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

                                  FORM 10-QSB


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

                For the quarterly period ended December 31, 2004
                                               -----------------
                        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.)


                 4805 Independence Parkway, Tampa, Florida 33634
                    (Address of principal executive offices)

                                 (813) 286-8644
              (Registrant's telephone number, including area code)

                                      None
              (Former name, former address and former fiscal year,
                         if changed since last report)

Indicate by checkmark  whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                          Yes   [X]        No  [  ]
                                ---

Indicate the number of shares  outstanding of each of issuer's classes of common
stock as of the latest practicable date:

                                        NUMBER OF SHARES OUTSTANDING ON
        TITLE OF CLASS                        February 11, 2005
--------------------------------        --------------------------------
Common Stock, $.0033 par value                   27,586,093
                                                 ----------


<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

                         FORM 10-QSB - DECEMBER 1, 2004


                                     INDEX

PART I - FINANCIAL INFORMATION


     ITEM 1 - FINANCIAL STATEMENTS

     CONDENSED CONSOLIDATED BALANCE SHEETS
       December 31, 2004 (unaudited) and June 30, 2004                 1 - 3

     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
       For the three and six months ended
       December 31, 2004 (unaudited)and December 31, 2003
       (unaudited and as restated)                                     4 - 5

     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
       For the six months ended December 31, 2004
       (unaudited)and December 31, 2003 (unaudited)                    6 - 7

     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS             8 - 13

       ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
                OF OPERATION                                         14 - 19

       ITEM 3 - CONTROLS AND PROCEDURES                                   20


PART II - OTHER INFORMATION

       ITEM 1 - LEGAL PROCEEDINGS                                         21

       ITEM 2 - CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER
                PURCHASES OF EQUITY SECURITIES                            21

       ITEM 3 - DEFAULTS UPON SENIOR SECURITIES                           21

       ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS       21

       ITEM 5 - OTHER INFORMATION                                         21

       ITEM 6 - EXHIBITS                                                  22

SIGNATURES                                                                23

<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

                    CONSOLIDATED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                  December 31,             June 30,
                                                                                     2004                   2004
                                                                              -------------------   ------------------
ASSETS

<S>                                                                           <C>                   <C>
Current assets
     Cash and cash equivalents                                                $        5,526,655    $        5,439,345
     Accounts receivable, net of allowance of $227,160 and $131,678 at
      December 31, 2004 and June 30, 2004, respectively                                3,440,134             3,421,185
     Inventories                                                                         451,056                79,764
     Prepaid expenses                                                                    553,201               277,869
     Other current assets                                                                  4,004                30,993
                                                                              ------------------    -------------------
         Total current assets                                                          9,975,050             9,249,156

Restricted cash                                                                           25,722                25,566

Property and equipment, net                                                              315,399               399,355

Internally developed software, net                                                           451                12,594

Identifiable intangible assets
Patent                                                                                    64,989                58,106
Licenses                                                                                 203,000               203,000
Contractual customer relationships, net                                                2,639,441             1,526,851
Computer billing software, net                                                           474,043               568,043
                                                                              ------------------    -------------------
         Total identifiable intangible assets                                          3,381,473             2,356,000

Goodwill                                                                               3,515,698             3,515,698

Other assets                                                                              70,172                60,312
                                                                              ------------------    -------------------
                                                                              $       17,283,965    $       15,618,681

The  accomopanying  notes are an integral part of these  condensed  consolidated
fiinancial statements.


                                       1

<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

                    CONSOLIDATED CONSOLIDATED BALANCE SHEETS



(continued)                                                                       December 31,            June 30,
                                                                                      2004                  2004
                                                                              ------------------    -------------------
                                                                                   (Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
    Accounts payable and accrued expenses                                     $        5,843,371    $        4,345,225
    Dividends payable                                                                    670,440             1,810,179
    Accrued losses of discontinued operations                                             68,488               107,841
    Deferred revenue                                                                     409,518               369,088
    Current maturities of long-term debt                                                 200,000              -
                                                                              ------------------    -------------------
       Total current liabilities                                                       7,191,817             6,632,333

Deferred revenue                                                                          19,000                29,667

Long term debt, net of current maturities                                                600,000               -

Accrued losses of discontinued operations                                               -                       18,514
                                                                              ------------------    -------------------

         Total liabilities                                                             7,810,817             6,680,514
                                                                              ------------------    -------------------
Commitment and contingencies

Shareholders' equity
    Series A Preferred stock, $.0033 par value; $6,046,524 liquidation
      preference; 1,000,000 shares authorized on December 31, 2004 and June
      30, 2004; 189,590 and 190,616 shares issued and outstanding on
      December 31, 2004 and June 30, 2004, respectively                                2,169,319             2,112,039
    Series B Preferred stock, $.0033 par value; $8,380,508 liquidation
      preference; 500,000 authorized on December 31, 2004 and June 30,
      2004; 241,674 and 270,269 shares issued and outstanding on December
      31, 2004 and June 30, 2004, respectively                                         2,973,032             3,257,037
    Series C Preferred stock, $.0033 par value; $2,223,656 liquidation
      preference; 100,000 shares authorized on December 31, 2004 and June
      30, 2004; 15,730 and 72,461 shares issued and outstanding on December
      31, 2004 and June 30, 2004, respectively                                           319,942             3,013,771




The  accompanying  notes are an integral  part of these  condensed  consolidated
financial statements.

                                       2

<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

                    CONSOLIDATED CONSOLIDATED BALANCE SHEETS


(continued)                                                                       December 31,            June 30,
                                                                                      2004                  2004
                                                                              ------------------    -------------------
                                                                                   (Unaudited)
    Preferred stock, $.0033 par value; 400,000 shares authorized on
      December 31, 2004 and June 30, 2004; no shares issued and outstanding
      on December 31, 2004 and June 30, 2004                                               -                     -
    Common stock, $.0033 par value; 65,000,000 and 50,000,000 shares
      authorized on December 31, 2004 and June 30, 2004, respectively;
      26,118,227 and 20,925,261 shares issued and outstanding on December
      31, 2004 and June 30, 2004, respectively                                            86,191                69,054
     Additional paid-in capital                                                       77,814,770            73,631,120
     Unamortized value of equity compensation                                           (290,450)             (480,201)
     Accumulated deficit                                                             (73,599,656)          (72,664,653)
                                                                              ------------------    -------------------

       Total shareholders' equity                                                      9,473,148             8,938,167
                                                                              ------------------    -------------------

                                                                              $       17,283,965    $       15,618,681
                                                                              ==================    ==================
</TABLE>

The  accompanying  notes are an integral  part of these  condensed  consolidated
financial statements.

                                       3
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                            For the three months ended                  For the six months ended
                                                   December 31,                                December 31,
                                     -----------------------------------------  -------------------   -----------------
                                                             (As restated)                               (As restated)
                                             2004                  2003                 2004                  2003
                                     -------------------  -------------------   -----------------     -----------------
<S>                                  <C>                  <C>                   <C>                   <C>
 Revenue
    Voice services                   $         4,569,467 $          4,062,176   $      9,586,848      $      8,223,250
    Managed service charges                    1,753,427            1,712,028          3,624,860             3,111,804
    Equipment and consulting                     131,134              228,937            318,089               669,633
                                     -------------------  -------------------   -----------------     -----------------
                                               6,454,028            6,003,141         13,529,797            12,004,687
                                     -------------------  -------------------   -----------------     -----------------
 Cost of revenue
    Voice services                             2,833,281             2,544,000          5,970,378             5,291,931
    Managed service charges                    1,189,793             1,215,830          2,264,049             2,136,644
    Equipment and consulting                      16,487                57,308            147,595               346,974
                                     -------------------  -------------------   -----------------     -----------------
                                               4,039,561             3,817,138          8,382,022             7,775,549
                                     -------------------  -------------------   -----------------     -----------------

 Gross profit                                  2,414,467             2,186,003          5,147,775             4,229,138
                                     -------------------  -------------------   -----------------     -----------------
Operating expenses
    General and administrative                 1,877,721             1,657,277          3,456,810             3,303,393
    Engineering and development                  239,637               272,320            474,402               525,719
    Sales and marketing                        1,246,768             1,097,768          2,157,861             2,135,485
                                     -------------------  -------------------   -----------------     -----------------
                                               3,364,126             3,027,365          6,089,073             5,964,597
                                     -------------------  -------------------   -----------------     -----------------

 Loss before other income (expense)            (949,659)             (841,362)           (941,298)           (1,735,459)

 Other income (expense)
    Investment income                              8,291                 1,705             14,295                 3,096

    Gain on extinguishment of debt                 -                    17,400              -                    17,400
    Minority interest                              -                       288              -                       595
    Interest expense                             (8,000)                 -                 (8,000)                -
                                     -------------------  -------------------   -----------------     -----------------
                                                    291                 19,393              6,295                21,091
                                     -------------------  -------------------   -----------------     -----------------
Loss before income taxes
                                               (949,368)              (821,969)          (935,003)           (1,714,368)
Provision for income taxes                        -                      -                  -                    72,720
                                     ------------------   -------------------   -----------------     -----------------

 Net loss                            $         (949,368)  $          (821,969)  $        (935,003)    $      (1,787,088)
                                     ==================   ===================   =================     =================

The  accomopanying  notes are an integral part of these  condensed  consolidated
fiinancial statements.



                                       4
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)




                                            For the three months ended                  For the six months ended
                                                   December 31,                                December 31,
                                     -----------------------------------------  -------------------   -----------------
                                                             (As restated)                               (As restated)
                                             2004                  2003                 2004                  2003
                                     -------------------  -------------------   -----------------     -----------------

 Basic and diluted net loss per share

 Net loss                            $         (949,368)  $          (821,969)  $        (935,003)     $     (1,787,088)

  Dividends and beneficial conversion
     on convertible preferred stock            (284,180)             (982,663)           (690,825)           (4,408,270)
                                     ------------------   -------------------   -----------------     -----------------

Net loss attributable to common
  shareholders                       $       (1,233,548)  $        (1,804,632)  $      (1,625,828)    $      (6,195,358)
                                     ==================   ===================   =================     =================

Basic and diluted net loss per share $             (.05)  $              (.10)  $            (.07)    $            (.37)
                                     ==================   ===================   =================     =================
 Weighted average common shares
    outstanding, basic and diluted           23,465,049            17,838,160          22,501,609            16,842,638
                                     ==================   ===================   =================     =================
</TABLE>
The  accomopanying  notes are an integral part of these  condensed  consolidated
fiinancial statements.

                                       5
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                         For the six months ended
                                                                                 December 31,
                                                                      -----------------------------
                                                                          2004            2003
                                                                      -----------   ----------------
<S>                                                                   <C>             <C>
Cash flows from operating activities
     Net loss                                                         $ (935,003)     $ (1,787,088)
     Adjustments to reconcile net loss to net cash (used in) provided
     by operating activities
           Depreciation                                                   104,457          112,877
           Amortization                                                   437,830          360,508
           Bad debt expense                                               132,764            -
           Non-cash charge to operations with respect to
            stock and warrants issued for services and
            amortization of previously issued warrants                    201,825          720,066
           Minority interest                                                -                 (595)
           Gain on extinguishment of debt                                   -              (17,400)
           Loss on disposal of property and equipment                       4,132            6,500

     Changes in operating assets and liabilities
       Restricted cash                                                      (156)              (64)
       Accounts receivable                                              (120,990)         (788,139)
       Inventories                                                      (371,292)          (16,838)
       Prepaid expenses                                                 (275,332)         (116,031)
       Other current assets                                               26,989           (13,600)
       Accounts payable and accrued expenses                           1,468,147           (22,339)

       Accrued losses of discontinued operations                         (57,867)          (53,422)
       Deferred revenue                                                   29,763          (286,004)
                                                                      ----------      ------------
         Net cash provided by (used in) operating activities             645,267        (1,901,569)
                                                                      ----------      ------------

Cash flows from investing activities
     Release of letter of credit                                           -               272,330
     Patent costs paid                                                    (6,883)            -
     Payment to purchase customer contracts                             (500,000)          (89,964)
     Payments for security deposits                                       (9,860)             (580)
     Purchases of property and equipment                                 (24,633)           (8,304)
                                                                      ----------      ------------
       Net cash used in investing activities                           $(541,376)         $173,482
                                                                      ----------      ------------

The  accomopanying  notes are an integral part of these  condensed  consolidated
fiinancial statements.

                                       6
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
(continued)

                                                                         For the six months ended
                                                                                 December 31,
                                                                      ------------------------------
                                                                          2004            2003
                                                                      -----------   ----------------
Cash flows from financing activities
     Cash proceeds from private sale of convertible preferred
      stock and warrants                                              $    -        $    4,941,600
     Cash proceeds from issuance of common stock                           -             1,256,250
     NASDAQ listing fee                                                  (16,581)          (38,000)
     Financing costs paid                                                  -              (609,160)
     Repayment of advances                                                 -              (150,000)
                                                                      ----------      ------------
       Net cash (used in) provided by financing activities               (16,581)        5,400,690
                                                                      ----------      ------------
Net increase in cash and cash equivalents                                 87,310         3,672,603

Cash and cash equivalents, beginning of period                         5,439,345         1,336,191
                                                                      ----------      ------------
Cash and cash equivalents, end of period                              $5,526,655      $  5,008,794
                                                                      ==========      ============


SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Note payable                                                          $  800,000      $      -
                                                                      ==========      ============
Warrant issued related to acquisition of customer list                $  175,000      $      -
                                                                      ==========      ============
Dividends accrued on convertible preferred stock                      $  513,936      $    453,475
                                                                      ==========      ============
Dividends paid-in-kind on convertible preferred stock                 $1,653,676      $    299,514
                                                                      ==========      ============
Common stock issued in full settlement of note payable
  to Imperial Holdings, Inc.                                          $    -          $    102,600
                                                                      ==========      ============

</TABLE>
The  accomopanying  notes are an integral part of these  condensed  consolidated
fiinancial statements.

                                       7
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                  SIX MONTHS ENDED DECEMBER 31, 2004 AND 2003



1    Interim financial information

     The summary financial information  contained herein is unaudited;  however,
     in the opinion of management,  all adjustments  (consisting  only of normal
     recurring  accruals)  necessary for a fair  presentation  of such financial
     information have been included.  These financial statements,  including the
     condensed  consolidated  balance sheet as of June 30, 2004,  which has been
     derived from audited financial statements, are presented in accordance with
     the  requirements  of Form  10-QSB and  consequently  may not  include  all
     disclosures  normally required by generally accepted accounting  principles
     or those normally made in the Company's  Annual Report on Form 10-KSB.  The
     accompanying  condensed consolidated financial statements and related notes
     should be read in  conjunction  with the  Company's  Annual  Report on Form
     10-KSB for the fiscal year ended June 30, 2004.  The results of  operations
     for the three and six months ended  December  31, 2004 are not  necessarily
     indicative of the results to be expected for the full year.

2    The Company

     The  consolidated  financial  statements  include the accounts of NetWolves
     Corporation  and  its  subsidiaries,   NetWolves  Technologies  Corporation
     ("NWT"),  Norstan Network Services,  Inc., d/b/a NetWolves Network Services
     ("NNS")  and  TSG  Global   Education  Web,  Inc.   ("TSG")   (collectively
     "NetWolves" or the "Company").

     NetWolves   provides  network  security   solutions  coupled  with  network
     management   and   communication   services.   NetWolves'   products  offer
     applications  such  as  firewalls,   virtual  private  networks,  intrusion
     detection   systems,   content  filtering,   virus  detection,   congestion
     management,  and intelligent  failover.  Additionally,  NetWolves  provides
     network design, provisioning, monitoring, and management services.

                                       8
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                  SIX MONTHS ENDED DECEMBER 31, 2004 AND 2003


3    Restatement of financial statements

     As  disclosed  in the  previously  filed 10-KSB for the year ended June 30,
     2004,  subsequent  to the filing of form 10-QSB for March 31, 2004,  and in
     conjunction  with  preparation  and  review of our  consolidated  financial
     statements for the year ended June 30, 2004, the Company determined that it
     had not  properly  calculated  and  recorded  convertible  preferred  stock
     dividends  and  related  beneficial   conversion  feature  charges  on  the
     issuances  of  the  Series  A,  B  and C  convertible  preferred  stock  in
     accordance with Emerging Issues Task Force ("EITF") No. 00-27  "Application
     of Issue No. 98-5 to Certain Convertible Instruments".

     Included in the periods  restated were the balance sheet as of December 31,
     2003 and  statements of operations for the three and six months then ended.
     The following  amounts during that period were restated as a result of this
     change:

<TABLE>
<CAPTION>
                                                          As previously
                                                             reported             Adjustment         As restated
                                                          -------------           -----------        -----------
              <S>                                       <C>                  <C>                  <C>

              Quarter ended December 31, 2003
              (unaudited)

              Accounts payable and accrued expenses     $       4,137,733    $         652,297    $       4,790,030
              Convertible preferred stock:
              Series A                                          2,664,014              104,284            2,768,298
              Series B                                          3,055,770              286,404            3,342,174
              Series C                                          3,384,091              (57,953)           3,326,138
              Additional paid-in capital                       73,731,309             (985,033)          72,746,276
              Net loss attributable to common
              shareholders                                     (1,203,212)            (642,140)          (1,845,352)
              Basic and diluted net loss per share
                                                                    (0.07)               (0.03)               (0.10)
</TABLE>

4    Significant accounting policies

     Basic and diluted net loss per share

     The diluted loss per share does not include the impact of potential  shares
     to be issued upon  exercise of  convertible  preferred  stock,  options and
     warrants  aggregating  approximately  23.5  million  and  29.7  million  at
     December  31,  2004 and 2003,  respectively,  because the Company had a net
     loss attributable to common shareholders and,  therefore,  the effect would
     be antidilutive.

     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.

                                       9
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                  SIX MONTHS ENDED DECEMBER 31, 2004 AND 2003



     Stock based compensation

     Statement of  Financial  Accounting  Standards  ("SFAS"),  "Accounting  for
     Stock-Based  Compensation"  ("SFAS  123")  establishes  a fair  value-based
     method of accounting for stock based  compensation  plans.  The Company has
     chosen  to adopt  the  disclosure  requirements  of SFAS 123 and SFAS  148,
     "Accounting  for  Stock-Based  Compensation  - Transition  and  Disclosure"
     ("SFAS 148") and continue to record stock  compensation  for its  employees
     and outside  directors  using the  intrinsic  value  method  prescribed  in
     Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
     Employees"  ("APB 25").  Under APB 25,  charges are made to  operations  in
     accounting  for stock options  granted to employees  and outside  directors
     when the  option  exercise  prices are below the fair  market  value of the
     common stock at the measurement date.

     If the Company had elected to recognize compensation expense based upon the
     fair value at the date of grant consistent with the methodology  prescribed
     by SFAS 123 and SFAS 148, the effect on the Company's net loss and net loss
     per share would be as follows:
<TABLE>
<CAPTION>


                                          For the three months                       For the six months
                                           ended December 31,                        ended December 31,
                                 --------------------------------------    --------------------------------------
                                                         (As restated)                              (As restated)

                                         2004                 2003                 2004                  2003
                                 -----------------    -----------------    -----------------     -----------------
<S>                              <C>                  <C>                  <C>                   <C>
Net loss attributable to
  common shareholders, as
  reported                       $      (1,233,548)   $      (1,845,352)   $      (1,625,828)    $      (6,195,358)

Add:  Total stock-based
  employee compensation
  expense included in reported
  net income (loss), net of
  related tax effects                             -                    -                    -                     -

Deduct:  Total stock-based
  employee compensation
  expense determined under
  fair value based method for
  all awards, net of related
  tax effects                             (126,751)            (147,383)            (247,358)             (291,834)
                                 -----------------    -----------------    -----------------     -----------------
Pro forma net loss
attributable to common
shareholders                     $      (1,360,299)   $      (1,992,735)   $     (1,873,186)    $      (6,487,192)
                                 =================    =================    =================     =================

Basic and diluted net loss per
share
         As reported             $           (.05)    $           (.10)    $           (.07)     $           (.37)
         Pro forma               $           (.06)    $           (.11)    $           (.08)     $           (.39)
</TABLE>

     Equity  issuances to  non-employees in exchange for services are charged to
     operations  over the period the services are provided  using the fair value
     method on the measurement date.

                                       10
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                  SIX MONTHS ENDED DECEMBER 31, 2004 AND 2003

     Summary of recent accounting pronouncements

     In November 2004, the Financial  Accounting Standards Board ("FASB") issued
     SFAS No. 151,  "Inventory  Costs,  an amendment  of ARB No. 43,  Chapter 4"
     ("SFAS 151").  SFAS 151 clarifies  that  abnormal  inventory  costs such as
     costs of idle  facilities,  excess freight and handling  costs,  and wasted
     materials (spoilage) are required to be recognized as current period costs.
     The  provisions of SFAS 151 are  effective  for the  Company's  fiscal 2006
     year.  Management is currently  evaluating  the  provisions of SFAS 151 and
     does not  expect  adoption  will have a  material  impact on the  Company's
     financial position, results of operations, or cash flows.

     In December 2004, the FASB  finalized SFAS No. 123R  "Share-Based  Payment"
     ("SFAS  123R"),  amending SFAS No. 123,  effective  beginning the Company's
     third quarter of fiscal 2006. SFAS 123R will require the Company to expense
     stock options  based on grant date fair value in our financial  statements.
     Further,  the  adoption  of SFAS 123R will  require  additional  accounting
     related to the income tax effects and additional  disclosure  regarding the
     cash flow effects  resulting from  share-based  payment  arrangements.  The
     effect of  expensing  stock  options on the results of  operations  using a
     Black-Scholes  option-pricing model is presented in Note 2. The adoption of
     SFAS 123R will have no effect  on the  Company's  cash  flows or  financial
     position,  but will  have an  adverse  impact  on the  Company's  financial
     position and results of operations.

     In December 2004,  the FASB issued SFAS No. 153,  "Exchanges of Nonmonetary
     Assets - an amendment of APB Opinion No. 29" ("SFAS 153").  This  statement
     amends APB  Opinion  No. 29 to  eliminate  the  exception  for  nonmonetary
     exchanges  of  similar  productive  assets and  replaces  it with a general
     exception for exchanges of nonmonetary  assets that do not have  commercial
     substance.  A nonmonetary  exchange has commercial  substance if the future
     cash flows of the entity are expected to change  significantly  as a result
     of the exchange.  The  provisions of SFAS 153 are effective for fiscal year
     ending  June  2006.  The  adoption  of SFAS 153 is not  expected  to have a
     material  impact  on  the  Company's   consolidated   financial   position,
     liquidity, or results of operations.

5    Acquisition of customer list

     On October 1, 2004,  the Company  acquired a customer  list from  Education
     Communications  Consortia,  Inc.  ("ECCI")  for a total  purchase  price of
     $1,300,000,  of which $500,000 was paid in cash on the date of closing. The
     remaining  $800,000  is a note  payable  in  four  annual  installments  of
     $200,000  commencing October 1, 2005, bearing interest of 4% per annum. The
     payment of each annual  installment  is contingent  upon  achieving  annual
     revenue of  approximately  $2 million.  The purchase  price,  including the
     entire contingent  liability,  has been recorded as an intangible asset and
     will be amortized over its expected useful life of 4.5 years. Additionally,
     the  Company  issued to a  consultant,  as a  finders  fee  related  to the
     acquisition,  an immediately  exercisable  five-year  warrant to purchase a
     total of 350,000 shares of common stock at an exercise price of $1.00.  The
     value of the warrants  totaling  approximately  $175,000 was recorded as an
     increase to the intangible asset,  contractual customer  relationships,  in
     the accompanying condensed consolidated balance sheets.

     Separately, the Company entered into an employment agreement with a certain
     member of ECCI management for a period of four years at an annual salary of
     $75,000.  The  services to be  provided  under this  agreement  include new
     business development and sales.

                                     11
<PAGE>




                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                  SIX MONTHS ENDED DECEMBER 31, 2004 AND 2003



6    Related party transactions

     During  the  six  months  ended   December  31,  2004,   the  Company  paid
     approximately  $146,000  for  legal  services  to law  firms  in  which  an
     employee/stockholder is affiliated.

7    Shareholders' equity

     Common stock

     During the annual  meeting  of  shareholders  held in  December  2004,  the
     proposed  amendment to the  Certificate  of  Incorporation  to increase the
     number of authorized  shares of common stock from  50,000,000 to 65,000,000
     shares, par value $.00333 per share, was ratified.

     In accordance  with the preferred  stock  subscription  agreements,  during
     December  2004,  shares of common  stock  totaling  815,626  were issued to
     investors in the Series A and B offering and 250,517  warrants  were issued
     to  Series  C  investors  as a  penalty  payment  due to the  delay  in the
     registration  of the  shares  of common  stock  underlying  the  investors'
     preferred stock. The value of this registration  penalty,  $1,367,760,  was
     recorded as a reduction to dividends payable in the accompanying  condensed
     consolidated  balance sheet and is reflected as a component of the net loss
     available to shareholders.

     Preferred stock

     For the six months ended December 31, 2004,  investors had converted 20,084
     shares of Series A  Preferred  Stock,  28,595  shares of Series B Preferred
     Stock and 56,731 shares of Series C Preferred  Stock resulting in issuances
     of  4,352,335  shares of common  stock.  Subsequent  to  December  31, 2004
     investors have converted 28,214 shares of Series A Preferred Stock,  39,096
     shares of Series B Preferred Stock and 156,480 shares of Series C Preferred
     Stock resulting in issuances of 1,467,414 shares of common stock.

     On July 1, 2004, stock dividends totaling 19,058 shares were paid in Series
     A  Preferred  Stock to  Series A  Preferred  Stock  investors  representing
     accrued dividends through June 30, 2004.

8    Segment information

     The Company reports  segments in accordance with SFAS No. 131  "Disclosures
     about Segments of an Enterprise and Related  Information"  ("SFAS 131"). As
     of December  31,  2003,  the Company and its  subsidiaries  operated in two
     separate business segments, the Technology segment and the Network Services
     segment.  Effective  January 1, 2004, the Company  instituted a new segment
     reporting  format to include  three  reportable  business  segments:  Voice
     Services,  Managed  Service  Charges and  Equipment  and  Consulting.  This
     segment reporting change was made to better reflect  management's  approach
     to  operating  and  directing  the  businesses  and to more  closely  align
     financial and  managerial  reporting.  As required by SFAS 131,  prior year
     operating  information  in the  following  table has been  reclassified  to
     conform with the current year presentation.

     The Voice  Services  segment,  which  operates  worldwide,  provides  voice
     services including switched and dedicated outbound,  switched and dedicated
     toll-free inbound,  dedicated T1 access loops, calling and debit cards, and
     conference  calling.  The Managed Services Charges segment,  which operates
     worldwide,  provides  network  and  security  technology  and a variety  of

                                       12
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                  SIX MONTHS ENDED DECEMBER 31, 2004 AND 2003


     recurring  managed data  services.  The Equipment and  Consulting  segment,
     which operates  worldwide,  delivers  networking and security equipment and
     software as well as provides  consulting services on an as needed basis for
     certain existing and/or future customers.


<TABLE>
<CAPTION>
                                                     For the three months ended      For the six months ended
                                                            December 31,                     December  31,
                                                     --------------------------      -------------------------
                                                         2004          2003             2004            2003
                                                      ----------  -------------    -------------     -----------
         <S>                                          <C>         <C>              <C>              <C>
         Revenue
              Voice Services                          $4,569,467  $   4,062,176     $9,586,848     $   8,223,250
              Managed Service Charges                  1,753,427      1,712,028       3,624,860        3,111,804
              Equipment and Consulting                   131,134        228,937         318,089          669,633
                                                      ----------     ----------    ------------     ------------
                  Total                               $6,454,028     $6,003,141     $13,529,797     $ 12,004,687
                                                      ==========     ==========     ===========     ============
              Cost of revenue
              Voice Services                         $ 2,833,281     $2,544,000     $ 5,970,378     $  5,291,931
              Managed Service Charges                  1,189,793      1,215,830       2,264,049        2,136,644
              Equipment and Consulting                    16,487         57,308         147,595          346,974
                                                      ----------     ----------    ------------     ------------
                  Total                               $4,039,561     $3,817,138     $ 8,382,022     $  7,775,549
                                                      ==========     ==========     ===========     ============
         Operating income (loss)
              Voice Services                         $ (475,960)     $ (346,094)    $ (361,356)     $   (794,330)
              Managed Service Charges                  (405,044)       (425,671)      (381,186)         (697,542)
              Equipment and Consulting                  (68,655)        (69,598)      (198,756)         (243,586)
                                                      ----------     ----------    ------------     ------------
                  Total                              $ (949,659)     $ (841,363)    $ (941,298)     $ (1,735,458)
                                                      ==========     ==========     ===========     ============
</TABLE>

     The Company is not  disclosing  total  assets for each  reportable  segment
     because  the chief  operating  decision  maker  reviews  total  assets on a
     consolidated basis.

     The  Company  had one major  customer  which  accounted  for 27% and 32% of
     consolidated  revenue  for the six  months  ended  December  31,  2004  and
     December 31, 2003, respectively. Additionally, the Equipment and Consulting
     segment was dependent  upon one customer,  who accounted for 15% and 46% of
     the segment's revenues for the six months ended December 31, 2004 and 2003,
     respectively.

     The  Company  made  purchases  from two data and  voice  service  providers
     included within the Managed Service Charges and Voice Services segment that
     aggregated  approximately  61% and 16% and 77% and 13% of the total cost of
     revenue for the six months ended December 31, 2004 and 2003, respectively.

                                       13
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                  SIX MONTHS ENDED DECEMBER 31, 2004 AND 2003




7    Income taxes



         The provision for income taxes consists of the following:
<TABLE>
<CAPTION>

                                                    For the six months ended
                                                        December 31,
                                                        ------------

                                                          2004               2003
                                                    -------------      -------------
              <S>                                   <C>                <C>

              Current  - Federal and States         $       -          $      72,720
              Deferred - Federal                            -                  -
              Deferred - States                             -                  -
                                                    -------------      -------------

              Provision for income taxes            $      -    .      $      72,720
                                                    =============      =============
</TABLE>


     Due to the history of net  operating  losses for income tax  purposes,  the
     Company has provided for full  valuation  allowances  on the  Company's net
     deferred  tax asset due to it being more likely than not that the  deferred
     tax asset will not be utilized.

     A portion or all of the Company's net tax operating loss  carryforwards may
     be subject to Section 382 of the Internal  Revenue Code and  therefore  not
     available to offset future income tax liabilities.  The carryforward losses
     expire in the years 2014 through 2024 and have not been  recognized  in the
     accompanying  consolidated  financial statements as a result of a valuation
     allowance against the deferred tax asset.

                                       14
<PAGE>


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


     Forward-Looking Statements

     This  Form  10-QSB  includes,   without   limitation,   certain  statements
     containing the words "believes" "anticipates",  "estimates", "expects", and
     words of a similar nature, constitute  "forward-looking  statements" within
     the meaning of the Private  Securities  Litigation Reform Act of 1995. This
     Act provides a "safe  harbor" for  forward-looking  statements to encourage
     companies to provide  prospective  information  about themselves so long as
     they identify these  statements as forward looking and provide  meaningful,
     cautionary statements identifying important factors that could cause actual
     results to differ from the projected  results.  All  statements  other than
     statements of historical fact made in this Form 10-QSB 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 based on certain risks
     and  uncertainties,  including the risk factors referenced in the Company's
     filings with the Securities and Exchange Commission.  Readers are cautioned
     not to place  undue  reliance  on  these  forward-looking  statements.  The
     Company does not undertake any obligation to release publicly any revisions
     to  these   forward-looking   statements   to  reflect   future  events  or
     circumstances or to reflect the occurrence of unanticipated events.

     Overview

     NetWolves   Corporation   ("NetWolves"  or  the  "Company")  is  a  network
     continuity  and  security  provider  that offers  high-performance  network
     security solutions coupled with robust network management and communication
     services.  The Company  designs,  develops,  assembles  and sells  Internet
     infrastructure  security  platforms,  coupled with network based management
     services,  designed to significantly  reduce the up-front and ongoing costs
     associated with small,  medium and remote offices' global Internet  access.
     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 the
     ability  for  corporate   executives  to  view,  via  the  Internet,   both
     statistical and performance based metrics for their global network.

     We operate in three segments.  The Voice Services  segment,  which operates
     worldwide,   provides  voice  services  including  switched  and  dedicated
     outbound,  switched and dedicated  toll-free  inbound,  dedicated T1 access
     loops,  calling  and debit  cards,  and  conference  calling.  The  Managed
     Services  Charges  ("MSC" or  Managed  Services)  segment,  which  operates
     worldwide,  provides  network  and  security  technology  and a variety  of
     recurring  managed data  services.  The Equipment and  Consulting  segment,
     which operates  worldwide,  delivers  networking and security equipment and
     software  as well as provides  consulting  services on a fee for service or
     project basis.

     We have created an offering of managed  products and services that meet the
     necessary requirements for organizations to move off expensive private data
     networks  while  attaining  the  benefits  and  flexibility  of public data
     network.  Additionally, our proprietary technology provides a high level of
     security  through its  integrated  approach to  management,  monitoring and
     interoperability   for  small  and  medium  remote   enterprise   locations
     (locations  with less than 500 network users).  We sell a Managed  Services
     Offering (MSO) that provides  complete  system  solutions to  organizations
     needing cost-effective network security features (firewall, virtual private
     networking,  routing, intrusion detection,  content filtering, email, etc.)
     delivered on low-cost  commodity  hardware with Internet-  based  expansion

                                       15
<PAGE>

     capabilities. Our patent-pending system technology enables organizations to
     achieve corporate  Information  technology (IT) and e-business  initiatives
     through the  deployment of easily  installable  perimeter  office  security
     platforms,  coupled with our secure remote monitoring and management ("SRM2
     TM")  system.  SRM2 TM provides  centralized  management  capabilities  for
     hundreds  or  thousands  of remote  locations  without  risking  networking
     integrity because it does not require an administrative  port on the remote
     device,  which  is  a  common  network   vulnerability.   We  also  provide
     cost-effective,  value-added  expansion  technologies  such as  Intelligent
     Failover, which means that if one circuit for gaining access to information
     fails,  the system would  automatically  switch to an  alternative  circuit
     based upon customer defined parameters.

     Critical accounting policies and estimates

     The  Company's  discussion  and  analysis of its  financial  condition  and
     results of operations is based upon the  condensed  consolidated  financial
     statements,  which have been  prepared in  accordance  with U.S.  generally
     accepted accounting principles.  The preparation of financial statements in
     conformity with U.S.  generally  accepted  accounting  principles  requires
     management  to make  estimates  and  assumptions  that affect the  reported
     amounts of assets and liabilities,  the disclosure of contingent assets and
     liabilities  as of the date of the financial  statements,  and the reported
     amounts of revenue and  expenses  during the periods.  Estimates  have been
     made by management in several areas, including, but not limited to, revenue
     recognition, allowance for doubtful accounts, the realizability of deferred
     tax  assets,   goodwill  and  other  intangible   assets  and  stock  based
     compensation. We base our estimates on historical experience and on various
     other assumptions that we believe to be reasonable under the circumstances.
     Actual results may differ  materially  from these estimates under different
     assumptions or conditions.

     We believe  the  following  critical  accounting  policies  affect our more
     significant  judgments  and  estimates  used  in  the  preparation  of  our
     consolidated financial statements.

     Revenue recognition

     We record  revenue in accordance  with Statement of Position 97-2 "Software
     Revenue  Recognition"  ("SOP  97-2"),  issued by the American  Institute of
     Certified  Public  Accountants  (as modified by Statement of Position 98-9)
     and SEC Staff  Accounting  Bulletin 104 "Revenue  Recognition"  ("SAB 104")
     regarding revenue  recognition in financial  statements.  SOP 97-2 provides
     additional guidance with respect to multiple element arrangements; returns,
     exchanges,  and  platform  transfer  rights;  resellers;  services;  funded
     software development arrangements; and contract accounting.

     Revenues  generated  from the resale of voice  services are  recognized  as
     services are provided and are included within Voice Services revenue in the
     accompanying condensed consolidated statements of operations.

     Revenues  generated from the sale of recurring  services within the Managed
     Service segment are recognized as services are provided.

     Revenue from the sale of hardware,  where our software is not essential, is
     recognized within Equipment & Consulting revenue at the time of delivery of
     hardware products to the customer,  when the fee is fixed and determinable,
     collectibility  is probable and a contract  signed by both parties has been
     obtained. Maintenance or monitoring revenue that is bundled with an initial
     license fee is deferred and recognized  ratably within MSC revenue over the
     maintenance or monitoring period in the accompanying condensed consolidated
     statements of operations.  Amounts  deferred for  maintenance or monitoring
     are  based  on the fair  value  of  equivalent  maintenance  or  monitoring
     services sold  separately.  We have established  vendor specific  objective
     evidence ("VSOE") on all undelivered elements of our software arrangements,
     which  consists of  maintenance,  monitoring  and, at times,  training  and
     consulting.  We  use  the  residual  method  for  delivered  elements.  Our
     consulting projects are short-term in nature and are recorded as revenue in
     Equipment   and   Consulting   revenues  in  the   accompanying   condensed
     consolidated  statements of operations and comprehensive loss when services
     are provided.

                                       16
<PAGE>

     Revenue for  shipping  and  handling  are  included  within  Equipment  and
     Consulting revenue and the related costs are included in cost of revenue in
     the accompanying condensed consolidated statements of operations.

     Allowance for doubtful accounts

     The Company provides  allowances for doubtful accounts for estimated losses
     from the  inability of customers to satisfy  their  accounts as  originally
     contemplated at the time of sale and charges actual losses to the allowance
     when  incurred.  The  calculation  for  these  allowances  is  based on the
     detailed  review  of  certain  individual  customer  accounts,   historical
     satisfaction  rates and the Company's  estimation  of the overall  economic
     conditions   affecting  the  Company's  customer  base.  If  the  financial
     condition of the Company's  customers were to deteriorate,  resulting in an
     impairment of their ability to make payments,  additional allowances may be
     required.

     Income taxes

     As part of the process of preparing our consolidated  financial  statements
     we are required to prepare our income taxes in each of the jurisdictions in
     which we operate.  This process involves  estimating our actual current tax
     exposure  together with  assessing  temporary  differences  resulting  from
     differing  treatment  of  items  for tax  and  accounting  purposes.  These
     differences  result in  deferred  tax  assets  and  liabilities,  which are
     included  within our  consolidated  balance sheet.  We must then assess the
     likelihood  that our  deferred  tax assets  will be  recovered  from future
     taxable income and to the extent we believe that recovery is not likely, we
     must establish a valuation  allowance.  We have fully reserved our deferred
     tax assets at December 31, 2004 and June 30, 2004.

     Goodwill and other intangible assets

     We evaluate the recoverability of goodwill and other intangibles of each of
     our reporting  units as required under SFAS 142 by comparing the fair value
     of each  reporting  unit with its  carrying  value.  The fair values of our
     reporting  units are determined  using a combination  of a discounted  cash
     flow  analysis and market  multiples  based upon  historical  and projected
     financial  information.  We apply  our best  judgment  when  assessing  the
     reasonableness  of the  financial  projections  used to determine  the fair
     value of each reporting unit.

     Stock-based compensation

     The  Company  applies  the  intrinsic   value-based  method  of  accounting
     prescribed  by  Accounting   Principles   Board  ("APB")  Opinion  No.  25,
     "Accounting for Stock Issued to Employees", and related interpretations, to
     account for stock-based  employee  compensation plans and reports pro forma
     disclosures  by estimating the fair value of options issued and the related
     expense in accordance with SFAS 123. Under this method,  compensation  cost
     is  recognized  for  awards of shares of common  stock or stock  options to
     directors,  officers and employees of the Company only if the quoted market
     price of the stock at the grant date (or other  measurement date, if later)
     is greater than the amount the grantee must pay to acquire the stock.

                                       17
<PAGE>
     Results of Operations

     We currently operate in three business segments, the Voice Services segment
     ("Voice  Services"),  the MSC  segment  and the  Equipment  and  Consulting
     segment ("Equipment and Consulting").

     Six months ended December 31, 2004 and 2003

          Revenue

     Revenue  increased to $13.5  million for the six months ended  December 31,
     2004,  compared to $12.0 million for the same period in the prior year. The
     increase  in revenue  is  attributable  to our MSC  segment  where  revenue
     increased  by $0.5 million and the Voice  Services  segment  where  revenue
     increased $1.4 million,  offset by a decrease of approximately $0.4 million
     in our Equipment and Consulting segment. The increase in Voice Services and
     MSC  is  primarily   attributable  to  sales  to  new  customers   totaling
     approximately  $0.9  million,  of which $0.7  million in Voice  Services is
     non-recurring.  The decrease in Equipment  and  Consulting is the result of
     stronger demand for our equipment in the prior year from our major customer
     in this segment.


          Cost of revenue and gross profit margin

     Cost of revenue increased to $8.4 million for the six months ended December
     31,  2004,  compared to $7.8 million for the same period in the prior year.
     Cost of revenue  within the MSC segment  increased  to $2.3  million or 38%
     profit margin,  compared to $2.1 million, or 31% profit margin for the same
     period  in  the  prior  year.  The  improved  profit  margin  is  primarily
     attributable to our sale of more  profitable MSC services.  Cost of revenue
     within the Voice Services  segment  increased to $6.0 million or 38% profit
     margin compared to $5.3 million or 36% profit margin for the same period in
     the prior year. This increased  profit margin is primarily  attributable to
     our negotiation with current and new vendors to lower voice rates.  Cost of
     revenue  within the  Equipment  and  Consulting  segment  decreased to $0.1
     million, or 54% profit margin compared to $0.3 million or 48% profit margin
     for the same period in the prior year. The decrease in profit margin is due
     to the product mix comprising the segment.

     Overall  gross profit was 38% for the six months  ended  December 31, 2004,
     compared  to 35% for the same  period in the prior  year.  The  increase in
     profit margin reflects increased sales of our more profitable  services and
     products and the effect of rate negotiations with vendors.

          General and administrative

     General and  administrative  expenses increased to $3.5 million for the six
     months  ended  December  31,  2004,  compared to $3.3  million for the same
     period  in the  prior  year.  The  increase  was  primarily  the  result of
     professional  service expenses related to our strategic  investments in the
     higher education vertical market.

          Engineering and development

     Engineering and development  expenses remained constant at $0.5 million for
     the six months  ended  December  31,  2004 and the same period in the prior
     year.
                                     18

<PAGE>

          Sales and marketing

     Sales and marketing  expenses  increased to $2.2 million for the six months
     ended  December 31,  2004,  compared to $2.1 million for the same period in
     the prior year. The increase in sales and marketing  expenses was primarily
     the result of an increase in the number of sales personnel,  which resulted
     in  increased  salary,   exclusive  of  benefits  and  indirect  costs,  of
     approximately  $0.2 million and a new  consulting  agreement  totaling $0.1
     million, offset by a net decrease in equity compensation of consultants for
     the current period of approximately $0.1 million.

     Three months ended December 31, 2004 and 2003

          Revenue

     Revenue  increased to $6.5 million for the three months ended  December 31,
     2004,  compared to $6.0 million for the same period in the prior year.  The
     increase in revenue is  attributable  to our Voice  Services  segment where
     revenue increased $0.5 million,  offset by a decrease of approximately $0.1
     million in our  Equipment  and  Consulting  segment.  The increase in Voice
     Services is attributable to sales to new customers  totaling  approximately
     $0.2  million and new sales  within our  existing  customer  base  totaling
     approximately $0.3 million.

          Cost of revenue and gross profit margin

     Cost of  revenue  increased  to $4.0  million  for the three  months  ended
     December  31,  2004,  compared  to $3.8  million for the same period in the
     prior year.  Cost of revenue  within the MSC segment  remained  constant at
     $1.2 million or 32% profit  margin,  compared to 29% profit  margin for the
     same period in the prior year.  The  improved  profit  margin is  primarily
     attributable to our sale of more  profitable MSC services.  Cost of revenue
     within the Voice Services  segment  increased to $2.8 million or 38% profit
     margin compared to $2.5 million or 37% profit margin for the same period in
     the prior year. Cost of revenue within the Equipment and Consulting segment
     decreased  to $16,000,  or 87% profit  margin,  for the three  months ended
     December 31, 2004,  compared to $57,000 or 75% profit margin,  for the same
     period in the  prior  year.  The  increase  in profit  margin is due to the
     product mix comprising the segment.

     Overall gross profit margin was 37% for the three months ended December 31,
     2004, compared to 36% for the same period in the prior year.

          General and administrative

     General and administrative expenses increased to $1.9 million for the three
     months  ended  December  31,  2004,  compared to $1.7  million for the same
     period  in the  prior  year.  The  increase  was  primarily  the  result of
     professional  service expenses related to our strategic  investments in the
     higher education vertical market.

          Engineering and development

     Engineering  and  development  expenses  decreased  to $0.2 million for the
     three months ended December 31, 2004, compared to $0.3 million for the same
     period in the prior year.

                                       19
<PAGE>


          Sales and marketing

     Sales and marketing expenses increased to $1.2 million for the three months
     ended  December 31,  2004,  compared to $1.1 million for the same period in
     the prior year. The increase was primarily the result of an increase in the
     number  of  sales   personnel,   which  resulted  in  increased  salary  of
     approximately  $0.1 million and a new  consulting  agreement  totaling $0.1
     million, offset by a net decrease in equity compensation of consultants for
     the current period of approximately $0.1 million.

     Liquidity and Capital Resources

     Our  operating  activities  provided  cash of $0.6  million  during the six
     months ended  December 31, 2004,  as compared to using $1.9 million for the
     same period in the prior year.  Cash  provided  by  operations  for the six
     months ended December 31, 2004 was primarily  attributable to a net loss of
     $1.0  million,  an increase in prepaid  expenses  and  inventories  of $0.3
     million  and $0.4  million,  respectively,  partially  offset  by  non-cash
     expenses  totaling  $0.9 million,  including  equity  compensation  of $0.2
     million,  an  increase in  accounts  payable  and accrued  expenses of $1.5
     million. Cash used by operations for the six months ended December 31, 2003
     was primarily  attributable  to a net loss of $1.8 million,  an increase in
     accounts  receivable of $0.8 million and an increase in deferred revenue of
     $0.3  million  partially  offset by a decrease in  restricted  cash of $0.3
     million and non-cash  charges for  depreciation and amortization and equity
     compensation of approximately $0.5 million and $0.7 million, respectively.

     Our investing  activities  used cash of $0.5 million  during the six months
     ended December 31, 2004, as compared to $0.2 million for the same period in
     the prior year. Cash used in investing  activities for the six months ended
     December  31, 2004 was  primarily  attributable  to a cash  payment of $0.5
     million paid to acquire  customers from their  previous  telecommunications
     provider.  In addition to the cash payment,  the company  signed a interest
     bearing note payable for $0.8 million, payable in four annual installments.
     Cash used in investing  activities  for the six months  ended  December 31,
     2003 was  primarily  attributable  to a payment  of $0.09  million  paid to
     acquire customers from their previous telecommunications provider at a rate
     of 1.35 times the monthly revenue for customers entering into new contracts
     with us.

     Our financing  activities were not significant  during the six months ended
     December 31, 2004, as compared to providing cash of $5.4 million during the
     same period in the prior year.  Cash provided by financing  activities  for
     the six months  ended  December 31, 2003 was the result of the private sale
     of the  Company's  convertible  preferred  stock and  warrants  aggregating
     approximately  $4.9  million as well as the private  sale of the  Company's
     common stock and warrants aggregating approximately $1.3 million, partially
     offset by financing costs of approximately $0.6 million.

     Management's plan

     Historically, our main source of liquidity has been equity financing, which
     was used to fund historical losses from operating activities.  Based on our
     current cash  position of  approximately  $5.5 million and our trend toward
     cash flow positive and  profitability,  there is no plan or requirement for
     additional financing.  Additionally,  we believe the Company has sufficient
     cash to meet our funding needs for at least the next 12 months.

                                       20
<PAGE>


ITEM 3 - CONTROLS AND PROCEDURES

     CEO and CFO Certifications
     --------------------------

     The  certifications  of the CEO and the CFO  required  by Rules  13a-14 and
     15d-14  of  the   Securities   Exchange  Act  of  1934,   as  amended  (the
     "Certifications") are filed as exhibits to this report. This section of the
     report contains the information  concerning the evaluation of the Company's
     disclosure  controls  and  procedures  (as  defined in  Exchange  Act Rules
     13a-15(e) and  15d-15(e))  ("Disclosure  Controls") and changes to internal
     control  over  financial  reporting  (as  defined  in  Exchange  Act  Rules
     13a-15(f)  and  15d-15(f))   ("Internal   Controls")  referred  to  in  the
     Certifications  and this information should be read in conjunction with the
     Certifications for a more complete understanding of the topics presented.

     Evaluation of Disclosure Controls
     ---------------------------------

     Based  on  our  management's  evaluation  (with  the  participation  of our
     principal executive officer and principal financial officer), as of the end
     of the period covered by this report,  our principal  executive officer and
     principal financial officer have concluded that our Disclosure Controls are
     designed to provide reasonable assurance of achieving their objectives and,
     at  the  "reasonable   assurance"  level,  are  effective  to  ensure  that
     information  required  to be  disclosed  by us in reports we file or submit
     under the  Exchange  Act is recorded,  processed,  summarized  and reported
     within the time periods specified in SEC rules and forms.

     Changes in Internal Controls
     ----------------------------

     There was no change in our Internal  Controls  during Second Quarter Fiscal
     2005 that has materially  affected,  or is reasonably  likely to materially
     affect, our Internal Controls.



                                       21
<PAGE>



PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

        Not applicable

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

        None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

        Not applicable

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

          A. We held our Annual Meeting of Shareholders on December 14, 2004.

          B. Two directors  were elected at the Annual Meeting to serve in Class
          II until the Annual  Meeting  of  Shareholders  in 2007.  The names of
          these  directors and votes cast in favor of their  election and shares
          withheld are as follows:
<TABLE>
<CAPTION>
         Name                         Votes For                  Votes Withheld
         ----------------------------------------------------------------------
         <S>                          <C>                            <C>
         Myron Levy                   17,449,283                     169,607
         Walter M. Groteke            17,449,283                     169,607
</TABLE>

          The other directors are Carlos Campbell,  Walter R. Groteke and Fassil
          Gabremariam.

          C. In addition to the election of directors, the shareholders approved
          the  proposal  to  ratify  the   amendment  of  the   Certificate   of
          Incorporation  to increase the number of  authorized  shares of common
          stock  from  50,000,000  to  65,000,000  shares,  par  value  $,0033 -
          17,130,005 shares were voted in favor of this proposal, 419,885 shares
          against and 67,550 abstained.



ITEM 5. OTHER INFORMATION

        Not applicable.


ITEM 6. EXHIBITS




     31   CEO  and  CFO   certifications   pursuant   to  Section   302  of  the
          Sarbanes-Oxley Act of 2002.
     32   CEO  and  CFO   certifications   pursuant   to  Section   906  of  the
          Sarbanes-Oxley Act of 2002.


                                       22
<PAGE>

                                   SIGNATURES


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




                        BY:     NETWOLVES CORPORATION






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






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




Date: February 14, 2005