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

                                   FORM 10-Q

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

                For the quarterly period ended December 31, 1999
                                               -----------------

                        Commission file number 000-25831

                             NetWolves Corporation

             (Exact name of registrant as specified in its charter)

             New York                                      11-3439392
(State  or other  jurisdiction  of                      (I.R.S.  Employer
   incorporation or organization)                       Identification No.)

                 200 Broadhollow Road, Melville, New York 11747
                    (Address of principal executive offices)

                                 (516) 393-5016
              (Registrant's telephone number, including area code)

                                      None

   (Former name, former address and former fiscal year, if changed since last
                                    report)

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

                                Yes    X  *     No
                                      -----
Indicate the number of shares  outstanding of each of issuer's classes of common
stock as of the latest practicable date:
<TABLE>
<CAPTION>
                                            NUMBER OF SHARES OUTSTANDING ON
        TITLE OF CLASS                              FEBRUARY 18, 1999
------------------------------              -------------------------------
<S>                                                     <C>
Common Stock, $.0033 par value                          8,299,904
                                                        ---------
</TABLE>
Registrant became subject to the filing  requirements of the Securities Exchange
Act of 1934 on April 20, 1999,  when it filed a  Registration  Statement on Form
10.
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                          FORM 10-Q - DECEMBER 31, 1999

                                     INDEX

PART I - FINANCIAL INFORMATION


   ITEM 1 - FINANCIAL STATEMENTS

   CONDENSED CONSOLIDATED BALANCE SHEETS
      December 31, 1999 and June 30, 1999................................      1

   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
    COMPREHENSIVE INCOME (LOSS)
      For the three and six months ended December 31, 1999 and 1998......      2

   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
      For the six months ended December 31, 1999 and December 31, 1998...      3

   NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.................. 4 - 11

   ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
             CONDITION AND RESULTS OF OPERATIONS.........................12 - 14

   ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK....     14


PART II - OTHER INFORMATION

   ITEM 1 - LEGAL PROCEEDINGS............................................     15

   ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS....................     15

   ITEM 3 - DEFAULTS UPON SENIOR SECURITIES..............................     15

   ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........     15

   ITEM 5 - OTHER INFORMATION............................................     15

   ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.............................     15

SIGNATURES...............................................................     16
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                        December 31,   June 30,
                                                           1999          1999
                                                        -----------    --------
                                                        (Unaudited)
<S>                                                     <C>          <C>
ASSETS

Current assets
   Cash and cash equivalents                            $ 5,734,416  $ 5,585,981
   Marketable securities, available for sale,
    at market value                                         149,500      606,000
   Accounts receivable, net of allowance of $40,000         219,346     76,907
   Inventories                                              273,878      118,354
   Prepaid expenses and other current assets                172,431      153,099
                                                        -----------  -----------
       Total current assets                               6,549,571    6,540,341
                                                        -----------  -----------
Property and equipment, net                                 414,802      224,691

Intangible assets, net                                    5,020,101    6,024,121

Other assets                                                 28,904       22,781
                                                        -----------  -----------
                                                        $12,013,378  $12,811,934
                                                        ===========  ===========
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
   Accounts payable and accrued expenses                $   594,043  $   453,336
   Deferred compensation                                     50,000      100,000
   Loans and advances from TSG officer                          -        144,348
   Current maturities of long-term debt                      45,854       43,411
                                                        -----------  -----------
       Total current liabilities                            689,897      741,095

Long term debt, net of current maturities                   242,983      266,537
                                                        -----------  -----------
       Total liabilities                                    932,880    1,007,632
                                                        -----------  -----------
Minority interest                                           671,281      704,500

Commitment and contingencies

Shareholders' equity
   Common stock, $.0033 par value; 10,000,000 shares
    authorized; issued and outstanding;
    6,385,564  on December 31, 1999                          21,072       20,011
    and 6,063,870  on June 30, 1999
   Additional paid-in capital                            28,728,660   17,726,374
   Unamortized value of warrant grants                   (2,141,043)         -
   Accumulated deficit                                  (16,118,817)  (7,022,428)
   Accumulated other comprehensive income                   (80,655)     375,845
                                                        -----------  -----------
       Total shareholders' equity                        10,409,217   11,099,802
                                                        -----------  -----------
                                                        $12,013,378  $12,811,934
                                                        ===========  ===========
<FN>
See notes to condensed consolidated financial statements                       1
</FN>
</TABLE>
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                        AND COMPREHENSIVE INCOME (LOSS)
                                  (Unaudited)
<TABLE>
<CAPTION>
                                        Three months ended            Six months ended
                                            December 31,                 December 31,
                                        ------------------            ----------------

                                       1999          1998             1999          1998
                                   ------------   ------------    ------------  ------------
<S>                                <C>            <C>             <C>           <C>
Sales                              $    334,198   $     35,961    $    472,149  $     80,714

Cost of sales                           112,695         15,179         208,864        31,478
                                   ------------   ------------    ------------  ------------
Gross profit                            221,503         20,782         263,285        49,236
                                   ------------   ------------    ------------  ------------
Operating expenses
  General and administrative          5,431,889      1,000,772       8,300,697     1,836,471
  Research and development              205,052         78,512         389,770        91,616
  Sales and marketing                   169,360        978,431         775,367     1,979,587
                                   ------------   ------------    ------------  ------------
                                      5,806,301      2,057,715       9,465,834     3,907,674
                                   ------------   ------------    ------------  ------------
Loss before other income (expense)   (5,584,798)    (2,036,933)     (9,202,549)   (3,858,438)

Other income (expense)
  Investment income                      55,841         21,667         101,571        37,383
  Loss on sale of marketable securities     -           (8,047)            -          (8,047)
  Minority interest                      15,791            -            23,219           -
  Interest expense                       (8,139)           -           (18,630)          -
                                   ------------   ------------    ------------  ------------
Net loss                             (5,521,305)    (2,023,313)     (9,096,389)   (3,829,102)

Other comprehensive income (loss):
  Marketable securities valuation
   adjustment                          (378,000)       233,000        (456,500)      197,323
                                   ------------   ------------    ------------  ------------
Comprehensive income (loss)        $ (5,899,305)  $ (1,790,313)   $ (9,552,889) $ (3,631,779)
                                   ============   ============    ============  ============

Basic and diluted net loss per
 share                             $       (.88)  $       (.47)   $      (1.47) $       (.89)
                                   ============   ============    ============  ============
Weighted average common
 shares outstanding                   6,303,801      4,317,674       6,183,835     4,315,772
                                   ============   ============    ============  ============
<FN>
See notes to condensed consolidated financial statements                                   2
</FN>
</TABLE>
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                Six months ended
                                                                   December 31,
                                                                 ---------------
                                                              1999              1998
                                                             -----             ------
INCREASE (DECREASE) IN CASH AND
   CASH EQUIVALENTS
<S>                                                        <C>            <C>
Cash flows from operating activities
   Net loss                                                $(9,096,389)   $(3,829,102)
   Adjustments to reconcile net loss to net cash used in
    operating activities
     Depreciation and amortization                           1,038,398          3,541
     Realized loss on sale of marketable securities                -            8,047
     Noncash charge to operations with respect to common
      stock and warrants issued for services                 4,880,629      2,492,750
     Minority interest                                         (33,219)           -

   Changes in operating assets and liabilities
     Accounts receivable                                      (142,439)       (71,095)
     Inventories                                              (155,524)      (172,143)
     Prepaid expenses and other current assets                  30,668        (81,153)
     Accounts payable and accrued expenses                     140,707        156,022
     Deferred compensation                                     (50,000)           -
                                                           -----------    -----------
       Net cash used in operating activities                (3,387,169)    (1,493,133)
                                                           -----------    -----------
Cash flows from investing activities
   Proceeds from sale of marketable securities                     -          789,604
   Proceeds from assets held for sale, net                         -          445,000
   Issuance of note receivable                                 (50,000)           -
   Purchases of property and equipment                        (224,489)       (47,397)
   Payments of security deposits                                (6,123)        (4,211)
                                                           -----------    -----------
     Net cash (used in) provided by investing activities      (280,612)     1,182,996
                                                           -----------    -----------
Cash flows from financing activities
   Repayment of advances from TSG officer                     (144,348)           -
   Repayment of long term debt                                 (21,111)           -
   Cash proceeds from private sale of common stock, net      3,981,675            -
                                                           -----------    -----------
     Net cash provided by financing activities               3,816,216            -
                                                           -----------    -----------
Net increase (decrease) in cash and cash equivalents           148,435       (310,137)

Cash and cash equivalents, beginning of period               5,585,981      1,118,416
                                                           -----------    -----------
Cash and cash equivalents, end of period                   $ 5,734,416    $   808,279
                                                           ===========    ===========
<FN>
See notes to condensed consolidated financial statements                            3
</FN>
</TABLE>
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                  SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998


1    Interim financial information

     The summary financial information  contained herein is unaudited;  however,
     in the opinion of management,  all adjustments  (consisting  only of normal
     recurring  accruals)  necessary for a fair  presentation  of such financial
     information  have been included.  The accompanying  condensed  consolidated
     financial  statements,  footnotes and discussions of NetWolves  Corporation
     ("NetWolves"  or the  "Company")  should  be read in  conjunction  with the
     Company's  consolidated  financial  statements,  and notes thereto, for the
     year ended June 30, 1999 and the period from February 13, 1998  (inception)
     to June 30,  1998.  The  results of  operations  for the six  months  ended
     December  31,  1999 are not  necessarily  indicative  of the  results to be
     expected for the full year.

2    The Company

     NetWolves, LLC was an Ohio limited liability company formed on February 13,
     1998, which was merged into Watchdog Patrols, Inc. ("Watchdog") on June 17,
     1998.  Watchdog,  the legal surviving entity of the merger was incorporated
     under the laws of the State of New York on January 5, 1970.  As a result of
     the merger and subsequent sale of Watchdog's business, Watchdog changed its
     name to NetWolves Corporation.

     NetWolves is an Internet systems  developer that has designed and developed
     a multi-functional product that is a secure,  integrated,  modular Internet
     gateway.  The primary  product,  the FoxBox,  supports secure access to the
     Internet for multiple  users through a single  connection  and, among other
     things,  provides  electronic mail,  firewall security and web site hosting
     and also contains a network file server.  Since inception,  the Company has
     been developing its business plan and building its  infrastructure in order
     to effectively  market its products and shipped its first significant order
     in March 1999.

     Additionally,  in conjunction  with the acquisition of Sales and Management
     Consulting,  Inc.  (d/b/a The  Sullivan  Group,  see Note 4),  the  Company
     provides consulting, educational and training services primarily to the oil
     and gas and automotive industries throughout the United States.

3    Significant accounting policies

     Use of estimates

     In preparing condensed consolidated financial statements in conformity with
     generally accepted  accounting  principles,  management makes estimates and
     assumptions  that affect the reported amounts of assets and liabilities and
     disclosures  of  contingent  assets  and  liabilities  at the  date  of the
     condensed  consolidated  financial  statements,  as  well  as the  reported
     amounts of revenue and expenses during the reporting period. Actual results
     could differ from those estimates.

     Risks and other factors

     As  a  company  that  has  developed  a  software  product  for  use  as  a
     multi-functional  Internet  communications device,  NetWolves faces certain
     risks.  These  include,  among  other  items,  the  ability to  continue to
     implement its business plan,  dependence on proprietary  technology,  rapid
     technological  change,  challenges  in  recruiting  personal  and a  highly
     competitive market place.

                                                                               4
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                  SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998


3    Significant accounting policies (continued)

     Principles of consolidation

     The condensed consolidated financial statements include the accounts of the
     Company and its subsidiaries. All significant intercompany transactions and
     balances have been eliminated in consolidation.  The separate  ownership of
     one of the Company's  subsidiaries is reflected in the Company's  condensed
     consolidated financial statements as minority interest (Note 4).

     The subsidiary had issued 250,000 shares of non-voting  Series A Cumulative
     Convertible  Preferred Stock with a $1 par value. The preferred stockholder
     was entitled to  preferential  liquidation  rights and was also entitled to
     cumulative  dividends  (included in minority  interest  expense)  that were
     accrued at the rate of 8% per annum  commencing  on June 30,  1999.  During
     January 2000,  the preferred  stockholder  elected to convert the preferred
     stock into 13,888 shares of NetWolves common stock (at fair market value at
     the time of conversion).

     Revenue recognition

     The Company  records  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).  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.  Accordingly,  revenue from the sale of perpetual and
     term software  licenses are recognized,  net of provisions for returns,  at
     the time of delivery and  acceptance of software  products by the customer,
     when the fee is fixed and  determinable  and  collectibility  is  probable.
     Maintenance revenue that is bundled with an initial license fee is deferred
     and recognized  ratably over the maintenance  period.  Amounts deferred for
     maintenance are based on the fair value of equivalent  maintenance services
     sold separately.

     The Company  recognizes  revenue from consulting and training fees when the
     services are provided.

     Basic and diluted net loss per share

     The Company  displays  earnings per share in accordance  with  Statement of
     Financial Accounting  Standards No.128,  "Earnings Per Share" ("SFAS 128").
     SFAS 128  requires  dual  presentation  of basic and diluted  earnings  per
     share.  Basic  earnings  per share  includes no dilution and is computed by
     dividing net income (loss) available to common shareholders by the weighted
     average  number  of  common  shares  outstanding  for the  period.  Diluted
     earnings per share  includes  the  potential  dilution  that could occur if
     securities  or other  contracts  to issue  common  stock were  exercised or
     converted into common stock.

                                                                               5
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                  SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998

3    Significant accounting policies (continued)

     Basic and diluted net loss per share (continued)

     Outstanding  stock  options and warrants  have not been  considered  in the
     computation  of  diluted  per  share  amounts,  since  the  effect of their
     inclusion would be  antidilutive.  Accordingly,  basic and diluted earnings
     per share amounts are identical.

     Intangible assets

     Intangible  assets at December 31, 1999 consist of $6,024,121 of intangible
     assets  acquired  in  connection  with  the  Company's   purchase  business
     combination  effective  June 30,  1999 (Note 4).  These  assets  consist of
     training content (including a training library,  industry benchmarking data
     and the Profit Coach  profitability  analysis  module) with a fair value of
     $1,000,000.  The remaining  portion of the intangible asset  (approximately
     $5,024,000)  is allocated to  goodwill.  The training  content and goodwill
     will be amortized over their estimated useful lives of 3 years.

4    Purchase acquisition

     On July 7, 1999, NetWolves and Sales and Management Consulting, Inc. (d/b/a
     The Sullivan  Group)  ("SMCI")  executed a merger  agreement (the "Merger")
     pursuant to which NetWolves acquired the outstanding capital stock of SMCI.
     Under the terms of the Merger,  TSG Global  Education Web, Inc.  ("TSG") (a
     subsidiary  of   NetWolves),   with   4,150,000   shares  of  common  stock
     outstanding, purchased all of the outstanding shares of SMCI's common stock
     in exchange for 180,000 shares of NetWolves'  restricted  common stock. The
     shareholders  are restricted  from selling,  transferring  or pledging such
     shares for an eighteen-month  period.  Upon consummation of the Merger SMCI
     merged into TSG and TSG was the surviving entity.

     Concurrent  with the Merger,  the  shareholders  of SMCI  purchased  70,000
     shares of TSG common stock at $.35 per share for aggregate cash proceeds of
     $24,500.  This  represents  1.7% of the  outstanding  common  stock of TSG.
     Additionally,  TSG issued  250,000  shares of TSG Series A Cumulative  (8%)
     Convertible  Preferred  Stock to one of the SMCI  shareholders,  which  was
     issued  in  partial  settlement  of  outstanding  liabilities  owed  to the
     shareholder.  This TSG common and  preferred  stock has been  reflected  as
     minority interest in the accompanying consolidated financial statements.

     The purchase price approximated  $4,095,000 (exclusive of acquisition costs
     of  $82,875),  which  consisted of 180,000  shares of NetWolves  restricted
     common stock valued at $22.75 per share (fair value of the common stock was
     based on its quoted market price on the effective date of the acquisition).
     The  acquisition  has been accounted for with an effective date of June 30,
     1999  using the  purchase  method of  accounting.  Accordingly,  assets and
     liabilities  were  recorded at their fair values as of June 30,  1999,  and
     operations  of  SMCI  have  been   included  in  the  Company's   condensed
     consolidated statements of operations commencing July 1, 1999.

                                                                               6
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                  SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998

4    Purchase acquisition (continued)

     An  allocation  of the fair value of the assets  acquired  and  liabilities
     assumed at June 30, 1999 is as follows:
<TABLE>
<CAPTION>
            <S>                                                       <C>
            Purchase price
              NetWolves common stock issued                           $4,095,000
              Acquisition costs                                           82,875
                                                                      ----------
                                                                      $4,177,875
                                                                      ==========
            Allocation of purchase price
               Fair value of tangible assets and liabilities
                  Current assets                                      $   70,221
                  Non-current assets                                      35,255
                  Current liabilities                                   (443,909)
                  Non-current liabilities                               (266,537)
                  Advances to TSG, net of cash acquired of $412,224     (536,776)
                                                                      ----------
                                                                      (1,141,746)
                                                                      ----------
               Minority interest
                  Common stock and additional paid-in capital           (454,500)
                  Preferred stock                                       (250,000)
                                                                      ----------
                                                                        (704,500)
                                                                      ----------
               Intangible assets acquired                              6,024,121
                                                                      ----------
                                                                      $4,177,875
                                                                      ==========
</TABLE>
     At the time of the Merger and in  accordance  with TSG's newly formed stock
     option plan, the SMCI  shareholders (who are all employees of TSG) received
     605,000 five-year options to purchase TSG common stock at an exercise price
     of $.35 per  share.  The  options  were  issued in  proportion  to the SMCI
     shareholders'  ownership  interest.  The  intrinsic  value of these options
     (plus the 70,000 shares of the TSG common stock) totalled  $430,000,  which
     has been reflected in the allocation of the purchase  price.  Additionally,
     the SMCI  shareholders  are entitled to an  additional  175,000  options to
     purchase TSG common stock (with an exercise price at fair value at the time
     of grant),  subject to TSG meeting specific earnings targets over the three
     years ending June 30, 2000, 2001 and 2002.  These options will be accounted
     for as compensation expense in accordance with Accounting  Principles Board
     Opinion No. 25,  "Accounting  for Stock Issued to Employees" in such future
     periods.  All of the  shareholders  of SMCI entered into 3-year  employment
     agreements with TSG.

     In accordance  with the Merger,  NetWolves made  $4,750,000 of non-interest
     bearing open account working capital advances to TSG.

                                                                               7
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                  SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998

4    Purchase acquisition (continued)

     In  accordance  with the Merger,  the Board of Directors of TSG consists of
     three members  designated  by NetWolves  and two members  designated by the
     SMCI shareholders.  A four-fifths majority of the TSG Board is required for
     specified  significant  actions including:  sale or merger of the business,
     changes  to  the  TSG  capital  structure,  declaration  of  dividends  and
     repayment  of the working  capital  advances  made by  NetWolves.  A simple
     majority of the TSG Board is required  for all general  operating  matters.
     Included in the consolidated  entity's cash and cash equivalents balance at
     December  31, 1999 is  approximately  $2,500,000  of cash held by TSG to be
     used for working capital purposes.

     The following  unaudited pro forma financial  information for the three and
     six months ended  December  31, 1998 has been  prepared  assuming  that the
     acquisition  of SMCI had  taken  place  at the  beginning  of such  periods
     presented.  The pro forma information is not necessarily  indicative of the
     combined  results that would have occurred had the acquisition  taken place
     at the beginning of the periods,  nor is it  necessarily  indicative of the
     results that may occur in the future.  Pro forma  information for the three
     and six months ended December 31, 1999 are not presented, since the results
     of SMCI are reflected in the Company's  consolidated results for the entire
     periods.
<TABLE>
<CAPTION>
                                                Three months        Six months
                                                   ended               ended
                                                 December 31,       December 31,
                                                   1998                1998
                                                -------------       ------------
                                                 (unaudited)        (unaudited)

        <S>                                      <C>                <C>
        Revenue                                  $   400,000        $   806,000
        Net loss                                 $(2,571,000)       $(4,908,000)
        Basic and diluted net loss per share     $      (.57)       $     (1.09)
</TABLE>

5    Shareholders' equity

     Common stock issuances

     .    On September 29, 1999, the Company sold 100,000 shares of unregistered
          common  stock to an  accredited  investor at $15 per share (a total of
          $1,500,000) exclusive of commissions totaling $105,000.

     .    In November  1999,  the Company  sold 187,500  shares of  unregistered
          common  stock to a group of  accredited  investors at $15 per share (a
          total  of   $2,812,500)   exclusive   of   commissions   and  fees  of
          approximately 7%.

     .    On  November  20,  1999,  12,500  shares  were  issued to a  financial
          consultant  for  services  rendered  during  the three  months  ending
          December  31,  1999,  which  resulted  in a charge  to  operations  of
          $275,000.  Management  determined  the fair value of the common  stock
          based on its quoted market price at the time of the issuance.

                                                                               8
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                  SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998

5    Shareholders' equity (continued)

     Warrants

     .    On July 26, 1999 and in connection  with the Company  entering into an
          agreement with  Comdisco,  Inc.  ("Comdisco"),  Comdisco was granted a
          five-year   warrant  to  purchase  125,000  shares  of  the  Company's
          unregistered  common stock, at an exercise price of $10 per share. The
          warrants  are  immediately  exercisable.  The value of the warrants of
          $2,390,000  will be amortized  over the initial term of the  agreement
          (four  years)  and  has  been  calculated   using  the   Black-Scholes
          option-pricing  model  with the  following  assumptions:  no  dividend
          yield,  expected  volatility of 65%, risk-free interest rate of 5.84%,
          and an expected term of five years.

     .    For services rendered, on July 31, 1999, a financial consultant of the
          Company was granted a five-year  warrant to purchase 100,000 shares of
          common stock, at an exercise price of $12 per share.  The warrants are
          immediately  exercisable  and  the  shares  issuable  pursuant  to the
          warrants have piggyback registration rights. The value of the warrants
          of $1,704,000  are being  amortized  over a period of three months and
          has been calculated using the Black- Scholes option-pricing model with
          the following  assumptions:  no dividend yield, expected volatility of
          65%,  risk-free  interest rate of 5.84%,  and an expected term of five
          years.

     .    On  November 1, 1999,  the  Company's  granted a five-year  warrant to
          purchase  24,000 shares of common stock,  at an exercise  price of $18
          per share to a public  relations  firm. The warrants vest ratably over
          twelve months and resulted in a charge to operations of  approximately
          $60,000 for the three months ended  December 31, 1999. The total value
          of the warrants of  approximately  $351,000 has been calculated  using
          the   Black-Scholes   option-   pricing   model  with  the   following
          assumptions:  no dividend yield, expected volatility of 65%, risk-free
          interest rate of 5.97%, and an expected term of five years.

     .    In November  1999,  a  consultant  was granted a five-year  warrant to
          purchase  60,000 shares of common stock,  at an exercise  price of $18
          per share.

     .    During December 1999, the Company granted 65,000 ten-year  warrants to
          the Company's  Vice  President of Finance at an exercise  price of $12
          per share. The warrants vest immediately and accordingly resulted in a
          charge to  operations of $422,500,  based upon the intrinsic  value of
          the warrants on the date of grant.

     .    During  December 1999, a consultant was granted a ten-year  warrant to
          purchase  100,000 shares of common stock,  at an exercise price of $12
          per share. The warrants are immediately exercisable.  The value of the
          warrants   resulted  in  a  charge  to  operations  of   approximately
          $1,536,000  during the three  months  ended  December 31, 1999 and has
          been calculated using the Black-Scholes  option-pricing model with the
          following assumptions:  no dividend yield, expected volatility of 65%,
          risk-free interest rate of 5.97%, and an expected term of ten years.

                                                                               9
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                  SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998

6    Segment information

     The  Company  reports  segments in  accordance  with  Financial  Accounting
     Standards  Board  Statement  No.  131  "Disclosures  about  Segments  of an
     Enterprise  and Related  Information."  The  Company  and its  subsidiaries
     operate in two separate business  segments,  the Technology segment and the
     Training   and   consulting   segment.   These   operating   segments   are
     representative  of the Company's  management  approach to its evaluation of
     its  operations.  The  accounting  policies  of  the  reportable  operating
     segments  are the same as those  described  in the  summary of  significant
     accounting  policies.  The Technology segment,  which operates  principally
     domestically,  is primarily engaged in the design,  development,  marketing
     and support of information  delivery  hardware  products and software.  The
     Training and  consulting  segment,  which operates  domestically,  provides
     consulting,  educational and training services primarily to the oil and gas
     and automotive industries throughout the United States.
<TABLE>
<CAPTION>
                                Three Months Ended           Six Months Ended
                                    December 31,                December 31,
                            -------------------------   -------------------------
                                1999          1998          1999          1998
                            -----------   -----------   -----------   -----------
<S>                         <C>           <C>           <C>           <C>
Revenue
   Technology               $    25,929   $    35,961   $    39,129   $    80,714
   Training and consulting      308,269           -         433,020           -
                            -----------   -----------   -----------   -----------
        Total               $   334,198   $    35,961   $   472,149   $    80,714
                            ===========   ===========   ===========   ===========
Operating income (loss)
   Technology               $(4,507,041)  $(2,036,933)  $(7,199,393)  $(3,858,438)
   Training and consulting   (1,077,757)          -      (2,003,156)          -
                            -----------   -----------   -----------   -----------
        Total               $(5,584,798)  $(2,036,933)  $(9,202,549)  $(3,858,438)
                            ===========   ===========   ===========   ===========

                                                        December 31,    June 30,
                                                           1999          1999
                                                        -----------   -----------

Identifiable assets
   Technology                                           $ 4,068,201   $ 6,270,113
   Training and consulting                                7,945,177     6,541,821
                                                        -----------   -----------
        Total                                           $12,013,378   $12,811,934
                                                        ===========   ===========
</TABLE>

The  Company  had  two  major  customers,  both  included  in the  Training  and
consulting  segment,  which accounted for 40% and 28% of consolidated  sales for
the six months ended December 31, 1999.

                                                                              10
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                  SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998

7    Commitments and contingencies

     Legal matters

     Certain  claims,  suits and  complaints  arising in the normal  course with
     respect to the Company's  uniformed security guard services operations have
     been filed or are pending against the Company. Generally, these matters are
     all  covered by a general  liability  insurance  policy.  In the opinion of
     management,  all such  matters  are without  merit or are of such kind,  or
     involve  such  matters,  as would  not  have a  significant  effect  on the
     financial position or results of operations of the Company,  if disposed of
     unfavorably.

     Comdisco, Inc. agreement

     On July 26,  1999 the  Company  entered  into an  agreement  with  Comdisco
     whereby  Comdisco  will provide  management,  installation  and  technology
     services to the Company's  proprietary  Internet  distribution  system.  In
     addition,  the agreement  provides for the creation of a credit facility to
     be utilized in connection  with the sale and  installation of the FoxBox in
     up to 40,000 locations over a four-year  period.  However,  there can be no
     assurances  that the Company  will  actually  require the use of the credit
     facility.

     Under  the  agreement,  the  Company  intends  to lease  the  FoxBox to its
     customers for 48 months at a monthly fee  estimated  under the agreement at
     $200.  Comdisco will then acquire all of the rights,  title and interest in
     the equipment with the exception of intellectual rights,  software upgrades
     and software  application  and content and take an  assignment of the lease
     from the Company,  without  recourse.  At the time of assignment,  Comdisco
     will pay the Company 95% of the present value of the rental stream using an
     interest  rate   commensurate   with  each  customer's  credit  rating  and
     prevailing market rates.

     In connection with the agreement,  Comdisco was granted a five-year warrant
     to purchase 125,000 shares of the Company's  unregistered  common stock, at
     an exercise price of $10 per share (Note 5).

8    Subsequent events

     Pursuant  to an  agreement  dated as of  February  10,  2000,  the  Company
     acquired all of the  outstanding  capital  stock of  Computercop  Corp.,  a
     subsidiary of Computer Concepts Corp., in exchange for 1,775,000 restricted
     shares of the Company's common stock. Computercop Corp.'s assets consist of
     the  Computercop  technology,  inventory  and  $20.5  million  in cash.  In
     connection  with the  transaction,  the Company paid finder and  consulting
     fees of $600,000  and issued  125,000  restricted  shares of the  Company's
     common  stock and five year  warrants to purchase an  aggregate  of 900,000
     shares of common stock. The warrants are exercisable at $25 per share on or
     before  September 30, 2002 and thereafter  until the expiration date at $30
     per share.

                                                                              11


<PAGE>

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


     Forward-looking statements

     The Form 10-Q includes,  without limitation,  certain statements containing
     the words "believes."  "anticipates",  "estimates",  and words of a similar
     nature, constitute  "forward-looking  statements" within the meaning of the
     Private Securities Litigation Reform Act of 1995. This Act provides a "safe
     harbor" for  forward-looking  statements to encourage  companies to provide
     prospective  information  about  themselves so long as they identify  these
     statements as forward looking and provide meaningful, cautionary statements
     identifying  important  factors that could cause  actual  results to differ
     from the  projected  results.  All  statements  other  than  statements  of
     historical fact made in this Form 10-Q are forward-looking.  In particular,
     the statements  herein regarding  industry  prospects and future results of
     operations   or   financial   position  are   forward-looking   statements.
     Forward-looking  statements reflect  management's  current expectations and
     are  inherently   uncertain.   The  Company's  actual  results  may  differ
     significantly from management's expectations.

     Overview

     The Company is a corporation with a limited  operating  history,  formed in
     February  1998,  when it  commenced  field trial and  limited  sales of its
     primary product,  "The FoxBox".  Additionally,  efforts were made to obtain
     operating  capital and convert  the  Company to a public  entity.  This was
     successfully  accomplished  through a reverse merger with Watchdog Patrols,
     Inc.,  a publicly  traded  (OTCBB),  non-reporting  corporation.  Operating
     expenses have increased  significantly since the Company's inception.  This
     reflects the cost  associated  with the formation of the Company as well as
     increased  efforts to promote sales of the FoxBox (Multi- services Internet
     communications gateway),  recruit personnel, build operating infrastructure
     and continued product development. The FoxBox is a multi-functional product
     that connects  business  networks [Local Area Networks (LANs) and Wide Area
     Networks (WANs)] to the Internet. It supports secure access to the Internet
     for  3  to  400  users  through  a  single  connection,  provides  advanced
     electronic  mail  functions  for  unlimited  users  and  delivers  firewall
     security.  The Company's  initial target markets are the end users in small
     and mid-size  businesses and large organizations with satellite offices. In
     January 1999 the Company was able to secure two  Agreements  which have the
     potential to generate significant revenue the terms of the agreements.  The
     first of which would be the TSG  ("Sullivan")  agreements  whereby Sullivan
     appointed  the  Company  as  its   exclusive   provider  of  the  Company's
     multi-service  Internet  delivery  system (known as "FoxBox") to be used in
     conjunction  with  Sullivan's  proprietary  interactive  distance  learning
     training programs. The period of the agreement is for a term of five years.
     In July 1999,  the Company  acquired  TSG and in July 1999 secured a credit
     facility  with  Comdisco,  Inc.  to  finance  the  anticipated  sales to be
     generated  from the  application  of the FoxBox  technology to TSG's client
     base.  Comdisco  also has agreed to provide  management,  installation  and
     technology  services  for  FoxBoxes  sold to this client  base.  The second
     agreement  is with  Anicom,  Inc.  ("Anicom").  The Company  entered into a
     five-year  exclusive  master  distribution  agreement with Anicom,  Inc. to
     distribute the FoxBox throughout North America.  Additionally,  in February
     of 2000,  NetWolves  Corporation acquired all the outstanding capital stock
     of Computercop  Corp., a subsidiary of Computer Concepts Corp., in exchange
     for 1,775,000  restricted shares of common stock. The assets of Computercop
     were  20.5  Million  in  cash,  the  Computercop  technology  and  existing
     inventory.

                                                                              12
<PAGE>
     Overview (continued)

     The Company has a limited  operating history in which to base an evaluation
     of the business and prospects.  The Company's  prospects must be considered
     in light of the risks  frequently  encountered  by companies in their early
     stages,  particularly  for  companies  in the rapidly  evolving  technology
     industry.  Certain risks for the Company include, but are not limited to an
     unproven business model,  capital  requirements and growth  management.  To
     counter  this risk,  the Company  must,  among other  things,  increase its
     customer  base,  continue to develop its  distribution  network and product
     offerings, successfully execute its business and marketing plan, and expand
     the operating  infrastructure.  There can be no assurance  that the Company
     will be successful in addressing such risks, and the failure to do so could
     have a material  adverse  effect on the Company's  financial  condition and
     results  of  operations.   Since   inception,   the  Company  has  incurred
     significant  losses and as of December 31, 1999 had an accumulated  deficit
     of  approximately  $(16,118,817)  million.  The Company  believes  that its
     success depends in large part on its ability to create market awareness and
     acceptance  for the  FoxBox,  raise  additional  operating  capital to grow
     operations, build technology and non-technology infrastructures, expand the
     sales force and distribution network, and continue new product R&D.

     Results of Operations

     As a  result  of the  July  1999  acquisition  of  TSG,  NetWolves  and its
     subsidiaries operated in two business segments,  the Technology segment and
     the Training and consulting  segment.  The net sales from  operations  were
     $472,149  and  $80,714  for the six  months  ended  December  31,  1999 and
     December 31,  1998,  respectively.  Sales for the second  quarter of fiscal
     2000 were primarily  attributable  to the training and consulting  business
     segment. Although training and consulting revenue is currently derived from
     traditional  leader-lead  training and  benchmark  studies,  the  Company's
     strategic  focus is on distance  learning.  The Company is currently  "beta
     testing"  products  utilizing  the FoxBox  technology  to deliver  distance
     learning  to  existing  clients  in the  petroleum  industry.  $101,571  of
     investment  income was generated  through  December 31, 1999 as compared to
     $29,336 for the period ended  December 31, 1998.  The increase is primarily
     attributable  to the additional  amounts of securities held with respect to
     the prior period.

     NetWolves  had gross profit of 56% for the period ended  December 31, 1999.
     As of yet,  the Company has not had a full year of  production  in order to
     have a basis of  comparison.  However,  the  Company  believes  that  gross
     profits of 56% are  maintainable  at  increased  production  levels.  These
     results will depend, in part, on the effects of economies-of-scale, the use
     of third-  party  assemblers  and the  ability  to  competitively  purchase
     rapidly evolving commodity  hardware,  which is a significant  component of
     "cost of goods  sold." The use of  non-Proprietary  hardware is one of many
     inherent design  features of the FoxBox which  facilitates an efficient and
     cost effective production cycle.  Additionally,  this allows the Company to
     focus its core R&D efforts on developing  cutting edge Software.  There can
     be no  assurance  that the Company will be  successful  in  increasing  its
     margins due to one or more  factors.  These  factors  include,  but are not
     limited to,  increases/decreases in direct labor and material cost, as well
     as increased competition and general economic conditions in the future.

     Operating  expenses were $9,465,834 and $3,907,674 for the six months ended
     December  31, 1999 and December  31,  1998,  respectively.  The increase in
     operating  expense is primarily due to the continued growth of the Company,
     the addition of the training and consulting  business  segment and expenses
     related to non-cash  compensation for services.  The operating expenses for

                                                                              13

<PAGE>
     Results of Operations (continued)

     December  31,  1999  consisted  primarily  of  $8,300,697  of  general  and
     administrative  costs relating to the  establishment of the  infrastructure
     and the  continued  operations  of the  business.  $389,770  of costs  were
     incurred  relating to research and  development,  and  $775,367  related to
     selling and marketing.  Included in the above mentioned  operating expenses
     are  $4,880,629  of non-cash  compensation  for services in the form of the
     Company's common stock, options and warrants.

     Liquidity and Capital Resources

     On June 17,  1998 the  Company  executed  a reverse  merger  with  Watchdog
     Patrols,  Inc.  a  publicly  traded  non-reporting  company  engaged in the
     activity of providing armed and unarmed security guard services for the New
     York/Metropolitan   Area.  This  merger  made  available  to  the  Company,
     approximately  $2.3  million  of  cash,  cash  equivalents  and  marketable
     securities  to be used as  operating  capital.  On  November  22,  1998 the
     Company sold  substantially  all the assets of the security guard business,
     consisting primarily of uniforms,  vehicles, computer systems and furniture
     to a third party. This generated an additional $600,000 of cash flow to the
     Company. On June 29, 1999 NetWolves concluded a private offering of 800,000
     shares of common stock which  generated $5.4 million (net of $.6 million of
     expenses).  On September 29, 1999 the Company completed a private placement
     of  100,000  shares of common  stock to one  accredited  investor  for $1.4
     million (net of $100,000 of expenses) to be used in operations. In November
     1999, the Company completed a private sale of an additional  182,500 shares
     of common stock to  accredited  investors for $2.6 million (net of expenses
     of approximately 7%). Additionally,  in February 2000, the Company acquired
     all of the outstanding  capital stock of Computercop Corp., a subsidiary of
     Computer Concepts Corp., in exchange for 1,775,000 restricted shares of the
     Company's  common  stock.   Computercop   Corp.'s  assets  consist  of  the
     Computercop  technology,  inventory  and  $19.6  million  in  cash  (net of
     expenses of approximately 4%).


     NetWolves had cash and cash  equivalents of $5,734,416  million at December
     31,  1999.  Management  believes  that the  Company  has  adequate  capital
     resources  to meet its working  capital  needs for at least the next twelve
     months based upon its current  operating  level.  However,  there can be no
     assurance  that the  Company  will have  sufficient  capital to finance its
     planned growth.  The Company may need to raise  additional  monies from the
     sale of its capital stock to fund its growth over the next 24 to 36 months.

ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

                                                                              14
<PAGE>
PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     None.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     In November 1999, the Company sold 187,500  shares of  unregistered  common
     stock to accredited investors at $15 per share.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     Not applicable.

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

     Not applicable.

ITEM 5. OTHER INFORMATION

     Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     27 -- Financial Data Schedule (for electronic submission only)
                                                                              15
<PAGE>
                                   SIGNATURES

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

                                BY:     NETWOLVES CORPORATION






                                /s/     Walter M. Groteke
                                --------------------------------
                                        Walter M. Groteke
                                        Chief Executive Officer



                               /s/     Peter C. Castle
                                --------------------------------
                                       Peter C. Castle
                                       Secretary-Treasurer

Date: February 22, 2000
                                                                              16