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

                                  FORM 10-QSB


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

                For the quarterly period ended December 31, 2003

                        Commission file number 000-25831

                             NetWolves Corporation
             (Exact name of registrant as specified in its charter)

        New York                                   11-2208052
  (State or other jurisdiction of       (I.R.S. Employer incorporation or
   organization) Identification No.)


                 4002 Eisenhower Blvd, Tampa, Florida 33634-7511
                    (Address of principal executive offices)

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

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

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

                Yes  [X]        No  [ ]


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

                                          NUMBER OF SHARES OUTSTANDING ON
        TITLE OF CLASS                          February 9, 2004
        --------------                    --------------------------------

Common Stock, $.0033 par value                     18,858,621
------------------------------                     ----------

<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

                        FORM 10-QSB - DECEMBER 31, 2003


                                     INDEX


PART I - FINANCIAL INFORMATION

        ITEM 1 - FINANCIAL STATEMENTS

        CONDENSED CONSOLIDATED BALANCE SHEETS
        December 31, 2003 (unaudited) and June 30, 2003                  1 - 3

        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
        For the three and six months ended December 31, 2003
        (unaudited)and December 31, 2002 (unaudited)                     4 - 5

        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the six
        months ended December 31, 2003 (unaudited) and
        December 31, 2002 (unaudited)                                    6 - 7

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS            8 - 13

        ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS                   14 - 19

        ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
                 MARKET RISK                                                20

        ITEM 4 - CONTROLS AND PROCEDURES                                    20


PART II - OTHER INFORMATION

        ITEM 1 - LEGAL PROCEEDINGS                                          21

        ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS                  21

        ITEM 3 - DEFAULTS UPON SENIOR SECURITIES                            21

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

        ITEM 5 - OTHER INFORMATION                                          21

        ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K                           22

SIGNATURES                                                                  23

<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                December 31,        June 30,
                                                    2003              2003
                                                ------------        ----------
                                                (Unaudited)
<S>                                             <C>                <C>
ASSETS
Current assets
    Cash and cash equivalents                   $  5,008,794       $  1,336,191
    Restricted cash                                   25,435            297,701
    Accounts receivable, net                       3,042,929          2,254,790
    Inventories                                      106,436             89,598
    Prepaid expenses                                 288,033            172,002
    Other current assets                              21,841              8,241
                                                ------------        -----------
      Total current assets                         8,493,468          4,158,523

Property and equipment, net                          467,119            578,192

Internally developed software, net                    28,453             50,572

Identifiable intangible assets
Patent                                                47,649             47,649
Licenses                                             203,000            203,000
Contractual customer relationships, net            1,804,852          1,959,277
Computer billing software, net                       662,043            756,043
                                                ------------        -----------
      Total identifiable intangible assets         2,717,544          2,965,969

Goodwill                                           3,515,698          3,515,698

Other assets                                          59,963             59,383
                                                ------------        -----------
                                                $ 15,282,245       $ 11,328,337
                                                ============       ============
</TABLE>

   The accompanying notes to the financial statements are an integral part of
                  these condensed consolidated balance sheets.

                                       1
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS





(continued)
<TABLE>
<CAPTION>

                                                                                  December 31,            June 30,
                                                                                      2003                  2003
                                                                                  ------------            ----------
                                                                                   (Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S>                                                                               <C>                   <C>
Current liabilities
    Accounts payable and accrued expenses                                         $    4,137,733        $    4,160,073
    Dividends                                                                            607,141               453,179
    Accrued losses of discontinued operations                                            110,047               108,639
    Deferred revenue                                                                     148,288               423,625
    Advances from related parties                                                         -                    150,000
    Note payable                                                                          -                    120,000
                                                                                  --------------        --------------
       Total current liabilities                                                       5,003,209             5,415,516

Deferred revenue                                                                          40,333                51,000

Accrued losses of discontinued operations                                                 74,056               128,886
                                                                                  --------------        --------------
       Total liabilities                                                               5,117,598             5,595,402
                                                                                  --------------        --------------
Minority interest                                                                        275,139               275,734
                                                                                  --------------        --------------
Commitment and contingencies

Shareholders' equity
    Series A Preferred stock, $.0033 par value; $7,571,404 liquidation
      preference; 1,000,000 shares authorized on December 31, 2003 and June
      30, 2003; 242,237 and 250,976 shares issued and outstanding on
      December 31, 2003 and June 30, 2003, respectively                                2,664,014             2,819,876

    Series B Preferred stock, $.0033 par value; $9,987,462 liquidation
      preference; 500,000 authorized on December 31, 2003 and June 30,
      2003; 290,963 shares issued and outstanding on December 31, 2003 and
      June 30, 2003, respectively                                                      3,055,770             3,055,770

    Series C Preferred stock, $.0033 par value; $9,930,784 liquidation
      preference; 100,000 shares authorized on December 31, 2003 and June
      30, 2003; 80,812 and 2,850 shares issued and outstanding on December
      31, 2003 and June 30, 2003, respectively                                         3,384,091               135,701

</TABLE>

   The accompanying notes to the financial statements are an integral part of
                  these condensed consolidated balance sheets.

                                       2
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

                     CONDENSED CONSOLDIATED BALANCE SHEETS

(continued)
<TABLE>
<CAPTION>
                                                                                   December 31,            June 30,
                                                                                      2003                  2003
                                                                                  ------------           -----------
                                                                                   (Unaudited)
<S>                                                                                   <C>                   <C>
    Preferred stock, $.0033 par value; 400,000 shares authorized on
      December 31, 2003 and June 30, 2003; no shares issued and outstanding
      on December 31, 2003 and June 30, 2003                                               -                     -
    Common stock, $.0033 par value; 50,000,000 shares authorized on
      December 31, 2003 and June 30, 2003; 18,300,991 and 15,847,119 shares
      issued and outstanding on December 31, 2003 and June 30, 2003,
      respectively                                                                        60,393                52,296
     Additional paid-in capital                                                       73,731,309            69,520,368
     Unamortized value of equity compensation                                         (1,196,934)             (104,758)
     Accumulated deficit                                                             (71,809,140)          (70,022,052)
                                                                                  --------------        --------------

       Total shareholders' equity                                                      9,889,508             5,457,201
                                                                                  --------------        --------------
                                                                                    $ 15,282,245         $  11,328,337
                                                                                  ==============        ==============

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


                                       3
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                            For the three months ended          For the six months ended
                                                   December 31,                       December 31,
                                            ---------------------------        --------------------------

                                             2003                2002           2003                2002
                                             ----                ----           ----                ----
<S>                                       <C>                 <C>             <C>                <C>
 Revenue
    Technology                            $   365,599         $   214,082     $   933,545        $   401,778
    Network Services                        5,637,542           5,046,155      11,071,142          9,683,209
                                          -----------         -----------     -----------        -----------
                                            6,003,141           5,260,237      12,004,687         10,084,987
                                          -----------         -----------     -----------        -----------
 Cost of revenue
    Technology                                229,567             155,441         590,961            265,338
    Network Services                        3,587,571           3,359,345       7,184,588          6,465,113
                                          -----------         -----------     -----------        -----------
                                            3,817,138           3,514,786       7,775,549          6,730,451
                                          -----------         -----------     -----------        -----------
 Gross profit                               2,186,003           1,745,451       4,229,138          3,354,536
                                          -----------         -----------     -----------        -----------

 Operating expenses
    General and administrative              1,657,277           1,922,479       3,303,393          3,626,756
    Engineering and development               272,320             403,929         525,719            852,903
    Sales and marketing                     1,097,768             797,238       2,135,485          1,483,591
                                          -----------         -----------     -----------        -----------
                                            3,027,365           3,123,646       5,964,597          5,963,260
                                          -----------         -----------     -----------        -----------

 Loss before other income (expense)          (841,362)         (1,378,195)     (1,735,459)        (2,608,714)

 Other income (expense)
    Investment income                           1,705               3,790           3,096              5,336
    Gain on extinguishment of debt             17,400                   -          17,400                  -
    Realized loss on sale of
      marketable securities                         -                   -               -           (115,201)
    Minority interest                             288                 523             595                752
    Interest expense                                -             (65,987)              -           (127,755)
                                          -----------         -----------     -----------        -----------

Loss before income taxes                     (821,969)         (1,439,869)     (1,714,368)        (2,845,582)

Provision for income taxes                     40,720                   -          72,720                  -
                                          -----------         -----------     -----------        -----------
Net loss from continuing operations          (843,692)         (1,439,869)     (1,787,088)        (2,845,582)

 Discontinued business
    Loss on disposal of
      discontinued operations                       -                   -                -           117,091
                                          -----------         -----------     -----------        -----------
 Net loss                                 $  (862,689)        $(1,439,869)    $(1,787,088)       $(2,962,673)
                                          ===========         ===========     ===========        ===========

</TABLE>

   The accompanying notes to the financial statements are an integral part of
                  these condensed consolidated balance sheets.

                                       4
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)

(continued)

<TABLE>
<CAPTION>
                                            For the three months ended          For the six months ended
                                                   December 31,                       December 31,
                                            ---------------------------        --------------------------

                                             2003                2002           2003                2002
                                             ----                ----           ----                ----
<S>                                      <C>                  <C>             <C>                <C>
Basic and diluted net loss per share
Net loss                                 $  (862,689)         $ (1,439,869)   $(1,787,088)       $(2,962,673)

    Beneficial conversion on preferred
      stock                                   (8,422)              (35,379)       (89,139)           (35,379)
    Dividends on preferred stock            (332,101)              (85,689)      (532,113)          (142,822)
                                          -----------         -----------     -----------        -----------
Net loss available to common
  shareholders                           $(1,203,212)         $ (1,560,937)   $(2,408,340)       $(3,140,874)
                                          ===========         ===========     ===========        ===========
Basic and diluted net loss per share

    Loss from continuing operations      $      (.07)         $       (.12)   $      (.14)       $      (.24)
    Loss from discontinued operations              -                     -              -               (.01)
                                          -----------         -----------     -----------        -----------
                                         $      (.07)         $       (.12)   $      (.14)       $      (.25)
                                          ===========         ===========     ===========        ===========
Weighted average common shares
    outstanding, basic and diluted        17,838,160            12,607,119     16,842,638         12,607,119
                                          ===========         ===========     ===========        ===========

</TABLE>

   The accompanying notes to the financial statements are an integral part of
                  these condensed consolidated balance sheets.

                                       5
<PAGE>



                     NETWOLVES CORPORATION AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENJTS OF CASH FLOWS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                             For the six months ended
                                                                                   December 31,
                                                                            ---------------------------
                                                                            2003                   2002
                                                                            ----                   ----
<S>                                                                     <C>                   <C>
Cash flows from operating activities
   Net loss                                                             $ (1,787,088)         $  (2,962,673)
   Adjustments to reconcile net loss to net cash (used in)
     provided by operating activities
       Depreciation                                                          112,877                116,235
       Amortization                                                          360,508                350,23
       Non-cash charge to operations with respect to
         stock and warrants issued for services and
         amortization of previously issued warrants                          720,066                      -
       Minority interest                                                        (595)                  (752)
       Gain on extinguishment of debt                                        (17,400)                     -
       Loss on sale of marketable securities                                       -                115,201
       Amortization of imputed interest                                            -                127,755
       Loss on disposal of property and equipment                              6,500                  2,634

   Changes in operating assets and liabilities
       Restricted cash                                                       272,266                 70,627
       Accounts receivable                                                  (788,139)              (100,955)
       Inventories                                                           (16,838)                27,885
       Prepaid expenses                                                     (116,031)                77,922
       Other current assets                                                  (13,600)                47,715
       Accounts payable and accrued expenses                                 (22,339)             1,075,202
       Accrued losses of discontinued operations                             (53,422)               (96,888)
       Deferred revenue                                                     (286,004)               186,427
       Due to Norstan, Inc.                                                        -              1,026,235
                                                                        ------------           ------------
         Net cash (used in) provided by operating activities              (1,629,239)                62,801

Cash flows from investing activities
       Proceeds from sale of marketable securities                                 -                 79,954
       Payment to purchase Norstan Network Services, Inc.                          -             (3,350,000)
       Payment to purchase customer contracts                                (89,964)                     -
       Acquisition costs paid                                                      -                (84,500)
       Patent costs paid                                                           -                 (1,497)
       Payments for security deposits                                           (580)                (5,000)
       Purchases of property and equipment                                    (8,304)               (75,232)
                                                                        ------------           ------------
         Net cash used in investing activities                          $    (98,848)          $ (3,436,275)
                                                                        ============           ============

</TABLE>

   The accompanying notes to the financial statements are an integral part of
                  these condensed consolidated balance sheets.

                                       6
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENJTS OF CASH FLOWS
                                  (Unaudited)


(continued)

<TABLE>
<CAPTION>
                                                                             For the six months ended
                                                                                   December 31,
                                                                            ---------------------------
                                                                            2003                   2002
                                                                            ----                   ----
<S>                                                                     <C>                   <C>
Cash flows from financing activities
  Cash proceeds from private sale of preferred stock and
    warrants                                                            $  4,941,600          $  4,797,072
  Cash proceeds from issuance of common stock                              1,256,250                     -
  Financing costs paid                                                      (647,160)             (372,508)
  Advances from related parties                                                    -               600,000
  Repayment of advances                                                     (150,000)             (100,000)
                                                                        ------------           ------------
    Net cash provided by financing activities                              5,400,690             4,924,564
                                                                        ------------           ------------
Net increase in cash and cash equivalents                                  3,672,603             1,551,090

Cash and cash equivalents, beginning of period                             1,336,191               656,880
                                                                        ------------           ------------
Cash and cash equivalents, end of period                                $  5,008,794          $  2,207,970
                                                                        ============           ============

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES

Purchase acquisition
   Accounts receivable, net                                             $          -          $  1,870,086
   Due from Norstan, Inc.                                                          -               846,474
   Other receivable                                                                -                65,519
   Property and equipment                                                          -                56,300
   Software                                                                        -               940,000
   Intangibles                                                                     -             2,639,000
   Goodwill                                                                        -             3,515,698
   Accounts payable and accrued expenses                                           -            (1,713,771)
   Deferred revenue                                                                -              (413,956)
   Acquisition costs                                                               -              (575,500)
   Payments to Norstan, Inc.                                                       -            (3,750,000)
                                                                        ------------           ------------
     Non-interest bearing promissory note                               $          -          $  3,479,850
                                                                        ============           ============
Dividends on preferred stock                                            $    153,961          $    142,822
                                                                        ============           ============

Common stock issued in full settlement of note
   payable to Imperial Holdings, Inc.                                   $    102,600          $          -
                                                                        ============          =============
</TABLE>


   The accompanying notes to the financial statements are an integral part of
                  these condensed consolidated balance sheets.

                                       7
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                  SIX MONOTHS ENDED DECEMBER 31, 2003 AND 2002




1    Interim financial information

     The summary financial information  contained herein is unaudited;  however,
     in the opinion of management,  all adjustments  (consisting  only of normal
     recurring  accruals)  necessary for a fair  presentation  of such financial
     information have been included.  These financial statements,  including the
     condensed  consolidated  balance sheet as of June 30, 2003,  which has been
     derived from audited financial statements, are presented in accordance with
     the  requirements  of Form  10-QSB and  consequently  may not  include  all
     disclosures  normally required by generally accepted accounting  principles
     or those  normally  made in the Company's  Annual Report on Form 10-K.  The
     accompanying  condensed consolidated financial statements and related notes
     should be read in conjunction with the Company's Annual Report on Form 10-K
     for the fiscal year ended June 30, 2003.  The results of operations for the
     three and six months ended December 31, 2003 are not necessarily indicative
     of the results to be expected for the full year.

2    The Company

     The condensed  consolidated  financial  statements  include the accounts of
     NetWolves   Corporation  and  its  subsidiaries,   NetWolves   Technologies
     Corporation  ("NWT"),  Norstan  Network  Services,  Inc.  ("NNSI")  and its
     majority  owned  TSG  Global  Education  Web,  Inc.  ("TSG")  (collectively
     "NetWolves" or the "Company").

     NWT designs, develops, assembles and sells Internet infrastructure security
     platforms,  coupled with network  based  management  services,  designed to
     significantly  reduce the up-front and ongoing costs associated with small,
     medium and remote offices' global Internet access.  NNSI provides  multiple
     source data and voice  services  and related  consulting  and  professional
     services   throughout  the  United  States.  TSG  provides  management  and
     consulting services to the automotive industry.

3    Significant accounting policies

     Use of estimates

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

     Principles of consolidation

     The consolidated  financial  statements include the accounts of the Company
     and  its  subsidiaries.   All  significant  intercompany  transactions  and
     balances have been eliminated in consolidation.  The separate  ownership of
     one  of  the   Company's   subsidiaries   is  reflected  in  the  Company's
     consolidated  financial  statements  as  minority  interest.  The  minority
     interest includes common stock  representing 1.7% of the outstanding shares
     of the subsidiary.

                                       8
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                  SIX MONOTHS ENDED DECEMBER 31, 2003 AND 2002



3    Significant accounting policies (continued)

     Basic and diluted net loss per share

     The diluted loss per share does not include the impact of potential  shares
     to be issued upon  exercise of  convertible  preferred  stock,  options and
     warrants  aggregating  approximately  29.7  million  and  15.9  million  at
     December  31,  2003 and 2002,  respectively,  because the Company had a net
     loss from operations and, therefore, the effect would be antidilutive.

     Reclassifications

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

     Stock based compensation

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
     Compensation  -  Transition  and  Disclosure".  This  statement  amends the
     transition  and  disclosure  provisions  of SFAS No.  123,  Accounting  for
     Stock-Based  Compensation.   Specifically,   SFAS  No.  148  provides  more
     transition  alternatives  for companies  that wish to adopt the  fair-value
     based  provisions of SFAS No. 123 and increases the disclosure  required of
     companies that continue to account for their stock-based compensation under
     the  intrinsic-value  method  prescribed under Accounting  Principals Board
     Opinion  ("APB") No. 25,  Accounting  for Stock  Issued to  Employees.  The
     annual  disclosure and transition  provisions of SFAS No. 148 are effective
     for fiscal  years ending after  December 15, 2002.  The interim  disclosure
     provisions are effective for interim  periods  beginning after December 15,
     2002.  The  Company has elected to continue to apply APB No. 25 and related
     interpretations  in accounting for its stock option plans and warrants,  as
     permitted under SFAS No. 123 and SFAS No. 148.

     If the Company had elected to recognize compensation expense based upon the
     fair value at the date of grant consistent with the methodology  prescribed
     by SFAS No. 123 and No. SFAS 148, the effect on the  Company's net loss and
     net loss per share would be as follows:

                                       9
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                  SIX MONOTHS ENDED DECEMBER 31, 2003 AND 2002


3    Significant accounting policies (continued)

     Stock based compensation (continued)

<TABLE>
<CAPTION>
                                            For the three months                    For the six months
                                             ended December 31,                     ended December 31,
                                            ---------------------                   -------------------

                                           2003                 2002                 2003                2002
                                           ----                 ----                 ----                ----
<S>                                     <C>                  <C>                 <C>                  <C>
Net loss available to common
  shareholders, as reported             $ (1,203,212)        $ (1,560,937)       $ (2,408,340)        $ (3,140,874)

Deduct:  Total stock-based
  employee compensation
  expense determined under
  fair value based method for
  all awards, net of related
  tax effects                               (147,383)            (112,343)           (291,834)            (219,535)
                                        ------------         ------------        ------------         ------------
Pro forma net loss                      $ (1,350,595)        $ (1,673,280)       $ (2,700,174)        $ (3,360,409)
                                        ============         ============        ============         ============
Basic and diluted net loss per
share

     As reported                        $       (.07)       $       (.12)        $       (.14)        $       (.25)
     Pro forma                          $       (.08)        $       (.13)       $       (.16)        $       (.27)

</TABLE>

     The fair value of equity securities issued to non-employees in exchange for
     services is expensed in the accompanying  condensed  consolidated statement
     of operations and comprehensive loss as the services are provided.

4    Related party transactions

     During  the  six  months  ended   December  31,  2003,   the  Company  paid
     approximately  $78,000  for  legal  services  to  law  firms  in  which  an
     employee/stockholder  is  affiliated.  During the six months ended December
     31, 2003, the Company recognized  revenue of approximately  $48,000 related
     to a sale  of  technology  equipment  in  which a  director/stockholder  is
     affiliated.

5    Shareholders' equity

     Preferred stock

     The Company amended its Certificate of Incorporation,  as authorized by its
     Board of Directors,  by designating  100,000 shares of its 2,000,000 shares
     of  preferred  stock as Series C  Convertible  Preferred  Stock,  par value
     $.0033 per share ("Series C Preferred Stock").

                                       10
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                  SIX MONOTHS ENDED DECEMBER 31, 2003 AND 2002



5    Shareholders' equity (continued)

     Preferred stock (continued)

     Cumulative dividends on the Series C Preferred Stock accrue at a rate of 7%
     per annum from the date of issuance  through April 30, 2005 and  thereafter
     at a rate of 9% per annum and will be  payable  annually  at the  Company's
     option in cash or Series C  Preferred  Stock.  Each  share of the  Series C
     Preferred  Stock is  convertible  at the holders'  option into 60 shares of
     common  stock.  Each share of Series C  Preferred  Stock will have  fifteen
     votes and will vote as a single class with holders of the Company's  common
     stock.

     Since  inception  through  December 31, 2003, the Company has issued 85,212
     shares of its Series C Preferred  Stock for a total cash  consideration  of
     $5,112,600. The shares were issued in connection with a private offering of
     the  Company's  securities  pursuant to which  shareholders  also  received
     warrants to purchase  shares of the  Company's  common  stock at an initial
     exercise price equal to $1.50 per share.  Six warrants were issued for each
     share of Series C Preferred  Stock and are  exercisable for five years from
     the issuance date.

     Proceeds  from the  issuance  of the  preferred  stock  and  warrants  were
     allocated to preferred  stock and to additional  paid-in capital based upon
     their relative fair value. Additionally, after allocating the proceeds, the
     Company determined that there was a beneficial  conversion  feature,  which
     has been included in the condensed consolidated statements of operations.

     On December 1, 2003,  stock  dividends  totaling 19,968 shares were paid in
     Series A Preferred Stock to Series A Preferred Stock investors representing
     accrued dividends through June 30, 2003.

     As of December 31, 2003,  investors had converted 47,193 shares of Series A
     Preferred  Stock and 4,400 shares of Series C Preferred  Stock resulting in
     issuances of 1,148,872 shares of common stock.

     Unamortized value of equity compensation

     The Company  entered into  several  consulting  agreements  during the year
     ended June 30, 2003 for which  shares of common  stock were to be issued as
     consideration.  The  majority of those  shares  were not issued  until July
     2003.  As such,  the  aggregate  value of the issued,  but unearned  shares
     totaling  $1,196,934  at December  31, 2003 is included in the  unamortized
     value of equity  compensation in the  accompanying  condensed  consolidated
     balance sheets.

     Common stock

     For the six  months  ended  December  31,  2003,  the  Company  has  issued
     1,200,000  shares of its  common  stock for a total cash  consideration  of
     approximately  $1,200,000.  The shares  were  issued in  connection  with a
     private offering of the Company's securities pursuant to which shareholders
     also received  warrants to purchase shares of the Company's common stock at
     an initial  exercise price equal to $1.25 per share.  Two hundred  warrants
     were issued for each 1000 shares of common  stock and are  exercisable  for
     five years from the issuance date.

                                       11
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                  SIX MONOTHS ENDED DECEMBER 31, 2003 AND 2002


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"  (SFAS 131). To reflect management and
     business  changes,  the  Company  has  realigned  its  reporting  segments.
     Effective July 1, 2003,  the Management and Consulting  segment is included
     in the  Technology  segment.  As required by SFAS 131, prior year operating
     information  in the  following  table has been restated to conform with the
     current year presentation.

     The two  remaining  segments  are the  Technology  segment  and the Network
     Services segment.  The Technology  segment,  which operates  worldwide,  is
     primarily  engaged in the  design,  development,  marketing  and support of
     information  delivery hardware products and software.  The Network Services
     segment,  which operates  domestically,  provides  multiple source data and
     voice services and related consulting and professional services.

<TABLE>
<CAPTION>
                                               For the three months ended          For the six months ended
                                                     December 31,                        December 31,
                                               --------------------------          ------------------------
                                                 2003              2002              2003             2002
                                                 ----              ----              ----             ----
<S>                                           <C>               <C>              <C>               <C>
     Revenue
        Technology                            $   365,599       $   214,082      $   933,545       $   401,778
        Network Services                        5,637,542         5,046,155       11,071,142         9,683,209

           Total                              $ 6,003,141       $ 5,260,237      $12,004,687       $10,084,987
                                              ===========       ===========      ===========       ===========
     Operating income (loss)
        Technology                            $(1,027,499)      $(1,339,331)     $(1,997,128)      $(2,530,639)
        Network Services                          186,137           (38,864)         261,669           (78,075)

           Total                              $  (841,362)      $(1,378,195)     $(1,735,459)      $(2,608,714)
                                              ===========       ===========      ===========       ===========

                                                                 December 31,          June 30,
                                                                     2003               2003
                                                                 ------------       ------------
     Identifiable assets
        Technology                                              $   1,230,519       $   1,263,838
        Network Services                                           11,083,727          10,047,700
        Other                                                       2,952,174                 574
                                                                -------------       -------------
                                                                   15,266,420          11,312,112
        Net assets of discontinued operations                          15,825              16,225
                                                                -------------       -------------
           Total                                                $  15,282,245       $  11,328,337
                                                                =============       =============

</TABLE>

     The Company had one major customer in the Network Services  segment,  which
     accounted for 32% of consolidated revenue for the six months ended December
     31, 2003 and December 31, 2002 and 32% of consolidated  accounts receivable
     at December 31, 2003.  Additionally,  the Technology  segment was dependent
     upon one customer,  who accounted for 46% and 47% of the segment's revenues
     for the six months ended December 31, 2003 and 2002, respectively.

                                       12

<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

                  SIX MONOTHS ENDED DECEMBER 31, 2003 AND 2002


     The  Company  made  purchases  from two data and  voice  service  providers
     included within the Network Services segment that aggregated  approximately
     77% and 13% and 86% and 13% of the total cost of revenue for the six months
     ended December 31, 2003 and 2002, respectively.


7    Income taxes

     The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
                                                For the six months ended
                                                      December 31,
                                                -------------------------
                                                 2003              2002
                                                 ----              ----
<S>                                            <C>               <C>
Current - Federal and States                   $ 72,720          $      -
Deferred - Federal                                    -                 -
Deferred - States                                     -                 -
                                               --------          --------

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

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

     A portion or all of the Company's net tax operating loss  carryforwards may
     be subject to Section 382 of the Internal  Revenue Code and  therefore  not
     available to offset future income tax liabilities.  The carryforward losses
     expire in the years 2013 through 2023 and have not been  recognized  in the
     accompanying  consolidated  financial statements as a result of a valuation
     allowance against the deferred tax asset.

8    Gain on extinguishment of debt

     On December 22, 2003, the Company agreed to issue Imperial  Holdings,  Inc.
     60,000  shares of its common stock in full  settlement  of its  outstanding
     $120,000 note payable.  Management  determined the fair value of the common
     shares issued based on the quoted market price on such date, $102,600.  The
     Company  recorded the difference  between the  consideration  given and the
     carrying  value  of  the  note  as  of  December  22,  2003  as a  gain  on
     extinguishment   of  debt  in  the  accompanying   condensed   consolidated
     statements of operations.

                                       13
<PAGE>


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


     Forward-Looking Statements

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

     Overview

     We operate  primarily in two distinct  segments.  The  Technology  segment,
     which operates worldwide, is primarily engaged in the design,  development,
     marketing  and  support  of  information  delivery  hardware  products  and
     software.  The  Network  Services  segment,  which  operates  domestically,
     provides multiple source data and voice services and related consulting and
     professional services.

     We have achieved an offering of managed products and services that meet the
     necessary  requirements for  organizations to move off of expensive private
     data networks while  attaining the benefits and  flexibility of public data
     network.  Additionally, our proprietary technology provides a high level of
     security  through its  integrated  approach to  management,  monitoring and
     interoperability   for  small  and  medium  remote   enterprise   locations
     (locations  with  less  than 300  network  users).  We offer  products  and
     services that provide complete system  solutions to  organizations  needing
     cost  effective  network  security  features  (firewall,   virtual  private
     networking,  routing, intrusion detection,  content filtering, email, etc.)
     delivered on low cost  commodity  hardware  with  Internet-based  expansion
     capabilities. Our patent pending system technology enables organizations to
     achieve corporate  Information  technology (IT) and e-business  initiatives
     through the  deployment of easily  installable  perimeter  office  security
     platforms, coupled with secure remote monitoring and management ("SRM2 TM")
     system. SRM2 TM provides centralized  management  capabilities for hundreds
     or thousands of remote locations  without risking  networking  integrity by
     opening an administrative port on the remote device through which outsiders
     can  gain  access  to   information   on  the  system.   We  also   provide
     cost-effective,  value-added  expansion  technologies  such as  intelligent
     fail-over,   which  means  that  if  one  circuit  for  gaining  access  to
     information fails, the system would automatically  switch to an alternative
     circuit based upon customer defined parameters.

     NNSI,  acquired in July 2002,  manages  multiple source (any combination of
     network providers such as MCI Worldcom,  Sprint,  AT&T, Covad,  etc.) voice
     (long  distance  and local) and data  (Internet)  services  throughout  the
     United States.  Additionally,  NNSI has the required Federal Communications
     Commission (FCC) licensing  necessary to aggregate all services provided to
     a single  customer on a single bill.  As a result of this  acquisition,  we
     expect to increase our managed security  services  revenues by selling into
     NNSI's existing customer base.

                                       14
<PAGE>

     Critical accounting policies and estimates

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

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

     Revenue recognition

     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) and SEC Staff Accounting  Bulletin 101 "Revenue  Recognition
     in Financial  Statements"  ("SAB 101")  regarding  revenue  recognition  in
     financial statements. SOP 97-2 provides additional guidance with respect to
     multiple element arrangements;  returns,  exchanges,  and platform transfer
     rights; resellers;  services; funded software development arrangements; and
     contract  accounting.  Accordingly,  revenue  from the sale of  hardware is
     recognized within Technology revenue at the time of delivery and acceptance
     of  hardware  products  by  the  customer,   when  the  fee  is  fixed  and
     determinable  and  collectibility  is probable.  Maintenance  or monitoring
     revenue  that is  bundled  with an  initial  license  fee is  deferred  and
     recognized  ratably  within  Technology  revenue  over the  maintenance  or
     monitoring period in the accompanying consolidated statements of operations
     and comprehensive  loss. Amounts deferred for maintenance or monitoring are
     based on the fair value of equivalent  maintenance  or monitoring  services
     sold  separately.  The Company has established  vendor  specific  objective
     evidence ("VSOE") on all undelivered elements of its software arrangements,
     which  consists of  maintenance,  monitoring  and, at times,  training  and
     consulting. The Company uses the residual method for delivered elements.

     The Company's consulting and training projects are short-term in nature and
     are recorded as revenue when the services have been rendered.

     Revenues from NNSI generated from the resale of long distance  services are
     recognized as services are provided.  Revenues from NNSI primarily  consist
     of monthly  fees,  which are  recognized  over the monthly  period and long
     distance  charges,  which are  recognized as incurred.  These  revenues are
     included  within Network  Services  revenue in the  accompanying  condensed
     consolidated statements of operations.

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

     Allowance for doubtful accounts

     The Company provides  allowances for doubtful accounts for estimated losses
     from the  inability of customers to satisfy  their  accounts as  originally
     contemplated at the time of sale and charges actual losses to the allowance

                                       15
<PAGE>

     when  incurred.  The  calculation  for  these  allowances  is  based on the
     detailed  review  of  certain  individual  customer  accounts,   historical
     satisfaction  rates and the Company's  estimation  of the overall  economic
     conditions   affecting  the  Company's  customer  base.  If  the  financial
     condition of the Company's  customers were to deteriorate,  resulting in an
     impairment of their ability to make payments,  additional allowances may be
     required.

     Income taxes

     As part of the process of preparing our consolidated  financial  statements
     we are required to prepare our income taxes in each of the jurisdictions in
     which we operate.  This process involves  estimating our actual current tax
     exposure  together with  assessing  temporary  differences  resulting  from
     differing  treatment  of  items  for tax  and  accounting  purposes.  These
     differences  result in  deferred  tax  assets  and  liabilities,  which are
     included  within our  consolidated  balance sheet.  We must then assess the
     likelihood  that our  deferred  tax assets  will be  recovered  from future
     taxable income and to the extent we believe that recovery is not likely, we
     must establish a valuation  allowance.  We have fully reserved our deferred
     tax assets at December 31, 2003 and June 30, 2003.

     Goodwill and other intangible assets

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

     Stock-based compensation

     The  Company  applies  the  intrinsic   value-based  method  of  accounting
     prescribed by Accounting  Principles  Board ("APB") Opinion 25,  Accounting
     for Stock Issued to Employees, and related interpretations,  to account for
     stock-based  employee  compensation plans and reports pro forma disclosures
     by estimating the fair value of options  issued and the related  expense in
     accordance  with  SFAS  123.  Under  this  method,   compensation  cost  is
     recognized  for  awards  of  shares of  common  stock or stock  options  to
     directors,  officers and employees of the Company only if the quoted market
     price of the stock at the grant date (or other  measurement date, if later)
     is greater than the amount the grantee must pay to acquire the stock.


     Results of Operations

     The Company  currently  operates in two business  segments,  the technology
     segment   ("Technology")   and  the  network  services  segment   ("Network
     Services").

     Six months ended December 31, 2003 and 2002

          Revenue

     Revenue from  continuing  operations  increased to $12,004,687  for the six
     months ended December 31, 2003, compared to $10,084,987 for the same period
     in the prior year.  Revenues from the Company's  Network  Services  segment
     increased  to  $11,071,142  for the six months  ended  December  31,  2003,
     compared to $9,683,209  for the same period in the prior year. The increase
     was primarily the result of new customers totaling approximately $1,744,000
     as well as increased volume from existing customers totaling  approximately
     $700,000, offset by attrition and renegotiations of contracts with existing

                                       16
<PAGE>


     customers.  Revenues from the  Company's  Technology  segment  increased to
     $933,545  for the six months ended  December 31, 2003  compared to $401,778
     for the same period in the prior  year.  The  increase  was  primarily  the
     result  of the  rollout  of its  products  in  partial  fulfillment  of the
     Company's September 2002 contract with General Electric Consumer Finance in
     Japan totaling approximately $415,000.

          Cost of revenue and gross profit margin

     Cost of revenue in connection with the Network  Services  segment  includes
     costs of multiple source data and voice service providers.  Cost of revenue
     in connection with the Technology segment include costs associated with the
     sale  of  the  Company's   Internet   products  and  services  and  include
     manufacturing,  packaging and shipping  costs,  amortization of capitalized
     software costs,  warranty  expenses and labor costs with regard to delivery
     of services.  Cost of revenue  increased to  $7,775,549  for the six months
     ended December 31, 2003,  compared to $6,730,451 for the same period in the
     prior year. Cost of revenue within the Network Services  segment  increased
     to $7,184,588 compared to $6,465,113 for the same period in the prior year.
     This  increase was primarily  the result of the  corresponding  increase in
     revenue.  Cost of  revenue  within  the  Technology  segment  increased  to
     $590,961  compared to $265,338 for the same period in the prior year.  This
     increase was primarily the result of the rollout of the Company's  products
     in partial  fulfillment  of the  Company's  September  2002  contract  with
     General Electric Consumer Finance in Japan totaling approximately $203,000.

     Overall gross profit  margin was 35% for the six months ended  December 31,
     2003,  compared to 33% for the same  period in the prior year.  Advances in
     our technology  create  efficiencies  in the  engineering  and  development
     process allowing the Company to accomplish their objectives at a lower cost
     than in prior years.

          General and administrative

     General and  administrative  expenses  consist  primarily  of salaries  and
     related  expenses for executive,  finance,  facilities and human  resources
     personnel,   recruiting   expenses  and  professional   fees.  General  and
     administrative  expenses  decreased to $3,303,393  for the six months ended
     December 31, 2003,  compared to $3,626,756 for the same period in the prior
     year.  The decrease was primarily the result of staff  reductions  totaling
     $356,917.  Further, in prior year, the Company was the target of a theft of
     telecommunications  services for which it expensed  $250,000.  The decrease
     was partially offset by equity  consulting  agreements  totaling  $379,605,
     which did not exist in the same period in the prior year.

          Engineering and development

     Engineering  and  development  expenses  decreased  to $525,719 for the six
     months ended December 31, 2003, compared to $852,903 for the same period in
     the prior year.  The  decrease in  engineering  and  development  costs was
     primarily  the  result  of  a  reduction  of  engineering  and  development
     personnel,  which  resulted in reduced  salary of $220,618  for the current
     period.  Advances in our technology create  efficiencies in the engineering
     and development process allowing the Company to accomplish their objectives
     at a lower cost than in prior  years.  We expect to incur  engineering  and
     development  costs in the future as we continue to  maintain  our  existing
     product line as well as develop new products and features.

          Sales and marketing

     Sales and marketing expenses consist primarily of salaries, commissions and
     related  expenses for personnel  engaged in  marketing,  sales and customer
     support functions, as well as costs associated with promotional activities,
     advertising and public relations. Sales and marketing expenses increased to
     $2,135,485  for the  six  months  ended  December  31,  2003,  compared  to
     $1,483,591 for the same period in the prior year. The increase in sales and
     marketing expenses was partially the result of an increase in the number of
     sales personnel  totaling $249,338 as well as equity consulting  agreements
     totaling $340,461 which did not exist in the same period in the prior year.
     Based upon the strength and fundamentals of the  organization,  the Company
     made a significant  investment in the sales force which is  anticipated  to
     have a positive  impact in future  periods.  Company intends to continue to
     aggressively  promote  its  current  and future  products  and,  therefore,
     expects  sales and marketing  costs to increase in absolute  dollars in the
     future.

                                       17
<PAGE>


          Other income (expense)

     Other income (expense)  consists  primarily of realized gains and losses on
     marketable securities, interest expense and investment portfolio income and
     increased to $3,691 for the six months ended December 31, 2002, compared to
     $(236,868)  for the same  period  in the  prior  year.  The  variation  was
     primarily  due to a loss on the sale of  marketable  securities of $115,201
     and interest  expense on the note payable to Norstan,  Inc. during the same
     period in the prior year, which did not occur in the current period.

     Three months ended December 31, 2003 and 2002

          Revenue

     Revenue from  continuing  operations  increased to $6,003,141 for the three
     months ended December 31, 2003,  compared to $5,260,237 for the same period
     in the prior year.  Revenues from the Company's  Network  Services  segment
     increased to $5,637,542 compared to $5,046,155 for the same period in prior
     year.  The  increase was  primarily  the result of new  customers  totaling
     approximately   $1,211,000  as  well  as  increased  volume  from  existing
     customers  totaling  approximately   $300,000,   offset  by  attrition  and
     renegotiations  of contracts  with  existing  customers.  Revenues from the
     Company's Technology segment increased to $365,599 compared to $214,082 for
     the same period in the prior year.  The increase was  primarily  due to new
     customers  totaling  approximately  $192,000,   offset  by  attrition  from
     existing customers.

          Cost of revenue and gross profit margin

     Cost of revenue increased to $3,817,138 for the three months ended December
     31,  2003,  compared to  $3,514,786  for the same period in the prior year.
     Cost of revenue from the Company's  Network Services  segment  increased to
     $3,587,571  compared to  $3,359,345  for the same period in the prior year.
     The  increase was  primarily  the result of the  corresponding  increase in
     revenue. Cost of revenue from the Company's Technology segment increased to
     $229,567  compared to $155,441  for the same period in the prior year.  The
     increase was primarily the result of the corresponding increase in revenue,
     offset  partially by the mix of products being sold in current year,  which
     had a lower cost of revenue  compared  to the mix of  products  sold in the
     same period in the prior year.

     Overall gross profit margin was 36% for the three months ended December 31,
     2003, compared to 33% for the same period in the prior year.

          General and administrative

     General and  administrative  expenses decreased to $1,657,277 for the three
     months ended December 31, 2003,  compared to $1,922,479 for the same period
     in the  prior  year.  The  decrease  was  primarily  the  result  of  staff
     reductions  totaling $215,635 as well as in the prior year, the Company was
     the target of a theft of telecommunications  services for which the Company
     expensed  $250,000,  which did not occur in the  current  period.  This was
     partially offset by equity consulting  agreements totaling $230,167,  which
     did not exist in the same period in the prior year.

          Engineering and development

     Engineering  and development  expenses  decreased to $272,320 for the three
     months ended December 31, 2003, compared to $403,929 for the same period in
     the prior year.  The  decrease in  engineering  and  development  costs was
     primarily  the  result  of  a  reduction  of  engineering  and  development
     personnel,  which  resulted  in reduced  salary of $89,895  for the current
     period.  Advances in our technology create  efficiencies in the engineering
     and development process allowing the Company to accomplish their objectives
     at a lower cost than in prior  years.  We expect to incur  engineering  and
     development  costs in the future as we continue to  maintain  our  existing
     product line as well as develop new products and features.

                                       18
<PAGE>

          Sales and marketing

     Sales and marketing  expenses  increased to $1,097,768 for the three months
     ended  December 31,  2003,  compared to $797,238 for the same period in the
     prior year. The increase in sales and marketing  expenses was partially the
     result of an increase in the number of sales personnel totaling $104,443 as
     well as equity consulting  agreements totaling $217,314 which did not exist
     in the  same  period  in the  prior  year.  Based  upon  the  strength  and
     fundamentals of the organization, the Company made a significant investment
     in the sales force which is anticipated to have a positive impact in future
     periods.  The  Company  intends to  continue  to  aggressively  promote its
     current and future  products  and,  therefore,  expects sales and marketing
     costs to increase in absolute dollars in the future.

          Other income (expense)

     Other  income  (expense)  increased  to $1,993 for the three  months  ended
     December 31, 2003,  compared to $(61,674)  for the same period in the prior
     year.  The  variation  was  primarily  due to interest  expense on the note
     payable to Norstan,  Inc.  during the same period in the prior year,  which
     did not occur in the current period.

     Liquidity and Capital Resources

     Our operating  activities  used cash of $1.6 million  during the six months
     ended  December 31, 2003,  as compared to providing  $0.06  million for the
     same period in the prior year.  Cash used by operations  for the six months
     ended  December 31, 2003 was primarily  attributable  to a net loss of $1.8
     million, an increase in accounts receivable of $0.8 million and an increase
     in  deferred  revenue of $0.3  million  partially  offset by a decrease  in
     restricted cash of $0.3 million and non- cash charges for  depreciation and
     amortization and equity compensation of approximately $0.5 million and $0.7
     million, respectively. Cash used for the six months ended December 31, 2002
     was  primarily  attributable  to a net loss of $3.0  million,  exclusive of
     non-cash  charges  aggregating  $0.7,  partially  offset by an  increase in
     current liabilities of $1.1 million.

     Our investing  activities  used cash of $0.1 million  during the six months
     ended December 31, 2003, as compared to $3.4 million for the same period in
     the prior year. Cash used in investing  activities for the six months ended
     December 31, 2003 was primarily  attributable to a payment of $0.09 million
     paid to acquire customers from their previous  telecommunications  provider
     at a rate of 1.35 times the monthly revenue for customers entering into new
     contracts  with us. Cash used in  investing  activities  for the six months
     ended  December 31, 2002 was  primarily  attributable  to a payment of $3.4
     million,  exclusive of acquisition  costs paid of $.08 million,  to acquire
     Norstan Network Services, Inc.

     Our  financing  activities  provided  cash of $5.4  million  during the six
     months  ended  December 31,  2003,  as compared to  providing  cash of $4.9
     million  during  the same  period  in the  prior  year.  Cash  provided  by
     financing  activities  for the six months  ended  December 31, 2003 was the
     result of the private sale of the  Company's  preferred  stock and warrants
     aggregating  approximately  $4.9 million as well as the private sale of the
     Company's common stock and warrants aggregating approximately $1.3 million,
     partially  offset by financing costs of  approximately  $0.6 million.  Cash
     provided by financing activities for the six months ended December 31, 2002
     was from the private  sale of the  Company's  preferred  stock and warrants
     aggregating $4.8 million, advances from four individuals, one of whom is an
     officer  and  director  of the Company and another who is a director of the
     Company,  aggregating $0.6 million,  partially offset by financing costs of
     $0.4 million.


                                       19
<PAGE>

     Management's plan

     Historically,   the  Company  has  experienced  significant  recurring  net
     operating  losses as well as  negative  cash  flows  from  operations.  The
     Company's main source of liquidity has been equity  financing which is used
     to fund losses from operating activities. For the six months ended December
     31, 2003, the Company has raised,  exclusive of commissions,  approximately
     $5,550,000 from the sale of its preferred and common stock.  These proceeds
     will be utilized to fund ongoing operations. Additionally, the Company will
     continue to utilize cash  generated  from its Network  Services  segment to
     fund the operations of its other segment and currently has sufficient  cash
     to meet its funding needs for at least the next 12 months.


ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not applicable.

ITEM 4 - CONTROLS AND PROCEDURES

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

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

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

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

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

     There was no change in our Internal  Controls  during Second Quarter Fiscal
     2004 that has materially  affected,  or is reasonably  likely to materially
     affect, our Internal Controls.


                                       20
<PAGE>

PART II - OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

     None

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     For the three months ended  December 31, 2003, the Company has issued 7,733
     shares of its Series C Preferred  Stock for a total cash  consideration  of
     $46,398.  Cumulative  dividends on the Series C Preferred Stock accrue at a
     rate of 7% per annum from the date of issuance  through  April 30, 2005 and
     thereafter  at a rate of 9% per annum and will be payable  annually  at the
     Company's  option in cash or Series C  Preferred  Stock.  Each share of the
     Series C Preferred  Stock is  convertible  at the  holders'  option into 60
     shares of common  stock.  Each share of Series C Preferred  Stock will have
     fifteen votes and will vote as a single class with holders of the Company's
     common stock.  The shares were issued in connection with a private offering
     of the Company's  securities  pursuant to which  shareholders also received
     warrants to purchase  shares of the  Company's  common  stock at an initial
     exercise price equal to $1.50 per share.  Six warrants were issued for each
     share of Series C Preferred  Stock. The proceeds are to be used for working
     capital purposes.


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

                                       21
<PAGE>



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

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

 (b) Reports on Form 8-K

     Current  report  on Form  8-K  dated  September  15,  2003 - Item 5.  Other
     Events---NetWolves Corporation amended its Certificate of Incorporation, as
     authorized by its Board of Directors,  by designating 100,000 shares of its
     2,000,000  shares  of  preferred  stock as Series C  Convertible  Preferred
     Stock, par value $.0033 per share.

                                       22
<PAGE>


                                   SIGNATURES

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


                                BY:     NETWOLVES CORPORATION

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



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

Date:  February 17, 2004