NETWOLVES CORP
10-12G/A, 1999-11-23
COMPUTER INTEGRATED SYSTEMS DESIGN
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    ---------


                                    FORM 10/A
                                AMENDMENT NO. 2



                   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  comprised of multiple computers sharing both
small and large  geographic  areas 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 to protect the computers of a
private network from access by other users. 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
and the former NetWolves LLC members owned 61.2% of the outstanding common stock
of NetWolves  Corporation.  NetWolves LLC was not affiliated with Watchdog prior
to the merger.

Products and Services

     The FoxBox is a multi-services  internet communications gateway that offers
a combined internet access and firewall security  solution.  The FoxBox includes
the following  products or services which would have to be purchased  separately
to achieve the same functionality:  an exchange server, a web server, a firewall
which protects the computers of a private  network from access by other users, a
router,  internet hardware and software setup, and product training.  The FoxBox
costs substantially less than purchasing its functionality in separate products,
which  costs  would  exceed  $30,000.   Further,   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,  at a  suggested  wholesale  price of $3,400;  FoxBox  ISDN,  at a price of
$4,400;  FoxBox 56K,  for $5,500;  FoxBox T1, for  $7,100;  and FoxFox S2E,  for
$4,100.

     The FoxBox offers the following features:


     --   It can  securely  connect  any  number  of  users in a small
          geographic area (LAN)  simultaneous  to the Internet  through a single
          dial-up or dedicated connection.

     --   Up  to  eight   users  at  one  time  can   connect  to  the
          Web/Internet on non-dedicated connections.

     --   Hierarchical  caching,  which are rules that tell a computer
          to look for the data stored on a series of a computer before accessing
          the internet for data, gives the FoxBox more efficient web viewing and
          greater ability to transfer files from one file to another.

     --   Any   number   of  users   can  send  and   receive   e-mail
          individually, while sharing one internet service provider account.

     --   A firewall protects the LAN from Internet-borne attacks.

     --   An advanced  network address  translation  module allows the
          creation of powerful  address  translation  rules for greater firewall
          flexibility.

     --   Files  that store  events for review at a later date  ensure
          appropriate use of internet resources.

     --   Scalability  allows  internet  usage  to grow  as a  company
          expands.


<PAGE>

     --   A network file server centrally stores programs and data for
          accessability  to  multiple  users  simultaneously  and share data and
          programs from a central location.

     --   It can be used as a  stand-alone  firewall  to  protect  the
          resources of a private network from users outside on a public network.

     --   It allows a company to publish and host a web site.

     The FoxBox also offers the following optional features:


     --   High  speed tape  backup/restore  module  (SCSI)  allows all
          stored data on the FoxBox to be backed up onto a DAT tape,  which is a
          standardized tape for file back up.

     --   Fast SCSI hard drive provides extra storage for shared files
          and Web data at faster access speeds.

     --   Extra 9.1 gigabyte  SCSI hard drive  provides  extra storage
          for shared files and Web data.

     --   E-Mail Archive module allows all inbound and outbound e-mail
          to be saved for archival/compliance purposes.

     --   Advanced  access  control module allows control over who can
          access the web and the sites to which they have access.

     --   Virtual Private  Networking  (VPN) module provides a process
          for encrypting data for secure transmission over public networks.


     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), which are conversions
          of public addresses to and from private  addresses,  makes the network
          invisible to outside  Internet users by hiding the internal  network's
          addresses of each sender or receiver of information.

     All packets of data entering the FoxBox from the Internet are first checked
for  validity  against a series of  stateful  packet  filters.  The 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.

<PAGE>

     The  FoxBox  DDR  and  FoxBox  ISDN  dial  on  demand  units  come  with  a
preconfigured  firewall and network address  translation  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  network
address   translation  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),  which is the standard for e-mail 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 - a process  for  retrieving  e-mail  from its  stored
          location  to  the  viewer.
     --   IMAP  -  a  method  of  viewing electronic mail at its stored
          location.

     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.

<PAGE>

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
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.  Anicom's only rights to terminate
are in the event of bankruptcy or insolvency proceedings against NetWolves or in
the event the products  covered the agreement  cease to be manufactured by or on
behalf of  NetWolves.  In the event of  termination  by  Anicom,  Anicom has the
right, but not the obligation, to direct NetWolves to repurchase from Anicom any
portion of any new undamaged  and unused  products sold within a one year period
and owned by and remaining in Anicom's inventory.

     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 quarter ending December
31, 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

<PAGE>

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,
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

<PAGE>

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.

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

<PAGE>

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
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, which as recently acquired by IBM,
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 in


<PAGE>

price and overall cost of ownership  including  administrative  and  maintenance
costs. However,  equally important are other factors,  including but not limited
to, product reliability, availability,  upgradability, 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
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

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),  non-reporting  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
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.


<PAGE>

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  NetWolves  for the
period from inception  through December 31, 1998 were $110,335 all of which were
from sales of the FoxBox. 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.


<PAGE>


Liquidity and Capital Resources

     On June 17,  1998 the  Company  executed  a reverse  merger  with  Watchdog
Patrols, Inc. a publicly traded non-reporting 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  $1.5  million
pursuant to its master  distribution  agreement with Anicom.  Additionally,  the
Company  completed  a private  placement  memorandum  (PPM) of $6 million in the
fourth quarter of fiscal 1999. Management believes that the Company has adequate
capital  resources to meet its working capital need for at least the next twelve
months based upon its current  plans.  The Company  intends to raise  additional
monies from the sale of its capital stock to fund its growth over the next 24 to
36  months.  However,  there  can be no  assurance  that the  Company  will have
sufficient capital to finance its planned growth.


Year 2000 Issues

     Background.   Some  computers,   software,   and  other  equipment  include
programming  code in which calendar year data is abbreviated to only two digits.
As a result  of this  design  decisions,  some of these  systems  could  fail to
operate or fail to produce  correct  results if "00" is  interpreted to commonly
referred to as the "Millennium Bug" or "Year 2000 problem.

     Assessment.  The Year 2000 problem could affect  computers,  software,  and
other  equipment  which  NetWolves  Corporation  uses,  operates,  or maintains.
Accordingly,  NetWolves  Corporation has reviewed its internal computer programs
and systems to ensure  that the  programs  and systems are Year 2000  complaint.
NetWolves Corporation presently believes that its computer systems are Year 2000
complaint. However, while the estimated cost of these efforts is not expected to
be  material  to its  overall  financial  position,  or any  year's  results  of
operations, there can be no assurance to this effect.

     Products  Sold to  Consumers.  NetWolves  Corporation  believes that it has
substantially  identified and resolved all potential Year 2000 problems with the
software products it develops and markets. However, it also believes that is not
possible  to  determine  with  complete  certainty  that all Year 2000  problems
affecting its products have been  identified or corrected due to the  complexity
of these  products and the fact that these  products  interact  with other third
party vendor  products and operate  with other  systems  which are not under its
control.

     NetWolves Corporation recognizes the significance of the Year 2000 issue as
it relates to internal systems,  including IT and non-IT systems. To that extent
NetWolves Corporation has achieved the following:


<PAGE>

     Internal  Information  Technology  Infrastructure.   NetWolves  Corporation
believes that it has identified,  modified upgraded,  or replaced  substantially
all of the major computers, software applications, and related equipment used in
connection with its internal  operations in order to minimize the possibility of
a material  disruption to its business.  While most of the upgrades were planned
as part of a  general  enhancement  to its  infrastructure,  the  timing  of the
upgrades also result in Year 2000 compliance.

     Systems Other than Information Technology Systems. In addition to computers
and related systems, the operation of office and facilities  equipment,  such as
fax machines, photocopiers, telephone switches, security systems, elevators, and
other  common  devices  may be  affected  by the Year  2000  problem.  NetWolves
Corporation  has assessed and  remediated the effect of the Year 2000 problem on
its office and  facilities  equipment  under its  control,  and the total  costs
associated with completing the required modifications, upgrades, or replacements
of these internal systems were not material.

     Suppliers.  NetWolves Corporation has initiated  communications,  including
surveys,  with business  critical third party suppliers of the major  computers,
software,  and other equipment which it uses, operates, or maintains to identify
and, to the extent possible,  to resolve issues involving the Year 2000 problem.
NetWolves Corporation has received vendor certification that all of its business
critical  information  technology  systems,  including  internal  communications
systems, accounting and finance systems, customer service systems, and sales and
marketing  tracking  systems,  are Year 2000 compliant.  Accordingly,  NetWolves
Corporation  does not anticipate any  significant  Year 2000 problems with these
systems;  however, it cannot ensure that these suppliers will resolve any or all
of their Year 2000  problems  with these  systems  before  the  occurrence  of a
material  disruption  to  its  business  or  that  of its  customers.  NetWolves
Corporation  believes  that its primary  exposure is  presently  with respect to
public utilities and  telecommunications  suppliers.  Any failure of these third
parties to resolve  Year 2000  problems  with their  systems in a timely  manner
could  have  a  material  adverse  affect  on  NetWolves  Corporation  business,
financial condition, and results of operation.

     Additionally, NetWolves Corporation has initiated communications, including
surveys,  with all other  vendors  or  businesses  that  supply  any  service to
NetWolves Corporation.  While it has limited or no control over responses to its
inquiries and the actions of these third party suppliers,  NetWolves Corporation
does not view this category of services to be business critical and in the event
of a Year 2000 problem with a particular  vendor,  believes  that those goods or
services could easily be obtained from other sources.

     Banking  Relationships.  NetWolves  Corporation  has  confined  its banking
relationships to top tier financial institutions who have represented that their
respective  systems  are Year 2000  complaint.  Any  failure  of these  banks to
resolve Year 2000 problems with their systems in a timely manner would result in
financial  inconvenience and, depending upon the duration of the failure,  could
have a material adverse affect on NetWolves  Corporation financial condition and
results of operation.


<PAGE>


     Most  Likely  Consequences  of Year 2000  Problems.  NetWolves  Corporation
believes that it has  identified  all Year 2000  problems that could  materially
adversely affect its business  operations.  However, it does not believe that it
is possible to determine  with  complete  certainty  that all Year 2000 problems
which effect it have been identified or corrected.

     The number of devices  that could be affected  and the  interactions  among
these  devices  are simply too  numerous.  In  addition,  one cannot  accurately
predict how many Year 2000 problem- related failures will occur or the severity,
duration,  or financial  consequences of these perhaps inevitable  failures.  In
addition,  NetWolves  Corporation  is unable  to  determine  with any  degree of
certainty the changes in buying  habits of its current and  potential  customers
due to their concerns over Year 2000 issues. As a result,  NetWolves Corporation
expects that it could  likely  experience a  significant  number of  operational
inconveniences  and  inefficiencies   that  may  divert  management's  time  and
attention  and its  financial  and human  resources  from its ordinary  business
activities. In addition, NetWolves Corporation may experience a lesser number of
serious  system  failures  that may  require  significant  efforts  by it or its
customers to prevent or alleviate material business disruptions.


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 and development 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 for each owner includes warrants currently  exercisable or exercisable
by such owner within 60 days.


<TABLE>
<CAPTION>

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

<S>                                        <C>                          <C>
Greenleaf Capital Partners, LLC (7)        1,141,360  (5)               27%
Walter M. Groteke                            528,064  (1)(2)            11%
Daniel G. Stephens                           528,064  (1)(2)            11%
Kevin F. Sherlock                            528,064  (1)(2)            11%
Keith Darling                                528,064  (2)(3)            11%
Mark Jacques                                 475,258  (2)(3)            10%
Walter R. Groteke                            150,000  (1)                3%
Internet Technologies, Inc.(7)               260,000  (4)(5)             5%
Ed Lavin                                      50,000                     1%
Louis Liben                                   50,000                     1%
Kirlin Securities, Inc.(7)                   500,000     (6)             9%
Executive officers and
  directors as a group                     1,834,192                    38%

<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.

(7)  The  natural  person or  persons  who  exercise  sole or shared  voting and
     dispositive  powers over the shares held of record by these entities are as
     follows:  Greenleaf  Capital  Partners,  LLC - Mr. Phillip  LoRusso and Mr.
     Edmund McCormick;  Internet Technologies,  Inc. - Mr. Louis McElwee; Kirlin
     Securities, Inc. - Mr. Anthony Kirincic.

</FN>

</TABLE>


<PAGE>

ITEM 5.   DIRECTORS AND EXECUTIVE OFFICERS

Directors and Executive Officers

     The directors and executive officers of the Company as of March 1, 1999 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
January1999  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.

<PAGE>

     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.

     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.

<PAGE>

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,
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  and Kevin F.  Sherlock  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 vesting on July 1, 2000.  Warrants to purchase 200,000 shares of
the  Company's  common  stock at $1.63 per share  also were  issued to Walter R.
Groteke.   These  warrants  are  fully  vested  on  June  17,  2003  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.

<PAGE>

     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
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


     The following table sets forth the annual  compensation  with regard to the
Chief Executive Officer and each of the other executive  officers of the Company
for fiscal year ended June 30, 1998.

<TABLE>
<CAPTION>

                           Summary Compensation Table
                               Annual Compensation
                          ----------------------------

    Name and               Fiscal
Principal Position         Year          Salary           Bonus

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

Walter M. Groteke          1998            --              --
Chairman and Chief
Executive Officer

Daniel G. Stephens         1998            --              --
Vice Chairman and
Chief Information
Officer

Kevin Sherlock             1998            --              --
Chief Operating
Officer


</TABLE>


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.  The total capital  contribution to NetWolves LLC by its members
was $64,245.  As part of such  exchange,  principals of NetWolves,  LLC received
2,640,322 shares of NetWolves  Corporation for a per share cost of approximately
$.02. 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. Messrs. Groteke,  Stephens,  Sherlock,  Darling and Jacques also
each received 200,000  warrants in connection with the merger,  exercisable at a
price of $1.63 per share.  Harold  Habberstad and Joseph Ariola acted as finders
for the merger  transaction  for which they received  75,000 warrants and 12,500
warrants, respectively,  exercisable at a price of $2.00 per share. The exercise
price was based upon the public trading price of Watchdog  Patrols Inc.'s common
stock at the time of the acquisition.


     Greenleaf Capital Partners LLC was a shareholder of Watchdog Patrols,  Inc.
prior to the merger,  having acquired  1,141,360 shares at an aggregate purchase
price of $2,200,000.  Greenleaf Capital received demand  registration  rights in
connection with the merger.  Pursuant to these rights,  Greenleaf Capital or any
member or members of Greenleaf  Capital  owning at least 20% of the  outstanding
shares of common stock owned by Greenleaf  Capital,  has the right to request in
writing that NetWolves register such shares under a registration statement to be
filed with the  Securities  and Exchange  Commission.  The Company is thereafter
required  to file such  registration  statement  within  sixty  (60) days  after
receipt of the  request.  The  Company  is further  obligated  to  maintain  the
effectiveness  of  the  registration  statement  until  the  securities  covered
thereunder have been sold.


<PAGE>

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.

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
                                                 ----           ---
     <S>                                        <C>          <C>
     1999
     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.  The book value of the NetWolves,  LLC ownership interest totalled
$64,245 at the time of the merger,  representing a cost for the 2,640,322 shares
of  approximately  $.02 per share.  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  (valued  at $3.84 per  share)  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  (valued at $3.84 per share) 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 (valued at $3.84 per share) 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.

     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.  [Portions of Exhibit 10.3 have been
           omitted pursuant to a request for confidential treatment]
     10.4  Employment Agreement between Netwolves Corporation and Daniel G.
           Stephens, Jr. dated June 17, 1998.*
     10.5  Employment  Agreement  between  Watchdog Patrols, Inc. and Walter M.
           Groteke dated June 17, 1998.*
     10.6  Employment  Agreement  between  Watchdog Patrols, Inc.  and  Kevin F.
           Sherlock dated June 17, 1998.*
     10.7  Warrant Agreement between Watchdog Patrols, Inc.and Walter M. Groteke
           dated June 17, 1998.*
     10.8  Warrant Agreement between Watchdog Patrols, Inc.and Daniel G.
           Stephens, Jr. dated  June 17, 1998.*
     10.9  Warrant Agreement between Watchdog Patrols, Inc.and Kevin F. Sherlock
           dated June 17, 1998.*
     10.10 Stock Option Plan.*
     10.11 Form of Indemnification Agreement*
     10.12 Settlement Agreement and Mutual Release with Keith Darling.*
     10.13 Settlement Agreement and Mutual Release with Mark Jacques.*
     27    Financial Data Schedule*

- ------
* Previously filed

<PAGE>


                                   SIGNATURES


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


                                             NETWOLVES CORPORATION

                                             By: /s/ Walter M. Groteke

                                             Walter M. Groteke
                                             Chairman of the Board and
                                             President



Dated:   November 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

                                      F-1
<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>
                                      F-2
<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>
                                      F-3
<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>
                                      F-4
<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>
                                      F-5
<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 620,000  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.

                                      F-6
<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.

                                      F-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)

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.

                                      F-8
<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.

     Stock  Options

     Statement  of  Financial  Accounting  Standards  No. 123,  "Accounting  for
     Stock-Based  Compensation"  ("SFAS  123")  establishes  a fair  value-based
     method of accounting for stock  compensation  plans. The Company has chosen
     to adopt the  disclosure  requirements  of SFAS 123 and  continue to record
     stock   compensation  for  its  employees  in  accordance  with  Accounting
     Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
     ("APB 25").  Under APB 25, charges are made to operations in accounting for
     stock  options  granted to employees  when the option  exercise  prices are
     below the fair market  value of the common stock at the  measurement  date.
     Options granted to non-employees are recorded in accordance with SFAS 123.

     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.

                                      F-9
<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>
                                      F-10
<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>
                                      F-11
<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.  Management
          determined  the fair  value of the  common  stock  based on its quoted
          market price on the day of issuance  less a discount of 25% due to the
          restricted  nature of the stock.

     .    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.  Management
          determined  the fair  value of the  common  stock  based on its quoted
          market price on the day of issuance  less a discount of 25% due to the
          restricted  nature of the  stock.  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 60,000  shares
          upon  completion of a $6,000,000  private  placement (Note 10c) and an
          additional   60,000  shares  upon   completion  of  a  second  private
          placement, if any.


     .    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.

                                      F-12
<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  165,500 shares of
     common stock under the 1998  Incentive Plan to key employees at an exercise
     price of $5.00 per share that vest in equal  installments  over three years
     commencing  January 2000. The exercise price  represents the closing quoted
     price of the common stock on the day immediately  prior to the grants.  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  1,207,500  shares of its common  stock as follows:

      .   620,000  ten-year  warrants  issued to the former members of NetWolves
          LLC at an exercise price of $1.63 per share. Originally,  an aggregate
          of  1,000,000   warrants  were  granted  to  six   individuals;   upon
          termination  of two of these  individuals  in  January  1999,  380,000
          warrants were cancelled resulting in 620,000 outstanding warrants. The
          warrants were originally issued as performance-based warrants, vesting
          only upon achieving  specified financial targets. In January 1999, the
          vesting  terms of 600,000  of the  warrants  were  amended so that the
          warrants  would  automatically  vest in June  2000.  Accordingly,  the
          modification  changed  the  warrant  to  a  fixed-warrant  and  a  new
          measurement date was established.  The intrinsic value of the modified
          warrants approximated $1,908,000,  which will be charged to operations
          over the 18-month vesting period (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.

                                      F-13
<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, based upon the intrinsic value of the warrants
          on the date of grant.

     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 the independent  contractors'
          submission  of  valid,   legally  binding   purchase  orders  totaling
          $10,000,000  for the period from January 1, 1999 to December 31, 1999.
          The  potential   charge  to  operations   upon   achieving   specified
          performance  criteria  is  approximately  $115,000.  The  value of the
          warrants has been calculated  using the  Black-Scholes  option-pricing
          model with the  following  assumptions:  no dividend  yield,  expected
          volatility of 65%,  risk-free  interest rate of 4.62%, and an expected
          term of two years.

     .    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>
                                      F-14
<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.  At June
     30,  1998,  the  Company  has  net  tax  operating  loss  carryforwards  of
     approximately  $100,000  available to offset future income tax liabilities,
     if any. The carryforward losses expire in the year 2013.

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 for four of the executives and 180,000 warrants
               for the fifth executive (see Note 7).


                                      F-15
<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 380,000 warrants (in total)
     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.

                                      F-16
<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.


     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.

                                      F-17


                                                            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


<PAGE>

                                                       Exhibit A
                      PRIMARY CLIENT LIST


AAAD                          LEVINE AUTOMOTIVE
AAFES                         MARATHON PETROLEUM
A/C DELCO                     MC DONALD'S CORPORATION
AMOCO OIL COMPANY             MIDWEST MANAGEMENT
APS                           MOBIL OIL CORP.
AUTOMOTIVE SERVICE ASS'N.     MURPHY OIL USA, INC.
BRITISH PETROLEUM             NAPA
CHEVRON USA                   J. D. POWER & ASSOCIATES
CHRYSLER CORPORATION          QUIKTRIP CORPORATION
CIRCLE K MARKETING CORP.      SEARS
CITICORP                      SELAME DESIGN
DATA NATIONAL CORP.           SHELL (EQUILON/MOTIVA)
ECHLIN                        SOUTHLAND
EQUIVA SERVICES LLC           STANDARD MOTOR PRODUCTS
(EQUILON & MOTIVA)
EXXON                         SUNOCO
FIRST BRANDS                  TEXACO (EQUILON/MOTIVA)
FORD                          TOSCO MARKETING CO.
GENERAL MOTORS                TRIAD
HILL HOLIDAY CORP.            UNOCAL/76 PRODUCTS CORP.
HI/LO AUTO SUPPLY             WAYNE DIVISION
                              DRESSER INDUSTRIES
IRVING OIL LTD. (CANADA)

<PAGE>


                  Information for Attachment B ("Commitments")

Tosco
     TSG has a contract for a beta test for ESCN and the FoxBox, currently under
way in the  Sacramento,  California  area. If this test is  successful,  TSG has
received a verbal  commitment  to expand  system-wide  through  the 76 brand and
possibly to the Circle K brand, with about 7,500 total locations.

BP-Amoco
     If successful with the beta test, TSG has a qualified  commitment to expand
the Fox Box and ESCN to  potentially  30,000  units.  We  anticipate a beta test
during  the first  quarter of 2000,  most  likely in Tokyo,  Japan and  Atlanta,
Georgia.

Sunoco
     Assuming a  successful  beta test,  planned for the 4th quarter of 1999 and
the first quarter of 2000, TSG has a qualified commitment to expand its CertiNet
product to 750 Sunoco Ultra Service Center auto service shops with FoxBox as the
foundation, and the possible addition of ESCN.

<PAGE>

                                                                     EXHIBIT "C"
                                                    FOXBOX CUSTOMIZATION OPTIONS
- --------------------------------------------------------------------------------

1.   HARDWARE

     1.1  FOXBOX DDR
          1.1.1     8 GIGABYTE HARD DRIVE
          1.1.2     32 MEGABYTES OF RAM (MIN)
          1.1.3     300 MHZ PROCESSOR (OR FASTER)
          1.1.4     56 KBPS MODEM
          1.1.5     10 MBPS ETHERNET

     1.2  VIEWER/CLIENT (WORKSTATION)
          1.2.1     FAST PROCESSOR (TBD)
          1.2.2     32  MEGABYTES OF RAM (MIN)
          1.2.3     15" MONITOR
          1.2.4     KEYBOARD
          1.2.5     MOUSE
          1.2.6     FLOPPY OR FLASH RAM/PC CARD
          1.2.7     ETHERNET CARD

     1.3  ALL REQUIRED NETWORK AND POWER CABLES

     1.4  EXTERNAL UPS

NOTE: EXACT SPECIFICATIONS MAY ALTER COMMENSURATE WITH NETWOLVES APPROVAL DESIGN
      DOCUMENT.

2.   FUNCTIONALITY - NETWOLVES AGREES TO PROVIDE THE CUSTOM FOXBOX IN SUCH A WAY
     AS TO ALLOW THE USER THE FOLLOWING FUNCTIONALITY:

     2.1  STANDARD FOXBOX DDR FUNCTIONALITY PACKAGE
          2.1.1     FIREWALL
          2.1.2     DNS SERVER/CACHE
          2.1.3     WEB PROXY
          2.1.4     EMAIL SERVER
          2.1.5     WEB-BASED GUI

     2.2  FOXBOX DDR INCLUDED OPTIONS/UPGRADE
          2.2.1     SECURE REMOTE ADMINISTRATION
          2.2.2     VIRTUAL PRIVATE NETWORKING
          2.2.3     ADVANCED ACCESS CONTROL
     2.3  MINIMUM ADMINISTRATION OF REMOTE FOXBOX AND VIEWER/CLIENT

     2.4  AUTOMATED SITE CONFIGURATION

     2.5  INTEGRATED REMOTE STREAMING VIDEO SERVER

     2.6  VIEWER/CLIENT (WORKSTATION) FUNCTIONALITY
          2.6.1     VIEW STREAMING VIDEO
          2.6.2     INTERACT WITH LIVE INSTRUCTORS
          2.6.3     TAKE ONLINE TESTS
          2.6.4     EDIT DOCUMENTS
          2.6.5     BROWSE "ALLOWED" WEB SITES
          2.6.6     SEND/RECEIVE EMAIL

     2.7  AUTOMATED CONTENT DISTRIBUTION TO REMOVE FOXBOXES

     2.8  SECURE CONTENT STORAGE ON REMOTE FOXBOXES

     2.9  CENTRALIZED CONTENT MANAGEMENT
          2.9.1     STORAGE OF STREAMING VIDEO/INSTRUCTION CONTENT
          2.9.2     MANAGE DISTRIBUTION OF CONTENT TO FOXBOX GROUPS
          2.9.3     COLLECT DATA FROM REMOTE FOXBOXES AND TRAINERS
                    2.9.3.1   USAGE DATA
                    2.9.3.2   TEST SCORES

NOTE: EXACT SPECIFICATIONS MAY ALTER COMMENSURATE WITH NETWOLVES APPROVED DESIGN
      DOCUMENT.





                                                                  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

Midwest Datacomm
SER Communication
Teknon
Cal Communications
Comdisco

List to be updated from time to time by Anicom.
<PAGE>

                                   APPENDIX B
                             DESCRIPTION OF PRODUCT

See Price List attached as Appendix D.

<PAGE>

                                   APPENDIX C
                           INITIAL TRAINING SCHEDULE

Training to be completed by February 28, 1999.

<PAGE>

                                   APPENDIX D
                                   PRICE LIST

                  SEE ATTACHED NETWOLVES PRICE LIST DATED 10/98

<PAGE>

                                    INTERNET SOLUTION SERVER - PRICE LIST

<TABLE>
<CAPTION>

                                                            Effective: 10/98
                                   Base Units
<S>         <C>                                                                                   <C>
 Part No.   Description                                                                           List Price
 FB-DDR     FoxBox DDR                                                                               *
            Connection type: Dial-on-Demand
            Includes: 200MHz processor, 16 Megabyte memory, 3.2 Gigabyte storage,
            1 10 Megabit Ethernet and 1 v.90 Modem port; web server - intranet only;
            mail server - POP/IMAP Internal and SMTP External.  Security Features
            include:  SMTP, FTP, HTTP, DNS LAN to Internet proxies; stateful filters -
            all TCP and UDP protocols; no firewall configuration required.
            Administrative Interface:  Web-based GUI only accessible from Local LAN.
            Recommended number of users - up to 8

FB-ISDN     FoxBox ISDN                                                                               *
            Connection type:  Dial-on-Demand
            Includes:  200 MHz processor, 16 Megabyte memory, 3.2 Gigabyte storage, 1
            10 Megabit Ethernet and 1 128Kbps ISDN port; web server - intranet/optional
            internet; mail server - POP/IMAP Internal and SMTP External.  Security
            Features include:  SMTP, FTP, HTTP, DNS LAN to Internet proxies, optional
            Internet to LAN proxies; stateful filters - all TCP and UDP protocols; no
            firewall configuration required.  Administrative Interface:  Web-based GUI
            only accessible from Local LAN.
            Recommended number of users - up to 25

FB-56K      FoxBox56K                                                                                 *
            Connection type:  Dedicated
            Includes:  200MHz processor, 16 Megabyte memory, 3.2 Gigabyte storage, 1
            10 Megabit Ethernet and 1 56Kbps Sync Serial port; web server -
            intranet/internet; mail server - POP/IMAP Internal and SMTP External.
            Security Features include:  SMTP, FTP, HTTP, DNS LAN to Internet proxies,
            SMTP, FTP, HTTP, DNS Internet to LAN proxies; stateful filters - all TCP
            and UDP protocols; Administrative Interface:  Web-based GUI only
            accessible from Local LAN.
            Recommended number of users - up to 20

FB-T1       FoxBox T1                                                                                *
            Connection type:  Dedicated
            Includes:  200MHz processor, 16 Megabyte memory, 3.2 Gigabyte storage, 1
            10 Megabit Ethernet and 1 T1/E1 Sync Serial port; web server -
            intranet/internet; mail server - POP/IMAP Internal and SMTP External.
            Security Features include:  SMTP, FTP, HTTP, DNS LAN to Internet proxies,
            SMTP, FTP, HTTP, DNS Internet to LAN proxies; stateful filters - all TCP
            and UDP protocols; Administrative Interface:  Web-based GUI only
            accessible from Local LAN.
            Recommended number of users - up to 400

FB-S2E      FoxBox Secure 2E                                                                         *
            Connection type:  Dedicated
            Includes:  200MHz processor, 16 Megabyte memory, 3.2 Gigabyte storage, 2 10 Megabit
            Ethernet port; web server - intranet/internet; mail server - POP/IMAP Internal and SMTP
            External.  Security Features include:  SMTP, FTP, HTTP, DNS LAN to Internet proxies,
            SMTP, FTP, HTTP, DNS Internet to LAN proxies; stateful filters - all TCP and UDP
            protocols; Administrative Interface:  Web-based GUI only accessible from Local LAN.
            Recommended number of users - N/A

</TABLE>

<PAGE>

                           INTERNET SOLUTION SERVER - "OPTIONS" PRICE LIST
                                        Effective:  10/98

                                        Available Upgrade
<TABLE>
<CAPTION>

Name                       Version     Part Number               Description            Notes/Requirements              Price

<S>                        <C>       <C>                   <C>                          <C>                             <C>
FoxBox SCSI Tape           1.1       FB-UN-STAPE-1.1       Includes Adaptec 1520 SCSI    Works with all FoxBox            *
Backup                                                     Controller, HP Superstore     models
                                                           8e External Tape Drive, SCSI
                                                           Cable, and Backup Software
                                                           version 1.1.  For use with all
                                                           FoxBox models.

FoxBox Fast SCSI           1.0       FB-UN-FSSYS-1.0       Includes Adaptec 2940         Works with all FoxBox            *
Hard Drive System                                          Busmastered SCSI Controller,  models.
                                                           Seagate 9.1 Gig internal
                                                           SCSI II Wide hard drive
                                                           and cable.

FoxBox Extra 9.1           1.0       FB-UN-SCSID-9.1       Includes Seagate 9.1 Gig      Requires FB-UN-SSYS-             *
Gig SCSI Hard Drive                                        internal SCSI II Wide         1.0 or later.
                                                           hard drive
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                        Software Applications

Name                       Version     Part Number                Description                 Notes/Requirements        Price


<S>                         <C>      <C>                  <C>                                 <C>                         <C>
FoxBox Mail                 1.1      FB-DED-MAILA-1.1      Makes the FoxBox email system      Works only with Dedicated   *
Archive Module                                             compliant with the SEC email       FoxBox models (56K, T1,
                                                           archiving requirements.            S2E)
                                                           Archives all inbound and
                                                           outbound mail.


FoxBox Advanced             1.1      FB-UN-AACL-1.1        Allows the FoxBox Administrator    Works with all FoxBox       *
Access Control                                             to block certain web sites from    models.
                                                           access by computer/users on the
                                                           LAN.  Also allows FoxBox
                                                           Administrator to force users to
                                                           authenticate (i.e., login) before
                                                           they access the Internet with a
                                                           web browser.


FoxBox Advanced             1.0      FB-DED-ANAT-1.0       Allows the FoxBox Administrator    Works only with            *
NAT Control                                                to create very specific and        Dedicated FoxBox models
                                                           flexible Network Address           (56K, T1, S2e).  Adds
                                                           Translation NAT) rules that work
                                                           seamlessly with the built-in
                                                           FoxBox firewall.

FoxBox VPN                  1.0      FB-DED-VPN-1.0        Allows the FoxBox Administrator    Works only with            *
                                                           to create an encrypted, virtually  Dedicated FoxBox models
                                                           dedicated connection between any   (56K, T1, 52e).  Adds
                                                           two Foxboxes running the           packet overhead to network
                                                           VPN 1.0 software.                  traffic between FoxBoxes
                                                                                              participating in the VPN due
                                                                                              to encryption.

FoxBox DHCP                 1.0     FB-UN-DHCP-1.0         Allows the FoxBox Administrator    Works on all FoxBox        *
                                                           to manage and assign IP addresses  models.  Ships as standard
                                                           centrally from the FoxBox using    software with FoxBox A1
                                                           the standard DHCP protocol.        Version 1.5.



                                        Maintenance Agreement

NetWolves                   1.0    FB-UN-NETS-1.0          NetWolves Enchanced Technical      Renewable annually.  If    *
Enchanced                                                  Support (NETS) agreement           purchased at the same
Technical                                                  provides 24x7 12 month             time as the system,
Support                                                    coverage by telephone, e-mail      maintenance starts
(NETS)                                                     and remote access.  Covers:        after 30 day warranty
Agreement                                                  advanced hardware replacement      expires.
                                                           due to hardware failure.  Minor
                                                           software upgrades for the contract
                                                           term for purchased systems.  Access
                                                           to special areas of the Web site.

</TABLE>

<PAGE>

                                   APPENDIX E

                                RESELLER PROGRAM

               *




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