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 December 31, 2001

                        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                    January 29, 2002
             --------------             --------------------------------

Common Stock, $.0033 par value                     12,478,065


<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

                         FORM 10-Q - DECEMBER 31, 2001

                                     INDEX


PART I - FINANCIAL INFORMATION


     ITEM 1 - FINANCIAL STATEMENTS

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

     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
       COMPREHENSIVE LOSS
       For the three and six months ended December 31, 2001
       (unaudited) and December 31, 2000 (unaudited)                      2

     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
       For the six months ended December 31, 2001 (unaudited)
       and December 31, 2000 (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>
                                                                 December 31,       June 30,
                                                                     2001             2001
                                                                 ------------     ------------
                                                                  (Unaudited)
<S>                                                              <C>             <C>
ASSETS
Current assets
  Cash and cash equivalents                                      $  5,673,756    $  4,411,657
  Marketable securities, available for sale, at market value           70,500          71,000
  Accounts receivable, net                                            282,248         366,868
  Inventories                                                         344,997         361,656
  Prepaid expenses                                                    249,699         234,648
  Other current assets                                                105,821         185,130
                                                                 ------------    ------------
      Total current assets                                          6,727,021       5,630,959

Property and equipment, net                                           856,837         982,748
Software, net                                                          80,362          73,414
Other assets                                                          173,365         173,323
                                                                 ------------    ------------
                                                                 $  7,837,585    $  6,860,444
                                                                 ============    ============
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
  Accounts payable and accrued expenses                          $    602,330    $    926,634
  Accrued losses of discontinued operations                           159,134         496,927
  Deferred revenue                                                     87,480         129,978
  Current maturities of long-term debt                                342,982         282,982
                                                                 ------------    ------------
      Total current liabilities                                     1,191,926       1,836,521

Long term debt, net of current maturities                              20,000          80,000
                                                                 ------------    ------------
      Total liabilities                                             1,211,926       1,916,521
                                                                 ------------    ------------
Minority interest                                                     277,102         281,693
                                                                 ------------    ------------
Commitment and contingencies

Shareholders' equity
  Preferred stock, $.0033 par value; 2,000,000 authorized on
    December 31, 2001 and June 30, 2001; no shares issued and
    outstanding on December 31, 2001 and June 30, 2001                                               -                     -
  Common stock, $.0033 par value; 50,000,000 shares authorized on
    December 31, 2001 and June 30, 2001; 12,377,613 and 9,167,613
    shares issued and outstanding on December 31, 2001 and June 30,
    2001, respectively                                                 40,847          30,254
  Additional paid-in capital                                       64,758,706      57,748,499
  Unamortized value of equity warrants                               (433,500)     (1,011,500)
  Accumulated deficit                                             (57,892,841)    (51,980,868)
  Accumulated other comprehensive loss                               (124,655)       (124,155)
                                                                 ------------    ------------
       Total shareholders' equity                                   6,348,557       4,662,230
                                                                 ------------    ------------
                                                                 $  7,837,585    $  6,860,444
                                                                 ============    ============

The accompanying notes to the financial statements are an 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 six months ended
                                                 December 31,                        December 31,
                                           --------------------------         -------------------------
                                            2001                2000           2001               2000
                                            ----                ----           ----               ----
<S>                                    <C>                 <C>              <C>              <C>
Revenue
  Products                             $    62,232        $   215,645       $   119,104      $   248,128
  Services                                 126,002            319,266           256,555          740,314
                                       -----------        -----------       -----------      -----------
                                           188,234            534,911           375,659          988,442
                                       -----------        -----------       -----------      -----------
Cost of revenue
  Products                                  33,055             89,006            77,365           99,669
  Services                                 104,426            241,773           218,134          543,803
                                       -----------        -----------       -----------      -----------
                                           137,481            330,779           295,499          643,472
                                       -----------        -----------       -----------      -----------
Gross profit                                50,753            204,132            80,160          344,970
                                       -----------        -----------       -----------      -----------
Operating expenses
  General and administrative             1,390,734          2,654,299         3,279,612        4,928,386
  Engineering and development              427,890            328,853           927,073          713,716
  Sales and marketing                      611,752            797,685         1,379,633        2,650,557
                                       -----------        -----------       -----------      -----------
                                         2,430,376          3,780,837         5,586,318        8,292,659
                                       -----------        -----------       -----------      -----------
Loss before other income (expense)      (2,379,623)        (3,576,705)       (5,506,158)      (7,947,689)

Other income (expense)
  Investment income                         38,881            199,699            87,244          471,499
  Minority interest                          2,178              7,940             4,591           16,084
  Interest expense                         (21,770)            (7,295)          (27,650)         (14,519)
                                       -----------        -----------       -----------      -----------
Net loss from continuing operations     (2,360,334)        (3,376,361)       (5,441,973)      (7,474,625)

Discontinued business
  Loss from discontinued operations          -             (2,970,854)             -          (3,824,752)
  Loss on disposal of discontinued
    operations                            (470,000)              -             (470,000)            -
                                       -----------        -----------        ----------     ------------
Net loss                                (2,830,334)        (6,347,215)       (5,911,973)     (11,299,377)

Other comprehensive income (loss):
  Marketable securities valuation
   adjustment                                4,000            (20,000)             (500)         (21,500)
                                       -----------        -----------       -----------     ------------
Comprehensive loss                     $(2,826,334)       $(6,367,215)      $(5,912,473)    $(11,320,877)
                                       ===========        ===========       ===========     ============

Basic and diluted net loss per share
  Loss from continuing operations      $      (.20)       $      (.39)      $      (.50)    $       (.86)
  Loss from discontinued operations           (.04)              (.34)             (.04)            (.44)
                                       -----------        -----------       -----------     ------------
                                       $      (.25)       $      (.73)      $      (.54)    $      (1.30)
                                       ===========        ===========       ===========     ============
Weighted average common shares
  outstanding, basic and diluted        11,520,765          8,742,613        10,979,950          8,705,113
                                       ===========        ===========       ===========       ============

The accompanying notes to the financial statements are an integral part of these
condensed consolidated statements
</TABLE>

                                       2
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                                    For the six months ended
                                                                           December 31,
                                                                    ------------------------
                                                                     2001               2000
                                                                     ----               ----
<S>                                                             <C>                 <C>
Cash flows from operating activities
  Net loss                                                      $ (5,911,973)       $(11,299,377)
  Adjustments to reconcile net loss to net cash used in
    operating activities
     Depreciation                                                    121,221              90,581
     Amortization                                                     16,211           1,071,985
     Noncash charge to operations with respect to
       stock and warrants issued for services and
       amortization of previously issued warrants                  1,583,800           1,316,550
     Provision for impairment on discontinued operations                -              2,000,000
     Loss on disposal of property and equipment                       80,439                -
     Recovery of bad debt                                               -                (24,747)
     Minority interest                                                (4,591)            (16,084)
  Changes in operating assets and liabilities
     Accounts receivable                                              84,620            (346,861)
     Inventories                                                      16,659            (102,720)
     Prepaid expenses                                                (15,051)            (32,618)
     Other current assets                                             79,309            (206,987)
     Accounts payable and accrued expenses                          (324,304)           (794,339)
     Accrued losses from discontinued operations                    (337,793)               -
     Deferred revenue                                                (42,498)            109,885
                                                                   ----------         ----------
       Net cash used in operating activities                       (4,653,951)        (8,234,732)
                                                                   ----------         ----------
Cash flows from investing activities
  Capitalized software costs                                          (23,159)           (68,344)
  Purchases of property and equipment                                 (75,749)          (273,762)
  Patent costs                                                         (4,735)              -
  Refunds of (payments for) security deposits                           4,693            (32,593)
                                                                   ----------         ----------
       Net cash used in investing activities                          (98,950)          (374,699)
                                                                   ----------         ----------

Cash flows from financing activities
  Repurchase of warrants                                                  -             (705,000)
  Repayment of long term debt                                             -             (263,555)
  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           (968,555)
                                                                   ----------         ----------
Net increase (decrease) in cash and cash equivalents                1,262,099         (9,577,986)

Cash and cash equivalents, beginning of period                      4,411,657         20,204,309
                                                                   ----------         ----------
Cash and cash equivalents, end of period                           $5,673,756        $10,626,323
                                                                   ==========         ==========
The accompanying notes to the financial statements are an integral part of these
condensed consolidated statements.
</TABLE>
                                       3
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                  SIX MONTHS ENDED DECEMBER 31, 2001 AND 2000


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 six months ended December 31, 2001 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
     its computer 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)

                  SIX MONTHS ENDED DECEMBER 31, 2001 AND 2000


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 six months ended
     December  31,  2000 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 $158,618 and
     $186,379,  respectively,  at December 31, 2001 and  $154,331 and  $207,325,
     respectively,  at June 30, 2001. Included in inventory at December 31, 2001
     and June 30, 2001 is $18,314 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.

     On July 20, 2001, the Financial  Accounting Standards Board 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)

                  SIX MONTHS ENDED DECEMBER 31, 2001 AND 2000


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 Financial  Accounting  Standards  Board 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 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)

                  SIX MONTHS ENDED DECEMBER 31, 2001 AND 2000


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, of which  approximately
     $160,000  remained at December  31,  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).  The  Company  has also
     restated 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 ended     For the six months ended
                                                 December 31,                     December 31,
                                          --------------------------     -------------------------
                                            2001             2000           2001            2000
                                            ----             ----           ----            ----


<S>                                      <C>            <C>               <C>           <C>
     Revenue                             $  98,553      $    23,136       $  141,275    $    35,389
     Cost of revenue                        25,536            1,681           29,005          3,333
     Selling, general and
       administrative                      683,033          465,119          920,063        802,428
     Impairment                                           2,000,000             -         2,000,000
     Amortization                             -             527,190             -         1,054,380
                                        -----------     -----------       -----------   -----------
     Loss from discontinued operations   $(610,016)     $(2,970,854)      $ (807,793)   $(3,824,752)
                                        ===========     ===========       ===========   ===========
</TABLE>

     Loss  from  discontinued  operations  for the three  and six  months  ended
     December  31,  2001 has been  applied to  "Accrued  losses of  discontinued
     operations" on the condensed consolidated balance sheets, net of additional
     charges of $470,000 for the quarter  ended  December 31, 2001.  Proceeds to
     the Company from disposal of its ComputerCOP  software operations discussed
     above are  expected  to  approximate  $400,000,  including  the sale of the
     ComputerCOP technology and the liquidation of certain inventories, accounts
     receivable and property and equipment retained by the Company.  Such assets
     had a carrying value of approximately  $196,000 at December 31, 2001, after
     deducting  an  allowance  for the  estimated  loss on  disposal  on certain
     inventories.   The  Company   expects  to  complete  the  disposal  of  its
     ComputerCOP  operations through the sale of its remaining assets during the
     year ended June 30, 2002.

                                       7
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                  SIX MONTHS ENDED DECEMBER 31, 2001 AND 2000


5       Balance sheet components

<TABLE>
<CAPTION>
                                                              December 31,        June 30,
                                                                  2001              2001
                                                            ------------      ------------
<S>                                                         <C>                 <C>
         Property and equipment, net
            Machinery and equipment                         $   800,121         $  867,832
            Furniture and fixtures                              239,578            281,484
            Leasehold improvements                              137,609            152,150
                                                            -----------         ----------
                                                              1,177,308          1,301,466
            Less: accumulated depreciation and amortization    (320,471)          (318,718)
                                                            -----------         ----------
            Property and equipment, net                     $   856,837         $  982,748
                                                            ===========         ==========
         Accounts payable and accrued expenses
            Trade accounts payable and accrued
              operating expenses                            $   457,922         $  777,226
            Compensated absences                                137,198            143,206
            Commissions payable                                   1,800              2,000
            Payroll/sales taxes payable                           5,410              4,202
                                                            -----------         ----------
                                                            $   602,330         $  926,634
                                                            ===========         ==========
</TABLE>

6    Promissory note

     On October 11, 2001, the Company  received  $500,000 from a shareholder and
     former employee in the form of an unsecured, non-negotiable promissory note
     that  bore  interest  at the  rate of 10% per  annum.  Such  principal  and
     interest  was due and  payable  in full on April 1,  2003 with the right of
     prepayment. This note was subsequently prepaid in November 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.

                                       8
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                  SIX MONTHS ENDED DECEMBER 31, 2001 AND 2000



7    Shareholders' equity (continued)

     Common stock issuances (continued)

     --   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 to a company in
          which an employee of NetWolves has an ownership interest.

8    Segment information

     The  Company  reports  segments in  accordance  with  Financial  Accounting
     Standards  Board  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.

<TABLE>
<CAPTION>
                                               For the three months ended          For the six months ended
                                                       December 31,                        December 31,
                                               ---------------------------         --------------------------
                                                2001                 2000            2001              2000
                                                ----                 ----            ----              ----
<S>                                          <C>                   <C>             <C>               <C>
 Revenue
   Technology                                $    110,759          $   215,645     $   218,474       $   248,128
   Training and consulting                         77,475              319,266         157,185           740,314
                                             ------------          -----------     -----------       -----------
                                             $    188,234          $   534,911     $   375,659       $   988,442
                                             ============          ===========     ===========       ===========
 Operating loss
  Technology                                 $ (2,251,971)         $(3,100,964)    $(5,237,258)      $(6,978,317)
  Training and consulting                        (127,652)            (475,741)       (268,900)         (969,372)
                                             ------------          -----------     -----------       -----------
                                             $ (2,379,623)         $(3,576,705)    $(5,506,158)      $(7,947,689)
                                             ============          ===========     ===========       ===========
</TABLE>


                                       9
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                  SIX MONTHS ENDED DECEMBER 31, 2001 AND 2000


8       Segment information (continued)

<TABLE>
<CAPTION>
                                                 December, 31          June 30,
                                                    2001                 2001
                                                 ------------          ---------
<S>                                             <C>                    <C>
  Identifiable assets
    Technology                                  $  7,402,054           $  6,413,782
    Training and consulting                          239,098                241,369
                                                ------------           ------------
                                                   7,641,152              6,655,151
    Net assets of discontinued operations            196,433                205,293
                                                ------------           ------------
      Total                                     $  7,837,585           $  6,860,444
                                                ============           ============
</TABLE>

     The  Company  had one major  customer,  in the  Technology  segment,  which
     accounted for 35% of consolidated revenue for the six months ended December
     31, 2001 and two major customers,  one in the Technology segment and one in
     the Training and  Consulting  segment,  which  accounted for 18% and 50% of
     consolidated   revenue  for  the  six  months  ended   December  31,  2000,
     respectively. Additionally, the Company had one customer that accounted for
     50% of  consolidated  accounts  receivable  at  December  31,  2001 and two
     customers  that  accounted  for  56%  and  12%  of  consolidated   accounts
     receivable at June 30, 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.

                                       10
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                  SIX MONTHS ENDED DECEMBER 31, 2001 AND 2000


9    Commitments and contingencies (continued)

     The Sullivan Group (continued)

     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.

     The Court  denied the  Sullivan  Group's  recent  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   Subsequent event

     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.


                                       11
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                  SIX MONTHS ENDED DECEMBER 31, 2001 AND 2000


11   Liquidity

     NetWolves had cash and cash  equivalents of  approximately  $5.7 million at
     December  31,  2001.  Management  believes  that the Company  has  adequate
     capital  resources to meet its working  capital  needs through July 1, 2002
     based upon its current and planned  operating level and estimated  revenue.
     In order for the Company to execute its business  model,  significant  cash
     expenditures   were  necessary  for,  among  other  things,   research  and
     development,  developing infrastructure and the utilization of consultants.
     Such spending  levels have  recently  been reduced in  accordance  with the
     Company's  updated  business  model. To the extent  necessary,  the Company
     intends to raise  additional  monies from the sale of its capital  stock to
     meet its funding needs over the next 12 to 24 months, however, there can be
     no assurance that the Company will have  sufficient  capital to finance its
     operations.  If the Company is unable to generate funds internally or raise
     additional monies from the sale of its capital stock, management intends to
     institute cost saving measures that will significantly reduce the Company's
     overhead expenses.











                                       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

                                       13
<PAGE>


     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
     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.

     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

                                       14
<PAGE>


     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 December 31, 2001 had an accumulated  deficit
     of approximately $58 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 December 31, 2001 and 2000

          Revenue

     Revenue  from  continuing  operations  decreased  to $188,234 for the three
     months ended December 31, 2001, compared to $534,911 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  dispute between TSG and certain former employees who formed the
     management  group at 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 $98,553 for the three
     months ended December 31, 2001,  compared to $23,136 for the same period in
     the prior year.  The  increase was  primarily  due to increases in sales of
     both its  Forensic  and  Professional  software  products  and its consumer
     version of the software. Revenue from discontinued operations for the three
     months  ended  December  31, 2001 has been  applied to  "Accrued  losses of
     discontinued operations" on the condensed consolidated balance sheets.

          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 $137,481  for the three  months ended
     December  31,  2001,  compared to $330,779 for the same period in the prior
     year.

     Overall gross profit from  continuing  operations  was at 27% for the three
     months ended December 31, 2001,  compared to 38% for the same period in the
     prior year.  The  decrease  in gross  profit in the  technology  segment is
     primarily  due to the write  down of  inventory  due to  obsolescence.  The
     decrease  in  gross  profit  in the  training  and  consulting  segment  is
     primarily due to the use of higher cost vendors due to limited availability
     of comparable  alternatives,  coupled with a reduced  pricing model for the
     equivalent levels of service.


                                       15
<PAGE>


     Cost of revenue and gross profit from discontinued  operations increased to
     $25,536 and 74%,  respectively,  for the three  months  ended  December 31,
     2001, compared to $1,681 and 93%, 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  December 31, 2001 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 $1,390,734
     for the three months ended  December 31, 2001,  compared to $2,654,299  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 consistent with the Company's updated business model.

     General and administrative  expenses from discontinued operations decreased
     to $556,955  for the three months  ended  December  31,  2001,  compared to
     $736,266 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 three months ended  December 31, 2001 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  increased  to $427,890  for the three  months ended
     December  31,  2001,  compared to $328,853 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 $16,000 in software development costs during the three months
     ended  December  31, 2001.  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 $22,336  for the three  months  ended  December  31,  2001,  compared to
     $82,942 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 December 31, 2001
     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 $611,752 for the
     three  months ended  December  31, 2001,  compared to $797,685 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
     $103,742 for the three months ended December 31, 2001, compared to $173,098
     for the same period in the prior year.  The decrease was  primarily  due to
     the  termination  of  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 December 31, 2001 have
     been  applied  to  "Accrued  losses  of  discontinued  operations"  on  the
     condensed consolidated balance sheets.

          Impairment

     An impairment of $2,000,000 was recorded within discontinued operations for
     the three months ended December 31, 2000 with no impairment recorded in the
     current period.

          Other income (expenses)

     Other income (expenses) from continuing  operations  consists  primarily of
     investment  portfolio  income and decreased to $19,289 for the three months
     ended  December 31,  2001,  compared to $200,344 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  from the  ComputerCOP
     Corporation acquisition.

          Six months ended December 31, 2001 and 2000

          Revenue

     Revenue from continuing operations decreased to $375,659 for the six months
     ended  December 31,  2001,  compared to $988,442 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 $141,275 for the six
     months ended December 31, 2001,  compared to $35,389 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 six months ended
     December  31,  2001 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  $295,499  for the six  months  ended
     December  31,  2001,  compared to $643,472 for the same period in the prior
     year.

     Overall  gross  profit from  continuing  operations  was at 21% for the six
     months ended December 31, 2001,  compared to 35% for the same period in the
     prior year.  The decrease in gross  profit in the  training and  consulting
     segment is  primarily  due to the use of higher cost vendors due to limited
     availability  of comparable  alternatives,  coupled with a reduced  pricing
     model for the equivalent levels of service. The decrease in gross profit in
     the  technology  segment is primarily due to increased  warranty  costs and
     inventory obsolescence.

     Cost of revenue and gross profit from discontinued  operations increased to
     $29,005 and 79%, respectively,  for the six months ended December 31, 2001,
     compared to $3,333 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 quarter.  Cost of revenue from  discontinued
     operations  for the six months ended  December 31, 2001 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 $3,279,612
     for the six months ended December 31, 2001,  compared to $4,928,386 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  $648,641  for the six months  ended  December  31,  2001,  compared  to
     $1,403,711  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 six months ended December 31, 2001 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  $927,073  for the six  months  ended
     December  31,  2001,  compared to $713,716 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  $23,000 in software  development costs during the six months
     ended  December  31, 2001.  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 $51,291 for the six months ended December 31, 2001, compared to $166,392
     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 six months ended December 31, 2001 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 $1,379,633 for
     the six months ended December 31, 2001, compared to $2,650,557 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
     $220,131 for the six months ended  December 31, 2001,  compared to $286,702
     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 six months ended  December 31, 2001 has been applied to
     "Accrued losses of discontinued  operations" on the condensed  consolidated
     balance sheets.

          Impairment

     An impairment of $2,000,000 was recorded within discontinued operations for
     the six months ended  December 31, 2000 with no impairment  recorded in the
     current period.

          Other income (expenses)

     Other income (expenses) from continuing  operations  consists  primarily of
     investment  portfolio  income and  decreased  to $64,185 for the six months
     ended  December 31,  2001,  compared to $473,064 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  from the  ComputerCOP
     Corporation acquisition.

     Liquidity and Capital Resources

     Our operating  activities  used cash of $4.7 million  during the six months
     ended December 31, 2001, as compared to $8.2 million for the same period in
     the prior year.  Cash used for the six months  ended  December 31, 2001 was
     primarily  attributable  to a net loss of $5.9  million  and a decrease  in
     accounts payable and accrued  expenses of $.3 million,  partially offset by
     non-cash equity compensation  totaling $1.6 million. Cash used in operating
     activities  during the six months  ended  December  31, 2000 was  primarily
     attributable  to a net loss of $11.3  million  and a decrease  in  accounts
     payable and accrued  expenses of $.8 million,  partially offset by non-cash
     expenses including  amortization,  equity  compensation and a provision for
     impairment   totaling   $1.1   million,   $1.3   million  and  $2  million,
     respectively.

     Our  investing  activities  used cash of $.1 million  during the six months
     ended  December 31, 2001, as compared to $.4 million for the same period in
     the prior year. Cash used in investing  activities for the six months ended
     December 31, 2001 was primarily  attributable to the Company's purchases of

                                       19
<PAGE>


     property and equipment and construction in progress  totaling $.08 million.
     Cash used in investing  activities  for the six months  ended  December 31,
     2000 was primarily  attributable to the Company's purchases of property and
     equipment totaling $.3 million.

     Our financing  activities  provided net cash of $6.0 million during the six
     months ended  December 31, 2001,  as compared to using cash of $1.0 million
     during  the same  period in the prior  year.  Cash  provided  by  financing
     activities  for the six months ended  December 31, 2001  resulted  from the
     private  sale  of the  Company's  common  stock.  Cash  used  in  financing
     activities for the six months ended December 31, 2000 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  $5.7 million at
     December  31,  2001.  Management  believes  that the Company  has  adequate
     capital  resources to meet its working  capital  needs through July 1, 2002
     based upon its current and planned  operating level and estimated  revenue.
     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.
     Such spending  levels have  recently  been reduced in  accordance  with the
     Company's  updated  business  model. To the extent  necessary,  the Company
     intends to raise  additional  monies from the sale of its capital  stock to
     meet its funding needs over the next 12 to 24 months, however, there can be
     no assurance that the Company will have  sufficient  capital to finance its
     operations.  If the Company is unable to generate funds internally or raise
     additional monies from the sale of its capital stock, management intends to
     institute cost saving measures that will significantly reduce the Company's
     overhead expenses.

     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.

     On July 20, 2001, the Financial  Accounting Standards Board 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

                                       20
<PAGE>

     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 Financial  Accounting  Standards  Board 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 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.

                                       22
<PAGE>


     The Court  denied the  Sullivan  Group's  recent  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

     In November 2001, the Company completed two private  placements with Credit
     Suisse  Asset  Management,  LLC,  and  Whiffletree  Partners,  LP, which is
     managed by Palisade Capital  Management,  LLC, whereby the Company sold 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.

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.

                                       23

<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: February 14, 2002

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