<PAGE>


                    SECURITIES AND EXCHANGE COMMISSION

                         WASHINGTON, D.C.  20549

                                 FORM 10-Q

                 QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
 
                   OF THE SECURITIES EXCHANGE ACT OF 1934
 
   FOR THE QUARTER ENDED:                   COMMISSION FILE NUMBER:
   JUNE 30, 1997                            000-21049       


              GLOBAL ONE DISTRIBUTION & MERCHANDISING INC. 
         (Exact name of Registrant as specified in its charter)

             DELAWARE                            95-4578632   
  (State or other jurisdiction           (IRS Employer Identification 
   of incorporation or organization)     Number)
 
            5548 LINDBERGH LANE, BELL, CALIFORNIA 90201-6410 
          (Address and zip code of principal executive offices)
 
                             213-980-4300 
           (Registrant's telephone number, including area code)
 
Indicate by check mark whether the Registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or for such shorter period that the 
Registrant was required to file such reports), and (2) has been subject to 
the filing requirements for at least the past 90 days.

                            YES   X           NO          
                               --------         --------


Indicate the number of shares outstanding of each of the issuer's classes of 
common stock, as of the latest practicable date:          

                                                  Number of Shares Outstanding
              Class                               at August 8, 1997
              -----                               -----------------
              Common Stock, $.01 par value          13,011,947

<PAGE>

                      GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.

                                  TABLE OF CONTENTS

                                                                           Page
                                                                           ----

PART I.        FINANCIAL INFORMATION

     Item 1.   FINANCIAL STATEMENTS

               Consolidated Balance Sheets as of June 30, 1997
               (Unaudited) and December 31, 1996..........................  3
   
               Consolidated Statements of Operations for the Six
               Months Ended June 30, 1997 and 1996
               (Unaudited)................................................  5

               Consolidated Statements of Operations for the Three
               Months Ended June 30, 1997 and 1996 
               (Unaudited)................................................  7

               Consolidated Statements of Cash Flows for the Six
               Months Ended June 30, 1997 and 1996       
               (Unaudited)................................................  8

               Notes to Unaudited Consolidated 
               Financial Statements......................................  10

     Item 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS.......................  13


PART II.       OTHER INFORMATION

     Item 1.   Legal Proceedings.........................................  22

     Item 2.   Changes in Securities.....................................  22

     Item 3.   Defaults Upon Senior Securities...........................  22

     Item 4.   Submission of Matters to a Vote of Security Holders.......  22

     Item 5.   Other Information.........................................  23

     Item 6.   Exhibits and Reports on Form 8-K..........................  24


                                      -2-
 
<PAGE>

                          PART I.     FINANCIAL INFORMATION

1.  FINANCIAL STATEMENTS.
-------------------------------------------------------------------------------

                    GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.

                            CONSOLIDATED BALANCE SHEETS

                                  (UNAUDITED)

                                    ASSETS

<TABLE>
<CAPTION>

                                                                                         JUNE 30,     DECEMBER 31,
                                                                                           1997           1996
                                                                                        ----------    ------------
<S>                                                                                    <C>          <C>

CURRENT ASSETS:
  Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $         -   $     32,248
  Accounts receivable -- trade, net of allowance for doubtful accounts and
  returns of $2,523,069 and $2,506,893 at June 30, 1997 and December 31, 1996,
  respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     4,260,110      4,667,818 
Inventories (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     1,624,877      2,560,603
Prepaid royalty advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       716,136        576,347
Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . . . . .       406,057        643,791
Note receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             -      1,575,000
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     1,089,248      1,089,248
                                                                                       ------------  ------------
    Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     8,096,428     11,145,055

PROPERTY AND EQUIPMENT, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . .     1,150,338      1,149,775

GOODWILL, net of accumulated amortization of $469,532 and $222,724 at June 30,
1997 and December 31, 1996, respectively . . . . . . . . . . . . . . . . . . . . . .     4,296,074      4,550,531

DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       172,960        189,659
                                                                                       ------------  ------------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $ 13,715,800  $ 17,035,020
                                                                                       ------------  ------------
                                                                                       ------------  ------------


                                                                                                      (CONTINUED)

</TABLE>

                                                          -3-

<PAGE>



                 GLOBAL ONE DISTRIBUTION & MERCHANDISING INC. AND SUBSIDIARIES

                             CONSOLIDATED BALANCE SHEETS (CONTINUED)

                                          (UNAUDITED)

                              LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

                                                                                JUNE 30,      DECEMBER 31,
                                                                                  1997           1996
                                                                             ------------    ------------
                                                                              (UNAUDITED)
<S>                                                                          <C>             <C>
CURRENT LIABILITIES:
  Revolving line of credit. . . . . . . . . . . . . . . . . . . . . . . .    $  2,766,380               -
  Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . .       4,427,656    $  4,826,256
  Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . .       1,003,744         723,016
  Royalties payable . . . . . . . . . . . . . . . . . . . . . . . . . . .       1,792,099       1,382,549
  Due to customers. . . . . . . . . . . . . . . . . . . . . . . . . . . .         250,809         253,536
  Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . .          53,042          53,042
  Current maturities of:
    Capitalized lease obligations . . . . . . . . . . . . . . . . . . . .         100,041          95,254
    Subordinated long-term debt . . . . . . . . . . . . . . . . . . . . .         300,000         675,000
                                                                             ------------    ------------
      Total current liabilities . . . . . . . . . . . . . . . . . . . . .      10,693,771       8,008,653
                                                                             ------------    ------------
REVOLVING LINE OF CREDIT. . . . . . . . . . . . . . . . . . . . . . . . .               -       3,813,334
CAPITALIZED LEASE OBLIGATIONS,
  less current maturities . . . . . . . . . . . . . . . . . . . . . . . .          51,979          55,612
SUBORDINATED LONG-TERM DEBT,
  less current maturities . . . . . . . . . . . . . . . . . . . . . . . .       1,694,556       1,731,904
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
  Common stock, $.01 par value; authorized, 30,000,000 shares, issued
    and outstanding, 13,011,947 and 13,010,947 shares at June 30, 1997
    and December 31, 1996, respectively . . . . . . . . . . . . . . . . .        130,1961          30,109
  Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . .      10,661,874      10,639,439
  Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . .      (9,516,576)     (7,344,031)
                                                                             ------------    ------------
    Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . .       1,275,494       3,425,517
                                                                             ------------    ------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $ 13,715,800    $ 17,035,020
                                                                             ------------    ------------
                                                                             ------------    ------------


                                                                                               (CONCLUDED)
</TABLE>

See notes to consolidated financial statements.


                                                 -4-

<PAGE>

         GLOBAL ONE DISTRIBUTION & MERCHANDISING INC. AND SUBSIDIARIES

                    CONSOLIDATED STATEMENTS OF OPERATIONS

                                 (UNAUDITED)

<TABLE>
<CAPTION>


                                           SIX MONTHS ENDED JUNE 30,
                                           -------------------------
                                              1997          1996
                                              ----          ----
<S>                                     <C>            <C>
NET SALES. . . . . . . . . . . . . . .  $  10,603,858  $  20,329,801
                                        -------------  -------------
COST OF SALES:
   Cost of goods sold. . . . . . . . .      4,467,049     11,132,974
   License and royalty expense . . . .      1,836,068      2,163,371
                                        -------------  -------------
     Total cost of sales . . . . . . .      6,303,117     13,296,345
                                        -------------  -------------
GROSS PROFIT . . . . . . . . . . . . .      4,300,741      7,033,456
                                        -------------  -------------

OPERATING EXPENSES:
   Warehouse and selling . . . . . . .      3,696,409      5,277,889
   Warehouse relocation (Note 6) . . .        110,000         --
   General and administrative. . . . .      2,262,377      3,088,020
                                        -------------  -------------
     Total operating expenses. . . . .      6,068,786      8,365,909
                                        -------------  -------------

OPERATING LOSS . . . . . . . . . . . .     (1,768,045)    (1,332,453)
INTEREST EXPENSE . . . . . . . . . . .        403,443        596,451
                                        -------------  -------------

LOSS BEFORE INCOME TAXES AND
  MINORITY INTEREST. . . . . . . . . .     (2,171,488)    (1,928,904)
INCOME TAX PROVISION . . . . . . . . .          1,054         58,000
                                        -------------  -------------

LOSS BEFORE MINORITY INTEREST. . . . .     (2,172,542)    (1,986,904)
MINORITY INTEREST IN INCOME      
  OF SUBSIDIARIES. . . . . . . . . . .        --              93,726
                                        -------------  -------------

NET LOSS . . . . . . . . . . . . . . .  $ (2,172,542)  $  (1,893,178)
                                        -------------  -------------
                                        -------------  -------------

</TABLE>

                                     -5-

<PAGE>


         GLOBAL ONE DISTRIBUTION & MERCHANDISING INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

                              (UNAUDITED)

<TABLE>
<CAPTION>

                                              SIX MONTHS ENDED JUNE 30,
                                              -------------------------
                                                1997              1996
                                           --------------   --------------
<S>                                        <C>              <C>
NET LOSS DATA (1996 PRO FORMA):
  Loss before income taxes, as reported. . $  (2,171,488)   $  (1,928,904)
  Provision (benefit) for income taxes . .         1,054         (603,630)
  Minority interest in income of
    subsidiaries . . . . . . . . . . . . .        --              93,726

                                           -------------    -------------
     Net loss . . . . . . . . . . . . . . $  (2,172,542)   $  (1,231,548)
                                           -------------    -------------
                                           -------------    -------------

NET LOSS PER SHARE (1996 PRO 
  FORMA) (Note 5):
  Loss from operations . . . . . . . . . . $      (0.17)    $       (0.16)
  Minority interest in income of 
    subsidiaries . . . . . . . . . . . . .       --                  0.01
                                           -------------    -------------

      Net loss . . . . . . . . . . . . . . $      (0.17)    $       (0.15)
                                           -------------    -------------


   Weighted average shares outstanding . .   13,011,947         8,036,602
                                           -------------    -------------
                                           -------------    -------------

</TABLE>

See notes to consolidated financial statements.

                                     -6-

<PAGE>


<TABLE>
<CAPTION>

                                          THREE MONTHS ENDED JUNE 30,
                                          ---------------------------
                                              1997           1996
                                          ------------   -------------
<S>                                       <C>             <C>
NET SALES...........................       $ 5,477,322     $11,389,143
                                          ------------     -------------
COST OF SALES:
   Cost of goods sold...............         2,418,191       6,785,657
   License and royalty expense......         1,146,642       1,241,165
                                           ------------    -------------
       Total cost of sales..........         3,564,833       8,026,822
                                           ------------    -------------
GROSS PROFIT........................         1,912,489       3,362,321
                                           ------------    -------------
OPERATING EXPENSES:
Warehouse and selling.................       1,913,482       2,500,926
   Warehouse relocation (Note 6)......        (970,000)          -
   General and administrative.........       1,013,222       2,060,134
                                           -----------     ------------
       Total operating expenses.......       1,956,704       4,561,060
                                           -----------     ------------
OPERATING LOSS........................         (44,215)     (1,198,739)
INTEREST EXPENSE......................         207,000         328,792
                                           ------------    ------------

LOSS BEFORE INCOME TAXES AND
   MINORITY INTEREST..................        (251,215)     (1,527,531)
INCOME TAX PROVISION..................             797          (9,323)
                                           ------------    --------------

LOSS BEFORE MINORITY INTEREST.........        (252,012)     (1,518,208)
MINORITY INTEREST IN INCOME
    OF SUBSIDIARIES...................            -            139,146
                                           ------------    --------------
NET LOSS..............................     $  (252,012)    $(1,379,062)
                                           ------------    --------------
                                           ------------    --------------

NET LOSS DATA (1996 PRO FORMA):
   Loss before income taxes, as reported.. $  (251,215)    $(1,527,531)
   Provision (benefit) for income taxes...         797        (518,516)
   Minority interest in income of
    subsidiaries..........................          -          139,146
                                           -------------   --------------
       Net loss.................           $  (252,012)    $  (869,869)
                                          --------------   --------------

NET LOSS PER SHARE (1996 PRO 
   FORMA)(Note 5):
   Loss from operations..................  $      (.02)    $     (0.13)
   Minority interest in income of
     subsidiaries........................          .00             .02
                                           --------------  --------------
       Net loss..........................  $      (.02)    $     (0.11)
                                           -------------   --------------
                                           -------------   --------------


   Weighted average shares outstanding...   13,011,947       8,036,602
                                           -------------   --------------
                                           -------------   --------------

                                                                (CONTINUED)

</TABLE>

                                     -7-
<PAGE>



              GLOBAL ONE DISTRIBUTION & MERCHANDISING INC. AND SUBSIDIARIES

                          CONSOLIDATED STATEMENTS OF CASH FLOWS

                                        (UNAUDITED)


<TABLE>
<CAPTION>
                                           SIX MONTHS ENDED JUNE 30,
                                         ------------------------------
                                             1997              1996
                                         --------------    -------------
<S>                                         <C>             <C>
CASH FLOWS FROM OPERATING 
  ACTIVITIES:
   Net loss.............................   $  (2,172,542)   $  (1,893,178)
   Adjustments to reconcile net loss to
    net cash used in operating activities:
    Depreciation and amortization........        464,541          164,488
    Provision for warehouse relocation...        110,000                0
    Minority interest in income of
       subsidiaries.....................            -             (93,744)
Changes in operating assets and
    liabilities:
    Accounts receivable................          407,708         (106,465)
    Inventories........................          935,726       (1,130,336)
    Prepaid royalty advances...........         (139,789)        (399,795)
    Prepaid expenses and other current
      assets...........................          237,734         (365,706)
    Accounts payable...................         (398,600)       2,039,400
    Accrued expenses...................          170,728          126,764
    Royalties payable..................          409,550          137,997
    Due to customers...................           (2,727)         (25,903)
    Income taxes payable...............             -            (202,189)
                                            -------------    -------------
       Net cash provided by (used in)
         operating activities.........            22,329       (1,748,667)
                                            -------------    --------------

CASH FLOWS FROM INVESTING
ACTIVITIES:
   Purchase of property and equipment...        (152,650)        (105,857)
   Deposits.............................          16,699             -
                                           --------------    ---------------

       Net cash used in investing
         activities....................         (135,951)        (105,857)
                                           --------------    ----------------
                                           --------------    ----------------


                                                                   (CONTINUED)
</TABLE>
                                     -8-



<PAGE>


          GLOBAL ONE DISTRIBUTION & MERCHANDISING INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                                  (UNAUDITED)


                                                      SIX MONTHS ENDED JUNE 30,
                                                      -------------------------
                                                         1997          1996 
                                                      -----------   ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net (repayment) borrowings on line of credit. . .   $(1,046,954)  $2,086,627
  Payments on subordinated debt . . . . . . . . . .      (412,348)     (31,460)
  Proceeds of note receivable . . . . . . . . . . .     1,575,000         -    
  Dividends paid. . . . . . . . . . . . . . . . . .          -         (99,753)
  Proceeds from exercise of stock options . . . . .        22,522
  Payment on capital lease obligations. . . . . . .       (56,846)     (40,243)
                                                      -----------   ----------
 

      Net cash provided by financing activities . .        81,374    1,915,171
                                                      -----------   ----------
NET (DECREASE) INCREASE IN CASH AND CASH 
 EQUIVALENTS. . . . . . . . . . . . . . . . . . . .       (32,248)      60,647

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD. . .        32,248       74,828
                                                      -----------   ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD. . . . . .   $      -      $  135,475
                                                      -----------   ----------
                                                      -----------   ----------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during the period for:
    Interest. . . . . . . . . . . . . . . . . . . .   $   305,692   $  522,004
    Income taxes. . . . . . . . . . . . . . . . . .   $         0   $    7,000


     SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING TRANSACTION


     Capital lease obligations of approximately $58,000 were incurred in 
     1997 when the Company entered into an agreement for the purchase of 
     new equipment.  


                                                              (CONCLUDED)

                                        -9-
<PAGE>


                   GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
 
               NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
          _______________________________________________________________
 
1.  BASIS OF PRESENTATION

The consolidated balance sheet as of June 30, 1997 and the related 
consolidated statements of operations and of cash flows for the six months 
ended June 30, 1997 and 1996 have been prepared by Global One Distribution & 
Merchandising Inc. ("Global One" or the "Company") without audit. In the 
opinion of management, all adjustments (consisting only of normal recurring 
accruals) have been made which are necessary to present fairly the financial 
position, results of operations and cash flows of the Company at June 30, 
1997 and for the six-month period then ended.

Although the Company believes that the disclosure in the consolidated 
financial statements is adequate for a fair presentation thereof, certain 
information and footnote disclosures normally included in financial 
statements prepared in accordance with generally accepted accounting 
principles have been omitted pursuant to the rules and regulations of the 
Securities and Exchange Commission. The December 31, 1996 audited statements 
were included in the Company's Annual Report on Form 10-K filed with the 
Securities and Exchange Commission on April 15, 1997. These consolidated 
financial statements should be read in conjunction with the audited financial 
statements and notes thereto contained in that document.

The results of operations for the three- and six-month periods ended June 30, 
1997 are not necessarily indicative of the results for the full year.

2.  INVENTORIES

Inventories consisted of the following:

                                             JUNE 30,      DECEMBER 31,
                                               1997            1996   
                                           ----------      -----------
 
        Products in process                $   74,786      $  252,893
        Finished products                   1,158,562       1,796,604
        Packaging materials                   391,529         511,106
                                           ----------      -----------
                                           $1,624,877      $2,560,603     
                                           ----------      -----------
                                           ----------      -----------

3.   MERGER AND PRIVATE PLACEMENT

On March 27, 1996, OSP Publishing, Inc. ("OSP") entered into an agreement to 
acquire Kelly Russell Studios, Inc. ("KRSI"), a publicly-traded entity. 
Global One was formed to serve as a holding company for OSP and its 
subsidiaries and to acquire KRSI. On August 28, 1996, the Company acquired 
KRSI through a merger of KRSI into a wholly owned subsidiary of the Company 
(the "KRSI Merger"). In connection with the KRSI Merger, the Company issued 
2,041,189 shares of Common Stock to the former shareholders of KRSI.  
Concurrently with the KRSI Merger, the Company acquired its affiliates, OSP 
and The Button Exchange, Inc., through a merger of those companies into 
wholly owned subsidiaries of the Company (the "Reorganization"). In 
connection with the Reorganization, the Company issued 6,448,442 shares to 
the former shareholders of OSP. Also concurrently with the KRSI Merger and 
the Reorganization, the Company issued 4,324,238 shares of Common Stock to 
investors in a private placement (the "Private Placement" and, together with 
the "KRSI Merger" and the "Reorganization," the "Transactions"). Net 
proceeds (less commissions and expenses and  distributions) to the Company as 
a result of the Private Placement were $2,824,000. The Company's Common 
Stock commenced trading on the NASDAQ 


                                        -10-
<PAGE>



SmallCap Market effective August 28, 1996.

4.   SALE OF SDI AND PRO FORMA RESULTS OF OPERATION

In 1996, OSP entered into an agreement with the minority shareholder and 
President of Stanley DeSantis, Inc. ("SDI") under which the minority 
shareholder had an option to purchase the 51% ownership of SDI held by OSP at 
a determined price. Effective December 31, 1996, the minority shareholder 
exercised the option and purchased the 51% of the common stock of SDI held by 
OSP for total consideration of $1,575,000. The consolidated financial 
statements of the Company include the statement of operations for SDI for 
only the six months ended June 30, 1996. The consolidated balance sheet at 
December 31,1996 reflected the sale of SDI. Net sales and the net loss of 
SDI for the six months ended June 30, 1996 were approximately $9.7 million 
and $191,000, respectively.

As noted in Note 3, the Company merged with a public entity effective August 
28, 1996. The following table sets forth (in thousands, except per share 
data) the unaudited pro forma results of operations as if the acquisition of 
KRSI and disposition of SDI were consummated at the beginning of 1996. The 
unaudited results of operations data consists of historical results of the 
Company as adjusted to give effect to (1) amortization of the excess of the 
purchase price over the net assets acquired for KRSI, (2) elimination of the 
allocation of the profit to the minority shareholder of SDI and (3) pro forma 
effect of income taxes as if OSP had been taxed as a C Corporation. The 
unaudited pro forma results of operations do not include cost reductions from 
the elimination of duplicated operating expenses such as personnel, rent and 
warehouse operations. The unaudited pro forma weighted average number of 
common and common equivalent shares outstanding give effect to the 
Transactions described in Note 3 for all periods presented.

                                                         Six Months Ended
                                                           June 30, 1996
                                                         ----------------
        Net sales ..................................         $12,247
        Cost of sales...............................           7,173
                                                         ----------------
        Gross profit ...............................           5,074
        Operating expenses..........................           7,326
                                                         ----------------
        Operating loss .............................          (2,252)
        Interest expense ...........................             488
                                                         ----------------
        Loss before taxes ..........................          (2,740)
        Provision for income taxes..................             185
                                                         ----------------
        Net loss ...................................         $(2,925)
                                                         ----------------
                                                         ----------------
        Net loss per share .........................         $ (0.23)
                                                         ----------------
                                                         ----------------
        Weighted average shares outstanding.........          12,994
                                                         ----------------
                                                         ----------------

5.  PRO FORMA NET LOSS PER SHARE

In connection with the organization of Global One as the parent company of 
OSP, the stockholders of OSP received 6,448,442 shares of common stock of 
Global One in exchange for the common stock outstanding at December 31, 1995. 
The pro forma weighted average shares outstanding for 1996 assumes that this 
exchange had occurred throughout the period presented, includes the dilutive 
common equivalent shares from stock warrants (using the treasury stock 
method) and also gives effect to 1,393,550 shares deemed to be outstanding in 
1996. These shares represent the approximate number of shares deemed to be 
sold by the Company (at the net offering proceeds of $1.26 per share) to fund 
the S corporation distribution of $2,350,000 


                                        -11-
<PAGE>


that was declared prior to the closing of the KRSI acquisition and private 
placement offering and was paid from the proceeds of the offering. Common and 
common equivalent shares issued during the 12-month period prior to the 
offering have been included in the calculation using the treasury stock 
method as if they were outstanding for all periods presented.

6.   WAREHOUSE RELOCATION

          The Company had recorded an accrual for the quarter ended March 31, 
1997 in anticipation of entering into an arrangement to outsource its 
warehouse facility including the inventory, distribution and shipping 
functions as well as certain accounting functions. The accrual was based on 
the estimated costs of employee severance arrangements and accrued but unpaid 
vacation time for employees to be terminated. It also included the estimated 
physical moving and relocation costs as well as the write-off of leasehold 
improvements at the Company's current warehouse location. The Company 
subsequently entered into an outsourcing arrangement with Prodispak U.S.A. 
Inc. ("Prodispak") (see "Liquidity and Capital Resources"); accordingly the 
originally anticipated outsourcing did not take place. As a result, the 
recorded accrual has been significantly reduced (from $1,080,000 to $110,000) 
because the relocation was within California and not to New Jersey. The 
current accrual is based on expected equipment and warehouse reconfiguration 
costs associated with the Prodispak arrangement. Alan Saloner who owns 
250,000 shares of Common Stock (or 0.019% of the outstanding Common Stock) 
and is the general partner of The Saloner Family Investment Limited 
Partnership (see "Note 7"), is the President of Prodispak.

7.   RELATED PARTY TRANSACTIONS

         In September, 1996, the Company entered into an agreement with 
several persons for the formation of a company, The Speedway, LLC, a 
California limited liability company ("Speedway"), to engage in the business 
of developing, advertising, marketing and promoting a chain of racing themed 
entertainment restaurants and the sale of merchandise in connection 
therewith. The Company contributed approximately $85,000 in cash to Speedway 
for an approximately 25% interest in the enterprise.

         On July 28, 1997, the Company sold its economic interest in Speedway 
for $200,000 to The Saloner Family Investment Limited Partnership ("TSFILP"). 
The Company received payment on the sale date, and will record a gain in the 
third quarter period. Alan Saloner who owns 250,000 shares of Common Stock 
(or 0.019% of the outstanding Common Stock) and is the President of Prodispak 
(see "Note 6"), is the general partner of TSFILP. 

8.   RECENT ACCOUNTING PRONOUNCEMENTS

         In February 1997 the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 128, Earnings Per Share. This 
statement establishes standards for computing and presenting earnings per 
share and applies to entities with publicly held common stock.  This 
statement is effective for financial statements issued for periods ending 
after December 15, 1997, including interim periods. In June 1997 the 
Financial Accounting Standards Board issued Statement of Financial Accounting 
Standards No. 130, Reporting for Comprehensive Income and No. 131, 
Disclosures about Segments of an Enterprise and Related Information. These 
statements are effective for financial statements issued for periods 
beginning after December 15, 1997. The Company has not yet analyzed the 
impact of adopting these statements.


                                     -12-

<PAGE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
        RESULTS OF OPERATIONS OF THE COMPANY

RESULTS OF OPERATIONS

        The business of the Company is conducted through the Company's 
subsidiaries, OSP Publishing, Inc. ("OSP"), BEx Corp. ("BEx") and, since 
August 28, 1996, Kelly Russell Studios, Inc. ("KRSI"), each of which conducts 
a distinct business.  OSP develops and markets posters incorporating 
primarily licensed images and characters from motion pictures, television, 
animation, music, sports and popular culture.  BEx develops and markets 
licensed and non-licensed buttons, key rings and stickers.  KRSI creates, 
markets and distributes sports related art for the collectible market. Prior 
to 1997, the Company owned 51% of Stanley DeSantis, Inc. ("SDI").   SDI was 
sold on December 31, 1996 to the minority stockholder.   SDI developed and 
marketed licensed and non-licensed T-shirts, sweatshirts, hats, boxer shorts 
and mugs.


                                        -13-
<PAGE>


The following tables set forth the net sales, total cost of sales and gross 
profit of OSP, SDI, KRSI, BEx and the Company for the three months and six 
months ended June 30, 1996 and 1997.

  
                        FOR THE THREE MONTHS ENDED    FOR THE SIX MONTHS ENDED
                                 JUNE 30,                     JUNE 30,  
                        --------------------------   --------------------------
                            1996          1997           1996          1997  
                        ------------  ------------   ------------  ------------
                               % OF          % OF           % OF          % OF
                        AMOUNT SALES  AMOUNT SALES   AMOUNT SALES  AMOUNT SALES
                        ------ -----  ------ -----   ------ -----  ------ -----
                          (DOLLARS IN MILLIONS)        (DOLLARS IN MILLIONS)
NET SALES
  OSP . . . . . . . .   $ 5.4  100.0   $4.3  100.0   $10.0  100.0  $ 9.1  100.0
  SDI (1) . . . . . .     5.6  100.0    0.0    0.0     9.7  100.0    0.0    0.0
  KRSI (2). . . . . .     0.0  100.0    0.4  100.0     0.0    0.0    0.6  100.0
  BEx . . . . . . . .     0.4  100.0    0.8  100.0     0.6  100.0    0.9  100.0
                        -----          ----          -----         ----- 
  Company . . . . . .   $11.4  100.0   $5.5  100.0   $20.3  100.0  $10.6  100.0
                        -----          ----          -----         -----      
                        -----          ----          -----         -----      
COST OF GOODS SOLD 

  OSP . . . . . . . .   $ 2.6   48.2   $2.0   46.5   $ 4.4   44.0  $ 3.8   41.8
  SDI (1) . . . . . .     3.8   67.9    0.0    0.0     6.2   63.9    0.0    0.0
  KRSI (2). . . . . .     0.0    0.0    0.1   25.0     0.0    0.0    0.2   33.3
  BEx . . . . . . . .     0.4  100.0    0.4   50.0     0.5   83.3    0.5   55.6
                        -----          ----          -----         -----      
 Company . . . . . .    $ 6.8   59.7   $2.5   45.5   $11.1   54.7  $ 4.5   42.5
                        -----          ----          -----         -----      
                        -----          ----          -----         -----      
LICENSE AND ROYALTY 
EXPENSE 
  OSP . . . . . . . .   $ 0.6   11.1   $0.9   20.9   $ 1.2   12.0  $ 1.6   17.6
  SDI (1) . . . . . .     0.6   10.7    0.0    0.0     0.9    9.3    0.0    0.0
  KRSI (2). . . . . .     0.0    0.0    0.1   25.0     0.0    0.0    0.1   16.7
  BEx . . . . . . . .     0.1   25.0    0.1   12.5     0.1   16.7    0.1   11.1
                        -----          ----          -----         -----      
  Company . . . . . .   $ 1.3   11.4   $1.1   20.0   $ 2.2   10.8  $ 1.8   17.0
                        -----          ----          -----         -----      
                        -----          ----          -----         -----      
TOTAL COST OF SALES 
  OSP . . . . . . . .   $ 3.2   59.3   $2.9   67.4   $ 5.6   56.0  $ 5.4   59.3
  SDI (1) . . . . . .     4.4   78.6    0.0    0.0     7.1   73.2    0.0    0.0
  KRSI (2). . . . . .     0.0    0.0    0.2   50.0     0.0    0.0    0.3   50.0
  BEx . . . . . . . .     0.5  125.0    0.5   62.5     0.6  100.0    0.6   66.7
                        -----          ----          -----         -----      
  Company . . . . . .     8.1   71.1   $3.6   65.5   $13.3   65.5  $ 6.3   59.4
                        -----          ----          -----         -----      
                        -----          ----          -----         -----      


                                        -14-
<PAGE>


GROSS PROFIT 
  OSP . . . . . . . .     2.2   40.7   $1.4   32.6   $ 4.4   44.0  $ 3.7   40.7
  SDI (1) . . . . . .     1.2   21.4    0.0    0.0     2.6   26.8    0.0    0.0
  KRSI (2). . . . . .     0.0    0.0    0.2   25.0     0.0    0.0    0.3   50.0
  BEx . . . . . . . .    (0.1) (25.0)   0.3   37.5     0.0    0.0    0.3   33.3
                        -----          ----          -----         -----      
  Company . . . . . .     3.3   29.0   $1.9   34.6   $ 7.0   34.5  $ 4.3   40.6
                        -----          ----          -----         -----      
                        -----          ----          -----         -----      

_____________________________________ 
(1) Sold effective December 31,1996
(2) Acquired on August 28, 1996

The following tables set forth the percentage of net sales of certain income 
and expense items for the three months and six months ended June 30, 1996 and 
1997.

                                               
                                         PERCENTAGE OF     
                                           NET SALES         
                                      THREE MONTHS ENDED      *PERIOD TO PERIOD
                                            JUNE 30,          PERCENTAGE CHANGE
                                       ------------------     -----------------
                                        1996        1997        1996 VS. 1997
                                       ------      ------     -----------------
Net sales . . . . . . . . . . . .      100.0%      100.0%           -51.9    
Cost of goods sold. . . . . . . .       59.7        45.5            -64.4
License and royalty expense . . .       11.4        20.0             -7.6
Gross profit. . . . . . . . . . .       29.0        34.5            -43.1
Warehouse and selling expenses. .       22.0        34.9            -23.5
Warehouse relocation. . . . . . .        0.0       -17.7           -100.0
General and administrative. . . .       18.1        18.5            -50.8
Operating loss. . . . . . . . . .      -10.5        -0.8            -96.3
Interest expense. . . . . . . . .        2.9         3.8            -37.0
Minority interest in income 
  of subsidiaries . . . . . . . .        1.2         0.0           -100.0
Net loss. . . . . . . . . . . . .       -4.2        -4.6            -81.7


 ______________________________________
 
 * Based on dollar amounts on page 5.


                                        -15-
<PAGE>


                                               
                                         PERCENTAGE OF     
                                           NET SALES         
                                        SIX MONTHS ENDED      *PERIOD TO PERIOD
                                            JUNE 30,          PERCENTAGE CHANGE
                                       ------------------     -----------------
                                        1996        1997        1996 VS. 1997
                                       ------      ------     -----------------
      
Net sales . . . . . . . . . . . .      100.0%      100.0%            -47.8   
Cost of goods sold. . . . . . . .       48.3        42.5             -59.9
License and royalty expense . . .       10.1        17.0             -15.1
Gross profit. . . . . . . . . . .       41.6        40.6             -38.9
Warehouse and selling expenses. .       26.3        34.9             -30.0
Warehouse relocation. . . . . . .        0.0         1.0             100.0
General and administrative. . . .       16.3        21.3             -26.7
Operating loss. . . . . . . . . .       -1.5       -16.7              32.7
Interest expense. . . . . . . . .        3.0         3.8             -32.4
Minority interest in income 
  of subsidiaries . . . . . . . .       -0.5         0.0            -100.0
Net loss. . . . . . . . . . . . .       -5.8       -20.5              14.8


 _______________________________________
 
 * Based on dollar amounts on page 7.
 
 SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996

         The Company's net sales decreased $9.7 million, or 47.8%, for the 
six months ended June 30, 1997 compared to the six months ended June 30, 
1996.  This decrease was primarily a result of the sale of SDI on December 
31, 1996, which contributed sales of $9.7 million in the six months ended 
June 30, 1996.  OSP experienced decreased sales of $872,393, or 6.1%, for the 
six months ended June 30, 1997 compared with 1996.   This decrease can be 
attributed to an accrual recorded in anticipation of returns from a major 
customer. The decrease was offset by sales of products acquired from Zanart 
Entertainment in late 1996, which consisted primarily of STAR WARS framed 
prints associated with the re-release of the trilogy of movies produced by 
Lucasfilms.  BEx's sales increased $ 221,155,  or 34.7%, for the two quarters 
compared with the comparable period in 1996 as a result of the redirection of 
marketing and sales efforts which focuses on sales of products produced for 
major movie promotions.  KRSI was merged into the Company effective August 
28, 1996  and contributed sales of $621,184 for the six months ended June 30, 
1997.   

         Cost of goods sold decreased $6.6 million, or 59.5%, for the six 
months ended June 30, 1997 to $4.5 million  compared with $11.1 million for 
the same period in 1996.  As a percentage of net sales, cost of goods sold 
decreased to 42.5% for the six months ended June 30, 1997 from 54.7% for the 
six months ended June 30, 1996.  The Company's cost of goods sold decreased 
primarily because SDI, which historically has had a higher cost of goods sold 
percentage, had costs of $6.2 million for the six months ended June 30, 1996.

         OSP's cost of goods sold decreased $0.6 million, or 13.6%, for the 
six months ended June 30, 1997 to $3.8 million compared to $4.4 million for 
the same period in 1996.  For the first two quarters of 1997, OSP's costs of 
goods


                                        -16-

<PAGE>

sold as a percentage of net sales was 41.8% compared with 44.0% in the first 
two quarters of 1996.  This is primarily due to the sales of STAR WARS 
products which were purchased at a discount from Zanart Entertainment's 
historical costs and therefore carried higher margins for OSP. 

     BEx's cost of goods sold for the first two quarters of 1997 was $0.5 
million, or 44.4% of net sales, compared with $0.5 million, or 55.6% of net 
sales, for the first two quarters of 1996.  The decrease in cost of goods 
sold as a percentage of net sales is due primarily to the relocation of the 
Company's manufacturing and sales operations from Michigan to Bell, 
California in 1996 and the write-down of certain inventory at the time.
 
     KRSI's cost of goods sold as a percentage of net sales for the six month 
period was 33.3%.

      License and royalty expense as a percentage of net sales increased to 
17.0% for the six months ended June 30, 1997 from 10.8% for the six months 
ended June 30, 1996.  OSP's royalty rate increased to 17.6% for the six 
months ended June 30, 1997 from 12.0 % for the same period in 1996 due 
primarily to the increased sales under Disney licenses which have higher 
royalty rates.  Additionally, SDI, which has historically had the lowest 
royalty rate, had a royalty rate of 9.3% in the six-month period ended 
June 30, 1996, which lowered the Company's combined royalty rate. Since SDI 
was sold on December 31, 1996, this effect was not present in the six-month 
period ended June 30, 1997.

     Warehouse and selling expenses decreased $1.6 million, or 30.0%, to 
$3.7 million for the six months ended June 30, 1997 from $5.3 million for the 
same period in 1996.  SDI had costs of approximately $1.0 million which 
represented approximately 10.6% of net sales.   The remaining decreases after 
removing the effect of SDI were primarily the result of lower salaries and 
wages as well as efficiencies with the cost reductions of BEx, which more 
than offset the increase associated with the addition of KRSI.  Warehouse and 
selling expenses as a percentage of net sales increased to 34.9% for the six 
months ended June 30, 1997 from 26.3% for the same period in 1996 due to the 
sale of SDI which had lower warehouse and selling expenses as a percentage of 
net sales than OSP.  

     Warehouse relocation expense represents an estimated $100,000 accrual for 
the costs associated with the outsourcing arrangement with Prodispak U.S.A, 
Inc. (see "Liquidity and Capital Resources").

     General and administrative expenses decreased by $825,643, or 26.7%, to 
$2.3 million for the six months ended June 30, 1997 from $3.1 million for the 
same period in 1996 due primarily to the sale of SDI. SDI contributed 
approximately $1.1 million in general and administrative costs in the 
six-month period ended June 30,  1996.   Offsetting that decrease were 
increases in general and administrative costs primarily as a result of higher 
amortization due to the goodwill from the KRSI acquisition, which totaled 
$229,204 for the six months ended June 30, 1997.  Other increased costs were 
insurance and professional fees as a result of being a public entity.

     Interest expense decreased $193,008, or 32.4%, to $403,443  for the six 
months ended June 30, 1997 from $596,451 for the same period in 1996.  The 
decrease in interest expense is due primarily to the sale of SDI.

     The Company recorded income tax expense of approximately $58,000 in the 
first two quarters of 1996 as a result of the profits of the Company's 51% 
owned subsidiary, SDI, which was sold on December 31, 1996.   There was only 
a $1,054 provision in the first two quarters of 1997 as a result of operating 
losses and no income tax benefit was recognized for the losses since the 
additional deferred tax asset from the net operating loss carryforwards was 
offset by an increased valuation allowance.

     For the six months ended June 30, 1996, 49% of the income of SDI was 
allocated to the minority stockholder and totaled $93,726.   Since SDI was 
sold on December 31, 1996, there was no allocation of profit or loss in 1997.

THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1996

     The Company's net sales decreased $5.9 million, or 51.8%, for the three 
months ended June 30, 1997 compared to the three months ended June 30, 1996.  
This decrease was primarily a result of the sale of SDI on December 31, 1996, 
which contributed sales of $5.6 million in the three months ended June 30, 
1996. OSP experienced decreased sales of 

                                      -17-

<PAGE>

$1.1 million, or 20.4%, for the three months ended June 30, 1997 compared 
with 1996.   This decrease can be attributed to  processing of a backlog of 
credits for returns and an accrual recorded in anticipation of returns from a 
major customer.  BEx's sales increased $400,000, or 100%, for the quarter 
compared with the comparable period in 1996 as a result of the redirection of 
marketing and sales efforts which focuses on sales of products produced for 
major movie promotions.  KRSI was merged into the Company effective August 
28, 1996  and contributed sales of $400,000 for the quarter ended June 30, 
1997.    

     Cost of goods sold decreased $4.3 million, or 64.4%, for the three months 
ended June 30, 1997 to $2.5 million compared with $6.8 million for the same 
period in 1996.  As a percentage of net sales, cost of goods sold decreased 
to  45.5% for the three months ended June 30, 1997 from 59.7% for the three 
months ended June 30, 1996.  The Company's cost of goods sold decreased 
primarily because SDI, which historically has had a higher cost of goods sold 
percentage, had costs of $3.8 million for the three months ended June 30, 
1996.

     OSP's cost of goods sold decreased $600,000, or 23.19%, for the three 
months ended June 30, 1997 to $2.0 million compared to $2.6 million for the 
same period in 1996.  For the second quarter of 1997, OSP's costs of goods 
sold as a percentage of net sales was 46.5% compared with 48.2% in the first 
quarter of 1996. This is primarily due to the sales of STAR WARS products 
which were purchased at a discount from Zanart Entertainment's historical 
costs and therefore carried higher margins for OSP. 

     BEx's cost of goods sold for the second quarter of 1997 was $0.4 million, 
or 50.0% of net sales, compared with $0.4 million, or 100.0% of net sales, 
for the second quarter of 1996.  The decrease in cost of goods sold as a 
percentage of net sales is due primarily to the relocation of the Company's 
manufacturing and sales operations from Michigan to Bell, California in 1996 
and the write-down of certain inventory at the time.
 
     KRSI's cost of goods sold as a percentage of net sales for the second 
quarter was 25.0%.

     License and royalty expense as a percentage of net sales increased to 
20.0% for the three months ended June 30, 1997 from 11.4% for the three 
months ended June 30, 1996.  OSP's royalty rate increased to 20.9% for the 
three months ended June 30, 1997 from 11.1% for the same period in 1996 due 
primarily to the increased sales under Disney licenses which have higher 
royalty rates and the write-off of prepaid royalties on expired licenses.  
Additionally, SDI, which has historically had the lowest royalty rate, had a 
royalty rate of 10.7% in the second quarter of 1996, which lowered the 
Company's combined royalty rate. Since SDI was sold on December 31, 1996, 
this effect was not present in the second quarter of 1997.

     Warehouse and selling expenses decreased $587,444, or 23.5%, to $1.9 
million for the three months ended June 30, 1997 from $2.5 million for the 
same period in 1996.  SDI had costs of approximately $575,556 which 
represented approximately 10.3% of net sales.   The remaining decreases after 
removing the effect of SDI were primarily the result of lower salaries and 
wages as well as efficiencies with the cost reductions of BEx, which more 
than offset the increase associated with the addition of KRSI.  Warehouse and 
selling expenses as a percentage of net sales increased to 34.9% for the 
three months ended June 30, 1997 from 22.0% for the same period in 1996 due 
to the sale of SDI which had lower warehouse and selling expenses as a 
percentage of net sales than OSP.  

     Warehouse relocation expense represents an estimated $100,000 accrual for 
the costs associated with the outsourcing deal arranged with Prodispak 
U.S.A., Inc. (see "Liquidity and Capital Resources").

     General and administrative expenses decreased by $1,046,912, or 50.8%, to 
$1.0 million for the three months ended June 30, 1997 from $2.1 million for 
the same period in 1996 due primarily to the sale of SDI. SDI contributed 
approximately $756,047 in general and administrative costs in the second 
quarter of 1996.   Offsetting that decrease were increases in general and 
administrative costs primarily as a result of higher amortization due to the 
goodwill from the KRSI acquisition, which totaled $112,000 for the three 
months ended 1997.  Other increased costs were insurance and professional 
fees as a result of being a public entity.


                                      -18-

<PAGE>

     Interest expense decreased $121,792, or 37.0%, to $207,000 for the three 
months ended June 30, 1997 from $328,792 for the same period in 1996.  The 
decrease in interest expense is due primarily to the sale of SDI.

     The Company recorded income tax expense of approximately $58,000 in the 
first two quarters of 1996 as a result of the profits of the Company's 49% 
owned subsidiary, SDI, which was sold on December 31, 1996.   There was no 
provision in the second quarter of 1997 as a result of operating losses and 
no income tax benefit was recognized for the losses since the additional 
deferred tax asset from the net operating loss carryforwards was offset by an 
increased valuation allowance.

     In the second quarter of 1996, 49% of the income of SDI was allocated to 
the minority stockholder and totaled $139,146.  Since SDI was sold on 
December 31, 1996, there was no allocation of profit or loss in 1997.

LIQUIDITY AND CAPITAL RESOURCES

     At June 30, 1997, working capital was a deficit of approximately $2.6 
million primarily as a result of the Company's line of credit being 
classified as a current liability for the reasons set forth below.  

     Net cash provided by operating activities during the six months ended June 
30, 1997 was $22,329 due primarily to the reductions in inventories and 
increase in royalties payable, which were partially offset by increases in 
prepaid royalty advances and reductions in accounts receivable and accounts 
payable.  Net cash used in investing activities was $135,951 primarily as a 
result of the purchase of property and equipment.  Net cash provided by 
financing activities during the six months ended June 30, 1997 was $81,374 
due primarily to proceeds from the collection of the note receivable from the 
sale of SDI partially offset by repayment of a portion of the revolving line 
of credit as well as payment of subordinated debt to a vendor.

     On August 28, 1996, the Company acquired KRSI through a merger  and 
effected a reorganization of OSP Publishing, Inc. and The Button Exchange, 
Inc. Concurrently with these transactions, the Company issued 4,324,237 
shares of common stock to investors in a private placement (the "Private 
Placement").  Net proceeds (less commissions and expenses and distributions) 
to the Company as a result of the Private Placement were $2,824,000.  Prior 
to the effectiveness of the Transactions, OSP paid a dividend of $2,350,000 
to Joseph C. Angard and Michael Malm,  former OSP shareholders and the 
Chairman of the Board and Chief Executive Officer and  the Chief Operating 
Officer of the Company, respectively. 

     On December 31, 1996, the Company consummated the sale of its 51%-owned 
subsidiary, SDI, pursuant to a redemption of all of the SDI stock held by OSP 
(the "SDI Stock").  Following the redemption, Stanley DeSantis, SDI's 
President and the owner of the remaining 49%, was the sole stockholder of 
SDI.  In consideration of the SDI Stock, the Company received an aggregate of 
$1.575 million,  $417,000 of which was paid upon the redemption and 
$1,158,000 of which was paid on February 28, 1997.   The consideration for 
the SDI Stock was based upon a formula relating to SDI's prior four years of 
operating income.

     In September, 1996, the Company entered into an agreement with several 
persons for the formation of a company, The Speedway, LLC, a California 
limited liability company ("Speedway"), to engage in the business of 
developing, advertising, marketing and promoting a chain of racing themed 
entertainment restaurants and the sale of merchandise in connection 
therewith. The Company contributed approximately $85,000 in cash to Speedway 
for an approximately 25% interest in the enterprise.
 
     On July 28, 1997, the Company sold its economic interest in Speedway for 
$200,000 to The Saloner Family Investment Limited Partnership.  The Company 
received payment on the sale date, and will record a gain in the third 
quarter period. Alan Saloner who owns 250,000 shares of Common Stock (or 
0.019% of the outstanding Common Stock) and is the President of Prodispak, is 
the general partner of TSFILP.

                                       -19-    

<PAGE>


     In July 1997, one of the Company's major customers indicated its refusal 
to pay $700,000 of its account with the Company.   This refusal seriously 
impaired the Company's cash flow and, as discussed below, resulted in the 
Company's inability to obtain financing under its line of credit.   The 
Company has booked a reserve with respect to such receivable; however, the 
Company may decide to pursue legal or other means against the customer  so 
that a portion or all of the delinquent account is paid.  The Company has a 
line of credit with  Foothill Capital Corporation  ("Foothill") which 
provides for maximum borrowings of $7,500,000 subject to certain conditions.  
Effective July 22, 1997, Foothill ceased advancing funds to the Company under 
the Company's revolving line of credit because the Company was no longer in 
compliance with the lending formulas under the line. As a result of one of 
the Company's receivables discussed in the preceding paragraph no longer 
qualifying under the line, the Company was over advanced approximately 
$700,000 as of July 22, 1997.   The Company is currently in negotiations with 
Foothill to determine the future of their lending relationship.

     The Company has been seeking ways to reduce the Company's cash 
requirements. Effective July 1, 1997, the Company outsourced all warehousing, 
assembly, shipping, distribution, data entry and other MIS functions of the 
Company to Prodispak U.S.A. Inc. ("Prodispak").  The Company had previously 
signed a letter of intent with a New Jersey-based corporation for this 
purpose, but an agreement was never reached.  Under the outsourcing 
agreement, Prodispak receives 7-1/4% of the Company's gross sales for 
providing these services.  The arrangement relieves some cash flow 
limitations on the Company because it reduces the Company's fixed costs. In 
addition, the arrangement improves inventory management control by, among 
other things, expediting shipping. The Company has significantly reduced its 
administrative and warehouse personnel and discontinued many non-performing 
poster titles, and plans to reduce the number of new licenses signed in 1997. 
This will reduce the initial cash outlays of pre-production, art and design 
costs and effort. Alan Saloner who owns 250,000 shares of Common Stock (or 
0.019% of the outstanding Common Stock) and is the general partner of The 
Saloner Family Investment Limited Partnership (see "Note 7" and "Liquidity 
and Capital Resources"), is the president of Prodispak.

     On June 6, 1997, the Company entered into a 10-year distribution agreement 
(the "Distribution Agreement") with 2d Interactive, Inc. ("2d"), a media 
company with an electronic merchandising kiosk used in the display and sale 
of posters and advertising images ("PosterCruisers") and other media 
programs. The Distribution Agreement provides that the Company will serve as 
2d's exclusive placement agent for PosterCruisers and certain 
merchandise-based products. The Company has agreed to place and maintain a 
minimum number of PosterCruisers each year at various retailer distributors 
and to manage all aspects of 2d's poster distribution program.  In addition, 
2d will serve as the Company's exclusive placement agent for certain of the 
Company's media programs and advertising, with such media advertising being 
placed on PosterCruisers as well as other media programs. The Company will 
receive all revenues from the sale of posters to the Company's retail 
accounts under the Distribution Agreement and 2d will receive a royalty of 
6-1/2% of the net sales of all of 2d's products distributed and sold to the 
Company's accounts. In addition, 2d will pay the Company a media fee for the 
placement of PosterCruisers and non-PosterCruisers media programs and the 
sale of media advertising through existing Company displays in an amount 
ranging from 8% to 50% of the revenues from such programs (based  on the type 
of media program and 2d's allocation of total media advertising between 
advertisers, media programs and locations), a portion of which the Company 
may be required to pass on to the retailers. Subsequent to entering into the 
Distribution Agreement, verbal modifications to the Distribution Agreement 
were made by the parties throughout July 1997. Management anticipates that 
final documentation will be completed and the transaction closed during the 
Company's third fiscal quarter. 

     In connection with the Distribution Agreement, on June 6, 1997, the 
Company entered into a Share Purchase and Sale Agreement (the "Stock Exchange 
Agreement") which provides for, among other things, (i) the Company's 
issuance to 2d of an aggregate of 550,00 shares of  common stock to be issued 
upon 2d's raising (A) $2,500,000 on or prior to within 18 months of closing 
the transaction and (B) $5,000,000 (including the amount set forth in clause 
(A)) within 24 months of closing the transactions, (ii) 2d's issuance to the 
Company of an aggregate of 78,500 shares of 2d in equal installments upon the 
occurrence of the above financings and the Company's performance of various 
covenants under the Distribution Agreement (the shares issued pursuant to 
clauses (i) and (ii) shall be referred to as "Shares"), (iii) 2d's repurchase 
right in the event that the Company does not perform such covenants, (iv) 
piggyback registration rights for the Shares, (v) the Company's right of 
first refusal in the event that 2d sells 51% of its common stock to a third 
party, (vi) the Company's right to elect one Board member to 2d's Board so 
long as the Company owns 5% or more of 2d's 


                                      -20-

<PAGE>

outstanding common stock, (vii) 2d's right to send a representative to 
participate, but not vote, at the Company's Board meetings, (viii) the 
Company's and 2d's right of first refusal with respect to the Shares and (i) 
2d's option to repurchase the Company's Shares under certain circumstances. 
Subsequent to entering into the Stock Exchange Agreement, verbal 
modifications to the Stock Exchange Agreement were made by the parties 
throughout July 1997. Management anticipates that final documentation will be 
completed and the transaction closed during the Company's third fiscal 
quarter. 

      The Company is negotiating an agreement which provides for a $900,000 
financing of the Company's operations in connection with the resignation from 
the Company and partial buy-out of Joseph C. Angard, the Company's Chairman 
of the Board and Chief Executive Officer and a 0.36% stockholder. The 
primary terms of the transaction are: (i) the resignation of Mr. Angard and 
the termination of his employment agreement with the Company, (ii) Mr. 
Angard's loan of $900,000 to the Company at an interest rate of prime plus 2% 
secured by certain of the Company's receivables, (iii) Mr. Angard's surrender 
of 920,000 shares of the Company's common stock ("Common Stock") to the 
Company, and (iv) the Company's 10-year option to purchase up to 970,000 
shares of Common Stock held by Mr. Angard at a purchase price of $1.00 per 
share. The transaction will be conditioned upon, among other things, the 
purchase by means of a private placement, facilitated by Miller, Johnson & 
Kuehn, Incorporated, as selling agent, the Company's placement agent in 
connection with its private placement of Common Stock effected as of August 
1996, of 2,000,000 shares of Common Stock held by Mr. Angard for $0.50 per 
share. Following the transaction, Mr. Angard will own 1,723,192 shares of 
Common Stock (or 0.14% of the outstanding Common Stock) and options to 
purchase 199,998 and 100,002 shares at exercise prices of $1.50 and $1.50, 
respectively. In addition, Mr. Angard will be retained as a consultant to 
the Company for three years with aggregate payment of $220,000 plus certain 
benefits.  The Company believes the transaction will be finalized and closed 
shortly.

      The Company has experienced operating losses for the first six months 
of 1997. Although, the Company's sales typically fluctuate based on seasonal 
releases of major films and the Company has continued to focus and has moved 
aggressively to reduce its operating costs, the Company cannot continue to 
sustain losses or continue to operate without financing in the near future. 
The Company is negotiating to enter into a Forbearance Agreement (the 
"Forbearance Agreement") with Foothill Capital Corporation ("Foothill") 
providing, among other things, that Foothill will refrain from seeking legal 
or equitable remedies against the Company for breach of the credit line 
provided by Foothill to the Company and will instead be paid amounts 
outstanding from the collection of receipts presently outstanding and from 
the sale of existing inventory. In connection therewith, Senoral, Inc., a 
company controlled by Alan Saloner, who owns 250,000 shares of Common Stock 
(or 0.019% of the outstanding Common Stock) and is the general partner of The 
Saloner Family Investment Limited Partnership, and is the President of 
Prodispak U.S.A. Inc., has orally committed  to lend the Company $600,000 
secured by new accounts receivable and, Management understands, has agreed to 
purchase the outstanding debt, if any, of Foothill from Foothill, existing 
ninety (90) days after Foothill's collection period, provided the Forbearance 
Agreement is entered into. The Company has been seeking alternative sources 
of financing, including short-term lending and seeking investors. However, 
there can be no assurances that the Company will be able to reach an 
agreement with Foothill on its line of credit or that such other financing 
will be available. In the event that the Company is unable to obtain 
financing in the near future, the Company may be required to seek relief 
pursuant to a restructuring of the Company.

FORWARD LOOKING STATEMENTS

      With the exception of the actual reported financial results and other 
historical information, the statements made in this filing, including in 
Management's Discussion and Analysis of Financial Condition and Results of 
Operations, are forward looking statements that involve risks and 
uncertainties that could affect future results. Such risks and uncertainties 
include, but are not limited to: timing and size of orders from large 
customers, general economic conditions, inventory management, the health of 
the retail environment, supply constraints, supplier performance and other 
risks indicated in the Company's filings with the Securities and Exchange 
Commission.

                                      -21-
            

<PAGE>

                                       
                GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
 
                        PART II.  OTHER INFORMATION 
 
 
ITEM 1.  LEGAL PROCEEDINGS.

         In May 1997, the Company filed an action in U.S. District Court in 
         California against Mark Hauser, a director and financial advisor of 
         the Company, alleging, among other things, the breach by Mr. Hauser 
         and Tamarix Capital Corporation (of which Mr. Hauser is a principal) 
         of financial advisory services agreements with the Company. On 
         August 11, 1997, effective June 3, 1997, the parties entered into a 
         Mutual General Release which provided for, among other things: (i) 
         the dismissal of the lawsuit with prejudice, (ii) the termination of 
         the financial advisory agreements, (iii) the modification of warrants 
         to purchase an aggregate of 379,922 shares of the Company's common 
         stock held by Mr. Hauser and two affiliates of Tamarix to extend the 
         term from August 28, 1999 to June 3, 2000 and reduce the exercise 
         price from $1.50 to $1.00 (subject to adjustments), (iv) the 
         resignation of Mr. Hauser from the Board of Directors, (v) the 
         Company's payment of approximately $900 of expenses of Tamarix and 
         (vi) the Company's payment to Tamarix of certain fees in the event that
         various transactions are consummated on or before December 3, 1998.

         In June 1997, the Company was served with a complaint alleging that 
         Justman Packaging Company ("Justman") is owed a debt of approximately
         $70,000. Justman is a manufacturer of cardboard displays. The case was 
         filed in Los Angeles County Superior Court in California as Case 
         No. BC 171512. The Company has filed its answer denying responsibility 
         for the debt and is investigating potential liability. Management 
         believes the case, if adversely decided, will not have a material 
         adverse effect on the Company.

ITEM 2.  CHANGES IN SECURITIES.

         Not applicable.
  
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

         The Company has a line of credit with Foothill Capital Corporation 
         ("Foothill") which provides for maximum borrowings of $7,500,000 
         subject to certain conditions. Effective July 22, 1997, Foothill 
         ceased advancing funds to the Company under the Company's revolving 
         line of credit because the Company was no longer in compliance with 
         the lending formulas under the line. As a result of one of the 
         Company's receivables no longer qualifying under the line, the Company
         was overadvanced approximately $700,000 as of July 22, 1997. The 
         Company is currently in negotiations with Foothill to determine the 
         future of their lending relationship (see "Liquidity and Capital 
         Resources").

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

         Not applicable.

                                      -22-                 


<PAGE>

ITEM 5.  OTHER INFORMATION.
  
         On May 16, 1997, the number of directors of Global One was increased 
         to five (5) and George Vrabeck was elected as a Class I director and 
         William Kampf was elected as a Class II director. In addition, George
         Vrabeck was elected to serve as the Chief Operating Officer of Global
         One and the Chief Executive Officer and President of OSP. Effective
         July 7, 1997, William Righeimer was elected to serve as the Chief
         Financial Officer and Secretary of Global One.

         On July 31, 1997, Messrs. Angard and Sacks resigned as directors of 
         the Company and Mr. Angard resigned as the Chairman of the Board and 
         Chief Executive Officer. George Vrabeck gave up his titles as 
         President and Chief Operating Officer to succeed as Chairman of the 
         Board and Chief Executive Officer. William Righeimer was also elected 
         as Executive Vice President.

         The following business risks as disclosed in the S-4 Registration 
         Statement No. 333-4655 filed with the Securities and Exchange 
         Commission on May 29, 1996, are hereby incorporated by reference as 
         those set forth fully herein:
  

         Reliance on license agreements
         Market acceptance of licensed properties
         Seasonality and fluctuations in operating results
         Risk and fluctuations in operating results
         Concentrated customer base
         Dependence on key personnel
         Control by existing shareholders
         Possible insufficiency of working capital
         Anti-takeover effect of undesignated preferred stock
         Material returns of unsold products
  

                                      -23-


<PAGE>


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

         (a)   Exhibits.  


                EXHIBIT NO.    DESCRIPTION 
                -----------    -----------


                2.1            Final Amended and Restated Agreement and Plan of
                               Merger incorporated by reference to Exhibit 2.1 
                               of the Company's Registration Statement on Form 
                               S-4 (No. 333-4655)
 
                3(i).1         Certificate of Incorporation of the Company 
                               incorporated by reference to Exhibit 3(i).1 of 
                               the Company's Registration Statement on Form S-4 
                               (No. 333-4655)
 
                3(ii).1        Bylaws of the Company incorporated by reference 
                               to Exhibit 3(ii).1 of the Company's Registration 
                               Statement on Form S-4 (No. 333-4655)
 
                10.1           Mutual General Release, dated as of June 3, 
                               1997, among Global One, Mark Hauser, Ara Cohen,
                               William Spier and Tamarix Capital Corporation
 
                10.2           Distribution Agreement dated as of June 6, 1997,
                               between the Company and 2d Interactive, Inc. 

                10.3           Share Purchase and Sale Agreement dated as of 
                               June 6, 1997 between the Company and 
                               2d Interactive, Inc. 

                11.1           Statement re:  computation of per share earnings
  
  

         (b)   Reports on Form 8-K.
   
               None.

                                      -24-


<PAGE>

                                 SIGNATURE(S)
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, the 
Company has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized.

                                    GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
 


DATED: August 13, 1997               By:   /s/ George J. Vrabeck 
                                        ------------------------------
                                          George J. Vrabeck
                                          Chairman of the Board and 
                                          Chief Executive Officer


DATED: August 13, 1997               By:   /s/ William Righeimer  
                                        -----------------------------
                                           William Righeimer
                                           Chief Financial Officer and Secretary
                                           (Duly Authorized Officer)


                                      -25-

<PAGE>

                                 EXHIBIT INDEX
 
 
EXHIBIT NO.    DESCRIPTION 
  
2.1            Final Amended and Restated Agreement and Plan of  
               Merger incorporated by reference to Exhibit 2.1 of the 
               Company's Registration Statement on Form S-4 
               (No. 333-4655)
 
3(i).1         Certificate of Incorporation of the Company incorporated by 
               reference to Exhibit 3(i).1 of the Company's Registration 
               Statement on Form S-4 (No. 333-4655)
 
3(ii).1        Bylaws of the Company incorporated by reference to 
               Exhibit 3(ii).1 of the Company's Registration Statement on 
               Form S-4 (No. 333-4655)
 
10.1           Mutual General Release, dated as of June 3, 1997, among Global 
               One, Mark Hauser, Ara Cohen, William Spier and Tamarix Capital 
               Corporation
 
10.2           Distribution Agreement dated as of June 6, 1997, between the 
               Company and 2d Interactive, Inc. 

10.3           Share Purchase and Sale Agreement dated June 6, 1997 between 
               the Company and 2d Interactive, Inc. 

11.1           Statement re:  computation of per share earnings 
  
  
                                      -26-

<PAGE>
  
                     GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.
                          COMPUTATION OF PER SHARE EARNINGS
                                     (UNAUDITED)


                                                     SIX MONTHS ENDED
                                                          JUNE 30,
                                                -----------------------------
                                                     1997            1996
                                                -------------  --------------
Common stock outstanding at beginning of 
  period.....................................     13,010,947       6,448,442 
Exercise of stock option.....................          1,000              -- 
                                                -------------  --------------
Common stock outstanding at end of period....     13,011,947       6,448,442 
                                                -------------  --------------
                                                -------------  --------------

Weighted average shares outstanding                           
  during the period assuming exercise of
  warrants...................................     13,011,947       6,645,157 

Shares assumed outstanding approximating
  the number of shares sold (at the net
  offering proceeds per share of $1.26) to 
  fund the S Corporation distribution........             --       1,393,550 

Shares assumed to be repurchased under 
  the treasury stock method at a fair market
  value per share of $1.19 for the three
  months ended March 31, 1996................             --          (2,105)
                                                -------------  --------------

Total                                             13,011,947       8,036,602 
                                                -------------  --------------
                                                -------------  --------------

Net loss data (1996 Pro forma):
Loss before income taxes.....................    $ 2,171,488    $ (1,928,904)
Provision (benefit) for income taxes.........          1,054        (603,630)
Minority interest in income of subsidiaries..                         93,726 
                                                -------------  --------------
  Net loss...................................    $ 2,172,542    $ (1,231,548)
                                                -------------  --------------
                                                -------------  --------------

Net loss per share (1996 Pro forma):
Loss from operations.........................    $     (0.17)   $      (0.16)
Minority interest in loss of subsidiaries....             --            0.01 
                                                -------------  --------------
  Net loss per share.........................    $     (0.17)   $      (0.15)
                                                -------------  --------------
                                                -------------  --------------


                                                             EXHIBIT 11.1


                                      -27-