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, 2005
                                                --------------

                        Commission file number 000-25831

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

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


                 4805 Independence Parkway, Tampa, Florida 33634
                    (Address of principal executive offices)

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

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

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

                            Yes    X        No
                                  ---

Indicate 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                                     May 12, 2005
------------------------------                   -------------------------------

Common Stock, $.0033 par value                           27,938,313
                                                        -----------
<PAGE>

                     NETWOLVES CORPORATION AND SUBSIDIARIES

                          FORM 10-QSB - MARCH 31, 2005





                                      INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
<S>                                                                                                       <C>
      ITEM 1 - FINANCIAL STATEMENTS

      CONDENSED CONSOLIDATED BALANCE SHEETS
           March 31, 2005 (unaudited) and June 30, 2004 .................................................. 1 - 3

      CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
           For the three and nine months ended March 31, 2005 (unaudited)
             and March 31, 2004 (unaudited and as restated) .............................................. 4 - 5

      CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
           For the nine months ended March 31, 2005 (unaudited)
             and March 31, 2004 (unaudited) .............................................................. 6 - 7

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ............................................... 8 - 14

      ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
                 OF OPERATION ........................................................................... 15 - 20

      ITEM 3 - CONTROLS AND PROCEDURES ...................................................................   21


PART II - OTHER INFORMATION

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

      ITEM 2 - UNREGISTERED SALES OF EQUITY 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...................................................................................   22

SIGNATURES       ........................................................................................    23
</TABLE>

<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS                                                                             March 31,              June 30,
                                                                                     2005                   2004
                                                                           ---------------------- ---------------------
                                                                                  (Unaudited)
<S>                                                                         <C>                    <C>
Current assets
  Cash and cash equivalents                                                 $        3,023,036     $        5,439,345
  Acccounts receivable, net of allowance of $243,384 and
  $131,678 at March 31, 2005 and June 30, 2004, respectively                         4,207,957              3,421,185
  Inventories                                                                          517,883                79,764
  Prepaid expenses                                                                     488,009                277,869
  Other current assets                                                                  18,316                 30,993
                                                                           ---------------------- ---------------------
    Total current assets                                                             8,255,201              9,249,156
                                                                           ---------------------- ---------------------

Restricted cash                                                                         25,750                 25,566

Property and equipment, net                                                            285,757                399,355

Internally developed software, net                                                         -                   12,594

Identifiable intangible assets
Patent                                                                                  64,989                 58,106
Licenses                                                                               203,000                203,000
Contractual customer relationships, net                                              2,432,625              1,526,851
Computer billing software, net                                                         427,043                568,043
                                                                           ---------------------- ---------------------
   Total identifiable intangible assets                                              3,127,657              2,356,000

Goodwill                                                                             3,515,698              3,515,698

Other assets                                                                            65,107                 60,312
                                                                           ---------------------- ---------------------
                                                                            $       15,275,170     $       15,618,681
                                                                           ====================== =====================

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


                                       1
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS




(continued)                                                                      March 31,              June 30,
                                                                                   2005                   2004
                                                                           ---------------------- ---------------------
LIABILITIES AND SHAREHOLDERS' EQUITY                                            (Unaudited)

Current liabilities
 Accounts payable and accrued expenses                                      $        4,239,431     $        4,345,225
 Dividends payable                                                                     509,954              1,810,179
 Accrued losses of discontinued operations                                              38,760                107,841
 Deferred revenue                                                                      693,923                369,088
 Current maturities of long-term debt                                                  200,000                    -
                                                                           ---------------------- ---------------------
   Total current liabilities                                                         5,682,068              6,632,333

Deferred revenue                                                                        17,417                 29,667

Long term debt, net of current maturities                                              600,000                    -

Accrued losses of discontinued operations                                                  -                   18,514
                                                                           ---------------------- ---------------------
   Total liabilities                                                                 6,299,485              6,680,514
                                                                           ---------------------- ---------------------

Shareholders' equity
 Series A convertible preferred stock, $.0033 par value; $5,374,324
  liquidation preference; 1,000,000 shares authorized on
  March 31, 2005 and June 30, 2004; 161,707 and 190,616
  shares issued and outstanding on March 31, 2005 and
  June 30, 2004, respectively                                                        1,849,682              2,112,039
 Series B convertible preferred stock, $.0033 par value; $7,442,282
  liquidation preference; 500,000 shares authorized on
  March 31, 2005 and June 30, 2004; 227,970 and 270,269
  shares issued and outstanding on March 31, 2005 and
  June 30, 2004, respectively                                                        3,009,889              3,257,037
 Series C convertible preferred stock, $.0033 par value; $1,945,066
  liquidation preference; 100,000 shares authorized on
  March 31, 2005 and June 30, 2004; 13,296 and 72,461
  shares issued and outstanding on March 31, 2005 and
  June 30, 2004, respectively                                                          197,649              3,013,771


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


                                       2

<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS

(continued)

 Preferred stock, $.0033 par value; 400,000 shares authorized on
  March 31, 2005 and June 30, 2004; no shares issued and
  outstanding on March 31, 2005 and June 30, 2004
 Common stock, $.0033 par value; 65,000,000 and 50,000,000
  shares authorized on March 31, 2005 and June 30, 2004,
  respectively; 27,496,434 and 20,925,261 shares issued and
  outstanding on March 31, 2005 and June 30, 2004,
  respectively                                                                          90,379                 69,054
 Additional paid in capital                                                         78,283,208             73,631,120
 Unamortized value of equity compensation                                             (112,475)              (480,201)
 Accumulated deficit                                                               (74,342,647)           (72,664,653)
                                                                           ---------------------- ---------------------
  Total shareholders' equity                                                         8,975,685              8,938,167
                                                                           ---------------------- ---------------------

                                                                           ---------------------- ---------------------
                                                                            $       15,275,170     $       15,618,681
                                                                           ====================== =====================
</TABLE>
The accompanying notes are an integral
  part of these condensed consolidated
  financial statements.


                                       3
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                 For the three months ended               For the nine months ended
                                                         March 31                                 March 31
                                                               (As restated)                               (As restated)
                                                  2005              2004                   2005                  2004
                                            ----------------------------------- --------------------------------------------
<S>                                          <C>               <C>               <C>                   <C>
Revenue
    Voice services                            $   4,866,499     $ 4,228,027       $      14,453,347     $      12,451,277
    Managed service charges                       1,819,712       1,890,687               5,444,572             5,002,491
    Equipment and consulting                         45,990          42,889                 364,079               712,522
                                            ----------------------------------- --------------------------------------------
                                                  6,732,201       6,161,603              20,261,998            18,166,290
                                            ----------------------------------- --------------------------------------------
Cost of revenue
    Voice services                                3,065,997       2,808,343               9,036,375             8,100,275
    Managed service charges                       1,231,493       1,049,044               3,495,542             3,185,687
    Equipment and consulting                         25,581          20,683                 173,176               367,657
                                            ----------------------------------- --------------------------------------------
                                                  4,323,071       3,878,070              12,705,093            11,653,619
                                            ----------------------------------- --------------------------------------------
Gross profit                                      2,409,130       2,283,533               7,556,905             6,512,671

Operating expenses
    General and administrative                    1,699,365       1,772,988               5,156,175             5,076,381
    Engineering and development                     230,437         225,775                 704,839               751,494
    Sales and marketing                           1,231,339       1,115,959               3,389,200             3,251,444

                                            ----------------------------------- --------------------------------------------
                                                  3,161,141       3,114,722               9,250,214             9,079,319
                                            ----------------------------------- --------------------------------------------

Loss before other income                           (752,011)       (831,189)             (1,693,309)           (2,566,648)

Other income (expense)
    Investment income                                15,026           3,534                  23,317                 6,630
    Gain on extinguishment of debt                       -               -                       -                 17,400
    Minority interest                                    -              543                      -                  1,138
    Interest expense                                 (6,004)             -                   (8,000)                   -

                                            ----------------------------------- --------------------------------------------
Loss before income taxes                           (742,989)       (827,112)             (1,677,992)           (2,541,480)
                                            ----------------------------------- --------------------------------------------
Provision for income taxes                               -           44,968                      -                117,688
                                            ----------------------------------- --------------------------------------------
Net loss                                     $     (742,989)   $   (872,080)     $       (1,677,992)   $       (2,659,168)
                                            =================================== ============================================

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

                                       4
<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
                                                               (As restated)                              (As restated)
                                                  2005              2004                   2005                  2004
                                            ----------------------------------- --------------------------------------------
Basic and diluted net loss per share

Net loss                                     $     (742,989)   $   (872,080)     $       (1,677,992)   $       (2,659,168)

 Dividends and beneficial conversion on
     convertible preferred stock                   (202,597)     (1,125,538)               (893,422)           (5,533,808)

                                            ----------------------------------- --------------------------------------------
Net loss attributable to common              $     (945,586)   $ (1,997,618)      $      (2,571,414)   $       (8,192,976)
                                            =================================== ============================================
 shareholders

Basic and diluted net loss per share         $        (0.04)   $      (0.10)      $           (0.11)   $            (0.47)
                                            =================================== ============================================

Weighted average common shares
 outstanding, basic and diluted                  24,356,508      19,031,021              23,978,139            17,565,723
                                            =================================== ============================================

</TABLE>

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

                                       5
<PAGE>


                     NETWOLVES CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                     For the nine months ended
                                                                                      March 31
                                                                                 ------------------------------------
                                                                                         2005              2004
                                                                                 ------------------------------------
<S>                                                                                 <C>                <C>
Cash flows from operating activities
    Net loss                                                                        $   (1,677,992)    $(2,659,168)
    Adjustments to reconcile net income (loss) to net
    cash used in operating activities
       Depreciation                                                                        154,002         166,647
       Amortization                                                                        692,097         543,594
       Bad debt expense                                                                    155,635             -
       Non-cash charge to operations with respect to
           stock and warrants issued for services and
           amortization of previously issues warrants                                      297,865       1,068,375
       Minority interest
                                                                                               -            (1,138)
       Gain on extinguishment of debt                                                          -           (17,400)
       Loss on disposal of property and equipment                                           16,452           7,623

    Changes in operating assets and liabilities
       Restricted cash                                                                        (184)        272,201
       Accounts receivable                                                                (911,683)       (977,909)
       Inventories                                                                        (438,119)         (56,364)
       Prepaid expenses                                                                   (210,140)         (79,409)
       Other current assets                                                                 12,674          (16,863)
       Accounts payable and accrued expenses                                              (135,793)        224,944
       Accrued loss on disposal of discontinued operations                                 (87,595)         (83,045)
       Deferred revenue                                                                    312,585        (273,831)
                                                                                 ------------------------------------
           Net cash used in operating activities                                        (1,820,196)     (1,881,743)
                                                                                 ------------------------------------

Cash flows from investing activities
     Patent costs paid                                                                      (6,883)            -
    Payment to purchase customer list                                                     (500,000)         (89,964)
     Payments for security deposits                                                         (4,795)            (580)
    Purchases of property and equipment                                                    (56,856)         (29,568)
                                                                                 ------------------------------------
           Net cash used in investing activities                                    $     (568,534)    $   (120,112)
                                                                                 ------------------------------------

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

                                       6

<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)



(continued)                                                                            For the nine months ended
                                                                                        March 31
                                                                                 ------------------------------------
                                                                                          2005              2004
                                                                                 ------------------------------------
Cash flows from financing activities
  Cash proceeds from private sale of convertible preferred
    stock and warrants                                                              $          -        $ 4,941,600
  Cash proceeds from issuance of common stock                                                  -          1,256,250
  NASDAQ listing fee                                                                       (27,579)         (38,000)
  Financing costs paid                                                                         -           (618,198)
  Repayment of advances from related parties                                                   -           (150,000)
                                                                                 ------------------------------------
    Net cash (used in)/provided by financing activities                                    (27,579)       5,391,652
                                                                                 ------------------------------------
Net (decrease) increase in cash and cash equivalents                                    (2,416,309)       3,389,797

Cash and cash equivalents, beginning of period                                           5,439,345        1,336,191
                                                                                 ------------------------------------
Cash and cash equivalents, end of period                                            $    3,023,036      $ 4,725,988
                                                                                 ====================================


SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
  AND FINANCING ACTIVITIES


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


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

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

Dividends accrued on convertible preferred stock                                    $      702,617      $   687,850
                                                                                 ====================================

Dividends paid-in-kind on convertible preferred stock                               $    2,002,843      $   668,873
                                                                                 ====================================

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

</TABLE>

The accompanying notes are an integral
  part of these condensed consolidated
  financial statements.
                                        7

<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2005 AND 2004




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, 2004,  which has been
     derived from audited financial statements, are presented in accordance with
     the  requirements  of Form  10-QSB and  consequently  may not  include  all
     disclosures  normally required by generally accepted accounting  principles
     or those normally made in the Company's  Annual Report on Form 10-KSB.  The
     accompanying  condensed consolidated financial statements and related notes
     should be read in  conjunction  with the  Company's  Annual  Report on Form
     10-KSB for the fiscal year ended June 30, 2004.  The results of  operations
     for the three and nine  months  ended  March 31,  2005 are not  necessarily
     indicative of the results to be expected for the full year.

2    The Company

     The  consolidated  financial  statements  include the accounts of NetWolves
     Corporation  and  its  subsidiaries,   NetWolves  Technologies  Corporation
     ("NWT"),  Norstan Network Services,  Inc., d/b/a NetWolves Network Services
     ("NNS")  and  TSG  Global   Education  Web,  Inc.   ("TSG")   (collectively
     "NetWolves" or the "Company").

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

                                       8
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2005 AND 2004


3    Restatement of financial statements

     As  disclosed  in the  previously  filed 10-KSB for the year ended June 30,
     2004,  subsequent  to the filing of form 10-QSB for March 31, 2004,  and in
     conjunction  with  preparation  and  review of our  consolidated  financial
     statements for the year ended June 30, 2004, the Company determined that it
     had not  properly  calculated  and  recorded  convertible  preferred  stock
     dividends  and  related  beneficial   conversion  feature  charges  on  the
     issuances  of  the  Series  A,  B  and C  convertible  preferred  stock  in
     accordance with Emerging Issues Task Force ("EITF") No. 00-27  "Application
     of Issue No. 98-5 to Certain Convertible Instruments".

     Included in the  periods  restated  were the balance  sheet as of March 31,
     2004 and statements of operations for the three and nine months then ended.
     The following  amounts during that period were restated as a result of this
     change:
<TABLE>
<CAPTION>
                                                     As previously
                                                       reported            Adjustment          As restated
                                                     -------------         ----------          -----------
       Quarter ended March 31, 2004
       (unaudited)
       <S>                                       <C>                  <C>                  <C>

       Accounts payable and accrued expenses     $       4,385,017    $         965,197    $       5,350,214
       Convertible preferred stock:
       Series A                                          1,974,487              130,277            2,104,764
       Series B                                          3,774,301             (162,475)           3,611,826
       Series C                                          3,175,111              (35,786)           3,139,325
       Additional paid-in capital                       74,186,605             (897,214)          73,289,391
       Net loss attributable to common
       shareholders                                     (1,595,971)            (401,647)          (1,997,618)
       Basic and diluted net loss per share
                                                             (0.08)               (0.02)               (0.10)
</TABLE>
4    Significant accounting policies

     Basic and diluted net loss per share

     The diluted loss per share does not include the impact of potential  shares
     to be issued upon  exercise of  convertible  preferred  stock,  options and
     warrants  aggregating  approximately 22.5 million and 28.2 million at March
     31,  2005  and  2004,  respectively,  because  the  Company  had a net loss
     attributable to common  shareholders  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.

                                       9
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2005 AND 2004



     Stock based compensation

     Statement of  Financial  Accounting  Standards  ("SFAS"),  "Accounting  for
     Stock-Based  Compensation"  ("SFAS  123")  establishes  a fair  value-based
     method of accounting for stock based  compensation  plans.  The Company has
     chosen  to adopt  the  disclosure  requirements  of SFAS 123 and SFAS  148,
     "Accounting  for  Stock-Based  Compensation  -- Transition and  Disclosure"
     ("SFAS 148") and continue to record stock  compensation  for its  employees
     and outside  directors  using the  intrinsic  value  method  prescribed  in
     Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
     Employees"  ("APB 25").  Under APB 25,  charges are made to  operations  in
     accounting  for stock options  granted to employees  and outside  directors
     when the  option  exercise  prices are below the fair  market  value of the
     common stock at the measurement date.

     If the Company had elected to recognize compensation expense based upon the
     fair value at the date of grant consistent with the methodology  prescribed
     by SFAS 123 and SFAS 148, the effect on the Company's net loss and net loss
     per share would be as follows:
<TABLE>
<CAPTION>
                                           For the three months                       For the nine months
                                             ended March 31,                                ended March 31,
                                  --------------------------------------- -----------------------------------
                                                        (As restated)                              (As restated)

                                         2005                 2004                 2005                  2004
                                  ------------------  -------------------  -------------------   -----------------
<S>                               <C>                 <C>                  <C>                   <C>
Net loss attributable to
  common shareholders, as
  reported                        $       (945,586)   $      (1,997,618)   $      (2,571,414)    $      (8,192,976)

Add:  Total stock-based
  employee compensation
  expense included in reported
  net income (loss), net of
  related tax effects                          -                    -                    -                     -

Deduct:  Total stock-based
  employee compensation
  expense determined under
  fair value based method for
  all awards, net of related
  tax effects                              (78,660)            (148,843)            (326,018)             (442,041)
                                  ------------------  -------------------  -------------------   -----------------
Pro forma net loss
attributable to common
shareholders                     $      (1,024,246)   $      (2,146,461)   $      (2,897,432)    $      (8,635,017)
                                  ==================  ===================  ===================   ==================
Basic and diluted net loss per
share
         As reported             $            (.04)   $            (.10)   $            (.11)     $           (.47)
         Pro forma               $            (.04)   $            (.11)   $            (.12)     $           (.49)
</TABLE>

     Equity  issuances to  non-employees in exchange for services are charged to
     operations  over the period the services are provided  using the fair value
     method on the measurement date.

                                       10
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2005 AND 2004

     Summary of recent accounting pronouncements

     In November 2004, the Financial  Accounting Standards Board ("FASB") issued
     SFAS No. 151,  "Inventory  Costs,  an amendment  of ARB No. 43,  Chapter 4"
     ("SFAS 151").  SFAS 151 clarifies  that  abnormal  inventory  costs such as
     costs of idle  facilities,  excess freight and handling  costs,  and wasted
     materials (spoilage) are required to be recognized as current period costs.
     The  provisions of SFAS 151 are  effective  for the  Company's  fiscal 2006
     year.  Management is currently  evaluating  the  provisions of SFAS 151 and
     does not  expect  adoption  will have a  material  impact on the  Company's
     financial position, results of operations, or cash flows.

     In December 2004, the FASB  finalized SFAS No. 123R  "Share-Based  Payment"
     ("SFAS  123R"),  amending SFAS No. 123,  effective  beginning the Company's
     first quarter of fiscal 2007. SFAS 123R will require the Company to expense
     stock options  based on grant date fair value in our financial  statements.
     Further,  the  adoption  of SFAS 123R will  require  additional  accounting
     related to the income tax effects and additional  disclosure  regarding the
     cash flow effects  resulting from  share-based  payment  arrangements.  The
     effect of  expensing  stock  options on the results of  operations  using a
     Black-Scholes  option-pricing model is presented in Note 2. The adoption of
     SFAS 123R will have no effect  on the  Company's  cash  flows or  financial
     position,  but will  have an  adverse  impact  on the  Company's  financial
     position and results of operations.

     In December 2004,  the FASB issued SFAS No. 153,  "Exchanges of Nonmonetary
     Assets - an amendment of APB Opinion No. 29" ("SFAS 153").  This  statement
     amends APB  Opinion  No. 29 to  eliminate  the  exception  for  nonmonetary
     exchanges  of  similar  productive  assets and  replaces  it with a general
     exception for exchanges of nonmonetary  assets that do not have  commercial
     substance.  A nonmonetary  exchange has commercial  substance if the future
     cash flows of the entity are expected to change  significantly  as a result
     of the exchange.  The  provisions of SFAS 153 are effective for fiscal year
     ending  June  2006.  The  adoption  of SFAS 153 is not  expected  to have a
     material  impact  on  the  Company's   consolidated   financial   position,
     liquidity, or results of operations.

5    Acquisition of customer list

     On October 1, 2004,  the Company  acquired a customer  list from  Education
     Communications  Consortia,  Inc.  ("ECCI")  for a total  purchase  price of
     $1,300,000,  of which $500,000 was paid in cash on the date of closing. The
     remaining  $800,000  is a note  payable  in  four  annual  installments  of
     $200,000  commencing October 1, 2005, bearing interest of 4% per annum. The
     payment of each annual  installment  is contingent  upon  achieving  annual
     revenue of  approximately  $2 million.  The purchase  price,  including the
     entire contingent  liability,  has been recorded as an intangible asset and
     will be amortized over its expected useful life of 4.5 years. Additionally,
     the  Company  issued to a  consultant,  as a  finders  fee  related  to the
     acquisition,  an immediately  exercisable  five-year  warrant to purchase a
     total of 350,000 shares of common stock at an exercise price of $1.00.  The
     value of the warrants  totaling  approximately  $175,000 was recorded as an
     increase to the intangible asset,  contractual customer  relationships,  in
     the accompanying condensed consolidated balance sheets.

     Separately, the Company entered into an employment agreement with a certain
     member of ECCI management for a period of four years at an annual salary of
     $75,000.  The  services to be  provided  under this  agreement  include new
     business development and sales.
                                       11
<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2005 AND 2004





6    Related party transactions

     During the nine months ended March 31, 2005, the Company paid approximately
     $209,000 for legal  services to law firms in which an  employee/stockholder
     is affiliated.

7    Shareholders' equity

     Common stock

     During the annual  meeting  of  shareholders  held in  December  2004,  the
     proposed  amendment to the  Certificate  of  Incorporation  to increase the
     number of authorized  shares of common stock from  50,000,000 to 65,000,000
     shares, par value $.0033 per share, was ratified.

     In accordance  with the preferred  stock  subscription  agreements,  during
     December  2004,  shares of common  stock  totaling  815,626  were issued to
     investors in the Series A and B offering and 250,517  warrants  were issued
     to  Series  C  investors  as a  penalty  payment  due to the  delay  in the
     registration  of the  shares  of common  stock  underlying  the  investors'
     preferred stock. The value of this registration  penalty,  $1,367,760,  was
     recorded as a reduction to dividends payable in the accompanying  condensed
     consolidated  balance sheet and is reflected as a component of the net loss
     available to shareholders.

     Preferred stock

     For the nine months ended March 31, 2005,  investors had  converted  47,967
     shares of Series A  Preferred  Stock,  64,063  shares of Series B Preferred
     Stock and 59,165 shares of Series C Preferred  Stock resulting in issuances
     of 5,730,547 shares of common stock.

     On July 1, 2004, stock dividends totaling 19,058 shares were paid in Series
     A  Preferred  Stock to  Series A  Preferred  Stock  investors  representing
     accrued dividends through June 30, 2004.

     On February 1, 2005,  stock  dividends  totaling 21,764 shares were paid in
     Series B Preferred Stock to Series B Preferred Stock investors representing
     accrued dividends through January 31, 2005.

8    Segment information

     The Company reports  segments in accordance with SFAS No. 131  "Disclosures
     about Segments of an Enterprise and Related  Information"  ("SFAS 131"). As
     of December  31,  2003,  the Company and its  subsidiaries  operated in two
     separate business segments, the Technology segment and the Network Services
     segment.  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.  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 131,  prior year
     operating  information  in the  following  table has been  reclassified  to
     conform with the current year presentation.

                                       12


<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2005 AND 2004

     The Voice  Services  segment,  which  operates  worldwide,  provides  voice
     services including switched and dedicated outbound,  switched and dedicated
     toll-free inbound,  dedicated T1 access loops, calling and debit cards, and
     conference  calling.  The Managed Services Charges segment,  which operates
     worldwide,  provides  network  and  security  technology  and a variety  of
     recurring  managed data  services.  The Equipment and  Consulting  segment,
     which operates  worldwide,  delivers  networking and security equipment and
     software  as well as provides  consulting  services on a fee for service or
     project basis for certain existing and/or future customers.
<TABLE>
<CAPTION>
                                                      For the three months ended      For the nine months ended
                                                                March 31,                      March 31,
                                                    ------------------------------  ------------------------------
                                                        2005              2004          2005             2004
                                                    ------------      ------------  ------------     ------------
         <S>                                         <C>               <C>          <C>              <C>
         Revenue
              Voice Services                         $ 4,866,499       $ 4,228,027  $ 14,453,347     $ 12,451,278
              Managed Service Charges                  1,819,712         1,890,687     5,444,572        5,002,490
              Equipment and Consulting                    45,990            42,889       364,079          712,522
                                                    ------------      ------------  ------------     ------------
                  Total                              $ 6,732,201       $ 6,161,603  $ 20,261,998     $ 18,166,290
                                                    ============      ============  ============     ============
              Cost of revenue
              Voice Services                         $ 3,065,997       $ 2,808,343  $  9,036,375     $  8,100,275
              Managed Service Charges                  1,231,493         1,049,044     3,495,542        3,185,687
              Equipment and Consulting                    25,581            20,683       173,176          367,657
                                                    ------------      ------------  ------------     ------------
                  Total                               $4,323,071       $ 3,878,070  $ 12,705,093     $ 11,653,619
                                                    ============      ============  ============     ============
         Operating income (loss)
              Voice Services                         $ (318,013)       $  (562,681) $   (678,640)    $ (1,356,934)
              Managed Service Charges                  (319,168)          (157,717)     (699,604)        (852,196)
              Equipment and Consulting                 (114,830)          (110,791)     (315,065)        (357,518)
                                                    ------------      ------------  ------------     ------------
                  Total                              $ (752,011)       $  (831,189) $ (1,693,309)    $ (2,566,648)
                                                    ============      ============  ============     ============
</TABLE>
The Company is not disclosing  total assets for each reportable  segment because
the chief operating decision maker reviews total assets on a consolidated basis.

The  Company  had  one  major  customer  which  accounted  for  27%  and  31% of
consolidated revenue for the nine months ended March 31, 2005 and March 31, 2004
respectively.  Additionally,  the Equipment and Consulting segment was dependent
upon one customer,  who accounted for 17% and 63% of the segment's  revenues for
the nine months ended March 31, 2005 and March 31, 2004, respectively.

The Company made  purchases from two data and voice service  providers  included
within the Managed  Service  Charges and Voice Services  segment that aggregated
approximately  80% and 70% and 86% and 85% of the total cost of revenue  for the
nine months ended March 31, 2005 and March 31, 2004, respectively.

                                       13


<PAGE>
                     NETWOLVES CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

                   NINE MONTHS ENDED MARCH 31, 2005 AND 2004



7    Income taxes


     The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
                                                      For the nine months ended
                                                              March 31,
                                                    --------------------------------

                                                          2005               2004
                                                    -------------      -------------
              <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 2014 through 2024 and have not been  recognized  in the
     accompanying  consolidated  financial statements as a result of a valuation
     allowance against the deferred tax asset.

                                       14
<PAGE>


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


     Forward-Looking Statements

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

     Overview

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

     We operate in three segments.  The Voice Services  segment,  which operates
     worldwide,   provides  voice  services  including  switched  and  dedicated
     outbound,  switched and dedicated  toll-free  inbound,  dedicated T1 access
     loops,  calling  and debit  cards,  and  conference  calling.  The  Managed
     Services  Charges  ("MSC" or  Managed  Services)  segment,  which  operates
     worldwide,  provides  network  and  security  technology  and a variety  of
     recurring  managed data  services.  The Equipment and  Consulting  segment,
     which operates  worldwide,  delivers  networking and security equipment and
     software  as well as provides  consulting  services on a fee for service or
     project basis.

     We have created an offering of managed  products and services that meet the
     necessary requirements for organizations to move off expensive private data
     networks  while  attaining  the  benefits  and  flexibility  of public data
     network.  Additionally, our proprietary technology provides a high level of
     security  through its  integrated  approach to  management,  monitoring and
     interoperability   for  small  and  medium  remote   enterprise   locations
     (locations  with less than 500 network users).  We sell a Managed  Services
     Offering (MSO) that provides  complete  system  solutions to  organizations
     needing cost-effective network security features (firewall, virtual private
     networking,  routing, intrusion detection,  content filtering, email, etc.)
     delivered on low-cost  commodity  hardware with Internet-  based  expansion
     capabilities. Our patent-pending system technology enables organizations to
     achieve corporate  Information  technology (IT) and e-business  initiatives

                                       15
<PAGE>
     through the  deployment of easily  installable  perimeter  office  security
     platforms,  coupled with our secure remote monitoring and management ("SRM2
     TM")  system.  SRM2 TM provides  centralized  management  capabilities  for
     hundreds  or  thousands  of remote  locations  without  risking  networking
     integrity because it does not require an administrative  port on the remote
     device,  which  is  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

     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, 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 104 "Revenue  Recognition"  ("SAB 104")
     regarding revenue  recognition in financial  statements.  SOP 97-2 provides
     additional guidance with respect to multiple element arrangements; returns,
     exchanges,  and  platform  transfer  rights;  resellers;  services;  funded
     software development arrangements; and contract accounting.

     Revenues  generated  from the resale of voice  services are  recognized  as
     services are provided and are included within Voice Services revenue in the
     accompanying condensed consolidated statements of operations.

     Revenues  generated from the sale of recurring  services within the Managed
     Service segment are recognized as services are provided.

     Revenue from the sale of hardware,  where our software is not essential, is
     recognized within Equipment & Consulting revenue at the time of delivery of
     hardware products to the customer,  when the fee is fixed and determinable,
     collectibility  is probable and a contract  signed by both parties has been
     obtained. Maintenance or monitoring revenue that is bundled with an initial
     license fee is deferred and recognized  ratably within MSC revenue over the
     maintenance or monitoring period in the accompanying condensed consolidated
     statements of operations.  Amounts  deferred for  maintenance or monitoring
     are  based  on the fair  value  of  equivalent  maintenance  or  monitoring
     services sold  separately.  We have established  vendor specific  objective
     evidence ("VSOE") on all undelivered elements of our software arrangements,
     which  consists of  maintenance,  monitoring  and, at times,  training  and
     consulting.  We  use  the  residual  method  for  delivered  elements.  Our
     consulting projects are short-term in nature and are recorded as revenue in
     Equipment   and   Consulting   revenues  in  the   accompanying   condensed
     consolidated  statements of operations and comprehensive loss when services
     are provided.

                                       16
<PAGE>


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

     Allowance for doubtful accounts

     The Company provides  allowances for doubtful accounts for estimated losses
     from the  inability of customers to satisfy  their  accounts as  originally
     contemplated at the time of sale and charges actual losses to the allowance
     when  incurred.  The  calculation  for  these  allowances  is  based on the
     detailed  review  of  certain  individual  customer  accounts,   historical
     satisfaction  rates and the Company's  estimation  of the overall  economic
     conditions   affecting  the  Company's  customer  base.  If  the  financial
     condition of the Company's  customers were to deteriorate,  resulting in an
     impairment of their ability to make payments,  additional allowances may be
     required.

     Income taxes

     As part of the process of preparing our consolidated  financial  statements
     we are required to prepare our income taxes in each of the jurisdictions in
     which we operate.  This process involves  estimating our actual current tax
     exposure  together with  assessing  temporary  differences  resulting  from
     differing  treatment  of  items  for tax  and  accounting  purposes.  These
     differences  result in  deferred  tax  assets  and  liabilities,  which are
     included  within our  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, 2005 and June 30, 2004.

     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  No.  25,
     "Accounting for Stock Issued to Employees", and related interpretations, to
     account for stock-based  employee  compensation plans and reports pro forma
     disclosures  by estimating the fair value of options issued and the related
     expense in accordance with SFAS 123. Under this method,  compensation  cost
     is  recognized  for  awards of shares of common  stock or stock  options to
     directors,  officers and employees of the Company only if the quoted market
     price of the stock at the grant date (or other  measurement date, if later)
     is greater than the amount the grantee must pay to acquire the stock.

                                       17
<PAGE>



     Results of Operations

     We currently operate in three business segments, the Voice Services segment
     ("Voice  Services"),  the MSC  segment  and the  Equipment  and  Consulting
     segment ("Equipment and Consulting").

     Nine months ended March 31, 2005 and 2004

          Revenue

     Revenue  increased  to $20.3  million for the nine  months  ended March 31,
     2005,  compared to $18.2 million for the same period in the prior year. The
     increase in revenue is  attributable  to our Voice  Services  segment where
     revenue increased $2.0 million,  our MSC segment where revenue increased by
     $0.4 million  partially offset by a decrease of approximately  $0.3 million
     in our  Equipment  and  Consulting  segment.  The decrease in Equipment and
     Consulting is the result of stronger  demand for our equipment in the prior
     year from our major customer in this segment.

          Cost of revenue and gross profit margin

     Cost of revenue  increased to $12.7 million for the nine months ended March
     31, 2005,  compared to $11.7 million for the same period in the prior year.
     Cost of revenue within the Voice Services segment increased to $9.0 million
     or 38% profit margin  compared to $8.1 million or 35% profit margin for the
     same period in the prior year.  This  increased  profit margin is primarily
     attributable to our negotiation with current and new vendors to lower voice
     rates.  Cost of revenue within the MSC segment increased to $3.5 million or
     36% profit margin,  compared to $3.2 million,  or 36% profit margin for the
     same period in the prior year.  Cost of revenue  within the  Equipment  and
     Consulting segment decreased to $0.2 million, or 52% profit margin compared
     to $0.4 million or 48% profit margin for the same period in the prior year.
     The  decrease in profit  margin is due to the product  mix  comprising  the
     segment.

     Overall  gross  profit was 37% for the nine months  ended  March 31,  2005,
     compared  to 36% for the same  period in the prior  year.  The  increase in
     profit margin reflects increased sales of our more profitable  services and
     products and the effect of rate negotiations with vendors.

          General and administrative

     General and administrative  expenses increased to $5.2 million for the nine
     months ended March 31,  2005,  compared to $5.1 million for the same period
     in the prior year.

          Engineering and development

     Engineering and development  expenses decreased to $0.7 million versus $0.8
     million for the nine months ended March 31, 2005 and the same period in the
     prior year.


                                       18
<PAGE>

          Sales and marketing

     Sales and marketing  expenses increased to $3.4 million for the nine months
     ended March 31,  2005,  compared to $3.3 million for the same period in the
     prior year.


     Three months ended March 31, 2005 and 2004

          Revenue

     Revenue  increased  to $6.7  million for the three  months  ended March 31,
     2005,  compared to $6.2 million for the same period in the prior year.  The
     increase in revenue is  attributable  to our Voice  Services  segment where
     revenue increased $0.6 million,  offset by a decrease of approximately $0.1
     million in our MSC segment.

          Cost of revenue and gross profit margin

     Cost of revenue  increased to $4.3 million for the three months ended March
     31,  2005,  compared to $3.9 million for the same period in the prior year.
     Cost of revenue within the Voice Services segment increased to $3.1 million
     or 37% profit margin  compared to $2.8 million or 34% profit margin for the
     same  period in the prior  year.  Cost of revenue  within  the MSC  segment
     increased to $1.2 million or 33% profit  margin,  compared  $1.0 million or
     45%  profit  margin for the same  period in the prior  year.  The  improved
     profit margin is primarily  attributable to our sale of more profitable MSC
     services.

     Overall  gross  profit  margin was 36% for the three months ended March 31,
     2005, compared to 37% for the same period in the prior year.

          General and administrative

     General and administrative expenses decreased to $1.7 million for the three
     months ended March 31, 2005, compared to $1.8 million in the same period in
     the prior year.

          Engineering and development

     Engineering and development  expenses remained flat at $0.2 million for the
     three months  ended March 31,  2005,  compared the same period in the prior
     year.

                                       19
<PAGE>


          Sales and marketing

     Sales and marketing expenses increased to $1.2 million for the three months
     ended March 31,  2005,  compared to $1.1 million for the same period in the
     prior year.


     Liquidity and Capital Resources

     Our operating  activities  used cash of $1.8 million during the nine months
     ended March 31, 2005, as compared to using $1.9 million for the same period
     in the prior year.  Cash used by operations for the nine months ended March
     31,  2005 was  primarily  attributable  to a net loss of $1.7  million,  an
     increase in accounts  receivables  and inventories of $0.9 million and $0.4
     million, respectively,  partially offset by non-cash expenses totaling $1.3
     million,  including equity compensation of $0.3 million and amortization of
     $0.7 million.  Cash used by operations  for the nine months ended March 31,
     2004 was primarily  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 $1.8 million.

     Our investing  activities  used cash of $0.6 million during the nine months
     ended March 31,  2005,  as compared to $0.1  million for the same period in
     the prior year. Cash used in investing activities for the nine months ended
     March 31, 2005 was primarily attributable to a cash payment of $0.5 million
     paid to acquire customers from their previous telecommunications  provider.
     In addition to the cash  payment,  the company  signed an interest  bearing
     note payable for $0.8 million,  payable in four annual  installments.  Cash
     used in investing  activities  for the nine months ended March 31, 2004 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.

     Our financing  activities were not significant during the nine months ended
     March 31, 2005,  as compared to providing  cash of $5.4 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
     the  Company's   convertible   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.


     Management's plan

     Historically, our main source of liquidity has been equity financing, which
     was used to fund historical losses from operating activities.  Based on our
     current cash position of approximately  $3.0 million and our investments in
     growth,  there  is  no  plan  or  requirement  for  additional   financing.
     Additionally,  we  believe  the  Company  has  sufficient  cash to meet our
     funding needs for at least the next 12 months.

                                       20
<PAGE>


ITEM 3  CONTROLS AND PROCEDURES

     (a) Disclosure controls and procedures. As of the end of the Company's most
     recently  completed fiscal quarter (the registrant's  fourth fiscal quarter
     in the case of an annual report) covered by this report,  the Company cared
     out an  evaluation,  with the  participation  of the Company's  management,
     including  the  Company's  Chief  Executive  Officer  and  Chief  Financial
     Officer,  of the  effectiveness  of the Company's  disclosure  controls and
     procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that
     evaluation,  the  Company's  Chief  Executive  Officer and Chief  Financial
     Officer concluded that the Company's disclosure controls and procedures are
     effective  in ensuring  that  information  required to be  disclosed by the
     Company  in the  reports  that it files or  submits  under  the  Securities
     Exchange Act is recorded,  processed,  summarized and reported,  within the
     time periods specified by the SEC's rules and forms.

     (b) Changes in internal controls over financial reporting.  There have been
     no changes in the Company's internal controls over financial reporting that
     occurred  during the  Company's  last  fiscal  quarter to which this report
     relates  that  have  materially  affected,  or  are  reasonably  likely  to
     materially affect, the Company's internal control over financial reporting.

                                       21
<PAGE>




PART II - OTHER INFORMATION


ITEM 1.   LEGAL PROCEEDINGS

          Not applicable.


ITEM 2.   UNREGISTERED SALES OF EQUITY 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

          None


ITEM 5.   OTHER INFORMATION

          Not applicable.


ITEM 6. EXHIBITS


     31   CEO  and  CFO   certifications   pursuant   to  Section   302  of  the
          Sarbanes-Oxley Act of 2002.
     32   CEO  and  CFO   certifications   pursuant   to  Section   906  of  the
          Sarbanes-Oxley Act of 2002.

                                       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 16, 2005

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