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 March 31, 2006
                                                 --------------

                        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 Pkwy, 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 by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act)

Yes       No  X
   ---       ---

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

         TITLE OF CLASS                        NUMBER OF SHARES OUTSTANDING ON
---------------------------
Common Stock, $.0033 par value                          March 31, 2006

                                                          32,433,677
                                                          ----------



<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

                          FORM 10-QSB - March 31, 2006




<TABLE>
<CAPTION>
                                      INDEX


PART I - FINANCIAL INFORMATION
      <S>                                                                                                 <C>

      ITEM 1 - FINANCIAL STATEMENTS

      CONDENSED CONSOLIDATED BALANCE SHEETS
           March 31, 2006 (unaudited) and June 30, 2005 .................................................   1 - 2

      CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the three and nine
           months ended March 31, 2006 (unaudited)
             and March 31, 2005 (unaudited) .............................................................   3 - 4

      CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended
           March 31, 2006 (unaudited)
             and March 31, 2005 (unaudited) .............................................................   5 - 6

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ..............................................   7 - 16

      ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
                 OF OPERATION ...........................................................................  17 - 23

      ITEM 3 - CONTROLS AND PROCEDURES ..................................................................     24


PART II - OTHER INFORMATION

      ITEM 1 - LEGAL PROCEEDINGS .........................................................................    25

      ITEM 2 - CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES ............    25

      ITEM 3 - DEFAULTS UPON SENIOR SECURITIES ...........................................................    25

      ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .......................................    25

      ITEM 5 - OTHER INFORMATION .........................................................................    26

      ITEM 6 - EXHIBITS...................................................................................    26

SIGNATURES       .........................................................................................    27
</TABLE>



<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                                        March 31,             June 30,
                                                                                          2006                  2005
                                                                                  -------------------       ------------
                                                                                       (Unaudited)
ASSETS
<S>                                                                                   <C>                    <C>
Current assets
     Cash and cash equivalents                                                        $   1,357,534          $ 3,325,318

     Restricted cash                                                                              -               25,958
     Accounts receivable, net of allowance of $515,317  at
        March 31, 2006 and June 30, 2005                                                  4,184,661            4,206,658
     Inventories                                                                            406,356              468,705
     Prepaid expenses                                                                       429,155              354,637
                                                                                       ------------          -----------

               Total current assets                                                       6,377,706            8,381,276

Property and equipment, net                                                                 173,178              245,474

Identifiable intangible assets, net                                                       1,380,417            2,625,537
Goodwill and other indefinite lived intangible assets                                     3,791,072            3,783,687

Other assets                                                                                 84,813               72,296
                                                                                       ------------         ------------

               Total assets                                                            $ 11,807,186         $ 15,108,270
                                                                                       ============         ============
</TABLE>

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

                                       1
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS

(Continued)
<TABLE>
<CAPTION>
                                                                                        March 31,          June 30,
                                                                                          2006               2005
                                                                                      -----------         -----------
                                                                                      (Unaudited)
<S>                                                                                   <C>                 <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
    Accounts payable and accrued expenses                                             $ 5,916,054         $ 6,808,695
    Deferred revenue                                                                      597,483             692,930
    Current maturities of long term debt                                                  100,000             300,000
                                                                                      -----------         -----------

       Total current liabilities                                                        6,613,537           7,801,625

Long term debt, net of current maturities                                                 453,750             750,000
                                                                                      -----------         -----------
         Total liabilities                                                              7,067,287           8,551,625
                                                                                      -----------         -----------

Shareholders' equity
    Series A convertible preferred stock, $.0033 par value; $5,525,550
      liquidation preference; 1,000,000 shares authorized; 178,186 and 160,719
      shares issued and outstanding on March 31, 2006 and June 30,
      2005, respectively                                                                2,092,885           1,830,979

    Series B convertible preferred stock, $.0033 par value; $5,778,048
      liquidation preference; 500,000 shares authorized; 187,404 and 207,219
      shares issued and outstanding on March 31, 2006 and June 30,
      2005                                                                              2,502,909           2,729,977

    Series C convertible preferred stock, $.0033 par value; $505,426 liquidation
      preference; 100,000 shares authorized; 11,690 and 16,028 shares issued and
      outstanding on March 31, 2006 and June 30, 2005,
      respectively                                                                        129,041             365,269

    Preferred stock, $.0033 par value; 400,000 shares authorized; no shares
      issued and outstanding on March 31, 2006 and June 30, 2005                                -                   -

    Common stock, $.0033 par value; 65,000,000 authorized; 32,433,677 and
      29,824,205 shares issued and outstanding on March 31, 2006 and June
      30, 2005, respectively                                                              107,032              98,420
     Additional paid-in capital                                                        79,774,396          79,080,423
     Unamortized value of equity compensation                                                   -             (43,000)
     Accumulated deficit                                                             (79,866,364)         (77,505,423)
                                                                                      -----------         -----------

       Total shareholders' equity                                                      4,739,899            6,556,645
                                                                                      -----------         -----------

                                                                                     $ 11,807,186         $15,108,270
                                                                                     ============         ===========
</TABLE>

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

                                       2

<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                               For the three months ended                   For the nine months ended
                                                       March 31,                                     March 31,
                                             --------------------------------           -----------------------------------

                                                2006                 2005                   2005                   2006
                                             -----------          -----------           ------------           ------------
<S>                                          <C>                  <C>                   <C>                    <C>
 Revenue
    Voice services                           $ 3,391,546          $ 4,866,499           $ 10,761,628           $ 14,453,347
    Managed service charges                    1,867,451            1,819,712              6,072,458              5,444,572
    Equipment and consulting                      52,679               45,990                 73,723                364,079
                                             -----------          -----------           ------------           ------------
                                               5,311,676            6,732,201             16,907,809             20,261,998
                                             -----------          -----------           ------------           ------------

 Cost of revenue
    Voice services                             2,497,298            3,065,997              7,301,754              9,036,375
    Managed service charges                    1,009,146            1,231,493              3,695,306              3,495,542
    Equipment and consulting                           -               25,581                    175                173,176
                                             -----------          -----------           ------------           ------------
                                               3,506,444            4,323,071             10,997,235             12,705,093
                                             -----------          -----------           ------------           ------------

 Gross profit                                  1,805,232           2,409,130               5,910,574              7,556,905
                                             -----------          -----------           ------------           ------------

Operating expenses
    General and administrative                 1,136,315            1,699,365              4,242,382              5,156,175
    Engineering and development                  107,119              230,437                439,918                704,839
    Sales and marketing                        1,051,983            1,231,339              4,026,958              3,389,200
                                             -----------          -----------           ------------           ------------

                                               2,295,417            3,161,141              8,709,258              9,250,214
                                             -----------          -----------           ------------           ------------

 Loss before other income  (expense)           (490,185)            (752,011)            (2,798,684)            (1,693,309)
                                             -----------          -----------           ------------           ------------
 Other income (expense)

    Other income                                      -                    -                419,200                      -
    Investment income                                 -               15,026                      -                 23,317
    Interest income (expense)                    34,006               (6,004)                54,360                 (8,000)
                                             -----------          -----------           ------------           ------------
                                                 34,006                9,022                473,560                 15,317
                                             -----------          -----------           ------------           ------------
Loss before income taxes                       (456,179)            (742,989)            (2,325,124)            (1,677,992)

Provision for income taxes                      (30,387)                   -                (35,817)                     -
                                             -----------          -----------           ------------           ------------

 Net loss                                    $ (486,566)          $ (742,989)           $(2,360,941)           $(1,677,992)
                                             ==========           ==========            ===========            ===========

</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>

 (Continued)                                           For the three months ended         For the nine months ended
                                                                 March 31,                       March 31,
                                                   ----------------------------------  ----------------------------------

                                                          2006              2005            2006              2005
                                                   ----------------  ----------------  ---------------  -----------------
<S>                                                     <C>               <C>           <C>                <C>

 Net loss                                               $ (486,566)       $ (742,989)   $ (2,360,941)      $ (1,677,992)
                                                        ===========       ===========   ============       =============

    Dividends and beneficial conversion on
       convertible preferred stock                        (145,278)         (202,597)       (509,024)          (893,422)
                                                        -----------       -----------   -------------      ------------

Net loss attributable to common   shareholders          $ (631,844)        $(945,586)   $ (2,869,965)      $ (2,571,414)
                                                        ===========       ===========   ============       =============


Basic and diluted net loss per share                      $  (0.02)        $   (0.04)   $      (0.09)       $     (0.11)
                                                        ===========       ===========   ============       =============

 Weighted average common shares
    outstanding, basic and diluted                      31,774,479        24,356,508      30,587,875         23,978,139
                                                        ===========       ===========   ============       =============
</TABLE>
The  accompanying  notes are an integral  part of these  condensed  consolidated
financial statements.

                                       4
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

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

                                                                                     For the nine months ended
                                                                                            March 31,
                                                                              ----------------------------------------

                                                                                     2006                  2005
                                                                              -------------------   ------------------
<S>                                                                               <C>                   <C>
Cash flows from operating activities
     Net loss                                                                     $ (2,360,941)         $ (1,677,992)
     Adjustments to reconcile net loss to net cash used in provided by
     operating activities
            Depreciation                                                               101,998               154,002
           Amortization                                                                565,120               692,097
           Bad debt expense                                                            264,872               155,635
           Non-cash charge to operations with respect to
                stock and warrants issued for services and amortization
           of previously issued warrants                                                87,652               297,865
           Other income                                                              (424,166)                     -
           Loss on disposal of property and equipment                                    1,790                16,452

     Changes in operating assets and liabilities
       Restricted cash                                                                  25,958                  (184)
       Accounts receivable                                                            (242,875)             (911,683)
       Inventories                                                                      62,349              (438,119)
       Prepaid expenses                                                                (74,518)             (210,140)
       Other current assets                                                            (12,517)               12,674
         Accounts payable and accrued expenses                                        (315,198)             (135,793)
       Accrued losses of discontinued operations                                             -               (87,595)
       Deferred revenue                                                                (95,447)              312,585
                                                                              -------------------   ------------------

         Net cash used by operating activities                                      (2,415,923)           (1,820,196)
                                                                              -------------------   ------------------

Cash flows from investing activities
     Payment on existing customer list                                                (100,000)                    -
     Patent costs paid                                                                  (7,385)               (6,883)
     Payment to purchase customer contracts                                                  -              (500,000)
     Payments for security deposits                                                          -                (4,795)
     Purchases of property and equipment                                               (31,492)              (56,856)
                                                                              -------------------   ------------------

       Net cash used in investing activities                                       $  (138,877)          $  (568,534)
                                                                              -------------------   ------------------
</TABLE>

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

                                       5
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
(Continued)

                                                                                     For the nine months ended
                                                                                            March 31,
                                                                              ----------------------------------------

                                                                                     2006                  2005
                                                                              -------------------   ------------------
<S>                                                                               <C>                  <C>
Cash flows from financing activities
     NASDAQ listing fees                                                          $   (30,184)         $   (27,579)
     Proceeds from securities purchase agreement                                      425,000                    -
     Cost associated with securities purchase agreement                               (17,800)                   -
     Advance from shareholder                                                         210,000                    -
                                                                              -------------------   ------------------

       Net cash provided by (used in) in financing activities                         587,016              (27,579)
                                                                              -------------------   ------------------

Net decrease in cash and cash equivalents                                          (1,967,784)          (2,416,309)

Cash and cash equivalents, beginning of period                                      3,325,318            5,439,345
                                                                              -------------------   ------------------

Cash and cash equivalents, end of period                                          $ 1,357,534          $ 3,023,036
                                                                              ===================   ==================

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
  AND FINANCING ACTIVITIES

Note payable                                                                      $         -          $   800,000
                                                                              ===================   ==================

Warrant issued related to acquisition of customer list                            $         -          $   175,000
                                                                              ===================   ==================

Acquired receivables related to acquisition of customer list                      $         -          $    30,723
                                                                              ===================   ==================

Dividends accrued on convertible preferred stock                                  $   509,024          $   702,617
                                                                              ===================   ==================

Dividends paid-in-kind on convertible preferred stock                             $   782,301          $ 2,002,843
                                                                              ===================   ==================

Purchase price adjustment-reduction of long term debt and customer list           $   800,000          $         -
                                                                              ===================   ==================

Conversions of preferred stock to common stock                                    $   983,691          $         -
                                                                              ===================   ==================

Issuance of common stock for consulting services                                  $    50,250          $         -
                                                                              ===================   ==================

Conversion of debt to common stock                                                $   210,000          $         -
                                                                              ===================   ==================
</TABLE>

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

                                       6
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                    NINE MONTHS ENDED MARCH 31, 2006 AND 2005


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, 2005,  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, 2005.  The results of  operations
     for the nine months ended March 31, 2006 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.

3    Significant accounting policies

     Principles of consolidation

     The  consolidated  financial  statements  include the accounts of NetWolves
     Corporation and its subsidiaries. All significant intercompany transactions
     and balances have been eliminated in consolidation.

     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 22.0 million and 22.5 million at March
     31,  2006  and  2005,  respectively,  because  the  Company  had a net loss
     attributable to common  shareholders  and,  therefore,  the effect would be
     antidilutive.

     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. Additionally, raw material and finished goods amounted to
     $ 241,120 and  $165,236,  respectively,  at March 31, 2006 and $274,775 and
     $193,930, respectively, at June 30, 2005.

                                       7
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                    NINE MONTHS ENDED MARCH 31, 2006 AND 2005

     Reclassifications

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

     Stock-based compensation

     Statement of Financial  Accounting  Standards ("SFAS") No. 123, "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 nine months
                                                       ended March 31,                          ended March 31,
                                           ---------------------------------------  --------------------------------------
                                                   2006                2005                 2006                 2005
                                           ------------------  -------------------  -------------------  -----------------
   <S>                                            <C>                  <C>                <C>                 <C>
   Net loss attributable to common
     shareholders, as reported                    $ (631,844)          $ (945,586)        $ (2,869,965)       $(2,571,414)

   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                                         (96,423)             (78,660)            (289,269)          (326,018)
                                                   ----------         ------------        -------------       ------------

   Pro forma net loss attributable to              $(728,267)         $(1,024,246)        $ (3,159,234)       $(2,897,432)
                                                   ==========         ============        =============       ============
   common shareholders

   Basic and diluted net loss per share
            As reported                             $  (0.02)           $    (.04)              $(0.09)            $ (.11)
            Pro forma                               $  (0.02)           $    (.04)              $(0.10)            $ (.12)
</TABLE>

                                       8
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                    NINE MONTHS ENDED MARCH 31, 2006 AND 2005


     Stock-based compensation - Continued

     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.

     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 Company  adopted SFAS 151 effective  July 1, 2005 and it did not 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. SFAS 123R will require the Company to
     expense stock options based on grant date fair value. 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.  The
     provisions of SFAS 123R are effective  for the Company  commencing  July 1,
     2006.

     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 Company adopted SFAS 153 effective July 1, 2005 and it
     did not have a  material  impact on the  Company's  consolidated  financial
     position, results of operations or cash flows.

     In March 2005,  the FASB issued final guidance that clarifies how companies
     should  account  for  "conditional"  asset  retirement  obligations.   FASB
     Interpretation   No.  47,   Accounting  for  Conditional  Asset  Retirement
     Obligations  ("FIN 47", deals with  obligations to perform asset retirement
     activities in which the timing and/or method of settlement are  conditional
     on a future event. In implementing the new guidance,  which must be adopted
     by calendar year  enterprises  by December 31, 2005, a Company will need to
     identify its conditional asset retirement obligations and determine whether
     it can  reasonable  estimate  the  fair  value of each  obligation.  If the
     Company can reasonably  estimate the fair value of an  obligation;  it will
     need to  recognize a liability  for that  obligation.  The Company does not
     expect the  adoption of FIN 47 to have a material  impact on its  condensed
     consolidated financial statements.

     In May 2005,  the FASB issued SFAS No.  154,  Accounting  Changes and Error
     Corrections.  SFAS No. 154  established  new  standards on  accounting  for
     changes in  accounting  principles.  Pursuant  to the new  rules,  all such
     changes must be accounted for by retrospective application to the financial
     statements of prior periods unless it is  impracticable  to do so. SFAS 154
     supercedes  Accounting  Principles Bulletin (APB) Opinion 2, Accounting for
     Changes and SFAS No. 3, Reporting  Accounting  Changes in interim Financial
     Statements,  though it carries forward the guidance of those pronouncements
     with  respect  to  accounting  for  changes  in  estimates,  changes in the
     reporting  entity and error  corrections.  This  statement is effective for
     accounting  changes and error  corrections  made in years  beginning  after

                                       9
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                    NINE MONTHS ENDED MARCH 31, 2006 AND 2005


     Summary of recent accounting pronouncements - Continued

     December  15,  2005,   with  early  adoption   permitted  for  changes  and
     corrections  made in years  beginning  after May 2005. The Company does not
     expect  the  adoption  of SFAS No.  154 to have a  material  impact  on its
     condensed consolidated financial statements.

     In June 2005,  the EITF reached  consensus on Issue No. 05-6,  "Determining
     the Amortization  Period for Leasehold  Improvements"  ("EITF 05-6").  EITF
     05-6 provides guidance on determining the amortization period for leasehold
     improvements  acquired in a business  combination or acquired subsequent to
     lease  inception.  The guidance in EITF 05-6 will be applied  prospectively
     and is effective for reporting  periods  beginning after June 29,2005.  The
     adoption  of EITF  05-6 did not have a  material  impact  on the  Company's
     condensed consolidated financial position or results of operations.

     In September 2005, the FASB ratified the EITF's Issue No. 05-7, "Accounting
     for  Modifications  to Conversion  Options Embedded in Debt Instruments and
     Related Issues" ("EITF 05-7"),  which addresses whether a modification to a
     conversion  option that changes its fair value effects the  recognition  of
     interest expense for associated debt instrument after the modification, and
     whether a borrower should recognize a beneficial  conversion feature, not a
     debt extinguishment,  if a debt modification  increases the intrinsic value
     of the debt. The statement  will be effective for accounting  modifications
     of debt  instrument  beginning  in the first  interim  or annual  reporting
     period beginning after December 15, 2005. The adoption of EITF 05-7 did not
     have a material impact on the Company's  condensed  consolidated  financial
     position or results of operations.

     In September 2005, the FASB ratified the EITF's Issue No.05-8,  "Income Tax
     Consequences  of  Issuing  Convertible  Debt with a  Beneficial  Conversion
     Feature" ("EITF 05-8"), which discusses whether the issuance of convertible
     debt with a beneficial  conversion  feature  results in a basis  difference
     arising from the intrinsic  value of the beneficial  conversion  feature on
     the commitment date (which is recorded in the stockholder's equity for book
     purposes,  but as a liability for income tax purposes)  and, if so, whether
     that basis  difference is a temporary  difference  under FASB Statement No.
     109,  "Accounting  for Income  Taxes." The statement  will be effective for
     accounting  modifications of debt instrument beginning in the first interim
     or annual  reporting period beginning after December 15, 2005. The adoption
     of EITF  05-8 did not have a  material  impact on the  Company's  condensed
     consolidated financial position or results of operations.

     In November  2005,  the FASB  issued  Staff  Position  No. FAS 123 ( R )-3,
     "Transition   Election  Related  to  Accounting  for  the  Tax  Effects  of
     Share-Based Payment Awards," FAS 123( R ) provides that companies may elect
     to use a specified  alternative  method to calculate the historical pool of
     excess tax benefits  available to absorb tax  deficiencies  recognized upon
     adoption of SFAS No. 123 ( R ). The option to use the alternative method is
     available  regardless  of whether SFAS No. 123 ( R ) was adopted  using the
     modified  prospective  or  modified  retrospective  application  transition
     method,  and whether it has the ability to calculate its pool of excess tax
     benefits in accordance  with the guidance in paragraph 81 of SFAS No. 123 (
     R ).  This  method  only  applies  to  awards  that are  fully  vested  and
     outstanding  upon  adoption  of SFAS No.  123 ( R ). FAS 123 ( R )-3 became
     effective after November 10, 2005. The adoption of EITF 05-8 did not have a
     material impact on the Company's condensed  consolidated financial position
     or results of operations.

     In June 2005,  the Emerging  Issues Task Force  ("EITF")  issued EITF 05-2,
     "The  Meaning of  Conventional  Convertible  Debt  Instrument  in Issue No.
     00-19".  EITF 05-2 retained the  definition of a  conventional  convertible

                                       10
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                    NINE MONTHS ENDED MARCH 31, 2006 AND 2005



     Summary of recent accounting pronouncements - Continued

     debt  instrument  as set  forth  in  EITF  00-19,  and  which  is  used  in
     determining  certain  exemptions to the  accounting  treatments  prescribed
     under  SFAS  133,  "Accounting  for  Derivative   Instruments  and  Hedging
     Activities". EITF 05-2 also clarified that certain contingencies related to
     the exercise of a conversion  option would not be outside the definition of
     "conventional"  and  determined  that  convertible  preferred  stock with a
     mandatory  redemption date would also qualify for similar exemptions if the
     economic  characteristics of the preferred stock are more akin to debt than
     equity.  EITF  05-2 is  effective  for new  instruments  entered  into  and
     instruments  modified in periods beginning after June 29, 2005. The Company
     adopted the  provisions of EITF 05-2 on July 1, 2005,  which did not have a
     material effect on the Company's condensed  consolidated financial position
     or results of operations.

     In February  2006,  the FASB issued SFAS No. 155,  "Accounting  for Certain
     Hybrid Financial  Instruments" an amendment to SFAS No. 133 "Accounting for
     Derivative   Instruments   and  Hedging   Activities"  and  SFAS  No.  140,
     "Accounting   for  Transfers   and   Servicing  of  Financial   Assets  and
     Extinguishments  of Liabilities".  This statement resolves issues addressed
     in Statement 133 Implementation Issue No. D1, "Application of Statement 133
     to Beneficial Interests in Securitized Financial Assets." This statement is
     effective  for all  financial  instruments  acquired  or  issued  after the
     beginning of the  Company's  first fiscal year that begins after  September
     15, 2006 with early  adoption  permitted.  The Company  does not expect the
     adoption  of  SFAS  No.  155 to have a  material  impact  on its  condensed
     consolidated financial statements.

     In March 2006, the FASB issued SFAS No. 156,  "Accounting  for Servicing of
     Financial  Assets" - an amendment of SFAS No. 140. This Statement  requires
     that all separately  recognized servicing assets and servicing  liabilities
     be initially measured at fair value, if practicable.  This statement should
     be adopted as of the  beginning  of its first fiscal year that begins after
     September  15,2006  with early  adoption  permitted.  The Company  does not
     expect  the  adoption  of SFAS No.  156 to have a  material  impact  on its
     condensed consolidated financial statements.

     Accounts payable and accrued expenses

     Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
                                                                               March 31,             June 30,
                                                                                 2006                 2005
                                                                          -----------------     ------------------
              <S>                                                              <C>                <C>
              Trade accounts payable and other accrued operating
                 expenses                                                      $ 4,048,467        $  4,463,057
              Sales, excise and universal services charges payable                 817,496           1,190,545
              Dividends and registration penalties payable                         248,578             520,068
              Compensated absences                                                 312,394             361,506
              Other current liabilities                                            387,494             143,907
              Bonuses and commissions payable                                       84,360             112,556
              Accrued taxes                                                         17,265               8,379
              Accrued losses of discontinued operations                                  -               8,677
                                                                              ------------        ------------
                                                                              $  5,916,054        $  6,808,695
                                                                              ============        ============
</TABLE>

                                       11
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                    NINE MONTHS ENDED MARCH 31, 2006 AND 2005


4    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
     $1,444,277,  including $144,277 in acquisition costs, of which $500,000 was
     paid in cash on the date of closing.  The remaining $800,000 was originally
     recorded  as a note  payable due in four  annual  installments  of $200,000
     commencing November 30, 2005, bearing interest of 4% per annum. The payment
     of each of the four annual installments is contingent upon achieving annual
     revenue of $2 million for each twelve month  period  ending  September  30,
     2005  to  2008.  The  purchase  price,   including  the  entire  contingent
     liability,  was  originally  recorded  as an  intangible  asset,  as it was
     initially  believed that payment was assured beyond a reasonable doubt, and
     was amortized over its expected useful life of 5 years.

     The  Company  has  determined  that gross  revenues  derived  from the ECCI
     customer list did not reach the annual revenue of $2 million as required by
     the purchase  agreement and also no longer believes that the balance of the
     payments are assured beyond a reasonable  doubt.  Accordingly,  the Company
     has recorded a decrease in the customer  list in the amount of $800,000 and
     a  corresponding  decrease in notes payable.  As a result,  the Company has
     reversed  previously  recorded  amortization  expense and accrued  interest
     totaling  $144,002,  which is reflected as other income in the accompanying
     condensed consolidated  statements of operations.  The adjustment will also
     have the effect of reducing  future  amortization  expense by $160,000  per
     annum.  The Company will record the remaining  $600,000 of the  performance
     payment when it becomes probable that the payments will become due.

     In April 2005,  the  Company  acquired a customer  list and entered  into a
     non-compete for $200,000 and $200,000  respectively.  The customer list has
     an estimated  useful of 5 years and the non-compete  will be amortized over
     27 months.  The Company made cash payment of $150,000 with three additional
     annual  payments  commencing  July 31,  2005 in the  amounts  of  $100,000,
     $100,000 and $50,000.  The Company has made the first annual payment in the
     amount of $100,000.

5    Related party transactions

     During the nine months ended March 31, 2006, the Company paid approximately
     $ 95,520 for legal  services to law firms in which an  employee/stockholder
     is affiliated.

     The Company  received a non-interest  bearing advance from a shareholder in
     the amount of $210,000 during the quarter ended September 30, 2005, with no
     scheduled  repayment terms. During the quarter ended December 31, 2005 this
     short  term  debt was  repaid  with the  issuances  of  840,000  shares  of
     restricted common stock, with no registration rights.


                                       12
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                    NINE MONTHS ENDED MARCH 31, 2006 AND 2005


6    Securities Purchase Agreement and Shareholders' equity

     Preferred stock
     ---------------

     On July 1, 2005 stock dividends  totaling 22,162 shares were paid in Series
     A  Preferred  Stock to  Series A  Preferred  Stock  investors  representing
     accrued dividends through June 30, 2005

     During the quarter ended March 31, 2006,  stock  dividends  totaling 22,493
     shares  were  paid in  Series  B  Preferred  Stock to  Series  B  investors
     representing accrued dividends through January 31, 2006.

     For the nine months ended March 31, 2006,  investors converted 4,695 shares
     of Series A Preferred Stock,  42,308 shares of Series B Preferred Stock and
     4,338  shares  of  Series C  Preferred  Stock  resulting  in  issuances  of
     1,194,472 shares of common stock.

     During  December  2005,  the  Company  entered  into  an  agreement  with a
     consultant. In return for services, the Company issued 75,000 shares with a
     value of $30,000 of the Company's common stock.

     During  January  2006,  the  Company  entered  into  an  agreement  with  a
     consultant. In return for services, the Company issued 75,000 shares with a
     value of $20,250 of the Company's common stock.

     Dividends on the Series A, B and C Preferred Stock accrue at a rate of 12%,
     12% and 9% per annum,  respectively.  Aggregate dividends accrued for three
     and  nine  months  ended  March  31,  2006  were   $145,278  and  $509,024,
     respectively.

     Securities purchase agreement
     -----------------------------

     During March 2006, the Company entered into a securities purchase agreement
     whereas  the  Company  sold  18%  senior  secured  promissory  notes in the
     principal  amount  of up to  $950,000  and up to  1,000,000  shares  of the
     Company's  common  stock,  $ 0.0033 par value per share at a price of $0.05
     per share or 100 shares for each $95.00 of principal  amount of notes sold.
     On March 21, 2006 the Company issued  $403,750  principal  amount of senior
     secured notes. The notes bear interest at the rate of 18% and provide for a
     maturity date thirteen months from the closing date. The notes also contain
     subjective acceleration clauses. Management believes that the likelihood of
     acceleration  is remote.  As a result of this debt financing  agreement the
     Company  issued  425,000  shares of the Company's  common stock for $21,250
     with registration rights during the quarter ended March 31, 2006.

7    Segment information
     -------------------

     The Company reports  segments in accordance with SFAS No. 131  "Disclosures
     about Segments of an Enterprise and Related  Information" ("SFAS 131"). The
     Company and its subsidiaries  operate in three separate business  segments:
     Voice Services, Managed Service Charges and Equipment and Consulting.

     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

                                       13
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                    NINE MONTHS ENDED MARCH 31, 2006 AND 2005


     Segment information - continued

     conference  calling.  The Managed Services Charges 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 an as needed basis for
     certain existing and/or future customers.
<TABLE>
<CAPTION>
                                                    For the three months ended          For the nine months ended
                                                             March 31,                          March 31,
                                                 --------------------------------   -----------------------------------
                                                       2006              2005             2006              2005
                                                 ---------------  ---------------   ---------------  ------------------
         <S>                                         <C>               <C>             <C>               <C>
         Revenue
              Voice Services                         $ 3,391,546       $ 4,866,499     $ 10,761,628      $ 14,453,347
              Managed Service Charges                  1,867,451         1,819,712        6,072,458         5,444,572
              Equipment and Consulting                    52,679            45,990           73,723           364,079
                                                 ---------------  ----------------  ---------------  ------------------
                  Total                                5,311,676         6,732,201       16,907,809        20,261,998
                                                 ===============  ================  ===============  ==================

              Cost of revenue
              Voice Services                           2,497,298         3,065,997        7,301,754         9,036,375
              Managed Service Charges                  1,009,146         1,231,493        3,695,306         3,495,542
              Equipment and Consulting                         -            25,581              175           173,176
                                                 ---------------  ----------------  ---------------  ------------------
                  Total                                3,506,444         4,323,071       10,997,235        12,705,093
                                                 ===============  ================  ===============  ==================


         Operating income (loss)
              Voice Services                           (313,718)       $ (318,013)    $ (1,791,158)      $  (678,640)
              Managed Service Charges                  (176,467)         (319,168)      (1,007,526)         (699,604)
              Equipment and Consulting                        -          (114,830)               -          (315,065)
                                                 ---------------  ----------------  ---------------  ------------------
                  Total                                (490,185)       $ (752,011)    $ (2,798,684)      $(1,693,309)
                                                 ===============  ================  ===============  ==================
</TABLE>
     Revenue and cost of revenue  are  allocated  to each  segment on a specific
     identification method,  operating expenses are allocated to each segment on
     a pro rata basis based upon revenue.

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

8.   Major Customer/Significant Agreements

     The Company had one major customer which accounted for approximately 8% and
     27% of  consolidated  revenue for the nine months  ended March 31, 2006 and
     March 31, 2005,  respectively.  The agreement with this customer terminated
     on June 30, 2005.  Additionally,  the Equipment and Consulting  segment was
     dependent  upon  one  customer,  who  accounted  for  17% of the  segment's
     revenues for the nine months ended March 31, 2005.

                                       14
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                    NINE MONTHS ENDED MARCH 31, 2006 AND 2005

     Major Customer/Significant Agreements - Continued

     The  Company  made  purchases  from two data and  voice  service  providers
     included  within Managed  Service  Charges and Voice Services  segment that
     aggregated  approximately  64% and 70% and 80% and 70% of the total cost of
     revenue  for the nine  months  ended  March  31,2006  and March  31,  2005,
     respectively.

     The Company has two  agreements  with Sprint  Communications  Company  L.P.
     ("Sprint")  to  supply  telecommunication  services  to  the  Company.  The
     agreement  for switched  services has a term of 28 months and the agreement
     for the data and private line services has a term of 24 months. The Company
     currently  has a  commitment  to  purchase a minimum  of  telecommunication
     services  monthly from Sprint,  which expires  November 2008. The remaining
     minimum monthly commitment is as follows:
<TABLE>
<CAPTION>
                                                       Monthly
         Months                                      Commitment
         ------                                      ----------
         <S>                                         <C>
         41 - 52 (November 2006)                     $  550,000
         53 - 64 (November 2007)                        650,000
         65 - 76 (November 2008)                        750,000
</TABLE>
9.   Trading Market for the Company's Securities

     On March 31, 2005,  Nasdaq informed the Company that its common stock would
     be  de-listed  if it  did  not  comply  with  Nasdaq's  minimum  bid  price
     requirement  by  September  27, 2005.  In order to comply,  the closing bid
     price of its  common  stock had to equal or  exceed  $1.00 per share for at
     least ten  consecutive  trading days prior to that date.  While the Company
     did not comply with this requirement by that date, the Company continued to
     meet the other continued  listing  criteria for the Nasdaq Small Cap Market
     and was granted by Nasdaq an additional  six-month period,  until March 27,
     2006, to achieve the minimum bid price requirement

     By letter dated March 28, 2006, the Company received  written  notification
     from  Nasdaq  that it has  failed  to  comply  with the  minimum  bid price
     requirement   for  continued   listing  set  forth  in   Marketplace   Rule
     4310(c)(8)(D) and that its securities are, therefore,  subject to delisting
     from the Nasdaq Capital  Market.  The Company  requested a hearing before a
     Nasdaq Listing Qualifications Panel to review the staff determination which
     was held on April 27, 2006.

     Effective May 16, 2006 the Company's securities will no longer be listed on
     the Nasdaq Small Cap Market.  The decision follows the denial of its appeal
     of the Nasdaq proposed  delisting of its securities  since it no longer met
     the $1 minimum  bid price  required  for  continued  listing,  even  though
     NetWolves met all other Nasdaq listing  criteria.  The Company has enlisted
     the  services  of an  NASD  member  firm  to  file  a  Form  211  with  the
     Over-the-Counter Bulletin Board (OTCBB) and, pending approval,  anticipates
     trading  on the  OTCBB  shortly  under  the  proposed  symbol  WOLVBB.  The
     Company's  securities  continue to be traded on the NASD Pink Sheets  under
     the symbol WOLV.

                                       15
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                    NINE MONTHS ENDED MARCH 31, 2006 AND 2005

10.  Management's Plan

     Historically,   the  Company  has  experienced  significant  recurring  net
     operating  losses as well as  negative  cash  flows  from  operations.  The
     Company's  main source of  liquidity  has been  equity and debt  financing,
     which was used to fund historical losses from operating  activities.  Based
     on the Company's cash position of approximately  $1.4 million,  significant
     cost  cutting  initiatives,  including  vendor  negotiations  with  Sprint,
     BellSouth,  Vartec (carriers),  DA Colonial (lessor-Tampa facility),  staff
     reductions  and  indefinite  executive  pay  deferrals,  along with current
     forecasts based on sales growth and debt financing, the Company believes it
     has  sufficient  cash to meet its  funding  needs  for at least the next 12
     months.  However,  there  can be no  assurances  that the  Company  will be
     successful in these  initiatives or that these  initiatives  will result in
     improved financial performance.

11.  Subsequent Event

     On April  24,  2006,  the  Company's  subsidiary  NetWolves  ECCI Corp (the
     "Subsidiary")  filed an action in the Florida  Circuit Court,  Hillsborough
     County against Education Communications Consortia Inc. ("ECCI"). The action
     arises from ECCI's breach of the October 1, 2004 Asset  Purchase  Agreement
     between the partners (the  "Agreement") by failing to pay $70,273  pursuant
     to a  reconciliation  of billings,  receivable and costs in accordance with
     the terms of the Agreement.

     On April 27, 2006, ECCI served the Company and Subsidiary with an action in
     the Circuit Court of Kanawha County, West Virginia,  alleging,  inter alia,
     that the Subsidiary  had failed to pay the $200,000 first  installment of a
     promissory note ("the Note") and has anticipatorily breached payment of the
     remaining balance. As a consequence,  ECCI alleges that the entire $800,000
     note,  together  with  interest and costs,  is joints and severally due and
     payable by Buyer and by the Company, as guarantor.  ECCI asserts additional
     claims  against the Company in the aggregate sum of  approximately  $81,000
     based on alleged reimbursable costs incurred by ECCI.

     The Company and Subsidiary  believe that ECCI's action is without merit and
     therefore no accrual has been made. Among other things, it is the Company's
     position  that the  Agreement  provided  as a  condition  precedent  to any
     installment  payment  that ECCI achieve  annual  gross  revenue of at least
     $2,000,000; and that ECCI failed to achieve this amount.

     In May 2006,  the Company  entered into an additional  securities  purchase
     agreement  wherein the Company sold 18% senior secured  promissory notes in
     the principal amount of $665,000 and 700,000 shares of the Company's common
     stock,  $0.0033  par  value  per share at a price of $0.05 per share or 100
     shares for each $95.00 of  principal  amount of notes sold.  The notes bear
     interest at the rate of 18% and provide for a maturity date eighteen months
     from the closing date.

                                       16
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                    NINE MONTHS ENDED MARCH 31, 2006 AND 2005


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 an as needs basis for
     certain existing or potential customers.

     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


                                       17
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                    NINE MONTHS ENDED MARCH 31, 2006 AND 2005

     (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
     capabilities.  Our  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 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

     The  Company's  discussion  and  analysis of its  financial  condition  and
     results of operations is based upon the 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,  stock based  compensation  and goodwill  and other  intangible
     assets. 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  Charges  ("MSC")  segment are recognized as services are provided.
     Maintenance or monitoring  revenue that is bundled with an initial licenses
     fee  is  deferred  and   recognized   ratably  within  the  period  in  the
     accompanying consolidated statement of operations.

     Revenue from the sale of hardware,  where our software is not essential, is
     recognized within Equipment and 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

                                       18

<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                    NINE MONTHS ENDED MARCH 31, 2006 AND 2005


     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  when
     services are provided.

     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 condensed  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 March 31, 2006 and June 30, 2005.  If  expectations
     for future  performance,  the timing of deductibility  of expenses,  or tax
     statutes  change in the  future,  we could  decide to adjust the  valuation
     allowance, which may increase or decrease income tax expense.

     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.


                                       19
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                    NINE MONTHS ENDED MARCH 31, 2006 AND 2005

     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.

     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").


     Nine months ended March 31, 2006 and 2005

     Revenue

     Revenue  decreased  to $16.9  million for the nine  months  ended March 31,
     2006,  compared to $20.3 million for the same period in the prior year. The
     decrease  in  revenue is  primarily  attributable  to a  decrease  in Voice
     Services segment and the Equipment and Consulting  segment of approximately
     $3.7 million and $0.3 million,  respectively.  This was partially offset by
     an increase in revenue in the MSC segment of  approximately  $0.6  million.
     The decrease in the Voice Services  segment was  attributable  to attrition
     within the customer base of approximately  $4.1 million (of which Swift was
     approximately  $3.6 million)  partially offset by growth from new customers
     and  purchased  customer  lists  totaling  approximately  $.5 million.  The
     decrease in the Equipment and Consulting  segment of approximately  $0.3 is
     the result of limited  product  sales as the  Company  has elected to focus
     primarily  on MSC growth.  The  increase  in the MSC  segment is  primarily
     attributable  to new customer  growth of $1.2 million  partially  offset by
     customer   attrition  of  $0.6  million.   As  of  March  31,  2006,  Swift
     Transportation  accounted for 8% of overall  revenues as compared to 27% in
     the same  period in the prior  year.  The  contract  with Swift  terminated
     effective June 30, 2005.


     Cost of revenue and gross profit

     Cost of revenue  decreased to $11.0 million for the nine months ended March
     31, 2006  compared to $12.7  million for the same period in the prior year.
     Cost of revenue  within the MSC segment  increased  to $3.7  million or 39%
     profit margin,  compared to $3.5 million, or 36% profit margin for the same
     period in the prior year.  The  increased  profit  margin is primarily  the
     result of sales of our more  profitable  MSC  Services  and vendor  credits
     received in the current  period.  Cost of revenue within the Voice Services
     segment  decreased to $ 7.3 million or 32% profit  margin  compared to $9.0
     million or 37% profit  margin for the same period in the prior  year.  This
     decreased profit margin is primarily  attributable to customer attrition as
     well as rate concessions in the current period.  Cost of revenue within the
     Equipment and Consulting segment had a non-material impact on gross profit.

     Overall  gross  profit was 35% for the nine months  ended  March 31,  2006,
     compared  to 37% for the same  period in the prior  year.  The  decrease in
     profit  margin of our services and  products are  attributable  to one time
     charges and the cost associated with the loss of Swift Transportation.

                                       20
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                    NINE MONTHS ENDED MARCH 31, 2006 AND 2005

     General and administrative

     General and administrative  expenses were $4.2 million and $5.2 million for
     the nine months ended March 31, 2006 and 2005,  respectively.  The decrease
     in general and administrative expenses were due to a decrease in payroll of
     $0.3  million,  a decrease  in  consulting  expense of $0.5  million and an
     increase in professional  fees of $0.3 million,  a decrease in depreciation
     and  amortization  of $0.1 million and the net effect of cost reductions of
     approximately $0.4 million from the prior period.

     Engineering and development

     Engineering and development expenses decreased to $0.4 million for the nine
     months ended March 31,  2006,  compared to $0.7 million for the same period
     in the prior year. The decrease in  engineering  and  development  expenses
     were  primarily  attributable  to staff  reductions of  approximately  $0.2
     million.

     Sales and marketing

     Sales and marketing  expenses increased to $4.0 million for the nine months
     ended March 31,  2006,  compared to $3.4 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 and sales  support  personnel
     and associated  travel and  entertainment,  which resulted in a increase of
     approximately  $0.7  million  as well as an  increase  of bad  debt of $0.1
     million  partially  offset by a decrease in compensation for consultants of
     $0.04 and a decrease of customer  list and  amortization  of  approximately
     $0.1  million.  We have made a  significant  investment in the sales force,
     which we  anticipate  will  continue  to have  positive  impact  in  future
     periods.

     Other income (expenses)

     Other income (expenses) increased to $0.5 million for the nine months ended
     March 31, 2006  compared  to $.02  million for the same period in the prior
     year.  The increase was primarily  attributable  to $0.1 million of gain on
     the  reduction  in short and long term notes  payable  associated  with the
     acquisition  of the ECCI  customer  list  (see  Note 4 to the  consolidated
     financial  statements)  and reduction in accrued  expenses in the amount of
     $0.3 million and interest income of approximately $0.05 million.



     Three months ended March 31, 2006 and 2005

     Revenue

     Revenue decreased to approximately  $5.3 million for the three months ended
     March 31, 2006,  compared to approximately $6.7 million for the same period
     in the prior year.  The  decrease in revenue is  attributable  to our Voice
     Services segment where revenue decreased  approximately $1.5 million. Swift
     accounted  for no  Voice  Services  revenues  in  the  current  period  and
     approximately $1.2 million of Voice Services revenues in the same period in
     the prior year.  Swift  accounted for no MSC revenues in the current period
     and  approximately  $0.6 million in the same period in the prior year. This
     attrition was offset by approximately $0.7 million of growth. Equipment and
     consulting revenue had a non material  contribution on the current or prior
     period.

                                       21
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                    NINE MONTHS ENDED MARCH 31, 2006 AND 2005

     Cost of revenue and gross profit margin

     Cost of revenue  decreased to $3.5 million for the three months ended March
     31,  2006,  compared to $4.3 million for the same period in the prior year.
     Cost of revenue  within the MSC segment  decreased  to $1.0  million or 46%
     profit  margin,  compared  to 32% profit  margin for the same period in the
     prior year.  The improved  profit margin is primarily the result of sale of
     our more  profitable  MSC services and vendor credits in the current period
     of  approximately  $0.1 million.  Cost of revenue within the Voice Services
     segment  decreased  to $2.5 million or 26% profit  margin  compared to $3.1
     million or 37% profit  margin for the same  period in the prior year as the
     result of the loss of Swift and  competitive  pressures on new and existing
     voice  customers.  Cost of revenue  within  the  Equipment  and  Consulting
     segment had a non-material impact on gross profit.

     Overall  gross  profit  margin was 34% for the three months ended March 31,
     2006,  compared to 36% for the same period in the prior year. The decreased
     margin is  primarily  attributable  to the loss of the Switft  contract and
     competitive pressures in the voice services segment.

     General and administrative

     General and administrative expenses decreased to $1.1 million for the three
     months ended March 31,  2006,  compared to $1.7 million for the same period
     in the prior  year.  The  decrease  was the result of staff  reductions  of
     approximately   $0.2   million,   primarily  in   consulting   expenses  of
     approximately  $0.1 million and other  initiatives  of  approximately  $0.3
     million.

     Engineering and development

     Engineering  and  development  expenses  decreased  to $0.1 million for the
     three months  ended March 31,  2006,  compared to $0.2 million for the same
     period in the prior year.  The  decrease  in  engineering  and  development
     expenses were primarily  attributable to staff  reductions of approximately
     $0.1 million.

     Sales and marketing

     Sales and marketing expenses decreased to $1.1 million for the three months
     ended March 31,  2006,  compared to $1.2 million for the same period in the
     prior year.  The  decrease  was  primarily  the result of a decrease in the
     number of sales personnel, which resulted in decreased salary, exclusive of
     benefits and indirect cost.

     Liquidity and Capital Resources

     Our operating activities used cash of approximately $2.4 million during the
     nine months ended March 31, 2006, as compared to using  approximately  $1.8
     million for the same period in the prior year.  Cash used in operations for
     the nine months ended March 31, 2006 was  primarily  attributable  to a net
     loss of  approximately  $2.4  million,  a decrease in  accounts  payable of
     approximately $0.3 million, a decrease in deferred revenue of approximately
     $0.1  million and other income of  approximately  $0.4  million,  partially
     offset by  non-cash  charges  for  depreciation  and  amortization,  equity
     compensation  and bad debt  expense of  approximately  $0.7  million,  $0.1
     million and $0.3 million, respectively.  Additionally, accounts receivable,
     prepaid  expenses and inventory  decreased by $0.3. Cash used in operations
     for the nine months ended March 31, 2005 was  primarily  attributable  to a
     decrease in accounts  receivable of approximately  $0.9 million,  partially
     offset by  non-cash  charges  for  depreciation  and  amortization,  equity
     compensation  and bad debt  expense of  approximately  $0.8  million,  $0.3
     million and $0.2 million, respectively.

     Our  investing  activities  used  approximately  $ 0.1 million for the nine
     months  ended March 31, 2006 as compared to using $0.6 million for the same

                                       22
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                    NINE MONTHS ENDED MARCH 31, 2006 AND 2005

     period in the prior year.  Cash used in investing  activities was primarily
     attributable  to  payments  on customer  lists  previously  acquired in the
     amount of $0.1 million and  purchases  of  property  and  equipment in  the
     amount of approximately  $0.03 million.  Cash used by investing  activities
     for the nine months ended March 31, 2005, was primarily attributable to the
     purchases of customer contracts.

     Our financing  activities provided  approximately $0.6 million for the nine
     months ended March 31, 2006.  Cash  provided by  financing  activities  was
     primarily  attributable to an advance from a shareholder and debt financing
     offset by NASDAQ listing fees and cost associated with debt financing. Cash
     used by financing  activities  for the nine months ended March 31, 2005 was
     attributable to NASDAQ listing fees.

     Summary

     Historically,   the  Company  has  experienced  significant  recurring  net
     operating  losses as well as  negative  cash  flows  from  operations.  The
     Company's  main source of  liquidity  has been  equity and debt  financing,
     which was used to fund historical losses from operating  activities.  Based
     on the Company's cash position of approximately  $1.4 million,  significant
     cost  cutting  initiatives,  including  vendor  negotiations  with  Sprint,
     BellSouth,  Vartec (carriers),  DA Colonial (lessor-Tampa facility),  staff
     reductions  and  indefinite  executive  pay  deferrals,  along with current
     forecasts based on sales growth and debt financing, the Company believes it
     has  sufficient  cash to meet its  funding  needs  for at least the next 12
     months.  However,  there  can be no  assurances  that the  Company  will be
     successful in these  initiatives or that these  initiatives  will result in
     improved financial performance.

                                       23

<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                    NINE MONTHS ENDED MARCH 31, 2006 AND 2005

ITEM 3 - CONTROLS AND PROCEDURES

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

     As of the end of the period covered by this quarterly  report,  the Company
     carried  out,  under  the  supervision  and with the  participation  of the
     Company's  management,  including the Company's Chief Executive Officer and
     Chief Financial Officer ("the Certifying  Officers"),  an evaluation of the
     effectiveness   of  its   "disclosure   Controls   and   procedures".   The
     certifications  of the CEO and the CFO  required  by  Rules  13a-14(a)  and
     15d-14(c)  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
     ---------------------------------

     The Company maintains controls and procedures designed to ensure that it is
     able to collect the  information  that is required to be  disclosed  in the
     reports it files with the SEC, and to process,  summarize and disclose this
     information  within the time period  specified in the rules of the SEC. The
     Company's Chief Executive and Chief Financial  Officers are responsible for
     establishing,  maintaining  and enhancing these  procedures.  They are also
     responsible,  as  required  by the rules  established  by the SEC,  for the
     evaluation of the effectiveness of these procedures.

     Based on our management's  evaluation (with  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 its disclosure controls and
     procedures were effective.

     Changes in Internal Controls

     The Company  maintains a system of  internal  controls  designed to provide
     reasonable  assurance  that  transactions  are executed in accordance  with
     management's general or specific  authorization;  transactions are recorded
     as necessary to permit  preparation  of financial  statements in conformity
     with  Generally   Accepted   Accounting   Principles  (GAAP)  and  maintain
     accountability for assets. Access to assets is permitted only in accordance
     with management's general or specific authorization.

     During the prior reporting period ending June 30, 2005 management concluded
     that a deficiency was identified which  constituted a "material  weakness".
     Accordingly,  management  implemented  changes to remedy the  circumstances
     which created the deficiency and has concluded that the condition no longer
     exists. The additional staff has been added and trained.

                                       24
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                    NINE MONTHS ENDED MARCH 31, 2006 AND 2005



PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     On April  24,  2006,  the  Company's  subsidiary  NetWolves  ECCI Corp (the
     "Subsidiary")  filed an action in the Florida  Circuit Court,  Hillsborough
     County against Education Communications Consortia Inc. ("ECCI"). The action
     arises from ECCI's breach of the October 1, 2004 Asset  Purchase  Agreement
     between the partners (the  "Agreement") by failing to pay $70,273  pursuant
     to a  reconciliation  of billings,  receivable and costs in accordance with
     the terms of the Agreement.

     On May 1, 2006,  ECCI served the Company and  Subsidiary  with an action in
     the Circuit Court of Kanawha County, West Virginia,  alleging,  inter alia,
     that the Subsidiary  had failed to pay the $200,000 first  installment of a
     promissory note ("the Note") and has anticipatorily breached payment of the
     remaining balance. As a consequence,  ECCI alleges that the entire $800,000
     note,  together  with  interest and costs,  is joints and severally due and
     payable by Buyer and by the Company, as guarantor.  ECCI asserts additional
     claims  against the Company in the aggregate sum of  approximately  $81,000
     based on alleged reimbursable costs incurred by ECCI.

     The Company and  Subsidiary  believe that ECCI's  action is without  merit.
     Among  other  things,  it is the  Company's  position  that  the  Agreement
     provided as a condition  precedent  to any  installment  payment  that ECCI
     achieve annual gross revenue of at least  $2,000,000;  and that ECCI failed
     to achieve this amount.


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 April 17, 2006.

     Three  directors  were  elected at the Annual  Meeting to serve in Class II
     until the Annual Meeting of  Shareholders in 2008 with the exception of Mr.
     Gerald  A.   Gagliardi  who  is  to  serve  until  the  Annual  Meeting  of
     Shareholders in 2006 or until his successor is duly elected and qualified.

          B.   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>
              Walter M. Groteke             22,005,266                 362,533
              Michael R. Rocque             22,006,726                 361,073
              Gerald A. Gagliardi           22,003,626                 364,173
</TABLE>
               The other directors are Myron Levy,  Walter R. Groteke and Fassil
               Gabremariam.

                                       25
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                    NINE MONTHS ENDED MARCH 31, 2006 AND 2005


          C.   In  addition  to the  election  of  directors,  the  shareholders
               approved the  Company's  2006 Stock Plan - 6,661,175  shares were
               voted in favor  of this  proposal,  507,434  shares  against  and
               37,535 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.


                                       26
<PAGE>


                                   SIGNATURES

Pursuant to the requirements of the Exchange Act, 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




                                       27





Date: May 18, 2006