<PAGE>

================================================================================


                   U.S. SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C. 20549
                     ----------------------------------

                             FORM 10-KSB/A NO. 2

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

      MARK ONE
        |X|      ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
                       SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED MARCH 31, 1998

                                     OR

         |_|      TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF
                     THE SECURITIES EXCHANGE ACT OF 1934
                     ----------------------------------

                       Commission file number 0-26202

                   EASTBROKERS INTERNATIONAL INCORPORATED
      (Exact name of small business issuer as specified in its charter)
                     ----------------------------------

           DELAWARE                                    52-1807562
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
incorporation or organization)

        15245 SHADY GROVE ROAD, SUITE 340, ROCKVILLE, MARYLAND 20850
             (Address of principal executive offices) (Zip Code)

                               (301) 527-1110
              (Issuer's telephone number, including area code)
                     ----------------------------------

       SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
                                    None

       SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
                        Common Stock, $.05 par value
                              Class A Warrants

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.
Yes  |_|     No  |X|

Check if disclosure  of delinquent  filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure  will be contained,  to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. |_|

State issuer's revenues for its most recent fiscal year:  $10,342,976.

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates  computed by reference to the average of the bid and ask price of
such common equity on November 2, 1998 was approximately $13,000,000.

The total number of shares of the  registrant's  Common  Stock,  $.05 par value,
outstanding on November 2, 1998 was 4,767,750.

Transitional Small Business Disclosure Format:  Yes  |_|     No  |X|

<PAGE>


                              Explanatory Note

      The undersigned  registrant  hereby amends portions of Item 1, Description
of Business (Risk  Factors-Operating  Losses and Financial  Condition),  Item 6,
Management's  Discussion and Analysis or Plan of Operation and Item 7, Financial
Statements,  of its Form 10-KSB for the fiscal year ended  March 31,  1998.  The
amendments  effected  hereby are to  accurately  report  certain  changes to the
consolidated  statements of operations,  consolidated  statements of cash flows,
consolidated  statements of financial  condition and to notes 13 and 16 of notes
to  consolidated  financial  statements,  respectively,  and to further  clearly
reflect the registrant's  financial position for the fiscal year ended March 31,
1998.

                   EASTBROKERS INTERNATIONAL INCORPORATED


                        INDEX TO FORM 10-KSB/A NO. 2


                                                                            PAGE

Item   1.  Business
               Risk Factors.................................................   2
Item   6.  Management's Discussion and Analysis or Plan of Operation........   8
Item   7.  Financial Statements
               Historical Financial Statements
               Independent Auditors' Report at and for the year ended
                March 31, 1998..............................................  21
               Independent Auditors' Report at and for the year ended March
                31, 1997....................................................  22
               Consolidated Statements of Financial Condition at March 31,
                1998 and 1997 ..............................................  23
               Consolidated Statements of Operations for the years ended
                March 31, 1998 and 1997.....................................  24
               Consolidated Statements of Changes in Shareholders' Equity
                for the years ended March 31, 1998 and 1997.................  25
               Consolidated Statements of Cash Flows for the years ended
                March 31, 1998 and 1997.....................................  26
               Notes to Consolidated Financial Statements...................  28
Item   13.     Exhibits, List and Reports on Form 8-K.......................  50


<PAGE>


ITEM 1.     BUSINESS

RISK FACTORS

          THE COMPANY  FACES A VARIETY OF RISKS IN THE CONDUCT OF ITS  BUSINESS,
ANY OF WHICH  COULD  RESULT IN A MATERIAL  ADVERSE  EFFECT ON THE  COMPANY,  ITS
BUSINESS AND ITS FINANCIAL  PERFORMANCE.  CERTAIN OF THESE RISKS ARE  SUMMARIZED
BELOW.  THIS SUMMARY IS NOT  INTENDED TO BE A COMPLETE  LIST OF ALL MATTERS THAT
COULD  ADVERSELY  AFFECT  THE  COMPANY,  AND THERE ARE MANY  FACTORS  BEYOND THE
COMPANY'S CONTROL THAT AFFECT IT, ITS BUSINESS AND ITS FINANCIAL PERFORMANCE.

VOLATILE NATURE OF SECURITIES BUSINESS

      The  securities  business  is, by its  nature,  subject to various  risks,
particularly  in  volatile  or illiquid  markets,  including  the risk of losses
resulting from the underwriting or ownership of securities,  trading,  arbitrage
and  merchant  banking  activities,  counterparty  failure to meet  commitments,
customer fraud,  employee fraud,  misconduct and errors,  failures in connection
with the processing of securities transactions and litigation.

      A securities  firm's business and its  profitability  are also affected by
the  firm's  credit  capacity  or  perceived  creditworthiness  and  competitive
factors,  including the ability to attract and retain highly skilled  employees.
These and other factors may contribute to reduced levels of new issue or merger,
acquisition,   restructuring,   and  leveraged  capital  activities,   including
leveraged  buyouts and high-yield  financing,  or the level of  participation in
financing and  investment  related to such  activities,  generally  resulting in
lower revenues from investment and merchant  banking fees and  underwriting  and
corporate development investments. Reduced volume of securities transactions and
reduced  market  liquidity  generally  result in lower  revenues from dealer and
trading activities and commissions.

      Lower  price  levels of  securities  may  result  in a  reduced  volume of
transactions  and in losses from declines in the market value of securities held
in trading,  investment  and  underwriting  positions.  Sudden sharp declines in
market values of  securities  and the failure of issuers and  counterparties  to
perform their obligations can result in illiquid markets.  In such markets,  the
Company may not be able to sell  securities and may have  difficulty in covering
its  securities  positions.  Such  markets,  if  prolonged,  may also  lower the
Company's  revenues  from  investment   banking,   merchant  banking  and  other
investments,  and could have a material adverse effect on the Company's  results
of operations and financial condition.

      The  Company's   principal  business   activities,   investment   banking,
securities sales and trading and correspondent  brokerage services are, by their
nature,  highly  competitive  and  subject to various  risks,  volatile  trading
markets and  fluctuations in the volume of market  activity.  Consequently,  the
Company's net income and revenues have been,  and may continue to be, subject to
wide  fluctuations,  reflecting  the impact of many factors beyond the Company's
control,  including  securities market  conditions,  the level and volatility of
interest rates, competitive conditions and the size and timing of transactions.

      The securities business and its profitability are affected by many factors
of a  national  and  international  nature,  including  economic  and  political
conditions,  broad trends in business and finance,  legislation  and  regulation
affecting the national and  international  business and  financial  communities,
currency values, inflation, market conditions, the availability of short-term or
long-term funding and capital, the credit capacity or perceived creditworthiness
of the security  industry in the  marketplace  and the level and  volatility  of
interest rates.

SIGNIFICANT COMPETITION WITHIN THE SECURITIES INDUSTRY

      The  Company  encounters  significant  competition  in all  aspects of the
securities  business and competes  worldwide  directly  with other  domestic and
foreign securities firms, a number of which have greater capital,  financial and
other  resources  than the  Company.  In  addition  to  competition  from  firms
currently in the securities business, there has been increasing competition from
other sources, such as commercial banks and investment boutiques.

      As a result of anticipated  legislative and regulatory  initiatives in the
U.S.  to remove or relieve  certain  restrictions  on  commercial  banks,  it is
possible  that  competition  in some markets  currently  dominated by investment
banks may increase in the near future.

      Such  competition  could also affect the Company's  ability to attract and
retain  highly  skilled  individuals  to conduct  its  various  businesses.  The
principal  competitive  factors  influencing  the  Company's  business  are  its
professional  staff, the Company's  reputation in the marketplace,  its existing
client  relationships,  the ability to commit capital to client transactions and

                                       2
<PAGE>

its mix of market capabilities.  The Company's ability to compete effectively in
securities  brokerage and investment  banking activities will also be influenced
by the adequacy of its capital  levels.  In addition,  the Company's  ability to
expand its business may depend on its ability to raise additional  capital.  See
"Description of Business Competition".

BUSINESS SUBJECT TO EXTENSIVE FEDERAL, STATE AND FOREIGN REGULATIONS

      The  Company's  business is, and the  securities  industry  generally  is,
subject to  extensive  regulation  in the United  States,  Austria and all other
Central and Eastern European states where its subsidiaries  operate at the state
level, as well as by industry SROs. The Company is also subject to regulation by
various foreign financial regulatory authorities in the jurisdictions outside of
the  United  States,  Austria  and  Central  and  Eastern  Europe  where it does
business,  including  by The  Securities  and  Futures  Authority  of the United
Kingdom. See "Description of Business Governmental Regulation".

      The Company's business, and the securities industry generally, are subject
to  extensive  regulation  in the United  States at both the  federal  and state
levels. In addition,  SROs such as the NASD require strict compliance with their
rules and  regulations.  Failure  to  comply  with any of these  laws,  rules or
regulations could result in fines,  suspension or expulsion,  which could have a
material adverse affect upon the Company.

      The scope of EBI Securities' and Eastbrokers NA's broker dealer operations
are subject to the terms of their  respective  Restriction  Agreements  with the
NASD. In the event that EBI  Securities or  Eastbrokers NA violates the terms of
its Restriction  Agreement,  its NASD membership can be suspended or revoked and
the NASD may impose fines upon or censure  either EBI  Securities or Eastbrokers
NA.

      Compliance with many of the regulations applicable to the Company involves
a number of risks,  particularly  in areas where  applicable  regulations may be
unclear.  The SEC, the  Austrian  Ministry of Finance  (the  "Ministry"),  other
governmental regulatory authorities,  including state securities regulators, and
SROs, including the Vienna Stock Exchange Chamber, may institute  administrative
or judicial proceedings or arbitrations which may result in censure, fine, civil
penalties  (including treble damages in the case of insider trading violations),
the issuance of cease-and-desist  orders, the de-registration or suspension of a
broker-dealer,  investment adviser or futures commission merchant, the statutory
disqualification  of its officers or employees  or other  adverse  consequences,
and, even if none of such actions is taken, could have a material adverse effect
on the Company's  perceived  creditworthiness,  reputation and  competitiveness.
Customers of the Company or others who allege that they have been damaged by the
Company's   violation  of  applicable   regulations  also  may  seek  to  obtain
compensation from the Company,  including the unwinding of any transactions with
the Company.

      Additional  legislation and  regulations,  including those relating to the
activities of affiliates of broker-dealers,  changes in rules promulgated by the
SEC,  the  Ministry  or  other  Austrian  or  foreign  governmental   regulatory
authorities and SROs or changes in the interpretation or enforcement of existing
laws and rules may adversely affect the manner of operation and profitability of
the Company.

      The  Company's   businesses  may  be  materially   affected  not  only  by
regulations  applicable to it directly in the conduct of its business,  but also
by the effect laws, rules and regulations of general application may have on the
market for the Company's products and services.  For example,  the volume of the
Company's underwriting,  merger and acquisition and merchant banking business in
any year could be affected  by,  among other  things,  existing and proposed tax
legislation,  antitrust policy and other  governmental  regulations and policies
(including  the  interest  rate  policies)  and  changes  in  interpretation  or
enforcement  of existing  laws and rules that affect the business and  financial
communities.  From time to time, various forms of anti-takeover  legislation and
legislation that could affect the benefits  associated with financing  leveraged
transactions  with  high-yield  securities  have been proposed that, if enacted,
could  adversely  affect  the volume of merger and  acquisition  and  investment
banking   business,   which  in  turn  could  adversely   affect  the  Company's
underwriting, advisory and trading revenues related thereto.

MARKET, CREDIT AND LIQUIDITY RISKS ASSOCIATED WITH UNDERWRITING AND TRADING
ACTIVITIES

      The  Company's   underwriting,   securities  trading,   market-making  and
arbitrage  activities  are conducted by the Company as principal and subject the
Company's  capital to significant  risks,  including  market,  credit (including
counterparty) and liquidity risks.

      The  Company's   underwriting,   securities  trading,   market-making  and
arbitrage  activities  often  involve  the  purchase,   sale  or  short-sale  of
securities  as  principal  in  markets  that may be  characterized  by  relative
illiquidity or that may be  particularly  susceptible to rapid  fluctuations  in
liquidity.  The Company from time to time has large position  concentrations  in
certain  types  of  securities  or  commitments  and  in  the  securities  of or
commitments  to a single  issuer,  including  sovereign  governments  and  other

                                       3
<PAGE>


entities, issuers located in a particular country or geographic area, or issuers
engaged  in a  particular  industry.  Through  its  subsidiaries  and  affiliate
offices,  the  Company  engages  in  proprietary  trading  of  Eastern  European
securities  with an emphasis  on  government  and  corporate  bonds,  local debt
instruments and Central and Eastern  European equity  securities,  which involve
risks associated with the political  instability and relative currency values of
the nations in which the issuer  principally  engages in business as well as the
risk of  nationalisation.  In  addition,  the  Company  has,  from time to time,
substantial  position  concentrations  in high yield issuers or  commitments  to
high-yield issuers.

      These securities generally involve greater risk than investment-grade debt
securities due to credit considerations,  liquidity of secondary trading markets
and  vulnerability  to general economic  conditions.  The level of the Company's
high-yield  securities  inventories  and the impact of such  activities upon the
Company's  results of operations can fluctuate from period to period as a result
of customer demands and economic and market considerations.

      In addition,  the trend in all major capital markets,  for competitive and
other reasons,  toward larger commitments on the part of lead underwriters means
that,  from  time to  time,  an  underwriter  may  retain  significant  position
concentrations  in  individual  securities.  Such  concentrations  increase  the
Company's exposure to specific credit,  market and political risks. In addition,
material  fluctuations in foreign  currencies  vis-a-vis the U.S. Dollar, in the
absence of countervailing covering or other procedures,  may result in losses or
gains in the  carrying  value of  certain  of the  Company's  assets  located or
denominated in non-U.S. jurisdictions or currencies.

      The Company derives a significant  portion of its revenue from commissions
generated by its broker dealers from retail brokerage transactions in equity and
debt securities,  underwriting  activities and private  placements.  The Company
believes that as the business of the broker dealers develops, the broker dealers
will engage in securities  trading for their own accounts.  These activities may
involve the  purchase,  sale or short sale of  securities as a principal and the
risk of a change in the market price of such securities and of a decrease in the
liquidity  of  markets,  all of which may limit the broker  dealer's  ability to
resell  securities  it  purchased  or to  repurchase  securities  sold  in  such
transactions.  Principal and underwriting  transactions  also involve  economic,
political, credit, currency, interest rate and other related risks, any of which
could  result  in an  adverse  change  in  the  market  price  of  the  relevant
securities. See "Management's Discussion and Analysis or Plan of Operation".

CAPITAL INTENSIVE NATURE OF AND POTENTIAL LOSSES RESULTING FROM MERCHANT
BANKING ACTIVITIES

      Securities  firms,  including the Company,  increasingly  facilitate major
client  transactions and transactions  sponsored by their  proprietary  pools of
capital by using their own capital in a variety of  investment  activities  that
have been broadly described as merchant banking.

      Such activities  include,  among other things,  purchasing  equity or debt
securities  or  making  commitments  to  purchase  such  securities  in  merger,
acquisition,   restructuring  and  leveraged  capital  transactions,   including
leveraged buyouts and high-yield  financing.  Such positions and commitments may
involve  substantial  amounts of capital  and  significant  exposure  to any one
issuer or  business,  as well as market,  credit  and  liquidity  risks.  Equity
securities purchased in these transactions  generally are held for appreciation,
are not readily  marketable and typically do not provide dividend  income.  Debt
securities  purchased in such  transactions  typically rank  subordinate to bank
debt of the issuer and may rank  subordinate  to other  debt of the  issuer.  In
addition, the Company also provides and arranges bridge financing, which assures
funding for major  transactions,  with the expectation  that refinancing will be
obtained  through the placement of  high-yield  debt or other  securities.  Such
activities  may also  involve  substantial  amounts of capital  and  significant
exposure  to any one  issuer as well as various  risks  associated  with  credit
conditions and vulnerability to general economic conditions.

      There can be no assurance that the Company will not experience significant
losses as a result of such activities.  See Item 6 "Management's  Discussion and
Analysis or Plan of Operation".

DERIVATIVE FINANCIAL INSTRUMENTS

      At the present time, the Company does not engage in the use of derivatives
financial instruments. In many of the countries where the Company has operations
(i.e., Kazakhstan and Bulgaria),  the local currencies are referred to as "soft"
or  "exotic".  As such,  there  are very few,  if any,  cost  effective  hedging
strategies  available  to the  Company or  potential  investors.  The  Company's
inability to engage in currency  hedging  activities  may result in its earnings
being subject to greater volatility due to exchange rate fluctuations.

                                       4
<PAGE>

REQUIREMENTS FOR ADDITIONAL CAPITAL

      The Company may need to raise  additional funds to provide working capital
or in order for the Company to respond to unforeseen  needs or to take advantage
of  unanticipated  opportunities.  Over the longer  term,  it is likely that the
Company  will  require  substantial  additional  monies to  continue to fund the
Company's  working capital needs.  There can be no assurance that any such funds
will be available at the time or times needed,  or available on terms acceptable
to the Company.  If adequate  funds are not available on acceptable  terms,  the
Company may not be able to take  advantage of market  opportunities,  to develop
new services or products or otherwise  respond to  competitive  pressures.  Such
inability  could  have a  material  adverse  effect on the  Company's  business,
financial condition and results of operations.

DEPENDENCE UPON AVAILABILITY OF CAPITAL AND FUNDING

      A  substantial  portion of the Company's  total assets  consists of highly
liquid marketable securities and short-term  receivables arising from securities
transactions. The highly liquid nature of these assets provides the Company with
flexibility  in financing  and managing its  business.  However,  certain of the
Company's  activities such as merchant banking  frequently  involve  substantial
capital commitments in securities which are often illiquid. The funding needs of
the Company are satisfied from internally generated funds and capital, including
equity,  long-term  debt and short-term  borrowings  which consist of securities
sold under agreements to repurchase ("repurchase agreements"),  master notes and
committed and uncommitted lines of credit.

      All repurchase transactions and a portion of the Company's bank borrowings
are made on a collateralized basis. Liquidity management includes the monitoring
of assets available to hypothecate or pledge against short-term  borrowing.  The
Company maintains borrowing relationships with a broad range of banks, financial
institutions,  counterparties and others. The volume of the Company's borrowings
generally fluctuates in response to changes in the amount of resale transactions
outstanding,  the level of the  Company's  securities  inventories  and  overall
market  conditions.  Availability of financing to the Company can vary depending
upon  market  conditions,  the  volume of  certain  trading  activities,  credit
ratings,  credit  capacity  and  the  overall  availability  of  credit  to  the
securities  industry and there can be no assurance  that  adequate  financing to
support the  Company's  businesses  will continue to be available in the future.
See Item 6 "Management's Discussion and Analysis or Plan of Operation".

POTENTIAL RESTRICTIONS ON BUSINESS OF, AND WITHDRAWAL OF CAPITAL FROM,
REGULATED SUBSIDIARIES RESULTING FROM NET CAPITAL REQUIREMENTS

      As a  registered  broker-dealer  and member of  numerous  stock  exchanges
throughout  Central and Eastern  Europe,  the Company is required to comply with
each of the countries' regulatory authorities and net capital rules of the stock
exchanges.  These rules,  which  specify  minimum net capital  requirements  for
registered  broker-dealers  and stock exchange  members,  are designed to assure
that  broker-dealers  maintain adequate  regulatory capital in relation to their
liabilities  and the size of their  customer  business  and have the  effect  of
requiring that at least a substantial portion of their assets be kept in cash or
highly liquid investments.  Compliance with such net capital  requirements could
limit operations that require the intensive use of capital, such as underwriting
and trading activities. These rules also could restrict the Company's ability to
withdraw capital from the regulatory  authorities,  even in circumstances  where
these  authorities  hold more than the minimum amount of the Company's  required
capital,  which in turn,  could  prevent or limit the  Company's  ability to pay
dividends, repay debt and redeem or repurchase shares of its outstanding capital
stock.

POTENTIAL SECURITIES LAWS LIABILITY

      Many  aspects  of the  Company's  business  involve  substantial  risks of
liability.  In recent years,  there has been increasing  incidence of litigation
involving the securities  industry,  including class actions that generally seek
substantial  damages.  Companies engaged in the underwriting and distribution of
securities  are exposed to substantial  liability  under  applicable  securities
laws.

DEPENDENCE ON PERSONNEL AND CERTAIN KEY MANAGEMENT

      Most aspects of the  Company's  business are  dependent on  highly-skilled
individuals. The Company devotes considerable resources to recruiting,  training
and compensating  such individuals and has taken further steps to encourage such
individuals  to remain in the  Company's  employ.  Individuals  employed  by the
Company  may,  however,  choose to leave the Company at any time to pursue other
opportunities.   In  addition,  the  operation  of  the  Company's  business  is
principally dependent on certain key management personnel. In particular, Martin

                                       5
<PAGE>

A. Sumichrast,  Wolfgang Kossner, and Peter Schmid have played significant roles
in the promotion,  development and management of the Company.  Wolfgang  Kossner
serves  in an  advisory  role  and is not  compensated  by the  Company.  If Mr.
Kossner's affiliation to the Company were to cease, or he was unable to continue
to  serve  in this  role,  there  may be a  significant  adverse  effect  on the
performance of the Company as a whole. Martin A. Sumichrast and Peter Schmid are
officers,  directors,  and  employees of the Company.  If the  employment by the
Company of either of these two people terminates,  or they are unable to perform
their duties,  there may be a significant  adverse effect on the  performance of
the Company as a whole.  The Company's  potential  growth and any expansion into
areas and  activities  such as new markets or the  development  of new  products
requiring  additional  expertise will be expected to place additional demands on
the  Company's  human  resources.  These  demands  are  expected  to require the
addition of new management personnel and the development of additional expertise
by existing  management  personnel.  The failure to acquire such  services or to
develop such  expertise  could have a material  adverse  effect on the Company's
prospects  for  success.  Competition  for  such  personnel  is  intense  and no
assurance  can be given  that the  Company  will be able to hire  and/or  retain
adequate  personnel.  At the  present  time,  the  Company  has a  key-man  life
insurance  policy in effect on Mr.  Sumichrast.  However,  no  assurance  can be
provided  that the proceeds from such policy will be adequate to offset the loss
of his services.  The Company does not have key-man life  insurance  policies in
effect  with  respect to Messr.  Kossner or Schmid.  See Item 9  "Directors  and
Executive Officers of the Registrant."

OPERATING LOSSES AND FINANCIAL CONDITION

      Since its  formation,  the  Company  has  suffered  substantial  cash flow
deficits and  operating  losses.  The net loss for the year ended March 31, 1998
was  $3,676,607.  As of such date, the Company had cash and cash  equivalents of
$7,156,702.  There can be no assurance that the Company's future operations will
be  profitable  or  that it will  have  available  funds  adequate  to fund  its
operations.  Should the  operations of the Company be  profitable,  it is likely
that the  Company  would  retain much or all of its  earnings to finance  future
growth and expansion.

"PENNY STOCK" REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON MARKETABILITY
OF SECURITIES

      The SEC has adopted regulations which generally define "penny stock" to be
any equity  security  that has a market price (as  defined)  less than $5.00 per
share or an  exercise  price  less than  $5.00 per  share,  subject  to  certain
exceptions.  The  Company's  Common  Stock is  currently  listed  in the  Nasdaq
SmallCap Market and, as a result,  such securities are currently exempt from the
definition  "penny stock." If the Common Stock is removed from listing on Nasdaq
at any time,  the Company's  securities  may become subject to rules that impose
additional  sales  practice   requirements  on  broker-dealers   who  sell  such
securities to persons other than established  customers and accredited investors
(generally,  those  persons with assets in excess of $1,000,000 or annual income
exceeding  $200,000,  $300,000  together with their  spouse).  For  transactions
covered  by these  rules,  the  broker-dealer  must make a  special  suitability
determination  for the  purchase  of  such  securities  and  have  received  the
purchaser's   written  consent  to  the  transaction   prior  to  the  purchase.
Additionally,  for any transaction  involving a penny stock,  unless exempt, the
rules  require the  delivery,  prior to the  transaction,  of a risk  disclosure
document  mandated by the  Commission  relating to the penny stock  market.  The
broker-dealer   also  must  disclose  the   commissions   payable  to  both  the
broker-dealer  and the  registered  representative,  current  quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must  disclose  this  fact and the  broker-dealer's  presumed  control  over the
market.  Finally,  monthly  statements  must be  sent  disclosing  recent  price
information  for the penny  stock held in the  account  and  information  on the
limited  market in penny  stocks.  Consequently,  the  "penny  stock"  rules may
restrict the ability of broker-dealers  to sell the Company's  securities in the
secondary market.

DILUTIVE AND OTHER ADVERSE EFFECTS OF OUTSTANDING OPTIONS AND WARRANTS

      Under  the terms of the  outstanding  Class A, B and C  warrants,  options
issued under the Company's 1996 Stock Option Plan, and other outstanding options
and warrants, the holders thereof are given an opportunity to profit from a rise
in the  market  price of the  Common  Stock  with a  resulting  dilution  in the
interests of the other  shareholders.  The terms on which the Company may obtain
additional  financing may be adversely affected by the existence of such options
and warrants.  For example, the holders of the warrants could exercise them at a
time when the Company was attempting to obtain additional  capital through a new
offering  of  securities  on terms more  favorable  than those  provided  by the
warrants and options.

POSSIBLE ADVERSE EFFECTS OF AUTHORIZATION AND ISSUANCE OF PREFERRED STOCK

      As of  December  1997 the  Company's  Board of  Directors  authorized  the
issuance of up to 10,000,000  shares of preferred stock. As of October 30, 1998,
no shares of preferred  stock were issued.  The Board of Directors has the power

                                       6
<PAGE>

to  establish  the  dividend  rates,  liquidation  preferences,  voting  rights,
redemption  and  conversion  terms,  and  all  other  rights,   preferences  and
privileges  with respect to any series of preferred  stock.  The issuance of any
series of preferred  stock having  rights  superior to those of the Common Stock
may result in a decrease  in the value or market  price of the Common  Stock and
could  be used by the  Board of  Directors  as a means to  prevent  a change  in
control of the Company.  Future  issuances  of  preferred  stock may provide for
dividends,  certain  preferences in liquidation,  as well as conversion  rights.
Such preferred  stock issuance could make the possible  takeover of the Company,
or the removal of management  of the Company,  more  difficult.  The issuance of
such preferred stock could discourage hostile bids for control of the Company in
which  shareholders  could receive  premiums for their Common Stock or warrants,
could adversely  affect the voting and other rights of the holders of the Common
Stock, or could depress the market price of the Common Stock or warrants.

DELISTING OF SECURITIES TO ADVERSELY AFFECT MARKET

            In the event that the Common Stock were to no longer meet applicable
Nasdaq  requirements and were delisted from Nasdaq, the Company would attempt to
have its  securities  traded in the  over-the-counter  market via the Electronic
Bulletin  Board or the "pink  sheets." In such event,  holders of the  Company's
securities  would  likely  encounter  greater  difficulty  in disposing of these
securities  and/or  obtaining  accurate  quotations  as to  the  prices  of  the
Company's securities.

SPECIFIC RISKS OF THE GEOGRAPHIC AREA COVERED BY THE COMPANY

      The  Company's  investments  will be  primarily in  securities  of issuers
resident in an area which is  currently in a state of flux - Central and Eastern
Europe and Central Asia. Its political  institutions  and economic  policies now
face the challenges of rapid change.  Its  population is ethnically  diverse and
cultural and religious tensions abound.  Memories of conflicts,  past injustices
and the legacy of the denial of justice and the  expropriation  of property will
continue to create  tension for years to come.  These problems will compound the
difficulties of the change from a centrally planned economy to a market economy.
For these reasons the Company's investments will be subject to risks of a nature
and degree not normally  encountered in relation to more developed economies and
additional to those inherent in any equity investment. Specific examples of some
of these risks are described below:

-  LIQUIDITY  OF  THE  COMPANY'S  INVESTMENTS:   The  nature  of  the  Company's
   investments limits their potential secondary market. Accordingly, the Company
   may not be able to achieve  the full value of its  investments  on  disposal.
   Once local stock markets are  operational,  it is anticipated  that liquidity
   will  improve,  but there  exists no  guarantee  that the markets  will be as
   liquid as those of developed countries.

-  POLITICAL  AND  ECONOMIC  FACTORS:  The  countries  in  which  the  Company's
   operations are concentrated had  centrally-planned,  socialist  economies for
   many years.  Attempts at political  and  economic  reform have been made with
   limited  success and it is impossible to foresee if such reforms will achieve
   their  intended  aims.  Restrictions  may be imposed on investing in specific
   companies or industries  which may be considered to be important or sensitive
   to  national  interests  and which  may also  represent  the best  investment
   opportunities.  In addition,  investments  may be expropriated on a change of
   government policy.

-  VALUATION RISK: Accounting and financial  reporting standards in the selected
   countries  are not  equivalent to  International  Accounting  Standards  and,
   consequently,  less  information  is  available  to investors in the selected
   countries than in more developed capital markets.  Nevertheless,  the Company
   will use for valuations,  financial reports issued by international  auditing
   firms and all other  means will be applied in order to monitor  the  unlisted
   investments.

-  PROBLEMS OF  TRANSITION AND BUSINESS FAILURE: Until  very recently, virtually
   all  industrial  output within the Comecon and Warsaw Pact countries was from
   state-owned  industry.   As  a  result,  few  individuals   understand  basic
   capitalistic  management skills and techniques.  Privatization of much of the
   region's industry and the transition to a more market-orientated economy will
   be difficult.  Industry in the region is considerably less developed and less
   efficient  than  industry in Western  Europe and, in addition to doubts as to
   the continuing  viability of much of the region's industry,  those businesses
   which  survive  are likely to require  considerable  capital  investment  and
   restructuring. The failure of one or more businesses in which the Company has
   invested may have a  significant  adverse  effect on the  performance  of the
   Company as a whole.

-  LEGAL  INFRASTRUCTURE:  The Company and its advisors will be reliant on legal
   advisors in the  jurisdictions in which it invests.  Due to the inadequacy or
   immaturity  of legal  systems in some  jurisdictions  and the  difficulty  of

                                       7
<PAGE>

   obtaining  adequate or satisfactory  legal advice, it may be impossible to be
   certain that the Company has valid legal title to the investments  located in
   such   jurisdictions  or  to  be  able  to  protect  its  interests  in  such
   investments.

-  CHANGES  IN  LAW  AND  ENFORCEMENT  OF  RIGHTS:   Legislation   relating   to
   securities,  stock markets and property  rights is either non existent or has
   been introduced very recently in several of the countries where the Company's
   operations  are  located.  Existing  legislation  is likely to be  subject to
   extensive  amendment and significant new legislation may be introduced at any
   time.  It may be  difficult  to enforce the  Company's  rights in cases where
   competing claims arise or in case of re-nationalization.

-  INVESTMENT AND REPATRIATION RESTRICTIONS:  Repatriation of investment income,
   capital  and  the  proceeds  of  sales  by  foreign   investors  may  require
   governmental registration and/or approval. A number of countries in which the
   Company  may  invest  do not  have  freely  convertible  currencies  or their
   currencies may only be convertible at rates determined by their  governments.
   Repatriation  restrictions  may also be imposed  at any time.  Changes in the
   value of currencies in which the Company's  investments are denominated  will
   result in a corresponding  change in the value of the Company's  assets which
   are  generally  denominated  in the local  functional  currencies.  Investors
   should  note that the  local  currencies  involved  may be  subject  to rapid
   devaluation against the major "hard" currencies,  with the result that delays
   in currency conversion may cause significant losses.

-  TAXATION:  Taxation of dividends and capital gains received by  non-residents
   varies among the selected  countries.  In  addition,  the selected  countries
   generally have less  well-defined tax laws and procedures,  and such laws may
   permit  retroactive  taxation.  As a result,  the Company could in the future
   become  subject to local tax  liabilities  that had not been  anticipated  in
   conducting its investment activities or valuing its assets.

ENFORCEABILITY OF CIVIL LIABILITIES

      A  substantial  portion of the  Company's  assets are located  outside the
United  States.  It may be difficult  for  investors  to enforce  outside of the
United States judgments against the Company obtained in the United States in any
actions, including actions predicated upon the civil liability provisions of the
securities laws of the United States.  In addition,  certain of the officers and
directors of the Company are not citizens or residents of the United  States and
all or a substantial portion of the assets of such persons are or may be located
outside the United  States.  As a result,  it may be difficult  for investors to
effect  service of process  within the United States  against such persons or to
enforce judgments obtained in the United States,  including judgments predicated
upon the civil liability provisions of the securities laws of the United States.

ITEM   6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

      The  information   contained  in  this  Item  includes   "forward  looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of  1995.   In   addition,   from  time  to  time,   the   Company  may  publish
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended,  and Section 21E of the  Securities and Exchange Act of
1934,  as  amended,  or make oral  statements  that  constitute  forward-looking
statements.  These  forward-looking  statements  may  relate to such  matters as
anticipated  financial  performance,   future  revenues  or  earnings,  business
prospectus, projected ventures, new products, anticipated market performance and
similar  matters.  Readers are  cautioned  not to place undue  reliance on these
forward looking  statements,  which are made as of the date hereof.  The Private
Securities   Litigation   Reform  Act  of  1995   provides  a  safe  harbor  for
forward-looking  statements.  In order  to  comply  with  the  terms of the safe
harbor,  the Company  cautions readers that a variety of factors could cause the
Company's  actual results to differ  materially from the anticipated  results or
other expectations expressed in the Company's forward-looking statements.  These
risks  and  uncertainties,  many of which  are  beyond  the  Company's  control,
include,  but are not  limited  to:  (i)  transaction  volume in the  securities
markets,  (ii) the volatility of the securities  markets,  (iii) fluctuations in
interest rates, (iv) changes in regulatory  requirements  which could affect the
cost of doing  business,  (v)  fluctuations  in  currency  rates,  (vi)  general
economic conditions, both domestic and international,  (vii) changes in the rate
of inflation and related impact on securities  markets,  (viii) competition from
existing  financial  institutions  and other new  participants in the securities
markets,  (ix) legal  developments  affecting the  litigation  experience of the
securities  industry,  (x)  changes  in federal  and state tax laws which  could
affect the  popularity  of  products  sold by the Company and (xi) the risks and
uncertainties  set forth under the caption "Risk  Factors" which appears in Item
1.  Further,  the Company  undertakes  no  obligation  to release  publicly  any
revisions to these forward looking statements to reflect events or circumstances
occurring  after  the  date  hereof  or  to  reflect   unanticipated  events  or
developments.

                                       8
<PAGE>

GENERAL

      The following  discussion of the Company's financial condition and results
of operations  should be read in conjunction  with the financial  statements and
notes thereto appearing elsewhere in this Form 10-KSB.

      The Company's principal  activities changed dramatically during the fiscal
year ended March 31, 1997.  The Company  completely  disposed of its interest in
the Hotel  Fortuna,  a.s.  (the  "Hotel") and acquired  Eastbrokers  Vienna,  an
Austrian based securities  broker-dealer providing financial services in Central
and Eastern Europe through its network of subsidiaries and affiliate offices.

      The earnings of the Company are subject to wide  fluctuations  since there
are many factors over which the Company has little or no control. In particular,
the  overall  volume of trading,  the  volatility  and  general  level of market
prices,  and  fluctuations  in foreign  currency  exchange  rates are  important
variables which may significantly affect its operations.

      Through its subsidiary,  Eastbrokers  Vienna, the Company acquired a 48.1%
interest in the  outstanding  capital  stock of WMP on August 1, 1996.  WMP is a
stock  broker-dealer  and market  maker in Vienna,  Austria and is licensed as a
class B bank under Austrian law. A Class B bank may, at its discretion,  conduct
any of the normal activities associated with a bank with one major exception; it
cannot  accept  customer  deposits.  From time to time  Eastbrokers  Vienna  has
carried shares of WMP.  Accordingly,  since August 1996, the Company's ownership
of WMP has  exceeded  50%  including  WMP shares in its  trading  portfolio.  At
December  31,  1996,  the  Company's  aggregate  ownership  percentage  in  WMP,
including its trading position, was 55%. This investment was accounted for using
the equity  method in the March 31,  1997  financial  statements  as the Company
believed  that its control of WMP may likely have been lost as the result of the
probable  occurrence  of certain  events  that lay  outside of its  control.  In
September,  1997 circumstances  surrounding these events were resolved such that
these events were no longer  considered  probable of occurrence  and the Company
deemed its  control of WMP was no longer  temporary.  Accordingly,  the  Company
began  consolidating  its  investment in WMP effective with its third quarter of
fiscal 1998 financial statements.  For the fiscal year ended March 31, 1998, WMP
has been  consolidated  for the entire year. At December 31, 1997, the Company's
aggregate ownership interest in WMP was 52%.


PLAN OF OPERATION

      On August 1, 1996, the Company  consummated its acquisition of Eastbrokers
Vienna  reflecting  its previously  stated  objective of seeking to invest into,
merge with or  acquire  one or more  companies  in growth  oriented  industries.
Although  the  Company's  focus had been  primarily in the Czech  Republic,  its
original mission was to pursue such investment  opportunities throughout Eastern
and Central  Europe.  The  acquisition of Eastbrokers  Vienna is intended to not
only  provide an earnings  stream  from its core  brokerage  business,  but also
positions  the  Company to provide  investment  banking  and  corporate  finance
services in an emerging market infrastructure and growth industries.

      The  Company's  business  strategy  is to (1) utilize  its  marketing  and
Central and Eastern  Europe  emerging  market  expertise  to take  advantage  of
opportunities  for growth in this sector of the global  securities  market;  (2)
develop  the base of its asset  management  business  through  concentrating  on
Central and Eastern European debt and equity securities; (3) enhance and develop
the Company's  merchant banking  activities;  (4) identify  potential  corporate
finance  candidates for investment  banking  opportunities;  and (5) utilize its
expertise in the privatization activities still available in Central and Eastern
Europe.  Management also believes there are significant  opportunities available
in this region for specialized account and institutional sales.

      While  investing  in the  emerging  markets of Central and Eastern  Europe
involves  risk  considerations  not  typically   associated  with  investing  in
securities of U.S. issuers,  the Company believes that such  considerations  are
outweighed by the benefits of diversification and potentially superior returns.

      Among the considerations involved in investing in emerging markets such as
Central and  Eastern  Europe is that less  information  may be  available  about
foreign companies than about domestic companies.  Foreign companies are also not
generally  subject to  uniform  accounting,  auditing  and  financial  reporting
standards or to other regulatory practices and requirements  comparable to those
applicable  to  domestic  companies.  In  addition,  unlike  investing  in  U.S.
companies, securities of non-U.S. companies are generally denominated in foreign
currencies,  thereby  subjecting  each  security  to  changes  in value when the

                                       9
<PAGE>

underlying  foreign  currency  strengthens or weakens  against the U.S.  Dollar.
Currency  exchange rates can also be affected  unpredictably  by intervention of
U.S.  or  foreign  governments  or  central  banks or by  currency  controls  or
political developments in the U.S. and abroad.

      The value of international fixed income products also responds to interest
rate changes in the U.S. and abroad. In general, the value of such products will
rise when  interest  rates fall,  and fall when  interest  rates rise.  However,
interest rates in each foreign country and the U.S. may change  independently of
each other.

      Debt and equity securities in emerging markets such as Central and Eastern
Europe  may  also  not be as  liquid  as  U.S.  securities  and  their  markets.
Securities of some foreign companies may involve greater risk than securities of
U.S companies.  Investing in Central and Eastern European securities may further
result in higher expenses than investing in domestic securities because of costs
associated  with  converting  foreign  currencies  to U.S.  Dollars and expenses
related  to foreign  custody  procedures.  Investment  in  Central  and  Eastern
European  securities may also be subject to local  economic or political  risks,
including  instability of some foreign governments,  inadequate market controls,
the possibility of currency  blockage or the imposition of withholding  taxes on
dividend  or   interest   payments   and  the   potential   for   expropriation,
re-nationalization  or  confiscatory  taxation  and  limitations  on the  use or
repatriation of funds or other assets.

RESULTS OF OPERATIONS

   FISCAL YEAR 1997 COMPARED WITH THE FISCAL YEAR 1998

      As noted in the "General" section, the Company's principal activities have
changed  dramatically  during the past two fiscal years.  During the fiscal year
ended March 31,  1997,  the Company  completely  disposed of its interest in the
Hotel  and  acquired   Eastbrokers   Vienna,   an  Austrian   based   securities
broker-dealer providing financial services in Central and Eastern Europe through
its network of subsidiaries  and affiliate  offices.  Readers of this Report are
cautioned  that a  comparison  between  Fiscal Year Ended March 31, 1997 and the
Fiscal  Year  Ended  March  31,  1998  may  provide  only   minimal   meaningful
information.

      A  non-recurring  item  reflected in the operations of the Company for the
year ended March 31, 1997 is the gain on the  disposition  of available for sale
securities  of  Moravacentrum  a.s.  of  $229,574.   Other  non-recurring  items
reflected  in the  operations  for the year ended March 31, 1997 are the loss on
discontinued  operations of  approximately  $1,300,000 on the disposition of the
Company's  entire  interest  in the  Hotel  and the gain on the  disposition  of
available  for  sale  securities  which  resulted  in a fourth  quarter  gain of
approximately  $655,000. A non-recurring item reflected in the operations of the
Company for the year ended March 31,  1998  includes  the sale of the 51 percent
interest in  Su(beta)warenindustrie  Beteiligungs  GmbH ("SWIB") to Peter Schmid
for approximately $1,000,000.

      As an overview of the year ended March 31,  1997,  Eastbrokers  Vienna was
first  consolidated  on  August  1,  1996 and has a  calendar  year  end.  It is
important to note that the  Consolidated  Statements of Operations  includes the
revenues  and  expenses  of  Eastbrokers  Vienna for the period from the date of
acquisition  (August 1, 1996) through December 31, 1996 (a five month period) in
accordance  with  Note 1 to the  financial  statements.  See  Item 7  "Financial
Statements."  The  overall  increase  in the volume of revenue  and  expenses is
indicative  of a  change  from  a  one  location,  single  operating  unit  to a
multi-location, diverse entity.

      Pro  forma  results  of  operations  as  presented  in Note 5 -  "Business
Acquisitions"  reflect  total  revenues  for the year  ended  March 31,  1997 as
$8,559,786.  Comparing  total  revenues  for the year ended  March 31, 1998 (the
first full year of consolidated  operations) of $10,342,976 to pro forma results
of operations for the year ended March 31, 1997, shows an increase of $1,783,190
USD.

      The net  tax  benefit  represents  the  cumulative  effect  of  individual
subsidiaries' unique tax calculations.  In some instances, certain revenue items
are  non-taxable  in accordance  with statutory  requirements  in the country in
which the office is located.  In others,  net  operating  losses  available  for
carryforward  created a tax benefit.  As discussed in Note 13 - "Income  Taxes",
the  Company  has   approximately   $11,000,000   USD  in  net  operating   loss
carryforwards  available  in Austria  and  approximately  $3,018,000  USD in net
operating  loss  carryforwards  available for future use in the U.S. The Company
has  established a valuation  allowance for the U.S. net operating  losses.  The
Company also expects its Austrian  operations to return to  profitability in the
fiscal  year  ended  March 31,  1999 as its  efforts  in  various  privatization
activities are realized and such  activities  should generate an increase in the
value of certain Company  holdings.  Further,  the Austrian net operating losses
are available for carryforward indefinitely.  Accordingly,  the Company believes
it is more likely than not that these  benefits  will be realized in the future.
Regulations in the Slovak  Republic  provide  capital gain  distribution  income
related to Slovak  privatization  activities is non-taxable.  Eastbrokers Vienna
was actively  involved in such activities and received such income in the fiscal
quarter ended March 31, 1998. It is unlikely that  Eastbrokers  Vienna will have

                                       10
<PAGE>

similar transactions in the future. As noted in the following  paragraph,  other
activities occurred in the fourth quarter that contributed to the current year's
tax benefit.  The U.S. net operating loss  carryforwards will expire, if unused,
in varying  amounts  through the year 2013.  The Company does not anticipate any
significant changes in the effective tax rates.

      In Europe,  the expenses of the Company generally  increase in the quarter
ending December 31 as compared to the quarter ending  September 30 due primarily
to a  "seasonal"  effect.  July and August are  typically  "holiday"  (vacation)
months in Europe.  Revenues and expenses  generally respond  accordingly to this
seasonal effect. The quarter ending December 31 is typically a strong quarter in
Europe as people return from holiday and seek to complete  pending  transactions
by calendar year end. The Company is also  pursuing  several  corporate  finance
opportunities  and has found that  outsourcing  portions of the work to industry
experts is sound corporate policy to manage  personnel and overhead costs.  Many
of the  projects  began  in late  September/early  October  1996  and  1997  and
continued  through year end.  General and  administrative  expenses,  as well as
other operational  expenses,  increased due to the Company's  increased focus on
privatization  activities  in  countries  that are  currently  in the process of
opening  their  markets  to  western  investors.  Involvement  in  privatization
activities generally involves much time and patience as the investments begin to
come to fruition.  Prior experience in the  privatization  process is one of the
Company's more important abilities.

      The costs  associated  with the  Company's  involvement  in  privatization
activities,  its  pursuit of  corporate  finance  opportunities,  the  continued
downturn of the economy of the Czech  Republic and the effect this  downturn has
had on the Company's  operations,  the costs  associated with the acquisition of
Eastbrokers  Vienna  and the  establishment  of  Eastbrokers  NA and an  overall
increase  in  general  and  administrative  expenses  are  the  primary  factors
contributing to the negative operating cash flows experienced in the fiscal year
ended March 31, 1998. The Company  anticipated to offset many of these operating
expenses with revenue generated from brokerage commissions of Eastbrokers NA and
ongoing  privatization  projects  in  Central  and  Eastern  Europe.  With  this
unexpected  decrease in revenue and increased  cost,  the  Company's  $3,676,607
operating  loss  was  significantly   larger  than   anticipated.   The  Company
anticipates  that  preliminary  work  performed  related  to  corporate  finance
activities will begin  generating  operating cash flows in the second quarter of
the  Company's  fiscal year ending March 31, 2000 and its efforts in the various
privatization  activities  will begin  generating  operating cash flows near the
beginning of 1999. However, there is no guarantee that such operating cash flows
will materialize by the anticipated  dates or whether they will be sufficient to
offset other operating expenses.

      Significant items on the statements of cash flows are primarily related to
customers'  receivables,  payables, and the related underlying  securities.  The
Company's  policy is to close as many open  positions as possible at fiscal year
end and  re-evaluate  its  strategic  focus as it moves into the first  quarter.
Also,  the  regulatory  bodies in several of the  countries in which the Company
operates  prefer to see a strong,  liquid balance sheet at year end. The Company
strives to accommodate the needs of these regulatory agencies.

      As a broker/dealer in securities,  the Company will  periodically  acquire
positions  in  securities  on behalf of its  clients.  As disclosed in "Note 3 -
Financial  Instruments",  the Company has title to various financial instruments
in the  countries  in which it  operates.  Certain of these  investments  may be
characterized   as  relatively   illiquid  and  potentially   subject  to  rapid
fluctuations  in liquidity.  Those  securities  are classified as "available for
sale securities".  As of March 31, 1997, the Company's material concentration in
the  securities  portfolio  is limited to its  investment  in Vodni Stavby Praha
a.s.,  a  security  traded on the  Prague  Stock  Exchange  Main  Market  (Czech
Republic).  As of March 31, 1997,  the market value of the  Company's  ownership
interest in this security was  approximately  $1,750,000.  As of March 31, 1998,
the Company has 3 significant  concentrations  in the  securities  portfolio.  A
description of these  securities and their  respective  carrying  amounts are as
follows:  a security of a Russian chemical  producer traded on the OTC market of
the  Vienna   Stock   Exchange  --   $1,030,270,   a  security  of  a  Bulgarian
pharmaceutical company traded on the Bulgarian Stock Exchange --$3,185,630,  and
a security of a Bulgarian oil refinery traded on the Bulgarian Stock Exchange --
$1,354,830.  All other  securities are relatively  liquid and the carrying value
approximates the market value as of the balance sheet date. The Company does not
have any  material  concentrations  to high  yield  issuers  or  commitments  to
high-yield issuers as of the balance sheet date.

      The Company  recognizes it has  concentrated  a significant  amount of its
assets as advances to its  affiliates  and  investments  in  affiliates.  At the
present  time,  the bulk of these  loans  have  been  related  to  privatization
activities. Since the Company's affiliates are generally accounted for as equity
investments, these advances do not eliminate on consolidation.  Receivables from
affiliated  companies  and other  receivables  are due on  demand.  The  Company

                                       11
<PAGE>

expects to collect these  receivables  within the next 12 months.  For the years
ended  March 31,  1997 and 1998,  the  Company  has  investments  in  affiliated
companies  of  $8,272,240  and  $156,800,  respectively,  and  receivables  from
affiliated   companies  of  $1,511,917   and   $2,286,277,   respectively.   The
concentration of investments in affiliates by country are as follows: for 1997 -
Austria --  $7,755,997,  Bulgaria -- $332,584,  Slovenia -- $114,529,  Others --
$69,130;  and for 1998 - Slovenia  and  Croatia  --  $156,800.  The  significant
decline in the investments in affiliated companies is primarily  attributable to
the acquisition of additional  ownership interest in WMP and the conversion from
the equity method to full  consolidation for this subsidiary.  The concentration
of receivables from affiliates by country are as follows:  for 1997 - Austria --
$675,456, Bulgaria -- $536,587, Slovenia -- $150,994, Czech Republic -- $72,994,
Others -- $75,886;  and for 1998 - Austria -- $2,286,277.  The cash  investments
noted  in the  statements  of  cash  flows  consist  of  direct  investments  in
affiliates  and the  advances  to  affiliates.  These cash  investments  in each
affiliate  for the year ended March 31, 1997 were as follows:  WMP  (Austria) --
$2,455,880,  Bulgaria --  $894,513,  Slovenia  --  $150,994,  Czech  Republic --
$72,994, and Others -- $44,756. These cash investments in each affiliate for the
year ended March 31, 1998 were as follows:  Eastbrokers NA -- $512,036. As noted
elsewhere in this Form 10-KSB, Eastbrokers Vienna owns 51 percent of WMP. During
the year ended March 31,  1997,  Eastbrokers  Vienna  participated  in a capital
increase in WMP in which it acquired  additional  shares  sufficient to maintain
its proportionate ownership percentage.

      The operating  activities of the  Eastbrokers  Vienna are impacted by many
different  factors.  Some of the more  important  factors  are  security  market
conditions,  level and  volatility of interest  rates,  competitive  conditions,
economic and  political  conditions,  inflation,  availability  of short-term or
long-term funding and capital, and the volume of securities transactions done by
the firm.  These  factors will be addressed on a country by country  basis where
significant Eastbrokers Vienna's operations are located.

      AUSTRIA.  On July 1, 1996, the Vienna Stock Exchange ("VSE") introduced an
electronic   trading  system  to  its  continuous   trading  section  which  has
significantly  reduced  the  overall  volume  of  institutional  trades  through
independent brokers.  Until that point in time,  independent brokers such as WMP
handled  many  of  these  types  of  trades.   This  change   accounted  for  an
approximately  25 percent  decline in WMP's 1996  revenues.  In response to this
change by the VSE, WMP has applied for an expanded  banking  license which would
allow it to hold  customer  accounts and perform  other  banking  functions  and
develop  new  revenue  streams.  In  addition,  WMP has  become a member  of the
European  Association  of Securities  Dealers  ("EASD") and is expected to begin
market making activities on the EASDAQ within the next 12 months.  There were no
significant  changes in the overall  competitive  conditions  between  brokerage
companies except for the  introductions of the electronic  trading system to the
continuous trading section of the VSE. The total volume of transactions  handled
by the Austrian offices increased in 1996 but the average profit per transaction
decreased in 1996 as compared with 1995. At 2.5 percent, Austria's real economic
growth in 1997 was higher than  projected,  mainly thanks to the solid expansion
of real goods exports of 14.9 percent. This favorable development is to the most
part attributable to stepped-up  foreign trade activity and hefty gains recorded
by Austria's export markets.  Austria's  accession to the European Union and the
opening up of Eastern  Europe  have  helped  Austrian  exports  advance  from 37
percent  in 1994 to 44  percent  in 1996.  In  addition,  the  stabilization  of
European  exchange  rates largely  reversed the downtrend of the real  effective
exchange rate in the past few years.  Starting in 1993, the  devaluations of the
weak currencies had gradually undermined Austria's competitiveness. This changed
for the  better  in 1996  and  1997,  not  least  owing to the  prospect  of the
establishment  of EMU,  and  resulted in a  cumulative  improvement  of the real
effective  exchange rate of 5.4 percent in 1996 and 1997. The confluence of this
development and wage moderation  significantly  shored up the competitiveness of
the Austrian economy in the past two years, pushing it back to the level it held
in the early  1990s.  At 5.1  percent,  the federal  budget  deficit  posted its
highest  level  in 1995.  By 1997 it had been  trimmed  to 2.5  percent  through
subdued public  consumption and tax hikes, so that Austria would meet the fiscal
convergence criteria of the Maastricht Treaty. In the opinion of management, the
outlook for the Austrian economy in 1998 and 1999 is very positive.  In its most
recent  projections  the  Austrian  Institute  for  Economic  Research  ("WIFO")
projects  growth  rates  of 3  percent  and  3.2  percent  for  1998  and  1999,
respectively.  Interest  rates  as  measured  by an  average  commercial  credit
declined  from 7.82  percent in 1995 to 6.96  percent in 1996 to 6.50 percent in
1997 and  further to 6.39  percent in August  1998.  The  overall  economic  and
political  situation  in Austria  has been very  stable and the  government  has
worked  diligently to reduce  budgetary  pressure.  The annual deficit peaked in
1995 with 82.3 billion ATS to 107.l  billion ATS in 1996 and to 65.7 billion ATS
1997.  Inflation  peaked  in 1992  with 4.1  percent  annual  increase  and then
continued  to drop to 3.6 percent in 1993,  3.0 percent in 1994,  2.2 percent in
1995,  1.9 percent in 1996,  1.3 percent in 1997 and to 1.2 percent in the first
half of 1998. There are no significant restrictions on transfers of funds to the
parent company.

                                       12
<PAGE>

      CZECH  REPUBLIC.  Between  1995  and  1996,  the  second  wave of the mass
privatization  was ending and the "third wave" was beginning.  During this time,
foreign   competitors  began  entering  the  brokerage  and  investment  banking
industry.  In the fourth  quarter of 1996, the Czech stock markets began showing
signs of instability  and the overall  market began a steep decline.  The market
dropped  because of the  outflows of foreign  capital  due to profit  taking and
institutional  investors  adjusting  their  portfolios  to focus on other,  more
regulated  Eastern European  markets.  In addition,  the Czech Republic has been
criticized for not establishing  proper securities  regulations.  In response to
these  criticisms,   the  Czech  government   recently  adopted  new  securities
legislation and is in the process of establishing a Securities  Commission based
upon the model provided by the U.S. Securities and Exchange  Commission.  Two of
the major goals of this  legislation  are to increase  the  transparency  of the
market and to afford minority  shareholders  greater protection.  Interest rates
have been relatively stable between 1995 and 1997 at approximately 13 percent on
an annualized  basis.  During 1997,  the main index of the Prague Stock Exchange
saw a gradual decline from 550 to 460. The overall volume,  although  relatively
stable,  was unusually low with an average turnover of approximately 100 million
Czech Korunas.  During the first half of 1998, the market index hovered  between
the 450 and 500 range before dropping approximately 30 percent in the first week
of October 1998.  This decline  represented a 41 percent drop from the levels of
the prior year and a  historical  low.  Average  daily  turnover  has shown some
improvement but it remains  uncertain whether these levels will be sufficient to
maintain the market or if the market will be subject to additional  corrections.
The overall economic and political situation in the Czech Republic has undergone
serious  turmoil which has reduced the  confidence  of foreign  investors in the
market. Additionally, foreign investors appear to be moving into the Hungary and
Poland  where  the  markets  appear  to be more  transparent  and  have  greater
protection for the minority  investors.  After remaining  relatively  stable for
most of 1995 and 1996 at  approximately  8 percent per annum,  inflation  in the
Czech Republic  declined slightly during 1997 followed by a dramatic increase in
the first quarter of 1998 before  settling in at  approximately  10.5 percent by
the end of the third quarter 1998. Much of the  inflationary  and overall market
turmoil was  believed to have been brought  about the economic  crises in Russia
and Asia.  There has been no significant  change in the  availability or cost of
capital  in the Czech  Republic,  although  interest  rates  have  increased  by
approximately  2.50  percent  in 1997 to  13.00  percent.  Interest  rates  have
remained  relatively  constant  at this level  through  1998.  The result of the
decline in the overall  market  conditions  has  negatively  affected  the Czech
brokerage industry,  including the Company's Czech operations.  The total volume
of securities  transactions  in the Czech  Republic has decreased  substantially
along  with an  overall  reduction  in average  profit  per  transaction  due to
increased  competition.  This has caused a decrease in revenue in the  Company's
Prague  operations  and a net operating  loss from this unit. In response to the
unexpected  downturn in the Czech Republic,  the Company has sold its operations
in the Czech Republic on June 1998.

      HUNGARY. The Budapest Stock Exchange ("BSE") became one of the pre-eminent
emerging  market stock  exchanges in 1996 thanks to overall market gains of over
170 percent for the year ended  December 31, 1996 which led the  Budapest  Stock
Market  Exchange Index ("BUX") to close the year at 4,134.  During 1997, the BUX
reached a record high of 8,107 before  retreating to the 6,000 level in November
1997. Positive developments helped the BUX recover to approximately 8,000 by the
end of 1997.  During 1998, the BUX reached a record high of approximately  9,100
and then dropped (due to global market  turmoil) to  approximately  3,600 before
recovering  to  approximately  5,100 as of October 1998.  Currently,  the BUX is
approximately  5,100.  As the  index  grew,  so did  overall  market  liquidity.
Technology and  regulations  also continued to improve which  contributed to the
overall market gains. In 1995, interest rates in Hungary reached a high of 35-40
percent as  inflation  reached a high of 33  percent.  In  response  to the high
inflation  and  interest  rates,  Hungary  initiated a new fiscal  policy  which
included economic  austerity measures and creating a crawling peg basket for the
currency which tied the Hungarian  Forint to leading  currencies.  The effect of
these  measures  stabilized the currency,  interest rates and overall  inflation
which served to generate increased  investor interest in Hungary.  By the end of
1996, interest rates and inflation  stabilized at levels of 20-22 percent and 19
percent.  Interest  rates closed the 1997 year at  approximately  24 percent and
declined during the first half of 1998 to  approximately  20 percent.  Inflation
was also  curtailed and dropped to  approximately  16.5 percent during 1997. The
market  continued its strong closing  performance of 1997 into the first quarter
of 1998. Through the end of March 1998, the BUX rose to approximately 8,600. The
market  capitalization  of the  Budapest  Stock  Exchange  also grew during this
quarterly period from  approximately  $15 billion to approximately  $17 billion.
Accompanying  the stock market rally of 1997, a number of leading  international
investment banks including ABN Amro, ING Barings, Merrill Lynch, Morgan Stanley,
and Salomon  Brothers  opened  operations  in Budapest and became member of BSE.
Despite this influx of major  competition,  the Hungarian office  maintained its
client  base and doubled its  overall  turnover.  In response to this  increased

                                       13
<PAGE>

competition,  the Hungarian office has expanded the services offered to clients.
The overall economic and political situation appears to be relatively stable and
continues to improve.  This is evident from the level of investor confidence and
the  interest  by  major  international  investment  banks.  There  has  been no
significant  change in the availability or cost of capital to the other than the
interest  rate  fluctuations.   The  total  volume  of  transactions   increased
dramatically  in 1996 (the last year for  which the  Company  has data)  with an
overall  reduction  in  the  average  profit  per  transaction.   There  are  no
significant restrictions on transfers of funds to the parent company.

      POLAND.  The Warsaw Stock Exchange  ("WSE") is a highly  regulated  market
following the French model.  The  transparency of this market and the protection
afforded  minority  shareholders  has  generated  both customer  confidence  and
foreign investor interest. In 1996, the main market index rose nearly 90 percent
while the index of the twenty most capitalized  firms increased 82 percent.  The
stock  market  continued  to perform  well in 1997 and  continued  to reach even
higher  through May 1998. At that time,  the Warsaw Stock Exchange Index ("WIG")
reached a record high of over 18,000.  Unfortunately,  this market was unable to
withstand the effects of the Asian and Russian economic  crises.  By mid-October
1998,  the WIG had  dropped  over 40 percent  to below  11,000.  Interest  rates
remained high at  approximately  22 percent  through 1997 and increasing to 24.5
percent during the first half of 1998.  Economic  growth seems to have continued
into 1998 with steady economic growth of approximately 7 percent.  The brokerage
industry in Poland is highly  competitive due to restrictions on commissions and
allowable  spreads  on  securities  transactions.  As a result,  many  brokerage
companies have merged or have been acquired by well-financed  competitors.  This
political  situation appears to have been stabilized in September 1997, when the
Solidarity  Electoral  Action ("AWS") won the elections  assumed  control of the
government.  Currently  the  country is in a period of economic  stability  with
interest  rates and  inflation  heading  lower and the  currency  appears  to be
stabilizing against the major currencies.  For 1996, inflation was approximately
18 percent,  a drop of approximately 3 percent from 1995 levels but still higher
than in many  transition  economies.  Inflation  remained  at  approximately  18
percent for much of 1997  before  dropping  to  approximately  14 percent by mid
1998.  There are  restrictions on transfers of funds to the parent  company.  In
certain instances, such transfers may need the permission of the national bank.

      SLOVAK REPUBLIC.  Due to the unstable  political and economic situation in
the Slovak Republic,  investor  interest remains very low when compared to other
countries in the region. However, the September 1998 election ousted the current
political  party  sending a clear  signal that  change was not only  desired but
expected.  The overall  trading  volume in the market is very low and the shares
that are listed are perceived to be fairly illiquid in part due to the dominance
of direct  trades.  Inflation  appeared to be heading lower in 1996 and interest
rates followed.  In the first quarter of 1997,  inflation  appeared to be on the
rise again which moved the national  bank to raise  interest  rates and restrict
the money supply. In 1997, the monetary policy was aimed at maintaining internal
and external  stability.  Inflation  reached a rate of approximately 6.5 percent
and GDP  grew at a  similar  pace.  For  1998,  GDP  appears  to be  growing  at
approximately  6.5 percent  with  inflation  increasing  to  approximately  7.25
percent.   Due  to  the  restrictive  monetary  policy  being  followed  by  the
government, credit is generally not available or comes with a very high interest
rate. There are no significant  restrictions on transfers of funds to the parent
company.

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS

      The  unexpected  strength of the U.S.  Dollar as compared to the  Austrian
Schilling  during the fiscal year ended March 31, 1997 had an adverse  effect on
the Company.  The Company had collateralized a short term borrowing  arrangement
with approximately $1,500,000 in cash held in an Austrian Schilling account just
as the U.S.  Dollar  began to  increase in  strength  relative  to the  Austrian
Schilling.  During the term of this  arrangement,  the Austrian  Schilling  lost
approximately 10 percent of its value relative to the U.S.  Dollar.  This single
transaction  makes up the majority of the loss on foreign currency  transactions
for the year ended March 31, 1997. The Company is no longer  collateralizing its
short term borrowing on a "soft currency" basis.

      The U.S.  Dollar and its unexpected  strength  coupled with the unexpected
weakness of the European  currencies  (including  the German  Deutchmarke)  have
negatively  impacted the Company's  overall  earnings as well as the  cumulative
translation adjustment.  The primary functional currencies affecting the Company
are as follows: U.S. Dollar, Austrian Schilling, Czech Koruna, Hungarian Forint,
Slovak  Koruna and the Polish  Zloty.  For the year ended  March 31,  1997,  the
Company reported a foreign currency  translation  adjustment in its statement of
cash  flows of  approximately  $1.3  million.  The effect of the  exchange  rate
changes  on a country by  country  basis are  approximately  as  follows:  Czech
Republic  --  $600,000,  Austria --  $400,000,  Hungary --  $210,000,  Poland --
$120,000.

      Assets  and  liabilities  of  operations  having  foreign  currencies  are
translated  at  year-end  rates  of  exchange,  and the  income  statements  are
translated  at weighted  average  rates of exchange for the year.  In accordance
with  Statement  of Financial  Accounting  Standards  ("SFAS") No. 52,  "Foreign

                                       14
<PAGE>

Currency  Translation,"  gains or  losses  resulting  from  translating  foreign
currency  financial  statements,  net of hedge gains or losses and their related
tax effects,  are reflected in cumulative  translation  adjustments,  a separate
component  of  stockholders'  equity.  Gains or losses  resulting  from  foreign
currency transactions are included in net income.  Foreign currency transactions
are generally  completed  transactions  denominated in a currency other than the
functional currency or changes in exchange rates that impact monetary assets and
liabilities   denominated  in  currencies  other  than  the  primary  functional
currency.

CALCULATION OF EARNINGS PER SHARE

      The calculation of earnings per share on the financial statements included
in this report is based on the weighted average number of shares outstanding, as
calculated.

VIABILITY OF OPERATING RESULTS

      The Company,  like many other  securities  firms, is directly  affected by
general economic conditions and market conditions, changes in levels of interest
rates, and demand for the Company's  investment and merchant banking services in
the countries where its primary  operations are located.  The Company is further
affected by changes in  valuations of the local  currencies  to the U.S.  Dollar
(the  functional  currency of the  Company) in the regions in which it operates,
the  interest of foreign  investors  in the local  economies,  and  governmental
regulations  restricting the  repatriation of profits.  In many of the countries
where the  Company's  primary  operations  are  located  (I.E.,  Kazakhstan  and
Bulgaria),  the local currency is considered to be "soft" or "exotic".  As such,
there are very few, if any, cost effective hedging  strategies  available to the
Company or potential investors.

      All of these  factors  have an  impact  on the  Company's  net  gain  from
securities transactions,  underwriting,  and commissions revenues. In periods of
reduced market  activity,  profitability  is adversely  affected because certain
expenses,   consisting  primarily  of  non-officer  compensation  and  benefits,
communications,  occupancy,  and  general  and  administrative  expenses  remain
relatively constant.

      Currently,  the Slovak Republic market is experiencing extremely difficult
economic  conditions and market reforms may be necessary to restore this economy
to health. In light of these developments,  the Company has reduced the level of
its operations in this country.  The Company recognizes that it may be necessary
to support negative cash flow from this operation in the next 12 to 24 months.

LIQUIDITY AND CAPITAL RESOURCES

      The Company's  statements of financial position reflect a liquid financial
position as cash and assets readily convertible to cash represent 21 percent and
16 percent of total assets at March 31, 1997, and March 31, 1998, respectively.

      The Company is subject to net capital and  liquidity  requirements  in the
local  jurisdictions  in which it operates.  As of March 31, 1997 and 1998,  the
Company was in excess of its minimum net capital and liquidity  requirements  in
all jurisdictions in which it operates.

      The Company  finances its operations  primarily with existing  capital and
funds generated from its diversified operations.

      In the opinion of management, the Company's existing capital and cash flow
from operations will be adequate to meet its capital needs for at least the next
12 months in light of  currently  known and  reasonably  estimable  trends.  The
Company is currently  exploring its options with regards to  additional  debt or
equity financing and there can be no assurance such financing will be available.
However,  the Company recognizes that with increased  liquidity it may be better
positioned to take advantage of potential  opportunities in the markets where it
maintains its operations.  No assurances can be made as to the Company's ability
to meet its cash requirements subsequent to any further business combinations.

      In April 1997,  the Company sold  125,000  shares of Common Stock to three
individuals:  Calvin S.  Caldwell,  Frank  Huang and Jay  Raubvogel  for a total
offering  price of $750,000 or $6.00 per share.  The net proceeds to the Company
were $723,195. There were no underwriting discounts or commissions. The Offering
was made pursuant to an exemption from  registration  pursuant to Rule 506 under
the Securities Act of 1933, as amended (the "Securities Act").

                                       15
<PAGE>

      On February 20, 1998,  the Company sold  1,227,000  newly issued units for
$6,135,000  in cash,  or $5.00 per unit,  with each  consisting  of one share of
Common Stock and one Class C Warrant. This price was approximately 40% below the
then  current  market  price.  These  units  were  offered  and sold to  various
accredited  investors.  With regard to this sale,  the  Company  relied upon the
exemption from registration pursuant to Rule 506 under the Securities Act.

      At March 31, 1997, the Company had $1,200,793 outstanding under repurchase
agreements.  The weighted average  interest rate on these repurchase  agreements
was 12.91  percent.  Securities  listed on the Prague Stock Exchange Main Market
with a market value of approximately  $1,700,000 were used to collateralize this
arrangement.  During the fiscal  year  ending  March 31,  1998,  the  underlying
securities were sold to a third party for an amount  approximating the Company's
carrying basis.  The repurchase  agreements were transferred to the new owner at
the date of sale.

EFFECTS OF INFLATION

      The Company maintains  operations in several economies that are considered
inflationary.  To the extent that inflation results in rising interest rates and
devaluation of the local currencies in relation to the U.S. Dollar, or has other
adverse affects on securities markets and on the value of securities held by the
Company in inventory, it may affect the Company's financial position and results
of  operations.  The 1996  inflation  rates in the countries  where  Eastbrokers
Vienna has  significant  operations are as follows:  Austria - 2 percent,  Czech
Republic - 8 percent,  Hungary - 19  percent,  Poland - 18  percent,  and Slovak
Republic  -  5  percent.  The  1997  inflation  rates  in  the  countries  where
Eastbrokers  Vienna  has  significant  operations  are as  follows:  Austria - 3
percent, Czech Republic - 10 percent, Hungary - 18 percent, Poland - 13 percent,
and Slovak Republic - 6 percent.

NEW ACCOUNTING STANDARDS

      In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial  Accounting  Standards ("SFAS") No. 128. The new standard
replaces  primary and fully  diluted  earnings  per share with basic and diluted
earnings per share.  SFAS No. 128 was adopted by the Company  beginning with the
interim  reporting  period ended  December 31, 1997. The adoption did not impact
previously reported earnings per share amounts.

      In June 1997,  the FASB  issued  SFAS No.  130,  "REPORTING  COMPREHENSIVE
INCOME."  This  statement  established  standards  for  reporting and display of
comprehensive income and its components (revenues,  expenses,  gains and losses)
in a full set of general-purposes financial statements.  This statement shall be
effective for fiscal years beginning  after December 15, 1997.  Reclassification
of financial statements for earlier periods provided for comparative purposes is
required.  At this time,  the Company does not believe that this  statement will
have a significant impact on the Company.

      In June 1997, the FASB issued SFAS No. 131, "DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION." This statement established standards for
the way that public  business  enterprises  report  information  about operating
segments in annual  financial  statements and requires that  enterprises  report
selected  information  about  operating  segments in interim  financial  reports
issued to  stockholders.  This statement is effective for fiscal years beginning
after  December  15,  1997.  In the  initial  year of  application,  comparative
information for earlier years is to be retained.  At this time, the Company does
not believe that this statement will have a significant impact on the Company.

      In June 1998,  the FASB issued SFAS No. 133,  "ACCOUNTING  FOR  DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES".  This Statement establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments  embedded in other contracts,  and for hedging activities.  SFAS No.
133 is effective for fiscal years  beginning  after June 15, 1999. At this time,
the Company does not believe that this statement will have a significant  impact
on the Company.

                                       16
<PAGE>

IMPACT OF THE YEAR 2000

Year 2000

       Many of the world's computer systems  (including those in non-information
technology  equipment and systems) currently record years in a two-digit format.
If not  addressed,  such computer  systems will be unable to properly  interpret
dates beyond the year 1999, which could lead to business disruptions in the U.S.
and   internationally   (the  "Year  2000"  issue).   The  potential  costs  and
uncertainties  associated  with the Year 2000 issue  will  depend on a number of
factors, including software,  hardware and the nature of the industry in which a
company  operates.  Additionally,  companies must coordinate with other entities
with which they electronically interact.

      The Company is currently in the process of a systems upgrade  unrelated to
the Year 2000 issue.  In  conjunction  with this upgrade,  the Company is in the
process of  establishing  a program to address issues  associated  with the Year
2000. To ensure that the Company's computer systems are Year 2000 compliant, the
Company  has been  reviewing  its systems  and  programs to identify  those that
contain  two-digit  year  codes,  and the  Company  intends to  replace  them in
conjunction  with the systems  upgrade  provided by the Baan  Corporate  Off. In
addition,  the  Company  is in the  process  of  contacting  its major  external
counterparties and suppliers to assess their compliance and remediation  efforts
and the Company's exposure to them.

       In  addressing  the Year 2000 issue,  the Company has divided its program
into six phases:

            (1) the Inventory phase,  involving the identification of items that
            may be affected by Year 2000 compliance issues, including facilities
            and   related    non-information    technology   systems   (embedded
            technology),  computer systems,  hardware, and services and products
            provided by third parties;

            (2)  the  Assessment  phase,   involving  the  evaluation  of  items
            identified in the Inventory  phase to determine  which will function
            properly with the change to the new century, and the prioritizing of
            items which will need remediation based on their potential impact to
            the Company;

            (3) the Remediation phase,  involving the analysis of the items that
            are affected by Year 2000, the  identification  of problem areas and
            the replacement of non-compliant items;

            (4) the Testing phase involving the testing of all proposed repairs,
            including  forward date testing  which  simulates  dates in the Year
            2000;

            (5) the Implementation phase consists of placing all items that have
            been remediated and successfully tested into operation; and

            (6) the  Integration  phase,  involving the testing of the Company's
            business critical systems in a future time environment with external
            entities.

      As of October  26,  1998,  the  Company had  substantially  completed  the
Inventory  phase and was also  conducting  the  procedures  associated  with the
Assessment,  Remediation, Testing and Implementation phases. The Company expects
to complete the Inventory and Assessment phase in the fourth calendar quarter of
1998.  The  Remediation  and Testing  phases with  respect to business  critical
applications  are  expected  to be  completed  by the end of the first  calendar
quarter of 1999. The Implementation phase is expected to be completed by the end
of the second calendar  quarter of 1999. The Integration  phase will commence at
the time the Company  receives its new operating  system in the fourth  calendar
quarter of 1998 and will continue  through  1999. In addition,  the Company will
identify the major business relationships of the Company by the end of the first
calendar  quarter of 1999, and many of them will be tested as soon thereafter as
practicable.   The  Company  will  continue  to  survey  and  communicate   with
counterparties,  intermediaries and vendors with whom it has important financial
and  operational  relationships  to  determine  the  extent  to  which  they are
vulnerable to Year 2000 issues.  As of October 26, 1998, the Company has not yet
received  sufficient  information from all parties about their remediation plans
to predict the outcomes of their efforts. In particular, Management believes the
level of awareness and  remediation  efforts  relating to the Year 2000 is issue
less advanced in the Eastern and Central  European  markets in which the Company
conducts business than in the United States.

                                       17
<PAGE>

      There are many risks  associated  with the Year 2000 issue,  including the
possibility  of  a  failure  of  the  Company's  computer  and   non-information
technology  systems.  Such failures could have a material  adverse effect on the
Company and may cause systems malfunctions,  incorrect or incomplete transaction
processing  resulting in failed trade  settlements,  the  inability to reconcile
accounting books and records,  the inability to reconcile  trading positions and
balances with  counterparties,  inaccurate  information  to manage the Company's
exposure to trading risks and disruptions of funding requirements.  In addition,
even if the Company  successfully  remediates  its Year 2000  issues,  it can be
materially  and  adversely  affected by failures of third  parties to  remediate
their own Year 2000 issues.  The failure of third parties with which the Company
has  financial  or  operational  relationships  such  as  securities  exchanges,
clearing  organizations,  depositories,  regulatory  agencies,  banks,  clients,
counterparties,   vendors  and  utilities,   to  remediate  their  computer  and
non-information  technology  systems issues in a timely manner could result in a
material financial risk to the Company.

      If the above mentioned risks are not remedied,  the Company may experience
business interruption or shutdown, financial loss, regulatory actions, damage to
the Company's  global  franchise and legal  liability.  The Company is currently
unable to quantify the adverse effect such risks impose, but management believes
that if the Year 2000 issue is not  remedied  there could be a material  adverse
effect on the Company's financial position and results of operation.

      The Company does not have  business  continuity  plans in place that cover
the Year 2000  issue.  The  Company  intends  to  evaluate  Year  2000  specific
contingency plans during 1999 as part of its Year 2000 risk mitigation efforts.

      Based upon current information,  the Company estimates that the total cost
of implementing its Year 2000 initiative will be between $750,000 and $1,500,000
million,  including the cost of its general systems upgrade. The Year 2000 costs
include  all  activities  undertaken  on Year 2000  related  matters  across the
Company,  including,  but not limited to,  remediation,  testing  (internal  and
external), third party review, risk mitigation and contingency planning. Through
September 30, 1998,  the Company  estimates  that it has expended  approximately
$350,000 on the Year 2000 project. These costs have been and will continue to be
funded through  operating cash flow and are expensed in the period in which they
are incurred.

      The Company's expectations about future costs and the timely completion of
its Year 2000 modifications are subject to uncertainties that could cause actual
results to differ  materially from what has been discussed  above.  Factors that
could  influence  the  amount  of  future  costs  and the  effective  timing  of
remediation  efforts include the success of the Company in identifying  computer
programs and  non-information  technology  systems that contain  two-digit  year
codes,  the nature and amount of programming and testing  required to upgrade or
replace  each of the affected  programs  and  systems,  the nature and amount of
testing,  verification and reporting required by the Company's regulators around
the  world,   including   securities   exchanges,   central  banks  and  various
governmental  regulatory  bodies,  the rate and  magnitude of related  labor and
consulting costs, and the success of the Company's  external  counterparties and
suppliers,   as  well  as  worldwide  exchanges,   clearing   organizations  and
depositories, in addressing the Year 2000 issue.

IMPACT OF THE EURO

      The Euro  issue is the  result of the  Economic  and  Monetary  Union (the
"EMU")  which comes into effect on January 1 1999 and the  conversion  of member
states to a single currency known as the Euro. The introduction of the Euro will
have a profound impact on the way enterprises  operate.  Further, it will be one
of the most  important  changes in the economic  landscape of Europe in the next
few years.

      The single  currency is expected to  contribute  significantly  to further
market  integration  throughout the member  countries.  Prices will be easier to
compare which should increase market transparency.  As businesses recognize that
they will no longer be exposed to foreign  currency  exchange rate risks and the
related costs of currency conversion,  cross-border  transactions within the EMU
are expected to become more attractive.

      The  introduction  of the  Euro has been  described  as a unique  event in
history.  This  uniqueness  is also the root of potential  problems.  During the
transition  period,  companies  will be required to use two  different  currency
units. This could create a basic input functionality problem whereby enterprises

                                       18
<PAGE>

will receive  financial  information in both the Euro and the national  currency
units. A potential  output  functionality  problem may be that companies will be
required to produce  financial  information  in either the Euro or the  national
currency  unit or in some cases both  currencies.  Further  adding to  potential
problems is a requirement that historical  financial  information  stored in the
system must be converted to the Euro unit.

      The Company is currently in the process of a systems upgrade  unrelated to
the Year 2000 or Euro issues.  In the course of this upgrade and  addressing the
Year 2000 issue,  the  Company  will be  installing  new  software  that is Euro
capable  and will  evaluate  any  potential  problems  identified  that could be
related to the Euro issue.  The Company is also monitoring the compliance of its
software suppliers in addressing this issue.  Based on a recent evaluation,  the
Company has determined that material costs and resources will not be required to
permit its computer systems to properly handle Euro reporting and transactions.

IMPACT OF THE EURO

      The Euro  issue is the  result of the  Economic  and  Monetary  Union (the
"EMU")  which comes into effect on January 1 1999 and the  conversion  of member
states to a single currency known as the Euro. The introduction of the Euro will
have a profound impact on the way enterprises  operate.  Further, it will be one
of the most  important  changes in the economic  landscape of Europe in the next
few years.

      The single  currency is expected to  contribute  significantly  to further
market  integration  throughout the member  countries.  Prices will be easier to
compare which should increase market transparency.  As businesses recognize that
they will no longer be exposed to foreign  currency  exchange rate risks and the
related costs of currency conversion,  cross-border  transactions within the EMU
are expected to become more attractive.

      The  introduction  of the  Euro has been  described  as a unique  event in
history.  This  uniqueness  is also the root of potential  problems.  During the
transition  period,  companies  will be required to use two  different  currency
units. This could create a basic input functionality problem whereby enterprises
will receive  financial  information in both the Euro and the national  currency
units. A potential  output  functionality  problem may be that companies will be
required to produce  financial  information  in either the Euro or the  national
currency  unit or in some cases both  currencies.  Further  adding to  potential
problems is a requirement that historical  financial  information  stored in the
system must be converted to the Euro unit.

      The Company is currently in the process of a systems upgrade  unrelated to
the year 2000 or Euro issues. In the course of this upgrade, the Company will be
installing  new software  that is Euro capable and will  evaluate any  potential
problems identified that could be related to the Euro issue. The Company is also
monitoring  the compliance of its software  suppliers in addressing  this issue.
Based on a recent evaluation, the Company has determined that material costs and
resources will not be required to permit its computer systems to properly handle
Euro reporting and transactions.




                                       19
<PAGE>


<PAGE>



ITEM 7.  FINANCIAL STATEMENTS

Historical Financial Statements
   Independent Auditors' Report.............................               21
   Independent Auditors' Report.............................               22
   Consolidated Statements of Financial Condition as at
     March 31, 1998 and 1997................................               23
   Consolidated Statements of Operations for the 12 months
     ended March 31, 1998 and 1997..........................               24
   Consolidated Statements of Changes in Shareholders'
     Equity for the 12 months ended March 31, 1998 and 1997.               25
   Consolidated Statements of Cash Flows for the 12 months
     ended March 31, 1998 and 1997..........................               26
   Notes to Consolidated Financial Statements...............               28









                                       20
<PAGE>





                        INDEPENDENT AUDITORS' REPORT



Board of Directors and Shareholders
Eastbrokers International Incorporated

We have audited the accompanying  consolidated  statement of financial condition
of Eastbrokers International Incorporated and subsidiaries as of March 31, 1998,
and the related consolidated statements of operations,  changes in shareholders'
equity,  and cash flows for the year then ended.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in  all  material  respects,  the  financial  position  of  Eastbrokers
International  Incorporated  and  subsidiaries  as of March  31,  1998,  and the
results  of its  operations  and its  cash  flows  for the  year  then  ended in
conformity with generally accepted accounting principles.





                                          SPICER, JEFFERIES & CO.





Denver, Colorado
April 30, 1999


                                       21
<PAGE>




                        INDEPENDENT AUDITORS' REPORT


Board of Directors and Shareholders
Eastbrokers International Incorporated

We have audited the accompanying  consolidated statements of financial condition
of Eastbrokers International Incorporated and subsidiaries as of March 31, 1997,
and the related consolidated statements of operations,  changes in shareholders'
equity,  and cash flows for the year then ended.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in  all  material  respects,  the  financial  position  of  Eastbrokers
International  Incorporated  and  subsidiaries  as of March  31,  1997,  and the
results of  operations  and its cash flows for the year ended  March 31, 1997 in
conformity with generally accepted accounting principles.

The financial statements as of March 31, 1997, have been restated.






                                          PANNELL KERR FORSTER PC




June 23, 1997, except for
footnotes 2 and 6 as to
which the date is
February 12, 1999.



                                       22

<PAGE>

                   EASTBROKERS INTERNATIONAL INCORPORATED
                          (A DELAWARE CORPORATION)


               CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>

                                                                         FOR THE YEARS ENDED
                                                                    -----------------------------
                                                                    MARCH 31,           MARCH 31,
                                                                      1998                1997
                                                                    ---------           ---------
                                                                                      (As Restated)

<S>                                                                  <C>                <C>
ASSETS
Cash and cash equivalents                                            $7,156,702         6,867,624
Cash and securities deposited with clearing organizations
   or segregated under federal and other regulations                    986,233           119,274
Securities purchased under agreements to resell                         887,170           408,865
Receivables
   Customers                                                          4,819,958         1,904,112
   Brokers, dealers and clearing organizations                        4,404,608           572,399
   Affiliated companies                                               2,286,277         1,511,917
   Related to disposition of entity                                   1,493,913                 -
   Financial institution                                              1,018,642                 -
   Receivable from executive officer                                    517,221                 -
   Other                                                              3,384,125         2,043,306
Securities owned, at fair value
   Corporate equities                                                 7,985,484         3,349,684
   Other sovereign government obligations                               692,428                 -
Net assets held for sale                                                868,960                 -
Office facilities, furniture and equipment, at cost (less
   accumulated depreciation and amortization of $766,898 and
   $628,014, respectively)                                            1,142,281           926,565
Deferred taxes                                                        4,162,615           492,098
Available for sale securities                                                 -         2,378,054
Investments in affiliated companies                                     156,800         8,272,240
Goodwill, net                                                         2,073,774         1,894,398
Other assets and deferred amounts                                       394,318         1,222,193
                                                                    -----------       -----------
     Total Assets                                                   $44,431,509       $31,962,729
                                                                    ===========       ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings
   Lines of credit                                                  $ 2,570,499       $ 1,602,182
   Affiliated companies                                                  31,937         1,480,700
Securities sold under agreements to repurchase                                -         1,200,793
Bonds payable                                                                 -         2,307,500
Payables
   Customers                                                          5,405,464         1,051,810
   Brokers, dealers and clearing organizations                        6,169,159           960,226
Accounts payable and accrued expenses                                   727,512         1,573,104
Other liabilities                                                     1,118,179         1,502,803
                                                                   ------------       -----------
                                                                     16,022,750        11,679,118
Deferred taxes                                                           51,093                 -
Long-term borrowings                                                  2,020,087           934,374
                                                                   ------------       -----------
     Total liabilities                                               18,093,930        12,613,492
                                                                   ------------       -----------
Minority interest in consolidated subsidiaries                        7,173,873         1,549,386
                                                                   ------------       -----------
Commitments and contingencies
Shareholders' equity
    Preferred stock; $.01 par value; 10,000,000 shares
      authorized; no shares issued and outstanding at March
      31, 1998 or March 31, 1997, respectively                                -                 -
    Common stock; $.05 par value; 10,000,000 shares
      authorized; 4,297,750 and 2,923,000, shares issued and
      outstanding at March 31, 1998 and March 31, 1997,
      respectively                                                      214,888           146,150
    Paid-in capital                                                  25,614,348        19,314,883
    Accumulated deficit                                              (4,246,436)         (569,829)
    Note receivable - common stock                                     (313,133)                -
    Treasury stock, at cost                                                   -          (213,750)
    Unrealized loss on available for sale investments                         -          (246,794)
    Cumulative translation adjustments                               (2,105,961)         (630,809)
                                                                   ------------       -----------
      Total shareholders' equity                                     19,163,706        17,799,851
                                                                   ------------       -----------
      Total Liabilities and Shareholders' Equity                   $ 44,431,509       $31,962,729
                                                                   ============       ===========

</TABLE>

               See notes to consolidated financial statements.

                                       23

<PAGE>



                   EASTBROKERS INTERNATIONAL INCORPORATED
                          (A DELAWARE CORPORATION)

                    CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                         FOR THE YEARS ENDED
                                                                    -----------------------------
                                                                    MARCH 31,           MARCH 31,
                                                                      1998                1997
                                                                    ---------           ---------
                                                                                      (As Restated)

<S>                                                                  <C>                <C>
Revenues
   Commissions                                                       $2,539,260       $   439,531
   Investment banking                                                   807,803         1,149,195
   Principal transactions
     Trading                                                          4,738,701         1,806,278
     Investment                                                        (462,221)        1,872,767
   Interest and dividends                                               401,107           557,188
   Equity in losses of unconsolidated subsidiaries                       32,076          (396,209)
   Gain on sale of investment - related party                         1,025,429                -
   Other                                                              1,260,821           312,725
                                                                    -----------       -----------
        Total revenues                                               10,342,976         5,741,475
                                                                    -----------       -----------
Costs and expenses
   Compensation and benefits                                          3,818,546         2,181,419
   Consulting fees                                                    2,233,543           743,397
   Brokerage, clearing, exchange fees and other                       1,163,171                 -
   Occupancy                                                            997,814           333,096
   Interest                                                             746,821           236,235
   Information processing and communications                            698,688           177,473
   Office supplies and expenses                                         435,173           240,448
   Professional fees                                                    213,913           123,905
   Travel                                                               622,722           209,977
   General and administrative                                         3,505,413           806,056
   Depreciation and amortization                                        604,395           274,573
   (Gain)/loss on foreign currency transactions                         (29,384)          166,044
                                                                    -----------       -----------
        Total costs and expenses                                     15,010,815         5,492,623
                                                                    -----------       -----------
Income (loss) from continuing operations before
   provision for income taxes and
   minority interest in earnings of subsidiaries                     (4,667,839)          248,852
Income tax benefit (expense)                                            640,163             8,305
Minority interest in earnings of subsidiaries                           351,069           105,416
                                                                   ------------       -----------
Income (loss) from continuing operations                             (3,676,607)          362,573
Discontinued operations
      Income from discontinued operations (net of
       income taxes of $0 for the year ended March 31, 1997)                  -            41,899
        Loss on sale of discontinued operations                               -        (1,323,083)
                                                                   ------------       -----------
Net loss                                                           $ (3,676,607)      $  (918,611)
                                                                   ------------       -----------
Earnings (loss) per common share from continuing
  operations
   Basic and Diluted                                               $      (1.17)      $      0.15
                                                                   ------------       -----------
Earnings (loss) per common share
   Basic and Diluted                                               $      (1.17)      $     (0.37)
                                                                   ------------       -----------
Average common shares outstanding
   Basic and Diluted                                                  3,149,009         2,497,137
                                                                   ============      ============

</TABLE>

              See notes to consolidated financial statements.

                                       24

<PAGE>




                   EASTBROKERS INTERNATIONAL INCORPORATED
                          (A DELAWARE CORPORATION)

         CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                 FOR THE YEARS ENDED MARCH 31, 1997 AND 1998

<TABLE>
<CAPTION>


                                                                                              Unrealized
                                                                     Retained     Treasury     Loss on
                                                                     Earnings      Stock &     Available   Cumulative
                                                         Paid-in   (Accumulated     Note       for Sale    Translation
                                   Shares   Par Value    Capital      Deficit)    Receivable  Investments  Adjustment      Total
                                 ---------  ---------  -----------  ------------  ----------  -----------  ------------ ------------
<S>                          <C>           <C>        <C>          <C>           <C>           <C>        <C>          <C>
Balances, April 1, 1996          1,781,000  $ 89,050   $13,693,733  $   348,782           -            -   $   558,090  $14,689,655
 Issuance of common stock in
  Eastbrokers AG acquisition     1,080,000    54,000     5,346,000            -           -            -             -    5,400,000
 Issuance of common stock in
  Eastbrokers NA acquisition        25,000     1,250        98,750            -           -            -             -      100,000
 Issuance of common stock in
  compensation for services         37,000     1,850       176,400            -           -            -             -      178,250
 Acquisition of treasury stock           -         -             -            -   $(213,750)           -             -     (213,750)
 Net unrealized loss on
  investments                            -         -             -                        -    $(246,794)            -     (246,794)
 Net loss                                -         -             -     (918,611)          -            -             -     (918,611)
 Cumulative translation
  adjustment                             -         -             -            -           -            -    (1,188,899)  (1,188,899)
                                 ---------  ---------   ----------   ----------- ----------    ---------   -----------   ----------
Balances at March 31, 1997
 (as restated)                   2,923,000  $146,150   $19,314,883   $ (569,829)  $(213,750)   $(246,794)  $  (630,809) $17,799,851
 Issuance of common stock
   in private placement            125,000     6,250       716,945            -           -            -             -      723,195
 Retirement of treasury
   stock                           (45,000)   (2,250)     (211,500)           -      213,750           -             -            -
 Issuance of common stock in
   compensation for services        10,000       500        65,480            -            -           -             -       65,980
 Issuance of common stock to
   officer for note receivable      50,000     2,500       297,500            -     (300,000)          -             -            -
 Net unrealized gain on
   investments                           -         -             -            -            -     246,794             -      246,794
 Issuance of common stock in
   private placement             1,227,000    61,350     5,354,619            -            -           -             -    5,415,969
 Exercise of stock options           7,750       388        49,987            -            -           -             -       50,375
 Sale of Subsidiary Stock                                   26,434                                                          (26,434)
 Net loss                                -         -             -   (3,676,607)           -           -             -   (3,676,607)
 Acrued interest on note
  receivable                             -         -             -            -      (13,133)          -             -      (13,133)
 Cumulative translation
  adjustment                             -         -             -            -            -           -    (1,475,152)  (1,475,152)
                                 ---------  ---------   ----------  -----------  -----------   ---------   -----------  -----------
Balances at March 31, 1998       4,297,750  $214,888   $25,614,348  $(4,246,436)  $ (313,133)  $       -   $(2,105,961) $19,163,706
                                 =========  =========  ===========  ===========  ===========   =========   ===========  ===========

</TABLE>

               See notes to consolidated financial statements.

                                       25

<PAGE>

                   EASTBROKERS INTERNATIONAL INCORPORATED
                          (A DELAWARE CORPORATION)

                    CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                    FOR THE YEARS ENDED
                                                                 ---------------------------
                                                                 March 31,        March 31,
                                                                   1998             1997
                                                                 ---------       ----------

                                                                                (As Restated)
<S>                                                           <C>               <C>
Cash flows from operating activities
   Net loss                                                   $(3,676,607)      $  (918,611)

   Adjustments to reconcile net loss to net
     cash used in operating activities:
       Minority interest in subsidiaries                         (351,069)        (105,416)
       Gain on the sale of investment                          (1,025,429)        (884,530)
       Loss on sale of discontinued operations                          -        1,323,083
       Depreciation and amortization                              604,395          274,573
       Deferred taxes                                          (2,305,662)         (69,377)
       Other                                                      104,368          396,209

   Changes in operating assets and liabilities
      Cash and securities segregated for regulatory
       purposes or deposited with regulatory agencies              82,415          (85,696)
      Securities purchased under agreements to resell            (478,305)       6,278,371
      Receivables                                              (3,744,971)       2,041,221
      Securities owned, at value                               (6,443,982)      (3,233,293)
      Other assets and deferred amounts                           827,875         (214,931)
      Payables
         Customers                                              4,353,654       (8,529,846)
         Brokers, dealers and others                            5,208,933           77,726
      Accounts payable and accrued expenses                      (879,123)       1,374,879
                                                               ----------       ----------
Net cash used in operating activities                          (7,723,508)      (2,275,638)
                                                               ----------       ----------

Cash flows from investing activities
   Net proceeds from (payments for)
     Acquisition of net assets of Eastbrokers
        Beteiligungs AG, net of cash acquired                           -       (1,389,577)
     Investments in affiliates                                   (264,036)      (3,619,137)
     Available for sale securities                              2,378,054        6,277,191
     Capital expenditures                                        (289,070)        (503,336)
                                                               ----------       ----------
Net cash provided by investing activities                       1,824,948          765,141
                                                               ----------       ----------
Cash flows from financing activities
   Net proceeds from (payments for)
     Net proceeds from private placements                       6,139,164                -
     Capital contributions by minority interests                        -          304,166
     Short-term borrowings                                     (1,339,183)         568,303
     Securities sold under agreements to repurchase            (1,200,793)       1,200,793
     Proceeds from long-term debt                               1,085,713                -
     Repurchase of common stock                                         -         (213,750)
     Other                                                        102,575                -
                                                               ----------       ----------
Net cash provided by financing activities                       4,787,476        1,859,512
                                                               ----------       ----------
Foreign currency translation adjustment                         1,400,162        1,328,023
                                                               ----------       ----------

</TABLE>


               See notes to consolidated financial statements.

                                       26

<PAGE>

                   EASTBROKERS INTERNATIONAL INCORPORATED
                          (A DELAWARE CORPORATION)

              CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)


<TABLE>
<CAPTION>

                                                           March 31,              March 31,
                                                             1998                   1997
                                                           ---------              ---------

   <S>                                                    <C>                   <C>

   Increase in cash and cash equivalents                       289,078            1,677,038

   Cash and cash equivalents, beginning of period            6,867,624            5,190,586
                                                           -----------          -----------

   Cash and cash equivalents, end of period                $ 7,156,702          $ 6,867,624
                                                           ===========          ===========

   Supplemental disclosure of cash flow information
      Cash paid for income taxes                           $   261,633          $   371,534
                                                           ===========          ===========

      Cash paid for interest                               $   679,265          $    87,795
                                                           ===========          ===========

      Non-cash transactions

          Retirement of treasury stock                     $   213,750          $         -
                                                           ===========          ===========

          Common shares of CEZ and Vodni Stavby, Praha
             received in the disposition of the Hotel
             Fortuna                                       $         -          $ 7,957,012
                                                           ===========          ===========

          Common shares of CEZ and Vodni Stavby, Praha
             transferred in lieu of cash payment for
             debt and accrued interest                     $         -          $ 1,550,508
                                                           ===========          ===========

          Eastbrokers International shares issued for
              acquisition of net assets of Eastbrokers
              Beteiligungs AG                              $         -          $ 5,400,000
                                                           ===========          ===========

          Eastbrokers International shares issued in
              compensation for services                    $    65,980          $   178,250
                                                           ===========          ===========

          Eastbrokers International shares issued for
              acquisition of net assets of Eastbrokers
              North America, Inc.                          $         -          $    90,000
                                                           ===========          ===========

</TABLE>


               See notes to consolidated financial statements.

                                       27

<PAGE>

                   EASTBROKERS INTERNATIONAL INCORPORATED
                          (A DELAWARE CORPORATION)

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MARCH 31, 1998 AND 1997

NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      ORGANIZATION AND BASIS OF PRESENTATION

     The consolidated  financial  statements include  Eastbrokers  International
Incorporated  (formerly Czech  Industries,  Inc.) and its U.S. and international
subsidiaries (collectively, "Eastbrokers" or the "Company"). The shareholders of
the Company  approved the name change on December 10, 1996 at its Annual Meeting
of Shareholders.

      These  consolidated  financial  statements  reflect,  in  the  opinion  of
management,   all  adjustments   necessary  for  a  fair   presentation  of  the
consolidated  financial  position  and  the  results  of the  operations  of the
Company.  All  significant  intercompany  balances  and  transactions  have been
eliminated in consolidation.

      The  preparation  of 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  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting  period.  Management  believes  that  the  estimates  utilized  in the
preparation of the consolidated financial statements are prudent and reasonable.
Actual results could differ from these estimates. See Note 18 -"Significant
Estimates."

      The Company, through its subsidiaries,  provides a wide range of financial
services primarily in the United States, Central Europe, and Eastern Europe. Its
businesses include securities  underwriting,  distribution and trading;  merger,
acquisition,  restructuring,  and other corporate  finance advisory  activities;
asset management;  merchant banking and other principal  investment  activities;
brokerage  and research  services;  and  securities  clearance  services.  These
services are provided to a diversified group of clients and customers, including
corporations,    governments,    financial   institutions,    and   individuals.
Substantially  all of the Company's  revenues and expenses are generated through
its European subsidiaries and affiliates.

      FISCAL YEAR-END

      The fiscal year-end of Eastbrokers International Incorporated and its U.S.
subsidiaries other than EBI Securities is March 31. At the time of the Company's
acquisition  of EBI  Securities  in May 1998 the fiscal  year of EBI  Securities
ended  September  30. The  Company  intends  to change  the  fiscal  year of EBI
Securities to March 31 effective as of March 31, 1999.

      FISCAL YEAR-END OF THE COMPANY'S EUROPEAN SUBSIDIARIES

      The fiscal year-end of the Company's European Subsidiaries is December 31.
These  subsidiaries  are included on the basis of closing dates that precede the
Company's closing date by three months.

                                       28
<PAGE>

NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      FINANCIAL INSTRUMENTS

      Substantially  all of the Company's  financial  assets and liabilities and
the  Company's  trading  positions  are  carried at market or fair values or are
carried at amounts  which  approximate  fair value  because of their  short-term
nature.  Estimates of fair value are made at a specific point in time,  based on
relevant  market  information and  information  about the financial  instrument,
specifically,  the value of the underlying financial instrument. These estimates
do not reflect any premium or discount  that could result from offering for sale
at one time the Company's entire holdings of a particular financial  instrument.
The Company has no investments in derivatives.

      Equity securities  purchased in connection with merchant banking and other
principal  investment  activities are initially carried at their original costs.
The carrying  value of such equity  securities  is adjusted  when changes in the
underlying  fair values are readily  ascertainable,  generally  as  evidenced by
listed market prices or  transactions  which  directly  affect the value of such
equity securities.  Downward  adjustments relating to such equity securities are
made in the event that the Company determines that the eventual realizable value
is less than the carrying value.

      Securities classified as available for sale are carried at fair value with
unrealized  gains and losses reported as a separate  component of  stockholders'
equity.  Realized  gains and  losses on these  securities  are  determined  on a
specific identification basis and are included in earnings.

      COLLATERALIZED SECURITIES TRANSACTIONS

      Accounts  receivable from and payable to customers  include amounts due on
cash  transactions.  Securities  owned by customers are held as  collateral  for
these  receivables.  Such  collateral  is  not  reflected  in  the  consolidated
financial statements.

      Securities  purchased under  agreements to resell are treated as financing
arrangements and are carried at contract amounts reflecting the amounts at which
the  securities  will be  subsequently  resold as  specified  in the  respective
agreements.  The Company takes possession of the underlying securities purchased
under  agreements to resell and obtains  additional  collateral  when the market
value falls below the contract  value.  The maximum term of these  agreements is
generally less than ninety-one days.

      OTHER RECEIVABLES

      From time to time, the Company  provides  operating  advances to select
companies  as  a  portion  of  its   merchant   banking   activities.   These
receivables are due on demand.

      UNDERWRITINGS

      Underwritings  include gains,  losses, and fees, net of syndicate expenses
arising from securities offerings in which the Company acts as an underwriter or
agent.  Underwriting fees are recorded at the time the underwriting is completed
and the income is reasonably  determinable.  The Company reflects this income in
its investment banking revenue.

      FEES

      Fees  are  earned  from  providing  merger  and   acquisition,   financial
restructuring  advisory,  and general  management  advisory  services.  Fees are
recorded based on the type of engagement and terms of the contract  entered into
by the  Company.  The Company  reflects  this income in its  investment  banking
revenue.

                                       29
<PAGE>



      NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      SECURITIES TRANSACTIONS

      Government  and agency  securities  and  certain  other  debt  obligations
transactions   are  recorded  on  a  trade  date  basis.  All  other  securities
transactions are recorded on a settlement date basis and adjustments are made to
a trade date basis, if significant.

      COMMISSIONS

      Commissions  and related  clearing  expenses  are recorded on a trade-date
basis as securities transactions occur.

      TRANSLATION OF FOREIGN CURRENCIES

      Assets and liabilities of operations in foreign  currencies are translated
at year-end  rates of exchange,  and the income  statements  are  translated  at
weighted average rates of exchange for the year. In accordance with Statement of
Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency  Translation,"
gains  or  losses   resulting  from  translating   foreign  currency   financial
statements,  net of hedge  gains or losses and their  related tax  effects,  are
reflected  in  cumulative  translation  adjustments,  a  separate  component  of
stockholders'   equity.   Gains  or  losses   resulting  from  foreign  currency
transactions are included in net income.

      OFFICE FACILITIES, FURNITURE, AND EQUIPMENT

      Office facilities and equipment are carried at cost and are depreciated on
a  straight-line  basis over the  estimated  useful life of the  related  assets
ranging from three to ten years.

      COMMON STOCK DATA

      Earnings per share is based on the weighted average number of common stock
and stock equivalents  outstanding.  The outstanding  warrants and stock options
are currently  excluded from the earnings per share  calculation as their effect
would be antidilutive.

      STOCK-BASED COMPENSATION

      In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation."  SFAS No. 123  encourages,  but does not  require,  companies  to
record compensation expense for stock-based employee  compensation plans at fair
value. The Company has elected to account for its stock-based compensation plans
using the  intrinsic  value method  prescribed by  Accounting  Principles  Board
Opinion No. 25,  "Accounting  for Stock Issued to Employees" (APB No. 25). Under
the provisions of APB No. 25, compensation cost for stock options is measured as
the excess,  if any, of the quoted market price of the Company's common stock at
the date of grant over the amount an employee must pay to acquire the stock.

      DEFERRED INCOME TAXES

      Deferred income taxes in the  accompanying  financial  statements  reflect
temporary  differences  in reporting  results of  operations  for income tax and
financial  accounting  purposes.  Deferred tax assets are reduced by a valuation
allowance  when, in the opinion of  management,  it is more likely than not that
some portion or all of the deferred tax assets will not be realized.

                                       30

<PAGE>



NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      CASH AND CASH EQUIVALENTS

      For  purposes  of  the  consolidated  financial  statements,  the  Company
considers  all  demand   deposits  held  in  banks  and  certain  highly  liquid
investments with maturities of 90 days or less other than those held for sale in
the ordinary course of business to be cash equivalents.

      GOODWILL

      Goodwill is amortized  on a straight  line basis over periods from five to
25 years and is periodically  evaluated for impairment on an  undiscounted  cash
flow  basis.  The  accumulated  amortization  was  $132,015  and $46,987 for the
periods ended March 31, 1998 and 1997, respectively.

      RECLASSIFICATIONS

      Certain amounts in prior periods have been  reclassified to conform to the
current presentation.

RESTATEMENT OF 1997 FINANCIAL STATEMENT

      During fiscal 1998,  management determined that the Austrian net operating
losses  available for  carryforward  had been  underreported on the consolidated
statement of financial  condition as of March 31, 1997. In addition,  management
determined  that it had  inappropriately  recognized an unrealized  gain and had
incorrectly  classified a portion of its  investment  in WMP.  Accordingly,  the
accompanying 1997 financial statements have been restated.

      Following is a summary of the effects of the restatement:

                                             AS PREVIOUSLY
                                               REPORTED        AS RESTATED
                                               --------        -----------
   Corporate equities                        $4,253,164        $3,349,684
   Deferred tax asset                           289,938           492,098
   Investments in affiliated companies        7,064,064         8,272,240
   Goodwill                                   2,453,454         1,894,398
   Trading revenues                           1,886,478         1,806,278
   Net loss                                    (866,411)         (918,611)
   Basic and Diluted earnings per share           (0.35)            (0.37)


                                       31
<PAGE>

NOTE 2.   CASH AND SECURITIES SEGREGATED UNDER FEDERAL AND OTHER REGULATIONS

      Cash and securities segregated for regulatory purposes or as deposits with
clearing  organizations was $119,274 and $986,233 as of March 31, 1997 and 1998,
respectively.

NOTE 3.   FINANCIAL INSTRUMENTS

      Financial  instruments owned consist of the Company's  proprietary trading
and investment  accounts,  securities  purchased under agreements to resell, and
investments held for resale. The Company's financial  instruments,  at estimated
fair market value, are as follows:

                                               March 31,        March 31,
                                                  1998            1997
                                              -------------    ------------
                                                                   (As
                                                                Restated)
Securities purchased under agreements to
  resell
    Sovereign government debt - Austria       $   887,170      $        --
    Sovereign government debt - Hungary                --          228,965
    Corporate equities - Hungary                       --          179,900
                                              -------------    ------------
                                              $   887,170      $   408,865
                                              -------------    ------------

Securities owned at fair value
    Corporate equities - Austria              $ 6,587,220*     $ 1,305,143
    Corporate equities - Hungary                  410,244               --
    Corporate equities - Czech Republic                --          871,638
    Corporate equities - Slovak Republic           84,074          485,141
    Corporate equities - Poland                   760,552          687,762
    Corporate equities - Other                    143,394               --
                                              -------------    -----------
                                              $ 7,985,484      $ 3,349,684
                                              -------------    -----------

   Sovereign government debt
    Austria                                   $   621,353      $        --
    Hungary                                        71,075               --
                                              -------------    -----------
                                              $   692,428      $        --
                                              -------------    -----------

Available for sale securities
    Corporate equities - Austria              $         --     $    40,321
    Corporate equities - Czech Republic                 --       1,893,115
    Corporate equities - Hungary                        --         189,610
    Corporate equities - Slovak Republic                --         255,008
                                              -------------    -----------

                                              $         --     $ 2,378,054
                                              -------------    -----------

*As of March 31,  1998,  the Company  has 3  significant  concentrations  in the
securities  portfolio.  A description of these  securities and their  respective
carrying  amounts are as  follows:  a security  of a Russian  chemical  producer
traded on the OTC market of the Vienna Stock Exchange -- $1,030,270,  a security
of a Bulgarian  pharmaceutical  company  traded on the Bulgarian  Stock Exchange
--$3,185,630, and a security of a Bulgarian oil refinery traded on the Bulgarian
Stock Exchange -- $1,354,830. All other securities are relatively liquid and the
carrying value  approximates  the market value as of the balance sheet date. The
Company  does not have any  material  concentrations  to high  yield  issuers or
commitments to high-yield issuers as of the balance sheet date.

                                       32
<PAGE>

NOTE 4.   OFFICE FACILITIES, FURNITURE AND EQUIPMENT

      Office facilities, furniture and equipment are summarized below:

                                   March 31,         March 31,
                                      1998              1998
                                   -----------      -------------

Furniture and equipment            $1,909,179       $1,554,579
Less accumulated depreciation        (766,898)        (628,014)
                                   -----------      -------------
                                   $1,142,281       $  926,565
                                   -----------      -------------

Depreciation  expense for the years ended March 31, 1997 and 1998,  was $108,915
and $418,804, respectively.

NOTE 5.   BUSINESS ACQUISITIONS

      EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT

      Eastbrokers   Vienna  is  an  Austrian  based  holding  company  that  has
established a presence in 12 Central and Eastern European  countries through its
network of subsidiaries and affiliate  offices.  On August, 1, 1996, the Company
acquired  80  percent  of the  outstanding  stock  of  Eastbrokers  Beteiligungs
Aktiengesellschaft  ("Eastbrokers  Vienna")  through the  issuance of  1,080,000
shares of the Company's  common stock valued at $5,400,000.  As a participant in
Eastbrokers  Vienna's  capital increase in the fiscal year ended March 31, 1997,
the  Company  later  acquired  an  additional  245,320  (out of a total issue of
270,000 shares) for cash,  increasing its ownership percentage to 83.62 percent.
In three separate transactions in November and December 1996 and March 1997, the
Company purchased 81,550 additional shares,  increasing its ownership percentage
to approximately 94 percent.

      The  fair  value  of the net  assets  acquired  under  these  transactions
approximated  $8,200,000.  The  acquisition  has been  accounted  for  under the
purchase  method of  accounting.  The excess of the purchase price over the fair
value of the net assets acquired resulted in the Company recording approximately
$1,950,000  in  goodwill,   which  is  being   amortized  over  25  years  on  a
straight-line  basis. The 1997  consolidated  financial  statements  include the
consolidated  results  of  operations  of  Eastbrokers  Vienna  from the date of
acquisition  through  December 31, 1996 in accordance  with Note 1. The purchase
agreement contains certain  provisions  whereby the selling  shareholders may be
eligible to receive an additional  120,000 shares of the Company's  common stock
in the event certain earnings targets are achieved by December 31, 1998. No such
shares have been earned to date.

      In a capital  increase  for  Eastbrokers  Vienna in the fiscal  year ended
March 31, 1998, the Company  purchased 389,925 (out of a total issue of 390,000)
for cash, increasing its ownership to 96 percent.

      Eastbrokers   Vienna   completed  the   acquisition  of  its   subsidiary,
Eastbrokers  Warsaw,  in September 1996. This acquisition has been accounted for
under  the  purchase  method of  accounting.  The fair  value of the net  assets
acquired  under  this  transaction  approximated  $1,124,000  as of the  date of
acquisition.  The  excess of the  purchase  price over the fair value of the net
assets  acquired by  Eastbrokers  Vienna  approximated  $173,000  which has been
recorded as goodwill  and is being  amortized  over 25 years on a  straight-line
basis.

                                       33
<PAGE>

NOTE 5.   BUSINESS ACQUISITIONS (CONTINUED)

      In  September  1996,  Eastbrokers  Vienna  acquired  additional  shares of
Eastbrokers  Wertpapiervermittlungs-gesellschaft  GmbH ("Eastbrokers  GmbH") and
Eastbrokers Slovakia a.s. from related parties (see Note 12). These acquisitions
have been accounted for under the purchase method of accounting.  The fair value
of the net assets acquired under this transaction approximated $46,000 as of the
date of acquisition. The excess of the purchase price over the fair value of the
net assets acquired by Eastbrokers Vienna  approximated  $438,000 which has been
recorded as goodwill  and is being  amortized  over 25 years on a  straight-line
basis.

      EASTBROKERS NORTH AMERICA, INC.

      On March 6, 1997,  the Company issued 22,500 shares of Common Stock valued
at $4.00 per share relating to the  acquisition  of  Eastbrokers  North America,
Inc.   ("Eastbrokers  NA").  In  a  separate  but  related  transaction  to  the
Eastbrokers  NA  acquisition,  the Company  sold 2,500 shares of Common Stock at
$4.00 per share to an officer of the Company in exchange for a promissory  note.
These shares were  transferred  to the selling  shareholder of Eastbrokers NA as
part  of the  acquisition.  The  net  assets  acquired  under  this  transaction
approximated  $90,000  and the  acquisition  has been  accounted  for  under the
purchase  method of  accounting.  There was no excess of the purchase price over
the fair value of the net assets received at the date of acquisition.

      PRO FORMA RESULTS OF OPERATIONS

      The following summarized,  unaudited,  pro forma results of operations for
the year ended March 31, 1997 assumes the above listed acquisitions  occurred at
the beginning of fiscal 1997.
                                                   Year Ended
                                                 March 31, 1997
                                                 ---------------
Revenues from continuing operations                  $8,559,786

Net loss from continuing operations                     (14,097)

Net loss per share from continuing operations             (0.01)



NOTE 6.   INVESTMENTS IN AFFILIATED COMPANIES

      INVESTMENT IN WMP BANK AKTIENGESELLSCHAFT

      Through its subsidiary,  Eastbrokers  Vienna,  the Company acquired a 48.1
percent interest in the outstanding  capital stock of WMP on August 1, 1996. WMP
is a stock broker-dealer and market maker in Vienna,  Austria and is licensed as
a class B bank  under  Austrian  law.  A Class B bank  may,  at its  discretion,
conduct  any of the  normal  activities  associated  with a bank  with one major
exception;  it cannot accept customer  deposits.  From time to time  Eastbrokers
Vienna has carried shares of WMP. Accordingly,  since August 1996, the Company's
ownership  of WMP has  exceeded 50 percent  including  WMP shares in its trading
portfolio. At December 31, 1996, the Company's aggregate ownership percentage in
WMP,  including  its trading  position,  was 55  percent.  This  investment  was
accounted for using the equity method in the March 31, 1997 financial statements
as the Company believed that its control of WMP may likely have been lost as the
result of the  probable  occurrence  of certain  events  that lay outside of its
control. In September, 1997 circumstances surrounding these events were resolved
such that these events were no longer considered  probable of occurrence and the
Company  deemed its  control of WMP was no longer  temporary.  Accordingly,  the
Company began  consolidating  its  investment  in WMP  effective  with its third
quarter of fiscal 1998 financial statements. For the fiscal year ended March 31,
1998, WMP has been  consolidated  for the entire year. At December 31, 1997, the
Company's aggregate ownership interest in WMP was 52 percent.

                                       34
<PAGE>

NOTE 6.   INVESTMENTS IN AFFILIATED COMPANIES (CONTINUED)

      The  following  unaudited pro forma  information  for the Company has been
prepared  as though WMP was  acquired at the  beginning  of fiscal year 1997 and
consolidated from that date:
                                                         1997
                                                         ----
                         Total revenues               $10,138,350
                         Total assets                  44,405,383

      INVESTMENTS IN OTHER UNCONSOLIDATED AFFILIATES

      The  Company  also has  other  investments  in  unconsolidated  affiliates
through Eastbrokers Vienna.  These affiliates are accounted for using the equity
method of accounting.  These investments are predominantly  start-up operations.
At December 31, 1996, these  unconsolidated  affiliate  investments included the
following offices: Zagreb, Croatia;  Ljubljana,  Slovenia;  Almaty,  Kazakhstan;
Moscow,  Russia; Sofia,  Bulgaria; and NIF TRUD Investment Fund. At December 31,
1997, these unconsolidated affiliate investments included the following offices:
Zagreb, Croatia;  Ljubljana,  Slovenia; Moscow, Russia; Sofia, Bulgaria; and NIF
TRUD Investment Fund. The combined  carrying amounts of these  investments as of
December 31, 1996 and 1997 was $516,243 and $156,800, respectively.  Losses from
these operations totaled approximately $145,000 USD in the period from August 1,
1996  through  December  31,  1996.   Income  from  these   operations   totaled
approximately $122,000 USD for the year ended December 31, 1997.

      RECEIVABLES FROM AFFILIATED COMPANIES

      Periodically,   the   Company   provides   operating   advances   to   its
unconsolidated  affiliates.  These  advances are generally due on demand and are
not subject to interest charges.

NOTE 7.   SHORT-TERM BORROWINGS

      The Company meets its short-term  financing  needs through lines of credit
with  financial  institutions,  advances from  affiliates,  and by entering into
repurchase   agreements  whereby  securities  are  sold  with  a  commitment  to
repurchase at a future date.

      LINES OF CREDIT

      The  Company  had  outstanding  advances  on its lines of credit  totaling
$1,602,182  and  $2,570,499 as of March 31, 1997 and 1998,  respectively.  As of
March  31,  1998,   the  Company  had  unsecured   credit  lines   available  of
approximately  $3.5 million.  These lines of credit carry interest rates between
7.00 percent and 12.00  percent and between  6.500 percent and 9.125 percent for
the years ended March 31, 1997 and 1998, respectively,  as computed on an annual
basis.

      ADVANCES FROM AFFILIATED COMPANIES

      Periodically,  the  Company's  subsidiaries  and  affiliates  will provide
operating  advances to other members in the affiliated group. These advances are
generally due on demand and are not subject to interest charges.

                                       35
<PAGE>

NOTE 7.   SHORT-TERM BORROWINGS (CONTINUED)

      SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

      At March 31, 1997, the Company had $1,200,793 outstanding under repurchase
agreements.  The weighted average  interest rate on these repurchase  agreements
was 12.91  percent.  Securities  listed on the Prague Stock Exchange Main Market
with a market value of approximately  $1,700,000 were used to collateralize this
arrangement.  During the fiscal  year  ending  March 31,  1998,  the  underlying
securities were sold to a third party for an amount  approximating the Company's
cost basis.  The repurchase  agreements were transferred to the new owner at the
date of sale.

      UNSECURED BONDS PAYABLE

      The Company had unsecured  bonds with a face value of 25 million  Austrian
Schillings  requiring  annual  interest  payments  at 10 percent per annum which
matured  on July 31,  1997.  At March 31,  1997,  the  amount  due  under  these
obligations was  $2,307,500.  These unsecured bonds were redeemed by the Company
on July 31, 1997.

NOTE 8.   LONG-TERM BORROWINGS

      Long-term borrowings consist of the following:

                                                   March 31,        March 31,
                                                     1998             1997
                                                  ------------     ------------

Long-term borrowing arrangement with a
financial institution requiring Note payable
to a finance company, requiring annual
interest payments which cannot exceed the 10
year government bond rate plus 2 percent
(approximately 10.00 percent), principal of
12,000,000 Austrian Schillings, principal
due at maturity on December 31, 2001              $   948,000      $       --

Notes payable to a financial institution
requiring quarterly interest payments
computed at 6.50 percent on a 360 day year,
collateralized by 157,061 shares of WMP
(representing approximately 24 percent of
the Company's WMP shares as of March 31,
1998), principal of 10,000,000 Austrian
Schillings and accrued interest payable in
full on November 30, 2001                             804,308          934,374

Notes payable to financial institutions
requiring quarterly interest payments
computed at varying percentages on a 360 day
year, with varying maturity dates but all
due in 1999                                           267,779            --
                                                  ------------     -----------
                                                   $2,020,087        $934,374
                                                  ------------     ------------


                                       36
<PAGE>

NOTE 8.   LONG-TERM BORROWINGS (CONTINUED)

      The scheduled  maturities of long-term debt  outstanding at March 31, 1998
are summarized as follows:  $267,779 in 1999, $0 in 2000, $0 in 2001, $1,752,308
in 2002 and $0 thereafter.

NOTE 9.   COMMITMENTS AND CONTINGENCIES

      LEASES AND RELATED COMMITMENTS

      The Company  occupies  office  space under  leases which expire at various
dates  through  2003.  The  various  leases  contain   provisions  for  periodic
escalations to the extent of increases in certain operating and other costs. The
Company  incurred  rent expense  under  non-cancelable  operating  leases in the
approximate  amounts of $35,000 and  $131,000  for the  periods  ended March 31,
1997, and March 31, 1998, respectively.

      Minimum  future rentals under these  non-cancelable  leases for the fiscal
years ending 1999 through 2003 are  approximately as follows:  1999 -- $164,000;
2000 -- $164,000;  2001 -- $104,000; 2002 -- $84,000; and 2003 -- $42,000 and in
the aggregate $558,000.

      The Company's  subsidiaries  occupy  office space under various  operating
leases which  contain  cancellation  clauses  whereby the Company may cancel the
lease with thirty to ninety days written notice.

      HOTEL FORTUNA LEASES

      During the year ended  March 31,  1997,  the Hotel was subject to land and
equipment  leases.  Under the terms of these  leases,  the Hotel  incurred  rent
expense in the approximate  amounts of $310,000  during fiscal year 1997.  These
leases terminated with the disposition of the Hotel. See Note 15.

NOTE 10.   SHAREHOLDERS' EQUITY

      STOCK REPURCHASE

      On December 10, 1996,  the Board of Directors  approved a plan whereby the
Company was  authorized to begin a buy-back  program of its Common Stock.  Under
the terms of this plan, the Company is authorized to repurchase up to $1,000,000
of Common  Stock at a price not to exceed  $5.00 per share  beginning in January
1997. On January 23, 1997,  the Company  repurchased  45,000 of its  outstanding
shares at $4.75 per share.  Currently,  no additional buy-backs are anticipated.
This treasury stock was retired during the fiscal year ended March 31, 1998.

      STOCK TRANSACTIONS

      On August 1, 1996, the Company issued 1,080,000 shares of its Common Stock
to the selling security holders of Eastbrokers Vienna in a transaction valued at
$5,400,000.  During the period surrounding the acquisition, the Company's common
stock was trading  approximately between $6.25 and $8.00 per share for its fully
registered and unrestricted  shares.  Due to the nature of restricted shares and
the various  covenants  restricting  the transfer of these shares,  the Board of
Directors assigned a value of $5,400,000 to this transaction.

      On March 6, 1997,  the Company  issued 22,500 shares of Common Stock value
relating to the  acquisition of Eastbrokers  NA, valued at $4.00 per share. In a
separate but related transaction to the Eastbrokers NA acquisition,  the Company
sold  2,500  shares of the  Company's  stock to an  officer  of the  Company  in
exchange for a promissory  note.  These shares were  transferred  to the selling
shareholder of Eastbrokers NA as part of the  acquisition.  The shares were also
valued at $4.00 per share.

                                       37
<PAGE>

NOTE 10.   SHAREHOLDERS' EQUITY (CONTINUED)

      During the year ended March 31, 1997, the Company issued a total of 37,000
shares  of Common  Stock at a per share  price  approximating  the then  current
market price for services rendered to the Company.

      In April 1997,  the Company sold  125,000  shares of Common Stock to three
individuals:  Calvin S.  Caldwell,  Frank  Huang and Jay  Raubvogel  for a total
offering  price of $750,000 or $6.00 per share.  The net proceeds to the Company
were $723,195. There were no underwriting discounts or commissions.

      In September 1997, the Company issued 10,000 shares of Common Stock to Dr.
Michael  Sumichrast  in  compensation  for  services  performed on behalf of the
Company during the previous six months.  The average price per share assigned to
this transaction was $6.598 per share based on the average closing price for the
period April 1, 1997 through September 30, 1997.

      In September 1997,  Martin A. Sumichrast  acquired 50,000 shares of Common
Stock at a price of $6.00 per share in exchange  for a note  payable  bearing an
interest rate of 8 percent in the amount of $300,000 to the Company.

      On February  20,  1998,  the Company  sold  1,227,000  newly  issued units
consisting  of one  share of Common  Stock and one Class C Warrant  in a private
placement for $6,135,000 in cash, or a price of $5.00 per unit (approximately 40
percent  below the then current  market  price as of February  19,  1998.) After
deducting offering expenses of $899,031,  the Company netted  $5,415,969.  These
units were offered and sold to various accredited investors.

      Each  of  the  foregoing   issuances  was  made  by  the  Company  without
registration  under the  Securities  Act of 1933,  as amended  (the  "Securities
Act"). In each such case the Company relied upon the exemption from registration
provided by Section 4(2) under the  Securities  Act and Regulation D promulgated
under the Securities Act.

CLASS A WARRANTS

      In  connection  with its June 1995 public  offering,  the  Company  issued
5,505,000 Class A Warrants.  The Class A Warrants became  exercisable on June 7,
1996. By reason of the  Company's  September  1996 1-for-5  reverse stock split,
immediately  after that stock  split each five (5) Class A Warrants  represented
the right to acquire one (1) share of Common Stock for $20. The Class A Warrants
include redemption provisions at the option of the Company and, upon thirty (30)
days'  written  notice to all holders of Class A  Warrants,  the Company has the
right to  reduce  the  exercise  price  and/or  extend  the term of the  Class A
Warrants,  subject to compliance with the  requirements of certain SEC rules and
regulations  to the  extent  applicable.  The Class A Warrant  Holders  are also
entitled  to  certain  antidilution  privileges.  In  April  1998,  the  Company
announced an amendment  relating to the number of warrants  outstanding  and the
exercise price. The adjustment to the number of warrants reflected the September
1996  reverse  stock  split and reduced  the number of  outstanding  warrants by
four-fifths  (4/5's),  such  that one  warrant  again  represents  the  right to
purchase one share of Common Stock.  An adjustment to the exercise  price of the
Class A Warrants to $18.00 per share  resulted in  connection  with the February
1998 private placement. Subsequent to this adjustment, there are 1,101,000 Class
A Warrants outstanding. The Class A Warrants expire in June 2000.

                                       38
<PAGE>

NOTE 10.   SHAREHOLDERS' EQUITY (CONTINUED)

      CLASS B WARRANTS

      In connection with the aforementioned  public offering whereby the Class A
warrants were issued,  the Company issued  1,250,000 Class B Warrants to certain
bridge  lenders.  By reason of the September  1996 1-for-5  reverse stock split,
immediately  after that stock  split each five (5) Class B Warrants  represented
the right to acquire one (1) share of Common  Stock for $21.  The other terms of
the Class B  Warrants  are  identical  to the Class A  Warrants,  including  the
antidilution  provisions.  In April 1998,  the Company  announced  an  amendment
relating to the number of  warrants  outstanding  and the  exercise  price.  The
adjustment to the number of warrants  reflected the September 1996 reverse stock
split and reduced the number of  outstanding  warrants by  four-fifths  (4/5's),
such that one warrant again represents the right to purchase one share of Common
Stock. An adjustment to the exercise price of the Class B Warrants to $19.00 per
share  resulted  in  connection  with  the  February  1998  private   placement.
Subsequent to this adjustment,  there are 250,000 Class B Warrants  outstanding.
The Class B Warrants have not been  registered.  These  warrants  expire in June
2000.

      CLASS C WARRANTS

      In connection  with the private  placement in February  1998,  the Company
issued  1,227,000  units,  each unit consisting of one share of common stock and
one Class C Warrant.  Each Class C Warrant  entitles  the holder to purchase one
share of Common  Stock  during  the  period  commencing  February  20,  1999 and
February  20, 2002 at an exercise  price of $7.00 per share,  subject to certain
adjustments. Commencing February 20, 1999 these warrants will be redeemable at a
price of $.10 per  warrant  at any time  after the  closing  price of the Common
Stock is above $10.00 for 20  consecutive  trading days.  The shares  underlying
these  warrants are subject to a "demand  registration"  right upon receipt of a
demand for  registration  from a majority of the holders of the common stock and
the warrants  issued in this private  placement.  In connection with the private
placement,  1,237,222  Class C Warrants  were  issued to the  placement  agents,
including  312,583  Class C  Warrants  issued  to  Eastbrokers  NA as one of the
placement agents.

      OTHER

      Certain U.S. and non-U.S.  subsidiaries are subject to various securities,
commodities  and  banking   regulations,   and  capital  adequacy   requirements
promulgated by the regulatory and exchange authorities of the countries in which
they operate.  These subsidiaries have consistently  operated in excess of their
local capital adequacy requirements.

      Cumulative translation  adjustments include gains or losses resulting from
translating   foreign  currency  financial   statements  from  their  respective
currencies  to USD.  Increases or decreases  in the value of the  Company's  net
foreign investments generally are tax-deferred for U.S. purposes. Certain of the
markets in which the Company  operates (i.e.,  Russia,  Kazakhstan and Bulgaria)
are  generally  reliant  on the  "soft"  or  "exotic"  currencies.  The  Company
generally elects not to hedge its net monetary  investments in these markets due
to the lack of availability of various currency contracts at acceptable costs.

                                       39
<PAGE>

NOTE 11.   STOCK OPTION PLAN

      During 1996, the Company  adopted a  non-qualified  stock option plan (the
"plan") as part of an overall  compensation  strategy  designed to  facilitate a
pay-for-performance  policy and promote internal ownership in order to align the
interests  of  employees   with  the   long-term   interests  of  the  Company's
shareholders.

      Under the terms of the plan,  stock options  granted will have an exercise
price not less than the fair value of the Company's  Common Stock on the date of
grant.  Such options  generally become  exercisable over a three-year period and
expire 5 years from the date of grant.

      A total of 35,000  options at a weighted  average  exercise price of $6.64
per share were  granted  under this plan  during the fiscal year ended March 31,
1997. The fair value of the options at the date of grant was estimated using the
Black-Scholes  option  pricing model  utilizing the following  weighted  average
assumptions:  risk-free interest rate - 5 percent; expected option life in years
- 5 years; expected stock price volatility - 97.7 percent; and expected dividend
yield - 0.0 percent.

      Had compensation cost been determined based on the fair value at the grant
dates  consistent with the method of FASB Statement 123, the Company's  earnings
and  earnings  per share  would  have  been  reduced  to the pro  forma  amounts
indicated below:
                                           1998               1997
                                           ----               ----
                                                          (As Restated)
Net loss
       - as reported                 $(3,676,607)       $   (918,611)
       - pro forma                    (3,728,043)         (1,606,135)
Primary and fully diluted
earnings per share
       - as reported                 $     (1.17)       $       (.37)
       - pro forma                         (1.18)               (.64)

      During the fiscal year ended March 31, 1997, an additional 200,000 options
were granted outside of the plan at a weighted  average exercise price of $10.00
per share and with an  expiration  date of August 1, 1999. At March 31, 1998 all
235,000 options outstanding were exercisable. The weighted average fair value of
the options at the various grant dates was $5.24.

NOTE 12.   RELATED PARTY TRANSACTIONS

     Prior to the sale by the Company of the Hotel Fortuna a.s. (the "Hotel") on
October 1, 1996,  the Company owned 50.2 percent of the Hotel.  Stratego  Invest
a.s., a broker-dealer and financial  consulting company organized under the laws
of the Czech Republic, owned 20.6 percent of the Hotel. Stratego Invest a.s. was
at that time more than 50 percent owned by Stratego  a.s.,  which was controlled
by Ing. Petr Bednarik.  Mr.  Bednarik was President and CEO of the Company until
August 1996.  The sales  transaction of the Hotel by the Company was arranged by
Stratego Invest a.s. For providing services related to the transaction, Stratego
Invest  a.s.  was  to  have   received  a  commission   fee  of  1,000,000   CZK
(approximately $37,000 USD), however, Stratego Invest a.s. waived its commission
related to this transaction.

     In September  1996,  Mr.  Peter Schmid  received  from  Eastbrokers  Vienna
3,511,422 Austrian Schillings (approximately $340,000 USD) for his 49.95 percent
ownership  interest  in  Eastbrokers   Wertpapiervermittlungs-gesellschaft  GmbH
("Eastbrokers  GmbH"),  an Austrian  Securities  Brokerage  Company with limited
liability.  The nominal value of these shares was 500,000  Austrian  Schillings.
Mr. Schmid, former Chairman, President, Chief Executive Officer, and Director of
the Company, was also a Director of Eastbrokers GmbH.

                                       40
<PAGE>

NOTE 12.   RELATED PARTY TRANSACTIONS (CONTINUED)

      In  September  1996,  Mr.  Schmid  received  376,275  Austrian  Schillings
(approximately   $36,500  USD)  for  his  5.60  percent  ownership  interest  in
Eastbrokers  Slovakia a.s.,  Bratislava  ("Eastbrokers  Slovakia").  Eastbrokers
Slovakia is the  Company's  subsidiary  operating  in the Slovak  Republic.  The
nominal value of these shares was 280,000 Slovak Koruna.

      In  September  1996,  Mr.  August  de Roode  received  1,110,250  Austrian
Schillings (approximately $107,500 USD) for his 24.40 percent ownership interest
in Eastbrokers Slovakia.  The nominal value of these shares was 1,220,000 Slovak
Koruna.  Mr. de Roode was Chief Executive  Officer,  Chief Operating Officer and
Director  of  the  Company  until  March  1997  and he was  also a  Director  of
Eastbrokers Slovakia at the date of this transaction.

      The Company  entered into  various  agreements  with Randall F. Greene,  a
former director of the Company. Mr. Greene provided consulting services pursuant
to an agreement dated July 26, 1996 in connection with the Company's acquisition
of Eastbrokers Vienna. Pursuant to this agreement, Mr. Green received $20,000 as
a  non-accountable  expense  allowance and 10,000 shares of the Company's Common
Stock. In addition,  during the 1997 fiscal year Mr. Greene was paid $37,000 for
consulting services provided to the Company in connection with potential mergers
and/or acquisitions.  In connection with Mr. Greene's resignation from the Board
of  Directors of the Company,  the Company  entered into a six month  consulting
agreement dated March 27, 1997 pursuant to which Mr. Greene was paid $24,000 and
granted options to purchase 7,750 shares of the Company's  Common Stock at $6.50
per share. A related  letter  agreement was entered into with Mr. Green on March
27, 1997, as amended by a letter dated April 29, 1997.  Under the related letter
agreement,  Mr.  Greene  was paid  $13,750  and  granted  12,500  shares  of the
Company's  Common Stock in full  satisfaction for consulting  services  rendered
during the period August 1, 1996 through  March 31, 1997.  Also pursuant to this
agreement,   the  Company  agreed  to  indemnify  Mr.  Greene  against   certain
liabilities, the parties exchanged mutual releases and Mr. Greene agreed to sell
his shares of the Company's  common stock to the Company's  primary market maker
subject to certain conditions.

      The Company entered into a one year  consulting  agreement dated March 31,
1997 with Dr.  Sumichrast,  a Director  of the  Company,  pursuant  to which Dr.
Sumichrast  was granted  20,000  shares of the  Company's  Common  Stock to vest
ratably over the term of the agreement.  Dr. Sumichrast provided services to the
Company during the period April 1, 1997 through  September 30, 1997 and received
10,000 shares at an average price of $6.598 per share as compensation  for these
services.

      In March 1997,  Eastbrokers  Vienna  purchased 30,000 shares of Schneiders
1895 AG for 3,618,000  Austrian  Schillings  (approximately  $302,000  USD). Mr.
Peter Schmid is a Director of Schneiders  1895 AG and Mr.  Schmid's father is an
officer and Director of Schneiders 1895 AG.

     In December 1996,  Eastbrokers  Vienna loaned Dr. Muller-Tyl  approximately
$72,000 USD. Interest on the outstanding  balance of this obligation is computed
at 8  percent  per  annum  until  paid in full.  Dr.  Muller-Tyl  was the  Chief
Operating Officer of the Company until his resignation in January 1998.

                                       41
<PAGE>

NOTE 12.   RELATED PARTY TRANSACTIONS (CONTINUED)

      The  Company  leases  office  space  from  General   Partners   Immobilenz
("GPI")(formerly  Residenz Realbesitz AG ("Residenz")) for its Vienna operations
pursuant to a month-to-month  lease.  Under the terms of the leases, the Company
incurred  occupancy  costs  of  approximately   1,200,000  Austrian   Schillings
(approximately  $95,000  USD) in the fiscal years ended March 31, 1997 and 1998.
The terms of this  lease  were  negotiated  such that the  Company is subject to
occupancy expenses no greater than the current market rates. GPI is a subsidiary
of General Partners  Beteiligungs AG ("General  Partners"),  an Austrian holding
company  and the  beneficial  owner of  1,477,139  shares of Common  Stock.  Mr.
Kossner,  a Director of the Company and an officer of the Company  from  August,
1996 until  November,  1996,  owns  approximately  30 percent of the outstanding
shares of GP. He is a member of GP's Supervisory Board, WMP's Supervisory Board,
the Eastbrokers AG Supervisory Board, and is a Director of the Company.

      During 1996, the Company  entered into a verbal  agreement with RealWorld,
an internet  software  developer,  to design and build an online stock  exchange
game and online trading system.  The initial deposit to begin development of the
game and system was 530,000  Austrian  Schillings  (approximately  $50,000 USD).
Currently  the  Company  has  a  liability  to  RealWorld  of  208,000  Austrian
Schillings  (approximately  $20,000  USD)  representing  amounts due on progress
billings. The agreement states that costs will be charged on an hourly basis and
monthly  progress  billings  will be made  once the  original  deposit  has been
depleted.  Dr.  Muller-Tyl is a member of the  Supervisory  Board for RealWorld.
Venture Capital  Holdings GmbH, an Austrian  company owned and controlled by Mr.
De Roode and Mr. Muller-Tyl ("VCH") and Messrs. Schmid,  Kossner, and Muller-Tyl
were at that time shareholders of RealWorld and represented a combined ownership
interest of 26 percent.

      At December 31, 1996,  the Company has a receivable  related to securities
transactions  from Mr.  Kossner in the amount of 2,269,198  Austrian  Schillings
(approximately $209,000 USD).

      At  December  31,  1996,  the Company  has a  receivable  related to share
transactions  from  Z.E.  Beteiligungs  AG ("ZE")  in the  amount  of  5,537,202
Austrian Schillings  (approximately $511,000 USD). ZE is a subsidiary of General
Partners.

      WMP is an Austrian  broker-dealer,  market maker, and member of the Vienna
Stock Exchange.  WMP's common stock is publicly traded on the Main Market of the
Vienna  Stock  Exchange.  From time to time,  WMP will make a market in stock of
companies that have a direct relationship to the Company through its Directors.

      In October 1997,  WMP sold its interest in WMP  Vermogensverwaltungs  GmbH
("WMP GmbH"),  primarily an inactive subsidiary to COR  Industrieberatung  GmbH,
for 2.5 million  Austrian  Schillings  (approximately  $200,000  USD). The sales
price approximated the cost basis of WMP GmbH at the date of disposition.

      In  December  1997,  Eastbrokers  Vienna  sold its 51 percent  interest in
Su(beta)warenindustrie  Beteiligungs  GmbH ("SWIB") to Mr. Schmid for 13 million
Austrian  Schillings  (approximately  $1,025,000  USD). The Company acquired its
ownership  interest  in  SWIB  in  mid-1997  for  510,000  Austrian   Schillings
(approximately $40,000 USD). At the time of acquisition,  the principal asset of
SWIB was an investment in a company  which was entering  bankruptcy  proceedings
and there was considerable  uncertainty regarding the future realizable value of
this asset. By December 1997,  bankruptcy  proceedings had progressed to a point
where an estimate could be made on the net realizable value of this asset. Based
on the  information  available  at  that  time,  SWIB's  value  at the  date  of
disposition  was  determined  by the Board of Directors to be in the range of 12
million to 14 million Austrian Schillings  (approximately $950,000 to $1,100,000
USD). The sale of SWIB resulted in a gain of approximately  $1.0 million USD and
is included in the accompanying consolidated statement of operations.

                                       42
<PAGE>

 NOTE 12.   RELATED PARTY TRANSACTIONS (CONTINUED)

      As of December 31, 1997,  ZE, a 26.27 percent owned  subsidiary of General
Partners,  owned  approximately 25 percent of UCP Beteiligungs AG ("UCP AG"), an
Austrian  holding  company.  UCP AG,  in turn,  owns 27.7  percent  of a Russian
chemical company,  UCP AOOT. Shares of UCP AOOT are listed  over-the-counter  on
the Vienna  Stock  Exchange.  WMP is a market maker in the shares of UCP AOOT on
the Vienna Stock Exchange. During 1997, WMP facilitated the purchase and sale of
several  blocks  of  UCP  AOOT  shares.   As  of  year  end,  the  Company  held
approximately  38,000  shares of UCP AOOT as an  investment.  At this time,  the
estimated  value of these shares was  approximately  $1,030,270.  This amount is
reported in the Securities  owned at value,  Corporate  equities  section of the
financial  statements.  Subsequent  to year end, the Company sold  approximately
8,000  shares in 6  separate  transactions  for  approximately  $400,000.  As of
October 26, 1998, the current market price of UCP AOOT shares was  approximately
$54 per share on the Vienna Stock Exchange.  For the fiscal year ended March 31,
1998, the Company recorded,  as a charge to earnings,  a market value adjustment
of  approximately  ($610,000).  Although  the UCP AOOT  shares are  trading at a
premium to the original cost basis, the Company wrote down the carrying value of
this item  based on an  independent  valuation  of UCP AOOT and the  uncertainty
surrounding the Russian economy.

      Upon acquiring Eastbrokers  Beteiligungs AG on August 1, 1996, the Company
assumed a receivable in the amount of 7,387,697 ATS (approximately $704,000 USD,
at the then current exchange rates) from Peter Schmid.  As of December 31, 1997,
the  receivable  increased due to cash advances to 8,046,177 ATS  (approximately
$635,000 USD, at the then current exchange rates).  These cash advances included
the U.S. Dollar  denominated  amount  fluctuates  based on the foreign  currency
exchange rate. On May 31, 1998, Mr. Schmid  entered into a  Non-Negotiable  Term
Note in the amount of 8,046,177 Austrian Schillings.  This amount is reported in
the Receivable from executive officer in the consolidated statement of financial
condition.  This Note bears  interest at 8 percent per annum and matures May 31,
2000. It was collateralized by 150,000 shares of the Common Stock. On October 8,
1998, Mr. Schmid repaid 6,748,111  Austrian  Schillings of the total amount due.
Mr.  Schmid has  informed  the  Company  that he intends to repay the  remaining
outstanding balance by December 31, 1998.

      Periodically,  the Company  engages in securities  transactions  with URBI
S.A., ("URBI"), a Spanish investment company. Mr. Kossner was a member of URBI's
Supervisory  Board from  November  1996 through  June 1998 and Mr.  Schmid was a
member  until May 1997.  All  transactions  between  URBI and the  Company  were
consummated at the then current market prices.  At December 31, 1997, the amount
due from URBI was  7,023,576  Austrian  Schillings  or  approximately  $555,000,
arising  exclusively  from  various  securities  transactions.  This  amount  is
reported  in the  Receivable  from  affiliated  companies  in  the  consolidated
statement of financial  condition.  Prior to June 30, 1998,  URBI had repaid all
amounts due with respect to the  transactions  open at December 31, 1997.  As of
June 30, 1998, the Company had a receivable from URBI in the amount of 4,698,215
Austrian Schillings or approximately  $370,000 related to transactions occurring
subsequent  to December  31,  1997.  In  addition,  the Company  entered  into a
repurchase  agreement with URBI in June 1997. This repurchase  agreement and the
related shares of Vodni Stavby a.s., a Czech construction  company, were sold to
a non-affiliated Czech Republic company in October 1997.

      During October 1997, WMP entered into a stock loan transaction with VCH in
the amount of 4,065,000 Austrian Schillings (approximately $325,000). In August,
1998,  VCH repaid the  Company  in full for this  stock  loan  transaction.  WMP
periodically  engages  in stock  loan  transactions  as a portion  of its normal
business operations.

      In December 1997, WMP purchased 7,200,000 ATS (approximately  $576,000) of
8  percent  bonds  due  April 1, 2000 of ZE.  This  amount  is  reported  in the
Securities owned at value,  Corporate equities in the consolidated  statement of
financial  condition.  The ZE bonds earn a  comparatively  higher interest rates
(350 basis point above comparable Austrian governmental rates).

                                       43

<PAGE>

NOTE 12.   RELATED PARTY TRANSACTIONS (CONTINUED)

     As of December 31, 1997, the Company had a receivable  from C.R.F.  a.s., a
Slovak privatization company, related to a stock sale transaction and consulting
fees.  The total  amount  due from these  transactions  was  7,078,500  Austrian
Schillings  (approximately  $559,000). This amount is reported in the Receivable
from affiliated companies in the consolidated  statement of financial condition.
Mr.  Schmid was the  Chairman of the Board of C.R.F.  a.s.  from  November  1995
through October 1997.

     In September 1997,  Martin A.  Sumichrast  acquired 50,000 shares of Common
Stock at a price of $6.00 per share in exchange for a note payable in the amount
of   $300,000   to  the   Company.   This   amount  is   recorded  in  the  Note
receivable-common  stock in the consolidated  statement of financial  condition.
This note bears interest at 8 percent per annum and is due September 15, 1999.

NOTE 13.   INCOME TAXES

      The tax  benefit of $640,163  for the year ended  March 31,  1998  results
primarily  from  foreign  net  operating  loss  carryforwards  at the  Company's
subsidiaries.

      The  differences  between the tax  provision  (benefit)  calculated at the
statutory  federal  income tax rate and the actual tax  provision  (benefit) for
each period is shown in the table below:

                                             Year Ended       Year ended
                                              March 31,        March 31,
                                                1998             1997
                                             ------------     ------------

Tax benefit at federal statutory rate        $(1,587,065)     $   84,678
State income taxes, net of federal
benefit                                         (244,991)         14,402
Foreign taxes                                    266,411              --
Unrecognized benefit of net operating
losses                                           897,153         697,301
Discontinued operations                               --        (510,975)
Non-taxable income from Slovak
Republic                                              --        (191,515)
Other                                              8,329        (102,196)
                                             -----------      ------------
                                             $  (640,163)     $   (8,305)
                                             ------------     ------------


                                       44

<PAGE>

NOTE 13.   INCOME TAXES (CONTINUED)

      The  significant  components  of the  Company's  deferred  tax  asset  and
liability are as follows:
                                                Year Ended         Year ended
                                                 March 31,          March 31,
                                                   1998               1997
                                                ------------      ------------

Unrecognized gain from marketable securities     $  142,633       $  (105,385)
Capital loss carryforward                            45,445                --
Foreign tax credit carryforward                      32,652                --
Other                                                19,428            (5,405)
Net operating loss carryforward                   5,202,856         1,112,193
                                                 ------------     ------------
                                                  5,443,014         1,001,403
      Valuation allowance                        (1,331,492)         (697,301)
                                                 ------------     ------------
                                                  4,111,522           304,102
Eastbrokers AG deferred taxes acquired                   --           187,996
                                                 ------------     ------------

                                                 $4,111,522       $   492,098
                                                 ------------     ------------

      At March 31,  1998,  the Company has a U.S.  federal  net  operating  loss
carryforward  of  approximately  $3,018,000 that may be used against future U.S.
taxable  income until it expires  between the years March 31, 2012 and March 31,
2013. The Company also has a U.S.  capital loss  carryforward  of  approximately
$118,000  USD  that  expires  March  31,  2002  and a U.S.  foreign  tax  credit
carryforward of  approximately  $33,000 USD that expires between the years March
31, 2010 and March 31, 2013.  At December 31, 1997,  the Company has an Austrian
federal net operating loss  carryforward of  approximately  $11,000,000 USD that
has no expiration period.

      The  non-taxable  income from the Slovak  Republic  is from  privatization
activities in which Eastbrokers  Vienna was actively  involved.  This income was
received  in the fourth  quarter of the fiscal  year ended  December  31,  1996.
Distributions of this nature are non-taxable under Slovak Republic regulations.









                                       45
<PAGE>

NOTE 14.   SEGMENT INFORMATION

      Segment information is as follows for the year ended March 31, 1998:

                                       Share of
                                       Income of
                                     Unconsolidated  Identifiable        Net
                         Revenues      Entities         Assets         (Loss)
                       -----------   --------------  ------------   -----------

      Austria          $ 4,152,076   $    32,076     $22,354,754    $  (493,359)
      Czech Republic     1,304,552            -          868,961       (279,568)
      Hungry             2,108,992            -        7,533,072        214,017
      Poland             1,372,325            -        2,529,672         33,585
      Slovak Republic        9,842            -        1,945,028       (428,439)
      United States        218,199            -        8,062,958     (2,746,065)
      Other              1,176,990                     1,137,064         23,222
                       -----------   --------------  ------------   -----------
            Total      $10,342,976   $  (32,076)     $44,431,509    $(3,676,607)
                       -----------   --------------  ------------   -----------

Segment  information  is as  follows  for the  year  ended  March  31,  1997 (As
Restated):

                                       Share of
                                       (Loss) of
                                     Unconsolidated  Identifiable        Net
                         Revenues      Entities         Assets         (Loss)
                       -----------   --------------  ------------   -----------


      Austria          $ 1,433,897   $ (396,209)     $13,023,750   $    165,188
      Czech Republic       656,079            -        2,202,134       (130,214)
      Hungry               387,519            -        2,117,066         56,166
      Poland               921,856            -        2,341,507        (20,705)
      Slovak Republic    1,124,339            -        3,071,805        596,560
      United States      1,161,940            -        9,136,486     (1,606,814)
      Other                 55,845            -           69,981         21,208
                       -----------   --------------  ------------   -----------
            Total      $ 5,741,475  $ (396,209)      $31,962,729   $   (918,611)
                       -----------   --------------  ------------   -----------







                                       46
<PAGE>

NOTE 15.   DISCONTINUED OPERATIONS

      In October 1996,  the Company agreed to sell its interest in the Hotel for
100,000  shares of Ceske  energeticke  zavody  a.s.  and 86,570  shares of Vodni
stavby Praha a.s.,  based on the then current  market prices for each stock.  In
November 1996,  the sales  transaction  was completed.  As of the sale date, the
Company revised its estimate of the net realizable  value of the shares received
based on the then current market prices for each stock. As a result, the Company
recognized a loss on the sale of  discontinued  operations of ($1,323,083  USD).
Income from discontinued operations was $41,899 through the sale date.

NOTE 16.   SUBSEQUENT EVENTS  (UNAUDITED)

      In May 1998,  a date  subsequent  to the fiscal year end date of March 31,
1998,  the  Company  acquired  all  of  the  outstanding  common  stock  of  EBI
Securities,  a Denver,  Colorado based investment banking and brokerage firm, in
exchange for 445,000  unregistered  shares of the Company's  Common Stock and an
agreement to advance $1,500,000 in additional working capital to EBI Securities.

      EBI Securities is subject to the following legal proceedings.

      USCAN FREE TRADE ZONES V. COHIG & ASSOCIATES,  INC. (EBI  SECURITIES),  ET
AL.,  United States  District Court for the Western  District of Washington.  In
March 1997, USCAN Free Trade Zones, Inc. ("USCAN") filed a complaint against EBI
Securities and Steve Signer,  an employee of EBI  Securities,  alleging that EBI
Securities  misled  USCAN  about  the  credit  worthiness  of a third  party  in
connection with an introduction made by Mr. Signer. EBI Securities categorically
denies this  allegation.  USCAN informed EBI Securities that it would be working
with a certain  third  party to secure  certain  loans on behalf of USCAN  which
USCAN would then use to open a trading  account  with EBI  Securities.  Once EBI
Securities  learned of the relationship to this third party, it refused to enter
into any  business  arrangements  with  USCAN  as long as the  third  party  was
involved due to regulatory problems  encountered in prior business dealings with
this certain  third party.  Plaintiff  alleges that as a result of Mr.  Signer's
referral,  it lost the ability to obtain a loan and all lost  profits that might
have resulted.  Mr. Signer was dismissed as a defendant is this case due to lack
of personal jurisdiction and has received an award of fees. Plaintiff originally
sought a judgment of  approximately  $86,000,000  in  compensatory  and punitive
damages.  However,  USCAN  recently  stated  in a  pleading  and  during a court
deposition  taken in  October  1998 that its  damage  claim had been  reduced to
$332,000.  EBI Securities  has filed  counterclaims  for  defamation  based upon
certain false and defamatory representations regarding EBI Securities. The trial
had been  scheduled to start in January 1999 but the court removed the case from
its docket  after  USCAN  filed a petition  for relief  under  Chapter 11 of the
United  States  Bankruptcy  Code. In the event that that the case should ever be
restored  to the  active  docket  for  trial,  EBI  Securities  believes  it has
meritorious  defenses and intends to vigorously defend against USCAN's claims as
well as  aggressively  pursue  claims  against USCAN and two of its officers for
defamation, abuse of process, and civil conspiracy.

      FLORIDA  DEPARTMENT  OF INSURANCE AS RECEIVER FOR UNITED  STATES  EMPLOYER
INSURANCE CONSUMER SELF-INSURANCE FUND OF FLORIDA ("USEC") V. DEBENTURE GUARANTY
CORPORATION,  ET. AL.,  United States  District Court for the Middle District of
Florida. In November,  1995, the plaintiff,  USEC,  commenced the above entitled
action against Debenture  Guaranty  Corporation  ("Debenture") and certain other
defendants,  including  EBI  Securities  and Steve  Signer,  an  employee of EBI
Securities. In 1994, USEC entered into an arrangement whereby USEC lent money to
Debenture,  and Debenture  opened an account in  Debenture's  name to trade U.S.
Treasuries.  The note to USEC was in the amount by which the treasuries could be
margined.  This  transaction  was  allegedly  part of a scheme  whereby USEC was
attempting to inflate its assets for regulatory  purposes.  Debenture  allegedly
misappropriated  the funds for its own  benefit  and USEC  subsequently  failed.
Plaintiffs  alleged that EBI Securities and Signer aided,  abetted and conspired
with Debenture to defraud USEC and claimed damages of  $11,000,000.  After a six
week trial held from  September 8, 1998,  to October 14, 1998, a jury returned a
verdict  in favor of EBI  Securities.  Plaintiffs'  motion  for a new  trial was
denied.  EBI  Securities  filed a  motion  seeking  recovery  of its  costs  and
attorney's  fees incurred in connection  with defending  this action.  The Court
awarded  EBI  Securities  $12,500 in costs but denied its motion for  attorney's
fees.  Plaintiffs  have filed an appeal to the judgment and EBI  Securities  has
cross-appealed the denial of its motion for attorney's fees.

                                       47
<PAGE>
NOTE 16.   SUBSEQUENT EVENTS (CONTINUED)

      EURO-AMERICAN INSURANCE COMPANY LTD., ET. AL. V. NATIONAL FAMILY CARE LIFE
INSURANCE COMPANY, ET. AL., 191st Judicial District of Dallas County, Texas (the
"NFC Litigation").  In April, 1996,  National Family Care Life Insurance Company
("NFC")  commenced the above action  against,  among others,  EBI Securities and
Steve Signer,  an employee of EBI  Securities.  In late 1994 or early 1995,  NFC
entered into an arrangement with Debenture Guaranty  Corporation  ("Debenture"),
another  defendant in the NFC  Litigation,  whereby NFC lent money to Debenture,
and Debenture  opened an account in Debenture's  name to trade U.S.  Treasuries.
The note to NFC was in the  amount by which the  treasuries  could be  margined.
This  transaction  was allegedly  part of a scheme whereby NFC was attempting to
inflate its assets for regulatory purposes.  Debenture allegedly misappropriated
the funds for its own benefit. NFC alleged that EBI Securities and Signer aided,
abetted and conspired with Debenture in allegedly defrauding Plaintiff.  NFC has
reduced its damages demand from  approximately  $11,500,000 to $1,100,000.  This
case is related to the USEC litigation,  described above,  which also involves a
claim of fraud against  Debenture.  EBI Securities  believes it has  meritorious
defenses and intends to vigorously  defend  against  NFC's  claims.  The case is
presently scheduled for trial in October 1999.

      EBI Securities  also is involved in an arbitration  proceeding  related to
the NFC  Litigation  entitled  NATIONAL  FAMILY CARE LIFE INSURANCE CO. V. PAULI
COMPANY,  INC.,  ET AL.,  NASDR  Case  No.  96-02673  (the  "Arbitration").  The
Arbitration  panel entered an award against EBI Securities in July 1998 in favor
of  third-party  plaintiff  Pauli & Company,  Inc.  ("Pauli")  of  approximately
370,000,  which was  significantly  below the initial  award  sought by Pauli of
approximately $1,100,000.  EBI Securities has filed a motion to vacate and plans
to vigorously contest this award on appeal.

      JACK G. LARSEN, AS RECEIVER FOR SOUTHWEST  INCOME,  TRUST ADVANTAGE INCOME
TRUST AND INVESTORS TRADING TRUST V. COHIG AND ASSOCIATES, INC. ET AL., Maricopa
County Superior Court, Arizona,  Case No. CV 98-20281.  Plaintiff commenced this
action  against EBI  Securities  and one of its  brokers in  December  1998 (and
process was served on EBI Securities in January 1999) seeking  damages in excess
of $8 million  dollars  against EBI Securities as well as an accounting of funds
allegedly in possession of EBI  Securities.  Plaintiff,  who apparently has been
appointed receiver for three trusts,  alleges that customer accounts established
at EBI Securities by third parties contained funds that actually belonged to the
Trusts,  and that EBI Securities  negligently failed to supervise its employees,
in  failing to  determine  that the third  parties'  trading  activities,  which
allegedly resulted in significant trading losses, were in violation of the terms
of agreements between the third parties and the Trusts.  Plaintiff also contends
that EBI Securities  has in its possession and has wrongfully  refused to return
approximately  $270,000  belonging  to the Trusts.  EBI  Securities  has filed a
Motion to Compel  Arbitration and a Motion to Dismiss for Lack of Subject Matter
Jurisdiction.  A court  hearing on these two motions is presently  scheduled for
May 20, 1999.  EBI  Securities  believes  that it has  meritorious  defenses and
intends to vigorously defend against Plaintiff's claims.

      In addition to the litigation  described above,  the Company,  through its
subsidiaries,  is involved in various  legal  actions and claims  arising in the
ordinary course of business.  Management believes that each of such matters will
be resolved without material adverse effect on the Company's financial condition
or operating results.

      In June 1998, the Company's largest European subsidiary, WMP, successfully
raised 60 million Austrian Schillings  (approximately  $4,800,000 USD) in a bond
offering.  The Company  intends to utilize these proceeds to enhance and further
develop its European trading activities.  The bonds were issued in denominations
of  10,000  Austrian  Schillings  (approximately  $800 USD at the  then  current
exchange  rates),  bear an  annual  interest  rate of 7.5  percent,  payable  at
maturity,  and mature in June 2002.  In  December  1998,  the  Company  redeemed
approximately 42 million Austrian Schillings of these bonds. The Company intends
to redeem the remaining bonds in the future.

                                       48
<PAGE>

NOTE 16.   SUBSEQUENT EVENTS (CONTINUED)

      In June 1998,  the Company sold a 73.55  percent  interest in  Eastbrokers
Prague a.s. for 15 million Austrian Schillings  (approximately $1,200,000 USD at
the then current  exchange rate). The net assets related to this transaction are
presented in the accompanying balance sheet as "Net assets held for sale."

      In November 1998, the Company sold 10 newly issued units consisting in the
aggregate  of  $1,100,000  in 7  percent  Convertible  Debentures  and  Series C
Warrants to purchase 125,000 shares of Common Stock..

      In December 1998,  Eastbrokers sold its subsidiary,  Eastbrokers  Budapest
Rt. for HUF 217,000,000  (approximately  $1,000,000).  The Company  continues to
have a working  relationship with the buyer and maintains a presence through its
relationship with the buyer.

      In January  1999,  the Company sold  125,000  shares of Common Stock for a
total offering price of $500,000 or $4.00 per share.

      In February 1999, the Company's Austrian subsidiary WMP Bank AG, purchased
a forty-nine  (49%) percent equity  interest in Stratego Invest a.s.  Prague,  a
Czech  securities  and  investment  firm.  The  purchase  price  was  valued  at
approximately  $2.9 million USD at the then  current  exchange  rates.  The book
value of Stratego Invest at the time of purchase was  approximately  190 million
Czech koruna,  or  approximately  $6.1 million USD at the then current  exchange
rates.

      Stratego  Invest is one of the leading  Czech  securities  and  investment
firms.  The  current  management  of  Stratego  Invest  has a proven  record  of
profitability and they have well positioned the firm in order to expand into the
international securities marketplace.  The partnership with Stratego Invest will
give the  Company a strong  partner  in the Czech  marketplace,  and at the same
time,  will provide  Stratego  Invest  access to the  international  marketplace
through the Company's operations in Europe and the US.

      In February 1999,  Martin A.  Sumichrast sold 50,000 share of Common Stock
acquired in September 1997 with a promissory note.  Proceeds from such sale were
used to repay the note.

      In March 1999,  Eastbrokers  issued the 10% Note due 2003.  Holders of the
10% Notes have the right to convert  their Notes into shares of Common  Stock at
$5.75 per share.  Proceeds  of the Notes were used to redeem the 7%  Convertible
Debentures.

      In  April  1999,   Eastbrokers  signed  a  joint  venture  agreement  with
CyberRealm,  Inc.,  a website  development  firm,  to  jointly  own and  develop
EBonlineinc.com,  a  newly  established  subsidiary.  EBonlineinc.com  is  owned
seventy percent by Eastbrokers and thirty percent by CyberRealm,  Inc. Under the
terms of the joint  venture  agreement,  Eastbrokers  will  provide  $300,000 in
initial funding and CyberRealm will provide $200,000 in developmental costs.

      EBonlineinc.com is an internet based service  (www.Ebonline.com) that will
allow domestic and  internationally  based  companies to post their  businesses,
match with  buyers and sellers  and have  access to the  investment  banking and
securities  network of the Company.  Eastbrokers  believes that  EBonlineinc.com
will have potentially three revenue streams: monthly membership fees, consulting
income and banner advertising income. Eastbrokers intends to begin marketing the
Website in May 1999 in international print media and major search engines on the
internet.

NOTE 17.   RECENT ACCOUNTING PRONOUNCEMENTS

      In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial  Accounting  Standards ("SFAS") No. 128. The new standard
replaces  primary and fully  diluted  earnings  per share with basic and diluted
earnings per share.  SFAS No. 128 was adopted by the Company  beginning with the
interim  reporting  period ended  December 31, 1997. The adoption did not affect
previously reported earnings per share amounts.

                                       49
<PAGE>

NOTE 17.   RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

      In June 1997,  the FASB  issued  SFAS No.  130,  "Reporting  Comprehensive
Income."  This  statement  established  standards  for  reporting and display of
comprehensive income and its components (revenues,  expenses,  gains and losses)
in a full  set of  general-purpose  financial  statements.  This  statement  was
adopted by the Company beginning with the fiscal year ended March 31, 1999.

      In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement established standards for
the way that public  business  enterprises  report  information  about operating
segments in annual  financial  statements and requires that  enterprises  report
selected  information  about  operating  segments in interim  financial  reports
issued to  stockholders.  This  statement  will be effective  for the  Company's
annual  report for the fiscal year ended March 31, 1999.  In the initial year of
application,  comparative  information  for earlier years is to be restated.  At
this  time,  the  Company  does not  believe  that  this  statement  will have a
significant impact on the Company.

      In June 1998,  the FASB issued SFAS No. 133,  "Accounting  For  Derivative
Instruments and Hedging Activities." This Statement  establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments  embedded in other contracts,  and for hedging activities.  SFAS No.
133 is effective for fiscal years  beginning  after June 15, 1999. At this time,
the Company does not believe that this statement will have a significant  impact
on the Company.

NOTE 18.    SIGNIFICANT ESTIMATES

      As part of the  preparation of its fiscal 1998 financial  statements,  the
Company has made several valuation  estimates.  Such estimates could be impacted
by changes in facts and  circumstances  in the near term. Such changes,  if they
occur, could have a significant  effect on the Company's  financial position and
results of operations.  The net amounts  recorded related to these estimates are
summarized as follows:

o  An approximate $1 million  receivable  from a Serbian  financial  institution
   related to the Company selling its creditor position with a bankrupt company.
   This  amount  is  included  in  financial   institution   receivable  in  the
   accompanying 1998 balance sheet.

o  An approximate $1 million investment in the shares of UCP AOOT (See Note 12),
   a Russian  chemical  company.  This amount is included in securities  owned -
   corporate equities in the accompanying 1998 balance sheet.

o  An approximate  $724,000 receivable related to a repurchase agreement and the
   related  shares  of Vodni  Stavby,  a.s.  This  amount is  included  in other
   receivables in the accompanying 1998 balance sheet.

ITEM 13.     EXHIBITS, LIST AND REPORTS ON FORM 8-K

        (a)  EXHIBITS

         Exhibit Number           Description
         --------------           -----------

            27                    Financial Data Schedule


        (b)  Not applicable.

                                       50

<PAGE>





                                   SIGNATURES

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


EASTBROKERS INTERNATIONAL INCORPORATED
        (Registrant)



By: /S/ Martin A. Sumichrast
    ----------------------------------------------------            May 24, 1999
              Martin A. Sumichrast
Chairman, President, Chief Executive Officer and Director


            In accordance  with the Exchange  Act, this  amendment to report has
been  signed by the  following  persons on behalf of the  registrant  and in the
capacities and on the dates indicated.


By: /S/ Martin A. Sumichrast
    ----------------------------------------------------            May 24. 1999
              Martin A. Sumichrast
Chairman, President, Chief Executive Officer and Director



   /s/ Kevin D. McNeil                                              May 24, 1999
   -----------------------------------------------------
                 Kevin D. McNeil
Vice President, Secretary, Treasurer and Chief Financial Officer
            (Principal Financial and Accounting Officer)

   /s/ Michael Sumichrast, Ph.D                                     May 24, 1999
   ------------------------------------------------------
            Michael Sumichrast, Ph.D.
                    Director



   /s/ Wolfgang Kossner                                             May 24, 1999
   ------------------------------------------------------
                Wolfgang Kossner
                    Director




   /S/ Jay R. Schifferli
  --------------------------------------------------------          May 24, 1999
                Jay R. Schifferli
                    Director

                                       51

<PAGE>

                                 EXHIBIT INDEX
                                 -------------


         Exhibit Number           Description
         --------------           -----------

            27                    Financial Data Schedule