
                                                --------
                                                $394,000
                                                ========

                                      F-22


<PAGE>




                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996


NOTE D - PROPERTY, PLANT AND EQUIPMENT (Continued)
         -----------------------------------------

      Depreciation  expense for the years ended September 30, 1996 and September
      30, 1995 amounted to $500,409 and $256,394, respectively.

(b)   During  fiscal 1996,  RESN  acquired  29.63 acres of  undeveloped  land in
      Melbourne,  Florida.  Currently,the  property is zoned for commercial use.
      The property was acquired from a stockholder who had previously  purchased
      the property from Mr. D.E. Loveridge,  Trustee.  Mr. D.E. Loveridge is the
      father of Messrs. John and C. Denning Loveridge, directors of the Company.
      The  purchase  price of  $2,702,586  was paid by the  issuance  of 294,932
      shares of the Company's Common Stock and the assumption of a $707,450 note
      payable to the Florida Conference of the Seventh Day Adventists.  The note
      provides  for payment of interest  only at 9 1/2% and matures at May 2001.
      Through a joint venture, RESN plans to develop the land for commercial use
      and eventual sale.

NOTE E - INCOME TAXES
         ------------
  
To date,  the Company has  incurred tax  operating  losses and,  therefore,  has
generated no income tax  liabilities.  As of September 30, 1996, the Company has
generated net operating loss carryforwards totalling  approximately  $27,144,000
which are available to offset future taxable  income,  if any,  through 2011. As
the  utilization of such an operating loss for tax purposes is not assured,  the
deferred  tax asset has been fully  reserved  through  the  recording  of a 100%
valuation allowance.

These  operating  losses  may be limited  to the  extent an  "ownership  change"
occurs. (See Note K.)

Included in the $27,144,000 net operating loss carryforwards indicated above are
approximately  $700,000 of carryforwards of the acquired  subsidiary,  RESN (see
Note A), and  $3,500,000 of the acquired  subsidiary  TWT,  which are subject to
annual  limitations of  approximately  $120,000 for RESN and $2,400,000 for TWT,
respectively  due to  changes in  ownership.  This  portion of the  carryforward
losses may only be utilized towards taxable income of the acquired entities.  To
the extent the Company realizes income tax benefits of pre-acquisition operating
loss   carryforwards,   a  prior  period  adjustment  to  goodwill  and  related
amortization will be reported.

                                      F-23



<PAGE>

                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996


NOTE E - INCOME TAXES (Continued)
         ------------------------

The net operating loss carryforwards are scheduled to expire as follows:

     Expiration Date
     ---------------

          2005                                  $   587,000
          2006                                    1,500,000
          2007                                    1,800,000
          2008                                    3,200,000
          2009                                    6,000,000
          2010                                    4,677,000
          2011                                    9,380,000
                                                -----------
                                                $27,144,000
                                                ===========

The  components  of the net  deferred  assets as of  September  30,  1996 are as
follows:

     Deferred Tax Asset
          Depreciation and Amortization         $    50,270
          Provisions for obligations and
          contingencies to be settled
          in future periods                         530,000
          Other                                      54,000
          Net operating loss carryforward         9,500,400
                                                -----------
                                                $10,134,670

     Valuation allowance                        (10,134,670)
                                                -----------
     Net deferred tax                           $    -
                                                ===========

                                            1996          1995
                                            ----          ----
     U.S. Federal statutory rate
       of tax                                34%           34%
     State Income Taxes                       -             -
     Operating losses with no
       current tax benefit                  (34)          (34)
                                           -----         -----

     Effective Tax Rate                      0%            0%
                                           =====         ====



                                      F-24


<PAGE>

                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996


NOTE F - RELATED PARTY TRANSACTIONS
         --------------------------

(a)   Due from Employees and Related Parties include the following  representing
      advances made by the Company:

          Advances to employees (net of
            allowance of $6,000)                $  162,126
          Due from N'Touch (See Note L)             80,000
          Due from TRI (See Note L)                 25,000
          Due from Director (d)                    127,645
                                                ----------
                                                   394,771
          Due from Heartline, Inc.                 567,869
                                                ----------
                                                $  962,640
                                                ==========

      Heartline,  Inc. is a billing and collection agency for all amounts billed
      through Southwestern Bell.  Heartline,  Inc. is solely owned by the father
      of the  President of the Company.  As of September  30, 1996, a balance of
      $567,869 was due from Heartline, Inc. representing billing services. Total
      billing revenue totalled $1,254,838.  During the period, the related party
      earned  commissions  of  $21,257.  Advances  do not incur any  interest or
      finance charges.

(b)   "Due to Stockholders" includes the following at September 30, 1996:

          Advances to fund operations from the
            the Company's chairman/stockholder,
            due on demand, bearing interest
            at 10.75%                           $    20,000

          Due to other related parties               22,421
                                                ----------- 
                                                $    42,421
                                                ===========

(c)   Included in  Accrued Expenses and Other Liabilities is $168,000 represent-
      ing  preferred dividends payable to the Company President's Related Family
      Trusts.

(d)   See Note D relating to land purchase from a Director.

(e)   See Note C for mortgages held for resale.

(f)   Included  in  other  non-current   assets  is  a  $450,000  advance  to  a
      shareholder relating to future equity funding.




                                      F-25

<PAGE>

                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996

NOTE F - RELATED PARTY TRANSACTIONS (Continued)
         --------------------------------------

The following is a detail schedule of  transactions  with respect to advances to
fund  operations  from the  Company's  chairman/stockholder  for the year  ended
September 30, 1996 and 1995:

                                     1996            1995
                                     ----            ----

     Beginning balance            $  467,940      $  525,541
     Accrued interest                 33,360          45,052
     Advances to Company             139,798         140,000
     Accrued salary and bonus         47,916          72,520
     Reimbursement by Company of
       stockholder costs            (261,514)        (86,040)
     Payments to stockholder        (407,500)       (229,133)
                                  ----------      ---------- 
     Ending balance,
       September 30, 1996         $   20,000      $  467,940
                                  ==========      ==========

In 1992, the Company  entered into an agreement with a professional  corporation
and its  principals,  who are also  stockholders  of the Company,  providing for
payment to the Company in  exchange  for the  referral  of services  outside the
Company's  scope of  practice.  This  agreement  was  cancelled,  and a  portion
($17,000) of a $150,000  advance was repaid,  which the  stockholder  assumed in
1993,  leaving a balance of $133,000 at  September  30, 1995.  Interest  expense
incurred  with the  above-related  parties was $33,360 and $45,053 for the years
ended September 30, 1996 and 1995, respectively.

NOTE G - DEBT
         ----

Debt consists of the following at September 30, 1996:

   Advanced payment liability (a)               $ 4,301,269

   Note payable to a trust due June 30,
     1996, bearing interest at 10% with
     a further option to extend the
     maturity to December 31, 1996,
     bearing interest at 15% and is
     convertible into 25,500 shares of
     the Company's common stock (a)                 956,250

   Mortgage payable at 11% due in
     installments of principal and
     interest of $3,573.04 through
     March 18, 1999, collateralized
     by first mortgage on condominium
     building (b)                                   329,475

                                      F-26

<PAGE>

                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996


NOTE G - DEBT (Continued)
         ----------------

   Note payable to third party at 9 3/4%
     due in installments of interest only
     of $5,748.04 through April 1, 2001
     on which date the entire principal
     balance shall be due                           707,450

   Bank installment note at 10% due in
     installments of principal and
     interest of $9,659 through December
     11, 2001, collateralized by
     land and building held for sale                477,755

   Note payable to three banks in
     connection with the U.S. Mortgage
     acquisition.  See Notes B and C.               191,141
                                                -----------
                                                  6,963,340
   Less: current portion                         (5,526,664)
                                                -----------

                                                $ 1,436,676
                                                ===========

At September 30, 1996,  principal  payments  required during the next five years
and thereafter are as follows:

     For the Year Ended
        September 30,                             Amount

            1997                                $ 5,574,895
            1998                                    123,876
            1999                                    322,688
            2000                                     91,000
            2001                                    729,950
            Thereafter                              120,931
                                                -----------

                                                $ 6,963,340
                                                ===========

(a)   Advanced Payment Liability
      --------------------------

      The Company has entered into a billing and management  services  agreement
      that  provides  for the Company  processing  services  for the billing and
      collection of the Company's  qualified  telecommunications  services.  The
      provider has also entered into an advanced payment  agreement  whereby the

                                      F-27


<PAGE>
                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996


NOTE G - DEBT (Continued)
         ----------------

      Company  amount they  processed  net of services  charged and fees will be
      assigned and sold to them with  recourse.  Advances to the Company are 70%
      of eligible receivables, as defined. At September 30, 1996, $4,301,269 was
      outstanding pursuant to the credit line. The service charge (interest) for
      this credit line is 4% of the prime rate as defined.

      During  1995,  the Company  negotiated  an  agreement  with the two former
      owners  of RESN  (see  Note A) for the  termination  of  their  employment
      contracts. Such agreement provided for the renegotiation of a note payable
      in the amount of $956,250,  the purchase of an office condominium situated
      in Boca  Raton,  Florida  occupied  by a  wholly-owned  subsidiary  of the
      Company in exchange  for the issuance of 200,000 of the  Company's  shares
      valued at $66,010,  mortgages aggregating  $520,000,  $50,000 cash and the
      payment of $20,000 to each.


(b)   Capital Leases
      --------------
  
      The Company leases its computer,  telephone and switching  equipment under
      various  capital  leases  expiring  on  various  dates  through  2001.  At
      September 30, 1996, the gross amount of computer,  telephone and switching
      equipment  and related  accumulated  amortization  recorded  under capital
      leases were as follows:

     Switching equipment                        $ 3,153,023
     Computer                                       392,192
     Telephone                                      113,857
     Less: accumulated amortization              (1,252,697)
                                                ------------
                                                $ 2,406,375
                                                ===========

      Amortization  of  assets  held  under  capital  leases  is  included  with
      depreciation expense. At September 30, 1996, minimum future lease payments
      under capital leases and noncancelable operating leases were as follows:

     For the Year Ended
       September 30,
     ------------------

            1997                                  1,226,692
            1998                                    732,291
            1999                                    437,805
            2000                                     53,880
            2001                                      -
                                                  -----------
     Total minimum future lease payments        $ 2,450,668

                                      F-28


<PAGE>




                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996


NOTE G - DEBT (Continued)



     Less amount representing interest (at
        rates ranging from 9.0% to 14.5%)           252,488
                                                -----------
     Present value of net minimum capital
        lease payments                            2,198,180

     Less current installments of
        obligations under capital leases         (1,067,789)
                                                -----------
          Obligation under capital leases,
           excluding current installments       $ 1,130,391
                                                ===========

      The carrying value of capital leases approximates fair market value.

      The following is a summary of the aforementioned:

                          Total       Current     Long-Term
                          -----       -------     ---------

     Debt               $6,963,340   $5,526,664   $1,436,676
     Capitalized
       Leases            2,198,179    1,067,789    1,130,390
                        ----------   ----------   ----------

          Total         $9,161,519   $6,594,453   $2,567,066
                        ==========   ==========   ==========


NOTE H - ACCRUED EXPENSES AND OTHER LIABILITIES
         --------------------------------------

     Liability for settlements with
       government agencies (See Note I)         $ 1,515,000
     Preferred stock dividends payable
       (Note B)                                     750,200
     Marketing settlements payable (Note A)         732,000
     Taxes, other than income                       409,403
     Escrowed liabilities                           345,606
     Other liabilities                              116,225
                                                -----------
                                                $ 3,868,434
                                                ===========
                                      F-29


<PAGE>




                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996


NOTE I - CONTINGENCIES
         -------------

(1)   On February  2, 1995,  the  Company  was named as  defendant  in a lawsuit
      brought  in  Supreme  Court of the State of New York for the County of New
      York in a case styled MORGAN STANLEY & CO.  INCORPORATED V.  INTERNATIONAL
      STANDARDS GROUP, INC. Morgan Stanley & Co. Incorporated ("Morgan Stanley")
      was seeking to recover  purported  damages,  or, in the  alternative,  was
      seeking  rescission  relative to its purchase  from the Company of certain
      counterfeit  bonds  sold  to  Morgan  Stanley  by  the  Company  following
      affirmation  by Morgan Stanley that such bonds had been  authenticated  by
      Morgan Stanley.  Morgan Stanley sought judgment against the Company for an
      amount in excess of $3,870,000,  together with costs, predicated on counts
      of breach of warranty,  breach of contract,  unjust enrichment and mistake
      of fact.

      Thereafter,  the Company  initiated  litigation  against  Morgan  Stanley,
      Virginia de Cristoforo,  Robert Isbitts,  Administracion de Seguros,  S.A.
      ("de Seguros"),  Consorcio de Seguros Polaris, S.A. and Michael E. Zapetis
      in the United States District Court for the Southern  District of Florida.
      The suit claimed  federal and state  securities  law and common law fraud,
      negligence  and other  breaches  by the  parties  in  connection  with the
      issuance  of invalid  Bearer  Bank Bonds  purportedly  issued by the Banco
      Central de Venezuela in consideration for the acquisition of a controlling
      interest in the Company by de Seguros which  subsequently was rescinded by
      the Company.

      On October 29, 1996, the litigation was settled to the mutual satisfaction
      of the parties.  The terms of the settlement are not expected to adversely
      affect the Company's  operating  results for any fiscal year.  Pursuant to
      the agreement among the parties, the terms of the settlement are deemed to
      be confidential.  Included in the settlement,  however,  is a reduction of
      $1,500,000 in 1997 of the Credit Arising from Disputed Transactions.

(2)   On July 16, 1996,  the Company's  subsidiary  entered into an agreement to
      purchase all of the voting stock of The  Financial  Group ("TFG") from its
      shareholders  ("Shareholders"),  and upon  consummation of that agreement,
      TFG  became  a  wholly-owned  subsidiary  of the  Company.  At the time of
      purchase,  TFG conducted a mortgage  banking  business and was involved in







                                      F-30



<PAGE>




                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996


NOTE I - CONTINGENCIES (Continued)
         -------------------------

      the  origination,  purchase and sale of residential  mortgage  loans.  TFG
      presently continues to operate a mortgage banking business. As part of the
      stock  purchase  transaction,  TFG  entered  into an  agreement  with  the
      Shareholders  to  allow  them  to  operate  a  net  branch  and  originate
      residential  mortgage loans under TFG's regulatory licenses and approvals.
      On  December  17,  1996,  TFG  received  a  letter  from  counsel  to  the
      Shareholders    which   alleged    numerous    breaches,    defaults   and
      misrepresentations  by the  Company  in  connection  with  the net  branch
      operation.  The Shareholders have proposed a compromise  pursuant to which
      the Company would pay approximately $6,400 of accounting fees and computer
      conversion  costs  allegedly  incurred  by the  Shareholders,  waive prior
      advances to the Shareholders in the amount of approximately  $12,000,  and
      the parties would execute mutual releases of all  obligations  between the
      parties.  The Company disputes those allegations and intends to vigorously
      defend against these claims.

      On July 1, 1995, the Company executed a Convertible Promissory Note in the
      original  principal  amount of $956,250 (which included as a liability the
      Company's  balance  sheet) in favor of  Christian E.  Carlsen,  as Trustee
      under a Land Trust  Agreement dated  September 19, 1992  ("Carlsen").  The
      Carlsen Note matured on December 31, 1996, and remains unpaid.  On January
      6, 1997, the Company received written Notice of default from Carlsen as to
      the payment of principal and interest.  The Company is evaluating  certain
      of the circumstances  concerning the initial  incurrence of the obligation
      in connection  with the Company's 1994  acquisition  of Membership  Realty
      Limited, Inc. and expects to commence negotiations  concerning the Carlsen
      Note with Carlsen in the proximate future. (See Note A.) In the absence of
      settlement,  the  Company  expects  Carlsen to file suit to collect on the
      Carlsen Note.

(3)   On or about  October 2,  1996,  Jalmark  Realty,  Inc.,  an  involuntarily
      dissolved Florida  Corporation,  and Jalmark East Realty,  Inc., a Florida
      corporation,  filed a Complaint against the Company,  Real Estate Services
      Network  Holding  Corp.,  its  subsidiary and Mr.  Francesco  Morello,  an
      officer of the  latter.  The suit  relates to an alleged  breach of a 1995
      agreement pursuant to which RESN had allegedly agreed to purchase the real
      estate






                                      F-31



<PAGE>



                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996

NOTE I - CONTINGENCIES (Continued)
         -------------------------
  
      brokerage  business of Jalmark Realty,  Inc. for $250,000.  In addition to
      the breach of contract count, the Complaint alleges numerous other counts,
      including, but not limited to, for fraudulent misrepresentations, tortious
      interference  with business  relationship,  defamation  and  violations of
      Florida real estate laws. The Plaintiffs have alleged damages in excess of
      $15,000,  exclusive of interest and costs,  and have reserved the right to
      amend the Complaint to seek punitive damages.  The Defendants have filed a
      motion to dismiss  the  Complaint  for failure to state a cause of action.
      The motions to dismiss are set for hearing in early  February 1997. At the
      present time, no discovery has been conducted in this case.

(4)   A case was filed on January  11,  1996 by the  Addison  Terry  Company,  a
      business  brokering firm, against Total National  Telecommunications  Inc.
      (TNT).  The  plaintiff  claims in this lawsuit that it is owed a brokerage
      fee of $95,000 for the services it provided in  connection  with  possible
      financing for TNT. TNT signed a commitment  letter, but no final agreement
      was reached, and no financing was obtained. The plaintiff claims, however,
      that  it is  entitled  to its  brokerage  fee  due to the  signing  of the
      commitment  letter.  The plaintiff sues for the brokerage fee,  attorneys'
      fees, pre-judgment interest, post-judgment interest and costs of suit. TNT
      denies that the brokerage fee is owed and intends to defend itself against
      the plaintiff's  claim.  Further TNT has filed  counterclaims  against the
      plaintiff  asserting  causes of action for breach of  contract,  breach of
      fiduciary duty, negligence,  negligent  misrepresentation and violation of
      the Texas  Deceptive  Trade  Practices  Act.  TNT seeks to recover  actual
      damages in the total amount of $165,000,  exemplary damages,  pre-judgment
      and post-judgment interest, attorneys' fees and costs of suit. The case is
      currently in the discovery stage, and the parties have jointly moved for a
      continuance of the January 6, 1997 trial date.

The  following  matters  (items 5, 6, 7 and 8)  aggregating  $880,000  have been
charged to operations  during the year ended September 30, 1996 and are included
in accrued expenses and other liabilities.

(5)   On June 20, 1996, the Federal  Communications  Commission ("FCC") issued a
      Notice of Apparent Liability  proposing to assess a forfeiture against the
      Company in the amount of $200,000 for unauthorized conversion of five long
      distance customer accounts.







                                      F-32



<PAGE>




                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996

NOTE I - CONTINGENCIES (Continued)
         -------------------------
 
      The Company  filed a Response  with the FCC on July 29, 1996  arguing that
      the proposed  forfeiture amount be reduced.  While the FCC is presently in
      the process of reviewing the Company's Response,  the Company is exploring
      the  possibility of a settlement  with the FCC regarding  this matter.  At
      September  30,  1996,  the Company has accrued  $200,000  relating to this
      matter.

(6)   In July 1996, a civil action was filed against  Heartline  Communications,
      Inc. by the Attorney General in the State of New York.  Negotiations  have
      proceeded,  and it is estimated the monetary exposure in this matter to be
      approximately  $100,000,  which the Company has accrued at  September  30,
      1996.

(7)   In June 1996, a civil action was filed by the  Middlesex  County Office of
      Consumer  Affairs in New Jersey.  This has not been  consolidated  with an
      action by the Office of the Attorney  General of New Jersey.  Negotiations
      are ongoing in this,  and it is anticipated  that the monetary  settlement
      range here will be near $80,000, which has been accrued.

(8)   On August 30, 1996,  an  administrative  subpoena was issued by the Orange
      County  District   Attorney's   ("OCDA")  office  requesting   information
      regarding  the  marketing of  telecommunication  services in California by
      Heartline and TWT.  Although a formal  proceeding has not been instituted,
      the OCDA  asserts  that  Heartline/TWT  may  have  violated  Business  and
      Professions Code sections 17200 and 17500. These code sections provide for
      civil  penalties for unlawful and unfair  business  practices and false or
      misleading  advertising.  By letter  dated  December  11,  1996,  the OCDA
      demanded  in excess of  $1,000,000  in return  for  resolving  the  matter
      without  litigation.  Counsel  believes  the  OCDA's  demand  exceeds  any
      reasonable estimate of Heartline/TWT's  liability, and has been instructed
      by TWT to  vigorously  defend  the  Company  against  these  claims  while
      continuing  to explore a  reasonable  settlement.  The Company has charged
      operations for $500,000 which has been accrued at September 30, 1996.

(9)   On  April  10,  1996,   the   California   Public   Utilities   Commission
      ("Commission")   issued  an  Order  Instituting   Investigation  into  the
      operations of Heartline, Total National  Telecommunications,  Inc. ("TNT")
      d/b/a  Total World  Telecom  ("TWT") and their  affiliates  alleging  that
      Heartline/TWT  had  violated  regulations   governing  how  long  distance
      telephone  customers  are  switched  from  one  interexchange  carrier  to
      another.


                                      F-33



<PAGE>




                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996


NOTE I - CONTINGENCIES (Continued)
         -------------------------   

      On August 13, Heartline/TWT and Commission staff entered into a settlement
      agreement  to resolve  the  disputes  among them and to settle and forever
      dispose of all issues raised. The settlement agreement was approved by the
      Commission on December 9, 1996. Pursuant to the settlement agreement,  TWT
      is prohibited from offering retail long distance service in California for
      a period of forty months.  In addition,  TWT is required to pay $35,000 to
      the  Commission's  general fund and refund $20.00 to all  customers  whose
      long distance  telephone  service was allegedly  switched to TWT/Heartline
      without proper  authorization.  These  customers may also seek  additional
      restitution through arbitration.  While the exact amount of TWT's exposure
      as a result of the  settlement  agreement  is unknown  at this  time,  the
      Company has accrued $635,000 for this matter which adjusted the amounts of
      liabilities assumed during the TNT acquisition.

(10)  In June of 1996,  a Class  Action  Complaint  was  filed  in Cook  County,
      Illinois  against  Heartline   Communications,   Inc.  and  several  other
      defendants.  This action was  dismissed by the judge on November 26, 1996.
      The  plaintiffs  had until  December  24, 1996 to refile  their  petition;
      however, as of this date, Heartline has not been notified of any refiling.

The  Company  is  subject to various  regulations  of local,  state and  federal
governments and cannot determine if further claims similar to those described in
items (5) through  (10) will be made.  If other  charges  are made,  the Company
cannot  presently  determine the results of such charges which may include fines
and restrictions on its business.

See also Notes B and C for information relating to mortgages.

NOTE J - COMMITMENTS
         -----------

Lease Commitments
-----------------

The Company leases offices,  office equipment and autos under operating  leases.
The following  schedule  summarizes future minimum lease payments required under
noncancelable  operating leases entered into as of September 30, 1996. 







                                      F-34

<PAGE>




                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996


NOTE J - COMMITMENTS (Continued)
         -----------------------

               Year                          Amount
               ----                          ------

               1997                        $   814,000
               1998                            658,000
               1999                            413,000
               2000                            222,000
               2001                            154,000
               Thereafter                        -
                                           -----------

                                           $ 2,261,000
                                           ===========

Lease expense  amounted to  approximately  $218,000 for the year ended September
30, 1996 and $256,000 for the year ended September 30, 1995.

Most  of  the  Company's  leases  contain  renewal  options,  and  some  contain
escalation  clauses which require  payments of additional  rent to the extent of
increases in related  operating  costs.  One of the  Company's  leases  includes
certain rent  concessions and scheduled base rent increases over the term of the
lease.  The total amount of the base rent payments  before  concessions is being
charged to expense on the  straight-line  method over the term of the lease. The
Company  has  recorded a  deferred  liability  to  reflect  the excess of rental
expenses in excess of rental payments since the inception of the lease.

NOTE K - STOCKHOLDERS' EQUITY
         --------------------
  
Private Placements - Common Shares
----------------------------------

During 1995,  the Company sold 4,500 shares of its common stock for net proceeds
totalling $67,500.

During 1996 and 1995, the Company issued 385,229 and 43,333  restricted  shares,
respectively,  of its common stock  pursuant to  Regulation S as exempt from the
registration  provisions under the 1933 Securities Act and received net proceeds
of $1,851,368 and $277,500, respectively, as a result.


                                      F-35


<PAGE>




                     TOTAL WORLD TELECOMMUNICATIONS, INC.
                               AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              September 30, 1996


NOTE K - STOCKHOLDERS' EQUITY (Continued)
         --------------------------------

Private Placements - Preferred Shares
-------------------------------------

As of September  30,  1995,  the Company  received  proceeds of  $1,050,000  for
payment on a  promissory  note and  recorded the issuance of 1,050 shares of the
Company's  Series F  Convertible  Preferred  Stock.  The  Company  recorded  the
issuance  of the stock at its par  value.  On  December  2,  1995,  the  Company
converted the preferred stock and issued 190,000 shares of the Company's  common
stock. No additional Series F Preferred Shares were issued.

During the year ended September 30, 1996, the Company sold 170,900,  200,000 and
300,000 shares of Series H, I and J convertible  preferred stock,  respectively,
at $10.00 per share for aggregate net proceeds after  commissions of $4,875,803.
All of these  preferred  shares were  converted  into  894,089  shares of common
stock.

In 1996,  the Company sold  1,300,000  shares of Series K convertible  preferred
shares at $10.00  per share and  received  $10,363,340  net of  commissions  and
expenses of $2,636,660. During the year ended September 30, 1996, 422,700 shares
of the Series K shares were converted into 714,627 common shares.  Subsequent to
September  30,  1996,  an  additional  852,300  Series K  preferred  shares were
converted into 1,757,876  common shares.  At December 31, 1996,  25,000 Series K
preferred shares were outstanding and are convertible into 54,668 common shares.

These  preferred  shares were sold  pursuant to  Regulation S as exempt from the
registration provisions under the Securities Act of 1933.

See Note B for  information  related to the issuances of Series M, N, O, P and Q
shares of preferred  stock in connection  with the acquisition of Total National
Telecommunications.  Series  N, P and Q were  converted  into  2,743,331  common
shares.










                                      F-36


<PAGE>



                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996


NOTE K - STOCKHOLDERS' EQUITY (Continued)
         --------------------------------

The following  summarizes the various series of preferred shares  outstanding at
September 30, 1996:
                                                Number of
                                              Common Shares
                            Number of           Into Which
                        Preferred Shares        Convertible
                        ----------------      --------------

   Series A                   73,000               730,000
   Series K                  877,300             1,812,544
   Series M                  231,000             1,539,999
   Series O                   35,000               443,333
                           ---------             ---------
                           1,216,300             4,525,876
                           =========             =========

See Subsequent Events Note L for additional preferred stock offerings.


Other Stock Issuances
---------------------

In August and June 1995,  the Company  entered  into two  consulting  agreements
issuing as compensation  an aggregate of 66,667 shares of its restricted  common
stock. The Company calculated the compensation expense of $450,000 by taking the
fair  value  of the  restricted  shares  issued  on the  dates  of the  Board of
Directors   approved   such   agreements   and  recorded   $18,750  as  deferred
compensation. In determining such value, the Company took into consideration the
trading restrictions and the financial condition of the Company at the time.

In April and June 1995, the Company  entered into two 90-day  promissory  notes,
each in the amount of $345,000 and each  requiring  issuance of 13,333 shares of
the  Company's  common  stock.  During the year ended  September  30, 1995,  the
Company recorded  $163,480 of interest expense relating to the promissory notes,
calculated  by valuing the 26,666 shares at the time the  promissory  notes were
entered into and an additional 1,467 shares when the note became delinquent,  at
their fair value. In determining such value, the Company took into consideration
the trading restrictions and the financial condition of the Company at the time.
(See Note E.)






                                      F-37



<PAGE>

                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996

NOTE K - STOCKHOLDERS' EQUITY (Continued)
         -------------------------------- 

In June 1995, the Company purchased an office  condominium from the former owner
of MRL. (See Note E for further  disclosure.) As part of the  consideration  for
such  purchase,  the Company  issued 13,333  shares of the Company's  restricted
common stock.  The $66,010 value of the shares issued was  calculated by valuing
such shares based on the fair value at the date of purchase.

During 1996,  the Company  issued  162,367  common shares for various  financial
consulting  services.  Consulting  costs of $1,475,510 were charged based on the
fair  market  value of the  shares,  of which  $483,513  is  included in prepaid
expenses after  amortization of $71,702 and the remaining  amount is included in
operations during the year ended September 30, 1996. 1,667 shares were issued to
an officer for compensation,  and $14,500 was charged to operations based on the
quoted market value at the date of issuance.

As  described  in Note D, the Company  acquired  land in  exchange  for cash and
294,932 common  shares.  The shares have been valued at an estimated fair market
value of approximately $1,995,165.

Stock Options and Warrants
--------------------------

Stock Options
-------------

The Company  periodically  grants  stock  options to  directors,  employees  and
consultants.  The terms of the options  granted are  established by the Board of
Directors. Options granted pursuant to this program are as follows:

                                                       Option Price
                                 Number of Shares       Per Share
                                 ----------------       ---------

Outstanding-October 1, 1994         498,829 (a)      $ 7.50 - 38.40
  Granted - 1995                    233,333 (b)      $22.50 - 37.50
                                    -------
Outstanding-September 30, 1995      732,162
  Granted - Employees and
            Directors               521,333 (b)      $ 9.38 - 30.00
                                    -------

Outstanding-September 30, 1996    1,253,495
                                  =========

The option price  exceeded the market price at September  30, 1996.  All options
were granted at not less than the fair market value at date of grant. No options
have been exercised during the two years ended September 30, 1996.



                                      F-38


<PAGE>




                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996
_______________________

(a)   All grants outstanding  October 1, 1994 expire June 30, 1998 
(b)   All other options are usually exercisable over a five year period from the
date of grant unless employment is terminated.

Warrants
--------

All warrants previously granted have expired without exercise.

NOTE L - SUBSEQUENT EVENTS
         -----------------
 
Acquisitions
------------

On November 5, 1996, the Company  acquired 100 percent of the outstanding  stock
of  Southwestern  Telecom,  Inc.  ("SOW"),  San Antonio,  Texas, a "casual-user"
direct-dial  long distance  company.  The purchase price for the acquisition was
$1,023,765 in cash.  Southwestern  Telecom is expected to expand on a geographic
basis  where  TWT  already  has an  existing  network  to better  utilize  TWT's
origination and termination facilities.

On December  16,  1996,  the Company  completed  the  acquisition  of all of the
capital stock of NETTouch Communications,  Inc., Dallas, Texas ("NETTouch").  In
consideration   for  the   acquisition,   the  Company  paid  to  the  principal
shareholders of NETTouch,  $2,400,000 and issued a Common Stock Purchase Warrant
(the "Warrants") to acquire shares of Common Stock of the Company on or prior to
December  31,  2000 at an  exercise  price  of $7.75  per  share.  In  addition,
commencing  with the month ended  November 30, 1996, the Company is obligated to
make additional  payments to such  shareholders up to an aggregate of $4,800,000
based on NETTouch achieving  incremental revenues, as defined. The actual number
of Warrants to be received is predicated  on the level of revenues  periodically
obtained by NETTouch during the 1997 calendar year. The principal shareholder of
NETTouch was  Telecommunications  Resources,  Inc. ("TRI") also from Dallas, TX.
TRI is a software developer and provider of  telecommunications  platforms which
converge  technologies  and  telecommunications   services,  such  as  worldwide
long-distance,   voice  mail,  virtual  fax,  travel  card,  wireless  messaging
notification,   enhanced  "follow  me"  features,  conference  calling,  paging,
internet access, text-to-screen e-mail, website development and hosting, and the
convenience  of single 1- 800/888  numbers.  NETTouch  currently  markets  these
bundled  services under the brand name  "N'Touch."  Pursuant to the  acquisition
agreement,  N'Touch as a  wholly-owned  subsidiary  of the Company  will receive
licensing  rights to market TRI's future products and services to the home-based
business segment.



                                      F-39



<PAGE>



                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996


NOTE L - SUBSEQUENT EVENTS (Continued)
         -----------------------------

Other Events
------------

On December 9, 1996,  the Company  entered into a Note  Purchase  Agreement  and
Registration  Rights  Agreement  pursuant to which it issued its Promissory Note
(the "Note") in the amount of $8,000,000 to GFL Advantage Fund Limited, Curacao,
Netherlands  Antilles  ("GFL"),  and received gross proceeds of $8,000,000.  The
Note matures on December 9, 1998 and bears interest at the rate of 7 percent per
annum payable  quarterly  commencing  February 1, 1997.  The Note may be prepaid
prior to maturity without penalty or premium.  Payment of principal and interest
may be paid in Common Stock of the Company under certain conditions.

GFL has the right at any time  commencing on the earlier of March 7, 1997 or the
effective  date of the  Company's  registration  statement to be filed under the
Securities Act of 1933 to convert the principal  amount and interest into Common
Stock of the Company into increments of $50,000 or more, by the lower of (i) 75%
of the  applicable  closing  price  of  the  Company's  Common  Stock  prior  to
conversion or (ii) $8.10.  Such  percentage is subject to reduction in the event
the  Company  is unable to comply  with  specified  requirements  regarding  the
registration  of the  underlying  Common Stock under the  Securities Act of 1933
within the specified time period. The Company paid a finder's fee of $560,000 to
Wharton Capital Partners, Ltd. in connection with this transaction. The proceeds
of this financing were utilized in substantial  part to complete the acquisition
of NETTouch Communications, Inc., which was consummated on December 16, 1996.

Sales of Equity  Securities  Pursuant to Regulation S Under the  Securities  and
--------------------------------------------------------------------------------
Exchange Act
------------

The following  represents sales of various series of $.00001 par value preferred
stock, which are redeemable at the Company's option, at $10 per share subsequent
to  September  30,  1996 and  through  December  16,  1996,  however,  it is the
Company's  intention to redeem such shares before  conversion to common  shares.
Such redemptions are usually at a negotiated premium of 20-25% and are dependent
on future financings.







                                      F-40



<PAGE>




                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996

NOTE L - SUBSEQUENT EVENTS (Continued)
         -----------------------------

Sales of Equity Securities Pursuant  to  Regulation  S  Under the Securities and
--------------------------------------------------------------------------------
Exchange Act (Continued)
------------------------

(1)   On November  8, 1996,  the Company  issued  65,000  shares of its Series T
      Convertible Preferred Stock for $10.00 per share to four non-U.S. resident
      purchasers,  and received net proceeds of $5,703,500  after payment of the
      related finder's fee and expenses.  One-half of the shares are convertible
      into  Common  Stock of the Company at 75% of the closing bid price of such
      Common  Stock  following  45 days after  issuance,  and the  remaining  50
      percent  are  convertible  at 75% of the  closing  bid price 60 days after
      completion of the offering.

(2)   On November 18, 1996,  the Company  issued  56,200  shares of its Series U
      Convertible  Preferred  Stock to ten  non-U.S.  resident  purchasers,  and
      received net proceeds of $4,889,400  after payment of the related finder's
      fee and expenses.  Fifty percent of the shares are convertible into Common
      Stock of the Company 45 days after the  completion  of the offering at 75%
      of the closing bid price of the Common Stock, and the remaining 50 percent
      is convertible 60 days after completion of the offering also at 75% of the
      closing bid price prior to the date of conversion.

(3)   On November 19, 1996,  the Company  issued  46,250  shares of its Series W
      Convertible  Preferred  Stock  to ten  non-U.S.  resident  purchasers  and
      received net proceeds of $4,007,250  after payment of the related finder's
      fee and  expenses.  Of this amount,  15,416  shares are  convertible  into
      Common Stock of the Company 45 days after the  completion  of the offering
      at 75% of the closing  bid price of the Common  Stock,  and the  remaining
      shares are  convertible  60 days after  completion of the offering also at
      75% of the  closing  bid  price  prior  to the  date  of  conversion.  The
      conversion  price,  however,  may not  exceed  $12.00  for  those  holders
      converting  on or after 45 days,  and no more than $6.00 for those holders
      converting on or after 60 days following the completion of the offering.

(4)   On November 26, 1996,  the Company  issued  11,250  shares of its Series X
      Convertible  Preferred  Stock  to 15  non-U.S.  resident  purchasers,  and
      received net proceeds of $1,057,485 after payment of related finder's fees
      and  expenses.  Fifty  percent of the shares are  convertible  into Common
      Stock of the Company 60 days after the  completion  of the offering at 80%



                                      F-41



<PAGE>




                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996


NOTE L - SUBSEQUENT EVENTS (Continued)
         -----------------------------

Sales of Equity  Securities  Pursuant to Regulation S Under the  Securities  and
--------------------------------------------------------------------------------
Exchange Act (Continued)
------------------------

      of the closing bid price of the Common Stock prior to conversion,  and the
      remaining  50  percent is  convertible  90 days  after  completion  of the
      offering  also  at 80% of the  closing  bid  price  prior  to the  date of
      conversion. The conversion price, however, may not exceed $12.00.

(5)   On December 18, 1996,  the Company  issued  25,000  shares of its Series Y
      Convertible Preferred Stock to a non-U.S.  resident purchaser and received
      net proceeds of  $1,893,500  after  payment of related  finder's  fees and
      expenses. Fifty percent of the shares are convertible into Common Stock of
      the  Company 60 days after the  completion  of the  offering at 75% of the
      closing  bid  price  of the  Common  Stock  prior to  conversion,  and the
      remaining  50  percent is  convertible  90 days  after  completion  of the
      offering,  also at 75% of the  closing  bid  price  prior  to the  date of
      conversion.

      The  net   proceeds  of  these   transactions   aggregated   approximately
      $17,551,000.  All of the Series T, Series U, Series W, Series X and Series
      Y Preferred  Stock are subject to redemption by the Company prior to or at
      the time of conversion.  Based on negotiations with various holders of the
      aforementioned  Preferred  Stock  Series,  the  Company  anticipates  that
      various of such holders will retain such  Preferred  Stock or roll-over or
      exchange  such  Preferred  Stock for  alternative  Preferred  Stock Series
      providing similar or revised terms. The Company may in some circumstances,
      as determined by  management,  redeem  various  Preferred  Stock Series in
      accordance  with the terms of such series.  All of the purchasers  will be
      required  to submit a  separate  opinion  of  counsel  prior to removal of
      restrictive legends on their stock certificates.








                                      F-42



<PAGE>




                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996


NOTE L - SUBSEQUENT EVENTS (Continued)
         -----------------------------
  
Stock Repurchase
----------------

From October 1, 1996 through December 31, 1996, the Company instituted a program
to repurchase the Company's  common stock.  Repurchases  of 1,531,866  shares of
common stock were completed under this program at a total cost of  approximately
$10,409,330.

On  November 5, 1996,  the Company  redeemed  52,500  Series M preferred  shares
valued at $5,197,500 issued for the TNT acquisition (see Note B). The redemption
price was $2,625,000,  and accordingly,  the acquisition cost was reduced by the
difference between the original value and the redemption value of $2,572,500.


NOTE M - INDUSTRY SEGMENTS
         -----------------

In 1996 and 1995,  the  Company  operated  in three  business  and two  business
segments,  respectively: (1) auditing services to assist credit unions and their
supervisory  committees  in  performing  comprehensive  internal and  regulatory
compliance  audits;  (2) real  estate  brokerage  services  which  also  provide
mortgage organization and title services; and (3)  telecommunications  industry,
providing  origination  and termination  long distance  services to Tier III and
Tier IV switchless resellers through long-term contracts.

Income  (loss) from  operations  is total revenue less  operating  expenses.  On
determining operating profit for industry segments, the following items have not
been considered:  general corporate expenses and interest expense.  Identifiable
assets by segment  are those  assets that are used in the  Company's  operations
within that industry.  General corporate assets consist  principally of land and
building and intangible assets.

                                INDUSTRY SEGMENTS

                                                    Year Ended Sept. 30,
                                                    --------------------
                                                     1996           1995
                                                     ----           ----
  Sales:
     Telecommunications                         $ 15,814,779   $     -
     Audit Fees                                      835,168       778,515
     Real Estate Fees                              4,934,927     3,236,571
                                                ------------   -----------
                                                $ 21,584,874     4,015,086
                                                ============   ===========

                                      F-43

<PAGE>

                      TOTAL WORLD TELECOMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1996

NOTE M - INDUSTRY SEGMENTS (Continued)
         -----------------------------
 
                                                    Year Ended Sept. 30,
                                                    --------------------
                                                     1996           1995
                                                     ----           ----

Income (Loss) from Operations:
   Telecommunications                           $ (1,825,232)  $     -
   Audit Fees                                       (259,935)     (124,152)
   Real Estate Fees                               (1,385,470)     (429,090)
   Corporate                                      (6,882,917)   (4,272,560)
                                                -------------  ------------
                                                 (10,353,554)   (4,825,802)
   Other income                                      332,346       261 005
   Other expenses                                 (2,103,889)     (112,777)
                                                -------------  ------------

Loss before income taxes
    as reported on the accom-
    panying income statement                    $(12,125,097)  $(4,677,574)
                                                -------------  ------------
Identifiable Assets:
    Corporate                                   $ 46,946,891   $ 5,959,366
    Telecommunications                            13,430,620         -
    Audit services                                   250,042       132,761
    Real estate brokerage                         12,376,491     1,028,555
                                                  ----------   -----------

     General corporate assets                     73,004,044     7,120,682
                                                -------------  ------------
 Total assets as reported
    in the accompanying
    balance sheet                               $ 73,004,044   $ 7,120,682
                                                ============   ===========

  Capital Expenditures:
    Telecommunications                          $    114,046   $     -
    Audit Services                                    19,432         6,901
    Real Estate Brokerage                            519,884        33,493
    General Corporate Assets                            -           10,047
                                                ------------   -----------

  Total Capital Expenditures                    $    653,362   $    50,441
                                                =============  ===========

  Depreciation:
    Telecommunications                          $    195,238   $     -
    Audit Services                                       666        27,653
    Real Estate Brokerage                            138,381        84,004
    General Corporate Assets                         166,123       144,737
                                                -------------   ----------
                                             
       Total Depreciation                       $    500,408   $   256,394
                                                =============  ===========
                                            
                             

                                      F-44