UTG COMMUNICATIONS INTERNATIONAL INC



                              FILING TYPE:  10KSB
                              DESCRIPTION:  ANNUAL REPORT
                              FILING DATE:  JUL 14, 2000
                              PERIOD END:   MAR 31, 2000


            PRIMARY EXCHANGE: OVER THE COUNTER INCLUDES OTC AND OTCBB
            TICKER:           UTGC




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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB

(MARK ONE)

|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
      ACT OF 1934 (NO FEE REQUIRED)

For the fiscal year ended March 31, 2000

OR

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from ____________ to __________

Commission file number                                                  333-8305

                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                 (Name of small business issuer in its charter)

               Delaware                              13-3895294
               --------                              ----------
    (State or other jurisdiction of        (I.R.S. Employer Identification No.)
     incorporation or organization)

    Limmattalstrasse 10, Geroldswil,Switzerland             8954
    -------------------------------------------          ----------
      (Address of principal executive offices)           (Zip Code)

                   Issuer's telephone number: 01141-1-749-3103

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

                                      None

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

                                      None

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

Yes |X|   No |_|

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

The issuer's revenue for its most recent fiscal year (year ended March 31, 2000)
were $15,566,213.

The aggregate market value on June 30, 2000 of the voting stock held by
non-affiliates computed by reference to the last sale price on that date was
approximately $16,087,115. For purposes of this calculation only, all directors
and officers of the registrant and all holders of 5% or more of the Company's
Common Stock have been deemed to be affiliates of the Company. As of June 30,
2000, 4,404,014 shares of Common Stock, par value $.00001 per share, were
outstanding.




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Transitional Small Business Disclosure Format (check one):

YES |_|   NO |X|

PART I

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

UTG Communications International, Inc. (the "Company" or "UTG") is a
switch-based provider of quality private voice, fax and data management
telecommunication ("telecom") services in Switzerland, Belgium and the United
Kingdom. The Company provides such services at prices which are generally below
those of major telecom carriers. In addition, the Company has entered into
agreements with various international telecom carriers for the exchange of
traffic. Pursuant to these agreements, the Company resells telecom minutes at a
profit. The Company provides local support, round-the-clock customer service and
full network redundancy to its customers. Available services include system
design and installation as well as digital compression, fax transmission
compression, digital data services and wideband digital data services.

During the fiscal year ended March 31, 1999, the Company entered into a joint
venture with 8 individual distributors for the purpose of establishing a
distribution network for telecommunication cards in the United Kingdom. The
Company and its 8 distribution partners formed StarPoint Card Sales Ltd., a
Company organized under the laws of the United Kingdom ("StarPoint"). StarPoint
is located in London with the Company holding 51% of Starpoint's equity and the
Company's partners holding the remaining 49%. In addition, during the fiscal
year ended March 31, 1999, the Company formed StarGlobal Ltd., a wholly owned
subsidiary organized under the laws of the United Kingdom ("StarGlobal"), which
is intended to operate the Company's wholesale and carrier-to-carrier business.

In Switzerland, the Company successfully tested its credit card-based phone
Services. These tests indicated that our credit card based phone services are
fully operational. The Company's product is intended to enable a credit card
holder to use the credit card as a post-paid phonecard. As a result, users of
the Company's services will benefit from discounts for international and
national long distance telecommunications services compared to the rates being
offered by Swisscom and other major telecom service providers in Switzerland.
The Company has launched the product with a major retail chain in Switzerland
and is also currently preparing the full scale launch of this product with other
customers.

In order to be able to continue to provide its customers with state of the art
communication services and to benefit from the opportunities created by the
Internet, the Company has developed an Internet strategy. The Company has become
an Internet service provider taking advantage of the efficiencies created by its
existing switches and its access to the Internet backbone. The Company offers
these services and the related consulting and support services, to retail and
other Internet service providers in Europe. The Company intends to continue its
diversification, diversifying into e-commerce by operating Internet shopping
platforms for its telecommunications services and other retail industries,
including music, media and software distribution.

The Company deems an expansion into Internet-related services as a competitive
necessity in the markets in which it currently operates. The Company believes
that establishing an e-commerce business will provide an interesting supplement
to its conventional telecommunications services and its newly developed Internet
services offering the Company increased growth opportunities. The goal of the
Company's strategy is to acquire the necessary technology to offer
Internet-based telecommunications services, including Internet telephony.

The Company also intends to continue to expand its operations geographically
through local subsidiaries and joint ventures in other European countries as
business, market and regulatory conditions permit. The Company is currently
exploring opportunities in Germany and France. See "--Organization" and "Item 6.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."


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Both the competitive environment and the economic framework in which
international telecom companies operate are changing at a rapid pace. As a
result of the liberalization of telecom markets and technical improvements, the
Company is able to utilize the infrastructure provided by international telecom
carriers in connection with the services it offers. This allows the Company to
offer its customers access to the largest meshed fiber optic networks in Europe,
which includes more than 130 international points of presence ("POPs"). In
providing its services, the Company connects a customer's telephone installation
to the nearest Company-accessed POP by means of interconnection agreements with
the incumbent and other carriers in Switzerland and Belgium or through dedicated
lines. The customer's outgoing voice, fax and data transmissions are then
transported directly to the Company's switch facilities in the various
countries. The communications are then transferred directly from the Company's
switches into the international networks. All of this is achieved with speech
quality or connection speed comparable to that offered by the Company's
competitors, and with the customer dialing the international destination
directly, as it had done prior to becoming a customer. The Company is able to
provide its services at prices attractive to its customers due to, among other
things, volume discounts the Company has negotiated with carriers.

The Company's operations are, to a large extent, dependent on the Company's
ability to obtain additional financing. There can be no assurance that the
Company will obtain the financing necessary to support its plan of operation.
See "Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations."


ORGANIZATION

UTG was incorporated in the State of Delaware on April 17, 1996. UTG owns all of
the equity of Starfon Telecom Services AG (previously UTG Communications Holding
AG and UTG Telecom AG), a Swiss company with operations in Switzerland and
wholly-owned subsidiaries in Switzerland and Belgium.

On April 2, 1997, Starfon founded UTG Communications Hungary, Kft., a company
incorporated under the laws of Hungary, and on April 8, 1997, Starfon
consummated the purchase of its 49% interest in Tibesta Ltd. ("Tibesta") for a
purchase price of $10,551. On June 9, 1997, Metatel, a company wholly owned by
Tibesta, founded UTG Communications France S.A. ("UTG France"), a 94% owned
Company with an office located in Paris. Metatel's initial investment in UTG
France was 750,000 FRF or approximately $129,500 of which 49% was paid by the
Company. On October 7, 1997, the Company transferred its interests in UTG
Hungary and another subsidiary of the Company, UTG Poland , which in
management's opinion was immaterial to the Company's operations, to Mr. Fritz
Wolff, a former Chief Executive Officer and director of the Company in
connection with Mr. Wolff's resignation from his functions with the Company in
return for the assumption of all liabilities of such companies by Mr. Wolff. As
of September 30, 1997, the French companies had ceased their operations.

Effective as of December 1, 1997, and November 30, 1997, respectively, the
Company sold its subsidiaries, UTG (Network) Ltd., a company organized under the
laws of the United Kingdom ("UTG Network"), and UTG Communications (Europe) AG,
a corporation incorporated under the laws of Switzerland ("UTG Europe"), to
Portmann Trading SA, a corporation incorporated under the laws of Panama with
interests in the telecommunications and energy industries.

On July 28, 1998, the Company formed a new wholly-owned subsidiary, Telelines
International SA, a company organized under the laws of Panama ("Telelines").
Telelines is intended to be a sub-holding company for new subsidiaries of the
Company.

On November 18, 1998, StarPoint was incorporated in the United Kingdom as a
51%-owned subsidiary of Telelines. The remaining 49% interest in Starpoint is
owned by 8 distribution partners of the Company. StarPoint is distributing
different telephone card products in United Kingdom to about 1000 customers. In
exchange for their 49% interest in StarPoint, the 8 distributors contributed
their existing businesses and customer bases to StarPoint and agreed to work
exclusively for StarPoint for a minimum of 24 months. UTG has a three-year call
option to acquire its partners' 49% interest in StarPoint for cash and/or UTG
common stock. The exercise price is equal to the average of 8 times StarPoint's
EBIT and sales during the three months preceding the exercise of the option.



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The Company intends to distribute through StarPoint its own telephone cards and
other card services currently under development. In addition, the Company plans
to increase the estimated 3,500 of StarPoint's points of sales in the United
Kingdom and to expand into other areas if attractive opportunities arise. The
Company's management expects that StarPoint will have a positive impact on the
Company's
revenues and profit margin. The Company believes that as a result of StarPoint's
strong buying power, StarPoint should benefit from an increased margin on the
resales of the telephone card products previously sold by the 8 distributors.

On November 24, 1998, a 100%-owned subsidiary of Telelines, StarGlobal Ltd.
("StarGlobal"), was incorporated under the laws of Jersey, Channel Islands. It
is intended that StarGlobal will operate as the wholesale division and the
carrier-to-carrier business in the United Kingdom and Europe and is intended to
optimize the rate structure within the UTG group. It is further intended that
StarGlobal will buy fiber-optic lines to destinations, especially in Europe and
the United States. StarGlobal is currently able to handle traffic and create its
own products worth approximately $25 million per year beginning in 2000 with a
gross margin of about 5% to 8% depending on the products and the destinations.

Unless the context otherwise requires, all references herein to the "Company"
shall include UTG and its subsidiaries. UTG's principal executive offices are
located at Limmattalstrasse 10, 8954 Geroldswil, Switzerland, and its telephone
number is 01141-1-749-3103.

INDUSTRY

Growth and change in the telecom industry have been fueled by a number of
factors, including greater consumer demand, globalization of industry, increases
in international business travel, privatization of incumbent telephone
operators, and growth of computerized transmission of voice and data
information. These trends have sharply increased the use of, and reliance upon,
telecom services throughout the world. The Company believes that at the same
time, businesses and residential customers have encountered higher prices with
poorer quality and service which were, and in some cases still are,
characteristic of many incumbent telephone operators. Demand for improved
service has created opportunities for private industry to compete in the
international telecom market. Increased competition, in turn, has spurred a
broadening of products and services, and new technologies have contributed to
improved quality and increased transmission capacity and speed.

Consumer demand and competitive initiatives have also acted as a catalyst for
government deregulation, especially in developed countries. Deregulation began
in the United States in 1984 with the divestiture of AT&T and the spin-off of
the regional Bell operating companies. Equal access to customers followed
thereafter for all United States carriers. In Europe, deregulation began in the
United Kingdom with the privatization of British Telecom, also in 1984.
Deregulation spread to the rest of Europe with the adoption of the European
Union ("EU") "Directive on Competition in the Markets for Telecommunication
Services" in 1990. A series of subsequent EU directives, reports and actions
have resulted in substantial deregulation of the telecom industries in most EU
countries. Other governments have begun to allow competition for value-added and
selected other telecommunications services and features, including data and
facsimile services and certain restricted voice services. In February 1997, 69
countries, including the United States, Japan, Switzerland, South Africa and all
of the member states of the EU, entered into the World Trade Organization
Agreement with the goal of increasing competition among telecom providers in
such markets beginning in 1998. In many countries, however, the rate of change
and emergence of competition remains slow and the timing and extent of future
deregulation is uncertain.

Long distance telecom carriers can be differentiated by several defining
operational characteristics. One such defining characteristic distinguishes
between transmission facilities-based companies and non-transmission
facilities-based companies (resellers). Transmission facilities-based carriers,
such as AT&T, British Telecom and Swisscom, the Swiss incumbent carrier, own
their own long distance interexchange or transmission facilities and originate
and terminate calls through local exchange systems. Profitability for



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transmission facilities-based carriers is dependent not only upon their ability
to generate revenues but also upon their ability to manage complex networking
and transmission costs. All of the first- and most of the second-tier long
distance companies are transmission facilities-based carriers generally offer
service over broad geographic areas. Most transmission facilities-based carriers
in the third tier of the market offer their service only in a limited geographic
area. Some transmission facilities-based carriers contract with other
transmission facilities-based carriers to provide transmission where they have
geographic gaps in their facilities.

Resellers, such as the Company, carry their long distance traffic over
transmission lines leased from transmission facilities-based carriers, originate
and terminate calls through local exchange systems or "competitive access
providers" ("CAPs") and contract with transmission facilities-based carriers to
provide transmission of long distance traffic either on a fixed rate lease basis
or a call volume basis. Profitability for resellers is dependent largely on
their ability to generate on a continuing basis revenue volume which is
sufficient in size to permit them to negotiate attractive pricing with one or
more transmission facilities-based carriers.

A second operating characteristic differentiating telecom companies
distinguishes between switch-based and switchless telecom companies.
Switch-based telecom companies, such as the Company, own or lease one or more
switches, which are computers that direct telecom traffic to form a transmission
path between a caller and the recipient of a call. All transmission
facilities-based carriers are switch-based, as are many resellers, including the
Company. Switchless resellers depend on one or more transmission
facilities-based carriers or switch-based resellers for transmission and
switching facilities. The Company believes that owning its switches reduces its
reliance on other carriers and enables it to efficiently route telecom traffic
over the least-cost routes and to control costs and record data and customer
information.

The Company expects increasing competitive pressures from Internet-based
communication services and has developed a strategy to meet these challenges.
See "General" and "Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations."

SERVICES

The Company offers voice, fax and data transmission services in customized
packages designed to suit customers' needs. The Company's use of digital
compression technology allows the Company to lease fewer lines and offer reduced
calling tariffs. It is the Company's policy to provide all of its customers with
high-quality service, local support, round-the-clock customer service and full
network redundancy. Additionally, the Company's customers receive comprehensive
billing packages. The Company's standard monthly statement includes a management
summary report and a call detail report recording every long distance call.
Optional reports include call summaries by account code, area or city code,
international destination and time-of-day. This information is available to
customers in the form of hard copy, magnetic tape or disk.

The Company also offers credit card-based telephone services and Internet
services as an Internet Service Provider (including related consulting and
support services), and intends to operate Internet shopping platforms for its
telecommunications services and other industries, including music, media and
software distribution, and ultimately to provide Internet-based
telecommunications services, including Internet telephony.



BUSINESS STRATEGY

The Company's objective is to build a broad and profitable European market
presence and to further develop both its switch-based and facility -based
infrastructure. The Company believes that it is well-positioned to take
advantage of telecom deregulation in Switzerland and other countries in the EU.
The Company has positioned itself between major full service high-priced telecom
carriers and no-service cut-rate telecom minutes resellers. The Company believes
that it will retain and add customers who wish to save on their telecom expenses
and who demand a high level of service.



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The Company believes it enjoys certain competitive advantages over global
telecom carriers and incumbent telephone operators: (1) the Company believes
that its target customers make decisions primarily based on price, and the
Company's prices are generally lower than those charged by global telecoms and
incumbent telephone operators; (2) the small and medium-sized business market
has traditionally been ignored by the global telecoms and incumbent telephone
operators; (3) the Company believes it can continue to attract seasoned telecom
managers who seek the advantages offered by smaller companies; and (4) the
Company is able to move quickly into new markets with new telecom services, as
compared to larger organizations which are slower to respond to changing market
conditions.

In addition, the Company intends to benefit from the opportunities offered by
the Internet by taking advantage of the efficiencies created by its existing
switches and the Company's access to the Internet backbone. The Company believes
that it is a competitive necessity to become an Internet Service Provider in the
markets in which it operates. The Company also believes that the operation of
Internet sales platforms would enhance its ability to sell its
telecommunications services and permit the Company to supplement conventional
telecommunications services and its newly developed Internet services with a
business with high growth potential. Ultimately, it is the Company's goal to
provide Internet-based communication services, including Internet telephony.



SALES AND MARKETING

The Company primarily targets customers with between $1,000 and $25,000 of
monthly usage. The Company believes that, in addition to being price sensitive,
these customers tend to be focused on customer service and are more likely to
rely on one or two carriers for their telecom needs. The Company strives to be
more cost-effective and responsive to the needs of its customers than its major
competitors. Since January 1998, the Company's customers in Switzerland have
increased from approximately 110 to currently approximately 2000. In June 1997,
the Company consummated the purchase, for approximately $317,000, of Multicom
NV, a long distance reseller headquartered in Antwerp, Belgium with a base of
approximately 400 small and medium-sized business customers. Since then the
Company has increased the number of customers in Belgium to approximately 2500.
In Germany, the Company continues to explore opportunities to offer voice and
data telecom services, as well as telecom services for credit cards, debit cards
and customer cards. There can be no assurance that the Company's efforts in
Germany or any of the Company's other current or future plans and arrangements
will be successful. The Company's goal is to continue to expand its operations
into other European countries as and when business, market and regulatory
conditions permit.

The Company's principal sales offices are located in Switzerland, the United
Kingdom and Belgium. The Company markets its services through the Company's
internal sales force, independent sales agents and strategic arrangements. The
Company currently has a total of 20 internal sales personnel and approximately
110 independent sales agents. The Company established a new call center in
Switzerland which not only provides existing and potential Swiss customers with
responses to service related inquiries, but is also engaged in telemarketing
activities to generate leads for the Company's internal sales force and
independent sales agents.

The Company plans to market its newly developed credit card-based telephone
services together with one or more major Swiss retail chains. In addition, the
Company intends to operate Internet sales platforms and to market its
telecommunications and other products and services through such platforms.

No customer accounted for more than 5% of the Company's total revenue in the
fiscal year ended March 31, 2000.



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NETWORK

The Company's network consists of 4 switches located in Switzerland, 3
Company-owned POPs located in Belgium, 2 switches located in United Kingdom, and
leased access to major international telecom carriers' networks with over 100
POPs throughout Europe. The Company's switches route calls over networks owned
by international telecom carriers with whom the Company has entered into volume
discount contracts. The Company's switches include least-cost routing software
designed to route calls in the most efficient available manner. Direct dial
customers access the Company's network via direct access lines. Indirect dial
customers access the Company's network via local incumbent telephone operators.
During the fiscal year ended March 31, 1999, the interconnection with the
incumbent carrier, Swisscom, and other carriers became fully operational in
Switzerland. In Belgium, the Company is interconnected with the national
networks of various carriers. The Company entered into an interconnection
agreement with the incumbent carrier in the United Kingdom.


The Company generally utilizes network redundant, highly automated advanced
telecom equipment in its network and has diverse alternate routes available in
case of component or facility failure. Automatic traffic rerouting enables the
Company to provide a high level of reliability for its customers. Computerized
network monitoring equipment facilitates fast and accurate analysis and
resolution of network problems. The Company provides customer service and
support, 24-hour network monitoring, trouble reporting and response, service
implementation, coordination, billing assistance and problem resolution. The
Company controls all of its billing services through its switches.

Substantially all of the lines linking the Company's POPs to its switches are
leased from various providers and carriers. The Company believes that its
network has adequate switching capacity to serve the Company's present volume of
traffic. The Company believes, however, that its network may not have adequate
switching capacity to serve the Company's projected volume of traffic beyond the
remainder of calendar 1999. See "Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations."

INFORMATION SYSTEMS

The Company has invested substantial resources to implement sophisticated
information systems, which the Company believes are integral to being
competitive and to effectively managing its business. The Company plans to
continue to invest substantial capital and resources to enhance its information
systems. The Company's information systems enable it to provide high quality
customer service and customized billing information, to track sales, to provide
network security, to provide network trouble shooting, and to generate
administrative and marketing reports.


INTELLECTUAL PROPERTY

During the fiscal year ended March 31, 1999, the Company obtained trademark
protections in Switzerland for certain of the Company's trade names. In its
business, the Company relies on proprietary know-how and employs various methods
to protect its concepts and ideas. However, such methods may not afford complete
protection and there can be no assurance that others will not independently
develop such know-how, concepts or ideas or obtain access to the Company's
know-how or ideas.

REGULATORY MATTERS

The Company's provision of telecommunications services is subject to extensive
and rigorous government regulation by the European Union ("EU") and the national
regulatory authorities of Switzerland, Belgium, the United Kingdom and other
countries in which the Company may operate in the future. Each country in which
the Company conducts its business has a different regulatory scheme and
requirements. The Company believes that it is in substantial compliance with
applicable laws and regulations. To the extent that such laws and regulations
are changed or new laws or regulations are adopted by the EU or any country in
which the Company operates, the Company may be required to obtain additional
licenses or renew, modify or replace existing licenses. The Company has been
granted an International Simple Resale ("ISR") license in the United Kingdom.
The ISR license permits the Company to engage in the international resale of
telecom services. The Company has also received an International Facility
License ("IFL") from the United Kingdom Department of Trade and Industry. The
IFL permits the Company to own international facilities such as circuits,
thereby enabling the Company to gain a cost advantage by eliminating leased-line
charges.


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In the fiscal year ended March 31, 1999 the Swiss telecommunications regulatory
authority, Bacom, issued several licenses for various proprietary telephone
numbers and codes, including an International Signaling Point Code ("ISPC"),
which allows the Company's switches to be recognized by switches worldwide.

Failure to comply with applicable regulatory requirements can result in, among
other things, fines, suspensions of approvals, operating restrictions and
criminal prosecutions. Furthermore, changes in existing regulations or adoption
of new regulations could affect current regulatory approvals and affect the
timing of, or prevent the Company from obtaining, future regulatory approvals.
The effect of changes in governmental regulation may be to delay for a
considerable period of time, or to prevent, the marketing and commercialization
of products or services of the Company and/or to impose costly requirements on
the Company. There can be no assurance that additional regulations will not be
adopted or current regulations amended in such a manner as will materially
adversely affect the Company.

COMPETITION

The telecom industry is highly competitive and is significantly influenced by
the marketing and pricing decisions of competitors. In each of its markets, the
Company will compete primarily on the basis of price, quality of service, and
breadth of services offered. The telecom industry has relatively insignificant
barriers to entry, numerous entities competing for the same customers and a high
average churn rate, as customers frequently change long distance providers in
response to offers of lower rates or promotional incentives from competitors.
The industry has experienced and will continue to experience rapid regulatory
and technological change. Many competitors in each of the Company's current and
proposed markets are significantly larger than the Company, have substantially
greater resources than the Company, control transmission lines and larger
networks than the Company and may have long-standing relationships with the
Company's target customers.

The success of a non-transmission facilities-based carrier, such as the Company,
depends largely upon the amount of traffic that it can commit to the
transmission facilities-based carrier and the resulting volume discount it can
obtain. Subject to contract restrictions and customer brand loyalty, resellers
like the Company may competitively bid their traffic among other national long
distance carriers to gain improvement in the cost of service. The relationship
between resellers and the larger transmission facilities-based carriers is
twofold. First, a reseller is a customer of the services provided by the
transmission facilities-based carriers, and that customer relationship is
predicated primarily upon the pricing strategies of the first tier companies.
The reseller and the transmission facilities-based carriers are also
competitors. The reseller will attract customers to the extent that its pricing
for customers is generally more favorable than the pricing offered the same size
customers by larger transmission facilities-based carriers. Transmission
facilities-based carriers have been aggressive in developing discount plans
which have had the effect of reducing the rates they charge to customers whose
business is sought by the reseller. Thus the business success of a reseller is
significantly tied to the pricing policies established by the larger
transmission facilities-based carriers.

Currently, the Company's main competitors in Switzerland are Swisscom, which
controls almost all of the Swiss telecom market, Sunrise and Diax. In addition,
there are a number of smaller companies providing telecom services in
Switzerland. The Company's main competitors in Belgium are Belgacom, AT&T and
Orange and in the United Kingdom British Telecom, Mercury and AT&T. Additional
competitors in the European market include Viatel, Esprit, MCI WorldCom, Sprint
and Deutsche Telecom. There will be additional competition as the Company
expands into other European countries.



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In addition to these competitive factors, recent and pending telecom
deregulation in Switzerland and the EU markets may encourage new entrants. As
the Company expands its geographic coverage, it will encounter increased
competition. Moreover, the Company believes that competition in Europe is likely
to increase and become more similar to competition in the United States markets
over time as the European markets continue to experience deregulatory
influences. Prices in the long distance industry have declined from time to time
in recent years and, as competition increases in Europe, prices are likely to
continue to decrease. The Company's competitors may reduce rates or offer
incentives to existing and potential customers of the Company. To maintain its
competitive position, the Company believes that it must be able to reduce its
prices in order to meet reductions in rates by others.

The market to provide Internet-related services is also highly competitive and,
by virtue of its low barriers to entry, open to many entrants. The Company
expects significant competitive pressures on ISPs in certain European markets,
including Switzerland, because ISPs are no longer able to charge upfront access
fees as telecommunications carriers have commenced to provide Internet access to
their customers without monthly access charges.

Therefore, telecommunications carriers such as the Company with access to
switches and the Internet backbone are expected to gain a competitive advantage
over specialized ISPs which will depend on third-party telecommunications
carriers to provide them with access to such facilities. Conversely, customers
of telecommunication carriers will likely expect that a telecommunication
carrier can provide them with Internet access at no monthly access charges and
ultimately Internet based communication services, including Internet
telephoning.

To meet these competitive challenges, the Company has developed an Internet
strategy. See "--General" and "Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations."

INVESTMENTS AND STRATEGIC ALLIANCES

As the Company expands its service offerings, geographic focus and its network,
and enters into new lines of business, the Company anticipates that it will seek
to make investments in or enter into strategic alliances with, companies
providing services complementary to the Company's existing business. The
Company's ability to effect strategic alliances and make investments will, to a
large extent, be dependent upon its ability to obtain additional financing. See
"Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations." In connection with investments or strategic alliances, the
Company could incur substantial expenses, including the fees of financial
advisors, attorneys and accountants, and any expenses associated with
registering shares of the Company's capital stock, if such shares are issued.
The financial impact of such investments or strategic alliances could have a
material adverse effect on the Company's business, financial condition and
results of operations and could cause substantial fluctuations in the Company's
quarterly and yearly operating results.


RESEARCH AND DEVELOPMENT

During the fiscal year ended March 31, 2000 the Company has not expended
material amounts for research and development.



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ENVIRONMENTAL MATTERS

The Company is subject to various environmental laws and regulations in the
jurisdictions in which it operates, including those related to air emissions,
wastewater discharges, the handling and disposal of solid and hazardous wastes
and the remediation of contamination associated with the disposal of hazardous
substances. The Company leases properties in Switzerland, Belgium and the United
Kingdom and may have potential liability related to the remediation of past
contamination at sites where the Company presently is operating, or in the past
has operated, its business or related to the disposal of hazardous wastes to
sites owned by third parties. The Company has not incurred any material expenses
related to environmental matters. However, there can be no assurance that the
Company may not incur such expenses in the future. Accordingly, although the
Company believes that it is in substantial compliance with applicable
environmental requirements, it is possible that the Company could become subject
to environmental liabilities in the future that could result in an adverse
effect on the Company's financial condition or results of operations.


EMPLOYEES

As of June 30, 2000, the Company had 25 full-time employees in Switzerland, 19
full-time employees in the United Kingdom and 13 full-time employees in Belgium.
The Company has never experienced a work stoppage and its employees are not
represented by a labor union or covered by a collective bargaining agreement.
The Company considers its employee relations to be satisfactory.


CAUTIONARY STATEMENTS

This report has been prepared by the management of the Company based on its
knowledge and access to the Company's records to the extent such records have
been kept at the Company's premises in Switzerland, the United Kingdom and
Belgium, as well as records made available to the new management by the
Company's former secretary. Because the Company's new management was previously
not actively involved in the management of the Company, it is not in a position
to ascertain whether or not such records are complete or whether or not such
records disclose all material facts required to be disclosed in this report.
Accordingly, material facts with respect to the period covered by this report
may exist which are not disclosed herein because of management's current lack of
affirmative knowledge of such facts.

Investment in the Company's securities involves a high degree of risk. In
evaluating an investment in the Company's securities, Company stockholders and
prospective investors should carefully consider the risk factors discussed in
the Company's Registration Statement on Form SB-2, Registration No. 333-8305 and
the information detailed in this Form 10-K under "Item 1 - Business" and "Item 6
- Management's Discussion and Analysis of Financial Condition and Results of
Operations", as well as information contained in the Company's other filings
with the Securities and Exchange Commission.

Certain statements in this Report under Item 1 and Item 6 regarding the
Company's estimates, present view of future circumstances or events and
statements containing words such as "estimates," "anticipates," "intends" and
"expects" or words of similar import, constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995,
including, without limitation, statements regarding the Company's ability to
meet future working capital requirements and future cash requirements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance, or achievements expressed or implied by such
forward-looking statements. Forward-looking statements speak only as of their
dates. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information future events
or otherwise. Risk factors include, among others, delays in expanding the
Company's network; need for additional financing; failure to receive or delays
in receiving regulatory approval; general economic and business conditions;
industry capacity; industry trends; demographic changes; competition; material
costs and availability; the loss of any significant customers; changes in
business strategy or development plans; quality of management; availability,
terms and deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; changes in, or the failure to comply with,
government regulations including changes in industry regulations; and other
factors referenced in this Report. For a more detailed description of these and
other factors, see the section entitled "Risk Factors" in the Company's
Registration Statement on Form S-3, Registration No. 333-8305, which was
declared effective on June 11, 1999.



                                       10
<PAGE>


ITEM 2. PROPERTIES

The Company currently leases approximately 6,500 square feet in Zurich,
Switzerland for approximately CHF 7,000 (approximately $4,220) per month. The
lease expires on March 31, 2003. The Company's principal executive offices are
located in Geroldswil, Switzerland. At this location, the Company leases
approximately 2,000 square feet from a company where Mr. Ueli Ernst, the
Company's Chairman and Chief Executive Officer is a member of the Board of
Directors, for which the Company pays CHF 5,000 (approximately $3,010) per
month. The Company considers such rent to be at arm's length. The Company leases
approximately 5,000 square feet in Rotkreuz, Switzerland and pays CHF4,535
(approximately $2,730). The Company leases approximately 1,400 square feet in
Antwerp, Belgium at a monthly rental of approximately $814. This lease expired
on February 20, 2000, but the Company has continued to lease this space on a
month to month basis. Since January 1999, the Company has leased approximately
1200 square feet in London, Great Britain for approximately $5,345 per month.


ITEM 3. LEGAL PROCEEDINGS

On or about April 24, 1997, litigation against UTG Holding AG and other
individual defendants was commenced in labor court in Paris, France by Mr. James
Taylor. On May 25, 1998, the court rendered a judgment against the Company in
the amount of 488,187 French Francs (approximately $64,670) for breach of an
alleged employment arrangement. The Company has filed an appeal against this
judgment, which appeal is currently pending.

On January 5, 1998, the Company's former Chief Operating Officer, Keith Rhea,
without authorization of the Company's Board of Directors, confessed a judgment
against the Company in favor of the Company's former part-time Chief Financial
Officer, Robert Finn, in the amount of $111,710. The alleged basis for this
amount is outstanding compensation and termination fees for various alleged
consulting arrangements between the Company, Mr. Finn and Telepath, Ltd, a
company which the Company believes to be affiliated with Mr. Rhea. The Company
believes that such judgment was fraudulently obtained, and that all or part of
such claims are without merit. The Company is presently evaluating several
strategies, including the commencement of legal proceedings against one or more
of the persons involved in this matter.

On August 22, 1997, Discont-o-fon, a company which provided Multicom with
bandwidth prior to the Company's acquisition of Multicom, filed a claim with the
main court in Brussels, Belgium to collect BEF 8.409.393 (approximately
$233.500) claimed to be owing for traffic services provided by Multicom. A
settlement became effective on May 25, 1998 and an amount of BEF 4,935,000
($129,510) has been paid by the Company during the first quarter of the fiscal
year ending March 31, 1999 in full settlement of all outstanding matters.

On February 15, 2000 a former employee at Starfon Telecom Services AG filed a
claim for payment of back salary which the Company has held back as partial
payment of a loan issued by Starfon to such employee. This could eventually cost
the Company up to SFR 42,000 (approximately $25,300), the amount of the claim.


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

On November 15, 1999, the Company acquired a majority of the capital stock of
Musicline AG, a Swiss corporation ("Musicline"), pursuant to a Stock Purchase
Agreement, dated as of August 9, 1999 between the Company and Ueli Ernst, the
Company's Chairman and Chief Executive Officer, in consideration for 1,750,000
shares of the Company's common stock, the assignment to Mr. Ernst of a
receivables account in the principal amount of approximately $790,000, and, an
additional 350,000 shares of the Company's common stock if Musicline's net
profits reach at least $300,000 during the fiscal year ending March 31, 2000 or
March 31, 2001. At a stockholders meeting held on October 22, 1999, the
Company's stockholders other than Mr. Ernst or persons affiliated or associated
with him approved such stock purchase agreement by an affirmative vote of more
than two-thirds of the shares of common stock held by such stockholders. The
closing of this transaction occurred on November 15, 1999.


                                       11
<PAGE>



PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

Since October 7, 1996, shares of the Common Stock have traded on the NASD
Bulletin Board under the symbol "UTGC". The following table sets forth, for the
periods indicated and as reported by the NASD Bulletin Board, the high and low
bid prices for shares of the Common Stock. The quotations listed below reflect
inter dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions. The closing price of the Common Stock on June 30,
2000 was $11.00.



FISCAL YEAR ENDED MARCH 31, 1998 (l)         QUARTERLY COMMON STOCK PRICE RANGE
BY QUARTER
Quarter           Date                       High                     Low

1st               June 30, 1998              13.000                    5.000

2nd               September 30, 1998         13.500                    7.000

3rd               December 31, 1998           6.750                    3.000

4th               March 31, 1999              7.500                    6.000


FISCAL YEAR ENDED MARCH 31, 2000

Quarter            Date                      High                     Low

1st                June 30, 1999             7.500                     4.000

2nd                September 30, 1999        7.250                     3.500

3rd                December 31, 1999         7.000                     3.250

4th                March 31, 2000            9.000                     4.250


(1) All stock prices are adjusted by the 13:1 reverse split of the Common Stock
on March 20, 1998.

HOLDERS OF COMMON STOCK

Based upon information supplied to the Company by its transfer agent, the number
of stockholders of record of the Common Stock on March 31, 2000 was
approximately 400 shareholders.


DIVIDENDS

The Company has never paid cash dividends with respect to the Common Stock. The
Company intends to retain future earnings, if any, that may be generated from
the Company's operations to help finance the operations and expansion of the
Company and accordingly does not plan, for the foreseeable future, to pay
dividends to holders of the Common Stock. Any decision as to the future payment
of dividends on the Common Stock will depend on the results of operations and
financial position of the Company and such other factors as the Company's Board
of Directors, in its discretion, deems relevant. On August 22, 1999, the Company
issued a 20% share dividend to shareholders who were holders between March 31,
1998 and September 30, 1998. In addition, arrangements with present or future
lenders may prohibit the payment of dividends.




                                       12
<PAGE>



SALES OF UNREGISTERED SECURITIES

As of April 30, 1996, the Company had issued 211,538 shares of Common Stock (as
adjusted for the Company's 1:13 reverse stock split) to Interfinance Inv. Co.
Ltd., a Panamanian company ("Interfinance"), 183,333 of which shares were issued
in exchange for $200,000 in cash and 197,435 of which shares were issued in
exchange for $26 in cash and a 7% promissory note. The promissory note was
repaid as of June 28, 1996 from proceeds received from purchasers of a portion
of the shares resold by Interfinance. On August 15, 1996, the Company sold an
additional 30,769 shares of Common Stock to Interfinance for $1,000,000
consisting of $10,000 in cash and a 7% promissory note for $990,000. The note
was repaid in full in November 1996. Pursuant to a subscription agreement
entered into in November 1996, Interfinance subscribed for and the Company sold
an additional 9,615 shares of Common Stock at $52.00 per share. In addition, the
Company granted Interfinance an option to purchase up to an additional 92,308
shares of Common Stock at $26.00 per share for a two year period commencing on
completion of purchase of the full 153,846 shares. In connection with that
agreement, Mr. Combrinck transferred 5,769 shares to Interfinance for no
additional consideration. In January 1997, the Company entered into a
subscription agreement with Interfinance, pursuant to which Interfinance
subscribed for 153,846 shares of Common Stock at a purchase price of $13.00 per
share. In connection with the subscription agreement, Mr. Thomas Combrinck
agreed to transfer, without cost to Interfinance, one share of UTG Common Stock
owned by him for each share purchased by Interfinance under the subscription
agreement. As of the date hereof, all amounts owing to the Company in respect of
Interfinance's November 1996 and January 1997 subscriptions have been paid
(giving effect to approximately $20,000 in credits for expenses incurred by
Interfinance on behalf of the Company). No Underwriter's discount or fee was
incurred by the Company in connection with these issuances. The Company has
agreed to register the resale of the shares purchased by Interfinance under the
Securities Act of 1933. These transactions were exempt from the registration
requirements of the Securities Act of 1933 by reason of the exemption provided
by Section 4(2) thereunder and on the basis of certain representations provided
by Interfinance including that it is an "accredited investor."

On January 15, 1997, the Company granted an aggregate of 57,692 shares of Common
Stock to employees and consultants in consideration for services and as an
incentive to further the interests of the Company. On March 25, 1997, the
Company issued an aggregate of 769 shares to two individuals as part of a
settlement of claims by one of the individuals regarding breach of an alleged
employment relationship. These issuances were exempt from the registration
requirements of the Securities Act of 1933 by reason of the exemption provided
by Section 4(2) thereunder.

On March 10, 1997, the Company granted an option to purchase up to an aggregate
of 38,462 shares to certain of the Company's officers. As such individuals have
ceased to serve the Company in their respective executive capacity before the
first anniversary of the above-mentioned grant, non of such options vested.

Effective September 30, 1997, the Company sold to a limited number of accredited
or sophisticated investors 30,769 shares of common stock at a price of $6.50 per
share and, for no additional consideration, warrants to purchase an additional
15,385 shares of Common Stock at a price of $7.80 per share. At September 30,
1997, $125,000 of the total $200,000 had been received by the Company, and the
remaining $75,000 was fully paid by October 6, 1997. Interfinance acted as
placement agent for these issuances. No underwriter's discount or fee was
incurred by the Company in connection with these issuances. These issuances were
exempt from the registration requirements of the Securities Act of 1933 by
reason of the exemption provided by Section 4(2) thereunder.



                                       13
<PAGE>


On March 23, 1998, the Company issued 250,000 shares of Common Stock (post-
reverse split) at a purchase price of $2.00 per share. In addition, for each
share of Common Stock purchased, the subscriber received three warrants, each to
purchase one share of Common Stock, which warrants will expire five years from
the date of issuance and shall be exercisable at $2.00, $3.00 and $4.50 per
share, respectively. Net proceeds received by the Company were $485,000.
Underadd the terms of the subscription agreement, as amended, the Company had
the right, subject to certain conditions, to request the subscriber to purchase
up to an additional 500,000 shares of Common Stock upon the same terms and
purchase price as for the initial purchase on or prior to December 1, 1998.
During the fiscal year ended March 31, 1999, the Company issued an additional
408,036 shares to such subscriber on the same terms and conditions as described
above. Net proceeds received by the Company in connection with such issuance
were $791,590. In connection with these issuances, Interfinance acted as
placement agent and received a placement fee of 3% of the gross proceeds to the
Company. An aggregate amount of $39,482 has been paid to Interfinance with
respect to such placement fee. In the year ended March 31, 2000, the Company
issued an additional 185,768 shares to such subscriber on the same terms and
conditions as described above. Net proceeds received by the company in
connection with such issuance were $495,733. In connection with this issuance,
Interfinance acted as placement agent and will receive a placement fee of 3% of
an aggregate amount of $14,860.10 for the year ended March 31, 2000. The
commission has not been paid yet.

These transactions were exempt from the registration requirements of the
Securities Act of 1933 by reason of the exemption provided by Section 4(2)
thereunder and on the basis of certain representations provided by the
subscriber including that it is an "accredited investor."

On August 13, 1998, the Company issued two notes to Blacksea Investment Ltd. in
the principal amounts of $200,000 and CHF250,000 (approvimately $150,600),
respectively. Both notes are due June 30, 2003. The $200,000 note accrues
interest at a rate of 8% per annum, while the CHF 250,000 note accrues interest
at an annual rate of 5%. Such notes were issued by the Company in lieu of a loan
agreement, dated August 13, 1998, which provided for loans in the principal
amounts of the notes. In addition, the Company issued to Blacksea Investment
Ltd. 3,000 warrants to purchase shares of common stock of the Company at $30 per
share, 3,000 warrants to purchase shares of common stock of the Company at $45
per share, 3,000 warrants to purchase shares of common stock of the Company at
CHF50 (approximately $30) per share, and 3,000 warrants to purchase shares of
common stock of the Company at CHF75 (approximately $45) per share. All of such
warrants expire on June 30, 2001. The Company received no proceeds from such
issuance.

On August 22, 1999, the Company issued an aggregate of 201,341 shares of common
stock and 1,103,625 common stock purchase warrants exerciseable at $15.00 per
share until August 22, 2003 to stockholders of record on March 20, 1998. This
issuance was made in connection with the Company's 13:1 reverse stock split
effected on March 23, 1998. In connection with the reverse stock split, the
Board of Directors of the Company authorized the issuance of one warrant for
each share of Company common stock held by each stockholder of record on March
20, 1998. In addition, the Board of Directors of the Company authorized the
distribution to stockholders who continuously held shares of Company common
stock from March 20, 1998 through September 21, 1998 of a number of shares of
Company common stock equal to not more than 20% of the amount of shares of
Company common stock continuously held by stockholders during that time period
to compensate such stockholders for a decrease in the market value of the
Company's shares of Common Stock following the reverse stock split.

In its quarterly report on Form 10-QSB for the quarter ended June 30, 1999, the
Company reported that it issued 67,593 shares to an investor following the
exercise of a call option under a subscription agreement, dated January 17,
1998. As such issuance would have exceeded the aggregate number of shares of
common stock available under such call option by 5,629 shares, the Company and
such investor agreed that in lieu of issuing such shares pursuant to the
exercise of the Company's call option, the investor would exercise 5,629
warrants previously issued to it at an exercise price of $3.00 per share and pay
the Company additional consideration in the amount of $5,629 for such shares. In
addition, during the quarter ended September 30, 1999, the same investor
exercised an additional 92,685 warrants to purchase shares of the Company's
common stock at $3.00 per share, bringing the aggregate number of warrants
exercised by such investor and the number of shares issued by the Company
pursuant to the exercise of such warrants to 98,314. The aggregate gross
proceeds received by the Company from the exercise of such warrants during the
quarter ended September 30, 1999 was $283,684. In connection with the exercise
of such warrants, Interfinance Investment Co. Ltd., a company controlled by Mr.
Ueli Ernst, the Chairman and CEO of the Corporation, is entitled to a commission
of $8,509, which commission has not yet been paid.



                                       14
<PAGE>


During the quarter ended December 31, 1999, 58,025 warrants to purchase shares
of the Company's common stock at $3.00 per share were exercised. The aggregate
gross proceeds received by the Company from the exercise of such warrants during
the December 31, 1999 was $174,075. In connection with the exercise of such
warrants, Interfinance Investment Co. Ltd., a company controlled by Mr. Ueli
Ernst, the Chairman and CEO of the Corporation, is entitled to a commission of
$5,222.25. This commission has not yet been paid. In the aggregate, Interfinance
Investment Co. Ltd. is entitled to unpaid commissions in the aggregate amount of
$13,731.28 in connection with securities issuances of the Company.

These transactions were exempt from the registration requirements of the
Securities Act of 1933 by reason of the exemption provided by Section 4(2)
thereunder and Regulation S promulgated thereunder on the basis of certain
representations provided by the subscriber including that it is an "accredited
investor" and that it is not a "U.S. person." The Company's use of the proceeds
from exercise of such warrants is for general working capital purposes.



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

The following discussion and analysis relates to the financial condition and
results of operations of the Company for the year ended March 31, 2000. This
information should be read in conjunction with the Company's consolidated
financial statements appearing elsewhere herein.

GENERAL

The Company commenced operations in April 1996 and is a holding company for a
number of operating subsidiaries organized at various times since February 1996.
Through its operating subsidiaries, the Company is operating in Switzerland,
Belgium and the United Kingdom.

From inception through March 31, 2000, the Company has received an aggregate of
approximately $14,373,497 in equity capital. Since inception, the Company's
operations have been focused on establishing and enhancing its switch-based
European communications network and expanding its European customer base.

The Company's revenue is generated from long distance telecom services provided
to retail corporate customers and wholesale customers and, through Musicline,
from the production, sale and distribution of music CD's to wholesale and retail
customers in Europe.

With respect to the Company's telecommunications business, the Company's
wholesale customers comprise international telecom carriers and national
telecoms, and the Company's retail customers comprise medium-sized companies
located in Switzerland, Belgium and the United Kingdom. In Switzerland, the
Company has entered into an interconnection agreement with Swisscom, the
national Swiss telecommunications carrier. The Company intends to enter into
interconnection agreements with telecommunications carriers in the United
Kingdom, Belgium and other European countries into which the Company may expand
in the future. The interconnection with national telecommunication carriers,
which became possible as a result of the deregulation of the European
telecommunications markets in January 1998, enables the Company to offer both
domestic and international telecommunications services to its customers and
eliminates the need to route all outgoing calls through London. Management
believes that entering into interconnection agreements with national
telecommunications carriers will result in an increase in traffic volume for the
Company and will allow the Company to reduce fixed overhead costs considerably.



                                       15
<PAGE>


The Company holds an International Simple Resale ("ISR") license in the United
Kingdom and, during the fiscal year ended March 31, 1999, was granted an
International Facility License ("IFL") by the United Kingdom. The ISR license
permits the Company to engage in the resale of international telecom services in
the United Kingdom and the IFL license enables the Company to own facilities for
international services such as circuits. By operating its own facilities, the
Company can avoid the costs associated with leased line charges and,
accordingly, reduce its operating expenses.

During the fiscal year ended March 31, 1999, the Company entered into a joint
venture agreement with eight individual distributors for the purpose of
establishing a distribution network for telecommunication cards in the United
Kingdom. The Company and its eight distribution partners formed StarPoint Card
Services Ltd., located in London with the Company holding 51% of StarPoint's
equity and the Company's partners holding the remaining 49%. In addition, during
the fiscal year ended March 31, 1999, the Company formed StarGlobal Ltd., a
wholly-owned indirect subsidiary organized under the laws of the United Kingdom,
with the intent to resume the Company's wholesale and carrier-to-carrier
business. StarGlobal's new equipment can handle traffic worth USD 25 million per
year with a gross margin of about 5 to 8% depending on the destination.

On July 5, 1999, the Company sold its subsidiary, Multicom Communication NV, to
an unaffiliated Liechtenstein investor for BEF 25,000 to streamline the
activities of UTG Belgium.

During the quarter ended September 30, 1999, the Company completed its
development of a credit card based phone service for the Swiss market. The
Company launched this product together with the Manor Group, a large department
store chain in Switzerland on July 19, 1999. This product allows holders of
credit cards issued by Manor to use the credit card as a post-paid phonecard and
to benefit from discounts for international and national long distance
telecommunication services.

On November 15, 1999, the Company acquired a majority of the capital stock of
Musicline AG, a Swiss corporation ("Musicline"), pursuant to a Stock Purchase
Agreement, dated as of August 9, 1999 between the Company and Ueli Ernst, the
Company's Chairman and Chief Executive Officer, in consideration for 1,750,000
shares of the Company's common stock, the assignment to Mr. Ernst of a
receivables account in the principal amount of approximately $790,000, and, an
additional 350,000 shares of the Company's common stock if Musicline's net
profits reach at least $300,000 during the fiscal year ending March 31, 2000 or
March 31, 2001. At a stockholders meeting held on October 22, 1999, the
Company's stockholders other than Mr. Ernst or persons affiliated or associated
with him approved such stock purchase agreement by an affirmative vote of more
than two-thirds of the shares of common stock held by such stockholders. The
closing of this transaction occurred on November 15, 1999.

Musicline is a Swiss-based wholesale and retail music CD distribution and
production company with a European client base. Musicline has the rights to sell
approximately 15,000 music titles in CD format as well as on the Internet.
Musicline produces about 4,000 different music compilations per year. The
Company expects this acquisition to provide it with Internet opportunities,
specifically in the business-to-business and business-to-consumer e-commerce
sectors, although there can be no assurance in that respect.

On August 13, 1998, the Company issued TWO notes to Blacksea Investment Ltd. in
the principal amounts of $200,000 AND CHF250,000 (approximatively $150,600),
respectively. Both notes are due June 30, 2003. The $200,000 note accrues
interest at a rate of 8% per annum, while the CHF 250,000 note accrues interest
at an annual rate of 5%. Such notes were issued by the Company in lieu of a loan
agreement, dated August 13, 1998, which provided for loans in the principal
amounts of the notes. In addition, the Company issued to Blacksea Investment
Ltd. 3,000 warrants to purchase shares of common stock of the Company at $30 per
share, 3,000 warrants to purchase shares of common stock of the Company at $45
per share, 3,000 warrants to purchase shares of common stock of the Company at
CHF50 (approximately 30) per share, and 3,000 warrants to purchase shares of
common stock of the Company at CHF75 (approximately $45) per share. All of such
warrants expire on June 30, 2001. The Company received no proceeds from such
issuance.



                                       16
<PAGE>


On August 22, 1999, the Company issued an aggregate of 201,341 shares of common
stock and 1,103,625 common stock purchase warrants exercisable at $15.00 per
share until August 22, 2003 to stockholders of record on March 20, 1998. This
issuance was made in connection with the Company's 13:1 reverse stock split
effected on March 23, 1998. In connection with the reverse stock split, the
Board of Directors of the Company authorized the issuance of one warrant for
each share of Company common stock held by each stockholder of record on March
20, 1998. In addition, the Board of Directors of the Company authorized the
distribution to stockholders who continuously held shares of Company common
stock from March 20, 1998 through September 21, 1998 of a number of shares of
Company common stock equal to not more than 20% of the amount of shares of
Company common stock continuously held by stockholders during that time period
to compensate such stockholders for a decrease in the market value of the
Company's shares of Common Stock following the reverse stock split.


In order to be able to continue to provide its customers with state of the art
communication services and to benefit from the opportunities created by the
Internet, the Company has developed an Internet strategy. The Company intends to
become an Internet services provider (ISP) to take advantage of the efficiencies
created by its existing switches and its access to the Internet backbone. The
Company intends to offer these services (and related consulting and support
services), to retail and other Internet services providers in Europe. The
Company also intends to diversify into e-commerce and to operate Internet
shopping platforms for its telecommunications services and other retail
industries, including music, media and software distribution.

The Company deems an expansion into Internet-related services, such as
E-commerce, with its expected high growth potential, a competitive necessity in
the markets in which it currently operates. The Company believes that
establishing an e-commerce business would synergistically supplement its
conventional telecommunications services and its newly developed Internet
services.

The Company is currently exploring several appropriate opportunities in its core
markets and in Germany as well as in other countries. The Company will carefully
evaluate expansion of its operation into other European countries as and when
business, market and regulatory conditions permit.

There can be no assurance that any of the Company's new activities commenced
during the quarter ended December 31, 1999 or any of its efforts to expand its
business in its core markets, any other countries or the Internet will result in
successful commercial operations.

The Company's financial statements for the quarter ended December 31, 1999 for
the first time reflect the financial condition and results of operations of
Musicline. The financial statements reflect Musicline's results of operations
for the entire quarter.

The Company's goal is to supplement its current operations with Internet-related
services.


FINANCIAL CONDITION

Effective September 30, 1997, the Company sold to a limited number of accredited
or sophisticated investors 30,769 shares of common stock at a price of $6.50 per
share and, for no additional consideration, warrants to purchase an additional
15,385 shares of common stock at a price of $7.80 per share. At September 30,
1997, $125,000 of the total $200,000 had been received by the Company, and the
remaining $75,000 was fully paid by October 6, 1997.



                                       17
<PAGE>


On March 23, 1998, the Company issued 250,000 shares of common stock (post stock
split) at a purchase price of $2.00 per share to an accredited investor. In
addition, for each share of common stock purchased, the investor also received
three warrants, each to purchase one share of common stock, which warrants will
expire five years from the date of issuance and shall be exercisable at $2.00,
$3.00 and $4.50 per share, respectively. Under the terms of the subscription
agreement, as amended, the Company had the right, subject to certain conditions,
to request the subscriber to purchase an additional 500,000 shares of common
stock upon the same terms and purchase price of the initial purchase on or prior
to December 31, 1998. During the fiscal year ended March 31, 1999, the Company
issued an additional 408,036 shares to such subscriber on the same terms and
conditions as described above. Net proceeds received by the Company in
connection with such issuances was $1,276,590. During the fiscal year ended
March 31, 2000, the company issued an additional 185,768 shares to such
subscriber on the same terms and conditions as described above. Net Proceeds
received by the Company in connection with such issuance was $495,733.

The Company believes that its network has adequate switching capacity to serve
projected volume of traffic through calendar 2000. The Company initially
designed its network to take advantage of deregulation across Europe. It can
perform distributive least cost routing by using its hub sites in European
cities to direct traffic to carriers within a country, across the UTG network to
another country for termination, or back to a switch in London for routing. The
selected path is based on the least cost. This provides a large amount of
flexibility to the Company, and to ensure the quality of the connections and
lowest cost. With this distributive architecture the capacity of UTG's main
switch is not expected to be a limiting factor with regard to expansion. The
opening of the European telecommunications markets allows the Company to take
full advantage of its network flexibility.

Musicline expects to invest up to $1,500,000, through equipment leasing
financings, in various equipment and production of DVD products, however, there
can be no assurance as to when or if such financings will occur.

Based upon the Company's plan of operation, the Company estimates that its
existing financing resources together with funds generated from operations, will
be sufficient to fund the Company's current working capital requirements.
However, there can be no assurance in that regard.

At March 31, 2000, the Company had a working capital deficit of $4,144,974 and
an accumulated deficit of $10,868,039, as compared to working capital and
accumulated deficit of $1,380,693 and $7,222,639, respectively, at March 31,
1999.

At March 31, 2000, the Company's bank overdraft balance was CHF 2,666,205
(approximately $1,696,148) compared to March 31, 1999 CHF 987,124 (approximately
$663,925).


Accounts payable and accrued expenses amounted to approximately $6,428,538 at
March 31, 2000 compared to $3,835,759 at March 31, 1999. This increase is the
result of the increase in the Company's business volume and investments made
during the fiscal year ended March 31, 2000.




RESULTS OF OPERATIONS

During the fiscal year ended March 31, 2000, the Company achieved the expected
gross margins in all of its business segments, except the wholesale divisions.



                                       18
<PAGE>


SALES

During the fiscal year ended March 31, 2000, the Company recorded net sales of
$15,566,213, in comparison to $5,400,256 during the fiscal year ended March 31,
1999. The gross profit for the fiscal year ended March 31, 2000 increased to
$2,670,633 (or 17.2% of the Company's net sales or a increase of 288% ) as
compared to the fiscal year ended March 31, 1999 when the Company had gross
profits of $1,162,570 or 21.5% of the Company's net sales during that period or
a increase of 232%). The increase in gross profits reflects the fact that the
volume of the Company's operations has increased. The relative decrease in gross
profits is due to the fact that the Company has generated a greater portion of
its sales through the resale of calling cards, which has a lower margin than the
retail and wholesale provision of telecommunications services. This increase in
net sales is the result of increased revenue in Switzerland, Belgium, the
addition of the Company's distribution business in the United Kingdom and the
commencement of the sale of the Company's pre-and-post-paid calling card
products in Switzerland. It also includes sales generated by Musicline and its
subsidiaries during the 2 quarters for the year ended March 31, 2000. Management
of the Company expects an increase of its margin as a result of the planned
introduction of the Company's own calling cards in Switzerland, Belgium and the
United Kingdom.

The Company's revenue has been generated primarily from long distance telecom
services provided to retail corporate customers in Switzerland and Belgium and
wholesale customers and the resale of calling cards from other providers as well
as from additional revenue from Musiline. The Company's wholesale customers
presently comprise international telecom carriers and national telecom
companies. Management anticipates that the allocation between wholesale and
retail customers will eventually shift in favor of retail customers consistent
with the Company's goal of expanding its corporate retail customer base.

COST OF SALES

Cost of sales was $12,895,580 for the fiscal year ended March 31, 2000, as
compared to $4,237,686 for the fiscal year ended March 31, 1999 consisting of
carrier charges, costs for leased lines and related activities and the
acquisition costs and costs of sales of the Company's existing calling card
resale business and the CD production and distribution of Musicline. Carrier
charges and transport (leased lines) charges per unit are ultimately dependent
on the Company's ability to generate high volumes of traffic. This increase is
the result of the Company's increase in net sales and in the relatively high
cost calling card resale business. Management of the Company expects that the
relative amount of cost of sales will decrease with the introduction of its own
calling cards in Switzerland, Belgium and the United Kingdom.


SELLING AND TECHNICAL EXPENSES

Selling and technical expenses for the fiscal year ended March 31, 2000 were
$335,547, compared to $728,273 for the previous fiscal year. This decrease is
the result of all the installation done previously of various switches and
servers to increase the Company's capacity to handle traffic and to implement
the Company's interconnection arrangements with other carriers.


GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for the fiscal year ended March 31, 2000
were $5,573,279 compared to $2,928,855 for the fiscal year ended March 31, 1999.
On the one hand, the Company had a larger bad debt expense and lower
depreciation and amortization during the fiscal year ended March 31, 1999. On
the other hand, the Company's salaries and employee benefits expenses as well as
depreciation and amortization have increased significantly during the fiscal
year ended March 31, 2000.


NET LOSS

The Company's net loss for the fiscal year ended March 31, 2000 was $3,645,400
as compared to $2,671,415 for the fiscal year ended March 31, 1999.


                                       19
<PAGE>


The Company realized a net loss of $3,645,400 in the fiscal year ended March 31,
2000 and a net loss for the fiscal year ended March 31, 1999 of $2,494,558. The
net loss during the fiscal year ended March 31, 2000 compared to the net Loss
during the previous fiscal year is the result of the absence of any
extraordinary gain during the fiscal year ended March 31, 2000.

The decrease in the Company's net loss for the quarter ended December 31, 2000
is primarily attributable to the increase in sales in the Company's
telecommunications business and the addition of the sales generated by
Musicline. The increase in the Company's net loss during the twelve month period
ended March 31, 2000 is primarily attributable to the increased depreciation and
amortisation and the sales of a former subsidiary and the addition of Musicline.

As a result of the expected growth of the Company's telecommunications business,
in particular its pre-paid and post-paid calling card business in Switzerland,
the expected growth in Musicline's music CD distribution and production
business, the planned introduction of Internet services and e-commerce business,
and on-going reorganization of the Company's wholesale business, management
expects a further increase in revenues during the quarter ending June 30, 2000
and a further reduction of the Company's relative operating loss, although no
assurances can be given in this regard.


ITEM 7. FINANCIAL STATEMENTS

See Index to Financial Statements on page F-1.

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

Not Applicable

PART III

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

The executive officers, directors and significant employees of the Company on
March 31, 2000 were as follows:



Name                    Age               Position

Ueli Ernst              53       Chairman of the Board, Chief
                                        Executive Officer and Director

Klaus Brenner           44       Treasurer, Secretary and Director


Andreas Popovici (1)    46       Vice President of Starfon


Udo Caspers (1)         48       CFO and Finance and Controlling Manager


Peter Holmes (1)        40       Managing Director of Starpoint
                                        Card Sales Ltd.

Giles Rawlinson (1)     33       Financial Controller of Starpoint Card
                                        Sales Ltd.


Steve Bryant (1)        37       Managing Director of StarGlobal Ltd.


Peter Boog (1)          43       Managing Director of Musicline AG and
                                        subsidiaries.


----------
(1) Not executive officers but deemed "significant employees".


                                       20
<PAGE>



UELI ERNST has served as a director and Chief Executive Officer of the Company
since January 3, 1998. Mr. Ernst currently devotes approximately 80% of his
business time to this position. The remaining time is devoted to various other
business activities of Mr. Ernst, including his services as President of
Interfinance Investment Company Ltd. He has 26 years of experience in
international business development in various industries primarily in management
consulting, financial advisory services and rendering advice to new growth
business ventures. He was Chairman of Swissray International Inc, a reporting
company which was then listed on the NASDAQ Small Cap Market, from May 1995
through March 1997. Mr. Ernst received his Masters of Business Administration
(lic. oec. publ.) degree in 1973 from the University of Zurich.

KLAUS BRENNER has served as a director of the Company since January 3, 1998.
Since 1996, Klaus Brenner has served as Chief Executive Officer of Brenner
Industrieholz-Spaene GmbH, Brenner Internationale Holz- und Spaenehandels-
gesellschaft and of Brenner Holding GmbH. From 1986 to 1996 Mr. Brenner has
served as the Chief Executive Officer of Brenner Bois Sprl., the Belgian
subsidiary of Brenner Holding GmbH. These companies are engaged in the lumber
business.


ANDREAS POPOVICI has served as vice president (Director) of United Telegroup AG
since March 1996 and currently serves as technical director of Starfon and the
Group. From October 1995 to March 1996, Mr. Popovici served as general manager
of Callcom, a Swiss telecom service company. From 1991 through October 1995 Mr.
Popovici served as vice president (Director) of the systems department at
Swissphone, a Swiss telecom company.


UDO CASPERS has served as CFO and Finance and Controlling Manager of Starfon and
the Group since February 2000. He served as Manager for Finance and Controlling
with its subsidiary Rotring AG in Switzerland for Newell Rubbermaid Inc. in
Chicago, Illinois from 1999 to 2000. He was an Independent CPA and Tax
consultant at Pro Ratio Treuhand Steuerberatungs- und
Wirtschaftsprufungsgesellschaft mbH from 1982 until 1999. He received a Master
of Business- administration in Cologne and Frankfurt a/M.


PETER HOLMES has served as Managing Director of Starpoint Card Sales Ltd in
London since August 1998. From 1995 to 1998 he served as Manager and a
consultant of America First Ltd, Call- Science Ltd and Megacom (a Internet
Company). From 1985 to 1995 he worked for Motorindustry Henleys, a London Stock
Exchange listed Company. From 1981 to 1985, Mr. Holmes was involved in the
Cellular industry, working for Vodafone centers and European Telecom, a
cellphone distributor.


GILES RAWLINSON has served as Financial Controller at Starpoint Card Sales Ltd
since December 99. From 1995 to 1999, he was the Financial Controller at Tempo
Plc, Tie Rack Plc, Senior Enginieering PLC and from 1990 to 1995, he worked at
Ernst & Young as a Chartered Accountant (ACA). He received a degree of BSC/BA
(Hons) in Engineering & Business Studies at the Notting- ham Trent University.


STEVE BRYANT has served as Managing Director of StarGlobal Ltd. since January
1998. From 1996 to 1998, he served as Manager of the Wholesale Dept. of UTG. He
was a currency broker at Harlow Butler and Exco from 1986 to 1998. He received a
degree of the Central London Polytecnics in Business Studies.


PETER BOOG has served as Managing Director of Musicline AG since 1997. From 1992
to 1997, he served as Managing Director and Founder of SSC Selected Sound
Carrier AG. From 1986 to 1992, he was Managing Director and Founder of B&H
Versand AG. From 1980 to 1986 he was Manager and Founder of Phonomatik AG, ASTAN
Music and Phonorecords AG. He has a business degree from a college in Schwyz,
Switzerland.


                                       21
<PAGE>



Directors of the Company hold office until their successors are duly elected and
qualified, or until their earlier death, resignation or removal.

No family relationships exist among any of the directors or executive officers
of the Company.

The Company's equity securities are not registered pursuant to Section 12 of the
Securities Exchange Act of 1934. As such, no person is required to comply with
the requirements of Section 16 of such Act.


ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth the cash and other compensation awarded to,
earned by or paid to David Schlecht, Fritz Wolff, Ronald Kuzon and Ueli Ernst
who served as the Company's chief executive officer during the fiscal year ended
March 31, 1999 and each other highly compensated executive officers and all
executive officers of subsidiaries who assist in making policy for UTG. In
certain cases, dollar amounts are approximated based on foreign currency
translations.

<TABLE>
<CAPTION>



                           SUMMARY COMPENSATION TABLE





                             Annual Compensation                Long-Term Compensation           Awards           Payouts

Name and       Fiscal Year   Salary    Bonus   Other Annual     Restricted      Securities        LTIP       All Other
Principal      Ended March    ($)       ($)        ($)         Compensation    Stock Award(s)   Underlying    Payouts  Compensation
Position       31,2000                                             ($)          Options/SARs       ($)          ($)


<S>               <C>        <C>        <C>       <C>              <C>              <C>           <C>          <C>
Ueli Ernst,       2000        --        --         --              --               --             --          --
 Chairman of      1999        --        --         (2)             --               --             --          --
 the Boardo &     1998        --        --         --              (2)              (2)            --          --
 Chief
 Executive
 Officer (1)


Ronald Kuzon,     2000        --        --         --              --               --             --          --
Chairman          1999        --
 And Chief        1998       10,625     --         --            200,000 (4)
 Executive
 Officer (3)


David Schlecht,   2000        --
President &       1999        --        --         --              --               --
 Chief            1998        5,000 (6)
 Excecutive(4)(7)
 Officer (5)

Fritz K. Wolff,   2000        --        --         --
Executive Vice    1999       172,359(9) --         --            100,000 (10)      (11)
 President &      1998       29,580 (9)
 Chief Operating
 Officer 8)

Keith Rhea,       2000        --
Chief Operating   1999      124,500(13) --         --                              (14)
 Officer and      1998
 Director (12)

Robert Finn,      2000
Chief Financial   1999      182,228(16)
 Officer (15)     1998        --

Brenner Klaus     2000        --        --                         --               --             --          --
Treasurer and     1999        --                   --              --
Secreatary (1)    1998          --                --

Popovici Andrea   2000      115,000                --              --
Vice President    1999      115,000                --              --
Of Starfon        1998       86.750                --              --


Udo Caspars      2000         7,000 (17)
Finance and      1999         --
Controlling      1998         --
Manager


Peter Holmes     2000        67,200
Managing         1999        67,200
Director         1998         --
Of Starpoint


Bryant Steve     2000        57,600
Managing         1999        57,600
Director of      1998        57,600
StarGlobal


Boog Peter       2000        78,300
Managing         1999         --
Director of      1998         --
Musicline

</TABLE>


                                       22
<PAGE>




(1) Mr. Ernst was appointed Chairman of the Board and Chief Executive Officer on
January 3, 1998 and Mr. Brenner as Treasurer and Secretary. Mr. Ernst and Mr.
Brenner has not received any compensation for his services in this capacity
during the fiscal year ended March 31, 2000 nor in 1999 and 1998.

(2) Interfinance Investment Co. Ltd., a company controlled by Mr. Ernst earned
$39,482.16 in commissions related to the sale of 658,036 shares of common stock
and warrants to an investor during the fiscal years ended March 31, 1998 and
March 31, 1999 and was issued an aggregate of 144,000 shares of common stock and
92,308 options to purchase common stock of the Company in connection with
various financings. These options expired as of March 31, 1999.

(3) Mr. Kuzon served as the Company's Chief Executive Officer from October 1997
through January 3, 1998.

(4) Represents the deemed fair market value of 15,385 unregistered shares of
Common Stock (as adjusted for the reverse stock split) on January 15, 1997, the
date of grant.

(5) Mr. Schlecht resigned as President and Chief Executive Officer on June 25,
1997. Prior to that time, he had been devoting 50% of his time to the business
of the Company in the indicated capacity. He resigned as a director on February
17, 1998.

(6) Does not include amounts paid as rent to a Company controlled by Mr.
Schlecht. See "Item 12. Certain Relationships and Related Transactions."

(7) On March 10, 1997, Mr. Schlecht was granted options exercisable for 7,692
shares of Common Stock. Because of Mr. Schlecht's resignation from his position
prior to the expiration of the vesting period for such options, such options
have been forfeited.

(8) Mr. Wolff was the Company's Chief Executive Officer from June 28, 1997
through October 7, 1998. From January 15, 1997 through June 25, 1997, Mr. Wolff
served as the Company's Executive Vice President and Chief Operating Officer.
Prior thereto he served as a business development consultant to the Company.

(9) Reflects amounts paid to Birand Ltd., a company through which Mr. Wolff
provided services to the Company. See "--Employment Agreements" and "Item 12 -
Certain Relationships and Related Transactions."

(10) Represents the deemed fair market value of 7,692 unregistered shares of
Common Stock on January 15, 1997, the date of grant.

(11) On March 10, 1997, Mr. Wolff was granted options exercisable for 23,077
shares of Company Common Stock. Because of Mr. Wolff's resignation from his
position, prior to the expiration of the vesting period for the first
transaction of such options, such options have been forfeited.

(12) Mr. Rhea resigned from his positions with the Company on January 12, 1998.

(13) Includes amounts paid to Telepath Ltd., a company through which Mr. Rhea
provided services to the Company. See "---Employment Agreements" and "Item 12-
Certain Relationships and Related Transactions."


                                       23
<PAGE>


(14) Pursuant to the Employment Agreement, dated June 30, 1997 between the
Company and Keith Rhea, Mr. Rhea was granted options for 15,385 shares, of which
options for 3,847 shares of Common Stock would have vested prior to Mr. Rhea's
resignation from his positions with the Company. In connection with his
resignation, Mr. Rhea released the Company from its obligations under such
agreement.

(15) Mr. Finn was appointed Chief Financial Officer of the Company on June 25,
1997. He served in that capacity on a part-time basis until December 7, 1997.

(16) This amount includes $111,710 which Mr. Finn alleges he and Telepath Ltd.
are owed for consulting services performed by him. The Company disputes that
such amount is owed. Such amount is included herein merely for disclosure
purposes pending final determination of the dispute between the Company and Mr.
Finn. The inclusion of such amount herein may not be construed as admission by
the Company that all or part of such amount is in fact owed to Mr. Finn or
Telepath Ltd.

(17) Mr. Caspers started to serve on February 21, 2000.


The following table sets forth all grants of options to purchase Common Stock to
the executive officers named in the Summary Compensation Table for the fiscal
year ended March 31, 1999.

<TABLE>
<CAPTION>


                    OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
                               (INDIVIDUAL GRANTS)



Name   Number Of Securities      Percent Of Total      Exercise Of Base Price       Expiration Date
(a)        Underlying          Options/SARs Granted           ($/Sh)                     (e)
       Options/SARs Granted       to Employees In                (d)
               (#)                  Fiscal Year
               (b)                      (c)


<S>             <C>                  <C>                         <C>                <C>
Ueli Ernst      10,000               26,2%                       5                  June 30, 2003
Klaus Brenner   10,000               26,2%                       5                  June 30, 2003
Ronald Kuzon    --
David Schlecht  --
Fritz K. Wolff  --
Keith Rhea      --
Robert Finn     --
Peter Holmes    10,000               26,2%                       5                  June 30, 2003
Steve Bryant     8,000               21,0%                       5                  June 30, 2003


</TABLE>



                                       24
<PAGE>



<TABLE>
<CAPTION>


               AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                          AND FY-END OPTIONS/SAR VALUES





Name        Shares Acquired On   Value Realized    Number Of Unexercised         Value Of Unexercised
(a)             Exercise             ($)           Securities Underlying             In-The-Money
                  (#)                (c)              Options/SARs At               Options/SARs At
                  (b)                                    FY-End (#)                    FY-End ($)
                                                        Exercisable/                 Exercisable/
                                                       Unexercisable                 Unexercisable
                                                           (d)                            (e)

<S>              <C>                <C>                 <C>                        <C>
Ueli Ernst        --                 --                 104,227                       130,284
Ronald Kuzon      --                 --                    --                             --
David Schlecht    --                 --                    --                             --
Fritz K. Wolff    --                 --                    --                             --
Keith Rhea        --                 --                    (1)                            --
Robert Finn       --                 --                    --                             --
Brenner Klaus     --                 --                   10,000                       12,500
Peter Holmes      --                 --                   10,000                       12,500
Steve Bryant      --                 --                    8,000                       10,000

<FN>

(1) See Note 14 to Compensation Table.
</FN>
</TABLE>



COMPENSATION OF DIRECTORS

The Company reimburses directors for reasonable out-of-pocket expenses incurred
in connection with attendance at board and committee meetings. See "Item 10 --
Executive Compensation" for a description of any additional compensation paid to
Messrs. Ernst, Kuzon, Schlecht and Rhea.

Pursuant to Section 145 of the Delaware General Corporation Law, the Company's
Certificate of Incorporation provides that the Company shall, to the fullest
extent permitted by law, indemnify all directors, officers, incorporators,
employees and agents of the Company against liability for certain of their acts.
The Company's Certificate of Incorporation also provides that, with certain
exceptions, no director of the Company will be liable to the Company for
monetary damages as a result of certain breaches of fiduciary duties as a
director. Exceptions to this include a breach of the director's duty of loyalty,
acts or omissions not in good faith or which involve intentional misconduct or
knowing violations of law, improper declaration of dividends and transactions
from which the director derived an improper personal benefit.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of June 28, 1999, certain information
concerning beneficial ownership of the Company's Common Stock by (i) each
beneficial owner of more than five percent of the outstanding Common Stock, (ii)
each director of the Company, (iii) each executive officer named in the Summary
Compensation Table under Item 10 above and (iv) all current executive officers
and directors of the Company as a group.




                                       25
<PAGE>




NAME AND ADDRESS                 NUMBER OF SHARES         % OF COMMON STOCK (1)
                                BENEFICIALLY OWNED

Ueli Ernst
C/o UTG Communications
International Inc.                   1,927,007                   49,14%
Limmattalstr. 10,
8954 Geroldswil, Switzerland

Medfield Investments S.A.              388,972                    9,92%
Sonnenbergweg 12
5698 Stetter, Switzerland

Klaus Brenner (3)                      247,576                    6,31%
C/o UTG Communications
International Inc.
Limmattalstr. 10
8954 Geroldwil, Switzerland

Interfinance Inv. Co. Ltd.(2)          177,007                    4,51%
Steinhaldenring 8
8954 Geroldswil, Switzerland


Andreas Popovici                        41,540                    1,06%
C/o UTG Communications
International Inc.
Limmattalstr 10
8954 Geroldswil

Steve Bryant                            46,152                    1,18%
C/o UTG Communications
International Inc.
Limmattalstr. 10
8954 Geroldswil

Peter Holmes                             2,700                    0,07%
C/o UTG Communications
International Inc.
Limmattalstr. 10
8954 Geroldswil


All Officers and
 Directors as a group                2,264,975                   57,76%
 (5 persons)

(1) Based on 3,921,412 shares of Common Stock issued and outstanding.

(2) Includes 177,007 shares of Common Stock beneficially owned by Interfinance
Inv. Co. Ltd., a company controlled by Mr. Ernst.

(3) Includes 115,385 shares of Common Stock owned by Prozal Investment Co., a
company controlled by Mr. Brenner.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In April, 1997, the Company's wholly-owned subsidiary, UTG Communications
Belgium N.V., acquired all of the equity of Multicom N.V., an Antwerp, Belgium
based company which offers direct and indirect dial services to more than 250
corporate customers. The purchase price was 11,101,043 BEF (approximately
$317,000), payable 50% on April 9, 1997, 25% on May 2, 1997 and 25% on June 2,
1997. Payment of the purchase price was secured by the pledge by Interfinance of
100,000 shares of the Company's Common Stock owned by Interfinance.

Effective September 30, 1997, the Company sold to a limited number of accredited
or sophisticated investors (including Andreas Popovici) 30,769 shares of common
stock at a price of $6.50 per share and, for no additional consideration,
warrants to purchase an additional 15,385 shares of Common Stock at a price of
$7.80 per share. At September 30, 1997, $125,000 of the total $200,000 had been
received by the Company, and the remaining $75,000 was fully paid by October 6,
1997. Interfinance acted as placement agent for these issuances. No
underwriter's discount or fee was incurred by the Company in connection with
these issuances. These issuances were exempt from the registration requirements
of the Securities Act of 1933 by reason of the exemption provided by Section
4(2) thereunder.



                                       26
<PAGE>


On March 23, 1998, the Company issued 250,000 shares of Common Stock (post-
reverse split) at a purchase price of $2.00 per share. In addition, for each
share of Common Stock purchased, the subscriber received three warrants, each to
purchase one share of Common Stock, which warrants will expire five years from
the date of issuance and shall be exercisable at $2.00, $3.00 and $4.50 per
share, respectively. Net proceeds received by the Company were $485,000. Under
the terms of the subscription agreement, as amended, the Company had the right,
subject to certain conditions, to request the subscriber to purchase up to an
additional 500,000 shares of Common Stock upon the same terms and purchase price
as for the initial purchase on or prior to December 1, 1998. During the fiscal
year ended March 31, 1999, the Company issued an additional 408,036 shares to
such subscriber on the same terms and conditions as described above. Net
proceeds received by the Company in connection with such issuance were $791,590.
In connection with these issuances, Interfinance acted as placement agent and
received a placement fee of 3% of the gross proceeds to the Company. An
aggregate amount of $39,482 has been paid to Interfinance with respect to such
placement fee. These transactions were exempt from the registration requirements
of the Securities Act of 1933 by reason of the exemption provided by Section
4(2) thereunder and on the basis of certain representations provided by the
subscriber including that it is an "accredited investor." The Company believes
that the terms of all transactions with Interfinance were as fair to the Company
from a financial point of view as could have been obtained from an unaffiliated
third party.

In connection with the arrangement of the arrangement of a loan in the amount of
$371,250 to the Company by Blacksea Investment, an unrelated party to the
Company and its affiliates, Interfinance received a commission in the amount of
$18,562.50. The Company believes that such commission was as fair to the Company
from a financial point of view as could have been obtained from an unaffiliated
third party.

The Company leases its principal executive offices from a company where Mr.
Ernst, the Company's Chairman and Chief Executive Officer is a member of the
Board of Directors, for CHF 5,000 (approximately $3,250) per month. The Company
considers such rent to be at arm's length.


See "Item 10. Executive Compensation" for a description of employment and other
compensation arrangements with the Company's executive officers and directors.


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits

See Index to Exhibits on page E-1.

(b)   Reports on Form 8-K

No reports on Form 8-K were filed during the last quarter of the fiscal year
ended March 31, 1999.

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this Amendment to its report to be signed on its behalf by the
undersigned, thereunto duly authorized.






 UTG COMMUNICATIONS INTERNATIONAL, INC.


                               By: /s/ Ueli Ernst
                               -------------------------------------
                               Ulrich Ernst, Chairman of the Board &
                               Chief Executive Officer

Date: July 14, 2000



                                       27
<PAGE>





                                  EXHIBIT INDEX

Reference is made below to exhibits indicated with the following footnotes which
are incorporated herein by reference thereto:

(1)   Filed with the U.S. Securities and Exchange Commission (the "Commission")
      as an exhibit to the Registration Statement on Form SB-2 (No. 333-8305)
      filed on July 17, 1996 (the "SB-2").
(2)   Filed with the Commission as an exhibit to Amendment No. 1 to the SB-2
      filed on August 16, 1996.
(3)   Filed with the Commission as an exhibit to Amendment No. 2 to the SB-2
      filed on August 30, 1996.
(4)   Filed with the Commission as an exhibit to the Company's Form 10-QSB for
      the quarterly period ended December 31, 1996.
(5)   Filed with the Commission as an exhibit to the Company's Form 10-KSB for
      the fiscal year ended March 31, 1997.
(6)   Filed with the Commission as an exhibit to the Company's Form 10-QSB for
      the quarterly period ended June 30, 1997.
(7)   Filed with the Commission as an exhibit to the Company's Form 10-QSB for
      the quarterly period ended September 30, 1997.
(8)   Filed with the Commission as an exhibit to the Company's Form 10-KSB for
      the fiscal year ended March 31, 1998.
(9)   Filed with the Commission as an exhibit to the Company's Form 10-QSB for
      the quarterly period ended September 30, 1998.
(10)  Filed with the Commission as an exhibit to the Company's Form S-3 filed on
      February 3, 1999.
(11)  Filed with the Commission as an exhibit to the Company's Form 10-QSB for
      the quarterly period ended December 31, 1998.
(12)  Filed with the Commission as an exhibit to the Company's Form 10-KSB for
      the fiscal year ended March 31, 1999.
(13)  Filed with the Commission as an exhibit to the Company's Form 10-QSB for
      the quarterly period ended June 30, 1999.
(14)  Filed with the Commission as an exhibit to the Company's Form 10-QSB for
      the quarterly period ended September 30, 1999.
(15)  Filed with the Commission as an exhibit to the Company's Form 10-QSB for
      the quarterly period ended December 31, 1999.

Filed with the Commission as an exhibit to the Company


Exhibits indicated with footnote (11) are executive contracts or compensatory
plan arrangements filed pursuant to Part III, Item 2 of Form 10-KSB.

Exhibit No.     Description
-----------     -----------

3.1             Certificate of Incorporation of the Company (1)
3.1(a)          Amendment to Certificate of Incorporation of the Company (2)
3.1(b)          Amendment to Certificate of Incorporation of the Company (3)
3.1(c)          Amendment to Certificate of Incorporation of the Company (8)
3.2             By-laws of the Company (1)
10.1            Stock Purchase Agreement dated April 30, 1996 between
                Registrant and Tom Combrinck (2)
10.2            Subscription Agreement dated April 30, 1996 between Registrant
                and Interfinance Inv. Co. Ltd. for the purchase of 183,333
                shares of Common Stock (2)
10.3            Subscription Agreement dated April 30, 1996 between Registrant
                and Interfinance Inv. Co. Ltd. for the purchase of 2,566,667
                shares of Common Stock (2)
10.4            Promissory Note in the principal amount of $2,799,974, dated
                April 30 1996, by Interfinance Inv. Co. Ltd. in favor of
                Registrant (2)
10.5            Security and Pledge Agreement dated April 30, 1996 between
                Registrant and Interfinance Inv. Co. Ltd. (2)
10.6            Registration Rights Agreement dated April 30, 1996 between
                Registrant and Interfinance Inv. Co. Ltd. (2)
10.7            Agreement dated December 21, 1995 between Registrant and
                Telemedia International, together with Assignment dated July 1,
                1996 (2)
10.8            Lease beginning April 1, 1996 between Registrant and Guido M.
                Renggli (2)
10.9            Management Agreement dated March 14, 1996 between Registrant
                and Andreas Popovici (2), (11)



                                       28
<PAGE>

10.10           Management Agreement dated April 4, 1996 between Registrant and
                Franco Reinschmidt (2), (11)
10.11           Form of Customer Contract of Registrant (2)
10.12           Subscription Agreement dated August 15, 1996, between
                Registrant and Interfinance Inv. Co. Ltd., for the purchase of
                400,000 shares of Common Stock (2)
10.13           Promissory Note in the principal amount of $990,000 dated
                August 15, 1996, by Interfinance Inv. Co. Ltd., in favor of
                the Registrant (2)
10.14           Security and Pledge Agreement dated August 15, 1996 between
                Registrant and Interfinance Inv. Co. Ltd. (2)
10.15           Subscription Agreement dated as of January 15, 1997 between the
                Company and Interfinance Inv. Co. Ltd. (4)
10.16           Subscription Agreement dated as of November 21, 1996 between
                the Company and Interfinance Inv. Co. Ltd. (4)
10.17           Joint Instructions of Registrant and Thomas Combrinck and
                Interfinance Inv. Co. Ltd. dated January 16, 1997 (5)
10.18           Consultancy Agreement effective September 1, 1996 between UTG
                Communications (Europe) AG and Birand Ltd. (5), (11)
10.19           Share Purchase Agreement among UTG Communications Belgium N.V.,
                Messrs. Luc and Tom Van den Bogart and UTG Communications
                Holding AG. (5)
10.20           Pledge Agreement among UTG Communications Belgium N.V., Messrs.
                Luc and Tom Van den Bogart and UTG Communications Holding AG.
                (5)
10.21           Employment Agreement dated June 30, 1997 between the Registrant
                and Keith Rhea (5), (11)
10.22           Cooperation Agreement dated August 6, 1997 between Trafficom
                and UTG Hungary (6)
10.23           Consulting Agreement between the Company and Telepath, Ltd.
                (7),(11)
10.24           Share Purchase Agreement dated December 29, 1997 between
                Portmann Trading AG and UTG Communications Holding AG (8)
10.25           Share Purchase Agreement dated between Portmann Trading
                AG and UTG Communications Holding AG (8)
10.26           Asset Purchase Agreement dated December 30, 1997 between UTG
                Communications (Europe) AG and UTG Communications Holding AG
                (8)
10.27           Subscription Agreement, dated as of January 25, 1998 by and
                between the Registrant and Medfield Investment S.A.
                ("Medfield") (8)
10.28           Agreement between Medfield and the Registrant, dated May 16,
                1998 (8)
10.29           Form of Warrant issued to Medfield (8)
10.30           Registration Rights Agreement, dated as of March 23, 1998
                between the Registrant and Medfield (8)
10.31           Settlement Agreement among Fritz K. Wolff, Birand Ltd.,
                TeleInvest Ltd. and UTG International, Inc., together with
                Share Purchase Agreement dated as of May 31, 1998 among Fritz
                K. Wolff, TeleInvest Ltd. and Interfinance Inv. Co. Ltd. (8)
10.32           Loan Agreement, dated August 13, 1998(9)
10.33           Agreement dated September 25, 1998 between Medfield and the
                Company (9)
10.34           Interconnection Agreement dated August 21, 1998 between the
                Company and Swisscom (9)
10.35           Shareholders Agreement, dated as of November 16, 1998 (10)
21.1            List of Subsidiaries
23.1            Consent of Merdinger, Fruchter, Rosen & Corso, P.C.
27.1            Financial Data Schedule




                                       29
<PAGE>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                   FOR THE YEARS ENDED MARCH 31, 2000 AND 1999




<PAGE>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                        CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED MARCH 31, 2000 AND 1999





                                      INDEX
                                      -----


INDEPENDENT AUDITORS' REPORT                                                 F-1


CONSOLIDATED BALANCE SHEETS                                            F-2 - F-3


CONSOLIDATED STATEMENTS OF OPERATIONS                                  F-4 - F-5


CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS                                F-6


CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY                               F-7


CONSOLIDATED STATEMENTS OF CASH FLOWS                                  F-8 - F-9


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                           F-10 - F-30


<PAGE>







                          INDEPENDENT AUDITORS' REPORT



TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
UTG COMMUNICATIONS INTERNATIONAL, INC.

We have audited the accompanying consolidated balance sheets of UTG
COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES as of March 31, 2000 and
1999, and the related consolidated statements of operations, stockholders'
equity, comprehensive loss and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 audits 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 financial position of UTG COMMUNICATIONS
INTERNATIONAL, INC. AND SUBSIDIARIES as of March 31, 2000 and 1999, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.

As discussed in Note 1(j) to the consolidated financial statements, UTG
Communications International, Inc. and Subsidiaries changed its method of
accounting for organization costs effective April 1, 1999.




                                        MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
                                        Certified Public Accountants

New York, New York
July 11, 2000


                                      F-1

<PAGE>
<TABLE>
<CAPTION>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS



                                                                    MARCH 31,
                                                        ----------------------------
       ASSETS                                               2000             1999
                                                        ------------   -------------
CURRENT ASSETS
<S>                                                      <C>           <C>
    Cash and Cash Equivalents                            $    29,580   $   402,925
    Restricted Cash                                             --         336,293
    Accounts Receivable, net of allowance for
     doubtful accounts of $526,390 and $372,314            2,825,312     1,167,227
    Inventory                                              1,269,166       606,140
    Other Receivables                                           --         824,602
    Due from Related Parties                                 337,802          --
    Prepaid License Costs                                    649,724          --
    Prepaid Expenses and Other Current Assets                278,038       117,757
                                                         -----------   -----------

       Total Current Assets                                5,389,622     3,454,944

Property and Equipment, at cost, net of accumulated
 depreciation of $2,929,618 and $2,158,682                 1,505,181     2,579,646

Investments                                                   20,016          --

Organization Costs, at cost, net of accumulated
 amortization of $-0- and $36,160                               --         108,953

Goodwill, at cost, net of accumulated amortization
 of $238,582 and $45,925                                   6,379,160       205,753

Customer Lists, at cost, net of accumulated
 amortization of $517,000 and $291,534                       356,352       645,536

Product License Costs, net of accumulated amortization
 of $163,217                                                 535,191          --

Deferred Taxes                                                  --            --

Other Assets                                                  37,010       203,283
                                                         -----------   -----------

       TOTAL ASSETS                                      $14,222,532   $ 7,198,115
                                                         ===========   ===========

</TABLE>



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

                                      - F-2 -


<PAGE>
<TABLE>
<CAPTION>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                                                   MARCH 31,
                                                        -------------------------------
                                                            2000               1999
                                                        ------------      -------------
       LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<S>                                                      <C>             <C>
    Bank Overdrafts                                      $  1,696,148    $    663,925
    Accounts Payable and Accrued Expenses                   6,428,538       3,835,759
    Due to Related Parties                                    808,702          14,516
    Loans Payable                                             210,983          67,649
    Capital Lease Obligation, Current                         213,661         253,788
    Deferred Revenue                                          176,564            --
                                                         ------------    ------------

       Total Current Liabilities                            9,534,596       4,835,637

Loans Payable                                                 371,250         371,250

Capital Lease Obligation, Long-Term                           386,970         473,920
                                                         ------------    ------------

       TOTAL LIABILITIES                                   10,292,816       5,680,807
                                                         ------------    ------------

Commitments and Contingencies                                    --              --

STOCKHOLDERS' EQUITY
    Preferred stock - $.01 par value, authorized
     10,000,000 shares; none issued and outstanding              --              --

    Common Stock - $0.00001 par value, authorized
     60,000,000 shares; 3,848,299 and 1,711,190
     issued and outstanding                                        38              16

    Additional Paid-in Capital                             14,373,497       8,667,784

    Treasury Stock                                           (300,000)       (300,000)

    Accumulated Deficit                                   (10,868,039)     (7,222,639)

    Cumulative Foreign Currency Translation Adjustment        724,220         365,738

    Minority Interest                                            --             6,409
                                                         ------------    ------------

       Total Stockholders' Equity                           3,929,716       1,517,308
                                                         ------------    ------------

       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY        $ 14,222,532    $  7,198,115
                                                         ============    ============

</TABLE>


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

                                     - F-3 -


<PAGE>

<TABLE>
<CAPTION>

                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS



                                                        For The Years Ended
                                                               MARCH 31,
                                                 ------------------------------
                                                       2000             1999
                                                  -------------    ------------

<S>                                                <C>             <C>
NET SALES                                          $ 15,566,213    $  5,400,256
COST OF SALES                                        12,895,580       4,237,686
                                                   ------------    ------------
GROSS PROFIT                                          2,670,633       1,162,570
                                                   ------------    ------------


SELLING AND TECHNICAL EXPENSES
    Technical Fees                                      126,828         564,543
    Sales Salaries                                      208,719         163,730
                                                   ------------    ------------
       Total Selling and Technical Expenses             335,547         728,273
                                                   ------------    ------------


INCOME FROM OPERATIONS BEFORE
 GENERAL AND ADMINISTRATIVE EXPENSES                  2,335,086         434,297
                                                   ------------    ------------


GENERAL AND ADMINISTRATIVE EXPENSES
    Management and Consulting Fees                      179,729          97,814
    Salaries and Employee Benefits                    1,922,255         795,980
    Bad Debt Expense                                    146,123         124,854
    Depreciation and Amortization                     1,754,122       1,173,645
    Professional Fees                                   363,688         180,198
    Travel Expenses                                     108,007          64,188
    Employment Agency Fees                               72,181          31,564
    Rent Expense                                        245,547          85,645
    Advertising                                         150,992          57,047
    Association Fees                                     16,618          29,170
    Insurance Expense                                     5,775          16,287
    Other Operating Expenses                            608,242         272,463
                                                   ------------    ------------
       Total General and Administrative Expenses      5,573,279       2,928,855
                                                   ------------    ------------


LOSS FROM OPERATIONS                                 (3,238,193)     (2,494,558)

</TABLE>




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

                                     - F-4 -


<PAGE>
<TABLE>
<CAPTION>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS



                                                            For The Years Ended
                                                                  MARCH 31,
                                                     ---------------------------
                                                         2000            1999
                                                     -------------  ------------
OTHER INCOME (EXPENSES)
<S>                                                       <C>            <C>
    Interest Income                                       92,497         35,030
    Interest Expense                                    (252,231)       (78,360)
    Loss From Foreign Currency                          (128,503)      (403,228)
    Loss on Investments                                  (42,922)          --
    Gain from Sale of Subsidiary                          13,436           --
    Other Income (Expenses), net                          12,499        195,233
                                                     -----------    -----------

       Total Other Income (Expenses)                    (305,224)      (251,325)
                                                     -----------    -----------

LOSS BEFORE MINORITY INTEREST                         (3,543,417)    (2,745,883)

MINORITY INTEREST                                          4,564         74,468
                                                     -----------    -----------

LOSS BEFORE INCOME TAXES                              (3,538,853)    (2,671,415)

INCOME TAXES                                                --             --
                                                     -----------    -----------

LOSS BEFORE CUMULATIVE EFFECT OF
  ACCOUNTING CHANGE                                   (3,538,853)    (2,671,415)

CUMULATIVE EFFECT OF ACCOUNTING CHANGE,
  net of Income Tax                                     (106,547)          --
                                                     -----------    -----------

NET LOSS                                             $(3,645,400)   $(2,671,415)
                                                     ===========    ===========

LOSS PER COMMON SHARE - Basic and Diluted
    Before Cumulative Effect of Accounting Change    $     (1.25)   $     (1.80)
    Cumulative Effect of Accounting Change was per
      Common Share                                          (.03)          --
                                                     -----------    -----------
                                                     $     (1.28)   $     (1.80)
                                                     ===========    ===========


</TABLE>





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

                                     - F-5 -


<PAGE>
<TABLE>
<CAPTION>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS




                                                          For The Years Ended
                                                                MARCH 31,
                                                     ---------------------------
                                                       2000             1999
                                                     ------------   ------------
<S>                                                <C>              <C>
COMPREHENSIVE LOSS
        Net Loss                                     $(3,645,400)   $(2,671,415)

       Foreign Currency Translation Adjustment           358,482        508,610
                                                     -----------    -----------

COMPREHENSIVE LOSS                                   $(3,286,918)   $(2,162,805)
                                                     ===========    ===========








</TABLE>




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

                                     - F-6 -


<PAGE>

<TABLE>
<CAPTION>



             UTG COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                   FOR THE YEARS ENDED MARCH 31, 2000 AND 1999



                                                                       ADDITIONAL
                                           COMMON STOCK                 PAID-IN          TREASURY     ACCUMULATED
                                    ---------------------------
                                      SHARES          AMOUNT            CAPITAL          STOCK         DEFICIT
                                    -----------     ----------        -----------     -----------   -------------


<S>                                <C>         <C>                <C>            <C>             <C>
Balance at March 31, 1998            1,303,154   $         13       $  7,925,628   $       --      $ (4,551,224)

Net Loss - For the Year Ended
 March 31, 1999                           --             --             --                 --        (2,671,415)

Issuance of Common Stock               408,036              3            816,069           --              --

Offering Costs                            --             --              (73,913)          --

Treasury Stock                            --             --             --                (300,000)

Cumulative Foreign Currency
 Translation Adjustment                   --             --             --                 --              --

Minority Interest                         --             --             --                 --              --

                                    ----------   ------------   ------------      ----------------  -----------
Balance at March 31, 1999            1,711,190             16      8,667,784              (300,000)  (7,222,639)

Net Loss For The Year Ended
 March 31, 2000                           --             --             --                 --        (3,645,400)

Issuance of Common Stock             2,137,109             22      5,705,713               --              --

Cumulative Foreign Currency
 Translation Adjustment                   --             --             --                 --              --


Minority Interest                         --             --             --                 --              --


Balance at March 31, 2000            3,848,299   $         38   $ 14,373,497       $   (300,000)   $(10,868,039)
                                                                ============       ============    ============


                                   FOREIGN                           Total
                                  CURRENCY            Minority    Stockholders'

                                  ADJUSTMENT          INTEREST         EQUITY
                                  ------------      ------------     ----------



Balance at March 31, 1998         $(142,872)      $       --      $  3,231,545

Net Loss - For the Year Ended
 March 31, 1999                           --              --        (2,671,415)

Issuance of Common Stock                  --              --           816,072

Offering Costs                            --              --           (73,913)

Treasury Stock                            --              --          (300,000)

Cumulative Foreign Currency
 Translation Adjustment                508,610            --           508,610

Minority Interest                         --             6,409           6,409

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

Balance at March 31, 1999              365,738           6,409       1,517,308

Net Loss For The Year Ended
 March 31, 2000                           --              --        (3,645,400)

Issuance of Common Stock                  --              --         5,705,735

Cumulative Foreign Currency
 Translation Adjustment                358,482            --           358,482


Minority Interest                         --            (6,409)         (6,409)

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

Balance at March 31, 2000         $    724,220    $       --      $  3,929,716
                                  ============    ============    ============
</TABLE>




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

                                      - F-7 -


<TABLE>
<CAPTION>

                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                For The Years Ended
                                                                     MARCH 31,
                                                          ----------------------------
                                                               2000            1999
                                                          --------------  ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                        <C>            <C>
    Net Loss                                               $(3,645,400)   $(2,671,415)
    Adjustments to Reconcile Net Loss to
     Net Cash Used by Operating Activities:
       Cumulative Effect of an Accounting Change               107,900           --
       Gain on Sale of Subsidiary                              (13,436)          --
       Increase in Bad Debt                                    121,932           --
       Depreciation and Amortization                         1,754,122      1,173,645
    Changes in Certain Assets and Liabilities:
       Increase in Accounts Receivable                        (164,258)      (836,644)
       Increase in Other Receivables                              --         (225,390)
       Increase in Due From Related Parties                   (190,076)          --
       Increase in Prepaid License Costs                       (20,590)          --
       (Increase) Decrease in Prepaid Expenses and
        Other Current Assets                                    93,375        (44,684)
       (Increase) Decrease in Inventory                        297,363       (621,774)
       Increase in Organization Costs                             --         (134,124)
       (Increase) Decrease in Other Assets                     177,365       (128,535)
       Increase in Deferred Revenue                            189,308           --
       Increase in Accounts Payable and Accrued Expenses       628,066      2,548,871
       Increase in Due to Related Party                         10,627         14,885
                                                           -----------    -----------
Total Cash Used by Operating Activities                       (653,702)      (925,165)
                                                           -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of Property and Equipment, net                   (428,614)    (1,242,617)
    Increase in Product License Costs                         (268,020)          --
                                                           -----------    -----------
Total Cash Used by Investing Activities                       (696,634)    (1,242,617)
                                                           -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
    (Increase) Decrease in Restricted Cash                     321,916       (347,913)
    (Increase) Decrease in Bank Overdraft                     (495,663)       686,867
    Increase in Loans Payable                                  161,453        441,236
    Increase in Capital Lease Obligation, net                  256,988        162,311
    Contribution to Capital                                    421,822        816,072
    Offering Costs                                              73,913        (73,913)
    Minority Interest                                           (6,403)         6,571
                                                           -----------    -----------
Total Cash Provided By Financing Activities                    734,026      1,691,231
                                                           -----------    -----------

EFFECTS OF EXCHANGE RATE
CHANGES ON CASH                                                242,965        516,307
                                                           -----------    -----------

NET INCREASE (DECREASE) IN CASH AND
 CASH EQUIVALENTS                                             (373,345)        39,756

CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR                  402,925        363,169
                                                           -----------    -----------

CASH AND CASH EQUIVALENTS - END OF YEAR                    $    29,580    $   402,925
                                                           ===========    ===========

CASH PAID DURING THE YEAR FOR:
    Interest Expense                                       $   123,000    $    66,000
                                                           ===========    ===========
    Income Taxes                                           $      --      $      --
                                                           ===========    ===========
</TABLE>

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


                                      - F-8 -


<PAGE>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   FOR THE YEARS ENDED MARCH 31, 2000 AND 1999




NON-CASH INVESTING AND FINANCING ACTIVITIES:

Year Ended March 31, 2000:

    On July 5, 1999, the Company sold its 100% investment in Multicom (see note
    6a).

    On November 15, 1999, the Company acquired 51% of Music Line AG's common
    stock for 1,750,000 shares of the Company's common stock and the assignment
    of approximately $789,000 of accounts receivable (see Note 6c).

Year Ended March 31, 1999:

    The Company received 23,077 shares of its common stock as consideration for
    payment of a $300,000 receivable due from a former officer of the Company.
    The common stock is recorded as treasury stock as of March 31, 1999 (see
    Note 17).













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

                                      - F-9 -


<PAGE>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2000 AND 1999


NOTE 1 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     a)   BASIS OF PRESENTATION The accompanying financial statements have been
          prepared in accordance with generally accepted accounting principles
          and with the instructions to Form 10-KSB and Regulation S-B. In the
          opinion of management, all adjustments (consisting only of normal
          recurring adjustments) considered necessary for a fair presentation,
          have been included.

          The accompanying consolidated financial statements include the
          accounts of UTG Communications International, Inc. (the "Company"), a
          holding company organized under the laws of the state of Delaware on
          April 17, 1996 and its subsidiaries:

          1)   Starfon Telecom Services AG, ("Starfon"), incorporated under the
               laws of Switzerland on February 29, 1996 (owned 100% by the
               Company);

          2)   UTG Communications Belgium N.V., ("UTG Belgium"), incorporated
               under the laws of Belgium on June 27, 1996 (owned 100% by
               Starfon);

          3)   Multicom NV ("Multicom"), incorporated under the laws of Belgium
               (owned 100% by UTG Belgium) (see Note 6 for disposition);

          4)   United Telecom GmbH, ("UTG GmbH"), incorporated under the laws of
               Switzerland on May 28, 1996 (owned 100% by Starfon);

          5)   Telelines International SA, ("Telelines"), incorporated under the
               laws of Panama on July 28, 1997 (owned 100% by Starfon) (see Note
               6);

          6)   Starpoint Card Services LTD, ("Starpoint"), incorporated under
               the laws of the United Kingdom on November 18, 1998 (owned 51% by
               Telelines);

          7)   Star Global LTD, ("Star Global"), incorporated under the laws of
               Jersey, Channel Islands on November 24, 1998 (owned 100% by
               Telelines);

          8)   Music Line AG ("Musicline"), incorporated under the laws of
               Switzerland on July 16, 1998, owned 51% by the Company (see Note
               6 for Acquisitions);

          9)   SSC Selected Sound Carrier AG, ("SSC"), incorporated under the
               laws of Switzerland on July 1, 1998 (owned 100% by Musicline)
               (see Note 6 for acquisition); and

          10)  JM Sontel AG, ("JM"), incorporated under the laws of Switzerland
               on December 12, 1991 (owned 100% by Musicline) (see Note 6 for
               Acquisitions).


               All significant intercompany accounts and transactions have been
               eliminated in consolidation.






                                    - F-10 -


<PAGE>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2000 AND 1999



NOTE 1 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     b)   LINE OF BUSINESS The Company is a switch-based provider of private
          voice, fax and data management telecommunication services throughout
          Europe and is engaged in the resale of international telecom services
          in the United Kingdom.

          The Company is also engaged in the sale and distribution of music
          compact discs ("CDs") and other music to wholesale and retail
          customers throughout Europe.

     c)   USE OF 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 and disclosure of contingent assets and liabilities at the
          date of the financial statements and the reported amounts of revenue
          and expenses during the reporting period. Actual results could differ
          from those estimates.

     d)   REVENUE RECOGNITION
          Revenue from switch based services are recognized when billed based on
          the number of minutes provided to customers. Revenue from the sale of
          phone cards is recorded at the time of sale.

          Revenue from the sale of CDs is recognized at the time of shipment.

     e)   CONCENTRATION OF CREDIT RISK
          The Company places its cash in what it believes to be credit-worthy
          financial institutions. However, cash balances exceeded FDIC insured
          levels at various times during the year.

     f)   CASH AND CASH EQUIVALENTS
          The Company considers all highly liquid investments purchased with
          original maturities of three months or less to be cash equivalents.

     g)   INVENTORY
          Inventory is stated at the lower of cost or market. Cost is determined
          on a first-in, first-out basis.

     h)   PREPAID LICENSE COSTS
          Prepaid license costs are recorded at cost as of the date of purchase.
          These costs represent various expenses related to the production of
          the CDs. These costs are expensed in relation to volume of sales,
          usually over a period of one year.

     i)   PROPERTY AND EQUIPMENT
          Property and equipment is stated at cost. Depreciation is computed
          using the straight-line method based upon the estimated useful lives
          of the various classes of assets. Maintenance and repairs are charged
          to expense as incurred.

                                    - F-11 -


<PAGE>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2000 AND 1999



NOTE 1 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     j)   ORGANIZATION COSTS
          Organization costs consist of legal and other administrative costs
          incurred relating to the formation of the Company. These costs were
          capitalized and amortized over a period of five years.

          As of April 1, 1999, these costs totaling $106,547 were expensed per
          Statement of Position No. 98-5, "Accounting for Start-Up Costs".

     k)   GOODWILL
          Goodwill represents the cost in excess of the fair market value of the
          Company's acquisitions. Amortization is being computed using the
          straight-line method over a period of fifteen years.

     l)   CUSTOMER LISTS
          Customer lists represents the cost of the acquisition of subscriber
          names at their fair market value. Amortization is being computed using
          the straight-line method over a period of three years.

     m)   PRODUCT LICENSE COSTS
          Product license costs are recorded at cost as of the date of purchase.
          These costs represent various royalty, production and license fees the
          Company must pay to utilize the licensed and copyrighted compositions.
          Amortization is computed using the straight-line method over a period
          of one to three years.

     n)   DEFERRED REVENUE
          Deferred revenue represents advanced billings on sales not shipped.

     o)   BANK OVERDRAFT
          The Company maintains overdraft positions at certain banks. Such
          overdraft positions are included in current liabilities.

     p)   OFFERING COSTS
          Offering costs consist primarily of professional fees. These costs are
          charged against the proceeds of the sale of common stock in the
          periods in which they occur.

     q)   ADVERTISING COSTS
          Advertising costs are expensed as incurred and included in selling,
          general and administrative expenses. For the years ended March 31,
          2000 and 1999, advertising expense amounted to $150,992 and $57,047,
          respectively.





                                     - F-12 -


<PAGE>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2000 AND 1999



NOTE 1 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     r)   TRANSLATION OF FOREIGN CURRENCY
          The Company translates the foreign currency financial statements of
          its Swiss, Belgian and United Kingdom subsidiaries, in accordance with
          the requirements of Statement of Financial Accounting Standards
          ("SFAS") No. 52, "Foreign Currency Translation". Assets and
          liabilities are translated at current exchange rates, and related
          revenue and expenses are translated at average exchange rates in
          effect during the period. Resulting translation adjustments are
          recorded as a separate component in stockholders' equity. Foreign
          currency transaction gains and losses are included in the statement of
          operations.

     s)   INCOME TAXES
          Income taxes are provided for based on the liability method of
          accounting pursuant to SFAS No. 109, "Accounting for Income Taxes".
          The liability method requires the recognition of deferred tax assets
          and liabilities for the expected future tax consequences of temporary
          differences between the reported amount of assets and liabilities and
          their tax basis.

     t)   FAIR VALUE OF FINANCIAL INSTRUMENTS
          The carrying value of cash and cash equivalents, accounts receivable,
          accounts payable and accrued expenses approximates fair value due to
          the relatively short maturity of these instruments.

     u)   LONG-LIVED ASSETS
          SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
          for Long-Lived Assets to be Disposed of", requires that long-lived
          assets and certain identifiable intangibles to be held and used or
          disposed of by an entity be reviewed for impairment whenever events or
          changes in circumstances indicate that the carrying amount of an asset
          may not be recoverable. The Company has adopted this statement and
          determined that no impairment loss need be recognized for applicable
          assets of continuing operations.

     v)   STOCK-BASED COMPENSATION
          SFAS No. 123, "Accounting for Stock-Based Compensation", encourages,
          but does not require, companies to record compensation cost for
          stock-based employee compensation plans at fair value. The Company has
          chosen to continue to account for stock-based compensation using the
          intrinsic value method prescribed in Accounting Principles Board
          Opinion No. 25, "Accounting for Stock Issued to Employees", and
          related Interpretations. Accordingly, compensation cost for stock
          options is measured as the excess, if any, of the quoted market price
          of the Company's stock at the date of the grant over the amount an
          employee must pay to acquire the stock.


                                     - F-13 -


<PAGE>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2000 AND 1999


NOTE 1 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     w)   EARNINGS PER SHARE
          SFAS No. 128, "Earnings Per Share" requires presentation of basic
          earnings per share ("Basic EPS") and diluted earnings per share
          ("Diluted EPS").

          The computation of basic earnings per share is computed by dividing
          income available to common stockholders by the weighted average number
          of outstanding common shares during the period. Diluted earnings per
          share gives effect to all dilutive potential common shares outstanding
          during the period. The computation of diluted EPS does not assume
          conversion, exercise or contingent exercise of securities that would
          have an anti-dilutive effect on earnings. The shares used in the
          computations are as follows:

                                                         AS OF MARCH 31,
                                                 ------------------------------
                                                      2000              1999
                                                 ------------       -----------

          Basic EPS                                2,840,188          1,485,529
                                                  ==========          =========
          Diluted EPS                              2,840,188          1,485,529
                                                  ==========          =========

     x)   COMPREHENSIVE INCOME
          SFAS No. 130, "Reporting Comprehensive Income", establishes standards
          for the reporting and display of comprehensive income and its
          components in the financial statements. The items of other
          comprehensive income that are typically required to be displayed are
          foreign currency items, minimum pension liability adjustments, and
          unrealized gains and losses on certain investments in debt and equity
          securities. As of March 31, 2000 and 1999, the Company has items that
          represent comprehensive income, therefore, has included a statement of
          comprehensive income.

     y)   SEGMENT INFORMATION
          SFAS No. 131, "Disclosure About Segments of an Enterprise and Related
          Information", changes the way public companies report information
          about segments. SFAS No. 131 is based on the selected segment
          information quarterly and entity-wide disclosures about products and
          services, major customers and the material countries in which the
          entity holds assets and reports revenue.

     z)   COMPUTER SOFTWARE COSTS
          Statement of Position Number 98-1 (SOP 98-1), "Accounting for the Cost
          of Computer Software Developed or Obtained for Internal Use" is
          effective for fiscal years beginning after December 15, 1998.
          Management believes that the Company is substantially in compliance
          with this pronouncement and that the implementation of this
          pronouncement will not have a material effect on the Company's
          financial position, results of operations or cash flows.


                                     - F-14 -


<PAGE>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2000 AND 1999



NOTE 1 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     aa)  RECLASSIFICATION
          As of March 31, 1999, certain prior year amounts have been
          reclassified to conform with current presentation.

     bb)  IMPACT OF YEAR 2000 ISSUE
          During the year ended March 31, 2000, the Company conducted an
          assessment of issues related to the Year 2000 and determined that it
          was necessary to modify or replace portions of its software in order
          to ensure that its computer systems will properly utilize dates beyond
          December 31, 1999. The Company completed Year 2000 systems
          modifications and conversions in 1999. Costs associated with becoming
          Year 2000 compliant were not material. At this time, the company
          cannot determine the impact the Year 2000 will have on its key
          customer or suppliers. If the Company's customers or suppliers don't
          convert their systems to become Year 2000 compliant, the Company may
          be adversely impacted. The Company is addressing these risks in order
          to reduce the impact on the Company.

     cc)  RECENT ACCOUNTING PRONOUNCEMENTS
          SFAS No. 132, "Employers' Disclosures about Pension and Other Post
          Employment Benefits," was issued in February 1998 and specifies
          amended disclosure requirements regarding such obligations. SFAS No.
          132 does not effect the Company as of March 31, 2000 or 1999.

          In March 1998, Statement of Position No. 98-1 was issued, which
          specifies the appropriate accounting for costs incurred to develop or
          obtain computer software for internal use. The new pronouncement
          provides guidance on which costs should be capitalized, and over what
          period such costs should be amortized and what disclosures should be
          made regarding such costs. This pronouncement is effective for fiscal
          years beginning after December 15, 1998, but earlier application is
          acceptable. Previously capitalized costs will not be adjusted. The
          Company believes that it is already in substantial compliance with the
          accounting requirements as set forth in this new pronouncement, and
          therefore believes that adoption will not have a material effect on
          financial condition or operating results.

          Additional guidance is also provided to determine when hedge
          accounting treatment is appropriate whereby hedging gains and losses
          are offset by losses and gains related directly to the hedged item.
          While the standard, as amended, must be adopted in the fiscal year
          beginning after June 15, 2000, its impact on the Company's
          consolidated financial statements is not expected to be material as
          the Company has not historically used derivative and hedge
          instruments.


                                     - F-15 -


<PAGE>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2000 AND 1999



NOTE 2 -  RESTRICTED CASH

          Restricted cash represented a call money account that was pledged
          against the 1,600,000 Swiss franc bank overdraft account with Credit
          Suisse Bank. Restricted cash totaled $336,293 as of March 31, 1999
          (see Note 8a). As of March 31, 2000, this call money account was not
          required.

NOTE 3 -  INVENTORY

          Inventory consists of the following:


                                                     AS OF MARCH 31,
                                              -------------------------------
                                                  2000               1999
                                              -----------         ---------

             Calling Cards                    $   406,859         $ 606,140
             Compact Discs                        862,307              --
                                              -----------         ---------
                                              $ 1,269,166         $ 606,140
                                              ===========         =========

NOTE 4 -  DUE FROM RELATED PARTIES
                                                       AS OF MARCH 31,
                                             --------------------------------
                                                  2000               1999
                                             ------------        ------------

             a) Meditercasa AG               $     75,042    $         --
             b) Berger Music AG                     3,347              --
             c) Multicom                          259,413              --
                                             ------------   -----------------
                                             $    337,802    $         --
                                             ============    ================

          a)   Meditercasa AG is a company owned by a minority shareholder of
               Musicline, a subsidiary of the Company.
          b)   Berger Music AG is a 49% equity investment of the Company's
               subsidiary Musicline (see Note 7).
          c)   Multicom was a subsidiary of the Company sold on July 5, 1999
               (see Note 6).


                                     - F-16 -


<PAGE>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2000 AND 1999



NOTE 5 -  PROPERTY AND EQUIPMENT

          Property and equipment is summarized as follows:
                                                                 MARCH 31,
                                                     ---------------------------
                                                             2000       1999
                                                       ------------ ------------

          Telecommunications Equipment               $ 3,973,483    $ 3,386,767
          Computer Equipment and Software                150,303      1,036,749
          Furniture and Fixtures                         269,651        314,812
          Auto                                            41,362              -
                                                     -----------    -----------
                                                       4,434,799      4,738,328
          Less: Accumulated Depreciation              (2,929,618)   ( 2,158,682)
                                                     ------------   -----------
                                                     $ 1,505,181    $ 2,579,646
                                                     ===========    ===========

          Depreciation expense for the year ended March 31, 2000 and 1999 was
          approximately $1,393,832 and $908,000, respectively.

NOTE 6 -      ACQUISITIONS/DISPOSITIONS

     a)   On April 2, 1997, UTG Belgium acquired a 100% ownership in Multicom,
          an existing telecommunications company operating in the areas of
          direct and indirect dial, for 11,101,043 Belgium Francs or
          approximately $317,000.

     On   July 5, 1999, the Company sold its 100% investment in Multicom
          Communications NV to an unaffiliated Liechtenstein investor for BEF
          24,900 or approximately $600, to streamline the activities of UTG
          Belgium. This resulted in a gain to the Company of BEF 538,000 or
          approximately $135,000 on the sale of its subsidiary.

     b)   On November 15, 1998, the Company entered into a joint venture with 8
          individual distributors for the purpose of establishing a distribution
          network for telecommunication cards in the United Kingdom. The Company
          and its 8 distribution partners formed StarPoint Card Services LTD,
          located in London with the Company holding 51% of StarPoint's equity
          and the Company's partners holding the remaining 49%. In exchange for
          their 49% interest, the 8 distributors contributed their existing
          businesses and customer bases to StarPoint and agreed to work
          exclusively for StarPoint for a minimum of 24 months. UTG contributed
          cash in the amount of GBP 51,000 to the joint venture. Under the joint
          venture agreement, UTG has a three-year call option to acquire its
          partners' 49% interest for cash and/or UTG common stock. The exercise
          price equals the average of 8 times StarPoint's EBIT and sales during
          the three months preceding the exercise of the option.


                                      - F-17-


<PAGE>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2000 AND 1999



NOTE 6 -      ACQUISITIONS/DISPOSITIONS (Continued)

     c)   On November 15, 1999, the Company acquired a majority of the capital
          stock of Musicline. Pursuant to a Stock Purchase Agreement, dated
          August 9, 1999 between the Company and Ueli Ernst, the Company's
          Chairman and Chief Executive Officer, in consideration for 1,750,000
          shares of the Company's common stock, the assignment to Mr. Ernst of a
          receivable account in the principal amount of approximately $790,000,
          and, an additional 350,000 shares of the Company's common stock if
          Musicline's net profits reach at least $300,000 during the fiscal year
          ending March 31, 2000 or March 31, 2001. At a stockholders meeting
          held on October 22, 1999, the Company's stockholders, other than Mr.
          Ernst, or persons affiliated or associated with him, approved such
          stock purchase agreement by an affirmative vote of more than
          two-thirds of the shares of common stock held by such stockholders.
          The closing of this transaction occurred on November 15, 1999.

     d)   On December 31, 1999, the Company transferred its 100% investment in
          Telelines to it's 100% owned subsidiary Starfon at the Company's
          carrying value.

NOTE 7 -  EQUITY INVESTMENT

          The Company's subsidiary, Musicline, has a 49% equity investment in
          Berger Music AG. This investment totaled 33,333 Swiss Francs or
          $20,016 as of March 31, 2000. Berger's operations were immaterial for
          the year ended March 31, 2000.

NOTE 8 -  BANK OVERDRAFT

          Bank overdrafts represent the following:


                                                             MARCH 31,
                                                  ------------------------------
                                                        2000          1999
                                                  -------------   ------------

          a)  Credit Suisse - Starfon             $  598,034      $    663,925
          b)  Credit Suisse - JM Sontel              488,741                 -
          c)  Credit Suisse - SSC                    379,794                 -
          d)  Barclays Bank - Starfon                210,894                 -
               Other                                  18,685                 -
                                                 ----------       ------------
                                                 $ 1,696,148      $    663,925
                                                 ===========      ============







                                     - F-18 -


<PAGE>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2000 AND 1999



NOTE 8 -      BANK OVERDRAFT (Continued)

     a)   Starfon has a bank overdraft with Credit Suisse, totaling 994,479
          Swiss Francs, or $598,034 and 987,124 Swiss Francs, or $663,925 as of
          March 31, 2000 and 1999, respectively. The overdraft is drawn on a
          credit line of up to 1,600,000 Swiss Francs or approximately $960,000
          and bears interest at 5.375% and 5.5% per annum as of March 31, 2000
          and 1999, respectively. An intercompany receivable from UTG
          Communications International, Inc. of up to 3,000,000 Swiss Francs is
          collateral for this credit line.

     b)   JM Sontel has a bank overdraft totaling 813,900 Swiss Francs or
          approximately $488,741 with Credit Suisse. This overdraft is drawn on
          a credit line of 900,000 Swiss Francs or approximately $540,443 and
          bears interest at 5.25% per annum.

     c)   SSC has a bank overdraft of 632,472 Swiss Francs or approximately
          $379,794 with Credit Suisse. The overdraft is drawn on a credit line
          of 800,000 Swiss Francs or approximately $480,394 and bears interest
          at 5.25% per annum.

     d)   Starpoint, a subsidiary in Great Britain, has a bank overdraft with
          Barclays Bank totaling $210,894. This overdraft is drawn on a line of
          credit of 150,000 British Pounds or approximately $238,700 and bears
          interest at 8% per annum.

NOTE 9 -      DUE TO RELATED PARTIES

          Due to related party as of March 31, 2000 and 1999 consisted of the
          following:



                                                              MARCH 31,
                                                   --------------------------
                                                         2000       1999
                                                   ------------- ------------

          a) Interfinance Ltd.                     $    450,369$            -
          b) Point Classics SA                           67,342             -
          c) Peter Holmes                                14,320        14,516
          d) Loan Payable - Ernst Treuhandis             14,929             -
          e) Loan Payable - Ueli Ernst                   40,865             -
          f) Loan Payable - Steinhalden AG               10,705             -
          g) Loan Payable - Union Holding AG             60,049             -
          h) Loan Payable - Mira Music                  150,123             -
                                                  -------------  ------------
                 Total                            $     808,702  $     14,516
                                                  =============  ============





                                     - F-19 -

<PAGE>




                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2000 AND 1999



NOTE 9 -  DUE TO RELATED PARTIES (Continued)

          a) Interfinance is owned by the majority shareholder of UTG.
          b) Point Classics SA is a former subsidiary of Musicline.
          c) Represents an advance to a director of the Company's subsidiary
             Starpoint.
          d) Ernst Teuhandis is owned by the majority shareholder of the
             Company.
          e) Ueli Ernst is the majority shareholder of the Company.
          f) A company owned by the majority shareholder of the Company.
             This money is due for rent of certain premises in Zurich.
          g) A company owned by the majority shareholder of the Company.
          h) Mira Music is a company owned by a minority shareholder of
             Musicline, a subsidiary of the Company.

NOTE 10 - LOANS PAYABLE
                                                     AS OF MARCH 31,
                                               ------------------------------
                                                  2000               1999
                                               ----------        ------------

          a) Blacksea Inv. Ltd.                $  200,000          $  200,000
          b) Blacksea Inv. Ltd.                   171,250             171,250
          c) Gutknecht                            208,281                   -
          d) Unrelated Party                            -              67,649
             Other                                  2,702                   -
                                               ----------         -----------
                                                  582,233             438,899
                 Less short-term                 (210,983)            (67,649)
                                               ----------         -----------
             Long-term Loans Payable           $  371,250          $  371,250
                                               ==========          ==========

     a)   A $200,000 loan from Blacksea Inv. Ltd. ("Blacksea") dated August 13,
          1998, payable June 30, 2003. The loan bears an interest rate of 8% per
          annum and is payable on June 30, each year.

     b)   A 250,000 Swiss franc or $171,250 loan from Blacksea dated August 13,
          1998, payable June 30, 2003. The loan bears an interest rate of 5% per
          annum and is payable on June 30, each year.

          As additional consideration to the above loans, the Company agreed to
          issue to Blacksea the following 3 year warrants which will entitle
          Blacksea to purchase, validly issued and non-assessable shares of the
          Company's, $.00001 par value common stock at any time following the
          effective date of the Company's registration statement under
          Securities act covering the Warrant Shares.



                                     - F-20 -


<PAGE>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2000 AND 1999



NOTE 10 -LOANS PAYABLE (Continued)

          3,000 warrants at a strike price of $30 3,000 warrants at a strike
          price of $50 3,000 warrants at a strike price of 45 Swiss francs 3,000
          warrants at a strike price of 75 Swiss francs

          Blacksea has a further option to increase the loans by the same
          amounts as above, under the same conditions. This additional option
          must be executed in writing before January 31, 1999 and is also
          payable within this time. As of March 31, 2000 and 1999, this option
          had not been executed.

     c)   The Company has a 346,850 Swiss Franc or $208,284 draft payable to an
          unrelated party. The draft is due July 17, 2000 and bears no interest.

     d)   A 100,000 Swiss franc or $67,649 loan from an unrelated party, payable
          on demand. The loan bears an interest rate of 5% per annum.

NOTE 11 - INCOME TAXES

          The components of the provision for income taxes is as follows:

          Current Tax Expense
             U.S. Federal                                      $        -
             State and Local                                            -
                                                               ----------
          Total Current                                                 -
                                                               ----------

          Deferred Tax Expense
             U.S. Federal                                      $        -
             State and Local                                            -
                                                               ----------
          Total Deferred                                                -
                                                               ----------

          Total Tax Provision from Continuing
           Operations                                          $        -
                                                               ==========











                                     - F-21 -


<PAGE>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2000 AND 1999



NOTE 11 - INCOME TAXES (Continued)

          The reconciliation of the effective income tax rate to the Federal
          statutory rate is as follows:

          Federal Income Tax Rate                                       (34.0)%
          Deferred Tax Charge (Credit)                                   -
          Effect on Valuation Allowance                                  34.0%
          State Income Tax, Net of Federal Benefit                          -
                                                                   ----------
          Effective Income Tax Rate                                       0.0%
                                                                   ==========

          At March 31, 2000 and 1999, the Company had net carryforward losses of
          approximately $10,686,000 and $7,223,000, respectively. Because of the
          current uncertainty of realizing the benefits of the tax carryforward,
          valuation allowances equal to the tax benefits for deferred taxes have
          been established. The full realization of the tax benefit associated
          with the carryforward depends predominantly upon the Company's ability
          to generate taxable income during the carryforward period.

          Deferred tax assets and liabilities reflect the net tax effect of
          temporary differences between the carrying amount of assets and
          liabilities for financial reporting purposes and amounts used for
          income tax purposes. Significant components of the Company's deferred
          tax assets and liabilities are as follows:


                                                        AS OF MARCH 31,
                                                --------------------------
                                                     2000         1999
                                                ------------   -----------
          Deferred Tax Assets
          Loss Carryforwards                      $3,695,120    $2,456,000

          Less:  Valuation Allowance             ( 3,695,120)   (2,456,000)
                                                ------------   -----------
          Net Deferred Tax Assets               $          -   $        -
                                                ============   ===========

          Net operating loss carryforwards expire starting in 2011 through 2015.
          Per year availability is subject to change of ownership limitations
          under Internal Revenue Code Section 382.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

     a)   The Company is a party to claims and lawsuits arising in the normal
          course of operations. Management is of the opinion that these claims
          and lawsuits will not have a material effect on the financial position
          of the Company. The Company believes these claims and lawsuits should
          not exceed $50,000, and accordingly, has established a reserve
          included in accounts payable and accrued expenses.



                                     - F-22 -


<PAGE>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2000 AND 1999



NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)

     b)   On June 30, 1997, the Company entered into an employment agreement
          with Keith Rhea to serve as Chief Operating Officer of the Company and
          a member of the Board of Directors and a consulting agreement with
          Telepath, Ltd., a company believed to be affiliated with Mr. Keith
          Rhea. The terms of the agreements were for three years beginning on
          July 7, 1997 for an annual base salary of $100,000 and an annual
          consulting fee of $80,000. The Company also issued non-transferable
          stock options to purchase up to 200,000 shares of the Company's common
          stock at an exercise price of $1 per share. The options expire after 5
          years and shall fully vest within 2 1/2 years. As of March 31, 1999
          Mr. Rhea was no longer with the Company.

     c)   The Company's future minimum annual aggregate rental payments required
          under operating and capital leases that have initial or remaining
          non-cancelable lease terms in excess of one year are as follows:


                                             Operating           Capital
                                              LEASES              LEASES
                                             ----------        ----------------
          2001                               $  163,796         $   293,618
          2002                                  167,320             212,248
          2003                                  167,320             118,256
          2004                                  150,495              24,860
          2005 and thereafter                    72,059               3,234
                                             ----------        ------------
                Total Minimum Lease Payments $  720,990             652,216
                                             ==========
          Less: Amounts Representing Interest                       (51,585)
                                                               ------------
          Present Value of Future Minimum
           Lease Payments                                           600,631
          Less: Current Maturities                                 (213,661)
                                                                -----------
                Total                                           $   386,970
                                                                ===========

          Rent expense under operating leases for the year ended March 31, 2000
          and 1999 was $245,547 and $85,645, respectively.

NOTE 13 - STOCKHOLDERS' EQUITY

          On January 10, 1998, the Company's Board of Directors authorized the
          issuance of an additional 40,000,000 shares of common stock at $.0001
          par value bringing the total authorized common shares to 60,000,000.
          The Board also authorized the issuance of 10,000,000 preferred shares
          at $.01 par value. At the same time, a reverse split of
          one-for-thirteen shares was authorized to shareholders of record on
          March 24, 1998. Shareholders' equity has been restated to give
          retroactive recognition to the reverse stock split by reclassifying
          from common stock to additional capital the reduced par value arising
          from the reverse split.

                                     - F-23 -


<PAGE>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2000 AND 1999



NOTE 13 - STOCKHOLDERS' EQUITY (Continued)

          On August 22, 1999, in connection with the Company's reverse stock
          split of March 23, 1998, the Company issued 201,341 shares of common
          stock as a stock dividend (see Note 14).

          During the fiscal years ended March 31, 2000 and 1999, respectively,
          an investor exercised warrants to purchase 185,768 and 408,036 shares
          of common stock for net proceeds of $495,733 and $791,590,
          respectively.

          On November 15, 1999, in connection with the acquisition of Musicline,
          the Company issued 1,750,000 shares of its common stock

NOTE 14 - STOCK WARRANTS

     a)   As consideration for the loans received from Blacksea, (see Note 10),
          the Company agreed to issue to Blacksea the following 3 year warrants
          which will entitle Blacksea to purchase, validly issued and
          non-assessable shares of the Company's, $.00001 par value common stock
          at any time following the effective date of the Company's registration
          statement under Securities act covering the Warrant Shares.

          3,000 warrants at a strike price of $30
          3,000 warrants at a strike price of $50
          3,000 warrants at a strike price of 45 Swiss francs
          3,000 warrants at a strike price of 75 Swiss francs

          As of March 31, 2000 and 1999, the strike price of the warrants
          exceeded the trading price of the Company's common stock. As of March
          31, 2000 and 1999, the warrants have not been exercised.

     b)   On March 23, 1998, the Company issued 250,000 shares of restricted
          Common Stock (post-reverse split) at a purchase price of $2.00 per
          share. For each share of restricted Common Stock purchased, the
          subscriber received three warrants, each to purchase one share of
          restricted Common Stock at $2.00, $3.00 and $4.50, respectively. The
          warrants will expire five year from date of issuance. During the year
          ending March 31, 1999, the Company issued 408,036 shares of restricted
          Common Stock to the subscriber which entitled the subscriber to
          receive an additional three warrants, each to purchase one share of
          restricted Common Stock at $2.00, $3.00 and $4.50, respectively.

     c)   On August 22, 1999, in connection with the issuance of 201,341 shares
          of common stock and the Company's reverse stock split, effective March
          23, 1998, the Company issued 1,103,625 common stock purchase warrants
          at an exercise price of $15.00 per share and an expiration date of
          August 22, 2003 (See Note 13).


                                     - F-24 -



<PAGE>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2000 AND 1999

NOTE 15 - STOCK OPTIONS

     a)   In connection with a subscription agreement dated January 15, 1997,
          the Company granted Interfinance Investment Company ("IIC") an option
          to purchase up to an additional 92,308 shares as adjusted by reverse,
          shares of common stock at $26.00 per share for a two year period.
          These options expired unexercised as of January 15, 1999.

     b)   On June 25, 1997, the Company granted to Mr. Allen Howe, an employee,
          a nonqualified stock options to purchase up to 13,846 shares, as
          adjusted by reverse split at an exercise price of $13.00 per share.
          The option vests in equal installments on July 1, 1997, July 1, 1998
          and July 1, 1999. The option is exercisable as to any vested portion
          during the 12-month period commencing on July 1, 1999. If Mr. Howe
          remains employed by the Company through July 1, 1999, the Company
          agreed to pay Mr. Howe a cash bonus, which can only be used to satisfy
          payment of the exercise price. As of March 31, 1999, Mr. Howe was no
          longer with the Company. The vested portion of his options as of March
          31, 2000 equaled 4,615. The remainder of the options expired unvested
          upon termination from the Company.

     c)   On July 1, 1999 The Company granted options to purchase shares of
          common stock to four employees. Three options are for 10,000 shares,
          one option for 8,000 shares, at an exercise price of $5.00. The
          options vest immediately and expire June 30, 2004.

     d)   In 1999, the Company granted options to purchase shares of common
          stock to two outside consultants. Each option is for 25, 000 shares at
          an exercise price of $5.00 per share. The options vest on November 1,
          1999 and expire on October 31, 2004.


          Plan and non-plan stock option activity is summarized as follows:



                                                              MARCH 31,
                                                      --------------------------

                                                          2000             1999
                                                      -----------     ----------

          Outstanding at beginning of period                1,800             -

          Options granted at an exercise price of
           $1.00 per share                                      -         1,800

          Options granted at an exercise price of
           $5.00 per share                                207,000             -
                                                        ---------    -----------


          Outstanding at end of period                    208,800         1,800
                                                        =========     ==========

          Exercisable at end of period                    208,800           800
                                                        =========    ===========

          Weighted average exercise price of
           options outstanding                       $       4.80     $    1.00
                                                     ============     ==========

          Weighted average remaining contractual
            life of options outstanding                 57 months     15 months

                                     - F-25 -


<PAGE>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2000 AND 1999



NOTE 15 - STOCK OPTIONS (Continued)

          The Company accounts for its stock option transactions under the
          provisions of APB No. 25. The following proforma information is based
          on estimating the fair value of grants based upon the provisions of
          SFAS No. 123, "Accounting for Stock-Based Compensation." The fair
          value of each option granted during the period ended March 31, 2000
          has been estimated as of the date of grant using the Black-Scholes
          option pricing model with the following assumptions: risk free
          interest rate of 5.5%, life of options of 3-5 years, volatility of 50%
          and expected dividend yield of 0%. Under these assumptions, the
          weighted average fair value of options granted during the period
          ending March 31, 2000 was $2.26.

          The Company's proforma net loss and net loss per share assuming
          compensation cost was determined under SFAS No. 123 would have been
          the following:

                                             YEAR ENDED MARCH 31,
                                     --------------------------------
                                          2000               1999
                                     ------------        ------------
          Net Loss                   $(3,854,200)         $(2,673,216)
                                     ===========          ===========
          Net Loss Per Share              $(1.36)              $(1.80)
                                     ===========          ===========

NOTE 16 - MINORITY INTEREST

          Minority interest represents the following:

     a)   a 49% share of the common equity of the Company's subsidiary StarPoint
          as of March 31, 2000 and 1999 (see Note 5b); and

     b)   a 49% share of the common equity of the Company's subsidiary Musicline
          as of March 31, 2000 (see Note 5c). Minority interest totaled $-0- as
          of March 31, 2000 due to excess losses over the minority investment in
          Musicline.

NOTE 17 - TREASURY STOCK

          Treasury stock represented 23,077 shares of the Company's common stock
          received as consideration for payment of a $300,000 receivable due
          from a former officer of the Company as of March 31, 2000 and 1999.







                                     - F-26 -


<PAGE>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2000 AND 1999



NOTE 18 - FOREIGN OPERATIONS

          As described in Note 1b, substantially all of The Company's operations
          take place throughout Europe and the majority of its identifiable
          assets are located in Switzerland, Belgium and the United Kingdom.

NOTE 19 - SEGMENT INFORMATION

          During the years ended March 31, 2000 and 1999, the Company operated
          in three principal industries:

     a)   A switch-based provider of private voice; fax and data management
          telecommunication services throughout Europe;

     b)   the resale of international telecom services in the United Kingdom;
          and

     c)   the sale and distribution of CDs and other music to wholesale and
          retail customers in Europe.

          Loss from operations is net sales less cost of sales, selling and
          technical expenses and general and administrative expenses. Total
          assets consist of Selling Minutes assets which are located in Belgium
          and Switzerland, Calling Card assets which are located in the United
          Kingdom and CDs which are located in Switzerland. Corporate assets are
          immaterial.

          UTG Communications International, Inc. and Subsidiaries:


                                                       AS OF MARCH 31,
                                                 ---------------------------
                                                      2000          1999
                                                 -----------    ------------
          Net Sales:
              Selling Minutes                    $ 4,195,048    $ 3,008,387
              Calling Cards                        8,782,933      2,391,869
              Music                                2,588,232              -
              Corporate                                    -               -
                                                 ---------------------------
                   Total revenue                 $15,566,213    $ 5,400,256
                                                 ===========    ===========

          Cost of Sales:
              Selling Minutes                    $ 2,777,897    $ 2,017,837
              Calling Cards                        7,995,261      2,219,849
              Music                                2,122,422              -
              Corporate                                   -                -
                                                 ---------------------------
                   Total Cost of Sales           $12,895,580    $ 4,237,686
                                                 ===========    ===========


                                     - F-27 -


<PAGE>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2000 AND 1999



NOTE 19 - SEGMENT INFORMATION (Continued)

                                                           AS OF MARCH 31,
                                                  ------------------------------
                                                       2000                1999
                                                  --------------       ---------
          Selling and Technical:
              Selling Minutes                     $   317,285      $          -
              Calling Cards                             1,550           728,273
              Music                                    16,712                 -
              Corporate                                  -                    -
                                                  -----------      -------------
                   Total Selling and Technical    $   335,457      $    728,273
                                                  ===========      ============

          Income from Operations Before
            General and Administrative:
              Selling Minutes                     $ 1,099,866      $    990,550
              Calling Cards                           786,122          (556,253)
              Music                                   449,098                 -
              Corporate                                     -                 -
                                                  -----------      ------------
           Income from Operations Before
             General and Administrative           $ 2,335,086      $    434,297
                                                  ===========      ============

          General and Administrative:
              Selling Minutes                     $ 3,305,401      $  2,094,200
              Calling Cards                         1,341,528           323,995
              Music                                   449,477                 -
              Corporate                               476,873           510,660
                                                  -----------       -----------
          Total General and Administrative        $ 5,573,279      $  2,928,855
                                                  ===========      ============

          Loss from Operations:
              Selling Minutes                     $(2,205,535)      $(1,103,650)
              Calling Card                           (555,406)         (880,248)
              Music                                      (379)                -
              Corporate                              (476,873)         (510,660)
                                                 ------------      -------------
          Loss from Operations                   $ (3,238,193)      $(2,494,558)
                                                 ============       ============

          Identifiable Assets:
              Selling Minutes                    $  1,910,698       $  2,604,505
              Calling Cards                         1,430,824          1,342,250
              Music                                 4,252,335                  -
              Corporate                             6,628,674          3,251,360
                                                 ------------       ------------
                   Total Assets                  $ 14,222,531       $  7,198,115
                                                 ============       ============


                                     - F-28 -


<PAGE>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2000 AND 1999



NOTE 19 - SEGMENT INFORMATION (Continued)
                                                           AS OF MARCH 31,
                                                    ---------------------------
                                                          2000           1999
                                                    -------------    ----------
          Depreciation and Amortization Expense:
              Selling Minutes                       $  1,436,883    $ 1,166,671
              Calling Cards                               36,070          6,974
              Music                                      130,162              -
              Corporate                                  151,006              -
                                                    ------------    -----------
                   Total Depreciation and
                     Amortization Expense           $  1,754,121    $ 1,173,645
                                                    ============    ===========

NOTE 20 - FINANCIAL CONDITION

          As of March 31, 2000, the Company had a working capital deficit of
          $4,144,974 and an accumulated deficit of $10,868,039. As of March 31,
          1999, the Company had a working capital deficit of $1,380,693 and an
          accumulated deficit of $7,222,639. The Company's loss from operation
          for the years ended March 31, 2000 and 1999 were $3,645,400 and
          $2,671,415, respectively. Based upon the Company's plan of operation,
          the Company estimates that existing resources, and additional equity
          financing, together with funds generated from operations will be
          sufficient to fund the Company's working capital.Management believes
          that with the equity financing agreements it has in place that it has
          capital to fund current operations. (See note 22)

NOTE 21 - PROFORMA INFORMATION

          The Unaudited Proforma Consolidated Statement of Operations of the
          Company for the fiscal year ended March 31, 2000 have been prepared to
          illustrate the estimated effect of the Musicline AG Acquisition for
          the entire fiscal year. The Proforma Consolidated Statement of
          Operations does not reflect any anticipated cost savings from the
          Acquisition, or any synergies that are anticipated to result from the
          Acquisition, and there can be no assurance that any such cost savings
          or synergies will occur. The Proforma Statement of Operations gives
          proforma effect to the Musicline AG Acquisition as if it had occurred
          on April 1, 1998. The Proforma Financial Statements do not purport to
          be indicative of the results of operations or financial position of
          the Company that would have actually been obtained had such
          Acquisition been obtained in the future.



                                     - F-29 -


<PAGE>


                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             MARCH 31, 2000 AND 1999



NOTE 21 - PROFORMA INFORMATION (Continued)
<TABLE>
<CAPTION>

                                                                          PROFORMA
                                          UTG           * MUSICLINE       COMBINED

<S>                                    <C>             <C>             <C>
Net Sales                              $ 15,566,213    $  5,266,898    $ 20,833,111
Cost of Sales                            12,895,580       4,132,337      17,027,917
                                       ------------    ------------    ------------
Gross Profit                              2,670,633       1,134,561       3,805,194
Selling and Technical Expenses              335,547         651,289         986,836
                                       ------------    ------------    ------------
Income from Operations Before
 General and Administrative Expenses      2,335,086         483,272       2,818,358
General and Administrative Expense        5,573,279         638,370       6,211,649
                                       ------------    ------------    ------------
Loss from Operations                     (3,238,193)       (155,098)     (3,393,291)
Other Loss                                 (305,224)        (76,781)       (382,005)
                                       ------------    ------------    ------------
Loss Before Minority Interest            (3,543,417)       (231,879)     (3,775,296)
Minority Interest                             4,564            --             4,564
Loss Before Cumulative Effect             3,539,853            --         3,770,732
Cumulative Effect                          (106,547)           --          (106,547)
                                       ------------    ------------    ------------
Net Loss                               $ (3,645,400)   $   (231,879)   $ (3,877,579)
                                       ============    ============    ============
</TABLE>



          * Musicline results of operations from April 1, 1999 to the date of
          acquisition.

NOTE 22 - SUBSEQUENT EVENTS

          On June 2, 2000, the Company's subsidiary J.M. Sontel AG, entered into
          a five-year lease agreement beginning July 1, 2000 for office and
          showroom space in Rotkreuz, Switzerland, at a yearly rental of
          approximately $72,000 per year.

          During May 2000, pursuant to the March 23, 1998 reverse-stock-split of
          the Company's restricted Common Stock, a shareholder executed 33,806
          warrants at a price of $2.00 per share and 144,796 warrants at a price
          of $3.00 per share for a total of $1,110,000 less a 3% offering cost,
          or $33,300.

          Subsequent to March 31, 2000, the Company has received an additional
          commitment of $5,500,000 of equity financing.











                                     - F-30 -


<PAGE>