SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
(Mark One)

[X]    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
       1934.
       For the fiscal year ended December 31, 1998
                                       OR

[ ]     TRANSITION  REPORT  UNDER  SECTION  13 or  15(d)  OF THE  SECURITIES
        EXCHANGE    ACT   OF   1934   For   the    transition    period    from
         _____________________ to _____________________

                        Commission file number 000-22611

                                Compu-DAWN, Inc.
                 (Name of Small Business Issuer in its Charter)

         Delaware                                               11-3344575   
(State or Other Jurisdiction of                             (I.R.S. Employer
Incorporation or Organization)                           Identification Number)

    77 Spruce Street, Cedarhurst, NY                               11516   
(Address of Principal Executive Offices)                         (Zip Code)

                                 (516) 374-6700
                (Issuer's telephone number, including area code)

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

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

                     Common Stock ($.01 par value per share)
                                (Title of Class)

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 X No

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [ ]

As of  February  28,  1999,  the  aggregate  market  value of the shares held by
non-affiliates was approximately $13,875,345.

The  issuer's  revenues  for the  fiscal  year  ended  December  31,  1998  were
$1,248,489.

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS.

The  number of shares  outstanding  of each of the  issuer's  classes  of common
equity as of February 28, 1999 is  3,428,269  shares of Common  Stock,  $.01 par
value per share.

Transitional Small Business Disclosure Format (check one): Yes          No X    

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None


<PAGE>

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                                            Page No.   INDEX

<S>                                                                                                   <C>

Forward Looking Statements ............................................................................. 1


PART I

Item 1.      Description of Business......................................................................1

Item 2.      Description of Property.....................................................................31

Item 3.      Legal Proceedings...........................................................................31

Item 4.      Submission of Matters to a Vote of Security Holders.........................................32


PART II

Item 5.      Market for Common Equity and Related Stockholder Matters....................................34

Item 6.      Management's Discussion and Analysis or Plan of Operation...................................36

Item 7.      Financial Statements........................................................................44

Item 8.      Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosure....................................................................44


PART III

Item 9.      Directors, Executive Officers, Promoters and Control Persons;
             Compliance with Section 16(a) of the Exchange Act...........................................45

Item 10.     Executive Compensation......................................................................50

Item 11.     Security Ownership of Certain Beneficial Owners and Management..............................55

Item 12.     Certain Relationships and Related Transactions..............................................56


PART IV

Item 13.     Exhibits and Reports on Form 8-K............................................................58

Signatures

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                           FORWARD LOOKING STATEMENTS


     Certain  information  contained in this Annual Report are  "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of 1995,  and is subject to the safe  harbor  created by that act.  The  Company
cautions readers that certain  important factors may affect the Company's actual
results  and  could   cause  such   results  to  differ   materially   from  any
forward-looking  statements which may be deemed to have been made in this Annual
Report or which are  otherwise  made by or on  behalf of the  Company.  For this
purpose,  any statements contained in this Annual Report that are not statements
of  historical  fact may be deemed  to be  forward-looking  statements.  Without
limiting the generality of the foregoing, words such as "may," "will," "expect,"
"believe,"  "anticipate,"  "intend,"  "could,"  "estimate," or "continue" or the
negative  variations thereof or comparable  terminology are intended to identify
forward-looking  statements.  Factors  which may  affect the  Company's  results
include,  but are not limited to, the risks and  uncertainties  associated  with
multi-level network marketing, the Internet and Internet-related  technology and
products,  new  technology  developments,  developments  and  regulation  in the
telecommunications industry, the competitive environment within the Internet and
telecommunications  industries,  the level of  spending by law  enforcement  and
public  safety  agencies for computer  application  software and  hardware,  the
competitive  environment  within  the public  safety  technology  industry,  the
ability of the Company to expand its operations,  the level of costs incurred in
connection with the Company's planned expansion efforts,  the financial strength
of the  Company's  customers  and  suppliers,  unascertainable  risks related to
possible  unspecified  acquisitions,  the competence  required and experience of
management,  the risk of loss of management and personnel,  economic conditions,
and the risks and  uncertainties  inherent  in  litigation.  The Company is also
subject to other  risks  detailed  herein or  detailed  from time to time in the
Company's  Securities and Exchange Commission ("SEC") filings.  Readers are also
urged to  carefully  review and  consider  the various  disclosures  made by the
Company which attempt to advise  interested  parties of the factors which affect
the Company's  business,  including,  without  limitation,  the disclosures made
under the caption "Management's Discussion and Analysis or Plan of Operation" in
Item 6 of this  Annual  Report.  All  references  to a  fiscal  year  are to the
Company's fiscal year which ends December 31.

                                     PART I

Item 1.           Description of Business

     The  Company is  engaged in two lines of  business.  In one,  the  Company,
through its wholly owned subsidiary,  e.TV Commerce, Inc. ("e.TV"),  operates in
the Internet,  e-commerce and telecommunications business (the "e.TV Business"),
marketing  products  and  services  primarily  using a person  to  person  sales
approach  with  the  services  of  commissioned   sales   representatives  in  a
multi-level referral network marketing  organization.  Key services and products
in this line of business include the following:

                                        1

<PAGE>




                  -        Interactive  advanced  digital tv set-top boxes which
                           enable the  consumer to access the  Internet  through
                           the consumer's tv set over a telephone line,  conduct
                           electronic  commerce  through  e.TV's own  e-commerce
                           shopping  mall,  and  access a variety  of  different
                           software   applications   through  network  computing
                           capabilities;
                  -         Sales of long distance telephone service;
                  -         Sales of Internet access service;
                  -         On-line shopping;
                  -         Pagers and paging service; and
                  -         Web page design.

                  In its other line of  business,  the Company is engaged in the
business of designing, developing,  licensing, installing and servicing computer
software   products  and  systems   predominantly  for  public  safety  and  law
enforcement  agencies (the "Public  Safety  Software  Business").  The Company's
public  safety  customers are  primarily  located in New York State.  See Item 1
"Description of Business -Public Safety Software  Business  Description - Public
Safety Software Customers."

                  The  Company's  Board of  Directors  has  determined  that the
Company's  efforts  should be focused  on the e.TV  Business.  Accordingly,  the
Company is currently seeking to sell the Public Safety Software Business.

History and Recent Developments

                  The  Company  was  incorporated  under  the  name  of  Coastal
Computer Systems,  Inc. in New York on March 31, 1983 and was  reincorporated in
Delaware under its present name on October 18, 1996.

                  In October 1996, the Company  successfully  completed the sale
of 77 units,  each unit  consisting  of a $10,000  Promissory  Note (the "Bridge
Note") and a Common Share  Purchase  Warrant  (the "Bridge  Warrant") to acquire
5,600 Common Shares of the Company (the "Bridge Financing  Transaction") (Bridge
Warrants to acquire 42,000 Common Shares were canceled subsequent to the closing
of the Bridge Financing Transaction.)

                  The Bridge  Warrants are  exercisable  at a price of $3.00 per
share.  Each of the  Bridge  Notes was paid upon the  closing  of the  Company's
initial public offering (the "IPO"),  which was  successfully  completed in June
1997, as discussed  below.  The terms of the Bridge Warrants  provide for a five
year  exercise  period  expiring  in  June  2002;  however,   the  Company,  the
underwriter  of the Company's  IPO, and the Bridge  Warrant  holders have agreed
that  the  Bridge  Warrants  will  not be  exercised  or  transferred,  and  the
underlying Common Shares will not be transferred, until June 1999.

                  In June 1997,  the Company,  successfully  completed an IPO of
its Common Shares.

                                        2

<PAGE>



The Company sold 1,380,000 Common Shares  (including  180,000 shares pursuant to
the  underwriter's  over-  allotment  option)  at a price of $5.00 per share for
aggregate net proceeds, after expenses, of $5,625,874. A portion of the proceeds
realized  from this  offering  was used to repay  promissory  notes  aggregating
$770,000 to the bridge  lenders as described  above.  See Item 5 "Market for the
Registrant's Common Stock and Related Stockholder Matters - Use of Proceeds from
Initial  Public  Offering"  for a discussion of the use of proceeds from the IPO
through December 31, 1998.

                  On June 5, 1998,  pursuant to a Securities  Purchase Agreement
among the Company,  JNC Strategic Fund Ltd.  ("Strategic")  and JNC  Opportunity
Fund Ltd. (together with Strategic, the "Purchasers"),  dated as of May 31, 1998
(the  "Securities  Purchase  Agreement"),  the Company  issued to the respective
Purchasers (i) units,  consisting  of, in the  aggregate,  327,103 Common Shares
(the "Issued  Shares") and five-year  warrants to acquire  32,710 Common Shares,
for an aggregate purchase price of $1,750,000 (or an effective purchase price of
$5.35 per Issued Share,  assuming no value is attributed to the  warrants),  and
(ii) units, consisting of, in the aggregate, 3,250 Series A Preferred Shares and
five-year  warrants to acquire 57,497 Common Shares,  for an aggregate  purchase
price of $3,250,000.  Each of the Series A Preferred Shares has a face amount of
$1,000 and no value was attributed to the warrants.

                  On  September  26,  1998,  pursuant to a  Securities  Exchange
Agreement  between the Company and  Strategic,  the Company  issued to Strategic
1,750 Series B Preferred  Shares in exchange for the Issued Shares.  Each of the
Series B Preferred Shares has a face amount of $1,000.

                  Subject to certain  limitations  discussed below, the Series A
Preferred Shares are convertible into Common Shares, at a conversion price equal
to the lesser of (x) 85% (subject to reduction under certain  circumstances)  of
the average of the five lowest  closing bid prices for the Common  Shares during
the 25 consecutive  trading days preceding the date of conversion and (y) $8.025
per  share,  subject  to  adjustment  as  provided  for  in the  Certificate  of
Designations,  Preferences  and Rights of the  Series A  Preferred  Shares  (the
"Series A Certificate of Designation");  however, the conversion price cannot be
less than $5.00 per share, subject to adjustment as provided for in the Series A
Certificate  of  Designation.  The Series A  Preferred  Shares rank prior to the
Company's  Common Shares and any class or series of capital stock of the Company
hereafter  created  (unless  agreed  otherwise  by the  holders  of the Series A
Preferred  Shares in accordance  with the provisions of the Series A Certificate
of  Designation).  The holders of the Series A Preferred Shares are not entitled
to receive any dividends thereon; however, a 5% premium is payable in connection
with any  conversion,  redemption  or  liquidation.  The holders of the Series A
Preferred Shares have no voting rights except as otherwise provided by law or in
the Series A Certificate of Designation.

                  Subject to certain  limitations  discussed below, the Series B
Preferred  Shares are  convertible  into Common Shares at a conversion  price of
$5.35 per share,  subject to  adjustment as provided for in the  Certificate  of
Designations,  Preferences  and Rights of the  Series B  Preferred  Shares  (the
"Series B Certificate of  Designation").  Based on such  conversion  price,  the
number of

                                        3

<PAGE>



Common  Shares  issuable  upon  conversion  of the Series B Preferred  Shares is
327,103. The Series B Preferred Shares rank prior to the Company's Common Shares
to the extent of $.01 per share,  prior to any class or series of capital  stock
of the Company thereafter created (unless agreed otherwise by the holders of the
Series B Preferred  Shares in  accordance  with the  provisions  of the Series B
Certificate of  Designation)  and junior to the Series A Preferred  Shares.  The
holders  of the  Series B  Preferred  Shares are not  entitled  to  receive  any
dividends thereon;  however,  in the event the Board of Directors of the Company
shall declare a dividend with respect to the Common  Shares,  the holders of the
Series B Preferred  Shares  shall be entitled to a dividend  amount based on the
number  of  Common  Shares  into  which  the  Series  B  Preferred   Shares  are
convertible.  The holders of the Series B Preferred Shares have no voting rights
except  as  otherwise  provided  by  law  or in  the  Series  B  Certificate  of
Designation.

                  The  warrants  to acquire,  in the  aggregate,  90,207  Common
Shares (the "Warrants") are exercisable at a price of $8.025 per share,  subject
to adjustment as provided for in the Warrants.

                  Notwithstanding  the  foregoing,  pursuant to the terms of the
Series A Certificate of Designation, the Series B Certificate of Designation and
the Warrants,  the Series A Preferred Shares,  the Series B Preferred Shares and
the Warrants are currently  convertible or exercisable by any holder only to the
extent that the number of Common  Shares  thereby  issuable,  together  with the
number  of  Common  Shares  owned by such  holder  and its  affiliates  (but not
including  Common Shares  underlying  unconverted  Series A Preferred Shares and
Series B Preferred  Shares or  unexercised  portions of the Warrants)  would not
exceed 4.99% of the then  outstanding  Common Shares as determined in accordance
with Section  13(d) of the  Securities  Exchange Act of 1934,  as amended.  Such
restriction is subject to waiver by the respective security holder upon not less
than 61 days notice. In addition,  neither the Series A Preferred Shares nor the
Series B Preferred  Shares are convertible into Common Shares to the extent such
conversion  would  violate the rules of the National  Association  of Securities
Dealers,  Inc.  See Item 6 -  "Management's  Discussion  and Analysis or Plan of
Operation - Liquidity and Capital Resources."

                  As of February 28, 1999,  1,575 Series A Preferred  Shares and
270 Series B Preferred  Shares had been converted into 315,000 and 50,467 Common
Shares, respectively, and no warrants had been exercised.

                  On January 8, 1999,  e.TV acquired  certain assets of LocalNet
Communications,  Inc. ("LocalNet"),  a Jacksonville,  Florida-based corporation.
The LocalNet  assets were acquired  pursuant to a peaceful  surrender to satisfy
$750,000 in  principal  of a  $1,800,000  secured  loan  previously  made by the
Company to LocalNet  pursuant to a Loan and  Security  Agreement  (the "Loan and
Security Agreement) dated as of October 6, 1998 and as amended as of October 23,
1998 and as of November  12, 1998 (the  "Loan").  The Loan was secured by all of
the assets of LocalNet. Since the peaceful surrender,  through e.TV, the Company
has  engaged  in the e.TV  Business  and has  sought to enter  into  contractual
relationships in connection  therewith.  To date, not all of such  relationships
have  been  contractually  established  and no  assurances  can be given in this
regard. See Item 1 - "Description of Business - e.TV Business Description."

                                        4

<PAGE>



e.TV Business Description

         e.TV General

                  The  Company,   through   e.TV,   operates  in  the  Internet,
e-commerce and telecommunications business (the "e.TV Business"),  marketing and
selling its  products  and  services  primarily  using a person to person  sales
approach  with  the  services  of  commissioned   sales   representatives  in  a
multi-level  referral network marketing  organization.  e. TV's key services and
products include:

                  -        Interactive  advanced  digital tv set-top boxes which
                           enable the  consumer to access the  Internet  through
                           the consumer's tv set over a telephone line,  conduct
                           electronic  commerce  through  e.TV's own  e-commerce
                           shopping  mall,  use e-mail,  and access a variety of
                           different  software   applications   through  network
                           computing capabilities;
                  -         Sales of long distance telephone service;
                  -         Sales of Internet access service;
                  -         On line shopping;
                  -         Pagers and paging service; and
                  -         Web page design.

         e.TV Industry Background

                  E-commerce.  Businesses  and consumers are continuing to adapt
the  Internet  into  the  mainstream.   Internet  commerce,  or  e-commerce,  is
increasingly  becoming a significant  application of the Internet,  as consumers
and  businesses  are using the Internet  more and more to find  information  and
purchase  and sell a vast  array  of  products  and  services.  Despite  ongoing
concerns regarding security and fraud, Internet users have broadly accepted this
medium as a viable commercial  vehicle.  Independent  market research  indicates
that annual e-commerce sales to the retail market are expected to grow from $7.1
billion in 1998 to $41.1 billion in 2002.  Furthermore,  the research  indicates
that,  by the year 2002,  appliances  such as tv set-top  boxes are  expected to
account for 43% of e-commerce  capable device sales, and will eventually replace
the personal  computer as the principal means to e- commerce.  It is anticipated
that consumers  will  substitute the living room for the home office as the home
shopping center, making e-commerce a more recreational and convenient experience
for people of all ages and income levels.

                  Telecommunications   Services.   The  present  long   distance
telecommunications marketplace was principally shaped by the 1984 divestiture by
AT&T  of its 22  Bell  Operating  Companies  ("BOCs")  in  accordance  with  the
Modification  of Final Judgment  agreed to by AT&T and the Department of Justice
in 1982.  The  Telecommunications  Act of 1996  (the  "1996  Act")  has  further
accelerated the development of local and long distance competition.

                  In 1981, AT&T removed tariff restrictions that prohibited 
resale and sharing of

                                        5

<PAGE>



message  telecommunications service and wide area telephone service. This led to
an explosion of new entrants into the long distance telecommunications business,
primarily as resellers.

                  As a result of the Modification of Final Judgment in 1982, the
United States was divided into geographic  areas known as Local Access Transport
Areas ("LATAs"),  the BOCs were organized into seven separate regions, and seven
Regional Holding Companies  ("RBOCs") were created.  The local exchange carriers
("LECs"),  which include the BOCs and independent LECs,  provide local telephone
service,  local  access  services and  short-haul  toll  service.  Interexchange
carriers  ("IXCs") and certain  independent local exchange carriers provide long
distance service between LATAs (interLATA traffic) and within LATAs.

                  Conversely,  the BOCs were given the right to handle intraLATA
service, but were prohibited from the interLATA market. Such differentiation was
substantially modified by the 1996 Act.

                  The  Modification  of Final Judgment also required the BOCs to
provide all IXCs with access to their local telephone exchange  facilities which
is  "equal  in type,  quality  and  price" to that  provided  to AT&T.  This was
accomplished through the filing of access tariffs at the Federal  Communications
Commission (the "FCC") and at state public  utilities  commissions.  Under these
access tariffs,  all IXCs, including AT&T, pay charges to the LECs for access to
local telephone  lines at both the originating and terminating  ends of all long
distance calls.  Access charges  represent the single largest  component of most
IXCs' cost of service.  The BOCs,  and  subsequently  all other LECs,  also were
required to conduct a presubscription  process allowing business and residential
consumers to select their long distance  carriers.  The 1996 Act continues these
equal access obligations.

                  Equally  significant,  the Company believes that the 1996 Act,
as well as recent actions on both the federal and state levels,  will eventually
open  up the  local  exchange,  and to the  extent  not  already  mandated,  the
intraLATA market,  to full competition.  As a result of the 1996 Act, all states
are required to adopt rules  establishing local competition and defining how the
LECs are to open up their networks to their competitors.

                  The long distance service  industry is highly  competitive and
is dominated by three carriers,  AT&T, MCI/Worldcom and Sprint. The remainder of
the market share is held by several large regional long distance companies, some
with  national  capabilities  such  as  Excelcom  Inc.  ("ExcelCom"),   Frontier
Communications Services,  Inc., Cable & Wireless  Communications,  Inc., and LCI
International, Inc., and by several hundred smaller companies.

                  The Company currently acts as a sales distributor (through its
network of independent  representatives) to UniDial Incorporated ("UniDial") and
has entered into a distributor  agreement with E.Comtel,  LLC ("E.Comtel")  with
respect to  telecommunications  services.  See Item 1 "Description of Business -
e.TV  Business   Description  -  e.TV  Principal  Suppliers   Telecommunications
Services" and Item 1 - "Description of Business - e.TV Business Description -

                                        6

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e.TV Products and Services - Long Distance Telephone Service."

                  The Company  believes that the  opportunity to market and sell
long distance telephone services on behalf of resellers is increasing because of
consumer and business use of  telecommunications  products and services  such as
facsimiles, sending of data and e-commerce, a reduction of service rates, and an
increase  in  opportunities   available  for  long  distance  telephone  service
providers and resellers resulting from regulatory changes.

         e.TV Products and Services

                  The  Company  markets  and  sells a range  of  technology  and
communications-  related products and services.  These include a tv set-top box,
long distance telephone services offered by certified resellers, Internet access
services,  online  shopping,  web page design,  wireless PCS  telephone  service
through nationally  recognized  vendors,  alphanumeric pager services of certain
providers,  a virtual office service for its independent sales  representatives,
and travel services through an alliance with a travel agency.

                  TV Set-Top  Box.  e.TV's  interactive  digital tv set-top box,
known as e.TV On-Line(TM),  connects to a standard television set and a standard
telephone jack. The tv set-top box, along with Internet  access  service,  gives
the user access to the Internet and e-mail.  A standard  printer can be attached
to a port on the tv set-top box. The system  includes  the e.TV  On-Line(TM)  tv
set-top  box,  a smart card  which  contains  the  user's  name,  local  dial-up
information and password,  a wireless  keyboard which includes a wireless mouse,
and a universal  remote  control which allows the user to switch  between the tv
set and the tv set-top box and navigate the Internet  using a wireless  mouse as
part of the remote  control as well.  The smart card is programmed by e.TV prior
to shipment.  The tv set-top box accesses the Company's own website  whenever it
is first turned on. From e.TV's  website,  the user is linked to e.TV's  on-line
shopping mall if the user desires to make on-line purchases. If a user purchases
goods on e.TV's online  shopping mall,  the Company earns a commission  from the
vendor on the sale and certain qualified representatives in the referral network
organization will receive residual  compensation.  The tv set-top box will allow
the user to access other  websites and the world wide web.  Representatives  can
also use the tv set-top box to make presentations,  sign up new representatives,
get  customer  service  questions  answered  and  receive   information,   sales
assistance and forms from the Company.

                  Long Distance  Telephone  Service.  e.TV currently acts as the
sales  agent  in  the  United  States  for  UniDial  (currently  a  reseller  of
MCI/WorldCom)  and in Canada for Virtec (a reseller of AT&T Network Services for
long distance  service and PageNet for paging  services).  e.TV has also entered
into a  distributor  agreement  with  E.Comtel,  a  reseller  of  long  distance
services,  but, to date,  has not  received any orders  pursuant  thereto and no
assurances can be given that any will be received.  See Item 1-  "Description of
Business  Description - e.TV Business  Description - Marketing and  Distribution
System - Placing and Shipping  Orders" and Item 1 -  "Description  of Business -
e.TV  Business  Description  - e.TV  Principal  Suppliers  -  Telecommunications
Services."


                                        7

<PAGE>



                  Internet  Access  Service.  The private label Internet  access
services  sold by e.TV are provided by StarNet,  Inc.  ("StarNet"),  which is an
Internet service  provider and a reseller of GTE wholesale access services.  The
StarNet  Internet access services allows e.TV's  customers who subscribe for the
service  to access the  Internet  through  1,000  points of  presence  locations
("POPs") all over the United States.  The Company receives  Internet access on a
wholesale  basis from StarNet,  which  currently  owns and operates its national
Mega POP(TM) access network, currently one of the largest access networks in the
United  States.  The Company can  activate  and manage its  customers'  Internet
access  accounts  destined  for the  networks of StarNet or GTE  Internetworking
Incorporated  ("GTE")  (as a result of a  separate  StarNet/GTE  agreement)  via
StarNet's Mega POP(TM) real-time  account  management  system.  Through a single
interface provided by StarNet to the Company,  the Company can activate,  modify
or deactivate Internet access accounts, all in real time, provisioned for either
StarNet's or GTE's network.  Currently, the StarNet Internet access services are
subscribed to by e.TV's customers on a monthly basis at the time they purchase a
tv set-top box system.  e.TV has recently  developed a cd-rom  version  which is
utilized with a personal  computer.  See Item 1 "Description  of Business - e.TV
Business Description - e.TV Principal Suppliers - Internet Access Services."

                  Online  Shopping  Mall.  e.TV's  on-line  shopping mall allows
retailers to extend their reach for customers beyond their doors.  Consumers can
use e.TV's  shopping  mall to  conveniently  research  and purchase a variety of
products  from their homes or offices.  Companies  can become  vendors on e.TV's
online shopping mall for a prepaid annual or monthly  subscription fee. When the
user clicks on the e.TV on-line shopping mall and requests  information  about a
certain  product,  the user is directed to  subscribing  vendors  which sell the
desired  product.  When a user  purchases  products from a vendor on the on-line
shopping  mall,  the vendor pays e.TV a  commission.  A portion of the  purchase
price  goes into the  commissionable  volume  to pay  residual  compensation  to
certain qualified representatives in e.TV's referral network; the remainder goes
into a bonus pool to representatives at the levels of Director and above, and to
e.TV. The subscription  fee is automatically  charged to a vendor's credit card.
If a vendor  cancels  its  subscription  before  an annual  subscription  period
expires,  e.TV generally refunds the unused portion of the subscription fee. The
vendors include Office Max, K-tel Music and Video,  Publisher's  Clearinghouse ,
eToys, Barnes and Noble, Fashion Mall, J. Crew, egift.com, Amazon.com and more.

                  Storefront  Builder  Web  Pages.  e.TV  markets  and sells web
pages.  e.TV's  customer  chooses the design of its web page based on a brochure
provided  by  e.TV.  The  customer  fills  out an order  form  with the web page
specifications  and sends it to e.TV. The cost of the web page varies  depending
on the number of pages and the graphics the consumer desires.  e.TV subcontracts
the construction of the web pages to an unaffiliated third party. In addition to
the web page itself, the web page owner can choose to have his website hotlinked
to e.TV's  website for a monthly  fee which  varies  depending  on the number of
pages of the customer's website.

                  Travel Services.  e.TV has an alliance with a travel agency 
which provides travel services to e.TV representatives and customers.


                                        8

<PAGE>



                  Televox Virtual Office System. e.TV's virtual office system is
designed   to  assist  its  sales   representatives   in   administering   their
representativeships  and maximizing their potential in growth and development of
their  representativeships  and  their  respective  network  organizations.  The
Televox system is used through a standard touch tone telephone  using the keypad
to access  information  and provides  voice  messaging and the ability to filter
messages  or  parts  of  messages   to  various   levels  of  an   organization.
Representatives are not required but are encouraged to subscribe for and use the
Televox system. Representatives pay a monthly fee to use the Televox system.

                  Sales  Aids  and   Business   Supplies.   e.TV  sells  to  its
representatives  a variety of sales aids  including  videos,  audio tapes,  flip
charts,  presentation  folders,  overhead  slides,  product  order  forms,  e.TV
apparel, business cards and pens, among other things.

         e.TV Principal Suppliers

                  TV set - top box. e.TV's tv set-top box system is manufactured
for the Company by Boca Research,  Inc. ("Boca Research"),  based in Boca Raton,
Florida,  pursuant to an  agreement  which  contains a two-year  commitment  and
excludes  Boca  Research  from  selling the tv set-top box to other  multi-level
network marketing companies in the Internet,  e-commerce and  telecommunications
business,  provided e.TV maintains minimum order levels.  Boca Research may sell
the product to  competitors  who do not use a  multi-level  marketing  system to
market products.  The Company  anticipates,  but cannot assure, it will meet the
minimum order levels in the  foreseeable  future.  If it does not, Boca Research
will  not be  excluded  from  selling  the tv  set-top  box to  such  restricted
competitors. The Company does not believe the loss of the limited exclusivity or
the loss of Boca  Research as a vendor would have a material  adverse  effect on
the  Company  and that  alternative  sources  of supply  are  available.  If the
supplier were to change,  however,  e.TV may experience a delay of approximately
90 days in replenishing  inventory,  which,  if inventory  levels are low, could
delay the filling of orders. Furthermore,  the Company cannot assure that, if an
alternative supplier is sought, it will be able to engage a supplier on terms as
favorable as those between e.TV and Boca Research.

                  Telecommunications  Services. e.TV currently markets and sells
long distance telephone  services resold by UniDial.  Subscription for UniDial's
services  are sent by  customers  to e.TV,  which in turn sends them to UniDial.
UniDial  invoices the customers for services.  UniDial pays e.TV a commission on
accounts of customers enrolled by e.TV for UniDial.  These commissions are being
paid  monthly.  Although no written  agreement is in place which  governs  their
relationship,  e.TV is  currently  operating  as a  distributor  of UniDial long
distance  services  and the  parties  are  negotiating  the  terms  of a  formal
agreement.  No assurances  can be given that any such  agreement will be entered
into.  The Company  does not believe that the loss of UniDial as a vendor to its
customers would have a material adverse effect on the Company.

                  The  Company,  through  its  wholly  owned  subsidiary,   ETEL
Communications  Corp., is also a party to a distributor agreement with E.Comtel,
a certified reseller of  telecommunications  services for nationally  recognized
telecommunications providers. The agreement provides that the

                                        9

<PAGE>



Company is  E.Comtel's  exclusive  distributor  to provision  telecommunications
products  and services  which  currently  utilize  AT&T as its backbone  network
carrier. Currently, these include long distance telephone services. The Company,
through e.TV's multi-level referral network marketing system,  markets and sells
such long distance  services.  The agreement is for an initial term of two years
and  automatically  renews  unless  terminated  upon 90 days prior  notice.  The
agreement may be terminated  earlier  because of a breach.  Under the agreement,
E.Comtel  provides  training  and support to the  Company,  and will invoice and
provide  customer  service to the  Company's  customers and maintain all records
relative to the  administration  of the customers'  telecommunications  services
provided by E.Comtel.  E. Comtel has the right to reject  customers which may be
approved by the Company. E.Comtel shall pay the Company commissions on a monthly
basis for the sales of services  resold by E.Comtel.  The Company is responsible
to pay  E.Comtel any amounts not  collected by E-Comtel  because of bad debts or
fraudulent  calling  claims.  This includes any invoice which is not paid for 65
days.  However,  if the invoice is eventually paid,  E.Comtel will reimburse the
Company and pay the appropriate  commissions.  The Company pays a monthly fee to
E.Comtel for administrative services relating to billing. The Company has agreed
that it will have a minimum of 34,000  customers signed up for the long distance
services by September  1999. If such minimum is not met, the commission  paid by
E.Comtel to the  Company  will be adjusted  downward  relative to the  shortfall
until the minimum is met.  To date,  the  Company  has not  received  any orders
pursuant to the E.Comtel distributor  agreement,  and no assurances can be given
that any will be received.

                  The  distributor  agreement  contemplates  the  grant  to  the
Company of an option to purchase the equity of E.Comtel for $500,000,  comprised
of either Common Shares of the Company  valued at $250,000 and $250,000 in cash,
or $500,000 in cash, at the Company's option or in certain circumstances. If any
such option is  exercised,  the Company and the equity  holders of E.Comtel will
enter  into an  agreement  which,  among  other  things,  will be subject to any
regulatory and stockholder approval if required,  and the Company's satisfactory
due diligence of E.Comtel.  The  consummation of any such option would result in
the Company being  certified to directly resell  telecommunications  services in
all states in the United States.

                  Internet Access  Services.  StarNet has agreed to provide e.TV
customers with Internet access services pursuant to a one-year agreement,  which
is  automatically  extended for  successive 60 day periods  unless 60 days prior
written  notice to  terminate  is given by either  party prior to the end of the
initial  term or any  extension  term.  The  agreement  does not limit e.TV from
directing its customers to other Internet access  providers.  During the term of
this agreement,  the Company is required to do a reasonable  amount of marketing
to potential customers regarding StarNet's Internet access services.  StarNet is
restricted from contacting e.TV's customers without e.TV's  permission.  StarNet
has agreed to provide e.TV's Internet customers with unlimited dial-up access to
the  Internet,  with  idle  time cut off if  customers  do not make use of their
Internet connection for a minimum of ten minutes. StarNet provides all technical
support  services to e.TV relevant to connection of e.TV's customer to access to
the Internet.  e.TV  addresses all customer  inquiries  and is  responsible  for
technical  support  services  relevant to any  software  provided by e.TV to its
customers.  e.TV pays  StarNet a set fee for each  customer  for the first three
months of the agreement

                                       10

<PAGE>



and,  after that, the greater of a flat monthly fee or a set fee per customer if
there are more than a certain number of customers.  e.TV is responsible  for all
billings and collections, and is responsible for all costs and expenses incurred
by StarNet in connection with its services.

                  e.TV is  obligated  to pay StarNet even if e.TV fails to bill,
or collect  fees from,  a  customer.  e.TV may,  however,  refund  monies to its
customers if StarNet  fails to provide to the customer  uninterrupted  access to
the Internet for less than 97% of the total available time for connection to the
Internet  during a given calendar  month.  Any such refund will be deducted from
monies due from e.TV to  StarNet.  e.TV may  provide  Internet  access for their
customers via any of the agreed upon GTE locations.  A customer's  connection to
the GTE system may be achieved  through  StarNet's  MegaPOP(TM)  Account Manager
Interface or the Company's own server.

                  This  agreement is not exclusive to either party.  The Company
and StarNet each have agreed not to solicit business from the other's  customers
during  the term of the  agreement  and for one  year  afterwards.  The  Company
believes  that the loss of  StarNet  as a  supplier  would  not have a  material
adverse  effect on the  Company and that other  Internet  access  providers  are
available. However, the Company cannot assure that it will be able to enter into
a relationship  with another  Internet access service provider on terms as those
provided for in favorable as the StarNet agreement.

                  Paging. e.TV is able to offer to its sales representatives and
customers through Media Solutions Corporation, a nationwide network for wireless
numeric  paging  services.  Underlying  carriers and  providers  for the network
include GTE,  Southwestern  Bell Mobile  Systems,  Ameritech  Cellular,  Alltel,
WorldCom and Bell South Cellular.  Coverage is in more than 2,000 communities or
90% of the U.S. population with total nationwide frequency bandwith. Coverage is
also offered in Canada, Mexico, Central America, and the Caribbean.  In addition
to cost effective local paging services,  Media Solutions  Corporation  offers a
wide variety of options  including  voice mail, 800 service,  and OmniRoam which
allows  the  subscriber  to  change  at will the city  where he or she is paged,
essentially  giving the subscriber full North American coverage at a fraction of
the cost of regional or nationwide service.

                  Back Office Operations and Administrative Support. The Company
receives back office administrative  support services from Atlantic Teleservices
LP ("Atlantic  Teleservices").  Atlantic Teleservices processes sales orders and
sales representative applications,  provides customer and representative support
telephone  services,   and  administers  service  relationships  between  e.TV's
customers and service vendors. e.TV pays Atlantic Teleservices an hourly fee per
employee allocated by Atlantic  Teleservices to e.TV operations,  with a minimum
commitment of $9,000 per month.  This  arrangement is not exclusive to e.TV, and
e.TV may  engage  other back  office and  administrative  support  providers  or
undertake  such  operations  itself.  Pursuant  to an  oral  understanding,  the
relationship between Atlantic  Teleservices and the Company may be terminated by
either party upon 60 days  notice.  Currently,  the Company  believes it is more
cost effective to maintain the arrangement  with Atlantic  Teleservices  than to
engage  the   support   staff  and   infrastructure   to  conduct   back  office
administration  itself.  However,  the Company plans to study these economies as
the e.TV Business develops and to determine the most cost effective structure

                                       11

<PAGE>



for the future.  The Company  anticipates that its capital cost to set up e.TV's
own  administrative  and  back  office  infrastructure  would  be  approximately
$1,000,000. The Company does not believe that the loss of Atlantic Teleservices'
services  would have a material  adverse  effect in the long term;  however,  it
could cause a material disruption to the e.TV Business in the short term until a
replacement  could  be  found  or e.TV  develops  its own  infrastructure.  e.TV
currently  occupies  its  Jacksonville,  Florida  offices  pursuant  to an  oral
understanding with Atlantic Teleservices;  the parties are negotiating the terms
of a license  agreement in this  regard.  No  assurances  can be given that such
license agreement will be entered into. See Item 2- "Description of Property."

         e.TV Marketing and Distribution System
         --------------------------------------

                  Introduction

                  e. TV markets  its  products  through a  multi-level  referral
network   marketing   system   of   independent   sales   representatives   (the
"Representatives")  exclusively.  e.TV's  network  marketing  system  encourages
Representatives  to sell the Company's  products and  services,  and recruit and
develop their own sales  organizations  of people with whom they have an ongoing
relationship.

                  The Company  believes  that network  marketing is an effective
vehicle to distribute  e.TV's products and services,  and the services of others
which e.TV sells, because of the following:

         -        a  consumer  can be  educated  about a product  in person by a
                  Representative, which is more direct than the use of media and
                  print advertisements;
         -        direct  sales  allow for  actual  testing  of  certain  of the
                  products by a potential  consumer when their  capabilities are
                  demonstrated by a Representative;
         -        the impact of Representative and consumer testimonials is 
                  enhanced; and
         -        as compared to other marketing and distribution methods, 
                  Representatives can give customers higher levels of service 
                  and attention  by, among other things,  following up on sales 
                  to ensure proper  product usage  and  customer  satisfaction, 
                  and to encourage repeat purchases.

                  Although e.TV's  Representatives sell products and services on
behalf of e.TV,  they are not  required to purchase  any  inventory.  Orders are
passed on to e.TV which ships out the products,  or arranges for the consumer to
receive the subscribed for services.  See Item 1 "Description of Business - e.TV
Business  Description  - e.TV  Marketing  and  Distribution  System  Placing and
Shipping Orders."

                  e.TV relies on Representatives to sponsor new Representatives.
The sponsoring of new  Representatives  creates  multiple  levels in the network
marketing structure.  Persons whom a Representative  sponsors are referred to as
"downline"  Representatives.  If downline  Representatives  also  sponsor,  they
create  additional levels in the structure,  but their downline  Representatives
remain  part  of  the  same  downline  network  as  their  original   sponsoring
Representatives with one genealogy.  Each downline  Representative shares in the
Customer Acquisition Bonus and Residual Payouts, up

                                       12

<PAGE>



to seven  levels.  A  Representative  can have  several  downlines  if he or she
sponsors several  Representatives as they in turn sponsor Representatives and so
on. A Representative's downline is known as the Representative's organization.

                  Compensation is paid to the  Representatives  out of a certain
portion  of the  revenues  the  Company  receives  from  sales of a  product  or
services.  This amount is the  commissionable  volume.  Each of the products and
services  carries a specified  number of points,  or PCA Points.  Commissionable
volume is based on the number of PCA Points per product or  service.  PCA Points
are based upon a product's  wholesale cost, net of any point of sale taxes. As a
Representative's  sales increase and as he or she  successfully  develops his or
her  organization,  he or she will  graduate to higher  level  positions  in the
network and will be entitled to a higher  percentage of  commissions.  Depending
upon the products or services provided,  e.TV's  compensation plan can result in
commissions to Representatives aggregating up to 15% of a product's or service's
retail selling price. e.TV's  compensation  plan allows an individual  the 
opportunity  to develop a business,  the  success  of which  is  based  upon 
that  individual's  level of commitment,  time, enthusiasm,  personal skills,  
contacts, and motivation.  For many,  a  Representativeship  is a very small  
business,  in which  products and services may be purchased by the  individual  
for personal  consumption or sales are made to relatively few customers. For
others, a Representativeship becomes a full-time occupation.

                  e.TV's  revenue is directly  dependent upon the efforts of its
Representatives. Growth in sales volume requires an increase in the productivity
of Representatives  and/or growth in the total number of Representatives.  There
can be no assurance that the productivity or number of  Representatives  will be
sustained at current levels or increased in the future. Furthermore, the Company
estimates that  approximately  77  Representatives  comprised of e.TV's Regional
Marketing Director and National  Marketing Director levels,  together with their
extensive  downline  networks,  could  account for  substantially  all of e.TV's
revenue.  Consequently,  the loss of such a high-level Representative or another
key  Representative,  together with a group of leading  Representatives  in such
Representative's   downlines,   or  the  loss  of  a   significant   number   of
Representatives for any reason,  could adversely affect the Company's results of
operations.

                  Sponsoring of Representatives

                  Sponsoring  activities  are not  required of  Representatives.
However,  because of the financial  incentives  provided to those who succeed in
building a Representative  network that consumes and sells products, the Company
believes  that most of its  Representatives  attempt,  with  varying  degrees of
effort  and  success,   to  sponsor   additional   Representatives.   Generally,
Representatives  approach  friends,  family members and  acquaintances to become
Representatives  or invite them to sales meetings or  conventions  where Company
products and  services are  presented  and where the  compensation  structure is
explained.  People are often  attracted  to become  Representatives  after using
e.TV's products and services.

                  Representatives  have  flexibility  in how they present e.TV's
business  and   opportunities   provided  they  abide  by  e.TV's  policies  and
procedures. Representatives may purchase

                                       13

<PAGE>



a variety of sales and presentation aids from e.TV to help them with their sales
and sponsorship activities.

                  When a sponsored person decides to become a Representative, he
or she enters into a standard  independent  Representative  agreement  with e.TV
which  obligates the potential  Representative  to abide by e.TV's  policies and
procedures.  The potential  Representatives  will also purchase a starter's kit.
See  Item 1 -  "Description  of  Business  - e.TV  Business  Description  - e.TV
Marketing and Distribution System - Rules Affecting Distributors."

                  Referral Network Structure

                  Representative  Levels and  Compensation.  e.TV's  multi-level
referral  network  marketing sales  organization is comprised of several levels,
starting  with one of the  optional  levels of  Customer  Representative,  Sales
Representative or Area  Representative,  as the new Representative  chooses, and
graduating  to the earned  levels of  Director,  Executive,  Regional  Marketing
Director and then National Marketing Director.  Each earned position is attained
based upon the performance of an individual and his or her downlines.

                  Representatives  qualify for  compensation  once they attain a
certain volume of sales. They remain qualified by maintaining a certain level of
sales.  Representatives  graduate  to  higher  levels  as their  volume of sales
increase and the volume of sales in their  downlines  increase.  Representatives
and  their   downlines   must  also   maintain   higher  sales  levels  for  the
Representatives to remain at each earned level.

                  Customer   Representatives  are  entitled  to  receive  retail
residual  compensation based on his or her personal  consumption or sales. Sales
Representatives and Area  Representatives can earn retail residual  compensation
and organizational  residual  compensation,  while Area Representatives can also
qualify  for  retail  customer   acquisition  and  management  bonuses,  and  to
participate in the Company's total compensation plan for Representatives.

                  Retail  residuals  are  paid  to   Representatives   from  the
commissionable  volume  on  products  and  services  sold  to  customers  of the
Representatives  or consumed by the  Representative,  and on-line purchases made
through e.TV's on-line shopping mall.  Residual  compensation from services sold
or on-line  purchases by customers  or  Representatives  continue for as long as
that customer  continues to use the services sold by the Company or shop on-line
through e.TV's on-line  shopping  mall.  Organizational  residuals are paid from
commissionable volume from all personal billing volume of all Representatives in
a  Representative's  downlines  and from all products and services  sold on each
level in the downlines, up to seven levels.

                  Area   Representatives,    Directors,   Executives,   Regional
Marketing  Directors  and National  Marketing  Directors  are entitled to retail
residuals,  organizational residuals and retail customer bonuses.  Additionally,
if they successfully  complete the Company's optional one-day Certified Trainers
Course,  they are  entitled to  participate  in the  Trainer  and Adviser  Bonus
Program.

                                       14

<PAGE>




                  The  Company  believes  that it  currently  has  approximately
18,000 Representatives made up of approximately the following:

                 -             150           Customer Representatives
                 -           8,500           Sales Representatives
                 -           8,000           Area Representatives
                 -           1,000           Directors
                 -             250           Executives
                 -              60           Regional Marketing Directors
                 -              15           National Marketing Directors

                  Since the Company has only recently entered the e.TV Business,
it is unable  to  determine  how many of the  Representatives  listed  above are
actively  acting as such.  The Company  believes  that it will be better able to
determine the number of  Representatives  beginning in July 1999 when it intends
to solicit renewal fees from such persons.

                  Compression. Compression occurs when a Representative fails to
attain, or maintain after a one month grace period,  the required  qualification
standards  for  his  or  her  level.  In  that  event,   the   compensation  the
Representative  would have  earned at that level is paid to the first  qualified
Representative  above him or her. If there is no qualified  Representative above
the non-qualifying Representative,  e.TV has a dynamic compression process which
recycles the unallocated compensation through the compensation plan and pays the
Representative  closest in volume one  additional  level of  compensation.  This
process keeps  compensation  in the field,  limiting or  eventually  eliminating
breakage, a process by which unclaimed compensation would be forfeited to e.TV.

                  Training and Support

                  Training  is  provided by  sponsoring  Representatives  to new
Representatives, and by the Company to all Representatives either through formal
training  sessions,  telephone  helplines or sales and presentation aids. e.TV's
goal is to train the  Representatives  to  effectively  build and assist a large
organization, in depth in customer acquisition and retention.

                  Area  Representatives  are required by the Company's  policies
and  procedures  to ensure that new  Representatives  are properly  trained with
respect to the  Company's  policies  and  procedures,  product line and services
offered, sound business practices and sales strategies. Area Representatives are
encouraged  to  do  this  by  maintaining  ongoing  contact,  communication  and
management  supervision  of  his  or  her  sales  organization  by  newsletters,
correspondence, meetings, e-mail and the like.

                  The Company has set up a  comprehensive  and ongoing  training
program that allows  Representatives and their respective sales organizations to
participate in regional and national

                                       15

<PAGE>



training.  Additionally,  the Company sponsors weekly live telephone  conference
calls for  Representatives,  who may  participate by dialing into the conference
call.

                  Representatives  are  encouraged to  participate  in a one-day
e.TV University  Certified Trainer Course which is given by Representatives  who
have  successfully  sold e.TV's  products and services and built  Representative
organizations,  so that the  Representatives  will be able to  present  uniform,
accurate  messages  at  business  briefing  presentations,  local  and  regional
training,  conference  calls and in  Representative  recruitment.  The Certified
Trainer Course costs $249. Representatives are eligible for trainer bonuses and,
if at the Executive  level or above,  advisor  bonuses,  when they  successfully
complete the Certified Trainer Course and help in the training and qualification
of Representatives.  Certified Trainers are encouraged to repeat the course as a
refresher as many times as possible for a fee of $15 per session.

                  e.TV   currently    provides    telephone   support   to   its
Representatives Monday through Friday from 9:00 a.m. to 6:00 p.m., eastern time,
from its  Jacksonville,  Florida  offices.  The Company expects to increase this
time to 9:00 p.m., eastern time, in the near future.

                  Rules Affecting Distributors.

                  The Company's standard  Representative  agreement and policies
and procedures manual contained in every starter package or training, management
and support  package outline the scope of permissible  Representative  marketing
activities.  e.TV's  Representative rules and guidelines are designed to provide
Representatives  with maximum  flexibility and opportunity  within the bounds of
governmental  regulations  regarding  network  marketing.   Representatives  are
independent  contractors and are thus prohibited from representing themselves as
agents or  employees of e.TV or the Company.  Representatives  are  obligated to
present e.TV's products and business opportunities ethically and professionally.
Representatives  agree that the  presentation  of the e.TV business  opportunity
must be truthful and realistic and consistent  with, and limited to, the product
claims made in literature  distributed by e.TV.  Representatives  must represent
that the  opportunities  are based on sales of e.TV products and services,  that
Representatives   will   not  be   successful   merely   by   recruiting   other
Representatives  without  regard to sales to the ultimate  consumer,  and that a
Representative   can  expect  to  be  successful  only  through  hard  work  and
substantial  efforts.  Representatives  are  prohibited  from  making  false  or
misleading income projections or implying that any level of income is guaranteed
or easy to achieve.  Representatives  can promote their  businesses in any legal
matter consistent with e.TV's policies and procedures. However,  Representatives
may not use  endorsements  or logos of the Company or e.TV in any advertising or
promotional  format,  except in  materials  approved or  supplied  by e.TV.  The
Company  offers a variety of sales  aids,  including  items  such as  brochures,
product catalogs,  videotapes and other accessories which the Representative may
purchase and use in promoting his or her business.

                  The  Company   systematically   reviews   alleged  reports  of
Representative  misbehavior. If the Company determines that a Representative has
violated  any  of the  Representative  policies  or  procedures,  it may  either
terminate the Representative's rights completely or impose sanctions such

                                                        16

<PAGE>



as warnings or probation.

                  Placing and Shipping Orders

                  When  a  Representative   sells  products  to  a  consumer  or
purchases products or services for personal consumption, an order form is filled
out and the order form is either mailed to e.TV with credit card information,  a
money order, or check, or faxed to e.TV with credit card information.

                  The Company fills all orders for products  other than cellular
telephones and pagers from its Jacksonville, Florida offices. Orders are usually
processed  within 24 hours  after  receipt.  Orders are  shipped to be  received
within  five to ten  days  after  an order is  received.  Overnight  or  two-day
shipment  is  available.  Representatives  will be  notified if items are not in
stock  and the item will be placed on back  order and  shipped  when  available.
Cellular  telephones,  prepaid cellular  products and pagers are provided to the
customer by the vendor providing the cellular telephone service.

                  Consumers  and  Representatives   subscribe  for  services  in
various  manners,   depending  on  the  service.   Generally,  the  consumer  or
Representative  fills  out a form  indicating  his or  her  subscription  to the
service and it is sent to e.TV. With respect to long distance telephone service,
the  consumer  or  Representative  verifies  in writing  his or her desire to be
switched from the former long distance service to the new long distance service.
e.TV  enters  the  information  into the  system  and  passes  the  subscription
information  to the long  distance  service  provider  who  bills  the  consumer
monthly. e.TV receives a commission from the long distance service provider each
month. See Item 1 - "Description of Business - e.TV Business  Description - e.TV
Principal Suppliers."

                  e.TV administers and bills its customers  monthly for Internet
access services. Televox, e.TV's virtual office product for Representatives,  is
billed directly by the vendor,  on a monthly basis, as are cellular products and
pagers.

         e.TV Customers
         --------------

                  e.TV markets its  products and services to the general  public
through a multi-level referral network marketing system. e.TV's  Representatives
are generally also customers of the Company's  products and services and many of
those who are not  Representatives  when they buy products and services  sold by
e.TV become Representatives.  Currently, e.TV's customers are located throughout
the United States, Canada and Puerto Rico, and the Company intends to expand its
network  marketing  system  into  other  international   markets.   See  Item  1
"Description  of  Business - e.TV  Business  Description  - e.TV  Marketing  and
Distribution System."

         e.TV Competition
         ----------------

                  Long Distance Telephone and Internet Access Products and 
Services.  The markets for telecommunications and Internet products and services
are intensely competitive.  e.TV competes

                                       17

<PAGE>



directly with companies that manufacture and sell personal  computers and web tv
products and providers of long distance  telephone services and Internet access.
e.TV competes with other  companies in the long distance  telephone  service and
Internet  access  industries  by  emphasizing  the value and premium  quality of
e.TV's  products and the  convenience  and  opportunities  of e.TV's  multilevel
network marketing and distribution system.

                  Many of e.TV's  competitors have much greater name recognition
and  financial  resources  than  e.TV.  In  addition,  long  distance  telephone
services,  Internet access  products and services and personal  computers can be
purchased in a wide  variety of channels of  distribution.  While e.TV  believes
that consumers appreciate the convenience of ordering products and services from
home through a sales person,  the buying habits of many consumers  accustomed to
purchasing products through traditional retail channels are difficult to change.
e.TV's  product  offerings in each product  category are also  relatively  small
compared   to  the   wide   variety   of   products   offered   by  many   other
telecommunications companies and hardware and software manufacturers.  There can
be no  assurance  that e.TV's  business  and results of  operations  will not be
affected materially by market conditions and competition in the future.

                  Network  Marketing  Companies.  The Company also competes with
other  direct  selling  organizations,  some of which  have a  longer  operating
history, higher visibility, name recognition and financial resources,  including
Amway Corporation and its affiliates,  Big Planet, ExcelCom, Nu-Skin Enterprises
Inc.  and  Prepaid   Legal   Services   Inc.   The  Company   competes  for  new
Representatives on the basis of its financial  compensation plan and its premium
quality  products and  services.  The Company  envisions  the entry of many more
direct selling  organizations  into the marketplace as this channel of marketing
and  distribution  expands  over the next  several  years.  The Company has been
advised  that  certain  large,  well-financed  companies  are planning to launch
direct  selling  enterprises  which  will  compete  with e.TV in  certain of its
product lines.  There can be no assurance that e.TV will be able to successfully
meet the challenges posed by this increased competition.

         e.TV Intellectual Property
         --------------------------

                  Applications  have been  submitted  by the Company to the U.S.
Patent  and  Trademark  Office  for  three  trademarks  -  "e.TV  Commerce(TM),"
"e.TV-On-Line(TM)" and "e.TV-Shop(TM)."

         e.TV Government Regulation 
         -------------------------- 

                  Direct  Selling  Activities.  Direct  selling  activities  are
regulated  by various  governmental  agencies.  These laws and  regulations  are
generally intended to prevent fraudulent or deceptive schemes, often referred to
as "pyramid" or "chain sales" schemes,  that promise quick rewards for little or
no effort, require high entry costs, use high pressure recruiting methods and/or
do not involve  legitimate  products.  The Company  believes  that its method of
distribution  is in  compliance  in all  material  respects  with  the  laws and
regulations  relating to direct selling activities of the jurisdictions in which
the Company currently operates.

                                       18

<PAGE>



                  Telecommunications.   The   telecommunications   industry   is
regulated by the FCC and the public utility commissions of the states,  known as
PUCs.  As  discussed  under Item 1  "Description  of  Business  - e.TV  Business
Description - Industry  Background,"  the 1996 Act and actions of the Department
of  Justice  and PUCs may  affect  local  and long  distance  telephone  service
opportunities.  If  opportunities  are  restricted,  e.TV could face  increasing
competition for customers who purchase long distance telephone services.

                  Additionally  the FCC has adopted  rules to protect  consumers
from  abuses  by  carriers  such as  "slamming".  Slamming  is the term  used to
describe any practice that changes a telephone  subscriber's preferred telephone
company to another  without the  subscriber's  knowledge  or  explicit  consent.
Slamming is the FCC's largest area of telephone-related complaints.

                  In December  1998,  the FCC adopted  new  anti-slamming  rules
which will take effect in April 1999.  Under the new rules,  any carrier  that a
consumer  calls to report being  slammed must inform the consumer that he or she
is not required to pay any slamming charges incurred for the first 30 days after
the  unauthorized  switch.  If the  consumer  fails to notice that he or she was
slammed and has already paid the bill of the slamming carrier,  the unauthorized
carrier is required to remit those  payments to the  authorized  carrier.  After
receiving that amount,  the authorized carrier is to issue the consumer a refund
or a credit of any  amount  that he or she paid in excess  of the  charges  they
would have paid to the authorized carrier.

                  The  FCC's  new  rules  also   strengthen   the   verification
procedures used by carriers to confirm telephone carrier switches.  In addition,
the FCC adopted procedures to regulate "freezes",  which are services offered by
local  telephone  carrier to place a freeze on his or her account.  Generally no
carrier will be able to make changes to that account unless and until a consumer
expressly agrees to lift the freeze.

                  FCC  rules  require  a  long  distance  company  to  obtain  a
customer's  authorization  in order to change his or her long distance  service.
There  are three  acceptable  methods  to verify  carrier  changes:  a  consumer
signature on an authorization  form, known as a Letter of Agency;  an electronic
authorization,  usually resulting from a customer-initiated  call to a toll-free
number;  and  verification  by an independent  third party.  These  verification
methods also apply to carrier  switches  that result from in-bound  calls,  thus
providing  consumers who initiate calls to carriers the same protection given to
consumers who receive telemarketing calls. The FCC also applied the verification
rules  to all  changes  made in  telecommunications  carriers,  including  local
carriers. In addition,  the verification methods apply to requests for preferred
carrier freezes.  Solicitations  for preferred carrier freezes must be clear and
explain to the  consumer  how such a freeze may be  lifted.  Although  preferred
carrier freezes may protect consumers against slamming,  the freezes may also be
subject to  anticompetitive  abuses. The new rules are intended to address these
concerns in a manner that protects consumer choice. The FCC verification methods
do not  preempt  state  law;  states  must use these  verification  methods at a
minimum but may add additional  verification  procedures for intrastate  carrier
changes.


                                                        19

<PAGE>



                  e.TV sells  telecommunication  services of resellers to e.TV's
customers  through  its  multi-level  referral  network  sales  organization  of
independent  Representatives.  e.TV's policies and procedures provide mechanisms
for Representatives to obtain consumer  authorization and verification to switch
telephone  services  from one carrier to another to prevent  slamming.  However,
since the Representatives are independent contractors, the Company does not have
supervisory control over their sales methods and the Company could be exposed to
slamming claims and penalties for actions of the Representatives.

                  Canadian  Regulation.  The Company's  activities in Canada are
subject to both  Federal and  provincial  regulation.  At the  Canadian  Federal
level, Industry Canada must approve marketing plans before operations are begun,
and may also contact the Canadian  Attorney  General's Office if marketing plans
are not thereafter  conducted in compliance with its  regulations.  In addition,
the Minister of Consumer and Corporate  Affairs Canada  enforces the Competition
Act, which  addresses  misrepresentations,  exaggerated  compensation or product
performance claims, and pyramid-scheme issues.

                  Provincial  rules and  regulations,  which are similar to laws
and regulations  enacted by individual states in the U.S.,  frequently  parallel
those of the Canadian Federal government.  The Canadian provinces,  however, may
also impose bonding and registration requirements that are absent at the Federal
level.

Public Safety Software Business Description

         Public Safety Software General
         ------------------------------

                  The Company is currently engaged in the business of designing,
developing,  licensing,  installing and servicing computer  application software
systems for law enforcement and public safety agencies.  The Company's  software
systems,   based  around  the  advanced  records  management   system,   include
computer-aided  dispatching ("CAD"),  computer interfacing with local, state and
national  crime   information   databases,   advanced  wireless  mobile  on-line
communications computing ("AMO") (utilizing radio frequency),  automatic vehicle
location  ("AVL")  (employing  dynamic map displays),  records  management,  and
photo-imaging  database systems. These modules may be integrated and licensed as
a package, or may be licensed individually.

                  Certain of these applications utilize  telecommunications  and
GPS  (global  positioning  satellite)  technology,  other  infrastructure,   and
hardware provided by third parties. The third party providers of such technology
and  infrastructure,  with  respect  to a  particular  customer's  system,  vary
depending  on the location of the customer and whether or not the customer has a
business relationship with a third party provider.  Accordingly,  the Company is
not dependent on any particular third party's  technology or infrastructure  for
its software systems to function.  These third parties are typically major CDPDs
(cellular digital packet data providers) such as AT&T Wireless Data, Inc. ("AT&T
Wireless"),  Bell  Atlantic  Corporation  ("Bell  Atlantic"),  and GTE  Mobilnet
Service  Corp.  ("GTE  MobilNet"),  or dedicated  radio  frequency  data network
providers such as RAM

                                       20

<PAGE>



Mobile  Data USA Limited  Partnership  ("RAM  Mobile  Data") and  Motorola  Inc.
("Motorola").  The Company's AMO system requires  computer hardware and services
from third party  providers,  and interfaces  with dedicated  radio  frequencies
owned by the Company's  customers which require special radio equipment provided
by companies such as Motorola and Dataradio  Corp.  The Company's  customers may
purchase such technology,  infrastructure,  services and hardware  directly from
these  providers,  and,  with  respect to radio  equipment,  through  authorized
dealers as well.

                  The  Company's  software  is  compatible  with  virtually  all
operating  systems.  The  Company  has  installed  its  systems  in more than 60
agencies,  primarily law enforcement  agencies located in the state of New York.
Recently the Company  acquired an account in Arkansas  and Georgia.  The Company
provides a full range of product support and maintenance services,  both on-site
and by remote connection.

                  The  Company's  Board of  Directors  has  determined  that the
Company's  efforts should be focused on the e.TV Business and,  accordingly,  is
currently seeking to sell the Public Safety Software Business.

         Public Safety Software Industry Background
         ------------------------------------------

                  The goal of law  enforcement  and public safety agencies is to
maximize  the safety and improve the quality of life of people and  communities.
The  effectiveness  of a law enforcement or public safety agency is dependent on
its personnel and resources.  Such  effectiveness  is enhanced by maximizing the
patrol time of agency  personnel,  and the availability of timely,  accurate and
reliable  information.  This allows  services  to be  provided in an  efficient,
cost-effective  manner.  Computer  technology is an important tool for providing
information  to  law   enforcement   and  public  safety   personnel,   reducing
administrative  time  and  streamlining  procedures,   to  support  an  agency's
strategic and operational goals.

                  Generally,   a  law  enforcement  or  public  safety  agency's
strategy is not geared to one overall plan for an entire community, but is based
on several  individual  plans  addressing the unique needs of the  neighborhoods
that  comprise  that  community.  Agencies  need the ability to  maximize  their
resources, customize information,  analyze crime information by sector, district
and  area,  and  analyze  repeat  call  areas  that  tax  agencies'   resources.
Additionally,  agencies  have a need to  respond to  incidents  and 911 calls as
rapidly, efficiently and cost effectively as possible.

                  Computer  technology  has been developed for the public safety
market to address  these  needs.  CAD  systems,  integrated  with  enhanced  911
("E911")  systems,  allow a  dispatcher  to retrieve  information  about the 911
caller,  and the location  and the  individuals  involved in the incident  being
reported.  Mobile  wireless  communication  systems in vehicles  provide  agency
personnel  in the field with the  ability to receive  information  regarding  an
incident and the people involved, such as location, "mug shots" and photographs,
and arrest and booking  data.  Such  systems  also enable such  personnel  to go
"on-line" with the agency's  database,  and with other  vehicles,  in real time.
Wireless  communication  systems also provide  personnel  with the capability to
file reports from

                                       21

<PAGE>



their  vehicles  instead  of having to return  to the  station.  This  increases
personnel time and visibility in the community. AVL system technology provides a
dispatcher  with the capability of immediately  identifying  the location of the
most appropriate  vehicle to investigate an incident,  significantly  shortening
response time.  Without an AVL system, a dispatcher has to alert the vehicles in
the field of an incident  and then wait,  as they report their  location  and/or
availability,  before determining which vehicle would be the most appropriate to
respond to an incident.  Information  sharing technology allows agencies to link
their  databases  to  local,  state  and  national  crime  databases  to  access
information for more in-depth and efficient investigation of incidents.  Records
management  and photograph  imaging  systems for law  enforcement  agencies make
arrest and booking procedures and incident investigations more efficient,  while
similar  systems  for  fire  and EMS  departments  contribute  to the  efficient
deployment  of  firefighting  and  emergency   equipment  and  investigation  of
incidents. Without a computerized records management system, records and reports
would need to be handwritten or typed,  and physically  stored in various filing
cabinets, file rooms, or on microfilm or microfiche.  In such form, such reports
are comparatively error prone, and may be misplaced or unavailable,  which makes
retrieval difficult and time consuming.  Computerized  records systems allow for
easy entry and retrieval, and increased productivity,  enabling agency personnel
to spend more time "on the beat" in the community.

                  In essence,  the  foregoing  computer  technology  enables law
enforcement  and public  safety  agencies to allocate and utilize  resources and
manpower hours to maximize their goal of public safety.

         Public Safety Software Development of Technology
         ------------------------------------------------

                  The  Company's  overall  technology  has  been  developed  and
enhanced over approximately a nine year period. Its current versions,  developed
over the past two years, include Windows-based  applications with graphical user
interfaces  and  operate on  Windows  95/NT.  The  Company's  technology  is not
patented or covered by any registered copyrights;  however, the Company believes
that its  software  programs  have  copyright  protection  under common law. The
Company does not license any technology from third parties other than technology
for certain operating software.  The Company undertakes research and development
to enhance  existing,  technology  and products.  See Item 1 -  "Description  of
Business - Public Safety Software Business  Description - Public Safety Software
Research  and  Development"  for a  discussion  of the  Company's  research  and
development activities.

         Public Safety Software Products and Services
         --------------------------------------------

                  Products

                  The Company's software products consist of CAD systems, 
computer interface systems which connect the customer's computer system to 
local, state and national crime information databases, AMO communication systems
utilizing radio frequency, AVL systems employing dynamic map displays, records
management systems, and photo-imaging database systems. Certain

                                       22

<PAGE>



of the  Company's  software  systems  also  interface  with  and  utilize  space
satellite technology, telecommunications technology, computer hardware and other
infrastructure  provided by third parties.  The Company's software is compatible
with virtually all operating systems, utilizing a variety of software, including
Windows(R)  and  Unix(R).  The  Company's  software  also allows  linkage of its
products to mainframe  systems and is adaptable to both small and large hardware
systems.

                  The Company markets its products to law  enforcement  agencies
under the ALECS 2000(TM) (Advanced Law Enforcement Computer System) product line
and to fire and EMS  departments  under  its  AFFECT(TM)  (Advanced  Firefighter
Computer Technology) product line.

                  The Company  licenses  its  software to  customers  in modules
pursuant to a  perpetual  license.  Customers  may acquire all the modules as an
integrated "total solution" package,  or any of the modules  individually,  on a
stand  alone basis or as an addition  to, or as a  replacement  for, an existing
system.  The software  modules  licensed from the Company can be integrated with
the customer's other software systems. The Company's "total solution" package of
integrated modules maximizes  efficiency since data entered into one module will
be available in all modules in real time. A hybrid network  comprised of certain
of the  Company's  modules and other  software  systems  may require  data to be
entered into the Company modules and other software systems separately.

                  The price to the customer of the Company's products, whether a
"total  solution"  package or individual  modules,  varies  depending on several
factors, including the need for, and existence of, communication  infrastructure
in the  customer's  jurisdiction  (such as radio towers  necessary for AMO radio
frequency  modules),  volume  of  use of  telecommunications  systems  (such  as
telephone  lines  and  radio  cells),  and  the  customer's   computer  hardware
requirements to implement the software system.

                  The Company's ALECS 2000(TM)  product line for law enforcement
and its  AFFECT(TM)  product line for fire and EMS are similar in many respects.
Both address the  reporting  of  incidents,  the  dispatch of resources  and the
deployment of personnel.

                  In May  1997,  the  Company  received  the  1997  Long  Island
Software  Awards  ("LISA")  software  product  of the year  award  for its ALECS
2000(TM)  software.  The  Company  competed  with 15  finalists  for this  award
including,  among  others,  Long  Island  Lighting  Company  (now known as LIPA)
("LILCO"),  Henry Schein, Inc., Life Sciences Associates,  Lightstone Group, and
Quantum Research and Technologies,  Inc. The 1997 LISA was sponsored by the Long
Island Research Institute, State University of New York at Stony Brook, Cheyenne
Software,  Inc., Computer Associates,  Inc., LILCO, Renaissance Technologies and
Symbol Technologies, Inc., among others.

                  The Company's modules are described below.

                  Computer-Aided  Dispatching  - CAD and AVL. The  Company's CAD
system,  under both the ALECS 2000(TM) and AFFECT(TM) product lines,  integrates
several software and

                                       23

<PAGE>



communications  technologies,  such as E911 dispatch  systems,  mapping software
integrated with global positioning  systems for vehicle tracking,  and geo-based
mapping   systems,   which   include   street   addresses   and   intersections,
longitude/latitude,   and  other  information  to  identify  the  locations  and
addresses of incidents.  The integration of these systems with the Company's CAD
software  provides to police and other public safety  agencies the capability to
respond rapidly and efficiently to incidents, and streamlines record management,
enhancing productivity and accuracy of record keeping.

                  The CAD system allows the  dispatcher  receiving the E911 call
to immediately  identify the caller's telephone number, the related address, and
the name of the telephone  number owner (unless the call is made from a cellular
phone).  The CAD system enables the dispatcher to access any records  maintained
in the agency's database relative to that person or the location of the incident
(e.g. gun permit issued,  prior domestic  violence or prank calls) as well as in
local, state and national crime information databases.

                  Once a decision is made to dispatch a vehicle to an  incident,
a  record  is  created  and  the   location  of  the   incident   appears  on  a
computer-generated  map of  the  area.  Using  AVL  software,  which  links  the
customer's  system and a receiver  in each of the  customer's  vehicles  to GPSs
(global positioning satellites), the map also shows the position of vehicles "in
the field" which are available to respond to the incident.  The  dispatcher  can
then select the closest  available  vehicle to respond to the  incident  and can
observe the movement of that vehicle as it responds to the call.

                  Wireless Mobile Data Communications  System - AMO. The Company
markets a wireless AMO data  communications  system which permits "on-line" real
time access between vehicles in the field and the central database,  between the
central  database  and local,  state or national  databases,  crime  information
centers  and other  centralized  computer  records,  and between  vehicles.  The
Company's  AMO system  employs  radio  frequency  networks  (i.e.  private radio
networks,  public radio  networks,  and cellular and short range spread spectrum
technology) to provide complete communication and access from the vehicle to the
central databases as well as vehicle to vehicle. The Company's AMO system allows
the agency's personnel to log onto the customer's central database directly from
their  vehicles and have access to all  information  in such  central  database.
Additionally,  the AMO technology provides capability for the agency's personnel
to input  information into the agency's  database  directly from their vehicles,
and transfer or access information from vehicle to vehicle. AMO employs "text to
voice"  technology  which  converts data received by the vehicles'  systems from
text into voice data,  and, by voice  recognition,  converts voice commands into
text to be sent to the dispatcher. This enhances the safety of vehicle operators
since they can  receive  and give  information  without  having to divert  their
attention  to  read  a  computer  screen  or  input   information  by  keyboard.
Furthermore,  the main police,  fire and EMS radio channels are not employed and
remain available.

                  AMO, through the use of photo imaging technology,  allows "mug
shots"  to be  rapidly  made  available  at a crime or  incident  scene,  or the
personnel at the scene can create a permanent computer  photograph record of the
accident or crime scene and transmit it directly into the agency's

                                       24

<PAGE>



central database or to other vehicles.

                  The Company has sold AMO systems to several municipalities and
has  successfully  installed such AMO systems in Onondaga  County (New York) for
its E911 department which covers multiple agencies such as police,  fire and EMS
departments, the Putnam County (New York) Sheriff's Department, the Johnson City
Police  Department  (in  Broome  County,  New  York),  the  Glens  Falls  Police
Department (in Warren County,  New York),  the Johnstown  Police  Department (in
Fulton County,  New York),  the City of Lockport (in Niagara County,  New York),
the City of Port Jervis (in  Westchester  County,  New York) and the Long Beach,
Garden City and Malverne Police  Departments (in Nassau County,  New York).  See
Item 1 - "Description of Business - Public Safety Software Business  Description
- Public Safety Software Customers."

                  Records  Management.  The Company's records management systems
for law  enforcement  and other public  safety  agencies  offers a wide range of
options and flexibility to fit an agency's needs and budget.  The ALECS 2000(TM)
records  management  system  processes  data from the  incident  report  through
prosecution,  and is made up of component sub-modular units, including a records
management  system, a photograph/"mug  shot" imaging system, a parking violation
system,  and a false alarm billing  system.  The AFFECT(TM)  records  management
system   processes   data  from  the  incident   report   through   closing  the
investigation,  and also provides information such as the location of resources,
including, without limitation,  hydrants and secondary sources of water (such as
ponds,  lakes,  rivers,  and  seawater  access),  foam and other  chemical  fire
extinguishing material, hoses and jaws-of-life.

                  As discussed above, the Company's records  management  systems
obviate the need for  handwritten  or typed reports and physical  filing systems
which are cumbersome, comparatively error prone, and make for difficult and time
consuming information retrieval.

                  Local  Court  Records   Management   and   Sheriff's   Records
Management. The Company's products also include records management systems which
are specifically  designed for local courts and sheriff  departments.  The local
court records  management  system  records  summonses,  tracks fines payable and
enters  the  appropriate  dates  on  court  calendars.   The  sheriff's  records
management system provides several functions through the following  sub-modules:
civil warrants/attachment records management,  pistol permit records management,
photo  imaging/booking for county jails,  property records  management,  jewelry
recovery  and  pawn  shop  records   management,   and  police  academy  records
management.  One of the goals of this technology is to streamline procedures and
allow for more efficient allocation of resources and manpower hours.

                           Services

                  Installation and Training.  System installation is an integral
part of the Company's services.  The Company's  installation procedure commences
with an in-depth  consultation  with the customer to determine  the  appropriate
modules needed to meet the customer's  particular  requirements within budgetary
parameters. Once the customer's needs have been identified, the

                                       25

<PAGE>



Company provides  customized  system design and file creation.  The Company then
implements the system,  undertakes system start-up and provides training for the
customer's  personnel  in the  operation  of the  Company's  software  products.
Customer  training is  conducted  either at the  customer's  site or at a remote
location,  and  can  range  up to  several  days,  depending  on the  customer's
particular system.

                  Consulting. The Company provides consulting services to public
safety departments, in addition to custom installation.  Consulting can include
the design of a new module for a department.  Customers pay a weekly, daily or 
hourly fee for these services.

                  Support    and     Maintenance.     The    Company    provides
post-installation  system software  maintenance and training  support for all of
its software  products.  The  Company's  systems  support  teams,  which include
communications and software technicians and program developers, are available to
assist  customers via telephone  access,  24 hours a day,  seven days a week, 52
weeks a year, and provide on-site  support,  pursuant to a software  maintenance
agreement.  Software  updates and enhancements to the modules are included under
maintenance  contracts.  Customers  pay the  Company a set  monthly  service fee
(currently  ranging between 1% and 2% of the installation  contract value) which
is dependent on the extent and complexity of the customer's  system.  Currently,
the Company has  maintenance  agreements  with all of its customers.  During the
fiscal years ended December 31, 1997 and 1998,  support and  maintenance  income
represented approximately 53% and 28%, respectively, of the Company's revenues.

         Public Safety Software Research and Development
         -----------------------------------------------

                  Since the Company's  IPO, the Company has spent  approximately
$1,700,000  on  product   enhancement  and   development,   including,   without
limitation,  development and beta-testing the V-CAD  technology,  development of
graphical user interface  technology  (which  converts text- driven systems to a
more user-friendly menu-driven system), and Structured Query Language (SQL).
 By  utilizing  Structured  Query  Language in  conjunction  with the  Company's
database and the operating  system  software  used by the Company,  any field of
data can now be used as an analysis tool.  The data  structure  provides for the
ability to use any of the information from reported crimes,  such as time-of-day
or crime type, and submit a specialized query, which will result in a customized
search for a specific report.

         Public Safety Software Intellectual Property Rights and Licenses
         ----------------------------------------------------------------

                  The   Company's   software   system   products  are  based  on
approximately  3,000  interdependent  software  application  programs and system
utility modules,  including software developed for creating  applications of the
modules.  The  Company's  technology  is not  patented  and the  Company has not
obtained,  or  applied  for,  copyright  registration  for any of its  software.
Although the  registration of a copyright in the United States  copyright office
provides a rebuttable presumption of the copyright's validity, such registration
is not required to make a copyright legally effective,  and the Company believes
that its software programs have copyright protection.

                                       26

<PAGE>



                  The  Company  believes  that it takes  at  least  two to three
months of training  for a  programmer  to grasp the  complete  structure  of the
Company's  software.  The Company  requires that  employees sign an agreement of
nondisclosure and assignment of development rights. While large software vendors
often institute lawsuits to protect software property rights against infringers,
the  Company  believes  that,  in its case,  the  complexity  and  total  system
integration of the Company's products best protects its trade secrets. There can
be no assurance that the intellectual  property and contractual  rights on which
the Company relies to protect its  intellectual  property and  confidential  and
proprietary information will provide it with meaningful protections.

                  The  Company  utilizes   certain   operating  system  software
(written  in  the  "Open  M"  computer   programming   language   and  owned  by
Intersystems,  Inc.  ("Intersystems")),  in  the  development  of  its  software
systems. The Company uses such operating system software pursuant to a perpetual
license  that  allows the Company to use such  software  to create its  software
modules, and, in some cases, to "bundle" such operating system software with its
own software as part of its software  products.  The Company pays Intersystems a
monthly  fee to  sublicense  such  operating  software  (based on the  number of
product units in which Intersystem's operating system software is included), and
an annual fee to use such operating  software to create  software  (based on the
number of product units for which the third party's operating system software is
used to create).  The termination of this license could have a material  adverse
effect on the Company's  ability to produce and deliver its software products on
a timely basis. If such license is terminated,  the Company would be required to
license alternative operating system software.  The Company believes alternative
operating  system  software  written in  different  versions of the "M" computer
programming  language is owned by, and currently  available from, other sources.
However,  the Company  would have to revise its  software to make it  compatible
with such  alternative  operating  system  software,  which the Company believes
would result in production  and delivery  delays of  approximately  three to six
months.

         Public Safety Software Sales and Marketing
         ------------------------------------------

                  According  to  the  National  Directory  of  Fire  Chiefs  and
Emergency  Department  (1993)  and the  National  Directory  of Law  Enforcement
Administration  (1996), the national law enforcement and public safety market is
estimated to have more than 18,000 law enforcement agencies and more than 35,000
fire departments. Based on management's exposure to the marketplace, the Company
believes  that the  majority  of such  agencies  currently  have  limited  or no
computerization  of their law  enforcement  and public  safety  activities.  The
Company believes that mobile wireless  computer  communications,  computer-aided
dispatching,  integrated  mapping  and  photo-imaging  technology  have not been
marketed extensively to a majority of these agencies.

                  The Company's  marketing  strategy  primarily relies on direct
marketing  efforts  by one  salaried  salesperson  and a number  of  independent
representatives  who represent the Company outside of the New York  metropolitan
area.

                  Direct Marketing.  The Company currently participates to a 
limited extent in public

                                       27

<PAGE>



safety  conferences  and trade shows,  holds regional  seminars and presents and
conducts demonstrations.  However, as indicated above, the recent redirection of
business focus from the public safety area to e-commerce and  telecommunications
has  resulted  in a  substantial  reduction  of  marketing  efforts  (direct and
otherwise) related to public safety software and systems.

                  Current  Customers.  Generally,  once a system is designed and
installed for a customer, there is little repeat business other than maintenance
and support, and the provision of software enhancements or updates. Accordingly,
the Company's sales efforts to current customers for add-on products is minimal.

                  Subcontracting and Strategic Business Alliance  Opportunities.
The Company has sought to create strategic  business alliances and subcontractor
relationships  with large system  integrators  and public  network  providers in
order to have the  resources  needed to establish a presence in the "large size"
market  segment (i.e.  departments or agencies with more than 200 sworn officers
or  personnel).  The purpose of the  strategic  business  alliances  has been to
establish a  relationship  between the Company and large system  integrators  or
public network  providers (each an "Alliance  Partner")  whereby the Company and
the Alliance  Partner would  cooperate and  complement  each other's  efforts in
identifying,  proposing  and  marketing  their own  products  and  services  and
integrated  systems to public safety customers.  The strategic business alliance
which the Company has sought to establish typically provides for the Company and
its Alliance Partner to agree upon a particular  teaming  arrangement (with each
party assuming defined roles and  responsibilities  in order to more effectively
compete for future business  opportunities  and programs),  and, with respect to
mutually agreed  projects,  to jointly market and support each other's  services
without soliciting  services or products from other sources or offering services
and products to other contractors. Strategic business alliances are currently in
place with AT&T (which expires in February 2000 and is  automatically  renewable
for successive one year terms) and Alpine Software  Incorporated  (which expires
in March 2001), and subcontractor  relationships have been established with Data
General  (which is  terminable  by either  party upon 30 days prior  notice) and
Unisys Corporation (which expires May 29, 1999, but automatically  renews and is
cancellable at that time by either party upon 60 days prior written notice). The
Company has also sought subcontractor  relationships with system integrators and
network providers including  International Business Machines Corp. ("IBM") (with
which the Company has acted as a subcontractor in the past, as described below),
Bell Atlantic,  Motorola and RAM Mobile Data. No significant  revenues have been
derived to date from the Company's  established  strategic  alliances (which set
forth the relationship of the parties in the event of a system  installation and
do not relate to any  particular  customer  contracts)  and no assurances can be
given  that  the  Company  will  derive  revenues  therefrom.  In  addition,  no
assurances  can be given that the  Company  will  enter into any other  business
alliance or subcontractor relationships.

                 The Company monitors state and local governmental announcements
of officially published requests for proposals ("RFPs") to find business 
alliance or subcontracting opportunities. The selection of the appropriate large
system integrator by the Company as a potential business alliance partner or 
prime contractor often depends on the specifications in the RFP. The Company

                                       28

<PAGE>



has sought to contact  large  system  integrators  in order to  demonstrate  the
Company's  product  capabilities  and  to  establish  a  credible  presence  for
participating in "large size" market segment projects.

         Public Safety Software Customers
         --------------------------------

                  The Company has installed various modules of its public safety
software  systems  for,  and  provides  maintenance  and  support  services  to,
approximately 61 customers, 57 of which are law enforcement agencies and four of
which are county-wide  systems including police,  fire and EMS departments.  The
following  customers  accounted for the following  percentages  of public safety
software sales for the year ended December 31, 1997:  Chemung County (New York),
12.6%; and the Malverne Police Department (Nassau County,  New York),  10.2%. No
other customer accounted for 10% or more of the Company's public safety software
sales during such period.  The following  customers  accounted for the following
percentages  of public  safety  software  sales for the year ended  December 31,
1998:  Putnam County Sheriff,  27.6%;  and Westchester  County,  10.9%. No other
customer accounted for 10% or more of the Company's public safety software sales
during such  period.  The  Company  does not rely on past  customers  for future
revenues from sales and installations of public safety software systems.

                  Typically,  a customer will procure a public  safety  software
system from the Company under a perpetual license, pursuant to which the Company
will be paid a percentage of the license fee at the time the contract is entered
into,  and  then  will  receive  further  installments  as  certain  performance
milestones  are met,  until  completion of the  contract.  After the contract is
completed,  any further  revenues from that customer are usually  derived from a
maintenance and support contract.  From time to time,  however,  the Company may
receive additional contracts from an existing customer for add-on modules.

                  The  length  of time  that it  takes  to  complete  a  systems
installation contract varies (generally from three to twelve months),  depending
on the  nature  and  complexity  of  the  system  and  the  customer's  internal
procurement  procedures.  During the period of time that  installments are being
paid,  the customer,  or a small number of customers with contracts in progress,
may account for a significant  percentage of the  Company's  revenues.  However,
once those  contracts are completed,  such customers will no longer  represent a
material portion of the Company's future revenues. Accordingly, the Company does
not rely on such customers for a continuing  revenue stream and the Company does
not believe that the make-up of its current significant customers is material to
an understanding of the Company's future business prospects.

                  The  following  two examples are  illustrative  of the diverse
application  of the  Company's  products and services:  (i) The Onondaga  County
Police Department utilizes an AMO application, designed, developed and installed
by the Company,  which links over 700 police,  fire and EMS  vehicles.  For this
project, the Company was retained by IBM as a subcontractor to design,  develop,
install  and  service  all the  required  AMO  software.  The  project  included
integration  by the Company of IBM and Digital  Equipment  Corp.  hardware which
already contained application

                                                        29

<PAGE>



software  provided  by other  subcontractors  for both  records  management  and
computer-aided  dispatch;  and (ii) The Company, as prime contractor,  designed,
developed  and  installed  a  "total  solution"  system  for the  Putnam  County
Sheriff's  Office,  a comparatively  small agency of seven vehicles.  The system
consisted of a records management system, a CAD system and an AMO system.

         Public Safety Software Competition
         ----------------------------------

                  The  Company  faces  competition  in the "small  size"  market
segment  (which the Company  views as  departments  or agencies with 20 or fewer
sworn  officers or personnel)  and the "medium size" market  segment  (which the
Company  views as  departments  or  agencies  with 21 to 200 sworn  officers  or
personnel)  from companies  such as NewWorld  Systems,  Pamet Systems,  Inc. and
Software  Corporation of America.  Although such competitors have  significantly
greater financial,  technical and other resources than those of the Company, the
Company  feels that it has been able to compete in such market due to its "total
solution" system integration  technology and local presence,  the Company having
installed  systems in over 50 "small  size" and  "medium  size" law  enforcement
agencies in the state of New York.

                  The Company believes that more intense  competition  exists in
the "large size" market segment in which the system price ranges widely (between
$1 million  and $100  million)  depending  on the size of the  customer  and the
complexity  of the system (as  compared  to the  Company's  typical  sale in the
"small size" and "medium size" market  segments,  which  historically has ranged
between $25,000 and $350,000).  The "large size" market is dominated by software
vendors, such as PRC Public Safety, Inc. and Systemhouse, Ltd., and large system
integrators such as IBM, Andersen Consulting, Electronic Data Systems and Harris
Corporation.  In order to penetrate the "large size" market segment, the Company
has pursued strategic  business  alliances or subcontracting  relationships with
large  systems   integrators   having  greater  financial   resources  and  name
recognition than the Company.

                  The Company  further  believes that large software  companies,
communication  equipment companies and computer hardware companies are currently
not  concentrating  their  resources on the law  enforcement  and public  safety
market because of that market's special requirements for secure radio operations
and the  particular  applications  and  expertise  needed to meet those  special
requirements.  Additionally,  most "large size" agencies have a general need for
highly specific  customized  systems and systems  integration.  Generally,  such
companies  that do have an interest in pursuing the law  enforcement  and public
safety  markets  look for a business  partner,  like the  Company,  that has the
necessary  expertise  to design and install law  enforcement  and public  safety
systems.

Employees

                 The Company has engaged the services of Payroll Transfers, Inc.
("PTI"), a professional employer organization, to manage all payroll 
administration, human resource

                                       30

<PAGE>



management and workers'  compensation  matters.  The Company believes that by so
doing  it is able to  apply  its  resources  to the  revenue-producing  areas of
business.  For the above services, the Company's financial exposure is less than
0.75%  of  gross  payroll  over  statutory  requirements.  As a  result  of this
relationship, the Company's employees are co-employees of the Company and PTI.

                  The Company currently has 30 full-time employees. Twenty-three
employees are dedicated to the e.TV  Business and include  executive,  sales and
marketing,  operational  and  administrative  personnel.  This does not  include
e.TV's  Representatives  who are  independent  contractors.  Seven employees are
dedicated to the Public  Safety  Software  Business  and include  four  software
developers/programmers, one project manager, one sales person, and one executive
and  administrative  staff  member.  The Company also has two  part-time  public
safety  industry  consultants.  Management  believes that its relations with its
employees are satisfactory.

Item 2.           Description of Property

                  The  Company's  executive  offices  are  located  at 77 Spruce
Street,  Cedarhurst, New York where it leases approximately 5,000 square feet of
space.  The  premises  are held  pursuant  to a five year  double net lease that
expires in September 2001 and provides for a base annual rental of approximately
$85,000.

                  e.TV's  offices are  located at 12735 Gran Bay  Parkway  West,
Building 200,  Jacksonville,  Florida and consist of approximately 10,000 square
feet of space. e.TV occupies the space on a month-to-month  basis pursuant to an
oral  understanding  that provides for termination upon 60 days notice by either
party. The Company dose not pay for the use of the space;  however,  the Company
does pay for  administration and back office services.  The Company  anticipates
that, if the month-to-month  understanding terminates, e.TV will seek comparable
space in the Jacksonville,  Florida area. If e.TV relocates, it will not be able
to obtain premises on comparable terms as the current arrangement. Additionally,
although e.TV  anticipates it will be able to obtain  alternative  space, it can
give no assurance that such space will be available to its specifications at the
time  of a  move.  See  Item  1 -  "Description  of  Business  -  e.TV  Business
Description  -  e.TV   Principal   Suppliers  -  Back  Office   Operations   and
Administrative Support."

                  The Company believes that its premises are adequate for its 
needs for the foreseeable future.

Item 3.           Legal Proceedings

                  In March 1999, an action was instituted in the Supreme Court 
of the State of  New York, Nassau County, by Rugby National Corp. ("Rugby"), 
Harvey Weinstein ("Weinstein") and Credomarka National Corp. ("Credomarka") 
against the Company, Rugby Acquisition Corp. ("RAC"), a wholly owned subsidiary
of the Company, and Mark Honigsfeld, Chief Executive Officer of the Company.


                                       31

<PAGE>



                  In the complaint,  the plaintiffs allege,  among other things,
that (i) the Company  willfully  failed  without  good cause to  consummate  the
Agreement and Plan of Merger among Rugby,  Weinstein,  Compu-DAWN  and RAC dated
April 22, 1998 (the "Merger  Agreement")  pursuant to which, among other things,
RAC and Rugby were to merge;  (ii) Rugby's business was allegedly  damaged after
the Company consummated a $5,000,000 private placement (the "Private Placement")
(see Item 6-  "Management's  Discussion and Analysis or Plan of Operation")  and
subsequently terminated the Merger Agreement; (iii) the Company's alleged breach
of the Merger Agreement was a breach under a certain Loan and Security Agreement
between the Company,  as lender,  and Rugby, as borrower (the "Loan and Security
Agreement"), which was entered into contemporaneously with the Merger Agreement;
and (iv) Mr.  Honigsfeld  falsely  induced  Rugby and  Weinstein  to give  their
consent to the Private  Placement.  The plaintiffs  are claiming  damages in the
aggregate amount of $6,000,000,  and are seeking a declaratory judgment that (i)
the Loan and Security Agreement and related pledge agreements are unenforceable,
and (ii) the collateral securing Rugby's obligations for the loans made pursuant
to the Loan and Security Agreement be returned.

                  The  Company  and  Mr.  Honigsfeld   believe  that  they  have
meritorious  defenses to all of the plaintiffs claims. As previously reported in
the Company's  Current Report on Form 8-K for an event dated  September 1, 1998,
the Company  terminated the Merger  Agreement in accordance with its terms based
on the lack of  fulfillment  of the  conditions to the  Company's  obligation to
close. The Merger Agreement contains a $1,000,000 liquidated damage provision as
the  sole  and  exclusive  remedy  if  the  Company  failed  to  consummate  the
transactions  contemplated by the Merger  Agreement and each and every condition
to the  Company's  obligation  to close had been  satisfied in a timely  manner.
Rugby remains in default under the Loan and Security Agreement.

                  The  Company  intends,  and Mr.  Honigsfeld  has  advised  the
Company that he intends, to vigorously defend this action and each will consider
pursuing counterclaims they may have against the plaintiffs. Due to the inherent
uncertainties  in  litigation,  the Company  cannot  predict nor  guarantee  the
outcome of this litigation.

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

                  At an annual meeting of stockholders held on November 2, 1998,
the  stockholders  of the Company elected William D. Rizzardi and Alfred Luciani
as Class I Directors and Mark Honigsfeld and Harold  Lazarus,  Ph.D. as Class II
Directors  and approved the issuance of Common Shares  underlying  the Company's
Series A  Preferred  Shares and Series B Preferred  Shares.  The number of votes
with regard to the foregoing was as follows:






                                       32

<PAGE>


<TABLE>
<CAPTION>

         (i)      Election of Directors

                                                              Voted for                 Proxy Withheld in
Nominee                             Class                     Election                  Vote for Election
-------                             -----                     --------                  -----------------

<S>                                 <C>                       <C>                                <C>
William D. Rizzardi                 Class I Director          2,672,169                          0
Alfred Luciani                      Class I Director          2,672,169                          0
Mark Honigsfeld                     Class II Director         2,672,169                          0
Harold Lazarus, Ph.D.               Class II Director         2,672,169                          0

         (ii)     Approval of Issuance of Common Shares Underlying
                  Series A Preferred Shares and Series B Preferred Shares


                  For: 1,340,641            Against: 67,525            Abstain:   11,675


</TABLE>

                                       33

<PAGE>



                                     PART II

Item 5.        Market for the Registrant's Common Stock and Related Stockholder 
               Matters

Market Information

                  Upon  completion of the  Company's  IPO on June 10, 1997,  the
Company's  Common  Shares began  trading  under the symbol  "CODI" on the Nasdaq
SmallCap  Market.  On March 5, 1999,  the Company  changed its symbol to "ETVC".
Prior to June 10,  1997 there was no public  trading  market  for the  Company's
securities. The following table sets forth, for the periods indicated, the range
of high and low bid prices of the  Company's  Common  Shares as furnished by The
Nasdaq Stock Market,  Inc. The  quotations  set forth below reflect  interdealer
prices without retail mark-up,  mark-down or commissions and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>

                                                                                           High       Low
                                                                                           ---       ----
          <S>                                                                           <C>        <C>
         1997
         ----
                  Second Quarter (1) ............................................       $  6.19      $ 5.00
                  Third Quarter     .............................................       $  6.13      $ 5.25
                  Fourth Quarter.................................................       $  9.25      $ 5.38

                                                                                          High       Low
                                                                                          ----       ---
         1998
         ----
                  First Quarter  ...............................................        $  9.75      $ 5.81
                  Second Quarter  ...............................................       $ 15.13      $ 4.50
                  Third Quarter     .............................................       $  6.25      $ 1.00
                  Fourth Quarter.................................................       $  6.50      $ 1.13
</TABLE>

------------
(1) Commencing on June 10, 1997, the effective date of the Company's IPO.

Holders

                  The Company has been advised by its transfer  agent  (American
Stock Transfer & Trust Co.) that the approximate number of record holders of the
Common  Shares as of February  28, 1999 was 36. The Company has been  advised by
Automatic Data Processing,  Inc. that there are  approximately  2,000 beneficial
owners of its Common Shares.

Dividend Policy

                  Holders  of  the  Company's  Common  Shares  are  entitled  to
dividends  when,  as and if  declared  by the  Board of  Directors  out of funds
legally available  therefor.  The Company has not declared or paid any dividends
in the past and does not currently  anticipate declaring or paying any dividends
in the foreseeable  future.  The Company intends to retain earnings,  if any, to
finance the  development  and expansion of its business.  Future dividend policy
will be subject to the discretion

                                       34

<PAGE>



of the Board of Directors and will be contingent upon future  earnings,  if any,
the  Company's  financial  condition,  capital  requirements,  general  business
conditions,  and other  factors.  Therefore,  there can be no assurance that any
dividends of any kind will ever be paid.

Recent Sales of Unregistered Securities

                  In addition to the sales of unregistered  securities disclosed
in the  Company's  Form 10-QSB for the period ended June 30,  1998,  the Company
sold the following  unregistered  securities  during the period  covered by this
report.

                  As of October 20,  1998,  the  Company  issued  10,000  Common
Shares to David Loewenstein as an inducement to enter into a one-year Consulting
Agreement,  pursuant  to which Mr.  Loewenstein  agreed to provide  the  Company
advisory services related to the  telecommunications  industry and the Company's
operations in such industry. In consideration for his services,  pursuant to the
Company's 1996 Stock Option Plan,  Mr.  Loewenstein  was also granted  five-year
options to purchase 50,000 Common Shares.

                  On December 11, 1998,  the Company issued 26,250 Common Shares
to JNC  Strategic  Fund  Ltd.  ("Strategic")  and  48,750  Common  Shares to JNC
Opportunity  Fund Ltd.  ("Opportunity")  in  consideration  for the agreement by
Strategic  and  Opportunity  to extend the  deadline  for the  Company to file a
registration  statement  covering the resale of Common Shares or underlying  the
Series A Preferred  Shares,  Series B Preferred  Shares and  warrants  held,  by
Strategic and Opportunity.

                  These  transactions were private  transactions not involving a
public  offering  and  were  exempt  from  the  registration  provisions  of the
Securities  Act pursuant to Section 4(2) thereof.  The Company  determined  that
Loewenstein,  Opportunity  and  Strategic  were  sophisticated  investors.  Such
issuances  of Common  Shares  was  without  the use of an  underwriter,  and the
certificates  evidencing such Common Shares bear restrictive  legends permitting
the transfer thereof only upon registration of such securities or pursuant to an
exemption  under  the  Securities  Act.  The  Company's  registration  statement
covering  the resale of the Common  Shares  owned,  or  underlying  the Series A
Preferred Shares,  Series B Preferred Shares and Warrants held, by Strategic and
Opportunity was declared effective by the SEC on December 15, 1998.

Use of Proceeds from Initial Public Offering

                 The Company's Registration Statement of Form SB-2 (Registration
No. 333-18667), covering the issuance of  1,380,000  Common  Shares  (including 
180,000  Common Shares  covering  overallotments)  at  $5.00  per  share,  or an
aggregate  of $6,900,000 (including  overallotment  proceeds),  was declared 
effective on June 10, 1997. The offering,  which was underwritten on a firm 
commitment basis, and the overallotment, closed on June 16 and June 24,  1997 
respectively.  The managing underwriter of the offering was E.C. Capital Ltd.


                                       35

<PAGE>



                  The  following  is a  breakdown  of the  Company's  use of the
proceeds from, and expenses  incurred in connection  with, the offering  through
December 31, 1998:

                                    Offering:
                                    ---------

         Gross proceeds (including over-allotment)                   $6,900,000
         Underwriting discounts and commissions (1)                    (690,000)
         Expenses paid directly to underwriter                         (322,500)
         Other expenses (1)                                            (261,626)
                                                                    ------------
         Net proceeds                                                $5,625,874
                                                                      ==========


                        Use of Proceeds Through December 31, 1998:
                        ------------------------------------------

          Product enhancement and development (1)(3)                 $ 1,720,000
          Repayment of indebtedness (2)                                  770,000
          Marketing and advertising (1)(3)                               430,000
          Hiring/training personnel (1)(3)                               140,000
          Equipment purchases (1)(3)                                     225,000
          Working capital(3)(4)                                        2,340,874
                                                                       ---------
                                                                     $ 5,625,874
                                                                     ===========
           ----------
       
     (1)  Paid  directly  to persons  other than  directors  or  officers of the
          Company  or their  associates,  or  persons  owning 10% or more of any
          class of  equity  securities  of the  Company,  or  affiliates  of the
          Company.

     (2)  Represents  the  repayment  of a  bridge  loan.  $130,000  was paid to
          affiliates  of  the  Company  who  participated  in the  bridge  loan.
          $640,000 was paid directly to persons other than directors or officers
          of the Company or their  associates,  or persons owning 10% or more of
          any class of equity  securities  of the Company,  or affiliates of the
          Company.

     (3)  Approximate.

     (4)  Used for general operating activities.


                  As of December  31, 1998,  all proceeds  from the IPO had been
utilized.

Item 6. Management's Discussion and Analysis or Plan of Operation

           Introduction

                  The Company was incorporated in the State of New York on 
March 31, 1983 under

                                       36

<PAGE>



the name of Coastal Computer Systems, Inc. The Company was reincorporated in the
State of Delaware under its present name, Compu-DAWN, Inc., on October 18, 1996.
Prior to January  1999,  the  Company  was  engaged  solely in the  business  of
designing,  developing,  licensing,  installing and servicing  computer software
products  and  systems  for the law  enforcement  and  public  safety  industry.
Historically,  the Company's  products have been marketed  predominantly  in the
State of New York.

                  During 1998, the Company generated  revenues from the granting
of non-exclusive,  non-transferable and non-assignable  licenses to use software
it has developed, through fixed price contracts.  Revenues from such fixed price
contracts  are  recognized   using  the  percentage  of  completion   method  of
accounting.  The Company retains title to the software and warrants that it will
provide  technical  support and repair any defects in the software at no charge.
The  warranty  period for each  contract is  negotiated  individually,  with the
periods  ranging  from 90 days to three years.  To date,  repair costs have been
minimal  and,  therefore,  the  Company  has not had to  establish a reserve for
warranty costs.

                  The Company also provides  post-contract,  customer support to
licensees of its software.  Revenues from such services are  recognized  ratably
over the period of performance. Fees billed and/or received prior to performance
of services are reflected as deferred revenues.

                  The Company's  revenues,  expenses and operating  results have
varied  considerably  in the  past  and  are  likely  to  vary  in  the  future.
Fluctuations in revenues depend on a number of factors, some of which are beyond
the Company's control.  These factors include, among other things, the timing of
contracts,  delays in customer acceptance of the Company's software products and
competition.

                  See below as regards  the  surrender  of assets by LocalNet to
e.TV and the Company's entry into the  telecommunications  and Internet services
marketing business.

           Results of Operations

           Revenues

                  Total  revenues  for the year  ended  December  31,  1998 were
$1,248,489  as compared to $591,375 for the prior year,  an increase of $657,114
or 111%. This increase was a result of a $622,000 increase in software sales and
an increase in maintenance revenues of approximately $35,000.

           Costs and Expenses

                  Total costs and expenses decreased when comparing 1998 to 1997
to $2,899,697 from $3,537,773.

                  Programming costs and expenses increased to approximately 
$460,000 for 1998 from

                                       37

<PAGE>



approximately  $407,000 for 1997. This increase primarily  encompasses  salaries
and wages that are related to the Company's  main computer  programming  system.
General and  administrative  costs  decreased from  approximately  $2,195,000 to
approximately  $1,924,000  when  comparing  1998  to  1997.  This  decrease  was
primarily related to a decrease in sales salaries due to an overall reduction in
the  Company's   sales  force.   Research  and   development   costs   decreased
significantly  from  1997  to  1998,  approximately  $936,000  to  approximately
$516,000,  since,  during  1998,  the  Company  did not  focus on the  design or
production  of  new  products,   but  instead   concentrated  on  enhancing  and
maintaining existing products.

                  The  Company's  operating  loss  for 1998  was  $1,651,208  as
compared to  $2,946,398  for 1997,  an  improvement  of  $1,295,190,  due to the
increase in revenues and decrease in costs described above.

           Other Income and Development

                  Interest  and other income for 1998  aggregated  approximately
$332,000 as compared to  approximately  $120,000 for 1997. This increase was due
to the increase in cash which  resulted from the Company's  private  offering of
preferred stock in June 1998, as described  below, and consulting fees earned in
connection with LocalNet, also described below.

                  In 1997, the Company fully amortized approximately  $1,588,000
of deferred  financing  costs  which  resulted  in overall  interest  expense of
$1,610,505.  For 1998,  interest  costs  aggregated  only $17,459.  In 1998, the
Company entered into and then terminated a potential investment transaction (see
below).  The  Company  expensed  a loss due to this  terminated  transaction  of
$296,952.   Also  in  1998,  the  Company  loaned  $1,900,000  to  LocalNet,  an
unaffiliated Florida corporation.  In a transaction which occurred subsequent to
the Company's year end,  LocalNet  surrendered  certain of its assets to e.TV in
satisfaction  of  $750,000  of the  aforementioned  loan,  with the  balance  of
$1,150,000 being treated as uncollectible (see discussion  below).  Accordingly,
the  Company  has  determined  that this  uncollectible  portion  of the loan is
impaired and has expensed this amount in 1998.

           Net Loss

                  For the year ended  December 31,  1998,  the Company had a net
loss of $2,783,552, or $.95 per share. For the year ended December 31, 1997, the
Company had a net loss of $4,436,745,  or $1.95 per share.  The explanations for
these losses are included in the above discussions.

           Liquidity and Capital Resources

                  In January  1997,  the Company  entered into a secured  credit
facility loan agreement (the "Credit  Agreement")  with Mark  Honigsfeld,  Chief
Executive  Officer and then  Chairman of the Board of the  Company,  pursuant to
which the Company borrowed $200,000. The Company and Mr.

                                       38

<PAGE>



Honigsfeld  agreed to convert this loan into 40,000  Common Shares (an effective
conversion price of $5.00 per share) upon the closing of the IPO. In April 1997,
the Company and Mr. Honigsfeld amended the Credit Agreement to provide for a new
line of credit of  $500,000.  In May 1997,  the Company  borrowed an  additional
$200,000 under the Credit  Agreement of which $50,000 is outstanding at December
31, 1998 ($150,000 was outstanding at December 31, 1997). The repayment of up to
$200,000  under the Credit  Agreement  is secured by a first  priority  security
interest in all the assets owned by the Company.

                  In June 1997,  the Company  successfully  completed an initial
public  offering of its Common Shares.  The Company sold 1,380,000 of its Common
Shares at a price of $5.00 per share and realized net proceeds of  approximately
$5,626,000.

                  At December  31,  1998,  the  Company had cash and  marketable
securities of $4,378,000,  accounts  receivable of $319,000,  a current ratio of
13.8 to 1 and a net worth of  $5,298,000.  At December 31, 1997, the Company had
cash of $3,081,000,  accounts receivable of $72,000, a current ratio of 8.3 to 1
and net worth of $3,206,000.  The overall  improvement  from 1997 to 1998 is the
result of a private offering of preferred stock (which is described below),  net
of the losses incurred during 1998 as described above.

                  In June 1998,  the Company  completed a private  placement  of
securities. The Company sold 3,250 units (consisting, in the aggregate, of 3,250
Series A Preferred  Shares and warrants to acquire  57,497  Common  Shares) at a
price of $1,000  per unit and 1,750  units  (consisting,  in the  aggregate,  of
327,103  Common Shares and warrants to acquire  32,710 Common  Shares) also at a
price of $1,000 per unit.  The Common  Shares were  subsequently  exchanged  for
1,750  Series B  Preferred  Shares.  From this  private  placement,  the Company
realized net proceeds of approximately $4,723,000.

           Cash Flows

                  For the years ended December 31, 1998 and 1997,  cash utilized
by operating activities was $1,278,214 and $2,311,314, respectively. The primary
reasons for the decrease in cash used for operating  activities were an increase
in cash  collected  from  customers and an increase in interest and other income
mentioned previously.

                  For the year ended  December  31,  1997,  $135,205 of cash was
utilized by investing activities, primarily for fixed asset purchases. For 1998,
the Company used  $3,913,517 of cash in this category.  During the current year,
the  Company  purchased  $2,000,000  of  marketable  securities,  using  the net
proceeds  from  the  private  Preferred  Stock  offering,  and  loaned  LocalNet
$1,900,000 (See "Subsequent Event" below).

                  In 1997, the Company generated cash from financing  activities
of  $5,241,275,  principally  as a result of the completion of the IPO offering.
For 1998, the Company generated cash of $4,638,878 in this category, principally
due to the completion of the private offering.

                                       39

<PAGE>




           Termination of Potential Investment Transaction

                  On April 22, 1998, the Company  entered into an agreement (the
"Merger   Agreement")  to  acquire  an  indirect  50%  beneficial   interest  in
Press-Loto,  a Russian  company  which  claimed to have the right to operate the
first  national  on-line  lottery in Russia  pursuant to a license (the "Lottery
License")  from the Russian  Ministry of Finance to the Union of  Journalists of
Russia (the  "Union").  The Merger  Agreement  provided that, at the time of the
closing,  40% of Press-Loto  was to be owned by the Union and its charity with a
private group holding a minority  interest.  The transaction was structured as a
merger (the "Merger"), pursuant to which Rugby Acquisition Corp., a wholly-owned
subsidiary of the Company, was to merge into Rugby National Corp. ("Rugby") with
Rugby as the surviving entity and a wholly-owned  subsidiary of the Company.  At
the time of closing, Rugby was to directly own 50% of Press-Loto.

                  On  September  1, 1998,  the  Company  issued a press  release
announcing  that it had  terminated  the  Merger  Agreement  due to the  lack of
fulfillment of the conditions to its obligation to close.

                  See  Note  14  of  Notes  to  Financial  Statements  regarding
subsequent litigation concerning this matter.

           Subsequent Event

                  During  1998,  and the  first  few days of 1999,  the  Company
loaned  an  aggregate  of  $1,900,000  to  LocalNet,   an  unaffiliated  Florida
corporation in the  telecommunications and Internet services marketing business.
These loans were originally due in one year,  bearing  interest of 12% per annum
and were  secured by a  collateral  interest in all of  LocalNet's  tangible and
intangible  assets and a pledge of the  common  stock of  LocalNet  owned by its
Chairman of the Board and its Chief Executive Officer.

                  On January 7, 1999, the Company  assigned its interest in this
loan to e.TV.  On January  8, 1999,  following  a default,  LocalNet  peacefully
surrendered  the assets  representing  the collateral  underlying this loan. The
fair  value  of the  assets  at the  time  of  surrender  was  determined  to be
approximately  $750,000.  Accordingly,  the Company  has  written  down the loan
receivable by $1,150,000, in order to reflect this receivable at its fair value.

                  Through  e.TV,   the  Company  began   operations  in  various
businesses similar to that of LocalNet in January 1999.

           Backlog

                  The  Company's  backlog of software  contracts  for its Public
Safety Software Business as of March 25, 1999 aggregated  approximately $875,000
(including one year maintenance fees).

                                       40

<PAGE>



These  contracts  when  completed  (usually  within  six months to one year) are
expected to generate  approximately  $157,000 of additional  annual  maintenance
revenue  following  the  completion  of the  warranty  and  initial  maintenance
periods.

           Other

                  The Company  believes  that the net proceeds  from the private
placement and funds expected to be generated from  operations will be sufficient
for working capital purposes for at least the ensuing 12 month period.

           Year 2000 Issues

                  The Year  2000  ("Y2K")  problem  is the  result  of  computer
programs  being  written  using two  digits  (rather  than  four) to define  the
applicable year. Any of the Company's programs that have time-sensitive software
may  recognize  a date  using "00" as the year 1900  rather  than the year 2000,
which  could  result in  miscalculations  or system  failures.  The  Company has
instituted a Y2K compliance program,  the objective of which is to determine and
assess the risks of the Y2K issue, and plan and institute  mitigating actions to
minimize those risks. The Company's standard for compliance requires that, for a
computer system or business process to be Y2K compliant,  it must be designed to
operate  without  error in date and  date-related  data  prior  to, on and after
January 1, 2000.  The Company  expects to be fully Y2K compliant with respect to
all significant business systems prior to May 31, 1999.

                  The Company's Y2K plan consists of four phases: (1) assessment
and analysis of "mission  critical"  systems and equipment;  (2)  remediation of
systems and equipment,  through  strategies  that include the enhancement of new
and  existing  systems,   upgrades  to  operating  systems  already  covered  by
maintenance  agreements and  modifications to existing  systems;  (3) testing of
systems and equipment;  and (4) contingency planning which will address possible
adverse scenarios and the potential financial impact to the Company's results of
operations, liquidity or financial position.

                  Public Safety Business

                  With regard to information  technology systems ("IT systems"),
the first three steps of this plan,  assessment,  remediation,  and testing, are
complete, and the Company is currently in the contingency planning phase for all
IT systems and equipment.  The remediation program consisted largely of updating
all   software   and   operating   systems  with  the  purchase  of  the  latest
"off-the-shelf"  versions of such  items.  Management  believes  that all of the
Company's public safety IT systems and equipment have been remediated.

                  Assessment,  remediation and testing were all performed by the
Company's  staff, at a cost that is not believed by the Company's  management to
be material. Y2K costs are expensed as incurred.

                                       41

<PAGE>



                  An  inventory  and  assessment  of all non-IT  systems  (items
containing embedded chips, such as elevators, electronic door locks, telephones,
etc.) is being  undertaken.  The great  majority of these non-IT systems are not
believed  to be  potential  sources  of  significant  disruption,  although  the
contingency  plans (described  below) will address non-IT Y2K failure as well as
IT systems failure.

                  e.TV Business

                  The great  majority of the IT systems that the Company uses in
connection  with its e.TV Business is contained in one software  package,  which
package enables the Company to run its network marketing operations.  Management
has identified  this software  package as the single most important  group of IT
systems used in the e.TV Business which must be made Y2K compliant.  Remediation
of these systems was accomplished by the supplier of the software package, which
has also  given  written  certification  to the  Company  of the  package's  Y2K
compliance.

                  In  addition  to the network  marketing  operations  software,
there  are  several   smaller  IT  systems.   These  are  provided  by  Atlantic
Teleservices,  the company  which also provides the facility from which the e.TV
Business activities are operated.  Management of the Company believes that these
smaller  IT  systems,  as  well  as the  various  non-IT  items  under  Atlantic
Teleservices'  control,  do not, either singly or in the aggregate,  represent a
material Y2K compliance  issue.  Remediation of these items, if necessary,  will
have to be  accomplished  by Atlantic  Teleservices.  Management  has  requested
assurances from Atlantic  Teleservices that the IT and the non-IT aspects of the
facility will be Y2K  compliant in a timely  fashion.  Management's  contingency
plan will address both IT and non-IT non-compliance.

                  Contingency Plans

                  The  Company's  management  is in the process of  developing a
"worst-case  scenario"  with  respect  to  Y2K  non-compliance  and  to  develop
contingency  plans designed to minimize the effects of such  scenario.  Although
management  believes  that it is very  unlikely  that  any of  these  worst-case
scenarios will occur,  contingency plans will be developed and will address both
IT system and non-IT system failure.

                  Public Safety Business. Management believes that all of its IT
systems are currently compliant,  and that there are no third party suppliers or
customers  whose IT system Y2K  non-compliance  will affect its own  operations.
However,  management is aware that some of the public safety agencies to whom it
has sold and installed  systems may be using other systems,  and/or  components,
that interface  with the Company's  products and which may not be Y2K complaint.
The use of such other systems and/or  components may disrupt or even  completely
disable  an  agency's   entire  IT  system,   or   significant   parts  thereof.
Notwithstanding  that  any  such  event  would  have no  direct  bearing  on the
Company's  operations,  the Company is alerting its customers to the possibility
of this problem and  suggesting  that they test all aspects - both  hardware and
software of their systems.

                                       42

<PAGE>



                  The  only  non-IT  system  whose  Y2K   non-compliance   could
materially  affect the Company's public safety business is its telephone system.
The Company's  contingency  plan, which is in place  currently,  consists of the
availability  of multiple  wireless  phones and the  ability to switch  incoming
lines from its PBX system to standard analog phones.

                  e.TV Business.  In the event of Y2K- related computer failure,
there  could  be  material  adverse  effects  on  both  the  Company's  internal
operations and to its customer-support  operations.  The Company could be unable
to  support  its  customer  base  because  its  computer  system  would  not  be
functioning.  In  such  event,  the  Company  plans  to use  one  of its  backup
computers,  which  will have its  clock  set back a year at some  time  prior to
December 31, 1999.  This plan will be activated if the Company's  remote support
systems do not function past January 1, 2000. In addition,  management has begun
to formulate a contingency  plan to address the  consequences  of Y2K-related IT
failure to its own  operations.  This plan will include the printing out of hard
copies of all records contained in the systems package for the network marketing
operation,  and the implementation of manual processing  systems,  to the extent
feasible.  Management  expects this plan to be fully  formulated and in place by
June 30, 1999.

                  In terms of non-IT and  third-party  Y2K  non-compliance,  the
worst-case  scenario for the Company's  e.TV Business  would involve the loss of
electricity and telephone lines  simultaneously.  The loss of telephone lines by
itself  would not  present a  significant  disruption,  due to the fact that the
Company has telephone lines that are not routed through its PBX system, and also
has multiple wireless telephones which would be available in such situation;  in
addition, in the event the PBX system stops functioning altogether,  the Company
has the capacity to remove  incoming lines to standard  analog  telephones.  The
Company has both wireless and land line  telephone  service  suppliers,  so that
management  believes  that the  complete  loss of  telephone  communications  is
unlikely. A much more significant  potential problem is the loss of electricity,
due to the fact that the Company has no alternate  supplier.  If the  electrical
system fails but the Company has access to telecommunications,  it would be able
to supply its  customers  with  telephone  support  and  limited  direct  system
support.  If,  however,  both the  telephone  and  electrical  systems  were not
functional  at the same time,  the Company  would not be able to function for an
indeterminate period of time.

                  The Company  intends to request  assurances  of Y2K  readiness
from its  telephone  and  electrical  suppliers.  However,  management  has been
informed  that some  suppliers  have either  declined  to provide the  requested
assurances,  or have  limited the scope of  assurances  that they are willing to
give.  If suppliers of services  that are critical to the  Company's  operations
were to  experience  business  disruptions  as a  result  of  their  lack of Y2K
readiness,  their problems could have a material adverse effect on the financial
position and results of  operations  of the Company.  The impact of a failure of
readiness by critical  suppliers  cannot be estimated with  confidence,  and the
effectiveness of contingency plans to mitigate the effect of any such failure is
largely  untested.  Management cannot provide an assurance that there will be no
material adverse effects to the financial  condition or results of operations of
the Company as a result of Y2K issues.



                                       43

<PAGE>



           Forward Looking Statements

                  Except  for  historical   information  contained  herein,  the
matters set forth above contain forward looking  statements that involve certain
risks and uncertainties  that could cause actual results to differ from those in
the forward looking statements.  Potential risks and uncertainties  include such
factors set forth on page 1 of this Annual Report on Form 10-KSB under  "Forward
Looking Statements."

Item 7.   Financial Statements

                  The audited financial statements of the Company as at December
31,  1998 and 1997 and for the years  then  ended are  included  in this  Annual
Report on Form 10-KSB following Item 13 hereof.

Item 8.   Changes in and Disagreements with Accountants on Accounting and 
          Financial Disclosure

                  None.

                                       44

<PAGE>



                                    PART III

Item 9.       Directors, Executive Officers, Promoters and Control Persons; 
              Compliance with Section 16(a) of the Exchange Act

Directors and Executive Officers.

                  The  names  and  ages  of,  and the  positions  held  by,  the
executive officers and directors of the Company are set forth below.
<TABLE>
<CAPTION>

                                                                                                    
<S>                               <C>          <C>                                              <C>
                                                                                                Class of
Name                               Age         Positions Held                                   Directorship
----                               ---         --------------                                   ------------

Robert E. (Teddy) Turner, IV        35         Chairman of the Board and Director                     III
                                               of the Company, Director of e.TV

Mark Honigsfeld                     44         Chief Executive Officer,                                II
                                               President, Secretary and Director of
                                               the Company; Chief Executive
                                               Officer, Secretary, Treasurer and
                                               Director of e.TV

Rudy C. Theale, Jr.                 24         Executive Vice President and Director                   II
                                               of the Company; President and
                                               Director of e.TV

Louis Libin                         39         Chief Technology Officer, Senior                        III
                                               Executive Vice President and Director of
                                               the Company; Senior Executive Vice
                                               President and Director of e.TV

Harold Lazarus, Ph.D.               71         Director of the Company                                 II

Faith Griffin                       49         Director of the Company                                  I

Christopher Liston                  38         Director of the Company; Vice                            I
                                               President of Business Development of e.TV

David Greenspan                     33         Chief Financial Officer of the Company;                 -
                                               Chief Financial Officer and Treasurer of e.TV


</TABLE>


                                       45

<PAGE>




Robert E. (Teddy) Turner, IV

     Mr. Turner joined the Company in January 1999 as Chairman of the Board.  He
was  elected as a director  of the  Company in March  1999.  Mr.  Turner was the
founder of, and served from  December 1997 until  September  1998 as Chairman of
the Board and President of, Zekko Corp. ("Zekko").  Zekko operated predominantly
in the areas of technology acquisition,  development and marketing. From October
1996  until  December  1997,  Mr.  Turner  served  as the  President  of  Turner
Telecommunication,  an  organization  which  concentrated in the acquisition and
development  of  telecommunication  products.  Mr.  Turner  specialized  in  the
research and analysis of potential telecommunication product acquisitions.  From
June 1993  until  October  1996,  Mr.  Turner  was a manager  with  Turner  Home
Entertainment,  a domestic home video company where he was  responsible  for the
Southeastern United States sales and promotional divisions.  Mr. Turner has been
a director of All Seasons  Vehicles,  Inc., a publicly  traded  manufacturer  of
track driven all season vehicles, since April 1997, and Chairman of the Board of
U.S. Bison Co., an Atlanta,  Georgia- based bison ranching  company.  Mr. Turner
sits on the Boards of several foundations including The Turner Foundation, Inc.,
Jane Smith  Turner  Foundation,  and the Georgia  Chapter of  Juvenile  Diabetes
Foundation.  He also sits on the Board of  Trustees  of St.  Mary's  College  of
Maryland.   Mr.   Turner  holds  a  Bachelor  of  Science   Degree  in  Business
Administration from the Citidel.

Mark Honigsfeld

     Mr. Honigsfeld joined the Company as Chairman of the Board, Secretary and a
director in August 1996 and,  effective  October 1, 1996,  he was elected  Chief
Executive  Officer of the Company.  In January 1999, he was elected President of
the Company and the Chief  Executive  Officer,  Treasurer  and  Secretary  and a
director of e.TV. In 1978, Mr. Honigsfeld founded Facelifters Home Systems, Inc.
("FACE"),  a cabinet  manufacturing and installation company for which he served
as Chief  Executive  Officer and Chairman of the Board until April 25, 1996.  On
such date,  FACE, a  publicly-traded  company,  was acquired by a New York Stock
Exchange company in a transaction  valued at approximately $70 million to FACE's
stockholders.  Prior to the  merger,  FACE's  revenues  on an  annualized  basis
approached $50 million. As the founder,  Chief Executive Officer and Chairman of
the Board, Mr.  Honigsfeld was directly involved in the planning and development
of almost all areas of FACE's  business,  including  corporate  finance,  public
offerings,  investor  relations,  mergers and acquisitions,  licensing,  product
design and engineering, sales and marketing,  manufacturing, field installation,
customer service, management information services and management training. Prior
to the sale  transaction,  FACE had  approximately  600 employees and associates
representing   its   products  and  services  at  28  locations  in  14  states,
approximately 135 telemarketing personnel, 180 direct sellers, 120 manufacturing
employees and 165  supervisory,  management  and  administrative  personnel.  In
addition,  FACE had working  arrangements  with  approximately  175  independent
contracting  companies  nationwide.  Mr.  Honigsfeld holds a Bachelor of Science
Degree in Industrial  Arts,  magna cum laude,  and a Master of Science Degree in
Industrial  Arts,  with honors,  from City College of the City University of New
York.


                                       46

<PAGE>



Rudy C. Theale, Jr.

     Mr.  Theale has served as  Executive  Vice  President  of the  Company  and
President  and a director of e.TV since  January 1999. He was elected a director
of the Company in March 1999. Mr. Theale is primarily  responsible for sales and
marketing  operations at e.TV. Mr. Theale has served as President and a director
of LocalNet since April 1997, where he has been primarily  responsible for sales
and  marketing  efforts,  and the general  oversight of daily  operations.  From
February 1996 until  January  1997,  Mr. Theale served as President of SDI, Inc.
where he was primarily responsible for sales and marketing management as well as
the general oversight of daily operations.

Louis Libin

     Mr.  Libin has served as Chief  Technology  Officer  and a director  of the
Company  since  January  1997.  In January  1999,  Mr. Libin was elected  Senior
Executive Vice President of the Company and Senior  Executive Vice President and
a director of e.TV.  Since 1989, Mr. Libin has  represented the United States on
satellite and transmission issues at the International  Telecommunications Union
(the  "ITU") in Geneva,  Switzerland.  Mr.  Libin has also been  Chairman of the
Expert Group On Broadcast  Interactive Services of the ITU since 1991. From 1987
to 1997,  Mr.  Libin  served as the  Director  of  Technology  (specializing  in
broadcast  transmission systems) for the General Electric Corporation ("GE") and
the National Broadcasting Corporation.  From 1995 to 1997, Mr. Libin also served
as  Assistant  Secretary  of all of  GE's  wholly-owned  subsidiaries  that  are
involved in broadcast media, with the responsibility for technical  developments
and all Federal Communications  Commission (the "FCC") issues and licenses. From
1983 to 1986, Mr. Libin was a project  manager for Radio  Corporation of America
("RCA") until RCA's acquisition by GE. From 1981 to 1982, Mr. Libin was employed
by the Loral  Corporation  as an electronic  design  engineer  where he designed
radio frequency  systems for the United States military.  From 1980 to 1981, Mr.
Libin was a design  engineer  for the Chryon  Corporation,  a computer  graphics
company.  From 1979 to 1980, he worked for Burroughs Computer Systems, Inc. (now
part of Unisys) as a field  engineer.  Additionally,  since 1988,  Mr. Libin has
acted as a consultant and advisor to the FCC in connection  with the planning of
communications  systems and  logistics for major events in the United States and
abroad,  including political conventions,  presidential  inaugurations,  and the
1996 Summer  Olympics in Atlanta.  Mr. Libin is an active member of the National
Society of Professional  Engineers and the Association of Federal Communications
Consulting  Engineers.  He also sits on the  Engineering  Advisory  Board of the
National  Association of Broadcasters.  Mr. Libin received a B.S.E.E.  Degree in
Electrical  Engineering  from the Pratt  Institute  and  completed  his graduate
studies in optical  electronics at M.I.T.'s Executive Program in 1991. Mr. Libin
has planned and managed telecommunications  projects in the United States and in
Europe.  Mr. Libin was responsible for the planning and  implementation of a new
television and telecommunications  network in New Zealand in 1990. Mr. Libin has
also provided expert  consulting on satellite issues in certain of the republics
of the former Soviet Union.  Mr. Libin was also  instrumental in the development
of the new transmission  technology and the algorithms for software  modeling of
the new North American digital terrestrial  television system which was approved
by the FCC in 1996. Since January 1999,

                                       47

<PAGE>



Mr. Libin has served as a director of NetWolves  Corp., a publicly traded Tampa,
Florida-based computer manufacturer. Mr. Libin has published numerous scientific
papers on radio frequency and telecommunications.

Harold Lazarus, Ph.D

     Dr. Lazarus joined the Company as a director in March 1997. Dr. Lazarus has
been a Professor of Management at the Hofstra University Frank G. Zarb School of
Business (the "Hofstra  Business  School")  since 1980.  From 1973 to 1980,  Dr.
Lazarus  served  as Dean of the  Hofstra  Business  School.  Dr.  Lazarus  is an
organization  development consultant who lectures in Europe, Asia, North America
and South America on  leadership,  time  management,  total quality  management,
managing change, effective meetings,  problem solving,  decision making, mission
statements,  management  by  objectives,  and  communications.  Dr.  Lazarus was
Professor of  Management at the New York  University  Leonard N. Stern School of
Business  for ten years,  and he also  taught at  Columbia  University  Graduate
School of Business  and Harvard  University  Business  School.  Dr.  Lazarus has
served on several boards of directors of public companies in the past, including
FACE, Ideal Toy Corporation,  Superior Surgical  Manufacturing Company, Stage II
Apparel  Corporation,  and Graham-Field  Health  Products,  Inc. Dr. Lazarus has
published seven books and 65 articles on business management. He also chairs the
board of Phi Beta Kappa Alumni of Long Island (New York). Dr. Lazarus received a
Masters of Science  Degree and a Doctor of Philosophy  Degree in Management  and
Marketing from Columbia University.

Faith Griffin

     Ms.  Griffin  was  elected a director  of the  Company in March  1999.  Ms.
Griffin has over 25 years of broad based  investment  banking  experience with a
special concentration in private and public offerings and merger and acquisition
advisory for small and medium sized  companies.  During 1998 and through January
1999, Ms. Griffin acted as a financial advisor and investment banking consultant
to the Company.  From 1996 to September  1998,  Ms. Griffin served as a managing
director of Laidlaw Global  Securities,  Inc. in the corporate finance division,
where she was responsible for new business  development,  merger and acquisition
advisory assignments,  private placements and public equity offerings. From 1990
until 1996,  Ms.  Griffin  served as a Senior Vice  President  in the  Corporate
Finance Division of Josephthal Lyon & Ross, Inc. Ms. Griffin holds a Bachelor of
Arts Degree in Mathematics  from Franklin L. Marshall  College,  and a Master of
Business Administration from New York University Graduate School of Finance.

Christopher Liston

     Mr.  Liston has served as Vice  President of Business  Development  of e.TV
since  January  1999 and was  elected a director  of the  Company in March 1999.
Since December  1998, he has been the Vice  President,  Business  Development of
LocalNet.  From May 1993 to September  1998,  Mr. Liston was a Vice President of
Osprey  Capital,  Inc., an investment  banking  company.  Mr. Liston  received a
Bachelor of Arts Degree in Political Science from the College of Charleston in

                                       48

<PAGE>



South Carolina.

David Greenspan

                Mr.  Greenspan has served as Chief  Financial  Officer of the 
Company since December 1998 and as Chief Financial Officer and Treasurer of e.TV
since January 1999. From December 1997 until February 1999, Mr. Greenspan served
as Chief  Financial  Officer  and a  director  of  LocalNet.  From March 1997 to
December 1997, Mr. Greenspan  served as the Chief Operating  Officer of PGA Tour
Radio Network, a national sport broadcasting company based in Atlanta,  Georgia.
From August 1996 to March 1997, he was the Vice President,  Business  Affairs of
Turner Media Consultants,  a broadcast  consulting  company.  From March 1994 to
August  1996,  Mr.  Greenspan  served as a project  manager for Atlanta  Olympic
Broadcasting,  with  responsibility for planning and coordinating all television
and radio  operations for the 1996 Summer Olympic games.  Mr.  Greenspan holds a
Bachelor of Science Degree in Accounting from Troy State University in Alabama.

               The Company's  Certificate of  Incorporation  provides for three 
classes of  directors,  each having a three year term.  Each  director will hold
office until the next annual  meeting of  stockholders  during the year in which
the term of his class of directorship expires and until his successor is elected
and  qualified.  The terms of the Class I, Class II and Class III  directorships
expire at the Company's  annual meetings in 2000,  2001 and 1999,  respectively.
Executive officers serve at the pleasure of the Board of Directors.

               There  is no  family  relationship  among  any of the  Company's 
executive officers and directors.

Section 16(a)   Beneficial Ownership Reporting Compliance

                Section 16 of the  Securities  Exchange Act of 1934,  as amended
("Section 16"),  requires that reports of beneficial  ownership of capital stock
and  changes  in such  ownership  be filed  with  the  Securities  and  Exchange
Commission (the "SEC") by Section 16 "reporting  persons," including  directors,
certain officers,  holders of more than 10% of the outstanding Common Shares and
certain trusts of which reporting persons are trustees.  The Company is required
to disclose in this Annual Report on Form 10-KSB each  reporting  person whom it
knows to have failed to file any required  reports  under Section 16 on a timely
basis during the fiscal year ended December 31, 1998.

               To the Company's knowledge,  based solely on a review of copies 
of Forms 3, 4 and 5 furnished  to it and written  representations  that no other
reports were  required,  during the fiscal year ended  December  31,  1998,  the
Company's  officers,  directors and 10%  stockholders  complied with all Section
16(a) filing  requirements  applicable  to them except that Messrs.  Honigsfeld,
Libin,  Lazarus,  Luciani and Rizzardi  failed to file a Form 5, due on February
14, 1999,  with respect to the receipt of certain stock options from the Company
during 1998, Mr. Libin filed a Form 4 (reporting one  transaction) for September
1998 11 days late, and Mr. Greenspan filed his Form 3, due on

                                       49

<PAGE>



January 4, 1999, 15 days late.

Item 10.          Executive Compensation

               The  following  table  provides  summary  information  concerning
cash and  certain  other  compensation  paid or accrued by the Company to, or on
behalf of, Mr. Honigsfeld,  the Company's Chief Executive Officer and President,
and Mr. Libin, the Company's Chief Technology  Officer and Senior Executive Vice
President,  during the last three fiscal years. Mr. Honigsfeld was elected Chief
Executive Officer and President in October 1996 and January 1999,  respectively.
Mr.  Libin was  elected  Chief  Technology  Officer  and Senior  Executive  Vice
President in January 1997 and January  1999,  respectively.  No other  executive
officer of the Company had a combined salary and bonus in excess of $100,000 for
the year ended December 31, 1998.

<TABLE>
<CAPTION>

                         SUMMARY COMPENSATION TABLE (1)

                                Annual Compensation               Long-Term Compensation          
                                -------------------               ----------------------          
                                                                        Awards                      Payouts
                                                                        ------                      -------

Name and                                         Other Annual     Restricted Stock       Securities        LTI       All Other
Principal Position        Year  Salary   Bonus   Compensation     Award(s)           Underlying Options   Payout    Compensation
------------------        ----  ------   ------  ------------     ---------          ------------------   ------    ------------

<S>                      <C>    <C>        <C>     <C>             <C>                 <C>                  <C>        <C>
Mark Honigsfeld(2)       1998   $251,847    -         -             -                  125,000               -           -
Chief Executive Officer, 1997   $250,000    -         -             -                  100,000               -           -
President and            1996   $62,500(3)  -         -             -                  233,000               -           -
Secretary


Louis Libin              1998   $223,699    -         -             -                  65,000(4)             -           -
Chief Technology         1997   $178,651    -         -             -                 100,000                -           -
Officer and Senior       1996       -       -         -             -                     -                  -           -
Executive Vice-President
--------------------
</TABLE>

(1)      Dong  Lew,  who  served as the  Company's  President,  Treasurer  and a
         director  until his retirement in April 1998 is not included as a named
         executive  officer.  He received salary of $39,650 in 1998 and $216,000
         in  consideration  for the  termination of his Employment  Agreement in
         April 1998.

(2)      Mr.  Honigsfeld was elected Chief Executive  Officer of the Company and
         was entitled to compensation effective as of October 1, 1996. He served
         as Chairman of the Board from August 1996 until January 8, 1999 and was
         elected President of the Company effective January 8, 1999.

(3)      Represents  accrued  and unpaid  salary  relating  to 1996  (based on a
         salary of $250,000 per annum) which was  converted  into 12,500  Common
         Shares upon the closing of the IPO.

(4)      Includes  50,000 options  granted to replace options to purchase a like
         number of Common  Shares which were  canceled in order to  effectuate a
         repricing. See Item 10 - "Executive

                                       50

<PAGE>



         Compensation - Report on Repricing of Options."

                  Each  non-employee  director  of the  Company is  entitled  to
receive a director's fee of $1,000 per meeting (other than  telephonic  meetings
for which the fee is $500),  and options to purchase  5,000 Common Shares of the
Company each year,  which options will be exercisable  for a period of ten years
from the date of grant,  at an exercise  price equal to the market  price of the
Company's  Common  Shares  on  the  date  of  the  grant.   Additionally,   each
non-employee  director  is  reimbursed  for  reasonable  out-of-pocket  expenses
incurred in attending  meetings of the Board of  Directors  of the Company.  The
members of the Board of Directors meet regularly, as needed.

<TABLE>
<CAPTION>

              OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1998

                          Number of Common       Percentage of Total
                         Shares Underlying        Options Granted To
     Name                 Options Granted      Employees in Fiscal Year      Exercise Price       Expiration Date
     -----                ---------------      ------------------------      --------------       ---------------

<S>                            <C>                     <C>                     <C>                       <C> <C> 
Mark Honigsfeld                125,000(1)              25.3%                   $5.00             October 21, 2008

Louis Libin                     65,000(2)              13.1%                   $5.00             October 21, 2008

---------------
</TABLE>

(1)      These options were  initially  granted in 1998 at an exercise  price of
         $7.00 per share and later  repriced  to $5.00 per share  pursuant  to a
         cancellation  and  regrant.  See Item 10 -  "Executive  Compensation  -
         Report on Repricing of Options."
(2)      Of such  options,  (a)  15,000  were  initially  granted  in 1998 at an
         exercise price of $7.00 per share and later repriced to $5.00 per share
         pursuant to a  cancellation  and regrant and (b) the other  50,000 were
         granted to replace  options to purchase a like amount of Common  Shares
         which were  cancelled in order to  effectuate a repricing.  See Item 10
         "Executive Compensation - Report on Repricing of Options."
<TABLE>
<CAPTION>

                                   AGGREGATED OPTION EXERCISES IN  FISCAL YEAR
                             ENDED DECEMBER 31, 1998 AND FISCAL YEAR-END OPTION VALUES

                                                                   Number of Shares
                                                               Underlying Unexercised            Value of Unexercised
                             Number of                              Options at                   In-the-Money Options
                         Shares Acquired         Value           December 31, 1998                at December 31, 1998
Name                        on Exercise        Realized       Exercisable/Unexercisable        Exercisable /Unexercisable
----                        -----------        --------       -------------------------        --------------------------

<S>                           <C>                 <C>               <C>                          <C>
Mark Honigsfeld                 -                   -                225,000 / 0                 $396,875/$0

Louis Libin                     -                   -               33,334/81,666               $62,501/$138,124



</TABLE>


                                       51

<PAGE>



Employment Contracts, and Termination of Employment and Change-in-Control
Arrangements

                  Employment Agreements 
                  --------------------- 

Mark Honigsfeld

                  The Company is a party to an  Employment  Agreement  with Mark
Honigsfeld for a term of three years  commencing as of October 1, 1996,  subject
to continuing,  annual, automatic one-year extensions, unless either the Company
or Mr.  Honigsfeld  notifies  the  other,  at least 90 days  prior to any annual
anniversary  date,  of its or his  desire not to extend  the term  thereof.  The
Employment  Agreement also provides for earlier  termination as discussed below.
Pursuant to his Employment  Agreement,  Mr. Honigsfeld serves as Chief Executive
Officer and President of the Company.

                  The Employment Agreement provides for base annual compensation
of $250,000.  In addition to such base compensation,  effective January 8, 1999,
Mr. Honigsfeld is entitled to receive a bonus, the details of which have not yet
been determined, which will allow Mr. Honigsfeld to earn a bonus of up to 50% of
his  salary  in  each  year,  based  on  performance  thresholds.  Additionally,
effective January 8, 1999, Mr. Honigsfeld was issued options to purchase 200,000
Common  Shares.  The  options  will vest  over a period  of three  years and are
exercisable at a price of $5.82 per share,  the market price as determined under
the Company's 1996 Stock Option Plan.  Furthermore,  effective  January 8, 1999,
Mr.  Honigsfeld was included as a participant  in the Company's 1999  Restricted
Stock Rights Grant Plan which is described below.

                  Mr.   Honigsfeld  is  also  entitled  to  receive  an  expense
allowance of up to $500 per month and an  automobile  allowance in the amount of
$1,000 per month as well as  reimbursement  of  accountable  customary  business
expenses.

                  The Employment  Agreement provides that,  notwithstanding  the
rolling  three-year term thereof,  it may be terminated  prior to the expiration
date under the following  circumstances:  (i) death;  (ii) total  disability (as
provided for in the Employment Agreement);  (iii) termination by the Company for
"cause"  (as  defined in the  Employment  Agreement);  (iv)  termination  by the
Company at any time upon written notice to Mr.  Honigsfeld;  (v)  termination by
Mr.  Honigsfeld upon 30 days written notice to the Company;  (vi) termination by
Mr.  Honigsfeld  at any time for "good  reason"  (as  defined in the  Employment
Agreement);  or (vii)  termination  by the  Company at any time within 12 months
after  a  "change  in  control"  (as  defined  in  the  Employment   Agreement).
Additionally, the Employment Agreement allows Mr. Honigsfeld to devote up to 10%
of his working  time to other  endeavors  that are not in  competition  with the
Company.

                  The  Employment  Agreement  provides  for  compensation  under
certain circumstances upon termination of employment (in addition to accrued but
unpaid compensation) as follows: (i) in the event of Mr. Honigsfeld's death, his
estate or spouse shall be entitled to receive an amount

                                       52

<PAGE>



equal to his monthly salary as of the date of death  multiplied by the number of
full  years  that  he was  an  employee  of the  Company  or a  subsidiary  or a
predecessor  in  interest  thereof;  (ii) in the  event  of  termination  of the
Employment  Agreement due to  disability,  Mr.  Honigsfeld  shall be entitled to
receive an amount equal to his monthly  salary as of the date of  termination of
the Employment Agreement,  multiplied by the number of full years that he was an
employee of the Company or a subsidiary  or a  predecessor  in interest  thereof
(but,  in no event,  would he be  entitled  to an amount  equal to less than six
months of salary);  and (iii) in the event of  termination  of employment by the
Company  following  a "change of  control"  or for any reason  other than death,
disability or "cause," or in the event of termination of an Employment Agreement
by Mr.  Honigsfeld  for "good  reason," he shall be entitled to receive his full
salary for the unexpired term of such agreement,  without  mitigation of damages
based upon employment obtained elsewhere.

                  The  Employment  Agreement  provides for a restriction  on the
solicitation  of  customers  of the Company for a period of two years  following
termination thereof, and a covenant not to compete with the Company for a period
of six months following termination of employment for cause.

Louis Libin

     Effective  January 6, 1997,  the  Company and Louis  Libin  entered  into a
three-year  Employment  Agreement  which  provides  for a  salary  of  $200,000,
$225,000  and  $250,000  per  annum  in  the  first,  second  and  third  years,
respectively.  Additionally,  Mr.  Libin's  Employment  Agreement  allows him to
devote up to one day each week to other  endeavors  that are not in  competition
with the Company.  Other terms of Mr.  Libin's  Employment  Agreement  generally
conform in structure to the material  provisions  of Mr.  Honigsfeld's,  such as
with respect to renewal, benefits, restrictive covenants and termination.

     Mr.  Libin has  waived  the  increase  in  salary  in the  third  year and,
accordingly,  his salary for the 12 month period  beginning on March 1, 1999 has
remained at  $225,000.  Additionally,  effective  January 8, 1999,  Mr. Libin is
entitled to a bonus upon the same terms and  conditions  as for Mr.  Honigsfeld.
Effective  January 8,  1999,  Mr.  Libin was also  granted  options to  purchase
200,000 Common Shares upon the same terms and conditions as those granted to Mr.
Honigsfeld.  Additionally  he was included at such time as a participant  in the
Company's 1999 Restricted Stock Rights Grant Plan.

Robert E. (Teddy) Turner, IV

     Effective  January 8, 1999,  the Company and Robert E. (Teddy)  Turner,  IV
entered  into a three-year  Employment  Agreement  pursuant to which Mr.  Turner
serves  as the  Company's  Chairman  of the  Board.  Such  employment  agreement
provides for a salary of $208,000 per annum. Mr. Turner's  employment  agreement
does not require Mr. Turner to devote all of his time to the Company's  business
and allows him to  participate  in other  activities  which do not  prevent  Mr.
Turner from  fulfilling his  obligations to the Company.  In addition to salary,
Mr. Turner is entitled

                                       53

<PAGE>



to receive a sales and marketing bonus upon the same terms and conditions as the
bonus for Mr. Honigsfeld. Mr. Turner was also issued options to purchase 200,000
Common  Shares  upon the same  terms  and  conditions  as those  granted  to Mr.
Honigsfeld. Additionally, he was included as a participant in the Company's 1999
Restricted  Stock  Rights  Grant Plan.  Other terms of Mr.  Turner's  Employment
Agreement conform in structure to the material  provisions of Mr.  Honigsfeld's,
such  as  with  respect  to  renewal,   benefits,   restrictive   covenants  and
termination, without any requirement to mitigate any damages.

Rudy C. Theale, Jr.

     Effective January 8, 1999, the Company and Rudy C. Theale, Jr. entered into
a three-  year  Employment  Agreement  pursuant  to which Mr.  Theale  serves as
Executive  Vice  President  of the Company and  President of e.TV on a full-time
basis. Such Employment Agreement provides for a salary of $208,000 per annum. In
addition to salary,  Mr.  Theale is  entitled  to receive a sales and  marketing
bonus upon the same terms and  conditions as the bonus for Mr.  Honigsfeld.  Mr.
Theale was also issued  options to purchase  650,000 Common Shares upon the same
terms and conditions as those granted to Mr.  Honigsfeld.  Additionally,  he was
included as a participant  in the Company's 1999  Restricted  Stock Rights Grant
Plan. Other terms of Mr. Theale's  Employment  Agreement conform in structure to
the material  provisions of Mr.  Honigsfeld's,  such as with respect to renewal,
benefits, restrictive covenants and termination.

                  Restricted Stock Rights Grant Plan
                  ----------------------------------

     Effective  January 8, 1999,  the Company  adopted a 1999  Restricted  Stock
Rights Grant Plan (the "Rights Plan"). The Rights Plan provides for the issuance
of up to  2,000,000  Common  Shares to the Rights Plan  participants  based on a
formula  which  provides for the  participants  to share up to 2,000,000  Common
Shares (the "Performance  Shares") if the Company generates up to $10,000,000 in
earnings  before taxes by December 31, 2001,  including  making up losses during
the years 1999 through 2001, if any. If the Company earns less than  $10,000,000
before taxes during such period,  the number of  Performance  Shares will be pro
rated based on one share for each $5.00 in  earnings  before  taxes.  The Rights
Plan  participants  include  Mark  Honigsfeld,  Rudy C. Theale,  Jr.,  Robert E.
(Teddy) Turner,  IV, Louis Libin,  David Greenspan,  Christopher Liston and Paul
Danner and any other person who is employed by or is  providing  services to the
Company or its  subsidiaries  and who is elected as a  participant  by the above
named initial  participants.  The  participants  will be issued the  Performance
Shares based on their respective pro rata ownership of the Company's  securities
on the date the Rights  Plan was  adopted.  However,  each  participant  must be
employed  by or  providing  services  to  the  Company  or its  subsidiaries  in
connection  with the e.TV  Business on December 31, 2001 in order to receive any
Performance  Shares.  In  addition,  the issuance of the  Performance  Shares is
subject to, among other things,  any consent or approval of any regulatory  body
or the stockholders of the Company, if such consents or approvals are necessary.



                                       54

<PAGE>



                  Report on Repricing of Options
                  ------------------------------

     At a meeting of the Board of  Directors  held on September  18,  1998,  the
Board of Directors  approved the repricing of certain  existing  stock  options,
including options covering an aggregate of 190,000 Common Shares held by Messrs.
Honigsfeld  and Libin and options  covering  34,700  Common Shares held by other
persons.  The Board discussed that the purpose of granting  options to employees
was to provide  incentive  for the  employees to align their  interest  with the
stockholders  of the  Company  as well as to  engender  employee  loyalty to the
Company.  It was noted that many of the options  were granted at a time when the
price of the Company's Common Shares was  substantially  higher than the current
market price at such date,  and that those  options  currently did not and would
not  provide  incentive  to those  employees  to remain with the Company if they
received  competing  offers for their  services.  The Board  determined that the
current  options which were granted to employees at exercise  prices above $5.00
per share should be  cancelled  and new options  issued at an exercise  price of
$5.00  per  share,  which  was the  floor  for the  conversion  of the  Series A
Preferred  Shares  issued in the  Company's  Private  Placement to Strategic and
Opportunity as well as the Company's initial public offering price.

     The  Board   determined  that  the  repricing  of  such  options  would  be
effectuated, subject to the consent of the affected stock option holders, by the
cancellation of all stock options  granted  pursuant to the Company's 1996 Stock
Option Plan which have exercise prices above $5.00 per share and the replacement
of such options with substantially similar options at an exercise price of $5.00
per share.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

     The  following  table sets forth,  to the  knowledge  of the Company  based
solely upon records available to it, certain information as of February 28, 1999
regarding the  beneficial  ownership of the Company's  Common Shares (i) by each
person who the Company  believes to be the  beneficial  owner of more than 5% of
its  outstanding  Common Shares,  (ii) by each current  director,  (iii) by each
person listed in the Summary  Compensation Table under "Executive  Compensation"
and (iv) by all current executive officers and directors as a group:

<TABLE>
<CAPTION>

<S>                                            <C>                                             <C>
Name and Address
of Beneficial Owner                            Number                                           Percent
-------------------                            ------                                           -------

Mark Honigsfeld                               873,200(1)                                        23.7%
77 Spruce Street
Cedarhurst, New York

Louis Libin                                   100,000(2)                                         2.9%
77 Spruce Street
Cedarhurst, New York


                                       55

<PAGE>



Robert E. (Teddy) Turner, IV                    30,000(3)                                        *
12735 Gran Bay Parkway
Jacksonville, Florida

Rudy C. Theale, Jr.                             25,000(4)                                        *
12735 Gran Bay Parkway
Jacksonville, Florida

Christopher Liston                              10,000(4)                                        *
12735 Gran Bay Parkway
Jacksonville, Florida

Harold Lazarus                                   5,000(5)                                        *
134 Hofstra University
Hempstead, New York

Faith Griffin                                          0                                          -
264 Oak Ridge Avenue
Summit, New Jersey

All executive officers and directors
as a group (8 persons)                      1,048,200(1)(2)                                     27.6%
                                                   (3)(4)(5)
-------------------
</TABLE>

  *      Represents less than 1%.
(1)      Represents (i) 423,200 shares held by the Mark Honigsfeld  Living Trust
         (the  "Honigsfeld  Trust") whose sole  beneficiary is Mr.  Honigsfeld's
         wife;  Mr.  Honigsfeld,  the settlor and trustee of the trust,  has the
         right to terminate the  Honigsfeld  Trust and receive the shares;  (ii)
         200,000  shares held by the Mardee Charity Fund  Foundation,  a private
         charitable foundation of which Mr. Honigsfeld and his wife are the sole
         trustees;  (iii) 225,000 shares issuable upon the exercise of currently
         exercisable  options; and (iv) 25,000 shares issuable upon the exercise
         of options which are exercisable within 60 days.
(2)      Includes  (i) 50,000  shares  issuable  upon the  exercise of currently
         exercisable  options;  and (ii) 25,000  issuable  upon the  exercise of
         options which are exercisable within 60 days.
(3)      Includes 25,000 shares issuable upon the exercise of options which are 
         exercisable within 60 days.
(4)      Represents shares issuable upon the exercise of options which are 
         exercisable within 60 days.
(5)      Represents shares issuable upon the exercise of currently exercisable 
         options.

Item 12.          Certain Relationships and Related Transactions

     In January 1997, the Company  entered into a secured Credit  Agreement with
Mr. Honigsfeld  pursuant to which the Company initially  borrowed  $200,000.  In
April 1997, the

                                       56

<PAGE>



Company  and Mr.  Honigsfeld  amended  the Credit  Agreement  to provide  for an
additional  line of credit of $500,000.  Outstanding  principal under the Credit
Agreement  bears  interest at the rate of 10% per annum.  The repayment of up to
$200,000  under the Credit  Agreement  is secured by a first  priority  security
interest in all the assets of the Company.  The Company  entered into the Credit
Agreement because it required additional financing to fund the Company's working
capital needs and no other sources of financing  were available at that time. In
May  1997,  the  Company  borrowed  an  additional  $200,000  under  the  Credit
Agreement.   Contemporaneously   with  the  closing  of  the  IPO,  $200,000  of
indebtedness  was converted  into 40,000 Common Shares  pursuant to an agreement
between the Company and Mr.  Honigsfeld.  As of December  31,  1998,  $50,000 in
principal was  outstanding  under the Credit  Agreement.  In 1997 and 1998,  the
Company paid Mr. Honigsfeld an aggregate of $9,316 and $11,250, respectively, in
interest under the Credit Agreement.  The Company believes that the terms of the
Credit  Agreement are  commercially  reasonable and are at least as favorable to
the Company as it could have obtained from an unrelated third party.  The Credit
Agreement was approved by, among others, all the disinterested  directors of the
Company.

     On  December  22,  1998,  the  Company  elected  David  Greenspan  as Chief
Financial  Officer.  At that time Mr.  Greenspan  was, and he continued to serve
until his resignation on February 12, 1999 as, the Chief Financial Officer and a
director of LocalNet.  Other than the Loan and Security  Agreement  and Peaceful
Surrender Agreement, the Company has not had any relationship with LocalNet. See
Item 1 - "Description of Business - History and Recent  Developments" and Item 6
-  "Management's  Discussion  and  Analysis or Plan of  Operation  -  Subsequent
Event."

     To the extent that the Company may enter into any  agreements  with related
parties in the future (of which none are presently  contemplated),  the Board of
Directors of the Company has determined  that the terms of such  agreements must
be  commercially  reasonable  and no less favorable to the Company than it could
obtain from unrelated third parties. Additionally, the Board of Directors of the
Company  has  further  determined  that such  agreements  must be  approved by a
majority of the disinterested directors of the Company.



                                       57

<PAGE>



                                     PART IV

Item 13.          Exhibits, Lists and Reports on Form 8-K

(a)   Exhibits       Description of Exhibit
---   --------       ----------------------

         2           Agreement of Merger between the Company and Coastal 
                     Computer Systems, Inc., a New York corporation.*

         3.1         Articles of Incorporation of the Company.*

         3.2         Certificate  of  Designations,  Preferences  and  Rights of
                     Series  A  Convertible  Preferred  Stock,  filed  with  the
                     Secretary  of State of the  State  of  Delaware  on June 5,
                     1998.**

         3.3         Certificate  of  Designations,  Preferences  and  Rights of
                     Series  B  Convertible  Preferred  Stock,  filed  with  the
                     Secretary of State of the State of Delaware on September 2,
                     1998. ***

         3.4         Amended and Restated By-Laws of the Company.

         4.1         Specimen Common Share Certificate.*

         4.2         Form of Underwriter's Common Share Purchase Warrant.*

        10.1         Restated  and  Amended  Employment  Agreement  dated  as of
                     October 1, 1996 between the Company and Mark Honigsfeld.*

         10.2        Form of Warrant between the Company and each of the Bridge 
                     Lenders.*

         10.3        1996 Stock Option Plan.*

         10.4        Lease dated October 1, 1996 between Summit Equities Corp. 
                     and the Company.*

         10.5        Credit Agreement dated January 20, 1997 between the Company
                     and Mark
                     Honigsfeld.*

         10.6        Form of  Promissory  from the  Company  to Mark  Honigsfeld
                     relating   to   amounts    borrowed    under   the   Credit
                     Agreement.****

         10.7        Form of Indemnification Agreement between the Company and 
                     the Company's directors and officers.*


                                       58

<PAGE>



         10.8        Employment Agreement dated January 6, 1997 between the 
                     Company and Louis Libin.*

         10.9        Amended and Restated Credit Agreement dated April 30, 1997
                     between the Company and Mark Honigsfeld.*

         10.10       Mobile  Data  Services  Business   Agreement  dated  as  of
                     November  15, 1996  between  the  Company and GTE  Mobilnet
                     Service Corp.*

         10.11       Wireless  Data  Channels  Program  Agreement  dated  as  of
                     February  19, 1997  between  the Company and AT&T  Wireless
                     Data, Inc.*

         10.12       Master Supplier Agreement dated as of March 3, 1997 between
                     the Company and Data General Corporation.*

         10.13       Agreement between the Company (executed on September 3, 
                     1997) and Computer Associates International, Inc. (executed
                     on January 2, 1998).****

         10.14       Termination Agreement dated as of March 17, 1998 between 
                     the Company and Dong Lew.**

         10.15       Business Alliance Agreement dated March 25, 1998 between 
                     the Company and Alpine Software Incorporated. ****

         10.16       Agreement and Plan of Merger dated as of April 22, 1998 
                     among the Company, Rugby Acquisition Corp., Rugby National
                     Corp. and Harvey Weinstein.**

         10.17       Loan and Security Agreement dated as of April 22, 1998 
                     between the Company and Rugby National Corp. **

         10.18       Stock Purchase Agreement dated as of May 31, 1998 between
                     the Company, and JNC Opportunity Fund Ltd. and JNC 
                     Strategic Fund Ltd. **

         10.19       Registration Rights Agreement dated as of May 31, 1998 
                     between the Company, and JNC Opportunity Fund Ltd. and JNC
                     Strategic Fund Ltd. **

         10.20       Securities Exchange Agreement between the Company and JNC 
                     Strategic Fund Ltd. dated September 25, 1998. ***

         10.21       Registration Rights Agreement Amendment dated as of 
                     September 25, 1998 between the Company and JNC Opportunity
                     Fund Ltd. and JNC Strategic Fund Ltd. ***


                                       59

<PAGE>



         10.22       Loan and Security Agreement dated as of October 6, 1998 
                     between the Company and LocalNet Communications, Inc.

         10.23       Amendment No. 1 to Loan and Security Agreement dated as of
                     October 23, 1998 between the Company and LocalNet 
                     Communications, Inc.

         10.24       Amendment No. 2 to Loan and Security Agreement dated as of 
                     November 12, 1998 between the Company and LocalNet 
                     Communications, Inc.

         10.25       Peaceful Surrender Agreement dated January 8, 1999 between
                     e.TV Commerce, Inc. and LocalNet Communications, Inc. *****

         10.26       Amendment  to  Restated  and Amended  Employment  Agreement
                     dated as of January 8, 1999  between  the  Company and Mark
                     Honigsfeld.

         10.27       Amendment No. 1 to Employment Agreement dated as of 
                     January 8, 1999 between the Company and Louis Libin.

         10.28       Employment Agreement dated as of January 8, 1999 between
                     the Company, e.TV Commerce, Inc. and Robert E. (Teddy)   
                     Turner, IV.

         10.29       Employment Agreement dated as of January 8, 1999 between
                     the Company, e.TV Commerce, Inc. and Rudy C. Theale, Jr.

         10.30       1999 Restricted Stock Rights Grant Plan.

         10.31       Agreement dated February 4, 1999 between e.TV Commerce, 
                     Inc. and Boca Research, Inc.

         10.32       Wholesale Service Agreement dated December 17, 1998 between
                     e.TV Commerce, Inc. and StarNet, Inc.

         11          Computation of Earnings Per Common Share

         23          Consent of Lazar, Levine & Felix LLP, independent auditors.

         27          Financial Data Schedule.
     --------------------------
         *   Previously filed as on exhibit to the Company's Registration 
             Statement of Form SB-2, Registration No.    333-18667.
         **  Previously filed as an exhibit to the Company's Quarterly Report on
             Form 10-QSB for the period ended June 30, 1998.
         *** Previously filed as an exhibit to the Company's Quarterly Report on
             Form 10-QSB for the period ended September 30, 1998.

                                       60

<PAGE>



         
         ****Previously  filed as an exhibit to the  Company's  Annual Report on
         Form 10-KSB for the year ended December 31, 1997. *****Previously filed
         as an exhibit to the Company's  Current Report on Form 8-K for an event
         dated January 8, 1999.

(b)      Current Reports on Form 8-K
         ---------------------------

                  A Current  Report on Form 8-K was filed by the Company  during
the last quarter of the fiscal year ended December 31, 1998 as follows:

                  Date of Event:          November 18, 1998
                  Items Reported:         5 and 7


                                       61

<PAGE>



                                Compu-DAWN, Inc.

                  REPORT ON EXAMINATION OF FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997


<PAGE>

<TABLE>
<CAPTION>
                                Compu-DAWN, Inc.
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997




                        - INDEX TO FINANCIAL STATEMENTS -



                                                                                                                      Page
                                                                                                                      -------

<S>                                                                                                                  <C>
Independent Auditors' Report                                                                                          F  -  2

Financial Statements:
    Balance Sheets as of December 31, 1998 and 1997                                                                   F  -  3
    Statements of Operations for the Years Ended December 31, 1998 and 1997                                           F  -  4
    Statement of Shareholders' Equity for the Two Years in the Period Ended December 31, 1998                         F  -  5
    Statements of Cash Flows for the Years Ended December 31, 1998 and 1997                                           F  -  6

Notes to Financial Statements                                                                                         F  -  8

</TABLE>























                                      F - 1

<PAGE>







                          INDEPENDENT AUDITORS' REPORT




To the Shareholders
Compu-DAWN, Inc.
Cedarhurst, New York


We have  audited  the  accompanying  balance  sheets of  Compu-DAWN,  Inc. as of
December  31,  1998 and 1997 and the  statements  of  operations,  shareholders'
equity and cash flows for the years then ended.  These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Compu-DAWN, Inc. as of December
31, 1998 and 1997 and the results of its  operations  and its cash flows for the
years ended December 31, 1998 and 1997, in conformity  with  generally  accepted
accounting principles.


                                          /s/ Lazar Levine & Felix LLP
                                         ------------------------------------
                                         LAZAR LEVINE & FELIX LLP


New York,  New York  
February  25, 1999 
except for Note 14, the 
date of which is
March 4, 1999

                                      F - 2

<PAGE>



<TABLE>
<CAPTION>
                                Compu-DAWN, Inc.
                                 BALANCE SHEETS

                               - ASSETS (Note 7) -
                                                                                                           December 31,       
                                                                                                        1998           1997      
                                                                                                   --------------    ------------
CURRENT ASSETS:
<S>            <C>                                                                                    <C>              <C>       
    Cash (Note 2b)                                                                                    $ 2,528,400      $3,081,253
    Marketable securities (Note 2c)                                                                     1,850,000         -
    Accounts receivable, net of allowances for doubtful accounts of $13,635
      for 1998 and 1997 (Note 2b)                                                                         319,392          72,454
    Prepaid expenses                                                                                       68,272         121,802
    Loan receivable (Note 3)                                                                              736,318         -
    Income tax refund receivable (Note 12)                                                                -                29,868
                                                                                                   --------------    ------------
TOTAL CURRENT ASSETS                                                                                    5,502,382       3,305,377
                                                                                                    -------------     -----------

FIXED ASSETS (Notes 2d, 4 and 5)                                                                          218,374         278,737
                                                                                                   --------------    ------------

OTHER ASSETS:
    Deferred compensation (Note 9)                                                                         -               98,270
    Security deposits                                                                                      21,525          21,525
                                                                                                   --------------    ------------
                                                                                                           21,525         119,795

                                                                                                     $  5,742,281      $3,703,909
                                                                                                     ============      ==========
                    - LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
    Accounts payable and accrued expenses                                                           $     169,519      $  278,722
    Deferred revenue (Note 2e)                                                                            173,953          12,000
    Note payable - officer (Note 7)                                                                        50,000         100,000
    Capitalized lease payable - current (Note 5)                                                            6,662           5,771
                                                                                                   --------------   -------------
TOTAL CURRENT LIABILITIES                                                                                 400,134         396,493
                                                                                                   --------------    ------------

NON-CURRENT LIABILITIES:
    Note payable - officer (Note 7)                                                                        -               50,000
    Capitalized lease payable (Note 5)                                                                     15,779          22,440
    Deferred rent liability (Note 13a)                                                                     28,448          29,402
                                                                                                   --------------   -------------
                                                                                                           44,227         101,842

COMMITMENTS AND CONTINGENCIES (Notes 10, 13 and 14)

SHAREHOLDERS' EQUITY (Notes 8 and 9):
    Preferred stock, $.01 par value; 1,000,000 shares authorized:
      Series A Convertible Preferred; 3,250 shares issued and outstanding for 1998                             33            -
      Series B Convertible Preferred; 1,750 shares issued and outstanding for 1998                             17            -
    Common stock, $.01 par value, 20,000,000 shares authorized, 3,265,448 and 2,838,450
      shares issued for 1998 and 1997, respectively                                                        32,654          28,385
    Additional paid-in capital                                                                         13,661,649       8,061,443
    Retained earnings (deficit)                                                                        (7,620,721)     (4,837,169)
    Accumulated other comprehensive income (loss) (Note 2k)                                              (150,000)           -      
                                                                                                   --------------  ---------------
                                                                                                        5,923,632       3,252,659
    Less: treasury stock, 340,044 and 8,561 shares at cost, for 1998 and 1997,
          respectively                                                                                   (625,712)        (47,085)
                                                                                                   --------------   -------------

                                                                                                        5,297,920       3,205,574

                                                                                                     $  5,742,281      $3,703,909
                                                                                                     ============      ==========
</TABLE>

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

                                      F - 3

<PAGE>


<TABLE>
<CAPTION>

                                Compu-DAWN, Inc.
                            STATEMENTS OF OPERATIONS

                                                                                                         For the Year Ended
                                                                                                             December 31,         
                                                                                                       1998              1997    
                                                                                                       ----              ----    

REVENUES (Notes 2e and 10):
<S>                                                                                                <C>               <C>         
      Software sales                                                                               $    900,398      $    277,986
      Maintenance income                                                                                348,091           313,389
                                                                                                  -------------      ------------
                                                                                                      1,248,489           591,375
                                                                                                   ------------      ------------

COSTS AND EXPENSES:
      Programming costs and expenses                                                                    459,875           406,563
      General and administrative expenses (Note 2g)                                                   1,924,034         2,195,406
      Research and development (Note 2f)                                                                515,788           935,804
                                                                                                  -------------      ------------
                                                                                                      2,899,697         3,537,773

LOSS FROM  OPERATIONS                                                                                (1,651,208)       (2,946,398)
                                                                                                    ------------      -----------

OTHER INCOME (EXPENSES):
      Interest and other income                                                                         332,067           120,158
      Interest expense and financing costs (Note 6)                                                     (17,459)       (1,610,505)
      Loss due to terminated investment transaction (Note 11)                                          (296,952)           -
      Write-off of impaired loan (Note 3)                                                            (1,150,000)           -      
                                                                                                   ------------    ---------------
                                                                                                     (1,132,344)       (1,490,347)

LOSS BEFORE PROVISION (CREDIT) FOR INCOME TAXES                                                     (2,783,552)        (4,436,745)

      Provision (credit) for income taxes (Notes 2h and 12)                                             -                  -      
                                                                                                 ---------------    --------------

NET LOSS                                                                                            $(2,783,552)      $(4,436,745)
                                                                                                    ===========       ===========

BASIC EARNINGS (LOSS) PER SHARE (Note 2i)                                                                $(0.95)           $(1.95)
                                                                                                         =======           ======

WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
      EQUIVALENT SHARES  OUTSTANDING (Note 2i)                                                        2,937,724         2,270,047
                                                                                                      =========         =========



</TABLE>





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

                                      F - 4

<PAGE>

<TABLE>
<CAPTION>
                                Compu-DAWN, Inc.
                        STATEMENT OF SHAREHOLDERS' EQUITY


                                                                    Additional  Retained       Other                       Total
                              Preferred Stock    Common Stock        Paid-in    Earnings   Comprehensive  Treasury    Shareholders'
                              Shares   Amount   Shares    Amount     Capital    (Deficit)   Income (Loss)   Stock   Equity (Deficit)
                              ------   ------   ------    ------     -------    ---------   -------------   -----   ----------------

<S>                              <C>    <C>      <C>       <C>      <C>         <C>            <C>          <C>         <C>      
Balance at December 31, 1996      -    $  -      986,700   $ 9,867  $1,670,258  $(400,424)     $ -          $ -        $  1,279,701
 Options issued below fair 
   value                          -       -         -         -        374,500       -           -            -             374,500
 Exercise of stock options        -       -      408,750     4,088     122,297       -           -            -             126,385
 Treasury stock, 8,561 shares 
   at cost                        -       -         -         -           -          -           -         (47,085)         (47,085)
 Conversion of debt               -       -       40,000       400     199,600       -           -            -             200,000
 Conversion of accrued 
   compensation                   -       -       23,000       230     114,770       -           -            -             115,000
 Initial public offering          -       -    1,380,000    13,800   5,612,074       -           -            -           5,625,874
 Cancellation of options          -       -         -         -        (32,056)      -           -            -             (32,056)
 Net loss                         -       -         -         -           -     (4,436,745)      -            -          (4,436,745)
                                ----    -----  ---------  --------  ----------- -----------   ------       ------       ------------
Balance at December 31, 1997      -       -    2,838,450    28,385   8,061,443  (4,837,169)      -         (47,085)       3,205,574

 Exercise of stock options        -       -       24,895       248      68,339      -            -         (47,085)          21,502
 Private offering of shares - 
  Preferred Series A and Common  3,250    33     327,103     3,271   4,719,842      -            -            -           4,723,146
 Exchange of 327,103 common 
  shares for Preferred Series B  1,750    17        -          -       531,525      -            -        (531,542)            -
 Shares issued for professional 
   fees                           -        -      75,000       750     280,500      -            -            -             281,250
 Unrealized loss on investment    -        -        -          -          -         -         (150,000)       -            (150,000)
 Net loss                         -        -        -          -          -     (2,783,552)      -            -          (2,783,552)
                               -------  -----  ---------- --------  ---------  -----------   ---------    ---------     -----------
BALANCE AT DECEMBER 31, 1998    5,000    $50   3,265,448  $32,654  $13,661,649 $(7,620,721)  $(150,000)  $(625,712)     $ 5,297,920
                                =====    ===   =========  =======  =========== ============  ==========  ===========    ===========


</TABLE>

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


                                      F - 5


<PAGE>


<TABLE>
<CAPTION>

                                Compu-DAWN, Inc.
                            STATEMENTS OF CASH FLOWS                                                                    Page 1 of 2
                            ------------------------


                                                                                                        For the Year Ended
                                                                                                            December 31,           
<S>                                                                                                    <C>              <C>    
                                                                                                       1998             1997   
                                                                                                       ----             ----   

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:

CASH FLOWS FROM OPERATING ACTIVITIES:
      Cash received from customers                                                                  $ 1,163,504    $    628,198
      Cash paid to suppliers and employees                                                           (2,791,082)     (3,028,563)
      Interest paid                                                                                     (17,459)        (22,105)
      Interest and other income received                                                                336,955         111,156
      Income tax refund received                                                                         29,868          -       
                                                                                                   -------------   -------------
      Net cash (utilized) by operating activities                                                    (1,278,214)     (2,311,314)
                                                                                                   ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Loans and advances                                                                             (1,886,318)           -
      Principal repayments of officer's loan                                                              -              69,247
      Purchase of fixed assets                                                                          (27,199)       (204,452)
      Purchase of marketable securities                                                              (2,000,000)           -      
                                                                                                   ------------   -------------
      Net cash (utilized) by investing activities                                                    (3,913,517)       (135,205)
                                                                                                   ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Loan received from officer                                                                        -               400,000
      Repayment of officer's loan                                                                      (100,000)        (50,000)
      Repayment of promissory notes                                                                     -              (770,000)
      Payments for common stock and options acquired                                                    -               (34,710)
      Payments of capital lease obligations                                                              (5,770)         (9,189)
      Net proceeds from sale of shares                                                                4,723,146       5,625,874
      Proceeds from exercise of stock options                                                            21,502          79,300
                                                                                                 --------------   -------------
      Net cash provided by financing activities                                                       4,638,878       5,241,275
                                                                                                   ------------    ------------

NET (DECREASE) INCREASE IN CASH AND  CASH EQUIVALENTS                                                  (552,853)      2,794,756

      Cash and cash equivalents, at beginning of year                                                 3,081,253         286,497
                                                                                                   ------------    ------------

CASH AND CASH EQUIVALENTS, END OF YEAR                                                              $ 2,528,400      $3,081,253
                                                                                                    ===========      ==========



</TABLE>





    The accompanying notes are an integral part of these financial statements





                                      F - 6

       

<PAGE>


<TABLE>
<CAPTION>

                                Compu-DAWN, Inc.
                            STATEMENTS OF CASH FLOWS                                                                    Page 2 of 2
                            ------------------------


                                                                                                       For the Year Ended
                                                                                                           December 31,           
<S>                                                                                                   <C>                <C>     
                                                                                                      1998               1997    
                                                                                                    --------           -------

RECONCILIATION OF NET LOSS TO NET CASH (UTILIZED) BY
OPERATING ACTIVITIES:
    Net loss                                                                                        $(2,783,552)      $(4,436,745)
    Adjustments to reconcile net loss to net cash (utilized)  by operating activities:
      Allowance for doubtful accounts                                                                      -               19,000
      Depreciation and amortization                                                                      82,674            64,529
      Write off of impaired loan                                                                      1,150,000              -
      Deferred rent liability                                                                              (954)            6,287
      Compensatory stock                                                                                379,520           278,230
      Financing charge                                                                                     -            1,588,400
      Loss on disposal of fixed assets                                                                    4,888              -
    Changes in assets and liabilities:
      (Increase) decrease in accounts receivable                                                       (246,938)            8,556
      Decrease in prepaid expenses                                                                       53,530            36,805
      Decrease in tax refund receivable                                                                  29,868             6,136
      (Decrease) increase in accounts payable and accrued expenses                                     (109,203)          133,588
      Increase (decrease) in deferred revenue                                                           161,953           (16,100)
                                                                                                    ------------     -------------

NET CASH (UTILIZED) BY OPERATING ACTIVITIES                                                         $(1,278,214)      $(2,311,314)
                                                                                                    ===========       ===========

</TABLE>

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
    (a) During  1997,  an officer of the  Company  converted  $200,000 of a loan
        payable to him into 40,000 shares of common stock.

    (b) During 1997, two officers of the Company  converted  $115,000 of accrued
        compensation into 23,000 shares of common stock.








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





                                      F - 7


<PAGE>



                                Compu-DAWN, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


NOTE   1   -     DESCRIPTION OF COMPANY:

                 Compu-DAWN,  Inc., the Company, was incorporated under the name
                 of Coastal  Computer  Systems,  Inc.,  in New York on March 31,
                 1983, and was reincorporated in Delaware under its present name
                 on October 18, 1996.  The Company is engaged in the business of
                 designing,  developing,  licensing,  installing  and  servicing
                 computer software products and systems predominantly for public
                 safety and law enforcement  agencies.  The Company's customers,
                 to date, are primarily located in New York State.

                 Subsequent to the year end, through a newly formed  subsidiary,
                 e.TV  Commerce,  Inc.,  the  Company  began  operations  in the
                 internet,  e-commerce and telecommunications business (see Note
                 3).


NOTE   2   -     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

                 The  Company's  accounting  policies  are  in  accordance  with
                 generally accepted  accounting  principles.  Outlined below are
                 those policies which are considered particularly significant.

        (a)      Use of Estimates:

                 In preparing financial  statements in accordance with generally
                 accepted  accounting   principles,   management  makes  certain
                 estimates and assumptions,  where  applicable,  that affect the
                 reported  amounts of assets and  liabilities and disclosures of
                 contingent  assets and liabilities at the date of the financial
                 statements,  as well as the  reported  amounts of revenues  and
                 expenses  during the  reporting  period.  While actual  results
                 could differ from those  estimates,  management does not expect
                 such  variances,  if any,  to  have a  material  effect  on the
                 financial statements.

        (b)      Concentration of Credit Risk /Fair Value:

                 Financial  instruments that potentially  subject the Company to
                 concentration  of  credit  risk  consist  principally  of  cash
                 investments and accounts receivable.

                 The Company maintains,  at times, deposits in federally insured
                 financial  institutions in excess of federally  insured limits.
                 Management   monitors   the   soundness   of  these   financial
                 institutions and feels the Company's risk is negligible.

                 Management  believes  that  concentrations  of credit risk with
                 respect to accounts receivable are limited due to the Company's
                 methods of progress billings and collections.

                 As of December  31,  1998 and 1997,  the fair value of cash and
                 cash  equivalents,   receivables,  obligations  under  accounts
                 payable and debt instruments approximate the carrying value.







                                      F - 8


<PAGE>



                                Compu-DAWN, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


NOTE   2     -   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued):

        (c)      Marketable Securities:

                 At  December  31,  1998,   marketable   securities   have  been
                 categorized as available for sale and, as a result,  are stated
                 at fair  value  in  accordance  with  "Statement  of  Financial
                 Standards No. 115,  "Accounting for Certain Investments in Debt
                 and  Equity  Securities".   Unrealized  gains  and  losses  are
                 included in shareholders'  equity as other comprehensive income
                 (loss).

        (d)      Fixed Assets:

                 Fixed assets are recorded at cost. Depreciation of fixed assets
                 is provided on a straight-line basis as follows:

                       Computer equipment                                3 years
                       Furniture and fixtures                            5 years
                       Motor vehicles                                    5 years

                Maintenance  and repairs are  expensed  as  incurred.  Leasehold
                improvements  are amortized over the useful life of the asset or
                the lease,  whichever is shorter.  Capital  leases are amortized
                over the term of the  respective  leases or the useful  lives of
                the related assets, whichever is shorter.

                Depreciation  and  amortization  expense  for  the  years  ended
                December  31,  1998 and 1997  aggregated  $82,674  and  $64,529,
                respectively.

         (e)    Revenue Recognition:

                The   Company   generates   revenues   from  the   granting   of
                non-exclusive,  non-transferable and non- assignable licenses to
                use software it has  developed,  through fixed price  contracts.
                Revenues from such fixed price  contracts are  recognized  using
                the percentage of completion  method of accounting.  The Company
                retains  title  to the  software  and  warranties  that  it will
                provide technical support and repair any defects in the software
                at  no  charge.   The  warranty  period  for  each  contract  is
                negotiated  individually,  for periods  ranging  from 90 days to
                three  years.  To date,  repair  costs  have  been  minimal  and
                therefore  the  Company has not  established  a reserve for such
                warranty costs.

                In addition, the Company provides post-contract customer support
                to licensees of its  software.  Revenues  from such services are
                recognized  ratably over the period of performance.  Fees billed
                and/or  received  prior to performance of services are reflected
                as deferred revenue.

         (f)    Software Development Costs:

                The  Company   reflects  costs  incurred  in  establishing   the
                technological  feasibility of a computer  software product to be
                leased or sold, as research and development  costs, and expenses
                such  costs in the period  incurred.  Research  and  development
                costs for the years ended December 31, 1998 and 1997  aggregated
                $515,788 and $935,804, respectively.




                                      F - 9


<PAGE>



                                Compu-DAWN, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


NOTE   2   -     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued):

        (f)      Software Development Costs (continued):

                 After technological feasibility has been established, all costs
                 incurred  on the  software  product are to be  capitalized  and
                 amortized  on a product by  product  basis.  Capitalization  of
                 computer  software  costs is  discontinued  when the product is
                 available to be sold or leased.

                 To date, the Company has only sold or leased software which has
                 been  developed  for  specific  customers.  As such,  all costs
                 incurred have been expensed as research and development costs.

                 Costs   associated   with   post-contract    customer   support
                 (maintenance)  are charged to expense when  related  revenue is
                 recognized or when those costs are incurred,  whichever  occurs
                 first.

        (g)      Advertising Costs:

                 Advertising   costs,   which  are   included   in  general  and
                 administrative  expenses,  are  expensed as  incurred.  For the
                 years  ended  December  31,  1998 and 1997,  advertising  costs
                 aggregated $19,449 and $131,868, respectively.

        (h)      Income Taxes:

                 Deferred  tax assets and  liabilities  are  recognized  for the
                 future tax consequences  attributable to temporary  differences
                 between the financial  statement  carrying  amounts of existing
                 assets and liabilities and their  respective tax bases,  and to
                 net operating  loss and tax credit  carryforwards,  measured by
                 enacted tax rates for years in which  taxes are  expected to be
                 paid or recovered.

                 Deferred taxes are provided for temporary  differences  between
                 financial and tax  accounting,  principally  for differences in
                 the basis of fixed assets,  allowance for doubtful accounts and
                 other nondeductible expenses, as well as for net operating loss
                 carryforwards.

                 See also Note 12.

        (i)      Earnings Per Share:

                 In 1997, the Financial  Accounting  Standards Board issued SFAS
                 No.  128,  "Earnings  Per  Share."  SFAS No. 128  replaced  the
                 previously  reported  primary and fully  diluted  earnings  per
                 share with basic and diluted earnings per share,  respectively.
                 Unlike the  previously  reported  primary  earnings  per share,
                 basic earnings per share excludes the dilutive effects of stock
                 options.   Diluted   earnings  per  share  is  similar  to  the
                 previously reported fully diluted earnings per share.  Earnings
                 per  share  amounts  for  all  periods   presented   have  been
                 calculated in accordance with the requirements of SFAS No. 128.

        (j)      Statements of Cash Flows:

                 For  purposes  of the  statements  of cash  flows,  the Company
                 considers  all  highly  liquid  investments  purchased  with  a
                 remaining   maturity  of  three  months  or  less  to  be  cash
                 equivalents.


                                     F - 10


<PAGE>



                                Compu-DAWN, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


NOTE   2   -     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued):

        (k)      Comprehensive Income:

                 Effective  January 1, 1997,  the Company  adopted  Statement of
                 Financing    Accounting    Standards   No.   130,    "Reporting
                 Comprehensive  Income" (SFAS 130"), which establishes new rules
                 for the reporting and display of  comprehensive  income and its
                 components. SFAS 130 requires unrealized gains or losses on the
                 Company's available-for-sale securities to be included in other
                 comprehensive income.

                 The components of comprehensive income were as follows:
<TABLE>

                 <S>                                                             <C>               <C>     
                                                                                     1998              1997    
                                                                                  ------------    -----------

                 Net income (loss)                                                 $(2,783,552)   $(4,436,745)
                 Unrealized holding losses on marketable securities                   (150,000)            -      
                                                                                  ------------    ------------
                 Comprehensive income (loss)                                       $(2,933,552)   $(4,436,745)
                                                                                   ===========     ===========
</TABLE>

        (l)      Operating Segments:

                 In June 1997, SFAS No. 131,  "Disclosures  about Segments of an
                 Enterprise and Related  Information,"  was issued effective for
                 fiscal  years ending after  December  15, 1998.  The  statement
                 allows for early  adoption.  The Company does not believe that,
                 as  of  December  31,  1998,  it  operated  in  more  than  one
                 identifiable segment. See Note 3 regarding new business.

        (m)      Impact of the Year 2000 Issue:

                 The Year 2000 ("Y2K") issue is the result of computer  programs
                 being  written  using a  two-digit  format  rather than four to
                 define  the  applicable  year.  Any of the  Company's  computer
                 programs that have date-sensitive software may recognize a date
                 using "00" as the year 1900  rather  than the year  2000.  This
                 could potentially result in a system failure or miscalculations
                 causing  disruptions  of  operations,  including,  among  other
                 things,  a temporary  inability to process  transactions,  send
                 invoices,   or  engage  in  other   similar   normal   business
                 activities.

                 The Company's accounting software was purchased "off-the-shelf"
                 and the  Company  intends to timely  update  such  software  by
                 purchasing  Y2K  compliant  software and  hardware  from retail
                 vendors at reasonable cost.  Software developed and marketed by
                 the Company is already Y2K  compliant.  Other  companies  upon
                 whose services the Company  depends have not yet been contacted
                 to determine whether such companies' systems are Y2K compliant.
                 If the systems of such companies are not Y2K  compliant,  there
                 could be a material  adverse effect on the Company's  financial
                 condition or results of operations.








                                      F -11


<PAGE>



                                Compu-DAWN, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


NOTE   3   -     LOAN RECEIVABLE:

                 Through  December  1998,  the Company  loaned an  aggregate  of
                 $1,900,000 to LocalNet  Communications,  Inc. ("LocalNet"),  an
                 unaffiliated Florida corporation in the  telecommunications and
                 internet  services  marketing  business.  LocalNet  signed 12%,
                 secured  promissory  notes due in one year,  at which  time all
                 interest and  principal is payable.  The notes are secured by a
                 collateral   interest  in  all  of   LocalNet's   tangible  and
                 intangible assets and a pledge of the common stock owned by its
                 Chief  Executive  Officer and the Chairman of its Board,  which
                 represents  a 63.1%  ownership  interest  in  LocalNet,  in the
                 aggregate.

                 On January 7, 1999,  subsequent to the balance sheet date,  the
                 Company  assigned its  interest in this loan to e.TV  Commerce,
                 Inc., a newly-formed  subsidiary.  On January 8, 1999, LocalNet
                 peacefully  surrendered the assets  representing the collateral
                 underlying  this loan. The fair value of the assets at the time
                 of  surrender  was  determined  to be  approximately  $750,000.
                 Accordingly,  the Company has written down the loan  receivable
                 by $1,150,000,  in order to reflect this receivable at its fair
                 value.

                 Through e.TV Commerce,  Inc.,  the Company began  operations in
                 various businesses similar to that of LocalNet in January 1999,
                 subsequent to the balance sheet date.


NOTE   4   -     FIXED ASSETS:

                 Fixed assets consist of the following:
<TABLE>

                                                                                             December 31,          
                 <S>                                                                   <C>               <C>    
                                                                                        1998              1997   
                                                                                        ----              ----   

                 Computer equipment                                                   $339,336         $312,136
                 Furniture and fixtures                                                 28,495           28,495
                 Motor vehicles                                                        -                 12,597
                 Leasehold improvements                                                 65,581           65,581
                 Assets under capitalized leases                                        41,484           41,484
                                                                                    ----------       ----------
                                                                                       474,896          460,293
                 Less: accumulated depreciation and amortization                       256,522          181,556
                                                                                     ---------        ---------
                                                                                      $218,374         $278,737

</TABLE>

NOTE   5   -     CAPITALIZED LEASE OBLIGATIONS:

                 The  Company  has  entered  into  various  capital  leases  for
                 furniture, fixtures and equipment which expire in years through
                 2001.  The assets and liability  under these capital leases are
                 recorded at the lower of the present value of the minimum lease
                 payments or the fair market value of the assets. The assets are
                 depreciated over their estimated useful lives.  Depreciation of
                 assets under  capital  leases for the years ended  December 31,
                 1998 and 1997 aggregated $9,349 for each year.






                                     F - 12


<PAGE>



                                Compu-DAWN, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


NOTE   5   -     CAPITALIZED LEASE OBLIGATIONS (Continued):

                 Minimum  future  lease  payments  under  capital  leases  as of
December 31, 1998 are as follows:

                               1999                                $  9,474
                               2000                                   9,474
                               2001                                   8,684
                                                                   ---------
                      Total minimum lease payments                   27,632
                      Less: amount representing interest              5,191
                                                                      -----
                                                                    $22,441
                                                                    =======


NOTE   6   -    DEBT OFFERING:

                 In October 1996, the Company successfully completed the sale of
                 77 units in a  private  offering,  each  unit  consisting  of a
                 $10,000  principal  amount 12% promissory  note ("bridge note")
                 and a redeemable stock purchase warrant to acquire 5,600 shares
                 of the Company's  common stock for aggregate  gross proceeds of
                 $770,000.  The warrants were exercisable at a price of $.50 per
                 share only upon the successful  completion of an Initial Public
                 Offering ("IPO") of the Company's common stock.

                 In accordance with APB No. 14, the proceeds of debt issued with
                 stock purchase  warrants  should be allocated based on the fair
                 values of the debt  without the  warrants  and of the  warrants
                 themselves  when  issued.  Accordingly,  the Company  reflected
                 deferred  financing costs and additional  paid-in capital based
                 upon  the  difference  between  the  deemed  fair  value of the
                 warrants ($4.00) and the warrant exercise price.

                 Financing  costs,  which represent costs incurred in connection
                 with this private offering,  are to be charged to operations as
                 additional interest expense over the term of the bridge notes.

                 In April 1997,  the holders of the bridge  notes  agreed to (i)
                 increase the exercise price of the five year warrants issued to
                 them  from  $.50 per  warrant  to $3.00  per  warrant  and (ii)
                 increase the holding  period of these  warrants from six months
                 to two years from the effective date of the IPO.

                 In June 1997, the Company  successfully  completed its IPO (see
                 Note 8) and repaid these  promissory  notes. In connection with
                 this repayment,  the Company fully amortized deferred financing
                 costs originally capitalized in connection with the notes. This
                 amount  has been  reflected  as a  non-recurring  charge in the
                 statement of operations.



                                     F - 13


<PAGE>



                                Compu-DAWN, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


NOTE   7   -     NOTE PAYABLE - OFFICER:

                 In April 1997,  the Chairman of the Board of the Company agreed
                 to convert a $200,000  loan  payable to him by the Company into
                 common shares at a conversion price of $5.00 per share (the IPO
                 price) upon the  consummation  of such IPO. In  addition,  this
                 officer agreed to provide a $500,000 credit line to the Company
                 for a  period  of  two  years,  secured  by all  assets  of the
                 Company.  As  of  December  31,  1998  and  1997,  the  balance
                 outstanding  under this credit  line was $50,000 and  $150,000,
                 respectively which amount is payable in quarterly  installments
                 of $25,000 plus interest at 10% per annum.  For the years ended
                 December 31, 1998 and 1997,  the interest  expense  relating to
                 these loans aggregated $10,208 and $11,191.


NOTE   8   -     CAPITAL STOCK AND EQUIVALENTS:

                 In October 1996, simultaneously with its reincorporation in the
                 State of  Delaware,  (see  Note 1) the  Company  increased  its
                 authorized  capital to 20,000,000  shares of common stock, $.01
                 par value, and 1,000,000  shares of preferred  stock,  $.01 par
                 value.  The Company  also  effected a stock split of its issued
                 and outstanding common stock on a 325 for 1 basis, resulting in
                 1,157,000 shares. This stock split was reflected  retroactively
                 in the financial statements and accordingly,  all references to
                 the  number  of  common  shares  issued  and  outstanding  were
                 restated.

                 During April 1997,  options were exercised to purchase  408,750
                 shares of common stock for which the Company  received  $79,300
                 in cash proceeds and 8,561 shares of Company  common stock with
                 a fair market value of $47,085.

                 In April 1997,  two officers (the President and the Chairman of
                 the Board) agreed to convert  $115,000 of accrued  compensation
                 into  common  shares at a  conversion  price of $5.00 per share
                 (the IPO price), such conversion to occur upon the consummation
                 of the IPO.

                 In  June  1997,   the   Company,   through   its   underwriter,
                 successfully completed an initial public offering of its common
                 stock.  The  Company  sold  1,380,000  shares of  common  stock
                 (including  180,000 shares in the Underwriter's  over allotment
                 option)  at a price  of  $5.00  per  share  for  aggregate  net
                 proceeds of $5,625,874.

                 On June 5, 1998,  the Company  completed a private  offering of
                 its   securities,   whereby  it  sold  to  the  purchasers  the
                 following:

                       (a)  3,250 shares of the  Company's  Series A convertible
                            preferred  stock,  par  value  $.01 per  share  (the
                            "Series  A  Preferred  Stock"),   which  shares  are
                            convertible   into  Common  Shares  of  the  Company
                            (maximum of 650,000  shares,  subject to  adjustment
                            under certain circumstances);
                       (b)  327,103 Common Shares of the Company; and
                       (c)  warrants to acquire an  aggregate  of 90,207  Common
                            Shares at an  exercise  price of $8.025  per  share,
                            subject to adjustment under certain circumstances.






                                      F -14


<PAGE>



                                Compu-DAWN, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


NOTE   8   -     CAPITAL STOCK AND EQUIVALENTS (Continued):

                 The aggregate  purchase price for the foregoing  securities was
                 $5,000,000; net proceeds from this private placement aggregated
                 approximately $4,723,000.

                 On  September  26,  1998,  pursuant  to a  Securities  Exchange
                 Agreement  between the Company and the purchasers,  the Company
                 issued to the  purchasers  1,750 shares of Series B convertible
                 preferred  stock,  par  value  $.01 per  share  (the  "Series B
                 Preferred  Shares"),  in  exchange  for the  327,103  shares of
                 common stock previously issued. Subject to certain adjustments,
                 the Series B  Preferred  Shares  (1,750) are  convertible  into
                 327,103 common shares.

                 During 1998, options were exercised to acquire 24,895 shares of
                 common stock,  for which the Company  received  $21,502 in cash
                 proceeds and 4,380  shares of Company  common stock with a fair
                 market value of $47,085.


NOTE   9  -      STOCK OPTIONS:

                 In October  1996,  the Company  established a Stock Option Plan
                 under  which  options  (including   non-statutory  options)  to
                 purchase  up to  2,000,000  shares may be  granted to  eligible
                 persons.  As of  December  31,  1996,  the  Company had granted
                 options to purchase an  aggregate  of 491,950  shares of common
                 stock  at  prices  ranging  from  $.30  to  $4.00,  aggregating
                 $221,485. In connection therewith the Company recorded deferred
                 compensation  (measured  as the excess of the fair value of the
                 underlying  stock over the exercise price of the option at date
                 of grant) of $37,000. During 1997, prior to the consummation of
                 the IPO, the Company granted  additional options to purchase an
                 aggregate  of  187,250  shares of common  stock at an  exercise
                 price of $3.00 aggregating  $561,750,  and recorded  additional
                 deferred compensation costs of $374,500.  Deferred compensation
                 costs  are  being  amortized  over the  vesting  period  of the
                 related options. Amortization of such costs for the years ended
                 December 31, 1998 and 1997 aggregated  $98,270 and  $278,230,
                 respectively.

                 The Company has elected to follow  Accounting  Principles Board
                 Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
                 25) and related  interpretations in accounting for its employee
                 stock options because, as discussed below, the alternative fair
                 value  accounting  provided for under FASB  Statement  No. 123,
                 "Accounting  for  Stock-Based  Compensation"  requires  use  of
                 option  valuation  models  that were not  developed  for use in
                 valuing  employee stock options.  Under APB 25, if the exercise
                 price of the Company's employee stock options equals the market
                 price  of  the  underlying  stock  on the  date  of  grant,  no
                 compensation expense is recognized.











                                     F - 15


<PAGE>



                                Compu-DAWN, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


NOTE   9  -      STOCK OPTIONS (Continued):

                 Pro forma  information  regarding  net income and  earnings per
                 share is required by Statement 123, and has been  determined as
                 if the Company had  accounted  for its employee  stock  options
                 under the fair value method of that  Statement.  The fair value
                 for these  options was  estimated  at the date of grant using a
                 Black-Scholes   option   pricing   model  with  the   following
                 weighted-average  assumptions for 1998 and 1997,  respectively:
                 risk-free  interest  rates of 5% and 6.1%;  dividend  yields of
                 1.5% and 2.6%;  volatility factors of the expected market price
                 of  the   Company's   common  stock  of  60%  and  65%;  and  a
                 weighted-average expected life of the options of seven years.

                 The Black-Scholes  option valuation model was developed for use
                 in  estimating  the fair value of traded  options which have no
                 vesting  restrictions and are fully transferable.  In addition,
                 option valuation models require the input of highly  subjective
                 assumptions including the expected stock price volatility.

                 Because   the   Company's    employee    stock   options   have
                 characteristics  significantly  different  from those of traded
                 options,   and  because   changes  in  the   subjective   input
                 assumptions can materially  affect the fair value estimate,  in
                 management's  opinion,  the existing  models do not necessarily
                 provide a  reliable  single  measure  of the fair  value of its
                 employee stock options.

                 For purposes of pro forma disclosures, the estimated fair value
                 of the options is amortized to expense over the options vesting
                 period. The Company's pro forma information follows:

                                                       1998              1997  
                                                  ---------------  ------------

                   Net loss:
                    As reported                   $(2,783,552)     $(4,436,745)
                    Pro forma                      (3,140,736)      (4,883,470)

                   Basic loss per share:
                    As reported                      $(0.95)          $(1.95)
                    Pro forma                         (1.07)           (2.15)

















                                      F -16


<PAGE>

<TABLE>
<CAPTION>


                                Compu-DAWN, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


NOTE   9  -      STOCK OPTIONS (Continued):

                 A summary of stock option activity, and related information for
                 the two years in the period ended December 31, 1998 follows:
                                        
                              <S>                                               <C>                     <C>   
                                                                                                        Weighted
                                                                                                         Average
                                                                                                        Exercise
                                                                                      Options             Price   
                                                                                      -------             -----   

                       Outstanding, December 31, 1996                                 491,950              0.45


                                Granted                                               278,311              4.04
                                Exercised                                            (410,417)             0.32
                                Canceled                                              (55,000)             1.69
                                                                                     ---------
                       Outstanding, December 31, 1997                                 304,844              3.69

                                Granted                                               490,100              5.82
                                Exercised                                             (24,895)             2.76
                                Canceled                                             (265,083)             6.56
                                                                                     --------

                       Outstanding, December 31, 1998                                 504,966              4.22
                                                                                     ========                  

                       Weighted average fair value of options granted during the
                                year ended:


                                December 31, 1997                                                         $7.67
                                December 31, 1998                                                         $4.31

                       Options exercisable:

                                December 31, 1997                                      49,533
                                December 31, 1998                                     320,919

</TABLE>
                 Exercise prices for options outstanding as of December 31, 1998
                 ranged  from  $.50 to $5.00  per  share.  The  weighted-average
                 remaining contractual life of these options is seven years.

                 In 1997, the Company  established  the 1997 Qualified  Employee
                 Stock  Purchase  Plan which  provides  for the grant of up to a
                 total of  250,000  options  intended  to  qualify  as  employee
                 incentive stock options.  The exercise price of options granted
                 under this plan shall be the lesser of 85% of fair market value
                 of the  Company's  common shares at date of grant or 85% of the
                 fair market value on the exercise date. In December 1997,  this
                 plan was amended to commence on January 1, 1999.


                                     F - 17


<PAGE>



                                Compu-DAWN, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


NOTE   9  -      STOCK OPTIONS (Continued):

               Effective January 8, 1999,  subsequent to the balance sheet date,
               the Company adopted its 1999  Restricted  Stock Rights Grant Plan
               (the "Rights Plan"). The Rights Plan provides for the issuance of
               up to  2,000,000  common  shares to the Rights Plan  participants
               based on a formula which provides for the  participants  to share
               up to 2,000,000 common shares (the  "Performance  Shares") if the
               Company  generates up to $10,000,000 in earnings  before taxes by
               December  31,  2001,  including  making up any losses  during the
               years 1999 through  2001,  if any. If the Company earns less than
               $10,000,000,  the number of Performance  Shares will be pro rated
               based on one share for each $5.00 in earnings  before taxes.  The
               Rights Plan  participants  include certain officers and employees
               and any other person who is employed by or is providing  services
               to the  Company  or its  subsidiaries  and  who is  elected  as a
               participant by an initial  participant.  The participants will be
               issued the Performance  Shares based on their respective pro rata
               ownership of the Company's securities on the date the Rights Plan
               was adopted.  However,  each  participant  must be employed by or
               providing   services  to  the  Company  or  its  subsidiaries  in
               connection  with the e.TV  business on December 31, 2001 in order
               to receive any Performance  Shares. In addition,  the issuance of
               the  Performance  Shares is subject to, among other  things,  any
               consent or approval of any regulatory body or the stockholders of
               the Company, if such consents or approvals are necessary.


NOTE  10  -    ECONOMIC DEPENDENCY:

               To date, the Company's revenues have been materially dependent on
               a  limited  number of  customers.  The  nature  of the  Company's
               business  (see  Note  1)  is  such  that  during  any  individual
               accounting  period it will  license  its  software  products to a
               limited number of significant  customers.  In addition,  revenues
               from the Company's  products are primarily from the public safety
               and law enforcement markets.

               Also, the Company currently relies on a limited number of (two or
               three) software  licensors of its main computer operating system.
               The  Company  cannot  assure  that if any of these  licenses  are
               terminated, it will be able to replace those licenses on a timely
               basis.


NOTE  11  -    TERMINATION OF INVESTMENT TRANSACTION:

               On April 22,  1998,  the Company  entered  into an  agreement  to
               acquire an indirect  50%  beneficial  interest in  Press-Loto,  a
               Russian  company  which  claimed to have the right to operate the
               first national  on-line  lottery in Russia  pursuant to a license
               from the Russian  Ministry of Finance to the Union of Journalists
               of Russia (the  "Union").  The  agreement  provided  that, at the
               closing,  40% of Press- Loto was to be owned by the Union and its
               charity with a private group holding a minority interest.








                                     F - 18


<PAGE>



                                Compu-DAWN, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


NOTE  11  -    TERMINATION OF INVESTMENT TRANSACTION (Continued):

               On  September  1,  1998  the  Company   issued  a  press  release
               announcing that it had terminated the Merger Agreement due to the
               lack of fulfillment of the conditions of its obligation to close.


               In accordance with the termination of the agreement,  the Company
               has written off all costs  incurred  regarding  this  transaction
               during the current period, aggregating approximately $297,000.

               See also Note 14 re: Subsequent Litigation.


NOTE  12   -   INCOME TAXES:

               The Company has net operating loss  carryforwards  as of December
               31, 1998, of approximately $7,100,000 ($4,400,000 at December 31,
               1997),  which may be applied against future taxable  income,  and
               which expire in various years beginning  after 2011.  Since there
               is no assurance  that the Company will  generate  future  taxable
               income to utilize the deferred tax asset  resulting  from its net
               operating loss carryforwards, the Company has not recognized this
               asset.


NOTE 13   -    COMMITMENTS:

          (a)  In  October  1996,  the  Company  entered  into a lease,  for its
               current executive offices,  which provides for base annual rental
               of  $85,000.  This  lease,  which is for an initial  term of five
               years, has scheduled annual increases,  and can be renewed for an
               additional  five year  period.  The total amount of the base rent
               payments  is being  charged to expenses  using the  straight-line
               method over the term of the lease.  The  Company  has  recorded a
               deferred  credit to reflect the excess of rent  expense over cash
               payments  since the  inception  of this  lease.  Previously,  the
               Company was occupying  space pursuant to a lease which expired in
               March 1997.  Rent  expense for the years ended  December 31, 1998
               and 1997 aggregated $78,354 and $99,770, respectively.

               At December 31, 1998, future minimum rentals are as follows:


                       1999                      $  87,975
                       2000                         93,075
                       2001                         72,675
                                                ----------
                       Total                      $253,725
                                                  ========

        (b)    The  Company  also  leases  certain  types  of  equipment   under
               operating  leases which  expire at various  dates  through  1999.
               Lease  payments,  which  are  charged  to  operations,  aggregate
               approximately $1,100 per month.






                                     F - 19


<PAGE>



                                Compu-DAWN, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


NOTE  13   -     COMMITMENTS (Continued):

          (c)  Effective  October 1, 1996, the Company entered into a three-year
               employment  agreement  with the Chief  Executive  Officer  of the
               Company.  This  agreement  provides  for annual  compensation  of
               $250,000  and a  performance  bonus  based  on a  fixed  formula.
               Subsequent to the balance sheet date,  this officers'  employment
               agreement   was  amended  to   terminate   the   existing   bonus
               compensation   terms.   This   officer  will  be  entitled  to  a
               performance  based bonus,  the details of which have not yet been
               determined.  In addition to the above,  this  officer was granted
               200,000  common stock  purchase  options and was included in the
               Company's new 1999 Stock Rights Grant Plan (see Note 9).

               Effective  October 1, 1996, the Company entered into a three-year
               employment  agreement  with its  President  and  Chief  Operating
               Officer.  This  agreement  provided  for annual  compensation  of
               $125,000 and a signing bonus of $15,000.  In December  1997,  the
               Company entered into  negotiations with this officer with regards
               to a proposed termination of his employment agreement.  Under the
               termination  agreement  executed on March 17, 1998,  this officer
               received  severance pay of  approximately  $216,000 and agreed to
               sell a  substantial  portion of his equity share  holdings in the
               Company pursuant to the Company's  Registration Statement on Form
               S-8 and Rule 144 promulgated under the Securities Act of 1933, as
               amended  and/or  to the  current  Chairman  and  Chief  Executive
               Officer and/or his designee.

               In January 1997, the Company entered into a three-year employment
               agreement  with an  employee  to  serve  as the  Company's  Chief
               Technology  Officer.  Such agreement  provides for an annual base
               salary of $200,000,  $225,000  and $250,000 in the first,  second
               and third years, respectively.  For the 12 month period beginning
               March 1, 1999,  this  officer  waived his increase and his salary
               will remain at the $225,000 level. Other terms of this employment
               agreement   generally   conform  in  structure  to  the  material
               provisions of the  employment  agreement for the Chief  Executive
               Officer as described above, including the 1999 Stock Rights Grant
               Plan.

               Subsequent to the balance sheet date, and in connection with e.TV
               Commerce,  Inc. (see Note 3) the Company  entered into three year
               employment  agreements  with  a new  Chairman  of  the  Board  of
               Directors of the Company and an individual  who will serve as the
               Company's   Executive   Vice  President  and  President  of  e.TV
               Commerce,  Inc. Each of these agreements  provide for a salary of
               $208,000  per annum,  an  issuance  of options  for  200,000  and
               650,000  common  shares,  respectively  and  bonuses all on terms
               similar to those of the Chief  Executive  Officer,  as  described
               above.  These two officers  were also  included in the 1999 Stock
               Rights Grant Plan (see Note 9).












                                     F - 20


<PAGE>



                                Compu-DAWN, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997


NOTE  14   -     SUBSEQUENT LITIGATION:

               In  connection  with the  termination  of a potential  investment
               transaction  (see Note 11), on March 4, 1999  (subsequent  to the
               balance  sheet  date),  the  Company  became  aware of an  action
               brought  in the  Supreme  Court of the State of New York,  Nassau
               County. The plaintiffs,  Rugby National Corp., ("Rugby"),  Harvey
               Weinstein and Credomarka  National Corp.,  have filed a complaint
               against the Company and the Company's  Chief  Executive  Officer,
               alleging that the Company wilfully failed, without good cause, to
               consummate a plan of merger  agreement  dated April 22, 1998. The
               complaint  states that  Rugby's  business was  allegedly  damaged
               after the Company  consummated a $5,000,000 private placement and
               subsequently  terminated  the  merger  agreement,  and  that  the
               Company's  chief  executive  officer  falsely  induced  Rugby and
               Weinstein  to give their  consent to the private  placement.  The
               plaintiffs are claiming damages of $6,000,000.

               Counsel to the Company has stated that no discovery  has yet been
               conducted  and  that  due  to  the  inherent   uncertainties   in
               litigation  in general,  they  cannot  predict or  guarantee  the
               outcome of this litigation at this time.

               The Company  believes it has meritorious  defenses and intends to
               vigorously defend this action.



























                                     F - 21


<PAGE>




                                   SIGNATURES

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

                                      COMPU-DAWN, INC.

March 31, 1999                        By:/s/ Mark Honigsfeld               
                                      Mark Honigsfeld, Chief Executive Officer,
                                      President and Secretary

                  In  accordance  with the  Exchange  Act,  this report has been
signed  below by the  following  persons  on  behalf  of the  registrant  in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>

<S>                                                  <C>                               <C>
Signature                                            Capacity                           Date
---------                                            --------                           ----


/s/ Robert E. Turner, IV                    Chairman of the Board                       March 31, 1999
-------------------------------             and Director
Robert E. Turner, IV                        


/s/ Mark Honigsfeld                         Chief Executive Officer,                    March 31, 1999
-------------------------------             President, Secretary and
Mark Honigsfeld                             Director (Principal
                                            Executive Officer)

/s/ Louis Libin                             Senior Executive                            March 31, 1999
-------------------------------
Louis Libin                                 Vice President and Director


/s/ Rudy C. Theale, Jr.                     Executive Vice President                    March 31, 1999
-------------------------------             and Director
Rudy C. Theale, Jr.                         


/s/ Harold Lazarus, Ph.D                    Director                                    March 31, 1999
-------------------------------
 Harold Lazarus, Ph.D


/s/ Christopher Liston                      Director                                    March 31, 1999
------------------------------
Christopher Liston


/s/ Faith Griffin                           Director                                    March 31, 1999
------------------------------
Faith Griffin

/s/ David Greenspan                         Chief Financial Officer                     March 31, 1999
------------------------------              (Principal Financial and
David Greenspan                             Accounting Officer)

</TABLE>


                                       62

<PAGE>