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

                                   FORM 10-Q


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

                 For the quarterly period ended March 31, 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) 589-6299
              (Registrant's telephone number, including area code)

                                      n/a
   (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:
<TABLE>
<CAPTION>
                                                 NUMBER OF SHARES OUTSTANDING ON
        TITLE OF CLASS                                 April 24, 2001
------------------------------                   -------------------------------
<S>                                                       <C>

Common Stock, $.0033 par value                            8,742,613
                                                          ---------
</TABLE>
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                            FORM 10-Q MARCH 31, 2001




                                     INDEX


PART I - FINANCIAL INFORMATION


     ITEM 1 - FINANCIAL STATEMENTS

     CONDENSED CONSOLIDATED BALANCE SHEETS
             March 31, 2001 (unaudited) and June 30, 2000                      1

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

     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
        For the nine months ended March 31, 2001 (unaudited)
         and March 31, 2000 (unaudited)                                        3

     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                 4 - 10

     ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS                       11 - 16

     ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK       16

PART II - OTHER INFORMATION

     ITEM 1 - LEGAL PROCEEDINGS                                          17 - 18

     ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS                       19

     ITEM 3  DEFAULTS UPON SENIOR SECURITIES                                  19

     ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS              19

     ITEM 5  OTHER INFORMATION                                                19

     ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K                                19

SIGNATURES                                                                    20
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                March 31,       June 30,
                                                                  2001            2000
                                                               -----------      --------
                                                                (Unaudited)
<S>                                                             <C>           <C>
ASSETS
Current assets
   Cash and cash equivalents                                    $ 7,462,045   $20,204,309
   Marketable securities, available for sale, at market value        73,000        99,500
   Accounts receivable, net                                         472,701       248,861
   Inventories                                                      678,258       633,453
   Prepaid expenses and other current assets                        346,535       284,614
                                                                -----------   -----------

       Total current assets                                       9,032,539    21,470,737

Property and equipment, net                                         979,046       590,906

Software, net                                                       372,595     3,427,688

Intangible assets, net                                                  -             -

Other assets                                                        117,551        53,799
                                                                -----------   -----------
                                                                $10,501,731   $25,543,130
                                                                ===========   ===========
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
   Accounts payable and accrued expenses                        $ 1,018,888   $ 1,792,030
   Deferred revenue                                                 133,777        11,173
   Current maturities of long-term debt                              74,850       208,435
                                                                -----------   -----------
      Total current liabilities                                   1,227,515     2,011,638

Long term debt, net of current maturities                           275,863       418,102
                                                                -----------   -----------
       Total liabilities                                          1,503,378     2,429,740
                                                                -----------   -----------

Minority interest                                                   285,626       305,761
                                                                -----------   -----------
Commitment and contingencies

Shareholders' equity
   Common stock, $.0033 par value, shares authorized;
    50,000,000 on March 31, 2001 and 10,000,000
    on June 30, 2000; issued and outstanding;
    8,742,613 on March 31, 2001
    and 8,592,613 on June 30, 2000                                   28,851        28,356
   Additional paid-in capital                                    56,426,702    56,076,197
   Unamortized value of equity warrants                          (1,398,969)   (1,851,893)
   Accumulated deficit                                          (46,221,702)  (31,349,376)
   Accumulated other comprehensive loss                            (122,155)      (95,655)
                                                                -----------   -----------
     Total shareholders' equity                                   8,712,727    22,807,629
                                                                -----------   -----------
                                                                $10,501,731   $25,543,130
                                                                ===========   ===========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>

                                       1
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                             AND COMPREHENSIVE LOSS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                 For the three months ended         For the nine months ended
                                          March 31,                        March 31,
                              -------------------------------    --------------------------------
                                    2001            2000              2001            2000
                                    ----            ----              ----            ----
<S>                           <C>               <C>              <C>               <C>
Revenue
  Products                    $       126,642   $       27,921   $       347,698   $       67,050
  Services                            149,052          435,484           951,827          868,504
                              ---------------   --------------   ---------------   --------------
                                      275,694          463,405         1,299,525          935,554
                              ---------------   --------------   ---------------   --------------
Cost of revenue
  Products                            200,968           14,892           285,011           34,038
  Services                            199,029          346,549           761,791          536,267
                              ---------------   --------------   ---------------   --------------
                                      399,997          361,441         1,046,802          570,305
                              ---------------   --------------   ---------------   --------------

Gross profit (loss)                  (124,303)         101,964           252,723          365,249
                              ---------------   --------------   ---------------   --------------
Operating expenses
  General and administrative        1,522,994        2,736,933         7,855,091       10,852,339
  Engineering and development         807,396          491,010         1,687,504        1,066,071
  Sales and marketing               1,225,251          733,183         4,162,510        1,508,550
  Impairment charges                        -                -         2,000,000                -
                              ---------------   --------------   ---------------   --------------
                                    3,555,641        3,961,126        15,705,105       13,426,960
                              ---------------   --------------   ---------------   --------------
Loss before other income
 (expense)                         (3,679,944)      (3,859,162)      (15,452,382)     (13,061,711)

Other income (expense)
  Investment income                   109,515          191,242           581,014          292,813
  Minority interest                     4,051           25,114            20,135           48,333
  Interest expense                     (6,571)          (7,972)          (21,093)         (26,602)
                              ---------------   --------------   ---------------   --------------
Net loss                           (3,572,949)      (3,650,778)      (14,872,326)     (12,747,167)

Other comprehensive (loss) income
  Marketable securities
   valuation adjustment                (5,000)          12,250           (26,500)        (444,250)
                              ---------------   --------------   ---------------   --------------
Comprehensive loss            $    (3,577,949)  $   (3,638,528)  $   (14,898,826)  $  (13,191,417)
                              ===============   ==============   ===============   ==============
Basic and diluted net loss
 per share                    $          (.41)  $         (.49)  $         (1.71)  $        (1.93)
                              ===============   ==============   ===============   ==============
Weighted average common
  shares outstanding                8,742,613        7,460,777         8,717,431        6,606,386
                              ===============   ==============   ===============   ==============
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
                                       2

<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                         For the nine months ended
                                                                 March 31,
                                                         -------------------------
                                                            2001          2000
                                                            ----          ----
<S>                                                     <C>             <C>
Cash flows from operating activities
   Net loss                                             $(14,872,326)   $(12,747,167)
   Adjustments to reconcile net loss to net cash used in
     operating activities
       Depreciation                                          146,654          60,829
       Amortization                                        1,129,037       1,857,490
       Noncash charge to operations with respect to
        stock and warrants issued for services and
        amortization of previously issued warrants         1,508,924       5,435,724
       Provision for impairment                            2,000,000            -
       Provision for bad debt                                 79,179            -
       Loss on disposal of property and equipment             55,732            -
       Provision for inventory obsolescence                  145,830            -
       Minority interest                                     (20,135)        (59,652)
Changes in operating assets and liabilities
 Accounts receivable                                        (303,019)       (185,160)
 Inventories                                                (132,726)       (291,756)
 Prepaid expenses and other current assets                   (61,921)         (8,179)
 Deferred revenue                                            122,604            -
 Deferred compensation                                          -           (100,000)
 Accounts payable and accrued expenses                      (785,412)        467,248
                                                        ------------  --------------
  Net cash used in operating activities                  (10,987,579)     (5,570,623)
                                                        ------------  --------------
Cash flows from investing activities
   Capitalized software costs                                (73,944)           -
   Issuance of note receivable                                  -            (56,000)
   Cash acquired ComputerCOP Corp.                              -         20,500,000
   Finder fees                                                  -           (550,000)
   Patent costs                                              (26,079)           -
   Purchases of property and equipment                      (648,435)       (328,882)
   Payments of security deposits                             (37,673)         (8,068)
                                                        ------------  --------------
    Net cash (used in) provided by investing activities     (786,131)     19,557,050
                                                        ------------  --------------
Cash flows from financing activities
   Repayment of advances from TSG officer                       -           (144,348)
   Repurchase of warrants                                   (705,000)           -
   Financing costs                                              -           (330,825)
   Repayment of long term debt                              (263,554)        (32,109)
   Cash proceeds from private sale of common stock              -          4,312,500
                                                        ------------  --------------
    Net cash (used in) provided by financing activities     (968,554)      3,805,218
                                                        ------------  --------------
Net (decrease) increase in cash and cash equivalents     (12,742,264)     17,791,645
Cash and cash equivalents, beginning of period            20,204,309       5,585,981
                                                        ------------  --------------
Cash and cash equivalents, end of period                $  7,462,045  $   23,377,626
                                                        ============  ==============
Taxes paid                                              $     28,114  $       48,340
                                                        ============  ==============
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
                                       3
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                   NINE MONTHS ENDED MARCH 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, 2000 and 1999 and the period  from  February  13, 1998
     (inception) to June 30, 1998. The results of operations for the nine months
     ended March 31, 2001 are not  necessarily  indicative  of the results to be
     expected for the full year.

2    Comparable period correction

     As  previously  disclosed  in the  Company's  June 30, 2000 Form 10-K,  the
     Company had estimated without independent  appraisal a total purchase price
     excluding cash payments of approximately  $32,690,000 on the acquisition of
     ComputerCOP  Corporation  in its filing of Form 10-Q for the  period  ended
     March 31,  2000.  Based on a  subsequently  obtained  appraisal,  the total
     consideration   paid  for  such  acquisition  had  been  determined  to  be
     $26,776,460.  The effects of this change in the periods presented include a
     reduction  in  amortization   expense  of  the  software   acquired  and  a
     corresponding  reduction  in  net  loss  and  comprehensive  loss  totaling
     $268,910  for both the three and nine month  periods  ended March 31, 2000.
     Additionally, basic and diluted net loss per share has been reduced by $.04
     for both the three and nine month periods ended March 31, 2000.

3    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
     a multi-functional product that is a secure,  integrated,  modular Internet
     gateway.  The primary  product,  the FoxBox,  supports secure access to the
     Internet for multiple  users through a single  connection  and, among other
     things,  provides  electronic mail,  firewall security and web site hosting
     and also contains a network file server.  Since inception,  the Company has
     been  developing  its business  model,  enhancing its product  offering and
     building an infrastructure in order to effectively penetrate the market.

     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.

                                       4
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2001 AND 2000

4    Significant accounting policies

     Use of estimates

     In preparing condensed consolidated financial statements in conformity with
     generally accepted  accounting  principles,  management makes estimates and
     assumptions  that affect the reported amounts of assets and liabilities and
     disclosures  of  contingent  assets  and  liabilities  at the  date  of the
     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.

     Principles of consolidation

     The condensed 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  condensed
     consolidated  financial  statements  as  minority  interest.  The  minority
     interest includes common stock  representing 1.7% of the outstanding shares
     of TSG and  preferred  stock,  until  January 24,  2000,  at which time the
     preferred stockholder elected to convert the preferred stock into shares of
     NetWolves common stock.

     Inventories

     Inventories  consist of raw materials and finished goods valued at $157,338
     and $520,920,  respectively,  at March 31, 2001.  Inventories are valued at
     the lower of cost or net  realizable  value using the  first-in,  first-out
     method.

     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.

5    Balance sheet components
<TABLE>
<CAPTION>
                                                    March 31,            June 30,
                                                      2001                2000
                                                    --------             --------
     <S>                                        <C>                  <C>
     Property and equipment, net
        Machinery and equipment                 $       824,458       $       510,849
        Furniture and fixtures                          267,695               145,839
        Leasehold improvements                          125,329                44,278
                                                ---------------       ---------------
                                                      1,217,482               700,966
        Less: accumulated depreciation and
         amortization                                  (238,436)             (110,060)
                                                ---------------       ---------------
        Property and equipment, net             $       979,046       $       590,906
                                                ===============       ===============
     Software, net
        ComputerCOP technology                  $     2,217,520       $     4,217,520
        Other capitalized software costs                244,857               170,913
                                                ---------------       ---------------
                                                      2,462,377             4,388,433
        Less: accumulated amortization               (2,089,782)             (960,745)
                                                ---------------       ---------------
        Software, net                           $       372,595       $     3,427,688
                                                ===============       ===============


                                       5

<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2001 AND 2000


5    Balance sheet components (continued)


     Accounts payable and accrued expenses
        Trade accounts payable                     $       792,030         $       1,083,526
        Finders fee payable                                   -                      300,000
        Other accrued operating expenses                    64,938                   153,794
        Accrued advertising                                   -                      106,172
        Compensated absences                               151,012                    95,793
        Commissions payable                                  1,352                    32,410
        Payroll/sales taxes payable                          9,556                    20,335
                                                   ---------------         -----------------
                                                   $     1,018,888         $       1,792,030
                                                   ===============         =================
</TABLE>

6    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 three separate business segments,  the Technology  segment,  the
     Training and Consulting  segment and the Computer Software  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  principally  domestically,  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  consulting,  educational  and  training  services
     primarily  to the  oil and gas and  automotive  industries  throughout  the
     United  States.   The  Software   segment,   which   operates   principally
     domestically,  is primarily engaged in the design,  development,  marketing
     and support of software products which are designed to provide non computer
     literate  owners the ability to identify  threats as well as  objectionable
     material which may be viewed by users of the computer on the Internet.

<TABLE>
<CAPTION>

                              For the three months ended         For the nine months ended
                                       March 31,                             March 31,
                           ---------------------------------    --------------------------------
                                2001              2000                2001            2000
                           ---------------   ----------------   ---------------   ---------------
<S>                        <C>               <C>                <C>               <C>
Revenue
 Technology                $       117,073   $         27,921   $       365,201   $        67,050
 Training and consulting           116,876            435,484           857,190           868,504
 Computer software                  41,745               -               77,134              -
                           ---------------   ----------------   ---------------   ---------------
                           $       275,694   $        463,405   $     1,299,525   $       935,554
                           ===============   ================   ===============   ===============
Operating loss
  Technology               $    (2,987,934)  $     (1,888,071)  $    (9,966,251)  $    (9,087,464)
  Training and consulting         (239,729)        (1,617,608)       (1,209,101)       (3,620,764)
  Computer software               (452,281)          (353,483)       (4,277,030)         (353,483)
                           ---------------   ----------------   ---------------   ---------------
                           $    (3,679,944)  $     (3,859,162)  $   (15,452,382)  $   (13,061,711)
                           ===============   ================   ===============   ===============
</TABLE>
                                       6

<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2001 AND 2000

6    Segment information (continued)
<TABLE>
<CAPTION>
                                        March, 31        June 30,
                                          2001             2000
                                        ---------        --------
        <S>                             <C>              <C>
        Identifiable assets
            Technology                  $ 9,130,563      $21,231,907
            Training and consulting         567,566          708,678
            Computer software               803,602        3,602,545
                                        -----------      -----------
               Total                    $10,501,731      $25,543,130
                                        ===========      ===========
</TABLE>

     The  Company  had one  customer  included in the  Training  and  Consulting
     segment,  which accounted for 47% of consolidated  revenue and one customer
     included in the Technology segment, which accounted for 20% of consolidated
     revenue  for the nine  months  ended  March 31,  2001.  The Company had two
     customers,  both  included in the Training and  Consulting  segment,  which
     accounted for 47% and 33% of consolidated revenue for the nine months ended
     March 31, 2000.  Additionally,  the Company had one customer that accounted
     for 59% of  consolidated  accounts  receivable  at March  31,  2001 and one
     customer that accounted for 40% of consolidated accounts receivable at June
     30, 2000.

7    Commitments and contingencies

     Employment agreements

     In August 2000 the Company  entered in to employment  agreements  with four
     employees.  One of the agreements is for a period of three years and grants
     the  employee  warrants to purchase  250,000  shares of common stock of the
     Company  at a  purchase  price of $5.25  per  share,  subject  to a vesting
     schedule  as  specified  in  such  agreement.  Another  agreement  is for a
     thirty-month  period and  provides  for a monthly  salary of $12,000,  plus
     reimbursement  of certain  expenses of $3,000 per month.  In addition,  the
     agreement also grants the employee  warrants to purchase  350,000 shares of
     common stock of the Company at a purchase price of $5.00 per share, subject
     to a vesting  schedule as  specified  in such  agreement.  In July 2000 and
     before  commencement of employment,  this individual  received  $250,000 in
     consulting fees relating to the Company's  agreement with General  Electric
     Company.  Another  agreement  is for a period of three years and grants the
     employee/stockholder,  who is affiliated with a law firm who provided legal
     services to the  Company,  warrants to  purchase  275,000  shares of common
     stock of the Company at a purchase price of $5.125 per share,  subject to a
     vesting schedule as specified in such agreement;  and the last agreement is
     for a period of three  years  and  provides  for  monthly  compensation  of
     $20,000,  and the agreement  also grants the employee  warrants to purchase
     200,000  shares of common stock of the Company at a purchase price of $5.25
     per share, subject to a vesting schedule as specified in such agreement.

     The Company has entered into employment  agreements  effective October 2000
     with  its  Chief  Executive  Officer,  Vice  President-Sales  and its  Vice
     President-Finance.  The agreement with the Chief Executive Officer is for a
     term of five  years at an annual  salary  of  $275,000  subject  to cost of
     living increments.  The agreements with its Vice  President-Sales  and Vice
     President-Finance  are for a term of three years, subject to two additional
     one-year   extensions,   at  annual  salaries  of  $175,000  and  $150,000,
     respectively.   The  employment  agreement  further  provides  for  certain
     payments following death or disability, for certain fringe benefits such as
     reimbursement  for reasonable  expenses and participation in medical plans,
     and for  accelerated  payments  in the event of change  of  control  of the
     Company.

                                       7
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2001 AND 2000

7    Commitments and contingencies (continued)

     Lease agreement

     In September  2000, the Company entered into a five-year lease agreement in
     Tampa,  Florida covering  approximately 20,000 sq. ft. of space with annual
     lease payments  approximating  $390,000,  to which it relocated in February
     2001.  The Company  believes that combining its Tampa  operations  into one
     facility will increase  efficiency of operations and facilitate large scale
     deployment.

     On February 27,  2001,  the Company  entered  into an  agreement  with GATX
     Capital  Corporation  ("GATX"),  whereby  the Company  assigned  one of its
     leases to GATX through the term of the lease.  In accordance with the terms
     of the  agreement,  the  Company  is  required  to  make  monthly  payments
     approximately $2,500 through June 2002.

8    Related party transaction

     On August 16, 2000,  150,000 shares were issued to a consulting firm who is
     also a shareholder  of the Company for services  rendered  during the three
     months ending  September 30, 2000, which resulted in a charge to operations
     of $807,000. Management determined the fair value of the common stock based
     on its quoted market price at the time of the issuance.  In December  2000,
     the  Company  reduced the  exercise  price of 300,000  warrants  previously
     issued to this  consulting firm to $5 per share and shortened the remaining
     term of the  warrants  to  three  years,  which  resulted  in a  charge  to
     operations  of $468,000  that is  included  in general  and  administrative
     expenses.  The market  price of the  Company's  common stock at the time of
     this reduction was $4.125 per share.

9    Impairment

     On December 31, 2000, the Company  recorded a writedown of its  ComputerCOP
     technology  (computer  software  segment)  in  the  amount  of  $2,000,000,
     reducing the carrying  value of the asset to $202,395 at December 31, 2000.
     The asset was  determined  to be impaired  because of the  inability of the
     software technology to generate future operating income without substantial
     sales  volume  increases,  which  are  uncertain.  Fair  value was based on
     discounted  future  cash  flows.  Accordingly,  actual  results  could vary
     significantly from such estimates.

10   Legal proceedings

     Anicom, Inc.

     On April 19, 2000, Anicom,  Inc. commenced an action against the Company in
     the U.S. District Court for the Northern  District of Illinois.  The action
     was based upon NetWolves' alleged failure to deliver  approximately  74,842
     shares  of its  common  stock to  Anicom,  upon  exercise  by Anicom of the
     Company's warrants.  The action sought specific  performance as well as any
     damages  that may have  resulted  from a  diminution  in value of NetWolves
     common stock.  On November 16, 2000, and in connection with the litigation,
     the Company and Anicom reached a settlement (the  "Settlement  Agreement").
     Under  the  Settlement  Agreement  the  allegations  for the  breach of the
     warrant  agreement by the Company and  unasserted  claims for the breach of
     the  distribution  agreement  by Anicom and the Company were  settled.  The
     Company paid  $1,150,000 to Anicom  pursuant to the  Settlement  Agreement,
     which included the repurchase of all unvested warrants. As of September 30,
     2000, the  Company  reduced  additional  paid  in  capital in the amount of

                                       8
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2001 AND 2000

10   Legal proceedings (continued)

     Anicom, Inc. (continued)

     $705,000, representing the fair value of the warrants, calculated using the
     Black-Scholes option pricing model with the following assumptions: dividend
     yield of none, expected volatility of 65%, risk free interest rate of 5.85%
     and an expected term of 3.17 years the remaining life to the maturity date.
     The remaining  portion of the  settlement,  in the amount of $445,000,  has
     been  charged to  operations  and  included in general  and  administrative
     expenses for the period ended September 30, 2000.

     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 Global
     Education  Web,  Inc.  ("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 now will reassert as counterclaims in their
     answer in Action No. 2, all of the claims which they  asserted  against the
     Sullivan  Group and  ProCare  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.  Although
     the Court did  enjoin  the  Company  to have its  counsel  issue an opinion

                                       9
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2001 AND 2000

10   Legal proceedings (continued)

     The Sullivan Group (Continued)

     letter under 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  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.

                                       10
<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",  and words of a similar
     nature, which 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.

     Overview

     NetWolves  Corporation  ("NetWolves" or the "Company")  designs,  develops,
     manufactures and sells Internet  infrastructure  security products designed
     to provide secure,  manageable  Internet access. The Company was founded to
     introduce a new innovative  Internet  security and access device called the
     "FoxBox?".  NetWolves'  innovative  enabling  technology  for the  Internet
     connects people and computer networks  securely to the Internet.  NetWolves
     designs Internet  solutions that provide the services that companies desire
     without  confusion,  complication,   limitation  and  the  exorbitant  cost
     associated with traditional offerings.

     NetWolves'  multi-services  Internet  communications  gateway  products are
     designed to meet all business needs packaged  together,  (e-mail,  firewall
     security, router, Web hosting, Intranet, FTP, etc.), complete with advanced
     integrated hardware and software,  a simple to use interface,  and room for
     expansion.  As companies  combine data and  communications to reduce costs,
     NetWolves'  value-added  expansion  technologies  such as  Virtual  Private
     Networking  ("VPN"), a process for encrypting data for secure  transmission
     over public networks,  will provide significant  cost-efficient services in
     an all-in-one, enterprise-wide gateway solution.

     NetWolves   differentiates   itself  from  its   competitors   through  its
     proprietary patent pending technology, which provides a centralized, remote
     network  monitoring,  managing and  security  software  ("Mother").  Mother
     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  advanced  new
     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 Mother system which forms
     the basis of the  Company's  recent  agreement  with the  General  Electric
     Company.

     NetWolves products are designed for our partners' present and future needs.
     The  Company's  initial  target  markets are the end users in the small and
     mid-sized businesses and large organizations with satellite offices. Larger
     end users to whom the product is intended to be marketed are companies with
     multi-state   locations,   government  agencies  and  educational  markets.
     NetWolves products are designed to service numerous markets,  including the
     financial,  medical, legal, travel, hospitality,  entertainment,  hotel and
     auto and petroleum industries.

     The  Company's  strategy is to  establish  the FoxBox as the  standard  for
     enterprise-wide  network connectivity  worldwide. To achieve its objectives
     worldwide,   NetWolves  has  sought  to  form  relationships  with  leading
     companies  in  their  respective  areas  to  deliver   application-specific
     Internet solutions to organizations worldwide.

                                       11
<PAGE>

     In February  2000, and in exchange for 1,775,000  restricted  shares of the
     Company's common stock, NetWolves acquired ComputerCOP  Corporation,  whose
     assets included ComputerCOP technology, inventory and $20.5 million in cash
     intended  to fund  future  growth.  The  shares  issued by the  Company  in
     connection with the  acquisition  are subject to a voting trust  agreement,
     wherein the Company's chief executive officer has been granted the right to
     vote all Trust Shares for two years,  subject to earlier termination on the
     sale of the shares based on certain parameters.

     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 FoxBox for deployment  throughout their
     enterprise.  In addition  to  agreeing to sell the FoxBox to GE,  NetWolves
     receives (a) a one-time installation fee for each FoxBox unit installed and
     (b) a monthly  service and maintenance fee for which GE pays NetWolves upon
     installation  for the first twelve months.  GE will be using the FoxBox for
     managed,  secure  interconnectivity  of worldwide offices.  The FoxBox will
     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 500 companies,  and with its new "Mother System,"
     NetWolves can offer the appropriate solutions.

     The Company has a limited  operating history in which to base an evaluation
     of the business and prospects.  The Company's  prospects must be considered
     in light of the risks  frequently  encountered  by companies in their early
     stages,  particularly  for  companies  in the rapidly  evolving  technology
     industry.  Certain risks for the Company include, but are not limited to an
     unproven business model,  capital  requirements and growth  management.  To
     counter  this risk,  the Company  must,  among other  things,  increase its
     customer base,  continue to develop its product  offerings and successfully
     execute its business and marketing plan which includes full  implementation
     of the GE contract and securing  contracts from other Fortune 500 companies
     based on its patent pending "Mother" technology.  There can be no assurance
     that the Company  will be  successful  in  addressing  such risks,  and the
     failure  to do so could  have a material  adverse  effect on the  Company's
     financial condition and results of operations. Since inception, the Company
     has incurred significant losses and as of March 31, 2001 had an accumulated
     deficit of  approximately  $46.2  million.  The Company  believes  that its
     success depends in large part on its ability to create market awareness and
     further  acceptance for the FoxBox,  raise additional  operating capital to
     grow   operations,   continue  to  build   technology  and   non-technology
     infrastructures and continue new product research and development.


                                       12
<PAGE>

Results of Operations

The Company has operated in three business segments, the technology segment, the
training and consulting segment and the computer software segment.


Three months ended March 31, 2001 and 2000

        Revenue

While  revenue  decreased  to $275,694  for the three  months  March 31, 2001 as
compared to $463,405  for the same  period in the prior year,  revenue  from its
core  technology  products  increased  319% from  $27,921  to  $117,073  for the
comparable prior period.  The decrease in total revenue was primarily the result
of a decrease in service  revenue from the  Company's  training  and  consulting
segment as a result of the  continuing  disputes  between TSG and certain former
employees  (See "Item One Legal  Proceedings").  The  increase in revenue in the
technology  segment is from shipments to its major customer within that segment.
Additional  sales to this major  customer  were  delayed  largely as a result of
requests by this customer to add  additional  features in the products  prior to
delivery,  including the  embedding of third party  software  applications.  The
Company  believes  that the delay in revenue  caused by adding these  additional
features  will result in  substantial  additional  benefits,  since the features
added to its core products  should assist the Company in  facilitating  sales to
other Fortune 1000 companies. The Company intends to generate continuing revenue
from the sale of FoxBoxes for the fourth fiscal  quarter,  including  continuing
revenue from this customer, as the requested additional features,  including new
third party software  applications,  have now been added to its products so that
the focus will be on the  production  and sale of its core  technology.  Service
revenue from the TSG subsidiary will be substantially reduced as a result of the
reduction in its  operations and the  continuing  disputes  between the parties.
Further,  the  Company  has not  generated  any  significant  revenue  from  its
ComputerCOP software technology.

        Cost of revenue and gross profit (loss)

Cost of revenue for sale of the Company's FoxBox includes  manufacturing  costs,
which we have  outsourced,  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 increased to $399,997 for the
three months ended March 31, 2001 as compared to $361,441 for the same period in
the prior year.

Overall  gross  profit was a negative 45% for the three months March 31, 2001 as
compared to 22.0% for the same period in the prior year.  Negative  gross profit
in the technology  segment resulted from a writedown of inventory  approximating
$145,000 caused by the substantial upgrades and improvements made by the Company
to its core  products.  Negative  gross profit in the  training  and  consulting
segment is primarily due to the use of  historically  higher cost vendors due to
limited availability of comparable alternatives,  coupled with a reduced pricing
model for the equivalent levels of service.

        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  increased to $807,396 for the three months March 31, 2001
as compared to $491,010  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  to  assist  in  additional
development of our core product being sold to our major  customer.  We expect to
incur engineering and development costs in the future as we continue to maintain

                                       13
<PAGE>

our  existing  product line as well as develop new  products  and  features,  as
evidenced by the development of our "Mother" technology.

        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  increased to
$1,225,251  for the three  months March 31, 2001 as compared to $733,183 for the
same period in the prior year. The increase in sales and marketing  expenses was
primarily  the result of the  employment of  additional  sales  personnel as the
Company  seeks to intensify the  marketing of its core  technology,  payments to
sales and  marketing  consultants,  and an  increase  in  marketing  efforts  to
effectuate brand awareness designed for future growth.

        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
decreased to $1,522,994 for the three months ended March 31, 2000 as compared to
$2,736,933 for the same period in the prior year. The decrease was primarily the
result of  limited  executive  and  consulting  compensation  in the form of the
Company's common stock,  options and warrants,  partially offset by the addition
of the Company's  computer software segment.  The Company expects a reduction in
general and administrative  expenses resulting from the substantial  curtailment
in  operations  of its TSG  subsidiary  and the  reduction  in  expenses  in its
ComputerCOP subsidiary.

        Other income (expenses)

Other income (expenses)  consists primarily of portfolio income and decreased to
$106,995 for the three  months  March 31, 2001,  as compared to $208,384 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  compared
to the same period in the prior year.

Nine months ended March 31, 2001 and 2000

        Revenue

Revenue  increased to $1,299,525  for the nine months March 31, 2001 as compared
to $935,554  for the same period in the prior year.  The increase in revenue was
primarily  the  result of an  increase  in sales from the  Company's  technology
segment  through  shipments to its major  customer.  This increase was partially
offset by a reduction in revenue  from the  Company's  training  and  consulting
segment.  The Company  intends to generate  continuing  revenue from the sale of
FoxBoxes for the fourth fiscal quarter  including  continuing  revenue from this
customer,  as the  focus  will  be on  the  production  and  sale  of  its  core
technology.  Service  revenue  from  the TSG  subsidiary  will be  substantially
reduced  as a result  of the  reduction  in its  operations  and the  continuing
disputes between the parties (See "Item One Legal  Proceedings").  Further,  the
Company has not generated any significant revenue from its ComputerCOP  software
technology and recorded an impairment of  capitalized  software of $2 million at
December 31, 2000.

        Cost of revenue and gross profit

Cost of revenue increased to $1,046,802 for the nine months ended March 31, 2001
as compared to $570,305 for the same period in the prior year.

Overall  gross  profit  decreased to 19.4% for the nine months March 31, 2001 as
compared  to 39.0% for the same  period in the prior  year.  This was  primarily
attributable  to a writedown of inventory  approximating  $145,000 caused by the
substantial  upgrades and improvements  made by the Company to its core products
and  decreasing  margins  in its  revenue  generated  within  the  training  and
consulting segment.

                                       14
<PAGE>
        Engineering and development

Engineering and development expenses increased to $1,687,504 for the nine months
March 31, 2001 as compared to $1,066,071  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 to assist in
additional  development of our core technology  being sold to our major customer
as the Company  seeks to  intensify  the  marketing of its core  technology.  We
expect to incur  engineering and development  costs in the future as we continue
to  maintain  our  existing  product  line as well as develop new  products  and
features, as evidenced by the development of our "Mother" technology.

        Sales and marketing

Sales and marketing  expenses  increased to $4,162,510 for the nine months March
31, 2001 as compared to  $1,508,550  for the same period in the prior year.  The
increase  in sales  and  marketing  expenses  was  primarily  the  result of the
employment of additional sales personnel, common stock issuances and payments to
sales and  marketing  consultants,  and an  increase  in  marketing  efforts  to
effectuate  brand  awareness  designed for future growth.  Included in sales and
marketing  expenses  for the nine  months  ended  March 31,  2001 is $749,000 of
non-cash  compensation  for services in the form of the Company's  common stock,
options and warrants as compared to none in the prior period.

        General and administrative

General and administrative  expenses decreased to $7,855,091 for the nine months
ended March 31, 2001 as compared to $10,852,339 for the same period in the prior
year. The decrease was primarily the result of limited  executive and consulting
compensation  in the form of the Company's  common  stock,  options and warrants
(excluding the  amortization of previously  issued warrants) during for the nine
months ended March 31, 2001,  partially  offset by the addition of the Company's
computer  software  segment,  a  settlement  with Anicom,  Inc.,  as well as the
employment of additional  administrative  personnel and payment of  professional
fees for services rendered.  On November 16, 2000, the Company and Anicom,  Inc.
reached  a  settlement  (the  "Settlement  Agreement").   Under  the  Settlement
Agreement,  the  allegations  for the  breach of the  warrant  agreement  by the
Company and unasserted  claims for the breach of the  distribution  agreement by
Anicom and the Company were  settled.  The  Settlement  Agreement  resulted in a
charge to operations of $445,000 for the six months ended December 31, 2000. The
Company  expects a reduction in general and  administrative  expenses  resulting
from the  substantial  curtailment  of its TSG  subsidiary  and the reduction in
expenses in its ComputerCOP subsidiary.

        Other income (expenses)

Other income (expenses) increased to $580,056 for the nine months March 31, 2001
as compared to $314,544 for the same period in the prior year.  The increase was
primarily  due to an increase in interest  income the nine months March 31, 2001
due to the  increased  average  cash balance  from the  ComputerCOP  Corporation
transaction.

        Impairment charges

On December  31,  2000,  the Company  recorded a  writedown  of its  ComputerCOP
technology  (computer  software segment) in the amount of $2,000,000.  The asset
was  determined  to be  impaired  because  of  the  inability  of  the  software
technology to generate future operating income without  substantial sales volume
increases, which are uncertain.

                                       15
<PAGE>

Liquidity and Capital Resources

NetWolves  had cash and cash  equivalents  of $7.5 million and $20.2  million at
March 31, 2001 and June 30, 2000, respectively.

Our operating activities used cash of $11.0 million during the nine months ended
March 31, 2001, as compared to $5.6 million  during the same period in the prior
year.  Cash  used  for the nine  months  ended  March  31,  2001  was  primarily
attributable  to a net loss of  $14.9  million,  partially  offset  by  non-cash
expenses including amortization, equity compensation and an impairment provision
totaling $1.1 million,  $1.5 million and $2.0 million,  respectively.  Cash used
for the nine months  ended March 31, 2000 was  primarily  attributable  to a net
loss of $12.7 million, and increases in accounts receivable and inventory of $.2
million and $.3 million,  respectively,  partially  offset by non-cash  expenses
including  amortization and equity  compensation  totaling $1.9 million and $5.4
million, respectively.

Our investing  activities  used cash of $.8 million during the nine months ended
March 31, 2001, as compared to providing  cash of $19.6 million  during the same
period in the prior year. Cash used for the nine months ended March 31, 2001 was
primarily  attributable  to the  Company's  purchases of property and  equipment
totaling $.6 million.  Cash  provided  from  investing  activities  for the nine
months ended March 31, 2000 was primarily attributable to cash acquired with the
acquisition of ComputerCOP  Corporation  totaling $20.0 million,  net of finders
fees, partially offset by Company's purchases of property and equipment totaling
$.3 million.

Our financing  activities used cash of $1.0 million during the nine months ended
March 31, 2001,  as compared to providing  cash of $3.8 million  during the same
period in the prior year. Cash used for the nine months ended March 31, 2001 was
primarily  attributable to the Company's repurchases of warrants relating to the
Anicom settlement totaling $.7 million and repayments of long term debt totaling
$.3 million.  Cash provided from financing  activities for the nine months ended
March 31, 2000 was primarily  attributable  to proceeds from the private sale of
the Company's  common stock totaling $4.0 million,  net of financing costs paid,
partially  offset by  repayments  of  advances  to a TSG  officer  totaling  $.1
million.

Management  believes that the Company has adequate capital resources to meet its
working capital needs for at least the next twelve months based upon its current
and anticipated  operating levels,  an anticipated  reduction in operating costs
resulting  from  focusing  on  our  core   technology  and  the  elimination  of
substantial sales,  marketing and general and  administrative  costs incurred in
its TSG and  ComputerCOP  subsidiaries.  To the extent  necessary,  the  Company
intends to seek to fund its growth over the next 24 to 36 months; however, there
are no  representations  or  assurances  that the Company  will have  sufficient
capital to finance this planned growth.


ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Not applicable.
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<PAGE>
PART II  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     1)   On April 19, 2000,  Anicom,  Inc. had commenced an action  against the
          Company  in the U.S.  District  Court  for the  Northern  District  of
          Illinois.  The  action was based upon  NetWolves'  alleged  failure to
          deliver  approximately  74,842  shares of its common  stock to Anicom,
          upon exercise by Anicom of the Company's  warrants.  The action sought
          specific  performance  as well as any damages  that may have  resulted
          from a diminution in value of NetWolves  common stock. On November 16,
          2000, and in connection  with the  litigation,  the Company and Anicom
          reached  a  settlement  (the   "Settlement   Agreement").   Under  the
          Settlement  Agreement  the  allegations  for the breach of the warrant
          agreement by the Company and  unasserted  claims for the breach of the
          distribution  agreement  by Anicom and the Company were  settled.  The
          Company  paid   $1,150,000  to  Anicom   pursuant  to  the  Settlement
          Agreement,  which included $950,000 for the repurchase of all unvested
          warrants. As of September 30, 2000, the Company has reduced additional
          paid in capital in the amount of $705,000, representing the fair value
          of the warrants,  calculated  using the  Black-Scholes  option pricing
          model with the following assumptions: dividend yield of none, expected
          volatility  of 65%,  risk free  interest rate of 5.85% and an expected
          term of 3.17  years  the  remaining  life to the  maturity  date.  The
          remaining  portion of the settlement,  in the amount of $445,000,  has
          been charged to operations.

     2)   NetWolves   Corporation  (the  "Company")  on  behalf  of  itself  and
          derivatively on behalf of TSG Global  Education Web, Inc. vs. David H.
          Sullivan, et al. - ("Action 1")

          David H. Sullivan, et al. vs. NetWolves Corporation,  et al.- ("Action
          2")

          On or about  November 22, 2000 the Company  commenced  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
          Global  Education Web.  ("TSG") (the "Sullivan  Group") and against an
          Ohio Corporation, ProCare, Inc. ("ProCare").

          By way  of  background,  as  more  fully  articulated  in the  amended
          complaint,  TSG,  which  has been  named as a nominal  defendant,  was
          created by the Company as a wholly owned  subsidiary to facilitate the
          acquisition  from  the  Sullivan  Group  all of  the  stock  of  Sales
          Management  Consulting  Inc.  ('SMCI"),  d/b/a as the Sullivan  Group,
          pursuant to an  Agreement  and Plan of Merger dated July 7, 1999 among
          the  Company,   TSG,   SMCI  and  the  Sullivan   Group  (the  "Merger
          Agreement").  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.  In connection  with the
          Merger  Transaction,  180,000  shares  of  the  Company's  stock  were
          transferred  to the  Sullivan  Group (the  "Shares")  and the  Company
          became obliged to provide to the Sullivan Group employment  agreements
          with TSG (the  "Employment  Agreements"),  to commit  itself  to,  and
          actually  contribute  more than five  million  dollars to the  working
          capital of TSG pursuant to a stockholders agreement among the Sullivan
          Group and the Company, and otherwise to make available to the Sullivan
          Group technology of the Company which they utilized for the benefit of
          ProCare, a company in which it is contended the Sullivan Group enjoy a
          beneficial  interest.  The Company  additionally stated claims against
          the  Sullivan  Group to redress  what it alleges  was the  wasting and
          mismanagement of TSG's assets by the Sullivan Group, the breach by the


                                       17
<PAGE>
          Sullivan Group of their fiduciary and  contractual  obligations to TSG
          under their  Employment  Agreements  with TSG and  otherwise,  and the
          usurpation by the Sullivan Group of corporate opportunities rightfully
          belonging to TSG.

          In addition to injunctive and other equitable  relief,  the Company is
          seeking to recover from the Sullivan Group  compensatory  and punitive
          damages in excess of ten million dollars.

          In response to Action 1, on or about  December 19, 2000,  the Sullivan
          Group  commenced  Action 2 in the United States District Court for the
          Southern   District  of  New  York   against  the  Company  and  other
          defendants.  According  to their  complaint,  the  Sullivan  Group are
          contending,  correspondingly,  that it was the  Company and certain of
          its 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 technology. Based upon this
          factual predicate, the Sullivan Group have asserted claims against the
          Company and the other defendants for violations of Section 10-b of the
          Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder,
          common law fraud, and against TSG, for breach by TSG of the Employment
          Agreements. The Sullivan Group are seeking to recover from the Company
          and the other named  defendants  compensatory  and punitive damages in
          excess of sixteen million dollars plus liquidated compensation amounts
          to which they claim they are entitled under the Employment Agreements.

          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 now will reassert as  counterclaims  in their answer in Action
          No. 2, all of the claims  which they  asserted  against  the  Sullivan
          Group  and  ProCare  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.
          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

                                       18
<PAGE>

          and damages  that the Company may suffer or incur if it is  determined
          ultimately that such relief was wrongfully granted.

          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

        None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

        Not applicable.

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

        Not applicable.

ITEM 5. OTHER INFORMATION

        Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        Exibits:
        -------

        10.1    Employment Agreement between Company and Walter R. Groteke.
        10.2    Employment Agreement between Company and Peter C. Castle.

                                       19
<PAGE>
                                   SIGNATURES


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




                                BY:     NETWOLVES CORPORATION




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




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












Date: May 18, 2001


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