GLOBALTEL RESOURCES INC, SB-2, 1998-01-16

GLOBALTEL RESOURCES INC
SB-2, 1998-01-16
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 16, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

GLOBALTEL RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
WASHINGTON 4813 91-1663099
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

1520 EASTLAKE AVENUE EAST
SEATTLE, WASHINGTON 98102
(206) 720-7250, FAX (206) 720-7251
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)

RONALD P. ERICKSON, CHIEF EXECUTIVE OFFICER
1520 EASTLAKE AVENUE EAST
SEATTLE, WASHINGTON 98102
(206) 720-7250, FAX (206) 720-7251
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)

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COPIES TO:
THOMAS S. HODGE
AUDREY HWANG
HELLER EHRMAN WHITE & MCAULIFFE
6100 COLUMBIA CENTER
701 FIFTH AVENUE
SEATTLE, WASHINGTON 98104
TELEPHONE: (206) 447-0900
FACSIMILE: (206) 447-0849

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following the effectiveness of this Registration Statement.

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering: [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]

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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED(1) REGISTERED PER SHARE OFFERING PRICE(2) FEE(3)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par
value.................. 483,740 $0.53 $256,382.20 $ 76
- -------------------------------------------------------------------------------------
Common Stock, $0.01 par
value.................. 711,822 $1.10 $783,004.20 $ 231
- -------------------------------------------------------------------------------------
Common Stock, $0.01 par
value(4)............... 26,752 $0.70 $ 18,726.40 $ 6
- -------------------------------------------------------------------------------------
Units, each consisting
of a one share of
Common Stock and one
Warrant to purchase
one-tenth share of
Common Stock........... 454,546 $1.10 $500,000.60 $ 148
- -------------------------------------------------------------------------------------
Common Stock, $0.01 par
value, together with
Warrants to purchase an
aggregate of
approximately 68,000
shares of Common
Stock(5)............... 832,234 $1.10 $915,457.40 $ 270
- -------------------------------------------------------------------------------------
Units, each consisting
of a Promissory Note
and one Warrant to
purchase one share of
Common Stock for each
$10.00 in principal
amount of the
Promissory Notes....... 350,000 NA $350,000.00 $ 103
- -------------------------------------------------------------------------------------
Total................... $ 834
=====================================================================================
</TABLE>
(Continued on page 2)
================================================================================
<PAGE>

(1) Each of these securities is the subject of a rescission offer to be
commenced following effectiveness of this Registration Statement, as more
fully described in the prospectus which is a part of this Registration
Statement (the "Rescission Offer").
(2) Aggregate price, excluding interest, estimated to be payable by the
Registrant if the Rescission Offer covered by this Registration Statement
is accepted in full.
(3) Calculated pursuant to Rule 457(o) under the Securities Act of 1933, as
amended. Includes shares of Common Stock subject to the underwriters'
over-allotment option.
(4) Consists of shares of Common Stock issuable upon conversion of outstanding
warrants, all of which warrants were issued in conjunction with shares of
Common Stock or promissory notes that are the subject of the Rescission
Offer. These warrants are convertible into Common Stock on a cashless
basis at an effective purchase price of $0.70 per share. The actual number
of shares may be different depending on the initial public offering price
of the Common Stock.
(5) Consists of shares of Common Stock issued upon conversion of the principal
amount (together with accrued interest thereon) of promissory notes that
were previously issued to certain individuals together with warrants to
purchase shares of Common Stock.

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY , 1998

PROSPECTUS

RESCISSION OFFER

[LOGO OF GLOBALTEL RESOURCES]

GlobalTel Resources, Inc. ("GlobalTel" or the "Company") is offering, upon
the terms and conditions set forth herein, to rescind the issuance or sale of
(i) an aggregate of 1,195,562 shares of Common Stock, of which 483,740 and
711,822 shares were issued at $0.53 and $1.10 per share, respectively (the
"Cash Rescission Stock"), (ii) an aggregate of 454,546 shares of Common Stock
(the "1995 Rescission Stock") which were issued to one individual at a price of
$1.10 per share, together with a warrant to purchase approximately 45,455
shares of Common Stock, (iii) an aggregate of 832,234 shares of Common Stock
(the "Converted Note Rescission Stock") issued upon conversion of promissory
notes that are the subject of the Rescission Offer, together with warrants to
purchase an aggregate of approximately 68,000 shares of Common Stock delivered
in conjunction with such promissory notes, (iv) $350,000 in aggregate principal
amount of promissory notes (the "Rescission Notes"), together with warrants to
purchase an aggregate of approximately 35,000 shares of Common Stock and (v) an
aggregate of 26,752 shares of Common Stock (the "Converted Warrants Rescission
Stock" issued upon the closing of the Public Offering upon conversion of
certain warrants (the "Converted Warrants"), all previously issued or sold in
the State of Washington to certain individuals and entities during 1995 through
1997. The Converted Warrants were originally issued to certain individuals in
conjunction with promissory notes that were subsequently converted (together
with accrued interest thereon) into shares of Converted Note Rescission Stock.
The Cash Rescission Stock, 1995 Rescission Stock, Converted Note Rescission
Stock and Converted Warrants Rescission Stock are hereinafter collectively
referred to as the "Rescission Stock." The Converted Warrants, together with
the warrants delivered in connection with the 1995 Rescission Stock, Converted
Note Rescission Stock and Rescission Notes are hereinafter collectively
referred to as the "Rescission Warrants." The Rescission Notes, the Rescission
Stock and the Rescission Warrants are hereinafter collectively referred to as
the "Rescission Securities."

OFFER

The Company believes that the Rescission Securities may have been issued or
sold in violation of the registration requirements of the securities laws of
the State of Washington (the "Washington Securities Act"). As a precaution
against potential claims by holders of the Rescission Securities, and without
admitting non-compliance with the Washington Securities Act, the Company hereby
offers (the "Rescission Offer") to rescind such prior issuances and sales by
offering to repurchase the Rescission Securities at the price paid therefor by
the holders of the Rescission Securities (the "Offerees") plus interest thereon
at the statutory rate of eight percent per annum from the date of purchase (the
"Rescission Price") to the expiration of the Rescission Offer. The Rescission
Offer will expire at 5:00 p.m., Pacific time, on , 1998 (the
"Expiration Date"). The Rescission Offer is made only to Offerees who purchased
Rescission Securities from the Company and is not available with respect to any
other securities purchased from the Company or to persons who purchased the
Company's securities from any other person.

All correspondence pertaining to the Rescission Offer should be directed to
the Company, attention: Mr. Ronald P. Erickson, Chief Executive Officer, 1520
Eastlake Avenue East, Seattle, Washington 98102; telephone (206) 720-7250.

(continued on next page)

-----------

SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY OFFEREES IN CONNECTION WITH THE
RESCISSION OFFER.

-----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

-----------

THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>

(continued from previous page)

ACCEPTANCE OR REJECTION

It is requested that all Offerees complete the Form of Election (the
"Election") accompanying this Prospectus and return it to the Company,
attention: Mr. Ronald P. Erickson, Chief Executive Officer, 1520 Eastlake
Avenue East, Seattle, Washington 98102, as soon as practical but in no event
later than 5:00 p.m., Pacific time, on , 1998. The Election should
be completed to indicate whether the Offeree accepts or rejects the Rescission
Offer.

All Offerees who wish to accept the Rescission Offer are advised that they
must accept the Rescission Offer with respect to all (and not less than all)
of the Rescission Securities purchased by the Offeree in any particular
transaction. If an Offeree purchased Rescission Securities from the Company in
more than one transaction, such Offeree may accept the Rescission Offer with
respect to the Rescission Securities purchased in one transaction and reject
the Rescission Offer with respect to Rescission Securities purchased in other
transactions. IF AN OFFEREE ACCEPTS THE RESCISSION OFFER, SUCH OFFEREE WILL
RECEIVE THE RESCISSION PRICE IN EXCHANGE FOR RESCISSION SECURITIES, INCLUDING
ALL RESCISSION WARRANTS DELIVERED IN CONJUNCTION WITH THE RESCISSION STOCK OR
RESCISSION NOTES FOR WHICH THE RESCISSION OFFER IS ACCEPTED, PLUS ALL
CONVERTED WARRANTS RESCISSION STOCK ISSUED PURSUANT TO THE CONVERTED WARRANTS
THAT WERE DELIVERED IN CONJUNCTION WITH PROMISSORY NOTES FOR WHICH THE
RESCISSION OFFER IS ACCEPTED. The Rescission Offer does not apply to any
securities of the Company other than the Rescission Securities. Offerees who
wish to accept the Rescission Offer must enclose with the Election the
original Rescission Notes or the certificate for the shares of Rescission
Stock to be repurchased by the Company, as the case may be, together with all
related Rescission Warrants and Converted Warrants Rescission Stock. The
certificates for shares of Rescission Stock must be properly endorsed for
transfer, with the signature guaranteed by a federally or state chartered bank
or New York Stock Exchange member firm, unless the Company is presently
holding the certificates for such shares.

EFFECT OF REJECTION

Offerees who do not accept the Rescission Offer will be deemed to hold
registered Rescission Securities under the Securities Act of 1933, as amended
(the "Securities Act") subject to any restrictions upon transfer to which they
agreed at the time the Rescission Securities were acquired. In the case of the
Rescission Stock, the Rescission Stock will be freely tradeable by non-
affiliates in the public market, subject to the restrictions on transfer
imposed by lock-up agreements entered into by the holder with Cruttenden Roth
Incorporated (the "Representative"). Rejection of the Rescission Offer by
Offerees will not necessarily bar Offerees from seeking rescission or damages
under federal or state securities laws. Although the Company believes that the
Rescission Securities were offered and sold in compliance with the
registration requirements of federal securities laws pursuant to the exemption
from registration provided by Rule 506 under the Securities Act, if a holder
of Rescission Securities were to assert a claim based upon a violation
thereof, the position of the Securities and Exchange Commission is that
liabilities under the federal securities laws are not terminated by making a
Rescission Offer.

PUBLIC OFFERING

On , 1998, the Company completed its initial public offering of
shares of Common Stock pursuant to a registration statement on Form SB-2 filed
with the Securities and Exchange Commission (the "Public Offering"). As a
result, shares of Common Stock were sold to the public for $ per
share by the Company. The Common Stock is quoted on the American Stock
Exchange under the symbol " ." On , 1998, the closing bid and ask
price of the Common Stock as quoted on the American Stock Exchange were $ and
$ , respectively. These quotations represented prices between dealers, do not
include retail mark-ups, mark-downs or commissions and may not represent
actual transactions, and there can be no assurance that a public market for
the Company's Common Stock will develop, if at all, at prices equal to or
exceeding the amounts offered to Offerees hereunder.
<PAGE>

[ARTWORK]

Primecall(R) is a service mark of the Company. Trade names, trademarks and
service marks of other companies appearing in this Prospectus are the property
of their respective holders.

2
<PAGE>

SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements, including the Notes
thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated,
all information contained in this Prospectus (i) assumes no exercise of the
underwriters' over-allotment option and the warrants to purchase up to
shares of Common Stock granted to the Representative in connection with the
Public Offering (the "Representative's Warrant") and (ii) gives effect to a
-for- reverse split of the capital stock of the Company on , 1998
(the "Reverse Stock Split") and the conversion of all outstanding shares of the
Company's Series A Convertible Preferred Stock, $0.01 par value (the "Preferred
Stock") and all accrued dividends thereon, into an aggregate of shares of
Common Stock on , 1998 upon the closing of the Public Offering (the
"Preferred Stock Conversion"). See "Description of Securities--Preferred Stock"
and "--Representative's Warrants." In addition, all share numbers herein assume
that no holder of securities of the Company receiving the Rescission Offer
exercises its right to rescind. References in this Prospectus to the "Company"
and "GlobalTel" refer to GlobalTel Resources, Inc. and its two wholly owned
subsidiaries, PrimeCall, Inc. and GFP Group, Inc., except where the context
otherwise requires. See "Glossary of Terms" for definitions of certain
technical and other terms used in this Prospectus. Offerees of the Rescission
Offer should carefully consider the information set forth under the heading
"Risk Factors."

THE COMPANY

GlobalTel provides international telecommunications services principally to
small- and medium-sized business customers in developing ("second-tier")
telecommunication markets. Currently, the Company offers international long-
distance services, calling cards and enhanced voice services consisting of
voice-mail and conference calling to more than 8,500 business customers in over
120 countries. The Company began operations in 1995 with its entry into the
international call-reorigination business to capitalize on the arbitrage
opportunity created by differences between U.S. and foreign originated
international long-distance rates. The Company is leveraging the expertise
derived from, and the established customer base generated by, its call-
reorigination business to provide higher margin enhanced telecommunications
services.

According to the International Telecommunications Union ("ITU"), the
international telecommunications industry accounted for $52.8 billion in
revenues for 1995 and is projected to approach $76.0 billion by the year 2000.
Deregulation, together with decreases in the cost of providing services and the
introduction of sophisticated value-added features, has made it possible for
new entrants to compete with the large global telecommunications providers and
national incumbent telephone operators ("ITOs") in providing international
voice telecommunications services. In addition, the convergence of conventional
telephony and computing technologies with the advent of the Internet has
created the opportunity for data networks, and computers in general, to become
primary telecommunications tools. Industry analysts expect the market size for
both value-added Internet Protocol ("IP") data networking services and Internet
access to continue to grow rapidly as businesses and consumers increase their
use of the Internet, intranets and privately managed IP networks for both
electronic commerce as well as conventional telephony. According to industry
analysts, the total market for these services is projected to grow from $1.2
billion in 1996 to approximately $22.7 billion in the year 2000.

3
<PAGE>

partners such as Novell, Inc. ("Novell"). The Company expects these services to
include business quality messaging, global enhanced Virtual Private Networks
and other value-added services. Most of the planned services can be provided
under existing regulatory frameworks.

GlobalTel primarily markets its telecommunications services through a network
of over 75 independent sales agents, supplemented by direct marketing efforts.
The Company also has an exclusive agreement with the International Business
Network for World Commerce and Industry, Ltd. ("IBNET"), the managing member of
the Consortium of Global Commerce, whereby IBNET will market the Company's
services through several thousand individual chambers of commerce located in
over 200 countries. In addition, the Company's relationship with Novell
provides a distribution channel for the Company's services through Novell's
network of over 25,000 value-added resellers.

GlobalTel's current network architecture consists of: (i) voice switching and
global fax messaging infrastructure in Los Angeles, California; (ii) access to
third party infrastructure through Equant Network Services International
Corporation ("Equant"), a global data network services provider, and other
suppliers; (iii) enhanced fax nodes in Hong Kong and Mexico City; and (iv) a
Network Control and Operations Center in Seattle, Washington. The Company's
agreement with Equant allows the Company to utilize the global reach of the
Equant network and to co-locate its servers and switches in many large cities
around the world. In addition, GlobalTel's agreement with Novell provides the
Company with access to key network technologies.

Key elements of the Company's strategy include: (i) capitalizing on its
existing customer base by offering additional and enhanced telecommunications
services; (ii) leveraging its global sales channels and relationships with
Novell and IBNET; (iii) minimizing capital requirements by utilizing existing
third party networks such as the Equant network; and (iv) employing flexible,
open architecture technology for the easy integration of technologies.

The Company was incorporated in Washington in November 1994 and commenced
operations in March 1995. GlobalTel's executive offices are located at 1520
Eastlake Avenue East, 2nd Floor, Seattle, Washington 98102, and its telephone
number is (206) 720-7250. The Company's home page is located at
http://www.globaltel.com. Information contained in the Company's Web site shall
not be deemed a part of this Prospectus.

THE RESCISSION OFFER

<TABLE>
<C> <S>
Common Stock subject to
Rescission Offer(1)............. 2,509,094 shares
Promissory notes subject to
Rescission Offer(1)............. $350,000 aggregate principal amount
Common Stock outstanding(2)...... shares
</TABLE>
- --------
(1) All Rescission Warrants which were issued in conjunction with these
securities are also subject to the Rescission Offer.
(2) Gives effect to the sale by the Company of shares of Common Stock
in the Public Offering. Does not reflect any shares which may be
repurchased pursuant to the Rescission Offer.

THE PUBLIC OFFERING

On , 1998, the Company made an initial public offering at $ per share
of shares of Common Stock. The Company's Common Stock is traded on the
American Stock Exchange under the symbol " ." On , 1998, the
closing bid and ask price of the Common Stock as quoted on the American Stock
Exchange were $ and $ , respectively. These quotations represented
prices between dealers, do not include retail mark-ups, mark-downs or
commissions and may not represent actual transactions.

4
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- ------------------
1995 1996 1996 1997
------- ------- -------- --------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues............................... $ 2,113 $ 9,136 $ 5,830 $ 10,639
Operating expenses:
Cost of sales........................ 1,929 8,230 5,155 9,007
Sales and marketing.................. 238 682 494 664
General and administrative........... 1,536 5,773 4,095 4,658
Depreciation and amortization........ 111 98 86 141
------- ------- -------- --------
Total operating expenses............... 3,814 14,783 9,830 14,470
------- ------- -------- --------
Operating loss......................... (1,701) (5,647) (4,000) (3,831)
Interest expense....................... (34) (225) (103) (588)
------- ------- -------- --------
Net loss............................... $(1,735) $(5,872) $ (4,103) $(4,419)
======= ======= ======== ========
Series A convertible preferred stock
dividends............................. -- -- -- (21)
------- ------- -------- --------
Net loss applicable to common
shareholders.......................... $(1,735) $(5,872) $(4,103) $(4,440)
======= ======= ======== ========
Pro forma(1):
Net loss per share................... $ $
======= ========
Weighted average number of shares
outstanding.........................
======= ========
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------
ACTUAL AS ADJUSTED(2)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash.................................................. $ 237 $
Working capital....................................... (5,823)
Total assets.......................................... 4,002
Long-term debt(3)..................................... 2,120
Common stock subject to rescission.................... 1,850
Total shareholders' (deficit) equity.................. (7,413)
</TABLE>
- --------
(1) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used in computing pro
forma net loss per share.
(2) Adjusted to give effect to the issuance of shares of Common Stock on
, 1998 upon the closing of the Public Offering to certain holders of
notes issued by the Company (the "Full Coverage Bridge Loan Shares"), the
sale of shares of Common Stock offered in the Public Offering at the
initial public offering price of $ per share and the application of the
estimated net proceeds therefrom, after deducting underwriting discounts
and commissions and the estimated offering expenses payable by the Company.
See "Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
(3) Includes $1,000,000 in long-term debt which converted into shares of
Common Stock upon the closing of the Public Offering.

5
<PAGE>

RESCISSION OFFER

BACKGROUND

From 1995 through 1997, the Company issued or sold the following securities
to approximately 40 purchasers who the Company believes at the time of
purchase were residents of the State of Washington:

(i) an aggregate of 1,195,562 shares of Common Stock, of which 483,740
and 711,822 shares were issued at $0.53 and $1.10 per share, respectively
(the "Cash Rescission Stock");

(ii) an aggregate of 454,546 shares of Common Stock (the "1995 Rescission
Stock") which were issued to one individual at a price of $1.10 per share,
together with a warrant to purchase approximately 45,455 shares of Common
Stock;

(iii) an aggregate of 832,234 shares of Common Stock (the "Converted Note
Rescission Stock") issued upon conversion of promissory notes that are the
subject of the Rescission Offer, together with warrants to purchase an
aggregate of approximately 68,000 shares of Common Stock delivered in
conjunction with such promissory notes;

(iv) $350,000 in aggregate principal amount of promissory notes (the
"Rescission Notes"), together with warrants to purchase an aggregate of
approximately 35,000 shares of Common Stock; and

(v) an aggregate of 26,752 shares of Common Stock (the "Converted
Warrants Rescission Stocks," issued upon the closing of the Public Offering
upon conversion of certain warrants (the "Converted Warrants").

The Converted Warrants were originally issued to certain individuals in
conjunction with promissory notes that were subsequently converted (together
with accrued interest thereon) into shares of Converted Note Rescission Stock.
The Cash Rescission Stock, 1995 Rescission Stock, Converted Note Rescission
Stock and Converted Warrants Rescission Stock are hereinafter collectively
referred to as the "Rescission Stock." The Converted Warrants, together with
the warrants delivered in connection with the 1995 Rescission Stock, Converted
Note Rescission Stock and Rescission Notes are hereinafter collectively
referred to as the "Rescission Warrants." The Rescission Notes, the Rescission
Stock and the Rescission Warrants are hereinafter collectively referred to as
the "Rescission Securities." Proceeds from the sale of the Rescission
Securities have been used for general corporate purposes.

The Company believes that the Rescission Securities may have been issued or
sold in violation of the registration requirements of the Washington
Securities Act but were not issued in violation of the registration
requirements of federal law by virtue of compliance with the exemption from
registration provided by Rule 506 under the Securities Act. As a precaution
against potential claims by holders of Rescission Securities, and without
admitting non-compliance with the Washington Securities Act, the Company
hereby offers to rescind such prior issuances and sales by offering to
repurchase the Rescission Securities at the price paid therefor plus interest
thereon at the statutory rate of eight percent per annum from the date of
purchase to the expiration of the Rescission Offer (the "Rescission Price").
The Rescission Price is based upon the price paid for the original security
purchased by the Offeree from the Company, regardless of the type of
Rescission Security currently held by the Offeree. The price paid for the Cash
Rescission Stock is $0.53 per share with respect to 483,740 shares and $1.10
per share with respect to 711,822 shares, for an aggregate price of
approximately $1,039,386. The price paid for the 1995 Rescission Stock is
$1.10 per share for an aggregate price of approximately $500,000. The price
paid for the Converted Note Rescission Stock is equal to the principal amount
of the original promissory notes related thereto for an aggregate price of
$791,000. The aggregate price paid for the Rescission Notes is $350,000. There
is no separate price for the Converted Warrants Rescission Stock because by
the terms and conditions of the Rescission Offer, the Converted Warrants
Rescission Stock must be surrendered if the holder of the related Converted
Note Rescission Stock elects to accept the Rescission Offer with respect to
its Converted Note Rescission Stock. The aggregate accrued interest with
respect to all of the Rescission Securities as of January 31, 1998 will be
approximately $305,000. If all holders of Rescission Securities were to accept
the Rescission Offer, the Company would be required to make payments
aggregating approximately $3.1 million, plus the aggregate amount of any
additional interest thereon that accrues after January 31, 1998.

6
<PAGE>

The Company has not offered rescission to certain institutional and other
sophisticated investors outside of the State of Washington who purchased
promissory notes or shares of Preferred Stock or Common Stock in private
placements during the same period. The Company believes that these issuances
were exempt from the registration requirements of applicable federal and state
securities laws.

As of the date hereof, management is not aware of any claims for rescission
against the Company. Also, current and former officers and directors of the
Company holding an aggregate of $ million (including statutory interest
accrued thereon as of January 31, 1998) of the Rescission Securities have
indicated their intent not to accept the Rescission Offer, although no formal
Rescission Offer was made to them prior to the date of this Prospectus and they
had not agreed to reject the Rescission Offer as of the date of this
Prospectus. The Rescission Offer is being made in order to limit, so far as may
be permitted under applicable federal and state securities laws, the potential
liability of the Company with respect to the offer and sale of the Rescission
Securities. Although the Company believes that the offer and sale of the
Rescission Securities were made in compliance with the registration
requirements of federal securities laws, if a holder of the Rescission
Securities were to assert a claim that the Rescission Securities were sold in
violation of thereof, the position of the Securities and Exchange Commission is
that liabilities under the federal securities laws are not terminated by making
a Rescission Offer. The Rescission Offer is not an admission that the Company
did not comply with the registration provisions of applicable federal and state
law nor is it a waiver of any applicable statutes of limitations.
Notwithstanding the Rescission Offer, there can be no assurance that the
Company will not be subject to penalties or fines relating to past securities
issuances or that other holders of the Company's securities will not assert or
prevail in claims against the Company for rescission or damages under state or
federal securities laws. See "Risk Factors--Potential Rescission Liability" and
Note 6 of Notes to the Consolidated Financial Statements.

PROCEDURES FOR ACCEPTANCE

For an Offeree to validly accept the Rescission Offer, a properly completed
and signed form of Election (the "Election") accompanying this Prospectus, a
form of which is attached hereto as Exhibit A, indicating the decision of the
Offeree to accept the Rescission Offer must be received by the Company at its
principal executive offices (1520 Eastlake Avenue East, Seattle, Washington
98102) on or before 5:00 p.m., Pacific time, on or before , 1998, unless
extended by the Company in its sole discretion (the "Expiration Date"). All
Offerees who wish to accept the Rescission Offer are advised that they must
accept the Rescission Offer with respect to all (and not less than all) of the
Rescission Securities purchased by the Offeree in any particular transaction.
If an Offeree purchased Rescission Securities from the Company in more than one
transaction, such Offeree may accept the Rescission Offer with respect to the
Rescission Securities purchased in one transaction and reject the Rescission
Offer with respect to Rescission Securities purchased in other transactions. IF
AN OFFEREE ACCEPTS THE RESCISSION OFFER, SUCH OFFEREE WILL RECEIVE THE
RESCISSION PRICE IN EXCHANGE FOR RESCISSION SECURITIES, INCLUDING ALL
RESCISSION WARRANTS DELIVERED IN CONJUNCTION WITH THE RESCISSION STOCK OR
RESCISSION NOTES FOR WHICH THE RESCISSION OFFER IS ACCEPTED, PLUS ALL CONVERTED
WARRANTS RESCISSION STOCK ISSUED PURSUANT TO THE CONVERTED WARRANTS THAT WERE
DELIVERED IN CONJUNCTION WITH PROMISSORY NOTES FOR WHICH THE RESCISSION OFFER
IS ACCEPTED. The Election will set forth the relevant details of the
transaction or transactions, as the case may be, relating to the Rescission
Securities held of record by each Offeree, as well as the applicable Rescission
Price for such Rescission Securities. The Rescission Offer does not apply to
any securities of the Company other than the Rescission Securities.

The Election must be accompanied by the original Rescission Notes or
certificates representing the shares of Rescission Stock, as the case may be,
together with all related Rescission Warrants and Converted Warrants Rescission
Stock. The certificates representing shares of Rescission Stock must be duly
endorsed in blank by the registered holder thereof with the signature
guaranteed by a federally or state chartered bank or New York Stock Exchange
member firm unless the Company is presently holding the certificates for such
shares. Documentation received by the Company other than at the address
specified above or after 5:00 p.m.,

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Pacific time, on the Expiration Date, incomplete or invalid documentation, or
documentation purporting to accept the Rescission Offer in a manner not
permitted by the terms and conditions of the Rescission Offer will not be
deemed to constitute acceptance of the Rescission Offer.

All valid acceptances of the Rescission Offer will be deemed to be effective
on the Expiration Date and, unless the Rescission Offer is accepted on or
before such date, the right to accept the Rescission Offer shall terminate.
Acceptances or rejections may be revoked in a written notice received by the
Company prior to 5:00 p.m., Pacific time, on the Expiration Date.

OTHER TERMS AND CONDITIONS

The Company has not retained nor does it intend to retain any person to make
solicitations or recommendations to Offerees in connection with the Rescission
Offer.

If an Election fully completed and executed in pertinent part is not
received by the Expiration Date from those Offerees actually receiving notice
of the Rescission Offer through this Prospectus, the Rescission Offer will be
deemed to have been rejected by such Offerees.

Neither the Company nor its officers and directors may make any
recommendations to any Offeree with respect to the Rescission Offer contained
herein. Each Offeree is urged to read this Prospectus carefully and to make an
independent decision whether to accept or reject the Rescission Offer.

The method of delivery of all documents is at the election and risk of the
Offeree. IF OFFEREES DESIRING TO ACCEPT THIS RESCISSION OFFER INTEND TO MAKE
USE OF THE MAILS TO RETURN THEIR RESCISSION SECURITIES TO THE COMPANY, INSURED
REGISTERED MAIL, RETURN RECEIPT REQUESTED, IS RECOMMENDED. The Company will
seek to notify Offerees who submit incomplete or invalid Elections to the
Company by mailing notice of the same to the Offeree's last known address
prior to deeming the Rescission Offer rejected by the Offeree.

EFFECT OF RESCISSION OFFER

The Rescission Offer will eliminate the Company's potential liability under
the Washington Securities Act for the issuance or sale of the Rescission
Securities without complying with the registration requirements of the
Washington Securities Act. Although the Company believes that the Rescission
Securities were offered and sold in compliance with the registration
requirements of the federal securities laws pursuant to the exemption from
registration provided by Rule 506 of the Securities Act, if a holder of the
Rescission Securities were to assert a claim under the federal securities
laws, the staff of the Securities and Exchange Commission takes the position
that a person's federal right of rescission may survive the Rescission Offer.
Generally, the statute of limitations for non-compliance with the requirement
to register securities under the Securities Act is one year. The above
discussion does not relate to the antifraud provisions of applicable
securities laws or rights under common law or equity. The Rescission
Securities held by Offerees who choose not to accept the Rescission Offer will
be registered securities under the Securities Act and, unless held by persons
who may be deemed to be affiliates of the Company, will be freely tradeable in
the public market at such time subject to the lock-up agreements. Shares of
Rescission Stock held by affiliates of the Company will be subject to certain
restrictions on resale provided in Rule 144 under the Act. See "Shares
Eligible for Future Sale" for a discussion of Rule 144.

PAYMENT OF THE RESCISSION PRICE

At the Expiration Date, the Company will become obligated to pay the
Rescission Price to each Offeree who has properly accepted the Rescission
Offer in accordance with the terms and conditions hereof and has not revoked
such acceptance prior to the Expiration Date. Each such Offeree will cease to
be a holder of securities of the Company with respect to the tendered
Rescission Securities upon payment by the Company of the Rescission Price.
Payment for Rescission Securities validly tendered and not revoked will be
made by the Company by check or wire transfer promptly after the Expiration
Date.

FUNDING OF THE RESCISSION OFFER

The repurchase of the Rescission Securities pursuant to the Rescission
Offer, if any are required, is to be funded from a portion of the net proceeds
of the Public Offering.

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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS OF THE RESCISSION OFFER

The following summary of the federal income tax consequences of acceptance
of the Rescission Offer is based on the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations, judicial decisions, published
positions of the Internal Revenue Service (the "IRS") and other applicable
authorities, all as in effect on the date hereof, and all of which are subject
to change (including on a retroactive basis). No ruling has been or will be
sought from the IRS regarding any matter discussed herein. Accordingly, no
assurance can be given that the IRS and/or a court will not take a position
contrary to the description below of any of the tax aspects of acceptance of
the Rescission Offer.

This summary does not address all federal income tax considerations that may
be relevant to a particular holder of a Rescission Security in light of his,
her or its particular circumstances, such as a holder who is a dealer in
securities, who is a foreign person, who acquired Rescission Securities from
someone other than the Company, who acquired Rescission Securities as
compensation, who acquired Rescission Securities in exchange for property
other than cash, who is subject to the alternative minimum tax, or who holds
Rescission Securities subject to hedging, conversion or constructive sale
transactions. Furthermore, no foreign, state or local tax considerations are
addressed herein. ACCORDINGLY, EACH HOLDER OF A RESCISSION SECURITY SHOULD
CONSULT WITH HIS, HER OR ITS OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL
INCOME TAX CONSEQUENCES AS WELL AS ANY STATE, LOCAL OR FOREIGN TAX
CONSEQUENCES, OF ACCEPTANCE OF THE RESCISSION OFFER.

Rescission Stock. For federal income tax purposes, an acceptance of the
Rescission Offer and subsequent repurchase by the Company will be a redemption
of the Rescission Stock. The redemption price for the Rescission Stock will
equal the amount paid by the Company for such shares (excluding the amount of
statutory interest paid by the Company). Although an argument could be made
that the amount of statutory interest paid by the Company is part of the
amount paid for the Rescission Stock, the Company believes that the amount of
statutory interest received by each person who accepts the Rescission Offer
will be taxable as ordinary income. As discussed below, a redemption is
treated either as (i) a sale or exchange of the redeemed stock or (ii) a
distribution, part of which may be treated as a dividend.

If the redemption is treated as a sale or exchange of the Rescission Stock
under the Code, then a person who accepts the Rescission Offer will recognize
gain or loss equal to the difference, if any, between the amount received as
payment for the Rescission Stock and the tax basis in the shares surrendered.
The amount paid for the Rescission Stock and the tax basis in the shares
surrendered will be adjusted in accordance with the terms of the Reverse Stock
Split. In the case of a person who purchased Rescission Stock from the Company
for cash, because the Company will pay the same amount (exclusive of statutory
interest) for the Rescission Stock as the person initially paid to the Company
for the Rescission Stock, a redemption of Rescission Stock that is treated as
a sale or exchange should have no tax consequences to the shareholder, except
that the statutory interest received by the shareholder should be taxable as
ordinary income. In the case of a person who acquired Rescission Stock by
converting a debt obligation of the Company, the Company will pay the same
amount (exclusive of statutory interest) for the Rescission Stock as the
person initially paid to the Company for the debt obligation. Because many
debt obligations provided for the deferred payment of interest (as described
below under "Rescission Notes"), the tax basis of Rescission Stock received
upon conversion of a debt obligation could exceed the amount received as
payment for the Rescission Stock, and therefore a redemption of such
Rescission Stock that is treated as a sale or exchange could result in a
capital loss to such a shareholder who holds the Rescission Stock as a capital
asset. The deduction of capital losses is subject to limitations.

Rescission Stock might also have been acquired by the exercise or conversion
of warrants that would have been subject to the Rescission Offer if they had
not been exercised or converted. All Rescission Warrants were issued with
other securities of the Company as investment units (i.e., together with stock
or debt obligations of the Company). Under the terms of the Rescission Offer,
a person must tender either none or all of the securities acquired as part of
an investment unit. For example, if a person tenders Rescission Stock or

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<PAGE>

Rescission Notes the person must also tender the Rescission Warrants that were
part of the original investment unit and any Rescission Stock that was acquired
by exercising or converting a warrant that was part of the original investment
unit. A redemption of Rescission Stock that is treated as a sale or exchange
should have no tax consequences to a person who acquired the Rescission Stock
by exercising a warrant, except that the statutory interest received by the
shareholder should be taxable as ordinary income. Depending on the tax
consequences of the conversion of the Converted Warrants into Converted
Warrants Rescission Stock, a redemption that is treated as a sale or exchange
of Converted Warrants Rescission Stock could result in a capital loss to a
shareholder who holds such Converted Warrants Rescission Stock as a capital
asset. The deduction of capital losses is subject to limitations.

THE TAX CONSEQUENCES TO PERSONS WHO ACQUIRED RESCISSION STOCK BY CONVERTING
DEBT OBLIGATIONS OF THE COMPANY OR BY EXERCISING OR CONVERTING WARRANTS ARE
COMPLEX AND THEREFORE SUCH PERSONS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS
WITH RESPECT TO THE FEDERAL INCOME TAX CONSEQUENCES OF ACCEPTANCE OF THE
RESCISSION OFFER.

A redemption is treated as a sale or exchange only if it: (i) results in a
"complete redemption" of the shareholder's interest in the Company; (ii) is
"substantially disproportionate" with respect to the shareholder; or (iii) is
"not essentially equivalent to a dividend." These three tests are collectively
referred to as the "redemption tests" and are described more fully below.

If the repurchase of Rescission Stock does not satisfy any of the redemption
tests, the payment for the Rescission Stock (exclusive of statutory interest)
will be treated as a dividend taxable at ordinary income tax rates to the
extent of the Company's accumulated or current earnings and profits. To the
extent the distribution exceeds the Company's accumulated earnings and profits,
the payment will be treated first as a return of capital to the extent of the
shareholder's tax basis in the Rescission Stock, and then as the gain from the
sale or exchange of the Rescission Stock. A shareholder who is treated as
receiving a taxable dividend will generally be able to increase the basis of
the shareholder's remaining stock by the basis of the stock repurchased. The
redemption tests are applied on a shareholder-by-shareholder basis, so
acceptance of the Rescission Offer could result in a sale or exchange that has
no tax consequences (other than for statutory interest) for some shareholders
and ordinary dividend and interest income for others.

All three redemption tests involve determining the extent to which the
shareholder's ownership of stock in the corporation was reduced by the
redemption. For purposes of determining stock ownership, all stock owned
directly by the shareholder and all stock treated as owned by the shareholder
under "constructive ownership" rules contained in the Code is considered. Under
these constructive ownership rules, a shareholder is treated as owning (i)
stock owned by certain members of the shareholder's family, (ii) stock owned by
certain entities in which the shareholder has an ownership interest, (iii)
stock owned by certain owners of interests in a shareholder (such as a
partnership, trust, estate or corporation) that is not an individual, and (iv)
stock that a shareholder may acquire upon exercise of an option, warrant or
conversion right.

A redemption is a "complete redemption" if after the redemption the
shareholder does not own, directly or constructively, any stock of the Company.
For purposes of this redemption test only, the "family attribution" rule of
constructive stock ownership may be waived if certain conditions are satisfied.

A redemption is "substantially disproportionate" with respect to a
shareholder if: (i) the percentage of the Company's voting stock owned by the
shareholder immediately after the redemption is less than 80% of the percentage
of the Company's voting stock owned by the shareholder immediately before the
redemption; (ii) the percentage of the Company's common stock (whether voting
or nonvoting) owned by the shareholder immediately after the redemption is less
than 80% of the percentage of the Company's common stock owned by the
shareholder immediately before the redemption; and (iii) after the redemption,
the shareholder owns less than 50% of the total combined voting power of all
classes of stock of the Company entitled to vote.

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<PAGE>

A redemption is "not essentially equivalent to a dividend" if the facts and
circumstances of a shareholder's redemption indicate that the shareholder has
experienced a meaningful reduction of the shareholder's interest in the
Company. This redemption test may be satisfied even if the other redemption
tests are not.

Rescission Notes. The Rescission Notes all provide for the deferred payment
of interest by the Company. Although the actual payment of interest on the
Rescission Notes is deferred, the Code generally requires a holder of notes
like the Rescission Notes to recognize interest income as it accrues, rather
than only when it is paid.

For federal income tax purposes, an acceptance of the Rescission Offer will
be treated as a sale of the Rescission Notes. Each person who accepts the
Rescission Offer will recognize gain or loss equal to the difference between
the amount received as payment for the Rescission Notes (excluding the amount
of statutory interest paid by the Company) and the tax basis in the notes
surrendered. Any gain or loss will be capital gain or loss to a person who
holds the Rescission Note as a capital asset. Although an argument could be
made that the amount of statutory interest paid by the Company is part of the
amount paid for the Rescission Notes, the Company believes that the amount of
statutory interest received by each person who accepts the Rescission Offer
will be taxable as ordinary income.

Any gain or loss recognized upon the sale of a Rescission Note will be taxed
as capital gain or loss to a person who holds the Rescission Note as a capital
asset. For purposes of determining the amount of gain or loss recognized upon
the sale of a Rescission Note, the holder's tax basis will generally be equal
to (i) the amount paid for such note, (ii) less any amount allocated to any
warrants granted with such note, (iii) plus the amount of deferred interest
income that has been recognized by the holder, (iv) less any payments made by
the Company under the terms of such note. A person who holds a Rescission Note
will generally have recognized deferred interest income in earlier tax years
and will recognize the daily portion of deferred interest income for each day
of the current tax year that the Rescission Note is held. Thus, the person's
tax basis will include the amount of deferred interest income that has been
recognized but not paid. Because the Company will pay the same amount
(exclusive of statutory interest) for a Rescission Note as the person
initially paid to the Company for the Rescission Note, a sale of a Rescission
Note will generate a capital loss for any person who holds the Rescission Note
as a capital asset. The deduction of capital losses is subject to limitations.

Rescission Warrants. All Rescission Warrants were issued with other
securities of the Company as investment units (i.e., together with stock or
debt obligations of the Company). Under the terms of the Rescission Offer, a
person must tender either none or all of the securities acquired as part of an
investment unit. For federal income tax purposes, a person who accepts the
Rescission Offer with respect to Rescission Warrants will recognize gain or
loss equal to the difference, if any, between the amount received for the
Rescission Warrants and the tax basis in the warrants surrendered. In most
cases, a holder's tax basis in Rescission Warrants issued in conjunction with
a Rescission Note (or other security) of the Company will be a portion of the
total amount paid by the holder for the investment unit consisting of the
Rescission Note (or other security) and the Rescission Warrants. Any gain (or
loss) will be taxed as capital gain (or loss) to the holder if the Common
Stock that would have been received upon exercise of the Rescission Warrants
would have been a capital asset in such person's hands. Because the Company
will pay the same amount (exclusive of statutory interest) for Rescission
Securities acquired as an investment unit as the person initially paid to the
Company for such Rescission Securities, a repurchase of the Rescission
Warrants issued in an investment unit should have no tax consequences to the
holder, except that statutory interest received by the holder should be
taxable as ordinary income. Although an argument could be made that the amount
of statutory interest paid by the Company is part of the amount paid for the
Rescission Warrants, the Company believes that the amount of statutory
interest received by each person who accepts the Rescission Offer will be
taxable as ordinary income.

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RISK FACTORS

The following risk factors should be carefully considered, in addition to
the other information set forth in this Prospectus, in connection with the
Rescission Offer. This Prospectus contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Those statements appear in a number of places in
this Prospectus and include statements regarding the intent, belief or current
expectation of the Company with respect to, among other things, (i) trends
affecting the Company's financial condition or results of operations and (ii)
the Company's business and growth strategies. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual
results may differ materially from those projected, expressed or implied in
the forward-looking statements as a result of various factors. The information
contained in this Prospectus, including without limitation the information set
forth under the headings "Risk Factors," Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business" identifies
important factors that could cause such differences. Such forward-looking
statements speak only as of the date of this Prospectus, and the Company
cautions potential investors not to place undue reliance on such statements.

LIMITED OPERATING HISTORY; SUBSTANTIAL OPERATING LOSSES

The Company commenced operations in March 1995 and has only a limited
operating history upon which an evaluation of its performance can be based.
The Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
operations. The Company has incurred substantial net losses of approximately
$1.7 million, $5.9 million and $4.4 million in 1995, 1996 and the nine months
ended September 30, 1997, respectively. As of September 30, 1997, the Company
had a working capital deficit of $5.8 million, an accumulated deficit of
approximately $12.1 million and shareholders' deficit of $7.4 million. The
Company's current focus is on introducing several enhanced telecommunications
services, and the Company plans to hire additional personnel and to increase
its expenses related to sales and marketing, network infrastructure, technical
resources and customer support. As a result, the Company expects that it will
continue to incur net losses at least through 1998. There can be no assurance
that revenue will grow or that the Company will achieve or sustain
profitability on either a quarterly or annual basis. The Company's results of
operations may be below the expectations of public market analysts and
investors in some future quarters, which would likely result in a decline in
the trading price of the Common Stock. The Company believes that period-to-
period comparisons of its results of operations should not be relied upon as
indications of future performance. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

RECENT INTRODUCTION AND ONGOING DEVELOPMENT OF VALUE-ADDED SERVICES

Substantially all of the Company's revenue to date has been derived from
providing international call-reorigination services to small- and medium-sized
businesses and the resale of international long-distance minutes to other
telecommunications service providers. The Company believes that as
deregulation occurs and competition increases in markets around the world, the
pricing advantage of traditional call-reorigination to most destinations
relative to conventional call-through international long-distance service will
diminish. In order to maintain its existing customer base, attract new
customers and increase its revenues the Company must offer a variety of value-
added and enhanced network-based telecommunications services, as well as its
own call-through service, at competitive prices. Accordingly, the Company is
in the process of developing a number of value-added telecommunications
services such as enhanced fax and business-grade Internet services. The first
of these enhanced services were offered to the Company's customers in November
1997, and to date the Company has not generated significant revenue from these
services. Several other new services described in this Prospectus are still
under development and are not scheduled for implementation until various times
in 1998. It is not uncommon that the introduction of new telecommunications
services is delayed or is occasioned by technical problems. There can be no
assurance that the Company will not encounter delays

12
<PAGE>

or technical problems in the introduction of new services which will inhibit
the Company's ability to compete. Also, there can be no assurance that the
Company will have sufficient capital to complete development and introduction
of all of the enhanced services that it currently plans to offer to its
customers or that the introduction of such services will result in increased
sales. The failure to introduce enhanced telecommunications and Internet-
related services, failures in the systems that would deliver those services or
the absence of demand for such services when introduced would have a material
adverse affect on the Company's ability to achieve or sustain profitability in
the future. See "Business--Services."

NEED FOR ADDITIONAL CAPITAL AND CAPITAL REQUIREMENTS

The Company's efforts to develop and introduce an array of value-added and
enhanced telecommunications services have required, and will continue to
require, the Company to invest in network infrastructure and systems
development. Also, the Company has incurred substantial losses since inception
and expects to continue to incur losses through at least 1998. The Company
believes that, based upon its present business plan, the net proceeds of the
Public Offering, together with revenues from operations, will be sufficient to
finance operating losses and the development and introduction of new services
and to meet its other currently planned working capital and capital
expenditure requirements through the end of 1998. However, due to the need to
continue to expand its network operations and service offerings and other
factors, the Company expects that it will need to raise additional capital in
future periods. The Company also intends to seek lease financing for a portion
of the equipment and systems that it acquires in 1998 and beyond, although
there can be no assurance that this financing will be available to the Company
when needed or on acceptable terms. If the Company experiences greater than
anticipated capital requirements, if the implementation of the Company's
operating strategy fails to produce anticipated revenue growth and cash flows,
if lease financing is not available or if additional working capital is
required for any other reason, the Company will be required to obtain
additional sources of capital earlier than currently anticipated. The timing
of the need for additional capital also will be affected by the extent to
which the Rescission Offer is accepted. See "Rescission Offer" and "--
Potential Rescission Liability." There can be no assurance that the Company
will be able to obtain equity, debt or lease financing when needed or on terms
that the Company finds acceptable. Any additional equity or debt financing may
cause substantial dilution to the Company's shareholders. If the Company is
unable to obtain sufficient funds to satisfy its capital requirements, it will
be forced to reduce the scope of its expansion plans, curtail operations,
dispose of assets or seek extended payment terms from its vendors, any of
which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

DEPENDENCE ON NEW NETWORK SYSTEMS

The Company's success is dependent upon its ability to deliver high quality,
uninterrupted telecommunications services. During 1997, the Company installed
new switching software and hardware in its Los Angeles switching center. These
facilities did not commence carrying customer traffic until the fourth quarter
of 1997. Prior to implementing these new systems, virtually all of the
Company's revenue was attributable to international call-reorigination
services. Accordingly, successful implementation and reliable operation of
these new systems is essential to the Company's operations. Implementation of
new switching and software systems often is accompanied by a variety of
problems. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Quarterly Results of Operations." There can be no
assurance that these recently installed systems will be adequate to perform
their intended functions or that the Company will not suffer adverse
consequences in connection with their implementation. For example, there can
be no assurance that the Company will not encounter material delays in the
introduction of new services or the provisioning of new customers or new
services for existing customers. There also can be no assurance that the
Company will not encounter difficulties in enhancing its systems or
integrating new technology into its systems. The inability of the Company to
implement any required system enhancement, to acquire new systems or to
integrate new technology in a timely and cost effective manner could have a

13
<PAGE>

material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Services" and "--Network and
Operations."

DEPENDENCE ON SUPPLIERS

The Company has supply contracts with a number of interexchange carriers for
long-distance telecommunications services. Under these arrangements, and
consistent with industry practice, the Company is subject to the risk of price
changes and service restrictions or cancellations upon short notice. Certain
of these suppliers are or may become competitors of the Company, and such
suppliers are not restricted from competing with the Company. To the extent
that any of these suppliers change their pricing structures, the Company may
be adversely affected. To obtain favorable forward pricing from certain of its
suppliers, the Company has committed to purchase minimum volumes of a variety
of long-distance services during stated periods, whether or not such volumes
are used and, in one case, has agreed to pay a surcharge equal to a percentage
of the Company's shortfall from a specified monthly minimum volume. During
November 1997 the Company's aggregate monthly minimum volume commitments and
maximum surcharge totaled approximately $280,000. The failure of the Company
to meet the minimum usage commitments contained in its purchase agreements
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company's ability to maintain and
expand its business depends, in part, on its ability to continue to obtain
telecommunications services on satisfactory terms from facilities-based long-
distance carriers and the cooperation of interexchange carriers in initiating
and terminating service in a timely manner. See "Business--Network and
Operations" and "--Suppliers."

In the past the Company has from time to time been in arrears of its payment
obligations to its carriers. In October 1997, the Company failed to pay
amounts due to one of its principal long-distance suppliers within the time
period this supplier customarily had required payment. As a result, this
supplier ceased providing services to the Company and, under the terms of its
agreement with the Company, could demand a termination payment of up to $1.2
million. The Company was able to re-route traffic that previously had been
carried by this supplier without any interruption in service to its customers.
In December 1997, after the Company paid this supplier a substantial portion
of the amounts past due, services were restored. The Company has negotiated
the payment terms of the remaining balance owed and does not believe that it
will be required to pay an amount in excess of that owed for carrier services
provided. There can be no assurance that the Company will not be required to
pay a penalty to this or any other supplier or that the Company will not be in
default of its obligations to its suppliers in the future. If suppliers to the
Company were to decline to continue to carry the Company's traffic, due to
non-payment or otherwise, the Company could experience an interruption in
service to its customers which could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

A failure by a supplier to deliver quality services or products on a timely
basis, or the inability of the Company to develop alternative sources if and
as required, could result in delays which could have a material adverse effect
on the Company. The Company's remedies against suppliers that fail to deliver
services or products on a timely basis are limited, in many cases, by
practical considerations relating to the Company's desire to maintain
relationships with the suppliers. In addition, as the Company's suppliers
upgrade the technology of their equipment, the Company may encounter
difficulties in integrating the new technology into the Company's network.

The Company will depend in part on the Equant network to provide certain
enhanced telecommunications and business-grade Internet services. If the
Equant network were to suffer operational problems or failure, or is not
expanded to accommodate increased demand for access to the Equant network,
there could be a material adverse effect on the Company. Also, there can be no
assurance that the Company will continue to have access to the Equant network
or that such access will be available to the Company on terms that afford a
favorable gross margin to the Company. If the Company's agreement with Equant
is terminated, or if such agreement is renegotiated to GlobalTel's
disadvantage, or if Equant is unable to provide

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<PAGE>

the Company with services in accordance with its agreement with the Company,
there could be a material adverse effect on the Company's business, financial
condition and results of operations. Although certain leased data
communications services are currently available from several alternative
suppliers, there can be no assurance that the Company could obtain substitute
services from other suppliers when needed or on terms the Company finds
acceptable. See "Business--Suppliers."

POTENTIAL RESCISSION LIABILITY

The Rescission Offer is being made to all holders of the Rescission
Securities. If all of the Offerees holding Rescission Securities accept the
Rescission Offer, the Company will be required to make payments aggregating
approximately $2.8 million, plus the aggregate amount of statutory interest at
the rate of eight percent per annum from the date of purchase to the
Expiration Date. Assuming the Expiration Date will be January 31, 1998, the
aggregate accrued interest with respect to all of the Rescission Securities
will be approximately $305,000. The Company expects to use a portion of the
proceeds of the Public Offering to repurchase the Rescission Securities
tendered in response to the Rescission Offer, if any. Use of a portion of the
proceeds of the Public Offering in connection with the Rescission Offer will
reduce the amount of working capital available to the Company and require it
to seek additional capital sooner than would otherwise be required. See "--
Need for Additional Capital and Capital Requirements."

Although the Company believes that the Rescission Offer will eliminate its
potential liability under the Washington Securities Act for the issuance or
sale of the Rescission Securities without complying with the registration
requirements of the Washington Securities Act, there can be no assurance that
claims asserting violations of state or federal securities laws will not be
asserted. Furthermore, notwithstanding the Rescission Offer, there can be no
assurance that the Company will not be subject to penalties or fines relating
to past securities issuances or that other holders of the Company's securities
will not assert or prevail in claims against the Company for rescission or
damages under federal or state securities laws. While the Company believes
that the Rescission Securities were offered and sold in compliance with the
registration requirements of federal securities laws pursuant to the exemption
from registration provided by Rule 506 under the Securities Act, if a holder
of Rescission Securities were to assert a claim based upon a violation
thereof, the position of the Securities and Exchange Commission is that
liabilities under the federal securities laws are not terminated by making a
Rescission Offer. Even if the Company were successful in defending any
securities law claims, the assertion of such claims against the Company would
result in costly litigation and significant diversions of effort by the
Company's management. In addition, the Rescission Offer will not prevent the
Securities and Exchange Commission or any state securities commission from
pursuing enforcement action against the Company with respect to any alleged
violations of federal or state securities laws. See "Rescission Offer," "--
Need for Additional Capital and Capital Requirements" and Note 6 of Notes to
Consolidated Financial Statements.

RISK OF MANAGING GROWTH; RECENT MANAGEMENT CHANGES AND NEW INFORMATION SYSTEMS

The Company's growth has placed, and is expected to continue to place, a
significant strain on the Company's management, administrative, operational,
financial and technical resources and on its systems and controls. The Company
has made recent changes in executive-level management positions. Due in part
to the need to reduce expenses, since August 1997 four executive officers of
the Company discontinued full-time employment and certain of the Company's
senior management personnel have worked together only a short time. The
Company believes that it will need, both in the short term and the long term,
to hire additional qualified administrative and management personnel in all
functional areas. Failure to locate, hire and retain such qualified personnel
or failure to manage the Company's growth properly could have a material
adverse effect on the Company's business, financial condition or results of
operations. See "--Dependence on Key Personnel; Need to Hire Additional
Qualified Personnel" and "Business--Management."

The Company recently has implemented new financial reporting, management
information and billing systems. As a telecommunications service provider, the
Company must record and process millions of call

15
<PAGE>

detail records quickly and accurately to produce customer bills and financial
reports in a timely manner. Demands on the Company's information systems will
increase significantly if the Company realizes anticipated growth and expands
its customer base. There can be no assurance that the Company's information
systems will be adequate as the volume of customer traffic increases or that
the Company will not suffer adverse consequences should such systems fail to
operate effectively. In addition, the Company has not previously reported
financial results on a quarterly basis and there can be no assurance that the
Company will not encounter material delays or errors in billing of customers
or in financial reporting. While the Company believes that its information
systems are sufficient for its current operations, it will be necessary to
expand the capacities and capabilities of its systems as the Company grows.
There can be no assurance that the Company will be able to do so, and the
failure to implement enhancements or to make the necessary investments in the
Company's information systems in a timely fashion could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Management Information Systems."

COMPETITION

The global telecommunications industry is extremely competitive and is
characterized by rapid regulatory and technological change. The Company's
success depends upon its ability to compete with a variety of
telecommunications providers in each of its markets, including with global
alliances between and among some of the world's largest telecommunications
carriers. Other potential competitors include cable television companies,
wireless telephone companies, Internet access providers, electric and other
utilities with rights of way, large end users that have private networks and
new entrants into the market focused upon niche opportunities. The Company
believes that such competition will intensify. Many of the Company's current
or potential competitors have substantially greater financial, marketing and
other resources than the Company. If the Company's competitors devote
significant additional resources to offering telecommunications services to
the Company's target customer base, such action could have a material adverse
effect on the Company's business, financial condition and results of
operations. There can be no assurance that the Company will be able to compete
successfully against such new or existing competitors.

Currently, the Company competes with providers and other marketers of
international call-reorigination services, ITOs and other marketers of long-
distance telephone service. Because of close ties to national regulatory
authorities enjoyed by many ITOs, regulatory authorities often can be
pressured to refrain from adopting policies and granting regulatory approvals
that would result in increased competition for the local ITO. If the ITO were
to successfully pressure such regulators, the Company could be denied
regulatory approval in certain jurisdictions in which its services would
otherwise be permitted. Any delay in obtaining, or failure to obtain, approval
in such jurisdictions could have a material adverse effect on the Company's
business, financial condition and results of operations.

The Company's competitors for basic and enhanced telecommunications services
include some of the world's largest telecommunications providers, such as AT&T
Corp. ("AT&T"), MCI Communications Corporation, Sprint Corporation ("Sprint"),
Worldcom Inc., Cable & Wireless p.l.c. and British Telecommunications P.L.C.
and other global telecommunications providers including USA Global Link, Inc.,
Telegroup, Inc. and IDT Corporation. In addition, numerous smaller carriers
have emerged, both in the United States and in newly deregulated markets
around the world, many of which specialize in offering international telephone
services similar to the Company's call-reorigination services.

Competition for customers in the telecommunications markets in which the
Company operates is primarily based on price, and to a lesser extent on the
type and quality of services offered. The Company anticipates that
deregulation and increased competition will result in decreased prices for
telecommunications services. The Company believes that the effects of such
decreases will be at least partially offset by increased telecommunications
usage and decreased costs. However, to the extent that this does not occur,
the Company's business, financial condition and results of operations could be
materially and adversely affected.

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<PAGE>

The market for value-added data services, such as the business-grade
Internet services under development by the Company, is extremely competitive,
and the Company expects that competition will intensify in the future. The
Company's current and prospective competitors in the value-added services
business include many large companies that have substantially greater market
presence and financial, technical, marketing and other resources than the
Company. In addition to the Company's traditional telecommunications
competitors, the Company's value-added services business competes or will
compete with two additional categories of competitors: (i) Internet service
providers, including on-line service providers such as America Online, Inc.,
UUNET Technologies, Inc., Netcom On-line Communication Services, Inc., Bolt
Beranek & Newman, Inc., Microsoft Corporation, and other national and regional
Internet providers, that provide public access to the Internet and some
business-grade access and services; and (ii) enhanced messaging providers,
including a number of newer companies, such as Xpedite System, Inc., FaxSav
Incorporated and Premier Technologies, Inc., that were recently established to
provide narrowly focused niche products and have grown by expanding their
product offerings. There can be no assurance that the Company will have the
financial resources, technical expertise or marketing and support capabilities
to compete successfully in the market for value-added data services.

The Company believes that new competitors, including large computer
hardware, software, media and other technology and telecommunications
companies will enter the value-added services market, resulting in even
greater competition for the Company. In addition, the ability of some of the
Company's competitors to bundle other services and products with Virtual
Private Networks, global roaming services or both could place the Company at a
significant competitive disadvantage. Increased competition in the value-added
services market could result in significant price competition, which in turn
could result in significant reductions in the average selling price of the
Company's value-added services. In addition, competition could result in
increased selling and marketing expenses, which could adversely affect the
Company's profitability. There can be no assurance that the Company will be
able to offset the effects of any such price reductions through an increase in
the number of its customers, higher revenues from enhanced services, cost
reductions or otherwise. Increased competition, price or otherwise, could
result in erosion of the Company's customer base and adversely affect the
Company's business, financial condition and results of operations. See
"Business--Competition."

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

The Company's quarterly operating results have fluctuated in the past,
primarily as a result of the evolution of the Company's business, and may
fluctuate significantly in the future as a result of a variety of factors,
some of which are outside of the Company's control. These factors include:
pricing changes; changes in the mix of services sold or channels through which
those services are distributed; seasonality; changes in user demand; customer
terminations of service; capital expenditures and other costs relating to the
expansion of the Company's network; the timing and costs of any acquisitions
of customer bases, businesses, services or technologies; the timing and costs
of marketing and advertising efforts; the effects of government regulation and
regulatory changes; and specific economic conditions in the telecommunications
industry. These factors also could have a material adverse effect on the
Company's business, results of operations and financial condition. See "--
Limited Operating History; Substantial Operating Losses" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

RAPID CHANGES IN TECHNOLOGY

The telecommunications industry is characterized by rapidly changing
technology, evolving industry standards, emerging competition and frequent new
service and other product introductions. Examples of some newly developed
technologies include satellite-based systems, such as those proposed by
Iridium World Communications Ltd., GlobalStar Telecommunications Limited and
Teledesic Corp., utilization of the Internet for voice and data transmission
and digital wireless communications systems. There can be no assurance that
the Company can successfully identify new service opportunities and develop
and bring new

17
<PAGE>

products and services to market in a timely and cost-effective manner, or that
products, services or technologies developed by others will not render the
Company's products, services or technologies noncompetitive or obsolete. In
addition, there can be no assurance that product or service developments or
enhancements introduced by the Company will achieve or sustain market
acceptance or be able to effectively address the compatibility and
inoperability issues raised by technological changes or new industry
standards. See "Business--Competition."

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

The Company's strategy is to focus on international markets. In many second-
tier markets in which the Company seeks to market its services, the national
ITO controls access to the local networks, enjoys better brand recognition and
brand and customer loyalty, and possesses significant operational economies,
including operating agreements with other ITOs. Moreover, an ITO may take many
months before allowing competitors, such as the Company, to interconnect to
its switches within the target market. There can be no assurance that the
Company will be able to obtain the permits and operating licenses required to
operate, obtain access to local transmission facilities or market, sell and
deliver competitive services in these markets. In addition, pursuit of
international growth opportunities may require significant investments for
extended periods before returns, if any, on such investments are realized.

The Company's operations also will be subject to the wide range of general
business risks associated with international operations, including unexpected
changes in legal and regulatory requirements; changes in tariffs, exchange
rates and other barriers; political and economic instability; inability to
repatriate net income from foreign markets; long accounts receivable payment
cycles in certain countries; difficulty in protecting the Company's
intellectual property; potentially adverse tax consequences and the regulation
of Internet access providers by foreign regulatory authorities.

Although the Company's sales to date have been denominated in U.S. dollars,
the value of the U.S. dollar in relation to foreign currencies also may
adversely affect the Company's sales to international customers. To the extent
the Company changes its pricing practices to denominate prices in foreign
currencies, the Company will be exposed to increased risks of currency
fluctuation. Any such fluctuation could have a material adverse effect on the
Company's earnings or assets when translated into U.S. dollars. Although the
Company has not entered into foreign exchange contracts to hedge intercompany
exchange transactions, it may do so in the future. Moreover, certain
jurisdictions may impose foreign exchange controls that may delay or prevent
repatriation of funds or profits. Additionally, the Company generally will be
subject to taxes in foreign countries where the Company operates. The
Company's ability to claim a foreign tax credit against its U.S. federal
income taxes is subject to various limitations that could result in a high
effective tax rate on the Company's earnings. There can be no assurance that
laws or administrative practice relating to taxation, foreign exchange or
other matters in countries in which the Company operates or will operate will
not change in a manner adverse to the Company. There can be no assurance that
such factors will not have a material adverse effect on the Company's future
operations and, consequently, on the Company's business, financial condition
and results of operations.

The Company is subject to the Foreign Corrupt Practices Act ("FCPA"), which
generally prohibits U.S. companies and their intermediaries from bribing
foreign officials for the purpose of obtaining or keeping business. The
Company may be exposed to liability under the FCPA as a result of past or
future actions taken without the Company's knowledge by agents, strategic
partners and other intermediaries. Such liability could have a material
adverse effect on the Company's business, financial condition and results of
operations.

REGULATORY RISKS

The Company's call-reorigination operations are subject to the domestic laws
and regulations in the foreign countries in which the Company provides
services. Countries that have declared call-reorigination services illegal
have, at times, enforced their laws against operators with offices or
representatives in their

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<PAGE>

respective territories. These enforcement actions have ranged from
disconnection of the operators' lines to imprisonment of the operators' local
marketing representatives. The Company is not able to predict whether
countries in which it provides services will consider its call-reorigination
services illegal under their respective laws or will change their laws to
outlaw these services, nor can the Company predict what actions foreign
governments might take in the enforcement of these laws. There can be no
assurance that the Company's call-reorigination services will not be found
illegal by a foreign jurisdiction, and any determination of illegality could
have a material adverse effect on the Company's business, financial condition
and results of operations.

There is also a risk that adverse legal developments overseas relating to
traditional call back services could have consequences for the Company in the
United States. The Company provides its call-reorigination services to
customers in foreign countries using a number of methods. Some methods involve
completed calls and other communications to the United States from foreign
countries, and other methods, such as traditional call back service, involve
incomplete calls that avoid the high international rates offered by a national
ITO by providing a dial tone from a deregulated country, typically the United
States. A substantial number of countries consider call-reorigination adverse
to the interests of their national telecommunications sectors and in some
cases, these countries have passed laws to make traditional call back services
illegal.

In 1995, the Federal Communications Commission ("FCC") issued an order
stating that it would consider enforcement action against operators based in
the United States engaged in call-reorigination by means of the traditional
call back method in countries where this activity is expressly prohibited.
Under the FCC order, a party requesting enforcement assistance from the FCC
must provide sufficient documentation of the illegality of traditional call
back service and detailed evidence of the operator's violation of the law by
virtue of its provision of traditional call back services in the country. The
FCC also requires the party to provide documentation of the declaratory or
enforcement action taken by its national authorities against the operator
before requesting the FCC's assistance in enforcing the country's laws against
the operator. At November 30, 1997, 31 countries had filed documents with the
FCC alleging that certain forms of call- reorigination services violate their
respective domestic laws. Of those 31 countries, only the Philippines and
Saudi Arabia had fully complied with the FCC's documentation requirements. To
date, the FCC has not specified the types of actions it might take against an
operator, but possible enforcement remedies include the issuance of a cease-
and-desist order, imposition of a monetary sanction or, in an extreme case,
revocation of the operator's Section 214 license. The FCC recently took
enforcement action by revoking an operator's Section 214 license in a case
involving the Philippines. The Company provides call-reorigination services in
certain of these countries. Any potential enforcement action taken by the FCC,
in addition to any actions taken by the foreign country's authorities, could
have a material adverse effect on the Company's business, financial condition
and results of operations.

Within the United States, the interstate and international
telecommunications services currently provided by GlobalTel are subject to the
exclusive jurisdiction of the FCC. In the event that the Company decides to
offer intrastate telecommunications services, such activity will be subject to
the jurisdiction of the individual states in which the Company provides such
service. In the majority of states it is necessary to obtain a certificate of
public convenience and necessity from the appropriate state agency prior to
offering intrastate telecommunications services. Should the Company decide to
provide such services, it would apply for and obtain the required certificates
and any other approvals prior to the time it offers any intrastate
telecommunications services. There can be no assurance that the Company will
be successful in obtaining such certificates and approvals. See "Business--
Regulation--Telecommunications."

Adverse regulatory developments associated with the value-added services the
Company expects to provide to its customers could also pose a risk to the
Company's operations. In the United States and abroad, enhanced and value-
added services are essentially unregulated. The FCC's Computer II decision in
1980 and the Telecommunications Act of 1996 (the "1996 Telecommunications
Act") establish that enhanced services of the type provided by the Company are
outside the definition of regulated telecommunications or common carrier
services. The Company's enhanced services also are exempt from local access
charges pursuant to FCC rules. This exemption, however, has been threatened
from time to time both by Congress and the FCC. In

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<PAGE>

addition, as part of the 1996 Telecommunications Act, all telecommunications
operators providing certain domestic telecommunications services are required
to make contributions to the Universal Service Fund established thereunder,
which provides a subsidy to facilitate the provision of telecommunications
services to high-cost areas. While the Company's current operations do not
subject it to such requirement, it is possible that legislation could be
introduced that could similarly require providers of Internet, intranet or
other value-added services that are not considered telecommunications
operators under the 1996 Telecommunications Act to contribute to the Universal
Service Fund. Although to date no such legislation has been introduced, a law
requiring the Company to contribute to the Universal Service Fund would result
in higher costs for the Company, and there could be a material adverse effect
on the Company's business, financial condition and results of operations.
Moreover, if the FCC were to eliminate the local access charge exemption, the
Company's business, financial condition and results of operations could be
materially adversely affected. While the Company believes that the possibility
appears at the present to be remote, Congress or the FCC may in the future
change the regulatory status of enhanced data and value-added services. The
Company cannot predict the impact, if any, if any that future regulation or
regulatory changes may have on the Company's enhanced services business. See
"Business--Regulation--Value-Added Services."

Local laws and regulations differ significantly among the jurisdictions in
which the Company operates, and the interpretation and enforcement of such
laws and regulations vary or are often based on the informal views of the
local ministries which in some cases are subject to influence by the national
ITO. There can be no assurance that the Company has accurately predicted the
enforcement of applicable laws and regulations or regulatory and enforcement
trends in a given jurisdiction or will be found in compliance with all such
laws and regulations. Failure to predict the enforcement of applicable laws
accurately, or incorrect interpretations of applicable laws and regulations,
could cause the Company to lose or to be unable to obtain regulatory approvals
necessary for it to be able to provide certain of the services the Company
markets. Such failure could result in material adverse effects on the
Company's business, financial condition and results of operations.

DEPENDENCE ON INDEPENDENT SALES AGENTS

The Company's success depends in significant part on its ability to recruit,
retain and motivate a network of independent sales agent. For the nine months
ended September 30, 1997, 75 independent agents were responsible for
generating approximately 59% of the Company's call-reorigination revenues.
Most of the Company's agents are not subject to minimum sales quotas, are free
to promote services offered by competitors of the Company and can terminate
their relationship with the Company at any time. Identifying new prospects as
potential GlobalTel agents is often difficult, as the Company competes with
other organizations in recruiting independent agents, including other
telecommunications services providers. Moreover, the Company's ability to
retain and motivate its current agents, which can be affected by commission
rates payable by the Company, telecommunications services and technical and
marketing support available from the Company, general economic conditions and
other intangible factors, is uncertain. If an independent agent decided to
discontinue its relationship with the Company, it is likely that such agent
would attempt to move its clients to an alternate telecommunications services
supplier. There can be no assurance that the Company's current independent
sales agents will continue to distribute the Company's services in its target
markets, or do so successfully. Failure of the Company to effectively develop
and manage its agent network and any loss of the Company's more productive
agents could have a material adverse effect on the Company's business,
financial conditions and results of operations. See "Business--Sales,
Marketing and Customer Service."

RISK OF NETWORK FAILURE

The success of the Company is largely dependent upon the efficient and
uninterrupted operation of its network infrastructure. While the Company has
established a disaster recovery plan and has a fully redundant network
switching center, the Company's systems and operations remain vulnerable to
damage or interruption

20
<PAGE>

from fire, earthquake or other natural disaster and from power loss,
telecommunications failure, break-ins and similar events. The Company's
switching center is located in Los Angeles, California, and the Company has
additional equipment located in Hong Kong, Mexico City and Seattle,
Washington. Although the Company carries business interruption insurance,
there can be no assurance that such insurance will be sufficient to cover any
losses suffered by the Company. In addition, despite the implementation of
network security measures by the Company, its servers are vulnerable to
computer viruses, electronic break-ins and similar disruptions, any of which
could lead to interruptions, delays or loss of customer data. See "--Security
Risks." The occurrence of any of the foregoing risks could have a material
adverse effect on the Company's business, financial condition and results of
operations.

In the first two quarters of 1997 the Company experienced temporary
technical and operational difficulties associated with the relocation of its
primary switching platform from Las Vegas to Los Angeles. As the Company
attempts to expand its network and data traffic grows, there will be increased
stress on its network equipment and traffic management systems. There can be
no assurance that the Company will not experience failure of all or part of
its network. The Company's operations also are dependent on its ability to
successfully expand its network and integrate new and emerging technologies
and equipment into its network, which are likely to increase the risk of
system failure and cause unforeseen strains upon the network. Significant or
prolonged system failures could damage the reputation of the Company and
result in the loss of customers. Such damage or losses could have a material
adverse effect on the Company's ability to obtain new customers and on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Network Infrastructure."

DEPENDENCE ON KEY PERSONNEL; NEED TO HIRE ADDITIONAL QUALIFIED PERSONNEL

The Company is highly dependent on the technical and management skills of
its key employees, including technical, sales, marketing, financial and
executive personnel, and on its ability to identify, hire and retain
additional personnel. Competition for such personnel is intense and there can
be no assurance that the Company will be able to retain existing personnel or
identify or hire additional personnel. The failure to retain and attract the
necessary technical, managerial, financial, marketing and customer service
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's performance also
depends on the Company's ability to retain and motivate its executive officers
and key employees, several of whom have worked together for only a short time.
The Company has entered into employment agreements with five of its senior
officers. The loss of key personnel could have a material adverse effect on
the Company's business, financial condition and results of operations. See "--
Risk of Managing Growth; Recent Management Changes and New Information
Systems" and "Management--Officers and Directors" and "--Employment
Agreements."

RISKS ASSOCIATED WITH ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES

The Company may, in the future, acquire or engage in efforts to acquire
customer bases and businesses from, make investments in, or enter into
strategic alliances with, companies that have customer bases, switching
capabilities or existing networks in the Company's current or target markets.
In June 1997, the Company entered into a letter of intent with two Chinese
companies to explore the potential of jointly providing telecommunications
services in the People's Republic of China through an entity in which the
Company would potentially have an equity interest. See "Certain Transactions."
However, there can be no assurance that such venture will occur or be
successful. Any future acquisitions, investments, strategic alliances or
related efforts will be accompanied by the risks commonly encountered in such
transactions or efforts. Such risks include, among others, the difficulty of
identifying appropriate acquisition candidates; the difficulty of assimilating
the operations and personnel of the respective entities; the potential
disruption of the Company's ongoing business; the inability of management to
capitalize on the opportunities presented by acquisitions, investments,
strategic alliances or related efforts; the failure to successfully
incorporate licensed or acquired technology and rights into the Company's
services; the inability to maintain uniform standards, controls,

21
<PAGE>

procedures and policies; and the impairment of relationships with employees
and customers as a result of changes in management. Acquired operations
typically operate independent marketing, customer support, billing systems and
other functions. Any acquisition by the Company could result in difficulties
in the integration and consolidation of customer bases or operations. Pending
such integration and consolidation, it would be necessary for the Company to
maintain separate billing systems and other functions of the acquired
operation, which could cause inefficiencies and significant operational
complexity and expense, increase the risk of billing delays and financial
reporting difficulties, and impair the Company's efforts to cross-sell the
products and services of the acquired operation. Additionally, in connection
with an acquisition, the Company could experience rates of customer attrition
that would be significantly higher than the rate of customer attrition that it
ordinarily experiences. Further, to the extent that any such transaction
involves customer bases or businesses located outside the United States, the
transaction would involve the risks associated with international operations.
There can be no assurance that the Company would be successful in overcoming
these risks or any other problems encountered with such acquisitions,
investments, strategic alliances or related efforts. See "--Risks Associated
with International Operations."

VALUE-ADDED AND SALES TAX COLLECTION

The Company does not currently collect value-added tax ("VAT"), sales tax or
other similar taxes (other than federal excise tax) in respect of any of its
services. In addition, the rules for imposition of VAT vary from country to
country. For example, some EU member states deem telecommunications services
provided by U.S.-based companies to be performed outside the EU and,
therefore, exempt from VAT. Other EU member states, however, impose VAT on
telecommunications services provided by non-EU based companies. To the extent
that the Company's services are, and in the future become, subject to VAT, the
Company's competitive price advantage with respect to those businesses and
other customers required to pay VAT on services provided by the Company will
be reduced. Such reduction could have a material adverse effect on the
Company's business, financial condition and results of operations. Moreover,
one or more states may seek to impose sales tax collection obligations on out-
of-state companies such as the Company which engage in telecommunications
services. A successful assertion by one or more states or any foreign country
that the Company should collect VAT, sales or other similar taxes on the sale
of its services could have a material adverse effect on the Company's
business, financial condition and results of operations.

SECURITY RISKS

Despite the implementation of network security measures, such as limiting
physical and network access to its routers, the Company's network
infrastructure will be vulnerable to computer viruses, break-ins and similar
disruptions. Such security breaches could lead to interruption, delays or
cessation in service to the Company's value-added services customers.
Furthermore, such events could jeopardize the security of confidential
information stored in the computer systems of the Company's customers and
other parties connected to the Internet, which may deter potential subscribers
and subject the Company to possible liability. Alleviating problems caused by
computer viruses, break-ins or other security breaches may require significant
expenditures of capital and resources by the Company, which could have a
material adverse effect on the Company. Moreover, until more comprehensive
security technologies are developed, the security and privacy concerns of
existing and potential customers may inhibit the growth of the Internet
service industry in general and the Company's customer base and revenues in
particular.

CONTROL BY OFFICERS AND DIRECTORS

An aggregate of approximately % of the outstanding Common Stock is
beneficially owned (approximately % if the underwriters' over-allotment
option is exercised in full) by the Company's officers and directors. As a
result, the Company's officers and directors are able to control matters
requiring approval by the shareholders of the Company, including the election
of all of the directors and the approval of significant corporate matters,
including any merger, consolidation or sale of all or substantially all of the
Company's assets. See "Management," "Principal Shareholders" and "Description
of Securities."

22
<PAGE>

NO PRIOR PUBLIC MARKET; POTENTIAL VOLATILITY OF STOCK PRICE; POSSIBLE
ILLIQUIDITY OF TRADING MARKET

Until , 1998, the closing date of the Public Offering, there was no
public market for the Company's Common Stock. The Common Stock is traded on
the American Stock Exchange ("Amex"). The initial public offering price was
determined through negotiations between the Company and the underwriters and
may not be indicative of the market price for the Common Stock in the future.
There can be no assurance that an active trading market will develop or be
sustained or that the market price of the Common Stock will not decline below
the initial public offering price. Even if an active trading market does
develop, the market price of the Common Stock in the future may be highly
volatile. Factors such as variations in the Company's revenue, earnings and
cash flow and announcements of new service offerings, technological
innovations or price reductions by the Company, its competitors or providers
of alternative services could cause the market price of the Common Stock to
fluctuate substantially. In addition, the stock market in general, and the
Amex and the market for telecommunications companies in particular, has
experienced extreme price and volume fluctuations that often have been
unrelated or disproportionate to the operating performance of such companies.
These broad market and industry factors may materially and adversely affect
the market price of the Common Stock, regardless of the Company's operating
performance. In the past, following periods of volatility in the market price
of a company's securities, securities class-action litigation often has been
instituted against such company. Such litigation, if commenced, could result
in substantial costs and a diversion of management's attention and resources,
which would have a material adverse effect on the Company's business,
financial condition and results of operations.

The number of shares of Common Stock available for resale in the trading
market is limited because of trading restrictions on shares of Common Stock
owned by affiliates and certain "lock-up" agreements between the Company's
current security holders and the Representative. Moreover, if the Company
should continue to experience losses from operations, it may be unable to
maintain the standards for continued quotation on the Amex, and the Common
Stock could be subject to removal therefrom. If such removal were to occur,
trading, if any, in the Common Stock henceforth would be conducted in the
over-the-counter market on an electronic bulletin board established for
securities that do not meet the listing requirements for the Amex, or in what
are commonly referred to as the "pink sheets." As a result, an investor would
find it more difficult to dispose of, or to obtain accurate quotations for the
price of, the Company's securities. In addition, such removal would subject
the Company's securities to so-called "penny stock" rules that impose
additional sales practice and market making requirements on broker-dealers who
sell and/or make a market in such securities. Consequently, removal from the
Amex could affect the ability or willingness of broker-dealers to sell and/or
make a market in the Company's securities and the ability of purchasers of the
Company's securities to sell their securities in the secondary market. In
addition, if the market price of the Company's Common Stock falls to below
$5.00 per share, the Company may become subject to certain penny stock rules
even if still quoted on the Amex. While such penny stock rules should not
affect the quotation of the Company's Common Stock on the Amex, such rules may
further limit the market liquidity of the Common Stock and the ability of
investors to sell securities in the secondary market.

SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of Common Stock in the public market
by existing shareholders in the future could adversely affect the market price
for the Company's Common Stock. The number of shares of Common Stock available
for sale in the public market is limited by restrictions under the Securities
Act and lock-up agreements under which the Company's officers, directors and
certain security holders have agreed not to sell or otherwise dispose of any
of their shares for a period of 270 days after the date of the Public Offering
Prospectus without the prior written consent of the Representative. The
shares offered in the Public Offering and any shares of Rescission
Stock for which the Rescission Offer is not accepted will be freely tradable,
except to the extent acquired by affiliates of the Company or subject to lock-
up agreements with the Representative. The remaining shares of Common Stock
outstanding (or any securities exercisable for or convertible into the
Company's Common Stock) are "restricted securities" ("Restricted Shares")
within the meaning of Rule 144 under the Securities Act. Restricted Shares may
be sold

23
<PAGE>

in the public market only if registered or if they qualify for an exemption
from registration under Rules 144 or 701 under the Securities Act. Sales of
Restricted Shares in the public market, or the availability of such shares for
sale, could adversely affect the market price of the Common Stock. The number
of shares that will be available for sale in the public market will be as
follows: (i) Restricted Shares, which are not subject to lock-up
agreements, are immediately eligible for resale; (ii) beginning 270 days after
the date of the Public Offering Prospectus, approximately Restricted
Shares will become eligible for sale in the public market upon expiration of
the lock-up agreements, subject in certain cases, to volume limitations and
other resale restrictions pursuant to Rule 701 and Rule 144 and (iii) by
, 199 , the remaining approximately Restricted Shares
will be eligible for sale in the public market. See "Shares Eligible for
Future Sale."

ANTITAKEOVER PROVISIONS

The Company's Board of Directors has the authority, without shareholder
approval, to issue up to 5,000,000 shares of preferred stock and to fix the
rights, preferences, privileges and restrictions of such shares without any
further vote or action by the Company's shareholders. This authority, together
with certain other provisions of the Company's amended and restated articles
of incorporation may have the effect of making it more difficult for a third
party to acquire, or discouraging a third party from attempting to acquire,
control of the Company, even if shareholders may consider such change in
control to be in their best interests. See "Description of Securities."

DIVIDEND POLICY

The Company has never declared or paid any dividends on its Common Stock and
does not expect to pay dividends in the foreseeable future. The Company
currently anticipates that it will retain all available earnings for the
operation and expansion of its business. Any future declaration of dividends
will be subject to the discretion of the Board of Directors of the Company and
will depend upon the Company's operating results, financial condition, capital
requirements, general business conditions, and such other factors as the Board
of Directors deems relevant.

24
<PAGE>

DILUTION

The net tangible book value of the Company as of September 30, 1997 was
approximately $(7.9 million), or $ per share of Common Stock. The net
tangible book value per share represents the amount of the Company's total
tangible assets less the amount of its total liabilities, divided by the
number of shares of Common Stock issued and outstanding (including the Full
Coverage Bridge Loan Shares and the Common Stock issued in connection with the
Preferred Stock Conversion). Without taking into account any changes in net
tangible book value after September 30, 1997, other than to give effect to the
sale of the shares of Common Stock offered in the Public Offering and the
receipt and application of the proceeds therefrom at the initial public
offering price of $ per share, and after deducting the underwriting
discounts and commissions and other estimated offering expenses payable by the
Company, the net tangible book value of the Company as adjusted to give effect
to the Public Offering as of September 30, 1997 would have been $ , or
approximately $ per share of Common Stock. This represents an immediate
increase in net tangible book value of $ per share to existing shareholders
and an immediate dilution in net tangible book value of $ per share to new
investors purchasing Common Stock in the Public Offering. The following table
illustrates this per share dilution to new investors:

<TABLE>
<S> <C> <C>
Public offering price per share................................. $
Net tangible book value per share before the Public Offering.... $
Increase per share attributable to new investors................
-----
As adjusted net tangible book value per share after the Public
Offering.......................................................
-----
Dilution per share to new investors............................. $
=====
</TABLE>

The following table summarizes, on a pro forma basis as of September 30,
1997, the number of shares of Common Stock purchased from the Company, the
total consideration paid therefor and the average price per share paid by
existing shareholders and by new investors (assuming the sale of the shares of
Common Stock offered in the Public Offering at an initial public offering
price of $ before deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company):

<TABLE>
<CAPTION>
SHARES TOTAL AVERAGE
PURCHASED CONSIDERATION PRICE
-------------- --------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing shareholders................. % $ % $
New investors.........................
------ ------ ------- ------
Total............................... % $ %
====== ====== ======= ======
</TABLE>

The above computations exclude (i) shares of Common Stock reserved for
issuance under the Company's 1996 Stock Option Plan (the "1996 Plan"), of
which shares are subject to options granted as of the date of the
Public Offering at a weighted average exercise price of $ per share, (ii)
shares of Common Stock issuable upon exercise or conversion of
outstanding warrants and convertible notes at a weighted average exercise or
conversion price of $ per share, (iii) 300,000 shares of Common Stock
reserved for issuance under the Company's Employee Stock Purchase Plan and
(iv) shares of Common Stock issuable upon exercise of the
Representative's Warrant. See "Management--Benefit Plans" and "Description of
Securities." To the extent that any options or, warrants or convertible notes
are exercised or converted, there will be further dilution to new investors.
See "Management--Benefit Plans." In addition, the foregoing tables exclude the
Common Stock subject to the Rescission Offer. Therefore such shares are
excluded from the number of shares outstanding, the purchase price thereof is
treated as a liability in calculating net tangible value and such amount is
deducted from total consideration paid for shares.

25
<PAGE>

CAPITALIZATION

The following table sets forth the (i) actual capitalization of the Company
as of September 30, 1997; (ii) pro forma capitalization of the Company after
giving effect to the (A) Reverse Stock Split, (B) the Preferred Stock
Conversion, (C) conversion of outstanding notes and warrants into shares
of Common Stock and issuance of additional notes in the net principal amount
of $ , each after September 30, 1997, and (D) the issuance of the Full
Coverage Bridge Loan Shares; and (iii) pro forma capitalization of the Company
as adjusted to give effect to the sale of shares of Common Stock
offered by the Company in the Public Offering at the initial public offering
price of $ per share, and the receipt and application of the estimated
net proceeds therefrom. This table should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto appearing elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash........................................... $ 237 $ $
======== ======== ========
Working capital................................ $ (5,823) $ $
======== ======== ========
Long-term debt, net of current maturities...... $ 2,120 $ $
-------- -------- --------
Common stock subject to recission; par value
$0.01, 1,932,487 issued and outstanding....... 1,850
-------- -------- --------
Shareholders' (deficit) equity:
Series A convertible preferred stock; par
value $0.01, 5,000,000 shares authorized;
275,000 shares issued and outstanding; pro
forma and pro forma as adjusted, 5,000,000
shares authorized, no shares issued and
outstanding................................. 987
Common stock; par value $0.01, 20,000,000
shares authorized; 5,665,552 shares issued
and outstanding; pro forma and pro forma as
adjusted, 20,000,000 shares authorized,
shares issued and outstanding
(1)......................................... 2,389
Common stock warrants........................ 1,334
Accumulated deficit.......................... (12,123) (12,123) (12,123)
-------- -------- --------
Total shareholders' (deficit) equity......... (7,413)
-------- -------- --------
Total capitalization....................... $ (3,443) $ $
======== ======== ========
</TABLE>
- --------
(1) Excludes (i) shares of Common Stock reserved for issuance under
the 1996 Plan, of which shares are subject to options outstanding
as of the date of the Public Offering, at a weighted average exercise
price of $ per share, (ii) shares of Common Stock issuable upon
exercise or conversion of outstanding warrants and convertible notes at a
weighted average exercise or conversion price of $ per share, (iii)
300,000 shares of Common Stock reserved for issuance under the Company's
Employee Stock Purchase Plan and (iv) shares of Common Stock issuable
upon exercise of the Representative's Warrant. See "Management--Benefit
Plans" and "Description of Securities."

26
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following Selected Consolidated Financial Data set forth below with
respect to the Company's statements of operations data for each of the two
fiscal years ended December 31, 1996 are derived from the Company's
Consolidated Financial Statements included elsewhere in this Prospectus, which
have been audited by Arthur Andersen LLP, independent public accountants. The
Selected Consolidated Financial Data for the nine months ended September 30,
1996 and 1997, and the balance sheet data as of September 30, 1997, are
derived from the unaudited Consolidated Financial Statements for the Company
included elsewhere in this Prospectus which, in the opinion of management,
contain all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial condition and results of
operations of the Company for such periods. The results of operations for the
nine months ended September 30, 1997 are not necessarily indicative of the
results that may be expected for the full 1997 fiscal year. The information
set forth below is qualified in its entirety by, and should be read in
conjunction with, the Consolidated Financial Statements and the Notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations" included elsewhere in this Prospectus. Historical operating
results are not necessarily indicative of the results that may be expected in
any future period.

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- ----------------
1995 1996 1996 1997
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues................................... $ 2,113 $ 9,136 $ 5,830 $10,639
Operating expenses:
Cost of sales............................ 1,929 8,230 5,155 9,007
Sales and marketing...................... 238 682 494 664
General and administrative............... 1,536 5,773 4,095 4,658
Depreciation and amortization............ 111 98 86 141
------- ------- ------- -------
Total operating expenses................... 3,814 14,783 9,830 14,470
Operating loss............................. (1,701) (5,647) (4,000) (3,831)
Interest expense, net...................... (34) (225) (103) (588)
------- ------- ------- -------
Net loss................................... $(1,735) $(5,872) $(4,103) $(4,419)
======= ======= ======= =======
Series A convertible preferred stock
dividends................................. -- -- -- (21)
------- ------- ------- -------
Net loss applicable to common shareholders. $(1,735) $(5,872) $(4,103) $(4,440)
======= ======= ======= =======
Pro forma(1):
Net loss per share........................ $ $
======= =======
Weighted average number of shares
outstanding..............................
======= =======
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------
ACTUAL AS ADJUSTED(2)
------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash.................................................... $ 237 $
Working capital......................................... (5,823)
Total assets............................................ 4,002
Long-term debt(3)....................................... 2,120
Common stock subject to rescission...................... 1,850
Total shareholders' (deficit) equity.................... (7,413)
</TABLE>
- -------
(1) See Note 2 of Notes to Consolidated Financial Statements for an
explanation of the method used to determine the number of shares used in
computing pro forma net loss per share.
(2) Adjusted to give effect to the issuance of the Full Coverage Bridge Loan
Shares, the sale of shares of Common Stock offered in the Public
Offering at the initial public offering price of $ per share and the
application of the estimated net proceeds therefrom, after deducting
underwriting discounts and commissions and the estimated offering expenses
payable by the Company. See "Capitalization" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity
and Capital Resources."
(3) Includes $1,000,000 in long-term debt which converted into shares of
Common Stock upon the closing of the Public Offering.

27
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and performance of the
Company should be read in conjunction with the Consolidated Financial
Statements and related Notes and other information regarding the Company
included elsewhere in this Prospectus. Certain information contained below and
elsewhere in this Prospectus, including information with respect to the
Company's plans and strategy for its business, are forward-looking statements.
See "Risk Factors" for a discussion of important factors that could cause
actual results to differ from the forward-looking statements contained herein.

OVERVIEW

GlobalTel provides international telecommunications services principally to
small- and medium-sized business customers in developing ("second-tier")
telecommunication markets. Currently, the Company offers international long-
distance services, calling cards and enhanced voice services consisting of
voice-mail and conference calling to more than 8,500 business customers in
over 120 countries. The Company also resells switched minutes on a wholesale
basis to other telecommunications providers and carriers. GlobalTel's current
network architecture consists of: (i) voice switching and global fax messaging
infrastructure in Los Angeles; California; (ii) access to third party
infrastructure through Equant and other suppliers; (iii) enhanced fax nodes in
Hong Kong and Mexico City; and (iv) a Network Control and Operations Center in
Seattle, Washington.

The Company was established in November 1994 to enter second-tier markets by
providing what is commonly called call-reorigination, or "call back" services,
with value-added network-based services to be developed and introduced as
markets matured and as changes in technology and regulatory climates
permitted. The Company commenced operations in March 1995. Substantially all
of the Company's revenues have been generated by providing international call-
reorigination services primarily to small- and medium-sized businesses through
a network of agents and resellers, supplemented by direct marketing efforts,
and by selling switched minutes on a wholesale basis to other
telecommunications providers and carriers. The Company believes that as
deregulation occurs and competition increases in markets around the world, the
pricing advantage of traditional call-reorigination to most destinations
relative to conventional call-through international long distance service will
diminish in those markets. In order to maintain its existing customer base,
attract new customers and increase its revenues the Company intends to offer a
variety of value-added and enhanced network-based telecommunications services,
as well as its own call-through service. See "Risk Factors--Recent
Introduction and Ongoing Development of Value-Added Services" and "Business--
Services."

To implement this strategy, during 1996 the Company commenced a three-phase
network upgrade to (i) relocate its voice switching platform from Las Vegas to
Los Angeles for the primary purpose of facilitating access to least-cost call
routing alternatives for its call-reorigination business; (ii) improve the
Company's network facilities by implementing a more flexible switching
platform with enhanced features, installing an improved and scaleable customer
interface and transitioning to a more flexible customer billing system; and
(iii) implement an enhanced fax messaging infrastructure. The first phase of
this plan was completed in late 1996. In 1997, the Company completed phases
two and three, with installation and testing of a more capable switching
platform as well as the enhanced customer interface and billing systems.
Cutover of all customers to these new systems was completed in November 1997.
See "Business--Network and Operations."

Throughout 1996 and 1997, the Company invested significant resources to
refine and develop new business partner relationships and systems necessary
for introduction of value-added network-based services, with the intention of
introducing these services commercially in 1998. The costs associated with the
development and testing of new service offerings, including those which have
yet to be commercially introduced, have been charged against the Company's
current operations. See "Business--Services."

28
<PAGE>

The Company has experienced significant net losses in connection with the
initiation and growth of its call-reorigination business and the development
of value-added network-based services, and expects to experience net losses at
least through the end of 1998. The Company expects to achieve positive
operating income over time by increasing its customer base, introducing new
value-added services, and achieving enhanced efficiency through greater
economies of scale. The Company expects its operating revenues to increase in
1998; however, the Company also expects its net loss to increase in 1998 as
the Company implements its growth strategy. See "Risk Factors--Limited
Operating History; Substantial Operating Losses," "--Need for Additional
Capital and Capital Requirements," and "--Recent Introduction and Ongoing
Development of Value-Added Services."

The Company's call-reorigination revenue represents the majority of the
Company's revenues and has increased as the Company has added sales agents and
introduced its services into new countries. Following the relocation of the
Company's primary switching platform to Los Angeles in late 1996, the Company
also commenced selling international long distance minutes on a wholesale
basis to a limited number of interexchange carriers. Sales to carriers,
although profitable, typically generate lower margins than sales to small- and
medium-sized business customers. In addition, the Company benefits from
wholesale sales by reducing its costs per minute of use as a result of
improved bargaining power with vendors resulting from higher levels of
traffic. The Company's carrier wholesale revenues vary significantly from
period to period.

The Company's call-reorigination customer base is diversified both
geographically and by customer type. As of the September 1997 billing cycle,
the Company served over 8,500 customers and four wholesale carriers, and
provided services in more than 120 countries.

Based on transactions in the third quarter of 1997 the Company estimates
that approximately 60% of its call-reorigination revenues are charged directly
to its customers' credit cards and cleared electronically twice a month. Most
of the funds charged are credited to the Company's own account the following
day, shortening the Company's collection cycle in comparison with traditional
postal-based billing and collection systems. The remainder of the Company's
retail and wholesale customers typically are billed by the Company on a
monthly basis. The proportion of the Company's revenues collected on this
basis may vary in the future.

Cost of sales consists of costs associated with the origination,
transmission and termination of voice and data telecommunications services
provided to the Company by other carriers, the majority of which is
represented by fees paid to long-distance telecommunications carriers.
Substantially all of the Company's cost of sales is variable, based on the
number of minutes of use transmitted and terminated over other carrier
facilities. The Company seeks to lower its cost of sales as a percentage of
revenues by: (i) attempting to negotiate lower rates from suppliers as the
volume of the Company's network traffic increases; (ii) optimizing network
design and operation; (iii) utilizing a greater number of suppliers, thereby
allowing for more effective "least cost routing" and (iv) introducing new,
higher margin network services.

The Company generally realizes lower costs of sales as a percentage of
revenues from its call-reorigination services than for its wholesale services.
The Company's overall cost of sales margin will fluctuate based on its mix of
wholesale and retail services. The Company anticipates that its planned value-
added network-based services will be marketed and priced to result in lower
costs of sales as a percentage of revenues and thus improved margins over time
because, in the Company's estimation, these services offer greater perceived
value to the customer. However, there can be no assurance that improved
margins will be achieved.

Selling expenses primarily consist of advertising expenses and sales
commissions paid to independent sales agents. The Company's decision to use
independent agents as its primary sales force has been driven by the low
initial fixed costs associated with this distribution channel and the
perceived benefits of using individuals and companies with local market
connections and knowledge. See "Risk Factors--Dependence on Independent Sales
Agents" and "Business--Sales, Marketing and Customer Service."

29
<PAGE>

General and administrative expenses include salaries and benefits for all of
the Company's employees, including sales and marketing, costs associated with
the operation and maintenance of the Company's telecommunications network,
professional fees and other operating and overhead costs. Included in general
and administrative expenses are salaries, consulting fees and other costs
relating to the technical development of and market planning for the Company's
planned value-added network-based services.

Depreciation expense includes depreciation of switching and network
equipment as well as of furniture and fixtures. The Company provides for
depreciation using the straight line method of depreciation over the estimated
useful lives of the assets, which range from five to ten years. The Company's
amortization expense relates to organizational costs capitalized and amortized
over a five year period and license acquisition costs that are amortized over
the life of the license. Interest expense consists primarily of accrued
interest on convertible notes and the amortization of debt issuance costs.

RESULTS OF OPERATIONS

The following table sets forth certain financial data for the periods
indicated, as a percentage of revenues:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
--------------- ---------------
1995 1996 1996 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Revenues................................ 100.0 % 100.0 % 100.0 % 100.0 %
Operating expenses:
Cost of sales......................... 91.3 90.1 88.4 84.7
Sales and marketing................... 11.3 7.5 8.5 6.2
General and administrative............ 72.7 63.2 70.2 43.8
Depreciation and amortization......... 5.3 1.1 1.5 1.3
------ ------ ------ ------
Total operating expenses................ 180.6 161.9 168.6 136.0
------ ------ ------ ------
Operating loss.......................... (80.6) (61.9) (68.6) (36.0)
Interest expense........................ (1.6) (2.5) (1.8) (5.5)
------ ------ ------ ------
Net loss................................ (82.2)% (64.4)% (70.4)% (41.5)%
====== ====== ====== ======
</TABLE>

COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996

Total revenues increased $4.8 million or 83% to $10.6 million in the nine
months ended September 30, 1997 from $5.8 million in the nine months ended
September 30, 1996. Revenues from call-reorigination increased $1.0 million or
17% to $6.8 million in the nine months ended September 30, 1997 from $5.8
million in the nine months ended September 30, 1996. This increase resulted
from increased usage by existing customers and the addition of new customers
as the Company expanded its agent network and commenced providing services in
new countries. Following the relocation of the Company's primary switching
platform to Los Angeles in late 1996, the Company also commenced selling
international long-distance minutes on a wholesale basis to several
interexchange carriers. Wholesale carrier revenues, which commenced in October
1996, increased to $3.8 million in the nine months ending September 30, 1997.
Call-reorigination and wholesale carrier revenues represented 64% and 36% of
the Company's sales, respectively, for the nine months ended September 30,
1997.

Cost of sales increased $3.8 million or 75% to $9.0 million in the nine
months ended September 30, 1997 from $5.2 million in the nine months ended
September 30, 1996. This increase is primarily attributable to increased
transmission and termination costs associated with greater calling volume. As
a percentage of revenues, cost of sales decreased from 88.4% to 84.7% in the
nine months ended September 30, 1996 and 1997, respectively. This decrease in
cost of sales as a percentage of revenues is primarily attributable to a

30
<PAGE>

decrease in the costs associated with call-reorigination resulting from
implementation of least cost routing in late 1996 following the relocation of
the Company's switch to Los Angeles, and to greater calling volume resulting
in reduced costs per minute of use. This decrease was offset, in part, by
higher costs of sales as a percentage of revenues attributable to the
Company's wholesale carrier sales, which commenced in October 1996.

Sales and marketing expense increased $170,000 or 35% to $664,000 in the
nine months ended September 30, 1997 from $494,000 in the nine months ended
September 30, 1996. This increase is primarily attributable to increased sales
commissions. Substantially all of the Company's sales commissions are related
to call-reorigination sales generated by agents. The increase in sales
commissions is attributable to increased levels of sales generated by agents
as well as an increase in the effective commission rate. As a percentage of
revenues, sales and marketing expense declined from 8.5% to 6.2% in the nine
months ended September 30, 1996 and 1997, respectively, resulting in part from
higher levels of wholesale carrier sales not requiring comparable advertising
and sales commissions costs.

General and administrative expense increased $600,000 or 14% to $4.7 million
in the nine months ended September 30, 1997 from $4.1 million in the nine
months ended September 30, 1996. This increase is primarily attributable to
increased compensation costs resulting from increased staffing levels. As a
percentage of revenues, general and administrative expense declined from 70.2%
to 43.8% in the nine months ended September 30, 1996 and 1997, respectively.
This decrease is primarily attributable to economies of scale associated with
the Company's ability to spread costs of operations across a broader revenue
base.

Depreciation and amortization increased $56,000 or 65% to $142,000 in the
nine months ended September 30, 1997 from $86,000 in the nine months ended
September 30, 1996. This increase is primarily attributable to the
depreciation of capital assets acquired in late 1996 and in 1997, including a
new voice switching platform, facility improvements, fax gateway and an
electronic billing and customer interface system.

Interest expense increased $484,000 or 470% to $587,000 in the nine months
ended September 30, 1997 from $103,000 in the nine months ended September 30,
1996. This increase is primarily attributable to an increase in the Company's
outstanding indebtedness, together with amortization of costs associated with
the incurrence of additional debt. Also included in interest expense in the
nine months ended September 30, 1997 is $36,000 of additional debt issuance
amortization costs charged to interest expense as a result of the conversion
of a portion of the Company's indebtedness to common stock.

COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995

Revenues increased $7.0 million or 332% to $9.1 million in 1996 from $2.1
million in 1995. Revenues from call-reorigination increased $6.2 million or
292% to $8.3 million in 1996 from $2.1 million in 1995. The increase in call
re-origination revenue was primarily due to increased usage by existing
customers and the addition of new customers as the Company developed its agent
network and commenced providing services in new countries. 1996 revenues also
include $793,000 of sales to carriers, which commenced in October 1996. The
Company's revenues from call-reorigination and wholesale carrier revenues
represented approximately 91% and 9%, respectively, of the Company's revenues
in 1996.

Cost of sales increased $6.3 million or 327% to $8.2 million in 1996 from
$1.9 million in 1995. This increase is primarily attributable to increased
transmission and termination costs associated with greater calling volume. As
a percentage of revenues, these costs decreased from 91.3% to 90.1% in 1995
and 1996, respectively, primarily as a result of better network utilization
offset in part by wholesale carrier revenues, which commenced in October 1996.

Sales and marketing expense increased $444,000 or 187% to $682,000 in 1996
from $238,000 in 1995. These costs are primarily sales commissions paid to the
Company's agents together with advertising costs. The increase in sales
commissions is attributable to increased levels of sales generated by agents
as well as an

31
<PAGE>

increase in the effective commission rate. As a percentage of revenues, sales
and marketing expense declined from 11.3% in 1996 to 7.5% in 1997, resulting
in part from the initiation of wholesale carrier sales in late 1996, which
sales do not require comparable advertising and sales commissions costs.

General and administrative expense increased $4.3 million or 276% to $5.8
million in 1996 from $1.5 million in 1995. This increase is primarily
attributable to the costs, including wages, salaries, travel and facilities,
associated with the addition of administrative, technical and customer support
personnel as the Company developed its management team and network. During
this period the Company also incurred professional fees, consulting costs and
facilities costs associated with the establishment of its relationship with
Equant and the development of the Company's value-added network-based
services. General and administrative expense declined, as a percentage of
revenues, from 72.7% in 1995 to 63.2% in 1996. This decrease is primarily
attributable to economies of scale associated with the Company's ability to
spread costs of operations across a broader revenue base.

Depreciation and amortization decreased $13,000 or 12% from $111,000 in 1995
to $98,000 in 1996. Depreciation expense increased from 1995 to 1996 when the
Company placed in service approximately $329,000 of capital equipment. This
was offset by a decrease in amortization expense from 1995 to 1996 as a result
of the write-off in 1995 of certain organizational costs.

Interest expense increased $191,000 or 568% to $225,000 in 1996 from $34,000
in 1995. This increase is primarily attributable to an increase in the
Company's outstanding indebtedness, together with the amortization of debt
issuance costs.

QUARTERLY RESULTS OF OPERATIONS

The following tables set forth certain quarterly financial data for the
seven quarters ended September 30, 1997. This quarterly information has been
derived from unaudited Consolidated Financial Statements which, in the opinion
of the Company's management, reflect all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
information for the periods presented. Operating results for any quarter are
not necessarily indicative of results for any future period.

The Company's quarterly operating results have fluctuated in the past and
may fluctuate significantly in the future as a result of a variety of factors,
some of which are outside the Company's control. These factors include general
economic conditions, demand for international telecommunications services,
capital expenditures and other costs relating to the expansion of operations,
the timing of new product introductions by the Company or its competitors,
market availability and acceptance of new and enhanced versions of the
Company's or its competitors' products and services, changes in mix of sales
and the rates of customer acquisition and retention.

<TABLE>
<CAPTION>
1996 QUARTER ENDED 1997 QUARTER ENDED
------------------------------------ ---------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30
-------- ------- -------- ------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
DATA:
Revenues................ $ 1,507 $ 2,048 $ 2,275 $ 3,306 $ 4,385 $ 3,589 $ 2,665
Operating expenses:
Cost of sales......... 1,520 1,753 1,882 3,075 3,811 2,992 2,204
Sales and marketing... 122 199 173 188 226 229 209
General and
administrative....... 1,087 1,538 1,470 1,678 1,411 1,497 1,750
Depreciation and
amortization......... 22 24 40 12 18 59 65
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 2,751 3,514 3,565 4,953 5,466 4,777 4,228
------- ------- ------- ------- ------- ------- -------
Operating loss.......... (1,244) (1,466) (1,290) (1,647) (1,081) (1,188) (1,563)
Interest expense........ (20) (21) (62) (122) (169) (240) (178)
------- ------- ------- ------- ------- ------- -------
Net loss................ $(1,264) $(1,487) $(1,352) $(1,769) $(1,250) $(1,428) $(1,741)
======= ======= ======= ======= ======= ======= =======
</TABLE>

32
<PAGE>

Following the relocation of the Company's switch to Los Angeles in the
fourth quarter of 1996, the Company commenced reselling long-distance minutes
on a wholesale basis to certain interexchange carriers. Wholesale carrier
sales accounted for a major portion of the 45% and 33% increase in total sales
for the fourth quarter of 1996 and the first quarter of 1997, respectively.
Wholesale carrier sales increased $1.2 million or 152% to $2.0 million in the
first quarter of 1997 from $793,000 in the fourth of 1996. The Company's cost
of sales increased as a percentage of revenues in the third and fourth
quarters of 1996 as a result of the higher cost of sales, on a percentage of
revenue basis, for wholesale carrier sales, which are typically priced at
lower levels than call-reorigination activity. In the first quarter of 1997,
cost of sales as a percentage of revenues declined to 86.9% in spite of the
increasing proportion of wholesale carrier sales as the Company raised prices
on sales to wholesale customers.

The Company experienced declining revenues in the quarters ended June 30,
1997 and September 30, 1997 in comparison to the prior quarters. This decline
was primarily a result of the Company's decision in May 1997 to temporarily
de-emphasize its wholesale carrier business. Due to the lengthy payment cycles
the Company had experienced with certain of its wholesale carrier customers
and the Company's relatively low cash reserves, the Company reduced its
wholesale carrier sales in order to limit its credit risk, reduce effective
carrying costs associated with carrier accounts receivable and improve gross
margins. Specifically, the Company ceased doing business with two carriers and
reduced its level of business with several others, resulting in a decline in
carrier sales from $2.0 million in the quarter ended March 31, 1997 to
$534,000 in the quarter ended September 30, 1997. This led to an increase in
the Company's gross margin from 13.1% to 17.3% over the same period. In order
to continue to take advantage of the benefits of greater network utilization
and increased buying power, the Company anticipates increasing the level of
carrier sales in the next twelve months as the Company identifies and develops
its business relationships with additional interexchange carriers.

Additionally, call-reorigination revenues declined moderately during the
second and third quarters of 1997 in comparison to the preceding quarters. Due
to anticipated capacity constraints and limited access to multiple carriers,
the Company relocated its primary switching platform from Las Vegas to Los
Angeles in late 1996. The Company experienced technical and operational
difficulties in connection with this relocation process which resulted in
service disruptions for a number of customers. Although the Company's sales
were adversely affected during this period, the Company believes that it
resolved these difficulties by June 1997. Increased competitive pressures
encountered by some of the Company's agents also contributed to the decline in
revenues during these two quarters. During the second half of 1997 the Company
installed a new and more capable switching platform, which became fully
operational on November 1, 1997, enabling the Company to offer a wider variety
and more competitive package of services to its agents and customers.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal cash requirements have been to fund operating
losses, debt service and capital expenditures associated with development of
its customer base and the establishment and upgrade of its network
infrastructure. Through September 30, 1997, the Company has met these cash
requirements largely through financing activities that have included $3.0
million in net proceeds from the sale of Common Stock, $1.0 million in net
proceeds from the sale of Preferred Stock, $6.2 million in net borrowings from
shareholders and others represented by promissory notes (the "Notes"), as well
as revenues from operations. See "Certain Transactions." At September 30,
1997, Notes aggregating approximately $4.2 million remained outstanding, of
which $1.1 million matures prior to September 30, 1998. Substantially all of
the Notes accrue interest at the rate of ten percent per annum, increasing to
12 percent when the Notes are past due. Notes outstanding at September 30,
1997, with an aggregate principal amount of $3.9 million are convertible at
the option of the holder into an aggregate of shares of Common Stock,
at the initial public offering price of $ . Notes aggregating $521,000
were converted into Common Stock subsequent to September 30, 1997. Warrants to
purchase an aggregate of 1,430,869 shares of Common Stock were issued in
connection with the issuance of the Notes, all of which remained outstanding
at September 30, 1997. Also, in September 1997, deferred

33
<PAGE>

salaries aggregating $1.2 million were converted into warrants to purchase 1.1
million shares of Common Stock. In October 1997 the Company obtained an
additional $550,000 in connection with the issuance of notes to four
individuals. These notes bear interest at a rate of ten percent per annum, are
due in full by March 1, 1999, and are convertible at the option of the holder
into an aggregate of 500,000 shares of Common Stock. Warrants exercisable for
an aggregate of 55,000 shares at an exercise price of $1.10 per share were
granted in this round of financing.

In November 1997 the Company obtained an additional $325,000 in connection
with the issuance of notes to three individuals. These notes bore interest at
ten percent per annum and were repaid in full from the proceeds of certain
notes issued in November and December. In addition, each holder of these notes
received, following the closing of the Public Offering, shares of Common Stock
equal to one-half of the principal amount of its note divided by the initial
public offering price.

In November and December 1997 the Company obtained approximately $3.0
million in connection with the issuance of additional notes. These notes (the
"Full Coverage Bridge Notes") bore interest at the rate of ten percent per
annum and were paid in full out of the proceeds of the Public Offering. In
addition, each holder of a Full Coverage Bridge Note received, following the
closing of the Public Offering, shares of Common Stock (the "Full Coverage
Bridge Loan Shares") in an amount equal to the principal amount of its Full
Coverage Bridge Note divided by the initial public offering price. The Company
has agreed to cause the Full Coverage Bridge Loan Shares to be registered
under the Securities Act for resale for a period of up to 180 days commencing
270 days after the closing of the Public Offering. See "Description of
Securities--Registration Rights."

As a result of the Company's operating losses, available working capital has
not always been sufficient to satisfy the Company's obligations. In the past
the Company has from time to time been in arrears of its payment obligations
to its carriers. In October 1997, the Company failed to pay amounts due to one
of its principal long-distance suppliers within the time period this supplier
customarily had required payment. As a result, this supplier ceased providing
services to the Company and, under the terms of its agreement with the
Company, could demand a termination payment of up to $1.2 million. The Company
was able to re-route traffic that previously had been carried by this supplier
without any interruption in service to its customers. In December 1997, after
the Company paid this supplier a substantial portion of the amounts past due,
services were restored. The Company has negotiated the payment terms of the
remaining balance owed and does not believe that it will be required to pay an
amount in excess of that owed for carrier services provided. There can be no
assurance that the Company will not be required to pay a penalty to this or
any other supplier or that the Company will not be in default of its
obligations to its suppliers in the future. See "Risk Factors--Dependence on
Suppliers."

Net cash used in operating activities was $2.4 million in the first nine
months of 1997. Adjustments to the $4.4 million net loss for the period to
reconcile to net cash used in operating activities consisted primarily of a
$1.4 million increase in accounts payable, accrued liabilities and other,
primarily resulting from the increase in overall operating expenses and the
Company's relatively low level of cash reserves. Other adjustments included
$311,000 in depreciation and amortization and other changes in operating
assets and liabilities, including a $340,000 decrease in accounts receivable
resulting from a decline in wholesale carrier sales. Net cash used in
operating activities was $2.6 million in 1996. Adjustments to the $5.9 million
net loss for the period to reconcile to net cash used in operating activities
consisted primarily of a $3.8 million increase in accounts payable, accrued
liabilities and other resulting from the Company's increasing level of sales
and operations. Other adjustments included $127,000 in depreciation and
amortization and a $1.2 million increase in accounts receivable and other
receivables due primarily to the increase in wholesale carrier sales late in
1996 and a $531,000 increase in customer deposits and prepayments, resulting
from the establishment of new customer accounts. Net cash used in operating
activities in 1995 was $1.0 million.

Net cash used in investing activities was $956,000 in the first nine months
of 1997. Investing activities for the period consisted of $823,000 in capital
expenditures and $133,000 in deposits on equipment, including a

34
<PAGE>

new voice switching platform together with hardware and software to enable the
Company to offer value-added network-based services. Net cash used in
investing activities was $688,000 in 1996. Investing activities for the period
consisted of capital expenditures for hardware and software together with
equipment deposits to improve the Company's switching network. Net cash used
in investing activities was $522,000 in 1995. In addition to $260,000 in
capital equipment, the Company capitalized $262,000 in costs associated with
establishing and organizing the Company and the acquisition of one of the
Company's subsidiaries.

The Company's growth strategy is to seek to minimize its investment in
capital equipment and systems by utilizing, wherever possible, existing third-
party telecommunications infrastructure. Nevertheless, the delivery of new
value-added network-based services will require substantial additional
investment for staffing and capital equipment. Although as of September 30,
1997 the Company had no material commitments for future capital expenditures,
the Company has identified approximately $6.5 million of capital expenditures
it intends to undertake in 1998. The Company intends to finance a portion of
this capital equipment through capital leases, although there can be no
assurance that lease financing will be available or on terms that the Company
finds acceptable.

Net cash provided by financing activities was $2.0 million, $3.0 million,
$1.4 million and $3.1 million in 1995, 1996 and the first nine months of 1996
and 1997, respectively. Financing activities have included the issuance of
Common Stock, Preferred Stock, notes and warrants, the repayment of notes to
shareholders and others, and costs associated with the foregoing.

The net proceeds to the Company from the Public Offering are estimated to be
approximately $15.4 million, or $17.8 million assuming the exercise of the
underwriters' over-allotment option. The Company expects that approximately
$5.6 million of such net proceeds will be used to repay outstanding notes,
approximately $6.5 million will be used for capital expenditures, and the
balance will be used for working capital and general corporate purposes. In
addition, the Company may be obligated to repurchase securities of the
Company, if any, tendered in connection with the Rescission Offer in an
approximate amount up to $2.8 million plus statutory interest of approximately
$305,000. See "Rescission Offer" and Note 6 of Notes to Consolidated Financial
Statements. The Company believes that, based upon its present business plan,
the net proceeds of the Public Offering, together with revenues from
operations, will be sufficient to finance operating losses, and the
development and introduction of new services and to meet its other currently
planned working capital and capital expenditure requirements through the end
of 1998. However, due to the need to continue to expand its network operations
and service offerings and other factors, the Company expects that it will need
to raise additional capital in future periods. The Company also intends to
seek lease financing for a portion of the equipment and systems that it
acquires in 1998 and beyond, although there can be no assurance that this
financing will be available or on terms that the Company finds acceptable. If
the Company experiences greater than anticipated capital requirements, if the
implementation of the Company's operating strategy fails to produce the
anticipated revenue growth and cash flows, if lease financing is not available
or if additional working capital is required for any other reason, the Company
will be required to obtain additional sources of capital earlier than
currently anticipated. The timing of the need for additional capital also will
be affected by the extent to which the Rescission Offer is accepted. See "Risk
Factors--Potential Rescission Liability." There can be no assurance that the
Company will be able to obtain equity, debt or lease financing when needed or
on terms that the Company finds acceptable. See "Risk Factors--Need for
Additional Capital and Capital Requirements."

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 "Earnings Per Share" ("SFAS 128"), which revises the calculation and
presentation provisions of Accounting Principles Board Opinion 15 and related
interpretations. SFAS 128 is effective for the Company's year ending
December 31, 1997, and retroactive application is required. The Company does
not expect the implementation of SFAS 128 to have a material effect on
earnings per share amounts previously reported.

35
<PAGE>

FOREIGN CURRENCY

Although the Company derives the majority of its revenues from international
sales, the Company bills for its services exclusively in U.S. Dollars, and as
such has no material foreign exchange exposure.

EFFECTS OF INFLATION

Inflation has not had a significant effect on the Company's operations to
date. Some of the markets in which the Company operates have experienced
significant inflationary periods in past years and may experience high rates
of inflation in the future. A period of significant inflation in any of the
Company's markets could adversely affect the Company's business by increasing
the local currency prices paid by customers for international
telecommunications services, including those provided by the Company.

SEASONAL FLUCTUATIONS

The Company may experience a decrease in customer usage and revenue around
national holidays and traditional vacation periods in some of its markets.
Given the cultural and geographic diversity of the markets in which the
Company operates, the Company does not believe that such seasonal trends have
resulted in any material seasonality to the Company's business taken as a
whole. There can be no guarantee however that such trends may not affect the
Company's operations in the future.

36
<PAGE>

BUSINESS

OVERVIEW

GlobalTel provides international telecommunications services principally to
small- and medium-sized business customers in second-tier telecommunication
markets. Currently, the Company offers international long-distance services,
calling cards and enhanced voice services consisting of voice-mail and
conference calling to more than 8,500 business customers in over 120
countries. The Company began operations in 1995 with its entry into the
international call-reorigination business to capitalize on the arbitrage
opportunity created by differences between U.S. and foreign originated
international long-distance rates. The Company is leveraging the expertise
derived from, and the established customer base generated by, its call-
reorigination business to provide higher margin enhanced telecommunications
services.

GlobalTel's objective is to become a leading provider of value-added
telecommunications services in markets that historically have been underserved
by large global telecommunications providers and national ITOs. The Company's
strategy is to enter second-tier markets by providing non-regulated or less
regulated telecommunications services, such as international call-
reorigination. The Company plans to continue to service existing customers and
to enter additional markets with less regulated enhanced telecommunications
services, including traditional call-reorigination and value-added data
services and a suite of business-grade Internet services. Most of the
Company's planned services can be provided under existing regulatory
frameworks. As regulatory environments and the availability of capital permit,
GlobalTel intends to migrate its call-reorigination customers and cross-sell
its enhanced service customer base to a more cost effective and competitive
call-through service.

GlobalTel primarily markets its telecommunications services through a
network of over 75 independent sales agents, supplemented by direct marketing
efforts. The Company also has an exclusive agreement with IBNET, the managing
member of the Consortium of Global Commerce, whereby IBNET will market the
Company's services through several thousand individual chambers of commerce
located in over 200 countries. In addition, the Company's relationship with
Novell provides a distribution channel for the Company's services through
Novell's network of over 25,000 value-added resellers.

GlobalTel's current network architecture consists of: (i) voice switching
and global fax messaging infrastructure in Los Angeles, California; (ii)
access to third party infrastructure through Equant, a global data network
services provider, and other suppliers; (iii) enhanced fax nodes in Hong Kong
and Mexico City; and (iv) a Network Control and Operations Center in Seattle,
Washington. The Company's agreement with Equant allows the Company to utilize
the global reach of the Equant network and co-locate its servers and switches
in many large cities around the world. In addition, GlobalTel's agreement with
Novell provides the Company with access to key network technologies.

MARKET OPPORTUNITY

Second-Tier Markets. Larger telecommunications carriers have focused on
"first-tier" markets, which are characterized by high teledensity (ratio of
telephone lines to inhabitants), an advanced stage of deregulation, a large
volume of international telecommunications traffic and a concentration of
large multinational corporations. First-tier markets include the United
States, the United Kingdom, Germany, France and Japan. Alternatively, the
Company focuses on what it characterizes as second-tier markets, which are (i)
smaller developed countries such as Austria, Switzerland, Ireland, Singapore
and South Africa and (ii) developing markets that typically have less
developed telecommunications infrastructures, are in an earlier stage of
deregulation and have more monopolistic distribution profiles. According to
the ITU, there were approximately 135 countries that the Company targets as
second-tier markets that generated approximately 18.4 billion minutes in
annual international telecommunications traffic in 1994.

Historic Perspective. Historically, the provisioning of voice telephony
within individual countries has been monopolized by large, typically
government owned or protected entities, often referred to as ITOs. As a

37
<PAGE>

result, international callers have had little choice but to use the services
provided and pay the prices charged by local ITOs. Deregulation, together with
decreases in the cost of providing services and the introduction of
sophisticated value-added features, has made it possible for new entrants to
compete with the ITOs in providing international voice telecommunications
services. Similarly, in the United States, where regulation of the long-
distance telephone industry has been substantially reduced, competition has
increased as many new providers have entered the market. The resulting
decrease in rates and the emergence of different rate structures for similar
services have produced a resale market for long-distance telecommunications
services, as companies can obtain favorable volume-based rates from third
parties and resell access to such rates to other providers and users. These
and other factors have contributed to an increase in telecommunications usage
and a proliferation of enhanced telecommunications services. The combination
of a continually expanding global telecommunications market, consumer demand
for lower prices and improved quality and service and ongoing deregulation has
created competitive opportunities in many other countries. According to the
ITU, the international telecommunications industry accounted for $52.8 billion
in revenues and 60.3 billion minutes of use in 1995. The ITU projects that
international telecommunications revenues will approach $76.0 billion by the
year 2000 with the volume of traffic expanding to 107 billion minutes of use.

Convergence of Technology. Deregulation and evolving price competition have
coincided with technological innovation in the telephone industry. New
technologies such as fiber optic cable and improvements in digital
compression, computer software and processing technology have contributed to
improvements in quality and increased transmission capacities and speed, with
transmission costs decreasing as a result. For example, fiber optic cable has
dramatically increased the capacity, speed and flexibility of telephone lines
and has eliminated capacity constraints as a technical barrier to entry for
new international telecommunications providers. The improved quality of these
new telephone lines has facilitated the development of global voice-mail and
fax mail and has enhanced data communication. Improvements in computer
software and processing technology have laid a foundation for services such as
itemized and multi-currency billing. In addition, international debiting and
charge networks now allow customers to pay for long-distance calls made from
any telephone using a single home account and callers can now access national
telephone systems in order to benefit from lower long-distance tariffs. The
convergence of conventional telephony and computing technologies also has
created the opportunity for data networks, and computers in general, to become
primary telecommunications tools.

Regulatory Environment. In a deregulated telecommunications market such as
the United States, carriers can establish switching facilities, own or lease
fiber optic cable, enter into operating agreements with foreign carriers and,
accordingly, provide direct access service to customers. In markets that have
not deregulated or are slowly deregulating, international long-distance
carriers have used advances in technology to develop innovative alternative
access methods, such as call-reorigination and other less regulated value-
added data services. In other countries, such as Japan and most EU member
states, where the deregulation process is more advanced but not complete,
carriers often are permitted to offer facilities-based data and facsimile
services, as well as limited voice services. As countries deregulate, demand
for alternative access methods typically decreases as carriers are permitted
to offer a wider range of facilities-based services on a transparent basis.

Call-reorigination, which is the most common form of alternative
international access, avoids the high international rates offered by the ITO
in a particular regulated country by providing a dial tone from a deregulated
country, typically the United States. To place a call using traditional call-
reorigination, a user dials a unique phone number to an international
carrier's switching center and then hangs up. The user then receives an
automated call back providing dial tone from the United States, which enables
the user to complete the call. Technical innovations, such as inexpensive
dialers, have enabled telecommunications carriers to offer a transparent form
of call-reorigination that eliminates the need for the "hang-up" and "call
back" of traditional call-reorigination. In addition, sophisticated in-country
switching platforms have enabled carriers to offer "call-through" services,
allowing the customer direct access to a provider's network.

38
<PAGE>

The Company believes that as deregulation occurs and competition increases
in markets around the world, the pricing advantage of traditional call-
reorigination to most destinations relative to call-through international
long-distance service will diminish in those markets. The Company also
believes that deregulation will continue to create opportunities for new
entrants in the telecommunications services industry, particularly companies
capable of meeting the challenges presented by remote or underdeveloped
markets.

Private Networks and Emergence of the Internet. Historically, the data
communications services offered by public carriers had limited security
features, were expensive and did not adequately ensure accurate and reliable
transmission. As a result, many corporations with the resources to do so
established and maintained their own private networks to provide network-based
services, such as transaction processing, to their customers and to coordinate
operations between employees, suppliers and business partners. These private
networks were frequently customized and thus had the capability of providing
organizations and users with tailored performance and features, security,
reliability and private-label branding. The demand for private networks has
grown as a result of today's competitive business environment, leading to
other offerings such as VPNs and intranet services.

Despite the attractive capabilities of private networks, their limitations
have impeded or reduced their effectiveness. These networks, which
traditionally have required the use of leased telephone lines with bandwidth
dedicated solely to this purpose and the purchase of vendor-specific
networking equipment, are inherently expensive to set up, operate and
maintain. The Company believes that the costs of maintaining a private network
infrastructure and the risks of investing in new technologies have precluded
many small- and medium-sized businesses from utilizing private network, VPN
and intranet infrastructures.

The emergence of the Internet and the wide spread adoption of IP as a data
transmission standard in the 1990s, combined with deregulation of the
telecommunications industry and advances in telecommunications technology,
have significantly increased the attractiveness of providing data
communication applications and services over a public network. At the same
time, the growth in client/server computing, multi-media personal computers
and on-line computing services and the proliferation of network technologies
have resulted in a large and growing group of people who are accustomed to
using networked computers for a variety of purposes, including e-mail,
electronic file transfers, on-line computing and electronic financial
transactions. These trends increasingly have led businesses to explore
opportunities to provide IP-based applications and services within their
organizations, and to customers and business partners outside the enterprise.

Industry analysts expect the market size for both value-added IP data
networking services and Internet access to continue to grow rapidly as
businesses and consumers increase their use of the Internet, intranets, and
privately managed IP networks. According to industry analysts, the total
market for these services is projected to grow from $1.2 billion in 1996 to
approximately $22.7 billion in the year 2000, with approximately $10.4 billion
in the enterprise market segment and $12.3 billion in the consumer market
segment.

The ubiquitous nature and relatively low cost of the Internet have resulted
in its wide spread usage for certain applications, most notably Web access and
e-mail. However, use of the Internet for mission-critical business
applications has been impeded by the limited security and unreliable
performance inherent in the structure and management of the Internet. Although
private networks are capable of offering lower and more reliable latency
levels, providers of these emerging applications also desire a network that
will offer their customers full access to the Internet. As a result, these
businesses and applications providers require a network that combines the best
features of the Internet, such as openness and ease of access at low cost made
possible by the IP standard, with the advantages of a private network, such as
high-security, low/fixed latency and customized features.

39
<PAGE>

GLOBALTEL STRATEGY

GlobalTel's objective is to become a leading provider of value-added
telecommunications services to small- and medium-sized business customers in
markets that historically have been underserved by large telecommunications
providers and national ITOs. The Company's strategy to accomplish this
objective includes the following key elements:

Target Second-Tier Markets. The Company focuses on second-tier markets that
historically have faced less competition from larger telecommunications
providers. The Company believes that, due to the more monopolistic
distribution profile of these markets, small- and medium-sized businesses
traditionally have been underserved and consequently are more receptive to
higher quality, competitively priced services. Initially by offering call-
reorigination services, the Company has gained experience in addressing the
needs of business customers in these markets. The Company believes that this
experience, combined with strategic marketing relationships with IBNET and
Novell, will enable the Company to more effectively penetrate these markets.

Leverage Customer Base Through Enhanced Service Offerings. The Company has
developed and is introducing additional telecommunications services for its
existing customer base of more than 8,500 business customers in over 120
countries. To retain existing and attract new customers, the Company plans to
provide an increasingly broad range of services, such as enhanced
telecommunications services and a suite of business-grade Internet services.
Most of these services can be provided under the existing regulatory
frameworks in the Company's markets. In addition, as the regulatory
environments and availability of capital permits, GlobalTel intends to migrate
its call-reorigination customers and cross-sell its enhanced service customer
base to a more cost effective and competitive call-through service.

Exploit Sales Channels and Strategic Marketing Relationships. In addition to
its over 75 independent sales agents, the Company has access to global
channels of distribution through its strategic marketing relationships. The
Company has an exclusive agreement with the Consortium through which the
individual chambers of commerce may act as sales and marketing agents for the
Company's services. In addition, the Company's agreement with Novell provides
it with access to a distribution channel through Novell's network of over
25,000 VARs. This will enhance the Company's ability to expand its customer
base as well as establish new relationships with independent Internet service
providers ("ISPs") and other network providers (collectively, "regional ISPs")
in its target markets. These relationships also allow the Company to
capitalize on the brand recognition of its partners. A critical element of the
Company's distribution strategy includes pursuing additional strategic
partnerships and expanding its channels of distribution.

Capitalize on Third Party Networks. GlobalTel intends to minimize its
investment in capital equipment and systems by utilizing, wherever possible,
existing third party telecommunications infrastructure. Through its strategic
relationship with Equant, the Company has access to an infrastructure with
access points in most countries worldwide. This relationship allows the
Company to co-locate its servers and switches in existing Equant switch sites
in many cities around the world. Also, the Company is continuing to seek
additional strategic relationships in order to further its ability to
interconnect with other third party infrastructures.

Employ Flexible, Open Architecture Technology. By using off-the-shelf
technology that is modular and scaleable and allows for the integration of a
variety of technologies, the Company expects to provide its customers with
enhanced services in a timely and cost-efficient manner. The Company is
committed to continue to invest in improvements, through the integration of
technologies, its electronic billing, customer interface and network
management systems, which the Company believes are critical to its cost-
effective delivery of services. The Company expects these systems to provide
it with the ability to quickly upgrade its customers from a single product to
multiple services.

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SERVICES

The Company seeks to address the evolving telecommunications needs of the
small- and medium-sized business customer located in second-tier markets.
Currently, the Company offers international long-distance services, calling
cards, and enhanced telecommunications services such as voice-mail and
conference calling. The Company believes that the growing globalization of
business has increased the mobility of business people and led to the
proliferation of multi-office enterprises, creating greater demand for the
ability to conveniently access electronic information from remote locations
worldwide. As a result, the Company is designing and implementing a range of
next generation business-grade Internet services with business partners such
as Novell. The Company expects these services to include business quality
messaging, global enhanced VPNs and other value-added services. In addition,
to address the needs of independent ISPs and other network providers in the
Company's target markets for increased global reach and value-added services,
GlobalTel is designing a comprehensive "Turnkey Business ISP" solution
incorporating all of the Company's business-grade Internet services. These
service offerings are being designed to emphasize such features as
authentication, security and notification allowing for business-grade
reliability. As the regulatory environments and availability of capital
permits, GlobalTel intends to migrate its call-reorigination customers and
cross-sell its enhanced service customer base to a more cost effective and
competitive call-through service.

<TABLE>
<CAPTION>
CURRENT SERVICES SERVICES UNDER DEVELOPMENT
---------------- --------------------------
<S> <C>
International Call-Reorigination Call-Through
Calling Cards Enhanced Fax
Enhanced Voice Services Business-Grade Internet Services
Global Enhanced VPN
Business Quality Messaging
Global Desktop
"Turnkey Business ISP"
</TABLE>
Current Services

.International Call-Reorigination

The Company presently provides voice call-reorigination service to customers
in over 120 countries. The Company's call-reorigination service enables
customers in countries with high international calling rates to call outside
the country at rates competitive with U.S. international service providers.
The customer's call is routed through the Company's switching platform in Los
Angeles, where the call is directed over the least expensive route on the
Company's network depending on distance, country of termination and time of
day. The Company accesses the long-distance networks of a variety of long-
distance providers.

.Prepaid and Postpaid Calling Cards

The Company's prepaid (debit) and postpaid domestic and international
calling cards may be used by customers for international telephone calls from
more than 70 countries to substantially all other countries in the world.
Calling card customers also have access to 24-hour multi-lingual customer
service and certain customization options.

.Enhanced Voice Services

The Company offers enhanced voice services, consisting of voice-mail and
conference calling. Conference calling enables customers to set up "meet me"
dial-in conference calls as well as add-on conference calls, with or without
operator intervention. Conference calling is a higher margin value-added
service to the Company's basic voice services. The Company's services also
enable a customer to originate international voice and fax calls over the
Internet by allowing call back service to be activated from their PCs.

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<PAGE>

Services Under Development

The Company is developing the following new services which it intends to
offer during 1998:

.Call-Through

The Company will offer call-through or "direct access" service to customers
in selected markets. This service will permit customers to make long-distance
calls at a lower price than that charged on a call-reorigination basis while
lowering the Company's termination cost. Call-through service involves the
installation of an access point in the local market that is connected to the
Company's switch by a dedicated leased long-distance line. The international
customer accesses this connection to the Company's switch either by dialing a
local telephone number or, in markets where the regulatory environment
permits, through an interconnection with the local service provider.

.Enhanced Fax

The Company's enhanced fax service, currently offered only in Hong Kong and
Mexico City, uses advanced technology to provide its customers with a higher
quality and less expensive method to send facsimile messages than is typically
obtained using conventional analog fax. Unlike conventional analog fax
service, enhanced fax service: (i) results in significantly fewer transmission
errors, particularly with international transmissions because it is
transmitted over a digital data network; (ii) is easier to use than
conventional fax, with a feature that will retransmit the fax until it is
successfully received at its destination; and (iii) is much less expensive
because it can be sent as a digital packet in a shorter period of time. A
recent study conducted by Pitney Bowes/Gallup found that international faxes
transmitted over analog phone lines are transmitted twice on average due to
interruptions and quality problems, creating a hidden cost for users. Other
features of the GlobalTel enhanced fax offering include commercial-grade
broadcast fax, fax on demand (or "fax catalog") and timed delivery.

The Company has designed and plans to install during the first half of 1998
an Internet-based fax service interconnecting to its fax gateway in Los
Angeles, California. This service will allow customers with Internet access to
send faxes to any fax machine worldwide and to any Internet based e-mail
address.

.Business-Grade Internet Services

The Company is developing and preparing to offer a suite of value-added
services which will permit business-grade communications utilizing Internet
technologies. The Company expects these business-grade Internet services to
include (i) Global Enhanced VPN, (ii) Business Quality Messaging and (iii)
Global Desktop. These services will combine the best features of the Internet,
such as openness and ease of access at low cost made possible by the IP
standard, with the advantages of a private network, such as high security,
low/fixed latency and customized features. The Company believes that its
service design will overcome many of the perceived inefficiencies of today's
Internet and will allow its customers to conduct business quality transactions
via the Company's network infrastructure.

The Company's business-grade Internet services are being designed in
conjunction with business partners including Novell and other technology
providers. The Company's technology licensing agreement with Novell, for
example, provides the Company with access to certain key networking
technologies. In addition, the Company has become a Novell Business Internet
Services ("BIS") partner, an affiliation which the Company believes will
further enhance its service delivery strategy. BIS partners, which presently
include major telecommunications carriers such as AT&T, Bell Atlantic
Corporation, Nippon Telegraph and Telephone Corporation, Deutsche Telecom AG,
Singapore Telecommunications Limited Corporation and Korea Telecom, have
agreed on standards for interconnecting their respective Internet networks.
Those carriers currently principally focus on first-tier markets. See "--
Network and Operations" and "Sales, Marketing and Customer Service--Strategic
Marketing Relationships."

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<PAGE>

Global Enhanced VPN

The Company's Global Enhanced VPN service has been designed to enable
customers to establish a wide area network among their offices by using the
Company's network infrastructure, thereby eliminating the cost associated
with establishing and maintaining a dedicated private network. The
Company's VPN service will be enhanced through the use of a commercial
grade directory infrastructure and certain certification and security
mechanisms. This will allow customers a single sign-on to their VPN from
any of their offices worldwide. Customers also will have the capability of
accessing their VPN from outside their offices with a local telephone call
through access points in many cities. For example, a U.S.-based user
traveling to Hong Kong would be able to access from the user's Hong Kong
office his or her local access network in the United States by entering the
user's name, password and additional security authentication. The user
could then work on the local access network in the United States in
accordance with the user's normal desktop privileges. In addition, the user
could access his or her U.S. e-mail system even if the Hong Kong office did
not have an e-mail system or if it operated on a different messaging
system. The Company's single sign-on capabilities, combined with advanced
security, authentication and notification features, will enable a business
customer to open its VPN in a controlled manner to its customers, vendors
and other business partners (also known as an "extranet"), thus
facilitating secure and reliable electronic commerce.

Business Quality Messaging

The Company's Business Quality Messaging ("BQM") service will provide
customers with the ability to exchange messages, fax, e-mail or voice-mail
in a secure and reliable manner via the Company's network infrastructure.
BQM will allow companies to connect dissimilar mail systems, avoiding
costly replacement of existing messaging infrastructure. Additionally,
customers will have firewall access to the Internet as well as access to
most other proprietary public mail services. BQM will be highlighted by
increased levels of security and reliability through utilization of
authentication, encryption and notification features. The Company expects
that these features will enable it to provide different levels of service
based on customer requirements and to price such service levels
accordingly.

Global Desktop

The Company's Global Desktop product is being designed to combine the
Company's Global Enhanced VPN and BQM services packaged with additional
features targeting the global business traveler. This mobile office desktop
product will allow the user to exchange electronic information from public
switched or wireless service worldwide. The Global Enhanced VPN and BQM
services will be integrated and accessed through a user-friendly software
package that will be available to the Global Desktop user.

.""Turnkey Business ISP"

The Company is designing a comprehensive turnkey service solution that will
include all of the Company's business-grade Internet services for regional
ISPs. This "Turnkey Business ISP" solution is being designed to also enable
regional ISPs, which often have limited resources, to seamlessly outsource
certain of their internal business support services, such as billing
functions, settlement capabilities, network management and operations support,
while accessing the Company's suite of enhanced services, including discounted
fax messaging, Global Enhanced VPN, Global Desktop and eventually voice over
IP.

The Company believes that the great majority of regional ISPs need to offer
additional value-added services to remain competitive, but have insufficient
resources to develop these services internally to provide their customers with
the necessary global reach in offering such services. According to an August
1997 report by Business Research Group, 77% of all United States ISPs are
regional ISPs, 83% of which lack out-of-region access and have developed their
own billing and tracking systems. GlobalTel's Turnkey Business ISP solution is
being designed to provide the means for regional ISPs to offer their customers
increased global reach and

43
<PAGE>

business-grade Internet services, such as Global Enhanced VPN and BQM. The
Company's ability to provide a comprehensive turnkey product to regional ISPs
will in turn expand the reach of its network infrastructure.

Completion of Services Under Development

The enhanced services offered by the Company at the date of this Prospectus
were first offered by the Company in November 1997 and to date the Company has
not generated significant revenue from these services. Several other new
services described above are still under development and are not scheduled for
implementation until various times in 1998. Also, the completion of
development and introduction of new services will require the investment of
significant operating capital. It is not uncommon that the introduction of new
telecommunications services is delayed or is occasioned by technical problems.
There can be no assurance that the Company will not encounter delays or
technical problems in the introduction of new services which will prolong the
Company's dependence on traditional call-reorigination service revenues. Also,
there can be no assurance that the Company will have sufficient capital to
complete development and introduction of all of the enhanced services which it
currently plans to offer to its customers. The failure to introduce enhanced
telecommunication and Internet-related services, failures in the systems which
make those services possible or the absence of demand for such services when
introduced would likely have a material adverse affect on the Company's
ability to achieve or sustain profitability in the future.

CUSTOMERS

As of September 30, 1997, GlobalTel's customer base consisted of an
aggregate of more than 8,500 business customers in over 120 countries, three
resellers in three countries and four interexchange carriers in the United
States.

Business Customers

The Company's sales and marketing efforts target small- and medium-sized
businesses. The Company's business customers also include some high-volume
residential customers, most of whom are executives or employees of existing
business customers. The Company's business customer base is geographically
diversified.

Reseller Customers

The Company's reseller customer base consists of three resellers of the
Company's call-reorigination service offerings located in Hong Kong, Australia
and Singapore. These customers purchase service in bulk from GlobalTel at a
discounted rate for resale to their customers. Resellers are responsible for
billing their users and for providing customer service. The Company believes
that with the recently implemented switching, billing and customer services
platform improvements, it will be well-positioned to address the needs of the
conventional reseller market and to take advantage of the growth opportunity
this market presents. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview."

Interexchange Carriers

The Company's interexchange carrier customers are switch-based long-distance
companies that purchase international voice termination service for resale to
their own customers. GlobalTel's carrier sales target non-dominant U.S.-based
telecommunications service providers. The Company currently provides services
to a total of four interexchange carrier customers in the United States. The
Company believes that long-distance services, when sold to telecommunications
carriers and other resellers, are generally a commodity product with the
purchase decision based primarily on price. Although the margins on sales to
other carriers and resellers are lower than sales to business customers, these
sales involve lower operating expenses and help the Company optimize the use
of its network and reduce its costs per minute of use. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview."

44
<PAGE>

The Company's revenues from call-reorigination customers and wholesale
carrier customers represented 91% and 9%, respectively, for 1996 and 64% and
36%, respectively, of the Company's total revenues for the nine months ended
September 30, 1997.

SALES, MARKETING AND CUSTOMER SERVICE

The Company has employed a network of independent sales agents and a small
number of resellers, supplemented by direct marketing efforts, in selling its
services. GlobalTel intends to leverage its strategic marketing relationships
to expand its customer base. In particular, the Company expects that its
access to Novell's distribution network of over 25,000 VARs and its
relationship with IBNET will facilitate additional contact with many small-
and medium-sized businesses and in-country ISPs in the Company's target
markets.

Independent Sales Agents and Resellers

The Company distributes its international voice services primarily through a
network of over 75 independent sales agents that currently covers more than 80
countries, who are paid solely on a commission basis, and through a small
number of resellers. The Company's agents are typically independent business
persons who concurrently offer other business-to-business services. Agents and
resellers are recruited through advertising in the Company's target markets
and are also identified by referrals from customers and industry contacts. The
Company's agreements with its agents and resellers typically are non-exclusive
and require the agents to offer the Company's services at rates prescribed by
the Company in accordance with the Company's sales and marketing policies.
Agents and resellers pay an initial start-up fee to the Company. Commissions
are paid by the Company monthly based upon paid usage by customers solicited
by the agent. The applicable commission rate varies depending on the agent's
exclusivity, the type of service sold and the sales levels achieved. See "Risk
Factors--Dependence on Independent Sales Agents."

Carrier Sales

The Company's call-reorganization business has resulted in industry contacts
through which the Company resells excess international network capacity to
other U.S.-based resellers and telecommunication carriers. This strategy
allows the Company to generate higher volumes of international telephone
traffic, thereby lowering the cost per minute for traffic purchased from other
interexchange carriers.

Strategic Marketing Relationships

.IBNET

IBNET is the managing member of the Consortium for Global Commerce, which
represents thousands of individual chambers of commerce (the "Chambers") in
over 200 countries. The Consortium for Global Commerce was established to (i)
create a global intranet that enables the Chambers and their members to
exchange information and conduct business transactions electronically and (ii)
obtain more favorable pricing and terms for certain products and services for
such members.

In April 1997, the Company entered into a ten year marketing agreement with
IBNET to provide the Chambers and their members, on a non-exclusive basis,
with telecommunications services including international voice, international
fax, calling card services, Internet services, intranet, VPN and messaging.
The individual Chambers may act as sales and marketing agents for the
Company's services. IBNET has agreed to market GlobalTel's services to the
Chambers by promoting GlobalTel services in Consortium literature, at
Consortium trade shows and speaking engagements, and by listing the Company's
services in the Consortium's databases. In November 1997, the Consortium
launched its marketing campaign which included the hosting of regional
conferences to provide the Chambers with information about available products
and services, including GlobalTel's services. Under its agreement with IBNET,
the Company also has the right to co-brand its services with the chamber of
commerce trademarks, a feature that the Company believes will enhance its
marketing and sales efforts because the chamber brand is typically well
recognized and held in high regard by the local business communities in
second-tier markets.

45
<PAGE>

The Consortium's four member organizations are the International Chambers of
Commerce, the Paris Chamber of Commerce and Industry, the G77 (a non-
governmental organization comprised of 137 developing countries and China) and
IBNET, the managing partner of the Consortium for Global Commerce. The Company
believes that its relationship with the Consortium for Global Commerce,
through IBNET, and in particular with the G77, will enhance its ability to
establish relationships with regional ISPs and expand its customer base in its
target markets.

.Novell

In October 1997, the Company entered into a three-year technology licensing
agreement with Novell that provides the Company with access and support in
marketing to Novell's distribution channel of over 25,000 VARs. Novell VARs
range from small computer networking companies to large system integration
firms. The Company, in conjunction with Novell, intends to create a
certification program for channel partners with respect to the Company's
product offerings. In addition, the Company has become a Novell BIS partner.
Other BIS partners include telecommunications carriers such as Deutsche
Telecom AG, Bell Atlantic Corporation, Nippon Telegraph and Telephone
Corporation and Singapore Telecommunications Limited, which primarily cover
first-tier markets. BIS partners have agreed upon standards for
interconnecting their respective Internet networks. The Company believes that
its status as a BIS partner will allow it to benefit from any future network
connections among the BIS partners.

Direct Sales

The Company plans to deploy a direct sales team consisting of account
executives and corporate sales representatives to further implement its sales
and marketing strategy. The Company expects the account executives to focus on
regional ISPs and other small network providers. The initial targets are
certain niche-oriented Novell VARs, regional ISPs in Europe and in the United
States. The corporate sales representatives will emphasize sales of the
Company's telecommunications services to selected corporate customers. The
Company expects the direct sales team to respond to inquiries about its
services generated through the Consortium and the Novell channel marketing
efforts worldwide.

Customer Service

GlobalTel is committed to providing its customers, sales agents and
resellers with high-quality customer service. As of October 31, 1997, the
Company employed 11 customer service representatives at the Company's
Operations Center to field customer service calls, respond to inquiries for
new service and conduct telephone sales functions. Customer service
representatives are compensated in part based on sales and customer retention.
The customer service call center is open 24 hours a day, seven days a week.
Customer service is currently provided in five languages.

Customer service representatives are able to make changes to customer
accounts immediately while the customer is on the line and have the authority
to contact GlobalTel's underlying carriers to obtain assistance for the
Company's customers with respect to carrier difficulties. In addition,
GlobalTel encourages its independent agents to respond to service calls from
their customers because the Company believes that such service strengthens the
agents' relationships with their customers, thus promoting customer retention
and potentially leading to customer referrals.

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<PAGE>

NETWORK AND OPERATIONS

Current Network

GlobalTel's current network architecture consists of (i) voice switching and
global fax messaging infrastructure in Los Angeles, California, (ii) access to
third party infrastructure through Equant and other suppliers, (iii) enhanced
fax nodes in Hong Kong and Mexico City and (iv) the Operations Center in
Seattle, Washington. By using off-the-shelf technology which is modular and
scaleable and allows for the integration of a variety of technologies, the
Company expects to be able to provide its customers with enhanced services in
a timely and cost-efficient manner. The Company is committed to continue to
invest in improvements, through the integration of technologies, to its
electronic billing, customer interface and network management systems, which
the Company believes are critical to its cost-effective delivery of services
to its customers. The Company expects these systems to provide it with the
ability to quickly upgrade its customers from a single product to multiple
services.

During 1996 the Company commenced a three phase network upgrade by: (i)
relocating its voice switching platform from Las Vegas to Los Angeles for the
primary purpose of facilitating access to least-cost call routing alternatives
for its call-reorigination business; (ii) upgrading the Company's network
facilities by implementing a more flexible switching platform with enhanced
features, installing an improved and scaleable customer interface and
transitioning to a more flexible and improved customer billing system; and
(iii) implementing an enhanced fax messaging infrastructure. The first phase
of this plan was completed in late 1996. In 1997 the Company completed phases
two and three, with installation and testing of a more capable switching
platform as well as the enhanced customer interface and billing systems.
Cutover of all customers to these new systems was completed in November 1997.

.International Network Switching Center--Los Angeles, California

The Company's switching center is located in the West Coast's principal
telecommunications facility in Los Angeles, California, where most major U.S.
carriers have a switching facility. The 1997 upgrade of the switching center
provided fiber optic access for GlobalTel's network to all major carriers in
the facility. As a protective measure, GlobalTel has diversified its access to
its long-distance providers through contracts with various local access
providers supplying redundancy in the event of single point failures.

The Company employs a fully redundant, non-blocking, ISO 9001 compliant
Summa Four voice switch which is controlled by a real-time rating, billing and
switching platform. This switching platform has been designed to provide
enhanced voice telecommunications services and additional capacity to
accommodate growth in GlobalTel's customer base. The Company has further
augmented its voice switching platform by leasing a portion of a Northern
Telecom DMS 250 tandem switch (which is connected to the Summa Four switching
platform) to support the Company's carrier traffic.

GlobalTel's International Switching Center also houses the Company's fax
gateway switching platform with e-mail to fax conversion capability and
software for enhanced service features, including fax broadcasting, fax on
demand and fax mail.

.Fax Nodes--Hong Kong and Mexico City

The Company operates two fax nodes in Hong Kong and Mexico City that are co-
located in Equant's facilities. The nodes are serviced and maintained by
Equant on a 24-hour basis and are interconnected to local access providers.
The Company intends to deploy fax nodes in additional locations during 1998.

.Carriers and Network Access

The Company has resale agreements with a number of long-distance carriers in
order to obtain the best available pricing and service on each route. The
Company's enhanced fax and business-grade Internet services will be carried
through Equant's global data network. The Company's International Switching
Center is

47
<PAGE>

connected to the Equant network center through high-speed fiber optic
circuits. The Company's switching nodes have the ability to select quality and
least cost routes, depending on the service selected by the user. See "--
Suppliers."

.Network Control and Operations Center--Seattle, Washington

The Operations Center is located at the Company's headquarters in Seattle,
Washington, and has real-time access to all GlobalTel switching platforms and
enhanced fax nodes. Performance of the Company's conventional circuit switched
network and its data network is monitored by the Operations Center on a 24-
hour basis.

Strategic Network Plan

In order to quickly expand network services to its customer base, the
Company intends to leverage its existing resale, interconnect and other
partnering agreements with other providers to create a virtual network
infrastructure. This strategy is designed to expand coverage in a cost
effective manner. The Company plans to invest in and deploy additional
physical infrastructure in strategic global network hubs to access regional
low-cost access routes and, over time, in places where traffic volumes warrant
such investment. The Company believes that there is an abundance of network
and switching capacity available worldwide to support this strategy.

A key element to GlobalTel's virtual network strategy is its long-term
agreement with Equant, a global managed data network service provider (the
"Equant Agreement"). The Equant Agreement provides the Company with access to
the Equant network, one of the world's most extensive managed data networks,
with access points in over 200 countries. See "--Suppliers."

Another element of GlobalTel's network strategy is its business partnership
with Novell. As a BIS partner, the Company plans to use its Turnkey Business
ISP offering to aggregate multiple smaller ISPs and other network providers,
creating the opportunity for larger BIS partners to interconnect with smaller
networks through the Company's infrastructure on a multilateral basis. This is
expected to further increase the network reach of the Company.

MANAGEMENT INFORMATION SYSTEMS

Telecommunications service providers generally must record and process large
amounts of data quickly and accurately in order to bill customers in a timely
manner, verify billings from third party carriers, service customer accounts,
respond to customer inquiries and otherwise support operations. The Company
has made a significant investment, particularly during the first nine months
of 1997, in developing an integrated, flexible, electronic billing and
customer interface.

The Company's electronic billing and customer interface system runs on a
relational database system to perform real-time billing and monitor customer
activity. This system provides GlobalTel with real-time reporting capability,
online access to system status, billing information and customer databases
through user-friendly computer screens. This system also allows the Company's
sales agents and resellers to remotely and securely access the Company's data
base for provisioning, customer maintenance and access to financial and usage
data.

The Company employs an accounting system which is linked to its billing
system for on-line posting and account information transfer. The system
operates on a multi-user data base, providing the Company with the flexibility
of creating custom accounting modules to support various accounting needs.

While the Company believes that its information systems are currently
sufficient for its operations, such systems will require enhancements and
ongoing investments as the Company grows. See "Risk Factors--Risk

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<PAGE>

of Managing Growth; Recent Management Changes and New Information Systems" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

SUPPLIERS

International long-distance providers can generally be categorized by the
extent, if any, of their ownership and use of their own switches and
transmission facilities. The largest U.S. carriers, AT&T, MCI Communications
Corporation, Sprint and Worldcom Inc., primarily utilize owned U.S.
transmission facilities and generally use other long-distance providers to
carry their overflow traffic. Only the largest U.S. carriers have operating
agreements with, and own transmission facilities that carry traffic to, the
over 200 countries to which major long-distance providers generally offer
service. A significantly larger group of long-distance providers own and
operate their own switches but either rely solely on resale agreements with
other long-distance carriers to terminate their traffic or use a combination
of resale agreements and leased or owned facilities in order to terminate
their traffic as discussed below.

A switched resale arrangement typically involves the wholesale purchase of
termination services by one long-distance provider from another on a variable,
per-minute basis. Such resale, which was first permitted with the deregulation
of the U.S. market, enables the emergence of alternative international
providers that rely at least in part on transmission services acquired on a
wholesale basis from other long-distance providers. A single international
call may pass through the facilities of multiple long-distance resellers
before it reaches the foreign facilities-based carrier that ultimately
terminates the call. Resale arrangements set per-minute prices for different
routes, which may be guaranteed for a set time period or subject to
fluctuation following notice. The resale market for international transmission
is constantly changing, as new long-distance resellers emerge and existing
providers respond to fluctuating costs and competitive pressures. In order to
effectively manage costs when utilizing resale arrangements, long-distance
providers need timely access to changing market data and must quickly react to
changes in costs through pricing adjustments or routing decisions.

The Company has supply contracts with Sprint, Cable & Wireless p.l.c.,
Pacific Gateway Exchange, Inc., Star, Vending, Inc. and a number of other
interexchange carriers for long-distance telecommunications services.
Typically, these agreements are terminable with minimal notice. To obtain
favorable forward pricing from certain of its suppliers, the Company has
committed to purchase minimum volumes of a variety of long-distance services
during stated periods, whether or not such volumes are used or, in one case,
has agreed to pay a surcharge equal to a percentage of the Company's shortfall
from a specified monthly minimum volume. During October 1997 the Company's
aggregate monthly minimum volume commitments and maximum surcharge totaled
approximately $280,000.

The Company utilizes Equant's extensive data network with access points in
most countries worldwide. This network was originally created by a consortium
of airlines to handle their data transport needs. The Equant Agreement allows
the Company to lease network access and co-locate its switches and servers at
Equant sites around the world. The Company believes that co-location will help
reduce the Company's capital and operating costs and accelerate the Company's
ability to implement network access points. The Company receives engineering
and technical support services for the implementation and management of its
value-added network services. Equant also facilitates interfacing with local
ITOs, which provide the switched and dedicated last links to the Company's
customers. The Company's network is monitored 24 hours a day, seven days a
week, from Equant's primary control centers located in Singapore, Paris and
Atlanta.

Many of Equant's access points are located in second-tier markets. The
Company intends to use Equant's local "dial up" data service, allowing the
Company's customers to access the Company's network via a local telephone call
in many cities around the world.

The Equant Agreement has a maximum initial term expiring in 2010, provides
for extension beyond such initial term upon mutual agreement between the
parties and is terminable upon default or breach by either party. If the
Equant Agreement is terminated or if such agreement is renegotiated to
GlobalTel's

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<PAGE>

disadvantage, or if Equant is unable to provide the Company with services in
accordance with its agreement with the Company, there could be a material
adverse effect on the Company's business, financial condition or results of
operations. See "Risk Factors--Dependence on Suppliers."

COMPETITION

The global telecommunications industry is extremely competitive and is
characterized by rapid regulatory and technological change. The Company's
success depends upon its ability to compete with a variety of other
telecommunications providers in each of its markets, including with global
alliances between and among some of the world's largest telecommunications
carriers. Other potential competitors include cable television companies,
wireless telephone companies, Internet access providers, electric and other
utilities with rights of way, large end users that have private networks and
new entrants into the market focused upon niche opportunities. The Company
believes that such competition will intensify. Many of the Company's current
or potential competitors have substantially greater financial, marketing and
other resources than the Company. If the Company's competitors devote
significant additional resources to the provisioning of telecommunications
services to the Company's target customer base, such action could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the Company will be able
to compete successfully against such new or existing competitors. See "Risk
Factors--Competition."

Currently, the Company competes with providers and other marketers of
international call-reorigination services, ITOs and other marketers of long-
distance telephone service. Because of close ties to national regulatory
authorities enjoyed by many ITOs, regulatory authorities often can be
pressured to refrain from adopting policies and granting regulatory approvals
that would result in increased competition for the local ITO. If the ITO were
to successfully pressure such regulators, the Company could be denied
regulatory approval in certain jurisdictions in which its services would
otherwise be permitted. Any delay in obtaining approval, or failure to obtain
approval could have a material adverse effect on the Company's business,
financial condition and results of operations.

The Company's larger telecommunications competitors include some of the
world's largest telecommunications companies, such as AT&T, MCI, Sprint,
Worldcom, Cable & Wireless p.l.c. and British Telecommunications P.L.C. and
other global telecommunications providers including USA Global Link, Inc.,
Telegroup, Inc. and IDT Corporation. In addition, numerous smaller carriers
have emerged, both in the United States and in newly deregulated markets
around the world, many of which specialize in offering international telephone
services similar to the Company's call-reorigination services.

Competition for customers in the telecommunications markets in which the
Company operates is primarily based on price, and to a lesser extent on the
type and quality of services offered. The Company anticipates that
deregulation and increased competition will result in decreased prices for
telecommunications services. The Company believes that the effects of such
decreases will be at least partially offset by increased telecommunications
usage and decreased costs. However, to the extent that this does not occur,
there could be an adverse effect on the Company's margins and financial
profits, and the Company's business, financial condition and results of
operations could be materially and adversely affected.

The market for value-added data services, such as the business-grade
Internet service under development by the Company, is extremely competitive
and the Company expects that competition will intensify in the future. The
Company believes that its ability to compete successfully in the value-added
services market depends upon a number of factors, including: market presence;
the capacity, reliability, low latency and security of network infrastructure;
technical expertise and functionality, performance and quality of services;
customization; ease of access to and navigation of the network; the pricing
policies of competitors; customer support; the ability to support existing and
emerging industry standards; and industry and general economic trends.

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<PAGE>

The Company's current and prospective competitors in the value-added
services business include many large companies that have substantially greater
market presence and financial, technical, marketing and other resources than
the Company. As a result, they may be able to develop and expand their
communications and network infrastructures more quickly, adapt more swiftly to
new or emerging technologies and changes in customer requirements, take
advantage of acquisition and other opportunities more readily, and devote
greater resources to the marketing and sale of their products than the
Company. In addition to the Company's traditional telecommunications
competitors, the Company's value-added services business competes or will
compete with two additional categories of competitors: (i) Internet service
providers including on-line service providers such as American Online, Inc.,
UUNET Technologies Inc., Netcom On-line Communication Services, Inc., Bolt
Beranek & Newman, Inc., Microsoft Corporation and other national and regional
Internet providers, who provide public access to the Internet and some
business grade access and services; and (ii) enhanced messaging providers,
including a number of newer companies such as Xpedite System, Inc., FaxSav
Incorporated and Premier Technologies, Inc., that were recently established to
provide narrowly focused niche products and have grown by expanding their
product offerings . There can be no assurance that the Company will have the
financial resources, technical expertise or marketing and support capabilities
to compete successfully.

The Company believes that new competitors, including large computer
hardware, software, media and other technology and telecommunications
companies will enter the value-added services market, resulting in even
greater competition for the Company. In addition, the ability of some of the
Company's competitors to bundle other services and products with VPN, global
roaming services or both could place the Company at a significant competitive
disadvantage. Increased competition in the value-added services market could
result in significant price competition, which in turn could result in
significant reductions in the average selling price of the Company's value-
added services. In addition, competition could result in increased selling and
marketing expenses, which could adversely affect the Company's profitability.
There can be no assurance that the Company will be able to offset the effects
of any such price reductions through an increase in the number of its
customers, higher revenues from enhanced services, cost reductions or
otherwise. Increased competition, price or otherwise, could result in erosion
of the Company's customer base and adversely affect the Company's operating
results.

The telecommunications industry is in a period of rapid technological
evolution, marked by the introduction of new product and service offerings and
increasing capacity for services similar to those provided and under
development by the Company. Examples of some new technologies include
satellite-based systems, such as the proposed Iridium World Communications
Ltd., GlobalStar Telecommunications Limited and Teledesic Corp. systems,
utilization of the Internet for voice and data transmission and digital
wireless communications systems. The Company is unable to predict which of
many possible future product and service offerings will be important to
maintain its competitive position or what expenditures will be required to
develop and provide such products and services. See "Risk Factors--
Competition."

REGULATION

The Company provides both value-added enhanced services as well as call-
reorigination services to customers in the United States and abroad. These
services are regulated to some degree both in the United States and in many
foreign countries. In the United States, the FCC regulates telecommunications
services. Many countries also have a regulatory body, or otherwise integrate
regulatory functions in the state-owned monopoly in the telecommunications
sector. In addition, international telecommunications services are subject to
rules and policies promulgated by multilateral organizations. The ITU and the
World Trade Organization ("WTO") both potentially influence governmental
policies regulating international telecommunications as well.

In the past few years, the regulation of international telecommunications
has undergone dramatic changes. Many countries have begun to liberalize their
markets, allowing competition in telecommunications services for the first
time. Because of the uncertainty involved in dealing with regulatory
authorities in many

51
<PAGE>

countries and the volatility of the market, some degree of risk exists.
Government authorities, both in the United States and abroad, could
potentially issue regulations or decisions that could have substantial adverse
effects on the Company's profitability. If the Company is unable to provide
the services it is presently providing, or intends to provide, or to use
existing or contemplated transmission methods due to its inability to receive
or retain formal or informal approvals for such services or transmission
methods, or for any other reason related to regulatory compliance or lack
thereof, such events could have a material adverse effect on the Company's
business, financial condition and results of operations

Telecommunications

In 1995, the FCC granted the Company authorization to resell international
switched services pursuant to Section 214 of the Communication Act of 1934.
The Company uses this Section 214 license to provide call-reorigination
services to customers in foreign countries using a number of methods. Some
methods involve completed calls and other communications to the United States
from foreign countries, and other methods, such as traditional call back
service, involve incomplete calls which avoid the high international rates
offered by the ITO in a particular regulated country by providing a dial tone
from a deregulated country, typically the United States. To place a call using
traditional call back service, a user dials a unique phone number to an
international carrier's switching center and then hangs up after it rings. The
user then receives an automated call back providing a dial tone from the
United States, which enables the user to complete the call. In its effort to
drive down international telecommunications accounting rates, the FCC has
endorsed the provisioning of call-reorigination services by U.S. operators.
However, there is a substantial risk involved in providing traditional call
back services. A substantial number of countries consider call-reorigination
adverse to the interests of their national telecommunications sectors and in
some cases, these countries have passed laws to make traditional call back
services illegal.

In 1995, the FCC issued an order stating that it would consider enforcement
action against operators based in the United States engaged in call-
reorigination by means of the traditional call back method in countries where
this activity is expressly prohibited. Under the FCC order, a party requesting
enforcement assistance from the FCC must provide sufficient documentation of
the illegality of traditional call back service and detailed evidence of the
operator's violation of the law by virtue of its provision of traditional call
back services in the country. The FCC also requires the party to provide
documentation of the declaratory or enforcement action taken by the applicable
country's national authorities against the operator before requesting the
FCC's assistance in enforcing the country's laws against the operator. At
November 30, 1997, 31 countries had filed documents with the FCC alleging that
certain forms of call-reorigination services violate their respective domestic
laws. Of those 31 countries, only the Philippines and Saudi Arabia had fully
complied with the FCC's documentation requirements. To date, the FCC has not
specified the types of actions it might take against an operator, but possible
enforcement remedies include the issuance of a cease-and-desist order,
imposition of a monetary sanction, or, in an extreme case, revocation of the
operator's Section 214 license. The FCC recently took enforcement action by
revoking the operator's Section 214 license in a case involving the
Philippines. The Company provides call-reorigination services in certain of
these countries. Any potential enforcement action taken by the FCC, in
addition to any actions taken by the foreign country's authorities, could have
a material adverse effect on the Company's business, financial condition and
results of operations.

Within the United States, the interstate and international
telecommunications services currently provided by GlobalTel are subject to the
exclusive jurisdiction of the FCC. In the event that the Company decides to
offer intrastate telecommunications services, such activity will be subject to
the jurisdiction of the individual states in which the Company provides such
service. In the majority of states it is necessary to obtain a certificate of
public convenience and necessity from the appropriate state agency prior to
offering intrastate telecommunications services. The Company will apply for
and obtain the required certificates and any other approvals prior to the time
it offers any intrastate telecommunications services, although there can be no
assurance that the Company will be successful in obtaining such certificates
and approvals. See "Risk Factors--Regulatory Risks."

52
<PAGE>

Value-Added Services

The Company provides enhanced data services to customers in the United
States and abroad, including enhanced fax, enhanced e-mail, Internet access
and intranet services. These services are potentially subject to some
regulation in the United States and in several of the foreign countries in
which the Company operates. Countries that are signatories to the General
Agreement on Trade in Services must grant WTO member states most favored
nation status with respect to provisioning of enhanced services pursuant to
the Telecommunications Annex to that Agreement. This requires WTO member
states to accord non- discriminatory treatment to companies seeking to provide
enhanced services. In addition, the WTO provides a forum for dispute
settlement in the event that a signatory country violates the most favored
nation treatment principle.

In the United States and abroad, enhanced and value-added services are
essentially unregulated. The FCC's Computer II decision in 1980 and the 1996
Telecommunications Act establish that enhanced services of the type provided
by the Company are outside the definition of regulated telecommunications or
common carrier services. The Company's enhanced services also are exempt from
local access charges pursuant to FCC rules. This exemption, however, has been
threatened from time to time both by Congress and the FCC. In addition, as
part of the 1996 Telecommunications Act, all telecommunications operators
providing certain domestic telecommunications services are required to make
contributions to the Universal Service Fund established thereunder, which
provides a subsidy to facilitate the provision of telecommunications services
to high-cost areas. While the Company's current operations do not subject it
to such requirement, it is possibile that enhanced services providers may be
required in the future to contribute some portion of their revenues to the
Universal Service Fund. This issue arose during the FCC's implementation of
the 1996 Telecommunications Act and to date remains largely unsettled. If the
FCC were to respond to congressional pressure from some members of Congress to
eliminate the local access charge exemption, or if it were to begin regulating
enhanced services in some other way, the Company's business, financial
condition and results of operations could be materially adversely affected.
Although to date no such legislation has been introduced, a law requiring the
Company to contribute to the Universal Service Fund would result in higher
costs for the Company, and there could be a material adverse effect on the
Company's business, financial condition and results of operations. The Company
cannot predict the impact, if any, that future regulation or regulatory
changes may have on the Company's enhanced services business.

The Company is also subject to local laws in each country in which it
provides enhanced services. In most countries, the Company must secure a
license to provide these services. The Company places license requirements for
data transmission into three basic categories according to the regulatory
environment and requirements for conducting business as follows: (i) open
class and required registration; (ii) formal application process; and (iii)
local partner requirement. In most developed and deregulated countries, such
as Australia and the United Kingdom, the provisioning of data services
requires an "open class" filing with the local jurisdictional authority in
conjunction with the establishment of an in-country legal entity. The open
class filing is essentially a statement of the class of services being offered
by the provider. However, in some countries, such as in Japan and Germany, a
more detailed registration may be required with local authorities which may
entail a full description of the service provider and detailed descriptions of
the services being provided, together with rates and other information. In
other countries, the provisioning of data transmission and value-added
services requires approval by local jurisdictional authorities. This process
may differ significantly from country to country, but generally entails the
review of a formal application in order to obtain the necessary license. This
process may take three to six months. Examples of markets in which the formal
application process are required include Hong Kong and Singapore. Because the
Company plans to initiate business in countries which have adopted
deregulatory policies, the Company believes that the risk of not being able to
obtain required licenses in target markets is not material; however, the time
and legal expense required to complete the licensing process could affect the
timing of the introduction of the Company's services and the start-up costs
involved in launching service. In certain countries with extremely restrictive
regulatory environments, obtaining licenses may be difficult or impossible. In
such cases, the Company may elect to work with a local partner, such as an
independent commercial and/or government-related entity, such as an ITO.

53
<PAGE>

Local laws and regulations differ significantly among the jurisdictions in
which the Company operates, and the interpretation and enforcement of such
laws and regulations vary or are often based on the informal views of the
local ministries which in some cases are subject to influence by the domestic
operator. There can be no assurance that the Company has accurately predicted
the enforcement of applicable laws and regulations or regulatory and
enforcement trends in a given jurisdiction or will be found in compliance with
all such laws and regulations. Failure to predict the enforcement of
applicable laws accurately, or incorrect interpretations of applicable laws
and regulations, could cause the Company to lose or to be unable to obtain
regulatory approvals necessary for it to be able to provide certain of the
services the Company markets. Such failure could result in material adverse
effects on the Company's ability to provide services. See "Risk Factors--
Regulatory Risks."

INTELLECTUAL PROPERTY

The Company owns U.S. Registration No. 1,944,078 for the mark PRIMECALL for
reselling long-distance telecommunications services. The Company has filed
applications in the national trademark offices of Australia, Hong Kong and
Japan, and in the regional European Community trademark office seeking to
register the service mark PRIMECALL. There can be no assurance that the
Company's applications to register the mark PRIMECALL will result in any
registration being issued, or that such registration will be held valid and
enforceable if challenged. The Company does not currently have any registered
patents or copyrights.

The Company relies primarily on common law rights to establish and protect
its trade secrets and other intellectual property. There can be no assurance
that the Company's measures to protect its intellectual property will deter or
prevent the unauthorized use of the Company's intellectual property. If the
Company is unable to adequately protect its intellectual property, including
existing service marks and trademarks, there could be an adverse material
effect on the Company's business, financial condition and results of
operations. In addition, there can be no assurance that licenses for any
intellectual property that might be required for the Company's services would
be available on reasonable terms if at all.

While the Company does not believe that it infringes the proprietary rights
of any third parties, there can be no assurance that third parties will not
assert such claims against the Company in the future or that such claims will
not be successful. The Company could incur substantial costs and diversion of
management resources with respect to the defense of any claims relating to
proprietary rights. Furthermore, parties making such claims could secure a
judgment awarding substantial damages as well as injunctive or other equitable
relief which could effectively block the Company's ability to use the
proprietary rights of those third parties. Such a judgment would have a
material adverse effect on the Company's business, financial condition and
results of operation. In the event a claim relating to proprietary rights is
asserted against the Company, the Company may seek licenses to such
proprietary rights. There can be no assurance however, that licenses could be
obtained on commercially reasonable terms, if at all, or that the terms of any
offered licenses will be acceptable to the Company. The failure to obtain any
necessary licenses or other rights could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors-- Rapid Changes in Technology."

EMPLOYEES

As of October 31, 1997, the Company had 29 full-time employees. The Company
expects to hire additional personnel as needed to meet future growth. None of
the Company's employees is represented by a labor union and the Company
considers its relationship with its employees to be good.

PROPERTIES

The Company leases approximately 4,800 square feet of office space for its
headquarters and Operations Center in Seattle, Washington under a lease that
expires on December 31, 1998 and requires monthly

54
<PAGE>

payments of $5,850. In addition, the Company leases approximately 1,500 square
feet of space in Los Angeles, California, for switch equipment under a lease
that expires on June 30, 2006 and requires monthly payments of $5,040.

LEGAL PROCEEDINGS

As of the date of this Prospectus, the Company is not a party to any
litigation which, if adversely determined, is expected to have a material
adverse impact on the business, financial condition or results of operations
of the Company.

55
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Ronald P. Erickson............... 54 Chairman of the Board, Chief Executive
Officer and President
Senior Vice President, Marketing and
German F.H. Burtscher............ 38 Sales and Secretary
Eric D. Orse..................... 33 Director of Finance and Treasurer
Director, Senior Vice President and
Ronald B. Fox.................... 52 President of Primecall
John E. Cox...................... 70 Vice President, Network Services
Bruce L. Crockett (1)............ 53 Director
Randall J. Ottinger (2).......... 39 Director
Lyman C. Hamilton, Jr. .......... 71 Director
Michael S. Brownfield (1)(2)..... 57 Director
Steven S.V. Wong (1)(2).......... 56 Director
Paul H.F.M. van de Plas.......... 37 Director
Frank Krentzman.................. 40 Director
</TABLE>

- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee

Ronald P. Erickson has served as Chairman of the Board, President, Chief
Executive Officer and a Director of the Company since January 1996. Prior to
that, he was Managing Director of Globalvision L.L.C., an international
strategic consulting firm, from August 1994 to January 1996. From September
1992 to August 1994, he served variously as Chairman and Vice Chairman of the
Board, President and Chief Executive Officer of Egghead Software, Inc., a
retailer of software and computer peripheral products. He was also the co-
founder and a director of Microrim, Inc., a database software developer from
November 1981 to May 1992 and has served as a director and officer of various
other companies, including ITEX, a trading and financial services company. Mr.
Erickson holds a B.A. from Central Washington University, an M.A. from the
University of Wyoming and a J.D. from the University of California, Davis,
School of Law.

German F.H. Burtscher has served as the Company's Senior Vice President,
Marketing and Sales since February 1997 and served as its Vice President,
Strategic Marketing and Product Development from October 1995 to February
1997. In January 1995, he co-founded Ratsten International Telecommunications,
Inc., a telecommunications services provider, and served as its President
until October 1995. He also served as Regional Sales Manager and Senior
Account Executive of World Call Telecommunications, a long distance telephone
carrier, from June 1992 to January 1995. Mr. Burtscher holds a B.A. in
Business and Sociology from the University of Austria, Innsbruck and an M.B.A.
in Finance and International Marketing from the University of Austria, Graz.

Eric D. Orse has served as the Company's Director of Finance and Treasurer
since October 1997, and served as an outside financial consultant to the
Company from June 1997 to September 1997. He is also the owner and principal
of Orse & Co., Inc., a financial consulting firm. From May 1995 to October
1996, he served as Chief Financial Officer of First Nationwide Automotive
Acceptance, Inc., an automotive leasing finance company. He also served as
Senior Accountant and Senior Consultant at Price Waterhouse LLP from January
1994 to April 1995 and from July 1989 to January 1992. From February 1992 to
December 1993,

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<PAGE>

Mr. Orse studied to receive his Masters in Business Administration. Mr. Orse
is a C.P.A. and holds a B.A. in Accounting and an M.B.A. in Finance and
Business Management, both from Seattle University.

Ronald B. Fox has served as a Director of the Company since December 1997,
as the Company's Senior Vice President since October 1997 and as President of
the Company's subsidiary, Primecall, Inc., since September 1997. From January
1994 to February 1997, he served as Vice President of Hi Rim Communications,
Inc., an international facilities-based telecommunications carrier. In April
1997, subsequent to Mr. Fox's resignation as an officer, Hi Rim
Communications, Inc. filed a petition under the federal bankruptcy laws. Prior
to that, from June 1988 to March 1994, he served as President of Ronald B. Fox
& Associates, a telecommunications consulting firm. Mr. Fox holds an A.S. in
Business Marketing from Lansing Community College.

John E. Cox has served as a consultant to the Company since August 1997 and
will enter into an employment agreement concurrent with the closing of the
Public Offering to become the Company's Vice President, Network Services. From
January 1996 to August 1997, he was the Company's Vice President-Network
Services Development. Prior to joining the Company, he was a self-employed
consultant from September 1995 to December 1995 and served as Vice President
of Ascent Logic Corporation, a computer software company, from March 1989 to
August 1995. From 1986 to July 1987, Mr. Cox served as Vice President of
Telephone Network Products at MA-Com and later took the position of Senior
Vice President Transmission Products at DSC Communications. In the mid-1970s,
Mr. Cox was Technical Director of ITT Corporation's System 12 Distributed
Digital Switching program. Prior to his tenure at ITT, Cox served as VP of
Engineering for Western Union. Mr. Cox holds an M.S. in Computer Science from
Stevens Institute of Technology.

Bruce L. Crockett has served as a Director of the Company since September
1997 and is a member of the Company's Compensation Committee. From February
1992 to July 1996 he served as President, Chief Executive Officer and a
Director of COMSAT Corporation, a global telecommunications company. He is
also a director, chairman of the compensation committee and member of the
audit committee of ACE Limited, a multi-link insurance company, and a director
and trustee of mutual finds of AIM Management Group Inc., a mutual fund
company. Mr. Crockett holds an A.B. in Geography from the University of
Rochester, an M.B.A. in Finance from the Columbia University Graduate School
of Business and a B.S. in Accounting from the University of Maryland.

Randall J. Ottinger has served as a Director of the Company since September
1997 and is a member of the Company's Audit Committee. Mr. Ottinger was the
Company's President from March 1997 to August 1997 and its Vice President,
Marketing from January 1996 to February 1997. Since September 1997, he has
served as Senior Vice President, Marketing and Business Development of Richter
Systems, a software company. From June 1993 to January 1996 he served as
Senior Vice President of Marketing of the Air-to-Ground Division of Claircom,
Inc., a division of McCaw Cellular, Inc., and from February 1992 to May 1993
he was Head of Strategic Planning at Egghead Software, Inc. Mr. Ottinger holds
a B.A. in Psychology from Cornell University and an M.B.A. from Harvard
Business School.

Lyman C. Hamilton has served as a Director of the Company since November
1997. He also served as President and Chief Executive Officer of Interdigital
Communications Corporation from 1994 to 1995. Prior to that, Mr. Hamilton
served as Chairman of the Board from 1993 to 1994, and as President and Chief
Executive Officer from 1991 to 1993, of Alpine Polyvision, Inc., a developer
of flat panel displays. Mr. Hamilton was employed by ITT Corporation from 1962
to 1979 where he served as President from 1977 to 1979 and as Chief Executive
Officer in 1978 and 1979. He has also served on the boards of numerous public
and private companies and non-profit organizations. Currently, he is a
director of Marine Management Systems, Inc., a provider of shipboard hardware
and software management systems, Scan-Optics, Inc., a provider of optical
character recognition equipment, and Polyvision Inc., a provider of visual
display equipment and developer of flat panel displays. Mr. Hamilton holds a
B.A. from Principia College and an M.P.A. from Harvard University.

57
<PAGE>

Michael S. Brownfield has served as a Director of the Company since January
1996 and is a member of the Company's Compensation and Audit Committees. Mr.
Brownfield, a private investor, is also a director of NW Cascade, a heavy
equipment and road construction company, Cutter & Buck, Inc. a men's apparel
company, and Accurate Molded Plastics, a plastics manufacturer. Mr. Brownfield
holds a B.S. from the University of Oregon and is a graduate of the New York
Institute of Finance.

Steven S.V. Wong has served as a Director of the Company since March 1996
and is a member of the Company's Audit and Compensation Committees. Mr. Wong
retired in 1991 and has been a private investor since that time. Currently, he
is also the non-executive Chairman of the Board of Directors of John Hancock
Life Assurance Company, Gereg Capital Corporation, Beijing AusAsean Investment
Advisors, Sinoelectric Technology, Northeastern Holdings and Dupont Ltd.
Mr. Wong holds a B.S. in Mathematics from the University of Singapore and an
M.S. in Actuarial Science from Northeastern University.

Paul H.F.M. van de Plas has served as a Director of the Company since
September 1997. He has also served as Director of N.I.B. Securities N.V., a
Dutch investment bank, since May 1996, as Director of Carparkers Nederland
B.V., since May 1995 and as head of Equity Investment since May 1996. Prior to
that, he served as Director of Institutional Sales at Credit Lyonnais
Nederland Bank from August 1993 to April 1996. In addition, he served as an
Institutional Sales Advisor at BZW, an investment bank, from August 1990 to
September 1996 and at ABN AMRO, a Dutch commercial bank, from July 1987 to
September 1990. Mr. van de Plas holds an M.B.A. from the University of
Tilburg.

Frank Krentzman has served as a Director since January 1997 and was the
Company's Senior Vice President from January 1996 to August 1997. Currently,
he is serving as President of Succint Communications, a telecommunications
consulting company. In January 1994, he co-founded Ratsten International
Telecommunications and served as its Vice President until October 1995.

BOARD OF DIRECTORS COMPOSITION

The Company's Board of Directors will be divided into three classes at the
1998 Annual Meeting of Shareholders. The Class I directors will serve an
initial term until the 1999 Annual Meeting of Shareholders, the Class II
directors will serve an initial term until the 2000 Annual Meeting of
Shareholders and the Class III directors will serve an initial term until the
2001 Annual Meeting of Shareholders. Each class will be elected for three-year
terms following its respective initial term. Officers of the Company are
elected at the first meeting of the Board of Directors following the meeting
of the shareholders at which directors are elected and serve at the discretion
of the Board of Directors. There are no family relationships among the
Company's directors and executive officers. Under the terms of a warrant
issued to Dupont Ltd., an affiliate of Steven S.V. Wong, Dupont has the right
to require the Company to appoint a person selected by Dupont to the Board of
Directors and to nominate and recommend that designee for election to the
Board by the shareholders of the Company. See "Certain Transactions."

BOARD COMMITTEES

The Board of Directors currently has an Audit Committee and a Compensation
Committee. The Audit Committee oversees the actions taken by the Company's
independent auditors and reviews the Company's internal financial and
accounting controls and policies. The Compensation Committee is responsible
for determining salaries, incentives and other forms of compensation for
officers and other employees of the Company and administers the Company's
incentive compensation and benefit plans.

DIRECTOR COMPENSATION

Directors who are not officers of the Company are reimbursed by the Company
for reasonable costs and expenses incurred in attending Board meetings. On
October 30, 1997, the Company granted options to purchase 10,000, 5,000,
10,000, 5,000 and 10,000 shares of the Company's Common Stock at an exercise
price

58
<PAGE>

of $1.10 per share to each of Messrs. Brownfield, Crockett, Wong, van de Plas
and Krentzman, respectively, in consideration of their service on the Board.
These options were exercisable in full upon grant. On October 30, 1997, the
Company issued 10,000 shares of Common Stock to each non-employee director.
Upon his appointment to the Board on November 11, 1997, the Company granted
Mr. Hamilton 10,000 shares of Common Stock.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 1996, the Company established a Compensation Committee currently
consisting of Messrs. Wong, Brownfield and Crockett. From time to time, the
Company has entered into transactions with members of the Compensation
Committee. See "Certain Transactions."

DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY

The Company's amended and restated articles of incorporation (the "Restated
Articles") include a provision permitted by Washington law that limits the
liability of the Company's directors. Under the provision, no director shall
be personally liable to the Company or its shareholders for monetary damages
for conduct as a director, excluding, however, liability for acts or omissions
involving intentional misconduct or knowing violations of law, illegal
distributions or transactions from which the director receives benefits for
which the director is not legally entitled. In addition, Washington law
provides for broad indemnification by the Company of its officers and
directors. The Company's Bylaws and indemnification agreements entered into
between the Company and its directors implement this indemnification to the
fullest extent permitted by law. Insofar as the indemnity for liabilities
arising under the Securities Act may be permitted to directors or officers
pursuant to the foregoing provisions, the Company has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.

EXECUTIVE COMPENSATION

Summary Compensation Table. The following table sets forth certain
compensation awarded to, earned by or paid to the Company's Chief Executive
Officer and to the other executive officers whose total annual salary and
bonus exceeded $100,000 (collectively, the "Named Executive Officers") in the
fiscal year ended December 31, 1996.

Several of the Named Executive Officers resigned from the Company in August
1997. Michael S. Sims resigned as Chief Operating Officer and was replaced by
Ronald B. Fox. Randall J. Ottinger resigned as President and was appointed to
the Board of Directors of the Company at that time. John E. Cox resigned as
the Company's Vice President--Network Services Development. Since then he has
served as a consultant to the Company and will enter into an employment
agreement concurrent with the closing of the Public Offering. Curtis E. Lew
resigned as a Senior Vice President in August 1997 and as a Director in
December 1997. Currently, he is working as an agent for the Company pursuing
business opportunities in Asia. See "Certain Transactions."

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<PAGE>

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
----------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND POSITION SALARY BONUS OPTIONS COMPENSATION
----------------- -------- ----- ------------ ------------
<S> <C> <C> <C> <C>
Ronald P. Erickson
Chairman of the Board, President
and Chief Executive Officer...... $129,434(1) -- 2,500 --
German F.H. Burtscher
Senior Vice President, Marketing
and Sales........................ 118,233(2) -- 1,648 $10,705(3)
Michael S. Sims.................... 183,400(4) -- 139,667 --
Randall J. Ottinger................ 178,476(5) -- 63,687 --
John E. Cox........................ 145,113(6) -- 82,500 --
Curtis E. Lew...................... 132,774(7) -- 5,500 --
</TABLE>
- --------
(1) Includes $34,434 of deferred salary, plus accrued interest thereon at an
annual rate of ten percent. On September 22, 1997, this sum, together with
$70,786 of compensation earned during 1997, was converted into a warrant to
purchase 95,655 shares of Common Stock at an exercise price of $0.01 per
share. See "Certain Transactions."
(2) Includes $18,045 of deferred salary, plus accrued interest thereon at an
annual rate of ten percent. On September 22, 1997, this sum, together with
$60,026 of compensation earned during 1997, was converted into a warrant to
purchase 70,974 shares of Common Stock at an exercise price of $0.01 per
share. See "Certain Transactions."
(3) During 1996, the Company reimbursed Mr. Burtscher for $10,705 in moving
expenses.
(4) Includes $163,400 of deferred salary, plus accrued interest thereon at an
annual rate of ten percent. On September 22, 1997, this sum, together with
$107,806 of compensation earned during 1997, was converted into a warrant
to purchase 246,552 shares of Common Stock at an exercise price of $0.01
per share. See "Certain Transactions."
(5) Includes $105,976 of deferred salary, plus accrued interest thereon at an
annual rate of ten percent. On September 22, 1997, this sum, together with
$77,253 of compensation earned during 1997, was converted into a warrant to
purchase 166,572 shares of Common Stock at an exercise price of $0.01 per
share. See "Certain Transactions."
(6) Includes $76,363 of deferred salary, plus accrued interest thereon at an
annual rate of ten percent. On September 22, 1997, this sum, together with
$67,267 of compensation earned during 1997, was converted into a warrant to
purchase 130,573 shares of Common Stock at an exercise price of $0.01 per
share. See "Certain Transactions."
(7) Includes $60,429 of deferred salary, plus accrued interest thereon at an
annual rate of ten percent. On September 22, 1997, this sum, together with
$64,439 of compensation earned during 1997, was converted into a warrant to
purchase 113,517 shares of Common Stock at an exercise price of $0.01 per
share. See "Certain Transactions."

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<PAGE>

Option Grants Table

The following table contains information concerning stock option grants made
to each of the Named Executive Officers during the fiscal year ended December
31, 1996.

OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE
NUMBER OF % OF TOTAL APPRECIATION
SECURITIES OPTIONS EXERCISE FOR OPTION
UNDERLYING GRANTED TO PRICE TERMS (2)
OPTIONS EMPLOYEES PER EXPIRATION ---------------
NAME GRANTED (1) IN 1996 SHARE DATE 5% 10%
---- ----------- ---------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Ronald P. Erickson...... 2,500 * $1.10 12/31/06 $ 1,729 $ 4,383
German F.H. Burtscher... 1,648 * 1.10 12/01/06 1,140 2,889
Michael S. Sims......... 100,000 15.5 1.10 3/12/06 69,178 175,312
25,000 3.9 1.10 11/1/06 17,295 43,828
14,667 2.3 1.10 12/31/06 10,146 25,713
Randall J. Ottinger..... 37,500 5.8 1.10 1/15/06 25,942 65,742
16,666 2.6 1.10 9/11/06 11,529 29,217
9,521 1.5 1.10 12/31/06 6,586 16,691
John E. Cox............. 50,000 7.8 1.10 1/15/06 34,589 87,656
25,000 3.9 1.10 11/1/06 17,295 43,828
7,500 1.2 1.10 12/31/06 5,188 13,148
Curtis E. Lew........... 5,500 * 1.10 12/31/06 3,805 9,642
</TABLE>
- --------
*Less than one percent of the options granted by the Company to its employees
during 1996
(1) Grants generally vest 25% on the date of grant and 25% on each yearly
anniversary date during the three years following the date of grant, as
long as the optionee remains an employee with, consultant to or director
of the Company. Vesting of options may be accelerated at the discretion of
the administrator of the Company's 1996 Plan. The maximum term of each
option granted is ten years from the date of grant. The exercise price is
equal to the fair market value of the stock on the grant date as
determined by the Board of Directors. See "--Benefit Plans--Stock Option
Plan."
(2) Potential gains are net of the exercise price but before taxes associated
with the exercise. The 5% and 10% assumed annual rates of compounded stock
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
the future Common Stock price. Actual gains, if any, on stock option
exercises are dependent on the future financial performance of the
Company, overall market conditions and the option holders' continued
employment through the vesting period.

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<PAGE>

Option Values. The following table contains information concerning options
to purchase Common Stock held by each of the Named Executive Officers as of
December 31, 1996. None of the Named Executive Officers exercised any stock
options during 1996.

FISCAL 1996 YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
NAME DECEMBER 31, 1996 (#) DECEMBER 31, 1996 ($) (1)
---- ------------------------------- -------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Ronald P. Erickson...... 2,500 2,500 -- --
German F.H. Burtscher... 1,648 1,648 -- --
Michael S. Sims......... 139,667 98,000 -- --
Randall J. Ottinger..... 63,687 63,687 -- --
John E. Cox............. 82,500 53,333 -- --
Curtis E. Lew........... 25,500 25,500 -- --
</TABLE>
- --------
(1) Options are "in the money" if the fair market value of the underlying
securities exceeds the exercise price of the options. The exercise prices
for all options granted to the Named Executive Officers during 1996 were
equivalent to the fair market value of the Common Stock of the Company, as
determined by the Board of Directors, as of December 31, 1996.

EMPLOYMENT AGREEMENTS

Effective upon the closing of the Public Offering, the Company entered into
employment agreements with each of Messrs. Erickson, Burtscher, Fox, Orse and
Cox (collectively, the "Executives") for a term of one year. The employment
agreements provide for an annual salary of $200,000, $150,000, $150,000,
$120,000 and $150,000 for Messrs. Erickson, Burtscher, Fox, Orse and Cox,
respectively. The employment agreements also include the grant of an option to
each of Messrs. Erickson, Burtscher, Fox, Orse and Cox to purchase ,
, , and shares of Common Stock, respectively, under
the 1996 Plan at an exercise price equal to the initial public offering price.
Each option expires ten years from the date of grant and will vest over a
period of three years or upon a schedule based on the Company's performance
against goals to be established by the Compensation Committee of the Board of
Directors. Each Executive may terminate the agreement upon three months
notice. If an Executive's employment is terminated by the Company without
cause as defined in the agreement, the Company will be required to pay that
Executive severance pay in the amount equivalent to six months' salary and
benefits. Pursuant to the employment agreements, each Executive has agreed not
to compete with the Company for a period of one year following termination of
his employment.

BENEFIT PLANS

Stock Option Plan. In 1996, the Company adopted the GlobalTel Resources,
Inc. 1996 Stock Option Plan (the "1996 Plan"), which contains an incentive
option component, pursuant to which options for the purchase of Common Stock
are intended to qualify under Internal Revenue Code Section 422 ("Incentive
Options"), and a nonqualified stock option component, under which options for
the purchase of Common Stock will not qualify under Section 422 ("Nonqualified
Options"). The Company's Compensation Committee is currently the Plan
Administrator for the 1996 Plan. Incentive Options may be granted to any
employee, including employees who are Directors, and Nonqualified Options may
be granted to such persons as the Plan Administrator shall select. The Plan
Administrator determines the terms and conditions of options granted under the
1996 Plan, including the exercise price, provided that the exercise price for
Incentive Options must be equal to or greater than the fair market price of
the Common Stock on the date of grant. Unless otherwise provided by the Plan
Administrator, options granted under the 1996 Plan vest 25 percent on the date
of grant and thereafter at 25 percent per year over a three-year period so
that all options are fully vested after three years. Options granted under the
1996 Plan generally are exercisable for a period of ten years from the date

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<PAGE>

of grant, except that Incentive Options granted to persons who own more than
ten percent of the Common Stock terminate after five years.

Options granted under the Plan are not transferable other than by will or
the laws of descent and distribution.

There are shares of Common Stock authorized for issuance pursuant
to the 1996 Plan. As of October 31, 1997, there were an aggregate of
shares of Common Stock subject to outstanding options under the 1996 Plan. The
outstanding options were held by 45 individuals and were exercisable at $1.10
per share. Options to purchase an additional shares of Common Stock
at an exercise price equal to the initial public offering price will be
granted to five officers of the Company upon completion of the Public
Offering. See "--Employment Agreements."

Employee Stock Purchase Plan. The Company has adopted an employee stock
purchase plan (the "Purchase Plan"), which is intended to qualify under
Internal Revenue Code Section 423. The Purchase Plan provides that 300,000
shares of the Company's Common Stock be reserved for issuance upon exercise of
purchase rights granted thereunder, subject to adjustment for stock dividends,
stock splits, reverse stock splits and similar changes in the Company's
capitalization. The Purchase Plan is designed to encourage stock ownership by
employees of the Company.

Under the Purchase Plan, an eligible employee will be entitled to purchase
shares of Common Stock from the Company through payroll deductions ranging
from one percent to ten percent of total compensation, at a price equal to the
lesser of 85 percent of the fair market value of the Company's Common Stock on
the first or the last day of each six month offering period under the Purchase
Plan. The offering periods will commence approximately on January 1 and July 1
of each year, with the first offering period commencing on a date to be
determined by the Board of Directors.

CERTAIN TRANSACTIONS

The Company was incorporated in November 1994. In December 1994, the Company
issued an aggregate of 2,108,801 shares of a class of its common stock to ten
persons and entities. Alan H. Chin and Curtis E. Lew, both co-founders of the
Company, and Kenji Sato were each issued 400,000 shares of stock in exchange
for past and future services. Katsuhiko Okunuki purchased 375,023 shares for
cash at a purchase price of $0.53 per share. Osamu Ishii was issued 40,000
shares of stock in exchange for past and future services and purchased 187,512
shares at a purchase price of $0.53 per share. In December 1995, the Company
issued 3,925,209 shares of Common Stock in exchange for all outstanding shares
of the various classes of its common stock on a one-to-one basis. The Company
repurchased all of Messrs. Sato's, Ishii's and Okunuki's shares in a series of
transactions during 1995 and 1996 at a purchase price of $1.10 per share.

In December 1995, the Company acquired GFP Group. Inc. ("GFP") through the
issuance of 1,083,956 shares of Common Stock in a one-for-one exchange for all
of the outstanding capital stock of GFP. Pursuant to this transaction, North
Willow Family L.P., a limited partnership in which Ronald P. Erickson, the
Company's Chairman, President and Chief Executive Officer, and his two
daughters are limited partners, was issued 270,000 shares of Common Stock;
Sirius International Communications, a general partnership in which German
F.H. Burtscher, the Company's Senior Vice President, Marketing and Sales, and
Frank Krentzman, a director and former Senior Vice President of the Company,
were the sole partners, was issued 478,956 shares of Common Stock; and Laura
Street Family L.P. ("Laura Street"), a limited partnership in which Craig
Palmer, a former director and officer of the Company, and certain members of
his immediate family are partners, was issued 270,000 shares of Common Stock.
In connection with the acquisition, the Company also agreed to issue to each
of Messrs. Burtscher and Krentzman 150,000 shares of Common Stock, and to
grant Mr. Erickson an option to purchase 150,000 shares of Common Stock, all
conditioned upon the Company obtaining certain financing as determined by the
Company's Board of Directors. Additionally, the Company assumed GFP's

63
<PAGE>

obligations under employment agreements with Messrs. Erickson, Burtscher,
Krentzman and Palmer. By mutual consent of the parties, the terms of these
employment agreements were never performed.

During late 1995 and early 1996, the Company paid Craig Palmer approximately
$150,000 in commissions in connection with financial consulting services. In
August 1996, in connection with Mr. Palmer's termination as an officer of the
Company, the Company entered into a one-year consulting agreement with Laura
Street. Pursuant to the terms of this agreement, the Company paid Laura Street
consulting fees of approximately $125,000 and granted Laura Street a warrant
to purchase 150,000 shares of Common Stock at an exercise price of $1.10 per
share. This warrant expires upon the earlier of August 15, 1999 or the date
the Company closes a public offering of Common Stock with aggregate net
proceeds to the Company of at least $25 million.

In December 1995, as part of the Company's acquisition of GFP, the Company
assumed GFP's obligations under two demand promissory notes payable to Michael
S. Brownfield, a director of the Company, both bearing interest at a rate of
ten percent per annum, increasing to 12 percent per annum when the notes are
past due. Both of these notes are secured by a pledge of certain shares of GFP
stock held by the Company. The first note was issued in October 1995 in the
amount of $50,000 and the second note was issued in November 1995 in the
amount of $20,000. In connection with the assumption of these notes, the
Company also issued to Mr. Brownfield a warrant to purchase for nominal
consideration 28,398 shares of Common Stock. Concurrently therewith, the
Company sold to Mr. Brownfield 454,546 shares of Common Stock for a purchase
price of $1.10 per share and granted Mr. Brownfield a warrant to purchase
45,455 shares of Common Stock at an exercise price of $1.10 per share. In
February 1996, Mr. Brownfield loaned the Company $100,000 at an interest rate
of ten percent per annum, increasing to 12 percent per annum when the debt is
past due, and maturing on February 22, 1997. In consideration of this loan,
the Company granted to Mr. Brownfield a warrant to purchase 6,000 shares of
Common Stock at an exercise price of $1.10 per share. This warrant expires on
the earlier of: (a) the date the Company closes a public offering of Common
Stock with aggregate net proceeds to the Company of at least $25 million; or
(b) February 22, 1999. In April 1996, Mr. Brownfield loaned the Company
$300,000 pursuant to a promissory note bearing interest at a rate of ten
percent per annum, increasing to 12 percent per annum when the note is past
due, and maturing on April 15, 1997. In consideration of this loan, the
Company granted to Mr. Brownfield a warrant to purchase 18,000 shares of
Common Stock at an exercise price of $1.10 per share. This warrant expires on
the earlier of: (a) the date the Company closes a public offering of Common
Stock with aggregate net proceeds to the Company of at least $25 million; or
(b) April 15, 1999. In June 1996, the Company granted Mr. Brownfield a warrant
to purchase 4,200 shares of Common Stock at an exercise price of $1.10 per
share in exchange for forbearance on the October and November 1995 notes. This
warrant expires on the earlier of: (a) the date the Company closes a public
offering of Common Stock with aggregate net proceeds to the Company of at
least $25 million; or (b) June 24, 1999. In October 1997, Mr. Brownfield
loaned the Company $150,000 pursuant to a promissory note bearing interest at
a rate of ten percent per annum and maturing on February 15, 1999. In
consideration of this loan, the Company granted Mr. Brownfield a warrant to
purchase 15,000 shares of Common Stock at an exercise price of $1.10 per
share. This warrant expires on the earlier of: (a) the date the Company closes
a public offering of Common Stock with aggregate net proceeds to the Company
of at least $25 million; or (b) October 2, 2000. In November 1997, Mr.
Brownfield agreed to convert $235,000 in principal plus interest accrued
thereon owed under past due promissory notes into 252,421 shares of Common
Stock. Mr. Brownfield also agreed to reschedule an additional $235,000 in
principal plus accrued interest owed under past due promissory notes into a
new note bearing interest at a rate of ten percent per annum prior to default
and 15 percent per annum thereafter. This note will mature upon the earlier
of: (a) an initial public offering of the Company's Common Stock; or (b)
January 1, 1999. In November 1997, Mr. Brownfield loaned the Company $25,000
pursuant to a Full Coverage Bridge Note bearing interest at a rate of ten
percent per annum, which was paid in full out of the proceeds of the Public
Offering. In consideration of this loan, the Company issued to Mr. Brownfield
shares of Common Stock worth $25,000 at the initial public offering price
concurrent with the closing of the Public Offering. As of December 15, 1997,
the Company owed Mr. Brownfield $410,000 in principal plus accrued interest
under outstanding notes.

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<PAGE>

In November 1995, Gereg Capital Corporation ("Gereg") purchased 600,000
shares of Common Stock from the Company for a purchase price of $1.10 per
share. In consideration of this purchase of Common Stock, the Company granted
Gereg a warrant to purchase 60,000 shares of Common Stock. The warrant has an
exercise price of $1.10 per share and expires on the earlier of: (a) the date
the Company closes a public offering of Common Stock with aggregate net
proceeds to the Company of at least $25 million; or (b) December 29, 1998. In
October 1996, Gereg loaned the Company $150,000 pursuant to a promissory note
bearing interest at a rate of ten percent per annum and maturing on October 14,
1997. In consideration of this loan, the Company granted Gereg a warrant to
purchase 15,000 shares of Common Stock at an exercise price of $1.10 per share.
This warrant expires on the earlier of: (a) the date the Company closes a
public offering of Common Stock with aggregate net proceeds to the Company of
at least $25 million; or (b) October 14, 1998. In May 1997, the Company repaid
Gereg the full amount of principal and interest totaling $158,075 required to
retire the note. Gereg converted warrants to purchase 75,000 shares of Common
Stock into shares of Common Stock at an exercise price of $0.70 per share in a
cashless exercise transaction concurrent with the closing of the Public
Offering. Stephen S.V. Wong, a director of the Company, is Chairman and a
controlling shareholder of Gereg.

In November 1996, Dupont Ltd. ("Dupont") loaned the Company $500,000 pursuant
to a convertible promissory note bearing interest at a rate of ten percent per
annum and maturing on May 22, 1998. In consideration of this loan, the Company
granted Dupont a warrant to purchase 100,000 shares of Common Stock at an
exercise price of $1.10 per share. This warrant expires on the earlier of: (a)
the date the Company closes a public offering of Common Stock with aggregate
net proceeds to the Company of at least $25 million; or (b) November 22, 1999.
In April 1997, Dupont loaned the Company an additional $2,000,000 pursuant to a
convertible promissory note bearing interest at a rate of ten percent per annum
and maturing on December 31, 1999. In consideration of this loan, the Company
granted Dupont a warrant to purchase 400,000 shares of Common Stock at an
exercise price of $1.10 per share. The warrant expires on the earlier of: (a)
the date the Company closes a public offering of Common Stock with aggregate
net proceeds to the Company of at least $25 million; or (b) April 29, 2000.
Under the terms of this warrant, Dupont has the right to require the Company to
appoint a person selected by Dupont to the Board of Directors and to nominate
and recommend that designee for election to the Board by the shareholders of
the Company. In September 1997, Dupont converted the full amount of principal
and accrued interest owed under the November 1996 note into 493,467 shares of
Common Stock. Dupont converted its warrants to purchase an aggregate of 500,000
shares of Common Stock into shares of Common Stock at an exercise price of
$0.70 per share in a cashless exercise transaction concurrent with the closing
of the Public Offering. Pursuant to the Company's agreement in December 1997 to
amend the April 1997 note, the Company repaid $1,000,000 owed to Dupont out of
the proceeds of the Public Offering and converted the remaining $1,000,000 plus
accrued interest into shares of Common Stock at the price of $0.77 per share
concurrent with the closing of the Public Offering. Trans-Pacific Consultants
Pte. Ltd. ("Trans-Pacific"), an affiliate of Dupont, also received a warrant to
purchase 75,000 shares of Common Stock as payment of a finder's fee in
connection with the Dupont loan transactions. Trans-Pacific's warrant has an
exercise price of $1.10 per share and expires on the earlier of: (a) the date
the Company closes a public offering of Common Stock with aggregate net
proceeds to the Company of at least $25 million; or (b) April 24, 2000. Trans-
Pacific converted this warrant into shares of Common Stock at an exercise price
of $0.70 per share in a cashless exercise transaction concurrent with the
closing of the Public Offering. Stephen S.V. Wong, a Director of the Company,
is Chairman and 50 percent owner of Dupont and is Chairman and a controlling
shareholder of Trans-Pacific.

In December 1996, PBIG-GTR Partners, L.P. ("PBIG") loaned the Company
$900,000 maturing June 1998 pursuant to a promissory note bearing interest at a
rate of ten percent per annum, increasing to 12 percent per annum after
default. In consideration of this loan, the Company granted PBIG a warrant to
purchase 180,000 shares of Common Stock at an exercise price of $1.10 per
share. This warrant expires upon the earlier of : (a) the date the Company
closes a public offering of Common Stock with aggregate net proceeds to the
Company of at least $25 million; or (b) December 5, 1999. In March 1997, PBIG
loaned the Company $400,000 maturing June 1998 pursuant to a promissory note
bearing interest at a rate of ten percent

65
<PAGE>

per annum, increasing to 12 percent per annum after default. In consideration
of this loan, the Company granted PBIG a warrant to purchase 80,000 shares of
Common Stock at an exercise price of $1.10 per share. This warrant expires
upon the earlier of: (a) the date the Company closes a public offering of
Common Stock with aggregate net proceeds to the Company of at least $25
million; or (b) March 12, 2000. In September 1997, PBIG elected to convert
$30,000 of principal owed under the December 1996 note and $200,000 of
principal owed under the March 1997 note into 220,973 shares of Common Stock.
As of December 15, 1997, the Company owed PBIG $1,070,000 in principal plus
accrued interest under outstanding notes.

In May 1997, Hare & Co. purchased 250,000 shares of Series A Convertible
Preferred Stock for a purchase price of $4 per share. Hare & Co. converted all
250,000 shares plus accrued dividends into shares of Common Stock at $1.10 per
share concurrent with the closing of the Public Offering.

In June 1996, Mr. Erickson loaned the Company $150,000 pursuant to a
promissory note bearing interest at a rate of ten percent per annum,
increasing to 12 percent per annum when the note is past due, and maturing on
June 21, 1997. In consideration of this loan, the Company granted to Mr.
Erickson a warrant to purchase 9,000 shares of Common Stock at an exercise
price of $1.10 per share. The warrant expires on the earlier of: (a) the date
the Company closes a public offering of Common Stock with aggregate net
proceeds to the Company of at least $25 million; or (b) June 21, 1999. In
November 1997, Mr. Erickson elected to convert $171,805 in principal and
accrued interest owed under this note into 156,186 shares of Common Stock. Mr.
Erickson converted his warrant to purchase 9,000 shares of Common Stock into
shares of Common Stock at an exercise price of $0.70 per share in a cashless
exercise transaction concurrent with the closing of the Public Offering.

In July 1996, Paul van de Plas, a director of the Company, loaned the
Company $100,000 pursuant to a promissory note bearing interest at a rate of
ten percent per annum and maturing on January 31, 1998. In consideration of
this loan, the Company granted to Mr. van de Plas a warrant to purchase 30,000
shares of Common Stock. The warrant has an exercise price of $1.10 per share
and expires on the earlier of: (a) the date the Company closes a public
offering of Common Stock with aggregate net proceeds to the Company of at
least $25 million; or (b) July 31, 1999. In September 1997, Mr. van de Plas
converted $112,040 in principal and accrued interest owed under the note into
101,855 shares of Common Stock. Mr. van de Plas converted his warrant to
purchase 30,000 shares of Common Stock into shares of Common Stock at an
exercise price of $0.70 per share in a cashless exercise transaction
concurrent with the closing of the Public Offering. In November 1997, N.I.B.
Securities, of which Mr. van de Plas is a director, loaned the Company $20,000
pursuant to a Full Coverage Bridge Note bearing interest at a rate of ten
percent per annum which was paid in full out of the proceeds of the Public
Offering. In consideration of this loan, the Company issued to N.I.B.
Securities shares of Common Stock worth $20,000 at the initial public offering
price concurrent with the closing of the Public Offering.

In April 1997, the Company entered into an Exclusive Services and Marketing
Agreement with IBNET. See "Business--Sales, Marketing and Customer Service--
Strategic Marketing Relationships." Pursuant to this agreement, the Company
granted to IBNET a warrant to purchase 10,000 shares of Common Stock, and will
grant additional warrants if the Company reaches certain revenue targets. The
warrants all have an exercise price of $1.10 per share and expire three years
from the date of grant. The Company also agreed to pay IBNET certain fees
based upon a percentage of the Company's gross margin for services purchased
by customers referred to the Company by IBNET. In return, IBNET agreed to
issue to the Company 100,000 shares of common stock of IBNET. Ronald P.
Erickson, Lyman C. Hamilton and Bruce L. Crockett, all Directors of the
Company, are also directors of IBNET and each holds options to purchase 50,000
shares of IBNET's common stock. In addition, Mr. Hamilton owns 100,000 shares
of IBNET's common stock.

In July 1996, Michael S. Sims, the Company's former Chief Operating Officer,
loaned the Company $100,000 pursuant to a promissory note bearing interest at
a rate of ten percent per annum and maturing on July 1, 1997. In consideration
of this loan, the Company granted to Mr. Sims a warrant to purchase 30,000
shares of Common Stock at an exercise price of $1.10 per share. This warrant
expires on the earlier of: (a) the

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<PAGE>

date the Company closes a public offering of Common Stock with aggregate net
proceeds to the Company of at least $25 million; or (b) July 1, 1999. In
October 1996, Mr. Sims' wife, Marianne Sims, loaned the Company $20,000
pursuant to a promissory note bearing interest at a rate of ten percent per
annum. In consideration of this loan, the Company granted to Mrs. Sims a
warrant to purchase 14,000 shares of Common Stock at an exercise price of
$1.10 per share. This warrant expires on the earlier of: (a) the date the
Company closes a public offering of Common Stock with aggregate net proceeds
to the Company of at least $25 million; or (b) October 9, 1999. In September
1997, Mr. Sims converted $113,177 of principal and accrued interest owed under
his note into 102,888 shares of Common Stock and Mrs. Sims converted $21,978
of principal and accrued interest owed under her note into 19,980 shares of
Common Stock.

In August 1995 Alan H. Chin, a co-founder, former director and former Senior
Vice President of the Company, purchased 93,756 shares of a class of the
Company's common stock at a purchase price of $0.53 per share. In November
1995, Speedway V Partnership, a limited partnership in which Mr. Chin is
managing partner, purchased 95,300 shares of a class of the Company's Common
Stock at a purchase price of $1.10 per share. During 1996 and 1997, Mr. Chin
accrued $126,446 in deferred salary and interest thereon. In September 1997,
he elected to receive this compensation in the form of a warrant to purchase
114,951 shares of Common Stock at an exercise price of $0.01 per share. Mr.
Chin also has guaranteed several of the Company's leases for furniture and
equipment. In June 1996, the Company agreed to indemnify Mr. Chin for the full
amount of these guarantees.

In August 1995, Curtis E. Lew, a co-founder, former director and former
Senior Vice President of the Company, purchased 91,628 shares of a class of
the Company's common stock at a purchase price of $0.53 per share. In November
1995, Mr. Lew purchased 59,000 shares of a class of the Company's common stock
at a purchase price of $1.10 per share. Mr. Lew has also guaranteed several of
the Company's leases for furniture and equipment. In June 1996, the Company
agreed to indemnify Mr. Lew for the full amount of these guarantees.

In August 1997, Frank Krentzman's employment as the Company's Senior Vice
President was terminated, although Mr. Krentzman continues to serve as a
Director of the Company. Pursuant to the terms of his severance agreement with
the Company, Mr. Krentzman elected to receive $133,333 of severance
compensation in the form of 121,212 shares of Common Stock, and was issued
150,000 shares of Common Stock pursuant to the Company's agreement to acquire
GFP described above.

In June 1997, the Company entered into a letter of intent with Netlink
International Inc. and Kunming Dayu Biological Engineering Co. Ltd. to explore
the potential of jointly providing telecommunications services in the People's
Republic of China through an entity in which the Company would potentially
have an equity interest. In September 1997, Alan H. Chin and Curtis E. Lew
entered into an agreement with the Company to implement the letter of intent
in exchange for five percent of any equity the Company obtains in the Chinese
venture.

In December 1995, Ulrich Kallausch, a former director of the Company, was
issued 25,000 shares of Common Stock as part of the GFP acquisition in
exchange for his shares of stock in GFP. In December 1995, Mr. Kallausch
purchased 180,000 shares of Common Stock from the Company at a purchase price
of $1.10 per share. In October 1997, the Company granted Mr. Kallausch an
option to purchase 10,000 shares of Common Stock at an exercise price of $1.10
per share in consideration of his service on the Board of Directors. This
option was exercisable in full upon grant.

In November 1997, ITEX, a company of which Ronald P. Erickson is a director,
loaned the Company $200,000 in cash and agreed to provide certain future
services to the Company in exchange for a Full Coverage Bridge Note in the
principal amount of $200,000, bearing interest at a rate of ten percent per
annum, which was paid in full out of the proceeds of the Public Offering. In
addition, ITEX received shares of Common Stock equal to $400,000 divided by
the initial public offering price concurrent with the closing of the Public
Offering.

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<PAGE>

In November 1997, Stephen S.V. Wong loaned the Company $25,000 pursuant to a
promissory note bearing interest at a rate of ten percent per annum,
increasing to 15 percent after default. This note was repaid in full in
December 1997. In addition, Mr. Wong received shares of Common Stock equal to
$12,500 divided by the initial public offering price concurrent with the
closing of the Public Offering.

The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and
its officers, directors and principal shareholders and their affiliates will
be approved by a majority of the Board of Directors, including a majority of
the independent and disinterested directors of the Board of Directors, and
will be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.

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<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of October 31, 1997 and as adjusted
to reflect the sale of the Common Stock offered in the Public Offering, by (i)
each person who is known by the Company to own beneficially more than 5% of
the Company's Common Stock, (ii) each director of the Company, (iii) each of
the Named Executive Officers and (iv) all of the Company's directors and
executive officers as a group. Except as otherwise indicated, the address of
each person listed below is 1520 Eastlake Avenue East, Seattle Washington
98102.
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY
OWNED(1)(2)
SHARES -----------------
BENEFICIALLY BEFORE AFTER
NAMES AND ADDRESSES OWNED OFFERING OFFERING
------------------- ------------ -------- --------
<S> <C> <C> <C>
Steven S.V. Wong (3)........................... 4,452,687 37.0%
Dupont Ltd. (4)................................ 3,692,687 31.1
20 Queen Astrid Park, Singapore 266824
Michael S. Brownfield (5)...................... 1,238,131 13.1
PBIG-GTR Partners L.P. (6)..................... 1,150,579 12.0
20987 Fairwoods Drive, Cupertino, CA 95041
Hare & Co. (7)................................. 932,727 10.7
Burgring 1G, A 8010 Graz, Austria
Alan H. Chin (8)............................... 753,552 8.5
Curtis E. Lew (9).............................. 713,690 8.1
Ronald P. Erickson (10)........................ 703,341 7.7
Gereg Capital Corporation (11)................. 675,000 7.7
20 Queen Astrid Park, Singapore 266824
Michael S. Sims (12)........................... 640,587 7.0
2226 Elliott Avenue, #503, Seattle, WA 98121
Frank Krentzman (13)........................... 535,184 6.2
German F.H. Burtscher (14)..................... 450,533 5.1
Randall J. Ottinger (15)....................... 280,259 3.1
John E. Cox (16)............................... 263,073 2.9
Paul H.F.M. van de Plas (17)................... 146,855 1.7
Bruce L. Crockett (18)......................... 15,000 * *
Lyman C. Hamilton.............................. * * *
All directors and executive officers as a group
(12 persons)(19) ............................. 8,095,077 58.3
</TABLE>
- --------
* Less than one percent of the outstanding shares of Common Stock.
(1) Assumes no exercise of the underwriters' over-allotment option.
Beneficial ownership is determined in accordance with Rule 13d-3 under
the Exchange Act. In computing the number of shares beneficially owned by
a person and the percentage of ownership of that person, shares subject
to options held by that person that are exercisable within 60 days of
October 31, 1997 are deemed outstanding only when determining the amount
and percentage of Common Stock owned by such person. Except pursuant to
applicable community property laws or as indicated in the footnotes to
this table, to the Company's knowledge, each person identified in the
table possesses sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned thereby.
(2) Applicable percentage of ownership for each shareholder is based on
8,683,024 shares of Common Stock outstanding as of October 31, 1997.
(3) Includes 10,000 shares of Common Stock issuable upon exercise of options
under the 1996 Plan, 500,000 shares of Common Stock issuable upon
exercise of outstanding warrants held by Dupont Ltd., 2,699,220 shares of
Common Stock issuable upon conversion of a promissory note in the amount
of $2,078,399 of principal and accrued interest as of September 30, 1997
held by Dupont Ltd., 75,000 shares of Common Stock issuable upon exercise
of warrants held by Trans-Pacific Consultants Pte. Ltd., 75,000 shares of
Common Stock issuable upon exercise of outstanding warrants held by Gereg
Capital

69
<PAGE>

Corporation and 600,000 shares of Common Stock held by Gereg Capital
Corporation. Mr. Wong, a director of the Company, is Chairman and 50
percent owner of Dupont Ltd. and is Chairman and a controlling shareholder
of Gereg Capital Corporation and Trans-Pacific Consultants Pte, Ltd. See
"Certain Transactions."
(4) Includes 500,000 shares of Common Stock issuable upon exercise of
outstanding warrants and 2,699,220 shares of Common Stock issuable upon
conversion of a promissory note in the amount of $2,078,399 of principal
and accrued interest as of September 30, 1997.
(5) Includes 117,053 shares of Common Stock issuable upon exercise of
outstanding warrants, 10,000 shares of Common Stock issuable upon
exercise of options under the 1996 Plan and 646,532 shares of Common
Stock issuable upon conversion of five promissory notes in the aggregate
amount of $711,186 in principal and accrued interest as of September 30,
1997.
(6) Includes 260,000 shares of Common Stock issuable upon exercise of
outstanding warrants and 669,606 shares of Common Stock issuable upon
conversion of two outstanding promissory notes in the aggregate amount of
$1,151,723 in principal and accrued interest as of September 30, 1997.
(7) Includes 932,727 shares of Common Stock issuable upon conversion of
250,000 shares of Series A Convertible Preferred Stock.
(8) Includes 49,945 shares of Common Stock issuable upon exercise of options
under the 1996 Plan and 114,951 shares of Common Stock issuable upon
exercise of outstanding warrants.
(9) Includes 49,945 shares of Common Stock issuable upon exercise of options
under the 1996 Plan and 113,517 shares of Common Stock issuable upon
exercise of outstanding warrants.
(10) Includes 104,655 shares of Common Stock issuable upon exercise of
outstanding warrants, 22,500 shares of Common Stock issuable upon
exercise of options under the 1996 Plan, 150,000 shares of Common Stock
issuable upon exercise of options to be granted to Mr. Erickson
contingent upon the Company obtaining certain financing as determined by
the Company's Board of Directors (see "Certain Transactions"), 156,186
shares of Common Stock issuable upon conversion of an outstanding
promissory note in the amount of $171,805 in principal and accrued
interest as of September 30, 1997 assuming a conversion price of $1.10
per share, and 270,000 shares of Common Stock held by North Willow Family
L.P., a limited partnership in which Mr. Erickson and his two daughters
are partners.
(11) Includes 75,000 shares of Common Stock issuable upon exercise of
outstanding warrants. Mr. Wong, a director of the Company, is Chairman
and a controlling shareholder of Gereg. See Notes 3 and 4.
(12) Includes 276,552 shares of Common Stock issuable upon exercise of
outstanding warrants and 214,667 shares of Common Stock issuable upon
exercise of options under the 1996 Plan. Also includes 14,000 shares of
Common Stock issuable upon exercise of warrants and 19,980 shares of
Common Stock held by Mr. Sims' wife.
(13) Includes 1,994 shares of Common Stock issuable upon exercise of options
under the 1996 Plan.
(14) Includes 150,000 shares of Common Stock to be issued to Mr. Burtscher
contingent upon the Company obtaining certain financing as determined by
the Company's Board (see "Certain Transactions"), 21,648 shares of Common
Stock issuable upon exercise of options under the 1996 Plan, 70,974
shares of Common Stock issuable upon exercise of outstanding warrants and
933 shares of Common Stock held by Mr. Burtscher's parents.
(15) Includes 63,687 shares of Common Stock issuable upon exercise of options
under the 1996 Plan, 166,572 shares of Common Stock issuable upon the
exercise of outstanding warrants and 15,000 shares of Common Stock held
by the Ottinger Family Trust.
(16) Includes 132,500 shares of Common Stock issuable upon exercise of options
under the 1996 Plan and 130,573 shares of Common Stock issuable upon
exercise of outstanding warrants.
(17) Includes 30,000 shares of Common Stock issuable upon exercise of
outstanding warrants and 5,000 shares of Common Stock issuable upon
exercise of options under the 1996 Plan.
(18) Includes 5,000 shares of Common Stock issuable upon exercise of options
under the 1996 Plan.
(19) Includes 1,279,841 shares issuable upon exercise of outstanding warrants,
412,329 shares issuable upon exercise of options under the 1996 Plan and
3,501,938 shares issuable upon conversion of nine outstanding promissory
notes in the aggregate amount of $4,111,635 in principal and accrued
interest as of September 30, 1997.

70
<PAGE>

DESCRIPTION OF SECURITIES

The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, par value $0.01 per share, and 5,000,000 shares of preferred
stock, par value $0.01 per share.

COMMON STOCK

As of October 31, 1997, there were 7,658,039 shares of Common Stock issued
and outstanding and held of record by 72 shareholders. Holders of Common Stock
are entitled to cast one vote for each share held of record on all matters
submitted to a vote of the shareholders. Holders of Common Stock do not have
cumulative voting rights and, except as required under applicable law, a
majority vote is sufficient for any act of the shareholders. Holders of Common
Stock are entitled to receive ratably such dividends if, as and when declared
by the Company's Board of Directors out of funds legally available therefor,
subject to the payment of any preferential dividends with respect to any
preferred stock that from time to time may be outstanding. In the event of any
liquidation, dissolution or winding up of the Company, each holder of Common
Stock will be entitled to participate, subject to prior distribution rights of
the holders of any outstanding preferred stock, ratably in all assets of the
Company remaining after payment of liabilities. Holders of Common Stock have
no preemptive, conversion or other subscription rights. All outstanding shares
of Common Stock are fully paid and nonassessable.

PREFERRED STOCK

The Board of Directors has the authority without further action by the
shareholders to issue up to 5,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights,
redemption rights, liquidation preferences and the number of shares
constituting any series. The issuance of preferred stock in certain
circumstances may have the effect of delaying, deferring or preventing a
change in control of the Company, may discourage bids for the Company's Common
Stock at a premium over the market price of the Common Stock and may adversely
affect the market price of, and the voting and other rights of the holders of,
the Common Stock.

Upon the closing of the Public Offering, each of the 275,000 shares of
Series A Convertible Preferred Stock outstanding as of October 31, 1997,
converted automatically into approximately 3.64 shares of Common Stock. Under
the terms of the Series A Convertible Preferred Stock, dividends were accrued
at the rate of six percent per annum. Upon the closing of the Public Offering,
accrued unpaid dividends were converted into Common Stock at a price of $1.10
per share. At present, the Company has no plans to issue any additional shares
of preferred stock.

WARRANTS

Since inception, the Company from time to time has issued warrants to
purchase Common Stock. As of October 31, 1997, warrants to purchase 3,255,247
shares of Common Stock were issued and outstanding. All outstanding warrants
issued by the Company are exercisable at a weighted average price of $0.66 per
share. Warrants issued in connection with financing transactions generally
provide for increases in the number of shares issuable if the Company has not
closed a major financing transaction within specified periods. All of the
warrants issued pursuant to financing transactions provide for customary
antidilution protection in the event of stock splits, stock dividends,
reorganizations and other similar events, and all expire on the earlier of (i)
three years from the date of issuance, and (ii) the closing of a public
offering of Common Stock netting proceeds to the Company of at least $25
million.

In addition to warrants granted in connection with financing transactions,
the Company has granted warrants pursuant to contracts with strategic partners
and consultants. These warrants are all exercisable at an exercise price of
$1.10 per share and contain customary antidilution and other protections.

71
<PAGE>

Holders of warrants to purchase an aggregate of 1,323,802 shares of Common
Stock converted their warrants into shares of Common Stock in a cashless
exercise transaction at an exercise price of $0.70 per share concurrent with
the closing of the Public Offering.

REPRESENTATIVE'S WARRANTS

The Company sold to the Representative warrants to purchase from the Company
up to shares of Common Stock at an exercise price per share equal to
120% of the initial public offering price (the "Representative's Warrant").
The Representative's Warrant is exercisable for a period of four years
beginning one year from the date of the Public Offering Prospectus, and is
non-transferable except in limited circumstances. The Representative's Warrant
includes a net exercise provision permitting the holder(s) to pay the exercise
price by cancellation of a number of shares with a fair market value equal to
the exercise price of the Representative's Warrant. The holders of the
Representative's Warrant will have, in that capacity, no voting, dividend or
other shareholder rights. During the exercise period, the holders of the
Representative's Warrant are entitled to certain demand and "piggy-back"
registration rights that will expire five years after the date of the Public
Offering Prospectus and that may require the Company to register for public
resale the shares of Common Stock issuable upon exercise of the
Representative's Warrant. The number of shares covered by the Representative's
Warrant and the exercise price thereof are subject to adjustment in certain
events to prevent dilution.

CONVERTIBLE NOTES

As of December 18, 1997, promissory notes in the aggregate principal amount
of $4,064,000 convertible into an aggregate of approximately shares
of Common Stock were outstanding. The notes generally bear interest at a rate
of ten percent per annum, are for a term of 12 or 18 months and are
convertible into Common Stock upon the completion of offerings of the
Company's securities with aggregate gross proceeds to the Company of $25
million or more. The conversion price of the notes is the price per share of
Common Stock in such offerings in which the $25 million threshold is met. In
the event of default, the notes will bear interest at an annual rate of 12
percent and, at the option of the note holder, will become immediately due and
payable. See "Certain Transactions."

FULL COVERAGE BRIDGE NOTES

Full Coverage Bridge Notes in the aggregate principal amount of $2,981,500
were outstanding at January 31, 1998. These notes bore interest at a rate of
ten percent per annum and were paid in full out of the proceeds of the Public
Offering. In addition to repayment of principal and interest, note holders
received shares of Common Stock, which is equal to the principal
amount of the Full Coverage Bridge Notes divided by the initial public
offering price, concurrent with the closing of the Public Offering.

REGISTRATION RIGHTS

Registration Rights for the Existing Preferred Shareholders

Following the closing of the Public Offering, the holders of approximately
1,050,000 shares of Common Stock issued upon conversion of the Preferred Stock
(the "Holders") will be entitled to certain rights with respect to the
registration of such shares under the Securities Act. Under the terms of an
agreement between the Company and such Holders, beginning one year after the
effective date of the Public Offering, the Holders have the right to require
the Company, on not more than two occasions, to file a registration statement
under the Securities Act to register all or any part of their shares of Common
Stock ("Demand Registration"). The Company may in certain circumstances defer
such registrations. Further, the Holders may require the Company to register
all or a portion of their shares on Form S-3 under the Securities Act, when
such form becomes available to the Company, subject to certain conditions and
limitations ("Form S-3

72
<PAGE>

Registration"). In the event that the Company proposes to register any of its
securities under the Securities Act, either for its own account or the account
of other securityholders, the Holders also are entitled to include their
shares of Common Stock in such registration, subject to certain marketing and
other limitations ("Piggyback Registration"). The Company is required to bear
the expense (except for underwriting discounts, selling commissions and stock
transfer taxes) of Demand and Piggyback Registrations, while the Holders are
required to bear the expense, on a pro rata basis, of any Form S-3
Registrations.

Registration Rights for Certain Warrantholders

Holders of an aggregate of 810,342 shares of Common Stock issuable upon
exercise of outstanding warrants are entitled to certain piggyback
registration rights under the Securities Act pursuant to warrant agreements
between the Company and such holders. If the Company proposes to register any
of its securities under the Securities Act at any time on or before December
5, 1999, either for its own account or the account of other securityholders,
such holders are entitled to include in such registration the shares of Common
Stock they received through the exercise of their warrants, subject to certain
marketing and other limitations. The Company is required to bear the expense
of such registrations, except for underwriting discounts, selling expenses and
the cost of the attorneys' fees for the warrantholders' own attorneys.

Registration Rights for Full Coverage Bridge Loan Shares

The Company has agreed to cause the Full Coverage Bridge Loan Shares to be
registered under the Securities Act for resale in the public market for a
period of up to 180 days commencing 270 days after the closing of the Public
Offering.

WASHINGTON ANTITAKEOVER STATUTE

Washington law contains certain provisions that may have the effect of
delaying or discouraging a hostile takeover of the Company. In addition,
Chapter 23B.19 of the Washington Business Corporation Act ("WBCA") prohibits a
corporation, with certain exceptions, from engaging in certain significant
business transactions with an "Acquiring Person" (defined as a person who
acquired ten percent or more of the corporation's voting securities without
the prior approval of the corporation's board of directors) for a period of
five years after such acquisition. The prohibited transactions include, among
others, a merger with, disposition of assets to, or issuance or redemption of
stock to or from, the Acquiring Person, or allowing the Acquiring Person to
receive any disproportionate benefit as a shareholder. An Acquiring Person is
further prohibited from engaging in certain significant business transactions
with the target corporation unless the per share consideration paid to holders
of outstanding shares of Common Stock and other classes of stock of the target
corporation meet certain minimum criteria. The per share minimum criteria
apply only to significant business transactions involving either (i) a merger,
share exchange, or consolidation of a target corporation with an Acquiring
Person or an affiliate or associate of the Acquiring Person, or (ii) the
liquidation or dissolution of a target corporation proposed by, or pursuant to
an agreement, arrangement or understanding with an Acquiring Person or an
affiliate or associate of an Acquiring Person, which transaction is not
otherwise approved by an affirmative vote of a majority of the disinterested
shareholders of the target corporation. These provisions may have the effect
of delaying, deterring or preventing a change in control of the Company.

CERTAIN PROVISIONS IN RESTATED ARTICLES

The Restated Articles provide for the division of the Company's Board of
Directors into three classes, as nearly equal in number as possible, each for
a three-year term, with one class being elected each year by the Company's
shareholders. Directors may be removed only for cause and only by a vote of
not less than a majority of the shares of the Company's capital stock entitled
to vote on an election of the director whose removal is sought.

73
<PAGE>

The Restated Articles require that certain business combinations (including
a merger, share exchange or the sale, lease, exchange, mortgage, pledge,
transfer or other disposition of a substantial part of the Company's assets)
be approved by the holders of not less than two-thirds of the outstanding
shares, unless such business combination shall have been approved by a
majority of Continuing Directors (defined as those individuals who were
members of the Board of Directors on the date of this Prospectus or were
elected thereafter on the recommendation of a majority of the Continuing
Directors), in which case the affirmative vote required shall be a majority of
the outstanding shares.

Under the Restated Articles, the shareholders may call a special meeting
only upon the request of holders of at least 25 percent of the outstanding
shares. The Restated Articles also provide that changes to certain provisions
of the Articles of Incorporation, including those regarding amendment of
certain provisions of the Bylaws or Restated Articles, the classified Board of
Directors, special voting provisions for business combinations and special
meetings of shareholders, must be approved by the holders of not less than
two-thirds of the outstanding shares.

It is possible that the provisions discussed above may delay, deter or
prevent a change in control of the Company.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is
ChaseMellon Shareholder Services.

SHARES ELIGIBLE FOR FUTURE SALE

The Company has outstanding shares of Common Stock
( shares if the over-allotment option is exercised in full). Of
these shares, the shares sold in the Public Offering (plus
any shares issued upon exercise of the underwriters' over-allotment option and
any shares of Rescission Stock for which the Rescission Offer is not accepted)
are freely tradeable without restriction under the Securities Act, unless
purchased or held by "affiliates" of the Company as that term is defined in
Rule 144 under the Securities Act and the regulations promulgated thereunder
or subject to lock-up agreements with the Representative. Until 1998, the
closing date of the Public Offering, there was no public market for the Common
Stock of the Company and no predictions can be made as to the effect, if any,
that market sales of shares of Common Stock prevailing from time to time may
have on the market price of the Common Stock. Nevertheless, sales of
significant numbers of shares of the Common Stock in the public market after
the lapse of existing resale restrictions may adversely affect the market
price of the Common Stock and could impair the Company's future ability to
raise capital through an offering of its equity securities.

The remaining shares of Common Stock outstanding (or any
securities exercisable for or convertible into the Company's Common Stock) are
"restricted securities" within the meaning of Rule 144 under the Securities
Act ("Restricted Shares"). Restricted Shares may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Rules 144, 144(k) or 701 promulgated under the Securities Act, which are
summarized below. Sales of the Restricted Shares in the public market, or the
availability of such shares for sale, could adversely affect the market price
of the Common Stock. The numbers of shares that will be available for sale in
the public market will be as follows: (i) Restricted Shares are immediately
eligible for resale in the public market; (ii) beginning 270 days after the
date of the Public Offering Prospectus, approximately Restricted
Shares will become eligible for sale in the public market upon expiration of
the lock-up agreements, subject in certain cases, to certain volume
limitations and other resale restrictions pursuant to Rule 701 and Rule 144
and (iii) by , 199 the remaining approximately
Restricted Shares will all be eligible for sale in the public market.

The Company's executive officers, directors and certain other holders of
Common Stock holding an aggregate of shares of Common Stock and options
to purchase shares of Common Stock

74
<PAGE>

have agreed that they will not, without the prior written consent of the
Representative, offer, sell, contract to sell or grant any option to purchase
or otherwise dispose of any shares of Common Stock for a period of 270 days
after the date of the Public Offering Prospectus.

In general, under Rule 144, as currently in effect, beginning 90 days after
the effective date of the Public Offering, a person (or persons whose share are
aggregated) who has beneficially owned Restricted Shares for at least one year
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of: (i) one percent of the number of shares of
Common Stock then outstanding (approximately shares immediately after the
Public Offering); or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed to
have been an affiliate of the Company at any time during the 90 days preceding
a sale, and who has beneficially owned the shares proposed to be sold for at
least two years, is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.

Beginning 90 days after the effective date of the Public Offering, certain
shares issued upon exercise of options granted by the Company prior to the date
of the Public Offering Prospectus will also be available for sale in the public
market pursuant to Rule 701 under the Securities Act. Any employee, officer or
director of or consultant to the Company who purchased his or her shares
pursuant to a written compensatory plan or contract may be entitled to rely on
the resale provision of Rule 701. Rule 701 permits affiliates to sell their
Rule 701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides that non-affiliates may
sell such shares in reliance on Rule 144 without having to comply with the
public information, volume limitation or notice provisions of Rule 144. In both
cases, a holder of Rule 701 shares is required to wait until 90 days after the
date of the Public Offering Prospectus before selling such shares.

As of October 31, 1997, options to purchase 1,080,128 shares of Common Stock
were outstanding of which approximately shares issuable upon the
exercise of stock options will first become eligible for sale in the public
market, upon the expiration of the lock-up agreements described above. The
Company intends to file a registration statement under the Securities Act on
Form S-8 covering the shares of Common Stock reserved for issuance under the
Company's stock option plans and stock purchase plan. Shares of Common Stock
issued pursuant to such registration statement will be available for sale in
the public market, subject to Rule 144 volume limitations applicable to
affiliates and subject to lock-up agreements.

As of October 31, 1997, the holders of options, warrants and Series A
Convertible Preferred Stock convertible into approximately 1,810,342 shares of
Common Stock are entitled to certain registration rights with respect to such
shares. If a large number of such shares were registered and sold in the public
market, such sales could have an adverse effect on the market price for the
Company's Common Stock. If the Company were required to include in a Company-
initiated registration the shares held by such holders pursuant to the exercise
of their registration rights, such sales may have an adverse effect on the
Company's ability to raise needed capital. See "Description of Securities--
Registration Rights."

75
<PAGE>

LEGAL MATTERS

The validity of the Rescission Stock will be passed upon for the Company by
Heller Ehrman White & McAuliffe, Seattle, Washington.

EXPERTS

The audited consolidated financial statements included in this Prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form SB-2
under the Securities Act with respect to the Rescission Offer. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto. Certain items are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock offered in the Public Offering,
reference is made to the Registration Statement and the exhibits and schedules
filed as a part thereof. Statements contained in this Prospectus as to the
contents of any contract or any other document referred to are not necessarily
complete, and, in each instance, if such contract or document is filed as an
exhibit, reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference to such exhibit. The Registration Statement,
including exhibits and schedules thereto, may be inspected without charge at
the public reference facilities maintained by the Commission in Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at the North Western Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor,
New York, NY 10048, and copies of all or any part thereof may be obtained from
such office after payment of fees prescribed by the Commission. The Commission
maintains a Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.

The Company intends to furnish its shareholders with annual reports
containing audited financial statements examined by an independent public
accounting firm and quarterly reports for the first three quarters of each year
containing interim unaudited financial information. Upon completion of the
offering contemplated hereby, the Company will be subject to the informational
requirements of the Exchange Act and, in accordance therewith, will be filing
reports and other information with the Commission.

76
<PAGE>

GLOSSARY OF TERMS

access point--A location where a long-distance carrier has installed
transmission equipment in a service area that serves as, or relays calls to, a
network switching center of that long-distance carrier.

accounting or settlement rate--The per minute rate negotiated between
carriers in different countries for termination of international long distance
traffic in, and return traffic to, the carriers' respective countries.

business-grade Internet--An Internet network offering private network like
security and reliability.

call-reorigination (or "call back")--A form of dial-up access that allows a
user to access a telecommunications company's network by placing a telephone
call, hanging up, and waiting for an automated callback. The callback then
provides the user with dial tone which enables the user to initiate and
complete a call.

call-through--The provision of international long distance service through
conventional long-distance or a "transparent" form of call re-origination
without the usual "hang up" and "call back" whereby the call is automatically
and swiftly processed by a programmed switch.

co-location--The Company's ability to locate the Company's network equipment
at the facility of another telecommunications provider.

dedicated or direct access--A means of accessing a network through the use
of a permanent point-to-point circuit typically leased from a facilities-based
carrier. The advantage of dedicated access is simplified premises-to-anywhere
calling, faster call set-up times and potentially lower access and
transmission costs (provided there is sufficient traffic over the circuit to
generate economies of scale).

dial-up access--A form of service whereby access to a network is obtained by
dialing an international toll-free number or a paid local access number.

Equant--Equant Network Services International Corporation, a global data
network service provider.

facilities-based carrier--A carrier which transmits a significant portion of
its traffic over its own transmission facilities.

fiber optic--A transmission medium consisting of high-grade glass fibers
through which light beams are transmitted carrying a high volume of
telecommunications traffic.

Global Enhanced VPN (Virtual Private Network)--The Company's enhanced VPN
service.

IBNET--International Business Network for World Commerce and Industry, Ltd.,
the managing member of the Consortium of Global Commerce.

intranet--A company's internal wide area network utilizing Internet
technologies.

IP--Internet Protocol.

ISP--Internet services provider.

ITO (Incumbent Telephone Operator)--The dominant carrier or carriers in each
country, often, but not always, government-owned or protected.

ITU--International Telecommunications Union.

LAN--Local area network. A data communications network designed to
interconnect PCs, workstations, minicomputer, file servers and other
communications and computing devices within a localized environment.

77
<PAGE>

latency--The time that elapses between the moment when a command is sent to
the time that a response is recieved. On a network, latency is due to delays
in routers or switches, congestion delays on a crowded backbone and the time
required for electrons to travel a great distance between nodes on a network.

node--A specially configured piece of telecommunications equipment which
provides the interface between the local ITO where the node is located and the
Company's gateway switch. A node collects and concentrates call traffic from
its local area and transfers it to Company's switch via private line for call
processing. Nodes permit the Company to extend its network into a new
geographic location by accessing the local ITO without requiring the
deployment of a switch.

private line--A dedicated telecommunications connection between end user
locations.

resale--Resale by a provider of telecommunications services of services sold
to it by other providers or carriers on a wholesale basis.

switching facility--A device that opens or closes circuits or selects the
paths or circuits to be used for transmission of information. Switching is a
process of interconnecting circuits to form a transmission path between users.

VAR--Value-Added Reseller.

Value-Added Tax (VAT)--A consumption tax levied on end-consumers of goods
and services in applicable jurisdictions.

VPN--Virtual Private Network. A network capable of providing the tailored
services of private network (i.e., low latency, high throughput security and
customization) while maintaining the benefits of a public network (i.e.,
ubiquity and economies of scale).

WTO--World Trade Organization.

78
<PAGE>

GLOBALTEL RESOURCES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets............................................... F-3
Consolidated Statements of Operations..................................... F-4
Consolidated Statements of Common Stock Subject to Rescission and
Shareholders' Deficit ................................................... F-5
Consolidated Statements of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
GlobalTel Resources, Inc.:

We have audited the accompanying consolidated balance sheets of GlobalTel
Resources, Inc. (a Washington corporation) and subsidiaries as of December 31,
1995 and 1996, and the related consolidated statements of operations, common
stock subject to rescission and shareholders' deficit and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

As discussed in Note 6, the Company plans to commence an offer to rescind a
significant portion of the Company's common stock and bridge loans. In
addition, as discussed in Note 5, a significant portion of the Company's
bridge loans call for principal repayment during 1998. Management's current
projections indicate that there will not be sufficient cash flows from
operations to fund these obligations. Management is currently planning to pay
off these obligations with the proceeds of a public offering of common stock.
However, if management is unsuccessful in that effort, consideration will be
given to the slowdown of its growth strategies and renegotiating the terms of
the bridge loans due in 1998.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GlobalTel Resources, Inc.
and subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Seattle, Washington,
April 11, 1997 (except with respect
to the matters discussed in Note 9,
as to which the date is December 18, 1997)

F-2
<PAGE>

GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(AMOUNTS AS OF SEPTEMBER 30, 1997 ARE UNAUDITED)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash................................. $ 715,987 $ 446,257 $ 237,428
Accounts receivable, net of allowance
for doubtful accounts of $62,000,
$207,000, and $180,000.............. 376,118 1,288,047 947,985
Other receivables.................... 100,424 333,181 289,487
Other current assets................. 66,890 149,178 146,956
----------- ----------- ------------
Total current assets............... 1,259,419 2,216,663 1,621,856
Furniture and equipment, net........... 310,092 670,712 1,387,117
Other assets:
License agreement, net............... 175,398 163,573 154,705
Organizational costs, net............ 119,693 110,114 84,064
Bridge loan issue costs, net......... 2,846 107,356 211,274
Deposits on equipment................ -- 374,075 507,388
Other................................ 10,906 58,994 35,500
----------- ----------- ------------
Total assets....................... $ 1,878,354 $ 3,701,487 $ 4,001,904
=========== =========== ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Accounts payable..................... $ 425,229 $ 2,570,745 $ 3,184,757
Accrued liabilities.................. 260,394 1,937,154 1,326,253
Bridge loans......................... 265,000 1,840,000 2,035,000
Due to shareholders.................. 649,015 -- --
Notes payable........................ -- 92,310 27,372
Customer deposits and prepayments.... 493,908 1,024,743 871,272
----------- ----------- ------------
Total current liabilities.......... 2,093,546 7,464,952 7,444,654
Bridge loans........................... -- 2,282,500 2,120,000
----------- ----------- ------------
Total liabilities.................. 2,093,546 9,747,452 9,564,654
----------- ----------- ------------
Commitments and contingencies (see Note
8)
Common stock subject to rescission; par
value $0.01; 1,554,426, 1,631,926 and
1,932,487 shares issued and
outstanding........................... 1,434,137 1,519,387 1,850,004
----------- ----------- ------------
Shareholders' deficit:
Series A convertible preferred stock;
par value $0.01; 5,000,000 shares
authorized; 0, 0, and 275,000 shares
issued and outstanding.............. -- -- 987,027
Common stock; par value $0.01;
20,000,000 shares authorized;
1995--5,595,825 shares issued,
3,454,739 shares outstanding;....... 150,033 -- --
1996--3,377,239 shares issued and
outstanding;........................ -- 64,783 --
1997--5,665,552 shares issued and
outstanding......................... -- -- 2,388,642
Common stock warrants................ 10,751 52,306 1,334,406
Accumulated deficit.................. (1,810,113) (7,682,441) (12,122,829)
----------- ----------- ------------
Total shareholders' deficit........ (1,649,329) (7,565,352) (7,412,754)
----------- ----------- ------------
Total liabilities and shareholders'
deficit........................... $ 1,878,354 $ 3,701,487 $ 4,001,904
=========== =========== ============
</TABLE>

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

F-3
<PAGE>

GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 ARE
UNAUDITED)

<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ ------------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................... $ 2,113,047 $ 9,135,935 $ 5,830,203 $10,639,495
Operating expenses:
Cost of sales............ 1,928,396 8,229,546 5,155,035 9,006,799
Sales and marketing...... 238,168 682,332 493,920 664,421
General and
administrative.......... 1,536,215 5,773,133 4,095,125 4,657,840
Depreciation and
amortization............ 111,062 98,288 85,904 141,582
----------- ----------- ----------- -----------
Total operating expenses... 3,813,841 14,783,299 9,829,984 14,470,642
----------- ----------- ----------- -----------
Operating loss............. (1,700,794) (5,647,364) (3,999,781) (3,831,147)
Interest expense, including
$1,291, $61,350, $30,272
and $213,797 to related
parties................... (33,681) (224,964) (103,066) (587,442)
----------- ----------- ----------- -----------
Net loss before provision
for income taxes.......... (1,734,475) (5,872,328) (4,102,847) (4,418,589)
Provision for income taxes. -- -- -- --
----------- ----------- ----------- -----------
Net loss................... $(1,734,475) $(5,872,328) $(4,102,847) $(4,418,589)
=========== =========== =========== ===========
Series A convertible
preferred stock dividends. -- -- -- (21,799)
----------- ----------- ----------- -----------
Net loss applicable to
common shareholders....... $(1,734,475) $(5,872,328) $(4,102,847) $(4,440,388)
=========== =========== =========== ===========
Pro forma:
Net loss per share....... $ $
=========== ===========
Weighted average number
of shares outstanding...
=========== ===========
</TABLE>

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

F-4
<PAGE>

GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMMON STOCK SUBJECT TO RESCISSION AND
SHAREHOLDERS' DEFICIT
(AMOUNTS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 ARE UNAUDITED)

<TABLE>
<CAPTION>
SERIES A
COMMON STOCK SUBJECT CONVERTIBLE
TO RESCISSION PREFERRED STOCK COMMON STOCK
-------------------- -------------------- ----------------------- COMMON
NUMBER DOLLAR NUMBER DOLLAR NUMBER OF DOLLAR STOCK
OF SHARES AMOUNT OF SHARES AMOUNT SHARES AMOUNT WARRANTS
--------- ---------- --------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31,
1994............ -- $ -- -- $ -- 2,108,801 $ 330,000 $ --
Issuance of
common stock
to founders.... -- -- -- -- 117,498 -- --
Issuance of
common stock
($0.084 per
share) and
obligation to
issue 300,000
shares ($0.028
per share) to
acquire GFP
(see Notes 1
and 7)......... -- -- -- -- 1,083,956 100,000 --
Sale of common
stock ($0.533
per share)..... 483,740 256,382 -- -- 554,550 297,344 --
Sale of common stock ($1.10 per share). 1,070,686 1,177,755 -- -- 902,800 993,078 --
Cost of common
stock
issuances...... -- -- -- -- -- (126,236) --
Issuance of
common stock
warrants....... -- -- -- -- -- -- 10,751
Repurchase of
common stock
($1.10 per
share)......... -- -- -- -- (1,312,866) (1,444,153) --
Net loss....... -- -- -- -- -- -- --
--------- ---------- ------- ---------- ---------- ----------- ----------
BALANCE,
December 31,
1995............ 1,554,426 1,434,137 -- -- 3,454,739 150,033 10,751
Repurchase of
common stock
($1.10 per
share)......... -- -- -- -- (90,000) (99,000) --
Sale of common
stock to
employees
($1.10 per
share)......... 77,500 85,250 -- -- -- -- --
Sale of common
stock to third
party ($1.10
per share)..... -- -- -- -- 12,500 13,750 --
Issuance of
common stock
warrants....... -- -- -- -- -- -- 41,555
Net loss ...... -- -- -- -- -- -- --
--------- ---------- ------- ---------- ---------- ----------- ----------
BALANCE,
December 31,
1996............ 1,631,926 1,519,387 -- -- 3,377,239 64,783 52,306
Issuance of
Series A
convertible
preferred
stock ($4.00
per share, see
Note 3)........ -- -- 275,000 1,100,000 -- -- --
Cost of Series
A convertible
preferred
stock
issuances...... -- -- -- (134,772) -- -- --
Partial
settlement of
1995
obligation to
issue common
stock to
acquire GFP
(see Note 7) .. -- -- -- -- 150,000 -- --
Employment
contract
converted to
common stock
($1.10 per
share)......... -- -- -- -- 121,212 133,333 --
Bridge loans
converted to
common stock
($1.10 per
share)......... 300,561 330,617 -- -- 2,017,101 2,218,811 --
Cost of common
stock
conversions.... -- -- -- -- -- (28,285) --
Deferred
salaries
converted to
common stock
warrants....... -- -- -- -- -- -- 1,184,856
Issuance of
common stock
warrants....... -- -- -- -- -- -- 97,244
Cumulative
Series A
convertible
preferred
stock
dividends...... -- -- -- 21,799 -- -- --
Net loss....... -- -- -- -- -- -- --
--------- ---------- ------- ---------- ---------- ----------- ----------
BALANCE,
September 30,
1997
(unaudited)..... 1,932,487 $1,850,004 275,000 $ 987,027 5,665,552 $ 2,388,642 $1,334,406
- --------------------------------------------------
========= ========== ======= ========== ========== =========== ==========
<CAPTION>
TOTAL
ACCUMULATED SHAREHOLDERS'
DEFICIT DEFICIT
------------- -------------
<S> <C> <C>
BALANCE,
December 31,
1994............ $ (75,638) $ 254,362
Issuance of
common stock
to founders.... -- --
Issuance of
common stock
($0.084 per
share) and
obligation to
issue 300,000
shares ($0.028
per share) to
acquire GFP
(see Notes 1
and 7)......... -- 100,000
Sale of common
stock ($0.533
per share)..... -- 297,344
Sale of common stock ($1.10 per share). -- 993,078
Cost of common
stock
issuances...... -- (126,236)
Issuance of
common stock
warrants....... -- 10,751
Repurchase of
common stock
($1.10 per
share)......... -- (1,444,153)
Net loss....... (1,734,475) (1,734,475)
------------- -------------
BALANCE,
December 31,
1995............ (1,810,113) (1,649,329)
Repurchase of
common stock
($1.10 per
share)......... -- (99,000)
Sale of common
stock to
employees
($1.10 per
share)......... -- --
Sale of common
stock to third
party ($1.10
per share)..... -- 13,750
Issuance of
common stock
warrants....... -- 41,555
Net loss ...... (5,872,328) (5,872,328)
------------- -------------
BALANCE,
December 31,
1996............ (7,682,441) (7,565,352)
Issuance of
Series A
convertible
preferred
stock ($4.00
per share, see
Note 3)........ -- 1,100,000
Cost of Series
A convertible
preferred
stock
issuances...... -- (134,772)
Partial
settlement of
1995
obligation to
issue common
stock to
acquire GFP
(see Note 7) .. -- --
Employment
contract
converted to
common stock
($1.10 per
share)......... -- 133,333
Bridge loans
converted to
common stock
($1.10 per
share)......... -- 2,218,811
Cost of common
stock
conversions.... -- (28,285)
Deferred
salaries
converted to
common stock
warrants....... -- 1,184,856
Issuance of
common stock
warrants....... -- 97,244
Cumulative
Series A
convertible
preferred
stock
dividends...... (21,799) --
Net loss....... (4,418,589) (4,418,589)
------------- -------------
BALANCE,
September 30,
1997
(unaudited)..... $(12,122,829) $(7,412,754)
- --------------------------------------------------
============= =============
</TABLE>

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

F-5
<PAGE>

GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 ARE
UNAUDITED)

<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ ------------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss................... $(1,734,475) $(5,872,328) $(4,102,847) $(4,418,589)
Adjustments to reconcile
net loss to net cash used
in operating activities--
Depreciation and
amortization............ 118,966 127,287 107,653 300,326
Loss on disposal of
assets.................. -- 12,538 12,538 --
Employment contract
converted to common
stock................... -- -- -- 133,333
Changes in certain assets
and liabilities:
Accounts receivable..... (376,118) (911,929) (224,047) 340,062
Other receivables and
other current assets... (160,061) (315,045) (554,925) 11,322
Accounts payable,
accrued liabilities and
other.................. 658,421 3,807,276 3,100,088 1,423,187
Customer deposits and
prepayments............ 493,908 530,835 358,597 (153,471)
----------- ----------- ----------- -----------
Net cash used in operating
activities................ (999,359) (2,621,366) (1,302,943) (2,363,830)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of furniture and
equipment................. (260,449) (329,390) (264,154) (823,070)
Proceeds from disposition
of assets................. -- 15,000 15,000 --
Organizational costs
incurred.................. (162,929) -- -- --
Acquisition of business,
net of cash acquired...... (99,003) -- -- --
Deposits made to purchase
furniture and equipment... -- (374,075) (374,075) (133,313)
----------- ----------- ----------- -----------
Net cash used in investing
activities................ (522,381) (688,465) (623,229) (956,383)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
bridge loans.............. 265,000 3,857,500 2,062,500 2,651,708
Payments made on bridge
loans..................... -- -- -- (305,000)
Payments made on due to
shareholders.............. (707,956) (649,015) (649,015) --
Borrowings under notes
payable................... -- -- -- 12,967
Payments on notes payable.. -- (33,342) -- (77,905)
Cash paid for bridge loan
issue costs............... -- (76,954) (27,654) (193,702)
Proceeds from issuance of
common stock, net......... 2,598,323 99,000 -- --
Repurchase of common stock. (200,000) (99,000) -- --
Proceeds from issuance of
Series A convertible
preferred stock, net...... -- (58,088) -- 1,023,316
----------- ----------- ----------- -----------
Net cash provided by
financing activities...... 1,955,367 3,040,101 1,385,831 3,111,384
----------- ----------- ----------- -----------
Net increase (decrease) in
cash...................... 433,627 (269,730) (540,341) (208,829)
Cash, beginning of period.. 282,360 715,987 715,987 446,257
----------- ----------- ----------- -----------
Cash, end of period........ $ 715,987 $ 446,257 $ 175,646 $ 237,428
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period
for--
Interest................. $ 26,585 $ 17,446 $ 17,446 $ 33,099
Income taxes ............ -- -- -- --
SUPPLEMENTAL DISCLOSURE OF
SIGNIFICANT NONCASH
INVESTING AND FINANCING
ACTIVITIES:
Issuance of common stock
warrants related to bridge
loans..................... $ 10,751 $ 41,555 $ 22,746 $ 97,244
Bridge loans and accrued
interest converted to
common stock.............. -- -- -- 2,549,428
Deferred salaries converted
to common stock warrants.. -- -- -- 1,184,856
Issuance of notes payable
to finance common stock
repurchase................ 1,244,153 -- -- --
Issuance of notes payable
to finance equipment
purchases................. -- 125,652 91,020 --
</TABLE>

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

F-6
<PAGE>

GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)

1. DESCRIPTION OF THE BUSINESS

GlobalTel Resources, Inc. ("the Company"), a Washington corporation, was
formed on November 17, 1994, to provide international telecommunications
services. The Company began operations in 1995 with its entry into the
international call-reorigination business. The Company also markets long-
distance calling cards, and enhanced voice services including voice mail and
conference calling.

On December 29, 1995, the Company acquired GFP Group, Inc. ("GFP"), a
Washington corporation formed on September 15, 1995. GFP was formed primarily
for the purpose of acquiring Ratsten International Telecommunications, Inc.
d/b/a Netstar Telecommunications, Inc. ("Ratsten") and thereafter being
acquired by the Company. Ratsten held certain license rights critical to the
Company's mission of providing global telecommunications services.

The Company provides global long-distance call-reorigination services
through Primecall, Inc., a wholly owned subsidiary. The Company began
generating revenue in March of 1995. Prior to January 1, 1995, the Company's
sole operations consisted of general and administrative activities, which
amounted to $75,638 for the year ended December 31, 1994. As these results of
operations are not material, the Company's financial statements as of and for
the year ended December 31, 1994 are not presented.

During the Company's limited operating history, it has generated substantial
operating losses and expects to incur additional operating losses. These
losses have been principally funded by a combination of common and preferred
stock sales and bridge loans, which mature in 1998 and early 1999 (see Notes 3
and 5). In addition, the Company will require additional capital to bring
certain past due trade accounts payable current and finance its short- and
long-term growth strategies. There can be no assurance that the Company will
be able to obtain the necessary additional capital, or that its operations
will be sufficient to generate future positive operating results.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidated Financial Statements

The accompanying consolidated financial statements include the financial
accounts of the Company and its wholly owned subsidiaries, Primecall and GFP.
All intercompany transactions have been eliminated.

Use of Estimates

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.

Interim Results

The accompanying consolidated balance sheet as of September 30, 1997, and
the consolidated statements of operations, common stock subject to rescission
and shareholders' deficit and cash flows for the nine-month periods ended
September 30, 1996 and 1997 are unaudited. In the opinion of management, the
interim unaudited consolidated statements have been prepared on the same basis
as the historical audited

F-7
<PAGE>

GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)

consolidated financial statements and include all adjustments, consisting of
normal recurring adjustments necessary for the fair statement of interim
periods. The data disclosed in these notes to the consolidated financial
statements for these interim periods is also unaudited.

Cash

For purposes of the consolidated statements of cash flows, cash includes all
amounts on deposit with financial institutions. The Company has no short-term
investments.

Furniture and Equipment

Furniture and equipment consist of office furniture and computer and
telecommunications equipment. Furniture and equipment are recorded at cost and
are depreciated using the straight-line method over the estimated useful lives
of the related assets, which range from 5 to 10 years. Repairs, maintenance
and minor renewals are charged to expense as incurred. Major renewals and
betterments which substantially extend the useful life of the assets are
capitalized. Upon sale or other disposition of assets, the cost and the
related accumulated depreciation are removed from the accounts and a gain or
loss, if any, is reflected in the consolidated statements of operations.

Furniture and equipment is composed of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1996 1997
-------- --------- -------------
<S> <C> <C> <C>
Telecommunications equipment............ $281,965 $ 587,791 $ 936,113
Furniture, fixtures and other........... 83,399 206,391 681,139
-------- --------- ----------
365,364 794,182 1,617,252
Less--Accumulated depreciation.......... (55,272) (123,470) (230,135)
-------- --------- ----------
Furniture and equipment, net............ $310,092 $ 670,712 $1,387,117
======== ========= ==========
</TABLE>

The Company recorded depreciation expense of $55,272, $76,884, $69,852 and
$106,665 for the years ended December 31, 1995 and 1996, and for the nine-
month periods ended September 30, 1996 and 1997, respectively.

Other Assets

Other assets consist primarily of a license agreement, organizational costs,
bridge loan issue costs and deposits on telecommunications equipment. The
license agreement purchased by the Company (see Note 7) is being amortized on
a straight-line basis over 15 years. The Company recorded amortization expense
related to the license agreement of $1,970, $11,825, $8,868 and $8,867 for the
years ended December 31, 1995 and 1996, and for the nine-month periods ended
September 30, 1996 and 1997, respectively.

Certain organizational costs (primarily legal expenses) incurred in
connection with establishing and organizing the Company and its subsidiaries
are being amortized over a period of five years. The Company recorded
amortization expense related to these organizational costs of $53,820, $9,579,
$7,184 and $26,050 for the years ended December 31, 1995 and 1996, and for the
nine-month periods ended September 30, 1996 and 1997, respectively.

F-8
<PAGE>

GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)

Bridge loan issue costs incurred in connection with obtaining bridge loans
have been capitalized and are being amortized into interest expense over the
lives of the loans. During 1995 and 1996, and the nine-month periods ended
September 30, 1996 and 1997, the Company recognized $7,904, $28,999, $21,749
and $122,491, respectively, in additional interest expense from amortization
of the bridge loan issue costs.

At December 31, 1996 and September 30, 1997, the Company had made non-
refundable deposits of $374,075 and $507,388, respectively, toward the
purchase of certain telecommunications equipment. The Company expects to take
delivery of this equipment in the fourth quarter of 1997 and in the first
quarter of 1998.

Accrued Liabilities

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1996 1997
-------- ---------- -------------
<S> <C> <C> <C>
Telecommunications costs................. $ 82,000 $ 511,550 $ 758,958
Deferred salaries........................ -- 667,000 --
Other.................................... 178,394 758,604 567,295
-------- ---------- ----------
$260,394 $1,937,154 $1,326,253
======== ========== ==========
</TABLE>

As of December 31, 1996, the Company had deferred salaries payable to
certain members of the Company's management. Interest accrued on the deferred
balances at an annual rate of 10%. During 1997, an additional $517,856 of
deferred salaries was accrued. During the nine-month period ended
September 30, 1997, the deferred salaries were converted to common stock
warrants (see Note 3).

Equity-Based Compensation

The Company accounts for employee equity-based compensation following the
provisions of Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees." In accordance with the provisions
of APB 25, the Company has not recognized deferred compensation or
compensation expense in connection with its equity-based plans as the exercise
price of the options granted was equal to fair value at the date of grant (see
Note 3).

Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation," requires expanded disclosures of
equity-based compensation arrangements with employees and does not require,
but encourages, compensation cost to be measured based on the fair value of
equity instruments when awarded. The Company, as allowed, intends to continue
to measure employee equity-based compensation under APB 25, which recognizes
compensation cost based on the intrinsic value of the equity instrument
awarded.

Revenue Recognition and Cost of Sales

Revenues and related cost of sales are recognized in the period services are
provided. The related accruals for sales, cost of sales and unearned revenues
are included in the consolidated balance sheets.

Income Taxes

The Company accounts for income taxes using the asset and liability method.
To date, the Company has fully reserved all net deferred tax assets.

F-9
<PAGE>

GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)

Concentrations of Risk

During October 1996, the Company began wholesaling long-distance minutes to
other long-distance carriers. As of December 31, 1996, $793,483 of the
Company's accounts receivable was due from a single long-distance carrier.
This receivable was fully collected during the first quarter of 1997.

Approximately 85% of the Company's call-reorigination revenues are from
customers outside of the United States. The continued legality and competitive
advantage of call-reorigination businesses in certain foreign countries is
uncertain, due to changing regulatory environments.

The Company's call-reorigination business is facilitated by a single switch
located in Los Angeles, California.

Pro Forma Net Loss Per Share

Pro forma net loss per share is based on the weighted average number of
shares of common stock and common equivalent shares outstanding using the
treasury stock method and the estimated number of shares of common stock to be
issued in the Company's proposed public offering and upon conversion of the
Company's outstanding Series A preferred stock at September 30, 1997. Common
stock equivalents are excluded from the calculation of pro forma net loss per
share due to their antidilutive effect except that pursuant to Securities and
Exchange Commission requirements, common and common equivalent shares issued
during the 12-month period prior to the initial filing of a registration
statement relating to the Company's proposed initial public offering have been
included in the calculation as if they were outstanding for all periods
presented using the treasury stock method, based on the initial public
offering price.

Pro forma net loss per share has been computed as described above and also
gives effect, even if antidilutive, to shares of Series A preferred stock that
are assumed to convert to common stock upon the closing of the Company's
initial public offering (using the as-if-converted method). If the offering
contemplated by the prospectus is consummated, all of the Series A preferred
stock outstanding as of the effective date of the offering is assumed to be
converted into an aggregate of shares of common stock.

Effect of New Accounting Standard

In February 1997, the Financial Accounting Standards Board issued SFAS 128,
"Earnings Per Share," which revises the calculation and presentation
provisions of APB 15 and related interpretations. SFAS 128 is effective for
the Company's fiscal year ending December 31, 1997, and retroactive
application is required. The Company does not expect the implementation of
SFAS 128 to have a material effect on earnings per share amounts reported
prior to that date.

3. SHAREHOLDERS' DEFICIT

Series A Convertible Preferred Stock

Each share of Series A Convertible Preferred Stock is entitled to a dividend
at a per annum rate equal to 6% of the issuance price, deferrable at the
election of the Company but payable in preference to dividends on any other
securities issued by the Company. All accrued and unpaid dividends on a share
must be paid before dividends on other securities. Each share is also
entitled, in liquidation, to a preferred distribution of

F-10
<PAGE>

GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)

the initial issuance price plus all accrued but unpaid dividends. Each share
is subject to automatic conversion to common stock upon the sale of all or
substantially all of the assets of the Company, an election to convert by two-
thirds of the holders of such shares, or upon the closing of an initial public
offering, the net proceeds of which exceed $25 million if certain other
conditions are satisfied. Any unpaid cumulative dividends at the time of
conversion may be paid at the option of the Company in cash, common stock, or
as notes payable to the preferred shareholders. Each share has a right of
first refusal to purchase a pro rata share of certain types of "new
securities," including, but not limited to, shares of common stock issued as
part of an initial public offering. However, this purchase right is not
applicable to and will expire upon the completion of a public offering or
other event that causes an automatic conversion of the Series A preferred
stock. Each share of Series A preferred stock has a voting right based upon
the number of shares of common stock into which the Series A preferred stock
would then be convertible in addition to certain demand and piggyback
registration rights.

During 1996, the Company incurred $58,088 in connection with its issuance of
Series A convertible preferred stock. These costs were capitalized as other
assets in the accompanying December 31, 1996 consolidated balance sheet and
were subsequently reclassified as a charge to equity in connection with the
Company's private placement of Series A convertible preferred stock.

Common Stock

During 1995, the Company executed a stock purchase agreement with certain
common shareholders to buy back 1,312,866 shares of the Company's common stock
at a price of $1.10 per share. The Company paid $200,000 in cash and issued
$1,244,153 in promissory notes (classified as due to shareholders in the
accompanying December 31, 1995 consolidated balance sheet) bearing interest at
8% to finance the repurchase. These promissory notes were paid in full as of
December 31, 1996.

During September 1997, several holders of bridge loans accepted an offer
from the Company to convert their bridge loans in the amount of $2,314,208,
and related unpaid interest of $235,220 into shares of common stock at a value
equal to $1.10 per share (See Note 5).

During September 1997, the Company issued 121,212 shares of common stock
with an agreed value of $133,333 to a former employee in satisfaction of the
Company's obligations under the employee's severance agreement. The value of
the common stock issued was charged to compensation expense in the
accompanying consolidated statement of operations for the nine-month period
ended September 30, 1997.

Equity-Based Compensation

During 1996, the Company approved the 1996 Stock Option Plan (the "Plan")
which provides for the granting of qualified and nonqualified stock options.
The Company has reserved 2,600,000 shares of common stock for granting of
stock options under the Plan. The Company's Board of Directors ("the Board")
has the authority to determine all matters relating to options to be granted
under the Plan, including the selection of individuals to be granted options,
the number of shares to be subject to each option, the exercise price and the
term and vesting period, if any. The Company recognized no compensation
expense from the vesting of options granted for the years ended December 31,
1995 and 1996 or for the nine-month periods ended September 30, 1996 and 1997.

F-11
<PAGE>

GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)

The following table summarizes activity related to stock options granted to
certain executives and employees of the Company:
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF PRICE PER
SHARES SHARE
--------- ---------
<S> <C> <C>
Balance at January 1, 1995............................ -- $ --
Grants.............................................. 365,500 1.10
Exercised........................................... -- --
Canceled............................................ -- --
---------
Balance at December 31, 1995.......................... 365,500 1.10
Grants.............................................. 644,630 1.10
Exercised........................................... -- --
Canceled............................................ (150,000) 1.10
---------
Balance at December 31, 1996.......................... 860,130 1.10
Grants.............................................. 442,666 1.10
Exercised........................................... -- --
Canceled............................................ (302,668) 1.10
---------
Balance at September 30, 1997......................... 1,000,128 1.10
=========
</TABLE>

There were 65,500, 318,046 and 450,627 options exercisable as of December
31, 1995 and 1996, and as of September 30, 1997, respectively. The outstanding
options at December 31, 1996, have a weighted average remaining contractual
life of 9.7 years. As of September 30, 1997, there were 1,599,872 shares
available for future option grants.

Pro forma information regarding results of operations and loss per share is
required by SFAS 123 for awards granted after December 31, 1994 as if the
Company had accounted for its stock-based awards to employees under a
valuation method permitted by SFAS 123. The value of the Company's stock-based
awards to employees in 1995, 1996 and 1997 was estimated using the minimum
value method. Should the Company complete an initial public offering ("IPO")
of its common stock, options granted after the IPO will be valued using the
Black-Scholes option pricing model. Among other things, the Black-Scholes
model considers the expected volatility of the Company's stock price,
determined in accordance with SFAS 123, in arriving at an option valuation.
The minimum value method does not consider stock price volatility. Had
compensation cost for the Plan been determined consistent with SFAS 123, the
Company's net loss for the years ended December 31, 1995 and 1996 would have
been increased to $1,748,144 and $5,918,197, respectively. The Company intends
to make the complete annual disclosures required under SFAS 123 for all 1997
activity in its consolidated financial statements as of and for the year ended
December 31, 1997.

The weighted average fair value of the Company's stock-based awards granted
to employees was $0.21 and $0.18 as of December 31, 1995 and 1996,
respectively, and was estimated assuming no expected dividends and the
following weighted average assumptions:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
------- -------
<S> <C> <C>
Risk-free interest rate.................................... 5.4% 6.2%
Expected life.............................................. 4 years 3 years
</TABLE>

Common Stock Warrants

In connection with the bridge loans issued by the Company, warrants to
purchase 107,507, 394,550 and 928,812 shares of the Company's common stock
were issued in 1995, 1996 and for the nine-month period

F-12
<PAGE>

GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)

ended September 30, 1997, respectively. The 1996 and 1997 warrants generally
provide for increases in the number of shares of common stock issuable if the
Company has not closed a major financing transaction within specified periods.
The 1996 and 1997 warrants have an exercise price of $1.10 and the 1995
warrants are exercisable at no cost. All of the warrants were exercisable
immediately upon issuance. The Company estimated the value of these warrants
to be $10,751, $41,555 and $97,244 in 1995, 1996 and 1997, respectively, and
accordingly, recorded this value as bridge loan issue costs to be amortized as
interest expense over the life of the bridge loans.

The Company also issued warrants to purchase 12,032, 279,000 and 113,000
shares of common stock at an exercise price of $0, $1.10 and $1.10 per share,
to various individuals in consideration for consulting and other services
received during 1995, 1996, and 1997, respectively. With respect to the 1996
warrants, 150,000 vest upon the earlier of two years or the filing of a
registration statement in connection with a public offering. The remaining
129,000 warrants were exercisable immediately upon issuance. The 1995 and 1997
warrants were also immediately exercisable upon issuance. The fair market
value of these warrants when issued were not considered to be material.

During September 1997, several former employees accepted common stock
warrants in lieu of salaries owed to them. Accordingly, deferred salaries of
$1,184,856 were converted into warrants to purchase 1,077,142 shares of common
stock with an exercise price of $0.01 per share. These warrants were
immediately exercisable upon issuance and have a three-year term.

4. INCOME TAXES

Significant components of the Company's deferred tax assets and liabilities
are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
--------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward.................. $ 468,000 $ 1,422,000
Start-up costs................................... 95,000 813,000
Other deferred tax assets........................ 39,000 373,000
Valuation allowance.............................. (538,000) (2,528,000)
--------- -----------
Total deferred tax assets...................... 64,000 80,000
Deferred tax liabilities:
Depreciation of furniture and equipment.......... (4,000) (24,000)
Amortization of other long-term assets........... (60,000) (56,000)
--------- -----------
Total deferred tax liabilities................. (64,000) (80,000)
--------- -----------
Net deferred taxes............................. $ -- $ --
========= ===========
</TABLE>

The Company's net operating loss carryforward is subject to limitations and
begins expiring in 2010. The Company has determined that its deferred tax
assets do not satisfy the recognition criteria set forth under the provisions
of SFAS 109, "Accounting for Income Taxes." Accordingly, a valuation allowance
has been recorded against the applicable deferred tax assets. Therefore, no
tax benefits have been recorded in the accompanying consolidated statements of
operations. The valuation allowance increased by $538,000 and $1,990,000
during 1995 and 1996, respectively.

F-13
<PAGE>

GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)

The difference between the statutory tax rate of approximately 34% and the
tax benefit of zero recorded by the Company is primarily due to the Company's
full valuation allowance against its net deferred tax assets.

5. BRIDGE LOANS

To fund operations and capital expenditures of the Company and, in 1995, to
assist in the purchase of Ratsten (see Note 7), the Company obtained bridge
loans from certain investors, some of whom are shareholders or management of
the Company. All bridge loans bear interest at 10% annually and in certain
cases increase to 12% if the loans are past due. In addition, stock warrants
were granted to certain of these investors as discussed in Note 3. Bridge
loans outstanding were:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1996 1997
-------- ---------- -------------
<S> <C> <C> <C>
Payable to shareholders and management:
Maturing December 1995 through March 1996,
due upon demand after maturity date....... $210,000 $ 210,000 $ 226,000
Maturing February 1997 through May 1998,
payable in full or convertible at the
option of the holder to common stock upon
closing of additional equity financing
over $25 million, at the price per share
paid by investors in the equity financing. -- 1,105,000 800,000
Payable to other related parties:
Principle and accrued interest converted to
493,467 shares of common stock in
September 1997............................ -- 500,000 --
Maturing December 1999, convertible in
whole or in part at the option of the
holder to common stock at a conversion
price equal to the ratio of annualized
revenues over common shares outstanding at
the time of conversion.................... -- -- 2,000,000
Payable to third parties:
Maturing December 1995 through March 1996,
due upon demand after maturity date....... 55,000 55,000 14,000
Due upon demand............................ -- 150,000 --
Maturing February 1997 through May 1998,
payable in full or convertible at the
option of the holder to common stock upon
closing of additional equity financing
over $25 million, at the price per share
paid by investors in the equity financing. -- 1,202,500 45,000
Maturing June 1998, convertible in whole or
in part at the option of the holder to
common stock upon closing of additional
equity financing over $15 million, at the
price per share paid by investors in the
equity financing. The conversion price to
common stock is the ratio of 1.50 times
annualized revenues over the number of
common shares outstanding................. -- 900,000 1,070,000
-------- ---------- ----------
Total bridge loans........................... 265,000 4,122,500 4,155,000
Less current portion (see Note 6)............ 265,000 1,840,000 2,035,000
-------- ---------- ----------
Long-term bridge loans (see Note 9).......... $ -- $2,282,500 $2,120,000
======== ========== ==========
</TABLE>

F-14
<PAGE>

GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)

In conjunction with the conversion of certain bridge loans to common stock
mentioned in Note 3, capitalized debt issue costs of $64,537 were written-off.
Debt issue costs in the amount of $28,285 related to bridge loans that were
converted at the holders' discretion according to the terms of the bridge loan
agreements were charged to equity. Debt issue costs of $36,252 related to
bridge loans that were extinguished were charged to interest expense in the
Company's consolidated statement of operations for the period ended September
30, 1997.

6. SECURITIES SUBJECT TO RESCISSION

The Company believes that certain of its outstanding shares of common stock
("Rescission Stock") and bridge loans and warrants to purchase shares of
common stock (collectively, the "Rescission Securities") may have been issued
in violation of certain state securities laws. As a result, conditioned on
completion of the proposed IPO, the Company plans to offer to rescind such
prior sales by offering to repurchase the Rescission Securities (the
"Rescission Offer") at the price originally paid plus interest at the annual
statutory rate of eight percent from the date of purchase to the expiration of
the Rescission Offer. As such, the shares of common stock and bridge loans
making up the Rescission Securities have been classified as common stock
subject to rescission and current liabilities, respectively, in the
accompanying consolidated financial statements. As of September 30, 1997,
there were 1,932,487 shares of common stock, $496,000 in aggregate principal
amounts of bridge loans and warrants to purchase an aggregate of approximately
227,000 shares of common stock identified for possible rescission. In
addition, the Company expects to repay $430,000 in bridge loans from proceeds
of the IPO that would otherwise be identified for possible rescission. If all
holders of Rescission Securities as of September 30, 1997 were to accept the
Rescission Offer, the Company would be required to pay approximately $2.7
million including statutory accrued interest.

The Company estimates that the total amount of its obligation for the
statutory accrued interest with respect to Rescission Stock could aggregate
approximately $234,000 as of September 30, 1997, if all offerees holding
Rescission Stock were to accept the Rescission Offer. Because of the
contingent nature of this liability and because the ultimate amount to be
paid, if any, is not presently known, the potential interest liability with
respect to Rescission Stock has not been accrued in the accompanying
consolidated financial statements, but will be recorded as an expense and a
liability of the Company if and when the shares of common stock subject to
rescission are tendered pursuant to the Rescission Offer. The statutory rate
of interest with respect to the bridge loans covered by the Rescission Offer
is less than the interest that has already been accrued by the Company under
the original terms of the bridge loans.

The Company plans to make the Rescission Offer if it is able to complete the
proposed IPO. A portion of the proceeds of the IPO will be used to fund
payments pursuant to the repurchase of Rescission Offer, if any are required.
However, there can be no assurance that the proposed IPO will be successfully
completed. The consolidated financial statements do not include any
adjustments that might result from the outcome of the Rescission Offer.
Furthermore, notwithstanding the Rescission Offer, there can be no assurance
that the Company will not be subject to penalties or fines relating to past
issuances or that other holders of securities from the Company will not assert
or prevail in claims against the Company for rescission or damages under state
or federal securities laws.

F-15
<PAGE>

GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)

7. ACQUISITIONS

Ratsten International Telecommunications, Inc.

On October 18, 1995, GFP purchased 50% of the outstanding common stock of
Ratsten for $100,000 and the other 50% for 543,956 shares of GFP's common
stock in a business acquisition accounted for using the purchase method of
accounting, the purpose of which was to acquire certain licensing rights held
by Ratsten. Prior to the Ratsten acquisition, GFP had issued 540,000 shares of
common stock to its founders. In total, GFP's common stock issued was valued
at $91,000. Of the total purchase price, including the obligation to issue
shares described below, $177,368 was assigned to the license agreement, with
the remainder assigned to certain assets acquired and liabilities assumed. No
goodwill was recognized from the purchase. The sellers of Ratsten made certain
warranties to the Company, primarily that the license agreement was valid and
fully transferable to GFP after the purchase.

The acquisition agreement included an obligation for the issuance of an
additional 300,000 shares of the Company's common stock to the sellers of one-
half of Ratsten, contingent upon the Company obtaining additional financing
(other than bridge funding) in excess of a certain amount. This contingent
obligation was valued at $9,000 as of the date of the agreement. During the
nine-month period ended September 30, 1997, 150,000 of these shares had been
issued.

GFP

On December 29, 1995, pursuant to a share exchange agreement and statutory
share exchange, the Company issued 1,083,956 of voting common stock on a one-
for-one basis for all of GFP's issued and outstanding common stock. GFP's only
significant asset was the license agreement which had been acquired from
Ratsten in anticipation of the share exchange agreement. GFP did not have any
material operations during the period from its inception through December 29,
1995.

8. COMMITMENTS AND CONTINGENCIES

The Company has entered into noncancelable operating lease agreements
involving office space and equipment, certain telecommunications equipment and
licensing agreements with lease terms extending through 2006. Minimum lease
payments are subject to change as provided for in the lease agreements. The
Company's future minimum noncancelable lease payments as of December 31, 1996,
are as follows:

<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1997........................................................ $ 622,521
1998........................................................ 436,884
1999........................................................ 272,989
2000........................................................ 249,573
2001........................................................ 41,100
Thereafter.................................................. 188,375
----------
$1,811,442
==========
</TABLE>

Lease expense for the years ended December 31, 1995 and 1996 and for the
nine-month periods ended September 30, 1996 and 1997 was $125,413, $442,292,
$336,142 and $575,935, respectively.

F-16
<PAGE>

GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)

9. SUBSEQUENT EVENTS (AUDITED)

Initial Public Offering and Reverse Stock Split

On November 10, 1997, the Board approved the filing of a registration
statement with the Securities and Exchange Commission covering the proposed
sale by the Company of up to $25 million of its common stock to the public.
The Board also approved $200,000 in bonuses to be paid to certain individuals
upon successful completion of the IPO. In addition, the Board approved a
reverse common stock split and increased the authorized number of common
shares from 20 million to 50 million. The ratio of the reverse common stock
split will be determined at a later date, but is not to exceed 1:7.

Bridge Loans

In March 1997, the Company obtained additional bridge financing of $651,708,
$451,708 of which was converted to common stock as discussed in Note 3, and
the remainder matures June 1998. In connection with this funding, the Company
initially granted 130,342 warrants to purchase shares of the Company's common
stock at an exercise price of $1.10 per share. In April 1997, a note for
$2,000,000 was issued which matures December 31, 1999. Associated with this
note, the Company granted warrants to purchase 400,000 shares of the Company's
common stock at an exercise price of $1.10. In October 1997, additional bridge
loans of $550,000 were issued which mature in March 1999. Warrants granted in
association with this round of financing totaled 55,000 shares at an exercise
price of $1.10. The bridge loans are convertible at the option of the holder
at any time prior to maturity at the per share common stock price of the most
recent institutional financing or, if no such financing has occurred, at the
fair value per share common stock price in effect as of the date of
conversion. All bridge loans bear interest at an annual rate of ten percent.
The warrants granted in association with these bridge loan issuances were
valued at approximately $59,000 and were recorded as debt issue costs.

In November 1997, the Company obtained additional bridge financing of
$325,000 which was repaid in full from the proceeds of the bridge loans issued
in December 1997. Following the closing of the IPO, each original holder of
these notes will receive shares of common stock in an amount equal to one half
of the initial principal amount of the note divided by the IPO price per
share.

During November and December 1997, the Company obtained additional bridge
note financing of $2,981,500. These notes bear interest at an annual rate of
ten percent and are due in full at the earlier of the closing of the IPO or
January 1999. In addition, following the closing of the IPO, each holder of
these notes will receive shares of common stock equal to the initial principal
amount of the note divided by the IPO price per share. If the IPO has not
closed by July 1, 1998, these bridge note holders will receive warrants to
purchase shares of common stock equal to the initial principal amount of the
note divided by $1.10. The warrants associated with these bridge loans will
have an exercise price of $1.10 per share. Closing costs incurred associated
with these notes included approximately $280,000 in cash, 20,000 shares of
common stock and warrants to purchase 138,000 shares of common stock at strike
prices of either 120% or 140% of the IPO price per share.

As of December 18, 1997, $521,000 of bridge loans outstanding at September
30, 1997 were converted to 473,636 shares of common stock at $1.10 per share.
In addition, $500,000 of bridge loans currently due at

F-17
<PAGE>

GLOBALTEL RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)

September 30, 1997 were extended to January of 1999. Other terms (such as
interest rates and conversion features) were not effected. Of the $521,000 of
bridge loans converted to common stock, all but $25,000 is subject to
rescission and are classified as current liabilities in the accompanying
consolidated September 30, 1997 balance sheet.

Common Stock Warrants and Options

On November 10, 1997, the Board amended certain common stock warrant
agreements whereby certain warrant holders could exercise their warrants at a
price of $0.70 per share in a cashless exercise transaction rather than at the
original exercise price of $1.10 per share, concurrent with the Company's
proposed IPO. As of December 18, 1997, holders of warrants representing
1,323,802 shares of common stock had indicated their intention to exercise
their warrants under these amended terms. As a result, the Company recognized
approximately $280,000 of additional debt issue costs and $250,000 of
additional interest expense.

As of December 18, 1997, the Company had granted warrants to purchase
154,149 shares of common stock at an exercise price of $0.01 per share to
certain consultants and advisors of the Company, and recognized consulting
expense of approximately $170,000. The Company had also granted warrants to
purchase 242,000 shares of common stock at an exercise price of $1.10 per
share to certain existing bridge loan holders and advisors to the Company. In
addition, the Company granted 82,000 stock options with an exercise price of
$1.10 per share, 40,000 of which vested immediately and the remainder vest
ratably over a three-year period.

Issuance of Common Stock

As of December 18, 1997, the Board had issued 70,000 shares of common stock
to certain advisory board members in recognition of past services rendered to
the Company. The Company recognized consulting expense of approximately
$77,000 in connection with these stock issuance.

Employment Agreements

Effective upon the closing of the Company's proposed IPO, the Company will
enter into employment agreements with five of its executive officers. In
conjunction with these agreements, the officers will be granted options to
purchase a total of 1.4 million shares of common stock at the IPO price per
share. These options will expire in ten years and will vest upon the earlier
of three years or upon the attainment of certain performance goals to be
established by the Board.

F-18
<PAGE>

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

No dealer, sales representative or other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company or any Underwriter.
Neither the delivery of this Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that there has been no change
in the affairs of the Company since the date hereof or that the information
contained herein is correct as of any date subsequent to the date hereof. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any securities offered in the Public Offering by anyone in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so or to
anyone to whom it is unlawful to make such offer or solicitation.

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

TABLE OF CONTENTS
<TABLE>
<CAPTION>
page
<S> <C>
Summary................................................................... 3
The Company............................................................... 3
The Rescission Offer...................................................... 4
The Public Offering....................................................... 4
Summary Consolidated Financial Data....................................... 5
Rescission Offer.......................................................... 6
Risk Factors.............................................................. 12
Dividend Policy........................................................... 24
Dilution.................................................................. 25
Capitalization............................................................ 26
Selected Consolidated Financial Data...................................... 27
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 28
Business.................................................................. 37
Management................................................................ 56
Certain Transactions...................................................... 63
Principal Shareholders.................................................... 69
Description of Securities................................................. 71
Shares Eligible for Future Sale........................................... 74
Legal Matters............................................................. 75
Experts................................................................... 76
Additional Information.................................................... 76
Glossary of Terms......................................................... 77
Index to Consolidated Financial Statements................................ F-1
</TABLE>

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

UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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

RESCISSION OFFER

[LOGO OF GLOBALTEL RESOURCES]

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

PROSPECTUS

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

, 1998

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Sections 23B.08.500 through 23B.08.600 of the Washington Business Corporation
Act (the "WBCA") authorize a corporation to indemnify its directors, officers,
employees and agents against certain liabilities they may incur in such
capacities, including liabilities under the Securities Act. The Company's
Bylaws (Exhibit 3.2 hereto) and indemnification agreements entered into between
the Company and its directors implement this indemnification to the fullest
extent permitted by law, including under circumstances in which indemnification
is otherwise discretionary. Section 23B.08.320 of the WBCA authorizes a
corporation to limit or eliminate its directors' liability to the corporation
or its shareholders for monetary damages for breaches of fiduciary duties,
other than for (1) acts or omissions that involve intentional misconduct or a
knowing violation of law, (2) improper declaration of dividends, or (3)
transactions from which a director derives an improper personal benefit. The
Company's Articles of Incorporation (Exhibit 3.1 hereto) contain provisions
limiting the liability of directors to the Company and to its shareholders to
the fullest extent permitted by Washington law.

The above discussion of the WBCA and the Company's Bylaws and Articles of
Incorporation is not intended to be exhaustive and is qualified in its entirety
by such statute, the Bylaws and the Articles of Incorporation, respectively.

The Company has obtained officers' and directors' liability insurance for its
directors and officers. In addition, the Underwriting Agreement (Exhibit 1.1
hereto) contains provisions for the indemnification of, among others,
controlling persons, directors and officers of the Company for certain
liabilities.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of the Common Stock being registered. All amounts are estimated
except the SEC Registration Fee.

<TABLE>
<CAPTION>
AMOUNT(1)
---------
<S> <C>
SEC Registration Fee.................................................. $834
Blue Sky Qualification Fees and Expenses.............................. *
Accounting Fees and Expenses.......................................... *
Legal Fees and Expenses............................................... *
Transfer Agent and Registrar Fees..................................... *
Printing and Engraving................................................ *
Miscellaneous......................................................... *
----
Total............................................................. $*
====
</TABLE>
- --------
* To be completed by amendment.
(1) All amounts have been estimated except the SEC fee. All of the above
expenses will be payable by the Company.

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

The Company has made the following sales of its securities for the
consideration indicated during the past three years, which sales were not
registered under the Securities Act. Except as indicated below, none of

II-1
<PAGE>

such sales involved an underwriter. All shares of Common Stock issued in
connection with the 1995 recapitalization described below were issued in
reliance on the exemption from registration set forth at Section 3(a)(9) of
the Securities Act as an exchange by an issuer with its existing security
holders where no commission or other remuneration is paid or given for
soliciting such exchange. All warrants or options issued to employees,
directors or consultants of the Company, and all shares of Common Stock issued
in connection with the conversion or exercise of warrants or options held by
employees, directors or consultants, were issued in reliance on the exemption
from registration provided by Rule 701, as transactions pursuant to a
compensatory benefit plan or a written contract relating to compensation, or
the exemption from registration provided by Section 4(2) of the Securities Act
as transactions not involving a public offering. All sales of Common Stock and
issuances of convertible promissory notes for cash consideration were made in
reliance on the exemption from registration provided by Rule 506 under the
Securities Act. All other securities described below were issued in reliance
on the exemption from registration provided by Section 4(2) of the Securities
Act.

Initial Capitalization. On December 30, 1994 the Company issued 1,490,000
shares of a class of common stock to seven individuals in exchange for
services rendered and to be rendered. In the period from December 1994 to
September 1995 the Company sold 1,657,091 shares of a class of common stock to
19 individuals and entities at $0.53 per share. In the period from September
1995 to December 1995 the Company sold an additional 1,973,486 shares of a
class of common stock to 25 individuals and entities at $1.10 per share.
Purchasers of Common Stock for $1.10 per share also received warrants to
purchase an aggregate of 110,000 shares of common stock at an exercise price
of $1.10 per share.

Recapitalization. In December 1995 the Company issued 3,925,209 shares of
Common Stock to all of its shareholders in exchange for all then-outstanding
common equity securities of the Company.

GFP Acquisition. On December 29, 1995 the Company issued 1,083,956 shares of
voting common stock to seven persons or entities in exchange for all
outstanding equity securities of GFP Group, Inc. and assumed notes of GFP
Group Inc. payable to six individuals in the aggregate principal amount of
$265,000. At the same time the Company issued warrants to purchase for nominal
consideration 107,507 shares of Common Stock to the holders of the assumed
notes.

Repurchase of Common Stock. In December 1995, the Company issued promissory
notes in the aggregate principal amount of $1,244,153 to repurchase 1,131,048
shares of a class of the Company's common stock from six individuals. These
notes were repaid in full during 1996.

Convertible Promissory Notes. From December 1995 to October 1997, the
Company issued promissory notes (the "Financing Notes") in the approximate
aggregate principal amount of $7,324,208 to 37 individuals and entities. In
connection with the issuance of all but eight of the Financing Notes, the
Company also issued to the holders of the notes warrants to purchase shares of
Common Stock. Financing Notes are convertible into shares of Common Stock at a
price of $1.10 per share.

Common Stock Issuance. In early 1996, the Company issued an aggregate of
117,498 shares of Common Stock to one person and one entity in exchange for
services rendered and equipment provided to the Company.

Series A Convertible Preferred Stock. In May and July 1997, the Company sold
for cash 275,000 shares of Series A Convertible Preferred Stock to three non-
U.S. persons for an aggregate offering price of $1.1 million.

Grants of Warrants to Strategic Partners. During 1997 the Company granted
warrants to purchase an aggregate of 20,000 shares of Common Stock, subject to
adjustment, at an exercise price of $1.10 per share to two strategic partners.

Officer Severance. In September 1997, the Company issued 271,212 shares of
Common Stock to a former officer of the Company in satisfaction of a number of
obligations.

II-2
<PAGE>

Deferred Compensation Warrants. In September 1997 the Company issued to nine
employees or consultants warrants to purchase 1,077,142 shares of Common Stock
at an exercise price of $0.01 per share in exchange for the rights of such
employees or consultants to be paid deferred compensation.

Conversions of Promissory Notes. During September 1997 the Company issued
2,330,544 shares of Common Stock in connection with conversions of Financing
Notes in the aggregate principal amount of $2,314,208 held by 25 holders.

Conversions of Trade Payables. During November 1997 the Company issued
170,642 shares of Common Stock in satisfaction of trade payables in the amount
of $187,706.

Bridge to Bridge Notes. During November 1997 the Company issued promissory
notes (the "Bridge to Bridge Notes") in the aggregate principal amount of
$325,000 to three accredited individuals. These notes were repaid in full in
December 1997.

Full Coverage Bridge Notes. During November and December 1997 the Company
issued promissory notes (the "Full Coverage Bridge Notes") in the aggregate
principal amount of $2,981,500 to 44 accredited investors. These notes will be
repaid out of the Public Offering proceeds.

II-3
<PAGE>

ITEM 27. EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
------- ----------------------- ----------
<C> <S> <C>
**1.1 Form of Underwriting Agreement
*3.1 Articles of Incorporation, as amended
*3.2 Bylaws
**4.1 Specimen Common Stock Certificate
*4.2 Form of Stock Purchase Warrant
*4.3 Form of Stock Purchase Warrant
*4.4 Form of Stock Purchase Warrant
*4.5 Form of Stock Purchase Warrant
*4.6 Form of Promissory Note
*4.7 Form of Promissory Note
*4.8 Form of Promissory Note
*4.9 Form of Promissory Note
**5.1 Opinion of Heller Ehrman White & McAuliffe
*10.1 GlobalTel Resources, Inc. 1996 Stock Option Plan
*10.2 Form of Incentive Stock Option Agreement
*10.3 Form of Nonqualified Stock Option Agreement
*10.4 Form of Director Nonqualified Stock Option Agreement
*10.5 Form of Indemnification Agreement with officers and
directors
*10.6 Form of Employment Agreement
*10.7 Office lease dated as of June 10, 1996 by and between the
Company, as Lessee, and One Wilshire Arcade Imperial,
Ltd., as Lessor, together with First Amendment thereto
dated June 24, 1997.
+10.8 Carrier Agreement dated as of August 20, 1996 by and
between Primecall, Inc. and Cable & Wireless, Inc.
+10.9 Reciprocal Telecommunications Agreement dated as of
December 3, 1996 by and between STAR Vending, Inc. and
Primecall, Inc.
+10.10 Switch Port Lease and Service Agreement dated as of
August 7, 1996 by and between Primecall, Inc. and World
Touch, Inc.
+10.11 Trilogy Telemanagement Service Agreement dated as of
April 2, 1997 by and between Trilogy Telemanagement,
L.L.C. and Primecall, Inc.
+10.12 Agreement for Managed Data Network Services dated April
28, 1995 (the "Scitor ITS Agreement") by and between
NetStar International Telecommunications, Inc.
("NetStar") and Scitor International Telecommunications
Services, Inc. ("Scitor ITS"), together with Amendment
No. 1 to the Scitor ITS Agreement dated February 21, 1996
between NetStar, Scitor ITS and GFP Group, Inc.
+10.13 Exclusive Services and Marketing Agreement dated as of
April 15, 1997 between the Company and International
Business Network for World Commerce & Industry, Ltd.
**10.14 Master Task Agreement dated as of September 19, 1997 by
and between GFP Group, Inc. and Novell, Inc.
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
------- ----------------------- ----------
<C> <S> <C>
**10.15 Novell Business Internet Services Affiliate Service
Platform Statement of Work to Agreement No. 97-GlobalTel-
001 dated October 21, 1997 between Novell, Inc. and GFP
Group, Inc.
*10.16 Share Exchange Agreement dated as of December 29, 1995 by
and among the Company and certain holders of shares of
capital stock of GFP Group, Inc.
*10.17 GlobalTel Resources, Inc. 1997 Employee Stock Purchase
Plan
**11.1 Statement of computation of net income per share
21 Subsidiaries of the Registrant
**23.1 Consent of Heller Ehrman White & McAuliffe (contained in
Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP, Independent Public
Accountants
24.1 Power of Attorney (Page II-5)
*27.1 Financial Data Schedule
</TABLE>
- --------
+ Portions of this exhibit have been omitted pursuant to an application for
an order granting confidential treatment. The omitted portions have been
separately filed with the Commission in connection with the Company's
Registration Statement on Form SB-2 filed with the Commission on December
22, 1997 (No. 333-42971) and are incorporated herein by reference.
* Incorporated by reference to the Company's Registration Statement on Form
SB-2 filed with the Commission on December 22, 1997 (No. 333-42971).
** To be filed by amendment.

II-5
<PAGE>

ITEM 28. UNDERTAKINGS

The small business issuer will provide to the underwriter at the closing
specified in the underwriting agreement, certificates in such denominations
and registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.

In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.

The small business issuer will, for determining any liability under the
Securities Act of 1933, treat the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the small business
issuer pursuant to Rule 424(b)(1), or (4), or 497(h) under the Securities Act
of 1933 as part of this registration statement as of the time the Commission
declared it effective.

The small business issuer will, for determining any liability under the
Securities Act of 1933, treat each post-effective amendment that contains a
form of prospectus as a new registration statement for the securities offered
in the registration statement, and that offering of the securities at that
time as the initial bona fide offering.

II-6
<PAGE>

SIGNATURES

IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM SB-2 AND AUTHORIZED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE
CITY OF SEATTLE, STATE OF WASHINGTON ON JANUARY 16, 1998.

GLOBALTEL RESOURCES, INC.

By: /s/ Ronald P. Erickson
---------------------------------
Ronald P. Erickson
Chairman of the Board, President
and Chief Executive Officer

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Ronald P.
Erickson and Eric D. Orse his true and lawful attorneys-in-fact and agents,
each acting alone, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement,
and to sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, as amended, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto, and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, each acting alone, or his or her substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.

In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE OFFICE DATE
--------- ------ ----
<S> <C> <C>
/s/ Ronald P. Erickson Chairman of the Board, January 16, 1998
____________________________________ President and Chief
Ronald P. Erickson Executive Officer
(Principal Executive
Officer)

/s/ Eric D. Orse Director of Finance and January 16, 1998
____________________________________ Treasurer
Eric D. Orse (Principal Financial and
Accounting Officer)

/s/ Ronald B. Fox Senior Vice President and January 16, 1998
____________________________________ Director
Ronald B. Fox

/s/ Randall J. Ottinger Director January 16, 1998
____________________________________
Randall J. Ottinger

/s/ Bruce L. Crockett Director January 16, 1998
____________________________________
Bruce L. Crockett
</TABLE>

II-7
<PAGE>

<TABLE>
<CAPTION>
SIGNATURE OFFICE DATE
--------- ------ ----
<S> <C> <C>
/s/ Frank E. Krentzman Director January 16, 1998
____________________________________
Frank E. Krentzman

/s/ Michael S. Brownfield Director January 16, 1998
____________________________________
Michael S. Brownfield

/s/ Paul H.F.M. van de Plas Director January 16, 1998
____________________________________
Paul H.F.M. van de Plas

/s/ Steven S.V. Wong Director January 16, 1998
____________________________________
Steven S.V. Wong

/s/ Lyman C. Hamilton Director January 16, 1998
____________________________________
Lyman C. Hamilton
</TABLE>

II-8
<PAGE>

INDEX TO EXHIBITS

<PAGE>

<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF DOCUMENT NUMBER
------- ----------------------- ----------
<C> <S> <C>
*10.16 Share Exchange Agreement dated as of December 29, 1995 by
and among the Company and certain holders of shares of
capital stock of GFP Group, Inc.
*10.17 GlobalTel Resources, Inc. 1997 Employee Stock Purchase
Plan
**11.1 Statement of computation of net income per share
21 Subsidiaries of the Registrant
**23.1 Consent of Heller Ehrman White & McAuliffe (contained in
Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP, Independent Public
Accountants
24.1 Power of Attorney (Page II-5)
*27.1 Financial Data Schedule
</TABLE>
- --------
+ Portions of this exhibit have been omitted pursuant to an application for
an order granting confidential treatment. The omitted portions have been
separately filed with the Commission in connection with the Company's
Registration Statement on Form SB-2 filed with the Commission on December
22, 1997 (No. 333-42971) and are incorporated herein by reference.
* Incorporated by reference to the Company's Registration Statement on Form
SB-2 filed with the Commission on December 22, 1997 (No. 333-42971).
** To be filed by amendment.

<PAGE>

EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

<TABLE>
<CAPTION>
Subsidiary State of Incorporation
- ---------- ----------------------
<S> <C>
Primecall, Inc. Washington
GFP Group, Inc. Washington

</TABLE>

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.

By: /s/ Arthur Andersen LLP
_________________________________

Seattle, Washington
January 15, 1998