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, 1997

                                       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)

18 Cattano Avenue, Morristown, New Jersey 07960        Not Applicable
-----------------------------------------------        --------------
  (Address of principal executive offices)               (Zip Code)

      Issuer's telephone number:  (201) 644-3161

      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 revenues for its most recent fiscal year (year ended March
31, 1997) were $1,743,377.

      The aggregate market value on July 9, 1997 of the voting stock held by
non-affiliates computed by reference to the last sale price on that date was
approximately $30,876,000. As of July 14, 1997, 13,246,000 shares of Common
Stock, par value $.00001 per share, were outstanding.

Transitional Small Business Disclosure Format (check one)  YES     NO  X
                                                              ---     ---

                       DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the issuer's definitive proxy statement to be filed pursuant
to Regulation 14A in connection with the solicitation of proxies for its 1997
Annual Meeting of Stockholders are incorporated herein by reference into Part
III of this Form 10-KSB.
<PAGE>

                                     Part I

Item 1. Description of Business

General

      UTG Communications International, Inc. (the "Company" or "UTG") is a
provider of quality private voice, fax and data management telecommunication
("telecom") services in Switzerland and other European countries, primarily to
businesses and business groups 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.
As of May 27, 1997, the Company has entered into contracts with 121 direct dial
corporate customers to provide customized telecom service packages. These
customized packages include telecom minutes plus other services selected by
customers. Subsequent to fiscal year end, the Company purchased, for
approximately $317,000, Multicom N.V., an Antwerp, Belgium based company which
offers direct and indirect dial services to more than 250 corporate customers.
The Company provides local support, round-the-clock customer service and full
network redundancy to all customers. Available services include system design
and installation as well as digital compression, fax transmission compression,
digital data services and wideband digital data services. The Company intends to
continue to expand its operations through local subsidiaries and joint ventures
in other European countries as business, market and regulatory conditions
permit. The Company is presently exploring opportunities in France, Germany and
Hungary, as well as other European countries. 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."

      Both the competitive environment and the economic framework in which
international telecom companies operate are changing at a rapid pace. Due to the
liberalization of telecom markets and technical improvements, the Company
utilizes the infrastructure provided by international telecom carriers in
connection with the services it offers. This allows the Company to offer its
customers access to one of Europe's largest meshed fiber optic networks, 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 dedicated lines. The customer's
outgoing voice, fax and data transmissions are then transported directly to the
Company's switch facility in the United Kingdom. The communications are then
transferred directly from the Company's switch 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 attractive prices to its
customers due, among other things, to volume discounts the Company has
negotiated with carriers.


                                      - 2 -
<PAGE>

      On January 29, 1997, Mr. Thomas Combrinck, the Company's former Chairman
of the Board of Directors and a principal stockholder of the Company, resigned
as an officer and director of the Company. Shortly before the resignation of Mr.
Combrinck, on January 15, 1997, Mr. Fritz Wolff was elected a director,
Executive Vice President and Chief Operating Officer of the Company and assigned
the chief executive role with respect to the Company's operating subsidiaries.
Under the direction of Mr. Wolff, the Company's operating subsidiaries have
refocused their business strategy to expand their European customer base and to
improve and enhance the European network infrastructure. In June 1997, Mr. Fritz
Wolff succeeded Mr. David Schlecht as President and Chief Executive Officer of
the Company. Mr. Schlecht continues as a director of the Company. Recently, Mr.
Keith Rhea was elected Chief Operating Officer and a director of the Company.

Organization

      UTG was incorporated in the State of Delaware on April 17, 1996. UTG owns
substantially all of the equity of UTG Communications Holding AG ("UTG
Holding"), a Swiss company which has a number of operating subsidiaries. UTG
Holding has formed local subsidiaries in countries in which it has or presently
expects to have significant operations, and the Company anticipates forming new
subsidiaries in a like manner as business, market and regulatory conditions
permit. UTG Holding currently has wholly-owned subsidiaries organized in
Switzerland, the United Kingdom, Belgium and Hungary. In addition, UTG Holding
has a 49% interest in a company seeking to offer telecom services in France.
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 18 Cattano Avenue, Morristown, New Jersey 07960, and its telephone
number is (201) 644-3161.

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. Deregulation began in the United
Kingdom with the privatization of British Telecom, also in 1984. Deregulation
spread to


                                      - 3 -
<PAGE>

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 are expected to result in substantial
deregulation of the telecom industries in most EU countries by 1998. 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 is between
transmission facilities-based companies and non-transmission facilities-based
companies (resellers). Transmission facilities-based carriers, such as AT&T and
British Telecom, own their own long distance interexchange or transmission
facilities and originate and terminate calls through local exchange systems.
Profitability for 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
and 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 is
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 leased cost routes and to
control costs and record data and customer information.


                                      - 4 -
<PAGE>

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 techniques allows the Company to lease fewer lines and offer reduced
calling tariffs. The Company provides all of its customers with a high level of
quality service, including 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, 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.

Business Strategy

      The Company's objective is to build a broad and profitable European market
presence and to further develop its switch-based European infrastructure. The
Company is well positioned to take advantage of telecom deregulation in
Switzerland and 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.

      The Company believes it enjoys certain competitive advantages over global
telecom carriers and incumbent telephone operators: (1) the Company believes
that its target market makes 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.

Sales and Marketing

      The Company markets its services through the Company's internal sales
forces, independent sales agents and strategic arrangements with others. The
Company currently has a total of 14 internal sales personnel and approximately 8
independent sales agents. Telemarketers are used to generate leads for the
Company's internal sales force and independent sales agents. The Company's
principal sales offices are located in Switzerland, the United Kingdom and
Belgium.

      While the Company's sales and marketing activities to retail corporate
customers were initially limited to Switzerland, the Company has begun to expand
its activities into other


                                      - 5 -
<PAGE>

European countries. In June 1997, the Company consummated the purchase, for
approximately $317,000, of Multicom NV, a leading long distance reseller
headquartered in Antwerp, Belgium with a base of more than 250 small and medium
sized business customers.

      In Germany, the Company is in the process of forming a joint venture which
would offer voice and data telecom services to large corporations, as well as
telecom services for credit cards, debit cards and customer cards.

      In France, the Company owns a 49% interest in a company seeking to offer
direct and indirect dial services, as well as calling card services.

      In Hungary, the Company is in discussions with a major telecom company to
permit the Company to offer Internet backbone service to internet service
providers as well as high speed data and fax services utilizing the telecom
company's fiber-optic network.

      There can be no assurance that the Company's efforts in Germany, France or
Hungary will result in formal arrangements, or, if entered into, that any such
arrangements will be successful. The Company's goal is to continue to expand its
operations in a similar manner into other European countries as and when
business, market and regulatory conditions permit.

      No corporate retail customer accounted for 10% or more of the Company's
total revenue in fiscal 1997. However, two of the Company's telecom carriers
accounted for approximately 40% and 15%, respectively, of the Company's gross
revenue during fiscal 1997. The loss of either of these customers would have a
significant impact on revenues, but a lesser impact on gross margins since the
carrier business is based on tighter price margins.

      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.

Network

      The Company's network consists of over 20 owned POPs primarily located in
Switzerland, two switches located in the United Kingdom and leased-access to a
major international telecom carrier's network consisting of over 100 POPs
throughout Europe. The newest and largest of the Company's switches became
operational in November 1996. 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


                                      - 6 -
<PAGE>

incumbent telephone operators. Least cost routing software integrated in the
customer's telephone equipment determines the most efficient routing of calls.

      The Company generally utilizes network redundant, highly automated
advanced telecom equipment in its network and has diverse alternate routes
available in cases 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 in the United
Kingdom.

      Substantially all of the lines linking the Company's POPs to its switches
in the United Kingdom are leased from Telemedia International, Inc., an
Italy-based international telecom carrier ("TMI"). The TMI agreement may be
terminated by either party upon thirty days written notice. If the TMI agreement
is terminated by the Company the Company must pay TMI certain installation
charges to the extent that they have not been recouped by TMI plus an additional
month's leasing fee. The Company believes that the costs associated with
termination of the TMI agreement would not be material to the Company. Due to
the large excess capacity in the telecom industry, should the TMI agreement be
terminated, the Company believes that it would be able to replace the services
currently provided by TMI upon substantially the same terms and without
incurring material costs or a disruption of service, however, there can be no
assurance that termination of the TMI agreement would not cause a material
adverse affect on the Company. At March 31, 1997, approximately $967,000 was due
and owing to TMI by the Company for leased lines. See "Item 6. Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition."

      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 does not have adequate switching capacity to serve the
Company's projected volume of traffic beyond the remainder of calendar 1997. 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, provide customized billing information, track sales, provide
network security, provide network trouble shooting, and generate administrative
and marketing reports.


                                      - 7 -
<PAGE>

Regulation

      The discussion below is intended to provide a general outline of key
applicable laws and regulations of countries in the Company's principal markets
and is not intended to be a comprehensive description of the laws or regulatory
policies of each country.

      In February 1979, the World Trade Organization ("WTO") announced that 69
countries, including the United States, Japan, Switzerland, South Africa and all
of the member states of the EU, entered into an agreement to facilitate
competition in telecommunications services (the "WTO Agreement"). Under the WTO
Agreement, beginning in 1998, such countries are expected to allow access to
their domestic and international markets to competing telecommunications
providers, allow foreign ownership interests in existing telecommunications
providers and establish regulatory schemes to develop and implement policies to
accommodate telecommunications. The WTO Agreement should provide an opportunity
for new market entrants, such as the Company, to provide telecom services in
certain of these countries, several of which presently limit the provision of
telecom services in competition with services provided by the incumbent
telecommunications providers.

United States

      Currently, since no calls by Company customers originate in the United
States, the Company does not believe that it is subject to any telecom laws or
regulations in the United States. In the future, when and if the Company's
services expand, it is possible that the Company may become subject to the
telecom laws and regulations of the United States. If this were to occur,
compliance with such laws would involve certain costs, and, while the Company
would make every effort to comply with such laws and regulations, failure to
comply could have a material adverse effect on the Company.

European Union

      In Europe, the regulation of the telecommunications industry is governed
at a supra-national level by the EU. The EU was established by the Treaty of
Rome and subsequent conventions and through its operating bodies, the Council of
Ministers, the Commission (the "Commission") and the Parliament, is authorized
to issue EU "directives." EU member states (Austria, Belgium, Denmark, Finland,
France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal,
Spain, Sweden and the United Kingdom) are required to implement these directives
through national legislation. If an EU member state fails to adopt, or does not
properly or fully adopt, such directives, the Commission may take action to
require proper implementation through the European Court of Justice.

      Since 1987, the EU has issued a number of directives aimed at generating
competition in the telecommunications markets by liberalizing the provision of
telecommunications services and network infrastructure. In 1990, the EU issued a
Directive on Competition in the Markets for


                                      - 8 -
<PAGE>

Telecommunications Services (the "Telecommunications Services Directive") which
required each EU member state to abolish all exclusive and special rights
concerning the provision of telecommunications services other than voice
telephony services. The aim of the Telecommunications Services Directive was to
permit the competitive offering of services other than voice telephony, such as
value-added services and the delivery of voice services to closed user groups
("CUGs"). Differing interpretations of the Telecommunications Services Directive
and other EU initiatives, as well as varying national policies to liberalize
more quickly than the EU requires, have led to variations among the EU member
states as to which services may be delivered and the manner in which they may be
provided.

      Subsequent directives adopted by the EU, including the Full Competition
Directive adopted in March 1996, require the liberalization of all voice
telephony service in the EU and the provision of competitive infrastructures by
January 1, 1998. Extensions until 2000 were granted to Ireland and Portugal,
each of which believes it has a less developed network, and requests for
extensions have been submitted by Luxembourg, Spain and Greece. Spain has since
volunteered to liberalize by the second half of 1998 and the Commission expects
that Greece will be liberalized by 2001. To date, Sweden, Finland, Denmark and
the United Kingdom have liberalized facilities-based services.

      As discussed above, each EU member state in which the Company currently
conducts its business has a different regulatory scheme and such differences are
expected to continue beyond January 1998. The Company's regulatory requirements
vary considerably from country to country. The EU is currently considering the
adoption of a directive to establish a common framework for the granting and
administration of licenses to provide telecommunications services and
infrastructure. To the extent such directives are adopted by the EU and
implemented by the member states in which the Company operates, the Company may
in the future be required to obtain additional licenses, or renew, modify or
replace exiting licenses.

      In March 1997, the EU's Telecommunications Council approved a directive
setting forth guidelines regarding the granting of telecommunications licenses.
At the request of certain countries, including Germany, the EU agreed to issue a
declaration allowing member states to base their respective license fees on
present, as well as estimated future, administrative costs incurred in the
management, control and enforcement of individual licenses. As a result of
authorizing the member states to consider future administrative costs, license
fees in those member states that choose to include future expenses may be
substantially higher than typical license fees currently charged.

United Kingdom

      In the United Kingdom, the Company's services are subject to and affected
by the Telecommunications Act of 1984 (the "UK Telecommunications Act"). The
Secretary of State for Trade and Industry (the "TI Secretary") is responsible
for granting telecommunications licenses and has the power to revoke them, and
the Director General of telecommunications


                                      - 9 -
<PAGE>

("DGT") and his staff, known as the Office of Telecommunications ("Oftel"), are
responsible for enforcing the conditions of such licenses. The DGT is required
to take enforcement action under the UK Telecommunications Act if it discovers a
non-trivial breach of a license condition.

      British Telecom ("BT") and its predecessors were the sole providers of
public telecommunications services in all but a small part of the United Kingdom
until the early 1980's when the British government granted Mercury
Communications Ltd. ("Mercury"), now a subsidiary of Cable and Wireless, a
license to run its own telecommunications system. In 1991, the British
government established a "multi-operator" policy with respect to voice telephony
services using fixed access systems to replace the duopoly by BT and Mercury
that existed from the early 1980's until 1991. Under the multi-operator policy,
the TI Secretary will consider on its merits any application for a license to
operate a telecommunications network within the United Kingdom. At the end of
1996, this policy was extended with respect to international facilities and 44
new operators were authorized to connect their United Kingdom networks to
systems outside of the United Kingdom.

      The Company has been granted an international simple resale ("ISR")
license under the UK Telecommunications Act, authorizing it to operate a
switched system and provide switched telecommunications services to the public.
The license was granted for a period of one year and continues thereafter in
force and effect, subject to revocation by the TI Secretary on one month's prior
notice. The license contains general conditions concerning, among other things,
the use of interfaces that comply with accepted international standards, the use
of automatic calling equipment, restrictions on types of self-advertising that
use the licensed system, such as the telemarketing of products covered by the
license, and certain administrative items, such as the payment of fees. In
addition, the license contains certain conditions relating to the provision of
international telecommunications services. Historically, the TI Secretary had
specifically designated certain countries for ISR traffic that it considered as
maintaining equivalent competitive regulatory frameworks. In July 1996, however,
the authorization to provide ISR traffic was extended to all countries,
prompting the TI Secretary to implement a "proportionate return" condition. The
"proportionate return" condition requires licensees, such as the Company, to
ensure that the ratio of incoming to outgoing ISR traffic over the licensed
system during certain relevant periods is the same as the ratio of all incoming
to outgoing traffic to each of those destinations from the United Kingdom over
an earlier period. These rules do not apply to traffic from countries within the
European Economic Area (which includes the EU member states, Iceland,
Liechtenstein and Norway) or the United States, Canada, Australia and New
Zealand. The Company is required to keep information and to submit reports
concerning these provisions. Except in relation to the countries specifically
exempted, the Company will be in breach of a license condition if its ISR
traffic is not "two way," both into and out of the country concerned. This
provision does not apply where customers connect to a Company switching facility
in a relevant country by means of leased lines.

      All public telecommunications operators and ISR operators, as well as
several other categories of operators, operate under individual licenses granted
by the TI Secretary pursuant to


                                     - 10 -
<PAGE>

the UK Telecommunications Act. Licenses granted to large public operators, such
as BT and Mercury, contain conditions relating to the rights of the public and
other operators to connect to such systems. Such conditions are not generally
imposed on ISR licenses. However, ISR licenses, in most circumstances, provide
for "relevant connectable system status" with respect to BT and other large
public operators, giving ISR operators a right to connect to the networks of the
large public operators and enjoy wholesale, as opposed to retail, rates with
respect to interconnection tariffs and charges. The Company's license provides
for "relevant connectable system status" with respect to BT, which entitles the
Company to interconnect with BT's systems at wholesale, as opposed to retail,
rates with respect to interconnection tariffs and charges subject to the
continuing consent of the DGT. The DGT has recently issued a policy statement
indicating that, due to the diminishing need to guaranty relevant connectable
system status at wholesale rates as a result of increasing competition, ISR
operators who have applied for their licenses after February 5, 1996 will not
automatically receive relevant connectable system status. Rather, such status
will be granted only to those ISR operators that contribute significantly to
competition in the United Kingdom's international telecommunications market and
then only until such time as full competition in such market is established. ISR
operators who applied for their licenses prior to February 5, 1996 will continue
to have relevant connectable system status subject to the determination by the
DGT to revoke such status.

Germany

      The Company is presently exploring opportunities to offer telecom services
in the Federal Republic of Germany. In the Federal Republic of Germany,
liberalization of the telecommunications market is taking place through a
three-step process called Postal Reform I-III. Postal Reform I in 1989 divided
the state-owned Federal Post Office ("Bundespost") into three government
entities: the postal service, the banking service and telecommunications (later
to become Deutsche Telecom ("DT")), and ended the government's monopoly on the
provision of terminal equipment (i.e., telephones) Postal Reform II in 1995
resulted in the conversion of the three government entities into private stock
corporations. Postal Reform III, currently taking place, is expected to complete
the privatization and liberalization process by establishing a regulatory
framework.

      The constitutional basis for the liberalization of telecommunications was
achieved by the addition to the German constitution of a new Article 87(f).
Under Article 87(f), the national government is obliged to ensure appropriate
and sufficient telecommunications services throughout Germany. The primary
business objective of DT was re-defined as the provision of telecommunications
services in competition with other suppliers. The legal basis for the new
regulatory environment in Germany is the Telekommunikations--Telecommunications
Act of 1996 ("TKG"), which, with respect to most of its provisions, became
effective August 1, 1996, replacing a number of traditional telecommunications
statutes.

      The TKG lays the groundwork for a competitive telecommunications
environment in Germany. Since July 1, 1996, owners of telecommunications
networks have been permitted to offer their services (other than voice
telephony) on the German market and on January 1, 1998,


                                     - 11 -
<PAGE>

DT's monopoly over voice telephony is scheduled to end. In general, under the
TKG, carriers with dominant market positions, such as DT, are required to
interconnect their networks with the networks of other service suppliers. The
anticipated break-up of DT's monopoly over voice telephony has led to a number
of alliances among companies that desire to be key players in Germany's new
market, in particular electricity providers. For example, VIAG Interkom GmbH is
a joint venture between VIAG AG and BT. To the extent that alliance participants
are also part of monopolies in Germany's energy market, which is still not open
for competition, such companies could potentially create a negative impact on
the liberalization process for telecommunications.

      Currently in Germany, regulation of the telecommunications industry is
governed by the German Ministry of Post and Telecommunications (the "German
Ministry"), and to a certain extent by the Commission. As of January 1998, the
German Ministry, in its capacity as a regulator, will be replaced by a new
regulatory authority yet to be established under the TKG. The new regulatory
authority will act within the German Federal Ministry of Economics and will have
the leading role in developing the new regulatory environment. Under the TKG, in
general, a TKG license is required by any person that: (i) operates transmission
facilities for the provision of telecommunications services to the public; or
(ii) offers Voice Telephony services to the public through telecommunications
networks operated by such provider. The criteria for granting licenses are
broadly outlined in the TKG and the new regulatory authority will be responsible
for interpreting these guidelines and granting the TKG Licenses.

Switzerland

      Until recently, the telecommunications industry in Switzerland was
regulated by the Law on Telegraph and Telephone Traffic under which Swiss PTT
maintained a monopoly of the Swiss telecommunications market. In June 1991, in
response to the liberalization taking place in the EU, the Swiss Parliament
adopted a new law on telecommunications. This regulation has partially
liberalized the Swiss telecommunications market, limiting the incumbent
telephone operator monopoly to voice telephony and the telecommunications
infrastructures. As of July 1, 1995, the Federal Government amended the
Telecommunications Services Federal Decree of March 25, 1992 in order to
authorize private companies to provide voice telecommunications services to
CUGs. As a result of this action by the government, telecommunications companies
may provide telephone services over leased lines for a group of customers. No
permit or notice is required in order to form a CUG or to offer telephone
services for a CUG.

      Although Switzerland is not an EU member state, the EU directives
mandating liberalization have nevertheless had an indirect effect on Swiss law,
as the Swiss government has expressed its intention to maintain Swiss
telecommunications regulations in line with EU directed liberalization. In
response to the EU's adoption of the resolution supporting the liberalization of
all voice telephony services by January 1, 1998, the Swiss federal government
proposed that Parliament further open the Swiss telecommunications market for
services and network infrastructures. On October 1, 1996, the Swiss federal
government proposed a draft law (the


                                     - 12 -
<PAGE>

"Draft Law") designed to increase competition in the telecommunications service
area and to guarantee "universal" services for the entire Swiss population at
reasonable prices. The Company's services in Switzerland will be subject to the
Draft Law in the final form in which it is enacted into law.

      The Draft Law currently provides that any operator offering
telecommunications services through self-controlled infrastructures will be
required to obtain a license from the Swiss federal authorities. The government
will be required to grant a license if the applicant possesses the technical
abilities to offer the services and is able to offer sufficient guarantees that
it will comply with Swiss law. All other service providers will be required only
to notify the government of the services offered by them.

      Any operator that acquires a dominant position in the market will be
required to guarantee the interconnection of its services and installations to
other suppliers. If an agreement regarding interconnection cannot be reached
between a dominant operator and a supplier, an independent federal commission
will determine the conditions of such interconnection.

      In addition, the Draft Law introduces a licensing system for universal
services. This includes the obligation to offer telephone services transmission
data, service for urgent calls, a network of public telephones and access to the
Swiss telephone directories. The Swiss federal government will be authorized to
increase the services to be rendered by the holders of such universal service
licenses. Telecom PTT, a department within Swiss PTT, will guarantee the
universal service obligations without any compensation from the
telecommunications industry for a transition period of five years. By the end of
such transition period, the licenses for universal service obligations will be
offered for tender on a region-by-region basis so that continuous coverage will
be made available to the entire country. If provision of the universal service
obligations cannot cover costs in particular areas, a subsidy will be offered in
the form of investment contributions, which will be financed from a fund derived
from license fees collected from holders of service licenses.

      The Draft Law creates an independent telecommunications commission that
will principally be responsible for licensing and approving interconnection
decisions. In response to the pressure from the EU liberalization directives,
the Swiss Parliament may attempt to adopt the Draft Law during 1997 in order to
make it effective by January 1, 1998.

Belgium

      Under the old regime governed by the Act of July 19, 1930, the Belgian
Regie des Telegraphes and des Telephones ("RTT") was a governmental branch
directly governed by the Minister of Telecommunications and the only institution
in Belgium licensed and competent to operate the telecommunications network for
public telephone and telegraph services and to provide the relevant terminal
equipment.


                                   - 13 -
<PAGE>

The Act on Reform of Certain Public Enterprises (the "Act") was voted and
approved by Parliament in March 1991 and fully implemented in April 1993 and
entered into force in June 1993. Three principal parts of the Act are as
follows: (1) The Act separates the previously combined regulatory and market
participant activities of the old RTT into two separate bodies, Belgacom
(universal and commercial services) and Belgian Institute for Post and
Telecommunications ("BIPT") (government regulatory agency); (2) The Act
defines the market for telecommunication services and draws a line between the
"reserved" services (state monopoly) and the "non-reserved" services (free
exploitation); and (3) The Act liberalizes the market for terminal equipment. 

The reserved or monopoly services for which Belgacom has the exclusive right of
establishment, operation and exploitation are: (1) voice telephony, defined as
"the direct transport in real time and the switching of vocal signals from and
to connection points"; (2) telex, mobile and paging services; (3) telegraphy;
and (4) the provision of "fixed connections" leased lines.

The Act specifies that Belgacom's exclusive rights with respect to these
reserved services are limited to rendering services "for the benefit of third
parties." This nuance allows CUGs to install their own private network and use
that network for internal communication. The Company has a license issued by the
BIPT to offer its services to CUGs. As in most EU countries, the market is
expected to open to full competition in all services as of January 1, 1998.

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 and service, as well as
breadth of services offered. The 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 the offering of lower rates or promotional incentives by 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


                                     - 14 -
<PAGE>

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 competitor in Switzerland is Swiss Telecom,
which controls almost all of the Swiss telecom market. Additional competitors in
the European market include Viatel, Esprit, MFS WorldCom and Telegroup. In the
future, additional competitors may include, among others, Deutsche Telecom,
AT&T, MCI, Sprint, British Telecom and Mercury. As the Company expands into
other European countries there will be additional competition.

      In addition to these competitive factors, recent and pending telecom
deregulation in Switzerland and 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 the EU markets
is likely to increase and become more similar to competition in the United
States markets over time as such EU 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 the EU, 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, if any, by others.

Investments and Strategic Alliances

      As the Company expands its service offerings, geographic focus and its
network, 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.


                                     - 15 -
<PAGE>

Employees

      As of June 27, 1997, the Company had 12 full-time employees in Switzerland
and 12 full-time employees in the United Kingdom. In addition, two full-time
employees are located in Belgium and two full-time employees are located in
Hungary. 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 good.

Item 2. Properties

      The Company currently leases approximately 4,500 square feet in Zug,
Switzerland for approximately 5,700 CHF (approximately $3 ,900) per month. The
lease expires on June 30, 1998.

      The Company is utilizing office space (approximately 3,000 square feet) in
London, England formerly occupied by UTG Communications Ltd. UK ("UTK"), a
company with which the Company formerly shared a common director and which the
Company believes has ceased operations. See "Item 6. Management's Discussion and
Analysis of Financial Condition and Results of Operations--Financial Condition."
With the tacit consent of the landlord, the Company is making rental payments
to the landlord consistent with the terms of UTK's lease (approximately
$9,350/month). The Company has not entered into a new lease with the landlord.
The Company believes that adequate space is available upon terms which are at
least comparable to the terms of the UTK lease. The Company believes that its
facilities are adequate for its current administration and business needs.

      The Company's principal executive offices are located in Morristown, New
Jersey. The Company utilizes space provided by one of the Company's directors
for which the Company pays approximately $1,000 per month.

      The Company leases approximately 1,400 square feet in Antwerp, Belgium at
a monthly rental of approximately $1,775. The lease expires in 2005.

Item 3. Legal Proceedings

      On or about April 24, 1997, litigation was commenced in Labor Court in
Paris, France against UTG Communications (Europe) AG and other individual
defendants by Mr. James Taylor. The action seeks damages of 1,347,582 French
Francs (approximately $232,000) for breach of an alleged employment arrangement
with UTG Communications France SA, a newly formed French company in which the
Company owns a minority interest. The Company disputes the claim. At a hearing
on June 26, 1997, the Court rejected a demand on behalf of Mr. Taylor that
500,000 French Francs be set aside an escrow account. The next hearing judgment
is scheduled to occur in November 1997. The Company believes, based on advice of
counsel, that Mr. Taylor's claims will be entirely rejected by the Court.

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

      No matters were submitted to a vote of security holders during the quarter
ended March 31, 1997.


                                     - 16 -
<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.

Quarter Ended                                 High             Low

December 31, 1996                             $6.25            $3.50

March 31, 1997                                $4.625           $0.875

The above quotations 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 July 9, 1997 was $3.00.

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 June 30, 1997 was
approximately 39.

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. In addition,
arrangements with present or future lenders may prohibit the payment of
dividends.

Sales of Unregistered Securities

      In January 1997, the Company entered into a subscription agreement with
Interfinance Inv. Co., Ltd. ("Interfinance"), pursuant to which Interfinance
subscribed for 2,000,000 shares of Common Stock at a purchase price of $1.00 per
share. In connection with the subscription agreement, Mr. Thomas Combrinck
agreed to transfer, without cost to Interfinance, one share of


                                     - 17 -
<PAGE>

UTG Common Stock owned by him for each share purchased by Interfinance under the
subscription agreement. In addition, the Company granted Interfinance an option
to purchase up to an additional 1,200,000 shares of Common Stock at $2.00 per
share for a two year period commencing on completion of purchase of the full
2,000,000 shares. As of the date hereof, the Company has received approximately
$1,950,000 in respect of Interfinance's subscription (with the balance subject
to resolution of credits with respect to certain expenses incurred by
Interfinance). 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 750,000 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 10,000 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 for the registration
requirements of the Securities Act of 1933 by reason of the exemption provided
by Section 4(2) thereunder.

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, 1997. 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. To date, the Company has received an aggregate of approximately $6,370,000
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. In implementing its network, the
Company experienced significant technical problems with multiplexers and
transmission equipment. The equipment has been upgraded by the supplier at the
supplier's own expense. This has resulted in a lag in the realization of
revenue.

      The Company's revenue during the year ended March 31, 1997 was generated
from long distance telecom services provided to retail corporate customers and
wholesale customers. The Company's wholesale customers presently comprise
international telecom carriers and national telecoms, and the Company's retail
customers presently comprise medium-sized companies located in Switzerland. The
Company has been granted an International Simple Resale ("ISR") license from the
TI Secretary. The ISR license permits the Company to engage in the


                                     - 18 -
<PAGE>

international resale of telecom services. The Company has filed an application
to the United Kingdom Department of Trade and Industry for the issuance of an
International Facility License ("IFL"). The IFL would permit the Company to own
international facilities such as circuits, thereby enabling the Company to gain
a cost advantage by eliminating leased line charges. See "Item 1. Business--
Regulation."

      While the Company's retail operations were initially limited to
Switzerland, the Company has begun to expand its operations through subsidiaries
and joint ventures into other European countries. In June 1997, the Company
consummated the purchase of Multicom NV, a leading long distance reseller
headquartered in Antwerp, Belgium with a base of more than 250 customers. The
purchase price for Multicom NV was 11,101,043 Belgium Francs (approximately
$317,000). See Note 10(a) of Notes to Consolidated Financial Statements. In
France, the Company owns a 49% interest in a company seeking to offer direct and
indirect dial services, as well as calling card services. See Notes 10(c) and
(d) of Notes to Consolidated Financial Statements. In Germany, the Company is in
the process of forming a joint venture which would offer voice and data telecom
services to large corporations, as well as telecom services for credit cards,
debit cards and customers cards. In Hungary, the Company is in discussions with
a major telecom company to permit the Company to offer Internet backbone service
tp internet service providers as well as high speed data and fax services
utilizing the telecom company's fiber-optic network. The Company's goal is to
continue to expand its operations into other European countries as and when
business, market and regulatory conditions permit.

Financial Condition

      At March 31, 1997, the Company had a working capital deficit of
$1,313,149 and an accumulated deficit of $1,712,669.

      The Company has a bank overdraft facility with Credit Suisse in
Switzerland of CHF 300,000 (approximately $207,000), which bears interest at 6
1/4% per annum plus 1% on average overdraft in excess of fixed limit. The
overdraft is personally guaranteed by Mr. Fritz Wolff. Furthermore, the Company
has an overdraft position with the Union Bank of Switzerland that it is in the
process of reducing. At March 31, 1997 the balance outstanding was CHF 161,572
(approx. $111,500) and at June 27, 1997 the balance outstanding was CHF 91,578
(approx. $63,200). The balance bears interest of 7% per annum plus a commission
on highest outstanding balance of 1/4%.

      Although the Company's network currently has adequate switching capacity,
the Company does not believe that its network has adequate switching capacity to
serve projected volume of traffic beyond calendar 1997. Although the Company
presently has no commitments to acquire a new switch, the Company may be
required to do so in fiscal 1998.

      Subsequent to the end of fiscal 1997, the Company entered into a financing
arrangement with Ericsson Belgium to fund the Company's equipment requirements
in Belgium.


                                     - 19 -
<PAGE>

      Based upon the Company's plan of operation, the Company estimates that
existing resources, together with funds generated from operations, will not be
sufficient to fund the Company's working capital requirements beyond the next
few months. The Company is actively seeking additional equity financing and is
engaged in negotiations with a number of parties. There can be no assurance that
sufficient financing will be available on terms acceptable to the Company or at
all. If the Company is unable to obtain such financing during the time
indicated, the Company may be required to scale back operations which would have
a significant adverse effect on the Company's financial condition and results of
operations. See Auditors' Report preceding Financial Statements which contains
language relating to the Company's ability to continue as a going concern.

      Of accounts payable and accrued expenses in the amount of approximately
$3,166,000 owing at March 31, 1997, approximately $967,000 represented amounts
due to TMI, the Company's largest creditor, for leased lines. The Company has
proposed an extended payment plan to TMI which the Company believes has been
favorably received and is expected to be formally accepted. In the United
Kingdom, the Company is also utilizing a switch and certain other equipment
owned by TMI. The switch and equipment was formerly leased from TMI by UTK, a
company with which the Company shared a common director and which the Company
believes has ceased operations. The Company has had discussions with TMI
regarding purchase by the Company of the switch and equipment, although no
formal arrangement has been reached.

Results of operations

Sales

      During the year ended March 31, 1997, the Company recorded net sales of
$1,743,377, reflecting net sales of $245,727 and $1,404,088 recorded in the
third and fourth fiscal quarters, respectively. Prior to the Company's third
fiscal quarter, the Company's network infrastructure had not yet been
operational and the Company recorded no revenue. The Company's revenue was
generated primarily from long distance telecom services provided to retail
corporate customers in Switzerland and wholesale customers. The allocation
between retail corporate customers and wholesale customers was approximately 11%
and 78%, respectively. The Company's wholesale customers presently comprise
international telecom carriers and national telecom companies, and the Company's
retail customers presently comprise medium-sized companies located in
Switzerland and Belgium. Management anticipates that the allocation between
wholesale and retail customers will 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 $1,820,844 for the year ended March 31, 1997, consisting
of approximately $1,269,000 for carrier charges and the balance being
attributable to costs for leased lines and related activities. Carrier charges
and transport (leased lines) charges per unit are ultimately dependent on the
Company's ability to generate high volumes of traffic.


                                     - 20 -
<PAGE>

Selling and Technical Expenses

      Selling and technical expenses for the year ended March 31, 1997 were
$2,053,395. These expenses can be broken down into four main categories.
Consulting fees ($366,801) were incurred mainly in three areas: the setting up
of the sales team in Switzerland, public and investor relations and the design
of the corporate image. Management anticipates that this type of expense will be
substantially lower in relation to revenues in the next fiscal year. Technical
fees ($1,209,702) consisted of salaries for technical support personnel
($327,600), as well as expenses related to setting up the Company's switches and
network. Sales salaries ($371,366) relate to the Company's sales force in
Switzerland. Other selling expenses ($105,526) include travel expenses,
communications and telemarketing costs.

General and Administrative Expenses

      General and administrative expenses for the year ended March 31, 1997 were
$4,298,438. Significant items comprising general and administrative expenses
include management and consulting fees, depreciation and amortization,
professional fees and bad debt expense. Management and consulting fees
($1,231,148) consist primarily of share issuances and fees to members of
management that were not on a salary basis, approximately $173,000 of which is
related to a previous executive officer and director of the Company.
Depreciation and amortization ($481,446) relates mainly to telecom and computer
equipment, and, to a lesser extent, organization costs. Professional fees
($377,658) consist of legal and audit fees. Bad debt expense ($611,987)
primarily results from the write-off of a receivable from United Telegroup. The
receivable reflects funds advanced to fund certain of United Telegroup's working
capital needs. United Telegroup is no longer active and the Company does not
anticipate recuperating any funds related to the receivable.

Net Loss

      The Company's net loss for fiscal 1997 was $6,712,669, primarily resulting
from delays and cost overruns in setting up the Company's network, resulting in
a lag in realizing revenues.

FORWARD-LOOKING STATEMENTS

      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


                                     - 21 -
<PAGE>

forward-looking statements. Such factors include, among others, the following:
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 SB-2,
No. 333-8305, which was declared effective on September 6, 1996.

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

      Information called for by this item is incorporated herein by reference to
the definitive Proxy Statement which the Company intends to file with the
Securities Exchange Commission within 120 days after the close of the 1997
fiscal year.

Item 10. Executive Compensation

      Information called for by this item is incorporated herein by reference to
the definitive Proxy Statement which the Company intends to file with the
Securities Exchange Commission within 120 days after the close of the 1997
fiscal year.

Item 11. Security Ownership of Certain Beneficial Owners and Management

      Information called for by this item is incorporated herein by reference to
the definitive Proxy Statement which the Company intends to file with the
Securities Exchange Commission within 120 days after the close of the 1997
fiscal year.


                                     - 22 -
<PAGE>

Item 12. Certain Relationships and Related Transactions

      Information called for by this item is incorporated herein by reference to
the definitive Proxy Statement which the Company intends to file with the
Securities Exchange Commission within 120 days after the close of the 1997
fiscal year.

Item 13. Exhibits and Reports on Form 8-K

(a)   Exhibits

      See Index to Exhibits on page E-1. Compensatory plans and arrangements
required to be filed as exhibits are as follows:

      10.9  Management Agreement dated March 14, 1996 between Registrant and
            Andreas Popovici
      10.18 Consultancy Agreement effective September 1, 1996 between UTG
            Communications (Europe) AG and Birand Ltd.
      10.21 Employment Agreement dated as of June 30, 1997 between the
            Registrant and Keith Rhea.

(b)   Reports on Form 8-K

      No reports on Form 8-K were filed during the last quarter of the year
ended March 31, 1997.


                                   - 23 -
<PAGE>

                    UTG COMMUNICATIONS INTERNATIONAL, INC.
                               AND SUBSIDIARIES
                       CONSOLIDATED FINANCIAL STATEMENTS
                       FOR THE YEAR ENDED MARCH 31, 1997

                                     INDEX

INDEPENDENT AUDITORS' REPORT                                        F-2

CONSOLIDATED BALANCE SHEET                                          F-3

CONSOLIDATED STATEMENT OF OPERATIONS                                F-4

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY                      F-5

CONSOLIDATED STATEMENT OF CASH FLOWS                                F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                       F-7 - F-15
<PAGE>

                         INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheet of UTG
COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES as of March 31, 1997, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the year 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 audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of UTG COMMUNICATIONS
INTERNATIONAL, INC. AND SUBSIDIARIES as of March 31, 1997, and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 10 to the
financial statements, the Company has suffered recurring losses from operations
and its limited capital resources raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 10. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.


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

New York, New York
July 3, 1997


                                      F-2
<PAGE>

                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                            CONSOLIDATED BALANCE SHEET
                                 MARCH 31, 1997

      ASSETS
CURRENT ASSETS
  Cash and Cash Equivalents (Note 1c)                               $   388,198
  Subscription Receivable (Note 2)                                      670,000
  Accounts Receivable, Net of allowance for
   doubtful accounts of $75,925                                         815,106
  Prepaid Expenses and Other Current Assets                             167,508
                                                                    -----------
    Total Current Assets                                              2,040,812

Property and Equipment, at cost,
 Net of Accumulated Depreciation of $401,898 (Notes 1e & 3)           1,618,316

Organization Costs, at cost, Net of Accumulated
 Amortization of $6,795 at March 31, 1997 (Note 1d)                      27,286

Deferred Taxes (Notes 1j & 6)                                                --

Other Assets                                                             12,218
                                                                    -----------

    TOTAL ASSETS                                                    $ 3,698,632
                                                                    ===========

      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Bank Overdraft (Notes 1f & 8)                                     $   132,237
  Accounts Payable and Accrued Expenses (Note 8)                      3,208,711
  Capital Lease Obligation, Current (Note 8)                             13,013
                                                                    -----------
    Total Current Liabilities                                         3,353,961

Capital Lease Obligation, Long-Term (Note 8)                             14,132

Commitments and Contingencies (Note 8)                                       --
                                                                    -----------

    TOTAL LIABILITIES                                                 3,368,093
                                                                    -----------

STOCKHOLDERS' EQUITY (Notes 1,2,9 & 11)
  Common Stock - $0.00001 Par Value
   Authorized 20,000,000 shares;
   13,246,000 Issued and Outstanding                                        132
  Additional Paid-in Capital                                          7,180,509
  Accumulated Deficit                                                (6,712,669)
  Cumulative Foreign Currency Translation Adjustment                   (137,450)
  Minority Interest                                                          17
                                                                    -----------
    Total Stockholders' Equity                                          330,539
                                                                    -----------

    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                      $ 3,698,632
                                                                    ===========

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


                                      F-3
<PAGE>

                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                        FOR THE YEAR ENDED MARCH 31, 1997

NET SALES                                                           $ 1,743,377

COST OF SALES                                                         1,820,844
                                                                    -----------

GROSS PROFIT                                                            (77,467)
                                                                    -----------

SELLING AND TECHNICAL EXPENSES
  Consulting Fees                                                       366,801
  Technical Fees                                                      1,209,702
  Sales Salaries                                                        371,366
  Other Selling Expenses                                                105,526
                                                                    -----------
    Total Selling and Technical Expenses                              2,053,395
                                                                    -----------

LOSS FROM OPERATIONS BEFORE
 GENERAL AND ADMINISTRATIVE EXPENSES                                 (2,130,862)
                                                                    -----------

GENERAL AND ADMINISTRATIVE EXPENSES
  Management and Consulting Fees                                      1,231,148
  Salaries                                                              689,024
  Bad Debt Expense (Note 7)                                             611,987
  Depreciation and Amortization                                         481,446
  Professional Fees                                                     377,658
  Travel Expenses                                                       160,601
  Employment Agency Fees                                                120,744
  Rent Expense                                                           88,983
  Association Fees                                                       31,301
  Insurance Expense                                                      16,183
  Other Operating Expenses                                              489,363
                                                                    -----------
    Total General and Administrative Expenses                         4,298,438
                                                                    -----------

LOSS FROM OPERATIONS                                                 (6,429,300)

OTHER INCOME (EXPENSES)
  Interest Income                                                        25,044
  Interest Expense                                                      (37,688)
  Loss From Foreign Currency (Note 1g)                                 (123,012)
  Loss on Disposal of Fixed Asset                                       (47,151)
  Other Expenses                                                       (100,562)
                                                                    -----------
    Total Other Income (Expenses)                                      (283,369)
                                                                    -----------

NET LOSS BEFORE INCOME TAXES                                         (6,712,669)

INCOME TAXES (Notes 1j and 6)                                                 --
                                                                    -----------

NET LOSS                                                            $(6,712,669)
                                                                    ===========

LOSS PER COMMON SHARE (Note 1i)                                     $      (.64)
                                                                    ===========

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


                                      F-4
<PAGE>

                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                        FOR THE YEAR ENDED MARCH 31, 1997

<TABLE>
<CAPTION>
                                    Common Stock           Additional                  Foreign                      Total
                                ------------------------    Paid-In     Accumulated    Currency      Minority    Stockholders'
                                  Shares       Amount       Capital       Deficit     Adjustment     Interest       Equity
                                -----------  -----------  -----------   -----------   -----------   -----------  -------------
<S>                              <C>         <C>          <C>           <C>           <C>           <C>          <C>        
Balance at March 31, 1996                --  $        --  $        --   $        --   $        --   $        --  $        --

Net Loss - For the Year Ended
 March 31, 1997                          --           --           --    (6,712,669)           --            --   (6,712,669)

Issuance of Common Stock         13,246,000          132    7,303,442            --            --            --    7,303,574

Offering Costs                           --           --     (122,933)           --            --            --     (122,933)

Cumulative Foreign Currency
 Translation Adjustment                  --           --           --            --      (137,450)           --     (137,450)

Minority Interest                        --           --           --            --            --            17           17
                                -----------  -----------  -----------   -----------   -----------   -----------  -----------

Balance at March 31, 1997        13,246,000  $       132  $ 7,180,509   $(6,712,669)  $  (137,450)  $        17  $   330,539
                                ===========  ===========  ===========   ===========   ===========   ===========  ===========
</TABLE>


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


                                      F-5
<PAGE>

                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                        FOR THE YEAR ENDED MARCH 31, 1997

CASH FLOWS FROM OPERATING ACTIVITIES:
   Net Loss                                                         $(6,712,669)
   Adjustments to Reconcile Net Loss to
    Net Cash Used by Operating Activities
   Common Stock Issued for Services                                     770,000
   Depreciation and Amortization                                        481,446
   Changes in Certain Assets and Liabilities:
     Increase in Accounts Receivable                                   (910,385)
     Increase in Prepaid Expenses                                      (180,795)
     Increase in Organization Costs                                     (38,091)
     Increase in Other Assets                                           (13,654)
     Increase in Bank Overdraft                                         147,793
     Increase in Accounts Payable and Accrued Expenses                3,551,000
                                                                    -----------
Total Cash Used by Operating Activities                              (2,905,355)
                                                                    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of Fixed Assets, Net                                     (2,263,081)
                                                                    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Increase in Capital Lease Payable                                     30,338
   Contribution to Capital                                            5,863,574
   Offering Costs                                                      (122,933)
   Minority Interest                                                         17
                                                                    -----------
Total Cash Provided By Financing Activities                           5,770,996
                                                                    -----------

EFFECTS OF EXCHANGE RATE
CHANGES ON CASH                                                        (214,362)
                                                                    -----------

NET INCREASE IN CASH AND CASH EQUIVALENTS                               388,198

CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR                                --
                                                                    -----------

CASH AND CASH EQUIVALENTS - END OF YEAR                             $   388,198
                                                                    ===========

CASH PAID DURING THE YEAR FOR:
   Interest Expense                                                 $    37,688
                                                                    ===========
   Income Taxes                                                     $        --
                                                                    ===========

NON-CASH FINANCING ACTIVITIES:
   The Company issued common stock in exchange for a stock subscription
   agreement. As of March 31, 1997, the receivable on the agreement totalled
   $670,000 for 670,000 shares.

   The Company issued common stock totalling 750,000 shares as compensation for
   management and consulting services.

   The Company issued common stock totalling 10,000 shares as payment of an
   outstanding debt.

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


                                      F-6
<PAGE>

                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1997

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) UTG Communications Holding AG, ("UTG Holding"), incorporated
                 under the laws of Switzerland on February 29, 1996 (owned 99.9%
                 by the Company);

              2) UTG Communications (Europe) AG, ("UTG AG"), incorporated under
                 the laws of Switzerland on March 28, 1996 (owned 100% by UTG
                 Holding);

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

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

              5) UTG Communications (Network), Ltd., ("UTG NET") incorporated
                 under the laws of the United Kingdom on October 22, 1996 (owned
                 100% by UTG Holding).

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

        b)  Line of Business

            The Company is a switch-based provider of private voice, fax and
            data management telecommunication services throughout Europe and
            Canada.

        c)  Cash and Cash Equivalents

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


                                      F-7
<PAGE>

                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1997

NOTE 1 -    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        d)  Organization Costs

            Organization costs consist of legal and other administrative costs
            incurred relating to the formation of the Company. These costs have
            been capitalized and will be amortized over a period of five years.

        e)  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)  Bank Overdraft

            The Company maintains overdraft positions at certain banks. Such
            overdraft positions are included in current liabilities.

        g)  Translation of Foreign Currency

            The Company translates the foreign currency financial statements of
            its Swiss, Belgium and United Kingdom subsidiaries, in accordance
            with the requirements of Statement of Financial Accounting Standards
            No. 52, "Foreign Currency Translation". Assets and liabilities are
            translated at current exchange rates, and related revenues 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.

        h)  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
            revenues and expenses during the reporting period. Actual results
            could differ from those estimates.

        i)  Loss Per Share

            Loss per share is based on the weighted average number of shares of
            common stock and common stock equivalents outstanding during the
            year. Weighted average common shares outstanding were 10,450,000.
            Average common equivalent shares outstanding have not been included,
            as the computation would not be dilutive.

        j)  Income Taxes

            Income taxes are provided for based on the liability method of
            accounting pursuant to Statement of Financial Accounting Standards
            (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.


                                      F-8
<PAGE>

                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1997

NOTE 1 -    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        k)  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.

        l)  Stock-Based Compensation

            Statement of Financial Accounting Standards 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.

        m)  Long-Lived Assets

            In March 1995, Statement of Financial Accounting Standards No. 121,
            "Accounting for the Impairment of Long-Lived Assets and for
            Long-Lived Assets to be Disposed of", was issued (SFAS No. 121).
            SFAS No. 121 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.

        n)  New Accounting Pronouncement

            In February 1997, the Financial Accounting Standards Board issued
            statement of Financial Accounting Standards No. 128, "Earnings Per
            Share" ("FAS 128") which requires presentation of basic earnings per
            share ("Basic EPS") and diluted earnings per share ("Diluted EPS")
            by all entities that have publicly traded common stock or potential
            common stock (options, warrants, convertible securities or
            contingent stock arrangements). FAS 128 also requires presentation
            of earnings per share by an entity that has made a filing or is in
            the process of filing with a regulatory agency in preparation for
            the sale of those securities in a public market. Basic EPS is
            computed by dividing income available to common stockholders by the
            weighted-average number of common shares outstanding during the
            period. Diluted EPS gives effect to all dilutive potential common
            shares outstanding during the period. Diluted EPS 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 antidilutive
            effect on earnings. The statement is effective for both interim and
            annual periods ending after December 15, 1997. The effect on the
            Company's earnings per share resulting from the adoption of FAS 128
            is not expected to be significant.


                                      F-9
<PAGE>

                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1997

NOTE 2 -    SUBSCRIPTION RECEIVABLE

            On January 15, 1997, the Company entered into a subscription
            agreement to sell 2,000,000 shares of its common stock to
            Interfinance Inv. Co., Ltd. ("IIC") for an aggregate price of
            $2,000,000. As of March 31, 1997, $1,285,000 was received relating
            to the agreement. (See also Note 11).

NOTE 3 -    PROPERTY AND EQUIPMENT

            Property and equipment at March 31, 1997 is summarized as follows:

            Telecommunications Equipment                $ 1,681,212
            Computer Equipment & Software                   227,571
            Furniture and Fixtures                          111,431
                                                        -----------
                                                          2,020,214
            Less: Accumulated Depreciation                 (401,898)
                                                        -----------
                                                        $ 1,618,316
                                                        ===========

            Depreciation expense for the year ended March 31, 1997 was $473,850.

NOTE 4 -    MINORITY INTEREST

            Minority interest represents less than a 1% share of the common
            equity of the Company's subsidiary UTG Holding.

NOTE 5 -    FOREIGN OPERATIONS

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

NOTE 6 -    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-10
<PAGE>

                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1997


NOTE 6 -    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, 1997, the Company had net carryforward losses of
            approximately $6,713,000. Because of the current uncertainty of
            realizing the benefit of the tax carryforward, a valuation allowance
            equal to the tax benefit for deferred taxes has 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 at March 31, 1997 are as
            follows:

            Deferred Tax Assets
            Loss Carryforwards                                $ 2,282,000

            Less:  Valuation Allowance                         (2,282,000)
                                                              -----------

            Net Deferred Tax Assets                           $        --
                                                              ===========

            Net operating loss carryforwards expire starting in 2007 through
            2011. Per year availability is subject to change of ownership
            limitations under Internal Revenue Code Section 382.

NOTE 7 -    RELATED PARTY TRANSACTIONS

            The Company had related party transactions with UTG Communications
            Ltd. UK (UTK) during the year ended March 31, 1997, a company they
            shared a common director with. As of March 31, 1997, the Company has
            a receivable from UTK in the amount of $524,945. UTK has become an
            inactive company and therefore, the receivable has been fully
            reserved against as of March 31, 1997.


                                      F-11
<PAGE>

                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1997

NOTE 8 -    COMMITMENTS AND CONTINGENCIES

        a)  The Company has commitments under certain management and consulting
            agreements, the terms of which expires at various times through
            April 1999.

            i) On March 14, 1996, UTG AG entered into a three year Management
               Agreement with Andreas Popovici (the "Popovici Agreement"),
               pursuant to which he serves as the Managing Director of UTG AG.
               The agreement states that he will devote 200 working days to UTG
               AG per year at an annual salary of approximately $179,000 and
               will also receive approximately $690 for each new customer he
               introduces to the Company during the first year and approximately
               $520 for each new Company customer he introduces to UTG AG during
               the second and third year of the Agreement.

           ii) On September 9, 1996, UTG AG entered into an agreement with
               Birand Ltd. for the consulting services of Fritz Wolff. The
               agreement states that Mr. Wolff will devote at least 15 working
               days per month to UTG AG. It is effective from September 1, 1996
               to August 31, 1997 and is deemed tacitly extended for subsequent
               periods of 6 months if not terminated in writing with a 3 month
               notice period. The contract provides for a monthly consulting fee
               of approximately $10,000 per month, of which $6,667 is payable
               monthly, and $3,333 is to be accrued, plus travel expenses. The
               accrued portion is to be paid when the Company is cash positive
               or as of June 30, 1997 at the latest. As of March 31, 1997 the
               Company has approximately $60,000 accrued to Birand Ltd. and is
               currently in negotiations relating to extending the payment term.
               Furthermore, Fritz Wolff has taken over the position of Director
               and Executive Officer of the Company as of January 1997.

        b)  The Company has a bank overdraft facility with Credit Suisse in
            Switzerland of CHF 300,000 (approximately $207,000), which bears
            interest at 6 1/4% per annum plus 1% on average overdraft in excess
            of fixed limit. The overdraft is personally guaranteed by an officer
            of the Company. Furthermore, the Company has an overdraft position
            with the Union Bank of Switzerland. At March 31, 1997 the balance
            outstanding was CHF 161,572 (approx. $111,500). The balance bears
            interest of 7% per annum plus a commission of highest outstanding
            balance of 1/4%.


                                      F-12
<PAGE>

                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1997

NOTE 8 -    COMMITMENTS AND CONTINGENCIES (Continued)

        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
                                                 ------------       ------------
            1998                                 $     18,293       $    15,639
            1999                                       18,293            15,639
            2000                                       18,293             1,303
            2001                                        4,892                --
            2002                                           --                --
            2003 and thereafter                            --                --
                                                 ------------       ------------

            Total Minimum Lease Payments         $     59,771            32,581
                                                 ============
            Less: Amounts Representing Interest                          (5,436)
                                                                    ------------

            Present Value of Future Minimum
             Lease Payments                                              27,145

            Less: Current Maturities                                    (13,013)
                                                                    -----------

            Total                                                   $    14,132
                                                                    ===========

            Rent expense under operating leases for the year ended March 31,
            1997 was $88,983.

        d)  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.

        e)  During February 1997, UTG Holding entered into an agreement to
            purchase 49% of Tibesta Corporation N.V. ("Tibesta"), a Curacao
            incorporated company. Tibesta is the 100% parent of Metatel
            Telemarketing B.V., ("Metatel"), an Amsterdam incorporated company.
            The purchase price for the Company's 49% interest in Tibesta was
            $10,551 of which $2,940 represents the Company's 49% ownership of
            Metatel. The agreement was not consumated by UTG Holding until April
            1997. (See Note 11).

        f)  The Company's revenue is derived from retail customers and carrier
            partners. For the year ending March 31, 1997, two carrier partners
            accounted for approximately 50% of the net sales. The Company has
            entered into agreements with these two carriers that continue
            through the fiscal year ending March 31, 1999 and renew
            automatically for two year cycles, unless terminated by either party
            in writing with one months notice. The loss of either of these
            carrier partners would have a significant impact on the Company's
            revenue.


                                      F-13
<PAGE>

                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1997

NOTE 9 -    STOCK OPTIONS

            In connection with the subscription agreement dated January 15, 1997
            (see Note 2), the Company granted IIC an option to purchase up to an
            additional 1,200,000 shares of common stock at $2.00 per share for a
            two-year period commencing on the completion of the purchase of the
            full 2,000,000 shares subscribed for.

            On March 25, 1997, the Company granted nonqualified stock options to
            purchase up to 100,000, 100,000 and 300,000 shares, respectively, to
            each of Ron Kuzon, David Schlecht and Fritz Wolff. The options are
            exercisable at $1.00 per share, vest in equal installments on the
            first, second and third anniversaries of the date of grant, and
            expire five years from the date of grant. (See Note 11.)

NOTE 10 -   GOING CONCERN

            The accompanying consolidated financial statements have been
            prepared assuming the company will continue as a going concern. As
            of March 31, 1997, the Company had a working capital deficit of
            $1,313,149 and an accumulated deficit of $6,712,669. Based upon the
            Company's plan of operation, the Company estimates that existing
            resources, together with funds generated from operations will not be
            sufficient to fund the Company's working capital. The Company is
            actively seeking additional equity financing. There can be no
            assurances that sufficient financing will be available on terms
            acceptable to the Company or at all. If the Company is unable to
            obtain such financing, the Company will be forced to scale back
            operations which would have an adverse effect on the Company's
            financial condition and results of operation.

NOTE 11 - SUBSEQUENT EVENTS

        a)  On April 2, 1997 UTG Belgium acquired a 100% interest in Multicom NV
            ("Multicom"), an existing telecommunications company operating in
            the areas of direct dial and indirect dial. Per the purchase
            agreement, the purchase price of 11,101,043 BEF or approximately
            $317,000 was based upon a due diligence report from KPMG
            Bedrijfsrevisoren. 100,000 shares of the Company's common stock was
            pledged as a guarantee. As of June 30, 1997, the entire purchase
            price was paid.

        b)  On April 2, 1997, UTG Holding founded UTG Communications Hungary,
            Kft. ("UTG Hungary"). Hungary is incorporated under the laws of
            Hungary.

        c)  On April 8, 1997, UTG Holding consummated the purchase of its 49%
            interest in Tibesta by paying the purchase price of $10,551. (See
            Note 8).

        d)  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.

        e)  The Company has received an additional $670,000 through the date of
            this report relating to the subscription agreement dated January 15,
            1997 with IIC. (See Note 2).


                                      F-14
<PAGE>

                     UTG COMMUNICATIONS INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1997

NOTE 11 - SUBSEQUENT EVENTS (Continued)

        f)  On June 25, 1997, the Company granted to Mr. Allen Howe, an
            employee, a nonqualified stock option to purchase up to 180,000
            shares at an exercise price of $1.00 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.


        g)  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. The term of the agreement is
            for three years beginning on July 7, 1997 for an annual base salary
            of $100,000. 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.


                                      F-15
<PAGE>

                                   SIGNATURES

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

                     UTG COMMUNICATIONS INTERNATIONAL, INC.


                     By: /s/ Fritz K. Wolff
                        -------------------------------------------------------
                        Fritz K. Wolff, President, Chief Executive Officer and
                        Director

                     Date: July 14, 1997

      In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

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


  s/ Fritz K. Wolff        President, Chief Executive Officer and  July 14, 1997
-------------------------  Director (principal executive officer)
     Fritz K. Wolff


  s/ Keith Rhea            Chief Operating Officer and Director    July 14, 1997
-------------------------  
     Keith Rhea


  s/ Ronald Kuzon          Treasurer, Secretary and Director       July 14, 1997
-------------------------  (principal financial and 
     Ronald Kuzon          accounting officer)

                                                              
 s/ David Schlecht         Director                                July 14, 1997
------------------------
    David Schlecht

      Supplemental Information to be Furnished with Reports Filed Pursuant to
Section 15(d) of the Exchange Act By Non-reporting Issuers.

      No annual report covering the registrant's last fiscal year and no proxy
material with respect to an annual or other meeting of security holders has been
sent to security holders. The Company presently intends to furnish such report
or proxy material to security holders subsequent to the filing of this report.


                                     - 25 -
<PAGE>

                                Index to Exhibits

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)
3.2    By-laws of the Company (1)
4.1    Specimen Common Stock Certificate (2)
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 for the purchase of 183,333 shares of Common Stock (2)
10.3   Subscription Agreement dated April 30, 1996 between Registrant and
       Interfinance 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 in favor of Registrant (2)
10.5   security and Pledge Agreement dated April 30, 1996 between Registrant and
       Interfinance (2)
10.6   Registration Rights Agreement dated April 30, 1996 between Registrant and
       Interfinance (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) 
10.10  Management Agreement dated April 4, 1996 between Registrant and Franco
       Reinschmidt (2) 
10.11  Form of Customer Contract of Registrant (2) 
10.12  Subscription Agreement dated August 15, 1996, between Registrant and
       Interfinance 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 in favor of the Registrant (2) 
10.14  Security and Pledge Agreement dated August 15, 1996 between Registrant
       and Interfinance (2) 

--------
(1)    Incorporated by reference to the exhibit with the corresponding exhibit
       number contained in the Registrant's Registration Statement on Form SB-2
       (No. 333-8305) filed on July 17, 1996 (the "SB-2"). 

(2)    Incorporated by reference to the exhibit with the corresponding exhibit
       number contained in Amendment No. 1 to the SB-2 filed on August 16, 1996.

(3)    Incorporated by reference to the exhibit with the corresponding exhibit
       number contained in Amendment No. 2 to the SB-2 filed on August 30, 1996.


                                       E-1
<PAGE>

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, 1991 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.
10.18  Consultancy Agreement effective September 1, 1996 between UTG
       Communications (Europe) AG and Birand Ltd.
10.19  Share Purchase Agreement among UTG Communications Belgium N.V., Messrs.
       Luc and Tom Van den Bogart and UTG Communications Holding AG.
10.20  Pledge Agreement among UTG Communications Belgium N.V., Messrs. Luc and
       Tom Van den Bogart and UTG Communications Holding AG.
10.21  Employment Agreement dated as of June 30, 1997 between the Registrant and
       Keith Rhea.
21.1   List of Subsidiaries
23.1   Consent of Merdinger, Fruchter, Rosen & Corso, P.C.
27.1   Financial Data Schedule

--------
(4)    Incorporated by reference to the exhibit with the corresponding exhibit
       number contained in the Registrant's Quarterly Report on Form 10-QSB for
       the quarter ended December 31, 1996 (File No. 333-8305).


                                       E-2