United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549

                                   FORM 10-QSB

           [X]  QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended December 31, 2004

           [_]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                                  EXCHANGE ACT

        For the transition period from ______________ to ________________

                         Commission File Number: 0-24857


                                ITS NETWORKS INC.
        (Exact name of small business issuer as specified in its charter)


            Florida                                     52-2137517
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
 incorporation or organization)


         Parque Tecnologico de Andalucia, Edif. Estepona Business Park 2
        C/ Severo Ochoa, No. 16-20, 1a, Campanillas, Malaga 28590, Spain
                    (Address of principal executive offices)


                 Issuer's telephone number, including area code:
                               011-34-95-202-9400


                                       N/A
               --------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                   PROCEEDINGS DURING THE PRECEDING FIVE YEARS

      Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes [ ] No [ ]

APPLICABLE  ONLY  TO  CORPORATE  ISSUERS

      State the number of shares outstanding of each of the issuer's classes of
common equity, as of the last practicable date: 76,189,197 shares at February 7,
2005.

      Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>

                                ITS NETWORKS INC.

                                      INDEX

PART  I. FINANCIAL INFORMATION

Item  1. Financial Statements:

      Condensed Consolidated Balance Sheet as of December
      31, 2004 (Unaudited)                                                     3

      Condensed Consolidated Statements of Operations for
      the three months ended December 31, 2004 and
      2003(Unaudited)                                                          4

      Condensed Consolidated Statements of Changes in
      Stockholders' Deficit for the three months ended
      December 31, 2004 and 2003(Unaudited)                                    5

      Condensed Consolidated Statements of Cash Flows for
      the three months ended December 31, 2004 and 2003
      (Unaudited)                                                              6

      Notes to Condensed Consolidated Financial Statements                     8

Item  2. Management's Discussion and Analysis or Plan of
         Operations                                                           13

Item  3. Controls and Procedures                                              16

PART  II. OTHER INFORMATION

Item  1. Legal Proceedings                                                    17

Item  2. Changes in Securities                                                17

Item  3. Defaults upon Senior Securities                                      17

Item  4. Submission of Matters to a Vote of Security Holders                  17

Item  5. Other Information                                                    17

Item  6. Exhibits and Reports on Form 8-K                                     17

Signatures                                                                    18


                                        2
<PAGE>

                          PART I FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS

                                ITS NETWORKS INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2004
                                   (Unaudited)

                                     ASSETS

CURRENT ASSETS:

 Cash and cash equivalents                                    $     62,000
 Accounts receivable - trade, net of allowance
  for doubtful accounts of $1,375,000                              435,000
 Accounts receivable - other                                        77,000
 Inventory                                                          50,000
 Prepaid expenses                                                    2,000
                                                              ------------
   Total current assets                                            626,000
                                                              ------------

PROPERTY AND EQUIPMENT, NET                                        636,000
                                                              ------------
OTHER ASSETS:
 Vendor deposits                                                   199,000
                                                              ------------
                                                              $  1,461,000
                                                              ============

                     LIABILITIES AND STOCKHOLDERS' (DEFICIT)

CURRENT LIABILITIES:
 Accounts payable - trade                                     $  3,500,000
 Accrued liabilities                                               933,000
 Notes payable to bank                                             248,000
 Current portion of payment obligation to
  taxing authority                                                 110,000
 Loans from related parties                                      2,252,000
 Deferred income                                                 2,029,000
                                                              ------------
   Total current liabilities                                     9,072,000
                                                              ------------

LONG-TERM DEBT
 Payment obligation to tax authority, net
  of current portion shown above                                   176,000
                                                              ------------

STOCKHOLDERS' DEFICIT:
 Preferred stock; par value of $0.001,
  5,000,000 shares authorized, no shares outstanding                    --
 Common stock; par value of $0.001,
  200,000,000 shares authorized, 76,189,197
  shares outstanding                                                76,000
 Additional paid-in capital                                     12,619,000
 Accumulated (deficit)                                         (17,827,000)
 Effect of cumulative translation adjustment                    (2,655,000)
                                                              ------------
   Total stockholders' (deficit)                                (7,787,000)
                                                              ------------
                                                              $  1,461,000
                                                              ============

                 See accompanying summary of accounting policies
                     and notes to the financial statements.


                                       3
<PAGE>

                                ITS NETWORKS INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE THREE MONTHS ENDED DECEMBER 31, 2004 AND 2003
                                   (Unaudited)

                                                       Three  Months  Ended
                                                            December 31,
                                                            ------------
                                                        2004           2003
                                                        ----           ----
SALES                                              $  1,510,000    $  1,533,000

COST OF GOODS SOLD (exclusive of
 depreciation shown separately below)                   988,000       1,457,000
                                                   ------------    ------------

GROSS PROFIT                                            522,000          76,000
                                                   ------------    ------------
OPERATING EXPENSES:
 Selling, general and administrative expenses           821,000         592,000
 Depreciation                                            94,000          79,000
                                                   ------------    ------------
      Total operating expenses                          915,000         671,000
                                                   ------------    ------------

(LOSS) FROM OPERATIONS                                 (393,000)       (595,000)
                                                   ------------    ------------
OTHER INCOME (EXPENSES):
 Interest expense                                      (138,000)        (27,000)
                                                   ------------    ------------
(LOSS) FROM CONTINUING
 OPERATIONS BEFORE INCOME TAXES                        (531,000)       (622,000)

PROVISION FOR INCOME TAXES                                   --              --
                                                   ------------    ------------
(LOSS) FROM CONTINUING OPERATIONS                      (531,000)       (622,000)
                                                   ------------    ------------
DISCONTINUED OPERATIONS:
  Income attributable to discontinued operations             --          35,000
                                                   ------------    ------------
NET (LOSS)                                         $   (531,000)   $   (587,000)
                                                   ============    ============

BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
  Loss from continuing operations                  $      (0.01)   $      (0.03)
  Discontinued operations                          $      (0.00)   $      (0.00)
                                                   ------------    ------------
  Net Loss                                         $      (0.01)   $      (0.03)
                                                   ============    ============
AVERAGE COMMON AND COMMON
 EQUIVALENT SHARES OUTSTANDING                       71,039,464      22,420,297
                                                   ------------    ------------
THE COMPONENTS OF COMPREHENSIVE LOSS:
 Net (loss)                                        $   (531,000)   $   (587,000)
 Foreign currency translation adjustment               (641,000)       (710,000)
                                                   ------------    ------------

COMPREHENSIVE (LOSS)                               $ (1,172,000)   $ (1,297,000)
                                                   ============    ============

                 See accompanying summary of accounting policies
                     and notes to the financial statements.


                                       4
<PAGE>

                                ITS NETWORKS INC.
      CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
              FOR THE THREE MONTHS ENDED DECEMBER 31, 2004 AND 2003
                                   (Unaudited)

<TABLE>
<CAPTION>
                                        Common Stock
                                        ------------
                                       Number   $0.001     Additional    Prepaid                         Other           Total
                                         of       par       Paid-In    Syndication     Accumulated   Comprehensive  Stockholders'
                                       Shares   Value       Capital       Fees          Deficit          Loss          Deficit
                                   ----------   -------   -----------   ---------    ------------    -----------    -----------
<S>                                <C>          <C>       <C>           <C>          <C>             <C>            <C>
Balance, September 30, 2003        22,420,278   $22,000   $ 8,565,000   $(418,000)   $(14,094,000)   $(1,571,000)   $(7,496,000)

Common stock issued for cash        1,150,000     2,000       113,000          --              --             --        115,000
Foreign currency translation
    adjustment                             --        --            --          --              --       (710,000)      (710,000)
Net (loss) for the three months
     ended December 31, 2004               --        --            --          --        (587,000)            --       (587,000)
                                   ----------   -------   -----------   ---------    ------------    -----------    -----------
Balance, December 31, 2003         23,570,278   $24,000   $ 8,678,000   $(418,000)   $(14,681,000)   $(2,281,000)   $(8,678,000)
                                   ==========   =======   ===========   =========    ============    ===========   ============
Balance, September 30, 2004        60,588,280   $61,000   $11,858,000   $      --    $(17,296,000)   $(2,014,000)   $(7,391,000)

Common stock issued for
  conversion of debt to equity     14,600,917    14,000       662,000          --              --             --        676,000
Common stock issued for
   loan fee consideration           1,000,000     1,000        99,000          --              --             --        100,000
Foreign currency translation
    adjustment                             --        --            --          --              --       (641,000)      (641,000
Net (loss) for the three months
     ended December 31, 2004               --        --            --          --        (531,000)            --       (531,000)
                                   ----------   -------   -----------   ---------    ------------    -----------   ------------
Balance, December 31, 2004         76,189,197   $76,000   $12,619,000   $      --    $(17,827,000)   $(2,655,000)  $(7,787,000)
                                   ==========   =======   ===========   =========    ============    ===========   ============
</TABLE>

                See accompanying summary of accounting policies
                       and notes to financial statements.


                                       5
<PAGE>

                                ITS NETWORKS INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE THREE MONTHS ENDED DECEMBER 31, 2004 AND 2003
                                   (Unaudited)

                                             Three months ended December 31,
                                             -------------------------------
                                                   2004         2003
                                                   ----         ----

CASH  FLOWS  FROM  OPERATING  ACTIVITIES:

  Net  (loss)                                   $(531,000)   $(587,000)
  Adjustments to reconcile net (loss) to
    net cash used in operating activities:
    Depreciation                                   94,000       79,000
    Loss on write down  and  disposition
      of  assets                                       --       24,000
    Non cash expenditures paid with stock         276,000           --
  Decrease (increase) in operating assets:
    Accounts  receivable - trade                  (76,000)    (166,000)
    Accounts  receivable - other                   (3,000)      97,000
    Inventory                                      (4,000)      (5,000)
    Prepaid  expenses                                  --      (20,000)
    Vendor  and  other  deposits                   (9,000)      (4,000)
Increase (decrease) in operating liabilities:
    Accounts payable and accrued liabilities      454,000     (374,000)
    Deferred income and deposits                  264,000      945,000
                                                ---------    ---------
      Net  cash provided by (used  in)
        operating  activities                     465,000      (11,000)
                                                ---------    ---------

CASH  FLOWS  FROM  INVESTING  ACTIVITIES:
  Purchase  of  property  and  equipment          (51,000)      (7,000)
                                                ---------    ---------
      Net  cash  (used  in)  investing
        activities                                (51,000)      (7,000)
                                                ---------    ---------
CASH  FLOWS  FROM  FINANCING  ACTIVITIES:
  Loan  proceeds  from  related  parties          492,000      812,000
  Loan  proceeds  from  bank                           --       20,000
  Payment on tax agency obligation               (104,000)    (107,000)
  Payment on loan from related parties           (192,000)          --
  Proceeds  from  sale  of  common  stock              --      115,000
                                                ---------    ---------
      Net  cash  provided  by  financing
        activities                                196,000      840,000
                                                ---------    ---------
EFFECT  OF  EXCHANGE  RATE                       (641,000)    (710,000)
                                                ---------    ---------
NET  INCREASE  (DECREASE) IN  CASH  AND
  CASH  EQUIVALENTS                               (31,000)     112,000

CASH  AND  CASH  EQUIVALENTS,
  BEGINNING  OF  YEAR                              93,000      159,000
                                                ---------    ---------
CASH  AND  CASH  EQUIVALENTS,
  END  OF  YEAR                                 $  62,000    $ 271,000
                                                =========    =========

                 See accompanying summary of accounting policies
                     and notes to the financial statements.


                                       6
<PAGE>

                               ITS NETWORKS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE THREE MONTHS ENDED DECEMBER 31, 2004 AND 2003
                                   (Unaudited)

                                               Three Months Ended December  31,
                                               --------------------------------
                                                        2004       2003
                                                        ----       ----
SUPPLEMENTAL  DISCLOSURES  OF  CASH  FLOW
  INFORMATION:

  Cash paid during the year for:
    Interest                                          $     --   $ 27,000
                                                      ========   ========
SUPPLEMENTAL  DISCLOSURE  OF  NONCASH
  TRANSACTIONS:

  Long-term debt converted to common stock            $500,000   $     --
  Common stock issued for interest on notes payable   $176,000   $     --
  Common stock issued for services received           $100,000   $     --

                 See accompanying summary of accounting policies
                       and notes to financial statements.


                                       7
<PAGE>

                       ITS NETWORKS INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004
                                   (Unaudited)

1.    THE COMPANY

      ITS Networks Inc. (the "Company") was  incorporated  under the laws of the
State  of  Florida  on  November  23,  1998.  However,  it did not  conduct  any
significant operations until December 2000 when there was a change in control of
the Company.  The new controlling  stockholders  changed its corporate name from
Technology  Systems  International,  Inc. to ITS Networks Inc. and increased the
authorized  number of shares of common stock.  In connection  with the change of
control of the Company in December 2000, the Company  acquired all of the issued
and outstanding capital stock of ITS Europe, S.L., a Spanish  telecommunications
company that was organized in 1995. As a result, ITS Europe, S.L. ("ITS Europe")
became a wholly owned subsidiary of the Company.

      On December 15, 2002, the Company  consummated a stock exchange  agreement
with the majority  stockholders of Teleconnect  Comunicaciones,  S.A. (hereafter
"Teleconnect"),  a company  formed  under  the laws of Spain  which  operates  a
prepaid  telephone  card  business in Spain.  The Company  agreed to issue up to
3,000,000  shares  of  its  restricted  common  stock  to  the  stockholders  of
Teleconnect  in reliance upon  Regulation S under the Securities Act of 1933 and
also  agreed  to  assume  and  pay up to  approximately  2,200,000  Euro  of the
outstanding  debts of Teleconnect;  during September 2003, the Company agreed to
the  issuance  of a  total  of  5,000,000  shares  of its  Common  Stock  to the
stockholders  of  Teleconnect to resolve  disputes  regarding the Stock Exchange
Agreement.  During the 2003 fiscal year, the operating  activities of ITS Europe
S.L.  were  assumed  by  Teleconnect.  As a  result,  substantially  all  of the
operations  of the Company at the time were  conducted by  Teleconnect  and were
comprised of pre-paid telephone services and some post-paid services in Spain.

      The  Company  is engaged in the  telecommunication  industry  in Spain and
offers telecommunications services for home and business use.

      During  October  2003,  the  Company had to secure the  continuity  of its
connection and business  relations  with UNI2 and sold its postpaid  business to
Affinalia,  a Spanish post-paid  accounts  reseller,  also working together with
UNI2.  As a  result,  the  Company  sold its  post-paid  telephone  business  to
Affinalia  so that  its net  credit  risk for UNI2  decreased  drastically.  The
Company is now only engaged in prepaid telephone voice services.

      During the 2004 fiscal year, ITS Networks  management focused on improving
margins  on its  prepaid  business  by  reducing  operating  costs and  reducing
outstanding  debt.  As a  result,  it has  decreased  its  debt and  looked  for
additional  debt/equity funding. Its telephone services have been redefined as a
part of a new marketing mix and certain services relaunched with a raw image and
brand name associated  with the prepaid  telephone card business of Teleconnect.
The Company has constantly  focused on reducing its operating costs to a minimum
and is still taking measures which will further reduce its monthly expenses. The
Company's  objective was to have a monthly  breakeven  situation before year end
even if no additional funds from investors were to arrive.

      In  parallel  to the cost  reductions,  the  Company  has  developed a new
rechargeable  prepaid  telephone card. Other marketing actions are being planned
to bring up sales  levels  to help  reach a  monthly  breakeven  as  quickly  as
possible.

2. GOING CONCERN

      The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.

      As shown in the  accompanying  financial  statement,  the Company incurred
losses of $(531,000) and $(587,000) for the three months ended December 31, 2004
and 2003, respectively. In addition, the Company has incurred substantial losses
since its inception. As of December 31, 2004, current liabilities exceed current
assets by $ 8,446,000 and total  liabilities  exceed total assets by $7,787,000.
These factors raise  substantial  doubts about the Company's ability to continue
as a going concern.

      These financial  statements do not include any adjustments relating to the
recoverability  and  classification  of  recorded  assets,  or the  amounts  and
classification  of liabilities  that might be necessary in the event the Company
cannot continue as a going concern.

      Management anticipates that it will be able to convert certain outstanding
debt into equity and that it will be able to raise  additional  working  capital
through the issuance of stock and through additional loans from investors.


                                       8
<PAGE>

      The ability of the Company to  continue  as a going  concern is  dependent
upon the Company's  ability to attain a satisfactory  level of profitability and
obtain  suitable  and  adequate  financing.  There  can  be  no  assurance  that
management's plan will be successful.

3.    SIGNIFICANT ACCOUNTING POLICIES

      Cash and  cash  equivalents.  The  Company  considers  all  highly  liquid
investments  with  maturities of three months or less when  purchased to be cash
equivalents. There are no cash equivalents at December 31, 2004.

      Property  and  equipment.  Property  and  equipment  are  stated  at cost.
Depreciation  is  provided  primarily  by  the  straight-line  method  over  the
estimated useful lives of the assets.

      Impairment  of long-lived  assets.  The Company  evaluates its  long-lived
assets to determine  whether  later  events and  circumstances  warrant  revised
estimates of useful lives or reduction in carrying value due to impairment.

      Income taxes.  The Company  accounts for income taxes in  accordance  with
Statement of Financial  Accounting  Standards  No. 109,  "Accounting  for Income
Taxes", which requires an asset and liability approach to determine deferred tax
assets and liabilities. Deferred tax assets and liabilities are determined based
upon the  differences  between  financial  reporting and tax basis of assets and
liabilities  and are  measured  using  the  enacted  tax rates and laws that are
expected to be in effect when the differences are assumed to reverse.

      Revenue  recognition.  Revenue from the sale of prepaid  calling  cards is
recognized as the cards are used.  Deferred revenues are recorded to reflect the
unused portion of calling cards that have been issued to customers.

      Loss per share.  Loss per common and common  equivalent  share is computed
based on the weighted average number of shares of Common Stock outstanding.

      Use of estimates.  The  preparation of financial  statements in conformity
with accounting  principles  generally  accepted in the United States of America
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.

      Foreign Currency Translation/Transactions.  The current assets and current
liabilities of ITS Europe, S.L. and Teleconnect, whose functional currencies are
the Euro, are generally  translated  into U.S.  dollars at the December 31, 2004
exchange rate. Long-term assets are translated at the exchange rate in effect on
the date of  acquisition.  The revenues and expenses are  translated  at average
exchange rates for the period. Resulting translation adjustments are accumulated
and reflected as a separate component of stockholders' equity.

4.    INCOME TAXES

      The Company's subsidiaries,  ITS Europe and Teleconnect, file their income
taxes on a calendar  year  basis.  Statutory  tax laws of Spain allow net losses
from  operations  to be carried  forward for a period of 15 years.  For the year
ended December 31, 2003, the available tax loss carryforwards for ITS Europe and
Teleconnect  are  (euro)4,292,000   and   (euro)11,796,000   respectively.   The
utilization of these losses expires as follows:


 Year                    ITS Europe                       Teleconnect

 2010               (euro)       11,000               (euro)           --
 2011               (euro)       25,000               (euro)           --
 2012               (euro)       63,000               (euro)           --
 2013               (euro)       79,000               (euro)           --
 2014               (euro)      713,000               (euro)      129,000
 2015               (euro)    1,319,000               (euro)      638,000
 2016               (euro)      783,000               (euro)    2,770,000
 2017               (euro)      778,000               (euro)    6,240,000
 2018               (euro)      521,000               (euro)    2,019,000
                              ---------                        ----------
Total               (euro)    4,292,000               (euro)   11,796,000
                              =========                        ==========


                                       9
<PAGE>

      The Company accounts for income taxes under Financial Accounting Standards
Number 109 ("SFAS 109"), "Accounting for Income Taxes". Deferred income tax
assets and liabilities are determined based upon differences between financial
reporting and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to be reversed.

      At September 30, 2004, the Company had US net operating loss carryforwards
of approximately $1,059,000 for federal income tax purposes.

      The US carryforward expiration years and amounts are as follows:

        Year     Amount
        2021   $    6,000
        2022      191,000
        2023      542,000
        2034      320,000
                ----------
                $1,059,000
                ==========

      Deferred tax assets and liabilities are comprised of the following as of
December 31, 2004:

                Deferred income tax assets:
                    Tax effect of impairment of
                        goodwill in excess of amounts
                        amortized for income tax
                        reporting purposes              $   996,000
                    Tax effect of net operating
                        loss carryforward                 1,059,000
                                                        -----------
                                                          2,055,000

                Valuation allowance                      (2,055,000)
                                                        -----------
                Net deferred tax asset                  $        --
                                                        ===========

      The Company has a deferred tax asset principally due to net operating loss
carryforwards.  This  deferred  tax asset has been offset in full by a valuation
allowance, as the Company cannot be assured at this time that it will be able to
utilize these loss carryforwards.

      A reconciliation of the difference between the expected tax benefit at the
U.S.  federal  statutory rate and the Company's of effective tax benefit for the
three months ended December 31, 2004 and 2003 are as follows:

                                             December 31,
                                             ------------
                                          2004         2003
                                          ----         ----
        Income tax benefit - Federal   $ 180,000    $ 200,000

        Less valuation allowance        (180,000)    (200,000)
                                       ---------    ---------

                        Total          $      --    $      --
                                       =========    =========


                                       10
<PAGE>

5.    LITIGATION

      A  shareholder  filed suit  against the Company  claiming  the right to an
additional  623,100  shares of the  Company's  common stock and 246,624 euros in
damages due to the failure to issue these shares on a timely  basis.  Management
believes  this suit to be without  merit and has not accrued any  liability  for
this litigation as of December 31, 2004.

      In the normal  course of its  operations,  the Company  has,  from time to
time, been named in legal actions seeking monetary damages. While the outcome of
these matters cannot be estimated with  certainty,  management  does not expect,
based  upon  consultation  with  legal  counsel,  that they will have a material
effect  on  the  Company's  business  or  financial   condition  or  results  of
operations, except that as of December 31, 2004, the Company has accrued 136,000
Euros for the settlement of pending litigation.

6.    LOANS PAYABLE

      At December 31,  2004,  the Company has loans  payable to related  parties
totaling $ 2,252,000  and a note  payable to a bank  totaling  $248,000,  all of
which is due within the next twelve  months.  During  November 2004, the Company
issued  1,000,000  shares of its  restricted  common stock to a related party as
additional  consideration for a loan advance of $197,000.  This stock was valued
at $100,000 and was treated as additional  interest  expense  during the quarter
ended December 31, 2004.

7.    REVERSE STOCK SPLIT

      On December 29, 2003,  the Company  underwent a one for two reverse  stock
split.  The  effects  of this  reverse  split are shown  retroactively  in these
financial statements and the notes thereto.

8.    SALE OF POST PAID BUSINESS

      During  November 2003, the Company  entered into an agreement with a third
party to sell its post-paid long distance  business.  The sales price was set at
550,000 euro subject to certain price  adjustments  related to sales volumes for
the month of April  2004.  Although a final  settlement  agreement  has not been
reached,  the sale was recorded at 481,000  euros,  based on  management's  best
estimate of the final settlement  price.  Dialers and other equipment with a net
book value of 89,000 euro were transferred to the purchasers resulting in a gain
of 392,000 euro ($477,000).

      The  sale  of this  fixed  line  business  was  necessary  to  ensure  the
continuity of the Company  given the financial  condition of the Company at that
time. As per the Board minutes  dated October 15, 2003,  the Board  detailed the
immediate  cash  needs of  975,000  euros to avoid  the sale of the  fixed  line
business as well as to satisfy some other creditors and cover the operating loss
being carried forward.

      Management's efforts to raise money from bank loans, existing shareholders
or new investors  under  negotiation,  were not  successful due to the company's
financial  situation  at that  point  in time as  well as the  very  short  time
available to raise this amount in order to avoid the main carrier paralyzing the
company's operations.

      The proceeds from the sale of the fixed line business were used to satisfy
the situation with the main carrier.

      In accordance with the requirements of Accounting  Principal Board Opinion
30, the  discontinued  operations  were reflected after the loss from continuing
operations in the financial statements.

9.    AGREEMENT TO SELL ADDITIONAL SHARES OF COMMON STOCK

      On  October  22,  2003,  an  investment   agreement  was  reached  between
GreenRidge  Investment Ltd  ("GreenRidge")  and ITS Networks by which GreenRidge
would have injected  2,900,000 Euros into the Company in exchange for 60% of the
total outstanding shares of the Common Stock of the Company. Other associated


                                       11
<PAGE>

conditions  included the conversion of all  shareholder  debt to equity.  Due to
circumstances beyond its control, GreenRidge representatives could not carry out
the purchase within the required period of time.

      As such,  the  management  of the Company  attempted to close with another
potential  investor which had showed  interest.  On November 28, 2003,  Henk van
Elst signed an investment agreement whereby he would invest 2,900,000 Euros into
the Company with very similar  conditions to  GreenRidge,  but without,  amongst
other  things,  the  obligation  for  existing  debt  holders to  convert  their
outstanding debt in the Company into equity.

      As agreed between the parties, funds to be received from Mr. van Elst will
be used for: (i) the last phase of the restructuring (i.e. solving the financial
situation with main carrier UNI2); (ii) increasing the network  capacity;  (iii)
providing  bank  guarantees  and/or  prepayments  to carriers  to  increase  the
potential  traffic  volume;  (iv)  paying back  certain  bridge  loans;  and (v)
additional working capital.

      Hence,  this  agreement  would have  provided the Company with  sufficient
funds to repay major debts, as well as providing the necessary operating capital
to expand its business  and be more  competitive.  However,  the Company did not
receive the investment proceeds from Mr. van Elst.

      Due to the U.S.  Patriot's  Act, the injections of funds from Mr. van Elst
were delayed.  The Company was informed that the funds were to be made available
during the month of  February  2004.  These funds were  necessary  to ensure the
continued operations of the Company.

      When these funds did not arrive,  the Company hired  financial  consultant
EuroPartners  Company  Limited to support the  management  of the Company in the
fund  raising  process  and on May  13,  2004,  management  signed  a  Placement
Agreement with Euro Partners Company Ltd. whereby the former reserved for future
investors  the  option on 60% of the  total  share  capital  of the  Company  in
exchange for the full  injection of  $5,000,000.  At that time,  May 2004,  Euro
Partners had advanced  negotiations with investor parties which were expected to
come to fruition  before the end of the calendar  year 2004.  As of December 31,
2004, the Company had not received any confirmation  from  EuroPartners  Company
Limited that the funds would arrive.

      The  Company  reserves  itself the right to file for  damages to cover the
costs  incurred and the loss of business as a result of the lack of  fulfillment
of the obligation of EuroPartners  Company  Limited.  The Board will decide when
and if any action is taken.

      In the  meantime,  without  any  funds  from new  investors,  the  current
majority shareholder and related parties have been covering the operating losses
of the Company during that period.


                                       12
<PAGE>

ITEM  2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR RESULTS OF OPERATIONS

IN ADDITION TO HISTORICAL  INFORMATION,  MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATIONS MAY INCLUDE CERTAIN  FORWARD-LOOKING  STATEMENTS,  INCLUDING,
BUT NOT LIMITED TO, THOSE RELATED TO THE GROWTH AND STRATEGIES, FUTURE OPERATING
RESULTS AND FINANCIAL  POSITION AS WELL AS ECONOMIC AND MARKET EVENTS AND TRENDS
OF THE COMPANY.  ALL FORWARD-LOOKING  STATEMENTS MADE BY THE COMPANY,  INCLUDING
SUCH STATEMENTS HEREIN, INCLUDE MATERIAL RISKS AND UNCERTAINTIES AND ARE SUBJECT
TO CHANGE BASED ON FACTORS BEYOND THE CONTROL OF THE COMPANY.  ACCORDINGLY,  THE
COMPANY'S  ACTUAL RESULTS AND FINANCIAL  POSITION COULD DIFFER  MATERIALLY  FROM
THOSE  EXPRESSED  OR IMPLIED  IN ANY  FORWARD-LOOKING  STATEMENT  AS A RESULT OF
VARIOUS FACTORS, INCLUDING WITHOUT LIMITATION FACTORS DESCRIBED IN THE COMPANY'S
PREVIOUS  FILINGS WITH THE SECURITIES AND EXCHANGE  COMMISSION  REGARDING  RISKS
AFFECTING THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

      The following discussion of the Company's consolidated financial condition
and  results  of  operations  should be read in  connection  with the  Company's
condensed   consolidated   financial  statements  and  notes  thereto  appearing
elsewhere herein. Factors that could cause or contribute to differences from the
condensed  consolidated  financial  statements include,  but are not limited to,
risks and uncertainties  related to the need for additional funds, the growth of
its operations and the ability of the Company to operate profitably.

Significant  Accounting  Estimates  and  Policies

CASH AND CASH EQUIVALENTS - The Company considers all highly liquid  investments
with  maturities of three months or less when purchased to be cash  equivalents.
There are no cash equivalents at December 31, 2004.

CONSOLIDATION  POLICIES - The  accompanying  consolidated  financial  statements
include the  accounts of the  Company and all of its wholly  owned and  majority
owned subsidiaries.  Intercompany transactions and balances have been eliminated
in consolidation.

REVENUE  RECOGNITION  -  Revenues  from the sale of  prepaid  calling  cards are
recognized at the time the cards are used.  Unused time is reflected in deferred
revenue until the time is utilized or the card reaches its expiration  date. The
Company had deferred revenues of $2,029,000 as of December 31, 2004.

INVENTORY - Inventory  consists  primarily of unused calling cards.  Inventories
are stated at the lower of cost determined on the first in first out method,  or
cost, whichever is less.

PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation
is provided  primarily by the  straight-line  method over the  estimated  useful
lives of the assets.  Maintenance  and repairs  are charged to  operations  when
incurred.

IMPAIRMENT OF LONG-LIVED ASSETS - The Company evaluates its long-lived assets to
determine  whether later events and  circumstances  warrant revised estimates of
useful lives or a reduction in carrying value due to impairment.

INCOME  TAXES - The  Company  accounts  for  income  taxes  in  accordance  with
Statement of Financial  Accounting  Standards  No. 109,  "Accounting  for Income
Taxes", which requires an asset and liability approach to determine deferred tax
assets and liabilities. Deferred tax assets and liabilities are determined based
upon the  differences  between  financial  reporting and tax bases of assets and
liabilities  and are  measured  using  the  enacted  tax rates and laws that are
expected to be in effect when the differences are assumed to reverse.

LOSS PER SHARE - Loss per common and common  equivalent  share is computed based
on the weighted average number of common shares outstanding.

USE OF ESTIMATES - The  preparation of financial  statements in conformity  with
accounting  principles  generally  accepted  in the  United  States  of  America
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.

FOREIGN  CURRENCY  TRANSLATION/TRANSACTIONS  - The assets and liabilities of ITS
Europe and  Teleconnect  whose  functional  currency is the Euro,  are generally
translated  into US dollars at the December 31, 2004  exchange  rate for current
assets  and  liabilities  and at the  historical  exchange  rate on the  date of
acquisition on property and equipment.  The revenues and expenses are translated
at average exchange rates for the periods. Resulting translation adjustments are
accumulated and reflected as a separate component of stockholders' equity.


                                       13
<PAGE>

RECLASSIFICATION  OF PRIOR YEAR BALANCES - The  classification  of certain items
within the  financial  statements  for the three months ended  December 31, 2003
have been  changed  to be  consistent  with the  classifications  adopted by the
Company in 2004.

NEW  ACCOUNTING  PRONOUNCEMENTS  - In April 2003,  the FASB issued SFAS No. 149,
"Amendment  of Statement 133 on Derivative  Instruments  and Hedging  Activities
(SFAS  149)".  SFAS 149  amends and  clarifies  certain  derivative  instruments
embedded in other contracts, and for hedging activities under SFAS 133. SFAS 149
is effective for certain contracts entered into or modified by the Company after
June 30, 2003. The adoption of SFAS 149 had no impact on the Company's financial
position, results of operations, or cash flows.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for  Instruments  with
Characteristics  of Both Debt and Equity"  (SFAS 150).  Statement  150  requires
liability classification for three types of instruments: 1) Mandatory redeemable
shares that obligate the company to deliver cash or other assets to shareholders
on fixed or determinable dates; 2) Freestanding  written put options and forward
purchase  contracts  on a  company's  own shares  that  obligate  the company to
deliver cash or other assets,  and 3) Contracts that obligate a company to issue
its own shares in amounts that are  unrelated  to, or inversely  related to, the
value of the shares.  The  adoption  of SFAS 150 had no impact on the  Company's
financial position, results of operations, or cash flows.

In November 2004,  the FASB issued SFAS No. 151 "Inventory  Costs - an amendment
of ARB No. 43,  Chapter 4".  Statement  No. 151 requires  that certain  abnormal
costs associated with the manufacturing,  freight, and handling costs associated
with inventory be charged to current  operations in the period in which they are
incurred.  The  adoption  of SFAS 151 had no impact on the  Company's  financial
position, results of operations, or cash flows.

In  December  2004,  the FASB  issued a revision  of SFAS No.  123  "Share-Based
Payment".   The  statement   establishes   standards  for  the   accounting  for
transactions in which an entity  exchanges its equity  investments for goods and
services.  It also addresses  transactions in which an entity incurs liabilities
in  exchange  for  goods or  services  that are  based on the fair  value of the
entity's  equity  instruments  or that may be settled by the  issuance  of those
equity  instruments.  The statement does not change the accounting  guidance for
share-based payments with parties other than employees.

The statement  requires a public entity to measure the cost of employee  service
received in exchange for an award of equity  instruments based on the grant-date
fair value of the award (with limited  exception).  That cost will be recognized
over the period  during  which an employee  is  required  to provide  service in
exchange  for the award  (usually  the  vesting  period).  A public  entity will
initially  measure the cost of  employee  services  received in exchange  for an
award of liability instrument based on its current fair value; the fair value of
that award will be remeasured  subsequently  at each  reporting date through the
settlement date.  Changes in fair value during the requisite service period will
be recognized as compensation over that period.

The grant-date for fair value of employee share options and similar  instruments
will  be  estimated  using   option-pricing   models  adjusted  for  the  unique
characteristics of these instruments.'

The  statement is  effective  for the quarter  after June 15, 2005.  In December
2004, the FASB issued SFAS No. 153 "Exchanges of Nonmonetary Assets-amendment of
APB Opinion No. 29".  Statement 153  eliminates  the exception to fair value for
exchanges of similar  productive assets and replaces it with a general exception
for exchange  transactions  that do not have  commercial  substance,  defined as
transactions that are not expected to result in significant  changes in the cash
flows of the  reporting  entity.  This  statement is effective  for exchanges of
nonmonetary assets occurring after June 15, 2005.

GOING  CONCERN - These  financial  statements  have been  prepared  assuming the
Company is a going  concern.  As of December  31, 2004 the Company has  negative
working  capital of $(8,446,000)  and a deficit net worth of  $(7,787,000)  This
gives rise to  substantial  doubts about the Company's  ability to continue as a
going concern.  The financial  statements do not reflect any  adjustments  which
might be required should the Company discontinue as a going concern.

COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 2004 AND 2003

      We incurred a $(531,000)  net loss for the three months ended December 31,
2004 as compared to a net loss of  $(587,000)  during the  comparable  period in
2003. A comparison of revenues and expenses for the two periods is as follows:


                                       14
<PAGE>

REVENUES

      Sales for the three months ended  December  31, 2004,  decreased  1.5 % to
$1,510,000  from  $1,533,000 for the quarter ended  December 31, 2003.  Although
revenues remained flat, 2004 revenues provided a substantial  increase in profit
margins.  During 2003,  a large  volume of cards were sold at deep  discounts to
raise cash. During 2004, the Company  discontinued the practice of selling cards
at a deep discount.

COST OF GOODS SOLD

      Cost of goods sold  decreased  32.0 % to $ 988,000 during the three months
ended  December 31, 2004 from  $1,457,000  during the same period in 2003.  This
decrease was due primarily to a better  transmission  tariffs  obtained from our
carriers.  The lower line costs are  attributable  to the  Company's  ability to
access  cheaper  carriers who required  prepayment for their services and due to
the discontinuance of the practice of selling cards at a deep discount.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

      Selling,  general and administrative  expenses increased 38.7% to $821,000
during the three months ended  December 31, 2004 as compared to $592,000 for the
comparable period in 2003. This increase is due in part to the cost of financial
consultants  engaged to assist the  Company in raising  funds and in part to the
move of the Company operations to less expensive facilities.

DEPRECIATION

      Depreciation  expense  increased 19.0% to $ 94,000 during the three months
ended December 31,2004 as compared to $79,000 for the comparable period in 2003.
This is due primarily to the acquisition of additional equipment acquired during
December 2003.

INTEREST EXPENSE

      Interest  expense  increased  411% to $138,000  during the  quarter  ended
December 31, 2004, as compared to $27,000 during the comparable  period in 2002.
This is due  primarily  to the $100,000  loan fee paid during the quarter  ended
December 31,  2004,  in  connection  with certain  bridge  financial  loans from
shareholders.

LIQUIDITY AND CAPITAL RESOURCES

      At  December  31,  2004,  the  Company  had  negative  working  capital of
approximately $(8,446,000), compared to negative working capital of $(9,673,000)
at December 31, 2003.

      The ability of the Company to satisfy its obligations  will depend in part
upon its ability to raise funds  through  the sale of  additional  shares of its
Common  Stock,  increase  borrowings,  and in part upon its  ability  to reach a
profitable level of operations of which there can be no assurances.

      The Company's  capital  resources have been provided  primarily by capital
contributions from stockholders,  stockholder loans, the exchange of outstanding
debt into Common  Stock of the Company,  and  services  rendered in exchange for
Common Stock.

      The Company  intends to sell its Common  Stock  and/or  borrow  additional
funds from investors to pay debts and for working capital.  However, there is no
assurance  that such  capital  will be  raised,  and the  Company  may seek bank
financing  and other  sources of financing to complete the payment of additional
debts of Teleconnect.

      During  November 2003, the Company  entered into an agreement with a third
party to sell its post-paid long distance  business.  The sales price was set at
550,000 euro subject to certain price  adjustments  related to sales volumes for
the month of April  2004.  Although a final  settlement  agreement  has not been
reached,  the sale was recorded at 481,000  euros,  based on  management's  best
estimate of the final settlement  price.  Dialers and other equipment with a net
book value of 89,000 euro were transferred to the purchasers resulting in a gain
of 392,000 euro ($477,000).

      The  sale  of this  fixed  line  business  was  necessary  to  ensure  the
continuity of the Company  given the financial  condition of the company at that
time. As per the Board minutes  dated October 15, 2003,  the Board  detailed the
immediate  cash  needs of  975,000  euros to avoid  the sale of the  fixed  line
business as well as to satisfy some other creditors and cover the operating loss
being carried forward.

      Management's efforts to raise money from bank loans, existing shareholders
or new investors  under  negotiation,  were not  successful due to the Company's
financial  situation  at that  point  in time as  well as the  very  short  time
available to raise this amount in order to avoid the main carrier paralyzing the
Company's operations.


                                       15
<PAGE>

      The proceeds from the sale of the fixed line business were used to satisfy
the situation with the main carrier.

      In accordance with the requirements of Accounting  Principle Board Opinion
30, the  discontinued  operations  were reflected after the loss from continuing
operations in the financial statements.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

      The following table is a recap of the Company's contractual obligations as
of December 31, 2004.

       Contractual Obligations                      Payments Due by Period
       -----------------------                      ----------------------

                                                    Less Than       One to
                                         Total       One Year     Three Years
                                       --------      --------      --------
        Long-term  Debt                $286,000      $110,000      $176,000

        Operating  Leases              $160,000        63,000        97,000
                                       --------      --------      --------

        Total Contractual Cash
        Obligations                    $446,000      $173,000      $273,000
                                       ========      ========      ========

ITEM  3. CONTROLS AND PROCEDURES

      The   Company's    Chief    Executive    Officer   and   Chief   Financial
Officer/Principal Accounting Officer (collectively, the Certifying Officers) are
responsible for establishing and maintaining  disclosure controls and procedures
for the Company.  Such officers have concluded  (based upon their  evaluation of
these  controls and procedures as of a date within 90 days of the filing of this
report) that the Company's  disclosure  controls and procedures are effective to
ensure that  information  required to be disclosed by the Company in this report
is  accumulated  and  communicated  to the Company's  management,  including its
principal executive officers as appropriate, to allow timely decisions regarding
required disclosure.

      The Certifying Officers also have indicated that there were no significant
changes  in  the  Company's  internal  controls  or  other  factors  that  could
significantly  affect such controls  subsequent to the date of their evaluation,
and there were no corrective actions with regard to significant deficiencies and
material weaknesses.


                                       16
<PAGE>

                                     PART II

                                OTHER INFORMATION

ITEM  1. LEGAL PROCEEDINGS

      A  shareholder  filed suit  against the Company  claiming  the right to an
additional  623,100  shares of the  Company's  common stock and 246,624 euros in
damage due to the failure to issue these  shares on a timely  basis.  Management
believes  this suit to be without  merit and has not accrued any  liability  for
this litigation as of December 31, 2004.

      In the normal  course of its  operations,  the Company  has,  from time to
time, been named in legal actions seeking monetary damages. While the outcome of
these matters cannot be estimated with  certainty,  management  does not expect,
based  upon  consultation  with  legal  counsel,  that they will have a material
effect  on  the  Company's  business  or  financial   condition  or  results  of
operations, except that as of December 31, 2004, the Company has accrued 136,000
Euros for the settlement of pending litigation.

ITEM  2. CHANGES IN SECURITIES

      During the fourth quarter of 2004, the Company issued 14,600,917 shares of
its restricted common stock to L.G.M.R. Geeris in exchange for the assumption of
500,000 euros of loans converted into equity in reliance upon Regulation S under
the Securities Act of 1933..

      An additional 1,000,000  restricted shares were issued to L.G.M.R.  Geeris
as compensation  for  facilitating a bridge loan to the Company in reliance upon
Regulation S under the Securities Act of 1933.

ITEM  3. DEFAULTS UPON SENIOR SECURITIES

      None

ITEM  4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

      In November 2004, the shareholders of the Company ratified and renewed the
Board memberships of Mr. Gomez, Mr. De Haas and Mr. Geeris.

ITEM  5. OTHER INFORMATION

      None

ITEM  6. EXHIBITS AND REPORTS ON FORM 8-K

      (A) Reports on Form 8-K:

          None

      (B) Exhibits

          31.1 Certification of Gustavo Gomez

          31.2 Certification of Herman de Haas

          32.1 Certification  of  Gustavo  Gomez  and  Herman  de  Haas


                                       17
<PAGE>

                                   SIGNATURES

      In accordance  with the  requirements  of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

February 14, 2005

                                ITS NETWORKS INC.


By:  /s/ Gustavo Gomez                    By:  /s/ Herman de Haas
   -----------------------                   ---------------------------
     Gustavo Gomez, Director,                  Herman de Haas,
     Chief Executive Officer,                  Director, Executive Vice
     President, Chief Financial                President and Chief Operating
     Officer and Treasurer                     Officer


                                       18
<PAGE>

                                INDEX TO EXHIBITS

Exhibit
No.          Description

31.1    Certification of Gustavo Gomez

31.2    Certification of Herman de Haas

32.1    Certification of Gustavo Gomez and Herman de Haas


                                       19