<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q

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

                FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996

                                       OR

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

                FOR THE TRANSITION PERIOD FROM ______ TO _______

                        COMMISSION FILE NUMBER: 000-23260

                       GLOBAL VILLAGE COMMUNICATION, INC.

             (Exact name of registrant as specified in its charter)

                 DELAWARE                              94-3095680
      (State or other jurisdiction of     (I.R.S. employer identification No.)
         incorporation or organization)

                              1144 EAST ARQUES AVE.
                               SUNNYVALE, CA 94086
          (Address of principal executive offices, including zip code)

                                 (408) 523-1000
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

The number of shares of Common Stock outstanding as of December 31, 1996 was
16,752,887
<PAGE>   2
                       GLOBAL VILLAGE COMMUNICATION, INC.

                                    FORM 10-Q

                FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION                                               Page
<S>                                                                         <C>
     Item 1. Consolidated Financial Statements

          a) Condensed Consolidated Balance Sheets as of December 31,
             1996 and March 31, 1996 .....................................     3

          b) Condensed Consolidated Statements of Operations for the
             three and nine months ended December 31, 1996 and 1995 ......     4

          c) Condensed Consolidated Statements of Cash Flows for the nine
             months ended December 31, 1996 and 1995 .....................     5

          d) Notes to Condensed Consolidated Financial Statements ........     6

     Item 2. Management's Discussion and Analysis of Financial Condition
             and Results of Operations ...................................     8


PART II. OTHER INFORMATION

     Item 1. Legal Proceedings ...........................................    21

     Item 3. Defaults Upon Senior Securities .............................    21

     Item 6. Exhibits and Reports on Form 8-K ............................    21

SIGNATURES ...............................................................    22
</TABLE>




                                       2
<PAGE>   3
                          PART 1. Financial Information

     ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS


                       GLOBAL VILLAGE COMMUNICATION, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                          December 31,     March 31,     
                                                              1996          1996
                                                              ----          ----
                                                           (unaudited)    (audited)
<S>                                                          <C>           <C>    
     ASSETS
         Cash and short-term investments                     $17,387       $37,719
         Accounts receivable, net                              5,220        12,449
         Inventories, net                                      7,693         5,779
         Deferred income taxes                                    --         2,384
         Income tax receivable                                 8,344            --
         Other current assets                                    572         1,998
         Net assets of discontinued operations                    --           277
                                                             -------       -------
                    Total current assets                      39,216        60,606

         Property and equipment, net                           8,181        10,055

         Investment in Ex Machina                              4,043            --
         Other assets                                            166         1,374
                                                             -------       -------
            Total assets                                     $51,606       $72,035
                                                             =======       =======


     LIABILITIES AND STOCKHOLDERS' EQUITY
         Current liabilities
            Line of credit borrowings                        $ 8,000       $    --
            Accounts payable                                  31,711        18,046
            Accrued and other liabilities                      5,564         5,823
            Income taxes payable                                  --           335
            Net liabilities of discontinued operations         4,537            --
                                                             -------       -------
                Total current liabilities                     49,812        24,204

         Stockholders' equity                                  1,794        47,831
                                                             -------       -------
            Total liabilities and stockholders' equity       $51,606       $72,035
                                                             =======       =======
</TABLE>

See accompanying Notes to Condensed Consolidated Financial Statements.




                                       3
<PAGE>   4
                       GLOBAL VILLAGE COMMUNICATION, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)
                                   (unaudited)

<TABLE>
<CAPTION>
                                        Three Months Ended December 31,  Nine Months Ended December 31,
                                             1996            1995             1996            1995  
                                           --------        --------         --------        --------
<S>                                        <C>             <C>              <C>             <C>     
Net revenue                                $ 10,466        $ 39,517         $ 71,207        $ 97,764
Cost of revenue                              25,451          22,504           68,939          54,644
                                           --------        --------         --------        --------
   Gross profit (deficit)                   (14,985)         17,013            2,268          43,120
                                           --------        --------         --------        --------
Operating expenses:                                                      
  Research and development                    3,132           4,190            9,575          10,549
  Marketing and sales                        11,653           6,365           25,234          16,434
  General and administrative                  2,564           1,528            5,930           4,066
  Restructuring costs                         1,297              --            1,297              --
  Loss on investment                             --              --            2,191              --
                                           --------        --------         --------        --------
   Total operating expenses                  18,646          12,083           44,227          31,049
                                           --------        --------         --------        --------
                                                                         
   Income (loss)  from continuing                                        
      operations                            (33,631)          4,930          (41,959)         12,071
Other income, net                                80             247              633             731
                                           --------        --------         --------        --------
   Income (loss) before income                                           
     taxes                                  (33,551)          5,177          (41,326)         12,802
Provision for income taxes                   (2,605)          1,655           (5,401)          4,053
                                           --------        --------         --------        --------
   Net income (loss)                                                     
      from continuing operations           $(30,946)       $  3,522         $(35,925)       $  8,749
                                           --------        --------         --------        --------
                                                                         
Discontinued operations:                                                 
   Loss from discontinued operations             --        $ (1,272)        $ (1,822)       $ (2,592)
                                                                         
   Loss on disposal of discontinued                                      
      operations (see Note 5)              $ (9,800)             --         $ (7,667)             --
                                                                         
                                           --------        --------         --------        --------
   Net income (loss)                       $(40,746)       $  2,250         $(45,414)       $  6,157
                                           ========        ========         ========        ========
   Net income (loss) per share                                           
      from continuing operations           $  (1.85)       $   0.19         $  (2.14)       $   0.48
   Net loss per share                                                    
      from discontinued operations         $  (0.59)       $  (0.07)        $  (0.57)       $  (0.14)
                                           --------        --------         --------        --------
                                                                         
   Net income (loss) per share             $  (2.44)       $   0.12         $  (2.71)       $   0.34
                                           ========        ========         ========        ========
                                                                         
   Shares used in computing                                              
      net income (loss) per share            16,725          18,070           16,771          18,044
                                           ========        ========         ========        ========
</TABLE>

     See accompanying Notes to Condensed Consolidated Financial Statements.




                                       4
<PAGE>   5
                       GLOBAL VILLAGE COMMUNICATION, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                     NINE MONTHS ENDED DECEMBER 31,
                                                                            1996         1995  
                                                                          --------     --------
<S>                                                                      <C>           <C>     
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
     Net income (loss)                                                   ($ 45,414)    $  6,157
     Adjustment to reconcile net income (loss)
     to net cash provided by operating activities:
          Depreciation and amortization                                      2,592        1,942
          Non-cash restructuring costs                                       1,176
          Deferred income taxes                                              3,234           --
          Write-off of GlobalCenter, Inc. investment                         2,191           --
     Changes in assets and liabilities:
          Accounts receivable, net                                           7,017       (2,734)
          Inventories                                                       (1,995)       2,005
          Income taxes receivable                                           (8,344)          --
          Other current assets                                               1,246         (561)
          Accounts payable                                                  13,052           68
          Accrued and other liabilities                                        248        1,658
          Income taxes payable                                                (335)       2,565
     Net cash provided by (used in) operating activities of:
                                                                          --------     --------
          Continuing operations                                            (25,332)      11,100
          Discontinued operations                                            4,814        2,428
                                                                          --------     --------
               Net cash provided by (used in) operating activities         (20,518)      13,528
                                                                          --------     --------
CASH FLOWS FROM INVESTING ACTIVITIES:
          Purchases of property and equipment                               (1,598)      (4,976)
          Other assets                                                          (1)        (348)
          Purchases of short-term investments                              (23,217)     (10,647)
          Proceeds from sales and maturities of short-term investments      45,035       18,969
          Investment in Ex Machina                                          (4,043)          --
          Investment in GlobalCenter, Inc.                                  (1,548)          --
                                                                          --------     --------
               Net cash provided by investing activities                    14,628        2,998
                                                                          --------     --------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Borrowings under line of credit                                         8,000           --
     Payments on repurchases of Common Stock                                (1,161)        (140)
     Proceeds from issuance of Common Stock, net                               785        1,029
                                                                          --------     --------
               Net cash  provided by financing activities                    7,624          889
                                                                          --------     --------
     Effect of exchange rate changes on cash and cash equivalents             (247)         154
                                                                          --------     --------

Net increase in cash and cash equivalents                                    1,487       17,569
Cash and cash equivalents at beginning of period                            15,900        5,789
                                                                          --------     --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                $ 17,387     $ 23,358
                                                                          ========     ========

Supplemental disclosures:
     Cash paid during the period for:
          Interest                                                        $      8           --
          Income taxes                                                    $     44     $  1,488
     Non-cash investing and financing activities:
          Non-cash net assets contributed to GlobalCenter, Inc.           $    643           --
</TABLE>

     See accompanying Notes to Condensed Consolidated Financial Statements.

                                       5
<PAGE>   6
                       GLOBAL VILLAGE COMMUNICATION, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The interim condensed consolidated financial statements as of December 31, 1996
and for the three and nine months ended December 31, 1996 and 1995, include all
adjustments that in the opinion of management are necessary to present fairly
the financial information set forth therein, in accordance with generally
accepted accounting principles. Certain reclassifications have been made for
consistent presentation. All periods presented have been restated to show the
discontinuance of the Company's enterprise network server operation based in the
U.K. (see Note 5). The Company's interim results are subject to fluctuation. As
a result, the Company believes the results of operations for the interim periods
are not necessarily indicative of the results to be expected for any future
period.

2. NET INCOME (LOSS) PER SHARE

Net income (loss) per share data has been computed using net income (loss) and
the weighted average number of shares of Common Stock and common equivalent
shares from stock options outstanding (when dilutive using the treasury stock
method).

3. BALANCE SHEET COMPONENTS


   INVENTORIES:
   (in thousands)

<TABLE>
<CAPTION>
                                            December 31, 1996     March 31, 1996
                                            -----------------     --------------
<S>                                         <C>                   <C>   
   Purchased parts                               $  225               $  205
   Work in process                                  591                  198
   Finished goods                                 6,877                5,376
                                                 ------               ------
                                                 $7,693               $5,779
                                                 ======               ======
</TABLE>

   CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:

Under the provisions of Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities", the
Company has classified its investments in certain debt and equity securities as
available-for-sale. Such investments are recorded at fair value, with unrealized
gains and losses reported as a separate component of stockholders' equity. As of
December 31, 1996 unrealized gains and losses were not significant.

Short-term investments generally consist of U.S. Treasury Bills, commercial
paper, and municipal bonds with original maturities in excess of 90 days. At
December 31, 1996, all investments were classified as cash equivalents.
Available-for-sale securities consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                          December 31, 1996       March 31, 1996
                                          -----------------       --------------
<S>                                       <C>                     <C>    
     U.S. Government securities                $    --               $ 1,647
     Municipal securities                        6,556                20,172
                                               -------               -------
                                               $ 6,556               $21,819
                                               =======               =======
</TABLE>

                                       6
<PAGE>   7
4. LINE OF CREDIT

At December 31, 1996, the Company had borrowings against its bank line of credit
of $8.0 million. At December 31, 1996, the Company was in violation of certain
financial covenants under its line of credit and has been notified by the Bank
that it is in default of its borrowing agreement. The Company is currently
negotiating with the Bank to terminate its borrowing arrangement. The Company is
actively pursuing new sources of financing, although there can be no assurance
that the Company will be able to obtain any new sources of financing on
commercially acceptable terms.

5. DISCONTINUED OPERATIONS

In the second quarter of fiscal 1997, the Company adopted a formal plan to
discontinue its enterprise network server operation based in the United Kingdom
(formerly, the Company's ISDN Division). The disposition of the division has
been accounted for as a discontinued operation in accordance with APB No. 30 and
prior period financial statements have been restated to reflect the
discontinuation of the enterprise network server operation. The components of
net assets (liabilities) of the discontinued operation included in the
consolidated balance sheets at December 31, 1996 and March 31, 1996 are
summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                              December 31, 1996       March 31, 1996
                                              -----------------       --------------
<S>                                           <C>                     <C>   
   Current assets                                  $ 2,350                $3,181
   Property and equipment, net                         100                   738
                                                   -------                ------
       Total assets                                  2,450                 3,919
                                                   -------                ------

       Total liabilities                             6,987                 3,642

                                                   -------                ------
       Net assets (liabilities)                    $(4,537)               $  277
                                                   =======                ======
</TABLE>


As of December 31, 1996, $7.7 million has been recorded as a loss on disposal
of the operation (no income tax benefits), including approximately $1.7 million
in operating costs through the expected disposal date. The loss on disposal
recorded in the third quarter of fiscal 1997 primarily represents tax expense
entirely offsetting a tax benefit recorded in the second quarter of fiscal      
1997.

6. SUBSEQUENT EVENT

In February 1997, the Company announced the sale of certain assets and the
transfer of certain liabilities of its U.K.-based enterprise network server
business unit (see Note 5) to Mitel Telecom Limited for approximately $3.8
million in cash.




                                       7
<PAGE>   8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with the attached
condensed consolidated financial statements and notes thereto, and with the
Company's audited consolidated financial statements and notes thereto for the
fiscal year ended March 31, 1996. This report contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results could differ materially from those anticipated in forward-looking
statements as a result of the risk factors and other cautionary disclosures set
forth below and elsewhere in this report.

OVERVIEW

Global Village Communication, Inc. ("Global Village" or the "Company") was
founded in 1989 and is a leader in the design, development and marketing of
easy-to-use integrated communications products and services for users of
personal computers with Windows, Macintosh, OS/2 and DOS operating systems. The
Company's products enable mobile, home office and networked computer users in
small and medium-sized organizations to communicate efficiently with colleagues,
customers and suppliers.

The Company's Apple Macintosh products are characterized by a highly integrated,
proprietary software and hardware design which makes computer communications
easy for the average user. For Windows, OS/2 and DOS operating systems, the
Company provides integrated communication software to original equipment
manufacturers (OEMs) such as Gateway and Dell Computers, and through other
distribution channels to end users. In addition, the Company announced the
Company's NewsCatcher wireless receiver which provides up-to-the minute news,
sports and entertainment information to users through a personal computer.

In April 1996, the Company incorporated its Internet Services Division as a
standalone business called GlobalCenter, Inc. At the same time, the Company
announced that UUNET Technologies, Inc., had acquired an equity interest in
GlobalCenter, Inc. In December 1996, GlobalCenter, Inc. and Phoenix-based
Primenet Services for the Internet, Inc., announced plans to merge. The new
company will retain GlobalCenter as the corporate name and preserve the Primenet
product branding. The Company accounts for its investment using the cost method
of accounting.

In the second quarter of fiscal 1997, the Company adopted a formal plan to
discontinue its enterprise network server operation based in the United Kingdom
(formerly, the Company's ISDN Division). The results for the division have been
accounted for as a discontinued operation in accordance with APB No. 30. In
February 1997, the Company announced the sale of certain assets and the transfer
of certain liabilities of its U.K.-based enterprise network server business unit
(see Note 5) to Mitel Telecom Limited for approximately $3.8 million in cash.




                                       8
<PAGE>   9
The Company in the past has experienced and in the future may experience,
significant fluctuations in annual and quarterly operating results that may be
caused by many factors including, among others, the introduction, enhancement or
recalls of products by Apple Computer, Inc. ("Apple"), IBM-compatible personal
computer (PC) manufacturers, the Company or its competitors; the sales rates of
Apple Macintosh personal computers and PCs; the size and timing of individual
orders; market price reductions; market acceptance of new products and
technology; seasonality of revenues; customer order deferrals and accelerations
in anticipation of new products; changes in the Company's operating expenses;
performance of the Company's distributors and suppliers; mix of products sold;
quality control of the Company's products; and general economic conditions. As a
result, the Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indications of future performance.

The industry in which the Company competes generally is subject to short product
life cycles. In this regard, the Company traditionally has experienced a
significant reduction in the average selling prices of its products as the time
from product introduction elapses. In fiscal year 1997, the Company had
instituted significant price reductions with respect to substantially all of its
products and expects that competitive pressures will continue to necessitate
price reductions. In particular, the Company expects increased competition for
its products for the Apple Macintosh family of personal computers to continue.
There can be no assurance that the trend of reduced average selling prices will
not continue to accelerate during the remainder of fiscal 1997 and during fiscal
1998.

In May 1996, Apple announced a repair program for its Powerbook 5300 and 190
laptop computers which was effectively a recall of defective Apple Macintosh
computers. As a result of the repair program, the Company experienced
significantly reduced sales of its PowerPort products, particularly, its
PowerPort PC cards. Sales of such products have not returned to the levels
achieved prior to Apple's announcement and the Company does not believe that it
will achieve such sales levels for the foreseeable future. Apple's continued
decline in demand and the resulting operating loss has led Apple to announce
another restructuring plan in February 1997. The Company therefore expects that
revenues and/or gross margins from its products for the Apple Macintosh family
could decrease in future periods, which would have a material adverse effect on
the Company's business and results of operations unless the Company can generate
sufficient revenues and/or gross margins from its other products to compensate
for any shortfall in revenues from its Apple platform products. Any price
reduction or decrease in sales volume could have a material adverse effect on
the Company's business, financial condition and results of operations.

Because the Company generally ships products within a short period after receipt
of an order, the Company typically does not have a material backlog of unfilled
orders, and revenues in any quarter are substantially dependent on orders booked
in that quarter. The Company's expense levels are based in part on its
expectations as to future revenues. Therefore, the Company may be unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall of demand in relation to the
Company's expectations or any material delay of customer orders would have an
almost immediate adverse impact on the Company's results of operations and
liquidity. Fluctuations in operating results may also result in volatility in
the price of the Company's Common Stock.




                                       9
<PAGE>   10
To date, a substantial majority of the Company's revenue has been attributable
to sales of its TelePort and PowerPort product lines (all of which are designed
around the Apple Macintosh family of computers), and the Company expects that
sales of these products will account for a majority of its revenue for the
foreseeable future. The Company's future financial performance will depend on
the successful development, introduction and customer acceptance of new and
enhanced versions of its TelePort, PowerPort and OneWorld products, the
Company's ability to successfully reduce or control various operating expenses
as well as the Company's ability to generate increased sales of PC, or other
products. Though the Company continually seeks to further enhance its product
offerings and to develop new products, there can be no assurance that these
development efforts will result in enhanced or new products being introduced on
a timely basis, or that any such product enhancements or new products will
achieve market acceptance. In addition, the announcement by the Company of new
products with the potential to replace current products may cause customers to
defer purchasing the Company's current products which could have a material
adverse effect on the Company's results of operations. As a result of changing
technology and market factors, the Company is subject to the risk that its
inventories may rapidly become obsolete or that the Company and/or its
distributors may carry quantities of certain products that exceed current or
projected demand. While the Company writes off inventory that it considers to be
excessive or obsolete and provides allowances for inventory expected to be
returned from distributors, there can be no assurance that the Company's
recorded allowances for such write-offs and returns will be adequate, and a
material increase in such write-offs and returns over historical rates would
have a material adverse effect on the Company's results of operations. There can
be no assurance that the Company will be successful in developing new products
or enhancing its current products on a timely basis, or that such new products
or product enhancements will achieve market acceptance.

The Company is dependent on sole or limited source suppliers for certain key
components and services used in its products, particularly the modem chip sets
designed and manufactured by Rockwell International and the providing of timely
news and information services by the AirMedia Live! network. The Company has no
guaranteed supply arrangements with its sole or limited source suppliers. The
Company at times in the past has experienced delays in its ability to
manufacture sufficient product to meet demand due to the inability of certain
suppliers to meet the Company's volume and schedule requirements. There can be
no assurance that any sole or limited source supplier will meet the Company's
volume and scheduling requirements in the future or that the AirMedia Live!
network will provide updates in a timely manner. Any failure of any such
supplier to meet such requirements could have a material adverse effect on the
Company's business and results of operations.

The Company continually evaluates potential candidates for acquisitions. Such
candidates are selected based on products or markets which are complementary to
those of the Company. The Company's operations and financial results could be
significantly affected by such an acquisition. There can be no assurance that
any such contemplated acquisition will be consummated.




                                       10
<PAGE>   11
The following table sets forth, for the periods indicated, the percentage
relationship to net revenue of certain items in the Company's consolidated
statements of operations.

<TABLE>
<CAPTION>
                                             Three Months Ended           Nine Months Ended
                                                December 31,                December 31,   
                                             1996          1995          1996          1995
                                             ----          ----          ----          ----
<S>                                          <C>           <C>           <C>           <C> 
Net revenue                                   100%          100%          100%          100%
                                              ---           ---           ---           --- 
Cost of revenue                               243            57            97            56
                                              ---           ---           ---           --- 
    Gross profit (deficit)                   (143)           43             3            44
                                              ---           ---           ---           --- 
Operating expenses:
    Research and development                   30            11            13            11
    Marketing and sales                       111            16            36            17
    General and administrative                 25             4             8             4
    Restructuring costs                        12            --             2            --
    Loss from investment                       --            --             3            --
                                              ---           ---           ---           --- 
       Total operating expenses               178            31            62            32
                                              ---           ---           ---           --- 
       Income (loss) from continuing
           operations                        (321)           12           (59)           12
Other income, net                               1             1             1             1
                                              ---           ---           ---           --- 
    Income (loss) before income taxes        (320)           13           (58)           13
Provision for income taxes                    (25)            4            (8)            4
    Net income (loss)                         ---           ---           ---           ---
       from continuing operations            (295)            9           (50)            9
                                              ---           ---           ---           --- 
Discontinued operations
    Income (loss) from discontinued
       operations                              --            (3)           (3)           (3)
    Loss on disposal of discontinued
       operations                             (94)           --           (11)           --
                                              ---           ---           ---           --- 
    Net income (loss)                        (389)%           6%          (64)%           6%
                                              ===           ===           ===           === 
</TABLE>

NET REVENUE

Net revenue includes revenue from gross shipments, licenses and royalties, less
reserves for returns and allowances. Net revenue decreased 74% to $10.5 million
for the third quarter of fiscal 1997 from $39.5 million for the third quarter of
fiscal 1996. For the nine months ended December 31, 1996, net revenue decreased
27% to $71.2 million compared to $97.8 million during the same period of fiscal
1996. The decrease in revenues for the three months ended December 31, 1996 is
primarily attributable to a charge of $6.6 million for actual and anticipated
product returns for certain products from resellers and distributors. The
quarterly and nine-month revenue comparisons continued to be affected by Apple
Computer's repair program for the Macintosh PowerBook 5300 and 190 models. The
impact of the repair program was that it significantly reduced the number of
Apple computers that would be available for bundling with the Company's
products. The Company's products most impacted by Apple's repair program are its
PowerPort PC cards. The Company's OEM business has decreased significantly as
compared to the previous quarters, due to loss of Apple OEM business to
competitors.




                                       11
<PAGE>   12
International revenue decreased to $1.9 million or 18% of net revenues for the
third quarter of fiscal 1997 compared to $5.7 million or 14% for the third
quarter of fiscal 1996. For the nine months ended December 31, 1996,
international net revenue totaled $10.2 million or 14% of total net revenue
compared to $20.2 million or 21% of total net revenue for the same period in the
prior year. The decrease in international net revenues for the three and nine
months ended December 31, 1996 is primarily attributable to the decrease in the
Company's sales in the Asia region. There can be no assurance that the Company
will be able to maintain or increase international demand for the Company's
products or that the Company's distributors will be able to effectively meet
that demand. Risks inherent in the Company's international business activities
generally include unexpected changes in regulatory requirements, tariffs and
other trade barriers, costs and risks of localizing products for foreign
countries, longer accounts receivable payment cycles, difficulties in managing
international operations and distributors, potentially adverse tax consequences,
repatriation of earnings, the burdens of complying with a wide variety of
foreign laws and changes in demand resulting from fluctuations in exchange
rates. In addition, the laws of certain foreign countries do not provide
protection for the Company's intellectual property to the same extent as do the
laws of the United States.

Revenue reserves and allowances are established for estimated future returns due
to stock balancing and discontinued and nonsaleable products based on the
Company's past experience and internal forecasts. There can be no assurance that
the Company's historical experience regarding returns and allowances will
continue or that its projections will prove accurate. If the Company experiences
returns in excess of its reserves, the Company's results of operations could be
materially, adversely effected.

COST AND EXPENSES

Cost of revenue primarily consists of cost of materials, contract manufacturing
costs, manufacturing overhead expenses, royalty payments and warranty expenses.
The Company's gross profit (deficit) as a percentage of net revenue decreased to
(143)% from 43% for the third quarters of fiscal 1997 and 1996, respectively.
Gross profit as a percentage of net revenue decreased to 3% from 44% for the
nine month periods ended December 31, 1996 and 1995, respectively. The gross
profit decreases were primarily attributable to inventory reserves of $11.8
million recorded for slow moving products. Gross profit margins are likely to
fluctuate as a result of the sales mix between lower and higher margin products,
the nature and amount of licensing and royalty income, and changes in
distribution channels, as well as changes in component and production costs and
price reductions. In particular, the Company expects that over the next several
quarters, pricing pressures will continue, and new products will be introduced
by the Company's competitors, both of which may have an adverse effect on the
gross margins from the Company's products for the Apple platform. The Company
does not expect gross margins to return to its higher historical levels.

Research and development expenses decreased 25% to $3.1 million or 30% of net
revenues for the third quarter of fiscal 1997 from $4.2 million or 11% of net
revenues in the comparable quarter of fiscal 1996. For the nine months ended
December 31, 1996 research and development expenses decreased 9% to $9.6 million
or 13% of net revenues from $10.5 million or 11% of net revenues compared to the
same period of fiscal 1996. The decreases are primarily attributable to the
decrease in headcount due to attrition and the Company's decision to establish
its Internet Services Division as a standalone business. Development costs
incurred in the research and development of new software products and
enhancements to existing software products are expensed as incurred until
technological feasibility has been established, in compliance with SFAS No. 86.
"Accounting for the Costs of Software to be Sold, Leased, or Otherwise
Marketed." Historically, software development has been substantially completed
concurrently with the establishment of technological feasibility, and,
accordingly, no costs have been capitalized to date. The Company believes

                                       12
<PAGE>   13
that its future success will depend, in large part, on its ability to enhance
its existing product lines and to continue to develop, introduce and deliver new
products in a timely fashion. Accordingly, the Company expects that research and
development expenses will increase in absolute terms and could increase as a
percentage of total net revenue.

Marketing and sales expenses increased by 83% to $11.7 million or 111% of net
revenues in the third quarter of fiscal 1997 compared to $6.4 million or 16% of
net revenues during the same period of fiscal 1996. For the nine months ended
December 31, 1996, marketing and sales expenses increased 54% to $25.2 million
or 36% of net revenues from $16.4 million or 17% of net revenues for the same
period in the prior year. Expenses for the three-month period ended December 31,
1996 increased primarily due to an increase in advertising activities associated
with the introduction of NewsCatcher, the Company's first wireless internet
receiver product, a 33.6 kbps version of its Teleport fax/modems and a major
upgrade to the Company's Focal Point product. The Company expects that
advertising activities will decrease in the remainder of fiscal 1997 and
possibly in fiscal 1998.

General and administrative expenses increased 68% to $2.6 million or 25% of net
revenues in the third quarter of fiscal 1997 from $1.5 million or 4% of net
revenues in fiscal 1996. For the nine months ended December 31, 1996, general
and administrative expenses increased 46% to $5.9 million or 8% of net revenues
from $4.1 million or 4% of net revenues for the same period in the prior year.
The increases in spending were largely due to legal expenses associated with the
settlement of two lawsuits, additional bad debt reserves and other general
operating expenses.

In December 1996, the Company announced a restructuring plan to streamline its
operations, reduce its workforce and enable the Company to improve its operating
results. The Company recorded a restructuring charge of $1.3 million related
primarily to severance costs, fixed assets write-offs and a lease abandonment.

In April 1996, the Company incorporated its Internet Services Division as a
standalone business called GlobalCenter, Inc. At the same time, the Company
announced that UUNET Technologies, Inc., had acquired an equity interest in
GlobalCenter, Inc. In December 1996, GlobalCenter, Inc. and Phoenix-based
Primenet Services for the Internet, Inc., announced plans to merge. The Company
no longer has the ability to exercise significant control over GlobalCenter,
Inc. and accordingly no longer consolidates the results of GlobalCenter, Inc.
and accounts for its investment using the cost method of accounting. As a result
of the refinancing and operating performance of GlobalCenter, Inc. during the
first quarter of fiscal 1997, the Company recorded an investment loss of $2.2
million.

Net other income decreased 68% to $0.1 million or 1% of net revenue in the third
quarter of fiscal 1997 compared to $0.3 or 1% of net revenue during the same
period of fiscal 1996. For the nine months ended December 31, 1996 net other
income decreased 13% to $0.6 million or 1% of net revenue from $0.7 million or
1% of net revenue for the same period in the prior year. The decreases are
primarily due to a decrease in cash and short-term investments.




                                       13
<PAGE>   14
In the second quarter of fiscal 1997, the Company adopted a formal plan to
discontinue the enterprise network server operation based in the United Kingdom.
The disposition of this division has been accounted for as a discontinued
operation. The discontinued operation reported an operating loss of $1.8 million
in fiscal 1997 through the measurement date of the discontinuance. As of
December 31, 1996, $7.7 million has been recorded as a loss on disposal of the
operation (no income tax benefit), including approximately $1.7 million in
operating costs through the expected disposal date. The loss on disposal
recorded in the third quarter of fiscal 1997 primarily represents tax expense
entirely offsetting a tax benefit recorded in the second quarter of fiscal 1997.
See Note 5 of Notes to Condensed Consolidated Financial Statements.

The Company's effective tax rates for the third quarter of fiscal 1997 and 1996
were 8% and 32%, respectively. For the nine months ended December 31, 1996 the
effective tax rate was 13% compared to 32% for the same period in the prior
year. The lower effective tax rate for fiscal 1997 compared to 1996 is primarily
attributable to an increase in the valuation allowance against deferred tax
assets.

The Company recorded a net loss of $40.7 million, or $2.44 per share for the
third quarter of fiscal 1997 compared to net income of $2.3 million, or $0.12
per share for the comparable quarter of fiscal 1996. The net loss of $40.7
million includes a $9.8 million loss from discontinued operations, which
includes a tax expense of $9.0 million, $11.8 million in inventory write-down,
$6.6 million for actual and anticipated product returns, a restructuring charge
of $1.3 million and $2.6 million in other operating expenses associated with the
resizing of the business. For the nine months ended December 31, 1996, the
Company recorded a net loss of $45.4 million or $2.71 per share compared to net
income of $6.2 million or $0.34 per share for the same period in fiscal 1996.




                                       14
<PAGE>   15
LIQUIDITY AND CAPITAL RESOURCES

The Company's cash and short-term investments totaled $17.4 million at December
31, 1996, representing 34% of total assets. Working capital was $36.4 million at
March 31, 1996, and a negative $10.6 million at December 31, 1996, a decline of
$47.0 million. The nine-month decrease in working capital was primarily
attributable to losses from continuing and discontinued operations, investments
in Ex Machina, Inc. and GlobalCenter, Inc., and repurchases of common stock.

Since its last fiscal year end, the Company has used approximately $20.3 million
in cash to finance both its continuing and discontinued operations as well as
various investing activities. At December 31, 1996, the Company's principal
source of liquidity was $17.4 million in cash and short-term investments which
includes $8.0 million in borrowings against its bank line of credit. The Company
has undertaken measures to attempt to improve its cash operating performance and
manage its cash requirements for the remainder of fiscal 1997 and beyond through
resizing its business, the discontinuance and anticipated proceeds from the sale
of its enterprise network server operation, a planned reduction in investment
activities, and the implementation of cost containment measures in certain
operating areas.

At December 31, 1996, the Company had borrowings against its bank line of credit
of $8.0 million. At December 31, 1996, the Company was in violation of certain
financial covenants under its line of credit and has been notified by the Bank
that it is in default of its borrowing agreement. The Company is currently
negotiating with the Bank to terminate its borrowing arrangement. The Company is
actively pursuing new sources of financing, although there can be no assurance
that the Company will be able to obtain any new sources of financing on
commercially acceptable terms.

The Company does not expect fiscal 1997 capital expenditures to exceed
historical levels and may possibly be reduced.

During the past two fiscal quarters, the Company has experienced significant
negative cash flows. However, the Company currently believes that its existing
cash and short-term investments and new credit facilities, if any, along with a
reduction in overhead and direct costs, resizing its business, the recovery of
certain tax assets, anticipated proceeds from the sale of its enterprise network
server operation, and increased accounts receivable collection efforts, should
enable the Company to meet its cash requirements for at least the next twelve
months. The preceding sentence is forward-looking and actual results could
differ materially from those anticipated in such forward-looking statement.
Namely, there can be no assurance that the Company will be able to obtain a new
credit facility and there can be no assurance that the Company will not require
additional capital prior to such time. The Company's funding requirements may
change at any time due to various factors, including the Company's operating
results, the results and timing of the Company's launch of new products and
services, the Company's ability to reduce or control various operating expenses
through cost containment measures or operating reductions, the success of the
Company's marketing efforts, technological advances and competition. The Company
may be required to issue additional debt or equity securities which could
substantially dilute the ownership of existing stockholders. Any shortfall in
funding could result in the Company having to curtail the introduction or
development of new products and its entry into new market, any of which could
have a material adverse affect on the Company's business, financial condition
and results of operations.




                                       15
<PAGE>   16
RISK FACTORS

In addition to the other information in this Quarterly Report, one should
carefully consider the following factors in evaluating the Company.

PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE

The market for personal computer communications products is characterized by
continual change and improvement in hardware and software technology resulting
in short product life cycles. The Company's success will depend on its ability
to enhance its current products, develop new products on a timely and
cost-effective basis that meet changing customer needs and respond to emerging
industry standards and other technological changes. In particular, the Company
must adapt its products to the evolving technological standards of the various
computer platforms and new technical standards resulting from increases in data
transmission speed and wireless communication, as well as new form factors such
as PCMCIA. Any failure by the Company to anticipate or respond adequately to
changes in technology and customer preferences, or any significant delay in
product development or introduction, would have a material adverse effect on the
Company's results of operations. Due in part to the factors described above, the
Company is subject to the risk that its inventories may rapidly become obsolete
or that the Company may carry quantities of certain products that exceed current
or projected demand. While the Company writes off inventory that it considers to
be excessive or obsolete, the Company has in the past provided for inventory
write-offs in excess of available reserves. There can be no assurance that the
Company's recorded allowances for such write-offs will be adequate in the
future, and material write-offs could have a material adverse effect on the
Company's results of operations. In addition, products as complex as those
offered by the Company may contain undetected errors or defects when first
introduced or as new versions are released. There can be no assurance that
despite testing by the Company and by current and potential customers, errors
will not be found in new products after commencement of commercial shipments
resulting in a delay in market acceptance or a recall of such products.

DEPENDENCE ON APPLE MACINTOSH FAMILY OF COMPUTERS; ADVERSE EFFECT OF REDUCED
APPLE SALES

A substantial majority of the Company's sales to date have been derived from
products designed for use with the Apple Macintosh family of personal computers,
including the Macintosh desktop series of computers and the PowerBook series of
portable computers. Therefore, the Company is substantially dependent on the
sale of Apple Macintosh computers and the development and sale of new Apple
computers. Due to expected continuing pricing pressures and new product
introductions by the Company's competitors, the Company expects that revenues
from its products for the Apple Macintosh family could decrease in future
periods, which would have a material adverse effect on the Company's business
and results of operations unless the Company can generate sufficient revenues
from its PC and other products to compensate for any shortfall in revenues from
its Apple products. The market for personal computers is extremely competitive
and rapidly changing. There can be no assurance that personal computers
competing with the Apple Macintosh family of computers will not displace the
Macintosh products or reduce their growth as such personal computers are
enhanced in their functionality, evolve to support technologically superior
applications or otherwise become economically more attractive.

Apple in the past has experienced difficulty in making the transition associated
with the development, manufacturing, marketing, and sale of certain new
computers. In this regard, the Company anticipates that




                                       16
<PAGE>   17
there will be ongoing transitions within the Apple product line. These
transitions will subject the Company to the risks that (i) potential customers
will defer purchases of current products as a result of, among other things,
speculation or premature announcements about new products, discontinuance of
product lines or corporate restructuring; (ii) the products will not be
successfully received in the marketplace; and (iii) Apple will be unable to
adequately meet demand for the new products. The inability of Apple to
successfully develop, manufacture, market, sell or make the transition to new
products, including, among others, new PowerBook products and PowerPC-based
computers, would have a material adverse effect on the Company's results of
operations. In addition, sales of the Company's products in the past have been
adversely affected by the announcement by Apple of new products with the
potential to replace existing products.

DEPENDENCE ON RELATIONSHIP WITH APPLE

The Company relies on its working relationship with Apple, which includes
collaborative product development, sharing of information, product sales to
Apple and licensing of Apple technology. Apple is not contractually obligated to
continue such collaborative development or information sharing activities and
could discontinue such activities at any time. In addition, Apple is not
contractually obligated to renew its licenses with the Company or purchase the
Company's products. Apple is collaborating with other vendors of communications
products that compete with the Company's products, and Apple may elect not to
renew its licenses with the Company in the future. The Company's strategy of
developing products compatible with the Macintosh family of products is
substantially dependent on the Company's ability to gain pre-release access to,
and to develop expertise in, current and future Macintosh product developments
by Apple. There can be no assurance that Apple will continue to cooperate with
the Company, and the inability of the Company to maintain and further develop
its relationship with Apple would have a material adverse effect on the
Company's results of operations. There can be no assurance that Apple will not
initiate product repair/recall programs in the future for its Macintosh
computers, which if it did, would have an adverse impact on the revenues of the
Company.

WIRELESS TECHNOLOGY

In June 1996, the Company announced that it was entering into a licensing
agreement with Ex Machina, Inc. pursuant to which the Company intends to
develop, market and distribute receivers for Ex Machina's AirMedia Live!
network. In July 1996, the Company completed an equity investment of
approximately $4 million. The Company has no experience in developing products
based on wireless technology and there can be no assurance that it will be able
to successfully develop, market or distribute such devices. Ex Machina, Inc. is
a venture capital-backed start-up that does not have significant experience in
operating networks similar to the AirMedia Live! network. There can be no
assurance that Ex Machina will successfully manage the AirMedia Live! network or
that it will be able to provide timely and reliable service. Furthermore, the
AirMedia Live! network is supported by a single wireless paging company. If such
company experiences system outages or the AirMedia Live! network proves to be
unreliable or does not provide updates in a timely manner, revenue from
NewsCatcher will be materially, adversely effected which could have a material
adverse effect on the Company's results of operations.




                                       17
<PAGE>   18
COMPETITION

The market for the Company's products is intensely competitive and characterized
by rapidly changing technology, evolving industry communication standards and
frequent new product introductions. A number of competitors offer products that
compete with one or more of the Company's products. Other companies in the
personal computer industry, such as modem vendors, remote access server vendors,
communications software vendors, microprocessor and chip set suppliers,
networking equipment suppliers, fax machine manufacturers, personal computer
manufacturers, paging companies and telecommunications companies could seek to
expand their product offerings by designing and selling products using
competitive technology that could render the Company's products obsolete or have
a material adverse effect on sales of the Company's products.

Apple currently offers products that compete directly or indirectly with the
Company's products and can be expected to introduce additional competitive
products in the future. Apple currently bundles modems and communications
software with some of its computers, and the Company anticipates that Apple will
continue to bundle such products in the future. In addition, Apple may further
enhance communications functionality within its desktop or portable computers.
Any such additional bundling or enhancement by Apple could have a material
adverse effect on the Company's results of operations.

Many of the Company's competitors have substantially greater financial,
technical, sales, marketing and other resources, as well as greater name
recognition and a larger customer base, than the Company. In addition, the
market for the Company's products is characterized by significant price
competition, and the Company expects that it will face increasing pricing
pressures from its current competitors. Accordingly, there can be no assurance
that the Company will be able to provide products that compare favorably with
the products of the Company's competitors or that competitive pressures will not
require the Company to further reduce its prices. Any material reduction in the
prices of the Company's products would negatively affect gross profit as a
percentage of net revenue and would require the Company to increase unit sales
in order to maintain net revenue.

DEPENDENCE ON MANUFACTURERS

The Company's manufacturing operations consist primarily of turnkey managers,
program managers, quality assurance, packaging and shipping personnel. For a
majority of its hardware assemblies, the Company purchases fully manufactured
and tested units from CMC Manufacturing and Flextronics Technologies, Inc.,
"turnkey" manufacturing subcontractors. Components and manufacturing services
from the Company's suppliers are obtained on an as-needed basis. The Company
believes that there are a number of alternative contract manufacturers that
could produce the Company's products. However, it could take a significant
period of time and result in significant additional expense to qualify
alternative subcontractors and commence manufacturing in the event of a
reduction or interruption of production. Therefore, the Company is highly
dependent, on a short-term basis, on its continued relationship with its primary
"turnkey" manufacturing subcontractors and any reduction, interruption or
termination of this relationship could have a material adverse effect on the
operating results of the Company.




                                       18
<PAGE>   19
RELIANCE ON DISTRIBUTORS

A majority of the Company's net revenue is derived from sales to distributors
that are not under the direct control of the Company. These distributors carry
multiple product lines and could reduce their support of the Company's products
in favor of a competitor's products or for any other reason. The loss of any of
the Company's major distributors would have a material adverse effect on the
Company's results of operations. Under certain conditions, the Company offers
stock balancing and price protection programs to its distributors. Therefore,
the Company is exposed to the risk of product returns from distributors and
direct reseller customers. There can be no assurance that the Company's recorded
allowances for returns will be adequate and a material increase in returns over
historical rates would have a material adverse effect on the Company's results
of operations.

DEPENDENCE ON KEY PERSONNEL; INTEGRATION OF NEW MANAGEMENT

The Company's future success depends to a significant extent on its senior
management and other key employees, including key development personnel. The
loss of the services of any of these individuals or group of individuals could
have a material adverse effect on the Company's results of operations. For
example, in November 1996, the Vice President of Sales and the Vice President of
Finance announced their resignations from the Company. As a result, the Company
will be required to replace such individuals in a timely manner. The Company
believes that its future success will depend in large part on its abilities to
attract and retain additional key employees. Competition for such personnel in
the computer industry is intense, and there can be no assurance that the Company
will be successful in attracting and retaining such personnel. If the Company
were to fail to replace or retain its key employees or attract additional key
employees, the Company's results of operations could be materially adversely
effected. The Company has no employment agreements with any of its key
employees.

The Company's ability to assimilate new personnel will be critical to the
Company's performance. The Company will be required to recruit additional key
management personnel, expand its engineering group and train, motivate and
manage its employees. There can be no assurance that the Company will be able to
manage these changes successfully.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

The Company relies primarily on a combination of copyright and trademark laws,
trade secrets, confidentiality procedures and contractual provisions to protect
its proprietary rights. The Company has no patents or patent applications
pending. The Company seeks to protect its hardware, software, documentation and
other written materials under trade secret and copyright laws, which afford only
limited protection.

The Company seeks to protect its brand names under trademark and unfair
competition laws. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's products is difficult,
and while the Company is unable to determine the extent to which piracy of its
software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights to as great an extent as do the laws of the United
States. There can be no assurances that the Company's means of protecting its
proprietary rights will be adequate or that the company's competitors will not
independently develop similar technology.

                                       19
<PAGE>   20
The Company is aware of products in addition to its own that are marketed under
the trademarks "PowerPort," "TelePort," "GlobalFax", "Focal Point" and
"OneWorld". The Company also is aware of a company that operates under the name
Global Villages and provides computer-related services. There can be no
assurance that litigation with respect to these trademarks will not be
instituted by any such parties or by others as has occurred with FocalPoint (see
Item 1. Legal Proceedings). If any such litigation were successful, the Company
could be required to pay damages and cease all use of a particular trademark.
There can be no assurance that any loss of the right to use a trademark would
not reduce sales of the Company's products. In any event, even if the Company
were successful in any such litigation, the legal and other costs associated
with such litigation could be substantial. As is customary in the Company's
industry, the Company from time to time receives communications from third
parties asserting that the Company's products infringe, or may infringe, the
proprietary rights of third parties or seeking indemnification against such
infringement. There can be no assurance that any such claims would not result in
protracted and costly litigation.

VOLATILITY OF STOCK PRICE

The market price of the Company's Common Stock has been volatile and trading
volumes have been relatively low. Factors such as variations in the Company's
revenue, operating results and cash flow and announcements of technological
innovations or price reductions by the Company, its competitors, Apple, PC
manufacturers, or providers of alternative products could cause the market price
of the Company's Common Stock to fluctuate substantially. In addition, the stock
markets have experienced significant price and volume fluctuations that
particularly have affected technology-based companies and resulted in changes in
the market prices of the stocks of many companies that have not been directly
related to the operating performance of those companies. Such broad market
fluctuations may adversely affect the market price of the Company's Common
Stock.

ANTI-TAKEOVER PROVISIONS

The Company's Board of Director's has the authority to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the
stockholders. The rights of the holders of the Company's Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. While the Company has no
present intention to issue shares of Preferred Stock, any such issuance could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. In addition, the
Company is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which could have the effect of delaying or
preventing a change of control of the Company. Furthermore, certain provision of
the Company's Certificate of Incorporation may have the effect of delaying or
preventing changes in control or management of the Company, which could
adversely affect the market price of the Company's Common Stock.




                                       20
<PAGE>   21
                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On April 8, 1996, in response to trademark infringement claims asserted by
Apollo Travel Services Partnership ("Apollo") and Galileo International
Partnership ("Galileo") with respect to Global Village's trademark FocalPoint,
Global Village filed an action in the Northern District of California seeking a
judicial declaration of non-infringement. Apollo and Galileo subsequently filed
a trademark infringement action in the Northern District of Illinois alleging
infringement of their rights in the mark FOCALPOINT. On October 18, 1996, all
claims between the parties regarding the FocalPoint mark were settled with the
Company agreeing to change its trademark to two works rather than one.

Litigation is inherently uncertain, and there can be no assurance that any
future litigation will not have a material adverse effect on the Company.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

As of December 31, 1996, the Company was in violation of certain financial
covenants under its line of credit and has been notified by the Bank that it is
in default of its borrowing agreement. The Company is currently negotiating with
the Bank to terminate its borrowing arrangement. The Company is actively
pursuing new sources of financing.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits

         Computation of Net Income (Loss) Per Share

     (b) Report on Form 8-K

         The Company filed a Form 8-K on December 19, 1996. The Company reported
         on such form, under Item 5, stating that the Company announced a
         comprehensive restructuring plan in the third quarter of fiscal 1997.

ITEMS 2, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.




                                       21
<PAGE>   22
                                   Signatures

Pursuant to the requirements 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.

                                        Global Village Communication, Inc.




                                             /S/Neil Selvin
-------------------------                    -----------------------------------
     Date                                       Neil Selvin
                                                President, Chief Executive
                                                Officer, and Director (Principal
                                                Executive, Financial and
                                                Accounting Officer)




                                       22
<PAGE>   23
                                 Exhibit Index

<TABLE>
<CAPTION>
Exhibit No.                           Description
<S>                                   <C>
  11.1                                Computation of Net Income (Loss) Per Share
                                      
  27.1                                Financial Data Schedule
</TABLE>