GLOBAL ONE DISTRIBUTION & MERCHANDISING INC, 10-Q, 1997-11-19

GLOBAL ONE DISTRIBUTION & MERCHANDISING INC
10-Q, 1997-11-19
MISCELLANEOUS PUBLISHING

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<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:
SEPTEMBER 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 November 10, 1997
----- --------------------
Common Stock, $.01 par value 21,011,947

<PAGE>

GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.

TABLE OF CONTENTS

Page
----
PART I. FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . .

Item 1. FINANCIAL STATEMENTS

Consolidated Balance Sheets as of September 30, 1997
(Unaudited) and December 31, 1996 . . . . . . . . . . . 3

Consolidated Statements of Operations for the Nine
Months Ended September 30, 1997 and 1996
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . 5

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

Consolidated Statements of Cash Flows for the Nine
Months Ended September 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. . . . . . . . . . . . . 15

PART II. OTHER INFORMATION

Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 26

Item 2. Changes in Securities . . . . . . . . . . . . . . . . . 26

Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . 26

Item 4. Submission of Matters to a Vote of Security Holders . . 27

Item 5. Other Information . . . . . . . . . . . . . . . . . . . 27

Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . 28

-2-
<PAGE>

PART I. FINANCIAL INFORMATION

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

GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

ASSETS
<TABLE>
<CAPTION>

SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31,494 $ 32,248
Accounts receivable -- trade, net of allowance for doubtful accounts and
returns of $1,818,919 and $2,506,893 at September 30, 1997 and
December 31, 1996, respectively . . . . . . . . . . . . . . . . . . . . . . . 3,120,446 4,667,818
Inventories (Note 2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,180,935 2,560,603
Prepaid royalty advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,500 576,347
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . 327,566 643,791
Note receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 1,575,000
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 1,089,248
-------------- --------------

Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,679,941 11,145,055

PROPERTY AND EQUIPMENT, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,032,595 1,149,775

GOODWILL, net of accumulated amortization of $590,332 and $222,724 at
September 30, 1997 and December 31, 1996, respectively . . . . . . . . . . . . 4,139,622 4,550,531

DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154,917 189,659
-------------- --------------

TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,007,075 $ 17,035,020
-------------- --------------
-------------- --------------
</TABLE>

(CONTINUED)

-3-
<PAGE>

GLOBAL ONE DISTRIBUTION & MERCHANDISING INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)

(UNAUDITED)

LIABILITIES AND STOCKHOLDERS' EQUITY

SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Revolving line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - -
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,741,162 $ 4,826,256
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 549,826 723,016
Royalties payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,685,626 1,382,549
Due to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,166 253,536
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,042 53,042
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 474,603 -
Current maturities of: . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized lease obligations. . . . . . . . . . . . . . . . . . . . . . . . 101,008 95,254
Subordinated long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . 980,342 675,000

-------------- --------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 9,385,775 8,008,653
-------------- --------------

REVOLVING LINE OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 3,813,334
CAPITALIZED LEASE OBLIGATIONS,
less current maturities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,145 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 September 30, 1997
and December 31, 1996, respectively. . . . . . . . . . . . . . . . . . . . . 2,655,196 130,109
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 8,856,604 10,639,439
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,612,201) (7,344,031)
-------------- --------------

Total stockholders'equity. . . . . . . . . . . . . . . . . . . . . . . . . (1,100,401) 3,425,517
-------------- --------------

TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,007,075 $ 17,035,020
-------------- --------------
-------------- --------------
</TABLE>

(CONCLUDED)

See notes to consolidated financial statements.

-4-
<PAGE>

GLOBAL ONE DISTRIBUTION & MERCHANDISING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
--------------- ------------

NET SALES. . . . . . . . . . . . . . . . . $ 14,541,826 $ 29,328,465
--------------- ------------
COST OF SALES:
Cost of goods sold. . . . . . . . . . . . 6,577,916 16,350,850
License and royalty expense . . . . . . . 2,742,073 3,166,870
--------------- ------------

Total cost of sales . . . . . . . . . . 9,319,989 19,517,720
--------------- ------------

GROSS PROFIT . . . . . . . . . . . . . . . 5,221,837 9,810,745
--------------- ------------

OPERATING EXPENSES:. . . . . . . . . . . .
Warehouse and selling. . . . . . . . . . 4,989,918 7,895,437
Warehouse relocation (Note 6). . . . . . - -
General and administrative . . . . . . . 3,880,876 4,889,115
--------------- ------------

Total operating expenses . . . . . . . 8,870,794 12,784,552
--------------- ------------

OPERATING LOSS . . . . . . . . . . . . . . (3,648,957) (2,973,807)
INTEREST EXPENSE . . . . . . . . . . . . . 525,703 993,717
--------------- ------------

LOSS BEFORE INCOME TAXES AND
MINORITY INTEREST . . . . . . . . . . . (4,174,660) (3,967,524)
INCOME TAX PROVISION . . . . . . . . . . . 1,093,502 (1,185,583)
--------------- ------------

LOSS BEFORE MINORITY INTEREST . . . . . . (5,268,162) (2,781,941)
MINORITY INTEREST IN (INCOME)
LOSS OF SUBSIDIARIES . . . . . . . . . . - 208,487
--------------- ------------

NET INCOME (LOSS). . . . . . . . . . . . . $ (5,268,162) $ (2,573,454)
--------------- ------------
--------------- ------------

(CONTINUED)

-5-
<PAGE>

GLOBAL ONE DISTRIBUTION & MERCHANDISING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

(UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
--------------- ------------
NET LOSS DATA (1996 PRO FORMA):
Loss before income taxes, as reported . . $ (4,174,660) $ (3,967,524)
Provision (benefit) for income taxes. . . 1,093,502 (793,505)
Minority interest in income of
subsidiaries. . . . . . . . . . . . . . 208,487

--------------- ------------
Net loss. . . . . . . . . . . . . . $ (5,268,162) $ (2,965,532)
--------------- ------------
--------------- ------------

NET LOSS PER SHARE (1996 PRO
FORMA) (Note 5):
Loss from operations. . . . . . . . . . . $ (0.40) $ (0.35)
Minority interest in income
of subsidiaries . . . . . . . . . . . . - 0.02
--------------- ------------

Net loss. . . . . . . . . . . . . . $ (0.40) $ (0.33)
--------------- ------------

Weighted average shares outstanding . . . 13,011,947 8,944,304
--------------- ------------
--------------- ------------

See notes to consolidated financial statements.
(CONCLUDED)

-6-
<PAGE>

THREE MONTHS ENDED
-------------------------------
SEPTEMBER 30,
-------------------------------
1997 1996
--------------- ------------

NET SALES. . . . . . . . . . . . . . . . . $ 3,937,968 $ 8,998,664
--------------- ------------
COST OF SALES:
Cost of goods sold . . . . . . . . . 2,110,867 5,217,876
License and royalty expense. . . . . 906,005 1,003,499
--------------- ------------
Total cost of sales. . . . . 3,016,872 6,221,375
--------------- ------------
GROSS PROFIT . . . . . . . . . . . . . . . 921,096 2,777,289
--------------- ------------
OPERATING EXPENSES:
Warehouse and selling. . . . . . . . . . . 1,293,509 2,617,548
Warehouse relocation (Note 6). . . . . . (110,000) -
General and administrative . . . . . . . 1,618,499 1,801,095
--------------- ------------
Total operating expenses . . 2,802,008 4,418,643
--------------- ------------
OPERATING LOSS . . . . . . . . . . . . . . (1,880,912) (1,641,354)
INTEREST EXPENSE . . . . . . . . . . . . . 122,260 397,266
--------------- ------------
LOSS BEFORE INCOME TAXES AND
MINORITY INTEREST . . . . . . . . . . . (2,003,172) (2,038,620)
INCOME TAX PROVISION . . . . . . . . . . . 1,092,448 (1,243,583)
--------------- ------------
LOSS BEFORE MINORITY INTEREST . . . . . . (3,095,620) (795,037)
MINORITY INTEREST IN INCOME
OF SUBSIDIARIES. . . . . . . . . . . - 114,761
--------------- ------------
NET LOSS . . . . . . . . . . . . . . . . . $ (3,095,620) $ (680,276)
--------------- ------------
--------------- ------------

NET LOSS DATA (1996 PRO FORMA):
Loss before income taxes, as reported. . $ (2,003,172) $ (2,038,620)
Provision (benefit) for income taxes . . 1,092,448 (189, 875)
Minority interest in income of
subsidiaries . . . . . . . . . . . . . - 114,761

--------------- ------------
Net loss. . . . . . . . . . . . . $ (3,095,620) $ (1,733,984)
--------------- ------------
--------------- ------------

NET LOSS PER SHARE (1996 PRO FORMA) (Note 5):
Loss from operations . . . . . . . . . . $ (0.24) $ (0.18)
Minority interest in income of
subsidiaries . . . . . . . . . . . . . - 0.01
--------------- ------------
Net loss . . . . . . . . . . . . . $ (0.24) $ (0.17)
--------------- ------------
Weighted average shares outstanding. . . . 13,011,947 10,069,810
--------------- ------------
--------------- ------------

(CONCLUDED)

-7-
<PAGE>

GLOBAL ONE DISTRIBUTION & MERCHANDISING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
--------------- ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . $ (5,268,162) $ (2,573,454)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization. . . . . 719,172 336,159
Provision for warehouse relocation . . - -
Write-off of prepaid royalty
advances. . . . . . . . . . . . . . . 556,846 (311,679)
Minority interest in income of
subsidiaries. . . . . . . . . . . . . - (61,505)
Write-off of deferred income tax
assets. . . . . . . . . . . . . . . . 1,089,247 (1,085,156)
Changes in operating assets and
liabilities:
Accounts receivable. . . . . . . . . . 1,547,372 1,650,634
Inventories. . . . . . . . . . . . . . 1,379,667 (797,807)

Prepaid expenses and other current
assets. . . . . . . . . . . . . . . . 316,225 (489,154)
Accounts payable . . . . . . . . . . . (85,092) 699,108
Accrued expenses . . . . . . . . . . . (173,190) (35,702)
Royalties payable. . . . . . . . . . . 303,076 (350,665)
Due to customers . . . . . . . . . . . 546,630 41,650
Income taxes payable . . . . . . . . . - (153,914)
--------------- ------------
Net cash provided by (used in)
operating activities . . . . . . . 931,791 (3,131,485)
--------------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and equipment . . (133,086) (177,528)
Payment of merger costs. . . . . . . . - (554,724)
Organization costs . . . . . . . . . - (10,377)
Deposits . . . . . . . . . . . . . . . 34,742 (32,341)
--------------- ------------
Net cash used in investing
activities . . . . . . . . . . . . (98,344) (774,970)
--------------- ------------

(CONTINUED)

-8-
<PAGE>

GLOBAL ONE DISTRIBUTION & MERCHANDISING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
--------------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:. . . . . . . . . . . . . . .
Net (repayment) borrowings on line
of credit. . . . . . . . . . . . . . . $ (3,813,334) $ 631,071
Payments on subordinated debt . . . . . 267,993 (531,460)
Proceeds from issuance of
shareholders loans. . . . . . . . . - 2,350,000
Repayment of shareholder loans . . . . - (1,250,000)
Proceeds of notes receivable . . . . . 1,575,000 -
Proceeds of notes payable. . . . . . . 1,194,331 -
Dividends paid . . . . . . . . . . . . - (2,465,820)
Proceeds from issuance of common
stock in private placement. . . . . - 6,486,357
Payment of stock offering costs. . . . - (1,311,713)
Proceeds from issuance of warrants . . - 2,500
Proceeds from exercise of stock
options . . . . . . . . . . . . . . 22,522 -
Payment on capital lease obligations . (80,713) (61,314)
--------------- ------------
Net cash provided by (used in)
financing activities . . . . . . . (834,201) 3,831,627
--------------- ------------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS. . . . . . . . (754) (74,828)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD. . . . . . . . . . . 32,248 74,828
--------------- ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD. . . . . . . . . . . . . . $ 31,494 $ 0
--------------- ------------
--------------- ------------

SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . $ 400,612 $ 885,053
Income taxes . . . . . . . . . . . . . $ - $ 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 September 30, 1997 and the related
consolidated statements of operations and of cash flows for the nine months
ended September 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 have been made which are necessary to
present fairly the financial position, results of operations and cash flows of
the Company at September 30, 1997 and for the nine-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 nine-month periods ended September
30, 1997 are not necessarily indicative of the results for the full year.

2. INVENTORIES

Inventories consisted of the following:
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------

Products in process $ 108,174 $ 252,893
Finished products 857,341 1,796,604
Packaging materials 215,420 511,106
------------- ------------

$ 1,180,935 $ 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 SmallCap Market effective August 28, 1996.

-10-
<PAGE>

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 nine months
ended September 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 nine
months ended September 30, 1996 were approximately $13.3 million and $425,000,
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.

NINE MONTHS ENDED
SEPTEMBER 30, 1996
------------------
(IN THOUSANDS)
------------------
Net sales. . . . . . . . . . . . . . . . $ 17,844
Cost of sales. . . . . . . . . . . . . . 11,045
------------------
Gross profit . . . . . . . . . . . . . . 6,799
Operating expenses . . . . . . . . . . . 9,896
------------------
Operating loss . . . . . . . . . . . . . (3,097)
Interest expense . . . . . . . . . . . . 833
------------------
Loss before taxes. . . . . . . . . . . . (3,930)
Provision for income taxes . . . . . . . 187
------------------
Net loss . . . . . . . . . . . . . . . . $ (4,117)
------------------
------------------
Net loss per share . . . . . . . . . . . $ (0.32)
------------------
------------------
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"), of which Alan Saloner, the
owner of 250,000 shares of Common Stock, is President (see "Liquidity and
Capital Resources"); accordingly, the originally anticipated outsourcing did not
take place. As a result, the recorded accrual was significantly reduced (from
$1,080,000 to $110,000) primarily due to a change in relocation plans to remain
in California rather than moving to New Jersey. After an approximate two-month
trial period, the Company decided, by mutual agreement with Prodispak, to
terminate the outsourcing arrangement effective September 30, 1997. The Company
currently has no plans to relocate the warehouse; therefore, the recorded
accrual has been reduced to zero.

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 the difference
between the sale price and the investment amount as a loan payable to TSFILP in
the third quarter period. Alan Saloner who owns 250,000 shares of Common Stock
(or 1.2% of the outstanding Common Stock) and is the President of Prodispak (see
"Note 6"), is the general partner of TSFILP.

-12-
<PAGE>

8. WRITE-OFF OF DEFERRED TAX ASSETS AND PREPAID ROYALTIES

As a result of the merger described in Note 3, OSP's S Corporation election
was terminated and the Company recognized a current deferred tax asset
representing the cumulative temporary differences as of the termination date
(August 28, 1996). The recorded asset consisted of the following:

Allowances for doubtful accounts and returns . . . $ 1,077,658
Inventory reserve. . . . . . . . . . . . . . . . . 362,659
Inventory cost capitalization. . . . . . . . . . . 128,570
Net operating loss carryforwards . . . . . . . . . 579,498
Other. . . . . . . . . . . . . . . . . . . . . . . 20,640
-----------
Deferred tax assets. . . . . . . . . . 2,169,025
-----------
Management fee income. . . . . . . . . . . . . . . (333,250)
Accrued vacation liability . . . . . . . . . . . . (65,643)
Depreciation . . . . . . . . . . . . . . . . . . . (21,500)
-----------
Deferred tax liabilities . . . . . . . (420,393)
Valuation allowance. . . . . . . . . . (659,385)
-----------
Net deferred tax assets. . . . . . . . 1,089,247
-----------
-----------

With the foreclosure against OSP's assets as described in Note 9, these deferred
tax assets were rendered of no value and written-off.

In the current financial period, the Company reviewed the content of its prepaid
royalty accounts and determined that approximately $720,000 in advances was
unlikely to be recovered as the result of Global One's inability to utilize
prepaid licensing rights obtained from OSP through the purchase of assets and
the subsequent transfer to Erekesef. See Note 9. Accordingly, this amount was
written off to royalty expense in the current period.

9. CERTAIN INDEBTEDNESS

Effective August 1, 1997, the Company entered into a Stock Purchase and
Loan Agreement (the "Agreement") with Joseph C. Angard, the Company's former
Chairman of the Board and Chief Executive Officer and formerly a 35.7%
stockholder ("Angard"), and Miller, Johnson & Kuehn, Incorporated ("Miller
Johnson") which provides for, among other things, (i) Miller Johnson selling on
a "best efforts" basis up to 2,000,000 shares of Common Stock owned by Angard
for $0.50 per share in a private placement (the "Private Placement"), (ii)
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, (iv) Angard's surrender of
920,000 shares of Common Stock to the Company and (v) the Company's 10-year
option to purchase up to 970,000 shares of Common Stock held by Angard at a
purchase price of $1.00 per share.

As of September 3, 1997, Angard had sold 1,646,100 shares in the Private
Placement and loaned $720,000 to the

-13-
<PAGE>

Company. Miller Johnson has indicated that it will not sell any more shares of
Angard's Common Stock. Accordingly, the Company will not receive the remaining
loan proceeds ($180,000) from Angard. The parties are currently negotiating the
retirement of Angard's shares as contemplated by the Agreement.

Effective August 1, 1997, the Company entered into an agreement (the
"Forbearance Agreement") with its lender, Foothill Capital Corporation
("Foothill"), whereby Foothill agreed to not enforce certain of its remedies
available as a result of the Company's default under its line of credit until
October 1, 1997. In connection with the Forbearance Agreement, on August 28,
1997, Senoral, Inc., a creditor of the Company ("Senoral"), purchased Foothill's
rights under the line of credit for approximately $342,000. Effective September
11, 1997, Senoral began advancing funds to the Company under the line of credit.
Senoral is controlled by Alan Saloner.

The book value of the Assets at September 30, 1997 was as follows:

ASSETS AS OF September 30, 1997 OSP PUBLISHING, INC.

CURRENT ASSETS

Cash $ 152,157
Accounts Receivable - trade 1,829,403
Inventories 798,999
Royalty Advances -
Deferred Income Taxes -
Prepaid and Other Current Assets 92,548

------------
Total Current Assets 2,873,107

PROPERTY & EQUIPMENT (net) 863,852

INTERCOMPANY ACCOUNTS (2,716,764)
DEPOSITS 172,197

GOODWILL/OTHER ASSETS (net) (7,254)

TOTAL ASSETS $ 1,185,138
------------
------------

Management believes that, due to the nature of the Assets, certain of the
Assets did not receive full value and that other Assets were non-transferable or
could not in any event be sold or transferred. Following the sale, a deficiency
of approximately $770,000 was still owed by the Company to Senoral. As of
November 13, 1997, the amount outstanding under the Senoral line of credit was
$1,033,486.

Subsequent to the public sale, the Assets were sold to L.J.R. Trading,
Inc., a California corporation ("LJR") and a wholly owned subsidiary of Erekesef
Securities Limited, a British Virgin Islands company ("Erekesef").

-14-
<PAGE>

Effective October 24, 1997, the Company and Erekesef entered into a Share
Exchange Agreement whereby the Company agreed to purchase all of the outstanding
stock of LJR in exchange for the 8,000,000 shares of the Company's common stock.
In connection with the transaction, the Company agreed to increase the number of
directors on the Board of Directors to seven and Erekesef will have the right to
appoint up to three members to the Board.

Global One entered into a Loan and Security Agreement, dated October 7,
1997, with Safcor, Inc., a company affiliated with Alan Saloner, providing for
a six-month loan of $800,000 to Global One bearing interest at the rate of 3%
over prime and secured by the Company's accounts receivable. The Company
anticipates that the proceeds from this loan will be used to pay down the
remaining amounts owed to Senoral.

10. 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.

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 has been 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. On October 8, 1997, the assets of OSP were sold at a public
sale, and on October 27, 1997, the Company purchased those assets from a third
party. See "Liquidity and Capital Resources." Global One, formerly through 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.

-15-
<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 and nine months
ended September 30, 1996 and 1997.
<TABLE>
<CAPTION>

FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------------------- ---------------------------------------------
1996 1997 1996 1997
-------------------- ----------------------- -------------------- ----------------------
% OF % OF % OF % OF
AMOUNT SALES AMOUNT SALES AMOUNT SALES AMOUNT SALES
------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES
OSP . . . . . . . . . . . . . . $ 5.0 100.0% $ 2.2 100.0% $ 14.9 100.0% $ 11.3 100.0%
Global One. . . . . . . . . . . - - 0.6 100.0 - - 0.6 100.0
SDI (1) . . . . . . . . . . . . 3.6 100.0 - - 13.3 100.0 - -
KRSI (2). . . . . . . . . . . . 0.2 100.0 1.0 - 0.2 100.0 1.6 100.0
BEx . . . . . . . . . . . . . . 0.2 100.0 0.2 100.0 0.9 100.0 1.0 100.0
-------- ---------- --------- ---------
Company . . . . . . . . . . . . $ 9.0 100.0 $ 3.9 100.0 $ 29.3 100.0 $ 14.5 100.0
-------- ---------- --------- ---------
-------- ---------- --------- ---------
COST OF GOODS SOLD
OSP . . . . . . . . . . . . . . $ 2.7 54.0 $ 1.8 81.8 $ 7.1 47.7 $ 5.6 49.6
Global One. . . . . . . . . . . - - 0.1 4.5 - - 0.1 16.7
SDI (1) . . . . . . . . . . . . 2.3 63.9 - - 8.5 63.9 - -
KRSI (2). . . . . . . . . . . . 0.1 50.0 0.2 - 0.1 50.0 0.4 25.0
BEx . . . . . . . . . . . . . . 0.1 50.0 0.1 50.0 0.7 77.8 0.5 50.0
-------- ---------- --------- ---------
Company . . . . . . . . . . . . $ 5.2 57.8 $ 2.2 53.8 $ 16.4 56.0 $ 6.6 45.5
-------- ---------- --------- ---------
-------- ---------- --------- ---------
LICENSE AND ROYALTY
EXPENSE
OSP . . . . . . . . . . . . . . $ 0.6 12.0 $ 0.4 18.2 $ 1.9 12.8 $ 2.0 17.7
Global One. . . . . . . . . . . - - 0.1 4.5 - - 0.1 16.7
SDI (1) . . . . . . . . . . . . 0.3 8.3 - - 1.1 8.3 - -
KRSI (2). . . . . . . . . . . . - - 0.4 40.0 - - 0.5 31.3
BEx . . . . . . . . . . . . . . 0.1 50.0 - - 0.1 11.1 0.1 10.0
-------- ---------- --------- ---------
Company . . . . . . . . . . . . $ 1.0 11.1 $ 0.9 23.1 $ 3.1 10.6 $ 2.7 18.6
-------- ---------- --------- ---------
-------- ---------- --------- ---------
Total Cost of Sales
OSP . . . . . . . . . . . . . . $ 3.3 66.0 $ 2.2 100.0 $ 9.0 60.4 $ 7.6 67.3
Global One. . . . . . . . . . . - - 0.2 9.1 - - 0.2 33.3
SDI (1) . . . . . . . . . . . . 2.6 72.2 - - 9.6 72.2 - -
KRSI (2). . . . . . . . . . . . 0.1 50.0 0.6 - 0.1 0.8 0.9 56.3
</TABLE>

-16-
<PAGE>

<S> <C> <C> <C> <C> <C> <C> <C> <C>
BEx . . . . . . . . . . . . . . 0.2 100.0 - - 0.8 88.9 0.6 60.0
-------- ---------- --------- ---------
Company . . . . . . . . . . . . $ 6.2 68.9 $ 3.0 76.9 $ 19.5 66.6 $ 9.3 64.1
-------- ---------- --------- ---------
-------- ---------- --------- ---------

GROSS PROFIT
OSP . . . . . . . . . . . . . . $ 1.7 34.0 $ - - $ 5.9 39.6 $ 3.7 32.7
Global One. . . . . . . . . . . - - 0.4 18.2 - - 0.4 66.7
SDI (1) . . . . . . . . . . . . 1.0 27.8 - - 3.7 27.8 - -
KRSI (2). . . . . . . . . . . . 0.1 50.0 0.4 - 0.1 0.8 0.7 43.8
BEx . . . . . . . . . . . . . . - - 0.1 100.0 0.1 11.1 0.4 40.0
-------- ---------- --------- ---------
Company . . . . . . . . . . . . $ 2.8 31.1 $ 0.9 23.1 $ 9.8 33.4 $ 5.2 35.9
-------- ---------- --------- ---------
-------- ---------- --------- ---------
</TABLE>

- --------------------------------------
(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 nine months ended September 30, 1996 and
1997.

PERCENTAGE OF
NET SALES
THREE MONTHS ENDED *PERIOD TO PERIOD
SEPTEMBER 30, PERCENTAGE CHANGE

1996 1997 1996 vs. 1997

Net sales 100.0 % 100.0% (56.2)
Cost of goods sold 57.8 53.8 (59.6)
License and royalty expense 11.1 23.0 (9.7)
Gross profit 31.1 23.4 (66.8)

Warehouse and selling expenses 29.1 32.9 (50.6)
Warehouse relocation - (2.8) (100.0)
General and administrative 20.0 41.1 (10.1)
Operating loss (18.2) (47.8) 14.6
Interest expense 4.4 3.1 (69.2)

Income tax provision (12.2) 27.7 (187.9)
Minority interest in income of 1.3 - (100.0)
subsidiaries
Net loss (7.6) (78.6) 355.1

- --------------------------------------
* Based on dollar amounts on page 7.

-17-
<PAGE>

PERCENTAGE OF
NET SALES
NINE MONTHS ENDED *PERIOD TO PERIOD
SEPTEMBER 30, PERCENTAGE CHANGE

1996 1997 1996 vs. 1997

Net sales 100.0 % 100.0% (50.4)
Cost of goods sold 56.0 45.2 (59.8)
License and royalty expense 10.6 18.9 (13.4)
Gross profit 33.4 35.9 (46.8)
Warehouse and selling expenses 27.0 34.3 (36.8)
Warehouse relocation - - -
General and administrative 16.7 26.7 (20.6)
Operating loss (10.2) (25.1) 22.7
Interest expense 3.4 3.6 (47.1)
Income tax provision (3.8) 7.5 (192.2)
Minority interest in income of 0.7 - (100.0)
subsidiaries
Net loss (8.9) (36.2) 104.7

- --------------------------------------
*Based on dollar amounts on page 5.

NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1996

The Company's net sales decreased $14.8 million, or 50.4%, for the nine
months ended September 30, 1997 compared to the nine months ended September 30,
1996. This decrease was primarily a result of the sale of SDI on December 31,
1996, which contributed sales of $13.3 million in the nine months ended
September 30, 1996. OSP experienced decreased sales of $3.6 million, or 24.2%,
for the nine months ended September 30, 1997 compared with 1996. This decrease
can be attributed to unusually high returns and the phasing out of OSP as a
Company subsidiary. See "Liquidity and Capital Resources." 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 $0.1 million, or 11.1%, for the three quarters compared with the
comparable period in 1996 as a result of the redirection of marketing and sales
efforts which focuses on sales of key licensed products and products produced
for major movie promotions. KRSI was merged into the Company effective August
28, 1996 and contributed sales of $1.6 million for the nine months ended
September 30, 1997.

Cost of goods sold decreased $9.8 million, or 59.8%, for the nine months
ended September 30, 1997 to $6.6 million compared with $16.4 million for the
same period in 1996. As a percentage of net sales, cost of goods sold decreased
to 45.5 % for the nine months ended September 30, 1997 from 56.0% for the nine
months ended September 30, 1996. The Company's cost of goods sold decreased
primarily because SDI, which historically has had a higher cost

-18-
<PAGE>

of goods sold percentage, had costs of $8.5 million for the nine months ended
September 30, 1996.

OSP's cost of goods sold decreased $1.5 million, or 21.1%, for the nine
months ended September 30, 1997 to $5.6 million compared to $7.1 million for the
same period in 1996. For the first three quarters of 1997, OSP's costs of goods
sold as a percentage of net sales was 49.6% compared with 47.7% in the first
three quarters of 1996. This is primarily due to increased reserves for
obsolete inventories.

BEx's cost of goods sold for the first three quarters of 1997 was $0.5
million, or 50.0 % of net sales, compared with $0.7 million, or 77.8% of net
sales, for the first three quarters of 1996. The decrease in cost of goods sold
as a percentage of net sales is due primarily to management's planned reduction
of inventory SKU's which eliminated the need for substantial write-offs.

KRSI's cost of goods sold as a percentage of net sales for the nine-month
period was 25.0%.

License and royalty expense as a percentage of net sales increased to 18.6%
for the nine months ended September 30, 1997 from 10.6% for the nine months
ended September 30, 1996. OSP's royalty rate increased to 17.7% for the nine
months ended September 30, 1997 from 12.8 % for the same period in 1996 due
primarily to the write-off of unrecoverable royalty advances and the
discontinuation of several underperforming OSP licenses. Additionally, SDI,
which has historically had the lowest royalty rate, had a royalty rate of 8.3%
in the nine-month period ended September 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 nine-month period ended September 30, 1997.

Warehouse and selling expenses decreased $2.9 million, or 36.8%, to $5.0
million for the nine months ended September 30, 1997 from $7.9 million for the
same period in 1996. SDI had costs of approximately $1.4 million which
represented approximately 4.8% 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 34.3% for the nine months
ended September 30, 1997 from 27.0% 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 has been reduced to zero since the arrangement
with Prodispak was terminated effective October 1, 1997 (see "Liquidity and
Capital Resources").

General and administrative expenses decreased by $1.0 million, or 20.6 %,
to $3.9 million for the nine months ended September 30, 1997 from $4.9 million
for the same period in 1996 due primarily to the sale of SDI. SDI contributed
approximately $1.9 million in general and administrative costs in the nine-month
period ended September 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 $368,000 for the
nine months ended September 30, 1997. Other increased costs were insurance and
professional fees as a result of being a public entity.

Interest expense decreased $468,000, or 47.1%, to $526,000 for the nine
months ended September 30, 1997 from $994,000 for the same period in 1996. The
decrease in interest expense is due primarily to the sale of SDI and the paydown
of the line of credit with Foothill Capital Corp.

The Company recorded income tax benefits of approximately $1.2 million in
the first three quarters of 1996 as a result of the change in income tax status
from an S Corporation to a C Corporation in connection with the completion of
the merger and private placement that became effective August 28, 1996. There
was a $1.0 million provision in the first three quarters of 1997 as a result of
writing off the previously recorded benefits due to the Company's inability to
use them.

For the nine months ended September 30, 1996, 49.0% of the income of SDI
was allocated to the minority stockholder and totaled $208,487. Since SDI was
sold on December 31, 1996, there was no allocation of profit or loss in 1997.

-19-
<PAGE>

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

The Company's net sales decreased $5.1 million, or 56.2%, for the three
months ended September 30, 1997 compared to the three months ended September 30,
1996. This decrease was primarily a result of the sale of SDI on December 31,
1996, which contributed sales of $3.6 million in the three months ended
September 30, 1996. OSP experienced decreased sales of $2.8 million, or 56.0%,
for the three months ended September 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 and the
phasing out of OSP as a Company subsidiary. BEx's sales decreased $0.1 million,
or 50.0%, 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 key licensed products and products produced for major movie promotions; there
were no such promotions in the third quarter of 1997. KRSI was merged into the
Company effective August 28, 1996 and contributed sales of $1.0 million for the
quarter ended September 30, 1997 compared to sales of $200,000 for the same
period in 1996.

Cost of goods sold decreased $3.1 million, or 59.6%, for the three months
ended September 30, 1997 to $2.1 million compared with $5.2 million for the same
period in 1996. As a percentage of net sales, cost of goods sold decreased to
53.8% for the three months ended September 30, 1997 from 57.8% for the three
months ended September 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 $2.3 million for the three months ended September 30,
1996.

OSP's cost of goods sold decreased $900,000, or 33.3%, for the three months
ended September 30, 1997 to $1.8 million compared to $2.7 million for the same
period in 1996. For the third quarter of 1997, OSP's costs of goods sold as a
percentage of net sales was 81.8% compared with 54.0% in the third quarter of
1996. This is primarily due to the processing of a backlog of credits for
returns which decreased net sales.

BEx's cost of goods sold for the third quarter of 1997 was $158,000, or
61.9% of net sales, compared with $168,000, or 66.6% of net sales, for the third
quarter of 1996. The decrease in cost of goods sold as a percentage of net
sales is due primarily to the write-down of certain inventory upon the
relocation of the Company's manufacturing and sales operations from Michigan to
Bell, California in 1996.

KRSI's cost of goods sold as a percentage of net sales for the third
quarter was 20.0% compared to 50.0% in 1996.

License and royalty expense as a percentage of net sales increased to 23.1%
for the three months ended September 30, 1997 from 11.1% for the three months
ended September 30, 1996. OSP's royalty rate increased to 18.2% for the three
months ended September 30, 1997 from 12.0% for the same period in 1996 due
primarily to the write-off of prepaid royalties and the discontinuation of
several underperforming OSP licenses. Additionally, SDI, which has historically
had the lowest royalty rate, had a royalty rate of 8.3% in the third 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 third quarter of 1997.

Warehouse and selling expenses decreased $1.3 million, or 50.6%, to $1.3
million for the three months ended September 30, 1997 from $2.6 million for the
same period in 1996. SDI had costs of approximately $345,000 which represented
approximately 3.8% of net sales. The remaining decreases after removing the
effect of SDI were primarily the result of lower sales, which more than offset
the increase associated with the addition of KRSI. Warehouse and selling
expenses as a percentage of net sales increased to 32.9% for the three months
ended September 30, 1997 from 29.1% 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 has been reduced to zero since the arrangement
with Prodispak was terminated effective October 1, 1997 (see "Liquidity and
Capital Resources").

-20-
<PAGE>

General and administrative expenses decreased by $183,000, or 10.1%, to
$1.6 million for the three months ended September 30, 1997 from $1.8 million for
the same period in 1996 due primarily to the sale of SDI. SDI contributed
approximately $720,000 in general and administrative costs in the third 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 $121,000 for the three months ended 1997. Other
increased costs were insurance and professional fees as a result of being a
public entity and an accrual for possible litigation claims regarding the
closing of OSP.

Interest expense decreased $275,000, or 69.2%, to $122,000 for the three
months ended September 30, 1997 from $397,000 for the same period in 1996. The
decrease in interest expense is due primarily to the sale of SDI and the paydown
of the line of credit from Foothill Capital Corporation.

The Company recorded income tax benefits of approximately $1.2 million in
the third quarter of 1996 as a result of the profits of the Company's 49.0%
owned subsidiary, SDI, which was sold on December 31, 1996. There was a $1.0
million provision in the third quarter of 1997 as a result of writing off the
previously recorded benefits due to the inability to use them.

In the third quarter of 1996, 49.0% of the income of SDI was allocated to
the minority stockholder and totaled $115,000. Since SDI was sold on December
31, 1996, there was no allocation of profit or loss in 1997.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 1997, working capital was a deficit of approximately $4.7
million primarily as a result of the Company's writing off of $1.7 million of
current assets which were deemed to be of no value in the third quarter, and the
processing of credit for returns against accounts receivable. In addition,
debit accounts payable balances aggregating approximately $110,000 were written
off and accruals for litigation and legal fees aggregating $150,000 were
recorded.

Net cash provided by operating activities during the nine months ended
September 30, 1997 was $931,791 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 $98,344 primarily as a
result of the purchase of property and equipment. Net cash used in financing
activities during the nine months ended September 30, 1997 was $834,201 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.

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<PAGE>

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 recorded the difference between
the sale price and the investment amount as a loan payable to TSFILP in the
third quarter period. Alan Saloner who owns 250,000 shares of Common Stock and
is the President of Prodispak, is the general partner of TSFILP.

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
received 7-1/4% of the Company's gross sales for providing these services. The
arrangement was intended to relieve some cash flow limitations on the Company by
reducing the Company's fixed costs. However, effective September 30, 1997 the
arrangement was terminated by the Company upon mutual agreement with 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. The transactions contemplated by the
Distribution Agreement have not yet been consummated and the parties are
currently in negotiations regarding the status of the transactions.

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 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. The
transactions contemplated by the Stock Exchange Agreement have not yet been
consummated and the parties are currently in negotiations regarding the status
of the transactions.

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<PAGE>

As of September 3, 1997, Angard had sold 1,646,100 shares in the Private
Placement and loaned $720,000 to the Company. Miller Johnson has indicated that
it will not sell any more shares of Angard's Common Stock. Accordingly, the
Company will not receive the remaining loan proceeds ($180,000) from Angard. The
parties are currently negotiating the retirement of Angard's shares as
contemplated by the Agreement.

Effective November 11, 1997, the Company entered into a Stock Purchase and
Consulting Agreement (the "Malm Agreement") with Michael Malm, a director and a
former officer of the Company ("Malm"), providing for, among other things (i)
Malm's execution of an agreement with Miller Johnson or its designee for Miller
Johnson's purchase of 1,200,000 shares of Common Stock held by Malm, (ii) the
termination of Malm's employment agreement with the Company and the mutual
release of claims by the Company and Malm, (iii) the Company's payment to Malm
of $2,000 per month for 10 months, (iv) Malm's consulting services to the
Company for up to 12 days per month for up to three months at the rate of $1,000
per day, (v) the reinstatement and acceleration of Malm's options to purchase
Common Stock and the repricing thereof to $0.20 per share and (vi) Malm's put
option until February 11, 1998 to require the Company to purchase, and the
Company's call option exerciseable for 30 days thereafter to purchase, the
assets of Image 2000, a graphic design firm held by Malm, for a purchase price
of 1,200,000 shares of Common Stock and additional stock and cash amounts based
on the net after tax earnings of such assets, provided that Malm may rescind the
purchase in the event that he discontinues his employment with the Company and
the Company's management changes.

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<PAGE>

The book value of the Assets at September 30, 1997 was as follows:

ASSETS AS OF September 30, 1997 OSP PUBLISHING, INC.

CURRENT ASSETS

Cash $ 152,157
Accounts Receivable - trade 1,829,403
Inventories 798,999
Royalty Advances -
Deferred Income Taxes -
Prepaid and Other Current Assets 92,548

------------
Total Current Assets 2,873,107

PROPERTY & EQUIPMENT (net) 863,852

INTERCOMPANY ACCOUNTS (2,716,764)
DEPOSITS 172,197

GOODWILL/OTHER ASSETS (net) (7,254)

TOTAL ASSETS $ 1,185,138
------------
------------

Management believes that, if relieved of OSP's indebtedness, it will be
more able to obtain bank financing. It is likely that certain creditors of OSP
may seek relief against Global One for OSP's indebtedness. Management intends
to strongly oppose any such claims. Since August 1, 1997, Global One and/or its
subsidiaries have been served with a number of lawsuits. As of November 12,
1997 the Company had claims aggregating approximately $1.5 million in unpaid
invoices in addition to certain other matters involving unspecified amounts and
several claims for copyright or trademark infringement. Management believes that
most of the indebtedness belongs to OSP. In addition, Robert Yamasaki, the
holder of a subordinated note from OSP with an outstanding principle balance of
approximately $1.5 million, filed a suit against the Company and OSP alleging
breach of contract and fraud and requesting, among other things, acceleration of
the note, an injunction against Global One and OSP prohibiting the transfer of
certain assets and total relief of approximately $3.4 million. The Company
plans to strongly defend against the lawsuit and plans to assert a number of
defenses, including that certain of the debt has already been paid, the
indebtedness is the sole obligation of OSP and a contractual restriction upon
Mr. Yamasaki's bringing of the lawsuit.

The Company has experienced operating losses for the first nine 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

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<PAGE>

moved aggressively to reduce its operating costs , the Company cannot continue
to sustain losses or continue to operate without financing in the near future.
Global One entered into a Loan and Security Agreement, dated October 7, 1997,
with Safcor, Inc., a company affiliated with Alan Saloner, providing for a
six-month loan of $800,000 to Global One bearing interest at the rate of 3% over
prime and secured by the Company's accounts receivable. The Company anticipates
that the proceeds from this loan will be used to pay down the remaining amounts
owed to Senoral.

The Company continues to seek alternative sources of financing, including
lines of credit and investment capital. However, there can be no assurances that
the Company will be able to obtain such other financing. In the event that the
Company is unable to obtain financing in the near future, the Company will be
required to seek relief pursuant to a restructuring or liquidation 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, ability to obtain financing, 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.

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<PAGE>

GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

On September 5, 1997, Robert Yamasaki, the holder of a subordinated
note from OSP with an outstanding principle balance of approximately
$1.5 million, filed a suit against the Company and OSP in Los Angeles
Superior Court alleging breach of contract and fraud and requesting,
among other things, acceleration of the note, an injunction against
Global One and OSP prohibiting the transfer of certain assets and
total relief of approximately $3.4 million. The Company plans to
strongly defend against the lawsuit and plans to assert a number of
defenses, including that certain of the debt has already been paid,
the indebtedness is the sole obligation of OSP and a contractual
restriction upon Mr. Yamasaki's bringing of the lawsuit.

ITEM 2. CHANGES IN SECURITIES.

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Effective August 1, 1997, the Company entered into an agreement (the
"Forbearance Agreement") with its lender, Foothill Capital Corporation
("Foothill"), whereby Foothill agreed to not enforce certain of its
remedies available as a result of the Company's default under its line
of credit until October 1, 1997. In connection with the Forbearance
Agreement, on August 28, 1997, Senoral, Inc., a creditor of the
Company ("Senoral"), purchased Foothill's rights under the line of
credit for approximately $342,000. Effective September 11, 1997,
Senoral began advancing funds to the Company under the line of credit.

Senoral is controlled by Alan Saloner who owns 250,000 shares of the
Company's common stock, $.01 par value per share (the "Common Stock").

As a result of the Company's default under the Senoral loan, Senoral
foreclosed against OSP's assets (the "Assets") through a public sale
of the Assets on October 8, 1997. Senoral purchased the Assets in the
public sale for $1,000,000. In connection with the public sale,
Global One and OSP waived their rights to, among other things, certain
notices, rights of redemption and rights to object to the form of the
sale. Following the sale, a deficiency of approximately $770,000 was
still owed by the Company to Senoral. As of November 13, 1997, the
amount outstanding under the Senoral line of credit was approximately
$1,033,486.

Global One entered into a Loan and Security Agreement, dated October
7, 1997, with Safcor, Inc., a company affiliated with Alan Saloner,
providing for a six-month loan of $800,000 to Global One bearing
interest at the rate of 3% over prime and secured by the Company's
accounts receivable. The Company anticipates that the proceeds from
this loan will be used to pay down the remaining amounts owed to
Senoral.

Under a Restated Secured Promissory Note, dated September 25, 1989, by
OSP in favor of Robert Yamasaki, OSP ceased making the monthly
payments of approximately $42,000 on March 21, 1997 in alleged
breach of the note. Payment of the remaining principal balance of
the note in the amount of $1.5 million is owed on the occurrence
of certain events. See Item 1.

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<PAGE>

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

Not applicable.

ITEM 5. OTHER INFORMATION.

On October 24, 1997, William Kampf resigned from the Company's Board
of Directors.

The Company is currently not in compliance with the Nasdaq SmallCap
continued listing requirements, and Nasdaq has indicated that the
Common Stock will be delisted, subject to the Company's seeking a
hearing on this matter. The Company has requested a hearing, which is
expected to occur in January 1998. Pending the hearing, the Common
Stock will continue to traded on the SmallCap market; however, there
can be no assurances that the Common Stock will not be delisted from
the Nasdaq SmallCap market following the hearing.

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

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<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 Stock Purchase and Consulting Agreement, dated
November 11, 1997, between the Company and Michael
Malm.

11.1 Statement re: computation of per share earnings

(b) Reports on Form 8-K.

Current Report on Form 8-K filed with the SEC on October 7, 1997
regarding certain events.

Current Report on Form 8-K filed with the SEC on October 24, 1997
regarding the disposition of OSP's assets with pro forma
financial statements.

Current Report on Form 8-K filed with the SEC on November 12,
1997 regarding the acquisition of OSP's assets with pro forma
financial statements.

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<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: November 18, 1997 By: /s/ William Righeimer
------------------------------------------
William Righeimer
Chief Financial Officer
(Duly Authorized Officer)

DATED: November 18, 1997 By: /s/ Kevin W. Cvengros
------------------------------------------
Kevin W. Cvengros
Corporate Controller and Secretary

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<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 Stock Purchase and Consulting Agreement, dated November
11, 1997, between the Company and Michael Malm.

11.1 Statement re: computation of per share earnings

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<PAGE>

STOCK PURCHASE AND CONSULTING AGREEMENT

This Stock Purchase and Consulting Agreement (the "Agreement") is made and
entered into as of this 11th day of November, 1997, among Michael Malm, an
individual ("Malm"), and Global One Distribution & Merchandising Inc., a
Delaware corporation ("Global One" or the "Company").

WHEREAS, Malm and Global One desire to document the termination of Malm's
employment with Global One and its subsidiaries;

WHEREAS, Global One desires to retain Malm, and Malm desires to act, as a
consultant to Global One; and

WHEREAS, Miller Johnson & Kuehn Incorporated, or its designee (the
"Purchaser") and Malm are entering into as Stock Purchase Agreement ("Purchase
Agreement") whereby Purchaser shall purchase and Malm shall sell 1,200,000
shares (the "Shares") of Global One's common stock, $.01 par value per share
("Common Stock") held by Malm.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

1. PURCHASE OF STOCK. Simultaneously with the execution of this Agreement,
the Purchaser and Malm shall execute the Purchase Agreement.

2. TERMINATION OF EMPLOYMENT.

(a) Effective on or about May 10, 1997, Malm's employment with Global
One is terminated. Also effective as of such date, Malm's position as an
officer of Global One and its subsidiaries is terminated.

(b) Except for the grant of stock options specifically acknowledged as
being vested in this Agreement, Malm's Employment Agreement, dated August
28, 1996, with Global One and OSP Publishing, Inc. (the "Employment
Agreement") is hereby terminated and of no further force or effect. Malm
waives the right to any compensation or other renumeration set forth
therein except as otherwise set forth in this Agreement.

3. MALM RELEASE.

(a) Except as provided herein, Malm hereby releases, acquits and
forever discharges Global One, and each of its affiliates, directors,
officers, shareholders, employees, attorneys, representatives and agents
(collectively, the "Global Releasees"), from any and all claims,
liabilities, demands, actions or causes of action of any kind, nature or
description

1
<PAGE>

whatsoever, whether arising at law or in equity, or upon contract or tort,
or under any state or federal law or otherwise, which Malm may have had,
may now have or made claim to have, or may in the future have or claim to
have, howsoever arising or acquired, against the Global Releasees for or by
reason of any act, omission, matter, cause or thing whatsoever arising from
the beginning of time to and including the date hereof, whether such
claims, liabilities, demands, actions or causes of action are matured or
unmatured, known or unknown, existing or not existing, asserted or
unasserted, presently held or acquired in the future, liquidated or
unliquidated, or absolute or contingent.

(b) In connection with the foregoing release, Malm hereby waives all
rights and benefits which may be afforded to him by or under California
Civil Code Section 1542, and further acknowledges that if Malm hereafter
discovers any facts different from or in addition to those which Malm now
knows or believes to be true with respect to any of the claims or other
matter so released, then Global One's foregoing release nonetheless shall
be and remain effective in all respects. Malm acknowledges that Section
1542 of the California Civil Code provides as follows:

A general release does not extend to claims which
the creditor does not know or suspect to exist in
his favor at the time of executing the release,
which if known by him, must have materially
affected his settlement with the debtor.

(c) Malm represents and warrants that he has not assigned,
transferred or hypothecated or set over to any person or entity any
interest in any of the claims that are the subject of this release.

4. GLOBAL ONE RELEASE.

(a) Except as provided herein, Global One and each of its affiliates,
directors, and officers hereby release, acquit and forever discharge Malm
from any and all claims, liabilities, demands, actions or causes of action
of any kind, nature or description whatsoever, whether arising at law or in
equity, or upon contract or tort, or under any state of federal law or
otherwise, which Global One or its affiliates, or any of them, may have
had, or may now have or made claim to have, or may in the future have or
claim to have howsoever arising or acquired, against Malm for or by reason
of any act, omission, matter, cause or thing whatsoever arising from the
beginning of time to and including the date hereof, whether such claims,
liabilities, demands, actions or causes of action are matured or unmatured,
known or unknown, existing or not existing, asserted or unasserted,
presently held or acquired in the future, liquidated or unliquidated, or
absolute or contingent.

(b) In connection with the foregoing release, Global One hereby
waives all rights and benefits which may be afforded to it by or under
California Civil Code Section 1542, and further acknowledge that if Global
One hereafter discovers any facts different from or in

2
<PAGE>

addition to those which Global One now knows or believes to be true with
respect to any of the claims or other matters so released, then Global
One's foregoing release nonetheless shall be and remain effective in all
respects. Global One acknowledges that Section 1542 of the California
Civil Code provides as follows:

A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release which if known by him, must have materially
affected his settlement with the debtor.

(c) Global One represents and warrants that it has not assigned,
transferred or hypothecated or set over to any person or entity any
interest in any of the claims that are the subject of this release.

5. INDEMNIFICATION. Global One hereby agrees to save, defend, indemnify and
hold harmless Malm against any and all claims, liabilities, demands,
losses, damages, actions and causes of action, including expenses, costs
and reasonable attorneys' fees, which Malm at any time may sustain or incur
in connection with carrying out his duties as an officer, director,
shareholder, employee or consultant of Global One or its affiliates,
whether arising before or after the date of this Agreement (i.e., this
Section 5 survives the termination of this Agreement), and including
without limitation against any shareholder derivative suits (to extent
permitted by law), debts or obligations of Global One and that certain
obligation of OSP to Inotrend, Inc. that Malm has personally guaranteed.
Unless required by legal process or applicable law, Malm will not disclose
this indemnification agreement to any creditor of Global One or its
affiliates.

6. CONSULTING AGREEMENT; PAYMENTS.

(a) Malm shall provide consulting services to Global One with respect
to the sale, marketing and licensing of Global One's products, shall meet
with Global One customers, distributors and licensees as necessary,
devoting a reasonable amount of time, up to 12 days per month, at Malm's
sole discretion for a period of three months from the date of this
Agreement. Either party may terminate the consulting agreement by
providing the other party with seven days' written notice of termination.

(b) For the services describe in paragraph (a) above, Malm shall
receive payment of One Thousand Dollars ($1,000.00) per single day for each
eight- to 10-hour day of consulting services provided to Global One (a
"Work Day"); provided, however, that Malm may combine hours over two or
more days to aggregate eight hours, or one Work Day. Three Thousand Dollars
($3,000.00) per week of the pay earned under the foregoing sentence shall
be paid in advance on Monday of each week for the three months following
the date of this Agreement; provided, however, that such amounts shall not
be due for any periods following termination of the consulting agreement in
accordance with the provisions of paragraph (a)

3
<PAGE>

hereof. The amount of any payments due in excess of such guaranteed $3,000
payment shall be paid to Malm within one week following the end of the work
week.

(c) Global One shall also reimburse Malm's reasonable expenses
incurred in the performance of his consulting duties under this Agreement
consistent with Global One policy in effect on the date of this Agreement,
and upon such other terms as Malm and Global One may agree upon. Malm may
require advance payment for air and hotel travel expenses.

(d) Global One shall pay Malm Two Thousand Dollars ($2,000.00) per
month for a period of 10 months commencing one month after the date of this
Agreement as and for consideration of his general release of claims against
Global One under his Employment Agreement, whether or not the consulting
portion of this Agreement is earlier terminated.

7. CONFIDENTIALITY. Malm recognizes that his positions with Global One and/or
its affiliates are ones of the highest trust and confidence by reason of
Malm's access to and contact with trade secrets and confidential and
proprietary information of the Company. Malm agrees to use his best
efforts and exercise utmost diligence to protect and safeguard the trade
secrets and confidential and proprietary information of the Company,
including, but not limited to, any information concerning the Company's
business, finances, investments, performance, productions, works in
progress or professional relationships, and further agrees that he will
not, during the duration of this Agreement or thereafter, disclose,
disseminate or distribute, any such trade secrets or confidential and
proprietary information of Global One and/or its affiliates, directly or
indirectly neither for Malm's own benefit or the benefit of another, except
as is required in the course of Malm's consultations on behalf of Global
One. The foregoing shall not apply to information which becomes public
other than as a result of a prohibited act of Malm. All confidential
information relating to the business of the Company, whether prepared by
Malm or otherwise coming into his possession, shall remain the exclusive
property of Global One and shall not, except in the furtherance of the
business of the Company, be removed from the premises of Global One and/or
its affiliates under any circumstances without the prior written consent of
Global One. The obligations of Malm pursuant to this paragraph shall
survive the termination of Malm's employment and consulting services for
the Company and this Agreement.

8. OWNERSHIP AND AUTHORITY OF WORK. Malm acknowledges and agrees that
Global One and/or its affiliates are and shall be the owner and author
throughout the universe of all right, title, and interest in and to any and
all creative work or materials upon which Malm performs services hereunder
(a "Work"), as the author of a work made for hire and otherwise as the
context hereof demands. All elements of each work prepared by Malm will at
all times belong solely and exclusively to Global One and/or its affiliates
for use in any manner or media now known or hereafter devised, throughout
the universe and perpetuity. Each Work shall include, but may not be
limited to, any and all materials, ideas, or other artistic, creative and
literary property created or developed by Malm pursuant to his services
(whether alone or in conjunction with any other person), or which Malm may
have disclosed to Global One

4
<PAGE>

during the term of employment or consultation with Global One and/or its
affiliates. Global One shall have the exclusive right to copyright same
in the name of Global One as an author of a work made for hire and to
exercise throughout the universe all rights of the copyright proprietor
thereunder. To the extent that any Work is deemed not a work made for
hire, Malm hereby assigns to Global One any and all rights in such Work,
including but not limited to all copyrights therein and thereto and all
renewals and extensions throughout this universe and grants to Global One a
power of attorney, irrevocable and coupled with an interest to apply for
and obtain in Global One's name all such copyrights, renewals and
extensions thereof. Global One may use and authorize others to use Malm's
likeness and biographical materials on a nonexclusive basis for program
publicity, institutional promotional purposes and any other exploitation of
a Work through any media now known or hereafter devised. For purposes of
this Agreement, each Work shall be deemed to be a work for hire pursuant to
17 U.S.C. Section 101(2), and all authorship and ownership rights of each
Work shall belong to Global One pursuant to 17 U.S.C.Section 201(b).

9. IMAGE 2000. Notwithstanding any limitations or restrictions contained in
Section 7 or 8 above or elsewhere in this Agreement, the parties
acknowledge that Malm owns and operates Image 2000, a California
corporation ("Image"). It is understood that Image is not in a business
which would provide primary competition to Global One or its subsidiaries,
but may from time to time compete in such a way which might be considered
to violate the terms of this Agreement and/or more specifically Sections 7
and 8. It is further agreed that Global One and its subsidiaries and their
successors and assigns hereby waive any restrictions or conflicts with
respect to Image, Malm and their affiliates unless such results from
receipt of confidential information by Malm only through his employment
with Global One during the consulting period set forth in Section 6 hereof,
or any extension thereof. Malm, Image and their affiliates are freely able
to explore, develop, commercialize and exploit any idea which might be
competitive to Global One and its subsidiaries subject to the limitations
referenced hereinabove. Malm confirms that he will not disclose or use
Global One's confidential information learned during his employment as a
consultant.

10. STOCK OPTIONS. Effective as of the date hereof, Malm's options to purchase
Common Stock previously held by Malm shall be reinstated, shall become
fully vested and the exercise price therefor shall be twenty cents ($0.20)
per share. Global One shall execute new nonqualified stock option
agreements in favor of Malm on the foregoing terms.

11. OPTIONS TO PURCHASE ASSETS. Whether or not the consulting portion of this
Agreement is earlier terminated, Malm shall have the right to require
Global One to purchase (the "Sale Option") and Global One shall have the
right to purchase (the "Purchase Option") the assets of Image 2000 (the
"Assets") on the terms hereinafter set forth.

(a) Within the three-month period following the date hereof, Malm
shall have the option to either exercise the Sale Option or to terminate
Global One's Purchase Option by providing written notice to Global One
within such three-month period.

5
<PAGE>

(b) In the event that Malm has neither elected to exercise the Sale
Option or terminated Global One's Purchase Option within the three-month
period following the date of this Agreement, Global One may exercise the
Purchase Option by providing Malm written notice within 30 days following
the expiration of such three-month period.

(i) 1,200,000 shares of Common Stock;

(ii) 50% of the net after tax earnings from the Assets for
calendar years 1998 and 1999, payable within 30 days following
the issuance of Global One's final audited financial report for
each such year; and

(iii) Shares of Common Stock equal in value to two times the net
after tax earnings from the Assets for calendar years 1998 and
1999 payable within 30 days following Global One's final audit
for each such year with shares of Common Stock valued at the
closing price on the date immediately preceding the date of
issuance of such audited financial report.

(d) Malm's or Global One's notice of exercise of their respective
options shall specify a closing date for the purchase, which in no event
shall be later than 15 calendar days after the date of the notice. The
closing shall be conditioned upon, among other things, obtaining any
required third party consents and compliance with any governmental
requirements including without limitation the Bulk Sales Act. At the
closing of the purchase, Malm shall execute such documentation and take
such actions as maybe required to effect the purchase, including, without
limitation, the execution of an asset purchase agreement or bill of sale
with respect to the Assets containing standard representations, including
title to the Assets, and other provisions reasonably requested by Global
One. Any such asset purchase agreement or bill of sale shall specifically
identify the Assets in reasonable detail so that the purchase price is
readily calculable in accordance with the provisions of paragraph (c)
above. Notwithstanding the options contained in this Section 11, in the
event Malm exercises the Sale Option and both (x) Malm discontinues
employment with Global One and (y) Global One's management changes from
that existing as of the date of hereof, then Malm shall be entitled, and
Global One agrees to accept: return of the purchase price set forth in
Sections 11(c) (i), 11 (c) (ii) and 11(c) (iii) to Global One and Global
One shall transfer title to the Assets to Malm.

12. PARAGRAPH HEADINGS. Paragraph and other headings contained in this
Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.

13. COUNTERPART EXECUTION. This Agreement may be executed in one or more
counterparts, each of which shall constitute but one and the same
instrument.

6
<PAGE>

14. SEVERABILITY. Should any portion of this Agreement be determined to be
illegal or unenforceable, all other provisions shall nevertheless remain
effective.

15. PRIOR UNDERSTANDING. This Agreement contains the entire agreement between
the parties with respect to the subject matter hereof, is intended as a
final expression of such parties' agreement with respect to such terms as
are included in the Agreement, is intended as a complete and exclusive
statement of the terms of such Agreement, and supersedes all negotiations,
stipulations, understandings, agreements, representations and warranties,
if any, with respect to such subject matter, which precede or accompany the
execution of this agreement.

16. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without regard to
conflict of laws principles.

17. ATTORNEYS FEES. In the event that any action, suit, or other proceeding is
instituted concerning or arising out of this Agreement, the prevailing
party shall recover all of such party's costs, and attorneys' fees incurred
in each and every such action, suit, or other proceeding, including any and
all appeals or petitions therefrom from the non-prevailing party. As used
herein, "attorneys' fees" shall mean the full and actual costs of any legal
services actually rendered in connection with the matters involved,
calculated on the basis of the usual fee charged by the attorneys
performing such services.

18. NOTICES. Notices shall be given in writing to the parties at their
addresses set forth below. Notices shall be sent either by overnight mail
or by certified or registered mail, return receipt requested, and shall be
deemed delivered upon receipt.

If to Global One, to: Global One Distribution & Merchandising Inc.
5542 Lindbergh Lane
Bell, CA 90201

If to Malm, to: Michael Malm
3730 Multiview Drive
Hollywood, CA 90068

7
<PAGE>

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.

GLOBAL ONE DISTRIBUTION & MERCHANDISING INC.

By: /s/ Douglass E. Coy
-----------------------------------------
Douglass E. Coy
Its: Chief Executive Officer

By: /s/ Michael Malm
-----------------------------------------
MICHAEL MALM

<PAGE>

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

NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
------------- -------------
<S> <C> <C>
Common stock outstanding at beginning of
period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,010,947 6,448,442
Exercise of warrant . . . . . . . . . . . . . . . . . . . . . . . . 1,000 197,079
Issuance of Common Stock from Merger with
Kelly Russell Studios, Inc.. . . . . . . . . . . . . . . . . . . - 2041,189
Issuance of Common Stock from Private
Placement . . . . . . . . . . . . . . . . . . . . . . . . . . . - 4,324,239
Common stock outstanding at end of period. . . . . . . . . . . . . . 13,011,947 13,010,947
------------- -------------
------------- -------------
Weighted average shares outstanding
during the period assuming exercise of
warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,011,947 7,217,887
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 . . . . . . . . . . . . . . . . . - 1,726,417
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,011,947 8,944,304
------------- -------------
------------- -------------

Net loss data (1996 Pro forma):
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . $ (4,174,660) $ (2,878,277)
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . 1,093,502 (575,655)
Minority interest in income of subsidiaries. . . . . . . . . . . . . - 208,487
------------- -------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5,268,162) $ (2,094,135)
------------- -------------
------------- -------------

Net loss per share (1996 Pro forma):
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . $ (0.40) $ (0.26)
Minority interest in loss of subsidiaries . . . . . . . . . . . . . - 0.03
------------- -------------
Net loss per share . . . . . . . . . . . . . . . . . . . . . . . $ (0.40) $ (0.23)
------------- -------------
------------- -------------

</TABLE>

EXHIBIT 11.1

<PAGE>
<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 31,494
<SECURITIES> 0
<RECEIVABLES> 4,939,365
<ALLOWANCES> 1,818,919
<INVENTORY> 1,180,935
<CURRENT-ASSETS> 4,679,941
<PP&E> 2,185,298
<DEPRECIATION> 1,152,703
<TOTAL-ASSETS> 10,007,075
<CURRENT-LIABILITIES> 9,385,775
<BONDS> 0
0
0
<COMMON> 2,655,196
<OTHER-SE> (3,755,597)
<TOTAL-LIABILITY-AND-EQUITY> 10,007,075
<SALES> 14,541,826
<TOTAL-REVENUES> 16,798,894
<CGS> 6,577,916
<TOTAL-COSTS> 9,319,989
<OTHER-EXPENSES> 8,870,794
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 525,703
<INCOME-PRETAX> (4,174,660)
<INCOME-TAX> 1,093,502
<INCOME-CONTINUING> (5,268,162)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,268,162)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.40)

</TABLE>