NETWOLVES CORP
8-K/A, 1999-09-20
COMPUTER INTEGRATED SYSTEMS DESIGN
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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 8-K/A
                          AMENDMENT NO. 1 TO FORM 8-K

                                CURRENT REPORT


                       Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934


                          Date of Report: July 7, 1999
                        (Date of earliest event reported)


                              NETWOLVES CORPORATION
             (Exact name of registrant as specified in its charter)



    New York                  000-25831                   11-3439392
 (State or other             (Commission                (IRS Employer
 jurisdiction of             File Number)                Identification
 incorporation)                                             Number)


 200 Broadhollow Road, Suite 207, Melville, New York         11747
(Address of principal executive offices)                  (Zip Code)



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


- ------------------------------------------------------------------------------
         (Former name or former address, if changed since last report.)

<PAGE>


Item 7.   Financial Statements and Exhibits

     (a) Financial Statements of Businesses  Acquired.  The financial statements
of Sales and Management Consulting, Inc. (d/b/a The Sullivan Group) are attached
hereto.

     (b) Pro Forma  Financial  Information.  The  required  pro forma  financial
information is attached hereto.

                                   Signatures

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the  undersigned
thereunto duly authorized.

                                        NETWOLVES CORPORATION

                                        /s/ Walter M. Groteke
                                        Walter M. Groteke, President
Dated:  September  20, 1999

<PAGE>





(a) FINANCIAL STATEMENTS OF SALES AND MANAGEMENT CONSULTING, INC.
    (D/B/A THE SULLIVAN GROUP)

    INDEPENDENT AUDITOR'S REPORT                                            1

    BALANCE SHEETS as of December 31, 1998 and 1997                         2

    STATEMENTS OF OPERATIONS for the years ended
      December 31, 1998, 1997 and 1996                                      3

    STATEMENT OF SHAREHOLDERS DEFICIENCY for the years
      ended December 31, 1996, 1997 and 1998                                4

    STATEMENTS OF CASH FLOWS for the years ended December 31,
      1998, 1997 and 1996                                                   5

    NOTES TO FINANCIAL STATEMENTS for the years ended
     December 31, 1998, 1997 and 1996                                      6-12

    CONDENSED BALANCE SHEET (unaudited) as of June 30, 1999                 13

    CONDENSED STATEMENTS OF OPERATIONS (unaudited)  for the six months
      ended June 30, 1999 and 1998                                          14

    CONDENSED STATEMENTS OF CASH FLOWS (unaudited) for the six months
      ended June 30, 1999 and 1998                                          15

    NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited) for the six
      months ended June 30, 1999 and 1998                                   16

(b) PRO FORMA FINANCIAL INFORMATION

    INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED
      COMBINED FINANCIAL INFORMATION                                        17

    UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT
      OF OPERATIONS for the year ended June 30, 1999                        18

    NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
      STATEMENTS OF OPERATIONS for the year ended June 30, 1999             19


<PAGE>

Board+` of Directors and Shareholders
Sales and Management Consulting, Inc.
Guilford, Connecticut


                          INDEPENDENT AUDITOR'S REPORT

We have  audited  the  accompanying  balance  sheets  of  Sales  and  Management
Consulting,  Inc.  (d/b/a The Sullivan  Group) as of December 31, 1998 and 1997,
and the related  statements of operations,  shareholders'  deficiency,  and cash
flows for each of the three years in the period ended  December 31, 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 audits.

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

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


/s/   HAYS & COMPANY

August 5, 1999
New York, New York

                                       1
<PAGE>
                     SALES AND MANAGEMENT CONSULTING, INC.
                           (d/b/a The Sullivan Group)

                                 BALANCE SHEETS


<TABLE>
<CAPTION>
                                                      December 31,
                                               -------------------------
                                               1998               1997
                                               ----               ----
ASSETS
<S>                                          <C>               <C>
Current assets
  Cash                                      $  38,799          $  7,507
  Accounts receivable                         157,329           423,535
  Due to affiliate                               -               15,000
                                            ---------         ---------
     Total current assets                     196,128           446,042

Property and equipment, net                    57,258            94,604

Intangible assets, net                         20,915            21,535
                                            ---------         ---------
                                             $274,301          $562,181
                                            ---------         ---------
LIABILITIES AND SHAREHOLDERS' DEFICIENCY

Current liabilities
  Accounts payable and accrued expenses      $133,138          $100,707
  Deferred compensation                       100,000            76,120
  Current maturities of long-term debt         56,818            54,057
                                            ---------         ---------
    Total current liabilities                 289,956           230,884

Long-term debt, net of current maturities     331,593           388,410
Loans and advances from shareholder           500,000           410,550
                                            ---------         ---------
    Total liabilities                       1,121,549         1,029,844
                                            ---------         ---------

Commitments and contingencies
   (Notes 4, 6, 7, 8 and 9)

Shareholders' deficiency
  Common stock, $100 par value; 5,000
    shares authorized, 10 shares issued
    and outstanding                             1,000             1,000
  Accumulated deficit                        (848,248)         (468,663)
                                            ---------         ---------

    Total shareholders' deficiency           (847,248)         (467,663)
                                            ---------         ---------
                                            $ 274,301         $ 562,181
                                            =========         =========


   The accompanying notes are an integral part of these financial statements
</TABLE>
                                       2
<PAGE>

                     SALES AND MANAGEMENT CONSULTING, INC.
                           (d/b/a The Sullivan Group)

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                 Year ended December 31,
                                           ------------------------------------
                                           1998            1997            1996
                                           ----            ----            ----

<S>                                    <C>              <C>             <C>
Consulting and training revenue        $1,545,229       $1,709,957      $1,902,002

Cost of services                          986,837          902,999       1,224,759
                                       ----------       ----------      ----------

Gross profit                              558,392          806,958         677,243
                                       ----------       ----------      ----------
Operating expenses
  General and administrative              862,090          757,130         847,611
  Sales and marketing                      13,658            5,030           1,831
                                       ----------       ----------      ----------
                                          875,748          762,160         849,442
                                       ----------       ----------      ----------
Other income (expenses)
  Interest income                              32              124             790
  Interest expense                        (62,261)         (71,810)        (67,537)
                                       ----------       ----------      ----------

                                          (62,229)         (71,686)        (66,747)
                                       ----------       ----------      ----------
Net loss                               $ (379,585)      $  (26,888)     $ (238,946)
                                       ==========       ==========      ==========

  The accompanying notes are an integral part of these financial statements
</TABLE>
                                       3
<PAGE>

                     SALES AND MANAGEMENT CONSULTING, INC.
                           (d/b/a The Sullivan Group)

                     STATEMENT OF SHAREHOLDERS' DEFICIENCY
                  YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998


<TABLE>
<CAPTION>
                                                                                     Total
                                       Common stock              Accumulated      shareholders'
                                 Shares          Amount            deficit         deficiency
                                 ------          ------          ------------     --------------

<S>                               <C>           <C>               <C>                <C>
Balance, January 1, 1996          10            $ 1,000           $(202,829)         $201,829)

Net loss, year ended
    December 31, 1996             -                 -              (238,946)         (238,946)
                               --------         --------          ----------        ----------

Balance, December 31, 1996        10              1,000            (441,775)         (440,775)

Net loss, year ended
    December 31, 1997             -                 -               (26,888)          (26,888)
                               --------         --------          ----------        ----------

Balance, December 31, 1997        10              1,000            (468,663)         (467,663)

Net loss, year ended
    December 31, 1998             -                 -              (379,585)         (379,585)
                               --------         --------          ----------        ----------

Balance, December 31, 1998        10            $  1,000          $ (848,248)        $(847,248)
                               ========         ========          ==========        ==========


  The accompanying notes are an integral part of these financial statements
</TABLE>
                                       4
<PAGE>

                     SALES AND MANAGEMENT CONSULTING, INC.
                           (d/b/a The Sullivan Group)

                            STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                             Year ended December 31,
                                                     -------------------------------------
                                                     1998            1997            1996
                                                     ----            ----            ----
<S>                                               <C>              <C>            <C>
INCREASE (DECREASE) IN CASH
Cash flows from operating activities
  Net loss                                        $ (379,585)      $ (26,888)     $(238,946)
  Adjustments to reconcile net loss to
    net cash provided by (used in)
     operating activities
       Depreciation and amortization                  44,022         107,759        128,647
       Amortization of note discount                    -              1,350          9,320
  Changes in operating assets and liabilities
     Accounts receivable                             266,206        (202,085)        45,025
     Due to affiliate                                 15,000         (15,000)           -
     Accounts payable and accrued expenses            32,431          12,613        (30,607)
     Deferred compensation                            23,880          50,000         26,120
     Accrued interest                                   -             32,199         29,540
                                                   ---------       ---------      ---------
       Net cash provided by (used in) operating
       activities                                      1,954         (40,052)       (30,901)
                                                   ---------       ---------      ---------
  Cash flows from investing activities
     Payments to purchase property and
       equipment                                      (6,056)         (7,155)       (25,641)
                                                   ---------       ---------      ---------
Cash flows from financing activities
     Advances from shareholder, net                   89,450         256,180          4,700
     Proceeds from line of credit                        -               -          275,000
     Principal repayments of line of credit              -          (200,000)      (175,000)
     (Repayment of) proceeds from bank overdraft, net    -            (6,265)         6,265
     Proceeds from borrowing against cash
       surrender value of life insurance policies        -              -            51,622
     Principal repayments of Noncompete Note          (7,500)           -          (105,000)
     Principal repayments of DVI Note                (46,556)           -               -
                                                   ---------       ---------      ---------
Net cash provided by financing activities             35,394          49,915         57,587
                                                   ---------       ---------      ---------
Net increase in cash                                  31,292           2,708          1,045

Cash balance, beginning of year                        7,507           4,799          3,754
                                                   ---------       ---------      ---------
Cash balance, end of year                           $ 38,799        $  7,507      $  4,799
                                                   =========       =========      =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION

  Interest paid                                     $ 52,211        $ 38,261       $ 28,676
                                                   =========       =========      =========


    The accompanying notes are an integral part of these financial statements
</TABLE>
                                       5
<PAGE>

                     SALES AND MANAGEMENT CONSULTING, INC.
                           (d/b/a The Sullivan Group)

                         NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


1    The Company

     Sales and  Management  Consulting,  Inc.  (d/b/a The  Sullivan  Group) (the
     Company),  is a Connecticut  corporation  incorporated in 1980. The Company
     provides consulting, educational and training services primarily to the oil
     and gas and automotive industries throughout the United States.

     On July 7, 1999,  the Company was  purchased by TSG Global  Education  Web,
     Inc., a Delaware  corporation  and a direct,  majority-owned  subsidiary of
     NetWolves Corporation (Note 9).

2    Summary of significant accounting policies

     Use of estimates

     In preparing  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 financial  statements,
     as  well as the  reported  amounts  of  revenue  and  expenses  during  the
     reporting period. Actual results could differ from those estimates.

     Revenue recognition

     The Company  recognizes  revenue from consulting and training fees when the
     services are provided.

     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.

     Intangible assets

     On October 1, 1992, the Company purchased certain assets of the Duffy-Vinet
     Institute, Inc. ("DVI"),  including furniture and fixtures and a library of
     reference and training materials.

     The  excess of cost  over  fair  market  value of  assets  acquired  in the
     original  amount of $24,788  represents  the  additional  costs incurred in
     acquiring the operating  assets and business of DVI.  These costs are being
     amortized using the  straight-line  method over forty years and resulted in
     amortization  expense of $620,  $619 and $620 for the years ended  December
     31, 1998, 1997 and 1996, respectively.

     A  noncompete  covenant  in the  amount  of  $430,680  (Note  4) was  being
     amortized  using the  straight-line  method over the life of the  agreement
     (five  years) and was fully  amortized  during 1997.  Amortization  expense
     relating  to such  covenant  was  $64,602  and  $86,136 for the years ended
     December 31, 1997 and 1996, respectively.

                                       6
<PAGE>

                     SALES AND MANAGEMENT CONSULTING, INC.
                           (d/b/a The Sullivan Group)

                         NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


2    Summary of significant accounting policies (continued)

     Impairment of long-lived assets

     The Company  reviews  its  long-lived  assets,  including  intangibles  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 December 31, 1998, there
     has been no impairment in the carrying value of long-lived assets.

     Income taxes

     The  Company  employs  the cash basis of  accounting  for federal and state
     income tax purposes  whereby  revenues  are  recognized  when  received and
     expenses recognized when paid.

     Deferred tax assets and liabilities are recognized 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 Company has  recorded no  provisions  for income taxes in the
     accompanying financial statements as a result of incurred losses.

3    Property and equipment

     Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                December 31,
                                        Useful life          -------------------
                                         in years            1998           1997
                                        -----------          ----           ----

        <S>                               <C>             <C>             <C>
        Equipment                          5 to 7          $ 115,649       $ 109,593
        Furniture and fixtures             5 to 7            314,573         314,573
                                                           ---------       ---------
                                                             430,222         424,166
        Less accumulated depreciation                       (372,964)       (329,562)
                                                           ---------       ---------

        Property and equipment, net                        $  57,258       $  94,604
                                                           =========       =========
</TABLE>

     Deprecation  expense for the years ended  December 31, 1998,  1997 and 1996
     totaled $43,402, $42,538 and $41,891, respectively.

                                       7
<PAGE>
                     SALES AND MANAGEMENT CONSULTING, INC.
                           (d/b/a The Sullivan Group)

                         NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


4 Long-term debt

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                     December 31,
                                                ---------------------
                                                1998             1997
                                                ----             ----

<S>                                          <C>            <C>
DVI Note and accrued interest                $ 343,411      $ 389,967
Noncompete Note                                 45,000         52,500
                                             ---------      ---------
                                               388,411        442,467
Less current maturities of long-term debt      (56,818)       (54,057)
                                             ---------      ---------

Long-term debt, net of current maturities    $ 331,593      $ 388,410
                                             =========      =========
</TABLE>


     DVI Note

     The note payable to DVI (the DVI Note) in the  original  amount of $247,875
     accrued  interest  at 9% per annum and  required no  principal  or interest
     payments  until October 1997.  The DVI Note is secured by all of the assets
     acquired from DVI, including all furniture, fixtures, equipment and library
     of master tapes and  completed  programs.  At the time the  scheduled  debt
     repayments  were to commence the Company was unable to make such repayments
     based on the original terms and became in default of the DVI Note.

     During January 1998 the Company restructured the DVI Note (the Restructured
     DVI Note).  The  Restructured  DVI Note calls for 84  monthly  payments  of
     $5,655 commencing January 1998 (see Restructured Notes below).

     Noncompete Note

     In connection  with the purchase of certain assets of DVI, the Company also
     entered  into a  noncompete  agreement  with a  former  shareholder  of DVI
     whereby the Company agreed to pay such individual  $525,000 over five years
     in monthly  installments  of $8,750 (the Noncompete  Note).  The Noncompete
     Note is  non-interest  bearing and is secured by all of the assets acquired
     from  DVI.  The  Company  recorded  the note and  corresponding  noncompete
     covenant at $430,680,  which represented the present value of amounts to be
     paid  using an  implied  interest  rate of 9%. The  Company  ceased  making
     payments  during  1997  and  became  in  default  under  the  terms  of the
     Noncompete Note.

     During  January  1998 the Company  restructured  the  Noncompete  Note (the
     Restructured  Noncompete Note). The Restructured  Noncompete Note calls for
     84 monthly payments of $625 commencing January 1998 (see Restructured Notes
     below).

                                       8
<PAGE>

                     SALES AND MANAGEMENT CONSULTING, INC.
                           (d/b/a The Sullivan Group)

                         NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


4    Long-term debt (continued)

     Restructured Notes

     The   Restructured   DVI  Note  and  the   Restructured   Noncompete   Note
     (collectively  referred to as the "Restructured  Notes") were accounted for
     in accordance with the  requirements  of Statement of Financial  Accounting
     Standards  No. 15,  Accounting  by Debtors and  Creditors for Troubled Debt
     Restructurings  (SFAS  #15).  The  Company  did  not  reduce  its  recorded
     obligations  under the  Restructured  Notes,  since the  overall  estimated
     future cash flows (including interest) to be paid to DVI over the full term
     of the Restructured  Notes exceeded the recorded amounts at the date of the
     restructuring.  SFAS #15  requires  the  Company to  continue  to carry the
     Restructured  Notes at their  recorded  amounts  and account for all future
     payments as principal and interest in such a manner that  interest  expense
     is computed on a constant  effective  interest rate applied to the carrying
     amount  of  the  Restructured  Notes.  Accordingly,  the  effective  annual
     interest  rates  for  the   Restructured  DVI  Note  and  the  Restructured
     Noncompete Note are 6% and 0%, respectively.

     Aggregate maturities of long-term debt are as follows:

<TABLE>
<CAPTION>

        <S>                                     <C>
        Year ending December 31,
                1999                            $  56,818
                2000                               59,743
                2001                               62,841
                2002                               66,124
                2003                               69,601
                Thereafter                         73,284
                                               ----------
                                               $  388,411
                                               ==========
</TABLE>

     Line of credit

     The Company  maintained  a $200,000  line of credit with Bank Boston  which
     provided  for  interest at a rate of prime plus 1% per annum.  This line of
     credit,   which  was   guaranteed  by  one  of  the   Company's   principal
     shareholders,  was repaid  during 1997 and resulted in interest  expense of
     $9,663  and  $10,207  for the  years  ended  December  31,  1997 and  1996,
     respectively.

                                       9
<PAGE>

                  SALES AND MANAGEMENT CONSULTING, INC.
                           (d/b/a The Sullivan Group)

                         NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


5    Income taxes

     The tax effects of  temporary  differences  that give rise to deferred  tax
     assets and liabilities are summarized as follows:

<TABLE>
<CAPTION>
                                                           December 31,
                                                     ------------------------
                                                      1998               1997
                                                      ----               ----
     <S>                                           <C>                 <C>
      Deferred tax assets and liabilities
        Net operating loss carryforwards           $  81,000           $ 56,000
        Deferred compensation                         40,000             30,000
        Accounts payable and accrued expenses         53,000            155,000
        Accounts receivable                          (63,000)          (169,000)
                                                   ---------           --------
                                                     111,000             72,000
        Valuation allowance                         (111,000)           (72,000)
                                                   ---------           --------
        Deferred tax asset, net                    $    -              $   -
                                                   =========           =========
</TABLE>

     A valuation  allowance is required against deferred tax assets if, based on
     the weight of available  evidence,  it is more likely than not that some or
     all of the  deferred  tax assets may not be  realized.  The full  valuation
     allowances at December 31, 1998 and 1997 reflect uncertainties with respect
     to future realization of the deferred tax assets.

     At December 31, 1998, the Company has net operating loss tax  carryforwards
     of approximately  $200,000 that expire in the years 2011 through 2018. Upon
     consummation of the Merger (Note 9), these carryforwards  became subject to
     restriction in accordance with the Internal Revenue Code.

6    Related party transactions

     The  Company  has  entered  into  transactions  with  one of its  principal
     shareholders  who is also the Chief  Executive  Officer  and  Chairman,  as
     follows:

     --   From time to time,  the  shareholder  advanced the Company funds to be
          used for working  capital  purposes.  As of December 31,  1998,  these
          advances had no  scheduled  repayment  terms and bore  interest at the
          rate of 8% per annum.  Repayment of these  advances were  scheduled in
          connection with the Merger (Note 9).

     --   Deferred compensation owed to the shareholder  aggregated $100,000 and
          $76,120 at December 31, 1998 and 1997,  respectively.  The shareholder
          elected  to defer  payment  of a  portion  of his  employment  related
          compensation due to the Company's temporary cash flow concerns.  As of
          December  31, 1998 such  amounts  had no  scheduled  repayment  terms,
          however,  repayment of these amounts were scheduled in connection with
          the Merger (Note 9).

     --   At December  31,  1998,  the Company  leased its office space from the
          shareholder for annual lease payments of $69,378 for each of the years
          ended December 31, 1998, 1997 and 1996. Effective January 1, 1999, the
          Company  extended  the terms of the lease for five  years at an annual
          rent of approximately $75,000.

          Additionally,   commencing  in  1998,  the  Company  began   receiving
          consulting  services  from an entity owned by the  shareholder.  These
          services totalled  approximately  $40,000, for the year ended December
          31, 1998.


                                     10
<PAGE>

                     SALES AND MANAGEMENT CONSULTING, INC.
                           (d/b/a The Sullivan Group)

                         NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



7    Commitments and contingencies

     Leases

     In  addition  to  Companys  office  space  lease  (Note 6), the Company has
     entered into leases for  additional  office  space,  office  equipment  and
     vehicles. At December 31, 1998, the approximate future minimum annual lease
     payments  (including  the related  party office  space) are  summarized  as
     follows:

<TABLE>

        <S>                        <C>
        Year ending December 31,
                1999               $ 120,000
                2000                 105,000
                2001                  92,000
                2002                  84,000
                2003                  76,000
                                   ---------
                                   $ 477,000
                                   =========
</TABLE>

     Defined contribution/profit sharing plan

     The Company  provides  pension  benefits to  eligible  employees  through a
     401(k)  plan.  Company  contributions  to the  plan are  discretionary.  In
     addition, employees have the option of deferring and contributing a portion
     of their annual  compensation to the plan under the provisions of the plan.
     Employer  matching  contributions  and profit sharing  contributions to the
     plan approximated $4,100,  $36,200 and $20,700 for the years ended December
     31, 1998, 1997 and 1996, respectively.

8    Major customers

     The Company had the following balances and transactions with five unrelated
     major customers:

<TABLE>
<CAPTION>

                          Revenue                      Accounts receivable
                ----------------------------           ----------------------
                   Year ended December 31,                   December 31,
               -----------------------------           ----------------------
               1998        1997         1996           1998             1997
               ----        ----         ----           ----             ----

             <S>         <C>          <C>           <C>              <C>
             $ 552,000   $ 362,000    $  52,000     $ 115,000        $ 86,000
             $ 522,000   $ 652,000    $ 742,000     $    -           $ 99,000
             $  62,000   $ 215,000    $ 210,000     $    -           $   -
             $    -      $  95,000    $ 561,000     $    -           $   -
             $ 154,000   $ 232,000    $    -        $    -           $ 22,000

</TABLE>

9    Subsequent events

     In January  1999,  the Company  entered  into an agreement  with  NetWolves
     Corporation  ("NetWolves")  whereby the Company appointed  NetWolves as its
     exclusive provider of the NetWolves  multi-service Internet delivery system
     (known  as the  "FoxBox")  to be  used in  conjunction  with  the  Companys
     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.

                                       11
<PAGE>

                     SALES AND MANAGEMENT CONSULTING, INC.
                           (d/b/a The Sullivan Group)

                         NOTES TO FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

9    Subsequent events (continued)

     On July 7, 1999, the Company and Netwolves executed a merger agreement (the
     Merger) pursuant to which NetWolves acquired the outstanding  capital stock
     of the Company.  Under the terms of the Merger,  TSG Global  Education Web,
     Inc.  (TSG)  (a  subsidiary  of  NetWolves),   with  4,150,000   shares  of
     outstanding  common stock,  purchased all of the outstanding  shares of the
     Company's  common  stock  in  exchange  for  180,000  shares  of  NetWolves
     restricted  common  stock.  At the  effective  date of the Merger (June 30,
     1999), the Company merged into TSG, with TSG as the surviving entity.

     Concurrent  with the Merger,  the  shareholders  of the  Company  purchased
     70,000  shares of TSG's  common  stock for $.35 per share for an  aggregate
     cash proceeds of $24,500.  This represents  1.7% of the outstanding  common
     stock of TSG.

     At the time of the Merger and in  accordance  with TSGs newly  formed stock
     option plan, the  shareholders of the Company  received  605,000  five-year
     options to  purchase  TSG  common  stock at an  exercise  price of $.35 per
     share.  Management  estimates  that the  exercise  price  approximates  the
     estimated fair value of the TSG common stock.

     The  Merger  also  provides  for  NetWolves  to  make up to  $4,750,000  of
     non-interest  bearing open account working capital advances to TSG pursuant
     to an  agreed-upon  schedule  through  November 15, 1999.  Through June 30,
     1999,  $949,000  had been  advanced  and an  additional  $801,000  has been
     advanced  in July and  August  1999.  Should  NetWolves  decide not to make
     further  working  capital  advances,  the  number  of TSG  shares  owned by
     NetWolves will be reduced in accordance with the agreement.

     As part of the Merger,  TSG issued  250,000  shares of TSG  cumulative,  8%
     preferred  stock to a shareholder  of the Company in partial  settlement of
     outstanding  liabilities  owed to such shareholder and also agreed to repay
     the remaining amounts owed to the shareholder.

                                       12

<PAGE>
                     SALES AND MANAGEMENT CONSULTING, INC.
                           (d/b/a The Sullivan Group)

                            CONDENSED BALANCE SHEET
                                  (Unaudited)

                                 JUNE 30, 1999


<TABLE>
<CAPTION>

<S>                                                      <C>
ASSETS

Current assets
  Cash                                                   $   387,724
  Accounts receivable                                         70,221
                                                         -----------
    Total current assets                                     457,945

Property and equipment, net                                   35,255

Intangible assets, net                                        20,605
                                                         -----------
                                                         $   513,805
                                                         ===========

LIABILITIES AND SHAREHOLDERS' DEFICIENCY

Current liabilities
  Accounts payable and accrued expenses                  $   151,685
  Deferred compensation                                      100,000
  Advances from NetWolves Corporation                        949,000
  Current maturities of long-term debt                        58,260
                                                         -----------
    Total current liabilities                              1,258,945


Long-term debt, net of current maturities                    302,097
Loans and advances from shareholder                          388,391
                                                         -----------
    Total liabilities                                      1,949,433
                                                         -----------
Commitments and contingencies

Shareholders' deficiency
    Common stock, $100 par value; 5,000 shares
     authorized, 10 shares issued and outstanding             1,000
    Accumulated deficit                                  (1,436,628)
                                                        -----------
     Total shareholders' deficiency                      (1,435,628)
                                                        -----------
                                                        $   513,805
                                                        ===========

   The accompanying notes are an integral part of these financial statements.
</TABLE>

                                       13
<PAGE>

                     SALES AND MANAGEMENT CONSULTING, INC.
                           (d/b/a The Sullivan Group)

                       CONDENSED STATEMENTS OF OPERATIONS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                Six months ended June 30,
                                                -------------------------
                                                   1999         1998
                                                   ----         ----

<S>                                            <C>           <C>
Consulting and training revenue                $ 388,716     $ 819,420

Costs of services                                343,287       528,774
                                               ---------     ---------
Gross profit                                      45,429       290,646
                                               ---------     ---------
Operating expenses

   General and administrative                    607,753       553,472
   Sales and marketing                             6,852        15,086
                                               ---------     ---------
                                                 614,605       568,558
                                               ---------     ---------
Other income (expenses)
   Interest income                                   421            29
   Interest expense                              (19,625)      (26,987)
                                               ---------     ---------
                                                 (19,204)      (26,958)
                                               ---------     ---------
Net loss                                       $(588,380)    $(304,870)
                                               =========     =========


   The accompanying notes are an integral part of these financial statements.
</TABLE>

                                       14
<PAGE>

                     SALES AND MANAGEMENT CONSULTING, INC.
                           (d/b/a The Sullivan Group)

                       CONDENSED STATEMENTS OF CASH FLOWS
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                          Six months ended June 30,
                                                          -------------------------
                                                            1999            1998
                                                            ----            ----
<S>                                                       <C>             <C>
INCREASE (DECREASE) IN CASH
Cash flows from operating activities
    Net loss                                              $(588,380)      $(304,870)
    Adjustments to reconcile net loss to net cash
    (used in) provided by operating activities
      Depreciation and amortization                          22,314          21,708
    Changes in operating assets and liabilities
      Accounts receivable                                    87,108         423,535
      Due to affiliate                                          -            15,000
      Accounts payable and accrued expenses                  18,546         (13,688)
                                                          ---------       ---------
        Net cash (used in) provided by
          operating activities                             (460,412)        141,685
                                                          ---------       ---------
Cash flows from financing activities

   Repayments of advances from shareholder, net            (111,609)       (110,550)
   Advances from NetWolves Corporation                      949,000            -
   Principal repayments of Noncompete Note                   (3,750)         (3,750)
   Principal repayments of DVI Note                         (24,304)        (22,942)
                                                          ---------       ---------
   Net cash provided by (used in) financing activities      809,337        (137,242)
                                                          ---------       ---------

Net increase in cash                                        348,925           4,443

Cash balance, beginning of period                            38,799           7,507
                                                          ---------       ---------
Cash balance, end of period                               $ 387,724       $  11,950
                                                          =========       =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

   Interest paid                                          $  19,625       $  31,577
                                                          =========       =========

   The accompanying notes are an integral part of these financial statements.
</TABLE>
                                       15
<PAGE>

                     SALES AND MANAGEMENT CONSULTING, INC.
                           (d/b/a The Sullivan Group)

                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                  (Unaudited)

                    SIX MONTHS ENDED JUNE 30, 1999 AND 1998


1    Basis of presentation

     The  accompanying   unaudited  condensed  financial  statements  have  been
     prepared in accordance with generally  accepted  accounting  principles for
     interim  financial  information  and  the  rules  and  regulations  of  the
     Securities and Exchange Commission. Accordingly, they do not include all of
     the  information  and  notes  required  by  generally  accepted  accounting
     principles for complete financial statements. In the opinion of management,
     all  adjustments   (consisting  only  of  normal   recurring   adjustments)
     considered necessary for a fair presentation have been included.  Operating
     results  for the  interim  periods are not  necessarily  indicative  of the
     results that may be expected for the full year. It is suggested  that these
     financial  statements  be read in  conjunction  with the audited  financial
     statements and notes thereto of Sales and Management Consulting,  Inc. (the
     "Company") for the years ended December 31, 1998, 1997 and 1996.

2    Transactions with NetWolves Corporation

     In January  1999,  the Company  entered  into an agreement  with  NetWolves
     Corporation  ("NetWolves")  whereby the Company appointed  NetWolves as its
     exclusive provider of the NetWolves  multi-service Internet delivery system
     (known  as the  "FoxBox")  to be  used in  conjunction  with  the  Companys
     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.

     On July 7, 1999, the Company and Netwolves executed a merger agreement (the
     Merger) pursuant to which NetWolves acquired the outstanding  capital stock
     of the Company.  Under the terms of the Merger,  TSG Global  Education Web,
     Inc. (TSG) (a subsidiary of NetWolves) with 4,150,000 shares of outstanding
     common  stock,  purchased  all of the  outstanding  shares of the Company's
     common stock in exchange for 180,000 shares of NetWolves  restricted common
     stock.  At the effective  date of the Merger (June 30,  1999),  the Company
     merged into TSG, with TSG as the surviving entity.

     Concurrent  with the Merger,  the  shareholders  of the  Company  purchased
     70,000 shares of TSG common stock for $.35 per share for an aggregate  cash
     proceeds of $24,500.  This represents 1.7% of the outstanding  common stock
     of TSG.

     At the time of the Merger and in  accordance  with TSGs newly  formed stock
     option plan, the  shareholders of the Company  received  605,000  five-year
     options to  purchase  TSG  common  stock at an  exercise  price of $.35 per
     share.  Management  estimates  that the  exercise  price  approximates  the
     estimated fair value of the TSG common stock.

     The  Merger  also  provides  for  NetWolves  to  make up to  $4,750,000  of
     non-interest  bearing open account working capital advances to TSG pursuant
     to an  agreed-upon  schedule  through  November 15, 1999.  Through June 30,
     1999,  $949,000  had been  advanced  and an  additional  $801,000  has been
     advanced  in July and  August  1999.  Should  NetWolves  decide not to make
     further  working  capital  advances,  the  number  of TSG  shares  owned by
     NetWolves will be reduced in accordance with the agreement.

     As part of the Merger,  TSG issued  250,000  shares of TSG  cumulative,  8%
     preferred  stock to a shareholder  of the Company in partial  settlement of
     outstanding  liabilities  owed to such shareholder and also agreed to repay
     the remaining amounts owed to the shareholder.

                                       16
<PAGE>

                             NETWOLVES CORPORATION

                      INTRODUCTION TO UNAUDITED PRO FORMA
                    CONDENSED COMBINED FINANCIAL INFORMATION



     The  following   unaudited  pro  forma  condensed   combined  statement  of
     operations  gives pro forma effect to the completion of the  acquisition of
     Sales and  Management  Consulting,  Inc.  (d/b/a the  Sullivan  Group) (the
     Company),  as if it had occurred at July 1, 1998.  The Company was acquired
     effective   June  30,  1999  and  is  therefore   included  in  Registrants
     consolidated  balance sheet as of June 30, 1999.  Thus, a pro forma balance
     sheet  has been  omitted  from the pro forma  presentation.  This pro forma
     information  should be read in conjunction  with the  historical  financial
     statements of Registrant  and the  historical  financial  statements of the
     Company appearing elsewhere herein.

     Registrant  has a fiscal  year end of June 30, 1999 while the Company has a
     calendar year end of December 31. The operations of Registrant for the year
     ended June 30, 1999 have been combined with the Companys operations for the
     twelve months ended June 30, 1999.  The Companys  financial  statements for
     the year ended June 30, 1999 have been  derived by  combining  the Companys
     results of  operations  for the six months ended  December 31, 1998 and for
     the six months ended June 30, 1999.

     The pro forma  adjustments  reflecting the  consummation of the acquisition
     using the purchase  method of accounting  are based on available  financial
     information and certain estimates and assumptions set forth in the notes to
     the unaudited pro forma condensed  combined  statement of operations.  This
     statement  is  presented  for   illustration   purposes  only  and  is  not
     necessarily  indicative of the future results of operations of the combined
     businesses or the results of operations of the combined  businesses had the
     acquisitions  occurred  on July 1, 1998.  For  purposes  of  preparing  its
     consolidated  financial  statements,  Registrant will establish a new basis
     for the Companys assets and liabilities  based upon the fair value thereof,
     including the costs of the  acquisition.  The unaudited pro forma condensed
     statement of operations reflects  Registrants best estimates;  however, the
     actual results of operations may differ from the pro forma amounts.

                                       17
<PAGE>


                             NETWOLVES CORPORATION

                     UNAUDITED PRO FORMA CONDENSED COMBINED
                            STATEMENT OF OPERATIONS

                            YEAR ENDED JUNE 30, 1999

<TABLE>
<CAPTION>
                                                            Sales and
                                                            Management
                                                            Consulting,
                                             NetWolves         Inc.
                                            Historical      Historical     Adjustments    Pro Forma
                                            ----------      -----------    -----------    ---------

<S>                                         <C>             <C>            <C>              <C>
Sales                                       $ 1,789,144     $ 1,114,525         -        $ 2,903,669
Cost of sales                                   582,724         801,350       65,000 (c)   1,449,074
                                            -----------     -----------    ---------     -----------
Gross profit from sales                       1,206,420         313,175     (65,000)       1,454,595
                                            -----------     -----------    ---------     -----------

Operating expenses
   General and administrative                 4,536,255         916,371     282,000 (a)    5,709,626
                                                                            (25,000)(b)
   Research and development                     418,109           -             -            418,109
   Sales and marketing                        2,002,330          5,424          -          2,007,754
                                             ----------     ----------     ---------      ----------
                                              6,956,694        921,795      257,000        8,135,489
                                             ----------     ----------     ---------      ----------
Loss before other income (expense)           (5,750,274)      (608,620)    (322,000)      (6,680,894)

Other income (expense)
   Interest income                               48,608            424         -              49,032
   Minority interest                               -              -          16,274 (f)       16,274
   Gain on sale of marketable securities        478,519           -            -             478,519
   Dividend income                               10,275           -            -              10,275
   Interest expense                               (455)        (54,899)     (16,000) (d)     (51,354)
                                                                             20,000  (e)
                                           ------------      ----------   ---------      ------------
Net loss                                   $(5,213,327)      $(663,095)    (301,726)     $(6,178,148)
                                           ============      ==========   =========      ============
Earnings (loss) per share
   Net loss                                $(5,213,327)      $(663,095)   $(301,726)     $(6,178,148)
   Less dividends on preferred stock              -               -         (20,000) (g)     (20,000)
                                           ------------      ----------   ----------      ----------
   Net loss available to common
     Shareholders                          $(5,213,327)       (663,095)    (321,726)      (6,198,148)
                                           ===========       =========    ==========      ==========
   Basic and diluted net loss per
      Share                                $     (1.11)                                  $     (1.27)
                                           ===========                                   ============
     Weighted average common
          shares outstanding                 4,691,651                      180,000  (h)    4,871,651
                                           ===========                     ========      ============

                  The accompanying notes are an integral part of these financial statements.
</TABLE>
                                       18

<PAGE>



                             NETWOLVES CORPORATION

                NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
                            STATEMENT OF OPERATIONS

                            YEAR ENDED JUNE 30, 1999


(a)  As a result of the  Merger,  the  Company  expects to record  approximately
     $2,820,000  of  purchased  intangibles.  Management  is in the  process  of
     analyzing the  composition of these  intangibles.  For purposes of this pro
     forma condensed combined statement of operations, the intangible assets are
     being amortized using the  straight-line  method with an estimated  average
     life of 10 years.

(b)  Represents an adjustment to depreciation  expense of acquired  property and
     equipment based upon the fair value of the assets.

(c)  Represents an  adjustment  to the  historical  salary  expense  relating to
     employment  agreements  entered  into  with  the  Company's  executives  in
     connection with the Merger.

(d)  Represents   additional  interest  expense  resulting  from  a  fair  value
     adjustment made to certain long-term debt assumed.

(e)  Represents  a reduction of interest  expense  relating to $250,000 of loans
     and advances to shareholder  that were converted to preferred  stock of the
     Company (see Note 9) in connection with the Merger.

(f)  Represents  the  minority  interest  associated  with  the  1.7%  ownership
     interest retained by the shareholders of the Company.

(g)  Represents  an 8% dividend on the  $250,000 of  preferred  stock  issued in
     connection with the Merger (see Note e).

(h)  Represents the weighted average shares of common stock issued in connection
     with the Merger.




                                       19



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