NETWOLVES CORP
10-12G/A, 1999-09-30
COMPUTER INTEGRATED SYSTEMS DESIGN
Previous: EQCC HOME EQUITY LOAN TRUST 1999-1, 8-K, 1999-09-30
Next: VERITAS SOFTWARE CORP /DE/, 424B3, 1999-09-30


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    ---------


                                    FORM 10/A



                   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.  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. 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


     For the year ended June 30,  1998,  no officer  or  director  of  NetWolves
Corporation received compensation from the Company.



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.  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.  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.  This was a  transaction  by the Company not involving any public
offering  which  was  exempt  from  the  registration   requirements  under  the
Securities Act pursuant to Section 4(2) thereof.

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

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

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

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

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

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

<PAGE>


ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS

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

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

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

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

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

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


ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See attached statements.



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

Not applicable.











<PAGE>


ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS

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

(b)  Exhibits


     3.1   Certificate of Incorporation, as amended. *
     3.2   By-Laws. *
     4.1   Specimen common stock certificate.*
     4.2   Form of warrant to investment banking firm. *
     4.3   Form of warrant to employees. *
     10.1  Merger and Reorganization Agreement dated June 15, 1998 among
           Watchdog Patrols, Inc., Watchdog Acquisition Corp. and NetWolves,
           LLC. *
     10.2  Agreement between The Sullivan Group and NetWolves Corporation dated
           January 5, 1999. *
     10.3  Distribution Agreement between NetWolves Corporation and Anicom, Inc.
           dated as of January 18, 1999. *
     10.4  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:   September 29, 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 and thin trading volume at the time of
          issuance.

     .    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 and thin trading volume at the time of
          issuance.  Internet  Technologies  has demand  registration  rights on
          these 200,000 shares.

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

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

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

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

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

     Another  shareholder,   Greenleaf  Capital  Partners,   LLC  (a  pre-Merger
     shareholder of Watchdog),  has demand  registration rights on its 1,141,360
     shares of common stock.

                                      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.

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

     c. Private placement memorandum

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

                                      F-17



 .
                              EMPLOYMENT AGREEMENT
                                       OF
                             Daniel G. Stephens, Jr.


     This EMPLOYMENT  AGREEMENT  ("Agreement") dated as of the 15th day of June,
1998, between Daniel G. Stephens,  Jr.  ("Executive") an individual  residing at
3216 W. Santiago St., Tampa, Fl 33629, and NetWolves  Corporation  ("Company") a
New York  Corporation  having its principal place of business at 33 Walt Whitman
Dr., Suite 125, Huntington Station, New York 11743;

                                   WITNESSETH:

     WHEREAS,  the  Company  desires to retain  Executive  as the  President  of
Manufacturing, Research and Development of the Company, and Executive desires to
perform such duties,

     NOW, THEREFORE, it is mutually agreed by and among the parties as follows:

Section 1. Employment.
- ---------------------

     Upon the terms and subject to the conditions  contained herein,  during the
Employment Term ( hereinafter defined),  the Company hereby employs Executive as
the  President  of  Manufacturing,  Research  and  Development  of the  Company.
Executive  shall be  responsible  for such duties as are  commensurate  with his
office and as may from time to time be  assigned  to  Executive  by the Board of
Directors  of the  Company.  Executive  shall  report  directly  to  the  Board.
Executive  hereby accepts such  employment and during the Employment  Term shall
devote his full business  time,  skill,  energy and attention to the business of
the Company, and shall perform his duties in a diligent,  trustworthy, loyal and
businesslike and efficient manner, all for the purpose of advancing the business
of the Company.  Executive shall not be engaged in any other business  activity,
whether or not the  activity is pursued  for gain,  profit,  or other  pecuniary
advantage,  during the term of this Agreement  without  Company's  prior written
consent. Executive agrees to serve, if elected, as an officer and/or director of
the  Company  and  any  of its  subsidiaries  without  additional  compensation.
However,  Executive  shall not be required to serve as an officer or director of
any of the Company's  subsidiaries if to do so would expose Executive to adverse
financial consequences.

Section 2. Compensation.
- -----------------------

     2.1.  Salary.  During the  Employment  Term,  the  Company  shall pay,  and
Executive  shall be entitled to receive from the  Company,  as a base salary for
the  employment  referred  to in Section 1 hereof,  compensation  at the rate of
$100,000 per annum,  payable in 26 equal  installments.  Executive's base salary
shall be increased after the first full year as follows:
<PAGE>
     (A)  to $130,000 per annum, payable in 26 equal installments;

     (B)  to  $150,000  per  annum,  payable  in 26 equal  installments,  if the
          operating subsidiary NetWolves  Corporation generates revenues between
          $5,000,000 and $9,999,999,  within one year of the initial  employment
          term.

     (C)  to  $250,000  per  annum,  payable  in 26 equal  installments,  if the
          operating  subsidiary NetWolves  Corporation  generated revenues of at
          least $10,000,000, within one year of the initial employment term.

     2.2. Bonus. Executive shall be entitled to a bonus of 2% of gross profit of
the Company. One fourth of the bonus will be paid quarterly after the completion
of the Company's quarterly financial  statement,  and the remaining balance will
be paid after the completion of the annual financial statement.

     2.3. Stock Options; Warrants: Executive shall be entitled to receive in the
aggregate  warrants to purchase  200,000  shares of the stock of the Company and
shall also share in an employee stock option plan. The warrants,  which shall be
subject to a separate Warrant Agreement, shall provide as follows:

     (A)  50,000  warrants will become  exercisable if the operating  subsidiary
          generates  revenues  of at least  $5,000,000,  without a pretax  loss,
          within one year following the signing of this agreement;

               (B) 100,000  warrants  will become  exercisable  if the operating
          subsidiary  generates  revenues of at least  $10,000,000  in revenues,
          with at least  $2,000,000 in pretax profit  [before  interest,  taxes,
          depreciation, and amortization ("EBITDA")],  within one year following
          the signing of this Agreement; and

               (C) 50,000  warrants  will become  exercisable  if the  operating
          subsidiary  generates  revenue of $10,000,000 with at least $1,000,000
          in pretax  profit  (EBITDA),  within the  second  year  following  the
          signing of this Agreement;

               (D) If the warrants  described in paragraph 2.3 (2) do not become
          exercisable  under the  conditions  stated,  then such  warrants  will
          become exercisable if the operating subsidiary  generates  $20,000,000
          in revenues, with at least $4,000,000 in pretax income (EBITDA) during
          the second year following the signing of this agreement.

     The Company  agrees to establish an employee  stock option plan and reserve
at least  500,000  shares of the common stock of the Company for issuance  under
the plan.
<PAGE>
     2.4.  Expenses.  The Company  shall  reimburse  Executive  for all expenses
incurred and paid by Executive  in the course of the  performance  of his duties
pursuant to this Agreement and consistent with the Company's  policies in effect
from time to time with  respect  to  travel,  entertainment  and other  business
expenses,  and subject to the Company's  requirements with respect to the manner
of reporting such expenses.

     2.6. Fringe Benefits. Executive shall be entitled to participate in various
fringe benefit programs now in force or hereafter established by the Company for
all employees of the Company,  provided,  however, that such participation shall
be subject to all of the terms and  conditions  pertaining  to said  programs as
they may now exist or as  hereafter  adopted,  modified or  amended.  The fringe
benefit  program of the  Company  may be changed or  canceled at any time by the
Company in its sole discretion without prior notice to or consent of Executive.

     2.7.  Vacation.  Executive  shall be entitled to a paid vacation of two (2)
weeks commencing six (6) months from the Effective Date of this Agreement, three
(3) weeks after the first year and four (4) weeks every year thereafter.

     2.8.  Holidays.  Executive  shall be entitled to the same paid  holidays as
authorized by the Company for all its other executives.

Section 3.     Employment Term.
- ------------------------------

     3.1.  Employment  Term.  The  Employment  Term  shall  be three  (3)  years
commencing  on the  date  of the  signing  of  this  Agreement.  The  Employment
Agreement  will be  automatically  renewed  for another  three (3) years  unless
otherwise terminated or canceled pursuant to Section 4 hereof.

Section 4.     Termination
- --------------------------

     4.1.  Death.  The Agreement  shall  terminate  upon death of the Executive.
Should the Agreement terminate as a result of Executive's death, the Executive's
Estate  shall  be  entitled  to  receive  compensation  equal to six  months  of
Executive's base salary, base salary determined at the time of death.

     4.2. Termination by Company.

          (a)   Termination  For  Cause.   Company  may  terminate   Executive's
     employment for cause.

          (b) 'Cause' Defined. Company shall have cause to terminate Executive's
     employment if Executive wilfully fails to substantially  perform any duties
     required by this Agreement (unless Executive's failure is due to a physical
     or mental incapacity),  Executive is consistently,  flagrantly, and grossly
     negligent  in the  performance  of required  duties,  Executive  engages in
<PAGE>
     conduct that demonstrably and substantially  damages Company,  Executive is
     convicted of a felonious  act of moral  turpitude,  or Executive  discloses
     material confidential information in violation of this Agreement. No act or
     failure to act by Executive may be  considered  "wilful"  unless  Executive
     acted or  failed  to act  without  any  reasonable  belief  that the act or
     omission was in Company's best interests and without good faith.

               (c)  Resolution  Finding  Cause for  Termination  of  Executive's
     Employment.  Before  Executive's  employment may be terminated for cause, a
     majority of the entire  membership  of Company's  Board of  Directors  (not
     including  Executive)  must duly adopt a  resolution  finding in good faith
     that Company has cause to terminate  Executive's  employment and specifying
     the details of  Executive's  misconduct.  Before the Board of Directors may
     adopt such a  resolution,  Executive  must be given  reasonable  notice and
     opportunity  to be heard by the Board of Directors and must be permitted to
     appear before the Board of Directors  with counsel.  The Board of Directors
     may not adopt a resolution  terminating  Executive's  employment  for cause
     unless it  receives  a report  from a firm of  independent  attorneys  (not
     including  counsel for Company)  concluding that the Board of Directors has
     cause  within  the  meaning  of this  agreement  to  terminate  Executive's
     employment.  The  firm  of  independent  attorneys  must be  selected  by a
     majority of the entire  membership of the Board of Directors (not including
     Executive)  and  must  be  reasonably  acceptable  to  Executive.  If  this
     Agreement is  terminated  by Company for cause,  each  party's  obligations
     under  this  Agreement  shall  thereupon  cease and  terminate  except  for
     obligations  accrued but  undischarged  to and  including  the date of such
     event

     4.3.  Termination  by  Executive.  Executive  may (but is not obligated to)
terminate this Agreement at any time under the following circumstances:

          (a) Executive's health becomes so impaired that continued  performance
     of  Executive's   duties  under  this  Agreement   would  be  hazardous  to
     Executive's physical or mental health.

          (b)  Change in  control.  There is a change in  control  of Company if
     someone other than the subscribers to Company's common stock at the time of
     the signing of this Agreement  becomes the beneficial owner of common stock
     representing  20 percent  or more of the voting  power of Company or during
     any three year period during the term of this Agreement the individuals who
     constitute  the Board of Directors at the  beginning of the period cease to
     constitute  at least a  majority  of the  Board  members  at the end of the
     three-year  period  for any  reason  other  than  death or  disability.  No
     transaction  or event will be deemed to have  caused a change in control if
     Executive gives prior consent to the transaction or event.

          (c) Executive is assigned duties that are significantly different than
     those  described in this Agreement,  or duties  assigned  Executive by this
     Agreement are eliminated or transferred to someone else.

          (d)  Executive  is  removed  from any of the  positions  described  in
     Section 1 of this Agreement (other than by Company for cause).

          (e) Executive's  fringe benefits or other  compensation are materially
     reduced.  (f) Company  requires  Executive to travel more  frequently  than
     contemplated  by this  Agreement.  (g)  Company  fails to have a  successor
     assume this Agreement.  (h) Company becomes insolvent or files a bankruptcy
     petition.
<PAGE>
         4.4. Notice of Termination.  Any termination of Executive's  employment
by Company or  Executive  must be  communicated  to the other party by a written
Notice of  Termination.  The notice must specify the provision of this Agreement
authorizing the  termination  and must set forth in reasonable  detail the facts
and circumstances providing the basis for termination of Executive's employment.

         4.5.  Date   Termination  Is  Effective.   If  Executive's   employment
terminates because this Agreement expires,  then Executive's  employment will be
considered to have terminated on that expiration date. If Executive's employment
terminates  because of Executive's  death,  then Executive's  employment will be
considered to have  terminated on the date of Executive's  death. If Executive's
employment  is  terminated by Executive,  then  Executive's  employment  will be
considered to have terminated on the date that a Notice of Termination is given.
If Executive's  employment is terminated by Company for cause,  then Executive's
employment  will be considered to have  terminated on the date  specified by the
"Notice of  Termination."  If,  within 30days after a Notice of  Termination  is
given,  the party  receiving the notice notifies the other party that there is a
dispute  concerning the  termination,  then  Executive's  employment will not be
considered to have terminated until the dispute is ended by a written  agreement
between the parties, a final arbitration  award, or a final judgment,  order, or
decree of a court of competent jurisdiction.  A judgment,  order, or decree of a
court  of  competent  jurisdiction  will be  considered  final  if the  time for
appealing the decision has expired and no appeal has been perfected.

         4.6. Compensation Following Termination.

               (a) If Executive's  employment  terminates because of Executive's
          death, the Company shall pay a lump sum death benefit to the person or
          persons designated in a written notice filed with Company by Executive
          or, if no person  has been  designated,  to  Executive's  estate.  The
          amount  of the lump  sum  death  benefit  will  equal  the  amount  of
          Executive's  then  current  base salary  plus the amount of  incentive
          compensation paid Executive most recently prior to Executive's  death,
          multiplied by the number of full and partial years that  Executive was
          employed by Company.  This lump sum death benefit shall be in addition
          to any other amounts that Executive's  beneficiaries and estate may be
          entitled to receive  under any  employee  benefit plan  maintained  by
          Company.

               (b) If Executive's employment is terminated by Company for cause,
          Company  shall pay to Executive  Executive's  then current base salary
          through the date  employment is terminated,  and Company shall have no
          further obligations to Executive under this Agreement.

               (c) If Company terminates  Executive's  employment other than for
          cause,  Company  shall pay  Executive  Executive's  then  current base
          salary  through the date  employment is terminated  and any legal fees
          and expenses incurred by Executive to enforce Executive's rights under
<PAGE>
          this Agreement. In addition, Company shall pay Executive as liquidated
          damages an amount  equal to the sum of  Executive's  then current base
          salary plus the amount of  incentive  compensation  paid to  Executive
          most recently before the date  Executive's  employment was terminated,
          multiplied  by the number of full and partial  years  remaining in the
          term of this Agreement (including extensions),  and further multiplied
          by 50% percent if Executive's  employment  terminates  during the year
          ending  December  31,  1998,  75%  percent if  Executive's  employment
          terminates  during the year ending  December 31, 1999, or 100% percent
          if Executive's  employment  terminates during the year ending December
          31, 2000 or a subsequent year.

                       (d) If Executive's  employment is terminated by Executive
         in accordance with the provisions of this Agreement,  Company shall pay
         Executive  severance  pay in an amount equal to the sum of  Executive's
         base salary plus the amount of incentive compensation paid to Executive
         most recently  before the date  Executive's  employment was terminated,
         multiplied by fifty percent (50%).

               (e) Company and Executive  intend that no portion of the payments
          to Executive  contingent on a change in control of Company be deemed a
          parachute  payment,  as that term is defined by Section  28OG(b)(2) of
          the  Internal  Revenue  Code.  Company  and  Executive  agree that the
          present  value (as that term is defined by Section  28OG(d)(4)  of the
          Internal  Revenue Code) of the  termination  payments  contingent on a
          change in control of  Company  shall not exceed the amount  that could
          cause the payments to be characterized as a parachute payment.  If the
          present  value of the  payments  to be made to  Executive  exceed  the
          amount;  that  could  cause  the  payments  to be  characterized  as a
          parachute payment,  then the amount of those payments shall be reduced
          so that their  present  value  equals one dollar  less than the amount
          that would  cause the  payments  to be  characterized  as a  parachute
          payment.

         4.7.  Health  insurance  upon  termination.  In the event  the  Company
terminates  this  Agreement  with  Executive  for  reasons  other  than those in
Sections 4.1, and 4.2(a),  the Executive shall be entitled to receive continuing
benefits of health insurance coverage for a six month period.

Section 5.    Disability.
- ------------------------

         5.1.  Replacement  Because  of  Disability.  If,  because of illness or
injury,  Executive becomes unable to work full time for the Company for a period
of more than 90 days, Company may, in its sole discretion at any time after that
period give Executive 30 days written  notice that it will replace  Executive if
Executive is unable to return to work full time before the date specified in the
written  notice.  Replacement of Executive shall not be considered a termination
of Executive's employment under this Agreement.

         5.2. Compensation During Periods of Disability.

               (a) Executive shall continue to receive  Executive's  base salary
          and incentive compensation while Executive is unable to work full time
          until Executive is replaced or until Executive terminates  Executive's
          employment with Company because Executive's health becomes so impaired
          that continued performances of Executive's duties under this Agreement
          would be hazardous to Executive's physical or mental health.
<PAGE>
               (b) While  Executive  is unable  to work  full  time  because  of
          illness  or  injury  and  through  the  full  term of this  Agreement,
          including  extensions,  Company shall maintain for Executive's benefit
          all employee benefit plans in which Executive was participating at the
          time Executive was replaced. If Executive is barred from participating
          in any  employee  benefit  plan  because  of  Executive's  disability,
          Company shall pay Executive an amount equal to what Company would have
          contributed  on  Executive's  behalf to the  employee  benefit plan if
          Executive's participation had not been barred.

               (c) After Executive is replaced or receives notice that Executive
          is terminating  employment  because  Executive's  health has become so
          impaired that continued  performance of Executive's  duties under this
          Agreement would be hazardous to Executive's physical or mental health,
          Company shall pay Executive an amount equal to the sum of  Executive's
          base  salary  plus  the  amount  of  incentive  compensation  paid  to
          Executive  most recently  before the date  Executive's  employment was
          terminated, multiplied by fifty percent (50%)

               (d)  Executive  is not  required  to  seek  other  employment  to
          mitigate any amounts  payable under this  Agreement.  Nor will amounts
          due Executive under this Agreement be reduced by any amounts  received
          by Executive for other employment.

         5.3.  Disability  Insurance.  Company  shall  purchase and use its best
efforts to maintain  disability  insurance in force for the benefit of Executive
throughout the term of this Agreement (including  extensions).  The policy shall
replace fifty percent of Executive's  Base Salary,  start paying  benefits after
Executive  has  been  unable  to work  full-time  for 90 days,  continue  paying
benefits  until  Executive  reaches  age 65, and waive  premium  payments  while
Executive is disabled.  If Company  fails to make a premium  payment,  Executive
shall have the right in Executive's sole discretion to advance such funds as may
be required to maintain the policy in force and shall  thereafter be entitled to
recover amounts paid from Company.

Section 6.    Business Properties.
- ---------------------------------

         6.1. Business Properties.  Other than as required to perform his duties
in accordance  with this Agreement and for purpose of furthering the business of
the Company, Executive shall not use or cause to be used Company's trade secrets
or any  other  confidential  business  information  by him  as a  result  of his
employment or relationship to the Company or any affiliate of the Company.

         6.2. Revealing Trade Secret,  etc. Executive  acknowledges the interest
of the Company in maintaining the  confidentiality of information related to its
business  and shall not at any time during the  Employment  Term or  thereafter,
directly or  indirectly,  reveal or cause to be revealed to any person or entity
the production processes, inventions, formulae, trade secrets, customer lists or
any other confidential information obtained by him as a result of his employment
or  relationship  with the Company or any affiliate of the Company,  except when
authorized in writing to do so by the Company, provided, however, that it is not
the intent of this Section 5.2 to include within the subject matter  information
not  proprietary  to the Company or  information  which is in the public domain.
Confidential  information  does  not  include  any  information  that  is  known
<PAGE>
generally by the public  (other than as a result of  unauthorized  disclosure by
Executive)  or  information  that is not  the  type  of  information  considered
confidential  by persons  engaged  in a business  that is the same of similar to
that  conducted  by the  company.  Confidential  information  is material if its
disclosure would be materially damaging to the Company.

Section 7.    Non-Competition.
- -----------------------------

         7.1.  Non-Competition.  During the Employment  Term and for a period of
one  (1)  year  thereafter,   Executive  shall  not  (a)  compete,   engage,  or
participate,  directly or indirectly,  in the business or business substantially
similar to the  business as  conducted  by the Company or as may  thereafter  be
conducted by the Company at any time during the Employment  Term, (b) solicit or
cause to be solicited any customers of the Company,  or (c) recruit or cause any
other person to recruit any  employee of the Company to any of said  business or
businesses.

         7.2.  Prior  Notice.  Prior to  engaging in any  activity or  accepting
employment  with  another  company any time within one (1) year after  Executive
leaves the  employment  of the Company,  which  activity or employment is in the
same or related  industry in which the Company is engaged,  Executive  agrees to
provide at least thirty (30) days prior written  notice (by  certified  mail) to
the Company,  stating the description of the activities or position sought to be
undertaken by Executive,  together with such further  information as the Company
may request in connection  therewith  (including,  but not limited to,  location
where the services  would be performed,  the present or former  customers of the
Company who may be anticipated to receive such services,  etc.). Upon receipt of
such information from Executive,  the Company shall, within fifteen (15) days of
the receipt of all of the requested  information,  notify Executive  whether the
Company objects to the otherwise prohibited services of activities by Executive.
If the Company does not object or does not respond,  the  restrictions set forth
in Section 6 shall have no force and effect. The Company shall be free to object
or not to object in  unfettered  discretion,  and parties agree that any actions
taken or not taken by the Company with respect to any other  employees or former
employees shall have no bearing  whatsoever on the Company's  decision or on any
question  regarding  the  enforceability  of  this  restraint  with  respect  to
Executive.

         7.3. Limitations.  It is also agreed that if for any reason the area or
time  restrictions  set forth above are too broad so as to be  unenforceable  by
law, then they, or either one of them,  shall be reduced to such area or time as
shall be legally enforceable. If it is judicially determined that this agreement
not to  compete,  or any  potion  thereof,  is illegal  or  offensive  under any
applicable law (statute,  common law or otherwise),  then it is hereby agreed by
Executive  and the Company that the  non-competition  covenant  shall be in full
force and effect to the full extent  permitted  by law. By this  agreement,  the
parties  intend to have this  agreement  not to  compete to be in full force and
effect to the greatest extent permitted.
<PAGE>
Section 8.    Inventions.
- ------------------------

         8.1. Assignment.  Without further  consideration  Executive shall fully
and promptly report to the Company all ideas, concept, inventions,  discoveries,
formulae  and designs  conceived or produced by Executive at any time during the
Employment  Term,  whether  alone  or with  others  and  whether  patentable  or
unpatentable (collectively, "Inventions") pertaining, directly or indirectly, to
the business of the Company as conducted at any time during the Employment Term,
and  shall  assign  and  hereby  does  assign  to the  Company  or  its  nominee
Executive's entire right, title and interest in and to all such Inventions.

         8.2. Cooperation.  Executive shall take all reasonable action requested
by the Company to protect or obtain  title to any and all United  States  and/or
foreign patents on any such Inventions,  including execution and delivery of all
applications.  assignments and other documents  deemed necessary or desirable by
the Company,  provided Executive is reimbursed for reasonable  expenses incurred
by Executive in connection with such execution and delivery.

Section 9.    Miscellaneous.
- ---------------------------

         9.1. Remedies.  The parties acknowledge that any breach or violation by
Executive  of  the  terms  of  this  Agreement  will  result  in  immediate  and
irreparable injury and harm to the Company, and will do damage to the Company in
amounts  difficult to ascertain.  Accordingly,  the company shall be entitled to
remedies of injunction,  as well as to all other legal or equitable  remedies to
which the Company may be entitled,  including, without limitation termination of
the Employment Term and this Agreement.

         9.2.  Certain  definitions.  For the  purposes of this  Agreement,  the
following terms shall have the following meanings:

         (a) "Engage in or participate in any business" referred to in Section 7
hereof shall be deemed to mean engaging in or  participating  in any business or
businesses,  directly or indirectly,  whether for his own account or for that of
any other person, firm, or corporation,  and whether as a stockholder (except as
a  stockholder  in a  publicly-held  corporation  with more than 500  holders of
common stock of which Executive owns less than 1 % of the outstanding securities
of  any  class),  principal,  agent,  proprietor,  partner,  officer,  director,
employee or consultant, or in any other capacity;

         9.3. Notices. Any notice or other communications  required or permitted
to be given to the  parties  hereto  shall be  deemed to have  been  given  when
received,  addressed as follows (or at such other address as the party addressed
may have substituted by notice pursuant to this Section 8.3.

         (a)  If to the Company:  NetWolves Corporation
                                  33 Walt Whitman Dr., Suite 125
                                  Huntington Station, New York 11743;
<PAGE>
         (b)  If to Executive:    Daniel G. Stephens, Jr.
                                  3216 W. Santiago St.
                                  Tampa, Fl 33629

     9.4. Heading.  The captions set forth in this Agreement are for convenience
only and  shall not be  considered  as part of this  Agreement  or as in any way
limiting or amplifying the terms and provision hereof.

     9.5.  Governing  Law. The Agreement  shall in all respects be  interpreted,
construed  and  governed  by and in  accordance  with  the law of the  State  of
Florida.

     9.6.  Severability.  In  case  this  Agreement  or any  one or  more of the
provisions hereof, shall be held to be invalid,  illegal or unenforceable within
any governmental  jurisdiction or subdivision thereof, the Agreement or any such
provision  or  provisions  shall not as a  consequence  thereof  be deemed to be
invalid,  illegal or  unenforceable  in any other  governmental  jurisdiction or
subdivision thereof. In case any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid,  illegal or  unenforceable
in any other respect, such invalidity,  illegality or unenforceability shall not
affect  any other  provision  of this  Agreement,  but this  Agreement  shall be
construed as if such invalid,  illegal or unenforceable provision had never been
contained  herein and there shall be deemed  substituted such other provision as
will most nearly accomplish the intent of the parties to the extent permitted by
applicable law.

     9.7.  Whole  Agreement.  This Agreement  embodies all the  representations,
warrants  covenants and  agreements of the parties in relation to subject matter
hereof,  and  no  representations,   warranties,  covenants,  understandings  or
agreements,  or otherwise,  in relation thereto exist between the parties except
as herein  expressly  set forth herein,  or in any  instrument in writing by the
party to be bound thereby which makes reference to this Agreement.

     9.8. No Rights in Third  Parties.  Nothing  herein  expressed or implied is
intended to or shall be construed to confer upon or give to any person,  firm or
other entity, other than the parties hereto and their respective  successors and
assigns or personal  representatives,  any rights or remedies under or by reason
of this Agreement.

     9.9.  Amendment.  This  Agreement may not be amended  orally but only by an
instrument in writing duly executed by the parties hereto.

     9.10. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts,  each of which shall be deemed an original,  but all of which
together shall constitute one and the same Agreement.
<PAGE>
         In WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.



EXECUTIVE                              NetWolves Corporation


/s/ Daniel G. Stephens               By:  /s/Mark Jacques
- ----------------------                    -----------------------
Daniel G. Stephens, Jr.                     President




                              EMPLOYMENT AGREEMENT
                                       OF
                                Walter M. Groteke


     This EMPLOYMENT AGREEMENT  ("Agreement") dated as of the day of June, 1998,
between  Walter W. Groteke  ("Executive")  an  individual  residing at 64 Hodson
Ave., Lynbrook, New York 11563, and Watchdog Patrols, Inc ("Company") a New York
Corporation having its principal place of business at 33 Walt Whitman Dr., Suite
125, Huntington Station, New York 11743;

                                   WITNESSETH:

     WHEREAS,  the Company  desires to retain  Executive as the Chief  Executive
Officer of the Company, and Executive desires to perform such duties,

     NOW, THEREFORE, it is mutually agreed by and among the parties as follows:

Section 1. Employment.

     Upon the terms and subject to the conditions  contained herein,  during the
Employment Term ( hereinafter defined),  the Company hereby employs Executive as
the Chief Executive  Officer of the Company.  Executive shall be responsible for
such duties as are commensurate  with his office and as may from time to time be
assigned to Executive by the Board of Directors of the Company.  Executive shall
report  directly to the Board.  Executive  hereby  accepts such  employment  and
during the Employment  Term shall devote his full business time,  skill,  energy
and attention to the business of the Company,  and shall perform his duties in a
diligent,  trustworthy, loyal and businesslike and efficient manner, all for the
purpose of advancing the business of the Company. Executive shall not be engaged
in any other business activity, whether or not the activity is pursued for gain,
profit, or other pecuniary advantage,  during the term of this Agreement without
Company's prior written consent.  Executive  agrees to serve, if elected,  as an
officer  and/or  director  of the Company  and any of its  subsidiaries  without
additional compensation. However, Executive shall not be required to serve as an
officer  or  director  of any of the  Company's  subsidiaries  if to do so would
expose Executive to adverse financial consequences.

Section 2. Compensation.

     2.1.  Salary.  During the  Employment  Term,  the  Company  shall pay,  and
Executive  shall be entitled to receive from the  Company,  as a base salary for
the full-time  employment  referred to in Section 1 hereof during the first term
of  employment,  compensation  at the rate of $100,000 per annum,  payable in 26

<PAGE>

equal  installments;  the base salary  shall be increased to $250,000 per annum,
payable in 26 equal  installments,  commencing  the second  term of  Executive's
employment;  and the base  salary  shall be  increased  to  $275,000  per annum,
payable  in 26 equal  installments,  commencing  the third  term of  Executive's
employment.  The  base  salary  will be  reviewed  at  least  once a year by the
Company's  Board of directors  and may be increased  if the  performance  of the
Company  warrants any such increase.  If the Board deems that the performance of
the  Company  is  not  meeting  projections  and  the  resulting  cash  flow  is
insufficient  to pay the full  salaries  in year two and three,  the Board shall
renegotiate  the salaries  with  Executive,  which salary shall not be less than
$150,000 in year two and $175,000 in year three.

     2.2. Bonus. Executive shall be entitled to a bonus of 2% of gross profit of
the Company. One fourth of the bonus will be paid quarterly after the completion
of the Company's quarterly financial  statement,  and the remaining balance will
be paid after the completion of the annual financial statement.

     2.3. Stock Options; Warrants: Executive shall be entitled to receive in the
aggregate  warrants to purchase  200,000  shares of the stock of the Company and
shall also share in an employee  stock  option plan.  The warrants  shall become
exercisable as follows:

               (1) 50,000  warrants  will become  exercisable  if the  operating
          subsidiary generates revenues of at least $5,000,000, without a pretax
          loss, withing one year following the signing of this agreement;

               (2) 100,000  warrants  will become  exercisable  if the operating
          subsidiary  generates  revenues of at least  $10,000,000  in revenues,
          with at least  $2,000,000 in pretax profit  [before  interest,  taxes,
          depreciation, and amortization ("EBITDA")],  within one year following
          the signing of this Agreement; and

               (3) 50,000  warrants  will become  exercisable  if the  operating
          subsidiary  generates  revenue of $10,000,000 with at least $1,000,000
          in pretax  profit  (EBITDA),  within the  second  year  following  the
          signing of this Agreement;

               (4) If the warrants  described in paragraph 2.3 (2) do not become
          exercisable  under the  conditions  stated,  then such  warrants  will
          become exercisable if the operating subsidiary  generates  $20,000,000
          in revenues, with at least $4,000,000 in pretax income (EBITDA) during
          the first two years following the signing of this agreement.

     The Company  agrees to establish an employee  stock option plan and reserve
at least  500,000  shares of the common stock of the Company for issuance  under
the plan.

     2.4.  Expenses.  The Company  shall  reimburse  Executive  for all expenses
incurred and paid by Executive  in the course of the  performance  of his duties
pursuant to this Agreement and consistent with the Company's  policies in effect
from time to time with respect to travel, entertainment and other business

<PAGE>

expenses,  and subject to the Company's  requirements with respect to the manner
of reporting such expenses.

     2.6. Fringe Benefits. Executive shall be entitled to participate in various
fringe benefit programs now in force or hereafter established by the Company for
all employees of the Company,  provided,  however, that such participation shall
be subject to all of the terms and  conditions  pertaining  to said  programs as
they may now exist or as  hereafter  adopted,  modified or  amended.  The fringe
benefit  program of the  Company  may be changed or  canceled at any time by the
Company in its sole discretion without prior notice to or consent of Executive.

     2.7.  Vacation.  Executive  shall be entitled to a paid vacation of two (2)
weeks commencing six (6) months from the Effective Date of this Agreement, three
(3) weeks after the first year and four (4) weeks every year thereafter.

     2.8.  Holidays.  Executive  shall be entitled to the same paid  holidays as
authorized by the Company for all its other executives.

Section 3.     Employment Term.

     3.1.  Employment  Term.  The  Employment  Term  shall  be three  (3)  years
commencing  on the  date  of the  signing  of  this  Agreement.  The  Employment
Agreement  will be  automatically  renewed  for another  three (3) years  unless
otherwise terminated or canceled pursuant to Section 4 hereof.

Section 4.     Termination

     4.1.  Death.  The Agreement  shall  terminate  upon death of the Executive.
Should the Agreement terminate as a result of Executive's death, the Executive's
Estate  shall  be  entitled  to  receive  compensation  equal to six  months  of
Executive's base salary, base salary determined at the time of death.

     4.2. Termination by Company.

               (a)  Termination For Cause.  Company may terminate Executive's
     employment for cause.

               (b)  'Cause'  Defined.  Company  shall  have  cause to  terminate
     Executive's employment if Executive wilfully fails to substantially perform
     any duties required by this Agreement (unless Executive's failure is due to
     a physical or mental  incapacity),  Executive is consistently,  flagrantly,
     and grossly  negligent in the  performance  of required  duties,  Executive
     engages in conduct that  demonstrably  and  substantially  damages Company,
     Executive is convicted of a felonious act of moral turpitude,  or Executive
     discloses material confidential information in violation of this Agreement.
     No act or failure to act by Executive  may be  considered  "wilful"  unless
     Executive acted or failed to act without any reasonable belief that the act
     or omission was in Company's best interests and without good faith.
<PAGE>

          (c)   Resolution   Finding  Cause  for   Termination   of  Executive's
     Employment.  Before  Executive's  employment may be terminated for cause, a
     majority of the entire  membership  of Company's  Board of  Directors  (not
     including  Executive)  must duly adopt a  resolution  finding in good faith
     that Company has cause to terminate  Executive's  employment and specifying
     the details of  Executive's  misconduct.  Before the Board of Directors may
     adopt such a  resolution,  Executive  must be given  reasonable  notice and
     opportunity to be heard by the Board of Directors and must bet permitted to
     appear before the Board of Directors  with counsel.  The Board of Directors
     may not adopt a resolution  terminating  Executive's  employment  for cause
     unless it  receives  a report  from a firm of  independent  attorneys  (not
     including  counsel for Company)  concluding that the Board of Directors has
     cause  within  the  meaning  of this  agreement  to  terminate  Executive's
     employment.  The  firm  of  independent  attorneys  must be  selected  by a
     majority of the entire  membership of the Board of Directors (not including
     Executive)  and  must  be  reasonably  acceptable  to  Executive.  If  this
     Agreement is  terminated  by Company for cause,  each  party's  obligations
     under  this  Agreement  shall  thereupon  cease and  terminate  except  for
     obligations  accrued but  undischarged  to and  including  the date of such
     event

     4.3.  Termination  by  Executive.  Executive  may (but is not obligated to)
terminate this Agreement at any time under the following circumstances:

          (a) Executive's health becomes so impaired that continued  performance
     of  Executive's   duties  under  this  Agreement   would  be  hazardous  to
     Executive's  physical or mental health.

          (b)  Change in  control.  There is a change in  control  of Company if
     someone other than an subscribers to Company's  common stock at the time of
     the signing of this Agreement  becomes the beneficial owner of common stock
     representing  20 percent  or more of the voting  power of Company or during
     any three year period during the term of this Agreement the individuals who
     constitute  the Board of Directors at the  beginning of the period cease to
     constitute  at least a  majority  of the  Board  members  at the end of the
     three-year  period  for any  reason  other  than  death or  disability.  No
     transaction  or event will be deemed to have  caused a change in control if
     Executive gives prior consent to the transaction or event.

          (c) Executive is assigned duties that are significantly different than
     those  described in this Agreement,  or duties  assigned  Executive by this
     Agreement are  eliminated or  transferred to someone else.

          (d)  Executive  is  removed  from any of the  positions  described  in
     Section 1 of this Agreement (other than by Company for cause).

          (e) Executive's  fringe benefits or other  compensation are materially
     reduced.

          (f)  Company  requires   Executive  to  travel  more  frequently  than
     contemplated by this Agreement.

          (g) Company fails to have a successor assume this Agreement.

          (h) Company becomes insolvent or files a bankruptcy petition.
<PAGE>

     4.4.  Notice of Termination.  Any termination of Executive's  employment by
Company or Executive must be communicated to the other party by a written Notice
of  Termination.  The  notice  must  specify  the  provision  of this  Agreement
authorizing the  termination  and must set forth in reasonable  detail the facts
and circumstances providing the basis for termination of Executive's employment.

     4.5. Date Termination Is Effective.  If Executive's  employment  terminates
because this Agreement expires,  then Executive's  employment will be considered
to have terminated on that expiration date. If Executive's employment terminates
because of Executive's death, then Executive's  employment will be considered to
have terminated on the date of Executive's  death. If Executive's  employment is
terminated by Executive,  then Executive's employment will be considered to have
terminated on the date that a Notice of  Termination  is given.  If  Executive's
employment is terminated by Company for cause, then Executive's  employment will
be  considered  to have  terminated  on the date  specified  by the  "Notice  of
Termination."  If, within  30days after a Notice of  Termination  is given,  the
party  receiving  the notice  notifies  the other  party that there is a dispute
concerning the termination,  then Executive's  employment will not be considered
to have terminated until the dispute is ended by a written agreement between the
parties, a final arbitration  award, or a final judgment,  order, or decree of a
court of  competent  jurisdiction.  A judgment,  order,  or decree of a court of
competent  jurisdiction  will be considered  final if the time for appealing the
decision has expired and no appeal has been perfected.

         4.6. Compensation Following Termination.

          (a) If Executive's employment terminates because of Executive's death,
     the  Company  shall pay a lump sum death  benefit  to the person or persons
     designated  in a written  notice filed with Company by Executive  or, if no
     person has been designated,  to Executive's  estate. The amount of the lump
     sum death  benefit will equal the amount of  Executive's  then current base
     salary  plus the  amount of  incentive  compensation  paid  Executive  most
     recently prior to Executive's  death,  multiplied by the number of full and
     partial years that  Executive was employed by Company.  This lump sum death
     benefit  shall  be in  addition  to  any  other  amounts  that  Executive's
     beneficiaries  and estate may be  entitled  to receive  under any  employee
     benefit plan maintained by Company.

          (b) If  Executive's  employment  is  terminated  by Company for cause,
     Company shall pay to Executive Executive's then current base salary through
     the date  employment  is  terminated,  and  Company  shall  have no further
     obligations to Executive under this Agreement.

          (c) If Company terminates Executive's employment other than for cause,
     Company shall pay Executive  Executive's  then current base salary  through
     the date employment is terminated and any legal fees and expenses  incurred
     by  Executive  to  enforce  Executive's  rights  under this  Agreement.  In
     addition, Company shall pay Executive as liquidated damages an amount equal
     to the sum of  Executive's  then  current  base  salary  plus the amount of
     incentive  compensation  paid to Executive  most  recently  before the date
     Executive's employment was terminated, multiplied by the number of full and


<PAGE>

     partial  years   remaining  in  the  term  of  this  Agreement   (including
     extensions),   and  further   multiplied  by  50%  percent  if  Executive's
     employment terminates during the year ending December 31, 1998, 75% percent
     if Executive's  employment  terminates  during the year ending December 31,
     1999, or 100% percent if Executive's  employment terminates during the year
     ending  December  31,  2000  or  a  subsequent  year.

          (d) If Executive's employment is terminated by Executive in accordance
     with  the  provisions  of  this  Agreement,  Company  shall  pay  Executive
     severance pay in an amount equal to the sum of Executive's base salary plus
     the amount of incentive compensation paid to Executive most recently before
     the date Executive's employment was terminated, multiplied by fifty percent
     (50%).

          (e) Company and  Executive  intend that no portion of the  payments to
     Executive  contingent  on a  change  in  control  of  Company  be  deemed a
     parachute  payment,  as that term is defined by Section  28OG(b)(2)  of the
     Internal  Revenue Code.  Company and Executive agree that the present value
     (as that term is defined  by Section  28OG(d)(4)  of the  Internal  Revenue
     Code) of the  termination  payments  contingent  on a change in  control of
     Company  shall not exceed the amount  that could  cause the  payments to be
     characterized as a parachute payment.  If the present value of the payments
     to be made to Executive exceed the amount; that could cause the payments to
     be characterized as a parachute payment,  then the amount of those payments
     shall be reduced so that their  present  value  equals one dollar less than
     the amount that would cause the payments to be characterized as a parachute
     payment.

     4.7. Health insurance upon termination. In the event the Company terminates
this  Agreement with Executive for reasons other than those in Sections 4.1, and
4.2(a), the Executive shall be entitled to receive continuing benefits of health
insurance coverage for a six month period.

Section 5.    Disability.

     5.1.  Replacement Because of Disability.  If, because of illness or injury,
Executive  becomes unable to work full time for the Company for a period of more
than 90 days,  Company may, in its sole discretion at any time after that period
give  Executive  30  days  written  notice  that it will  replace  Executive  if
Executive is unable to return to work full time before the date specified in the
written  notice.  Replacement of Executive shall not be considered a termination
of Executive's employment under this Agreement.

         5.2. Compensation During Periods of Disability.

          (a) Executive  shall continue to receive  Executive's  base salary and
     incentive  compensation  while  Executive is unable to work full time until
     Executive is replaced or until Executive terminates  Executive's employment
     with Company because  Executive's health becomes so impaired that continued
     performances of Executive's  duties under this Agreement would be hazardous
     to Executive's  physical or mental health.

          (b) While  Executive is unable to work full time because of illness or
     injury and through the full term of this Agreement,  including  extensions,
     Company shall maintain for Executive's  benefit all employee  benefit plans
     in which Executive was participating at the time Executive was replaced. If
     Executive is barred from participating in any employee benefit plan because

<PAGE>

     of Executive's  disability,  Company shall pay Executive an amount equal to
     what Company would have  contributed on Executive's  behalf to the employee
     benefit plan if Executive's  participation  had not been barred.

          (c) After  Executive is replaced or receives  notice that Executive is
     terminating  employment  because  Executive's health has become so impaired
     that continued performance of Executive's duties under this Agreement would
     be hazardous to Executive's  physical or mental  health,  Company shall pay
     Executive  an amount equal to the sum of  Executive's  base salary plus the
     amount of incentive compensation paid to Executive most recently before the
     date  Executive's  employment was  terminated,  multiplied by fifty percent
     (50%)

          (d) Executive is not required to seek other employment to mitigate any
     amounts payable under this Agreement.  Nor will amounts due Executive under
     this  Agreement be reduced by any amounts  received by Executive  for other
     employment.

         5.3.  Disability  Insurance.  Company  shall  purchase and use its best
efforts to maintain  disability  insurance in force for the benefit of Executive
throughout the term of this Agreement (including  extensions).  The policy shall
replace fifty percent of Executive's  Base Salary,  start paying  benefits after
Executive  has  been  unable  to work  full-time  for 90 days,  continue  paying
benefits  until  Executive  reaches  age 65, and waive  premium  payments  while
Executive is disabled.  If Company  fails to make a premium  payment,  Executive
shall have the right in Executive's sole discretion to advance such funds as may
be required to maintain the policy in force and shall  thereafter be entitled to
recover amounts paid from Company.

Section 6.    Business Properties.

     6.1. Business  Properties.  Other than as required to perform his duties in
accordance with this Agreement and for purpose of furthering the business of the
Company,  Executive shall not use or cause to be used Company's trade secrets or
any other confidential business information by him as a result of his employment
or relationship to the Company or any affiliate of the Company.

     6.2. Revealing Trade Secret,  etc.  Executive  acknowledges the interest of
the Company in maintaining  the  confidentiality  of information  related to its
business  and shall not at any time during the  Employment  Term or  thereafter,
directly or  indirectly,  reveal or cause to be revealed to any person or entity
the production processes, inventions, formulae, trade secrets, customer lists or
any other confidential information obtained by him as a result of his employment
or  relationship  with the Company or any affiliate of the Company,  except when
authorized in writing to do so by the Company, provided, however, that it is not
the intent of this Section 5.2 to include within the subject matter  information
not  proprietary  to the Company or  information  which is in the public domain.
Confidential  information  does  not  include  any  information  that  is  known
generally by the public  (other than as a result of  unauthorized  disclosure by
Executive) or information that is not the type of information considered

<PAGE>

confidential  by persons  engaged  in a business  that is the same of similar to
that  conducted  by the  company.  Confidential  information  is material if its
disclosure would be materially damaging to the Company.

Section 7.    Non-Competition.

     7.1.  Non-Competition.  During the Employment  Term and for a period of one
(1) year thereafter,  Executive shall not (a) compete,  engage,  or participate,
directly or indirectly, in the business or business substantially similar to the
business as  conducted by the Company or as may  thereafter  be conducted by the
Company  at any time  during the  Employment  Term,  (b)  solicit or cause to be
solicited any customers of the Company,  or recruit or cause any other person to
recruit any employee of the Company to any of said business or businesses.

     7.2.  Prior  Notice.  Prior  to  engaging  in  any  activity  or  accepting
employment  with  another  company any time within one (1) year after  Executive
leaves the  employment  of the Company,  which  activity or employment is in the
same or related  industry in which the Company is engaged,  Executive  agrees to
provide at least thirty (30) days prior written  notice (by  certified  mail) to
the Company,  stating the description of the activities or position sought to be
undertaken by Executive,  together with such further  information as the Company
may request in connection  therewith  (including,  but not limited to,  location
where the services  would be performed,  the present or former  customers of the
Company who may be anticipated to receive such services,  etc.). Upon receipt of
such information from Executive,  the Company shall, within fifteen (15) days of
the receipt of all of the requested  information,  notify Executive  whether the
Company objects to the otherwise prohibited services of activities by Executive.
If the Company does not object or does not respond,  the  restrictions set forth
in Section 6 shall have no force and effect. The Company shall be free to object
or not to object in  unfettered  discretion,  and parties agree that any actions
taken or not taken by the Company with respect to any other  employees or former
employees shall have no bearing  whatsoever on the Company's  decision or on any
question  regarding  the  enforceability  of  this  restraint  with  respect  to
Executive.

     7.3. Limitations. It is also agreed that if for any reason the area or time
restrictions  set forth  above are too broad so as to be  unenforceable  by law,
then they, or either one of them, shall be reduced to such area or time as shall
be legally enforceable.  If it is judicially  determined that this agreement not
to compete,  or any potion thereof, is illegal of offensive under any applicable
law (statute,  common law or  otherwise),  then it is hereby agreed by Executive
and the Company  that the  non-competition  covenant  shall be in full force and
effect to the full  extent  permitted  by law.  By this  agreement,  the parties
intend to have this  agreement  not to compete to be in full force and effect to
the greatest extent permitted.

Section 8.    Inventions.

     8.1. Assignment.  Without further  consideration  Executive shall fully and
promptly  report to the Company  all ideas,  concept,  inventions,  discoveries,
formulae  and designs  conceived or produced by Executive at any time during the
Employment  Term,  whether  alone  of with  others  and  whether  patentable  or
unpatentable (collectively, "Inventions") pertaining, directly or indirectly, to
the business of the Company as conducted at any time during the Employment Term,
and  shall  assign  and  hereby  does  assign  to the  Company  or  its  nominee
Executive's entire right, title and interest in and to all such Inventions.

     8.2.  Cooperation.  Executive shall take all reasonable action requested by
the  Company  to protect or obtain  title to any and all  United  States  and/or
foreign patents on any such Inventions,  including execution and delivery of all
applications.  assignments and other documents  deemed necessary or desirable by
the Company,  provided Executive is reimbursed for reasonable  expenses incurred
by Executive in connection with such execution and delivery.

Section 9.    Miscellaneous.

     9.1.  Remedies.  The parties  acknowledge  that any breach or  violation by
Executive  of  the  terms  of  this  Agreement  will  result  in  immediate  and
irreparable injury and harm to the Company, and will do damage to the Company in
amounts  difficult to ascertain.  Accordingly,  the company shall be entitled to
remedies of injunction,  as well as to all other legal or equitable  remedies to
which the Company may be entitled,  including, without limitation termination of
the Employment Term and this Agreement.

     9.2. Certain definitions. For the purposes of this Agreement, the following
terms shall have the following meanings:

          (a) "Engage in or participate in any business"  referred to in Section
     7 hereof  shall be  deemed  to mean  engaging  in or  participating  in any
     business or businesses, directly or indirectly, whether for his own account
     or for that of any other  person,  firm, or  corporation,  and whether as a
     stockholder  (except as a stockholder in a publicly-held  corporation  with
     more than 500 holders of common stock of which Executive owns less than 1 %
     of the outstanding securities of any class), principal,  agent, proprietor,
     partner,  officer,  director,  employee  or  consultant,  or in  any  other
     capacity;

     9.3. Notices. Any notice or other  communications  required or permitted to
be given to the parties hereto shall be deemed to have been given when received,
addressed as follows (or at such other  address as the party  addressed may have
substituted by notice pursuant to this Section 8.3.

         (a)  If to the Company:  Watchdog Pilots, Inc.
                                  33 Walt Whitman Dr., Suite 125
                                  Huntington Station, New York 11743;

         (b)  If to Executive:    Walter M. Groteke
                                  Hodson Ave.
                                  Lynbrook, New York 11563

     9.4. Heading.  The captions set forth in this Agreement are for convenience
only and  shall not be  considered  as part of this  Agreement  or as in any way
limiting or amplifying the terms and provision hereof.
<PAGE>

     9.5.  Governing  Law. The Agreement  shall in all respects be  interpreted,
construed  and  governed by and in  accordance  with the law of the State of New
York.

     9.6.  Severability.  In  case  this  Agreement  or any  one or  more of the
provisions hereof, shall be held to be invalid,  illegal or unenforceable within
any governmental  jurisdiction or subdivision thereof, the Agreement or any such
provision  or  provisions  shall not as a  consequence  thereof  be deemed to be
invalid,  illegal or  unenforceable  in any other  governmental  jurisdiction or
subdivision thereof. In case any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid,  illegal or  unenforceable
in any other respect, such invalidity,  illegality or unenforceability shall not
affect  any other  provision  of this  Agreement,  but this  Agreement  shall be
construed as if such invalid,  illegal or unenforceable provision had never been
contained  herein and there shall be deemed  substituted such other provision as
will most nearly accomplish the intent of the parties to the extent permitted by
applicable law.

     9.7.  Whole  Agreement.  This Agreement  embodies all the  representations,
warrants  covenants and  agreements of the parties in relation to subject matter
hereof,  and  no  representations,   warranties,  covenants,  understandings  or
agreements,  or otherwise,  in relation thereto exist between the parties except
as herein  expressly  set forth herein,  or in any  instrument in writing by the
party to be bound thereby which makes reference to this Agreement.

     9.8. No Rights in Third  Parties.  Nothing  herein  expressed or implied is
intended to or shall be construed to confer upon or give to any person,  firm or
other entity, other than the parties hereto and their respective  successors and
assigns or personal  representatives,  any rights or remedies under or by reason
of this Agreement.

     9.9.  Amendment.  This  Agreement may not be amended  orally but only by an
instrument in writing duly executed by the parties hereto.

     9.10. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts,  each of which shall be deemed an original,  but all of which
together shall constitute one and the same Agreement.

     In WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
duly executed and delivered as of the day and year first above written.


EXECUTIVE
/s/ Walter M. Groteke
- --------------------------
Walter M. Groteke


Watchdog Patrols, Inc.
/s/ Mark Jacques
- --------------------------
Mark Jacques, President

Draft dated June 2, 1998




                              EMPLOYMENT AGREEMENT
                                       OF
                                KEVIN F. SHERLOCK


     This EMPLOYMENT AGREEMENT  ("Agreement") dated as of the day of June, 1998,
between Kevin F. Sherlock ("Executive") an individual residing at 162 Boney Lane
St. James,  New York 11780,  and Watchdog  Patrols,  Inc  ("Company") a New York
Corporation having its principal place of business at 33 Walt Whitman Dr., Suite
125, Huntington Station, New York 11743;

                                   WITNESSETH:

     WHEREAS,  the Company  desires to retain  Executive as the Chief  Operating
Officer of the Company, and Executive desires to perform such duties,

     NOW, THEREFORE, it is mutually agreed by and among the parties as follows:

Section 1. Employment.

     Upon the terms and subject to the conditions  contained herein,  during the
Employment Term ( hereinafter defined),  the Company hereby employs Executive as
the Chief Operating  Officer of the Company.  Executive shall be responsible for
such duties as are commensurate  with his office and as may from time to time be
assigned to Executive by the Board of Directors of the Company.  Executive shall
report  directly to the Board.  Executive  hereby  accepts such  employment  and
during the Employment Term shall devote his time, skill, energy and attention to
the  business  of the  Company,  and shall  perform  his  duties in a  diligent,
trustworthy, loyal and businesslike and efficient manner, all for the purpose of
advancing the business of the Company. Executive agrees to serve, if elected, as
an officer and/or  director of the Company and any of its  subsidiaries  without
additional compensation. However, Executive shall not be required to serve as an
officer  or  director  of any of the  Company's  subsidiaries  if to do so would
expose Executive to adverse financial consequences.

Section 2. Compensation.

     2.1.  Salary.  During the  Employment  Term,  the  Company  shall pay,  and
Executive  shall be entitled to receive from the  Company,  as a base salary for
the full-time  employment  referred to in Section 1 hereof during the first term
of  employment,  compensation  at the rate of $100,000 per annum,  payable in 26
equal  installments;  the base salary  shall be increased to $250,000 per annum,
payable in 26 equal  installments,  commencing  the second  term of  Executive's
employment;  and the base  salary  shall be  increased  to  $275,000  per annum,
payable  in 26 equal  installments,  commencing  the third  term of  Executive's

<PAGE>

employment.  The  base  salary  will be  reviewed  at  least  once a year by the
Company's  Board of directors  and may be increased  if the  performance  of the
Company  warrants any such increase.  If the Board deems that the performance of
the  Company  is  not  meeting  projections  and  the  resulting  cash  flow  is
insufficient  to pay the full  salaries  in year two and three,  the Board shall
renegotiate  the salaries  with  Executive,  which salary shall not be less than
$150,000 in year two and $175,000 in year three.

     2.2. Bonus. Executive shall be entitled to a bonus of 2% of gross profit of
the Company. One fourth of the bonus will be paid quarterly after the completion
of the Company's quarterly financial  statement,  and the remaining balance will
be paid after the completion of the annual financial statement.

     2.3. Stock Options; Warrants: Executive shall be entitled to receive in the
aggregate  warrants to purchase  200,000  shares of the stock of the Company and
shall also share in an employee  stock  option plan.  The warrants  shall become
exercisable as follows:

          (1)  50,000   warrants  will  become   exercisable  if  the  operating
     subsidiary  generates  revenues  of at least  $5,000,000,  without a pretax
     loss, withing one year following the signing of this agreement;

          (2)  100,000  warrants  will  become   exercisable  if  the  operating
     subsidiary generates revenues of at least $10,000,000 in revenues,  with at
     least $2,000,000 in pretax profit [before  interest,  taxes,  depreciation,
     and amortization ("EBITDA")], within one year following the signing of this
     Agreement; and

          (3)  50,000   warrants  will  become   exercisable  if  the  operating
     subsidiary  generates  revenue of $10,000,000  with at least  $1,000,000 in
     pretax  profit  (EBITDA),  within the second year  following the signing of
     this Agreement;

          (4) If the  warrants  described  in  paragraph  2.3 (2) do not  become
     exercisable  under the  conditions  stated,  then such warrants will become
     exercisable if the operating subsidiary generates  $20,000,000 in revenues,
     with at least  $4,000,000  in pretax income  (EBITDA)  during the first two
     years following the signing of this agreement.

     The Company  agrees to establish an employee  stock option plan and reserve
at least  500,000  shares of the common stock of the Company for issuance  under
the plan.

     2.4.  Expenses.  The Company  shall  reimburse  Executive  for all expenses
incurred and paid by Executive  in the course of the  performance  of his duties
pursuant to this Agreement and consistent with the Company's  policies in effect
from time to time with  respect  to  travel,  entertainment  and other  business
expenses,  and subject to the Company's  requirements with respect to the manner
of reporting such expenses.

<PAGE>

     2.6. Fringe Benefits. Executive shall be entitled to participate in various
fringe benefit programs now in force or hereafter established by the Company for
all employees of the Company,  provided,  however, that such participation shall
be subject to all of the terms and  conditions  pertaining  to said  programs as
they may now exist or as  hereafter  adopted,  modified or  amended.  The fringe
benefit  program of the  Company  may be changed or  canceled at any time by the
Company in its sole discretion without prior notice to or consent of Executive.

     2.7.  Vacation.  Executive  shall be entitled to a paid vacation of two (2)
weeks commencing six (6) months from the Effective Date of this Agreement, three
(3) weeks after the first year and four (4) weeks every year thereafter.

     2.8.  Holidays.  Executive  shall be entitled to the same paid  holidays as
authorized by the Company for all its other executives.

Section 3.     Employment Term.

     3.1.  Employment  Term.  The  Employment  Term  shall  be three  (3)  years
commencing  on the  date  of the  signing  of  this  Agreement.  The  Employment
Agreement  will be  automatically  renewed  for another  three (3) years  unless
otherwise terminated or canceled pursuant to Section 4 hereof.

Section 4.     Termination

     4.1.  Death.  The Agreement  shall  terminate  upon death of the Executive.
Should the Agreement terminate as a result of Executive's death, the Executive's
Estate  shall  be  entitled  to  receive  compensation  equal to six  months  of
Executive's base salary, base salary determined at the time of death.

     4.2. Termination by Company.

          (a)   Termination  For  Cause.   Company  may  terminate   Executive's
     employment for cause.

          (b) 'Cause' Defined. Company shall have cause to terminate Executive's
     employment if Executive wilfully fails to substantially  perform any duties
     required by this Agreement (unless Executive's failure is due to a physical
     or mental incapacity),  Executive is consistently,  flagrantly, and grossly
     negligent  in the  performance  of required  duties,  Executive  engages in
     conduct that demonstrably and substantially  damages Company,  Executive is
     convicted of a felonious  act of moral  turpitude,  or Executive  discloses
     material confidential information in violation of this Agreement. No act or
     failure to act by Executive may be  considered  "wilful"  unless  Executive
     acted or  failed  to act  without  any  reasonable  belief  that the act or
     omission was in Company's best interests and without good faith.

          (c)   Resolution   Finding  Cause  for   Termination   of  Executive's
     Employment.  Before  Executive's  employment may be terminated for cause, a
     majority of the entire  membership  of Company's  Board of  Directors  (not

<PAGE>

     including  Executive)  must duly adopt a  resolution  finding in good faith
     that Company has cause to terminate  Executive's  employment and specifying
     the details of  Executive's  misconduct.  Before the Board of Directors may
     adopt such a  resolution,  Executive  must be given  reasonable  notice and
     opportunity to be heard by the Board of Directors and must bet permitted to
     appear before the Board of Directors  with counsel.  The Board of Directors
     may not adopt a resolution  terminating  Executive's  employment  for cause
     unless it  receives  a report  from a firm of  independent  attorneys  (not
     including  counsel for Company)  concluding that the Board of Directors has
     cause  within  the  meaning  of this  agreement  to  terminate  Executive's
     employment.  The  firm  of  independent  attorneys  must be  selected  by a
     majority of the entire  membership of the Board of Directors (not including
     Executive)  and  must  be  reasonably  acceptable  to  Executive.  If  this
     Agreement is  terminated  by Company for cause,  each  party's  obligations
     under  this  Agreement  shall  thereupon  cease and  terminate  except  for
     obligations  accrued but  undischarged  to and  including  the date of such
     event

     4.3.  Termination  by  Executive.  Executive  may (but is not obligated to)
terminate this Agreement at any time under the following circumstances:

          (a) Executive's health becomes so impaired that continued  performance
     of  Executive's   duties  under  this  Agreement   would  be  hazardous  to
     Executive's  physical or mental health.

          (b)  Change in  control.  There is a change in  control  of Company if
     someone other than an subscribers to Company's  common stock at the time of
     the signing of this Agreement  becomes the beneficial owner of common stock
     representing  20 percent  or more of the voting  power of Company or during
     any three year period during the term of this Agreement the individuals who
     constitute  the Board of Directors at the  beginning of the period cease to
     constitute  at least a  majority  of the  Board  members  at the end of the
     three-  year  period for any reason  other  than  death or  disability.  No
     transaction  or event will be deemed to have  caused a change in control if
     Executive gives prior consent to the transaction or event.

          (c) Executive is assigned duties that are significantly different than
     those  described in this Agreement,  or duties  assigned  Executive by this
     Agreement are  eliminated or  transferred to someone else.

          (d)  Executive  is  removed  from any of the  positions  described  in
     Section 1 of this Agreement (other than by Company for cause).

          (e) Executive's  fringe benefits or other  compensation are materially
     reduced.

          (f)  Company  requires   Executive  to  travel  more  frequently  than
     contemplated by this Agreement.

          (g) Company fails to have a successor assume this Agreement.

          (h) Company becomes insolvent or files a bankruptcy petition.

     4.4.  Notice of Termination.  Any termination of Executive's  employment by
Company or Executive must be communicated to the other party by a written Notice
of  Termination.  The  notice  must  specify  the  provision  of this  Agreement

<PAGE>

authorizing the  termination  and must set forth in reasonable  detail the facts
and circumstances providing the basis for termination of Executive's employment.

     4.5. Date Termination Is Effective.  If Executive's  employment  terminates
because this Agreement expires,  then Executive's  employment will be considered
to have terminated on that expiration date. If Executive's employment terminates
because of Executive's death, then Executive's  employment will be considered to
have terminated on the date of Executive's  death. If Executive's  employment is
terminated by Executive,  then Executive's employment will be considered to have
terminated on the date that a Notice of  Termination  is given.  If  Executive's
employment is terminated by Company for cause, then Executive's  employment will
be  considered  to have  terminated  on the date  specified  by the  "Notice  of
Termination."  If, within  30days after a Notice of  Termination  is given,  the
party  receiving  the notice  notifies  the other  party that there is a dispute
concerning the termination,  then Executive's  employment will not be considered
to have terminated until the dispute is ended by a written agreement between the
parties, a final arbitration  award, or a final judgment,  order, or decree of a
court of  competent  jurisdiction.  A judgment,  order,  or decree of a court of
competent  jurisdiction  will be considered  final if the time for appealing the
decision has expired and no appeal has been perfected.

         4.6. Compensation Following Termination.

          (a) If Executive's employment terminates because of Executive's death,
     the  Company  shall pay a lump sum death  benefit  to the person or persons
     designated  in a written  notice filed with Company by Executive  or, if no
     person has been designated,  to Executive's  estate. The amount of the lump
     sum death  benefit will equal the amount of  Executive's  then current base
     salary  plus the  amount of  incentive  compensation  paid  Executive  most
     recently prior to Executive's  death,  multiplied by the number of full and
     partial years that  Executive was employed by Company.  This lump sum death
     benefit  shall  be in  addition  to  any  other  amounts  that  Executive's
     beneficiaries  and estate may be  entitled  to receive  under any  employee
     benefit  plan  maintained  by Company.

          (b) If  Executive's  employment  is  terminated  by Company for cause,
     Company shall pay to Executive Executive's then current base salary through
     the date  employment  is  terminated,  and  Company  shall  have no further
     obligations to Executive under this Agreement.

          (c) If Company terminates Executive's employment other than for cause,
     Company shall pay Executive  Executive's  then current base salary  through
     the date employment is terminated and any legal fees and expenses  incurred
     by  Executive  to  enforce  Executive's  rights  under this  Agreement.  In
     addition, Company shall pay Executive as liquidated damages an amount equal
     to the sum of  Executive's  then  current  base  salary  plus the amount of
     incentive  compensation  paid to Executive  most  recently  before the date
     Executive's employment was terminated, multiplied by the number of full and
     partial  years   remaining  in  the  term  of  this  Agreement   (including
     extensions),   and  further   multiplied  by  50%  percent  if  Executive's
     employment terminates during the year ending December 31, 1998, 75% percent
     if Executive's  employment  terminates  during the year ending December 31,
     1999, or 100% percent if Executive's  employment terminates during the year
     ending December 31, 2000 or a subsequent year.
<PAGE>

          (d) If Executive's employment is terminated by Executive in accordance
     with  the  provisions  of  this  Agreement,  Company  shall  pay  Executive
     severance pay in an amount equal to the sum of Executive's base salary plus
     the amount of incentive compensation paid to Executive most recently before
     the date Executive's employment was terminated, multiplied by fifty percent
     (50%).

          (e) Company and  Executive  intend that no portion of the  payments to
     Executive  contingent  on a  change  in  control  of  Company  be  deemed a
     parachute  payment,  as that term is defined by Section  28OG(b)(2)  of the
     Internal  Revenue Code.  Company and Executive agree that the present value
     (as that term is defined  by Section  28OG(d)(4)  of the  Internal  Revenue
     Code) of the  termination  payments  contingent  on a change in  control of
     Company  shall not exceed the amount  that could  cause the  payments to be
     characterized as a parachute payment.  If the present value of the payments
     to be made to Executive exceed the amount; that could cause the payments to
     be characterized as a parachute payment,  then the amount of those payments
     shall be reduced so that their  present  value  equals one dollar less than
     the amount that would cause the payments to be characterized as a parachute
     payment.

     4.7. Health insurance upon termination. In the event the Company terminates
this  Agreement with Executive for reasons other than those in Sections 4.1, and
4.2(a), the Executive shall be entitled to receive continuing benefits of health
insurance coverage for a six month period.

Section 5.    Disability.

     5.1.  Replacement Because of Disability.  If, because of illness or injury,
Executive  becomes unable to work full time for the Company for a period of more
than 90 days,  Company may, in its sole discretion at any time after that period
give  Executive  30  days  written  notice  that it will  replace  Executive  if
Executive is unable to return to work full time before the date specified in the
written  notice.  Replacement of Executive shall not be considered a termination
of Executive's employment under this Agreement.

         5.2. Compensation During Periods of Disability.

          (a) Executive  shall continue to receive  Executive's  base salary and
     incentive  compensation  while  Executive is unable to work full time until
     Executive is replaced or until Executive terminates  Executive's employment
     with Company because  Executive's health becomes so impaired that continued
     performances of Executive's  duties under this Agreement would be hazardous
     to Executive's  physical or mental health.

          (b) While  Executive is unable to work full time because of illness or
     injury and through the full term of this Agreement,  including  extensions,
     Company shall maintain for Executive's  benefit all employee  benefit plans
     in which Executive was participating at the time Executive was replaced. If
     Executive is barred from participating in any employee benefit plan because
     of Executive's  disability,  Company shall pay Executive an amount equal to
     what Company would have  contributed on Executive's  behalf to the employee
     benefit plan if Executive's participation had not been barred.

          (c) After  Executive is replaced or receives  notice that Executive is
     terminating  employment  because  Executive's health has become so impaired
     that continued performance of Executive's duties under this Agreement would
     be hazardous to Executive's  physical or mental  health,  Company shall pay
     Executive  an amount equal to the sum of  Executive's  base salary plus the
     amount of incentive compensation paid to Executive most recently before the
     date  Executive's  employment was  terminated,  multiplied by fifty percent
     (50%)

          (d) Executive is not required to seek other employment to mitigate any
     amounts payable under this Agreement.  Nor will amounts due Executive under
     this  Agreement be reduced by any amounts  received by Executive  for other
     employment.

     5.3. Disability Insurance.  Company shall purchase and use its best efforts
to  maintain  disability  insurance  in  force  for  the  benefit  of  Executive
throughout the term of this Agreement (including  extensions).  The policy shall
replace fifty percent of Executive's  Base Salary,  start paying  benefits after
Executive  has  been  unable  to work  full-time  for 90 days,  continue  paying
benefits  until  Executive  reaches  age 65, and waive  premium  payments  while
Executive is disabled.  If Company  fails to make a premium  payment,  Executive
shall have the right in Executive's sole discretion to advance such funds as may
be required to maintain the policy in force and shall  thereafter be entitled to
recover amounts paid from Company.

Section 6.    Business Properties.

     6.1. Business  Properties.  Other than as required to perform his duties in
accordance with this Agreement and for purpose of furthering the business of the
Company,  Executive shall not use or cause to be used Company's trade secrets or
any other confidential business information by him as a result of his employment
or relationship to the Company or any affiliate of the Company.

     6.2. Revealing Trade Secret,  etc.  Executive  acknowledges the interest of
the Company in maintaining  the  confidentiality  of information  related to its
business  and shall not at any time during the  Employment  Term or  thereafter,
directly or  indirectly,  reveal or cause to be revealed to any person or entity
the production processes, inventions, formulae, trade secrets, customer lists or
any other confidential information obtained by him as a result of his employment
or  relationship  with the Company or any affiliate of the Company,  except when
authorized in writing to do so by the Company, provided, however, that it is not
the intent of this Section 5.2 to include within the subject matter  information
not  proprietary  to the Company or  information  which is in the public domain.
Confidential  information  does  not  include  any  information  that  is  known
generally by the public  (other than as a result of  unauthorized  disclosure by
Executive)  or  information  that is not  the  type  of  information  considered
confidential  by persons  engaged  in a business  that is the same of similar to
that  conducted  by the  company.  Confidential  information  is material if its
disclosure would be materially damaging to the Company.
<PAGE>

Section 7.    Non-Competition.

     7.1.  Non-Competition.  During the Employment  Term and for a period of one
(1) year thereafter,  Executive shall not (a) compete,  engage,  or participate,
directly or indirectly, in the business or business substantially similar to the
business as  conducted by the Company or as may  thereafter  be conducted by the
Company  at any time  during the  Employment  Term,  (b)  solicit or cause to be
solicited any customers of the Company,  or recruit or cause any other person to
recruit any employee of the Company to any of said business or businesses.

     7.2.  Prior  Notice.  Prior  to  engaging  in  any  activity  or  accepting
employment  with  another  company any time within one (1) year after  Executive
leaves the  employment  of the Company,  which  activity or employment is in the
same or related  industry in which the Company is engaged,  Executive  agrees to
provide at least thirty (30) days prior written  notice (by  certified  mail) to
the Company,  stating the description of the activities or position sought to be
undertaken by Executive,  together with such further  information as the Company
may request in connection  therewith  (including,  but not limited to,  location
where the services  would be performed,  the present or former  customers of the
Company who may be anticipated to receive such services,  etc.). Upon receipt of
such information from Executive,  the Company shall, within fifteen (15) days of
the receipt of all of the requested  information,  notify Executive  whether the
Company objects to the otherwise prohibited services of activities by Executive.
If the Company does not object or does not respond,  the  restrictions set forth
in Section 6 shall have no force and effect. The Company shall be free to object
or not to object in  unfettered  discretion,  and parties agree that any actions
taken or not taken by the Company with respect to any other  employees or former
employees shall have no bearing  whatsoever on the Company's  decision or on any
question  regarding  the  enforceability  of  this  restraint  with  respect  to
Executive.

     7.3. Limitations. It is also agreed that if for any reason the area or time
restrictions  set forth  above are too broad so as to be  unenforceable  by law,
then they, or either one of them, shall be reduced to such area or time as shall
be legally enforceable.  If it is judicially  determined that this agreement not
to compete,  or any potion thereof, is illegal of offensive under any applicable
law (statute,  common law or  otherwise),  then it is hereby agreed by Executive
and the Company  that the  non-competition  covenant  shall be in full force and
effect to the full  extent  permitted  by law.  By this  agreement,  the parties
intend to have this  agreement  not to compete to be in full force and effect to
the greatest extent permitted.

Section 8.    Inventions.

     8.1. Assignment.  Without further  consideration  Executive shall fully and
promptly  report to the Company  all ideas,  concept,  inventions,  discoveries,
formulae  and designs  conceived or produced by Executive at any time during the
Employment  Term,  whether  alone  of with  others  and  whether  patentable  or
unpatentable (collectively, "Inventions") pertaining, directly or indirectly, to
the business of the Company as conducted at any time during the Employment Term,
and  shall  assign  and  hereby  does  assign  to the  Company  or  its  nominee
Executive's entire right, title and interest in and to all such Inventions.

<PAGE>

     8.2.  Cooperation.  Executive shall take all reasonable action requested by
the  Company  to protect or obtain  title to any and all  United  States  and/or
foreign patents on any such Inventions,  including execution and delivery of all
applications.  assignments and other documents  deemed necessary or desirable by
the Company,  provided Executive is reimbursed for reasonable  expenses incurred
by Executive in connection with such execution and delivery.

Section 9.    Miscellaneous.

     9.1.  Remedies.  The parties  acknowledge  that any breach or  violation by
Executive  of  the  terms  of  this  Agreement  will  result  in  immediate  and
irreparable injury and harm to the Company, and will do damage to the Company in
amounts  difficult to ascertain.  Accordingly,  the company shall be entitled to
remedies of injunction,  as well as to all other legal or equitable  remedies to
which the Company may be entitled,  including, without limitation termination of
the Employment Term and this Agreement.

     9.2. Certain definitions. For the purposes of this Agreement, the following
terms shall have the following meanings:

          (a) "Engage in or participate in any business"  referred to in Section
     7 hereof  shall be  deemed  to mean  engaging  in or  participating  in any
     business or businesses, directly or indirectly, whether for his own account
     or for that of any other  person,  firm, or  corporation,  and whether as a
     stockholder  (except as a stockholder in a publicly-held  corporation  with
     more than 500 holders of common stock of which Executive owns less than 1 %
     of the outstanding securities of any class), principal,  agent, proprietor,
     partner,  officer,  director,  employee  or  consultant,  or in  any  other
     capacity;

     9.3. Notices. Any notice or other  communications  required or permitted to
be given to the parties hereto shall be deemed to have been given when received,
addressed as follows (or at such other  address as the party  addressed may have
substituted by notice pursuant to this Section 8.3.

         (a)  If to the Company:  Watchdog Pilots, Inc.
                                  33 Walt Whitman Dr., Suite 125
                                  Huntington Station, New York 11743;

         (b)  If to Executive:    Kevin F. Sherlock
                                  162 Boney Lane
                                  St. James, New York 11780

     9.4. Heading.  The captions set forth in this Agreement are for convenience
only and  shall not be  considered  as part of this  Agreement  or as in any way
limiting or amplifying the terms and provision hereof.

<PAGE>

     9.5.  Governing  Law. The Agreement  shall in all respects be  interpreted,
construed  and  governed by and in  accordance  with the law of the State of New
York.

     9.6.  Severability.  In  case  this  Agreement  or any  one or  more of the
provisions hereof, shall be held to be invalid,  illegal or unenforceable within
any governmental  jurisdiction or subdivision thereof, the Agreement or any such
provision  or  provisions  shall not as a  consequence  thereof  be deemed to be
invalid,  illegal or  unenforceable  in any other  governmental  jurisdiction or
subdivision thereof. In case any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid,  illegal or  unenforceable
in any other respect, such invalidity,  illegality or unenforceability shall not
affect  any other  provision  of this  Agreement,  but this  Agreement  shall be
construed as if such invalid,  illegal or unenforceable provision had never been
contained  herein and there shall be deemed  substituted such other provision as
will most nearly accomplish the intent of the parties to the extent permitted by
applicable law.

     9.7.  Whole  Agreement.  This Agreement  embodies all the  representations,
warrants  covenants and  agreements of the parties in relation to subject matter
hereof,  and  no  representations,   warranties,  covenants,  understandings  or
agreements,  or otherwise,  in relation thereto exist between the parties except
as herein  expressly  set forth herein,  or in any  instrument in writing by the
party to be bound thereby which makes reference to this Agreement.

     9.8. No Rights in Third  Parties.  Nothing  herein  expressed or implied is
intended to or shall be construed to confer upon or give to any person,  firm or
other entity, other than the parties hereto and their respective  successors and
assigns or personal  representatives,  any rights or remedies under or by reason
of this Agreement.

     9.9.  Amendment.  This  Agreement may not be amended  orally but only by an
instrument in writing duly executed by the parties hereto.

     9.10. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts,  each of which shall be deemed an original,  but all of which
together shall constitute one and the same Agreement.

     In WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
duly executed and delivered as of the day and year first above written.


EXECUTIVE
/s/ Kevin F. Sherlock
__________________________
Kevin F. Sherlock


Watchdog Patrols, Inc.
/s/Mark Jacques
__________________________
Mark Jacques, President

Draft dated June 2, 1998





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

                                                             For the Purchase of
                                                               200,000 shares of
                                                                    Common Stock
No.N003



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


                            (A New York corporation)


     FOR VALUE RECEIVED,  Watchdog Patrols, Inc.  ("Company"),  hereby certifies
that Walter M.  Groteke,  residing at 64 Hodson Ave.  Ave.,  Lynbrook,  New Yorl
11563 or his registered assigns ("Registered  Holder"), is entitled,  subject to
the terms set forth  below,  to purchase  from the  Company,  200,000  shares of
Common Stock,  $.0033 par value, of the Company ("Common Stock"),  at a purchase
price  equal  $1.63.  The  number of shares of  Common  Stock  purchasable  upon
exercise of this  Warrant,  and the purchase  price per share,  each as adjusted
from time to time pursuant to the  provisions of this Warrant,  are  hereinafter
referred to as the "Warrant Shares" and the "Exercise Price," respectively.

1.   Exercise.

     1.1  Procedure  for Cash  Exercise.  This  Warrant may be  exercised by the
Registered  Holder,  in whole or in part, by the surrender of this Warrant (with
the Notice of Exercise Form  attached  hereto as Exhibit I duly executed by such
Registered  Holder) at the  principal  office of the  Company,  or at such other
office or agency as the Company may  designate,  accompanied by payment in full,
in lawful money of the United States,  of an amount equal to the then applicable
Exercise Price  multiplied by the number of Warrant Shares then being  purchased
upon such exercise.
<PAGE>
     1.2 Procedure for Cashless Exercise. In lieu of the payment of the Exercise
Price in the manner set forth in Section 1.1, the  Registered  Holder shall have
the right (but not the  obligation)  to convert this Warrant,  in whole or part,
into  Common  Stock  ("Conversion  Right")  as  follows:  Upon  exercise  of the
Conversion  Right,  the Company shall deliver to the Registered  Holder (without
payment by the  Registered  Holder of any of the Exercise  Price) that number of
shares of Common  Stock  equal to the  quotient  obtained  by  dividing  (x) the
"Value" (as defined below) of the portion of the Warrant being  converted on the
second  trading day  immediately  preceding the date the Warrant is delivered to
the  Company  pursuant  to  Section  1.3 if the  Conversion  Right is  exercised
("Valuation Date") by (y) the "Market Price" (as defined below) on the Valuation
Date.

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

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

     1.4 Date of Exercise. Each exercise of this Warrant shall be deemed to have
been  effected  immediately  prior to the close of  business on the day on which
this  Warrant  shall have been  surrendered  to the Company.  At such time,  the
person or persons in whose name or names any  certificates  for  Warrant  Shares
shall be issuable upon such  exercise  shall be deemed to have become the holder
or holders of record of the Warrant Shares represented by such certificates.
<PAGE>
     1.5 Issuance of Certificate.  As soon as practicable  after the exercise of
the purchase right represented by this Warrant,  the Company at its expense will
use its best efforts to cause to be issued in the name of, and delivered to, the
Registered Holder, or, subject to the terms and conditions hereof, to such other
individual  or  entity  as such  Holder  (upon  payment  by such  Holder  of any
applicable transfer taxes) may direct:

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

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

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

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

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

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

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

     1.7  Determination  of NetWolves  Revenues.  In order to determine  whether
NetWolves  has generated the  threshold  level of revenues  ("Threshold  Level")
required pursuant to Section 1.6 hereof, for the exercise of this Warrant in any
applicable  period, the Company shall cause its accountants to perform (i) a SAS
No. 71 review of the NetWolves statement of operations if it reasonably believes
that the revenues for such period are in excess of 20% of the Threshold Level or
(ii) an  audit  of the  NetWolves'  statement  of  operations  if it  reasonably
believes that the revenues for such period are in excess of the Threshold  Level
by less than 20%.  The Warrant will become  exercisable  pursuant to Section 1.6
hereof after the review or audit by the  Company's  accountants  which  confirms
that the Threshold Level has been met.
<PAGE>
2.   Adjustments.

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

     2.2 Reclassification  Reorganization,  Consolidation or Merger. In the case
of any reclassification of the Common Stock (other than a change in par value or
a subdivision or  combination  as provided for in subsection 2.1 above),  or any
reorganization,  consolidation  or merger of the  Company  with or into  another
corporation  (other than a merger or  reorganization  with  respect to which the
Company  is  the  continuing  corporation  and  which  does  not  result  in any
reclassification of the Common Stock), or a transfer of all or substantially all
of the assets of the Company, or the payment of a liquidating distribution then,
as part of any such  reorganization,  reclassification,  consolidation,  merger,
sale or liquidating  distribution,  lawful  provision  shall be made so that the
Registered  Holder of this Warrant  shall have the right  thereafter  to receive
upon the  exercise  hereof,  the kind and  amount  of  shares  of stock or other
securities or property which such Registered  Holder would have been entitled to
receive  if,  immediately  prior to any such  reorganization,  reclassification,
consolidation,  merger,  sale or liquidating  distribution,  as the case may be,
such Registered  Holder had held the number of shares of Common Stock which were
then  purchasable  upon  the  exercise  of  this  Warrant.  In  any  such  case,
appropriate  adjustment (as  reasonably  determined by the Board of Directors of
the Company) shall be made in the application of the provisions set forth herein
with respect to the rights and interests  thereafter of the Registered Holder of
this  Warrant  such that the  provisions  set forth in this Section 2 (including
provisions with respect to the Exercise  Price) shall  thereafter be applicable,
as nearly as is  reasonably  practicable,  in relation to any shares of stock or
other  securities or property  thereafter  deliverable upon the exercise of this
Warrant.
<PAGE>
     2.3 Price  Adjustment.  No adjustment in the per share Exercise Price shall
be required unless such adjustment  would require an increase or decrease in the
Exercise Price of at least $0.01; provided,  however, that any adjustments which
by reason of this paragraph are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section  2 shall be made to the  nearest  cent or to the  nearest  1/100th  of a
share, as the case may be.

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

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

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

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

4.  Limitation  on Sales.  Each holder of this  Warrant  acknowledges  that this
Warrant and the  Warrant  Shares,  as of the date of  original  issuance of this
Warrant,  have not been registered  under the Securities Act of 1933, as amended
("Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or
otherwise dispose of this Warrant or any Warrant Shares issued upon its exercise
in the absence of (i) an effective  registration  statement  under the Act as to
this  Warrant or such Warrant  Shares or (ii) an opinion of counsel,  reasonably
acceptable  to the Company (the Company  hereby  agreeing  that the opinion from
Graubard  Mollen and Miller shall be  acceptable),  that such  registration  and
qualification are not required.  The Warrant Shares issued upon exercise thereof
shall be imprinted with a legend in substantially the following form:
<PAGE>
"THE ISSUANCE OF THIS SECURITY HAS NOT BEEN REGISTERED  UNDER THE SECURITIES ACT
OF 1933, AS AMENDED,  OR APPLICABLE  STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER
SUCH ACT OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION  REQUIREMENTS OF SAID
ACT OR APPLICABLE  STATE  SECURITIES  LAWS,  SUPPORTED BY AN OPINION OF COUNSEL,
REASONABLY  SATISFACTORY TO THE COMPANY AND ITS COUNSEL,  THAT SUCH REGISTRATION
IS NOT REQUIRED."

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

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

7.  Reservation  of  Stock.  The  Company  will at all  times  reserve  and keep
available,  solely for issuance and delivery  upon the exercise of this Warrant,
such shares of Common Stock and other stock,  securities  and property,  as from
time to time shall be issuable  upon the  exercise of this  Warrant.  So long as
this Warrant remains outstanding,  the Company shall maintain the listing of the
shares of Common Stock to be issued upon  exercise on each  national  securities
exchange on which  Common  Stock is listed or on the Nasdaq  Stock Market if the
Common Stock is then quoted on the Nasdaq Stock Market.
<PAGE>
8. Replacement of Warrants.  Upon receipt of evidence reasonably satisfactory to
the Company of the loss,  theft,  destruction  or mutilation of this Warrant and
(in the case of loss,  theft  or  destruction)  upon  delivery  of an  indemnity
agreement  (with  surety  if  reasonably   required)  in  an  amount  reasonably
satisfactory to the Company,  or (in the case of mutilation)  upon surrender and
cancellation  of this Warrant,  the Company will issue,  in lieu thereof,  a new
Warrant of like tenor.

9. Transfers, etc.

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

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

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

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

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

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

14. Governing Law. This Warrant shall be governed by and construed in accordance
with the laws of the State of New York as such  laws are  applied  to  contracts
made and to be fully performed  entirely within that state between  residents of
that state.
<PAGE>
15.  Jurisdiction and Venue. The Company (i) agrees that any legal suit,  action
or  proceeding  arising out of or relating to this Warrant  shall be  instituted
exclusively in New York State Supreme Court, County of New York or in the United
States  District  Court for the Southern  District of New York,  (ii) waives any
objection to the venue of any such suit,  action or proceeding  and the right to
assert  that  such  forum is not a  convenient  forum for such  suit,  action or
proceeding,  and (iii) irrevocably  consents to the jurisdiction of the New York
State Supreme Court,  County of New York,  and the United States  District Court
for the Southern  District of New York in any such suit,  action or  proceeding,
and the Company further agrees to accept and acknowledge  service or any and all
process  which may be served in any such suit,  action or proceeding in New York
State Supreme Court,  County of New York or in the United States  District Court
for the Southern District of New York and agrees that service of process upon it
mailed  by  certified  mail to its  address  shall be  deemed  in every  respect
effective service of process upon it in any suit, action or proceeding.

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

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

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

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




                         WATCHDOG PATROLS, INC.



                         By: /s/ Philip M. LoRusso
                             ---------------------------------------------------
                              Name: Philip M. LoRusso
                              Title: Chairman

<PAGE>


                                                                       EXHIBIT I

                               NOTICE OF EXERCISE
                               ------------------


                                   Date: ______________


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


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

                    or
                    --

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

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


                              --------------------------------------------------
                              Signature of Registered Holder

                              Print Name:
                                         ---------------------------------------

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


            INSTRUCTIONS FOR REGISTRATION OF SECURITIES


Name
       -------------------------------------------------------------------------
                      (Print in Block Letters)

Address
       -------------------------------------------------------------------------


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

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


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


                            (A New York corporation)


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

1.   Exercise.

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

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

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

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

     1.5 Date of Exercise. Each exercise of this Warrant shall be deemed to have
been  effected  immediately  prior to the close of  business on the day on which
this  Warrant  shall have been  surrendered  to the Company.  At such time,  the
person or persons in whose name or names any  certificates  for  Warrant  Shares
shall be issuable upon such  exercise  shall be deemed to have become the holder
or holders of record of the Warrant Shares represented by such certificates.
<PAGE>
     1.6 Issuance of Certificate.  As soon as practicable  after the exercise of
the purchase right represented by this Warrant,  the Company at its expense will
use its best efforts to cause to be issued in the name of, and delivered to, the
Registered Holder, or, subject to the terms and conditions hereof, to such other
individual  or  entity  as such  Holder  (upon  payment  by such  Holder  of any
applicable transfer taxes) may direct:

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

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

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

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

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

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

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

     1.8  Determination  of NetWolves  Revenues.  In order to determine  whether
NetWolves  has generated the  threshold  level of revenues  ("Threshold  Level")
required pursuant to Section 1.6 hereof, for the exercise of this Warrant in any
applicable  period, the Company shall cause its accountants to perform (i) a SAS
No. 71 review of the NetWolves statement of operations if it reasonably believes
that the revenues for such period are in excess of 20% of the Threshold Level or
(ii) an  audit  of the  NetWolves'  statement  of  operations  if it  reasonably
believes that the revenues for such period are in excess of the Threshold  Level
by less than 20%.  The Warrant will become  exercisable  pursuant to Section 1.6
hereof after the review or audit by the  Company's  accountants  which  confirms
that the Threshold Level has been met.
<PAGE>
2.   Adjustments.

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

     2.2 Reclassification  Reorganization,  Consolidation or Merger. In the case
of any reclassification of the Common Stock (other than a change in par value or
a subdivision or  combination  as provided for in subsection 2.1 above),  or any
reorganization,  consolidation  or merger of the  Company  with or into  another
corporation  (other than a merger or  reorganization  with  respect to which the
Company  is  the  continuing  corporation  and  which  does  not  result  in any
reclassification of the Common Stock), or a transfer of all or substantially all
of the assets of the Company, or the payment of a liquidating distribution then,
as part of any such  reorganization,  reclassification,  consolidation,  merger,
sale or liquidating  distribution,  lawful  provision  shall be made so that the
Registered  Holder of this Warrant  shall have the right  thereafter  to receive
upon the  exercise  hereof,  the kind and  amount  of  shares  of stock or other
securities or property which such Registered  Holder would have been entitled to
receive  if,  immediately  prior to any such  reorganization,  reclassification,
consolidation,  merger,  sale or liquidating  distribution,  as the case may be,
such Registered  Holder had held the number of shares of Common Stock which were
then  purchasable  upon  the  exercise  of  this  Warrant.  In  any  such  case,
appropriate  adjustment (as  reasonably  determined by the Board of Directors of
the Company) shall be made in the application of the provisions set forth herein
with respect to the rights and interests  thereafter of the Registered Holder of
this  Warrant  such that the  provisions  set forth in this Section 2 (including
provisions with respect to the Exercise  Price) shall  thereafter be applicable,
as nearly as is  reasonably  practicable,  in relation to any shares of stock or
other  securities or property  thereafter  deliverable upon the exercise of this
Warrant.
<PAGE>
     2.3 Price  Adjustment.  No adjustment in the per share Exercise Price shall
be required unless such adjustment  would require an increase or decrease in the
Exercise Price of at least $0.01; provided,  however, that any adjustments which
by reason of this paragraph are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section  2 shall be made to the  nearest  cent or to the  nearest  1/100th  of a
share, as the case may be.

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

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

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

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

4.  Limitation  on Sales.  Each holder of this  Warrant  acknowledges  that this
Warrant and the  Warrant  Shares,  as of the date of  original  issuance of this
Warrant,  have not been registered  under the Securities Act of 1933, as amended
("Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or
otherwise dispose of this Warrant or any Warrant Shares issued upon its exercise
in the absence of (i) an effective  registration  statement  under the Act as to
this  Warrant or such Warrant  Shares or (ii) an opinion of counsel,  reasonably
acceptable  to the Company (the Company  hereby  agreeing  that the opinion from
Graubard  Mollen and Miller shall be  acceptable),  that such  registration  and
qualification are not required.  The Warrant Shares issued upon exercise thereof
shall be imprinted with a legend in substantially the following form:
<PAGE>
"THE ISSUANCE OF THIS SECURITY HAS NOT BEEN REGISTERED  UNDER THE SECURITIES ACT
OF 1933, AS AMENDED,  OR APPLICABLE  STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER
SUCH ACT OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION  REQUIREMENTS OF SAID
ACT OR APPLICABLE  STATE  SECURITIES  LAWS,  SUPPORTED BY AN OPINION OF COUNSEL,
REASONABLY  SATISFACTORY TO THE COMPANY AND ITS COUNSEL,  THAT SUCH REGISTRATION
IS NOT REQUIRED."

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

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

7.  Reservation  of  Stock.  The  Company  will at all  times  reserve  and keep
available,  solely for issuance and delivery  upon the exercise of this Warrant,
such shares of Common Stock and other stock,  securities  and property,  as from
time to time shall be issuable  upon the  exercise of this  Warrant.  So long as
this Warrant remains outstanding,  the Company shall maintain the listing of the
shares of Common Stock to be issued upon  exercise on each  national  securities
exchange on which  Common  Stock is listed or on the Nasdaq  Stock Market if the
Common Stock is then quoted on the Nasdaq Stock Market.
<PAGE>
8. Replacement of Warrants.  Upon receipt of evidence reasonably satisfactory to
the Company of the loss,  theft,  destruction  or mutilation of this Warrant and
(in the case of loss,  theft  or  destruction)  upon  delivery  of an  indemnity
agreement  (with  surety  if  reasonably   required)  in  an  amount  reasonably
satisfactory to the Company,  or (in the case of mutilation)  upon surrender and
cancellation  of this Warrant,  the Company will issue,  in lieu thereof,  a new
Warrant of like tenor.

9. Transfers, etc.

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

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

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

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

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

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

14. Governing Law. This Warrant shall be governed by and construed in accordance
with the laws of the State of New York as such  laws are  applied  to  contracts
made and to be fully performed  entirely within that state between  residents of
that state.
<PAGE>
15.  Jurisdiction and Venue. The Company (i) agrees that any legal suit,  action
or  proceeding  arising out of or relating to this Warrant  shall be  instituted
exclusively in New York State Supreme Court, County of New York or in the United
States  District  Court for the Southern  District of New York,  (ii) waives any
objection to the venue of any such suit,  action or proceeding  and the right to
assert  that  such  forum is not a  convenient  forum for such  suit,  action or
proceeding,  and (iii) irrevocably  consents to the jurisdiction of the New York
State Supreme Court,  County of New York,  and the United States  District Court
for the Southern  District of New York in any such suit,  action or  proceeding,
and the Company further agrees to accept and acknowledge  service or any and all
process  which may be served in any such suit,  action or proceeding in New York
State Supreme Court,  County of New York or in the United States  District Court
for the Southern District of New York and agrees that service of process upon it
mailed  by  certified  mail to its  address  shall be  deemed  in every  respect
effective service of process upon it in any suit, action or proceeding.

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

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

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

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




                         WATCHDOG PATROLS, INC.



                         By: /s/ Philip M. LoRusso
                             ---------------------------------------------------
                              Name: Philip M. LoRusso
                              Title: Chairman

<PAGE>
                                                                       EXHIBIT I

                               NOTICE OF EXERCISE
                               ------------------

                                   Date: ______________


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


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

                    or
                    --

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

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


                              --------------------------------------------------
                              Signature of Registered Holder

                              Print Name:
                                          --------------------------------------


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


            INSTRUCTIONS FOR REGISTRATION OF SECURITIES


Name
      --------------------------------------------------------------------------
                      (Print in Block Letters)

Address
      --------------------------------------------------------------------------






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

                                                             For the Purchase of
                                                               200,000 shares of
                                                                    Common Stock
No. N005


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


                            (A New York corporation)


     FOR VALUE RECEIVED,  Watchdog Patrols, Inc.  ("Company"),  hereby certifies
that Kevin F. Sherlock, residing at 162 Boney Lane, Nissequogue, NY 11780 or his
registered assigns ("Registered Holder"), is entitled,  subject to the terms set
forth below,  to purchase  from the  Company,  200,000  shares of Common  Stock,
$.0033 par value,  of the Company  ("Common  Stock"),  at a purchase price equal
$1.63.  The number of shares of Common Stock  purchasable  upon exercise of this
Warrant,  and the purchase  price per share,  each as adjusted from time to time
pursuant to the provisions of this Warrant,  are hereinafter  referred to as the
"Warrant Shares" and the "Exercise Price," respectively.

1.   Exercise.

     1.1  Procedure  for Cash  Exercise.  This  Warrant may be  exercised by the
Registered  Holder,  in whole or in part, by the surrender of this Warrant (with
the Notice of Exercise Form  attached  hereto as Exhibit I duly executed by such
Registered  Holder) at the  principal  office of the  Company,  or at such other
office or agency as the Company may  designate,  accompanied by payment in full,
in lawful money of the United States,  of an amount equal to the then applicable
Exercise Price  multiplied by the number of Warrant Shares then being  purchased
upon such exercise.
<PAGE>
     1.2 Procedure for Cashless Exercise. In lieu of the payment of the Exercise
Price in the manner set forth in Section 1.1, the  Registered  Holder shall have
the right (but not the  obligation)  to convert this Warrant,  in whole or part,
into  Common  Stock  ("Conversion  Right")  as  follows:  Upon  exercise  of the
Conversion  Right,  the Company shall deliver to the Registered  Holder (without
payment by the  Registered  Holder of any of the Exercise  Price) that number of
shares of Common  Stock  equal to the  quotient  obtained  by  dividing  (x) the
"Value" (as defined below) of the portion of the Warrant being  converted on the
second  trading day  immediately  preceding the date the Warrant is delivered to
the  Company  pursuant  to  Section  1.3 if the  Conversion  Right is  exercised
("Valuation Date") by (y) the "Market Price" (as defined below) on the Valuation
Date.

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

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

     1.4 Date of Exercise. Each exercise of this Warrant shall be deemed to have
been  effected  immediately  prior to the close of  business on the day on which
this  Warrant  shall have been  surrendered  to the Company.  At such time,  the
person or persons in whose name or names any  certificates  for  Warrant  Shares
shall be issuable upon such  exercise  shall be deemed to have become the holder
or holders of record of the Warrant Shares represented by such certificates.
<PAGE>
     1.5 Issuance of Certificate.  As soon as practicable  after the exercise of
the purchase right represented by this Warrant,  the Company at its expense will
use its best efforts to cause to be issued in the name of, and delivered to, the
Registered Holder, or, subject to the terms and conditions hereof, to such other
individual  or  entity  as such  Holder  (upon  payment  by such  Holder  of any
applicable transfer taxes) may direct:

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

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

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

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

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

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

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

     1.7  Determination  of NetWolves  Revenues.  In order to determine  whether
NetWolves  has generated the  threshold  level of revenues  ("Threshold  Level")
required pursuant to Section 1.6 hereof, for the exercise of this Warrant in any
applicable  period, the Company shall cause its accountants to perform (i) a SAS
No. 71 review of the NetWolves statement of operations if it reasonably believes
that the revenues for such period are in excess of 20% of the Threshold Level or
(ii) an  audit  of the  NetWolves'  statement  of  operations  if it  reasonably
believes that the revenues for such period are in excess of the Threshold  Level
by less than 20%.  The Warrant will become  exercisable  pursuant to Section 1.6
hereof after the review or audit by the  Company's  accountants  which  confirms
that the Threshold Level has been met.
<PAGE>
2.   Adjustments.

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

     2.2 Reclassification  Reorganization,  Consolidation or Merger. In the case
of any reclassification of the Common Stock (other than a change in par value or
a subdivision or  combination  as provided for in subsection 2.1 above),  or any
reorganization,  consolidation  or merger of the  Company  with or into  another
corporation  (other than a merger or  reorganization  with  respect to which the
Company  is  the  continuing  corporation  and  which  does  not  result  in any
reclassification of the Common Stock), or a transfer of all or substantially all
of the assets of the Company, or the payment of a liquidating distribution then,
as part of any such  reorganization,  reclassification,  consolidation,  merger,
sale or liquidating  distribution,  lawful  provision  shall be made so that the
Registered  Holder of this Warrant  shall have the right  thereafter  to receive
upon the  exercise  hereof,  the kind and  amount  of  shares  of stock or other
securities or property which such Registered  Holder would have been entitled to
receive  if,  immediately  prior to any such  reorganization,  reclassification,
consolidation,  merger,  sale or liquidating  distribution,  as the case may be,
such Registered  Holder had held the number of shares of Common Stock which were
then  purchasable  upon  the  exercise  of  this  Warrant.  In  any  such  case,
appropriate  adjustment (as  reasonably  determined by the Board of Directors of
the Company) shall be made in the application of the provisions set forth herein
with respect to the rights and interests  thereafter of the Registered Holder of
this  Warrant  such that the  provisions  set forth in this Section 2 (including
provisions with respect to the Exercise  Price) shall  thereafter be applicable,
as nearly as is  reasonably  practicable,  in relation to any shares of stock or
other  securities or property  thereafter  deliverable upon the exercise of this
Warrant.
<PAGE>
     2.3 Price  Adjustment.  No adjustment in the per share Exercise Price shall
be required unless such adjustment  would require an increase or decrease in the
Exercise Price of at least $0.01; provided,  however, that any adjustments which
by reason of this paragraph are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section  2 shall be made to the  nearest  cent or to the  nearest  1/100th  of a
share, as the case may be.

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

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

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

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

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

"THE ISSUANCE OF THIS SECURITY HAS NOT BEEN REGISTERED  UNDER THE SECURITIES ACT
OF 1933, AS AMENDED,  OR APPLICABLE  STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER
SUCH ACT OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION  REQUIREMENTS OF SAID
ACT OR APPLICABLE  STATE  SECURITIES  LAWS,  SUPPORTED BY AN OPINION OF COUNSEL,
REASONABLY  SATISFACTORY TO THE COMPANY AND ITS COUNSEL,  THAT SUCH REGISTRATION
IS NOT REQUIRED."
<PAGE>
5. Certain Dividends.  If the Company pays a dividend or makes a distribution on
the Common Stock ("Dividend"),  other than a stock dividend payable in shares of
Common Stock,  then the Company will pay or distribute to the Registered  Holder
of this Warrant,  upon the exercise  hereof,  in addition to the Warrant  Shares
purchased  upon such  exercise,  the Dividend which would have been paid to such
Registered  Holder if it had been the owner of  record  of such  Warrant  Shares
immediately  prior to the date on which a record is taken for such  Dividend or,
if no record is taken,  the date as of which the records holders of Common Stock
entitled to such Dividend are determined.

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

7.  Reservation  of  Stock.  The  Company  will at all  times  reserve  and keep
available,  solely for issuance and delivery  upon the exercise of this Warrant,
such shares of Common Stock and other stock,  securities  and property,  as from
time to time shall be issuable  upon the  exercise of this  Warrant.  So long as
this Warrant remains outstanding,  the Company shall maintain the listing of the
shares of Common Stock to be issued upon  exercise on each  national  securities
exchange on which  Common  Stock is listed or on the Nasdaq  Stock Market if the
Common Stock is then quoted on the Nasdaq Stock Market.
<PAGE>
8. Replacement of Warrants.  Upon receipt of evidence reasonably satisfactory to
the Company of the loss,  theft,  destruction  or mutilation of this Warrant and
(in the case of loss,  theft  or  destruction)  upon  delivery  of an  indemnity
agreement  (with  surety  if  reasonably   required)  in  an  amount  reasonably
satisfactory to the Company,  or (in the case of mutilation)  upon surrender and
cancellation  of this Warrant,  the Company will issue,  in lieu thereof,  a new
Warrant of like tenor.

9. Transfers, etc.

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

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

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

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

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

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

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

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

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

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

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

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




                         WATCHDOG PATROLS, INC.



                         By:  /s/ Philip M. LoRusso
                             ---------------------------------------------------
                              Name: Philip M. LoRusso
                              Title:Chairman

<PAGE>


                                                                       EXHIBIT I

                               NOTICE OF EXERCISE
                               ------------------


                                   Date: ______________


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


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

                    or
                    --

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

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


                              --------------------------------------------------
                              Signature of Registered Holder

                              Print Name:
                                         ---------------------------------------

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


            INSTRUCTIONS FOR REGISTRATION OF SECURITIES


Name
       -------------------------------------------------------------------------
                      (Print in Block Letters)

Address
       -------------------------------------------------------------------------



                            INDEMNIFICATION AGREEMENT


     THIS  INDEMNIFICATION  AGREEMENT,  made and  entered  into this 11th day of
March,  1999  ("Agreement"),  by and between NETWOLVES  CORPORATION.  a New York
corporation (the "Corporation",  which term shall include any one or more of its
subsidiaries where appropriate), and ________________ ("Indemnitee"):

        WHEREAS,  highly competent  persons are becoming more reluctant to serve
publicly-held  corporations  as directors or as officers or in other  capacities
unless they are provided with adequate  protection through insurance or adequate
indemnification  against  inordinate  risks of claims and actions  against  them
arising out of their service to, and activities on behalf of, such corporations;
and

        WHEREAS,  the  statutes  and  judicial  duties  regarding  the duties of
officers and directors are often  difficult to apply,  ambiguous or  conflicting
and  therefore  fail to provide such  directors  and officers  with adequate and
reliable  knowledge  of legal  risks to which they are  exposed  or  information
regarding the proper cause of action to take; and

        WHEREAS,  the current  impracticability  of obtaining adequate insurance
and the uncertainties  relating to indemnification have increased the difficulty
of attracting and retaining such persons; and

        WHEREAS,  the  Board of  Directors  of the  Corporation  (the  "Board of
Directors")  has determined that the difficulty in attracting and retaining such
persons is detrimental to the best interests of the  Corporation's  stockholders
and that the  Corporation  should act to assure such  persons that there will be
increased certainty of such protection in the future; and

        WHEREAS,  the  Corporation  believes it is unfair for the  directors and
officers to assume the risk of huge judgments and other expenses which may occur
in cases in which the director or officer acted in good faith; and

        WHEREAS, Article 7 of the Business Corporation law of New York ("Article
7") under which the  Corporation  is  organized,  empowers  the  Corporation  to
indemnify its officers and  directors by agreement  and expressly  provides that
the indemnification provided by Article 7 is not exclusive; and
<PAGE>
        WHEREAS,  it is  reasonable,  prudent and necessary for the  Corporation
contractually to obligate itself to indemnify such persons to the fullest extent
permitted  by  applicable  law so that they will serve or  continue to serve the
Corporation free from undue concern that they will not be so indemnified; and

        WHEREAS,  Indemnitee  is willing to serve,  continue to serve  and/or to
take on additional  service for or on behalf of the Corporation on the condition
that he be so indemnified;

        NOW,  THEREFORE,  in  consideration  of the premises  and the  covenants
contained herein, the Corporation and Indemnitee do hereby covenant and agree as
follows:

     1. DEFINITIONS FOR PURPOSES OF THIS AGREEMENT:

             (a)  "Change  in  Control"   means  a  change  in  control  of  the
Corporation  of a nature  that would be  required  to be reported in response to
Item 5(f) of Schedule 14A of Regulation  14A (or in response to any similar item
or similar schedule or form)  promulgated  under the Securities  Exchange Act of
1934  (the  "Act"),  whether  or not the  Corporation  is then  subject  to such
reporting  requirement;  provided,  however,  that, without  limitation,  such a
Change in Control  shall be deemed to have occurred if (i) any "person" (as such
term is used  in  Sections  13(d)  and  14(d)  of the  Act)  is or  becomes  the
"beneficial  owner"  (as  defined  in Rule  13d-3  under the Act),  directly  or
indirectly,  of securities of the  Corporation  representing  20% or more of the
combined voting power of the Corporation's  then outstanding  securities without
the  prior  approval  of at least  two-thirds  of the  members  of the  Board of
Directors in office  immediately  prior to such person attaining such percentage
interest;  (ii) the Corporation is a party to a merger,  consolidation,  sale of
assets or other  reorganization,  or a proxy contest,  as a consequence of which
members  of  the  Board  of  Directors  in  office  immediately  prior  to  such
transaction or event  constitute  less than two-thirds of the Board of Directors
thereafter;  (iii) during any period of  twenty-four  (24)  consecutive  months,
individuals  who at the  beginning  of such  period  constituted  the  Board  of
Directors  (including  for this  purpose  any new  director  whose  election  or
nomination for election by the Corporation's stockholders was approved by a vote
of at least  two-thirds of the directors then still in office who were directors
at the  beginning of such period)  cease for any reason to  constitute  at least
two-thirds  of  the  Board  of  Directors;  or  (iv)  the  stockholders  of  the
Corporation  approve a plan of complete  liquidation  of the  Corporation  or an
agreement for the sale or disposition by the  Corporation (in one transaction or
a series  of  transactions)  of all or  substantially  all of the  Corporation's
assets.

             (b) "Potential  Change in Control" shall be deemed to have occurred
if (i) the Corporation enters into an agreement, the consummation of which would
result in the  occurrence of a Change in Control;  (ii) a person  (including the
Corporation)  publicly  announces a legitimate  intention to take or to consider
taking actions which if consummated would constitute a Change in Control;  (iii)
any person,  other than a trustee or other fiduciary holding securities under an
employee  benefit plan of the  Corporation or a corporation  owned,  directly or
indirectly,  by the  shareholders of the Corporation in  substantially  the same
proportions as their  ownership of stock of the  Corporation,  who is or becomes
the beneficial owner,  directly or indirectly,  of securities of the Corporation
representing 9.5% or more of the combined voting power of the Corporation's then
outstanding  Voting  Securities,  increases  his  beneficial  ownership  of such
securities  by five  percentage  points or more over the  percentage so owned by
such person;  or (iv) the Board of Directors  adopts a resolution  to the effect
that,  for  purposes  of this  Agreement,  a  Potential  Change in  Control  has
occurred.
<PAGE>
             (c) "Corporate  Status"  describes the status of a person who is or
was or has  agreed  to  become a  director,  officer,  employee  or agent of the
Corporation, or served at the request of the Corporation as a director, officer,
employee, trustee or agent of another corporation,  partnership, joint, venture,
trust or other enterprise.

             (d)  "Disinterested  Director"  means a director of the Corporation
who is  not  and  was  not a  party  to  the  Proceeding  in  respect  of  which
indemnification is sought by Indemnitee.

             (e)  "Proceeding"  includes  any  threatened,  pending or completed
inquiry,  action,  suit,  arbitration,  alternate dispute resolution  mechanism,
investigation,  administrative  hearing or any other proceeding,  whether civil,
criminal, administrative or investigative, except one initiated by an Indemnitee
pursuant to Section  12(a) of this  Agreement  to enforce his rights  under this
Agreement.

             (f)  "Expenses"  includes all direct and indirect costs of any type
or nature whatsoever  (including,  without  limitation,  all attorneys' fees and
related disbursements, other out-of-pocket costs and reasonable compensation for
time spent by the  Indemnitee  for which he is not otherwise  compensated by the
Corporation  or any third  party,  provided  that the rate of  compensation  and
estimated  time  involved  is  approved  in advance by the Board of  Directors),
actually and reasonably incurred by the Indemnitee in connection with either the
investigation,  defense or appeal of a  Proceeding  (including  amounts  paid in
settlement by or on behalf of  Indemnitee),  or the  prosecution of an action or
proceeding,   including   appeals,   to   establish   or   enforce  a  right  to
indemnification  under  this  Agreement,  Article 7 or  otherwise.  Expenses  as
defined  herein,  shall not include any judgments,  fines or penalties  actually
levied against the Indemnitee.

             (g) "Independent Counsel" means (i) any law firm or member of a law
firm which the Board of Directors may designate  from time to time provided that
the law firm or member of the law firm so designated is  experienced  in matters
of  corporation  law and  neither  presently  is, nor in the past five years has
been,  retained to represent:  (A) the  Corporation  or Indemnitee in any matter
material to either such party,  or (B) any other party to the Proceeding  giving
rise to a claim for  indemnification  hereunder.  Notwithstanding the foregoing,
the term  "Independent  Counsel"  shall not include  any person  who,  under the
applicable  standards  of  professional  conduct then  prevailing,  would have a
conflict of interest in representing  either the Corporation or Indemnitee in an
action to determine Indemnitee's rights under this Agreement arising on or after
the date of this Agreement,  regardless of when the  Indemnitee's act or failure
to act occurred.
<PAGE>
     2. SERVICES BY INDEMNITEE.

             Indemnitee  agrees to serve or  continue  to serve as a Director of
the  Corporation  so long as he is duly  appointed  or elected and  qualified in
accordance  with the applicable  provisions of the By-Laws of the Corporation or
the  By-Laws  of any  subsidiary  of the  Corporation  or until  such time as he
tenders  his  resignation  in  writing.  This  Agreement  shall not  impose  any
obligation on the  Indemnitee or the  Corporation  to continue the  Indemnitee's
position with the Corporation  beyond any period  otherwise  applicable,  nor to
create any right to continued employment of the Indemnitee in any capacity.

     3. GENERAL.

             The  Corporation  shall  indemnify,  and shall advance  Expenses to
Indemnitee as provided in this Agreement and to the fullest extent  permitted by
law.

     4.   PROCEEDINGS  OTHER  THAN  PROCEEDINGS  BY  OR  IN  THE  RIGHT  OF  THE
          CORPORATION.

             Indemnitee  shall be  entitled  to the  rights  of  indemnification
provided in this Section 4 if, by reason of his Corporate  Status,  he is, or is
threatened to be made, a party to any Proceeding,  other than a Proceeding by or
in the right of the Corporation. Pursuant to this Section 4, Indemnitee shall be
indemnified against Expenses,  including amounts paid in settlement,  as well as
any judgments,  fines and penalties  levied or awarded against him in connection
with such Proceeding or any claim, issue or matter therein,  if he acted in good
faith and in a manner he  reasonably  believed  to be in, or not opposed to, the
best interests of the Corporation, and, with respect to any criminal Proceeding,
had no reasonable cause to believe his conduct was unlawful.

     5.   PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION.

             Indemnitee  shall be  entitled  to the  rights  of  indemnification
provided in this Section 5, if, by reason of his Corporate  Status, he is, or is
threatened  to be  made,  a  party  to  any  threatened,  pending  or  completed
Proceeding  brought by or in the right of the  Corporation to procure a judgment
in its favor. Pursuant to this Section,  Indemnitee shall be indemnified against
Expenses  actually  incurred  by him or on his  behalf in  connection  with such
Proceeding if he acted in good faith and in a manner he  reasonably  believed to
be in, or not opposed to, the best interests of the Corporation. Notwithstanding
the foregoing, no indemnification against such Expenses shall be made in respect
of any claim, issue or matter as to which Indemnitee shall have been adjudged to
be liable to the  Corporation  if such  indemnification  is not permitted by the
laws of the State of New York or other applicable law; provided,  however,  that
indemnification  against Expenses  nevertheless shall by made by the Corporation
in such  event to the extent  that the  courts of the State of New York,  or the
court in which such  Proceeding  shall have been  brought or is  pending,  shall
determine.
<PAGE>
     6.   INDEMNIFICATION  FOR  EXPENSES  OF A PARTY  WHO IS  WHOLLY  OR  PARTLY
          SUCCESSFUL.

             Notwithstanding  any  other  provision  of this  Agreement,  to the
extent that Indemnitee is, by reason of his Corporate  Status, a party to and is
successful,  on  the  merits  or  otherwise,  in any  Proceeding,  he  shall  be
indemnified  against all Expenses  actually  incurred by him or on his behalf in
connection therewith.  If Indemnitee is not wholly successful in such Proceeding
but is successful,  on the merits or otherwise,  as to one or more but less than
all  claims,  issues  or  matters  in such  Proceeding,  the  Corporation  shall
indemnify  Indemnitee  against all Expenses  actually  incurred by him or on his
behalf in connection with each successfully resolved claim, issue or matter. For
purposes of this Section, but without limitation,  the termination of any claim,
issue or matter in such a Proceeding by dismissal or withdrawal, with or without
prejudice,  shall be deemed to be a successful result as to such claim, issue or
matter.

     7.   ADVANCE OF EXPENSES.

             The Corporation  shall advance all reasonable  Expenses incurred by
or on behalf of Indemnitee in connection with any Proceeding  within twenty days
after  the  receipt  by  the  Corporation  of a  statement  or  statements  from
Indemnitee  requesting such advance or advances from time to time, whether prior
to or after final  disposition of such Proceeding.  Such statement or statements
shall evidence or reflect the Expenses  incurred by Indemnitee and shall include
or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to
repay any Expenses  advanced if it is determined  ultimately  that Indemnitee is
not entitled to be indemnified against such Expenses.

     8.   PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.

             (a) To obtain  indemnification  under  this  Agreement,  Indemnitee
shall  submit  to the  Corporation  a  written  request,  including  therein  or
therewith  such  documentation  and  information  as is reasonably  available to
Indemnitee and is reasonably  necessary to determine  whether and to what extent
Indemnitee  is  entitled to  indemnification.  Promptly  upon  receipt of such a
request for  indemnification,  the Secretary of the Corporation shall advise the
Board of Directors in writing that Indemnitee has requested indemnification.

             (b) Upon written request by Indemnitee for indemnification pursuant
to Section 8(a) hereof,  a  determination,  if required by applicable  law, with
respect to Indemnitee's  entitlement  thereto shall be made in the specific case
as  follows:  (i) if a Change in Control  shall have  occurred,  by  Independent
Counsel in a written opinion to the Board of Directors, a copy of which shall be
delivered to Indemnitee (unless Indemnitee shall request that such determination
be made by the Board of Directors, in which case the determination shall be made
in the  manner  provided  below in clauses  (ii) or (iii));  (ii) if a Change of
Control  shall not have  occurred,  (A) by the Board of  Directors by a majority
vote of a quorum  consisting of Disinterested  Directors,  or (B) if a quorum of
the Board of Directors  consisting of Disinterested  Directors is not obtainable
<PAGE>
or, even if obtainable, if such quorum of Disinterested Directors so directs, by
Independent  Counsel in a written  opinion to the Board of Directors,  a copy of
which shall be  delivered  to  Indemnitee;  (iii) as provided in Section 9(b) of
this  Agreement;  and,  if it is  determined  that  Indemnitee  is  entitled  to
indemnification,  payment to Indemnitee shall be made within ten (10) days after
such  determination.  Indemnitee  shall  cooperate  with the person,  persons or
entity making such  determination  with respect to  Indemnitee's  entitlement to
indemnification,  including  providing  to such  person,  persons or entity upon
reasonable  advance  request  any  documentation  or  information  which  is not
privileged  or  otherwise  protected  from  disclosure  and which is  reasonably
available to Indemnitee  and  reasonably  necessary to such  determination.  Any
costs or Expenses  (including  attorneys'  fees and  disbursements)  incurred by
Indemnitee in so cooperating  shall be borne by the  Corporation  (regardless of
the  determination as to Indemnitee's  entitlement to  indemnification)  and the
Corporation hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

             (c)   In  the   event   the   determination   of   entitlement   to
indemnification is to be made by Independent Counsel pursuant to Section 8(b) of
this  Agreement,  and no counsel  shall have been  designated  previously by the
Board of  Directors or the  Independent  Counsel so  designated  is unwilling or
unable to serve,  then,  (i) if no Change of Control  shall have  occurred,  the
Independent  Counsel  shall  be  selected  by the  Board  of  Directors  and the
Corporation shall give written notice to Indemnitee advising him of the identity
of the Independent  Counsel so selected;  (ii) if a Change of Control shall have
occurred,  the  Independent  Counsel  shall be  selected by  Indemnitee  (unless
Indemnitee  shall request that such selection be made by the Board of Directors,
in which event the preceding  sentence shall apply),  and Indemnitee  shall give
written notice to the Corporation advising it of the identity of the Independent
Counsel so selected. In either event, Indemnitee or the Corporation, as the case
may be, may,  within 7 days after such written  notice of  selection  shall have
been given,  deliver to the Corporation or to Indemnitee,  as the case may be, a
written objection to such selection.  Such objection may be asserted only on the
ground that the Independent Counsel so selected does not meet the requirement of
"Independent Counsel" as defined in this Agreement,  and the objection shall set
forth with  particularity  the factual basis of such assertion.  If such written
objection  is  made,  the  Independent  Counsel  so  selected  may not  serve as
Independent  Counsel unless and until a court has determined that such objection
is without merit. If, within 20 days after submission by Indemnitee of a written
request for  indemnification  pursuant to Section  8(a) hereof,  no  Independent
Counsel shall have been selected or if selected, shall have been objected to, in
accordance  with this Section 8(c),  either the  Corporation  or Indemnitee  may
petition  the  courts  of the  State  of New York or  other  court of  competent
jurisdiction  for resolution of any objection  which shall have been made by the
Corporation or Indemnitee to the other's selection of Independent Counsel and/or
for the appointment as Independent  Counsel of a person selected by the Court or
by such other person as the Court shall  designate,  and the person with respect
to whom an objection is favorably  resolved or the person so appointed shall act
as Independent  Counsel under Section 8(b) hereof. The Corporation shall pay any
and all  reasonable  fees and expenses of Independent  Counsel  incurred by such
Independent  Counsel in connection with the performance of his  responsibilities
pursuant to Section 8(b) hereof,  and the  Corporation  shall pay all reasonable
fees and  Expenses  incident to the  implementation  of the  procedures  of this
Section  8(c),  regardless of the manner in which such  Independent  Counsel was
selected or appointed.  Upon the due commencement of any judicial  proceeding or
arbitration pursuant to Section 12 of this Agreement,  Independent Counsel shall
be  discharged  and  relieved of any  further  responsibility  in such  capacity
(subject to the applicable standards of professional conduct then prevailing).
<PAGE>
     9.   PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.

             (a) If a  Change  of  Control  shall  have  occurred,  in  making a
determination  with respect to entitlement  to  indemnification  hereunder,  the
person,  persons or entity  making such  determination  shall  presume  that the
Indemnitee is entitled to indemnification under this Agreement if the Indemnitee
has submitted a request for  indemnification  in accordance with Section 8(a) of
this Agreement,  and the Corporation  shall have the burden of proof to overcome
that presumption in connection with the making of any determination  contrary to
that presumption by any person, persons or entity.

             (b) If within  30 days  after  receipt  by the  Corporation  of the
request for indemnification, the Board shall not have made a determination under
Section 8(b)(i) or 8(b)(ii)(A) with regard thereto, the requisite  determination
of entitlement to indemnification  shall be deemed to have been made in favor of
the Indemnitee who then shall be entitled to such indemnification. The foregoing
provisions  of this  Section  9(b)  shall  not  apply  if the  determination  of
entitlement to indemnification is to be made by Independent  Counsel pursuant to
Section 8(b)(i) or 8(b)(ii)(B) of this Agreement.

             (c) The  termination  of any  Proceeding or of any claim,  issue or
matter therein by judgment,  order, settlement or conviction,  or upon a plea of
nolo  contendere  or its  equivalent,  shall not (except as otherwise  expressly
provided  in this  Agreement)  of  itself  adversely  affect  the  right  of the
Indemnitee to  indemnification  or create a presumption  that the Indemnitee did
not act in good faith and in a manner which he reasonably  believed to be in, or
not opposed to, the best  interests of the  Corporation  or, with respect to any
criminal  Proceeding,  that the Indemnitee had reasonable  cause to believe that
his conduct was unlawful.

     10.  ASSUMPTION OF DEFENSE.

             In the event the Corporation shall be obligated to pay the Expenses
of any Proceeding against the Indemnitee, the Corporation, if appropriate, shall
be entitled to assume the defense of such  Proceeding,  with counsel  reasonably
acceptable  to the  Indemnitee,  upon the delivery to the  Indemnitee of written
notice of its election to do so. After delivery of such notice, approval of such
counsel by the Indemnitee and the retention of such counsel by the  Corporation,
the  Corporation  will not be liable to the Indemnitee  under this Agreement for
any fees of counsel subsequently  incurred by the Indemnitee with respect to the
same Proceeding, provided that (i) the Indemnitee shall have the right to employ
his counsel in such Proceeding at the Indemnitee's  expense; and (ii) if (a) the
employment  of counsel  by the  Indemnitee  has been  previously  authorized  in
writing by the Corporation,  (b) the Corporation shall have reasonably concluded
that  there may be a  conflict  of  interest  between  the  Corporation  and the
Indemnitee in the conduct of any such defense, or (c) the Corporation shall not,
in fact,  have employed  counsel to assume the defense of such  Proceeding,  the
fees and  Expenses of the  Indemnitee's  counsel  shall be at the expense of the
Corporation.
<PAGE>
     11.  ESTABLISHMENT OF A TRUST.

             (a) In the event of a Potential Change in Control, the Corporation,
upon written request by the Indemnitee,  shall create a trust for the benefit of
the  Indemnitee  and from time to time upon  written  request of the  Indemnitee
shall fund such trust in an amount  sufficient  to satisfy any and all  Expenses
which at the time of each such  request  it is  reasonably  anticipated  will be
incurred in connection with a Proceeding for which the Indemnitee is entitled to
rights  of  indemnification  under  Section  4 or 5  hereof,  and  any  and  all
judgments,  fines,  penalties and settlement  amounts of any and all proceedings
for which the Indemnitee is entitled to rights of indemnification  under Section
4 or 5 from time to time actually  paid or claimed,  reasonably  anticipated  or
proposed to be paid. The amount or amounts to be deposited in the trust pursuant
to the foregoing  funding  obligation shall be determined by the party who would
be  required  to  make  the   determination   of  the   Indemnitee's   right  to
indemnification  under Section 8(b) hereof (the "Reviewing Party"). The terms of
the trust shall provide that upon a Change in Control (i) the trust shall not be
revoked or the principal  thereof  invaded,  without the written  consent of the
Indemnitee,  (ii) the  trustee  shall  advance,  within two  business  days of a
request by the  Indemnitee,  any and all  Expenses  to the  Indemnitee  (and the
Indemnitee  hereby agrees to reimburse the trust under the  circumstances  under
which the  Indemnitee  would be  required to  reimburse  the  Corporation  under
Section  7  hereof),  (iii)  the  trust  shall  continue  to be  funded  by  the
Corporation in accordance with the funding  obligation set forth above, (iv) the
trustee  shall  promptly  pay  to the  Indemnitee  all  amounts  for  which  the
Indemnitee  shall be entitled to  indemnification  pursuant to this Agreement or
otherwise,  and (v) all  unexpended  funds in such  trust  shall  revert  to the
Corporation  upon a final  determination  by the  Reviewing  Party or a court of
competent  jurisdiction,  as the case may be,  that  Indemnitee  has been  fully
indemnified  under  the  terms  of  this  Agreement.  The  trustee  shall  be an
institutional   trustee  with  a  highly  regarded   reputation  chosen  by  the
Indemnitee.  Nothing in this Section 11 shall relieve the  Corporation of any of
its obligations under this Agreement.

             (b) Nothing contained in this Section 11 shall prevent the Board of
Directors  of the  Corporation  in its  discretion  at any time and from time to
time, upon request of the Indemnitee,  from providing security to the Indemnitee
for the  Corporation's  obligations  hereunder  through an  irrevocable  line of
credit or other collateral.  Any such security, once provided to the Indemnitee,
may not be revoked or released without the prior consent of the Indemnitee.

     12.  REMEDIES OF INDEMNITEE.

             (a) In the event that any one or more of the following events shall
have  occurred:  (i) a  determination  is made  pursuant  to  Section  8 of this
Agreement  that  Indemnitee  is  not  entitled  to  indemnification  under  this
Agreement; (ii) Expenses are not advanced timely in accordance with Section 7 of
this Agreement;  (iii) the determination of entitlement to indemnification is to
be made by  Independent  Counsel  pursuant to Section 8(b) of this Agreement and
such  determination  shall not have been made and delivered in a written opinion
within  90  days  after   receipt  by  the   Corporation   of  the  request  for
<PAGE>
indemnification; (iv) payment of indemnification is not made pursuant to Section
6 of this  Agreement  within ten days  after  receipt  by the  Corporation  of a
written request therefor;  (v) payment of indemnification is not made within ten
days  after a  determination  has been  made  that  Indemnitee  is  entitled  to
indemnification  or such  determination  is deemed to have been made pursuant to
Section 9(b) of this Agreement; and/or (vi) the Corporation fails to comply with
its obligations  under Section 11(a) with regard to the establishment or funding
of a trust for Expenses,  the Indemnitee shall be entitled to an adjudication of
his  entitlement  to  such  indemnification,  advancement  of  Expenses  or  the
establishment  and funding of the trust in an appropriate  court of the State of
New  York,  or in any  other  court of  competent  jurisdiction.  Alternatively,
Indemnitee, at his option, may seek an award in arbitration to be conducted by a
single arbitrator pursuant to the rules of the American Arbitration Association.
Indemnitee shall commence such proceeding seeking an adjudication or an award in
arbitration within 180 days following the date on which Indemnitee first has the
right to commence such  proceeding  pursuant to this Section 12. The Corporation
shall not oppose  Indemnitee's  right to seek any such  adjudication or award in
arbitration.

             (b) Whenever a determination  is made pursuant to Section 8 of this
Agreement  that  Indemnitee  is not  entitled to  indemnification,  the judicial
proceeding  or  arbitration  commenced  pursuant  to this  Section  12  shall be
conducted in all respects as a de novo trial, or arbitration,  on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination. If a
Change of Control shall have occurred,  the Corporation shall have the burden of
proving that  Indemnitee is not entitled to  indemnification  or  advancement of
Expenses,  as the  case  may  be,  in any  judicial  proceeding  or  arbitration
commenced pursuant to this Section 12.

             (c) If a determination  shall have been made or deemed to have been
made  pursuant to Section 8 of this  Agreement  that  Indemnitee  is entitled to
indemnification,  the Corporation  shall be bound by such  determination  in any
judicial proceeding or arbitration  commenced pursuant to this Section 12 absent
(i) a  misstatement  by  Indemnitee  of a material  fact,  or an  omission  of a
material  fact   necessary  to  make   Indemnitee's   statement  not  materially
misleading,  in  connection  with the  request  for  indemnification,  or (ii) a
prohibition of such indemnification under applicable law.

             (d) The  Corporation  shall  be  precluded  from  asserting  in any
judicial  proceeding or arbitration  commenced  pursuant to this Section 12 that
the procedures  and  presumptions  of this Agreement are not valid,  binding and
enforceable  and shall stipulate in any such court or before any such arbitrator
that the Corporation is bound by all the provisions of this Agreement.
<PAGE>
             (e) In the event that  Indemnitee,  pursuant  to this  Section  12,
seeks a judicial  adjudication  or an award in arbitration to enforce his rights
under, or to recover damages for breach of, this Agreement,  Indemnitee shall be
entitled  to  recover  from the  Corporation,  and shall be  indemnified  by the
Corporation  against,  any  and all  expenses  (of the  types  described  in the
definition of Expenses in this Agreement) actually incurred by him in connection
with  obtaining  such  judicial  adjudication  or  arbitration,  but  only if he
prevails  therein.  If it shall be determined in said judicial  adjudication  or
arbitration  that  Indemnitee  is  entitled  to receive  part but not all of the
indemnification  or advancement  of Expenses  sought,  the Expenses  incurred by
Indemnitee in connection with such judicial adjudication or arbitration shall be
appropriately prorated.

     13.  NON-EXCLUSIVITY; DURATION OF AGREEMENT; INSURANCE: SUBROGATION.

             (a) The rights of  indemnification  and to receive  advancement  of
Expenses as  provided by this  Agreement  shall not be deemed  exclusive  of any
other rights to which  Indemnitee may at any time be entitled  under  applicable
law,  the  Corporation's  certificate  of  incorporation  or by-laws,  any other
agreement,  a vote of stockholders  or a resolution of directors,  or otherwise.
This  Agreement  shall  continue  until and terminate  upon the later of: (a) 10
years after the date that Indemnitee shall have ceased to serve as an officer or
director  of the  Corporation,  or (b)  the  final  termination  of all  pending
Proceedings in respect of which Indemnitee is granted rights of  indemnification
or  advancement  of  Expenses  hereunder  and of  any  proceeding  commenced  by
Indemnitee  pursuant  to Section 12 of this  Agreement  relating  thereto.  This
Agreement  shall be binding upon the  Corporation and its successors and assigns
and shall  inure to the  benefit  of  Indemnitee  and his heirs,  executors  and
administrators.

             (b) (i) To the extent that the  Corporation  maintains an insurance
policy or policies providing  liability  insurance for directors and officers of
the  Corporation,  Indemnitee  shall be covered by such  policy or  policies  in
accordance  with  the  terms  thereof  to the  maximum  extent  of the  coverage
available for any such  director or officer  under such policy or policies.  The
Corporation  shall  take all  necessary  or  appropriate  action  to cause  such
insurers to pay on behalf of the Indemnitee  all amounts  payable as a result of
the commencement of a proceeding in accordance with the terms of such policy.

                  (ii) For a period of three years after the date the Indemnitee
shall have  ceased to serve as an officer or director  of the  Corporation,  the
Corporation  will  provide  officers  and  directors   liability  insurance  for
Indemnitee on terms no less favorable than the terms of the liability  insurance
which the  Corporation  then  provides to the current  officers  and  directors;
provided,  that  the  Corporation  provides  officers  and  directors  liability
insurance to its current officers and directors;  and provided further, that the
annual premiums for the liability  insurance to be provided to the Indemnitee do
not exceed by more than 50% the premium  charged for the coverage  available for
any of the Corporation's current officers and directors.

             (c)  In  the  event  of  any  payment  under  this  Agreement,  the
Corporation  shall be  subrogated  to the  extent of such  payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and take
all  action  necessary  to  secure  such  rights,  including  execution  of such
documents as are  necessary to enable the  Corporation  to bring suit to enforce
such rights.
<PAGE>
             (d) The  Corporation  shall not be liable  under this  Agreement to
make any  payment of amounts  otherwise  indemnifiable  hereunder  if and to the
extent that  Indemnitee  otherwise  actually has received such payment under any
insurance policy, contract, agreement or otherwise.

     14.  SEVERABILITY.

             If any provision or provisions of this  Agreement  shall be held to
be  invalid,  illegal  or  unenforceable  for  any  reason  whatsoever:  (a) the
validity,  legality  and  enforceability  of the  remaining  provisions  of this
Agreement  (including  without  limitation,  each portion of any Section of this
Agreement  containing  any  such  provision  held  to  be  invalid,  illegal  or
unenforceable,  that is not itself invalid,  illegal or unenforceable) shall not
in any way be  affected  or  impaired  thereby;  and (b) to the  fullest  extent
possible the provisions of this Agreement (including,  without limitation,  each
portion of any Section of this  Agreement  containing any such provision held to
be invalid,  illegal or  unenforceable,  that is not itself invalid,  illegal or
unenforceable)  shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.

     15.  EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF EXPENSES.

             Except as otherwise provided specifically herein,  Indemnitee shall
not be  entitled  to  indemnification  or  advancement  of  Expenses  under this
Agreement with respect to any Proceeding,  or any claim herein,  brought or made
by him against the Corporation.

     16.  HEADINGS.

             The headings of the  paragraphs of this  Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof.

     17.  MODIFICATION AND WAIVER.

             This Agreement may be amended from time to time to reflect  changes
in New York law or for other reasons.  No supplement,  modification or amendment
of this  Agreement  shall be binding  unless  executed in writing by both of the
parties  hereto.  No waiver of any of the provisions of this Agreement  shall be
deemed or shall  constitute a waiver of any other  provision  hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
<PAGE>
     18.  NOTICE BY INDEMNITEE.

             Indemnitee  agrees  promptly to notify the  Corporation  in writing
upon being served with any summons, citation, subpoena,  complaint,  indictment,
information or other document  relating to any Proceeding or matter which may be
subject  to  indemnification  or  advancement  of  Expenses  covered  hereunder;
provided, however, that the failure to give any such notice shall not disqualify
the Indemnitee from indemnification hereunder.

     19.  NOTICES.

             All notices,  requests,  demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if (i) delivered
by hand to the party to whom said notice or other  communication shall have been
directed,  (ii) mailed by certified or registered  mail with postage  prepaid or
(iii) delivered by facsimile transmission electronically confirmed.

             (a)  If to Indemnitee, to:





             (b) If to the Corporation, to:

                  NETWOLVES   CORPORATION
                  200  Broadhollow  Road  -  Suite  207
                  Melville, New York 11747

                  with a copy to:
                  BLAU, KRAMER, WACTLAR & LIEBERMAN, P.C.
                  100 Jericho Quadrangle
                  Jericho, New York  11753
                  Attn: David H. Lieberman
                  Fax No: (516) 822-4824

or to such  other  address  as may have  been  furnished  to  Indemnitee  by the
Corporation or to the Corporation by Indemnitee, as the case may be.

     20.  GOVERNING LAW.

             The parties  agree that this  Agreement  shall be governed  by, and
construed and enforced in accordance with, the laws of the State of New York.
<PAGE>
        IN WITNESS  WHEREOF,  the parties hereto have executed this Agreement on
the day and year first above written.

                              NETWOLVES CORPORATION



                              By:
                                  -----------------------------------
                                    Name:
                                    Title:


                              INDEMNITEE:

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






                     SETTLEMENT AGREEMENT AND MUTUAL RELEASE


     SETTLEMENT  AGREEMENT  AND MUTUAL  RELEASE made this January 6, 1999 day of
December,  1998 by and between NetWolves  Corporation  (hereinafter  called "the
Company" or "NetWolves") and Keith Darling (hereinafter called "Darling").

                                    RECITALS

     WHEREAS,  the Company  entered into an  Employment  Agreement  with Darling
which commenced on or about June 15, 1998 (the "Employment Agreement"); and

     WHEREAS,  Darling is  currently  a Vice  President  and a  director  of the
Company and owns 528,000 shares of the Company's outstanding Common Stock; and

     WHEREAS,  Darling  presently  operates  out  of  the  Company's  office  in
Columbus, Ohio; and

     WHEREAS,  the  parties  desire,  deem it in their  respective  mutual  best
interests  and have agreed to terminate  certain  relationships  and  agreements
between  them,  and all other claims and  controversies  which may exist between
them under the terms and provisions hereinafter set forth.

     NOW,  THEREFORE,  in consideration of the mutual covenants set forth herein
and other good and valuable consideration,  the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:

     1. Each of the above set forth Recitals is hereby  incorporated  herein and
made a part hereof as Paragraph 1.

     2.  Darling  resigns  as a Vice  President  and  Director  of the  Company,
effective immediately.

     3. The Employment Agreement between the parties is hereby terminated in all
respects,  except for paragraph 6 thereof which shall continue in full force and
effect. In lieu thereof, Darling (a) shall receive an aggregate of $50,000 for a
period of six (6) months  payable in equal  monthly  installments  of  $8,333.33
commencing  January 1999, (b) shall continue to be paid for medical coverage for
such six (6) month period,  (c) shall be reimbursed for all expenses  reasonably
incurred by him in the performance of his duties prior hereto upon submission of
written  documentation  acceptable to the Company in its reasonable  discretion,
and (d) shall receive  50,000  warrants in the form annexed as Exhibit "A", each
warrant  entitling  him to purchase one share of the  Company's  Common Stock at
$5.00  per  share,  provided  that  the  right  to  receive  these  warrants  is
conditioned  upon Darling and Mark Jacques  submitting  valid,  legally  binding
purchase  orders  under their  Manufacturer's  Representative  Agreement  for an
aggregate of  $10,000,000  for the period  January 1, 1999 through  December 31,
1999.

     4. The Company agrees to pay an outstanding invoice to Creative Spot in the
sum of $4,000.
<PAGE>
     5. The Company  agrees to pay the rent only at its Columbus,  Ohio facility
for the remainder of its lease agreement  which  terminates on July 31, 1999 and
further agrees to pay the sum of $85 monthly to maintain a parking space at this
facility.  In  accordance  with  Exhibit  "B"  annexed  hereto,  certain  office
equipment located at the Columbus,  Ohio facility shall be immediately  returned
to NetWolves,  at NetWolves expense, with the balance of the equipment set forth
therein  retained  at the  Columbus,  Ohio  office and  thereafter  returned  at
NetWolves expense to NetWolves in Tampa, Florida.

     6.  The  parties  agree  to  enter  into  a  Manufacturer's  Representative
Agreement in the form annexed hereto as Exhibit "C".

     7. In consideration of the mutual promises and the terms of this Agreement,
NetWolves, for itself, its directors, officers, shareholders, employees, agents,
affiliates, successors, predecessors,  representatives, and assigns, does hereby
release Darling, his successors, executors,  administrators,  heirs and assigns,
from and against any and all causes or causes of action,  suits,  administrative
actions,  claims,  demands,  liabilities  and  obligations  of whatever  kind or
character, at law or in equity, that it may have now or in the future, by reason
of any matter, cause or thing whatsoever,  including, but not limited to, claims
or causes of action  concerning  or relating  to the action and the  allegations
referenced therein.

          Darling,  for himself and his successors,  executors,  administrators,
heirs and assigns, does hereby release NetWolves,  and its directors,  officers,
shareholders,   employees,   agents,   affiliates,   successors,   predecessors,
representatives,  and  assigns,  from and against any and all cause or causes of
action, suits,  administrative claims,  demands,  liabilities and obligations of
whatever kind or character, at law or in equity, that he may have now, by reason
of any matter, cause or thing whatsoever,  including, but not limited to, claims
or causes of action  concerning  or relating  to the action and the  allegations
referenced therein.

          It is the intent of the parties  hereto that this release be a general
release of all claims of whatever kind or  character,  whether known or unknown,
and whether they arise under state law, federal law, or otherwise. However, this
release  shall not be  construed  as a release of any rights or claims  that the
parties  may have to  enforce  the terms of this  Agreement,  or any  violations
thereof.

     8.  Notwithstanding the general releases set forth in paragraph 7 above, it
is the intent of the parties that this  Agreement and the said general  releases
shall not operate to  discharge  any claims  that  either  party may have in the
future  against  the other  under the  Manufacturer's  Representative  Agreement
annexed hereto as Exhibit "C" or any future rights as shareholders of NetWolves.

     9. This  Agreement  constitutes  the entire  agreement  between the parties
hereto  and  supersedes  any  and  all  prior  or  contemporaneous   agreements,
discussions and/or representations, oral or written, with respect to the subject
matter hereof, and the parties  acknowledge that they have been advised by legal
counsel,  have read and understand all of the paragraphs of this Agreement,  and
that they  voluntarily  execute this Agreement and agree to be bound hereby.  No
modification  or  amendment  of this  Agreement  shall be valid  unless  made in
writing and signed by the parties.

     10. The  parties  acknowledge  that the  undersigned  are vested  with full
authority to execute this Agreement and bind the respective parties hereto. This
Agreement  shall be binding  upon the  parties and shall inure to the benefit of
their respective representatives, successors and assigns.

     11. No right of  indemnity,  contractual  or  otherwise,  shall  arise as a
result of, or from the execution of this Agreement.

     12. The parties  hereto agree and  understand  that this Agreement is to be
governed  by and  interpreted  in  accordance  with the laws of the State of New
York.  In the event that any portion of this  Agreement  should be invalid under
applicable  law, the invalid  portion(s)  will not render this  Agreement or any
part thereof invalid.

     13. This Agreement may be executed in counterparts, provided each signatory
to a  counterpart  has  initialed  each page of the  Agreement  and delivers the
initialed pages and counterpart to the other parties.

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
duly executed on the day first above written.

                              NetWolves Corporation

                              By: /s/ Walter M. Groteke
                                  ----------------------

                                    /s/ Keith Darling
                                  ----------------------
                                    Keith Darling





                     SETTLEMENT AGREEMENT AND MUTUAL RELEASE


     SETTLEMENT  AGREEMENT  AND MUTUAL  RELEASE made this January 6, 1999 day of
December,  1998 by and between NetWolves  Corporation  (hereinafter  called "the
Company" or "NetWolves") and Mark Jacques (hereinafter called "Jacques").

                                    RECITALS

     WHEREAS,  the Company  entered into an  Employment  Agreement  with Jacques
which commenced on or about June 15, 1998 (the "Employment Agreement"); and

     WHEREAS,  Jacques is  currently  a Vice  President  and a  director  of the
Company and owns 478,000 shares of the Company's outstanding Common Stock; and

     WHEREAS,  Jacques  presently  operates  out  of  the  Company's  office  in
Columbus, Ohio; and

     WHEREAS,  the  parties  desire,  deem it in their  respective  mutual  best
interests  and have agreed to terminate  certain  relationships  and  agreements
between  them,  and all other claims and  controversies  which may exist between
them under the terms and provisions hereinafter set forth.

     NOW,  THEREFORE,  in consideration of the mutual covenants set forth herein
and other good and valuable consideration,  the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:

     1. Each of the above set forth Recitals is hereby  incorporated  herein and
made a part hereof as Paragraph 1.

     2.  Jacques  resigns  as a Vice  President  and  Director  of the  Company,
effective immediately.

     3. The Employment Agreement between the parties is hereby terminated in all
respects,  except for paragraph 6 thereof which shall continue in full force and
effect. In lieu thereof, Jacques (a) shall receive an aggregate of $50,000 for a
period of six (6) months  payable in equal  monthly  installments  of  $8,333.33
commencing  January 1999, (b) shall continue to be paid for medical coverage for
such six (6) month period,  (c) shall be reimbursed for all expenses  reasonably
incurred by him in the performance of his duties prior hereto upon submission of
written  documentation  acceptable to the Company in its reasonable  discretion,
and (d) shall receive 50,000 warrants,  in the form annexed as Exhibit "A", each
warrant  entitling  him to purchase one share of the  Company's  Common Stock at
$5.00  per  share,  provided  that  the  right  to  receive  these  warrants  is
conditioned  upon Jacques and Mark Jacques  submitting  valid,  legally  binding
purchase  orders  under their  Manufacturer's  Representative  Agreement  for an
aggregate of  $10,000,000  for the period  January 1, 1999 through  December 31,
1999.

     4. The Company agrees to pay an outstanding invoice to Creative Spot in the
sum of $4,000.
<PAGE>
     5. The Company  agrees to pay the rent only at its Columbus,  Ohio facility
for the remainder of its lease agreement  which  terminates on July 31, 1999 and
further agrees to pay the sum of $85 monthly to maintain a parking space at this
facility.  In  accordance  with  Exhibit  "B"  annexed  hereto,  certain  office
equipment located at the Columbus,  Ohio facility shall be immediately  returned
to NetWolves,  at NetWolves expense, with the balance of the equipment set forth
therein  retained at the Columbus,  Ohio office and  thereafter  returned at Net
Wolves expense to NetWolves in Tampa, Florida.

     6.  The  parties  agree  to  enter  into  a  Manufacturer's  Representative
Agreement in the form annexed hereto as Exhibit "C".

     7. In consideration of the mutual promises and the terms of this Agreement,
NetWolves, for itself, its directors, officers, shareholders, employees, agents,
affiliates, successors, predecessors,  representatives, and assigns, does hereby
release Jacques, his successors, executors,  administrators,  heirs and assigns,
from and against any and all causes or causes of action,  suits,  administrative
actions,  claims,  demands,  liabilities  and  obligations  of whatever  kind or
character, at law or in equity, that it may have now or in the future, by reason
of any matter, cause or thing whatsoever,  including, but not limited to, claims
or causes of action  concerning  or relating  to the action and the  allegations
referenced therein.

          Jacques,  for himself and his successors,  executors,  administrators,
heirs and assigns, does hereby release NetWolves,  and its directors,  officers,
shareholders,   employees,   agents,   affiliates,   successors,   predecessors,
representatives,  and  assigns,  from and against any and all cause or causes of
action, suits,  administrative claims,  demands,  liabilities and obligations of
whatever kind or character, at law or in equity, that he may have now, by reason
of any matter, cause or thing whatsoever,  including, but not limited to, claims
or causes of action  concerning  or relating  to the action and the  allegations
referenced therein.

          It is the intent of the parties  hereto that this release be a general
release of all claims of whatever kind or  character,  whether known or unknown,
and whether they arise under state law, federal law, or otherwise. However, this
release  shall not be  construed  as a release of any rights or claims  that the
parties  may have to  enforce  the terms of this  Agreement,  or any  violations
thereof.

     8.  Notwithstanding the general releases set forth in paragraph 7 above, it
is the intent of the parties that this  Agreement and the said general  releases
shall not operate to  discharge  any claims  that  either  party may have in the
future  against  the other  under the  Manufacturer's  Representative  Agreement
annexed hereto as Exhibit "C" or any future rights as  shareholders of NetWolves
 .

     9. This  Agreement  constitutes  the entire  agreement  between the parties
hereto  and  supersedes  any  and  all  prior  or  contemporaneous   agreements,
discussions and/or representations, oral or written, with respect to the subject
matter hereof, and the parties  acknowledge that they have been advised by legal
counsel,  have read and understand all of the paragraphs of this Agreement,  and
that they  voluntarily  execute this Agreement and agree to be bound hereby.  No
modification  or  amendment  of this  Agreement  shall be valid  unless  made in
writing and signed by the parties.
<PAGE>
     10. The  parties  acknowledge  that the  undersigned  are vested  with full
authority to execute this Agreement and bind the respective parties hereto. This
Agreement  shall be binding  upon the  parties and shall inure to the benefit of
their respective representatives, successors and assigns.

     11. No right of  indemnity,  contractual  or  otherwise,  shall  arise as a
result of, or from the execution of this Agreement.

     12. The parties  hereto agree and  understand  that this Agreement is to be
governed  by and  interpreted  in  accordance  with the laws of the State of New
York.  In the event that any portion of this  Agreement  should be invalid under
applicable  law, the invalid  portion(s)  will not render this  Agreement or any
part thereof invalid.

     13. This Agreement may be executed in counterparts, provided each signatory
to a  counterpart  has  initialed  each page of the  Agreement  and delivers the
initialed pages and counterpart to the other parties.

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
duly executed on the day first above written.

                              NetWolves Corporation

                              By: /s/ Walter M. Groteke
                                  ----------------------

                                /s/ Mark Jacques
                                  ----------------------
                                    Mark Jacques







© 2019 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission