August 18, 1999

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, 1999

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, 1999 including financial statements and exhibits.

Thank you for your attention to this matter.

Very truly yours,

/s/ Matthew Stadler
Matthew Stadler
Chief Financial Officer and
Principal Accounting Officer



<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, 1999
                                       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  June  30,  1999,  16,984,924  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 $624,000,000(1).

                       Documents Incorporated By Reference

 Document Incorporated                                         Part of Report
    By Reference                                         Into Which Incorporated
Proxy Statement for Annual Meeting to be                          Part III
held October 20, 1999


(1) For purposes of this  calculation,  the  outstanding  shares of common stock
beneficially  owned by directors and executive  officers of the  registrant  and
Peter R.  Kellogg as reported in his most recent  filing  pursuant to Section 13
(d) of the  Securities  Exchange  Act of 1934,  as amended  were deemed owned by
affiliates.  The registrant  does not admit that any such person is an affiliate
of the registrant.



<PAGE>
<TABLE>
<CAPTION>






                                TABLE OF CONTENTS

                                                                                                        Page
 PART I
<S>         <C>   <C><C>                                                                                 <C>
Item 1.     Business...............................................................................      1
                  Introduction.....................................................................      1
                  Recent Developments..............................................................      2
                  Financial Information About Segments.............................................      2
                  Description of Business..........................................................      3
                     Revenue by Source.............................................................      3
                     Nasdaq Market Making - Sherwood Securities....................................      3
                     Retail Discount Brokerage Services - NDB.com..................................      5
                     Proposed Self Clearing Operations - Millennium Clearing Corp..................      14
                     Investments...................................................................      14
             Personnel.............................................................................      15
             Competition...........................................................................      16
             Regulation............................................................................      16
             Customer Protection and Insurance.....................................................      17
             Net Capital and Customer Reserve Requirements.........................................      18

Item 2.      Properties............................................................................      19

Item 3.      Legal Proceedings and Contingencies...................................................      19

Item 4.      Submission of Matters to a Vote of Security Holders...................................      21


PART II

Item 5.      Market for NDB Group's Common Stock and Related Security Holder
             Matters...............................................................................      21

Item 6.      Selected Consolidated Financial Data..................................................      22

Item 7.      Management's Discussion and Analysis of Financial Condition and Results of
             Operations............................................................................      23
                   Results of Operations...........................................................      23
                   Liquidity and Capital Resources.................................................      32
                   Effects of Inflation............................................................      34
                   Impact of the Year 2000 Issue...................................................      34
                   Looking Ahead...................................................................      35

Item 7a.     Quantitative and Qualitative Disclosures About Market Risk............................      36
<PAGE>

Item 8.      Financial Statements and Supplementary Data...........................................      38

Item 9.      Changes in and Disagreements with Accountants on Accounting and Financial
             Disclosure............................................................................      38


PART III

Item 10.     Directors and Executive Officers of the Company......................................       38

Item 11.     Executive Compensation...............................................................       38

Item 12.     Security Ownership of Certain Beneficial Owners and Management.......................       38

Item 13.     Certain Relationships and Related Transactions.......................................       39


PART IV

Item 14.     Exhibits, Financial Statement Schedules and Reports on Form 8-K......................       39

</TABLE>

Forward Looking Statements

         Statements  regarding the Company's  expectations and beliefs as to its
future  operations,  plans or financial  condition and certain other information
contained in the Form 10-K,  including,  but not limited to, the material  under
the headings "Impact of Year 2000 Issue", "Looking Ahead" and "Legal Proceedings
and Contingencies",  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 and beliefs 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  or beliefs.
Factors which could cause actual results to differ from  expectations or beliefs
include a general  downturn of the economy,  changes in the level of activity or
structure of markets in which the Company  participates,  changes in  government
policy or  regulation,  inability  of the  Company  to  attract  or  retain  key
employees and unforeseen costs and other effects related to legal proceedings or
investigation of governmental and self-regulatory organizations.


<PAGE>



                                     PART I

Item 1.     Business

Introduction

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

     Sherwood Securities was formed in 1968 and specializes in the market making
of Nasdaq and other  over-the-counter  securities and provides  trade  execution
services primarily to broker dealer and institutional  customers.  As a national
trading firm with offices in Jersey City, New Jersey; Chicago, Illinois; Denver,
Colorado;  Los  Angeles,   California,  and  Boston,   Massachusetts,   Sherwood
Securities  traded as of June 30,  1999  approximately  4,100  Nasdaq  and other
over-the-counter securities as market maker and principal for its own account.

     NDB.com,  a  registered  broker-dealer,   is  a  deep  discount  securities
brokerage firm  specializing  in trade  execution for individual  investors with
offices  in New York,  New York and San  Francisco,  California.  Customers  are
offered  automated  securities order placement and information  services through
the  Internet,   as  well  as,  through  touch-tone   telephone  and  registered
representatives.

     NDB Group and another wholly owned  subsidiary,  SHD  Corporation  ("SHD"),
also owned  membership  interests  in  Equitrade  Partners,  L.L.C.,  a Delaware
limited liability company  ("Equitrade").  Equitrade was a registered specialist
on the New York Stock  Exchange  ("NYSE").  In June 1999,  the Company  sold its
46.845% membership  interest in Equitrade to Spear, Leeds & Kellogg  Specialists
LLC, a subsidiary  of Spear Leeds & Kellogg,  L. P.  ("SLK"),  for cash.  Except
where otherwise indicated, this report will treat the activities of Equitrade as
discontinued operations.

     In July 1999, NDB Group formed Millennium Clearing Corp.  ("Millennium") as
a wholly owned  subsidiary  for the purpose of providing  clearing  services for
Sherwood  Securities  and NDB.com.  Management  of the Company  anticipates  the
commencement of clearing of NDB.com and Sherwood  Securities  through Millennium
during the year ending December 31, 2000.

     On  December  22,  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.  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.  As of May 31, 1999,  1,650,000
shares had been reacquired,  of which 244,822 shares were repurchased during the
fiscal  year ended May 31,  1999.  The source of funds for these  purchases  was
internally  generated.

     NDB Group 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,  NDB Group adopted its present name. NDB Group's common stock is
listed on the NYSE under the symbol "NDB".
<PAGE>

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


Recent Developments

     Developments in the Company's business during the fiscal year ended May 31,
1999 included the introduction of an entirely redesigned website by NDB.com. The
new site is designed to be customer-friendly  and easy to navigate and use, with
a wide-range of investment tools and educational services for customers.

     On  February  2, 1999,  the  Company  amended  its  agreement  with  S.G.I.
Partners, L.P. ("S.G.I.") to eliminate provisions which had required the Company
to appoint up to two directors designated by S.G.I. to the Company's Board. In a
related matter,  Carl Hewitt, who had been the designated  director of S.G.I. to
the Company tendered his resignation from the Board.

     On June 18, 1999, the Company sold its 46.845% interest in Equitrade,  to a
subsidiary  of SLK.  The  Company  received  approximately  $85  million in cash
comprised of a net pre-tax gain of  approximately  $36 million and the return of
capital and other cash  payments.  The $85 million  cash  payment was net of the
repayment  of a $15  million  loan made by SLK to NDB Group.  The gain from this
transaction  will be  recognized  in the first quarter of the fiscal year ending
May 31, 2000.

     On June 25, 1999, the Company received  approximately $91.6 million, net of
underwriting  discounts  and  commissions  and  estimated  expenses,   from  the
underwritten public offering of 2,990,000 shares of its common stock.

Financial Information About Segments

     The Company provides financial services to individuals,  broker-dealers and
institutional  customers  through  two  segments:  Sherwood  Securities,   which
provides  brokerage  services  as a  market  maker  to  institutions  and  other
broker-dealers  and NDB.com,  which provides deep discount brokerage services to
individuals.  Financial information by segment for the three years ended May 31,
1999 is set forth in Note 15 in the Notes to Consolidated  Financial  Statements
and does not include the financial results of discontinued operations, primarily
those of Equitrade.



<PAGE>



Description of Business

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.

<TABLE>
<CAPTION>
                                                                 Fiscal Year Ended May 31,
                                            1999                          1998                          1997
<S>                             <C>                <C>         <C>               <C>         <C>               <C>
                                      Amount            %            Amount           %            Amount           %
Firm securities
   transactions                 $145,819,935        70.15       $90,256,181       65.02      $117,490,958       72.89
(net)
Commission income                 45,250,436        21.77        37,052,201       26.69        32,638,949       20.25
Investment securities
     gain                          1,870,242          .90            63,625         .05                 -           -
Interest and dividend
     income                       10,022,013         4.82         7,599,179        5.47         7,651,549        4.75
Fee income                         4,308,393         2.07         3,567,837        2.57         2,513,483        1.56
Other income                         594,153         0.29           272,921        0.20           886,875        0.55
                                 ___________       ______       ___________      ______       ___________      ______
Total revenue                   $207,865,172       100.00      $138,811,944      100.00      $161,181,814      100.00
                                 ===========       ======       ===========      ======       ===========      ======
</TABLE>

Certain  prior year  amounts have been  reclassified  to conform with the fiscal
year ended May 31, 1999  presentation.  This table should be read in  connection
with the Company's consolidated financial statements.

Nasdaq Market Making -- Sherwood Securities

Introduction

     At June 30,  1999,  Sherwood  Securities  was a market  maker in over 4,100
Nasdaq and other  over-the-counter  securities,  approximately 79% of which were
listed on the Nasdaq National Market System.  At June 30, 1999, it was the fifth
largest  market  maker  based on the number of stocks in which it makes a market
and the tenth largest based on the volume of shares traded.  Sherwood Securities
believes it has attained this leadership  position by providing better execution
services to its broker-dealer and  institutional  investor  customers because of
its  sophisticated  and reliable  trading  systems and  technologies  and highly
skilled  and  experienced  traders.   Sherwood  Securities  has  also  developed
proprietary  trading methods and a comprehensive risk management system designed
to protect its capital and maximize its trading  profits.  During the year ended
May 31, 1999,  Sherwood  Securities  had a trading volume of  approximately  7.7
billion shares and average daily trades of approximately 25,000.

Technology and Operations

     Sherwood Securities' technology platform and systems are designed to enable
it to process a large  volume of order flow  reliably  and  efficiently  without
diminishing  speed of  execution.  During the last fiscal  quarter of the fiscal
year ended May 31, 1999, Sherwood Securities processed between 30,000 and 40,000
trades per day, and its systems are capable of processing  up to 150,000  trades
per day. At its peak,  Sherwood  Securities can process between 40 and 80 trades
per second.  Sherwood Securities  processes a significant portion of its trading
volume over a dedicated  electronic  communications  network which  connects its
trading  operations  to the order entry  departments  of its  broker-dealer  and
institutional  customers.  This  private  communications  network  provides  its
customers with immediate access to Sherwood  Securities'  trading operations and
facilitates the handling of customers' orders. As part of this system,  Sherwood
Securities maintains direct communication lines with 40 regional brokerage firms
across  the  country,  as  well as  with  its  branch  offices  in Los  Angeles,
California;  Chicago,  Illinois;  Boston,  Massachusetts,  and Denver, Colorado.
Other  brokerage  firms in the same  geographic  regions can use these dedicated
private  lines to  directly  access  Sherwood  Securities'  trading  operations.
Sherwood  Securities  intends to  continue  to invest in  technology  to further
enhance its order processing capabilities.

Risk Management

     Sherwood  Securities' trading profits depend on its ability to evaluate and
act rapidly on market  trends and manage  risk  successfully.  To achieve  these
objectives,  Sherwood Securities has developed a trading methodology designed to
monitor and analyze  market  activity,  price  movements and risk on a real time
basis.  Sherwood  Securities  continually  analyzes  its  trading  positions  in
individual  securities  and monitors its overall  short and long  positions  and
aggregate profits and losses. Its trading systems provide real time, online risk
management  and inventory  control  functions,  including a 15 minute  on-screen
scroll that shows all losses  greater  than  $5,000.  Its trading  systems  also
identify all positions held by different  traders in the same security.  As part
of its risk management policies and procedures, it allocates each of its traders
a limited  amount of risk capital with which to trade and requires that a trader
seek  permission from his or her supervisor  prior to exceeding that amount.  It
also requires that its traders maintain positions meeting a specified  potential
long/short  ratio.  Sherwood  Securities  has 12 trading  team  captains who are
responsible for continually monitoring their team members' positions and profits
and  losses.  Each of these team  captains  meets with all members of his or her
trading team weekly to assess individual and team performance and strategy.

     Recently,  there  has been a sharp  increase  in the price  volatility  and
record trading volume of many stocks,  particularly those of companies that sell
products or services over the Internet.  Customers  eager to trade  Internet and
other stocks have flooded  brokers with larger  numbers of orders,  periodically
leading to large order imbalances and system backlogs.  Sherwood  Securities has
implemented  procedures  designed to allow  continuous  execution of  customers'
orders,  while lessening the exposure of the firm to extraordinary  market risk.
Our normal policy is to provide continuous  automatic  execution on orders of up
to 2,000  shares.  However,  Sherwood  Securities  may  reduce  or  suspend  its
automatic execution policy during unusual conditions and at its discretion.

Execution and Customer Services

     Sherwood   Securities   believes  that   providing  a  highly  skilled  and
experienced  trading and customer  service  workforce is critical to  delivering
best execution  practices and high quality customer service.  It had, at May 31,
1999, approximately 60 traders and 115 assistants/trainees.  Its traders have an
average of five years of trading experience,  and Sherwood Securities  generally
requires that its trainees complete a minimum of two years of extensive in-house
training and apprenticeship prior to permitting them to trade independently.  It
also has in-house  training  programs for traders and  trainees,  which focus on
specialized  trading  situations,  such as the  handling of large  institutional
orders,  large institutional  blocks, new issues and highly volatile stocks. Its
customer service workforce consisted, at May 31, 1999, of approximately 60 sales
professionals.  These  people are  dedicated  to  establishing  and  maintaining
customer  relationships and facilitating trade executions for its institutional,
broker-dealer  and trade program clients.  During the fiscal year ending May 31,
2000,  Sherwood  Securities  intends  to  expand  its  trading  floor  to add 45
positions  which will permit it to offer an expanded list of securities in which
it makes a market and handle increased trading activities.

Customer Accounts

     Sherwood Securities customers consisted,  at May 31, 1999, of approximately
850  institutional  investors,  such as mutual  funds,  pension  plan  sponsors,
foundations  and  endowments,  more than 400 hedge  funds and  almost all of the
currently registered national and regional broker-dealers.

Sherwood Securities' Positions

     Sherwood  Securities  takes both long (owned assets) and short (assets sold
it did not own)  positions  in the  securities  in which it makes a market.  The
following table illustrates its highest,  lowest and average month-end inventory
at market value  (based on the  aggregate  of our long and short  positions)  of
securities. See Note 3 of Notes to Consolidated Financial Statements.

 Fiscal Year                    Highest             Lowest             Average
 Ended May 31,                Month End          Month End           Month End
     1997                   $38,561,528        $17,472,124         $29,820,182
     1998                   128,078,159         27,106,790          53,688,382
     1999                   145,951,865         21,329,531          63,564,724


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


Retail Discount Brokerage Services -- NDB.com

Introduction

     NDB.com  offers its  customers a wide  variety of  financial  products  and
services and investment tools designed to appeal to all self-directed investors,
from active  traders and life goal  planners to serious  investors.  NDB.com has
designed  its  products  and  services to allow  investors  to create  their own
diversified, manageable portfolios.

Trading Services

         NDB.com's customers can place orders with NDB.com to buy or sell:

o        any  stock  listed on  Nasdaq,  the NYSE or AMEX.  Customers  can place
         market  orders,  limit orders (good until  canceled or day),  most stop
         loss orders, most stop limit orders and most short sales;

o        more than  9,000  load,  no load and no  transaction  fee mutual funds.
         Customers  can search  NDB.com's  Web site mutual fund center for funds
         meeting their investment needs. NDB.com also offers monthly investments
         in any of these mutual funds through automatic account debit;

o        equity and index options listed on the NYSE, AMEX, Chicago Board
         Options Exchange or the Philadelphia Stock Exchange; and

o        fixed income securities, such as U.S. Treasury obligations, municipal
         bonds and corporate bonds.

     NDB.com  offers  its  customers  the  ability  to place  orders  after  the
securities markets close. These orders are automatically  submitted prior to the
next  day's  market   opening.   NDB.com  also  provides   customers   real-time
notification  of trade  execution  by  automated  call  back,  fax or e-mail and
arranges  for  the  transmittal  of  shareholder  information,   such  as  proxy
statements, annual reports and tender offer materials.

     Through its Flat Fee Trading  program,  NDB.com  executes all orders at the
following prices  regardless of the number of Nasdaq shares involved (limited to
5,000 shares for exchange listed securities):

    Market Orders                              Limit Orders

    $14.75 for orders placed online            $19.75 for orders placed online
    $19.95 for orders placed by                $22.95 for orders placed by
    PowerBroker                                PowerBroker
    $24.95 for orders placed with our          $27.95 for orders placed with our
    registered representatives                 registered representatives

     NDB.com recently developed an interactive application capability on its Web
site.  This allows new customers to start trading  within one business day after
electronically  submitting an  application.  The entire process takes just a few
minutes to complete. First, a new customer selects the type of brokerage account
he or she wishes to open, such as an individual,  joint or custodial.  Then, the
customer  completes  a  simple,  user-friendly  application  and  electronically
submits the  application.  NDB.com  conducts a compliance  and credit review for
each  application and then notifies the customer  whether his or her application
has been accepted.  When combined with an electronic  transfer of funds from the
new customer, trading can begin the next business day.

     NDB.com  believes  individual  investors  gain many  advantages  from their
NDB.com accounts, including:

o        flat fee commission rates for all Nasdaq trades regardless of the
         number of shares or dollar amount involved;

o        full commission refund of up to $27.95 if, for any reason, a customer
         is not satisfied with its service;

o        real-time account balances and a list of pending orders;

o        no minimum account balance requirement;

o        unlimited insurance protection provided through NDB.com's clearing
         broker for securities;

o        NDB.com's  "Same  Stock-Same  Side-Same  Day" program so customers  can
         place  multiple  orders  for the same  stock,  on the same  side of the
         market (i.e., all buys or all sells), on the same day for a single flat
         fee commission;

o        NDB.com's free dividend  reinvestment  program that allows customers to
         purchase additional shares by automatically  reinvesting cash dividends
         and capital gains; and

o        educational programs through NDB University, its joint venture with
         Time Inc. New Media's money.com.

Market Data and Financial Information

     During  trading  hours,  NDB.com  continually  receives and posts  detailed
real-time  stock  quotes,  market  information  and  financial  news to  provide
investors with the information necessary to make investment  decisions.  NDB.com
believes that real-time  information  services facilitate and encourage customer
investment ideas and increase transaction volume.  NDB.com has arrangements with
leading content  providers to supply it with information  NDB.com believes meets
customers  needs.  Unless  otherwise noted, all information is available free of
charge to both visitors to NDB.com's Web site and NDB.com's customers.

     NDB.com has engaged eLogic  Communications to gather,  integrate and manage
the data supplied by NDB.com's content providers.  eLogic presents these data to
NDB.com  in a  format  that  is  easy to use  and  navigate.  Real-time  quotes,
newsletters and some research  reports are fed directly to NDB.com by individual
content providers.

     Quotes.  Real-time quotes are provided by Reuters and delayed quotes by S&P
Comstock. Real-time quotes are only available to NDB.com's customers.

     News.  NDB.com  receives news and press releases from Reuters,  PR Newswire
and Business Wire. The latest business  stories and earnings  reports are posted
throughout the day, and users can search for information on particular companies
or topics.

     Charts. eLogic has developed charting tools that use historical information
provided by Inverson Financial to compare companies and industries.

     Analyst Reports.  Zacks Investment  Research  provides  research  analysts'
recommendations and earnings forecasts.

     Insider Trading.  Vicker's Stock Research provides detailed insider trading
data. This information is available only to NDB.com's customers.

     Research  Reports.  Market Guide provides  fundamental  research reports on
over 11,000 public companies,  including price performance  history, key ratios,
sales and earnings and historical financial statements. This information is only
available to NDB.com's customers.

     Market  Commentary.  Briefing.com  and  TheStreet.com  provide  live market
commentary and continual market analysis throughout the day. This information is
available only to NDB.com's customers.

     Market  Information.  NDB.com offers a complete market  summary,  including
current market indices, most active stocks,  intraday market graphics and 90 day
market graphics.  Customers can access more comprehensive  information,  such as
international market indices and treasury bond, yen and euro quotes.

     SEC  Filings.  NDB.com  provides a link to  full-text  SEC filings by every
public company.

Portfolio Tracking and Records Management

     Customers  can  access a list of all  portfolio  assets  they hold in their
NDB.com  accounts  online,  by  telephone  and  through   NDB.com's   registered
representatives. Customers also receive:

o        real-time listing of all their portfolio assets, including current
         price and current market value;

o        detailed  account balance and transaction  information,  including cash
         and money fund balances, net market value, dividends received, interest
         income, deposits and withdrawals;

o        quarterly account statements;

o        annual tax statements;

o        daily profit and loss statements; and

o        monthly account  statements for active customers,  summarizing  account
         activity,  including asset  valuation,  transaction  history,  interest
         income and distribution summary.

     NDB.com is currently  evaluating  supporting  the Open  Financial  Exchange
(OFX) standard so that  customers can download their online account  information
directly into personal  financial  software programs such as Intuit's Quicken 98
and 99,  Microsoft's MSN MoneyCentral  Investor  Portfolio and Microsoft's Money
99.

Cash Management Services

     NDB.com offers  several cash  management  options to its  customers.  These
include ProCash Plus accounts which feature unlimited check writing  privileges,
telephone  bill  payment and access to a  Mastercard  debit card.  NDB.com  also
offers  customers  access to a no fee First USA Visa credit card and  electronic
funds  transfer by touch tone  telephone.  Customers earn interest on uninvested
funds at NDB.com's  competitive  rates or by investing in several Alliance money
market funds.

NDB University

     NDB.com  offers all Web site users lessons in finance,  investing and money
management through NDB University,  its joint venture with Time Inc. New Media's
money.com.  These programs are designed to help customers  invest,  save, borrow
and spend more wisely.  New lessons are introduced  every other week and include
topics such as the  fundamentals  of  investing in the stock  market,  issues to
consider when setting investment  priorities and tips for saving for college and
planning for retirement. Interactive programs allow investors to personalize the
lessons to fit their individual objectives.

Specialized Services

     NDB.com  offers  specialized  services  designed  to appeal  to  registered
investment  advisors,  institutional  investors and high net worth  individuals.
NDB.com  provides   custodial,   trading  and  support  services  to  registered
investment  advisors  ("RIAs") who manage their customers'  portfolios.  NDB.com
assigns  each RIA to an account  manager  who assists in opening the account and
acts as a liaison with the trading department. NDB.com also has customer service
representatives and a preferred trading desk dedicated to RIAs.

     NDB.com has established an institutional  trading desk to meet the needs of
institutional  investors  and hedge funds,  who tend to be more active  traders.
They  frequently  place block trades,  usually  trades of 10,000 shares or more.
NDB.com charges negotiated fees rather than flat fees for these trades.

     NDB.com has customer service representatives dedicated to meeting the needs
of high net worth  individuals  who maintain large account  balances at NDB.com.
NDB.com  intends to establish a premium  service desk for these  investors which
NDB.com  will staff with  dedicated  registered  representatives  who can answer
customer questions, as well as place trades.

Investment Tools

     NDB.com offers  several  investment  tools designed to assist  customers in
making investment decisions. These investment tools include:

     Stock Screening.  Stockpoint provides two stock screening tools that permit
investors  to search for  stocks  that fit their  particular  needs on the NYSE,
Nasdaq and AMEX.  Customers can search  fundamental data on over 8,900 companies
based on a variety of parameters, including market capitalization, price, return
on equity and percentage of institutional ownership.

     Mutual Fund Center. eLogic has developed a searchable database of more than
9,000 mutual funds based upon information  provided by Value Line. Customers can
use research  and  analysis  tools to screen funds based on a variety of defined
parameters.  They can also obtain a list of the top performing  funds in over 75
categories.

     Newsletters.  Customers  can subscribe to over 100  investment  newsletters
provided by newsletters.com.

     Research  on Demand.  NDB.com  offers  access to other  premium  investment
research  and  analysis  for a fee.  Available  reports  include  S&P  Stock and
Industry Reports and First Call Earnings Estimates.




New Product and Service Development

     NDB.com  constantly  evaluates  new ideas to expand or improve the products
and  services  NDB.com  offers its  customers.  Its  business  analyst  group is
responsible for researching and implementing projects, including those initiated
by our  executive  management.  At May  31,  1999  the  group  consisted  of six
associates  with expertise in  accounting,  finance,  facilities  management and
project  management.   The  group  performs  cost  benefit  analyses  and  trend
projections  and manages the  development  of new products  and services  within
specified  timeframes and budgets. The group also seeks qualified companies with
whom NDB.com may develop  affinity  relationships  to provide these new products
and services.

Delivery of NDB.com Services

     NDB.com  provides  its  customers  with  three  points  of  access to trade
securities, obtain research and monitor account balances: its Internet Web site,
its interactive telephone system and its registered representatives.

     Online  services.  NDB.com's  Web site allows  customers to  electronically
place orders to buy or sell securities from their personal  computers 24 hours a
day, seven days a week for execution during regular market hours. NDB.com is the
only  online  broker to have  received  in 1999 the  highest  ratings  from both
Barron's and Money magazine.  NDB.com was ranked the number two online broker by
Barron's.  Similarly,  Money  magazine  ranked  NDB.com as the number two online
broker in a study testing ease of use, customer service,  system responsiveness,
products  and  tools,  and  costs,  and also  ranked the Web site the number one
online  broker for new online  investors.  NDB.com's  Web site is designed to be
user-friendly  with easily  accessed  help pages and messages that repeat orders
for accuracy and confirmation.  Online investors can access real-time quotes and
news as well as a broad array of free investment research and tools to help them
make  more  informed  investment  decisions.  During  the  month  of June  1999,
approximately 69% of NDB.com's executed trades originated online.

     Interactive telephone system.  PowerBroker,  NDB.com's touch-tone telephone
interactive  response  system,  is available 24 hours a day,  seven days a week.
With PowerBroker,  customers can check account  positions and balances,  perform
account  administration  and place orders for execution  during  regular  market
hours. PowerBroker is available in four languages:  English,  Spanish,  Mandarin
and  Cantonese.  During the month of June 1999,  approximately  19% of NDB.com's
executed trades originated through PowerBroker.

     Registered   representatives.   NDB.com  has  approximately  95  registered
representatives to answer questions, accept orders and provide quote and account
information.  These  representatives  are available Monday through Friday,  from
7:00 am to 8:30 pm (other than  holidays) and place orders for execution  during
regular market hours. NDB.com is committed to offering its customers the ability
to place  trades  with  registered  representatives  and will  continue  to hire
additional   representatives   as  needed.   During  the  month  of  June  1999,
approximately 12% of NDB.com's executed trades originated through its registered
representatives.

NDB.com Affinity Relationships

     NDB.com pursues relationships with affinity partners to increase its access
to potential customers, build brand name recognition and expand the products and
services  NDB.com  can offer to its  customers.  NDB.com  is  actively  pursuing
alliances  with a variety of  companies  whose  customers  are likely to use its
products and services. NDB.com believes that its focus on affinity relationships
has  resulted  in lower  account  acquisition  costs  than many  other  discount
brokers.  NDB.com  intends  to expand its  affinity  program  and will  evaluate
potential   relationships   with  new   affinity   partners  in  the  future  as
opportunities arise.

     To assure a high level of customer  satisfaction,  NDB.com has  dedicated a
number of its customer  service  representatives  to  servicing  the accounts of
customers obtained through these relationships.

NDB.com Marketing and Advertising

     NDB.com has limited its  advertising to print and broadcast  media.  During
the fiscal year ending May 31, 2000, NDB.com intends to significantly expand its
advertising to build awareness of its brand,  quality customer service and depth
and  breadth of  products  and  services.  NDB.com  intends to market its online
investing  services  to  individual  investors  as  a  better  way  of  handling
securities  transactions,  accessing  financial  and  market  data and  managing
portfolios.  NDB.com intends to use a variety of media forms to reach individual
investors  who  may  use  its  services,   including   broadcast  media,   print
advertisements, online advertisements and direct mail.

     NDB.com's  advertising agency has prepared a comprehensive  advertising and
marketing campaign that it has begun to implement.

NDB.com Customer Service

     NDB.com believes that providing  excellent  customer service is critical to
its success. Its 85 customer service representatives and supervisors are trained
to handle all types of customer inquiries. NDB.com's customer service department
receives over 2,000  telephone calls and 325 e-mails per day.  NDB.com  responds
promptly to these inquiries.  Customer service  representatives answer inquiries
about account status, such as balances, portfolio holdings and trade executions,
and  address  more  complex  issues  such as margin  requirements  and  research
questions.  They also act as a liaison  with the trading  department  to provide
overall customer satisfaction.  Representatives are available weekdays from 6:00
am to 10:00 pm New York time (other than holidays). NDB.com expects to implement
24 hour a day, seven day a week coverage (other than holidays) during the fiscal
year ending May 31, 2000.  NDB.com is in the process of increasing the number of
customer service representatives to approximately 110.

     About  20%  of  our  customer  service  representatives  are  dedicated  to
servicing accounts gained through NDB.com's affinity relationships. All of these
employees  are  registered  representatives  that can  assist  customers  in all
aspects of trading.

     Telephone and E-mail Support and  Technology.  NDB.com's  customer  service
telephone  system is  state-of-the-art  and designed  along "open  architecture"
lines to permit  regular  hardware  and  software  upgrades  with a  minimum  of
disruption  and expense.  New releases of both  programs and  equipment are only
integrated into the customer service system after adequate testing and training.
PowerBroker,  our automated interactive voice response system, currently handles
approximately  14,000 incoming calls daily, greatly reducing the volume of calls
which NDB.com's representatives must handle. This reduces wait times during high
volume trading hours and helps reduce overall customer service costs.

     NDB.com also  provides  customer  support by e-mail.  All customer  service
representatives  are  trained  to  respond  to  electronic  requests  using both
pre-composed  and  original  e-mails.  All e-mail  responses  are  reviewed by a
customer service manager before being sent to a customer.

     Personnel and Training.  NDB.com  believes that training is key to creating
an  efficient  and  motivated  customer  service  team.  NDB.com is committed to
providing the best available training to its customer service representatives in
an ongoing manner. NDB.com focuses on career development for its staff, which it
believes improves employee retention.

     NDB.com  maintains a ratio of one supervisor for each five customer service
representatives.  NDB.com  believes  that this  promotes  high quality  customer
service.  Supervisors  monitor  customer  service  calls and  e-mail to  improve
training and customer satisfaction. All customer service representatives undergo
both  monthly  and annual  performance  reviews to measure  their  knowledge  of
NDB.com's products and services,  their level of teamwork,  their work ethic and
personal  objectives  and their ability to deliver  NDB.com's  expected level of
customer satisfaction.

     New customer service  representatives  take a two month initial course that
covers NDB.com's  products,  services and policies.  Topics include trading over
the  Internet,  equity  and  option  trading,  margin  accounts  and  individual
retirement  accounts.  Customer  service  representatives  also receive  ongoing
training as new products and services are  developed  and  NDB.com's  technology
infrastructure is modified or upgraded.

NDB.com Customer Accounts

     NDB.com had over 147,000 accounts as of June 30, 1999.  NDB.com's customers
include  individual   investors,   businesses,   investment  clubs,   registered
investment advisors and institutions. During the fiscal year ended May 31, 1999,
NDB.com averaged  approximately 16 executed trades per account. At May 31, 1999,
NDB.com's  customer  assets  were  approximately  $7.4  billion,  an average per
account of over $52,000,  which NDB.com  believes to be among the highest in the
industry.

NDB.com Technology

     NDB.com's  technology  department  develops and maintains a combination  of
proprietary and vendor software to support its online brokerage  business and to
automate traditionally  labor-intensive  transactions.  The department's primary
responsibility  is to ensure  customer  access to NDB.com's  system  through the
Internet and the telephone,  full  availability of its products and services and
rapid transmission of trades.

     NDB.com's  technology is designed along "open architecture" lines to permit
regular hardware and software upgrades with minimal disruption and expense. This
design allows NDB.com to respond  quickly to growth in both trading  volumes and
number of accounts by adding new computers and improving software.

     NDB.com   believes   there   are   many   advantages   to  its   technology
infrastructure. NDB.com's system is designed to be:

o         highly scalable, which allows it to easily change its size or
          configuration to adapt to increased volume and numbers of users;

o         highly fault tolerant, which allows its customers continued access in
          the event of hardware or software failure;

o         highly integrated, which allows it to communicate with any customer's
          personal computer;

o         load balanced, which allows it to respond to surges in trading volume;
          and

o         secure.  NDB.com uses sophisticated encryption, authentication
          technology and firewalls to secure the confidential information
          transmitted to and from its customers.

NDB.com's Web Site

     The  primary  components  of  NDB.com's  new Web site are the  presentation
layer, the application servers and the databases.

     Presentation  Layer.  The  presentation  layer  is the  display  screen  of
NDB.com's  Web site  accessed  by its  customers  over the  Internet.  It allows
NDB.com to offer its services on many platforms without the need to specifically
modify  its  technology  for each  platform.  The  presentation  layer  uses the
computer   languages   HTML,  Java  and  Java  Script  and  is  designed  to  be
user-friendly and easy to navigate.

     Application  Servers.   NDB.com's  Netscape  application  servers  use  the
computer languages C++ and Java to permit the interaction between its customers'
computers and its  databases.  NDB.com's  proprietary  technology  establishes a
common language among these  components and allows them to function on different
platforms and in different protocols.  The servers also automatically distribute
traffic throughout its system to maintain reliability.

     Databases.  NDB.com's Oracle  databases store all information  necessary to
allow  customers to execute  trades and monitor  their  accounts.  The databases
contain a complete history of each customer's account, including past trades and
current  portfolio  positions.  In addition,  the databases  allow  customers to
personalize  their  trading  experience  by  customizing  quote lists and screen
graphics and alerting them to current news on their stocks.

NDB.com's Trading System

     All customer orders, whether received through the Internet or by telephone,
pass  through  NDB.com's  Unix-based  automated  processor.  This  processor  is
designed to provide all customers with the same real-time portfolio  information
no matter how it is accessed.  The  automated  processor was designed to rapidly
read data, process  transactions and transmit information to multiple locations,
which  provides a high degree of  automation  for all  transactions.  It applies
preprogrammed  rules to each order to determine whether it should be routed to a
market maker for execution,  reviewed internally or automatically rejected for a
number of reasons,  such as inadequate  margin  availability.  If a market maker
experiences  technical  difficulties or is unable to execute a trade,  NDB.com's
processor reroutes the customer order to an alternate market maker.


Proposed Self Clearing Operations - Millennium Clearing Corp.

     The Company currently maintains  relationships with two clearing brokers to
clear and settle its securities transactions.  The clearing brokers also provide
record  keeping,  custody and other  services.  Sherwood  Securities  clears its
market making  transactions  through  Broadcort  Capital  Corp., a subsidiary of
Merrill  Lynch.   Sherwood  Securities'  agreement  with  Broadcort  is  for  an
indefinite  period of time but may be  terminated  upon 180 days  prior  written
notice by either party.  NDB.com's transactions are cleared through the Pershing
Division of Donaldson, Lufkin & Jenrette. The agreement with Pershing expires in
March 2000, subject to termination by either party.

     The Company intends to begin self-clearing operations.  The Company expects
to initially contract with a third party to provide computer services to support
these  operations  during the development  stage.  The Company's  regulatory net
capital  requirement  will increase when it begins to  self-clear.  The level of
that  required  net  capital  will  vary  with the  amount  of  customer  margin
borrowing.  The Company  plans to operate its  clearing  activities  through its
wholly owned subsidiary, Millennium Clearing Corp.

     The Company believes that performing its own clearing operations will offer
the following advantages:

o         Margin lending. The Company will be permitted to use customer
          securities for its margin lending activities, subject to regulatory
          rules;

o         Reduction in costs.  It believes, that over time, the Company will be
          able to perform its own clearing less expensively and more efficiently
          than its current clearing arrangements;

o         Securities lending.  The Company will receive fees for lending
          securities to other brokers; and

o         Additional  source of revenue.  The Company  will be able to offer
          clearing  services  to other  broker-dealers  and other  financial
          institutions, which will give it an additional source of revenue.

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
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 NDB
Group.  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, 1999,  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  were sold  during the year  ended May 31,  1999 with
Sherwood Securities recognizing a gain of approximately $80,000.

     The Company owned 260,100 shares of Astropower, Inc. common stock, acquired
as part of an underwriting  in 1989.  During the year ended May 31, 1999, all of
the  shares  were  sold with the  Company  recognizing  a gain of  approximately
$2,300,000.

     Between  February  and April 1998,  NDB.com  invested  $500,000 for 500,000
shares of Award Track,  Inc.  common stock.  During the year ended May 31, 1999,
the entire  investment  was written off as the  Company's  management  deemed it
worthless.

     Investment  in property.  NDB Group,  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.


Personnel

     As of June 30, 1999,  the Company had 668 full-time  employees of which 375
are  salespeople,  traders and  trading  assistants.  Included in the  preceding
employee  counts are  NDB.com's  314  full-time  employees of which 149 are NASD
registered  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 and NDB.com's  registered
representatives and certain members responsible for managing 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 the "Annual Trading/Sales Production Guarantee" program, based on
a number of  factors  and  subject  to an annual  review.  NDB.com's  registered
representatives work on a salary basis.

     All full-time  employees who have  completed  five years of employment  may
take a four-week (three months in the case of members of the executive committee
of the Company) 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

     The market for online investing  services,  particularly over the Internet,
is  new,  rapidly  evolving  and  intensely  competitive.  The  Company  expects
competition to continue to intensify in the future.  NDB.com  encounters  direct
competition from discount brokerage firms providing either touch-tone  telephone
or online investing  services,  or both. These competitors  include  Ameritrade,
Charles Schwab,  Datek Online,  Discover  Brokerage Direct,  DLJdirect,  E*Trade
Securities,   Fidelity  Brokerage  Services,   Quick  &  Reilly  and  Waterhouse
Securities.  NDB.com  also  encounters  competition  from the  many  established
full-commission  brokerage  firms,  such as Merrill  Lynch,  Morgan Stanley Dean
Witter  and   PaineWebber.   Additionally,   NDB.com   competes  with  financial
institutions,  mutual  fund  sponsors  and  other  organizations,  some of which
provide online investing services.

     The Company believes that the principal  competitive  factors affecting the
market for NDB.com's services are cost,  customer service,  quality,  execution,
delivery platform  capabilities,  ease of use, presentation layer look and feel,
depth and breadth of services and content,  financial  strength and  innovation.
The Company believes that NDB.com currently  competes  favorably with respect to
each of these factors.

     Many of the  Company's  competitors  have longer  operating  histories  and
significantly greater financial,  technical,  marketing and other resources than
it  has.  Many  current  and  potential   competitors  also  have  greater  name
recognition and more extensive  customer bases that could be leveraged,  thereby
gaining market share to the Company's detriment.  Additionally,  new competitors
or alliances among competitors may emerge and rapidly acquire significant market
share.

     Sherwood  Securities  is one of several  independent  broker-dealers  whose
principal  activity  is making  markets  in a broad  range of  Nasdaq  and other
over-the-counter  securities. 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
electronic  communications  network and its ability to effect large transactions
in an orderly manner.  Sherwood now faces increasing competition from electronic
communications networks and the Instinet trading market, which enable buyers and
sellers to interact more directly and allow for trading without a market maker.


Regulation

     The Company's business is subject to extensive regulation applicable to the
securities  industry  in the  United  States.  As a  matter  of  public  policy,
regulatory  bodies in the  United  States  are  charged  with  safeguarding  the
integrity of the securities and other financial  markets and with protecting the
interests  of customers  participating  in those  markets.  The  Securities  and
Exchange  Commission is the federal  agency charged with  administration  of the
federal securities laws. However,  the SEC has delegated some regulatory matters
to self-regulatory organizations, such as the National Association of Securities
Dealers.  The NASD  adopts  rules  (which are  subject to  approval by the SEC),
examines  broker-dealers  and  requires  strict  compliance  with its  rules and
regulations. Securities firms are also subject to regulation by state securities
commissions  in the states in which  they are  registered.  As of May 31,  1999,
Sherwood Securities was registered as a broker-dealer with the SEC, the NASD and
in 20 states and the  District  of  Columbia.  As of May 31,  1999,  NDB.com was
registered as a broker-dealer  with the SEC, the NASD and in all 50 states,  the
District of Columbia  and the  Commonwealth  of Puerto  Rico.  NDB.com is also a
member of the Boston Stock Exchange and the Chicago Stock Exchange.

     SEC and NASD regulations cover many aspects of a broker-dealer's  business,
including, but not limited to, capital structure and withdrawals, sales methods,
trade practices among  broker-dealers,  use and safekeeping of customers'  funds
and   securities,   recordkeeping,   the  financing  of  customers'   purchases,
broker-dealer and employee  registration and the conduct of directors,  officers
and employees.  Additional legislation,  changes in rules promulgated by the SEC
and the NASD, or changes in the  interpretation  or  enforcement of existing law
and rules may  directly  affect the method of  operation  and  profitability  of
broker-dealers.  The SEC, the NASD and state securities  commissions may conduct
administrative  proceedings,  which can result in censure, fine, the issuance of
cease-and-desist  orders or the suspension or expulsion of a broker-dealer,  its
officers or employees.

     Sherwood Securities' and NDB.com's sales and trading personnel, and certain
members of management,  are required to take examinations  given by the NASD. In
some circumstances,  additional  examinations are required for sales and trading
personnel to be qualified to do business in various states.

     Changes in regulations  pertaining to Nasdaq may have a material  effect on
Sherwood  Securities' trading  activities.  For example, in August 1996, the SEC
adopted new rules known as the order handling rules, which altered the manner in
which orders for stocks are handled. These rules became effective on January 20,
1997 and were phased in for  additional  Nasdaq stocks during 1997.  These rules
and other rules that were proposed, as well as regulatory actions and changes in
market  practices,  have had,  and may  continue to have,  an adverse  effect on
Sherwood  Securities'  revenues,  profit  margins  and the  manner  in  which it
conducts its business.


Customer Protection and Insurance

     Customers of Sherwood  Securities  and NDB.com are  protected  against some
losses by the Securities Investor Protection Corporation ("SIPC"). SIPC provides
protection  against lost, stolen or missing securities (except loss in value due
to a rise or fall in market prices) for customers in the event of the failure of
a broker-dealer. Accounts are protected up to $500,000 per customer with a limit
of $100,000 for cash balances.  Both Sherwood Securities and NDB.com are members
of SIPC.  However,  because the funds and securities of the Company's  customers
are held by the Company's clearing firms,  Broadcort and Pershing, the Company's
customers  are treated for SIPC purposes as customers of Broadcort and Pershing.
Therefore,  SIPC  coverage  comes  into play only in the event of the  financial
failure  of one of those  firms.  In  addition  to being  members  of SIPC,  the
Company's clearing firms also carry private insurance,  which provides unlimited
coverage for securities held in customer accounts in the event of the failure of
those clearing firms.

     The  Company  also  carries  brokers'   blanket  bonds  covering   Sherwood
Securities  and NDB.com for loss or theft of  securities,  forgery of checks and
drafts,   embezzlement,   certain   employee   misconduct  and  misplacement  of
securities.  These bonds  provide  total  coverage of  $1,000,000  for  Sherwood
Securities  and  $550,000 for NDB.com.  The bonds each  contain  deductibles  of
$10,000.




Net Capital and Customer Reserve Requirements

     As registered  broker-dealers and members of the NASD,  Sherwood Securities
and NDB.com are subject to the SEC's  Uniform Net Capital Rule 15c3-1.  The Rule
specifies  the minimum  level of net capital a  broker-dealer  must maintain and
also  requires  that at least a minimum part of its assets be kept in relatively
liquid form.  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").
As of May 31, 1999,  Sherwood  Securities  was required to maintain  minimum net
capital of $1,000,000  and had total net capital of  $62,398,000.  As of May 31,
1999,  NDB.com was required to maintain  minimum net capital of $250,000 and had
total net capital of approximately $4,104,000.

     Sherwood  Securities  and NDB.com  meet the  exemptive  provisions  for the
computation for determination of reserve  requirements for broker-dealers  under
subparagraph  (k)(2)(ii) of SEC Rule 15c3-3. During the period from June 1, 1998
through May 31, 1999,  Sherwood  Securities and NDB.com were in compliance  with
the conditions of this exemption.

     In computing net capital under Rule 15c3-1, various adjustments are made to
exclude assets not readily  convertible  into cash and to provide a conservative
statement of other assets,  such as the inventory of  securities.  Therefore,  a
deduction  is made  against  the  market  value of  securities  to  reflect  the
possibility  of a market  decline prior to their  disposition.  Thus,  this Rule
imposes  financial  restrictions  upon the  Company's  businesses  that are more
severe than those imposed on concerns in other types of businesses.

     In addition,  the SEC and NASD impose rules that require  notification when
net capital falls below certain predefined levels,  dictate the ratio of debt to
equity in the regulatory  capital  composition of a broker-dealer  and limit the
ability  of  a  broker-dealer  to  expand  its  business  volume  under  certain
circumstances.  Moreover,  the  Uniform Net  Capital  Rule and the NASD's  rules
impose requirements that may have the effect of prohibiting a broker-dealer from
distributing  or withdrawing  capital and requiring  prior notice to the SEC and
NASD for certain  withdrawals  of capital,  even capital in excess of regulatory
requirements.  Since NDB  Group's  principal  assets  are its  ownership  of its
broker-dealer subsidiaries,  the rules governing net capital and restrictions on
capital   withdrawals  could  prevent  NDB  Group  from  meeting  its  financial
obligations  on a  timely  basis.  See  Note  13 of  Notes  to the  Consolidated
Financial Statements.

     Compliance  with  the  Uniform  Net  Capital  Rule  may  also  limit  those
operations  of  Sherwood   Securities  and  NDB.com  that  require  the  use  of
significant  amounts of  capital,  such as market  making  activities.  Further,
assets  that are  included  in their  respective  minimum  net  capital  are not
available for distribution to NDB Group's  shareholders in the form of dividends
or otherwise.  At May 31, 1999,  the Company  believed  Sherwood  Securities and
NDB.com  were in  compliance  with  the net  capital  requirements.  Failure  to
maintain the required net capital may subject them to suspension of business and
may ultimately require their liquidation.




Item 2.     Properties

     The corporate headquarters of NDB Group and Sherwood Securities' office and
trading  facilities  occupy  approximately  51,600  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.  Base rent for this space is  approximately  $1,500,000  per year with
periodic escalations.

     NDB.com'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. Base rent on this space is  approximately  $718,000 per year
with periodic escalations.

     The Company has signed an 18-month  lease for an  additional  10,000 square
feet in New York for base rent of  approximately  $320,000 per year.  This space
will be used by NDB.com for its operations.  The Company also signed a lease for
an  additional  96,000  square feet near its  headquarters  in Jersey City,  New
Jersey, for base rent of approximately  $2,900,000 per year. This lease is for a
term of 15 years,  which  may be  extended.  This  space  will be the  corporate
headquarters  for  NDB.com and  Millennium  and will  primarily  be used for the
self-clearing  operations,  data  center  and  call  center.  See Note 14 to the
Consolidated Financial Statements


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.

     The  Company  has been named as a  defendant  in a number of  lawsuits  and
arbitrations  and is the  subject of  investigations  that  allege,  among other
things,  violations  of Federal  and state  securities  laws and other  laws.  A
substantial  settlement or judgement in any of these cases could have a material
adverse  effect on the Company.  Except as described  below,  management  of the
Company  believes  that  none  of  these  pending  lawsuits,   arbitrations  and
investigations  is likely to have a  material  adverse  effect on its  financial
condition,  results of operations or liquidity,  although the Company  cannot be
certain of this.

     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
provided 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.  On November  9, 1998,  Judge Sweet of the United
States  District  Court for the  Southern  District  of New York  (the  "Court")
approved  the  Settlement  Agreement  and entered a Final  Judgment and Order of
Dismissal.  The Court's  Final  Judgment has been  appealed to the United States
Court of Appeals  for the Second  Circuit by  certain  class  members,  and such
appeals are pending.

     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 and that  approval was affirmed on appeal by the United States
Court of Appeals for the Second  Circuit.  No timely  petition for review by the
United States Supreme Court has been filed.

     As part of a global settlement  involving more than 25 Nasdaq market-making
firms,  Sherwood  Securities  has  settled  proceedings  brought  against  it in
connection  with the  investigation  by the Securities  and Exchange  Commission
("SEC"),  captioned In the Matter of Certain Market-Making Activities on NASDAQ,
HO-2974. In connection with the settlement, Sherwood Securities consented to the
entry of certain Orders by the SEC instituting proceedings,  making findings and
imposing  sanctions.   Sherwood  Securities  neither  admitted  nor  denied  the
substantive  allegations set forth in the Orders. The Orders state that Sherwood
Securities, aided and abetted by certain traders employed by Sherwood Securities
during the relevant  time,  engaged in or caused  certain  violations of Section
15(c)(1)  and (2) and  Section  17(a)  of the  Securities  Exchange  Act of 1934
("Exchange  Act") and Rules  15c1-2,  15c2-7  and 17a-3  thereunder,  and orders
Sherwood  Securities  and  certain  of its  traders  to cease  and  desist  from
committing or causing future  violations of these provisions.  In addition,  the
Orders also stated that Sherwood  Securities had failed to reasonably  supervise
its  market-making  activities,  in  violation  of  Section  15(b)(4)(E)  of the
Exchange Act.

     As part of the  settlement,  Sherwood  Securities  paid a civil  penalty of
$1,000,000 to the SEC and the sum of $8,138 in disgorgement. Sherwood Securities
previously  fully reserved for the penalty  payment,  which was made January 22,
1999. Sherwood  Securities also agreed to a review by an independent  consultant
appointed  by the SEC of its  policies,  procedures  and  practices  relating to
prevention and detection of those types of conduct described in the Orders which
relate to Sherwood  Securities.  Finally,  three  present and one former  trader
employed by Sherwood  Securities also consented,  neither  admitting nor denying
the  allegations,  to the  entry of the  Orders  and to  individual  suspensions
ranging  from 7 to 12 weeks and  individual  penalties  ranging  from $25,000 to
$50,000 each.

     On March  22,  1999,  Weiss,  Peck & Greer,  L.L.C.  ("WPG")  filed an NASD
arbitration  action  against  Sherwood  Securities.  WPG alleges  that  Sherwood
Securities  contravened  standards of "commercial  reasonableness" and "just and
equitable  principles  of trade" in  connection  with the execution of trades of
approximately 1.5 million shares of the stock Amazon.com from Carnegie, Childs &
Co. on January 8, 1999. WPG was Carnegie's  clearing broker and alleges that the
trades resulted in Carnegie's having a net short position in 1,462,000 shares of
Amazon.com.  WPG covered  the short  position on January 11, 1999 and alleges it
sustained losses of more than $11 million.  Sherwood  Securities filed an Answer
and Statement of  Counterclaim  dated June 8, 1999 in which Sherwood  Securities
denied  liability  for the claims  asserted by WPG and  asserted a  counterclaim
against  WPG of  approximately  $1.3  million  for  losses  Sherwood  Securities
suffered in connection with these trades.  WPG has filed a Reply to Counterclaim
dated June 28, 1999 denying  liability for the claim  asserted in the Answer and
Statement of Counterclaim. Sherwood Securities, after consultation with counsel,
believes  it has  valid  defenses  to the  claims  made  by WPG and  intends  to
vigorously contest the claims.


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, 1999.


                                     PART II

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

     NDB Group trades its common stock on the NYSE under the symbol "NDB." Prior
to December 12,  1997,  the symbol had been "SHD".  There were 1,345  holders of
record of NDB Group's  common stock at June 30, 1999.  As of June 30, 1999,  the
closing sales price per share for NDB Group's common stock was $58.

     The  following  table sets forth the high and low sales price per share for
NDB Group's  common stock for each  quarterly  period within the two most recent
fiscal years as reported by the New York Stock Exchange:
                                                         Sales Prices
           Quarter Ended                            High                Low
           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
           August 31, 1998                       11.6250             9.3750
         November 30, 1998                        9.5625             8.1250
         February 28, 1999                       47.0000             8.7500
              May 31, 1999                       92.9375            22.3750


     There were no cash  dividends  declared on the common stock of NDB Group in
the two-year  period ended May 31, 1999.  Funds  available for  distribution  to
shareholders  of NDB Group 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 and NDB.com 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, 1999 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, 1999 presentation.
<TABLE>
<CAPTION>

                                                                  Years Ended May 31,


                                                 1999           1998           1997           1996          1995
<S>                                          <C>            <C>            <C>            <C>             <C>
Operating Data (b)
Revenues                                     $207,865       $138,812       $161,182       $161,735        $94,740

Income from continuing operations
       before income taxes                    $34,681        $11,739        $12,647        $29,313        $13,560

Income taxes                                   16,462          5,741          6,031         12,783          1,847

Net income from continuing
       operations                              18,219          5,998          6,616         16,530         11,713

Income from discontinued
       operations, net of taxes                 2,786          3,258          2,664          3,602          2,902

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

Net income (a)                                $21,005        $11,960         $9,280        $20,132        $14,615

Per Share Data (c):
Basic:
Income from continuing operations,
net of taxes                                    $1.30          $ .45          $ .51          $1.30          $ .94

Income from discontinued
       operations , net of taxes                  .20            .24            .21            .29            .23

Gain from sale of discontinued
       operations, net of taxes                    --            .20             --             --             --
Net income                                      $1.50          $ .89          $ .72          $1.59          $1.17

Diluted:
Income from continuing operations,
       net of taxes                             $1.29          $ .45          $ .51          $1.25          $ .86

Income from discontinued
       operations, net of taxes                   .20            .24            .21            .27            .21

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

Net income                                      $1.49          $ .89          $ .72          $1.52          $1.07


Balance Sheet Data:
Total assets                                 $217,291       $188,474       $160,161       $143,255       $113,031
Common stockholders'  equity                  141,995        124,173         92,274         86,570         65,978
Book value per share-basic (c)                  10.13           9.24           7.16           6.82           5.27
Book value per share-diluted (c)                10.04           9.20           7.13           6.56           4.83
Dividends                                          --             --             --             --             --


<FN>


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

<FN>
 (b) In May 1999,  the Company  entered into a definitive  agreement to sell its
     ownership  interest in Equitrade.  The transaction closed on June 18, 1999,
     and  as  such,   the   operations  of  Equitrade  have  been  reflected  in
     discontinued  operations for all periods reported. In addition, the results
     of operations of MXNet,  Inc. and the American  Stock  Exchange  Specialist
     business of Sherwood  Securities,  each of which was sold in February 1998,
     have been included in discontinued operations for all applicable periods.
</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 1999 Compared to Fiscal 1998

     The results of continuing  operations of the Company for the year ended May
31, 1999 reflect primarily the activities of Sherwood Securities and NDB.com.

     On June 18,  1999,  NDB  Group  sold its  46.845%  membership  interest  in
Equitrade  Partners,  L.L.C. In addition MXNet, Inc.  ("MXNet"),  a wholly owned
subsidiary of NDB Group was sold on February 13, 1998.  Sherwood Securities also
sold its AMEX  specialist  business in February 1998 for $325,000.  As a result,
the results of operations of these  entities have been  segregated and reflected
as  discontinued  operations  on  the  Consolidated  Statements  of  Income  and
Comprehensive  Income.  Accordingly,  the  consolidated  line  items  comprising
revenue and expenses from  continuing  operations  have been adjusted to exclude
the discontinued  operations.  Net income from operations of these  discontinued
operations  for the year ended May 31, 1999 was $2,786,000  (net of taxes).  For
the  year  ended  May  31,  1998,  the  net  income  from  operations  of  these
discontinued  operations  was  $3,258,000  (net of  taxes).  See  Note 12 to the
Consolidated Financial Statements.

     The Company had a net income from continuing  operations for the year ended
May 31, 1999 of $18,219,000, compared to a net profit from continuing operations
of $5,998,000  for the year ended May 31, 1998.  Sherwood  Securities  had a net
income for the year ended May 31, 1999 of $20,826,000,  compared to a net profit
for the year  ended May 31,  1998 of  $4,259,000.  The  Company's  and  Sherwood
Securities'  fiscal year 1998  results  include a non  tax-deductible  charge of
$1,300,000  based upon  management's  assessment  of the  status and  reasonably
likely outcome of the SEC investigation  described in Item 3, above. NDB.com had
a net income for the year ended May 31,  1999 of  $1,463,000,  compared to a net
income of $1,304,000 for the year ended May 31, 1998.

     Total  revenue  from  continuing  operations  of the Company  increased  by
approximately $69,053,000,  or 50%, from $138,812,000 in 1998 to $207,865,000 in
1999.

     Most  of the  Company's  revenue  arises  from  Sherwood  Securities'  firm
securities  transactions.  Revenue from firm securities  transactions  increased
$55,564,000 from $90,256,000 for the year ended May 31, 1998 to $145,820,000 for
the year ended May 31,  1999.  The  increased  activity  in the equity  markets,
particularly  trading  volume in internet and high  technology  related  stocks,
resulted in increases in both the Company's ticket and share volume for the year
ended May 31,  1999,  as compared to a year ago.  Sherwood  Securities'  overall
ticket volume increased  approximately  51% for the year ended May 31, 1999 from
4,235,000 to 6,376,000. Trading profits per ticket also increased from $21.32 to
$22.87.

     The Company's commission income, primarily generated by NDB.com,  increased
by  $8,198,000,  or 22%,  from  $37,052,000  for the year ended May 31,  1998 to
$45,250,000 for the year ended May 31, 1999. These increases  occurred primarily
due to  the  increase  in  NDB.com's  average  daily  ticket  count,  which  was
approximately  7,900 tickets per day for the year ended May 31, 1999 as compared
to approximately 6,100 tickets per day for the year ended May 31, 1998.

     Realized gain on securities  for the year ended May 31, 1999 represent gain
from the sale of 260,100  shares of Astropower,  Inc.  common stock by NDB Group
and 75,000 shares of Eurotech,  Ltd. common stock by Sherwood  Securities offset
by the write-off of NDB.com's  investment in 500,000 shares of Award Track, Inc.
common stock deemed by management to be worthless.

     Interest and dividend income increased by approximately $2,423,000, or 32%,
from  $7,599,000  in 1998 to  $10,022,000  in 1999  primarily due to the growing
margin debits and free credits  balances that  customers  retain with  NDB.com's
clearing  broker and the  increased  proprietary  average cash balance  Sherwood
Securities maintained with its clearing broker.

     Fee  income  increased  $740,000,  or  21%,  from  $3,568,000  in  1998  to
$4,308,000  in  1999.  The  increases  are  due  to  NDB.com   receiving  higher
distribution assistance fees (formerly called Rule 12b-1 fees) from mutual funds
as NDB.com  customers'  balances  in those funds have  increased,  as well as an
increase in the negotiated rates used to calculate the fees rebated thereon. The
increase in fee income would have been even higher,  except that during the year
ended May 31, 1998,  Sherwood  Securities  received a non recurring $275,000 fee
for  consulting  services  rendered  in  connection  with  the  sale of its AMEX
specialist business.

     Total expenses from continuing  operations increased  $46,111,000,  or 36%,
from  $127,073,000 in 1998 to $173,184,000 in 1999. The reasons for the increase
in expenses are set forth below.

     Clearing and related  charges  decreased  by  approximately  $964,000  from
$46,320,000 in 1998 to $45,356,000 in 1999. As a percentage of revenue, clearing
and related charges decreased to 22% for the year ended May 31, 1999 from 33% in
the prior year. The decrease for the year ended May 31, 1999 is due  principally
to three factors.  First,  there was the reduction in clearance charges due to a
full year's benefit from decreases in per ticket rates  negotiated with Sherwood
Securities'  clearing broker during the year ended May 31, 1998.  Second,  there
was a reduction  in  clearance  charges  due to a decrease  in per ticket  rates
negotiated with NDB.com's  clearing broker as of February 1999. And, lastly, was
the reduction in order flow rebate fees paid by Sherwood  Securities  based upon
the overall size and type of the order flow received. These rate reductions were
more than enough to  compensate  for  increases  of 51% and 29% in total  trades
executed by Sherwood Securities and NDB.com, respectively, during the year ended
May 31, 1999 over the prior year.

     Compensation and benefits increased by approximately  $33,558,000,  or 72%,
for the year ended May 31, 1999,  compared  with the prior year. As a percentage
of revenue,  employee  compensation  increased to 39% for the year ended May 31,
1999,  from  33% a year  ago.  The  increases  were  primarily  due to a rise in
compensation paid to Sherwood  Securities'  traders and salesmen  resultant from
the  increase in Sherwood  Securities'  net trading  revenue and  profitability.
Similarly,  based on the increasing  profitability and operational benchmarks of
both  NDB.com and Sherwood  Securities,  management  and  employee  bonuses have
increased. Finally, the number of employees increased to 624 employees as of May
31, 1999, from 478 employees as of May 31, 1998.

     Communication  expenses,  which include market data services,  increased by
$2,927,000  from  $10,865,000  in 1998 to  $13,792,000  in 1999. The increase is
mainly due to an increase in the cost of real-time  quotations now being offered
on NDB.com Webstation(TM).

     Advertising   costs  increased   $3,548,000  from  $4,146,000  in  1998  to
$7,694,000 in 1999 due to  additional  media buys and the costs to produce a new
line of advertisements for NDB.com.

     Occupancy costs increased $363,000 from $2,287,000 in 1998 to $2,650,000 in
1999. This increase is due to additional space leased during fiscal 1999 by both
Sherwood Securities and NDB.com, as well as increases in utility charges.

     Equipment rentals  increased  $436,000 from $185,000 in 1998 to $621,000 in
1999.  The increase is  principally  due to an increase in the cost of rental of
various   computer   hardware   and   software   systems   related   to  NDB.com
Webstation(TM).

     Professional  fees  increased  by  $2,663,000  from  $705,000  in  1998  to
$3,368,000  in 1999.  The  increase  is  primarily  due to a rise in legal  fees
associated  with a number of  projects,  including  corporate  acquisitions  and
dispositions by NDB Group, real estate lease negotiations  primarily by NDB.com,
architectural  and engineering needs analyses and other matters for both NDB.com
and Sherwood Securities.

     Technology  consulting  fees increased  $1,355,000 from $743,000 in 1998 to
$2,098,000 in 1999.  The increase is primarily due to the  management of NDB.com
new Webstation(TM) development project.

     Depreciation and amortization  increased by  approximately  $1,212,000,  or
18%,  for the year ended May 31,  1999,  as compared  to the prior  year.  These
increases  can be  attributed to three main  factors.  First,  NDB.com  incurred
additional  charges for the disposition of abandoned assets in connection with a
network upgrade.  Second,  the useful lives for all of Sherwood  Securities' and
NDB.com's  computer-related  equipment were reduced. This revision was necessary
due to the fact that these assets are becoming obsolete faster (due to speed and
capacity  limitations) in view of the higher volume and volatility conditions of
current markets.  Finally, the fixed asset,  leasehold  improvement  andcomputer
software additions by Sherwood Securities and NDB.com aggregating  approximately
$2,300,000  and  $4,900,000,  respectively,  during  the  period  from June 1998
through May 1999 also increased depreciation and amortization.

     Travel and entertainment  expense increased  approximately  $1,177,000 from
$1,672,000 in 1998 to $2,849,000 in 1999 and reflects primarily the entertaining
of  customers  by Sherwood  Securities'  institutional  and broker  dealer sales
force.

     Repairs and  maintenance  expense at both NDB.com and  Sherwood  Securities
increased  by  $397,000  from  $1,906,000  in 1998 to  $2,303,000  in 1999.  The
increase is principally due to maintenance  service  contract fees paid in order
to maintain  infrastructures  as the original  warranties on the various systems
continue to expire.

     Interest  expense  increased  $51,000 from  $339,000 in 1998 to $390,000 in
1999  primarily due to interest  incurred by NDB Group on its  $15,000,000  loan
from SLK.

     Other expenses  decreased $613,000 from $4,850,000 in 1998 to $4,237,000 in
1999. The decrease is primarily  attributable to the absence in fiscal 1999 of a
Sherwood  Securities charge in connection with the SEC investigation,  which was
recorded in fiscal 1998. See Item 3, "Legal  Proceedings".  Partially offsetting
this decrease was an increase in NDB.com customer accomodations related to trade
executions.

     The Company's  effective tax rate decreased from  approximately 49% for the
year ended May 31, 1998 to  approximately  47% for the year ended May 31,  1999.
The decrease in effective tax rate is due primarily to the non-deductibility for
tax  purposes in the prior year of the charge  related to the SEC  investigation
described in Item 3 above.

Fiscal 1998 Compared to Fiscal 1997

     The Company's  results of continuing  operations for the year ended May 31,
1998  reflect  primarily  the  activities  of Sherwood  Securities  and NDB.com.
Certain  fiscal 1997 amounts have been  reclassified  to conform with the fiscal
1999 presentation.

     In addition,  the results of operations  of  Equitrade,  MXNet and the AMEX
specialist  business  of  Sherwood  Securities,  each of  which  was sold by the
Company,  have been segregated and reflected as  discontinued  operations on the
Consolidated  Statements  of  Income  and  Comprehensive  Income.  As such,  the
individual line items comprising revenue and expenses from continuing operations
have been  adjusted  to exclude  the  discontinued  operations.  Net income from
operations of these discontinued  operations for the year ended May 31, 1998 was
$3,258,000 (net of taxes).  For the year ended May 31, 1997, the net income from
operations of these  discontinued  operations was $2,664,000 (net of taxes). See
Note 12 to the Consolidated Financial Statements -- Discontinued Operations.

     The Company had a net income from continuing  operations for the year ended
May 31, 1998 of $5,998,000,  compared to a net income from continuing operations
of $6,616,000  for the year ended May 31, 1997.  Sherwood  Securities  had a net
income from continuing operations for the year ended May 31, 1998 of $4,259,000,
compared to a net income from  continuing  operations for the year ended May 31,
1997 of  $6,680,000.  The results for the Company and  Sherwood  Securities  for
fiscal 1997 reflect a litigation settlement charge of $9,188,000, and associated
professional  fees.  Exclusive  of this  charge,  net of  reduced  bonus and tax
expenses,  net income from  continuing  operations  for the Company and Sherwood
Securities would have been $10,491,000 and  $11,458,000,  respectively,  for the
year ended May 31, 1997. The Company's and Sherwood Securities' 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.  NDB.com  had a  profit  for the year  ended  May 31,  1998 of
$1,304,000, compared to a net loss of $300,000 for the year ended May 31, 1997.

     Total  revenue  from  continuing  operations  for the Company  decreased by
approximately $22,370,000,  or 14%, from $161,182,000 in 1997 to $138,812,000 in
1998.

     Most  of the  Company's  revenue  arises  from  Sherwood  Securities'  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, primarily generated by NDB.com,  increased
principally 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.com. Throughout the year ended May 31, 1998, more customers traded utilizing
NDB.com's lower-priced,  automated systems,  PowerBroker(SM) and Webstation(TM),
as opposed to using higher costing live representatives.

     For the year ended May 31, 1997, the principal  portion of equity income in
partnerships  was an  equity  loss  from NDB  Group's  49%  limited  partnership
interest it held in Anvil Institutional  Services Company ("Anvil").  On January
24,  1997,  NDB  Group  acquired  the  remaining  51% of  Anvil  that it did not
previously  own. As such, 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 decreased  slightly from $7,652,000 in 1997 to
$7,599,000 in 1998,  although the sources of interest  income  varied.  Interest
income  increased due to the growing margin debits and free credit balances that
customers retain with NDB.com's clearing broker.  Meanwhile,  interest income of
Sherwood  Securities  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  NDB.com   receiving  higher
distribution  assistance 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 Sherwood
Securities' sale of its AMEX specialist business, fees were received for certain
consulting services performed during the transition period for the purchaser.

     Total expenses from continuing  operations decreased  $21,462,000,  or 14%,
from  $148,535,000 in 1997 to $127,073,000 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  $141,084,000,  resulting  in a decrease of 11% for the year ended May
31, 1998. The reasons for the decrease in expenses are set forth below.

     Clearing and related charges  decreased by $8,689,000  from  $55,009,000 in
1997 to  $46,320,000  in 1998. The decrease is due primarily to lower order flow
rebates being paid to Sherwood Securities' correspondents 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 with Sherwood
Securities and NDB.com's clearing brokers.

     Compensation and benefits decreased  $6,390,000 from $52,887,000 in 1997 to
$46,497,000 in 1998. The decrease was primarily due to lower commissions paid to
Sherwood  Securities'  traders  because of the  decrease  in  revenue  from firm
securities transactions.

     Communication  expenses,  which include market data services,  decreased by
$986,000  from  $11,851,000  in 1997 to  $10,865,000  in 1998.  The decrease was
mainly  due to the 1997  upgrade  of  NDB.com's  PowerBrokerSM  IVR  System  and
development of an in-house quote server, which costs did not occur in 1998.

     Advertising   costs  increased   $1,487,000  from  $2,659,000  in  1997  to
$4,146,000 in 1998 due to additional media buys by NDB.com.

     Occupancy costs decreased $208,000 from $2,495,000 in 1997 to $2,287,000 in
1998. The decrease is attributable  to a decrease for NDB.com which,  last year,
incurred rent  concurrently,  from November 1996 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.com's branch offices as of October 31, 1997 has led
to a reduction in rent expense.

     Professional  fees  decreased  by  $2,485,000  from  $3,190,000  in 1997 to
$705,000  in 1998.  During  the year  ended May 31,  1997,  NDB  Group  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 NDB  Group's  review of a  possible  acquisition  which was not
consummated.   Sherwood  Securities  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 $2,235,000 from $4,323,000 in
1997 to $6,558,000 in 1998. The increase was primarily due to  depreciation  and
amortization  incurred  on  fixed  asset,  leasehold  improvement  and  computer
software additions by Sherwood Securities and NDB.com aggregating  approximately
$1,700,000 and $4,500,000,  respectively  during the year ended May 31, 1998, as
well as a full year's expense on $12,000,000 of additions during the prior year.

     Travel and entertainment  expense primarily incurred by Sherwood Securities
decreased  $187,000 from  $1,859,000 in 1997 to $1,672,000 in 1998. The decrease
is primarily due to cost control measures.

     Repairs and maintenance expense increased by $994,000 from $912,000 in 1997
to $1,906,000  in 1998.  The increase is primarily  due to  maintenance  service
contract fees paid by both Sherwood  Securities and NDB.com in order to maintain
infrastructures as the original warranties on the various systems expire.

     Interest  expense  increased  $232,000 from $107,000 in 1997 to $339,000 in
1998 primarily due to interest incurred by Sherwood  Securities on the remaining
unpaid  balance  of  approximately  $4,600,000,  due  in  April  1998,  owed  in
connection with its settlement  agreement,  as amended,  in the case entitled In
Re: NASDAQ Market-Makers Antitrust Litigation.

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

     Other expenses  increased  $1,232,000 from $3,618,000 in 1997 to $4,850,000
in 1998. The increase is primarily attributable to increases in NDB.com customer
accommodations  related to trade executions,  employment agency fees and certain
expense accruals by Sherwood Securities in connection with the reasonably likely
outcome of the SEC investigation. See Item 3, "Legal Proceedings".

     The Company's  effective tax rate increased from  approximately 48% for the
year ended May 31, 1997 to  approximately  49% 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 year ended May 31, 1998.

     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 took a deduction on its fiscal 1998 tax returns for this
payment.

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  and NDB.com.  Certain
fiscal  1996  amounts  have been  reclassified  to conform  with the fiscal 1999
presentation.

     In addition,  the results of operations  of  Equitrade,  MXNet and the AMEX
specialist  business  of  Sherwood  Securities,  each of  which  was sold by the
Company,  have been segregated and reflected as  discontinued  operations on the
Consolidated  Statements  of  Income  and  Comprehensive  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, 1997 was $2,664,000 (net of taxes). For the year ended May 31, 1996, the net
income from operations of these  discontinued  operations was $3,602,000 (net of
taxes).  See Note 12 to the  Consolidated  Financial  Statements -- Discontinued
Operations.

     The Company had a net profit from continuing  operations for the year ended
May 31, 1997 of $6,616,000,  compared to a net profit from continuing operations
of $16,530,000  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
from continuing  operations for the year ended May 31, 1996 of $15,318,000.  The
results for the  Company  and  Sherwood  Securities  for fiscal  1997  reflect a
litigation  settlement  charge of $9,188,000 and associated  professional  fees.
Exclusive of this charge, net of reduced bonus and tax expenses, net profit from
continuing  operations for the Company and Sherwood  Securities  would have been
$10,491,000  and  $11,458,000,  respectively,  for the year ended May 31,  1997.
NDB.com 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.

     Revenue from continuing operations decreased by approximately  $553,000, or
less than 1%, from $161,735,000 in 1996 to $161,182,000 in 1997.

     Most of the Company's income from continuing  operations was resultant from
Sherwood Securities' firm securities transactions.  Sherwood Securities' profits
from firm securities transactions 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 in late fiscal 1997, 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.

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

     Interest and dividend  income  increased by $1,678,000  from  $5,974,000 in
1996 to $7,652,000 in 1997. The increase is primarily due to a significant  rise
in NDB.com's customer debit and credit balances held with the NDB.com'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 by Sherwood  Securities,
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  distribution  assistance fees received from
money  market  funds  as  NDB.com's  customers'  balances  in those  funds  have
increased since the prior year.

     Total expenses from continuing  operations increased  $16,114,000,  or 12%,
from  $132,421,000 in 1996 to $148,535,000 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
$141,084,000,  an  increase  of 7% from the  prior  year.  The  reasons  for the
increase in expenses are set forth below.

     Clearing and related charges  increased by $1,274,000  from  $53,735,000 in
1996 to $55,009,000 in 1997.  This increase is principally due to the operations
of NDB.com 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' market making activities.

     Compensation  and benefits  increased  $947,000 from $51,940,000 in 1996 to
$52,887,000  in 1997.  The increase  was  primarily  due to higher  salaries for
additional  employees hired (principally due to the expansion of NDB.com) offset
by decreases in both traders'  commissions  and in executive and staff  bonuses.
The  decrease  in  Sherwood  Securities'  trading  profits  led  directly to the
reduction in bonuses and commission payouts.

     Communication  expenses  increased by $784,000 from  $11,067,000 in 1996 to
$11,851,000  in  1997.  The  increase  was  mainly  due  to an  increase  in the
activities  of  NDB.com,  primarily  the  expansion  of its  toll-free  customer
quotation service and an increase in trading volume.

     Advertising costs increased  $932,000 from $1,727,000 in 1996 to $2,659,000
in  1997.  During  the  second  half of  fiscal  1997,  NDB.com  launched  a new
advertising campaign that included various forms of media advertising.

     Occupancy costs decreased $371,000 from $2,866,000 in 1996 to $2,495,000 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.com's main offices to 7 Hanover Square.

     Professional  fees  increased  by  $1,173,000  from  $2,017,000  in 1996 to
$3,190,000  in 1997.  During the year  ended May 31,  1997,  NDB Group  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 NDB  Group's  review of a  possible  acquisition  which was not
consummated.   Sherwood  Securities  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 $528,000 from $3,795,000 in 1996
to  $4,323,000  in 1997.  The increase was  primarily  due to  depreciation  and
amortization  incurred on fixed asset and  leasehold  improvement  additions  by
Sherwood  Securities and NDB.com of  approximately  $2,000,000 and  $10,000,000,
respectively,  during the year  ended May 31,  1997.

     Travel and entertainment expense increased $400,000 from $1,459,000 in 1996
to $1,859,000 in 1997. The increase is primarily due to additional  entertaining
of customers by Sherwood Securities' institutional sales force.

     Repairs and maintenance expense increased by $472,000 from $440,000 in 1996
to $912,000  in 1997.  The  increase is  primarily  due to  maintenance  service
contract  fees paid in order to  maintain  Sherwood  Securities'  and  NDB.com's
infrastructures as the original warranties on the various systems expire.

     Interest expense increased $96,000 from $11,000 in 1996 to $107,000 in 1997
and primarily  represents  interest owed on the underpayment of estimated income
taxes for certain tax jurisdictions.

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

     Other expenses  increased $642,000 from $2,976,000 in 1996 to $3,618,000 in
1997.  Contributing  to the increase is the  assumption  of costs related to the
advent of a debit card program for preferred customers of NDB.com. The remainder
of the increase is due to the overall increase in the volume of business and the
increase in staff size of NDB.com.

     The Company's  effective tax rate increased from  approximately 44% for the
year ended May 31, 1996 to  approximately  48% 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.com, the Company's consolidated state income tax
rate increased.

     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.


Liquidity and Capital Resources

     The  Company's  tangible  assets are highly  liquid,  but subject to market
price  fluctuation,  with more  than 61%  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.

     NDB Group's broker-dealer subsidiaries, Sherwood Securities and NDB.com 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,
1999,  Sherwood  Securities  and  NDB.com  had  approximately   $61,398,000  and
$3,854,000  in  excess  of  the  minimum  required  net  capital   requirements,
respectively,  representing increases of $25,659,000 for Sherwood Securities and
$286,000 for NDB.com, from the prior year. The increases for Sherwood Securities
and NDB.com resulted  primarily from the year's net income. The net capital rule
imposes  financial   restrictions   upon  Sherwood   Securities'  and  NDB.com'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  and NDB.com,  which  directly  affects the amount of funds
available for operating, investing and financing activities.

     From time to time,  the Company has borrowed  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.  Management  is  reviewing
alternatives to meeting these funding requirements.

     Fixed  assets  and  computer  software  of  approximately  $4,900,000  were
purchased and placed into service by NDB.com  during the year ended May 31, 1999
in connection with the upgrade of NDB.com's technological infrastructure.

     The Company  anticipates that it will spend an additional  $35,000,000 over
the next 9 months for its  subsidiaries'  ongoing  technological  infrastructure
upgrades and the  relocation  of NDB.com's  offices and intends to finance these
activities  with funds received from the sale of 2,990,000  shares of its common
stock during June 1999.

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

     The Company owned 260,100 shares of Astropower, Inc. common stock, acquired
as part of an underwriting  in 1989.  During the year ended May 31, 1999, all of
the  shares  were  sold with the  Company  recognizing  a gain of  approximately
$2,300,000.

     Between  February  and April 1998,  NDB.com  invested  $500,000 for 500,000
shares of Award Track,  Inc.  common stock.  During the year ended May 31, 1999,
the entire  investment  was written off as the  Company's  management  deemed it
worthless.

     During  the  year  ended  May 31,  1997,  the  Company  made  two  loans of
$3,000,000 each to NDB.com,  in the form of  subordination  agreements.  In July
1999, NDB Group contributed $10,000,000 to NDB.com. These funds were expended in
order for NDB.com 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.

     On  December  22,  1992,  the  Company  announced  it  would  by 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.  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.  As of May 31, 1999,  1,650,000
shares had been reacquired,  of which 244,822 shares were repurchased during the
fiscal year ended May 31, 1999. The source of the funds for these  purchases was
internally generated.

     As a  result  of  Equitrade's  acquisition  on  December  31,  1998  of RSF
Partners'assets,  including the right to act as a specialist in 39 securities on
the NYSE, the NYSE required Equitrade to increase its capital to $55,000,000. In
order to increase Equitrade's capital, a $22,000,000  subordinated loan was made
to Equitrade by NDB Group. NDB Group obtained the funds by borrowing $15,000,000
from SLK, with a six-month maturity,  and the balance was provided by internally
generated funds of the Company.  Concurrent with the sale of Equitrade to SLK on
June 18, 1999, NDB Group was repaid for its  $22,000,000  subordinated  loan and
NDB Group repaid its $15,000,000 loan to SLK.

     As a result of the sale of Equitrade on June 18, 1999, the Company received
approximately  $85,000,000  in cash (net of  $15,000,000  used to repay the loan
from SLK). On June 25, 1999, the Company closed an underwritten  public offering
of  2,990,000  shares of its common  stock,  which  resulted  in its  receipt of
approximately  $91,600,000  in  proceeds  net  of  underwriters'  discounts  and
commissions and expenses related to the offering.




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

     This  material  is  subject  to the Year  2000  Information  and  Readiness
Disclosure Act of 1998.

     State of  Readiness - The Company is  preparing  for the issues  associated
with the year 2000,  including changes in the programming of internal and vendor
computer  systems.  The year 2000 problem is pervasive  and complex as virtually
every computer  operation will be affected by the rollover of the two digit year
value to 00. The issue is whether computer systems will properly  recognize date
sensitive  information  when  the year  changes  to  2000.  Systems  that do not
properly  recognize such  information  could generate  erroneous data or cause a
system  to fail.  The  Company's  plan to deal  with the  year  2000  issue is a
five-step  plan,   which  includes  both  information   technology   ("IT")  and
non-information  technology ("non-IT") systems. IT systems include the Company's
trading system, the Company's accounting software and the NDB.com  WebstationTM.
Non-IT systems include the Company's headquarters' water, sprinkler and elevator
systems. The five steps are awareness,  assessment,  renovation,  validation and
implementation.   Awareness   required  the   notification   of  all  employees,
particularly senior management,  of the potential year 2000 problem.  Assessment
included  taking  inventory of every product or service  produced or used by the
Company  that  relies  on the use of  dates.  The date  could be used to  store,
search,  retrieve or calculate information.  The awareness and assessment phases
of the plan were 100%  complete as of May 31, 1999.  Renovation,  which has also
been substantially completed as of May 31, 1999, includes the conversion of year
2000  non-compliant  systems  into  year 2000  compliant  systems.  The  Company
believes that internal  software and hardware  identified as non-compliant  have
been made compliant or replaced,  in all material respects,  as of May 31, 1999,
except  that the Company was  notified by Nasdaq that the  operating  systems of
certain of its level II  workstations  need to be upgraded to be compliant.  The
Company  intends to upgrade these  workstations  by August 31, 1999. The Company
internally verified  compliance of its new NDB.com  WebstationTM by August 1999.
Validation  comprises  the  testing of all systems by using test data with dates
that include the year 2000.  This is the  certification  phase of the  Company's
production  platforms.  Implementation  will be a final  review of all year 2000
production  systems,  IT and non-IT,  in service.  The Company has constructed a
dedicated year 2000 test development environment to eliminate potential risks to
the  production  platforms  for use in the  validation  phase of this plan.  The
Company completed,  in all material respects,  the validation and implementation
phases by June 30, 1999.  The Company is  dependent  upon  services  rendered by
third parties,  such as  telecommunications,  electric and clearance,  which may
have a material effect on operations. Except as indicated below, these essential
service  providers  have  indicated  to the Company  that they will be year 2000
compliant in time to meet the Company's schedule,  although management presently
has no assurance  that such plans will be  implemented  on a timely  basis.  The
Company has been unable to obtain  verification  that the building  located at 3
New York Plaza, New York, New York is year 2000 compliant.  On an interim basis,
NDB.com has some of its operational units in this building. NDB.com is arranging
for the performance of these operations at its other locations in the event year
2000 problems prevent utilization of this space.  Sherwood Securities  continues
to conduct market tests with  communication  lines pursuant to which it receives
order flow.  Not all of these tests have been  successfuly  completed  as of the
date of this report.  However,  both NDB.com and Sherwood  Securities  intend to
continue to enhance and modify mission  critical systems as necessary after June
30,  1999.  The Company  intends to test each  enhancement  or  modification  to
determine if it is Year 2000  compliant.  The Company is aware that its clearing
brokers may not be willing to modify their  systems  until after January 1, 2000
in  response  to  requests  by  the  Company  to  make  changes  to  accommodate
enhancements  to its systems.  Costs - The Company  estimates that it will spend
$500,000 for software modifications,  hardware and testing related to year 2000.
Through May 31,  1999,  the Company  has spent  approximately  $203,000 of which
$163,000  was incurred  during the fiscal year ended May 31,  1999.  The Company
does not track  internal  costs  related  to year  2000  issues,  which  consist
primarily  of payroll  expenses  and, as a result,  the  foregoing  estimate and
actual expenditures do not include such internal costs.

     The Company has assessed that business  interruption is the most reasonably
likely worst case year 2000  scenario,  although  the effect upon the  Company's
results of operations, liquidity and financial condition is unknown.

     Contingency  Plan - At this time,  the Company has  formulated  contingency
plans should internal systems,  vendors or customers fail to become compliant or
fail to operate as a result of year 2000 problems.  In case of a non-replaceable
vendor  suffering a failure in the year 2000,  the Company  could be  materially
affected.

Looking Ahead

     During the fiscal year ending May 31, 2000, the Company  intends to execute
the following strategic plan. As a result of the underwritten public offering of
its common  stock that closed on June 25, 1999 and the sale of Equitrade on June
18,  1999,  the  Company has  accumulated  cash of  approximately  $177,000,000,
including the return of its invested capital at Equitrade.

     NDB.com  intends to expend up to $30,000,000  for marketing and advertising
its discount brokerage  services.  Specifically,  NDB.com will focus on branding
its services through the use of its logo, the duck.

     NDB.com is building a new data center and office space at a new location in
Jersey City, New Jersey. The estimated cost of this project is $35,000,000. Most
of the expenditures are projected to occur during the fiscal year ending May 31,
2000.

     NDB Group has formed a new subsidiary,  Millennium  Clearing  Corp.,  which
will serve as the vehicle to  clearing  transactions  initially  for NDB.com and
Sherwood  Securities  and later for third  parties.  The Company  estimates that
approximately  $20,000,000  will be needed to  satisfy  regulatory  net  capital
requirements for this operation. Additional funds will be expended for the start
up of the  operation.  The  Company  estimates  that  Millennium  will  commence
operation during the year ending December 31, 2000.  Millennium will be required
to register as a broker dealer and seek other regulatory clearances prior to the
commencement of business.  While the Company believes  self-clearing NDB.com and
Sherwood Securities will eventually reduce clearing expenses for these entities,
there can be no assurance  that this will occur or if it occurs when the savings
will be achieved.

     In addition,  NDB.com  intends to continue to invest in the development and
introduction  of new  products.  Products  being  reviewed are access to initial
public offerings,  insurance and banking  products,  electronic bill presentment
and payment and credit products.

     Management of the Company  believes these  investments  and innovations are
required  to compete in the rapidly  evolving  businesses  of market  making and
discount retail brokerage.


Item 7a.   Quantitative and Qualitative Disclosures About Risk

     The Company's principal business activities are, by their nature, risky and
volatile and are directly affected by many national and  international  factors.
Any one of these  factors  may cause a  substantial  decline  in the  securities
markets,  which  could  materially  adversely  affect  the  Company's  business.
Managing  risk is critical to the  Company's  profitability  and to reducing the
likelihood of earnings  volatility.  The Company's risk management  policies and
procedures have been established to continually  identify,  monitor,  and manage
risk.  The major types of risk,  which the Company faces  include,  credit risk,
legal risk, operating risk, and market risk.

     Credit risk is the  potential  for loss due to a customer  or  counterparty
failing  to  perform  its  contractual  obligations.   The  Company  clears  its
securities transactions through unaffiliated clearing agents. Under the terms of
its clearing agent agreements,  the Company's  clearing agents have the right to
charge it for losses that result from its  customers'  failure to fulfill  their
contractual  obligations.  In order to mitigate risk, the Company's policy is to
monitor the credit standing of its customers and maintain  collateral to support
margin loans to customers. Further, most of the Company's assets are held at one
or more clearing agents.  Therefore, it would incur substantial losses if one of
the Company's  clearing agents were to become  insolvent or otherwise  unable to
meet its financial obligations.

     Operating  risk is the  potential for loss due to  deficiencies  in control
processes or computer and technological  systems.  The Company relies heavily on
various computer and communications  systems to operate its business,  including
NDB.com's web site.  The Company  relies  particularly  on third parties such as
Nasdaq,  telephone  companies,  online service  providers,  data  processors and
software  and hardware  vendors.  The  Company's  business  could be  negatively
impacted by unanticipated  disruptions in service to customers,  slower response
times,  delays in  trading,  failed  settlement  of trades,  decreased  customer
service and satisfaction,  incomplete or inaccurate  accounting or processing of
trades,  and delays in the Company's  introduction of new products and services.
The  Company  attempts  to  mitigate  operating  risk by  employing  experienced
personnel,  maintaining an internal control system,  and maintaining  backup and
recovery functions.

     Legal  risk is the risk  associated  with  non-compliance  with  legal  and
regulatory requirements,  and counterparty non-performance based upon non-credit
related  conditions,  such as legal  authority or capacity.  The SEC,  NASD, and
other agencies extensively regulate the U.S. securities industry. The Company is
required to comply  strictly with the rules and  regulations of these  agencies.
Further,  there are frequent  changes in the laws and regulations  affecting the
securities  industry and the securities  markets. If the Company fails to comply
with any of these laws, rules, or regulations,  it is subject to censure, fines,
cease-and-desist  orders or suspensions of its business.  Additionally,  the SEC
and NASD have strict rules that require it to maintain  sufficient  net capital.
If it  fails to  maintain  the  required  net  capital,  the SEC or the NASD may
suspend or revoke its broker-dealer  licenses.  In addition,  the Company may be
subject to lawsuits or arbitration claims by customers, employees or other third
parties  in the  different  jurisdictions  in which it  conducts  business.  The
Company has  established  procedures  in  accordance  with legal and  regulatory
requirements that are designed to reasonably ensure compliance in these matters.

     Market  risk is the risk of loss that may result  from  changes in interest
and foreign  exchange rates,  equity and commodity  prices and the  correlations
among them.  The Company's  current  operations  and trading  activity limit its
exposure to the interest  rate and equity price  exposure  components  of market
risk.

     Interest rate risk is the  possibility  of a loss in the value of financial
instruments  from changes in interest rates.  The Company's  primary exposure to
interest rate risk arises from its interest  earning assets (mainly  deposits at
clearing brokers,  loans and notes receivable and U.S. Treasury obligations) and
funding sources (loans  payable).  The Company attempts to mitigate this risk by
only holding U.S. Treasury obligations with maturities of one year or less.

     Included  in its  inventory  of  financial  instruments  held  for  trading
purposes are  government  securities  with a fair value of $8.4 million and $7.7
million at May 31, 1999 and 1998,  respectively.  The interest rate risk,  which
arises from short term treasury  rates,  associated  with these positions is not
material to the  Company's  financial  position,  results of  operations or cash
flows.  All other financial  instruments  exposed to interest rate risk are held
for purposes other than trading. For these instruments the interest rate risk is
not  material  as the  underlying  value will not vary with  changes in interest
rates.

     Equity price risk generally means the risk of loss that may result from the
potential change in the value of a financial  instrument as a result of absolute
and relative price  movements,  price  volatility or changes in liquidity,  over
which the Company has no control.  The Company's market making activities expose
its capital to  significant  equity price risk.  To mitigate  this risk,  senior
management  monitors  profits and losses on a  real-time  basis  throughout  the
trading  day.  Further,  from the  Company's  system-generated  reports,  senior
management reviews positions,  mark-to-market  valuations, and daily profits and
losses on individual security positions.  Additionally,  traders are required to
maintain  positions meeting a specified  potential  profit/loss  ratio, which is
monitored by management.

     .   The   Company   maintains   inventories   for   trading   purposes   in
exchange-listed, Nasdaq and other over-the-counter securities on both a long and
short  basis.  The fair value of these  securities  at May 31,  1999,  was $38.0
million in long positions and $11.7 million in short  positions.  The fair value
of these  securities at May 31, 1998,  was $68.0  million in long  positions and
$28.7  million in short  positions.  The potential  loss in fair value,  using a
hypothetical  10% decline in prices,  is  estimated  to be $2.6 million and $3.9
million for 1999 and 1998, respectively.  A 10% hypothetical decline was used to
represent a significant yet plausible market change.

     Other  financial  instruments  exposed  to  equity  rate  risk are held for
purposes  other than trading.  This includes  investments  by the Company in two
privately  held  corporations.  These  investments  were  valued at their  cost,
$500,000 and $1,001,320 at May 31, 1999 and May 31, 1998,  respectively,  in the
Company's  financial  statements  under  the  heading  "Securities  not  readily
marketable".  The potential loss in fair value, using a hypothetical 10% decline
in prices, is estimated to be $50,000 for 1999 and $100,000 for 1998.





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.

     On  February  12,  1999,  KPMG LLP  resigned by mutual  agreement  with the
Company as the Company's independent public accountants.  The Audit Committee of
the Board of Directors of NDB Group  recommended  to the Board of Directors that
PricewaterhouseCoopers LLP be selected as the independent public accountants for
the Company.  The Board of Directors  approved the  recommendation  of its Audit
Committee.  PricewaterhouseCoopers  LLP became the Company's  independent public
accountants  on  February  19,  1999.  The  report of KPMG LLP on the  financial
statements  of the Company for the fiscal  years ended May 31, 1997 and 1998 did
not  contain  any  adverse  opinion  or  disclaimer  of  opinion,  nor were they
qualified or modified as to uncertainty,  audit scope or accounting  principles.
During the fiscal years ended May 31, 1998 and 1999, there were no disagreements
between  the Company and KPMG LLP on any  matters of  accounting  principles  or
practices, financial statement disclosure, or auditing scope or procedure.



                                    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 NDB Group'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, 1999
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 NDB Group'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, 1999 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  NDB  Group'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, 1999 is hereby incorporated by reference.



<PAGE>



Item 13.    Certain Relationships and Related Transactions.

     The material contained in "Certain  Relationships and Related Transactions"
of  NDB  Group'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, 1999 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)      Reports on Form 8-K

                     During the last quarter of the year ended May 31, 1999, NDB
                     Group filed one report on Form 8-K. The report, dated April
                     21,  1999,  was  filed in  regard  to the  adoption  of the
                     National  Discount  Brokers  Group,  Inc. 1999 Stock Option
                     Plan, the signing of a definitive  agreement  regarding the
                     sale of Equitrade Partners, L.L.C., the signing of a change
                     of control agreement with an executive of NDB Group and NDB
                     Group's signing of a new lease.

            (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.




<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Consolidated Financial Statements
For the Years Ended
May 31, 1999, 1998 and 1997



<PAGE>




National Discount Brokers Group, Inc. and Subsidiaries
Index to Consolidated Financial Statements
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                                               Page

<S> <C>                                                                                                      <C>
Independent Accountants' Reports                                                                              F-1-2

Consolidated Financial Statements and Notes

    Consolidated Statements of Financial Condition -
      May 31, 1999 and 1998                                                                                    F-3

    Consolidated Statements of Income and Comprehensive Income -
      Years Ended May 31, 1999, 1998 and 1997                                                                 F-4-5

    Consolidated Statements of Changes in Stockholders' Equity -
      Years Ended May 31, 1997, 1998 and 1999                                                                  F-6

    Consolidated Statements of Cash Flows -
      Years Ended May 31, 1999, 1998 and 1997                                                                F-7-10

    Notes to Consolidated Financial Statements                                                               F-11-30

Schedule I - Condensed Financial Statements of the Registrant (Parent) and Notes

    Statements of Financial Condition -
      May 31, 1999 and 1998                                                                                    S-1

    Statements of Income and Comprehensive Income-
      Years Ended May 31, 1999, 1998 and 1997                                                                  S-2

    Statements of Cash Flows-
      Years Ended May 31, 1999, 1998 and 1997                                                                 S-3-6

    Notes to Condensed Financial Statements                                                                    S-7


</TABLE>

<PAGE>




                        Report of Independent Accountants


July 15, 1999

To the Board of Directors and Stockholders of
National Discount Brokers Group, Inc.


In our opinion, the consolidated financial statements listed in the accompanying
index  present  fairly,  in all material  respects,  the  financial  position of
National  Discount Brokers Group, Inc. and its Subsidiaries at May 31, 1999, and
the results of their  operations and their cash flows for the year ended May 31,
1999, in conformity with generally accepted accounting principles.  In addition,
in our opinion,  the financial  statement  schedule  listed in the  accompanying
index presents  fairly,  in all material  respects,  the  information  set forth
therein  when  read in  conjunction  with  the  related  consolidated  financial
statements.  These financial statements and financial statement schedule are the
responsibility of the Company's management;  our responsibility is to express an
opinion on these financial  statements and financial statement schedule based on
our  audit.  We  conducted  our audit of these  statements  in  accordance  with
generally accepted auditing standards which 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,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audit  provides a reasonable  basis for the opinion  expressed
above.





PricewaterhouseCoopers LLP










                                       F-1

<PAGE>








                          Independent Auditors' Report



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


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

We  conducted  our  audits  in  accordance  with  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 the results of
their  operations  and their  cash  flows for each of the years in the  two-year
period then ended, in conformity with generally accepted accounting principles.




KPMG LLP
July 15, 1998













                                       F-2

<PAGE>

National Discount Brokers Group, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>

                                         May 31,                                                                  May 31,

                                  1999            1998                                                     1999             1998
<S>                          <C>             <C>                 <C>                                  <C>              <C>

Assets                                                           Liabilities and Stockholders' Equity



Cash                          $   411,629    $  1,039,121        Liabilities
Receivables                                                      Securities sold,
 Clearing brokers              86,509,122      67,742,508        not yet purchased, at market value   $ 11,723,172     $ 28,687,486
 Other                          2,901,799         727,099        Accrued compensation, accounts
Securities owned,                                                payable and accrued expenses           46,296,949       20,203,279
at market value                46,466,749      75,636,574        Loan payable                           15,000,000                -
Securities available-                                            Subordinated notes payable                      -        3,500,000
for-sale, at fair                                                Income taxes payable                    2,275,481        2,444,460
value                                   -       2,615,000        Minority interest in Equitrade                  -        9,465,741
Securities not readiily                                          Total liabilities                      75,295,602       64,300,966
marketable, at fair
value                             500,000       1,001,320        Commitments and contingencies
Investment in discontinued
operations                     28,341,746               -        Stockholders' equity
Loans and notes receivable      1,094,989         760,409        Preferred stock - $.01 par value;
Furniture, fixtures,                                             1,000,000 shares authorized, none issued       -                 -
equipment and leasehold                                          Common stock - $.01 par value; 50,000,000
improvements, at cost, net                                       shares authorized, 14,343,201
of accumulated depreciation                                      shares issued                             143,432          143,432
and amortization               14,837,114      18,011,262        Additional paid-in capital             65,828,938       65,050,817
Computer software, at cost,                                      Accumulated comprehensive
net of accumulated                                               income,unrealized gain on
amortizaton of $3,624,381                                        securities available-for-sale                   -        1,359,800
and $1,388,843, respectively    4,996,223       2,683,635        Retained earnings                      80,181,611       59,176,152
Intangible assets, net of                                                                              146,153,981      125,730,201
accumulated amortization of                                      Less:  treasury stock, at cost,
$1,275,041                              -       5,988,770        348,277 shares and 162,924 shares,
Exchange memberships                                             respectively                          (4,158,775)      (1,557,553)
(market value of                                                 Total stockholders' equity            141,995,206      124,172,648
$1,520,000 and $9,243,500,                                       Total liabilities and stockholders'
respectively)                     351,496       7,416,496        equity                              $ 217,290,808     $188,473,614
Secured demand notes
receivable                     27,000,000       3,500,000
Deferred tax asset                825,797         282,886
Other asset                     3,054,144       1,068,534
Total assets                $ 217,290,808    $188,473,614

</TABLE>





The accompanying  notes are an integral part of the consolidated  financial
statements.
                                       F-3
<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Consolidated Statements of Income and Comprehensive Income
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                           Years Ended May 31,
                                                                      ------------------------------------------------------------

                                                                             1999                1998                 1997
                                                                      -------------------  ------------------   ------------------
<S> <C>                                                                     <C>                 <C>                  <C>

Revenue
    Firm securities transactions, net                                       $145,819,935        $ 90,256,181         $117,490,958
    Commission income                                                         45,250,436          37,052,201           32,638,949
    Realized gain on securities, net of write-off                              1,870,242              63,625                    -
    Interest and dividends                                                    10,022,013           7,599,179            7,651,549
    Fee income                                                                 4,308,393           3,567,837            2,513,483
    Other                                                                        594,153             272,921              886,875
                                                                      -------------------  ------------------   ------------------

      Total revenue                                                          207,865,172         138,811,944          161,181,814
                                                                      -------------------  ------------------   ------------------

Expenses
    Compensation and benefits                                                 80,055,124          46,497,144           52,887,187
    Clearing and related brokerage charges                                    45,356,150          46,320,341           55,008,913
    Communications                                                            13,791,681          10,864,528           11,850,743
    Depreciation and amortization                                              7,769,722           6,557,551            4,322,880
    Advertising costs                                                          7,694,235           4,146,180            2,659,051
    Occupancy costs                                                            2,650,354           2,286,897            2,495,192
    Equipment rental                                                             621,376             184,876              144,504
    Professional fees                                                          3,368,282             705,127            3,190,172
    Technology expense                                                         2,098,391             743,269              293,618
    Travel and entertainment                                                   2,849,043           1,671,659            1,858,944
    Repairs and maintenance                                                    2,302,834           1,906,181              911,619
    Interest                                                                     390,334             338,523              107,099
    Litigation settlement                                                              -                   -            9,187,500
    Other                                                                      4,236,966           4,850,297            3,617,689
                                                                      -------------------  ------------------   ------------------

      Total expenses                                                         173,184,492         127,072,573          148,535,111
                                                                      -------------------  ------------------   ------------------

Income from continuing operations before income taxes                         34,680,680          11,739,371           12,646,703

Income taxes                                                                  16,461,273           5,740,913            6,031,128
                                                                      -------------------  ------------------   ------------------

Net income from continuing operations                                         18,219,407           5,998,458            6,615,575
                                                                      -------------------  ------------------   ------------------

Discontinued operations
    Income from discontinued operations,
      net of taxes                                                             2,786,052           3,257,776            2,664,118
    Gain on sale of discontinued operations,
      net of taxes                                                                     -           2,704,085                    -
                                                                      -------------------  ------------------   ------------------

                                                                               2,786,052           5,961,861            2,664,118
                                                                      -------------------  ------------------   ------------------

      Net income                                                            $ 21,005,459        $ 11,960,319         $  9,279,693
                                                                      -------------------  ------------------   ------------------

</TABLE>









                                       F-4


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Consolidated Statements of Income and Comprehensive Income, Continued
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                  Years Ended May 31,
                                                               --------------------------------------------------------

                                                                     1999                1998               1997
                                                               ------------------  -----------------  -----------------
<S> <C> <C>                                                           <C>              <C>                    <C>

Other comprehensive (loss) income, before tax:
    Unrealized (loss) gain on securities
      available-for-sale:
        Unrealized holding (loss) gain arising
           during period                                              $ (275,342)       $ 2,615,000            $     -
        Less: reclassification adjustment for gain
           included in net income                                     (2,290,318)                 -                  -
                                                               ------------------  -----------------  -----------------

Other comprehensive (loss) income, before tax                         (2,565,660)         2,615,000                  -

Income tax (benefit) expense related to items of
    other comprehensive (loss) income                                 (1,205,860)         1,255,200                  -
                                                               ------------------  -----------------  -----------------

Other comprehensive (loss) income, net                                (1,359,800)         1,359,800                  -
                                                               ------------------  -----------------  -----------------

             Comprehensive income                                    $19,645,659        $13,320,119        $ 9,279,693
                                                               ------------------  -----------------  -----------------

Net income per common and common
    equivalent share
    Basic
      Net income from continuing operations                            $    1.30           $    .45           $    .51
      Income from discontinued operations,
        net of taxes                                                         .20                .24                .21
      Gain on sale of discontinued operations,
        net of taxes                                                           -                .20                  -
                                                               ------------------  -----------------  -----------------

             Net income                                                $    1.50           $    .89           $    .72
                                                               ------------------  -----------------  -----------------

Weighted average common shares outstanding                            14,018,257         13,432,726         12,890,926
                                                               ------------------  -----------------  -----------------

    Diluted
      Net income from continuing operations                            $    1.29           $    .45           $    .51
      Income from discontinued operations,
        net of taxes                                                         .20                .24                .21
      Gain on sale of discontinued operations,
        net of taxes                                                           -                .20                  -
                                                               ------------------  -----------------  -----------------

             Net income                                                $    1.49           $    .89           $    .72
                                                               ------------------  -----------------  -----------------

Weighted average common shares outstanding                            14,143,240         13,501,346         12,946,007
                                                               ------------------  -----------------  -----------------

</TABLE>






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

                                       F-5


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity

<TABLE>
<CAPTION>


                                                              Years Ended May 31, 1997, 1998 and 1999

                                                            Accumulated
                                           Additional          Other
                     Common Stock            Paid-in        Comprehensive     Retained    Treasury Stock
                 Shares        Amount        Capital          Income          Earnings        Shares         Amount         Total
<S>            <C>           <C>          <C>               <C>           <C>              <C>           <C>           <C>

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         -            -               -    1,359,800                  -              -              -      1,359,800

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    1,359,800         59,176,152       (162,924)     (1,557,553)  124,172,648

Net income              -            -               -            -         21,005,459              -               -    21,005,459

Reversal of
  unrealized gain
  for investments sold  -            -               -   (1,359,800)                 -              -               -    (1,359,800)

Acquisition of
  treasury stock        -            -               -            -                  -       (244,822)     (3,231,647)   (3,231,647)

Issuance of
  treasury stock
  upon exercise of
  options               -            -         778,121            -                  -         59,469         630,425     1,408,546

Balance at
  May 31, 1999 14,343,201    $ 143,432    $ 65,828,938      $     -       $ 80,181,611       (348,277)   $(4,158,775) $ 141,995,206
</TABLE>





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

                                       F-6



<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                  Years Ended May 31,
                                                                 --------------------------------------------------

                                                                      1999             1998             1997
                                                                 ---------------- ---------------- ----------------
<S>                                                                 <C>              <C>              <C>

Cash flows from operating activities:
  Net income from continuing operations                             $ 18,219,407     $  5,998,458     $  6,615,575
  Net income from discontinued operations                              2,786,052        3,257,776        2,664,118
  Non-cash items included in net income:
   Equity (income) loss in partnerships                                        -           (1,299)          26,176
   Depreciation and amortization                                       7,769,722        7,797,133        4,891,324
   Gain on sale of securities available-for-sale                      (2,290,318)               -                -
   (Gain) loss on sale/write-off of
   securities not readily marketable                                     420,076          (63,625)               -
   Income of Equitrade allocated to
   minority partners                                                           -        5,766,440        4,326,095
   Provision for deferred taxes                                         (542,911)       1,937,586       (2,220,472)
   Provision for loss on notes receivable                                102,865                -                -
   Loss on sale of subsidiary                                                  -                -          123,006
  (Increase) decrease in operating assets:
   Funds segregated for customers                                              -           29,203          (29,203)
   Receivables
   Clearing brokers                                                  (18,766,614)      (9,695,325)      23,344,762
   Other                                                              (2,174,700)        (266,289)         (78,693)
   Securities owned                                                   29,169,825      (22,124,884)      (9,766,536)
   Other assets                                                       (1,985,610)         900,905         (457,385)
  Increase (decrease) in operating liabilities:
   Securities sold, not yet purchased                                (16,964,314)       3,558,196        4,790,211
   Accrued compensation, accounts payable and
     accrued expenses                                                 26,093,670      (12,786,419)       6,814,638
   Income taxes payable                                                1,708,046         (322,518)      (4,987,878)
  (Increase) decrease in operating assets due to deconsolidation
     of Equitrade:
     Investment in discontinued operations                           (28,341,746)               -                -
     Furniture, fixtures, equipment and leasehold improvements           290,122                -                -
     Intangible assets                                                 6,394,789                -                -
     Exchange memberships                                              7,065,000                -                -
     Secured demand notes receivable                                 (23,500,000)               -                -
  Decrease in operating liabilities due to deconsolidation of
     Equitrade:
     Minority interest in Equitrade                                   (9,465,741)               -                -
     Subordinated notes payable                                       (3,500,000)               -                -
                                                                 ---------------- ---------------- ----------------

    Net cash (used in) provided by operating activities             $ (7,512,380)   $ (16,014,662)    $ 36,055,738
                                                                 ---------------- ---------------- ----------------
</TABLE>







                                       F-7

<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows, Continued
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                 Years Ended May 31,
                                                                   ------------------------------------------------

                                                                       1999             1998             1997
                                                                   --------------  ---------------  ---------------
<S>                                                                <C>                   <C>              <C>

Cash flows from investing activities:
    Proceeds from sales of securities available-for-sale           $    2,290,318        $      -         $      -
    Proceeds from sales of securities not readily marketable              81,244           63,625                -
    Payment for purchase of securities not readily marketable                  -         (500,000)        (100,000)
    Loans made and notes issued to employees
      and officers                                                      (906,000)         (60,000)        (237,652)
    Principal collected on notes receivable                              468,555          233,124          104,321
    Purchases of furniture, fixtures, equipment
      and leasehold improvements                                      (3,035,696)      (4,949,659)     (11,429,602)
    Purchases of computer software                                    (4,118,607)      (1,842,745)      (1,413,233)
    Acquisition of intangible assets                                    (450,000)               -       (4,316,804)
    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 notes receivable                                  -                -         (500,000)
    Principal collected on subordinated notes receivable                       -                -          500,000
    Other                                                                      -          (38,917)           5,150
                                                                   --------------  ---------------  ---------------

        Net cash used in investing activities                         (5,670,186)        (494,572)     (29,949,313)
                                                                   --------------  ---------------  ---------------

Cash flows from financing activities:
    Proceeds from loan payable                                        15,000,000                -                -
    Sale of treasury stock                                                     -       19,267,500                -
    Purchase of treasury stock                                        (3,231,647)        (614,281)      (3,569,937)
    Proceeds from exercise of options                                    786,721                -                -
    Capital contribution by minority interest                                  -          275,086          185,658
    Capital withdrawals by minority interest                                   -       (4,296,021)      (1,849,025)
                                                                   --------------  ---------------  ---------------

        Net cash provided by (used in)
           financing activities                                       12,555,074       14,632,284       (5,233,304)
                                                                   --------------  ---------------  ---------------

        Net (decrease) increase in cash                                 (627,492)      (1,876,950)         873,121

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

        Cash at beginning of year                                      1,039,121        3,033,818          470,313
                                                                   --------------  ---------------  ---------------

        Cash at end of year                                           $  411,629      $ 1,039,121      $ 3,033,818
                                                                   --------------  ---------------  ---------------
</TABLE>



                                       F-8

<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows, Continued
--------------------------------------------------------------------------------

Supplemental disclosures of cash flow information:

  Income tax payments totaled $17,266,322, $7,510,410 and $15,946,000 during the
  years ended May 31, 1999, 1998 and 1997, respectively.

  Interest payments totaled  $315,334,  $1,129,763 and $658,276 during the years
ended May 31, 1999, 1998 and 1997, 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,  NDB Group  wrote off the  remaining  book  value of  certain
   computer software and intangible assets aggregating $225,193. In addition, as
   part of the sale,  NDB Group  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,  NDB Group  acquired,  from its joint venture  partner at
  that time,  the remaining  51% of Anvil  Institutional  Services  Company (the
  "Anvil Joint Venture") that it did not previously  own. NDB Group,  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 were consolidated with
  those of NDB Group 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
  September 1997, NDB Group sold all of the stock of its subsidiary,  Anvil, and
  received a note in the amount of $102,945, which was repaid in January 1999.

  During  February  1997,  an executive  of NDB Group  exercised an aggregate of
  94,027  options for the purchase of 94,027 shares of NDB Group'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 of $838,324 and to reimburse NDB Group for
  the personal  income taxes of $54,569 on the gain related to the  transaction,
  the executive  remitted to NDB Group 88,187 shares of NDB Group's common stock
  with a market  value of  $892,893.  In  connection  with the exercise of these
  options, NDB Group recorded an income tax benefit of $49,743.

  On May 2, 1997,  NDB Group  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 NDB Group 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  October  1997 and  December  1997,  certain  executives  of NDB  Group
  exercised an aggregate of 294,758  options for the purchase of 294,758  shares
  of NDB Group'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 of
  $2,701,705  and to  reimburse  NDB  Group  for the  personal  income  taxes of
  $441,389 on the gain related to the  transaction,  the executives  remitted to
  NDB Group  255,450  shares of NDB Group's  common stock with a market value of
  $3,143,094.  In  connection  with the  exercise  of these  options,  NDB Group
  recorded an income tax benefit of $366,215.




                                       F-9


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows, Continued
--------------------------------------------------------------------------------

  During  October  1997,   Equitrade  Partners  L.P.  entered  into  a  $500,000
  subordinated  note agreement in the form of a secured  demand note  receivable
  with an  unrelated  party.  The note has a  stated  interest  rate of 4% and a
  maturity date of October 1, 1999.

  During  February  1998,  NDB  Group  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 April
  1998.

  Between  February  1998 and May 1998,  certain  available-for-sale  securities
  appreciated due to the entity's  successful initial public offering.  As such,
  NDB Group reflected these  securities at fair market value on the consolidated
  statements of financial  condition.  The unrealized gain of $1,359,800,  as of
  May 31, 1998,  associated with marking these  securities to fair market value,
  is  reflected  as a  component  of  accumulated  comprehensive  income  on the
  consolidated  statements  of  financial  condition,  net of  income  taxes  of
  $1,255,200.

  Between December 1998 and May 1999,  various  employees of NDB Group exercised
  an  aggregate  of 59,469  options  for the  purchase  of 59,469  shares of NDB
  Group's  common stock with  exercise  prices  ranging from $11.00 per share to
  $13.50 per share. In connection with the exercise of these options,  NDB Group
  recorded an income tax benefit of $621,825.


































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

                                      F-10

<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended May 31, 1999, 1998 and 1997

1.       Organization and Business

     National  Discount  Brokers Group,  Inc. ("NDB Group") and its subsidiaries
     (collectively,  the "Company") are engaged in the retail discount brokerage
     (primarily   online)  and  market  making   businesses.   NDB  Group's  two
     wholly-owned    subsidiaries,    Sherwood   Securities   Corp.   ("Sherwood
     Securities") and Triak Services Corp.,  doing business as National Discount
     Brokers or NBD.com  ("NDB"),  are  registered  as  broker-dealers  with the
     Securities and Exchange  Commission ("SEC") and are members of the National
     Association of Securities Dealers, Inc. ("NASD").

     NDB provides retail discount  brokerage  services.  As a retail broker, NDB
     executes orders to buy and sell securities for a commission.

     Sherwood  Securities is a market maker in equity  securities  traded on the
     Nasdaq stock market and over the counter bulletin board. As a market maker,
     Sherwood Securities maintains firm bid and offer prices in a given security
     by standing ready to buy or sell at publicly quoted prices and maintains an
     inventory in the securities in which it makes a market. Sherwood Securities
     executes  transactions  for its own account,  the accounts of its customers
     and on behalf of other broker-dealers.

     NDB Group and another wholly owned  subsidiary,  SHD  Corporation  ("SHD"),
     also owned limited partnership  interests in Equitrade Partners,  L.L.C., a
     New York limited liability company ("Equitrade"). Equitrade is a registered
     specialist  on the New York Stock  Exchange  ("NYSE").  In June  1999,  the
     Company sold its 46.845% membership interest in Equitrade to Spear, Leeds &
     Kellogg  Specialists  LLC ("SLK  Specialists").  See Note 12 - Discontinued
     Operations.

     On January 24, 1997, NDB Group acquired,  from its joint venture partner at
     that time, the remaining 51% of Anvil  Institutional  Services Company (the
     "Anvil  Joint  Venture")  that  it  did  not  previously  own.  NDB  Group,
     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,  NDB Group sold all of the stock of Anvil for  $217,000,
     which approximated book value.

     On  February  13,  1998,  MXNet,  Inc.  ("MXNet"),   another  wholly  owned
     subsidiary  of NDB Group,  was sold.  In  addition,  on February  27, 1998,
     Sherwood  Securities sold its American Stock Exchange  ("AMEX")  specialist
     business. See Note 12 - Discontinued Operations.

2.       Summary of Significant Accounting Policies

     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.

     The consolidated financial statements include the accounts of NDB Group and
     its subsidiaries.  All significant  intercompany  balances and transactions
     have  been  eliminated  in  consolidation.  In 1998  and  1997,  NDB  Group
     consolidated its  majority-owned  subsidiary,  Equitrade.  In 1999, the net
     assets  of  Equitrade  are  presented  as  a  separate  line  item  in  the
     consolidated statement of financial condition


                                      F-11


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended May 31, 1999, 1998 and 1997

     since its operations have been  discontinued.  NDB Group accounts for a 15%
     owned investee on the cost method.

     Firm  securities  transactions  (trading  gains,  net of  trading  losses),
     commission  income and related  revenues  and  expenses  are  recorded on a
     trade-date basis.

     Interest and dividend  income  consists of interest earned on the Company's
     and customer  balances  held by clearing  brokers and  dividends  earned on
     securities  owned.  Interest  income  is  recorded  on the  accrual  basis.
     Dividend income is recorded on the ex-dividend date.

     Fee income  comprises  mutual fund  distribution  assistance fees and short
     stock rebates. Fee income is recorded as earned.

     Receivable from clearing  brokers  comprises cash in proprietary  accounts,
     cash on deposit with the Company's clearing brokers and commissions.

     Securities  owned and securities  sold,  not yet  purchased,  are generally
     carried at the last "bid" and "ask" prices,  respectively.  The  difference
     between cost and market value is included in firm  securities  transactions
     in the consolidated statements of income and comprehensive income.

     Securities available-for-sale,  held by NDB Group, are stated at fair value
     with  unrealized  gains and  losses  included  as a separate  component  of
     stockholders'  equity.  Securities not readily  marketable are comprised of
     cost method investments.

     Management  estimates that the fair values of other  financial  instruments
     recognized  in  the  consolidated  statement  of  financial  condition  are
     approximated by their carrying  values,  as such financial  instruments are
     short-term in nature or bear interest at current market rates.

     Furniture,  fixtures and equipment are depreciated  using the straight-line
     method  over  their  estimated  useful  lives of three to five  years.  The
     estimated  useful lives for the Company's  computer-related  equipment were
     reduced from 5 years due to the fact that these assets have become obsolete
     faster.  This change in estimate reduced income from continuing  operations
     by  approximately  $274,000  for the year  ended  May 31,  1999.  Leasehold
     improvements are amortized using the straight-line method over the terms of
     the leases or the estimated useful lives of the improvements,  whichever is
     less.

     Computer  software is  amortized  using the  straight-line  method over its
     estimated useful life of three years.

     Intangible assets consisted of acquired rights to specialize in securities,
     goodwill and  covenants  not-to-compete.  These assets were carried at cost
     and were amortized  using the  straight-line  method over estimated  useful
     lives of ten to fifteen years.

     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


                                      F-12


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended May 31, 1999, 1998 and 1997

     settled.  The  effect  on  deferred  taxes  of a  change  in tax  rates  is
     recognized in income in the period that includes the enactment date.

     In accounting for its stock option plans,  the Company  applies  Accounting
     Principles  Board  Opinion  No.  25 ("APB  25") to  calculate  compensation
     expense.  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. As required,  the Company  provides 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 123 had been applied.

     Net income per common share is computed  using the weighted  average number
     of shares of common stock and potential common stock outstanding. Potential
     common  stock is  comprised  of stock  issuable  under stock  options.  The
     treasury  stock method is used in computing the potential  common stock for
     the  computation of diluted  earnings per common share.  Basic earnings per
     share  differs  from  diluted  earnings  per  share  in that  dilution  for
     potential common stock is excluded.

     In March 1998, the Accounting Standards Executive Committee of the American
     Institute  of Certified  Public  Accountants  issued  Statement of Position
     98-1,  "Accounting for the Costs of Computer Software Developed or Obtained
     for Internal  Use" ("SOP 98-1").  SOP 98-1 provides  guidance on accounting
     for the costs of computer  software  developed or obtained for internal use
     and for determining when specific costs should be capitalized and when they
     should be expensed.  SOP 98-1 has been implemented by the Company as of the
     beginning of fiscal 1999.  The adoption of SOP 98-1 did not have a material
     impact on the Company's consolidated financial statements.

     Certain prior year amounts have been  reclassified  to conform with the May
     31, 1999 presentation.  Additionally, the accompanying financial statements
     for the year ended May 31,  1998 have been  restated  to include the income
     tax expense related to items of other comprehensive income. The restatement
     had no impact on net  income for the year  ended May 31,  1998 and  reduced
     stockholders'  equity and increased income taxes payable at May 31, 1998 by
     $1,255,200.



















                                      F-13


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended May 31, 1999, 1998 and 1997

3.       Securities Owned and Sold, Not Yet Purchased

     Securities owned and sold, not yet purchased consist of the following:
<TABLE>
<CAPTION>

                                                                              May 31,
                                                                      1999                1998
                                                               -----------------   -----------------
<S>                                                                <C>                 <C>

Securities owned
   Corporate equities                                              $38,048,489         $67,969,111
    U.S. Government obligations                                      8,418,260           7,667,463
                                                               -----------------   -----------------

      Total                                                        $46,466,749         $75,636,574
                                                               -----------------   -----------------

Securities sold, not yet purchased
    Corporate equities                                             $11,723,172         $28,687,486
                                                               -----------------   -----------------
</TABLE>


4.   Financial Instruments with Off-Balance Sheet Risk and Concentrations of
     Credit Risk

     In the  normal  course  of  business,  Sherwood  Securities  and NDB  clear
     securities  transactions  through two  unaffiliated  clearing  brokers on a
     fully  disclosed  basis.  Pursuant to the terms of the  agreements  between
     Sherwood  Securities and NDB and their  respective  clearing  brokers,  the
     clearing  brokers  have  the  right  to  recover  losses  resulting  from a
     counterparty's  failure to fulfill its  contractual  obligations.  Sherwood
     Securities and NDB seek to control the risk  associated with their customer
     activities  by  making  credit   inquiries   when   establishing   customer
     relationships and by monitoring customer trading activity.

     Credit  risk  arises  from  the  potential   inability  of  counterparties,
     including clearing brokers, to fulfill their contractual  obligations.  The
     subsequent  settlement of open  positions at May 31, 1999,  had no material
     adverse effect on the financial position of the Company.

     During the normal course of business,  Sherwood Securities and NDB may sell
     securities which have not yet been purchased,  which represent  obligations
     of Sherwood Securities and NDB 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 NDB's ultimate  obligation to satisfy the
     sale of  securities  sold,  but not yet  purchased,  may  exceed the amount
     recorded on the  consolidated  statement of financial  condition.  Sherwood
     Securities  and NDB seek to control  such  market  risk  through the use of
     internal monitoring guidelines.  Neither Sherwood Securities nor NDB engage
     in any derivative activities.








                                      F-14


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended May 31, 1999, 1998 and 1997

5.       Furniture, Fixtures, Equipment and Leasehold Improvements

     Furniture,  fixtures,  equipment and leasehold  improvements consist of the
     following:

<TABLE>
<CAPTION>
                                                                 May 31,
                                                        1999                1998
<S>                                                 <C>                 <C>

Furniture, fixtures and equipment                   $26,309,299         $26,325,316

Leasehold improvements                                3,832,350           3,518,709

                                                     30,141,649          29,844,025

Less: accumulated depreciation
      and amortization                               15,304,535          11,832,763

                                                    $14,837,114         $18,011,262
</TABLE>


6.       Acquisition of SHD Corporation (Formerly Dresdner-NY Incorporated)

     On May 2,  1997,  NDB  Group  acquired  100% of the  stock  of  Dresdner-NY
     Incorporated  (subsequently  renamed SHD  Corporation),  a NYSE  specialist
     firm,  from Dresdner  Bank AG for a 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 was
     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 are included in the accompanying  consolidated
     statement of income and comprehensive income from the acquisition date. The
     SHD business was sold to SLK concurrent  with the sale of Equitrade in June
     1999; therefore, the business has been shown as discontinued operations and
     the remaining unamortized intangible asset was expensed.

7.       Income Taxes

     The Company files consolidated  Federal and combined income tax returns for
     certain  states  and  localities  (inclusive  of all  subsidiaries,  except
     Equitrade)  based on a May 31 year end.  Separate  tax returns are filed in
     certain states as required.

     The current  Federal,  state and local income tax  provisions for the years
     ended  May 31,  1999,  1998  and  1997  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,
     1999,  the Company had net deferred tax assets which are  primarily  due to
     differences  in the  period in which  depreciation  and rent  expenses  are
     deductible  for book and tax  purposes.  Management  of the Company has not
     established a valuation  allowance  because they  concluded that it is more
     likely than not that the benefit will be realized.



                                      F-15


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended May 31, 1999, 1998 and 1997

     The provisions for income taxes included in the consolidated  statements of
income and comprehensive income are as follows:

<TABLE>
<CAPTION>
                                                                           Years Ended May 31,
                                                         -----------------------------------------------------

                                                               1999              1998              1997
                                                         -----------------  ----------------  ----------------
<S>                                                           <C>                <C>               <C>

Continuing operations
    Federal
      Current                                                 $10,941,702        $2,811,254        $5,481,573
      Deferred (benefit) expense                                 (382,360)        1,022,050        (1,203,645)
                                                         -----------------  ----------------  ----------------

                                                               10,559,342         3,833,304         4,277,928
                                                         -----------------  ----------------  ----------------

    State and local
      Current                                                   6,062,482           992,073         2,770,027
      Deferred (benefit) expense                                 (160,551)          915,536        (1,016,827)
                                                         -----------------  ----------------  ----------------

                                                                5,901,931         1,907,609         1,753,200
                                                         -----------------  ----------------  ----------------

                                                              $16,461,273        $5,740,913        $6,031,128
                                                         -----------------  ----------------  ----------------

Discontinued operations
    Federal
      Current                                                 $ 1,577,010        $2,325,179        $1,743,838

    State and local
      Current                                                     893,639         1,063,568           937,015
                                                         -----------------  ----------------  ----------------

                                                              $ 2,470,649        $3,388,747        $2,680,853
                                                         -----------------  ----------------  ----------------

</TABLE>

















                                      F-16


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended May 31, 1999, 1998 and 1997

     A reconciliation of differences  between the income tax provisions included
     in continuing operations and the amounts computed by applying the statutory
     Federal income tax rate is as follows:

<TABLE>
<CAPTION>


                                                                            Years Ended May 31,
                                                         -----------------------------------------------------

                                                               1999              1998              1997
                                                         -----------------  ----------------  ----------------

<S>                                                           <C>                <C>               <C>

Statutory provision on pretax income                          $12,138,238        $4,108,779        $4,426,346

State and local taxes, net of Federal                           3,836,255         1,239,946         1,139,580
      tax benefit

Tax effect of disallowed expenses                                 278,236           124,804           206,411

Other, net                                                        208,544           267,384           258,791
                                                         -----------------  ----------------  ----------------

      Income tax provision                                    $16,461,273        $5,740,913        $6,031,128
                                                         -----------------  ----------------  ----------------
</TABLE>



8.       Subordinated Notes Payable

     As of May 31, 1998, Equitrade had three subordinated note agreements in the
     aggregate amount of $3,000,000, each with a stated interest rate of 5%, and
     an additional $500,000 subordinated note agreement ("Additional Note") with
     a stated interest rate of 4%. Such notes were due on March 23, 2000, except
     for the  Additional  Note, for which the maturity date was October 1, 1999.
     Each note contained yearly automatic  roll-over  provisions.  In connection
     with these  agreements,  the lenders pledged  marketable  securities with a
     market value of  approximately  $5,940,000  as  collateral  for the related
     secured demand notes  receivable.  Concurrent with the sale of Equitrade on
     June  18,  1999,  the  aforementioned  subordinated  note  agreements  were
     cancelled.

9.       Stock Option Plans

     On October 24, 1995, the  stockholders of the Company approved The Sherwood
     Group,  Inc. 1995 Stock Option Plan (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  rights  may be  granted
     thereunder  from  767,200  shares to  1,187,200  shares.  The  Compensation
     Committee issued to employees, exercising options under a plan initiated in
     1983 (the "1983 Plan"), new options (reload  options) in an amount equal to
     the number of shares of common  stock the  employees  used to  satisfy  the
     exercise price and the withholding  taxes due upon exercise of the options.
     Generally,  reload  options  granted  have  provided for vesting six months
     after the date of grant.  Other  options  granted  under the 1995 Plan have
     provided for vesting ratably over three years after the date of grant.


                                      F-17


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended May 31, 1999, 1998 and 1997

     All options  granted have exercise prices equal to the fair market value of
     the  Company's  common  stock on the date of the grant and have a  ten-year
     term.

     On April 21,  1999,  the Board of  Directors  of the Company  approved  the
     National Discount Brokers Group, Inc. 1999 Non-Qualified  Stock Option Plan
     (the "1999 Plan")  permitting the granting of  non-qualified  stock options
     covering up to 1,000,000  shares of the  Company's  common  stock.  Options
     granted  under the 1999 Plan have  provided for vesting  ratably over three
     years after the date of grant.  All options  granted have  exercise  prices
     equal to the fair market value of the Company's common stock on the date of
     the grant and have a ten year term.

     At May 31, 1999, an aggregate of 253,297  shares were  available for future
     grant under the 1995 Plan and the 1999 Plan. No stock  appreciation  rights
     have been issued.  The following  table  summarizes  transactions  in stock
     options  granted  under the 1995  Plan and the 1999 Plan from May 31,  1996
     through May 31, 1999:

<TABLE>
<CAPTION>

                                                                Optioned Shares
                                                                              Weighted Average
                                                          Number of            Exercise Price
                                                           Shares                Per Share

<S>                                                       <C>                      <C>

Balance at May 31, 1996                                     394,697                $ 8.84

 Options exercised                                         (94,027)                  8.92

 Options granted (including 88,187 reload options)          165,187                 10.63
                                                           ________

 Balance at May 31, 1997                                    465,857                  9.45

 Options exercised                                         (294,758)                 9.17

 Options granted (including 255,450 reload options)         539,600                 12.94

 Options cancelled                                          (68,214)                11.77
                                                           ________

 Balance at May 31, 1998                                    642,485                 12.26

 Options exercised                                          (59,469)                13.23

 Options granted - original                                 942,750                 52.81

 Options cancelled                                          (40,117)                13.29
                                                          _________                ______
 Balance at May 31, 1999                                  1,485,649                 37.93
                                                          =========                ======
</TABLE>











                                      F-18


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended May 31, 1999, 1998 and 1997

     The following table summarizes  information about stock options outstanding
and exercisable, at May 31, 1999.
<TABLE>
<CAPTION>

                                                  Options Outstanding                          Options Exercisable
                               ------------------------------------------------------------------------------------------
                                                    Weighted-Average    Weighted-Average                 Weighted-Average
    Range of                     Number                Remaining         Exercise Price       Number      Exercise Price
 Exercise Prices               Outstanding          Contractual Life       Per Share        Exercisable      Per Share
-------------------------------------------------------------------------------------------------------------------------
<S>         <C>                <C>                        <C>                <C>              <C>             <C>
$ 8.81   -  $ 12.69              365,375                  7.9                $ 11.42          351,374         $11.43
 13.25   -    13.50              178,424                  8.5                  13.49           33,695          13.42
 22.50   -    24.25              181,850                  9.7                  22.64              400          22.50
 60.06   -    60.06              760,000                  9.9                  60.06                -              -
                               _________                                                      _______
  8.81   -    60.06            1,485,649                  9.2                  37.93          385,469          11.61
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

     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 plans for the years ended May
     31, 1999, 1998 and 1997.

<TABLE>
<CAPTION>
                                                              Years Ended May 31,
                                                      ----------------------------------
    Weighted-Average
      Assumptions                                         1999        1998        1997
                                                       ----------  ----------  ----------
<S>                                                      <C>         <C>         <C>

Dividend yield                                              0%          0%          0%
Expected volatility                                      66.0%       37.0%       34.5%
Risk-free interest rate                                  4.92%       5.61%       6.20%
Expected lives                                              3           3           3
</TABLE>

     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.

     Had the Company accounted for its stock-based  compensation  plans based on
     the fair  value of awards  at grant  date in a manner  consistent  with the
     methodology  of SFAS 123,  the  Company's  net income and income per common
     share would have decreased as indicated in the table below. 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.







                                      F-19


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended May 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                           Years Ended May 31,
                                                         ------------------------------------------------------

                                                               1999               1998               1997
                                                         -----------------  -----------------   ---------------
<S>                                                           <C>                <C>                <C>

Net income
    As reported                                               $21,005,459        $11,960,319        $9,279,693
    SFAS 123 fair value adjustment                               (995,559)          (672,646)         (346,631)
                                                         -----------------  -----------------   ---------------

    Pro forma                                                 $20,009,900        $11,287,673        $8,933,062
                                                         -----------------  -----------------   ---------------

Net income per common share:
Basic
    As reported                                                 $    1.50           $    .89          $    .72
    SFAS 123 fair value adjustment                                   (.07)              (.05)             (.03)
                                                         -----------------  -----------------   ---------------

    Pro forma                                                   $    1.43           $    .84          $    .69
                                                         -----------------  -----------------   ---------------

Diluted
    As reported                                                 $    1.49           $    .89          $    .72
    SFAS 123 fair value adjustment                                   (.07)              (.05)             (.03)
                                                         -----------------  -----------------   ---------------

    Pro forma                                                   $    1.42           $    .84          $    .69
                                                         -----------------  -----------------   ---------------
</TABLE>



     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 and
     1999 Plan for the  years  ended May 31,  1999,  1998 and 1997 were  $25.39,
     $3.93 and $3.32, respectively.

10.      Related Party Transactions

     Included  in notes  receivable  at May 31,  1998 was  $339,000  due from an
     officer of the Company. This note was repaid in full in February 1999.

     The Company  has,  from time to time,  entered  into  short-term  borrowing
     facilities  with Spear,  Leeds & Kellogg,  L.P.  ("SLK") for the purpose of
     financing  trading  positions.  On December  31, 1998,  NDB Group  borrowed
     $15,000,000,  at an interest rate of 6% per annum and a six-month maturity,
     from SLK in order to increase the capital of Equitrade. Concurrent with the
     sale of Equitrade on June 18, 1999 to SLK Specialists, the $15,000,000 loan
     from SLK was repaid in full.

     On December 8, 1997, the Company sold, at market value, 1,500,000 shares of
     its common stock held in treasury to IAT  Reinsurance  Syndicate  Ltd.,  an
     affiliate  of Peter R.  Kellogg.  Prior to this  acquisition,  Mr.  Kellogg
     beneficially owned 1,025,000 shares of common stock.


                                      F-20


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended May 31, 1999, 1998 and 1997

11.      Employee Benefit Plans

     The  Company  has  an  employee   deferred   compensation   plan   covering
     substantially  all employees,  which  qualifies under Section 401(k) of the
     Internal Revenue Code. The Company contributed $93,115, $82,013 and $63,699
     for the years ended May 31, 1999, 1998 and 1997, respectively.

12.      Discontinued Operations

     Pursuant to  Accounting  Principles  Board Opinion 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  Equitrade,  MXNet and
     Sherwood Securities' AMEX specialist business.

     In May 1999,  the Company  entered into a definitive  agreement to sell its
     ownership  interest in Equitrade.  The transaction closed on June 18, 1999,
     and  as  such,   the   operations  of  Equitrade  have  been  reflected  in
     discontinued  operations for all periods reported.  Prior to the allocation
     of minority  interest and income taxes,  revenues and expenses for the year
     ended  May  31,  1999  applicable  to  this  discontinued   operation  were
     $21,834,533 and $13,934,463,  respectively; for the year ended May 31, 1998
     were $25,636,056 and $12,173,172,  respectively; and for the year ended May
     31, 1997 were $19,153,401 and $8,187,373,  respectively. The gain from this
     transaction  will be recorded  during the first  quarter of the fiscal year
     ending May 31, 2000.

     On  February  13,  1998,  NDB Group  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.  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;  and
     for the year ended May 31, 1997 were $733,762 and $2,028,724, respectively.

13.      Net Capital and Customer Reserve Requirements

     Sherwood Securities and NDB introduce all customer transactions to clearing
     brokers  and do not  maintain  custody  of  customer  funds or  securities.
     Accordingly,  Sherwood  Securities  and NDB qualify for exemption  from the
     provisions  of SEC Rule  15c3-3  under  subparagraph  (k)(2)(ii).  Sherwood
     Securities and NDB were in compliance with the conditions of this exemption
     during the years ended May 31, 1999, 1998 and 1997.

     As registered  broker-dealers,  Sherwood  Securities and NDB are subject to
     SEC Uniform Net Capital Rule 15c3-1 (the "Rule").  As of May 31, 1999,  the
     net capital of Sherwood  Securities and NDB exceeded their SEC required net
     capital by approximately $61,398,000 and $3,854,000, respectively.






                                      F-21


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended May 31, 1999, 1998 and 1997

     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. Accordingly, at May 31, 1999,
     the payment of dividends and advances to the Company by Sherwood Securities
     and  NDB  is  limited  to   approximately   $61,198,000   and   $3,804,000,
     respectively, under the most restrictive of these requirements.

14.      Commitments

     The Company has non-cancelable  operating leases for rental of office space
     at its various locations expiring at various dates through 2014. 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, 1999 are as follows, exclusive of escalation charges:
<TABLE>
<CAPTION>
     <S>                                                             <C>

     Fiscal year ending May 31,
     2000                                                            $ 3,843,000
     2001                                                              5,439,000
     2002                                                              5,300,000
     2003                                                              5,178,000
     2004                                                              5,196,000
     Thereafter                                                       38,845,000
                                                              ------------------
                                                                     $63,801,000
                                                              ------------------
</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  $2,097,000,  $2,201,000  and $2,429,000 for the
     years ended May 31, 1999, 1998 and 1997, respectively.

     NDB Group has an employment  contract with Arthur Kontos,  Chief  Executive
     Officer  ("CEO")  of NDB  Group,  with a term  ending on May 31,  2000 with
     certain   rights  for  extension  of  the  term  or  earlier   termination.
     Remuneration  under this contract 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
     CEO's cash bonus is paid pursuant to the National  Discount  Brokers 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  accrued
     compensation,  accounts  payable  and  accrued  expenses  is  approximately
     $3,530,000,  $1,836,000 and $1,251,000 due to the CEO at May 31, 1999, 1998
     and 1997, respectively.  In connection with this contract and the CEO Plan,
     approximately  $5,532,000,   $1,366,000  and  $1,889,000  is  reflected  in
     compensation  and benefits for the years ended May 31, 1999, 1998 and 1997,
     respectively.  Additionally,  for the years  ended May 31,  1999,  1998 and
     1997, approximately $928,000, $1,358,000 and $1,172,000, respectively, were
     netted against income from  discontinued  operations and for the year ended
     May 31, 1998,


                                      F-22


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended May 31, 1999, 1998 and 1997

     approximately  $755,000 was netted against the gain on sale of discontinued
     operations  as reflected in the  accompanying  consolidated  statements  of
     income and comprehensive income.

     During  the fiscal  year  ended May 31,  1997,  NDB Group  established  The
     Sherwood  Group,  Inc. 1996 Executive  Incentive Award Plan (the
     "Executive  Plan").  The  Executive  Plan  allowed  for the  creation  of a
     compensation  pool at an  amount  equal to 4.25% of Net  Income,  which was
     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 NDB Group's Board of Directors  during the year ended May 31,
     1998,  effective June 1, 1997.  Under the Executive  Plan,  bonuses for the
     Company's  executives  were  to be  determined  at  the  discretion  of the
     Compensation Committee of the Board of Directors. In determining Net Income
     for  the  fiscal  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).

15.      Segments

     In June 1997, the FASB issued Statement of Financial  Accounting  Standards
     No.  131,   "Disclosures  about  Segments  of  an  Enterprise  and  Related
     Information"  ("SFAS  131").  This  standard  established  the criteria for
     determining an operating segment and the required financial  information to
     be disclosed.  SFAS 131 also establishes  standards for disclosing  related
     information  regarding  products and services,  geographic  areas and major
     customers. This standard is limited to issues of reporting and presentation
     and does not address recognition or measurement.  Its adoption,  therefore,
     does not have an effect on the  Company's  earnings,  liquidity  or capital
     resources.

     Under the provisions of SFAS 131, the Company has two reportable  segments:
     discount  brokerage and market making. NDB transacts all business that will
     be reported in the Company's discount  brokerage segment.  Its revenues are
     principally  in  the  form  of  retail  commission   income,   distribution
     assistance  fees from mutual  funds and interest  earned on its  customers'
     balances held at its clearing broker.  Sherwood  Securities  represents the
     Company's  market  making  segment,   which  primarily   derives  its  firm
     securities transaction revenues from the spread between the price paid when
     a security is bought and the price  received when a security is sold.  "All
     Other"  category  revenues  consist   principally  of  interest,   realized
     gains/losses on securities available for sale and administrative fees.

     The accounting  policies of the segments are the same as those described in
     Note 2.  Revenues  from the  transactions  with other  segments  within the
     Company  (referred  to as  intersegment  revenues)  are  recorded at market
     value, as if the transactions were with third parties.

     The Company  evaluates the  performance  of its segments based on profit or
     loss from operations before income taxes. No single customer  accounted for
     more  than  10% of the  Company's  consolidated  revenues.  Information  on
     segment  assets  is not  disclosed  because  it is not used for  evaluating
     segment  performance  and deciding  how to allocate  resources to segments.
     However,  capital  expenditures are used in evaluating segment  performance
     and are therefore disclosed. Capital expenditures are reported in total, as
     opposed to net of proceeds,  from the sale of fixed  assets.  Substantially
     all of the Company's revenues and assets are attributable or located in the
     U.S.



                                      F-23


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended May 31, 1999, 1998 and 1997

     Financial information for the Company's reportable segments is presented in
     the following table which excludes the Company's  discontinued  operations,
     primarily Equitrade.

<TABLE>
<CAPTION>

                                                                      Year Ended May 31, 1999
                                                                     ------------------------
                                                    Discount
                                                    Brokerage      Market Making    All Other         Total
<S>                                                <C>             <C>              <C>            <C>
                                                    -----------------------------------------------------------
Revenue from external sources                      $ 54,706,000    $150,194,000     $ 2,965,000    $207,865,000
Intersegment revenue                                  6,979,000         118,000       2,862,000       9,959,000
                                                    -----------------------------------------------------------
Total revenue                                      $ 61,685,000    $150,312,000     $ 5,827,000    $217,824,000
                                                    -----------------------------------------------------------
Interest and dividends (included in total revenue) $  6,938,000    $  2,635,000      $  856,000    $ 10,429,000
Interest expense                                        407,000           7,000         383,000         797,000
Depreciation and amortization                         4,350,000       3,377,000          43,000       7,770,000
Profit or loss before income taxes                    2,570,000      38,387,000      (6,276,000)     34,681,000
Capital expenditures                                  4,865,000       2,329,000         410,000       7,604,000

</TABLE>
<TABLE>
<CAPTION>

                                                                      Year Ended May 31, 1998
                                                                      ------------------------
                                                    Discount
                                                    Brokerage      Market Making    All Other         Total
<S>                                                <C>             <C>              <C>            <C>
                                                    ------------------------------------------------------------
Revenue from external sources                      $ 44,186,000    $ 93,583,000     $ 1,043,000    $138,812,000
Intersegment revenue                                  6,976,000         100,000       2,302,000       9,378,000
                                                    ------------------------------------------------------------
Total revenue                                      $ 51,162,000    $ 93,683,000     $ 3,345,000    $148,190,000
                                                    ------------------------------------------------------------
Interest and dividends included in total revenue)  $  5,448,000    $  1,610,000      $  984,000    $  8,042,000
Interest expense                                        435,000         303,000          44,000         782,000
Depreciation and amortization                         3,844,000       2,704,000          10,000       6,558,000
Profit or loss before income taxes                    2,183,000       8,223,000       1,334,000      11,740,000
Capital expenditures                                  4,454,000       1,668,000         671,000       6,793,000

</TABLE>
<TABLE>
<CAPTION>

                                                                      Year Ended May 31, 1997
                                                                      ------------------------
                                                    Discount
                                                    Brokerage      Market Making    All Other         Total
<S>                                                <C>             <C>              <C>            <C>
                                                   -------------------------------------------------------------
Revenue from external sources                      $ 38,253,000    $121,401,000     $ 1,528,000    $161,182,000
Intersegment revenue                                  7,628,000         111,000       1,121,000       8,860,000
                                                    ------------------------------------------------------------
Total revenue                                      $ 45,881,000    $121,512,000     $ 2,649,000    $170,042,000
                                                    ------------------------------------------------------------
Interest and dividends (included in total revenue) $  4,769,000    $  2,418,000      $  602,000    $  7,789,000
Interest expense                                        125,000          54,000          65,000         244,000
Depreciation and amortization                         1,810,000       2,292,000         221,000       4,323,000
Profit or loss before income taxes                     (428,000)     12,173,000         902,000      12,647,000
Capital expenditures                                  9,762,000       1,907,000       5,491,000      17,160,000


</TABLE>




                                      F-24


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended May 31, 1999, 1998 and 1997

     The following table is a  reconciliation  of reportable  segment  revenues,
     profit or loss before  income  taxes and other  significant  items,  to the
     Company's consolidated totals.

<TABLE>
<CAPTION>

                                                                         Year Ended May 31,
                                                                        ------------------
<S>                                                     <C>               <C>              <C>
                                                              1999              1998             1997
Revenue

Total revenue for reportable segments                   $ 211,997,000     $ 144,845,000     $167,393,000
Other revenue                                               5,827,000         3,345,000        2,649,000
Elimination of intersegment revenue                        (9,959,000)       (9,378,000)      (8,860,000)
                                                          -----------------------------------------------
Total consolidated revenue                              $ 207,865,000     $ 138,812,000     $161,182,000
                                                          -----------------------------------------------

Profit or Loss Before Income Taxes

Total profit or loss before income taxes for            $  40,957,000     $  10,406,000     $ 11,745,000
   reportable segments
Other profit or loss                                       (6,276,000)        1,334,000          902,000
Elimination of intersegment profit or loss                          -                 -                -
                                                          ------------------------------------------------
Total consolidated profit or loss before income taxes   $  34,681,000     $  11,740,000     $ 12,647,000
                                                          ------------------------------------------------
Interest and dividends

Total interest and dividends for reportable segments    $   9,573,000     $   7,058,000     $  7,187,000
Other interest and dividends                                  856,000           984,000          602,000
Elimination of intersegment interest and dividends           (407,000)         (443,000)        (137,000)
                                                          ------------------------------------------------
Total consolidated interest and dividends               $  10,022,000      $  7,599,000     $  7,652,000
                                                          ------------------------------------------------
Interest Expense

Total interest expense for reportable segments          $     414,000      $    738,000     $    179,000
Other interest expense                                        383,000            44,000           65,000
Elimination of intersegment interest expense                 (407,000)         (443,000)        (137,000)
                                                          ------------------------------------------------
Total consolidated interest expense                     $     390,000      $    339,000     $    107,000
                                                          ------------------------------------------------

Depreciation and Amortization

Total depreciation and amortization for                 $   7,727,000      $  6,548,000     $  4,102,000
   reportable segments
Other depreciation and amortization                            43,000            10,000          221,000
Elimination of intersegment depreciation
   and amortization                                                 -                 -                -
                                                          ----------------------------------------------
Total consolidated depreciation and amortization        $   7,770,000      $  6,558,000     $  4,323,000
                                                          ----------------------------------------------

Capital expenditures

Total capital expenditures for reportable segments      $   7,194,000      $  6,122,000     $ 11,669,000
Other capital expenditures                                    410,000           671,000        5,491,000
Elimination of intersegment capital expenditures                    -                 -                -
                                                          ----------------------------------------------
Total consolidated capital expenditures                 $   7,604,000      $  6,793,000     $ 17,160,000
                                                          ----------------------------------------------

</TABLE>


                                      F-25


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended May 31, 1999, 1998 and 1997

16.      Contingencies and Legal Matters

     NDB Group's  subsidiaries,  and in some cases NDB Group, 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 and related laws and other laws.

     As part of a global settlement  involving more than 25 Nasdaq market making
     firms,  Sherwood  Securities has settled  proceedings brought against it in
     connection  with the  investigation  by the SEC  captioned In the Matter of
     Certain Market-Making Activities on NASDAQ, HO-2974. In connection with the
     settlement, Sherwood Securities consented to the entry of certain Orders by
     the SEC instituting  proceedings,  making findings and imposing  sanctions.
     Sherwood Securities neither admitted nor denied the substantive allegations
     set forth in the Orders.  As part of the  settlement,  Sherwood  Securities
     paid a civil  penalty  of  $1,000,000  to the SEC and the sum of  $8,138 in
     disgorgement.  Sherwood Securities' results for the year ended May 31, 1998
     reflect a charge to establish a reserve for the SEC's investigation,  which
     is included in professional  fees on the  consolidated  statement of income
     and comprehensive income, which was paid in January 1999.

     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 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  agreed  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.

     On April 9, 1997, Sherwood  Securities entered into a settlement  agreement
     (the  "Settlement  Agreement")  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." 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  has been granted  final  approval by the Court and judgement has
     been entered. The judgement has been appealed to the United States Court of
     Appeals for the Second  Circuit by certain class  members.  No argument has
     been scheduled.

     Weiss,  Peck & Greer,  L.L.C.  ("WPG") has filed a Statement of Claim dated
     March 22,  1999 in an  arbitration  before the NASD titled In the Matter of
     the Arbitration of Weiss, Peck & Greer,  L.L.C.,  Claimant against Sherwood
     Securities Corp.,  Respondent.  In the Statement of Claim, WPG alleges that
     Sherwood Securities  contravened  standards of "commercial  reasonableness"
     and "just and


                                      F-26


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended May 31, 1999, 1998 and 1997

     equitable  principles of trade" in connection with trades of  approximately
     1.5  million  shares of  Amazon.com  from  Carnegie,  Childs & Co.,  L.L.C.
     ("Carnegie") on January 8, 1999. WPG was Carnegie's  clearing  broker.  WPG
     alleges that the trades resulted in Carnegie having a net short position in
     Amazon.com of 1,462,000  shares.  WPG covered the short position on January
     11, 1999 and alleges it sustained losses in excess of $11,000,000.  WPG has
     requested  relief of  compensatory  damages in excess of  $11,000,000  plus
     consequential  damages and interest,  WPG's costs and  attorneys'  fees and
     such other  relief as the  arbitration  panel  deems just and  appropriate.
     Management  of  Sherwood  Securities,   after  consultation  with  counsel,
     believes it has valid  defenses to these  claims and intends to  vigorously
     defend  against  these  claims.  Sherwood  Securities  filed an Answer  and
     Statement of Counterclaim  dated June 8, 1999 in which Sherwood  Securities
     denies  liability for the claims asserted by WPG and asserts a counterclaim
     of  approximately  $1,300,000 for losses  Sherwood  Securities  suffered in
     connection  with trades in Amazon.com  executed by Sherwood  Securities for
     Carnegie on January 8, 1999.  WPG has filed a Reply to  Counterclaim  dated
     June 28, 1999 denying  liability  for the claim  asserted in the Answer and
     Statement of Counterclaim.

17.      Subsequent Events

     On June 18,  1999,  NDB Group and SHD sold their  membership  interests  in
     Equitrade to SLK  Specialists.  NDB Group and SHD owned a combined  46.845%
     membership interest in Equitrade. Prior to the closing, NDB Group exercised
     its right to purchase  .03%  membership  interests in Equitrade  from three
     special members in exchange for cash equal to the capital accounts of these
     special members.  NDB Group and SHD received  approximately  $85,000,000 in
     cash from SLK Specialists  net of repayment of a $15,000,000  loan from SLK
     to NDB Group.  The Company  recognized a net pre-tax gain of  approximately
     $36,000,000 in connection with this  transaction  which will be recorded in
     the first quarter of the fiscal year ended May 31, 2000.

     On June 25,  1999,  NDB Group sold  2,990,000  shares of common stock in an
     underwritten  public  offering  at  $33  per  share.  Net  of  underwriting
     discounts and commissions,  and expenses related to the offering, NDB Group
     received approximately $91,600,000 in proceeds.



















                                      F-27


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended May 31, 1999, 1998 and 1997

18.      Quarterly Financial Information (unaudited)

     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                 First       Second        Third       Fourth
                                                              ----------   ----------   ----------  -----------
<S>                                                             <C>          <C>          <C>          <C>

1999

Revenues                                                        $31,748      $45,379      $63,873      $66,865
Expenses                                                         32,483       37,617       49,383       53,701
                                                              ----------   ----------   ----------  -----------

Income (loss) from continuing operations before taxes              (735)       7,762       14,490       13,164

Income taxes                                                        (85)       3,330        6,740        6,477
                                                              ----------   ----------   ----------  -----------

      Net income (loss) from continuing operations                 (650)       4,432        7,750        6,687

Income (loss) from discontinued operations                         (685)       1,451          422        1,598
                                                              ----------   ----------   ----------  -----------

Net income (loss)                                               $(1,335)     $ 5,883      $ 8,172      $ 8,285
                                                              ----------   ----------   ----------  -----------

Basic income (loss) per share:
Continuing operations                                           $  (.04)      $  .32       $  .55       $  .48
Discontinued operations                                            (.05)         .10          .03          .11
                                                              ----------   ----------   ----------  -----------

    Net income (loss) per share - basic                         $  (.09)      $  .42       $  .58       $  .59
                                                              ----------   ----------   ----------  -----------

Diluted income (loss) per share:
Continuing operations                                           $  (.04)      $  .32       $  .55       $  .47
Discontinued operations                                            (.05)         .10          .03          .11
                                                              ----------   ----------   ----------  -----------

    Net income (loss) per share - diluted                       $  (.09)      $  .42       $  .58       $  .58
                                                              ----------   ----------   ----------  -----------

</TABLE>




















                                      F-28


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended May 31, 1999, 1998 and 1997

18.      Quarterly Financial Information (unaudited), continued

     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                 First       Second        Third       Fourth
                                                              ----------   ----------   ----------  -----------
<S>                                                             <C>          <C>          <C>          <C>

1998

Revenues                                                        $34,896      $34,845      $31,584      $37,485
Expenses                                                         31,377       33,198       29,610       32,888
                                                              ----------   ----------   ----------  -----------

Income from continuing operations before taxes                    3,519        1,647        1,974        4,597

Income taxes                                                      1,527          655          925        2,634
                                                              ----------   ----------   ----------  -----------

      Net income from continuing operations                       1,992          992        1,049        1,963

Income from discontinued operations                                 716        1,095          468          981

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

Net income                                                      $ 2,708      $ 2,087      $ 4,221      $ 2,944
                                                              ----------   ----------   ----------  -----------

Basic income per share:
Continuing operations                                            $  .16       $  .07       $  .07       $  .14
Discontinued operations                                             .05          .09          .03          .07
Sale of discontinued operations                                       -            -          .20            -
                                                              ----------   ----------   ----------  -----------

    Net income per share - basic                                 $  .21       $  .16       $  .30       $  .21
                                                              ----------   ----------   ----------  -----------

Diluted income per share:
Continuing operations                                            $  .16       $  .07       $  .07       $  .14
Discontinued operations                                             .05          .09          .03          .07
Sale of discontinued operations                                       -            -          .20            -
                                                              ----------   ----------   ----------  -----------

    Net income per share - diluted                               $  .21       $  .16       $  .30       $  .21
                                                              ----------   ----------   ----------  -----------

</TABLE>

















                                      F-29


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
For the Years Ended May 31, 1999, 1998 and 1997

18.      Quarterly Financial Information (unaudited), continued

     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                              First       Second       Third       Fourth
                                                              ----------   ----------  -----------  ----------
<S>                                                             <C>          <C>          <C>         <C>

1997

Revenues                                                        $40,595      $36,607      $44,968     $39,012
Expenses                                                         35,008       32,270       46,787      34,470
                                                              ----------   ----------  -----------  ----------

Income (loss) from continuing operations before taxes             5,587        4,337       (1,819)      4,542

Income taxes                                                      2,795        1,623         (521)      2,134
                                                              ----------   ----------  -----------  ----------

      Net income from continuing operations                       2,792        2,714       (1,298)      2,408

Income from discontinued operations                                 211          581        1,056         816
                                                              ----------   ----------  -----------  ----------

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

Net income (loss) per share:
Continuing operations                                            $  .21       $  .21      $  (.10)     $  .19
Discontinued operations                                             .02          .04          .08         .06
                                                              ----------   ----------  -----------  ----------

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

</TABLE>




















                                      F-30

<PAGE>



National Discount Brokers Group, Inc. and Subsidiaries
Condensed Financial Statements of the Registrant (Parent)
--------------------------------------------------------------------------------
Statements of Financial Condition                                    Schedule I
<TABLE>
<CAPTION>

                                                                                             May 31,
                                                                                       --------------------
                                                                             ------------------  ------------------
                                                                                   1999                1998
                                                                             ------------------  ------------------
<S>                                                                               <C>                 <C>

Assets

Cash                                                                               $   145,619         $   221,328
Receivables                                                                          1,488,294          14,117,784
Notes receivable                                                                     1,028,481             568,710
Securities available for sale, at market value                                               -           2,438,438
Securities not readily marketable, at fair value                                       400,000             401,320
Investment in, less net amounts due to,
    subsidiaries and affiliates                                                    107,057,296          81,751,054
Investment in discontinued operations                                               17,946,870
Investment in partnerships                                                                   -          13,775,483
Furniture and equipment, net                                                             5,938               2,374
Intangible asset, net                                                                  409,091                  20
Subordinated notes receivable                                                       38,000,000          16,000,000
U.S. Treasury obligations, held as collateral                                        5,971,505           5,223,882
Other assets                                                                         2,105,525             444,951
                                                                             ------------------  ------------------

      Total assets                                                                $174,558,619        $134,945,344
                                                                             ------------------  ------------------

Liabilities and stockholders' equity

Accrued compensation, accounts payable and
    accrued expenses (including income taxes payable)                             $ 12,563,413        $  5,467,903
Subordinated note payable                                                            5,000,000           5,000,000
Loan payable                                                                        15,000,000                   -
                                                                             ------------------  ------------------

                                                                                    32,563,413          10,467,903
                                                                             ------------------  ------------------

Stockholders' equity
    Common stock                                                                       143,432             143,432
    Retained earnings and other equity                                             141,851,774         124,334,009
                                                                             ------------------  ------------------

                                                                                   141,995,206         124,477,441
                                                                             ------------------  ------------------

      Total liabilities
        and stockholders' equity                                                  $174,558,619        $134,945,344
                                                                             ------------------  ------------------

</TABLE>










     The  accompanying  notes are an integral  part of the  condensed  financial
statements.

                                       S-1


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Condensed Financial Statements of the Registrant (Parent), continued
--------------------------------------------------------------------------------
Statements of Income and Comprehensive Income                        Schedule I

<TABLE>
<CAPTION>
                                                                               Years Ended May 31,
                                                             --------------------------------------------------------

                                                                   1999               1998                1997
                                                             -----------------  -----------------   -----------------
<S>                                                                <C>                 <C>                <C>

Revenues
    Equity loss in partnership                                      $       -          $       -          $  (27,099)
    Interest                                                          974,433          1,063,774             677,898
    Realized gain on
      securities available-for-sale                                 2,290,318                  -                   -
    Service fees paid by subsidiaries
      eliminated in consolidation                                   4,140,000          4,233,345           5,640,015
    Other                                                               6,444                  -            (119,346)
                                                             -----------------  -----------------   -----------------

                                                                    7,411,195          5,297,119           6,171,468
                                                             -----------------  -----------------   -----------------

Expenses
    Compensation and benefits                                      11,858,572          4,016,895           4,675,853
    Interest                                                          382,828             35,033                   -
    Other, net                                                      2,560,359          1,299,167           1,403,486
                                                             -----------------  -----------------   -----------------

                                                                   14,801,759          5,351,095           6,079,339
                                                             -----------------  -----------------   -----------------

Income (loss) from continuing operations
    before equity in income of
    subsidiaries and income taxes                                  (7,390,564)           (53,976)             92,129

Equity in income of subsidiaries                                   22,835,661          8,837,016           5,650,335
                                                             -----------------  -----------------   -----------------

    Income from continuing operations
      before income taxes                                          15,445,097          8,783,040           5,742,464

Income tax expense (benefit)                                       (2,742,257)          (218,785)           (115,960)
                                                             -----------------  -----------------   -----------------

        Net income from continuing
           operations                                              18,187,354          9,001,825           5,858,424

Income from discontinued operations, net of taxes                   2,818,105          3,663,155           3,748,519
Loss on sale of discontinued operations, net of taxes                       -           (727,116)                  -
                                                             -----------------  -----------------   -----------------

        Net income                                                 21,005,459         11,937,864           9,606,943

Other comprehensive income (loss),
    net of taxes                                                   (1,359,800)         1,359,800                   -
                                                             -----------------  -----------------   -----------------

        Comprehensive income                                      $19,645,659        $13,297,664         $ 9,606,943
                                                             -----------------  -----------------   -----------------
</TABLE>


     The  accompanying  notes are an integral  part of the  condensed  financial
statements.

                                       S-2


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Condensed Financial Statements of the Registrant (Parent), continued
--------------------------------------------------------------------------------
Statements of Cash Flows                                             Schedule I
<TABLE>
<CAPTION>

                                                                               Years Ended May 31,
                                                           --------------------------------------------------------

                                                                 1999                1998               1997
                                                           ------------------  -----------------  -----------------
<S>                                                              <C>                <C>                <C>

Cash flows from operating activities
    Net income from continuing operations                        $18,187,354        $ 9,001,825        $ 5,858,424
    Net income from discontinued operations                        2,818,105          3,663,155          3,748,519
    Non-cash items included in net income:
      Net equity in gain of subsidiaries                         (22,835,661)        (8,837,016)        (5,650,335)
      Equity income in partnerships                               (3,568,584)        (5,852,353)        (6,163,136)
      Loss on sale of subsidiary                                           -                  -            123,006
      Depreciation and amortization                                   42,079            144,494            265,658
      Gain on sale of investment securities
        available-for-sale                                        (2,290,318)                 -                  -
    Decrease (increase) in operating assets:
      Receivables                                                 12,629,490        (13,480,564)         4,298,488
      U.S. Treasury obligations, held as collateral                 (747,623)           257,938            (52,141)
      Other assets                                                (1,659,252)           179,234           (258,429)
    (Decrease) increase in operating liabilities
      Accounts payable, accrued expenses and
        other liabilities                                          8,972,534         (3,464,080)        (3,731,976)
                                                           ------------------  -----------------  -----------------

        Net cash provided by (used in)
           operating activities                                   11,548,124        (18,387,367)        (1,561,922)
                                                           ------------------  -----------------  -----------------

Cash flows from investing activities
    Proceeds from sales of securities
      available-for-sale                                           2,290,318                  -                  -
    Investment in discontinued operations                           (602,803)          (444,068)          (320,437)
    Distribution from partnerships                                         -          4,362,952          3,771,646
    Loans made to employees and officers                            (900,000)                 -           (137,652)
    Principal collected on notes receivable                          440,229             45,465             44,967
    Purchase of subsidiaries, net of cash acquired                         -                  -        (15,763,434)
    Return of capital from subsidiary                                      -          3,538,554          2,409,659
    Purchase of furniture, fixtures, equipment
      and leasehold improvements                                      (4,715)                 -                  -
    Payment for purchase of identified
      intangible asset                                              (450,000)                 -           (188,780)
    Additional capital contributed to subsidiaries                         -                  -                  -
    Issuance of subordinated notes receivable                    (22,000,000)                 -         (6,000,000)
                                                           ------------------  -----------------  -----------------

        Net cash (used in) provided by
           investing activities                                  (21,226,971)         7,502,903        (16,184,031)
                                                           ------------------  -----------------  -----------------

</TABLE>





                                       S-3


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Condensed Financial Statements of the Registrant (Parent), continued
--------------------------------------------------------------------------------
Statements of Cash Flows                                             Schedule I

<TABLE>
<CAPTION>
                                                                              Years Ended May 31,
                                                           --------------------------------------------------------

                                                                 1999                1998               1997
                                                           ------------------  -----------------  -----------------
<S>                                                              <C>                <C>                 <C>

Cash flows from financing activities
    Sale of treasury stock                                           $     -        $19,267,500            $     -
    Purchase of treasury stock                                    (3,231,647)          (614,281)        (3,569,937)
    Proceeds from exercise of options                                786,721                  -                  -
    Proceeds from loan payable                                    15,000,000                  -                  -
    Net receipts (disbursements) on
      intercompany borrowings                                     (2,951,936)        (7,633,750)        21,341,380
                                                           ------------------  -----------------  -----------------
        Net cash provided by
           financing activities                                    9,603,138         11,019,469         17,771,443
                                                           ------------------  -----------------  -----------------

Net (decrease) increase in cash                                      (75,709)           135,005             25,490

        Cash at beginning of year                                    221,328             86,323             60,833
                                                           ------------------  -----------------  -----------------

        Cash at end of year                                       $  145,619         $  221,328          $  86,323
                                                           ------------------  -----------------  -----------------

</TABLE>































                                       S-4


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Condensed Financial Statements of the Registrant (Parent), continued
--------------------------------------------------------------------------------
Statements of Cash Flows, continued                                   Schedule I

Supplemental disclosures of cash flow information:

    Income tax payments totaled  $14,420,322,  $6,287,938 and $14,077,485 during
    the years ended May 31, 1999, 1998 and 1997, respectively.

    Interest  payments  totaled  $307,828,  $35,033 and $52,991 during the years
    ended May 31, 1999, 1998 and 1997, 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,  NDB Group  wrote off the  remaining  book  value of certain
    computer software and intangible assets aggregating  $225,193.  In addition,
    as part of the  sale,  NDB  Group  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, NDB Group  acquired,  from its joint venture partner at
    that time, the remaining 51% of Anvil  Institutional  Services  Company (the
    "Anvil Joint Venture") that it did not previously own. NDB Group, 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 were consolidated with
    those of NDB Group as of the acquisition date. The increases or decreases in
    operating  assets and  liabilities  reflected in the 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
    September  1997, NDB Group sold all of the stock of its  subsidiary,  Anvil,
    and received a note in the amount of  $102,945,  which was repaid in January
    1999.

    During  February  1997, an executive of NDB Group  exercised an aggregate of
    94,027 options for the purchase of 94,027 shares of NDB Group'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 NDB Group for
    the personal income taxes of $54,569 on the gain related to the transaction,
    the  executive  remitted to NDB Group  88,187  shares of NDB Group's  common
    stock with a market value of $892,893.  In  connection  with the exercise of
    these options, NDB Group recorded an income tax benefit of $49,743.

    On May 2, 1997,  NDB Group  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 NDB  Group  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  October  1997 and December  1997,  certain  executives  of NDB Group
    exercised an aggregate of 294,758 options for the purchase of 294,758 shares
    of NDB Group'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 of
    $2,701,705  and to  reimburse  NDB Group for the  personal  income  taxes of
    $441,389 on the gain related to the transaction,  the executives remitted to
    NDB Group 255,450 shares of NDB Group's





                                       S-5


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Condensed Financial Statements of the Registrant (Parent), continued
--------------------------------------------------------------------------------
Statements of Cash Flows, continued                                   Schedule I

    common  stock with a market  value of  $3,143,094.  In  connection  with the
    exercise  of these  options,  NDB Group  recorded  an income tax  benefit of
    $366,215.

    During  February  1998,  NDB  Group  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 April
    1998.

    Between February 1998 and May 1998,  certain  available-for-sale  securities
    appreciated due to the entity's successful initial public offering. As such,
    NDB Group reflected these  securities at fair market value on the statements
    of financial  condition.  The unrealized  gain of $1,359,800,  as of May 31,
    1998,  associated  with marking these  securities  to fair market value,  is
    reflected  as  a  component  of  accumulated  comprehensive  income  on  the
    statements of financial condition, net of income taxes of $1,255,200.

    Between  December  1998 and May  1999,  various  employees  of the NDB Group
    exercised an aggregate of 59,469  options for the purchase of 59,469  shares
    of NDB Group's  common stock with  exercise  prices  ranging from $11.00 per
    share to $13.50 per share. In connection with the exercise of these options,
    NDB Group recorded an income tax benefit of $621,825.






























     The  accompanying  notes are an integral  part of the  condensed  financial
statements.


                                       S-6


<PAGE>


National Discount Brokers Group, Inc. and Subsidiaries
Condensed Financial Statements of the Registrant (Parent), continued
Notes to Condensed Financial Statements
--------------------------------------------------------------------------------
                                                                     Schedule I

    Registrant (Parent) Disclosures

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

    Investment  in,  less  net  amounts  due  to,  subsidiaries  and  affiliates
    represents  the NDB Group's  investment in its  subsidiary  companies  after
    deducting net amounts owed to several subsidiaries  primarily related to the
    funding of the NDB Group's  cash flow needs by its  operating  subsidiaries.
    Income  and  losses of the  subsidiairies  are  recognized  using the equity
    method accounting.

    During the year ended May 31, 1995, NDB Group entered into two subordination
    agreements with  Equitrade.  The first note has a stated interest rate of 0%
    and matures on February 28, 2000. In  connection  with this  agreement,  NDB
    Group 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,  2000.  In  connection  with this  agreement,  NDB Group loaned
    Equitrade  $5,000,000.  Concurrent  with the sale of  Equitrade  on June 18,
    1999, the aforementioned subordinated note agreements were cancelled.

    During the year ended May 31, 1997, NDB Group entered into two subordination
    agreements  with NDB.  The first note has a stated  interest  rate of broker
    call and matures on  December  31,  2001.  The second note also has a stated
    interest  rate of broker call and matures on March 31,  2001.  The  weighted
    average  broker  call  rate was 6.9% for the year  ended  May 31,  1999.  In
    connection with each of these subordination agreements, NDB Group loaned NDB
    $3,000,000.

    On December 31, 1998, the NDB Group entered into a  subordination  agreement
    with  Equitrade.  The note has a stated  interest  rate of 6% and matures on
    December 31, 1999. In connection with this  agreement,  the NDB Group loaned
    Equitrade $22,000,000.

    No dividends were paid to the NDB Group by its wholly owned subsidiaries for
    the years ended May 31, 1999, 1998 and 1997.

    Subsequent Events

    On June 18,  1999,  NDB Group sold its  membership  interest in Equitrade to
    Spear, Leeds & Kellogg Specialists LLC. NDB Group owned a 41.845% membership
    interest in Equitrade  (another 5.0%  interest  owned by a subsidiary of NDB
    Group was also sold). Prior to the closing, NDB Group exercised its right to
    purchase a .03% membership interests in Equitrade from three special members
    in exchange for cash equal to the capital accounts of these special members.
    NDB Group received approximately  $69,000,000 in cash from the purchaser net
    of repayment of a $15,000,000  loan from SLK. NDB Group recognized a pre-tax
    gain of approximately  $30,000,000 in connection with this transaction which
    will be recorded in the first quarter of the fiscal year ended May 31, 2000.

    On June 25,  1999,  NDB Group sold  2,990,000  shares of common  stock in an
    underwritten public offering at $33 per share. Net of underwriting discounts
    and  commissions  and expenses  related to the offering,  NDB Group received
    approximately $91,600,000 in proceeds.

    On July 15,  1999,  NDB Group made an  additional  capital  contribution  of
    $10,000,000 to NDB.






                                       S-7



<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 16, 1999                NATIONAL DISCOUNT BROKERS GROUP, INC.
                                           By:  /s/  Arthur Kontos
                                                Arthur Kontos
                                                Chief Executive Officer

                                           By:  /s/  Matthew S. Stadler
                                                Matthew S. Stadler
                                                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>

/s/ James H. Lynch, Jr.                                  Chairman of the Board              August 16, 1999
James H. Lynch, Jr.

/s/ Arthur Kontos                                        Director and Chief                 August 16, 1999
Arthur Kontos                                            Executive Officer

/s/ Dennis V. Marino                                          Director                      August 16, 1999
Dennis V. Marino

/s/ Thomas W. Neumann                                         Director                      August 16, 1999
Thomas W. Neumann

/s/ John P. Duffy                                             Director                      August 16, 1999
John P. Duffy

/s/ Ralph N. Del Deo                                          Director                      August 16, 1999
Ralph N. Del Deo

/s/ Charles Kirkland Kellogg                                  Director                      August 16, 1999
Charles Kirkland Kellogg

</TABLE>

<PAGE>

<TABLE>
<CAPTION>



                                                             EXHIBIT INDEX


                           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          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").

3.3          Amendment to Restated Certificate of                 Incorporated by reference to Exhibit A to the
             Incorporation, as amended.                           Company's proxy Statement dated November 12, 1997.

3.4          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").

3.5          By-Laws of the Company, as amended.                  Incorporated by reference to Exhibit 4.4 to the
                                                                  Company's Registration Statement on Form S-8, file
                                                                  number 333-41819 filed on December 9, 1997.

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

10.7         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 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.

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

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

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

10.12        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.

10.13        Voting Trust  Agreement  between Arthur Kontos and   Incorporated by reference  to Exhibit 10.7 to Form
             Vicki Kontos dated May 11, 1993.                     10-K for Fiscal Year ended May 31, 1994.

10.14        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.

10.15        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.

10.16        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.

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

10.18        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.

10.19        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.

10.20        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.

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

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

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

10.24        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.

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

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

10.27        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

10.28        Letter of Intent of Equitrade Partners, L.L.C. and   Incorporated by reference to Exhibit 2 to the
             RSF Partners                                         Company's Form 10-Q for the quarter ended November
                                                                  30, 1998.

10.29        Amended and Restated Operating Agreement of          Incorporated by reference to Exhibit 10.1 to the
             Equitrade Partners, L.L.C.                           Company's Form 10-Q for the quarter ended February
                                                                  28, 1999.

10.30        Contribution Agreement dated as of December 31,      Incorporated by reference to Exhibit 10.2 to the
             1998 among Equitrade Partners, L.L.C., RSF           Company's Form 10-Q for the quarter ended February
             Partners, L.P., Joseph Rodriguez, James Bowen,       28, 1999.
             Isidore Fields and Robert Prosser

10.31        Employment Agreement dated as of April 1, 1999       Incorporated by reference to Exhibit 10.3 to the
             between Frank E. Lawatsch, Jr. and the Company       Company's Form 10-Q for the quarter ended February
                                                                  28, 1999.

10.32        Change of Control Agreement dated as of April 1,     Incorporated by reference to Exhibit 10.4 to the
             1999 between Frank E. Lawatsch, Jr. and the Company  Company's From 10-Q for the quarter ended February
                                                                  28, 1999.

10.33        Amended and Restated  Purchase  Agreement dated as   Incorporated by reference to Exhibit 2 to the
             of June 11, 1999 among Spear, Leeds & Kellogg        Company's Form 8-K dated June 21, 1999.
             Specialists  LLC, the Selling Members listed on the
             Signature Pages thereto and the  Members'
             Representative  relating to the purchase and sale
             of 100% of the Membership  Interests in Equitrade
             Partners L.L.C.  dated June 21, 1999 (with
             schedules and Exhibits which the Company  agrees to
             provide to the staff of the  Commission  at its
             request)

10.34        Amended Lease at 90 Hudson Street, Jersey City,      Incorporated by reference to Exhibit 10 (a) to the
             New Jersey                                           Company's Form 8-K dated June 21, 1999.

10.35        National Discount Brokers Group, Inc. 1999 Stock     Incorporated by reference to Exhibit 10 (a) to the
             Option Plan                                          Company's Form 8-K dated May 7, 1999.

10.36        Change of Control Agreement between Matthew          Incorporated by reference to Exhibit 10 (b) to the
             Stadler and the Company                              Company's Form 8-K dated May 7, 1999.

10.37        National Discount Brokers Group, Inc. 1999 Stock     Filed herewith.
             Option Plan, as amended and restated

10.38        Amendments to Lease at 10 Exchange Place Centre      Filed herewith.

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

16.          Letter from KPMG LLP                                 Filed herewith.

21.          Subsidiaries of the Company                          Filed herewith.

23.1         Consent of Independent Public Accountants.           Filed herewith.

23.2         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,       Incorporated by reference to Exhibit 99.3 to Form
             1995 in the principal amount of $5,000,000 related   8-K dated February 28, 1995.
             to 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         Subordinated Loan Agreement - Cash dated December    Filed herewith.
             31, 1998 between the Company and Equitrade
             Partners, L.L.C.

99.7         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      8-K dated September 18, 1995.
             its executive officers and directors.

99.8         Form of Lockup Agreement                             Filed herewith.



</TABLE>






                                                                   EXHIBIT 10.37


                                       NATIONAL DISCOUNT BROKERS GROUP, INC.

                1999 NON-QUALIFIED STOCK OPTION PLAN, AS AMENDED

SECTION 1.  PURPOSE

         The purpose of National  Discount Brokers Group, Inc. 1999 Stock Option
Plan  (the  "Plan")  is  to  provide  an  additional   incentive  to  employees,
independent  contractors,  agents and consultants of National  Discount  Brokers
Group,  Inc. (the  "Company")  and its  subsidiaries,  to aid in attracting  and
retaining employees,  independent  contractors,  agents and consultants,  and to
closely align their interests with those of shareholders. The Plan also provides
for the granting of  additional  incentives to members of the Board of Directors
of the Company who are not Employees.

SECTION 2.  DEFINITIONS

         Unless the context clearly  indicates  otherwise,  the following terms,
when used in the Plan, shall have the meanings set forth in this Section 2.

         (a)      "Board" shall mean the Board of Directors of the Company.

         (b) "Change in  Control".  A change in control of the Company  shall be
deemed to have occurred if, over the initial  opposition  of the  then-incumbent
Board (whether or not such Board ultimately acquiesces therein),  (i) any person
or group of persons shall acquire, directly or indirectly,  stock of the Company
having  at  least  25%  of  the   combined   voting   power  of  the   Company's
then-outstanding  securities,  or (ii) any  shareholder or group of shareholders
shall elect a majority of the members of the Board in each case after January 1,
1999.

         (c) "Code" shall mean the  Internal  Revenue Code of 1986 and the rules
and regulations thereunder, as it or they may be amended from time to time.

         (d) "Committee"  shall mean the Compensation  Committee of the Board or
such other  committee as may be  designated by the Board.  The  Committee  shall
consist of two or more  members of the Board who are  Non-Employee  Directors as
such term is defined in Rule 16b-3 of the Exchange Act.

(e) "Date of  Exercise"  shall  mean the  earlier  of the date on which  written
notice of exercise,  together with payment in full, is received at the office of
the  Secretary  of the  Company or the date on which such notice and payment are
mailed to the Secretary of the Company at its  principal  office by certified or
registered mail.

(f)  "Employee"  shall mean any employee or any officer of the Company or any of
its Subsidiaries,  or any other person, who is an independent contractor,  agent
or  consultant  of the Company or any of its  Subsidiaries,  and  excluding  any
director of the Company who is not otherwise an employee of the Company.

(g)  "Exchange  Act" shall mean the  Securities  and  Exchange  Act of 1934,  as
amended.

         (h) "Fair Market  Value" shall mean for any day the mean of the highest
and lowest  selling  prices of the Stock as reported on the  Composite  Tape for
securities traded on the New York Stock Exchange.

         (i) "Grantee" shall mean an Employee or an Independent Director granted
a Stock Option.

(j) "Granting Date" shall mean the date on which the Committee in the case of an
Employee  or the  Plan in the case of an  Independent  Director  authorizes  the
issuance  of a Stock  Option  for a  specified  number  of  shares of Stock to a
specified Employee or Independent Director.

         (k)  "Nonqualified  Stock  Option"  shall mean a Stock  Option  granted
within the Plan which is not an incentive stock option, under Section 422 of the
Code or otherwise qualified under similar tax provisions.

         (l) "Progressive  Stock Options" shall mean Nonqualified  Stock Options
granted pursuant to Section 5(h) of this Plan.

         (m) "Stock" shall mean the Common  Stock,  as par value $.01 per share,
of the Company.

         (n) "Stock  Option"  shall mean a  Nonqualified  Stock  Option  granted
pursuant to the Plan to purchase shares of Stock.

(o) "Subsidiary" shall mean any subsidiary corporation as defined in Section 424
of the Code.

(p) "Independent Director" means a member of the Board who is not an Employee at
the time of the Granting Date or within two years prior thereto.

SECTION 3.  SHARES OF STOCK SUBJECT TO THE PLAN

         Subject to adjustment  pursuant to Section 8, 1,000,000 shares of Stock
shall be  reserved  for  issuance  upon the  exercise of Stock  Options  granted
pursuant to the Plan.  Shares  delivered  under the Plan may be  authorized  and
unissued  shares or issued  shares held by the Company in its  treasury.  If any
Stock Options expire or terminate  without having been exercised,  the shares of
Stock covered by such Stock Option shall become available again for the grant of
Stock Options  hereunder.  Shares of Stock covered by Stock Options  surrendered
for Stock pursuant to Section 6, however,  shall not become  available again for
the grant of Stock Options hereunder.

SECTION 4.  ADMINISTRATION OF THE PLAN

         (a) The Plan shall be  administered  by the  Committee.  Subject to the
express  provisions of the Plan, the Committee shall have authority to interpret
the Plan, to prescribe,  amend and rescind rules and regulations relating to it,
to determine the terms and  provisions of Stock Option  grants,  and to make all
other determinations necessary or advisable for the administration of the Plan.


         (b) It is intended that the Plan and any transaction hereunder meet all
of the  requirements  of Rule 16b-3  promulgated  by the Securities and Exchange
Commission,  as such rule is  currently  in effect or as  hereafter  modified or
amended,  and all other  applicable  laws.  If any  provision of the Plan or any
transaction  would disqualify the Plan or such  transaction  under, or would not
comply with, Rule 16b-3 or other  applicable laws, such provision or transaction
shall be  construed  or deemed  amended  to  conform to Rule 16b-3 or such other
applicable  laws or otherwise  shall be deemed to be null and void, in each case
to the extent permitted by law and deemed advisable by the Committee.

         (c) Any  controversy  or claim  arising  out of or  related to the Plan
shall be determined unilaterally by and at the sole discretion of the Committee.

SECTION 5.  GRANTING OF STOCK OPTIONS

         (a) Except as provided in  Subsection 5 (i),  only  Employees  shall be
eligible  to  receive  Stock  Options  under the Plan.  Except  as  provided  in
Subsection  5 (i),  Directors  of the Company who are not also  employees of the
Company or one of its Subsidiaries shall not be eligible for Stock Options.

         (b) Except as provided in  Subsection  5 (i),  the option price of each
share of Stock subject to a Nonqualified  Stock Option shall be 100% of the Fair
Market Value of a share of the Stock on the Granting  Date,  or such other price
either  greater  than or less than the Fair  Market  Value (but in no event less
than the par value of the Stock) as the Committee shall determine appropriate to
the purposes of the Plan and to the Company's total compensation program.

         (c) The Committee shall determine and designate from time to time those
Employees  who are to be granted Stock Options and shall also specify the number
of shares  covered by and the option price per share of each Stock Option.  Each
Stock Option granted under the Plan shall be clearly identified as to its status
as a Nonqualified Stock Option.

         (d) A Stock Option shall be  exercisable  during such period or periods
and in such  installments  as shall be  fixed by the  Committee  at the time the
Stock Option is granted or in any amendment thereto, but each Stock Option shall
expire not later than ten years from the Granting Date.

         (e) The Committee  shall have the authority to grant both  transferable
Stock  Options  and  nontransferable  Stock  Options,  and to amend  outstanding
nontransferable   Stock   Options   to   provide   for   transferability.   Each
nontransferable  Stock Option  intended to qualify under Rule 16b-3 or otherwise
shall provide by its terms that it is not transferable otherwise than by will or
the laws of descent and  distribution  and is exercisable,  during the Grantee's
lifetime,  only by the Grantee.  Each transferable  Stock Option may provide for
such  limitations on  transferability  and  exercisability  as the Committee may
designate  at the time a Stock  Option is  granted  or is  otherwise  amended to
provide for transferability.

         (f) Stock  Options  may be granted to an  Employee  who has  previously
received  Stock  Options or other  options  whether such prior Stock  Options or
other  options  are  still  outstanding,   have  previously  been  exercised  or
surrendered in whole or in part, or are canceled in connection with the issuance
of new Stock Options.

         (g) Subject to adjustment  pursuant to Section 8, the aggregate  number
of shares of Stock subject to Stock  Options  granted to an Employee or Director
under the Plan  shall not exceed  125,000  shares  (as such  number is  adjusted
pursuant to Section 8).

         (h) Subject to Section 5 (g), without in any way limiting the authority
of the Committee to make grants of Stock Options under the Plan, and in order to
induce  Employees to retain  ownership of Stock,  the  Committee  shall have the
authority (but not the obligation) to include within any agreement  reflecting a
Stock Option a provision entitling the Grantee of such Stock Option to a further
Stock Option (a "Progressive  Stock Option") in the event the Grantee  exercises
such Nonqualified Stock Option evidenced by such agreement, in whole or in part,
by surrendering other shares of Stock in accordance with this Plan and the terms
and conditions of such agreement. Any such Progressive Stock Option shall be for
a number of shares of Stock  equal to the number of  surrendered  shares,  shall
become  exerciseable  no sooner than six months after the  Granting  Date of the
Stock Option or such longer period as the Committee may establish, shall have an
option  price per share equal to one hundred  percent  (100%) of the Fair Market
Value of a share of Stock on the Granting Date of the Progressive  Stock Option,
and shall be subject to such other terms and  conditions  as the  Committee  may
determine.

         (i)  Notwithstanding  any provision of the Plan to the  contrary,  each
Independent  Director shall receive a one time grant of a Stock Option  covering
5,000  shares of stock  (adjusted as provided in Section 8) on the date when the
Independent  Director  first  joins the Board after July 28, 1999 or on July 28,
1999 in the case of any  Independent  Director  serving on the Board on July 28,
1999. The Stock Option will have an Exercise Price equal to Fair Market Value at
the Granting  Date,  have a term of 9 years and 364 days from the Granting Date,
vest six months after the Granting Date for the Stock Option, be transferable to
the extent  permitted  by the  Committee  for  Employees,  not be subject to the
benefits of Subsection  5(h) and 6(c), and otherwise be subject to the terms and
conditions  of the Plan except that the Stock Option  awarded to an  Independent
Director  shall not expire when the  Independent  Director  leaves the Board but
shall continue until the earlier of two years from the date the Director  leaves
the Board or the date the Stock Option expires.

SECTION 6.  EXERCISE OF STOCK OPTIONS

         (a) Except for the Stock Option granted to an Independent  Director and
except as provided in Section 7, no Stock  Option may be  exercised  at any time
unless the Grantee is an Employee on the Date of Exercise.

         (b) The  Grantee  shall  pay the  option  price  in full on the Date of
Exercise of a Stock Option in cash,  by check,  or by delivery of full shares of
Stock of the Company,  duly endorsed for transfer to the Company with  signature
guaranteed,  or by any combination  thereof.  Stock will be accepted at its Fair
Market Value on the Date of Exercise.

         (c) Subject to the approval of the Committee, or of such person to whom
the Committee may delegate such authority ("its designee"), the Company may loan
to the  Grantee a sum  equal to an amount  which is not in excess of 100% of the
purchase  price of the shares of Stock acquired upon exercise of a Stock Option,
such loan to be evidenced by the  execution  and delivery of a promissory  note.
Interest  shall be paid on the  unpaid  balance of the  promissory  note at such
times and at such rate as shall be  determined by the Committee or its designee.
Such  promissory note shall be secured by the pledge to the Company of shares of
Stock having an  aggregate  purchase  price on the date of purchase  equal to or
greater than the amount of such note. A Grantee  shall have,  as to such pledged
shares of Stock, all rights of ownership including the right to vote such shares
of Stock and to receive  dividends paid on such shares of Stock,  subject to the
security interest of the Company.  Such shares of Stock shall not be released by
the Company from the pledge unless the proportionate  amount of the note secured
thereby has been repaid to the Company;  provided,  however that shares of Stock
subject to a pledge may be used to pay all or part of the purchase  price of any
other option  granted  hereunder or under any other stock  incentive plan of the
Company under the terms of which the purchase  price of an option may be paid by
the  surrender of shares of Stock,  subject to the terms and  conditions  of the
Plan  relating to the  surrender  of shares of Stock in payment of the  exercise
price of an option.  In such event, that number of the newly purchased shares of
Stock  equal to the  shares of Stock  previously  pledged  shall be  immediately
pledged as substitute  security for the pre-existing  debt of the Grantee to the
Company,  and thereupon  shall be subject to the provisions  hereof  relating to
pledged shares of Stock.  All notes executed  hereunder shall be payable at such
times  and in such  amounts  and  shall  contain  such  other  terms as shall be
specified by the  Committee  or its designee or stated in the option  agreement;
provided,  however,  that such terms shall conform to requirements  contained in
any applicable regulations which are issued by any governmental authority.

SECTION 7.  TERMINATION OF EMPLOYMENT

         Except as  otherwise  provided by the  Committee  at the time the Stock
Option  is  granted  or any  amendment  thereto,  if a  Grantee  ceases to be an
Employee then:

         (a) if termination  of employment is voluntary or  involuntary  without
cause,  the Grantee may exercise  each Stock  Option held by the Grantee  within
three months after such  termination  (but not after the expiration  date of the
Stock Option) to the extent of the number of shares  subject to the Stock Option
which are purchasable pursuant to its terms at the date of termination;

         (b) if termination is for cause,  all Stock Options held by the Grantee
shall be canceled as of the date of termination;

(c) subject to the  provisions of Section 7(d), if  termination is (i) by reason
of retirement  at a time when the Grantee is entitled to the current  receipt of
benefits under any retirement  plan maintained by the Company or any Subsidiary,
or (ii) by reason of  disability,  each Stock  Option held by the Grantee may be
exercised by the Grantee at any time (but not after the  expiration  date of the
Stock Option) to the extent of the number of shares  subject to the Stock Option
which were purchasable pursuant to its terms at the date of termination;

         (d) if termination is by reason of the death of the Grantee,  or if the
Grantee dies after retirement or disability as referred to in Section 7(c), each
Stock Option held by the Grantee may be exercised by the Grantee's estate, or by
any person who  acquires the right to exercise the Stock Option by reason of the
Grantee's death, at any time within a period of three years after death (but not
after the expiration date of the Stock Option) to the extent of the total number
of shares  subject to the Stock  Option which were  purchasable  pursuant to its
terms at the date of termination; or

         (e) if the  Grantee  should die within  three  months  after  voluntary
termination  of  employment  or  involuntary   termination   without  cause,  as
contemplated  in Section  7(a),  each Stock  Option  held by the  Grantee may be
exercised by the  Grantee's  estate,  or by any person who acquires the right to
exercise by reason of the  Grantee's  death,  at any time within a period of one
year after death (but not after the expiration  date of the Stock Option) to the
extent  of  the  number  of  shares  subject  to the  Stock  Option  which  were
purchasable pursuant to its terms at the date of termination.

SECTION 8.  ADJUSTMENTS

         In  the   event   of   any   merger,   consolidation,   reorganization,
recapitalization,  stock dividend,  stock split or other change in the corporate
structure or capitalization  affecting the Stock,  there shall be an appropriate
adjustment  made by the  Board  in the  number  and kind of  shares  that may be
granted in the aggregate and to individual  Employees or  Independent  Directors
under the Plan, the number and kind of shares subject to each outstanding  Stock
Option and the option  prices.  In the event of a transaction  involving (i) the
liquidation  or dissolution of the Company,  (ii) a merger or  consolidation  in
which  the  Company  is not the  surviving  corporation  or  (iii)  the  sale or
disposition of all or substantially all of the Company's assets, provision shall
be made in connection with such  transaction for the assumption of Stock Options
theretofore  granted under the Plan, or the  substitution for such Stock Options
of new options of the successor  corporation,  with appropriate adjustment as to
the number and kind of stock and the purchase price for stock thereunder, or, in
the discretion of the Committee, the Plan and the Stock Options issued hereunder
shall  terminate  on the  effective  date of  such  transaction  if  appropriate
provision  is made for  payment to the Grantee of an amount in cash equal to the
fair  market  value of a share of stock  multiplied  by the  number of shares of
stock  subject to the Stock  Options (to the extent such Stock  Options have not
been  exercised)  less the exercise  price for such Stock Options (to the extent
such Stock Options have not been exercised); provided, however, that in no event
shall the Committee take any action or make any determination under this Section
8 which would prevent a transaction described in clause (ii) or (iii) above from
being  treated as a pooling of interests  under  generally  accepted  accounting
principles.

SECTION 9.  TENDER OFFER; CHANGE IN CONTROL

         A Stock Option shall become  immediately  exercisable  to the extent of
the total  number of shares  subject  to the Stock  Option in the event of (i) a
tender  offer by a person or persons  other than the Company for all or any part
of the outstanding  Stock if, upon  consummation of the purchases  contemplated,
the offeror or offerors would own,  beneficially  or of record,  an aggregate of
more  than 25% of the  outstanding  Stock,  or (ii) a Change in  Control  of the
Company.


SECTION 10.  GENERAL PROVISIONS

         (a) Each  Stock  Option  shall be  evidenced  by a  written  instrument
containing such terms and conditions,  not  inconsistent  with this Plan, as the
Committee shall approve.

         (b) The  granting  of a Stock  Option  in any year  shall  not give the
Grantee any right to similar  grants in future years or any right to be retained
in the employ of the Company or any  Subsidiary or interfere in any way with the
right of the Company or such Subsidiary to terminate an Employee's employment at
any time.

         (c)  Notwithstanding any other provision of the Plan, the Company shall
not be required to issue or deliver any certificate or  certificates  for shares
of Stock under the Plan prior to fulfillment of all of the following conditions:

                  (i) The  listing,  or  approval  for  listing  upon  notice of
issuance, of such shares on the New York Stock Exchange;

                  (ii) Any  registration or other  qualification  of such shares
under any state or federal law or  regulation,  or the  maintaining in effect of
any such  registration  or other  qualification  which the Committee may, in its
discretion upon the advice of counsel, deem necessary or advisable; and

                  (iii) The obtaining of any other  consent,  approval or permit
from any state or federal  governmental  agency which the Committee  may, in its
discretion upon the advice of counsel, determine to be necessary or advisable.

         (d) The  Company  shall  have the right to deduct  from any  payment or
distribution  under  the Plan  any  federal,  state  or local  taxes of any kind
required by law to be  withheld  with  respect to such  payments or to take such
other action as may be necessary to satisfy all  obligations  for the payment of
such taxes. In case distributions are made in shares of Stock, the Company shall
have the right to retain  the value of  sufficient  shares of Stock to equal the
amount of tax to be withheld  for such  distributions  or require a recipient to
pay the  Company  for any such taxes  required  to be withheld on such terms and
conditions prescribed by the Committee.

         (e) No Grantee shall have any of the rights of a shareholder  by reason
of a Stock Option until it is exercised.

         (f) The Plan shall be  construed  and enforced in  accordance  with the
laws of the State of Delaware  (without  regard to the  legislative  or judicial
conflict of laws rules of any state), except to the extent superseded by federal
law.

SECTION 11.  AMENDMENT AND TERMINATION

         (a) The Plan shall terminate on April 1, 2008 and no Stock Option shall
be granted hereunder after that date,  provided that the Board may terminate the
Plan at any time prior thereto.

         (b) The Board may amend the Plan at any time without notice.

         (c) No termination or amendment of the Plan may, without the consent of
a Grantee to whom a Stock Option shall theretofore have been granted,  adversely
affect the rights of such Grantee under such Stock Option.






                                                                   EXHIBIT 10.38

                       AMENDMENT NO. 1 TO LEASE AGREEMENT

         AMENDMENT NO. 1 TO LEASE AGREEMENT (this "Amendment") made as of the 18
day of  July,  1996,  by and  between  S.P.N.W.  MANAGEMENT  ASSOCIATES  LIMITED
PARTNERSHIP (the "Landlord"), having an office in care of Prudential Real Estate
Investors,  51  JFK  Parkway,  Short  Hills,  New  Jersey  07078,  and  SHERWOOD
SECURITIES CORP. (the "Tenant"),  having an office at Ten Exchange Place, Jersey
City, New Jersey 07302.

                                   WITNESSETH:

         WHEREAS,  pursuant to a Lease  Agreement  dated as of November 30, 1994
(the "Lease"),  Landlord leased to Tenant,  and Tenant hired from Landlord,  the
entire fifteenth (15th) floor of the Building,  containing  approximately 36,624
rentable square feet; and

         WHEREAS,  Tenant desires to hire from Landlord, and Landlord desires to
lease to Tenant, approximately 2,817 rentable square feet of additional space on
the fourteenth (14th) floor of the Building (the "Additional Space"); and

         WHEREAS, Landlord and Tenant desire to amend the Lease to reflect the
leasing of the Additional Space;

         NOW,  THEREFORE,  in consideration  of the mutual  covenants  contained
herein and other good and  valuable  consideration,  the receipt and adequacy of
which are hereby acknowledged, Landlord and Tenant hereby agree as follows:

1.  Subject  to the  terms and  conditions  of the  Lease,  as  amended  by this
Amendment,  Landlord  hereby  leases to  Tenant,  and Tenant  hereby  hires from
Landlord, the Additional Space for the Amendment Term (as defined in Paragraph 2
hereof).  The location of the Additional Space on the fourteenth (14th) floor is
shown on the floor plan annexed hereto and made a part hereof as Schedule 1.

2. The term of this Amendment  (hereinafter referred to as the "Amendment Term")
shall  commence  on the  date  on  which  Landlord  delivers  possession  of the
Additional Space to Tenant in broom-clean  condition (the "Effective Date"), and
shall expire on the day immediately preceding the third (3rd) anniversary of the
Effective Date; provided, however, if the Effective Date is a day other than the
first (1st) day of a calendar month, then the Amendment Term shall expire on the
last day of the  calendar  month in which the  third  (3rd)  anniversary  of the
Effective Date occurs.

3. Tenant expressly  acknowledges  that Landlord shall not be required to do any
work to the  Additional  Space to prepare the same for Tenant's  occupancy,  and
that Tenant agrees to accept the Additional Space in its "AS IS" condition as of
the Effective Date.

4. Tenant agrees to pay to Landlord the sum of $70,425.00 per annum as base rent
for the  Additional  Space  (hereinafter  referred  to as the  "Additional  Base
Rent"), which shall be payable in equal monthly installments of $5,868.75 on the
first (1st) day each calendar month during the Amendment Term. The first monthly
installment of the  Additional  Base Rent shall be paid on the execution of this
Amendment and shall be applied  against the first (1st) full  calendar  month of
the Amendment  Term.  If the Effective  Date is a day other than the first (1st)
day of a calendar month, then Tenant shall pay to Landlord on the Effective Date
a prorated amount for the balance of said calendar month.

5.  During the  Amendment  Term,  the Lease shall be deemed  amended  further as
follows:

(a)               The term  "Premises",  as defined in  Section1.1 of the Lease,
                  shall be  deemed  to  include  the  Additional  space  for all
                  purposes  of the Lease,  except for  purposes of Article V and
                  Exhibit B, and except for any other purposes inconsistent with
                  the provisions and intent of this Amendment.

(b)               The term "Base  Rent",  as  defined  in Section  3.1(a) of the
                  Lease, shall be deemed to include the Additional Base Rent for
                  all purposes of the Lease,  except for purposes of Section 2.3
                  and  Section  3.1(a),   and  except  for  any  other  purposes
                  inconsistent with the provisions and intent of this Amendment.

(c)               The aggregate rentable square footage of the Premises shall be
                  increased from 36,624 square feet to 39,441 square feet.


(d)               Tenant's  Percentage  shall be increased  from 5.255% to 5.66%
                  for all purposes of the Lease,  except for the  provisions  of
                  Section  3.5 of the Lease,  and except for any other  purposes
                  inconsistent with the provisions and intent of this Amendment.

(e)               The number of non-exclusive  parking spaces shall be increased
                  from twenty-three (23) spaces to twenty-five (25) spaces.

(f)               With  respect to the  Additional  Space,  Tenant  shall pay to
                  Landlord,  in  addition  to  and  together  with  the  monthly
                  installment of the Additional Base Rent,  one-twelfth of 7.69%
                  of the cost of common  utility  service used on the fourteenth
                  (14th)  floor of the  Building  based  upon a  reading  of the
                  electric  submeter for said floor. The amount payable pursuant
                  to this Paragraph 5(f) shall be deemed  Additional  Rent under
                  the terms of the Lease.

(g)               In addition to the Additional Base Rent to be paid as herein
                  provided in this Amendment, Tenant shall pay, as Additional
                  Rent, 0.405% of Operating Expenses for any Calendar Year
                  during the Amendment Term in excess of the Operating
                  Expenses for Calendar Year 1996 (hereinafter called the
                  "Additional Base Year").  For the purposes of this Paragraph
                  5 (g), all of the terms and conditions of Section 3.5 of the
                  Lease are hereby incorporated herein and made a part hereof,
                  subject to the following changes:  (i) the term "Tenant's
                  Percentage" shall mean the percentage 0.405%; (ii) the term
                  "Additional Base Year" shall be substituted for the term "Base
                  Year" and for the amount "$4,463,675.00"; (iii) the date
                  "January 1, 1997" shall be substituted for the date "January
                  1, 1995"; and (iv) the date "December, 1996" shall be
                  substituted for the date "December, 1994".

6. Landlord and Tenant each  represent and warrant to each other that neither of
them has  employed or dealt with any broker,  agent or finder in carrying on the
negotiations   relating  to  this  Amendment,   except  to  the  extent  of  the
representation  of Cushman and  Wakefield of New Jersey,  Inc.  (the  "Broker").
Landlord  and  Tenant  shall  indemnify  and hold each other  harmless  from and
against any claim or claims for brokerage or other  commissions  asserted by any
broker, agent or finder (other than the Broker) engaged by Landlord or Tenant or
with whom  Landlord  or Tenant has  dealt.  This  provision  shall  survive  the
expiration or earlier  termination of the Lease, but shall not be deemed for the
benefit of any third party.

7. Except as expressly  provided herein,  all of the terms and conditions of the
Lease shall remain  unmodified and shall continue in full force and effect,  and
are hereby ratified and confirmed. Capitalized terms used in this Amendment, but
not defined herein, shall have the meaning ascribed to such terms in the Lease.

8. This  Amendment may not be changed orally and shall be binding upon and inure
to the benefit of the parties hereto and their respective successors,  permitted
assigns and legal representatives.

9. If any  provision of this  Amendment  shall be held invalid or  unenforceable
according to law, the remaining  provisions herein shall not be affected thereby
and shall continue in full force and effect.

         IN WITNESS  WHEREOF,  the parties have signed this  Amendment as of the
date first above written.

                                           S.P.N.W. MANAGEMENT ASSOCIATES
                                           LIMITED PARTNERSHIP, a New Jersey
                                           Limited Partnership

                                           BY: The Prudential Insurance
                                               Company of America, a New Jersey
                                               Corporation (its General Partner)

                                           By:    /s/ /Terry McHugh
                                                  Name:  Terry McHugh
                                                  Title:  Vice President

                                           SHERWOOD SECURITIES CORP.


                                           BY:    /s/ William Karsh
                                                  Name:    William Karsh
                                                  Title:   EVP & Treasurer
<PAGE>



                       AMENDMENT NO. 2 TO LEASE AGREEMENT


         AMENDMENT NO. 2 TO LEASE AGREEMENT (this "Amendment") made as of the 31
day of  July,  1998,  by and  between  S.P.N.W.  MANAGEMENT  ASSOCIATES  LIMITED
PARTNERSHIP (the "Landlord"), a New Jersey limited partnership, having an office
at 10 Exchange  Place,  Jersey City, New Jersey 07302,  and SHERWOOD  SECURITIES
CORP., (the "Tenant"),  a Delaware corporation,  having an office at 10 Exchange
Place, Jersey City, New Jersey 07302.

                                              WITNESSETH:

                  WHEREAS,  pursuant to a certain  Lease  Agreement  dated as of
November 30, 1994, as amended by Amendment No. 1 to Lease  Agreement dated as of
August ___,  1996 (the "First  Amendment"),  and further  amended by a Generator
Agreement  dated as of August 28, 1996 (the "Generator  Agreement")  (said Lease
Agreement,  as amended, being hereinafter referred to as the "Lease"),  Landlord
leased to Tenant, and Tenant hired from Landlord,  approximately 36,624 rentable
square feet  consisting  of the entire  fifteenth  (15th)  floor of the Building
(defined in the Lease),  and  approximately  2,817  rentable  square feet on the
fourteenth  (14th)  floor  of  the  Building  (collectively  referred  to as the
"Existing Premises"); and

                  WHEREAS,  Tenant desires to lease approximately 4,274 rentable
square feet of additional  space on the eighth floor of the Building (the "First
Additional  Space"),  and another  approximately  7,875 rentable  square feet of
additional  space on the eighth  floor of the Building  (the "Second  Additional
Space"); and

                  WHEREAS,  Landlord desires to lease the First Additional Space
and the  Second  Additional  Space  (collectively,  the  "Additional  Space") to
Tenant,  subject,  however,  to the  terms  and  conditions  contained  in  this
Amendment;

                  NOW,  THEREFORE,  in  consideration  of the  mutual  covenants
contained  herein and other good and  valuable  consideration,  the  receipt and
adequacy of which are hereby  acknowledged,  Landlord and Tenant hereby agree as
follows:

                  1.  Subject  to the  provisions  of this  Amendment,  Landlord
hereby leases to Tenant,  and Tenant hereby hires from Landlord,  the Additional
Space. Annexed hereto and made a part hereof as Schedule 1 is the floor plan for
the eighth (8th) floor of the Building, which has been cross-hatched to indicate
the location of the First Additional Space and the Second  Additional Space. The
leasing of the Additional  Space shall be subject to the terms and conditions of
the Lease, as amended by this Amendment.

                  2. (a)(i)  Landlord and Tenant  acknowledge and agree that the
term of the leasing of the First  Additional  Space shall  commence on the First
Effective Date (as herein  defined) and shall expire on January 31, 2007.  After
the occurrence of the First Effective Date, Landlord and Tenant agree to execute
and deliver a document  ratifying and confirming the First  Effective  Date. For
the purposes of this Amendment,  the term "First  Effective Date" shall mean the
date of the delivery of possession of the First  Additional Space to Tenant free
of any claims  and/or  occupancy  by third  parties.  Tenant  shall not have any
liability with regard to the First  Additional Space for the period prior to the
First Effective Date.

                  (ii) Landlord hereby advises Tenant that the First  Additional
Space is presently leased to Hestair Computer Group,  Inc.  ("Hestair") and that
Landlord is presently  negotiating a lease  termination  agreement with Hestair.
Tenant  acknowledges  and agrees that (x) this Lease is contingent upon Landlord
and Hestair entering into an unconditional,  binding lease termination agreement
on terms and conditions satisfactory to Landlord in its sole discretion, and (y)
Landlord  shall have the right,  for any  reason or no  reason,  to  discontinue
negotiations  with  Hestair  and/or to refuse to enter into a lease  termination
agreement  with Hestair  without  incurring any liability  whatsoever to Tenant.
Tenant hereby releases Landlord from all liability, claim or expense incurred by
Tenant as a result of the non-occurrence of the contingency  described in clause
(x) above.

                  (iii) The Effective Date shall not occur until the contingency
described  in clause  (x) of  Paragraph  2(a)(ii)  above is  satisfied.  If such
contingency  is not  satisfied  within  thirty  (30) days after the date of this
Amendment, then Landlord or Tenant shall have the right to cancel this Amendment
by notice given to the other party after the  expiration of said thirty (30) day
period.  If Landlord  or Tenant  exercises  its  cancellation  right,  then this
Amendment shall be deemed  cancelled,  and of no further force or effect,  as of
the date of the other party's receipt of said cancellation notice.

                  (b) Landlord and Tenant acknowledge and agree that the term of
the  leasing  of the  Second  Additional  Space  shall  commence  on the  Second
Effective Date (as herein  defined) and shall expire on January 31, 2007.  After
the  occurrence  of the Second  Effective  Date,  Landlord  and Tenant  agree to
execute and deliver a document  ratifying and  confirming  the Second  Effective
Date. For the purposes of this Amendment, the term "Second Effective Date" shall
mean the date of the delivery of  possession of the Second  Additional  Space to
Tenant free of any claims and/or  occupancy by third  parties.  Tenant shall not
have any  liability  with regard to the Second  Additional  Space for the period
prior to the Second Effective Date.

                  3. (a) Tenant shall pay to Landlord (i) the sum of $141,042.00
per annum ($33.00 per rentable  square foot),  in equal monthly  installments of
$11,753.50, as rent for the First Additional Space for the period from the First
Effective Date to September 30, 2002, inclusive, and (ii) the sum of $149,590.00
per annum ($35.00 per rentable  square foot),  in equal monthly  installments of
$12,465.83,  as rent for the  First  Additional  Space for the  period  from the
October  1,  2002  through  January  31,  2007,   inclusive  (which  rent  shall
hereinafter be referred to as "First Additional Space Base Rent"). Tenant agrees
to pay the monthly  installments of First Additional Space Base Rent at the same
time, in the same manner and to the same place as the  installments  of the Base
Rent, and Tenant  acknowledges  that, as used in the Lease, the term "Base Rent"
shall be deemed to include the Base Rent payable in connection with the Existing
Premises and the First Additional Space Base Rent for all purposes of the Lease.
In the event the First Effective Date is a day other than the first (1st) day of
a calendar month,  then the First  Additional  Space Base Rent shall be prorated
for such calendar month.

                  (b) Tenant  shall pay to Landlord  (i) the sum of  $273,656.25
per annum ($34.75 per rentable  square foot),  in equal monthly  installments of
$22,804.69,  as rent for the Second  Additional  Space for the  period  from the
Second  Effective  Date to  April  30,  2003,  inclusive,  and  (ii)  the sum of
$289,406.25  per annum  ($36.75 per  rentable  square  foot),  in equal  monthly
installments  of  $24,117.19,  as rent for the Second  Additional  Space for the
period from the May 1, 2003  through  January 31,  2007,  inclusive  (which rent
shall hereinafter be referred to as "Second Additional Space Base Rent"). Tenant
agrees to pay the monthly  installments of Second  Additional Space Base Rent at
the same time, in the same manner and to the same place as the  installments  of
the Base Rent,  and Tenant  acknowledges  that,  as used in the Lease,  the term
"Base Rent" shall be deemed to include the Base Rent payable in connection  with
the Existing Premises and the Second Additional Space Base Rent for all purposes
of the  Lease.  In the event the Second  Effective  Date is a day other than the
first (1st) day of a calendar month,  then the Second Additional Space Base Rent
shall be prorated for such calendar month.

                  4.  (a)(i)   Commencing  on  the  First  Effective  Date,  and
continuing  during each subsequent  Calendar Year during the Lease Term,  Tenant
shall pay, as  Additional  Rent for the First  Additional  Space,  0.613% of the
Operating  Expenses in excess of the  Operating  Expenses for the Calendar  Year
1998. For purposes of computing such Additional  Rent, the provisions of Section
3.5 of the Lease shall be deemed incorporated herein,  except that Calendar Year
1998 shall be deemed the "Base Year" and 0.613%  shall be deemed to be "Tenant's
Percentage".  Said  Additional  Rent shall be in addition to the Additional Rent
paid by Tenant with respect to the Existing Premises pursuant to the Lease.

                         (ii)  The  provisions  of  Paragraphs  4(a)(i)  address
Tenant's  Percentage  of the increases in the Operating  Expenses.  For all
purposes of the Lease (other than those provisions relating to the increases in
the Operating Expenses),  Tenant's Percentage shall be deemed to be 6.273% as of
the First Effective Date.

                  (b)(i) Commencing on the Second Effective Date, and continuing
during each subsequent Calendar Year during the Lease Term, Tenant shall pay, as
Additional Rent for the Second Additional Space, 1.13% of the Operating Expenses
in excess of the Operating  Expenses for the Calendar Year 1999. For purposes of
computing such Additional Rent, the provisions of Section 3.5 of the Lease shall
be deemed  incorporated  herein,  except that Calendar Year 1999 shall be deemed
the "Base  Year" and 1.13%  shall be deemed to be  "Tenant's  Percentage".  Said
Additional  Rent shall be in addition to the Additional Rent paid by Tenant with
respect to the Existing Premises pursuant to the Lease.

                     (ii) The  provisions  of  Paragraphs  4(b)(i)  address
Tenant's  Percentage  of the increases in the Operating  Expenses.  For all
purposes of the Lease (other than those provisions relating to the increases in
the Operating Expenses),  Tenant's Percentage shall be deemed to be 7.403% as of
the Second Effective Date.

                  (c) Tenant's  Percentage  set forth in paragraphs  (a)(ii) and
(b)(ii) above shall be reduced by 0.405% at the expiration of the Amendment Term
described in Amendment No. 1.

                  5. (a)  Supplementing  the  provisions  of Section  3.5 of the
Lease,  Tenant  shall be  required to pay with  respect to the First  Additional
Space,  in addition to and together with the monthly  installment  of Additional
Base Rent, and Additional Rent relating to the Existing Premises, one-twelfth of
11.67% of the cost of common  utility  service used on the eighth (8th) floor of
the  Building;  such  payments  will be based  upon a  reading  of the  electric
submeter for said floors.

                  (b)  Supplementing the provisions of Section 3.5 of the Lease,
Tenant shall be required to pay with respect to the Second  Additional Space, in
addition to and together with the monthly  installment of Additional  Base Rent,
and Additional Rent relating to the Existing Premises,  one-twelfth of 21.50% of
the  cost of  common  utility  service  used on the  eighth  (8th)  floor of the
Building (so that,  combined with the First Additional Space,  Tenant's share of
common  utility  services  for the eighth  (8th) floor  shall be  33.17%);  such
payments will be based upon a reading of the electric submeter for said floors.

                  6. (a) As of the First  Effective  Date,  the  Lease  shall be
amended further in accordance with the following provisions:

                           (i) The  term  "Premises",  as  previously  amended,
shall be  deemed  to  include  the Existing Premises and the First Additional
Space for all purposes except for the provisions  of  Article V and  Exhibit B
of the Lease and for any other  purpose which is inconsistent with the
provisions of this Amendment.

                           (ii)  The  total  rentable   square  footage  of  the
Premises shall be deemed to be 43,715 rentable square feet.

                           (iii) The total number of parking spaces allocated to
Tenant pursuant to Section 1.3
shall be increased by three (3) spaces.

                  (b) As of the  Second  Effective  Date,  the  Lease  shall  be
amended further in accordance with the following provisions:

                           (i) The  term  "Premises",  as  previously  amended,
shall be  deemed  to  include  the Existing  Premises,  the First Additional
Space and the Second  Additional Space for all  purposes  except for the
provisions  of Article V and Exhibit B of the Lease and for any other purpose
which is  inconsistent  with the  provisions of this Amendment.

                           (ii) The total rentable  square footage of the
Premises shall be deemed to be 51,990 rentable square feet.

                           (iii) The total number of parking spaces allocated to
Tenant pursuant to Section 1.3
shall be increased by five (5) spaces.

                  (c) As of the  expiration of the Amendment  Term  described in
Amendment No. 1, (i) the total rentable square footage of the Premises set forth
in  paragraphs  (a)(ii)  and (b)(ii)  above  shall be reduced by 2,817  rentable
square  feet,  and (ii) the total number of parking  spaces  allocated to Tenant
pursuant to Section 1.3 shall be reduced by two (2) spaces.

                  7. (a) Tenant  acknowledges and agrees that Landlord shall not
be  required  to do any work to the  Additional  Space to  prepare  the same for
Tenant's occupancy,  and Tenant agrees to accept the Additional Space in its "AS
IS" condition as of the First  Effective Date or the Second  Effective  Date, as
the case  may be,  except  that  Landlord  shall  be  required  to  deliver  the
Additional Space to Tenant in broom clean condition,  vacant, and free and clear
of all tenancies and occupancies.

                           (b)   Tenant  agrees,  at its sole cost,  to
prepare  the  Additional  Space for its occupancy  and to construct  the
improvements  thereto in  accordance  with the provisions of Sections 9.5 and
9.6, and Exhibit B of the Lease,  except that the provisions  of  Paragraphs  1,
2(h) and 4 of Exhibit B shall not  apply.  Tenant agrees further to reimburse
Landlord for any  out-of-pocket  costs Landlord may incur to review Tenant's
plans and specifications.

                           (c)   Tenant may install  lines  connecting  the
Additional  Space to the  Generator (defined in the Generator  Agreement),
provided that Tenant first submits plans therefor to  Landlord  in  accordance
with the  provisions  of Exhibit B to the Lease, except that Landlord may reject
such plans in its reasonable  discretion, which may  include  rejection  because
the  risers  and other  portions  of the Building where such lines are to be
installed  cannot  accommodate such proposed lines.

                           (d) Landlord hereby  acknowledges  that Tenant may
install  supplemental  air conditioning  units and associated piping and
equipment in the Additional Space and the Existing Premises, so long as Tenant
complies with subsection (b) above.
If the  supplemental air conditioning  units require  condenser water,  Landlord
agrees to provide to the Additional Space or the Existing Premises not more than
an  aggregate  of  twenty  (20)  tons  of  condenser  water  per  year  for  the
supplemental  air  conditioning  units,  subject,  however,  to  the  terms  and
conditions of this Section 7(d). In  consideration  for the use of the condenser
water,  Tenant  agrees  to pay to  Landlord  (i) a  one-time  connection  fee of
$1,000.00  per ton of condenser  water and (ii) an annual fee (in equal  monthly
installments)  calculated by multiplying  (x) Landlord's then charge for the use
of the condenser water, by (y) the number of tons of condenser water supplied by
Landlord to the supplemental  air conditioning  unit. The current charge for the
use of the  condenser  water is $250.00 per ton per year.  Tenant  shall pay the
connection  fee and the 1st monthly  installment  of the annual fee on or before
the date on which the supplemental air  conditioning  unit becomes  operational;
thereafter,  Tenant  shall pay the monthly  installment  of the annual fee on or
before the 1st day of each calendar month during the Lease Term.

                               (e) Upon the  expiration or earlier  termination
of the Lease,  Tenant shall remove  the  supplemental  air  conditioning  units
and  associated  piping  and equipment  installed in the Premises,  restore the
Premises and shall repair all damage to the Premises and/or to the Building.

                  8.  Landlord  and Tenant  each  represent  and warrant to each
other that  neither of them has  employed  or dealt  with any  broker,  agent or
finder in carrying on the negotiations relating to this Amendment, except to the
extent of the  representation  of Cushman & Wakefield of New Jersey,  Inc.  (the
"Broker"),  and any  inconsistent  provisions of the Lease are not  incorporated
herein by  reference.  Landlord and Tenant shall  indemnify  and hold each other
harmless from and against any claim or claims for brokerage or other commissions
asserted by any broker,  agent or finder (other than the Broker)  engaged by the
indemnifying party or with whom the indemnifying party has dealt. This provision
shall survive the expiration or earlier  termination of the Lease, but shall not
be for the benefit of any third party.

                  9. Except as expressly  provided herein,  all of the terms and
conditions of the Lease shall remain unmodified and shall continue in full force
and effect,  and are hereby  ratified and confirmed.  Capitalized  terms used in
this Amendment,  but not defined herein, shall have the meaning ascribed to such
items in the Lease.

                  10.  This  Amendment  may not be  changed  orally and shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors, permitted assigns and legal representatives.

                  11. If any provision of this  Amendment  shall be held invalid
or unenforceable  according to law, the remaining provisions herein shall not be
affected thereby and shall continue in full force and effect.

                  IN WITNESS WHEREOF,  the parties have signed this Amendment as
of the date first above written.

                                                  LANDLORD:

                                                  S.P.N.W. MANAGEMENT ASSOCIATES
                                                  LIMITED PARTNERSHIP, a New
                                                  Jersey Limited Partnership

                                                  BY:  The Prudential Insurance
                                                       Company of America, a New
                                                       Jersey Corporation (its
                                                       General Partner)


                                                  By:/s/TerryMcHugh
                                                     Name:Terry McHugh
                                                     Title:Vice President

                                                  TENANT:

                                                  SHERWOOD SECURITIES CORP.


                                                  BY: /s/ Thomas Neumann
                                                      Name: Thomas Neumann
                                                      Title:President

<PAGE>



                                   SCHEDULE 1

                        FLOOR PLANS FOR ADDITIONAL SPACE



<PAGE>








                       AMENDMENT NO. 3 TO LEASE AGREEMENT


         THIS AGREEMENT  (hereinafter  referred to as the "Amendment")  made the
29th day of March 1999,  between BBV HUDSON STREET  LIMITED  PARTNERSHIP,  a New
Jersey  limited  partnership,  whose  address is c/o  Clarion  Realty  Services,
Building  Management  Office,  10 Exchange Place,  Jersey City, New Jersey 07302
(hereinafter  referred to as "Landlord");  and SHERWOOD  SECURITIES CORP., a New
York  corporation,  with offices at 10 Exchange  Place,  Jersey City, New Jersey
07302 (hereinafter referred to as "Tenant").

                                                W I T N E S S E T H:

         WHEREAS,  pursuant to the terms and  conditions of a certain  long-term
ground  lease  dated  October 7, 1985  (hereinafter  referred  to as the "Ground
Lease") between BBV US Real Estate Fund III, L.P., a Georgia limited partnership
(successor-in-interest  to FJN Corporation),  as ground lessor, and BBV Exchange
Centre Urban  Renewal  Limited  Partnership,  a New Jersey  limited  partnership
(successor-in-interest  to  Exchange  Place  Urban  Renewal  Associates  Limited
Partnership)  (hereinafter  referred to as "BBVEC"), as ground lessee, BBVEC has
leased a certain tract of land (hereinafter referred to as the "Property") lying
and being in the City of Jersey City,  County of Hudson and State of New Jersey,
which tract of land is commonly  known as Lot 1, Block 8.4 on the  Official  Tax
Map of Jersey City and is more  particularly  described  on Exhibit 1 annexed to
the Lease; and

         WHEREAS, BBVEC's predecessor has constructed on the Property a building
containing  approximately  914,249 rentable square feet (hereinafter referred to
as the  "Building"),  of  which  696,876  square  feet is  rentable  office  and
ancillary lobby retail space and 217,373 square feet is above-grade  garage area
for  approximately  439  automobiles.  For the purposes of this  Amendment,  the
garage area of the Building is hereinafter  referred to as the "Garage," and the
Property,   the  Building  and  all  other  improvements  on  the  Property  are
hereinafter, collectively, referred to as the "Real Property"; and

         WHEREAS,  pursuant  to the terms  and  conditions  of a  certain  Lease
Agreement  dated  December  29,  1989  (hereinafter  referred  to as the "Master
Lease"),  BBVEC  has  leased  to  Landlord's  predecessor-in-interest,  S.P.N.W.
Management  Associates  Limited  Partnership,  certain  portions of the Building
(said portions being hereinafter referred to as the "Master Lease Space"); and


<PAGE>


         WHEREAS,  Landlord's  predecessor-in-interest and Tenant entered into a
Lease  Agreement dated as of November 30, 1994, as amended by Amendment No. 1 to
Lease  Agreement  dated July 18, 1996  (hereinafter  the "First  Amendment"),  a
Generator  Agreement  dated as of August 28, 1996  (hereinafter  the  "Generator
Agreement")  and  Amendment  No.  2 to  Lease  Agreement  dated  July  31,  1998
(hereinafter the "Second Amendment")  (hereinafter  collectively  referred to as
the "Lease"),  whereby Tenant is presently in possession of premises  containing
approximately  36,624  rentable  square  feet of space  constituting  the entire
fifteenth (15th) floor of the Building and  approximately  2,817 rentable square
feet of space on the fourteenth  (14th) floor of the Building and  approximately
4,274  rentable  square feet of space on the eighth  (8th) floor of the Building
(hereinafter collectively referred to as the "Premises"); and

         WHEREAS,  Tenant has requested  that Landlord  expedite the delivery of
the Second Additional Space, as such term is defined in the Second Amendment, by
Landlord entering into an agreement with the current tenant thereof whereby such
tenant  agrees to surrender  possession of the Second  Additional  Space earlier
than the scheduled expiration of its lease; and

         WHEREAS, Landlord is willing to accept an early surrender of the Second
Additional  Space  from the  current  tenant  provided  Tenant  agrees to accept
delivery thereof upon the tender of possession by Landlord; and

         WHEREAS,  the  parties  hereto  desire to amend  the Lease  only in the
respects and on the conditions hereinafter stated.

         NOW, THEREFORE, Landlord and Tenant agree as follows:

         1. For  purposes of this  Amendment,  capitalized  terms shall have the
meanings ascribed to them in the Lease unless otherwise defined herein.

         2. Landlord and Tenant hereby confirm that the Lease  Commencement Date
of the Lease Term was January 1, 1995 and that the expiration  date of the Lease
Term is January 31, 2007.

         3. From and after the date Landlord  delivers  possession of the Second
Additional Space to Tenant in the condition required under Paragraph 2(b) of the
Second Amendment  (hereinafter referred to as the "Second Effective Date") which
date is  anticipated  to be March 21, 1999,  Tenant  shall lease from  Landlord,
through the remainder of the Lease Term, the Second  Additional Space consisting
of  approximately  7,875  rentable  square feet on the eighth (8th) floor of the
Building,  which Second  Additional  Space is as shown on Schedule 1 attached to
the Second  Amendment.  The  Additional  Space is being  leased to Tenant in the
condition  described in Paragraph 7(a) of the Second  Amendment.  From and after
the Second  Effective  Date,  Sections  1.1 and 3.2 of the Lease shall be deemed
amended to reflect  that the  Premises  shall mean the  Premises  and the Second
Additional Space for a total square footage of 51,590 rentable square feet.

         4. From and  after  the  Second  Effective  Date,  all of the terms and
provisions  of the Second  Amendment  as they  pertain to the Second  Additional
Space shall  become  operative  and shall  govern the  relationship  between the
parties.

         5.   Notwithstanding   anything   contained  herein  to  the  contrary,
calculations  of Tenant's  Percentage  of  Operating  Expenses and Taxes for the
period prior to the Second  Effective Date shall remain as provided in the Lease
prior to this Amendment.

         6. From and after the  Second  Effective  Date,  Paragraph  7(d) of the
Second  Amendment is amended to replace "twenty (20) tons of condenser water per
year" with "sixty (60) tons of condenser water per year."

         7. Tenant  represents  and  warrants  to the  Landlord  that  Cushman &
Wakefield of New Jersey, Inc. is the sole broker with whom Tenant has negotiated
in bringing about this  Amendment.  Tenant agrees to indemnify and hold Landlord
harmless  from any and all claims of other  brokers and  expenses in  connection
therewith  arising  out  of or in  connection  with  the  negotiation  of or the
entering into this Amendment by Landlord and Tenant.

         8. Tenant  represents,  warrants and covenants  that Landlord is not in
default  under any of its  obligations  under the Lease and that, to the best of
Tenant's knowledge, Tenant is not in default of any of its obligations under the
Lease,  and no event has occurred which,  with the passage of time or the giving
of notice,  or both,  would  constitute  a default by either  Landlord or Tenant
thereunder.  Landlord  represents,  warrants and covenants that Tenant is not in
default of any of its monetary  obligations  owed to Landlord for which Landlord
has billed Tenant.

         9.  Except  as  modified  by  this  Amendment,  the  Lease  and all the
covenants,  agreements, terms, provisions and conditions thereof shall remain in
full force and  effect and are hereby  ratified  and  affirmed.  The  covenants,
agreements,  terms,  provisions and conditions contained in this Amendment shall
bind and  inure to the  benefit  of the  parties  hereto  and  their  respective
successors and assigns. In the event of any conflict between the terms contained
in this Amendment and the Lease,  the terms herein contained shall supersede and
control the obligations and liabilities of the parties.

         10. This  Amendment  shall becomes  effective  only upon  execution and
delivery thereof by Landlord and Tenant.













IN WITNESS WHEREOF,  Landlord and Tenant have hereunto set their hands and seals
as of the date and year first  above  written,  and  acknowledge  the one to the
other that they possess the requisite  authority to enter into this  transaction
and to sign this Amendment.

                                 BBV HUDSON STREET LIMITED PARTNERSHIP, Landlord



                                 By: /s/  A.Bartkiewicz
Name: A.Bartkiewicz
                                 Title: Authorized Representative
                                 HRB Capital Markets/Asset Manager


                                 SHERWOOD SECURITIES CORP., Tenant



                                 By: /s/ Denise Isaac
                                 Name: Denise Isaac
                                 Title: Chief Financial Officer




<PAGE>






                            AMENDMENT NO. 4 TO LEASE


         THIS AGREEMENT (hereinafter referred to as the "Amendment") made the 22
day of June 1999,  between BBV HUDSON STREET LIMITED  PARTNERSHIP,  a New Jersey
limited  partnership,  whose address is c/o Clarion  Realty  Services,  Building
Management Office, 10 Exchange Place, Jersey City, New Jersey 07302 (hereinafter
referred  to  as  "Landlord");   and  SHERWOOD  SECURITIES  CORP.,  a  New  York
corporation,  with offices at 10 Exchange  Place,  Jersey City, New Jersey 07302
(hereinafter referred to as "Tenant").

                                                W I T N E S S E T H:

         WHEREAS,  pursuant to the terms and  conditions of a certain  long-term
ground  lease  dated  October 7, 1985  (hereinafter  referred  to as the "Ground
Lease") between BBV US Real Estate Fund III, L.P., a Georgia limited partnership
(successor-in-interest  to FJN Corporation),  as ground lessor, and BBV Exchange
Centre Urban  Renewal  Limited  Partnership,  a New Jersey  limited  partnership
(successor-in-interest  to  Exchange  Place  Urban  Renewal  Associates  Limited
Partnership)  (hereinafter  referred to as "BBVEC"), as ground lessee, BBVEC has
leased a certain tract of land (hereinafter referred to as the "Property") lying
and being in the City of Jersey City,  County of Hudson and State of New Jersey,
which tract of land is commonly  known as Lot 1, Block 8.4 on the  Official  Tax
Map of Jersey City and is more  particularly  described  on Exhibit 1 annexed to
the Lease and made a part hereof; and

         WHEREAS, BBVEC's predecessor has constructed on the Property a building
containing  approximately  914,249 rentable square feet (hereinafter referred to
as the  "Building"),  of  which  696,876  square  feet is  rentable  office  and
ancillary lobby retail space and 217,373 square feet is above-grade  garage area
for  approximately  439  automobiles.  For the purposes of this  Amendment,  the
garage area of the Building is hereinafter  referred to as the "Garage," and the
Property,   the  Building  and  all  other  improvements  on  the  Property  are
hereinafter, collectively, referred to as the "Real Property"; and

         WHEREAS,  pursuant  to the terms  and  conditions  of a  certain  lease
agreement  dated  December  29,  1989  (hereinafter  referred  to as the "Master
Lease"),  BBVEC has leased to Landlord  certain  portions of the Building  (said
portions being hereinafter referred to as the "Master Lease Space"); and

         WHEREAS,  Landlord's  predecessor-in-interest and Tenant entered into a
Lease  Agreement dated as of November 30, 1994, as amended by Amendment No. 1 to
Lease  Agreement  dated July 18, 1996  (hereinafter  the "First  Amendment"),  a
Generator  Agreement  dated as of August 28, 1996  (hereinafter  the  "Generator
Agreement"), Amendment No. 2 to Lease Agreement dated July 31, 1998 (hereinafter
the  "Second  Amendment")  and  Amendment  No. 3 to Lease  dated  March 29, 1999
(hereinafter,  collectively,  referred  to as the  "Lease"),  whereby  Tenant is
presently in possession of premises  containing  approximately  51,590  rentable
square feet of space consisting of: approximately 36,624 rentable square feet of
space   constituting   the  entire  fifteenth  (15th)  floor  of  the  Building;
approximately 2,817 rentable square feet of space on the fourteenth (14th) floor
of the  Building  (hereinafter  referred  to as the  "14th  Floor  Space");  and
approximately  12,149 rentable square feet of space on the eighth (8th) floor of
the Building (hereinafter, collectively, referred to as the "Premises"); and

         WHEREAS, notwithstanding the provisions of Paragraph 6(c) of the Second
Amendment to Lease,  Tenant  desires to extend the Lease term for the 14th Floor
Space which term is otherwise  scheduled to expire on July 7, 1999, and Landlord
is  willing  to  extend  the term  for the 14th  Floor  Space on the  terms  and
provisions set forth in the Lease, except to the extent provided for herein; and

         WHEREAS,  the  parties  hereto  desire to amend  the Lease  only in the
respects and on the conditions hereinafter stated.

         NOW, THEREFORE, Landlord and Tenant agree as follows:

         1. For  purposes of this  Amendment,  capitalized  terms shall have the
meanings ascribed to them in the Lease unless otherwise defined herein.

         2. Landlord and Tenant hereby confirm that the Lease  Commencement Date
of the Lease Term was January 1, 1995 and that the expiration  date of the Lease
Term is January 31, 2007.

         3. Tenant acknowledges and agrees that it is currently in possession of
the 14th Floor Space.  From and after July 8, 1999  (hereinafter  referred to as
the "Third  Effective  Date"),  Tenant  shall  continue to lease from  Landlord,
through  December  31,  2005  (hereinafter  referred to as the "14th Floor Space
Extended  Term"),  the 14th Floor  Space  which 14th Floor  Space is as shown on
Schedule 1 annexed to the First Amendment.  The 14th Floor Space is being leased
to Tenant in its "AS IS"  condition.  During the 14th Floor Space Extended Term,
Sections  1.1 and 3.2 of the Lease shall be deemed to reflect  that the Premises
shall mean the  Premises  containing  a total  square  footage of  approximately
51,590 rentable square feet.

         4.  Supplementing  the  provisions of Section 3.5 of the Lease,  Tenant
shall be required to pay,  with respect to the 14th Floor Space,  in addition to
and  together  with  the  monthly  installment  of  the  Additional  Base  Rent,
one-twelfth (1/12) of 7.69(%) percent of the cost of common utility service used
on the  fourteenth  (14th)  floor of the  Building  based  upon a reading of the
electric  submeter for said floor. The amount payable pursuant to this paragraph
shall be deemed Additional Rent under the terms of the Lease.



<PAGE>


        Tenant shall pay to Landlord during the 14th Floor Space Extended
           Term, in addition to the Base Rent for the Premises as they
          existed prior to this Amendment, Base Rent for the 14th Floor
                             Space only as follows:





<TABLE>
<CAPTION>



======================================== ----------------------- ----------------------- ===========================
                                                 Annual                  Monthly                Base Rent Per
               Period                           Base Rent               Base Rent                Square Foot
======================================== ----------------------- ----------------------- ===========================
<S>                                                  <C>                      <C>                            <C>
Third Effective Date - 12/31/02
                                                     $90,144.00               $7,512.00                      $32.00
======================================== ======================= ======================= ===========================
01/01/03 - 12/31/05                                  $98,595.00               $8,216.25                      $35.00
======================================== ======================= ======================= ===========================
</TABLE>


The aforesaid  monthly  installments of Base Rent shall be payable in advance on
or before the first day of each  calendar  month  during  the 14th  Floor  Space
Extended  Term,  except  that a  proportionately  lesser sum may be paid for the
first month  following the Third  Effective  Date and the last month of the 14th
Floor Space Extended Term if the Third Effective Date is on a day other than the
first day of the month,  and Section  3.1 of the Lease shall be deemed  modified
accordingly.  Landlord  acknowledges  receipt  from  Tenant  of the sum of Seven
Thousand Five Hundred Twelve and 00/100 ($7,512.00)  Dollars, by check,  subject
to  collection,  which  shall be applied by  Landlord  to Base Rent for the 14th
Floor Space for the first month following the Third Effective Date.

         6. Provided  Tenant is not in default  pursuant to any of the terms and
conditions of the Lease and subject to the rights of all existing tenants in the
Building  with  respect to the 14th Floor  Space,  Tenant shall have the option,
exercisable by notice in writing to Landlord no later than December 31, 2004, to
extend the 14th Floor Space Extended Term to expire  coterminously with the Term
for the Premises (i.e.  January 31, 2007).  Should Tenant  exercise such option,
Landlord  and  Tenant  shall  enter  into a  modification  of the  Lease,  which
modification  shall  reflect  that the Base Rent for the 14th Floor Space during
such  extension  shall be at the same rate  payable  during the last year of the
14th Floor Space Extended Term.

         7. During the 14th Floor Space Extended Term,  Section 3.3 of the Lease
shall continue to reflect that Tenant's Percentage shall be 7.403(%) percent.

         8.  With  respect  to  calculating  Tenant's  Percentage  of  Operating
Expenses  during the 14th Floor Space  Extended  Term,  Section 3.5 of the Lease
shall be amended to  reflect  that the Base Year with  respect to the 14th Floor
Space only shall be Calendar Year 2000.

         9.   Notwithstanding   anything   contained  herein  to  the  contrary,
calculations of Tenant's  Percentage of Operating  Expenses for the period prior
to the 14th Floor  Space  Extended  Term shall  remain as  provided in the Lease
prior to this Amendment.

         10. During the 14th Floor Space Extended Term, Section 1.3 of the Lease
shall  continue to reflect that Tenant shall have the right to contract with the
Operator  on a  month-to-month  basis  for  the  use of an  additional  two  (2)
non-exclusive parking spaces in the Garage.

         11. Landlord and Tenant  acknowledge  that Tenant has requested the use
of forty (40)  additional  amps of electrical  energy in the Premises.  Landlord
acknowledges  and agrees that subject to Tenant  complying with all of the terms
and  provisions of the Lease with respect  thereto,  including by way of example
but not limitation,  the provisions of Sections  4.2(a) through  4.2(c),  Tenant
shall have use of such additional electrical energy for the balance of the Term.
Payment for Tenant's  consumption of such additional  electrical energy shall be
made in accordance with Section 13.4 of the Lease.

         12.  Tenant  represents  and  warrants to the  Landlord  that Cushman &
Wakefield,  Inc. is the sole broker with whom Tenant has  negotiated in bringing
about this Amendment. Tenant agrees to indemnify and hold Landlord harmless from
any and all claims of other brokers and expenses in connection therewith arising
out of or in  connection  with the  negotiation  of or the  entering  into  this
Amendment by Landlord and Tenant.  Landlord shall pay Cushman & Wakefield,  Inc.
any fees or  commissions  due as a result of this  transaction  pursuant  to the
terms of a separate agreement.

         13.  Tenant  represents,  warrants and  covenants  that, to the best of
Tenant's  knowledge,  Landlord  is not in default  under any of its  obligations
under the Lease and Tenant is not in default of any of its obligations under the
Lease,  and no event has occurred which,  with the passage of time or the giving
of notice,  or both,  would  constitute  a default by either  Landlord or Tenant
thereunder.  Landlord  represents,  warrants and covenants that Tenant is not in
default of any of its monetary  obligations  owed to Landlord for which Landlord
has billed Tenant.

         14.  Except  as  modified  by this  Amendment,  the  Lease  and all the
covenants,  agreements, terms, provisions and conditions thereof shall remain in
full force and  effect and are hereby  ratified  and  affirmed.  The  covenants,
agreements,  terms,  provisions and conditions contained in this Amendment shall
bind and  inure to the  benefit  of the  parties  hereto  and  their  respective
successors and assigns. In the event of any conflict between the terms contained
in this Amendment and the Lease,  the terms herein contained shall supersede and
control the obligations and liabilities of the parties.

         15.  The  submission  of  this  Amendment  for  examination   does  not
constitute a reservation of, or option for, the Third Additional Space, and this
Amendment becomes effective only upon execution and delivery thereof by Landlord
and Tenant.

         IN WITNESS  WHEREOF,  Landlord and Tenant have hereunto set their hands
and seals as of the date and year first above written,  and  acknowledge the one
to the other  that they  possess  the  requisite  authority  to enter  into this
transaction and to sign this Amendment.

                                BBV HUDSON STREET LIMITED PARTNERSHIP, Landlord



                                By: /s/ A.Bartkiewicz
                                Name: A.Bartkiewicz
                                Title: Authorized Representative (Asset Manager)



                                SHERWOOD SECURITIES CORP., Tenant



                                By: /s/ Thomas Neumann
                                Name: Thomas Neumann
                                Title: President & CEO



                                                                      EXHIBIT 11


                      NATIONAL DISCOUNT BROKERS GROUP, INC.
                                AND SUBSIDIARIES

                    Computation of Earnings Per Common Share

                     Years ended May 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>



                                                              1999                1998               1997

<S>                                                   <C>                         <C>               <C>
Net income from continuing operations                 $      18,219,407            5,998,458         6,615,575
Discontinued operations (net)                                 2,786,052            5,961,861         2,664,118

                  Net income                          $      21,005,459           11,960,319         9,279,693

Net income per common share Basic:
   Net income from continuing operations                          $1.30                  .45               .51
   Discontinued operations, (net)                                   .20                  .44               .21

                  Net income                                       1.50                  .89               .72

Diluted:
   Net income from continuing operations                          $1.29                  .45               .51
   Discontinued operations, (net)                                  . 20                  .44               .21

                  Net income                                      $1.49                  .89               .72

Historical:
   Weighted average number of
      common stock and common stock
      equivalents outstanding:
         Basic                                               14,018,257           13,432,726        12,890,926

         Diluted                                             14,143,240           13,501,346        12,946,007



</TABLE>


                                                                      EXHIBIT 16








August 6, 1999


Office of the Chief Accountant
Securities and Exchange Commission
SECPS Letter Files
Mail Stop 9-5
450 Fifth Street, N.W.
Washington, D.C. 20549


Ladies and Gentlemen:

We were previously  principal  accountants for National  Discount Brokers Group,
Inc.  and,  under the date of July 15,  1998,  we reported  on the  consolidated
financial  statements of National  Discount Brokers Group, Inc. and subsidiaries
as of and for the years ended May 31, 1998 and 1997.  On February 12,  1999,  we
resigned. We have read National Discount Brokers Group, Inc. statements included
under Item 9 of its Form 10-K for the year ended May 31, 1999, and we agree with
such statements,  except for the statements  relating to  PricewaterhouseCoopers
LLP as we have no basis to confirm such statements.

Very truly yours,


KPMG LLP






cc:      Arthur Kontos - National Discount Brokers Group, Inc.
         Paul Wirth - KPMG LLP
         Steven Gallotta - KPMG LLP




EXHIBIT 21

SUBSIDIARIES OF NATIONAL DISCOUNT BROKERS GROUP, INC.


A) SHERWOOD SECURITIES CORP., incorporated under the laws of the State of
   Delaware.

B) SHERWOOD  CAPITAL,  INC.,  incorporated  under  the laws of the State of New
   Jersey.

C) SHERWOOD PROPERTIES CORP., incorporated under the laws of the State of
   Delaware.

D) NDB INSURANCE AGENCY CORP. (formerly SHERWOOD NEWCO CORP.), incorporated
   under the laws of the State of Delaware.

E) THE EBERCOM COMPANY., incorporated under the laws of the State of Delaware.

F) SIMCON CORPORATION, incorporated under the laws of the State of Delaware.

G) SHERWOOD MANAGEMENT CORP., incorporated under the laws of the State of
   Delaware.

H) TRIAK SERVICES CORP., incorporated under the laws of the State of New York.

I  SHD CORPORATION, incorporated under the laws of the State of Delaware.

J) MILLENNIUM CLEARING CORP., incorporated under the laws of the State of
   Delaware.


















                                                                    EXHIBIT 23.1

                       Consent of Independent Accountants

August 18, 1999

     We hereby  consent to the  incorporation  by reference in the  Registration
Statements  on Form S-8 (No.  333-41819,  No.  033-64571  and No.  33-72790)  of
National Discount Brokers Group, Inc. of our report dated July 15, 1999 relating
to the financial  statements and financial statement schedule,  which appears in
this Form 10-K.



PricewaterhouseCoopers LLP



                                                                    EXHIBIT 23.2



                       Consent of Independent Accountants



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

We consent to incorporation  by reference in the  registration  statements (Nos.
33-72790,  033-64571,  and 333-41819) on Form S-8 of National  Discount  Brokers
Group,  Inc. of our report  dated July 15,  1998,  relating to the  consolidated
statement of financial  condition of National  Discount Brokers Group,  Inc. and
subsidiaries  as of May 31, 1998,  and the related  consolidated  statements  of
income, changes in stockholders' equity, and cash flows for each of the years in
the two-year period then ended,  which report appears in the May 31, 1999 annual
report on Form 10-K of National Discount Brokers Group, Inc.


KPMG LLP

New York, New York
August 18, 1999