NETWOLVES CORP
10-K, 1999-10-01
COMPUTER INTEGRATED SYSTEMS DESIGN
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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

  [ X ]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
            THE SECURITIES EXCHANGE ACT OF 1934

                     For the fiscal year ended June 30, 1999
                                       or
  [  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
           THE SECURITIES EXCHANGE ACT OF 1934
                   For the transition period from       to

                           Commission File No. 0-25831

                              NetWolves Corporation
             (Exact name of registrant as specified in its charter)

             New York                              11-3430302
 (State or other jurisdiction          (I.R.S. Employer Identification No.)
  of incorporation or organization)

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 registered pursuant to Section 12(b) of the Act:   None

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].

State the aggregate market value of the voting stock held by  non-affiliates  of
the  registrant.  (The aggregate  market value shall be computed by reference to
the price at which the stock was sold,  or the average  bid and asked  prices of
such stock,  as of a specified date within 60 days prior to the date of filing).
As of September 30, 1999 approximately $127,095,190.

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest  practicable  date  (applicable only to corporate
registrants).  Common  Stock,  par value  $.0033  per share;  outstanding  as of
September 30, 1999 - 6,176,016.

Documents  incorporated by reference:  Part III - Registrant's  definitive proxy
statement to be filed pursuant to Regulation 14A of the Securities Act of 1934.

<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 and petroleum 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
entered into agreements with Anicom,  Inc. and Comdisco,  Inc., and has acquired
The Sullivan Group ("TSG").
Inc.

     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, approximately $1,700,000, 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 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.

<PAGE>

     In July 1999, the Company entered into a merger agreement pursuant to which
it acquired the outstanding  capital stock of The Sullivan Group in exchange for
180,000  restricted  shares of the Company's  common stock.  The five  principal
officers and  employees  of The Sullivan  Group were  retained  under  long-term
employment contracts.  To finance the anticipated sales to be generated from the
application  of the FoxBox  technology to The Sullivan  Group's  client base, in
July 1999, the Company entered into an agreement with Comdisco, Inc. under which
Comdisco  has  provided  the  Company  access  to up to a  $320  million  credit
facility.  This credit  facility is intended to be utilized in  connection  with
Comdisco  installing  the  FoxBox  in up to  40,000  locations  over a four year
period.  Comdisco  also has  agreed  to  provide  management,  installation  and
technology  services  with  respect  to the sale of the  FoxBox to The  Sullivan
Group's clients.

     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.

<PAGE>

     --   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.

     --   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.
<PAGE>

     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.

     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

<PAGE>

     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.

Anicom

     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.

     Additionally,  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.

The Sullivan Group

     In January  1999,  NetWolves  entered into an  agreement  with The Sullivan
Group  ("TSG"),  a  leading  consulting  organization  serving  the needs of the
automotive  aftermarket,  convenience  store and oil  industry for more than ten
years. Its senior  management  comprises former  high-level  executives from the
industry it serves.  TSG provides its clients with  competitive  and comparative
industry   intelligence   generally   categorized   as   benchmarking   studies,
best-in-class  performance and emerging  industry  trends.  TSG also employs its

<PAGE>

Profit  Coach  System  , a  profit-driven  management  process  used to  provide
information to its clients.  Through its division, The Duffy-Vinet Institute, it
also maintains an extensive library of training modules.

     Under the January 1999  agreement with  NetWolves,  NetWolves was appointed
the exclusive  provider of multi-services  internet gateway  products,  which is
intended  to  enable  TSG  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 also agreed
to  customize  its  FoxBox  to serve the needs of TSG.  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 to TSG's  customers  approximately  40,000  units over a five
calendar  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.

     In July 1999, the Company entered into a merger agreement pursuant to which
it  acquired  the  outstanding  capital  stock of TSG in  exchange  for  180,000
restricted shares of its common stock. The five principal officers and employees
of TSG were retained under three-year employment contracts.  The merger provides
for the Company to make working capital  advances to its TSG subsidiary of up to
$4,750,000 through November 15, 1999. Through September 30, 1999,  $2,600,000 in
advances have been made. Under the agreement, NetWolves has the right to provide
no  additional  advances,  in which  event its equity  interest  in TSG would be
reduced. See Note 4 of Notes to Consolidated Financial Statements.

     To finance the  anticipated  sales to be generated from the  application of
the FoxBox  technology to TSG's client base, in July 1999,  the Company  entered
into an agreement  with Comdisco  under which  Comdisco has provided the Company
access to up to $320 million credit  facility to be utilized in connection  with
Comdisco  installing  the  FoxBox  in up to  40,000  locations  over a four year
period.  Comdisco  also has  agreed  to  provide  management,  installation  and
technology services with respect to the sale of the FoxBox to TSG's clients.

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 September 30, 1999, the Company's research and development
group  consists  of nineteen  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.

<PAGE>

     For the year  ended  June 30,  1999,  the  Company  expended  approximately
$418,000 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  manufacturer  currently used by the Company is Boca Research,  Inc., a
hardware  assembly  and  engineering  firm  located in Boca Raton,  Florida.  In
September  1999, the Company  entered into a strategic  alliance  agreement with
Boca  Research.  Under the terms of the  agreement,  Boca Research has agreed to
manufacture  the FoxBox on a  non-exclusive  basis and has agreed to provide 250
FoxBox units for immediate  delivery.  The two-year  agreement also provides for
Boca Research to provide certain  engineering  services to the Company necessary
to enable Boca  Research to  manufacture  a thin client unit for use by TSG. The
agreement  further  contemplates  the parties  negotiating in good faith a joint
marketing   agreement   wherein  NetWolves  would  license  Boca  the  right  to
manufacture  equipment comprising the FoxBox technology on an OEM, private label
basis in certain  limited sales  channels.  To date, no marketing  agreement has
been executed.

     While the Company maintains a relationship with Boca Research which existed
prior  to  its  September   1999   agreement,   it  believes  that   alternative
manufacturers  are  available in the event the Company seeks to change or expand
upon manufacturers of its products.


     Production Process

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

     Testing

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

<PAGE>

     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 the
aforesaid  agreements  with  Anicom,  Inc.  and  Comdisco,  Inc.  and is seeking
additional  strategic  alliances  both  domestically  and on a worldwide  basis,
including  the proposed  marketing  agreement  with Boca  Research.  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 segments.

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

<PAGE>

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 was 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 September  30,  1999,  the Company  employed 38 full-time  employees.
Approximately,  19 of these employees are involved in research and  development,
13 in sales and  marketing,  and 6 in finance  and  general  administration.  In
addition, the Company has retained 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.

Officers of the Registrant

                                Served as
Name                     Age    Officer Since          Position
- ----                     ---    -------------          --------

Walter M Groteke          29     June 1998        Chairman of the Board,
                                                  President and
                                                  Chief Executive Officer

Daniel G. Stephens       28        June 1998      Vice Chairman of the Board and
                                                  Chief Information Officer

Walter R. Groteke        52        August 1998    Vice President - Sales and
                                                  Marketing



ITEM 2.   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 also maintains leased facilities in Tampa
under a three year lease  expiring in June 2002 for  approximately  6,340 square
feet that is used for administrative,  sales and marketing purposes.  The annual
rent is approximately $163,500. The Company believes that its present 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 3.   LEGAL PROCEEDINGS

     There are no  material  legal  proceedings,  other  than  ordinary  routine
litigation  incidental  to the  business,  to which  the  Company  or any of its
subsidiaries is ai party or of which any of their property is the subject.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were  submitted to a vote of security  holders during the fourth
quarter of the fiscal year.


<PAGE>


                                     PART II

ITEM 5.   MARKET FOR 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 calendar quarters indicated:

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

     <S>                                            <C>         <C>
     1999
     Third Quarter . . . . . . . . . . . . . .      $31.25      $16.50
     Second Quarter. . . . . . . . . . . . . .       22.25        9.75
     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 September 30, 1999, there were approximately 183 holders of record of
the common stock.  On September  30, 1999,  the closing sales price of NetWolves
common stock was $26.00 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.  In this regard,  the
Company will be submitting for shareholder  approval a proposal giving the Board
of Directors discretion to approve a two-for-one or three-for-one stock split.

     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 6.   SELECTED FINANCIAL DATA

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

<TABLE>
<CAPTION>

                                     Period from
                                     February 13, 1998
                                     (inception) to         Year ended
                                     June 30, 1998         June 30, 1999
                                     ------------------    -------------

<S>                                   <C>                   <C>
Statements of Operations Data:
 Net sales                            $   29,621            $ 1,789,144
 Cost of sales                             5,681                582,724
                                      ----------            -----------

 Gross profit                             23,940              1,206,420
 Operating expenses                      149,510              7,698,694
                                      ----------            -----------

 Loss before other income (expense)
   and benefit from income taxes        (125,570)            (6,492,274)
 Interest income (expense), net            2,666                 48,154
 Other income                              3,490                488,793
                                      ----------            -----------

 Loss before benefit from income taxes  (119,414)            (5,955,327)
 Benefit from income taxes                20,000                   -
                                      ----------            -----------

 Net loss                             $  (99,414)           $(5,955,327)
                                      ==========            ===========

 Basic and diluted net loss per share $    (0.04)           $     (1.27)
                                      ==========            ===========
 Weighted average common shares
     outstanding                       2,810,102              4,691,651
                                      ==========            ===========

</TABLE>

<TABLE>
<CAPTION>
                                                   June 30,
                                                   --------
                                         1998                   1999
                                         ----                   ----
 <S>                                   <C>                    <C>
Financial position:
 Cash and cash equivalents            $1,118,416             $5 ,585,981
 Marketable securities, available
   for sale                            1,063,828                 606,000
 Working capital                       2,918,327               5,799,246
 Total assets                          2,959,451               9,636,934
 Long-term debt, net of
  current maturities                           0                 266,537
 Minority interest                             0                 274,500
 Total shareholders' equity            2,928,003               8,354,802
</TABLE>

<PAGE>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

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

Overview

     The Company is a corporation with a limited  operating  history,  formed in
February  1998,  when it 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 TSG  ("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. In
July 1999,  the Company  acquired  TSG and in July 1999  secured a $320  million
credit  facility  with  Comdisco,  Inc. to finance the  anticipated  sales to be
generated from the  application  of the FoxBox  technology to TSG's client base.
Comdisco  also has agreed to provide  management,  installation  and  technology
services for FoxBoxes  sold to this client  base.  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  throughout
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,
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,  continue to develop its
distribution network,  successfully execute its business and marketing plan, and
expand the operating infrastructure.  There can be no assurance that the Company
will be successful in addressing such risks, 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


<PAGE>

of June 30, 1999 had an accumulated  deficit of  approximately  $6 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.

Results of Operations
For the year ended June 30, 1999 compared to the period
from February 13, 1998 (inception) through June 30, 1998

     The net sales from  operations  were $1,789,144 and $29,621 for the periods
June 30, 1999 and June 30,  1998,  respectively.  Sales in 1999 almost  entirely
related to the  initial  stocking  order of 500  FoxBox  units sold to Anicom in
March/April  1999.  The Company  anticipates  a  restocking  order by the second
quarter of fiscal 2000.  $58,429 of dividend and interest  income was  generated
through  June 30, 1999 as compared to $6,156 for the period ended June 30, 1998.
The increase is primarily  attributable  to the relatively  short time for which
the securities  were held in the prior period.  Additionally,  the Company had a
gain of $478,518 on the sale of marketable securities.

     NetWolves had gross profit of 67% for the period ended June 30, 1999. As of
yet, the Company has not had a full year of  production in order to have a basis
of comparison.  However, the Company believes that gross profit greater than 67%
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 cost, as well as increased  competition and general economic conditions
in the future.

     Operating  expenses were  $7,698,694  and $149,510 for the periods June 30,
1999 and June 30, 1998,  respectively.  The operating expenses for June 30, 1999
consisted  primarily of $5,278,255 of general and administrative  costs relating
to the establishment of the infrastructure  and the continued  operations of the
business.  $418,109 of costs were incurred relating to research and development,
and $2,002,330 related to selling and marketing. Included in the above mentioned
operating  expenses are $4,195,063 of  compensation  for services in the form of
the Company's common stock and options.  Operating  expenses for the period June
30,  1998 were  limited  and  provide  an  inadequate  basis  for  comparability
purposes.

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.  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.  On June 29,  1999  NetWolves
concluded a private  offering of 800,000 shares of common stock which  generated
$5.4 million (net of $.6 million of expenses) to be used in operations.

<PAGE>

     NetWolves had cash and cash equivalents of $5.6 million and $1.1 million at
June 30, 1999 and June 30, 1998,  respectively.  In September  1999, the Company
completed  a  private  placement  of  100,000  shares  of  common  stock  to one
accredited  investor for $1.4 million (net of $100,000 of expenses).  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
operating level.  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:

     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.

<PAGE>

     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.

     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.

<PAGE>

     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 7A   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     Management does not believe that there is any material market risk exposure
with respect to derivative  or other  financial  instruments  that would require
disclosure under this item.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial statements of the Company and its subsidiaries and the report
thereon of Hays and Co. are included herein:

     --   Report of Independent Public Accountants

     --   Consolidated Balance Sheets at June 30, 1999 and 1998

     --   Consolidated  Statements of Operations,  Cash Flows and  Shareholders'
          Equity for the year ended June 30, 1999 and the period  from  February
          13, 1998 (inception) to June 30, 1998

     --   Notes to Consolidated Financial Statements


ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE

     None

                                    PART III


     The  information  required by Part III is  incorporated by reference to the
Company's  definitive  proxy  statement in connection with its Annual Meeting of
Stockholders  scheduled  to be  held  in  November  1999 to be  filed  with  the
Securities  and Exchange  Commission  within 120 days  following  the end of the
Company's fiscal year ended June 30, 1999.  Information relating to the officers
of the Company appears under Item 1 of this report.
<PAGE>

                                     PART IV

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

(b)  Reports on Form 8-K

     Report on Form 8-K dated July 7, 1999, as amended.


(c)  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 NetWolves Corporation and Walter M.
           Groteke dated  June 17, 1998.*
     10.6  Employment Agreement between NetWolves Corporation and Kevin F.
           Sherlock dated  June 17, 1998.*
     10.7  Warrant Agreement between NetWolves Corporation and Walter M.
           Groteke dated  June 17, 1998.*
     10.8  Warrant Agreement between NetWolves Corporation and Daniel G.
           Stephens, Jr. dated  June 17, 1998.*
     10.9  Warrant Agreement between NetWolves Corporation 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.*
     10.14 Agreement and Plan of Merger dated as of July 7, 1999 among
           NetWolves Corporation, TSG Global Education Web, Inc. and Sales and
           Management Consulting, Inc., d/b/a The Sullivan Group and Duffy-
           Vinet Institute. **
     10.15 Master  Program  Agreement  dated  July 26,  1999  between  NetWolves
           Corporation and Comdisco, Inc.
     10.16 First  Amendment to Employment  Agreement of Kevin F. Sherlock dated
           September 2, 1999.
     27    Financial Data Schedule*

- ------
*     Previously filed as exhibits to Report on Form 10, as amended.
**    Previously  filed as an exhibit to Report on Form 8-K dated July 7, 1999,
      as amended.

<PAGE>




     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange  Act of 1934,  the  Company has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto  duly  authorized  on the 29th day of
September 1999.

                              NetWolves Corporation

                              By: /s/ Walter M. Groteke
                                 Walter M. Groteke
                                 Chairman of the Board, President
                                 and Chief Executive Officer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed below on September 29, 1999 by the  following  persons in
the capacities indicated:



/s/ Walter M. Groteke                   Chairman of the Board and President
    Walter M. Groteke                   Chief Executive Officer

/s/ Daniel G. Stephens                  Vice Chairman of the Board and
    Daniel G. Stephens                  Chief Information Officer

/s/ Walter R. Groteke                   Vice President - Sales and Marketing
    Walter R. Groteke                   and Director

________________________                Director
Ed Lavin

/s/ Louis Liben                         Director
    Louis Liben

<PAGE>


                     NETWOLVES CORPORATION AND SUBSIDIARIES

                       CONSOLIDATED FINANCIAL STATEMENTS

                  YEAR ENDED JUNE 30, 1999 AND THE PERIOD FROM
                 FEBRUARY 13, 1998 (INCEPTION) TO JUNE 30, 1998
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                       CONSOLIDATED FINANCIAL STATEMENTS

                  YEAR ENDED JUNE 30, 1999 AND THE PERIOD FROM
                 FEBRUARY 13, 1998 (INCEPTION) TO JUNE 30, 1998




                                    CONTENTS



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

CONSOLIDATED BALANCE SHEETS
  June 30, 1999 and 1998.........................................            F-2

CONSOLIDATED STATEMENTS OF OPERATIONS
  Year ended June 30, 1999 and the period from
   February 13, 1998 (inception) to June 30, 1998................            F-3

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
  For the period from February 13, 1998  (inception)
   to June 30, 1998 and the year ended June 30, 1999.............            F-4

CONSOLIDATED  STATEMENTS  OF CASH FLOWS
  Year ended June 30,  1999 and the period from
   February 13, 1998 (inception) to June 30, 1998................       F-5  F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.......................      F-7  F-26
<PAGE>
Board of Directors and Shareholders
NetWolves Corporation
Melville, New York


                          INDEPENDENT AUDITOR'S REPORT

We have  audited  the  accompanying  consolidated  balance  sheets of  NetWolves
Corporation and  subsidiaries  (the "Company") as of June 30, 1999 and 1998, and
the related consolidated statements of operations, shareholders' equity and cash
flows for the year ended June 30,  1999 and 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 audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,   the  consolidated  financial  position  of  NetWolves
Corporation and  subsidiaries as of June 30, 1999 and 1998, and the consolidated
results of its  operations  and cash flows for the year ended June 30,  1999 and
the period from  February 13, 1998  (inception)  to June 30, 1998 in  conformity
with generally accepted accounting principles.





/s/ Hays & Company


August  12, 1999,  except for Notes 14, 4 and 16,  which
   are dated  September 2, September 21 and
   September 29, 1999, respectively.
New York, New York
                                      F-1
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                        June 30,
                                                             --------------------------
                                                                  1999         1998
                                                                  ----         ----
<S>                                                           <C>           <C>
ASSETS

Current assets
   Cash and cash equivalents                                  $ 5,585,981   $ 1,118,416
   Marketable securities, available for sale                      606,000     1,063,828
   Accounts receivable, net of allowance for doubtful
      accounts of $40,000 and $5,000 at June 30, 1999 and
      1998, respectively                                           76,907         6,803
   Net assets held for sale (Note 5)                                  -         720,000
   Inventories                                                    118,354        22,410
   Prepaid expenses and other current assets                      153,099        18,318
                                                              -----------   -----------
      Total current assets                                      6,540,341     2,949,775

Property and equipment, net                                       224,691         4,949
Intangible assets                                               2,849,121           -
Other assets                                                       22,781         4,727
                                                              -----------   -----------
                                                              $ 9,636,934   $ 2,959,451
                                                              -----------   -----------
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
   Accounts payable and accrued expenses                     $    453,336   $    31,448
   Deferred compensation                                          100,000           -
   Loans and advances from TSG officer                            144,348           -
   Current maturities of long-term debt                            43,411           -
                                                              -----------   -----------
           Total current liabilities                              741,095        31,448

Long-term debt, net of current maturities                         266,537           -
                                                              -----------   -----------
           Total liabilities                                    1,007,632        31,448
                                                              -----------   -----------
Minority interest                                                 274,500           -

Commitments and contingencies (Notes 5, 8, 9, 10, 12,
 13, 14 and 16)

Shareholders' equity
   Common stock, $.0033 par value; 10,000,000 shares authorized;
      issued and outstanding: 6,063,870  June 30, 1999
      and 4,313,870  June 30, 1998                                 20,011        14,236
   Additional paid-in capital                                  14,013,687     3,012,159
   Accumulated deficit                                         (6,054,741)      (99,414)
   Accumulated other comprehensive income                         375,845         1,022
                                                              -----------   -----------
         Total shareholders' equity                             8,354,802     2,928,003
                                                              -----------   -----------
                                                              $ 9,636,934   $ 2,959,451
                                                              ===========   ===========
<FN>
The accompanying notes are an integral part of
   these consolidated financial statements.

                                      F-2
</FN>
</TABLE>
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                         Period from
                                                                         February 13,
                                                                           1998
                                                         Year ended     (inception) to
                                                        June 30, 1999   June 30, 1998
                                                        -------------   --------------

        <S>                                              <C>            <C>
        Sales                                            $ 1,789,144    $    29,621

        Cost of sales                                        582,724          5,681
                                                         -----------    -----------
        Gross profit                                       1,206,420         23,940
                                                         -----------    -----------
        Operating expenses
           General and administrative                      5,278,255        105,047
           Research and development                          418,109            -
           Sales and marketing                             2,002,330         44,463
                                                         -----------    -----------
                                                           7,698,694        149,510
                                                         -----------    -----------
       Loss before other income (expense)
          and benefit from income taxes                   (6,492,274)      (125,570)

        Other income (expense)
           Interest income                                    48,609          3,011
           Gain on sale of marketable securities             478,518            -
           Dividend income                                    10,275          3,490
           Interest expense                                     (455)          (345)
                                                         -----------    -----------
        Loss before benefit from income taxes             (5,955,327)      (119,414)

        Benefit from income taxes                                -           20,000
                                                         -----------    -----------
        Net loss                                         $(5,955,327)   $   (99,414)
                                                         -----------    -----------

        Basic and diluted net loss per share             $     (1.27)   $     (0.04)
                                                         -----------    -----------
        Weighted average common
         shares outstanding                                4,691,651      2,810,102
                                                         ===========    ===========



<FN>
The accompanying notes are an integral part of
    these consolidated financial statements.
</FN>
</TABLE>
                                      F-3
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

           PERIOD FROM FEBRUARY 13, 1998 (INCEPTION) TO JUNE 30, 1998
                      AND FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>

                                                                            Accumulated
                                                     Additional                other          Total
                                   Common Stock       paid-in   Accumulated  comprehensive shareholders' Comprehensive
                                  Shares   Amount     capital      deficit     income         equity     income (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 3)
  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

Common stock and warrants
 issued for services            770,000     2,541    4,192,522           -          -      4,195,063

Proceeds from sale of warrants      -         -        300,000           -          -        300,000

Common stock issued in private
 placement, net of expenses     800,000     2,640    5,350,085           -          -      5,352,725

Adjustment to fair value of
 Reverse Acquisition                -         -       (190,485)          -          -       (190,485)

Common  stock issued in
 purchase business
  combination (Note 4)          180,000       594    1,349,406           -          -      1,350,000

Marketable securities
 valuation adjustment               -         -            -             -      374,823      374,823    $   374,823

Net loss, year ended
 June 30, 1999                      -         -            -      (5,955,327)       -     (5,955,327)    (5,955,327)
                              ---------  --------   ----------   -----------  ---------    ---------    -----------
       Total comprehensive loss                                                                          (5,580,504)
                                                                                                        ===========
Balance, June 30, 1999        6,063,870  $ 20,011  $14,013,687   $(6,054,741) $ 375,845   $8,354,802
                              =========  ========  ===========   ===========  =========   ==========
<FN>
The accompanying notes are an integral part of
    these consolidated financial statements.
</FN>
</TABLE>
                                      F-4
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                   Period from
                                                                                   February 13,
                                                                                       1998
                                                                     Year ended    (inception) to
                                                                    June 30, 1999   June 30, 1998
                                                                    -------------  --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<S>                                                                  <C>           <C>
Cash flows from operating activities
   Net loss                                                          $(5,955,327)  $   (99,414)
   Adjustments to reconcile net loss to net cash used in
      operating activities
         Depreciation and amortization                                    15,896           401
         Realized gain on sale of marketable securities                 (478,518)          -
         Provision for doubtful accounts                                  35,000         5,000
         Common stock and warrants issued for services                 4,195,063           -
         Deferred income tax benefit                                         -         (20,000)

   Changes in operating assets and liabilities
      Accounts receivable                                                (34,883)       (11,803)
      Inventories                                                        (95,944)       (22,410)
      Prepaid expenses and other current assets                         (134,781)       (18,318)
      Accounts payable and accrued expenses                              187,863         31,448
                                                                     -----------   ------------
         Net cash used in operating activities                        (2,265,631)      (135,096)
                                                                     -----------   ------------
Cash flows from investing activities
   Proceeds from the sale of marketable securities                     1,311,169            -
   Proceeds from assets held for sale, net                               549,515            -
   Purchases of property and equipment                                  (200,383)        (5,350)
   Advances to subsidiary, net of cash acquired of
      $412,224, plus acquisition costs paid of $25,000                  (561,776)           -
   Payments of security deposits                                         (18,054)        (4,727)
                                                                     -----------   ------------
          Net cash provided by (used in) investing activities          1,080,471        (10,077)
                                                                     -----------   ------------
Cash flows from financing activities
   Proceeds from initial capital contribution                                -           64,245
   Cash acquired in Reverse Acquisition                                      -        1,460,366
   Transaction costs paid in connection
    with Reverse Acquisition                                                 -         (261,022)
   Cash proceeds from issuance of common stock, net of
    financing costs paid of $647,275                                   5,352,725            -
   Cash proceeds from sale of warrants                                   300,000            -
                                                                     -----------   ------------
          Net cash provided by financing activities                    5,652,725      1,263,589
                                                                     -----------   ------------
Net increase in cash and cash equivalents                              4,467,565      1,118,416

Cash and cash equivalents, beginning of period                         1,118,416            -
                                                                     -----------  -------------
Cash and cash equivalents, end of period                             $ 5,585,981    $ 1,118,416
                                                                     ===========   ============
<FN>
The Accompanying  notes  are an  integral  part of
 these  consolidated  financial statements.
</FN>
                                       F-5
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                   Period from
                                                                                   February 13,
                                                                                       1998
                                                                     Year ended    (inception) to
                                                                    June 30, 1999   June 30, 1998
                                                                    -------------  --------------

(continued)

SUPPLEMENTAL DISCLOSURE OF NONCASH
   INVESTING AND FINANCING  ACTIVITIES
   Reverse Acquisition (Note 3)
      Marketable securities acquired                                 $       -      $ 1,062,806
      Net assets held for sale                                          (190,485)       720,000
      Deferred income tax liability                                          -          (20,000)
      Cash acquired, net of $261,022 of transaction costs paid               -        1,199,344
                                                                     -----------   ------------
      Outstanding common stock of
       Watchdog Patrols, Inc.                                       $   (190,485)  $  2,962,150
                                                                     -----------   ------------
   Purchase acquisition (Note 4)
       Accounts receivable                                          $     70,221   $        -
       Property and equipment                                             35,255            -
       Intangible assets                                               2,849,121            -
       Accrued expenses and other liabilities                           (400,498)           -
       Long-term debt                                                   (309,948)           -
       Acquisition costs                                                 (82,875)           -
       Advances to subsidiary, net of cash acquired
                  of  $412,224                                          (536,776)           -
       Minority interest                                                (274,500)           -
                                                                     -----------   ------------
       Common stock issued in purchase acquisition                   $ 1,350,000   $        -
                                                                     ===========   ============
<FN>
The Accompanying  notes  are an  integral  part of
 these  consolidated  financial statements.
</FN>
</TABLE>

                                       F-6
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEAR ENDED JUNE 30, 1999 AND THE PERIOD FROM
                 FEBRUARY 13, 1998 (INCEPTION) TO JUNE 30, 1998

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 5),  Watchdog
     changed its name to NetWolves Corporation ("NetWolves" or the "Company").

     NetWolves is an Internet systems  developer 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 and shipped its first significant order
     in March 1999.  Accordingly,  it is no longer  reporting  as a  development
     stage company.

     Additionally,  in conjunction  with the acquisition of Sales and Management
     Consulting,  Inc.  (d/b/a The  Sullivan  Group,  see Note 4),  the  Company
     provides consulting, educational and training services primarily to the oil
     and gas and automotive industries throughout the United States.

2    Significant accounting policies

     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.

     Risks and other factors

     As  a  company  that  has  developed  a  software  product  for  use  as  a
     multi-functional  Internet  communications device,  NetWolves faces certain
     risks.  These  include,  among  other  items,  the  ability to  continue to
     implement its business plan,  dependence on proprietary  technology,  rapid
     technological  change,  challenges  in  recruiting  personal  and a  highly
     competitive market place.

     Principles of consolidation

     The consolidated  financial  statements include the accounts of the Company
     and  its  subsidiaries.   All  significant  intercompany  transactions  and
     balances have been eliminated in consolidation.  The separate  ownership of
     one  of  the   Company's   subsidiaries   is  reflected  in  the  Company's
     consolidated  financial  statements  as  minority  interest  (Note 4).  The
     minority   interest   includes  common  stock   representing  1.7%  of  the
     outstanding shares of the subsidiary plus preferred stock.

     The subsidiary has issued 250,000 shares of non-voting  Series A Cumulative
     Convertible  Preferred Stock with a $1 par value. The preferred stockholder
     is  entitled to  preferential  liquidation  rights and is also  entitled to
     cumulative  dividends that accrue at the rate of 8% per annum.  On or after
     January  1,  2000,  the  preferred  stockholder  may elect to  convert  the
     preferred stock into NetWolves common stock (at  fair  market  value at the

                                       F-7
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEAR ENDED JUNE 30, 1999 AND THE PERIOD FROM
                 FEBRUARY 13, 1998 (INCEPTION) TO JUNE 30, 1998


2    Significant accounting policies (continued)

     Principles of consolidation (continued)

     time of  conversion).  However,  within 15 days of receiving the conversion
     notice,  NetWolves  may elect to make a cash  redemption  of the  preferred
     stock at par value (including any unpaid cumulative  dividends) and thereby
     terminate the conversion right.

     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.

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

     Marketable securities

     Marketable  securities,  which are all  classified as "available for sale",
     are valued at fair 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.

     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.  Costs  assigned to property and
     equipment of the acquired  business  (Note 4) were based on estimated  fair
     value at  acquisition.  Depreciation  is provided on furniture and fixtures
     and machinery and equipment over their estimated lives, ranging from 5 to 7
     years, using the straight-line method. Leasehold improvements are amortized
     over the lesser of the term of the respective  lease or the 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.

                                      F-8
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEAR ENDED JUNE 30, 1999 AND THE PERIOD FROM
                 FEBRUARY 13, 1998 (INCEPTION) TO JUNE 30, 1998


2    Significant accounting policies (continued)

     Intangible assets

     Intangible  assets  at  June  30,  1999  consist  of  a  training  library,
     copyrights,  goodwill and other  intangible  assets  acquired in connection
     with the Company's  purchase business  combination  effective June 30, 1999
     (Note  4).   Management  is  in  the  process  of  analyzing  the  specific
     composition of these intangibles.

     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,  intangible  assets  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, 1999,  there has been no impairment in
     the carrying value of long-lived assets.

     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  file a
     consolidated Federal income tax return.

                                      F-9
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEAR ENDED JUNE 30, 1999 AND THE PERIOD FROM
                 FEBRUARY 13, 1998 (INCEPTION) TO JUNE 30, 1998


2    Significant accounting policies (continued)

     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, 1999, the Company's cash investments are
     held at primarily one  financial  institution.  In addition,  the Company's
     marketable  securities  consist  primarily of an  investment in warrants to
     purchase  restricted  common stock of an unrelated company (Note 6). Unless
     otherwise disclosed,  the fair value of financial instruments  approximates
     their recorded values.

                                      F-10
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEAR ENDED JUNE 30, 1999 AND THE PERIOD FROM
                 FEBRUARY 13, 1998 (INCEPTION) TO JUNE 30, 1998


3    Reverse acquisition

     On June 17, 1998,  Watchdog acquired all of the outstanding common stock of
     NetWolves,  LLC (the "Reverse  Acquisition").  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 5), 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 Reverse Acquisition, 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  Reverse
     Acquisition,  there were 1,673,548  shares of Watchdog  common stock issued
     and outstanding.  In addition, certain pre-Reverse Acquisition 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 Reverse
     Acquisition, 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 10.

     In connection with the Reverse Acquisition, in the fourth quarter of fiscal
     1999, the Company  reduced the fair value of Watchdog's net tangible assets
     (the assets held for sale) and,  accordingly,  recorded  an  adjustment  to
     additional paid-in capital of $190,485.

4    Purchase acquisition

     On July 7, 1999, NetWolves and Sales and Management Consulting, Inc. (d/b/a
     The Sullivan  Group)  ("SMCI")  executed a merger  agreement (the "Merger")
     pursuant to which NetWolves acquired the outstanding capital stock of SMCI.
     Under the terms of the Merger,  TSG Global  Education Web, Inc.  ("TSG") (a
     subsidiary  of   NetWolves),   with   4,150,000   shares  of  common  stock
     outstanding, purchased all of the outstanding shares of SMCI's common stock
     in exchange for 180,000 shares of NetWolves'  restricted  common stock. The
     shareholders  are restricted  from selling,  transferring  or pledging such
     shares for an eighteen-month  period.  Upon consummation of the Merger SMCI
     merged into TSG and TSG was the surviving entity.

     Concurrent  with the Merger,  the  shareholders  of SMCI  purchased  70,000
     shares of TSG common stock at $.35 per share for aggregate cash proceeds of
     $24,500.  This  represents  1.7% of the  outstanding  common  stock of TSG.
     Additionally,  TSG issued  250,000  shares of TSG Series A Cumulative  (8%)
     Convertible  Preferred  Stock to one of the SMCI  shareholders,  which  was
     issued  in  partial  settlement  of  outstanding  liabilities  owed  to the
     shareholder.  This TSG common and  preferred  stock has been  reflected  as
     minority interest in the accompanying consolidated financial statements.

                                      F-11
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEAR ENDED JUNE 30, 1999 AND THE PERIOD FROM
                 FEBRUARY 13, 1998 (INCEPTION) TO JUNE 30, 1998

4    Purchase acquisition (continued)

     The purchase price approximated  $1,350,000 (exclusive of acquisition costs
     of  $82,875),  which  consisted of 180,000  shares of NetWolves  restricted
     common  stock valued at $7.50 per share (fair value of the common stock was
     based  upon the  gross  sales  price  received  by  NetWolves  in a private
     placement  that was completed on June 29, 1999,  Note 10). The  acquisition
     has been  accounted  for with an effective  date of June 30, 1999 using the
     purchase method of accounting.  Accordingly,  assets and  liabilities  were
     recorded at their fair values as of June 30, 1999,  and  operations of SMCI
     will be included in the  Company's  consolidated  statements  of operations
     commencing July 1, 1999.

     An  allocation  of the fair value of the assets  acquired  and  liabilities
     assumed is as follows:
<TABLE>
<CAPTION>
               <S>                                                   <C>
               Purchase price
                  NetWolves common stock issued                      $ 1,350,000
                  Acquisition costs                                       82,875
                                                                     -----------
                                                                     $ 1,432,875
                                                                     ===========
               Allocation of purchase price
                  Fair value of tangible assets and liabilities
                      Current assets                                    $ 70,221
                      Non-current assets                                  35,255
                      Current liabilities                               (443,909)
                      Non-current liabilities                           (266,537)
                      Advances to TSG, net of cash acquired
                       of $412,224                                      (536,776)
                                                                     -----------
                                                                      (1,141,746)
                                                                     -----------
                  Minority interest
                      Common stock                                       (24,500)
                      Preferred stock                                   (250,000)
                                                                     -----------
                                                                        (274,500)
                                                                     -----------
                  Intangible assets acquired                           2,849,121
                                                                     -----------

                                                                     $ 1,432,875
                                                                     ===========
</TABLE>
     At the time of the Merger and in  accordance  with TSG's newly formed stock
     option plan, the SMCI  shareholders  received 605,000  five-year options to
     purchase  TSG  common  stock  at an  exercise  price  of  $.35  per  share.
     Management  has  determined  that  the  exercise  price   approximates  the
     estimated  fair  value  of the TSG  common  stock.  Additionally,  the SMCI
     shareholders are entitled to an additional  175,000 options to purchase TSG
     common  stock (with an exercise  price at fair value at the time of grant),
     subject to TSG  meeting  specific  earnings  targets  over the three  years
     ending  June 30,  2000,  2001 and  2002.  All of the  shareholders  of SMCI
     entered into 5-year employment agreements with TSG (Note 14).

                                      F-12
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEAR ENDED JUNE 30, 1999 AND THE PERIOD FROM
                 FEBRUARY 13, 1998 (INCEPTION) TO JUNE 30, 1998

4    Purchase acquisition (continued)

     The  Merger  also  provides  for  NetWolves  to  make up to  $4,750,000  of
     non-interest  bearing open account working capital advances to TSG pursuant
     to an agreed upon  schedule  through  November 15,  1999.  Through June 30,
     1999,  $949,000 has been  advanced and an  additional  $1,651,000  has been
     advanced  from July 1, 1999 through  September 21, 1999.  Should  NetWolves
     decide not to make  further  working  capital  advances,  the number of TSG
     shares owned by NetWolves will be reduced in accordance with the agreement.
     Based upon the  $2,600,000  advanced  through  September  21, 1999  (should
     NetWolves  decide not to make any  further  advances),  NetWolves  could be
     required to return  987,500 TSG shares to the  treasury of TSG.  This would
     reduce  NetWolves'  current  ownership  interest from  4,150,000  shares to
     3,162,500 (from 98.3% to 97.8%). Subject to NetWolves first refusal rights,
     TSG has the right to sell any shares,  ultimately returned by NetWolves, to
     third  parties  at  fair  value,  which  could  further  reduce  NetWolves'
     ownership interest.

     In  accordance  with the Merger,  the Board of Directors of TSG consists of
     three members  designated  by NetWolves  and two members  designated by the
     SMCI shareholders.  A four-fifths majority of the TSG Board is required for
     specified  significant  actions including:  sale or merger of the business,
     changes  to  the  TSG  capital  structure,  declaration  of  dividends  and
     repayment  of the working  capital  advances  made by  NetWolves.  A simple
     majority of the TSG Board is required  for all general  operating  matters.
     Included in the consolidated  entity's cash and cash equivalents balance at
     June  30,  1999 is  $412,224  of cash  held by TSG to be used  for  working
     capital purposes.

     Prior to the Merger negotiations, in January 1999, the Company entered into
     an  agreement  with SMCI  whereby  SMCI  appointed  the Company as its sole
     provider of a multi-service Internet delivery system (known as "FoxBox") to
     be  used  in  conjunction  with  SMCI's  proprietary  interactive  distance
     learning training programs.

     The following  unaudited pro forma financial  information has been prepared
     assuming that the  acquisition  of SMCI had taken place at the beginning of
     the  respective  periods  presented.  The  pro  forma  information  is  not
     necessarily indicative of the combined results that would have occurred had
     the  acquisition  taken place at the  beginning  of the  period,  nor is it
     necessarily indicative of the results that may occur in the future.
<TABLE>
<CAPTION>
                                                                     Period from
                                                                     February 13,
                                                      Year ended     1998 to June 30,
                                                      June 30, 1999      1998
                                                      -------------  ----------------
                                                       (Unaudited)     (Unaudited)

     <S>                                               <C>            <C>
     Revenue                                           $ 2,904,000    $  644,000
     Net loss                                          $(6,940,000)   $ (328,000)
     Basic and diluted net loss per share              $     (1.48)   $     (.12)
</TABLE>
                                      F-13
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEAR ENDED JUNE 30, 1999 AND THE PERIOD FROM
                 FEBRUARY 13, 1998 (INCEPTION) TO JUNE 30, 1998


5    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 settling  most other
     working capital  assets/liabilities,  including accounts receivable,  other
     current assets, accounts payable and accrued expenses (the "Retained Assets
     and  Liabilities").  The Retained Assets and Liabilities  were all directly
     related  to the  uniformed  security  guard  business  and were not used or
     settled by the Company in the normal course of business.  Accordingly,  the
     resultant  net proceeds have been included in the net assets held for sale.
     In connection with the settlement of the Retained  Assets and  Liabilities,
     the Company  reduced the estimated  fair value of such items by $190,485 in
     the fourth quarter of 1999.

     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 Retained Assets and Liabilities,
     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>
                                                                              June 30,
                                                                     -------------------------
                                                                        1999           1998
                                                                     ----------- -------------
     <S>                                                             <C>         <C>
     Sale of Assets                                                  $       -   $     600,000

     Retained Assets and Liabilities
         Accounts receivable                                                 -         500,000
         Other current assets                                                -         140,000
         Accounts payable and accrued expenses                               -        (460,000)
     Cash out-flows from operations during holding period                    -         (60,000)
                                                                     ----------- -------------
            Net assets held for sale                                 $       -   $     720,000
                                                                     =========== =============
</TABLE>
                                      F-14

<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEAR ENDED JUNE 30, 1999 AND THE PERIOD FROM
                 FEBRUARY 13, 1998 (INCEPTION) TO JUNE 30, 1998

6    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, 1999
        Equity securities                     $    35,000  $    415,000  $    450,000
        Bonds                                     195,155       (39,155)      156,000
                                              -----------  ------------  ------------
                                              $   230,155  $    375,845  $    606,000
                                              ===========  ============  ============
        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
                                              ===========  ============  ============
</TABLE>
     At June 30, 1999,  the Company's  equity  securities  consist  solely of an
     investment in warrants to purchase  restricted common stock of an unrelated
     publicly traded company. As of August 12, 1999, the estimated fair value of
     the  warrants  decreased  by  approximately  33% from  the  June  30,  1999
     estimated fair value.

     Proceeds from sales of  marketable  securities  and realized  gains on such
     sales aggregated $1,311,169 and $478,518,  respectively, for the year ended
     June 30, 1999.

     The  maturities  of the Company's  debt  securities at June 30, 1999 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                               97,375      66,500
      Due after six years through ten years                               97,780      89,500
                                                                       ---------   ---------
                                                                       $ 195,155   $ 156,000
                                                                       =========   =========
</TABLE>
                                      F-15
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEAR ENDED JUNE 30, 1999 AND THE PERIOD FROM
                 FEBRUARY 13, 1998 (INCEPTION) TO JUNE 30, 1998



7    Property and equipment, net

     Property and equipment consist of the following:
<TABLE>
<CAPTION>
                                                                   June 30,
                                                             -------------------
                                                               1999       1998
                                                             ---------   -------
      <S>                                                    <C>         <C>
      Machinery and equipment                                $ 121,462   $ 3,350
      Furniture and fixtures                                    92,685     2,000
      Leasehold improvements                                    26,841       -
                                                             ---------   -------
                                                               240,988     5,350
      Less accumulated depreciation and amortization           (16,297)     (401)
                                                             ---------   -------
      Property and equipment, net                            $ 224,691   $ 4,949
                                                             =========   =======
</TABLE>
8    Accounts payable and accrued expenses

  Accounts payable and accrued expenses
consist of the following:
<TABLE>
<CAPTION>
                                                                   June 30,
                                                             -------------------
                                                               1999       1998
                                                             ---------   -------
      <S>                                                    <C>         <C>
      Trade accounts payable                                 $ 286,868  $ 11,448
      Compensated absences                                      50,354       -
      Other accrued expenses                                    68,909    20,000
      Commissions payable                                       36,204       -
      Payroll taxes payable                                     11,001       -
                                                             ---------  --------
                                                             $ 453,336  $ 31,448
                                                             =========  ========
</TABLE>
9    Long-term debt
     Long-term debt consists of the following:
<TABLE>
<CAPTION>

                                                                   June 30,
                                                             -------------------
                                                               1999       1998
                                                             ---------   -------
      <S>                                                    <C>         <C>

      Notes payable to DVI                                   $ 309,948   $   -
      Less current maturities of long-term debt                (43,411)      -
                                                             --------    -------
      Long-term debt, net of current maturities              $ 266,537   $   -
                                                             =========   =======
</TABLE>
                                      F-16
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEAR ENDED JUNE 30, 1999 AND THE PERIOD FROM
                 FEBRUARY 13, 1998 (INCEPTION) TO JUNE 30, 1998

9    Long-term debt (continued)

     The notes  payable (the "DVI  Notes") to the  Duffy-Vinet  Institute,  Inc.
     ("DVI") were assumed by the Company in connection with the Merger (Note 4).
     The DVI Notes are secured by all of the assets SMCI had  acquired  from DVI
     in 1992. These assets consist of furniture,  fixtures and equipment (with a
     net book value of $12,000) and a portion of the intangible  assets acquired
     from SMCI  including  a  library  of master  tapes and  completed  training
     programs.

     At the time of the  Merger,  the  fair  value  of the  liability  (totaling
     $309,948)  was  determined by  calculating  the present value of the future
     payments  to be made using an  implied  interest  rate of 11%.  At June 30,
     1999,  the DVI Notes  required  66 monthly  payments  of $6,280,  including
     interest.

     Aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>

        Year ending June 30,
                <S>                 <C>
                2000                 $  43,411
                2001                    48,434
                2002                    54,039
                2003                    60,293
                2004                    67,270
                Thereafter              36,501
                                     ---------
                                     $ 309,948
                                     =========
</TABLE>

10   Shareholders' equity

     Common stock issuances

     For the year ended June 30, 1999,  the Company issued  1,750,000  shares of
     its common stock as follows:

     .    150,000   unregistered  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.

     .    260,000  unregistered  shares were  issued to  Internet  Technologies,
          Inc.,  a  consultant  to the Company  ("Internet  Technologies"),  for
          services  rendered during the nine months ended March 31, 1999,  which
          resulted  in  a  charge  to  operations  of  approximately   $999,000.
          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 200,000 of these shares.

                                      F-17
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEAR ENDED JUNE 30, 1999 AND THE PERIOD FROM
                 FEBRUARY 13, 1998 (INCEPTION) TO JUNE 30, 1998

10   Shareholders' equity (continued)

     Common stock issuances (continued)

     .    100,000  unregistered shares were issued to a financial consultant and
          100,000 unregistered shares were issued to the Company's legal counsel
          for services  rendered  during the three months ending March 31, 1999,
          which resulted in an aggregate  charge to operations of  approximately
          $768,000.  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.

     .    100,000  unregistered  shares  were  issued  in  conjunction  with the
          appointment of two new Directors of the Company effective  February 1,
          1999 (50,000 shares each), which resulted in a charge to operations of
          approximately  $384,000.  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.

     .    On June 29,  1999,  the  Company  completed a private  placement.  The
          Company sold 800,000 shares of unregistered  common stock at $7.50 per
          share (a total of  $6,000,000)  exclusive of commission and other fees
          totalling  $647,275.  The placement  agent received  80,000  warrants,
          exercisable  at $9.375  each;  the  warrants  vest one year  after the
          closing of the private  placement and expire four years after vesting.
          Additionally,  60,000 shares were issued to Internet  Technologies for
          services rendered in connection with the private  placement.  Internet
          Technologies  also has the right to  receive  up to 60,000  additional
          shares based upon the  completion of a second  private  placement,  if
          any.

     .    180,000  unregistered shares were issued in connection with the Merger
          (Note  4) on June  30,  1999  valued  at  $7.50  per  share,  totaling
          $1,350,000.

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.

     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.

                                      F-18
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEAR ENDED JUNE 30, 1999 AND THE PERIOD FROM
                 FEBRUARY 13, 1998 (INCEPTION) TO JUNE 30, 1998

10   Shareholders' equity (continued)

     Stock option plan (continued)

     During the third and fourth  quarters of the year ended June 30, 1999,  the
     Company  granted  options to purchase  219,000 shares of common stock under
     the 1998  Incentive  Plan to key employees at exercise  prices ranging from
     $5.00 to $16.25  per share  that vest in equal  installments  over three to
     five years  commencing on the first  anniversary of the date of grant.  The
     exercise  prices  represent 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 Reverse Acquisition,  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 14).

     .    500,000 five-year warrants issued to certain  pre-Reverse  Acquisition
          shareholders  of  Watchdog  at an  exercise  price of $1.63 per share.
          These  warrants  became  exercisable  when  granted.  The  pre-Reverse
          Acquisition 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 Reverse  Acquisition  at an
          exercise price of $2.00 per share.  These warrants became  exercisable
          when granted.

     For the year ended June 30, 1999, the Company granted  warrants to purchase
     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 if specified  financial  targets are achieved.
          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.

                                      F-19
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEAR ENDED JUNE 30, 1999 AND THE PERIOD FROM
                 FEBRUARY 13, 1998 (INCEPTION) TO JUNE 30, 1998

10   Shareholders' equity (continued)

     Warrants (continued)

     .    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 14). 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.

     .    25,000 five year  warrants  were granted to a consultant in March 1999
          for services  rendered,  which  resulted in a charge to  operations of
          $131,000, based on the fair value of the warrant at the time of grant.

     .    300,000 warrants were issued to Anicom, Inc. for cash consideration of
          $300,000 (see Note 13).

     .    80,000  warrants were issued to the placement agent in connection with
          a private  placement  of common stock (see  "common  stock  issuances"
          above).

     Summary of options and warrants

     The Company has adopted the  disclosure  provisions of SFAS 123 and applies
     APB  25  in  accounting  for  stock  options   granted  to  employees  and,
     accordingly,  recognizes  non-cash  compensation  charges  related  to  the
     intrinsic  value of employee stock  options.  If the Company had elected to
     recognize  compensation  expense  based  upon the fair value at the date of
     grant consistent with the methodology prescribed by SFAS 123, the effect on
     the Company's net loss and net loss per share would be as follows:
<TABLE>
<CAPTION>
                                                                     Period from
                                                                     February 13,
                                             Year ended             1998 (inception)
                                               June 30,               to June 30,
                                                 1999                    1998
                                             -------------          ----------------
      <S>                                    <C>                      <C>
      Net loss
          As reported                        $ (5,955,327)            $  (99,414)
          Pro forma                          $ (5,549,779)            $  (99,414)

      Basic and diluted net loss per share
          As reported                        $      (1.27)            $     (.04)
          Pro forma                          $      (1.18)            $     (.04)
</TABLE>
                                      F-20
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEAR ENDED JUNE 30, 1999 AND THE PERIOD FROM
                 FEBRUARY 13, 1998 (INCEPTION) TO JUNE 30, 1998


10   Shareholders' equity (continued)

     Summary of options and warrants (continued)

     The fair value of common stock  options and  warrants  granted to employees
     during  the  year  ended  June  30,  1999 has  been  calculated  using  the
     Black-Scholes  option-pricing  model  with the  following  assumptions:  no
     dividend  yield,  expected  volatility  of 65%,  risk-free  interest  rates
     ranging from 4.6% to 5.9%, and expected lives ranging from 5 to 10 years.

     The  following  is a summary  of all of the  Company's  stock  options  and
     warrants  that were  describe  in  detail  above  (excluding  the TSG stock
     options):
<TABLE>
<CAPTION>

                                                                        Weighted
                                                                         average
                                                                        exercise
                                                  # of Options            price
                                                  ------------         ----------
     <S>                                           <C>                 <C>
     Outstanding at February 13, 1998 (inception)

        Granted                                    1,587,500           $    1.65
        Exercised                                        -             $      -
        Forfeited                                        -             $      -
                                                   ---------
     Outstanding at June 30, 1998                  1,587,500           $    1.65

        Granted                                      924,000           $    5.08
        Exercised                                        -             $      -
        Forfeited                                   (396,000)          $    1.77
                                                   ---------
     Outstanding at June 30, 1999                  2,115,500           $    3.13
                                                   ---------
</TABLE>
     The  following  table  summarizes  information  about all of the  Company's
     options and warrants outstanding at June 30, 1999:
<TABLE>
<CAPTION>
                                     Options outstanding
                                  Number        Weighted average         Options
           Options             outstanding at remaining contractual    exercisable
        Exercise Price         June 30, 1999       life (years)     at June 30, 1999
        --------------         -------------  --------------------- ----------------
        <S>                     <C>                    <C>              <C>
        $       1.630           1,320,000               7.1             500,000
        $       2.000              87,500               4.0              87,500
        $       5.000             574,500               5.1              25,000
        $       9.375              80,000               4.0                 -
        $       10.250 - $16.250   53,500               9.8                 -
                                ---------                               --------
                                2,115,500                               612,500
                                =========                               ========
</TABLE>
                                      F-21

<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEAR ENDED JUNE 30, 1999 AND THE PERIOD FROM
                 FEBRUARY 13, 1998 (INCEPTION) TO JUNE 30, 1998


11   Benefit from income taxes

     The benefit from income taxes consists of the following:
<TABLE>
<CAPTION>
                                                                      Period from
                                                                      February 13,
                                                                          1998
                                                   Year ended         (inception) to
                                                   June 30, 1999      June 30, 1998
                                                   -------------     ---------------
       <S>                                          <C>              <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>
<CAPTION>

                                                                       Period from
                                                                        February 13,
                                                                           1998
                                                         Year ended    (inception) to
                                                        June 30, 1999   June 30, 1998
                                                        -------------  --------------
       <S>                                                    <C>          <C>
       Federal statutory tax rate                             (34.0)%      (34.0)%
       State and local taxes net of Federal tax effect         (6.0)        (5.0)
       Stock and option compensation                           17.8           -
       Non-deductible reserves                                   .2           -
       Effect of graduated tax rates                             -           9.0
       Permanent differences                                     .3          1.9
       Valuation allowance on deferred tax asset               21.7         11.4
                                                         ------------  ---------------
           Effective tax rate                                     0%       (16.7)%
                                                         ============  ===============
</TABLE>
     The tax effects of temporary  differences and carry forwards that give rise
     to deferred tax assets or liabilities are summarized as follows:
<TABLE>
<CAPTION>
                                                                     June 30,
                                                         ----------------------------
                                                              1999             1998
                                                              ----             ----
        <S>                                               <C>            <C>
        Non-deductible reserves                          $     16,000    $      1,500
        Accrual to cash conversion  TSG                        73,000             -
        Net operating loss carry forward                    1,100,000          32,000
        Net assets held for sale                                  -           (20,000)
        Valuation allowance on net deferred tax asset      (1,189,000)        (13,500)
                                                          -----------     -----------
           Deferred tax asset, net                        $       -       $       -
                                                          ===========     ===========
</TABLE>
                                      F-22
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEAR ENDED JUNE 30, 1999 AND THE PERIOD FROM
                 FEBRUARY 13, 1998 (INCEPTION) TO JUNE 30, 1998

11   Benefit from income taxes (continued)

     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, 1999, the Company has net tax operating loss  carryforwards  of
     approximately $2,750,000 available to offset future income tax liabilities,
     if any. The  carryforward  losses expire in the years 2011 through 2019 and
     have  not  been  recognized  in  the  accompanying  consolidated  financial
     statements  as a result of a valuation  of the total  potential  tax asset.
     Approximately  $700,000 of these carryforwards were generated by SMCI prior
     to the Merger  and,  accordingly,  are subject to  restriction  pursuant to
     Section 382 of the Internal Revenue Code.

12   Related party transactions

     In  connection  with the Merger,  the Company has assumed  obligations  and
     entered into  commitments  with one of the Company's  shareholders,  who is
     also a director and treasurer of TSG, as follows:

     .    Deferred  compensation  payable aggregating $100,000 at June 30, 1999,
          represents  unpaid  salary to the TSG  officer for  services  rendered
          prior to the  Merger.  The  deferred  compensation  is  payable in six
          monthly installments of $16,667 commencing in October 1999.

     .    TSG leases its office facilities from the TSG officer for annual lease
          payments of approximately $75,000 through December 2004.

     .    The loans and advances  from the TSG officer of $144,348 is payable in
          four equal monthly  installments of $37,203 (including interest at 8%)
          commencing on July 1, 1999.

     In addition,  in July 1999, another shareholder,  who is also the President
     and Chief Executive Officer of TSG, borrowed $50,000 at an interest rate of
     6% per  annum.  Interest  on the loan is payable  quarterly  and the entire
     principal balance is payable upon the third anniversary date of issuance.

13   Major customer - 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 accordance  with the terms of the agreement,  the Company
     shipped  approximately  $1,700,000 of product to Anicom which accounted for
     approximately  95% of the  Company's  revenue  for the year  ended June 30,
     1999.
                                      F-23
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEAR ENDED JUNE 30, 1999 AND THE PERIOD FROM
                 FEBRUARY 13, 1998 (INCEPTION) TO JUNE 30, 1998

13   Major customer - Anicom, Inc. (continued)

     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.

14   Commitments and contingencies

     Leases

     The  Company has  entered  into  several  leases for office  space,  office
     equipment and vehicles. In addition, as a result of the Merger, TSG assumed
     several leases which are included  below. At June 30, 1999, the approximate
     future minimum annual lease payments  (including the lease for office space
     with the TSG officer, Note 12) are summarized as follows:
<TABLE>
<CAPTION>

        Fiscal year ending June 30,
                <S>               <C>
                2000              $       323,000
                2001                      314,000
                2002                      275,000
                2003                      102,000
                2004                       39,000
                                  ---------------
                                  $     1,053,000
                                  ===============
</TABLE>

     Total rent expense for the year ended June 30, 1999 and for the period from
     February  13,  1998  (inception)  to June 30, 1998 was  $139,417  and $351,
     respectively.

     Employment agreements

     In  conjunction  with the  consummation  of the  Reverse  Acquisition,  the
     Company entered into  employment  agreements with 5 executives who were the
     principal  pre-Reverse  Acquisition owners of NetWolves,  LLC. Two of these
     executives were subsequently  terminated and one executive restructured his
     employment  contract  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 10).

                                      F-24
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEAR ENDED JUNE 30, 1999 AND THE PERIOD FROM
                 FEBRUARY 13, 1998 (INCEPTION) TO JUNE 30, 1998

14   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 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
     10).

     On  September  2,  1999,  one  of  the  five  executives  restructured  his
     employment  agreement  whereby the executive  tendered his resignation as a
     Director and as Chief Operating  Officer of the Company effective August 1,
     1999  with  his  employment  agreement  terminating  on June 15,  2001.  In
     addition, 50,000 of the executive's 200,000 warrants were cancelled.

     In  connection  with the  Merger  (Note 4),  TSG  entered  into  employment
     agreements  with 5 executives who were the principals of SMCI.  Each of the
     agreements  are  substantially  identical  and  provide  for the  following
     significant terms:

     .    employment terms of three years with automatic renewals for additional
          one-year  terms  unless  terminated  by either party  through  written
          notice,
     .    annual salaries of $150,000 for two individuals and $100,000 for three
          individuals adjusted annually for cost of living increases,

     .    two of the executives  shall each receive 5% of pre-tax profits of TSG
          (up to a maximum of 100% of each  employee's base salary) and three of
          the executives  shall each receive 1.67% of pre-tax profits of TSG (up
          to a maximum of 50% of each employee's base salary),

     .    An  aggregate of 605,000  incentive  TSG stock  options  issued to the
          employees (Note 4),

     .    An  aggregate of 175,000  contingently  issuable  incentive  TSG stock
          options to the employees (Note 4),

     .    If within  eighteen  months of the Merger,  TSG has not  initiated  an
          initial  public  offering  or  acquired a  publicly  held  shell,  two
          executives  shall  receive  10% of  pre-tax  profits  of TSG up to $10
          million  and 5% of pre-tax  profits in excess of $10  million,  not to
          exceed, in the aggregate, $1.5 million in compensation in any year.

     Pension Plan

     As of a result of the Merger,  TSG has assumed the obligations of a defined
     contribution  plan that  provides  retirement  benefits  to  qualified  TSG
     employees.  Company  contributions  to  the  plan  are  discretionary.   In
     addition, employees have the option of deferring and contributing a portion
     of their annual  compensation to the plan in accordance with the provisions
     of the plan.

                                      F-25
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEAR ENDED JUNE 30, 1999 AND THE PERIOD FROM
                 FEBRUARY 13, 1998 (INCEPTION) TO JUNE 30, 1998

14   Commitments and contingencies (continued)

     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.

15   Quarterly results of operations

     As a result of an  adjustment  to the  accounting  for certain stock option
     compensation,  the Company  recorded an adjustment in the fourth quarter of
     fiscal 1999, pertaining to the third quarter, which resulted in an increase
     to the net loss of $449,000 or $.10 per share.

16   Subsequent events

     Comdisco, Inc. agreement

     On July 26, 1999 the Company entered into an agreement with Comdisco,  Inc.
     ("Comdisco")  whereby  Comdisco will provide  management,  installation and
     technology  services to the  Company's  proprietary  Internet  distribution
     system.  In addition,  the agreement  provides for the creation of a credit
     facility to be utilized in connection with the sale and installation of the
     FoxBox in up to 40,000 locations over a four-year  period.  However,  there
     can be no assurances that the Company will actually  require the use of the
     credit facility.

     In connection with the agreement,  Comdisco was granted a five-year warrant
     to purchase 125,000 shares of the Company's  unregistered  common stock, at
     an  exercise  price  of  $10  per  share.   The  warrants  are  immediately
     exercisable.

     Issuance of warrants

     For services  rendered,  on July 31, 1999,  a financial  consultant  of the
     Company  was  granted a five-year  warrant to  purchase  100,000  shares of
     common  stock,  at an exercise  price of $12 per share.  The  warrants  are
     immediately  exercisable and the shares  issuable  pursuant to the warrants
     have piggyback registration rights.

     Private placement

     On September  29, 1999,  the Company  sold 100,000  shares of  unregistered
     common  stock  to an  accredited  investor  at $15 per  share  (a  total of
     $1,500,000) exclusive of commissions totalling $105,000.

                                      F-26



                            Master Program Agreement


This Master Program Agreement  ("Agreement") dated July 26, 1999 is entered into
between  NetWolves  Corporation,   a  New  York  corporation,   located  at  200
Broadhollow Road, Melville, New York 11747, ("NetWolves"), and Comdisco, Inc., a
Delaware  Corporation,  located  at 6111  N.  River  Road,  Rosemont,  IL  60018
("Comdisco").

NetWolves  is the  manufacturer  of  certain  equipment  known as the FoxBox and
Comdisco is in the business of financing  equipment  and  providing  services in
connection with the equipment.

This Agreement  contemplates an on-going business relationship in which Comdisco
will (i) acquire  from  NetWolves,  all of the right,  title and interest in the
equipment with the exception of intellectual property rights,  software upgrades
and software  application  and content;  (ii) take an  assignment  in associated
leases between NetWolves and certain  customers of NetWolves;  and (iii) provide
services with respect to the equipment as NetWolves'  subcontractor  and take an
assignment of the services fees in connection therewith.

NOW  THEREFORE,  in  consideration  of  the  foregoing  and  the  covenants  and
conditions  set forth herein,  the parties have entered into this  Agreement and
mutually agree as follows.

Definitions

"Commencement  Certificate" means an acceptance certificate substantially in the
form of Exhibit A confirming acceptance of the leased Equipment.

"Equipment" means the FoxBox equipment which will be sold to Comdisco under this
Agreement  and leased to Target  Customers  by  NetWolves  or sold  directly  by
NetWolves to Target Customers. The Equipment is specified in Exhibit B.

"Lease" or "Lease  Documents" means the Product  Agreement and related Equipment
Schedule  in the  form of  Exhibit  C which  NetWolves  will  use to  lease  the
Equipment and provide Services to Target Customers.

"Lessee" means a Target Customer under a Lease.

"Losses" means all losses, claims, liabilities,  demands and expenses whatsoever
including, without limitation, reasonable attorney's fees.

"Related Software" means NetWolves'  software described in Exhibit D which is an
integral part of the Equipment.

"Services" means the roll-out, maintenance, deinstallation and other services as
detailed in the Statement of Work under Services and Lease Documents provided by
Comdisco to Target Customers as NetWolves' subcontractor.

"Services  Documents" means the Services  Agreement and Services Schedule in the
form of  Exhibit  E which  NetWolves  will use to  provide  Services  to  Target
Customers who purchase the Equipment directly from NetWolves.

"Software Application and Content"

"Target  Customer" shall be limited to companies that will lease or purchase the
Equipment as detailed in Exhibit F.

"Transaction  Package for Leased  Equipment"  means the following  completed and
properly  executed  documents  between  NetWolves and the Target  Customer:  (i)
Product Agreement; (ii) Equipment Schedule.

"Transaction  Package for Purchased Equipment" means the following completed and
properly  executed  documents  between  NetWolves and the Target  Customer:  (i)
Services Agreement; (ii) Services Schedule; and (iii) Master Sale Agreement.
<PAGE>
1.0  Transaction Origination, Administration and Assignment

1.1  Comdisco and  NetWolves  will,  simultaneously  with the  execution of this
     Agreement,  execute the Master Agreement and Services  Schedule in the form
     of Exhibit G to  provide  the  Services  on behalf of  NetWolves  to Target
     Customers pursuant to the terms of this Agreement.

1.2  Upon approving the credit of a Target Customer (as detailed in Section 3.0)
     Comdisco will prepare and forward  original Lease or Services  Documents to
     NetWolves, as applicable,  to present to the Target Customer for execution.
     Any  changes to the Lease or Services  Documents  will  require  Comdisco's
     approval.

1.3  Upon Comdisco's receipt and approval of the Transaction  Package for Leased
     Equipment,  NetWolves,  upon  receipt  of  payment  from  Comdisco  for the
     Equipment,  will be deemed to have  assigned to Comdisco all of  NetWolves'
     right,  title  and  interest  in  the  Equipment,  with  the  exception  of
     intellectual  property rights,  software upgrades and Software  Application
     and Content, the Product Agreement,  and the Equipment Schedule,  including
     the right to receive  any rental  payments  included  therein.  Thereafter,
     NetWolves  will have no further  right to any rentals  associated  with the
     Lease  Documents  during  the  Initial  Term  of  any  Equipment  Schedule.
     Notwithstanding the foregoing  assignment,  NetWolves shall not be relieved
     of  any  of  its   obligations  as  a  manufacturer,   including   warranty
     obligations.

1.4  Upon Comdisco's receipt and approval of a Transaction Package for Purchased
     Equipment,  NetWolves,  upon  receipt  of  payment  from  Comdisco  for the
     Equipment,  will be deemed to have assigned to Comdisco all amounts due, if
     any, under a Master Sale  Agreement,  and all right,  title and interest to
     the Services Agreement and Services Schedule (except for any obligations to
     be performed by NetWolves pursuant to the Master Agreement) and all amounts
     due or to become due thereunder. Thereafter, NetWolves will have no further
     right to any revenues associated with the foregoing documents.

1.5  Upon taking an assignment as described in 1.3 and 1.4 above or upon receipt
     of  the  executed  Master  Sale  Agreement,  Comdisco  will  undertake  all
     invoicing on  NetWolves'  letterhead  to the Target  Customer in accordance
     with the  terms of the  Lease or  Services  Documents  or the  Master  Sale
     Agreement,  as applicable.  If NetWolves  becomes aware of any default by a
     Target  Customer under the Lease or Services  Documents,  it shall promptly
     notify Comdisco.

1.6  Lessee shall be  responsible  for and shall file and pay all property taxes
     incurred  in  connection  with the  lease  of the  Equipment.  The  Product
     Agreement  shall  provide  that  Lessee  shall  indemnify  and hold  Lessor
     harmless from and against all taxes,  other than those taxes based upon the
     net income of Lessor.

1.7  NetWolves  will at all times  remain the owner of the Related  Software and
     agrees to transfer all Related Software to the Target  Customers,  pursuant
     to the terms of NetWolves' standard documentation evidencing such transfer.

1.8  Comdisco  acknowledges that it is purchasing the Equipment for resale/lease
     and will provide NetWolves with valid exemption certificates.


2.0  Financial Arrangement
<PAGE>
2.1  Comdisco  has  entered  into  this  financial  arrangement  on the basis of
     NetWolves  intending to implement  40,000 Target Customer  locations within
     forty-eight (48) months from the date of this Master Program Agreement.

2.2  The calculation of the Equipment  purchase price is contingent upon whether
     the Target Customer purchases or leases the Equipment ("purchase price").

     2.2.1Target Customer Elects to Purchase the Equipment. If a Target Customer
          elects to purchase the Equipment  from  NetWolves  instead of entering
          into a  Lease,  and  elects  not  to  take  the  Services,  then  upon
          Comdisco's receipt and approval of a Transaction Package for Purchased
          Equipment  containing the Master Sale  Agreement  only, and receipt of
          the sale  price  from the  Target  Customer,  Comdisco  will  remit to
          NetWolves an amount equal to the purchase  price of the Equipment less
          $1,400.  If a Target  Customer  elects to purchase the  Equipment  and
          elects to take the Services, then upon Comdisco's receipt and approval
          of a Transaction  Package for  Purchased  Equipment and receipt of the
          sale price from the Target Customer,  Comdisco will remit to NetWolves
          the full purchase price. All Services provided will be based on a term
          of forty-eight (48) months.

     2.2.2Target  Customer  Elects to Lease the Equipment.  If a Target Customer
          elects  to lease  the  Equipment,  then upon  Comdisco's  receipt  and
          approval of a Transaction  Package for Leased Equipment,  the purchase
          price for each unit of Equipment  will equal the present  value of the
          rental  stream  at an  interest  rate  commensurate  with  the  Target
          Customer's  credit rating and prevailing  market rates.  Comdisco will
          purchase the Equipment from NetWolves, without recourse but subject to
          Section 4.1(h), at 95% of the purchase price. Comdisco agrees to remit
          payment  to  NetWolves  for the  Equipment  within  ten  (10)  days of
          Comdisco's receipt and approval of the applicable  Transaction Package
          for Leased  Equipment  and  Commencement  Certificate.  At the time of
          payment, NetWolves will provide Comdisco with a bill of sale.

2.3  Comdisco  will  charge a Service  fee of $600.00  to  install  each item of
     Equipment.  Comdisco  will  charge a  minimum  Service  fee of  $300.00  to
     deinstall each item of Equipment.  In the event NetWolves  charges a Target
     Customer  a Service  Fee  greater  than  $300.00  to  deinstall  an item of
     Equipment, NetWolves and Comdisco will share the excess amount on the basis
     of 73% to NetWolves and 27% to Comdisco. All amounts in connection with the
     installation  or  deinstallation  of the  Equipment  will be invoiced  upon
     completion of such installation or deinstallation.

2.4  For the first  twelve  (12) months of an  Equipment  Schedule or a Services
     Schedule,  as applicable,  the Target customer will not be obligated to pay
     Service fees other than for  installation and  deinstallation,  because the
     Equipment is considered  to be under  manufacturer  warranty.  Beginning in
     month thirteen (13) of the Equipment or Services Schedule, Customer will be
     obligated to pay a Service fee of $28.00 per month per item of Equipment.

2.5  The rent under an  Equipment  Schedule is estimated to be $200.00 per month
     per item of Equipment installed, exclusive of taxes.

2.6  The Lease Documents will require Lessee to pay Lessor the last month's rent
     at the time that the first rent payment is due.

2.7  Comdisco's  obligation  to purchase the  Equipment and to pay NetWolves the
     purchase price is contingent upon the following:
<PAGE>
     a.   Lessee's  credit has been  approved and there is no adverse  change in
          Lessee's credit as defined under the Equipment Schedule.

     b.   The Lessee is not in default under any Equipment Schedule.

     c.   Comdisco has received a completed and approved Transaction Package for
          Leased Equipment, and an executed Commencement Certificate.

     d.   Comdisco  has  received  a  completed  and  approved  the   applicable
          Transaction  Package for  Purchased  Equipment and the sale price from
          the Target Customer.

     e.   NetWolves is not in default under this Agreement, the Master Agreement
          or the Services Schedule.

     f.   Neither  NetWolves nor a Target Customer is in default under any Lease
          or Services Documents.

2.8  NetWolves agrees that Comdisco may, on a periodic basis,  review and audit,
     at reasonable times and on reasonable notice,  NetWolves' sale of Equipment
     to Target Customers.

3.0  Credit Review

3.1  Prior to  entering  into  Lease  or  Services  Documentation  with a Target
     Customer, NetWolves will request credit approval from Comdisco with respect
     to the  Target  Customer.  Credit  approval  and the rent  under  the Lease
     Documents will be calculated  based on the Credit Table set forth below and
     all credit approval will be valid for a period of forty-five (45) days from
     the date of approval.

3.2  Credit Table
     Moodys Rating            Basis Points Above Like Term Treasuries
     -------------            ---------------------------------------
     AAA   Aa3                175 basis points
     A1   A3                  200
     Baa1   Baa3              225
     Below Baa3               Individual Credit Review Needed

     Comdisco  reserves  the right to re-adjust  the basis  points  listed above
     based upon a change in market  conditions as determined by Comdisco  within
     six (6)  months  from the date of this  Agreement  and every six (6) months
     thereafter.  If market  conditions  change so that  Comdisco  readjusts the
     basis points as provided for herein,  and NetWolves deems such readjustment
     to be above  competitive  market  rates,  NetWolves  will obtain  three (3)
     quoted  rates  from a third  party  using a similar  point  structure  (the
     "Quoted  Rates").  If Comdisco  matches  the  average of the Quoted  Rates,
     NetWolves  will be deemed to accept  Comdisco's  readjustment.  If Comdisco
     elects  not to match  the  Quoted  Rates,  NetWolves  may  obtain  hardware
     financing from one of the three parties supplying the Quoted Rates.


4.0  Representations and Warranties

4.1  NetWolves  hereby  represents  and warrants (as of the date of execution of
     this Agreement as to (a) and (b) below) that:
<PAGE>

a.   It is a corporation  duly  organized and validly  existing in good standing
     under the laws of the jurisdiction of its incorporation with full corporate
     power  to  enter  into  this  Agreement  and  to  carry  out   transactions
     contemplated herein.

b.   The  execution  and  delivery of this  Agreement,  and all other  documents
     contemplated  herein (including but not limited to the Warrant  Agreement),
     as well as performance of the contemplated transactions hereunder have been
     duly authorized by all necessary  corporate action and this Agreement,  and
     all other  documents  contemplated  herein,  constitute a legal,  valid and
     binding obligation enforceable in accordance with its terms.

c.   Except as detailed  in this  Agreement,  there will be no other  agreements
     between  NetWolves  and the Target  Customer  relating to the Equipment and
     Services in contradiction of the terms of this Agreement. Nothing contained
     in this Agreement  shall  preclude  NetWolves from selling or leasing other
     services to the Target Customer.

d.   All credit information known to NetWolves concerning a Target Customer will
     have been disclosed or made available to Comdisco.

e.   The Target  Customer is not be in default  under any other  agreement  with
     NetWolves which is not the subject of this Agreement.

f.   As of the payment of the purchase  price to  NetWolves,  it is the owner of
     the Equipment and that title to the Equipment will be free and clear of all
     liens, claims,  interests and encumbrances of any kind, including,  but not
     limited to, infringement for claims of third party proprietary rights.

g.   If Comdisco purchases the Equipment from NetWolves,  pursuant to the Target
     Customer's  election to lease the  Equipment,  title to the Equipment  will
     vest in Comdisco upon payment of the purchase price.

h.   The Equipment will be in working order at the time of  installation  at the
     Target  Customer  location,  will  perform  in  all  material  respects  in
     accordance  with  NetWolves   specifications  published  at  the  time  the
     Equipment  is  installed,  and will be subject to  NetWolves  then  current
     manufacturer warranties.

4.2  Comdisco  hereby  represents and warrants that, as of the date of execution
     of this Agreement that:

     a.   It is a  corporation  duly  organized  and  validly  existing  in good
          standing under the laws of the jurisdiction of its incorporation  with
          full corporate power to enter into this Agreement and to carry out the
          transactions contemplated herein.

     b.   The execution and delivery of this Agreement,  and all other documents
          contemplated  herein,  as well as the performance of the  contemplated
          transactions  hereunder  have been duly  authorized  by all  necessary
          corporate   action  and  this  Agreement,   and  all  other  documents
          contemplated herein,  constitute a legal, valid and binding obligation
          enforceable in accordance with its terms.


5.0  Indemnification

     5.1  NetWolves  agrees to  indemnify  and hold  harmless  Comdisco  and its
          affiliates, subsidiaries, employees and agents, successors and assigns
          from any and all:
<PAGE>
          a.   Losses arising from any third party claims based upon a breach of
               NetWolves' representations,  warranties or obligations under this
               Agreement.

          b.   Losses  resulting  directly or indirectly from claims  including,
               without   limitation,   third  party  claims  arising  in  strict
               liability   or   negligence   or   claims  of   infringement   or
               misappropriation  of any  proprietary  interest  or  right of any
               third party, including without limitation any trademark,  patent,
               copyright or trade secret in connection with the Equipment and/or
               Related Software:

          c.   Losses  arising from third party claims based upon any inaccurate
               or incomplete  information willfully or intentionally provided by
               NetWolves.

5.2  In the event that a third party  claims that the  Equipment  or any Related
     Software  infringes a trade secret,  patent,  copyright or any  proprietary
     right of a third party,  NetWolves agrees to defend Comdisco, at NetWolves'
     expense,   and  NetWolves  will  pay  all  costs,  damages  and  reasonable
     attorney's  fees awarded to a third party  arising from such  infringement.
     Comdisco  agrees to promptly  notify  NetWolves  of any such claim and will
     allow  NetWolves  to  control  the  defense  and  any  related   settlement
     negotiations,  provided such settlement does not affect Comdisco's right as
     owner of the  Equipment  nor  diminish  or  increase  Comdisco's  or Target
     Customer's rights or obligations under the Lease or Services Documentation.
     Comdisco may  participate  in the defense of any such claim at its own cost
     and expense.


6.0  Limitation of Liability

     IN CONNECTION WITH THIS AGREEMENT,  NEITHER  COMDISCO NOR NETWOLVES WILL BE
     LIABLE TO THE OTHER FOR INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES EVEN IF
     ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
<PAGE>
7.0  Equipment Maintenance

7.1  The   responsibilities   of  Comdisco  and  NetWolves  in  connection  with
     maintenance  will be as detailed in the Statement of Work,  attached to the
     Services Schedule under the Master Agreement.


8.0  Remarketing

8.1  Comdisco will, at the request of NetWolves,  either  directly or indirectly
     through its subcontractor, perform the following services following a Lease
     termination:

     a.   Upon  expiration  of the Initial Term of any Equipment  Schedule,  any
          in-place  extension  rental and  in-place  purchase  price  negotiated
          between  Comdisco and Lessee will be apportioned  between Comdisco and
          NetWolves as follows: NetWolves 73% and Comdisco 27%.

     b.   For any  Equipment  that is  returned to Comdisco by a Lessee at lease
          termination,  and that is  remarketed to a subsequent  user,  Comdisco
          will take the first  $400.00  per item of  Equipment  for  storage and
          refurbishing costs incurred by Comdisco.  Any remarketing  proceeds in
          excess of $400.00  shall be  apportioned  73% to NetWolves  and 27% to
          Comdisco.


9.0  Term and Termination

9.1  This Agreement  shall be effective as of the date first set forth above and
     shall  continue  for an  initial  period  of four (4) years  (the  "initial
     term"),  and  thereafter  shall be  automatically  renewed  for  additional
     one-year  periods (the "extended  term"),  unless  terminated in writing by
     either party given thirty (30) days prior to the  expiration of the initial
     term.  During the extended term,  either party may terminate this Agreement
     at any time upon thirty (30) days prior written notice.

9.2  Either party may, by written notice,  terminate this Agreement for cause if
     the other party fails to cure a material  default under the Agreement.  Any
     material  default  must  be  specifically   identified  in  the  notice  of
     termination. After written notice, the notified party will have thirty (30)
     days to remedy any default.  Failure to remedy the material  default within
     the  time  period  provided  for  herein  will  give  cause  for  immediate
     termination.

9.3  Notwithstanding any termination of this Agreement, the terms and conditions
     of this  Agreement  will survive for purposes of any Equipment  Schedule or
     Services Schedule in effect with a Target Customer.

9.4  Provided  Comdisco  is not in material  default  under this  Agreement  and
     subject to  paragraphs  4.1(c) and 3.2,  during the initial or any extended
     term of this  Agreement  or upon the lease or purchase  of 20,000  units of
     Equipment as  contemplated  under this  Agreement,  whichever  comes first,
     NetWolves  agrees not to enter into any  agreement in  connection  with any
     Target Customer with any other technology services provider for the purpose
     of  providing  hardware  financing  and the  Services  specified  under the
     Statement of Work in Exhibit E.


10.0 Publicity
<PAGE>
     Except as hereinafter provided in this Section, NetWolves and Comdisco will
     consult  with each other  before  issuing  any press  release or  otherwise
     making any public  statements  with respect to this  Agreement or the other
     transactions contemplated hereby, including using any tradename, or service
     mark  which  identifies  the  other  party,  and  shall not issue any press
     release or make any such public statement prior to receiving the consent of
     the  other  party,  which  consent  will not be  unreasonably  withheld  or
     delayed.  Nothing  contained  herein shall prohibit any party from making a
     press release or other statement required by law or by obligations pursuant
     to any agreement  with any automated  interdealer  quotation  system if the
     party  making  the  disclosure  has first  consulted  with the other  party
     hereto.


11.0 Warrant Coverage

     In   consideration   of  entering  into  this  Agreement,   NetWolves  will
     simultaneous with the execution of this Agreement issue a Warrant Agreement
     granting to  Comdisco  the right to purchase  175,000  shares of  NetWolves
     Common Stock, for an Exercise Price of $10.00 per share,  with a term of no
     less  than  five (5)  years.  The  form of  Warrant  Agreement  shall be as
     attached to this  Agreement as Exhibit H, "Warrant  Agreement".  The number
     and purchase  price of shares shall be subject to adjustment as provided in
     Section  8 of the  Warrant  Agreement.  The  Exercise  Price may be paid at
     Comdisco's  election  either by cash or check or by  surrender  of Warrants
     ("Net Issuance") as determined in the Warrant Agreement.


12.0 Confidentiality

     Each party  (including its employees and agents) will use the same standard
     of care to protect  any  confidential  information  of the other  disclosed
     during negotiation or performance of this Agreement that it uses to protect
     its own confidential information. Confidential Information will not include
     information which (i) is or becomes publicly  available through no wrongful
     act of the receiving  party;  (ii) was known by the receiving  party at the
     time of disclosure  without any  obligation of  confidentiality;  (iii) was
     acquired by the receiving  party from a third party without  restriction on
     nondisclosure; or (iv) was developed independently by the receiving party.


13.0 Miscellaneous

13.1 Each party is an independent  contractor and, except as expressly set forth
     herein,  will have no authority to bind or commit the other party.  Nothing
     herein shall be deemed or construed to create a joint venture,  partnership
     or agency relationship between the parties.

13.2 Except as set forth  herein,  neither  party may  assign  their  rights and
     obligations  described in this Agreement  without the prior written consent
     of the other party except for assignments to affiliates or subsidiaries who
     agree to be bound by the terms of this Agreement. In addition, in the event
     of any such assignment on the part of NetWolves, NetWolves agrees to remain
     primarily  liable  for  the  performance  of  all  obligations   hereunder.
     Notwithstanding the foregoing,  Comdisco may subcontract the performance of
     its  Services to a third  party or assign its rights as provided  for under
     the Lease.

13.3 The waiver by either party of a breach of any  provision of this  Agreement
     will not be construed as a waiver of any subsequent breach. The invalidity,
     in whole or in part, of any provision of this Agreement will not affect the
     validity of the remaining provisions.
<PAGE>
13.4 This  Agreement  including  each Exhibit  represents  the entire  agreement
     between the parties and  supersedes  all oral or other  written  agreements
     understandings  between the parties  concerning the Equipment and Services.
     This  Agreement  may not be  modified  unless in writing  and signed by the
     party against whom enforcement of the modification is sought.

13.5 Any notice,  request or other  communication  under this  Agreement will be
     given in writing and deemed  received upon the earlier of actual receipt or
     three (3) days  after  mailing  if mailed  postage  prepaid  by  regular or
     airmail to the  address  set forth  above or, one day after such  notice is
     sent by courier or facsimile transmission.  Copies to NetWolves also are to
     be provided to David H. Lieberman, Esq., Blau, Kramer, Wactlar & Lieberman,
     P.C., 100 Jericho Quadrangle, Jericho, NY 11731.

13.6 Those terms and conditions which would, by their meaning or intent, survive
     the expiration or termination of this Agreement will so survive.

13.7 THIS  AGREEMENT  IS GOVERNED  BY THE LAWS OF THE STATE OF NEW YORK  WITHOUT
     REGARD TO ITS  CONFLICT  OF LAWS  PROVISIONS.  If there is any  dispute  or
     litigation  as a result of this  Agreement,  the  prevailing  party will be
     entitled to reasonable  attorney's fees. Any action by either party must be
     brought within two (2) years after the cause of action arose.

13.8 All Exhibits to this Agreement are hereby  incorporated  into and deemed to
     be a part of this Agreement.

13.9 In connection with the Services,  in the event of any conflict between this
     Agreement and the Master Agreement, the Master Agreement will govern.

13.10Terms  and   conditions  on  any   NetWolves'   purchase   order  or  other
     acknowledgment  form in addition to, different from or in conflict with the
     terms of this Agreement will be of no force or effect.

13.11NetWolves  will promptly  deliver to Comdisco  after filing such  documents
     with the Securities and Exchange Commission, at Comdisco's request:

     a.   NetWolves' Quarterly and Annual forms 10Q and 10K.

     b.   Such other information concerning the financial condition of NetWolves
          which is  available  to the public as  Comdisco  may from time to time
          request.

13.12Comdisco  and  NetWolves  will  cooperate  by  furnishing  such records and
     supporting material relating to transactions  contemplated hereunder as may
     be reasonably  requested by each party,  and in the  preparation  of forms,
     including notices to Lessees,  and the execution of such other documents as
     may be necessary to fulfill the intent and  effectuate  the purpose of this
     Agreement.

13.13This  Agreement  shall be  binding  upon and  inure to the  benefit  of the
     parties hereto and their respective successors,  personal  representatives,
     executors, heirs and permitted assigns.


IN WITNESS  WHEREOF,  the parties have executed this Agreement on the date first
set forth above.

NETWOLVES CORPORATION                        COMDISCO, INC.

By; /s/ Walter M. Groteke                    By: /s/ John Christopher

Title: ___________________________           Title: ____________________________

Date: _____________________________          Date: ____________________________



                          FIRST AMENDMENT TO EMPLOYMENT
                         AGREEMENT OF KEVIN F. SHERLOCK


     WHEREAS Kevin F.  Sherlock  ("Executive"),  an  individual  residing at 162
Boney Lane, St. James, New York 11780, entered into an employment agreement with
NetWolves  Corporation,  a New York  corporation  having its principal  place of
business located at 33 Walt Whitman Drive, Suite 125,  Huntington  Station,  New
York  11743  (the  "Company"),  dated  as of  June  17,  1998  (the  "Employment
Agreement"); and

     WHEREAS,  the parties now desire to amend certain  terms of the  Employment
Agreement;

     NOW, THEREFORE, the parties agree as follows:

     1. Section 1 of the  Employment  Agreement  is amended such that  Executive
shall tender his resignation as a Director and as Chief Operating Officer of the
Company  effective  August 1, 1999.  At the direction of the Board of Directors,
during the remaining term of the Employment Agreement,  Executive's duties shall
be to attempt to secure  acquisition,  financing,  investment  and joint venture
candidates for NetWolves,  as well as other similar duties which may be assigned
to him. Executive agrees to work from his home and shall not be provided with an
office at any of the Company's offices.

     2. Section 2.2 of the Employment Agreement is deleted in its entirety.

     3.  Section 2.3 of the  Employment  Agreement  is deleted in its  entirety,
except that the Company hereby agrees that the warrant issued to Executive shall
be amended as set forth in Exhibit "A" hereto.

     4. Section 2.4 of the  Employment  Agreement is amended such that Executive
shall not be entitled  to incur  travel,  cellular  phone  and/or  entertainment
expenses  above a total  amount  equal to $250.00  during  any one month  period
without first receiving the written  approval of the Company.  Reimbursement  of
all such  expenses by the Company shall be subject to submission by Executive of
appropriate  documentation  evidencing  such  expenses  and shall be paid by the
Company  within thirty (30) days of the Company's  receipt of  documentation  of
such expenses. As of the date of the First Amendment there are business expenses
of $1,800.00,  which have been incurred by Executive  that will be reimbursed to
Executive simultaneously with the execution of this First Amendment,  subject to
Executive's submission of appropriate documentation evidencing such expenses.

     5. Section 2.7 of the Employment Agreement is deleted in its entirety.

     6.  Section 3.1 of the  Employment  Agreement  is deleted in its  entirety,
except that the Company  hereby agrees that  Executive  shall be paid the sum of
$130,000 per annum, payable semi-monthly,  ending as of June 15, 2001. Executive
shall be  entitled  to no further  compensation  from the  Company.  Executive's
employment  shall  terminate  automatically  on June 15, 2001, with no rights of
renewal.

     7. All other terms of the Employment  Agreement  shall remain in full force
and effect.

Dated:    September 2, 1999

                               /s/   Kevin F. Sherlock
                                     KEVIN F. SHERLOCK


                              NETWOLVES CORPORATION

                              By:   /s/ Peter C. Castle


<TABLE> <S> <C>


<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements for the period ending June 30, 1999.
</LEGEND>

<S>                             <C>
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          JUN-30-1999
<PERIOD-END>                               JUN-30-1999
<CASH>                                       5,585,981
<SECURITIES>                                   606,000
<RECEIVABLES>                                  116,907
<ALLOWANCES>                                    40,000
<INVENTORY>                                    118,354
<CURRENT-ASSETS>                             6,540,341
<PP&E>                                         240,988
<DEPRECIATION>                                  16,297
<TOTAL-ASSETS>                               9,636,934
<CURRENT-LIABILITIES>                          741,095
<BONDS>                                              0
                                0
                                          0
<COMMON>                                        20,011
<OTHER-SE>                                   8,334,791
<TOTAL-LIABILITY-AND-EQUITY>                 9,636,934
<SALES>                                      1,789,144
<TOTAL-REVENUES>                             1,789,144
<CGS>                                          582,724
<TOTAL-COSTS>                                  582,724
<OTHER-EXPENSES>                             7,698,694
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                 455
<INCOME-PRETAX>                            (5,955,327)
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                        (5,955,327)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                               (5,955,327)
<EPS-BASIC>                                     (1.27)
<EPS-DILUTED>                                   (1.27)




</TABLE>



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