UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB
(Mark One)

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

                   For the fiscal year ended December 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: 0-15818

                      GLOBAL TELEMEDIA INTERNATIONAL, INC.
            (Name of small business issuer specified in its charter)

                    Delaware                              64-0708107
         (State or other jurisdiction                  (I.R.S. Employer
         of incorporation or organization)           Identification No.)

             55 Marietta Street, Suite 1760, Atlanta, Georgia 30303
          (Address of principal executive offices, including zip code)
           1121 Alderman drive - Suite 200, Alpharetta, Georgia 30202
                 (Former address of principal executive offices)

                                  404-233-3277
                (Issuer's telephone number, including area code)

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

                                               Name of each exchange
                  Title of each class           on which registered
                           None                         None

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

                    Common Stock, $0.004 par value per share
                                (Title of Class)


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Check whether the issuer: (i) 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 (ii) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not 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. [ ]

The issuer's revenues for the fiscal year ended December 31, 1997 were $
11,674,739.

The number of shares outstanding of the issuer's common stock as of April 6,
1998, was 26,807,915 shares. The aggregate market value of the common stock
(23,686,527 shares) held by non-affiliates, based on the average of the bid and
asked prices ($0.445) of the common stock as of April 6, 1998 was $10,540,505.

Transactional Small Business Disclosure Format (Check one):   Yes [ ]  No [X]



         THIS ANNUAL REPORT ON FORM 10-KSB (THE "REPORT") MAY BE DEEMED TO
CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT"). FORWARD-LOOKING STATEMENTS IN
THIS REPORT OR HEREAFTER INCLUDED IN OTHER PUBLICLY AVAILABLE DOCUMENTS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), REPORTS TO THE
COMPANY'S STOCKHOLDERS AND OTHER PUBLICLY AVAILABLE STATEMENTS ISSUED OR
RELEASED BY THE COMPANY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER
FACTORS WHICH COULD CAUSE THE COMPANY'S ACTUAL RESULTS, PERFORMANCE (FINANCIAL
OR OPERATING) OR ACHIEVEMENTS TO DIFFER FROM THE FUTURE RESULTS, PERFORMANCE
(FINANCIAL OR OPERATING) OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. SUCH FUTURE RESULTS ARE BASED UPON MANAGEMENT'S BEST
ESTIMATES BASED UPON CURRENT CONDITIONS AND THE MOST RECENT RESULTS OF
OPERATIONS. THESE RISKS INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS SET FORTH
HEREIN, EACH OF WHICH COULD

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ADVERSELY AFFECT THE COMPANY'S BUSINESS AND THE ACCURACY OF THE FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN.


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<PAGE>


PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

         BUSINESS OF THE COMPANY

         Global TeleMedia International, Inc. (the "Company"), a Delaware
corporation, is engaged in three related business operations, (i) the provision
of long-distance telecommunications services, especially Enhanced Services
(defined below) to both commercial and individual purchasers (the
"Telecommunications Business"); (ii) the purchase from and resale, to other
carriers, of long distance time, especially for international telephone
communications (the "Carrier Sales Business"); and (iii) the provision of
satellite access through a marketing agreement with a third party (the
"Satellite Services Business"). The Company currently generates no revenue and
is dependent upon obtaining adequate financing to fulfill its business plan (See
Item 6- Management's Discussion and Analysis")

         HISTORY OF THE COMPANY

         The Company was incorporated as a Florida corporation on December 31,
1984, under the name Phoenix Hi-Tech, Inc. The Company completed its initial
public offering of its equity securities on May 23, 1986. On October 22, 1994,
the Company changed its name to Global TeleMedia International, Inc. In
September 1997, the Company's shareholders approved the reincorporation of the
Company in Delaware. See Item 4, Submission of Matters to a Vote of Security
Holders.

         In September, 1993, the Company acquired all of the equity securities
of Global Wats One, Inc. and TeleFriend, Inc. (collectively, "Global") of which
Roderick A. McClain, the Company's Chief Executive Officer and its Chairman of
the Board of Directors and Geoffrey F. McClain, a director of the Company, were
the principal shareholders. Roderick and Geoffrey McClain are brothers. See
"Certain Relationships and Related Transactions."

         In October, 1994, the Company licensed the nutritional division of the
Company (its former business) and sold the Company's nutritional marketing
company, Marketshare International, a wholly-owned subsidiary to L&M Group, L.C.
("L&M"), an unaffiliated third party. On January 31, 1995, the Company entered
into a sales and license agreement with L&M pursuant to which L&M acquired the
rights to the Company's nutritional products line for royalties from sales of
the nutritional products based on a percentage of gross sales. In 1997, the
Company received a total of approximately $35,000 in royalties, compared to a
total of approximately $115,000 in royalties, including certain guaranteed
minimum amounts, received in 1996. Since the culmination of these transactions,
the Company has devoted all of its resources to its telecommunications business.
In the fourth quarter of 1997, the Company entered into an option agreement
under which an unaffiliated third party has the right to acquire substantially
all of the Company's interest in the nutritional products.

         In June, 1995, the Company entered into an agreement (the "Stock
Purchase Agreement"), with an unaffiliated group of investors for the purchase
of 10,000,000 shares of the Company's Common Stock. As part of this transaction,
the investment group lent the Company $250,000 in an obligation secured by the
Company's stock in Global TeleMedia, Inc. a wholly-owned subsidiary of the
Company and the entity which held the Company's telecommunication licensing
rights. In August, 1995, the Company and an assignee of the $250,000 obligation
agreed (the "Foreclosure Agreement") to cancel the obligation, in part,



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by the Company's transfer to the assignee of: (i) the customer list to all its
customers who were serviced on behalf of the Company by various
telecommunications carriers, (ii) certain warehouse property and land in
Gainesville, Florida, and (iii) all of the outstanding and issued shares of
Global TeleMedia, Inc.

         In July 1997, the Company announced its intent to purchase a
controlling interest in International TeleData Corporation ("ITD"), and its
intention to tender for the remainder of the ITD shares. The planned acquisition
was based substantially upon the expected value to the Company of a certain
marketing rights agreement between ITD and the owners of a satellite
transmission software protocol (the "technology"). The technology is expected to
provide significant cost advantages in the implementation and operation of
global voice, data and video transmission networks. Subsequently, it became
apparent that ITD was unable to deliver any of the anticipated
revenue-generating projects or the necessary financing. As a result, the
principal ITD shareholders requested, and the Company agreed to, the rescission
of the share acquisition and the cancellation of all agreements between the
parties.

         THE BUSINESS PLAN

         The Company's Business Plan ("the Plan") for a Nationwide
Telecommunications Business has been delayed due to problems associated with its
switching platform and the lack of sufficient capital to implement the Plan. The
Company currently has no revenues. The Plan is to concentrate the Company's
marketing and sales efforts on its Carrier Services and Satellite Services
Businesses. Fulfillment of the Company's Plan requires the Company to obtain a
significant portion of the financing that it believes will be essential to carry
out its business plan. No assurance can be given that the Company will be able
to procure such financing at terms acceptable to the Company or at all. See
"Business - Management Team" and "Management's Discussion and Analysis or Plan
of Operation."

         The Company ultimately aspires to develop itself into a full-service,
facilities-based telecommunications carrier. The Company's plan to achieve this
goal involves moving through three stages of the telecommunications services
business: (i) reseller, (ii) licensed carrier, and (iii) facilities-based
carrier. The Company is a licensed carrier by 41 of the 48 continental states
and with the federal government, enabling the Company to provide and bill for
telecommunications services directly to customers. A Carrier, in contrast to a
reseller, obtains customers, bills them directly and provides service thereto.
However, unless such Carrier owns its own long-distance equipment, it must route
its customers' calls through lines and equipment provided by other companies.
The cost of such routing is a function of the volume of the calls routed and,
especially, the amount of minimum monthly commitment that the Carrier is
prepared to reserve from such other companies, for a minimum monthly fee. A
facilities-based Carrier ("Facilities-Based Carrier") owns or leases its own
telecommunications switching equipment ("switches") and lines and can route its
customers' calls through such switches. It can also sell the excess capacity of
its


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switches, if any, to other Carriers. See "Business-Telecommunication Business
Licensing Requirements."

         In order to achieve its goal to be a Facilities Based Carrier, the
Company believes that the development of it own telecommunications network of
switches and dedicated transmission lines will reduce its dependence on other
Carriers, protect the Company from future network disruption, provide additional
services to its subscribers and ultimately reduce expenses associated with the
transmission of long distance calls. The Company may incur substantial
indebtedness and fixed operating costs in acquiring or leasing the switches and
dedicated transmission lines needed to develop a telecommunications network,
which is a departure from historical operations. In addition, the U.S. Federal
Communications Commission ("FCC") is in the process of repricing the local
transport component of the access charges paid to local exchange carriers
("LECs") to complete a long distance call, and such repricing could affect the
economies associated with developing a telecommunications network. As a result,
while the development of a telecommunications network is an important part of
the Company's business plan, there can be no assurance that development of a
telecommunications network will be completed or, if completed, will be
beneficial to the Company.

         To achieve its goal of becoming a Facilities-Based Carrier, the Company
needs to acquire, (i) all of the licenses required to be a full-service
telecommunications Carrier, and (ii) the required switches, ancillary equipment
and lines. Management of the Company recognizes that due to a change in the
regulatory environment, that the increased competition among telecommunications
service providers, due to recently enacted federal statutes which have
deregulated the telecommunications industry, gives significant advantage to very
large, well financed companies. At the same time, however, management also
believes that competition based strictly on volume and price may yield lower
profit margins and require packaging of a wide variety of sophisticated
telecommunications services ("Enhanced Services") with programs offering
straight local and long-distance calls. Such services may include
voice-activated dialing, more sophisticated paging systems, international
callback, enhanced debit cards, e-mail services, and locator and "follow-me"
services. Management believes that these Enhanced Services will play an
important part in achieving and retaining market share, and the Company has
formulated its plan accordingly. See "Business - Government Regulation" and
"Business - Competition."

         In an effort to carry out its business plan, the Company had leased
certain switches from IEX Corporation ("IEX"). The Company's original attempts
to facilitate traffic over the IEX switches resulted in significant operational
failures. As a result, the Company restructured its original purchase of those
switches into a lease arrangement calling for, among other conditions,
significant upgrades to the operational software by IEX. During the fourth
quarter of 1997, the Company determined that the IEX switches could not be
deployed to adequately meet its Enhanced Services requirements and terminated
its relationship with IEX in January 1998. The Company had also previously
entered into sharing, or "joint venture" agreements with US One Communications
Corp. ("US One") to use that company's switches; however, that plan was aborted
due to the filing of a bankruptcy petition by US One during 1997.

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<PAGE>

         Based upon its recent experience and due to its limited capital, in the
near term and for at least the balance of 1998, the Company intends to utilize a
third party carrier or carriers to provide its network and operational
services. Although utilization of such third parties may result in reduced
operating margins, the Company believes that this short-term strategy will
permit it to keep its overall costs at an acceptable level and permit the
Company to concentrate its limited resources on the development of its customer
base. No assurance can be given that such Enhanced Services will prove to be the
important competitive feature envisioned by management, or if they do, that the
Company will ever earn revenue from the provision of such services. No assurance
can be given that the Company's near-term strategy of utilizing third party
operational arrangements will permit it to achieve profitability.

         TELECOMMUNICATIONS BUSINESS

         Until such time as the Company can or does replace its switches, the
Company will act as a marketer and reseller of services provided by others. As
of March 31, 1998, the Company is entitled to operate as a Carrier for both
interstate and international traffic and is approved to operate interstate
traffic in forty-one states. Applications will be filed in other states where
appropriate, and the Company anticipates having approval by the end of 1998,
although no assurance can be given to that effect. See "Business -
Telecommunications Business Licensing Requirements."

         The cost to the end-user of providing telecommunications services is a
function of: (i) the quantity of long-distance services used by the end-user at
any given time; (ii) the number of switches through which a telephone call may
be routed; (iii) the amount and type of additional services provided to the
end-user by its principal provider; and (iv) the market competition for such
end-user's business.

         COMPANY'S PRODUCTS AND SERVICES

         The Company plans to offer a variety of long distance and value-added
services and products to its long distance subscribers, which currently include
residential service, 1-plus service consisting of local, intrastate, interstate
and international service, commercial service, 800 service, customized voice
mail, prepaid calling cards and cellular service and a variety of wireless
products.

         The Company currently offers a residential flat rate service through a
third party, Telecommunications Service Center, Inc., which the Company believes
competes favorably against flat rate programs offered by other major long
distance service providers. Management now believes that 1-plus services, while
a necessary part of a package of services, will not be a substantial contributor
to future profits due to competitive developments in the industry. The Company
also offers, through the same third party, an 800 service product to its
residential subscribers which allows subscribers to call home on an 800 number
or provide a toll free number for family members to call home.

         The Company's commercial services include 1 plus and toll free 800
services



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designed for businesses of all sizes. The commercial service may also include
volume discounts and separate billing information for the different telephones
within the same business.

         THE COMPANY'S MANAGEMENT TEAM 

         An important element of the Company's plan to expand its
Telecommunications Business is its complement of skilled personnel. In addition
to the Company's executive officers, as of March 31, 1998, the Company has
identified and hired a group of skilled telecommunications business
professionals. As part of its downsizing and restructuring, however, the Company
has outsourced a number of functions and activities in its efforts to become
profitable. See "Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act." These business professionals
includes:

         Michael Patey, Vice President of Marketing. Mr. Patey is responsible
for the Company's advertising, marketing communications and special events. Mr.
Patey has over 20 years of experience in marketing and advertising, and his work
has won numerous awards from the Advertising Federation of America. Prior to
joining the Company, Mr. Patey was the marketing Vice President for Passport
International, a national catalog company.

         Paul Graham, Director of International Sales. Mr. Graham joined the
Company in December 1996. Prior to joining the Company, for three years he was
National Sales Director for Voyager Networks, Inc. where his responsibilities
included management and training of company sales agents as well as the
development of company sales and marketing strategy. Previously he built and
operated The Racquetball Spa, a premier multi-faceted fitness center and
racquetball club in Connecticut.

         CARRIER SALES BUSINESS 

         The Company's business plan involves the purchase of large amounts of
long-distance services at favorable rates. This business is intended to (i)
provide the Company with large amounts of long-distance services which the
Company can resell through its own switches to its own customer base, and (ii)
enable the Company to resell some or all of such services, in wholesale
transactions, to other Carriers, also through the Company's own switches. In
order to make a profit on the Carrier Sales Business, however, the Company will
have to secure the availability of large amounts of long distance capacity, at a
favorable price, from larger Carriers than the Company. Such arrangements will
require the Company to provide such Carriers with a cash deposit, letter of
credit, or other form of security to assure the payment for such long-distance
service since such Carriers will not provide such services on the basis of
unsecured credit arrangements of companies without strong financial resources.
Thus, the Company is completely at risk for the resale of such long-distance
service at a price greater than the long-distance service is purchased for. The
Company does not have the financial resources to obtain such commitments, nor
does the Company anticipate being able to generate such financial resources as a
result of its cash flow from operations. The Company is seeking sources of
financing so that the Company



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may implement this part of its business plan. No assurance can be given that the
Company will obtain the sought after financing or will ever be able to bring its
Carrier Sales Business to a profitable operational level.

         The Company's Business Plan had been based upon successful
implementation of the IEX Workhorse switch platform. Given the inability to
successfully deploy the IEX Switches, the Company has begun discussing
alternatives available from other switch vendors, and alternative outsourcing
arrangements, in order to deliver services on a consistent reliable basis.

         The Company began marketing the Enhanced Services through its network
of independent Distributors (defined below), brokers and other agents as well as
through direct sales, on a wholesale basis, from the Company's own sales force.
Based on the expected delivery of an operating IEX Switch in 1996, the Company
encouraged its Distributors to market its anticipated Enhanced Services
immediately. The inability of the Company to deliver such Enhanced Services
through Workhorse during the last quarter of 1996 and the first quarter of 1997
meant that the Company failed to fulfill such commitments and accordingly has
not generated anticipated revenue. See "Management's Discussion and Analysis or
Plan of Operation."

         Due to problems associated with Workhorse's performance and the
cancellation of the underlying carrier contract, the Company discontinued
carrying traffic on its switching network at the end of August 1997. The Company
is in the process of reviewing new replacement switches for the redeployment of
its network and exploring possible outsourcing alternatives.

         As of March 31, 1998, no revenues were being generated from the
wholesale carrier business. While the Company anticipates new business in the
near future and anticipates revenue from its reseller efforts in the second
quarter of 1998. There can be no assurance that the Company will be successful
in generating such revenues or redeploying its switching network.

         Anticipated sales in the Carrier Sales Business are made by both
salespeople hired and trained by the Company who receive base salaries and
commissions based upon actual sales volumes as well as independent commissioned
sales representatives. With the implementation of the Company's nationwide
Enhanced Services network, the Company believes it will be able to attract as
customers, a number of second and third tier Carriers for these services. In
addition, the Company believes there exists an opportunity to provide
international traffic for certain foreign countries through existing and future
business relationships. No assurance can be given, however, that the Company
will ever make a profit on the Carrier Sales Business. See
"Business-Telecommunications Business."

         SATELLITE SERVICES BUSINESS

         In April of 1998, the Company entered into a letter of intent for a
non-exclusive agreement for the marketing of the technology under which the
Company will be permitted to globally market the technology for a ten-year
period. The Company intends to market the technology to corporate customers and
to utilize the technology to develop its international carrier



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business.

         COMPETITION

         The Company's telecommunications business is highly competitive. The
principal competitive factors affecting the Company's market share are pricing,
customer service, diversity of products, services and features. The Company's
ability to compete effectively will depend on its ability to maintain high
quality, market-driven services at prices generally equal to or below those
charged by its competitors.

         Most of the Company's competitors are substantially larger and have
substantially greater financial and technical resources. As the Company grows,
it expects to face increased competition, particularly from the Major
Competitors. The Company also competes with regional IXCs and resellers for
inter-LATA long distance services and with local exchange Carriers for
inter-LATA and intra-LATA long distance services. The Company's pricing strategy
is to keep its rates generally below those of the Major Competitors. Competition
within the industry is expected to increase as a result of LECs being permitted
to provide long distance service as a result of the passage of the 1996 Act. See
"Government Regulation-Telecommunications Business."

         Legislative, judicial and technological factors have helped to create
the foundation for smaller long distance providers to emerge as viable
competitive alternatives to the Major Competitors for long distance
telecommunication services. The FCC has required that all IXCs allow the resale
of their services, and the AT&T Decree substantially eliminated different access
arrangements as distinguishing features among long distance Carriers. In recent
years, national and regional network providers have substantially upgraded the
quality and capacity of their domestic long distance networks, resulting in
significant excess transmission capacity for voice and data communications. Due
to anticipated advances in telecommunications transmission technology, the
Company expects the resale of excess transmission capacity to continue to be an
important factor in long distance telecommunications.

         EMPLOYEES

         As of March 31, 1998, the Company had 10 full time employees, including
four executive personnel. See "Business - Management Team" and "Management's
Discussion and Analysis or Plan of Operation."

         The Company intends to hire additional personnel as the development of
the Company's business and additional financing for operations makes such action
appropriate. The loss of the services of key personnel could have a material
adverse effect on the Company's business. Since there is intense competition for
qualified personnel knowledgeable of the Company's industry, no assurance can be
given that the Company will be successful in retaining and recruiting needed key
personnel. The Company does not have key-man life insurance for any of its
employees.

         The Company's employees are not represented by a labor union and are
not covered



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by a collective bargaining agreement. The Company believes that its employee
relations are good.

         GOVERNMENT REGULATION

         The Company provides telecommunications services subject to the rules
and regulation of both state and federal regulatory agencies. Interstate
telecommunications services are governed by the rules and regulations of the
FCC, while intrastate telecommunications services (or services provided within a
state's geographic boundaries) are governed by the particular state regulatory
authorities having jurisdiction within that state.

         During the last quarter of 1995 and the first three quarters of 1996,
the Company applied for and received authority to act as a Carrier for domestic
and international telecommunications. The Company's interstate tariff permits it
to provide and bill for telecommunications services between the states. The
Company's FCC International 214 authority enables the Company to provide
telecommunications services from the United States to termination points outside
the country.


         INDUSTRY OVERVIEW

         Since the break-up of AT&T in 1984, the domestic long distance market
has roughly doubled to an estimated $67 billion in annual revenues in 1994 and
AT&T's share has declined to approximately 56% of the market. The other Major
Competitors increased their market shares. The Major Competitors constitute what
generally is regarded as the first tier in the U.S. long distance market. The
remainder of the market share is held by several large regional long distance
companies.

         The present long distance telecommunications marketplace was
principally shaped by the 1984 divestiture by AT&T of its BOCs (defined below).
As part of the AT&T Divestiture Decree (the "AT&T Decree"), the United States
was divided into geographic areas known as Local Access Transport Areas
("LATAs"). The local exchange carriers ("LECs"), which include the Bell
Operating Companies ("BOCs") and independent LECs, provide local telephone
service, local access services and short haul toll service. Interexchange
carriers ("IXCs"), including the Company, and certain independent local exchange
carriers provide long distance service between LATAs (inter-LATA traffic) and
within LATAs. The current structure of the industry is subject to change as the
impact of recently enacted legislation is realized.

         The long distance market has also been affected by a separate court
decree (the "GTE Decree") entered in 1984 that required the local exchange
operations of the GTE Operating Companies ("GTOCs") to be structurally separated
from the competitive operations of GTE, their parent company. The GTE Decree
also prohibited the GTOCs from providing inter-LATA services.

         In November, 1995, the FCC terminated AT&T's status as a "dominant"
Carrier for



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the following domestic services; residential, operator, 800, directory
assistance and analog private line services. Like other non-dominant Carriers
such as the Company, AT&T is now allowed to file tariffs for all of its domestic
services on one day's notice, and such tariffs are presumed lawful. The FCC
deferred taking action on AT&T's status in the international market, although
there can be no assurance that the FCC will not similarly terminate AT&T's
status as a dominant Carrier in the international market in the future. The FCC
has recently proposed to regulate 22 BOCs providing out-of-region interstate
long distance services as "non-dominant" Carriers as long as such long distance
services are provided by an affiliate of the BOC and certain structural
separation requirements are met, which may make it easier for the BOCs to
compete directly with the Company for long distance subscribers.

         THE 1996 TELECOMMUNICATIONS ACT

         The 1996 Telecommunications Act (the "1996 Act") includes certain
prohibitions on the Major Competitors and any other long distance Carrier
serving more that five percent of the nations' presubscribed access lines from
jointly marketing their long distance services with resold local phone services
acquired from the Regional Bell Operating Companies ("RBOC") for a specified
period ending on the earlier of BOC receipt of in-region long distance authority
or February 8, 1999. Because the Company does not meet such threshold, such
prohibition does not currently apply to the Company. Consequently, during the
time period that the prohibition is in effect in a particular state, the
Company, upon receipt of all necessary regulatory approvals to provide local
resale services, will be able to resell the local phone service products of the
RBOCs and jointly market those products with its long distance service. However,
if during that time period a company were to build a facilities-based network
that could compete with the BOCs in providing local residential phone service,
the Major Competitors and any long distance Carrier serving more than five
percent of the nations's presubscribed access lines could jointly market that
company's local phone service with their long distance service. According to a
1995 FCC report, the U.S. local basic phone service market was estimated by the
FCC to be in excess of $40 billion in 1994, and the domestic intra-LATA long
distance market was estimated by the FCC to be in excess of $11 billion in 1994,
although no assurance can be given to that effect.

         As required by the 1996 Act, in August 1996, the FCC adopted new rules
implementing certain provisions of the 1996 Act (the "Interconnection Orders").
These rules are designed to implement the pro-competitive, deregulatory national
policy framework of the new statute by removing or minimizing the regulatory,
economic and operational impediments to competition for facilities-based and
resold local services, including switched local exchange service. Although
setting uniform national rules, the Interconnection Orders also rely on states
to apply these rules in implementing a pro-competitive regime in their local
telephone markets. The Interconnection Orders are primarily important to the
Company at this time insofar as they affect the cost to the Company of providing
resold local services. Consistent with the 1996 Act, the Interconnection Orders
require incumbent LECs to offer their telecommunications services at retail
prices minus avoided costs. The Interconnection Orders also require, among other
things, that intra-LATA pre-subscription (pursuant to which LECs must allow
customers to



                                       12
<PAGE>



choose different Carriers for intra-LATA toll service without having to dial
extra digits) be implemented no later than February 1999. Petitions seeking
reconsideration of one or more aspects of the Interconnection Orders have been
filed with the FCC and are pending. Also, the Interconnection Orders have been
appealed to various U.S. Court of Appeals. These appeals have been consolidated
into proceedings currently pending before the U.S. Eighth Circuit Court of
Appeals. Certain of the rules adopted in the Interconnection Orders, including
rules that concern the pricing of local services such as resold local service,
have been stayed by the Court. The Company believes the trend toward increased
competition and deregulation of the telecommunications industry will be
accelerated by the 1996 Act and subsequent developments.

         The 1996 Act also addresses a wide range of other telecommunications
issues that may affect the Company's operations, including a sunset provision
pertaining to when safeguards designed to prevent BOCs from capitalizing on
their local exchange monopolies will cease to apply; provisions pertaining to
regulatory forbearance by the FCC; the imposition of additional liability for
the unauthorized switching of subscribers' long distance Carriers; the creation
of new opportunities for competitive local service providers; provisions
pertaining to interconnection; provisions pertaining to universal service and
access charge reform; and requirements pertaining to the treatment and
confidentiality of subscriber network information. The legislation requires the
FCC to conduct a large number of proceedings to adopt rules and regulations to
implement the new statutory provisions and requirements. It is unknown at this
time precisely the nature and extent of the impact that the legislation and
regulatory developments will have on the Company.

         The 1996 Act opens the local phone services market to competition by
requiring LECs to permit interconnection to their networks and establishing,
among other things, LEC obligations with respect to unbundled access, resale,
number portability, dialing parity, access to rights-way and mutual
compensation. The legislation also codifies the LECs' equal access and
nondiscrimination obligations and preempts inconsistent state regulation. In
addition, the legislation contains special provisions that eliminate the AT&T
Decree and the GTE Decree, thereby eliminating certain restrictions on the BOCs
and GTOCs from providing long distance services and engaging in
telecommunications equipment manufacturing. These new statutory provisions
permit the BOCs to enter the long distance market. As of the date of enactment
of the legislation, a BOC is no longer restricted from providing inter-LATA long
distance service outside of those markets in which it provides local exchange
service (referred to as "out-region" long distance service). A BOC may provide
long distance service within the regions in which it also provides local
exchange service (referred to as "in-region" service) if it satisfies certain
procedural and substantive requirements and upon obtaining FCC approval. The
GTOCs are permitted to enter the long distance market as of the date of
enactment without regard to limitations by region, although the necessary state
and/or federal regulatory approvals that are otherwise applicable to the
provision of intrastate and/or interstate long distance service will need to be
obtained, and the GTOCs are subject to the provisions of the 1996 Act that
impose interconnection and other requirements on incumbent LECs.

         Because AT&T is no longer classified as a dominant Carrier, certain
pricing restrictions that formerly applied to AT&T have been eliminated, which
should make it


                                       13
<PAGE>



easier for AT&T to compete with the Company for low volume long distance
subscribers. International Carriers may also be classified as dominant if they
exercise market power or are considered to be affiliated with foreign Carriers,
as defined under the FCC's rules. Non-dominant Carriers are currently required
to file interstate and international tariffs. The FCC generally does note
exercise direct oversight over costs justification and the level of charges for
service of non-dominant Carriers, such as the Company, although it has the
statutory power to do so. The FCC has the jurisdiction to act upon complaints
filed by third parties or brought on the FCC's own motion against any common
Carrier, including non-dominant Carriers for failure to comply with its
statutory obligations. The FCC also has the authority to impose more stringent
regulatory requirements on the Company and change its regulatory classification
from non-dominant to dominant. In the current regulatory environment, the
Company believes, however, that the FCC is unlikely to do so. The 1996 Act
grants explicit authority to the FCC to "forbear" from regulating any
telecommunications services provider in response to a petition and if the agency
determines that the public interest will be served. On February 15, 1996,
Hyperion Telecommunications, Inc., a competition access provider, filed a
petition with the FCC requesting that the FCC adopt a forbearance policy with
regarding to tariff filing requirements for non-dominant Carriers. If the
petition is granted, the Company and other non-dominant Carriers would no longer
be required to maintain tariffs on file at the FCC. On March 21, 1996, the FCC
adopted a Notice of Proposed Rule making that proposes, pursuant to the
forbearance authority granted to the FCC by the 1996 Act, that non-dominant
domestic IXCs should no longer file tariffs. If finally adopted, the FCC's
proposal would not allow domestic non-dominant Carriers to maintain tariffs on
file with the FCC. The Notice of Proposed Rule Making also initiates a review of
other FCC regulations currently applicable to domestic interstate interexchange
services to determine how such regulations should be changed consistent with the
deregulatory goals of the 1996 Act.

         On October 29, 1996, the FCC adopted an order deciding to forbear from
tariff filing requirements for non-dominant IXCs. Under that order, non-dominant
IXCs would no longer be required to file tariffs for their interstate long
distance service. Tariffs would still be required for international long
distance service. However, the FCC's order was appealed by a number of parties,
and as a result the appellate court reviewing the matter granted a stay of the
order. The FCC issued a statement clarifying that the tariffing rules in price
are still considered in effect.


         EFFECT OF AT&T DECREE ON LOCAL SERVICE

         To encourage the development of competition in the long distance
market, the AT&T Decree requires the BOCs to provide all IXCs with access to
local exchange services for inter-LATA calls that is "equal in type, quality and
price" to that provided to AT&T and to maintain a subscription process that
gives telephone subscribers the right to designate a primary IXC (i.e., a
"1-plus" long distance Carrier) of their choice for inter-LATA and interstate
calls. These so-called "equal access" and related provisions were intended to
prevent preferential treatment of AT&T and to level the access charges that the
BOCs could charge IXCs, regardless of their volume of traffic. Similar equal
access requirements have



                                       14
<PAGE>


been imposed upon the GTOCs by the GTE Decree and upon other independent
telephone companies by the FCC. However, there remain a few limited "non-equal
access" areas in the United States that are yet to be converted to "equal
access," and the Company's services are not available in those areas. As a
result of the equal access obligations imposed on the BOCs, the GTOCs, and the
independent telephone companies, subscribers of all inter-LATA long distance
companies were eventually allowed to initiate their calls by utilizing simple
"1-plus" dialing (i.e. by dialing "1") plus the area code and telephone number
of the person being called), rather than having to dial access or identification
numbers and codes in order to be routed to the IXC preselected by the
subscribers.

         Largely as a result of the AT&T and GTE Decrees, an inter-LATA long
distance telephone call begins with the LEC transmitting the call by means of
its local network to a point of connection with an IXC. The IXC, through its
switching and transmission network, transmits the call to the LEC serving the
area where the recipient of the call is located, and the receiving LEC then
completes the call over its local facilities. For each long distance call, the
originating LEC charges an access fee and the terminating LEC charges a
terminating fee to the IXC. The IXC charges a fee for its transmission of the
call, a portion of which covers the costs of the access and terminating fees
charged by the LECs, which are regulated by the FCC and state utility
commission. As competition emerges in the local service market, end users will
have the ability to choose among incumbent LECs and competitive local service
providers based upon price, quality of service, and other relevant factors.

         The 1996 Act has removed the restrictions in the AT&T Decree and the
GTE Decree concerning the provision of inter-LATA service and telecommunications
equipment manufacturing by the BOCs and GTOCs. If the regulations governing such
access and related charges change, and when the BOCs and the GTOCs are permitted
to participate in inter-LATA long distance service, then the BOCs or the GTOCs
might, through control of such charges, obtain a competitive advantage over the
Company and other IXC's.


         STATUTORY AND REGULATORY CHANGES

         There are currently numerous regulatory changes under consideration,
including the pricing of access charges paid to the LECs by the IXCs. In
addition, changes have been made to the terms of the AT&T Decree since it was
entered. The 1996 Act codifies the LECs' equal access and non-discriminating
obligations and preempts inconsistent state regulation. In addition, the
legislation contains special provisions that eliminate the AT&T Decree and the
GTE Decree, thereby eliminating certain restrictions on the BOCs and GTOCs,
respectively, providing long distance services and engaging in
telecommunications equipment manufacturing. These new statutory provisions
permit the BOCs to enter the long distance market. As of the date of enactment
of the legislation, a BOC is no longer restricted from providing inter-LATA long
distance service outside of those markets in which it provides local exchange
service (referred to as "out-of-region" long distance service). A BOC may
provide long distance service within the regions in which it also provides local
exchange service (referred to as "in-region" service) if it satisfies several
procedural and substantive requirements, including obtaining the FCC's approval
for the



                                       15
<PAGE>


BOC's application for each state. The BOC may meet the 1996 Act's requirements
for a particular state in two different ways. The BOC could meet these
requirements upon a showing that in certain situations facilities based
competition is present in its market; that the BOC is providing access and
interconnection approved pursuant to the 1996 Act in that particular state; that
the approved interconnection agreements satisfy a 14-point "checklist" of
competitive requirements; and that the BOC's entry into in-region long distance
markets is in the public interest. In the alternative, if no request for access
or interconnection has been made to the BOC within a specified time, the BOC may
meet the requirements of the 1996 Act by having a statement of the terms and
conditions that the BOC generally offers to provide such access and
interconnection that has been approved or permitted to take effect by the state
commission; that the BOC is generally offering access and interconnection
pursuant to that state - approved statement and such access and interconnection
meets the requirements of the 14-point competitive checklist; and that the BOC's
entry into in-region long distance markets is in the public interest. Before
making its ruling, the FCC is instructed to consult with the U.S. Department of
Justice (the "DOJ"), but the FCC is not bound by the recommendations of the DOJ.
The FCC is also required to consult with the state commission of any state that
is the subject of the BOC's application to verify the compliance of the BOC with
certain requirements of the Act. The GTOCs are permitted to enter the long
distance market as of the date of enactment without regard to limitations by
region, although the necessary state and/or federal regulatory approvals that
are otherwise applicable to the provision of intrastate and/or interstate long
distance service will need to be obtained, and the GTOCs are subject to the
provisions of the 1996 Telecommunications Act that impose interconnection and
other requirements on LECs.

         Prior to the passage of the 1996 Act, certain of the BOCs and the GTOCs
were seeking this same kind of permission through the courts. Because the 1996
Act has removed the restrictions in the AT&T Decree and the GTE Decree, court
actions to remove the restrictions are no longer necessary. On April 11, 1996
the District Court for the District of Columbia issued an order formally
terminating the AT&T Decree. In addition, the GTOCs have filed motions to
withdraw all motions pending before the District Court for the District of
Columbia involving the GTE Decree, including GTE's previously filed request to
terminate the decree.

         The BOCs thus are permitted to enter the out-of-region long distance
market as of the date of enactment of the legislation, although a BOC seeking to
provide long distance services must obtain any necessary state and/or federal
regulatory approvals that are otherwise applicable to the provision of
intrastate long distance service. The BOCs will be able to enter the in-region
long distance market, among other things, upon specific FCC approval and a
finding by the FCC that the BOC satisfies the checklist and has satisfied the
other applicable procedural and substantive requirements. The legislation
defines in-region service to include every state, in its entirety, in which the
BOC provides local exchange service, even if the BOC is not the incumbent local
exchange service provider in all portions of that state. The Company will be
facing competition from the BOCs and the GTOCs that are able to obtain the
necessary state and/or FCC approvals to provide out-of-region and/or in-region
long distance service. The new legislation provides for certain safeguards to
protect against anti-competitive abuse by the BOCs. Among other things, the
legislation limits the ability of the BOCs to market jointly inter-LATA long
distance


                                       16
<PAGE>



service, equipment and certain information services together with local
services. The BOCs must pursue such activities only through separate
subsidiaries with separate books and records, financing, management and
employee. All affiliate transactions must be conducted on an arm's length and
non-discriminatory basis. The BOCs are also prohibited from jointly marketing
local and long distance services, equipment, and certain information services
unless they permit competitors to offer similar packages of local and long
distance services. Further, the BOCs must obtain in-region long distance
authority before jointly marketing local and long distance service in a
particular state. It is unknown whether these safeguards will provide adequate
protection, and the impact of anti-competitive conduct on the Company, if such
conduct occurs, in uncertain. In addition, IXCs such as the Company will be
significantly affected by the implementation and enforcement of statutory and
regulatory provisions designed to prevent the BOCs and the GTOCs from
capitalizing on their monopolistic provision of local services to existing
subscribers in inter-LATA business.

         Depending on the exact nature and time of GTOC and BOC out-of-region
and in-region entry into the long distance market, such entry and the ability of
the Company's competitors to market jointly local and long distance services
could have a material adverse effect upon the Company's results of operations.
It is expected by the Company that most or all of the BOCs will file
applications for out-of-region long distance service. Certain of the BOCs have
already taken steps to provide out-of-region long distance services in multiple
states. It is not known when, and under what specific conditions, other
applications will be granted by the state utility commissions in those states.

         Other regulatory changes being considered by state and federal
regulatory authorities derive from completion that has developed in many areas
for the provision of local access services. Competitive access providers have
installed local networks that allow subscribers to route their long distance
traffic directly to the designated IXC, and that allow end users to be connected
to IXC points of presence, thereby bypassing the LEC. In certain instances, the
LECs also have been afforded a degree of pricing flexibility in differentiating
among markets and carriers in setting access charges and other rates in areas
where adequate competition has emerged. The LECs have yet to elect to provide
volume discounts on access and terminating charges. See "Business - Government
Regulation."

In May 1997, the Federal Communications Commission released rules that require
all telecommunications carriers that provide interstate communications services
to contribute to the universal service support mechanisms based upon their
proportionate share of end-user telecommunications revenues. Under these rules,
the Company will be responsible for its contribution only for those services
delivered to the end user. The amount of the future obligations has not been
determined but will become a factor in determining the cost structure of all
telecommunications carriers.

         SPECIFIC LICENSING REQUIREMENTS

         The terms and conditions of the Company's telecommunications services
are subject to government regulation. Federal laws and FCC regulations generally
apply to interstate telecommunications, while intrastate services are regulated
by the relevant state authorities.



                                       17
<PAGE>

         Federal Regulation. The Company is classified by the FCC as a
non-dominant Carrier, and therefore is subject to minimal federal regulation.
The FCC generally does not exercise direct oversight over cost justification and
the level of charges for service of non-dominant Carriers, such as the Company,
although it has the statutory power to do so. Non-dominant Carriers are required
by statute to offer interstate and international services under rates, terms and
conditions that are just, reasonable and not unduly discriminatory. The FCC
imposes only minimal reporting requirements on non-dominant Carriers, although
the Company is subject to certain reporting, accounting and record keeping
obligations.

         The Company is also subject to the FCC's prior approval requirements
for a transfer of control or assignment of its international authority.

         At present, the FCC exercises its regulatory authority to set rates
primarily with respect to the rates of dominant Carriers, and it has
increasingly relaxed its control in this area. Similarly, the FCC is in the
process of repricing the local transport component of access charges (i.e., the
fee for use of the LEC transmission facilities connecting the LEC's central
offices and the IXCs' access points). In addition, the LECs have been afforded a
degree of processing flexibility in settling interstate access charges where
adequate competition exists. The impact of such repricing and pricing
flexibility on IXCs, such as the Company, cannot be determined at this time.

         In addition, the 1996 Act adds a new provision that imposes liability
upon all telecommunications Carriers, including the Company, to the Carrier
previously selected by the subscriber for unauthorized switching of subscribers'
long distance carriers. Liability is imposed in an amount equal to all charges
paid by the subscriber after the unauthorized conversion, which is in addition
to other remedies available by law. The FCC is required to adopt new rules to
implement this new statutory requirement. The impact that this statutory
provision will have on the Company cannot be determined at this time.

         The Company currently has two tariffs on file with the FCC, one
covering its domestic interstate services and one covering international
services. Although the tariffs of non-dominant Carriers, and the rates and
charges they specify, are subject to FCC review, they are presumed to be lawful
and are seldom contested. As a domestic non-dominant Carrier, the Company is
permitted to make domestic tariff filings on a single day's notice and without
costs support to justify specific rates. As an international non-dominant
Carrier, the Company has been required to include, and has included, detailed
rate schedules in its international tariffs, which are filed on 14 days notice
without costs support to justify rates. Resale carriers, like all other
interstate Carriers, are also subject to variety of miscellaneous regulations
that, for instance, govern the documentation and verifications necessary to
change a subscriber's long distance Carrier, limit the use of "800" numbers for
pay-per-call services, require disclosure of certain information if operator
assisted services are provided, and govern interlocking directors and
management.

         State Regulation. The Company is subject to varying levels of
regulation in the states in which it is currently authorized to provide
intrastate telecommunications services. The vast majority of the states require
the Company to apply for certification to provide intrastate telecommunications
services, or to register or to be found exempt from regulation,



                                       18
<PAGE>


before commencing intrastate service. The vast majority of states also require
the Company to file and maintain detailed tariffs listing their rates for
intrastate service. Many states also impose various reporting requirements
and/or require prior approval for transfers of control of certified Carriers,
and/or for corporate reorganizations; acquisitions of telecommunications
operations; assignments of Carrier assets, including subscriber bases; Carrier
stock offerings; and the incurring by Carriers of significant debt obligations.
Certificates of authority can generally be conditioned, modified, canceled,
terminated or revoked by state regulatory authorities for failure to comply with
state law and/or the rules, regulations and policies of the state regulatory
authorities. Fines and other penalties, including the return of all monies
received for intrastate traffic from residents of a state, may be imposed for
such violations. If state regulatory agencies conclude that the Company has
taken steps without obtaining the required authority, they may impose one or
more of the sanctions listed above.

         As of March 31, 1998, the Company has received Certificates of Public
Convenience and Necessity or is otherwise authorized to operate in 41 states.
The Company currently is not authorized to operate in the following states:
North Carolina, New Mexico, Nebraska, Minnesota, New Hampshire, Rhode Island and
West Virginia. The Company intends to make reapplication in those states when
appropriate to the development of its business.

         In addition, informal complaints are lodged from time to time against
the Company before the FCC and various state agencies for various reasons, to
which the Company has timely responded. In 1996 the Company received two state
inquiries and no FCC inquiries with respect to the Company's operation as a
telecommunications provider. Both inquiries were answered, and, to the best
knowledge of the Company, no further action was taken by any regulatory body.

         In September 1996, the governor of the State of California signed into
law a statute affecting the manner in which Carriers such as the Company can
effect a change in a residential subscriber's local or long distance service.
Under this new law, which became effective on January 1, 1997, a residential
subscriber's decision to change his or her telephone service provider must be
confirmed by an independent third-party verification company. This law appears
to conflict with the FCC's rules governing changes in Carriers, which allow
Carriers to confirm a subscriber's choice through several different mechanisms
including obtaining the subscriber's written authorization, which is the method
currently employed by the Company. It is possible that this law will be
challenged as being inconsistent with the FCC's existing rules. The Company is
in the process of evaluating the effect of the California statute upon its
operations. In addition, a number of states are considering adopting their own
third-party verification rules which, like California, may be inconsistent with
the FCC's rules.

         RISK FACTORS

         THIS REPORT MAY BE DEEMED TO CONTAIN FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF THE REFORM ACT. FORWARD-LOOKING STATEMENTS IN THIS REPORT OR
HEREAFTER INCLUDED IN OTHER PUBLICLY AVAILABLE DOCUMENTS FILED WITH THE
COMMISSION, REPORTS TO THE



                                       19
<PAGE>



COMPANY'S STOCKHOLDERS AND OTHER PUBLICLY AVAILABLE STATEMENTS ISSUED OR
RELEASED BY THE COMPANY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER
FACTORS WHICH COULD CAUSE THE COMPANY'S ACTUAL RESULTS, PERFORMANCE (FINANCIAL
OR OPERATING) OR ACHIEVEMENTS TO DIFFER FROM THE FUTURE RESULTS, PERFORMANCE
(FINANCIAL OR OPERATING) OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. SUCH FUTURE RESULTS ARE BASED UPON MANAGEMENT'S BEST
ESTIMATES BASED UPON CURRENT CONDITIONS AND THE MOST RECENT RESULTS OF
OPERATIONS. THESE RISKS INCLUDE, BUT ARE NOT LIMITED TO, RISKS SET FORTH HEREIN,
EACH OF WHICH COULD ADVERSELY AFFECT THE COMPANY'S BUSINESS AND THE ACCURACY OF
THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN.

         THERE IS A LIMITED PUBLIC MARKET FOR THE COMPANY'S COMMON STOCK.
PERSONS WHO MAY OWN OR INTEND TO PURCHASE SHARES OF COMMON STOCK IN ANY MARKET
WHERE THE COMMON STOCK MAY TRADE SHOULD CONSIDER THE FOLLOWING RISK FACTORS,
TOGETHER WITH OTHER INFORMATION CONTAINED ELSEWHERE IN THE COMPANY'S REPORTS,
PROXY STATEMENTS AND OTHER AVAILABLE PUBLIC INFORMATION, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, PRIOR TO PURCHASING SHARES OF THE COMMON
STOCK:


         Impaired Financial Condition. Although the Company was formed in 1984,
it has many of the characteristics of a development stage company, currently has
no revenues, and is subject to all of the risks inherent in the establishment of
new businesses. The Company has generated only losses from operations since the
beginning of 1995. The likelihood of the success of the Company must be
considered in light of the problems, expenses, difficulties, complications and
delays frequently encountered in connection with the operation of a new
business. Revenues generated from the Company's operations are not adequate to
meet the Company's operating expenses. The Company has generated losses of
approximately $17.5 million and approximately $5.7 million during the years
ended December 31, 1997 and December 31, 1996, respectively. The Company has
current liabilities of nearly  $20 million and is involved in various
matters of litigation (See Part 3 - "Litigation"). The Company also has
liabilities of more than $600,000 to the Internal Revenue Service for
undeposited payroll withholding taxes with respect to which it believes it has
negotiated an acceptable payment schedule. The Company also has a contingent
liability to IEX which could require it to return $350,000 to IEX, although no
collection action has been taken by IEX as of March 31, 1998. There can be no
assurances that the Company will ever achieve profitable operations. See
"Management's Discussion and Analysis or Plan of Operations."

         Qualified Financial Statements. The Company's auditors have included an
explanatory paragraph in their Report of Independent Certified Public
Accountants to the effect that recovery of the Company's assets is dependent
upon future events, the outcome of which is undeterminable, and that the
successful completion of the Company's



                                       20
<PAGE>



development program and its transition, ultimately, to the attainment of
profitable operations is dependent upon obtaining adequate financing to fulfill
its development activities and achieving a level of sales adequate to support
the Company's corporate infrastructure. There can be no assurances that such a
financing can be completed on terms favorable to the Company or at all, or that
the business of the Company will ever achieve profitable operations. See
"Management's Discussion and Analysis or Plan of Operations - Liquidity and
Capital Resources."

         Need for Additional Capital. The Company's successful transition to
profitable operations is dependent upon obtaining adequate financing to fund
current operations and to develop and maintain a market share in an industry
characterized by explosive growth. The Company's ability to operate the Carrier
Sales Business is dependent on substantial and immediate financing. In the event
the Company fails to raise additional funds from such financing, and fails to
generate any adequate revenues from operations, the Company may be unable to
compete in the telecommunications industry. In addition, the Satellite Services
Business started in April of 1998 will require substantial capital for the
deployment. There can be no assurances that any sources of financing will be
available from existing stockholders or external sources on terms favorable to
the Company, or at all, or that the business of the Company will ever achieve
profitable operations. Further, any additional financing may be senior to the
Company's Common Stock or result in significant dilution to the holders of the
Common Stock. In the event the Company does not receive any such financing or
generate profitable operations, management may have to suspend or discontinue
its business activity or certain components thereof in its present form or cease
operations altogether. See "Management's Discussion and Analysis or Plan of
Operations - Liquidity and Capital Resources."

         Strong Competition. The telecommunications industry is characterized by
strong competition from companies of all sizes and capacities for technological
and marketing innovation. Most of the Company's competitors have more
significant operating histories, larger and more varied customer bases, better
known names in the marketplace, greater technical resources, longer
relationships with licensed Carriers and far better financial resources. The
Company endeavors to identify or create niches in the marketplace where its
combination of packages of communications services, direct marketing techniques
and careful selection of areas in which to make capital investments in switches
and high-capacity lines will permit the Company to offer attractive services at
lower prices than its competition. Even if the Company were able to carve out a
modest market by the above described means, of which no assurance can be given,
larger competitors might adapt the Company's ideas and sell the same services at
lower prices than those of the Company, with the effect that the Company's own
market might disappear. In such circumstance the Company would be forced to
curtail its operations or close them down entirely. See "Business -
Competition."

         New Technological Developments: Marketing Implications. The
telecommunications business has been characterized by rapid and striking
technological change. In addition, many companies in the industry have prospered
by anticipating the needs and desires of consumers and successfully offering
amounts and types of telecommunications services which not only took advantage
of technological change, but



                                       21
<PAGE>


provided them in an attractive form to such consumers. Management of the Company
believes that the industry will continue to undergo frequent technological
change and that there will be constant challenges to revise existing marketing
strategies and create new ones. Management believes that the Company's personnel
have far less experience in these areas than those employed by competitors of
the Company. Accordingly, no assurance can be given that the Company will be
able to adapt new technological developments to its existing switches, leased
lines and business relationships, or, even if it can, that the Company will be
able to capitalize on such technological developments in a manner that generates
revenue to the Company. See "Business - the Company's Management Team."

         Ability to Manage New Businesses. All of the Company's businesses are
new. With respect to the Telecommunications Business, the Company is currently
only a reseller of another Carrier's services. The Carrier Sales Business was
started in January 1997. The Company intends to enter the Satellite Services
Business in late April 1998, and there can be no assurances that the Company
will be successful in that business. The ability of the Company to generate
revenue in 1998 and future years, depends on its ability to manage its new
businesses, each with its own problems of growth, management, response to
technical changes, pressures of competition, need for financing and recruitment
and retention and key personnel. No assurance can be given that the management
of the Company will be capable of handling the many problems and issues
attendant to the operation and projected growth of such businesses. See
"Business."

         Dependence on Key Personnel. The Company is dependent upon the skills
of its management team. There is strong competition for qualified personnel in
the telecommunications industry, and the loss of key personnel or an inability
to continue to attract, retain and motivate key personnel could adversely affect
the Company's business. As of March 31, 1998, the Company is dependent for its
success on certain key executive officers, especially Roderick McClain. The loss
of the services of Roderick McClain would have an immediate adverse material
effect on the business of the Company. There can be no assurances that the
Company will be able to retain its existing key personnel or to attract
additional qualified personnel. The Company does not have key-man life insurance
on any employees of the Company. See "Business - the Company's Management Team"
and "Management."

         Dependence on Switching Equipment. The Company currently has no
switching facilities of its own. The ability to route telecommunications through
one of its switches is a critical factor to the Company's ability to provide
services at competitive prices. If the Company is unable to obtain its own
switches, the Company would be forced to utilize the services of an unrelated
Carrier or Carriers, thus increasing the cost of providing service to its
customers. See "Business - The Company's Products and Services."

         Dependence on Unrelated Carriers for Provision of Long Distance
Capacity. Although the Company is licensed as a Carrier in most U.S.
jurisdictions, it does not now possess a full network through which it can
process communications. Thus, it must rely on unrelated Carriers to transmit
portions of calls made by the Company's subscribers. In addition, the Company
relies on local exchange Carriers for origination and termination of certain
calls. A failure, whether from a power outage or otherwise, in a line or switch



                                       22
<PAGE>


operated by one of such unrelated Carriers could adversely affect the Company's
ability to service the calls placed by its customers. Even if the Company was
able to reroute such calls so that its customers suffered no loss in service,
the Company might incur additional costs to do so. Although the Company has not
yet incurred significant delays or other problems in this regard, no assurance
can be given to this effect prospectively. Moreover, any extended delay or other
problem suffered by customers of the Company could adversely affect the
reputation of the Company for provision of timely and efficient
telecommunications service. See "Business-Telecommunications Business -
Relationships with Carriers."

         Telecommunications Services; Minimum Commitments. The Company expects
to enter into a number of agreements with unrelated telecommunications Carriers
to provide transmission capacity for calls made by customers of the Company, but
requires capital to be able to do so. In certain of these agreements, the
Company, in return for receiving the benefits of lower rates, will commit for a
minimum monthly usage of long distance capacity. No assurance can be given that
the Company will generate sufficient revenue to pay for such minimum
obligations. See "Business - Telecommunications Business."

         Government Regulation of Business. The Company is subject to regulation
by various government authorities in respect of its telecommunication activities
and its network marketing. As of March 31, 1998, the Company is authorized as a
Carrier in forty-one states and has its FCC Interstate license and FCC 214
International Tariff. Carrier status allows the Company to deal directly with
its underlying Carriers and enables the Company to provide direct
telecommunications service to its customers, that is, without processing its
telecommunications customer provisioning and billing through unrelated licensed
Carriers. If the Company were to lose its Carrier status in a particular
jurisdiction, it would no longer be able to provide direct telecommunication
service to customers and to bill therefor; instead, the Company would be able
only to recruit customers and pass them off to an unrelated Carrier. Such
activity, even if profitable to the Company, would offer little possibility for
growth in the industry. Although management of the Company believes that the
Company has generally remained in compliance with the regulations in the
jurisdictions in which it operates, no assurance can be given to that effect. A
loss of Carrier status in several jurisdictions would have a material adverse
effect on the Company's operations. See "Business - Government Regulation."

         RBB-Khalifa Litigation. The Company is engaged in a dispute with
certain purchasers of the principal amount of $5,333,333 of certain 3%
Convertible Debentures, due August 15, 1998. The Debentures were issued in
reliance on an exemption from registration pursuant to Regulation S under the
Securities Act of 1933, as amended (the "Securities Act"). The Debentures are
convertible into shares of the Company's Common Stock based on the per share
conversion price for the Debentures of the lesser of: (i) $4.00, or (ii) the
average closing bid price of the Company's Common Stock for the five (5) trading
days immediately preceding the date of notice of conversion. The entire
obligation underlying the Debentures is currently convertible into Common Stock
under the terms of the Debentures. The Company has received requests for
conversion of a total of $583,000 principal amount of Debentures (plus accrued
interest thereon) into unrestricted shares of Common Stock. The Company has
taken the position that the Debentureholders have not


                                       23

<PAGE>

complied with the terms of the subscription documents executed in connection
with the issuance of the Debentures, and that until the Debentureholders are in
such compliance, the Debentureholders have not fulfilled their obligations under
the Subscription Documents, and no shares may be issued pursuant to the
purported conversion requests. In November 1997, the trial court dismissed
substantially all of the Company's counter claims. However, the Company intends
to file an appeal of that decision. The Company has entered into negotiations
with the Debentureholders to reach an acceptable settlement which will serve to
spread conversion of the Debentures over an extended period of time with certain
limitations. No assurance can be given, however, that the parties will reach any
settlement or that a settlement will be on terms favorable to the Company. If
the above requested conversions, and thereafter, other conversions, are
permitted to take place and unrestricted shares of Common Stock are issued
therefore could become significant holders of the Company's Common Stock,
diluting the interests of existing holders of Common Stock. See "Legal
Proceedings - RBB Bank/Khalifa Litigation."

         Limited Public Market for Common Stock. There is currently a limited
public market for the Common Stock. Holders of the Company's Common Stock may,
therefore, have difficulty selling their Common Stock, should they decide to do
so. In addition, there can be no assurances that such markets will continue or
that any shares of Common Stock which may be purchased may be sold without
incurring a loss. Further, the market price for the Common Stock may be volatile
depending on a number of factors, including business performance, industry
dynamics, news announcements or changes in general economic conditions.

         Disclosure Relating to Low-Priced Stocks. The Company's Common Stock is
currently listed for trading in the over-the-counter market on the NASD
Electronic Bulletin Board or in the "pink sheets" maintained by the National
Quotation Bureau, Inc., which are generally considered to be less efficient
markets than markets such as NASDAQ or other national exchanges, and which may
cause difficulty in conducting trades and difficulty in obtaining future
financing. The Company's securities are subject to the "penny stock rules"
adopted pursuant to Section 15 (g) of the Exchange Act. The penny stock rules
apply to non-NASDAQ companies whose common stock trades at less than $5.00 per
share or which have tangible net worth of less than $5,000,000 ($2,000,000 if
the company has been operating for three or more years). Such rules require,
among other things, that brokers who trade "penny stock" to persons other than
"established customers" complete certain documentation, make suitability
inquiries of investors and provide investors with certain information concerning
trading in the security, including a risk disclosure document and quote
information under certain circumstances. In addition, NASDAQ has announced its
intentions to make its trading rules for "penny stocks" even more stringent.
These new restrictions are expected to be announced in the latter half of 1998.
Many brokers have decided not to trade "penny stock" because of the requirements
of the penny stock rules and, as a result, the number of broker-dealers willing
to act as market makers in such securities is limited and may decline further
due to the pending additional NASDAQ rules.

         Certain Registration Rights. The Company has entered into various
agreements pursuant to which certain holders of the Company's outstanding Common
Stock have been granted the right, under various circumstances, to have Common
Stock that is currently


                                       24
<PAGE>



outstanding registered for sale in accordance with the registration requirements
of the Securities Act upon demand or "piggybacked" to a registration statement
which may be filed by the Company. Of the issued and outstanding Common Stock as
of April 6, 1998, a total of 3,201,267 shares may be the subject of future
registration statements pursuant to the terms of such agreements. In addition,
as of April 6, 1998, there are warrants to acquire 987,500 shares of Common
Stock which may be exercised through December 31, 1998, and which carry certain
piggyback registration rights. Any such registration statement may have a
material adverse effect on the market price for the Company's Common Stock
resulting from the increased number of free trading shares of Common Stock in
the market. There can be no assurances that such registration rights will not be
enforced or that the enforcement of such registration rights will not have a
material adverse effect on the market price for the Common Stock.

         Lack of Dividends on Common Stock. The Company has paid no dividends on
its Common Stock as of March 31, 1998 and there are no plans for paying
dividends on the Common Stock in the foreseeable future. The Company intends to
retain earnings, if any, to provide funds for the expansion of the Company's
business.

         Shares Eligible for Future Sale; Issuance of Additional Shares. Future
sales of shares of Common Stock by the Company and its stockholders could
adversely affect the prevailing market price of the Common Stock. As of April 6,
1998, there are 23,606,648 shares of Common Stock which are free of the
restrictive legend removed pursuant to Rule 144(k) promulgated under the
Securities Act. Further, 3,201,267 shares may be the subject of future
registration statements pursuant to the terms of certain agreements between the
Company and certain of its stockholders. Sales of substantial amounts of Common
Stock in the public market, or the perception that such sales may occur, could
have a material adverse effect on the market price of the Common Stock. Pursuant
to its Articles of Incorporation, the Company has the authority to issue
additional shares of Common Stock. The issuance of such shares could result in
the dilution of the voting power of the currently issued and outstanding Common
Stock.


ITEM 2.  DESCRIPTION OF PROPERTIES.

         The Company has an operating lease at 55 Marietta Street, Atlanta,
Georgia for office space containing the Company's executive offices and for its
planned long distance switching equipment. This lease is with an unaffiliated
third party. The lease term is five (5) years from the commencement date of
November 1, 1996, and monthly rental is $2,154.

ITEM 3.  LEGAL PROCEEDINGS.

         Walsh Litigation. On June 11, 1996, a complaint was filed against the
Company by John Walsh, a former employee in the Superior Court of Fulton County,
Georgia (Civil Action No. E494660), alleging certain claims and seeking
compensation in the form of common shares of the Company's common stock pursuant
to an employment agreement between the Company and the former employee. The
Company has further filed a counter-claim against the former employee, alleging
breach of contract, breach of fiduciary


                                       25
<PAGE>


responsibility under the terms of the aforementioned agreement as well as action
for tortious interference with employment relations, violations of trade secrets
and fraudulent transfer of assets.

         Management of the Company believes that there are valid defenses to
each of the claims and intends to vigorously defend this action. Trial is
expected to commence in April 1998. The Company has proposed a settlement of
this matter to the plaintiff; however, as of March 31, 1998 no settlement has
been reached and no assurance can be given that such a settlement will be
achieved on terms favorable to the Company.

         TJC Litigation. On September 23, 1996, a complaint was filed against
the Company by TJC Communications in the State Court of Fulton County, Georgia,
Civil Division (Civil Action No. 96VS0118421) alleging default on a promissory
note associated with the prior asset purchase of TJC Communications. On October
28, 1996, the Company filed a consolidated answer, counterclaim and third party
complaint against R. Wayne Johns, an Individual, and Charles Colclasure, an
Individual, both principals of TJC Communications, alleging fraudulent
inducement, material misrepresentation, fraud and deceit. Both Johns and
Colclasure individually failed to answer the Company's counterclaim, and on
January 15, 1997, the Company, filed for a Motion for Default as to Third Party
Defendants with Proposed Default Judgment and Request for Hearing. On February
19, 1997, the Company filed a complaint against Johns, Colclasure and TJC in
Superior Court, Fulton County (#55839) and on March 3, 1997, made a motion to
combine the first action with its February 19, 1997 suit. On October 17, l997,
the Company entered into a Settlement Agreement and Mutual Release with Johns,
Colclasure and TJC Communications and release 52,500 shares of the Company's
common stock to TJC that had been previously issued as well as issued the common
stock as full and complete settlement.

         CAM-NET Litigation. On February 20, 1997, a complaint was filed by
CAM-NET Communications Network, Inc. ("CN") in federal court for the Northern
District of Georgia, (197-CV-0448). The complaint sought recovery on two
promissory notes in the total principal amount of $250,000, together with
interest thereon to February 17, 1997 of $21,071.70, additional interest to date
of payment, attorney's fees, costs and expenses.

         The claim by CN related to an original letter of intent for the merger
of the two entities in or about April 1996, pursuant to which money was
advanced by CN to the Company. The Company contended that the promissory notes
executed with respect thereto were merely to document such advances, with no
intention that such advances be repaid. Subsequently, in or about July 1996,
the Company contended that a revised letter of intent was entered into between
the parties that included, among other things, changes in the terms of the
promissory notes. The Company contended that CN thereafter elected to exercise
its option to convert the promissory notes to the exclusive right to the
Company's software utilized to manage Vision 21 for the Canadian market. As a
result, the Company contended there are no sums due on the promissory notes.

         The Company filed an answer with affirmative defenses and setoff and
recoupment against CN. The Company raised claims of material misstatements and
nondisclosures, as well as improper action, against CN with respect to such
letters of intent. The Company



                                       26
<PAGE>



believed these constitute defenses to any claim of CN, as well as the basis of a
claim for affirmative relief against CN. Because CN is currently a corporation
continuing federally under the Canada Business Corporations Act and is thus
protected from affirmative claims being asserted against it without leave of the
Canadian Court, the Company had limited its claims against CN to setoff and
recoupment and had not sought further damages which it believed it sustained as
a result of the actions of CN.

         Although the Company was successful in reaching a compromise settlement
of this action, its inability to make payment of the settlement amount in
January 1998 resulted in a summary judgement against the Company for $250,000.

         RBB Bank-Khalifa Litigation. On or about July 30 and August 28, 1996,
the Company issued the aggregate par principal amount of $6,683,333 of certain
3% Convertible Debentures, due August 15, 1998 (the "Debentures"), as follows:
(i) RBB Bank Aktiengesselschaft ("RBB Bank") ($4,000,000), (ii) Mohammed Ghaus
Khalifa ("Khalifa") ($1,333,333), and (iii) Canadian Imperial Bank of Commerce.
("CIBC") ($1,350,000) (collectively, the "Debentureholders"). The Company
received cash from the Debentureholders in the aggregate amount of approximately
$5,012,500, or 75% of the par principal amount of the Debentures. The Debentures
were issued in reliance on an exemption from registration pursuant to Regulation
S under the Securities Act.

         The terms of the Debentures provide that the Debentures are convertible
into shares of the Company's Common Stock based on the per share conversion
price for the Debentures of the lesser of: (x) $4.00, or (y) the average closing
bid price of the Company's Common Stock for the five (5) trading days
immediately preceding the date of notice of conversion. The entire obligation
underlying the Debentures, as of January 23, 1997, is convertible into Common
Stock under the terms of the Debentures pursuant to the formula set forth above.
See "Security Ownership of Certain Beneficial Owners and Management."

         During the period from November 15, 1996 to January 3, 1997, the
Company received requests for conversion of the par principal amount of
Debentures set forth below (plus accrued interest thereon) into unrestricted
shares of Common Stock, as follows: (i) Khalifa ($333,000 to be converted at the
conversion price of $0.332 per share), (ii) RBB Bank ($250,000 to be converted
at the conversion price of $0.324 per share and $250,000 to be converted at the
conversion price of $0.354 per share), and (iii) CIBC ($50,000 to be converted
at $0.3832 per share and $50,000 to be converted at the conversion price of
$0.396 per share). CIBC's conversion requests have been withdrawn, as received
notices, dated January 10 and 14, 1997, on behalf of the Debentureholders
asserting that the failure by the Company to issue shares of Common Stock
pursuant to said conversion notices constituted an event of default under the
Subscription Documents. CIBC has advised the Company that the attorneys
purporting to give said notice of default on its behalf were not retained by it
and did not have authority to so act on its behalf. CIBC has withdrawn its
conversion requests and said unauthorized notice of default.

         The Company has taken the position that RBB Bank and Khalifa have not
complied with the terms of the subscription documents (the "Subscription
Documents") executed in connection with the issuance of the Debentures, and that
until RBB Bank and Khalifa are in



                                       27
<PAGE>


such compliance, RBB Bank and Khalifa have not fulfilled their obligations under
the Subscription Documents, and no shares may be issued pursuant to the
purported conversion requests.

         The Company has not received a copy of a Schedule 13D with respect to
RBB Bank. Further, the Company has not received a copy of any filing which may
be required pursuant to Section 16 of the Exchange Act for either RBB Bank or
Khalifa, and believes that the information set forth in Khalifa's Form 13D does
not correctly reflect his beneficial ownership of Common Stock.

         The Company has requested RBB Bank and Khalifa to provide satisfactory
evidence that they are not subject to, or have met, the filing requirements of
Sections 13(d) and 16, the Regulation S exemption remains available and any
shares which may be issued in connection with a conversion request are not
subject to resale restrictions for "affiliates" of an issuer under Rule 144
promulgated under the Securities Act. RBB Bank and Khalifa have failed and
refused to provide the requested evidence.

         The Company has expressed its willingness, at this stage, to issue the
conversion shares to RBB Bank and Khalifa with a restrictive legend, at such
time as terms of the Subscription Documents. The Company does not believe that
the Company is in default with respect to the conversion notices or the
Debentures.

         On January 22, 1997, RBB Bank and Khalifa (collectively, "Plaintiffs")
filed a complaint in the United States District Court for the Northern District
of Georgia, Atlanta Division (Civil Action No. 1 97-CV-0179) against the
Company. Subsequently, RBB Bank and Khalifa filed a first amended complaint
("Complaint"). The Complaint alleges claims for declaratory and injunctive
relief, breach of contract and attorneys fees, with respect to the request of
RBB Bank and Khalifa to convert $333,000 and $500,000, respectively, par
principal amount of Debentures into shares of the Company's Common Stock
pursuant to the Subscription Documents. The complaint seeks injunctive relief
against the Company to issue the shares to Plaintiffs in accordance with the
conversion requests, injunctive relief declaring the full principal amount of
the Debentures to be due and owing in the amount of more than $1,250,000 and
$1,333,333 to RBB Bank and Khalifa, respectively, with interest, and for an
unstated amount of compensatory damages, attorney's fees, costs and expenses.

         The Company has filed an answer with affirmative defenses and
counterclaims to the above action. The Company alleges claims for violation of
the Securities Exchange Act of 1934 and fraud against RBB Bank and Khalifa in
connection with alleged misrepresentations and omissions and violations of the
Federal Securities Laws by RBB Bank and Khalifa in representations made by them
in the Subscription Documents and their subsequent conduct, which caused the
Company damage in a presently undetermined amount. The Company also asserts a
claim for rescission in connection therewith. The Company also seeks exemplary
and punitive damages, attorney's fees, costs and expenses.

         On November 20, 1997, the District Court, among other things, granted
plaintiffs' motion for partial summary judgement with respect to its request
for specific performance, ordered that the Company issue shares of stock to
plaintiffs in accordance with the



                                       28
<PAGE>


Subscription Agreement, dismissed the Company's counterclaims for fraud and
breach of contract and denied plaintiffs' request for a preliminary injunction
as moot. The Company promptly filed a motion for reconsideration and the
District Court denied that motion on January 5, 1998. The Company then filed a
Notice of Appeal with the Eleventh Circuit Court of Appeals. The appeal was
dismissed as premature and by motion dated March 19, 1998, the Company has asked
that the District Court, pursuant to Rule 54(b) of the Federal Rules of Civil
Procedure, enter a final judgement with respect to plaintiffs' claim for
specific performance and, in such judgement, make an express determination that
there is no just reason for the delay so that an appeal may be perfected. The
plaintiffs have opposed this motion. A pre-trial brief has been filed with
respect to the remaining claims of the plaintiffs.

         Management of the Company believes that it will be successful on appeal
and intends to vigorously defend this action and pursue the Company's
affirmative claims for relief and rescission. In the interim, however, the
Company has proposed a settlement of all issues to which plaintiffs have not
responded to date.

         Trident Litigation. On October 8, l997, the Company filed a complaint
in the Superior Court of Fulton County, State of Georgia (Civil Action #E-62102)
against Trident Communications Corp., Wail H. Alkhatib and Daniel G. Kuttab
(collectively, "Trident") alleging breach of contract, both oral and written,
fraud, unjust enrichment, and detrimental reliance among its counts. Within this
suit, the Company is requesting return of certain shares issued to Trident in
conjunction with a certain Resale Debit Card Agreement as well as $10 million as
payment for services rendered to Trident but not paid for. While no assurances
can be given, the Company anticipates that a favorable resolution will be
reached in this litigation.

         WorldCom/WilTel Litigation. On August 29, 1997, a complaint was filed
against the Company by WorldCom Network Services, Inc. d/b/a WilTel in the State
Court of Dekalb County, Georgia (Action No. 97A-36948-3) seeking recovery of
approximately $6 million for payment of services rendered as well as fees for
attorneys and court costs. This suit was amended to reflect an amount of $7.5
million. On October 2, l997, the Company filed its answer and believes that this
amount is incorrect due to apparent significant overbillings by WorldCom and
disputed amounts with its former customer, Trident Communications Corp. While no
assurances can be given, Management intends to vigorously defend this action.

         The Company responded to WorldCom's first request for production of
documents. The case has been set for trial on May 7, 1998. The Company will seek
to remove the case from the calendar until discovery has been completed.

         Interlynx Litigation. On August 14, l997, the Company and its Vision 21
subsidiary commenced an action in the Superior Court of Fulton County, State of
Georgia (Civil Action E61477) against Interlynx Technologies and certain former
employees and independent representatives of the Company, seeking a temporary
restraining order and interlocutory and permanent injunction under the Georgia
Uniform Deceptive Trade Practices Act; interlocutory and permanent injunction
for actual and threatened


                                       29
<PAGE>


misappropriation of trade secrets; and alleging violation of the Georgia Trade
Secrets Act, Violation of the Georgia Computer Systems Protection Act, Breach of
Contract, Georgia Racketeer Influenced and Corrupt Organizations Act (RICO),
breach of fiduciary and/or confidential relations, tortious interference with
contractual and business relations and prospective contractual and business
relations, defamation, and seeking conversion and imposition of a constructive
trust, among other things.

         Southern Signatures Litigation. On January 9, 1998, a complaint was
filed against the Company by the Creative Network, Inc. in the State Court of
DeKalb County, Georgia (Civil Action 98A40942-0) alleging that the plaintiff had
furnished certain printing services to the Company on account, and alleging a
default in payment for such services. Plaintiff seeks the principal sum of
$211,383.31 pre-judgement interest and late charges, post-judgement interest,
court costs and attorney's fees. On March 6, 1998, the Company filed an Answer
alleging as defenses, among other things, that there was improper billing,
estoppel, waiver and setoff and seeking an accounting.

         The Creative Network, Inc. Litigation. On February 27, 1998, a
complaint was filed against the Company by The Creative Network, Inc.
("Creative") in the State Court of DeKalb County, Georgia (Civil Action No.
98A4211-1), alleging that certain monies are owed on account, being the amount
of $61,561.47. The Company filed an answer to this complaint on March 26, 1998,
and filed its first responses to the plaintiff's first discovery requests on
April 9, 1998.

         The Company believed that it had reached a fair and equitable
settlement of all amounts due to Creative in December 1997 and issued certain
shares of its Common Stock, which are included in the total of issued and
outstanding shares as reported herein, in full settlement. Certain principals of
Creative subsequently attempted to deny the settlement. Management believes that
it will be successful in its defense.


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

         The Annual Meeting of Stockholders (the "Meeting") was held on
September 16, 1997.

         The Stockholders reelected Roderick A. McClain, Chairman of the Board
of Directors and Chief Executive Officer and President, Geoffrey F. McClain,
Senior Vice President, and Herbert S. Perman, Executive Vice President as
Directors. In addition, two independent, outside Directors were elected; Mr. Don
L. Thone and Mr. Ron Berkowitz. Due to the time constraints associated with the
Company's restructuring, both Mr. Thone and Mr. Berkowitz resigned from the
Board on January 28, 1998.

         The second proposal to change the Company's state of incorporation from
Florida to Delaware by means of a merger of the Company with and into a
wholly-owned subsidiary passed with 53% of the votes or 12,673,695 in favor,
742,121 votes against, 42,902 votes abstaining, and 7,119,858 unvoted.



                                       30
<PAGE>

         The third proposal was a conditional proposal which was not necessary
due to the second proposal passing.

         The fourth proposal to adopt the Company's 1996 Stock Option Plan (the
"1996 Stock Option Plan") and to reserve up to 3,400,000 shares of the Company's
Common Stock for issuance under the 1996 Stock Option Plan passed with 53% of
the votes or 12,633,005 in favor, 658,646 votes against, 167,067 votes
abstaining, and 7,119,858 unvoted.

         The fifth proposal to approve the form of indemnification agreements
between the Company and the members of the Company's Board of Directors passed
with 81% of the votes or 19,333,903 in favor, 550,205 votes against, and 694,468
votes abstaining.

         The sixth proposal to ratify the appointment of Tauber & Balser P.C.,
Certified Public Accountants, as independent public accountants for the Company
for the year ending December 31, 1997 passed with 86% of the votes or 20,337,424
in favor, 139,247 votes against, and 101,905 votes abstaining.


         PART II

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

         As of April 6, 1998, the authorized capital stock of the Company
consisted of 75,000,000 shares of common stock, par value $0.004 per share (the
"Common Stock") and 25,000,000 shares of preferred stock, par value $0.004 per
share (the "Preferred Stock"). As of April 6, 1997, there were issued and
outstanding 26,807,915 shares of Common Stock options and warrants to purchase
4,037,500 shares of Common Stock at prices ranging from $0.10 to $5.00.

         The Company's Common Stock has been listed for trading in the
Over-The-Counter Bulletin Board ("OTCB") market since July, 1995 and is quoted
on the OTCB or in the "pink sheets" maintained by the National Quotation Bureau,
Inc. under the symbol "GTMI." The number of shares of Common Stock issued and
outstanding as of April 6, 1998, was approximately 26,807,915. The bid and asked
sales prices of the Common Stock, as traded in the OTCB market, on April 6,
1998, were approximately $ 0.44 and $0.45, respectively. The quarterly range of
high and low bid prices for the past two years were as follows:

                                       Bid Prices                Asked Prices
                                    High       Low              High     Low
Year Ended December 31, 1996

 1st Quarter                        1.188     0.625             2.000    0.700
 2nd Quarter                        3.000     1.813             3.250    1.938
 3rd Quarter                        2.438     0.500             2.625    0.563
 4th Quarter                        0.594     0.313             0.625    0.344



                                       31
<PAGE>

Year Ended December 31, 1997
 1st Quarter                        0.938     0.625             0.969    0.453
 2nd Quarter                        1.156     0.469             1.219    0.500
 3rd Quarter                        0.750     0.370             0 781    0.400
 4th Quarter                        0.625     0.380             0.656    0.410

Quarter Ended March 31, 1998
                                    0.290     0.070             0.380    0.080

         These prices are based upon quotations between dealers, without
adjustments for retail mark-ups, markdowns or commissions, and therefore may not
represent actual transactions.

         No dividend has been declared or paid by the Company since inception.
The Company does not anticipate that any dividends will be declared or paid in
the future.

         The transfer agent for the Company is American Stock Transfer and Trust
Company.


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

         THIS REPORT, INCLUDING THE DISCLOSURES BELOW, CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES.
WHEN USED HEREIN, THE TERMS "ANTICIPATES," "EXPECTS," "ESTIMATES," "BELIEVES"
AND SIMILAR EXPRESSIONS, AS THEY RELATE TO THE COMPANY OR ITS MANAGEMENT, ARE
INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED
OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH MATERIAL DIFFERENCES INCLUDE THE FACTORS DISCLOSED IN THE
"RISK FACTORS" SECTION OF THIS REPORT, WHICH READERS OF THIS REPORT SHOULD
CONSIDER CAREFULLY.

         OVERVIEW OF PRESENTATION.

         The following discussion and analysis should be read in conjunction
with the Selected Consolidated Financial Data and the Consolidated Financial
Statements and Notes thereto included elsewhere herein.

         The Company, which was formed on December 31, 1984 and primarily
engages in the provision of telecommunications services to individuals and small
businesses. Such telecommunications services include, but are not limited to,
domestic and international long distance, prepaid calling cards, interactive
voice mail and other enhanced voice recognition services. During 1997 the
Company operated five separate, but related, businesses: (i) the
Telecommunications Business; (ii) Vision 21 Business; (iii) the Carrier Sales
Business; (iv) the Internet Services Business; and (v) the Collectible Calling
Card Business. In February 1998, the Company suspended operations of its Vision
21, Inc. network marketing subsidiary as part of its restructuring to focus on
its wholesale lines of business. The Company began the Satellite Services
Business during April of 1998.



                                       32
<PAGE>

         As of November 15, 1996, the Company acquired substantially all of the
assets of the business of Finish Line Collectibles, Inc. and two related
corporations ("Finish Line"), pursuant to the terms of an asset purchase
agreement (the "Finish Line Agreement"). The consideration was the assumption by
a wholly-owned subsidiary of liabilities related to the business equal to
$694,000.

         The Company had anticipated that the Collectible Calling Cards sold by
Finish Line Collectibles, Inc. would feature the Enhanced Services available
through the Company's Workhorse platforms. In addition, the Finish Line product
line was to have offered an added collectible feature to the Enhanced Services
Program of Vision 21. In July 1997, due to failure of Finish Line to meet
projected revenue targets and the continuing losses associated with Finish Line
operations, a Chapter 11 Bankruptcy petition was filed by the Company's
wholly-owned subsidiary and all operations were discontinued. During 1997, the
Company recorded losses of approximately $523,000 related to this business.



         As of January 2, 1997, the Company acquired substantially all of the
assets and assumed certain liabilities related to the Internet service provider
business of Log On America, Inc. ("LOA"). The consideration for the acquisition
was assumption of liabilities of approximately $241,000.

         In the fourth quarter of 1997, the Company determined that it did not
have sufficient resources to finance such expansion costs, and elected to sell
all of the stock of LOA to a group led by LOA management. In a transaction
closed in January 1988, the Company received as consideration a twelve-month
interest-bearing note for $100,000 and a full release and indemnification from
all future liabilities of LOA. The note is due in two equal semi-annual
installments of $50,000, plus accrued interest. The Company recorded a gain of
approximately $246,000 on the disposal of LOA.

         The Vision 21 Business was both a stand-alone business and the primary
manner of marketing the Company's telecommunications products to the retail
marketplace. In addition to communications products, the Company used Vision 21
to market the services of its wholly-owned subsidiary, Vision 21's Travel Pros,
Inc. ("Travel Pros"), incorporated in July 1997. Travel Pros offered group tour,
cruise and corporate incentive travel packages. Travel Pros also markets its
services directly to corporations, trade associations and similar entities. The
Vision 21 Business consists of a network of independent distributors
("Distributors") who market telecommunications services and products of the
Company and of third parties.

         After a period of test marketing in 1995 and 1996, the Company based on
the marketplace's response, believed that it had successfully refined the
business, especially the compensation plan, for nationwide launching. However,
revenues for the fourth quarter 1997 and first quarter of 1998 were minimal due
to the continuing problems with the Company's telecommunications network
infrastructure, the inability of the IEX Switches to deliver planned services
and lack of sufficient capital to promote the travel services business through
Vision 21. As part of its restructuring and down-sizing strategy, in February
1998 the Company decided to suspend the Vision 21 Business and consider
divesting itself of its retail business to concentrate on its three integrated
wholesale lines of business.



                                       33
<PAGE>

         All of the Company's businesses were substantially new in 1997 and as a
result significant losses were incurred as the Company attempted to pursue a
multifaceted business plan. Due to capital constraints and other circumstances,
the Company has refocused its efforts and streamlined its operations. With
respect to the Telecommunications Business, the Company is currently acting as a
reseller of another Carrier's services. The Vision 21 Business became
operational and started generating the various components of providing
service, this business is currently inactive. The Carrier Sales Business was
started in January, 1997, however these operations are also on hold, pending the
Companies ability to resolve certain litigation and enter into separate carrier
service agreements. The Satellite Services Business has been created in April
1998. The ability of the Company to generate revenue in 1998 and future years,
depends on its ability to manage the remaining three distinct businesses, each
with its own problems of growth, management, response to technical changes,
pressures of competition, need for financing and recruitment and retention of
key personnel. No assurance can be given that the management of the Company will
be capable of handling many problems and issues attendant to the operations and
projected growth of such businesses.


         Relationships with Carriers. On June 28, 1996, while the Company was
still a reseller of telecommunications services, the Company entered into a
non-exclusive agreement (the "ProCom Agreement") with Professional
Communications Management Services, Inc. ("ProCom"), pursuant to which ProCom
agreed to provide non-exclusive telecommunication services to the Company for a
term of at least 24 months, which term is renewable by the parties on a
month-to-month basis. The ProCom Agreement was terminated in December 1997, and
the Company entered into a similar arrangement, without monthly minimums, with
Telecommunications Service Center, Inc. ("TSC"). No assurance can be given that
the Company will be able to generate enough telecommunication business to permit
it to make a profit on the services provided by other carriers.

         On October 1, 1996, at the point when the Company had become certified
as a Carrier in a number of jurisdictions, the Company entered into a 45-month
agreement with WilTel Communications, Inc. ("WilTel") pursuant to which WilTel
agreed to provide the Company with certain telecommunications services. WilTel
was able to supply the Company with unlimited capacity to transmit calls both
domestically and overseas. WilTel


                                       34
<PAGE>



is one of the major long distance Carriers in the United States and was
currently the principal provider to the Company of long distance service. In
August 1997, WilTel discontinued all services under its agreement. See Item 3 -
Legal Proceedings.

          WilTel also provided, among other things, transmission services for
customers' calls that the customer initiates by transmitting calls through the
Company's switches. WilTel also provided special 800 access lines, dedicated
lines for high volumes of traffic and other services, which were designed to
permit the Company to package its services competitively in the market. The
Company's minimum monthly commitment to WilTel of $250,000 started at the end of
June 1997; however, the monthly minimums have not been asserted as an issue in
the litigation discussed under "Legal Proceedings."

         In certain areas, the Company has made separate arrangements for the
transmission and termination of long distance calls, but even in these cases,
the Company's agreement with WilTel provided critical capacity to cover those
circumstances where the customers of the Company wish to process communications
above the minimum amounts that the Company has agreed to in such separate
arrangements.

         On October 2, 1996, the Company entered into an agreement with US One
pursuant to which US One was to provide the Company with switching and switch
partition services for a period of six years. In return the Company would have
been entitled to communications processing services of approximately 18,000,000
minutes per month. The Company had intended to enter into further such
co-tenancy agreements with US One in various locations in the United States for
the purpose of enabling the Company to provide Enhanced Services. However, US
One entered a Chapter 11 Bankruptcy proceeding early in 1997 and its agreement
was subsequently canceled. The Company has not entered into any other
arrangement similar to that with US One and no assurance can be given that the
services anticipated to be provided by US One can be replaced by another
provider.

         The following discussion reflects the financial condition and results
of operations of the Company for the years ended December 31, 1997 and 1996.
Because of these material changes, annual results may not be indicative of
future performance.

         RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996.
The Company's revenues increased from $1,391,759 in 1996 to $11,674,739 in 1997,
an increase of 739%. This increase in sales was largely attributable to the
revenues associated with the Company's canceled prepaid calling card contract
with Trident Communications Corp., which, in turn, led to litigation and
substantial increases in the Reserve for Bad Debts.

         During 1997, as compared with 1996, the cost of services sold increased
from $1,712,275 to $12,649,083, and the Company's operating loss increased from
$5,635,028 to $16,535,222. The increase in cost of services was due primarily
to the related revenue of the Trident Communications Corp. contract and the
inability of the Company to act as a licensed telecommunications Carrier for
certain other contracts. In addition, the various costs associated with
developing the portfolio of services for the Vision 21 Business resulted in
additional losses.



                                       35
<PAGE>

         During May 1997, the Company began to recognize revenues associated
with the testing and ramp-up phases of a significant contract which called for
monthly minimum revenues of $10 million at full capacity. That contract
accounted for over 90% of the Company's third quarter 1997 revenues and over 75%
of 1997 annual revenues. As of September 30, 1997, the Company has canceled the
contract due to the customer's failure to pay amounts owed. See Item 3 - Legal
Proceedings.

         Selling, general and administrative expenses increased to $15,470,878
in 1997 as compared to $5,314,511 for 1996. The increase during 1997 in absolute
dollars of such expenses was primarily the result of increases of approximately
$7.6 million in Bad Debt Reserves related to the Trident Communications Corp.
contract, as well as the implementation of the initial phase of the Company's
Enhanced Services platform. The Company incurred additional legal and
professional fees of approximately $1 million during 1997.

         Interest expense for 1997 was $525,847 as compared to $211,837 for
1996. This increase relates directly to interest paid on debt financing and
write-offs of prepaid debt financing costs obtained during 1996 and 1997.

         As a result of the Company's cumulative operating losses, the Company
has not paid income tax since inception. In addition, the Company is
approximately five quarters behind on federal and state payroll taxes and the
IRS has asserted a claim in excess of $600,000. In addition, the Company may
have a contingent obligation to refund $350,000 to IEX. These amounts have been
reflected in the Companies statement of position as of December 31, 1997 and
discussions are currently underway with the applicable federal and state
agencies to pay these balances off. As of December 31, 1997, the Company had net
operating loss carry forward totaling approximately $31,545,000. Utilization
of the Company's net operating loss may be subject to limitation under certain
circumstances and accordingly the Company has elected to fully reserve against
these deferred tax assets.

         Liquidity and Capital Resources. The Company has historically financed
its operations principally through the sale of equity and debt securities and
through funds provided by operating activities.

         As of December 31, 1997, the Company had notes and interest payable
totaling $6,473,878, accrued but unpaid expenses totaling $1,964,104, and
current accounts payable totaling $11,407,637.

         For 1997 the Company's negative cash flow from operations was
$3,435,909 down from $4,312,668 in 1996. As of March 31, 1998, the Company's
negative cash flow is approximately $150,000 per month. Although management of
the Company anticipates an improvement in the Company's cash flow position from
increased revenues from one or more of its five businesses, no assurance can be
given to that effect. Even if such increases were to occur, management believes
that the Company can sustain operations only by the infusion of substantial
amounts of financing. No assurance can be given that such financing will be
available at terms acceptable to the Company, or at all. Inability to obtain
such financing could force the Company to cease all business operations.



                                       36
<PAGE>

         The Company's auditors have included an explanatory paragraph in their
Report of Independent Certified Public Accountants to the effect that recovery
of the Company's assets are dependent upon future events, the outcome of which
is undeterminable, and that the successful completion of the Company's
development program and its transition, ultimately, to the attainment of
profitable operations is dependent upon obtaining adequate financing to fulfill
its development activities and achieving a level of sales adequate to support
the Company's cost corporate infrastructure. There can be no assurances that
such a financing can be completed on terms favorable to the Company or at all,
or that the business of the Company will ever achieve profitable operations.

         NEW ACCOUNTING STANDARDS

         None applicable.

ITEM 7.  FINANCIAL STATEMENTS.

         The financial statements required by this Item 7 are attached hereto as
Exhibit "A" and incorporated herein by this reference.

Item 8.  Changes in and e.


PART III

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

         The directors of the Company currently have terms which will end at the
next annual meeting of the stockholders of the Company or until their successors
are elected and qualify, subject to their prior death, resignation or removal.
Officers serve at the discretion of the Board of Directors. Roderick A. McClain
and Geoffrey F. McClain are brothers.

Name                                        Position                   Age
----                                        --------                   ---

Roderick A. McClain        Chairman of the Board of                     50
                           Directors, Chief Executive
                           Officer and President

Geoffrey F. McClain        Senior Vice President                        54
                           and Director

Herbert S. Perman          Executive Vice President                     60
                           and Director

Terry A. Huetter           Chief Financial Officer                      57



                                       37
<PAGE>

         Roderick A. McClain is Chairman of the Board, Chief Executive Officer
and President of the Company and has been a Director of the Company since 1993.
Mr. McClain, in 1991, founded Global Wats One, Inc., which was acquired by the
Company in 1993. Mr. McClain attended the University of Tennessee.

         Geoffrey F. McClain is Senior Vice-President and has been a Director of
the Company since August 1995. Mr. McClain is the brother of the Company's Chief
Executive Officer, Roderick A. McClain. Mr. McClain received a BBA in Finance
from the University of Miami. Mr. McClain was an original founder of Global Wats
One, Inc., which was acquired by the Company in September 1993.

         Herbert S. Perman has served as Chief Financial Officer from 1995
through May 31, 1997 and was appointed as Director of the Company in 1995. Since
June 1, 1997, Mr. Perman has served as Executive Vice President. Mr. Perman
received a BS from the City College of New York and J.D. from Brooklyn Law
School. From 1994 through October 1995, Mr. Perman was a consultant to the long
distance and prepaid telephone industry. From 1989 to 1994, Mr. Perman was
director of marketing for PDQ Notes, Inc. a medical software company. Mr. Perman
was licensed as a certified public accountant and attorney in the state of New
York but is not active as either.

         Terry A. Huetter has been Chief Financial Officer of the Company since
June 1, 1997. Throughout 1994 and 1995, he served as Chief Financial Officer
and Senior Vice President of Investors' Fiduciary Services, Inc. ("IFSI"), a
firm providing proxy voting and corporate governance consulting services to the
institutional investor community. During that period, he was also responsible
for SEC reporting matters for UNSI Corp., the holding company for IFSI. From
1991 to 1992, he was the chief financial officer for a privately-owned group of
companies engaged in equipment leasing and other forms of asset-based financing.
Since 1986, Mr. Huetter has also served as a financial and general management
consultant to a wide variety of public and private companies. Mr. Huetter
received a degree in accounting from Case Western Reserve University in 1962 and
has been a CPA since 1964, but currently is not in active practice.

         In June 1997, the Board of Directors appointed Mr. Donald Thone and Mr.
Ronald Berkowitz as independent members of the Board. Mr. Thone and Mr.
Berkowitz were then elected by the shareholders at the Annual Meeting in
September 1997. Due to the time demands associated with the Company's
restructuring, both Mr. Thone and Mr. Berkowitz resigned from the Board on
January 28, 1998. Mr. Ranald Stewart was elected a member and Chairman of the
Board of Directors on December 18, 1997, in contemplation of the acquisition of
ITD. Coincidental with the rescission of the ITD agreements on January 20, 1998,
Mr. Stewart resigned those positions.

         Compliance with Section 16 of the Securities Exchange Act of 1934 (the
"Exchange Act"). Section 16(a) of the Exchange Act requires the Company's
directors and executive officers and beneficial holders of more than 10% of the
Company's Common Stock to file with the Commission initial reports of ownership
and reports of changes in ownership and reports of changes in ownership of such
equity securities of the Company. Based solely upon a review of such forms, or
on written representations from certain reporting persons



                                       38
<PAGE>


that no other reports were required for such persons, except for those reports
discussed in the next paragraph, the Company believes that all reports required
pursuant to Section 16(a) with respect to its executive officers, directors and
10% beneficial stockholders for the ended December 31, 1997 were timely filed.

         CIBC and Khalifa have filed Form 13D in respect of their acquisition of
certain 3% debentures issued by the Company, but the Company has not received
copies of any filings by CIBC, Khalifa or RBB Bank of any filings which may be
required under Section 16 of the Exchange Act. See "Legal Proceedings."


ITEM 10.  EXECUTIVE COMPENSATION.

         Effective January 27, 1997, the Company entered into a revised and
restated employment agreement with McClain, as the Chief Executive Officer of
the Company, the terms of which are as follows: (a) the term of the employment
agreement is ten years from the effective date, which term is automatically
renewed by one month at the end of each month; (b) the base salary is $125,000
annually, increased by ten percent each year; (c) a performance bonus equal to
7.5% of the net income before taxes of the Company for any year; (d) a revenue
bonus equal to 10,000 shares of the Company's Common Stock for each increment of
$250,000 by which the Company's gross monthly revenues exceed those of the prior
month, starting from a base of $450,000; (e) 1,000 shares of a class of
convertible preferred stock to be authorized by the Company, subject to terms of
such class of preferred stock as are agreed to by the parties hereto; (f) any
other bonus, supplemental or incentive compensation as may be approved by the
Board of Directors; (g) nonqualified options to acquire up to 1,600,000 shares
of the Company's Common Stock at an exercise price of $0.41 per share; and (h) a
trigger to receive all unpaid compensation, whether or not earned, upon the
occurrence of a change in control of the Company. For purposes of the employment
agreement, change in control (25%) of either the outstanding shares of Common
Stock or the combined voting power of the Company's then outstanding voting
securities entitled to vote generally, or (ii) the approval by the stockholders
of the Company of a reorganization, merger or consolidation, in which persons
who were stockholders of the Company immediately prior to such reorganization,
merger or consolidation do not, immediately thereafter, own or control more than
fifty percent (50%) of the combined voting power entitled to vote generally in
the election of directors of the surviving corporation of such reorganization
merger or consolidation, ion of the Company or of the sale of all or
substantially all of the Company's assets, On March 3, 1998, the Board of
Directors reduced the price of Mr. McClain's options to $0.10 per share.

         The Company entered into an employment agreement with Herbert S. Perman
("Perman"), dated October 1, 1995, and amended February 1, 1996. Pursuant to the
Perman Agreement, which has a term of three years, Perman is employed as the
Company's Executive Vice President and is compensated with an annual salary of
$85,000, a one-time grant of 150,000 shares of the Company's Common Stock and a
one-time grant of options to acquire 50,000 shares of the Company's Common Stock
at an exercise price of $1.00 per share. Mr. Perman's options for the 50,000
shares expired in 1997. In addition, Mr. Perman shares in the Company's
Executive Stock Bonus Plan, which provides for the issuance of


                                       39
<PAGE>



shares of Common Stock upon increase of gross monthly revenues over a base of
$450,000. On March 3, 1998, the Board of Directors granted Mr. Perman options to
acquire 350,000 at an exercise price of $0.10 per share. These options expire
March 31, 2000.

         The Company entered into an employment agreement with Geoffrey McClain,
dated May 25, 1995, amended February 1, 1996, and amended February 1, 1997.
Pursuant to the Geoffrey McClain Agreement, which has a term of three years,
Geoffrey McClain is employed as the Company's Senior Vice-President and is
compensated with an annual salary, as of February 1, 1997, of $98,000. In
addition, Geoffrey McClain shares in the Company's Executive Stock Bonus Plan,
which provides for the issuance of shares of Common Stock upon increase of gross
monthly revenues over a base of $450,000. On March 3, 1998, the Board of
Directors granted Geoffrey McClain options to acquire 750,000 at an exercise
price of $0.10 per share. These options expire March 31, 2000.

Summary Compensation Table.

         The following table sets forth certain information concerning
compensation of certain of the Company's executive officers, including the
Company's Chief Executive Officer and all executive officers whose total annual
salary and bonus exceeded $100,000, for the years ended December, 1997 and 1996:

<TABLE>
<CAPTION>
                                Summary Compensation Table
-------------------------------------------------------------------------------------------------------------
                                    Annual Compensation                Long Term Compensation
                                                                       Awards           Payouts
-------------------------------------------------------------------------------------------------------------
<S>                        <C>      <C>       <C>      <C>        <C>          <C>         <C>       <C>
(a)                        (b)       (c)     (d)      (e)         (f)         (g)         (h)      (i)
Name and                                              Other    Restricted  Securities    LTIP     All Other
Principal                  Year     Salary  Bonus    Compen-     Awards     Options/    Payouts    Compen-
Position                              ($)     ($)    sation       ($)       SARs (#)      ($)     sation ($)

Roderick A. McClain        1997     137,000   0        0          0            0           0         0
CEO
Roderick A. McClain        1996     137,000   0        0          0            0           0         0
CEO
</TABLE>

Option/SAR Grants Table During Last Fiscal Year.

         No options or SARs were granted to the named executives in 1997.

Option Repricings

         The following table sets forth certain information with respect to the
repricing during 1997 of stock options previously granted to the named
Executives:

<TABLE>
<CAPTION>
                                                                                                     Length of
                          Securities                 Market Price                                   Option Term
                          Underlying Number           of Stock       Exercise Price                Remaining on
                          of Options/SARs            at Time of        at Time of       New           Date of
                            Repriced or              Repricing or     Repricing or    Exercise      Repricing or
Name                Date     Amended (#)             Amendment ($)     Amendment ($)    Price ($)    Amendment
-----------------------------------------------------------------------------------------------------------------
<S>              <C>       <C>                       <C>               <C>              <C>         <C>
R.A. McClain     3/3/98    1,600,000                 $0.075            $0.41            $0.10       9 years
</TABLE>

                                       40

<PAGE>

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         As of April 6, 1998, the Company had issued and outstanding 26,807,915
shares of Common Stock. The following table reflects, as of April 6, 1998, the
beneficial Common Stock ownership of: (a) each director of the Company, (b) each
current executive officer named in the summary compensation table in this Form
10-KSB, (c) each person known by the Company to be a beneficial owner of five
percent (5%) or more of its Common Stock, and (d) all executive officers and
directors of the Company as a group:

Name and Address of Beneficial Owner        Number of Shares     Percent
------------------------------------        ----------------     -------

Roderick A. McClain 1,2                      2,690,568             10.04

Allyson Rodriguez 1,2                        2,690,568             10.04

Geoffrey F. McClain 1,8                      1,030,820              3.84

Herbert S. Perman 1,9                          500,000              1.87

RBB Bank Aktiengesellschaft 3,4              8,689,748             32.41

Mohammed Ghaus Khalifa 4,5                   3,401,360             12.69

Canadian Imperial Bank of Commerce 4,6       3,342,295             12.47

All Directors and Officers as a Group 7      4,371,388             16.31

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

# Pursuant to the rules of the Commission, shares of Common Stock which an
individual or group has a right to acquire within 60 days pursuant to the
exercise of options or warrants are deemed to be outstanding for the purpose of
computing the percentage ownership of such individual or group, but are not
deemed to be outstanding for the purpose of computing the percentage ownership
of any other person shown in the table.

(1) The address for each of these persons is the Company's principal executive
office, located at 55 Marietta Street, Suite 1760, Atlanta, Georgia 30303.

(2) Mr. Roderick McClain and Ms. Rodriguez are husband and wife. Includes
spouse's shares (1,090,568) and options to acquire 1,600,000 shares of Common
Stock pursuant to Mr. McClain's employment agreement with the Company.



                                       41
<PAGE>

(3) Includes 155,194 shares of Common Stock and up to 8,534,554 shares of Common
Stock which may be convertible, as of April 6, 1998, from $3,916,000 par
principal amount of 3% Convertible Debentures, issued in the name of RBB Bank
Aktiengellschaft. The address for RBB Bank Aktiengesellschaft provided to the
Company is Burgring 16, 8010 Groz, Austria. See "Legal Proceedings - RBB
Bank-Khalifa Litigation."

(4) The per share conversion price for purposes of the number of shares
calculated as beneficially owned by the named person, as of April 6, 1998, is
based on the average closing bid price of the Common Stock ($0.496) during the
five (5) trading days preceding April 6, 1998. See "Legal Proceedings - RBB
Bank-Khalifa Litigation."

(5) Includes up to 2,688,171 shares of Common Stock which may be convertible, as
of April 6, 1998, from $1,333,333 par principal amount of 3% Convertible
Debentures issued in the name of Mr. Khalifa. The address for Mr. Khalifa
provided to the Company is 3671 Sunswept Drive, Studio City, California 91604.
See "Legal Proceedings - RBB Bank-Khalifa Litigation."

(6) Includes 408,622 shares of Common Stock and up to 2,933,673 shares of Common
Stock which may be convertible, as of April 6, 1998, from $1,350,000 par
principal amount of 3% Convertible Debentures issued in the name of Canadian
Imperial Bank of Commerce. The address for Canadian Imperial Bank of Commerce
provided to the Company is Cottons Centre, Cottons Lane, London SE12QL, England.
See "Legal Proceedings - RBB Bank-Khalifa Litigation."

(7) Includes 1,521,388 shares of Common Stock and options to purchase up to
2,850,000 shares of Common Stock.

(8) Includes options to acquire 750,000 shares of Common Stock pursuant to Board
of Directors action on March 3, 1998.

(9) Includes options to acquire 350,000 shares of Common Stock pursuant to Board
of Directors action on March 3, 1998.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         On January 30, 1996, the Company issued 200,000 shares of its Common
Stock to Roderick McClain, purportedly pursuant to a "change in control"
provision contained in Roderick McClain's employment agreement, dated May 15,
1995. On October 7, 1996, the disinterested members of the Board of Directors of
the Company determined that such shares had been improperly issued, and such
shares were canceled as of the date of purported issuance.

         On June 1, 1997, the Company issued to Mr. Terry A. Huetter, its chief
financial officer, nonqualified options to acquire up to 150,000 shares of the
Company's Common Stock at an exercise price of $0.468 per share. On March 20,
1998, Mr. Huetter's options were repriced to $0.234 per share. All of Mr.
Huetter's options expire on March 31, 2000.



                                       42
<PAGE>

         The Company, through an affiliate of which the Company is the 100%
beneficial owner, previously owned a building located at 1121 Alderman Drive,
Alpharetta, Georgia 30202, which space served as the Company's headquarters
through March 1998. In connection with obtaining financing for the purchase of
the building, the Company formed a Georgia limited liability company ("LLC") to
take title to the building. In order to meet a requirement of the limited
liability company statute, each of three individuals, including Roderick McClain
and Geoffrey McClain, took title to 25% of the stock of the LLC. All such stock
is held in trust for the benefit of the Company, and all equitable interest in
the LLC, including the rights to current profits and proceeds from the sale of
assets, belongs to the Company. As part of the Company's restructuring efforts
and downsizing, the Company no longer needed the amount of office space provided
at 1121 Alderman Drive. To the satisfaction of all parties, the Company
surrendered its equity interest in the building to the mortgage holder in
exchange for a release from certain building improvement liabilities, a
three-month period of free rent and the cancellation of the Company's lease
liability.

         On December 31, 1997, open account advances made by the Company to
Roderick McClain totaled $226,386, compared to a total of $207,979 on December
31, 1996. During 1997, Roderick McClain repaid $50,000 to the Company, of which
$16,798 was applied to accrued interest, and received additional advances of
$42,634. Effective December 31, 1997, Roderick A. McClain executed a demand
promissory note, bearing interest at eight percent per annum for such amount.
Management of the Company believes that the ability of Roderick McClain to repay
this obligation depends on the financial success of the Company itself. No
assurance can be given that such obligation will ever be repaid to the Company.

         The Company believes that the above-described transactions are as fair
to the Company as could have been made with unaffiliated parties. The Company
requires that transactions between the Company and its officers, directors,
employees or stockholders or persons or entities affiliated with officers,
directors, employees or stockholders be on terms no less favorable to the
Company than it could reasonably obtain in arms-length transactions with
independent third parties. Such transactions are approved by a majority of the
disinterested directors of the Company.


PART IV

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

A.       Financial Statements

         Consolidated balance sheet of Global TeleMedia International, Inc. and
subsidiaries as of December 31, 1997, and the related statements of operations,
stockholders' equity (deficiency) and cash flows for the years ended December
31, 1997, and 1996.

B.       Reports on Form 8-K

         Current Reports on Form 8-K dated January 24 1997, January 30, 1997 and
February


                                       43
<PAGE>



19, 1998.

C.       Other Exhibits

         10.1 Agreement dated October 15, 1996, with IEX Corporation.

27       Financial Data Schedule.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE


         The Company is currently subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington
D.C. 20549; at its New York Regional Office, Room 1400, 7 World Trade Center,
New York, New York, 10048; and at its Chicago Regional Office, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2411, and copies of such materials
can be obtained from the Public Reference Section at prescribed rates. The
Company intends to furnish its stockholders with annual reports containing
audited financial statements and such other periodic reports as the Company may
determine to be appropriate or as may be required by law.


         Certain documents listed above as exhibits to this Report on Form
10-KSB are incorporated by reference from other documents previously filed by
the Company with the Commission as follows:

               Previous Filing                       Exhibit Number
           Incorporated by Reference                 in Form 10-KSB

         1. Quarterly Reports on Form 10-QSB              ___
            for the quarters ended March 31, 1997,
            June 30, 1997, and September 30, 1997

         2. Current Reports on Form 8-K                   ___
            dated as of January 24, 1997,
            January 30, 1997, and February 19, 1998


                                       44
<PAGE>

SIGNATURES

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

Dated: April 14, 1998                GLOBAL TELEMEDIA
                                     INTERNATIONAL, INC.



                                     By:  /s/ Roderick A. McClain
                                         --------------------------
                                            Roderick A. McClain
                                            Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated below.

                                     GLOBAL TELEMEDIA
                                     INTERNATIONAL, INC.

Dated: April 14, 1998                By:  /s/ Roderick A. McClain
                                          -----------------------------
                                            Roderick A. McClain
                                            Chief Executive Officer and
                                            Director


Dated: April 14, 1998                By:  /s/ Herbert S. Perman
                                          -----------------------------
                                            Herbert S. Perman
                                            Executive Vice President and
                                            Director

Dated: April 14, 1998                By:  /s/ Geoffrey F. McClain
                                          -----------------------------
                                            Geoffrey F. McClain
                                            Senior Vice-President and
                                            Director

Dated: April 14, 1998                By:  /s/ Terry A. Huetter
                                          -----------------------------
                                            Terry A. Huetter
                                            Chief Financial Officer

                                       45

<PAGE>




                          Independent Auditors' Report



Board of Directors
Global Telemedia International, Inc.
Atlanta, Georgia

We have audited the accompanying consolidated balance sheet of Global Telemedia
International, Inc. and the subsidiaries as of December 31, 1997, and the
related consolidated statements of operations, and stockholders' equity
deficiency and cash flows for the years ended December 31, 1997 and 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Global Telemedia
International, Inc. and subsidiaries as of December 31, 1997, and the
consolidated results of their operations and their consolidated cash flows for
the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 11 to
the consolidated financial statements, the Company's recurring losses from
operations and limited capital resources raise substantial doubt about its
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.


Tauber & Balser, P.C.
Atlanta, Georgia
April 10, 1998



<PAGE>



                      GLOBAL TELEMEDIA INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 1997

<TABLE>
<CAPTION>

                                     ASSETS


<S>                                                                                             <C>
PROPERTY & EQUIPMENT, NET OF ACCUMULATED
     DEPRECIATION OF $26,357                                                                    $       47,312
                                                                                                --------------

TOTAL ASSETS                                                                                    $       47,312
                                                                                                ==============
                 LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIENCY

CURRENT LIABILITIES
     Overdraft                                                                                  $       48,730
     Accounts payable                                                                               11,358,907
     Accrued expenses                                                                                1,964,104
     Notes payable                                                                                   6,473,878
                                                                                                --------------

         TOTAL CURRENT LIABILITIES                                                                  19,845,619
                                                                                                --------------
STOCKHOLDERS' EQUITY DEFICIENCY
     Common Stock, $.004 par value; authorized 75,000,000
         shares; issued and outstanding 22,170,700 shares                                               88,666
     Additional paid in capital                                                                      4,857,061
     Note receivable from stock sale                                                                  (310,000)
     Accumulated deficit since October 1, 1995, in addition to
         $13,188,000 eliminated in quasi-reorganization                                            (24,434,034)
                                                                                                 -------------

         TOTAL STOCKHOLDERS' EQUITY DEFICIENCY                                                     (19,798,307)
                                                                                                --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIENCY                                          $        47,312
                                                                                               ===============
</TABLE>


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

                                       2

<PAGE>


                      GLOBAL TELEMEDIA INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>

                                                                                    1997              1996
                                                                                 ----------        -------

<S>                                                                              <C>              <C>
TOTAL REVENUES                                                                   $ 11,674,739     $  1,391,759
                                                                                 ------------     ------------

OPERATING EXPENSES:
     Communication and marketing services                                          12,649,083        1,712,276
     General and administrative:
         Bad debt                                                                   7,309,917            9,908
         Other                                                                      8,160,961        5,304,603
                                                                               --------------     ------------

         Total Operating Expenses                                                  28,199,961        7,026,787
                                                                                -------------     ------------
OPERATING LOSS                                                                    (16,525,222)      (5,635,028)
                                                                                -------------     ------------
OTHER INCOME (EXPENSES):
     Interest expense                                                                (525,847)        (211,837)
     Interest income                                                                        -           27,563
     Other income                                                                           -          116,936
     Loss on disposal of building and equipment                                    (1,126,326)               -
                                                                                 ------------     ------------

         Total Other Income (Expense)                                              (1,652,173)         (67,338)
                                                                                 ------------     ------------

NET LOSS                                                                         $(18,097,395)     $(5,702,366)
                                                                                 =============    ============

WEIGHTED AVERAGE NUMBER OF SHARES
     OUTSTANDING                                                                   19,924,942       11,571,942
                                                                                 ------------     ------------

LOSS PER COMMON SHARE                                                            $      (.91)      $     (.50)
                                                                                 ============     ============

</TABLE>


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


                                       3

<PAGE>


                      GLOBAL TELEMEDIA INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>

                                                                                   1997               1996
                                                                                ----------         -------

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                               <C>                  <C>
     Net Loss                                                                    $(18,097,395)     $(5,702,366)
     Adjustments:                                                                 ------------     ------------
         Depreciation and amortization                                                752,069          333,752
         Bad debt                                                                   7,309,917                -
         Stock issued for services                                                    653,170          269,355
         Loss on disposal of building and equipment                                 1,126,326           14,327
         Gain on disposal of subsidiary                                              (246,035)               -
         Write off of debt acquisition costs                                          815,667                -
         Changes in:
              Accounts receivable                                                  (7,131,591)        (178,326)
              Inventory                                                               479,322         (440,228)
              Other current assets                                                    150,317          (54,317)
              Accounts payable                                                     10,518,476          789,654
              Accrued expenses                                                      1,049,515          655,481
                                                                                  -----------     ------------

                  Total Adjustments                                                15,477,153        1,389,698
                                                                                  -----------     ------------

NET CASH USED IN OPERATING ACTIVITIES                                              (2,620,242)      (4,312,668)
                                                                                  -----------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Acquisition of property and equipment                                            (77,872)      (1,166,888)
     Deposit for purchase of equipment                                                650,000         (650,000)
     Goodwill                                                                              -          (327,150)
     Proceeds from sale of equipment                                                   20,283            3,000
                                                                                  -----------     ------------

NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES                                      592,411       (2,141,038)
                                                                                  -----------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Borrowings on notes payable                                                      782,432        6,396,015
     Proceeds from sale of common stock                                             1,394,980          468,728
     Payments on notes payable                                                       (219,351)         (60,000)
     Payments on capital lease obligations                                                  -          (28,666)
     Debt acquisition costs                                                                 -         (445,601)
                                                                                  -----------      -----------

NET CASH PROVIDED BY FINANCING ACTIVITIES                                           1,958,061        6,330,476
                                                                                  -----------      -----------

NET DECREASE IN CASH                                                                  (69,770)        (123,230)

CASH BEGINNING OF YEAR                                                                 69,770          193,000
                                                                                  -----------      -----------

CASH END OF YEAR                                                                 $          -      $    69,770
                                                                                  ===========      ===========

SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION:
     Cash paid for interest                                                      $      7,823      $    66,319
                                                                                  ===========      ===========


</TABLE>


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

                                       4

<PAGE>


                      GLOBAL TELEMEDIA INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996




SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
<TABLE>
<CAPTION>

                                                                                    1997              1996
                                                                                 ----------        -----------

<S>     <C>
Details of acquisition:
     Fair value of assets acquired                                                $    92,186       $  480,000
     Goodwill established                                                         $   149,182       $  214,000
     Liabilities assumed                                                          $   241,368       $  694,000

Details of disposal:
     Goodwill written off                                                         $   241,122       $        -
     Net liabilities written off                                                  $   241,122       $        -

Conversion of note payable for common stock                                       $   382,222       $1,107,428

Issuance of common stock for note receivable                                      $   335,000       $        -

Acquisition of equipment for stock                                                $   840,000       $        -
Return of equipment and related stock                                                (840,000)               -
                                                                                 ------------      ------------
                                                                                  $         -       $        -
                                                                                 ============      ============

Acquisition of equipment through assumption of liabilities                        $ 1,077,000       $        -
Return of equipment for liabilities owed                                           (1,077,000)               -
                                                                                 ------------       -----------
                                                                                  $         -       $        -
                                                                                 ============       ==========

Debt incurred to purchase building                                                $         -       $1,830,000
Capital lease incurred for new equipment                                          $         -       $   63,669

</TABLE>

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

                                       5



                      GLOBAL TELEMEDIA INTERNATIONAL, INC.
                                AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY DEFICIENCY
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>

                                                                            Additional    Shareholder                    Total
                                                Common Stock Issued          Paid-In          Note                    Shareholders'
                                             Shares           Par Value      Capital       Receivable      Deficit       Equity
                                             ------           ---------      -------       ----------      -------       ------

<S>                                           <C>              <C>          <C>              <C>        <C>            <C>
BALANCE DECEMBER 31, 1995                     9,937,991        $39,735      $   197,363      $     -     $  (634,273)   $  (397,175)

Sale of stock                                    12,500             50            6,178            -               -          6,228
Shares issued to consultants                  1,964,000          7,856          219,899            -               -        227,755
Shares issued to employees for compensation     642,300          2,569           29,546            -               -         32,115
Shares issued in connection with
settlement with shareholder                     929,406          3,718           52,767            -               -         56,485
Cancellation of shares issued to director      (200,000)          (800)          (9,200)           -               -        (10,000)
Exercise of warrants                            450,000          1,800          460,700            -               -        462,500
Conversion of notes payable                   2,506,189         10,025        1,097,403            -               -      1,107,428
Conversion of debt financing cost                     -              -          (82,956)           -               -        (82,956)
Net loss                                              -              -                -            -      (5,702,366)    (5,702,366)
                                            -----------   ------------  ---------------    -----------  ------------   ------------

BALANCE DECEMBER 31, 1996                    16,242,386         64,953        1,971,700            -      (6,336,639)    (4,299,986)

Note receivable from sale of stock                                                          (310,000)                      (310,000)
Sale of stock                                 1,010,000          4,040          375,960            -               -        380,000
Shares issued to consultants                  1,215,895          4,864          641,529            -               -        646,393
Shares issued to employees for compensation     135,550            542            6,235            -               -          6,777
Exercise of warrants                          2,200,000          8,800          935,210            -               -        944,000
Conversion of notes payable                   1,366,869          5,467          926,427            -               -        931,894
Net loss                                              -              -                -            -     (18,097,395)   (18,097,395)
                                            -----------   ------------  -----------------   --------  -------------  -------------

BALANCE DECEMBER 31, 1997                    22,170,700        $88,666       $4,857,061    $(310,000)   $(24,434,034)  $(19,798,307)
                                             ==========        =======       ==========    =========    ============   ============

</TABLE>

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

                                       6
<PAGE>


                      GLOBAL TELEMEDIA INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 
1. Summary of Significant Accounting Policies

Nature of Business

The Company is primarily engaged in the marketing of long distance telephone and
related services. The Company sells its services to individuals and other
customers throughout the United States.

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company and
its wholly owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.

Property and Equipment

Purchased property and equipment are recorded at cost, and depreciated using the
straight-line method over the estimated useful lives of the assets, commencing
when the assets are installed or placed in service. Capital leases are recorded
at lower of fair market value or the present value of future minimum lease
payments. Assets recorded under capital leases are depreciated over the shorter
of their useful lives or the term of the related lease.

Goodwill

The Company classified as goodwill the cost in excess of fair value of the net
identifiable assets acquired from the Collectible Calling Card Business and
Internet Access acquisitions. The unamortized goodwill related to these entities
was written off upon their disposal.

Advertising Expense

The advertising expense includes the cost of sales brochures, print advertising
in trade publications and trade shows. The cost of advertising is expensed as
incurred. The Company incurred $18,978 and $147,966 in advertising costs during
1997 and 1996, respectively.

Stock-Based Compensation

In October 1995, the Financial Accounting Standards Board issued SFAS 123
"Accounting for Stock Based Compensation," which the Company elected to adopt as
of January 1, 1996. Under SFAS 123, the Company recognizes compensation for
services rendered by employees and consultants using a fair value methodology.

                                       7

<PAGE>
                      GLOBAL TELEMEDIA INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. Summary of Significant Accounting Policies (Continued)

Use of Estimates

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles (GAAP) requires management to make
estimates and assumptions that effect 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 may differ from these estimates.
Significant estimates in the financial statements include the assumption the
Company will continue as a going concern. This assumption could change in the
near term.

Net Loss Per Share

Net loss per share is based on the weighted average number of common shares
outstanding during each period. Dilutive potential common shares include stock
warrants and convertible debentures. For 1997 and 1996, these shares were not
considered in the calculation of net loss per share as they were anti-dilutive.


2. Property and Equipment

Property and equipment consist of the following at December 31, 1997:

<TABLE>
<CAPTION>

<S>                                                                                             <C>
Furniture and fixtures                                                                          $ 10,000
Equipment                                                                                         63,669
                                                                                               ---------
                                                                                                  73,669
Less accumulated depreciation                                                                    (26,357)
                                                                                                ---------
                                                                                                $ 47,312
                                                                                                --------- 
</TABLE>

Depreciation expense for the years ended December 31, 1997 and 1996 was $162,335
and $55,597.


3. Notes Payable and Litigation

Notes payable consist of the following at December 31, 1997:
<TABLE>
<CAPTION>

<S>                                                                                         <C>
Current:
     Various demand notes, interest rate 12% - 18%                                           $   395,000
     Floating rate notes, due on demand                                                          250,000
     Floating rate convertible debentures, due August 15, 1998                                 5,828,878
                                                                                             -----------
                                                                                              $6,473,878
                                                                                             ===========
</TABLE>

During April 1996, the Company sold $250,000 of various floating rate notes.
These notes are payable on demand and are currently in default.

                                       8

<PAGE>

                     GLOBAL TELEMEDIA INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3. Notes Payable and Litigation (Continued)

From July 30, 1996 through August 28, 1996, the Company sold $6,683,333 of 3%
convertible debentures at a discount with an effective interest rate of
approximately 14.5%. The convertible debentures are due August 15, 1998 and may
be paid in cash or in common stock.

During the period from November 15, 1996 through January 3, 1997, the Company
received a number of requests for conversion of the par principal amount plus
accrued interest of the 3% convertible debt into unrestricted shares of Common
Stock. The Company has taken the position that the debenture holders have not
complied with the terms of the Subscription Documents and accordingly has not
issued shares pursuant to the requests.

In January, 1998, the United States District Court ordered the Company to issue
shares of stock in accordance with the Subscription Documents. The Company has
appealed this ruling. However, if the bond holders convert, they could become
significant holders of the Company's common stock, diluting the interest of
existing common shareholders.


4. Income Taxes

Deferred income taxes and the related valuation allowances result from the
potential tax benefits of tax carry-forwards. The Company has recorded a
valuation allowance to reflect the uncertainty of the ultimate utilization of
the deferred tax assets as follows:
<TABLE>
<CAPTION>

<S>                                                             <C>                <C>             <C>
                                                                1997               1996             1995
                                                             ----------         ----------        -------
Deferred tax assets                                           $12,573,000       $5,334,000        $3,053,000
Less valuation allowance                                       12,573,000        5,334,000         3,053,000
                                                              -----------        ---------         ---------
Net deferred tax assets                                       $         -       $        -        $        -
                                                              ===========        =========         =========
</TABLE>

Following is a reconciliation of applicable U.S. federal income tax rates
(credits) to the effective tax rates included in the Consolidated Statements of
Operations:

<TABLE>
<CAPTION>
<S>                                                             <C>               <C>              <C>
                                                                1997              1996             1995
                                                             ----------        ----------       -------
U.S. federal income tax rate                                   (34.0)%           (34.0)%          (34.0)%
State income tax rate, net of federal tax benefit               (3.6)             (3.6)            (3.6)
Tax loss carry-forwards                                         37.6              37.6             37.6
                                                              ------            ------           ------
                                                                 0.0%              0.0%             0.0%
                                                             =======           =======          =======
</TABLE>


                                       9

<PAGE>

                     GLOBAL TELEMEDIA INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Income Taxes (Continued)

At December 31, 1997, the Company had available unrecognized net operating loss
carryforwards for income tax reporting purposes as follows:

                                        Net Operating
                 Arose In                Loss Carry         Expiring in Year
                Year Ended                 Forward                Ended
                ----------            -----------------       ------------
                   1987                   $    107,000            2002
                   1988                        906,000            2003
                   1989                      1,320,000            2004
                   1990                      2,280,000            2005
                   1991                        619,000            2006
                   1992                        309,000            2007
                   1993                         22,000            2008
                   1994                      1,315,000            2009
                   1995                        867,000            2010
                   1996                      5,702,000            2011
                   1997                     18,098,000            2012
                                            ----------
                  Total                    $31,545,000
                                            ==========

In addition the Company has $1,244,327 of capital loss carry-forwards, which
expires in 2000 and can be used to offset capital gains, if any.


5. Fair Value of Financial Instruments

Significant financial instruments consist of accounts payable, notes payable, or
accrued expenses that are either demand or due through 1998. The Company does
not have the funds required to settle these amounts currently. As a result, the
Company is unable to estimate the timing and ultimate form of the settlement of
these liabilities. It believes that if the current holders were to sell such
instruments to other parties, the sales price would be substantially less that
the carrying value.


6. Related Party Transactions and Building Forfeiture

The Company has a note receivable from its President/CEO in the amount of
$226,000 at December 31, 1997. The note bears interest at 8% and is due on
demand. His ability to repay this debt is currently dependent upon the success
of the Company. As a result, the receivable has been reserved.

In addition, the Company has a $65,000 note payable to the wife of its
President/CEO.

                                       10

<PAGE>

                     GLOBAL TELEMEDIA INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Related Party Transactions and Building Forfeiture (Continued)

The Company, through an affiliate of which the Company was the 100% beneficial
owner, owned a building that served as the Company's headquarters. In connection
with obtaining financing for the purchase of the building, the Company formed a
Georgia limited liability company ("LLC") to take title to the building. The
Company contributed capital of $850,000 to the LLC in 1996. In order to meet a
requirement of the limited liability company statute, each of three individuals,
including Roderick McClain and Geoffrey McClain, took title to 25% of the stock
of the LLC. All such stock was held in trust for the benefit of the Company.

The Company subsequently forfeited its entire interest in the LLC to the
noteholder of the building in exchange for the cancellation of the Company's
lease liability. Because the Company controlled this LLC, its accounts were
included in the consolidated financial statements.


7. Acquisitions and Bankruptcy

During 1996, the Company acquired substantially all of the assets and assumed
certain liabilities of a company that produces and markets collectible trading
cards and prepaid calling cards. The value of assets transferred to the Company
in connection with this purchase was approximately $480,000, and liabilities of
approximately $694,000 were assumed. Effective November 6, 1996, the acquired
Company's operations were included in the 1996 consolidated financial
statements.

The following table reflects unaudited (1996) pro-forma combined results of
operations of the Company and the acquiree on the basis that the acquisition had
taken place at the beginning of 1996.
<TABLE>
<CAPTION>

<S>                                                                                   <C> 
                                                                                      1996
                                                                                      ----
         Revenues                                                                  $ 2,760,025
         Net loss                                                                  $(5,317,015)
         Loss per share                                                            $      (.46)
</TABLE>

The pro-forma results do not purport to be indicative of the results of
operations which actually would have been in effect on January 1, 1996, or of
future results of operations of the consolidated entities.

In July 1997, the Company filed a Chapter 11 Bankruptcy petition related to this
subsidiary and all operations were discontinued. The Company has recorded a loss
of $523,000 in the 1997 financial statements related to the closing of this
business.

On January 2, 1997, the Company acquired substantially all of the assets of an
Internet service provider. The consideration for the acquisition was assumption
of net liabilities of approximately $241,000. In the fourth quarter of 1997, the
Company sold the company back to the original management of the Internet service
provider for a $100,000 note. The Company recorded a gain of approximately
$246,000 on the disposal of this business.


                                       11
<PAGE>


                     GLOBAL TELEMEDIA INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. License Agreement

On January 23, 1995 the Company licensed its former food products business, sold
the inventory and assigned the rights to the distribution network used in the
sale of the products. The contract provides for various royalties based on type
of sale and product. The agreement also has provisions for minimum quarterly
royalties beginning the third quarter of 1995 and continuing for seven quarters.
During the first quarter of 1995, the Company recognized the initial $275,000
license fee, as all the initial services required under the terms of the
agreement were performed. The Company received approximately $35,000 and
$115,000 in royalties during 1997 and 1996, respectively.


9. Commitments and Litigation

The Company has employment agreements with certain officers and key employees,
which expire at various times through 2007.

The Company is involved in various lawsuits which arose in disputes with vendors
for non-payment of services received. Amounts claimed due under the lawsuits are
included in accounts payable.

The company has filed a complaint against a major customer to recover
$10,000,000 for payment of services rendered but not paid. This litigation is
currently in discovery and, accordingly, no amount for anticipated recovery was
recorded on the financial statements.


10. Options and Warrants

At December 31, 1997, the company had stock options and warrants granted to
employees and non-employees for compensation. Stock options and warrants expire
from two to ten years from the grant date with no vesting period. A summary of
the company's stock option and warrant activity as of December 31, 1996 through
December 31, 1997 is presented below:
<TABLE>
<CAPTION>

                                                     1997                                        1996
                                 -------------------------------------------------------------------------------
<S>                                    <C>                 <C>                 <C>                   <C>
                                                        Weighted Average                        Weighted Average
                                       Outstanding       Exercise Price        Outstanding       Exercise Price
                                       -----------       --------------        -----------       --------------
Balance at 12/31/96                      2,393,500           $2.31                897,500             $3.59
Granted                                  4,350,000            0.31              2,025,000              1.41
Exercised                               (2,200,000)          (0.45)              (450,000)             1.02
Cancelled/expired                         (405,000)          (1.04)               (80,000)             1.15
                                       -----------           -----             ----------            ------
Balance at 12/31/97                      4,137,500           $1.33              2,392,500             $2.31
                                        ==========           =====              =========             =====
</TABLE>

The Company measures compensation cost using the fair value-based accounting
method.


                                       12
<PAGE>

                     GLOBAL TELEMEDIA INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Options and Warrants (Continued)

The following table summarizes stock options and warrants outstanding and
exercisable at December 31, 1997:
<TABLE>
<CAPTION>

                                                                  Options                              Average
                                                                    and              Average          Exercise
Exercise Price Rage                                              Warrants             Life              Price
-------------------                                              --------             ----              -----
<S>                                                             <C>                   <C>             <C>

                                                                     1997 Outstanding and Exercisable
                                                                     --------------------------------
$0.10 - $5.00                                                    4,137,500             5.77             $1.33

                                                                     1996 Outstanding and Exercisable
                                                                     --------------------------------
$1.00 - $3.75                                                    2,392,500             2.41             $2.31

</TABLE>

11. Going Concern

The Company's financial statements for the years ended December 31, 1997 and
1996 have been prepared on the assumption that the Company will continue as a
going concern which contemplates the realization of assets and the settlement of
liabilities in the normal course of business. The Company incurred a net loss of
$18,097,000 for the year ended December 31, 1997, and has a working capital
deficiency of $19,846,000 and an equity deficiency of $19,798,000. In addition,
as discussed in Notes 3 and 9, there is ongoing litigation that potentially
could affect the Company's financial position. Also, the Company is in arrears
on its payroll tax liabilities. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.

Management is actively involved in attempting to sell debt and equity securities
as well as looking for other sources of funding. However, no assurance can be
given that the Company will be successful in raising additional capital.
Further, there can be no assurance, assuming the Company successfully raises
additional funds that the Company will achieve profitability or positive cash
flow.


12. Fourth Quarter Results:

Significant adjustments made in the fourth quarter of 1997:

   Loss on forfeiture of building and furnishings            $1,126,326

                                       13

13. Subsequent Event

On February 18, 1998, the Company filed a registration statement with the
Securities and Exchange Commission to register 4,300,215 unrestricted
shares of common stock issued as compensation to consultants, legal advisors
and employees. In conjunction therewith, the Company received approximately
$198,000 from the exercise of the associated options.

Some of the options were issued in consideration of amounts owed to employees
and other individuals and therefore were paid for by cancellation of
indebtedness. In the case of some options, payment was made subsequent to the
issuance of shares.