UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

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

                For the quarterly period ended September 30, 2007

                                       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 number 000-25831

                              NetWolves Corporation
                              ---------------------
        (Exact name of small business issuer as specified in its charter)

            New York                                             11-2208052
            --------                                             ----------
(State or other jurisdiction of                               (I.R.S. Employer
Incorporation or organization)                               Identification No.)


           4710 Eisenhower Boulevard, Suite F-2, Tampa, Florida 33634
           ----------------------------------------------------------
                    (Address of principal executive offices)

                                 (813) 579-3200
              (Registrant's telephone number, including area code)

                  4805 Independence Pkwy, Tampa, Florida 33634
              (Former name, former address and former fiscal year,
                         if changed since last report)

Indicate by checkmark  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 whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act)

Yes      No   X
    ---      ---

Indicate the number of shares  outstanding of each of issuer's classes of common
stock as of the latest practicable date:

         TITLE OF CLASS                          NUMBER OF SHARES OUTSTANDING ON
---------------------------
  Common Stock, $.0033 par value                       November 9, 2007
                                                      -----------------
                                                          34,309,713


Transitional Small Business Disclosure Format (check one):   Yes [  ]   No [X]
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

                        FORM 10-QSB - September 30, 2007

<TABLE>
<CAPTION>
<S>                                                                                            <C>
ITEM 1 - FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2007 (unaudited) and June 30, 2007.............................................. 1 - 2


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended September 30, 2007 and 2006 (unaudited)............................... 3

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended September 30, 2007 and 2006 (unaudited)............................... 4

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ......................................... 5 - 16

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION .......................... 16 - 21

ITEM 3 - CONTROLS AND PROCEDURES................................................................ 21

PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS...................................................................... 22

ITEM 2 - CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES......... 23

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES........................................................ 23

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................................... 23

ITEM 5 - OTHER INFORMATION...................................................................... 23

ITEM 6 - EXHIBITS............................................................................... 23

SIGNATURES...................................................................................... 24
</TABLE>

<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                              September 30,            June 30,
                                                                          --------------------- ----------------------
                                                                                   2007                  2007
                                                                          --------------------- ----------------------
ASSETS                                                                         (Unaudited)
<S>                                                                                <C>                   <C>
Current assets
  Cash and cash equivalents                                                        $   689,799           $  1,027,465
  Accounts receivable, net of allowance for doubtful accounts
   of $60,000 and $0, respectively                                                   1,616,037              1,745,159
  Inventories, net                                                                      74,465                 74,279
  Prepaid expenses                                                                     348,389                494,149
                                                                          --------------------- ----------------------

       Total Current Assets                                                          2,728,690              3,341,052

Property and equipment, net                                                             66,500                 79,557

Identifiable intangible assets, net                                                    389,222                438,550

Goodwill and other indefinite lived intangible assets                                3,801,973              3,801,973

Other assets                                                                           150,852                150,852
                                                                          --------------------- ----------------------

       Total Assets                                                               $  7,137,237           $  7,811,984
                                                                          ===================== ======================
</TABLE>

                                       1

See notes to condensed consolidated
     financial statements.
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

                      CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                              September 30,             June 30,
                                                                         ---------------------- -----------------------
                                                                                  2007                    2007
                                                                         ---------------------- -----------------------
                                                                               (Unaudited)
<S>                                                                               <C>                     <C>
LIABILITIES AND SHAREHOLDERS' DEFICIT

Current Liabilities
  Liabilities subject to compromise-pre-petition
    Current portion of long-term debt                                             $ 1,207,987             $ 1,207,987
    Account payable and accrued expenses                                            4,688,755               4,906,309
                                                                         ---------------------- -----------------------
       Total Current Liabilities Subject to Compromise-
       Pre-Petition                                                                 5,896,742               6,114,296
                                                                         ---------------------- -----------------------
  Liabilities not subject to compromise-post petition
    Account payable and accrued expenses                                              972,634               1,121,971
    Deferred revenue                                                                  987,942               1,092,580
                                                                         ---------------------- -----------------------
       Total Current Liabilities Not Subject to Compromise-
       Post-Petition                                                                1,960,576              2,214,551
                                                                         ---------------------- -----------------------
       Total Liabilities                                                            7,857,318               8,328,847
                                                                         ---------------------- -----------------------

Shareholders' Deficit
Series A convertible preferred stock, $.0033 par value; $6,921,411 and
$6,718,296 liquidation preference on September 30, 2007 and June 30, 2007,
respectively; 1,000,000 authorized; 223,887 and 199,903 shares issued and
outstanding on September 30, 2007 and June 30,
2007, respectively.                                                                 2,778,404               2,418,644

Series B convertible preferred stock, $.0033 par value; $6,962,052
and $6,778,360 liquidation preference on September 30, 2007 and June
30, 2007, respectively; 500,000 shares authorized; 201,886 and
201,886 shares issued and outstanding on September 30, 2007 and June
30, 2007, respectively.                                                             2,519,689               2,519,689

Series C convertible preferred stock, $.0033 par value; $1,782,867
and $1,721,735 liquidation preference on September 30, 2007 and June
30, 2007, respectively; 100,000 shares authorized; 14,131 and 12,962
shares issued and outstanding September 30, 2007 and June 30, 2007,
respectively.                                                                         275,501                 205,361

Preferred stock, $.0033 par value; 400,000 shares authorized; no
shares issued and outstanding                                                              --                      --

Common stock, $.0033 par value; 65,000,000 shares authorized;
34,309,713 shares issued and outstanding on September 30, 2007 and
June 30, 2007.                                                                        113,223                 113,223
Additional paid-in capital                                                         79,274,377              79,528,489
Accumulated deficit                                                              (85,681,275)            (85,302,269)
                                                                         ---------------------- -----------------------
         Total Shareholders' Deficit                                                (720,081)               (516,863)
                                                                         ---------------------- -----------------------
         Total Liabilities and Shareholders' Deficit                              $ 7,137,237             $ 7,811,984
                                                                         ====================== =======================
</TABLE>

                                        2
See notes to condensed consolidated
     financial statements.
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                       For the Three Months Ended
                                                                                             September 30,
                                                                                  -------------------------------------
                                                                                         2007               2006
                                                                                  ------------------ ------------------
<S>                                                                                     <C>                <C>
Revenue
  Voice services                                                                        $2,087,034         $2,593,379
  Managed service charges                                                                2,072,746          2,056,766
  Equipment and consulting                                                                      --                512
                                                                                  ------------------ ------------------
                                                                                         4,159,780          4,650,657
                                                                                  ------------------ ------------------
Cost of Revenue (excluding depreciation and amortization
 shown separately below)
  Voice services                                                                         1,351,021          1,698,197
  Managed service charges                                                                1,294,495          1,290,132
  Equipment and consulting                                                                      --                  --
                                                                                  ----------------   -----------------
                                                                                         2,645,516          2,988,329
                                                                                  ------------------ ------------------
Operating Expenses
  General and administrative                                                             1,062,901          1,218,213
  Engineering and development                                                               38,067             54,273
   Sales and marketing                                                                     619,192            820,999
  Depreciation and amortization                                                             62,108            206,455
                                                                                  ------------------ ------------------
                                                                                         1,782,268          2,299,940
                                                                                  ------------------ ------------------
         Loss Before Other Income (Expense)                                               (268,004)          (637,612)

 Other Income (Expense)
   Interest income (expense)                                                                 6,354            (40,234)
   Reorganization cost                                                                    (105,959)                --
                                                                                  ------------------ ------------------
                                                                                          (367,609)          (677,846)
                                                                                  ------------------ ------------------
         Loss Before Income Taxes

  Provision for income taxes                                                               (11,403)           (66,040)
                                                                                  ------------------ ------------------
         Net Loss                                                                      $  (379,012)       $  (743,886)
                                                                                  ================== ==================
         Dividends on Convertible Preferred Stock                                      $  (264,598)       $  (188,852)
                                                                                  ================== ==================
         Net Loss Attributable to Common Shareholders                                     (643,610)          (932,738)
                                                                                  ================== ==================
         Basic and Diluted Net Loss Per Share                                          $     (0.02)       $     (0.03)
                                                                                  ================== ==================
         Weighted Average Common Shares Outstanding, basic
            and diluted                                                                  34,309,713         33,134,177
                                                                                  ================== ==================
</TABLE>

                                        3
See notes to condensed consolidated
     financial statements.
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                              For the Three Months Ended September 30,
                                                                            --------------------------------------------
                                                                                     2007                  2006
                                                                            --------------------- ----------------------
<S>                                                                                <C>                    <C>
Cash flows from operating activities
 Net loss                                                                          $ (379,012)            $ (743,886)
                                                                            --------------------- ----------------------

Adjustments to reconcile net loss to net cash used in operating
 Activities
    Depreciation                                                                        12,780                 18,081
    Amortization                                                                        49,328                188,372
    Bad debt expense                                                                    60,000                128,835
    Non-cash charge to operations with respect to stock, options
      and warrants issued for services and amortization of
      previously issued warrants                                                        10,488                  5,000

       Loss on Disposal of Property and Equipment                                          276                  1,669

Changes in operating assets and liabilities
    Accounts receivable                                                                 69,122              (428,160)
    Inventories                                                                          (186)                (6,609)
    Prepaid expenses and other current assets                                          145,760                 72,840
             Pre-petition accounts payable and accrued expenses                       (52,249)              (289,080)
    Post-petition accounts payable and accrued expenses                              (149,337)                    --
    Deferred revenue                                                                 (104,636)                 62,776
                                                                            --------------------- ----------------------
         Net Cash Used In Operating Activities                                       (337,666)              (990,162)
                                                                            --------------------- ----------------------

Cash flows from investing activities
    Payment on existing customer list                                                       --               (60,000)
    Patent costs paid                                                                       --                (8,901)
                                                                            --------------------- ----------------------
         Net Cash Used In Investing Activities                                              --               (68,901)
                                                                            --------------------- ----------------------
         Net Decrease in Cash and Cash Equivalents                                   (337,666)            (1,059,063)

Cash and Cash Equivalents - Beginning                                                1,027,465              2,016,156
-------------------------                                                   --------------------- ----------------------

Cash and Cash Equivalents - Ending                                                  $  689,799              $ 957,093
-------------------------                                                    ==================== ======================

Supplement Cash Flow Information
--------------------------------
  Cash paid for income taxes                                                         $  11,403              $  66,040
  Cash paid for interest                                                             $      --              $  48,899

Supplemental Disclosure of Non-Cash Investing and Financing
-----------------------------------------------------------
 Activities
 ----------
  Dividends accrued on convertible preferred stock                                     264,598                188,852
                                                                             ==================== ======================
  Dividends paid-in-kind on convertible preferred stock                                429,900                325,804
                                                                             ==================== ======================
  Conversions of preferred stock to common stock                                            --                    493
                                                                             ==================== ======================
</TABLE>

                                        4
See notes to condensed consolidated
     financial statements.
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


1.   Interim financial information

     The summary financial information  contained herein is unaudited;  however,
     in the opinion of management,  all adjustments  (consisting  only of normal
     recurring  accruals)  necessary for a fair  presentation  of such financial
     information have been included.  These financial statements,  including the
     condensed  consolidated  balance sheet as of June 30, 2007,  which has been
     derived from audited financial statements, are presented in accordance with
     the  requirements  of Form  10-QSB and  consequently  may not  include  all
     disclosures  normally required by generally accepted accounting  principles
     or those normally made in the Company's  Annual Report on Form 10-KSB.  The
     accompanying  condensed consolidated financial statements and related notes
     should be read in  conjunction  with the  Company's  Annual  Report on Form
     10-KSB for the fiscal year ended June 30, 2007.  The results of  operations
     for  the  three  months  ended  September  30,  2007  are  not  necessarily
     indicative of the results to be expected for the full year.


2.   Bankruptcy, Management's Plan and Going Concern

     On May 21,  2007 the  Company  (also  referred  to as the  "Debtor")  filed
     voluntary  petitions  for relief  under  Chapter  11 of the  United  States
     Bankruptcy Code in the United States  Bankruptcy  Court (remove the period)
     (the  "Bankruptcy  Court") in order to facilitate the  restructuring of the
     Debtor's debt,  trade  liabilities  and other  obligations.  Throughout the
     Bankruptcy proceedings, the Debtors will continue to operate their business
     and manage  their  properties  as  "debtors-in-possession"  pursuant to the
     Bankruptcy  Code.  In  general,  as  debtors-in-possession,  the  Debtor is
     authorized under Chapter 11 to continue to operate as an ongoing  business,
     but may not engage in transactions  outside the ordinary course of business
     without the prior approval of the Bankruptcy Court.

     Under  the   Bankruptcy   Code,   the  filing  of  a  bankruptcy   petition
     automatically stays most actions against the Debtors,  including actions to
     collect pre-petition indebtedness or to exercise control of the property of
     the Debtors' estate. Absent an order of the Bankruptcy Court, substantially
     all   pre-petition   liabilities   will  be  addressed   under  a  plan  of
     reorganization.  The Bankruptcy Court established  October 1, 2007 for both
     non-governmental  agencies  and  governmental  agencies as the bar date for
     filing proofs of claims.

     Under the  Bankruptcy  Code,  the  Debtors  may  assume  or reject  certain
     pre-petition executory contracts and unexpired leases,  including leases of
     real property,  subject to the approval of the Bankruptcy Court and certain
     other conditions.  Rejection of an unexpired lease or executory contract is
     treated  as a  pre-petition  breach  of the  lease or  contract,  generally
     resulting  in damages  being  treated  as  pre-petition  unsecured  claims.
     Counterparties  to these  rejected  contracts or unexpired  leases may file
     proofs of claim against the Debtors' estate for damages,  if any,  relating
     to such rejections.

     The  United  States  Trustee  for the Middle  District  of  Florida,  Tampa
     Division  (the  "Trustee")  appointed  an official  committee  of unsecured
     creditors (the "Creditors'  Committee").  The Creditors'  Committee and its
     legal  representatives  have a right to be heard on all  matters  that come
     before the Bankruptcy Court.

     The Debtors are in the process of  reconciling  creditors'  proofs of claim
     filed with the  Bankruptcy  Court that differ in amount  from the  Debtors'
     records.  Certain  creditors have filed claims  substantially  in excess of
     amounts  reflected in the Debtors'  records.  Based on ongoing  analyses of
     claims filed,  the nature of such  differences has been identified as being
     attributable  to  duplicate  claims  for the  same  obligation  filed  with
     several,  and in certain  cases all the  Debtors;  damages  sought in legal
     suits;  certain  contingent  liabilities  arising from  contracts and other
     claims filed against the Debtors;  creditors claiming  compensation  and/or
     damages for  completed  and  partially  completed  contracts  and  purchase
     orders; and other disputed items. In addition, claims have been filed which

                                       5
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     do not state a specific claim amount or as to which a specific claim amount
     is not readily determinable.

     The Financial  Statements  have also been  prepared in accordance  with the
     American Institute of Certified Public Accountants  ("AICPA")  Statement of
     Position 90-7, "Financial Reporting by Entities in Reorganization under the
     Bankruptcy Code" ("SOP 90-7").  Accordingly,  all  pre-bankruptcy  petition
     ("pre-petition") liabilities believed to be subject to compromise have been
     segregated  in the  Condensed  Consolidated  Balance  Sheets (the  "Balance
     Sheets") and  classified  as  "liabilities  subject to  compromise"  at the
     estimated   amount  of  allowable   claims  under  the  Chapter  11  Cases.
     Liabilities  not  believed to be subject to  compromise  in the  bankruptcy
     proceedings are separately  classified as "current" and  "non-current,"  as
     appropriate.  Expenses (including  professional  fees),  realized gains and
     losses,  and provisions for losses  resulting from the  reorganization  are
     reported  separately as "Reorganization  Items." Also,  interest expense is
     reported  only to the extent  that it is to be paid  during the  Chapter 11
     Cases. Cash used for  reorganization  items was approximately  $106,000 for
     the three months ended September 30, 2007.

     After  completion  of  reconciliations,  any remaining  differences  may be
     resolved by negotiated agreement between the Debtors and the claimant or by
     the  Bankruptcy  Court as part of the  Chapter 11 Case.  Consequently,  the
     amounts included in the  consolidated  balance sheets at September 30, 2007
     and June 30,  2007 as  liabilities  that are  subject to  compromise  under
     reorganization  proceedings may be subject to adjustment.  The Debtors have
     made  appropriate  provision  for all claims of  creditors  it believes are
     valid;  however,  at this time,  the Debtors cannot make a prediction as to
     the aggregate  amount of claims  allowed or the ultimate  treatment of such
     allowed claims under the Plan.

     The  accompanying  condensed  consolidated  financial  statements have been
     prepared  on a  going  concern  basis,  which  contemplates  continuity  of
     operations,  realization of assets,  and  liquidation of liabilities in the
     ordinary  course of  business,  and do not reflect  adjustments  that might
     result if the  Company  were unable to  continue  as a going  concern.  The
     Company  has  incurred  net losses  for each of the last two  years.  As of
     September  30,  2007,  the  Company  had a working  capital  deficiency  of
     $5,128,628  and  shareholders'  deficiency of $720,081.  Realization of the
     Company's assets,  however, is dependent on the continued operations of the
     Company  and  the  future  success  of  such  operations.  There  can be no
     assurances  that the  Company  will  emerge  from  Chapter  11  bankruptcy.
     Historically,   the  Company  has  experienced  significant  recurring  net
     operating  losses as well as  negative  cash  flows  from  operations.  The
     Company's  main source of  liquidity  has been  equity and debt  financing,
     which has been used to fund  continuing  losses from operating  activities.
     Based on the Company's cash position of approximately $690,000, and further
     taking into  account  ongoing  costs  related to the Chapter 11  bankruptcy
     proceedings,  as well as the ultimate disposition of pre-petition claims of
     creditors  pursuant  to an  approved  plan of  reorganization,  the Company
     believes that it may not have sufficient cash to meet the Company's funding
     requirements   through  September  30,  2008,  without  raising  additional
     capital.  The  Company's  ability  to  raise  additional  capital  to  fund
     operations  also may have been  impaired by the  Chapter 11  reorganization
     proceeding.  The Company  plans to continue its cost  reduction  efforts as
     well as seek financing to satisfy a plan of reorganization  approved by our
     creditors. However, based upon the issues discussed herein, there can be no
     assurances  that the Company  will be able to raise  additional  capital on
     desirable terms or at all in order to satisfy its future obligations. These
     factors raise  substantial doubt about the Company's ability to continue as
     a going  concern  which may  require  further  restructuring,  or a sale or
     liquidation of the Company and could cause significant  dilution or a total
     loss to its  shareholders.  The  financial  statements  do not  include any
     adjustment  relating to the  recoverability  of the recorded  assets or the
     classification  of liabilities  that may be necessary should the Company be
     unable to continue as a going concern.

                                       6
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

3.   The Company

     The  consolidated  financial  statements  include the accounts of NetWolves
     Corporation  and  its  subsidiaries,   NetWolves  Technologies  Corporation
     ("NWT"),  Norstan Network Services,  Inc., d/b/a NetWolves Network Services
     ("NNS")  and  TSG  Global   Education  Web,  Inc.   ("TSG")   (collectively
     "NetWolves" or the "Company").

     NetWolves   Corporation   ("NetWolves"   or  the  "Company")  is  a  global
     telecommunications   and  Internet  managed  services   providers  offering
     single-source   network   solutions   that   provides   multi-carrier   and
     multi-vendor   implementation  to  over  1,000  customers.   The  Company's
     principal  activity is to design,  manage and deliver products and services
     allowing people and networks to access the Internet and  telecommunications
     networks,  efficiently and cost effectively.  In addition to the prevailing
     networking equipment,  NetWolves also offers our patented system technology
     to  organizations  with  complex  requirements,  that  our  plug  `n'  play
     perimeter  office  security  platforms  and secure  remote  monitoring  and
     management ("SRM2 TM") system ideally solve.

     The  Company  operates  primarily  in three  distinct  segments.  The Voice
     Services segment provides voice services  including  switched and dedicated
     outbound,  switched  and  dedicated  toll-free  inbound,  calling and debit
     cards,  and  conference  calling.  The  Managed  Services  Charges  segment
     provides network and security technology and a variety of recurring managed
     data services giving its customers a single source solution.  The Equipment
     and Consulting segment is primarily engaged in the design,  development and
     support of information  delivery  hardware products and software as well as
     providing consulting services on an as needs basis.

4.   Reclassifications

     Certain  reclassifications  have  been  made  to  the  September  30,  2006
     condensed  consolidated  financial statements in order to have them conform
     to the current period's  classifications.  These  reclassifications have no
     effect on previously reported net loss.

5.   Income Taxes

     The Company has adopted the  provisions of Financial  Accounting  Standards
     Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income
     Taxes - an  interpretation of FASB Statement No. 109 ("FIN 48"), on July 1,
     2007.  FIN 48 clarifies  the  accounting  for  uncertainty  in income taxes
     recognized in an enterprise's  financial statements in accordance with SFAS
     No. 109,  "Accounting  for Income  Taxes,"  and  prescribes  a  recognition
     threshold and measurement process for financial  statement  recognition and
     measurement of a tax classification,  interest and penalties, accounting in
     interim period, disclosure and transition.

     The Company has  identified its Federal tax return and its state tax return
     in New  York  as  "major"  tax  jurisdictions,  as  defined.  Based  on the
     Company's  evaluation,  it has been concluded that there are no significant
     uncertain tax positions  requiring  recognition in the Company's  financial
     statements. The Company's evaluation was performed for tax years ended June
     30, 2004 through June 30, 2007,  the only periods  subject to  examination.
     The Company  believes that its income tax positions and deductions would be
     sustained  on audit and does not  anticipate  any  adjustments  that  would
     result in a material  change to its financial  position.  In addition,  the
     Company  did not  record a  cumulative  effect  adjustment  related  to the
     adoption of FIN 48.

     The Company's policy for recording  interest and penalties  associated with
     audits is to record  such  items as a  component  of income  before  income
     taxes.  Penalties  are  recorded  in other  expense  and  interest  paid or
     received is recorded in interest expense or interest income,  respectively,
     in the statement of operations. There were no amounts accrued for penalties
     or interest as of or during the three months ended  September 30, 2007. The
     Company  does not expect its  unrecognized  tax benefit  position to change
     during the next  twelve  months.  Management  is  currently  unaware of any

                                       7
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


     issues under review that could result in significant payments,  accruals or
     material deviations from its position.

     The Company is no longer subject to U.S. Federal income tax examinations by
     the  Internal  Revenue  Service  and most state and local  authorities  for
     fiscal tax years ending prior to June 30, 2004 (certain  state  authorities
     may  subject the Company to  examination  up to the period  ending June 30,
     2003). The Company does, however, have prior year net operating loss, which
     will remain open for examination.

6.   Summary of Recent Accounting Pronouncements

     In September 2006, the FASB issued SFAS No. 157, "Fair Value  Measurements"
     ("SFAS  157").  SFAS 157 defines fair value,  establishes  a framework  for
     measuring  fair value in  generally  accepted  accounting  principles,  and
     expands  disclosures  about  fair  value  measurements.   It  codifies  the
     definitions  of fair  value  included  in other  authoritative  literature;
     clarifies and, in some cases, expands on the guidance for implementing fair
     value measurements; and increases the level of disclosure required for fair
     value  measurements.   Although  SFAS  157  applies  to  (and  amends)  the
     provisions of existing  authoritative  literature,  it does not, of itself,
     require any new fair value  measurements,  nor does it establish  valuation
     standards. SFAS 157 is effective for financial statements issued for fiscal
     years  beginning  after November 15, 2007, and interim periods within those
     fiscal years. The Company will evaluate the impact of adopting SFAS 157 but
     does not  expect  that it will  have a  material  impact  on the  Company's
     consolidated financial position, results of operations or cash flows.

     In  December  2006,  the FASB  issued  "FASB Staff  Position  ("FSP")  EITF
     00-19-2,  "Accounting  for  Registration  Payment  Arrangements".  This FSP
     specifies  that  the  contingent  obligation  to make  future  payments  or
     otherwise transfer  consideration under a registration payment arrangement,
     whether  issued as a separate  agreement  or included  as a provision  of a
     financial  instrument or other agreement,  should be separately  recognized
     and measured in  accordance  with FASB  Statement  No. 5,  "Accounting  for
     Contingencies".  This FSP further  clarifies  that a  financial  instrument
     subject to a registration  payment  arrangement  should be accounted for in
     accordance  with other  applicable  GAAP without  regard to the  contingent
     obligation to transfer  consideration  pursuant to the registration payment
     arrangement.  This FSP amends various authoritative literature notably FASB
     Statement  No. 133,  "Accounting  for  Derivative  Instruments  and Hedging
     Activities",  FASB  Statement No. 150,  "Accounting  for Certain  Financial
     Instruments with  Characteristics of both Liabilities and Equity", and FASB
     Interpretation No. 45, "Guarantor's  Accounting and Disclosure Requirements
     for Guarantees,  Including Indirect  Guarantees of Indebtedness of Others".
     This FSP is effective immediately for registration payment arrangements and
     the financial  instruments  subject to those  arrangements that are entered
     into or modified subsequent to December 21, 2006. For registration  payment
     arrangements and financial  instruments  subject to those arrangements that
     were entered  into prior to December  21, 2006,  the guidance in the FSP is
     effective for financial  statements issued for fiscal years beginning after
     December 15, 2006,  and interim  periods  within  those fiscal  years.  The
     adoption  of this  pronouncement  did not  have a  material  impact  on the
     Company's financial position, results of operations, or cash flows.

     In September  2006,  the Securities  and Exchange  Commission  issued Staff
     Accounting Bulletin ("SAB") No. 108, "Considering the Effects of Prior Year
     Misstatements  When  Quantifying  Misstatements  in Current Year  Financial
     Statements".   SAB  No.  108   provides   interpretive   guidance   on  the
     consideration  of the effects of prior year  misstatements  in  quantifying
     current year  misstatements for the purpose of assessing  materiality.  SAB
     No. 108 is effective for fiscal years ending after  November 15, 2006.  The
     adoption  of SAB No.  108 did not have a material  impact on the  Company's
     consolidated financial position, results of operation or cash flows.

                                       8
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


     In February  2007, the FASB issued SFAS No. 159, "The Fair Value Option for
     Financial  Assets  and  Financial  Liabilities"  ("SFAS  159").  Under  the
     provisions  of SFAS 159,  companies  may  choose to  account  for  eligible
     financial instruments,  warranties and insurance contracts at fair value on
     a  contract-by-contract  basis. Changes in fair value will be recognized in
     earnings  each  reporting  period.  SFAS  159 is  effective  for  financial
     statements  issued for fiscal years  beginning after November 15, 2007, and
     interim  periods within those fiscal years.  The Company is required to and
     plans to adopt the provisions of SFAS 159 beginning in the first quarter of
     fiscal 2008. The Company is currently  assessing the impact of the adoption
     of SFAS 159.

7.   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. Additionally, raw material and finished goods amounted to
     $160,476 and $87,302,  respectively, at September 30, 2007 and $160,476 and
     $87,116, respectively, at June 30, 2007. At September 30, 3007 and June 30,
     2007 the Company had a reserve for slow-moving inventories of $173,313.

8.   Accounts payable and accrued expenses

     Accounts payable and accrued expenses consist of the following:


<TABLE>
<CAPTION>
                                                                                         Pre-Petition
                                                                          --------------------------------------------
                                                                                September 30,             June 30,
                                                                                    2007                    2007
                                                                          --------------------- ----------------------
<S>                                                                                 <C>                    <C>
Pre-petition trade accounts payable and other accrued                               $3,975,264             $4,027,516
 operating expenses subject to compromise
Sales and excise tax payable                                                            54,754                 54,754
Dividends payable                                                                      398,572                563,874
Compensated absences                                                                    65,856                 65,856
Other liabilities                                                                      194,309                194,309
                                                                          --------------------- ----------------------
                                                                                    $4,688,755             $4,906,309
                                                                          ===================== ======================

                                                                                         Post-Petition
                                                                          --------------------------------------------
                                                                                September 30,             June 30,
                                                                                     2007                   2007
                                                                          --------------------- ----------------------
Post-petition   trade  accounts  payable  and  other  accrued  operating              $558,254              $ 756,977
 expenses not subject to compromise
Sales and excise tax payable                                                            42,906                 13,226
Compensated absences                                                                    25,481                 33,059
Other liabilities                                                                      297,919                270,474
Bonuses and commissions payable                                                         48,074                 48,074
Accrued taxes                                                                              --                     161
                                                                          --------------------- ----------------------
                                                                                    $  972,634             $1,121,971
                                                                          ===================== ======================
</TABLE>
                                       9
<PAGE>
                   NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


9.   Long Term Debt

     Long Term debt consists of the following:
<TABLE>
<CAPTION>
                                                                                  September 30,             June 30
                                                                                      2007                    2007
                                                                             -----------------------------------------
   <S>                                                                              <C>                   <C>
   Note  payable - 13 month  note,  18%  annual  interest  rate,  paid
   monthly. In addition, the Company is required to maintain certain covenants.
   This note was due March 2007 but has been extended to January 1, 2008.
   Collateralized by substantially all assets of the Company.                        $ 403,750             $  403,750

   Note Payable - 18-month note net of debt discount of $5,763,
   10% annual interest rate paid monthly. In addition, the
   Company is required to maintain certain covenants.
   Collateralized by substantially all assets of the Company.                           89,237                 89,237
                                                                             -----------------------------------------
   Note payable - 18 month note, 18% annual interest rate paid monthly. In
   addition, the Company is required to maintain certain covenants. This note
   was due November 2007, with the exception of $95,000, has been extended to
   January 1, 2008. Collateralized by
   substantially all assets of the Company.                                            665,000                665,000

   Note  payable - 1  remaining  contingent  payment  in the amount of
   $50,000  due  July  31,  2007.  Payments  contingent  on  achieving
   targeted revenues (See Note 7).                                                      50,000                 50,000
                                                                             -----------------------------------------
         Total long-term Debt                                                        1,207,987              1,207,987

         Less: Current Maturities                                                   (1,207,987)            (1,207,987)
                                                                             -----------------------------------------
         Long-Term Debt, Less Current Maturities                                    $       --             $       --
                                                                             =========================================
</TABLE>

     The  Company's  voluntary  petition to  reorganize  under Chapter 11 of the
     Bankruptcy  Code  has  resulted  in  default  under  the  covenants  of the
     above-discussed notes. As a result, the full-face amount of the notes, plus
     accrued  interest,  in the amount of  $1,243,918  was due at June 30, 2007.
     Notwithstanding  the  aforementioned,  the  default  has been stayed by the
     Chapter  11  bankruptcy  proceeding  pending  the  approval  of a  plan  of
     reorganization

10.  Related party transactions

     During the three months ended September 30, 2007 and 2006, the Company paid
     approximately $45,000 and $36,000,  respectively, for legal services to law
     firms in which an employee/stockholder is affiliated.

11.  Shareholders' equity

     Preferred stock
     ---------------
     On February 1, 2007 stock dividends  totaling 22,746 shares with a value of
     $363,936  were  paid in  Series B  Preferred  Stock to  Series B  investors
     representing accrued dividends through January 31, 2007.

     On May 1,  2007  stock  dividends  totaling  1,169  shares  with a value of
     $70,140 were paid in Series C Preferred  Stock to Series C Preferred  Stock
     investors representing accrued dividends through April 30, 2007.

     On July 1, 2007 stock  dividends  totaling  23,984 shares with a value of $
     359,760 were paid in Series A Preferred  Stock to Series A Preferred  Stock
     investors representing accrued dividends through June 30, 2007.

     For the three months ended September 30, 2007, there were no conversions of
     Preferred Stock.

     Dividends on the Series A, B and C Preferred Stock accrue at a rate of 12%,
     12% and 9% per annum,  respectively.  Aggregate  dividends  accrued for the
     three months ended September 30, 2007 and September 30, 2006 were $ 264,598
     and $188, 852, respectively.

                                       10
<PAGE>
                   NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


     Options
     -------
     Stock option plans

     The  Company's  Stock Option Plans (the  "Plans"),  authorize  the Board of
     Directors to grant nonstatutory stock options to employees and directors to
     purchase up to a total of 9,932,500  shares of the Company's  common stock.
     Generally,  options  granted under the Plans vest ratably over three years.
     If any  award  under  the  Plans  terminates,  expires  unexercised,  or is
     canceled,  the  shares of  common  stock  that  would  otherwise  have been
     issuable  pursuant  thereto will be available for issuance  pursuant to the
     grant of new awards.
<TABLE>
<CAPTION>
                                                                         Approximate
                                                 Maximum net             cumulative
                                                  allowable               issuances                  Maximum
       Plans               Date adopted           issuances             June 30, 2007             term in years
--------------------- ----------------------- ------------------- -------------------------- -------------------------
     <S>                  <C>                     <C>                     <C>                          <C>
     1998 Plan              June 1998               282,500                 102,500                    10
     2000 Plan              July 2000             1,500,000                 750,000                    10
     2001 Plan            February 2001           1,750,000               1,675,000                    10
     2002 Plan              June 2002             3,000,000               1,887,650                    10
     2003 Plan              June 2003             2,400,000               2,154,050                    10
     2006 Plan              April 2006            1,000,000                 315,500                    10
                                                  ---------               ---------
                                                  9,932,500               6,884,700
                                                  =========               =========
</TABLE>
A summary of the Company's stock options is presented below:
<TABLE>
<CAPTION>
                                                                        Weighted-Average       Aggregate Intrinsic
                                                  Stock Options          Exercise Price               Value
                                              ------------------------------------------------------------------------
<S>                                                 <C>                       <C>                     <C>
 Outstanding, July 1, 2007                          6,884,700                 $   0.46                $     --
 Granted                                                   --                       --                      --
 Exercised                                                 --                       --                      --
 Cancelled/forfeited                                       --                       --                      --
                                                 ------------             -------------             ------------
 Outstanding, September 30, 2007                    6,884,700                 $   0.46                $     --
                                                 ============             ============              ============
 Exercisable, September 30, 2007                    6,399,392                 $   0.49                $     --
                                                 ============             ============              ============
</TABLE>

The following table summarizes  information  about stock options  outstanding at
September 30, 2007:
<TABLE>
<CAPTION>
                                        Options outstanding at                      Options exercisable at
                                          September 30, 2007                          September 30, 2007
                          ---------------------------------------------------- ---------------------------------
                                                 Weighted
                                                  average         Weighted                        Weighted
                                                 remaining        average                         average
        Range of              Number of         contractual       exercise      Number of         exercise
    exercise prices             shares             life            price          Shares            price
------------------------- ------------------- ---------------- --------------- ----------------- ---------------
<C>                          <C>                   <C>             <C>          <C>               <C>
$      0.00-$  0.50          5,213,000             3.90            0.16         4,727,692         0.17
$      0.51-$  1.00          1,010,700             2.61            0.99         1,010,700         1.00
$      1.01-$  1.50            552,000             0.52            1.19           552,000         1.19
$      1.51-$  2.00              6,500             1.06            1.88             6,500         1.88
$      2.01-$ 12.00            102,500             1.35            6.90           102,500         6.90
                             ---------                                          ---------
                             6,884,700                                          6,399,392
                             =========                                          =========
</TABLE>

                                       11
<PAGE>
                   NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


     There was no aggregate  intrinsic  value for stock options  outstanding  or
     exercisable at September 30, 2007.

     There were no options  granted during the three months ended  September 30,
     2007.

     During  September  2006,  the  Company  entered  into an  agreement  with a
     consultant. In return for services, the Company granted options to purchase
     50,000 shares with a value of $5,000.

12.  Securities purchase agreement


     During March 2006, the Company entered into a securities purchase agreement
     whereas  the  Company  sold  18%  senior  secured  promissory  notes in the
     principal  amount  of up to  $950,000  and up to  1,000,000  shares  of the
     Company's  common  stock,  $ 0.0033 par value per share at a price of $0.05
     per share or 100 shares for each $95.00 of principal  amount of notes sold.
     On March 21, 2006 the Company issued  $403,750  principal  amount of senior
     secured notes. The notes bear interest at the rate of 18% and provide for a
     maturity date thirteen  months from the closing date.  Management  believes
     that the  likelihood of  acceleration  is remote.  As a result of this debt
     financing  agreement  the Company  issued  425,000  shares of the Company's
     common stock for $21,250 with registration  rights during the quarter ended
     September 30, 2006.

     In May 2006,  the Company  entered into an additional  securities  purchase
     agreement  wherein the Company sold 18% senior secured  promissory notes in
     the principal amount of $665,000 and 700,000 shares of the Company's common
     stock at a price of  $0.05  per  share or 100  shares  for each  $95.00  of
     principal  amount of notes sold. The notes bear interest at the rate of 18%
     and provide for a maturity date eighteen months from the closing date. As a
     result of this debt  financing  agreement the Company issued 700,000 shares
     of the Company's common stock for $35,000 with registration rights.

     During the quarter  ended  March 31, 2007 the Company  sold one 10% secured
     subordinated  promissory  note in the amount of  $100,000  with an 18 month
     maturity  date.  As a result,  the  Company  issued  200,000  shares of the
     Company's  common  stock for $5,000  with  registration  rights  during the
     quarter ended March 31, 2007.

13.  Segment Information

     The Company reports  segments in accordance with SFAS No. 131  "Disclosures
     about Segments of an Enterprise and Related  Information" ("SFAS 131"). The
     Company's  management evaluates its operations in three reportable business
     segments:  Voice  Services,  Managed  Service  Charges  and  Equipment  and
     Consulting. These three segments reflect management's approach to operating
     and directing the businesses and align financial and managerial reporting.

     The Voice Services segment provides voice services  including  switched and
     dedicated outbound,  switched and dedicated toll-free inbound, dedicated T1
     access loops,  calling and debit cards, and conference calling. The Managed
     Service  Charges  segment  provides  network and security  technology and a
     variety of recurring  managed data  services.  The Equipment and Consulting
     segment is  primarily  engaged in the design,  development,  marketing  and

                                       12
<PAGE>
                   NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


     support of information  delivery  hardware products and software as well as
     providing consulting services on an as needed basis for certain existing or
     potential customers.
<TABLE>
<CAPTION>
                                                         For the Three Months Ended
                                                               September 30,
                                                  --------------------------------------------
                                                           2007                  2006
                                                  --------------------- ----------------------
<S>                                                     <C>                    <C>
Revenue
Voice Services                                          $2,087,034             $2,593,379
Managed Service Charges                                  2,072,746              2,056,766
Equipment and Consulting                                         -                    512
                                                  --------------------- ----------------------
         Total                                          $4,159,780             $4,650,657
                                                  ====================  ======================

Cost of revenue
Voice Services                                          $1,351,021             $1,698,197
Managed Service Charges                                  1,294,495              1,290,132
Equipment and Consulting                                        --                     --
                                                  --------------------- ----------------------
         Total                                          $2,645,516             $2,988,329
                                                  ====================  ======================

Operating loss
Voice Services                                          $ (134,462)             $(357,063)
Managed Service Charges                                   (133,542)              (280,549)
Equipment and Consulting                                        --                     --
                                                  --------------------- ----------------------
         Total                                          $ (268,004)            $ (637,612)
                                                  ====================  ======================
</TABLE>

     Revenue and cost of revenue  are  allocated  to each  segment on a specific
     identification method;  operating expenses are allocated to each segment on
     a pro rata basis,  based upon revenue.  The Company is not disclosing total
     assets for each reportable segment because this information is not reviewed
     by the chief operating decision-maker.

     All of the  Company's  sales  occur in the United  States  and are  shipped
     primarily from the Company's facilities in the United States.

14.  Significant agreements

       Sprint Communications Company L.P.
       The Company has two agreements with Sprint Communications Company L.P.
       ("Sprint") to supply telecommunication services to the Company. The
       agreement for switched services has a term of 28 months and the agreement
       for the data and private line services has a term of 24 months. The
       Company currently has a commitment to purchase a minimum of
       telecommunication services monthly from Sprint, which expires November
       2008. The remaining minimum monthly commitment is as follows:

                                                    Monthly
         Months                                   Commitment
         ---------                                ----------
         53 - 64 (November 2007)                   650,000
         65 - 76 (November 2008)                   750,000

     The Company made purchases from Sprint that  aggregated  approximately  30%
     and 38% of the total cost of revenue for the three months  ended  September

                                       13
<PAGE>
                   NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


     30, 2007 and 2006, respectively.  The Company currently has a commitment to
     purchase a minimum of $650,000 of  telecommunication  services monthly from
     Sprint.

     In addition,  the Company  made  purchases  from  Verizon  that  aggregated
     approximately  23% and 28% and Qwest that aggregated  approximately 13% and
     11% of the total cost of revenue three months ended  September 30, 2007 and
     2006, respectively.

15.  Commitments and contingencies

     Employment agreements

     The Company has an  employment  agreement  with one member of its executive
     management  team. The employment  agreement  provides for certain  payments
     following  death  or  disability,  for  certain  fringe  benefits  such  as
     reimbursement  for reasonable  expenses and participation in medical plans,
     and for  accelerated  payments  in the event of change  of  control  of the
     Company. The specific terms are as follows:

     On July 1, 2004,  an agreement  was entered  into with the Chief  Financial
     Officer for a term of five years,  terminating  on July 1, 2009 and subject
     to additional one-year extensions, at an annual salary of $175,000.

     As part of the plan to reduce  certain  expenses  of the  Company the Chief
     Financial  Officer  voluntarily  accepted  a pay  reduction  of  50% of his
     current pay.  This amount is net of an existing 15% deferment and commenced
     February 1, 2007.  This reduction was reinstated to its original  amount by
     the consent of the Company's Board of Directors as of June 30, 2007.

     Litigation

     a.   On April 24, 2006, the Company's  subsidiary  NetWolves ECCI Corp (the
          "Subsidiary")   filed  an  action  in  the  Florida   Circuit   Court,
          Hillsborough  County against Education  Communications  Consortia Inc.
          ("ECCI").  The action arises from ECCI's breach of the October 1, 2004
          Asset  Purchase  Agreement  between the parties (the  "Agreement")  by
          failing to pay  $70,273  pursuant  to a  reconciliation  of  billings,
          receivable and costs in accordance with the terms of the Agreement.

          On April 27,  2006,  ECCI served the Company  and  Subsidiary  with an
          action  in  the  Circuit  Court  of  Kanawha  County,  West  Virginia,
          alleging,  inter  alia  that  the  Subsidiary  had  failed  to pay the
          $200,000 first  installment of a promissory  note ("the Note") and has
          anticipatorily  breached  payment  of  the  remaining  balance.  As  a
          consequence, ECCI alleges that the entire $800,000 note, together with
          interest  and costs,  is joint and  severally  due and  payable by the
          Subsidiary and by the Company,  as guarantor.  ECCI asserts additional
          claims  against  the  Company in the  aggregate  sum of  approximately
          $121,000 based on alleged reimbursable costs incurred by ECCI.

          The Company and Subsidiary believe that ECCI's action is without merit
          and therefore no accrual has been made. Among other things,  it is the
          Company's   position  that  the  Agreement  provided  as  a  condition
          precedent to any  installment  payment that ECCI achieve  annual gross
          revenue of at least  $2,000,000;  and that ECCI failed to achieve this
          amount.  However,  there can be no assurances that the Company will be
          successful.

                                       14
<PAGE>
                   NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



     b.   At a meeting of the Board of Directors  held on December 4, 2006,  the
          Company  accepted  the  resignation  of Walter M. Groteke as Chairman,
          Chief  Executive  Officer  and a director  of the  Company,  effective
          immediately. At the same time, Scott Foote, a director of the Company,
          was appointed as its Acting Chief Executive Officer.

          The  action  was the  result of a series of events  commencing  with a
          resolution  approved by the Board of  Directors on October 27, 2006 to
          separate the positions of Chairman and Chief Executive  Officer,  both
          positions  being  held by  Walter M.  Groteke,  subject  to  finding a
          suitable  candidate,  if any,  for the  position  of  Chief  Executive
          Officer. As previously  reported,  a committee was appointed to search
          for candidates  for the position of Chief  Executive  Officer.  At the
          same time Scott Foote,  formerly  Vice  President was appointed as the
          Company's Acting President to be involved in day-to-day operations.

          In response to these  resolutions,  Mr.  Groteke  through his counsel,
          informed  the  Company on  November  16,  2006,  by written  notice as
          required by his employment  agreement,  that Mr. Groteke was resigning
          from the  Company  for "good  reason,"  as defined  in the  employment
          agreement;  that the  letter  constituted  his 15-day  formal  notice,
          making  his  resignation  effective  December  1,  2006;  and that Mr.
          Groteke was demanding all  compensation  and benefits set forth in the
          agreement through June 30, 2010, the remainder of its term.

          On November 21, 2006, the Company through its counsel responded to the
          November 16th letter by denying that Mr. Groteke had any basis for his
          claims, stating among other things, that Mr. Groteke remained Chairman
          and CEO with all of his responsibilities  inherent in these positions.
          By letter dated November 28, 2006, Mr. Groteke's  counsel affirmed his
          prior position.

          At the  December  4, 2006  Board of  Directors  meeting,  the Board of
          Directors formally accepted his resignation.  The acceptance was based
          on his voluntary  resignation and not for the reasons set forth by his
          counsel.

          On December 6, 2006, in the  Hillsborough  County Circuit Court of the
          State of  Florida,  Mr.  Groteke  served  the  Company  with an action
          seeking  declaratory  relief and a judgment for his full  compensation
          and benefits under the employment agreement, on the grounds previously
          set forth.

          It is the Company's position that Mr. Groteke voluntarily resigned and
          is no  longer  entitled  to  the  compensation  set  forth  under  his
          employment agreement.

     c.   On May 21, 2007,  NetWolves filed for protection under Title 11 of the
          Bankruptcy Code in the United States  Bankruptcy  Court for the Middle
          District of Florida, Tampa Division.

          The actions referenced above against NetWolves were stayed pursuant to
          the Bankruptcy  Code's  automatic stay provisions on May 21, 2007 when
          NetWolves filed for reorganization  under Chapter 11 of the Bankruptcy
          Code.  The Company  believes it has strong  defenses to these lawsuits
          and  intends  to  contest  them  vigorously.  However,  because  these
          lawsuits are premature, the Company is unable to provide an evaluation
          of the final outcome of the  litigation.  On August 17, 2007 the above
          referenced   actions  were  removed  to  the  federal  court  advisory
          proceedings subject to the bankruptcy codes.

                                       15
<PAGE>
                   NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



16.  Subsequent Event

     a.   Leases
          Subsequent  to September  30, 2007,  the Company  entered into a lease
          surrender  agreement at the same time the Company entered into a lease
          assignment  agreement  which commenced on October 1, 2007 and expiring
          on May 31, 2009. On October 12, 2007, the Company vacated the premises
          and successfully relocated their Tampa office.

          The  approximate  future  minimum annual lease  payments,  for the new
          office space is summarized as follows:
<TABLE>
<CAPTION>
                        Fiscal Year
                      Ending June 30,                    Amount
                   ----------------------------------- ---------
                          <S>                         <C>
                          2008                        $  43,557
                          2009                           58,076
                                                      ---------
                                Total                  $101,633
</TABLE>
     b.   Bankruptcy Related Filings
          On October 29, 2007, the Company filed a Joint Plan of  Reorganization
          of Debtors and related Disclosure Statement with the Bankruptcy Court.


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Forward-Looking Statements

This Form 10-QSB includes, without limitation, certain statements containing the
words "believes." "anticipates",  "estimates", "expects", and words of a similar
nature,  constitute  "forward-looking  statements"  within  the  meaning  of the
Private  Securities  Litigation  Reform Act of 1995.  This Act  provides a "safe
harbor"  for  forward-looking  statements  to  encourage  companies  to  provide
prospective  information  about  themselves  so  long  as  they  identify  these
statements  as forward  looking and provide  meaningful,  cautionary  statements
identifying important factors that could cause actual results to differ from the
projected results.  All statements other than statements of historical fact made
in this Form 10-QSB 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 based on
certain risks and  uncertainties,  including the risk factors  referenced in the
Company's  filings  with the  Securities  and Exchange  Commission.  Readers are
cautioned not to place undue reliance on these forward-looking  statements.  The
Company does not undertake any  obligation to release  publicly any revisions to
these forward-looking statements to reflect future events or circumstances or to
reflect the occurrence of unanticipated events.

Overview

NetWolves   Corporation   ("NetWolves"   or   the   "Company")   is   a   global
telecommunications    and   Internet   managed   services   providers   offering
single-source  network  solutions that provides  multi-carrier  and multi-vendor
implementation  to over  1,000  customers  worldwide.  The  Company's  principal
activity is to design,  manage and deliver products and services allowing people
and networks to access the Internet and telecommunications networks, efficiently
and cost  effectively.  In  addition  to the  prevailing  networking  equipment,
NetWolves  also offers our patented  system  technology  to  organizations  with
complex requirements, that our plug `n' play perimeter office security platforms

                                       16
<PAGE>
                   NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

and secure remote  monitoring and  management  ("SRM2 TM") system ideally solve.
Additionally, NetWolves' advanced, centralized, reporting offers the ability for
corporate executives to view, via the Internet, both statistical and performance
based metrics for their global network.

We operate  primarily in three distinct  segments.  The Voice  Services  segment
provides voice services including switched and dedicated outbound,  switched and
dedicated  toll-free inbound,  calling and debit cards, and conference  calling.
The Managed Services  Charges segment  provides network and security  technology
and a variety of recurring  managed data services.  The Equipment and Consulting
segment  is  primarily  engaged  in  the  design,  development  and  support  of
information  delivery  hardware  products  and  software  as well  as  providing
consulting services on an as needs basis.

We have  achieved an offering of managed  products  and  services  that meet the
necessary  requirements  for  organizations  to move off expensive  private data
networks  while  attaining the benefits and  flexibility of public data network.
Additionally,  our  proprietary  technology  provides a high  level of  security
through its integrated approach to management,  monitoring and  interoperability
for small and medium remote enterprise  locations  (locations with less than 500
network  users).  We offer a  Managed  Services  Offering  (MSO)  that  provides
complete  system  solutions  to  organizations  needing  cost-effective  network
security features  (firewall,  virtual private  networking,  routing,  intrusion
detection,  content  filtering,  email,  etc.)  delivered on low-cost  commodity
hardware  with  Internet-based  expansion  capabilities.   Our  patented  system
technology  enables  organizations to achieve corporate  Information  technology
(IT) and e-business  initiatives  through the  deployment of easily  installable
perimeter office security  platforms,  coupled with our SRM2 TM system.  SRM2 TM
provides centralized management capabilities for hundreds or thousands of remote
locations  without  risking  networking  integrity  because  it  never  opens an
administrative port on the remote device, which is common network vulnerability.
We also  provide  cost-effective,  value-added  expansion  technologies  such as
Intelligent  Failover,  which means that if one  circuit  for gaining  access to
information  fails,  the system  would  automatically  switch to an  alternative
circuit based upon customer defined parameters.

Chapter 11 Reorganization

On May 21, 2007, NetWolves filed for protection under Title 11 of the Bankruptcy
Code in the United States  Bankruptcy  Court for the Middle District of Florida,
Tampa Division.

Numerous creditors and purported  creditors have filed proofs of claims with the
Bankruptcy Court in the Company's  Chapter 11 proceeding.  The Company is in the
process of  reviewing  these  claims  and it expects to object to a  significant
number of claims.  Claims  believed to be  legitimate  have been recorded by the
Company at their historical amounts in the condensed  consolidated balance sheet
as September  30, 2007.  If the  Bankruptcy  Court allows the claims the Company
believes are baseless,  the Company believes these creditors will participate in
the Plan as general unsecured creditors.  The ultimate impact of these claims on
the Company's  consolidated  financial position and results of operations cannot
presently be determined.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations
is based upon the consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting  principles.  The preparation
of financial  statements in conformity with U.S. generally  accepted  accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities,  the disclosure of contingent assets
and  liabilities  as of the date of the financial  statements,  and the reported
amounts of revenue and expenses during the periods.  Estimates have been made by
management in several areas, including, but not limited to, revenue recognition,
allowance  for  doubtful  accounts,  the  realizability  of deferred tax assets,
goodwill and other intangible assets and stock based  compensation.  We base our

                                       17
<PAGE>
                   NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


estimates on  historical  experience  and on various other  assumptions  that we
believe to be  reasonable  under the  circumstances.  Actual  results may differ
materially from these estimates under different assumptions or conditions.

We  believe  the  following  critical   accounting   policies  affect  our  more
significant  judgments and estimates used in the preparation of our consolidated
financial statements.

Revenue recognition

We record  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) and SEC Staff
Accounting  Bulletin 104 "Revenue  Recognition"  ("SAB 104")  regarding  revenue
recognition in financial statements.  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.

Revenues  generated from the resale of voice services are recognized as services
are provided and are included within Voice Services  revenue in the accompanying
consolidated  statements  of  operations.  Revenues  generated  from the sale of
recurring  services  within the  Managed  Service  Charges  ("MSC")  segment are
recognized as services are provided.

Revenue  from the sale of  hardware,  where our  software is not  essential,  is
recognized  within  Equipment  &  Consulting  revenue at the time of delivery of
hardware  products  by the  customer,  when the fee is fixed  and  determinable,
collectability  is  probable  and a  contract  signed by both  parties  has been
obtained.  Maintenance  or  monitoring  revenue  that is bundled with an initial
license fee is  deferred  and  recognized  ratably  within MSC revenue  over the
maintenance or monitoring period in the accompanying  consolidated statements of
operations. Amounts deferred for maintenance or monitoring are based on the fair
value of equivalent maintenance or monitoring services sold separately.  We have
established  vendor  specific  objective  evidence  ("VSOE") on all  undelivered
elements of its software arrangements, which consists of maintenance, monitoring
and, at times, training and consulting. We use the residual method for delivered
elements.  Our consulting  projects are short-term in nature and are recorded as
revenue in Equipment and Consulting  revenues in the  accompanying  consolidated
statements of operations when services are provided.

Revenue for shipping and handling are included  within  Equipment and Consulting
revenue  and  the  related  costs  are  included  in  cost  of  revenue  in  the
accompanying consolidated statements of operations and comprehensive loss.

Allowance for doubtful accounts

We provide  allowances  for  doubtful  accounts  for  estimated  losses from the
inability of customers to satisfy their accounts as originally  contemplated  at
the time of sale and charges actual losses to the allowance  when incurred.  The
calculation  for these  allowances  is based on the  detailed  review of certain
individual  customer accounts,  historical  satisfaction rates and the Company's
estimation of the overall  economic  conditions  affecting our customer base. If
the  financial  condition  of  our  Company's  customers  were  to  deteriorate,
resulting  in an  impairment  of  their  ability  to make  payments,  additional
allowances  may be  required  in  conjunction  with the  Company's  May 21, 2007
Chapter 11 bankruptcy filing. All questionable  accounts  previously sent out to
agency were deemed  uncollectible and written down at June 30, 2007. The Company
believes all other amounts are fully collectable and require no reserve.

Income taxes

As part of the process of preparing our consolidated financial statements we are
required to prepare our income  taxes in each of the  jurisdictions  in which we
operate.  This  process  involves  estimating  our actual  current tax  exposure
together with assessing temporary differences resulting from differing treatment
of items for tax and accounting  purposes.  These differences result in deferred
tax assets and liabilities,  which are included within our consolidated  balance
sheet.  We must then assess the likelihood  that our deferred tax assets will be

                                       18
<PAGE>
                   NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


recovered  from future taxable income and to the extent we believe that recovery
is not likely, we must establish a valuation  allowance.  We have fully reserved
our deferred tax assets at September 30, 2007 and June 30, 2007. If expectations
for future performance, the timing of deductibility of expenses, or tax statutes
change in the future, we could decide to adjust the valuation  allowance,  which
may increase or decrease income tax expense.

Goodwill and other intangible assets

We evaluate the  recoverability of goodwill and other intangibles of each of our
reporting  units as required  under SFAS 142 by comparing the fair value of each
reporting unit with its carrying  value.  The fair values of our reporting units
are determined using a combination of a discounted cash flow analysis and market
multiples based upon historical and projected  financial  information.  We apply
our best judgment when assessing the reasonableness of the financial projections
used to determine the fair value of each reporting unit.

Results of Operations
---------------------

The following  discussion  and analysis sets forth the major factors that affect
the Company's  results of operations  and financial  condition  reflected in the
unaudited  financial  statements for the three month period ended  September 30,
2007.  This  discussion  and  analysis  should be read in  conjunction  with the
information  contained  in our Annual  Report on Form 10-KSB for the fiscal year
ended June 30, 2007,  including the audited  financial  statements and footnotes
included therein.

We currently  operate in three business  segments,  the Voice  Services  segment
("Voice  Services"),  the  Managed  Service  Charges  ("MSC")  segment  and  the
Equipment and Consulting segment ("Equipment and Consulting").

The three months  ended  September  30, 2007  compared to the three months ended
September 30, 2006 is as follows:


Revenue

Revenue decreased to $4.2 million for the three months ended September 30, 2007,
compared to $4.7 million for the same period in the prior year.  The decrease in
revenue is primarily  attributable  to a decrease in Voice Services  segment and
the MSC segment of approximately  $0.5 million and $0.02 million,  respectively.
The decrease in the Voice Services  segment was attributable to attrition within
the  customer  base,  which  occurred  prior  to our May  21,  2007  filing  for
protection under Title 11 of the Bankruptcy Code in the United States Bankruptcy
Court for the Middle District of Florida, Tampa.

Cost of revenue (excluding depreciation amortization)

Cost of revenue  decreased to $2.6 million for the three months ended  September
30, 2007 compared to $3.0 million for the same period in the prior year. Cost of
revenue within the Voice Services segment  decreased to $1.4 million compared to
$1.7  million.  This  decreased  cost of revenue is  primarily  attributable  to
customer  attrition  as  previously  described.  Cost of revenue  within the MSC
segment and the Equipment and Consulting segment had a non-material impact.


General and administrative

General and  administrative  expenses were $1.0 million and $1.2 million for the
three months ended  September  30, 2007 and 2006  respectively.  The decrease in
general  and  administrative  expenses  were due to a decrease  in  payroll  and
payroll related expenses of approximately $0.2 million and a decrease in related
cost  reductions  of  approximately  $0.1  million  offset  by  an  increase  in
accounting fees of $0.1 million.

                                       19
<PAGE>
                   NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


Engineering and development

Engineering and development  expenses  decreased to approximately  $0.04 million
for the three months ended September 30, 2007,  compared to approximately  $0.05
million for the same period in the prior year. The decrease in  engineering  and
development  expenses  were  primarily  attributable  to  staff  reductions  and
associated engineering and development expenses of approximately $0.02 million.

Sales and marketing

Sales and  marketing  expenses  decreased  to $0.6  million for the three months
ended  September  30, 2007,  compared to $0.8 million for the same period in the
prior  year.  The  decrease  in  sales  and  marketing  expenses  was  primarily
attributable  to staff  reductions  which  resulted in a decrease in payroll and
payroll related expenses in the amount of $0.1 million, a decrease in associated
sales and  marketing  expenses in the amount of $0.03  million and a decrease in
bad debt expense in the amount of $0.07 million.

Other income (expenses)

Other  expenses was $(0.006)  million for the three months ended  September  30,
2007  compared to $(.04)  million  for the same period in the prior year.  Other
expenses  for the three months ended  September  30, 2006  consisted of interest
expense  to the  noteholders  in the amount of  $(0.04)  million.  There were no
interest  payments made to the  noteholders for the three months ended September
30, 2007.

Reorganization Cost

We incurred  reorganization costs of approximately to $0.1 million for the three
months  ended  September  30,  2007 as a result of our May 21,  2007  filing for
protection under Title 11 of the Bankruptcy Code in the United States Bankruptcy
Court for the Middle  District of Florida,  Tampa.  These charges  relate to the
ongoing  Chapter 11  reorganization  activities,  necessary  for the  Company to
reorganize and work out its plan to emerge from bankruptcy.

Liquidity and Capital Resources


Our operating  activities  used cash of  approximately  $0.3 million  during the
three months ended September 30, 2007, as compared to cash used of approximately
$1.0 million for the same period in the prior year.  Cash used in operations for
the three months ended  September 30, 2007 was primarily  attributable  to a net
loss of  approximately  $0.4 million,  which  included  reorganization  costs, a
decrease in accounts  receivable of approximately  $0.07 million,  a decrease in
prepaid expenses of $0.1 million,  a decrease in post petition  accounts payable
of  approximately  $0.2 million and a decrease in deferred revenue in the amount
of approximately  $0.1 million.  In addition,  non-cash charges for depreciation
and  amortization,  equity  compensation and bad debt expense was  approximately
$0.06 million, $0.01 million and $0.06 million, respectively.

Our operating  activities  used cash of  approximately  $1.0 million  during the
three months ended  September 30, 2006.  Cash used in  operations  for the three
months ended  September  30, 2006 was  primarily  attributable  to a net loss of
approximately $0.7 million, a decrease in accounts payable of approximately $0.3
million, a decrease in prepaid expenses of approximately $0.07 million partially
offset by  non-cash  charges  for  depreciation  and  amortization  and bad debt
expense  of   approximately   $0.2  million  and  $0.1  million,   respectively.
Additionally,  accounts receivable,  inventory and deferred revenue increased by
$0.4 million, $0.007 million, and $0.06 million, respectively.

There were no investing  activities  for the three months  ended  September  30,
2007. Our investing  activities used  approximately $ 0.07 million for the three
months ended September 30, 2006. Cash used in investing activities was primarily
attributable to payments on customer lists previously  acquired in the amount of
$0.06 million and patent cost paid $0.009 million.

                                       20
<PAGE>
                   NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


There were no financing activities for the three months ended September 30, 2007
and 2006.

Summary

Historically,  we have experienced significant recurring net operating losses as
well as negative  cash flows from  operations.  Our main source of liquidity has
been equity and debt financing,  which has been used to fund  continuing  losses
from operating activities.  Based on the our cash position of approximately $0.7
million at September  30, 2007,  and further  taking into account  ongoing costs
related  to the  Chapter  11  bankruptcy  proceedings,  as well as the  ultimate
disposition of pre-petition  claims of creditors pursuant to an approved plan of
reorganization,  we  believe  that we may not have  sufficient  cash to meet our
funding  requirements  through  September 30, 2008,  without raising  additional
capital.  Our ability to raise  additional  capital to fund  operations also may
have been  impaired  by the  Chapter 11  reorganization  proceeding.  We plan to
continue cost reduction efforts, as exemplified by our recent,  substantial rent
reduction,  as well as seek financing to satisfy a plan of reorganization by our
creditors.  However,  based upon the issues  discussed  herein,  there can be no
assurances that we will be able to raise  additional  capital on desirable terms
or at all. These factors raise  substantial  doubt about our ability to continue
as a going  concern,  which  may  require  further  restructuring,  or a sale or
liquidation  and  could  cause  significant  dilution  or a  total  loss  to our
shareholders. The financial statements do not include any adjustment relating to
the  recoverability of the recorded assets or the  classification of liabilities
that may be necessary should we be unable to continue as a going concern.



ITEM 3 - CONTROLS AND PROCEDURES

CEO and CFO Certifications
--------------------------
The certifications of the CEO and the CFO required by Rules 13a-14 and 15d-14 of
the Securities Exchange Act of 1934, as amended (the "Certifications") are filed
as exhibits to this report.  This section of the report contains the information
concerning the evaluation of our disclosure  controls and procedures (as defined
in Exchange Act Rules  13a-15(e)  and  15d-15(e))  ("Disclosure  Controls")  and
changes to internal control over financial reporting (as defined in Exchange Act
Rules  13a-15(f)  and  15d-15(f))  ("Internal  Controls")  referred  to  in  the
Certifications  and this  information  should  be read in  conjunction  with the
Certifications for a more complete understanding of the topics presented.

Evaluation of Disclosure Controls

We  maintain  controls  and  procedures  designed  to ensure  that it is able to
collect the information that is required to be disclosed in the reports it files
with the SEC, and to process, summarize and disclose this information within the
time period  specified  in the rules of the SEC. Our Chief  Executive  and Chief
Financial  Officers are responsible for establishing,  maintaining and enhancing
these  procedures.   They  are  also  responsible,  as  required  by  the  rules
established  by the  SEC,  for the  evaluation  of the  effectiveness  of  these
procedures.

Based  on our  management's  evaluation  (with  participation  of our  principal
executive officer and principal financial officer),  as of the end of the period
covered by this report, our principal  executive officer and principal financial
officer  have  concluded  that  its  disclosure   controls  and  procedures  are
effective.

Changes in Internal Controls Over Financial Reporting

We  maintain  a system of  internal  controls  designed  to  provide  reasonable
assurance that transactions are executed in accordance with management's general
or specific  authorization;  transactions  are  recorded as  necessary to permit
preparation  of financial  statements  in  conformity  with  Generally  Accepted
Accounting  Principles (GAAP) and maintain  accountability for assets. Access to
assets is permitted  only in accordance  with  management's  general or specific
authorization.

                                       21
<PAGE>
                   NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


It is our  responsibility  to establish and maintain  adequate  internal control
over  financial  reporting.   Management  will  be  reviewing  all  systems  and
procedures  relating to the financial close. There was no change in our Internal
Controls  during First Quarter Fiscal 2008 that has materially  affected,  or is
reasonably likely to materially affect, our Internal Controls.


PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

On  April  24,  2006,  the  Company's   subsidiary   NetWolves  ECCI  Corp  (the
"Subsidiary") filed an action in the Florida Circuit Court,  Hillsborough County
against Education Communications Consortia Inc. ("ECCI"). The action arises from
ECCI's  breach of the  October  1, 2004 Asset  Purchase  Agreement  between  the
parties (the "Agreement") by failing to pay $70,273 pursuant to a reconciliation
of billings, receivable and costs in accordance with the terms of the Agreement.

On April 27, 2006,  ECCI served the Company and Subsidiary with an action in the
Circuit Court of Kanawha County, West Virginia,  alleging,  inter alia, that the
Subsidiary had failed to pay the $200,000 first installment of a promissory note
("the Note") and has  anticipatorily  breached payment of the remaining balance.
As a  consequence,  ECCI alleges that the entire  $800,000  note,  together with
interest and costs, is joint and severally due and payable by the Subsidiary and
by the Company, as guarantor. ECCI asserts additional claims against the Company
in the aggregate sum of  approximately  $121,000  based on alleged  reimbursable
costs incurred by ECCI.

The Company and  Subsidiary  believe  that  ECCI's  action is without  merit and
therefore  no accrual has been made.  Among other  things,  it is the  Company's
position that the Agreement provided as a condition precedent to any installment
payment that ECCI achieve annual gross revenue of at least $2,000,000;  and that
ECCI failed to achieve this amount. However, there can be no assurances that the
Company will be successful.

On November 16, 2006, Mr. Groteke through his counsel,  informed the Company, by
written  notice as required by his  employment  agreement,  that Mr. Groteke was
resigning  from the  Company  for "good  reason,"  as defined in the  employment
agreement;  that the letter  constituted  his 15-day formal  notice,  making his
resignation  effective  December 1, 2006; and that Mr. Groteke was demanding all
compensation and benefits set forth in the agreement  through June 30, 2010, the
remainder of its term.

On November 21, 2006, the Company through its counsel  responded to the November
16th letter by denying  that Mr.  Groteke had any basis for his claims,  stating
among other things,  that Mr. Groteke remained  Chairman and CEO with all of his
responsibilities inherent in these positions. By letter dated November 28, 2006,
Mr. Groteke's counsel affirmed his prior position.

On December 6, 2006,  the Company was served with an action  against the Company
by Mr. Groteke in the Circuit Court of the State of Florida, Hillsborough County
seeking declaratory relief and a judgment for his full compensation and benefits
under the employment agreement, on the grounds previously set forth.

The Company believes that Mr. Groteke's action is without merit and therefore no
accrual has been made. Among other things it is the Company's  position that Mr.
Groteke voluntarily resigned and is no longer entitled to compensation set forth
in his employment agreement.

On May 21, 2007,  NetWolves and some of its  subsidiaries  filed for  protection
under Title 11 of the Bankruptcy Code in the United States  Bankruptcy Court for
the Middle District of Florida,  Tampa  Division.  These actions against us were
stayed pursuant to the Bankruptcy  Code's automatic stay provisions.  We believe
we have strong defenses to these lawsuits and intend to contest them vigorously.
On August 17,  2007 the above  referenced  actions  were  removed to the federal
court advisory proceedings subject to the bankruptcy codes.



                                    22
<PAGE>
                   NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



ITEM 2.           CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF
                  EQUITY SECURITIES

                  None

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES

                  Not applicable.

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

                  Not applicable

ITEM 5.           OTHER INFORMATION

                  Not applicable.

ITEM 6.           EXHIBITS



31   CEO and CFO  certifications  pursuant to Section 302 of the  Sarbanes-Oxley
     Act of 2002.

32   CEO and CFO  certifications  pursuant to Section 906 of the  Sarbanes-Oxley
     Act of 2002.

                                       23
<PAGE>



SIGNATURES

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




                         BY:  NETWOLVES CORPORATION



                        /s/ Scott Foote
                        --------------------------------------------------
                        Scott Foote
                        Chief Executive Officer, President and Director



                        /s/ Peter C. Castle
                        --------------------------------------------------
                        Peter C. Castle
                        Chief Financial Officer, Vice President-Finance,
                        Director, Treasurer and Secretary



Date: November 14, 2007

                                       24