U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                   FORM 10-KSB

(Mark One)

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
     1934

     For the fiscal year ended December 31, 1997

                                          OR

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

     For the transition period from                to

                         Commission file number 1-13478
                                                -------
  
                    GLOBAL TELECOMMUNICATION SOLUTIONS, INC.
                 (Name of small business issuer in Its charter)

          Delaware                                    13-3698386
-------------------------------             ----------------------------------
(State or other jurisdiction of            (I.R.S. Employer Identification No.) 
 incorporation or organization)


     5697 Rising Sun Avenue, Philadelphia, PA                    19120
     -----------------------------------------                 ----------
     (Address of Principal Executive Offices)                  (Zip Code)

                                 (215) 342-7700
                 -----------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

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

    Title of Each Class:                               Name of Each Exchange on
                                                          Which Registered:
 
    Common Stock, par value $.01 per share               Boston Stock Exchange

    Common Stock Purchase Warrants                       Boston Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:   None

                  Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or 15(d) of the  Securities  Exchange Act of 1934 during the
past 12 months (or for such shorter  period that the  registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
                  Check  if there  is no  disclosure  of  delinquent  filers  in
response to Item 405 of Regulation S-B contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
                  The  issuer's  revenues  for its most recent  fiscal year were
$18,234,640.

                  As of  April  1,  1998,  the  aggregate  market  value  of the
issuer's  Common Stock held by  non-affiliates  of the issuer (based on the last
sale price of such stock) was $33,129,212.25. At April 1, 1998, 5,991,772 shares
of the issuer's Common Stock were outstanding.




<PAGE>



                                     PART I

ITEM 1.      DESCRIPTION OF BUSINESS.

Unless the context  otherwise  requires,  references  herein to the "Company" or
"GTS" refer to Global Telecommunication Solutions, Inc. and its subsidiaries.

General

             Global Telecommunication  Solutions, Inc. ("Company" or "GTS") is a
facilities-based  provider  of prepaid  phone  cards that allow  users to access
reliable,    convenient   and   cost-effective    domestic   and   international
telecommunications  services.  The Company seeks to provide reliable service and
support to its  prepaid  phone  card  customers  by  combining  experience  with
innovation  and  technology.   The  Company's  core  product  line  consists  of
traditional prepaid phone cards, as well as custom- designed prepaid phone cards
for business  promotional use. In addition to providing users with an economical
alternative to standard credit calling cards,  many of the Company's phone cards
provide enhanced services,  such as customized voice greetings,  data collection
and voice mail. The Company also creates and markets retail products ("Specialty
Products")  which utilize  prepaid phone card  technology,  such as  interactive
games and information services.

             The Company  markets its  telecommunications  and other products in
four lines: (i) traditional  prepaid phone cards marketed  domestically  through
distributors   and   retail   establishments,   such  as   convenience   stores,
supermarkets, drug stores and mass merchandisers; (ii) traditional prepaid phone
cards marketed  internationally  to business and leisure travelers  destined for
the United States; (iii) custom-designed  promotional phone cards for businesses
to enhance the  marketing of their  products and  services;  and (iv)  Specialty
Products marketed through retail establishments.

Recent Strategic Acquisitions

             The Company recently consummated two strategic acquisitions that it
believes  complement  its existing  operations  and will serve to accelerate its
growth.

             In February 1998, the Company acquired,  through a merger, Networks
Around the World, Inc.  ("NATW").  NATW's primary business consists of providing
traditional  prepaid phone cards  directly to retail  establishments,  including
convenience  store chains,  drug store chains and smaller retail  outlets.  NATW
also sells  prepaid  phone  cards to  distributors  which  market,  promote  and
distribute  the  cards  directly  to  retail  outlets  and  provides  customized
promotional  cards to businesses,  universities  and other  organizations.  NATW
generated revenues of approximately $8.0 million in 1997.

             Also in  February  1998,  the Company  acquired,  through a merger,
Centerpiece  Communications,  Inc.  ("CCI").  CCI's primary business consists of
providing  traditional  prepaid phone cards to distributors who, in turn, resell
such cards to retail establishments and through vending machines.  CCI generated
revenues of approximately $10.0 million in 1997.

             These two acquisitions substantially increase the Company's revenue
base  and  scope of  distribution.  The  Company  believes  that  the  increased
aggregate  telecommunications  traffic  resulting from these  acquisitions  will
enhance   the   Company's   ability   to   negotiate   lower   rates   with  its
telecommunications  carriers. As part of its business strategy, the Company will
seek,  where  appropriate,  to acquire  additional  companies or assets that are
complementary to the Company's  operations and objectives.  Although the Company
regularly evaluates possible acquisition opportunities, the Company currently is
not a party to any agreements with respect to any acquisition. See "Management's
Discussion    and   Analysis   of   Financial    Condition    and   Results   of
Operations--Liquidity and Capital Resources."

Corporate Background

             The Company and Global Link Telecom Corporation  ("Global Link"), a
wholly-owned  subsidiary of the Company  acquired through a merger ("Global Link
Merger")  in February  1996,  were  incorporated  under the laws of the State of
Delaware in December 1992 and March 1994,  respectively.  NATW was  incorporated
under  the  laws of the  State  of New  Jersey  on  February  1,  1994.  CCI was
incorporated  under the laws of the State of New  Jersey on June 16,  1996.  The
Company's  principal  executive  offices  are located at 5697 Rising Sun Avenue,
Philadelphia, Pennsylvania 19120 and its telephone number is (215) 342-7700.


                                        2

<PAGE>



Market Opportunity

             The  court-directed  divestiture of the Bell System in 1984 created
competition in the long distance  market.  Over time,  alternatives to AT&T, the
long distance carrier resulting from the divestiture, began to emerge to compete
for long  distance  customers.  One type of  competitor  that  emerged  from the
changing long distance market was the reseller,  an entity that purchases a high
volume of long distance minutes from major carriers at rates significantly lower
than those that could be obtained by individuals and small  businesses,  and, in
turn,  resells  those  minutes to its own  customer  base.  Eventually,  certain
resellers  began to market  resold  long  distance  minutes  through the sale of
prepaid phone cards.

             Prepaid phone cards are a reliable,  convenient and  cost-effective
alternative to coin-operated calling,  collect calling,  operator assisted calls
and standard  credit calling cards.  Unlike credit calling cards,  which provide
virtually  unlimited  credit and impose  surcharges on long  distance  services,
prepaid  phone  cards are paid for in  advance  and  provide  finite  amounts of
calling time. Most domestic prepaid phone cards,  including the Company's cards,
utilize a remote memory  technology,  which  permits users to place local,  long
distance  and  international  calls  from any  touch-tone(R)  phone by dialing a
toll-free or local access  number to connect to a prepaid  phone card  switching
platform.  After  being  prompted  to enter a PIN,  the caller is advised of the
value remaining on the card and is prompted to enter the telephone  number to be
called.  The call is then routed to its destination.  The per-minute charges for
the call are automatically decremented from the prepaid account corresponding to
the PIN as the call progresses.

             Prepaid  phone cards have been widely  used  throughout  Europe and
Asia for more than fifteen years.  Although prepaid phone cards were not used on
a widespread  basis in the United States prior to 1994, the market in the United
States is rapidly  expanding,  with annual sales of prepaid  phone cards growing
from an  estimated  $100  million  in 1993 to an  estimated  $2 billion in 1997.
Industry  analysts  project  annual  sales of prepaid  phone cards in the United
States to reach  approximately $4 billion by 2000. The Company  anticipates that
continued industry growth will be fueled by (i) increasing  consumer  acceptance
of prepaid phone cards and  recognition of their cost  advantages  over standard
credit calling cards,  collect calling and other options  available to consumers
seeking  to place  phone  calls  when away  from the home or  office  and (ii) a
broader base of consumer  segments  using prepaid phone cards,  such as business
employees, students and travelers.

             As the prepaid phone card industry  evolves,  the Company  believes
that traditional  prepaid phone cards will  increasingly  become a commodity and
that the  successful  competitors  will be those that (i) establish a brand name
recognized  for reliable  telecommunications  services and  responsive  customer
service,  (ii) improve  operating  margins by optimizing their own switching and
network  facilities to reduce  transmission  costs through  least-cost  routing,
(iii) possess the experience and calling volume to negotiate carrier  agreements
with multiple long distance carriers that provide favorable volume discounts and
(iv) differentiate their cards and services.

Strategy

             The  Company's  strategy  is to  continue  the rapid  growth of its
operations and capture an increasing  share of the expanding  prepaid phone card
market.  Key  components of the Company's  strategy  include:  (i) expanding the
domestic  and  international  retail  distribution  channels  for the  Company's
prepaid  phone  cards  with  sales  efforts   focused  on  convenience   stores,
supermarkets  and drug  stores;  (ii)  expanding  its  interconnected  switching
network;  (iii) acquiring companies or assets to achieve the Company's strategic
goals;  and (iv) pursuing other growth  opportunities  including:  identifying a
broader base of consumer segments for the Company's prepaid phone cards, such as
business  employees,  students and travelers;  exploring  alternative methods of
prepaid  phone card  distribution,  such as vending  machines and ATM  machines;
exploiting  alternative  technologies  for  prepaid  products,  such as  prepaid
wireless   services;   and   expanding   strategic   relationships   with  other
telecommunications services providers.

             Expanding Distribution

             Domestic  Retail.  The Company's  in-house  sales people market the
Company's traditional prepaid phone cards domestically (i) directly to national,
regional and independent retail establishments,  which sell the phone cards to a
wide  range of end  users,  (ii) to  independent  distributors  with  widespread
distribution  channels and access to a substantial number of retailers,  such as
newsstand distributors,  food brokers and tobacco and confectionery distributors
and (iii) to other  marketing  companies and  organizations  that sell the phone
cards to consumers within specific niche markets.


                                        3

<PAGE>

             The Company  intends to  increase  domestic  sales by focusing  its
sales  efforts on  convenience  stores,  supermarkets  and drug  stores,  and by
recruiting additional distributors to market and promote its prepaid phone cards
to local, regional and national retailers.  The Company also intends to increase
domestic  sales by continuing  to pursue  acquisitions  of candidates  that have
established  distribution  channels that  compliment the Company's  distribution
channels.

             The Company recently  introduced a new traditional  phone card, the
"GTS Card." This new  traditional  prepaid  phone card  product was  designed to
create  brand  loyalty by  providing  reliable  telecommunications  service  and
responsive  customer service at a good value. The Company has differentiated the
GTS Card from other traditional prepaid phone cards by charging per-minute rates
for domestic  telephone  calls based upon the mileage  between the calling party
and the called party.  A call placed to a destination  under ten miles will cost
consumers substantially less than a call placed across the country. For example,
a  consumer  placing a "local"  call will have the  opportunity  to speak for 90
minutes  (assuming a $10 card) while a person  calling  across the country  will
have  the   opportunity  to  speak  for  30  minutes   (assuming  a  $10  card).
Additionally, unlike other traditional phone cards, (i) the consumer always will
have the  opportunity  to utilize all of the value on the GTS Card (most prepaid
phone cards expire and if value  remains on the card at the time of  expiration,
that value is never  available to the  consumer)  and (ii) the GTS card is fully
refundable if the customer is not satisfied.

             The Company  began  marketing the GTS Card to national and regional
convenience store chains through direct sales and distributors  during the first
quarter of 1998.

             International Retail. The Company's sales agents located throughout
the world market the Company's  traditional  prepaid phone cards to business and
leisure  travelers  destined for the United States,  primarily through airlines,
tour wholesalers,  travel agencies, car rental agencies and other travel related
businesses.  The Company intends to increase  international  distribution of its
phone cards by:

             o        hiring  additional marketing personnel to actively solicit
                      new sales agents and distributors in Europe, the Far  East
                      and South America; and

             o        introducing  telecommunications services that will provide
                      end users with  convenient,  cost-effective  access within
                      and between more than 30  countries,  including the United
                      States and Canada.

             Promotional  Phone  Cards.  The  Company  intends  to  broaden  its
promotional  phone card  offerings  by hiring  additional  creative,  design and
marketing  personnel,  as well as sales  representatives  to focus  primarily on
large business customers, advertising agencies and promotional companies.

             Expanding Switching Network

             The Company intends to expand its network of switching platforms by
installing   additional   switching   platforms  or  entering   into   strategic
relationships  with other  telecommunications  service  providers in a number of
major  metropolitan  areas in the  United  States  and  interconnecting  them to
provide  reliable,   cost-effective  telecommunications  services.  The  Company
believes that the installation of switching  platforms in strategically  located
markets can substantially  reduce costs associated with customers  accessing its
switching   platforms   and   terminating    domestic   telephone   calls.   See
"--Telecommunications Infrastructure."

             Pursuing Acquisition Opportunities

             Numerous  companies  have entered the prepaid phone card  industry,
attracted  by the  industry's  dramatic  growth  and  barriers  to  entry  that,
initially,  were minimal.  Many of these entrants,  while  possessing  access to
potentially  strong  distribution  channels  or  innovative  products,  did  not
anticipate  the  complexity of the phone card business and have not been able to
exploit  all of the  elements  necessary  for  success,  such as an  established
infrastructure,  a dedicated  sales  force,  an  established  reputation  in the
prepaid  phone  card  industry  among   retailers,   distributors  and  business
customers,  access to capital and an  experienced  management  team. The Company
believes that the highly  fragmented  prepaid  phone card  industry  presents an
opportunity for consolidation through acquisitions and subsequent integration of
acquired  businesses.  Accordingly,  the Company intends to acquire companies or
assets to achieve its strategic goals.

             Industry analysts estimate that there are approximately 400 prepaid
phone card companies competing within the industry.  The Company believes that a
large majority of these  companies are small and have limited access to capital,

                                        4

<PAGE>



and  that  many of them  represent  suitable  acquisition  candidates  for  more
developed  companies,  such  as  the  Company,  that  have  access  to  capital,
management  expertise  and  an  established  telecommunications   infrastructure
important to integrate the viable aspects of acquired companies' operations into
their own and to capitalize on the economies of scale which may result from such
acquisitions.  The  Company  anticipates  that once its  integrated  network  of
switching   platforms  is  in  place,   it  will  be  able  to   integrate   the
telecommunications volume generated by acquired companies' customer bases and to
benefit from economies of scale that were previously unavailable to the acquired
companies as stand-alone operations. In February 1998, the Company acquired NATW
and CCI. See  "--Recent  Strategic  Acquisitions."  While the Company  regularly
engages in  discussions  regarding  proposed  acquisitions,  it currently has no
agreement, arrangement or understanding with respect to any such acquisition.

Products and Telecommunications Services

             The  Company's  core product line consists of  traditional  prepaid
phone cards marketed  domestically and internationally,  including the GTS Card.
The Company  also offers  custom-designed  promotional  phone cards for business
promotional use and retail products  utilizing prepaid phone card technology for
specialized purposes,  such as information access and interactive games. Some of
the enhanced  services  typically offered with the Company's phone cards include
(i) customized  voice greetings  (which the Company believes to be an attractive
feature to large retailers and businesses that utilize the Company's promotional
phone cards),  (ii) foreign language voice prompts and instructions,  (iii) data
collection  (used to gather  marketing  and  demographic  information)  and (iv)
sequential  calling,  which permits  customers to place additional calls without
exiting the platform.

             Traditional Phone Cards Marketed Domestically

             The Company's  primary  marketing and  distribution  strategy is to
target retailers directly and through distributors that sell the Company's phone
cards to end users.  The  Company has and will  continue to increase  retailers'
awareness  of  the  profit  potential  of  offering  prepaid  telecommunications
services,  the minimal  space needed to sell the  Company's  phone cards and the
ability of the Company's phone cards to generate ongoing residuals for retailers
through  recharge  revenues.  In  furtherance  of  its  strategy,   the  Company
facilitates   the  display  of  its  phone  cards  by   providing   (i)  turnkey
merchandising materials, which include customized cards and retail packaging and
complete  display and signage  systems and (ii) retail  promotion  programs  for
which the Company and the retailer share costs.

             Traditional  prepaid phone cards permit users to place local,  long
distance and international  calls from any touch-tone  telephone.  The Company's
rechargeable  traditional phone cards enable customers to add additional calling
time to the phone cards at certain  retail  locations  and,  in some  cases,  by
dialing a toll-free  number and furnishing major credit card  information.  This
allows customers to continue to use the same PINs and generates ongoing residual
sales for  retailers.  Unlike most  products  sold by  retailers,  the Company's
traditional  phone cards enable  retailers to generate  revenues  beyond initial
sale of the cards. The Company pays additional commissions to the retailer based
on the dollar  value  added on any card sold by that  retailer,  so long as that
retailer continues to offer the Company's phone cards. The Company believes that
this program  increases  retailer loyalty and creates an incentive for retailers
to sell its prepaid phone cards.

             Customers utilizing the Company's traditional phone cards can place
international  calls to the  United  States  from  more  than 30  countries  and
outbound domestic and  international  long distance calls from the United States
to more than 220 countries.

             Traditional Phone Cards Marketed Internationally

             The   Company's   traditional   prepaid   phone   cards   are  sold
internationally  to  business  and  leisure  travelers  destined  for the United
States. These phone cards are identical to the Company's traditional phone cards
except that, in most cases,  the phone cards are activated by a credit card. The
Company's   international   phone  cards  generally  are  (i)  standard  plastic
rechargeable  prepaid  phone  cards  which are given away with a value by a tour
wholesaler or (ii) packaged in a "tear-off"  format with travel  documents  that
include  marketing  information  about the Company's phone cards.  The Company's
international  phone  cards  frequently  are  accompanied  by an  offer  of free
telephone  time in  exchange  for the  customer's  activation  of the card for a
minimum value.



                                        5

<PAGE>



             Promotional Phone Cards

             The  Company's  custom-designed   promotional  phone  cards,  which
feature companies' logos,  products and customized  advertisements,  are sold to
businesses that typically give these cards to their customers in connection with
the marketing of their products and services. A business utilizing the Company's
phone cards for promotions can access marketing and demographic data compiled by
the  Company's   switching   platforms.   The  Company   believes  that  it  has
differentiated  itself from most other  providers of promotional  phone cards by
combining  enhanced  services and  interactive  technology  with its promotional
cards.

             The Company  believes that its in-house  creative and design staffs
provide key advantages over  competitors in the business  promotions  segment of
the prepaid phone card industry,  allowing the Company to design,  implement and
deliver  complete,  innovative  promotional  packages and to respond  quickly to
changes in customer preferences.  The Company has combined its enhanced services
and  interactive  technology  with its  promotional  cards to  produce  business
promotions unique to the phone card industry.

             Specialty Products

             The  Company  designs  and  markets   specialized  retail  products
utilizing  prepaid phone card  technology,  which are sold to  distributors  and
retail  establishments.  The Company's  in-house  creative  staff develops these
products by  expanding  the  technology  utilized by the  Company's  traditional
prepaid phone cards.

Telecommunications Infrastructure

             General

             Each  call made  using  the  Company's  traditional  phone  card is
comprised of two components:  (i) an inbound or originating call, which accesses
one of the Company's  switching  platforms  and (ii) an outbound or  terminating
call,  which connects the end user to the destination  called.  Currently,  most
customers  access the  Company's  switching  platforms  by  dialing a  toll-free
number.  This inbound  service,  purchased by the Company from  carriers such as
Sprint or MCI,  constitutes  a significant  portion of the Company's  costs with
respect  to the  telephone  call.  Once  the  Company's  switching  platform  is
accessed,  the call is  directed  by the  Company's  switching  platform  to the
network of an  interexchange  carrier  for  transport  to the  appropriate  call
destination.  Costs  incurred  by  the  Company  in  connection  with  consumers
accessing the Company's  switching platforms and the carriage of a call from the
Company's  switching  platform to the call  destination  include  variable costs
incurred in accessing the local exchange  carrier in each local access transport
area ("LATA").

             Switching Facilities

             The Company currently owns and operates six STX switches,  three in
Jersey City, New Jersey (the "New Jersey STX") and three in Miami,  Florida (the
"Miami STX").  The Miami STX is located at the Company's  leased facility and is
maintained by the Company's  employees,  with the assistance of National Applied
Computer Technology,  Inc. ("NACT"), the manufacturer of all six platforms.  The
New  Jersey STX is located  at the  offices of NTT Data  Communications  Systems
Corporation, an affiliate of NTT America, Inc. ("NTT"), a former customer of the
Company,  and is maintained by the Company's  employees,  with the assistance of
NTT  representatives and NACT. The Company and NACT have entered into agreements
pursuant to which NACT licenses  software to the Company and provides  technical
support and platform  maintenance.  In addition to its own switching facilities,
the Company utilizes or has utilized the switching facilities of outside vendors
for certain of its enhanced  services  and/or  interactive  products,  including
InComm  Communications,  a subsidiary of U.S.  South  Communications,  Inc., and
Interactive Media Works, Inc.

             The Miami STX and the New Jersey STX provide phone card services to
the  Company's  domestic  and  international   traditional  prepaid  phone  card
customers and, in many instances,  end users of the Company's  promotional phone
cards.  These  switching  platforms  are designed  for the  specific  purpose of
providing  prepaid phone card services,  unlike many other  switching  platforms
which  must  operate  contemporaneously  with front end  processors  functioning
outside of the switching  platform.  These  platforms allow the Company to route
each telephone call to the least expensive long distance carrier,  determined by
either the origin of the call, or the city, country, area code or exchange where
the call will terminate.


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<PAGE>



             The Company's  switching  platforms also monitor card usage and end
user  demographics  and limit the  Company's  exposure to fraud by alerting  the
Company to situations in which multiple PINs are used from any single  telephone
number,  the same PIN is being  used from many  different  parts of the  country
within a short  period of time,  or a number of invalid  PINs are entered from a
single  telephone  number.  The  Company  believes  that its ability to minimize
unauthorized use of its cards and to provide  important  customer and card usage
information makes its phone cards an attractive choice for retailers.

             The Company believes that the  installation of switching  platforms
in a number of major  metropolitan  areas in the United  States  will reduce the
Company's inbound costs for calls originating within a LATA in which a switching
platform is located.  Once a switching  platform is  installed  in a  particular
LATA,  the Company  will be able to enter into an  agreement  directly  with the
local exchange  carrier within that LATA. As a result,  the Company's  costs for
access  into its  switching  platform  will be based  upon  the  local  exchange
carrier's  tariffed access charges,  which are substantially less than the costs
of accessing its platform through an interexchange  carrier such as Sprint.  The
Company also believes that the  installation of switching  platforms in a number
of major metropolitan  areas in the United States will substantially  reduce the
Company's  costs for  terminating  calls by enabling  the Company to route calls
directly  to local  exchange  carriers  within a  terminating  LATA  rather than
through interexchange  carriers.  The Company can route the terminating calls to
the local exchange carrier and pay only that carrier's  tariffed access charges.
In  addition,  the Company  plans to  interconnect  its  switching  platforms in
different LATAs using dedicated access lines leased at fixed costs. As a result,
if a call  originates  in a LATA  serviced  by  one of the  Company's  switching
platforms  and  terminates  in a different  LATA  serviced by another  switching
platform, the Company will not incur any variable per-minute long distance costs
for transferring calls over its interconnected network.

             Carrier Agreements

             The Company has carrier  agreements  with  numerous  long  distance
carriers to originate  toll-free  access to the Company's  switching  facilities
domestically and  internationally  and to terminate  domestic and  international
long distance calls over these carriers' networks. The carrier agreement between
the  Company  and Sprint  requires  the  Company  to satisfy a $500,000  minimum
monthly usage commitment in order to receive favorable pricing.  Failure to meet
such  minimum  commitment  would  obligate  the Company to pay  underutilization
charges equal to 25% of the  difference  between the minimum  commitment and the
net usage.  The majority of the Company's  domestic  toll-free  origination  and
termination  minutes currently are carried over Sprint's network.  The Company's
agreement  with  Sprint  expires on June 30,  1998.  The  Company  is  currently
negotiating  with Sprint and several other carriers with respect to the carriage
of its traffic subsequent to June 30, 1998.

             The  Company's  carrier   agreements  with  multiple  domestic  and
international long distance carriers allow for redundant routing of call traffic
to ensure that if one carrier experiences  difficulties the Company's phone card
customers are able to complete their telephone calls by automatically  switching
to an unaffected carrier's network.  Moreover, these multiple carrier agreements
enable the  Company to route each  telephone  call to the least  expensive  long
distance carrier for that particular call,  whether by country,  city, area code
or exchange.  This least-cost routing allows the Company to competitively  price
its phone cards.

             License

             In August 1995, the Company obtained a nonexclusive  patent license
from Ronald A. Katz Technology Licensing, L.P. to use over 25 patents related to
telecommunications  processes.  The Company is required to pay a  percentage  of
annual activation revenues, subject to annual minimum royalty payments. The term
of the license continues until November 2011, when the last patent expires.

Sales

             The  Company  sells its prepaid  phone cards and other  services to
domestic  and  international   retailers  and  distributors,   and  to  business
customers.  The Company also  participates in trade shows,  direct marketing and
print  advertising and develops  promotional  kits to market its promotional and
custom-designed cards to retailers and businesses.

             Domestic Retail Sales

             The Company sells its prepaid phone cards  domestically  through an
in-house sales force  consisting of 7 sales people,  each focusing on a distinct
geographic or niche market.  The Company's  traditional  prepaid phone cards are
sold (i) directly to national,  regional and independent retail  establishments,


                                        7

<PAGE>


which sell the phone  cards to a wide range of end  users,  (ii) to  independent
distributors with widespread  distribution  channels and access to a substantial
number of retailers,  such as newsstand  distributors,  food brokers and tobacco
and  confectionery  distributors  and  (iii) to other  marketing  companies  and
organizations  that sell the phone  cards to  consumers  within  specific  niche
markets. The Company's diverse domestic retail base includes convenience stores,
supermarkets,  drug stores, mass merchandisers,  maritime outlets (through which
cards are sold to  individuals  working on cruise  ships and cargo  vessels) and
similar retail outlets.

             In marketing  traditional  prepaid  phone cards to  retailers,  the
Company  emphasizes  profit  potential,  including  the possible  generation  of
ongoing  commissions to the retailer  through payment of additional  commissions
based on the number of minutes  recharged on any prepaid  phone card sold by the
retailer so long as the retailer  continues to offer the Company's  phone cards.
The Company believes that this program increases retailer loyalty and creates an
incentive for retailers to sell the Company's  prepaid phone cards.  The limited
retail shelf space necessary to offer the Company's  products also is emphasized
by the  Company in its  retail  marketing  efforts.  Additionally,  the  Company
assists  retailers in promoting the prepaid phone cards and the Company's  other
products by providing turnkey  merchandising and marketing materials,  including
customized retail packaging and display systems.

             The Company has agreements with retailers and  distributors,  which
generally provide for a term of one to three years and require that the retailer
or distributor sell the Company's phone cards exclusively. These agreements also
provide for wholesale prices reflecting discounts ranging from 20% to 50% of the
retail selling price and contain customary  covenants and conditions,  including
indemnification, confidentiality and other standard provisions acceptable to the
Company.   Additionally,   the  Company  has  arrangements  with  retailers  and
distributors  that are not embodied in written  agreements having specific terms
which can be terminated at any time.  Certain of the Company's  agreements  with
international  distributors  provide for the payment of commissions based on the
number of cards sold.

             International Retail Sales

             The   Company's   traditional   prepaid   phone   cards   are  sold
internationally  to  business  and  leisure  travelers  destined  for the United
States,  primarily through  airlines,  tour  wholesalers,  travel agencies,  car
rental agencies and other travel related businesses.  International marketing is
conducted  primarily  through  approximately  150  sales  agents  located  in 28
countries.

             Promotional Phone Card Sales

             The  Company's  custom-designed   promotional  phone  cards,  which
feature companies' logos,  products and customized  advertisements,  are sold to
businesses  that  typically  give these cards to their  customers to enhance the
marketing of their products and services.  A business using the Company's  phone
cards for promotions also can access  marketing and demographic data compiled by
the Company's switching platforms. The Company's promotional phone card programs
generally are non-recurring.

Design and Manufacturing

             The Company's  in-house design staff creates  original  designs for
promotional and  custom-designed  cards. Upon completion of a phone card design,
the  Company  produces  paper  samples  of such  card,  converts  it into a film
production  sample and delivers it to a  manufacturer,  which prints the card on
plastic  sheets  and cuts the sheets  into phone  cards.  The  Company  utilizes
several  manufacturers  for the  production of its phone cards and believes that
there are adequate sources of supply and  manufacturing  capacity to address the
Company's requirements.

Customer Support and Service

             The Company  believes that effective  customer service is essential
to attracting  and  retaining  reputable  retail  customers.  Additionally,  the
Company  believes that it must support both the end users of the Company's phone
cards and the retail establishments and distributors that purchase the Company's
phone cards for resale to end users.  Accordingly,  the Company has  established
two customer service divisions.

             The Company's customer support division, which consists of its Vice
President--Support  Services  and 8 account  managers,  provides  support to its
retail customers and distributors,  which are divided into groups.  Each account
manager is  assigned a  particular  group for which he or she serves as liaison.


                                        8

<PAGE>


Each  account  manager  uses the  Company's  management  information  system  to
interface  with the  Company's  NACT  STX  switching  platforms  from his or her
computer terminal. This direct link provides the account managers with real-time
information concerning customers' accounts.

             Each  prepaid  phone card  contains a  toll-free  customer  service
number.  The Company's  customer service operators are available 24 hours a day,
seven days a week, 365 days a year to assist users of the Company's phone cards.
Additionally,  customer service  operators can address concerns  relating to the
operation  of the  Company's  phone  cards and any billing  related  question by
accessing   real-time  call  detail  records  through  the  Company's  switching
platforms.

Competition

             The telecommunications services industry generally, and the prepaid
phone card industry specifically, is intensely competitive, rapidly evolving and
subject to constant technological change. As the prepaid phone card industry has
grown, industry analysts estimate that the number of companies marketing prepaid
phone cards has increased from  approximately  75 companies in 1994 to more than
400 in 1997, some of which have  substantially  greater  resources than those of
the Company.  Further,  the Company's  prepaid phone cards not only compete with
other prepaid phone cards,  but also with credit calling cards,  collect calling
services,  hotel  telephones,  public pay  telephones  and other  long  distance
services.  The  Company  believes  that it  competes  with any medium by which a
consumer places a telephone call when away from the home or office.
             The Company believes that its established reputation in the prepaid
phone card industry among retailers,  distributors and business  customers,  its
existing  telecommunications  infrastructure and its experienced management team
provide it with important advantages over competitors. The Company also believes
that the  recharge  capabilities  of certain of its phone cards  provide it with
important  advantages  over many of its  competitors  whose cards do not provide
users with these capabilities. The Company believes that the primary competitive
factors  affecting  the  prepaid  phone  card  market  are  price,  quality  and
reliability of service, ease of use, service features and name recognition.  The
Company believes that it successfully competes in these areas.

             The Company's  prepaid phone cards  provide a more  convenient  and
cost-effective alternative to other long distance services intended for use away
from a consumer's home or office.  The Company's phone cards are easy to use and
can be utilized from any  touch-tone  telephone.  Unlike credit  calling  cards,
prepaid  phone cards do not require  users to fill out credit  applications  and
allow consumers to budget telephone  expenses  effectively.  The Company's phone
cards provide a less expensive  alternative  to credit  calling  cards,  collect
calling services, hotel telephones and public pay telephones.

Government Regulation

             The  provision of  telecommunications  services is regulated by the
federal  and  state  governments  of the  United  States.  Federal  laws and FCC
regulations  apply to interstate  and  international  telecommunications,  while
state regulatory authorities have jurisdiction over telecommunications  services
that originate and terminate within the same state.  Various other international
authorities also may seek to regulate telecommunications services originating in
their respective countries.

             Federal

             The    federal    Communications    Act,    as   amended   by   the
Telecommunications Act of 1996 (the "1996 Act"), allows local exchange carriers,
including  the  RBOCs  upon  satisfaction  of  certain  conditions,  to  provide
interstate  and interLATA long distance  telecommunications  services and grants
the FCC the  authority to  deregulate  other  aspects of the  telecommunications
industry.  In order to  implement  the  objectives  of the 1996 Act, the FCC has
promulgated  numerous  regulations  to  encourage  competition  and entry in the
telecommunications  industry.  While the Company  believes that the 1996 Act, by
fostering increased competition in the telecommunications  industry, will create
new  opportunities  for the Company to  participate  in various  segments of the
industry,  the near and long-term effects on the Company of the 1996 Act and the
rules promulgated thereunder cannot be anticipated.

             The  Communications  Act governs all "common  carriers,"  including
AT&T,  MCI and Sprint,  as well as entities,  such as the Company,  which resell
transmission services using other common carriers'  facilities.  The Company has
applied  for and  received  all  necessary  authority  from  the FCC to  provide
domestic and  international  telecommunications  services  through the resale of
switched services of U.S. facilities-based  carriers. The FCC reserves the right
to  condition,   modify  or  revoke  such   authority  for   violations  of  the
Communications Act or its rules.


                                        9

<PAGE>

             Nondominant carriers (i.e.,  carriers that do not have the power to
control  prices),  such as the Company,  currently must maintain tariffs on file
with the FCC for their international services, although, as discussed below, the
issue of whether  nondominant  carriers must file tariffs for their  interstate,
domestic,  interexchange  services  currently  is under  review.  The tariffs of
nondominant  carriers  and the rates and charges they specify are subject to FCC
review,  but are  presumed  to be lawful and are seldom  contested.  In general,
nondominant domestic common carriers are required to charge reasonable rates and
are prohibited from engaging in unreasonable practices in the provision of their
services.  As an international  nondominant  carrier, the Company is required to
include detailed rate schedules in its  international  tariffs.  The Company has
filed all required tariffs with the FCC.

             On October 31,  1996,  the FCC  released an order  eliminating  the
requirement that nondominant interstate carriers, such as the Company,  maintain
tariffs on file with the FCC for domestic interstate  services.  The FCC's rules
are pursuant to authority  granted to the FCC in the 1996 Act to "forbear"  from
regulating any  telecommunications  service  provider if the FCC determines that
the public  interest  will be served.  Under the new rules,  after a  nine-month
transition period,  nondominant interstate carriers need no longer file tariffs,
although  they have the  option of  ceasing  to file such  tariffs  immediately.
Petitions for review of the FCC's order were filed by MCI,  among  others,  with
the United States Court of Appeals for the District of Columbia  Circuit,  which
on February 13, 1997 stayed the FCC's order. Accordingly,  on March 6, 1997, the
FCC  reinstated  its  prior  rules  requiring   nondominant  carriers  providing
interstate, domestic, interexchange service to file tariffs.

             Pursuant  to Section  276 of the 1996 Act,  the FCC,  in  September
1996,  adopted new rules governing the pay telephone  industry that, among other
things,  established  a means by which all pay telephone  service  providers are
compensated  for every  interstate and intrastate  call completed from their pay
telephones,  including  calls that  utilize  toll-free  access and access  codes
("Dial  Around  Compensation").  On July 1,  1997,  the United  States  Court of
Appeals for the  District of  Columbia  Circuit  remanded to the FCC for further
consideration  certain rules which could have a material  adverse  effect on the
Company.  The Court of Appeals  found that the FCC's  determination  setting the
per-call  compensation  at $0.35  was  unjustified.  Additionally,  the Court of
Appeals found that the FCC acted arbitrarily and capriciously in establishing an
interim  compensation  plan which  required  that,  during the first year,  only
interexchange  carriers  generating $100 million or more in annual revenues must
pay a pro rata portion of $45.85 per month per pay telephone (based upon the pro
rata share of the total annual revenues for carriers  generating $100 million or
more). The Court of Appeals upheld the FCC's  determination  that  interexchange
carriers should track compensable  calls and compensate pay telephone  providers
for toll free and access code calls.  Additionally,  the Court of Appeals upheld
interexchange  carrier's  rights to charge long distance  resellers or customers
that own toll free access  numbers or access codes (such as the Company) for any
such  compensable  calls.  In October 1997, the FCC adopted new rules  governing
Dial Around Compensation, pursuant to which each pay telephone owner is entitled
to be  compensated  $0.284  for each dial  around  call  originating  from a pay
telephone. Simultaneously, the FCC issued an order waiving, until March 9, 1998,
the local exchange  carriers'  obligation to deliver an info-coding digit to the
interexchange  carriers indicating that the telephone call originated from a pay
telephone.   The  Company,  along  with  other  phone  card  companies  and  the
International  Telecard  Association,  filed a petition  requesting that the FCC
reconsider its decision to grant the waiver. On delegated  authority,  the FCC's
common carrier bureau denied the request and extended the waiver through October
1998 for most local exchange carriers.  The resolution of this matter by the FCC
and, if applicable, the federal courts is uncertain.

             In May 1996,  the Federal  Reserve Board  published  proposed rules
governing  "stored  value  cards" with a maximum  value of $100 or more.  If the
Company  permits more than $100 to be credited to its prepaid  phone cards,  and
the rules are adopted, the Company would become subject to the new requirements,
including those related to the provision of transaction  receipts and limitation
of consumers' responsibility for unauthorized transactions. Currently, virtually
all of the Company's prepaid phone cards have a maximum value of $100 or less.

             State

             The  provision  of  intrastate  long  distance   telecommunications
services  and local  exchange  services  is subject  to  various  state laws and
regulations,  including prior  certification,  notification  and/or registration
requirements.  The scope of such  regulation  varies  from state to state,  with
certain  states  requiring  the  filing  and  regulatory   approval  of  various
certifications  and state tariffs.  For example,  many states  regulate  prepaid
phone card  providers by requiring  them to apply for  certification.  While the
Company  either has obtained,  applied or is applying for  certification  in the
states of Florida, New York, California, Texas and New Jersey (where the Company
conducts a substantial  part of its  business),  there can be no assurance  that

                                       10

<PAGE>

state  regulators  will grant the  Company  all  required  authorizations.  Many
states,  including  Florida,  California  and  Texas,  have  implemented  or are
considering  implementing  other rules that specifically  regulate prepaid phone
card providers.  The Company continually evaluates the regulations governing the
provision of intrastate telecommunications services in numerous states and seeks
to obtain operating authority in those states in which it provides or expects to
provide  service and that  require  authority.  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,  for  example,  the  return of all  monies  received  for
intrastate  traffic  from  residents  of  a  state,  may  be  imposed  for  such
violations.

              In  November 1997, Congress enacted  legislation that specifically
addressed the  application  of federal excise taxes to the sale of prepaid phone
cards.  Accordingly,  the  Company  began to file  federal  excise tax  returns.
However,  the  taxation  of prepaid  phone  cards is  evolving  and has not been
specifically addressed in certain states in which the Company does business. The
Company has not filed any state  sales and use tax returns  nor  has it remitted
any such taxes to state taxing  authorities.  While the Company believes that it
has  adequately  provided  for such taxes and related  compliance  costs,  it is
possible that certain states may enact  legislation or interpret current laws in
a manner  that  could  result in  additional  tax  liabilities,  which  could be
material.

             The Company  believes that it is in compliance with all laws, rules
and  regulations  material  to its  operations  and has  obtained,  or is in the
process of  obtaining,  all licenses,  tariffs and  approvals  necessary for the
conduct of its business. In the future,  legislation enacted by Congress,  court
decisions  relating to the  telecommunications  industry,  or regulatory actions
taken by the FCC or the states in which the  Company  operates  could  adversely
impact the  Company's  business.  Changes in existing laws and  regulations,  in
particular the currently proposed relaxation of existing regulations, may have a
significant  impact on the Company's  activities and on the Company's  operating
results.  Adoption of new statutes and regulations  and the Company's  expansion
into new  geographic  markets  could  require  the  Company to alter  methods of
operation, at costs which could be substantial,  or otherwise limit the types of
services offered by the Company. There can be no assurance that the Company will
be able to comply with  additional  applicable  laws,  regulations and licensing
requirements.

Trademarks

             Global Link(R) and the design of the Global Link prepaid phone card
are registered U.S. trademarks of Global Link. Applications also have been filed
and/or  registrations  have been secured for Global Link(R) and/or the design of
the Global Link(R) phone card in Brazil, Canada, France,  Germany, Korea, Japan,
Spain, Taiwan and the United Kingdom.  The Company or Global Link also has filed
trademark  applications  with the  United  States  Patent and  Trademark  Office
seeking  registration  of the following  marks:  ActiPhone(TM),  Local Link(TM);
Global Link Worldwide(TM); and Pets-in-Need(TM). The combined name and design of
CCI's  prepaid  phone  card,  The Great Phone  Card(TM),  is a  registered  U.S.
trademark  of CCI.  There can be no  assurance  that the  Company  will  receive
registrations  for any applied for trademarks or that any  registered  trademark
will provide the Company with any significant marketing or industry recognition,
protection, advantage or benefit.

Employees

             As of April 1, 1998, the Company had 64 full-time  employees and 33
part-time employees.  None of the Company's employees is covered by a collective
bargaining  agreement.  The Company never has experienced an  employment-related
work stoppage and considers its employee relations to be satisfactory.


ITEM 2.      DESCRIPTION OF PROPERTY

             In January 1995, Global Link entered into a lease for approximately
7,500  square feet of space  located at 5697  Rising Sun  Avenue,  Philadelphia,
Pennsylvania,  which houses the Company's principal executive offices,  computer
systems and packaging facilities.  Global Link is renting this space from JilJac
Realty Company ("JilJac"), a general partnership owned by Gary J. Wasserson, the
Company's  former Chief  Executive  Officer and  currently a  consultant  to the
Company.  The term of the lease is five years and provides for an annual rent of
$50,400  during 1996,  $52,900  during 1997,  $55,566  during 1998,  and $58,344
during 1999.  In July 1997,  the Company  leased  additional  storage space from
JilJac on a month-to-month  basis for $3,500 per month. The Company has provided
notice to  JilJac  that it  intends  to  terminate  the  lease  solely  for this
additional space on June 29, 1998.

                                       11

<PAGE>

             In July 1995, the Company  entered into a sublease for 9,400 square
feet of space  located  at 40 Elmont  Road,  Elmont,  New York.  The term of the
sublease  is through  July 2000 and  provides  for an annual  rent of  $145,700,
including utilities.  In February 1997, the Company subleased this space through
July 2000 for an annual rent of $89,300 for the first 12 months, $94,000 for the
second 12 months and $98,700 for the remainder of the term.

             In August 1995, the Company entered into a lease for  approximately
1,930 square feet of space for its sales offices located at 60 East 42nd Street,
New York,  New York.  The term of the lease is 62  months  and  provides  for an
annual rent of $45,248.

             In April 1997, the Company  entered into a lease for  approximately
2,125  square feet of space  located in Roslyn  Heights,  New York.  The Company
currently leases this space on a month-to-month  basis for approximately  $4,600
per month.

             In January 1997, NATW entered into a lease for approximately  1,865
square feet of space located at 509 South Lenola Road,  Moorestown,  New Jersey,
which houses NATW's principal offices.  The lease provides for an annual rent of
$25,886.16 and can be terminated on 90 days' notice.

             In August 1996,  CCI entered into a lease for  approximately  1,873
square feet of space located at 115 Christopher Columbus Drive, Jersey City, New
Jersey,  which  houses  CCI's  principal  offices.  In June 1997,  the lease was
amended  to add an  additional  869 square  feet of space,  for a total of 2,742
square feet. The lease provides for an annual rent of $42,216 and will terminate
on September 30, 1998.

             The Company  believes  that its  facilities  are  adequate  for its
present  purposes.  The  Company  believes  that as it  grows,  it will  require
additional facilities, and that such facilities will be readily available.


ITEM 3.      LEGAL PROCEEDINGS

             On April 9, 1998, the Company, CCI and NATW commenced an action for
breach of contract, unjust enrichment, implied contract and fraud against Access
Telecom,  Inc. ("Access  Telecom") and Douglas P. Haughn in the Circuit Court of
the Ninth Judicial Circuit in and for Orange County,  Florida. Access Telecom, a
provider  of long  distance  services to each of NATW and CCI prior to and after
the  respective  mergers,  ceased  providing  such services to the prepaid phone
cards that it had sold to each of NATW and CCI,  despite  receiving  payment for
substantially  all of the phone cards.  The Company is seeking damages in excess
of $1,000,000.  See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."


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

             Not applicable.


                                       12

<PAGE>



                                     PART II

ITEM 5.      MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

             The Company's Common Stock and  publicly-traded  warrants  ("Public
Warrants") are quoted on the Nasdaq SmallCap Market ("Nasdaq") under the symbols
GTST and GTSTW, respectively,  and listed on the Boston Stock Exchange under the
symbols GTL and GTLW, respectively. The following table sets forth the ranges of
bid prices for the Common Stock and Public  Warrants for the periods  indicated,
as  reported  by  Nasdaq,   the  principal  trading  market  for  the  Company's
securities.  The quotes  represent  inter-dealer  prices without  adjustments or
mark-ups,  mark-downs or commissions  and may not necessarily  represent  actual
transactions.

<TABLE>
<CAPTION>

                                                                           Common Stock                       Public Warrants
                                                                  -------------------------------       ---------------------------
                                                                      High               Low                High             Low
                                                                  -------------      ------------       ------------      ---------
<S>                                                                   <C>              <C>                <C>              <C>
1996
    First Quarter............................................         20-5/8            15-3/8                  3           1-3/4
    Second Quarter...........................................         18-3/8            11-5/8              2-5/8           1-1/4
    Third Quarter............................................             12                 6              1-1/2             7/8
    Fourth Quarter...........................................         10-1/2                 6             1-3/16             3/8

1997
    First Quarter............................................         10-3/8            10-1/2            1-11/16             5/8
    Second Quarter...........................................         10-1/4             6-3/8              31/32            7/16
    Third Quarter............................................          9-1/2             5-1/2                  1            7/16
    Fourth Quarter...........................................          9-5/8           4-13/16                3/4            5/32

</TABLE>

             On April 1, 1998,  the last bid  prices  for the  Common  Stock and
Public Warrants as reported by Nasdaq were $7-1/8 and $5/16, respectively.

             As of April 1, 1998,  there were  5,991,772  shares of Common Stock
outstanding  and Public  Warrants to purchase  1,630,560  shares of Common Stock
outstanding,  held of record by 119 and 52  holders,  respectively.  The Company
believes  that  there  are in excess of 500  beneficial  holders  of each of its
publicly-traded securities.

Dividends

             The  Company  has  never  declared  or paid cash  dividends  on its
capital stock.  The Company  currently  intends to retain  earnings,  if any, to
finance  the growth and  development  of its  business  and does not  anticipate
paying any cash dividends in the  foreseeable  future.  Certain of the Company's
agreements  prevent the Company from  declaring or paying cash  dividends on its
capital stock.


                                       13

<PAGE>


Recent Sales of Unregistered Securities

             During the quarter  ended  December 31, 1997,  the Company made the
following sales of unregistered securities. The sales set forth below made prior
to the quarter ended December 31, 1997 were previously unreported:




<TABLE>
<CAPTION>

                                                             Consideration Received                              If Option,
                                                               and Description of                                Warrant or
                                                             Underwriting or Other          Exemption            Convertible
                                                              Discounts to Market              from            Security, Terms
                                                               Price Afforded to           Registration        of Exercise or
Date of Sale      Title of Security         Number Sold            Purchasers                Claimed             Conversion
-------------    -------------------        -----------     ----------------------          ------------      -----------------
<S>               <C>                       <C>             <C>                                <C>            <C>
7/15/97          option to purchase           250,000       option granted to                    4(2)         exercisable from
                 Common Stock                               representative of                                 7/9/98 to 7/8/02 at
                                                            underwriters in public                            an exercise price
                                                            offering                                          of $9.075 per
                                                                                                              share
7/31/97          warrants to purchase         100,000       consulting services                  4(2)         exercisable from
                 Common Stock                                                                                 1/25/98 to 1/24/01
                                                                                                              at an exercise price
                                                                                                              of $7.00 per share

11/10/97         options to purchase          405,000       options granted - no                 4(2)         exercisable for
                 Common Stock                               consideration received by                         five years from
                 granted to employees                       Company until exercise                            date of vesting at
                                                                                                              an exercise price
                                                                                                              of $6.4375
11/11/97         options to purchase           7,500        options granted - no                 4(2)         exercisable for
                 Common Stock                               consideration received by                         five years from
                 granted to employee                        the Company until exercise                        date of vesting at
                                                                                                              an exercise price
                                                                                                              of $6.50 per share
</TABLE>


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

             The following  discussion  should be read in  conjunction  with the
Company's  Consolidated  Financial  Statements,  including  the  Notes  thereto,
appearing  elsewhere  in this Report.  The  discussions  of results,  causes and
trends  should not be  construed  to imply any  conclusion  that such results or
trends will necessarily continue in the future.

Safe Harbor Cautionary Statement

             The Company occasionally makes  forward-looking  statements such as
forecasts and  projections of expected  future  performance or statements of its
plan and  objectives.  When used in this  Report  and in future  filings  by the
Company with the  Securities  and  Exchange  Commission  ("Commission"),  in the
Company's  press  releases and in oral  statements  made with the approval of an
authorized  executive officer of the Company,  the words or phrases "will likely
result," "the Company expects," "will continue," "is anticipated,"  "estimated,"
"project," or "outlook" or similar  expressions  (including  confirmations by an
authorized  executive  officer of the Company of any such  expressions made by a
third   party  with   respect  to  the   Company)   are   intended  to  identify
forward-looking   statements  within  the  meaning  of  the  Private  Securities
Litigation  Reform Act of 1995.  The  Company  wishes to caution  readers not to
place  undue reliance  on  any such  forward-looking  statements, each of which
speak only as of the date made. Such statements are subject to certain risks and
uncertainties  that  could  cause  actual  results  to  differ  materially  from

                                       14

<PAGE>


historical  earnings and those  presently  anticipated or projected.  For a more
detailed discussion of these and other risks, reference is made to the Company's
prospectus dated July 9, 1997.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

             Net sales for 1997 were  $18,234,640,  compared to $12,121,365  for
1996.  Net  sales  of  traditional  cards  sold  through  retail  and  wholesale
distribution  programs  were  approximately  $16,047,000  in 1997,  compared  to
approximately  $9,643,000  in 1996.  Net  sales of  promotional  cards and other
services   decreased   slightly  to   approximately   $2,188,000  in  1997  from
approximately  $2,478,000  in 1996.  The primary  reason for the increase in net
sales and  shift in sales mix was the  Company's  aggressive  pursuit  of retail
programs, which offered reduced per minute charges to consumers.

             The Company's gross margins  decreased to 11% for 1997 from 34% for
the  comparable  period in the prior year. The decrease in margins was primarily
the result of an increase in the sale of cards with reduced  per-minute rates to
consumers.  In  addition,  margins  were  negatively  impacted by  approximately
$700,000  due to the  disposal of  inventory  and  deferred  costs  related to a
product  realignment  which will  enable the  Company to have a more  consistent
product and marketing  focus. The Company believes that the higher sales volumes
in 1997 will enable it to  negotiate  better rates with its carriers and improve
margins in future periods.  However,  due to the highly price competitive nature
of prepaid phone cards,  there can be no assurance that any reduction in carrier
costs  will  result  in higher  margins  as such  reductions  may be offset by a
corresponding decrease in the per-minute charges to consumers.

             Selling  and  marketing  expenses  remained  relatively   constant,
decreasing slightly from $3,190,226 in 1997 from $3,355,778 in 1996. Selling and
marketing  expenses as a percentage  of sales  decreased to 18% of sales in 1997
from 28% of sales in 1996.  The decrease as a percentage  of sales was primarily
the result of the  Company's  strategy of utilizing  distributors  to market the
Company's  phone cards to retail  establishments  without  increasing  its sales
force.

             General and administrative  expenses remained relatively  constant,
increasing  to  $6,450,280  in 1997  from  $5,870,358  in  1996.  However,  as a
percentage of sales,  general and  administrative  expenses  decreased to 35% of
sales in 1997 from 48% in 1996. The Company  believes that in the future general
and  administrative  expenses  should not  increase  in the same  proportion  as
increases in sales volumes.

             Depreciation and amortization  increased to $2,037,222 in 1997 from
$1,427,296 in 1996, primarily due to the acquisition of additional switching and
computer equipment.

             In 1997,  the Company  recorded a $1,500,606  restructuring  charge
related to the closing of its retail  store  operations,  a  modification  of an
employment  agreement with the former Chief Executive Officer of the Company and
the  discontinuance  of  technology-based  equipment.  The decision to close its
retail store  operations was to allow the Company to concentrate  its efforts on
its core distribution  outlets.  The disposal of equipment was primarily related
to an equipment  realignment,  which will enable the Company to work with a more
defined and  consistent  technology  base.  The Company does not expect that the
closing of its retail store  operations  will have a material  adverse effect on
future operating results.

             Following  the Global Link  Merger,  the  Company  has  experienced
significant  net losses  and  negative  cash flow from  operations  and  current
projections indicate that this trend is expected to continue for the foreseeable
future.  As a result,  in the fourth quarter of 1997,  the Company  reviewed the
recoverability  of the  carrying  amount of the  goodwill  from the Global  Link
Merger.  In  accordance  with  the  Company's  accounting  policy,  this  review
encompassed the preparation and review of projections of undiscounted cash flows
(covering the remaining goodwill  amortization period as of December 31, 1997, a
period of approximately  13 years).  This review resulted in the conclusion than
an impairment loss of $13,228,154 should be recognized to reduce goodwill to its
estimated fair value at December 31, 1997.

             The  assessment  of  goodwill  recoverability,   which  is  heavily
dependent  on projected  financial  information  and the  goodwill  amortization
period,  are  significant  accounting  estimates as contemplated by the American
Institute  of  Certified  Public   Accountants'   Statement  of  Position  94-6,
"Disclosure  of  Certain  Significant  Risks and  Uncertainties."  Further,  the
Company  operates  in an  industry  which  is  rapidly  evolving  and  extremely
competitive.  It is reasonably possible that the Company's  accounting estimates
with respect to the useful life and ultimate  recoverability  of goodwill  could
change in the near term and that the  effect of such  changes  on the  financial
statements  could  be  material. While  management  currently  believes that the

                                       15

<PAGE>


recorded amount of goodwill is appropriate at December 31, 1997, there can be no
assurance that the Company's future results will confirm this assessment or that
an  additional  write-down  or write-off of goodwill will not be required in the
future.

             Investment and interest  income  increased to $253,989 in 1997 from
$73,834 in 1996,  primarily due to interest  earned on the net proceeds from the
Company's public offering consummated in July 1997 ("July 1997 Offering").

             Interest  expense for 1997 increased to $1,368,307 from $395,674 in
1996,  primarily as a result of the  amortization  of the unearned  discount and
deferred  financing  costs  ($910,857  in 1997  compared  to  $85,819  in  1996)
associated with the issuance of notes payable pursuant to the private  placement
consummated by the Company in December 1996 ("December 1996 Private Placement").

             For the  foregoing  reasons,  the  Company  incurred  a net loss of
$25,535,939 for 1997, compared to a net loss of $6,920,222 for 1996.

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

             Net sales for 1996 were  $12,121,365,  compared to  $3,144,350  for
1995, an increase of  $8,977,015,  or 285.5 %.  Approximately  $8,137,000 of the
total 1996 net sales were derived from Global Link, whose operating results were
consolidated  with the  Company's  commencing  on March 1,  1996.  Net  sales of
traditional  phone cards were  $9,643,000  for 1996,  compared to $1,085,000 for
1995, an increase of approximately  $8,558,000,  or 788.8%.  Net sales generated
from the sale of promotional  cards,  other retail  products  utilizing  prepaid
phone card technology and other services during 1996 were  $2,478,000,  compared
to $2,059,000 in 1995, an increase of $419,000,  or 20.3%.  The Company's  gross
margins increased to 33.5% of net sales for 1996,  compared to 8.0% of net sales
for the prior year. The increase in the gross margin was primarily a result of a
decrease  in  transmission  costs as a  percentage  of sales and a  decrease  in
production  costs as a percentage of sales.  The decrease in transmission  costs
was primarily  attributable to volume discounts,  which were negotiated with the
Company's carriers based upon a substantial increase in the minutes of use.

             Selling and marketing expenses were $3,355,778 (27.7% of net sales)
for 1996,  compared to $1,332,348  (42.4% of net sales) for 1995.  Approximately
$1,125,000  of the  increase  was due to  increased  salaries  and  benefits  of
marketing  and sales  personnel.  Additionally,  approximately  $161,000  of the
increase was due to additional travel expenses,  $173,000 to commissions paid to
independent third party distributors,  sales agents and brokers, and $345,000 to
an increase in the provision for uncollectible accounts receivable, all of which
increased as a result of the significant increase in net sales.

             General and  administrative  expenses were $5,883,858 (48.5% of net
sales) for 1996,  compared  to  $2,041,010  (64.9% of net  sales) for 1995.  The
increase  consists of approximately  $1,294,000 in salaries and related benefits
of  other  additional  personnel  which  make up the  Company's  infrastructure,
including  accounting,  legal,  customer  service and  support  and  information
technology  personnel;  approximately  $407,000 of  additional  amortization  of
deferred   compensation  costs  with  respect  to  warrants  issued  to  outside
consultants; approximately $632,000 in rent costs; approximately $192,000 due to
the write-off of the remaining net assets of certain retail phone centers closed
or  scheduled  to close in 1997;  $150,000 in  severance  to be paid to a former
officer;  and $343,000 due to the write-off of convertible  notes receivable and
accrued interest thereon.

             Depreciation  and amortization  expense  increased by approximately
$1,387,000,  primarily  due  to  the  amortization  of  goodwill  of  $1,061,000
resulting  from  the  Global  Link  Merger  and the  acquisition  of  additional
switching equipment.

             Investment and  interest  income  was $73,834 for 1996, compared to
$192,482 for 1995.  The  decrease of $118,648 was a result of lower  balances of
cash and cash equivalents on hand.

             Interest  expense for 1996  increased to $395,674 from $0 for 1995,
as a result of interest on $2,800,000 of  convertible  debentures  ("Convertible
Debentures") and amounts due to Peoples  Telephone  Company,  Inc.  ("Peoples"),
interest  expense  on  capital  lease  obligations  recorded  in  1996  and  the
amortization of the unearned  discount and deferred  financing costs relating to
the issuance of notes payable pursuant to the December 1996 Private Placement.

             For the  foregoing  reasons,  the  Company  incurred  a net loss of
$6,920,222 for 1996, compared to a net loss of $2,970,121 for 1995.


                                       16

<PAGE>

Liquidity and Capital Resources

             At December 31, 1997, the Company had cash and cash  equivalents of
$7,867,566  and  working  capital  of  $620,937,   compared  to  cash  and  cash
equivalents  of  $1,352,322  and a working  capital  deficit  of  $5,630,385  at
December 31, 1996.

             Net cash used in operating  activities  for the year ended December
31, 1997 of  $7,349,567  was  primarily  due to the Company's net loss offset by
non-cash items  aggregating  $17,562,678 such as depreciation and  amortization,
financing  costs  and  impairment  of  goodwill.  Net  cash  used  in  investing
activities for the year ended December 31, 1997 consisted of $859,496 of capital
expenditures.  These  uses  were  primarily  funded  from  the net  proceeds  of
$13,325,731  from the July 1997 Offering and the net proceeds of $2,500,000 from
the exercise of warrants in April 1997.

             In  connection  with the Global Link  Merger,  the Company  assumed
$2,800,000 aggregate principal amount of Convertible  Debentures.  $1,400,000 of
the  Convertible  Debentures are due and payable on June 23, 1999 and $1,400,000
of the  Convertible  Debentures  are due and payable on September 14, 1999.  The
Convertible  Debentures  are  secured  by a first  lien on all of the  assets of
Global Link. The Convertible  Debentures bear interest at 6% per annum,  payable
on May 31st and November  30th of each year.  At the option of the holders,  the
Convertible  Debentures are immediately due and payable upon a change in control
of  Global  Link.  The  principal  amount  of  the  Convertible   Debentures  is
convertible at the option of the holders at any time into shares of Common Stock
at a conversion  price of $9.264 per share.  The Company may force conversion if
certain  conditions are met. During the year ended December 31, 1997, there were
$2,599,750 aggregate principal amount of Convertible Debentures.

             In December 1996,  the Company  completed the December 1996 Private
Placement,  pursuant to which the Company  derived gross  proceeds of $3,000,000
through the sale of $3,000,000 of promissory  notes  ("December 1996 Notes") and
warrants  to  purchase   1,000,000   shares  of  Common  Stock  ("December  1996
Warrants").  The December  1996 Notes are payable on the earlier of November 27,
1998 and the date on which the Company  undergoes  a change of  control.  If the
December 1996 Notes are not paid upon maturity,  the outstanding  principal will
begin to accrue  interest  at the rate of 12% per annum  and the  principal  and
accrued interest will become convertible into Common Stock, at the option of the
holders.

             In February 1998, the Company  acquired,  through a merger,  all of
the  outstanding  capital  stock of NATW for a purchase  price  comprised of (i)
$2,000,000  in cash,  (ii) an  aggregate  of 505,618  shares of Common Stock and
(iii) $1,000,000  aggregate principal amount of promissory notes ("NATW Notes"),
secured  by  substantially  all of the  assets of NATW.  The NATW  Notes  accrue
interest at the rate of 6% per annum and are payable as follows: (i) one-half of
principal and interest  accrued  thereon on November 1, 1998 and (ii) four equal
payments of $125,000,  plus interest accrued thereon,  on April 1, 1999, July 1,
1999,  October 1, 1999 and  January 1, 2000.  In  addition,  the  Company may be
required to pay an  additional  $2,000,000 in  consideration  to one of the NATW
stockholders if certain financial objectives are achieved.

             Also in February 1998, the Company acquired,  through a merger, all
of the  outstanding  capital stock of CCI for a purchase price  comprised of (i)
$1,500,000 in cash,  (ii) 401,284  shares of Common Stock and (iii) a $1,000,000
aggregate   principal   amount   promissory   note  ("CCI  Note"),   secured  by
substantially  all of the assets of CCI.  The CCI Note  accrues  interest at the
rate of 8% per annum and is payable  as  follows:  (i)  $250,000  plus  interest
accrued thereon on October 31, 1998, (ii) $250,000 plus interest accrued thereon
on January 1, 1999 and (iii) four equal  payments  of  $125,000,  plus  interest
accrued thereon,  on April 1, 1999, July 1, 1999, October 1, 1999 and January 1,
2000.

             In February  1998,  Access  Telecom,  a provider  of long  distance
services  to each of NATW and CCI  prior to and after  the  respective  mergers,
ceased  providing  such  services to the prepaid phone cards that it had sold to
each of NATW and CCI, despite  receiving  payment for  substantially  all of the
phone cards.  In order to meet consumer  obligations,  the Company was forced to
purchase  approximately  $1,400,000  of  telecommunications  services from other
carriers through March 31, 1998. Additional payments may be required as a result
of this  situation.  The Company is pursuing  recovery of all losses from Access
Telecom. See "Legal Proceedings."

             In April 1998, the Company  completed a private  placement  ("April
1998 Private Placement"), pursuant to which the Company received net proceeds of
approximately   $1,100,000   through  the  sale  of  $1,250,000  of  convertible
subordinated  promissory  notes  ("April 1998 Notes") and warrants  ("April 1998
Warrants") to purchase  178,571 shares of Common Stock.  The April 1998 Warrants
are  exercisable  at a price equal to the lesser of: (i) $7.00 or (ii) the price

                                       17

<PAGE>


per  share at which  the  Company  issues  Common  Stock in a  transaction  with
aggregate  gross proceeds of $4,000,000  ("Qualified  Private  Placement").  The
April 1998  Warrants  are  exercisable  until April  2001.  The April 1998 Notes
accrue  interest  at the rate of 10% per annum and are payable on the earlier of
January 15, 1999 and the date of the closing of a Qualified  Private  Placement.
The  holders  have the right at any time to  convert  all or any  portion of the
April  1998  Notes  into the  number of shares of  Common  Stock  determined  by
dividing the unpaid  principal  amount of the April 1998 Notes by the lesser of:
(i) $7.00 or (ii) the per share  purchase  price being paid by the purchasers in
the Qualified Private Placement.

             In April 1998, certain holders of the December 1996 Notes agreed to
allow the  Company to defer  repayment  of an  aggregate  of  $2,400,000  of the
December 1996 Notes from November 1998 to January 1999. In addition,  subsequent
to the NATW and CCI  acquisitions,  the sellers  agreed to defer an aggregate of
$1,250,000 originally payable in 1998 under the agreements to January 1999.

             In April  1998,  the  Company  entered  into an  agreement  with an
investor,  pursuant to which the investor has agreed to acquire up to $2,000,000
of Common Stock or other securities  ("$2,000,000  Commitment") at a discount to
the market  price of such  securities.  The Company can require the  investor to
acquire the  securities on thirty days' written  notice until December 31, 1998.
In consideration  thereof,  the Company issued the investor warrants to purchase
100,000  shares of Common  Stock at an  exercise  price of $7.50 per share.  The
warrants are immediately exercisable and will remain exercisable until April 13,
2001.

             The Company incurred  significant net losses and negative cash flow
from  operations  during 1996 and 1997. Due in part to the  acquisitions of NATW
and CCI, and a continuation of negative cash flow from operations  through March
31, 1998,  the  Company's  cash balance has declined to less than  $1,000,000 at
March 31, 1998.  Further,  management's  current  projections  indicate that the
Company will continue to generate  operating  losses and negative cash flow from
operations  through  1998,  making it necessary for the Company to raise capital
during 1998 in order to satisfy its  obligations  as they come due. To that end,
the Company  completed  the April 1998 Private  Placement  which  generated  net
proceeds of approximately $1,100,000 and has obtained the $2,000,000 Commitment.
In  addition,  the Company  has  obtained  loan  payment  deferrals  aggregating
$3,650,000.  The Company  believes that the proceeds from the April 1998 Private
Placement and the $2,000,000 Commitment,  together with the loan deferrals, will
enable the Company to meet its obligations  through the end of 1998. The Company
does not have any other  arrangements with respect to, or sources of, additional
financing  and there  can be no  assurance  that  additional  financing  will be
available  to the  Company on  commercially  reasonable  terms,  or at all.  The
failure to obtain such  financing  could have a material  adverse  effect on the
Company.

             At  December  31,  1997,   the  Company  had  net  operating   loss
carryforwards ("NOLs") aggregating approximately $20,846,000 available to offset
future taxable income.  Under Section 382 of the Internal  Revenue Code of 1986,
as amended (the "Code"), utilization of prior NOLs is limited after an ownership
change, as defined in this section,  to an amount equal to the value of the loss
corporation's  outstanding  stock  immediately  before the date of the ownership
change, multiplied by the federal long-term tax-exempt rate in effect during the
month that the ownership change occurred.  The Company is subject to limitations
on the use of its NOLs as provided under Section 382. Accordingly,  there can be
no assurance that a significant  amount of existing NOLs will be utilized by the
Company.

Year 2000 Compliance

             The  Company  is in  the  process  of  evaluating  the  effects  of
modifying its computer  software systems to accommodate year 2000  transactions.
The Company has not determined the costs of such  modifications  and these costs
could have a material adverse effect on the Company's financial position.



                                       18

<PAGE>



ITEM 7.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   Index to Consolidated Financial Statements

Global Telecommunication Solutions, Inc.

    Independent Auditors' Report........................................  F-1

    Consolidated Balance Sheets at December 31, 1997 and 1996...........  F-2

    Consolidated Statements of Operations for the Years ended 
     December 31, 1997 and 1996.........................................  F-3

    Consolidated Statements of Stockholders' Equity for the 
     Years ended December 31, 1997 and 1996.............................  F-4

    Consolidated Statements of Cash Flows for the Years ended 
     December 31, 1997 and 1996.........................................  F-5

    Notes to Consolidated Financial Statements..........................  F-6


                                       19

     

<PAGE>


                          Independent Auditors' Report





The Board of Directors and Stockholders
Global Telecommunication Solutions, Inc.:

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

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

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


                                                           KPMG Peat Marwick LLP

March 31, 1998, except for the fourth and fifth paragraphs of note 16, which are
   as of April 8 and April 13, 1998, respectively

Philadelphia, Pennsylvania



                                       F-1

<PAGE>

           GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                             December 31,
                                                            --------------
                                                            1997        1996
                                                        -----------  ----------
<S>                                                    <C>           <C>  
                                     Assets
Current assets:
  Cash and cash equivalents                             $ 7,867,566 $ 1,352,322
  Accounts receivable, net of reserve for 
   doubtful accounts of $570,000 and $399,000             2,636,878   2,450,119
  Inventories                                               174,112     202,129
  Deferred costs                                             32,764   1,127,887
  Prepaid expenses                                          160,935     260,272
                                                        -----------  ---------- 
     Total current assets                                10,872,255   5,392,729
                                                        -----------  ----------

Goodwill, net                                             3,516,344  18,008,599
Property and equipment, net                               1,485,348   1,948,917
Other assets, net                                           378,911     469,120
                                                        -----------  ----------    
     Total assets                                       $16,252,858 $25,819,365
                                                        =========== ===========

                      Liabilities and Stockholders' Equity

Current liabilities:
  Accounts payable                                      $ 2,199,134 $ 3,238,666
  Accrued expenses                                        2,165,986     542,965
  Deferred revenues                                       1,677,615   4,431,309
  Estimated sales and excise tax liability                3,663,285   1,684,478
  Amounts payable to affiliate                               --       1,073,921
  Notes payable, current                                    450,000       --
  Capital lease obligation, current                          95,298      51,775
                                                       ------------ -----------
     Total current liabilities                           10,251,318  11,023,114
                                                       ------------ -----------

Notes payable, net of unearned discount of 
 $713,018 and $1,484,040                                  1,886,982   1,565,960
Convertible notes payable                                 2,599,750   2,800,000
Capital lease obligation, long-term                          --          42,002
                                                       ------------  ----------
     Total liabilities                                   14,738,050  15,431,076
                                                       ------------  ----------

Commitments and contingencies (Notes 5,12,14 and 16)

Stockholders' equity
  Preferred stock - $.01 par value, authorized 
    1,000,000 shares; none issued and outstanding             --          --
  Common stock, $.01 par value, authorized 35,000,000 
    shares; issued and outstanding 5,084,870 
    and 1,837,601                                           50,848       18,376
  Additional paid in capital                            39,689,698   22,990,766
  Accumulated deficit                                  (37,942,443) (12,406,504)
  Deferred compensation                                   (294,650)    (102,498)
  Cumulative foreign currency translation adjustment        11,355      (11,851)
  Common stock note receivable                              --         (100,000)
                                                       ----------- ------------
     Total stockholders' equity                          1,514,808   10,388,289
                                                       ----------- ------------
     Total liabilities and stockholders' equity        $16,252,858  $25,819,365
                                                       =========== ============
</TABLE>

        The accompanying notes are an integral part of these statements

                                      F-2



<PAGE>
           GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>

                                                          Year Ended
                                                          December 31,
                                                        -----------------
                                                         1997         1996
                                                       -----------  -----------
<S>                                                    <C>          <C>        
Net sales                                              $18,234,640  $12,121,365
Cost of sales                                           16,249,773    8,066,315
                                                       -----------  -----------

  Gross profit                                           1,984,867    4,055,050
                                                       -----------  -----------

Selling and marketing expenses                           3,190,226    3,355,778
General and administrative expenses                      6,450,280    5,870,358
Depreciation and amortization                            2,037,222    1,427,296
Restructuring charge                                     1,500,606       --
Goodwill impairment (note 3)                            13,228,154       --
                                                       -----------  -----------

       Operating loss                                  (24,421,621) (6,598,382)
                                                       ------------ -----------

Interest income                                            253,989      73,834
Interest expense                                         1,368,307     395,674
                                                       ------------ -----------

      Loss before income taxes                         (25,535,939) (6,920,222)

Income taxes                                                --           --
                                                       ------------ -----------

Net loss                                              $(25,535,939)$(6,920,222)
                                                      ============ ============

Basic and diluted loss per share                      $      (7.47)$     (4.14)
                                                      ============ ============

Weighted average shares outstanding - basic 
    and diluted                                          3,418,724   1,670,755
                                                      ============ ============
</TABLE>

        The accompanying notes are an integral part of these statements

                                      F-3

<PAGE>

           GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 

<TABLE>
<CAPTION>
                                                                                                         Cumulative        
                                   Common  Stock                                                         foreign
                                ------------------  Additional                 Deferred     Common       currency
                                                      paid-in     Accumulated   Compen-     stock note   translation
                                Shares     Amount     capital       deficit     sation      receivable   adjustment      Total
                               ---------  --------    --------   -------------  ----------  ----------   ------------   -----------
<S>                <C>         <C>        <C>      <C>          <C>             <C>         <C>         <C>           <C>
Balance at January 1, 1996     1,047,226  $10,472  $ 7,329,729  $ (5,486,282)   $(197,165)      --      $   --        $ 1,656,754

Issuance of common stock in
  connection with merger         590,375    5,904   11,033,584          --          --       (100,000)      --         10,939,488
Deferred compensation from
  stock options and warrants        --       --        400,000          --       (400,000)       --         --             --
Issuance of common stock and
  warrants                       200,000    2,000    2,609,569          --          --           --         --          2,611,569

Issuance of warrants                --       --      1,617,884          --          --           --         --          1,617,884
Amortization of deferred
  compensation                      --       --           --            --        494,667        --         --            494,667
Foreign currency translation        --       --           --            --          --           --     (11,851)          (11,851)
Net loss                            --       --           --      (6,920,222)       --           --         --         (6,920,222)
                               ---------  -------  -----------  -------------  ----------  ---------  ---------     --------------

Balance at December 31, 1996   1,837,601   18,376   22,990,766   (12,406,504)   (102,498)   (100,000)   (11,851)       10,388,289

Issuance of common stock in
  public stock offering        2,875,000   28,750   13,296,981          --          --          --          --         13,325,731
Exercise of warrants             333,334    3,333    2,496,667          --          --          --          --          2,500,000
Conversion of notes payable       21,615      216      200,034          --          --          --          --            200,250
Exercise of options               10,190      102        8,673          --          --          --          --              8,775
Deferred compensation         
  from grant of stock options       --       --        151,648          --      (151,648)       --          --              --
Issuance of common stock
  as compensation                  7,130       71       49,929          --          --          --          --             50,000
Amortization of deferred
  compensation                      --       --           --            --       309,496        --          --            309,496
Deferred compensation
  from issuance of warrants         --       --        350,000          --      (350,000)       --          --             --
Issuance of stock options
  as compensation                   --       --        145,000          --          --         --           --            145,000
Forgiveness of common stock
  note receivable                   --       --           --            --          --      100,000         --            100,000
Foreign currency translation        --       --                         --          --         --        23,206            23,206
Net loss                            --       --           --     (25,535,939)       --         --           --        (25,535,939)
                               ---------  -------  -----------  -------------  ----------  ---------  ---------     --------------
Balance at December 31, 1997   5,084,870  $50,848  $39,689,698  $(37,942,443)  $(294,650)  $   --      $ 11,355      $  1,514,808
                               =========  =======  ===========  =============  ==========  ========   =========      =============
</TABLE>

        The accompanying notes are an integral part of these statements

                                      F-4



<PAGE>

           GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                          Year ended
                                                          December 31,
                                                   ---------------------------
                                                       1997           1996
                                                   -----------   -------------
<S>                                               <C>             <C>
Operating activities:
Net loss                                           (25,535,939)   $(6,920,222)
Adjustment to reconcile net loss to net cash 
  used in operating activities: 
  Depreciation and amortization                      2,037,222      1,427,296
  Provision for bad debt                               171,000        234,000
  Amortization of deferred compensation                309,496        494,667
  Amortization of unearned discount                    771,022         58,004
  Amortization of deferred financing charges           139,835         27,815
  Issuance of stock as compensation                     50,000           --
  Issuance of stock options as compensation            145,000           --
  Forgiveness of common stock receivable               100,000           --
  Loss on disposal of fixed assets                     610,949           --
  Write-off of convertible notes receivable and 
   accrued interest                                      --          343,000
  Goodwill impairment                               13,228,154           --
Changes in operating assets and liabilities, 
  net of effect of acquisitions:
  Accounts receivable                                 (357,759)    1,780,565
  Inventories                                           28,017        76,745
  Deferred costs                                     1,095,123       108,085
  Prepaid expenses                                      99,337       231,836
  Other assets                                         (49,626)       33,755
  Accounts payable                                  (1,039,532)     (923,342)
  Accrued expenses                                   1,623,021      (450,989)
  Deferred revenues                                 (2,753,694)   (1,080,746)
  Sales and excise taxes payable                     1,978,807       957,847
                                                    -----------  -------------
     Net cash used by operating activities          (7,349,567)   (3,601,684)
                                                    -----------  -------------
Investing activities:
  Purchases of fixed assets                          (859,496)      (347,983)
  Cash acquired in excess of cash payments 
   for acquisition                                       --          160,190
                                                    -----------  -------------
     Net cash used in investing activities           (859,496)      (187,793)
                                                    -----------  -------------
Financing activities:
  Proceeds from issuance of common stock           13,325,731      2,611,569
  Proceeds from issuance of promissory notes 
   and warrants                                       --           2,850,000
  Proceeds from the exercise of warrants            2,500,000          --
  Proceeds from exercise of options                     8,775          --
  Payments to affiliates                           (1,073,921)      (930,707)
  Increase in notes receivable from Global 
    Link prior to merger                               --           (250,655)
  Payments on capital lease obligations               (59,484)       (55,073)
                                                    -----------  -------------
     Net cash provided by financing activities     14,701,101      4,225,134
                                                    -----------  -------------
     Effects of exchange rates on cash                 23,206        (11,851)
                                                    -----------  -------------
     Net increase in cash                           6,515,244        423,806
Cash and cash equivalents, beginning of period      1,352,322        928,516
                                                    -----------  -------------
Cash and cash equivalents, end of period           $7,867,566     $1,352,322
                                                   ============  =============
</TABLE>
        The accompanying notes are an integral part of these statements

                                      F-5



<PAGE>
           GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (continued)
<TABLE>
<CAPTION>
                                                          Year ended
                                                          December 31,
                                                   ---------------------------
                                                       1997           1996
                                                   -----------   -------------
<S>                                               <C>             <C>

Supplemental disclosures:
  Cash paid for interest                           $  163,185    $   134,999
                                                   ============  =============
  Capital leases                                   $   61,005    $   148,850
                                                   ============  =============
  Deferred compensation relating to options 
   and warrants                                    $  501,648    $   400,000
                                                   ============  =============
  Conversion of convertible notes payable 
   into common stock                               $  200,250    $     --
                                                   ============  =============
  Issuance of stock as compensation                $   50,000    $     --
                                                   ============  =============
  Issuance of stock options as compensation        $  145,000    $     --
                                                   ============  =============
  Forgiveness of common stock receivable           $  100,000    $     --
                                                   ============  =============
  Issuance of common stock in connection 
    with acquisition                               $   --        $11,039,488
                                                   ============  =============
  Issuance of notes payable in payment for 
    legal fees                                     $   --        $    50,000
                                                   ============  =============
  Issuance of notes payable and warrants 
    in private placement                           $   --        $ 1,617,884
                                                   ============  =============
  Exchange of notes receivable for property 
    and equipment                                  $   --        $    64,000
                                                   ============  =============

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

                                     
<PAGE>




            GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1997 and 1996

(1)      Business

         Global   Telecommunication   Solutions,   Inc.  (the   "Company")   was
         incorporated  on December 23, 1992 and is engaged in the  marketing and
         distribution of prepaid phone cards.  The Company's phone cards provide
         consumers  access  to long  distance  services  through  its  switching
         facilities and long distance network arrangements.

         The  majority of the  Company's  customers  are retail  establishments,
         distributors  and businesses which sell the phone cards to the ultimate
         user,  or which  acquire the  Company's  phone  cards to promote  their
         business or products.

(2)      Summary of Significant Accounting Policies

         Principles of Consolidation

         The consolidated  financial statements include the financial statements
         of the  Company  and its wholly  owned  subsidiaries.  All  significant
         intercompany   balances  and  transactions   have  been  eliminated  in
         consolidation.

         Use of Estimates

         Management   of  the  Company  has  made  a  number  of  estimates  and
         assumptions  relating  to the  reporting  of  assets  and  liabilities,
         revenue  and  expenses  and the  disclosure  of  contingent  assets and
         liabilities  to prepare  these  consolidated  financial  statements  in
         conformity  with  generally  accepted  accounting  principles.   Actual
         results could differ from those estimates.

         Revenue and Cost Recognition

         Substantially  all the  prepaid  phone  cards sold by the  Company  are
         non-refundable  and  have  expiration  dates  ranging  from  twelve  to
         eighteen  months after issuance or six to twelve months after last use.
         The Company records the net sales price as deferred  revenue when cards
         are sold and  recognizes  revenue  as the  ultimate  consumer  utilizes
         calling time or, in the case of promotional phone card programs, during
         the period the program is executed. Deferred revenue relating to unused
         calling  time  remaining at each card's  expiration  is  recognized  as
         revenue upon the expiration of such card.

         The Company's primary costs of its prepaid phone cards include the cost
         of long distance  carrier services and the design and production of the
         cards.  Costs are expensed as  incurred,  except the cost of design and
         production  of the card and any prepaid long  distance  carrier  costs,
         which are  included in  deferred  costs and  expensed  when the related
         revenue is recognized.

         Cash and Cash Equivalents

         Cash and cash equivalents  consist of highly liquid investments with an
         original maturity date of three months or less.

                                       F-6

<PAGE>


            GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)



         Inventory

         Inventory  consists of phone card production and packaging costs and is
         stated at the lower of cost or market,  with cost determined  using the
         average cost method.

         Goodwill

         Goodwill  represents the  unamortized  excess of the cost over the fair
         values of the net  assets  acquired  in the  Global  Link  acquisition.
         Amortization  expense was computed using the straight-line  method over
         15  years.  The  Company   periodically   reviews  goodwill  to  assess
         recoverability  and this analysis  resulted in an impairment  charge of
         $13,228,154 in the fourth  quarter of 1997.  (See Note 3) The Company's
         policy  is  to  evaluate  the   recoverability  of  goodwill  based  on
         forecasted undiscounted cash flows from operations.

         Property and Equipment

         Property and equipment are recorded at cost and  depreciated  using the
         straight-line  method over the estimated useful lives of the respective
         assets.  Expenditures  for  maintenance  and  repairs  are  charged  to
         operations as incurred.

         The  estimated useful lives used in computing  depreciation of property
         and equipment are as follows:

         Furniture and fixtures                                       5 years
         Machinery and equipment                                      3 years
         Computers, telecommunication switches and office equipment   3 years
         Vehicles                                                     5 years

         Assets  held  under  capital  leases  and  leasehold  improvements  are
         amortized over the lives of the respective leases or the useful life of
         the improvements,  whichever is shorter. During the year ended December
         31,  1997 the  estimated  useful  lives of  certain  types of  property
         equipment  were changed.  The change did not have a material  impact on
         the results of operations.

         Other Assets

         Other assets consist primarily of deposits and deferred financing fees.
         Amortization  expense of these fees to interest  expense  was  computed
         using the straight-line method over the term of the related debt, which
         approximates the effective interest method.

         Income Taxes

         Income taxes are accounted  for under the asset and  liability  method.
         Deferred tax assets and  liabilities  are recognized for the future tax
         consequences   attributable   to  differences   between  the  financial
         statement  carrying  amounts of existing assets and liability and their
         respective tax bases.  Deferred tax assets and liabilities are measured
         using  enacted  tax rates  expected  to apply to taxable  income in the
         years in which those temporary differences are expected to be recovered
         or settled.  The effect on  deferred  tax assets and  liabilities  of a
         change in tax rates is recognized in income in the period that includes
         the enactment date.

                                       F-7

<PAGE>


            GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


         Foreign Currency Translation

         Assets and liabilities of the Company's  Canadian  subsidiary have been
         translated  at rates of exchange  at the end of the  period.  Revenues,
         costs and expenses have been  translated at average  exchange  rates in
         effect during each reporting  period.  Gains and losses  resulting from
         foreign currency  transactions are included in income while translation
         adjustments  resulting  from  translation  of financial  statements are
         reported separately as a component of stockholders' equity.

         Stock Split

         In February 1997, the Board of Directors approved a one-for-three stock
         split,  which became  effective  in March 1997.  All per share data and
         references to the number of shares have been restated to give effect to
         the reverse stock split.

         Net Loss Per Share

         In February 1997 the Financial Accounting Standards Board (FASB) issued
         a new standard,  Statement of Financial  Accounting  Standards No. 128,
         Earnings  per Share (SFAS No.  128) which  specifies  the  computation,
         presentation and disclosure  requirements for earnings per share.  This
         statement  replaces the presentation of primary earnings per share with
         a   presentation   of  basic  earnings  per  share  and  requires  dual
         presentation of basic and diluted earnings per share on the face of the
         income  statement.  Restatement of earnings per share data for previous
         periods is also required.  Basic earnings  (loss) per share is computed
         by dividing  net  earnings or loss by the  weighted  average  number of
         common shares  outstanding and diluted  earnings per share gives effect
         to all dilutive  potential common shares that were  outstanding  during
         the period.  The statement was adopted for the year ended  December 31,
         1997.  Basic and diluted  net loss per share for 1997 and the  restated
         basic  and  diluted  net  loss  per  share  for  1996  were the same as
         potential  common shares of 4,058,959 and 3,358,209  respectively  were
         not included in the  calculation  of the net loss per share since their
         inclusion would be anti-dilutive.

         Stock-Based Compensation

         On January 1, 1996,  the Company  adopted SFAS No. 123,  Accounting for
         Stock-Based  Compensation,  which  permits  entities to recognize as an
         expense  over the  vesting  period  the fair  value of all  stock-based
         awards on the date of grant.  Alternatively,  SFAS No. 123 also  allows
         entities to continue to apply the  provisions of APB Opinion No. 25 and
         provide  pro  forma  net  income  and  pro  forma  earnings  per  share
         disclosures  for employee  stock option  grants made in 1995 and future
         years as if the  fair-value-based  method  defined  in SFAS No. 123 had
         been  applied.  The  Company  has  elected  to  continue  to apply  the
         provisions of APB Opinion No. 25.

         Fair Value of Financial Instruments

         The carrying amounts of accounts receivable, accounts payable and notes
         payable approximate fair value.


                                       F-8

<PAGE>


            GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


         Long-Lived Assets

         The Company adopted the provisions of SFAS No. 121,  Accounting for the
         Impairment  of  Long-Lived  Assets  and  for  Long-Lived  Assets  to be
         Disposed  Of,  on  January  1,  1996.  This  Statement   requires  that
         long-lived assets and certain identifiable  intangibles be reviewed for
         impairment  whenever events or changes in  circumstances  indicate that
         the carrying amount of an asset may not be recoverable.  Recoverability
         of  assets  to be held  and used is  measured  by a  comparison  of the
         carrying amount of an asset to future undiscounted net cash flows to be
         generated by the asset.  If such assets are  considered to be impaired,
         the  impairment to be recognized is measured by the amount of which the
         carrying  amount of the assets  exceeds  the fair value of the  assets.
         Assets to be  disposed  of are  reported  at the lower of the  carrying
         amount or fair value less costs to sell.

         New Accounting Pronouncements

         The FASB issued a new standard,  SFAS 129,  Disclosure  of  Information
         about Capital  Structure,  which  requires  certain  disclosures  about
         capital  structure.  The Company must adopt this  standard in the first
         quarter of 1998.  Implementation  of this disclosure  standard will not
         affect the Company's financial position or results of operations.

         The FASB issued a new standard,  SFAS No. 130, Reporting  Comprehensive
         Income,  which  establishes  standards  for  reporting  and  display of
         comprehensive  income and its  components in the financial  statements.
         The  Company  must adopt this  standard  in the first  quarter of 1998.
         Under the provisions of this standard,  the Company will be required to
         include a financial statement  presentation of comprehensive income and
         its  components  to  conform to these new  requirements.  Comprehensive
         income is the total of net income and all other changes in equity. As a
         consequence of this change, certain reclassifications will be necessary
         for previously reported amounts to achieve the required presentation of
         comprehensive  income.  Implementation of this disclosure standard will
         not affect the Company's financial position or results of operations.

         The FASB issued SFAS 131,  Disclosures  About Segments of an Enterprise
         and Related Information, which requires that companies disclose segment
         data based on how management makes decisions about allocating resources
         to segments and  measuring  their  performance.  The Company must adopt
         this standard in the first quarter of 1998.

         Reclassifications

         Certain  reclassifications  have been made to the prior year  financial
         statements to conform to the current year presentation.

(3)      Acquisition and Goodwill

         On February 29,1996,  pursuant to an Agreement and Plan of Merger dated
         January 18,  1996,  the  Company,  through a wholly  owned  subsidiary,
         acquired  all the  issued  and  outstanding  shares of common  stock of
         Global Link Telecom  Corporation  ("Global Link").  The acquisition was
         accounted  for as a  purchase.  Accordingly,  the  acquired  assets and
         liabilities were recorded at their estimated fair values at the date of
         acquisition and the operating results of Global Link have been included
         in the  accompanying  consolidated  statements of  operations  from the
         acquisition date.


                                       F-9

<PAGE>


            GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


         In connection  with the merger,  the Company  issued  572,773 shares of
         common stock in exchange for all of the issued and  outstanding  common
         stock of Global Link. In addition,  the Company issued 17,602 shares of
         common stock to Peoples Telephone Company, Inc. ("Peoples"), a creditor
         of Global Link and an affiliate.  The total cost of the acquisition was
         approximately  $11,400,000,   including  direct  transaction  costs  of
         approximately $344,000.

         The following  unaudited  combined pro forma  information  reflects the
         results of operations  assuming the acquisition of Global Link had been
         made on January 1, 1996.

                                                   Year Ended
                                                December 31, 1996
                                                -----------------

         Net sales                              $  13,484,000
         Net loss                                  (7,739,000)
         Net loss per share                     $       (4.38)

         Pro  forma  adjustments  include  recording   amortization  expense  on
         goodwill and the elimination of interest expense on debt of Global Link
         repaid in connection with the acquisition.

         The pro forma results of operations are not  necessarily  indicative of
         the actual  results of  operations  that  would have  occurred  had the
         purchase been made at the  beginning of the year, or of results,  which
         may occur in the future.

         The  acquisition  resulted  in  goodwill  of  $19,069,000,  based on an
         allocation of purchase price, calculated as follows:

         Fair market value of common stock issued           $ 11,040,000
         Fair value of liabilities assumed                    10,811,000
         Fair value of assets acquired                        (3,126,000)
         Acquisition related costs                               344,000
                                                           ---------------
         Goodwill                                           $ 19,069,000
                                                           ===============

         Following  the Global Link  acquisition,  the  Company has  experienced
         significant  net  losses and  negative  cash flow from  operations  and
         current projections indicate this trend is expected to continue for the
         foreseeable  future.  As a result,  in the fourth  quarter of 1997, the
         Company  reviewed  the  recoverability  of the  carrying  amount of the
         goodwill that had arisen in the Global Link acquisition.  In accordance
         with the  Company's  accounting  policy,  this review  encompassed  the
         preparation  and  review of  projections  of  undiscounted  cash  flows
         (covering the remaining goodwill amortization period as of December 31,
         1997, a period of approximately  thirteen years).  This review resulted
         in the  conclusion  that an impairment  loss of  $13,228,154  should be
         recognized to reduce  goodwill to its estimated  fair value at December
         31, 1997. The following table summarizes  changes in the net book value
         of goodwill during 1996 and 1997.

         Goodwill recorded in connection with 
           Global Link acquisition                   $ 19,069,000
         1996 amortization expense                     (1,060,401)
                                                     -------------
         Balance at December 31, 1996                  18,008,599
         1997 amortization expense                     (1,264,101)
         Impairment charge                            (13,228,154)
                                                     -------------
         Balance at December 31, 1997                $  3,516,344
                                                     =============

                                       F-10

<PAGE>


            GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

         The assessment of goodwill  recoverability,  which is heavily dependent
         on  projected  financial  information,  and the  goodwill  amortization
         period are  significant  accounting  estimates as  contemplated  by the
         American  Institute  of  Certified  Public  Accountants'  Statement  of
         Position   94-6,   Disclosure   of   Certain   Significant   Risks  and
         Uncertainties.  Further, the Company operates in an industry,  which is
         rapidly evolving and extremely  competitive.  It is reasonably possible
         that the Company's accounting estimates with respect to the useful life
         and ultimate  recoverability  of goodwill could change in the near term
         and that the effect of such changes on the financial  statements  could
         be material.  While  management  currently  believes  that the recorded
         amount of goodwill at December 31, 1997 is recoverable, there can be no
         assurance   that  the  Company's   future  results  will  confirm  this
         assessment  or that an  additional  write-down or write-off of goodwill
         will not be required in the future.

(4)      Property and Equipment

         Property and equipment consist of the following:

                                                          December 31,
                                                     1997             1996
                                                -----------      -----------
         Furniture and fixtures                 $   214,491      $   404,918
         Machinery and equipment                     56,361          218,044
         Computers and office equipment           1,700,506        1,514,262
         Leasehold improvements                     193,582          419,928
                                                -----------        ---------
                                                  2,164,940        2,557,152
         Less accumulated depreciation 
          and amortization                         (679,892)        (608,235)
                                                ------------    -------------
                                                 $1,485,348      $ 1,948,917
                                                 ==========      ===========

(5)      Estimated Sales and Excise Tax Liability

         In  November  1997,  Congress  enacted  legislation  that  specifically
         addressed the  application of Federal excise tax to the sale of prepaid
         phone cards. Accordingly,  the Company began to file Federal excise tax
         returns.  However,  the taxation of prepaid phone cards is evolving and
         is not specifically  addressed in certain state  jurisdictions in which
         the Company  does  business.  The Company has not filed any state sales
         and use tax returns nor has it remitted  any such taxes to state taxing
         authorities.  While the Company believes it has adequately provided for
         any such  taxes and  related  compliance  costs,  it is  possible  that
         certain states may enact  legislation  or interpret  current laws, in a
         manner which could result in additional tax liabilities, which could be
         material.

(6)      Amounts Payable to Affiliate

         Simultaneously with the execution of the merger agreement,  Global Link
         executed an  agreement  with  Peoples,  a  stockholder  of the Company,
         pursuant to which  Peoples  agreed to accept  $1,050,000  ($550,000  of
         which was paid on the date of the merger  with the  balance of $500,000
         payable on June 28, 1996) and 17,602 shares of GTS common stock in full
         satisfaction  of any and all  amounts  owed by Global  Link to Peoples,
         except for  $954,630  in trade  payables  (due in four equal  quarterly
         installments  commencing in January 1997).  In August 1996, the Company
         and Peoples  executed an  agreement  (the  "First  Amendment")  whereby
         Peoples  agreed  to  restructure  the  payment  terms of the  remaining
         $500,000 as follows:  $100,000  payable upon execution of the agreement
         and a monthly  payment of $33,333  beginning in November 1996 until all
         amounts including accrued interest at 8% per annum are paid.


                                       F-11
<PAGE>


            GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


         In November  1996,  the Company and Peoples  executed an agreement (the
         "Second  Amendment")  whereby Peoples agreed to restructure the payment
         terms of the  remaining  principal  balance of $366,667 at such date as
         follows:  $187,731  payable upon  execution of the  agreement  with the
         remaining  balance of $178,936 plus accrued  interest  payable in three
         monthly installments  beginning on December 27, 1996. In addition,  the
         agreement provides for certain  prepayments of the trade payable in the
         event the Company obtains additional financing or the occurrence of any
         change of control.

         In March 1997,  the Company  entered  into an  agreement  with  Peoples
         whereby  Peoples agreed not to sell or otherwise  dispose of its shares
         of the Company's common stock until June 30, 1997 ("Termination Date").
         The Company agreed that it would pay Peoples the balance of $954,630 in
         trade  payables from the proceeds of the Company's  secondary  offering
         within two days after the  consummation  of such offering.  This amount
         was paid in from the proceeds of the Company's public stock offering in
         July 1997.

(7)      Debt Obligations

         Note Payable

         In December  1996,  the  Company  completed  a private  placement  (the
         "December 1996 Private Placement") from which the Company derived gross
         proceeds of  $3,000,000  through the sale of  $3,000,000  of promissory
         notes and warrants to purchase  1,000,000 shares of common stock. Based
         on a negotiation  with the note holders,  which  occurred in 1998,  the
         notes are  payable as  follows:  $2,600,000  are due on the  earlier of
         January 15, 1999 or the date on which the Company undergoes a change of
         control;  $400,000  are due and payable on the earlier of November  27,
         1998 or the date on which the Company undergoes a change in control. If
         the notes are not paid upon maturity,  the  outstanding  principal will
         begin to accrue interest at the rate of 12% per annum and the principal
         and accrued interest will become  convertible into common stock, at the
         option of the  holders.  In  addition,  the Company  issued  $50,000 of
         notes,  which mature in November 1998, and warrants to purchase  16,667
         shares of common stock in payment of certain legal fees associated with
         the December 1996 Private Placement. The estimated fair market value of
         the warrants, as determined by independent appraisal, of $1,542,044 was
         recorded  as a  discount  and is being  amortized  over the term of the
         notes.  During the years ended December 31, 1997 and 1996, $771,022 and
         $58,004 of the discount was amortized to interest expense.

         In  connection  with the December 1996 Private  Placement,  the Company
         paid a finders fee equal to $150,000  and  warrants to purchase  50,000
         shares  of common  stock.  The  estimated  fair  market  value of these
         warrants of $75,840, along with the cash payment,  totaled $225,840 and
         was recorded as deferred  financing fees which are being amortized over
         the term of the notes.

         Convertible Notes Payable

         In connection  with the Global Link  acquisition,  the Company  assumed
         $2,800,000  aggregate  principal  amount of  convertible  debentures of
         which  $1,400,000  are due and payable on June 23, 1999 and  $1,400,000
         are due and payable on September 14, 1999. The  convertible  debentures
         are  secured  by a  first  lien  on  all  assets  of the  Company.  The
         convertible  debentures  bear interest at 6% per annum,  payable on May
         31st and November 30th of each year. At the option of the holders,  the
         convertible debentures are immediately due and payable upon a change in
         control  of  Global  Link.  The  principal  amount  of the  convertible
         debentures is convertible at the option of the holders at any time into
         shares of common stock at a conversion  price of $9.264 per share.  The
         Company  may force the  conversion  of the  convertible  debentures  if
         certain  conditions  are met.  During the year ended  December 31, 1997
         $200,250

                                       F-12

<PAGE>


            GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


         debentures  were  converted  into 21,615  shares of common  shares.  At
         December  31, 1997 the Company has  reserved  280,613  shares of common
         stock for issuance upon the conversion of the convertible debentures.

         Certain  of the  Company's  debt  agreements  contain  provisions  that
         prevent the Company from declaring or paying dividends.

(8)      Stockholders' Equity

         Proceeds from Public Stock Offering

         In July 1997, the Company sold in public offering  2,875,000  shares of
         its common stock, which, net of offering costs of $2,486,769, generated
         proceeds of $13,325,731.

         Warrants Exercised

         In April 1997 the  Company  received  $2,500,000  upon the  exercise of
         333,334 of the warrants issued in the December 1996 Private  Placement.
         As  consideration  for  exercising  such  warrants,  the Company issued
         warrants to purchase an aggregate of 250,000 shares of common stock.

         Private Placement

         In May 1996,  the  Company  sold  200,000  shares  of common  stock and
         warrants to purchase  400,000  shares of common stock through a private
         placement  for an  aggregate  of  $3,000,000  (the  "May  1996  Private
         Placement").  Costs of issuance totaled $388,431 consisting principally
         of placement  agent fees and certain  professional  fees. In connection
         with  this  private  placement,  the  Company  issued  warrants  to the
         placement  agent to  purchase up to 20,000  shares of common  stock and
         40,000 warrants.

         Deferred Compensation

         In July 1997,  the Company issued  five-year  warrants to an investment
         banker to purchase 100,000 shares of common stock in consideration  for
         consulting  services.  The  estimated  fair value of these  warrants of
         $350,000  was  recorded  as deferred  compensation  and the Company has
         recorded compensation expense related to this agreement of $145,833 for
         the year ended December 31, 1997.

         In January 1997, the Company  extended its consulting  agreements  with
         two of its  stockholders,  pursuant  to  which  the  stockholders  will
         provide consulting services to the Company for a two-year period ending
         December 1998. In consideration for these services,  the Company issued
         options to purchase  50,000 shares of common stock.  The estimated fair
         market  value of these  options of  $151,648  was  recorded as deferred
         compensation and the Company has recorded  compensation expense related
         to these agreements of $72,324 for the year ended December 31, 1997.

         In  January  1996,  the  Company  issued   five-year   warrants  to  an
         underwriter  and/or its  designees  to purchase an  aggregate of 66,667
         shares of common stock in consideration  for consulting  services.  The
         estimated  fair market value of these warrants of $400,000 was recorded
         as deferred  compensation  and the Company  has  recorded  compensation
         expense related to this agreement of $33,335 and $366,665 for the years
         ended December 31, 1997 and 1996, respectively.


                                       F-13

<PAGE>


            GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


         In April and October 1995,  the Company  issued  five-year  warrants to
         designees of the  underwriter to purchase an aggregate of 33,334 shares
         of common stock in consideration for providing the Company the right of
         first refusal to pursue any prospective acquisition target in the phone
         card industry that the underwriter  identifies  through  February 1998.
         The  estimated  fair market  value of these  warrants  of $117,000  was
         recorded as deferred  compensation and the Company has recorded expense
         related to these  agreements of $44,004 and $44,002 for the years ended
         December 31, 1997 and 1996, respectively.

         In February 1995, the Company entered into  consulting  agreements with
         two of its stockholders pursuant to which the stockholders will provide
         consulting   services  to  the  Company  for  a  two-year  period.   In
         consideration for these services the company issued options to purchase
         66,668 shares of common stock. The estimated fair market value of these
         options of  $168,000  was  recorded as  deferred  compensation  and the
         Company  recorded  compensation  expense related to these agreements of
         $14,000 and $84,000  for the years  ended  December  31, 1997 and 1996,
         respectively.

(9)      Income Taxes

         The Company had no current  Federal or state income tax  liability  for
         the  years  ended  December  31,  1997 and  1996 due to the net  losses
         recorded for those periods.

         The actual income tax expense  differs from the  "expected" tax benefit
         for 1997 and 1996,  computed by applying the U.S. Federal corporate tax
         rate of 34 percent to loss before income taxes, as follows:

                                                        1997          1996
                                                        ----          ----
         Computed "expected" tax benefit            $(8,682,219)  $(2,352,705)
         Non-deductible impairment of goodwill        4,497,572        ---
         Increase in valuation allowance (net 
          of effect of acquisition)                   4,167,823     2,421,822
         Other                                           16,824       (69,117)
                                                    -----------   ------------
                                                    $     ---     $     ---
                                                    ===========   ============

         The tax effect of temporary  differences  that give rise to significant
         portions of the deferred tax assets and  deferred  tax  liabilities  at
         December 31, 1997 and 1996 is as follows:
                                                       1997         1996
                                                       ----         ----
         Deferred tax assets:
           Benefit of net operating loss 
            carryforward                           $ 7,087,592   $ 4,816,655
           Depreciation                                156,908         ---
           Capital loss carryforward                   116,620       116,620
           Allowance for uncollectible 
            accounts receivable                        193,800       135,660
           Deferred revenue                            510,643       892,050
           Deferred compensation                       404,310       249,051
           Sales and excise tax liability            1,209,194       572,723
           Less: valuation allowance                (9,607,839)   (6,289,986)
                                                  ------------   -----------
              Net deferred tax asset                    71,228       492,773

         Deferred tax liabilities:
           Deferred costs                              (65,580)     (383,482)
           Depreciation on fixed assets                   ---        (88,492)
           Other                                        (5,648)      (20,799)
                                                  -------------  ------------
               Net deferred income taxes          $       ---    $     ---
                                                  =============  ============

                                      F-14

<PAGE>


            GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)




         In  assessing  the  realizability  of deferred  tax assets,  management
         considers  whether it is more likely than not that some  portion or the
         entire deferred tax asset will be realized. The ultimate realization of
         the  deferred  tax asset is  dependent  upon the  generation  of future
         taxable income during the periods in which temporary differences or net
         operating loss carryforwards  become deductible.  Management  considers
         scheduled  reversals  of deferred  tax  liabilities,  projected  future
         taxable income, and tax planning strategies which can be implemented by
         the  Company  in  making  this  assessment.  Based  upon the  Company's
         historical  operating  losses and  scheduled  reversal of deferred  tax
         liabilities,  the Company has  established  a  valuation  allowance  of
         approximately $9,608,000 at December 31, 1997.

         At December 31, 1997, the Company had net operating loss  carryforwards
         ("NOLs") aggregating  approximately  $20,846,000 expiring in years 2008
         through 2012.  Under Section 382 of the Internal  Revenue Code of 1986,
         as amended (the "Code"),  utilization of prior NOLs is limited after an
         ownership change, as defined in such Section 382, to an amount equal to
         the  value  of the loss  corporation's  outstanding  stock  immediately
         before the date of the  ownership  change,  multiplied  by the  federal
         long-term tax-exempt rate in effect during the month that the ownership
         change  occurred.  As a result of the Company's  acquisition  of Global
         Link and the  secondary  stock  offering  which  occurred in 1997,  the
         Company is subject to  limitations  on the use of its NOLs as  provided
         under  Section  382.  Accordingly,  there  can be no  assurance  that a
         significant amount of existing NOLs will be available to the Company.

(10)     Stock Option Plan

         The Company has reserved  500,000 shares of common stock under its 1994
         incentive and  nonqualified  stock option plan ("1994 Plan").  The 1994
         Plan authorizes the granting of stock options, restricted stock awards,
         and  deferred  stock  awards  and  stock  appreciation  rights  to  key
         employees,  officers,  directors and  consultants.  All incentive stock
         options  which will be granted by the  Company,  with the  exception of
         those options  granted to persons  holding more than ten percent of the
         voting  common  stock in the  Company on the date of grant,  expire ten
         years after grant and are issued at exercise  prices  which is not less
         than the fair  market  value of the common  stock on the date of grant.
         Incentive  options  granted to persons holding more than ten percent of
         the voting common stock of the Company on the date of grant expire five
         years after grant and are issued at exercise  prices which are not less
         than 110 percent of the fair  market  value of the stock on the date of
         grant.  Nonqualified  stock options  granted under the 1994 Plan may be
         granted at any price determined by the Board of Directors, however, the
         price may not be less than the fair market value of the common stock on
         the date of grant.  Stock options vest over a period  determined by the
         Board of Directors.  The 1994 Plan contains  certain  change in control
         provisions,  which  include  those that could  cause  options to become
         immediately exercisable.


         A summary of activity under the 1994 Plan is as follows:

                                      F-15

<PAGE>


            GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

                                                              Weighted
                                             Number           Average
                                            of Shares       Exercise Price
                                            ---------       -------------- 
         Outstanding at January 1, 1996       148,011          $15.14
         Granted                               69,014           10.54
         Canceled                             (31,170)          15.33
                                              --------
         Outstanding at December 31, 1996     185,855           13.40
                                              --------
         Granted                              224,170            7.36
         Canceled                             (21,614)           9.05
         Exercised                               (555)           7.88
                                              --------
         Outstanding at December 31, 1997     387,856          $10.16
                                              -------

         At December 31, 1997,  220,018 options were  exercisable and options to
         purchase 111,589 shares were available for future grant.

         Non-plan options:

         During  the  year  ended  December  31,  1997,   the  Company   granted
         non-qualified  options to  employees  and  officers  of the  Company to
         purchase an  aggregate  of 305,000  shares of common  stock at exercise
         prices  ranging from $6.44 to $6.56.  The options vest at various dates
         and expire  five years from date of vesting.  None of the options  were
         exercisable at December 31, 1997.

         In September  1997, in conjunction  with its consulting  agreement with
         its former chief executive officer,  the Company granted  non-qualified
         options to  purchase  50,000  shares of common  stock.  The options are
         immediately  exercisable  at $6.44 per share and expire five years form
         the date of grant.

         In July 1997, in connection  with the Company's  public stock  offering
         the Company granted to the representative of the underwriters an option
         to purchase  250,000  shares of common  stock at an  exercise  price of
         $9.08 per share.  The option is exercisable  commencing July 1998 for a
         period of four years.

         In connection with the Global Link acquisition, options and warrants to
         purchase  145,000  shares of common stock of Global Link were converted
         into options to purchase an aggregate of 36,645 shares of the Company's
         common  stock at exercise  prices  ranging  from $.40 to $7.92.  All of
         these  options  were  exercisable,  and  9,635  of these  options  were
         exercised  during the year ended December 31, 1997. Such options expire
         at various dates through 2003.

         In February 1996, the Company granted non-qualified options to purchase
         an aggregate of 58,334  shares of common stock at an exercise  price of
         $18.375  per share to officers  of the  Company.  During the year ended
         December 31, 1997,  41,667 of these options were canceled.  The options
         vest in three annual installments  commencing in February 1997 and will
         remain exercisable for a period of five years from the date of vesting.

         In April 1995, the Board of Directors  granted to certain  consultants'
         nonqualified  stock options to purchase an aggregate of 2,500 shares of
         common  stock at an exercise  price of $16.50 per share.  Such  options
         were immediately exercisable and expire five years from date of grant.

         In March 1995, the Company  granted  non-qualified  options to purchase
         33,334 shares of common stock at an exercise  price of $15.00 per share
         to a former officer of the Company. The options vest 33 1/3%

                                      F-16

<PAGE>


            GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


         per annum commencing  March 20, 1996 and will remain  exercisable for a
         period of five years from the date of vesting.

         In October  1994,  the Board of Directors  granted to certain  officers
         and/or directors  immediately  exercisable ten-year options to purchase
         25,000 shares of common stock at an exercise price of $9.99 per share.

         Summarized Information for Stock Options at December 31, 1997
<TABLE>
<CAPTION>

                                        Outstanding                Exercisable
                                        -----------                -----------
         Exercisable                           Average      Average                Average
         Price Range              Shares        Life         Price      Shares      Price
         -----------------      ----------     -------      -------     -------    --------
         <S>                     <C>           <C>           <C>        <C>         <C> 
         $6.00 to $10.00          890,515       5.22          7.50      169,346      7.97
         $10.01 to $14.00          16,670       9.30         11.13       16,670     11.13
         $14.01 to $18.00         173,513       5.16         15.14      160,735     15.12
         over $18.01               16,669       5.16         18.38        5,556     18.38
                                   ------                               -------
                                1,097,367                               352,307
                                =========                               =======
</TABLE>


         As of December  31,  1997,  the Company has  reserved an  aggregate  of
         1,097,367  shares of common  stock for  issuance  upon the  exercise of
         options.

         SFAS No. 123

         The Company  applies APB Opinion No. 25 in accounting for stock options
         and,  accordingly,  no  compensation  cost has been  recognized for its
         stock options in the consolidated financial statements. Had the Company
         determined  compensation cost based on the fair value at the grant date
         for its stock  options under SFAS No. 123, the Company's net loss would
         have increased the pro forma amounts indicated below:

                                                     1997             1996
                                                     ----             ----
         Net loss               As reported       $(25,535,939)   $(6,920,222)
                                Pro forma         $(26,968,802)   $(7,297,311)
         Net loss per share     As reported       $      (7.47)   $     (4.14)
                                Pro forma         $      (7.85)   $     (4.37)

         The per share  weighted-average  fair  value of stock  options  granted
         during 1997 and 1996 was $4.27 and $6.60 on the date of grant using the
         Black Scholes option-pricing model with the following  weighted-average
         assumptions:  1997 expected dividend yield 0%, risk-free  interest rate
         of 5.88%, expected life of 3 years and volatility of 78%; 1996 expected
         dividend yield 0%, risk-free interest rate of 6.3%,  expected life of 6
         years and volatility of 22%.

         Pro forma net loss  reflects  only  options  granted in 1997,  1996 and
         1995. Therefore,  the full impact of calculating  compensation cost for
         stock  options under SFAS No. 123 is not reflected in the pro forma net
         loss amounts  presented  above because  compensation  cost is reflected
         over the  options  vesting  period and  compensation  cost for  options
         granted prior to January 1, 1995 is not considered.



                                      F-17

<PAGE>


            GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

(11)     Warrants

         The  following  warrants to purchase  common stock are  outstanding  at
         December 31, 1997 (excluding underwriters' warrants below) :

         Issue Date        Shares    Exercise Price       Expiration Date
         ----------        -------   --------------       ----------------

         July 1997         100,000       $ 7.00             January 2001
         April 1997        250,000       $12.00             December 1999
         December 1996     733,333       $ 7.50             November 2001
         May 1996          400,000       $12.00             May 2001
         February 1996       7,085       $13.64             February 2000
         January 1996       66,667       $15.38             December 2000
         October 1995       16,667       $15.00             October 2000
         April 1995         16,667       $15.00             April 2000
         December 1994     980,560       $12.00             December 1999
                         ----------
                         2,570,979
                         =========

         The December  1994 warrants are public  warrants and are  redeemable by
         the  Company at a price of $.30 per  public  warrant.  To  qualify  for
         redemption,  the closing bid quotation of the Company's stock on all 20
         trading days  following the third day on which the Company gives notice
         of redemption, must be at least 187.5% of the effective exercise price.
         The exercise  price of the public  warrants is subject to adjustment in
         certain circumstances.

         Underwriter Warrants

         In connection with the May 1996 Private Placement, the Company issued a
         warrant to the  underwriter  to purchase,  through May 10, 2001,  up to
         20,000 shares of common stock and 40,000 public warrants for $300,000.

         In connection with its initial public offering, the Company sold to the
         underwriter for an aggregate of $150, warrants to purchase up to 50,000
         shares of common  stock at a purchase  price of $24.15 per share and/or
         50,000 public  warrants at a purchase price of $.483 per warrant.  Such
         warrants are  exercisable  at $12.00 per warrant  through  December 14,
         1999.

         As of December 31, 1997, the Company has reserved  2,680,979  shares of
         common stock for issuance upon the exercise of warrants.

(12)     Commitments and Contingencies

         Leases

         The Company's  future minimum annual rental  commitments net of amounts
         subleased at December 31, 1997 under operating  leases for office space
         are as follows:

         Year                                  Amount
         ----                                 --------
         1998                                 $426,126
         1999                                 $310,874
         2000                                 $162,038
         2001                                 $ 38,877
         2002 and thereafter                  $ 77,800

                                      F-18
<PAGE>


            GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)




         The  Company  has the right to  terminate  certain of the leases  given
         sufficient  advance  written  notice.  Rent expense for the years ended
         December  31, 1997 and 1996  amounted  to  approximately  $728,741  and
         $747,704,  respectively.  In  addition,  the  Company's  capital  lease
         obligations fully mature in 1998.

         In  addition,  the Company  leases  space from a former  officer of the
         Company.  The lease,  which is for a five-year period beginning January
         1, 1995, provides for escalating rental payments throughout the term of
         the lease. The total future commitment under the lease is approximately
         $135,000.  The Company also has the option to extend the lease for five
         years. In addition to the rental, the Company pays for improvements and
         maintenance  relating  to the  leased  property.  The rent paid to this
         former  officer for the years ended December 31, 1997 and 1996 amounted
         to $73,920 and $50,400, respectively.

         Employment Arrangements

         The Company has entered into employment  arrangements  with officers of
         the Company which provide for aggregate base salaries of $1,080,000 per
         annum. The  arrangements,  which expire on varying dates,  also provide
         for annual bonuses and covenants  not-to-compete  during the employment
         term and for two years thereafter.

         Carrier Arrangements

         The  Company's   arrangements  with  long  distance  service  providers
         obligate  the Company to  generate  certain  minimum  monthly or annual
         usage through each network and, if not attained, the Company is subject
         to  underutilization  charges.  No such charges were  incurred  through
         December 31, 1997.

         The Company is obligated to provide  access to long distance  telephone
         services  through its switching  platforms for issued cards until those
         cards expire.  The costs related to the  potential  utilization  of the
         minutes  sold have not been  accrued in the  accompanying  consolidated
         financial statements, but are expensed as incurred.

         As of December  31,  1997,  the Company is involved in a dispute with a
         former  provider  of  telecommunications   services  regarding  certain
         amounts the carrier  claims are past due.  The portion of the  disputed
         balance,  which has not been provided for by the Company,  approximates
         $245,000. The Company has not recorded this amount as a liability since
         management believes it was inappropriately invoiced by the carrier. The
         parties are presently in discussions concerning the dispute.

         Dial Around Compensation

         The Federal  Communications  Commission (FCC) has adopted certain rules
         governing "Dial Around  Compensation" which became effective in October
         1997.  Such rules  establish an  arrangement  whereby all pay telephone
         service  providers are to be compensated  for interstate and intrastate
         calls completed from their pay telephones, including calls that utilize
         toll free access codes,  such as those  typically  made by the users of
         the Company's  prepaid cards. The rules require that each pay telephone
         owner is  entitled to be  compensated  $0.284 for each dial around call
         originating  from a pay telephones.  The Company believes its estimated
         obligation  under  the new  rules  from the date of  enactment  through
         December 31, 1997 approximated  $300,000.  No payments had been made as
         of December 31, 1997.


                                      F-19

<PAGE>


            GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)


         License

         In August  1995,  the Company  obtained a  nonexclusive  license from a
         third party relating to various patents  related to  telecommunications
         processes.  The term of the license is through  November 2011, when the
         last patent expires.  The Company is obligated to make minimum payments
         of $50,000  annually over the term of the  Agreement.  Royalty  expense
         amounted  to  approximately  $370,189  and  $49,203 for the years ended
         December 31, 1997 and 1996, respectively.

         Consulting Agreement

         In the fourth quarter of 1997, the Company and its then Chief Executive
         Officer  ("CEO")  Mr.   Wasserson,   executed  a  modification  to  his
         employment  agreement whereby Mr. Wasserson agreed to act as consultant
         through  December  31,  1998.  In  consideration  for these  consulting
         services,  the Company  agreed to pay Mr.  Wasserson  $150,000 in equal
         monthly  installments  during  the  consulting  period,  established  a
         mechanism to forgive its common stock note  receivable of $100,000 from
         Mr. Wasserson,  and issued 50,000 options with an estimated fair market
         value of $145,000.  In  conjunction  with its  restructuring  plan, the
         Company  has  elected  not  to  use  Mr.   Wasserson's   services  and,
         accordingly,  recorded a $395,000  charge related to the unused portion
         of its consulting agreement.

(13)     Major Customers and Credit Concentrations

         For  the year ended December 31, 1997 the Company had one customer that
         accounted  for  approximately 14% of net sales and $279,369 of accounts
         receivables  at December  31,  1997.  For  the year ended  December 31,
         1996, the Company had three customers  that accounted for approximately
         13%, 12% and 11% of net sales, respectively.

(14)     Liquidity

         As indicated in the accompanying consolidated financial statements, the
         Company  incurred net losses of  $25,535,939  in 1997 and $6,920,222 in
         1996. In addition, the Company's available cash on hand as has declined
         to less than  $1,000,000  as of March 31, 1998.  Further,  management's
         projections indicate that the Company anticipates that it will continue
         to generate  operating  losses and negative  cash flow from  operations
         through 1998. As such, the Company  believes that it will need to raise
         additional  capital in 1998, in the form of debt or equity financing in
         order to  satisfy  its  obligations  as they come due.  The  Company is
         currently attempting to raise such additional capital and negotiate the
         deferral of certain obligations. (See note 16) However, there can be no
         assurance the Company will be successful in this regard.

(15)     Restructuring Charge

         In the  fourth  quarter of 1997,  the  Company  recorded  a  $1,500,606
         restructuring  charge  which was  primarily  related to the  closure of
         three retail phone center  locations,  the disposal or  abandonment  of
         certain fixed assets,  and the modification of an employment  agreement
         with its former CEO, as more fully described in note 12. The components
         of the  charge,  which is  classified  separately  in the  accompanying
         statement of operations, are as follows:


     

                                      F-20

<PAGE>


    GLOBAL TELECOMMUNICATION  SOLUTIONS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

         Store closing costs                         $574,480
         Assets disposal                              531,126
         Compensation relating to consulting
           agreement with former CEO                  395,000
                                                   ----------
                                                   $1,500,606
                                                   ==========

         Costs associated with the closure of the retail phone centers primarily
         related to lease termination costs and to a lesser extent severance for
         employees all of whom were terminated as of December 31, 1997.  Results
         of  operations  for the retail phone  centers have not been  separately
         measured by the Company. The assets impairment charge related primarily
         to the  discontinuance  of the use of certain  equipment which utilized
         specific technology.  The activities  incorporated in the restructuring
         plan  had  been  substantially  completed  as  of  December  31,  1997.
         Approximately  $600,000 of the charge  remains  accrued at December 31,
         1997, consisting principally of accrued compensation for the former CEO
         and costs relating to the retail location lease terminations.

(16)     Subsequent Events

         Stock Option Re-pricing

         In  January 1998,  the Company  reduced the exercise  prices of 196,683
         outstanding  options  to   purchase  common  stock at  exercise  prices
         ranging  from $7.88  to $18.38,  to the then fair  market  value of the
         common stock of $6.56.

         Acquisitions

         In February  1998, the Company acquired,  through a merger,  all of the
         outstanding  capital stock  of Networks Around the World, Inc. ("NATW")
         for a purchase  price  comprised  of (i)  $2,000,000  in cash,  (ii) an
         aggregate  of  505,618  shares  of  common  stock and (iii)  $1,000,000
         aggregate principal amount of  promissory notes ("NATW Notes"), secured
         by  substantially  all of the  assets of NATW.  The NATW  Notes  accrue
         interest at the rate of 6% per annum  and are  payable as follows:  (i)
         one-half of principal and interest accrued  thereon on November 1, 1998
         and  (ii) four  equal  payments  of  $125,000,  plus  interest  accrued
         thereon,  on April 1, 1999, July 1, 1999,  October 1, 1999  and January
         1, 2000. In addition, the Company may be required to pay an  additional
         $2,000,000  in   consideration  if  certain  financial  objectives  are
         achieved.

         Also in  February 1998, the Company acquired,  through a merger, all of
         the  outstanding  capital stock  of  Centerpiece  Communications,  Inc.
         ("CCI") for a purchase price  comprised of (i) $1,500,000 in cash, (ii)
         401,284  shares of  common  stock  and  (iii) a  $1,000,000  aggregate
         principal   amount   promissory   note   ("CCI   Note"),   secured   by
         substantially  all of the assets of CCI. The  CCI Note accrues interest
         at the rate of 8% per annum and is payable  as  follows:  (i)  $250,000
         plus interest  accrued thereon  on October 31, 1998, (ii) $250,000 plus
         interest  accrued  thereon  on  January  1, 1999 and (iii)  four  equal
         payments of $125,000, plus interest accrued thereon, on  April 1, 1999,
         July 1, 1999, October 1, 1999 and January 1, 2000.

         Subsequent to the completion of the acquisitions, the sellers agreed to
         defer  $1,250,000  originally  payable in 1998 under the  agreements to
         January 1999.


 

                                      F-21

<PAGE>


            GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Continued)

         Access Telecom

         In February 1998,  Access Telecom,  Inc., one of the major providers of
         long  distance  telephone  time  to  NATW  and  CCI,  ceased  providing
         telecommunications  services on cards that were  previously paid for by
         NATW and CCI prior to the respective mergers. In order to meet consumer
         obligations,  the Company has  purchased  approximately  $1,400,000  of
         telecommunications  services  from other  providers  through  March 31,
         1998.  Additional  payments  may  be  required  as  a  result  of  this
         situation.  The Company is pursuing  recovery of all losses from Access
         Telecom.

         Private Placement

         In April 1998, the Company completed a private  placement,  pursuant to
         which the Company  derived net proceeds of $1,135,000  through the sale
         of $1,250,000  convertible  subordinated  promissory notes ("April 1998
         Notes")and warrants to purchase  178,571 shares of Common Stock ("April
         1998  Warrants").  The April 1998 Notes accrue  interest at the rate of
         10% per annum and are payable on the earlier of January 15, 1999 or the
         date of the closing of an equity  financing  transaction with aggregate
         gross proceeds of $4,000,000. The holders have the right at any time to
         convert  all or any  portion of the April 1998 Notes into the number of
         shares of common  stock  determined  by dividing  the unpaid  principal
         amount of the April  1998 Notes by the lesser of: (i) $7.00 or (ii) the
         per share purchase price being paid by the purchasers in the subsequent
         financing transaction.

         Financing Commitment

         In April 1998,  the Company  entered into an agreement with an investor
         pursuant to which the investor  has agreed to acquire up to  $2,000,000
         of the Company's  common stock or other securities at a discount to the
         market price of such  securities.  The Company can require the investor
         to acquire the securities on thirty days' written notice until December
         31, 1998. In  consideration  thereof,  the Company  issued the investor
         warrants to purchase 100,000 shares of the Company's common stock at an
         exercise price of $7.50 per share.  The warrants are exercisable  until
         April 13, 2001.


                                      F-22

<PAGE>

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

             None.


                                    PART III

ITEM 9.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

             The information  required by this item is incorporated by reference
to the  information  included in the  Company's  definitive  proxy  statement in
connection with the Annual Meeting of Stockholders.


ITEM 10.     EXECUTIVE COMPENSATION

             The information  required by this item is incorporated by reference
to the  information  included in the  Company's  definitive  proxy  statement in
connection with the Annual Meeting of Stockholders.


ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

             The information  required by this item is incorporated by reference
to the  information  included in the  Company's  definitive  proxy  statement in
connection with the Annual Meeting of Stockholders.


ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

             The information  required by this item is incorporated by reference
to the  information  included in the  Company's  definitive  proxy  statement in
connection with the Annual Meeting of Stockholders.


                                     PART IV

ITEM 13.     EXHIBITS AND REPORTS ON FORM 8-K

    (a)      Exhibits Filed.

             See Exhibit Index appearing later in this Report.

    (b)      Reports on Form 8-K.

             Current Report on Form 8-K, dated February 6, 1998,  filed with the
             Commission  on February 23, 1998,  relating to the  acquisition  of
             NATW.

             Current Report on Form 8-K, dated February 6, 1998,  filed with the
             Commission  on February 23, 1998,  relating to the  acquisition  of
             CCI.


                                       43

<PAGE>



                                   SIGNATURES

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


Dated:       April 14, 1998          GLOBAL TELECOMMUNICATION SOLUTIONS, INC.



                                     By:     /s/ Shelly Finkel
                                     -----------------------------------------
                                     Shelly Finkel, Chairman of the 
                                      Board of Directors


             In  accordance  with Section 13 or 15(d) of the Exchange  Act, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.



/s/ Shelly Finkel       Chairman of the Board of Directors     April 14, 1998
-----------------
Shelly Finkel



/s/ Robert Bogin        President and Director                 April 14, 1998
-----------------
Robert Bogin



/s/ Alan W. Kaufman     Director                               April 14, 1998
-------------------
Alan W. Kaufman



/s/ Jack N. Tobin       Director                               April 14, 1998
-------------------
Jack N. Tobin



/s/ Donald L. Ptalis    Director                               April 14, 1998
--------------------
Donald L. Ptalis



/s/ Michael Hoppman    Chief Financial Officer (and            April 14, 1998
-------------------    principal accounting officer) 
Michael Hoppman                                  




                                       44

<PAGE>



                                  EXHIBIT INDEX


<TABLE>
<CAPTION>

Exhibit
Number              Description
-------             ---------------
<S>                 <C>                                             
3.1                 A Certificate of Incorporation
3.2                 A Amendment to Certificate of Incorporation
3.3                 A By-Laws
3.4                 C Certificate of Merger of Merger Sub into Global Link
3.5                 H Certificate of Merger - NATW into NATW Acquisition Corp.
3.6                 I Certificate of Merger - CCI into CCI Acquisition Corp.
4.1                 A Form of Common Stock Certificate
4.2                 A Form of Redeemable Warrant Certificate
4.3                 A Warrant Agreement between the Company and Whale Securities Co., L.P. ("Whale")
4.4                 A Underwriter's Warrant issued to Whale
4.5                 D Placement Agent Warrant dated May 10, 1996 issued to Whale
4.6                 F Warrant Agreement dated April 15, 1995 between the Company and Craig Shapiro
4.7                 F Warrant Agreement dated October 26, 1995 between the Company and Frog Hollow Partners
4.8                 F Warrant Agreement dated January 22, 1996 between Company and Whale
4.9                 E Form of Subscription Agreement for December 1996 Private Placement
4.10                E Form of Warrant issued in the December 1996 Private Placement
4.11                E Form of Promissory Note issued in the December 1996 Private Placement
10.1                A Sublease for 342 Madison Avenue, New York, New York
10.2                A Sublease for additional space at 342 Madison Avenue, New York, New York
10.3                A Employment Agreement between the Company and Shelly Finkel
10.4                A Employment Agreement between the Company and Maria Bruzzese
10.5                A Stock Option Agreement between the Company and Shelly Finkel
10.6                A Stock Option Agreement between the Company and Paul Silverstein
10.7                A Stock Option Agreement between the Company and James Koplik
10.8                B Stock Option Agreement between the Company and John McCabe
10.9                A 1994 Performance Equity Plan
10.10               A Service Agreement between the Company and MCI Telecommunications Corporation
10.11               A Service Agreement between the Company and Sprint Corporation
10.12               A Service Agreement between Independent Properties Sales Corporation ("IPSC") and Metromedia
                      Communications Corporation ("Metromedia," which was later acquired by WorldCom)
</TABLE>


                                       45

<PAGE>


<TABLE>
<CAPTION>

Exhibit
Number              Description
-------             ---------------
<S>                 <C>                                             
10.13               A Consent between IPSC and Metromedia allowing the assignment to the Company of IPSC's right
                      to receive services from Metromedia.
10.14               B Employment Agreement between the Company and John McCabe
10.15               B Consulting Agreement between the Company and Barry Rubenstein
10.16               B Consulting Agreement between the Company and Eli Oxenhorn
10.17               C Merger Agreement by and among the Company, Merger Sub and Global Link
10.18               C Directors Voting Agreement
10.19               C Peoples Agreement, together with the Company's Guaranty of Peoples Second Payment
10.20               C Ancillary Agreement between Global Link and Peoples regarding payment of the Peoples Accounts
                      Receivable, together with Holding Corp's Guaranty of such payment
10.21               C Amended and Restated Securities Purchase Agreement
10.22               C The Company's Guaranty of Debentures
10.23               C Employment Agreement between the Company and Gary Wasserson
10.24               C Employment Agreement between the Company and David Tobin
10.25               C Stock Option Agreement between the Company and Gary Wasserson
10.26               C Stock Option Agreement between the Company and David Tobin
10.27               A Sublease for space at 40 Elmont Road, Elmont, New York
10.28               D Form of Registration Rights Agreement for May 1996 Private Placement
10.29               D Agency Agreement between the Company and Whale for May 1996 Private Placement
10.30               D Placement Agent Warrant Agreement for May 1996 Private Placement
10.31               F Consulting Agreement dated January 22, 1996 between the Company and Whale
10.32               F First Amendment to Peoples Agreement, dated August 14, 1996
10.33               F Second Amendment to Peoples Agreement, dated November 27, 1996
10.34               E Finder's fee agreement between the Company and Whale relating to the December 1996 Private
                      Placement
10.35               G Extension of Consulting Agreement between the Company and Barry Rubenstein
10.36               G Extension of Consulting Agreement between the Company and Eli Oxenhorn
10.37               H Merger Agreement by among The Company, NATW Acquisition Corp., NATW, Randolph Cherkas
                      and Gary Ligouri
10.38               H Employment Agreement between the Company and Randolph Cherkas
10.39               H Employment Agreement between the Company and Gary Ligouri
10.40               I Merger Agreement by and among the Company, CCI Acquisition Corp., CCI and J. Mark
                      Rubenstein
10.41               I Employment Agreement between the Company and J. Mark Rubenstein
</TABLE>

                                       46

<PAGE>

<TABLE>
<CAPTION>

Exhibit
Number              Description
-------             ---------------
<S>                 <C>                                             
21                  * Subsidiaries of the Company
23                  * Consent KPMG Peat Marwick LLP
27                  * Financial Data Schedule
</TABLE>

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

*        Filed herewith.

A    Incorporated by reference to the Company's  Registration  Statement on Form
     SB-2 (No. 33-85998).

B    Incorporated by reference to the Company's Annual Report on Form 10-KSB for
     the year ended December 31, 1994.

C    Incorporated  by reference  to the  Company's  Current  Report on Form 8-K,
     filed with the Commission on March 15, 1996.

D    Incorporated  by  reference  to  Post-Effective  Amendment  No.  2  to  the
     Company's Registration Statement on Form SB-2 on Form S-3 (No. 33-85998).

E    Incorporated  by reference  to the  Company's  Current  Report on Form 8-K,
     filed with the Commission on December 26, 1996.

F    Incorporated by reference to the Company's  Registration  Statement on Form
     S-3 (No. 333-19005)

G    Incorporated by reference to the Company's  Registration  Statement on Form
     SB-2 (No. 333-25389)

H    Incorporated  by reference  to the  Company's  Current  Report on Form 8-K,
     filed with the Commission on February 23, 1998

I    Incorporated by reference to the Company's Current Report on Form 8-K filed
     with the Commission on February 23, 1998.

                                       47

<PAGE>