NETWOLVES CORP
10-12G, 1999-04-20
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    ---------

                                     FORM 10


                   GENERAL FORM FOR REGISTRATION OF SECURITIES
                      PURSUANT TO SECTION 12(b) OR 12(g) OF
                       THE SECURITIES EXCHANGE ACT OF 1934


                              NetWolves Corporation
              (Exact Name of Registrant as Specified in its Charter


          New York                                   11-3439392 
(State or Other Jurisdiction of                  (I.R.S. Employer
Incorporation or Organization)                    Identification No.)

200 Broadhollow Road, Melville, New York                 11747  
(Address of Principal Executive Offices)              (Zip Code)

Registrant's telephone number, including area code   516-393-5016  

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

     Title of Each Class                     Name of Each Exchange on Which
     to be so Registered                     Each Class is to be Registered   

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



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

                    Common Stock, par value $.0033 per share
                                (Title of Class)


<PAGE>


ITEM 1.   BUSINESS

General

     NetWolves Corporation ("NetWolves" or the "Company") designs,  develops and
sells products which provide a secure, integrated, modular internet gateway. The
products  connect  business  networks  [Local Area Networks (LANs) and Wide Area
Networks  (WANs)]  to  the  Internet.   The  primary  product,  the  FoxBox,  is
multi-functional.  It supports  secure access to the Internet for 3 to 400 users
through a single dedicated connection or up to 8 users simultaneously  through a
non-dedicated  connection,  provides  advanced  electronic  mail  functions  for
unlimited users and delivers  firewall  security.  The Company's  initial target
markets  are the end  users in the  small  and  mid-sized  businesses  and large
organizations  with satellite  offices.  Larger end users to whom the product is
intended to be marketed are companies  with  multi-state  locations,  government
agencies and  educational  markets.  NetWolves  products are designed to service
numerous markets, including the financial,  medical, legal, travel, hospitality,
entertainment, hotel and auto industries.

     The  Company's  strategy is to  establish  the FoxBox as the  standard  for
enterprise-wide  network  connectivity  worldwide.  To  achieve  its  objectives
worldwide, NetWolves seeks to form relationships with leading companies in their
respective  areas  to  deliver   application-specific   internet   solutions  to
organizations  worldwide.  In  furtherance  of this  objective,  the Company has
recently entered into agreements with Anicom, Inc. and The Sullivan Group and is
negotiating additional relationships.

     In January  1999,  NetWolves  entered into a  distribution  agreement  with
Anicom,  Inc. appointing Anicom, Inc. as the exclusive master distributor of its
products in North  America  subject to certain  minimum  purchase  requirements.
Anicom is one of the largest  distributors  in the United  States of  multimedia
wiring systems with customers  including  Cisco Systems and Fast Com and intends
to sell the Company's  products to its 75 offices  located in the United States.
In addition,  Anicom will maintain inventory of the FoxBox from all 75 locations
and intends to distribute the FoxBox nationwide. The Company delivered its first
significant  order, in excess of $1,500,000, in March/April 1999. 

     In January 1999,  the Company  entered into an agreement  with The Sullivan
Group,  a leading  consulting  organization  serving the needs of the automobile
aftermarket,  convenience  stores and oil  industry.  It  maintains an extensive
library of training  modules  available to its client base which  includes Amoco
Oil, British Petroleum,  Chevron,  Chrysler,  Exxon,  General Motors,  Mobil Oil
Shell,  Tosco and Unocal.  Pursuant to its  agreement,  The  Sullivan  Group has
appointed NetWolves as its exclusive provider in the United States of a delivery
system  whereby The  Sullivan  Group  intends to sell its  proprietary  training
programs to approximately  40,000 retail locations throughout the United States.
NetWolves is customizing an Internet  solution  specifically to deliver distance
learning to these locations utilizing its FoxBox technology;  and it anticipates
sales of this customized product to commence this summer.

<PAGE>

     NetWolves, LLC was an Ohio limited liability company formed on February 13,
1998, which was merged into Watchdog Patrols,  Inc. on June 17, 1998.  Watchdog,
the legal surviving entity of the merger was incorporated  under the laws of the
State of New York on January 5, 1970.  As a result of the merger and  subsequent
sale of Watchdog's business, Watchdog changed its name to NetWolves Corporation.

Products and Services

     The FoxBox is a multi-services  internet communications gateway that offers
a combined internet access and firewall security solution. The FoxBox costs less
than  purchasing its  functionality  in separate  products and its  "all-in-one"
solution  significantly reduces costly network  administration  overhead,  since
there are less  divergent  components to  administer in the FoxBox.  Each of the
features in the FoxBox is designed to work together  using  integrated  hardware
and software, and a common interface.  This facilitates expansion and support of
the converging voice and data industries. NetWolves currently offers five FoxBox
models:  FoxBox DDR, dial on demand;  FoxBox ISDN,  dial on demand;  FoxBox 56K,
dedicated; FoxBox T1, dedicated; and FoxFox S2E, dedicated.

     The FoxBox offers the following features:

     --   It can securely  connect any number of users on a LAN (Local
          Area  Network) to the Internet  through a single  dial-up or dedicated
          connection.
     --   All LAN users can simultaneously connect to the Web/Internet.
     --   Up to eight users at one time can connect to the Web/Internet on non-
          dedicated connections.
     --   Hierarchical caching gives the FoxBox more efficient web viewing
          and FTP downloads.  
     --   Any number of users can send and receive e-mail individually, while 
          sharing one ISP (Internet Service Provider) account.
     --   A firewall  protects  the LAN from  Internet-borne  attacks.
     --   Advanced  Network Address  Translation  (ANAT) module allows
          the  creation  of  powerful  address  translation  rules  for greater
          firewall flexibility.
     --   Logging  capabilities  ensure  appropriate use of  Internet resources.
     --   Scalability  allows  Internet usage to grow as a company expands.
     --   It  contains  a  network  file  server.  
     --   It can be used as a stand-alone  firewall.  
     --   It allows a company to  publish  and host a web site.
     --   It   assists  a  company   to  create   and   customize   an
          Intranet/Extranet.

     The FoxBox also offers the following optional features:

     --   SCSI tape  backup/restore  module  allows all stored data on
          the FoxBox to be backed up onto a standard DAT tape.
     --   Fast SCSI hard drive provides extra storage for shared files
          and Web data at faster access speeds.
     --   Extra 9.1 GB SCSI hard  drive  provides  extra  storage  for
          shared files and Web data.  

<PAGE>

     --   E-Mail Archive module allows all inbound and outbound e-mail to be 
          saved for archival/compliance 
          purposes.
     --   Advanced Access Control (AAC) module allows control over who
          can access the Web and what sites they have access to.
     --   Virtual Private  Networking (VPN) module allows the creation
          of a  virtual  Wide  Area  Network  (WAN)  over the  Internet  between
          different office locations.

     Firewall and Security Functions

     NetWolves  believes that  security is an essential  element of any Internet
connectivity  solution. For this reason, the FoxBox includes a high end firewall
security protection, without requiring the purchase of additional components.

     The FoxBox is designed to protect a company's private data and systems from
outside  intruders  with  its  firewall  security  system,  incorporating  three
separate firewall technologies:

     --   Stateful  packet  filters  verify  that  all  incoming  data
          packets  coming from the Internet have been requested by an authorized
          user on the LAN.
     --   Proxy    applications    prevent    unauthorized    Internet
          applications from accessing the LAN.
     --   Network  Address  Translation  (or NAT)  makes  the  network
          invisible to outside  Internet users by hiding the internal  network's
          IP addresses.

     All packets of data entering the FoxBox from the Internet are first checked
for validity  against a series of stateful packet  filters.  FTP, HTTP, SMTP and
DNS data is then  forwarded  to proxy  applications  that  further  inspect  the
contents  of the  packets  for  potential  security  violations.  If the data is
determined  to  be  valid  by  both  the  stateful   packet  filters  and  proxy
applications, it is allowed to enter the secure LAN.

     The  FoxBox  DDR  and  FoxBox  ISDN  dial  on  demand  units  come  with  a
preconfigured  firewall  and NAT rules that allow  these  products  to  securely
connect the LAN to the  Internet.  The FoxBox 56K,  FoxBox T1 and FoxBox S2E are
designed with fully  configurable  firewalls and NAT rules that give the network
administrator  greater  flexibility in allowing or denying incoming and outgoing
data.

     E-Mail Services

     A key feature of the FoxBox is its  advanced  and  powerful  management  of
electronic  mail. With only one Internet  account,  an unlimited number of users
can send and receive e-mail. In addition,  the FoxBox supports e-mail standards.
For e-mail between a FoxBox and the Internet, NetWolves uses the standard Simple
Mail  Transfer  Protocol  (SMTP)  protocol,  which is the  standard  for  e-mail

<PAGE>

transmission  on the  Internet.  SMTP is  accomplished  using a  product  called
Sendmail,  version  8.8.8,  which is the standard  SMTP server on the  Internet.
Sendmail  manages  the  sending of e-mail from a FoxBox to any other host on the
Internet. For LAN users, the FoxBox supports a number of different protocols. If
the FoxBox is used as the LAN's e-mail server, two common  client-server  e-mail
protocol standards are supported:

     --     POP-3
     --     IMAP

     The FoxBox supports several e-mail clients, including:

     --     Microsoft Exchange
     --     Microsoft Internet Mail
     --     Netscape Navigator Mail
     --     Eudora
     --     Pegasus

     The FoxBox supports several e-mail gateways, including:

     --     Microsoft Exchange Server
     --     Lotus cc: Mail
     --     GroupWise Mail
     --     Others with SMTP gateways     

     Graphical User Interface for Administration/Management

     A  Web-based   Graphical  User   Interface,   or  GUI  allows  the  network
administrator to configure the various  subsystems of the FoxBox.  The FoxBox is
completely  transparent  to the Internet user.  Likewise,  because the FoxBox is
easy to setup, it will feel transparent to the administrator. This is especially
true  should  changes be  required  following  initial  installation.  Since all
administration  of  the  FoxBox  is  performed   through  a  Web  browser,   the
administrator can be on any workstation on the LAN.

Agreements With Anicom and The Sullivan Group

     In January  1999,  NetWolves  entered  into an agreement  with Anicom.  The
agreement  appoints  Anicom as NetWolves'  exclusive  master  distributor of its
products  throughout  North  America for a five year  period.  There are minimum
purchase  requirements under the agreement to maintain  exclusivity though there
are no  specific  purchase  commitments  beyond  its  initial  order  which  was


<PAGE>

delivered in  March/April  1999.  NetWolves  has also reserved the right to make
direct sales or leases of its  products to  customers,  distributors  and Anicom
resellers  during the term of the  agreement  provided that it pays a stipulated
commission to Anicom of such sales. The agreement further provides for Anicom to
maintain  inventory of  NetWolves'  products and to  distribute  these  products
throughout  its 75 locations in the United  States.  The agreement  provides for
certain  rights of  termination,  including the option of NetWolves to terminate
during  the first two years of the  agreement  on 30 days prior  written  notice
provided  that,  as a  condition  to  the  effectiveness  of  such  termination,
NetWolves shall pay Anicom a stipulated fee.

     In connection  with the agreement  and for cash  consideration  paid to the
Company of $300,000,  the Company  issued  Anicom  300,000  warrants to purchase
common stock of the Company at an exercise  price of $5 per share.  The warrants
issued to Anicom shall vest in equal  installments over three years,  commencing
on the first  anniversary  of the  agreement  and shall expire in January  2004.
Anicom also obtained piggyback  registration rights with respect to the issuable
shares of common stock.

     In January  1999,  NetWolves  entered into an  agreement  with The Sullivan
Group,  a leading  consulting  organization  serving the needs of the automotive
aftermarket, convenience store and oil industry and, through its subsidiary, The
Duffy-Vinet  Institute,  maintains  an  extensive  library of  training  modules
available to its client customer base.  Under the agreement,  NetWolves has been
appointed as the exclusive provider of multi-services internet gateway products,
which is intended to enable The Sullivan  Group and its  subsidiary  to sell its
proprietary   training   programs  to  approximately   40,000  retail  locations
throughout the United States. This combined technology is intended to facilitate
simultaneous  interactive distance learning at all sites. The agreement is for a
period of five years  with an  automatic  five year  renewal  unless  previously
terminated.  NetWolves  has agreed to customize its FoxBox to serve the needs of
The Sullivan Group.

     Initial  deliveries are scheduled to commence in the summer of 1999.  While
deliveries  will be made against  specific  purchase  orders yet to be received,
NetWolves  has agreed to deliver  approximately  40,000  units over a  five-year
period ranging from 350 units in 1999 and 4,150 units in 2000 to 14,000 in 2003.
It is  intended  that the units will be leased over a 48 month term at a monthly
rate of $200 per unit.  One year of  maintenance  is included  with each leasing
agreement and extended maintenance contracts may be purchased for a fee.

Research and Development

     The  internet  and  the  computer   hardware  and  software   industry  are
characterized by rapid technological  change, which requires ongoing development
and  maintenance of products.  It is customary for  modifications  to be made to
products as experience with its use grows or changes in manufacturer's  hardware
and software so require.

     NetWolves'  research and  development  organization  is comprised of a core
team of engineers  who  specialize  in different  areas of product  development.
NetWolves engineering team has experience in a variety of industries,  including
information  security,  designing  networking  protocols,  building  interfaces,

<PAGE>

designing  databases,  and computer  telephony.  Their  expertise is used in the
design  of the  FoxBox  and  seeking  improved  methods  for the  FoxBox to meet
customer  needs.  As of March 31, 1999, the Company's  research and  development
group consists of five employees.  The Company seeks to recruit highly qualified
employees  and its  ability  to  attract  and retain  such  employees  will be a
principal  factor  in  its  success  in  achieving  and  maintaining  a  leading
technological position.

     For  the  six  months  ended  December  31,  1998,  the  Company   expended
approximately $91,600 for research and development expenses. The Company intends
to increase its investment in product  development  and believes that its future
services will depend, in part, on its ability to develop, manufacture and market
new products  and  enhancements  to existing  products on a  cost-effective  and
timely basis.

Manufacturing and Testing

     The primary manufacturer  currently used by the Company is Boca Research, a
hardware  assembly  and  engineering  firm  located  in  Boca  Raton,   Florida.
Accuspecs,   a  hardware  assembler  located  in  McKeen,   Pennsylvania,   also
manufactures  the FoxBox  for the  Company.  While  NetWolves  has no  long-term
agreements with these manufacturers,  it believes that alternative manufacturers
are available if NetWolves were to change manufacturers.

     Production Process

     The  process  used to  produce  NetWolves  products  begins  with  hardware
configuration,   installing  the   appropriate   version  of  FoxBox   software,
configuring client-specific software components, followed by a 24-hour "burn-in"
process. Raw/prefabricated materials, components, and subassemblies required for
production  include  mother  boards,   CPU's,  cases,  Ethernet  cards,  network
communication  cards,  hard drives,  memory,  CPU fans and power  supplies.  The
Company  believes that these materials are available from several  companies and
that alternative sources of supply are currently available.

     Testing

     A majority of testing is performed as part of the manufacturing process. In
addition,  NetWolves  performs  quality  testing via the  Internet on a periodic
basis to  verify  that  the  assembled  products  meet  all  production  quality
criteria.  Also,  randomly  chosen FoxBox units are shipped from the  production
assembly facility back to NetWolves for additional testing.

     In addition to testing the product on a regular basis, NetWolves researches
the status of existing  components  used in the FoxBox to  determine if they are
being  phased  out or  prices  have  changed.  If it  concludes  that a  certain
component must be substituted,  trial testing is performed on a new component to
determine if it meets product  component  criteria.  If it meets this  criteria,
which  includes  cost   effectiveness,   longer  life   expectancy  and  product
efficiency, a plan to develop and use the component is implemented.

<PAGE>

Customer Service and Technical Support

     The Company maintains an experienced staff of customer service personnel to
provide technical support to its customers.  Each member of the customer service
staff is certified  through an ongoing in-house  training and testing program to
provide  support for each individual  product.  The Company's  customer  service
staff provides  product support via telephone and e-mail 24 hours per day, seven
days per  week.  The  Company  generally  provides  software  and  documentation
updates,  including  maintenance  releases,  operating system upgrades and major
functional upgrades, as part of its customer support services.

Sales and Marketing

     The  Company's  strategy of  marketing  and sales plan for it to enter into
agreements  with  providers of products in a wide variety of markets,  including
financial,  medical, legal, travel,  hospitality,  entertainment,  hotel and the
auto industries in order to leverage their existing client base for sales of the
Company's products. With this objective, the Company has entered into agreements
with Anicom,  Inc. and The Sullivan  Group and is seeking  additional  strategic
alliances on a worldwide  basis. The Company intends to hire sales and marketing
consultants in five (5) regional areas, New York, Tampa, Chicago,  Washington D.
C. and Los  Angeles.  These  persons will perform  several  important  functions
including  managing the master  distribution  agreements between the Company and
its partners and also  customizing  solutions  for the various  market  business
segments.

     The Company has implemented  marketing initiatives to support the sales and
distribution  of  its  products  and  services,  and  to  communicate  corporate
direction.  The Company's  sales and marketing  employees  are  responsible  for
collateral  development,  lead  generation  and awareness of the Company and its
products.  Marketing  programs  include  public  relations,  seminars,  industry
conferences  and  trade  shows,  advertising  and  direct  mail.  The  Company's
marketing  employees also contribute to both the product direction and strategic
planning processes by providing market research and conducting surveys and focus
groups.

Licensing and Intellectual Property

     The Company  considers  certain  features of its  products,  including  its
methodology  and  technology  to  be  proprietary.   The  Company  relies  on  a
combination  of  trade  secret,   copyright  and  trademark  laws,   contractual
provisions  and  certain   technology  and  security  measures  to  protect  its
proprietary  intellectual  property.  The Company  does not  currently  have any
patents or pending patent applications.  Notwithstanding the efforts the Company

<PAGE>

takes to protect its proprietary rights, existing trade secret,  copyright,  and
trademark laws afford only limited protection. In addition, effective protection
of copyrights,  trade secrets,  trademarks and other  proprietary  rights may be
unavailable or limited in certain foreign countries.  The Company believes that,
because  of the rapid rate of  technological  change in the  computer  industry,
factors  such  as  the  knowledge,  ability  and  experience  of  the  Company's
employees,  product and service  offering  development,  and quality of customer
support services are more important than any available trade secret or copyright
protection.

     The Company  does not intend to sell or transfer  title of its  products to
its  clients  though  this  structure  may  change as the  Company  expands  its
operations.  The  products  are  intended to be licensed  generally  pursuant to
licensing  agreements  for which extended  payment terms may be offered.  In the
case of extended payment term agreements, the customer is contractually bound to
equal  monthly fixed  payments.  The first year of  maintenance  is bundled with
standard licensing agreements.  In the case of extended payment term agreements,
maintenance  may be bundled for the length of the payment term.  Thereafter,  in
both instances, the customer may purchase maintenance annually.

Competition

     The Company faces  competition from the  manufacturers of several different
types  of  products  used  as  multi-service  packaged  solutions  for  Internet
gateways.  Its major  competitors are Whistle,  Team Internet and Free Gate. The
Company expects  competition to intensify as more companies enter the market and
compete for market share. In addition,  companies currently in the server market
may  continue to change  product  offerings in order to capture  further  market
share.  Many  of  these  companies  have  substantially  greater  financial  and
marketing  resources,   research  and  development  staffs,   manufacturing  and
distribution  facilities.  There can be no assurance that the Company's  current
and  potential  competitors  will not  develop  products  that may or may not be
perceived to be more effective or responsive to  technological  change than that
of the Company, or that current or future products will not be rendered obsolete
by such developments.  Furthermore,  increased competition could result in price
reductions,  reduced margins or loss of market share,  any of which could have a
material  adverse  effect  on  the  Company's  business  operating  results  and
financial condition.

     The Company believes that an important  competitive factor in its market is
the cost  effective  integration  of many  services  in a single  unit.  In this
regard,  the Company  believes  that it compares  favorably to its  competitors.
However,  equally  important  are other  factors,  including but not limited to,
product  reliability,  availability,   upgradability,  price,  overall  cost  of
ownership and technical  service and support.  The Company's  ability to compete
will depend  upon,  among other  factors,  its  ability to  anticipate  industry
trends,  invest in product research and development,  and effectively manage the
introduction of new or upgraded products into targeted markets.

Employees

     As of  March  15,  1998,  the  Company  employed  23  full-time  employees.
Approximately, five of these employees are involved in research and development,
seven in sales and marketing,  and 11 in finance and general administration.  In
addition, the Company has retained five independent  contractors on a consulting
basis who support  engineering  and marketing  functions.  To date,  the Company

<PAGE>

believes  it has  been  successful  in  attracting  and  retaining  skilled  and
motivated  individuals.  Competition  for  qualified  management  and  technical
employees is intense in the computer industry. The Company's success will depend
in large  part upon its  continued  ability  to  attract  and  retain  qualified
employees.  The Company has never  experienced a work stoppage and its employees
are not covered by a collective bargaining agreement.  The Company believes that
it has good relations with its employees.


<PAGE>


ITEM 2.   FINANCIAL INFORMATION

Selected Financial Data

     The following  selected  financial data has been derived from the financial
statements  included  elsewhere in this report and should be read in conjunction
with such financial statements.

<TABLE>
<CAPTION>
                                     Period from         Six Months ended
                                    February 13, 1998   ended
                                    (inception) to      December 31, 1998
                                    June 30, 1998       (unaudited)       
                                    ------------------  ------------------

<S>                                    <C>                  <C>       
Statement of Operation Data:
 Net sales                             $   29,621           $   80,714
 Cost of goods sold                         5,681               31,478
                                       ----------           ---------- 

 Gross profit from sales                   23,940               49,236
 Operating expenses                       149,510            3,459,236
                                       ----------           ---------- 

 Loss before other income (expense)
   and benefit from income taxes         (125,570)          (3,410,000)
 Interest income (expense), net             2,666               27,218
 Other income (expense), net                3,490                2,118
                                       ----------           ---------- 

 Loss before benefit from income taxes   (119,414)          (3,380,664)
 Benefit from income taxes                 20,000                    -
                                       ----------           ---------- 

 Net loss                               $ (99,414)         $(3,380,664)
                                       ==========           ========== 

 Basic and diluted net loss per share   $   (0.04)         $     (0.78)
                                       ==========           ==========                     

 Weighted average common shares
     outstanding                        2,810,102            4,315,772
                                       ==========           ========== 
Financial position:
 Cash and cash equivalents             $1,118,416          $   808,279
 Marketable securities, available
   for sale                             1,063,828              463,500
 Total assets                           2,959,451            1,976,444
 Total shareholders' equity             2,928,003            1,788,974

</TABLE>


<PAGE>

Management's  Discussion and Analysis of Financial Condition and Results of
Operations

Forward-Looking Statements

     This Form 10 includes,  without limitation,  certain statements  containing
the words "believes", "anticipates", "estimates", and words of a similar nature,
constitute  "forward-looking  statements"  within  the  meaning  of the  Private
Securities  Litigation Reform Act of 1995. This Act provides a "safe harbor" for
forward-looking   statements  to  encourage  companies  to  provide  prospective
information  about  themselves  so long as they  identify  these  statements  as
forward  looking  and  provide  meaningful,  cautionary  statements  identifying
important  factors that could cause actual  results to differ from the projected
results.  All statements  other than  statements of historical fact made in this
Registration  Statement  Form  10  are  forward-looking.   In  particular,   the
statements herein regarding  industry prospects and future results of operations
or  financial   position  are  forward-  looking   statements.   Forward-looking
statements  reflect   management's   current  expectations  and  are  inherently
uncertain.   The  Company's  actual  results  may  differ   significantly   from
management's expectations.

Overview

     The Company is a corporation with a limited  operating  history,  formed in
February  1998.  The Company has commenced  field trial and limited sales of its
primary  product,  "The  FoxBox".  Additionally,  efforts  were  made to  obtain
operating  capital  and  convert  the  Company  to a  public  entity.  This  was
successfully  accomplished through a reverse merger with Watchdog Patrols, Inc.,
a  publicly  traded  (OTCBB)  corporation.  Operating  expenses  have  increased
significantly since the Company's  inception.  This reflects the cost associated
with the formation of the Company as well as increased efforts to promote market
awareness  for the  FoxBox  (Multi-services  Internet  communications  gateway),
solicit new customers,  recruit  personnel,  build operating  infrastructure and
continued product  development.  The FoxBox is a  multi-functional  product that
connects  business  networks  [Local Area Networks (LANs) and Wide Area Networks
(WANs)] to the Internet.  It supports secure access to the Internet for 3 to 400
users through a single connection,  provides advanced  electronic mail functions
for unlimited users and delivers firewall security. The Company's initial target
markets  are  the  end  users  in  small  and  mid-size   businesses  and  large
organizations  with satellite  offices.  In January 1999 the Company was able to
secure two Agreements which have the potential to generate  significant revenues
over the term of the  agreement.  The first of which would be The Sullivan Group
("Sullivan")  agreement whereby Sullivan  appointed the Company as its exclusive
provider of the  Company's  multi-service  Internet  delivery  system  (known as
"FoxBox") to be used in  conjunction  with  Sullivan's  proprietary  interactive
distance learning training  programs.  The period of the agreement is for a term
of five years. The second agreement is with Anicom, Inc. ("Anicom"). The Company
entered into a five- year exclusive master  distribution  agreement with Anicom,
Inc. to distribute the FoxBox through North America.

     The Company has a limited  operating history in which to base an evaluation
of the business and  prospects.  The Company's  prospects  must be considered in
light of the risks, frequently encountered by companies in their early stages of
development,  particularly  for  companies  in the rapidly  evolving  Technology
Industry. Certain risks for the Company include, but are not limited to unproven
business model,  capital  requirements  and growth  management.  To counter this
risk, the Company must, among other things,  increase its customer base, develop
a distribution  network,  successfully  execute its business and marketing plan,
and increase the operating  infrastructure.  There can be no assurance  that the

<PAGE>

Company will be  successful in  addressing  such risk,  and the failure to do so
could have a material  adverse effect on the Company's  financial  condition and
results of operations.  Since  inception,  the Company has incurred  significant
losses  and as of  December  31,  1998  had a  deficit  accumulated  during  the
development stage of approximately  $3.5 million.  The Company believes that its
success  depends in large part on its  ability to create  market  awareness  and
acceptance  for  the  FoxBox,   raise  additional   operating  capital  to  grow
operations,  build  technology and  non-technology  infrastructures,  expand the
sales force and distribution  network,  and continue new product R&D through the
development and operational stages.

Results of Operations
From February 13, 1998 (date of inception) to December 31, 1998

     The Company  continues to operate as a development  stage  enterprise as of
December 31, 1998, and  accordingly,  the Company has engaged in limited revenue
generating  operations.  The net  sales  from  operations  for the  period  from
inception  through  December 31, 1998 were  $110,335.  Additionally,  $43,884 of
dividend  and interest  income was  generated  during this  period.  The Company
operates on a fiscal year end of June 30.

     The  Company's  gross  margin from the period of  inception to December 31,
1998 was 66%.  The Company  believes  that gross  margins  greater  than 66% are
achievable at increased  production levels.  These results will depend, in part,
on the effects of economies-of-scale,  the use of third-party assemblers and the
ability to competitively purchase rapidly evolving commodity hardware,  which is
a  significant  component  of "cost of goods  sold." The use of  non-Proprietary
hardware is one of many inherent design features of the FoxBox which facilitates
an efficient and cost effective production cycle. Additionally,  this allows the
Company to focus its core R&D efforts on developing cutting edge Software. There
can be no  assurance  that the Company  will be  successful  in  increasing  its
margins due to one or more factors.  These factors include,  but are not limited
to  increases/decreases  in direct labor and material costs and general economic
conditions in the future.

     Operating  expenses  for  this  period  were  $3,608,746,  which  consisted
primarily of  $1,685,260  of general and  administrative  costs  relating to the
establishment  of the  infrastructure  of the  business.  $91,616  of costs were
incurred relating to research and development,  $1,831,862  relating to selling,
marketing and consulting. Included in the above mentioned operating expenses are
approximately  $2,044,000  of  compensation  for  services  in the  form  of the
Company's common stock and options.

Liquidity and Capital Resources

     On June 17,  1998 the  Company  executed  a reverse  merger  with  Watchdog
Patrols,  Inc. a publicly  traded  company  engaged in the activity of providing
armed and unarmed  security guard services for the New  York/Metropolitan  Area.
This merger made available to the Company,  approximately  $2.3 million of cash,
cash  equivalents  and  marketable  securities to be used as operating  capital.
Additionally, on November 22, 1998 the Company sold substantially all the assets
of the security  guard  business,  consisting  primarily of uniforms,  vehicles,
computer  systems and furniture to a third party.  This  generated an additional
$600,000 of cash flow to the Company.

     As of December 31, 1998 the Company has $1,271,779 of cash, cash equivalent
and marketable securities available to fund operations. In March/April 1999, the
Company  delivered  an initial  stocking  order of  approximately  $1.6  million
pursuant to its master  distribution  agreement with Anicom.  Additionally,  the
Company estimates completion of a private placement memorandum (PPM) to raise up
to $6 million in the fourth quarter of fiscal 1999. Management believes that the
Company has and will have adequate capital resources to meet its working capital
need for at least the next twelve months based upon its current plans.  However,
there can be no  assurance  that the  Company  will have  sufficient  capital to
finance  its planned  growth,  or that its Private  Placement  offering  will be
successful.

<PAGE>

Year 2000 Implication

     The  Company  has been  assessing  the impact of the Year 2000 issue on its
current  and  future  products,  vendors  and  customers,  internal  information
technologies and  non-information  technologies  systems and expects to complete
the process in the fourth  quarter of fiscal 1999.  Currently,  all products and
information/ non-information technologies systems are Y2K compliant, due in part
to the limited  operating  history of the Company and the emphasis on compliance
during the planning and development  stages of the Company.  To date the Company
has not incurred material cost, and furthermore believes that any future actions
taken  will not have a material  effect on its  operating  results of  financial
condition.  The Company  continues to assess whether third parties in its supply
and  distribution  chain are adequately  addressing  their Year 2000  compliance
issues.  The Company has initiated  formal  communication  with its  significant
suppliers and service providers to determine the extent to which its systems may
be vulnerable.  Failure of third-party equipment, software or content to operate
properly  with  regard to Year 2000  issues  could  require the Company to incur
unanticipated  expenses to remedy problems,  which could have a material adverse
effect on its business, operating results and financial condition.

<PAGE>


ITEM 3.   PROPERTIES

     The Company  maintains  approximately  250 square  feet of office  space in
Melville,  New York at a monthly rental of approximately $1,600, which currently
accommodates  the  Company's   headquarters  for  administrative  and  financial
functions.  The lease  expired in January and is currently  on a  month-to-month
basis.  The  Company  has a  three  year  lease  expiring  in  August  2001  for
approximately  4,100  square feet of space in Tampa,  Florida,  which  currently
accommodates the Company's research, development and a portion of its production
facilities.  The annual rent is approximately  $28,500. The Company is presently
negotiating  for new facilities in New York and in the Tampa,  Florida area. The
Company  believes that its present and proposed  facilities are adequate to meet
its current  business  requirements  and that suitable  facilities for expansion
will be available,  if necessary,  to accommodate  further physical expansion of
corporate operations and for additional sales and support offices.


<PAGE>


ITEM 4.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 
          MANAGEMENT

     The following  table sets forth the  beneficial  ownership of the Company's
common  stock as of March 1, 1999 of (i) each  person  known by the  Company  to
beneficially own 5% or more of the Company's outstanding Common Stock, (ii) each
of the Company's executive officers,  directors and director nominees, and (iii)
all of the  Company's  executive  officers and  directors as a group.  Except as
otherwise  indicated,  all shares of Common Stock are  beneficially  owned,  and
investment and voting power is held, by the persons named as owners.  Percentage
ownership includes warrants currently  exercisable or exercisable within 60 days
to purchase 500,000 shares of common stock.

<TABLE>
<CAPTION>

Name and Address  of             Amount of Shares      
 Beneficial Owner                Beneficially Owned     Percentage Ownership
- ---------------------            ------------------     ---------------------  

<S>                                <C>                            <C>               
Greenleaf Capital Partners, LLC    1,141,360 (5)                  21%               
Walter M. Groteke                    528,064 (1)(2)               10%               
Daniel G. Stephens                   528,064 (1)(2)               10%               
Kevin F. Sherlock                    528,064 (1)(2)               10%               
Keith Darling                        528,064 (2)(3)               10%               
Mark Jacques                         475,258 (2)(3)                9%               
Walter R. Groteke                    150,000 (1)                   3%               
Internet Technologies, Inc.          260,000 (4)(5)                5%               
Ed Lavin                              50,000                       1%               
Louis Liben                           50,000                       1%               
Kirlin Securities, Inc.              500,000 (6)                   9%               
Executive officers and 
   directors as a group            1,834,192                      33%         

<FN>
* less than one percent (1%) unless otherwise indicated.

(1) Does not include  unvested  warrants to purchase  200,000  shares at an
    option price of $1.63 per share. See "Management - Employment  Agreements."
(2) Messrs. Walter M. Groteke, Daniel G. Stephens, Kevin F. Sherlock, Keith
    Darling and Mark  Jacques have agreed that the shares owned by them may not
    be sold until June 17,  2000  without the prior  written  consent of Kirlin
    Securities.  Kirlin  Securities  may release such  restriction, although
    there are no  understandings  or arrangements in this regard.  
(3) Messrs. Darling and Jacques are former officers, directors and employees of
    the Company.  Does not include unvested, performance based  warrants to 
    purchase 50,000 shares each at an option  price of $5.00 per  share. 
(4) Internet  Technologies, Inc., a consultant  to the Company, has the right 
    to receive up to 120,000 additional  shares based upon future  performance 
    criteria.  
(5) Greenleaf Capital  Partners,  LLC has  demand  registration  rights on its 
    shares and Internet  Technologies,  Inc.  has demand  registration  rights
    for 200,000 shares of common stock. 
(6) Represents  warrants  currently exercisable by Kirlin Securities and its
    affiliates to purchase 500,000 shares of common stock at $1.63 per share.  
    Kirlin Securities,  Inc. has demand registration rights  on the  shares of  
    common  stock  issuable  upon  exercise  of the warrants.
</FN>
</TABLE>
<PAGE>

ITEM 5.   DIRECTORS AND EXECUTIVE OFFICERS

Directors and Executive Officers

     The directors  and executive  officers of the Company and their ages are as
follows:

Name                     Age            Position
- ----                     ---            --------

Walter M Groteke          29        Chairman of the Board, President and
                                    Chief Executive Officer
Daniel G. Stephens        28        Vice Chairman of the Board and
                                        Chief Information Officer
Kevin F. Sherlock         35        Chief Operating Officer and Director
Walter R. Groteke         52        Vice President - Sales and Marketing 
                                        and Director
Ed Lavin                  55        Director
Louis Liben               40        Director

- ------
     Walter M. Groteke,  a co-founder  of the Company,  has been Chairman of the
Board,  Chief  Executive  Officer and a director of the Company since June 1998.
Mr. Groteke is responsible for planning,  developing and  establishing  policies
and business objectives for the Company.  From June 1995 until 1997, Mr. Groteke
was regional business  development  manager for Techmatics,  Inc. an information
systems  Department  of  Defense  contractor.  From May 1993 to June  1995,  Mr.
Groteke was senior  account  manager for NYNEX's  strategic  account  management
program.

     Daniel G. Stephens,  a co-founder of the Company, has been Vice Chairman of
the Board and Chief  Information  Officer since June 1998. Mr. Stephens  directs
research and development, information systems and technical support services for
the  Company.  From May 1994  until  1997,  Mr.  Stephens  was a senior  systems
engineer for  Techmatics,  Inc. In this  capacity,  he advised the Department of
Justice on development of a nationwide series network  infrastructure to support
a law-enforcement database.

     Kevin F. Sherlock,  has been Chief  Operating  Officer of the Company since
January 1999 and a director  of the Company  since June 1998.  From 1985 to June
1998, Mr. Sherlock was an Account  Director  responsible for sales and marketing
at Standard Register.

     Walter R. Groteke has been a director of the Company  since  February  1999
and Vice  President - Sales and Marketing  since August 1998.  From 1995 through
July 1998, Mr. Groteke was a regional and district sales manager for GTE Florida
and GTE Communications Corporation. Mr. Groteke founded Hawk Telecom in 1975 and
was  President  until its sale in 1994.  Mr.  Groteke is the father of Walter M.
Groteke.

<PAGE>

     Ed Lavin has been a director of the Company since  February 1999. Mr. Lavin
has been  Chairman  and Chief  Executive  Officer of Staples  Communications,  a
subsidiary of Staples  Corporation since March, 1999. Mr. Lavin began his career
at ADT from 1967 to 1972. In 1970 he was promoted into ADT's  National  Accounts
Division.  Mr. Lavin then joined the L. M. Ericcson  Company of Sweden from 1973
to 1979 where he served as Vice  President  of Sales in the United  States.  Mr.
Lavin immigrated to Canada in 1980 to form Canadian Telecommunications Group and
was  Chairman  and CEO of Canadian  Telecommunications  Group (CTG) from 1980 to
1986.  Mr. Lavin moved to TIE  Communications  where he served as president from
1987 to 1990. TIE Communications acquired Centel Communications, which was later
merged with WilTel  Communications  where he served as CEO from 1990 to 1993. In
November 1993, Mr. Lavin founded Quest America, a telecommunications  consulting
company based in Boston, Massachusetts. On April 10, 1996, Mr. Lavin led a group
that acquired Executone Information Systems' Network Division. The purchaser was
a group  financed by Bain Capital,  Inc. of Boston,  Massachusetts.  The company
name was later changed to Claricom,  Inc. In March 1999,  Claricom  successfully
merged its business with Staples Corporation.

     Louis Liben has been a director of the Company since  February  1999.  From
1997 to date, Mr. Libin has been a director, Chief Technology Officer and Senior
Vice  President  of  e.TV  Commerce,  Inc.,  a  Jacksonville,   Florida  network
distribution  technology  company.  Mr.  Libin is also a director  and the Chief
Technology Officer of Compu-DAWN, Inc., a leading public safety software company
in the United  States.  Louis Libin is the founder of Broadcast  Communications,
Inc.  (Broad  Comm),  a  broadcast  project  management  group.  Mr.  Libin is a
world-renowned expert in wireless  communications  systems. At the International
Telecommunications Union in Geneva, Switzerland, Mr. Libin represents the United
States on satellite  and  transmission  issues and is currently  Chairman of the
expert  group  on  interactive  data  services.  Mr.  Libin  has  over 15  years
experience in engineering,  communications,  and management.  From 1983 to 1986,
Mr. Libin was employed by the Radio Corporation of American ("RCA") as a project
manager. In 1986, RCA was acquired by the General Electric Corporation ("G.E.").
From 1987 to 1997,  Mr. Libin served as the Director of Technology for NBC/G.E.,
specializing  in a  broadcast  transmission  systems  and is also an  officer as
Corporate Secretary or Assistant  Corporate Secretary for all G.E.  wholly-owned
subsidiaries  that  deal  in  broadcast,   with   responsibility  for  technical
developments  and all  Federal  Communications  Commission  ("FCC")  issues  and
licenses.  From 1981 to 1982, Mr. Libin was employed by the Loral Corporation as
Electronic  Design Engineer and designed Radio Frequency  ("RF") systems for the
military.  From 1979 to 1980 he worked for Burroughs Computer Systems, Inc. (now
UNISYS) as a Field Engineer and from 1980 to 1981 for the Chryon  corporation as
Design Engineer.

Employment Agreements

     Walter M. Groteke,  Daniel G.  Stephens and Kevin F. Sherlock  entered into
employment  agreements  in June  1998 in  connection  with  the  acquisition  of
Watchdog  Patrols,  Inc.  ("Watchdog  Patrols").  Pursuant to these  agreements,
Messrs. Groteke,  Stephens and Sherlock are employed as Chief Executive Officer,

<PAGE>

Chief  Information  Officer and Chief Operating  Officer,  respectively,  for an
initial term of three years. The agreement provides for automatic renewal for an
additional three years unless  terminated by the Company for cause or terminated
by the  executive.  The base salary for each person is  $100,000  increasing  to
$150,000 annually in the event NetWolves  generates  revenues between $5,000,000
and $10,000,000 within one year of the employment term and further increasing to
$250,000 if NetWolves generates revenues of at least $10,000,000 within one year
of the initial  employment  term. The employment  agreements each provide for an
annual incentive equivalent to 2% of the gross profit of NetWolves.

     The  employment  agreements  with  Messrs.  Groteke,  Stephens and Sherlock
further provide for certain  payments  following death or disability for certain
fringe benefits such as reimbursement for reasonable  expenses and participation
in medical plans, and for accelerated payments in the event of change of control
of the Company.

     Walter M.  Groteke,  Daniel G.  Stephens,  Kevin F.  Sherlock and Walter R.
Groteke also have entered into warrant  agreements with the Company whereby each
is entitled to receive  warrants to  purchase  200,000  shares of the  Company's
common stock at $1.63 per share under certain terms and conditions. The warrants
are fully vested five years from their respective dates of employment subject to
acceleration under certain events.  These events include the sale or disposition
of  substantially  all of the  capital  stock or assets of the  Company  and the
generation  of certain  revenues by the  Company.  Specifically,  the vesting of
50,000  warrants is  accelerated if the Company  generates  revenues of at least
$5,000,000  within one year from the date of the Watchdog  Patrols  acquisition,
100,000  warrants  will become  exercisable  if the Company  generates  at least
$10,000,000  in revenues  with at least  $2,000,000  in pretax profit within one
year of the  Watchdog  Patrols  acquisition;  and 50,000  warrants  will  become
exercisable if at least  $10,000,000 of revenue is generated by the Company with
at least  $1,000,000  in pretax  profit  within the second  year  following  the
Watchdog  Patrols  acquisition.  Further,  if the vesting of the warrants is not
otherwise accelerated,  they will nevertheless become exercisable if the Company
generates  $20,000,000  in revenues  with at least  $4,000,000  in pretax income
during the second year following the acquisition of Watchdog Patrols.

Stock Option Plan

     In June 1998,  the  Company  adopted a 1998 Long Term  Incentive  Plan (the
"1998 Incentive Plan") in order to motivate qualified  employees of the Company,
to assist the Company in attracting employees and to align the interests of such
persons with those of the Company's shareholders.

     The 1998 Incentive  Plan provides for a grant of "incentive  stock options"
within the meaning of the Section 422 of the Internal  Revenue Code of 1986,  as
amended, "non-qualified stock options," restricted stock, performance grants and
other types of awards to officers,  key employees,  consultants  and independent
contractors of the Company and its affiliates.

     The  1998  Incentive  Plan,  which  will be  administered  by the  Board of
Directors,  authorizes  the  issuance  of a maximum of 282,500  shares of common
stock,  which may be either newly issued  shares,  treasury  shares,  reacquired

<PAGE>

shares,  shares purchased in the open market or any combination  thereof. If any
award under the 1998  Incentive  Plan  terminates,  expires  unexercised,  or is
cancelled,  the shares of common stock that would  otherwise  have been issuable
pursuant  thereto  will be available  for issuance  pursuant to the grant of new
awards.  To date, the Company has granted options to purchase  243,500 shares of
common stock under the 1998 Incentive Plan to its officers and key employees.

ITEM 6.   EXECUTIVE COMPENSATION

     For the year ended June 30,  1998,  no officer  or  director  of  NetWolves
Corporation received compensation in excess of $5,000.


ITEM 7.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS    

     On June 17,  1998,  NetWolves,  LLC merged  into a  subsidiary  of Watchdog
Patrols, Inc., which thereafter changed its name to NetWolves  Corporation.  The
merger provided for exchange of securities of NetWolves,  LLC for the securities
of the Company. As part of such exchange,  principals of NetWolves, LLC received
2,640,322 shares of NetWolves Corporation.  Messrs. Walter M. Groteke, Daniel G.
Stephens,  Jr. , Kevin F.  Sherlock and Keith A. Darling each  received  528,064
shares and Mr. Marc Jacques received 475,258 shares


ITEM 8.   LEGAL PROCEEDINGS

     There are no material  pending legal  proceedings to which the Company is a
party or of which any of their property is the subject.



<PAGE>


ITEM 9.   MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S  
          COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     NetWolves'  common  stock has traded on the OTC  Bulletin  Board  under the
symbol "WOLV" since December 1998. Prior to the December name and symbol change,
the Company's stock traded under the symbol "WDGT",  Watchdog Patrols,  Inc. The
following  table sets forth the high and low closing prices for the common stock
for the periods indicated.

<TABLE>
<CAPTION>
                                                         High         Low
                                                         ----         --- 
     1999

     <S>                                                 <C>        <C>    
     Second Quarter (through April 5, 1999). . . . .     $11.50     $10.625
     First Quarter . . . . . . . . . . . . . . . . .      16.00        4.50          

     1998
     Fourth Quarter. . . . . . . . . . . . . . . . .     $4.875       $3.25          
     Third Quarter . . . . . . . . . . . . . . . . .       7.75        4.50
     Second Quarter (since June 17, 1998). . . . . .       5.00       1.625
</TABLE>


     As of April 5, 1999, there were  approximately 225 holders of record of the
common  stock.  On April 5, 1999,  the closing  sales price of NetWolves  common
stock was $11.50 per share.

     NetWolves has not paid any cash  dividends on its Common Stock and does not
presently  intend to do so.  Future  dividend  policy will be  determined by its
Board of Directors on the basis of NetWolves'  earnings,  capital  requirements,
financial condition and other factors deemed relevant.

     The transfer  agent and  registrar of  NetWolves'  Common Stock is American
Stock Transfer and Trust Co., 40 Wall Street, New York, New York 10005.


<PAGE>


ITEM 10.  RECENT SALES OF UNREGISTERED SECURITIES

     1. In June 1998, in connection  with the merger of Watchdog  Patrols,  Inc.
with the Company  2,640,322  shares of the Company's common stock were issued to
the  principals of NetWolves,  LLC in exchange for their  ownership  interest in
that  company.  This was a  transaction  by the Company not involving any public
offering  which  was  exempt  from  the  registration   requirements  under  the
Securities Act pursuant to Section 4(2) thereof.

     2. In January 1999, an aggregate of 260,000 shares of the Company's  common
stock were issued to a person in  exchange  for  services  rendered.  This was a
transaction  by the Company not involving any public  offering  which was exempt
from the registration  requirements under the Securities Act pursuant to Section
4(2) thereof.

     3. In January 1999, an aggregate of 200,000 shares of the Company's  common
stock were issued to two persons in exchange for services  rendered.  These were
transactions  by the Company not involving any public offering which were exempt
from the registration  requirements under the Securities Act pursuant to Section
4(2) thereof.

     4. In January 1999, an aggregate of 250,000 shares of the Company's  common
stock were issued to three  directors  of the Company in exchange  for  services
rendered.  This was a  transaction  by the  Company  not  involving  any  public
offering  which  was  exempt  from  the  registration   requirements  under  the
Securities Act pursuant to Section 4(2) thereof.

ITEM 11.  DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED

     The Company's  authorized  capital stock  consists of 10,000,000  shares of
common stock, $.0033 par value per share.

     Holders  of  the  common  stock  do  not  have  subscription,   redemption,
conversion or preemptive rights. The shares of common stock when issued and paid
for, are fully paid and  non-assessable.  Each share of common stock is entitled
to participate pro rata in distribution  upon liquidation and to one vote on all
matters  submitted  to a vote of  shareholders.  The holders of common stock may
receive  cash  dividends  as  declared  by the Board of  Directors  out of funds
legally  available  therefor.  Holders of the common stock are entitled to elect
all directors.  At each annual meeting of the  shareholders all of the directors
will be elected.  The holders of the common stock do not have cumulative  voting
rights,  which means that the holders of more than half of the shares voting for
the  election of a class of  directors  can elect all of the  directors  of such
class and in such event the holders of the remaining  shares will not be able to
elect any of such directors.


<PAGE>


ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS

     The Company's  Certificate of Incorporation and By-laws contain  provisions
which reduce the potential  personal liability of directors for certain monetary
damages and provide for indemnity of directors and other persons. The Company is
unaware of any  pending or  threatened  litigation  against  the  Company or its
directors  that would result in any liability for which such director would seek
indemnification or similar protection.

     Such  indemnification  provisions  are intended to increase the  protection
provided  directors  and,  thus,  increase the Company's  ability to attract and
retain qualified persons to serve as directors.  The Company currently maintains
a  liability  insurance  policy for the benefit of its  directors  in the sum of
$3,000,000.

     The provisions  affecting  personal  liability do not abrogate a director's
fiduciary  duty to the  Company and its  shareholders,  but  eliminate  personal
liability for monetary  damages for breach of that duty.  The provisions do not,
however,  eliminate  or limit the  liability of a director for failing to act in
good faith, for engaging in intentional misconduct or knowingly violating a law,
for authorizing  the illegal  payment of a dividend or repurchase of stock,  for
obtaining an improper  personal  benefit,  for  breaching a  director's  duty of
loyalty  (which  is  generally  described  as  the  duty  not to  engage  in any
transaction  which involves a conflict  between the interests of the Company and
those of the director) or for  violations of the federal  securities  laws.  The
provisions  also limit or indemnify  against  liability  resulting  from grossly
negligent  decisions  including grossly negligent business decisions relating to
attempts to change control of the Company.

     The provisions  regarding  indemnification  provide,  in essence,  that the
Company will  indemnify its directors  against  expenses  (including  attorneys'
fees),  judgments,  fines and amounts paid in settlement actually and reasonably
incurred in connection  with any action,  suit or proceeding  arising out of the
director's status as a director of the Company,  including actions brought by or
on behalf of the Company (shareholder derivative actions). The provisions do not
require a showing of good faith. Moreover,  they do not provide  indemnification
for liability  arising out of willful  misconduct,  fraud,  or  dishonesty,  for
"short-swing"  profits  violations under the federal securities laws, or for the
receipt  of  illegal   remuneration.   The   provisions   also  do  not  provide
indemnification  for any  liability  to the extent such  liability is covered by
insurance.  One purpose of the provisions is to supplement the coverage provided
by such insurance.

     These  provisions  diminish  the  potential  rights of action  which  might
otherwise be available to shareholders by limiting the liability of officers and
directors to the maximum  extent  allowable  under New York law and by affording
indemnification  against most damages and settlement  amounts paid by a director
of the Company in connection with any shareholders  derivative action.  However,
the  provisions do not have the effect of limiting the right of a shareholder to
enjoin a director  from taking  actions in breach of his  fiduciary  duty, or to
cause the  Company to rescind  actions  already  taken,  although as a practical
matter courts may be unwilling to grant such equitable remedies in circumstances
in which such actions have already been taken.

<PAGE>

     The  Company  also has entered  into  indemnification  agreements  with its
officers and directors. The indemnification agreements provide for reimbursement
for all direct and indirect  costs of any type or nature  whatsoever  (including
attorneys' fees and related  disbursements)  actually and reasonably incurred in
connection with either the investigation, defense or appeal of a proceeding, (as
defined)  including  amounts paid in settlement by or on behalf of an indemnitee
thereunder.


ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See attached statements.




ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.











<PAGE>


ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS

(a) See  Index to  Financial  Statements  at  beginning  of  attached  financial
statements.

(b)  Exhibits

     3.1   Certificate of Incorporation, as amended.
     3.2   By-Laws.
     4.1   Specimen common stock certificate.
     4.2   Form of warrant to investment banking firm.
     4.3   Form of warrant to employees.
     10.1  Merger and Reorganization Agreement dated June 15, 1998 among 
           Watchdog Patrols, Inc., Watchdog Acquisition Corp. and NetWolves, 
           LLC.
     10.2  Agreement between The Sullivan Group and NetWolves  Corporation dated
           January 5, 1999.
     10.3  Distribution Agreement between NetWolves Corporation and Anicom, 
           Inc. dated as of January 18, 1999.
     10.4  Form of Employment Agreement with executive officers.
     10.5  Stock Option Plan.
     27    Financial Data Schedule

<PAGE>


                                   SIGNATURES

     Pursuant to the  requirements of Section 12 of the Securities  Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.

                                            NETWOLVES CORPORATION


                                             By: /s/ Kevin F. Sherlock
                                                 --------------------------- 
                                                 Kevin F. Sherlock
                                                 Chief Operating Officer

Dated:   April 19, 1999                                        

<PAGE>


                    NETWOLVES CORPORATION AND SUBSIDIARIES
                         (A Development Stage Company)

                       CONSOLIDATED FINANCIAL STATEMENTS

               FOR THE PERIOD FROM FEBRUARY 13, 1998 (INCEPTION)
                          TO JUNE 30, 1998 AND FOR THE
            THREE AND SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES
                         (A Development Stage Company)

                        CONSOLIDATED FINANCIAL STATEMENTS

                    PERIOD FROM FEBRUARY 13, 1998 (INCEPTION)
                          TO JUNE 30, 1998 AND FOR THE
            THREE AND SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)


                                    CONTENTS



INDEPENDENT AUDITOR'S REPORT .............................................   F-1

CONSOLIDATED BALANCE SHEETS
 June 30, 1998 and December 31, 1998 (unaudited)  ........................   F-2

CONSOLIDATED STATEMENTS OF OPERATIONS
 For the period from February 13, 1998  (inception)  to June 30, 1998 and
 for the three and six months ended December 31, 1998 (unaudited)  .......   F-3

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
 For the period from February 13, 1998  (inception)  to June 30, 1998 and
 for the six months ended December 31, 1998 (unaudited) ..................   F-4

CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the period from February 13, 1998  (inception)  to June 30, 1998 and
 for the six months ended December 31, 1998 (unaudited) ..................   F-5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ........................   F-6 - F-17
<PAGE>
Board of Directors and Shareholders
NetWolves Corporation
Melville, New York


                          INDEPENDENT AUDITOR'S REPORT

We have  audited  the  accompanying  consolidated  balance  sheet  of  NetWolves
Corporation  and  subsidiaries  (the  "Company")  as of June 30,  1998,  and the
related  consolidated  statements of operations,  shareholders'  equity and cash
flows for the period from February 13, 1998  (inception) to June 30, 1998. These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,   the  consolidated  financial  position  of  NetWolves
Corporation and subsidiaries as of June 30, 1998, and the  consolidated  results
of their  operations  and their  consolidated  cash  flows for the  period  from
February 13, 1998  (inception)  to June 30, 1998 in  conformity  with  generally
accepted accounting principles.

/s/ Hays & Company
Hays & Company


February 25, 1999, except for Note 10c which
   is dated March 23, 1999
New York, New York
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES
                         (A Development Stage Company)

                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                       June 30,         1998
                                                                        1998         (unaudited)     
                                                                     -----------    -------------
ASSETS

<S>                                                                  <C>            <C>    
Current assets
   Cash and cash equivalents                                         $ 1,118,416    $   808,279
   Marketable securities, available for sale, at market value          1,063,828        463,500
   Accounts receivable, net of allowance for doubtful
      accounts of $5,000                                                   6,803         77,898
   Net assets held for sale (Note 4)                                     720,000        275,000
   Inventories                                                            22,410        194,553
   Prepaid expenses and other current assets                              18,318         99,471
                                                                     -----------    -----------
           Total current assets                                        2,949,775      1,918,701

Property and equipment, net                                                4,949         48,805

Other assets                                                               4,727          8,938
                                                                     -----------    -----------
                                                                     $ 2,959,451    $ 1,976,444
                                                                     ===========    =========== 
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
   Accounts payable and accrued expenses                             $    31,448    $   187,470
                                                                     -----------    -----------
          Total current liabilities                                       31,448        187,470
                                                                     -----------    -----------
Commitments and contingencies (Notes 4, 7, 9 and 10)

Shareholders' equity
   Common stock, $.0033 par value; 10,000,000 shares authorized;
      issued and outstanding: 4,313,870 - June 30, 1998
      and 4,663,870 - December 31, 1998                                   14,236         15,391
   Additional paid-in capital                                          3,012,159      5,055,316
   Deficit accumulated during the development stage                      (99,414)    (3,480,078)
   Accumulated other comprehensive income                                  1,022        198,345
                                                                     -----------    -----------
         Total shareholders' equity                                    2,928,003      1,788,974
                                                                     -----------    -----------
                                                                     $ 2,959,451    $ 1,976,444
                                                                     ===========    ===========
<FN>
  The accompanying notes are an integral part of these consolidated financial
                                   statements.
</FN>
</TABLE>
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES
                         (A Development Stage Company)

                     CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                                            Period from
                                               Period from     Three months   Six months    February 13,
                                               February 13,      ended           ended     1998 (inception)
                                                   1998        December 31,   December 31,  to December 31, 
                                              (inception) to     1998            1998           1998
                                               June 30, 1998   (unaudited)    (unaudited)    (unaudited)
                                               -------------   -----------    -----------   ---------------
<S>                                             <C>            <C>            <C>            <C>
Sales                                           $    29,621    $    35,961    $    80,714    $   110,335

Cost of goods sold                                    5,681         15,179         31,478         37,159
                                                -----------    -----------    -----------    -----------
Gross profit from sales                              23,940         20,782         49,236         73,176
                                                -----------    -----------    -----------    -----------
Operating expenses
   General and administrative                       105,047        872,647      1,580,221      1,685,268
   Research and development                            --           78,512         91,616         91,616
   Sales and marketing                               44,463        882,337      1,787,399      1,831,862
                                                -----------    -----------    -----------    -----------
                                                    149,510      1,833,496      3,459,236      3,608,746
                                                -----------    -----------    -----------    -----------
Loss before other income (expense)
   and benefit from income taxes                   (125,570)    (1,812,714)    (3,410,000)    (3,535,570)

Other income (expense)
   Interest income                                    3,011         14,536         27,218         30,229
   Loss on sale of marketable securities               --           (8,047)        (8,047)        (8,047)  
   Dividend income                                    3,490          7,131         10,165         13,655
   Interest expense                                    (345)          --             --             (345)
                                                -----------    -----------    -----------    -----------
Loss before benefit from income taxes              (119,414)    (1,799,094)    (3,380,664)    (3,500,078)

Benefit from income taxes                            20,000           --             --           20,000
                                                -----------    -----------    -----------    -----------
Net loss                                        $   (99,414)   $(1,799,094)   $(3,380,664)   $(3,480,078)
                                                ===========    ===========    ===========    ===========

Basic and diluted net loss per share            $     (0.04)   $     (0.42)   $     (0.78)   $     (0.95) 
                                                ===========    ===========    ===========    ===========
Weighted average common
   shares outstanding                             2,810,102      4,317,674      4,315,772      3,670,485
                                                ===========    ===========    ===========    ===========


<FN>

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

</FN>
</TABLE>
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES
                         (A Development Stage Company)

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

           PERIOD FROM FEBRUARY 13, 1998 (INCEPTION) TO JUNE 30, 1998
           AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                      Deficit                                     
                                                                                    accumulated Accumulated                 Compre-
                                                                         Additional  during the    other         Total      hensive
                                                        Common stock      paid-in   development comprehensive shareholders' income 
                                                     Shares      Amount   capital       stage     income        equity      (loss)
                                                     ------      ------  ---------- ----------- ------------- ------------ ---------
<S>                                               <C>        <C>         <C>          <C>           <C>     <C>          <C> 
Initial capital contributions to NetWolves, LLC         100  $  64,245   $     -      $     -       $  -    $    64,245          

Reverse acquisition, June 17, 1998 (Note 2)                                                                                      
 Exchange of NetWolves, LLC membership
  interests                                            (100)   (64,245)        -             -         -        (64,245)        
 Issuance of common stock to owners of 
  NetWolves, LLC                                  2,640,322      8,713       55,532          -         -         64,245  
 Outstanding common stock of Watchdog 
  Patrols, Inc.                                   1,673,548      5,523    2,956,627          -         -      2,962,150           

Marketable securities valuation adjustment             -          -            -             -        1,022       1,022  $    1,022

Net loss, period from February 13, 1998
 (inception) to June 30, 1998                          -          -            -          (99,414)     -        (99,414)    (99,414)
                                                 ----------  ---------   ----------   -----------   ------- -----------  ----------
  Total comprehensive loss                                                                                               $  (98,392)
                                                                                                                         ==========

Balance, June 30, 1998                            4,313,870     14,236    3,012,159      (99,414)     1,022   2,928,003   

Marketable securities valuation 
 adjustment (unaudited)                                -          -            -            -       197,323     197,323 $    197,323
Common stock and warrants issued for 
 services (unaudited)                               350,000      1,155    2,043,157         -          -      2,044,312        -  
Net loss, six months ended 
 December 31, 1998 (unaudited)                         -          -            -      (3,380,664)      -     (3,380,664) (3,380,664)
                                                 ----------  ---------   ----------   -----------   ------- -----------  ----------
  Total comprehensive loss (unaudited)                                                                                  $(3,183,341)
                                                                                                                        ===========

Balance, December 31, 1998 (unaudited)            4,663,870  $  15,391  $ 5,055,316  $(3,480,078)  $198,345 $ 1,788,974
                                                 ==========  =========  ===========  ===========   ======== =========== 
<FN>
        The accompanying notes are an integral part of these consolidated
                              financial statements.
</FN>
</TABLE>
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES
                          (A Development Stage Comany)

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                                        Period from    
                                                                       Period from      Six months      February 13
                                                                       February 13,        ended      1998 (inception)
                                                                           1998         December 31,  to December 31,
                                                                      (inception) to       1998            1998
                                                                       June 30, 1998    (unaudited)     (unaudited)
                                                                       -------------   ------------   ----------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                        

<S>                                                                     <C>            <C>               <C>
Cash flows from operating activities
   Net loss                                                             $   (99,414)   $(3,380,664)      $ (3,480,078)
   Adjustments to reconcile net loss to net cash used in
      operating activities
         Depreciation                                                           401          3,541              3,942
         Realized loss on sale of marketable securities                        --            8,047              8,047
         Provision for doubtful accounts                                      5,000           --                5,000
         Common stock and warrants issued for services                          --        2,044,312          2,044,312 
         Deferred income tax benefit                                        (20,000)          --              (20,000)
   Changes in operating assets and liabilities
      Accounts receivable                                                   (11,803)       (71,095)           (82,898)
      Inventories                                                           (22,410)      (172,143)          (194,553) 
      Prepaid expenses and other current assets                             (18,318)       (81,153)           (99,471) 
      Accounts payable and accrued expenses                                  31,448        156,022            187,470
                                                                        -----------    -----------       ------------     
         Net cash used in operating activities                             (135,096)    (1,493,133)        (1,628,229)
                                                                        -----------    -----------       ------------
Cash flows from investing activities
   Proceeds from the sale of marketable securities                             --          789,604            789,604
   Proceeds from assets held for sale, net                                     --          445,000            445,000
   Purchases of property and equipment                                       (5,350)       (47,397)           (52,747)
   Payments of security deposits                                             (4,727)        (4,211)            (8,938)
                                                                        -----------    -----------       ------------   
          Net cash provided by investing activities                          10,077      1,182,996          1,172,919
                                                                        -----------    -----------       ------------
Cash flows from financing activities
   Proceeds from initial capital contribution                                64,245           --               64,245
   Cash acquired in reverse acquisition                                   1,460,366           --            1,460,366
   Transaction costs paid in connection with reverse acquisition           (261,022)          --             (261,022)
                                                                        -----------    -----------       ------------      
          Net cash provided by financing activities                       1,263,589           --            1,263,589
                                                                        -----------    -----------       ------------
Net increase (decrease) in cash and cash equivalents                      1,118,416       (310,137)           808,279

Cash and cash equivalents, beginning of period                                 --        1,118,416               --
                                                                        -----------    -----------       ------------
Cash and cash equivalents, end of period                                $ 1,118,416    $   808,279       $    808,279
                                                                        ===========    ===========       ============
SUPPLEMENTAL DISCLOSURE OF NONCASH
   INVESTING AND FINANCING  ACTIVITIES
   Reverse acquisition (Note 2)
      Marketable securities acquired                                    $ 1,062,806    $      --         $  1,062,806
      Net assets held for sale                                              720,000           --              720,000
      Deferred income tax liability                                         (20,000)          --              (20,000)
      Cash acquired, net of $261,022 of transaction costs paid            1,199,344           --            1,199,344  
                                                                        -----------    -----------       ------------
         Outstanding common stock of Watchdog Patrols, Inc.             $ 2,962,150    $      --         $  2,962,150
                                                                        ===========    ===========       ============
<FN>
                 The accompanying notes are an integral part of
                    these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES
                         (A Development Stage Company)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                    PERIOD FROM FEBRUARY 13, 1998 (INCEPTION)
                          TO JUNE 30, 1998 AND FOR THE
                 SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)


1    The Company

     NetWolves, LLC was an Ohio limited liability company formed on February 13,
     1998, which was merged into Watchdog Patrols, Inc. ("Watchdog") on June 17,
     1998.  Watchdog,  the legal surviving entity of the merger was incorporated
     under the laws of the State of New York on January 5, 1970.  As a result of
     the merger and subsequent  sale of Watchdog's  business (Note 4),  Watchdog
     changed its name to NetWolves Corporation (the "Company").

     The Company is a development  stage company that has designed and developed
     a multi- functional product that is a secure, integrated,  modular Internet
     gateway.  The primary  product,  the FoxBox,  supports secure access to the
     Internet for multiple  users through a single  connection  and, among other
     things,  provides  electronic mail,  firewall security and web site hosting
     and also contains a network file server.  Since inception,  the Company has
     been developing its business plan and building its  infrastructure in order
     to  effectively  market its products.  The Company is expecting to ship its
     first significant order, in excess of $1,500,000, in March/April 1999.

2    Reverse acquisition

     On June 17, 1998,  Watchdog acquired all of the outstanding common stock of
     NetWolves, LLC (the "Merger"). For accounting purposes, the acquisition has
     been  treated as an  acquisition  of  Watchdog by  NetWolves,  LLC and as a
     recapitalization  of NetWolves,  LLC. The historical  financial  statements
     prior to June 17, 1998 are those of  NetWolves,  LLC.  The  acquisition  of
     Watchdog  has  been  recorded  based on the fair  value of  Watchdog's  net
     tangible assets, which consist primarily of cash, marketable securities and
     certain  assets  held  for  sale  (Note  4),  with an  aggregate  value  of
     $2,962,150 (net of transaction  costs of $261,022).  Since this transaction
     is in substance,  a recapitalization  of NetWolves,  LLC and not a business
     combination, pro forma information is not presented.

     As part  of the  Merger,  the  NetWolves,  LLC  membership  interests  were
     converted  into 2,640,322  shares of Watchdog  common stock and warrants to
     purchase an  aggregate  of 600,000  shares of Watchdog  common  stock at an
     exercise price of $1.63 per share.  Immediately prior to the Merger,  there
     were 1,673,548 shares of Watchdog common stock issued and  outstanding.  In
     addition,  certain pre-Merger shareholders of Watchdog received warrants to
     purchase  500,000  shares of Watchdog  common stock at an exercise price of
     $1.63 per share.  Additionally,  two individuals,  who provided  consulting
     services  with  respect to the  Merger,  received  warrants  to purchase an
     aggregate of 87,500 shares of Watchdog common stock at an exercise price of
     $2.00 per share. These warrants are described further in Note 7.

3    Significant accounting policies

     Principles of consolidation

     The consolidated  financial  statements include the accounts of the Company
     and   its   wholly-owned   subsidiaries.   All   significant   intercompany
     transactions and balances have been eliminated in consolidation.
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES
                         (A Development Stage Company)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                    PERIOD FROM FEBRUARY 13, 1998 (INCEPTION)
                          TO JUNE 30, 1998 AND FOR THE
                 SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)

3    Significant accounting policies (continued)

     Interim financial information

     The  unaudited  consolidated  balance  sheet as of December 31,  1998,  the
     unaudited  consolidated  statements  of  operations  for the  three and six
     months ended December 31, 1998 and the unaudited  consolidated statement of
     cash flows for the six months ended  December 31, 1998,  have been prepared
     by the  Company and in the opinion of  management  include all  adjustments
     consisting only of normal recurring  accruals,  which management  considers
     necessary for the fair  presentation  of the financial  statements for such
     periods.  The  Company's  results of  operations  for the six months  ended
     December 31, 1998,  are not  necessarily  indicative of results that may be
     expected for any other future  interim  periods or for the year ending June
     30, 1999.

     Fiscal year-end

     The Company operates on a fiscal-year end of June 30.


     Risks and other factors

     As  a  company  that  has  developed  a  software  product  for  use  as  a
     multi-functional   Internet   communications   device,  and  whose  planned
     principal  operations has not yet commenced,  NetWolves  Corporation  faces
     certain risks.  These include,  among other items, the ability to implement
     its  business   plan,   dependence   on   proprietary   technology,   rapid
     technological  change,  challenges  in  recruiting  personal  and a  highly
     competitive market place.

     Revenue recognition

     The Company  records  revenue in accordance with Statement of Position 97-2
     "Software  Revenue  Recognition"  ("SOP  97-2"),  issued  by  the  American
     Institute  of  Certified  Public  Accountants  (as modified by Statement of
     Position  98-9).  SOP 97-2  provides  additional  guidance  with respect to
     multiple element arrangements;  returns,  exchanges,  and platform transfer
     rights; resellers;  services; funded software development arrangements; and
     contract  accounting.  Accordingly,  revenue from the sale of perpetual and
     term software  licenses are recognized,  net of provisions for returns,  at
     the time of delivery and  acceptance of software  products by the customer,
     when the fee is fixed and  determinable  and  collectibility  is  probable.
     Maintenance revenue that is bundled with an initial license fee is deferred
     and recognized  ratably over the maintenance  period.  Amounts deferred for
     maintenance are based on the fair value of equivalent  maintenance services
     sold separately.

     Marketable securities

     Marketable  securities,  which are all  classified as "available for sale",
     are valued at fair market  value.  Unrealized  gains or losses are recorded
     net  of  income  taxes  as  "accumulated  other  comprehensive  income"  in
     shareholders'  equity,  whereas realized gains and losses are recognized in
     the  Company's  statements  of  operations  using the  first-in,  first-out
     method.
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES
                         (A Development Stage Company)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                    PERIOD FROM FEBRUARY 13, 1998 (INCEPTION)
                          TO JUNE 30, 1998 AND FOR THE
                 SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)

3    Significant accounting policies (continued)

     Inventories

     Inventories  consist of raw materials and finished  goods.  Inventories are
     valued at the lower of cost or net  realizable  value  using the  first-in,
     first-out method.

     Property and equipment

     Property  and   equipment  are  stated  at  cost  and   depreciated   on  a
     straight-line  basis over the estimated useful lives of the related assets.
     Expenditures  for  maintenance  and  repairs  are  charged  directly to the
     appropriate  operating  accounts  at the  time  the  expense  is  incurred.
     Expenditures   determined  to  represent   additions  and  betterments  are
     capitalized.

     Software development costs

     Costs  associated with the  development of software  products are generally
     capitalized  once  technological  feasibility  is  established.   Purchased
     software  technologies are recorded at cost. Software costs associated with
     technology  development and purchased  software  technologies are amortized
     using  the  greater  of the ratio of  current  revenue  to total  projected
     revenue for a product or the straight-line method over its estimated useful
     life.  Amortization of software costs begins when products become available
     for general  customer  release.  Costs incurred prior to  establishment  of
     technological  feasibility  are  expensed  as  incurred  and  reflected  as
     research and development costs in the accompanying  consolidated statements
     of operations.

     Start-up and organization costs

     The Company  accounts for start-up  costs in accordance  with  Statement of
     Position  98-5,  "Reporting  on the  Costs of  Start-up  Activities"  ("SOP
     98-5"),  issued by the American Institute of Certified Public  Accountants.
     SOP 98-5 requires the cost of start-up activities,  including  organization
     costs, to be expensed as incurred.

     Impairment of long-lived assets

     The Company reviews its long-lived assets,  including software  development
     costs and property and equipment, for impairment whenever events or changes
     in circumstances indicate that the carrying amount of the assets may not be
     fully  recoverable.  To determine  recoverability of its long-lived assets,
     the Company  evaluates the probability  that future  undiscounted  net cash
     flows,  without interest charges,  will be less than the carrying amount of
     the assets.  The Company has determined that as of June 30, 1998, there has
     been no impairment in the carrying value of long-lived assets.

<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES
                         (A Development Stage Company)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                    PERIOD FROM FEBRUARY 13, 1998 (INCEPTION)
                          TO JUNE 30, 1998 AND FOR THE
                 SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)

3    Significant accounting policies (continued) 

     Income taxes

     The Company  accounts  for income  taxes using the  liability  method which
     requires the  determination of deferred tax assets and liabilities based on
     the  differences  between  the  financial  and  tax  bases  of  assets  and
     liabilities  using  enacted  tax  rates  in  effect  for the  year in which
     differences are expected to reverse. The net deferred tax asset is adjusted
     by a valuation allowance, if, based on the weight of available evidence, it
     is more likely than not that some  portion or all of the net  deferred  tax
     asset will not be realized.  The Company and its  subsidiaries are expected
     to file a consolidated Federal income tax return.

     Basic and diluted net loss per share

     The Company  displays  earnings per share in accordance  with  Statement of
     Financial Accounting  Standards No.128,  "Earnings Per Share" ("SFAS 128").
     SFAS 128  requires  dual  presentation  of basic and diluted  earnings  per
     share.  Basic  earnings  per share  includes no dilution and is computed by
     dividing net income (loss) available to common shareholders by the weighted
     average  number  of  common  shares  outstanding  for the  period.  Diluted
     earnings per share  includes  the  potential  dilution  that could occur if
     securities  or other  contracts  to issue  common  stock were  exercised or
     converted into common stock.

     The effect of the  recapitalization on the NetWolves,  LLC members has been
     given retroactive  application in the earnings per share  calculation.  The
     common stock issued and outstanding with respect to the pre-Merger Watchdog
     shareholders  has been  included  since the  effective  date of the Merger.
     Outstanding  stock  options and warrants  have not been  considered  in the
     computation  of  diluted  per  share  amounts,  since  the  effect of their
     inclusion would be  antidilutive.  Accordingly,  basic and diluted earnings
     per share amounts are identical.

     Cash and cash equivalents

     Generally,  the Company considers  investments with original  maturities of
     three months or less to be cash equivalents.

     Concentrations and fair value of financial instruments

     Financial   instruments   that   potentially   subject   the   Company   to
     concentrations  of credit risk consist  principally of cash investments and
     marketable securities. At June 30, 1998, the Company's cash investments are
     held at various financial  institutions,  which limits the amount of credit
     exposure to any one financial  institution.  Concentrations  of credit risk
     with respect to marketable securities consist of a varied portfolio,  which
     limits  the amount of credit  exposure  to any one  particular  investment.
     Unless  otherwise  disclosed,  the  fair  value  of  financial  instruments
     approximates their recorded values.
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES
                         (A Development Stage Company)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                    PERIOD FROM FEBRUARY 13, 1998 (INCEPTION)
                          TO JUNE 30, 1998 AND FOR THE
                 SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)

3    Significant accounting policies (continued)

     Use of estimates

     In preparing consolidated financial statements in conformity with generally
     accepted accounting principles,  management makes estimates and assumptions
     that affect the reported  amounts of assets and liabilities and disclosures
     of  contingent  assets  and  liabilities  at the  date of the  consolidated
     financial  statements,  as well as the  reported  amounts  of  revenue  and
     expenses  during the  reporting  period.  Actual  results could differ from
     those estimates.

4    Net assets held for sale

     In November 1998, the Company sold substantially all of the business assets
     related to Watchdog's  uniformed  security guard  services  operations to W
     Acquisition  Corp. (the "Purchaser") for $600,000.  The Purchaser  acquired
     all  inventory,  furniture and  equipment,  customer  lists,  trade rights,
     contracts,  goodwill and rights to the name "Watchdog  Patrols,  Inc." (the
     "Assets").  The Company retained  responsibility for all remaining accounts
     receivable,  other current assets,  accounts payable and accrued  expenses.
     The net  assets  held for sale are  classified  as a current  asset and are
     reflected at net realizable value based on the selling price of the Assets,
     the net estimated liquidation value of the assets and liabilities retained,
     and the net negative cash flows from the  operations of the security  guard
     business  during the period from June 17, 1998 (the date of acquisition) to
     the date of disposal in November  1998. Net assets held for sale consist of
     the following:
<TABLE>
<CAPTION>
                                                                                      December 31,
                                                                                         1998
                                                                    June 30, 1998     (unaudited)             
                                                                    -------------    -------------  
     <S>                                                             <C>             <C>            
     Sale of Assets                                                  $   600,000     $      -       

     Retained assets and liabilities
        Accounts receivable                                              500,000         250,000
        Other current assets                                             140,000         140,000
        Accounts payable and accrued expenses                           (460,000)       (115,000)

     Cash out-flows from operations during holding period                (60,000)           -       
                                                                     -----------     ----------- 
            Net assets held for sale                                 $   720,000     $   275,000
                                                                     ===========     =========== 
</TABLE>
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES
                         (A Development Stage Company)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                    PERIOD FROM FEBRUARY 13, 1998 (INCEPTION)
                          TO JUNE 30, 1998 AND FOR THE
                 SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)

5    Marketable securities, available for sale

     The following is a summary of marketable securities, available for sale:
<TABLE>
<CAPTION>
                                                              Gross
                                             Amortized      unrealized          Fair
                                                cost       gain (loss)          value   
                                             ----------    -----------       ----------
        <S>                                  <C>             <C>             <C> 
        June 30, 1998
        Mutual funds/equity securities       $  569,131      $   (536)       $  568,595
        Bonds                                   493,675         1,558           495,233
                                             ----------      --------        ----------
                                             $1,062,806      $  1,022        $1,063,828
                                             ==========      ========        ==========
        December 31, 1998 (unaudited)
        Mutual funds/equity securities       $   70,000      $230,000        $  300,000
        Bonds                                   195,155       (31,655)          163,500
                                             ----------      --------        ----------
                                               $265,155      $198,345        $  463,500
                                             ==========      ========        ==========
</TABLE>


     Changes in the unrealized gain (loss) on marketable  securities,  available
     for sale are reported as separate components of shareholders' equity.

     The  maturities  of the Company's  debt  securities at June 30, 1998 are as
     follows:
<TABLE>
<CAPTION>
                                                         Amortized          Fair
                                                            Cost            value   
                                                         ---------      -----------
          <S>                                            <C>            <C>         
           Due in one year or less                       $     -        $      -    
           Due after one year through five years            202,660         203,733
           Due after six years through ten years            291,015         291,500
                                                         ----------     -----------
                                                         $  493,675     $   495,233 
                                                         ==========     ===========   
</TABLE>
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES
                         (A Development Stage Company)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                    PERIOD FROM FEBRUARY 13, 1998 (INCEPTION)
                          TO JUNE 30, 1998 AND FOR THE
                 SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)

6    Property and equipment

     Property and equipment consists of the following:
<TABLE>
<CAPTION>
                                                                                        December 31,
                                                 Useful life                                1998
                                                   in years           June 30, 1998      (unaudited)
                                                 -----------          -------------      ------------

        <S>                                            <C>            <C>             <C>        
        Machinery and equipment                        5              $    3,350      $    36,601
        Furniture and fixtures                         5                   2,000           16,146
                                                                      ----------      -----------
                                                                           5,350           52,747  
        Less accumulated depreciation                                       (401)          (3,942)
                                                                      ----------      -----------
        Property and equipment, net                                   $    4,949      $    48,805
                                                                      ==========      ===========
</TABLE>
7    Shareholders' equity

     Common stock issuances

     During the six months ended  December 31, 1998,  the Company issued 350,000
     shares of its common stock as follows:

     .    150,000  shares were issued to the Company's  Vice  President of Sales
          and  Marketing  (who is also a Director of the  Company)  for services
          rendered during the six months ended December 31, 1998, which resulted
          in a charge to operations of approximately $576,000.

     .    200,000  shares  were  issued  to  Internet   Technologies,   Inc.,  a
          consultant  to the Company  ("Internet  Technologies"),  for  services
          rendered during the six months ended December 31, 1998, which resulted
          in  a  charge  to  operations  of  approximately  $769,000.   Internet
          Technologies has demand registration rights on these 200,000 shares.

     During  January 1999, the Company issued 360,000 shares of its common stock
     as follows:

     .    60,000 shares were issued to Internet  Technologies for services to be
          rendered during the three months ending March 31, 1999.  Additionally,
          Internet   Technologies  has  the  right  to  receive  up  to  120,000
          additional shares based upon specified performance criteria.

     .    100,000  shares were issued to a financial  consultant for services to
          be rendered during the three months ending March 31, 1999.

     .    100,000 shares were issued in conjunction  with the appointment of two
          new Directors of the Company effective February 1, 1999 (50,000 shares
          each).

     .    100,000 shares were issued to the Company's legal counsel for services
          to be rendered during the three months ending March 31, 1999.

     Another  shareholder,   Greenleaf  Capital  Partners,   LLC  (a  pre-Merger
     shareholder of Watchdog),  has demand  registration rights on its 1,141,360
     shares of common stock.
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES
                         (A Development Stage Company)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                    PERIOD FROM FEBRUARY 13, 1998 (INCEPTION)
                          TO JUNE 30, 1998 AND FOR THE
                 SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)

7    Shareholders' equity (continued)

     Stock option plan

     In June 1998,  the Company  adopted the 1998 Long Term  Incentive Plan (the
     "1998  Incentive  Plan") in order to motivate  qualified  employees  of the
     Company,  to assist the Company in  attracting  employees  and to align the
     interests  of such persons with those of the  Company's  shareholders.  The
     1998 Incentive Plan,  which authorizes the issuance of a maximum of 282,500
     shares of common stock,  provides for a grant of incentive  stock  options,
     non-qualified stock options, restricted stock, performance grants and other
     types of awards to officers,  key employees,  consultants  and  independent
     contractors of the Company and its  affiliates.  The 1998 Incentive Plan is
     administered  by the  Board of  Directors,  which has sole  discretion  and
     authority,  consistent  with the provisions of the 1998 Incentive  Plan, to
     determine which eligible  participants will receive options,  the time when
     options will be granted and the terms of options granted.

     In January 1999, the Company granted options to purchase  243,500 shares of
     common  stock  under  the  1998  Incentive  Plan  to its  officers  and key
     employees  as follows:  (i) 143,500  options are  exercisable  at $5.00 per
     share and vest in equal  installments  over three years commencing  January
     2000, and (ii) 100,000  options are exercisable at $5.00 per share and vest
     in 5 years  subject  to  acceleration  pursuant  to  specified  performance
     criteria. All options expire in ten years from the grant date.

     Warrants

     On June 17,  1998,  in  conjunction  with the Merger,  the Company  granted
     warrants to purchase  1,187,500  shares of its common  stock as follows: 

     .    600,000  ten-year  warrants  issued to the former members of NetWolves
          LLC at an  exercise  price of $1.63  per  share.  Originally,  200,000
          warrants were granted to each of five individuals; upon termination of
          two of these  individuals  in  January  1999,  400,000  warrants  were
          cancelled resulting in 600,000 outstanding warrants. The warrants vest
          in 5 years subject to acceleration  pursuant to specified  performance
          criteria (also see Note 9).
     
     .    500,000 five-year warrants issued to certain  pre-Merger  shareholders
          of Watchdog at an exercise  price of $1.63 per share.  These  warrants
          became  exercisable  when granted.  The pre-merger  shareholders  have
          demand registration rights on the shares of common stock issuable upon
          exercise of these warrants.

     .    87,500  five-year  warrants  issued to two  individuals  who  provided
          consulting services with respect to the Merger at an exercise price of
          $2.00 per share. These warrants became exercisable when granted.

<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES
                         (A Development Stage Company)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                    PERIOD FROM FEBRUARY 13, 1998 (INCEPTION)
                          TO JUNE 30, 1998 AND FOR THE
                 SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)

7    Shareholders' equity (continued)

     Warrants (continued)

     During the six months ended December 31, 1998, the Company granted warrants
     to purchase 200,000 shares of its common stock as follows:

     .    200,000  ten-year  warrants  issued to the Company's Vice President of
          Sales and  Marketing  (who is also a Director  of the  Company)  at an
          exercise  price of  $1.63  per  share.  The  warrants  vest in 5 years
          subject to acceleration  pursuant to specified  performance  criteria.
          These warrants were issued for services rendered during the six months
          ended  December  31, 1998 and  resulted in a charge to  operations  of
          approximately $699,000.

     During  January  1999,  the Company  granted  warrants to purchase  400,000
     shares of its common stock as follows:

     .    100,000  two-year  warrants  were issued to two  terminated  employees
          (50,000  warrants  each) at an exercise price of $5.00 per share (also
          see Note 9). The warrants  vest only upon  achieving  specified  sales
          criteria during calendar 1999.

     .    300,000 warrants were issued to Anicom, Inc. for cash consideration of
          $300,000 (see Note 10b).

8    Benefit from income taxes

     The  benefit  from  income  taxes for the period  from  February  13,  1998
     (inception) to June 30, 1998 consists of the following:
<TABLE>
                <S>                                                    <C>             
                Current - Federal and states                        $       -       
                Deferred - Federal                                        15,000
                Deferred - states                                          5,000
                                                                    ------------ 
                     Benefit from income taxes                      $     20,000
                                                                    ============
</TABLE>

     The following  table  summarizes the  significant  differences  between the
     Federal  statutory  tax  rate  and the  Company's  effective  tax  rate for
     financial reporting purposes:
<TABLE>
                <S>                                                        <C>     
                Federal statutory tax rate                                 (34.0)% 
                State and local taxes net of Federal tax effect             (5.0)
                Effect of graduated tax rates                                9.0
                Permanent differences                                        1.9
                Valuation allowance on deferred tax asset                   11.4 
                                                                           ------
                    Effective tax rate                                     (16.7)%
                                                                           ======
</TABLE>

<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES
                         (A Development Stage Company)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                    PERIOD FROM FEBRUARY 13, 1998 (INCEPTION)
                          TO JUNE 30, 1998 AND FOR THE
                 SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)

8    Benefit from income taxes (continued)

     The tax effects of temporary  differences and carry forwards that give rise
     to deferred tax assets or  liabilities  at June 30, 1998 are  summarized as
     follows:
<TABLE>
                <S>                                                 <C>         
                Provision for doubtful accounts                     $      1,500
                Net operating loss carry forward                          32,000
                Net assets held for sale                                 (20,000)
                Valuation allowance on net deferred tax asset            (13,500)
                                                                    ------------  
                    Deferred tax asset, net                         $       -       
                                                                    ============
</TABLE>
     The Company has provided for full valuation  allowances on the net deferred
     tax assets due to the uncertainty of future income tax estimates.

9    Commitments and contingencies

     Leases

     The Company has entered into several  leases for office space.  At June 30,
     1998, the  approximate  future minimum annual lease payments are summarized
     as follows:
<TABLE>
        <S>                                                 <C>
        Fiscal year ending June 30,
                1999                                        $     66,000  
                2000                                              48,000  
                2001                                              48,000  
                2002                                              23,000
                2003                                              18,000
                Thereafter                                         2,000
                                                            ------------
                                                            $    205,000
                                                            ============
</TABLE>

     Employment agreements

     In conjunction  with the  consummation  of the Merger,  the Company entered
     into  employment  agreements  with 5  executives  who  were  the  principal
     pre-Merger  owners  of  NetWolves,   LLC.  Two  of  these  executives  were
     subsequently  terminated as discussed  below.  Each of the  agreements  are
     substantially identical and provide for the following significant terms:

          .    employment  term  of  three  years  commencing  June  1999,  with
               automatic   renewals  for  additional   three-year  terms  unless
               terminated  by  the  Company  for  cause  or  terminated  by  the
               executive,

          .    salary of  $100,000,  increasing  up to  $250,000,  dependent  on
               specified revenue targets,

          .    bonus of 2% of the Company's gross profit, and

          .    200,000 warrants (see Note 7).
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES
                         (A Development Stage Company)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                    PERIOD FROM FEBRUARY 13, 1998 (INCEPTION)
                          TO JUNE 30, 1998 AND FOR THE
                 SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)

9    Commitments and contingencies (continued)

     Employment agreements (continued)

     In January 1999, two of the five executives  were terminated  pursuant to a
     Settlement  Agreement and Mutual  Release.  In exchange for terminating the
     employment  agreements and cancellation of the 200,000 warrants  previously
     issued, the Company will pay each terminated  executive $50,000 in cash and
     enter  into a  Manufacturer's  Representation  Agreement  ("MRA").  The MRA
     appoints the  terminated  executive as an independent  non-exclusive  sales
     person to  promote  the sale of the  Company's  products.  The MRA is for a
     one-year term  commencing  January 1999 and provides for a 5% commission on
     all net sales attributed to such representative.  Additionally, each of the
     terminated  executives received 50,000 performance based warrants (see Note
     7).

     Legal matters

     Certain  claims,  suits and  complaints  arising in the normal  course with
     respect to the Company's  uniformed security guard services operations have
     been filed or are pending against the Company. Generally, these matters are
     all  covered by a general  liability  insurance  policy.  In the opinion of
     management,  all such  matters  are without  merit or are of such kind,  or
     involve  such  matters,  as would  not  have a  significant  effect  on the
     financial position or results of operations of the Company,  if disposed of
     unfavorably.

10   Subsequent events

     a. The Sullivan Group

     In January 1999,  the Company  entered into an agreement  with The Sullivan
     Group ("Sullivan")  whereby Sullivan appointed the Company as its exclusive
     provider of the Company's  multi-service Internet delivery system (known as
     "FoxBox") to be used in conjunction with Sullivan's proprietary interactive
     distance learning training  programs.  The period of the agreement is for a
     term of five years and shall be  automatically  renewed  for an  additional
     five-year  term  unless six months  notice of  termination  is  provided by
     either party.

     Although  there are no minimum  order  requirements,  it is  expected  that
     delivery  will  commence in June 1999,  and in most  instances,  the FoxBox
     units will be subject to 48-month  rental  contracts  at a rate of $200 per
     unit,  per month.  The lease  obligations  will be paid for by the end user
     retail site (or its corporate parent, the "Site").  One year of maintenance
     is to be included  with each  leasing  agreement.  Beginning  in the second
     year,  each Site may agree to pay the Company an additional fee in order to
     extend the maintenance period.
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES
                         (A Development Stage Company)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                    PERIOD FROM FEBRUARY 13, 1998 (INCEPTION)
                          TO JUNE 30, 1998 AND FOR THE
                 SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)

10   Subsequent events (continued)

     b. Anicom, Inc.

     In January  1999,  the Company  entered into a five-year  exclusive  master
     distribution  agreement  with Anicom,  Inc.  ("Anicom") to  distribute  the
     FoxBox  throughout  North  America.  Additionally,  Anicom is  entitled  to
     receive  a  commission  on any  sales or  leases  of the  FoxBox  unit made
     directly by the Company that Anicom was not involved  with and a commission
     on certain technical  support revenue earned by the Company.  The agreement
     may be  terminated  by the Company with payment of a specified  termination
     fee or it may be  terminated  should  Anicom  fail  to meet  minimum  order
     requirements.

     In connection  with the agreement  and for cash  consideration  paid to the
     Company of $300,000, the Company issued Anicom 300,000 warrants to purchase
     common  stock of the  Company at an  exercise  price of $5 per  share.  The
     warrants  issued to Anicom  shall  vest in equal  installments  over  three
     years,  commencing  on the first  anniversary  of the  agreement  and shall
     expire in January 2004. Anicom also obtained piggyback  registration rights
     with respect to the issuable shares of common stock.

     c. Private placement memorandum

     On April 20, 1999, the Company completed preparation of a Private Placement
     Memorandum.  The  Company  is  offering  to sell up to  800,000  shares  of
     restricted  common  stock at $7.50 per share (a total of  $6,000,000)  on a
     "best efforts, no minimum,  maximum basis." Any proceeds to the Company are
     expected to be used for  working  capital  purposes  and will be subject to
     sales commissions and other expenses including legal, accounting and filing
     fees.  There  can be no  assurances  that the  Company's  offering  will be
     successful.


                         RECEIPT OF DEPARTMENT OF STATE



                   STATE OF NEW YORK_______DEPARTMENT OF STATE
                   DIVISION OF CORPORATIONS AND STATE RECORDS
                                     ALBANY

                                 FILING RECEIPT


     TYPE OF CERTIFICATE
Incorporation (Business)                             0

     CORPORATION NAME                   DATE FILED
WATCHDOG PATROLS, INC.                       1/5/70

DURATION & CO. CODE                     FILE NO.
P 30                                         804780-4

NO. AND KIND OF SHARES
200 npv

LOCATION OF PRIN. OFFICE                COMMENT
OYSTER BAY NASSAU CO

ADDRESS FOR SERVICE OF PROCESS
BERGER 22 WHITLOCK ST  PLAINVIEW  NY  11803

REGISTERED AGENT, IF ANY

FILER AND ADDRESS
                    PAUL BERGER
                    22 WHITLOCK ST
                    PLAINVIEW  NY  11803

6    DOLLAR FEE TO COUNTY
     FEES AND/OR TAX PAID AS FOLLOWS:
[ ] CHK. [X ] M.O. [ ] CASH                       $    60

$ 50 FILING
$ 10 TAX
$    CERTIFIED COPY
$    CERTIFICATE                        TOTAL     $    60
                                        REFUND OF $              TO FOLLOW

                                 JOHN P. LOMENZO
                               SECRETARY OF STATE

                                                        /S/
CO-518 (rev. 3/66)
<PAGE>
                         Certificate of Incorporation of

       804780                WATCHDOG PATROLS, INC.

       under Section 402 of the Business Corporation Law

IT IS HEREBY CERTIFIED THAT:

(1)  The name of the proposed corporation is WATCHDOG PATROLS, INC.

(2)  purpose or purposes for which this  corporation is formed,  are as follows,
     to wit:

     to train watchdogs in all phases: guard, protection,  attack and obedience;
     to rent, lease and sell trained  watchdogs for residential,  commercial and
     industrial security purposes; to act as consultant in watchdog training and
     related  security  aspects;  and to conduct and carry on any other  similar
     business which may be capable of being profitably  carried on in connection
     with this company's  business,  or to carry on any similar business that is
     adapted  directly  or  indirectly  to  add to the  value  of the  company's
     property and the profits of the authorized business.

     The  corporation in furtherance of its corporate  purposes above set forth,
shall  have  all  of the  powers  enumerated  in  Section  302  of the  Business
Corporation Law, subject to any limitations provided in the Business Corporation
Law or any  other  statute  of the  State of New  York.  (3) The  office  of the
corporation is to be located in the Town of Oyster Bay County of Nassau State of
New York.

(3)  The  office of the  coproration  is to be located in the Town of Oyster Bay
     County of Nassau State of New York.

(4)  The  aggregate  number  of  shares  which the  corporation  shall  have the
     authority to issue 200 of which all shall be without par value.

(5)  The Secretary of State is designated as agent of the corporation  upon whom
     process  against it may be  served.  The post  office  address to which the
     Secretary of State shall mail a copy of any process against the corporation
     served upon him is c/o  Berger,  22 Whitlock  Street,  Plainview,  New York
     11803.

     The undersigned  incorporator,  or each of them if there are more than one,
is of the age of twenty-one years or over.

IN  WITNESS  WHEREOF,  this  certificate  has been  subscribed  this 23rd day of
December 1969 by the  undersigned  who affirm(s) that the statements made herein
are true under the penalties of perjury.


Phyllis Berger                                         /s/Phyllis Berger
      Type Name of Incorporator                        -------------------------

22 Whitlock Street, Plainview, New York

     
Helen Jaffee                                           /s/Helen Jaffee   
      Type Name of Incorporator                        -------------------------

105-55 Flatlands 4th Street, Brooklyn, New York       

<PAGE>
                          Certificate of Incorporation

                                       of

                             WATCHDOG PATROLS, INC.

                under Section 402 of the Business Corporation Law


                                   Filed By:

                                        Paul Berger

                                        Office and Post Office Address

                                        22 Whitlock Street
                                        Plainview, New York  11803
                                        WE 8-1490


                                        STATE OF NEW YORK
                                        DEPARTMENT OF STATE
                                        FILED  JAN 5  1970

                         804780-4       TAX $ 10
                                        FILING FEE $50


                                        /S/

                                        Secretary of State

                                        By:  /s/

                                        p 30 Nassau
<PAGE>
                            CERTIFICATE OF AMENDMENT
                                     OF THE
                          CERTIFICATE OF INCORPORATION
                                       OF
                             WATCHDOG PATROLS, INC.
                Under Section 805 of the Business Corporation Law

     1) The name of the corporation (hereinafter called Corporation) is WATCHDOG
PATROLS,  INC.,  and was  incorporated  on January 5, 1970 under the laws of the
State of New York.

     2) The Certificate of Incorporation of the Corporation is hereby amended by
striking out Article Two thereof and by substituting in lieu of said Article the
following New Article:

     Second:  To train watchdogs in all phases:  guard,  protection,  attack and
obediance; to rent, lease and sell trained watchdogs for residential, commercial
and industrial security purposes;  to act as consultant in watchdog training and
related security aspects; and to conduct and carry on any other similar business
which may be capable of being  profitably  carried  on in  connection  with this
Company's business, or to carry on any similar business that is adapted directly
or indirectly  to add to the value of the company's  property and the profits of
the althorizcd business.

     To design,  manufacture,  buy and sell,  and  generally  deal in  automatic
electric alarms for use in banks, stores, buildings,  offices, houses, churches,
and other places for protection  against burglary and any other intrusion and to
install,  repair,  inspect,  and overhaul burglar alarms and other alarms of all
kinds, makes, and description. To design, manufacture,  buy, and sell watchmen's
clocks and watches of all kinds.

     To furnish the services of watchmen, guards, escorts for women, messengers,
ushers, bill collectors, investigators, and collectors of information.

     To devise, put into operation,  and conduct ways, systems,  and methods for
the  prevention  and  detection  of crime  and the  apprehension  and  arrest of
criminals,  for the  recovery  of lost or stolen  property,  for the  finding of
missing persons,  documents,  or goods, for investigating and reporting upon the
antecedents,  habits,  character,  doings,  reliability,  credit,  or  financial
condition of persons, firms, associations, or corporations.  Generally to do all
things commonly done by private and by credit and mercantile reporting agencies.

      To purchase,  manufacture,  produce,  assemble,  receive,  lease or in any
manner,  acquire, hold, own, use, operate,  install,  maintain,  service repair,
process,  alter, improve,  import,  export, sell, lease, assign,  transfer.  and
generally to trade and deal in and with, raw materials,  natural or manufactured
<PAGE>
articles or products,  Machinery,  equipment,  devices, systems parts, supplies,
apparatus and personal property of every kind,  nature or description,  tangible
or intangible,  used or capable of being used for any purpose  whatsoever and to
engage and participate in any mercantile,  manufacturing  or trading business of
any kind or character.

     To purchase,  receive, lease or otherwise acquire and to manage, hold, own,
use,  improve,  convey,  sell,  mortgage,  or otherwise  deal in and with lands,
buildings and real property of every description, or any interest therein.

     To adopt, apply for, obtain, register, purchase, lease or otherwise acquire
and to maintain, protect, hold, use, own exercise,  develop,  manufacture under,
operate and introduce, and to sell and grant licenses or other rights in respect
of, assign, or otherwise dispose of, turn to account, or in any manner deal with
and contract with reference to, any trade marks,  trade names,  patents,  patent
rights, concessions,  franchises,  designs, copyrights and distinctive marks and
rights analogous  thereto,  and inventions,  devices,  improvements,  processes,
recipes,  formulae  and the like,  including  such thereof as may be covered by,
used in connection  with, or secured or received  under,  Letters  Patent of the
United States of America or elsewhere or otherwise,  and any licenses in respect
thereof and any or all rights connected therewith or appertaining thereto.

     In  furtherance  of its corporate  business and subject to the  limitations
prescribed by statute, to acquire by purchase, exchange or otherwise, all or any
part of, or any interest in, the properties,  assets,  business and good-will of
any one or more corporations,  associations  partnerships,  firms, syndicates or
individuals  and to pay  for the  same in  cash,  property  or its own or  other
securities; to hold, operate,  reorganize,  liquidate,  mortgage,  pledge, sell,
exchange,  or in any  manner  dispose of the whole or any part  thereof;  and in
connection  therewith,  to assume or guarantee  performance of any  liabilities,
obligations or contracts of  corporations,  associations,  partnerships,  firms,
syndicates or individuals,  and to conduct in any lawful manner the whole or any
part of any similar business thus acquired.

     To acquire or become  interested  in,  whether by  subscription,  purchase,
underwriting,  loan,  participation in syndicates or otherwise, to own, hold, to
sell,  assign or  otherwise  dispose  of,  or in any  manner to deal in or with,
stocks,  bonds,  debentures,   warrants,  rights,  scrip,  notes,  evidences  of
indebtedness,  or other  .securities  or  obligations  of any kind by whomsoever
issued,  to exercise in respect  thereof all powers and privileges of individual
ownership or interest  therein,  including the right to vote thereon for any and
all  purposes;  to consent,  or  otherwise  act with  respect  thereto,  without
limitations;  and to issue in exchange therefor the corporation's  stock, bonds,
debentures,  warrants,  rights, scrip, notes, evidences of indebtedness or other
securities or obligations of any kind.

     To borrow money for its corporate purposes,  and to make, accept,  endorse,
execute and issue  promissory  notes,  bills of exchange,  bonds,  debentures or
other  obligations  from time to time, for the purchase of property,  or for any
purpose  relating to the  business of the  company,  and if decreed  proper,  to
secure the payment of any such obligations by mortgage,  pledge, guarantee, deed
of trust or otherwise.
<PAGE>
      To lend its uninvested  funds from.  time to time to such extent,  on such
terms and on such security,  if any, as the Board of Director of the corporation
may determine.

     In  furtherance  of its corporate  business and subject to the  limitations
prescribed by statute, to be a promoter,  partner,  member, associate or manager
of other business  enterprises  or ventures , or to the extent  permitted in any
other  jurisdiction to be an  incorporator of other  corporations of any type or
kind  and  to  organize,   or  in  any  way  participate  in  the  organization,
reorganization, merger or liquidation of any corporation, association or venture
and the rnanagement thereof.

    Subject to the  limitations  prescribed by statute and in furtherance of its
corporate  business,  to pay pensions,  establish and carry out pension,  profit
sharing, share bonus, share purchase,  share option,  savings,  thrift and other
retirement, incentive and benefit plans, trusts and provisions for any or all of
its directors, officers and employees.

     To conduct its business in all or any of its branches,  so far as permitted
by law, in the State of New York and in all other states of the United States of
America,  in the  territories  and the  District of  Columbia  and in any or all
dependencies  or  possessions  of the United  States of America,  and in foreign
countries; and to hold possess,  purchase,  lease, .mortgage and convey real and
personal  property and to maintain offices and agencies either within or outside
the State of New York.

     To  carry  out all or any  part of the  foregoing  purposes  as  principal,
factor, agent, broker,  contractor or otherwise,  either alone or in conjunction
with any persons, firms,  associations,  corporations,  or others in any part of
the world;  and in carrying on its  business and for the purpose of attaining or
furthering  any of its purposes,  to make and perform  contracts of any kind and
description, and to do anything and everything necessary,  suitable,  convenient
or proper for the accomplishment of any of the purposes herein enumerated.

     For  the  accomplishment  of the  aforesaid  purposes,  and in  furtherance
thereof, the corporation shall have and may exercise all of the powers conferred
by the Business Corporation Law upon corporations formed thereunder,  subject to
any  limitations  contained in Article 2 of said law or in  accordance  with the
provisions of any other statute of the State of New York.

     3) The Certificate of Incorporation of the Corporation is hereby amended by
striking out Article Four  thereof and by  substituting  in lieu of said Article
the following New Article: 

     Fourth:  The  aggregate  number of shares  which the  corporation  may have
authority to issue is 2,000,000  shares of voting  common stock each of $.01 par
value.  The holders of voting common stock of $.-01 par value of the corporation
shall not have pre-emptive rights.
<PAGE>
     4) Article 6 is hereby added to the Certificate of Incorporation and states
the following:

     Sixth: The duration of the Corporation is to be perpetual.

     5) Article 7 is hereby added to the Certificate of Incorporation and states
the following:

     Seventh:   Except  as  may  otherwise  be  specifically  provided  in  this
Certificate of Incorporation,  no provision of this certificate of incorporation
is  intended  by the  corporation  to be  construed  as  limiting,  prohibiting,
denying,  or  abrogating  any of the  general  or  specific  powers  or  rights,
conferred  under the business  corporation  law upon the  corporation,  upon its
shareholders, bondholders and security holders and upon its directors, officers,
and  other  corporate  personnel  including  in  particular,  the  power  of the
corporation  to  furnish  indemnification  to  directors  and  officers  in  the
capacities  defined  and  prescribed  by the  business  corporation  law and the
defined and prescribed rights of said persons to indemnification as the same are
conferred by the Business Corporation Law.

     6) The  manner in which the  aforesaid  amendments  to the  Certificate  of
Incorporation were authorized are as follows:

     a) By unanimous  written  consent of the holders of all of the  outstanding
shares entitled to vote thereon.

     7) The manner in which the common  stock  shall be changed by reason of the
aforesaid amendment is as follows:

     a) The 200 common  shares  without  par value are  changed  into  2,000,000
shares par value of $.01 per share. The rate of change is one share no par value
to become  10,000  shares  par value  $.01 per  share,  there are 30 Issued  and
outstanding shares.

     8) The effective date of the amendments  herein certified shall be the date
of filing.

Dated: April 25, 1972                   /s/  Paul Berger
                                        --------------------------
                                        Paul Berger, President

                                        /s/  Phyllis Berger            
                                        --------------------------
                                        Phyllis Berger, Secretary

(Corporate Seal)

                                        Jack Applebaum
Attest:                                 Notary Public, State of New York
                                        No.
/s/  Phyllis Berger                     Qualified in Queens County
Phyllis Berger                          Commission Expires March 30, 1973
                                        City of Plainview
                                        County of Nassau
                                        State of New York
                                        April 27, 1972

<PAGE>
STATE OF NEW YORK) ss.
COUNTY OF QUEENS)

     PAUL BERGER and PHYLLIS  BERGER,  being duly sworn depose and say that they
are the President  and  Secretary  respectively  of WATCHDOG  PATROLS,  INC. the
corporation  named, and described in the foregoing  certificate.  That they have
read the foregoing  certificate and know the contents thereof, and that the same
is true of their own  knowledge,  except as to the matters  therein stated to be
alleged upon information and belief,  and as to those matters they believe it to
be true


                                        /s/  Paul Berger                
                                        --------------------------
                                        Paul Berger

                                        /s/  Phyllis Berger            
                                        --------------------------
                                        Phyllis Berger


Sworn to before me this 21 day of April 1972.



Jack Applebaum                          FILED BY:
Notary Public, State of New York        Loecher Solomon & Zukerman
No.                                     666 Fifth Avenue
Qualified in Queens County              New York, New York  10019
Commission Expires March 30, 1973
City of Plainview
County of Nassau
State of New York
<PAGE>
                           804780-4          986500  -6

                            1/5/70    Oyster Bay
                                          Nassau Co.
                                                         200 npv
                            CERTIFICATE OF AMENDMENT

                                     TO THE
                          CERTIFICATE OF INCORPORATION

                                       OF

                             WATCHDOG PATROLS, INC.


                                             STATE OF NEW YORK
                                             DEPARTMENT OF STATE
                                             FILED MAY 5  1972
                                             TAX  $   None
                                             FILING FEE $35

                                             /s/

                                             30 Nassau 













                           LOECHER SOLOMON & ZUKERMAN
                                ATTORNEYS AT LAW
                                666 FIFTH AVENUE
                               NEW YORK, N Y 10019

<PAGE>
                             NYS DEPARTMENT OF STATE

FILING RECEIPT                CHANGE OF PROVISIONS

CORPORATION NAME

WATCHDOG PATROLS, INC.

DATE FILED      DURATION & COUNTY CODE      FILM NUMBER          CASH NUMBER

07/25/88        NASS                        B666150-2            216943


NUMBER AND KIND OF SHARES               LOCATION OF PRINCIPAL OFFICE

     *P-H

ADDRESS FOR PROCESS                     REGISTERED AGENT

FEES AND/OR TAX PAID AS FOLLOWS:

AMOUNT OF CHECK $   AMOUNT OF MONEY ORDER $00080.00    AMOUNT OF CASH $ 

$6.00  DOLLAR FEE TO COUNTY                  $060.00   FILING
                                        $         TAX  
FILER NAME AND ADDRESS                  $10.00    CERTIFIED COPY
                                        $         CERTIFICATE
RICHARD S. MISSAN                          010.00 MISCELLNEOUS
SUITE 2601                              TOTAL PAYMENT $  0000080.00
575 LEXINGTON AVENUE
NEW YORK       NY  10022                     REFUND OF $
                                                      TO FOLLOW

380604-003 (8/84)                       GAIL S SHAFFER - SECRETARY OF STATE
<PAGE>
                          CERTIFICATE 0F INCORPORATION

                                       of

                             WATCHDOG PATROLS, INC

                Under Section 805 of the Business Corporation Law

                                    --------
          It is hereby certified that:

     FIRST: The name of the corporation is Watchdog Patrols, Inc.

     SECOND:  The Certificate of  incorporation  of the corporation was filed by
the Department of State on January 5, 1970.

     THIRD: The amendment of the Certificate of Incorporation of the corporation
effected by this  certificate  of  amendment  is to add an article  limiting the
liability of directors of the corporaiton.

     FOURTH:  To accomplish the foregoing  amendment,  the following new Article
Eighth,  relating to the limitation of the liability of the directors,  is added
to the certificate of incorporation of the corporation:

     "EIGHTH:  The personal  liability of the  directors of the  corporation  is
     eliminated to the fullest  extent  permitted by the provisions of paragraph
     (b) of  Section  402 of the  Business  Corporation  Law of the State of New
     York, as the same may be amended and supplemented."

     FIFTH:  The foregoing  amendment of the certificate of incorporation of the
corporation was authorized by the vote at a meeting of the Board of Directors of
the  corporation,  followed by the vote of the holders of at least a majority of
all of the outstanding  shares of the  corporation  entitled to vote on the said
amendment of the certificate of incorporation.

     IN WITNESS WHEREOF,  we have subscribed this document on the date set forth
below and do hereby affirm, under the penalties of perjury,  that the statements
contained therein have been examined by us and are true and correct.

Date:  July 20, 1988

                                        /s/_______________________
                                        Earl T. Smith, President

                                        /s/_______________________
                                        Phyllis Berger, Secretary

<PAGE>
P H
2

B666150


                             CERTIFICATE OF AMENDENT

                                       OF

                          CERTIFICATE OF INCORPORATION

                                       OF

                             WATCHDOG PATROLS, INC.


               (Under Section 805 of the Business Corporation Law)




STATE OF NEW YORK
DEPARTMENT OF STATE

FILED JUL 25  1988

AMT. OF CHECK $  80
FILING FEE $ 60
TAX $
COUNTY FEE $
COPY $ 10
CERT $
REFUND $
SPEC HANDLE $10

BY:
Nassau

                                                  Jul 22  11 06 AM'88

Richard S. Missan                  216943                   Filed
Counselor at law                                       July 25 6 50 AM'88
Suite 2601 
575 Lexington Avenue 
New York, N.Y.  10022

                                   BILLED
<PAGE>
                             NYS DEPARTMENT OF STATE

FILING RECEIP'T            AMENDMENT-CHANGE OF SHARES

CORPORATION NAME
WATCHDOG PATROLS, INC.

DATE FILED        DURATION & COUNTY CODE        FILM NUMBER         CASH NUMBER
08/14/89          NASS                           0043949-3           455734

NUMBER AND KIND OF SHARES                    LOCATION OF PRINCIPAL OFFICE
10,000,000 PV $.0033

*P-H

ADDRESS FOR PROCESS                     REGISTERED AGENT


FEES AND/OR TAX PAID AS FOLLOWS:

AMOUNT OF CHECK $   AMOUNT OF MONEY ORDER  $00090.00   AMOUNT OF CASH $

$ 6.00 DOLLAR FEE TO COUNTY                  $060.00   FILING
                                        $00010.00 TAX
FILER NAME AND ADDRESS                  $10.00         CERTIFIED COPY
RICHARD S. MISSAN                       $         CERTIFICATE
575 LEXINGTON AVENUE                    $010.00   MISCELLANEOUS
SUITE 2601                              TOTAL PAYMENT $ 0000090.00
NEW YORK    NY  10022                                  
                                              REFUND OF $

                                                  TO FOLLOW

DOS-281 (8/84)
                              GAIL S SHAFFER - SECRETARY OF STATE
<PAGE>
STATE OF NEW YORK  :
                   :  ss:
DEPARTMENT OF STATE:






                              056670



I hereby  certify  that I have  compared  the  annexed  copy  with the  original
document  filed  by the  Department  of State  and  that  the same is a  correct
transcript of said original.

                                                            AUG 14 1989
     Witness my hand and seal of the Department of State on


                                        /s/
                                        Secretary of State

380507-004 (12/87)
<PAGE>
                            CERTIFICATE OF AMENDMENT
PH
                                       of

                          CERTIFICATE OF INCORPORATION

                                       of

                             WATCHDOG PATROLS, INC.


                Under Section 805 of the Business Corporation Law
C043949
                                -----------------

          It is hereby certified that:

          FIRST: The name of the corporation is Watchdog Patrols, Inc.

          SECOND:  The Certificate of Incorporation of the corporation was filed
by the Department of State on January 5, 1970.

          THIRD:  The  amendments of the  Certificate  of  Incorporation  of the
corporation  effected  by this  Certificate  are  (1) to  change  the  currently
authorized  and issued  1,674,000  common  shares,  par value  $.01  each,  into
1,674,000 issued common shares,  par value $.0033 each, on a one for one basis ,
and to change the 326,000 currently  authorized but unissued common shares,  par
value $.01 each, into 326,000  authorized but unissued common shares,  par value
$.0033  each;  and  (ii)  to  increase  the  authorized  number  of  shares  the
corporation  shall  have  authority  to  issue,  by  authorizing  an  additional
8,000,000  common  shares,  par  value  $.0033  each.  In  connection  with  the
foregoing,  the stated capital in respect of each issued common share is reduced
from $,01 per share to $.0033 per share, so that the aggregate stated capital of
the corporation is reduced from $16,740 to $5,524.

          FOURTH: To accomplish the foregoing amendments,  Article Fourth of the
Certificate  of  incorporation,   relating  to  the  authorized  shares  of  the
corporation, is amended to read as follows;

          "FOURTH:  The  aggregate  number of shares  which the  corporation  is
          authorized  to issue is 10,000,000  shares of common stock,  par value
          $.0033 per share.  The  holders of such  common  stock  shall not have
          pre-emptive rights."

          FIFTH: The foregoing amendments of the Certificate of Incorporation of
the  corporation  were  authorized  by the  vote at a  meeting  of the  Board of
Directors of the corporation,  followed by the vote of the holders of at least a
majority of all of the outstanding shares of the corporation entitled to vote on
the said amendments of the Certificate of Incorporation.

          IN WITNESS  WHEREOF,  we have subscribed this document on the date set
forth below and do hereby  affirm,  under the  penalties  of  perjury,  that the
statements contained therein have been examined by us and are true and correct.

Date:  August 9, 1989
                                        /s/             
                                        --------------------------
                                        Earl T. Smith, President

                                        /s/                             
                                        --------------------------
                                        Phyllis Berger, Secretary
<PAGE>
                            Certificate of Amendment

                                       Of

                          Certificate of Incorporation

                                       Of

                             Watchdog Patrols, Inc.

                UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW



CO43949
                                   STATE OF NEW YORK
                                   DEPARTMENT OF STATE

                                   FILED AUG 14 1989

                                   AMT. OF CHECK $90
                                   FILING FEE $60
                                   TAX $10
                                   COUNTY FEE $
                                   COPY $10
                                   CERT $
                                   REFUND $
                                   SPEC HANDLE $10
                                   BY: /s/_________________
                                          Nassau

                         1/5/70
                         Nass
BILLED                   8047804
                         #B666150-2
                         2,000,000 PV1C
                                                  Aug 11 9 15 AM'89
                              /s/                 455734

                                   Richard S. Missan
                                   Suite 2601 
                                   575 Lexington Avenue
                                   New York, New York  10022


                                        Aug 14 6 57 AM'89

<PAGE>
N.Y.S. DEPARTMENT OF STATE                               162 WASHINGTON AVENUE
DIVISION OF CORPORATIONS AND STATE RECORDS               ALBANY, NY  12231

                                 FILING RECEIPT

CORPORATION NAME: WATCHDOG PATROLS.. INC.

DOCUMENT TYPE:  CERTIFICATE OF CHANGE (DOM. BUSINESS   COUNTY: NASS
                    PROCESS

SERVICE COMPANY :  PRENTICE-HALL CORPORATION SYSTEM, INC.

FILED: 02/24/1993 DURATION:*********  CASH #: 930224000256  FILM #: 930224000237

ADDRESS FOR PROCESS
THE: CORPORATION 
ATT: PHYLLIS BERGER                99 POWERHOUSE ROAD
ROSLYN HEIGHTS, NY 11577

CASH ~ 930224000256

REGISTERED AGENT

FILER                         FEES      65.00          PAYMENTS  65.00
RICHARD MISSAN, ESQ,          FILING :  30.00          CASH:          0.00 
75 LEXINGTON AVENUE           TAX:      0.00           CHECK:    0.00
SUITE 2601                    CERT:     0.00           BILLED:   65.00
NEW  YORK.  NY 10022          COPIES:   10.00
                              HANDLING: 25.00
                                             REFUND
<PAGE>
STATE OF NEW YORK  :
                   :  ss:
DEPARTMENT OF STATE:


                                                       014151

I hereby  certify  that I have  compared  the  annexed  copy  with the  original
document  filed  by the  Department  of State  and  that  the same is a  correct
transcript of said original,

                                                      FEB 24 l993

     Witness my hand and seal of the Department of State on

                                             /s/                              
                                             Secretary of State


DOS-200 (12/87)
<PAGE>
PH                                 F930224000237            

                              CERTIFICATE OF CHANGE

                                       OF

                             WATCHDOG PATROLS. INC.

              (Under Section 805-A of the Business Corporation Law)

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

     FIRST: The name of the corporation is WATCHDOG PATROLS, INC

     SECOND:  The certificate of  incorporation  of the corporation was filed by
the Department of State on January 5, 1970.

     THIRD:  The  certificate  of  incorporation  of the  corporation is hereby)
changed,  pursuant  to  the  authorization  of the  Board  of  Directors  of the
corporation,  so as to change the post office  address to which the Secretary of
State shall mail a copy of an) process against the  corporation  served upon him
and,  to  accomplish   said  change,   the  statement  in  the   certificate  of
incorporation  relating to said post office  address is hereby  stricken and the
following statement is substituted in lieu thereof:

          "The post  office  address  within  the State of New York to which the
          Secretary  of  State  shall  mail a copy of any  process  against  the
          corporation  served  upon  him is 99  Powerhouse  Road,  Att:  Phyllis
          Berger, Roslyn Heights, New York 11577."

     IN  WITNESS  WHEREOF,   we  have  subscribed  this  document  on  the  date
hereinafter set forth and do hereby affirm, under the penalties of perjury, that
the  statements  contained  therein  have been  examined  by us and are true and
correct.

Dated: February 19,1993

Name of                       (S) Phyllis Berger                                
Signer:                       Phyilis Berger, Chairman of the Board

Name of                       (S) Edward Cooperman                        
Signer:                       Edward Cooperman, Assistant Secretary

<PAGE>

                                        F930224000237



   Feb 24 1 04PM'93

                              CERTIFICATE OF CHANGE

PH
                                       OF


                             WATCHDOG PATROLS. INC.
                             ---------------------- 

              (Under Section 805-A of the Business Corporation Law)
                             ---------------------- 
                              
   Feb 24 10 50 PM '93

                                                            BILLED



                                                  STATE OF NEW YORK
                                                  DEPARTMENT OF STATE
                                                  FILED    FEB 24 1993
                                                  TAX$         -             
                                                  BY: /s/ ___________
                                                  Nass

     Richard Missan, Esq.
     575 Lexington Avenue
     Suite 2601
     New York, New York  10022


                                   93022400256

<PAGE>
N.Y.S. DEPARTMENT OF STATE                        
DIVISION OF CORPORATIONS AND STATE RECORDS             ALBANY, NY  12231-0001

                                 FILING RECEIPT

ENTITY NAME:   NETWOLVES CORPORATION 

DOCUMENT TYPE:   CERTIFICATE OF AMENDMENT (DOM. BUSINESS          COUNTY: NASS
                   NAME

SERVICE COMPANY:   ** NO SERVICE COMPANY **                 SERVICE CODE:  00


FILED: 11/27/1998  DURATION:*****  CASH#:981127000223 FILM #:981127000218

ADDRESS FOR PROCESS

REGISTERED AGENT





FILER                             FEES:      60.00          PAYMENTS    85.00

JERRY B. SELLMAN, ATTY.           FILING:    60.00          CASH        0.00
WATCHDOG PATROLS, INC.            CERT:      0.00           CHECK       85.00
85 EAST GAY STREET                COPIES:    0.00       
COLUMBUS, OH  43215               HANDLING:  0.00           
                                                            REFUND:     25.00



<PAGE>
                            CERTIFICATE OF AMENDMENT

                                       of

                          CERTIFICATE OF INCORPORATION

                                       of

                             WATCHDOG PATROLS, INC,

                Under Section 805 of the Business Corporation Law
                            -------------------------


     It is hereby certified that:

     FIRST: The name of the corporation is Watchdog Patrols, Inc,

     SECOND:  The Certificate of  Incorporation  of the corporation was filed by
the Department of State on January 5, 1970.

     THIRD: The amendment of the Certificate of Incorporation of the corporation
effected  by this  Certificate  is to  change  the  name of the  corporation  to
NetWolves Corporation.

     FOURTH:  To  accomplish  the  foregoing  amendment.   Article  One  of  the
Certificate  of  Incorporation,  relating  to the  name of the  corporation,  is
amended to read as follows:

     "FIRST: The name of the proposed corporation is NetWolves Corporation."

     FIFTH: The foregoing  amendments of the Certificate of Incorporation of the
corporation  were  authorized by the vote at a meeting of the Board of Directors
of the  corporation,  followed by the vote of the holders of at least a majority
of all of the outstanding shares of the corporation entitled to vote on the said
amendments of the Certificate of Incorporation.

     IN WITNESS WHEREOF,  we have subscribed this document on the date set forth
below and do hereby affirm, under the penalties of perjury,  that the statements
contained therein have been examined by us and are true and correct.

November 23, 1998
                                             /s/____________________________
                                             Walter M. Groteke,   CEO/President


                                             /s/_____________________________
                                             Kevin F. Sherlock,      Secretary



                                     BY-LAWS

                                       of

                             WATCHDOG PATROLS, INC.
              -----------------------------------------------------

                               ARTICLE I - OFFICES
                               -------------------
    
     The principal office of the corporation  shall be in the town of Oyster Bay
County of Nassau  State of New York.  The  corporation  may also have offices at
such other places  within or without the State of New York as the board may from
time to time determine or the business of the corporation may require.

                            ARTICLE II - SHAREHOLDERS
                            -------------------------
  
1. PLACE OF MEETINGS.

     Meetings  of  shareholders  shall be held at the  principal  office  of the
corporation  or at such  place  within or  without  the State of New York as the
board shall authorize,

2. ANNUAL MEETING.

     The  annual  meeting  of the  shareholders  shall be held on the 3rd day of
March at 8 PM in each year if not a legal holiday, and, if a legal holiday, then
on the next business day following at the same hour, when the shareholders shall
elect a board and transact  such other  business as may properly come before the
meeting.

3. SPECIAL MEETINGS.

     Special  meetings of the  shareholders may be called by the board or by the
president  and shall be called by the  president or the secretary at the request
in  writing  of a  majority  of  the  board  or at the  request  in  writing  by
shareholders  owning a majority in amount of the shares issued and  outstanding.
Such  request  shall  state the purpose or  purposes  of the  proposed  meeting,
Business  transacted  at a special  meeting  shall be confined  to the  purposes
stated in the notice.

4. FIXING RECORD DATE.

     For the purpose of determining the shareholders entitled to notice of or to
vote at any meeting of shareholders or any  adjournment  thereof,  or to express
consent to or dissent from any proposal without a meeting, or for the purpose of
determining  shareholders  entitled  to receive  payment of any  dividend or the
allotment of any rights, or for the purpose of any other action, the board shall
<PAGE>
fix,  in  advance,  a date as the  record  date  for any such  determination  of
shareholders.  Such date  shall  not be more  than  fifty nor less than ten days
before  the date of such  meeting,  nor more than  fifty days prior to any other
action. If no record date is fixed it shall be determined in accordance with the
provisions of law.

5. NOTICE OF MEETINGS OF SHAREHOLDERS.

     Written notice of each meeting of  shareholders  shall state the purpose or
purposes  for which the  meeting  is  called,  the  place,  date and hour of the
meeting and unless it is the annual  meeting,  shall  indicate  that it is being
issued by or at the  direction  of the person or persons  calling  the  meeting.
Notice shall be given either personally or by mail to each shareholder  entitled
to vote at such  meeting,  not less than ten nor more than fifty days before the
date of the  meeting.  If action is  proposed  to be taken  that  might  entitle
shareholders  to payment for their shares,  the notice shall include a statement
of that  purpose  and to that  effect.  If  mailed,  the  notice  is given  when
deposited in the United States mail, with postage thereon  prepaid,  directed to
the shareholder at his address as it appears on the record of shareholders,  or,
if he shall have filed with the secretary a written  request that notices to him
be mailed to some other address, then directed to him at such other address.

6. WAIVERS.

     Notice of meeting need not be given to any  shareholder  who signs a waiver
of  notice,  in person or by proxy,  whether  before or after the  meeting.  The
attendance  of any  shareholder  at a  meeting,  in person or by proxy,  without
protesting  prior to the  conclusion  of the  meeting the lack of notice of such
meeting, shall constitute a waiver of notice by him.

7. QUORUM OF SHAREHOLDERS.

     Unless the certificate of incorporation provides otherwise,  the holders of
a majority of the shares entitled to vote thereat shall constitute a quorum at a
meeting of shareholders for the transaction of any business,  provided that when
a  specified  item of business is required to be voted on by a class or classes,
the  holders  of a  majority  of the  shares  of such  class  or  classes  shall
constitute a quorum for the transaction of such specified item of business.

     When a quorum is once  present to  organize a meeting,  it is not broken by
the subsequent withdrawal of any shareholders.

     The  shareholders  present may adjourn the meeting despite the absence of a
quorum.
<PAGE>
8. PROXIES.

     Every  shareholder  entitled  to vote at a meeting  of  shareholders  or to
express  consent or dissent  without a meeting may authorize  another  person or
persons to act for him by proxy.

     Every proxy must be signed by the shareholder or his  attorney-in-fact.  No
proxy shall be valid after  expiration  of eleven  months from the date  thereof
unless  otherwise  provided in the proxy.  Every proxy shall be revocable at the
pleasure of the shareholder executing it, except as otherwise provided by law.

9. QUALIFICATION OF VOTERS,

     Every  shareholder  of  record  shall  be  entitled  at  every  meeting  of
shareholders  to one vote for every share  standing in his name on the record of
shareholders, unless otherwise provided in the certificate of incorporation.

10. VOTE OF SHAREHOLDERS.

     Except  as  otherwise   required  by  statute  or  by  the  certificate  of
incorporation;

     (a)  directors  shall be  elected  by a  plurality  of the votes  cast at a
meeting  of  shareholders  by the  holders  of  shares  entitled  to vote in the
election;

     (b) all other  corporate  action shall be  authorized  by a majority of the
votes cast.

11. WRITTEN CONSENT OF SHAREHOLDERS.

     Any  action  that may be taken by vote may be taken  without a  meeting  on
written consent, setting forth the action so taken, signed by the holders of all
the outstanding shares entitled to vote thereon or signed by such lesser, number
of holders as may be provided for in the certificate of incorporation.

                             ARTICLE III - DIRECTORS
                             -----------------------
 
1. BOARD OF DIRECTORS.

     Subject to any provision in the certificate of  incorporation  the business
of the  corporation  shall be  managed by its board of  directors,  each of whom
shall be at least 21 years of age and shall be shareholders.

2. NUMBER OF DIRECTORS.

     The number of directors shall be three. When all of the shares are owned by
less than three shareholders, the number of directors may be less than three but
not less than the number of shareholders.
<PAGE>
3. ELECTION AND TERM OF DIRECTORS.

     At each  annual  meeting of  shareholders,  the  shareholders  shall  elect
directors to hold office until the next annual meeting. Each director shall hold
office  until the  expiration  of the term for which he is elected and until his
successor  has been elected and  qualified,  or until his prior  resignation  or
removal.

4. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.

     Newly  created  directorships  resulting  from an increase in the number of
directors and vacancies occurring in the board for any reason except the removal
of  directors  without  cause  may be  filled  by a vote  of a  majority  of the
directors then in office,  although less than a quorum exists,  unless otherwise
provided in the certificate of incorporation.  Vacancies  occurring by reason of
the  removal  of  directors  without  cause  shall  be  filled  by  vote  of the
shareholders  unless otherwise  provided in the certificate of incorporation.  A
director elected to fill a vacancy caused by resignation, death or removal shall
be elected to hold office for the unexpired term of his predecessor.

5. REMOVAL OF DIRECTORS.

     Any  or all of the  directors  maybe  removed  for  cause  by  vote  of the
shareholders  or by action of the board.  Directors may be removed without cause
only by vote of the shareholders.

6. RESIGNATION.

     A director  may resign at any time by giving  written  notice to the board,
the president or the secretary of the corporation. Unless otherwise specified in
the notice,  the resignation shall take effect upon receipt thereof by the board
or such officer, and the acceptance of the resignation shall not be necessary to
make it effective.

7. QUORUM OF DIRECTORS,

     Unless otherwise  provided in the certificate of incorporation,  a majority
of the entire board shall constitute a quorum for the transaction of business or
of any specified item of business.

8. ACTION OF THE BOARD.

     Unless  otherwise  required by law, the vote of a majority of the directors
present at the time of the vote,  if a quorum is present at such time,  shall be
the act of the board.  Each director  present shall have one vote  regardless of
the number of shares, if any, which he may hold.
<PAGE>
     9.   PLACE AND TIME OF BOARD MEETINGS.

     The board may hold its meetings at the office of the corporation or at such
other  places,  either  within or without the State of New York,  as it may from
time to time determine.

10. REGULAR ANNUAL MEETING.

     A regular annual meeting of the board shall be held  immediately  following
the  annual  meeting  of  shareholders  at the place of such  annual  meeting of
shareholders.

11. NOTICE OF MEETINGS OF THE BOARD, ADJOURNMENT.

     (a) Regular  meetings of the board may be held without  notice at such time
and place as it shall from time to time determine. Special meetings of the board
shall be held upon notice to the  directors  and may be called by the  president
upon three days notice to each director either personally or by mail or by wire;
special  meetings shall be called by the president or by the secretary in a like
manner on written  request  of two  directors.  Notice of a meeting  need not be
given to any director who submits a waiver of notice whether before or after the
meeting or who attends the meeting  without  protesting  prior thereto or at its
commencement, the lack of notice to him.

     (b) A  majority  of the  directors  present,  whether  or not a  quorum  is
present,  may  adjourn  any  meeting  to another  time and place.  Notice of the
adjournment  shall be given  all  directors  who were  absent at the time of the
adjournment and, unless such time and place are announced at the meeting, to the
other directors.

12. CHAIRMAN.

     At all meetings of the board the president,  or in his absence, a chair man
chosen by the board shall preside.

13. EXECUTIVE AND OTHER COMMITTEES.

     The board,  by resolution  adopted by a majority of the entire  board,  may
designate  from among its members an executive  committee and other  committees,
each consisting of three or more directors.
Each such committee shall serve at the pleasure of the board.

14. COMPENSATION.

     No  compensation  shall be paid to directors,  as such, for their services,
but by resolution  of the board a fixed sum and expenses for actual  attendance,
at each  regular or  special  meeting  of the board may be  authorized.  Nothing
herein  contained  shall be construed to preclude any director  from serving the
corporation in any other capacity and receiving compensation therefore
<PAGE>
                              ARTICLE IV - OFFICERS
                              ---------------------

1. OFFICES, ELECTION, TERM.

     (a) Unless otherwise provided for in the certificate of incorporation,  the
board may elect or appoint a president, one or more vice-presidents, a secretary
and a treasurer,  and such other  officers as it may  determine,  who shall have
such duties, powers and functions as hereinafter provided.

     (b) All  officers  shall be elected or  appointed  to hold office until the
meeting of the board following the annual meeting of shareholders.

     (c) Each officer  shall hold office for the term for which he is elected or
appointed and until his successor has been elected or appointed and qualified.

2. REMOVAL, RESIGNATION, SALARY, ETC.

     (a) Any  officer  elected or  appointed  by the board may be removed by the
board with or without cause.

     (b) In the event of the death,  resignation  or removal of an officer,  the
board in its  discretion  may elect or appoint a successor to fill the unexpired
term.

     (c) Any two or more  offices  may be held by the same  person,  except  the
offices of president and secretary.

     (d) The salaries of all officers shall be fixed by the board.

     (e) The directors may require any officer to give security for the faithful
performance of his duties.

3. PRESIDENT.

     The president shall be the chief executive  officer of the corporation;  he
shall  preside at all meetings of the  shareholders  and of the board;  he shall
have the  management of the business of the  corporation  and shall see that all
orders and resolutions of the board are carried into effect.

4. VICE-PRESIDENTS.

     During the absence or disability of the president,  the vice~president,  or
if there are more than one,  the  executive  vice-president,  shall have all the
powers and functions of the president.  Each  vice-president  shall perform such
other duties as the board shall prescribe.
<PAGE>
5. SECRETARY.

     The secretary shall:

     (a)  attend all meetings of the board and of the shareholders; 

     (b) record all votes and  minutes of all  proceedings  in a book to be kept
for that purpose;

     (c) give or cause to be given notice of all meetings of shareholders and of
special meetings of the board;

     (d) keep in safe  custody the seal of the  corporation  and affix it to any
instrument when authorized by the board;

     (e) when  required,  prepare or cause to be prepared and  available at each
meeting of shareholders a certified list in  alphabetical  order of the names of
shareholders  entitled to vote thereat,  indicating the number of shares of each
respective class held by each;

     (f) keep all the  documents and records of the  corporation  as required by
law or otherwise in a proper and safe manner.

     (g) perform such other duties as may be prescribed by the board.

6. ASSISTANTS-SECRETARIES.

     During the absence or disability of the secretary, the assistant-secretary,
or if there are more than one, the one so  designated by the secretary or by the
board, shall have all the powers and functions of the secretary.

7. TREASURER.

     The treasurer shall:

     (a)  have the custody of the corporate funds and securities; 

     (b) keep full and accurate  accounts of receipts and  disbursements  in the
corporate books;

     (c) deposit all money and other  valuables in the name and to the credit of
the corporation in such depositories as may be designated by the board;

     (d) disburse the funds of the  corporation  as may be ordered or authorized
by the board and preserve proper vouchers for such disbursements;

     (e) render to the president and board at the regular meetings of the board,
or whenever they require it, an account of all his transactions as treasurer and
of the financial condition of the corporation;
<PAGE>
     (f)  render  a  full  financial   report  at  the  annual  meeting  of  the
shareholders if so requested;

     (g) be furnished by all corporate officers and agents at his request,  with
such reports and  statements as he may require as to all financial  transactions
of the corporation;

     (h) perform  such other  duties as are given to him by these  by-laws or as
from time to time are assigned to him by the board or the president.

8. ASSISTANT-TREASURER.

     During the absence or disability of the treasurer, the assistant-treasurer,
or if there are more than one, the one so  designated by the secretary or by the
board, shall have all the powers and functions of the treasurer.

9. SURETIES AND BONDS.

     In case the board shall so require, any officer or agent of the corporation
shall  execute  to the  corporation  a bond in such sum and with such  surety or
sureties as the board may direct,  conditioned upon the faithful  performance of
his duties to the  corporation and including  responsibility  for negligence and
for the  accounting  for all property,  funds or  securities of the  corporation
which may come into his hands.

                       ARTICLE V - CERTIFICATES FOR SHARES
                       -----------------------------------
  
1. CERTIFICATES.

     The shares of the corporation  shall be represented by  certificates.  They
shall be  numbered  and  entered  in the  books of the  corporation  as they are
issued.  They shall exhibit the holder's name and the number of shares and shall
be  signed  by the  president  or a  vice-president  and  the  treasurer  or the
secretary and shall bear the corporate seal.

2. LOST OR DESTROYED CERTIFICATES.

     The board may  direct a new  certificate  or  certificates  to be issued in
place of any certificate or certificates  theretofore issued by the corporation,
alleged to have been lost or destroyed,  upon the making of an affidavit of that
fact by the  person  claiming  the  certificate  to be lost or  destroyed.  When
authorizing such issue of a new certificate or  certificates,  the board may, in
its discretion and as a condition precedent to the issuance thereof, require the
owner of such  lost or  destroyed  certificate  or  certificates,  or his  legal
representative,  to advertise the same in such manner as it shall require and/or
give the  corporation  a bond in such sum and with such surety or sureties as it
may  direct  as  indemnity  against  any  claim  that  may be made  against  the
corporation  with  respect  to the  certificate  alleged  to have  been  lost or
destroyed.
<PAGE>
3. TRANSFERS OF SHARES.

     (a)  Upon  surrender  to the  corporation  or  the  transfer  agent  of the
corporation  of a certificate  for shares duly endorsed or accompanied by proper
evidence of  succession,  assignment  or authority to transfer,  it shall be the
duty of the  corporation  to  issue a new  certificate  to the  person  entitled
thereto, and cancel the old certificate; every such transfer shall be entered on
the  transfer  book of the  corporation  which  shall  be kept at its  principal
office.  No  transfer  shall be made within ten days next  preceding  the annual
meeting of shareholders.

     (b) The corporation  shall be entitled to treat the holder of record of any
share as the  holder in fact  thereof  and,  accordingly,  shall not be bound to
recognize  any equitable or other claim to or interest in such share on the part
of any  other  person  whether  or not it shall  have  express  or other  notice
thereof, except as expressly provided by the laws of New York.

4. CLOSING TRANSFER BOOKS.

     The board  shall  have the power to close the share  transfer  books of the
corporation  for a period of not more than ten days during the thirty day period
immediately preceding (1) any shareholders'  meeting, or (2) any date upon which
shareholders  shall be called upon to or have a right to take  action  without a
meeting,  or (3) any date fixed for the  payment of a dividend or any other form
of distribution,  and only those shareholders of record at the time the transfer
books are closed,  shall be  recognized as such for the purpose of (1) receiving
notice of or voting at such meeting,  or (2) allowing  them to take  appropriate
action,  or (3)  entitling  them  to  receive  any  dividend  or  other  form of
distribution.

                             ARTICLE VI - DIVIDENDS
                             ----------------------

      Subject to the  provisions  of the  certificate  of  incorporation  and to
applicable law,  dividends on the  outstanding  shares of the corporation may be
declared in such  amounts and at such time or times as the board may  determine.
Before payment of any dividend, there may be set aside out of the net profits of
the corporation available for -dividends such sum or sums as the board from time
to time in its  absolute  discretion  deems  proper  as a  reserve  fund to meet
contingencies,  or for equalizing dividends, or for repairing or maintaining any
property of the corporation,  or for such other purpose as the board shall think
conducive  to the  interests  of the  corporation,  and the board may  modify or
abolish any such reserve.
<PAGE>
                          ARTICLE VII - CORPORATE SEAL
                          ----------------------------

     The seal of the corporation  shall be circular in form and bear the name of
the corporation, the year of its organization and the words "Corporate Seal, New
York.  " The seal may be used by  causing  it to be  impressed  directly  on the
instrument or writing to be sealed, or upon adhesive  substance affixed thereto.
The seal on the certificates  for shares or on any corporate  obligation for the
payment of money may be a facsimile, engraved or printed.

                     ARTICLE VIII - EXECUTION OF INSTRUMENTS
                     ---------------------------------------

     All corporate  instruments and documents shall be signed or  countersigned,
executed,  verified or  acknowledged by such officer or officers or other person
or persons as the board may from time to time designate.

                            ARTICLE IX - FISCAL YEAR
                            ------------------------

     The fiscal year shall begin the first day of January in each year.

             ARTICLE X - REFERENCES TO CERTIFICATE OF INCORPORATION
             ------------------------------------------------------
     Reference  to the  certificate  of  incorporation  in these  by-laws  shall
include all amendments thereto or changes thereof unless specifically excepted.

                           ARTICLE XI -BY-LAW CHANGES
                           --------------------------
AMENDMENT, REPEAL, ADOPTION, ELECTION OF DIRECTORS.

     (a) Except as otherwise  provided in the certificate of  incorporation  the
by-laws may be amended, repealed or adopted by vote of the holders of the shares
at the time entitled to vote in the election of any directors.  By-laws may also
be amended, repealed or adopted by the board but any by-law adopted by the board
may be amended  by the  shareholders  entitled  to vote  thereon as  hereinabove
provided.

     (b) If any by-law regulating an impending election of directors is adopted,
amended or repealed by the board,  there shall be set forth in the notice of the
next  meeting  of  shareholders  for the  election  of  directors  the by-law so
adopted,  amended or repealed,  together with a concise statement of the changes
made.
<PAGE>
                    ARTICLE XII - FIRST AMENDMENT TO BY-LAWS
                    ----------------------------------------
CERTIFICATES
- ------------
     The  shares of common  stock of the  corporation  shall be  represented  by
certificates. They shall be numbered and entered in the books of the corporation
as they are issued. They shall exhibit the holders name and the number of shares
and  shall be  signed  by the  President  or Vice  President  aid  Secretary  or
Treasurer and shall bear the corporate  seal. In lieu of signatures by the above
officers on the said stock certificates,  facsimile  signatures of the signatory
officers  may be  used  and  facsimile  corporate  seals  maybe  used  when  the
certificates are issued and counter signed by the Company's  transfer agent duly
authorized.

                           SECOND AMENDMENT TO BY-LAWS
                           ---------------------------
TRANSFER OF SHARES
- ------------------
     This amendment  amends Article V Section 3. (a) of the By-Laws and is to be
in lieu thereof.  Upon surrender to the corporation or the transfer agent of the
corporation  of a certificate  for shares duly endorsed or accompanied by proper
evidence of succession assignment or authority to transfer, it shall be the duty
of the  corporation  or the transfer  agent,  as the case may be, to issue a new
certificate to the person  entitled  thereto and to cancel the old  certificate.
Each such transfer  shall be entered on the transfer books of the transfer agent
which shall be kept at the offices of the transfer agent.


                                                            Exhibit 4.1 
NETWOLVES CORPORATION
(INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK)

NW

COMMON STOCK

SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 64120V 10 2

THIS CERTIFIES that:

is the owner of

FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.0033 PAR VALUE, OF

NETWOLVES CORPORATION

transferable  on the books of the  Corporation  in person  or by  attorney  upon
surrender of this  certificate  duly endorsed or assigned.  This certificate and
the shares  represented hereby are subject to the laws of the State of New York,
and to the Certificate of Incorporation  and By-Laws of the Corporation,  as now
or hereafter  amended.  This  certificate is not valid until  countersigned  and
registered by the Transfer Agent and Registrar.

WITNESS the facsimile seal of the  Corporation  and the facsimile  signatures of
its duly authorized officers. Dated:

SECRETARY

chairman and chief executive officer

COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(New York)
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED OFFICER
<PAGE>

The Corporation will furnish without charge to any shareholder who so requests a
full  statement  of, and the  authority  of the Board of  Directors  to fix, the
designation,  relative rights, preferences and limitations of the shares of each
class of stock, or series thereof, authorized to be issued.

The following  abbreviations,  when used in the  inscription on the face of this
certificate,  shall  be  construed  as  though  they  were  written  out in full
according to applicable laws or regulations:

TEN COM -
TEN ENT -
JT TEN -

as tenants in common
as tenants by the entireties
as joint tenants with right
of survivorship and not as tenants
in common

UNIF GIFT MIN ACT                    Custodian                     
                                 (Cust)                     (Minor)
                                 under Uniform Gifts to Minors
                                 Act                 
                                    (State)

Additional abbreviations may also be used though not in the above list.

For Value Received,                hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

Shares

of the  capital  stock  represented  by the  within  Certificate,  and do hereby
irrevocably constitute and appoint Attorney

to transfer  the said stock on the books of the within  named  Corporation  with
full power of substitution in the premises. Dated

NOTICE:

THE SIGNATURE TO THIS  ASSIGNMENT  MUST CORRESPOND WITH THE NAME AS WRITTEN UPON
THE  FACE  OF  THE  CERTIFICATE  IN  EVERY  PARTICULAR,  WITHOUT  ALTERATION  OR
ENLARGEMENT OR ANY CHANGE WHATEVER.


Signature(s) Guaranteed:

THE  SIGNATURE(S)  SHOULD BE  GUARANTEED  BY AN ELIGIBLE  GUARANTOR  INSTITUTION
(BANKS,  STOCKBROKERS,  SAVINGS  AND LOAN  ASSOCIATIONS  AND CREDIT  UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE  MEDALLION  PROGRAM),  PURSUANT TO
S.E.C. RULE 17Ad-15.

KEEP THIS  CERTIFICATE  IN A SAFE PLACE.  IF IT IS LOST,  STOLEN,  MUTILATED  OR
DESTROYED,  THE  CORPORATION  WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK  ISSUABLE UPON EXERCISE HAVE
BEEN  REGISTERED  UNDER THE SECURITIES  ACT OF 1933, AS AMENDED (THE "ACT"),  OR
UNDER ANY STATE  SECURITIES LAW. THE COMPANY WILL NOT TRANSFER THIS WARRANT,  OR
ANY  SHARES OF COMMON  SHARES  ISSUABLE  UPON  EXERCISE,  UNLESS (i) THERE IS AN
EFFECTIVE  REGISTRATION  COVERING  THIS  WARRANT  OR  SHARES  UNDER  THE ACT AND
APPLICABLE  STATE  SECURITIES  LAWS,  (ii) IT FIRST  RECEIVES AN OPINION FROM AN
ATTORNEY,  REASONABLY  ACCEPTABLE  TO THE  COMPANY,  STATING  THAT THE  PROPOSED
TRANSFER  IS EXEMPT  FROM  REGISTRATION  UNDER THE ACT AND UNDER ALL  APPLICABLE
STATE  SECURITIES  LAWS,  OR (iii) THE  TRANSFER  IS MADE  PURSUANT  TO RULE 144
PROMULGATED UNDER THE ACT.

                                                   For the Purchase of
                                                   250,001 shares of 
                                                   Common Stock
No.K010



                           WARRANT FOR THE PURCHASE OF
                             SHARES OF COMMON STOCK
                                       OF
                             WATCHDOG PATROLS, INC.


                            (A New York corporation)


     FOR VALUE RECEIVED,  Watchdog Patrols, Inc.  ("Company"),  hereby certifies
that Kirlin Holding Corp., with offices at 6901 Jericho Turnpike,  Syosset,  New
York 11791 or its registered assigns ("Registered Holder"), is entitled, subject
to the terms set forth below, to purchase from the Company,  at any time or from
time to time  including  the  five-year  period  commencing  on June 17,1998 and
expiring on June 16, 2003, 250,001 shares of Common Stock,  $.0033 par value, of
the Company  ("Common  Stock"),  at a purchase price equal $1.63.  The number of
shares of Common  Stock  purchasable  upon  exercise  of this  Warrant,  and the
purchase  price per share,  each as adjusted  from time to time  pursuant to the
provisions of this Warrant,  are hereinafter referred to as the "Warrant Shares"
and the  "Exercise  Price,"  respectively.  This  Warrant  is one of a series of
similar  accounts of like tenor that, in the  aggregate,  represent the right to
purchase 500,000 shares of Common Stock. 
<PAGE>

1.   Exercise

     1.1  Procedure  for Cash  Exercise.  This  Warrant may be  exercised by the
Registered  Holder,  in whole or in part, by the surrender of this Warrant (with
the Notice of Exercise Form  attached  hereto as Exhibit I duly executed by such
Registered  Holder) at the  principal  office of the  Company,  or at such other
office or agency as the Company may  designate,  accompanied by payment in full,
in lawful money of the United States,  of an amount equal to the then applicable
Exercise Price  multiplied by the number of Warrant Shares then being  purchased
upon such exercise.

     1.2 Procedure for Cashless Exercise. In lieu of the payment of the Exercise
Price in the manner set forth in Section 1.1, the  Registered  Holder shall have
the right (but not the  obligation)  to convert this Warrant,  in whole or part,
into  Common  Stock  ("Conversion  Right")  as  follows:  Upon  exercise  of the
Conversion  Right,  the Company shall deliver to the Registered  Holder (without
payment by the  Registered  Holder of any of the Exercise  Price) that number of
shares of Common  Stock  equal to the  quotient  obtained  by  dividing  (x) the
"Value" (as defined below) of the portion of the Warrant being  converted on the
second  trading day  immediately  preceding the date the Warrant is delivered to
the  Company  pursuant  to  Section  1.3 if the  Conversion  Right is  exercised
("Valuation Date") by (y) the "Market Price" (as defined below) on the Valuation
Date.

     The "Value" of the portion of the Warrant being  converted  shall equal the
remainder  derived from  subtracting  (a) the Exercise  Price  multiplied by the
number of shares of Common  Stock  underlying  the portion of the Warrant  being
converted from (b) the Market Price of the Common Stock multiplied by the number
of shares of Common Stock underlying the portion of the Warrant being converted.
As used herein,  the term  "Market  Price" at any date shall be deemed to be the
last reported  sale price of the Common Stock on such date,  or, in case no such
reported  sale takes place on such day,  the average of the last  reported  sale
prices for the  immediately  preceding  three  trading  days, in either case, as
reported by the national securities exchange on which the Common Stock is listed
or  admitted to  trading,  or, if the Common  Stock is not listed or admitted to
trading on any national securities exchange or if any such exchange on which the
Common  Stock is listed or  admitted  to  trading is not its  principal  trading
market, the last sale price as reported by the Nasdaq Stock Market if the Common
Stock is quoted on the Nasdaq National Market or Nasdaq SmallCap Market.  If the
Common  Stock is not listed on a national  securities  exchange or quoted on the
Nasdaq National Market or Nasdaq SmallCap Market,  but is traded in the residual
over-the-counter market, the Market Price shall mean the last sale price for the
Common Stock,  as reported by the NASD OTC Bulletin  Board if quoted on the NASD
OTC  Bulletin  Board and,  if not,  the  average of the bid and asked  prices as
published by the National Quotation Bureau,  Incorporated,  or similar publisher
of such  quotations.  If the Market Price cannot be  determined  pursuant to the
above,  the Market  Price shall be such price as the Board of  Directors  of the
Company shall determine in good faith.

     1.3 Exercise of Conversion  Right. The Conversion Right may be exercised by
the Holder on any business day by  delivering  to the Company the Warrant with a
duly  executed  Notice of Exercise  Form  attached  hereto as Exhibit I with the

<PAGE>

conversion  section completed by specifying the total number of shares of Common
Stock the Registered Holder will purchase pursuant to such conversion.

     1.4 Date of Exercise. Each exercise of this Warrant shall be deemed to have
been  effected  immediately  prior to the close of  business on the day on which
this  Warrant  shall have been  surrendered  to the Company.  At such time,  the
person or persons in whose name or names any  certificates  for  Warrant  Shares
shall be issuable upon such  exercise  shall be deemed to have become the holder
or holders of record of the Warrant Shares represented by such certificates.

     1.5 Issuance of Certificate.  As soon as practicable  after the exercise of
the purchase right represented by this Warrant,  the Company at its expense will
use its best efforts to cause to be issued in the name of, and delivered to, the
Registered Holder, or, subject to the terms and conditions hereof, to such other
individual  or  entity  as such  Holder  (upon  payment  by such  Holder  of any
applicable transfer taxes) may direct:

          (i) a  certificate  or  certificates  for the number of full shares of
Warrant  Shares to which such  Registered  Holder  shall be  entitled  upon such
exercise plus, in lieu of any fractional  share to which such Registered  Holder
would otherwise be entitled,  cash in an amount determined pursuant to Section 4
hereof, and

          (ii) in case such  exercise is in part only, a new warrant or warrants
(dated the date hereof) of like tenor,  stating on the face or faces thereof the
number of shares  currently  stated on the face of this Warrant minus the number
of such shares purchased by the Registered Holder upon such exercise as provided
in subsections 1.1 and 1.2 above.

2.   Adjustments.

     2.1 Split,  Subdivision or Combination of Shares. If the outstanding shares
of the Company's Common Stock at any time while this Warrant remains outstanding
and unexpired shall be subdivided or split into a greater number of shares, or a
dividend in Common Stock shall be paid in respect of Common Stock,  the Exercise
Price in effect  immediately  prior to such subdivision or at the record date of
such dividend shall,  simultaneously  with the effectiveness of such subdivision
or split or immediately  after the record date of such dividend (as the case may
be), shall be  proportionately  decreased.  If the outstanding  shares of Common
Stock shall be combined or  reverse-split  into a smaller number of shares,  the
Exercise Price in effect  immediately prior to such combination or reverse split
shall,  simultaneously  with the  effectiveness  of such  combination or reverse
split, be proportionately  increased. When any adjustment is required to be made
in the Exercise Price,  the number of shares of Warrant Shares  purchasable upon
the  exercise  of this  Warrant  shall be changed to the  number  determined  by
dividing (i) an amount equal to the number of shares  issuable upon the exercise
of this Warrant immediately prior to such adjustment, multiplied by the Exercise
Price in effect immediately prior to such adjustment, by (ii) the Exercise Price
in effect immediately after such adjustment.

<PAGE>

     2.2 Reclassification  Reorganization,  Consolidation or Merger. In the case
of any reclassification of the Common Stock (other than a change in par value or
a subdivision or  combination  as provided for in subsection 2.1 above),  or any
reorganization,  consolidation  or merger of the  Company  with or into  another
corporation  (other than a merger or  reorganization  with  respect to which the
Company  is  the  continuing  corporation  and  which  does  not  result  in any
reclassification of the Common Stock), or a transfer of all or substantially all
of the assets of the Company, or the payment of a liquidating distribution then,
as part of any such  reorganization,  reclassification,  consolidation,  merger,
sale or liquidating  distribution,  lawful  provision  shall be made so that the
Registered  Holder of this Warrant  shall have the right  thereafter  to receive
upon the  exercise  hereof,  the kind and  amount  of  shares  of stock or other
securities or property which such Registered  Holder would have been entitled to
receive  if,  immediately  prior to any such  reorganization,  reclassification,
consolidation,  merger,  sale or liquidating  distribution,  as the case may be,
such Registered  Holder had held the number of shares of Common Stock which were
then  purchasable  upon  the  exercise  of  this  Warrant.  In  any  such  case,
appropriate  adjustment (as  reasonably  determined by the Board of Directors of
the Company) shall be made in the application of the provisions set forth herein
with respect to the rights and interests  thereafter of the Registered Holder of
this  Warrant  such that the  provisions  set forth in this Section 2 (including
provisions with respect to the Exercise  Price) shall  thereafter be applicable,
as nearly as is  reasonably  practicable,  in relation to any shares of stock or
other  securities or property  thereafter  deliverable upon the exercise of this
Warrant.

     2.3 Price  Adjustment.  No adjustment in the per share Exercise Price shall
be required unless such adjustment  would require an increase or decrease in the
Exercise Price of at least $0.01; provided,  however, that any adjustments which
by reason of this paragraph are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section  2 shall be made to the  nearest  cent or to the  nearest  1/100th  of a
share, as the case may be.

     2.4 Price Reduction.  Notwithstanding any other provision set forth in this
Warrant,  at any time and from time to time during the period that this  Warrant
is exercisable,  the Company in it sole discretion may reduce the Exercise Price
or extend the period during which this Warrant is exercisable.

     2.5 No  Impairment.  The Company  will not, by amendment of its Articles of
Incorporation or through any reorganization,  transfer of assets, consolidation,
merger, dissolution,  issue or sale of securities or any other voluntary action,
avoid or seek to avoid the  observance or  performance of any of the terms to be
observed  or  performed  hereunder  by the Company but will at all times in good
faith assist in the carrying out of all the  provisions of this Section 2 and in
the taking of all such actions as may be necessary  or  appropriate  in order to
protect  against  impairment  of the  rights  of the  Registered  Holder of this
Warrant to adjustments in the Exercise Price.

     2.6 Notice of  Adjustment.  Upon any  adjustment  of the Exercise  Price or
extension of the Warrant  exercise  period,  the Company  shall  forthwith  give
written notice thereto to the Registered  Holder of this Warrant  describing the

<PAGE>

event  requiring the  adjustment,  stating the adjusted  Exercise  Price and the
adjusted number of shares  purchasable  upon the exercise hereof  resulting from
such event, and setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.

3.  Fractional  Shares.  The Company shall not be required to issue fractions of
shares of Common Stock upon exercise. If any fractions of a share would, but for
this Section 3, be issuable upon any exercise,  in lieu of such fractional share
the Company shall round up or down to the nearest whole number.

4.  Limitation  on Sales.  Each holder of this  Warrant  acknowledges  that this
Warrant and the  Warrant  Shares,  as of the date of  original  issuance of this
Warrant,  have not been registered  under the Securities Act of 1933, as amended
("Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or
otherwise dispose of this Warrant or any Warrant Shares issued upon its exercise
in the absence of (i) an effective  registration  statement  under the Act as to
this  Warrant or such Warrant  Shares or (ii) an opinion of counsel,  reasonably
acceptable  to the Company (the Company  hereby  agreeing  that the opinion from
Graubard  Mollen and Miller shall be  acceptable),  that such  registration  and
qualification are not required.  Unless, the Warrant Shares issued upon exercise
thereof have been registered  under the Act, the  certificates  representing the
Warrant Shares shall be imprinted with a legend in  substantially  the following
form:

"THE ISSUANCE OF THIS SECURITY HAS NOT BEEN REGISTERED  UNDER THE SECURITIES ACT
OF 1933, AS AMENDED,  OR APPLICABLE  STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER
SUCH ACT OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION  REQUIREMENTS OF SAID
ACT OR APPLICABLE  STATE  SECURITIES  LAWS,  SUPPORTED BY AN OPINION OF COUNSEL,
REASONABLY  SATISFACTORY TO THE COMPANY AND ITS COUNSEL,  THAT SUCH REGISTRATION
IS NOT REQUIRED."

5. Certain Dividends.  If the Company pays a dividend or makes a distribution on
the Common Stock ("Dividend"),  other than a stock dividend payable in shares of
Common Stock,  then the Company will pay or distribute to the Registered  Holder
of this Warrant,  upon the exercise  hereof,  in addition to the Warrant  Shares
purchased  upon such  exercise,  the Dividend which would have been paid to such
Registered  Holder if it had been the owner of  record  of such  Warrant  Shares
immediately  prior to the date on which a record is taken for such  Dividend or,
if no record is taken,  the date as of which the records holders of Common Stock
entitled to such Dividend are determined.

6.   Registration Rights.

     6.1  Obligation to Register.  Upon the written  demand of the holders of at
least 51% or more of the Warrants  and/or the underlying  shares of Common Stock
("Majority   Holders"),   the  Company  shall  file  a  registration   statement
("Registration  Statement")  under  the  Securities  Act  with  the  Commission,
registering  for resale this Warrant and the Common Stock issuable upon exercise

<PAGE>

of this  Warrant  ("Registerable  Securities").  The Company  shall use its best
efforts to file the  Registration  Statement  within 60 days after the demand by
the Majority Holders and to have it declared  effective as soon thereafter as is
practicable.

     6.2  Terms.  The  Company  shall  bear all fees and  expenses  it incurs in
connection with the preparation, filing, modifying and amending the Registration
Statement,  providing  reasonable numbers of the prospectus contained therein to
the  Holders  and  effecting  the  issuance  and  transfer  of  the  Registrable
Securities,  but the Holders shall pay any and all underwriting  commissions and
the expenses of any legal counsel  selected by the Holders to represent  them in
connection  with the sale of the Registrable  Securities.  The Company agrees to
qualify or register the Registrable  Securities in such states as are reasonably
requested  by the  Holder(s);  provided,  however,  that in no event  shall  the
Company be required to register the  Registrable  Securities in a state in which
such  registration  would cause (i) the Company to be  obligated  to register or
license to do business in such state, or (ii) the principal  stockholders of the
Company to be obligated to escrow their shares of capital  stock of the Company.
The  Company  shall  cause any  Registration  Statement  filed  pursuant to this
Section 5 to remain  effective and current until the Registrable  Securities may
be sold without any limitation under the Securities Act by the Holders thereof.

     6.3  General Terms.  

          (i) Indemnification.  The Company shall indemnify the Holder(s) of the
Registrable  Securities  to be  sold  pursuant  to  any  registration  statement
hereunder and each person,  if any, who controls such Holders within the meaning
of  Section 15 of the  Securities  Act and/or  Section  20(a) of the  Securities
Exchange Act of 1934,  as amended  ("Exchange  Act"),  against all loss,  claim,
damage, expense or liability (including all reasonable attorneys' fees and other
expenses  reasonably  incurred in investigating,  preparing or defending against
any  claim  whatsoever  incurred  by the  indemnified  party  in any  action  or
proceeding   between  the  indemnitor  and  indemnified  party  or  between  the
indemnified  party and any third  party or  otherwise)  to which any of them may
become subject under the  Securities  Act, the Exchange Act or any other statute
or at common law or otherwise under the laws of foreign countries,  arising from
such registration statement or based upon any untrue statement or alleged untrue
statement of a material fact contained in (i) any  preliminary  prospectus,  the
registration  statement or prospectus  (as from time to time each may be amended
and supplemented); (ii) in any post-effective amendment or amendments or any new
registration  statement  and  prospectus  in which is included  the  Registrable
Securities;  or (iii) any application or other document or written communication
(collectively  called  "application")  executed  by the  Company  or based  upon
written  information  furnished by the Company in any  jurisdiction  in order to
qualify the  Registrable  Securities  under the securities laws thereof or filed
with the Commission,  any state securities  commission or agency,  Nasdaq or any
securities exchange; or the omission or alleged omission therefrom of a material

<PAGE>

fact required to be stated therein or necessary to make the statements  therein,
in light of the circumstances under which they were made, not misleading, unless
such  statement or omission is made in reliance  upon,  and in conformity  with,
written  information  furnished  to the  Company  with  respect  to the  Holders
expressly  for  use  in a  preliminary  prospectus,  registration  statement  or
prospectus,  or amendment or supplement thereof,  or in any application,  as the
case  may  be.  The  Company  agrees  promptly  to  notify  the  Holder  of  the
commencement of any litigation or proceedings  against the Company or any of its
officers, directors or controlling persons in connection with the issue and sale
or resale of the Registrable  Securities or in connection with the  registration
statement or prospectus.

          (ii) Exercise of Warrants.  Nothing contained in this Warrant shall be
construed as requiring  the  Holder(s) to exercise  their  Warrants  prior to or
after the initial  filing of any  registration  statement  or the  effectiveness
thereof.

7. Notices of Record Date.  In case:  (i) the Company shall take a record of the
holders  of its  Common  Stock  (or  other  stock  or  securities  at  the  time
deliverable  upon the exercise of this  Warrant) for the purpose of entitling or
enabling them to receive any dividend or other  distribution,  or to receive any
right to  subscribe  for or  purchase  any  shares  of any  class  or any  other
securities, or to receive any other right, or (ii) of any capital reorganization
of the Company,  any  reclassification of the capital stock of the Company,  any
consolidation or merger of the Company with or into another  corporation  (other
than a consolidation or merger in which the Company is the surviving entity), or
any transfer of all or substantially all of the assets of the Company,  or (iii)
of the voluntary or  involuntary  dissolution,  liquidation or winding-up of the
Company,  then,  and in each such  case,  the  Company  will mail or cause to be
mailed to the Registered Holder of this Warrant a notice specifying, as the case
may be,  (i) the date on which a record is to be taken for the  purpose  of such
dividend,  distribution  or right,  and stating the amount and character of such
dividend,  distribution  or  right,  or (ii) the  effective  date on which  such
reorganization, reclassification,  consolidation, merger, transfer, dissolution,
liquidation or winding-up is to take place, and the time, if any is to be fixed,
as of which  the  holders  of record of  Common  Stock (or such  other  stock or
securities at the time  deliverable  upon the exercise of this Warrant) shall be
entitled  to  exchange  their  shares of Common  Stock (or such  other  stock or
securities)   for   securities   or  other   property   deliverable   upon  such
reorganization, reclassification,  consolidation, merger, transfer, dissolution,
liquidation  or  winding-up.  Such notice shall be mailed at least ten (10) days
prior to the  record  date or  effective  date for the event  specified  in such
notice,  provided  that the  failure  to mail such  notice  shall not affect the
legality or validity of any such action.

8.  Reservation  of  Stock.  The  Company  will at all  times  reserve  and keep
available,  solely for issuance and delivery  upon the exercise of this Warrant,
such shares of Common Stock and other stock,  securities  and property,  as from
time to time shall be issuable  upon the  exercise of this  Warrant.  So long as
this Warrant remains outstanding,  the Company shall maintain the listing of the
shares of Common Stock to be issued upon  exercise on each  national  securities
exchange on which  Common  Stock is listed or on the Nasdaq  Stock Market if the
Common Stock is then quoted on the Nasdaq Stock Market.

9. Replacement of Warrants.  Upon receipt of evidence reasonably satisfactory to
the Company of the loss,  theft,  destruction  or mutilation of this Warrant and
(in the case of loss,  theft  or  destruction)  upon  delivery  of an  indemnity
agreement  (with  surety  if  reasonably   required)  in  an  amount  reasonably
satisfactory to the Company,  or (in the case of mutilation)  upon surrender and
cancellation  of this Warrant,  the Company will issue,  in lieu thereof,  a new
Warrant of like tenor.

<PAGE>

10. Transfers, etc.

     10.1 Warrant Register.  The Company will maintain a register containing the
names and addresses of the  Registered  Holders of this Warrant.  Any Registered
Holder may change its,  his or her  address as shown on the warrant  register by
written notice to the Company requesting such change.

     10.2 Registered  Holder.  Until any transfer of this Warrant is made in the
warrant register, the Company may treat the Registered Holder of this Warrant as
the absolute owner hereof for all purposes;  provided, however, that if and when
this  Warrant is properly  assigned in blank,  the Company may (but shall not be
obligated  to) treat the  bearer  hereof as the  absolute  owner  hereof for all
purposes, notwithstanding any notice to the contrary.

11. No Rights as Stockholder. Until the exercise of this Warrant, the Registered
Holder of this Warrant shall not have or exercise any rights by virtue hereof as
a stockholder of the Company.

12.  Successors.  The rights and obligations of the parties to this Warrant will
inure to the  benefit  of and be  binding  upon the  parties  hereto  and  their
respective heirs,  successors,  assigns,  pledgees,  transferees and purchasers.
Without  limiting  the  foregoing,  the  registration  rights  set forth in this
Warrant  shall  inure  to the  benefit  of the  Registered  Holder  and  all the
Registered Holder's  successors,  heirs,  pledgees,  assignees,  transferees and
purchasers of this Warrant and the Warrant Shares.

13. Change or Waiver.  Any term of this Warrant may be changed or waived only by
an instrument in writing  signed by the party against which  enforcement  of the
change or waiver is sought.

14.  Headings.  The headings in this Warrant are for purposes of reference  only
and shall not limit or  otherwise  affect the meaning of any  provision  of this
Warrant.

15. Governing Law. This Warrant shall be governed by and construed in accordance
with the laws of the State of New York as such  laws are  applied  to  contracts
made and to be fully performed  entirely within that state between  residents of
that state.

16.  Jurisdiction and Venue. The Company (i) agrees that any legal suit,  action
or  proceeding  arising out of or relating to this Warrant  shall be  instituted
exclusively in New York State Supreme Court, County of New York or in the United
States  District  Court for the Southern  District of New York,  (ii) waives any
objection to the venue of any such suit,  action or proceeding  and the right to
assert  that  such  forum is not a  convenient  forum for such  suit,  action or
proceeding,  and (iii) irrevocably  consents to the jurisdiction of the New York
State Supreme Court,  County of New York,  and the United States  District Court
for the Southern  District of New York in any such suit,  action or  proceeding,
and the Company further agrees to accept and acknowledge  service or any and all
process  which may be served in any such suit,  action or proceeding in New York
State Supreme Court,  County of New York or in the United States  District Court
for the Southern District of New York and agrees that service of process upon it
mailed  by  certified  mail to its  address  shall be  deemed  in every  respect
effective service of process upon it in any suit, action or proceeding.

<PAGE>

17.  Mailing of Notices,  etc. All notices and other  communications  under this
Warrant (except payment) shall be in writing and shall be sufficiently  given if
sent to the  Registered  Holder  or the  Company,  as the case  may be,  by hand
delivery,  private overnight  courier,  with  acknowledgment  of receipt,  or by
registered or certified mail, return receipt requested, as follows:

                    Registered Holder:       To Registered Holder's address 
                                             on page 1 of this Warrant
                    Attention: [Name of Holder]

                    The Company:             To the Company's Principal 
                                             Executive Offices Attention:
                    President

In either case,     Graubard Mollen & Miller
                    with a copy to:          600 Third Avenue
                    33rd Floor
                    New York, New York 10016-2097
                    Attn: Peter M. Ziemba
                    (212) 818-8800

or to such other  address as any of them,  by notice to the others may designate
from time to time.  Time shall be counted  to, or from,  as the case may be, the
delivery  in person or by  overnight  courier  or five (5)  business  days after
mailing.


                                   WATCHDOG PATROLS, INC.


                                   By:
                                   Name: Philip LoRusso
                                   Title: Chairman

<PAGE>


                                                          EXHIBIT I

                               NOTICE OF EXERCISE


                                                  Date: ______________


TO:  Watchdog Patrols, Inc.
     35 Walt Whitman Drive
     Suite 125
     Huntington Station, New York 11743


     1. The undersigned  hereby elects to purchase  _______ shares of the Common
Stock of Watchdog Patrols,  Inc., pursuant to terms of the attached Warrant, and
tenders  herewith  payment of $________ (at the rate of $___ per share of Common
Stock) in payment of the Exercise  Price  pursuant  thereto,  together  with all
applicable transfer taxes, if any.

                                       or

     The  undersigned  hereby  elects to purchase ____ shares of Common Stock of
Watchdog Patrols,  Inc. by surrender of the unexercised  portion of the attached
Warrant (with a "Value" of $ based on a "Market Price" of $_______).

     2. Please issue a certificate or certificates  representing  said shares of
the  Common  Stock in the name of the  undersigned  or in such  other name as is
specified below:



                                        Signature of Registered Holder

                                        Print Name:


     Notice: The signature to this form must correspond with the name as written
upon the face of the within Warrant in every  particular  without  alteration or
enlargement or any change whatsoever.


                   INSTRUCTIONS FOR REGISTRATION OF SECURITIES

Name
                            (Print in Block Letters)

Address   

                                                         Exhibit 4.3

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK  ISSUABLE UPON EXERCISE HAVE
BEEN  REGISTERED  UNDER THE SECURITIES  ACT OF 1933, AS AMENDED (THE "ACT"),  OR
UNDER ANY STATE  SECURITIES LAW. THE COMPANY WILL NOT TRANSFER THIS WARRANT,  OR
ANY  SHARES OF COMMON  SHARES  ISSUABLE  UPON  EXERCISE,  UNLESS (i) THERE IS AN
EFFECTIVE  REGISTRATION  COVERING  THIS  WARRANT  OR  SHARES  UNDER  THE ACT AND
APPLICABLE  STATE  SECURITIES  LAWS,  (ii) IT FIRST  RECEIVES AN OPINION FROM AN
ATTORNEY,  REASONABLY  ACCEPTABLE  TO THE  COMPANY,  STATING  THAT THE  PROPOSED
TRANSFER  IS EXEMPT  FROM  REGISTRATION  UNDER THE ACT AND UNDER ALL  APPLICABLE
STATE  SECURITIES  LAWS,  OR (iii) THE  TRANSFER  IS MADE  PURSUANT  TO RULE 144
PROMULGATED UNDER THE ACT.

                                                  For the Purchase of
                                                  200,000 shares of
                                                  Common Stock
No. N006


                           WARRANT FOR THE PURCHASE OF
                             SHARES OF COMMON STOCK
                                       OF
                             WATCHDOG PATROLS, INC.


                            (A New York corporation)

     FOR VALUE RECEIVED,  Watchdog Patrols, Inc.  ("Company"),  hereby certifies
that Daniel G. Stephens,  Jr.  residing at 3216 W. Santiago St. No. 1, Tampa, FL
33629 ("Registered Holder"), is entitled,  subject to the terms set forth below,
to purchase from the Company, $1.63 shares of Common Stock, $.0033 par value, of
the Company  ("Common  Stock"),  at a purchase price equal $1.63.  The number of
shares of Common  Stock  purchasable  upon  exercise  of this  Warrant,  and the
purchase  price per share,  each as adjusted  from time to time  pursuant to the
provisions of this Warrant,  are hereinafter referred to as the "Warrant Shares"
and the "Exercise Price," respectively.

1.   Exercise.

     1.1  Procedure  for Cash  Exercise.  This  Warrant may be  exercised by the
Registered  Holder,  in whole or in part, by the surrender of this Warrant (with
the Notice of Exercise Form  attached  hereto as Exhibit I duly executed by such
Registered  Holder) at the  principal  office of the  Company,  or at such other
office or agency as the Company may designate,

<PAGE>


     1.2  accompanied  by payment in full, in lawful money of the United States,
of an amount  equal to the then  applicable  Exercise  Price  multiplied  by the
number of Warrant Shares then being purchased upon such exercise.

     1.3 Procedure for Cashless Exercise. In lieu of the payment of the Exercise
Price in the manner set forth in Section 1.1, the  Registered  Holder shall have
the right (but not the  obligation)  to convert this Warrant,  in whole or part,
into  Common  Stock  ("Conversion  Right")  as  follows:  Upon  exercise  of the
Conversion  Right,  the Company shall deliver to the Registered  Holder (without
payment by the  Registered  Holder of any of the Exercise  Price) that number of
shares of Common  Stock  equal to the  quotient  obtained  by  dividing  (x) the
"Value" (as defined below) of the portion of the Warrant being  converted on the
second  trading day  immediately  preceding the date the Warrant is delivered to
the  Company  pursuant  to  Section  1.3 if the  Conversion  Right is  exercised
("Valuation Date") by (y) the "Market Price" (as defined below) on the Valuation
Date.

     The "Value" of the portion of the Warrant being  converted  shall equal the
remainder  derived from  subtracting  (a) the Exercise  Price  multiplied by the
number of shares of Common  Stock  underlying  the portion of the Warrant  being
converted from (b) the Market Price of the Common Stock multiplied by the number
of shares of Common Stock underlying the portion of the Warrant being converted.
As used herein,  the term  "Market  Price" at any date shall be deemed to be the
last reported  sale price of the Common Stock on such date,  or, in case no such
reported  sale takes place on such day,  the average of the last  reported  sale
prices for the  immediately  preceding  three  trading  days, in either case, as
reported by the national securities exchange on which the Common Stock is listed
or  admitted to  trading,  or, if the Common  Stock is not listed or admitted to
trading on any national securities exchange or if any such exchange on which the
Common  Stock is listed or  admitted  to  trading is not its  principal  trading
market, the last sale price as reported by the Nasdaq Stock Market if the Common
Stock is quoted on the Nasdaq National Market or Nasdaq SmallCap Market.  If the
Common  Stock is not listed on a national  securities  exchange or quoted on the
Nasdaq National Market or Nasdaq SmallCap Market,  but is traded in the residual
over-the-counter market, the Market Price shall mean the last sale price for the
Common Stock,  as reported by the NASD OTC Bulletin  Board if quoted on the NASD
OTC  Bulletin  Board and,  if not,  the  average of the bid and asked  prices as
published by the National Quotation Bureau,  Incorporated,  or similar publisher
of such  quotations.  If the Market Price cannot be  determined  pursuant to the
above,  the Market  Price shall be such price as the Board of  Directors  of the
Company shall determine in good faith.

     1.4 Exercise of Conversion  Right. The Conversion Right may be exercised by
the Holder on any business day by  delivering  to the Company the Warrant with a
duly  executed  Notice of Exercise  Form  attached  hereto as Exhibit I with the
conversion  section completed by specifying the total number of shares of Common
Stock the Registered Holder will purchase pursuant to such conversion.

     1.5 Date of Exercise. Each exercise of this Warrant shall be deemed to have
been  effected  immediately  prior to the close of  business on the day on which
this  Warrant  shall have been  surrendered  to the Company.  At such time,  the

<PAGE>

person or persons in whose name or names any  certificates  for  Warrant  Shares
shall be issuable upon such  exercise  shall be deemed to have become the holder
or holders of record of the Warrant Shares represented by such certificates.

     1.6 Issuance of Certificate.  As soon as practicable  after the exercise of
the purchase right represented by this Warrant,  the Company at its expense will
use its best efforts to cause to be issued in the name of, and delivered to, the
Registered Holder, or, subject to the terms and conditions hereof, to such other
individual  or  entity  as such  Holder  (upon  payment  by such  Holder  of any
applicable transfer taxes) may direct:

          (i) a  certificate  or  certificates  for the number of full shares of
Warrant  Shares to which such  Registered  Holder  shall be  entitled  upon such
exercise plus, in lieu of any fractional  share to which such Registered  Holder
would otherwise be entitled,  cash in an amount determined pursuant to Section 4
hereof, and

          (ii) in case such  exercise is in part only, a new warrant or warrants
(dated the date hereof) of like tenor,  stating on the face or faces thereof the
number of shares  currently  stated on the face of this Warrant minus the number
of such shares purchased by the Registered Holder upon such exercise as provided
in subsections 1.1 and 1.2 above.

     1.7  Exercise Schedule.  Subject to Section 1.7 hereof, the Warrant may be
exercised as follows:

          (i)  up to  50,000  Warrant  Shares  may  be  purchased  if  NetWolves
Corporation,  a wholly owned subsidiary of the Company  ("NetWolves")  generates
revenues  of at least  $5,000,000,  without a loss before  provision  for income
taxes, for the twelve month period commencing July 1, 1998 ("Fiscal Year");

          (ii) up to  100,000  Warrant  Shares  may be  purchased  if  NetWolves
generates at least  $10,000,000 in revenues,  with at least $2,000,000 in income
before provisions for income taxes, within the Fiscal Year;

          (iii) up to  50,000  Warrant  Shares  may be  purchased  if  NetWolves
generates  revenue of  $10,000,000,  with at least  $1,000,000  in income before
provision for income taxes,  during the twelve month period following the Fiscal
Year; and

          (iv) if the  Warrant  Shares  described  in clause (ii) did not become
purchasable  under the condition  stated,  then such Warrant  Shares will become
purchasable  if  NetWolves  generates  $20,000,000  in  revenues,  with at least
$4,000,000 in income before provision for income taxes,  during the twelve month
period following the Fiscal Year.

     1.8  Determination  of NetWolves  Revenues.  In order to determine  whether
NetWolves  has generated the  threshold  level of revenues  ("Threshold  Level")
required pursuant to Section 1.6 hereof, for the exercise of this Warrant in any
applicable  period, the Company shall cause its accountants to perform (i) a SAS
No. 71 review of the NetWolves statement of operations if it reasonably believes
that the revenues for such period are in excess of 20% of the Threshold Level or

<PAGE>

(ii) an  audit  of the  NetWolves'  statement  of  operations  if it  reasonably
believes that the revenues for such period are in excess of the Threshold  Level
by less than 20%.  The Warrant will become  exercisable  pursuant to Section 1.6
hereof after the review or audit by the  Company's  accountants  which  confirms
that the Threshold Level has been met.

2.   Adjustments.

     2.1 Split,  Subdivision or Combination of Shares. If the outstanding shares
of the Company's Common Stock at any time while this Warrant remains outstanding
and unexpired shall be subdivided or split into a greater number of shares, or a
dividend in Common Stock shall be paid in respect of Common Stock,  the Exercise
Price in effect  immediately  prior to such subdivision or at the record date of
such dividend shall,  simultaneously  with the effectiveness of such subdivision
or split or immediately  after the record date of such dividend (as the case may
be), shall be  proportionately  decreased.  If the outstanding  shares of Common
Stock shall be combined or  reverse-split  into a smaller number of shares,  the
Exercise Price in effect  immediately prior to such combination or reverse split
shall,  simultaneously  with the  effectiveness  of such  combination or reverse
split, be proportionately  increased. When any adjustment is required to be made
in the Exercise Price,  the number of shares of Warrant Shares  purchasable upon
the  exercise  of this  Warrant  shall be changed to the  number  determined  by
dividing (i) an amount equal to the number of shares  issuable upon the exercise
of this Warrant immediately prior to such adjustment, multiplied by the Exercise
Price in effect immediately prior to such adjustment, by (ii) the Exercise Price
in effect immediately after such adjustment.

     2.2 Reclassification  Reorganization,  Consolidation or Merger. In the case
of any reclassification of the Common Stock (other than a change in par value or
a subdivision or  combination  as provided for in subsection 2.1 above),  or any
reorganization,  consolidation  or merger of the  Company  with or into  another
corporation  (other than a merger or  reorganization  with  respect to which the
Company  is  the  continuing  corporation  and  which  does  not  result  in any
reclassification of the Common Stock), or a transfer of all or substantially all
of the assets of the Company, or the payment of a liquidating distribution then,
as part of any such  reorganization,  reclassification,  consolidation,  merger,
sale or liquidating  distribution,  lawful  provision  shall be made so that the
Registered  Holder of this Warrant  shall have the right  thereafter  to receive
upon the  exercise  hereof,  the kind and  amount  of  shares  of stock or other
securities or property which such Registered  Holder would have been entitled to
receive  if,  immediately  prior to any such  reorganization,  reclassification,
consolidation,  merger,  sale or liquidating  distribution,  as the case may be,
such Registered  Holder had held the number of shares of Common Stock which were
then  purchasable  upon  the  exercise  of  this  Warrant.  In  any  such  case,
appropriate  adjustment (as  reasonably  determined by the Board of Directors of
the Company) shall be made in the application of the provisions set forth herein
with respect to the rights and interests  thereafter of the Registered Holder of
this  Warrant  such that the  provisions  set forth in this Section 2 (including
provisions with respect to the Exercise  Price) shall  thereafter be applicable,
as nearly as is  reasonably  practicable,  in relation to any shares of stock or
other  securities or property  thereafter  deliverable upon the exercise of this
Warrant.

<PAGE>

     2.3 Price  Adjustment.  No adjustment in the per share Exercise Price shall
be required unless such adjustment  would require an increase or decrease in the
Exercise Price of at least $0.01; provided,  however, that any adjustments which
by reason of this paragraph are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section  2 shall be made to the  nearest  cent or to the  nearest  1/100th  of a
share, as the case may be.

     2.4 Price Reduction.  Notwithstanding any other provision set forth in this
Warrant,  at any time and from time to time during the period that this  Warrant
is exercisable,  the Company in it sole discretion may reduce the Exercise Price
or extend the period during which this Warrant is exercisable.

     2.5 No  Impairment.  The Company  will not, by amendment of its Articles of
Incorporation or through any reorganization,  transfer of assets, consolidation,
merger, dissolution,  issue or sale of securities or any other voluntary action,
avoid or seek to avoid the  observance or  performance of any of the terms to be
observed  or  performed  hereunder  by the Company but will at all times in good
faith assist in the carrying out of all the  provisions of this Section 2 and in
the taking of all such actions as may be necessary  or  appropriate  in order to
protect  against  impairment  of the  rights  of the  Registered  Holder of this
Warrant to adjustments in the Exercise Price.

     2.6 Notice of  Adjustment.  Upon any  adjustment  of the Exercise  Price or
extension of the Warrant  exercise  period,  the Company  shall  forthwith  give
written notice thereto to the Registered  Holder of this Warrant  describing the
event  requiring the  adjustment,  stating the adjusted  Exercise  Price and the
adjusted number of shares  purchasable  upon the exercise hereof  resulting from
such event, and setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.

3.  Fractional  Shares.  The Company shall not be required to issue fractions of
shares of Common Stock upon exercise. If any fractions of a share would, but for
this Section 3, be issuable upon any exercise,  in lieu of such fractional share
the Company shall round up or down to the nearest whole number.

4.  Limitation  on Sales.  Each holder of this  Warrant  acknowledges  that this
Warrant and the  Warrant  Shares,  as of the date of  original  issuance of this
Warrant,  have not been registered  under the Securities Act of 1933, as amended
("Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or
otherwise dispose of this Warrant or any Warrant Shares issued upon its exercise
in the absence of (i) an effective  registration  statement  under the Act as to
this  Warrant or such Warrant  Shares or (ii) an opinion of counsel,  reasonably
acceptable  to the Company (the Company  hereby  agreeing  that the opinion from
Graubard  Mollen and Miller shall be  acceptable),  that such  registration  and
qualification are not required.  The Warrant Shares issued upon exercise thereof
shall be imprinted with a legend in substantially the following form:

<PAGE>

"THE ISSUANCE OF THIS SECURITY HAS NOT BEEN REGISTERED  UNDER THE SECURITIES ACT
OF 1933, AS AMENDED,  OR APPLICABLE  STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER
SUCH ACT OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION  REQUIREMENTS OF SAID
ACT OR APPLICABLE  STATE  SECURITIES  LAWS,  SUPPORTED BY AN OPINION OF COUNSEL,
REASONABLY  SATISFACTORY TO THE COMPANY AND ITS COUNSEL,  THAT SUCH REGISTRATION
IS NOT REQUIRED."

5. Certain Dividends.  If the Company pays a dividend or makes a distribution on
the Common Stock ("Dividend"),  other than a stock dividend payable in shares of
Common Stock,  then the Company will pay or distribute to the Registered  Holder
of this Warrant,  upon the exercise  hereof,  in addition to the Warrant  Shares
purchased  upon such  exercise,  the Dividend which would have been paid to such
Registered  Holder if it had been the owner of  record  of such  Warrant  Shares
immediately  prior to the date on which a record is taken for such  Dividend or,
if no record is taken,  the date as of which the records holders of Common Stock
entitled to such Dividend are determined.

6. Notices of Record Date.  In case:  (i) the Company shall take a record of the
holders  of its  Common  Stock  (or  other  stock  or  securities  at  the  time
deliverable  upon the exercise of this  Warrant) for the purpose of entitling or
enabling them to receive any dividend or other  distribution,  or to receive any
right to  subscribe  for or  purchase  any  shares  of any  class  or any  other
securities, or to receive any other right, or (ii) of any capital reorganization
of the Company,  any  reclassification of the capital stock of the Company,  any
consolidation or merger of the Company with or into another  corporation  (other
than a consolidation or merger in which the Company is the surviving entity), or
any transfer of all or substantially all of the assets of the Company,  or (iii)
of the voluntary or  involuntary  dissolution,  liquidation or winding-up of the
Company,  then,  and in each such  case,  the  Company  will mail or cause to be
mailed to the Registered Holder of this Warrant a notice specifying, as the case
may be,  (i) the date on which a record is to be taken for the  purpose  of such
dividend,  distribution  or right,  and stating the amount and character of such
dividend,  distribution  or  right,  or (ii) the  effective  date on which  such
reorganization, reclassification,  consolidation, merger, transfer, dissolution,
liquidation or winding-up is to take place, and the time, if any is to be fixed,
as of which  the  holders  of record of  Common  Stock (or such  other  stock or
securities at the time  deliverable  upon the exercise of this Warrant) shall be
entitled  to  exchange  their  shares of Common  Stock (or such  other  stock or
securities)   for   securities   or  other   property   deliverable   upon  such
reorganization, reclassification,  consolidation, merger, transfer, dissolution,
liquidation  or  winding-up.  Such notice shall be mailed at least ten (10) days
prior to the  record  date or  effective  date for the event  specified  in such
notice,  provided  that the  failure  to mail such  notice  shall not affect the
legality or validity of any such action.

7.  Reservation  of  Stock.  The  Company  will at all  times  reserve  and keep
available,  solely for issuance and delivery  upon the exercise of this Warrant,
such shares of Common Stock and other stock,  securities  and property,  as from
time to time shall be issuable  upon the  exercise of this  Warrant.  So long as
this Warrant remains outstanding,  the Company shall maintain the listing of the
shares of Common Stock to be issued upon  exercise on each  national  securities
exchange on which  Common  Stock is listed or on the Nasdaq  Stock Market if the
Common Stock is then quoted on the Nasdaq Stock Market.

<PAGE>

8. Replacement of Warrants.  Upon receipt of evidence reasonably satisfactory to
the Company of the loss,  theft,  destruction  or mutilation of this Warrant and
(in the case of loss,  theft  or  destruction)  upon  delivery  of an  indemnity
agreement  (with  surety  if  reasonably   required)  in  an  amount  reasonably
satisfactory to the Company,  or (in the case of mutilation)  upon surrender and
cancellation  of this Warrant,  the Company will issue,  in lieu thereof,  a new
Warrant of like tenor.

9. Transfers, etc.

     9.1 Warrant Register.  The Company will maintain a register  containing the
names and addresses of the  Registered  Holders of this Warrant.  Any Registered
Holder may change its,  his or her  address as shown on the warrant  register by
written notice to the Company requesting such change.

     9.2  Registered  Holder.  Until any transfer of this Warrant is made in the
warrant register, the Company may treat the Registered Holder of this Warrant as
the absolute owner hereof for all purposes;  provided, however, that if and when
this  Warrant is properly  assigned in blank,  the Company may (but shall not be
obligated  to) treat the  bearer  hereof as the  absolute  owner  hereof for all
purposes, notwithstanding any notice to the contrary.

10. No Rights as Stockholder. Until the exercise of this Warrant, the Registered
Holder of this Warrant shall not have or exercise any rights by virtue hereof as
a stockholder of the Company.

11.  Successors.  The rights and obligations of the parties to this Warrant will
inure to the  benefit  of and be  binding  upon the  parties  hereto  and  their
respective heirs,  successors,  assigns,  pledgees,  transferees and purchasers.
Without  limiting  the  foregoing,  the  registration  rights  set forth in this
Warrant  shall  inure  to the  benefit  of the  Registered  Holder  and  all the
Registered Holder's  successors,  heirs,  pledgees,  assignees,  transferees and
purchasers of this Warrant and the Warrant Shares.

12. Change or Waiver.  Any term of this Warrant may be changed or waived only by
an instrument in writing  signed by the party against which  enforcement  of the
change or waiver is sought.

13.  Headings.  The headings in this Warrant are for purposes of reference  only
and shall not limit or  otherwise  affect the meaning of any  provision  of this
Warrant.

14. Governing Law. This Warrant shall be governed by and construed in accordance
with the laws of the State of New York as such  laws are  applied  to  contracts
made and to be fully performed  entirely within that state between  residents of
that state.

<PAGE>

15.  Jurisdiction and Venue. The Company (i) agrees that any legal suit,  action
or  proceeding  arising out of or relating to this Warrant  shall be  instituted
exclusively in New York State Supreme Court, County of New York or in the United
States  District  Court for the Southern  District of New York,  (ii) waives any
objection to the venue of any such suit,  action or proceeding  and the right to
assert  that  such  forum is not a  convenient  forum for such  suit,  action or
proceeding,  and (iii) irrevocably  consents to the jurisdiction of the New York
State Supreme Court,  County of New York,  and the United States  District Court
for the Southern  District of New York in any such suit,  action or  proceeding,
and the Company further agrees to accept and acknowledge  service or any and all
process  which may be served in any such suit,  action or proceeding in New York
State Supreme Court,  County of New York or in the United States  District Court
for the Southern District of New York and agrees that service of process upon it
mailed  by  certified  mail to its  address  shall be  deemed  in every  respect
effective service of process upon it in any suit, action or proceeding.

16.  Mailing of Notices,  etc. All notices and other  communications  under this
Warrant (except payment) shall be in writing and shall be sufficiently  given if
sent to the  Registered  Holder  or the  Company,  as the case  may be,  by hand
delivery,  private overnight  courier,  with  acknowledgment  of receipt,  or by
registered or certified mail, return receipt requested, as follows:

     Registered Holder:       To Registered Holder's address on page 1 
                              of this Warrant
                              Attention: [Name of Holder]

     The Company:        To the Company's Principal Executive Offices Attention:
     President

or to such other  address as any of them,  by notice to the others may designate
from time to time.  Time shall be counted  to, or from,  as the case may be, the
delivery  in person or by  overnight  courier  or five (5)  business  days after
mailing.


                                    WATCHDOG PATROLS, INC.


                                   By:
                                   Name: 
                                   Title: 

<PAGE>


                                                          EXHIBIT I

                               NOTICE OF EXERCISE


                                                 Date: ______________


TO:  Watchdog Patrols, Inc.
     35 Walt Whitman Drive
     Suite 125
     Huntington Station, New York 11743


     1. The undersigned  hereby elects to purchase  _______ shares of the Common
Stock of Watchdog Patrols,  Inc., pursuant to terms of the attached Warrant, and
tenders  herewith  payment of $________ (at the rate of $___ per share of Common
Stock) in payment of the Exercise  Price  pursuant  thereto,  together  with all
applicable transfer taxes, if any.

                                       or

     The  undersigned  hereby  elects to purchase ____ shares of Common Stock of
Watchdog Patrols,  Inc. by surrender of the unexercised  portion of the attached
Warrant (with a "Value" of $ based on a "Market Price" of $_______).

     2. Please issue a certificate or certificates  representing  said shares of
the  Common  Stock in the name of the  undersigned  or in such  other name as is
specified below.



                                   Signature of Registered Holder

                                   Print Name:


     Notice: The signature to this form must correspond with the name as written
upon the face of the within Warrant in every  particular  without  alteration or
enlargement or any change whatsoever.


                   INSTRUCTIONS FOR REGISTRATION OF SECURITIES


Name      
                           (Print in Block Letters)

Address   

               MERGER AND REORGANIZATION AGREEMENT

<PAGE>


                        TABLE OF CONTENTS

                                                                       Page

ARTICLE I
  THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
    SECTION 1.01   Definitions . . . . . . . . . . . . . . . . . . . . . .1
    SECTION 1.02   The Merger. . . . . . . . . . . . . . . . . . . . . . .1
    SECTION 1.03   Effective Time. . . . . . . . . . . . . . . . . . . . .1
    SECTION 1.04   Effects of the Merger . . . . . . . . . . . . . . . . .2
    SECTION 1.05   Certificate of Incorporation and By-Laws. . . . . . . .2
    SECTION 1.06   Directors and Officers of the Surviving Corporation . .2
    SECTION 1.07   The Closing . . . . . . . . . . . . . . . . . . . . . .2

ARTICLE II
  CONVERSION OF INTERESTS AND RELATED MATTERS. . . . . . . . . . . . . . .2
    SECTION 2.01   Outstanding Stock of The Merger Subsidiary. . . . . . .2
    SECTION 2.02   Conversion of NetWolves Interests . . . . . . . . . . .3

ARTICLE III
  REPRESENTATIONS AND WARRANTIES OF THE MEMBERS. . . . . . . . . . . . . .3
    SECTION 3.01   Organization. . . . . . . . . . . . . . . . . . . . . .3
    SECTION 3.02   Authority . . . . . . . . . . . . . . . . . . . . . . .4
    SECTION 3.03   No Conflict; Required Filings and Consents. . . . . . .4
    SECTION 3.04   Capitalization. . . . . . . . . . . . . . . . . . . . .5
    SECTION 3.05   Licenses and Permits; Compliance with Laws. . . . . . .5
    SECTION 3.06   Financial Statements. . . . . . . . . . . . . . . . . .5
    SECTION 3.07   Real Property . . . . . . . . . . . . . . . . . . . . .6
    SECTION 3.08   Material Contracts. . . . . . . . . . . . . . . . . . .6
    SECTION 3.09   Litigation. . . . . . . . . . . . . . . . . . . . . . .7
    SECTION 3.10   Taxes, Tax Returns and Audits . . . . . . . . . . . . .7
    SECTION 3.11   Absence of Certain Changes. . . . . . . . . . . . . . .7
    SECTION 3.12   Employee Benefit Plans. . . . . . . . . . . . . . . . .8
    SECTION 3.13   Labor Relations . . . . . . . . . . . . . . . . . . . .8
    SECTION 3.14   Insurance Policies; Claims. . . . . . . . . . . . . . .8
    SECTION 3.15   Intellectual Property . . . . . . . . . . . . . . . . .8
    SECTION 3.16   Properties; Assets. . . . . . . . . . . . . . . . . . .9
    SECTION 3.17   Bank Accounts . . . . . . . . . . . . . . . . . . . . .9
    SECTION 3.18   Brokers . . . . . . . . . . . . . . . . . . . . . . . 10
    SECTION 3.19   Records . . . . . . . . . . . . . . . . . . . . . . . 10
    SECTION 3.20   No Illegal or Improper Transactions . . . . . . . . . 10
    SECTION 3.21   Disclosure. . . . . . . . . . . . . . . . . . . . . . 10
    SECTION 3.22   Environmental Matters . . . . . . . . . . . . . . . . 10
    SECTION 3.23   Year 2000 Compliance. . . . . . . . . . . . . . . . . 12
    SECTION 3.24   Investment Representations. . . . . . . . . . . . . . 12

ARTICLE IV
  REPRESENTATIONS AND WARRANTIES OF WATCHDOG . . . . . . . . . . . . . . 12
    SECTION 4.01   Organization. . . . . . . . . . . . . . . . . . . . . 12
    SECTION 4.02   Authority; Corporate Action . . . . . . . . . . . . . 13
    SECTION 4.03   No Conflict; Required Filings and Consents. . . . . . 13
    SECTION 4.05   Licenses and Permits; Compliance with Laws. . . . . . 14
    SECTION 4.06   Financial Statements. . . . . . . . . . . . . . . . . 14
    SECTION 4.07   Real Property . . . . . . . . . . . . . . . . . . . . 15
    SECTION 4.08   Material Contracts. . . . . . . . . . . . . . . . . . 15
    SECTION 4.09   Litigation. . . . . . . . . . . . . . . . . . . . . . 16
    SECTION 4.11   Absence of Certain Changes. . . . . . . . . . . . . . 17
    SECTION 4.12   Employee Benefit Plans. . . . . . . . . . . . . . . . 18
    SECTION 4.13   Labor Relations . . . . . . . . . . . . . . . . . . . 18
    SECTION 4.14   Insurance Policies; Claims. . . . . . . . . . . . . . 18
    SECTION 4.15   Intellectual Property . . . . . . . . . . . . . . . . 18
    SECTION 4.16   Properties; Assets. . . . . . . . . . . . . . . . . . 19
    SECTION 4.17   Bank Accounts . . . . . . . . . . . . . . . . . . . . 19
    SECTION 4.18   Brokers . . . . . . . . . . . . . . . . . . . . . . . 20
    SECTION 4.19   Records . . . . . . . . . . . . . . . . . . . . . . . 20
    SECTION 4.20   No Illegal or Improper Transactions . . . . . . . . . 20
    SECTION 5.01   Additional Representations, Warranties and Covenants. 20
    SECTION 5.02   Survival. . . . . . . . . . . . . . . . . . . . . . . 20

ARTICLE VI
  COVENANTS OF THE MEMBERS . . . . . . . . . . . . . . . . . . . . . . . 21
    SECTION 6.01   Conduct of Business . . . . . . . . . . . . . . . . . 21
    SECTION 6.02   Maintenance of Assets; Insurance. . . . . . . . . . . 22
    SECTION 6.03   Employment and Noncompete Agreements. . . . . . . . . 22
    SECTION 6.05   No Other Negotiations . . . . . . . . . . . . . . . . 22
    SECTION 6.06   No Securities Transactions. . . . . . . . . . . . . . 22
    SECTION 6.07   Fulfillment of Conditions . . . . . . . . . . . . . . 22
    SECTION 6.08   Disclosure of Certain Matters . . . . . . . . . . . . 23
    SECTION 6.09   Assignment of Contracts . . . . . . . . . . . . . . . 23
    SECTION 6.10   Termination of Operating Agreement. . . . . . . . . . 23

ARTICLE VII
  COVENANTS OF WATCHDOG. . . . . . . . . . . . . . . . . . . . . . . . . 24
    SECTION 8.01   Access to Information; Confidentiality. . . . . . . . 25
    SECTION 8.02   Further Action. . . . . . . . . . . . . . . . . . . . 25
    SECTION 8.03   Schedules . . . . . . . . . . . . . . . . . . . . . . 26
    SECTION 8.04   Regulatory and Other Authorizations . . . . . . . . . 26

ARTICLE IX
   CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . 26
     SECTION 9.01   Conditions to Each Party's Obligations26
     SECTION 9.02   Conditions to Obligations of NetWolves26
     SECTION 9.03   Conditions to Obligations of the Watchdog Parties27

ARTICLE X
   INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
     SECTION 10.01  Indemnification by the Members  . . . . . . . . . . . 28
     SECTION 10.02  Indemnification by Watchdog . . . . . . . . . . . . . 28
     SECTION 10.03  Notice, Etc . . . . . . . . . . . . . . . . . . . . . 29
     SECTION 10.04  Limitations . . . . . . . . . . . . . . . . . . . . . 30

ARTICLE XI
   TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30
     SECTION 11.01  Methods of Termination . . . . . . . . . . . . . . .  30
     SECTION 11.02  Effect of Termination. . . . . . . . . . . . . . . .  31

ARTICLE XII
   DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  31
     SECTION 12.01  Certain Defined Terms. . . . . . . . . . . . . . . .  31

ARTICLE XIII
   GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . .  32
     SECTION 13.01  Expenses . . . . . . . . . . . . . . . . . . . . . .  32
     SECTION 13.02  Notices. . . . . . . . . . . . . . . . . . . . . . .  33
     SECTION 13.03  Press Release; Public Announcements. . . . . . . . .  33
     SECTION 13.04  Amendment. . . . . . . . . . . . . . . . . . . . . .  34
     SECTION 13.05  Waiver . . . . . . . . . . . . . . . . . . . . . . .  34
     SECTION 13.06  Headings . . . . . . . . . . . . . . . . . . . . . .  34
     SECTION 13.07  Severability . . . . . . . . . . . . . . . . . . . .  34
     SECTION 13.08  Entire Agreement . . . . . . . . . . . . . . . . . .  34
     SECTION 13.09  Benefit; Assignment. . . . . . . . . . . . . . . . .  34
     SECTION 13.10  Governing Law; Consent to Jurisdiction. . . . . . . . 34
     SECTION 13.11  Counterparts . . . . . . . . . . . . . . . . . . . . .35

                                    SCHEDULES

     Schedule 1.06  Directors and Officers of Surviving Corporation
     Schedule 2.02  Watchdog Warrants Exercise Terms
     Schedule 3.01  States in which NetWolves is Qualified
     Schedule 3.08  NetWolves Material Contracts
     Schedule 3.14  NetWolves Insurance
     Schedule 3.15  NetWolves Intellectual Property
     Schedule 4.05  Watchdog Permits
     Schedule 4.07  Watchdog Real Property
     Schedule 4.08  Watchdog Material Contracts
     Schedule 4.14  Watchdog Insurance
     Schedule 4.15  Watchdog Intellectual Property
     Schedule 4.17  Watchdog Bank Accounts

                                    EXHIBITS

     Exhibit A      Members
     Exhibit B      Certificate of Merger
     Exhibit C      Plan of Merger
     Exhibit D      NetWolves Warrant
     Exhibit E      Employment Agreement
     Exhibit F      Kirlin Warrant
     Exhibit H      Kirlin Right of First Refusal
     Exhibit I      Kirlin Private Placement Letter Agreement
     Exhibit J      Stock Option Plan
     Exhibit K      Registration Rights Agreement
     Exhibit L      Legal Opinion of Graubard Mollen & Miller
     Exhibit M      Legal Opinion of Jerry Sellman
     Exhibit N      Press Release

<PAGE>


                       MERGER AND REORGANIZATION AGREEMENT


     MERGER AND  REORGANIZATION  AGREEMENT,  dated June 15, 1998, among WATCHDOG
PATROLS,  INC., a New York  corporation,  with offices at 33 Walt Whitman Drive,
Suite 125, Huntington Station, New York 11743 ("Watchdog"), WATCHDOG ACQUISITION
CORP., a New York corporation and wholly-owned  subsidiary of Watchdog  ("Merger
Subsidiary,  together with Watchdog, the "Watchdog Parties"), NETWOLVES, LLC, an
Ohio limited liability company, with offices at 85 E. Gay Street, Columbus, Ohio
43215  ("NetWolves")  and each of the respective  members of NetWolves listed on
Exhibit A attached  hereto  (collectively  being  referred to hereinafter as the
"Members", and together with NetWolves, the "NetWolves Parties").

     WHEREAS,   subject  to  the  terms  and   conditions  of  this  Merger  and
Reorganization  Agreement  ("Agreement"),  the Parties  desire to  consummate  a
merger, as contemplated herein, pursuant to which NetWolves shall be merged with
and into the Merger Subsidiary; and

     WHEREAS, for Federal income tax purposes,  the Parties intend, by approving
resolutions   authorizing  this  Agreement,   that  such  merger  qualify  as  a
reorganization under the provisions of Section 368 of the United States Internal
Revenue  Code of 1986,  as  amended  and the rules and  regulations  promulgated
thereunder ("Code").

     IT IS AGREED:

                                    ARTICLE I
                                   THE MERGER

     SECTION 1.01 Definitions.  Certain capitalized terms used in this Agreement
shall have the meanings specified in Article XII.

     SECTION  1.02 The  Merger.  Upon the terms and  subject  to the  conditions
hereof,  and  in  accordance  with  the  relevant  provisions  of  the  Business
Corporation  Law of the State of New York  ("NYBCL")  and the Limited  Liability
Company Act of the State of Ohio ("OLLCA"),  the Merger Subsidiary and NetWolves
shall  consummate  a merger  ("Merger")  of  NetWolves  with and into the Merger
Subsidiary at the  Effective  Time (as defined  herein) in  accordance  with the
provisions of this Agreement.  Following the Merger, the Merger Subsidiary shall
continue  as the  surviving  corporation  ("Surviving  Corporation")  and  shall
continue its existence  under the laws of the State of New York and the separate
corporate existence of NetWolves shall cease.
<PAGE>

     SECTION 1.03 Effective Time. As soon as practicable on or after the Closing
Date,  after  the  satisfaction  or  waiver  of all  conditions  to the  Merger,
NetWolves  and the Merger  Subsidiary  shall file with the  Secretary of State's
Office of the State of New York in accordance with the NYBCL an executed copy of
(i) the Certificate of Merger in the form of Exhibit B1 hereto  ("Certificate of
Merger") reflecting the Merger and providing for an amendment to the Certificate
of Incorporation of Merger Subsidiary, as the Surviving Corporation, to effect a
change in name from "Watchdog Acquisition Corp." to "NetWolves  Corporation" and
(ii) the Plan of  Merger  in the form of  Exhibit  C hereto  (together  with the
Certificate  of  Merger,  the  "Merger  Documents").   NetWolves  shall  file  a
Certificate of  Consolidation  with the Secretary of State's Office of the State
of Ohio in accordance  with the OLLCA  substantially  in the form of Exhibit B2.
The Merger shall become  effective at such time as the Merger  Documents  are so
filed with the  Secretary  of State's  Office of the State of New York,  or such
other  time as the  Merger  Subsidiary  and  NetWolves  shall  agree  should  be
specified in the Certificate of Merger ("Effective Time").

     SECTION 1.04  Effects of the Merger.  The Merger shall have the effects set
forth in Section 906 of the NYBCL.

     SECTION 1.05 Certificate of Incorporation  and By-Laws.  The Certificate of
Incorporation,  as  amended to effect the name  change  contemplated  in Section
1.03,  and the  By-Laws of the Merger  Subsidiary  shall be the  Certificate  of
Incorporation and By-Laws of the Surviving Corporation at the Effective Time.

     SECTION 1.06  Directors and Officers of the Surviving  Corporation.  At the
Effective Time, the Board of Directors and officers of the Surviving Corporation
shall consist of the persons listed in Schedule 1.06, each to serve until his or
her successor is elected and qualified.

     SECTION  1.07 The  Closing.  Subject  to the terms and  conditions  of this
Agreement,   the   consummation  of  the  Merger  and  the  other   transactions
contemplated by this Agreement  shall take place at a closing  ("Closing") to be
held at 10:00 a.m.,  local  time,  on the third  Business  Day after the date on
which the last of the  conditions  to Closing  set forth in Article IX hereof is
fulfilled or waived by the appropriate Party, as the case may be, at the offices
of Graubard Mollen & Miller,  600 Third Avenue,  New York, New York 10016, or at
such other time,  date or place as the  Parties  may agree upon in writing.  The
date on which the Closing occurs is referred to herein as the "Closing Date."

<PAGE>

                                   ARTICLE II
                   CONVERSION OF INTERESTS AND RELATED MATTERS

     SECTION 2.01 Outstanding Stock of The Merger Subsidiary.  Upon consummation
of the Merger,  each issued and  outstanding  share of the common stock,  no par
value, of the Merger Subsidiary  outstanding  immediately prior to the Effective
Time shall continue as a validly issued,  fully paid and nonassessable  share of
common stock of the Surviving  Corporation.  Each  certificate  representing any
such shares of the Merger Subsidiary shall continue to represent the same number
of shares of common stock of the Surviving Corporation.

     SECTION 2.02 Conversion of NetWolves Interests. The membership interests of
NetWolves  that  exist  immediately  prior  to the  Effective  Time  ("NetWolves
Interests") in the aggregate  shall be converted  into the right to receive,  at
the  Closing,  the  following  consideration  ("Merger  Consideration"):  (i) an
aggregate of 2,640,322 shares of Watchdog's  common stock,  $.0033 par value per
share ("Watchdog  Stock") and (ii) three-year  warrants in the form of Exhibit D
attached hereto to purchase an aggregate of 1,000,000  shares of Common Stock of
Watchdog at an exercise price of $1.63  ("Watchdog  Warrants," and together with
the  Watchdog  Stock,  the  "Watchdog  Securities"),  which  shall be  issued in
accordance  with the  allocation  set forth on Exhibit A. Each of the  NetWolves
Interests  that  exist  immediately  prior to the  Effective  Time  shall at the
Effective  Time be  automatically  canceled  and shall cease to exist,  and each
certificate previously evidencing any NetWolves Interests ("Certificates") shall
thereafter  represent the right to receive only the specified  allocation of the
Merger Consideration. The holders of Certificates shall cease to have any rights
with respect to the NetWolves Interests previously  represented thereby,  except
as otherwise provided herein or by law. Such certificates  previously evidencing
the NetWolves  Interests  shall be exchanged  for  certificates  evidencing  the
Watchdog Securities.


                                   ARTICLE III
                         REPRESENTATIONS AND WARRANTIES
                                 OF THE MEMBERS


     Each of the  Members,  jointly and  severally,  represents  and warrants to
Watchdog  and the  Merger  Subsidiary  (together,  the  "Watchdog  Parties")  as
follows:

     SECTION 3.01  Organization.  NetWolves is a limited  liability company duly
organized,  validly existing and in good standing under the laws of the State of
Ohio.  Other than its ownership of all of the  outstanding  shares of NetWolves,
Inc.,  a Florida  corporation  ("NetWolves  Florida"),  NetWolves  does not own,
directly or indirectly,  any capital stock or other  securities of any issuer or
any equity  interest in any other  entity,  including any  partnership,  limited
partnership,  limited liability  company,  business trust and any other business
entity,  and is not a party to any  agreement to acquire any such  securities or
interest.  NetWolves does not conduct any business through any entity other than

<PAGE>

itself.  NetWolves is qualified to do business in each state where the nature of
the business it conducts or the properties it owns,  leases or operates requires
it to so qualify  (which  states are listed in Schedule  3.01)  except where the
failure to so qualify  would not,  singly or in the  aggregate,  have a material
adverse  effect on the results of  operations,  financial  condition,  business,
assets or  prospects  of  NetWolves (a  "NetWolves  Material  Adverse  Effect").
NetWolves has all requisite power as a limited  liability  company to own, lease
and operate its properties  and to carry on its business as now being  conducted
and as presently contemplated by NetWolves to be conducted in the future.

     SECTION 3.02  Authority.  NetWolves  has all  necessary  power as a limited
liability  company and authority to enter into this  Agreement and to consummate
the Merger and other transactions  contemplated  hereby. All action necessary to
be taken by NetWolves as a limited liability company or the Members of NetWolves
in such capacity to authorize the  execution,  delivery and  performance of this
Agreement and all other  agreements and instruments  delivered by NetWolves (and
each of the Members) in connection with the transactions contemplated hereby has
been duly and validly taken.  Subject to the terms and conditions  hereof,  this
Agreement and all other agreements delivered in connection with the transactions
contemplated hereby constitute the valid, binding and enforceable  obligation of
NetWolves  and each of the  Members (if they are a party  thereto),  enforceable
against  NetWolves  and each of the  Members  (if they are a party  thereto)  in
accordance with their respective terms,  except as enforceability may be limited
by applicable bankruptcy,  insolvency,  reorganization,  moratorium,  fraudulent
transfer  or similar  laws of general  application  now or  hereafter  in effect
affecting  the rights and remedies of  creditors  and by general  principles  of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity).

     SECTION 3.03   No Conflict; Required Filings and Consents.

          (a) The  execution  and  delivery  of this  Agreement  (and all  other
agreements  contemplated  hereby) by each of the Members and NetWolves does not,
and the  performance  by each of the Members and NetWolves of their  obligations
under this Agreement (and all other  agreements  contemplated  hereby) will not,
(i) conflict with or violate the  organizational  documents of  NetWolves,  (ii)
conflict with or violate any law, statute,  ordinance, rule, regulation,  order,
judgment or decree  applicable to NetWolves or by which any of its properties or
assets is bound or affected,  or (iii)  result in any breach of or  constitute a
default (or an event  which with notice or lapse of time or both would  become a
default)  under,  or  give to  others  any  rights  of  termination,  amendment,
acceleration or  cancellation  of, or result in the creation of a Lien on any of
the  properties or assets of NetWolves  pursuant to, any note,  bond,  mortgage,
indenture,  contract,  agreement,  lease,  license,  permit,  franchise or other
instrument or obligation to which  NetWolves is a party or by which NetWolves or
any of its  properties  or assets is bound or affected,  except,  in the case of
clauses (ii) and (iii),  above,  for any such conflicts,  violations,  breaches,

<PAGE>

defaults or other  alterations or occurrences that would not have, either singly
or in the  aggregate,  a  NetWolves  Material  Adverse  Effect.  The  execution,
delivery and performance of the respective  Employment  Agreement of each Member
described  in Section  6.03  hereof will not result in any breach of or conflict
with any  agreement or other  instrument or  arrangement  or obligation to which
such Member is a party.

          (b) The  execution  and  delivery  of this  Agreement  (and all  other
agreements  contemplated  hereby) by each of the Members and NetWolves does not,
and the  performance of this Agreement by each of the Members and NetWolves (and
all other  agreements  contemplated  hereby)  will  not,  require  any  consent,
approval,  authorization  or permit of, or filing with or  notification  to, any
Governmental  Entity,  except for filing and  recordation of appropriate  merger
documents as required by the laws of the States of New York and Ohio.

     SECTION 3.04  Capitalization.  The Members own in the aggregate 100% of the
membership  interests of NetWolves and are the record and  beneficial  owners of
the  Interests,  free and clear of all  Liens.  There  are no other  outstanding
securities  of  NetWolves,   including,  any  options,   warrants,   convertible
securities or other contractual  rights  outstanding which require,  or give any
person  the right to  require,  the  issuance  of any  membership  interests  in
NetWolves, whether or not such rights are presently exercisable.

     SECTION  3.05  Licenses  and  Permits;  Compliance  with Laws.  No permits,
licenses  and  approvals  (collectively,  the  "Permits")  are  required  by any
Federal,  state and local  governmental  authorities to enable NetWolves to own,
lease and operate its  properties  and to carry on its  businesses  as now being
conducted.  The  business  of  NetWolves  is  being  and has been  conducted  in
compliance  with  all  applicable  laws,  statutes,   ordinances,   regulations,
judgments, orders, decrees, concessions,  grants and other authorizations of any
governmental authority.

     SECTION 3.06 Financial Statements.

          (a) NetWolves  has  delivered to Watchdog a balance sheet  ("NetWolves
Balance Sheet") of NetWolves at May 31, 1998  ("NetWolves  Balance Sheet Date").
The  NetWolves  Balance  Sheet  fairly  presents in all  material  respects  the
financial position of NetWolves as at the date thereof.

          (b) The accounts  receivable  of NetWolves  reflected on the NetWolves
Balance Sheet have arisen from bona fide transactions and are collectible in the
ordinary   course   of   NetWolves   business.   Adequate   reserves   for   the
uncollectability  of such accounts receivable have been established on the books
and records of NetWolves and are reflected on the Balance Sheet, and none of the
Members has any  knowledge  of any facts or  circumstances  (other than  general
economic  conditions)  which is likely to result in any material increase in the
uncollectability of such receivables in excess of such reserves.

<PAGE>

          (c) NetWolves has no debts,  liabilities,  commitments  or obligations
(including,  without  limitation,  unasserted  claims whether known or unknown),
whether absolute or contingent,  liquidated or unliquidated, or due or to become
due or  otherwise,  except for  liabilities  and  obligations  (a)  reflected as
liabilities on the NetWolves  Balance  Sheet,  or (b) that have arisen since the
NetWolves  Balance  Sheet Date in the ordinary  course of business of NetWolves,
not in the aggregate in excess of $40,000.

          (d) The  financial  statements  of  NetWolves  Florida  have  not been
delivered to Watchdog. Parties understand that in the event NetWolves Florida is
considered  to  be  a  predecessor  entity  by  Watchdog's  accountants  or  the
Securities and Exchange  Commission,  its financial  statements  will have to be
audited.  The Members represent that all necessary  information  required by the
accountants  in  connection  with an audit is  accessible  and such parties will
cooperate in the preparation of the NetWolves Florida financial statements.

     SECTION 3.07 Real Property. NetWolves does not lease or sublease or own any
real  property in the  operation of its business.  The Company  currently  rents
office space on a month-to-month basis at 85 E. Gay Street, Suite 801, Columbus,
Ohio 43215 at a monthly rental of $175.00.

     SECTION 3.08 Material Contracts.

          (a)  Schedule  3.08 sets  forth a  complete  and  correct  list of all
agreements of the following  types to which NetWolves is a party or may be bound
and all or any  portion  of which are  currently  in effect  (collectively,  the
"NetWolves Material Contracts"):  (i) software technology development or sharing
arrangements; (ii) employment, severance, termination, consulting and retirement
agreements;  (iii) loan agreements,  indentures,  letters of credit,  mortgages,
notes and other debt instruments;  (iv) agreements that require aggregate future
payments to or by NetWolves of more than Twenty-five Thousand Dollars ($25,000);
(v) outstanding purchase orders of NetWolves as of June 5, 1998; (vi) agreements
containing any "change of control" provisions; (vii) agreements, arrangements or
understandings  with any employee,  director or officer of NetWolves or with any
affiliate  thereof;  (viii)  agreements  prohibiting  NetWolves from engaging or
competing  in any line of  business  or limiting  such  competition;  (ix) joint
venture,  partnership  and similar  agreements;  (x)  acquisition or divestiture
agreements  relating  to the (A) sale or  purchase  of  assets or  interests  of
NetWolves  (other than sales of inventory in the ordinary course of business) or
(B) the purchase of assets or stock of any other person (other than the purchase
of inventory,  supplies or equipment in the ordinary  course of business);  (xi)
brokerage,  finder's or  financial  advisory  agreements;  (xii)  guarantees  of
indebtedness for borrowed money of any person; (xiii) customer contracts;  (xiv)
reseller and dealer agreements;  (xvi) licensing and rights arrangements for any
Intellectual  Property (as defined);  and (xv) agreements that,  individually or
together with one or more related  agreements,  are material to the  operations,

<PAGE>

financial  condition,  business,  assets or  prospects  of  NetWolves.  True and
complete copies of all NetWolves  Material  Contracts have been delivered to the
Watchdog Parties or made available for inspection.

          (b) All Material  Contracts are valid and in full force and effect and
NetWolves has not (nor does it or any Member have any  knowledge  that any other
party  thereto has) violated any provision of, or committed or failed to perform
any act which with or without notice,  lapse of time or both would  constitute a
default  under the  provisions  of, any Material  Contract,  except for defaults
which would not have,  either singly or in the aggregate,  a NetWolves  Material
Adverse Effect.

     SECTION  3.09  Litigation.  There  are  no  actions,  suits,  arbitrations,
mediations  or other  proceedings  pending  or, to the  knowledge  of any of the
Members,  threatened  against  NetWolves  at law or in equity  before any court,
Federal,  state,  municipal or other governmental  department or agency or other
tribunal.  As of the date hereof,  neither NetWolves nor its property is subject
to any order, judgment,  injunction or decree which could have, either singly or
in the aggregate,  a NetWolves Material Adverse Effect. To the knowledge of each
of the Members,  there is no reasonable  factual basis for any claims,  actions,
suits,  investigations  or  proceedings  against  NetWolves  that,  if adversely
determined against NetWolves,  would have, either singly or in the aggregate,  a
NetWolves Material Adverse Effect. No claim, action, proceeding or investigation
is pending or, to the best  knowledge of any of the Members,  threatened,  which
seeks to delay or prevent  the  consummation  of the  transactions  contemplated
hereby or would, if successful, have a material adverse effect on the ability of
any of the NetWolves Parties to consummate the transactions contemplated hereby.

     SECTION  3.10  Taxes,  Tax  Returns and  Audits.  NetWolves  commenced  its
operations  in February  1998 and has not yet been  required to make any filings
with Federal,  state, local and foreign  governmental  authorities in respect of
Taxes and will not be required to make any such filings  prior to the  Effective
Time.  NetWolves  has duly and timely  elected to be classified as a corporation
pursuant to Treasury  Regulations Sec.  301.7701-3  effective April 15, 1998 and
NetWolves  has timely  filed a properly  signed and complete  Form 8832,  Entity
Classification  Election,  with the Internal  Revenue Service Center  evidencing
such  classification  election.  In the case of Taxes  accruing on or before the
Effective Time that are not due on or before the Effective  Time,  NetWolves has
or will have  established  adequate  reserves  on its books and  records  and on
NetWolves  Balance  Sheet for such  payment.  NetWolves  has withheld  from each
payment made to any of its present or former employees,  officers,  directors or
other party all amounts  required by law to be withheld and has, where required,
remitted  such  amounts  within  the  applicable   periods  to  the  appropriate
governmental authorities.

<PAGE>

     SECTION  3.11  Absence of Certain  Changes.  NetWolves  has not,  since the
NetWolves Balance Sheet Date:

          (a) issued, delivered or agreed to issue any interests, bonds or other
corporate  securities (whether authorized and unissued or held in the treasury),
or granted or agreed to grant any options  (including  employee stock  options),
warrants or other rights for the issue thereof;

          (b)  borrowed or agreed to borrow any funds;

          (c)  incurred  any   obligation  or  liability,   absolute,   accrued,
contingent  or  otherwise,   whether  due  or  to  become  due,  except  current
liabilities  incurred in the  ordinary  course of business and  consistent  with
prior practice;

          (d)  transferred  or granted  any rights  under,  or entered  into any
settlement  regarding the breach or  infringement  of, any license or any of the
Intellectual  Property (as defined  herein) used in the businesses or operations
of NetWolves;

          (e)  declared  or made,  or agreed to declare or make,  any payment of
dividends or  distributions  of any assets of any kind  whatsoever to any of its
Members or any  affiliate  of any of its Members,  or purchased or redeemed,  or
agreed to purchase or redeem,  any of its  capital  stock,  or made or agreed to
make any payment to any of its Members or any  affiliate  of any of its Members,
whether on account of debt, management fees or otherwise; or

          (f)  suffered  any  material  adverse  change,  in any  case or in the
aggregate,  in  its  assets,  liabilities,   financial  condition,   results  of
operations or business.

     SECTION 3.12 Employee  Benefit Plans.  NetWolves does not have any employee
benefit  plans (as defined in Section  3(3) of the  Employee  Retirement  Income
Security Act of 1974, as amended ("ERISA")), programs or arrangements maintained
for the  benefit of any  current or former  employee,  officer  or  director  of
NetWolves.

     SECTION 3.13 Labor  Relations.  NetWolves is not a party to any  collective
bargaining  agreement or other contract or agreement with any labor organization
or other  representative  of any of the employees of NetWolves.  NetWolves is in
compliance in all material  respects with all laws relating to the employment or
the workplace,  including,  without  limitation,  provisions  relating to wages,
hours,  collective  bargaining,  safety and health,  work  authorization,  equal

<PAGE>

employment  opportunity,  immigration  and  the  withholding  of  income  taxes,
unemployment compensation,  worker's compensation, employee privacy and right to
know and social security contributions. There are no pending or, to knowledge of
each of the Members,  threatened proceedings or grievances with respect to labor
matters  concerning  NetWolves  which  would  have,  either  singly  or  in  the
aggregate, a NetWolves Material Adverse Effect.

     SECTION 3.14 Insurance Policies;  Claims. NetWolves does not have insurance
policies or bonds  maintained by or on behalf of NetWolves.  No claims have been
made against NetWolves as a result of allegedly  defective  products and none of
the Members or NetWolves knows of any basis for the assertion of any such claim.

     SECTION 3.15 Intellectual Property.

          (a) NetWolves  owns or possesses all right,  title and interest in and
to,  or a  valid  and  enforceable  license  or  other  right  to use all of the
Intellectual  Property (as defined below) that is material to the conduct of the
business of NetWolves and all of the rights,  benefits and privileges associated
therewith. To the knowledge of each of the Members, NetWolves has not infringed,
misappropriated  or otherwise  violated any  Intellectual  Property of any other
person.  To the knowledge of each of the Members,  no person is infringing  upon
any Intellectual Property right of NetWolves.

          (b) "Intellectual Property" means all patents, patent applications and
patent disclosures; all inventions (whether or not patentable and whether or not
reduced to practice);  all trademarks,  service marks,  trade dress, trade names
and corporate names and all the goodwill  associated  therewith;  all registered
and  unregistered  statutory  and  common  law  copyrights;  all  registrations,
applications  and renewals for any of the foregoing;  all  protocols,  codes and
operating  systems;  and all trade  secrets,  confidential  information,  ideas,
formulae,  compositions,  know-how,  manufacturing and production  processes and
techniques,  research  information,  drawings,  specifications,   design  plans,
improvements,   proposals,   technical  and  computer  data,  documentation  and
software,  financial  business and marketing plans,  customer and supplier lists
and  related  proprietary   information,   marketing  materials  and  all  other
proprietary rights. All of NetWolves Intellectual Property is listed on Schedule
3.15 hereto.

     SECTION 3.16  Properties;  Assets.  NetWolves  (a) has good and  marketable
title to all the properties  and assets  reflected on the Balance Sheet as being
owned by NetWolves  (except  properties sold or otherwise  disposed of since the
date thereof in the ordinary course of business),  and those properties acquired
after the date  thereof and not  thereafter  disposed  of, free and clear of all
Liens,  except (i) statutory liens securing  payments not yet due, and (ii) such
imperfections or  irregularities  of title,  claims,  liens,  charges,  security
interests or encumbrances which do not secure monetary  obligations and which do
not  materially  affect the use or  marketability  of the  properties  or assets
subject  thereto or affected  thereby or otherwise  materially  impair  business

<PAGE>

operations at such  properties,  and (b) is the lessee of all personal  property
reflected on the Balance Sheet as being leased by it as of the NetWolves Balance
Sheet  Date  (except  for leases  that have  expired  by their  terms  since the
NetWolves  Balance  Sheet  Date)  and  those  properties  leased  after the date
thereof.  Each such lease and each  lease  entered  into after the date  thereof
which are  material to the  businesses  of NetWolves  is valid  without  default
thereunder  by the lessee or, to the  knowledge of each of the Members,  lessor,
and NetWolves is in possession of the personal  property  purported to be leased
thereunder.  The  assets  and  properties  of  NetWolves  are in good  operating
condition and repair  (ordinary wear and tear  excepted),  and constitute all of
the assets,  rights and  properties  which are necessary for the  businesses and
operations of NetWolves.

     SECTION 3.17 Bank Accounts.  Schedule 3.17 sets forth the name of each bank
in which NetWolves has an account or safe deposit box, vault,  lock-box or other
arrangement, the account number and description of each account at each bank and
the names of all persons  authorized to draw thereon or to have access  thereto;
and the names of all  persons,  if any,  holding tax or other powers of attorney
from NetWolves.

     SECTION  3.18  Brokers.  Other  than the  warrant  being  issued  to Kirlin
Securities, Inc. ("Kirlin") or its designees as described in Section 7.02 hereof
and the  warrants  to  purchase  75,000  and  12,500  shares of Common  Stock of
Watchdog  for an  exercise  price of $2.00  per  share,  to be  issued to Howard
Habberstat  and Joseph  Ariola,  respectively,  no broker,  finder or investment
banker is entitled to any  brokerage,  finder's  or other fee or  commission  in
connection  with the  transactions  contemplated  by this  Agreement  based upon
arrangements made by or on behalf of NetWolves or any of the Members.

     SECTION 3.19 Records. The books of account and minute book of NetWolves are
complete and correct in all material  respects,  and there have been no material
transactions  involving NetWolves of the type typically recorded in such records
that have not been recorded.

     SECTION 3.20 No Illegal or Improper Transactions. Neither NetWolves nor any
officer,  director,  employee, agent or affiliate of NetWolves has offered, paid
or agreed to pay to any person or entity  (including any governmental  official)
or  solicited,  received  or agreed to receive  from any such  person or entity,
directly or  indirectly,  any money or anything of value for the purpose or with
the  intent  of (i)  obtaining  or  maintaining  business  for  the  benefit  of
NetWolves, (ii) illegally or improperly facilitating the purchase or sale of any
product or service,  or (iii) avoiding the imposition of any fine or penalty, in
any manner which is in violation of any applicable ordinance, regulation or law.

     SECTION  3.21  Disclosure.  No  representation  or  warranty by the Members
contained  in this  Agreement  and no  information  contained  in any  schedule,
financial  statement or other instrument  furnished or to be furnished by any of
the Members or NetWolves to the Watchdog  Parties  pursuant to this Agreement or

<PAGE>

in  connection  with the  transactions  contemplated  hereby,  contains  or will
contain any untrue statement of a material fact or omits or will omit to state a
material  fact  necessary in order to make the  statements  contained  herein or
therein not misleading. Any furnishing of information to the Watchdog Parties by
the  NetWolves  Parties  pursuant  to, or  otherwise in  connection  with,  this
Agreement,  including,  without  limitation,  any  information  contained in any
document,  contract,  book or record of NetWolves to which the Watchdog  Parties
shall have access or any  information  obtained  by, or made  available  to, the
Watchdog  Parties as a result of any  investigation  made by or on behalf of the
Watchdog Parties prior to or after the date of this Agreement,  shall not affect
the Watchdog Parties' right to rely on any representation, warranty, covenant or
agreement  made or deemed made by the Members in this Agreement and shall not be
deemed a waiver thereof.

     SECTION 3.22 Environmental Matters.

          (a) Except for matters  which would not have,  either singly or in the
aggregate,  a NetWolves  Material Adverse Effect, (i) NetWolves has complied and
is in compliance with all applicable Environmental Laws (as defined below); (ii)
NetWolves has not received any written communication that alleges that NetWolves
is not in compliance  with all applicable  Environmental  Laws or that NetWolves
has incurred  liability under  Environmental  Laws;  (iii) all Permits and other
governmental   authorizations  currently  held  by  NetWolves  pursuant  to  the
Environmental Laws are in full force and effect, NetWolves is in compliance with
all of the terms of such  Permits and  authorizations,  and no other  Permits or
authorizations  are  required by NetWolves  for the conduct of their  respective
businesses; (iv) the management, handling, storage,  transportation,  treatment,
and disposal by NetWolves of any Hazardous Materials (as defined below) has been
in compliance with all applicable  Environmental Laws; and (v) NetWolves has not
treated,  stored,  disposed  of,  arranged  for or  permitted  the  disposal of,
transported,  handled, or released any substance,  including without limitation,
any Hazardous  Material,  or owned or operated any property or facility (and, to
the knowledge of each of the Members and NetWolves, no such property or facility
is contaminated by any such substance), in a manner that has given or would give
rise to  liabilities,  including any liability  for response  costs,  corrective
action costs,  personal injury,  property damage,  natural resource damages,  or
attorney   fees,   pursuant  to  the   Comprehensive   Environmental   Response,
Compensation  and Liability Act of 1980,  as amended,  the Solid Waste  Disposal
Act, as amended, or any other Environmental Laws.

          (b) There is no Environmental  Claim (as defined below) pending or, to
the  knowledge of the  Members,  threatened  against or  involving  NetWolves or
against any person or entity  whose  liability  for any  material  Environmental
Claim NetWolves has or may have retained or assumed either  contractually  or by
operation of law.

<PAGE>

          (c) To the knowledge of each of the Members and  NetWolves,  there are
no past or present  actions or  activities  by NetWolves  including the storage,
treatment, release, emission, discharge, disposal or arrangement for disposal of
any  Hazardous   Materials,   that  could  reasonably  form  the  basis  of  any
Environmental  Claim  against  NetWolves  or against any person or entity  whose
liability  for any  Environmental  Claim  NetWolves may have retained or assumed
either contractually or by operation of law.

          (d) As used herein, these terms shall have the following meanings:

               (i)  "Environmental  Claim"  means  any and  all  administrative,
regulatory or judicial  actions,  suits,  demands,  demand letters,  directives,
claims,  liens,  investigations,  proceedings  or  notices of  noncompliance  or
violation  (written) by any person or governmental  authority alleging potential
liability arising out of, based on or resulting from the presence, or release or
threatened  release  into the  environment,  of any  Hazardous  Materials at any
location owned or leased by NetWolves or other  circumstances  forming the basis
of any violation or alleged violation of any Environmental Law.

               (ii) "Environmental Laws" means all applicable foreign,  Federal,
state and local  laws  (including  the  common  law),  rules,  requirements  and
regulations  relating  to  pollution,   the  environment   (including,   without
limitation,  ambient air, surface water, groundwater, land surface or subsurface
strata)  or  protection  of  human  health  as it  relates  to  the  environment
including,  without  limitation,  laws and  regulations  relating to releases of
Hazardous  Materials,  or  otherwise  relating to the  manufacture,  processing,
distribution,  use,  treatment,  storage,  disposal,  transport  or  handling of
Hazardous Materials or relating to management of asbestos in buildings.

               (iii)  "Hazardous   Materials"  means  wastes,   substances,   or
materials (whether solids,  liquids or gases) that are deemed hazardous,  toxic,
pollutants, or contaminants, including without limitation, substances defined as
"hazardous  substances," "toxic substances,"  "radioactive  materials," or other
similar   designations  in,  or  otherwise  subject  to  regulation  under,  any
Environmental Laws.

     SECTION  3.23  Year  2000  Compliance.  NetWolves  has made  every  attempt
possible  to ensure  full  year 2000  compliance  in its  manufactured  product.
NetWolves  warrants  that to the best of its  knowledge as of June 1, 1998,  its
manufactured product will suffer no loss of functionality from December 31, 1999
capabilities to those capabilities on January 1, 2000. NetWolves will make every
attempt at speedy resolution to any unforeseen functionality problems concerning
year 2000 compliance.

     SECTION 3.24  Investment  Representations.  All Watchdog  Securities  to be
acquired by the Members  pursuant to this  Agreement  will be acquired for their
accounts  and  not  with  a  view  towards  distribution  thereof.  The  Members
understand  that they  must  bear the  economic  risk of the  investment  in the
Watchdog  Securities,  which  cannot be sold by them unless they are  registered
under the Securities Act, or an exemption therefrom is available thereunder. The

<PAGE>

Members have had both the  opportunity to ask questions and receive answers from
the officers and directors of Watchdog concerning the business and operations of
Watchdog  and to  obtain  any  additional  information  to the  extent  Watchdog
possesses or may possess such information or can acquire it without unreasonable
effort or expense  necessary  to verify the  accuracy of such  information.  The
certificates  representing  the Watchdog  Securities  shall bear a legend to the
effect  that  the  Watchdog  Securities  may  not  be  transferred  except  upon
compliance  with the  registration  requirements  of the  Securities  Act (or an
exemption therefrom) and the provisions of this Agreement.

                                   ARTICLE IV
                   REPRESENTATIONS AND WARRANTIES OF WATCHDOG


     Watchdog represents and warrants to the Members as follows:

     SECTION 4.01  Organization.  Each of the Watchdog  Parties is a corporation
duly  organized,  validly  existing and in good  standing  under the laws of the
State of New  York,  the only  state in  which  it owns or  leases  property  or
maintains  offices,  employees or assets material to its business or in which it
transacts business. Watchdog has all requisite corporate power to own, lease and
operate its properties and to carry on its business.  The Merger  Subsidiary was
formed on June 10, 1998 for the sole purpose of merging with  NetWolves  and has
not  commenced  any  business  activities  other  than in  connection  with  the
execution of this Agreement.

     SECTION 4.02 Authority;  Corporate Action. Each of the Watchdog Parties has
all necessary  corporate power and authority to enter into this Agreement and to
consummate  the  transactions  contemplated  hereby and thereby.  All  corporate
action necessary to be taken by the Watchdog Parties to authorize the execution,
delivery and performance of this Agreement and all other agreements delivered by
the Watchdog Parties in connection with the transactions  contemplated hereby or
thereby has, or at the Closing will have been,  duly and validly taken.  Subject
to the terms and  conditions  hereof,  this  Agreement  constitutes  the  valid,
binding and enforceable obligations of each of the Watchdog Parties, enforceable
in  accordance  with its  terms,  except as  enforceability  may be  limited  by
applicable  bankruptcy,  insolvency,   reorganization,   moratorium,  fraudulent
transfer  or similar  laws of general  application  now or  hereafter  in effect
affecting  the rights and remedies of  creditors  and by general  principles  of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity).

<PAGE>

     SECTION 4.03   No Conflict; Required Filings and Consents.

          (a)  The  execution  and  delivery  of this  Agreement  by each of the
Watchdog  Parties do not, and the performance by each of the Watchdog Parties of
its respective  obligations  under this Agreement will not, (i) conflict with or
violate  the  Certificate  of  Incorporation,  By-laws  or other  organizational
documents of any of the Watchdog Parties, (ii) conflict with or violate any law,
statute,  ordinance,  rule, regulation,  order, judgment or decree applicable to
any of the Watchdog  Parties or by which any of their  respective  properties or
assets is bound or affected,  or (iii)  except for the Lease dated  October 1997
between Narkis Funding Company,  L.L.C. and Watchdog for the premises located at
32 Broadway, New York, New York, result in any breach of or constitute a default
(or an event which with notice or lapse of time or both would  become a default)
under, or give to others any rights of termination,  amendment,  acceleration or
cancellation of, or result in the creation of a Lien on any of the properties or
assets of any of the Watchdog  Parties  pursuant to, any note,  bond,  mortgage,
indenture,  contract,  agreement,  lease,  license,  permit,  franchise or other
instrument or  obligation to which any of the Watchdog  Parties is a party or by
which any of the  Watchdog  Parties  or any of their  respective  properties  or
assets is bound or  affected,  except,  in the case of  clauses  (ii) and (iii),
above,  for  any  such  conflicts,   violations,  breaches,  defaults  or  other
alterations  or  occurrences  that  would  not  have,  either  singly  or in the
aggregate,  a material adverse effect ("a "Watchdog Material Adverse Effect") on
the results of operations, financial condition, business or assets of Watchdog.

          (b)  The  execution  and  delivery  of this  Agreement  by each of the
Watchdog  Parties do not, and the  performance  of this Agreement by each of the
Watchdog  Parties will not,  require any  consent,  approval,  authorization  or
permit of, or filing with or notification  to, any Governmental  Entity,  except
(i) for  (a)  compliance  with  the  applicable  requirements,  if  any,  of the
Securities Act, state securities laws and state takeover laws and (b) filing and
recordation of appropriate merger documents as required by the laws of the State
of New  York and the  State of Ohio,  and (ii)  where  failure  to  obtain  such
consents,  approvals,  authorizations  or  permits,  or to make such  filings or
notifications,  would not have,  either singly or in the  aggregate,  a Watchdog
Material Adverse Effect.

          (c)  Notwithstanding  subsections (a) and (b) of this Section 4.03, it
is  understood  and  acknowledged  by the  NetWolves  Parties that the Company's
licenses from the Secretary of State of New York for the operation of a security
guard  business  may require the filing of certain  notices  with respect to the
change in the composition of the stockholders,  directors and/or officers of the
Company and approval of such  changes by the  Secretary of State of the State of
New York.

     SECTION  4.04  Capitalization.  The  authorized  capital  stock of Watchdog
consists of 10,000,000  shares of Common Stock,  $.0033 par value per share,  of
which  1,673,548  shares  are  issued  and  outstanding.  There are no  options,
warrants or other  contractual  rights  outstanding  which require,  or give any
person the right to require,  the  issuance of any  capital  stock of  Watchdog,
whether or not such rights are presently exercisable.

<PAGE>

     SECTION 4.05  Licenses and Permits;  Compliance  with Laws.  Schedule  4.05
lists all permits, licenses and approvals (collectively, the "Permits") from all
Federal, state and local governmental authorities held or required to be held by
Watchdog in  connection  with its  business.  Watchdog is in  compliance  in all
material  respects  with the  Permits  and the  business  of  Watchdog  is being
conducted in  compliance  in all material  respects  with all  applicable  laws,
statutes,  ordinances,  regulations,  judgments,  orders, decrees,  concessions,
grants and other authorizations of any governmental authority.  Neither Watchdog
nor any of its  officers,  directors and employees is in default in any material
respect  under any of such  Permits and no event has  occurred  and no condition
exists which,  with the giving of notice,  the passage of time,  or both,  would
constitute  a default  thereunder.  Neither the  execution  and delivery of this
Agreement or any of the other documents contemplated hereby nor the consummation
of the transactions contemplated hereby or thereby nor compliance by each of the
Members and Watchdog with any of the provisions hereof or thereof will result in
any suspension,  revocation,  impairment, forfeiture or nonrenewal of any Permit
except as set forth in subsection (c) of Section 4.03.

     SECTION 4.06 Financial Statements.

          (a)  Watchdog  has  delivered  to  the  NetWolves   Parties  financial
statements of Watchdog for the year ended December 31, 1997 and the three months
ended March 31, 1998 (collectively,  the "Watchdog Financial  Statements").  The
Watchdog  Financial  Statements,  including  all  related  notes  and  schedules
thereto,  fairly  present in all  material  respects the  financial  position of
Watchdog as at the  respective  dates thereof and the results of operations  and
cash flows of Watchdog for the periods  indicated in accordance  with  generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the  periods  involved  (except as may be noted  therein)  and subject to normal
year-end adjustments.

          (b) The accounts receivable of Watchdog reflected on the balance sheet
("Watchdog  Balance Sheet) as at March 31, 1998 ("Watchdog  Balance Sheet Date")
included  in the  Watchdog  Financial  Statements  have  arisen  from  bona fide
transactions  and are collectible in the ordinary  course of Watchdog  business,
and are reflected on the books and records of Watchdog in accordance  with GAAP.
Adequate reserves for the uncollectability of such accounts receivable have been
established on the books and records of Watchdog in accordance with GAAP and are
reflected on the Watchdog  Balance  Sheet,  and Watchdog has no knowledge of any
facts or circumstances  (other than general economic conditions) which is likely
to result in any material increase in the  uncollectability  of such receivables
in excess of such reserves.

<PAGE>

          (c) Watchdog has no debts,  liabilities,  commitments  or  obligations
(including,  without  limitation,  unasserted  claims whether known or unknown),
whether absolute or contingent,  liquidated or unliquidated, or due or to become
due or  otherwise,  except  for  liabilities  and  obligations  (a)  covered  by
insurance,  (b) reflected as liabilities on the Watchdog  Balance Sheet,  or (c)
that have arisen since the Watchdog Balance Sheet Date in the ordinary course of
business of Watchdog.

     SECTION 4.07 Real  Property.  Schedule  4.07  contains a true,  correct and
complete list and brief  description of all real property leased or subleased by
Watchdog and utilized or accessed by Watchdog in the  operation of its business,
all  of  which  properties  are  hereinafter  referred  to as the  "Leased  Real
Property."  Watchdog has provided to NetWolves true, correct and complete copies
of the leases of the Leased Real  Property  ("Leases")  and any  sublease to any
third party  ("Subleases").  Except as set forth in Schedule 4.07,  Watchdog has
not subleased  any Leased Real Property to others.  Watchdog is in compliance in
all material  respects  with all of the  provisions of such Leases and Subleases
and is not in default  thereunder in any material  respect.  Each such leasehold
interest (i) is valid,  subsisting and in full force and effect; and (ii) is not
subject to any Liens (other than collateral assignments of the leases granted by
the landlords thereunder to the extent permitted by the terms of such Leases and
which do not  interfere  with or detract  from  Watchdog's  use of the  property
subject to such Leases).  The  execution and delivery of this  Agreement and the
performance of the obligations  hereunder and thereunder,  will not constitute a
default under any Lease.

     SECTION 4.08 Material Contracts.

          (a)  Schedule  4.08 sets  forth a  complete  and  correct  list of all
agreements of the following  types to which  Watchdog is a party or may be bound
and all or any  portion  of which are  currently  in effect  (collectively,  the
"Watchdog  Material  Contracts"):   (i)  employment,   severance,   termination,
consulting and retirement agreements; (ii) loan agreements,  indentures, letters
of credit,  mortgages,  notes and other debt instruments;  (iii) agreements that
require  aggregate  future  payments to or by Watchdog of more than  Twenty-five
Thousand Dollars ($25,000);  (iv) agreements  containing any "change of control"
provisions;  (v) agreements,  arrangements or understandings  with any employee,
director  or officer of  Watchdog  or  affiliate  thereof;  (vi) joint  venture,
partnership and similar agreements;  (vii) acquisition or divestiture agreements
relating to the (A) sale or purchase of assets or stock of Watchdog  (other than
the  ordinary  course of business) or (B) the purchase of assets or stock of any
other person (other than in the ordinary course of business);  (viii) brokerage,
finder's or financial advisory  agreements;  (ix) guarantees of indebtedness for
borrowed money of any person; (x) customer contracts;  (xi) licensing and rights
arrangements  for any Intellectual  Property (as defined);  and (xii) agreements
that, individually or together with one or more related agreements, are material

<PAGE>

to the assets, financial condition, business or operations of Watchdog. True and
complete  copies of all Material  Contracts  have been delivered to the Watchdog
Parties or made available for inspection.

          (b) All Watchdog  Material  Contracts  are valid and in full force and
effect and Watchdog has not violated any provision of, or committed or failed to
perform  any act  which  with or  without  notice,  lapse of time or both  would
constitute a default under the  provisions of, any Watchdog  Material  Contract,
except for defaults which would not have,  either singly or in the aggregate,  a
Watchdog Material Adverse Effect.

     SECTION 4.09  Litigation.  Except for claims and costs covered by insurance
and except as set forth on Schedule  4.09 hereto,  there are no actions,  suits,
arbitrations,  mediations or other proceedings  pending or, to the knowledge of,
threatened  against  Watchdog  at law or in equity  before any  court,  Federal,
state,  municipal or other governmental  department or agency or other tribunal.
As of the date  hereof,  neither  Watchdog  nor its  property  is subject to any
order, judgment,  injunction or decree which could have, either singly or in the
aggregate,  a Watchdog  Material  Adverse Effect.  To the knowledge of Watchdog,
there  is  no  reasonable  factual  basis  for  any  claims,   actions,   suits,
investigations  or proceedings  against  Watchdog that, if adversely  determined
against  Watchdog,  would have,  either singly or in the  aggregate,  a Watchdog
Material  Adverse  Effect.  No claim,  action,  proceeding or  investigation  is
pending or, to the best knowledge of Watchdog,  threatened, which seeks to delay
or prevent the consummation of the transactions contemplated hereby or would, if
successful, have a material adverse effect on the ability of any of the Watchdog
Parties to consummate the transactions contemplated hereby.

     SECTION 4.10 Taxes,  Tax Returns and Audits.  Watchdog has (or, in the case
of returns  becoming  due after the date  hereof and on or before the  Effective
Time,  will have prior to the  Effective  Time)  prepared  and filed on a timely
basis  with all  appropriate  Federal,  state,  local and  foreign  governmental
authorities  all  returns in respect of Taxes it is required to file on or prior
to the  Effective  Time or by such  date  will  have  obtained  the  appropriate
extensions to file, and all such returns  completely and accurately  (or, in the
case of  returns  becoming  due  after  the date  hereof  and on or  before  the
Effective  Time, will completely and accurately) set forth the amount due of any
Taxes relating to the applicable  period.  Watchdog has paid (or, in the case of
Taxes  becoming due after the date hereof and on or before the  Effective  Time,
will have paid) in full all Taxes due on or before the  Effective  Time and,  in
the case of Taxes  accruing on or before the Effective  Time that are not due on
or before the Effective  Time,  Watchdog has or will have  established  adequate
reserves  on its books and  records  and  financial  statements  (including  the
Watchdog  Balance Sheet) for such payment in accordance with GAAP.  Watchdog has
withheld  from each  payment  made to any of its  present  or former  employees,
officers,  directors  or other party all amounts  required by law to be withheld

<PAGE>

and has, where required,  remitted such amounts within the applicable periods to
the  appropriate  governmental  authorities.  In  addition,,  (i)  there  are no
assessments against Watchdog with respect to Taxes that have been issued and are
outstanding;  (ii) no governmental authorities have audited or, to the knowledge
of  Watchdog,  examined  Watchdog in respect of Taxes;  (iii)  Watchdog  has not
executed or filed any agreement extending the period of assessment or collection
of any Taxes  which has not yet  expired by its  terms;  (iv)  Watchdog  has not
received written  notification from any governmental  authority of its intention
to commence any audit or investigation;  (v) Watchdog is not a party to or bound
by  or  nor  does  it  have  any  obligation   under  any  Tax  sharing  or  Tax
indemnification agreement, provision or arrangement, whether formal or informal,
and no power of attorney,  which is  currently in effect,  has been granted with
respect to any matter  relating to Taxes of Watchdog;  and (vi)  Watchdog is not
presently  required nor will it be required to include any adjustment in taxable
income under  Section 481 of the Code (or any similar  provision of the Tax laws
of any  jurisdiction)  as a result of any  change in  method  of  accounting  or
otherwise.

     SECTION  4.11  Absence  of Certain  Changes.  Watchdog  has not,  since the
Watchdog Balance Sheet Date:

          (a)  issued,  delivered  or agreed to issue any stock,  bonds or other
corporate  securities (whether authorized and unissued or held in the treasury),
or granted or agreed to grant any options  (including  employee stock  options),
warrants or other rights for the issue thereof;

          (b)  borrowed or agreed to borrow any funds;

          (c)  incurred  any   obligation  or  liability,   absolute,   accrued,
contingent  or  otherwise,   whether  due  or  to  become  due,  except  current
liabilities  incurred in the  ordinary  course of business and  consistent  with
prior practice;

          (d)  declared  or made,  or agreed to declare or make,  any payment of
dividends or  distributions  of any assets of any kind  whatsoever to any of its
stockholders  or any  affiliate  of any of its  stockholders,  or  purchased  or
redeemed,  or agreed to purchase or redeem, any of its capital stock, or made or
agreed to make any payment to any of its stockholders or any affiliate of any of
its stockholders, whether on account of debt, management fees or otherwise; or

          (e)  suffered  any  material  adverse  change,  in any  case or in the
aggregate,  in  its  assets,  liabilities,   financial  condition,   results  of
operations or business.

     SECTION  4.12  Employee  Benefit  Plans.  "Employee  Plans" means all plans
required to be disclosed on Schedule  4.12.  No Employee Plan fails to comply in
full with applicable  provisions of the Employee  Retirement Income Security Act
of 1974  ("ERISA") and  regulations  issued under ERISA,  in such a manner as to
constitute,  in the  aggregate,  a material  adverse  event.  Except as shown on
Schedule 4.12, each such plan is a "qualified"  plan under section 401(a) of the
Internal Revenue Code. Complete and correct copies of all determination  letters

<PAGE>

issued by the Internal  Revenue  Service  relating to such qualified  plans have
previously been delivered to the NetWolves  Parties.  No facts or circumstances,
including,  without limitation,  any "reportable events" as defined in ERISA and
the  regulations  promulgated  under ERISA,  exist in connection with such plans
which  constitute,  in the aggregate,  a material  adverse event, or which might
constitute  grounds for the  termination of any such plan or for the appointment
by the  appropriate  United States District Court of a trustee to administer any
such plan, nor does any such plan have any funding deficiency.

     SECTION  4.13  Labor  Relations.   Other  than  the  Collective  Bargaining
Agreement  between  Watchdog and Allied  International  Union dated September 1,
1997,  Watchdog is not a party to any collective  bargaining  agreement or other
contract or agreement with any labor organization or other representative of any
of the employees of Watchdog. Watchdog is in compliance in all material respects
with all laws relating to the  employment or the workplace,  including,  without
limitation,  provisions relating to wages, hours, collective bargaining,  safety
and health, work authorization,  equal employment  opportunity,  immigration and
the   withholding   of  income  taxes,   unemployment   compensation,   worker's
compensation,   employee   privacy  and  right  to  know  and  social   security
contributions.  There are no pending or, to knowledge  of  Watchdog,  threatened
proceedings  or  grievances  with respect to labor matters  concerning  Watchdog
which would have, either singly or in the aggregate, a Watchdog Material Adverse
Effect.

     SECTION  4.14  Insurance  Policies;  Claims.  Schedule  4.14 sets forth all
insurance  policies and bonds maintained by or on behalf of Watchdog.  Except as
disclosed  in  Schedule  4.14,  the  insurance  policies  and bonds set forth in
Schedule  4.14 are  provided  by  reputable  insurers  or  issuers,  and provide
adequate  coverage for all normal risks  incident to the  businesses of Watchdog
and its assets.  No insurance policy issued to or on behalf of Watchdog has ever
been canceled by the policy issuer.

     SECTION 4.15 Intellectual Property.

          (a) Watchdog  owns or possesses  all right,  title and interest in and
to,  or a  valid  and  enforceable  license  or  other  right  to use all of the
Intellectual  Property (as defined below) that is material to the conduct of the
business of Watchdog and all of the rights,  benefits and privileges  associated
therewith.  To the knowledge of Watchdog, it has not infringed,  misappropriated
or otherwise  violated any  Intellectual  Property of any other  person.  To the
knowledge of Watchdog,  no person is infringing upon any  Intellectual  Property
right of Watchdog.

          (b) "Intellectual Property" means all patents, patent applications and
patent disclosures; all inventions (whether or not patentable and whether or not
reduced to practice);  all trademarks,  service marks,  trade dress, trade names
and corporate names and all the goodwill  associated  therewith;  all registered

<PAGE>

and  unregistered  statutory  and  common  law  copyrights;  all  registrations,
applications  and renewals for any of the foregoing;  all  protocols,  codes and
operating  systems;  and all trade  secrets,  confidential  information,  ideas,
formulae,  compositions,  know-how,  manufacturing and production  processes and
techniques,  research  information,  drawings,  specifications,   design  plans,
improvements,   proposals,   technical  and  computer  data,  documentation  and
software,  financial  business and marketing plans,  customer and supplier lists
and  related  proprietary   information,   marketing  materials  and  all  other
proprietary rights. All of Watchdog  Intellectual Property is listed on Schedule
4.15 hereto.

     SECTION  4.16  Properties;  Assets.  Watchdog (a) has good title to all the
properties and assets  reflected on the Watchdog Balance Sheet as being owned by
Watchdog (except properties sold or otherwise disposed of since the date thereof
in the ordinary  course of business),  and those  properties  acquired after the
date thereof and not thereafter disposed of, free and clear of all Liens, except
(i) statutory liens securing  payments not yet due, and (ii) such  imperfections
or  irregularities  of title,  claims,  liens,  charges,  security  interests or
encumbrances  which  do  not  secure  monetary  obligations  and  which  do  not
materially  affect the use or  marketability of the properties or assets subject
thereto or affected thereby or otherwise  materially impair business  operations
at such properties,  and (b) is the lessee of all personal property reflected on
the Balance  Sheet as being leased by it as of the Watchdog  Balance  Sheet Date
(except for leases that have expired by their terms since the  Watchdog  Balance
Sheet Date) and those properties leased after the date thereof.  Each such lease
and each lease  entered  into after the date  thereof  which are material to the
businesses of Watchdog is valid without default  thereunder by the lessee or, to
the knowledge of Watchdog, lessor, and Watchdog is in possession of the personal
property  purported  to be leased  thereunder.  The  assets  and  properties  of
Watchdog are in good  operating  condition  and repair  (ordinary  wear and tear
excepted),  and  constitute all of the assets,  rights and properties  which are
necessary for the businesses and operations of Watchdog.

     SECTION 4.17 Bank Accounts.  Schedule 4.17 sets forth the name of each bank
in which Watchdog and the Surviving  Corporation  has an account or safe deposit
box, vault, lock-box or other arrangement, the account number and description of
each  account  at each  bank and the  names of all  persons  authorized  to draw
thereon or to have access thereto; and the names of all persons, if any, holding
tax or other powers of attorney from Watchdog and the Surviving Corporation.

     SECTION  4.18  Brokers.  Except for the warrant  being  issued to Kirlin as
described in Section  7.02 hereof,  no broker,  finder or  investment  banker is
entitled to any  brokerage,  finder's or other fee or  commission  in connection
with the transaction contemplated by this Agreement based upon arrangements made
by or on behalf of the Watchdog Parties.

<PAGE>

     SECTION 4.19 Records. The books of account, minute books, stock certificate
books and stock  transfer  ledgers of Watchdog  are  complete and correct in all
material  respects,  and there  have  been no  material  transactions  involving
Watchdog  of the type  typically  recorded  in such  records  that have not been
recorded.

     SECTION 4.20 No Illegal or Improper Transactions.  Neither Watchdog nor any
officer, director, employee, agent or affiliate of Watchdog has offered, paid or
agreed to pay to any person or entity  (including any governmental  official) or
solicited,  received  or  agreed to  receive  from any such  person  or  entity,
directly or  indirectly,  any money or anything of value for the purpose or with
the intent of (i) obtaining or maintaining business for the benefit of Watchdog,
(ii) illegally or improperly facilitating the purchase or sale of any product or
service,  or (iii) avoiding the imposition of any fine or penalty, in any manner
which is in violation of any applicable ordinance, regulation or law.


                                    ARTICLE V
     NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF THE PARTIES.

     SECTION 5.01  Additional  Representations,  Warranties and  Covenants.  All
statements contained in any schedule, document,  certificate or other instrument
delivered  by or on  behalf  of any  Party to the  other  pursuant  hereto or in
connection   with  the   transactions   contemplated   hereby  shall  be  deemed
representations,  warranties,  covenants and  agreements  made by the delivering
Party, as if made under this Agreement.

     SECTION 5.02 Survival. Each statement,  representation,  warranty, covenant
and  agreement  made or deemed  made by the  NetWolves  Parties to the  Watchdog
Parties under this  Agreement  shall remain in effect  continuously  through the
two-year  anniversary of the Effective Time and each statement,  representation,
warranty,  covenant and agreement made or deemed made by the Watchdog Parties to
the NetWolves  Parties under this Agreement shall remain in effect  continuously
through the date the security guard operations of Watchdog are sold.


                                   ARTICLE VI
                            COVENANTS OF THE MEMBERS

     SECTION 6.01 Conduct of Business. The Members covenant and agree that, from
the date hereof through the Closing Date,  except as otherwise set forth in this
Agreement, they shall cause NetWolves to:

<PAGE>

          (a) conduct its business  only in the ordinary  course and in a manner
consistent with the current  practice of such business,  preserve  substantially
intact the business  organization  of NetWolves,  keep available the services of
the current  employees  of  NetWolves,  preserve  the current  relationships  of
NetWolves with customers and other persons with which  NetWolves has significant
business  relations  and comply with all  requirements  of law, the violation of
which could have a NetWolves Material Adverse Effect;

          (b) not pledge, sell,  transfer,  dispose of, or otherwise encumber or
grant any rights or  interests to others of any kind with respect to, all or any
part of its capital stock or enter into any discussions or negotiations with any
other party to do so;

          (c)  not  pledge,  sell,  lease,  transfer,  dispose  of or  otherwise
encumber  any of its  property  or assets  of other  than  consistent  with past
practices and in the ordinary  course of business or enter into any  discussions
or negotiations with any other party to do so;

          (d) not (i) issue any interests nor any options, obligations,  rights,
warrants or other  securities  convertible  into or exchangeable for its capital
stock, or any other class of securities,  whether debt or equity,  of NetWolves;
or (ii) amend or  otherwise  modify the terms of any such  securities,  options,
obligations,  rights or warrants in a manner inconsistent with the provisions of
this Agreement or the effect of which shall be to make such terms more favorable
to the holders thereof;

          (e) not propose or adopt any amendments to its organizational doctrine
which would affect this Agreement or the transactions contemplated hereby;

          (f) not merge or consolidate with, or acquire all or substantially all
of the assets of, or otherwise acquire any business operations of, any person or
entity or enter into any agreement for any of the foregoing;

          (g) (i)  change  any of its  methods  of  accounting  in effect on the
NetWolves  Balance  Sheet  Date,  or (ii) make or rescind  any express or deemed
election  relating  to taxes,  settle or  compromise  any claim,  action,  suit,
litigation,  proceeding,   arbitration,   investigation,  audit  or  controversy
relating to taxes, except as may be required by law or GAAP;

          (h) take any action that will,  or could  reasonably  be expected  to,
result in any of its  representations and warranties set forth in this Agreement
being  inaccurate or in any of the conditions to the Merger not being satisfied;
or

          (i) agree in writing or otherwise to do any of the foregoing.


<PAGE>

     SECTION 6.02  Maintenance  of Assets;  Insurance.  The Members  shall cause
NetWolves to continue to maintain and service the assets of NetWolves consistent
with past practice.

     SECTION 6.03  Employment  and Noncompete  Agreements.  On the Closing Date,
Keith A. Darling, Kevin F. Sherlock, Daniel G. Stephens, Jr., Walter M. Groteke,
Mark Jacques,  and (in each case,  the "NetWolves  Executive")  shall each enter
into an  employment  and  noncompete  agreement  ("Employment  Agreement")  with
NetWolves substantially in the form of Exhibit E attached hereto.

     SECTION  6.04  Lock-up  Agreements.  On the Closing  Date each Member shall
enter into a lock-up  agreement  ("Lock-up  Agreement") with Watchdog and Kirlin
substantially  in the form of Exhibit F attached  hereto  pursuant to which such
Member will agree not to sell the Shares  owned by him for a period of two years
after the Closing without the consent of Kirlin.

     SECTION 6.05 No Other  Negotiations.  Unless and until this Agreement shall
have been terminated pursuant to its terms, none of the NetWolves Parties or any
of their  Representatives  shall,  directly or indirectly,  solicit,  institute,
initiate,  pursue  or  enter  into  any  inquiries,  discussions,  proposals  or
negotiations with any person concerning any merger,  sale of substantial assets,
tender offer, sale of shares of stock or similar transaction involving NetWolves
or disclose,  directly or indirectly,  any information not customarily disclosed
to the public  concerning  NetWolves,  afford to any other person  access to the
properties,  books or  records  of  NetWolves,  or  otherwise  assist any person
preparing  to make or who has made such an offer,  or enter  into any  agreement
with any third party providing for a business  combination  transaction,  equity
investment or sale of significant amount of assets of NetWolves.

     SECTION 6.06 No  Securities  Transactions.  None of the  NetWolves  Parties
shall engage in any  transactions  involving the securities of Watchdog prior to
the Closing Date, and thereafter,  any of the Members that is an employee of the
Surviving  Corporation,  shall  not  engage  in any such  transaction  except as
allowed under Watchdog's policies.

     SECTION 6.07  Fulfillment of  Conditions.  The Members shall use their best
efforts to  fulfill,  or cause to be  fulfilled,  the  conditions  specified  in
Article IX to the extent that the fulfillment of such conditions is within their
control.  The  foregoing  obligation  includes  taking or  refraining  from such
actions as may be necessary to fulfill such conditions  (including  NetWolves to
conduct  its   businesses   in  such  manner  that  on  the  Closing   Date  the
representations and warranties of the Members contained herein shall be accurate
as though then made, except as contemplated by the terms hereof).

<PAGE>

     SECTION 6.08 Disclosure of Certain Matters. During the period from the date
hereof through the Closing Date,  the NetWolves  Parties shall give the Watchdog
Parties prompt  written notice of any event or development  that occurs that (a)
had it existed or been known on the date hereof  would have been  required to be
disclosed under this Agreement,  (b) would cause any of the  representations and
warranties of any of the NetWolves  Parties contained herein to be inaccurate or
otherwise misleading,  (c) gives NetWolves any reason to believe that any of the
conditions set forth in Article IX will not be satisfied,  or (d) is of a nature
that is or may be materially  adverse to the operations,  prospects or condition
(financial or otherwise) of NetWolves.

     SECTION 6.09  Assignment of  Contracts.  The NetWolves  Parties  shall,  in
consultation  with the Watchdog Parties and their  Representatives,  immediately
take all  necessary  action to, and shall,  obtain  consents  under all Material
Contracts,  Leases and Permits and all other instruments to which NetWolves is a
party or by which it is bound  which  require  the consent of any other party or
person to the  assignment  thereof either by the terms thereof or as a matter of
law for their assumption by the Surviving Corporation in the Merger.

     SECTION 6.10 Termination of Operating Agreement.  Members hereby agree that
concurrently with the consummation of the Merger (i) each Member will deliver to
NetWolves an executed release  reflecting that there are no further  obligations
to such Member due and owing from  NetWolves  and (ii) the  NetWolves  operating
agreement dated April 15, 1998 will terminate.

     SECTION 6.11  Restriction  Against  Issuance of  Additional  Shares.  For a
period of two  years  after  the  Closing,  the  Members  will not (i) vote,  as
shareholders  of  Watchdog,  to adopt a stock  option  plan (other than the plan
described in Section  7.04  hereof) or increase the number of shares  subject to
the  proposed  stock  option plan or (ii) take any action  which would result in
additional shares of Watchdog Stock being issued to them, directly or indirectly
(other than pursuant to the exercise of the Watchdog  Warrants) or result in any
option, warrant or other security exercisable or convertible into Watchdog Stock
to be issued  directly or indirectly to them without first obtaining the consent
or affirmative vote of the holders of at least 80% of the outstanding  shares of
Common Stock of Watchdog.

     SECTION 6.12 Voting  Agreement.  Each of the Members  hereby agrees to vote
all of the shares of Common Stock of Watchdog owned by him "for" the election of
the director  designee of Kirlin pursuant to the agreement  described in Section
7.03  hereof  for a period of three  years from the  Closing  Date and "for" the
election of the two directors  designated by Greenleaf Capital Partners,  L.L.C.
("Greenleaf")  or its designee  until the two-year  anniversary of the Effective
Time, except that when the Company's security guard business is sold, the number
of such directors  that may be designated by Greenleaf  shall be reduced to one.
The initial directors designated by Greenleaf are set forth on Schedule 1.06.

<PAGE>

     SECTION 6.13 Questionnaires. The information provided in the Directors' and
Officers'   Questionnaire  and  the  Questionnaire  furnished  to  International
Business  Research,  Inc. by each Member is complete and true and correct in all
respects.


                                   ARTICLE VII
                              COVENANTS OF WATCHDOG

     SECTION 7.01  Composition of Watchdog Board and Offices At Effective  Time.
Concurrently with the consummation of the Merger,  the directors and officers of
Watchdog  and  Merger  Subsidiary  shall  resign  and  Watchdog  shall  take all
necessary  actions to ensure that at the Effective  Time, the Board of Directors
of Watchdog and the  Surviving  Corporation  is comprised of, and the offices of
Watchdog and the Surviving Corporation are occupied by, the persons set forth in
Schedule 1.06.

     SECTION 7.02 Kirlin Warrant.  On the Closing Date,  Watchdog shall issue to
Kirlin or its designees  five-year warrants to purchase 500,000 shares of Common
Stock at an exercise price of $1.63 per share ("Kirlin  Warrant")  substantially
in the form of Exhibit G attached hereto.

     SECTION 7.03 Kirlin Agreements.  On the Closing Date, Watchdog will execute
a letter,  substantially in the form of Exhibit H attached hereto, in connection
with (i) the grant to Kirlin of a three-year right of first refusal with respect
to any financings and (ii) certain other  matters.  On the Closing Date,  Kirlin
will  deliver  to  Watchdog  the letter  substantially  in the form of Exhibit I
attached hereto with respect to a private placement of shares of Common Stock of
Watchdog.

     SECTION 7.04 Stock Option Plan. On the Closing Date,  Watchdog will adopt a
stock  option  plan  substantially  in the form of  Exhibit  J  attached  hereto
providing  for the grant of options to purchase  up to 282,500  shares of Common
Stock.

     SECTION 7.05 Registration  Rights Agreement.  On the Closing Date, Watchdog
will execute the  Registration  Rights  Agreement  substantially  in the form of
Exhibit K attached hereto.

     SECTION 7.06 Disclosure of Certain Matters. During the period from the date
hereof through the Closing Date,  the Watchdog  Parties shall give the NetWolves
Parties prompt  written notice of any event or development  that occurs that (a)
had it existed or been known on the date hereof  would have been  required to be
disclosed under this Agreement,  (b) would cause any of the  representations and
warranties of any of the Watchdog  Parties  contained herein to be inaccurate or
otherwise  misleading,  (c) gives Watchdog any reason to believe that any of the
conditions set forth in Article IX will not be satisfied,  or (d) is of a nature
that is or may be materially  adverse to the operations,  prospects or condition
(financial or otherwise) of Watchdog.

<PAGE>

                                  ARTICLE VIII
                         JOINT COVENANTS OF THE PARTIES

     SECTION 8.01 Access to Information; Confidentiality.

          (a) Between the date of this  Agreement  and the  Closing  Date,  each
Party will (i) permit the other Party and its representatives  reasonable access
to all of the books, records,  reports and other related materials,  offices and
other  facilities and properties of such Party;  (ii) permit the other Party and
its  representatives  to make such  inspections  thereof as they may  reasonably
request;  and (iii)  furnish the other Party and its  representatives  with such
financial and operating  data and other  information as the other Party may from
time to time reasonably request.

          (b) Between the date of this Agreement and the Closing Date, employees
or  Representatives  of each Party may meet with and  interview all employees of
the other Party at  reasonable  times during  business  hours as may be mutually
agreed to.

          (c) Each Party shall hold and shall cause its  Representatives to hold
in strict confidence, unless compelled to disclose by judicial or administrative
process  or  by  other  requirements  of  law,  all  documents  and  information
concerning  the  other  party  furnished  to them or  their  Representatives  in
connection with the transactions  contemplated by this Agreement  (except to the
extent that such  information  can be shown to have been (i)  previously  known,
(ii) in the public  domain  through no fault of any of such Party or (iii) later
lawfully  acquired  by the other  Party  from  another  source,  and,  except as
otherwise  required by applicable  law, rule or regulation,  none of the Parties
shall  release or disclose  such  information  to any other  person,  except its
auditors,   actuaries,   attorneys,   financial  advisors,   bankers  and  other
consultants  and  advisors  who  need  to  know  same in  connection  with  this
Agreement.

     SECTION  8.02  Further  Action.  Each of the  Parties  shall  execute  such
documents  and other papers and take such further  actions as may be  reasonably
required or desirable to carry out the  provisions  hereof and the  transactions
contemplated  hereby.  Upon the terms and subject to the conditions hereof, each
of the Parties  shall use its best  efforts to take,  or cause to be taken,  all
actions and to do, or cause to be done,  all other things  necessary,  proper or
advisable  to  consummate  and make  effective  as promptly as  practicable  the
transactions contemplated by this Agreement.

<PAGE>

     SECTION 8.03 Schedules. The Parties shall have the obligation to supplement
or amend the Schedules being delivered  concurrently  with the execution of this
Agreement  and annexed  hereto with respect to any matter  hereafter  arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules.  The obligations of
the Parties to amend or supplement the Schedules being delivered  herewith shall
terminate  on  the  Closing  Date.   Notwithstanding   any  such   amendment  or
supplementation, the representations and warranties of the Parties shall be made
with  reference to the  Schedules as they exist at the time of execution of this
Agreement.

     SECTION 8.04 Regulatory and Other Authorizations. The Parties will promptly
make  all   necessary   filings  and  use  their  best  efforts  to  obtain  all
authorizations,  consents,  orders and approvals of all Federal, state and other
regulatory  bodies and officials that are required for the  consummation  of the
transactions contemplated by this Agreement.


                                   ARTICLE IX
                             CONDITIONS TO CLOSING

     SECTION  9.01  Conditions  to  Each  Party's  Obligations.  The  respective
obligations  of each Party to consummate  the Merger and the other  transactions
contemplated  by this Agreement  shall be subject to the fulfillment at or prior
to the Closing Date of the following conditions:

          (a) Directors and Officers of Watchdog and the Surviving  Corporation.
The  persons  listed in Schedule  1.06 shall have been  appointed  directors  or
elected officers,  for Watchdog and the Surviving  Corporation,  as the case may
be;

          (b) No Governmental Order or Regulation.  There shall not be in effect
any order, decree or injunction (whether preliminary,  final or appealable) of a
United  States  Federal  or  state  court  of  competent  jurisdiction,  and  no
regulation shall have been enacted or promulgated by any governmental  authority
or agency, that prohibits consummation of the Merger.

     SECTION 9.02 Conditions to Obligations of NetWolves. The obligations of the
Members  and  NetWolves  to  consummate  the Merger  and the other  transactions
contemplated by this Agreement shall be subject to the fulfillment,  at or prior
to the Closing, of each of the following conditions:

          (a) Representations and Warranties; Covenants. The representations and
warranties of the Watchdog Parties contained in this Agreement shall be true and


<PAGE>

correct as of the  Closing,  with the same force and effect as if made as of the
Closing,  and all the covenants  contained in this Agreement to be complied with
by the Watchdog  Parties on or before the Closing Date shall have been  complied
with,  and the Members shall have received a certificate  of the officers of the
Watchdog Parties to such effect;

          (b) Legal  Opinion.  The Members  shall have  received  from  Graubard
Mollen & Miller,  counsel to the Watchdog Parties,  a legal opinion addressed to
the Members and dated the Closing Date, in the form of Exhibit L hereto;

          (c) Necessary Proceedings. All proceedings, corporate or otherwise, to
be taken by the Watchdog  Parties in  connection  with the  consummation  of the
transactions  contemplated  by this  Agreement  shall have been duly and validly
taken,  and  copies of all  documents,  resolutions  and  certificates  incident
thereto,  duly certified by officers of the Watchdog  Parties as of the Closing,
shall have been delivered to the Members;

          (d) No  Adverse  Change.  At the  Closing,  there  shall  have been no
material  adverse  change in the assets,  liabilities,  financial  condition  or
business of Watchdog  from that shown or  reflected  in the  Watchdog  Financial
Statements  as of March 31,  1998.  Between the date of this  Agreement  and the
Closing Date,  there shall not have occurred an event which,  in the  reasonable
opinion of NetWolves,  materially and adversely  affects or could  reasonably be
expected to constitute a Watchdog Material Adverse Effect; and

          (e) Other  Agreements.  The  Watchdog  Subsidiary  shall  execute  and
deliver the  Employment  Agreements  and Watchdog  shall  execute the  NetWolves
Warrant.

     SECTION  9.03  Conditions  to  Obligations  of the  Watchdog  Parties.  The
obligations  of the  Watchdog  Parties  to  consummate  the Merger and the other
transactions contemplated by this Agreement shall be subject to the fulfillment,
at or prior to the Closing, of each of the following conditions:

          (a) Representations and Warranties; Covenants. The representations and
warranties of the Members  contained in this Agreement shall be true and correct
as of the Closing,  with the same force and effect as if made as of the Closing,
and all the covenants and agreements  contained in this Agreement to be complied
with by any of the  NetWolves  Parties on or before the Closing  Date shall have
been complied with,  and the Watchdog  Parties shall have received a certificate
of the Members to such effect;

          (b) Legal Opinion. The Watchdog Parties shall have received from Jerry
Sellman,  general counsel to NetWolves,  legal opinion addressed to the Watchdog
Parties dated the Closing Date, in the form of Exhibit M annexed hereto;

<PAGE>

          (c)  Consents.  The Members  shall have  obtained and delivered to the
Watchdog  Parties  consents  to  the  Merger  of  all  third  parties  as may be
necessary;

          (d) No  Adverse  Change.  At the  Closing,  there  shall  have been no
material  adverse  change in the assets,  liabilities,  financial  condition  or
business of NetWolves  from that shown or reflected in the  NetWolves  Financial
Statements  as of March 31,  1998.  Between the date of this  Agreement  and the
Closing Date,  there shall not have occurred an event which,  in the  reasonable
opinion of Watchdog,  materially  and adversely  affects or could  reasonably be
expected to constitute a NetWolves Material Adverse Effect.

          (e) Necessary Proceedings. All proceedings, corporate or otherwise, to
be taken by the NetWolves  Parties in connection  with the  consummation  of the
transactions  contemplated  by this  Agreement  shall have been duly and validly
taken,  and  copies of all  documents,  resolutions  and  certificates  incident
thereto,  duly  certified by the officers of NetWolves as of the Closing,  shall
have been delivered to the Watchdog Parties;

          (f) Other  Agreements.  The  Members  shall  execute  and  deliver the
Employment Agreements and the Lock-up Agreements.  The Kirlin Warrant and Letter
Agreements and the Registration Rights Agreement shall have been executed.


                                    ARTICLE X
                                 INDEMNIFICATION

     SECTION 10.01  Indemnification  by the Members.  Subject to the limitations
set forth in Section 10.04, the Members shall severally,  in proportion of their
ownership of the NetWolves  Interests,  indemnify and hold harmless Watchdog and
the Surviving Corporation from and against, and shall reimburse Watchdog and the
Surviving  Corporation  for,  any Damages  which may be  sustained,  suffered or
incurred by them, whether as a result of any Third Party Claim or otherwise, and
which arise from or in connection with or are  attributable to (i) the breach of
any  of  the  Member's  covenants,   representations,   warranties,  agreements,
obligations or  undertakings  contained in this Agreement or (ii) the operations
of NetWolves  through the Closing Date. This indemnity shall survive the Closing
until the two-year anniversary of the Effective Time.

     SECTION 10.02  Indemnification by Watchdog.  Subject to the limitations set
forth in Section 10.04,  Watchdog shall  indemnify and hold harmless the Members

<PAGE>

from and against,  and shall reimburse the Members for, any Damages which may be
sustained,  suffered or incurred  by the  Members,  whether as a result of Third
Party Claims or otherwise,  and which arise or result from or in connection with
or are  attributable  to the breach of any of the  Watchdog  Parties  covenants,
representations,  warranties,  agreements, obligations or undertakings contained
in this Agreement. This indemnity shall survive the Closing.

     SECTION  10.03  Notice,  Etc. A Party  required to make an  indemnification
payment  pursuant  to  this  Agreement  ("Indemnifying  Party")  shall  have  no
liability  with respect to Third Party  Claims or otherwise  with respect to any
covenant,  representation,  warranty, agreement, undertaking or obligation under
this Agreement unless the Party entitled to receive such indemnification payment
("Indemnified  Party") gives notice to the Indemnifying Party specifying (i) the
covenant,  representation  or warranty,  agreement,  undertaking  or  obligation
contained herein which it asserts has been breached,  (ii) in reasonable detail,
the nature and dollar amount of any Claim the Indemnified Party may have against
the Indemnifying Party by reason thereof under this Agreement, and (iii) whether
or not the Claim is a Third Party  Claim.  All Claims by any  Indemnified  Party
under this Article X shall be asserted and resolved as follows:

          (a) Third-Party Claims. In the event that an Indemnified Party becomes
aware of a Third Party Claim for which an Indemnifying  Party would be liable to
an Indemnified  Party  hereunder,  the  Indemnified  Party shall with reasonable
promptness notify in writing the Indemnifying  Party of such Claim,  identifying
the basis for such  Claim or  demand,  and the  amount or the  estimated  amount
thereof to the extent then determinable  (which estimate shall not be conclusive
of the final  amount of such Claim and demand;  the "Claim  Notice");  provided,
however,  that any failure to give such Claim Notice will not be deemed a waiver
of any rights of the  Indemnified  Party  except to the extent the rights of the
Indemnifying  Party are actually  prejudiced by such failure.  The  Indemnifying
Party, upon request of the Indemnified Party, shall retain counsel (who shall be
reasonably  acceptable to the  Indemnified  Party) to represent the  Indemnified
Party and shall pay the reasonable fees and  disbursements  of such counsel with
regard  thereto;  provided,  however,  that  any  Indemnified  Party  is  hereby
authorized,  prior  to the date on which it  receives  written  notice  from the
Indemnifying Party designating such counsel,  to retain counsel,  whose fees and
expenses shall be at the expense of the Indemnifying  Party, to file any motion,
answer or other  pleading and take such other action which it  reasonably  shall
deem necessary to protect its interests or those of the Indemnifying Party until
the  date  on  which  the  Indemnified  Party  receives  such  notice  from  the
Indemnifying Party. After the Indemnifying Party shall retain such counsel,  the
Indemnified  Party shall have the right to retain its own counsel,  but the fees
and expenses of such counsel shall be at the expense of such  Indemnified  Party

<PAGE>

unless (x) the Indemnifying  Party and the Indemnified Party shall have mutually
agreed to the  retention  of such  counsel or (y) the named  parties of any such
proceeding (including any impleaded parties) include both the Indemnifying Party
and the Indemnified Party and representation of both parties by the same counsel
would be inappropriate  due to actual or potential  differing  interests between
them. The  Indemnifying  Party shall not, in connection  with any proceedings or
related  proceedings  in the  same  jurisdiction,  be  liable  for the  fees and
expenses  of more than one such firm for the  Indemnified  Party  (except to the
extent  the  Indemnified   Party  retained   counsel  to  protect  its  (or  the
Indemnifying   Party's)  rights  prior  to  the  selection  of  counsel  by  the
Indemnifying  Party).  If requested by the  Indemnifying  Party, the Indemnified
Party  agrees  to  cooperate  with the  Indemnifying  Party and its  counsel  in
contesting any Third Party Claim which the Indemnifying  Party defends.  A Third
Party  Claim may not be  settled by the  Indemnifying  Party  without  the prior
written consent of the Indemnified Party (which consent will not be unreasonably
withheld)  unless,  as part of such  settlement,  the  Indemnified  Party  shall
receive  a  full  and  unconditional  release;   provided,   however,  that  the
Indemnifying  Party shall not settle any claim without the prior written consent
of the Indemnified  Party (which consent shall not be unreasonably  withheld) if
such Claim is not exclusively for monetary Damages.

          (b) Books and Records.  After  delivery of a Claim Notice,  so long as
any right to  indemnification  exists  pursuant to this  Article X, the affected
Parties each agree to retain all books and records related to such Claim Notice.
In each instance,  the  Indemnified  Party shall have the right to be kept fully
informed by the  Indemnifying  Party and its legal  counsel  with respect to any
legal  proceedings.  Any  information  or documents  made available to any Party
hereunder and designated as confidential by the Party providing such information
or documents  and which is not otherwise  generally  available to the public and
not  already  within  the  knowledge  of the  Party to whom the  information  is
provided  (unless  otherwise  covered by the  confidentiality  provisions of any
other agreement among the Parties hereto,  or any of them), and except as may be
required by  applicable  law,  shall not be disclosed to any third party (except
for the  representatives  of the Party being provided with the  information,  in
which event the Party being  provided  with the  information  shall  request its
representatives not to disclose any such information which it otherwise required
hereunder to be kept confidential).

     SECTION  10.04  Limitations.  No  Indemnifying  Party  shall be required to
indemnify an  Indemnified  Party pursuant to this Article X unless the aggregate
of all amounts for which  indemnity  would  otherwise  be due against it exceeds
$50,000.  Notwithstanding anything to the contrary contained in this Section 10,
any decision regarding the enforcement,  execution or settlement of an indemnity
claim  hereunder in which the Members are the  Indemnifying  Party,  may only be
made by the  member(s) of the Board of Directors of Watchdog who was  designated
by Greenleaf.

<PAGE>


                                   ARTICLE XI
                                   TERMINATION

     SECTION 11.01 Methods of Termination.  The transactions contemplated herein
may be terminated and/or abandoned at any time but not later than the Closing:

          (a) By mutual  written  consent of the Watchdog  Parties and the  
NetWolves Parties;

          (b) By either  the  NetWolves  Parties  or the  Watchdog  Parties if a
material  default or breach shall be made by the other Party with respect to the
due and timely  performance  of any of its  covenants and  agreements  contained
herein and such default  cannot be cured within a reasonable  period of time, or
if any of the other  Party's  representations  and  warranties  are not true and
correct in all material respects as of the Closing Date; or

          (c)  By the  Watchdog  Parties,  on the  one  hand,  or the  NetWolves
Parties,  on the  other,  if either of the  Parties  amends or  supplements  any
Schedule  hereto in  accordance  with Section 8.02 hereof and such  amendment or
supplement  reflects a material adverse change in the condition or operations of
NetWolves or the  Watchdog  Companies,  as the case may be, or their  respective
businesses, taken as a whole, after the date hereof.

     SECTION  11.02  Effect of  Termination.  In the event of  termination  by a
Party, or both Parties, pursuant to Section 11.01 hereof, written notice thereof
shall forthwith be given to the other Party and all payment  obligations (except
as set forth in this Section  11.02) and all further  obligations of the Parties
shall terminate and no Party shall have any right against the other Party hereto
and each Party shall bear its own expenses.  Notwithstanding  the foregoing,  if
this  Agreement  is so  terminated  by one  Party  because  one or  more  of the
conditions to such Party's obligations hereunder is not satisfied as a result of
the other Party's  failure to comply with its  obligations  under this Agreement
(other than a failure by a Party, after the good faith exercise of best efforts,
to obtain any consent,  approval or other permission  required  pursuant to this
Agreement),  it is expressly agreed and understood that the terminating  Party's
right to  pursue  all  legal  remedies  for  breach of  contract  or  otherwise,
including,  without  limitation,  Damages  (other  than  consequential  Damages)
relating thereto, shall survive such termination unimpaired. If the transactions
contemplated  by this  Agreement  are  terminated  and/or  abandoned as provided
herein:

          (a) Each Party hereto will return all documents, work papers and other
material  (and  all  copies  thereof)  of  the  other  Party,  relating  to  the
transactions  contemplated  hereby,  whether  so  obtained  before  or after the
execution hereof, to the Party furnishing the same; and

<PAGE>

          (b) All confidential  information received by either Party hereto with
respect to the business of the other Party shall be treated in  accordance  with
Section 8.02 hereof.

                                   ARTICLE XII
                                   DEFINITIONS

     SECTION  12.01  Certain  Defined  Terms.  As used in  this  Agreement,  the
following terms shall have the following meanings:

     "Business  Day" means a day of the year on which banks are not  required or
not authorized to be closed in the City of New York.

     "Damages"  means  the  dollar  amount  of  any  loss,  damage,  expense  or
liability,  including,  without  limitation,   reasonable  attorneys'  fees  and
disbursements  incurred  by an  Indemnified  Party in any  action or  proceeding
between  the  Indemnified  Party  and the  Indemnifying  Party  or  between  the
Indemnified Party and a third party, which is determined (as provided in Article
X) to have been  sustained,  suffered  or incurred by a Party and to have arisen
from or in  connection  with an event or state  of  facts  which is  subject  to
indemnification under this Agreement;  the amount of Damages shall be the amount
finally  determined  by  a  court  of  competent   jurisdiction  or  appropriate
governmental  administrative agency (after the exhaustion of all appeals) or the
amount agreed to upon settlement in accordance with the terms of this Agreement,
if a Third Party Claim, or by the parties, if a Direct Claim.

     "Lien"  means  any  lien,  claim,   charge,   option,   security  interest,
restriction or encumbrance.

     "Party" means Watchdog and/or the Merger  Subsidiary,  on the one hand, and
the Members and/or NetWolves, on the other hand (collectively, the "Parties").

     "Representatives"   of  either   Party   means  such   Party's   employees,
accountants,   auditors,   actuaries,   counsel,  financial  advisors,  bankers,
investment bankers and consultants.

     "Securities Act" means the Securities Act of 1933, as amended.

     "Tax" or "Taxes" means all income,  gross receipts,  sales, stock transfer,
excise, bulk transfer, use, employment,  franchise,  profits,  property or other
taxes, fees, stamp taxes and duties, assessments,  levies or charges of any kind
whatsoever,  together with any interest and any  penalties,  additions to tax or
additional amounts imposed by any taxing authority with respect thereto.

<PAGE>

     "Third Party Claim" means a claim, demand, suit,  proceeding or action by a
person, firm,  corporation or government entity other than a party hereto or any
affiliate of such party.

                                  ARTICLE XIII
                               GENERAL PROVISIONS

     SECTION 13.01 Expenses.  Except as otherwise provided herein, all costs and
expenses,   including,   without   limitation,   fees   and   disbursements   of
Representatives, incurred in connection with this Agreement and the transactions
contemplated  hereby  shall  be paid  by the  Party  incurring  such  costs  and
expenses,   whether  or  not  the  Closing  shall  have  occurred.  The  Parties
acknowledge that Watchdog and NetWolves may have  outstanding  obligations as of
the Closing to pay their respective attorneys,  accountants,  investment bankers
(i.e., GKN Securities Corp.) and IBR. The Members hereby agree to cause Watchdog
to pay such  obligations  promptly  as  approved  by the Board of  Directors  of
Watchdog.

     SECTION 13.02 Notices.  All notices and other  communications given or made
pursuant  hereto shall be in writing and shall be deemed to have been duly given
or made as of the  date  delivered  or  mailed  if  delivered  personally  or by
telecopy,  one day after delivery to a nationally  recognized  courier, or three
business days after mailed by registered mail (postage  prepaid,  return receipt
requested),  in each case, to the Parties at the following addresses (or at such
other  address for a Party as shall be  specified  by like  notice,  except that
notices of changes of address shall be effective upon receipt):

          (a)   If to NetWolves or the Members, as set forth in Exhibit A,

                    NetWolves, LLC
                    85 E. Gay Street
                    Suite 801
                    Columbus, Ohio 43215
                    Attention: Mark Jacques
                    Telecopier No.: (614) 469-3447

                with a copy to:

                    85 E. Gay Street
                    Suite 802
                    Columbus, Ohio 43215
                    Attention: Jerry B. Sellman, Esq.
                    Telecopier No.:  (614) 463-1987
<PAGE>

          (b) If to Watchdog or the Merger Subsidiary:

                    Watchdog Patrols, Inc. 
                    33 Walt Whitman Road
                    Suite 125
                    Huntington Station, New York 11743
                    Attention:  Philip LoRusso
                    Telecopier No.:  (516) 421-2899

                with a copy to:

                    Graubard Mollen & Miller
                    600 Third Avenue
                    New York, New York  10016
                    Attention:  Peter M. Ziemba, Esq.
                    Telecopier No.: 212-818-8881


     SECTION 13.03 Press Release; Public Announcements. Promptly after execution
of this Agreement,  the Parties shall issue a joint press release in the form of
Exhibit  O  annexed  hereto.  The  Parties  shall  not  make  any  other  public
announcements  in respect of this  Agreement  or the  transactions  contemplated
herein without prior consultation and approval by the other party as to the form
and  content  thereof,  which  approval  shall  not  be  unreasonably  withheld.
Notwithstanding  the  foregoing,  any  Party may make any  disclosure  which its
counsel  advises is required by applicable law or regulation,  in which case the
other Party shall be given such  reasonable  advance notice as is practicable in
the  circumstances  and the  Parties  shall use their  best  efforts  to cause a
mutually agreeable release or announcement to be issued.

     SECTION  13.04  Amendment.  This  Agreement  may not be amended or modified
except by an instrument in writing signed by the Parties.

     SECTION  13.05 Waiver.  At any time prior to the Closing,  either Party may
(a) extend the time for the  performance of any of the obligations or other acts
of the other  Party,  (b)  waive any  inaccuracies  in the  representations  and
warranties contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions  contained herein. Any
such  extension or waiver shall be valid only if set forth in an  instrument  in
writing signed by the Party to be bound thereby.

     SECTION 13.06  Headings.  The headings  contained in this Agreement are for
reference  purposes  only  and  shall  not  affect  in any  way the  meaning  or
interpretation of this Agreement.

     SECTION  13.07  Severability.  If any  term  or  other  provision  of  this
Agreement is invalid,  illegal or incapable of being enforced by any rule of law
or public policy,  all other  conditions and provisions of this Agreement  shall
nevertheless  remain in full force and effect so long as the  economic  or legal
substance of the transactions  contemplated hereby is not affected in any manner

<PAGE>

adverse to any Party. Upon such  determination  that any term or other provision
is invalid,  illegal or incapable of being enforced, the Parties shall negotiate
in good faith to modify this  Agreement so as to effect the  original  intent of
the  Parties as  closely as  possible  in an  acceptable  manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.

     SECTION  13.08 Entire  Agreement.  This  Agreement  and the  Schedules  and
Exhibits  hereto  constitute  the  entire  agreement  and  supersede  all  prior
agreements  and  undertakings,  both  written and oral,  between the Members and
Watchdog  with  respect to the subject  matter  hereof and,  except as otherwise
expressly  provided herein, are not intended to confer upon any other person any
rights or remedies hereunder.

     SECTION  13.09  Benefit;  Assignment.  This  Agreement  shall  inure to the
benefit of and be  binding  upon the  successors  and  permitted  assigns of the
Parties.  This  Agreement  is not  assignable  by any Party  without the express
written consent of the other Parties.

     SECTION 13.10 Governing Law; Consent to Jurisdiction.  This Agreement shall
be governed by, and  construed in accordance  with,  the law of the State of New
York,  regardless  of the laws that  might  otherwise  govern  under  applicable
principles  of conflicts  of law.  Each Party  hereby  submits to the  exclusive
jurisdiction  of the courts (city,  state and federal)  located in the County of
New York, State of New York, for any action,  proceeding or claim brought by any
other Party  pursuant to this  Agreement or any other  agreement,  instrument or
other  document  executed and  delivered in  connection  with this  Agreement or
pursuant  hereto and waives any objection to the venue of any such suit,  action
or proceeding and the right to assert that such forum is not a convenient forum.
Service of process in any such action or proceeding  brought against a Party may
be made by registered  mail  addressed to such Party at the address set forth in
Section  13.02 or to such other  address as such  Party  shall  notify the other
Party in writing is to be used for such purpose pursuant to Section 13.02.

     SECTION 13.11  Counterparts.  This Agreement may be executed in one or more
counterparts,  and by the different  Parties in separate  counterparts,  each of
which  when  executed  shall be deemed to be an  original  but all of which when
taken together shall constitute one and the same agreement.

<PAGE>

     IN WITNESS  WHEREOF,  the Parties have caused this Agreement to be executed
as of the date first written above.

NETWOLVES, LLC                                  WATCHDOG PATROLS, INC.

 

By:                                             By:/s/ Philip M. LaRusso
                                                   Name: Philip M. LaRusso
/s/ WIlliam A. Clark                               Title:Chairman
WILLIAM A. CLARK, As Member and Individually


/s/ Keith A. Darling                            WATCHDOG ACQUISITION CORP.
KEITH A. DARLING, As Member and Individually


/s/ Walter M. Groteke                              By:/s/ Philip M. LaRusso
WALTER M. GROTEKE, As Member and Individually      Name: Philip M. LaRusso
                                                   Title:Chairman

/s/ Kevin F. Sherlock
KEVIN F. SHERLOCK, As Member and Individually

/s/ Daniel G. Stephens
DANIEL G. STEPHENS, JR., As Member and Individually    


/s/ Mark Jacques
MARK JACQUES, As Member and Individually







                                                            Exhibit 10.2


                                   AGREEMENT


     AGREEMENT  made this 5th day of January,  1999 by and between The  Sullivan
Group,  with its principal offices located at 320 Soundview Road,  Guilford,  CT
(hereinafter  "Sullivan  Group") and NetWolves  Corporation,  with its principal
offices located at 200 Broadhollow Road,  Melville,  New York 11747 (hereinafter
"NetWolves").

                              W I T N E S S E T H :

     Whereas,  The  Sullivan  Group Group is a leading  consulting  organization
serving  the  needs of the  automotive  aftermarket,  convenience  store and oil
industry  and,  through its  wholly-owned  business  education  subsidiary,  The
Duffy-Vinet  Institute,  maintains  an  extensive  library of  training  modules
available to its clients customer base; and

     Whereas,  during the past eleven (11) years, Sullivan Group has established
a primary client list as set forth in Exhibit A annexed  hereto,  which includes
Amoco Oil, British  Petroleum,  Chevron,  Chrysler,  Circle K Marketing,  Exxon,
Ford,  General Motors,  Irving Oil Ltd.,  Mobil Oil, NAPA,  J.D.  Power,  Shell,
Southland, Sunoco, Texaco/Star Enterprise, Tosco, and Unocal; and

     Whereas,  Sullivan  Group has  concluded a contract  and  obtained  further
commitments  from several  client  companies,  samples of which are set forth in
Exhibit B annexed  hereto,  to expand  training at retail  sites which will rely
upon certain Internet technology developed by NetWolves; and

     Whereas,   NetWolves  specializes  in  the  development  of  multi-services
Internet gateway products; and

     Whereas,  the parties are  desirous  that  NetWolves  be  appointed  as the
exclusive  provider of the delivery  system which will enable Sullivan Group and
its  subsidiaries to sell its  proprietary  training  programs to  approximately
40,000 retail  locations  throughout  the United  States,  thereby  facilitating
simultaneous interactive distance learning at all sites.

     NOW,  THEREFORE,  in consideration of the mutual premises and the covenants
contained herein, the parties hereby agree as follows:

     1. Appointment.  Sullivan Group hereby appoints  NetWolves as its exclusive
provider in the United States of a delivery  system  whereby  Sullivan Group and
its subsidiaries  will sell its proprietary  training  programs to approximately
40,000 retail locations in the United States, thereby facilitating  simultaneous
interactive  distance learning at the sites.  NetWolves accepts such appointment
in accordance with the terms of this Agreement.

<PAGE>

     2.  Product.  To  accommodate  the  needs of  Sullivan  Group's  customers,
NetWolves agrees to customize its FoxBox multi-services Internet gateway product
(the "Product") in the form of Exhibit C annexed hereto.

     3. Delivery Schedule. NetWolves agrees to deliver the Product substantially
in accordance with the following schedule:

               350 units      June - December 1999
             4,150 units      January - December 2000
             9,500 units      January - December 2001
            12,500 units      January - December 2002
            14,000 units      January - December 2003

          Sullivan Group agrees to provide  continuous ninety (90) day forecasts
to assist NetWolves in its production schedule.

     4. Term of Agreement.  This  Agreement  shall continue for a period of five
(5) years and thereafter shall be  automatically  renewed for an additional five
(5) year term unless  written  notice is provided by either party on or prior to
six (6) months from the  expiration  date of this  Agreement  that the Agreement
will not be renewed.

     5.  Transfer  Pricing.  Each unit shall be paid for by the end user  retail
site (or its corporate parent) at a rate of $200 per month exclusive of any tax.
All  monthly  payments  shall be made  directly  to  Supplier  at a  lockbox  as
prescribed by NetWolves.  In the event  Sullivan Group seeks to have one monthly
invoice for the retail site to pay both  content and the  technology,  NetWolves
and  Sullivan  Group will direct that all  payments be sent to a receiving  bank
which will deposit the appropriate amount to each of their accounts.

     6.  NetWolves  Responsiblity.  Subject to the end user being in  compliance
with the terms of the  rental  agreement,  NetWolves,  at its  discretion,  will
repair  and/or  replace  the  product  should the  product  fail to perform  its
intended  purpose and provide  free  software  upgrades  within the base product
platform  during  the  term  of the  rental  agreement.  It  will  be  NetWolves
responsibility  to  arrange  installation  of  the  product  at  the  site  upon
instructions of Sullivan Group and receipt of a properly  executed  agreement by
the end user.

     7. Sullivan Group  Responsibility.  Sullivan Group will be responsible  for
the payment of all marketing,  sales and contents expense in order to secure the
retail site.  Sullivan Group will arrange to invoice the customer and obtain any
and all approvals required from the Parent/Supplier company of the retail outlet
and shall be  responsible  for  providing all the content which is viewed by the
end user.  Sullivan Group will provide  NetWolves via e-mail to the attention of
NetWoves'  Director of Sales and  Installation,  an ongoing weekly list of sites
which require installation. Sullivan Group further agrees not to provide content
to the retail  sites  during the term of this  Agreement  other than through the
NetWolves product.

<PAGE>

     8. Rental  Agreement.  NetWolves and Sullivan Group shall,  within ten (10)
days of this  Agreement,  approve  the final  form of a rental  agreement  which
contains the following terms and conditions:

          (a) The rental agreement shall be for a four (4) year period.

          (b) Monthly  rental  payments are $200.  During the term of the rental
     agreement, NetWolves will not increase the monthly rental payment.

          (c) NetWolves will, at its  discretion,  repair or replace and upgrade
     software functionality provided the end user is in compliance with the
     terms and conditions of the rental agreement.

          (d) All right,  title and  interest in the Product  vests  exclusively
     with NetWolves.

          (e) The monthly fee payable to Sullivan Group for training  content is
     in addition to this fee.

          (f) The end user agrees to use due care when using the product and not
     to allow the product to be removed from the installed location without
     the written permission of NetWolves.

          (g)  The  agreement  is  non-cancellable  for  the  term  and  the end
     user-client end user is responsible for the monthly payments.

          (h) The agreement  automatically  renews for a successive  term unless
     cancelled in writing six (6) months prior to the  expiration  of the rental
     agreement.

          (i) At the expiration of the rental  agreement,  NetWolves may reclaim
     the product.

          (j) The obligations  under the rental  agreement may be required to be
     personal  due  to  credit  requirements  in  the  case  of  an  independent
     franchise.

          (k) At the  execution of the rental  agreement,  payment for the first
     month, last month and one month's security is required.

          (l) An electrical  outlet and a POTS line at the site of  installation
     is required.

          (m) A one time set up fee for installation may be required.

          (n) A service  fee of 14% of the price per year ($28) per month may be
     charged  beginning year two.  Should the service  program not be subscribed
     to, any and all service calls will be billed to the end user retail site.

<PAGE>

     9.  Termination.  The  exclusivity  to  NetWolves  set forth  herein  shall
terminate in the event NetWolves breaches the mutual terms of this Agreement and
such breach  continues  after sixty (60) days  written  notice  specifying  such
breach. Upon such termination, NetWolves shall continue to be fully paid for all
products sold and services performed for the duration of all rental agreements.

     10.  Intellectual  Property  Rights.  All right,  title and interest in the
Product  shall be the exclusive  property of NetWolves and all right,  title and
interest in the content shall be the exclusive property of Sullivan Group.

     11.  Public  Announcements.  Each party agrees that during the term of this
Agreement,  prior to making any  public  announcement  of any nature  whatsoever
relating to this Agreement,  or the relationship  between the parties generally,
it first  will  consult  with and obtain the  approval  of the other  party with
respect  to  the   content,   timing  and   method(s)   of  such   announcement.
Notwithstanding the foregoing,  each party may make such public announcements or
disclosures  with respect to this  Agreement and the  transactions  contemplated
hereby as it deems in good faith to be required by applicable law.

     12. Force Majeure.  Any delays in or failure of performance by either party
under this  Agreement  shall not be  considered a breach hereof if such delay or
failure is  occasioned  by an event beyond the  reasonable  control of the party
affected  ("force  majeure");  provided that any party whose  performance  is so
delayed  shall give prompt  notice  thereof to the other party and shall use all
reasonable  endeavors  to  comply  with the terms of this  Agreement  as soon as
possible.

     13. Binding Agreement;  Assignability. This Agreement shall be binding upon
and inure to the benefit of the respective  parties hereto and thereto and their
respective heirs, executors, administrators,  legal representatives,  successors
and assigns.

     14. Entire  Agreement.  This Agreement sets forth the entire  agreement and
understanding of the parties in respect of the subject matter hereof and thereof
and supersede all prior agreements,  arrangements and understandings relating to
the subject matter hereof and thereof. This Agreement may not be contradicted by
evidence of prior, contemporaneous or subsequent oral agreements of the parties.
There are no oral unwritten agreements between the parties.

     15. Counterparts.  This Agreement may be executed  simultaneously in two or
more counterparts,  each of which shall be deemed an original,  but all of which
together shall constitute one and the same instrument.

     16.  Severability.  The invalidity or  unenforceability of any provision of
this Agreement shall not affect any other provisions hereof or thereof,  and the
remainder  of  the   Agreement   shall  be  construed  as  if  such  invalid  or
unenforceable  provision were modified to the extent  necessary to make it valid
or enforceable but remain within the spirit of this Agreement, or if that is not
possible, then omitted.

<PAGE>

     17.  Amendment  or  Cancellation;  Waiver.  This  Agreement  hereto  may be
amended,  modified,  superseded  or  cancelled,  and any of the terms  hereof or
thereof  may be  waived,  only by a written  instrument  executed  by each party
hereto or thereto, as the case may be, or, in the case of a waiver, by the party
or parties waiving compliance.  The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect the rights
at a later time to enforce the same.  No waiver by any party of any condition or
of the breach of any term  contained  in this  Agreement,  whether by conduct or
otherwise,  in any one or more  instances,  shall be deemed to be construed as a
further or continuing waiver of any such breach or the breach of any other terms
of this Agreement.

     18. Notices.  Any notice to a party hereto pursuant to this Agreement shall
be given by certified or overnight mail or by facsimile addressed as follows (or
to such other  address as any party  shall  designate  by written  notice to the
other parties);

     If to the NetWolves:          200 Broadhollow Road, Suite 207
                                   Melville, New York 11747

     Copy to:                      David H. Lieberman, Esq.
                                   Blau, Kramer, Wactlar & Lieberman, P. C.
                                   100 Jericho Quadrangle
                                   Jericho, New York 1`1753


     If to Sullivan Group:         320 Soundview Road
                                   Guilford, CT   06457


     Copy to:                      Eliot Parkhurst, Esq.
                                   Eliot Parkhurst & Associates
                                   50 Milk Street - 20th Floor
                                   Boston, MA  02109


Notices  given by hand  shall be  deemed  given  as of the  date  when  they are
delivered.  Notices  given by Federal  Express  shall be deemed  given as of the
business  day next  following  the date on which they are  delivered  to Federal
Express in time for and marked and prepaid for next business day delivery.

<PAGE>

     19.  Governing  Law.  This  Agreement  shall be construed  and  interpreted
according to the laws of the State of New York without  regard to its  conflicts
of laws provisions. Any suit, action or proceeding arising out of this Agreement
shall be instituted in the state or federal courts in the State of New York.

     20. Arbitration.  All disputes or controversies (whether of law or fact) of
any  nature  whatsoever  arising  from or  relating  to this  Agreement  and the
transactions  contemplated  hereby shall be decided by the American  Arbitration
Association (the  "Association") in accordance with the rules and regulations of
the  Association,  except that either  party shall have the right in  accordance
with Section 18 hereof to seek equitable relief  independently,  including,  but
not limited to,  temporary  restraining  orders,  provisional  and/or  permanent
injunctive relief,  specific performance or any other equitable remedy as may be
appropriate  to  enforce  or  prevent  the  violation  of,  any of the terms and
conditions of this Agreement.

          In the event a dispute or controversy arises,  either party may submit
the dispute to the American Arbitration Association in Garden City, New York for
arbitration  in  accordance  with  and  subject  to the  rules  of the  American
Arbitration  Association then in effect,  and  specifically,  the  Supplementary
Procedures for Large,  Complex  Disputes (the  "Procedures").  The parties agree
that the arbitration shall be conducted before three arbitrators.  Additionally,
the parties agree that prior to the conduct of hearings,  they will cooperate in
the exchange of documents, exhibits and information pursuant to detailed demands
therefor, and such other discovery as they may agree upon or the arbitrators may
deem appropriate in the circumstances after the Preliminary Hearing described in
Section  4 of  the  Procedures  is  held.  The  decision  of a  majority  of the
arbitrators shall be binding upon all parties, and a judgment or decree upon the
decision  rendered by the  arbitrators  may be entered in any court of competent
jurisdiction. Each party required to participate shall be responsible for its or
his pro rata  share of the fees and  costs of  arbitration,  including,  but not
limited to, the cost of a full stenographic  record of the proceedings which the
parties hereby agree in advance will be required;  provided,  however,  that the
arbitrators  shall be authorized to award legal fees and costs to the prevailing
party, based upon their consideration of the merits of the claims, the merits of
the defenses, and the results obtained from the arbitration.

          IN WITNESS  WHEREOF,  the parties hereto have caused this Agreement to
be duly executed on the day first above written.

                                    The Sullivan Group

                                    By: /s/ Martin E. Cunningham
   

                                    NetWolves Corporation

                                    By: /s/  Walter M. Groteke



                                                                  Exhibit 10.3
                             DISTRIBUTION AGREEMENT


     This  Agreement  is made and  entered  into as of January  18,  1999 by and
between NetWolves Corporation, a New York corporation ("NetWolves"), and Anicom,
Inc., a Delaware corporation  ("Anicom"),  both having addresses as set forth on
the signature page of this Agreement.

                                   WITNESSETH:

     WHEREAS, NetWolves is engaged in the manufacture,  sale and distribution in
the United States of various software and manufactured products;

     WHEREAS, Anicom is engaged in the business of distributing various types of
wire, cable and connectivity products;

     WHEREAS,  Anicom desires to be appointed as an Exclusive Master Distributor
of NetWolves' Products, as hereinafter defined, throughout North America; and

     WHEREAS,  NetWolves  desires  to  appoint  Anicom  as an  Exclusive  Master
Distributor of the Products throughout North America.

     NOW,  THEREFORE,  in  consideration of the mutual promises and covenants of
the parties as  hereinafter  more fully set forth,  and other good and  valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:


                                 I. DEFINITIONS

     1.1  "Anicom Group": Anicom, its subsidiaries and all Anicom Resellers.

     1.2 "Anicom  Resellers":  Those entities  identified on Appendix A and such
other entities as Anicom may add to Appendix A from time to time upon NetWolves'
consent,  which consent shall not be unreasonably withheld or delayed,  provided
that it will not be  unreasonable  for  NetWolves to withhold its consent if the
entity is a direct competitor of NetWolves.

     1.3  "Committed  Amount":  With respect to each Year, and the first six (6)
months of each Year, the Committed  Amount for purposes of this Agreement  shall
refer to a number of Units determined in accordance with the following:

<PAGE>

                                   Committed Amount

Year                     First 6 Months                Full Year
- ----                     --------------                ---------

1                             *                             *
2                             *                             *
3                             *                             *
4                             *                             *
5                             *                             *


provided, however, if (a) the number of Units purchased by the Anicom Group in a
given Year exceeds the Committed Amount for such Year, then the Committed Amount
in subsequent Years shall be reduced,  in the aggregate  beginning with the next
succeeding  year,  by the amount of such  excess,  and (b) if the  Anicom  Group
orders at least the Committed  Amount for a given Year,  but NetWolves is unable
to deliver to the Anicom Group within such year the full number of Units ordered
in such Year, then such shortfall shall be credited against the Committed Amount
for the next Year.

     1.4  "Distributor":  A wholesaler  or an entity whose  primary  business is
selling products competitive with those of Anicom.

     1.5  "Effective Date":  February 1, 1999.

     1.6  "Product":  The  Foxbox,  as  described  on  Appendix  B,  and any New
Versions,   Competitive   Products,   updates,   enhancements,    modifications,
replacements or substitutions thereto.

     1.7  "Territory": North America.

     1.8 "Unit": A unit of Product, regardless of cost.

     1.9 "Year":  Each  twelve  month  period  ending on an  anniversary  of the
Effective  Date.  For  example,  the  twelve-month  period  ending  on the first
anniversary of the Effective Date is referred to as the first Year.


                                   II. PURPOSE

     The purpose of this  Agreement is to promote and achieve the effective sale
of Products within Anicom's assigned  Territory.  NetWolves and Anicom recognize
the market in which the Products are sold is extremely  competitive;  that there
are generally  competitive  products in the  marketplace;  and that in order for
NetWolves  and Anicom to achieve a  satisfactory  level of sales it is necessary
that Anicom compete effectively in the marketplace.

- -----------------------------------------------------
*    Confidential portions omitted and filed separately with the Commission.
<PAGE>

                                III. APPOINTMENT

     3.1  Appointment.  NetWolves hereby appoints Anicom as its Exclusive Master
Distributor  of  Products  in  the  Territory  and  Anicom  hereby  accepts  the
appointment.

     3.2  Nature  of  Appointment.  The  appointment  is  exclusive  within  the
Territory,  and NetWolves  shall not appoint any other  distributors  within the
Territory as long as this Agreement is in full force and effect.  In furtherance
of this  appointment,  NetWolves will clearly  identify  Anicom as its exclusive
distributor  in  the  Territory  on  NetWolves'  website.   Notwithstanding  the
foregoing,  NetWolves shall have the right to make direct sales or leases of the
Products to customers,  Distributors and Anicom Resellers,  and NetWolves agrees
to pay  Anicom a *  commission  on any sales or leases  made by  NetWolves  that
Anicom is not involved with in the  Territory,  and to pay Anicom a * commission
on NETS (NetWolves  Enhanced  Technical  Support) revenues within the Territory,
provided  that any such  sales or leases to  Distributors  shall be  counted  as
orders from Anicom for purposes of Sections 5.3 and 8.2, but otherwise, sales or
leases of Products by NetWolves to other parties,  including without limitation,
the * pursuant to an agreement entered into prior to this Agreement, will not be
counted as orders  from Anicom for  purposes of Section 5.3 and 8.2.  Payment of
any commissions to Anicom will be made by NetWolves within  forty-five (45) days
of the receipt of funds from such  customers.  Should  NetWolves fail to pay any
commissions when due, Anicom will charge interest on the outstanding commissions
at the lower of 1-1/2% compounded monthly or the maximum rate permitted by law.

     3.3  Commercially  Reasonable  Efforts.  During the term of this Agreement,
Anicom shall promote and sell Products within the Territory. However, the Anicom
Group shall not be obligated to purchase any Products at any time hereunder, and
if the Anicom Group fails to order the Committed  Amount in any given Year,  for
any  reason,  NetWolves'  sole and  exclusive  remedy  shall be as set  forth in
Section 5.3.

     3.4 Sales to Resellers.  NetWolves shall direct all Anicom Resellers to buy
Products  from Anicom.  In the event an Anicom  Reseller  elects not to buy from
Anicom,  NetWolves  will provide Anicom with a written  report  concerning  such
events.  In the event an  Anicom  Reseller  elects  not to buy from  Anicom  and
purchases or leases Products from NetWolves, NetWolves agrees to pay to Anicom a
commission  on any such sales or leases  equal to Anicom's  gross profit that it
would have  recognized  on such sale.  As used herein,  the term "gross  profit"
shall mean an amount  equal (i) the amount that Anicom  would have  charged such
Anicom  Reseller based upon its recent sales of similar  Products and historical
sales to that  Anicom  Reseller,  minus  (ii)  Anicom's  discounted  price  from
NetWolves  then in effect  pursuant  to Section  8.2.  Payment of the  foregoing
amount to Anicom will be made by  NetWolves  within  forty five (45) days of the
receipt of funds from such Anicom  Reseller.  Should  NetWolves  fail to pay any
commissions when due, Anicom will charge interest on the outstanding commissions
at the lower of 1-1/2% compounded monthly or the maximum rate permitted by law.

- -----------------------------------------------------
*    Confidential portions omitted and filed separately with the Commission.
<PAGE>

                   IV. NOTIFICATION REGARDING PRODUCT CHANGES

     NetWolves  shall  notify  Anicom in writing  not less than ninety (90) days
prior to any changes to any of the Products,  including without limitation,  any
New Versions, updates, modifications, model changes and substitutions. NetWolves
shall also  notify  Anicom in writing  not less than  ninety  (90) days prior to
adding or deleting a Product.

                              V. COMMITTED AMOUNTS

     5.1 Annual  Accounting.  Within sixty (60) days after the end of each Year,
NetWolves  shall  prepare or caused to be  prepared  and  delivered  to Anicom a
statement  setting  forth the actual  purchases  by the Anicom Group during such
Year, the Committed  Amount for such Year, the  commissions  earned and paid for
such  Year,  and  the  bonus  discounts   earned  for  such  Year  (the  "Annual
Statement").  If Anicom disagrees with an Annual Statement,  Anicom shall notify
NetWolves in writing of such disagreement within thirty (30) days after the date
on which  Anicom  received  the Annual  Statement,  which  written  notice shall
specify  the nature of the dispute and shall  provide in  reasonable  detail the
facts or circumstances upon which such dispute is based.  Thereafter,  NetWolves
and Anicom shall attempt in good faith to resolve such disagreement with respect
to the Annual Statement.

     5.2 Dispute  Resolution.  If NetWolves and Anicom are unable to resolve any
disagreement  regarding  an Annual  Statement  within  twenty  (20)  days  after
NetWolves'  receipt of notice of disagreement  from Anicom,  either NetWolves or
Anicom may give notice (an "Arbitration Notice") to the other party of an intent
to submit such  disagreement to a certified  independent  public accounting firm
that is among the five largest such firms in the United States (the "Independent
Accounting  Firm") and mutually  agreeable to NetWolves and Anicom. If NetWolves
and  Anicom  cannot  agree  upon such  election  within  twenty  (20) days after
delivery of the Arbitration  Notice,  the  Independent  Accounting Firm shall be
selected by lot from among the five largest  independent public accounting firms
in the United States. The dispute shall be immediately  submitted by the parties
to the Independent  Accounting Firm for resolution of such dispute within twenty
(20) days after  submission to the Independent  Accounting  Firm. At the time of
the  submission  of  such  dispute  to  the  Independent   Accounting  Firm  for
resolution,  NetWolves shall file with the Independent Accounting Firm a written
statement of its position  with regard to any matters in dispute,  at which time
Anicom  shall have ten (10) days to respond in writing to  NetWolves'  position.
Upon  receipt  of  written  position  statements  by  each of the  parties,  the
Independent  Accounting  Firm  shall  resolve  the  dispute in  accordance  with
generally accepted accounting principles,  consistently applied. The decision of
the  Independent  Accounting  Firm shall be final and  binding  upon all parties
hereto.  Each  party  shall bear its own  expenses,  including  expenses  of its
accountants and attorneys in connection with the resolution of any such dispute,
and the fees and expenses of the  Independent  Accounting  Firm shall be paid by
the parties as determined by the Independent Accounting Firm.

<PAGE>

     5.3 Failure to Meet Committed Amount. Notwithstanding Sections 5.1 and 5.2,
in the event the  Anicom  Group  shall  fail to order  Products  from  NetWolves
equaling or exceeding the  corresponding  Committed  Amount for any Year, or the
first six months of any Year,  other than as a result of  NetWolves'  failure to
timely fulfil orders  placed by Anicom during such Year,  NetWolves  may, at its
option, take any or all of the following actions:

          (a) convert Anicom's  Exclusive Master Distributor rights hereunder to
that of a Master Distributor or Distributor in the Company's Reseller Program at
a level based on the number of Units  purchased by the Anicom Group in the prior
Year;

          (b) elect to terminate this Agreement,  provided that  notwithstanding
such termination,  NetWolves shall continue to sell to Anicom such quantities of
repair parts,  supplies,  accessories and replacement  inventory of any model of
the  Products  which  Anicom may  reasonably  require to  effectuate  an orderly
disposal  of  Anicom's  existing  inventory  of  Products as well as continue to
service the Products theretofore sold by Anicom; and

          (c)  immediately  upon  written  notice  to  Anicom,  stop any and all
override  commissions  referred to in Section 3.2 and Section 8.2, provided that
NetWolves  shall remain  obligated to pay any such  commissions  earned prior to
such notice.

     5.4 Committed Amount to be  Renegotiated.  In the event that this Agreement
shall be extended  beyond its original  five (5) year term,  the parties  hereto
shall jointly agree upon a new Committed Amount for each subsequent Year hereof,
and the same shall be endorsed by the parties and made a part of this Agreement,
failing which the Agreement shall not be renewed.


                           VI. NETWOLVES' OBLIGATIONS

     6.1  Instruction  Manuals.  NetWolves  shall  provide to Anicom  reasonable
quantities of  instruction  manuals as well as  catalogues,  circulars and other
printed or electronic  media material which it may have on hand and which are or
may be useful to Anicom in the conduct of sales of the Products.

     6.2  Advertising  Materials.  NetWolves  shall  furnish  to  Anicom in such
amounts  as  NetWolves  and  Anicom  reasonably  deem  necessary,  for a minimal
handling fee as NetWolves shall determine, such advertising aids which NetWolves
may  have  from  time to time  and  which  Anicom  may  use in  advertising  and
promotional campaigns for the Products.  Anicom may adapt, translate,  reproduce
and distribute such  advertising  aids as Anicom deems  appropriate or necessary
with NetWolves'  prior written  consent,  which consent will not be unreasonably
withheld or delayed.

     6.3 Access to NetWolves' Employees.  NetWolves agrees to provide reasonable
access to its Internet Sales Consultants to assist Anicom in selling Products.

<PAGE>

     6.4 Warranties and Representations of NetWolves.  NetWolves  represents and
warrants  that (a) it is a corporation  duly  organized and existing and in good
standing  under  and by  virtue  of the laws of the state set forth on the title
page hereof;  (b) it has the  corporate  power and  authority to enter into this
Agreement and to conduct its business as currently conducted and as contemplated
hereunder;  (c) the signatory to this  Agreement for NetWolves has the power and
authority  to bind  NetWolves;  (d)  NetWolves  owns or has the right to use all
patents, patent rights,  copyrights,  trade secrets and other proprietary rights
in or to the  Products;  (e) to the  Company's  knowledge,  the  Products do not
infringe any patent, copyright, trade secret or other proprietary right owned by
a third person; (f) NetWolves'  execution and performance of this Agreement will
not violate any other  agreement or obligation by which  NetWolves may be bound;
(g) NetWolves will be entitled to exercise its rights under this Agreement, free
of any  attribution,  accounting  or  consent  obligation,  except as  otherwise
specified herein;  (h) to the Company's  knowledge,  the occurrence in or use of
dates on or after  January  1,  2000,  including  leap  year  calculations  (the
"Millennial  Dates") will not adversely  affect the  performance of the Products
with respect to date dependent  data,  computations,  output or other  functions
(including, without limitation,  calculating,  computing and sequencing) and the
Products  will  create,  sort and  generate  output data related to or including
Millennial  Dates  without  errors or  omissions;  and (i) the  Products  do not
contain any "time bomb," "Trojan horse," "worm," "drop dead device," "virus" (as
these terms are commonly used in the computer software industry),  to disable or
erase  software,  hardware,  or data,  or to perform any other  similar  type of
functions.

     6.5 Copies of Products.  Upon the  execution of this  Agreement,  NetWolves
will deliver two (2) copies of the current Products to Anicom to be used for the
purposes described in Section 7.7.

     6.6 Training. NetWolves will provide personnel of the Anicom Group training
at no additional  charge, to the extent NetWolves and Anicom reasonably  believe
it will enable the Anicom  Group to  adequately  promote and sell the  Products,
including without limitation,  the initial training described on Appendix C (the
"Initial Training").

     6.7 Product  Support.  During the term of this  Agreement,  NetWolves  will
provide  support (as defined  below) to the Anicom Group and Anicom's  customers
and resolve  reported  problems in a timely and professional  manner.  "Support"
means (a) providing to the Anicom Group any corrections, releases and updates to
the Products; (b) consultation with the Anicom Group and Anicom's customers with
respect to technical questions and suspected errors reported by the Anicom Group
and/or  Anicom's  customers;  and (c)  resolution  of  errors  in the  Products.
NetWolves will provide Support seven (7) days per week,  twenty-four  (24) hours
per  day,  and  support  will  be in the  form  of  telephone,  e-mail  and  fax
communication.

     6.8 Upgrades and New Versions. During the term of the Agreement,  NetWolves
will provide to Anicom,  at prices to be determined  in accordance  with Section
8.2, the  enhancements,  upgrades  and new versions of the Products  that may be
developed by or for NetWolves for use in the Territory  (each, a "New Version"),
together with sufficient  explanatory  materials to enable Anicom to promote and
sell the Products. Such New Versions will become additional Products and will be

<PAGE>

subject to the terms and conditions of this  Agreement.  NetWolves will promptly
offer to Anicom any new computer programs that it develops or acquires the right
to  distribute  in the  Territory  which  competes with or that can be used as a
substitute  for the  Products  in  whole  or in part  or  that  perform  similar
functions to the Products on computer hardware platforms that are different from
the  computer  hardware  platforms  on  which  the  Products  currently  operate
("Competitive  Product").  In the event Anicom accepts such Competitive Product,
the Competitive Product will become additional Products subject to the terms and
conditions of this Agreement.

     6.9 Product Development. Anicom and NetWolves will meet not less often than
once each  fiscal  quarter,  at such  times and places as the  parties  mutually
agree, to discuss  NetWolves'  development plans and any maintenance and support
problems.  NetWolves  will  make  reasonable  efforts  to  accommodate  Anicom's
requests  for  Product  modification,  enhancement  or porting  to new  hardware
platforms.

     6.10  Future   Deliverables.   NetWolves  will  deliver  New  Versions  and
Competitive  Products to Anicom no later than the time  NetWolves  releases such
Products in final form to any other person or entity,  together with any related
documentation,  for testing and acceptance in accordance  with Anicom's  quality
assurance  procedures.  NetWolves  will make  reasonable  efforts to correct any
errors that Anicom may report to NetWolves, at no additional charge.

     6.11 Capacity.  NetWolves will use its commercially  reasonable  efforts to
maintain  relationships with manufacturers so that required  production capacity
can be maintained to fulfill orders in a timely manner.


             VII. RIGHTS, OBLIGATIONS AND RESPONSIBILITIES OF ANICOM

     7.1  Warranties  and  Representations  of  Anicom.  Anicom  represents  and
warrants as follows:  (a) Anicom is a company  organized,  existing  and in good
standing  under and by virtue of the laws of the State of  Delaware;  (b) it has
the power and authority to enter into this  Agreement;  and (c) the signatory to
this Agreement for Anicom has the power and authority to bind Anicom.

     7.2 Sales and Service  Responsibility.  Anicom  shall  promote,  advertise,
merchandise and sell the Products in the Territory to meet its commitments,  and
in connection therewith, shall:

          (a)  establish and maintain  adequate  facilities  and personnel  that
Anicom  reasonably  believes may be necessary  to meet the  obligations  assumed
hereunder;

          (b)  formulate and execute marketing and sales plans;

<PAGE>

          (c) supply sales and inventory data as may be reasonably  requested by
NetWolves  from time to time in such form as NetWolves may  reasonably  request,
and which Anicom can readily  generate,  to assist  NetWolves in its  production
planning and to provide a basis for evaluating Anicom performance;

          (d)  maintain at all times the number of Products  and  assortment  of
Products, which Anicom reasonably believes are necessary and appropriate for the
market involved;

          (e)  maintain  and employ in  connection  with  Anicom's  business and
operations such working capital as Anicom reasonably believes may be required to
enable  Anicom to  properly  and fully  carry out and  perform  all of  Anicom's
duties, obligations and responsibilities under this Agreement;

          (f) promote the sale of Products in the Territory, and specifically in
furtherance thereof:

                         (i) collect technical and engineering requirements from
          customers and, to the extent reasonably able, assist in the adaptation
          of the Products to customers' uses;

                         (ii)  to  the  extent  it is  reasonably  able,  assist
          customers in  gathering  data on the  adaptability  of the Products to
          customers' potential use of the Products;

                         (iii) to the  extent it is  reasonably  able,  act as a
          liaison and coordinator  between  Anicom's  customers and NetWolves in
          communicating  both customer and NetWolves  requirements for technical
          specifications, manufacturing schedules, delivery schedules, and other
          terms and conditions of sale; and

                         (iv) to the  extent it is  reasonably  able,  follow-up
          with   Anicom's   customers  to  determine   that  the  Products  have
          satisfactorily met customer requirements.

     7.3 State and Local Taxes. Where required, Anicom shall pay, or cause to be
paid, all taxes (except  NetWolves' income taxes),  assessments and charges that
are based upon the sale,  use or ownership of the  Products  hereunder,  or upon
Anicom's right to sell or lease the same.

     7.4  Trademarks.  Anicom shall not use any trademark or trade name owned by
NetWolves,  either  alone or with any  other  word or words as part of  Anicom's
trade or corporate name,  without the express  written  permission of NetWolves.
Anicom shall not remove any such  trademarks  or trade names from the  Products.
Upon request by NetWolves,  and in any event upon termination of this Agreement,
Anicom agrees to completely  discontinue any use of any of NetWolves' trademarks
or trade names, for any purpose  whatsoever,  including use in Anicom's trade or
corporate name.

<PAGE>

     7.5 Anicom Not Agent.  Anicom is an  independent  contractor in relation to
NetWolves,  solely and  exclusively  responsible  for its own acts at all times.
Anicom is not authorized to act as agent for NetWolves and has neither the right
nor authority to assume or create  obligations of any kind  whatsoever on behalf
of NetWolves,  or to accept service of legal  processes of any kind addressed to
or intended for NetWolves,  or to bind NetWolves in any respect whatsoever.  The
relationship  between NetWolves and Anicom is that of vendor and vendee, and not
of principal and agent.

     7.6 Prices.  Anicom will establish,  at its sole discretion,  the prices or
fees that Anicom may charge for the Products. Anicom may offer discounts against
such prices and fees.  NetWolves,  at its sole  discretion,  shall establish the
manufacturers'  suggested  retail  price for the  Products  which  shall be made
available  to potential  purchasers  which price shall be the basis for applying
Anicom's discount from list price pursuant to Section 8.2.

     7.7  Demonstration  and  Trial  Use  Copies.   The  Anicom  Group  has  the
non-exclusive,  non-transferable and royalty-free right to use two copies of the
Products  as set forth in  Section  6.5,  (a) to conduct  demonstrations  of the
Products at the Anicom Group's  premises,  (b) to permit  potential Anicom Group
customers to conduct  evaluations of the Products at the potential  Anicom Group
customers'  premises and (c) to conduct internal education of the Anicom Group's
employees in the use and operation of the  Products.  The Anicom Group will take
reasonable  measures  necessary to remove the Products from its potential Anicom
Group customers'  computer hardware on or before the expiration of the trial use
period.

     7.8 Repair Items.  NetWolves  shall sell to the Anicom Group and the Anicom
Group's  customers  any needed  repair parts,  supplies,  accessories  and shall
supply the Anicom Group any needed  replacement  inventory.  In the absence of a
NETS Service  Agreement,  NetWolves  shall  charge for such parts,  supplies and
accessories in accordance with its published prices from time to time.

     7.9 Point-of-Sale Reports.  Anicom shall provide NetWolves,  within fifteen
(15) days after the end of each month, a copy of Anicom's  point-of-sale  report
for such month.

               VIII. PURCHASE ORDERS, PRICES, AND TERMS OF PAYMENT

     8.1 Purchase Orders. All purchase orders of Anicom shall,  unless otherwise
agreed by  NetWolves  from time to time,  be in writing  and shall set forth the
quantity  of the  Products  desired,  the  specifications  thereof,  the desired
delivery  date, the price of each Product,  and all other  relevant  information
necessary  to  effectuate   shipment  of  the  Products  by  NetWolves.   It  is
contemplated  that from time to time  purchase  orders in forms  prepared by the
Anicom Group or other purchasers,  may be used in ordering the Products and that
there  may be  included  in  such  forms  certain  stipulations,  conditions  or
agreements not otherwise contained herein. It is expressly understood and agreed
that the  provisions of this  Agreement  shall be deemed a part of each purchase
order  accepted by NetWolves and any provision in any purchase order which shall

<PAGE>


be  inconsistent  with or contrary to the provisions of this Agreement  shall be
deemed amended or deleted,  as the case may be.  NetWolves  shall deliver to the
destinations directed by the Anicom Group.

     8.2  Prices and Terms of Sale.  

          (a) For the original  five year term herein,  Anicom shall be invoiced
at the rate of * of  NetWolves'  established  list  prices,  such  amount  to be
reduced to * of NetWolves'  established list prices commencing with the purchase
of the first Unit after  Anicom has  ordered,  in the  aggregate,  3,000  Units.
NetWolves will provide Anicom with thirty (30) days' written notice prior to any
increase in NetWolves'  established list prices. In the event Anicom produces an
account that purchases 1,000 Units before Anicom reaches 3,000 Units of Product,
NetWolves  agrees to provide  Anicom  with an  additional  *  discount  for that
particular order or orders.

         (b) All  invoices  shall be paid net * days from date of invoice except
Anicom's  initial  purchase order which will be paid for as follows:  (i) 10% of
the amount due will be paid  within ten (10) days of the date of this  Agreement
and (ii) the balance will be paid within fifteen (15) days after the delivery of
the initial purchase order to the destination of Anicom's choice.  Should Anicom
fail  to pay any  invoice  when  due,  NetWolves  will  charge  interest  on the
outstanding balance of invoices at the lower of 1-1/2% compounded monthly or the
maximum rate  permitted by law.  Anicom shall make payment to NetWolves  for all
Products  purchased by Anicom in a timely  fashion,  all in accordance  with the
terms of payment set forth above.

          (c) Products shall be shipped F.O.B. destination,  such destination to
be  determined  by Anicom.  Title and risk of loss shall  remain with  NetWolves
until  delivery to such  destination  and Anicom will pay the cost of freight so
long as the Products are shipped in accordance with Anicom's instructions.

     8.3  Acceptance  of  Orders.  NetWolves  shall  accept  all  orders for the
Products submitted to NetWolves by the Anicom Group at NetWolves' Tampa, Florida
or  Melville,  New York  locations.  The Anicom Group may cancel an order or any
portion thereof, without charge or penalty, only in the event that such order is
not delivered  within  seventy-five  (75) days of the date on which the order is
submitted to NetWolves.

     8.4 Sales through Reseller Program. All orders of Anicom Resellers shall be
processed and made directly through Anicom.  All Anicom  Resellers  appointed by
NetWolves  under the  Reseller  Program  shall be required to purchase  Products

- -----------------------------------------------------
*   Confidential portions omitted and filed separately with the Commission.

<PAGE>



through Anicom or from NetWolves at their choice,  subject to Section 3.4 above.
All sales of Products to  distributors in NetWolves'  Reseller  Program shall be
pursuant to the  pricing  schedule  set forth on Appendix D, or as amended  from
time to time at NetWolves' option.

     8.5  Inventory Adjustments.  

          (a) NetWolves  agrees to provide Anicom with the opportunity to adjust
its levels of NetWolves  inventory of Products  under the following  conditions.
NetWolves  shall  repurchase or exchange,  at NetWolves'  option (an  "Inventory
Adjustment"):  (i) any newly introduced Products,  defined as Products which are
in the first six (6)  months of the  Product  introduction  period  and were not
previously  stocked by Anicom (for  purposes  herein,  the product  introduction
period begins upon first  receipt of the Products by Anicom),  and (ii) any slow
move return items, defined as new, unused products in original cartons which (1)
have been in Anicom's  inventory for at least three months and (2) have not been
reordered from NetWolves during such three month period.

          (b)  NetWolves  agrees to exchange  or credit to Anicom's  account all
Products in Anicom's  inventory  which have been replaced by updated,  modified,
enhanced,   newly  released  and/or  enhanced  Products,   New  Versions  and/or
Competitive Products ("Improved Product Adjustment").

          (c)  NetWolves  agrees  that it will  allow  Anicom  to  exchange  for
Products of equal value up to fifteen  percent (15%) of the prior purchases made
during each of NetWolves' fiscal quarters subject to the following:

                         (i) Products returned must be unused, undamaged, sealed
          in their original packages and in merchantable condition;

                         (ii) all freight charges for said returns shall be paid
          by Anicom;

                         (iii)     sales of special configurations of Products 
          shall not be subject to exchange; and

                         (iv)  Products  returned  to  NetWolves  as an Improved
          Product  Adjustment  shall not be included in determining  the fifteen
          percent (15%) rotation amount.

     8.6  Inspection Rights.  

          (a) Anicom agrees that NetWolves may conduct periodic  examinations of
the  NetWolves'  stock at Anicom's  location and Anicom agrees to cooperate with
NetWolves'  designated  Quality   Representative  in  conducting  such  periodic

<PAGE>

examinations of Anicom's inventory rotation. NetWolves shall provide Anicom with
at least thirty (30) days' notice prior to conducting any such examinations. All
examinations will be conducted during Anicom's normal business hours.

          (b) NetWolves agrees that Anicom may conduct periodic  examinations of
such of  NetWolves'  books and  records  as are  necessary  in  connection  with
Anicom's review of any Annual  Statement  pursuant to Section 5.1, and NetWolves
agrees  to  cooperate  with  Anicom's  designated  representatives  during  such
examination of NetWolves' books and records. Anicom shall provide NetWolves with
reasonable  notice prior to conducting any such  examinations.  All examinations
shall be conducted during NetWolves' normal business hours.

     8.7 Force  Majeure.  Neither  party hereto shall have any  liability to the
other party hereto on account of any non-performance or delay resulting from any
strike, lockout,  accident, fire, act of God, embargo or governmental action, or
any other like cause  beyond the  control  of such  party,  whether  the same or
different from the matters and things hereinabove specifically enumerated.

            IX. WARRANTY, LIMITATION OF LIABILITY AND INDEMNIFICATION

     9.1  Warranty.  All  Products  sold to the Anicom  Group  pursuant  to this
Agreement  are sold subject to the  standard  warranty of NetWolves as may be in
effect from time to time (the  "Standard  Warranty").  The Anicom Group shall be
entitled to pass on the Standard  Warranty and the warranty set forth in Section
6.4 hereof to any of the Anicom Group's  customers.  NetWolves  agrees to accept
any such warranty claims directed to the Anicom Group or NetWolves by the Anicom
Group's  customers.  The Anicom Group is not  authorized  to assume on behalf of
NetWolves any other  obligation or liability in connection  with the sale of the
Products in addition to the  Standard  Warranty  and the  warranty  set forth in
Section 6.4 except as specifically  approved by NetWolves.  THE  ABOVE-MENTIONED
WARRANTIES  SHALL BE THE SOLE AND  EXCLUSIVE  WARRANTIES OF NETWOLVES AND ARE IN
LIEU OF ALL OTHER WARRANTIES,  EXPRESS, IMPLIED OR STATUTORY,  INCLUDING BUT NOT
LIMITED TO ANY IMPLIED  WARRANTY OF  MERCHANTABILITY  OR FITNESS,  AND NETWOLVES
NEITHER ASSUMES NOR AUTHORIZES  ANICOM TO ASSUME FOR IT ANY OTHER OBLIGATIONS OR
LIABILITY IN  CONNECTION  WITH THE PRODUCTS  WITHOUT  NETWOLVES'  PRIOR  WRITTEN
CONSENT.

     9.2  Limitation of  Liability.  IN NO EVENT SHALL EITHER PARTY BE LIABLE TO
THE OTHER FOR ANY SPECIAL,  INCIDENTAL OR CONSEQUENTIAL  DAMAGES (INCLUDING LOSS
OF PROFIT) OF THE OTHER FOR ANY REASON  WHATSOEVER,  WHETHER  ANY CLAIM FOR SUCH
RECOVERY  IS BASED UPON  THEORIES OF  CONTRACT,  NEGLIGENCE  OR TORT  (INCLUDING
STRICT LIABILITY), AND EVEN IF THE PARTY HAS KNOWLEDGE OF THE POSSIBILITY OF THE
POTENTIAL LOSS OR DAMAGE.

     9.3  Indemnification.  Anicom will promptly notify  NetWolves in writing if
any claim is brought or  threatened  against  the Anicom  Group that arises from
breach of the  representations  and  warranties set forth in Section 6.4 and 9.1
above.  Provided that NetWolves  diligently defends any such claim,  Anicom will
not settle or compromise any such actual or threatened claim without  NetWolves'
prior written consent.  Subject to these  conditions,  NetWolves will indemnify,
defend and hold  harmless  the Anicom  Group  against  all  damages,  losses and
expenses (including reasonable attorneys' fees) that they may suffer or incur in
connection with any such actual or threatened claim. Anicom shall have the right
to employ separate  counsel in any such action and to participate in the defense
thereof,  but the fees and expenses of such counsel  shall not be at the expense
of NetWolves unless NetWolves fails to promptly defend or a conflict shall exist
between the positions of NetWolves  and Anicom,  in which case,  the  reasonable
fees and expenses of such separate counsel shall be borne by NetWolves.

<PAGE>

                          X. TERM; RENEWAL; TERMINATION

     10.1 Term and Renewal. This Agreement shall take effect on the commencement
date as set forth on the title page hereof and shall  continue in full force and
effect for a five year period subject to the terms of Sections 5.3(b) and 10.2.

     10.2   Termination.   The   provision  of  Section  10.1  to  the  contrary
notwithstanding,  this  Agreement  may be  terminated  pursuant  to the terms of
Section 5.3 and additionally as follows:

          (a) By NetWolves, immediately upon giving written notice, in the event
Anicom fails to make full payment of its initial  purchase  order within fifteen
(15) days after delivery of the Products in accordance with this Agreement;

          (b) By  NetWolves,  upon  thirty (30) days'  prior  written  notice to
Anicom at any time during the first two (2) Years, provided that, as a condition
to the  effectiveness  of such  termination,  NetWolves  shall  pay to  Anicom a
termination fee of (i) $ * if such termination  occurs in Year 1, or (ii) $ * if
such termination occurs in Year 2, in each case, payable within ten (10) days of
notice thereof;

          (c) By NetWolves, immediately upon giving written notice, in the event
that there are  instituted  proceedings  by or against  Anicom in  bankruptcy or
under insolvency laws which are not vacated within sixty (60) days from the date
of  filing,  Anicom  makes an  assignment  of all or part of its  assets for the
benefit of creditors or Anicom shall admit insolvency or ceases to exist;

          (d) By either  party,  if a material  breach  shall occur which is not
cured  within a period of thirty  (30) days (ten (10) days with  respect  to any
payment default) after written notice thereof from the non-breaching party;


- -----------------------------------------------------
*   Confidential portions omitted and filed separately with the Commission.

<PAGE>

          (e) By Anicom  immediately  upon giving written  notice,  in the event
that there are instituted  proceedings by or against  NetWolves in bankruptcy or
under insolvency laws which are not vacated within sixty (60) days from the date
of filing,  NetWolves  makes an  assignment of all or part of its assets for the
benefit of creditors or NetWolves shall admit insolvency or ceases to exist; or

          (f) By Anicom in the event that the Products cease to be  manufactured
by or on behalf of NetWolves.

     10.3  Obligations  Upon  Termination.  In the event that this  Agreement is
terminated  by  Anicom  in  accordance  with  the  terms  hereof,  or  NetWolves
terminates  this Agreement  pursuant to Section  10.2(b),  Anicom shall have the
right, but not the obligation, to direct NetWolves to repurchase from Anicom all
or any portion of any new,  undamaged,  and unused  Products  which are in their
original  containers  theretofore sold by NetWolves to Anicom,  and owned by and
remaining in Anicom's inventory (other than Products that have been in inventory
for more than one year),  at the  original  purchase  prices,  exclusive  of any
transportation  charges  originally  paid by Anicom and less any  non-reimbursed
transportation  charges  originally  paid by  NetWolves.  In the event that this
Agreement is terminated by NetWolves in accordance  with the terms hereof (other
than pursuant to Section  10.2(b)),  NetWolves shall have the right, but not the
obligation,  to repurchase Products from Anicom in accordance with the foregoing
at the lower of the  prevailing or original  purchase  prices,  exclusive of any
transportation  charges  originally  paid by Anicom and less any  non-reimbursed
transportation charges originally paid by NetWolves.

                             XI. GENERAL PROVISIONS

     11.1 Assignment.  This Agreement may not be assigned by either party to any
other  individual or business  entity without the prior written  approval of the
non-assigning  party,  provided  that  either  party may  assign  its rights and
obligations  hereunder to any  successor-in-interest  resulting  from a business
combination without the consent of the other party.

     11.2  Notice.  All  notices  permitted  or required  hereunder  shall be in
writing,  and  shall be  effective:  (a) as of the date  sent,  if by  confirmed
facsimile or personal  delivery,  (b) as of the next day  following  the date on
which sent, if sent by nationally  recognized overnight courier or (c) as of the
third day following the date sent, if sent by United States mail,  registered or
certified mail, return receipt  requested,  postage  pre-paid.  All such notices
shall be sent to the respective  parties at the address or facsimile  number set
forth on the signature page hereof or to such other address as may be designated
by either party from time to time by notice given in accordance herewith.

<PAGE>

     11.3 Entire Agreement. This Agreement, together with all attachments hereto
and all purchase  orders  issued  hereunder,  constitutes  the entire  agreement
between the parties and supersedes any and all previous agreements, memoranda or
other understandings of the parties.
This Agreement may be amended only in writing.

     11.4 Severability of Provisions.  A judicial or administrative  declaration
in any  jurisdiction  of the  invalidity  of any one or  more of the  provisions
hereof shall not  invalidate  the remaining  provisions of this Agreement in any
jurisdiction,  nor shall such  declaration  have any effect on the  validity  or
interpretation of this Agreement outside of that jurisdiction.

     11.5 Waiver of  Compliance.  Any failure by any party  hereto to enforce at
any time any term or condition  under this Agreement shall not be construed as a
waiver of that  party's  right  thereafter  to  enforce  each and every term and
condition of this Agreement.

     11.6  Binding Upon  Successors.  This  Agreement  shall be binding upon the
successors and legal representatives of the parties hereto.

     11.7 Jurisdiction and Governing Law. This Agreement shall be deemed to have
been made in the State of New York, and shall be construed according to the laws
of that  state.  Anicom  consents  to the  jurisdiction  of any court of general
jurisdiction  located  within the Borough of Manhattan,  City of New York,  with
respect to any legal proceedings arising out of this Agreement,  and agrees that
the mailing to its last known  address by  registered  mail of any process shall
constitute lawful and valid service of process in any such proceeding,  suit, or
controversy.  Anicom  shall  bring  any  legal  proceeding  arising  out of this
Agreement  only in the  federal  or  state  courts  located  in the  Borough  of
Manhattan, City of New York.

<PAGE>


     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
executed in duplicate  originals by their duly  authorized  representatives  the
date and year first set forth on the title page hereof.

NETWOLVES CORPORATION 



Telecopy No.:                                  
Attn:                                              


BY:/s/____________________________        

TITLE:__________________________

DATE:__________________________


ANICOM, INC. 
6133 North River Road
Suite 1000
Rosemont, Illinois  60018-5171
Telecopy No.:  (847) 518-8777
Attn:  Scott C. Anixter


BY:/s/___________________________

TITLE:__________________________

DATE:__________________________

<PAGE>


                                   APPENDIX A


                                ANICOM RESELLERS

     List to be provided and updated from time to time by Anicom.

<PAGE>


                                   APPENDIX B

                             DESCRIPTION OF PRODUCT

<PAGE>


                                   APPENDIX C

                            INITIAL TRAINING SCHEDULE


                        SEE ATTACHED TRAINING SCHEDULE.

<PAGE>


                                   APPENDIX D

                                   PRICE LIST

                 SEE ATTACHED NETWOLVES PRICE LIST DATED 10/98

<PAGE>


                                   APPENDIX E

                                RESELLER PROGRAM

     NetWolves  Reseller  Program (the Program) is designed to give resellers of
its  products  a  discount  off of the  established  list  price  determined  by
NetWolves  in  order  to  quickly  penetrate  the  market.   Various  levels  of
distributorships  have been established to accomplish this. All distributorships
are given on a non-exclusive basis, except as provided in the Agreement to which
this is attached,  although  resellers  below the Master  Distributor  level are
required  to select a Master  Distributor  through  whom all of their  sales are
ordered and processed. All participants in the Program must enter into a written
agreement with NetWolves which  specifically  sets forth all of the requirements
and obligations.  The following is a list of the current levels of participation
in the Program:

1.   Exclusive Master Distributor

               (a)  Commit to the  purchase  of 1,500,  3,000,  10,000,  20,000,
          30,000 units of product in years 1,2,3,4 and 5  respectively  and have
          established national  distribution  channels.  All other resellers may
          order through the Exclusive Master  Distributor in order to obtain the
          listed discount off list price.

               (b) Platinum Level Reseller/Distributor: Sell a minimum volume of
          1000 Units of product per year and receive 40% off list.

               (c) Gold  Level  Reseller/Distributor:  Sell a minimum  volume of
          501-999 Units of product per year and receive 35% off list.

               (d) Silver Level  Reseller/Distributor:  Sell a minimum volume of
          250-500 Units of product per year and receive 30% off list.

               (e) Bronze Level  Reseller/Distributor:  Sell a minimum volume of
          1-249 Units of product per year and receive 25% off list.



                                                            Exhibit 10.4

                              EMPLOYMENT AGREEMENT
                                       OF
                             Daniel G. Stephens, Jr.


     This EMPLOYMENT  AGREEMENT  ("Agreement") dated as of the 15th day of June,
1998, between Daniel G. Stephens,  Jr.  ("Executive") an individual  residing at
3216 W. Santiago St., Tampa, Fl 33629, and NetWolves  Corporation  ("Company") a
New York  Corporation  having its principal place of business at 33 Walt Whitman
Dr., Suite 125, Huntington Station, New York 11743;

                                   WITNESSETH:

      WHEREAS, the Company desires to retain Executive as the President of
Manufacturing, Research and Development of the Company, and Executive desires to
perform such duties,

        NOW, THEREFORE, it is mutually agreed by and among the parties as
follows:

Section 1. Employment.

     Upon the terms and subject to the conditions  contained herein,  during the
Employment Term (hereinafter  defined),  the Company hereby employs Executive as
the  President  of  Manufacturing,  Research  and  Development  of the  Company.
Executive  shall be  responsible  for such duties as are  commensurate  with his
office and as may from time to time be  assigned  to  Executive  by the Board of
Directors  of the  Company.  Executive  shall  report  directly  to  the  Board.
Executive  hereby accepts such  employment and during the Employment  Term shall
devote his full business  time,  skill,  energy and attention to the business of
the Company, and shall perform his duties in a diligent,  trustworthy, loyal and
businesslike and efficient manner, all for the purpose of advancing the business
of the Company.  Executive shall not be engaged in any other business  activity,
whether or not the  activity is pursued  for gain,  profit,  or other  pecuniary
advantage,  during the term of this Agreement  without  Company's  prior written
consent. Executive agrees to serve, if elected, as an officer and/or director of
the  Company  and  any  of its  subsidiaries  without  additional  compensation.
However,  Executive  shall not be required to serve as an officer or director of
any of the Company's  subsidiaries if to do so would expose Executive to adverse
financial consequences.

Section 2. Compensation.

     2.1.  Salary.  During the  Employment  Term,  the  Company  shall pay,  and
Executive  shall be entitled to receive from the  Company,  as a base salary for
the  employment  referred  to in Section 1 hereof,  compensation  at the rate of
$100,000 per annum,  payable in 26 equal  installments.  Executive's base salary
shall be increased after the first full year as follows:

<PAGE>

          (A)   to $130,000 per annum, payable in 26 equal installments;

          (B)  to $150,000 per annum,  payable in 26 equal installments,  if the
               operating  subsidiary  NetWolves  Corporation  generates revenues
               between $5,000,000 and $9,999,999, within one year of the initial
               employment term.

          (C)  to $250,000 per annum, payable in 26 equal installments,  if the
               operating subsidiary NetWolves  Corporation generated revenues of
               at least  $10,000,000,  within one year of the initial employment
               term.  The base  salary  will be reviewed at least once a year by
               the  Company's  Board of  Directors  and may be  increased if the
               performance of the Company warrants any such increase.

      2.2.  Bonus.  Executive shall be entitled to a bonus of 2% of gross profit
of the  Company.  One  fourth  of the  bonus  will be paid  quarterly  after the
completion of the Company's  quarterly  financial  statement,  and the remaining
balance will be paid after the completion of the annual financial statement.

     2.3. Stock Options; Warrants: Executive shall be entitled to receive in the
aggregate  warrants to purchase  200,000  shares of the stock of the Company and
shall also share in an employee stock option plan. The warrants,  which shall be
subject to a separate Warrant Agreement, shall provide as follows:

     (A)  50,000  warrants will become  exercisable if the operating  subsidiary
          generates  revenues  of at least  $5,000,000,  without a pretax  loss,
          within one year following the signing of this  agreement;  

     (B)  100,000 warrants will become  exercisable if the operating  subsidiary
          generates revenues of at least $10,000,000 in revenues,  with at least
          $2,000,000 in pretax profit [before interest, taxes, depreciation, and
          amortization  ("EBITDA")],  within one year  following  the signing of
          this Agreement; and
                
     (C)  50,000  warrants will become  exercisable if the operating  subsidiary
          generates  revenue of $10,000,000  with at least  $1,000,000 in pretax
          profit (EBITDA),  within the second year following the signing of this
          Agreement;
              
     (D)  If  the  warrants  described  in  paragraph  2.3  (2)  do  not  become
          exercisable  under the  conditions  stated,  then such  warrants  will
          become exercisable if the operating subsidiary  generates  $20,000,000
          in revenues, with at least $4,000,000 in pretax income (EBITDA) during
          the second year following  the  signing  of this  agreement.  

     The Company  agrees to establish an employee  stock option plan and reserve
at least  282,500  shares of the common stock of the Company for issuance  under
the plan.

          2.4. Expenses.  The Company shall reimburse Executive for all expenses
incurred and paid by Executive  in the course of the  performance  of his duties
pursuant to this Agreement and consistent with the Company's  policies in effect
from time to time with  respect  to  travel,  entertainment  and other  business
expenses,  and subject to the Company's  requirements with respect to the manner
of reporting such expenses.

<PAGE>

     2.6. Fringe Benefits. Executive shall be entitled to participate in various
fringe benefit programs now in force or hereafter established by the Company for
all employees of the Company,  provided,  however, that such participation shall
be subject to all of the terms and  conditions  pertaining  to said  programs as
they may now exist or as  hereafter  adopted,  modified or  amended.  The fringe
benefit  program of the  Company  may be changed or  canceled at any time by the
Company in its sole discretion without prior notice to or consent of Executive.

     2.7.  Vacation.  Executive  shall be entitled to a paid vacation of two (2)
weeks commencing six (6) months from the Effective Date of this Agreement, three
(3) weeks after the first year and four (4) weeks every year thereafter.

     2.8.  Holidays.  Executive  shall be entitled to the same paid  holidays as
authorized by the Company for all its other executives.

Section 3.     Employment Term.

     3.1.  Employment  Term.  The  Employment  Term  shall  be three  (3)  years
commencing  on the  date  of the  signing  of  this  Agreement.  The  Employment
Agreement  will be  automatically  renewed  for another  three (3) years  unless
otherwise terminated or canceled pursuant to Section 4 hereof.

Section 4.     Termination

     4.1.  Death.  The Agreement  shall  terminate  upon death of the Executive.
Should the Agreement terminate as a result of Executive's death, the Executive's
Estate  shall  be  entitled  to  receive  compensation  equal to six  months  of
Executive's base salary, base salary determined at the time of death.

     4.2. Termination by Company.

     (a) Termination For Cause. Company may terminate Executive's employment for
cause.

     (b) 'Cause'  Defined.  Company  shall have cause to  terminate  Executive's
employment  if  Executive  wilfully  fails to  substantially  perform any duties
required by this Agreement (unless  Executive's  failure is due to a physical or
mental incapacity), Executive is consistently, flagrantly, and grossly negligent
in the  performance  of  required  duties,  Executive  engages in  conduct  that
demonstrably  and  substantially  damages  Company,  Executive is convicted of a
felonious act of moral turpitude,  or Executive discloses material  confidential
information  in  violation  of  this  Agreement.  No  act or  failure  to act by
Executive may be considered  "wilful"  unless  Executive  acted or failed to act
without any  reasonable  belief that the act or omission was in  Company's  best
interests and without good faith.

<PAGE>

               (c)  Resolution  Finding  Cause for  Termination  of  Executive's
Employment.  Before  Executive's  employment  may be  terminated  for  cause,  a
majority of the entire membership of Company's Board of Directors (not including
Executive)  must duly adopt a resolution  finding in good faith that Company has
cause  to  terminate  Executive's  employment  and  specifying  the  details  of
Executive's  misconduct.  Before  the  Board  of  Directors  may  adopt  such  a
resolution,  Executive  must be given  reasonable  notice and  opportunity to be
heard by the Board of Directors and must be permitted to appear before the Board
of Directors  with  counsel.  The Board of Directors  may not adopt a resolution
terminating  Executive's employment for cause unless it receives a report from a
firm of independent  attorneys (not  including  counsel for Company)  concluding
that the Board of Directors  has cause  within the meaning of this  agreement to
terminate  Executive's  employment.  The firm of  independent  attorneys must be
selected by a majority of the entire  membership of the Board of Directors  (not
including  Executive)  and must be reasonably  acceptable to Executive.  If this
Agreement is terminated  by Company for cause,  each party's  obligations  under
this  Agreement  shall  thereupon  cease and  terminate  except for  obligations
accrued but undischarged to and including the date of such event

     4.3.  Termination  by  Executive.  Executive  may (but is not obligated to)
terminate this Agreement at any time under the following circumstances:

     (a)  Executive's  health becomes so impaired that continued  performance of
          Executive's   duties  under  this  Agreement  would  be  hazardous  to
          Executive's physical or mental health.

     (b)  Change in control.  There is a change in control of Company if someone
          other than the  subscribers  to Company's  common stock at the time of
          the signing of this Agreement  becomes the beneficial  owner of common
          stock  representing  20 percent or more of the voting power of Company
          or during any three year period during the term of this  Agreement the
          individuals  who constitute the Board of Directors at the beginning of
          the  period  cease to  constitute  at least a  majority  of the  Board
          members at the end of the three-year  period for any reason other than
          death or  disability.  No  transaction or event will be deemed to have
          caused a change in control if  Executive  gives  prior  consent to the
          transaction or event.
  
     (c)  Executive is assigned  duties that are  significantly  different  than
          those  described in this Agreement,  or duties  assigned  Executive by
          this Agreement are eliminated or transferred to someone else.

     (d)  Executive is removed from any of the positions  described in Section 1
          of this Agreement (other than by Company for cause).

     (e)  Executive's  fringe  benefits  or other  compensation  are  materially
          reduced.

     (f)  Company requires Executive to travel more frequently than contemplated
          by this Agreement.


<PAGE>

     (g)  Company fails to have a successor assume this Agreement.

     (h)  Company becomes insolvent or files a bankruptcy petition.

     4.4.  Notice of Termination.  Any termination of Executive's  employment by
Company or Executive must be communicated to the other party by a written Notice
of  Termination.  The  notice  must  specify  the  provision  of this  Agreement
authorizing the  termination  and must set forth in reasonable  detail the facts
and circumstances providing the basis for termination of Executive's employment.

     4.5. Date Termination Is Effective.  If Executive's  employment  terminates
because this Agreement expires,  then Executive's  employment will be considered
to have terminated on that expiration date. If Executive's employment terminates
because of Executive's death, then Executive's  employment will be considered to
have terminated on the date of Executive's  death. If Executive's  employment is
terminated by Executive,  then Executive's employment will be considered to have
terminated on the date that a Notice of  Termination  is given.  If  Executive's
employment is terminated by Company for cause, then Executive's  employment will
be  considered  to have  terminated  on the date  specified  by the  "Notice  of
Termination."  If, within 30 days after a Notice of  Termination  is given,  the
party  receiving  the notice  notifies  the other  party that there is a dispute
concerning the termination,  then Executive's  employment will not be considered
to have terminated until the dispute is ended by a written agreement between the
parties, a final arbitration  award, or a final judgment,  order, or decree of a
court of  competent  jurisdiction.  A judgment,  order,  or decree of a court of
competent  jurisdiction  will be considered  final if the time for appealing the
decision has expired and no appeal has been perfected.

         4.6. Compensation Following Termination.

     (a)  If Executive's employment terminates because of Executive's death, the
          Company  shall pay a lump sum death  benefit  to the person or persons
          designated in a written  notice filed with Company by Executive or, if
          no person has been designated,  to Executive's  estate.  The amount of
          the lump sum death benefit will equal the amount of  Executive's  then
          current  base salary plus the amount of  incentive  compensation  paid
          Executive most recently prior to Executive's death,  multiplied by the
          number of full and  partial  years  that  Executive  was  employed  by
          Company. This lump sum death benefit shall be in addition to any other
          amounts that Executive's  beneficiaries  and estate may be entitled to
          receive under any employee benefit plan maintained by Company.

     (b)  If Executive's  employment is terminated by Company for cause, Company
          shall pay to Executive  Executive's  then current base salary  through
          the date  employment is terminated,  and Company shall have no further
          obligations to Executive under this Agreement.

     (c)  If Company  terminates  Executive's  employment  other than for cause,
          Company  shall pay  Executive  Executive's  then  current  base salary
          through  the date  employment  is  terminated  and any legal  fees and
          expenses  incurred by  Executive to enforce  Executive's  rights under
          this Agreement. In addition, Company shall pay Executive as liquidated

<PAGE>

          damages an amount  equal to the sum of  Executive's  then current base
          salary plus the amount of  incentive  compensation  paid to  Executive
          most recently before the date  Executive's  employment was terminated,
          multiplied  by the number of full and partial  years  remaining in the
          term of this Agreement (including extensions),  and further multiplied
          by 50% percent if Executive's  employment  terminates  during the year
          ending  December  31,  1998,  75%  percent if  Executive's  employment
          terminates  during the year ending  December 31, 1999, or 100% percent
          if Executive's  employment  terminates during the year ending December
          31, 2000 or a subsequent year.

     (d)  If  Executive's  employment  is  terminated by Executive in accordance
          with the  provisions  of this  Agreement,  Company shall pay Executive
          severance pay in an amount equal to the sum of Executive's base salary
          plus the  amount of  incentive  compensation  paid to  Executive  most
          recently  before  the  date  Executive's  employment  was  terminated,
          multiplied by fifty percent (50%).

     (e)  Company  and  Executive  intend  that no  portion of the  payments  to
          Executive  contingent  on a change in  control  of Company be deemed a
          parachute  payment,  as that term is defined by Section  28OG(b)(2) of
          the  Internal  Revenue  Code.  Company  and  Executive  agree that the
          present  value (as that term is defined by Section  28OG(d)(4)  of the
          Internal  Revenue Code) of the  termination  payments  contingent on a
          change in control of  Company  shall not exceed the amount  that could
          cause the payments to be characterized as a parachute payment.  If the
          present  value of the  payments  to be made to  Executive  exceed  the
          amount;  that  could  cause  the  payments  to be  characterized  as a
          parachute payment,  then the amount of those payments shall be reduced
          so that their  present  value  equals one dollar  less than the amount
          that would  cause the  payments  to be  characterized  as a  parachute
          payment.

         4.7.  Health  insurance  upon  termination.  In the event  the  Company
terminates  this  Agreement  with  Executive  for  reasons  other  than those in
Sections 4.1, and 4.2(a),  the Executive shall be entitled to receive continuing
benefits of health insurance coverage for a six month period.

Section 5.    Disability.

         5.1.  Replacement  Because  of  Disability.  If,  because of illness or
injury,  Executive becomes unable to work full time for the Company for a period
of more than 90 days, Company may, in its sole discretion at any time after that
period give Executive 30 days written  notice that it will replace  Executive if
Executive is unable to return to work full time before the date specified in the
written  notice.  Replacement of Executive shall not be considered a termination
of Executive's employment under this Agreement.

     5.2. Compensation During Periods of Disability.

     (a)  Executive  shall  continue  to  receive  Executive's  base  salary and
          incentive  compensation  while  Executive  is unable to work full time
          until Executive is replaced or until Executive terminates  Executive's
          employment with Company because Executive's health becomes so impaired
          that continued performances of Executive's duties under this Agreement
          would be hazardous to Executive's physical or mental health.
<PAGE>

     (b)  While  Executive  is unable to work full time  because  of  illness or
          injury  and  through  the  full  term  of  this  Agreement,  including
          extensions,   Company  shall  maintain  for  Executive's  benefit  all
          employee  benefit plans in which  Executive was  participating  at the
          time Executive was replaced. If Executive is barred from participating
          in any  employee  benefit  plan  because  of  Executive's  disability,
          Company shall pay Executive an amount equal to what Company would have
          contributed  on  Executive's  behalf to the  employee  benefit plan if
          Executive's participation had not been barred.

     (c)  After  Executive  is  replaced or receives  notice that  Executive  is
          terminating  employment  because  Executive's  health  has  become  so
          impaired that continued  performance of Executive's  duties under this
          Agreement would be hazardous to Executive's physical or mental health,
          Company shall pay Executive an amount equal to the sum of  Executive's
          base  salary  plus  the  amount  of  incentive  compensation  paid  to
          Executive  most recently  before the date  Executive's  employment was
          terminated, multiplied by fifty percent (50%)

     (d)  Executive  is not  required to seek other  employment  to mitigate any
          amounts payable under this  Agreement.  Nor will amounts due Executive
          under this  Agreement be reduced by any amounts  received by Executive
          for  other  employment.  

     5.3. Disability Insurance.  Company shall purchase and use its best efforts
to  maintain  disability  insurance  in  force  for  the  benefit  of  Executive
throughout the term of this Agreement (including  extensions).  The policy shall
replace fifty percent of Executive's  Base Salary,  start paying  benefits after
Executive  has  been  unable  to work  full-time  for 90 days,  continue  paying
benefits  until  Executive  reaches  age 65, and waive  premium  payments  while
Executive is disabled.  If Company  fails to make a premium  payment,  Executive
shall have the right in Executive's sole discretion to advance such funds as may
be required to maintain the policy in force and shall  thereafter be entitled to
recover amounts paid from Company.

Section 6.    Business Properties.

     6.1.  Business  Properties  Other than as required to perform his duties in
accordance with this Agreement and for purpose of furthering the business of the
Company,  Executive shall not use or cause to be used Company's trade secrets or
any other confidential business information by him as a result of his employment
or relationship to the Company or any affiliate of the Company.

     6.2. Revealing Trade Secret,  etc.  Executive  acknowledges the interest of
the Company in maintaining  the  confidentiality  of information  related to its
business  and shall not at any time during the  Employment  Term or  thereafter,
directly or  indirectly,  reveal or cause to be revealed to any person or entity
the production processes, inventions, formulae, trade secrets, customer lists or

<PAGE>

any other confidential information obtained by him as a result of his employment
or  relationship  with the Company or any affiliate of the Company,  except when
authorized in writing to do so by the Company, provided, however, that it is not
the intent of this Section 5.2 to include within the subject matter  information
not  proprietary  to the Company or  information  which is in the public domain.
Confidential  information  does  not  include  any  information  that  is  known
generally by the public  (other than as a result of  unauthorized  disclosure by
Executive)  or  information  that is not  the  type  of  information  considered
confidential  by persons  engaged  in a business  that is the same of similar to
that  conducted  by the  company.  Confidential  information  is material if its
disclosure would be materially damaging to the Company.

Section 7.    Non-Competition.

     7.1.  Non-Competition.  During the Employment  Term and for a period of one
(1) year thereafter,  Executive shall not (a) compete,  engage,  or participate,
directly or indirectly, in the business or business substantially similar to the
business as  conducted by the Company or as may  thereafter  be conducted by the
Company  at any time  during the  Employment  Term,  (b)  solicit or cause to be
solicited any customers of the Company, or (c) recruit or cause any other person
to recruit any employee of the Company to any of said business or businesses.

     7.2.  Prior  Notice.  Prior  to  engaging  in  any  activity  or  accepting
employment  with  another  company any time within one (1) year after  Executive
leaves the  employment  of the Company,  which  activity or employment is in the
same or related  industry in which the Company is engaged,  Executive  agrees to
provide at least thirty (30) days prior written  notice (by  certified  mail) to
the Company,  stating the description of the activities or position sought to be
undertaken by Executive,  together with such further  information as the Company
may request in connection  therewith  (including,  but not limited to,  location
where the services  would be performed,  the present or former  customers of the
Company who may be anticipated to receive such services,  etc.). Upon receipt of
such information from Executive,  the Company shall, within fifteen (15) days of
the receipt of all of the requested  information,  notify Executive  whether the
Company objects to the otherwise prohibited services of activities by Executive.
If the Company does not object or does not respond,  the  restrictions set forth
in Section 6 shall have no force and effect. The Company shall be free to object
or not to object in  unfettered  discretion,  and parties agree that any actions
taken or not taken by the Company with respect to any other  employees or former
employees shall have no bearing  whatsoever on the Company's  decision or on any
question  regarding  the  enforceability  of  this  restraint  with  respect  to
Executive.

     7.3. Limitations. It is also agreed that if for any reason the area or time
restrictions  set forth  above are too broad so as to be  unenforceable  by law,
then they, or either one of them, shall be reduced to such area or time as shall
be legally enforceable.  If it is judicially  determined that this agreement not
to compete,  or any potion thereof, is illegal or offensive under any applicable
law (statute,  common law or  otherwise),  then it is hereby agreed by Executive
and the Company  that the  non-competition  covenant  shall be in full force and
effect to the full  extent  permitted  by law.  By this  agreement,  the parties
intend to have this  agreement  not to compete to be in full force and effect to
the greatest extent permitted.


<PAGE>

Section 8.    Inventions.

     8.1. Assignment.  Without further  consideration  Executive shall fully and
promptly  report to the Company  all ideas,  concept,  inventions,  discoveries,
formulae  and designs  conceived or produced by Executive at any time during the
Employment  Term,  whether  alone  or with  others  and  whether  patentable  or
unpatentable (collectively, "Inventions") pertaining, directly or indirectly, to
the business of the Company as conducted at any time during the Employment Term,
and  shall  assign  and  hereby  does  assign  to the  Company  or  its  nominee
Executive's entire right, title and interest in and to all such Inventions.

     8.2.  Cooperation.  Executive shall take all reasonable action requested by
the  Company  to protect or obtain  title to any and all  United  States  and/or
foreign patents on any such Inventions,  including execution and delivery of all
applications.  assignments and other documents  deemed necessary or desirable by
the Company,  provided Executive is reimbursed for reasonable  expenses incurred
by Executive in connection with such execution and delivery.

Section 9.    Miscellaneous.

     9.1.  Remedies.  The parties  acknowledge  that any breach or  violation by
Executive  of  the  terms  of  this  Agreement  will  result  in  immediate  and
irreparable injury and harm to the Company, and will do damage to the Company in
amounts  difficult to ascertain.  Accordingly,  the company shall be entitled to
remedies of injunction,  as well as to all other legal or equitable  remedies to
which the Company may be entitled,  including, without limitation termination of
the Employment Term and this Agreement.

     9.2. Certain definitions. For the purposes of this Agreement, the following
terms shall have the following meanings:

         (a) "Engage in or participate in any business" referred to in Section 7
hereof shall be deemed to mean engaging in or  participating  in any business or
businesses,  directly or indirectly,  whether for his own account or for that of
any other person, firm, or corporation,  and whether as a stockholder (except as
a  stockholder  in a  publicly-held  corporation  with more than 500  holders of
common stock of which Executive owns less than 1 % of the outstanding securities
of  any  class),  principal,  agent,  proprietor,  partner,  officer,  director,
employee or consultant, or in any other capacity;

     9.3. Notices. Any notice or other  communications  required or permitted to
be given to the parties hereto shall be deemed to have been given when received,
addressed as follows (or at such other  address as the party  addressed may have
substituted by notice pursuant to this Section 8.3.

         (a)  If to the Company:   NetWolves Corporation
                                   33 Walt Whitman Dr., Suite 125
                                   Huntington Station, New York 11743;

         (b)  If to Executive:     Daniel G. Stephens, Jr.
                                   3216 W. Santiago St.
                                   Tampa, Fl 33629

<PAGE>

     9.4. Heading.  The captions set forth in this Agreement are for convenience
only and  shall not be  considered  as part of this  Agreement  or as in any way
limiting or amplifying the terms and provision hereof.

     9.5.  Governing  Law. The Agreement  shall in all respects be  interpreted,
construed  and  governed  by and in  accordance  with  the law of the  State  of
Florida.

     9.6.  Severability.  In  case  this  Agreement  or any  one or  more of the
provisions hereof, shall be held to be invalid,  illegal or unenforceable within
any governmental  jurisdiction or subdivision thereof, the Agreement or any such
provision  or  provisions  shall not as a  consequence  thereof  be deemed to be
invalid,  illegal or  unenforceable  in any other  governmental  jurisdiction or
subdivision thereof. In case any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid,  illegal or  unenforceable
in any other respect, such invalidity,  illegality or unenforceability shall not
affect  any other  provision  of this  Agreement,  but this  Agreement  shall be
construed as if such invalid,  illegal or unenforceable provision had never been
contained  herein and there shall be deemed  substituted such other provision as
will most nearly accomplish the intent of the parties to the extent permitted by
applicable law.

     9.7.  Whole  Agreement.  This Agreement  embodies all the  representations,
warrants  covenants and  agreements of the parties in relation to subject matter
hereof,  and  no  representations,   warranties,  covenants,  understandings  or
agreements,  or otherwise,  in relation thereto exist between the parties except
as herein  expressly  set forth herein,  or in any  instrument in writing by the
party to be bound thereby which makes reference to this Agreement.

     9.8. No Rights in Third  Parties.  Nothing  herein  expressed or implied is
intended to or shall be construed to confer upon or give to any person,  firm or
other entity, other than the parties hereto and their respective  successors and
assigns or personal  representatives,  any rights or remedies under or by reason
of this Agreement.

     9.9.  Amendment.  This  Agreement may not be amended  orally but only by an
instrument in writing duly executed by the parties hereto.

     9.10. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts,  each of which shall be deemed an original,  but all of which
together shall constitute one and the same Agreement.

         In WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.

EXECUTIVE                                    NetWolves Corporation

_______________________                      By:_______________________
Daniel G. Stephens, Jr.                             President




                         
                                                            Exhibit 10.5
                                 Approved by Board of Directors on June 15, 1998

                             WATCHDOG PATROLS, INC.

                          1998 Performance Equity Plan


Section  1.    Purpose; Definitions.

     1.1 Purpose.  The purpose of the Watchdog  Patrols,  Inc.  ("Company") 1998
Performance  Equity  Plan  ("Plan") is to enable the Company to offer to its key
employees,  officers,  directors  and  consultants  whose past,  present  and/or
potential  contributions to the Company and its  Subsidiaries  have been, are or
will be  important to the success of the Company,  an  opportunity  to acquire a
proprietary  interest in the Company.  The various types of long-term  incentive
awards  which may be provided  under the Plan will enable the Company to respond
to changes in compensation  practices,  tax laws, accounting regulations and the
size and diversity of its businesses.

     1.2  Definitions.  For purposes of the Plan,  the following  terms shall be
defined as set forth below:

          (a) "Agreement" means the agreement between the Company and the Holder
setting forth the terms and conditions of an award under the Plan.

          (b) "Board" means the Board of Directors of the Company.

          (c) "Code"  means the Internal  Revenue Code of 1986,  as amended from
time to  time,  and  any  successor  thereto  and  the  regulations  promulgated
thereunder.

          (d) "Committee"  means the Stock Option  Committee of the Board or any
other  committee of the Board,  which the Board may designate to administer  the
Plan  or any  portion  thereof.  If no  Committee  is so  designated,  then  all
references in this Plan to "Committee" shall mean the Board.

          (e) "Common  Stock" means the Common  Stock of the Company,  par value
$.0033 per share.

          (f) "Company" means Watchdog  Patrols,  Inc., a corporation  organized
under the laws of the State of New York.

          (g) "Deferred  Stock" means Stock to be received,  under an award made
pursuant to Section 9, below, at the end of a specified deferral period.

          (h)  "Disability"  means  disability  as determined  under  procedures
established by the Committee for purposes of the Plan.

          (i) "Effective Date" means the date set forth in Section 13.1, below.

          (j) "Fair Market Value",  unless otherwise  required by any applicable
provision of the Code or any  regulations  issued  thereunder,  means, as of any
given date: (i) if the Common Stock is listed on a national  securities exchange
or quoted on the Nasdaq National Market or Nasdaq SmallCap Market, the last sale
price of the Common Stock in the principal  trading  market for the Common Stock
on the last trading day  preceding the date of grant of an award  hereunder,  as
reported by the exchange or Nasdaq, as the case may be; (ii) if the Common Stock
is not listed on a national securities exchange or quoted on the Nasdaq National
Market or Nasdaq SmallCap Market, but is traded in the over-the-counter  market,
the closing bid price for the Common Stock on the last trading day preceding the
date of grant of an award  hereunder for which such  quotations  are reported by

<PAGE>

the OTC Bulletin Board or the National Quotation Bureau, Incorporated or similar
publisher of such  quotations;  and (iii) if the fair market value of the Common
Stock cannot be determined  pursuant to clause (i) or (ii) above,  such price as
the Committee shall determine, in good faith.

          (k) "Holder" means a person who has received an award under the Plan.

          (l) "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive  stock option"  within the meaning of Section 422 of
the Code.

          (m) "Nonqualified  Stock Option" means any Stock Option that is not an
Incentive Stock Option.

          (n) "Normal  Retirement"  means retirement from active employment with
the Company or any Subsidiary on or after age 65.

          (o) "Other  Stock-Based Award" means an award under Section 10, below,
that is valued in whole or in part by reference to, or is otherwise  based upon,
Stock.

          (p) "Parent"  means any present or future  parent  corporation  of the
Company, as such term is defined in Section 424(e) of the Code.

          (q) "Plan" means the Watchdog  Patrols,  Inc. 1998 Performance  Equity
Plan, as hereinafter amended from time to time.

          (r)  "Restricted  Stock"  means  Stock,  received  under an award made
pursuant to Section 8, below, that is subject to restrictions under said Section
8.

          (s) "SAR  Value"  means the  excess of the Fair  Market  Value (on the
exercise date) of the number of shares for which the Stock Appreciation Right is
exercised over the exercise price that the participant  would have otherwise had
to pay to exercise the related Stock Option and purchase the relevant shares.

          (t) "Stock"  means the Common Stock of the  Company,  par value $.0033
per share.

          (u) "Stock  Appreciation  Right"  means the right to receive  from the
Company, on surrender of all or part of the related Stock Option, without a cash
payment  to the  Company,  a number of shares of Common  Stock  equal to the SAR
Value divided by the exercise price of the Stock Option.

          (v) "Stock Option" or "Option" means any option to purchase  shares of
Stock which is granted pursuant to the Plan.

          (w) "Stock Reload  Option" means any option granted under Section 6.3,
below, as a result of the payment of the exercise price of a Stock Option and/or
the  withholding tax related thereto in the form of Stock owned by the Holder or
the withholding of Stock by the Company.

          (x) "Subsidiary" means any present or future subsidiary corporation of
the Company, as such term is defined in Section 424(f) of the Code.


<PAGE>

Section  2.    Administration.

     2.1 Committee Membership.  The Plan shall be administered by the Board or a
Committee.  Committee members shall serve for such term as the Board may in each
case determine, and shall be subject to removal at any time by the Board.

     2.2 Powers of Committee.  The Committee shall have full authority to award,
pursuant to the terms of the Plan:  (i) Stock Options,  (ii) Stock  Appreciation
Rights,  (iii) Restricted  Stock,  (iv) Deferred Stock, (v) Stock Reload Options
and/or (vi) Other  Stock-Based  Awards.  For purposes of illustration and not of
limitation,  the  Committee  shall have the  authority  (subject  to the express
provisions of this Plan):

          (a) to select the officers,  key employees,  directors and consultants
of the  Company or any  Subsidiary  to whom Stock  Options,  Stock  Appreciation
Rights,  Restricted  Stock,  Deferred  Stock,  Reload Stock Options and/or Other
Stock-Based Awards may from time to time be awarded hereunder.

          (b) to determine the terms and conditions,  not inconsistent  with the
terms of the Plan, of any award granted  hereunder  (including,  but not limited
to,  number  of  shares,  share  price  or  other  consideration,  such as other
securities of the Company or other  property,  any  restrictions or limitations,
and any vesting, exchange, surrender, cancellation,  acceleration,  termination,
exercise or forfeiture provisions, as the Committee shall determine);

          (c) to determine any specified performance goals or such other factors
or  criteria  which need to be  attained  for the  vesting  of an award  granted
hereunder;

          (d) to determine the terms and  conditions  under which awards granted
hereunder are to operate on a tandem basis and/or in  conjunction  with or apart
from other equity awarded under this Plan and cash awards made by the Company or
any Subsidiary outside of this Plan;

          (e) to  permit a Holder  to elect to defer a  payment  under  the Plan
under such rules and  procedures as the Committee may  establish,  including the
crediting of interest on deferred  amounts  denominated  in cash and of dividend
equivalents on deferred amounts denominated in Stock;

          (f) to determine  the extent and  circumstances  under which Stock and
other amounts payable with respect to an award hereunder shall be deferred which
may be either automatic or at the election of the Holder; and

          (g) to substitute (i) new Stock Options for  previously  granted Stock
Options,  which  previously  granted Stock  Options have higher option  exercise
prices and/or  contain other less  favorable  terms,  and (ii) new awards of any
other type for  previously  granted  awards of the same type,  which  previously
granted awards are upon less favorable terms.

     2.3  Interpretation of Plan.

          (a) Committee  Authority.  Subject to Section 12, below, the Committee
shall have the authority to adopt, alter and repeal such  administrative  rules,
guidelines and practices governing the Plan as it shall, from time to time, deem
advisable,  to  interpret  the  terms and  provisions  of the Plan and any award
issued under the Plan (and to determine the form and substance of all Agreements
relating  thereto),  and to otherwise  supervise the administration of the Plan.
Subject to Section 12, below,  all decisions  made by the Committee  pursuant to
the provisions of the Plan shall be made in the Committee's  sole discretion and
shall be final  and  binding  upon  all  persons,  including  the  Company,  its
Subsidiaries and Holders.

          (b)  Incentive  Stock  Options.  Anything in the Plan to the  contrary
notwithstanding,  no term or provision of the Plan  relating to Incentive  Stock
Options  (including  but limited to Stock Reload  Options or Stock  Appreciation
rights granted in conjunction  with an Incentive  Stock Option) or any Agreement
providing for Incentive Stock Options shall be interpreted,  amended or altered,
nor shall any discretion or authority granted under the Plan be so exercised, so
as to disqualify the Plan under Section 422 of the Code, or, without the consent
of the Holder(s)  affected,  to disqualify any Incentive Stock Option under such
Section 422.

Section  3.    Stock Subject to Plan.

     3.1 Number of Shares.  The total number of shares of Common Stock  reserved
and available for distribution under the Plan shall be 282,500 shares. Shares of
Stock  under  the Plan may  consist,  in whole  or in part,  of  authorized  and

<PAGE>

unissued  shares or  treasury  shares.  If any  shares  of Stock  that have been
granted pursuant to a Stock Option cease to be subject to a Stock Option,  or if
any shares of Stock that are subject to any Stock Appreciation Right, Restricted
Stock,  Deferred  Stock award,  Reload Stock Option or Other  Stock-Based  Award
granted hereunder are forfeited or any such award otherwise terminates without a
payment  being made to the Holder in the form of Stock,  such shares shall again
be available for  distribution in connection with future grants and awards under
the Plan.  Only net shares  issued upon a  stock-for-stock  exercise  (including
stock used for withholding  taxes) shall be counted against the number of shares
available under the Plan.

     3.2  Adjustment  Upon Changes in  Capitalization,  Etc. In the event of any
change in the shares of Common Stock of the Company occurring as the result of a
stock split,  reverse stock split,  stock  dividend  payable in shares of Common
Stock, recapitalization,  merger, consolidation,  reorganization, combination or
exchange of shares, or other  extraordinary or unusual event occurring after the
grant of an  Award,  the  Committee  shall  determine,  in its sole  discretion,
whether such change  equitably  requires an adjustment in the terms of any Award
or the aggregate number of shares reserved for issuance under the Plan. Any such
adjustments will be made by the Committee,  whose  determination  will be final,
binding and conclusive.

Section  4.    Eligibility.

          Awards may be made or granted to key  employees,  officers,  directors
and  consultants  who are  deemed  to  have  rendered  or to be  able to  render
significant  services to the Company or its  Subsidiaries  and who are deemed to
have  contributed  or to have the  potential to contribute to the success of the
Company.  No Incentive Stock Option shall be granted to any person who is not an
employee of the Company or a Subsidiary at the time of grant.

Section  5.    Required Six-Month Holding Period.

     A period of not less than six months  must elapse from the date of grant of
an award under the Plan, (i) before any  disposition by a Holder of a derivative
security (as defined in Rule 16a-1 promulgated under the Securities Exchange Act
of 1934, as amended  ("Exchange Act")) issued under this Plan or (ii) before any
disposition by a Holder of any Stock  purchased or granted  pursuant to an award
under this Plan.

Section  6.    Stock Options.

     6.1 Grant and Exercise.  Stock Options granted under the Plan may be of two
types:  (i) Incentive  Stock Options and (ii)  Nonqualified  Stock Options.  Any
Stock Option granted under the Plan shall contain such terms,  not  inconsistent
with this Plan, or with respect to Incentive  Stock  Options,  not  inconsistent
with the Plan and the Code, as the Committee may from time to time approve.  The
Committee   shall  have  the  authority  to  grant   Incentive   Stock  Options,
Non-Qualified  Stock  Options,  or both types of Stock  Options and which may be
granted  alone or in addition to other  awards  granted  under the Plan.  To the
extent that any Stock Option  intended to qualify as an  Incentive  Stock Option
does not so qualify,  it shall constitute a separate  Nonqualified Stock Option.
An  Incentive  Stock  Option may be granted  only  within  the  ten-year  period
commencing from the Effective Date and may only be exercised within ten years of
the date of grant  (or five  years  in the  case of an  Incentive  Stock  Option
granted to an optionee ("10% Shareholder") who, at the time of grant, owns Stock
possessing  more than 10% of the total  combined  voting power of all classes of
stock of the Company.

     6.2 Terms and  Conditions.  Stock  Options  granted under the Plan shall be
subject to the following terms and conditions:

          (a) Exercise Price. The exercise price per share of Stock  purchasable
under a Stock Option shall be  determined  by the Committee at the time of grant
and may not be less than 100% of the Fair  Market  Value of the Stock as defined
above;  provided,  however, that the exercise price of an Incentive Stock Option
granted  to a 10%  Shareholder  shall not be less  than 110% of the Fair  Market
Value of the Stock.

          (b) Option Term. Subject to the limitations in Section 6.1, above, the
term of each Stock Option shall be fixed by the Committee.

<PAGE>

          (c) Exercisability. Stock Options shall be exercisable at such time or
times and subject to such terms and  conditions  as shall be  determined  by the
Committee and as set forth in Section 11, below. If the Committee  provides,  in
its discretion, that any Stock Option is exercisable only in installments, i.e.,
that it vests over time,  the  Committee  may waive  such  installment  exercise
provisions at any time at or after the time of grant in whole or in part,  based
upon such factors as the Committee shall determine.

          (d) Method of Exercise. Subject to whatever installment,  exercise and
waiting period provisions are applicable in a particular case, Stock Options may
be exercised  in whole or in part at any time during the term of the Option,  by
giving written notice of exercise to the Company specifying the number of shares
of Stock to be purchased. Such notice shall be accompanied by payment in full of
the purchase price,  which shall be in cash or, unless otherwise provided in the
Agreement,  in shares of Stock (including  Restricted Stock and other contingent
awards  under this Plan) or,  partly in cash and partly in such  Stock,  or such
other  means  which the  Committee  determines  are  consistent  with the Plan's
purpose  and  applicable  law.  Cash  payments  shall be made by wire  transfer,
certified or bank check or personal  check, in each case payable to the order of
the  Company;  provided,  however,  that the  Company  shall not be  required to
deliver  certificates  for  shares of Stock  with  respect to which an Option is
exercised  until the Company  has  confirmed  the receipt of good and  available
funds in payment of the purchase  price  thereof.  Payments in the form of Stock
shall be valued at the Fair  Market  Value of a share of Stock on the date prior
to the  date of  exercise.  Such  payments  shall be made by  delivery  of stock
certificates  in negotiable  form which are effective to transfer good and valid
title thereto to the Company, free of any liens or encumbrances.  Subject to the
terms of the  Agreement,  the  Committee  may,  in its sole  discretion,  at the
request of the Holder,  deliver upon the exercise of a Nonqualified Stock Option
a  combination  of shares of Deferred  Stock and Common  Stock;  provided  that,
notwithstanding  the  provisions of Section 9 of the Plan,  such Deferred  Stock
shall be fully vested and not subject to forfeiture. A Holder shall have none of
the rights of a  Shareholder  with  respect to the shares  subject to the Option
until such shares  shall be  transferred  to the Holder upon the exercise of the
Option.

          (e) Transferability.  Except as may be set forth in the Agreement,  no
Stock  Option shall be  transferable  by the Holder other than by will or by the
laws of descent and  distribution,  and all Stock Options shall be  exercisable,
during the Holder's lifetime, only by the Holder.

          (f)  Termination by Reason of Death.  If a Holder's  employment by the
Company or a Subsidiary  terminates by reason of death, any Stock Option held by
such Holder,  unless otherwise  determined by the Committee at the time of grant
and set forth in the  Agreement,  shall be fully  vested and may  thereafter  be
exercised  by the legal  representative  of the estate or by the  legatee of the
Holder  under the will of the  Holder,  for a period of one year (or such  other
greater or lesser period as the Committee may specify at grant) from the date of
such  death or until the  expiration  of the stated  term of such Stock  Option,
whichever period is the shorter.

          (g) Termination by Reason of Disability.  If a Holder's  employment by
the Company or any  Subsidiary  terminates  by reason of  Disability,  any Stock
Option held by such Holder,  unless otherwise determined by the Committee at the
time of grant  and set forth in the  Agreement,  shall be fully  vested  and may
thereafter  be  exercised  by the Holder for a period of one year (or such other
greater or lesser period as the Committee may specify at the time of grant) from
the date of such termination of employment or until the expiration of the stated
term of such Stock Option, whichever period is the shorter.

          (h) Other  Termination.  Subject to the  provisions  of Section  14.3,
below, and unless otherwise determined by the Committee at the time of grant and
set forth in the  Agreement,  if a Holder is an  employee  of the  Company  or a
Subsidiary at the time of grant and if such  Holder's  employment by the Company
or any Subsidiary terminates for any reason other than death or Disability,  the
Stock  Option  shall  thereupon  automatically  terminate,  except  that  if the
Holder's  employment is terminated by the Company or a Subsidiary  without cause
or due to Normal  Retirement,  then the portion of such Stock  Option  which has
vested on the date of  termination of employment may be exercised for the lesser
of three months after  termination  of  employment  or the balance of such Stock
Option's term.

          (i) Additional  Incentive Stock Option  Limitation.  In the case of an
Incentive Stock Option,  the aggregate Fair Market Value of Stock (determined at
the time of grant of the Option) with respect to which  Incentive  Stock Options
become exercisable by a Holder during any calendar year (under all such plans of
the Company and its Parent and Subsidiary) shall not exceed $100,000.

<PAGE>

          (j) Buyout and Settlement  Provisions.  The Committee may at any time,
in its sole  discretion,  offer to buy out a Stock  Option  previously  granted,
based  upon such terms and  conditions  as the  Committee  shall  establish  and
communicate to the Holder at the time that such offer is made.

          (k) Stock  Option  Agreement.  Each grant of a Stock  Option  shall be
confirmed  by, and shall be subject to the terms of, the  Agreement  executed by
the Company and the Holder.

     6.3  Stock  Reload  Option.  The  Committee  may also  grant to the  Holder
(concurrently  with the grant of an  Incentive  Stock Option and at or after the
time of grant in the case of a Nonqualified  Stock Option) a Stock Reload Option
up to the  amount of shares of Stock  held by the Holder for at least six months
and used to pay all or part of the  exercise  price of an  Option  and,  if any,
withheld by the  Company as payment for  withholding  taxes.  Such Stock  Reload
Option  shall have an exercise  price  equal to the Fair Market  Value as of the
date  of  the  Stock  Reload  Option  grant.  Unless  the  Committee  determines
otherwise,  a Stock Reload Option may be exercised  commencing one year after it
is granted and shall expire on the date of expiration of the Option to which the
Reload Option is related.

Section  7.    Stock Appreciation Rights.

     7.1 Grant and Exercise.  The Committee may grant Stock Appreciation  Rights
to participants who have been, or are being granted, Options under the Plan as a
means of allowing such  participants  to exercise their Options without the need
to pay the exercise price in cash. In the case of a Nonqualified Stock Option, a
Stock Appreciation Right may be granted either at or after the time of the grant
of such  Nonqualified  Stock Option. In the case of an Incentive Stock Option, a
Stock  Appreciation  Right may be granted  only at the time of the grant of such
Incentive Stock Option.

     7.2 Terms and Conditions. Stock Appreciation Rights shall be subject to the
following terms and conditions:

          (a) Exercisability.  Stock Appreciation Rights shall be exercisable as
shall be determined by the Committee and set forth in the Agreement,  subject to
the limitations,  if any, imposed by the Code, with respect to related Incentive
Stock Options.

          (b) Termination.  A Stock Appreciation Right shall terminate and shall
no longer be exercisable  upon the  termination or exercise of the related Stock
Option.

          (c) Method of Exercise. Stock Appreciation Rights shall be exercisable
upon such terms and  conditions  as shall be determined by the Committee and set
forth in the Agreement and by surrendering the applicable portion of the related
Stock Option. Upon such exercise and surrender,  the Holder shall be entitled to
receive a number of Option Shares equal to the SAR Value divided by the exercise
price of the Option.

          (d) Shares  Affected Upon Plan.  The granting of a Stock  Appreciation
Right shall not affect the number of shares of Stock  available under for awards
under the Plan.  The number of shares  available for awards under the Plan will,
however, be reduced by the number of shares of Stock acquirable upon exercise of
the Stock Option to which such Stock Appreciation Right relates.

Section  8.    Restricted Stock.

     8.1 Grant.  Shares of  Restricted  Stock may be awarded  either alone or in
addition to other awards granted under the Plan. The Committee  shall  determine
the  eligible  persons  to  whom,  and the time or times  at  which,  grants  of
Restricted Stock will be awarded,  the number of shares to be awarded, the price
(if any) to be paid by the Holder,  the time or times  within  which such awards
may be subject to forfeiture  ("Restriction  Period"),  the vesting schedule and
rights to  acceleration  thereof,  and all other  terms  and  conditions  of the
awards.

<PAGE>

     8.2 Terms and Conditions.  Each Restricted  Stock award shall be subject to
the following terms and conditions:

          (a) Certificates.  Restricted Stock, when issued,  will be represented
by a stock  certificate or certificates  registered in the name of the Holder to
whom such  Restricted  Stock  shall have been  awarded.  During the  Restriction
Period,  certificates  representing  the  Restricted  Stock  and any  securities
constituting  Retained  Distributions  (as defined below) shall bear a legend to
the  effect  that  ownership  of  the   Restricted   Stock  (and  such  Retained
Distributions), and the enjoyment of all rights appurtenant thereto, are subject
to the  restrictions,  terms  and  conditions  provided  in  the  Plan  and  the
Agreement.  Such certificates shall be deposited by the Holder with the Company,
together with stock powers or other instruments of assignment,  each endorsed in
blank,  which will  permit  transfer to the Company of all or any portion of the
Restricted Stock and any securities  constituting  Retained  Distributions  that
shall be forfeited or that shall not become vested in  accordance  with the Plan
and the Agreement.

          (b) Rights of Holder.  Restricted  Stock shall  constitute  issued and
outstanding shares of Common Stock for all corporate  purposes.  The Holder will
have the right to vote such Restricted  Stock, to receive and retain all regular
cash dividends and other cash equivalent  distributions  as the Board may in its
sole discretion  designate,  pay or distribute on such  Restricted  Stock and to
exercise all other  rights,  powers and  privileges  of a holder of Common Stock
with respect to such Restricted  Stock,  with the exceptions that (i) the Holder
will not be  entitled  to  delivery  of the stock  certificate  or  certificates
representing  such  Restricted  Stock until the  Restriction  Period  shall have
expired and unless all other  vesting  requirements  with respect  thereto shall
have  been  fulfilled;  (ii)  the  Company  will  retain  custody  of the  stock
certificate  or  certificates  representing  the  Restricted  Stock  during  the
Restriction  Period;  (iii) other than  regular  cash  dividends  and other cash
equivalent  distributions as the Board may in its sole discretion designate, pay
or distribute,  the Company will retain custody of all distributions  ("Retained
Distributions")  made or declared with respect to the Restricted Stock (and such
Retained  Distributions  will be  subject  to the same  restrictions,  terms and
conditions as are applicable to the Restricted  Stock) until such time, if ever,
as the Restricted Stock with respect to which such Retained  Distributions shall
have been made,  paid or declared  shall have become  vested and with respect to
which the  Restriction  Period shall have  expired;  (iv) a breach of any of the
restrictions,  terms or  conditions  contained in this Plan or the  Agreement or
otherwise  established by the Committee with respect to any Restricted  Stock or
Retained  Distributions will cause a forfeiture of such Restricted Stock and any
Retained Distributions with respect thereto.

          (c) Vesting; Forfeiture. Upon the expiration of the Restriction Period
with respect to each award of Restricted Stock and the satisfaction of any other
applicable restrictions, terms and conditions (i) all or part of such Restricted
Stock shall become vested in accordance with the terms of the Agreement, subject
to Section 11, below, and (ii) any Retained  Distributions  with respect to such
Restricted  Stock shall become  vested to the extent that the  Restricted  Stock
related thereto shall have become vested, subject to Section 11, below. Any such
Restricted Stock and Retained  Distributions that do not vest shall be forfeited
to the Company and the Holder shall not thereafter  have any rights with respect
to such  Restricted  Stock and  Retained  Distributions  that shall have been so
forfeited.

Section  9.    Deferred Stock.

     9.1  Grant.  Shares of  Deferred  Stock may be awarded  either  alone or in
addition to other awards granted under the Plan. The Committee  shall  determine
the  eligible  persons to whom and the time or times at which grants of Deferred
Stock will be awarded,  the number of shares of Deferred  Stock to be awarded to
any person, the duration of the period ("Deferral Period") during which, and the
conditions  under  which,  receipt of the shares will be  deferred,  and all the
other terms and conditions of the awards.

     9.2 Terms and Conditions. Each Deferred Stock award shall be subject to the
following terms and conditions:

          (a)  Certificates.  At the  expiration of the Deferral  Period (or the
Additional  Deferral  Period  referred  to  in  Section  9.2  (d)  below,  where
applicable),  share certificates shall be issued and delivered to the Holder, or
his legal representative, representing the number equal to the shares covered by
the Deferred Stock award.

          (b) Rights of Holder.  A person  entitled  to receive  Deferred  Stock
shall not have any rights of a  Shareholder  by virtue of such  award  until the
expiration of the  applicable  Deferral  Period and the issuance and delivery of
the  certificates  representing  such Stock.  The shares of Stock  issuable upon

<PAGE>

expiration of the Deferral Period shall not be deemed outstanding by the Company
until the  expiration of such  Deferral  Period and the issuance and delivery of
such Stock to the Holder.

          (c) Vesting;  Forfeiture.  Upon the expiration of the Deferral  Period
with respect to each award of Deferred Stock and the  satisfaction  of any other
applicable restrictions, terms and conditions all or part of such Deferred Stock
shall become vested in accordance  with the terms of the  Agreement,  subject to
Section 11, below. Any such Deferred Stock that does not vest shall be forfeited
to the Company and the Holder shall not thereafter  have any rights with respect
to such Deferred Stock.

          (d)  Additional  Deferral  Period.  A Holder may  request  to, and the
Committee may at any time,  defer the receipt of an award (or an  installment of
an  award)  for an  additional  specified  period  or  until a  specified  event
("Additional  Deferral  Period").  Subject  to  any  exceptions  adopted  by the
Committee,  such  request  must  generally  be made at least  one year  prior to
expiration  of the  Deferral  Period  for such  Deferred  Stock  award  (or such
installment). Section 10. Other Stock-Based Awards.

     10.1 Grant and Exercise.  Other Stock-Based Awards may be awarded,  subject
to limitations  under applicable law, that are denominated or payable in, valued
in whole or in part by  reference  to, or  otherwise  based on, or  related  to,
shares of Common Stock,  as deemed by the  Committee to be  consistent  with the
purposes of the Plan, including, without limitation,  purchase rights, shares of
Common Stock awarded which are not subject to any  restrictions  or  conditions,
convertible or exchangeable debentures,  or other rights convertible into shares
of Common Stock and awards  valued by reference to the value of securities of or
the  performance  of specified  Subsidiaries.  Other  Stock-Based  Awards may be
awarded  either alone or in addition to or in tandem with any other awards under
this Plan or any other plan of the Company.

     10.2  Eligibility  for  Other  Stock-Based   Awards.  The  Committee  shall
determine the eligible  persons to whom and the time or times at which grants of
such  other  stock-based  awards  shall be made,  the number of shares of Common
Stock to be awarded pursuant to such awards,  and all other terms and conditions
of the awards.

     10.3 Terms and Conditions. Each Other Stock-Based Award shall be subject to
such terms and  conditions  as may be determined by the Committee and to Section
11, below.

Section  11.   Accelerated Vesting and Exercisability.

     If at any time after the  Company is  required  to file  reports  under the
Exchange Act and a "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange  Act),  is or becomes the  "beneficial  owner" (as referred in Rule
13d-3 under the Exchange  Act),  directly or  indirectly,  of  securities of the
Company  representing  25% or more of the combined voting power of the Company's
then outstanding securities in one or more transactions,  and the Board does not
authorize or otherwise  approve such  acquisition,  then, the vesting periods of
any and all Options and other  Awards  granted  and  outstanding  under the Plan
shall be  accelerated  and all such  Options  and Awards  will  immediately  and
entirely vest, and the respective  holders thereof will have the immediate right
to purchase  and/or receive any and all Common Stock subject to such Options and
awards  on the  terms  set  forth  in this  Plan and the  respective  agreements
respecting such Options and Awards.

Section  12.   Amendment and Termination.

     The Board may at any time, and from time to time,  amend alter,  suspend or
discontinue  any of the  provisions of the Plan,  but no amendment,  alteration,
suspension  or  discontinuance  shall be made which would impair the rights of a
Holder  under any  Agreement  theretofore  entered into  hereunder,  without the
Holder's consent.

Section  13.   Term of Plan.

     13.1  Effective  Date.  The Plan  shall be  effective  as of June 15,  1998
("Effective  Date"),  subject  to the  approval  of the  Plan  by the  Company's
shareholders  within one year after the Effective Date. Any awards granted under
the Plan prior to such approval shall be effective  when made (unless  otherwise
specified by the Committee at the time of grant), but shall be conditioned upon,
and subject to, such approval of the Plan by the Company's  shareholders  and no
awards  shall  vest or  otherwise  become  free of  restrictions  prior  to such
approval.

<PAGE>

     13.2  Termination  Date.  Unless  terminated by the Board,  this Plan shall
continue to remain  effective  until such time no further  awards may be granted
and all awards granted under the Plan are no longer outstanding. Notwithstanding
the foregoing, grants of Incentive Stock Options may only be made during the ten
year period following the Effective Date.

Section  14.   General Provisions.

     14.1  Written  Agreements.  Each  award  granted  under  the Plan  shall be
confirmed by, and shall be subject to the terms of the Agreement executed by the
Company and the Holder.  The  Committee  may  terminate any award made under the
Plan if the  Agreement  relating  thereto is not  executed  and  returned to the
Company  within 10 days after the Agreement has been delivered to the Holder for
his or her execution.

     14.2  Unfunded  Status  of Plan.  The Plan is  intended  to  constitute  an
"unfunded"  plan for  incentive and deferred  compensation.  With respect to any
payments not yet made to a Holder by the Company, nothing contained herein shall
give any such  Holder  any  rights  that are  greater  than  those of a  general
creditor of the Company.

     14.3 Employees.

          (a) Engaging in Competition With the Company.  In the event a Holder's
employment  with the  Company  or a  Subsidiary  is  terminated  for any  reason
whatsoever,  and within  eighteen  months  after the date  thereof  such  Holder
accepts  employment with any competitor of, or otherwise  engages in competition
with,  the Company,  the  Committee,  in its sole  discretion,  may require such
Holder  to return  to the  Company  the  economic  value of any award  which was
realized or obtained by such Holder at any time during the period  beginning  on
that date which is six months prior to the date of such Holder's  termination of
employment with the Company.

          (b) Termination for Cause.  The Committee may, in the event a Holder's
employment  with the Company or a Subsidiary is terminated for cause,  annul any
award  granted  under  this  Plan to such  employee  and,  in  such  event,  the
Committee,  in its sole  discretion,  may  require  such Holder to return to the
Company the  economic  value of any award which was realized or obtained by such
Holder at any time during the period  beginning on that date which is six months
prior to the date of such Holder's termination of employment with the Company.

          (c) No Right of  Employment.  Nothing  contained in the Plan or in any
award  hereunder shall be deemed to confer upon any Holder who is an employee of
the Company or any Subsidiary any right to continued employment with the Company
or any  Subsidiary,  nor  shall it  interfere  in any way with the  right of the
Company or any  Subsidiary to terminate  the  employment of any Holder who is an
employee at any time.

     14.4  Investment  Representations.  The  Committee  may require each person
acquiring  shares of Stock  pursuant to a Stock  Option or other award under the
Plan to  represent  to and agree with the Company in writing  that the Holder is
acquiring the shares for investment without a view to distribution thereof.

     14.5 Additional Incentive Arrangements. Nothing contained in the Plan shall
prevent the Board from adopting such other or additional incentive  arrangements
as it may deem desirable,  including,  but not limited to, the granting of Stock
Options and the awarding of stock and cash  otherwise  than under the Plan;  and
such  arrangements  may be either  generally  applicable or  applicable  only in
specific cases.

     14.6 Withholding  Taxes. Not later than the date as of which an amount must
first be  included  in the gross  income of the  Holder for  Federal  income tax
purposes  with  respect to any option or other award under the Plan,  the Holder
shall pay to the Company,  or make  arrangements  satisfactory  to the Committee
regarding  the  payment  of,  any  Federal,  state and  local  taxes of any kind
required by law to be withheld or paid with respect to such amount. If permitted
by the Committee,  tax  withholding or payment  obligations  may be settled with
Common Stock,  including  Common Stock that is part of the award that gives rise
to the  withholding  requirement.  The obligations of the Company under the Plan
shall be conditioned  upon such payment or  arrangements  and the Company or the
Holder's  employer (if not the Company) shall,  to the extent  permitted by law,
have the right to deduct any such taxes from any  payment of any kind  otherwise
due to the Holder from the Company or any Subsidiary.

<PAGE>

     14.7  Governing  Law.  The  Plan and all  awards  made  and  actions  taken
thereunder shall be governed by and construed in accordance with the laws of the
State of New York (without regard to choice of law provisions).

     14.8 Other  Benefit  Plans.  Any award  granted under the Plan shall not be
deemed compensation for purposes of computing benefits under any retirement plan
of the Company or any  Subsidiary  and shall not affect any  benefits  under any
other benefit plan now or subsequently in effect under which the availability or
amount of benefits is related to the level of compensation  (unless  required by
specific reference in any such other plan to awards under this Plan).

     14.9  Non-Transferability.  Except as otherwise  expressly  provided in the
Plan or the  Agreement,  no right or  benefit  under the Plan may be  alienated,
sold, assigned, hypothecated,  pledged, exchanged, transferred,  encumbranced or
charged,  and any  attempt  to  alienate,  sell,  assign,  hypothecate,  pledge,
exchange, transfer, encumber or charge the same shall be void.

     14.10  Applicable  Laws. The obligations of the Company with respect to all
Stock  Options and awards under the Plan shall be subject to (i) all  applicable
laws, rules and regulations and such approvals by any  governmental  agencies as
may be required,  including,  without limitation, the Securities Act of 1933, as
amended,  and (ii) the rules and regulations of any securities exchange on which
the Stock may be listed.

     14.11  Conflicts.  If any of the  terms  or  provisions  of the  Plan or an
Agreement  (with  respect  to  Incentive   Stock  Options)   conflict  with  the
requirements of Section 422 of the Code, then such terms or provisions  shall be
deemed  inoperative to the extent they so conflict with the requirements of said
Section 422 of the Code.  Additionally,  if this Plan or any Agreement  does not
contain any  provision  required to be included  herein under Section 422 of the
Code, such provision shall be deemed to be incorporated  herein and therein with
the same force and effect as if such provision had been set out at length herein
and therein.  If any of the terms or provisions  of any Agreement  conflict with
any terms or  provision  of the Plan,  then such  terms or  provisions  shall be
deemed  inoperative to the extent they so conflict with the  requirements of the
Plan. Additionally,  if any Agreement does not contain any provision required to
be  included  therein  under  the  Plan,  such  provision  shall be deemed to be
incorporated  therein  with the same force and effect as if such  provision  had
been set out at length therein.

     14.12  Non-Registered  Stock.  The shares of Stock to be distributed  under
this  Plan  have not  been,  as of the  Effective  Date,  registered  under  the
Securities  Act  of  1933,  as  amended,  or any  applicable  state  or  foreign
securities  laws and the Company has no obligation to any Holder to register the
Stock or to assist  the  Holder  in  obtaining  an  exemption  from the  various
registration  requirements,  or to  list  the  Stock  on a  national  securities
exchange.


<TABLE> <S> <C>


<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements for the period from February 13,
1998 (inception) to June 30, 1998.
</LEGEND>
       
<S>                             <C>
<PERIOD-TYPE>                   5-MOS
<FISCAL-YEAR-END>                          JUN-30-1998
<PERIOD-END>                               JUN-30-1998
<CASH>                                       1,118,416
<SECURITIES>                                 1,063,828
<RECEIVABLES>                                    6,803
<ALLOWANCES>                                         0
<INVENTORY>                                     22,410
<CURRENT-ASSETS>                             2,949,775
<PP&E>                                           4,949
<DEPRECIATION>                                       0
<TOTAL-ASSETS>                               2,959,451
<CURRENT-LIABILITIES>                           31,448
<BONDS>                                              0
                                0
                                          0
<COMMON>                                        14,236
<OTHER-SE>                                   2,913,767
<TOTAL-LIABILITY-AND-EQUITY>                 2,959,451
<SALES>                                         29,621
<TOTAL-REVENUES>                                29,621
<CGS>                                            5,681
<TOTAL-COSTS>                                    5,681
<OTHER-EXPENSES>                               149,510
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                               (345)
<INCOME-PRETAX>                              (119,414)
<INCOME-TAX>                                    20,000
<INCOME-CONTINUING>                           (99,414)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                  (99,414)
<EPS-PRIMARY>                                   (0.04)
<EPS-DILUTED>                                   (0.04)
        



</TABLE>



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