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

                                   FORM 10-KSB

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934.

    For the fiscal year ended June 30, 2000

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

    For the transition period from __________ to __________

                         Commission file number 1-13760

                          THE NETWORK CONNECTION, INC.
                 (Name of Small Business Issuer in Its Charter)

            GEORGIA                                             58-1712432
(State or Other Jurisdiction of                              (I.R.S. Employer
 Incorporation or Organization)                           Identification Number)

                         1811 CHESTNUT STREET, SUITE 110
                        PHILADELPHIA, PENNSYLVANIA 19103
                    (Address of Principal Executive Offices)

                                 (215) 832-1046
                (Issuer's Telephone Number, Including Area Code)

         Securities registered under Section 12(b) of the Exchange Act:

                                                         Name of Each Exchange
           Title of Each Class                            on Which Registered
           -------------------                            -------------------
Common Stock, $0.001 par value per share              The Nasdaq SmallCap Market

       Securities registered under Section 12(g) of the Exchange Act: None

     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 the  registrant's  knowledge,  in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

     Issuer's revenues for its most recent fiscal year: $7,091,660

     As of September 25, 2000, the number of shares of Common Stock  outstanding
was 19,973,117 and the aggregate market value of such Common Stock (based on the
closing  sales price of the Common  Stock on such date as reported by the Nasdaq
SmallCap Market) held by non-affiliates was approximately $20,226,221.

     Transitional Small Business Disclosure Format: Yes [ ] No [X]
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<PAGE>
                       DOCUMENTS INCORPORATED BY REFERENCE

     Part III  incorporates  information  by reference  from  portions of TNCi's
definitive proxy statement for its 2000 Annual Meeting of Shareholders scheduled
to be held on  Thursday,  November  16, 2000 (the "Proxy  Statement").  With the
exception of those portions which are expressly  incorporated by reference,  the
Proxy Statement is not deemed filed as a part of this Annual Report.

REFERENCES AND FORWARD-LOOKING STATEMENTS

     References  made in this  Annual  Report  on Form  10-KSB  to  "TNCi,"  the
"Company"  or the  "Registrant"  refer to The Network  Connection,  Inc. and its
subsidiary.  AirView, Cheetah, Cheetah Workgroup,  CruiseView, EduView, InnView,
M2,  M2V,  Quad-Cheetah,  T.R.A.C.,  The  Network  Connection,  TNX,  TrainView,
TransPORTAL, Triumph, the TNCi logo are trademarks of TNCi.

     This Annual Report on Form 10-KSB contains forward-looking  statements.  In
some cases, readers can identify forward-looking  statements by terminology such
as  "may,"  "will,"  "should,"  "could,"  "expects,"   "plans,"   "anticipates,"
"believes,"   "estimates,"   "predicts,"   "potential,"  or  "continue."   These
statements involve known and unknown risks, uncertainties and other factors that
may cause TNCi's actual results,  performance,  or achievements to be materially
different  from those stated  herein.  Although  management of TNCi believes the
expectations  reflected in the  forward-looking  statements are reasonable,  the
Company cannot guarantee future results,  performance, or achievements.  Factors
that could  cause  actual  results  to differ  materially  include,  but are not
limited  to,  the risks  detailed  below and  included  from time to time in the
Company's  other SEC reports and press  releases,  copies of which are available
from the Company upon request.  The Company  assumes no obligation to update any
forward-looking statements contained herein.
<PAGE>
                          THE NETWORK CONNECTION, INC.

                          ANNUAL REPORT ON FORM 10-KSB

                                TABLE OF CONTENTS


                                                                            Page
                                                                            ----

PART I.........................................................................2
  ITEM 1  - DESCRIPTION OF BUSINESS............................................2
  ITEM 2  - DESCRIPTION OF PROPERTY...........................................10
  ITEM 3  - LEGAL PROCEEDINGS.................................................11
  ITEM 4  - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............12

PART II.......................................................................13
  ITEM 5  - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..........13
  ITEM 6  - MANAGEMENT'S DISCUSSION AND ANALYSIS or plan OF OPERATION.........13
  ITEM 7  - FINANCIAL STATEMENTS..............................................24
  ITEM 8  - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
            AND FINANCIAL DISCLOSURE..........................................24

PART III......................................................................25
  ITEM 9  - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
            COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.................25
  ITEM 10 - EXECUTIVE COMPENSATION............................................25
  ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....25
  ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................25
  ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K..................................25
<PAGE>
                                     PART I

ITEM 1 - DESCRIPTION OF BUSINESS

  GENERAL

     The  Network  Connection  is a pioneer in bringing  broadband,  all-digital
entertainment and information solutions to the "away-from-home" marketplace. Our
solutions  are  designed  to deliver  customized  interactive  services  such as
digital movies,  video-on-demand,  e-commerce,  Internet/Intranet access, laptop
connectivity,  video-based  training,  advertising,  Internet  protocol  (IP) IP
telephony,  and  other  IP-based  services.  Our  platform  is based on the same
standards  that power the  Internet  today,  providing  the ability to scale and
expand our solutions  along with industry  advancements.  Each  installation  is
based on the same advanced  system  architecture,  allowing us to easily upgrade
and expand the services available over time.

     We are a leader in developing and deploying  these  all-digital  solutions,
and our  technology  has been  selected and  installed in hotels,  cruise ships,
educational facilities, and in a railway simulator car in Europe.

     We have had the following recent developments:

     *    EXECUTIVE  MANAGEMENT - In March 2000, we announced the appointment of
          a  new  executive   management  team,  including  Robert  S.  Pringle,
          President and Chief  Operating  Officer,  Dr. Jay R. Rosan,  Executive
          Vice President, and Richard E. Genzer, Chief Technology Officer. These
          well-regarded  Internet  executives have broad  experience in building
          branded Internet portals,  creating successful  e-commerce  solutions,
          and aggregating information and entertainment content.

     *    SYSTEM  DEPLOYMENT - In September  2000,  we announced a  relationship
          with Comdisco  (NYSE:CDO),  enhancing our  capability to manage system
          installation, monitoring and deployment on a global basis.

     *    CONTENT DIVISION - In March 2000, we formed a new division to focus on
          creating  long-term business models for content,  commerce,  community
          and connectivity. This division will create an enhanced away-from-home
          experience  where  people can access and  customize  content and data.
          Richard Gallagher was hired in August 2000 to lead this division.

     *    HOTEL & HOSPITALITY  DIVISION - Our technology is currently  installed
          in  approximately  800 guest  rooms,  and we have signed  contracts to
          install  the  technology  in over 2,000  additional  guest rooms for a
          total  contractual base of 2,500 guest rooms.  Our InnView(TM)  system
          has been well received in the marketplace,  and we expect our progress
          in this  marketplace  to  continue  to  accelerate  given our  initial
          successful implementations.

     *    CRUISE SHIP  DIVISION - We have  developed an enhanced  version of our
          CruiseView   technology  platform,   increasing  its  performance  and
          capabilities,  and are in  advanced  discussions  with  several  major
          cruise companies about installing this interactive  system,  including
          Carnival.  We have  terminated our prior contract with Carnival Cruise
          Lines,  through  a  mutual  release  which  allows  us to  retain  our
          equipment and retain  approximately $1.6 million in cash advances.  We
          continue  to  operate  our  CruiseView(TM)system  on  one  1,040-cabin
          Carnival   ship  while  we   negotiate   the  terms  of  a   potential
          forward-looking agreement to deploy our latest CruiseView(TM)solution.

     *    EDUCATION  &  CORPORATE  TRAINING  DIVISION - In  September  1999,  we
          completed  delivery and  installation  of 195 Cheetah video servers to
          Georgia schools in connection with the Georgia  Metropolitan  Regional
          Education  Services  Agency  (MRESA)  Net 2000  project.  We  received
          payment  of $5.4  million  in  connection  with the  project.  We have
          developed a national network of leading technology integrators for the
          educational  marketplace,   and  have  submitted  several  significant
          proposals for new business in this area.

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     *    PASSENGER  RAIL  DIVISION - In  September  1999,  we hired  Stephen J.
          Ollier to lead the division.  We have submitted  pricing  proposals to
          two of the  world's  largest  train  operators  for new  and  retrofit
          installations   of   TrainView   systems.    We   launched   our   new
          PROJECTRAINBOW(TM)  showroom and  demonstration  system in June in the
          United Kingdom. We have entered into advanced discussions with leading
          railway  operators in the United Kingdom to outfit our system on their
          fleets.

     Guest  Services  available  through  our  CruiseView  and  InnView  Systems
include:

     *    on-demand films, short video features and music videos;

     *    free-to-guest television programs;

     *    concierge information and reservations;

     *    in-room guest messaging and bulletin boards; and

     *    in-room folio review, express check-out and guest surveys.

     Eventually,  we also plan to include the following  guest services  through
our systems:

     *    high-speed access to the World Wide Web and e-mail;

     *    voice-over IP (i.e., long distance telephone calls over the Internet);

     *    e-commerce services, such as interactive shopping;

     *    interactive  games and  casino-style  gambling where permitted by law;
          and

     *    interactive  advertising and promotion of customer  events,  shops and
          restaurants.

  BUSINESS STRATEGY

     Our primary  objective is to be a leading  provider of broadband  solutions
for the away-from-home marketplace. To this end, we have developed the following
strategies:

     *    DEPLOY,  OWN, AND OPERATE BROADBAND  NETWORKS ACROSS MULTIPLE SEGMENTS
          OF THE AWAY-FROM-HOME  MARKETPLACE. We provide both infrastructure and
          programming,  retaining the long-term  rights to deliver services over
          our broadband  networks.  Our business model balances  shared up-front
          capital investment with shared long-term revenue streams.

     *    BE  RECOGNIZED  AS A TOTAL  SOLUTION  PROVIDER.  We will  continue  to
          develop our content division,  which will acquire, package and monitor
          a broad range of compelling  multimedia  content tailored to appeal to
          the typical end-users in each of our market segments.  We believe this
          is necessary so that we can be viewed by our customers not as a system
          infrastructure provider, but rather as a total solution provider.

     *    LEVERAGE OUR CORE TECHNOLOGY  ACROSS MARKET  SEGMENTS.  We will pursue
          new  markets  and   applications   for  our   systems,   products  and
          technologies.

     *    NURTURE KEY BUSINESS PARTNERS AND STRATEGIC ALLIANCES. We will nurture
          our  existing  business  relationships,  and  develop  new  ones  with
          partners who have strong national and international presences. We will
          use these  business  relationships  to further  penetrate our targeted
          markets.

     *    DEVELOP OUR NEWLY CREATED  DIVISIONS AND PENETRATE FURTHER THE MARKETS
          THEY SERVE. We will continue to invest in our newly created  divisions
          and staff them with the skilled professionals

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<PAGE>
          necessary to effectively and efficiently maximize order generation for
          our systems, products and services in the markets they serve.

     *    INVEST IN OUR CORE  COMPETENCIES.  We will  continue  to  attract  and
          retain highly skilled  professionals  in these  critical  disciplines:
          industry specific marketing and sales; multimedia content development,
          acquisition and management; systems and software engineering; supplier
          management; finance; contracts administration;  and program management
          applied to large-scale systems.

PRODUCTS AND SERVICES

     TECHNOLOGY

     The hardware for our  interactive  systems  consists of high speed  Cheetah
servers,  multiple  disk drives,  networking  infrastructure,  set-top  personal
computers,  and televisions or other electronic  displays that serve as monitors
for our systems.  Our TransPORTAL  system software is based on standardized  Web
browser  component  technology.  Our systems  provide a variety of  informative,
entertainment  and  interactive  content  which may be  accessed  and  viewed on
demand.  Our systems are 100%  digital and offer our  customers  flexibility  in
adding new content to the system,  as well as the ability to customize and brand
their marketing vision via the "look and feel" of the underlying  graphical user
interface.

     Dual, fault-tolerant Cheetah servers serve as the heart of our systems. One
Cheetah server operates as the local area network backbone and can provide up to
100 megabit connectivity to each user on the system. The scaleable  architecture
of our server is based on Intel processors and Microsoft operating systems.  Our
systems  interface  with a variety  of color flat panel  computer  monitors  and
television displays.

     The design for our interactive  information and  entertainment  systems are
proprietary  to us, as are our Cheetah  video servers and  TransPORTAL  software
tools.  However,   other  hardware  and  components  used  in  our  systems  are
predominantly  commercial,  off-the-shelf hardware,  based on non-proprietary or
open-system  computer  and IP network  standards.  We  believe  that this use of
available   commercial   hardware  allows  us  to  outsource  component  product
manufacturing  to suppliers  without  compromising  overall  product quality and
reliability. We believe that it also allows us to focus our operations resources
on supplier management, final assembly and testing.

     Each of our video servers can scale to serve up to 300 simultaneous  users.
We can install multiple video servers where required.

     TURNKEY INTERACTIVE INFORMATION AND ENTERTAINMENT SYSTEMS

     We currently market three customized turnkey systems. Each of these systems
is built on our Cheetah servers and TransPORTAL  software package.  We customize
the content available through our systems to provide the best total solution for
our respective market purchasers:

     *    TrainView  is our  newest  system  solution.  We  anticipate  that our
          TrainView  system will  provide  interactive  entertainment  and other
          content to be determined in conjunction with future customers, if any.
          We have  developed  a  TrainView  prototype,  which  we are  currently
          marketing to train operators in Europe and Asia.

     *    InnView is our system  solution for the hotel and  time-share  market.
          Generally,  we expect to provide interactive and entertainment content
          for use by the hotel  guests.  The system is also  designed to provide
          Internet access over the television,  voice over IP, and concierge and
          other guest  services.  Some of the content can be  available  free of
          charge, some can be advertising  supported,  and some can be available
          on a pay-per-use  basis.  We will share revenues from  advertising and
          pay-per-use with the hotels on a negotiated percentage basis.

     *    CruiseView  is our system  solution  for the cruise ship  market.  The
          system is  designed  to provide  information,  entertainment,  gaming,
          shore  excursions  and  free-to-guest  services.  The  system  is also

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<PAGE>
          designed to provide  Internet access over the  television,  voice over
          IP, and concierge and other guest services. Some of the content can be
          available free of charge, some can be advertising supported,  and some
          can be available on a pay-per-use  basis.  We will share revenues from
          advertising  and  pay-per-use  with the cruise  lines on a  negotiated
          percentage basis.

     SERVER SALES

     Our  current  business  strategy  is to offer  and sell  complete,  turnkey
interactive  information  and  entertainment  systems.  However,  a  substantial
portion of our revenues generated since June 30, 1999 have come from the sale of
our  Cheetah  video  servers  which  have  been  part of a system  designed  and
installed by others.  Although we will continue to offer and sell the servers as
stand-alone,  high-end, video servers, we are endeavoring to be known as a total
system solution provider in the education market as well as in the other markets
we serve.

     CONTENT

     We obtain the  content  which we show on our  systems in several  different
ways. Movies are obtained by licensing products from industry  suppliers.  Other
content is purchased or licensed from other providers.

     We expect to expand all of our  systems to include  additional  content and
features,  such as Internet  access,  on-line  shopping and local  entertainment
guides. We are currently developing our content division which will oversee this
development.  Our content  division is also looking to provide a total  solution
system for the education and corporate training markets.

     OUR HISTORY

     We were  incorporated in Georgia in 1986. Our common stock is listed on the
Nasdaq  SmallCap  Market under the ticker symbol "TNCX." Our primary focus under
prior  management  from  inception  to 1995 was  providing  video  products  and
services to the  educational  market.  After an initial public offering in 1995,
prior  management  began to market  interactive  information  and  entertainment
systems to the commercial airline and passenger cruise ship industries.

     Our AirView product was installed on two Fairlines  Airlines  aircraft.  In
addition,  the  in-flight  entertainment  system  developed  by the  Interactive
Entertainment  Division we acquired from Global Technologies was installed on 19
Swissair  aircraft,  two Debonair Airlines aircraft and three Alitalia aircraft.
The heavily regulated nature of the airline market  prohibitively  increased our
costs.  Fairlines  filed for  bankruptcy  protection  and we were  never able to
collect  the  amounts  owed to us.  These  facts,  together  with  the  Swissair
litigation, led us and Global Technologies to stop pursuing this market in 1998.
See "Risk  Factors - We are a  defendant  in a  multi-district,  mass tort class
action lawsuit."

     In addition,  prior management entered into agreements with Carnival Cruise
Lines and Star Cruises to install our systems on several of their cruise  ships.
Operational  problems on the Star cruise ship led Star to cancel its  agreement,
and we were unable to recover our investment. Prior management also negotiated a
fixed price  agreement with Carnival  Cruise Lines and installed a system on one
Carnival  ship.  We have  terminated  the Carnival  agreement,  through a mutual
release which allows us to retain our  equipment  and recognize  revenue of $1.4
million for the sale of networking  equipment  aboard the ships.  We continue to
operate our  CruiseView(TM)  system on one  1,040-cabin  Carnival  ship while we
negotiate  the terms of a  potential  forward-looking  agreement  to deploy  our
latest CruiseView(TM) solution.

     Early in 1999,  prior  management's  inability to collect  receivables  and
other  administrative  problems  left us struggling  financially  and in need of
capital. In May 1999, Global  Technologies,  Ltd., a Delaware corporation listed
on the Nasdaq National Market under the ticker symbol "GTLL," acquired  majority
control of us by exchanging the assets of its Interactive Entertainment Division

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and approximately $4.25 million in cash for 1,055,745 shares of our common stock
and  2,945,400  shares  of  our  Series  D  Convertible  Preferred  Stock.  This
transaction gave Global Technologies  ownership of approximately 60% of our then
outstanding  common  equity  on a fully  diluted  basis.  Through  a  series  of
additional  transactions,  Global Technologies acquired additional shares of our
common stock and shares of our Series B Convertible  Preferred Stock so that, on
a fully converted basis, it now owns approximately 79% of our outstanding common
equity.  The transaction  brought  together  synergistic  technologies,  and the
engineering and program management  capabilities of two companies experienced in
the field of developing,  manufacturing,  marketing and  installing  interactive
information and entertainment systems.

     In connection with the acquisition, Global Technologies elected a new board
of  directors,  which put in place our  current  management  team.  The board of
directors was re-elected,  with the exception that Robert Pringle was elected to
take the place of Morris Aaron,  at the 2000 annual meeting of  shareholders  on
May 11, 2000.

     OUR DIVISIONS AND MARKETS

     Under new  management,  we have  identified  four  primary  markets for our
products and  services.  We believe  these markets  represent  opportunities  to
achieve  substantial  market  share and  profitability.  These  markets are: (1)
hotels and time-share properties, (2) cruise ships, (3) educational institutions
and corporate  training,  and (4) long-haul  passenger  trains.  In an effort to
capitalize on opportunities in these markets,  we have formed separate sales and
marketing divisions, and have recently hired experienced executives to lead each
of the four divisions.

     HOTELS AND TIME-SHARE PROPERTIES

     We have begun to market our products and  services to  "land-based"  hotels
and time-share  properties in North America. In addition,  we are in the process
of  developing  sales  and  marketing   strategies  for  hotels  and  time-share
properties in Europe,  Asia and South  America.  We call the system we market to
the hotel and  time-share  market  "InnView."  Initially,  we are  focusing  our
efforts on hotels with 100 or more rooms.

     We formed our Hotel &  Hospitality  Division in December  1999.  Management
believes there are approximately 3.6 million rooms in the domestic hotel market,
approximately  1.9  million  of  which  do  not  have  in-room  information  and
entertainment  systems.  Management  also believes  there are almost 0.5 million
time-share   properties  which  also  do  not  have  installed  information  and
entertainment   systems.   Of  the  unserved  hotel  rooms,   we  estimate  that
approximately  0.8 million would meet the economic  criteria for installation of
our  InnView  systems.   In  addition,   we  estimate  that  contracts  covering
approximately   1.7  million   domestic  hotel  rooms  currently   served  by  a
competitor's system will come up for renewal over the next five years.

     Since  forming  this  division,  we  have  retained  several  national  and
international sales executives. To date, we have entered into agreements for our
InnView  system  for  over  2,800  guest  rooms,  and  have  live,   operational
installations in over 800 rooms.

     Generally,  we expect our InnView systems to become operational within four
months after  entering into an agreement  with a particular  hotel.  We have not
installed  InnView in any  time-share  properties.  We provide the systems at no
cost to the hotel in exchange for a revenue  share  agreement in which we retain
the majority of such revenues or we share in the up-front installation costs and
share the revenues on a commensurate basis.

     PASSENGER RAIL

     There are  currently  11 operators  of  long-haul  passenger  trains in the
world. We believe that each of these  operators are potential  customers for our
TrainView  system  over the next  several  years.  The fleets  operated by these
companies  contain an aggregate of almost one million seats that could be fitted
with our TrainView  systems.  However,  to date, no trains have been fitted with
information or entertainment systems.

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<PAGE>
     In  September  1999,  we formed a  Passenger  Rail  Division to promote our
interactive information and entertainment systems for installation at individual
seats on long-haul and cross-country  passenger trains in the U.S., European and
Asian markets.  This system is called  "TrainView." We announced the appointment
of Stephen J. Ollier,  the former General Manager of ALSTOM Railway  Maintenance
Services,  Ltd.,  as President of the  division.  We believe that Mr.  Ollier is
uniquely  qualified for the  position,  offering both the technical and industry
experience we believe  necessary to bring  TrainView to the  international  rail
market.

     In May 1999,  ALSTOM  Transport  Ltd., a unit of ALSTOM SA, which is one of
the largest train  manufacturers  in the world,  contracted  with us to engineer
TrainView into ALSTOM's high-speed train design. We were paid in connection with
the contract but expect no further  business from ALSTOM  because we have become
aware that ALSTOM is in the process of creating a subsidiary  to compete with us
in the passenger rail market.

     Under the direction of Mr. Ollier,  we have submitted  pricing proposals to
two train operators in the United Kingdom for installation of TrainView systems.
To date, we have not installed TrainView on any passenger train.

     CRUISE SHIPS

     Management  estimates that there are currently more than 70 cruise ships in
revenue  service  with 500 or more guest  cabins.  We estimate  that the current
construction  schedules  for  ships of this  size  show  more  than 30 new ships
entering  service  between now and the end of 2004.  In total,  we estimate  the
market to host over 10 million passenger cruises annually,  the vast majority of
which are  hosted by one of a handful of leading  cruise  operators.  We believe
that  only  about  ten  ships to date  have had  interactive  entertainment  and
information systems installed.

     Historically, the cruise line industry has not embraced the installation of
interactive  systems in  individual  cabins like their hotel  counterparts.  The
major  reason for this  reluctance  is not  related  to a lack of  demand.  Only
recently has the  technology of interactive  guest systems  progressed to levels
that  enable  them to  profitably  and  logistically  contribute  to cruise line
profits and the vacation experience.  In fact, the most significant hurdles have
been adapting the system to the compact  configuration  and harsh environment of
cruise ships, while maintaining adequate levels of price and performance.

     We have had over a year's  experience  with  our  systems  aboard  Carnival
Cruise Lines, and have recently  developed an enhanced version of our CruiseView
technology  platform,  increasing its  performance and  capabilities.  We are in
advanced  discussions  with several major cruise companies about installing this
interactive system, including Carnival.

     EDUCATION AND CORPORATE TRAINING

     We continue to manufacture our Cheetah family of multimedia servers for the
interactive  education and  corporate  training  markets.  Sales of servers have
historically been a core business of ours, with over 2,000 Cheetah video servers
sold worldwide.

     In August 1999, we sold  multimedia  servers in  connection  with the first
phase of the Georgia school  system's Net 2000 project.  We supplied our Cheetah
video  servers  as the  central  backbone  of 193  Georgia  schools'  multimedia
networks.  Two other Cheetah servers were delivered in connection with the order
and  installed  at the Georgia  schools'  network  operating  center.  Using our
servers, students and teachers are able to access, on-demand,  hundreds of hours
of  digitally  stored  multimedia   content,   access  the  Internet  and  build
interactive  courses.  The total value of orders  received  under the program to
date is $5.4 million.  We believe that this  installation  is the largest of its
kind in the  country and that it may well be a model for the  expansion  of this
type of program.  Our sales to MRESA were limited to our Cheetah video  servers.
In the future, we hope to be able to sell entire interactive  systems,  which we
call "EduView," to school related purchasers.

     In 1999, the Federal government instituted the E-Rate Program,  which has a
primary goal of bringing the Internet and various  forms of  multimedia  content
directly to elementary and secondary classrooms. The program makes $2.25 billion
available to schools to obtain the technology necessary to achieve this goal. To
obtain these funds, a school district must make application and pay a portion of
the equipment cost. A significant  amount of the funding for our delivery of 195
Cheetah  video servers to Georgia  schools in connection  with the Georgia MRESA
Net 2000 project came from the E-Rate Program.

     We formed our Education & Corporate  Training  Division in December 1999 to
promote our interactive  products and services to educational  institutions  and
corporate training  departments.  In addition, we hired James D. Oots and Farley
Barge as  leaders  of this  division.  This team  brings  to us a great  deal of
experience in the corporate training and education markets.

                                        7
<PAGE>
     ACQUISITION, PACKAGING AND MONITORING OF BROADBAND, MULTIMEDIA CONTENT

     In an effort to capitalize  on what we believe to be the  advantages of our
system  architecture  and  technology,  we are developing a division to acquire,
package and monitor a broad range of compelling  multimedia  content tailored to
appeal to the typical end-users in each of our market segments.  We believe that
the  provision of compelling  content  through our systems will  encourage  user
interaction with the system, which, in turn, should maximize pay-for-use revenue
generation for us and for our vertical market partners.

     We believe that our content  division will be integral to our success.  The
revenue  generated  from content can be long-term and should span the life-cycle
of our systems.  In addition,  because it is generally  industry practice in the
markets we serve to share the cost of system  hardware,  and in the hotel market
to provide the  hardware  free of charge,  content  revenue will be an essential
revenue source.

OUR SALES, MARKETING AND DISTRIBUTION

     We currently market our systems,  products and services  worldwide  through
the  efforts of our sales  people in each  operating  division.  We also plan to
market our systems  through  value-added  resellers,  distributors  and alliance
partners.  System installation and on-site customer support are provided through
internal  customer  engineering  personnel  and may, in the future,  be provided
through the efforts of value-added resellers and alliance partners.

     The sales  arrangements for our systems depends upon various factors,  such
as the size and type of  hotel,  time-share  property,  ship or  train,  and the
system  features and other  requested  customization.  There is generally a long
sales-cycle   for  our  systems  because  of  the  need  to  design  the  system
configuration  for the  particular  environment  in  which  the  system  will be
installed,  test each installed system and to negotiate any necessary agreements
with other providers. The sales cycle is also dependent upon a number of factors
beyond our control, such as the financial condition of the customer,  safety and
maintenance  concerns,  regulatory issues, and purchasing patterns of particular
operators  and the  industry  generally.  This is expected to result in long and
unpredictable buying patterns for our systems.

OUR COMPETITION

     We  face  substantial  competition  in each of our  markets.  Some  general
factors that we believe will influence whether we succeed include:

     *    the  ability to deliver  total  system  solutions  for our  customers,
          including, in particular, content acquisition and management;

     *    system quality, reliability and performance;

     *    product  hardware and software that can easily be upgraded  during the
          product life cycle;

     *    market-driven pricing of our systems, products and services, and

     *    the  ability to deliver  new  sources  of revenue  generation  for our
          customers.

     There are three major  providers of interactive  guest services  systems in
the hotel and hospitality market. On Command  Corporation  (NASDAQ:ONCO) has the
greatest market share with approximately one million rooms, followed by LodgeNet
Entertainment  Corporation  (NASDAQ:LNET) with approximately  780,000 rooms, and
Quadriga.  On Command and LodgeNet  focus their sales and  marketing  efforts on
North American  properties,  whereas Quadriga markets its products  primarily to
European  hotels and to a much lesser extent Middle Eastern and African  hotels.
All of these  competitors  employ a technology  that is different  from ours. We
believe our systems designs are superior to those of our competitors because the
scalability  of our servers  permits us to provide the content at each site such
that all selections  are always  available.  By contrast,  our  competitors  are
sometimes  required  to omit  movie  titles  which are  temporarily  unavailable
because  the  number of copies  of those  titles at the site are all in use.  In
addition,  we believe that our system  designs are superior based on the content
and features offered,  such as Internet  connectivity and voice-over IP that can

                                        8
<PAGE>
be made available through the systems. Our two primary competitors in the cruise
ship market are Allin Interactive  (NASDAQ:ALLN)  and Siemens.  We estimate that
Allin  currently  has two  installed  systems  on two  cruise  ships  with Royal
Caribbean, while Siemens has a system installed on one.

     Although we have an opportunity to be  first-to-market  in providing  train
operators with  interactive  multimedia  information  and  entertainment  system
solutions,  SmartWorld,  a UK-based  company,  has  announced  its  intention to
develop  and offer a  limited  video-on-demand  system  for the  passenger  rail
market. Matsushita, a leading provider of in-flight entertainment systems in the
long-haul  commercial airplane market, is considering an entry into this market.
In addition,  we are aware that ALSTOM and Adtranz are creating  subsidiaries in
an effort to compete in this market.

     Our Cheetah  video  servers apply  hardware  control of video  streaming to
achieve  high-integrity,  MPEG-2  quality  images and pause,  fast-forward,  and
rewind  capabilities.   These  servers  are  scaleable  to  provide  up  to  300
simultaneous  video streams.  Competitor  video server  products in this market,
such as are  provided by Dell,  Gateway,  Silicon  Graphics,  Compaq and Hewlett
Packard,  are  high-speed,  general-purpose  servers,  with software  control of
limited video streams  (typically  less than 10 to 15). nCube has high end video
servers which may also compete with us.

     All of these  companies  have greater  financial,  technical  and marketing
resources than we do. Moreover, our competitors have developed goodwill and name
recognition  among the  hospitality  operators whom we call on to solicit sales,
and also  among end users  who have  grown  accustomed  to their  offerings.  In
addition, we expect that to the extent that the market for our systems, services
and products develops, competition will intensify and new competitors will enter
our  designated  target  markets.  We may not be able  to  compete  successfully
against existing and new competitors as the market for our systems, products and
services  evolves and the level of competition  increases.  A failure to compete
successfully  against  existing  and new  competitors  would  have a  materially
adverse effect on our business and results of operations.

OUR OPERATIONS AND MANUFACTURING

     Contract  manufacturers  assemble  our  proprietary  systems  in the United
States.  Final  assembly,  integration,   burn-in  and  functional  testing  are
conducted  at our  facilities  in  Phoenix,  Arizona or at  supplier or customer
locations.

     We obtain electronic components and finished  sub-assemblies for our system
components  "off-the-shelf"  from a  number  of  qualified  suppliers.  We  have
established  a testing  protocol  in an effort to  ensure  that  components  and
sub-assemblies  meet our  specifications and standards before final assembly and
integration.  We have  elected  to  procure  off-the-shelf  component  parts and
sub-assemblies  from suppliers in an effort to ensure better quality control and
pricing.  To date,  we have  experienced  some  interruptions  in the  supply of
component  parts and  sub-assemblies  due to the lack of availability of certain
electronic components,  and are identifying additional qualified suppliers.  The
inability of our current  suppliers to provide  component  parts to us,  coupled
with our  inability to find  alternative  sources,  would  adversely  affect our
operations.

RESEARCH AND DEVELOPMENT

     The  market  for  our  systems  and  products  is  characterized  by  rapid
technological  change  and  evolving  industry  standards,   and  it  is  highly
competitive  with respect to timely  product  innovation.  The  introduction  of
products  embodying new technology  and the emergence of new industry  standards
can render  existing  products  obsolete and  unmarketable.  We believe that our
future success will depend upon our ability to develop,  manufacture  and market
new systems  and  products,  as well as  enhancements  to  existing  systems and
products on a cost-effective  and timely basis. The system  architecture for our
interactive  information and  entertainment  systems has been designed to permit
hardware and software upgrades over time. Moreover,  we believe that the current
architecture  presents  no  known  limits  on  a  customer's  ability  to  offer
compelling  content to the user in a rapid and  reliable  manner.  Therefore,  a
major focus of our  research  and  development  efforts is to reduce the cost of
network and client  hardware  and to enhance the core  software of the system to
permit even easier integration of new content.

                                        9
<PAGE>
     If we are  unable,  for  technological  or other  reasons,  to develop  new
systems and products in a timely  manner in response to changes in the industry,
or if systems and products or system and product enhancements that we develop do
not  achieve  market  acceptance,  our  business  will be  materially  adversely
affected.  There can be no assurance that technical or other difficulties in the
future will not delay the introduction of new systems, products or enhancements.

PROTECTING OUR INTELLECTUAL PROPERTY

     We rely on a combination  of trade secret and other  intellectual  property
law,  nondisclosure  agreements with most of our employees and other  protective
measures to  establish  and protect  our  proprietary  rights in our systems and
products.  We believe that because of the rapid pace of technological  change in
the open  systems  networking  industry,  legal  protection  of our  proprietary
information is less significant to our competitive position than factors such as
our strategy, the knowledge, ability and experience of our personnel, new system
and product development and enhancement,  market recognition and ongoing product
maintenance and support.  Without legal protection,  however, it may be possible
for third parties to copy aspects of our systems and products or technology,  or
to obtain and use information  that we regard as proprietary.  In addition,  the
laws of some foreign countries do not protect proprietary rights in products and
technology to the same extent as do the laws of the United  States.  Although we
continue to implement  protective  measures and intend to defend our proprietary
rights  vigorously,  we give no assurance that these efforts will be successful.
Our failure or inability to  effectively  protect our  proprietary  rights could
have an adverse affect on our business.

EMPLOYEES

     We employ 77 full-time staff at our various locations and sales offices and
we are adding skilled personnel in the following fields: content procurement and
development;  software,  systems and hardware  engineering;  program management;
contracts administration;  supplier management;  customer engineering; and sales
and marketing.

     We have formed separate vertical sales and marketing  divisions for each of
our four target  markets.  These  divisions are anchored by the recent hiring of
experienced  executives  from within each of these markets.  We anticipate  that
these  executives  will be able to leverage our core  technology  in  broadband,
multimedia  content  distribution and IP network  solutions to increase sales of
our systems,  products and services.  We have  recognized  the need to create an
additional  internal  operating  division  to  provide  our  customers  with the
personalized  programming  necessary  to bring  users a broad  range of  content
options. We are in the process of hiring personnel to anchor this new division.

WARRANTIES

     The Company provides a warranty  regarding its products for periods ranging
from one to three years,  depending on the  requirements of customers.  To date,
the Company has not experienced  significant  claims under  warranties,  and its
ability to meet the full demands of having a significant number of units sold to
customers who require such service has not been tested.  The Company also passes
through  to end  users the  warranties  that it  receives  from  vendors  on any
separate  hardware,  software or component parts that it sells  independently of
full systems.

ITEM 2 - DESCRIPTION OF PROPERTY

     We lease the  following  facilities,  which we  believe  are  adequate  and
suitable for current operations:

     *    approximately  3,500  square  feet of  office  space  located  at 1811
          Chestnut  Street,  Philadelphia,  Pennsylvania  used for executive and
          administrative purposes;

     *    approximately  17,000  square  feet of  office  and  production  space
          located at 222 North 44th Street, Phoenix, Arizona;

                                       10
<PAGE>
     *    approximately  16,000  square  feet of office  space in  Conshohocken,
          Pennsylvania  to be used for  administrative  purposes and our content
          operations; and

     *    approximately  1,000 square feet of space in Derby,  England where our
          Passenger Rail Division is headquartered.

ITEM 3 - LEGAL PROCEEDINGS

     Swissair/MDL-1269,  IN  REGARDS  TO AN AIR CRASH NEAR  PEGGY'S  COVE,  NOVA
SCOTIA.  This multi-district  litigation,  which is being overseen by the United
States District Court for the Eastern Division of  Pennsylvania,  relates to the
crash of  Swissair  Flight No. 111 on  September  2, 1998.  The  Swissair  MD-11
aircraft involved in the crash was equipped with an entertainment network system
that had been sold to  Swissair  by Global's  predecessor  company,  Interactive
Flight  Technologies,  Inc.  Estates  of the  victims  of the crash  have  filed
lawsuits  throughout  the United States  against  Swissair,  Boeing,  Dupont and
various other parties,  including  Global and TNCi, which has been named in some
of the lawsuits filed on a successor  liability theory. TNCi and Global deny all
liability  for the crash.  TNCi and Global are being  defended  by our  aviation
insurer.

     On September 1, 1999,  SAir Group invited the Company to  participate  in a
conciliation  hearing  before the  Justice of the Peace in Kloten,  Switzerland,
which is the  customary  manner  in  which  civil  litigation  is  initiated  in
Switzerland. The document informing us of the proceeding states that the request
has been filed in connection  with the crash of Swissair Flight 111 primarily in
order to avoid the expiration of any applicable  statutes of limitations  and to
reserve the right to pursue further claims.  The document states that the relief
sought is "possibly  the  equivalent  of CHF  342,000,000  - in a currency to be
designated  by the court;  each plus 5% interest  with effect from  September 3,
1998; legal costs and a participation to the legal fees (of the plaintiff) to be
paid by the defendant."

     BRYAN R. CARR V. THE  NETWORK  CONNECTION,  INC.  AND GLOBAL  TECHNOLOGIES,
LTD.,  Superior Court of Georgia,  Civil Action No.  99-CV-1307.  Bryan R. Carr,
TNCi's former Chief Operating and Financial Officer and a former Director, filed
a claim on November 24, 1999 alleging a breach of his employment  agreement with
TNCi.  Mr. Carr  claims  that he is  entitled  to the present  value of his base
salary  through  October 31, 2001, a share of any "bonus pool," the value of his
stock  options  and accrued  vacation  time.  TNCi and Global  filed a motion to
compel  arbitration of the claims  pursuant to an  arbitration  provision in the
employment  agreement and to stay the State Court action pending the arbitration
proceeding. The Company's motion was granted on August 9, 2000. As of this date,
Mr.  Carr has not filed an  arbitration  claim  against  TNCi or Global,  but on
September 20, 2000, Mr. Carr sent a letter to the Company stating his demands in
hopes of settlement.

     A  suit  captioned  LODGENET  ENTERTAINMENT   CORPORATION  V.  THE  NETWORK
CONNECTION,  INC.  was filed April 5, 2000 in the  Circuit  Court for the Second
Judicial  Circuit of the State of South  Dakota.  The action arose out of TNCi's
hiring  of  Theodore  P.  Racz,  a  former  LodgeNet  Entertainment  Corporation
employee,  as its Senior Vice  President of the Hotels &  Hospitality  division.
LodgeNet alleged tortious  interference with contract and tortious  interference
with  business  relationships.  LodgeNet  sought to prohibit Mr. Racz from being
employed  by  TNCi,  as well as  damages,  and  fees and  costs.  This  case was
voluntarily  dismissed  without  prejudice  by  LodgeNet  because  there  was no
jurisdiction in South Dakota.

     A suit captioned AVNET, INC. V. THE NETWORK CONNECTION, INC., was filed May
17, 2000 in Maricopa County Superior Court,  CV2000-009416.  The suit relates to
invoices for  inventory  purchased  by TNCi in late 1998 and early 1999.  Avnet,
Inc. seeks payment of the invoices,  interest and legal fees.  TNCi has not paid
for the  inventory  purchased  primarily  for  the  following  reasons:  (i) the
inventory  purchased  did not meet  specifications  and thus was not accepted by
TNCi's customer,  and (ii) TNCi is currently  pursuing a separate warranty claim
against Avnet regarding certain other inventory purchased from Avnet.

     The Company is subject to other lawsuits and claims arising in the ordinary
course of its  business.  In the  Company's  opinion,  as of June 30, 2000,  the
effect of such matters will not have a material  adverse effect on the Company's
results of operations and financial position.

                                       11
<PAGE>
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     On May 11, 2000 at an Annual Meeting of Shareholders, the following matters
were submitted to a vote of security holders:

     1. To elect four (4)  directors  to hold office as follows:  M. Moshe Porat
and Stephen  Schachman  to hold office  until the 2001  Annual  Meeting;  Robert
Pringle to hold office until the 2002 Annual Meeting; and Irwin L. Gross to hold
office until 2003 Annual Meeting; and

     2. To ratify the  selection  of KPMG LLP as auditors of the Company for the
fiscal year ending June 30, 2000.

                                                 VOTES       ABSTENTION AND
                                               AGAINST OR        BROKER
     MATTER                    VOTES FOR        WITHHELD        NON-VOTES
     ------                    ---------        --------        ---------
Proposal #1
 - M. Moshe Porat              11,365,642         7,700             0
 - Stephen Schachman           11,365,642         7,700             0
 - Robert Pringle              11,365,642         7,700             0
 - Irwin L. Gross              11,365,642         7,700             0

Proposal #2                    11,365,642         7,700           600

                                       12
<PAGE>
                                     PART II

ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's  Common Stock is listed on The NASDAQ  SmallCap  Market.  The
following  table  shows the high and low bid prices in dollars per share for the
last two years as reported by NASDAQ.

           YEAR ENDED JUNE 30, 1999                 LOW          HIGH
           ------------------------                 ---          ----
           First Quarter                          $ 1.813      $  4.938
           Second Quarter                         $ 2.000      $  4.125
           Third Quarter                          $ 2.125      $  3.938
           Fourth Quarter                         $ 1.375      $  3.375

           YEAR ENDED JUNE 30, 2000                 LOW          HIGH
           ------------------------                 ---          ----
           First Quarter                          $ 1.250      $  2.906
           Second Quarter                         $ 1.438      $  7.000
           Third Quarter                          $ 5.375      $ 13.375
           Fourth Quarter                         $ 2.875      $  8.719

     As of September 25, 2000,  there were  approximately  100 record holders of
the  Company's   Common  Stock,   but  the  Company   believes  that  there  are
approximately  2,200  beneficial  shareholders,  based upon broker  requests for
distribution.

DIVIDEND POLICY

     Holders of the  Company's  Common Stock are  entitled to receive  dividends
only when  declared by the  Company's  Board of  Directors.  Other than prior to
September 22, 1994 when the Company made  distributions  to shareholders as an S
corporation, dividends have never been declared or paid and the Company does not
plan to make any  dividend  payments  in the  foreseeable  future.  Instead  the
Company will reinvest in the expansion and  development of our business.  If the
Board of  Directors  decides to declare a dividend in the future,  the  decision
will be based on our earnings,  financial condition, cash requirements,  and any
other factors they deem relevant.

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

     THE  FOLLOWING  DISCUSSION  OF  OUR  FINANCIAL  CONDITION  AND  RESULTS  OF
OPERATIONS  SHOULD BE READ TOGETHER WITH THE CONSOLIDATED  FINANCIAL  STATEMENTS
AND THE RELATED  NOTES  INCLUDED IN ANOTHER PART OF THIS ANNUAL REPORT AND WHICH
ARE  DEEMED TO BE  INCORPORATED  INTO THIS  SECTION.  THIS  DISCUSSION  CONTAINS
FORWARD-LOOKING  STATEMENTS  THAT INVOLVE  RISKS AND  UNCERTAINTIES.  OUR ACTUAL
RESULTS MAY DIFFER  MATERIALLY FROM THOSE  ANTICIPATED IN THOSE  FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN  FACTORS,  INCLUDING BUT NOT LIMITED TO, THOSE
SET FORTH UNDER AND  INCLUDED  IN OTHER  PORTIONS  OF THIS  ANNUAL  REPORT.  SEE
"FORWARD-LOOKING STATEMENTS" ON PAGE 22.

BACKGROUND AND BASIS OF PRESENTATION

     We design,  manufacture,  install and maintain  advanced,  high-performance
computer  servers and  interactive,  broad-band  information  and  entertainment
systems.  We also procure and provide the content available through the systems.
These  all-digital  systems  deliver an  on-demand,  multimedia  experience  via
high-speed,  high-performance Internet Protocol (IP) networks. These systems are
designed to provide users access to information,  entertainment and a wide array
of service  options,  such as shopping for goods and services,  computer  games,
access to the World Wide Web and on-line gambling, where permitted by applicable
law. The targeted markets for our products are hotels and time-share properties,
cruise ships,  educational  institutions and corporate  training,  and passenger
trains.

     On May 18, 1999,  we obtained  substantially  all of the assets and certain
liabilities of the Interactive  Entertainment  Division of Global  Technologies,
Ltd. (formerly known as Interactive Flight Technologies, Inc.) and $4,250,000 in

                                       13
<PAGE>
cash in exchange for 1,055,745  shares of our common stock and 2,495,400  shares
of our Series D Convertible  Preferred  Stock.  For  accounting  purposes,  this
acquisition is treated as a reverse  merger.  Global  Technologies  is deemed to
have acquired us. As a result, we are treated as the successor to the historical
operations  of  the  Interactive   Entertainment   Division  and  our  financial
statements,  which have been  reported  to the SEC on Forms  10-KSB and  10-QSB,
among others,  have been replaced  with those of the  Interactive  Entertainment
Division.  We will continue to file as a SEC  registrant  and continue to report
under the name The Network Connection, Inc.

     We changed our fiscal  year-end from  December 31 to June 30.  Accordingly,
the  eight-month  period  resulting  from this change - November 1, 1999 through
June 30, 1999 - is referred to in this report as the "transition period."

     For accounting  purposes,  the date of the  acquisition of the  Interactive
Entertainment  Division was May 1, 1999. The financial  statements as of and for
the  year  ended  October  31,  1998  reflect  the  historical  results  of  the
Interactive   Entertainment   Division   as   previously   included   in  Global
Technologies'  consolidated  financial  statements.  Included  in the  financial
statements for the eight months ended June 30, 1999 are the  historical  results
of the  Interactive  Entertainment  Division  through  April 30,  1999,  and the
results of the post-transaction  company for the two months ended June 30, 1999.
All  consolidated  financial  statements  from July 1, 1999 forward  reflect the
results of the post-transaction company.

     As of June 30, 2000, we were a 79% owned subsidiary of Global Technologies,
whose  ownership was  represented by 1,500 shares of our Series B 8% Convertible
Preferred  Stock,  2.5  million  shares  of our  Series D  Preferred  Stock  and
approximately  8.1 million shares of our common stock. In addition,  pursuant to
the terms of the acquisition of Global Technologies'  Interactive  Entertainment
Division,  Global  Technologies is entitled to receive 270,081 additional shares
of the  Company's  Common  Stock on  account  of claims  that  arose  during the
one-year period following the acquisition.

     Our consolidated financial statements are prepared using generally accepted
accounting  principles  applicable  to a going  concern  which  contemplate  the
realization  of assets and  liquidation  of  liabilities in the normal course of
business.  We have incurred net losses from operations for two of the last three
periods,  had an accumulated  deficit at June 30, 2000 as a result of efforts to
build our customer base and develop our operations. Management believes that our
current cash balances,  the $5 million credit facility with Global  Technologies
(of which  approximately  $2.7 million  remained  available as of September  29,
2000),  and  currently  available  external  sources  of  financing  will not be
sufficient to meet our currently  anticipated  cash  requirements for operations
for the next 12 months.  A substantial  portion of our accounts payable are past
due  and  many  suppliers  have  imposed  cash  on  delivery  terms.  We  are in
discussions  with private equity sources which, if transactions  are consumated,
together with the Global  Technologies  credit facility and currently  available
external sources of financing, should provide sufficient short-term funding. Our
inability to draw on the credit  facility  with Global  Technologies,  to obtain
funds pursuant to the currently available external sources of financing,  or not
complete certain private placement  transactions,  would have a material adverse
effect on our operating results,  financial condition and ability to continue as
a going concern.

                                       14
<PAGE>
     Global  Technologies  does not  currently  have  sufficient  cash for us to
borrow under the credit  facility and no assurance  can be given that  currently
available  external  sources of financing  will have the resources  necessary to
meet its  commitments  as we draw down from time to time pursuant to our private
equity line, or that any other financings will be consumated.  Additionally, any
increase in our growth rate,  shortfalls in  anticipated  revenues,  increase in
anticipated  expenses,  or significant  acquisition  or expansion  opportunities
could have a material adverse effect on our liquidity and capital  resources and
would require us to raise  additional  capital from public or private  equity or
debt  sources in order to finance  operating  losses,  anticipated  growth,  and
contemplated capital expenditures and expansions.

     We have  significant  expansion  plans  which we  intend  to fund  with the
facilities discussed above;  however, if there is any delay in consumating these
facilities,  we will not engage in such expansion until adequate capital sources
have  been  arranged.   If  such  sources  of  financing  are   insufficient  or
unavailable,  we will be  required to modify our growth and  operating  plans or
scale back  operations  to the extent of  unanticipated  opportunities,  such as
acquisitions of complementary  businesses or the development of new products, or
otherwise  respond  to  unanticipated  competitive  pressures.  There  can be no
assurance that we will be able to raise any such capital on terms  acceptable to
us or at all.

     We expect to continue to focus on  developing  and  expanding  our enhanced
broadband  information and entertainment  systems while continuing to expand our
current operation's market penetration.  Accordingly, we expect that our capital
expenditures and cost of revenues and  depreciation  and  amortization  expenses
will  continue  to  increase  significantly,  all of which could have a negative
impact on short-term operating results. In addition,  we may change our strategy
to respond to a changing competitive environment. There can be no assurance that
growth in our revenue or market  penetration  will continue,  that our expansion
efforts  will be  profitable,  or that we  will be able to  achieve  or  sustain
profitability  or  positive  cash flow.  Further,  we will  require  substantial
financing to continue as a going concern, accomplish any significant acquisition
or merger  transaction,  and provide for working  capital to operate our current
and proposed expanded operations until profitability is achieved, if ever.

RESULTS OF OPERATIONS

     In August 1999,  our fiscal  year-end was changed from  December 31 to June
30. Our  financial  statements  included  in this  Annual  Report on Form 10-KSB
contain the results from  operations for our fiscal year ended October 31, 1998,
for the  eight-month  Transition  Period  ended June 30, 1999 and for our fiscal
year ended June 30,  2000.  For  purposes of this  management's  discussion  and
analysis,  for  comparative  purposes  only,  we will  refer  to the  pro  forma
unaudited results of operations for the twelve-month period ended June 30, 1999.
In some instances,  where we compare results for the pro forma unaudited  twelve
months ended June 30, 1999 with the fiscal year ended  October 31, 1998,  please
note that there is a  four-month  overlap  between such  periods.  The pro forma
unaudited  results of  operations  for the twelve months ended June 30, 1999 and
audited year ended June 30, 2000 are as follows:

                                       15
<PAGE>
                                                              TWELVE MONTHS
                                              YEAR ENDED          ENDED
                                             JUNE 30, 2000    JUNE 30, 1999
                                               (AUDITED)   (PRO FORMA UNAUDITED)
                                             ------------  ---------------------
Revenues:
  Equipment sales                            $  6,983,787      $   980,533
  Service income                                  107,873          411,677
                                             ------------      -----------
       Total revenues                           7,091,660        1,392,210

Cost of equipment sales                         4,867,519        1,801,037
Cost of service income                             61,978              736
General and administrative expenses             9,827,804        9,881,556
Reversal of warranty, maintenance and
 commission accruals                                   --       (7,151,393)
Provision for doubtful accounts                        --           28,648
Non-cash compensation expense                   1,005,232               --
Special charges                                 2,156,205          331,590
Amortization of intangibles                       912,553           74,981
                                             ------------      -----------
       Total operating expense                 18,831,291        4,967,155
                                             ------------      -----------
Operating loss                                (11,739,631)      (3,574,945)

Other income (expense):
  Interest expense                             (4,602,183)         (86,373)
  Interest income                                 109,001          154,629
  Other expense                                   (19,386)        (567,307)
  Cumulative dividend on preferred stock         (120,000)         (30,667)
                                             ------------      -----------
Net loss available to common shareholders    $(16,372,199)     $(4,104,663)
                                             ============      ===========

     REVENUES

     Revenue  for the year ended June 30,  2000 was  $7,091,660,  an increase of
$5,699,450  (or 409%)  compared  to revenue of  $1,392,210  (unaudited)  for the
twelve months ended June 30, 1999.  Equipment  sales of $6,983,787  for the year
ended June 30, 2000 are  comprised  principally  of  approximately  $5.4 million
generated  from the sale of 195 of the  Company's  Cheetah(R)  video  servers in
connection  with the Georgia  Metropolitan  Regional  Education  Services Agency
("MRESA")  Net 2000 project and  approximately  $1.4 million  related to network
equipment  installed  onboard two Carnival  ships.  (See  Liquidity  and Capital
Resources for a discussion of Carnival Settlement  Agreement.) Service income of
$107,873  for the year ended June 30, 2000 is comprised  principally  of $48,046
provided by the Company's  share of revenue  generated by the Cruise View system
on two Carnival  ships and $59,827  generated from design  services  provided to
ALSTOM Transport Ltd. ("Alstom"). The Company provided these services to Alstom,
but expects no further  business from Alstom as they plan to create a subsidiary
that would  compete with the Company in the  passenger  rail  market.  Equipment
sales of  $980,533  (unaudited)  for the twelve  months  ended June 30, 1999 are
comprised  principally of $875,957 (unaudited)  generated from payments received
from Swissair for one of four  entertainment  networks billed per the April 1998
contract with Swissair and $89,028 (unaudited)  generated from the sale of spare
parts  needed  for the  entertainment  networks  installed  previously  on three
Swissair aircraft.  Service income of $411,677 (unaudited) for the twelve months
ended June 30, 1999 was principally generated from programming services provided
to Swissair, representing the Company's share of gaming profits generated by the
Swissair  systems  and  revenue  earned  under the  Swissair  extended  warranty
contract. There will be no further revenue under the Swissair agreement.

     Revenue  for the  twelve  months  ended  June 30,  1999 was  $1,392,210,  a
decrease of $17,424,752 (or 93%) compared to revenue of $18,816,962 for the year
ended October 31, 1998.  Equipment sales of $980,533  (unaudited) for the twelve
months ended June 30, 1999 are  comprised  principally  of $875,957  (unaudited)
generated  from payments  received  from Swissair for one of four  entertainment
networks   billed  per  the  April  1998  contract  with  Swissair  and  $89,028

                                       16
<PAGE>
(unaudited)  generated from the sale of spare parts needed for the entertainment
networks  installed  previously on three  Swissair  aircraft.  Service income of
$411,677  (unaudited)  for the twelve months ended June 30, 1999 was principally
generated  from  programming  services  provided to Swissair,  representing  the
Company's share of gaming profits  generated by the Swissair systems and revenue
earned  under  the  Swissair  extended  warranty  contract.  Equipment  sales of
$18,038,619  for the year ended  October 31, 1998 was  generated  as a result of
installations completed by the Company under the initial Swissair program on ten
business class and eighteen  first class planes.  Service income of $778,343 for
the year ended  October  31, 1998 was  principally  generated  from  programming
services  provided to Swissair,  the Company's share of gaming profits generated
by the Swissair systems and revenue earned under the Swissair  extended warranty
Letter of Intent.

     COST OF SALES

     Cost of equipment  sales for the year ended June 30, 2000 were  $4,867,519,
an increase of  $3,066,482  (or 170%)  compared  to cost of  equipment  sales of
$1,801,037  (unaudited)  for the  twelve  months  ended June 30,  1999.  Cost of
equipment  sales in the current year is principally  comprised of  approximately
$3.4 million of material  costs and estimated  warranty  costs for the 195 video
servers  for the  Georgia  schools  project and  approximately  $1.4  million of
material costs related to network  equipment onboard two Carnival ships. Cost of
equipment  sales of $1,801,037  (unaudited) for the twelve months ended June 30,
1999 is comprised principally of material costs for four Swissair  Entertainment
Networks.  Cost of service income of $61,978 for the year ended June 30, 2000 is
principally  attributable to video content costs. Cost of service income for the
twelve months ended June 30, 1999 is related to programming services provided to
Swissair.

     Cost of  equipment  sales for the twelve  months  ended  June 30,  1999 was
$1,801,037  (unaudited),   a  decrease  of  $13,722,245  (or  88%)  compared  to
$15,523,282  for the fiscal year ended October 31, 1998. Cost of equipment sales
of  $1,801,037  (unaudited)  for the  year  ended  June  30,  1999 is  comprised
principally of material costs for four Swissair Entertainment  Networks. Cost of
equipment sales of $15,523,282 for fiscal 1998 includes materials,  installation
and maintenance costs, as well as estimated one-year warranty costs and costs of
upgrades  to  the  Swissair   Entertainment   Networks   that  the  Company  was
contractually committed to providing to Swissair.

     GENERAL AND ADMINISTRATIVE COSTS

     General and  administrative  expenses for the year ended June 30, 2000 were
$9,827,804,  a decrease  of $53,752 (or 1%)  compared to expenses of  $9,881,556
(unaudited)  for the twelve months ended June 30, 1999. The decrease in expenses
in the  current  fiscal year can be  principally  attributed  to a $3.1  million
(unaudited)  severance payment recorded in the twelve months ended June 30, 1999
for  three  former  executives  of the  former  IED as  well  as a $1.6  million
(unaudited)  write-off  in the  twelve  months  ended  June 30,  1999 of certain
consulting  agreements determined to have no future value, offset in fiscal 2000
by an increase in payroll and benefit  costs  generated by an  approximate  180%
increase in personnel,  increases in depreciation  expense,  the addition of the
Company's  Philadelphia  office  and  expenses  incurred  by  the  Company's  UK
subsidiary.  Significant  components  of  general  and  administrative  expenses
include payroll costs and legal and professional fees.

     General and  administrative  expenses for the twelve  months ended June 30,
1999 were $9,881,556  (unaudited),  an increase of $861,684 (or 10%) compared to
expenses  of  $9,019,872  for the  year  ended  October  31,  1998.  Significant
components of general and  administrative  expenses  include costs of consulting
agreements, legal and professional fees, and corporate insurance costs.

     RESEARCH AND DEVELOPMENT EXPENSES

     There were no research and development  expenses in the year ended June 30,
2000.  There were no research and  development  expenses  for the twelve  months
ended June 30,  1999  (unaudited),  compared  to  $1,092,316  for the year ended
October 31,  1998.  The  decrease in  expenses  in 1999 from 1998  reflects  the
Company's   decision  not  to  develop  the  next  generation  of  the  Inflight
Entertainment  Network and the  resulting  reduction  in staff and  professional
fees.  We expect a  substantial  increase in research and  development  costs in
future periods as we continue to develop new technologies and product features.

                                       17
<PAGE>
     REVERSAL OF WARRANTY, MAINTENANCE AND COMMISSION ACCRUALS

     For the twelve  months ended June 30, 1999 the Company  recorded  warranty,
maintenance,  commission  and support cost  accrual  adjustments  of  $5,117,704
(unaudited),   $504,409   (unaudited),   $303,321   (unaudited)  and  $1,225,959
(unaudited),  respectively.  Such adjustments to prior period  estimates,  which
totaled  $7,151,393  (unaudited),   resulted  from  an  evaluation  of  specific
contractual  obligations  related to Swissair  and  discussions  between the new
management of the Company and other parties related to such contracts.  Based on
the results of the Company's  findings during fiscal 1999, such accruals were no
longer considered necessary.

     NON-CASH COMPENSATION EXPENSE

     Non-cash  compensation  expense of  $1,005,232  for the year ended June 30,
2000 is  comprised  of an $85,000  expense  for a former  employee  as part of a
severance package,  charges of $132,821 for modifications of stock option awards
for two former employees and charges  totaling  $787,411 related to the issuance
of Common  Stock  purchase  warrants  and Common  Stock for  financial  advisory
services.

     PROVISION FOR DOUBTFUL ACCOUNTS

     There were no provisions for doubtful  accounts for the year ended June 30,
2000 compared to $28,648  (unaudited) for the twelve months ended June 30, 1999.
The  provisions  in  the  previous  fiscal  year  resulted  from   entertainment
programming  services  provided to  Swissair  for which the Company has not been
paid.

     Provisions for doubtful  accounts for the twelve months ended June 30, 1999
were $28,648 (unaudited),  compared to zero for the year ended October 31, 1998.
Twelve  months  ended  June 30,  1999  provisions  resulted  from  entertainment
programming services provided to Swissair.

     SPECIAL CHARGES

     Special charges for the year ended June 30, 2000 were  $2,156,205  compared
to $331,590  (unaudited)  for the  previous  twelve  month  period.  Fiscal 2000
special charges are principally  comprised of costs associated with two Carnival
ships  resulting  from the  write-off  of certain  inventory,  refurbishment  of
equipment and estimated de-installation  obligations. See discussion of Carnival
in "Liquidity and Capital Resources" below. Special charges for the twelve month
period  ended June 30,  1999 are  comprised  of $521,590  (unaudited)  in assets
written off related to Swissair,  offset by the recovery of $190,000 (unaudited)
that was recognized during the quarter ended September 30, 1998 as a result of a
reduction in the number of entertainment networks installed in Swissair aircraft
requiring maintenance.

     Special  charges for the twelve  months  ended June 30, 1999 were  $331,590
(unaudited),  compared to $400,024 for the year ended October 31, 1998.  Special
charges for the year ended June 30, 1999 are  comprised of $521,590  (unaudited)
in assets  written off related to  Swissair,  offset by the recovery of $190,000
(unaudited) that was recognized during the quarter ended September 30, 1998 as a
result of a  reduction  in the number of  entertainment  networks  installed  in
Swissair  aircraft  requiring  maintenance.   Special  charges  in  fiscal  1998
primarily resulted from equipment write-offs of $1,006,532.  The write-offs were
for excess  computers,  furniture and other  equipment  that the Company was not
utilizing in its  operations.  The equipment  write-offs were partly offset by a
recovery of special  charges  expensed in fiscal  1997.  During  fiscal  1998, a
recovery of $190,000 was  recognized as a special charge credit as a result of a
reduction in the number of Entertainment  Networks  requiring  maintenance.  The
Company also recognized a recovery of $416,508 related to Swissair's decision to
not  develop  the  system  for the  front  row in the  economy  sections  of its
aircraft.

     AMORTIZATION OF INTANGIBLES

     Amortization  expense  for the year ended June 30,  2000 was  $912,553,  an
increase of $837,572  (or 1,117%)  compared to  amortization  expense of $74,981
(unaudited)  for the  twelve  months  ended  June  30,  1999.  The  increase  in
intangible   amortization  in  the  current  fiscal  year  is  due  to  goodwill
amortization recorded during the year which resulted from the May 1999

                                       18
<PAGE>
acquisition  transaction described above.  Effective May 1, 2000, we revised our
estimate of the  remaining  useful life of goodwill from ten years to five years
as a result of economic events which occured during the period.  Had the Company
assumed a five-year  life for  goodwill  amortization  at the  Transition  date,
additional  expense of  approximately  $593,000 would have been recorded for the
year-ended June 30, 2000, and  approximately  $712,000 for each of the remaining
years.

     Amortization  expense was $74,981  (unaudited)  for the twelve months ended
June 30, 1999, compared to zero for the year ended October 31, 1998.

     INTEREST EXPENSE

     Interest  expense for the year ended June 30, 2000 was $4,602,183  compared
to $86,373  (unaudited)  for the twelve  months  ended June 30,  1999.  Interest
expense for the current  fiscal year can be attributed  principally  to non-cash
expenses related to a beneficial  conversion  attributed to the revolving credit
facility with Global,  whereas interest expense for the previous fiscal year can
be  attributed  to  long-term  debt  obligations  as well as capital  leases for
furniture which expired in September 1999.

     Interest  expense was $86,373  (unaudited) for the twelve months ended June
30, 1999  compared to $11,954 for the year ended  October 31,  1998.  The twelve
month 1999 expense can be attributed  principally to long-term debt obligations,
whereas the fiscal 1998 expense is attributable to the Company's  capital leases
for furniture that expire in September 1999.

     INTEREST INCOME

     Interest  income for the year ended June 30, 2000 was $109,001  compared to
$154,629  (unaudited) for the twelve months ended June 30, 1999. Interest income
for  the  current  fiscal  year  was   principally   generated  from  short-term
investments of working capital,  whereas interest income for the previous fiscal
year is principally attributed to Swissair extended warranty billings.

     Interest  income for the twelve  months  ended June 30,  1999 was  $154,629
(unaudited) compared to $53,465 for the year ended October 31, 1998. Fiscal 1999
and fiscal 1998 interest income is principally  attributed to Swissair  extended
warranty billings.

     OTHER INCOME (EXPENSE)

     Other  expense  for the year  ended  June 30,  2000  was  $19,386.  This is
comprised  of income  resulting  from the sale of  equipment,  offset by expense
resulting  from a loss on the buyout of a capital  lease for  furniture,  losses
incurred on the sale of two buildings  located in Georgia and a loss incurred on
the buyout of a vehicle lease.

     Other  expense  for the  twelve  months  ended June 30,  1999 was  $567,307
(unaudited), resulting from furniture and equipment write-offs in October 1998.

     Other  income of $10,179 for the year ended  October  31,  1998  represents
proceeds from the sale of scrapped inventory.

LIQUIDITY AND CAPITAL RESOURCES

     We expect to use a  significant  amount of cash in the next twelve  months.
Cash will be used  primarily  to repay  existing  vendors,  finance  anticipated
operating  losses  resulting  from efforts to build a customer  base and develop
operations, and to make capital expenditures required for sales of our systems.

     Our consolidated financial statements are prepared using generally accepted
accounting  principles  applicable  to a going  concern  which  contemplate  the
realization  of assets and  liquidation  of  liabilities in the normal course of
business.  We have incurred net losses from operations for two of the last three
periods,  had an accumulated  deficit at June 30, 2000 as a result of efforts to
build our customer base and develop our operations. Management believes that our

                                       19
<PAGE>
current cash balances,  the $5 million credit facility with Global  Technologies
(of which  approximately  $2.7 million  remains  available  as of September  29,
2000),  and  currently  available  external  sources  of  financing  will not be
sufficient to meet our currently  anticipated  cash  requirements for operations
for the next 12 months.  A substantial  portion of our accounts payable are past
due  and  many  suppliers  have  imposed  cash  on  delivery  terms.  We  are in
discussions  with private equity sources which, if transactions  are consumated,
together with the Global  Technologies  credit facility and currently  available
external sources of financing, should provide sufficient short-term funding. Our
inability to draw on the credit  facility  with Global  Technologies,  to obtain
funds pursuant to the currently available external sources of financing,  or not
complete certain private placement  transactions,  would have a material adverse
effect on our operating results,  financial condition and ability to continue as
a going concern.

     Global  Technologies  does not  currently  have  sufficient  cash for us to
borrow under the credit  facility and no assurance  can be given that  currently
available  external  sources of financing  will have the resources  necessary to
meet its  commitments  as we draw down from time to time pursuant to our private
equity line, or that any other financings will be consumated.  Additionally, any
increase in our growth rate,  shortfalls in anticipated  revenues,  increases in
anticipated  expenses,  or significant  acquisition  or expansion  opportunities
could have a material adverse effect on our liquidity and capital  resources and
would require us to raise  additional  capital from public or private  equity or
debt  sources in order to finance  operating  losses,  anticipated  growth,  and
contemplated capital expenditures and expansions.

     We have  significant  expansion  plans  which we  intend  to fund  with the
facilities  discussed above;  however,  if there is any delay in the anticipated
closing  of  these  facilities  or any  shortfall,  we will not  engage  in such
expansion until adequate capital sources have been arranged.  If such sources of
financing are  insufficient  or  unavailable,  we will be required to modify our
growth  and  operating   plans  or  scale  back  operations  to  the  extent  of
unanticipated opportunities, such as acquisitions of complementary businesses or
the  development  of  new  products,   or  otherwise  respond  to  unanticipated
competitive  pressures.  There can be no assurance that we will be able to raise
any such capital on terms acceptable to us or at all.

     We expect to continue to focus on  developing  and  expanding  our enhanced
broadband  information and entertainment  systems while continuing to expand our
current operation's market penetration.  Accordingly, we expect that our capital
expenditures and cost of revenues and  depreciation  and  amortization  expenses
will  continue  to  increase  significantly,  all of which could have a negative
impact on short-term operating results. In addition,  we may change our strategy
to respond to a changing competitive environment. There can be no assurance that
growth in our revenue or market  penetration  will continue,  that our expansion
efforts  will be  profitable,  or that we  will be able to  achieve  or  sustain
profitability  or  positive  cash flow.  Further,  we will  require  substantial
financing to continue as a going concern, accomplish any significant acquisition
or merger  transaction,  and provide for working  capital to operate our current
and proposed expanded operations until profitability is achieved, if ever.

     We are currently using our working capital to finance  equipment  purchases
and  other  expenses  associated  with  the  delivery  and  installation  of our
products, and general and administrative costs.

     Prior to June 30,  1999,  our primary  source of funding  had been  through
contributed  capital from Global  Technologies.  In August 1999,  we received an
order for $5.4 million for the manufacture,  delivery and installation of 195 of
our Cheetah(R) multimedia video servers in connection with the Georgia MRESA Net
2000  project;  and a  service  order  under  an  agreement  with  Carnival  for
installation of a second  CruiseView(TM)  system. In addition, as of the date of

                                       20
<PAGE>
this report,  we have received  orders for the  installation  of our InnView(TM)
system in eleven  hotels  within the United  States.  We have  received the full
payment of $5.4 million in  connection  with the Net 2000  project.  We received
payments  from Carnival for the two ships (see Notes to  Consolidated  Financial
Statements,  Note 20).  Working capital will continue to decrease as we continue
to invest in equipment  for orders under the  agreements  with the hotel orders,
invest in business development, and invest in additional equipment to the extent
we are  successful  in  generating  additional  orders for sales of our systems,
which are longer term by nature.

     During  the  year  ended  June 30,  2000,  we used  $4,755,647  of cash for
operating activities, an increase of $1,657,700 from the $3,097,947 of cash used
for the  Transition  Period ended June 30, 1999. The cash utilized in operations
during  the year  ended  June 30,  2000  resulted  primarily  from the net loss,
partially offset by increases in accounts payable, non-cash interest and special
charges. The cash utilized in operations during the Transition Period ended June
30,  1999  resulted  primarily  from  reversal  of  warranty,   maintenance  and
commission  accruals and an increase in accounts  payable,  partially  offset by
increases in inventory and deferred revenue.

     Cash flows used in investing  activities  were  $2,397,851  during the year
ended June 30, 2000,  an increase of  $2,091,839  from the $306,012 of cash used
for the  Transition  Period  ended  June 30,  1999.  The  increase  in cash used
resulted  primarily from the purchase of equipment used for installations of our
system into hotel properties,  partially offset by sale of investment securities
in the  quarter  ended  December  31,  1999  and  proceeds  from the sale of two
buildings  held  for  sale  (one in the  first  quarter,  and one in the  second
quarter).

     During the year ended June 30, 2000, cash provided by financing  activities
was $4,990,241 a decrease of $1,150,876 from the $6,141,117 of cash provided for
the Transition  Period ended June 30, 1999. The decrease in cash provided in the
current fiscal year resulted primarily from borrowings under the credit facility
with Global  Technologies,  advances  received from a related party,  as well as
advances under an equity  purchase  agreement,  offset by payments made on notes
payable.

     Prior to the  acquisition of the  Interactive  Entertainment  Division,  we
entered into a secured promissory note with Global Technologies in the principal
amount of $750,000,  bearing interest at a rate of 9.5% per annum, and a related
security  agreement  granting  Global  Technologies  a security  interest in our
assets.  This  promissory  note was converted  into 886,000 shares of our Common
Stock by Global Technologies in December 1999.

     In July and August 1999, Global Technologies  purchased all of our Series A
and E notes  and the  Series D notes,  respectively,  from the  holders  of such
notes. Concurrent with such purchase by Global Technologies, we executed several
allonges to the promissory note which cancelled such Series Notes and rolled the
principal  balance,  plus accrued but unpaid interest,  penalties and redemption
premiums on the Series Notes into the principal  balance of the promissory note.
Subsequent  to May 18,  1999,  Global  Technologies  had also  advanced  working
capital to us in the form of intercompany  advances. In August 1999, we executed
an allonge to the promissory  note which rolled the  intercompany  advances into
the principal balance of the promissory note and granted Global Technologies the
ability to convert the promissory  note directly into shares of our common stock
as an administrative convenience.

     On August 24, 1999, the board of directors of Global Technologies  approved
the  conversion of the  promissory  note into shares of our common  stock.  Such
conversion,  to the extent it exceeded  approximately  one million shares of our
common stock on August 24,  1999,  was  contingent  upon  receiving  shareholder
approval to increase our authorized  share capital.  This increase in authorized
share  capital was  subsequently  approved on September  17, 1999 at the Special
Meeting of our shareholders.  Accordingly, in December 1999, we issued to Global
Technologies  4,802,377  shares of our common stock based on the conversion date
of August 24, 1999.

                                       21
<PAGE>
     On August 24, 1999, the board of directors of Global Technologies  approved
a  $5  million  secured   revolving   credit  facility  by  and  between  Global
Technologies  and us. This credit facility  provides that we may borrow up to $5
million for working capital and general corporate  purposes at the prime rate of
interest  plus 3%. The credit  facility  matures in September  2001.  We paid an
origination  fee of $50,000 to Global  Technologies  and will pay an unused line
fee of 0.5% per annum.  The credit  facility is secured by all of our assets and
is convertible,  at Global Technologies' option, into shares of our common stock
at a price equal to the lesser of 66.7% of the trailing  five-day  average share
price of the preceding 20 days,  $1.50 per share,  or any lesser amount at which
common stock has been issued to third parties.  Pursuant to Nasdaq rules, Global
Technologies may not convert borrowings under the credit facility into shares of
our  common  stock in excess of 19.99% of the  number of shares of common  stock
outstanding on August 24, 1999,  without  shareholder  approval.  As of June 30,
2000, $2,350,000 was outstanding under the credit facility. As of June 30, 2000,
Global  Technologies  did not have  sufficient cash for us to borrow the full $5
million under the credit facility. Should we be unable to borrow funds under the
credit  facility,  it could result in a material adverse effect on our operating
results and financial condition.

     In September 1999, we sold one of our two buildings in Alpharetta, Georgia.
The net proceeds from the sale, plus cash of  approximately  $80,000 was used by
us to repay a note  payable  due  April  19,  2001 in the  principal  amount  of
$470,000.  The sale of the second  building  occurred in November  1999. The net
proceeds of approximately  $367,000 from sale were used to retire a note payable
due 2009 in the principal amount of $217,000.

     In  September  1998,  the Company  entered  into a Turnkey  Agreement  (the
"Carnival  Agreement") with Carnival Corporation  ("Carnival") for the purchase,
installation and maintenance of its advanced cabin  entertainment and management
system for the cruise industry  ("CruiseView(TM)")  on a minimum of one Carnival
Cruise Lines ship.  During the  four-year  period  commencing on the date of the
Carnival Agreement, Carnival had the right to designate an unspecified number of
additional ships for the installation of CruiseView(TM).  The cost per cabin for
CruiseView(TM)  purchase and  installation  on each ship was provided for in the
Carnival  Agreement.  In December 1998,  Carnival  ordered the  installation  of
CruiseView(TM)  on one Carnival Cruise Lines "Fantasy" class ship which has been
in  operational  use since August 1999.  In August  1999,  Carnival  ordered the
installation of CruiseView(TM) on one Carnival Cruise Lines "Destiny" class ship
which was in  operational  use from October 1999 through  March 2000.  Under the
terms of the agreement,  the Company was to receive payment for 50% of the sales
price of the system in  installments  through  commencement  of operation of the
system.  Recovery of the remaining  sales price of the system was to be achieved
through the receipt of the Company's 50% share of net profits, as defined in the
Carnival Agreement, generated by the system over future periods.

     The terms of the Carnival  Agreement  provided that Carnival may return the
CruiseView(TM)  system within the acceptance  period, as defined in the Carnival
Agreement,  or for breach of warranty. The acceptance period for the Fantasy and
Destiny  class ships were twelve  months and three  months,  respectively,  from
completion  of  installation  and testing,  which  occurred in February 1999 and
October 1999,  respectively.  The initial  warranty period for these systems was
three years. As of March 31, 2000, the Company had recorded  deferred revenue of
approximately $2.1 million related to the two Carnival ships.

     Beginning in the quarter ended March 31, 2000, the Company had  experienced
costs in excess of those recoverable under the Carnival  Agreement.  Given these
costs, and ongoing technical issues, the Company notified Carnival of its desire
to  renegotiate  the  Carnival  Agreement.  During these  discussions,  Carnival
notified  the  Company  in a letter  dated  April  24,  2000  that it  sought to
terminate  the  Carnival   Agreement  and  sought  to  assert  certain  remedies
thereunder.  On September 25, 2000, the Company entered into a Master Settlement
Agreement and Mutual  Release with Carnival (the  "Settlement  Agreement").  The
Settlement  Agreement  specifies  that the Company and  Carnival  agree:  (i) To
terminate the Carnival Agreement;  (ii) to negotiate in good faith to enter into
a New  Agreement;  (iii)  that the  Company  will  issue to  Carnival a one-year
convertible note payable in the principal  amount of $550,000;  (iv) to mutually
release  each party from any prior  claims;  and (v) the  Company  shall  retain
ownership of any and all equipment  (other than wiring and  switching  equipment
installed for  networking  purposes  which  Carnival  purchased and paid in full
pursuant to the Carnival Agreement) installed on any Carnival ship.

                                       22
<PAGE>
     Based on the above,  the Company  recorded  revenue of $1.4 million for the
value of networking equipment purchased by Carnival, cost of revenue in an equal
amount by applying the cost recovery method of accounting and special charges of
approximately $2.1 million resulting from the Settlement Agreement.  The Company
recorded  a special  charge  reflecting  the  write-off  of:  (i) all  remaining
inventory  associated with Carnival as substantial  uncertainty exists regarding
its realizability  (approximately $2.1 million);  (ii) all costs associated with
the  deinstallation  and removal of equipment from the two ships  (approximately
$85,000)  and (iii) all  costs  associated  with the  refurbishment  of  certain
equipment  such  that  the  equipment  may be  re-deployed  to  other  customers
($174,000).  Special charges were offset by the reversal of deferred  revenue of
$190,000 which the Company was not required to return to Carnival,  and warranty
accruals for which the Company has no continuing obligation.

     Pursuant to the Settlement  Agreement,  the Company and Carnival  continued
discussions  with respect to a New Agreement which would cover the  installation
of the Company's  latest  CruiseView(TM)  technology on the "Fantasy" class ship
discussed  above,  and contractual  terms more favorable to the Company than the
Carnival Agreement,  including a longer-term and multiple ship arrangement.  The
Company  believes its new  technology  improves the Company's  ability to create
multiple  new content and  commerce-based  revenue  streams,  and to establish a
business relationship  providing  appropriate returns to each partner.  However,
while the Company is  optimistic  about the  discussions,  there is no assurance
that  the  Company  will be  successful  in  reaching  a  mutually  satisfactory
resolution  of the  Carnival  Agreement  and in securing a new,  more  favorable
long-term  contract  with  Carnival.  Notwithstanding  the  above,  the  Company
continues to operate its CruiseView(TM) system aboard one Carnival Fantasy class
ship  on a  month-to-month  basis  and  will  continue  to do so as  long as the
economics are beneficial to the Company and Carnival.

INFLATION AND SEASONALITY

     We do not believe  that we are  significantly  impacted by  inflation.  Our
operations  are not  seasonal  in  nature,  except  to  extent  fluctuations  in
quarterly  operating  results  occur due to the  cyclical  nature of  government
funding to be obtained in connection with education programs.

RISKS ASSOCIATED WITH YEAR 2000

     In prior  periods,  the Company  discussed  the nature and  progress of its
plans to become  Year 2000  ready.  In late  1999,  the  Company  completed  the
remediation and testing of its critical computer dependent systems. Through June
30, 2000, the Company has  experienced  no  significant  disruptions in critical
information technology and non-information technology systems and believes those
systems successfully  responded to the Year 2000 date change. The Company is not
aware of any material problems resulting from Year 2000 issues,  either with its
products,  its internal systems,  or the products and services of third parties.
The Company will continue to monitor its mission critical computer  applications
and those of our suppliers and vendors throughout the year 2000.

FORWARD-LOOKING INFORMATION

     This Report  contains  certain  forward-looking  statements and information
within the meaning of Section 27A of the  Securities Act of 1933 and Section 21E
of the Securities  Exchange Act of 1934. The cautionary  statements made in this
Report  should  be read  as  being  applicable  to all  related  forward-looking
statements wherever they appear in this Report.  Forward-looking  statements, by
their very nature, include risks and uncertainties.  Accordingly,  the Company's
actual  results could differ  materially  from those  discussed  herein.  A wide
variety of factors  could  cause or  contribute  to such  differences  and could
adversely impact  revenues,  profitability,  cash flows and capital needs.  Such
factors,  many of which are  beyond  the  control of the  Company,  include  the
following: the Company's success in obtaining new contracts; the volume and type
of work orders that are received under such contracts;  the accuracy of the cost
estimates  for the projects;  the Company's  ability to complete its projects on
time and within budget;  levels of, and ability to, collect accounts receivable;
availability of trained  personnel and utilization of the Company's  capacity to
complete work;  competition and competitive  pressures on pricing;  and economic
conditions in the United States and in other regions served by the Company.

                                       23
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives  and Similar  Financial  Instruments and for Hedging
Activities",  to establish  accounting  and reporting  standards for  derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives  as either  assets or  liabilities  on the balance sheet and measure
those instruments at fair value.  This new standard,  as amended by related SFAS
Nos. 137 and 138,  will be effective  for the Company for its fiscal year ending
June 30, 2001. We are currently evaluating the impact of SFAS No. 133.

     In March  2000,  the  Financial  Accounting  Standards  Board  issued  FASB
Interpretation  No. 44,  Accounting  for Certain  Transactions  Involving  Stock
Compensation (an  interpretation of APB 25). This  interpretation  clarifies the
application  of APB No. 25 by  clarifying  the  definition  of an employee,  the
determination of non-compensatory plans and the effect of modifications to stock
options.  This  interpretation  is effective July 1, 2000 and is not expected to
have a material effect on the Company's consolidated financial statements.

ITEM 7 - FINANCIAL STATEMENTS

     The financial  statements and schedules are included herewith commencing on
page F-1.

ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     There are no items or circumstances to be disclosed under this Item 8.

                                       24
<PAGE>
                                    PART III

ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

     The  information  required  by  Item  9 of  Form  10-KSB  with  respect  to
identification  of directors is  incorporated  by reference from the information
contained in the sections  captioned  "Election of Directors"  "Management"  and
"Compliance  with Section 16(a) of the Exchange Act" in TNCi's  definitive Proxy
Statement for the Annual  Meeting of  Stockholders  to be held November 16, 2000
(the "Proxy  Statement"),  a copy of which will be filed with the Securities and
Exchange Commission before the meeting date.

ITEM 10 - EXECUTIVE COMPENSATION

     The  information  required  by Item 10 of Form  10-KSB is  incorporated  by
reference from the  information  contained in the section  captioned  "Executive
Compensation and Other Matters" in the Proxy Statement.

ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  information  required  by Item 11 of Form  10-KSB is  incorporated  by
reference  from the  information  contained  in the section  captioned  "General
Information" in the Proxy Statement.

ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  required  by Item 12 of Form  10-KSB is  incorporated  by
reference  from the  information  contained  in the section  captioned  "Certain
Relationships and Related Transactions" in the Proxy Statement.

ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K

     (a)  EXHIBITS

     The  following  Exhibits  are filed as part of this  Annual  Report on Form
10-KSB pursuant to Rule 601 of Regulation S-B.

<TABLE>
<CAPTION>
Exhibit
Number                                 Description                                                  Reference
------                                 -----------                                                  ---------
<S>         <C>                                                                                     <C>
  2.1       Asset Purchase and Sale  Agreement with  Interactive  Flight  Technologies,  Inc.
            (Global Technologies) dated April 29, 1999                                                 (1)
  2.2       First Amendment to Asset Purchase and Sale Agreement, dated April 29, 1999                 (1)
  3.1.1     Second Amended and Restated Articles of Incorporation                                      (2)
  3.1.2     Articles of Amendment to the Articles of Incorporation (re: Series A Preferred)            (3)
  3.1.3     Articles of Amendment to the Articles of Incorporation (re: Series B Preferred)            (4)
  3.1.4     Articles of Amendment to the Articles of Incorporation (re: elimination of Series
            A preferred)                                                                               (5)
  3.1.5     Articles of Amendment to the Articles of Incorporation (re: Amendment to Series B
            Preferred)                                                                                 (6)
  3.1.6     Articles of Amendment to the Articles of Incorporation (re: Series C Preferred)            (6)
  3.1.7     Articles of Amendment to the Articles of Incorporation (re: Series D Preferred)            (7)
  3.1.8     Articles  of   Amendment  to  the  Second   Amended  and  Restated   Articles  of
            Incorporation (re: increase of authorized shares)                                          (8)
  3.1.9     Articles  of   Amendment  to  the  Second   Amended  and  Restated   Articles  of
            Incorporation (re: increase in shares of Series C Preferred)                               (8)
  3.1.10    Articles of Amendment to the Articles of Incorporation (re: Series E Preferred)
  3.2       Amended and Restated Bylaws                                                                (2)
</TABLE>
                                       25
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number                                 Description                                                  Reference
------                                 -----------                                                  ---------
<S>         <C>                                                                                     <C>
  10.1      Employment Agreement,  dated October 31, 1998, by and between the corporation and
            Wilbur L. Riner                                                                            (4)
  10.2      Addendum and  Modification  to Employment  Agreement,  dated May 14, 1999, by and
            between the corporation and Wilbur L. Riner                                                (7)
  10.3      Employment Agreement,  dated October 31, 1998, by and between the corporation and
            James E. Riner                                                                             (4)
  10.4      Addendum and  Modification  to Employment  Agreement,  dated May 14, 1999, by and
            between the corporation and James E. Riner                                                 (7)
  10.5      Employment Agreement,  dated October 31, 1998, by and between the corporation and
            Bryan R. Carr                                                                              (4)
  10.6      Employment Agreement, effective June 11, 1999, by and between the corporation and
            Frank Gomer                                                                                (7)
  10.7      Separation Agreement and Release of All Claims , effective April 12, 2000, by and
            between the corporation and Frank Gomer                                                    (5)
  10.8      Employment Agreement, effective June 11, 1999, by and between the corporation and
            Morris C. Aaron                                                                            (7)
  10.9      1994 Employee Stock Option Plan, including form of Stock Option Agreement                  (9)
  10.10     1995 Stock Option Plan for Non-Employee Directors                                          (10)
  10.11     Securities  Purchase  Agreement  dated as of October 23, 1998,  between the Shaar
            Fund Ltd. and the corporation                                                              (11)
  10.12     Registration Rights Agreement dated as of October 23, 1998, between Shaar and the
            corporation                                                                                (11)
  10.13     Warrant Agreement dated October 23, 1998, between Shaar and the corporation                (11)
  10.14     Securities  Purchase  Agreement  dated as of December  28,  1998,  between  Cache
            Capital and the corporation                                                                (4)
  10.15     Registration  Rights  Agreement  dated as of December  28,  1998,  between  Cache
            Capital and the corporation                                                                (4)
  10.16     Service Agreement between The Network Connection and Stephen J. Ollier                     (12)
  10.17     Secured  Promissory  Note,  dated January 25, 1999,  made in favor of Interactive
            Flight Technologies, Inc.                                                                  (6)
  10.18     First Allonge to Secured  Promissory  Note,  dated May 10, 1999, made in favor of
            Interactive Flight Technologies, Inc.                                                      (6)
  10.19     Second Allonge to Secured  Promissory  Note, dated May 10, 1999, made in favor of
            Interactive Flight Technologies, Inc.                                                      (6)
  10.20     Third Allonge to Secured  Promissory  Note,  dated May 10, 1999, made in favor of
            Interactive Flight Technologies, Inc.                                                      (6)
  10.21     Fourth Allonge to Secured  Promissory  Note, dated May 10, 1999, made in favor of
            Interactive Flight Technologies, Inc.                                                      (6)
  10.22     Amendment No. 1 to Registration Rights Agreement, dated May 10, 1999, between the
            corporation and Interactive Flight Technologies, Inc.                                      (6)
  10.23     Fifth Allonge to Secured  Promissory  Note, dated July 16, 1999, made in favor of
            Interactive Flight Technologies, Inc.                                                      (7)
  10.24     Sixth Allonge to Secured  Promissory Note, dated August 9, 1999, made in favor of
            Interactive Flight Technologies, Inc.                                                      (7)
  10.25     Seventh Allonge to Secured  Promissory Note, dated August 24, 1999, made in favor
            of Interactive Flight Technologies, Inc.                                                   (7)
  10.26     Revolving  Credit  Note  in the  aggregate  amount  of  $5,000,000  in  favor  of
            Interactive Flight Technologies, Inc.                                                      (7)
  10.27     Agreement between Carnival Corporation and The Network Connection                          (12)
  10.28     Master Settlement Agreement and Mutual Release (Carnival Corporation)                       *
  10.29     Convertible Note (Carnival Corporation)                                                     *
  10.30     Agreement between Embassy Suites and The Network Connection                                (12)
  10.31     Agreement between Radisson Resort and The Network Connection                               (12)
  10.32     Amended and Restated  Seventh Allonge to Secured  Promissory Note, dated
            December 10, 1999.                                                                         (5)
  10.33     Employment  Agreement between Robert Pringle and the corporation,  dated
            March 6, 2000.                                                                             (13)
  10.34     Employment  Agreement  between Jay Rosan and the corporation,  dated
            March 6, 2000.                                                                             (13)
</TABLE>
                                       26
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number                                 Description                                                  Reference
------                                 -----------                                                  ---------
<S>         <C>                                                                                     <C>
  10.35     Employment  Agreement between Richard Genzer and the corporation, dated
            March 6, 2000.                                                                             (13)
  10.36     Option Agreement between Robert Pringle and the corporation, dated March 6, 2000.          (13)
  10.37     Option Agreement between Jay Rosan and the corporation, dated March 6, 2000.               (13)
  10.38     Option Agreement between Richard Genzer and the corporation, dated March 6, 2000.          (13)
  10.39     Registration  Rights  Agreement  between the corporation and Robert Pringle,  Jay
            Rosan and Richard Genzer, dated March 6, 2000.                                             (13)
  10.40     Agreement between Brisbane Lodging LP DBA Radisson Hotel San Francisco Airport at
            Sierra Point and the corporation.                                                          (13)
  10.41     Master Facility  Agreement by and between the corporation and Fusion Capital Fund
            II, LLC dated as of June 1, 2000.                                                          (14)
  16.1      Letter on Change in Certifying Accountant                                                  (12)
  21.1      Schedule of Subsidiaries                                                                    *
  23.1      Consent of KPMG LLP                                                                         *
  27        Financial Data Schedule                                                                     *
</TABLE>

----------
*    Filed herewith.
(1)  Incorporated   by   reference,   filed  as  an  exhibit  with  The  Network
     Connection's Current Report on Form 8-K on May 18, 1999.
(2)  Incorporated   by   reference,   filed  as  an  exhibit  with  The  Network
     Connection's Current Report on Form 8-K on June 21, 1996.
(3)  Incorporated   by   reference,   filed  as  an  exhibit  with  The  Network
     Connection's Current Report on Form 8-K on June 9, 1998.
(4)  Incorporated   by   reference,   filed  as  an  exhibit  with  The  Network
     Connection's  Annual  Report  on Form  10-KSB  for the  fiscal  year  ended
     December 31, 1998 on April 15, 1999.
(5)  Incorporated   by   reference,   filed  as  an  exhibit  with  The  Network
     Connection's  registration statement on Form SB-2 on February 23, 2000. SEC
     File No. 333-30980.
(6)  Incorporated   by   reference,   filed  as  an  exhibit  with  the  Network
     Connection's  Quarterly  Report on Form 10-QSB for the fiscal quarter ended
     March 31, 1999.
(7)  Incorporated   by   reference,   filed  as  an  exhibit  with  The  Network
     Connection's  Annual  Report on Form  10-KSB for the fiscal year ended June
     30, 1999 on October 14, 1999.
(8)  Incorporated   by   reference,   filed  as  an  exhibit  with  The  Network
     Connection's  Quarterly  Report 10-QSB for the quarter ended  September 30,
     1999 on November 17, 1999.
(9)  Incorporated   by   reference,   filed  as  an  exhibit  with  The  Network
     Connection's  registration  statement on Form SB-2 on October 26, 1994. SEC
     File No. 33-85654.
(10) Incorporated   by   reference,   filed  as  an  exhibit  with  The  Network
     Connection's  Annual  Report  on Form  10-KSB  for the  fiscal  year  ended
     December 31, 1995.
(11) Incorporated  by  reference,  filed as an  exhibit  with the  corporation's
     Quarterly  Report on Form 10-QSB for the fiscal quarter ended September 30,
     1998 on November 16, 1998.
(12) Incorporated by reference to the respective exhibits filed with The Network
     Connection's  Quarterly  Report on Form 10-QSB for the fiscal quarter ended
     December 31, 1999 on February 14, 2000.
(13) Incorporated  by  reference,  filed as an  exhibit  with the  corporation's
     Quarterly Report on Form 10-QSB for the fiscal quarter ended March 31, 2000
     on May 15, 2000.
(14) Incorporated   by   reference,   filed  as  an  exhibit  with  The  Network
     Connection's  Amendment No. 1 to its registration statement on Form SB-2 on
     June 7, 2000. SEC File No. 333-30980.

     (b) CURRENT REPORTS ON FORM 8-K

         None.

                                       27
<PAGE>
                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                        THE NETWORK CONNECTION, INC.

Dated:  October 5, 2000                 By: /s/ IRWIN L. GROSS
                                            ------------------------------------
                                            Irwin L. Gross,
                                            Chairman of the Board

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated.

     Signature                          Title                        Date
     ---------                          -----                        ----

/s/ IRWIN L. GROSS              Chairman of the Board            October 5, 2000
----------------------------
Irwin L. Gross


/s/ MORRIS C. AARON             Executive Vice President         October 5, 2000
----------------------------    and Chief Financial Officer
Morris C. Aaron


/s/ ROBERT PRINGLE              President, Chief Operating       October 5, 2000
----------------------------    Officer and Director
Robert Pringle


/s/ STEPHEN SCHACHMAN           Director                         October 5, 2000
----------------------------
Stephen Schachman


/s/ M. MOSHE PORAT              Director                         October 5, 2000
----------------------------
M. Moshe Porat

                                       26
<PAGE>
                          THE NETWORK CONNECTION, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

Independent Auditors' Report.................................................F-2

Consolidated Balance Sheets as of June 30, 2000 and 1999.....................F-3

Consolidated Statements of Operations for the Year Ended
  June 30, 2000, the Transition Period Ended June 30, 1999
  and the Year Ended October 31, 1998........................................F-4

Consolidated Statements of Cash Flows for the Year Ended
  June 30, 2000, the Transition Period Ended June 30, 1999
  and the Year Ended October 31, 1998........................................F-5

Consolidated Statements of Stockholders' Equity (Deficiency)
  and Comprehensive Income for the Year Ended  June 30, 2000,
  the Transition Period Ended June 30, 1999 and the Year Ended
  October 31, 1998...........................................................F-6

Notes to Consolidated Financial Statements...................................F-7

                                      F-1
<PAGE>
                          INDEPENDENT AUDITORS' REPORT


The Stockholders and Board of Directors
The Network Connection, Inc.:


We have  audited the  accompanying  consolidated  balance  sheets of The Network
Connection,  Inc. and Subsidiary  (the Company) as of June 30, 2000 and 1999 and
the  related  consolidated   statements  of  operations,   stockholders'  equity
(deficiency) and comprehensive income and cash flows for the year ended June 30,
2000, the  Transition  Period ended June 30, 1999 and the year ended October 31,
1998. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above, present
fairly,  in all  material  respects,  the  financial  position  of  The  Network
Connection, Inc. and Subsidiary at June 30, 2000 and 1999 and the results of its
operations  and its cash flows for the year ended June 30, 2000,  the Transition
Period ended June 30, 1999 and the year ended  October 31, 1998,  in  conformity
with accounting principles generally accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that The  Network  Connection,  Inc.  and  Subsidiary  will  continue as a going
concern. As discussed in Note 2 to the consolidated  financial  statements,  the
Company  has  incurred  net losses  from  operations  and has a working  capital
deficiency and an accumulated  deficit that raises  substantial  doubt about its
ability to continue as a going  concern.  Management's  plans in regard to these
matters are also described in Note 2. The consolidated  financial  statements do
not  include  any  adjustments  that  might  result  from  the  outcome  of this
uncertainty.

                                              /s/ KPMG LLP


Phoenix, Arizona
September 27, 2000

                                      F-2
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                JUNE 30,           JUNE 30,
                            Assets                                               2000                1999
                                                                             ------------        ------------
<S>                                                                         <C>                 <C>
Current assets:
  Cash and cash equivalents                                                  $    579,721        $  2,751,506
  Restricted cash                                                                 475,915             446,679
  Investment securities                                                                --             302,589
  Accounts receivable                                                              55,951              75,792
  Notes receivable from related parties                                                --              98,932
  Inventories                                                                          --           1,400,000
  Prepaid expenses                                                                336,721             169,429
  Assets held for sale                                                                 --             800,000
  Due from affiliate                                                               73,607                  --
  Other current assets                                                             74,566             173,999
                                                                             ------------        ------------
      Total current assets                                                      1,596,481           6,218,926
Note receivable from related party                                                117,612              75,000
Property and equipment, net                                                     3,810,649           1,338,580
Intangibles, net                                                                6,697,955           7,119,806
Other assets                                                                    1,246,002                 150
                                                                             ------------        ------------

      Total assets                                                           $ 13,468,699        $ 14,752,462
                                                                             ============        ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                                           $  4,338,943        $  1,681,771
  Accrued liabilities                                                           2,924,797           2,209,682
  Deferred revenue                                                                     --             365,851
  Accrued product warranties                                                      141,796                  --
  Dividends payable                                                               140,000                  --
  Notes payable                                                                     4,744              24,391
  Notes payable to related parties                                                800,000              68,836
                                                                             ------------        ------------
      Total current liabilities                                                 8,350,280           4,350,531
Notes payable                                                                          --           3,467,045
Notes payable to related parties                                                2,350,000           1,647,692
                                                                             ------------        ------------
      Total liabilities                                                        10,700,280           9,465,268
                                                                             ------------        ------------
Commitments and contingencies

Stockholders' equity:
  Series B preferred stock par value $0.01 per share, 1,500 shares
   designated, issued and outstanding                                                  15                  15
  Series C preferred stock par value $0.01 per share, 1,600 shares
   designated; zero and 800 issued and outstanding, respectively                       --                   8
  Series D preferred stock par value $0.01 per share, 2,495,400
   designated, issued and outstanding                                              24,954              24,954
  Common stock par value $0.001 per share, 40,000,000 shares authorized;
   14,460,212 and 6,339,076 issued and outstanding, respectively                   14,460               6,339
  Additional paid-in capital                                                  102,053,251          88,316,945
  Accumulated other comprehensive income:
    Loss on foreign currency translation                                          (11,521)                 --
    Net unrealized loss on investment securities                                       --                (526)
  Accumulated deficit                                                         (99,312,740)        (83,060,541)
                                                                             ------------        ------------
      Total stockholders' equity                                                2,768,419           5,287,194
                                                                             ------------        ------------
      Total liabilities and stockholders' equity                             $ 13,468,699        $ 14,752,462
                                                                             ============        ============
</TABLE>
          See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                               TRANSITION
                                                           YEAR ENDED       PERIOD ENDED       YEAR ENDED
                                                            JUNE 30,          JUNE 30,         OCTOBER 31,
                                                              2000              1999              1998
                                                          ------------      ------------      ------------
<S>                                                       <C>               <C>               <C>
Revenue:
  Equipment sales                                         $  6,983,787      $    875,957      $ 18,038,619
  Service income                                               107,873            82,650           778,343
                                                          ------------      ------------      ------------
                                                             7,091,660           958,607        18,816,962
                                                          ------------      ------------      ------------
Costs and expenses:
  Cost of equipment sales                                    4,867,519         1,517,323        15,523,282
  Cost of service income                                        61,978               480            13,789
  General and administrative expenses                        9,827,804         3,628,652         9,019,872
  Research and development expenses                                 --                --         1,092,316
  Reversal of warranty, maintenance &
    commission accruals                                             --        (7,151,393)               --
  Non cash compensation expense                              1,005,232                --                --
  Provision for doubtful accounts                                   --            28,648                --
  Special charges                                            2,156,205           521,590           400,024
  Amortization of intangibles                                  912,553            74,981                --
                                                          ------------      ------------      ------------
                                                            18,831,291        (1,379,719)       26,049,283
                                                          ------------      ------------      ------------

       Operating income (loss)                             (11,739,631)        2,338,326        (7,232,321)

Other:
  Interest expense                                          (4,602,183)          (83,029)          (11,954)
  Interest income                                              109,001            77,682            53,465
  Other income (expense)                                       (19,386)           11,226            10,179
                                                          ------------      ------------      ------------

       Net income (loss)                                   (16,252,199)        2,344,205        (7,180,631)

Cumulative dividend on preferred stock                        (120,000)          (30,667)               --
                                                          ------------      ------------      ------------

Net income (loss) available to common stockholders        $(16,372,199)     $  2,313,538      $ (7,180,631)
                                                          ============      ============      ============

Basic net income (loss) per common share                  $      (1.71)     $       0.97      $      (6.80)
                                                          ============      ============      ============

Weighted average number of shares outstanding                9,600,322         2,387,223         1,055,745
                                                          ============      ============      ============

Diluted net income (loss) per common share                $      (1.71)     $       0.13      $      (6.80)
                                                          ============      ============      ============
Weighted average number of common and
  dilutive shares outstanding                                9,600,322        18,543,707         1,055,745
                                                          ============      ============      ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>
                          THE NETWORK CONNECTION, INC.

                             STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                         TRANSITION
                                                                       YEAR ENDED       PERIOD ENDED      YEAR ENDED
                                                                        JUNE 30,          JUNE 30,        OCTOBER 31,
                                                                          2000              1999             1998
                                                                      ------------      -----------      -----------
<S>                                                                   <C>               <C>              <C>
Cash flows from operating activities:
 Net income (loss)                                                    $(16,252,199)     $ 2,313,538      $(7,180,631)
 Adjustments to reconcile net income (loss) to net cash:
   Depreciation and amortization                                         1,458,038          342,544        1,205,361
   Change in inventory valuation                                                --         (892,010)              --
   Special charges                                                       2,156,205          521,590          400,024
   Non cash interest                                                     4,336,743               --               --
   Reversal of warranty, maintenance and commission accruals                    --       (7,151,393)              --
   Loss on sale of assets held for sale                                     37,893               --               --
   Loss on disposal of assets                                               44,300               --               --
   Non cash compensation expense                                         1,005,232               --               --
 Changes in net assets and liabilities, net of effect of Transaction:
   Decrease (increase) in accounts receivable                               19,841         (482,344)       4,523,470
   Decrease (increase) in inventories                                     (957,625)       1,897,437        5,105,334
   Decrease (increase) in prepaid expenses                                 (24,955)        (116,717)          47,428
   Increase in due from affiliate                                          (73,607)              --               --
   Decrease in other current assets                                         38,141           78,134          247,549
   Increase  in other assets                                               (31,250)              --         (411,042)
   (Decrease) increase in accounts payable                               2,817,583       (1,449,333)      (4,933,431)
   (Decrease) increase in accrued liabilities                              153,983          702,559       (1,758,210)
   (Decrease) increase in deferred revenue                                 374,234        1,138,048       (1,930,882)
   Increase in accrued product warranties                                  141,796               --          758,321
                                                                      ------------      -----------      -----------
          Net cash used in operating activities                       $ (4,755,647)     $(3,097,947)     $(3,926,709)
                                                                      ------------      -----------      -----------
Cash flows from investing activities:
 Purchases of investment securities                                             --         (302,589)              --
 Sale of investment securities                                             303,115               --               --
 Purchases of property and equipment                                    (3,479,808)         (18,243)         (36,008)
 Proceeds from sale of equipment                                             3,590               --            3,620
 Proceeds from sale of assets held for sale                                762,107               --               --
 Cash acquired in Transaction                                                   --           23,997               --
 Increase in restricted cash                                               (29,236)          (9,177)        (437,502)
 Repayments on notes receivable                                             42,381               --               --
                                                                      ------------      -----------      -----------
          Net cash used in investing activities                       $ (2,397,851)     $  (306,012)     $  (469,890)
                                                                      ------------      -----------      -----------
Cash flows from financing activities:
 Payments on notes payable                                                (787,840)         (58,450)         (80,753)
 Borrowings under revolving credit facility                              4,200,000               --               --
 Advances from related parties                                           1,138,044               --               --
 Advances under equity purchase agreement                                  500,000               --               --
 Re-purchase of outstanding warrants                                      (296,040)              --               --
 Advances from parent                                                           --          805,616               --
 Capital contribution                                                           --        5,391,951        4,427,544
 Employee stock option exercises                                           236,077            2,000               --
                                                                      ------------      -----------      -----------
          Net cash provided by financing activities                   $  4,990,241      $ 6,141,117      $ 4,346,791
                                                                      ------------      -----------      -----------

Effect of exchange rate on cash and cash equivalents                        (8,528)              --               --
                                                                      ------------      -----------      -----------
Net increase (decrease) in cash and cash equivalents                    (2,171,785)       2,737,158          (49,808)

Cash and cash equivalents at beginning of year                           2,751,506           14,348           64,156
                                                                      ------------      -----------      -----------
Cash and cash equivalents at end of year                              $    579,721      $ 2,751,506      $    14,348
                                                                      ============      ===========      ===========
</TABLE>
                 See accompanying notes to financial statements.

                                      F-5
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY
           CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                            AND COMPREHENSIVE INCOME
         Year Ended June 30, 2000, Transition Period Ended June 30, 1999
                        and Year Ended October 31, 1998

<TABLE>
<CAPTION>

                                                            SERIES B      SERIES C     SERIES D     COMMON        PAID-IN
                                                            PREFERRED    PREFERRED    PREFERRED     STOCK         CAPITAL
                                                            ---------    ---------    ---------     -----         -------
<S>                                                            <C>          <C>        <C>         <C>         <C>
Balance as of October 31, 1997                                 $ --         $ --       $    --     $    --     $         --
 Contributed capital                                             --           --            --          --               --
 Net loss                                                        --           --            --          --               --
                                                               ----         ----       -------     -------     ------------
Balance as of October 31, 1998                                 $ --         $ --       $    --     $    --     $         --
 Contributed capital                                             --           --            --          --               --
 Contribution of advances to capital                             --           --            --          --       85,010,410
 Issuance of stock                                               15            8        24,954       6,338        3,304,536
 Exercise of stock options                                       --           --            --           1            1,999
 Comprehensive income (loss):
  Unrealized loss on available for sale securities               --           --            --          --               --
  Net income                                                     --           --            --          --               --
 Total comprehensive income                                      --           --            --          --               --
                                                               ----         ----       -------     -------     ------------
Balance as of June 30, 1999                                    $ 15         $  8       $24,954     $ 6,339     $ 88,316,945
 Issuance of stock for services                                  --           --            --         106          312,970
 Exercise of stock options                                       --           --            --         112          235,965
 Dividends payable to affiliate                                  --           --            --          --         (140,000)
 Conversion of Promissory Note                                   --           --            --       4,802        4,471,246
 Conversion of Series C Stock                                    --           (8)           --         886             (878)
 Partial conversion of Facility                                  --           --            --       1,233        1,848,766
 Conversion of note payable                                      --           --            --         200          399,800
 Purchase of outstanding warrants                                --           --            --          --         (296,036)
 Advance under equity purchase agreement                         --           --            --          --          447,544
 Net issuance of commitment shares associated
   with equity purchase agreement                                --           --            --         315          605,818
 Beneficial conversion on Facility                               --           --            --          --        4,200,000
 Cashless exercise of outstanding warrants                       --           --            --         467             (467)
 Non-cash compensation and issuance of warrants for services     --           --            --          --          853,910
 Issuance of warrants to related party in connection
  with financing                                                 --           --            --          --          797,668
 Comprehensive loss:
  Loss on foreign currency translation                           --                         --          --               --
  Change in unrealized loss on avilable for sale securities      --                         --          --               --
 Net loss                                                        --                         --          --               --
Total comprehensive loss                                         --           --            --          --               --
                                                               ----         ----       -------     -------     ------------
Balance as of June 30, 2000                                    $ 15         $ --       $24,954     $14,460     $102,053,251
                                                               ====         ====       =======     =======     ============

                                                                              ACCUMULATED        OTHER
                                                             ADDITIONAL       CONTRIBUTED     ACCUMULATED         TOTAL
                                                         CAPITAL IN EXCESS   COMPREHENSIVE     (DEFICIT)       STOCKHOLDERS'
                                                           OF PAR VALUE         INCOME          INCOME      EQUITY (DEFICIENCY)
                                                           ------------         ------          ------      -------------------

Balance as of October 31, 1997                              $ 75,190,915      $     --      $(78,193,448)     $ (3,002,533)
 Contributed capital                                           4,427,544            --                --         4,427,544
 Net loss                                                             --            --        (7,180,631)       (7,180,631)
                                                            ------------      --------      ------------      ------------
Balance as of October 31, 1998                              $ 79,618,459      $     --      $(85,374,079)     $ (5,755,620)
 Contributed capital                                           5,391,951            --                --         5,391,951
 Contribution of advances to capital                         (85,010,410)           --                --                --
 Issuance of stock                                                    --            --                --         3,335,851
 Exercise of stock options                                            --            --                --             2,000
 Comprehensive income (loss):
  Unrealized loss on available for sale securities                    --          (526)               --                --
  Net income                                                          --            --         2,313,538                --
 Total comprehensive income                                           --            --                --         2,313,012
                                                            ------------      --------      ------------      ------------
Balance as of June 30, 1999                                 $         --      $   (526)     $(83,060,541)     $  5,287,194
 Issuance of stock for services                                       --            --                --           313,076
 Exercise of stock options                                            --            --                --           236,077
 Dividends payable to affiliate                                       --            --                --          (140,000)
 Conversion of Promissory Note                                        --            --                --         4,476,048
 Conversion of Series C Stock                                         --            --                --                --
 Partial conversion of Facility                                       --            --                --         1,849,999
 Conversion of note payable                                           --            --                --           400,000
 Purchase of outstanding warrants                                     --            --                --          (296,036)
 Advance under equity purchase agreement                              --            --                --           447,544
 Net issuance of commitment shares associated
  with equity purchase agreement                                      --            --                --           606,133
 Beneficial conversion on Facility                                    --            --                --         4,200,000
 Cashless exercise of outstanding warrants                            --            --                --                --
 Non-cash compensation and issuance of warrants for services          --            --                --           853,910
 Issuance of warrants to related party in connection
  with financing                                                      --            --                --           797,668
 Comprehensive loss:
   Loss on foreign currency translation                               --       (11,521)               --                --
   Change in unrealized loss on avilable for sale securities          --           526                --                --
 Net loss                                                             --            --       (16,252,199)               --
Total comprehensive loss                                              --            --                --       (16,263,194)
                                                            ------------      --------      ------------      ------------
Balance as of June 30, 2000                                 $         --      $(11,521)     $(99,312,740)     $  2,768,419
                                                            ============      ========      ============      ============
</TABLE>
        See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

(a) DESCRIPTION OF BUSINESS

     The Network  Connection,  Inc. and Subsidiary (the "Company" or "TNCi") was
incorporated on December 30, 1986. The Company designs,  manufactures,  installs
and  maintains  advanced,   high-end,   high-performance  computer  servers  and
interactive,  broad-band information and entertainment systems, and procures and
provides the content  available through the systems.  These all-digital  systems
deliver an on-demand  multimedia  experience  via  high-speed,  high-performance
Internet  Protocol  (IP)  networks.  These systems are designed to provide users
access to information,  entertainment and a wide array of service options,  such
as shopping for goods and services, computer games, access to the World Wide Web
and on-line  gambling  where  permitted by applicable  law. The service  options
available are customized for each  installation  and generally vary depending on
the  environment  in which each system is  installed.  Our targeted  markets for
these systems are hotels and time-share  properties,  cruise ships,  educational
institutions and corporate training, and passenger trains.

(b) PRINCIPLES OF CONSOLIDATION

     The consolidated  financial  statements include the accounts of The Network
Connection,  Inc.  and its  wholly-owned  UK  subsidiary,  TNCi UK Limited.  All
significant  intercompany  accounts and  transactions  have been  eliminated  in
consolidation.

(c) BASIS OF PRESENTATION

     On May 18, 1999, Global  Technologies,  Ltd. (formerly known as Interactive
Flight Technologies, Inc.) ("Global") received from the Company 1,055,745 shares
of its common stock and 2,495,400  shares of its Series D Convertible  Preferred
Stock in exchange for  $4,250,000 in cash and  substantially  all the assets and
certain liabilities of Global's Interactive  Entertainment  Division ("IED"), as
defined in the Asset  Purchase  and Sale  Agreement  dated  April 30,  1999,  as
amended (the "Transaction"). The Transaction has been accounted for as a reverse
merger  whereby,  for accounting  purposes,  Global is considered the accounting
acquiror,  and although the legal capital  structure  carries  forward,  and the
Company  is  treated  as the  successor  to the  historical  operations  of IED.
Accordingly,   the  historical  financial  statements  of  the  Company,   which
previously have been reported to the Securities and Exchange  Commission ("SEC")
on Forms 10-KSB,  10-QSB,  among others, as of and for all periods through March
31, 1999, will be replaced with those of IED.

     The Company  will  continue  to file as a SEC  registrant  and  continue to
report under the name The Network Connection,  Inc. The financial  statements as
of and for the year ended  October 31, 1998  reflect the  historical  results of
Global's  IED  as  previously  included  in  Global's   consolidated   financial
statements.  Included in the results of  operations  for the eight  months ended
June 30, 1999 are the historical results of Global's IED through April 30, 1999,
and the results of the post  Transaction  company for the two months  ended June
30,  1999.  The  Transaction  date  for  accounting  purposes  is May  1,  1999.
Contributed  capital  reflects  the cash  consideration  paid by  Global  to the
Company in the Transaction in addition to funding of IED historical  operations.
Global will continue to report as a separate SEC  registrant,  owning the shares
of the  Company  as  described  above.  As of June 30,  1999,  the  Company is a
majority owned  subsidiary of Global whose  ownership,  through a combination of
the Transaction  described above and Global's purchase of Series B 8 % preferred
stock of the Company and 110,000 shares of the Company's common stock from third
party investors, approximates 78% of the Company on an if-converted common stock
basis.  (See Note 17). As of June 30,  2000,  Global's  ownership in the Company
increased  to 79% as a result of  continued  investment  on the part of  Global,
offset by additional  third party  investment and exercise of warrants and stock
options.  The historical  financial  statements of the Company up to the date of
the  Transaction  as  previously  reported  will no longer be included in future
filings of the Company.

                                      F-7
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

(d) USE OF ESTIMATES

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

(e) CHANGE IN FISCAL YEAR-END

     As of June 30, 1999, the Company  changed its fiscal year-end from December
31 to June 30.  The  Transition  Period  resulting  from the  change  in  fiscal
year-end  is  measured  from  IED's  former  fiscal   year-end  of  October  31.
Accordingly, the eight-month period resulting from this change, November 1, 1998
through June 30, 1999, is referred to as the "Transition Period."

(f) CASH EQUIVALENTS

     The  Company   considers  all  highly  liquid   investments  with  original
maturities  at the  date  of  purchase  of  three  months  or  less  to be  cash
equivalents.

(g) INVESTMENT SECURITIES

     Investment  securities consisted of debt securities with a maturity greater
than three  months at the time of  purchase.  In  accordance  with  Statement of
Financial  Accounting  Standards No. 115, "Accounting for Certain Investments in
Debt and Equity  Securities" ("SFAS No. 115") the debt securities are classified
as available-for-sale  and carried at fair value, based on quoted market prices.
The net  unrealized  gains  or  losses  on these  investments  are  reported  in
stockholders' equity. The specific  identification method is used to compute the
realized gains and losses on the debt securities.

(h) INVENTORIES

     Inventories  consisting principally of entertainment network components are
stated at the lower of cost (first-in,  first-out  method) or market. As of June
30, 1999, inventories consisted of $1.4 million of finished goods.

(i) INTANGIBLES

     Intangibles  consist of goodwill and  trademarks.  Goodwill  represents the
excess of the purchase price over the fair value of the net assets  acquired and
is amortized over five years using the  straight-line  method.  Effective May 1,
2000,  the Company  revised its  estimate  of the  remaining  useful life of its
goodwill  from ten years to five  years as a result  of  economic  events  which
occurred during the period. (See Note 22(e)).  Goodwill amortization expense was
$896,287,  $73,986 and $0 in the year ended June 30, 2000, the Transition period
ended June 30, 1999 and the year ended October 31, 1998,  respectively.  Had the
Company  assumed a five-year  life for goodwill  amortization  at the Transition
date,  additional expense of approximately  $593,000 (unaudited) would have been
recorded  for  the  year-ended  June  30,  2000,  and   approximately   $712,000
(unaudited) for each of the remaining years.

     Trademarks are stated at fair market value at the date of  acquisition  and
are amortized over ten years using the straight-line method.

     The Company  continually  evaluates whether events and  circumstances  have
occurred that indicate the remaining  estimated  useful lives of intangibles may
warrant  revision or that the remaining  balances may not be  recoverable.  When
factors  indicate that the assets  should be evaluated for possible  impairment,
the  Company  uses an  estimate  of the  undiscounted  net cash  flows  over the
remaining life of the assets in measuring  whether the asset is recoverable.  In
cases where  undiscounted  expected future cash flows are less than the carrying
value,  an impairment  loss is  recognized  to reduce the carrying  value of the
intangible to its estimated fair value.

                                      F-8
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

(j) PROPERTY AND EQUIPMENT

     Property and  equipment  are stated at the lower of cost or net  realizable
value.   Depreciation   and   amortization   expense  is  calculated  using  the
straight-line  method over the estimated useful lives of the assets ranging from
three  to  seven  years.   Leasehold   improvements   are  amortized  using  the
straight-line  method  over the  shorter of the  underlying  lease term or asset
life.  Guest pay  interactive  systems consist of equipment and related costs of
installation.  Construction in progress  consists of purchased and  manufactured
parts of partially installed guest pay interactive systems.

(k) REVENUE RECOGNITION

     The Company's  revenue derived from sales and  installation of equipment is
recognized upon  installation and acceptance by the customer.  Fees derived from
servicing  installed systems are recognized when earned,  according to the terms
of the service contract.  Revenue pursuant to contracts that provide for revenue
sharing with  customers  and/or  others is recognized in the period the services
are purchased by the systems' end users (i.e.,  a hotel guest).  Revenue  earned
pursuant to extended warranty agreements is recognized ratably over the warranty
period.

(l) DEFERRED REVENUE

     Deferred revenue  represents cash received on advance billings of equipment
sales as allowed under installation and extended warranty contracts.

(m) RESEARCH AND DEVELOPMENT

     Research  and  development  costs  are  expensed  as  incurred  except  for
development  costs required by a customer  contract.  Development costs incurred
pursuant to contractual  obligations are allocated to deliverable  units.  These
development  costs are expensed as cost of equipment sales upon  installation of
the complete product and acceptance by the customer.

(n) WARRANTY COSTS

     The Company provides, by a current charge to income, an amount it estimates
will be needed to cover future  warranty  obligations  for products sold with an
initial warranty period. Revenue and expenses under extended warranty agreements
are recognized ratably over the term of the extended warranty.

(o) IMPAIRMENT OF LONG-LIVED ASSETS

     The Company  evaluates  the potential  impairment  of long-lived  assets in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". In cases where  undiscounted  expected  future cash flows are less than the
carrying value, an impairment loss is recognized to reduce the carrying value of
the asset to its estimated fair value.

(p) INCOME TAXES

     Income  taxes are  accounted  for under  the  asset and  liability  method.
Deferred  tax  assets  and   liabilities  are  recognized  for  the  future  tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases and operating loss and tax credit  carryforwards.  Deferred tax assets and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered  or settled.  The effect on deferred tax assets and  liabilities  of a
change in tax rates is  recognized  in income in the period  that  includes  the
enactment date.

(q) NET INCOME (LOSS) PER SHARE

     Basic net income (loss) per share is computed by dividing net income (loss)
available  to common  stockholders,  by the  weighted  average  number of common

                                      F-9
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

shares outstanding for the period.  Diluted net income (loss) per share reflects
the potential  dilution  that could occur if  securities  or other  contracts to
issue common stock were  exercised or converted into common stock or resulted in
the  issuance of common  stock that then shared in the net income  (loss) of the
Company.

(r) STOCK-BASED COMPENSATION

     In accordance  with the provisions of Accounting  Principals  Board Opinion
No. 25,  "Accounting  for Stock  Issued to  Employees"  ("APB 25"),  the Company
measures  stock-based  compensation expense as the excess of the market price at
the  grant  date  over the  amount  the  employee  must pay for the  stock.  The
Company's policy is to generally grant stock options at fair market value at the
date of grant; accordingly, no compensation expense is recognized.  Statement of
Financial  Accounting  Standards  (SFAS No.  123  "Accounting  for  Stock  Based
Compensation")  established accounting and disclosure  requirements using a fair
value based method of accounting for stock based employee compensation plans. As
permitted,  the Company has elected to adopt the pro forma disclosure provisions
only of SFAS No. 123.

(s) RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives  and Similar  Financial  Instruments and for Hedging
Activities",  to establish  accounting  and reporting  standards for  derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives  as either  assets or  liabilities  on the balance sheet and measure
those instruments at fair value.  This new standard,  as amended by related SFAS
Nos. 137 and 138,  will be effective  for the Company for its fiscal year ending
June 30, 2001. We are currently evaluating the impact of SFAS No. 133.

     In March  2000,  the  Financial  Accounting  Standards  Board  issued  FASB
Interpretation  No. 44,  Accounting  for Certain  Transactions  Involving  Stock
Compensation (an  interpretation of APB 25). This  interpretation  clarifies the
application  of APB No. 25 by  clarifying  the  definition  of an employee,  the
determination of non-compensatory plans and the effect of modifications to stock
options.  This  interpretation  is effective July 1, 2000 and is not expected to
have a material effect on the Company's consolidated financial statements.

(t) FOREIGN CURRENCY TRANSLATION

     The  consolidated  financial  statements  of the Company's  United  Kingdom
subsidiary  are  translated  into U.S.  dollars in accordance  with Statement of
Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency  Translation".
Assets and  liabilities of the subsidiary  are translated  into U.S.  dollars at
current  exchange rates.  Income and expense items are translated at the average
exchange rate for the year. The resulting  translation  adjustments are recorded
directly as a separate component of stockholders'  equity. All transaction gains
or losses are recorded in the statement of operations.

(u) RECLASSIFICATIONS

     Certain reclassifications have been made to the 1999 consolidated financial
statements to conform to the 2000 presentation.

(v) COMPREHENSIVE INCOME

     The Company reports comprehensive income and its components in its full set
of  financial   statements   in  accordance   with  SFAS  No.  130,   "Reporting
Comprehensive  Income".  Comprehensive income consists of net income and foreign
currency  translations,  net of  taxes  and  is  presented  in the  consolidated
statement of stockholders,  equity and comprehensive  income; it does not affect
the Company's financial position or results of operations.

(w) FAIR VALUE OF FINANCIAL INSTRUMENTS

     Statement of Financial  Accounting Standards No. 107 "Disclosure about Fair
Value of Financial  Instruments"  requires that the Company  disclose  estimated
fair values for its  financial  instruments.  The following  summary  presents a
description of the methodologies and assumptions used to determine such amounts.

     Fair value  estimates are made at a specific point in time and are based on
relevant market information and information about the financial instrument; they
are  subjective  in nature and involve  uncertainties,  matters of judgment and,
therefore,  cannot be determined with precision.  These estimates do not reflect
any premium or discount  that could result from  offering for sale, at one time,
the Company's entire holdings of a particular instrument. Changes in assumptions
could significantly affect these estimates.

     Since the fair value is  estimated  as of June 30,  2000,  the amounts that
will actually be realized or paid at  settlement or maturity of the  instruments
could be significantly different.

     The  carrying  amount  of  cash,  cash   equivalents  and  restricted  cash
approximates  fair value  because  their  maturity is generally  less than three
months. The carrying amount of accounts receivable, accounts payable and accrued
liabilities  approximate fair value as they are expected to be collected or paid
within  ninety days of year-end.  The fair value of notes  receivable  and notes
payable  approximate  the  terms  in the  marketplace  at  which  they  could be
replaced.  Therefore,  the fair value  approximates  the carrying value of these
financial instruments.

(2) FINANCIAL CONDITION AND LIQUIDITY

     The  Company's   consolidated   financial  statements  are  prepared  using
generally  accepted  accounting  principles  applicable to a going concern which

                                      F-10
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

contemplate  the  realization  of assets and  liquidation  of liabilities in the
normal  course of  business.  The  Company,  which has  incurred net losses from
operations for two of the last three periods, has an accumulated deficit at June
30,  2000 as a result of  efforts to build its  customer  base and  develop  its
operations.  Management believes that our current cash balances,  the $5 million
credit facility with Global  Technologies (of which  approximately  $2.7 million
remains  available as of September 29, 2000), and currently  available  external
sources of financing  will not be sufficient  to meet our currently  anticipated
cash  requirements for operations for the next 12 months. A substantial  portion
of the Company's  accounts  payable are past due and many suppliers have imposed
cash on  delivery  terms.  The Company is in  discussions  with  private  equity
sources  which,  if  transactions  are  consumated,  together  with  the  Global
Technologies  credit  facility  and  currently  available  external  sources  of
financing,  should provide sufficient  short-term funding. Our inability to draw
on the credit facility with Global Technologies, to obtain funds pursuant to the
currently  available  external  sources of  financing,  or not complete  certain
private  placement  transactions,  would have a material  adverse  effect on our
operating  results,  financial  condition  and  ability to  continue  as a going
concern.

     Global  Technologies  does not  currently  have  sufficient  cash for us to
borrow under the credit  facility and no assurance  can be given that  currently
available  external  sources of financing  will have the resources  necessary to
meet its  commitments  as we draw down from time to time pursuant to our private
equity line, or that other  financings  will be  consumated.  Additionally,  any
increases in the  Company's  growth rate,  shortfalls in  anticipated  revenues,
increases in  anticipated  expenses,  or  significant  acquisition  or expansion
opportunities  could have a material  adverse effect on the Company's  liquidity
and capital resources and would require the Company to raise additional  capital
from  public or private  equity or debt  sources  in order to finance  operating
losses,   anticipated   growth,  and  contemplated   capital   expenditures  and
expansions.

     The Company has  significant  expansion plans which it intends to fund with
the  facilities  discussed  above;  however,  if  there  is  any  delay  in  the
anticipated  closing of these facilities or any shortfall,  the Company will not
engage in such expansion until adequate  capital sources have been arranged.  If
such sources of financing are  insufficient or unavailable,  the Company will be
required to modify its growth and  operating  plans or scale back  operations to
the extent of unanticipated opportunities, such as acquisitions of complementary
businesses  or  the  development  of  new  products,  or  otherwise  respond  to
unanticipated competitive pressures.  There can be no assurance that the Company
will be able to raise any such capital on terms  acceptable to the Company or at
all.

     The Company  expects to continue to focus on  developing  and expanding its
enhanced  broadband  information and  entertainment  systems while continuing to
expand its current  operation's  market  penetration.  Accordingly,  the Company
expects that its capital  expenditures and cost of revenues and depreciation and
amortization  expenses  will  continue to increase  significantly,  all of which
could have a negative impact on short-term  operating results. In addition,  the
Company  may  change  its   strategy  to  respond  to  a  changing   competitive
environment.  There can be no assurance that growth in the Company's  revenue or
market penetration will continue, that its expansion efforts will be profitable,
or that the Company will be able to achieve or sustain profitability or positive
cash flow. Further,  the Company will require substantial  financing to continue
as  a  going  concern,   accomplish  any   significant   acquisition  or  merger
transaction, and provide for working capital to operate its current and proposed
expanded operations until profitability is achieved, if ever.

(3) ACQUISITION

     The Transaction has been accounted for by the purchase method of accounting
and,  accordingly,  the purchase price has been allocated to the assets acquired
and the  liabilities  assumed  based upon  estimated  fair values at the date of
acquisition as follows:

                                      F-11
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED


       Purchase Price:
        Cash                                                    $ 4,250,000
        Net liabilities of IED contributed                       (4,012,430)
                                                                -----------
           Total                                                $   237,570
                                                                ===========
     Assets acquired and liabilities assumed:
        Historical book value of net liabilities                $(2,457,723)
     Fair value adjustments:
        Inventory                                                (1,280,847)
        Property and equipment                                   (1,246,145)
        Other assets                                               (430,567)
        Liabilities                                                (672,506)
                                                                -----------
           Total fair value of liabilities assumed              $(6,087,788)

     Excess of fair value of TNCi Series B Preferred Stock
        and Series C Preferred Stock over its recorded value    $(1,501,000)
     Purchase of Common Stock of TNCi                              (254,658)
                                                                ===========
        Excess of purchase price over fair value of net
        liabilities assumed (goodwill)                          $ 7,605,876
                                                                ===========

     The  excess of fair  value of TNC  Series B  Preferred  Stock and  Series C
Preferred  Stock is the result of Global's  acquisition  of such shares based on
the fair value of the Global Series A Preferred  Stock  amounting to $4,080,000,
less $980,000  (net of $50,000 of legal fees) cash  received and the  historical
value of $1,549,000 of the Series B Preferred Stock.

     Purchase of 110,000  shares of Common  Stock of TNCi from a third party was
valued based on the cash consideration paid by Global for the shares.

     On May 9, 2000,  pursuant to the  indemnification  provisions  of the Asset
Purchase and Sale Agreement,  Global notified the Company of several  violations
of  representation  and  warranties   contained  in  the  Agreement,   including
undisclosed  liabilities.  Accordingly,  previously  recognized fixed assets and
unrecorded liabilities were recorded with an adjustment to goodwill of $490,702.
The Company will issue an additional  270,081 shares to Global in  consideration
of the indemnification provisions.

(4) RESTRICTED CASH

     At June 30, 2000 and 1999, the Company held restricted cash of $475,915 and
$446,679, respectively, in a trust fund for payments which may be required under
a severance agreement with one former executive of Global. (See Note 17.)

(5) INVESTMENT SECURITIES

     A summary of investment  securities by major security type at June 30, 1999
follows:

                                      F-12
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED


                                                GROSS        GROSS
                                              UNREALIZED   UNREALIZED
                                  AMORTIZED    HOLDING      HOLDING      FAIR
                                     COST       GAINS        LOSSES      VALUE
                                     ----       -----        ------      -----
Available-for-sale:
  Corporate debt securities        $303,115      $167        $(693)     $302,589
                                   ========      ====        =====      ========

(6) ASSETS HELD FOR SALE

     In connection with the acquisition of TNCi, the Company relocated corporate
offices and production  capabilities  of TNCi to its Phoenix,  Arizona  offices.
Accordingly,  as of June 30,  1999,  certain  assets were  recorded at their net
realizable value and classified as assets held for sale. In September 1999, TNCi
sold one of its two  buildings  in  Alpharetta,  Georgia.  The net  proceeds  of
approximately  $390,000 from the sale,  plus  additional  cash of  approximately
$80,000,  was used by the Company to repay a note payable due April 2001, in the
principal  amount of  $470,000.  The sale of the  second  building  occurred  in
November  1999.  The net proceeds of  approximately  $367,000 from the sale were
used to retire a note payable due 2009 in the principal amount of $220,508.

(7) PROPERTY AND EQUIPMENT

     A summary of property and equipment follows:

                                               JUNE 30,          JUNE 30,
                                                 2000              1999
                                              -----------      -----------
     Leasehold improvements                   $   199,143      $    24,117
     Purchased software                           188,476          149,703
     Furniture                                    160,648          163,609
     Equipment                                  1,831,563        1,684,180
     Guest pay interactive systems:
         Installed                                467,885               --
         Construction in progress:
              System components                   967,215               --
              Work in progress                  1,009,907               --
                                              -----------      -----------
                                                4,824,837        2,021,609
     Less: accumulated depreciation
         and amortization                      (1,014,188)        (683,029)
                                              -----------      -----------
         Property and equipment, net          $ 3,810,649      $ 1,338,580
                                              ===========      ===========

(8) INTANGIBLES

     A summary of intangibles follows:

                                              JUNE 30,          JUNE 30,
                                                2000              1999
                                             -----------       -----------
     Goodwill                                $ 7,605,876       $ 7,115,174
     Trademarks                                   79,613            79,613
                                             -----------       -----------
                                               7,685,489         7,194,787

     Accumulated amortization                   (987,534)          (74,981)
                                             -----------       -----------
                                             $ 6,697,955       $ 7,119,806
                                             ===========       ===========

                                      F-13
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED


(9) ACCRUED LIABILITIES

     A summary of accrued liabilities follows:

                                                   JUNE 30,       JUNE 30,
                                                     2000           1999
                                                  ----------     ----------
     Due to related parties (See Note 17)         $1,419,716     $1,891,123
     Other accrued expenses                        1,505,081        318,559
                                                  ----------     ----------
           Accrued liabilities                    $2,924,797     $2,209,682
                                                  ==========     ==========

(10) NOTES PAYABLE TO RELATED PARTIES

     In May and June  2000,  The  Gross  Charitable  Unit  Trust  and The  Gross
Charitable  Annuity Trust (together the "Trusts"),  advanced a total of $800,000
to the Company for working capital purposes. An additional $250,000 was advanced
to the Company in July 2000. On September 12, 2000,  the advances were converted
into two promissory notes, each in the amount of $525,000,  issued to each Trust
by the Company.  The notes mature on December 31, 2000 and bear  interest at 9%.
The Trusts are controlled by the Company's Chairman and Chief Executive Officer,
Irwin L. Gross. (See Note 17 - Related Party Transactions and Note 22 (c).)

     As of June 30, 1999, the Company had notes payable in the amount of $68,836
to related parties with interest payable at  approximately  5% per annum.  These
notes became due and payable upon achievement of certain operational goals which
were achieved during the fiscal year ended June 30, 2000, and  accordingly  paid
in full.

     On August 24, 1999, the Board of Directors of Global  approved a $5 million
secured  revolving  credit  facility by and between  Global and the Company (the
"Facility").  The Facility provides that the Company may borrow up to $5 million
for working capital and general corporate purposes at the prime rate of interest
(9.5% at June 30, 2000) plus 3%. The Facility  matures in  September  2001.  The
Company paid an origination fee of $50,000 to Global and will pay an unused line
fee of 0.5% per  annum.  The  Facility  is  secured  by all of the assets of the
Company and is convertible,  at any time at Global's option,  into shares of the
Company's Series C Stock or Common Stock at a price equal to the lesser of 66.7%
of the  closing  bid  price  for  the  trading  day  immediately  preceding  the
Conversion  Date, $1.50 per share or any lesser amount at which Common Stock has
been issued to third parties.  Pursuant to Nasdaq rules,  Global may not convert
borrowings under the Facility into shares of Common Stock in excess of 19.99% of
the number of shares of Common  Stock  outstanding  on August 24,  1999  without
shareholder  approval.  On June 29, 2000,  Global exercised its right to convert
$1,850,000 of the balance  outstanding  under the Facility into 1,233,333 shares
of the Company's  Common Stock. As of June 30, 2000,  $2,350,000 was outstanding
under the Facility.

     The Company's  revolving  credit facility is considered a convertible  debt
security with a  nondetachable  conversion  feature.  The conversion rate of the
Facility is measured each time the Company  borrows or repays  amounts under the
Facility  ("Commitment Date"). If the market price of the Company's common stock
at the  Commitment  Date is greater than the  Conversion  Price,  the advance is
considered to be in-the-money  and is considered to have an embedded  beneficial
conversion feature.

     EITF  98-5,   "Accounting  for   Convertible   Securities  with  Beneficial
Conversion Features or Contingently  Adjustable Conversion Ratios" requires that
embedded beneficial conversion features present in convertible securities should
be valued separately.

     The Company's  borrowings under the Facility during the year ended June 30,
2000 and related beneficial conversion features resulted in a charge to earnings
of $4.2 million of which $1,080,000 relates to the quarter ended March 31, 2000,
and $3.1 million  relates to the quarter ended June 30, 2000, and is recorded in
interest expense. Had the Company identified this beneficial  conversion feature
of $1,080,000  (unaudited) as of March 31, 2000, the net loss of the Company for
the  three-month  period ended March 31, 2000 would have  increased  from $(3.0)
million (unaudited) to $(4.0) million (unaudited) and basic and diluted net loss
per share would have  increased from $(.24)  (unaudited) to $(.33)  (unaudited).
The net loss of the Company for the nine-month period ended March 31, 2000 would
have increased from $(4.4)

                                      F-14
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED


million (unaudited) to $(5.5) million (unaudited) and basic and diluted net loss
per share increased from $(.52) (unaudited) to $(.65) (unaudited).

     Prior to the  Transaction,  the Company  entered into a secured  promissory
note with Global in the principal amount of $750,000, bearing interest at a rate
of 9.5% per annum, and a related security  agreement  granting Global a security
interest  in its  assets  (the  "Promissory  Note").  The  Promissory  Note  was
convertible  into shares of the  Company's  Series C Stock on the same terms and
conditions as the Facility described above, at the discretion of Global.  Global
has  also  advanced  approximately  $898,000  to  the  Company  in the  form  of
intercompany  advances.  As of June 30, 1999,  $1,647,692 was outstanding  under
these arrangements.

(11) NOTES PAYABLE

     Notes payable consists of the following:

<TABLE>
<CAPTION>
                                                                                     JUNE 30,      JUNE 30,
                                                                                       2000          1999
                                                                                    ----------    ----------
<S>                                                                               <C>             <C>
     Series A, D & E Notes (see below)                                                      --     2,386,048
     Note payable due September 5, 1999, interest at 7%, convertible to Common
      Stock at the option of the Company (see below)                                        --       400,000
     Note payable due in varying installments through 2009, interest at prime
      (8.25% at June 30, 1999) plus 2%, collateralized by certain commercial
      property and personally guaranteed by two shareholders (see below)                    --       220,508
     Note payable due in varying installments through December 2000, interest at
      6.9%, collateralized by a vehicle                                                  4,744        10,308
     Note payable due and payable April 19, 2001, interest 16% payable monthly,
      collateralized by certain commercial property (see below)                             --       470,000
     Note payable due in varying installments through 2000, interest at 11%,
      collateralized by a vehicle                                                           --         4,572
                                                                                    ----------    ----------
                                                                                         4,744     3,491,436
     Less current portion                                                                4,744        24,391
                                                                                    ----------    ----------
                                                                                    $        0    $3,467,045
                                                                                    ==========    ==========
</TABLE>

(a) SERIES NOTES

     The Series A, D and E Notes ("Series  Notes") were issued by the Company in
1998 prior to the Transaction.  The Series Notes all had original  maturities of
approximately  135 days with interest at  approximately  7% to 8% per annum. The
Company  could  choose to repay such Notes in cash  subject to a payment  charge
equal to  approximately  7% of the face amount of the Note or the Company  could
elect to convert the Series Notes into  preferred  stock of the Company which is
convertible into common stock. In July and August 1999,  Global purchased all of
the Series Notes from the holders of such notes.  Concurrent  with such purchase
by Global,  the Company  executed  several allonges to the Promissory Note which
cancelled such Series Notes and rolled the principal  balance,  plus accrued but
unpaid interest,  penalties and redemption premiums on the Series Notes into the
principal balance of the Promissory Note. Subsequent to May 18, 1999, Global had
also  advanced  working  capital  to the  Company  in the  form of  intercompany
advances. In August 1999, the Company executed an allonge to the Promissory Note
which  rolled  the  intercompany  advances  into the  principal  balance  of the
Promissory  Note and granted Global the ability to convert the  Promissory  Note
directly into shares of the Company's Common Stock,  without first converting to
Series C Stock, as an administrative convenience.

                                      F-15
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

     On  August  24,  1999,  the  Board of  Directors  of  Global  approved  the
conversion of the  Promissory  Note into shares of the  Company's  Common Stock.
Such conversion,  to the extent it exceeded  approximately one million shares of
the Company's  Common Stock on August 24, 1999,  was  contingent  upon receiving
shareholder  approval to increase the  authorized  share capital of the Company.
This  increase in  authorized  share  capital was  subsequently  approved at the
September 17, 1999 Special Meeting of the Company's  shareholders.  Accordingly,
in December 1999, the Company  issued to Global  4,802,377  shares of its Common
Stock based on the conversion date of August 24, 1999.

(b) OTHER NOTES PAYABLE

     In September 1999, the Company sold one of its two buildings in Alpharetta,
Georgia.  The net  proceeds  of  approximately  $390,000  from  the  sale,  plus
additional  cash of  approximately  $80,000,  was used by the Company to repay a
note payable due April 2001,  in the principal  amount of $470,000.  The sale of
the second building occurred in November 1999. The net proceeds of approximately
$367,000  from the sale  were used to retire  the note  payable  due 2009 in the
principal amount of $217,000.

     In October  1999,  a note payable in the  principle  amount of $400,000 due
September 5, 1999 was  converted  into 200,000  shares of the  Company's  Common
Stock.

(12) NET INCOME (LOSS) PER SHARE

     For  the  Transition  Period,  basic  weighted  average  number  of  shares
outstanding  includes 1,055,745 common shares held by Global for the full period
and approximately 5.3 million shares (the shares issued and outstanding prior to
the  Transaction)  for two months.  Diluted  weighted  average  number of shares
outstanding  for the  Transition  Period  include  1,055,745  common  shares and
15,097,170 potential dilutive securities resulting from the Series D Convertible
Preferred  Stock for the  entire  Transition  Period  (both  issued to Global in
connection with the Transaction); plus 5,278,737 common shares outstanding prior
to the merger, and 1,133,120 common stock equivalents related to the Convertible
Promissory Note,  Series A, D and E Convertible  Notes,  Series B 8% Convertible
Preferred  Stock,  Series C 8%  Convertible  Preferred  Stock and  options  each
weighted for the two months ended June 30, 1999.

     Basic and diluted  weighted  average number of shares  outstanding  for the
year ended October 31, 1998 included  1,055,745  shares of the Company's  common
stock,  representing  100% of the Company's capital stock which was all owned by
Global.  No effect was given to common stock  equivalents  in either year in the
computation  of diluted  loss per share for the years  ended  June 30,  2000 and
October 31, 1998 as their effect would have been anti-dilutive.

                                      F-16
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

<TABLE>
<CAPTION>
                                                                               TRANSITION        YEAR ENDED
                                                             YEAR ENDED       PERIOD ENDED      OCTOBER 31,
                                                            JUNE 30, 2000     JUNE 30, 1999         1998
                                                            -------------     -------------     ------------
<S>                                                         <C>                <C>              <C>
      Net income (loss)                                     $ (16,252,199)     $  2,344,205     $ (7,180,631)
      Less: preferred stock dividends                            (120,000)          (30,667)              --
                                                            -------------      ------------     ------------
      Income (loss) available to common stockholders        $ (16,372,199)     $  2,313,538     $ (7,180,631)
                                                            =============      ============     ============
      Basic EPS - weighted average shares outstanding           9,600,322         2,387,223        1,055,745
                                                            =============      ============     ============
      Basic net income (loss) per share                     $       (1.71)     $       0.97     $      (6.80)
                                                            =============      ============     ============
      Basic EPS - weighted average shares outstanding           9,600,322         2,387,223        1,055,745
      Effect of dilutive securities:
       Stock Purchase Options - common stock                           --            82,033               --
       Convertible preferred stock                                     --        15,570,814               --
       Convertible debt                                                --           503,638               --
                                                            -------------      ------------     ------------
      Dilutive EPS - weighted average shares outstanding        9,600,322        18,543,708        1,055,745
      Net income (loss)                                     $ (16,372,199)     $  2,344,205     $ (7,180,631)
                                                            -------------      ------------     ------------
      Diluted net income (loss) per share                   $       (1.71)     $       0.13     $      (6.80)
                                                            =============      ============     ============
     Common stock equivalents not included in dilutive EPS
      since antidilutive
      - Convertible preferred stock                            16,273,641                --       15,097,170
                                                            =============      ============     ============
      - Convertible debt                                        1,566,667                --               --
                                                            =============      ============     ============
      - Stock options and warrants                              4,026,348                --               --
                                                            =============      ============     ============
</TABLE>

(13) STOCK OPTION PLANS

     Under the  Company's  1994  Employee  Stock  Option Plan (the  "Plan"),  as
amended,  the Company has reserved an  aggregate  of 1,200,000  shares of Common
Stock  for  issuance  under  the Plan.  Options  granted  under the Plan are for
periods not to exceed ten years.  Under the Plan,  incentive  and  non-qualified
stock  options may be granted.  All option  grants under the Plan are subject to
the terms and conditions  established by the Plan and the Stock Option Committee
of the Board of Directors. Options must be granted at not less than 100% of fair
value for incentive options and not less than 85% of fair value of non-qualified
options of the stock as of the date of grant and generally are  exerciseable  in
increments  of 25% each year subject to continued  employment  with the Company.
Options  generally  expire  five to ten years  from the date of  grant.  Options
canceled represent the unexercised options of former employees,  returned to the
option pool in  accordance  with the terms of the Plan upon  departure  from the
Company.  The Board of  Directors  may  terminate  the Plan at any time at their
discretion.  During the year ended June 30, 2000,  687,500 stock options with up
to a four-year vesting period were granted at exercise prices ranging from $2.00
to $11.50.

     On August 16,  1995,  the Company  adopted  the 1995 Stock  Option Plan For
Non-Employee  Directors (the  "Directors  Plan") and reserved  100,000 shares of
unissued common stock for issuance to all non-employee directors of the Company.
The  Directors  Plan is  administered  by a committee  appointed by the Board of
Directors  consisting  of directors who are not eligible to  participate  in the
Directors Plan. Pursuant to the Directors Plan,  directors who are not employees
of the Company may receive for their  services,  on the date first  elected as a
member of the Board and on each  anniversary  thereafter,  if they  continue  to
serve on the Board of  Directors,  an  automatically  granted  option to acquire
5,000 shares of the Company's  common stock at its fair market value on the date
of grant;  such options become  exercisable in two equal annual  installments if
the  individual  continues  at that  time  to  serve  as a  director,  and  once
exercisable  remain so until the fifth  anniversary of the date of grant.  Other
grants  may be made at the  discretion  of the Board of  Directors  from time to
time. During fiscal 2000, there were no options granted.

                                      F-17
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

     During the year ended June 30, 2000, the Company granted  options  pursuant
to separate plans as described  below. The total number of stock options granted
pursuant to separate plans during the year ended June 30, 2000 was 2,350,000.

     In November 1999, the  Compensation  Committee of the Board of Directors of
the Company  recommended  option grants to purchase up to 500,000  shares of the
Company's  Common  Stock to Mr.  Irwin L. Gross,  Chairman  and Chief  Executive
Officer of the Company outside of the plans described above. Such recommendation
was  accepted  and  approved  by the Board of  Directors.  One  quarter of these
options  vested  immediately  and one quarter vest in equal annual  installments
over three years.  The remaining half vest on the sixth  anniversary of the date
of grant,  subject to acceleration to a three-year vesting schedule in the event
certain  performance  milestones are achieved.  Exercise price of the options is
equal to the closing  market price of the  Company's  Common Stock on the day of
grant. The options expire in October 2009.

     On March 6, 2000,  the  Company  granted  options to purchase up to 800,000
shares of the Company's Common Stock to Mr. Robert Pringle,  President and Chief
Operating Officer of the Company outside of the plans described above. One fifth
of these options vest on June 6, 2000, with the remainder  vesting in four equal
annual  installments  beginning March 6, 2001.  Exercise price of the options is
equal to the closing market price of the Company's Common Stock on the day prior
to grant, and the options expire on March 6, 2010.

     On March 6, 2000,  the  Company  granted  options to purchase up to 800,000
shares of the  Company's  Common  Stock to Dr.  Jay  Rosan,  an  Executive  Vice
President  of the Company  outside of the plans  described  above.  One fifth of
these  options vest on June 6, 2000,  with the  remainder  vesting in four equal
annual  installments  beginning March 6, 2001.  Exercise price of the options is
equal to the closing market price of the Company's Common Stock on the day prior
to grant, and the options expire on March 6, 2010.

     On March 6, 2000,  the  Company  granted  options to purchase up to 250,000
shares of the Company's  Common Stock to Mr. Richard  Genzer,  Chief  Technology
Officer of the Company outside of the plans described  above. One fifth of these
options vest on June 6, 2000,  with the  remainder  vesting in four equal annual
installments  beginning March 6, 2001. Exercise price of the options is equal to
the  closing  market  price of the  Company's  Common  Stock on the day prior to
grant, and the options expire on March 6, 2010.

     A summary of the aforementioned stock option activity follows:

<TABLE>
<CAPTION>
                                                   YEAR ENDED            TRANSITION PERIOD ENDED
                                                  JUNE 30, 2000               JUNE 30, 1999
                                              ----------------------      ---------------------
                                                            WEIGHTED                  WEIGHTED
                                                NUMBER      AVERAGE        NUMBER      AVERAGE
                                                  OF        EXERCISE         OF       EXERCISE
                                                SHARES       PRICE         SHARES       PRICE
                                              ----------    --------      --------    --------
<S>                                             <C>          <C>           <C>         <C>
     Balance at the beginning of year           719,978      $ 3.09        676,478     $ 5.00
     Granted                                  3,037,500        6.97        345,348       2.25
     Exercised                                 (111,823)       2.11        (20,000)      3.84
     Forfeited                                 (392,307)       4.03       (281,848)      4.75
                                              ---------                   --------
     Balance at the end of year               3,253,348        6.65        719,978       3.09
                                              =========                   ========
     Exercisable at the end of year             568,337        6.66        331,731       4.29
                                              =========                   ========
     Weighted-average fair value of
        options granted during the year       $    6.56                   $   1.66
                                              =========                   ========
</TABLE>

     In  accordance  with  the  provisions  of  APB  25,  the  Company  measures
stock-based  compensation expense as the excess of the market price at the grant
date over the amount the employee must pay for the stock.  The Company's  policy
is to generally  grant stock  options at fair market value at the date of grant,
so no compensation expense is recognized.  As permitted, the Company has elected
to adopt the disclosure provisions only of SFAS No. 123.

     Had compensation cost for the Company's stock-based compensation plans been
determined consistent with SFAS No. 123, the Company's net income (loss) and net
income  (loss) per share would have been  reduced  (increased)  to the pro forma
amounts indicated below:

                                      F-18
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

                                                               TRANSITION PERIOD
                                               YEAR ENDED            ENDED
                                             JUNE 30, 2000       JUNE 30, 1999
                                             -------------       -------------
      Net income (loss) available to
       common stockholders:
         As reported                         $ (16,372,199)       $ 2,313,538
                                             =============        ===========
         Pro forma                           $ (22,578,107)       $ 2,018,009
                                             =============        ===========
      Basic net income (loss) per share:
         As reported                         $       (1.71)       $      0.97
                                             =============        ===========
         Pro forma                           $       (2.35)       $      0.85
                                             =============        ===========
      Diluted net income (loss) per share:
         As reported                         $       (1.71)       $      0.13
                                             =============        ===========
         Pro forma                           $       (2.35)       $      0.11
                                             =============        ===========

     Pro forma net income (loss)  reflect only options  granted  during the year
ended 2000 and the Transition  Period ended 1999.  There were no options granted
related to IED for the year ended October 31, 1998.  Therefore,  the full impact
of  calculating  compensation  cost for stock  options under SFAS No. 123 is not
reflected in the pro forma net income  (loss)  amount  presented  above  because
compensation cost is reflected over the options' vesting period and compensation
cost for options  granted prior to November 1995 are not  considered  under SFAS
No. 123.

     For purposes of the SFAS No. 123 pro forma net income (loss) and net income
(loss) per share calculations,  the fair value of each option grant is estimated
on the date of grant  using  the  Black-Scholes  option-pricing  model  with the
following  weighted-average  assumptions  used for grants in the year ended June
30, 2000 and the Transition Period ended June 30, 1999:

                                                            TRANSITION PERIOD
                                           YEAR ENDED             ENDED
                                          JUNE 30, 2000       JUNE 30, 1999
                                          -------------       -------------
       Dividend yield                             0%                  0%
       Expected volatility                   165.87%              58.76%
       Risk free interest rate                 6.02%               5.67%
       Expected lives (years)                   5.0                10.0

     The following table  summarizes the status of outstanding  stock options as
of June 30, 2000:

<TABLE>
<CAPTION>
                               OPTIONS OUTSTANDING                     OPTIONS EXERCISABLE
                   --------------------------------------------    -----------------------------
                                    WEIGHTED
                                    AVERAGE
   RANGE OF         NUMBER OF      REMAINING        WEIGHTED        NUMBER OF        WEIGHTED
   EXERCISE          OPTIONS      CONTRACTUAL       AVERAGE          OPTIONS         AVERAGE
    PRICES         OUTSTANDING    LIFE (YEARS)   EXERCISE PRICE    EXERCISABLE    EXERCISE PRICE
--------------     -----------    ------------   --------------    -----------    --------------
<S>                 <C>               <C>             <C>            <C>              <C>
$2.00 - $ 2.25        258,848         8.20            $2.23           73,337          $2.25
 2.31 -   4.97        913,000         8.93             2.90          125,000           2.31
 5.13 -   5.88         92,000         9.59             5.62               --             --
 6.50 -   8.72         54,500         9.60             7.70               --             --
 9.00 -  11.50      1,935,000         9.67             9.04          370,000           9.00
                    ---------                                        -------
Total               3,253,348                                        568,337
                    =========                                        =======
</TABLE>
                                      F-19
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

(14) BENEFIT PLAN

     On June 1,  1999 a formal  termination  of the  Company's  401(k)  plan was
initiated.  The formal  termination is expected to be completed in October 2000.
The 401(k) plan of parent  company  Global was  amended  June 1, 1999 to include
employees of the Company.

     Global has adopted a defined  contribution  benefit plan that complies with
section  401(k) of the Internal  Revenue  Code and  provides  for  discretionary
company  contribution.  Employees  who  complete  three  months of  service  are
eligible to participate in the Plan.  Global did not make any  contributions  to
the Plan for the year ended June 30, 2000, the Transition  Period ended June 30,
1999, nor the year ended October 31, 1998.

(15) STOCKHOLDERS' EQUITY

PREFERRED STOCK

     Series B 8% Convertible  Preferred  Stock ("Series B Stock");  stated value
$1,000 per share and  liquidation  value of 120% of stated value.  The Holder of
Series B Stock is  entitled  to an annual  cumulative  dividend of $80 per share
payable  quarterly in cash or Common Stock.  Cumulative unpaid dividends at June
30, 2000 total $140,000. Each share of Series B Stock is convertible into Common
Stock at a price equal to the lowest of: a) 75% of the  Average  Price of Common
Stock,  as defined,  or b) 75% of the Average Price of Common Stock,  as defined
calculated as if April 29, 1999 were the conversion date. The Series B Stock has
no voting rights. Global owns 100% of the issued and outstanding Series B Stock.
There were 1,500 shares of Series B Convertible  Preferred Stock  outstanding at
June 30, 2000.

     Series C 8% Convertible  Preferred  Stock ("Series C Stock");  stated value
$1,000 per share and  liquidation  value of 120% of stated value.  The Holder of
Series C Stock is  entitled  to an annual  cumulative  dividend of $80 per share
payable  quarterly  in cash or  Common  Stock.  Each  share of Series C Stock is
convertible  into Common Stock at a price equal to the lowest of: a) $2.6875 per
share, or b) 66.67% of the Average Price,  as defined,  or c) at the lowest rate
the Company issues equity securities,  as defined.  The Series C Stock generally
has no voting  rights.  On August 24, 1999,  Global  notified the Company of its
intent to convert  such shares  into  Common  Stock  contingent  upon  receiving
shareholder  approval to increase the  authorized  share capital of the Company.
The  increase  in  authorized  share  capital was  subsequently  approved at the
September 17, 1999 Special Meeting of the Company's  shareholders.  Accordingly,
in December  1999,  the Company  issued  886,000  shares of its Common  Stock to
Global upon conversion of all the Series C stock held by Global.

     Series D Convertible  Preferred Stock ("Series D Stock");  stated value $10
per share and liquidation  value of 120% of stated value. The Holder of Series D
Stock is  entitled to an annual  dividend  as and when  declared by the Board of
Directors of the Company. The Series D Stock generally has no voting rights. The
Series D Stock is  convertible  into the Company's  Common Stock at a conversion
rate of 6.05 Common shares for each share of Series D Stock.

COMMON STOCK

     At June 30, 2000, there are authorized  40,000,000  shares of Common Stock,
par value $0.001 per share. The holders of Common Stock are entitled to one vote
for  each  share  held  of  record  on all  matters  submitted  to a vote of the
shareholders.

     On June 1, 2000,  the Company  executed a master  facility  agreement  with
Fusion Capital Fund II, LLC ("Fusion")  pursuant to which Fusion agreed to enter
into  an  equity  purchase  agreement  with an  aggregate  available  amount  of
$12,000,000.  Under the master facility agreement, the equity purchase agreement
grants Fusion the right to purchase up to  $12,000,000  of the Company's  Common
Stock at a price equal to the lesser of (1) $8.00 per share or (2) a price based
on the future  performance  of the common stock,  in each case without any fixed
discount  to the  market  price.  Under the  agreement,  Fusion has the right to
convert  up to $1.0  million  of the  available  amount of the  purchase  equity
agreement  each  month,  plus any  prior  month  amounts  that have not yet been
converted,  into shares of the Company's  Common Stock at the conversion  price.

                                      F-20
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The Company has certain  rights to prevent  conversion  or to require  mandatory
conversion.  At no time would Fusion be permitted to beneficially  own more than
4.99% of the then  aggregate  outstanding  common  stock.  Additionally,  Fusion
received  300,000 shares of the Company's  Common Stock as a commitment fee. The
shares were valued at $1,021,860,  and $468,183 had been netted against proceeds
received as of June 30, 2000.  As of June 30, 2000,  Fusion  purchased  from the
Company an  aggregate of 15,400  shares of common  stock at an average  price of
$3.41 per  share and  provided  an  advance,  repayable  in  common  shares,  of
$448,000.

     In December  1999 and January  2000,  the Company  issued 29,500 and 10,000
shares of common  stock  respectively,  to third  parties for investor  relation
services to be provided over a twelve month period.

WARRANTS

     The following table summarizes warrant activity for the year ended June 30,
2000, the  Transition  Period ended June 30, 1999 and the year ended October 31,
1998:

        Outstanding as of October 31, 1997                                  --
        Issued in connection with consulting services                  334,700
        Issued in connection with Series B Preferred Stock             162,500
        Issued in connection with Series A Notes                       189,025
        Issued in connection with Series D Notes                        70,000
                                                                --------------
        Outstanding as of October 31, 1998                             756,225
        Issued in connection with Series E Notes                       132,500
        Issued in connection with Series F Notes                       187,000
        Issued in connection with Promissory Notes                     290,000
                                                                --------------
        Outstanding as of June 30, 1999                              1,365,725
        Issued in connection with consulting services                  150,000
        Exercised during the year                                     (678,225)
        Repurchased during year                                        (64,500)
                                                                --------------
        Outstanding as of June 30, 2000                                773,000
                                                                ==============
        Exercise Price                                          $ 2.41 - 10.00
                                                                ==============

     During the year ended June 30,  2000,  the Company  issued  150,000  Common
Stock purchase warrants,  resulting in 773,000 warrants  outstanding at June 30,
2000.  Each warrant  represents the right to purchase one share of the Company's
Common Stock at exercise  prices  ranging from $2.41 to $10.00 per share,  until
such warrants expire beginning August 12, 2001 through December 23, 2004.

     In December  1999,  the Company  issued common stock  purchase  warrants to
purchase 25,000 shares of the Company's Common Stock at $6.50 per share to Emden
Consulting Corp. in exchange for advisory  services.  The exercise period of the
warrants expires in December 2004.  Non-cash expense of $144,868 was recorded in
the fiscal year ended June 30, 2000.

     In December  1999,  the Company  issued common stock  purchase  warrants to
purchase  25,000  shares  of the  Company's  Common  Stock at $6.50 per share to
Waterton Group LLC in exchange for advisory services. The exercise period of the
warrants expires in December 2004.  Non-cash expense of $144,868 was recorded in
the fiscal year ended June 30, 2000.

     In December  1999,  the Company  issued common stock  purchase  warrants to
purchase  100,000 shares of the Company's Common Stock at prices ranging from $6
to $10 per share to  Continental  Capital & Equity Corp.  in exchange for public
relations  and  financial  advisory  services.  The warrants were to vest over a
period of 270 days and expire in February 2002. Non-cash expense of $350,269 was
recorded in the fiscal year ended June 30, 2000.

     On March 13, 2000, the Company issued 236,081 shares of its Common Stock in
connection with the cashless  exercise of common stock purchase warrants held by
the former holders of the Company's Series A and E notes. The warrants exercised
represented  warrants to purchase  311,525 shares of the Company's Common Stock.

                                      F-21
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Additionally, on March 13, 2000, the Company issued 123,382 shares of its Common
Stock in connection with the cashless exercise of common stock purchase warrants
previously  issued in connection with the Company's Series F notes. The warrants
exercised  represented  warrants to  purchase  182,000  shares of the  Company's
Common Stock.

     In March  2000,  the  Company  repurchased  for cash  64,500  Common  Stock
purchase  warrants for $296,000.  The warrants were issued prior to the May 1999
Transaction.  The repurchase  was recorded as a reduction to additional  paid-in
capital.

     In May 2000,  the  Company  issued  107,433  shares of its Common  Stock in
connection with the cashless  exercise of Common Stock purchase  warrants issued
in January and May 1998 in  connection  with  financial  advisory  services.  No
services  have been  provided to the Company  since the  Transaction  Date.  The
warrants  exercised  represented  warrants  to  purchase  184,700  shares of the
Company's Common Stock.

(16) INCOME TAXES

     Income taxes (benefit)  differed from the amounts  computed by applying the
U.S.  Federal  corporate income tax rate of 34% to net income (loss) as a result
of the following:

<TABLE>
<CAPTION>
                                                                     TRANSITION
                                                    YEAR ENDED      PERIOD ENDED        YEAR ENDED
                                                  JUNE 30, 2000     JUNE 30, 1999    OCTOBER 31, 1998
                                                  -------------     -------------    ----------------
<S>                                                <C>                <C>            <C>
         Computed expected tax (benefit)           $(5,525,746)       $ 786,603         $(2,441,415)
         Change in federal valuation allowance       3,976,710         (983,188)          2,100,322
         Nondeductible expense                       1,549,036           16,320             416,498
         Other                                              --          180,265             (75,405)
                                                   -----------        ---------         -----------
                                                   $        --        $      --         $        --
                                                   ===========        =========         ===========
</TABLE>

     The tax  effects of  temporary  differences  that give rise to  significant
portions of the net deferred tax asset are presented below:

                                                               TRANSITION PERIOD
                                                YEAR ENDED           ENDED
                                              JUNE 30, 2000      JUNE 30, 1999
                                              -------------      -------------
       Deferred tax assets:
        Net operating loss carryforward        $ 11,416,005      $  5,443,825
        Property and equipment                    1,145,301           972,785
        Allowance for bad debts                          --         1,517,277
        Provision for inventory valuation         3,607,166         3,142,092
        Accrued liabilities                         876,320           770,859
        Deferred revenue                                 --           146,699
        Other                                            --           262,589
                                               ------------      ------------
                                                 17,044,792        12,256,126
       Less valuation allowance                 (17,044,792)      (12,256,126)
                                               ------------      ------------
           Net deferred tax asset              $         --      $         --
                                               ============      ============

     In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some  portion or all of the deferred tax
assets will not be realized.  The ultimate realization of deferred tax assets is
dependent  upon the  generation of future  taxable  income during the periods in
which those  temporary  differences  become  deductible.  The  Company  believes
sufficient  uncertainty  exists regarding the realization of the tax assets such
that a full valuation allowance is appropriate. As of June 30, 2000, the Company
has a net operating loss (NOL)  carryforward  for federal income tax purposes of
approximately  $28,752,372,  which begins to expire in 2009.  The Company likely
underwent a change in ownership in accordance with Internal Revenue Code Section
382, the effect of which has not yet been determined by the Company. This change

                                      F-22
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

would effect the timing of the  utilization of the NOL, as well as the amount of
the  NOL  which  may  ultimately  be  utilized,  though  it is not  expected  to
materially effect the amount of the NOL carryforward.

(17) RELATED PARTY TRANSACTIONS

     Prior to the Transaction, TNCi entered into the Promissory Note with Global
in the  principal  amount of  $750,000,  bearing  interest at a rate of 9.5% per
annum, and a related security  agreement  granting Global a security interest in
its assets.  In July and August 1999, Global purchased all of the Series A and E
notes and the Series D notes issued by TNCi (collectively,  the "Series Notes"),
respectively  from the holders of such notes.  Concurrent  with such  purchases,
TNCi executed  allonges to the Promissory Note, which cancelled the Series Notes
and  rolled  the  principal  balance,  plus  accrued  interest,   penalties  and
redemption  premiums  of the  Series  Notes  into the  principal  balance of the
Promissory Note. In August 1999, TNCi executed another allonge to the Promissory
Note which rolled approximately $1.2 million of prior intercompany advances from
Global into the  Promissory  Note and granted  Global the ability to convert the
Promissory Note directly into shares of TNCi's Common Stock as an administrative
convenience.  On August 24, 1999, the Board of Directors of Global  approved the
conversion  of the  Promissory  Note into  approximately  4.8 million  shares of
TNCi's Common Stock.  Such conversion was contingent upon receiving  shareholder
approval to increase the  authorized  share  capital of TNCi.  This  increase in
authorized share capital was approved on September 17, 1999, and the shares were
subsequently  issued in December 1999 based as on the August 24, 1999 conversion
date.

     On August 24, 1999, the Company's Board of Directors  approved a $5,000,000
secured   revolving  credit  facility  by  and  between  TNCi  and  Global  (the
"Facility").  The Facility  provides that TNCi may borrow up to  $5,000,000  for
working  capital  and general  corporate  purposes at the Prime Rate of interest
(9.5% at June 30, 2000) plus 3%. The Facility  matures in September  2001.  TNCi
paid an origination  fee of $50,000 to Global and will pay an unused line fee of
0.5% per  annum.  The  Facility  is  secured by all of the assets of TNCi and is
convertible into shares of TNCi's Common Stock.

     During  the year  ended  June 30,  2000,  TNCi had net  borrowings  of $4.2
million under the Facility. On June 28, 2000 the Board of Directors approved the
conversion of $1,850,000  of the Facility into  1,233,333  shares of TNCi Common
Stock. At June 30, 2000 the balance on the Facility was  $2,350,000.  During the
year ended June 30, 2000, the Company  incurred  interest expense of $112,375 to
Global.

     TNCi  provides  certain  administrative   services  to  Global,   including
accounting,  payroll and human  resources  under an  arrangement in which Global
pays TNCi through an intercompany account. Through June 30, 2000, these services
amounted to $175,889.  As of June 30, 2000,  Global owed to the Company  $73,607
which is the net result of various intercompany  transactions which includes the
aforementioned charge.

     The  Company's  Chief  Executive  Officer is a  principal  of Ocean  Castle
Investments, LLC ("Ocean Castle") which maintains administrative offices for the
Company's Chief Executive Officer and certain other employees of Global.  During
the year ended October 31, 1998,  Ocean Castle  executed  consulting  agreements
with two principal  stockholders of Global.  The rights and obligations of Ocean
Castle under the agreements  were assumed by the Company in connection  with the
Transaction.  The consulting agreements require payments aggregating  $1,000,000
to each of the  consultants  through  December  2003 in  exchange  for  advisory
services. Each of the consultants also received stock options to purchase 50,000
shares of Class A Common  Stock of Global at an exercise  price of $3.00.  As of
June 30, 1999,  the Company  determined  that the  consulting  agreements had no
future value due to the Company's shift away from in-flight  entertainment  into
alternative  markets such as leisure cruise and passenger rail  transport.  Only
limited  services were provided in 1999, no services were provided in 2000,  and
no future services will be utilized.  Accordingly, the Company recorded a charge
to general and administrative  expenses in the Transition Period of $1.6 million
representing the balance due under such contracts.  In August 2000,  Global,  on
behalf  of  TNCi,   settled  the  outstanding   obligation  with  the  principle
stockholders  of Global for Common  Stock of Global.  The Company  will issue to
Global  411,146 shares of its Common Stock as  reimbursement  to Global for such
settlement.

     In May and June  2000,  The  Gross  Charitable  Unit  Trust  and The  Gross
Charitable Annuity Trusts (together the "Trusts"),  advanced a total of $800,000
to the Company for working capital purposes. An additional $250,000 was advanced
to the Company in July 2000. On September 12, 2000,  the advances were converted
into two promissory notes, each in the amount of $525,000,  issued to each Trust

                                      F-23
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

by the Company.  The notes mature on December 31, 2000 and bear  interest at 9%.
The Trusts are controlled by the Company's Chairman and Chief Executive Officer,
Irwin L. Gross.

     In August 1999,  the Company  executed a separation  and release  agreement
with a  shareholder  and former  officer of the  Company,  pursuant to which the
Company paid approximately  $85,000 in the form of 66,667 unregistered shares of
the Company's common stock.

     In June 1999,  the  Company  loaned to a vice  president,  $75,000  for the
purpose of assisting in a corporate relocation to the Company's  headquarters in
Phoenix,  Arizona.  The  Company  also added other  outstanding  advances to the
principal  amount of the rate in the amount of $42,000.  Such loan is secured by
assets of the  employee.  The note  matures in August 2009 and bears an interest
rate of approximately 5%.

     Global had an Intellectual  Property License and Support Services Agreement
(the  "License   Agreement")  for  certain   technology   with  FortuNet,   Inc.
("FortuNet").  FortuNet is owned by a principal  stockholder and former director
of Global.  The License Agreement provides for an annual license fee of $100,000
commencing in October 1994 and  continuing  through  November  2002. The Company
paid FortuNet $100,000 during each of the years ended October 31, 1998 and 1997.
As of October 31,  1998,  the  remaining  commitment  of $400,000 is included in
accrued  liabilities on the balance sheet. The Company assumed this liability in
connection  with the  Transaction.  In September  1999,  the Company agreed to a
termination of this agreement and paid FortuNet $100,000 plus legal fees. During
the Transition Period ended June 30, 1999, the Company had revised its estimated
accrual to $200,000  which is included in accrued  liabilities at June 30, 1999.
During  the  year  ended  June 30,  2000,  actual  costs  associated  with  this
settlement  were  $43,150  less  than the  estimate.  Accordingly,  the  Company
reversed the liability and reduced administrative expense.

     During the year ended  October  31,  1998,  Global  extended  by one year a
consulting  agreement with a former  officer of Global  pursuant to which Global
will pay $55,000 for services  received  during the period November 1999 through
October 2000. The Company assumed the liability for the consulting  agreement in
connection  with the  Transaction  in the amount of $55,000 which is included in
accrued  liabilities at June 30, 1999. As of June 30, 2000,  $18,000 remained to
be paid.

     During the year ended  October 31,  1998,  Global  executed  severance  and
consulting agreements with three former officers,  pursuant to which Global paid
the former officers and set aside  restricted funds in the amounts of $3,053,642
and $735,000,  respectively.  The consulting agreements all expired by September
1999.  Payments  totaling  $735,000  were  made from  restricted  cash of Global
through September 1999.  Expenses  associated with these agreements were charged
to general and administrative expenses in the year ended October 31, 1998.

     During  the  year  ended  October  31,  1996,  Global  executed   severance
agreements  with three  former  officers  pursuant to which the Company will pay
severance of $752,500  over a three-year  period.  As of June 30, 2000 and 1999,
zero and $18,000  remained to be paid under these  agreements.  Such liabilities
were assumed by the Company in connection with the Transaction.

     The Company has agreed to reimburse  B.H.G.  Flight,  LLC ("BHG") for costs
and expenses  associated  with the Company's  use for  corporate  purposes of an
airplane owned by BHG. Irwin L. Gross, Chairman of the Board and Chief Executive
Officer,  owns a 50%  interest  in  BHG.  To  date,  the  Company  has  incurred
approximately $44,000 for such costs and expenses.

(18) COMMITMENTS AND CONTINGENCIES

(a) LITIGATION

     Swissair/MDL-1269,  IN  REGARDS  TO AN AIR CRASH NEAR  PEGGY'S  COVE,  NOVA
SCOTIA.  This multi-district  litigation,  which is being overseen by the United
States District Court for the Eastern Division of  Pennsylvania,  relates to the
crash of  Swissair  Flight No. 111 on  September  2, 1998.  The  Swissair  MD-11
aircraft involved in the crash was equipped with an entertainment network system
that had been sold to  Swissair  by Global's  predecessor  company,  Interactive

                                      F-24
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Flight  Technologies,  Inc.  Estates  of the  victims  of the crash  have  filed
lawsuits  throughout  the United States  against  Swissair,  Boeing,  Dupont and
various other parties,  including  Global and TNCi, which has been named in some
of the lawsuits filed on a successor  liability theory. TNCi and Global deny all
liability  for the crash.  TNCi and Global are being  defended  by our  aviation
insurer.

     On September 1, 1999,  SAir Group invited the Company to  participate  in a
conciliation  hearing  before the  Justice of the Peace in Kloten,  Switzerland,
which is the  customary  manner  in  which  civil  litigation  is  initiated  in
Switzerland. The document informing us of the proceeding states that the request
has been filed in connection  with the crash of Swissair Flight 111 primarily in
order to avoid the expiration of any applicable  statutes of limitations  and to
reserve the right to pursue further claims.  The document states that the relief
sought is "possibly  the  equivalent  of CHF  342,000,000  - in a currency to be
designated  by the court;  each plus 5% interest  with effect from  September 3,
1998; legal costs and a participation to the legal fees (of the plaintiff) to be
paid by the defendant."

     BRYAN R. CARR V. THE  NETWORK  CONNECTION,  INC.  AND GLOBAL  TECHNOLOGIES,
LTD.,  Superior Court of Georgia,  Civil Action No.  99-CV-1307.  Bryan R. Carr,
TNCi's former Chief Operating and Financial Officer and a former Director, filed
a claim on November 24, 1999 alleging a breach of his employment  agreement with
TNCi.  Mr. Carr  claims  that he is  entitled  to the present  value of his base
salary  through  October 31, 2001, a share of any "bonus pool," the value of his
stock options and accrued  vacation  time.  TNCi and we filed a motion to compel
arbitration of the claims pursuant to an arbitration provision in the employment
agreement and to stay the State Court action pending the arbitration proceeding.
The Company's  motion was granted on August 9, 2000.  As of this date,  Mr. Carr
has not filed an arbitration claim against TNCi or Global,  but on September 20,
2000,  Mr.  Carr sent a letter to the  Company  stating  his demands in hopes of
settlement.

     A suit captioned AVNET, INC. V. THE NETWORK CONNECTION, INC., was filed May
17, 2000 in Maricopa County Superior Court,  CV2000-009416.  The suit relates to
invoices for  inventory  purchased  by TNCi in late 1998 and early 1999.  Avnet,
Inc. seeks payment of the invoices,  interest and legal fees.  TNCi has not paid
for the  inventory  purchased  primarily  for  the  following  reasons:  (i) the
inventory  purchased  did not meet  specifications  and thus was not accepted by
TNCi's customer,  and (ii) TNCi is currently  pursuing a separate warranty claim
against Avnet regarding certain other inventory purchased from Avnet.

     The Company is subject to other lawsuits and claims arising in the ordinary
course of its  business.  In the  Company's  opinion,  as of June 30, 2000,  the
effect of such matters will not have a material  adverse effect on the Company's
results of operations and financial position.

(b) LEASE OBLIGATIONS

     The Company leases office space and equipment under operating  leases which
expire  at  various  dates  through   August  2005.  The  future  minimum  lease
commitments under these leases are as follows:

     YEARS ENDING JUNE 30,                                TOTAL
     ---------------------                             -----------
     2001                                              $   566,689
     2002                                                  626,215
     2003                                                  519,362
     2004                                                  519,362
     2005                                                  502,721
                                                       -----------
     Total minimum lease payments                      $ 2,734,349
                                                       ===========

                                      F-25
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

     Rental  expense  under  operating  leases  totaled  $175,042,  $292,042 and
$944,932  for the fiscal year ended June 30,  2000,  for the  Transition  Period
ended June 30, 1999 and the fiscal year ended October 31, 1998 , respectively.

(19) SPECIAL CHARGES AND REVERSAL OF WARRANTY, MAINTENANCE AND COMMISSION
     ACCRUALS

     Global had previously  entered into sales  contracts  with three  airlines,
Schweizerische Luftverkehr AG ("Swissair"),  Debonair Airways, Ltd. ("Debonair")
and Alitalia Airlines,  S.p.A. ("Alitalia") for the manufacture and installation
of its in-flight  entertainment  network,  and to provide  hardware and software
upgrades, as defined in the agreements. In connection with the Transaction,  the
Company assumed all rights and obligations of the above contracts.

     Pursuant to the October 1997 agreement with  Swissair,  Swissair  purchased
shipsets for the first and business  class  sections of sixteen  aircraft for an
average  of $1.7  million  per  aircraft.  Included  in the  purchase  price was
material,  installation,  maintenance  through September 1998, one-year warranty
and upgrade costs for the sixteen aircraft.  As of October 31, 1998, the Company
had  completed  installations  of the  entertainment  network  on  all of  these
aircraft.  The agreement also required the Company to install the  entertainment
network in the first,  business and economy class  sections of three  additional
aircraft,  at no charge to Swissair.  The Company was  responsible for all costs
including entertainment network components, installation and maintenance through
September 1998 for the three  aircraft.  As of October 31, 1998, the Company had
completed  installations of the  entertainment  network on all of these aircraft
and title to each of these three  shipsets  had been  transferred  to  Swissair.
During the fiscal year ended October 31, 1998, the Company recognized a recovery
of special  charges of $606,508 which resulted from a reduction in the number of
entertainment  networks  requiring  maintenance in the economy class sections of
the Swissair aircraft and a reduction in development expenses.

     In April  1998 and  October  1998,  the  Company  entered  into  additional
contracts  with  Swissair.  The first letter of intent related to a $4.7 million
order for first and business class installations on four Swissair MD-11 aircraft
that were being  added to the  Swissair  fleet.  Swissair  had made  payments of
$1,450,000  on the $4.7 million order  through  February  1999. No payments have
been received since February.  The second contract was to extend the warranty on
all  installed  systems  for a second and third  year at a price of  $3,975,000.
Through  February  1999, the Company had been paid $707,500 under this contract.
No subsequent payments have been received from Swissair.

     On October 29,  1998,  the Company was notified by Swissair of its decision
to deactivate the entertainment  networks on all Swissair aircraft.  However, by
April 1999,  discussions between the Company and Swissair regarding  outstanding
financial matters related to current accounts  receivable,  inventory,  purchase
commitments and extended warranty  obligations,  as well as planning discussions
for an October 1999 reactivation ceased to be productive. On May 6, 1999, Global
filed a lawsuit  against  Swissair in the United States  District  Court for the
District  of  Arizona  seeking  damages  for  Swissair's  failure  to honor  its
obligations for payment and reactivation of the Company's Entertainment Network.

     The Swissair agreements are not assignable to third parties under the terms
of such  agreements.  However,  in connection with the  Transaction,  Global has
agreed to pay to the Company any net proceeds, if any, received from Swissair as
a result of the above  litigation  or  otherwise.  Further,  the  Company,  as a
subcontractor  to Global,  will assume any operational  responsibilities  of the
Swissair  agreement in the event that such requirement  arises.  The Company has
not assumed any liabilities or obligations  arising out of the crash of Swissair
Flight No. 111.

     As a result of the above events,  management concluded that its only source
of future payment,  if any, will be through the litigation process. In addition,
with the deactivation of the  entertainment  system and Swissair's breach of its
agreements  with  Global,  the  Company  believes  it will not be called upon by
Swissair to perform any ongoing warranty,  maintenance or development  services.
Swissair's  actions have rendered the Company's accounts  receivable,  inventory
and  deposits  worthless as of June 30, 1999.  Accordingly,  for the  Transition
Period,  the Company has recognized  revenue on equipment sales to the extent of
cash received of $876,000;  charged off inventory to cost of equipment  sales in
the amount of $1,517,000; wrote off deposits of $655,000 to special charges; and
reversed all warranty and maintenance accruals totaling $5,164,000.

                                      F-26
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

     Pursuant to an agreement  with  Debonair,  the Company was to  manufacture,
install,  operate,  and  maintain  the  entertainment  network  on six  Debonair
aircraft for a period of eight years from  installation.  In February  1998, the
Company and Debonair signed a Termination Agreement. Pursuant to the Termination
Agreement,  Debonair removed the entertainment network from its aircraft and the
Company  paid  Debonair  $134,235  as full and  final  settlement  of all of its
obligations with Debonair.

     In  connection  with these  agreements  with  Swissair and Debonair and the
absence of any new entertainment  network orders,  the Company recorded property
and equipment  write-downs of $1,006,532  during fiscal 1998, which are included
in special charges on the consolidated statement of operations.

     Pursuant to an agreement  with Alitalia,  the Company  delivered five first
generation  shipsets for  installation on Alitalia  aircraft during fiscal 1996.
Subsequently,  Alitalia  notified the Company that it did not intend to continue
operation of the shipsets,  and the Company  indicated  that it will not support
the shipsets.

     For the  Transition  Period  ended  June 30,  1999,  the  Company  recorded
warranty,   maintenance  and  commission  accrual   adjustments  of  $5,117,704,
$1,730,368  and  $303,321,  respectively,  related to the  Swissair and Alitalia
matters.  Such adjustments to prior period estimates,  which totaled  $7,151,393
resulted from an evaluation of specific contractual  obligations and discussions
between the new  management  of the Company  and other  parties  related to such
contracts.  Based on the results of the Company's  findings  during this period,
such accruals were no longer considered necessary.

(20) SEGMENT INFORMATION

     The Company  operates  principally  in one industry  segment;  development,
manufacturing and marketing of  computer-based  entertainment and data networks.
Prior to the  Transition  Period,  the  Company's  principal  revenues  had been
derived from European customers. Since the Transaction, the majority of revenues
have been derived from the sale of servers and equipment in the U.S.

     For the year ended June 30,  2000,  one customer  accounted  for 78% of the
Company's  sales.  For the  Transition  Period  ended June 30, 1999 and the year
ended October 31, 1998, one different  customer accounted for 91% and 98% of the
Company's  sales,  respectively.   Outstanding  receivables  from  each  of  the
customers were zero at June 30, 2000 and June 30, 1999.

(21) SUPPLEMENTAL FINANCIAL INFORMATION

     Supplemental disclosure of cash flow information is as follows:

<TABLE>
<CAPTION>
                                                         YEAR ENDED      TRANSITION     YEAR ENDED
                                                          JUNE 30,      PERIOD ENDED    OCTOBER 31,
                                                            2000        JUNE 30, 1999      1998
                                                         -----------    -------------   -----------
<S>                                                      <C>                <C>          <C>
Cash paid for interest                                   $    28,777        $ --         $ 11,954
                                                         ===========        ====         ========
Non-cash for investing and financing activities:
  Issuance of warrants and stock to third parties
    for services and in connection with financing        $ 1,166,880        $ --         $     --
  Issuance of warrants to related party for
    collateral pledges                                       797,668          --               --
  Conversion of Promissory Note                            4,476,048          --               --
  Conversion of note payable                                 400,000          --               --
  Beneficial conversion on Facility                        4,200,000          --               --
  Partial conversion of Facility                           1,850,000          --               --
  Net Issuance of commitment shares associated with
    equity purchase agreement                                553,677          --               --
</TABLE>

(22) SUBSEQUENT EVENTS

(a) CONVERSION OF SERIES D PREFERRED STOCK

     On August 2, 2000,  upon receipt of notice of conversion  from Global,  the
Company issued 5,000,000 shares of its Common Stock to Global upon conversion of
826,447 shares of the Company's  Series D Preferred Stock held by Global.  As of
September 25, 2000, Global's ownership in the Company was 77% on an if-converted
common stock basis.

                                      F-27
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

(b) ISSUANCE OF SERIES E CONVERTIBLE PREFERRED STOCK

     In  August  2000,  the  Company  designated  500  shares  of  Series  E  6%
Convertible  Preferred Stock ("Series E Stock");  stated value $10,000 per share
and liquidation  value $10,000 per share plus accrued and unpaid  dividends.  At
the option of the Holder, beginning 180 days after the date of issue, each share
of Series E Stock is  convertible  into common  stock at the lesser of $4.00 per
share or the  Average  Market  Price for common  stock for the five  consecutive
trading days immediately preceding such date, as defined. The Company may redeem
the Series E Stock at prices  ranging  from 110% to 120% of stated  value,  plus
accrued  dividends  during the first 180 days from date of issue. The redemption
premium  increases  at a rate of 3% per  month to a  maximum  of 140% of  stated
value.

     On August 3, 2000, the Company  entered into a  subscription  agreement for
the sale of up to 500 shares of Series E Stock.  On that date,  the Company sold
for net proceeds of approximately $920,000, 100 shares of its Series E Stock.

(c) ISSUANCE OF NOTE PAYABLE AND WARRANTS

     On September 12, 2000,  the Board of Directors  authorized  the issuance of
common  stock  purchase  warrants to purchase  311,560  shares of the  Company's
Common Stock which have been divided  equally  between two trusts  controlled by
Irwin L. Gross,  the Chairman  and Chief  Executive  Officer of the Company,  as
compensation  for various working capital  advances made to the Company from May
2000  through  July 2000.  As of June 30, 2000,  advances  totaled  $800,000 and
additional  advances  of  $250,000  have been made  subsequent  to year end.  On
September  12,  2000,  the  Company's  Board  of  Directors  also  approved  the
conversion of these advances into promissory  notes from the Company.  (See Note
10).  The number of warrants  issued for each  advance was based upon the amount
advanced  divided by the closing  market price of the Company's  common stock on
the date of each  advance.  The warrants  have an exercise  price based upon the
closing  market price of the  Company's  Common Stock on the date of the advance
and a term of five years from such date.  The fair value of the warrants  issued
were  $797,000 of which  $137,000 was recorded as a non-cash  charge to interest
expense in the year ended June 30, 2000.

(d) INVESTMENT BY OFFICER

     In August 2000, an officer of the Company advanced  $970,000 to the Company
for  working  capital  purposes in exchange  for common  stock.  Final terms and
conditions  of this  investment  have not been  reached,  however,  common stock
purchase  warrants  of the  Company  will be  issued  in  connection  with  this
transaction.

(e) CARNIVAL AGREEMENT

     In  September  1998,  the Company  entered  into a Turnkey  Agreement  (the
"Carnival  Agreement") with Carnival Corporation  ("Carnival") for the purchase,
installation and maintenance of its advanced cabin  entertainment and management
system for the cruise industry  ("CruiseView(TM)")  on a minimum of one Carnival
Cruise Lines ship.  During the  four-year  period  commencing on the date of the
Carnival Agreement, Carnival had the right to designate an unspecified number of
additional ships for the installation of CruiseView(TM).  The cost per cabin for
CruiseView(TM)  purchase and  installation  on each ship was provided for in the
Carnival  Agreement.  In December 1998,  Carnival  ordered the  installation  of
CruiseView(TM)  on one Carnival Cruise Lines "Fantasy" class ship which has been
in  operational  use since August 1999.  In August  1999,  Carnival  ordered the
installation of CruiseView(TM) on one Carnival Cruise Lines "Destiny" class ship
which was in  operational  use from October 1999 through  March 2000.  Under the
terms of the agreement,  the Company was to receive payment for 50% of the sales
price of the system in  installments  through  commencement  of operation of the
system.  Recovery of the remaining  sales price of the system was to be achieved
through the receipt of the Company's 50% share of net profits, as defined in the
Carnival Agreement, generated by the system over future periods.

                                      F-28
<PAGE>
                   THE NETWORK CONNECTION, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

     The terms of the Carnival  Agreement  provided that Carnival may return the
CruiseView(TM)  system within the acceptance  period, as defined in the Carnival
Agreement,  or for breach of warranty. The acceptance period for the Fantasy and
Destiny  class ships were twelve  months and three  months,  respectively,  from
completion  of  installation  and testing,  which  occurred in February 1999 and
October 1999,  respectively.  The initial  warranty period for these systems was
three years. As of March 31, 2000, the Company had recorded  deferred revenue of
approximately $2.1 million related to the two Carnival ships.

     Beginning in the quarter ended March 31, 2000, the Company had  experienced
costs in excess of those recoverable under the Carnival  Agreement.  Given these
costs, and ongoing technical issues, the Company notified Carnival of its desire
to  renegotiate  the  Carnival  Agreement.  During these  discussions,  Carnival
notified  the  Company  in a letter  dated  April  24,  2000  that it  sought to
terminate  the  Carnival   Agreement  and  sought  to  assert  certain  remedies
thereunder.  On September 25, 2000, the Company entered into a Master Settlement
Agreement and Mutual  Release with Carnival (the  "Settlement  Agreement").  The
Settlement  Agreement  specifies  that the Company and  Carnival  agree:  (i) To
terminate the Carnival Agreement;  (ii) to negotiate in good faith to enter into
a New  Agreement;  (iii)  that the  Company  will  issue to  Carnival a one-year
convertible note payable in the principal  amount of $550,000;  (iv) to mutually
release  each party from any prior  claims;  and (v) the  Company  shall  retain
ownership of any and all equipment  (other than wiring and  switching  equipment
installed for  networking  purposes  which  Carnival  purchased and paid in full
pursuant to the Carnival Agreement) installed on any Carnival ship.

     Based on the above,  the Company  recorded  revenue of $1.4 million for the
value of networking equipment purchased by Carnival, cost of revenue in an equal
amount by applying the cost recovery method of accounting and special charges of
approximately $2.1 million resulting from the Settlement Agreement.  The Company
also recorded a special  charge  reflecting  the write-off of: (i) all remaining
inventory  associated with Carnival as substantial  uncertainty exists regarding
its realizability  (approximately $2.1 million);  (ii) all costs associated with
the  deinstallation  and removal of equipment from the two ships  (approximately
$85,000)  and (iii) all  costs  associated  with the  refurbishment  of  certain
equipment  such  that  the  equipment  may be  re-deployed  to  other  customers
($174,000).  Special charges were offset by the reversal of deferred  revenue of
$190,000 which the Company was not required to return to Carnival,  and warranty
accruals for which the Company has no continuing obligation.

     Pursuant to the Settlement  Agreement,  the Company and Carnival  continued
discussions  with respect to a New Agreement which would cover the  installation
of the Company's  latest  CruiseView(TM)  technology on the "Fantasy" class ship
discussed  above,  and contractual  terms more favorable to the Company than the
Carnival Agreement,  including a longer-term and multiple ship arrangement.  The
Company  believes its new  technology  improves the Company's  ability to create
multiple  new content and  commerce-based  revenue  streams,  and to establish a
business relationship  providing  appropriate returns to each partner.  However,
while the Company is  optimistic  about the  discussions,  there is no assurance
that  the  Company  will be  successful  in  reaching  a  mutually  satisfactory
resolution  of the  Carnival  Agreement  and in securing a new,  more  favorable
long-term  contract  with  Carnival.  Notwithstanding  the  above,  the  Company
continues to operate its CruiseView(TM) system aboard one Carnival Fantasy class
ship  on a  month-to-month  basis  and  will  continue  to do so as  long as the
economics are beneficial to the Company and Carnival.

                                      F-29