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

                                    FORM 10-Q


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

                  For the quarterly period ended March 31, 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                            JUNE 18, 1999
--------------------------------        -------------------------------

<S>                                               <C>5,307,203
Common Stock, $.0033 par value
</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 - MARCH 31, 1999

                                     INDEX


PART I - FINANCIAL INFORMATION


   ITEM 1 - FINANCIAL STATEMENTS

   CONDENSED CONSOLIDATED BALANCE SHEETS
      March 31, 1999 and June 30, 1998 ................................     1

   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
    COMPREHENSIVE INCOME (LOSS)
      For the three months ended March 31, 1999 and the period from
         February 13, 1998 (inception) to March 31, 1998 and the
         nine months ended March 31, 1999 .............................     2

   CONDENSED  CONSOLIDATED  STATEMENTS  OF CASH  FLOWS
      For the nine  months ended March 31, 1999 and the period from
         February 13, 1998  (inception) to March 31, 1998 .............     3

   NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ...............   4 - 9

   ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
             CONDITION AND RESULTS OF OPERATIONS ......................  10 - 12

   ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK .    12


PART II - OTHER INFORMATION

   ITEM 1 - LEGAL PROCEEDINGS .........................................    13

   ITEM 2  CHANGES IN SECURITIES AND USE OF PROCEEDS ..................    13

   ITEM 3  DEFAULTS UPON SENIOR SECURITIES ............................    13

   ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ........    13

   ITEM 5  OTHER INFORMATION ..........................................    13

   ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K ..........................    13


SIGNATURES ............................................................    14
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                     March 31,     June 30,
                                                                       1999          1998
                                                                    ---------      --------
                                                                   (unaudited)
<S>                                                                <C>            <C>
ASSETS

Current assets
   Cash and cash equivalents                                       $   414,038    $ 1,118,416
   Marketable securities, available for sale, at market value          701,000      1,063,828
   Accounts receivable                                               1,376,669          6,803
   Net assets held for sale                                            166,670        720,000
   Inventories                                                         200,676         22,410
   Prepaid expenses and other current assets                            81,356         18,318
                                                                   -----------    -----------
           Total current assets                                      2,940,409      2,949,775

Property and equipment, net                                             63,258          4,949

Other assets                                                            34,575          4,727
                                                                   -----------    -----------
                                                                   $ 3,038,242    $ 2,959,451
                                                                   ===========    ===========
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
   Accounts payable and accrued expenses                        $      735,265    $    31,448
                                                                   -----------    -----------
          Total current liabilities                                    735,265         31,448
                                                                   -----------    -----------
Commitments and contingencies

Shareholders' equity
   Common stock, $.0033 par value; 10,000,000 shares authorized;
      issued and outstanding: 5,023,870 - March 31, 1999
      and 4,313,870 - June 30, 1998                                     16,579         14,236
   Additional paid-in capital                                        6,737,879      3,012,159
   Accumulated deficit                                              (4,887,326)       (99,414)
   Accumulated other comprehensive income                              435,845          1,022
                                                                   -----------    -----------
          Total shareholders' equity                                 2,302,977      2,928,003
                                                                   -----------    -----------
                                                                   $ 3,038,242    $ 2,959,451
                                                                   ===========    ===========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                        AND COMPREHENSIVE INCOME (LOSS)
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                       For the
                                                                     period from
                                                       For the       February 13,       For the
                                                     three months        1998          nine months
                                                        ended       (inception) to       ended
                                                    March 31, 1999   March 31, 1998   March 31, 1999
                                                    --------------  ---------------   --------------
<S>                                                  <C>            <C>               <C>
Sales                                                $ 1,518,045    $      --         $ 1,598,759
Cost of goods sold                                       499,001           --             530,479
                                                     -----------    -----------       -----------
Gross profit from sales                                1,019,044           --           1,068,280
                                                     -----------    -----------       -----------
Operating expenses
   General and administrative                          2,011,279           --           3,591,500
   Research and development                              158,527           --             250,143
   Sales and marketing                                   260,703           --           2,048,102
                                                     -----------    -----------       -----------
                                                       2,430,509           --           5,889,745
                                                     -----------    -----------       -----------
Loss before other income (expense)                    (1,411,465)          --          (4,821,465)

Other income                                               4,217                           33,553
                                                     -----------    -----------       -----------
Net loss                                              (1,407,248)          --          (4,787,912)

Other comprehensive income
   Marketable securities valuation adjustment            237,500           --             434,823
                                                     -----------    -----------       -----------
Comprehensive income (loss)                          $(1,169,748)   $      --         $(4,353,089)
                                                     ===========    ===========       ===========


Basic and diluted net loss per share                 $      (.28)   $      --         $     (1.05)
                                                     ===========    ===========       ===========
Weighted average common
   shares outstanding                                  4,999,870      2,640,322         4,540,475
                                                     ===========    ===========       ===========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)
<TABLE>
<CAPTION>

                                                                                   For the period
                                                                                  from February 13,
                                                                     For the nine        1998
                                                                     months ended    (inception)
                                                                       March 31,     to March 31,
                                                                         1999            1998
                                                                     ------------ -----------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

<S>                                                                  <C>            <C>
Cash flows from operating activities
   Net loss                                                          $(4,787,912)   $       --
   Adjustments to reconcile net loss to net cash used in
      operating activities
         Depreciation                                                      6,496            --
         Realized loss on sale of marketable securities                    8,047            --
         Common stock and warrants issued for services                 3,728,063            --
         Provision for doubtful accounts                                  15,000            --


   Changes in operating assets and liabilities
    Accounts receivable                                               (1,384,866)           --
    Inventories                                                         (178,266)           --
    Prepaid expenses and other current assets                            (63,038)           --
    Accounts payable and accrued expenses                                703,817            --
                                                                     -----------    -----------
      Net cash used in operating activities                           (1,952,659)           --
                                                                     -----------    -----------
Cash flows from investing activities
   Proceeds from the sale of marketable securities                       789,604            --
   Proceeds from assets held for sale, net                               553,330            --
   Purchases of property and equipment                                   (64,805)           --
   Payments of security deposits                                          (4,848)           --
                                                                     -----------    -----------
      Net cash provided by investing activities                        1,273,281            --
                                                                     -----------    -----------
Cash flows from financing activities
   Financing costs paid                                                  (25,000)           --
   Proceeds from initial capital contribution                                --          64,245
                                                                     -----------    -----------
      Net cash (used in) provided by financing activities                (25,000)        64,245
                                                                     -----------    -----------
Net (decrease) increase in cash and cash equivalents                    (704,378)        64,245

Cash and cash equivalents, beginning of period                         1,118,416            --
                                                                     -----------    -----------
Cash and cash equivalents, end of period                             $   414,038    $    64,245
                                                                     ===========    ===========
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
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  consolidated  financial
     statements,  footnotes and  discussions of the NetWolves  Corporation  (the
     "Company")  should be read in conjunction  with the Company's  consolidated
     financial  statements,  and notes thereto, for the period from February 13,
     1998  (inception)  to June 30, 1998. The results of operations for the nine
     months ended March 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 (Note 5),  Watchdog
     changed its name to NetWolves Corporation.

     The Company 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.  Accordingly,  it is
     no longer reporting as a development stage company.

3    Reverse acquisition

     On June 17, 1998,  Watchdog acquired all of the outstanding common stock of
     NetWolves, LLC (the "Merger"). For accounting purposes, the acquisition has
     been  treated as an  acquisition  of  Watchdog by  NetWolves,  LLC and as a
     recapitalization  of NetWolves,  LLC. The historical  financial  statements
     prior to June 17, 1998 are those of  NetWolves,  LLC.  The  acquisition  of
     Watchdog  has  been  recorded  based on the fair  value of  Watchdog's  net
     tangible assets, which consist primarily of cash, marketable securities and
     certain  assets  held  for  sale  (Note  5),  with an  aggregate  value  of
     $2,962,150 (net of transaction  costs of $261,022).  Since this transaction
     is in substance,  a recapitalization  of NetWolves,  LLC and not a business
     combination, pro forma information is not presented.

     As part  of the  Merger,  the  NetWolves,  LLC  membership  interests  were
     converted  into 2,640,322  shares of Watchdog  common stock and warrants to
     purchase an  aggregate  of 600,000  shares of Watchdog  common  stock at an
     exercise price of $1.63 per share.  Immediately prior to the Merger,  there
     were 1,673,548 shares of Watchdog common stock issued and  outstanding.  In
     addition,  certain pre-Merger shareholders of Watchdog received warrants to
     purchase  500,000  shares of Watchdog  common stock at an exercise price of
     $1.63 per share.  Additionally,  two individuals,  who provided  consulting
     services  with  respect to the  Merger,  received  warrants  to purchase an
     aggregate of 87,500 shares of Watchdog common stock at an exercise price of
     $2.00 per share.
<PAGE>
4    Significant accounting policies

     Fiscal year-end

     The Company operates on a fiscal-year end of June 30.

     Risks and other factors

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

     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.

     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.

     The effect of the  recapitalization on the NetWolves,  LLC members has been
     given retroactive  application in the earnings per share  calculation.  The
     common stock issued and outstanding with respect to the pre-Merger Watchdog
     shareholders  has been  included  since the  effective  date of the Merger.
     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.
<PAGE>
5    Net assets held for sale

     In November 1998, the Company sold substantially all of the business assets
     related to Watchdog's  uniformed  security guard  services  operations to W
     Acquisition  Corp. (the "Purchaser") for $600,000.  The Purchaser  acquired
     all  inventory,  furniture and  equipment,  customer  lists,  trade rights,
     contracts,  goodwill and rights to the name  Watchdog  Patrols,  Inc.  (the
     Assets).  The Company retained  responsibility  for all remaining  accounts
     receivable,  other current assets,  accounts payable and accrued  expenses.
     The net  assets  held for sale are  classified  as a current  asset and are
     reflected at net realizable value based on the selling price of the Assets,
     the net estimated liquidation value of the assets and liabilities retained,
     and the net negative cash flows from the  operations of the security  guard
     business  during the period from June 17, 1998 (the date of acquisition) to
     the date of disposal in November  1998. Net assets held for sale consist of
     the following:
<TABLE>
<CAPTION>
                                                                       March 31,       June 30,
                                                                         1999            1998
                                                                     -----------     -----------
         <S>                                                         <C>             <C>
         Sale of Assets                                              $       -       $   600,000

         Retained assets and liabilities
             Accounts receivable                                         110,000         500,000
             Other current assets                                         94,000         140,000
             Accounts payable and accrued expenses                       (37,330)       (460,000)

         Cash out-flows from operations during holding period                -           (60,000)
                                                                     -----------     -----------
         Net assets held for sale                                    $   166,670     $   720,000
                                                                     ===========     ===========
</TABLE>
6    Shareholders' equity

     Common stock issuances

     During the nine months ended March 31,  1999,  the Company  issued  710,000
     shares of its common stock as follows:

     .    150,000  shares were issued to the Company's  Vice  President of Sales
          and  Marketing  (who is also a Director of the  Company)  for services
          rendered during the six months ended December 31, 1998, which resulted
          in a charge to operations of approximately $576,000.

     .    200,000  shares  were  issued  to  Internet   Technologies,   Inc.,  a
          consultant  to the Company  ("Internet  Technologies"),  for  services
          rendered during the six months ended December 31, 1998, which resulted
          in  a  charge  to  operations  of  approximately  $769,000.   Internet
          Technologies has demand registration rights on these 200,000 shares.

<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



6    Shareholders' equity (continued)

     Common stock issuances (continued)


     .    60,000 shares were issued to Internet  Technologies for services to be
          rendered during the three months ending March 31, 1999.  Additionally,
          Internet   Technologies  has  the  right  to  receive  up  to  120,000
          additional shares based upon specified performance criteria, 60,000 of
          which will be  issuable  upon  completion  of the  $6,000,000  private
          placement (Note 7e).

     .    100,000  shares were issued to a financial  consultant for services to
          be rendered during the three months ending March 31, 1999.

     .    100,000 shares were issued in conjunction  with the appointment of two
          new Directors of the Company effective February 1, 1999 (50,000 shares
          each).

     .    100,000 shares were issued to the Company's legal counsel for services
          rendered during the three months ending March 31, 1999.

     Another  shareholder,   Greenleaf  Capital  Partners,   LLC  (a  pre-Merger
     shareholder of Watchdog),  has demand  registration rights on its 1,141,360
     shares of common stock.

     Stock options

     In January 1999, the Company granted options to purchase  243,500 shares of
     common  stock under the 1998 Long Term  Incentive  Plan to its officers and
     key employees as follows:  (i) 143,500 options are exercisable at $5.00 per
     share and vest in equal  installments  over three years commencing  January
     2000, and (ii) 100,000  options are exercisable at $5.00 per share and vest
     in 5 years  subject  to  acceleration  pursuant  to  specified  performance
     criteria. All options expire in ten years from the grant date.

     Warrants

     During the nine months ended March 31, 1999, the Company  granted  warrants
     to purchase 600,000 shares of its common stock as follows:

     .    200,000  ten-year  warrants  issued to the Company's Vice President of
          Sales and  Marketing  (who is also a Director  of the  Company)  at an
          exercise  price of  $1.63  per  share.  The  warrants  vest in 5 years
          subject to acceleration  pursuant to specified  performance  criteria.
          These warrants were issued for services rendered during the six months
          ended  December  31, 1998 and  resulted in a charge to  operations  of
          approximately $699,000.

     .    100,000  two-year  warrants  were issued to two  terminated  employees
          (50,000  warrants  each) at an exercise price of $5.00 per share (also
          see Note 7a). The warrants vest only upon  achieving  specified  sales
          criteria during calendar 1999.

     .    300,000 warrants were issued to Anicom, Inc. for cash consideration of
          $300,000 (see Note 7d).
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


7    Commitments and contingencies

     a.   Employment agreements

     In conjunction  with the  consummation  of the Merger,  the Company entered
     into  employment  agreements  with 5  executives  who  were  the  principal
     pre-Merger  owners of  NetWolves,  LLC.  In January  1999,  two of the five
     executives  were terminated  pursuant to a Settlement  Agreement and Mutual
     Release.  In  exchange  for  terminating  the  employment   agreements  and
     cancellation of each terminated  executives'  200,000  warrants  previously
     issued,  the Company is paying each  terminated  executive  an aggregate of
     $50,000 in cash,  payable  in monthly  installments,  and the  Company  has
     entered into a Manufacturer's Representation Agreement.  Additionally, each
     of the terminated executives received 50,000 performance based warrants.

     b.   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.

     c.   The Sullivan Group

     In January 1999,  the Company  entered into an agreement  with The Sullivan
     Group ("Sullivan")  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 and shall be  automatically  renewed  for an  additional
     five-year  term  unless six months  notice of  termination  is  provided by
     either party.

     Although  there are no minimum  order  requirements,  it is  expected  that
     delivery  will  commence in June 1999,  and in most  instances,  the FoxBox
     units will be subject to 48-month  rental  contracts  at a rate of $200 per
     unit,  per month.  The lease  obligations  will be paid for by the end user
     retail site (or its corporate parent, the "Site").  One year of maintenance
     is to be included  with each  leasing  agreement.  Beginning  in the second
     year,  each Site may agree to pay the Company an additional fee in order to
     extend the maintenance period.

     d.   Anicom, Inc.

     In January  1999,  the Company  entered into a five-year  exclusive  master
     distribution  agreement  with Anicom,  Inc.  ("Anicom") to  distribute  the
     FoxBox  throughout  North  America.  Additionally,  Anicom is  entitled  to
     receive  a  commission  on any  sales or  leases  of the  FoxBox  unit made
     directly by the Company that Anicom was not involved  with and a commission
     on certain technical  support revenue earned by the Company.  The agreement
     may be  terminated  by the Company with payment of a specified  termination
     fee or it may be  terminated  should  Anicom  fail  to meet  minimum  order
     requirements.  In accordance  with the terms of the agreement,  the Company
     shipped $1,515,000 of product to Anicom in March 1999.
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


7    Commitments and contingencies (continued)


     d.   Anicom, Inc.(continued)

     In connection  with the agreement  and for cash  consideration  paid to the
     Company of $300,000, the Company issued Anicom 300,000 warrants to purchase
     common  stock of the  Company at an  exercise  price of $5 per  share.  The
     warrants  issued to Anicom  shall  vest in equal  installments  over  three
     years,  commencing  on the first  anniversary  of the  agreement  and shall
     expire in January 2004. Anicom also obtained piggyback  registration rights
     with respect to the issuable shares of common stock.

     e.   Private placement memorandum

     On March 23, 1999, the Company completed preparation of a Private Placement
     Memorandum.  The  Company  is  offering  to sell up to  800,000  shares  of
     restricted  common  stock at $7.50 per share (a total of  $6,000,000)  on a
     "best efforts, no minimum,  maximum basis." As of May 27, 1999, the Company
     has closed on 283,333 shares (gross proceeds of $2,125,000 less $276,250 of
     commissions  and  expenses).  This  represents  the first of two  closings.
     Additionally,   the  placement   agent  is  to  receive  80,000   warrants,
     exercisable at $9.375 each. The warrants vest one year after the closing of
     the private  placement and expire four years after  vesting.  The placement
     agent is entitled to receive  42,500  warrants  based on the first closing.
     These and any  additional  proceeds  are  expected  to be used for  working
     capital  purposes  and will be  subject  to  sales  commissions  and  other
     expenses  including  legal,  accounting  and filing  fees.  There can be no
     assurances that the Company will be successful in completing the offering.
<PAGE>

           ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

                       CONDITION AND RESULTS OF OPERATIONS

Forward-looking statements

This 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.  The Company has 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)  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 market
awareness for the FoxBox  (Multi-  services  Internet  communications  gateway),
solicit new customers,  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 revenues
over the term of the  agreements.  The  first  of  which is The  Sullivan  Group
("Sullivan")  agreement 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. The second agreement is with Anicom, Inc. ("Anicom"). The Company
entered into a five-year exclusive master distribution  agreement with Anicom to
distribute the FoxBox through North America.

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 of
operations,  particularly  for  companies  in the  rapidly  evolving  Technology
Industry. Certain risks for the Company include, but are not limited to unproven
business model,  capital  requirements  and growth  management.  To counter this
risk, the Company must, among other things,  increase its customer base, develop
a distribution  network,  successfully  execute its business and marketing plan,
and increase the operating  infrastructure.  There can be no assurance  that the
Company will be  successful in  addressing  such risk,  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 been  developing its
business plan and building its infrastructure in order to effectively market its
products and  successfully  shipped its first  significant  order in March 1999.
Accordingly,  it is no longer  reporting as a  development  stage  company.  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
development.
<PAGE>
Liquidity and capital resources.

On June 17, 1998 the Company  executed a reverse  merger with Watchdog  Patrols,
Inc. a publicly  traded 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.
Additionally, 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.

As of March 31, 1999 the Company has  $1,115,038 of cash,  cash  equivalent  and
marketable  securities available to fund operations.  In April 1999, the Company
completed  shipping of and  received  payment for an initial  stocking  order of
approximately  $1.6 million pursuant to its master  distribution  agreement with
Anicom.  Additionally,  on May 27,  1999  the  Company  received  initial  gross
proceeds of  $2,125,000  (exclusive  of  commissions  and  professional  fees of
$276,250), from its private placement to raise up to $6 million. This represents
the first of two  closings.  Management  believes  that the Company has and will
have adequate  capital  resources to meet its working capital needs for at least
the next twelve months based upon its current  plans.  However,  there can be no
assurance that the Company will have  sufficient  capital to finance its planned
growth, or will achieve the full funding of the private placement offering.

Results of operations

Net sales from operations for the third quarter of fiscal 1999 were  $1,518,045.
Net sales for the nine months ended March 31, 1999 were $1,598,759. The increase
in net sales in the third  quarter  is  primarily  due to the first  significant
delivery under the terms of Anicom master distribution agreement.  Additionally,
$4,217 of dividend and interest income was generated during the third quarter of
fiscal 1999. The Company operates on a fiscal year end of June 30.

The  Company's  gross  profit in the third  quarter of fiscal 1999 was 67%.  The
Company  believes  that  improved  gross  profits are  achievable  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  nonproprietary
hardware is one of many inherent design features of the FoxBox which facilitates
an efficient and cost effective production cycle. 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 costs and general economic conditions in the future.

Operating  expenses for the third quarter of fiscal 1999 were $2,430,509,  which
consisted  primarily of $2,011,279 of general and administrative  costs relating
to the support of operations and the  establishment  of infrastructure.  In
addition,  $158,527 of costs were incurred relating to research and development,
and $260,703  relating to selling and  marketing for the third quarter of fiscal
1999.  Included in the above  mentioned  operating  expenses  are  approximately
$1,383,751  of non-cash  compensation  for services in the form of the Company's
common stock and options.

Operating  expenses  for the nine months  ended March 31, 1999 were  $5,889,745,
which  consisted  primarily of  $3,591,500  of general and  administrative  cost
relating to the support of operations and the  establishment of infrastructure.
In  addition,   $250,143  of  cost  were  incurred   relating  to  research  and
development,  and  $2,048,102  relating  to selling and  marketing  for the nine
months ended March 31, 1999. Included in the above- mentioned operating expenses
are approximately  $3,428,063 of non-cash  compensation for services in the form
of the Company's common stock and options.

Other comprehensive income increased for the quarter ended March 31, 1999 due to
an increase in the  valuation of certain  marketable  securities  available  for
sale.
<PAGE>
Year 2000 implication

The Company has been  assessing the impact of the Year 2000 issue on its current
and future products,  vendors and customers,  internal information  technologies
and non-information  technologies systems and expects to complete the process in
the fourth  quarter of fiscal 1999.  Currently,  all  products and  information/
non-information  technologies  systems  are  Y2K  compliant,  due in part to the
limited  operating  history of the Company and the emphasis on compliance during
the planning and development stages of the Company.  To date the Company has not
incurred  material cost, and furthermore  believes that any future actions taken
will not have a material effect on its operating results of financial condition.
The  Company  continues  to assess  whether  third  parties  in its  supply  and
distribution chain are adequately  addressing their Year 2000 compliance issues.
The Company has initiated formal  communication  with its significant  suppliers
and  service  providers  to  determine  the extent to which its  systems  may be
vulnerable.  Failure of  third-party  equipment,  software or content to operate
properly  with  regard to Year 2000  issues  could  require the Company to incur
unanticipated  expenses to remedy problems,  which could have a material adverse
effect on its business, operating results and financial condition.



ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.
<PAGE>


         PART II - OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS

        None.


ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

        None.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

        Not applicable.


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

        Not applicable.


ITEM 5. OTHER INFORMATION

        Not applicable.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a)   Exhibits: None.
        (b)   Reports on Form 8-K: None.

<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
                                                     Controller








Date: June 21, 1999