August 10, 1998

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Re: National Discount Brokers Group, Inc.
      Report on Form 10-K for the Year Ended May 31, 1998

Gentlemen:

Enclosed please find the following material submitted on behalf of National 
Discount Brokers Group, Inc. ("Company"):

One complete  copy of the  Company's  report on Form 10-K for the year ended May
31, 1998 including financial statements and exhibits.

Thank you for your attention to this matter.

Very truly yours,

/s/ Denise Isaac
Denise Isaac
Chief Financial Officer and
Principal Accounting Officer







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<PAGE>



--------------------------------------------------------------------------------
                      Securities And Exchange Commission
                             Washington, D.C. 20549

                                   Form 10-K
         FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) 
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                 [X] Annual Report Pursuant To Section 13 Or 15(d)
                       Of The Securities Exchange Act Of 1934
                       For the fiscal year ended May 31, 1998
                                         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 No. 1-9480
                      National Discount Brokers Group, Inc.
               (Exact name of registrant as specified in its charter)

                         Delaware                               22-2394480
             (State or other jurisdiction of                (I.R.S. Employer
              incorporation or organization)              Identification Number)

    10 Exchange Place Centre, Jersey City, New Jersey            07302
         (Address of principal executive offices)              (Zip Code)

              Registrant's telephone number, including area code (201) 946-2200

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

                                                          Name of each exchange
                    Title of each class                     on which registered
                Common Stock, $.01 par value             New York Stock Exchange

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

                                           None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [ X ] No [ ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of  July  31,  1998,  14,078,089  common  shares  were  outstanding,  and the
aggregate market value of the common shares of National  Discount Brokers Group,
Inc. held by non-affiliates was approximately $69,786,000.

                                        Documents Incorporated By Reference

          Document Incorporated                           Part of Report
               By Reference                           Into Which Incorporated
Proxy Statement for Annual Meeting to be held               Part III 
            October 20, 1998                       

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

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


<PAGE>





                                                     
Item 1.     Business


Introduction

National  Discount  Brokers Group,  Inc. ("NDBG"), formerly The Sherwood Group,
Inc., is a holding company whose principal  wholly owned  subsidiaries  are 
Sherwood  Securities  Corp.  ("Sherwood  Securities") and Triak Services
Corp.  ("Triak"),  doing business as National  Discount Brokers  ("NDB"). 
NDBG and its subsidiaries and affiliate, Equitrade Partners, are referred to as 
the "Company".

Sherwood  Securities was formed in 1968 and  specializes in the market making of
NASDAQ and Small-Cap securities on a wholesale basis. As a national trading firm
with  offices  in Jersey  City,  New  Jersey;  Chicago,  Illinois;  Minneapolis,
Minnesota; Denver, Colorado; Los Angeles, California; and Boston, Massachusetts,
Sherwood Securities trades  approximately 3,400 NASDAQ and Small-Cap  securities
as market maker and principal for its own account.
Sherwood Securities also provides limited retail brokerage services.

NDB,  another  registered  broker-dealer,  is a  deep  discount  brokerage  firm
specializing in trade execution for individual investors.

NDBG and another wholly owned  subsidiary,  SHD  Corporation  ("SHD"),  also own
limited  partnership  interests  in  Equitrade  Partners,  a  New  York  limited
partnership   ("Equitrade").   Such  limited  partnership   interests  aggregate
approximately  72% of  Equitrade's  capital as of July 31, 1998.  Equitrade is a
registered  specialist on the New York Stock  Exchange  ("NYSE") and, as of July
31, 1998, was a specialist in 157 equity securities.

On January 24, 1997, the Company acquired,  from its joint venture partner,  the
remaining  51%  of  Anvil  Institutional  Services  Company  (the  "Anvil  Joint
Venture") that it did not  previously  own. The Company,  therefore,  became the
100% owner of Anvil  Institutional  Services,  Inc.  ("Anvil"),  a broker-dealer
previously  owned by the Anvil Joint Venture.  On September 5, 1997, the Company
sold all of the stock of Anvil to an independent third party.

On February 13, 1998, MXNet, Inc. ("MXNet"),  another wholly owned subsidiary of
NDBG was sold to an independent third party.

On December 22, 1992, the Board of Directors approved a program to repurchase up
to 1,500,000  shares of NDBG's common stock. The shares are to be purchased from
time to time in the open market or in  privately  negotiated  transactions.  The
shares will be held as treasury shares.  Through May 31, 1998,  1,405,178 shares
had been  repurchased as part of this program,  excluding shares received by the
NDBG as consideration for the exercise of options to acquire common stock of the
Company or to pay withholding taxes related thereto.  In June 1998, the Board of
Directors  authorized  an interim  program  to  repurchase  up to an  additional
150,000  shares of the  Company's  common  stock.  From June 1, 1998 to July 31,
1998, 102,188 additional shares were repurchased under the programs.

NDBG was incorporated under the laws of Delaware in December 1981 under the name
The  Sherwood  Equity  Group Ltd.  It changed its name to The  Sherwood  Capital
Group,  Inc. in 1983 and to The Sherwood Group,  Inc. in 1987. In December 1997,
NDBG adopted its present  name.  NDBG's common stock is listed on the NYSE under
the symbol "NDB".

NDBG's  principal  executive  offices are located at 10 Exchange  Place  Centre,
Jersey City, New Jersey and its telephone number is (201) 946-2200.


Revenue by Source

The following table sets forth sources of the Company's revenues from continuing
operations on a comparative basis for the periods indicated. (Certain prior year
amounts  have been  reclassified  to conform  with the fiscal year ended May 31,
1998 presentation):
<TABLE>
<CAPTION>

                                                          Fiscal Year Ended May 31,
                                          1998                           1997                          1996
                                          ----                           ----                          ----
                                     Amount            %            Amount           %            Amount           %
<S>                             <C>               <C>         <C>               <C>         <C>               <C>
Firm securities
     transactions (net)         $99,776,365        60.67      $122,322,851       67.83      $129,177,423       72.12
Commission income                37,052,201        22.53        32,638,949       18.10        30,723,379       17.15
Floor brokerage
     income                      15,941,668         9.70        14,198,251        7.87        10,955,277        6.12
Equity income (loss) in
     partnerships                     1,299            -           (26,176)      (0.01)           40,106         .02
Investment securities
     gain                            63,625          .04                 -           -                 -           -
Interest and dividend
     income                       7,773,383         4.73         7,774,806        4.31         5,907,779        3.30
Fee income                        3,567,837         2.17         2,513,483        1.39         1,353,686         .76
Other income                        271,623         0.16           913,051        0.51           952,537         .53
                                    -------   ----------           -------  ----------  -------- -------  ---------

Total revenue                  $164,448,000       100.00      $180,335,215      100.00      $179,110,187      100.00
                               ============       ======      ============      ======      ============      ======

</TABLE>


Market Making and Specialist Activities of Sherwood Securities

General.  A  significant  portion of the  Company's  revenues  (see  "Revenue by
Source")  is  directly  related  to the market  making  activities  of  Sherwood
Securities.  As a  national  market  maker in NASDAQ and  Small-Cap  securities,
Sherwood Securities acts as a wholesale dealer in the execution of transactions.
In "making a market" in approximately 3,400 NASDAQ and Small-Cap securities,  as
of July 31, 1998,  Sherwood  Securities acts as a principal,  and on occasion as
agent, in transactions  through buying,  selling and maintaining an inventory in
the securities in which it makes a market.

Sherwood Securities is prepared to buy or sell any of the securities in which it
has elected to be a market maker. Approximately 2,600 of the securities in which
Sherwood  Securities is a market maker,  as of July 1998,  were displayed in the
electronic  quotation  medium  referred  to by the  acronym  "NASDAQ"  (National
Association of Securities Dealers Automated  Quotation System).  The firms which
have elected to make a market in a security  quoted on NASDAQ  display the price
at which  they are  willing  to buy (bid) or sell (ask)  these  securities.  The
market  maker  adjusts its bid and ask prices in response to supply,  demand and
other factors affecting the market for each security. Approximately 2,100 of the
securities  displayed on NASDAQ in which Sherwood  Securities makes a market are
listed  on  the  national  market  system  list  of  NASDAQ.  Approximately  500
securities  in which  Sherwood  Securities  makes a  market  are  quoted  on the
National  Association  of Securities  Dealers,  Inc.  ("NASD") list of Small-Cap
Issues.


Special relations with brokers.  A significant  portion of Sherwood  Securities'
trading volume is transacted over a dedicated  communications  network.  Private
telephone lines connect  Sherwood  Securities'  trading  operations to the order
entry  departments  of  approximately  300  brokerage  firms  and  institutional
customers.  This private  communications  network  provides  these  parties with
immediate access to Sherwood  Securities' trading operations and facilitates the
handling of their customer orders.

As part of this system,  Sherwood Securities has direct communication lines with
40 regional  brokerage firms across the country.  In addition to providing these
firms  with  direct  access to  Sherwood  Securities'  trading  operations,  the
dedicated  private  lines allow these firms to offer this direct access to other
brokerage  firms in their  geographic  regions.  Firms  that are  interested  in
dealing  with  Sherwood  Securities  in a  particular  security can utilize this
service to allow them quick  access to the  market  place.  Sherwood  Securities
offers direct  access  through the  dedicated  private lines to those  brokerage
firms acting as market makers in the geographic regions of Sherwood  Securities'
branch offices.

Sherwood Securities has a correspondent  department to handle order flow for the
NASDAQ and Small-Cap  transactions of participating  retail brokers and dealers.
Through  its  correspondent  department,  it executes  the NASDAQ and  Small-Cap
orders for these firms.  These orders  include orders  electronically  routed to
Sherwood Securities by these firms for certain of their clearing accounts.

Specialist activities.  Until February 27, 1998, Sherwood Securities served as a
specialist in 18 equity securities on the American Stock Exchange ("AMEX"). This
business,  which was cleared through Spear Leeds & Kellogg ("SLK"),  was sold to
SLK.  NDBG  and  SHD  also  hold  limited  partnership   interests   aggregating
approximately  72% of the capital of Equitrade,  whose  activity is also cleared
through SLK. As of July 31, 1998, Equitrade served as a specialist in 157 equity
securities on the NYSE.

Securities positions. Sherwood Securities and Equitrade take both long and short
positions in the  securities in which they make a market.  The  following  table
illustrates,  for the fiscal years  indicated,  the highest,  lowest and average
month-end  inventory  at market  value  (based on the  aggregate of the long and
short  position  of trading  securities).  The  following  securities  positions
include  positions  held by  Sherwood  Securities  as a  specialist  on the AMEX
through  February 1998 at which time that business was sold. See Note 4 of Notes
to Consolidated Financial Statements.
<TABLE>
<CAPTION>

   Fiscal Year                  Highest             Lowest             Average
   Ended May 31               Month End          Month End           Month End
   ------------               ---------          ---------           ---------
   <S>                     <C>                  <C>                <C>       
   1996*                    $83,622,273         58,791,795          71,981,880
   1997**                   $99,440,731         60,363,793          76,123,209
   1998***                 $181,972,487         80,097,494         102,394,228


<FN>

   *     Includes  Highest Month End, Lowest Month End and Average Month End for
         positions  held as a  specialist  on AMEX of  $1,239,808,  $555,261 and
         $890,693,  respectively.  Includes  Highest Month End, Lowest Month End
         and Average  Month End for  positions  held as a specialist  on NYSE of
         $33,016,783, $19,440,618 and
         $24,893,510, respectively.
</FN>
<FN>

   **    Includes  Highest Month End, Lowest Month End and Average Month End for
         positions  held as a  specialist  on AMEX of  $1,550,693,  $486,011 and
         $952,960,  respectively.  Includes  Highest Month End, Lowest Month End
         and Average  Month End for  positions  held as a specialist  on NYSE of
         $38,349,683, $19,732,920 and
         $26,225,460, respectively.
</FN>
<FN>

   ***Includes  Highest  Month End,  Lowest Month End and Average  Month End for
         positions  held as a  specialist  on AMEX of  $1,389,918,  $837,302 and
         $1,079,532,  respectively. Includes Highest Month End, Lowest Month End
         and Average  Month End for  positions  held as a specialist  on NYSE of
         $46,088,701, $30,829,514 and
         $39,415,284, respectively.
</FN>
</TABLE>


The  securities  positions  on any  one day  may  not be  representative  of the
exposure on any other day because  securities  positions may vary  substantially
with economic and market  conditions,  allocations and  availability of capital,
and trading volume.


Investments

Venture capital investments. The Company, from time to time, makes and continues
to hold  investments in developing  companies or companies in need of additional
financing.  Some of these investments are in restricted securities and, as such,
may  only be  sold  pursuant  to a  registration  statement  under  the  Federal
Securities  Act  of  1933,  as  amended,   or  pursuant  to  an  exemption  from
registration thereunder.

The Company, for financial reporting purposes, generally carries venture capital
investments  at fair  value as  determined  by the Board of  Directors  of NDBG.
Although  the  securities  of  certain  of the  companies  in which the  Company
invested may be publicly traded, the Company's valuation of such holdings may be
discounted  significantly  from the public market price due to  restrictions  on
transfer,  the size of the  holdings or other  legal,  contractual  or practical
restrictions on disposition.

On October 4, 1993,  the Company paid  $400,000 for 8,000 shares of common stock
of Emmett A. Larkin Company, Inc., a minority owned broker-dealer.  This holding
represents,  as of May 31, 1998,  approximately  15% of the  outstanding  common
shares of Emmett A. Larkin Company, Inc.

On August 13, 1996, the Company purchased  100,000  restricted shares of Synxis
Corp. common stock from Intra Serve Corp. for $100,000.

As  additional  consideration  for a $100,000  loan made to  Eurotech,  Ltd.  in
November 1996,  Sherwood  Securities  received 175,000 shares of Eurotech,  Ltd.
common  stock.  During the year ended May 31,  1998,  Sherwood  Securities  sold
50,000  of  these  shares,  recognizing  a gain of  approximately  $63,000.  The
remaining  125,000  shares have been  reflected  on the  statement  of financial
condition  at their fair market  value of  approximately  $177,000 as of May 31,
1998.

The Company also owns 260,100 shares of Astropower,  Inc. common stock, acquired
as part of an  underwriting  in 1989.  This investment has been reflected on the
statement  of  financial  condition  at its fair market  value of  approximately
$2,440,000 as of May 31, 1998.

Between  February and April 1998, NDB invested  $500,000 for 500,000  shares of 
Award Track,  Inc.  common  stock. Award Track, Inc. is currently designing a
new NDB Website.

Investment  in property.  NDBG,  through its wholly owned  subsidiary,  Sherwood
Properties  Corp.,  is an investor in a real estate  limited  partnership.  This
investment is estimated to have a nominal value.


Other Business

Institutional  business.   Sherwood  Securities  primarily  executes  securities
transactions  for  institutional  investors such as banks,  mutual funds,  money
managers and insurance  companies.  Such  investors  normally  purchase and sell
securities  in large  quantities,  which require  special  marketing and trading
expertise  provided  by  a  staff  of  54  institutional   sales  people.   Most
transactions with  institutional  customers involve securities in which Sherwood
Securities is a market maker and are executed as principal transactions.

Retail securities  business.  NDB is a deep discount brokerage firm specializing
in trade execution for individual  investors through  interactive voice response
("IVR") and internet  distribution  channels.  NDB's  strategy is to provide low
cost  transactions  with quick execution and a higher level of service than that
provided by other discount  brokers.  In addition,  NDB, which routes certain of
its orders to Sherwood  Securities for execution,  was created as part of a plan
to capture a greater share of NASDAQ activity. As of July 31, 1998, NDB had over
120,000 customer accounts.


Interest Revenue

Sherwood  Securities,  NDB and Equitrade receive interest  primarily from credit
balances that may exist from time to time in the clearance  accounts  maintained
with their  clearing  brokers.  NDB also  receives  interest  based on debit and
credit  balances  maintained  by its  customers in their  accounts held by NDB's
clearing  broker.  In addition,  the Company  received  interest from short-term
investments in U.S. Treasury securities.


Clearing Arrangements

Sherwood  Securities,  NDB and Equitrade  maintain  relationships  with clearing
brokers who effect  clearance and settlement of their  securities  transactions.
The clearing  brokers  maintain custody of cash and securities and provide other
services.  Sherwood  Securities,  NDB  and  Equitrade  are  dependent  upon  the
operational  capacity  and  ability of their  clearing  brokers  for the orderly
processing of their transactions.

Effective   January  28,  1998,   Sherwood   Securities   clears  its  wholesale
market-making  transactions through Broadcort Capital Corporation ("Broadcort"),
a wholly owned subsidiary of Merrill Lynch & Co., Inc. Prior to that time, these
services were performed by National  Financial  Services  Corporation  ("NFSC").
Broadcort also clears Sherwood  Securities' customer  transactions.  Equitrade's
NYSE   transactions  are  cleared  through  SLK,  which  also  cleared  Sherwood
Securities'  AMEX  transactions  through  February 27, 1998,  at which time that
business was sold. The Sherwood  Securities clearing agreement with Broadcort is
for an  indefinite  period  of time and may be  terminated  upon 180 days  prior
written notice by either party. The Equitrade clearing agreement with SLK is for
an indefinite  period of time and may be  terminated  upon 35 days prior written
notice by either party.

NDB's  transactions  are cleared  through the  Pershing  Division of  Donaldson,
Lufkin  &  Jenrette  Securities  Corporation  ("Pershing").   The  NDB  clearing
agreement with Pershing has a two-year term ending in September 1999, subject to
earlier rights of termination.

Until it was sold by the Company on September 5, 1997, Anvil's transactions were
cleared through Pershing and Broadcort.


Personnel

As of July 31, 1998,  the Company had 572  full-time  employees of which 359 are
salespeople,  traders and trading assistants. Included in the preceding employee
counts are NDB's 219  full-time  employees of which 106 are sales  personnel and
Equitrade's 60 full-time  employees of which 53 are trading  personnel.  None of
the Company's personnel are covered by a collective  bargaining  agreement.  The
Company considers its relations with its personnel to be satisfactory.

Sherwood  Securities'  sales and trading  personnel,  NDB's sales  personnel and
Equitrade's  trading  personnel,  and  certain  members  of  management  of such
activities  are  required  to take  examinations  given by the NASD.  In certain
circumstances,  additional  examinations  are  required  in order  for sales and
trading  personnel  to be qualified  to do business in various  states.  Through
August 1997, Sherwood Securities' traders and salespeople were paid a percentage
of trading profits as  compensation.  Beginning in September  1997,  traders and
certain sales  personnel are paid under a new "Annual  Trading/Sales  Production
Guarantee"  program,  based on a number  of  factors  and  subject  to an annual
review.  NDB's  registered  representatives  work on a salary basis.  Except for
Equitrade's  general partners who are paid on a draw basis,  Equitrade's trading
personnel work on a salary basis.

Effective  April 6, 1993,  the  Executive  Committee  of the Board of  Directors
decided that in addition to whatever  normal  vacation time to which an employee
is entitled,  all full-time  employees  (except employees of Equitrade) who have
completed five years of employment may take a four-week  paid  sabbatical.  Such
sabbatical must be taken within one year after the employee's fifth anniversary.
Sabbaticals may also be taken for each subsequent five-year period of employment
completed.  In addition,  Sherwood  Securities  has usually  assumed any trading
losses incurred in a trader's account during a trader's sabbatical.


Competition

While  Sherwood  Securities  is one of several  broker-dealers  whose  principal
activity  has been  making  markets  in a broad  range of NASDAQ  and  Small-Cap
securities  for its own  account,  there are many  other  broker-dealers  making
markets  in these  securities.  Sherwood  Securities  generally  has one or more
competing  market makers for each security in which it makes a market.  Sherwood
Securities  competes  primarily on the basis of price,  its experience in market
making,  its relationship with its customers,  the availability of its dedicated
private communications system and its ability to effect large transactions in an
orderly manner. Additional competition has arisen from Electronic Communications
Networks and the Instinet  trading  market,  which enable  buyers and sellers to
interact more directly, and allow for trading without the market maker.

The  deep  discount  retail  brokerage  business  engaged  in by NDB  is  highly
competitive.  Many  discount  firms  compete  on  price.  NDB's  ability  to  be
competitive  will  depend on its ability to deliver a low price  product  with a
higher level of service.

NYSE specialist  firms,  such as Equitrade,  compete for new listings based upon
depth of the markets  that the firms make,  capital  risk and the quality of the
firms' personnel. Based upon these three criteria, allocations of new issues are
awarded.  Additional  competition  has arisen from third market activity and the
internalization  and regionalization of trading activity in securities listed on
the NYSE.

Numerous  mergers among firms in the securities  industry have resulted in firms
with strengthened financial resources. In addition, companies not engaged in the
securities business,  but having substantial financial resources,  have acquired
securities firms. These developments have increased  competition from securities
firms with  substantially  greater  capital  resources  than  those of  Sherwood
Securities.  Ultimately, these developments,  as well as other developments that
could result in greater  involvement  by banks in the securities  industry,  may
lead to the creation of large integrated  financial  services firms which may be
able to compete more effectively than Sherwood  Securities by offering a greater
range of financial services.


Regulation

The securities industry in the United States is subject to extensive  regulation
under federal and state laws. The Securities and Exchange  Commission ("SEC") is
the federal agency charged with  administration of the federal  securities laws.
However,  certain  regulatory  matters have been  delegated  to  self-regulatory
organizations  ("SRO"),  such as the National  Association of Securities Dealers
("NASD").  The designated SRO for Sherwood Securities and NDB is the NASD, while
the designated SRO for Equitrade is the NYSE.  These SROs adopt rules (which are
subject to approval by the SEC)  governing  certain  aspects of the industry and
conduct  periodic  examinations of member  broker-dealers.  Securities firms are
also subject to  regulation  by state  securities  commissions  in the states in
which  they  are  registered.  As of July  31,  1998,  Sherwood  Securities  was
registered with the SEC, the NASD, and in 20 states and  Washington,  D.C. As of
July 31, 1998, NDB was  registered  with the SEC, the NASD and in all 50 states,
Washington,  D.C.  and the  Commonwealth  of Puerto  Rico.  As of July 31, 1998,
Equitrade was registered with the SEC and the NYSE.

The legal and  compliance  departments  of NDBG,  Sherwood  Securities,  NDB and
Equitrade are responsible for the oversight of the Company's compliance with the
applicable laws and regulations.  The legal and compliance departments work with
trading  personnel in implementing  new regulatory  procedures,  maintaining the
required trading records,  maintaining appropriate files, and monitoring trading
activity,  among other  activities.  The legal and compliance  departments  also
handle all  contacts  with the various  regulatory  agencies,  on both state and
federal  levels.  These  duties are diverse  and range from  giving  comments on
proposed legislation to responding to requests for information regarding trading
activity.  Other areas in which the legal and compliance  departments are active
are the registration of associated persons and responding to customer inquiries.

The  regulations  to which  broker-dealers  are subject cover all aspects of the
securities   business,   including   sales  methods,   trade   practices   among
broker-dealers,  capital structure of securities firms,  recordkeeping,  and the
conduct of directors, officers and employees. Additional legislation, changes in
rules  promulgated  by the SEC and SROs,  or  changes in the  interpretation  of
enforcement  of  existing  laws  and  rules,  may  directly  affect  the mode of
operation  and  profitability  of  broker-dealers.   The  SEC,  SROs  and  state
securities commissions may conduct administrative proceedings,  which can result
in censure, fines,  suspension or expulsion of a broker-dealer,  its officers or
employees.  The principal purpose of regulation and discipline of broker-dealers
is the protection of customers and securities  markets rather than protection of
creditors and stockholders of broker-dealers.

Changes  in  regulations  pertaining  to NASDAQ  may have a  material  effect on
Sherwood Securities'  over-the-counter  trading activities.  In August 1996, the
SEC adopted  certain new rules known as the limit order  handling  rules,  which
alter the manner in which orders for securities are handled.  These rules became
effective  on January  20, 1997 and have been  phased in for  additional  NASDAQ
stocks during 1997.  These rules,  and other rules that have been  proposed,  as
well as  regulatory  actions and changes in market  practices  have had, and may
continue  to  have,  an  adverse  impact  on  Sherwood  Securities'  transaction
revenues, profit margin and on the manner in which it conducts its business.

Further  discussion  regarding legal and regulatory matters is contained in Item
3, below.


Customer Protection and Insurance

Sherwood  Securities,  NDB and Equitrade are members of the Securities  Investor
Protection  Corporation  ("SIPC") which provides protection for customers in the
event of the  liquidation of the firm.  Customers'  accounts are protected up to
$500,000 for each customer, as defined in the Securities Investor Protection Act
of 1970, as amended, with a limitation of $100,000 for claims for cash balances.
In addition, each of Sherwood Securities', NDB's and Equitrade's clearing agents
is a member of SIPC and carries private protection which provides,  in the event
of the liquidation of such clearing agents,  additional  coverage (in some cases
up to $25,000,000)  for securities  positions for each of Sherwood  Securities',
NDB's and Equitrade's customers.

The Company carries brokers' blanket bonds covering Sherwood  Securities and NDB
for loss or theft of  securities,  forgery of checks and  drafts,  embezzlement,
certain employee  misconduct and misplacement of securities.  Such bonds provide
total coverage of $1,000,000  for Sherwood  Securities and $500,000 for NDB. The
bonds each contain deductibles of $10,000.


Risk Assessments

Sherwood  Securities' and  Equitrade's  trading,  market making,  specialist and
brokerage  activities expose the Company's capital to significant  risks.  These
risks  include  absolute and relative  price  movements,  price  volatility  and
changes  in  financial  instrument  liquidity  or the  markets in which they are
traded, over which Sherwood Securities and Equitrade have virtually no control.

Sherwood  Securities  and Equitrade  monitor  their risks by constant  review of
their trading positions.  The management of trading positions is enhanced by the
review of mark-to-market  valuations and/or position summaries on a daily basis.
To this end, Sherwood  Securities employs an automated  proprietary  trading and
risk  management  system which provides real time,  on-line risk  management and
inventory control.

In addition,  Equitrade,  as a specialist on the NYSE, is subject to regulations
pursuant  to  which it may be  required  to  stabilize,  or  participate  in the
stabilization of certain securities on that exchange.  In the event Equitrade is
required to  stabilize  the price of  securities  which are  declining in value,
whether  as a result  of a  declining  market  or  otherwise,  it  could  suffer
substantial losses.


Net Capital and Customer Reserve Requirements

Every registered  broker-dealer doing business with the public is subject to the
Uniform Net Capital Rule 15c3-1 (the "Rule")  promulgated  by the SEC. The Rule,
which  is  designed  to  measure  the  financial   integrity  and  liquidity  of
broker-dealers, specifies minimum net capital requirements. Sherwood Securities,
NDB and Equitrade are subject to the Rule.

The Rule provides that a broker-dealer  doing business with the public shall not
permit its net  capital to be less than the greater of a stated  minimum  dollar
requirement or one-fifteenth of its aggregate  indebtedness (the "basic method")
or,  alternatively,  that it not  permit  its net  capital  to be less  than the
greater of a stated  minimum  dollar  requirement  or 2% of its aggregate  debit
items computed in accordance with Rule 15c3-3 (the "alternative method").

The stated minimum  dollar  requirement  for Sherwood  Securities and NDB, which
have elected the alternative  method, is $1,000,000 and $250,000,  respectively.
The stated minimum dollar requirement for Equitrade, which has elected the basic
method,  is $250,000.  On July 10, 1997, SHD filed its notice of withdrawal from
registration as a broker-dealer with the SEC. As such, SHD is no longer required
to compute net capital.

In computing net capital  under the Rule,  various  adjustments  are made with a
view to  excluding  assets not  readily  convertible  into cash and to provide a
conservative  statement  of  other  assets,  such  as the  firm's  inventory  of
securities.  To that end,  a  deduction  is made  against  the  market  value of
securities  to  reflect  the  possibility  of a  market  decline  prior to their
disposition.  Thus,  net capital rules impose  financial  restrictions  upon the
Company's  businesses  that are more  severe  than those  imposed on concerns in
other types of business.

From time to time, the Company has needed to borrow funds in connection with its
trading  activities.  The Company currently has no committed lines of credit and
such borrowings were done on an "as needed" basis.

Compliance  with the Rule may limit the operations of Sherwood  Securities,  NDB
and Equitrade  that require the use of significant  amounts of capital,  such as
market making activities.  Further, assets of the Company, which are included in
the  Company's  minimum net capital are not available  for  distribution  to the
shareholders  of the Company in the form of dividends or otherwise.  See Note 14
of Notes to Consolidated  Financial  Statements.  Sherwood  Securities,  NDB and
Equitrade are presently in compliance with the net capital requirements. Failure
to maintain the required net capital may subject a  broker-dealer  to suspension
of business and may ultimately require its liquidation.

Sherwood  Securities  and NDB have been granted  exemptions by the NASD from the
computation for determination of reserve  requirements for  broker-dealers.  The
exemptions  were granted  pursuant to Rule  15c3-3(k)(2)(ii).  During the period
from June 1, 1997  through May 31,  1998,  Sherwood  Securities  and NDB were in
compliance with the conditions of this exemption.



Item 2.     Properties


Sherwood   Securities'   and  NDBG's  office  and  trading   facilities   occupy
approximately  36,600 square feet of space at 10 Exchange  Place Centre,  Jersey
City,  New  Jersey  07302  under a lease  signed in  December  1994.  This lease
commenced  on  January  1,  1995 and  expires  on  January  31,  2007.  Sherwood
Securities'  obligation to pay base rent began on May 13, 1997.  The  obligation
for any operating escalations,  as defined in the lease agreement, was effective
as of January 1, 1995.  Commencing  May 13, 1997,  base rent on the new space is
approximately  $1,025,000 per annum to July 31, 2000 and $1,172,000  from August
1, 2000 to January 31, 2007.

NDB's office and sales facilities are located at 7 Hanover Square, New York, New
York 10004 under a lease  signed in March 1996.  This lease,  for  approximately
36,000  square feet,  commenced  on April 1, 1996 and expires on  September  29,
2008.  NDB's  obligation to pay base rent began on April 1, 1997. The obligation
for any real  estate  tax and  operating  escalations,  as  defined in the lease
agreement,  was effective as of April 1, 1996.  Commencing  April 1, 1997,  base
rent on the new space is approximately $718,000 per annum.

See Note 15 to the Company's  Consolidated  Financial  Statements for additional
information concerning other leases to which the Company is a party.



Item 3.     Legal Proceedings and Contingencies

Many  aspects  of the  business  of the  Company  involve  substantial  risks of
potential liability.  In recent years, there has been an increasing incidence of
litigation involving the securities industry,  including class action suits that
generally seek substantial  damages.  Companies  engaged in the underwriting and
distribution  of securities are exposed to substantial  liability  under federal
and state  securities  laws.  The  Company  is,  from time to time,  involved in
proceedings  with,  and  investigations  by,  governmental  and  self-regulatory
agencies.

NDBG's  subsidiaries,  and in some cases NDBG,  have been named as defendants in
lawsuits and  arbitrations  and are the subject of  investigations  that allege,
among other things,  violations of Federal and state  securities  laws and other
laws. A  substantial  settlement  or judgment in any of these cases could have a
material  adverse  effect on the Company.  Except as set forth  below,  although
there can be no assurance that such lawsuits,  arbitrations  and  investigations
involving  the Company are not likely to have a material  adverse  effect on the
results of operations of the Company in any future period,  depending in part on
the  results  for  such  period,  based  on  information   currently  available,
management of the Company  believes  that any such  lawsuits,  arbitrations  and
investigations  are  not  likely  to  have  a  material  adverse  effect  on the
consolidated  financial  condition and results of operations or liquidity of the
Company.

On April 9, 1997, Sherwood  Securities entered into a settlement  agreement (the
"Settlement  Agreement") with Plaintiffs' co-lead counsel on behalf of the class
plaintiffs in the case In Re: NASDAQ Market-Makers Antitrust Litigation, 94 Civ.
3996(RWS) currently pending in the United States District Court for the Southern
District  of New York (the  "Court").  The  Settlement  Agreement  provided  for
payment by Sherwood  Securities of $4,375,000 per percentage point of its market
share of the "Defendants'  Market" which was defined as the 35 NASDAQ ("National
Association   of  Securities   Dealers   Automated   Quotations")   market-maker
defendants'  total  number  of  shares  traded  as  market-makers  in the  Class
Securities (a designated list of NASDAQ  securities)  during the period from May
1,  1989 to May 27,  1994.  Sherwood  Securities'  agreed  market  share  of the
Defendants'  Market was estimated in the Settlement  Agreement,  as amended,  at
2.10%, which resulted in a total principal payment obligation of $9,187,500. The
Settlement  Agreement  provided  for the payment of the  verified  amount in two
installments. On April 23, 1997, Sherwood Securities made an installment payment
in the amount of  $4,593,750.  The remaining  balance of  $4,926,797,  including
$333,047  of  interest,  was paid on April 9,  1998.  The  Settlement  Agreement
provides for a release by "Class Members" of "Released  Claims" against Sherwood
Securities and certain  related persons and affiliates as such terms are defined
in the Settlement  Agreement.  The Settlement  Agreement has been  preliminarily
approved by the Court but is still subject to final approval.

On July 16,  1996,  Sherwood  Securities  entered into a  Stipulation  and Order
resolving a civil  complaint  filed in the United States  District Court for the
Southern  District of New York (the "Complaint") by the United States Department
of Justice ("DOJ") alleging that Sherwood  Securities and 23 other NASDAQ market
makers  violated  Section 1 of the Sherman Act in connection with certain market
making practices.  The Complaint alleges, among other things, that NASDAQ market
makers  reached  a common  understanding  to adhere  to a  "quoting  convention"
relating to the manner in which bids and asks would be displayed on NASDAQ.  The
relief  sought in the  Complaint  was a  declaration  that the  defendants  have
violated  Section 1 of the Sherman  Act, as well as  injunctive  relief and such
other relief as the court deemed  appropriate.  In entering into the Stipulation
and Order,  Sherwood  Securities did not admit that the DOJ's  allegations  were
correct,  but that it would  not  engage  in  certain  types  of  activities  in
connection  with its NASDAQ  market making and it undertook  specified  steps to
assure compliance with the agreement.  The Stipulation and Order was approved by
the United States District Court of the Southern  District of New York following
a public  hearing,  but the District  Court's  decision has been appealed to the
United States Court of Appeals for the Second Circuit. There can be no assurance
that that  United  States  Court of Appeals  will  affirm the  District  Court's
decision or even if affirmed,  whether the  determination  of the United  States
Court of Appeals will be further appealed.

In addition,  the Company's  results for the year ended May 31, 1998,  reflect a
non-tax deductible charge to establish a reserve for the SEC's  investigation In
the Matter of Certain Market Making  Activities on NASDAQ,  HO-2974,  based upon
management's  assessment  of the status  and  reasonably  likely  outcome of the
investigation with respect to the Company.



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

There were no matters  submitted to a vote of security holders during the fourth
quarter of the year ended May 31, 1998.




                                                      PART II

Item 5.    Market for NDBG's Common Stock and Related Security Holder Matters.

NDBG  trades its  common  stock on the NYSE  under the  symbol  "NDB."  Prior to
December 12, 1997,  the symbol had been "SHD".  There were  approximately  4,000
holders of record of NDBG's common stock at July 31, 1998. As of such date,  the
closing sales price per share for NDBG's common stock was $11.00.

The following table sets forth the high and low sales price per share for NDBG's
common stock for each  quarterly  period within the two most recent fiscal years
as reported by the New York Stock Exchange:
<TABLE>
<CAPTION>


                                              Sales Prices
 Quarter Ended                          High                 Low
 -------------                          ----                 ---
 <S>                                 <C>                 <C>     
 August 31, 1996                     12.0000             10.2500
 November 30, 1996                   11.0000              9.5000
 February 28, 1997                   10.7500              9.2500
 May 31, 1997                        12.3750              9.7500
 August 31, 1997                     18.5000             12.5000
 November 30, 1997                   16.1875             11.6250
 February 28, 1998                   13.5000             10.0000
 May 31, 1998                        12.3125             11.0000

</TABLE>

There  were  no cash  dividends  declared  on the  common  stock  of NDBG in the
two-year  period  ended  May 31,  1998.  Funds  available  for  distribution  to
shareholders  of NDBG in the form of dividends  are limited to the extent assets
of the Company are  utilized  to meet the  minimum net capital  requirements  of
Sherwood Securities, NDB and Equitrade under Rule 15c3-1 promulgated by the SEC.
See "Business - Net Capital and Customer Reserve Requirements".



Item 6.     Selected Consolidated Financial Data.

The following selected  consolidated  financial data for the Company for each of
the five years in the period  ended May 31, 1998  should be read in  conjunction
with the respective  financial  statements  and related notes  thereto,  and the
discussion under Management's Discussion and Analysis of Financial Condition and
Results of  Operations  included in this report.  All amounts are in  thousands,
except per share amounts.  Certain prior year amounts have been  reclassified to
conform with the fiscal year ended May 31, 1998 presentation.




<TABLE>
<CAPTION>



                                                                Year Ended May 31,

                                            1998            1997            1996        1995 (b)            1994
                                            ----            ----            ----        --------            ----
<S>                                     <C>             <C>             <C>             <C>              <C>    
Operating Data:
Revenues                                $164,448        $180,335        $179,110        $101,672         $88,196

Income from
continuing
   operations before income               19,436          19,287          35,217          17,773          17,812
   taxes

Income taxes                               9,358           9,152          15,263           3,532           1,661

Net income from
   continuing operations                  10,078          10,135                                          16,151
                                                                      19,954          14,241

Income (loss) from
operations
   of discontinued operations,             (821)           (855)             178             374             446
   net of taxes

Gain from sale of discontinued
   operations, net of taxes                2,704              --              --              --              --

Net income (a)                            11,960           9,280          20,132          14,615          16,597

Per Share Data (c):
Basic:
Income from continuing
   operations, net of taxes                  .75             .79            1.57            1.14            1.28

Income (loss) from
  operations of discontinued operations,              
  net of taxes                              (.06)           (.07)            .02             .03             .03
                          

Gain from sale of discontinued
   operations, net of taxes                  .20              --              --              --              --

Net income                                   .89             .72            1.59            1.17            1.31

Diluted:
Income from continuing
   operations, net of taxes                  .75             .79            1.51            1.04            1.17

Income (loss) from
  operations of discontinued operations,                              
  net of taxes                              (.06)           (.07)            .01             .03             .03


Gain from sale of discontinued
   operations, net of taxes                  .20              --              --              --              --

Net income                                   .89             .72            1.52            1.07            1.20

Balance Sheet Data:
Total assets                             188,474         160,161         143,255         113,031          77,616
                                                                  
Common stockholders'  equity             125,428          92,274          86,570          65,978          53,311
Book value per share-basic (c)              9.34            7.16            6.82            5.27            4.21
Book value per share-diluted (c)            9.29            7.13            6.56            4.83            3.86
Dividends                                     --              --              --              --              --

<FN>

(a)  The results of operations for the years ended May 31, 1995 and 1994 include
     $4,687, or $.34 per share, and $6,034, or $.44 per share, respectively,  of
     benefit from net operating loss carryforward which would have been shown as
     an  extraordinary  item prior to the adoption of the  Financial  Accounting
     Standards Board issued Statement of Financial  Accounting Standard No. 109,
     Accounting for Income Taxes.
</FN>
<FN>

 (b) The  results of  operations  for the year ended May 31,  1995  include  the
     operations  of  Equitrade  on a  consolidated  basis for the  period  March
     through May 1995.  For prior  periods,  Equitrade  was accounted for on the
     equity method. The results of operations for years beginning  subsequent to
     May 31, 1995 also account for the operations of Equitrade on a consolidated
     basis.
</FN>
<FN>

(c)  Earnings  per share and book value per share are  computed by dividing  net
     income and  common  stockholders'  equity,  respectively,  by the  weighted
     average  number of common  shares  outstanding  (adjusted  for the  assumed
     conversion of outstanding  common stock options at average month-end market
     price) during each of the years.
</FN>
</TABLE>



Item 7.     Management's Discussion and Analysis of Financial Condition and 
            Results of  Operations.

                                               Results of Operations

Fiscal 1998 Compared to Fiscal 1997

The results of continuing operations the Company for the year ended May 31, 1998
reflect  primarily the  activities of Sherwood  Securities,  NDB and  Equitrade.
Certain  fiscal 1997 amounts have been  reclassified  to conform with the fiscal
1998 presentation.

On February 13, 1998, MXNet, Inc.  ("MXNet"),  a wholly owned subsidiary of NDBG
was sold. In addition,  Sherwood Securities sold its AMEX specialist business in
February  1998 for  $325,000.  Net loss from  operations  of these  discontinued
operations for the year ended May 31, 1998 was $821,000 (net of a tax benefit of
$229,000).  For the year ended May 31,  1997,  the net loss from  operations  of
these  discontinued  operations was $855,000 (net of a tax benefit of $440,000).
(See "Note 13 - Discontinued Operations".)

The  Company  had a net profit for the year ended May 31,  1998 of  $11,960,000,
compared  to a net  profit  of  $9,280,000  for the  year  ended  May 31,  1997.
Exclusive  of  litigation  settlement  charges  of  $9,188,000,   in  1997,  and
associated  professional fees, net of reduced bonus and tax expenses, net profit
for the Company would have been $13,155,000 for the year ended May 31, 1997. The
Company's  fiscal year 1998 results  include a non  tax-deductible  charge based
upon management's  assessment of the status and reasonably likely outcome of the
SEC investigation described in Item 3, above.

Total  revenue  (from  continuing  operations)  for  the  Company  decreased  by
approximately  $15,887,000,  or 9%, from $180,335,000 in 1997 to $164,448,000 in
1998.

Most of the Company's revenue arises from firm securities transactions.  Revenue
from firm  securities  transactions  decreased  although  overall trading volume
increased  approximately 32% for the year ended May 31, 1998, when compared with
the year ended May 31, 1997 as trading profits per ticket  continued to decline.
Several factors contributed to this decrease.  Regulatory changes enacted by the
SEC and the NASD,  such as the limit order handling  rules,  have resulted in an
increase in the number of  transactions  executed on an "even" basis.  Tightened
spreads  between  "bid" and "ask"  prices,  the new limit order  display  rules,
increased  volatility in the  marketplace  and increased  Small Order  Execution
Systems  ("SOES")  activity  have also been  factors in the  decrease in trading
profits per ticket.

The Company's  commission  income (exclusive of affiliated  entities)  increased
primarily due to a 31% increase in customer  average daily  tickets.  Offsetting
some of this increase is a continued  shift in the way customers trade with NDB.
Throughout  the year ended May 31, 1998,  more  customers  traded  utilizing the
Company's lower-priced,  automated systems, Power Broker(TM) and Webstation(TM),
as opposed to using higher costing live representatives.

Floor brokerage income increased by $1,744,000, or 12%, from $14,198,000 in 1997
to  $15,942,000  in 1998.  This increase was the result of increases in both the
volume of  transactions  and an  increase  in the number of stocks for which the
Company acts as a specialist.  The  specialist  business  increased in part as a
result of the Company's  acquisition on May 2, 1997 of SHD (formerly Dresdner-NY
Incorporated) which added 54 stocks to the Company's specialist list

For the year ended May 31,  1997,  the  principal  portion  of equity  income in
partnerships  was an equity  loss from the  Company's  49%  limited  partnership
interest it held in the Anvil Joint  Venture.  For the year ended May 31,  1998,
Anvil's results were consolidated with those of the Company until Anvil was sold
on September 5, 1997.

Interest and dividend  income  remained  constant for the two years,  decreasing
slightly from $7,775,000 in 1997 to $7,773,000 in 1998,  although the sources of
interest  income  varied.  Interest  income  increased due to the growing margin
debits and free credits balances that customers retain with our clearing broker.
Meanwhile, interest income decreased primarily due to reduced average amounts of
cash being available for investment.

Fee  income  increased  by  $1,055,000,  or  42%,  from  $2,513,000  in  1997 to
$3,568,000 in 1998. The increases are due to the Company  receiving  higher Rule
12b-1 fees from money  market funds as  customers'  balances in those funds have
increased,  as well as an increase in the negotiated rates used to calculate the
fees  rebated  thereon.  Finally,  in  connection  with  the  sale  of the  AMEX
specialist  business,   fees  were  received  for  certain  consulting  services
performed during the transition period for the purchaser.

Total expenses (from continuing operations) decreased $17,476,000,  or 11%, from
$156,722,000  in 1997 to  $139,246,000  in  1998.  Exclusive  of the  litigation
settlement  charges of  $9,188,000  and  associated  professional  fees,  net of
reduced bonus  expense,  total  expenses for the year ended May 31, 1997,  would
have been $149,271,000,  resulting in a decrease of 7% versus the year ended May
31, 1998. The reasons for the decrease in expenses are set forth below.

Clearing and related charges decreased by $7,517,000 from $57,282,000 in 1997 to
$49,765,000 in 1998. The decrease is due primarily to lower  correspondent  fees
being paid based upon the  overall  size and type of order flow  received.  Also
contributing to the decrease are lower per ticket clearance charges due to newly
negotiated rates.

Compensation  and benefits  decreased  $3,939,000  from  $58,110,000  in 1997 to
$54,171,000 in 1998. The decrease was primarily due to lower commissions paid to
traders because of the decrease in firm securities transactions.

Communication  expenses,  which  include  market  data  services,  decreased  by
$965,000  from  $11,160,000  in 1997 to  $10,195,000  in 1998.  The decrease was
mainly due to the upgrade of the  Powerbrokersm IVR System and development of an
in-house quote server.

Advertising  costs  increased  $143,000 from $2,802,000 in 1997 to $2,945,000 in
1998 due to additional media buys.

Occupancy costs and equipment rental  decreased  $92,000 from $2,681,000 in 1997
to $2,589,000 in 1998. The decrease is attributable to a decrease for NDB which,
last year,  incurred rent  concurrently,  from November 1997, on two main office
locations as it awaited the move of its  headquarters to 7 Hanover Square in New
York City.  In addition,  the closing of NDB's branch  offices as of October 31,
1997 has led to a reduction in rent expense.

Professional  fees decreased by $1,954,000 from $3,534,000 in 1997 to $1,580,000
in 1998. During the year ended May 31, 1997, the Company incurred  approximately
$535,000 in legal, accounting and investment banker fees and expenses, financial
institution  commitment fees and  out-of-pocket  expenses in connection with the
Company's  review  of a  possible  acquisition  which was not  consummated.  The
Company also incurred  additional  legal fees in connection  with the litigation
settlement  negotiations and the entry into the Settlement Agreement in the case
entitled In Re: NASDAQ Market-Makers  Antitrust  Litigation,  94 Civ. 3996(RWS).
See Item 3, "Legal Proceedings".  These prior year expenses did not recur to the
same extent in the current fiscal year, leading to the reduction in professional
fees.

Depreciation and amortization increased by $2,630,000 from $4,551,000 in 1997 to
$7,181,000  in  1998.  The  increase  was  primarily  due  to  depreciation  and
amortization  incurred  on  fixed  asset,  leasehold  improvement  and  computer
software additions by the Company  aggregating  approximately  $6,400,000 during
the year ended May 31, 1998, as well as a full year's  expense on $11,000,000 of
additions during the prior year.

Travel and  entertainment  expense  decreased  $46,000 from  $1,858,000 in 1997 
to $1,812,000 in 1998. The decrease is primarily due to cost control measures.

Repairs and maintenance expense increased by $1,058,000 from $954,000 in 1997 to
$2,012,000  in 1998.  The  increase  is  primarily  due to  maintenance  service
contract  fees  paid  in  order  to  maintain  infrastructures  as the  original
warranties on the various systems expire.

Interest  expense  increased  $370,000 from $429,000 in 1997 to $799,000 in 1998
and  primarily  represents  an increase in interest on capital  paid to minority
partners and interest paid by Equitrade on its subordinated debt.

Litigation  settlement,  for the year ended May 31, 1997,  represents charges in
connection with the Settlement Agreement. See Item 3, Legal Proceedings.

Other expenses  increased  $2,023,000  from  $4,174,000 in 1997 to $6,197,000 in
1998. The increase is primarily  attributable  to increases in public  relations
expenses regarding NDBG's name change,  customer  accomodations related to trade
executions,  employment  agency fees and certain expense  accruals in connection
with the reasonably likely outcome of the SEC investigation.  See Item 3, "Legal
Proceedings".

Income of  Equitrade  allocated  to minority  partners  represents  the share of
Equitrade's  net income  allocated to the partners of Equitrade,  other than the
Company, during the years ended May 31, 1998 and May 31, 1997.

The Company's  effective tax rate increased from  approximately 47% for the year
May 31, 1997 to approximately  48% for the year ended May 31, 1998. The increase
in  effective  tax rate is due  primarily  to the  non-deductibility  of certain
expense accruals for tax purposes in the current year.

In  addition,  in the fiscal year ended May 31, 1997,  the Company  recorded for
financial statement purposes, the unpaid expense incurred in connection with the
Settlement  Agreement.  Such  unpaid  expense  was  deemed by the  Company to be
nondeductible  for income tax purposes in the fiscal year ended May 31, 1997, as
the economic performance rules had not been met and the Company,  therefore, has
recorded a deferred tax benefit for the future tax  deductibility.  For the year
ended May 31, 1998, deferred tax expenses  principally relate to the reversal of
the prior year's tax benefit as the remaining  balance due under the  Settlement
Agreement,  as amended, was paid during the year ended May 31, 1998. The Company
can take a deduction  on the current  year's tax  returns for this  payment.  In
conjunction with the remaining deferred tax asset that the Company has reflected
on its  consolidated  statements  of  financial  condition,  the Company has not
booked any valuation allowance due to management's judgment of the likelihood of
realization.


Fiscal 1997 Compared to Fiscal 1996

The results of  continuing  operations  for the year ended May 31, 1997  reflect
primarily the  activities of Sherwood  Securities,  NDB and  Equitrade.  Certain
fiscal  1996  amounts  have been  reclassified  to conform  with the fiscal 1998
presentation.  In addition,  the results of  operations  of the AMEX  specialist
business  of  Sherwood  Securities  and of MXNet,  each of which was sold by the
Company during February 1998, have been segregated and reflected as discontinued
operations on the  consolidated  statements of income.  As such,  the individual
line items comprising revenue and expenses from continuing  operations have been
adjusted to exclude the operations of the discontinued operations. Net loss from
operations of these discontinued  operations for the year ended May 31, 1997 was
$855,000  (net of a tax benefit of  $440,000).  For the year ended May 31, 1996,
the net income from  operations of these  discontinued  operations  was $178,000
(net of tax expense of $136,000). (See "Note 13 - Discontinued Operations".)


The  Company  had a net profit for the year  ended May 31,  1997 of  $9,280,000,
compared  to a net  profit  of  $20,132,000  for the year  ended  May 31,  1996.
Sherwood  Securities  had a net  profit  for the  year  ended  May  31,  1997 of
$6,680,000,  compared  to a net  profit  for the  year  ended  May  31,  1996 of
$15,318,000.  Exclusive  of a litigation  settlement  charge of  $9,188,000  and
associated  professional fees, net of reduced bonus and tax expenses, net profit
for the  Company  and  Sherwood  Securities  would  have  been  $13,155,000  and
$11,458,000, respectively, for the year ended May 31, 1997. Triak had a net loss
for the year  ended  May 31,  1997 of  $300,000,  compared  to a net  profit  of
$3,089,000 for the year ended May 31, 1996. This decrease  reflects  significant
investments in technology and facilities, and an increase in personnel resulting
from the expansion of NDB's  activities.  Despite the negative  financial impact
these  investments  and personnel  expenses had on the current year's  earnings,
NDB's  investment in its  infrastructure  and personnel was necessary to service
and support NDB's future  growth.  Equitrade had a net profit for the year ended
May 31, 1997 of $10,587,000 (of which the Company's share was  $6,190,000).  For
the year ended May 31, 1996,  Equitrade had a net profit of $9,136,000 (of which
the Company's share was $5,507,000).

Revenue (from continuing  operations)  increased by approximately  $1,225,000,  
or 1%, from $179,110,000 in 1996 to $180,335,000 in 1997.

Most of the Company's income arises from firm securities transactions.  Sherwood
Securities'  profits from firm securities  transactions  (excluding those of its
AMEX specialist business) decreased $5,200,000, or 4%, from $122,691,000 in 1996
to  $117,491,000   in  1997  although  its  overall  trading  volume   increased
approximately  1% for the year ended May 31, 1997,  when  compared with the year
ended May 31, 1996 as trading profits per ticket  continued to decline.  Several
factors contributed to this decrease.  Regulatory changes enacted by the SEC and
the NASD,  such as limit order  protection,  have resulted in an increase in the
number of transactions  executed on an "even" basis.  Tightened  spreads between
"bid" and "ask" prices, the new limit order display rules,  increased volatility
in the  marketplace  and  increased  SOES activity have also been factors in the
decrease in trading  profits  per ticket.  As  previously  described  in Item 1,
"Regulation",  these changes may have an adverse impact on Sherwood  Securities'
trading profits.

The Company's commission income increased by $1,916,000, or 6%, from $30,723,000
in 1996 to  $32,639,000  in 1997.  This  modest  increase  is  primarily  due to
increases in trading  volume and  customer  accounts.  Offsetting  some of these
increases is a shift in the way customers  trade with NDB.  Throughout  the year
ended May 31, 1997, more customers traded through NDB's lower-priced,  automated
systems,   Power   Broker(TM)   and   Webstation(TM),   as   opposed   to   live
representatives.

Floor brokerage income increased by $3,243,000, or 30%, from $10,955,000 in 1996
to  $14,198,000  in 1997.  This increase was the result of increases in both the
volume of  Equitrade's  transactions  and an increase in the number of stocks in
which Equitrade is the  specialist.  The increase from 94 stocks at May 31, 1996
to 149 stocks at May 31, 1997 was due principally to the acquisition,  on May 2,
1997, of SHD  Corporation  (formerly  Dresdner-NY  Incorporated)  which added 54
stocks to Equitrade's specialist list.

For the years  ended May 31, 1997 and May 31,  1996,  the  principal  portion of
equity income in partnerships was equity income from the Anvil Joint Venture.

Interest and dividend income  increased by $1,867,000 from $5,908,000 in 1996 to
$7,775,000 in 1997.  The net increase is primarily due to a significant  rise in
NDB's customer debit and credit balances held with the Company's clearing broker
and an increase in the agreed-upon  rate used to compute interest earned on such
customer  balances.  Also  contributing to the increase were the availability of
larger amounts of cash for investment,  and higher average market interest rates
than in the prior year.

Fee income  increased by  $1,159,000  from  $1,354,000  in 1996 to $2,513,000 in
1997.  The increase is due to larger Rule 12b-1 fees  received from money market
funds as NDB's customers' balances in those funds have increased since the prior
year.

Total expenses (from continuing operations) increased $16,458,000,  or 12%, from
$140,264,000  in 1996 to  $156,722,000  in  1997.  Exclusive  of the  litigation
settlement charge of $9,188,000 and associated professional fees, net of reduced
bonus  expense,  total  expenses for the year ended May 31, 1997 would have been
$149,271,000,  an  increase  of 6% from the  prior  year.  The  reasons  for the
increase in expenses are set forth below.

Clearing and related charges increased by $1,651,000 from $55,631,000 in 1996 to
$57,282,000 in 1997.  This increase is principally  due to the operations of NDB
for which clearance  charges rose by approximately  $991,000 over the prior year
due to the increase in the volume of transactions.  In addition, there was a net
increase of  approximately  $631,000 in clearance,  correspondent  and execution
charges on Sherwood Securities' OTC market making activities.

Compensation  and benefits  increased  $1,156,000  from  $56,954,000  in 1996 to
$58,110,000  in 1997.  The increase  was  primarily  due to higher  salaries for
additional  employees hired  (principally due to the expansion of NDB) offset by
decreases in both traders'  commissions and in executive and staff bonuses.  The
decrease  in  Sherwood  Securities'  trading  profits  led to the  reduction  in
commissions while the overall reduced profitability of the Company accounted for
the decrease in bonuses.

Communication  expenses  increased  by  $392,000  from  $10,768,000  in  1996 to
$11,160,000  in  1997.  The  increase  was  mainly  due  to an  increase  in the
activities of NDB,  primarily the expansion of its toll-free  customer quotation
service and an increase in trading volume.

Advertising costs increased  $1,078,000 from $1,724,000 in 1996 to $2,802,000 in
1997. During the second half of fiscal 1997, the Company incurred the costs of a
new ad campaign  which was launched by NDB and which  included  various forms of
media advertising.

Occupancy costs and equipment rental decreased  $485,000 from $3,166,000 in 1996
to $2,681,000 in 1997.  The decrease is  attributable  to a decline for Sherwood
Securities  which,  last year,  incurred  rent  concurrently  on two main office
locations  as it awaited its move from New York to New Jersey.  Offsetting  this
decrease was higher occupancy costs incurred as a result of the signing of a new
lease for the relocation of NDB's main offices.

Professional  fees increased by $1,291,000 from $2,243,000 in 1996 to $3,534,000
in 1997. During the year ended May 31, 1997, the Company incurred  approximately
$535,000 in legal, accounting and investment banker fees and expenses, financial
institution  commitment fees and  out-of-pocket  expenses in connection with the
Company's  review  of a  possible  acquisition  which was not  consummated.  The
Company also incurred  additional  legal fees in connection  with the litigation
settlement negotiations and the entry into the Settlement Agreement. See Item 3,
"Legal Proceedings".

Depreciation and  amortization  increased by $562,000 from $3,989,000 in 1996 to
$4,551,000  in  1997.  The  increase  was  primarily  due  to  depreciation  and
amortization  incurred on fixed asset and leasehold improvement additions by the
Company  aggregating  approximately  $11,000,000  during  the year ended May 31,
1997.

Travel and entertainment  expense increased  $356,000 from $1,502,000 in 1996 to
$1,858,000 in 1997. The increase is primarily due to additional  entertaining of
customers by Sherwood Securities' institutional sales force.

Repairs and maintenance  expense  increased by $400,000 from $554,000 in 1996 to
$954,000 in 1997. The increase is primarily due to maintenance  service contract
fees paid in order to maintain Sherwood Securities' and NDB's infrastructures as
the original warranties on the various systems expire.

Interest  expense  increased  $108,000 from $321,000 in 1996 to $429,000 in 1997
and primarily represents an increase in interest on capital paid by Equitrade to
its minority partners and interest paid by Equitrade on its subordinated debt.

Litigation  settlement,  for the year ended May 31, 1997, represents a charge in
connection with the Settlement Agreement.

Other expenses increased $762,000 from $3,412,000 in 1996 to $4,174,000 in 1997.
The increase is primarily attributable to increases in public relations expenses
and in the cost of  research  associated  with soft  dollar  transactions.  Also
contributing to the increase is the assumption of costs related to the advent of
a debit card  program for  preferred  customers  of NDB.  The  remainder  of the
increase  is due to the  overall  increase  in the  volume of  business  and the
increase in staff size.

Income of  Equitrade  allocated  to minority  partners  represents  the share of
Equitrade's  net income  allocated to the partners of Equitrade,  other than the
Company and its subsidiary, SHD, during the years ended May 31, 1997 and May 31,
1996.

The Company's  effective tax rate increased from  approximately 43% for the year
May 31,  1996  to  approximately  47%  for the  year  ended  May 31,  1997.  The
difference  in rates is due to  several  factors.  During the year ended May 31,
1996, the Company  recognized certain tax benefits primarily related to employee
compensation  arrangements,  which were not available  during the year ended May
31, 1997. In addition,  as a result of significant  capital additions during the
year ended May 31, 1997 for NDB,  the  Company's  consolidated  state income tax
rate increased.

In addition,  the Company recorded for financial statement purposes,  the unpaid
expense incurred in connection with the settlement  agreement in the fiscal year
ended  May 31,  1997.  Such  unpaid  expense  is  deemed  by the  Company  to be
nondeductible  for income tax purposes in the fiscal year ended May 31, 1997, as
the economic  performance  rules have not been met. The Company has,  therefore,
recorded a deferred tax benefit for the future tax  consequences  of events that
have been recognized in its financial statements but not yet included in its tax
returns, based upon enacted tax laws and rates, subject to management's judgment
that  realization of the tax benefit is more likely than not. For the year ended
May 31, 1997,  deferred taxes principally relate to the future  deductibility of
the expense for the settlement agreement that the Company has recorded and which
is expected to be paid. In  conjunction  with the deferred tax asset the Company
has  recorded,  the Company has booked a valuation  allowance  of  approximately
$155,000 due to management's judgment of the likelihood of realization.


 Fiscal 1996 Compared to Fiscal 1995

The results of  continuing  operations  for the year ended May 31, 1996  reflect
primarily the  activities of Sherwood  Securities,  NDB and  Equitrade.  Certain
fiscal  1995  amounts  have been  reclassified  to conform  with the fiscal 1998
presentation.  In addition,  the results of  operations  of the AMEX  specialist
business  of  Sherwood  Securities  and of MXNet,  each of which was sold by the
Company during February 1998, have been segregated and reflected as discontinued
operations on the  consolidated  statements of income.  As such,  the individual
line items comprising revenue and expenses from continuing  operations have been
adjusted to exclude the operations of the  discontinued  operations.  Net income
from operations of these discontinued operations for the year ended May 31, 1996
was $178,000 (net of tax expense of $136,000).  For the year ended May 31, 1995,
the net income from  operations of these  discontinued  operations  was $374,000
(net of tax expense of $93,000). (See "Note 13 - Discontinued Operations".)

The  Company  had a net profit for the year ended May 31,  1996 of  $20,132,000,
compared  to a net  profit  of  $14,615,000  for the year  ended  May 31,  1995.
Sherwood  Securities  had a net  profit  for the  year  ended  May  31,  1996 of
$15,318,000,  compared  to a net  profit  for the  year  ended  May 31,  1995 of
$15,161,000.  Triak  had a net  profit  for  the  year  ended  May  31,  1996 of
$3,089,000,  compared to a net profit of $8,000 for the year ended May 31, 1995.
Equitrade  had a net profit for the year ended May 31,  1996 of  $9,136,000  (of
which the  Company's  share was  $5,507,000).  For the  period  from  March 1995
through May 1995 for which the results of Equitrade are consolidated  with those
of the Company, Equitrade had a net profit of $2,092,000 (of which the Company's
share was $1,322,000). For the period June 1994 through February 1995, Equitrade
had a net profit of  $5,064,000 of which the Company's  share,  $3,521,000,  was
accounted  for  using  the  equity  method  and  included  in  equity  income in
partnerships.

Revenue (from continuing operations) increased by approximately  $77,438,000, or
76%, from $101,672,000 in 1995 to $179,110,000 in 1996.

Most of the Company's income arises from firm securities transactions.  Sherwood
Securities'  profits from firm securities  transactions  (excluding those of its
AMEX specialist  business)  increased  $47,073,000,  or 62%, from $75,618,000 in
1995  to  $122,691,000  in  1996  and  its  overall  trading  volume   increased
approximately  69% for the year ended May 31, 1996,  when compared with the year
ended May 31, 1995.  However,  trading profits per ticket  continued to decline.
Several factors contributed to this decrease.  Regulatory changes enacted by the
SEC and the NASD have caused an increase in the number of transactions  executed
on an "even" basis. Tightened spreads between "bid" and "ask" prices,  increased
volatility in the marketplace,  capacity constraints and increased SOES activity
have also been factors in the decrease in trading profits per ticket.

The  Company's  commission  income  increased  by  $16,311,000,  or  113%,  from
$14,412,000 in 1995 to  $30,723,000 in 1996. The increase is principally  due to
the fact that NDB's volume of  transactions  increased by 143% in the year ended
May 31, 1996 when compared with the previous year.

Floor brokerage income increased by $9,125,000, or 499%, from $1,830,000 in 1995
to  $10,955,000  in 1996.  This  increase is due to a full year of operations of
Equitrade being  consolidated into the Company's  operations.  In addition,  the
number  of  stocks in which  Equitrade  is the  specialist  has  increased  when
compared to the prior year.

For the year ended May 31,  1996,  the  principal  portion  of equity  income in
partnerships was equity income from the Anvil Joint Venture. For the nine months
ended  February  28, 1995,  after which the  operations  of Equitrade  have been
consolidated  with those of the  Company,  the  Company's  share of  Equitrade's
investment income was $3,521,000.

Investment  securities gains for the year ended May 31, 1995 aggregated $76,000.
This gain resulted  entirely  from the sale of 11,600 shares of Network  Imaging
Corp.  (IMGX)  for  the  year  ended  May 31,  1995.  There  were no  investment
securities gains for the year ended May 31, 1996.

Interest and dividend income  increased by $2,442,000 from $3,466,000 in 1995 to
$5,908,000 in 1996.  The net increase is primarily due to a significant  rise in
NDB's customer debit and credit balances held with the Company's clearing broker
and an increase in the agreed upon rate used to compute  interest earned on such
customer  balances.  Also  contributing to the increase were the availability of
larger amounts of cash for investment,  and higher average market interest rates
than in the prior year.

Fee income  increased by $959,000  from  $395,000 in 1995 to $1,354,000 in 1996.
The  increase is due to larger  Rule 12b-1 fees  received  from mutual  funds as
NDB's customers' balances in those funds have increased since the prior year.

Total expenses  increased  $57,134,000,  or 69%, from  $83,130,000 in 1995 to 
$140,264,000 in 1996. The reasons for the increase in expenses are set forth 
below.

Clearing and related charges  increased by $20,866,000  from $34,765,000 in 1995
to $55,631,000 in 1996. This increase is principally due to the increased volume
of trades for both Sherwood Securities and NDB. This caused clearance charges to
increase  by  $5,609,000  and  $7,453,000  for  Sherwood   Securities  and  NDB,
respectively,  over the prior year.  Also,  payments by Sherwood  Securities  to
correspondents for order flow increased by $4,387,000 over the prior year.

Compensation  and benefits  increased  $26,104,000  from  $30,850,000 in 1995 to
$56,954,000 in 1996. The increase was primarily due to higher  commissions  paid
to Sherwood  Securities'  traders due to  increased  trading  profits and higher
bonuses  accrued  as a result of  greater  overall  profits  of the  Company  as
compared to the prior year.  Also,  there was an increase in office salaries and
related benefits due primarily to NDB's larger staff size.

Communication  expenses  increased  by  $4,397,000  from  $6,371,000  in 1995 to
$10,768,000  in  1996.  The  increase  was  mainly  due  to an  increase  in the
activities of NDB, namely toll-free  customer  telephone  service and quotations
expense.

Advertising  costs  decreased  $881,000 from $2,605,000 in 1995 to $1,724,000 in
1996. Subsequent to the initial,  extensive media campaign which accompanied the
commencement  of  operations of NDB, the  frequency of  advertising,  especially
television ads, continued to lessen.

Occupancy  costs and equipment  rental  increased  $1,310,000 from $1,856,000 in
1995 to  $3,166,000 in 1996  primarily due to a full year of expense  related to
the lease on Sherwood  Securities'  new office in Jersey City,  New Jersey.  The
results of operations  for the year ended May 31, 1995 only included five months
expense for this lease which commenced in January 1995.

Professional fees increased by $671,000 from $1,572,000 in 1995 to $2,243,000 in
1996.  The increase in  professional  fees is primarily due to additional  legal
services and technology consulting projects.

Depreciation and amortization increased by $2,383,000 from $1,606,000 in 1995 to
$3,989,000  in  1996.  The  increase  was  primarily  due  to  depreciation  and
amortization  incurred on fixed asset and  leasehold  improvement  additions  of
approximately  $10,000,000  and  $3,000,000  for  Sherwood  Securities  and NDB,
respectively,  during the year ended May 31, 1996.  In addition,  in  connection
with  Sherwood  Securities'  abandonment  of its  former  New York City  office,
$641,000 of fixed assets and leasehold improvements were written off.

Travel and entertainment  expense increased  $274,000 from $1,228,000 in 1995 to
$1,502,000 in 1996 and reflects  primarily the  entertaining of customers by the
institutional sales force.

Repairs and maintenance  expense  increased by $116,000 from $438,000 in 1995 to
$554,000 in 1996.  The increase is primarily due to the inclusion of a full year
of Equitrade's operations in the results for the year ended May 31, 1996.

Interest expense increased $270,000 from $51,000 in 1995 to $321,000 in 1996 and
represents  interest on capital paid by  Equitrade to its minority  partners and
interest paid by Equitrade on its subordinated debt.

Other expenses  increased  $1,624,000  from  $1,788,000 in 1995 to $3,412,000 in
1996.  The  increase  is  primarily  attributable  to an  increase  in the costs
associated  with  registering the sales staff of NDB with the various states and
regulatory  agencies.  Also,  during  the year  ended May 31,  1996 the  Company
incurred  increases  in public  relations  expenses  and in the cost of research
associated  with soft dollar deals.  The remainder of the increase is due to the
overall increase in the volume of business and the increase in staff size.

Income of  Equitrade  allocated  to minority  partners  represents  the share of
Equitrade's  net income  allocated to the partners of Equitrade,  other than the
Company, during the year ended May 31, 1996 and the last quarter of fiscal 1995.

The increase in income tax expense is primarily due to the Company's utilization
of the remainder of its net operating loss carryforwards for Federal,  state and
local tax  purposes  during  the year ended May 31,  1995,  in  addition  to the
increase in income before taxes as compared to the prior year.



Liquidity and Capital Resources

The Company's  tangible  assets are highly  liquid,  but subject to market price
fluctuation, with more than 72% consisting of cash or assets readily convertible
into cash (principally firm securities  positions,  receivables from brokers and
cash).  The  Company's  operations  have  generally  been financed by internally
generated  funds.  In addition,  at May 31, 1998,  margin account  borrowings of
approximately  $254,000,000  were  available  to the Company  from its  clearing
brokers.

NDBG's broker-dealer  subsidiaries,  Sherwood Securities,  NDB and Equitrade are
subject to the minimum net capital  requirement  of the SEC which is designed to
measure the general financial  soundness and liquidity of brokers. As of May 31,
1998,  Sherwood  Securities,  NDB and Equitrade had  approximately  $35,739,000,
$3,568,000  and  $29,902,000  in  excess of the  minimum  required  net  capital
requirements,  respectively,  representing increases of $17,698,000 for Sherwood
Securities,  $1,519,000 for NDB and  $1,772,000  for  Equitrade,  from the prior
year. The increase for Sherwood  Securities resulted primarily from loans repaid
by NDBG and from the year's net income. The increase in NDB's excess net capital
was  principally  the result of the year's net  income.  Equitrade's  excess net
capital  increase was  principally  due to fiscal year 1998 net income offset by
distributions  made  to  partners.   The  net  capital  rule  imposes  financial
restrictions upon Sherwood Securities',  NDB's and Equitrade's  businesses which
are more severe than those imposed on most other businesses.

Cash flows from operations  vary on a daily basis as the Company's  portfolio of
marketable  securities  changes.  The  Company's  ability to convert  marketable
securities owned into cash is determined by the depth of the market and the size
of the Company's  security  positions in relation to the market as a whole.  The
portfolio  mix also  affects  the  regulatory  capital  requirements  imposed on
Sherwood  Securities,  NDB and Equitrade  which  directly  affects the amount of
funds available for operating, investing and financing activities.

From time to time, the Company has needed to borrow funds in connection with its
trading activities.  The Company currently has no committed lines of credit and,
in the past, such borrowings were done on an "as needed" basis.

On December 5, 1997, the Company  entered into an agreement with IAT Reinsurance
Syndicate Ltd. ("IAT"), a Bermuda corporation,  for the sale of 1,500,000 shares
of the Company's common stock at $12.875 per share. IAT, an entity controlled by
investor Peter A. Kellogg,  received  shares from the Company's  treasury stock.
The transaction  increased Mr. Kellogg's  beneficial  ownership of the Company's
common stock from  approximately  8% to 17.8%. The proceeds from the transaction
of approximately $19,300,000,  which were received by the Company on December 8,
1997, are being used for general corporate purposes and marketing  activities to
support the expansion of NDB.

Fixed assets and computer  software of  approximately  $4,364,000 were purchased
and placed into service by NDB during the year ended May 31, 1998 in  connection
with the upgrade of NDB's technological infrastructure.

The Company anticipates that it will spend an additional $3,500,000 and $500,000
over the next year for the ongoing  upgrades of NDB's and  Sherwood  Securities'
technological  infrastructures,  respectively,  and  intends  to  finance  these
upgrades out of internally generated funds.

Cash flows from the  Company's  investment  activities  are directly  related to
market conditions.

On October 4, 1993,  the Company paid  $400,000 for 8,000 shares of common stock
of Emmett A. Larkin Company, Inc., a minority owned broker-dealer.  This holding
represents,  as of May 31, 1998,  approximately  15% of the  outstanding  common
shares of Emmett A. Larkin Company, Inc.

On November 22, 1996, the Company  loaned  $100,000 to Eurotech Ltd. In addition
to a promissory note bearing  interest at the rate of 12% per annum, the Company
received  175,000 shares of Eurotech Ltd.  common stock.  The loan was repaid in
full on March 2, 1998.  During  December  1997 and January 1998, an aggregate of
50,000 shares of this common stock was sold with the Company  recognizing a gain
of approximately $64,000.

During the year ended May 31,  1997,  the Company  made two loans of  $3,000,000
each to NDB, in the form of subordination agreements.  These funds were expended
in order for NDB to maintain  adequate  regulatory  capital levels.  The Company
will make additional loans or contributions to its  broker-dealer  subsidiaries,
as necessary, to ensure regulatory compliance

In December 1992, the Company announced it would buy back up to 1,500,000 shares
of the  Company's  common  stock from time to time in the open market or through
privately  negotiated  transactions.  Through May 31, 1998, 1,405,178 shares had
been repurchased,  of which 53,696 were repurchased  during fiscal 1998. In June
1998, the Board of Directors  authorized an interim  program to repurchase up to
an additional 150,000 shares of the Company's common stock. From June 1, 1998 to
July 31, 1998,  102,188  additional  shares were repurchased under the programs.
The source of funds for these purchases was internally generated.


Sherwood  Securities',  NDB's and  Equitrade's  excess  net  capital  are deemed
adequate by management for their present  operations  and currently  anticipated
future expansion.



Effects of Inflation

The Company's assets are not  significantly  affected by inflation  because they
are primarily monetary in nature.  Management believes that replacement costs of
furniture,  equipment  and leasehold  improvements  will not  materially  affect
operations.  However,  the rate of  inflation  affects the  Company's  principal
expenses such as employee  benefits and  compensation,  rent and  communication,
which may not be readily  recoverable  from  increased  revenues.  Due to market
forces and competitive  conditions in the securities  industry,  a broker-dealer
may be unable to  unilaterally  increase  spreads  and  commissions  in order to
recover  increased  costs related to inflation.  Consequently,  the Company must
rely on increased volume for this purpose.  However, the Company has significant
cash balances on deposit with its principal  clearing broker which, in the event
there are higher interest rates, would offset some of the costs.



Impact of the Year 2000 Issue

Certain  of  the  Company's  systems  have  potential  operational  problems  in
connection  with  applications  that  contain  a date  and/or  use a  date  in a
comparative manner as the date transitions into the Year 2000. The Company has a
comprehensive  program to identify and remediate  potential  problems related to
the Year 2000 in its information  systems and infrastructure.  In addition,  the
Company has initiated formal communications with all of its significant external
interfaces to determine  their own  potential  problems and plans related to the
Year 2000, although  management  presently has no assurance that such plans will
be  implemented  on a timely basis.  The inability of the Company or significant
external  interfaces of the Company to adequately address year 2000 issues could
cause disruption of the Company's business operations.

Many of the Company's  systems are Year 2000  compliant,  or have been scheduled
for replacement in the Company's ongoing systems plans. The Company has incurred
and  expensed  approximately  $40,000  during the fiscal year ended May 31, 1998
related to the assessment of, and  preliminary  efforts in connection  with, its
Year  2000  program  and   remediation   plan.   Future  spending  for  software
modifications  and testing required for Year 2000 are currently  estimated to be
approximately  $500,000 with the majority  expected to be incurred in the fiscal
year ended May 31, 1999. The Company's  target date for completing its Year 2000
modifications  is December 31, 1998 with  additional  testing and refinements to
identified systems planned for 1999.



Forward Looking Statement

Statements regarding the Company's  expectations as to its future operations and
financial condition and certain other information contained in this Form 10-K or
in  documents  incorporated  herein  by  reference  constitute  forward  looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995.  Although  the  Company  believes  that  its  expectations  are  based  on
reasonable  assumptions  within the bounds of its  knowledge of its business and
operation,  there  can be no  assurance  that  actual  results  will not  differ
materially  from its  expectations.  Factors which could cause actual results to
differ from expectations  include a general downturn in the economy,  changes in
the level of activity of securities  markets in which the Company  participates,
changes  in  government  policy or  regulation  and  unforeseen  costs and other
effects  related to legal  proceedings or  investigations  of  governmental  and
self-regulatory organizations.


Item 8.     Financial Statements and Supplementary Data.

The  response  to this item is  submitted  in a separate  section of this report
commencing on Page F-1.



Item 9.     Changes in and Disagreements with Accountants on Accounting and 
            Financial Disclosure.

No change in  accountants  or  disagreement  requiring  disclosure  pursuant  to
applicable  regulations  took place within the  Company's two most recent fiscal
years or in any subsequent interim period.




                                                     PART III

Item 10.    Directors and Executive Officers of the Company.

The  material  contained  in  "Election  of  Directors"  and in  "Section  16(a)
Beneficial  Ownership  Reporting  Compliance" of the Company's  definitive proxy
statement  (to be filed  pursuant to the  Securities  Exchange  Act of 1934,  as
amended) for the annual meeting of  stockholders  to be held on October 20, 1998
is hereby incorporated by reference.




Item 11.    Executive Compensation.

The material  contained in "Compensation  of Directors and Executive  Officers",
"Compensation   Committee  Report  on  Executive   Compensation"   and  "Company
Performance" of the Company's  definitive  proxy statement (to be filed pursuant
to the  Securities  Exchange Act of 1934, as amended) for the annual  meeting of
stockholders to be held on October 20, 1998 is hereby incorporated by reference.






Item 12.    Security Ownership of Certain Beneficial Owners and Management.

The material  contained in "Voting  Securities and Principal Holders Thereof" of
the Company's definitive proxy statement (to be filed pursuant to the Securities
Exchange Act of 1934, as amended) for the annual meeting of  stockholders  to be
held on October 20, 1998 is hereby incorporated by reference.



Item 13.    Certain Relationships and Related Transactions.

The material  contained in "Certain  Relationships and Related  Transactions" of
the Company's definitive proxy statement (to be filed pursuant to the Securities
Exchange Act of 1934, as amended) for the annual meeting of  stockholders  to be
held on October 20, 1998 is hereby incorporated by reference.  See also, "Recent
Developments."




                                                      PART IV

Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K.

            (a)      Financial Statements

                     Reference  is made to page F-1 for a list of all  financial
                     statements and schedules filed as part of this report.

            (b)      During the last quarter of the year ended May 31, 1998, the
                     Company filed no reports on Form 8-K.

            (c)      Exhibits

                     The exhibits  that are filed with this report,  or that are
                     incorporated  herein  by  reference,  are set  forth in the
                     Exhibit Index beginning on page E-1.






                                         NATIONAL DISCOUNT BROKERS GROUP, INC.
                                                   AND SUBSIDIARIES

                                           Consolidated Financial Statements

                                              May 31, 1998, 1997 and 1996


                                     (With Independent Auditors' Report Thereon)



<PAGE>


                                         NATIONAL DISCOUNT BROKERS GROUP, INC.
                                                   AND SUBSIDIARIES

                                      Index to Consolidated Financial Statements




<TABLE>
<CAPTION>
                                                                                                        Page

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


Consolidated Financial Statements and Notes:

      Consolidated Statements of Financial Condition -
         May 31, 1998 and 1997                                                                       F-3 to F-4

      Consolidated Statements of Income -
         Years ended May 31, 1998, 1997 and 1996                                                     F-5 to F-6

      Consolidated Statements of Changes in Stockholders' Equity -
         Years ended May 31, 1998, 1997 and 1996                                                         F-7

      Consolidated Statements of Cash Flows -
         Years ended May 31, 1998, 1997 and 1996                                                     F-8 to F-11

      Notes to Consolidated Financial Statements                                                    F-12 to F-27


The   following  financial  statement  schedule is submitted herein on the pages
      indicated below:

         Schedule I - Condensed Financial  Statements of the Registrant (Parent)
             - May 31, 1998 and 1997
             and Years ended May 31, 1998, 1997 and 1996                                             S-1 to S-6

</TABLE>

All other  financial  statement  schedules  and  supplementary  data are omitted
because  they  are  not  applicable,   not  required  or  because  the  required
information is included in the  consolidated  financial  statements or the notes
thereto.





                                   F-1


<PAGE>










                                             Independent Auditors' Report


The Board of Directors and Stockholders of
National Discount Brokers Group, Inc.:


We have audited the accompanying  consolidated statements of financial condition
of National Discount Brokers Group, Inc. and subsidiaries as of May 31, 1998 and
1997,   and  the  related   consolidated   statements  of  income,   changes  in
stockholders'  equity  and cash  flows for each of the  years in the  three-year
period ended May 31, 1998, and the related financial statement  schedule.  These
consolidated  financial  statements and related financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated  financial  statements and financial  statement
schedule based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of National Discount
Brokers  Group,  Inc.  and  subsidiaries  as of May 31,  1998 and 1997,  and the
results  of their  operations  and their cash flows for each of the years in the
three-year  period ended May 31, 1998, in  conformity  with  generally  accepted
accounting  principles.  Also in our opinion,  the related  financial  statement
schedule,  when  considered  in  relation  to the basic  consolidated  financial
statements taken as a whole,  presents  fairly,  in all material  respects,  the
information set forth therein.


KPMG Peat Marwick LLP

New York, New York
July 15, 1998


                                          F-2


<PAGE>


                                       NATIONAL DISCOUNT BROKERS GROUP, INC.
                                                 AND SUBSIDIARIES

                                 Consolidated Statements of Financial Condition

                                                 May 31, 1998 and 1997

<TABLE>
<CAPTION>




                                  Assets                                             1998               1997
                                                                                     ----               ----

<S>                                                                           <C>                     <C>      
Cash                                                                          $       1,039,121         3,033,818
Funds segregated for customers                                                               -             29,203
Receivables:
    Brokers and dealers                                                              67,742,508        58,047,183
    Other (note 11)                                                                     727,099           599,725

Securities owned, at market value (note 4)                                           67,969,111        45,696,436
Investment securities available for sale, at market value                             2,615,000                -
Investment securities not readily marketable,
    at fair value                                                                     1,001,320           501,320
Investment in partnerships (note 3)                                                          -             12,984
Loans and notes receivable (note 11)                                                    760,409           830,589
Furniture, fixtures, equipment, and leasehold
    improvements - at cost, net of accumulated
    depreciation and amortization (note 6)                                           18,011,262        20,263,511
Computer software - at cost, net of accumulated
    amortization of $1,388,843 at May 31, 1998 and
    $929,942 at May 31, 1997                                                          2,683,635         1,853,693
Intangible assets, net of accumulated
    amortization of $1,275,041 at May 31, 1998
    and $535,853 at May 31, 1997 (note 3)                                             5,988,770         6,727,958
Exchange memberships (market value $9,243,500
    at May 31, 1998 and $7,957,750 at May 31, 1997) (note 7)                          7,416,496         7,416,496
Subordinated notes receivable (note 9)                                                3,500,000         3,000,000
U.S. Treasury obligations, held as collateral                                         7,667,463         7,815,254
Deferred tax asset (note 8)                                                             282,886         2,220,472
Other assets                                                                          1,068,534         2,112,083
                                                                                 --------------   ---------------

                  Total assets                                                $     188,473,614       160,160,725
                                                                                 ==============   ===============

</TABLE>



                                   F-3


<PAGE>


                                     NATIONAL DISCOUNT BROKERS GROUP, INC.
                                               AND SUBSIDIARIES

                       Consolidated Statements of Financial Condition, Continued


<TABLE>
<CAPTION>




              Liabilities and Stockholders' Equity                                   1998               1997
                                                                                     ----               ----

<S>                                                                                <C>                <C>    
    Securities sold, not yet purchased, at market
       value (note 4)                                                              $ 28,687,486        25,129,290
    Accounts payable and accrued expenses, 
       including  compensation payable to officers
       and employees of $11,216,667 at May 31, 1998
       and $11,831,551 at  May 31, 1997 (note 15)                                    20,203,279        31,734,213
    Secured demand notes payable (note 9)                                             3,500,000         3,000,000
    Income taxes payable (note 8)                                                     1,189,260           302,501
    Minority interest in Equitrade                                                    9,465,741         7,720,236
                                                                                 --------------   ---------------

                  Total liabilities                                                  63,045,766        67,886,240
                                                                                 --------------   ---------------

Commitments and contingencies (notes 15 and 16)

Stockholders' equity (notes 10 and 14):
    Preferred stock - $.01 par value; 1,000,000 shares
       authorized, none issued                                                               -                 -
    Class A common stock - $.01 par value;
       50,000,000 shares authorized at May 31, 1997 and
       none authorized at May 31, 1998, none issued                                          -                 -
    Common stock - $.01 par value; 50,000,000 shares
       authorized, 14,343,201 shares issued at May 31,
       1998 and 1997                                                                    143,432           143,432
    Additional paid-in capital                                                       65,050,817        57,189,985
    Unrealized gain on securities available for sale                                  2,615,000                -
    Retained earnings                                                                59,176,152        47,215,833
                     ----------------------------------------------------------------------    -------------
                                                                                    126,985,401        104,549,250

    Less:  Treasury stock - at cost, 162,924 shares at
           May 31, 1998 and 1,648,536 shares at
           May 31, 1997                                                              (1,557,553)      (12,274,765)
                                                                                 --------------   ---------------

                  Total stockholders' equity                                        125,427,848        92,274,485
                                                                                 --------------   ---------------

                  Total liabilities and stockholders' equity                  $     188,473,614       160,160,725
                                                                                 ==============   ===============

</TABLE>

See accompanying notes to consolidated financial statements.

                                       F-4


<PAGE>


                                         NATIONAL DISCOUNT BROKERS GROUP, INC.
                                                   AND SUBSIDIARIES
                                           Consolidated Statements of Income
                                        Years ended May 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>


                                                                      1998              1997              1996
--------------------------------------------------------------------------------------------------------------
<S>                                                             <C>                    <C>               <C>   
Revenue:
    Firm securities transactions - net                          $      99,776,365      122,322,851       129,177,423
    Commission income                                                  37,052,201       32,638,949        30,723,379
    Floor brokerage income                                             15,941,668       14,198,251        10,955,277
    Equity income (loss) in partnerships (note 3)                           1,299          (26,176)           40,106
    Investment securities gains realized                                   63,625               -                 -
    Interest and dividends                                              7,773,383        7,774,806         5,907,779
    Fee income                                                          3,567,837        2,513,483         1,353,686
    Other                                                                 271,622          913,051           952,537
                     --------------------------------------         -------------       ----------       ----------

                  Total revenue                                       164,448,000      180,335,215       179,110,187
                                                                  ---------------   --------------  ----------------

Expenses:
    Clearing and related brokerage charges                             49,765,223       57,282,285        55,631,233
    Compensation and benefits (notes 10, 12 and 15)                    54,170,954       58,109,668        56,954,322
    Communications   10,194,681                                        11,159,958       10,767,515
    Depreciation and amortization                                       7,180,689        4,550,796         3,988,767
    Advertising costs                                                   2,945,195        2,801,700         1,724,117
    Occupancy costs and equipment rental (note 14)                      2,589,282        2,681,439         3,165,851
    Professional fees                                                   1,579,552        3,533,937         2,243,338
    Travel and entertainment                                            1,811,812        1,858,191         1,502,228
    Repairs and maintenance                                             2,012,389          954,072           553,521
    Interest                                                              798,949          429,378           320,812
    Litigation settlement (note 16)                                            -         9,187,500                -
    Other                                                               6,197,019        4,173,560         3,412,424
                     ------------------------------------------       -----------      ------------     ------------

                  Total expenses                                      139,245,745      156,722,484       140,264,128
                                                                  ---------------   --------------   ---------------

                  Income before minority interest
                     and income taxes                                  25,202,255       23,612,731        38,846,059

Income of Equitrade allocated to minority partners                     (5,766,440)      (4,326,095)       (3,628,986)
                                                                  ---------------   --------------   ---------------

                  Income from continuing operations
                     before income taxes                               19,435,815       19,286,636        35,217,073

Income taxes (note 8)                                                   9,358,242        9,151,897        15,263,076
                                                                  ---------------   --------------   ---------------

                  Net income from continuing operations                10,077,573       10,134,739        19,953,997
                                                                  ---------------   --------------   ---------------

Discontinued operations (notes 8 and 13):
    Income (loss) from discontinued operations
       (net of taxes)                                                    (821,339)        (855,046)          177,931
    Gain on sale of discontinued operations, net                        2,704,085               -                 -
                                                                  ---------------   --------------   --------------
                                                                        1,882,746         (855,046)          177,931
                                                                  ---------------   --------------   ---------------

                  Net income                                   $       11,960,319        9,279,693        20,131,928
                                                                  ===============   ==============   ===============
</TABLE>

                                                    F-5


<PAGE>


                                         NATIONAL DISCOUNT BROKERS GROUP, INC.
                                                   AND SUBSIDIARIES
                                    Consolidated Statements of Income, Continued
                                        Years ended May 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>


                                                                      1998              1997              1996
--------------------------------------------------------------------------------------------------------------

<S>                                                                   <C>               <C>             <C>    
    equivalent share (a)
    Basic:
       Net income from continuing operations                          $ .75              .79              1.57
       Loss from discontinued operations
          (net of taxes)                                               (.06)            (.07)              .02
       Gain on sale of discontinued operations
          (net of taxes)                                                .20                -                -
                                                                        ---               ---              --

                  Net income                                          $ .89              .72              1.59
                                                                        ===             ====              ====

Weighted average common shares outstanding                            13,432,726       12,890,926        12,699,428
                                                                  ==============    =============    ==============

    Diluted:
       Net income from continuing operations                          $ .75               .79             1.51
       Loss from discontinued operations
          (net of taxes)                                               (.06)             (.07)             .01
       Gain on sale of discontinued operations
          (net of taxes)                                                .20                 -              -
                                                                        ---                ---            --

                  Net income                                          $ .89               .72             1.52
                                                                        ===               ===             ====

Weighted average common shares outstanding                            13,501,346        12,946,007       13,201,412
                                                                  ==============     =============   ==============

<FN>

(a)    The sum of the  individual  quarters'  earnings per common share does not
       equal the total  amount for the year ended May 31, 1998 due to the effect
       of averaging the number of shares of common stock equivalents  throughout       
       the year.
</FN>
</TABLE>


See accompanying notes to consolidated financial statements.
                                     F-6

                               NATIONAL DISCOUNT BROKERS GROUP, INC.
                                       AND SUBSIDIARIES

                     Consolidated Statements of Changes in Stockholders' Equity

                             Years ended May 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>


                                                                       Unrealized
                                                                         gain on
                                                           Additional  securities
                                       Common     Common     paid-in    available    Retained   Treasury     Treasury
                                       shares      stock     capital     for sale    earnings    shares        stock      Total

<S>                                  <C>         <C>       <C>         <C>         <C>         <C>        <C>          <C> 
Balance at May 31, 1995              14,343,201  $143,432  58,134,052       -      17,804,212  (2,033,490)(10,104,195) $ 65,977,501

Net income                                -         -           -           -      20,131,928       -           -        20,131,928

Issuance of treasury stock upon 
   exercise of options                    -         -      (1,175,262)      -           -       1,346,000   7,184,518     6,009,256

Acquisition of treasury stock             -         -           -           -           -        (625,979) (5,549,130)   (5,549,130)

Balance at May 31, 1996              14,343,201   143,432  56,958,790       -      37,936,140  (1,313,469) (8,468,807)   86,569,555

Net income                                                                  -       9,279,693                             9,279,693

Acquisition of treasury stock                                               -                    (429,094) (4,462,830)   (4,462,830)

Issuance of treasury stock upon
     exercise of options                                      231,195       -                      94,027     656,872       888,067

Balance at May 31, 1997              14,343,201   143,432  57,189,985       -      47,215,833  (1,648,536)(12,274,765)   92,274,485

Net income                                                                  -      11,960,319                            11,960,319

Unrealized gain                                                        2,615,000                                          2,615,000

Acquisition of treasury stock                                               -                    (309,146) (3,757,376)   (3,757,376)

Sale of treasury stock                                      7,023,900       -                   1,500,000  12,243,600    19,267,500

Issuance of treasury stock upon
     exercise of options                                      836,932       -                     294,758   2,230,988     3,067,920

Balance at May 31, 1998              14,343,201 $ 143,432  65,050,817  2,615,000   59,176,152    (162,924) (1,557,553) $125,427,848


See accompanying notes to consolidated financial statements.

</TABLE>


                                                                    F-7



<PAGE>




                                         NATIONAL DISCOUNT BROKERS GROUP, INC.
                                                   AND SUBSIDIARIES

                                         Consolidated Statements of Cash Flows

                                        Years ended May 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>




                                                                      1998               1997               1996
----------------------------------------------------------------------------------------------------------------

<S>                                                          <C>                        <C>                 <C>    
Cash flows from operating activities:
    Net income from continuing operations                    $        10,077,573        10,134,739          19,953,997
    Net income (loss) from discontinued operations                      (821,339)         (855,046)            177,931

    Non-cash items included in net income:
       Equity (income) loss in partnerships                               (1,299)           26,176             (40,106)
       Depreciation and amortization                                   7,797,133         4,891,324           4,079,015
       Gain on sale of investment
          securities not readily marketable                              (63,625)               -                   -
       Income of Equitrade allocated to
          minority partners                                            5,766,440         4,326,095           3,628,986
       Provision for deferred taxes                                    1,937,586        (2,220,472)                 -
       Loss on sale of subsidiary                                             -            123,006                  -
       Tax benefit related to employee compensation
          arrangements                                                        -                 -            4,490,000

    (Increase) decrease in operating assets:
       Funds segregated for customers                                     29,203           (29,203)                 -
       Receivables:
          Brokers and dealers                                         (9,695,325)       23,344,762         (30,825,770)
          Other                                                         (266,289)          (78,693)           (265,818)
       U.S. Treasury obligations held as collateral                      147,791           (32,740)             89,337
       Securities owned, at market value                             (22,272,675)       (9,733,796)          9,595,915
       Other assets                                                      900,905          (457,385)            138,418

    Increase (decrease) in operating liabilities:
       Securities sold, not yet purchased, at
          market value                                                 3,558,196         4,790,211          (5,797,653)
       Accounts payable and accrued expenses                         (12,786,419)        6,814,638           7,138,010
       Income taxes payable                                             (322,518)       (4,987,878)          3,972,470
                                                                 ---------------    ---------------     --------------

                Net cash (used in) provided by
                   operating activities                              (16,014,662)       36,055,738          16,334,732
                                                                 ---------------    --------------      --------------

</TABLE>


                                       F-8


<PAGE>


                                       NATIONAL DISCOUNT BROKERS GROUP, INC.
                                                 AND SUBSIDIARIES

                                Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>


                                                                       1998                1997               1996
------------------------------------------------------------------------------------------------------------------

<S>                                                           <C>                       <C>                <C>    
Cash flows from investing activities:
    Proceeds from sales of investment securities
       not readily marketable                                 $           63,625                -                   -
    Payment for purchase of investment securities
       not readily marketable                                           (500,000)         (100,000)                 -
    Loans made and notes issued to employees and
       officers                                                          (60,000)         (237,652)         (1,738,840)
    Principal collected on notes receivable                              233,124           104,321           1,683,617
    Purchases of furniture, fixtures and
       equipment and leasehold improvements                           (4,949,659)      (11,429,602)        (12,556,959)
    Purchases of computer software                                    (1,842,745)       (1,413,233)           (537,136)
    Acquisition of intangible asset                                                     (4,128,024)                 -
    Payment for purchase of non-compete
       agreement                                                              -           (188,780)                 -
    Sale/(purchase) of subsidiaries (net of cash,
       intangibles and exchange memberships
       acquired)                                                       6,600,000        (6,311,493)                 -
    Purchase of exchange memberships                                          -         (6,250,000)                 -
    Issuance of subordinated note                                             -           (500,000)                 -
    Principal collected on subordinated note                                  -            500,000                  -
    Other                                                                (38,917)            5,150              31,000
                                                                    ------------        ---------         ------------

          Net cash used in investing activities                         (494,572)      (29,949,313)        (13,118,318)
                                                                 ---------------    --------------      --------------

Cash flows from financing activities:
    Sale of treasury stock                                            19,267,500                -                   -
    Purchase of treasury stock                                          (614,281)       (3,569,937)         (2,061,876)
    Proceeds from exercise of options                                         -                 -              635,000
    Capital contribution by minority interest                            275,086           185,658              29,575
    Capital withdrawals by minority interest                          (4,296,021)       (1,849,025)         (1,942,273)
                                                                 ---------------    --------------      --------------

          Net cash provided by (used in)
              financing activities                                    14,632,284        (5,233,304)         (3,339,574)
                                                                 ---------------    --------------      --------------

          Net increase (decrease) in cash                             (1,876,950)          873,121            (123,160)

Cash acquired due to consolidation of:
    Equitrade as of March 1, 1995                                             -                 -                   -
    Anvil as of January 24, 1997                                              -             22,740                  -
    SHD Corporation as of May 2, 1997                                         -          1,667,644                  -
Cash surrendered on sale of MXNet                                       (117,747)               -                   -

Cash at beginning of year                                              3,033,818           470,313             593,473
                                                                 ---------------    --------------      --------------

Cash at end of year                                           $        1,039,121         3,033,818             470,313
                                                                 ===============    ==============      ==============
</TABLE>


                                       F-9


<PAGE>


                                      NATIONAL DISCOUNT BROKERS GROUP, INC.
                                                AND SUBSIDIARIES

                               Consolidated Statements of Cash Flows, Continued


Supplemental disclosures of cash flow information:
     Income tax payments totaled  $7,510,410,  $15,946,000 and $6,948,770 during
     the years ended May 31, 1998, 1997 and 1996, respectively.

     Interest payments totaled  $1,129,763,  $658,276 and $890,495 for the years
     ended May 31, 1998, 1997 and 1996, respectively.

Supplemental disclosures of non-cash investing and financing activities:

     As a result of the sale of its subsidiary, Stock Market Index, Inc., during
     December  1996,  the Company wrote off the remaining  book value of certain
     computer software and intangible assets aggregating  $255,193. In addition,
     as part of the sale,  the  Company  received  a note in the face  amount of
     $132,187 from the buyer, resulting in a net loss of $123,006.

     On January 24, 1997, the Company acquired,  from its joint venture partner,
     the remaining 51% of Anvil Institutional Services Company (the "Anvil Joint
     Venture") that it did not previously  own. The Company,  therefore,  became
     the  100%  owner  of  Anvil  Institutional   Services  Inc.  ("Anvil"),   a
     broker-dealer previously owned by the Anvil Joint Venture. Accordingly, the
     assets,   liabilities   and   stockholder's   equity  of  Anvil  have  been
     consolidated  with those of the  Company as of the  acquisition  date.  The
     increases or decreases in operating assets and liabilities reflected in the
     consolidated  statement  of cash  flows  for the year  ended  May 31,  1997
     exclude  amounts for the assets and liabilities of Anvil which were assumed
     as part of the acquisition.

     During February 1997, an executive of the Company exercised an aggregate of
     94,027  options for the purchase of 94,027 shares of the  Company's  common
     stock with  exercise  prices  ranging from $7.9375 per share to $9.1875 per
     share.  In order to pay for the exercise price  ($838,324) and to reimburse
     the Company for the personal  income taxes ($54,569) on the gain related to
     the transaction, the executive remitted to the Company 88,187 shares of the
     Company's common stock with a market value of $892,893.

     On  May  2,  1997,  the  Company  acquired  100%  of the  common  stock  of
     Dresdner-NY  Incorporated,  subsequently  renamed SHD Corporation  ("SHD").
     Accordingly,  the assets,  liabilities and stockholder's equity of SHD have
     been consolidated with those of the Company as of the acquisition date. The
     increases or decreases in operating assets and liabilities reflected in the
     consolidated  statement  of cash  flows  for the year  ended  May 31,  1997
     exclude amounts for the assets and liabilities of SHD which were assumed as
     part of the acquisition.

     During September 1997, the Company sold all of the stock of its subsidiary,
     Anvil  Institutional  Services,  Inc., and received a note in the amount of
     $102,945 which is due in December 1998.

     During  October 1997 and December 1997,  certain  executives of the Company
     exercised  an  aggregate  of 294,758  options  for the  purchase of 294,758
     shares of the  Company's  common stock with  exercise  prices  ranging from
     $7.9375  per share to $10.125 per share.  In order to pay for the  exercise
     price  ($2,701,705)  and to reimburse  the Company for the personal  income
     taxes  ($441,389) on the gain related to the  transaction,  the  executives
     remitted to the Company 255,450 shares of the Company's common stock with a
     market value of $3,143,094.

                                        F-10


<PAGE>


                                     NATIONAL DISCOUNT BROKERS GROUP, INC.
                                               AND SUBSIDIARIES

                               Consolidated Statements of Cash Flows, Continued



     During  October  1997,  Equitrade  entered  into a  $500,000  subordination
     agreement with an unrelated  party.  The note has a stated interest rate of
     4% and a maturity date of October 1, 1998.

See accompanying notes to consolidated financial statements.

                                         F-11


<PAGE>


                                         NATIONAL DISCOUNT BROKERS GROUP, INC.
                                                   AND SUBSIDIARIES

                                      Notes to Consolidated Financial Statements

                                              May 31, 1998, 1997 and 1996



(1)    Organization and Business

       National  Discount  Brokers  Group,  Inc.  ("NDBG") and its  subsidiaries
       (formerly  known  as  The  Sherwood  Group,  Inc.)  (the  "Company")  are
       primarily  engaged in the  securities  business and in providing  related
       financial services. NDBG has a principal registered  broker-dealer wholly
       owned  subsidiary,  Sherwood  Securities Corp.  ("Sherwood  Securities").
       Triak  Services  Corp.,  doing  business  as  National  Discount  Brokers
       ("NDB"),   is  another   registered   broker-dealer,   and  wholly  owned
       subsidiaryof  NDBG. On January 24, 1997, the Company  acquired,  from its
       joint venture partner, the remaining 51% of Anvil Institutional  Services
       Company (the "Anvil Joint  Venture") that it did not previously  own. The
       Company, therefore, became the 100% owner of Anvil Institutional Services
       Inc.  ("Anvil"),  a  broker-dealer  previously  owned by the Anvil  Joint
       Venture. MXNet, Inc. was a company specializing in the delivery of market
       data to  trading  firms  and whose  other  services  included  end-of-day
       pricing,   internet  access,   trading  room  contingency  services,  and
       off-floor trading services.

       In  addition,  NDBG has a 60%  special  limited  partnership  interest in
       Equitrade  Partners  ("Equitrade"),  which is a specialist for securities
       listed on The New York Stock Exchange  ("NYSE").  The Company  acquired a
       further limited partnership interest in Equitrade on May 2, 1997 upon the
       acquisition of all of the stock of SHD Corporation  (formerly Dresdner-NY
       Incorporated),  which was engaged in the specialist business of the NYSE.
       The  assets,   including  four  seats  on  the  NYSE,  except  cash,  and
       liabilities of SHD  Corporation  ("SHD") were then  contributed by SHD to
       Equitrade in exchange for a limited  partner  interest.  Two employees of
       SHD  retained a portion  of the  specialist  book of SHD and also  became
       limited  partners  of  Equitrade.  SHD is  entitled  to  38.4% of the net
       profits and losses from the activities of this specialist book.

       On February  13,  1998,  MXNet,  Inc.  ("MXNet"),  another  wholly  owned
       subsidiary of NDBG was sold. In addition,  on February 27, 1998, Sherwood
       Securities sold its American Stock Exchange ("AMEX") specialist business.
       See "Note 13 - Discontinued Operations".

       On  September  5, 1997,  the  Company  sold all of the stock of Anvil for
       $217,000, which approximated book value. In connection with the sale, the
       Company's $250,000  subordinated loan agreement with Anvil was cancelled.
       As such, the Company  liquidated the $300,000 face value of U.S. Treasury
       securities that had been pledged as collateral for the agreement and such
       funds were transferred back to the Company.


(2)    Summary of Significant Accounting Policies

       (a)    The consolidated  financial statements include the accounts of the
              Company   and  its   subsidiaries.   Intercompany   accounts   and
              transactions have been eliminated in consolidation.

       (b) Firm securities  transactions  and related  revenues and expenses are
recorded on a trade-date basis.

F-12


<PAGE>


                                        NATIONAL DISCOUNT BROKERS GROUP, INC.
                                                 AND SUBSIDIARIES

                           Notes to Consolidated Financial Statements, Continued


(2),  Continued

       (c)    Securities  owned and  securities  sold,  not yet  purchased,  are
              carried at the last quoted "bid" and "ask"  prices,  respectively.
              The resulting difference between cost and market value is included
              in  firm  securities   transactions  -  net  in  the  consolidated
              statements of income.  U.S.  Treasury  obligations  are carried at
              market value.

              In accordance with Statement of Financial Accounting Standards No.
              115,  "Accounting  for  Certain  Investments  in Debt  and  Equity
              Securities",  available-for-sale  securities  are  stated  at fair
              value with unrealized  gains and losses included in  stockholders'
              equity.

              During  February 1998 and March 1998,  certain  available-for-sale
              equity  securities  appreciated  due to the  entities'  successful
              initial public offerings. As such, the Company has reflected these
              securities at fair market value on the consolidated  statements of
              financial condition.  The unrealized gain of $2,615,000 associated
              with marking these securities to fair market value is reflected as
              a separate  component of stockholders'  equity on the consolidated
              statements of financial condition.

       (d)    For all  subsidiaries,  except  MXNet for the period  until it was
              sold, furniture,  fixtures and equipment are depreciated using the
              straight-line  method over their estimated useful lives of five to
              ten years.  Computer software is amortized using the straight-line
              method over its  estimated  useful life of three years.  Leasehold
              improvements are amortized using the straight-line method over the
              terms of the  leases  or the  useful  lives  of the  improvements,
              whichever is less.  MXNet  depreciated  all  furniture,  fixtures,
              equipment and computer software over three years.

       (e)    Certain prior year amounts have been reclassified to conform with 
              the fiscal year ended May 31, 1998 presentation.

       (f)    Deferred   income  taxes  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.  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 taxes
              of a change in tax  rates is  recognized  in income in the  period
              that includes the enactment date.

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

       (h)    In March 1995,  the Financial  Accounting  Standards  Board issued
              Statement of Financial  Accounting  Standards No. 121  "Accounting
              for the Impairment of Long-Lived  Assets and for Long-Lived Assets
              to be Disposed of" ("SFAS No. 121"),  for periods  beginning after
              December 15, 1995. SFAS No. 121 requires that long lived

F-13


<PAGE>


                                     NATIONAL DISCOUNT BROKERS GROUP, INC.
                                               AND SUBSIDIARIES

                           Notes to Consolidated Financial Statements, Continued



(2),  Continued

        (h)   assets and certain identifiable intangibles to be held and used by
              an entity be reviewed for impairment whenever events or changes in
              circumstances  would indicate that the carrying amount of an asset
              may not be  recoverable.  Management of the Company  believes that
              there  were no events  or  changes  in  circumstances  that  would
              indicate  that the  carrying  amounts as of May 31,  1998,  of its
              long-lived and intangible assets may not be recoverable.

       (i)    In October 1995, the Financial Accounting Standards Board issued 
              Statement of Financial Accounting Standards No. 123 "Accounting 
              for Stock-Based Compensation" ("SFAS No. 123"), for periods 
              beginning after December 15, 1995.  SFAS No. 123 replaces the
              current standard used to calculate compensation expense in regard 
              to stock-based compensation, Accounting Principles Board Opinion 
              No. 25 ("APB 25").  Under APB 25, compensation expense would be 
              recorded on the date of an option grant only if the current
              market price of the underlying stock exceeded the exercise price.
              SFAS No. 123 permits an entity to recognize as compensation
              expense over the vesting period the fair value of all stock-based 
              awards on the date of grant.  Alternatively, SFAS No. 123 also 
              allows entities to continue to apply the provisions of APB 25 and 
              provide pro forma net income and pro forma earnings per share
              disclosures for employee stock option grants made in 1995 and 
              future years as if the fair-value-based method defined in SFAS No.
              123 had been applied.  The Company has elected to continue to 
              apply the provisions of APB 25 and provide the pro forma 
              disclosure provisions of SFAS No. 123.

       (j)    In February 1997, the Financial  Accounting Standards Board issued
              Statement of Financial Accounting Standards No. 128, "Earnings per
              Share"  ("Statement  128"),  for periods ending after December 15,
              1997.   Statement  128  replaces  the  current  standard  used  to
              calculate primary earnings per share,  Accounting Principles Board
              Opinion No. 15 ("APB 15"). Statement 128 requires a calculation of
              basic earnings per share, as well as a dual  presentation of basic
              and diluted  earnings  per share on the face of the  statement  of
              income. Basic earnings per share differs from primary earnings per
              share under APB 15 in that  dilution for common stock  equivalents
              is excluded.


(3)    Investment in Partnerships

       On May 2, 1997, SHD contributed to Equitrade all its assets,  except cash
       and broker receivables,  and liabilities to Equitrade for a 38.4% limited
       partnership  interest  in  the  net  profits  and  net  losses  from  the
       specialist  activities  associated with the contributed assets. Among the
       assets contributed was an intangible asset for $4,150,000 paid by NDBG as
       additional   purchase   price  for  the  right  to  specialize  in  these
       securities.  The intangible  asset is being  amortized on a straight line
       basis over ten years.

       NDBG is a special  limited  partner  in  Equitrade.  In  connection  with
       certain  transactions  which took place in 1995 and are discussed  below,
       NDBG issued  Equitrade an additional  $10,000,000 in  subordinated  debt.
       This transaction, in conjunction with previously issued subordinated debt
       of $2,000,000 and the special limited partnership interest, led to the
                                      F-14


<PAGE>


                                NATIONAL DISCOUNT BROKERS GROUP, INC.
                                           AND SUBSIDIARIES

                          Notes to Consolidated Financial Statements, Continued



(3),  Continued

       determination  that  consolidation  was required  commencing  March 1995.
       Prior to this  determination,  the Company  accounted for Equitrade on an
       equity basis.  In  accordance  with the terms of the amended and restated
       partnership  agreement dated May 2, 1997,  except for certain  specialist
       positions,  the net profits and losses of Equitrade  are allocated to its
       partners prior to the  amortization  of  restrictive  covenants and other
       partnership  intangibles.  The first $800,000 of net profits,  or the pro
       rata part  thereof if less than a period of twelve  months,  is allocated
       100% to NDBG.  Net  profits in excess of  $800,000,  or the pro rata part
       thereof  if less than a period of twelve  months,  are  allocated  60% to
       NDBG.  NDBG is  entitled  to 30% of the net profits and net losses from a
       portion of the Equitrade  portfolio acquired in May 1995 and 38.4% of the
       net profits and net losses of the specialist activities of SHD which were
       contributed to Equitrade.

       On February 21, 1995, Equitrade purchased certain security positions from
       a NYSE specialist.  Equitrade paid additional consideration of $1,400,000
       for the right to specialize in these securities. This intangible asset is
       being amortized on a straight line basis over 15 years.

       On May 1, 1995,  Equitrade  purchased  certain security  positions from a
       NYSE  specialist.  Equitrade paid additional  consideration of $1,250,000
       for the  right to  specialize  in these  securities  and  $250,000  for a
       not-to-compete covenant. These intangible assets are being amortized on a
       straight line basis over 15 years.

       On September 5, 1997,  NDBG sold all of the stock of Anvil  Institutional
       Services, Inc. ("Anvil") for $217,000,  which approximated book value. In
       connection  with the sale,  NDBG's $250,000  subordinated  loan agreement
       with Anvil was  cancelled.  As such,  NDBG  liquidated  the $300,000 face
       value of U.S. Treasury securities that had been pledged as collateral for
       the agreement and such funds were transferred back to NDBG.


(4)    Financial Instruments and Concentration of Credit Risk

       The   Financial   Accounting   Standards   Board's   Statement  No.  107,
       "Disclosures  about Fair Value of Financial  Instruments,"  requires that
       all  entities  disclose  the fair  value  of  financial  instruments,  as
       defined, for both assets and liabilities recognized and not recognized in
       the  consolidated   statement  of  financial  condition.   The  Company's
       financial  instruments,  as defined,  are carried at or approximate  fair
       value.

                                        F-15


<PAGE>


                                   NATIONAL DISCOUNT BROKERS GROUP, INC.
                                              AND SUBSIDIARIES

                          Notes to Consolidated Financial Statements, Continued



(4),  Continued

       Marketable  securities  owned and sold,  not yet  purchased,  consist  of
securities as follows:
<TABLE>
<CAPTION>

                  Securities owned                                                 1998             1997
                  ----------------                                               ----             ----

                  <S>                                                    <C>                     <C>       
                  Corporate equities                                     $     67,969,111        40,183,144
                  U.S. Government obligations                                          -          5,513,292
                                                                            -------------     -------------
                           Total                                         $     67,969,111        45,696,436
                                                                            =============     =============

                  Securities sold, not yet purchased

                  Corporate equities                                           28,687,486        25,129,290
                                                                            -------------     -------------
                           Total                                         $     28,687,486        25,129,290
                                                                            =============     =============
</TABLE>

       In the normal course of business,  Sherwood Securities, NDB and Equitrade
       execute  securities  transactions on behalf of customers through clearing
       brokers.  In connection  with these  activities,  a customer's  unsettled
       trades  may   expose   Sherwood   Securities,   NDB  and   Equitrade   to
       off-balance-sheet  credit  risk in the  event the  customer  is unable to
       fulfill  its  contractual  obligations.   Sherwood  Securities,  NDB  and
       Equitrade  seek to  control  the  risk  associated  with  their  customer
       activities  by  making  credit  inquiries  when   establishing   customer
       relationships and by monitoring customer trading activity.

       Sherwood  Securities  and  Equitrade  conduct   substantially  all  their
       principal trading activities through broker-dealers based in the New York
       Metropolitan area. At May 31, 1998, all principal security positions were
       in the possession or control of their clearing  brokers.  Credit exposure
       may result in the event that Sherwood Securities' or Equitrade's clearing
       brokers  are  unable  to  fulfill  their  contractual  obligations.   The
       subsequent  settlement of open  positions at May 31, 1998 had no material
       adverse  effect on the  financial  position  of  Sherwood  Securities  or
       Equitrade.

       During the normal course of business  Sherwood  Securities  and Equitrade
       may sell securities  which have not yet been  purchased,  which represent
       obligations of Sherwood Securities and Equitrade to deliver the specified
       security at a later date,  thereby  creating a liability  to purchase the
       security in the market at prevailing prices.  Such transactions result in
       off-balance-sheet  market risk as  Sherwood  Securities  and  Equitrade's
       ultimate  obligation to satisfy the sale of securities  sold, but not yet
       purchased,  may exceed the amount recorded in the consolidated  statement
       of financial condition. Sherwood Securities and Equitrade seek to control
       such market  risk  through  the use of  internal  monitoring  guidelines.
       Neither  Sherwood  Securities  nor  Equitrade  engage  in any  derivative
       activities.


(5)    Cash and Securities Segregated Under Federal and Other Regulations

       Sherwood  Securities and NDB have been granted exemptions by the National
       Association of Securities Dealers, Inc. ("NASD") from the computation for
       determination   of  reserve   requirements   for   broker-dealers   under
       subparagraph (k)(2)(ii) of the Securities

                                 F-16


<PAGE>


                                     NATIONAL DISCOUNT BROKERS GROUP, INC.
                                               AND SUBSIDIARIES

                           Notes to Consolidated Financial Statements, Continued




(5),  Continued

       and  Exchange  Commission's  ("SEC") Rule  15c3-3.  Under the  (k)(2)(ii)
       exemption,  Sherwood Securities and NDB execute all customer transactions
       through a clearing  broker and do not maintain  custody of customer funds
       or securities.  Sherwood  Securities and NDB were in compliance  with the
       conditions of this  exemption  during the years ended May 31, 1998,  1997
       and 1996.


(6)    Furniture, Fixtures, Equipment and Leasehold Improvements

       Furniture,  fixtures,  equipment and leasehold  improvements consisted of
the following:
<TABLE>
<CAPTION>

                                                                                           May 31,
                                                                                1998              1997

                  <S>                                                    <C>                     <C>       
                  Furniture, fixtures and equipment                      $     26,325,316        24,890,286
                  Leasehold improvements                                        3,518,709         3,047,594
                                                                            -------------     -------------
                                                                               29,844,025        27,937,880

                  Less accumulated depreciation
                      and amortization                                         11,832,763         7,674,370
                                                                            -------------     -------------

                                                                         $     18,011,262        20,263,510
                                                                            =============     =============
</TABLE>


(7)    Acquisition of SHD Corporation (Formerly Dresdner-NY Incorporation)

       On  May  2,  1997,  NDBG  acquired  100%  of  the  stock  of  Dresdner-NY
       Incorporated  (subsequently  renamed SHD Corporation),  a NYSE specialist
       firm,  from Dresdner Bank AG for the purchase price of $15,261,493  which
       included four NYSE seats with a market value of $4,800,000.  The purchase
       price resulted in an intangible  asset  amounting to $4,150,000  which is
       being  amortized on a straight line basis over 10 years.  The acquisition
       was accounted for by the purchase method of accounting and,  accordingly,
       the  results  of  operations  of  SHD  Corporation  are  included  in the
       accompanying consolidated statement of income from the acquisition date.

       Presented below are unaudited pro forma combined results of operations of
       the Company and Dresdner-NY Incorporated. Amounts presented for the years
       ended May 31, 1997 and 1996 give effect to the acquisition of Dresdner-NY
       Incorporated  as if the  transaction  was consummated at the beginning of
       each of the periods presented.

F-17


<PAGE>


                                     NATIONAL DISCOUNT BROKERS GROUP, INC.
                                                AND SUBSIDIARIES
                           Notes to Consolidated Financial Statements, Continued


(7), Continued
<TABLE>
<CAPTION>

                  (In thousands, except share data)

                                                                                 Years ended May 31,
                                                                               1997               1996

                <S>                                                      <C>                    <C>    
                Revenues                                                 $      182,891            187,071
                Net income                                                        8,406             20,512
                Net income per common share                              $         0.65               1.55

                Shares used in computation                                   12,941,287         13,200,867
</TABLE>

       The unaudited pro forma  combined  results of operations is presented for
       comparative purposes only and is not necessarily indicative of the actual
       results that would have occurred if the acquisition had been  consummated
       at the beginning of the periods presented, or of future operations of the
       combined companies under the ownership and management of the Company.


(8)    Income Taxes

       The Company will file its  consolidated  Federal and  combined  state and
       local income tax returns (inclusive of all subsidiaries except Equitrade)
       based on a May 31, 1998 year end.

       The current Federal,  state and local income tax provisions for the years
       ended  May 31,  1998,  1997  and 1996  have  been  provided  based on the
       appropriate tax computation for each jurisdiction.

       Deferred   income  taxes   reflect  the  net  tax  effects  of  temporary
       differences  between the carrying  amounts of assets and  liabilities for
       financial  reporting  purposes  and  the  amounts  used  for  income  tax
       purposes.  At May 31, 1998, the Company had net deferred tax assets which
       are primarily due to differences in reserves and expenses,  allowable for
       book and tax purposes.  Management  of the Company has not  established a
       valuation allowance because it concluded that it was more likely than not
       that the benefit would be realized.

       The provisions for income taxes included in the accompanying 
       consolidated statements of income are as follows:
<TABLE>
<CAPTION>

                                                                            Years ended May 31,
                                                                1998              1997              1996
                                                                ----              ----              ----

       <S>                                                 <C>                    <C>                <C>    
          Federal:
              Current                                      $     5,351,081         7,672,751         12,257,332
              Deferred expense (benefit)                         1,022,050        (1,203,645)                -
                                                              ------------    --------------     -------------

                                                           $     6,373,131         6,469,106         12,257,332
                                                                 =========    ==============     ==============
</TABLE>

                                           F-18


<PAGE>


                                      NATIONAL DISCOUNT BROKERS GROUP, INC.
                                                AND SUBSIDIARIES

                           Notes to Consolidated Financial Statements, Continued



(8), Continued
<TABLE>
<CAPTION>

                                                                            Years ended May 31,
                                                                1998              1997              1996

       <S>                                                 <C>                     <C>             <C>    
       State and local:
          Current                                          $     2,069,575         3,699,618        3,005,744
          Deferred expense (benefit)                               915,536        (1,016,827)              -
                                                              ------------    --------------    ------------

                                                                 2,985,111         2,682,791        3,005,744
                                                              ------------    --------------    -------------

                                                           $     9,358,242         9,151,897       15,263,076
                                                              ============    ==============    =============

       Discontinued operations:
          Federal:
              Current expense (benefit)                    $      (214,648)         (447,340)         109,299
                                                              ------------    --------------     ------------

          State and local:
              Current expense (benefit)                            (13,934)            7,424           26,802
                                                              ------------    --------------     ------------

                                                           $      (228,582)         (439,916)         136,101
                                                              ============    ==============     ============
</TABLE>
    
       A reconciliation of the differences between the income tax provisions and
       the amounts computed by applying the statutory Federal income tax rate is
       as follows:
<TABLE>
<CAPTION>

                                                                            Years ended May 31,
                                                                1998               1997             1996

       <S>                                                <C>                       <C>              <C>       
       Statutory provision on pretax income               $      6,802,535          6,750,323        12,325,976

       State and local taxes, net of Federal tax                 1,940,322          1,743,814         1,953,734

       Tax effect of meals and entertainment
           and club dues                                           124,804            242,785           193,967

       Other - net                                                 490,581            414,975           789,399
                                                             -------------      -------------    --------------

                  Income tax provision                    $      9,358,242          9,151,897        15,263,076
                                                             =============      =============    ==============

</TABLE>

(9)    Subordination Agreements

       On March 23, 1992, Equitrade entered into three subordination  agreements
       in the aggregate  amount of  $3,000,000.  Such notes are due on March 23,
       1999 and contain a yearly automatic  roll-over  provision.  In connection
       with these agreements,  the lenders pledged marketable  securities with a
       market value in excess of $3,000,000.

       On October  1,  1997,  Equitrade  entered  into a $500,000  subordination
       agreement.  Such note is due on  October  1, 1998 and  contains  a yearly
       automatic  roll-over  provision.  In connection with this agreement,  the
       lender  pledged  treasury  securities  with a market  value in  excess of
       $500,000.

                                     F-19


<PAGE>


                                NATIONAL DISCOUNT BROKERS GROUP, INC.
                                         AND SUBSIDIARIES

                         Notes to Consolidated Financial Statements, Continued

 (10)  Common Stock and Stock Options

       (a)    On October 24, 1995, the stockholders of the Company approved The 
              Sherwood Group, Inc. 1995 Stock Option ( the "1995 Plan") allowing
              for the issuance of  up to 767,200 shares of the Company's common 
              stock pursuant to stock options and permitting the issuance of
              stock appreciation rights in connection with the issuance of stock
              options.  On October 21, 1997, the stockholders of the Company
              approved an amendment to the 1995 Plan to increase by 420,000 the
              number of shares of the Company's common stock for which options
              and stock appreciation right may be granted thereunder from 
              767,200 shares to 1,187,200 shares.  The Compensation Committee, 
              pursuant to the 1995 Plan, has issued to employees exercising
              options under the 1983 Plan and the 1995 Plan new options (reload 
              options) in an amount equal to the number of shares of common 
              stock of the Company used to satisfy the exercise price and the
              withholding taxes due upon exercise of the options.  Generally, 
              reload options granted under the 1995 Plan have provided for
              vesting six months after the date of grant.  Other options granted
              under the 1995 Plan have provided for vesting over three years 
              after the date of grant.  At May 31, 1998, 163,930 shares were
              available for future grant under the 1995 Plan.  The following 
              table summarizes transactions in stock options granted under the
              1983 Plan and the 1995 Plan during the three years ended May 31, 
              1998:
<TABLE>
<CAPTION>

                                                                                     Optioned shares
                                                                          Number of             Exercise price
                                                                           shares                  per share

                  <S>                                                      <C>            <C>    
                  Balance at May 31, 1995                                   1,346,000     $   1.00  -  $3.625
                      Options exercised                                    (1,346,000)        1.00  -   3.625
                      Options granted - reload                                394,697         7.9375 - 9.1875
                                                                        -------------         ---------------
                  Balance at May 31, 1996                                     394,697         7.9375 - 9.1875
                      Options exercised                                       (94,027)        7.9375 - 9.1875
                      Options granted - reload                                 88,187                  10.125
                      Options granted - original                               77,000         11.000 - 11.375
                                                                        -------------         ---------------
                  Balance at May 31, 1997                                     465,857         7.9375 - 11.375
                      Options exercised                                      (294,758)        7.9375 - 10.125
                      Options granted - reload                                255,450         12.1875 - 13.25
                      Options granted - original                              276,150                   13.50
                      Options cancelled                                       (68,214)          8.625 - 13.50
                                                                        -------------      ------------------
                  Balance at May 31, 1998                                     634,485     $    8.8125 - 13.50
                                                                        =============      ==================
</TABLE>

       (b)    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 under the
              option  plan in the  years  ended  May 31,  1998,  1997 and  1996,
              respectively: dividend yield of 0%, 0% and 0%, expected volatility
              of 37.00%, 34.49% and 37.28%, risk-free interest rate ranging from
              4.92% to 6.50%,  4.92% to 6.50% and 4.92% to 5.54%,  and  expected
              lives of 3 years.
                                      F-20


<PAGE>


                                     NATIONAL DISCOUNT BROKERS GROUP, INC.
                                                AND SUBSIDIARIES

                           Notes to Consolidated Financial Statements, Continued



(10), Continued

              The Black-Scholes  option valuation model was developed for use in
              estimating  the fair value of traded options which have no vesting
              restrictions  and are  fully  transferable.  In  addition,  option
              valuation   models   require   the  input  of  highly   subjective
              assumptions including the expected stock price volatility. Because
              the  Company's  stock options have  characteristics  significantly
              different from those of traded options, and because changes in the
              subjective input  assumptions can materially affect the fair value
              estimate,  in  management's  opinion,  the existing  models do not
              necessarily provide a reliable single measure of the fair value of
              its employee stock options.

              For purposes of pro forma  disclosures the estimated fair value of
              stock-based  compensation  plans and other options is amortized to
              expense primarily over the vesting period. The Company's pro forma
              net income  and net  income per share is as follows  for the years
              ended May 31, 1998 and 1997:
<TABLE>
<CAPTION>

                                                                                 Years Ended May 31
                                                                   --------------------------------
                                                                        1998              1997            1996
                                                                        ----              ----            ----

              <S>                                               <C>                      <C>             <C>
                 As reported                                    $      11,960,319        9,279,693       20,131,928
                 Fair value of options on grant
                    date as compensation expense                         (672,646)        (346,631)        (362,666)
                                                                   --------------     ------------   --------------

                 Proforma                                       $      11,287,673        8,933,062       19,769,262
                                                                   ==============     ============       ==========

              Net income per common share:
              Basic:
                 As reported                                          $   0.89             0.72            1.59
                 Fair value of options on grant
                    date as compensation expense                         (0.05)           (0.03)          (0.03)
                                                                        ------          -------           -----

                 Proforma                                             $   0.84             0.69            1.56
                                                                        ======          =======           =====

              Diluted:
                 As reported                                              0.89             0.72            1.52
                 Fair value of options on grant
                    date as compensation expense                         (0.05)           (0.03)          (0.02)
                                                                        ------          -------           -----

                 Proforma                                             $   0.84             0.69            1.50
                                                                        ======          =======           =====
</TABLE>

                                      F-21


<PAGE>


                                     NATIONAL DISCOUNT BROKERS GROUP, INC.
                                               AND SUBSIDIARIES

                           Notes to Consolidated Financial Statements, Continued



(10), Continued

              The  effects  of  applying   SFAS  123  for  providing  pro  forma
              disclosures   during  the  initial  phase-in  period  may  not  be
              representative  of the effects on  reported  net income for future
              years.

              The weighted-average  fair value of options granted under the 1995
              Plan during the year ended May 31,  1998 was  $11.02.  The average
              remaining  contractual life of the options  outstanding at May 31,
              1998 was approximately nine years.


(11)   Related Party Transactions and Principal Stockholders

       S.G.I.  Partners,  L.P. ("SGI"), whose general partner is controlled by a
       director of the Company, is a partnership formed to hold the stock of the
       Company.  As of May 31, 1998, SGI and the Chief Executive  Officer of the
       Company  are  the  beneficial   owners  of  approximately  28%  and  20%,
       respectively,  of the Company's common shares. Such beneficial  ownership
       includes shares of common stock underlying currently  exercisable options
       in the case of the Chief Executive Officer.

       Included  in note  receivable  at May 31,  1998 and 1997  are  notes  and
       interest  due from  officers of the Company  amounting  to  approximately
       $339,000 and $379,000, respectively.

       The Company has,  from time to time,  entered into  short-term  borrowing
       facilities  with  Spear  Leeds  &  Kellogg  ("SLK")  for the  purpose  of
       financing  trading  positions.  Certain officers and directors of SLK are
       also  partners  of  SGI.  As of May 31,  1998,  no  such  borrowings  are
       outstanding.

       On December 8, 1997,  the Company sold  1,500,000  shares of its treasury
       common stock to IAT Reinsurance  Syndicate Ltd., an affiliate of Peter A.
       Kellogg.  Prior  to this  acquisition,  Mr.  Kellogg  beneficially  owned
       1,025,000 shares of common stock and is a partner of SGI.


(12)   Employee Benefit Plans

       On  April  20,  1992,  the  Board  of  Directors  voted  to form a 401(k)
       profit-sharing  plan  (the  "Plan").  Under the  provisions  of the Plan,
       employees of the Company  (except  Equitrade) are eligible to participate
       if they were  employed  on February 1, 1992;  otherwise,  employees  must
       complete six months of service and attain age 21. Annual contributions to
       the Plan  total  the  amount of salary  reduction  employees  elect and a
       discretionary  matching Company  contribution  determined by the Board of
       Directors of National  Discount  Brokers Group,  Inc. For the years ended
       May  31,  1998,  1997  and  1996,   there  were   discretionary   Company
       contributions to the Plan of $82,013, $63,699 and $48,029,  respectively,
       which are  included in  compensation  and  benefits  in the  accompanying
       consolidated statements of income.


F-22


<PAGE>


                               NATIONAL DISCOUNT BROKERS GROUP, INC.
                                           AND SUBSIDIARIES

                        Notes to Consolidated Financial Statements, Continued



(12), Continued

       Equitrade sponsors,  for its eligible  employees,  the Equitrade Partners
       401(k)   Savings   Plan,   wherein   Equitrade   contributes  a  matching
       contribution  equal  to  one-half  of  the  first  4%  of  an  employee's
       contribution. In July 1997, Equitrade formed a second plan, the Equitrade
       Discretionary   Contribution  Plan,  whereby  Equitrade   contributes  an
       additional 3% of the employee's compensation for all employees regardless
       of whether the employee  participates  in the Equitrade  Partners  401(k)
       Savings  Plan.  To be eligible,  the employee must complete six months of
       service. Vesting is 20% per year for each of 5 years. For the years ended
       May 31, 1998, 1997 and 1996,  Equitrade  contributed a total of $165,780,
       $46,749, and $43,011, respectively.


(13)   Discontinued Operations

       Pursuant  to  Accounting   Principles   Board  Opinion  ("APB")  No.  30,
       "Reporting the Results of Operations Reporting the Effects of Disposal of
       a Segment of a Business,  and  Extraordinary,  Unusual  and  Infrequently
       Occurring  Events  and   Transactions,   "  the  consolidated   financial
       statements  of  the  Company  have  been   reclassified  to  reflect  the
       dispositions of MXNet and Sherwood Securities AMEX specialist business.

       On  February  13,  1998,  NDBG  sold  100%  of the  common  stock  of its
       subsidiary,  MXNet,  to IPC Information  Systems,  Inc. for cash proceeds
       amounting to $6,600,000.  In addition,  during  February  1998,  Sherwood
       Securities  sold its AMEX  specialist  business for  $325,000,  which was
       subsequently  received  in  March  1998.  The  aggregate  net gain on the
       aforementioned  sales was  $2,704,000,  net of  $2,353,000  of applicable
       income taxes and other expenses  directly related to the sales.  Revenues
       and  expenses  for the  year  ended  May 31,  1998,  applicable  to these
       discontinued operations were $1,324,114 and $2,374,035, respectively; for
       the year ended May 31, 1997 were $733,762 and  $2,028,724,  respectively;
       and for the  year  ended  May 31,  1996  were  $1,075,021  and  $760,989,
       respectively.


(14)   Net Capital Requirements

       Sherwood Securities, NDB and Equitrade are subject to the SEC Uniform Net
       Capital  Rule 15c3-1 (the  "Rule"),  which  requires the  maintenance  of
       minimum  net  capital.  As of  May  31,  1998,  Sherwood  Securities  had
       regulatory net capital of  approximately  $36,739,000,  or  approximately
       $35,739,000  in excess of required net capital,  NDB had  regulatory  net
       capital of  approximately  $3,818,000,  or  approximately  $3,568,000  in
       excess of required net capital and Equitrade had  regulatory  net capital
       of approximately  $30,152,000,  or approximately $29,902,000 in excess of
       required net capital.

       The Rule also provides  that equity  capital may not be withdrawn or cash
       dividends paid if the resulting net capital of a  broker-dealer  would be
       less than the amount required under the Rule.


                                 F-23


<PAGE>


                                 NATIONAL DISCOUNT BROKERS GROUP, INC.
                                             AND SUBSIDIARIES

                        Notes to Consolidated Financial Statements, Continued



(14), Continued

       From time to time,  the Company has needed to borrow funds in  connection
       with its trading activities. The Company currently has no committed lines
       of credit and such borrowings were done on an "as needed" basis.

       The SEC may by order  restrict,  for a period of up to 20 business  days,
       any withdrawal by a broker-dealer of equity capital,  as defined, if such
       withdrawal,  when aggregated with all other withdrawals of equity capital
       on a net basis during a thirty  calendar  day period,  exceeds 30% of the
       broker-dealer's net capital or if the SEC determines that such withdrawal
       would be detrimental to the financial  integrity of the  broker-dealer or
       the financial community.


(15)   Commitments

       The  Company  has  non-cancelable  operating  leases for rental of office
       space at its various locations.  All leases are subject to escalation for
       increases in taxes, fuel and other costs.

       Commitments  for minimum lease  payments under  non-cancelable  operating
       leases  as of May  31,  1998  are as  follows,  exclusive  of  escalation
       charges:
<TABLE>
<CAPTION>

                    Fiscal year ending May 31,

                              <S>                                  <C>                                            
                              1999                                 $       2,191,000
                              2000                                         2,098,000
                              2001                                         2,202,000
                              2002                                         2,197,000
                              2003                                         2,079,000
                              Thereafter                                  10,026,000
                                                                       -------------

                                                                   $      20,793,000
</TABLE>
 
       The  Company has free rent  periods  which are being  amortized  over the
lives of the leases.

       Included in  occupancy  costs and  equipment  rental  expenses are office
       rental expenses of  approximately  $2,255,000,  $2,535,000 and $2,729,000
       for the years ended May 31, 1998, 1997 and 1998, respectively.

       NDBG  has had  employment  contracts  with  Arthur  Kontos  as the  Chief
       Executive  Officer of NDBG ("CEO")  commencing on January 1, 1993. During
       December  1995,  the CEO  exercised his option to extend his then current
       contract until May 31, 1997. NDBG entered into a new employment  contract
       with the CEO, with a term  commencing  June 1, 1997 and ending on May 31,
       2000  with   certain   rights  of  extension  of  the  term  and  earlier
       termination.  Remuneration  under these contacts consisted of base salary
       and a cash  bonus  based on the  Company's  Income.  Income is defined as
       consolidated  income before taxes and the payment or accrual of the CEO's
       annual cash bonus. The annual cash bonus was equal to


                                      F-24


<PAGE>


                                     NATIONAL DISCOUNT BROKERS GROUP, INC.
                                               AND SUBSIDIARIES

                           Notes to Consolidated Financial Statements, Continued



(15), Continued

       10% of the first $5  million  of  Income,  15% on the next $8  million of
       Income,  and 18% of Income in excess of  $13,000,000.  During March 1996,
       the CEO agreed to amend his agreement so that he would receive additional
       compensation  at 15%,  rather than 18%, of Income on amounts in excess of
       $19,746,019  for the fiscal year ended May 31, 1996.  Commencing with the
       fiscal year ended May 31, 1997,  the CEO's cash bonus is paid pursuant to
       The Sherwood  Group,  Inc. 1996 CEO Bonus Plan (the "CEO Plan").  The CEO
       Plan  provides  for an annual cash bonus payout equal to 10% of the first
       $10,000,000  of income (as defined)  and 15% of income over  $10,000,000.
       Included in accounts  payable and accrued  liabilities  is  approximately
       $1,836,000,  $1,251,000  and  $3,897,000  due to the CEO at May 31, 1998,
       1997 and 1996, respectively.  In connection with these agreements and the
       CEO  Plan,  approximately   $2,724,000,   $3,061,000  and  $6,137,000  is
       reflected in compensation  and benefits for the years ended May 31, 1998,
       1997 and 1996,  respectively.  Additionally,  for the year  ended May 31,
       1998,  $755,000 has been netted against the gain on sale of  discontinued
       operations as reflected on the accompanying statements of income.

       During the fiscal year ended May 31, 1997, NDBG  established The Sherwood
       Group, Inc. 1996 Executive  Incentive Award Plan (the "Executive  Plan").
       The Executive Plan allows for the creation of a  compensation  pool at an
       amount  equal to 4.25% of Net Income  which is  defined  as  consolidated
       pre-tax  income  of  the  Company  subject  to  adjustment  for  unusual,
       infrequent,  or extraordinary  items and not taking into account payments
       or accruals  under the Executive  Plan. The Executive Plan was terminated
       by  Company's  Board of  Directors  during the year  ended May 31,  1998,
       effective  June 1, 1997.  Bonuses for the Company's  executives are to be
       determined at the discretion of the  Compensation  Committee of the Board
       of Directors.  Included in accounts  payable and accrued  liabilities  is
       approximately  $1,147,000 due to  participants  in the Executive Plan for
       the fiscal year ended May 31, 1997.  In the year ended May 31, 1997,  the
       Compensation  Committee  determined  not to  reduce  Net  Income  for the
       expenses of a litigation  settlement,  including associated  professional
       fees paid,  (net of the  reduction in the CEO bonus  computation)  in the
       case entitled In Re: NASDAQ Market-Makers Antitrust Litigation.


(16)   Contingencies and Legal Matters

       The  Company's  subsidiaries,  and in some cases the  Company,  have been
       named  as  defendants  in  lawsuits  that  allege,  among  other  things,
       violations  of  Federal  and  state   securities   and  related  laws.  A
       substantial  settlement  or  judgment  in any of these cases could have a
       material  adverse  effect  on  the  Company.  Although  there  can  be no
       assurance that such lawsuits and investigations involving the Company are
       not likely to have a material adverse effect on the results of operations
       of the Company in any future period, depending in part on the results for
       such period, based on information currently available,  management of the
       Company believes that any such lawsuits and investigations are not likely
       to have a material adverse effect on the consolidated financial condition
       and results of operations or liquidity of the Company.


                                      F-25


<PAGE>


                                   NATIONAL DISCOUNT BROKERS GROUP, INC.
                                            AND SUBSIDIARIES

                           Notes to Consolidated Financial Statements, Continued



(16), Continued

       On April 9, 1997, Sherwood Securities entered into a settlement agreement
       (the "Settlement  Agreement") with Plaintiffs'  Co-lead counsel on behalf
       of the  class  plaintiffs  in the  case  of In Re:  NASDAQ  Market-Makers
       Antitrust  Litigation,  94 Civ. 3996(RWS) currently pending in the United
       States  District  Court  for  the  Southern  District  of New  York  (the
       "Court").  The  Settlement  Agreement,  provided  for payment by Sherwood
       Securities of $4,375,000 per percentage  point of its market share of the
       "Defendants'  Market"  which  is  defined  as  the 35  NASDAQ  ("National
       Association of Securities  Dealers  Automated  Quotations")  market-maker
       defendants'  total number of shares traded as  market-makers in the Class
       Securities (a  designated  list of NASDAQ  securities)  during the period
       from May 1, 1989 to May 27,  1994.  Sherwood  Securities'  agreed  market
       share of the Defendants' Market was set in the Settlement  Agreement,  as
       amended,  at 2.10% which resulted in a total principal payment obligation
       of $9,187,500.  The Settlement  Agreement provided for the payment of the
       verified  amount  in  two  installments.  On  April  23,  1997,  Sherwood
       Securities made an installment  payment in the amount of $4,593,750.  The
       remaining balance of $4,926,797, including $333,047 of interest, was paid
       on April 9, 1998.  The  Settlement  Agreement  provides  for a release by
       "Class  Members" of "Released  Claims"  against  Sherwood  Securities and
       certain  related  persons and affiliates as such terms are defined in the
       Settlement  Agreement.  The Settlement  Agreement has been  preliminarily
       approved by the Court but is still subject to final approval.

       In  addition,  Sherwood  Securities'  results  for the year ended May 31,
       1998,  reflect a non-tax deductible charge to establish a reserve for the
       SEC's  investigation In the Matter of Certain Market Making Activities on
       NASDAQ,  HO-2974,  based upon  management's  assessment of the status and
       reasonably likely outcome of the  investigation  with respect to Sherwood
       Securities.


(17)   Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>

       (In thousands, except per common share data)

           1998                                         First          Second           Third            Fourth
           ----                                         -----          ------           -----            ------

           <S>                                      <C>                <C>             <C>               <C>   
           Revenues                                 $  40,420          42,535          37,691            43,802
           Expenses                                    33,963          36,410          32,770            36,103
           Minority interest                           (1,142)         (2,009)         (1,363)           (1,252)
                                                       --------        ---------       ---------         --------

           Income from continuing
               operations before taxes              $   5,315           4,116           3,558             6,447
                                                       ========        =========       =========         ========

           Loss from operations of
               discontinued operations              $    (238)           (228)           (355)              -
                                                       ========        =========       =========         =======

           Gain on sale of discontinued
               operations                           $     -                -            2,704               -
                                                       ========        =========       =========         =======

</TABLE>

F-26


<PAGE>


                                    NATIONAL DISCOUNT BROKERS GROUP, INC.
                                              AND SUBSIDIARIES

                           Notes to Consolidated Financial Statements, Continued




(17), Continued
<TABLE>
<CAPTION>

           <S>                                      <C>               <C>             <C>               <C>  
           Net income                               $  2,708           2,087           4,221             2,944
                                                    ========   =============    ============    ==============

           Net income per common
               share - Basic                        $    .21             .16             .30              .21
                                                    ========        ========        =========         ========

           Net income per common
               share - Diluted                      $    .21             .16             .30               .21
                                                    ========     ===========     ===========      ============


           1997                                         First          Second           Third            Fourth
           ----                                         -----          ------           -----            ------

           Revenues  $                                42,725          40,861          51,860            44,889
           Expenses                                   36,577          34,230          49,011            36,904
           Minority interest                             (14)           (739)         (2,114)            1,459)
                                                       --------        ---------       ---------         --------

           Income from continuing
               operations before taxes              $  6,134           5,892             735             6,526
                                                      ========        =========       =========         ========

           Loss from operations
               of discontinued operations           $    (87)           (245)           (288)             (235)
                                                      ========        =========       =========         ========

           Net income (loss)                        $  3,003           3,295            (242)            3,224
                                                      ========        =========       =========         ========

           Net income (loss) per
               common share$                             .23             .25            (.02)              .25
                                                    =========          =======        ========        ==========


           1996                                         First          Second           Third            Fourth
           ----                                         -----          ------           -----            ------

           Revenues                                 $ 39,453          34,955          46,995            57,707
           Expenses                                   31,579          30,768          37,851            40,066
           Minority interest                            (801)           (486)           (995)           (1,347)
                                                      --------        ---------       ---------         --------

           Income from continuing
               operations before taxes              $  7,073           3,701           8,149            16,294
                                                      ========        =========       =========         ========

           Income (loss) from operations
               of discontinued operations           $     57             (16)             30               107
                                                      ========        =========       =========         ========

           Net income$                                 4,468           3,173           5,141              7,350
                                                     ========   =============    ============      =============

           Net income per common
                     share                           $   .33             .24             .39                .56
                                                      =======    ============    =============      ============

</TABLE>

                                       F-27


<PAGE>


                                         NATIONAL DISCOUNT BROKERS GROUP, INC.
                                                   AND SUBSIDIARIES

                                                      Schedule I

                                            Condensed Financial Statements
                                              of the Registrant (Parent)

                                           Statements of Financial Condition

                                                 May 31, 1998 and 1997

<TABLE>
<CAPTION>

                           Assets                                                      1998              1997
                                                                                       ----              ----

<S>                                                                             <C>                    <C>   
Cash                                                                            $        221,328            86,323
Receivables                                                                           14,117,784           637,220
Notes receivable                                                                         568,710           511,230
Investment securities available for sale, at market value                              2,438,438             -
Investment securities not readily marketable                                             401,320           401,320
Investment in, less net amounts due to,
    subsidiaries and affiliates                                                       81,751,054        67,000,227
Investment in partnerships                                                            13,775,483        11,842,014
Equipment, furniture and leasehold improvements - net                                      2,374             -
Intangible asset - net                                                                        20           130,873
Subordinated notes receivable                                                         16,000,000        16,250,000
U.S. Treasury Obligations, held as collateral                                          5,223,882         5,481,820
Other assets                                                                             444,951           624,185
                                                                                  --------------   ---------------

                  Total assets                                                  $    134,945,344       102,965,212
                                                                                  ==============   ===============


                      Liabilities and
                  Stockholders' Equity

Accounts payable, accrued expenses and other liabilities                        $      4,212,703         5,113,478
Secured demand note payable                                                            5,000,000         5,250,000
                                                                                  --------------   ---------------

                                                                                       9,212,703        10,363,478

Stockholders' equity:
    Common stock     143,432                                                             143,432
    Retained earnings and other equity                                               125,589,209        92,458,302
                                                                                  --------------   ---------------

                                                                                     125,732,641        92,601,734

                  Total liabilities and stockholders' equity                    $    134,945,344       102,965,212
                                                                                  ==============   ===============

</TABLE>

See accompanying notes to condensed financial statements.

                                            S-1


<PAGE>


                                         NATIONAL DISCOUNT BROKERS GROUP, INC.
                                                   AND SUBSIDIARIES

                                                 Schedule I, Continued

                                            Condensed Financial Statements
                                              of the Registrant (Parent)

                                                 Statements of Income

                                        Years ended May 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                          1998               1997             1996
                                                                          ----               ----             ----
<S>                                                                <C>                     <C>               <C>    
Revenues:
    Equity income in partnerships                                  $      5,852,353         6,163,136         5,546,428
    Interest                                                              1,980,535         1,446,341         1,101,129
    Service fees paid by subsidiaries eliminated
       in consolidation                                                   4,233,345         5,640,015         4,675,000
    Other                                                                   142,500            (5,346)          114,126
                                                                      -------------    --------------     -------------
                                                                         12,208,733        13,244,146        11,436,683
                                                                      -------------    --------------     -------------

Expenses:
    Compensation and benefits                                             4,016,895         4,675,853         7,408,107
    Interest                                                                 35,033                -                 -
    Other - net                                                           1,299,167         1,403,486           403,816
                                                                      -------------    --------------     -------------

                                                                          5,351,095         6,079,339         7,811,923
                                                                      -------------    --------------     -------------

                                                                          6,857,638         7,164,807         3,624,760

Equity in income of subsidiaries                                          8,837,016         5,650,335        18,471,286
                                                                      -------------    --------------     -------------

                  Income from continuing operations
                     before income taxes                                 15,694,654        12,815,142        22,096,046
                                                                      -------------    --------------     -------------

Income taxes:
    Currently payable (receivable):
       Federal                                                            2,238,245         2,626,612         2,108,345
       State and local                                                      592,528           780,488          (144,227)
                                                                      -------------    --------------     -------------

                                                                          2,830,773         3,407,100         1,964,118
                                                                      -------------    --------------     -------------

Deferred payable (receivable):
    Federal                                                                (104,224)          104,224                -
    State and local                                                         303,125          (303,125)               -
                                                                      -------------    --------------     ------------

                                                                            198,901          (198,901)               -
                                                                      -------------    --------------     -------------

                                                                          3,029,674         3,208,199         1,964,118
                                                                      -------------    --------------     --------------

                  Net income from continuing
                     operations                                          12,664,980         9,606,943        20,131,928
                                                                      -------------    --------------     -------------

Discontinued operations:
    Discontinued operations (net)                                          (727,116)               -                 -
                                                                      -------------    --------------     ------------

                  Net income                                       $     11,937,864         9,606,943        20,131,928
                                                                      =============    ==============     =============

</TABLE>

See accompanying notes to condensed financial statements.


                                        S-2


<PAGE>


                                         NATIONAL DISCOUNT BROKERS GROUP, INC.
                                                   AND SUBSIDIARIES

                                                 Schedule I, Continued

                                            Condensed Financial Statements
                                              of the Registrant (Parent)

                                               Statements of Cash Flows

                                        Years ended May 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>


                                                                     1998             1997                 1996
                                                                     ----             ----                 ----

<S>                                                            <C>                    <C>                  <C>    
Cash flows from operating activities:
    Net income from continuing operations                      $    12,664,980          9,606,943           20,131,928
    Non-cash items included in net income:
       Net equity in gain of subsidiaries                           (8,837,016)        (5,650,335)         (18,471,286)
       Equity income in partnerships                                (5,852,353)        (6,163,136)          (5,546,428)
       Loss on sale of subsidiary                                           -             123,006                   -
       Depreciation and amortization                                   144,494            265,658              207,877
       Allocated tax benefit related to the
          exercise of options                                               -                  -             4,490,000

    Decrease (increase) in operating assets:
       Receivables                                                 (13,480,564)         4,298,488           (4,816,300)
       U.S. Treasury obligations, held as collateral                   257,938            (52,141)          (5,154,471)
       Other assets                                                    179,234           (258,429)           4,879,003

    (Decrease) increase in operating liabilities:
       Accounts payable and accrued expenses                        (3,464,080)        (3,731,976)           1,344,002
                                                               ---------------    ---------------       --------------

                  Net cash used in
                     operating activities                          (18,387,367)        (1,561,922)          (2,935,675)
                                                               ---------------    ---------------       --------------

Cash flows from investing activities:
    Investment in partnerships                                        (444,068)          (320,437)            (242,790)
    Distribution from partnerships                                   4,362,952          3,771,646            3,041,010
    Loans made to employees and officers                                    -            (137,652)          (1,622,765)
    Principal collected on notes receivable                             45,465             44,967            1,662,765
    Purchase of subsidiaries, net of cash acquired                          -         (15,763,434)                  -
    Return of capital from subsidiary                                3,538,554          2,409,659                   -
    Payment for purchase of identified
       intangible asset                                                     -            (188,780)                  -
    Additional capital contributed to subsidiaries                          -                  -               (25,100)
    Issuance of subordinated notes                                          -          (6,000,000)                  -
                  Net cash (used in) / provided by
                     investing activities                            7,502,903        (16,184,031)           2,813,120
                                                               ---------------    ---------------     ----------------


</TABLE>


                                          S-3


<PAGE>


                                         NATIONAL DISCOUNT BROKERS GROUP, INC.
                                                   AND SUBSIDIARIES

                                                 Schedule I, Continued

                                            Condensed Financial Statements
                                              of the Registrant (Parent)

                                          Statements of Cash Flows, Continued


<TABLE>
<CAPTION>

                                                                         1998               1997              1996
                                                                         ----               ----              ----

<S>                                                              <C>                   <C>                <C>    
Cash flows from financing activities:
    Sale of treasury stock                                       $   19,267,500        (3,569,937)        (2,061,876)
    Purchase of treasury stock                                         (614,281)               -             635,000
    Net receipts (disbursements) on intercompany
       borrowings                                                    (7,633,750)       21,341,380          1,587,445
                                                                ---------------   ---------------   ---------------
                  Net cash provided by financing
                     activities                                      11,019,469        17,771,443            160,569
                                                                     -------------     -------------      -------------
                  Net increase in cash                                  135,005            25,490             38,014

Cash at beginning of year                                                86,323            60,833             22,819
                                                                     -------------     -------------      -------------

Cash at end of year                                              $      221,328            86,323             60,833
                                                                     ===========      ===========       ============

</TABLE>

Supplemental disclosures of cash flow information:

    Income tax payments  aggregated  $6,287,938,  $14,077,485 and $5,732,131 for
    the years ended May 31, 1998, 1997 and 1996, respectively.

    Interest payments aggregated $35,033, $52,991 and $0 for the years ended May
    31, 1998, 1997 and 1996, respectively.

    During July 1995,  the Company  contributed an additional  $250,000,  in the
    form of U.S. Treasury  securities with a face value of $246,562,  which were
    included in other  assets at May 31, 1998 and 1997,  to Anvil  Institutional
    Services Company (the "Anvil Joint Venture").

    During  the  period  from  November  1995  through  February  1996,  certain
    executives of the Company  exercised an aggregate of 670,000 options for the
    purchase of 670,000  shares of the  Company's  common stock with an exercise
    price of $1 per share and 66,000  options for the purchase of 66,000  shares
    with an exercise price of $3.625 per share. In order to pay for the exercise
    price and to reimburse the Company for the income taxes  ($2,602,997) on the
    gain  related to the  transaction,  the  executives  remitted to the Company
    394,697  shares  of the  Company's  common  stock  with a  market  value  of
    $3,487,247.

                                       S-4


<PAGE>


                                         NATIONAL DISCOUNT BROKERS GROUP, INC.
                                                   AND SUBSIDIARIES

                                                 Schedule I, Continued

                                            Condensed Financial Statements
                                              of the Registrant (Parent)

                                          Statements of Cash Flows, Continued


As a result of the sale of its  subsidiary,  Stock Market  Index,  Inc.,  during
December  1996,  the  Company  wrote off the  remaining  book  value of  certain
computer software and intangible assets aggregating  $225,193.  In addition,  as
part of the sale,  the  Company  received a note in the face  amount of $132,187
from the buyer, resulting in a net loss of $123,006.

On January 24, 1997, the Company acquired,  from its joint venture partner,  the
remaining  51% of the Anvil Joint  Venture that it did not  previously  own. The
Company,  therefore,  became the 100% owner of Anvil Institutional Services Inc.
("Anvil"),  a  broker-dealer  previously  owned  by  the  Anvil  Joint  Venture.
Accordingly, the assets, liabilities and stockholder's equity of Anvil have been
consolidated with those of the Company as of the acquisition date. The increases
or decreases in operating  assets and liabilities  reflected in the consolidated
statement of cash flows for the year ended May 31, 1997 exclude  amounts for the
assets and liabilities of Anvil which were assumed as part of the acquisition.

During  February  1997,  an executive  of the Company  exercised an aggregate of
94,027  options for the purchase of 94,027 shares of the Company's  common stock
with  exercise  prices  ranging from $7.9375 per share to $9.1875 per share.  In
order to pay for the exercise price  ($838,324) and to reimburse the Company for
the personal income taxes ($54,569) on the gain related to the transaction,  the
executive  remitted to the Company  88,187 shares of the Company's  common stock
with a market value of $892,893.

During  September  1997,  the Company  sold all of the stock of its  subsidiary,
Anvil  Institutional  Services,  Inc.,  and  received  a note in the  amount  of
$102,945 which is due in December 1998.

During  October  1997 and  December  1997,  certain  executives  of the  Company
exercised an aggregate of 294,758  options for the purchase of 294,758 shares of
the Company's  common stock with exercise  prices ranging from $7.9375 per share
to $10.125 per share. In order to pay for the exercise price ($2,701,705) and to
reimburse  the Company for the  personal  income  taxes  ($441,389)  on the gain
related to the  transaction,  the  executives  remitted to the  Company  255,450
shares of the Company's common stock with a market value of $3,143,094.

On December 8, 1997, the Company  received net cash proceeds of $19,267,500 from
the sale of 1,500,000  shares of its common stock to IAT  Reinsurance  Syndicate
Ltd.

During  February  1998,  the  Company  sold  the  remaining  net  assets  of its
subsidiary,  MXNet,  Inc., and received a promissory  note for  $6,600,000  with
interest  accrued  at 6% from the date of sale.  The note was  repaid in full in
April 1998.

During February 1998 and March 1998, certain available-for-sale  securities held
by the  Company  and  by  its  subsidiaries  appreciated  due  to the  entities'
successful  initial public  offerings.  As such, the Company has reflected these
securities  at fair market  value on the  consolidated  statements  of financial
condition.  The  unrealized  gain of  $2,615,000  associated  with marking these
securities to fair market value is reflected as part of stockholders'  equity on
the statements of financial condition.


See accompanying notes to condensed financial statements.

                                        S-5


<PAGE>


                                         NATIONAL DISCOUNT BROKERS GROUP, INC.
                                                   AND SUBSIDIARIES

                                                 Schedule I, Continued

                                            Condensed Financial Statements
                                              of the Registrant (Parent)

                                        Notes to Condensed Financial Statements

                                              May 31, 1998, 1997 and 1996





(1)      The condensed financial information of the registrant should be read in
         conjunction  with the  consolidated  financial  statements and notes to
         consolidated financial statements which are included elsewhere herein.

(2)      Investment  in, less net amounts due to,  subsidiaries  and  affiliates
         represents the Company's  investment in its subsidiary  companies after
         deducting net amounts owed to several subsidiaries primarily related to
         the  funding  of  the  Company's  cash  flow  needs  by  its  operating
         subsidiaries.

(3)      During  the year  ended May 31,  1995,  the  Company  entered  into two
         subordination  agreements with  Equitrade.  The first note has a stated
         interest  rate of 0% and matures on February  28, 1999.  In  connection
         with this agreement,  the Company has pledged U.S. Treasury  securities
         with a market  value in excess of  $5,000,000.  The  second  note has a
         stated  interest  rate of 8% and  matures  on  February  28,  1999.  In
         connection   with  this   agreement,   the  Company  loaned   Equitrade
         $5,000,000.

         During  the year  ended May 31,  1997,  the  Company  entered  into two
         subordination agreements with NDB. The first note has a stated interest
         rate of "broker call" and matures on December 31, 1999. The second note
         also has a stated  interest  rate of "broker call" and matures on March
         31, 2000.  The broker call rate was 7.25% for the year.  In  connection
         with each of these  subordination  agreements,  the Company  loaned NDB
         $3,000,000.

(4)      No dividends were paid to the Company by its wholly owned subsidiaries 
         during the years ended May 31, 1998, 1997 and 1996.

                                        S-6


<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.

Dated:      August 7, 1998                 NATIONAL DISCOUNT BROKERS GROUP, INC.
                                           By:  /s/  Arthur Kontos
                                           Arthur Kontos
                                           Chief Executive Officer

                                           By:  /s/  Denise Isaac
                                           Denise Isaac
                                           Chief Financial Officer
                                           and Principal Accounting Officer

  Pursuant to the requirements of Section 13 or 15(d) 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.
<TABLE>
<CAPTION>

         Signature                                               Title                     Date

<S>                                                  <C>                                <C>
James H. Lynch, Jr.                                  Chairman of the Board              August 7, 1998
-----------------------
James H. Lynch, Jr.

/s/ Arthur Kontos                                    Director and Chief                 August 7, 1998
-----------------
Arthur Kontos                                        Executive Officer

/s/ Richard J. Marino                                Director                           August 7, 1998
---------------------
Richard J. Marino

/s/ Dennis V. Marino                                 Director                           August 7, 1998
--------------------
Dennis V. Marino

/s/ Carl H. Hewitt                                   Director                           August 7, 1998
------------------
Carl H. Hewitt

/s/ Thomas Neumann                                   Director                           August 7, 1998
------------------
Thomas Neumann

/s/ John P. Duffy                                    Director                           August 7, 1998
-----------------
John P. Duffy

/s/ Ralph Del Deo                                    Director                           August 7, 1998
-----------------
Ralph Del Deo

/s/ Stephen DiLascio                                 Director                           August 7, 1998
--------------------
Stephen DiLascio



</TABLE>

                                        EXHIBIT INDEX
<TABLE>
<CAPTION>


                         Description of Document                                SEC Exhibit Document
<S>        <C>                                                   <C>                                                      
3.1        Restated Certificate of Incorporation of the          Incorporated by reference to Exhibit 3.1 to the
           Company.                                              Company's Registration Statement No. 33-12904 on
                                                                 Form S-1, effective May 29, 1987 (the "Initial
                                                                 Registration Statement").

3.2        By-Laws of the Company, as amended.                   Incorporated by reference to Exhibit No. 3.2 to
                                                                 the Initial Registration Statement.

3.3        Amendment to the Company's Restated Certificate of    Incorporated by reference to Exhibit 4.3 to the
           Incorporation.                                        Company's Registration Statement on Form S-8, file
                                                                 number 333-41819 filed on  December 9, 1997 (the
                                                                 "December  1997 Form S-8").
                                                                 
3.4        Amendment to Restated  Certificate of Incorporation,  Incorporated by reference to Exhibit A to the
           as amended                                            Company's  Proxy  Statementas amended. 
                                                                 dated November 12, 1997.

3.5        Restated Certificate of Incorporation, as amended.    Incorporated by reference to Exhibit  3.3 to the Company's
                                                                 Form  10-Q  for the quarter end  November 30, 1997 (the
                                                                 "November  1997  Form 10-Q").
                                                                
3.6        Amendment to the Company's By-laws.                   Incorporated by reference to Exhibit 3.5 to the
                                                                 November 1997 Form 10-Q.

3.7        By-laws of the Company, as amended.                   Incorporated by reference to Exhibit 4.4 to the
                                                                 December 1997 Form S-8.

4.1        Registration  Rights  Agreement  between the Company  Incorporated by reference  to Exhibit 4 to the
           and IAT dated as of January 29,  1998.                Company's Form 8-K dated January 29, 1998.

10.1       Clearing Agreement dated February 16, 1983 between    Incorporated by reference to Exhibit 10.7 to the
           Spear Leeds & Kellogg and Sherwood Securities.        Initial Registration Statement.

10.2       Agreement of Lease dated December, 1985 between       Incorporated by reference to Exhibit 10.8 to the
           Aetna Life Insurance Company and Sherwood             Initial Registration Statement.
           Securities Corp.
10.3       The Company's Employee Stock Ownership Plan as        Incorporated by reference to Exhibit 10.9 to the
           amended.                                              Initial Registration Statement.

10.4       The Company's 1983 Stock Option Plan.                 Incorporated by reference to Exhibit 10.10 to the
                                                                 Initial Registration Statement.

10.5       Amendment to 1983 Stock Option Plan.                  Incorporated by reference to Exhibit 10.5 to the
                                                                 Company's Form 10-K for the Fiscal Year ended May
                                                                 31, 1997 (the "1997 Form 10-K").
10.6       The Company's 1995 Stock Option Plan.                 Incorporated by reference to Appendix A to the
                                                                 Company's Proxy Statement dated September 18, 1995.

10.7       Form of Option Agreement under the Company's 1995     Incorporated by reference to Exhibit 10.7 to the
           Stock Option Plan.                                    1997 Form 10-K.

10.8       Employment  Agreement  dated  September 12, 1995 by   Incorporated  by reference to Exhibit 10.1 of Form 
           and between  Arthur Kontos and the Company.           10-Q for the quarter ended November 30, 1995.

10.9       Employment Agreement dated as of May 31, 1997 by      Incorporated by reference to Exhibit 10.9 to the
           and between Arthur Kontos and the Company.            1997 Form 10-K.

10.10      Letter of Arthur Kontos  exercising his option under  Incorporated by reference  to Exhibit  10.2 to Form 
           the Employment Agreement dated September 12, 1995.    10-Q for the quarter ended November 30, 1995.

10.11      Waiver of Bonus by Arthur Kontos.                     Incorporated by reference to Exhibit 10.1 of Form
                                                                 10-Q for the quarter ended February 29, 1996.

10.12      Mortgage Loan Agreements  dated March 24, 1993 among  Incorporated by reference  to Exhibit  10.6 to the 
           the  Company,  Thomas  Neumann and Geralyn Neumann.   Form 10-K for Fiscal Year ended May 31, 1993.

10.13      Secured Note and Pledge Agreement dated July 23,      Incorporated by reference to Exhibit 10.13 to the
           1997 among the Company, Thomas Neumann and Geralyn    1997 Form 10-K.
           Neumann.

10.14      Voting Trust  Agreement  between  Arthur Kontos and   Incorporated  by reference  to Exhibit  10.7 to Form
           Vicki  Kontos dated May 11, 199.                      10-K for Fiscal Year ended May 31, 1994.

10.15      Lease Agreement dated December 20, 1993 between       Incorporated by reference to Exhibit 10.9 to Form
           Connecticut General Life Insurance Company and        10-K for Fiscal Year ended May 31, 1994.
           Triak Services,Corp., Guaranty by The Sherwood
           Group, Inc. dated December 6, 1993, Modification of
           Lease dated March 30, 1994 and Modification of
           Lease dated July 11, 1994.

10.16      Exhibit 10.13 Sublease Agreement between Johnson &    Incorporated by reference to Exhibit 10.2 of Form
           Higgins and Triak Services Corp.                      10-Q for the quarter ended February 29, 1996.

10.17      Guaranty  dated as of March 1, 1996 by and  between   Incorporated  by reference  to Exhibit  10.14 to Form  
           Johnson & Higgins  and NY Broad Holdings, Inc.        10-K for Fiscal Year ended May 31, 1996.

10.18      Stock Purchase Agreement dated as of April 11, 1997   Incorporated by reference to Exhibit (b) to Form
           between Dresdner Bank A.G. and the Company.           10-Q for the quarter ended February 28, 1997.

10.19      Lease  Agreement  dated  as of  November  30,  1994  Incorporated  by reference  to  Exhibit  10.2  to  Form  
           between  S.P.N.W.  Management Associates Limited     10-Q for the quarter ended November 30, 1994.
           Partnership and Sherwood Securities Corp.

10.20      The Sherwood Group, Inc. 1996 Executive Incentive     Incorporated by reference to Exhibit B to The
           Award Plan.                                           Sherwood Group, Inc. Proxy statement dated
                                                                 September 10, 1996.

10.21      The Sherwood Group, Inc. 1996 CEO Bonus Plan.         Incorporated by reference to Exhibit A to The
                                                                 Sherwood Group, Inc. Proxy Statement dated
                                                                 September 10, 1996.

10.22      Settlement Agreement.                                 Incorporated by reference to Exhibit 10(a) of Form
                                                                 10-Q for the quarter ended February 28, 1997.

10.23      Amended Settlement Agreement.                         Incorporated by reference to Exhibit 10.23 to the
                                                                 1997 Form 10-K.

10.24      Equitrade Partners Amended and Restated Partnership   Incorporated by reference to Exhibit 10.24 to the
           Agreement dated as of May 2, 1997.                    1997 Form 10-K.

10.25      Stock Purchase Agreement between The Sherwood         Incorporated by reference to Exhibit 10 to Form
           Group, Inc. and IAT Reinsurance Syndicate Ltd.        8-K dated December 5, 1997.

10.26      Resolution of the Board of Directors of the Company   Incorporated by reference to Exhibit 10.1 to the
           terminating The Sherwood Group, Inc. 1996 Executive   November 1997 Form 10-Q.
           Incentive Award Plan.

10.27      The Sherwood Group, Inc. 1995 Stock Option Plan, as   Incorporated by reference to Exhibit 4.1 to the
           amended.                                              December 1997 Form S-8.

10.28      Stock Purchase  Agreement  dated as of February 13,   Incorporated  by reference to Exhibit 10 to the 1998 
           between MXNet,  Inc., the Company and  IPC            Company's Form  10-Q for the quarter ended February
           Information Systems, Inc. 28, 1998.

11.        Statement re: computation of per share earnings.      Filed herewith.

21.        Subsidiaries of the Company                           Incorporated by reference to Exhibit 21 to the
                                                                 1997 Form 10-K.

23.        Consent of Independent Public Accountant.             Filed herewith.

27.        Financial Data Schedule.                              Filed herewith.

99.1       Secured Demand Note Collateral Agreement and          Incorporated by reference to Exhibit 99.1 to Form
           Amendment to Secured Demand Note Collateral           8-K dated February 28, 1995.
           Agreement.

99.2       Secured Demand Note in the principal amount of        Incorporated by reference to Exhibit 99.2 to Form
           $5,000,000.                                           8-K dated February 28, 1995.

99.3       Roll-Over Equity Investment dated February 15, 1995   Incorporated by reference to Exhibit 99.3 to Form
           in the principal amount of $5,000,000 related to      8-K dated February 28, 1995.
           the Secured Demand Note.

99.4       Cash  Subordination  Agreement  dated as of February  Incorporated by  reference  to Exhibit  99.4 to Form 
           15,  1995 and  Amendment  to Cash Subordination       8-K dated February 28, 1995.
           Agreement.
99.5       Roll-Over for Equity Investment dated February 15,    Incorporated by reference to Exhibit 99.5 to Form
           1995 in the principal amount of $5,000,000 related    8-K dated February 28, 1995.
           to the Cash Subordination Agreement.

99.6       Form of Indemnification Agreement to be entered       Incorporated by reference to Exhibit 99.1 to Form
           into between the Company and each of certain of its   8-K dated September 18, 1995.
           executive officers and directors.

99.7       Press release dated January 29, 1998.                 Incorporated by reference to Exhibit 99(a) to Form
                                                                 8-K dated January 29, 1998.

</TABLE>





                                                                    
                                                                   EXHIBIT 11

                                         NATIONAL DISCOUNT BROKERS GROUP, INC.
                                                   AND SUBSIDIARIES

                                       Computation of Earnings Per Common Share

                                        Years ended May 31, 1998, 1997 and 1996


<TABLE>
<CAPTION>


                                                              1998                1997               1996

<S>                                                   <C>                         <C>               <C>       
Net income from continuing operations                 $      10,077,573           10,134,739        19,953,997
Discontinued operations (net)                                 1,882,746             (855,046)          177,931

                  Net income                          $      11,960,319            9,279,693        20,131,928

Net income per common share Basic:
   Net income from continuing operations                          $ .75                  .79              1.57
   Discontinued operations, (net)                                   .14                 (.07)              .02

                  Net income                                      $ .89                  .72              1.59

Diluted:
   Net income from continuing operations                          $ .75                  .79              1.51
   Discontinued operations, (net)                                   .14                 (.07)              .01

                  Net income                                      $ .89                  .72              1.52

Historical:
   Weighted average number of
      common stock and common stock
      equivalents outstanding:
         Basic                                               13,432,726           12,890,926        12,699,428

         Diluted                                             13,501,346           12,946,007        13,201,412


</TABLE>

<PAGE>




















                                                               EXHIBIT 23



                                             Independent Auditors' Consent


The Board of Directors and Stockholders of
National Discount Brokers Group, Inc.:


We  consent  to the use of our  report  dated  July  15,  1998  incorporated  by
reference  in  Registration  Statement  No.  33-72790 on Form S-8 filed with the
Securities and Exchange Commission on December 13, 1994.



KPMG Peat Marwick LLP



New York, New York
August 7, 1998

<PAGE>