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

                                   FORM 10-Q


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

                 For the quarterly period ended March 31, 2002

                        Commission file number 000-25831

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

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


             One Corporate Drive, Suite 103, Bohemia, New York 11716
                    (Address of principal executive offices)

                                 (631) 589-8275
              (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 the number of shares outstanding of each of issuer's classes of common
stock as of the latest practicable date:

                                        NUMBER OF SHARES OUTSTANDING ON
        TITLE OF CLASS                          April 16, 2002
        --------------                  --------------------------------

Common Stock, $.0033 par value                    12,597,571

<PAGE>


                     NETWOLVES CORPORATIN AND SUBSIDIARIES

                           FORM 10-Q - MARCH 31, 2002


                                     INDEX


PART I - FINANCIAL INFORMATION


   ITEM 1 - FINANCIAL STATEMENTS

   CONDENSED CONSOLIDATED BALANCE SHEETS
      March 31, 2002 (unaudited) and June 30, 2001                         1

   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
   COMPREHENSIVE LOSS
      For the three and nine months ended March 31, 2002 (unaudited)
      and March 31, 2001 (unaudited)                                       2

   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
      For the nine months ended March 31, 2002 (unaudited)
      and March 31, 2001 (unaudited)                                       3

   NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS               4 - 12

   ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS                      13 - 21

   ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK     21


PART II - OTHER INFORMATION

   ITEM 1 - LEGAL PROCEEDINGS                                             22

   ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS                     23

   ITEM 3 - DEFAULTS UPON SENIOR SECURITIES                               23

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

   ITEM 5 - OTHER INFORMATION                                             23

   ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K                              23

SIGNATURES                                                                24

<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                March 31,        June 30,
                                                  2002             2001
                                               -----------      ---------
                                               (Unaudited)
ASSETS
Current assets
<S>                                            <C>             <C>
   Cash and cash equivalents                   $  2,952,688    $  4,411,657
   Marketable securities                             80,000          71,000
   Accounts receivable, net                         169,919         366,868
   Inventories                                      312,794         361,656
   Prepaid expenses                                 300,465         234,648
   Other current assets                             906,895         185,130
                                               ------------    ------------
     Total current assets                         4,722,761       5,630,959

Property and equipment, net                         734,699         982,748
Software, net                                       165,805          73,414
Other assets                                        165,216         173,323
                                               ------------    ------------
                                               $  5,788,481    $  6,860,444
                                               ============    ============
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
   Accounts payable and accrued expenses       $    731,695    $    926,634
   Accrued losses of discontinued operations        192,824         496,927
   Deferred revenue                                  62,801         129,978
   Current maturities of long-term debt             362,982         282,982
                                               ------------    ------------
     Total current liabilities                    1,350,302       1,836,521

Long term debt, net of current maturities                 -          80,000
                                               ------------    ------------
     Total liabilities                            1,350,302       1,916,521
                                               ------------    ------------
Minority interest                                   276,093         281,693
                                               ------------    ------------
Commitment and contingencies

Shareholders' equity
  Preferred stock, $.0033 par value;
    2,000,000 authorized on March 31, 2002
    and June 30, 2001; no shares issued and
    outstanding on March 31, 2002 and
    June 30, 2001                                           -               -
  Common stock, $.0033 par value; 50,000,000
    shares authorized on March 31, 2002
    and June 30, 2001; 12,597,119 and 9,167,613
    shares issued and outstanding on March 31,
    2002 and June 30, 2001, respectively             41,570          30,254
  Additional paid-in capital                     65,156,681      57,748,499
  Unamortized value of equity warrants             (144,500)     (1,011,500)
  Accumulated deficit                           (60,776,510)    (51,980,868)
  Accumulated other comprehensive loss             (115,155)       (124,155)
                                               ------------    ------------
     Total shareholders' equity                   4,162,086       4,662,230
                                               ------------    ------------
                                               $  5,788,481    $  6,860,444
                                               ============    ============

               The accompanying notes to the financial statements
      are in integral part of these condensed consolidated balance sheets.
</TABLE>

                                       1
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                             AND COMPREHENSIVE LOSS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                      For the three months ended      For the nine months ended
                                              March 31,                        March 31,
                                      --------------------------      --------------------------
                                          2002           2001             2002           2001
                                          ----           ----             ----           ----
Revenue
<S>                                  <C>            <C>               <C>            <C>
  Products                           $    62,237    $    84,897       $   181,341    $   270,564
  Services                               121,319        149,052           377,874        951,827
                                     -----------    -----------       -----------    -----------
                                         183,556        233,949           559,215      1,222,391
                                     -----------    -----------       -----------    -----------
Cost of revenue
  Products                                35,493        197,638           112,858        278,348
  Services                                89,767        199,029           307,901        761,791
                                     -----------    -----------       -----------    -----------
                                         125,260        396,667           420,759      1,040,139
                                     -----------    -----------       -----------    -----------
Gross profit                              58,296       (162,718)          138,456        182,252
                                     -----------    -----------       -----------    -----------
Operating expenses
  General and administrative           1,625,427      1,446,274         4,905,039      6,374,660
  Engineering and development            479,891        620,173         1,406,964      1,333,889
  Sales and marketing                    583,854        998,498         1,963,487      3,649,055
                                     -----------    -----------       -----------    -----------
                                       2,689,172      3,064,945         8,275,490     11,357,604
                                     -----------    -----------       -----------    -----------
Loss before other income (expense)    (2,630,876)    (3,227,663)       (8,137,034)   (11,175,352)

Other income (expense)
  Investment income                       16,882        109,515           104,126        581,014
  Minority interest                        1,009          4,051             5,600         20,135
  Interest expense                        (5,150)        (6,571)          (32,800)       (21,090)
                                     -----------    -----------       -----------    -----------
Net loss from continuing operations   (2,618,135)    (3,120,668)       (8,060,108)   (10,595,293)

Discontinued business
  Loss from discontinued operations            -       (452,281)                -     (4,277,033)
  Loss on disposal of discontinued
    operations                          (265,534)             -          (735,534)             -
                                     -----------    -----------       -----------    -----------
Net loss                              (2,883,669)    (3,572,949)       (8,795,642)   (14,872,326)

Other comprehensive income (loss):
  Marketable securities valuation
    adjustment                             9,500         (5,000)            9,000        (26,500)
                                     -----------    -----------       -----------    -----------
Comprehensive loss                   $(2,874,169)   $(3,577,949)      $(8,786,642)  $(14,898,826)
                                     ===========    ===========       ===========    ===========
Basic and diluted net loss per share
  Loss from continuing operations    $     (.21)    $      (.36)      $      (.70)  $      (1.22)
  Loss from discontinued operations        (.02)           (.05)             (.06)          (.49)
                                    -----------     -----------       -----------    -----------
  Net loss per share                 $     (.23)    $      (.41)      $      (.77)  $      (1.71)
                                    ===========     ===========       ===========    ===========
Weighted average common shares
  outstanding, basic and diluted     12,490,132       8,742,613        11,475,994      8,717,431
                                    ===========     ===========       ===========    ===========

               The accompanying notes to the financial statements
      are in integral part of these condensed consolidated balance sheets.
</TABLE>

                                       2
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                   For the nine months ended
                                                                            March 31,
                                                                   -------------------------
                                                                      2002            2001
                                                                      ----            ----
Cash flows from operating activities
<S>                                                             <C>              <C>
  Net loss                                                      $  (8,795,642)   $ (14,872,326)
  Adjustments to reconcile net loss to net cash used in
    operating activities
      Depreciation                                                    175,841          146,654
      Amortization                                                     34,419        1,129,037
      Noncash charge to operations with respect to
        stock and warrants issued for services and
        amortization of previously issued warrants                  2,180,498        1,508,924
      Provision for impairment on discontinued operations             100,000        2,000,000
      Loss on disposal of property and equipment                       82,526           55,732
      Provision for inventory obsolescence                                  -          145,830
      Provision for bad debt                                                -           79,179
      Minority interest                                                (5,600)         (20,135)
  Changes in operating assets and liabilities
    Accounts receivable                                               196,949         (303,019)
    Inventories                                                        32,243         (132,726)
    Prepaid expenses                                                  (65,817)         (44,580)
    Other current assets                                              119,235          (17,341)
    Accounts payable and accrued expenses                            (194,939)        (785,412)
    Accrued losses of discontinued operations                        (304,103)               -
    Deferred revenue                                                  (67,177)         122,604
                                                                -------------    -------------
      Net cash used in operating activities                        (6,511,567)     (10,987,579)
                                                                -------------    -------------
Cash flows from investing activities
  Capitalized software costs                                         (125,715)         (73,944)
  Purchases of property and equipment                                 (79,690)        (648,435)
  Purchase deposits included in other current assets                 (750,000)               -
  Patent costs                                                        (11,690)         (26,079)
  Refunds of (payments for) security deposits                           4,693          (37,673)
                                                                -------------    -------------
      Net cash used in investing activities                          (962,402)        (786,131)
                                                                -------------    -------------
Cash flows from financing activities
  Repurchase of warrants                                                    -         (705,000)
  Repayment of long term debt                                               -         (263,554)
  Financing costs paid                                               (310,000)               -
  Cash proceeds from sale of common stock                           6,325,000                -
                                                                -------------    -------------
      Net cash provided by (used in) financing activities           6,015,000         (968,554)
                                                                -------------    -------------
Net decrease in cash and cash equivalents                          (1,458,969)     (12,742,264)
Cash and cash equivalents, beginning of period                      4,411,657       20,204,309
                                                                -------------    -------------
Cash and cash equivalents, end of period                        $   2,952,688    $   7,462,045
                                                                =============    =============

               The accompanying notes to the financial statements
      are in integral part of these condensed consolidated balance sheets.
</TABLE>

                                       3
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2002 AND 2001


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.  The accompanying  condensed  consolidated
     financial  statements,  footnotes and discussions of NetWolves  Corporation
     ("NetWolves"  or the  "Company")  should  be read in  conjunction  with the
     Company's  consolidated  financial  statements,  and notes thereto, for the
     years ended June 30, 2001, 2000 and 1999. The results of operations for the
     three and nine months ended March 31, 2002 are not  necessarily  indicative
     of the results to be expected for the full year.

2    The Company

     The condensed  consolidated  financial  statements  include the accounts of
     NetWolves  Corporation and its three subsidiaries,  NetWolves  Technologies
     Corporation,  ComputerCOP  Corporation  and its  majority  owned TSG Global
     Education Web, Inc. ("TSG") (collectively "NetWolves" or the "Company").

     NetWolves, LLC was an Ohio limited liability company formed on February 13,
     1998, which was merged into Watchdog Patrols, Inc. ("Watchdog") on June 17,
     1998.  Watchdog,  the legal surviving entity of the merger was incorporated
     under the laws of the State of New York on January 5, 1970.  As a result of
     the merger and subsequent sale of Watchdog's business, Watchdog changed its
     name to NetWolves.

     NetWolves is an Internet systems  developer that has designed and developed
     multi-functional  products that are secure,  integrated,  modular  Internet
     gateways.  Its products  support secure access to the Internet for multiple
     users  through  a single  connection  and,  among  other  things,  provides
     electronic mail, firewall security and web site hosting and also contains a
     network file server.  Since inception,  the Company has been developing its
     business  model and building  its  infrastructure  in order to  effectively
     market its products and services.

     TSG historically has provided consulting, educational and training services
     primarily  to the  oil and gas and  automotive  industries  throughout  the
     United States.  ComputerCOP  Corporation sells software designed to provide
     non  computer  literate  owners the ability to identify  threats as well as
     objectionable  material  that may be viewed by users of the computer on the
     Internet.  In June 2001,  management  approved a formal plan of disposal of
     the ComputerCOP software business segment (Note 4).

3    Significant accounting policies

     Use of estimates

     In preparing condensed consolidated financial statements in conformity with
     accounting  principles generally accepted in the United States,  management
     makes estimates and assumptions  that affect the reported amounts of assets
     and liabilities and disclosures of contingent assets and liabilities at the
     date of the condensed  consolidated  financial  statements,  as well as the
     reported  amounts of revenue  and  expenses  during the  reporting  period.
     Actual results could differ from those estimates.


                                       4
<PAGE>

                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2002 AND 2001


3    Significant accounting policies (continued)

     Principles of consolidation

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

     Discontinued operations

     The consolidated  financial  statements for the three and nine months ended
     March  31,  2001  have  been  restated  to  separately  report  results  of
     discontinued   operations  from  the  results  of  continuing   operations.
     Disclosures included herein pertain to the Company's continuing  operations
     unless otherwise noted.

     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.  Raw material and finished goods amounted to $136,468 and
     $176,326,  respectively,  at March  31,  2002 and  $154,331  and  $207,325,
     respectively, at June 30, 2001. Included in inventory at March 31, 2002 and
     June 30, 2001 is $1,000 and $25,000,  respectively,  of finished  goods and
     raw materials inventory relating to discontinued operations (Note 4).

     Summary of recent accounting pronouncements

     In June 1998,  the  Financial  Accounting  Standards  Board  (FASB)  issued
     Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
     Derivative  Instruments  and  Hedging  Activities"  (SFAS  133).  SFAS  133
     establishes accounting and reporting standards for derivative  instruments,
     including  certain  derivative  instruments  embedded  in  other  contracts
     (collectively  referred to as Derivatives) and for hedging  activities.  It
     requires  that  entities   recognize   Derivatives   as  either  assets  or
     liabilities  in the  statement  of  financial  position  and measure  those
     instruments  at fair  value.  In June 1999,  the FASB  issued SFAS No. 137,
     "Accounting for Derivative Instruments and Hedging Activities - Deferral of
     the Effective  Date of FASB  Statement No. 133," which delayed the date for
     implementation  to all fiscal  quarters of all fiscal years beginning after
     June 15, 2000. In June 2000, the FASB issued SFAS No. 138,  "Accounting for
     Certain  Derivative   Instruments  and  Certain  Hedging  Activities  -  an
     amendment  of SFAS No.  133," which  amends the  accounting  and  reporting
     standards of SFAS 133 for Derivatives and certain hedging  activities.  The
     adoption  of SFAS 133, on July 1, 2000,  did not have a material  effect on
     the Company's results of operations.

     During June 2001,  the FASB issued  SFAS No. 141,  "Business  Combinations"
     ("SFAS No. 141"), and SFAS No. 142,  "Goodwill and Other Intangible Assets"
     ("SFAS No. 142"). SFAS No. 141 addresses financial accounting and reporting
     for goodwill and other intangible assets acquired in a business combination
     at acquisition.  SFAS No. 141 requires the purchase method of accounting to
     be used for all  business  combinations  initiated  after  June  30,  2001;
     establishes  specific  criteria for the  recognition  of intangible  assets
     separately from goodwill;  and requires unallocated negative goodwill to be
     written off immediately as an extra-

                                       5
<PAGE>

                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2002 AND 2001


3    Significant accounting policies (continued)

     Summary of recent accounting pronouncements (continued)

     ordinary  gain  (instead of being  deferred  and  amortized).  SFAS No. 142
     addresses financial accounting and reporting for intangible assets acquired
     individually or with a group of other assets at  acquisition.  SFAS No. 142
     also  addresses  financial  accounting and reporting for goodwill and other
     intangible  assets subsequent to their  acquisition.  SFAS No. 142 provides
     that goodwill and intangible  assets,  which have indefinite  useful lives,
     will not be  amortized  but  rather  will be tested at least  annually  for
     impairment. It also provides that intangible assets that have finite useful
     lives will  continue to be  amortized  over their useful  lives,  but those
     lives will no longer be limited to forty  years.  SFAS No. 141 is effective
     for all  business  combinations  initiated  after June 30, 2001 and for all
     business  combinations  accounted for by the purchase  method for which the
     date of  acquisition is after June 30, 2001. The provisions of SFAS No. 142
     are  effective  for fiscal years  beginning  after  December 15, 2001.  The
     Company plans to adopt SFAS No. 142 effective  July 1, 2002. The Company is
     considering  the  provisions of SFAS No. 141 and No. 142 and at present has
     not determined the impact of adopting SFAS No. 141 and SFAS No. 142.

     During  August  2001,  the FASB issued SFAS No.  144,  "Accounting  for the
     Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144
     addresses financial accounting and reporting for the impairment or disposal
     of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for
     the  Impairment  of  Long-Lived  Assets  and for  Long-Lived  Assets  to Be
     Disposed Of" ("SFAS No. 121"), and the accounting and reporting  provisions
     of Accounting  Principles  Board Opinion No. 30,  "Reporting the Results of
     Operations - Reporting  the Effects of Disposal of a Segment of a Business,
     and   Extraordinary,   Unusual  and   Infrequently   Occurring  Events  and
     Transactions"  ("APB No. 30"). SFAS No. 144 was issued because SFAS No. 121
     did not address the accounting for a segment of a business accounted for as
     a  discontinued  operation  under APB No.  30,  and two  accounting  models
     existed for long-lived assets to be disposed of. SFAS No. 144 establishes a
     single  accounting  model for long-lived  assets to be disposed of by sale.
     SFAS No. 144 retains the  requirements  of SFAS No. 121 to (a) recognize an
     impairment  loss only if the carrying  amount of a long-lived  asset is not
     recoverable from its undiscounted  cash flows and (b) measure an impairment
     loss as the  difference  between the carrying  amount and fair value of the
     asset.  SFAS No. 144 also requires that a long-lived asset to be abandoned,
     exchanged for a similar  productive  asset,  or  distributed to owners in a
     spinoff be considered  held and used until it is disposed of. Lastly,  SFAS
     No. 144 retains  the  requirement  of SFAS No. 121 to measure a  long-lived
     asset  classified  as held for sale at the lower of its carrying  amount or
     fair  value  less  cost to sell and to cease  depreciation  (amortization).
     Therefore,  discontinued  operations  are  no  longer  measured  on  a  net
     realizable   value  basis,  and  future  operating  losses  are  no  longer
     recognized  before they occur. SFAS No. 144 retains the basic provisions of
     APB No. 30 for the  presentation of  discontinued  operations in the income
     statement  but  broadens  that  presentation  to include a component  of an
     entity.  The  provisions  of SFAS  No.  144  are  effective  for  financial
     statements  issued for fiscal years  beginning after December 15, 2001, and
     interim  periods  within  those  fiscal  years,   with  early   application
     encouraged.  The  provisions  of SFAS No. 144  generally  are to be applied
     prospectively.  The Company plans to adopt SFAS No. 144  effective  July 1,
     2002, and has not yet determined the impact of adoption.

     Reclassifications

     Certain  reclassifications  have  been made to the  condensed  consolidated
     financial  statements  shown  for the prior  periods  in order to have them
     conform to the current period's classifications.

                                       6
<PAGE>

                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2002 AND 2001


4    Disposal of business segment

     During June 2001, the Company  formally  adopted a plan to discontinue  its
     ComputerCOP software operations.  At that time, this consisted primarily of
     ComputerCOP software technology,  inventory and property and equipment. The
     Company  accrued a  provision  for  estimated  losses  during the phase out
     period of  approximately  $497,000 at June 30, 2001. In December  2001, the
     Company  recorded an  additional  charge of $470,000 to loss on disposal of
     discontinued  operations,  of which  $320,000  was the  result of an equity
     settlement of an employment  contract  (Note 7). In March 2002, the Company
     recorded an additional charge of $265,534 relating  primarily to additional
     salaries  expected to be paid through the  anticipated  disposal date and a
     change in the estimated  proceeds for inventory and equipment.  The Company
     has also reclassified the consolidated financial statements for the periods
     prior  to  fiscal  2001  to  separately   report  results  of  discontinued
     operations  from the  results of  continuing  operations.  A summary of the
     operating results of the discontinued operations follows:

     Loss from discontinued operations are as follows:

<TABLE>
<CAPTION>
                                  For the three months       For the nine months
                                     ended March 31,           ended March 31,
                                  ---------------------     ---------------------
                                  2002         2001           2002         2001
                                  ----         ----           ----         ----
<S>                          <C>          <C>             <C>          <C>
Revenue                      $    41,690  $    41,745     $   182,965  $    77,134
Cost of revenue                    4,592        3,330          33,597        6,663
Selling, general and
  administrative                 315,341      490,696       1,235,404    2,347,504
Impairment                       100,000            -         100,000    2,000,000
Amortization                           -            -               -            -
                             -----------  -----------     -----------  -----------
Loss from discontinued
  operations                 $  (378,243) $  (452,281)    $(1,186,036) $(4,277,033)
                             ===========  ===========     ===========  ===========
</TABLE>

Loss from discontinued  operations for the three and nine months ended March 31,
2002 has been  applied to "Accrued  losses of  discontinued  operations"  on the
condensed   consolidated   balance   sheets,   net  of  additional   charges  of
approximately  $266,000 and  $470,000 for the quarters  ended March 31, 2002 and
December 31, 2001,  respectively.  Proceeds to the Company from  disposal of its
ComputerCOP  software   operations,   including  the  sale  of  the  ComputerCOP
technology and the liquidation of certain  inventories,  accounts receivable and
property  and  equipment  retained  by  the  Company,  are  not  expected  to be
significant.  Such assets had a carrying value of approximately $50,000 at March
31,  2002.  The Company  expects to  complete  the  disposal of its  ComputerCOP
operations through the sale of its remaining assets by June 30, 2002.

                                       7
<PAGE>

                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2002 AND 2001


5    Other current assets

     On January 30, 2002,  the Company  entered into an agreement to acquire all
     of  the  capital  stock  of  Norstan  Network  Services,  Inc.  ("NNS"),  a
     subsidiary of Norstan,  Inc. NNS provides  multiple source carrier services
     and  related   consulting  and   professional   services  under   long-term
     contractual arrangements. Concurrently with the execution of the agreement,
     which is subject to certain conditions,  including  regulatory approval and
     financing,  the Company has made a deposit of $400,000, which is refundable
     only under certain conditions. The total purchase price is $7.5 million, of
     which  $3.75  million  (inclusive  of the  purchase  deposit) is payable at
     closing with the remaining balance due one year thereafter in the form of a
     non-interest bearing note.

     In January 2002, the Company issued 100,000 shares of  unregistered  common
     stock for professional and consulting  services  relating to this and other
     potential  acquisitions,  a portion of which is included  in other  current
     assets in the condensed consolidated balance sheets (Note 7).

     On February  20,  2002,  the Company  loaned a related  party  company (the
     "Recipient") $350,000 (the "Payment") in the form of a promissory note (the
     "Note"),  which bears interest at a rate of 10% per annum and is payable in
     full on May 31, 2002 subject to the following conditions:

     --   If NetWolves decides to purchase all of the outstanding  capital stock
          of a wholly-owned  subsidiary  (the  "Target") of the  Recipient,  the
          Payment will be applied toward the purchase price and the Note will be
          cancelled.

     --   If the  purchase  of the Target does not occur,  the Payment  shall be
          deemed  full  consideration  for  and  finders  and/or  other  fees or
          consideration  otherwise  due to the Recipient for the purchase of the
          capital stock of NNS.

     --   If the purchase of the Target and NNS does not occur,  the Note is due
          and payable under its stated terms.

     The  purchase  deposit to NNS and the Note are  included  in other  current
     assets in the condensed consolidated balance sheets at March 31, 2002.

6    Balance sheet components

<TABLE>
<CAPTION>
                                                    March 31,        June 30,
                                                      2002             2001
                                                 ------------     ------------
<S>                                              <C>              <C>
Property and equipment, net
  Machinery and equipment                        $   749,538      $   867,832
  Furniture and fixtures                             218,498          281,484
  Leasehold improvements                             136,565          152,150
                                                 -----------      -----------
                                                   1,104,601        1,301,466
  Less: accumulated depreciation and amortization   (369,902)        (318,718)
                                                 -----------      -----------
  Property and equipment, net                    $   734,699      $   982,748
                                                 ===========      ===========
Accounts payable and accrued expenses
  Trade accounts payable and accrued
    operating expenses                           $   555,743      $   777,226
  Compensated absences                               171,621          143,206
  Other liabilities                                    4,331            6,202
                                                 -----------      -----------
                                                 $   731,695      $   926,634
                                                 ===========      ===========
</TABLE>

                                       8
<PAGE>


                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2002 AND 2001


7    Shareholders' equity

     Common stock issuances

     --   On July 9, 2001, the Company completed a private placement with Pequot
          Partners Fund,  L.P. and Pequot  International  Fund,  Inc., two funds
          managed by Pequot Capital Management,  Inc. The Company sold 1,200,000
          shares  of  unregistered  common  stock at $2.50 per share (a total of
          $3,000,000).

     --   In July 2001, the Company  completed a private placement to accredited
          investors  for  $325,000   through  the  sale  of  130,000  shares  of
          unregistered common stock at $2.50 per share.

     --   In July 2001, and in consideration for the termination of a three year
          employment   agreement,   the  Company   issued   150,000   shares  of
          unregistered common stock to such employee, which resulted in a charge
          to fiscal 2002 operations of $487,500.

     --   In November 2001, the Company completed private placements with Credit
          Suisse Asset Management,  LLC, and Whiffletree Partners,  LP, which is
          managed by Palisade Capital Management,  LLC, whereby the Company sold
          an aggregate  of 1.5 million  shares of  unregistered  common stock at
          $2.00 per share (a total of $3,000,000)  exclusive of commissions  and
          professional services aggregating $310,000, $300,000 of which was paid
          to a  company  in which an  employee  of  NetWolves  has an  ownership
          interest.

     --   In December 2001, and in consideration  for the termination of a three
          year  employment  agreement,  the  Company  issued  200,000  shares of
          unregistered  common stock and a warrant to purchase 100,000 shares of
          unregistered common stock to such employee, which resulted in a charge
          to  loss  from  discontinued  operations  of  $320,000  (exclusive  of
          $150,000 which had been previously accrued).

     --   In January 2002, the Company  issued  100,000  shares of  unregistered
          common stock for  professional  and  consulting  services  relating to
          potential  business  acquisitions to a company in which an employee of
          NetWolves  has an  ownership  interest.  A portion of the cost of such
          issuance has been  included in other  current  assets in the condensed
          consolidated balance sheets at March 31, 2002.

8    Segment information

     The Company  reports  segments in  accordance  with FASB  Statement No. 131
     "Disclosures about Segments of an Enterprise and Related Information".  The
     Company and its subsidiaries operate in two separate business segments, the
     Technology segment and the Training and Consulting segment. These operating
     segments are  representative  of the Company's  management  approach to its
     evaluation of its  operations.  The  accounting  policies of the reportable
     operating  segments  are the  same as those  described  in the  summary  of
     significant  accounting  policies.  The Technology segment,  which operates
     worldwide, is primarily engaged in the design,  development,  marketing and
     support  of  information  delivery  hardware  products  and  software.  The
     Training and  Consulting  segment,  which operates  domestically,  provides
     management,  consulting, educational and training services primarily to the
     oil and gas and automotive industries throughout the United States.

                                       9
<PAGE>

                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2002 AND 2001


8    Segment information (continued)

<TABLE>
<CAPTION>
                                  For the three months       For the nine months
                                     ended March 31,           ended March 31,
                                  ---------------------     ---------------------
                                  2002         2001           2002         2001
                                  ----         ----           ----         ----
Revenue
<S>                           <C>          <C>             <C>           <C>
  Technology                  $   102,661  $   117,073     $   321,135   $    365,201
  Training and consulting          80,895      116,876         238,080        857,190
                              -----------  -----------     -----------   ------------
                              $   183,556  $   233,949     $   559,215   $  1,222,391
                              ===========  ===========     ===========   ============
Operating loss
  Technology                  $(2,573,659) $(2,987,934)    $(7,810,917)  $ (9,966,251)
Training and consulting           (57,217)    (239,729)       (326,117)    (1,209,101)
                              -----------  -----------     -----------   ------------
                              $(2,630,876) $(3,227,663)    $(8,137,034)  $(11,175,352)
                              ===========  ===========     ===========   ============
</TABLE>

<TABLE>
<CAPTION>
                                                      March, 31          June 30,
                                                         2002              2001
                                                   --------------    --------------

        Identifiable assets
<S>                                                <C>                <C>
          Technology                               $  5,423,195       $  6,413,782
          Training and consulting                       291,150            241,369
                                                   ------------       ------------
                                                      5,714,345          6,655,151
          Net assets of discontinued operations          74,136            205,293
                                                   ------------       ------------
           Total                                   $  5,788,481       $  6,860,444
                                                   ============       ============
</TABLE>

     The  Company  had one major  customer,  in the  Technology  segment,  which
     accounted for 39% of  consolidated  revenue for the nine months ended March
     31, 2002 and two major customers,  one in the Technology segment and one in
     the Training and  Consulting  segment,  which  accounted for 21% and 41% of
     consolidated   revenue   for  the  nine  months   ended  March  31,   2001,
     respectively. Additionally, the Company had one customer that accounted for
     40% of consolidated accounts receivable at March 31, 2002 and two customers
     that accounted for 56% and 12% of consolidated  accounts receivable at June
     30, 2001.

                                       10
<PAGE>


                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2002 AND 2001



9    Commitments and contingencies

     The Sullivan Group

     On or about November 22, 2000 the Company  commenced a lawsuit ("Action 1")
     in the United States  District Court for the Southern  District of New York
     against certain  defendants who were officers and/or  directors of TSG (the
     "Sullivan   Group")  and  against  an  Ohio  Corporation,   ProCare,   Inc.
     ("ProCare").  In response to Action 1, on or about  December 19, 2000,  the
     Sullivan  Group  commenced  a lawsuit  ("Action  2") in the  United  States
     District  Court for the  Southern  District of New York against the Company
     and other defendants.  The Company claims that it was induced to enter into
     the merger  agreement  and  consummate  the merger  transaction  based upon
     fraudulent  misrepresentations  and the purposeful  concealment of material
     information  by the  Sullivan  Group.  The  Sullivan  Group is  contending,
     correspondingly,  that it was the  Company  and  certain of the current and
     former  officers and directors who induced the Sullivan Group to enter into
     the  merger  agreement  by  making  false or  negligent  misrepresentations
     regarding the Company's  principal  product.  Service  revenue from the TSG
     subsidiary  has been,  and will continue to be  substantially  reduced as a
     result of the  reduction  in its  operations  and the  continuing  disputes
     between the parties.

     The Sullivan  Group and ProCare moved to dismiss  Action 1 based upon their
     contention that the Court lacked subject matter  jurisdiction to adjudicate
     the  controversy.  Correspondingly,  NetWolves and TSG moved in Action 2 to
     dismiss the claims of the  Sullivan  Group  against them on the ground that
     the Federal Rules of Civil Procedure compel the Sullivan Group to interpose
     such claims, if at all, as counterclaims in Action 1.

     Subsequently,  the Sullivan Group (as the Plaintiffs in Action 2) sought an
     Order compelling the Company to issue an opinion that the Shares are freely
     saleable  without  any  restrictions  or  limitations  under Rule 144.  The
     Company  opposed this  application  on the ground that  independent  of the
     aggregation  or "acting in concert"  limitation  under Rule 144,  which the
     Company contends was applicable, the return of the Shares was an element of
     the relief sought by the Company in Action 1.

     In a decision dated May 8, 2001,  which  addressed all three  motions,  the
     Court granted the Sullivan  Group's  motion to dismiss  Action No. 1 on the
     ground that full  diversity of  citizenship  between the plaintiffs and the
     defendants did not exist, and, therefore, as a procedural matter, the Court
     lacked  subject  matter  jurisdiction.  As a  consequence,  in  addition to
     denying the material  allegations  of the Sullivan  Group's  complaint  and
     setting  forth  several  affirmative  defenses  to the 10b-5  claim and the
     claims for fraud, negligent  misrepresentation and breach of the Employment
     Agreements,  the Company and TSG have now  reasserted as  counterclaims  in
     their answer in Action No. 2, all of the claims which they asserted against
     the  Sullivan  Group  and  ProCare  (as  an  additional  defendant  on  the
     counterclaims)  in their complaint in Action No. 1 plus an additional claim
     against  the   Sullivan   Group  for  breach  of  certain  of  the  express
     representations  and  warranties  in the  Merger  Agreement.  Based  on the
     foregoing,  the Company and TSG are seeking  compensatory damages in excess
     of $5 million,  punitive damages in the amount of $5 million and injunctive
     and other ancillary relief.  Based upon the allegations in their complaint,
     the Sullivan  Group are seeking $8 million in  compensatory  damages and $8
     million in punitive  damages.  Although the Court did enjoin the Company to
     have its counsel issue an opinion letter under Rule 144, the Sullivan Group
     nevertheless  are  restricted  to selling as a group during the  prescribed
     temporal  periods only that limited  number of shares  permitted  under the
     aggregation  proscriptions of Rule 144(e).  The Court further mandated that
     as a condition of granting such preliminary injunctive relief, the Sullivan


                                       11
<PAGE>


                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2002 AND 2001


9    Commitments and contingencies (continued)

     The Sullivan Group (continued)

     Group are  compelled  to deposit all of the  proceeds of such sales into an
     escrow to be held as security  for any and all costs and  damages  that the
     Company may suffer or incur if it is determined ultimately that such relief
     was wrongfully granted.

     The Court denied the Sullivan Group's  application for an order authorizing
     the release of the sales proceeds from escrow.

     The Company  believes  that its claims  against the Sullivan  Group will be
     meritorious  based on the facts and  circumstances.  Further,  the  Company
     believes that the claims by the Sullivan Group lack merit and it intends to
     engage in a vigorous defense.

10   Liquidity

     NetWolves had cash and cash  equivalents of  approximately  $3.0 million at
     March 31, 2002.  Management  believes that the Company has adequate capital
     resources to meet its working  capital  needs for the next  several  months
     based upon its planned  operating level,  without  accounting for potential
     material  revenue.  In this  regard,  the  Company  anticipates  its  first
     significant  order from its major  customer in or before the fiscal quarter
     commencing July 1, 2002.

     In order for the Company to execute its  business  plan,  significant  cash
     expenditures   were  necessary  for,  among  other  things,   research  and
     development,  developing infrastructure and the utilization of consultants.
     The Company has entered into an agreement with investment  bankers to raise
     additional funds to be used to acquire Norstan Network  Services,  Inc. and
     for additional working capital.  There can be no assurance that the Company
     will be successful in these  efforts.  If the Company is unable to generate
     funds  internally  through the sale of its  products,  or raise  additional
     monies through financing  arrangements,  management  intends to curtail its
     operations.

                                       12
<PAGE>


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

     Forward-looking statements

     The Form 10-Q includes,  without limitation,  certain statements containing
     the words "believes." "anticipates", "estimates", "expects", and words of a
     similar nature, constitute "forward-looking  statements" within the meaning
     of the Private Securities  Litigation Reform Act of 1995. This Act provides
     a "safe harbor" for  forward-looking  statements to encourage  companies to
     provide  prospective  information about themselves so long as they identify
     these  statements  as forward  looking and provide  meaningful,  cautionary
     statements identifying important factors that could cause actual results to
     differ from the projected results.  All statements other than statements of
     historical fact made in this Form 10-Q are forward-looking.  In particular,
     the statements  herein regarding  industry  prospects and future results of
     operations  or  financial   position  are  forward-   looking   statements.
     Forward-looking  statements reflect  management's  current expectations and
     are  inherently   uncertain.   The  Company's  actual  results  may  differ
     significantly from management's expectations.  Readers are cautioned not to
     place undue reliance on these forward-looking  statements. The company does
     not  undertake any  obligation  to release  publicly any revisions to these
     forward-looking  statements to reflect future events or circumstances or to
     reflect the occurrence of unanticipated events.


     Overview

     NetWolves  Corporation  ("NetWolves" or the "Company")  designs,  develops,
     manufactures and sells Internet infrastructure security platforms,  coupled
     with network based management  services,  designed to significantly  reduce
     the upfront  and ongoing  costs  associated  with small,  medium and remote
     offices' secure global internet access. The Company was founded in order to
     leverage the rapid  progression of technology,  removing  barriers of entry
     for organizations  desiring to attain the benefits and flexibility a public
     network  enterprise  offers.  NetWolves'  patent pending system  technology
     enables  organizations  to obtain their short,  middle and long term IT and
     e-business  initiatives  through  the  deployment  of  our  plug  'n'  play
     perimeter  office  security  platform,   coupled  with  our  secure  remote
     monitoring  and  management  ("SRM2 TM") system.  Additionally,  NetWolves'
     advanced,  centralized,  reporting  module  offers  for the first  time the
     ability for corporate executives to view, via the Internet, statistical and
     performance metrics in real time.

     NetWolves'  products  and  services  offer  complete  system  solutions  to
     organizations  needing cost effective network security (firewall,  routing,
     intrusion  detection,   content  filtering,  email,  intranet,  FTP,  etc.)
     complete with advanced integrated hardware, a user-friendly  interface, and
     internet-  based  expansion  capabilities.  As  companies  combine data and
     communications  to  reduce  costs,   NetWolves   provides   cost-effective,
     value-added  expansion  technologies  such as  virtual  private  networking
     ("VPN"),  a process used to allow secure data transmissions on a local area
     network,  a wide area network,  or to secure wireless network  connections.
     This feature  affords the user  virtually  all the  benefits of  lease-line
     service without the attendant recurring costs.

     NetWolves  differentiates itself from its competitors primarily through its
     proprietary patent pending  technology,  which provides  centralized remote
     monitoring  and  management   facilities  (SRM2  TM).  While  other,   more
     labor-intensive management systems currently exist, such systems require an
     inbound  administrative  port to provide remote  monitoring and management.
     Most Fortune 1000 companies are unwilling to take the risk of opening up an
     inbound  administrative  port while  having their  entire  enterprise  on a
     public broadband format.  "Hackers",  using simple port scanning tools, can
     easily locate these  administrative  inbound ports. SRM2 TM has the ability
     to  monitor  thousands  of  locations   concurrently   without  opening  an
     administrative  inbound port and allows the secure,  remote  management and
     monitoring of multiple  all-in-one gateway servers located worldwide.  This
     monitoring can be performed in real-time,  and from one or numerous central
     sites.  This  technology  also allows a network  administrator  to create a

                                       13

<PAGE>

     configuration  template with all the configuration  information and changes
     required for all-in-one  units.  This template can be applied to each unit,
     all via a  secure  configuration  mechanism  from  the  central  monitoring
     location,  without compromising network security. It is this SRM2 TM system
     that forms the basis of the Company's  agreement with the General  Electric
     Company.

     NetWolves'  "edge  of  the  network"  security  platforms  and  centralized
     management and monitoring  systems are designed for our customers'  present
     and future needs. The Company's initial target markets are the end users in
     small and  mid-size  businesses  and  large  organizations  with  satellite
     offices.  Larger end users, to whom the product is marketed,  are companies
     with multi-state  locations,  government agencies and educational  markets.
     NetWolves'  products are designed to service  numerous  markets,  including
     financial,  medical,  legal,  travel,   entertainment,   hotel,  education,
     government,  auto and petroleum  industries.  The Company's  strategy is to
     establish  their SRM2 TM  technology  as the standard  for  enterprise-wide
     secure network connectivity worldwide. To achieve its objectives, NetWolves
     seeks to form  relationships  with leading  companies  in their  respective
     areas to deliver application-specific Internet solutions.

     On June 29, 2000,  NetWolves and General  Electric  Company  ("GE") entered
     into a six year  agreement  for the master  purchase,  license  and support
     services  of  NetWolves'  security,  remote  monitoring  and  configuration
     management  system.  GE, after  extensive  due diligence in looking for the
     all-in-one small office solution for network management,  interconnectivity
     and  security  management,  chose the  Company's  products  for  deployment
     throughout their enterprise.

     The  contract  is for a term of six  years  and can be  extended  for  four
     additional  one-year periods unless prior notice of non-renewal is given by
     either party as defined in the  agreement.  The  contract  provides for the
     Company to receive a fee upon  shipment  of each  unit,  and an  additional
     one-time configuration and installation fee. Additionally, upon shipment of
     each unit,  GE has the right to purchase from the Company  support  service
     and annual  monitoring and  management  service on an annual basis ("Annual
     Services").  The Annual Services shall continue at the same rate per annum,
     at GE's  discretion,  provided  that GE requests  such services at any time
     during a subsequent year. GE is required to pay fees for Annual Services in
     full  from  the  expiration  date of the  prior  year  period  and  revenue
     generated from the Annual Services is recognized over the service period.

     GE  has  commenced  the  process  of  using  the  Company's   products  for
     interconnectivity  of its worldwide offices.  The Company's products enable
     GE's  offices to interact  with each other,  utilizing  NetWolves  advanced
     firewall security. NetWolves believes that this agreement further validates
     the Company's  technology and  innovations  within the firewall and network
     security markets. Network security is one of the most formidable challenges
     facing Fortune 1000 companies,  and with its new SRM2 TM system,  NetWolves
     can offer the appropriate solutions.

     On January 30, 2002,  the Company  entered into an agreement to acquire all
     of  the  capital  stock  of  Norstan  Network  Services,  Inc.  ("NNS"),  a
     subsidiary of Norstan,  Inc. NNS provides  multiple source carrier services
     and  related   consulting  and   professional   services  under   long-term
     contractual arrangements. Concurrently with the execution of the agreement,
     which is subject to certain conditions,  including  regulatory approval and
     financing,  the Company has made a deposit of $400,000, which is refundable
     only under certain conditions. The total purchase price is $7.5 million, of
     which  $3.75  million  (inclusive  of the  purchase  deposit) is payable at
     closing with the remaining balance due one year thereafter in the form of a
     non-interest bearing note.

     In January 2002, the Company issued 100,000 shares of  unregistered  common
     stock for professional and consulting  services  relating to this and other
     potential acquisitions.

     On February  20,  2002,  the Company  loaned a related  party  company (the
     "Recipient") $350,000 (the "Payment") in the form of a promissory note (the
     "Note"),  which bears interest at a rate of 10% per annum and is payable in
     full on May 31, 2002 subject to the following conditions:

                                       14
<PAGE>

     --   If NetWolves decides to purchase all of the outstanding  capital stock
          of a wholly-owned  subsidiary  (the  "Target") of the  Recipient,  the
          Payment will be applied toward the purchase price and the Note will be
          cancelled.

     --   If the  purchase  of the Target does not occur,  the Payment  shall be
          deemed  full  consideration  for  and  finders  and/or  other  fees or
          consideration  otherwise  due to the Recipient for the purchase of the
          capital stock of NNS.

     --   If the purchase of the Target and NNS does not occur,  the Note is due
          and payable under its stated terms.

     The  purchase  deposit to NNS and the Note are  included  in other  current
     assets in the condensed consolidated balance sheets at March 31, 2002.

     The Company has a limited  operating history in which to base an evaluation
     of the business and prospects.  The Company's  prospects must be considered
     in light of the risks  frequently  encountered  by companies in their early
     stages,  particularly  for  companies  in the rapidly  evolving  technology
     industry.  Certain risks for the Company include, but are not limited to an
     unproven business model,  capital  requirements and growth  management.  To
     counter  this risk,  the Company  must,  among other  things,  increase its
     customer  base,  continue to develop its  distribution  network and product
     offerings, successfully execute its business and marketing plan, and expand
     the operating  infrastructure.  There can be no assurance  that the Company
     will be successful in addressing such risks, and the failure to do so could
     have a material  adverse  effect on the Company's  financial  condition and
     results  of  operations.   Since   inception,   the  Company  has  incurred
     significant  losses and as of March 31, 2002 had an accumulated  deficit of
     approximately $60 million. The Company believes that its success depends in
     large part on its ability to create market awareness and acceptance for its
     products,  raise additional  operating  capital to grow  operations,  build
     technology and non-technology  infrastructures,  expand the sales force and
     distribution network, and continue new product research and development.

     Results of Operations

     The  Company  had  operated  in three  business  segments,  the  technology
     segment,  the training  and  consulting  segment and the computer  software
     segment.  During  June  2001,  the  Company  formally  adopted  a  plan  to
     discontinue its ComputerCOP software  operations,  eliminating the computer
     software segment,  and has restated the consolidated  financial  statements
     for the  periods  prior to fiscal  2002 to  separately  report  results  of
     discontinued operations from the results of continuing operations.

     Three months ended March 31, 2002 and 2001

          Revenue

     Revenue  from  continuing  operations  decreased  to $183,556 for the three
     months  ended March 31,  2002,  compared to $233,949 for the same period in
     the prior  year.  The  decrease in revenue  was  primarily  the result of a
     decrease in sales of the Company's technology products. The Company intends
     to generate continuing revenue from the sale of its technology products and
     services in the coming year,  including  continuing  revenue from its major
     customer,  as  additional  features,  including  new third  party  software
     applications, have now been added to its core technology products.

     Revenue  from  discontinued  operations  decreased to $41,690 for the three
     months ended March 31, 2002, compared to $41,745 for the same period in the
     prior year. Revenue from discontinued operations for the three months ended
     March  31,  2002  has been  applied  to  "Accrued  losses  of  discontinued
     operations" on the condensed consolidated balance sheets.

                                       15
<PAGE>


          Cost of revenue and gross profit

     Cost of revenue for sale of the Company's  technology products and services
     include manufacturing,  packaging and shipping costs and warranty expenses.
     Cost of revenue in  connection  with  management  and  consulting  services
     include  direct  expenses  of  employees  and  consultants  utilized in the
     generation  of  management  and  consulting  revenue.  Cost of revenue from
     continuing  operations  decreased  to $125,260  for the three  months ended
     March 31, 2002, compared to $396,667 for the same period in the prior year.

     Overall gross profit from  continuing  operations  was at 32% for the three
     months ended March 31, 2002, compared to a negative 70% for the same period
     in the prior year.  The increase in gross  profit is  primarily  due to the
     write down of inventory in the prior period due to obsolescence compared to
     no write down in the current period.

     Cost of revenue and gross profit from discontinued  operations increased to
     $4,592 and 89%,  respectively,  for the three  months ended March 31, 2002,
     compared to $3,330 and 92%, respectively,  for the same period in the prior
     year. The decrease in gross profit was due to customization  costs incurred
     on  inventory  sold during the quarter.  Cost of revenue from  discontinued
     operations  for the three  months  ended March 31, 2002 has been applied to
     "Accrued losses of discontinued  operations" on the condensed  consolidated
     balance sheets.

          General and administrative

     General and  administrative  expenses  consist  primarily  of salaries  and
     related  expenses for executive,  finance,  facilities and human  resources
     personnel,   recruiting   expenses  and  professional   fees.  General  and
     administrative  expenses from continuing operations increased to $1,625,427
     for the three months ended March 31, 2002,  compared to $1,446,274  for the
     same period in the prior year. The increase was primarily due to consulting
     services rendered to the Company during the period.

     General and administrative  expenses from discontinued operations increased
     to $216,055 for the three months ended March 31, 2002,  compared to $76,720
     for the same period in the prior year. The increase was primarily due to an
     additional  operating  accrual of approximately  $166,000 to dispose of the
     business  segment.  General and  administrative  expenses from discontinued
     operations  for the three  months ended March 31, 2002 have been applied to
     "Accrued losses of discontinued  operations" on the condensed  consolidated
     balance sheets.

          Engineering and development

     Engineering  and  development  expenses,  which are  expensed as  incurred,
     consist  primarily of salaries and related expenses for personnel  utilized
     in  designing,  maintaining  and enhancing our products as well as material
     costs for test units and prototypes.  Costs associated with the development
     of  software   products  are  generally   capitalized  once   technological
     feasibility  is  reached.   Engineering  and   development   expenses  from
     continuing  operations  decreased  to $479,891  for the three  months ended
     March 31, 2002, compared to $620,173 for the same period in the prior year.
     The decrease in engineering and development  costs was primarily the result
     of the  employment  reduced  staffing  requirements.  We  expect  to  incur
     increased  engineering  and  development  costs in the  future to assist in
     additional  development  of our  core  products  being  sold  to our  major
     customer and other expected customers.  We also expect to incur engineering
     and development costs in the future as we continue to maintain our existing
     product  line and develop new products  and  features,  as evidenced by the
     development of our "SRM2 TM" technology.

     Engineering and development expenses from discontinued operations decreased
     to $16,219 for the three months ended March 31, 2002,  compared to $187,223
     for the same period in the prior year.  The decrease was  primarily  due to
     the  termination  of  engineering  personnel  in prior  quarters due to the
     disposal of the business segment. Engineering and development expenses from
     discontinued operations for the three months ended March 31, 2002 have been
     applied to "Accrued  losses of  discontinued  operations"  on the condensed
     consolidated balance sheets.

                                       16
<PAGE>


          Sales and marketing

     Sales and marketing expenses consist primarily of salaries, commissions and
     related  expenses for personnel  engaged in  marketing,  sales and customer
     support   functions,   as  well  as  costs  associated  with  trade  shows,
     promotional  activities,   advertising  and  public  relations.  Sales  and
     marketing expenses from continuing operations decreased to $583,854 for the
     three months ended March 31, 2002, compared to $998,498 for the same period
     in the prior  year.  The  decrease  in sales  and  marketing  expenses  was
     primarily the result of more concentrated  marketing efforts toward Fortune
     1000 customers.  The Company intends to continue to promote its current and
     future  products  and,  therefore,  expects  sales and  marketing  costs to
     increase in absolute dollars in the future.

     Sales and marketing  expenses  from  discontinued  operations  decreased to
     $83,067 for the three months ended March 31, 2002, compared to $226,753 for
     the same  period in the prior  year.  The  decrease  was  primarily  due to
     reduced  sales  personnel in the current  period due to the disposal of the
     business segment. Sales and marketing expenses from discontinued operations
     for the three  months  ended March 31,  2002 have been  applied to "Accrued
     losses of discontinued  operations" on the condensed  consolidated  balance
     sheets.

          Impairment

     An impairment of $100,000 was recorded within  discontinued  operations for
     the three months ended March 31, 2002 with no  impairment  recorded for the
     same period in the prior year.

          Other income (expenses)

     Other income (expenses) from continuing  operations  consists  primarily of
     investment  portfolio  income and decreased to $12,741 for the three months
     ended March 31, 2002, compared to $106,995 for the same period in the prior
     year.  The  decrease  was  primarily  the result of a decrease  in interest
     income due to the decreased average cash balance.

          Nine months ended March 31, 2002 and 2001

          Revenue

     Revenue  from  continuing  operations  decreased  to $559,215  for the nine
     months ended March 31, 2002,  compared to $1,222,391 for the same period in
     the prior  year.  The  decrease in revenue  was  primarily  the result of a
     decrease in management  and consulting  service  revenue as a result of the
     continuing disputes between TSG and certain former employees who formed the
     management  group of TSG (See  Part II "Item 1 - Legal  Proceedings").  The
     Company  intends  to  generate  continuing  revenue  from  the  sale of its
     technology products and services in the coming year,  including  continuing
     revenue from its major  customer,  as  additional  features,  including new
     third  party  software  applications,  have  now  been  added  to its  core
     technology  products.  Service  revenue  from the TSG  subsidiary  has been
     substantially  reduced as a result of the  continuing  dispute  between the
     parties.

     Revenue  from  discontinued  operations  increased to $182,965 for the nine
     months ended March 31, 2002, compared to $77,134 for the same period in the
     prior  year.  The  increase  was due to both an  increase  in  sales of its
     Forensic and Professional software products and its consumer version of the
     software.  Revenue from  discontinued  operations for the nine months ended
     March  31,  2002  has been  applied  to  "Accrued  losses  of  discontinued
     operations" on the condensed consolidated balance sheets.

                                       17
<PAGE>

          Cost of revenue and gross profit

     Cost of revenue for sale of the Company's  technology products and services
     include manufacturing,  packaging and shipping costs and warranty expenses.
     Cost of revenue in  connection  with  management  and  consulting  services
     include  direct  expenses  of  employees  and  consultants  utilized in the
     generation  of  management  and  consulting  revenue.  Cost of revenue from
     continuing operations decreased to $420,759 for the nine months ended March
     31, 2002, compared to $1,040,139 for the same period in the prior year.

     Overall  gross profit from  continuing  operations  was at 25% for the nine
     months  ended  March 31,  2002,  compared to 15% for the same period in the
     prior year.  The increase in gross profit is primarily  due to a write down
     of inventory due to  obsolescence in the prior period with no write down in
     the current period.

     Cost of revenue and gross profit from discontinued  operations increased to
     $33,597 and 82%,  respectively,  for the nine months  ended March 31, 2002,
     compared to $6,663 and 91%, respectively,  for the same period in the prior
     year. The decrease in gross profit was due to customization  costs incurred
     on  inventory  sold during the period.  Cost of revenue  from  discontinued
     operations  for the nine months  ended  March 31, 2002 has been  applied to
     "Accrued losses of discontinued  operations" on the condensed  consolidated
     balance sheets.

          General and administrative

     General and  administrative  expenses  consist  primarily  of salaries  and
     related  expenses for executive,  finance,  facilities and human  resources
     personnel,   recruiting   expenses  and  professional   fees.  General  and
     administrative  expenses from continuing operations decreased to $4,905,039
     for the nine months ended March 31, 2002,  compared to  $6,374,660  for the
     same period in the prior year.  The  decrease  was  primarily  due to staff
     reductions and reduced  operations of the Company's training and consulting
     segment. We expect general and administrative costs to increase in absolute
     dollars in the future.

     General and administrative  expenses from discontinued operations decreased
     to  $864,696  for the  nine  months  ended  March  31,  2002,  compared  to
     $1,480,434  for the  same  period  in the  prior  year.  The  decrease  was
     primarily due to the  elimination of  amortization  expense on the acquired
     ComputerCOP  software technology  partially offset by the equity settlement
     of  an  employment  contract.  General  and  administrative  expenses  from
     discontinued  operations  for the nine months ended March 31, 2002 has been
     applied to "Accrued  losses of  discontinued  operations"  on the condensed
     consolidated balance sheets.

          Engineering and development

     Engineering  and  development  expenses,  which are  expensed as  incurred,
     consist  primarily of salaries and related expenses for personnel  utilized
     in  designing,  maintaining  and enhancing our products as well as material
     costs for test units and prototypes.  Costs associated with the development
     of  software   products  are  generally   capitalized  once   technological
     feasibility  is  reached.   Engineering  and   development   expenses  from
     continuing  operations  increased to  $1,406,964  for the nine months ended
     March 31,  2002,  compared to  $1,333,889  for the same period in the prior
     year. The increase in engineering and  development  costs was primarily the
     result  of  the  employment  of  additional   engineering  and  development
     personnel.   This  was  partially   offset  by  the  Company   capitalizing
     approximately $126,000 in software development costs during the nine months
     ended  March  31,  2002.  We  expect  to incur  increased  engineering  and
     development costs in the future to assist in additional  development of our
     core  products  being sold to our major  customer.  We also expect to incur
     engineering and development  costs in the future as we continue to maintain
     our  existing  product  line and  develop new  products  and  features,  as
     evidenced by the development of our SRM2 TM technology.

                                       18
<PAGE>

     Engineering and development expenses from discontinued operations decreased
     to $67,510 for the nine months ended March 31,  2002,  compared to $353,615
     for the same period in the prior year.  The decrease was  primarily  due to
     the  termination of engineering  personnel in the current period due to the
     disposal of the business segment. Engineering and development expenses from
     discontinued  operations  for the nine months ended March 31, 2002 has been
     applied to "Accrued  losses of  discontinued  operations"  on the condensed
     consolidated balance sheets.

          Sales and marketing

     Sales and marketing expenses consist primarily of salaries, commissions and
     related  expenses for personnel  engaged in  marketing,  sales and customer
     support   functions,   as  well  as  costs  associated  with  trade  shows,
     promotional  activities,   advertising  and  public  relations.  Sales  and
     marketing expenses from continuing  operations  decreased to $1,963,487 for
     the nine months ended March 31, 2002,  compared to $3,649,055  for the same
     period in the prior year. The decrease in sales and marketing  expenses was
     primarily the result of more concentrated  marketing efforts toward Fortune
     1000 customers.  The Company intends to continue to promote its current and
     future  products  and,  therefore,  expects  sales and  marketing  costs to
     increase in absolute dollars in the future.

     Sales and marketing  expenses  from  discontinued  operations  decreased to
     $303,198 for the nine months ended March 31, 2002, compared to $513,455 for
     the same  period in the prior  year.  The  decrease  was  primarily  due to
     terminated sales personnel.  Sales and marketing expenses from discontinued
     operations  for the nine months  ended  March 31, 2002 has been  applied to
     "Accrued losses of discontinued  operations" on the condensed  consolidated
     balance sheets.

          Impairment

     An impairment of $100,000 was recorded within  discontinued  operations for
     the nine  months  ended  March 31,  2002  compared  with an  impairment  of
     $2,000,000 for the same period in the prior year.

          Other income (expenses)

     Other income (expenses) from continuing  operations  consists  primarily of
     investment  portfolio  income and  decreased to $76,926 for the nine months
     ended March 31, 2002, compared to $580,059 for the same period in the prior
     year.  The  decrease  was  primarily  the result of a decrease  in interest
     income due to the decreased average cash balance.

          Liquidity and Capital Resources

     Our operating  activities  used cash of $6.5 million during the nine months
     ended March 31, 2002,  as compared to $11.0  million for the same period in
     the prior  year.  Cash used for the nine  months  ended  March 31, 2002 was
     primarily  attributable to a net loss of $8.8 million,  partially offset by
     non-cash equity compensation  totaling $2.2 million. Cash used in operating
     activities  during  the nine  months  ended  March 31,  2001 was  primarily
     attributable to a net loss of $14.9,  partially offset by non-cash expenses
     including amortization,  equity compensation and a provision for impairment
     totaling $1.1 million, $1.5 million and $2.0 million, respectively.

     Our investing  activities  used cash of $1.0 million during the nine months
     ended March 31, 2002, as compared to $.8 million for the same period in the
     prior year.  Cash used in  investing  activities  for the nine months ended
     March  31,  2002  was  primarily  attributable  to the  Company's  purchase
     acquisition   deposits  totaling  $.8  million.   Cash  used  in  investing
     activities  for  the  nine  months  ended  March  31,  2001  was  primarily
     attributable to the Company's  purchases of property and equipment totaling
     $.6 million.

                                       19
<PAGE>


     Our financing  activities provided net cash of $6.0 million during the nine
     months  ended March 31,  2002,  as  compared to using cash of $1.0  million
     during  the same  period in the prior  year.  Cash  provided  by  financing
     activities  for the nine  months  ended March 31,  2002  resulted  from the
     private  sale  of the  Company's  common  stock.  Cash  used  in  financing
     activities for the nine months ended March 31, 2001 was attributable to the
     repayment  of long term debt and the  repurchase  of  warrants as part of a
     settlement agreement with an unaffiliated third party.

     Summary

     NetWolves had cash and cash  equivalents of  approximately  $3.0 million at
     March 31, 2002.  Management  believes that the Company has adequate capital
     resources to meet its working  capital  needs for the next  several  months
     based upon its planned  operating level,  without  accounting for potential
     material  revenue.  In this  regard,  the  Company  anticipates  its  first
     significant  order from its major  customer in or before the fiscal quarter
     commencing July 1, 2002.

     In order for the Company to execute its  business  plan,  significant  cash
     expenditures   were  necessary  for,  among  other  things,   research  and
     development,  developing infrastructure and the utilization of consultants.
     The Company has entered into an agreement with investment  bankers to raise
     additional funds to be used to acquire Norstan Network  Services,  Inc. and
     for additional working capital.  There can be no assurance that the Company
     will be successful in these  efforts.  If the Company is unable to generate
     funds  internally  through the sale of its  products,  or raise  additional
     monies through financing  arrangements,  management  intends to curtail its
     operations.

     The impact of new accounting standards

     In June 1998,  the  Financial  Accounting  Standards  Board  (FASB)  issued
     Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
     Derivative  Instruments  and  Hedging  Activities"  (SFAS  133).  SFAS  133
     establishes accounting and reporting standards for derivative  instruments,
     including  certain  derivative  instruments  embedded  in  other  contracts
     (collectively  referred to as Derivatives) and for hedging  activities.  It
     requires  that  entities   recognize   Derivatives   as  either  assets  or
     liabilities  in the  statement  of  financial  position  and measure  those
     instruments  at fair  value.  In June 1999,  the FASB  issued SFAS No. 137,
     "Accounting for Derivative Instruments and Hedging Activities - Deferral of
     the Effective  Date of FASB  Statement No. 133," which delayed the date for
     implementation  to all fiscal  quarters of all fiscal years beginning after
     June 15, 2000. In June 2000, the FASB issued SFAS No. 138,  "Accounting for
     Certain  Derivative   Instruments  and  Certain  Hedging  Activities  -  an
     amendment  of SFAS No.  133," which  amends the  accounting  and  reporting
     standards of SFAS 133 for Derivatives and certain hedging  activities.  The
     adoption  of SFAS 133, on July 1, 2000,  did not have a material  effect on
     the Company's results of operations.

     During June 2001,  the FASB issued  SFAS No. 141,  "Business  Combinations"
     ("SFAS No. 141"), and SFAS No. 142,  "Goodwill and Other Intangible Assets"
     ("SFAS No. 142"). SFAS No. 141 addresses financial accounting and reporting
     for goodwill and other intangible assets acquired in a business combination
     at acquisition.  SFAS No. 141 requires the purchase method of accounting to
     be used for all  business  combinations  initiated  after  June  30,  2001;
     establishes  specific  criteria for the  recognition  of intangible  assets
     separately from goodwill;  and requires unallocated negative goodwill to be
     written off immediately as an extraordinary gain (instead of being deferred
     and amortized).  SFAS No. 142 addresses financial  accounting and reporting
     for intangible assets acquired individually or with a group of other assets
     at  acquisition.  SFAS No.  142 also  addresses  financial  accounting  and
     reporting  for goodwill and other  intangible  assets  subsequent  to their
     acquisition.  SFAS No. 142 provides  that goodwill and  intangible  assets,
     which have indefinite  useful lives,  will not be amortized but rather will
     be  tested  at  least  annually  for  impairment.  It  also  provides  that
     intangible  assets  that have  finite  useful  lives  will  continue  to be
     amortized  over  their  useful  lives,  but those  lives  will no longer be
     limited  to  forty  years.  SFAS  No.  141 is  effective  for all  business
     combinations   initiated   after  June  30,  2001  and  for  all   business
     combinations  accounted  for by the  purchase  method for which the date of
     acquisition  is after June 30,  2001.  The  provisions  of SFAS No. 142 are
     effective for fiscal years  beginning  after December 15, 2001. The Company
     plans  to adopt  SFAS No.  142  effective  July 1,  2002.  The  Company  is
     considering  the  provisions of SFAS No. 141 and No. 142 and at present has
     not determined the impact of adopting SFAS No. 141 and SFAS No. 142.

                                       20
<PAGE>

     During  August  2001,  the FASB issued SFAS No.  144,  "Accounting  for the
     Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144
     addresses financial accounting and reporting for the impairment or disposal
     of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for
     the  Impairment  of  Long-Lived  Assets  and for  Long-Lived  Assets  to Be
     Disposed Of" ("SFAS No. 121"), and the accounting and reporting  provisions
     of Accounting  Principles  Board Opinion No. 30,  "Reporting the Results of
     Operations - Reporting  the Effects of Disposal of a Segment of a Business,
     and   Extraordinary,   Unusual  and   Infrequently   Occurring  Events  and
     Transactions"  ("APB No. 30"). SFAS No. 144 was issued because SFAS No. 121
     did not address the accounting for a segment of a business accounted for as
     a  discontinued  operation  under APB No.  30,  and two  accounting  models
     existed for long-lived assets to be disposed of. SFAS No. 144 establishes a
     single  accounting  model for long-lived  assets to be disposed of by sale.
     SFAS No. 144 retains the  requirements  of SFAS No. 121 to (a) recognize an
     impairment  loss only if the carrying  amount of a long-lived  asset is not
     recoverable from its undiscounted  cash flows and (b) measure an impairment
     loss as the  difference  between the carrying  amount and fair value of the
     asset.  SFAS No. 144 also requires that a long-lived asset to be abandoned,
     exchanged for a similar  productive  asset,  or  distributed to owners in a
     spinoff be considered  held and used until it is disposed of. Lastly,  SFAS
     No. 144 retains  the  requirement  of SFAS No. 121 to measure a  long-lived
     asset  classified  as held for sale at the lower of its carrying  amount or
     fair  value  less  cost to sell and to cease  depreciation  (amortization).
     Therefore,  discontinued  operations  are  no  longer  measured  on  a  net
     realizable   value  basis,  and  future  operating  losses  are  no  longer
     recognized  before they occur. SFAS No. 144 retains the basic provisions of
     APB No. 30 for the  presentation of  discontinued  operations in the income
     statement  but  broadens  that  presentation  to include a component  of an
     entity.  The  provisions  of SFAS  No.  144  are  effective  for  financial
     statements  issued for fiscal years  beginning after December 15, 2001, and
     interim  periods  within  those  fiscal  years,   with  early   application
     encouraged.  The  provisions  of SFAS No. 144  generally  are to be applied
     prospectively.  The Company plans to adopt SFAS No. 144  effective  July 1,
     2002, and has not yet determined the impact of adoption.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not applicable.

                                       21
<PAGE>

                          PART II - OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

     The Sullivan Group

     On or about November 22, 2000 the Company  commenced a lawsuit ("Action 1")
     in the United States  District Court for the Southern  District of New York
     against certain  defendants who were officers and/or  directors of TSG (the
     "Sullivan   Group")  and  against  an  Ohio  Corporation,   ProCare,   Inc.
     ("ProCare").  In response to Action 1, on or about  December 19, 2000,  the
     Sullivan  Group  commenced  a lawsuit  ("Action  2") in the  United  States
     District  Court for the  Southern  District of New York against the Company
     and other defendants.  The Company claims that it was induced to enter into
     the merger  agreement  and  consummate  the merger  transaction  based upon
     fraudulent  misrepresentations  and the purposeful  concealment of material
     information  by the  Sullivan  Group.  The Sullivan  Group are  contending,
     correspondingly,  that it was the  Company  and  certain of the current and
     former  officers and directors who induced the Sullivan Group to enter into
     the  merger  agreement  by  making  false or  negligent  misrepresentations
     regarding the Company's  principal  product.  Service  revenue from the TSG
     subsidiary  has been,  and will continue to be  substantially  reduced as a
     result of the  reduction  in its  operations  and the  continuing  disputes
     between the parties.

     The Sullivan  Group and ProCare moved to dismiss  Action 1 based upon their
     contention that the Court lacked subject matter  jurisdiction to adjudicate
     the  controversy.  Correspondingly,  NetWolves and TSG moved in Action 2 to
     dismiss the claims of the Sullivan Group against them therein on the ground
     that the Federal  Rules of Civil  Procedure  compel the  Sullivan  Group to
     interpose such claims, if at all, as counterclaims in Action 1.

     Subsequently,  the Sullivan Group (as the Plaintiffs in Action 2) sought an
     Order compelling the Company to issue an opinion that the Shares are freely
     saleable  without  any  restrictions  or  limitations  under Rule 144.  The
     Company  opposed this  application  on the ground that  independent  of the
     aggregation  or "acting  in  concert"  limitation  under Rule 144 which the
     Company contends was applicable, the return of the Shares was an element of
     the relief sought by the Company in Action 1.

     In a decision dated May 8, 2001,  which  addressed all three  motions,  the
     Court granted the Sullivan  Group's  motion to dismiss  Action No. 1 on the
     ground that full  diversity of  citizenship  between the plaintiffs and the
     defendants did not exist, and, therefore, as a procedural matter, the Court
     lacked  subject  matter  jurisdiction.  As a  consequence,  in  addition to
     denying the material  allegations  of the Sullivan  Group's  complaint  and
     setting  forth  several  affirmative  defenses  to the 10b-5  claim and the
     claims for fraud, negligent  misrepresentation and breach of the Employment
     Agreements,  the Company and TSG have now  reasserted as  counterclaims  in
     their answer in Action No. 2, all of the claims which they asserted against
     the  Sullivan  Group  and  ProCare  (as  an  additional  defendant  on  the
     counterclaims)  in their complaint in Action No. 1 plus an additional claim
     against  the   Sullivan   Group  for  breach  of  certain  of  the  express
     representations  and  warranties  in the  Merger  Agreement.  Based  on the
     foregoing,  the Company and TSG are seeking  compensatory damages in excess
     of $5 million,  punitive damages in the amount of $5 million and injunctive
     and other ancillary relief.  Based upon the allegations in their complaint,
     the Sullivan  Group are seeking $8 million in  compensatory  damages and $8
     million in punitive  damages.  Although the Court did enjoin the Company to
     have its counsel issue an opinion letter under Rule 144, the Sullivan Group
     nevertheless  are  restricted  to selling as a group during the  prescribed
     temporal  periods only that limited  number of shares  permitted  under the
     aggregation  proscriptions of Rule 144(e).  The Court further mandated that
     as a condition of granting such preliminary injunctive relief, the Sullivan
     Group are  compelled  to deposit all of the  proceeds of such sales into an
     escrow to be held as security  for any and all costs and  damages  that the
     Company may suffer or incur if it is determined ultimately that such relief
     was wrongfully granted.

                                       23
<PAGE>

     The Court denied the Sullivan Group's  application for an order authorizing
     the release of the sales proceeds from escrow.

     The  Company  believes  that its  claims  against  the  Sullivan  Group are
     meritorious  based on the facts and  circumstances.  Further,  the  Company
     believes that the claims by the Sullivan Group lack merit and it intends to
     engage in a vigorous defense.


ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     Not applicable.


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

     Not applicable.


ITEM 5. OTHER INFORMATION

     Not applicable.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     None.


                                       24
<PAGE>


                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



                                BY:     NETWOLVES CORPORATION

                                        /s/     Walter M. Groteke
                                        ------------------------------------
                                        Walter M. Groteke
                                        Chairman of the Board and President

                                        /s/     Peter C. Castle
                                        ------------------------------------
                                        Peter C. Castle
                                        Secretary and Treasurer
                                        Principal Financial Officer and
                                        Principal Accounting Officer




Date: May 17, 2002




                                       24