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

                                  FORM 10-QSB


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

                 For the quarterly period ended March 31, 2004
                                                --------------
                        Commission file number 000-25831

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

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


      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:
<TABLE>
<CAPTION>
                                                 NUMBER OF SHARES OUTSTANDING ON
        TITLE OF CLASS                                   May 14, 2004
------------------------------                   -------------------------------
<S>                                                      <C>
Common Stock, $.0033 par value                           20,289,848
                                                         ----------
</TABLE>
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

                           FORM 10-QSB MARCH 31, 2004
                                                                 INDEX


PART I - FINANCIAL INFORMATION


      ITEM 1 - FINANCIAL STATEMENTS

      CONDENSED CONSOLIDATED BALANCE SHEETS
           March 31, 2004 (unaudited) and June 30, 2003 ...................1 - 2

      CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
           For the three and nine months ended March 31, 2004 (unaudited)
             and March 31, 2003 (unaudited) ...............................3 - 4

      CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
           For the nine months ended March 31, 2004 (unaudited)
             and March 31, 2003 (unaudited) ...............................5 - 6

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ...............7 - 13

      ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS ....................14 - 20

      ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK .....21

      ITEM 4 - CONTROLS AND PROCEDURES .......................................21


PART II - OTHER INFORMATION

      ITEM 1 - LEGAL PROCEEDINGS .............................................22

      ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS .....................22

      ITEM 3 - DEFAULTS UPON SENIOR SECURITIES ...............................22

      ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ...........22

      ITEM 5 - OTHER INFORMATION .............................................22

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

SIGNATURES       .............................................................23

<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                      March 31,             June 30,
                                                        2004                  2003
                                                -------------------   -------------------
                                                    (Unaudited)
<S>                                              <C>                   <C>
ASSETS

Current assets
     Cash and cash equivalents                   $        4,725,988    $        1,336,191
     Restricted cash                                         25,500               297,701
     Accounts receivable, net                             3,232,699             2,254,790
     Inventories                                            145,962                89,598
     Prepaid expenses                                       251,411               172,002
     Other current assets                                    25,104                 8,241
                                                 -------------------   -------------------
         Total current assets                             8,406,664             4,158,523

Property and equipment, net                                 433,490               578,192

Internally developed software, net                           18,665                50,572

Intangible assets, net
Patent                                                       47,649                47,649
Licenses                                                    203,000               203,000
Contractual customer relationships, net                   1,678,554             1,959,277
Computer billing software, net                              615,043               756,043
                                                 -------------------   -------------------
     Total identifiable intangible assets                 2,544,246             2,965,969

Goodwill                                                  3,515,698             3,515,698

Other assets                                                 59,963                59,383
                                                 -------------------   -------------------
                                                 $       14,978,726    $       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
<TABLE>
<CAPTION>
(continued)                                                                         March 31,              June 30,
                                                                                      2004                   2003
                                                                              -------------------   --------------------
                                                                                   (Unaudited)
<S>                                                                           <C>                   <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
    Accounts payable and accrued expenses                                     $        4,385,017    $        4,160,073
    Dividends payable                                                                    472,157               453,179
    Accrued losses of discontinued operations                                            108,195               108,639
    Deferred revenue                                                                     165,794               423,625
    Advances from related parties                                                              -               150,000
    Note payable                                                                               -               120,000
                                                                              -------------------   --------------------
       Total current liabilities                                                       5,131,163             5,415,516

Deferred revenue                                                                          35,000                51,000

Accrued losses of discontinued operations                                                 46,285               128,886
                                                                              -------------------   --------------------

         Total liabilities                                                             5,212,448             5,595,402
                                                                              -------------------   --------------------

Minority interest                                                                              -               275,734
                                                                              -------------------   --------------------
Commitment and contingencies

Shareholders' equity
    Series A Preferred stock, $.0033 par value; $6,173,614 liquidation
      preference; 1,000,000 shares authorized on March 31, 2004 and June
      30, 2003; 191,700 and 269,462 shares outstanding on March 31, 2004
      and June 30, 2003, respectively                                                  1,974,487             2,819,876
    Series B Preferred stock, $.0033 par value; $9,806,206 liquidation
      preference; 500,000 shares authorized on March 31, 2004 and June 30,
      2003; 302,668 and 290,663 shares issued and outstanding on March 31,
      2004 and June 30, 2003, respectively                                             3,774,301             3,055,770
    Series C Preferred stock, $.0033 par value; $9,617,282 liquidation
      preference; 100,000 shares authorized on March 31, 2004 and June 30,
      2003; 76,578 and 2,850 shares issued and outstanding on March 31,
      2004 and June 30, 2003, respectively                                             3,175,111               135,701
    Preferred stock, $.0033 par value; 500,000 shares authorized on March
      31, 2004 and June 30, 2003; no shares issued and outstanding on March
      31, 2004 and June 30, 2003                                                           -                     -
    Common stock, $.0033 par value; 50,000,000 shares authorized on March
      31, 2004 and June 30, 2003; 19,782,956 and 15,847,119 shares issued
      and outstanding on March 31, 2004 and June 30, 2003, respectively                   65,284                52,296
     Additional paid-in capital                                                       74,186,605            69,520,368
     Unamortized value of equity compensation                                           (728,290)             (104,758)
     Accumulated deficit                                                             (72,681,220)          (70,022,052)
                                                                              -------------------   --------------------
       Total shareholders' equity                                                      9,766,278             5,457,201
                                                                              -------------------   --------------------
                                                                              $       14,978,726    $       11,328,337
                                                                              ===================   ====================
</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 CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>

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

                                             2004                  2003                2004                   2003
                                     -------------------  --------------------  ------------------    -------------------
<S>                                  <C>                  <C>                   <C>                   <C>
Revenue
  Voice services                     $         4,228,027  $          4,089,392  $       12,451,278    $        11,502,765
  Managed service charges                      1,890,687             1,291,333           5,002,490              3,665,101
  Equipment and consulting                        42,889               129,718             712,522                427,564
                                     -------------------  --------------------  ------------------    -------------------
                                               6,161,603             5,510,443          18,166,290             15,595,430
                                     -------------------  --------------------  ------------------    -------------------
 Cost of revenue
   Voice services                              2,808,343             2,714,045           8,100,274              7,673,543
   Managed service charges                     1,049,044               893,446           3,185,688              2,553,722
   Equipment and consulting                       20,683                18,119             367,657                128,796
                                     -------------------  --------------------  ------------------    -------------------
                                               3,878,070             3,625,610          11,653,619             10,356,061
                                     -------------------  --------------------  ------------------    -------------------
 Gross profit                                  2,283,533             1,884,833           6,512,671              5,239,369
                                     -------------------  --------------------  ------------------    -------------------
Operating expenses

  General and administrative                   1,772,988             1,509,137           5,076,381              5,165,893
  Engineering and development
                                                 225,775               369,950             751,494              1,192,853
  Sales and marketing                          1,115,959               897,450           3,251,444              2,381,041
                                     -------------------  --------------------  ------------------    -------------------
                                               3,114,722             2,776,537           9,079,319              8,739,787
                                     -------------------  --------------------  ------------------    -------------------
 Loss before other income (expense)            (831,189)             (891,704)          (2,566,648)            (3,500,418)

 Other income (expense)
  Investment income                                3,534                4,980                6,630                10,316

  Gain on extinguishment of debt               -                      716,014               17,400               716,014
  Realized loss on sale of
      marketable securities                    -                          -                   -                 (115,201)
  Minority interest                                  543               (4,729)               1,138                (3,977)
  Interest expense
                                               -                      (56,623)                -                 (184,378)
                                     -------------------  --------------------  ------------------    -------------------
                                                   4,077              659,642              25,168                422,774
                                     -------------------  --------------------  ------------------    -------------------
Loss before income taxes
                                               (827,112)             (232,062)         (2,541,480)            (3,077,644)
Provision for income taxes
                                                  44,968                  -               117,688                    -
                                     -------------------  --------------------  ------------------    -------------------
Net loss from continuing operations             (872,080)            (232,062)         (2,659,168)            (3,077,644)

 Discontinued business
   Loss on disposal of
      discontinued operations                  -                          -                   -                 (117,091)
                                     -------------------  --------------------  ------------------    -------------------

 Net loss                                     $(872,080)            $(232,062)        $(2,659,168)          $ (3,194,735)
                                     ===================  ====================  ==================    ===================


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

                                       3

<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)



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

                                             2004                  2003                2004                   2003
                                     -------------------  --------------------  ------------------    -------------------


 Net loss                           $         (872,080)  $        (232,062)    $    (2,659,168)      $  (3,194,735)

    Beneficial conversion on
      preferred stock                                -            (103,293)            (89,139)           (138,672)
    Dividends on preferred stock              (723,891)           (134,858)         (1,256,004)           (277,680)
                                    -------------------  --------------------  ------------------    -------------------
Net loss available to common
shareholders                        $       (1,595,971)  $         (470,213)   $    (4,004,311)      $  (3,611,087)
                                    ===================  ====================  ==================    ===================

Basic and diluted net loss per share

    Net loss from continuing
      operations                    $             (.08)  $            (.04)    $          (.23)      $        (.28)
    Net loss from discontinued
    operations                                       -                  -                   -                 (.01)
                                    -------------------  --------------------  ------------------    -------------------
Basic and diluted net loss per
    share                           $             (.08)  $            (.04)    $          (.23)      $        (.29)
                                    ===================  ====================  ==================    ===================
 Weighted average common shares
    outstanding, basic and diluted          19,031,021          12,662,202          17,565,723          12,625,212
                                    -------------------  --------------------  ------------------    -------------------

</TABLE>

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

                                       4
<PAGE>


                     NETWOLVES CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                   For the nine months ended
                                                                                            March 31,
                                                                          -----------------------------------------
                                                                                  2004                  2003
                                                                          --------------------- -------------------
<S>                                                                       <C>                   <C>
Cash flows from operating activities
     Net loss                                                             $         (2,659,168) $        (3,194,735)
     Adjustments to reconcile net loss to net cash used in operating
     activities
           Depreciation                                                                166,647              176,610
           Amortization                                                                543,594              532,607
           Non-cash charge to operations with respect to
            stock and warrants issued for services
            and amortization of previously issued warrants                           1,068,375               79,250
           Minority interest                                                            (1,138)               3,977
           Gain on extinguishment of debt                                              (17,400)            (716,014)
           Loss on sale of marketable securities                                             -              115,201
           Amortization of imputed interest                                                  -              184,378
           Loss on disposal of property and equipment                                    7,623                4,412
         Payments for security deposits                                                   (580)              (5,000)

     Changes in operating assets and liabilities
       Restricted cash                                                                 272,201               69,600
       Accounts receivable                                                            (977,909)            (388,789)
       Inventories                                                                     (56,364)              24,690
       Prepaid expenses                                                                (79,409)            (130,683)
       Other current assets                                                            (16,863)              45,284
         Accounts payable and accrued expenses                                         224,944            1,441,074
       Accrued loss on disposal of discontinued operations                             (83,045)            (108,734)
       Deferred revenue                                                               (273,831)             201,476
       Due to Norstan, Inc.                                                                  -              874,451
                                                                          --------------------- -------------------
         Net cash used in operating activities
                                                                                    (1,882,323)            (790,945)
                                                                          --------------------- -------------------
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                                                                  -             (129,500)
     Patent costs paid                                                                       -               (2,255)
     Purchases of property and equipment                                               (29,568)             (77,959)
                                                                          --------------------- -------------------
       Net cash used in investing activities                                         $(119,532)         $(3,479,760)
                                                                          --------------------- -------------------


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

                                       5
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                                                                                   For the nine months ended
(continued)                                                                                 March 31,
                                                                          -----------------------------------------
                                                                                  2004                  2003
                                                                          --------------------- -------------------
Cash flows from financing activities
     Cash proceeds from private sale of preferred stock and warrants      $         4,941,600   $         8,692,472
     Cash proceeds from private sale of common stock                                1,256,250                     -
     Repayment of notes payable                                                             -            (2,907,500)
     Financing costs paid                                                            (656,198)             (798,253)
     Advances from related parties                                                          -               600,000
     Repayment of advances from related parties                                      (150,000)             (450,000)
                                                                          --------------------- -------------------
       Net cash provided by financing activities                                     5,391,652            5,136,719
                                                                          --------------------- -------------------
Net increase in cash and cash equivalents                                            3,389,797              866,014

Cash and cash equivalents, beginning of period                                       1,336,191              656,880
                                                                          --------------------- -------------------
Cash and cash equivalents, end of period                                  $          4,725,988   $        1,522,894
                                                                          ===================== ===================


SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
   AND FINANCING ACTIVITIES

Dividends accrued on preferred stock                                      $           687,850   $          142,822
                                                                          ===================== ===================

Dividends paid on preferred stock                                         $           668,873   $                -
                                                                          ===================== ===================

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

Minority interest reclassification                                        $           274,596   $                -
                                                                          ===================== ===================

</TABLE>


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

                                       6
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2004 AND 2003



1    Interim financial information

     The summary financial information  contained herein is unaudited;  however,
     in the opinion of management,  all adjustments  (consisting  only of normal
     recurring  accruals)  necessary for a fair  presentation  of such financial
     information have been included.  These financial statements,  including the
     condensed  consolidated  balance sheet as of June 30, 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 nine months ended March 31, 2004 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 TSG Global
     Education Web, Inc. ("TSG") (collectively "NetWolves" or the "Company").

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


3    Significant accounting policies

     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.  As of March 31, 2004, the
     minority  interest in TSG has been  extinguished  as the 70,000 shares that
     were  previously  under  separate  ownership have been tendered back to the
     Company. As such, TSG will be reflected as a wholly-owned subsidiary of the
     Company on a go forward basis.  The Company recorded this transaction as an
     increase to additional paid-in-capital totaling $274,596, which is included
     in the accompanying condensed consolidated consolidated balance sheets.


                                       7
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2004 AND 2003


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 28.2 million and 23.7 million at March
     31,  2004 and 2003,  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.

     Recent accounting pronouncements

     In  January  2003,  the  Financial   Accounting  Standard  ("FASB")  issued
     Interpretation  No. 46 ("FIN No. 46"),  Consolidation of Variable  Interest
     Entities.  This  interpretation  provides  guidance  on how to  identify  a
     variable  interest  entity and addresses when the assets,  liabilities  and
     results of  operations  of such  entities  must be  included in a company's
     consolidated  financial  statements.   This  interpretation  was  effective
     immediately for variable  interest  entities created after January 31, 2003
     and for variable interest entities in which the Company obtains an interest
     after that date.  For  interests in variable  interest  entities  that were
     acquired prior to January 31, 2003,  the Company  adopted the provisions of
     this  interpretation  on July 1, 2003.  Adoption of this  statement did not
     result in the consolidation or disclosure of any variable interest entities
     in which the Company  maintains an  interest.  In December  2003,  the FASB
     issued  a  revised  FIN No.  46  which  clarifies  certain  aspects  of the
     accounting for variable interest  entities.  The revision of FIN No. 46 had
     no impact on our results of operations or financial position.

     Stock based compensation

     In  December  2002,  the FASB  issued  Statement  of  Financial  Accounting
     Standard No. 148, "Accounting for Stock-Based  Compensation  Transition and
     Disclosure"  ("SFAS No. 148").  This  statement  amends the  transition and
     disclosure   provisions  of  SFAS  No.  123,   Accounting  for  Stock-Based
     Compensation  ("SFAS No.  123").  SFAS No.  148  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 No. 25,  Accounting for Stock Issued to Employees
     ("APB No. 25"). 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 SFAS No. 148, the effect on the  Company's net loss and
     net loss per share would be as follows:

                                       8
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2004 AND 2003



3    Significant accounting policies (continued)

<TABLE>
<CAPTION>
                                            For the three months                     For the nine months
                                              ended March 31,                          ended March 31,
                                 ----------------------------------------  ---------------------------------------
                                         2004                 2003                 2004                  2003
                                 -------------------  -------------------  -------------------   -----------------
<S>                              <C>                  <C>                  <C>                   <C>
Net loss available to common
  shareholders, as reported      $      (1,595,971)   $        (470,213)   $      (4,004,311)    $      (3,611,087)

Deduct:  Total stock-based
  employee compensation
  expense determined under
  fair value based method for
  all awards, net of related
  tax effects                             (148,843)            (161,259)            (442,041)             (483,735)
                                 -------------------  -------------------  -------------------   ------------------
Pro forma net loss               $      (1,744,814)   $        (631,472)   $      (4,446,352)    $      (4,094,822)
                                 ===================  ===================  ===================   ==================
Basic and diluted net loss per
share
         As reported             $           (.08)    $           (.04)    $           (.23)     $           (.29)
         Pro forma               $           (.09)    $           (.05)    $           (.25)     $           (.32)
</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 as the services are provided.

4    Related party transactions

     During the nine months ended March 31, 2004, the Company paid approximately
     $125,000 for legal  services to law firms in which an  employee/stockholder
     is  affiliated.

     During the nine months ended March 31, 2004, the Company recognized revenue
     of approximately $48,000 related to a sale of technology equipment in which
     a director/stockholder is affiliated.

     On July 10, 2002, the Company received 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  $600,000,  of  which  all has been
     subsequently repaid. The advances were non-interest  bearing, due on demand
     and had no scheduled repayment terms.


                                       9
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2004 AND 2003

5    Shareholders' equity

     Preferred stock

     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  March 31,  2004,  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 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.

     On February 1, 2004,  stock  dividends  totaling 23,088 shares were paid in
     Series B Preferred Stock to Series B Preferred Stock investors representing
     accrued dividends through January 31, 2004.

     As of March 31, 2004,  investors  had  converted  97,730 shares of Series A
     Preferred Stock, 11,383 shares of Series B Preferred Stock and 8,634 shares
     of Series C Preferred Stock  resulting in issuances of 2,578,141  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 $728,290 at March 31, 2004 is included in the unamortized value of
     equity  compensation in the  accompanying  condensed  consolidated  balance
     sheets.

     Common stock

     For the nine months ended March 31, 2004, 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.

                                       10
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2004 AND 2003


5    Segment reporting

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

     The Voice Services  segment,  which operates  domestically,  provides voice
     services including switched and dedicated outbound,  switched and dedicated
     toll-free inbound,  dedicated T1 access loops, calling and debit cards, and
     conference  calling.  The Managed Services Charges segment,  which operates
     worldwide,  provides  network  and  security  technology  and a variety  of
     recurring  managed data  services.  The Equipment and  Consulting  segment,
     which operates worldwide, is primarily engaged in the design,  development,
     marketing  and  support  of  information  delivery  hardware  products  and
     software as well as providing consulting services on an as needed basis for
     certain existing or potential customers.
<TABLE>
<CAPTION>
                                                    For the three months ended          For the nine months ended
                                                              March 31,                         March 31,
                                                 ---------------------------------  -------------------------------
                                                       2004              2003              2004             2003
                                                 ---------------  ----------------  ---------------  --------------
         <S>                                         <C>                <C>           <C>              <C>
         Revenue
              Voice Services                          $4,228,027        $4,089,392    $ 12,451,278     $ 11,502,765
              Managed Service Charges                  1,890,687         1,291,333       5,002,490        3,665,101
              Equipment and Consulting                    42,889           129,718         712,522          427,564
                                                 ---------------  ----------------  ---------------  --------------
                  Total                               $6,161,603        $5,510,443    $ 18,166,290     $ 15,595,430
                                                 ===============  ================  ===============  ==============


         Cost of revenue
              Voice Services                         $ 2,808,343       $ 2,714,045     $ 8,100,274     $  7,673,543
              Managed Service Charges                  1,049,044           893,446       3,185,688        2,553,722
              Equipment and Consulting                    20,683            18,119         367,657          128,796
                                                 ---------------  ----------------  ---------------  --------------
                  Total                              $ 3,878,070       $ 3,625,610    $ 11,653,619     $ 10,356,061
                                                 ===============  ================  ===============  ==============

         Operating loss
              Voice Services                         $ (562,681)       $ (399,490)    $ (1,356,934)    $ (1,704,000)
              Managed Service Charges                  (157,717)         (162,564)        (852,196)        (651,660)
              Equipment and Consulting                 (110,791)         (329,650)        (357,518)      (1,144,758)
                                                 ---------------  ----------------  ---------------  --------------
                  Total                              $ (831,189)       $ (891,704)    $ (2,566,648)    $ (3,500,418)
                                                 ===============  ================  ===============  ==============
</TABLE>
                                       11
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2004 AND 2003




6    Segment reporting (continued)

     The Company is not  disclosing  total  assets for each  reportable  segment
     because this  information is not reviewed by the chief  operating  decision
     maker.

     The Company had one major  customer in the Voice Services and MSC segments,
     which accounted for approximately  31% and 32% of consolidated  revenue for
     the three  and nine  months  ended  March  31,  2004 and  March  31,  2003,
     respectively,  and 30% of  consolidated  accounts  receivable  at March 31,
     2004. Additionally, the Equipment and Consulting segment was dependent upon
     one customer,  who accounted for approximately 63% and 73% of the segment's
     revenues for the nine months ended March 31, 2004 and 2003, respectively.

     The  Company  made  purchases  from two data and  voice  service  providers
     included  within the Managed  Service  Charges and Voice Services  segments
     that aggregated approximately 70% and 16% and 85% and 13% of the total cost
     of  revenue  for  the  three   months   ended  March  31,  2004  and  2003,
     respectively.  These same costs for the nine  months  ended  March 31, 2004
     were 75% and 15% and 85% and 13%, respectively.

7    Income taxes

     The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
                                                    For the nine months ended
                                                             March 31,
                                                             ---------
                                                          2004            2003
                                                    ---------------    ----------
              <S>                                   <C>                <C>
              Current - Federal and States          $     117,688      $     -
              Deferred - Federal                            -                -
              Deferred - States                             -                -
                                                    ---------------    ----------
              Provision for income taxes            $     117,688      $     -
                                                    ===============    ==========
</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.

                                       12
<PAGE>
                    NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2004 AND 2003




9    Preferred stock contingency

     During the period  from  December  2002  through  April  2003,  the Company
     conducted a private  placement of their Series B Preferred Stock and during
     the period from July through October 2003, the Company  conducted a private
     placement of their Series C Preferred  Stock.  The gross  proceeds of these
     private placements were $4,655,300 and $5,112,600, respectively.

     On October 24, 2002, the Company filed a resale  registration  statement on
     Form S-3 exclusively covering shares previously issued to several financial
     institutions,  which issuance was unrelated to the Series B and C Preferred
     Stock placements.  Pursuant to the Securities Act the rules and regulations
     under the Securities Act, and the interpretations of the Commission, as the
     private placements of the Series B and C Preferred Stock were conducted, at
     least in part,  following the original  filing of such resale  registration
     statement  and before  its  effectiveness  under the  Securities  Act,  the
     Company may be required to offer the investors in their Series B and Series
     C private  placements the  opportunity to require the Company to repurchase
     the securities which they purchased in these private placements for a price
     equal to the amount they paid for these securities when they were purchased
     from the Company plus, potentially,  an amount representing damages to such
     investors.  While the Company does not believe that  investors are entitled
     to any rescission  rights, if they are so required to offer such rights and
     all of the  investors  in these  private  placements  determine to exercise
     these rescission  rights,  the Company would be required to refund at least
     all of the gross proceeds of these private  offerings to the investors.  In
     order to satisfy such obligations, the Company would be required to utilize
     their  available  capital  resources  to satisfy  such  refunds  and obtain
     alternative sources of capital for such purpose.

     The Company is  complying  with  certain  requests of the SEC to reduce the
     possibility of being required to entitle these  investors to any rescission
     rights.  Consequently,  the Company does not believe that the likelihood of
     the  investors  being  entitled  to such  rescission  rights  is  probable.
     Additionally,  if the SEC mandated that the investors  were to be given the
     option to request their original investment returned to them, the amount of
     the  potential  loss  could  not be  reasonably  estimated  at  this  time.
     Therefore,  no liability  has been recorded in the  accompanying  condensed
     consolidated balance sheet as of March 31, 2004.

                                       13

<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

             NOTES TO CONDENSED CONSOLIDATED FIINANCIAL STATEMENTS
                                  (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2004 AND 2003


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.  Our actual results may differ
     significantly  from  management's  expectations  based on certain risks and
     uncertainties,  including  the risk factors  referenced in our filings with
     the Securities and Exchange Commission.  Readers are cautioned not to place
     undue reliance on these forward-looking statements. We do not undertake any
     obligation  to release  publicly  any  revisions  to these  forward-looking
     statements  to reflect  future  events or  circumstances  or to reflect the
     occurrence of unanticipated events.

     Overview

     NetWolves Corporation ("NetWolves or the "Company") is a network continuity
     and  security  provider  that  offers  high-performance   network  security
     solutions   coupled  with  robust  network   management  and  communication
     services.  The Company  designs,  develops,  assembles  and sells  Internet
     infrastructure  security  platforms,  coupled with network based management
     services,  designed to significantly  reduce the up-front and ongoing costs
     associated with small,  medium and remote offices' global Internet  access.
     NetWolves' patent pending system technology enables organizations to obtain
     their short, middle and long term IT and e-business initiatives through the
     deployment of our plug 'n' play perimeter office security platform, coupled
     with our secure  remote  monitoring  and  management  ("SRM2  TM")  system.
     Additionally, NetWolves' advanced, centralized, reporting module offers the
     ability  for  corporate   executives  to  view,  via  the  Internet,   both
     statistical and performance based metrics for their global network.

     We  operate  primarily  in three  distinct  segments.  The  Voice  Services
     segment,  which operates  domestically,  provides voice services  including
     switched and dedicated outbound,  switched and dedicated toll-free inbound,
     dedicated T1 access loops, calling and debit cards, and conference calling.
     The Managed Services Charges segment,  which operates  worldwide,  provides
     network and security  technology  and a variety of  recurring  managed data
     services.  The Equipment and Consulting segment,  which operates worldwide,
     is primarily engaged in the design,  development,  marketing and support of
     information  delivery  hardware  products and software as well as providing
     consulting  services on an as needs basis for certain existing or potential
     customers.

     We have achieved an offering of managed products and services that meet the
     necessary requirements for organizations to move off expensive private data
     networks  while  attaining  the  benefits  and  flexibility  of public data
     network.  Additionally, our proprietary technology provides a high level of
     security  through its  integrated  approach to  management,  monitoring and
     interoperability   for  small  and  medium  remote   enterprise   locations
     (locations with less than 500 network  users). We offer a Managed  Services

                                       14
<PAGE>

     Offering (MSO) that provides  complete  system  solutions to  organizations
     needing cost-effective network security features (firewall, virtual private
     networking,  routing, intrusion detection,  content filtering, email, etc.)
     delivered on low-cost  commodity  hardware  with  Internet-based  expansion
     capabilities. Our patent-pending system technology enables organizations to
     achieve corporate  Information  technology (IT) and e-business  initiatives
     through the  deployment of easily  installable  perimeter  office  security
     platforms,  coupled with our secure remote monitoring and management ("SRM2
     TM")  system.  SRM2 TM provides  centralized  management  capabilities  for
     hundreds  or  thousands  of remote  locations  without  risking  networking
     integrity  because  it never  opens an  administrative  port on the  remote
     device,  which  is  a  common  network   vulnerability.   We  also  provide
     cost-effective,  value-added  expansion  technologies  such as  Intelligent
     Failover, which means that if one circuit for gaining access to information
     fails,  the system would  automatically  switch to an  alternative  circuit
     based upon customer defined parameters.

     Critical accounting policies and estimates

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

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

     Revenue recognition

     We record  revenue in accordance  with Statement of Position 97-2 "Software
     Revenue  Recognition"  ("SOP  97-2"),  issued by the American  Institute of
     Certified  Public  Accountants  (as modified by Statement of Position 98-9)
     and SEC Staff  Accounting  Bulletin 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  Equipment  &  Consulting  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 MSC 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.  We have 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.
     We use the residual method for delivered elements.

                                       15

<PAGE>

     Revenues  generated  from the resale of voice  services are  recognized  as
     services are provided and are included within Voice Services revenue in the
     accompanying  condensed  consolidated  statements of  operations.  Revenues
     generated from the sale of recurring  services within the Managed  Services
     Charges  segment are  recognized as services are provided.  Our  consulting
     projects are short-term in nature and are recorded as revenue in Equipment
     and  Consulting  revenues  in  the  accompanying   condensed   consolidated
     statements of operations.

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

     Allowance for doubtful accounts

     We provide  allowances for doubtful  accounts for estimated losses from the
     inability of customers to satisfy their accounts as originally contemplated
     at the  time of sale  and  charges  actual  losses  to the  allowance  when
     incurred.  The  calculation  for these  allowances is based on the detailed
     review of certain individual customer accounts, historical collection rates
     and  our  estimation  of the  overall  economic  conditions  affecting  our
     customer  base.  If the  financial  condition  of  our  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 March 31, 2004 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.  We have noted no  indicators of impairment
     during the three and nine months ended March 31, 2004.

     Stock-based compensation

     We apply 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.

                                       16
<PAGE>
     Results of Operations

     We currently operate in three business segments, the Voice Services segment
     ("Voice  Services"),  the Managed  Service  Charges ("MSC") segment and the
     Equipment and Consulting segment ("Equipment and Consulting").  During June
     2001, we formally  adopted a plan to discontinue its  ComputerCOP  software
     operations, eliminating the Computer Software segment. Effective August 31,
     2002, we ceased all  operations of  ComputerCOP.

     Nine months ended March 31, 2004 and 2003

          Revenue

     Revenue from continuing  operations increased to $18.2 million for the nine
     months ended March 31, 2004,  compared to $15.6 million for the same period
     in the prior year.  This  increase  is  primarily  attributable  to our MSC
     segment  where  revenue  increased by $1.3  million and the Voice  Services
     segment where revenue increased $0.9 million The increase in Voice Services
     and MSC is  attributable  to new sales within our existing  customer  base,
     totaling  approximately  $2.4  million,  sales  to new  customers  totaling
     approximately  $2.0 million  offset by  attrition  in the customer  base of
     approximately  $2.3  million.  Customer  attrition is caused by two primary
     factors.  The  first is  existing  customers  signing a new  reduced  price
     contract,  known as "reterms".  Reterms  accounted for approximately 55% of
     overall  attrition.  The second  primary  factor is  customers  selecting a
     different  service  provider  for  rate   competitiveness  or  relationship
     reasons,  which accounted for approximately 35% of overall  attrition.  The
     additional  growth is  attributable  to increased  equipment and consulting
     sales.

          Cost of revenue and gross profit

     Cost of revenue  increased to $11.7 million for the nine months ended March
     31, 2004,  compared to $10.4 million for the same period in the prior year.
     Cost of revenue  within the MSC segment  increased to $3.2 million,  or 36%
     profit margin,  compared to $2.6 million, or 30% profit margin for the same
     period  in  the  prior  year.  The  improved  profit  margin  is  primarily
     attributable  to our  sale of its  more  profitable  services  and a credit
     received for certain MSC costs.  Cost of revenue  within the Voice Services
     segment  increased to $8.1 million or 35% of profit margin compared to $7.7
     million or 33% of profit margin for the same period in the prior year. This
     improved profit margin is primarily  attributable  to our negotiation  with
     current  and new  vendors  to  lower  rates.  Cost of  revenue  within  the
     Equipment and Consulting  segment increased to $0.4 million,  or 48% profit
     margin compared to $0.1 million or 70% profit margin for the same period in
     the prior year.  The change in profit margin is entirely due to the product
     mix making up the segment.

     Overall  gross  profit was at 36% for the nine months ended March 31, 2004,
     compared  to 34% for the same  period in the prior  year.  The  increase in
     gross profit reflects increased sales of its more profitable services,  the
     effect of rate  negotiations  with vendors and credit  received for certain
     MSC costs.

          General and administrative

     General and  administrative  expenses  consist  primarily  of salaries  and
     related  expenses  for  executive,  finance,  operations,   administration,
     facilities  and  professional  fees.  General and  administrative  expenses
     decreased  to $5.1  million  for the nine  months  ended  March  31,  2004,
     compared  to $5.2  million  for the same  period  in the  prior  year.  The
     decrease was due to staff reductions  totaling $0.4 million and the absence
     of a  $0.3  million  non-recurring  charge  in the  prior  year.  This  was
     partially offset by a net increase of equity compensation of consultants of
     $0.5  million  compared  to  the  prior  period.   We  expect  general  and
     administrative costs to remain relatively consistent in future periods.

                                       17
<PAGE>



          Engineering and development

     Engineering  and  development  expenses,  which are  expensed as  incurred,
     consist  primarily of salaries and related expenses for personnel  utilized
     in  designing,  maintaining  and enhancing our products as well as material
     costs  for  testing  and  quality  assurance.  Costs  associated  with  the
     development   of  software   products  are   generally   capitalized   once
     technological feasibility is reached.  Engineering and development expenses
     decreased  to $0.8  million  for the nine  months  ended  March  31,  2004,
     compared  to $1.2  million  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 $0.3 million for the current  period.  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  and sales and sales
     support functions, as well as costs associated with promotional activities,
     advertising and public relations. Sales and marketing expenses increased to
     $3.3  million for the nine months  ended March 31,  2004,  compared to $2.4
     million for the same period in the prior  year.  The  increase in sales and
     marketing expenses was primarily the result of an increase in the number of
     sales personnel, which resulted in increased salary of $0.4 million as well
     as equity compensation of consultants which increased $0.5 million compared
     to the same period in the prior year. We made a  significant  investment in
     the sales force,  which is anticipated to have a positive  impact in future
     periods.  We intend 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 (expenses)

     Other income (expenses) decreased to $.02 million for the nine months ended
     March 31,  2004,  compared to $0.7 million for the same period in the prior
     year.  For the nine months  ended March 31,  2004,  other  income  consists
     primarily of a gain on extinguishment of debt of $.02 million. For the nine
     months ended March 31, 2003, other income consisted  primarily of a gain on
     extinguishment of debt totaling $0.7 million,  partially offset by interest
     expense on the note payable to Norstan,  Inc.  totaling  $0.2 million and a
     loss on the sale of marketable securities of $0.1 million.


                                       18
<PAGE>


     Three months ended March 31, 2004 and 2003

          Revenue

     Revenue from continuing  operations increased to $6.2 million for the three
     months ended March 31,  2004,  compared to $5.5 million for the same period
     in the prior year.  The increase is  attributable  to our MSC segment where
     revenue  increased by $0.6  million and the Voice  Services  segment  where
     revenue  increased by $0.1 million.  The increase in Voice Services and MSC
     is attributable to sales within our existing  customer base,  totaling $0.4
     million, sales to new customers totaling $1.1 million,  offset by attrition
     in the customer  base of $0.9  million.  This growth is offset by decreased
     equipment and consulting sales.

          Cost of revenue and gross profit

     Cost of revenue  increased to $3.9 million for the three months ended March
     31,  2004,  compared to $3.6 million for the same period in the prior year.
     Cost of revenue  within our MSC segment  increased to $1.0 million,  or 45%
     profit margin  compared to $0.9 million,  or 31% profit margin for the same
     period in the prior year.  This improved  profit margin is  attributable to
     our receipt of a credit for certain MSC costs. The effect of the credit has
     provided a current period increase in the MSC profit margin;  going forward
     MSC profit margin is expected to remain consistent with the current year to
     date MSC profit  margin.  Cost of revenue  within  our Voice  Services  and
     Equipment and Consulting segments did not experience significant change for
     the three  months  ended March 31, 2004  compared to the same period in the
     prior year.

     Overall  gross profit was at 37% for the three months ended March 31, 2004,
     compared  to 34% for the same  period in the prior  year.  The  increase in
     gross  profit was  primarily  the result of the credit  memo  received  for
     certain MSC costs as well as the effect of rate  negotiations  with vendors
     and increased sales of our more profitable services.

          General and administrative

     General and administrative expenses increased to $1.8 million for the three
     months ended March 31,  2004,  compared to $1.5 million for the same period
     in the prior  year.  The  increase  was the result of an increase in equity
     compensation  of  consultants  totaling  $0.2 million  compared to the same
     period in the prior year.

          Engineering and development

     Engineering  and  development  expenses  decreased  to $0.2 million for the
     three months  ended March 31,  2004,  compared to $0.4 million 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 $0.1 million for the current
     period.

          Sales and marketing

     Sales and marketing expenses increased to $1.1 million for the three months
     ended March 31,  2004,  compared to $0.9 million for the same period in the
     prior year. The increase in sales and marketing  expenses was primarily the
     result of an increase in the number of sales  personnel,  which resulted in
     increased  salary  of  $0.1  million  as  well  as an  increase  in  equity
     compensation  of  consultants  totaling  $0.1 million  compared to the same
     period in the prior year.  We made a  significant  investment  in the sales
     force, which is anticipated to have a positive impact in future periods.


                                       19
<PAGE>


          Other income (expenses)

     For the three months ended March 31, 2004, other income consists  primarily
     of interest income. For the three months ended March 31, 2003, other income
     consisted  primarily  of a gain on  extinguishment  of debt  totaling  $0.7
     million,  partially  offset by  interest  expense  on the note  payable  to
     Norstan, Inc. totaling $.06 million.

     Liquidity and Capital Resources

     Our operating  activities  used cash of $1.9 million during the nine months
     ended March 31, 2004, as compared to using $0.8 million for the same period
     in the prior year.  Cash used by operations for the nine months ended March
     31, 2004 was  attributable  to a net loss of $2.7  million,  an increase in
     accounts  receivable of $1.0 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 $0.7 million and $1.1 million,  respectively.
     Cash used in  operations  for the nine  months  ended  March  31,  2003 was
     attributable  to a net loss of $3.2 million,  partially  offset by non-cash
     for depreciation and amortization of $0.7 million,  an increase in accounts
     payable and accrued  expenses of $1.4 million an increase in the payable to
     Norstan Inc. of $0.9 million and a gain on  extinguishment  of debt of $0.7
     million.

     Our investing  activities  used cash of $0.1 million during the nine months
     ended March 31,  2004,  as compared to $3.5  million for the same period in
     the prior year. Cash used in investing activities for the nine months ended
     March 31, 2004 was  attributable  to a payment of $0.09  million to acquire
     customers.  Cash used in  investing  activities  for the nine months  ended
     March 31, 2003 was  primarily  attributable  to a payment of $3.4  million,
     exclusive of  acquisition  costs paid of $0.1 million,  to acquire  Norstan
     Network Services, Inc.

     Our  financing  activities  provided  cash of $5.4 million  during the nine
     months ended March 31, 2004, as compared to providing  cash of $5.1 million
     during  the same  period in the prior  year.  Cash  provided  by  financing
     activities  for the nine months  ended March 31, 2004 was the result of the
     private sale of our preferred stock and warrants aggregating  approximately
     $4.9  million as well as the private  sale of our common stock and warrants
     aggregating approximately $1.3 million, partially offset by financing costs
     of approximately  $0.7 million.  Cash provided by financing  activities for
     the nine months  ended  March 31,  2003 was due to the private  sale of our
     preferred stock and warrants aggregating $8.7 million,  partially offset by
     the repayment of the note payable to Norstan, Inc. totaling $2.9 million.

     Management's plan

     Historically,  we have  experienced  significant  recurring  net  operating
     losses as well as negative cash flows from  operations.  Our main source of
     liquidity  has been  equity  financing,  which is used to fund  losses from
     operating  activities.  For the nine months ended March 31,  2004,  we have
     raised, exclusive of commissions,  approximately $5.6 million from the sale
     of our preferred  stock,  warrants and common  stock.  Based on our current
     cash position of approximately  $4.7 million and its trend toward cash flow
     positive,  there is no plan or requirement for additional equity financing.
     Additionally, the Company has sufficient cash to meet our funding needs for
     at least the next 12 months.

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Not applicable.

                                       20
<PAGE>
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 Third Quarter  Fiscal
     2004 that has materially  affected,  or is reasonably  likely to materially
     affect, our Internal Controls.


                                       21
<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
          -----------

     3.1  Certificate of Amendment to  the  Certificate of  Incorporation  of
          NetWolves Corporation.

     31   Certifications  pursuant  to Rules  13a-14(a)  as adopted  pursuant to
          Section 302 of the Sarbanes-Oxley Act of 2002.

     32   Certifications  pursuant to 18 U.S.C. Section 1350 as adopted 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: May 17, 2004

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