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 March 31, 2008
                                                 --------------
                                       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 Blvd. Suite F-2, Tampa, Florida 33634
              -----------------------------------------------------
                    (Address of principal executive offices)

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

                                      None
                                      ----
     (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
---------------------------                       May 9, 2008
                                                  -----------
Common Stock, $.0033 par value                    34,309,713
                                                  ----------

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

                             (DEBTOR-IN-POSSESSION)

                          FORM 10-QSB - March 31, 2008

<TABLE>
<CAPTION>
                                      INDEX


PART I - FINANCIAL INFORMATION
<S>   <C>                                                                                                   <C>

      ITEM 1 - FINANCIAL STATEMENTS

        CONDENSED CONSOLIDATED BALANCE SHEETS
           March 31, 2008 (unaudited) and June 30, 2007 ..................................................  1-2

        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
           For the three and nine months ended March 31, 2008 (unaudited) and 2007 (unaudited)............   3

        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
           For the nine months ended March 31, 2008 (unaudited) and 2007 (unaudited)   ...................   4

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS .............................................  5-17

      ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
                 OF OPERATION ............................................................................ 17-23

      ITEM 3 - CONTROLS AND PROCEDURES ................................................................... 23-24


PART II - OTHER INFORMATION

      ITEM 1 - LEGAL PROCEEDINGS .........................................................................  24

      ITEM 2 - CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES
                 OF EQUITY SECURITIES ....................................................................  25

      ITEM 3 - DEFAULTS UPON SENIOR SECURITIES ...........................................................  25

      ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .......................................  25

      ITEM 5 - OTHER INFORMATION .........................................................................  25

      ITEM 6 - EXHIBITS...................................................................................  25

      SIGNATURES.......................................................................................... 26-29
</TABLE>

<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                   March 31,              June 30,
                                                                            --------------------- ----------------------
                                                                                     2008                  2007
                                                                            --------------------- ----------------------
ASSETS                                                                            (Unaudited)
<S>                                                                                <C>                   <C>
Current assets
  Cash and cash equivalents                                                        $   434,799           $  1,027,465
  Accounts receivable, net of allowance for doubtful accounts
   of $180,000 and $0, respectively                                                  1,374,180              1,745,159
  Inventories, net                                                                      20,935                 74,279
  Prepaid expenses                                                                     386,673                494,149
                                                                            --------------------- ----------------------

       Total Current Assets                                                          2,216,587              3,341,052

Property and equipment, net                                                            100,628                 79,557

Identifiable intangible assets, net                                                    298,651                438,550

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

Other assets                                                                           282,594                150,852
                                                                            --------------------- ----------------------

       Total Assets                                                               $  6,700,433           $  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>
                                                                                March 31,              June 30,
                                                                          --------------------- ----------------------
                                                                                  2008                   2007
                                                                          --------------------- ----------------------
                                                                               (Unaudited)
LIABILITIES AND SHAREHOLDERS' DEFICIT
<S>                                                                                <C>                     <C>
Liabilities

  Liabilities not subject to compromise-post petition
    Account payable and accrued expenses                                            $  780,628             $1,121,971
    Deferred revenue                                                                   707,580              1,092,580

    Debtor-In-Possession financing                                                     175,000                     -
                                                                          --------------------- ----------------------

       Total Liabilities Not Subject to Compromise-Post- Petition                    1,663,208             2,214,551
                                                                          --------------------- ----------------------
  Liabilities subject to compromise-pre-petition

    Current portion of long-term debt                                                1,207,987              1,207,987
    Account payable and accrued expenses                                             4,981,623              4,906,309
                                                                          --------------------- ----------------------

       Total Liabilities Subject to Compromise-Pre-
        Petition                                                                     6,189,610              6,114,296
                                                                          --------------------- ----------------------

       Total Liabilities                                                             7,852,818              8,328,847
                                                                          --------------------- ----------------------

Shareholders' Deficit
Series A convertible preferred stock, $.0033 par value; $7,321,802 and
$6,718,296 liquidation preference on March 31, 2008 and June 30, 2007,
respectively; 1,000,000 authorized; 223,887 and 199,903 shares issued
and outstanding on March 31, 2008 and June 30, 2007, respectively.                   2,778,404              2,418,644

Series B convertible preferred stock, $.0033 par value; $7,377,277 and
$6,778,360 liquidation preference on March 31, 2008 and June 30, 2007,
respectively; 500,000 shares authorized; 226,111 and 201,886 shares
issued and outstanding on March 31, 2008 and June 30, 2007,
respectively.                                                                        2,907,289              2,519,689

Series C convertible preferred stock, $.0033 par value; $1,835,790 and
$1,721,735 liquidation preference on March 31, 2008 and June 30, 2007,
respectively; 100,000 shares authorized; 14,131 and 12,962 shares
issued and outstanding March 31, 2008 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 March 31, 2008 and June 30,
2007.                                                                                  113,223                113,223

Additional paid-in capital                                                          78,861,126             79,528,489

Accumulated deficit                                                               (86,087,928)           (85,302,269)
                                                                          --------------------- ----------------------

         Total Shareholders' Deficit                                               (1,152,385)              (516,863)
                                                                          --------------------- ----------------------

         Total Liabilities and Shareholders' Deficit                               $ 6,700,433            $ 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             For the Nine Months Ended
                                                        March 31,                             March 31,
                                          -------------------------------------- -------------------------------------
                                                 2008               2007               2008               2007
                                          ------------------- ------------------ ------------------ ------------------
Revenue
<S>                                             <C>                 <C>                <C>                <C>
  Voice services                                $1,894,040          $2,069,653         $5,998,606         $6,846,114
  Managed service charges                        2,151,816           2,210,338          6,369,616          6,426,147
                                          ------------------- ------------------ ------------------ ------------------
                                                 4,045,856           4,279,991         12,368,222         13,272,261
                                          ------------------- ------------------ ------------------ ------------------
Cost of Revenue (excluding depreciation
and amortization shown separately below)
  Voice services                                 1,187,188           1,501,798          3,873,106          4,655,070
  Managed service charges                        1,435,684           1,534,125          4,151,690          4,197,414
                                          ------------------- ------------------ ------------------ ------------------
                                                 2,622,872           3,035,923          8,024,796          8,852,484
                                          ------------------- ------------------ ------------------ ------------------

Operating Expenses
  General and administrative                       723,082             972,147          2,616,727          3,682,274
   Sales and marketing                             597,628             718,989          1,820,112          2,439,656
  Depreciation and amortization                     56,327             204,517            180,234            616,613
                                          ------------------- ------------------ ------------------ ------------------
                                                 1,377,037           1,895,653          4,617,073          6,738,543
                                          ------------------- ------------------ ------------------ ------------------

Income (Loss) Before Other (Expense)
Income                                              45,947            (651,585)          (273,647)        (2,318,766)

 Other (Expense) Income
   Interest (expense) income                        (1,855)            (50,387)             7,906           (133,704)

   Reorganization cost                            (103,009)                   -          (507,070)                 -
                                          ------------------- ------------------ ------------------ ------------------
                                                  (104,864)            (50,387)          (499,164)          (133,704)
                                          ------------------- ------------------ ------------------ ------------------

Loss Before Income Taxes                           (58,917)           (701,972)          (772,811)        (2,452,470)
                                          ------------------- ------------------ ------------------ ------------------

  (Provision for)/benefit from
   income taxes                                     (1,445)             66,659            (12,848)              (705)
                                          ------------------- ------------------ ------------------ ------------------

Net Loss                                     $     (60,362)         $ (635,313)      $   (785,659)      $ (2,453,175)
                                          =================== ================== =================  ==================

Dividends on Convertible Preferred Stock          (217,115)         $ (207,937)      $   (698,828)     $    (595,070)
                                          =================== ================== =================  ==================

Net Loss Attributable to Common
Shareholders                                      (277,477)         $ (843,250)        (1,484,487)      $ (3,048,245)
                                          =================== ================== =================  ==================

Basic and Diluted Net Loss Per Share         $       (0.01)         $    (0.02)      $      (0.04)      $      (0.09)
                                          =================== ================== =================  ==================

Weighted Average Common Shares
Outstanding, basic and diluted                  34,309,713          34,116,380         34,309,713         33,586,814
                                          =================== ================== =================  ==================
</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 Nine Months Ended
                                                                                           March 31,
                                                                         ---------------------------------------------
                                                                                   2008                   2007
                                                                         ---------------------- ----------------------
Cash flows from operating activities
<S>                                                                                <C>                  <C>
           Net loss                                                                $( 785,659)          $ (2,453,175)
                                                                         ---------------------- ----------------------

Adjustments to reconcile net loss to net cash used in operating
activities
    Depreciation                                                                       40,335                 51,493
    Amortization                                                                      139,899                565,120
    Bad debt expense                                                                  180,000                395,649
    Stock based compensation                                                           31,466                357,292
    Loss on disposal of property and equipment                                          1,296                  3,323

Changes in operating assets and liabilities
    Accounts receivable                                                               190,979               (147,204)
    Inventories                                                                        53,344                (10,461)
    Prepaid expenses and other current assets                                         107,476               (112,699)
    Other Assets                                                                     (131,742)               (47,030)
    Pre-petition accounts payable and accrued expenses                                193,985               (343,536)
    Post-petition accounts payable and accrued expenses                              (341,343)                    --
    Deferred revenue                                                                 (385,000)               562,828
                                                                         ---------------------- ----------------------

         Net cash used in operating activities                                       (704,964)            (1,178,400)
                                                                         ---------------------- ----------------------

Cash flows from investing activities
    Payment on existing customer list                                                      --               (100,000)
    Patent costs paid                                                                      --                 (8,901)
    Purchase of property and equipment                                                (62,702)                    --
                                                                         ---------------------- ----------------------

         Net cash used in investing activities                                        (62,702)              (108,901)
                                                                         ---------------------- ----------------------

Cash flows from financing activities
     Proceeds from debtor-in-possession financing                                     175,000                100,000
                                                                         ---------------------- ----------------------

             Net cash provided by financing activities                                175,000                100,000
                                                                         ---------------------- ----------------------

Net decrease in cash and cash equivalents                                            (592,666)            (1,187,301)

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

Cash and Cash Equivalents - Ending                                                 $  434,799              $ 828,855
-------------------------                                                ====================== =====================

Supplement Cash Flow Information
--------------------------------
  Cash paid for income taxes                                                       $   12,808              $  68,071
                                                                          ===================== =====================
  Cash paid for interest                                                           $       --              $ 144,413
                                                                          ===================== =====================

Supplemental Disclosure of Non-Cash Investing and Financing Activities
----------------------------------------------------------------------
  Dividends accrued on convertible preferred stock                                 $  698,828             $  595,070
                                                                          ===================== =====================

  Dividends paid-in-kind on convertible preferred stock                            $  817,500             $  689,740
                                                                          ===================== =====================

  Conversions of preferred stock to common stock                                   $       --             $  345,501
                                                                          ===================== =====================

</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 and nine  months  ended  March 31,  2008 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 NetWolves  Corporation ("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 (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
     do not state a specific claim amount or as to which a specific claim amount
     is not readily determinable.

     The condensed  consolidated financial statements have also been prepared in
     accordance with the guidance in the American  Institute of Certified Public
     Accountants  ("AICPA") Statement of Position 90-7,  "Financial Reporting by

                                       5
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     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  Costs."  Also,  interest  expense is reported  only to the
     extent  that it is to be paid  during  the  Chapter  11 Cases.  Contractual
     interest  in  total  debt  is  as  disclosed  in  Note  9.  Cash  used  for
     reorganization items was approximately  $100,000 and $500,000 for the three
     and nine months ended March 31, 2008.

     Upon  confirmation  of all amounts owed, 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 condensed  consolidated balance sheets at March 31,
     2008 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.

     On October 29, 2007,  the Company filed a Joint Plan of  Reorganization  of
     Debtors and related Disclosure Statement with the Bankruptcy Court.

     On January  17,  2008,  the  Company  filed a First  Amended  Joint Plan of
     Reorganization  of  Debtors  and  related  Disclosure  Statement  with  the
     Bankruptcy Court.

     On March  27,  2008,  the  Company  filed a Second  Amended  Joint  Plan of
     Reorganization  of  Debtors  and  related  Disclosure  Statement  with  the
     Bankruptcy Court. On April 29, 2008, the court approved the adequacy of the
     Disclosure Statement for distribution. The following summarizes certain key
     elements of the Plan:

     o    The Company has proposed to pay allowed claims of telecom providers in
          full through the distribution of cash over 12 months.

     o    The Company has  proposed to pay allowed  priority  tax claims in full
          through the distribution of cash over five years.

     o    The Company has proposed to pay allowed  secured  claims  arising from
          the March 2007, May 2006 and March 2006 security  transactions  either
          25% of the claim in cash  distributed  over 24 months or shares of new
          common stock having a value equal to 100% of their claim.

     o    The Company has proposed to pay allowed  claims of  Universal  Service
          Administrative  Company  either  25% of the claim in cash  distributed
          over 24 months or shares of new common  stock  having a value equal to
          100% of their claim.

     o    The Company  has  proposed to pay  allowed  general  unsecured  claims
          either 25% of the claim in cash  distributed  over 24 months or shares
          of new common stock having a value equal to 100% of their claim.

     o    The Company has proposed to pay  existing  preferred  shareholders  in
          full satisfaction a pro rata distribution of new common stock based on
          the aggregate number of the preferred shares held.

                                       6
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     o    The  Company has  proposed  that  holders of common  stock will retain
          their  interests  in  NetWolves,  subject  to the  dilution  through a
          reverse  split and the issuance of New Common Stock to senior  classes
          of the creditors and preferred shareholders.

          In addition,  a hearing for the court to consider  confirmation of the
          Company's bankruptcy plan has been scheduled for June 24, 2008.

     For the three and nine months  ended March 31, 2008,  reorganization  costs
     amounted to $103,009 and $507,070, respectively. For the three months ended
     reorganization cost consisted of:
<TABLE>
<CAPTION>
                                           Three Months ended      Nine Months Ended
                                              March 31, 2008         March 31, 2008
                                           ------------------      ----------------
                                              (Unaudited)
     <S>                                        <C>                   <C>
     Legal                                      $ 67,500              $ 210,638
     Trustee Fees                                  8,500                 25,750
     Other                                        27,864                102,134
     Vendor Concessions                              --                 168,548
                                           ------------------      ----------------
                                               $ 103,009              $ 507,070
</TABLE>
          The Debtors  are  operating  pursuant to chapter 11 of the  Bankruptcy
          Code and  continuation of the Company as a going concern is contingent
          upon, among other things,  the Debtors' ability (i) to comply with the
          terms and conditions of their  debtor-in-possession  ("DIP") financing
          agreement;  (ii) to continue  its cost  reduction  efforts  during the
          bankruptcy process; (iii) to return to profitability; (iv) to generate
          sufficient  cash flow  from  operations;  and (v) to obtain  financing
          sources to meet the Company's future obligations. These matters create
          substantial  uncertainty relating to the Company's ability to continue
          as a going concern. The accompanying consolidated financial statements
          do not  reflect any  adjustments  relating  to the  recoverability  of
          assets and  classification  of liabilities  that might result from the
          outcome of these uncertainties.  In addition,  as described above, the
          Company filed its proposed plan of  reorganization  with the Court and
          is  awaiting   confirmation   of  the  plan.   A  confirmed   plan  of
          reorganization  often  materially  changes the  amounts  reported in a
          company's consolidated financial statements,  which do not give effect
          to any  adjustments  to the  carrying  value of assets or  amounts  of
          liabilities  that might be necessary as a consequence of  confirmation
          of a plan of  reorganization.  There  can be no  assurances  that  the
          Company will emerge from Chapter 11 bankruptcy.

3.   The Company

     The condensed  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 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 its patented
     system technology to organizations with complex requirements, that its plug
     `n' play perimeter office security  platforms and secure remote  monitoring
     and management ("SRM2 TM") system ideally solve.

     The Company operates primarily in two 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.

4.   Reclassifications

     Certain  reclassifications  have been made to the March 31, 2007  condensed
     consolidated  statement of operations  and cash flows in order to have them
     conform to the current period's  classifications.  These  reclassifications
     have no effect on previously reported net loss.

                                       7
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

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 and nine months ended March 31, 2008.
     The Company does not expect its unrecognized tax benefit position to change
     during the next  twelve  months.  Management  is  currently  unaware of any
     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  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, 2007. For registration  payment
     arrangements and financial  instruments  subject to those arrangements that
     were entered  into prior to December  21, 2007,  the guidance in the FSP is
     effective for financial  statements issued for fiscal years beginning after
     December 15, 2007,  and interim  periods  within  those fiscal  years.  The

                                       8
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     adoption  of this  pronouncement  did not  have a  material  impact  on the
     Company's financial position, results of operations, or cash flows.

     In September 2007, 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 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.

     In December 2007, the Financial  Accounting Standards Board ("FASB") issued
     Statement of Financial  Accounting  Standards ("SFAS") No. 141R,  "Business
     Combinations"  ("SFAS  141R"),  which  replaces  SFAS  No.  141,  "Business
     Combinations."  SFAS  141R  establishes  principles  and  requirements  for
     determining  how an  enterprise  recognizes  and measures the fair value of
     certain  assets  and  liabilities  acquired  in  a  business   combination,
     including noncontrolling interests,  contingent consideration,  and certain
     acquired  contingencies.   SFAS  141R  also  requires   acquisition-related
     transaction expenses and restructuring costs be expensed as incurred rather
     than capitalized as a component of the business combination. SFAS 141R will
     be  applicable   prospectively  to  business  combinations  for  which  the
     acquisition date is on or after the beginning of the first annual reporting
     period  beginning on or after  December  15, 2008.  SFAS 141R would have an
     impact on accounting for any  businesses  acquired after the effective date
     of this pronouncement.

     In December 2007, the FASB issued SFAS No. 160,  "Noncontrolling  Interests
     in Consolidated  Financial  Statements - An Amendment of ARB No. 51" ("SFAS
     160").  SFAS 160  establishes  accounting  and reporting  standards for the
     noncontrolling interest in a subsidiary (previously referred to as minority
     interests).  SFAS 160 also requires that a retained noncontrolling interest
     upon the  deconsolidation of a subsidiary be initially measured at its fair
     value.  Upon  adoption of SFAS 160, the Company would be required to report
     any  noncontrolling  interests  as a separate  component  of  stockholders'
     deficit.  The  Company  would also be  required  to present  any net income
     allocable to  noncontrolling  interests and net income  attributable to the
     stockholders  of  the  Company  separately  in its  condensed  consolidated
     statement  of  operations.  SFAS 160 is  effective  for fiscal  years,  and
     interim  periods within those fiscal years,  beginning on or after December
     15, 2008. SFAS 160 requires  retroactive  adoption of the  presentation and
     disclosure   requirements  for  existing  minority  interests.   All  other
     requirements  of SFAS 160 shall be  applied  prospectively.  SFAS 160 would
     have an impact on the  presentation  and  disclosure of the  noncontrolling
     interests of any non wholly owned businesses acquired in the future.

                                       9
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     In  February  2008,  the FASB  issued FASB Staff  Position  ("FSP")  157-1,
     "Application  of FASB  Statement No. 157 to FASB Statement No. 13 and Other
     Accounting Pronouncements That Address Fair Value Measurements For Purposes
     of Lease  Classification  or Measurement  Under Statement 13" ("FSP 157-1")
     and FSP 157-2,  "Effective  Date of FASB  Statement No. 157" ("FSP 157-2"),
     which, respectively, remove leasing transactions from the scope of SFAS 157
     and defer its effective date for one year relative to certain  nonfinancial
     assets and liabilities.  As a result,  the application of the definition of
     fair value and related  disclosures  of SFAS 157 (as  impacted by FSP 157-1
     and FSP 157-2) was effective for the Company beginning January 1, 2008 on a
     prospective   basis  with  respect  to  fair  value   measurements  of  (a)
     nonfinancial  assets and  liabilities  that are  recognized or disclosed at
     fair value in the Company's  financial  statements on a recurring basis (at
     least annually) and (b) all financial assets and liabilities. This adoption
     did not have a  material  impact on the  Company's  consolidated  financial
     position or results of operations.  The remaining  aspects of SFAS 157, for
     which the effective date was deferred under FSP 157-2,  are currently being
     evaluated  by the  Company.  Areas  impacted  by  the  deferral  relate  to
     nonfinancial  assets and liabilities  that are measured at fair value,  but
     are  recognized or disclosed at fair value on a  nonrecurring  basis.  This
     deferral  applies to such  items as  nonfinancial  assets  and  liabilities
     initially  measured  at fair  value  in a  business  combination  (but  not
     measured at fair value in subsequent  periods) or  nonfinancial  long-lived
     assets  groups  measured at fair value for an  impairment  assessment.  The
     effects  of these  remaining  aspects of SFAS 157 are to be applied to fair
     value  measurements  prospectively  beginning  January 1, 2009. The Company
     does not expect these  remaining  aspects to have a material  impact on the
     Company's financial position or results of operations.

     In March 2008, the FASB issued SFAS No. 161,  "Disclosures about Derivative
     Instruments  and Hedging  Activities - an amendment of FASB  Statement  No.
     133"  ("SFAS  161").  SFAS 161  changes  the  disclosure  requirements  for
     derivative  instruments  and hedging  activities.  Entities are required to
     provide  enhanced  disclosures  about  (a)  how  and  why  an  entity  uses
     derivative  instruments,  (b) how derivative instruments and related hedged
     items are  accounted  for under SFAS No. 133,  "Accounting  for  Derivative
     Instruments   and  Hedging   Activities"   ("SFAS  133")  and  its  related
     interpretations,  and (c) how  derivative  instruments  and related  hedged
     items affect an entity's financial position, financial performance and cash
     flows.  The  guidance in SFAS 161 is  effective  for  financial  statements
     issued for fiscal years and interim  periods  beginning  after November 15,
     2008. SFAS 161 encourages,  but does not require,  comparative  disclosures
     for earlier  periods at initial  adoption.  The Company does not expect the
     adoption  of  SFAS  161  to  have a  material  impact  on its  consolidated
     financial position or results of operations.

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.  Inventory amounted to $194,248 and $247,592 at March 31,
     2008 and June 30, 2007,  respectively.  At March 31, 2008 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>

                                                                               Liabilities Subject to Compromise
                                                                                         Pre-Petition
                                                                          --------------------------------------------
                                                                                 March 31,              June 30,
                                                                                  2008                  2007
                                                                          --------------------- ----------------------
<S>                                                                                 <C>                    <C>
Pre-petition trade accounts payable and other accrued                               $4,221,501             $4,027,516
 operating expenses subject to compromise
Sales and excise tax payable                                                            54,754                 54,754


                                       10
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Dividends payable                                                                      445,203                563,874
Compensated absences                                                                    65,856                 65,856
Other liabilities                                                                      194,309                194,309
                                                                          --------------------- ----------------------
                                                                                   $ 4,981,623             $4,906,309
                                                                          ===================== ======================


                                                                                         Post-Petition
                                                                          --------------------------------------------
                                                                                  March 31,              June 30,
                                                                                    2008                  2007
                                                                          --------------------- ----------------------
Post-petition trade accounts payable and other accrued operating
expenses not subject to compromise                                                    $396,525              $ 756,977
Sales and excise tax payable                                                            71,413                 13,226
Compensated absences                                                                    46,249                 33,059
Other liabilities                                                                      218,539                270,474
Bonuses and commissions payable                                                         47,902                 48,074
Accrued taxes                                                                              --                     161
                                                                          --------------------- ----------------------
                                                                                     $ 780,628             $1,121,971
                                                                          ===================== ======================
</TABLE>
9.   Long Term Debt

     Long  term  debt,  subject  to  compromise  pre-petition,  consists  of the
     ---------------------------------------------------------------------------
     following:
     ---------
<TABLE>
<CAPTION>
                                                                                     March 31,               June 30
                                                                                       2008                    2007
                                                                                --------------------------------------
   <S>                                                                               <C>                   <C>
   Note  payable - 13 month  note,  18%  annual  interest  rate,  paid               $ 403,750             $  403,750
   monthly. In addition, the Company is required to maintain certain covenants.
   This note was due March 2007, however, was extended to January 1, 2008.
   Collateralized by substantially all assets of the Company.

   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, however, was 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.                                                                   50,000                 50,000

   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

         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.

                                       11
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     Notwithstanding  the  aforementioned,  the  default  has been stayed by the
     Chapter  11  bankruptcy  proceeding  pending  the  approval  of a  plan  of
     reorganization.

     Debtor in possession financing:
     ------------------------------

     The  Company  obtained  debtor in  possession  financing  in the  amount of
     $175,000  is  represented  by Secured  Convertible  Promissory  Notes.  The
     Secured Notes ranks senior to all existing securities of the Company, shall
     be secured by all of the assets of the  Company and shall  provide  that no
     other  debtor  in  possession   indebtedness  of  the  Company   (including
     replacement  credit  facilities but excluding trade payable incurred in the
     ordinary  course of business)  shall be created  without the consent of the
     Secured Note holders. The Company received $50,000 during February 2008 and
     $125,000  during March 2008.  The  agreements  governing  the Secured Notes
     shall contain standard  provisions for debtor in possession  financing with
     superpriority  claim status in a federal  bankruptcy  case.  The  principal
     amount of the Secured Note bears interest at 12% per annum, which begins to
     accrue on the issuance  date of the Secured  Note and payable  quarterly in
     case thereafter  (18.00% per annum,  retroactive to the closing date, after
     an event of default), with principal and accrued and unpaid interest on the
     Secured  Notes  due,  unless  converted,  within  thirty  (30)  days  after
     confirmation  of the  bankruptcy  plan.  The Secured Notes are secured by a
     lien, superior to all other liens, claims, and/or security interests on all
     of the Company's assets, perfected in the manner required by Investors.

     The   bankruptcy   court   approved   loans   of   up  to   $600,000   (the
     "debtor-in-possession  loan")  secured by senior  liens in the  Company and
     certain of its subsidiaries assets. The debtor-in-possession  loan shall be
     used  primarily to provide  operating  capital  primarily to supplement its
     fluctuating cash flows through and up to confirmation.

10.  Shareholders' equity

     Preferred stock
     ---------------
     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, 2008.

     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.

     On February 1, 2008 stock dividends  totaling 24,225 shares with a value of
     $387,600  were  paid in  Series B  Preferred  Stock to  Series B  investors
     representing accrued dividends through January 31, 2008.

     For the nine months ended March 31, 2007, investors converted 13,778 shares
     of Series B Preferred  Stock,  resulting  in issuance of 275,616  shares of
     common stock with a value of $345,501.  There were no conversions of Series
     A Preferred Stock or Series C Preferred Stock.

     For the nine months  ended March 31,  2008,  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 and nine  months  ended March 31, 2008 were  $217,115  and  $698,828,
     respectively.  Aggregate  dividends  accrued  for the three and nine months
     ended March 31, 2007 were $207,937 and $595,070.

                                       12
<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            March 31, 2008             term in years
--------------------- ----------------------- ------------------- -------------------------- -------------------------
     <S>                  <C>                    <C>                        <C>                        <C>
     1998 Plan              June 1998              282,500                     72,500                  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                    794,650                  10
     2003 Plan              June 2003            2,400,000                  2,153,450                  10
     2007 Plan              April 2007           1,000,000                    315,500                  10
                                                 ---------                  ---------
                                                 9,932,500                  5,761,100
                                                 =========                  =========
</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                                (1,123,600)                $   1.37                      --
                                                    -----------                ---------                ------------
 Outstanding, March 31, 2008                         5,761,100                 $   0.29                $     --
                                                    ===========                =========               =============
 Exercisable, March 31, 2008                         5,512,991                 $   0.29                $     --
                                                    ===========                =========               =============
</TABLE>
     The following table summarizes  information about stock options outstanding
     at March 31, 2008:
<TABLE>
<CAPTION>
                                        Options outstanding at                         Options exercisable at
                                            March 31, 2008                                 March 31, 2008
                          ---------------------------------------------------- ---------------------------------------
                                                 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             3.40            0.16         4,964,891          0.16
$      0.51-$  1.00              417,100             5.48            0.99           417,100          1.00
$      1.01-$  1.50               52,000             0.29            1.06            52,000          1.06
$      1.51-$  2.00                6,500             0.56            1.88             6,500          1.88
$      2.01-$ 12.00               72,500             0.76            5.00            72,500          5.00
                               ---------                                          ---------
                               5,761,100                                          5,512,991
                                   =========                                          =========
</TABLE>
                                       13
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

11.  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 two reportable  business
     segments:  Voice Services and Managed Service  Charges.  These two 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.
<TABLE>
<CAPTION>
                                                      For the Three Months Ended        For the Nine Months Ended
                                                              March 31,                         March 31,
                                                   --------------------------------- ---------------------------------
                                                        2008             2007             2008             2007
                                                   ---------------- ---------------- ---------------- ----------------
Revenue
<S>                                                      <C>              <C>              <C>              <C>
  Voice services                                         $1,894,040       $2,069,653       $5,998,606       $6,846,114
  Managed service charges                                 2,151,816        2,210,338        6,369,616        6,426,147
                                                          ---------        ---------        ---------        ---------

                                                          4,045,856        4,279,991       12,368,222       13,272,261
                                                          ---------        ---------        ---------        ---------

Cost of Revenue
  Voice services                                          1,187,188        1,501,798        3,873,106        4,655,070
  Managed service charges                                 1,435,684        1,534,125        4,151,690        4,197,414
                                                          ---------        ---------        ---------        ---------

                                                          2,622,872        3,035,923        8,024,796        8,852,484
                                                          ---------        ---------       ----------        ---------

Operating income (loss)
Voice Services                                               21,510         (315,083)      $ (132,719)      (1,196,069)
Managed Service Charges                                      24,437         (336,502)        (140,928)      (1,122,697)
                                                         ----------        ----------      ---------      -----------

         Total                                              $45,947       $ (651,585)      $ (273,647)    $ (2,318,766)
                                                         ==========       ===========       =========     =============
</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.

12.  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.  The minimum
     monthly commitment is $750,000 and expires in November 2008.

     The Company made purchases from Sprint that  aggregated  approximately  28%
     and 32% of the total cost of revenue  for the nine  months  ended March 31,
     2008 and 2007, respectively.  For the three months ended March 31, 2008 and

                                       14
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     2007, the Company made purchases from Sprint that aggregated  approximately
     28% of the total cost of revenue.

     In addition,  the Company  made  purchases  from  Verizon  that  aggregated
     approximately  21% and 24% and Qwest that aggregated  approximately 14% and
     11% of the total cost of revenue for the nine  months  ended March 31, 2008
     and 2007, respectively. For the three months ended March 31, 2008 and 2007,
     the Company  made  purchases  from Verizon of 18% and 20% and from Qwest of
     15% and 12%, respectively.

13.  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 an additional one-year extension, 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, 2007, 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,  2007,  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 jointly 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.


     b.   At a meeting of the Board of Directors  held on December 4, 2007,  the
          Company  accepted  the  resignation  of Walter M. Groteke as Chairman,

                                       15
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

          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, 2007 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,  2007,  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,  2007;  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, 2007, 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, 2007, Mr. Groteke's  counsel affirmed his
          prior position.

          At the  December  4, 2007  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, 2007, 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 in the discovery  phase, 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.

     Leases

          The Company entered into a lease surrender  agreement at the same time
          entering into a lease assignment agreement, which commenced on October
          1, 2007 and  expiring on May 31, 2009.  Monthly rent is  approximately
          $5,000 per  month.  On October  12,  2007,  the  Company  vacated  the
          premises and successfully relocated their Tampa office.

                                       16
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

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>
14.  Subsequent Event

Subsequent to March 31, 2008, the Company received an additional  $225,000 under
the terms of the DIP financing.
                                       17
<PAGE>
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  "anticipate,"   "believes,"  "estimate,"  "expect,"  "should,"  "intend,"
"projects," "objective," and similar expressions,  as they relate to the Company
or its management,  identify  forward-looking  statements.  Such forward-looking
statements  are based on the  beliefs of the  Company's  management,  as well as
assumptions  made  by and  information  currently  available  to  the  Company's
management.  Actual results could differ  materially from those  contemplated by
the forward-looking statements as a result of certain factors, including but not
limited to, business and economic conditions,  ability to attract and retain new
and existing customers,  ability to raise additional funds,  competitive factors
and pricing pressure,  capacity and supply  constraints,  the ability to sustain
our projected  rate of growth and the risk factors set forth in our filings with
the Securities and Exchange Commission,  our ability to successfully  reorganize
under  Chapter 11 of the U.S.  Bankruptcy  Code;  our  ability  to  execute  our
business  plans and  objectives;  our  ability to retain  customers,  suppliers;
vendors, partners and employees during our reorganization;  regulatory and legal
uncertainty. "

Overview

NetWolves  Corporation  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.
Our 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. 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 two  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.

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 March 31,  2008.  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.

                                       18
<PAGE>
On October 29, 2007, the Company filed a Joint Plan of Reorganization of Debtors
and related Disclosure Statement with the Bankruptcy Court.

On  January  17,  2008,  the  Company  filed  a  First  Amended  Joint  Plan  of
Reorganization of Debtors and related  Disclosure  Statement with the Bankruptcy
Court.

On  March  27,  2008,   the  Company  filed  a  Second  Amended  Joint  Plan  of
Reorganization of Debtors and related  Disclosure  Statement with the Bankruptcy
Court.  On April 29, 2008,  the court  approved  the adequacy of the  Disclosure
Statement for distribution. The following summarizes certain key elements of the
Plan:

     o    The Company has proposed to pay allowed claims of telecom providers in
          full through the distribution of cash over 12 months.

     o    The Company has  proposed to pay allowed  priority  tax claims in full
          through the distribution of cash over five years.

     o    The Company has proposed to pay allowed  secured  claims  arising from
          the March 2007, May 2006 and March 2006 security  transactions  either
          25% of the claim in cash  distributed  over 24 months or shares of new
          common stock having a value equal to 100% of their claim.

     o    The Company has proposed to pay allowed  claims of  Universal  Service
          Administrative  Company  either  25% of the claim in cash  distributed
          over 24 months or shares of new common  stock  having a value equal to
          100% of their claim.

     o    The Company  has  proposed to pay  allowed  general  unsecured  claims
          either 25% of the claim in cash  distributed  over 24 months or shares
          of new common stock having a value equal to 100% of their claim.

     o    The Company has proposed to pay  existing  preferred  shareholders  in
          full satisfaction a pro rata distribution of new common stock based on
          the aggregate  number of the preferred  shares held. o The Company has
          proposed  that holders of common stock will retain their  interests in
          NetWolves,  subject to the  dilution  through a reverse  split and the
          issuance of New Common Stock to senior  classes of the  creditors  and
          preferred shareholders.

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
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.

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,  as well as a percentage of historical run 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. All questionable accounts previously sent
out to agency were deemed  uncollectible  and written down at June 30, 2007.  We
have an allowance in the amount of $180,000 reserved for uncollectible  accounts
at March 31, 2008.

Income taxes

As part  of the  process  of  preparing  our  condensed  consolidated  financial
statements  we  are  required  to  prepare  our  income  taxes  in  each  of the

                                       19
<PAGE>

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  condensed  consolidated  balance  sheet.  We must then  assess  the
likelihood  that our deferred tax assets will be 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 March 31, 2008 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 and nine months  ended March 31,
2008.  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 two  business  segments,  the Voice  Services  segment
("Voice Services"), and the Managed Service Charges ("MSC") segment.

The nine months ended March 31, 2008 compared to the nine months ended March 31,
2007 is as follows:

Revenue

Revenue  decreased  to $12.4  million for the nine months  ended March 31, 2008,
compared to $13.3 million for the same period in the prior year. The decrease in
revenue is primarily  attributable  to a decrease in Voice  Services  segment of
approximately  $0.9  million.  The  decrease in the Voice  Services  segment was
attributable to attrition within the customer base, which predominantly 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. The decrease in revenue within our MSC segment was nominal.

Cost of revenue (excluding depreciation amortization)

Cost of revenue  decreased  to $8.0  million for the nine months ended March 31,
2008  compared to $8.9  million  for the same period in the prior year.  Cost of
revenue within the Voice Services segment  decreased to $3.8 million compared to
$4.7  million.  This  decreased  cost of revenue is  primarily  attributable  to
customer attrition as previously described.

General and administrative

General and  administrative  expenses were $2.6 million and $3.7 million for the
nine months ended March 31, 2008 and 2007 respectively.  The decrease in general
and  administrative  expenses  were due to a decrease  in lease  expense of $0.2
million, a decrease in professional fees of $0.2 million, a decrease in non-cash
equity of  approximately  $0.3 million and a decrease in other  expenses of $0.2
million.

Sales and marketing

Sales and marketing expenses decreased to $1.8 million for the nine months ended
March 31, 2008,  compared to $2.4 million for the same period in the prior year.

                                       20
<PAGE>
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 $0.3  million,  a decrease in  associated  sales and  marketing
expenses in the amount of $0.1 million and a decrease in bad debt expense in the
amount of $0.2 million.

Other income (expenses)

The decrease in interest expense was due to the non payment of interest payments
to the  noteholders as a result of the  reorganization.  During  reorganization,
interest  expense  is only  recorded  to the  extent it will be paid  during the
proceeding  or if it is  probable  it will be an  allowed  priority,  secured or
unsecured  claim.  Other  expenses  for the nine  months  ended  March 31,  2007
consisted  of  interest  expense  to the  noteholders  in the  amount  of $(0.1)
million.  There were no interest  payments made to the  noteholders for the nine
months ended March 31, 2008.

Reorganization Cost

We incurred  reorganization  costs of approximately to $0.5 million for the nine
months  ended  March  31,  2008  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, such as vendor concessions, legal,
trustee  and  consulting  fees,  as well as  other  administrative  costs in the
amounts  of  approximately   $0.2  million,   $0.2  million  and  $0.1  million,
respectively,  necessary for the Company to  reorganize  and develop its plan to
emerge from bankruptcy.

Three months ended March 31, 2008 and 2007

Revenue

Revenue  decreased  to $4.0  million for the three  months ended March 31, 2008,
compared to $4.3 million for the same period in the prior year.  The decrease in
revenue is  attributable to our Voice Services  segment where revenue  decreased
$0.2 million. The decrease within our Voice Services segment was attributable to
customer attrition. The decrease within our MSC segment was nominal.

Cost of revenue (excluding depreciation and amortization)

Cost of revenue  decreased  to $2.6 million for the three months ended March 31,
2008,  compared  to $3.0  million  for the same  period in the prior  year.  The
decrease  is  attributable  to  reduced  cost in the Voice  Services  segment of
approximately $0.3 million due to lost customers. Revenue within our MSC segment
decreased by approximately $0.1 million.

General and administrative

General and  administrative  expenses  decreased  to $0.7  million for the three
months ended March 31, 2008, compared to $1.0 million for the same period in the
prior year. The decrease was the result of cost cutting  initiatives in addition
to the  relocation  of our Tampa  facility,  which  decreased  lease  expense of
approximately  $0.1 million,  a decrease in various  general and  administrative
expenses of  approximately  $0.2 million and a decrease in legal of $0.1 million
from the prior  period,  offset by an increase  in payroll  and payroll  related
expenses of $0.1 million.  The increase in payroll and payroll related  expenses
was due to the adjustments of vacation accruals.

Sales and marketing

Sales and  marketing  expenses  decreased  to $0.6  million for the three months
ended March 31, 2008,  compared to $0.7 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 $0.03 million, a decrease in bad debt in the amount of
$0.03 million and a decrease in associated  sales and marketing  expenses in the
amount of $0.04 million compared to the same period in the prior year.

                                       21
<PAGE>
Other income (expenses)

The  decrease  in  interest  expense  was due to the  non-payments  of  interest
payments to the noteholders as a result of the reorganization. Other expense for
the same  period in the prior year  consisted  of a $0.05  million  of  interest
payments to note holders.

Reorganization Cost

We incurred  reorganization costs of approximately to $0.1 million for the three
months  ended  March  31,  2008  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,  such as  legal,  trustee  and
consulting  fees as well as other  administrative  costs in the  amount of $0.07
million and $0.03 million, respectively, necessary for the Company to reorganize
and develop its plan to emerge from bankruptcy.

Liquidity and Capital Resources

Our operating activities used cash of approximately $0.7 million during the nine
months  ended March 31,  2008,  as compared to cash used of  approximately  $1.2
million for the same period in the prior year.  Cash used in operations  for the
nine months  ended March 31, 2008 was  primarily  attributable  to a net loss of
approximately $0.8 million,  which included  reorganization costs, a decrease in
accounts  receivable of approximately  $0.2 million,  inventory of approximately
$0.05 million,  a decrease in prepaid expenses of $0.1 million and a decrease in
deferred  revenue in the amount of  approximately  $0.3  million.  In  addition,
non-cash charges for depreciation and amortization,  equity compensation and bad
debt expense was  approximately  $0.2  million,  $0.03 million and $0.2 million,
respectively.

Our investing  activities used  approximately $ 0.06 million for the nine months
ended March 31,  2008 as  compared to using $0.1  million for the same period in
the prior year. Cash used in investing activities was primarily  attributable to
purchases of property and equipment during the relocation in the amount of $0.06
million.  Cash used by investing  activities for the nine months ended March 31,
2007,  was  primarily  attributable  to payments on  customer  lists  previously
acquired  in the amount of $0.1 and patent  cost in the amount of  approximately
$0.009 million.

Our  financing  activities  provided  $0.2 million  during the nine months ended
March 31, 2008 as compared to providing  $0.1 million for the same period in the
prior year.  Cash  provided by  financing  activities  for the nine months ended
March 31, 2008 was  attributable to  debtor-in-possession  ("DIP")  financing of
$0.2 million.  Cash provided by financing  activities  for the nine months ended
March 31, 2007 was attributable to debt financing of $0.1 million.

On October 29,  2007,  our Joint Plan of  Reorganization  of Debtors and related
Disclosure Statement was filed with the Bankruptcy Court.

On January 17, 2008, we filed a First Amended  Joint Plan of  Reorganization  of
Debtors and related Disclosure Statement with the Bankruptcy Court. We intend to
borrow up to $600,000  (the "DIP Loan")  secured by senior  liens in the Company
and certain of its subsidiaries  assets. The DIP Loan shall be used primarily to
provide  operating  capital  primarily to supplement its fluctuating  cash flows
through and up to  confirmation.  Through March 31, 2008,  we borrowed  $175,000
under the DIP Loan.  Subsequent  to March 31,  2008,  the  Company  received  an
additional $225,000 under the terms of the DIP financing.

The  debtor in  possession  financing  is  represented  by  Secured  Convertible
Promissory  Notes. The Secured Notes ranks senior to all existing  securities of
the  Company,  shall be secured by all of the  assets of the  Company  and shall
provide  that  no  other  debtor  in  possession  indebtedness  of  the  Company
(including replacement credit facilities but excluding trade payable incurred in
the  ordinary  course of business)  shall be created  without the consent of the
Secured Note holders.  The Company  received  $50,000  during  February 2008 and
$125,000  during March 2008.  The  agreements  governing the Secured Notes shall

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<PAGE>
contain   standard   provisions   for  debtor  in  possession   financing   with
superpriority claim status in a federal bankruptcy case. The principal amount of
the Secured Note bears interest at 12% per annum,  which begins to accrue on the
issuance  date of the Secured  Note and  payable  quarterly  in case  thereafter
(18.00% per annum,  retroactive to the closing date, after an event of default),
with principal and accrued and unpaid  interest on the Secured Notes due, unless
converted,  within thirty (30) days after  confirmation of the bankruptcy  plan.
The Secured  Notes are secured by a lien,  superior to all other liens,  claims,
and/or  security  interests  on all of the  Company's  assets,  perfected in the
manner required by Investors.

The  Company  believes  that  the  DIP  Loan  is  needed  to  assure  cash  flow
requirements so that we have sufficient  capital to meet the requirements of the
business,  make all deposits or advance  payments and all other payments ordered
by the Court  through the date of  confirmation.  With the  availability  of the
requested  DIP Loan,  we will be able to continue  operations,  move  forward to
obtain  confirmation,  exit financing and emerge from Chapter 11, although there
can be no assurances that we will emerge from Chapter 11.

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 $0.5
million at March 31, 2008, 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 March 31, 2009, 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.

                                       23
<PAGE>

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.

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 over  financial  reporting  during third  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,  2007,  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, 2007,  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, 2007, 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, 2007; 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, 2007, 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, 2007,
Mr. Groteke's counsel affirmed his prior position.

                                       24
<PAGE>
On December 6, 2007,  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.


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

     None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     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 May 21,  2007.
     Notwithstanding  the  aforementioned,  the  default  has been stayed by the
     Chapter  11  bankruptcy  proceeding  pending  the  approval  of a  plan  of
     reorganization

     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.

                                       25
<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: May 15, 2008

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