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 September 30, 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:
<TABLE>
<CAPTION>

                                          NUMBER OF SHARES OUTSTANDING ON
        TITLE OF CLASS                            October 22, 2001
------------------------------            -------------------------------

<S>                                                  <C>
Common Stock, $.0033 par value                       10,658,065
                                                     ----------
</TABLE>
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                         FORM 10-Q - SEPTEMBER 30, 2001



                                     INDEX


PART I - FINANCIAL INFORMATION


    ITEM 1 - FINANCIAL STATEMENTS

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

    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
    COMPREHENSIVE LOSS
      For the three months ended September 30, 2001 (unaudited)
       and September 30, 2000 (unaudited)                                      2

    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
       For the three months ended September 30, 2001 (unaudited)
        and September 30, 2000 (unaudited)                                     3

    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                  4 - 11

    ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS                        12 - 18

    ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK        18


PART II - OTHER INFORMATION

    ITEM 1 - LEGAL PROCEEDINGS                                                19

    ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS                        20

    ITEM 3 - DEFAULTS UPON SENIOR SECURITIES                                  20

    ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS              20

    ITEM 5 - OTHER INFORMATION                                                20

    ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K                                 20

SIGNATURES                                                                    21

<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                                  September 30,           June 30,
                                                                                      2001                  2001
                                                                              ------------------    ------------------
                                                                                  (Unaudited)
<S>                                                                           <C>                   <C>

ASSETS

Current assets
     Cash and cash equivalents                                                $        4,973,919    $        4,411,657
     Marketable securities, available for sale, at market value                           66,500                71,000
     Accounts receivable, net                                                            366,225               366,868
     Inventories                                                                         363,659               361,656
     Prepaid expenses                                                                    142,778               234,648
     Other current assets                                                                134,915               185,130
                                                                              ------------------    ------------------
         Total current assets                                                          6,047,996             5,630,959

Property and equipment, net                                                              924,378               982,748
Software, net                                                                             72,422                73,414
Other assets                                                                             180,163               173,323
                                                                              ------------------    ------------------

                                                                              $        7,224,959    $        6,860,444
                                                                              ==================    ==================
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
    Accounts payable and accrued expenses                                     $          513,594    $          926,634
    Accrued losses of discontinued operations                                            299,150               496,927
    Deferred revenue                                                                      92,362               129,978
    Current maturities of long-term debt                                                 282,982               282,982
                                                                              ------------------    ------------------
       Total current liabilities                                                       1,188,088             1,836,521

Long term debt, net of current maturities                                                 80,000                80,000
                                                                              ------------------    ------------------

         Total liabilities                                                             1,268,088             1,916,521
                                                                              ------------------    ------------------

Minority interest                                                                        279,280               281,693
                                                                              ------------------    ------------------

Commitment and contingencies

Shareholders' equity
    Preferred stock, $.0033 par value; 2,000,000 authorized on September
      30, 2001 and June 30, 2001; no shares issued and outstanding on
      September 30, 2001 and June 30, 2001                                                 -                     -
    Common stock, $.0033 par value; 50,000,000 shares authorized on
      September 30, 2001 and June 30, 2001, respectively; 10,658,065 and
      9,167,613  shares issued and outstanding on September 30, 2001 and
      June 30, 2001, respectively                                                         35,171                30,254
     Additional paid-in capital                                                       61,556,082            57,748,499
     Unamortized value of equity warrants                                               (722,500)           (1,011,500)
     Accumulated deficit                                                             (55,062,507)          (51,980,868)
     Accumulated other comprehensive loss                                               (128,655)             (124,155)
                                                                              ------------------    ------------------

       Total shareholders' equity                                                      5,677,591             4,662,230
                                                                              ------------------    ------------------

                                                                              $        7,224,959    $        6,860,444
                                                                              ==================    ==================

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

                                       1
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                             AND COMPREHENSIVE LOSS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                  For the three months ended
                                                                                         September 30,
                                                                          ----------------------------------------

                                                                                  2001                  2000
                                                                          ------------------    ------------------
<S>                                                                       <C>                   <C>
 Revenue
    Products                                                              $           56,872    $           32,483
    Services                                                                         130,553               421,048
                                                                          ------------------    ------------------
                                                                                     187,425               453,531
                                                                          ------------------    ------------------
 Cost of revenue
    Products                                                                          44,310                10,663
    Services                                                                         113,708               302,030
                                                                          ------------------    ------------------
                                                                                     158,018               312,693
                                                                          ------------------    ------------------

 Gross profit                                                                         29,407               140,838
                                                                          ------------------    ------------------

Operating expenses
    General and administrative                                                     1,888,878             2,274,087
    Engineering and development                                                      499,183               384,863
    Sales and marketing                                                              767,881             1,852,872
                                                                          ------------------    ------------------
                                                                                   3,155,942             4,511,822
                                                                          ------------------    ------------------

 Loss before other income (expense)                                               (3,126,535)           (4,370,984)

 Other income (expense)
    Investment income                                                                 48,363               271,800
    Minority interest                                                                  2,413                 8,144
    Interest expense                                                                  (5,880)               (7,224)
                                                                          ------------------    ------------------

 Net loss from continuing operations                                              (3,081,639)           (4,098,264)

Discontinued business
    Loss from discontinued operations                                                     -               (853,898)
    Loss on disposal of discontinued operations                                           -                     -
                                                                          ------------------    ------------------

Net loss                                                                          (3,081,639)           (4,952,162)

 Other comprehensive loss:
    Marketable securities valuation adjustment                                        (4,500)               (1,500)
                                                                          ------------------    ------------------

 Comprehensive loss                                                       $       (3,086,139)   $       (4,953,662)
                                                                          ==================    ==================


Basic and diluted net loss per share
    Loss from continuing operations                                       $            (.30)    $            (.47)
    Loss from discontinued operations                                                    -                   (.10)
                                                                          ------------------    ------------------
                                                                          $            (.30)    $            (.57)
                                                                          ==================    ==================

 Weighted average common shares
    outstanding, basic and diluted                                                10,439,135             8,667,613
                                                                          ==================    ==================
<FN>
The accompanying notes to the financial statements
  are an integral part of these condensed consolidated
  statements.
</FN>
</TABLE>

                                        2


<PAGE>


                     NETWOLVES CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                 For the three months ended
                                                                                 --------------------------
                                                                                          September 30,
                                                                          --------------------------------------

                                                                                  2001                  2000
                                                                          ----------------      ----------------
<S>                                                                       <C>                   <C>
Cash flows from operating activities
     Net loss                                                             $     (3,081,639)     $     (4,952,162)
     Adjustments to reconcile net loss to net cash used in
         operating activities
           Depreciation                                                             64,906                42,635
           Amortization                                                              7,691               534,836
           Noncash charge to operations with respect to
            stock and warrants issued for services and amortization
           of previously issued warrants                                           776,500               855,375
           Minority interest                                                        (2,413)               (8,144)
           Settlement obligation                                                        -                445,000
           Loss on disposal of property and equipment                               12,571                    -
           Accrued loss on disposal of discontinued operations                    (197,777)                   -
     Changes in operating assets and liabilities
       Accounts receivable                                                             643              (110,599)
       Inventories                                                                  (2,003)              (96,328)
       Prepaid expenses                                                             91,870                (5,326)
       Other current assets                                                         50,215                11,935
       Deferred revenue                                                            (37,616)               15,028
       Accounts payable and accrued expenses                                      (413,040)           (1,121,111)
                                                                          ----------------      ----------------
         Net cash used in operating activities                                  (2,730,092)           (4,388,861)
                                                                          ----------------      ----------------
Cash flows from investing activities
     Capitalized software costs                                                     (6,699)              (59,370)
     Purchases of property and equipment                                           (19,107)             (204,194)
     Payments of security deposits                                                  (6,840)              (32,423)
                                                                          ----------------      ----------------
       Net cash used in investing activities                                       (32,646)             (295,987)
                                                                          ----------------      ----------------
Cash flows from financing activities
     Cash proceeds from private sale of common stock                             3,325,000                    -
     Repayment of long term debt                                                        -               (251,616)
                                                                          ----------------      ----------------
       Net cash provided by (used in) financing activities                       3,325,000              (251,616)
                                                                          ----------------      ----------------
Net increase (decrease) in cash and cash equivalents                               562,262            (4,936,464)

Cash and cash equivalents, beginning of period                                   4,411,657            20,204,309
                                                                          ----------------      ----------------
Cash and cash equivalents, end of period                                  $      4,973,919      $     15,267,845
                                                                          ================      ================

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

                                        3


<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                 THREE MONTHS ENDED SEPTEMBER 30, 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 months ended September 30, 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  plan and  building  its  infrastructure  in order to  effectively
     market its products.

     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)

                 THREE MONTHS ENDED SEPTEMBER 30, 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 quarter ended September 30,
     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 $154,322 and
     $209,337,  respectively,  at September  30, 2001 and $154,331 and $207,325,
     respectively, at June 30, 2001. Included in inventory at September 30, 2001
     and June 30, 2001 is $22,086 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)

                 THREE MONTHS ENDED SEPTEMBER 30, 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)

                 THREE MONTHS ENDED SEPTEMBER 30, 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
     $299,000  remained at September 30, 2001. 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
                                                          September 30,
                                                --------------------------------
                                                     2001               2000
                                                -------------     --------------
        <S>                                     <C>                <C>
        Revenue                                 $      42,722     $       12,253
        Cost of revenue                                 3,469              1,652
        Selling, general and administrative           237,030            337,309
        Amortization                                    -                527,190
                                                -------------     --------------
        Loss from discontinued operations       $    (197,777)    $     (853,898)
                                                =============     ==============
</TABLE>
     Loss from discontinued  operations for the three months ended September 30,
     2001 has been applied to "Accrued losses of discontinued operations" on the
     condensed  consolidated  balance  sheets.  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  $226,000 at September  30,  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.

5    Balance sheet components
<TABLE>
<CAPTION>
                                                                    September 30,          June 30,
                                                                        2001                 2001
                                                                  -----------------    -----------------
     <S>                                                          <C>                  <C>
     Property and equipment, net
        Machinery and equipment                                   $         866,489    $         867,832
        Furniture and fixtures                                              240,408              281,484
        Leasehold improvements                                              144,932              152,150
                                                                  -----------------    -----------------
                                                                          1,251,829            1,301,466
        Less: accumulated depreciation and amortization                    (327,451)            (318,718)
                                                                  -----------------    -----------------

        Property and equipment, net                               $         924,378    $         982,748
                                                                  =================    =================
     Accounts payable and accrued expenses
        Trade accounts payable and accrued
          operating expenses                                      $         355,825    $         777,226
        Compensated absences                                                141,686              143,206
        Commissions payable                                                   2,950                2,000
        Payroll/sales taxes payable                                          13,133                4,202
                                                                  -----------------    -----------------
                                                                  $         513,594    $         926,634
                                                                  =================    =================
</TABLE>

                                       7
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                 THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000

6    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  another  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 an employee
          of the Company's  employment  agreement,  the Company  issued  150,000
          shares to such  employee,  which  resulted  in a charge to fiscal 2002
          operations of $487,500.

7    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>

                                                                                 Three months ended
                                                                                    September 30,
                                                                       ---------------------------------------

                                                                              2001                 2000
                                                                       -----------------     -----------------
              <S>                                                      <C>                  <C>
              Revenue
                  Technology                                           $         107,715     $          32,483
                  Training and consulting                                         79,710               421,048
                                                                       -----------------     -----------------

                      Total                                            $         187,425     $         453,531
                                                                       =================     =================

              Operating loss
                  Technology                                           $      (2,985,287)    $      (3,877,353)
                  Training and consulting                                       (141,248)             (493,631)
                                                                       -----------------     -----------------

                      Total                                            $      (3,126,535)    $      (4,370,984)
                                                                       =================     =================


                                       8
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                 THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000



7    Segment information (continued)

                                                                         September, 30           June 30,
                                                                              2001                 2001
                                                                       -----------------     ---------------
             Identifiable assets
                 Technology                                            $       6,786,826     $     6,413,782
                 Training and consulting                                         212,240             241,369
                                                                       -----------------     ---------------
                                                                               6,999,066           6,655,151
                 Net assets of discontinued operations                           225,893             205,293
                                                                       -----------------     ---------------
                     Total                                             $       7,224,959     $     6,860,444
                                                                       =================     ===============
</TABLE>

     The Company had two major customers,  both in the Technology segment, which
     accounted for 28% and 10%,  respectively,  of consolidated  revenue for the
     three months ended September 30, 2001 and two major customers,  both in the
     Training  and  Consulting  segment,  which  accounted  for  58%  and 14% of
     consolidated  revenue  for the  three  months  ended  September  30,  2000,
     respectively. Additionally, the Company had one customer that accounted for
     48% of  consolidated  accounts  receivable  at  September  30, 2001 and two
     customers  that  accounted  for  56%  and  12%  of  consolidated   accounts
     receivable at June 30, 2001.

8    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.

                                       9
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                 THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000


8    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 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.

9    Subsequent events

     Promissory note

     On October  11,  2001,  the  Company  received  $500,000  in the form of an
     unsecured,  non- negotiable promissory note that bears interest at the rate
     of 10% per annum. Such principal and interest is due and payable in full on
     April 1, 2003.

     Private placement

     On November  7, 2001,  the Company  completed a private  placement  with an
     institutional  investor,  whereby  the  Company  sold 1  million  shares of
     unregistered common stock at $2.00 per share (a total of $2,000,000).

                                       10
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                 THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000


10   Liquidity

     NetWolves  had cash and cash  equivalents  of  approximately  $5 million at
     September 30, 2001 and an  additional  $2.5 million was received in October
     and  November  2001 (as  discussed  above).  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 planned
     operating level and estimated revenue.  In order for the Company to execute
     its business  plan,  significant  cash outflows were  necessary  for, among
     other things, developing infrastructure and the utilization of consultants.
     Such spending  levels have  recently  been reduced in  accordance  with the
     Company's  updated  business  plan.  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  will
     institute cost saving measures that will significantly reduce the Company's
     overhead expenses.

                                       11
<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, 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 platforms,  coupled
     with network based management  services,  designed to significantly  reduce
     the upfront  and ongoing  costs  associated  with small,  medium and remote
     offices'  global  internet  access.  The  Company  was  founded in order to
     leverage the rapid  progression of technology,  removing  barriers of entry
     for organizations  desiring to attain the benefits and flexibility a public
     network  enterprise  offers.  NetWolves'  patent pending system  technology
     enables  organizations  to obtain their short,  middle and long term IT and
     e-business  initiatives  through  the  deployment  of  our  plug  'n'  play
     perimeter  office  security  platform,   coupled  with  our  secure  remote
     monitoring  and  management  ("SRM2 TM") system.  Additionally,  NetWolves'
     advanced,  centralized,  reporting  module  offers  for the first  time the
     ability for corporate executives to view, via the Internet, statistical and
     performance metrics in real time.

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

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


                                       12
<PAGE>

     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.

     The Company has a limited  operating history in which to base an evaluation
     of the business and prospects.  The Company's  prospects must be considered
     in light of the risks  frequently  encountered  by companies in their early
     stages,  particularly  for  companies  in the rapidly  evolving  technology
     industry.  Certain risks for the Company include, but are not limited to an
     unproven business model,  capital  requirements and growth  management.  To
     counter  this risk,  the Company  must,  among other  things,  increase its
     customer  base,  continue to develop its  distribution  network and product
     offerings, successfully execute its business and marketing plan, and expand
     the operating  infrastructure.  There can be no assurance  that the Company
     will be successful in addressing such risks, and the failure to do so could
     have a material  adverse  effect on the Company's  financial  condition and
     results  of  operations.   Since   inception,   the  Company  has  incurred
     significant losses and as of September 30, 2001 had an accumulated  deficit
     of approximately $55 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 R&D.

                                       13
<PAGE>


     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 September 30, 2001 and 2000

        Revenue

     Revenue  from  continuing  operations  decreased  to $187,425 for the three
     months ended  September 30, 2001,  compared to $453,531 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
     cancellation  of the BP Amoco  contract in December 2000 and the continuing
     disputes  between TSG and  certain  former  employees  (See Part II "Item 1
     Legal  Proceedings").  The decrease in revenue was  partially  offset by an
     increase  in  sales  of  the  Company's   Internet  products  and  services
     (technology segment).  The increase in revenue in the technology segment is
     from  shipments  to its major  customer  within that  segment.  The Company
     intends  to  generate  continuing  revenue  from the  sale of its  Internet
     products and services in the coming year, including continuing revenue from
     this customer,  as 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 has been substantially  reduced as a result of the reduction
     in its operations and the continuing disputes between the parties.

     Revenue  from  discontinued  operations  increased to $42,722 for the three
     months ended September 30, 2001, compared to $12,253 for the same period in
     the  prior  year.  The  increase  was due to an  increase  in  sales of its
     Forensic and  Professional  software  products.  Revenue from  discontinued
     operations  for the three months ended  September 30, 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  Internet  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 $158,018  for the three  months ended
     September  30, 2001,  compared to $312,693 for the same period in the prior
     year.

     Overall gross profit from  continuing  operations  was at 16% for the three
     months ended September 30, 2001, compared to 31% 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.

                                       14


<PAGE>

     Cost of revenue and gross profit from discontinued  operations increased to
     $3,469 and 92%,  respectively,  for the three  months ended  September  30,
     2001, compared to $1,652 and 87%, respectively,  for the same period in the
     prior year.  The  increase  was due to an increase in sales of its Forensic
     and Professional  software  products that also have greater profit margins.
     Cost of revenue  from  discontinued  operations  for the three months ended
     September  30,  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 $1,888,878
     for the three months ended  September 30, 2001,  compared to $2,274,087 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 $91,686 for the three  months  ended  September  30,  2001,  compared to
     $667,445 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.  General and administrative expenses from discontinued
     operations  for the three months ended  September 30, 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 $499,183  for the three  months ended
     September  30, 2001,  compared to $384,863 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  $7,000 in software development costs during the three months
     ended  September 30, 2001. We expect to incur  significant  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 as well as develop new products and features,  as
     evidenced by the development of our "SRM2 TM" technology.

     Engineering and development expenses from discontinued operations decreased
     to $28,955 for the three  months  ended  September  30,  2001,  compared to
     $83,450 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 three months ended September
     30, 2001 has been applied to "Accrued losses of discontinued operations" on
     the condensed consolidated balance sheets.

                                       15
<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 $767,881 for the
     three months ended September 30, 2001,  compared to $1,852,872 for the same
     period in the prior year. The decrease in sales and marketing  expenses was
     primarily the result of the termination of sales personnel and more focused
     marketing efforts.  The Company intends to continue to aggressively 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  increased to
     $116,389  for the three  months  ended  September  30,  2001,  compared  to
     $113,604 for the same period in the prior year.  The increase was primarily
     due to severance  payments for  terminated  sales  personnel  and increased
     commissions paid on sales of Forensic and Professional  software  products.
     Sales and marketing  expenses from  discontinued  operations  for the three
     months  ended  September  30, 2001 has been  applied to "Accrued  losses of
     discontinued operations" on the condensed consolidated balance sheets.

        Other income (expenses)

     Other income (expenses) from continuing  operations  consists  primarily of
     investment  portfolio  income and decreased to $44,896 for the three months
     ended  September 30, 2001,  compared to $272,720 for the same period in the
     prior year. The decrease was primarily due to 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 $2.7 million during the three months
     ended  September  30, 2001, as compared to $4.4 million for the same period
     in the prior year.  Cash used for the three months ended September 30, 2001
     was primarily  attributable to a net loss of $3.1 million and a decrease in
     accounts payable and accrued  expenses of $.4 million,  partially offset by
     non-cash equity compensation  totaling $.8 million.  Cash used in operating
     activities  during the three months ended  September 30, 2000 was primarily
     attributable  to a net loss of $5.0  million  and a  decrease  in  accounts
     payable and accrued expenses of $1.1 million,  partially offset by non-cash
     expenses  including  amortization,  equity  compensation  and a  settlement
     obligation totaling $.5 million, $.9 million and $.5 million, respectively.

     Our investing  activities used cash of $.03 million during the three months
     ended September 30, 2001, as compared to $.3 million for the same period in
     the prior year.  Cash used in  investing  activities  for the three  months
     ended  September  30,  2001 was  primarily  attributable  to the  Company's
     purchases of property and equipment  totaling  $.02  million.  Cash used in
     investing  activities  for the three  months ended  September  30, 2000 was
     primarily attributable to the Company's purchases of property and equipment
     totaling $.2 million.

     Our financing  activities  provided  cash of $3.3 million  during the three
     months ended  September  30, 2001, as compared to using cash of $.3 million
     during  the same  period in the prior  year.  Cash  provided  by  financing
     activities  for the three  months ended  September  30, 2001 was due to the
     private  sale  of the  Company's  common  stock.  Cash  used  in  financing
     activities for the three months ended  September 30, 2000 was  attributable
     to the repayment of long term debt.

                                       16
<PAGE>
     Post September 30, 2001 transactions

     On  October  11,  2001,  the  Company  received  $500,000  in the form of a
     non-negotiable  promissory  note that bears interest at the rate of 10% per
     annum.  Such  principal and interest is due and payable in full on April 1,
     2003.

     On November  7, 2001,  the Company  completed a private  placement  with an
     institutional  investor,  whereby  the  Company  sold 1  million  shares of
     unregistered common stock at $2.00 per share (a total of $2,000,000).

     Summary

     Historically,  the Company's  source of liquidity has been equity financing
     which is used to fund losses from operating activities.  NetWolves had cash
     and cash  equivalents of approximately $5 million at September 30, 2001 and
     an  additional  $2.5 million was received in October and November  2001 (as
     noted above).  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 planned  operating  level and  estimated
     revenue. In order for the Company to execute its business plan, significant
     cash  outflows  were  necessary   for,   among  other  things,   developing
     infrastructure  and the  utilization of  consultants.  Such spending levels
     have  recently  been  reduced  in  accordance  with the  Company's  updated
     business  plan.  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  will institute cost
     saving  measures  that will  significantly  reduce the  Company's  overhead
     expenses.

     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 extra-
     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.

                                       17
<PAGE>

     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.

                                       18
<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.

                                       19
<PAGE>

     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

     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 another private placement to accredited
     investors for $325,000  through the sale of 130,000 shares of  unregistered
     common stock at $2.50 per share.


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.


                                       20
<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: November 9, 2001




                                       21