UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-QSB

[X]   Quarterly Report pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934

                  For the quarterly period ended MARCH 31, 2004

[_]   Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act
      of 1934

      For the transition period __________ to __________


                         Commission File Number 0-26709


                      Y3K SECURE ENTERPRISE SOFTWARE, INC.
    ------------------------------------------------------------------------
        (Exact name of small Business Issuer as specified in its charter)


            Nevada                                        98-0201259
--------------------------------             ---------------------------------
 (State or other jurisdiction of             (IRS Employer Identification No.)
 incorporation or organization)


               800 Bellevue Way NE, Suite 600, Bellevue, WA 98004
     ----------------------------------------------------------------------
                    (Address of principal executive offices)


                                 (253) 284-2935
                                -----------------
                 Issuer's telephone number, including area code


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


Check whether the issuer (1) 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 issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days [X] Yes [ ] No

State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 78,270,271 shares of $0.001 par value
common stock outstanding as of April 30, 2004.


<PAGE>


PART I - FINANCIAL INFORMATION

Item 1.   Financial Statements

               Unaudited Consolidated Balance Sheet..........................1

               Unaudited Consolidated Statements of Operations
               for the Three and Nine Months Ended
               March 31, 2004 and March 31, 2003.............................3

               Unaudited Consolidated Statements of
               Cash Flows for the Nine Months Ended
               March 31, 2004 and March 31, 2003. ...........................4

               Notes to the Unaudited Consolidated
               Financial Statements..........................................5

Item 2.   Management's Discussion and Analysis of
          Financial Condition and Results of Operations.....................15

Item 3.   Quantitative and Qualitative Disclosures About Market Risk........22

Item 4.   Controls and Procedures ..........................................22


PART II.  OTHER INFORMATION ................................................22

Item 1.   Legal Proceedings  ...............................................22

Item 2.   Changes in Securities  ...........................................22

Item 3.   Defaults Upon Senior Securities...................................24

Item 4.   Submission of Matters to a Vote of Security Holders  .............24

Item 5.   Other Information  ...............................................24

Item 6.   Exhibits   .......................................................24

Signatures..................................................................24

Certifications..............................................................25

<PAGE>

                      Y3K SECURE ENTERPRISE SOFTWARE, INC.
                      UNAUDITED CONSOLIDATED BALANCE SHEET

                                 MARCH 31, 2004

------------------------------------------------------------------------------

------------------------------------------------------------------------------

ASSETS

CURRENT
     Cash and cash equivalents                                 $      15,793
     Accounts Receivable, net of allowance of $12,500                719,556
     Prepaid expenses                                                 70,750
                                                                --------------
          TOTAL CURRENT ASSETS                                       806,099

DEPOSITS                                                              35,484
PROPERTY AND EQUIPMENT, NET (NOTE 7)                               1,089,610

ACQUIRED SUBSCRIBER BASE (NOTE 8)                                  3,823,326
                                                               ---------------
        TOTAL ASSETS                                           $   5,754,519
==============================================================================


            See Notes to Unaudited Consolidated Financial Statements.

                                       1

<PAGE>

                      Y3K SECURE ENTERPRISE SOFTWARE, INC.
                      UNAUDITED CONSOLIDATED BALANCE SHEET

                                 MARCH 31, 2004

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
LIABILITIES

CURRENT
<S>                                                                <C>
     Accounts payable and accrued liabilities                      $    2,082,248
      Loans payable (See Note 3)                                        3,805,413
      Deposits and advance billings                                       335,297
     Capital lease obligations                                            223,519
                                                                   --------------
              TOTAL CURRENT LIABILITIES                                 6,446,477
                                                                   --------------
LONG TERM LIABILITIES

     Convertible Debentures (See Note 3)                                  700,000
      Capitalized Leases-net of current portion                           129,662
                                                                   --------------

           TOTAL LIABILITIES                                            7,276,139
                                                                   --------------

COMMITMENTS AND CONTINGENCIES (NOTE 9)

SHAREHOLDERS' DEFICIENCY

SHARE CAPITAL
     Authorized:
     200,000,000 common shares, par value $0.001 per share
    Issued and outstanding:
            78,270,271 common shares                                       78,270
    Share subscriptions receivable                                         (5,000)
    Additional paid-in capital                                          5,545,630

     Deficit                                                           (7,140,520)
                                                                   ---------------
    Total Shareholders' Deficiency                                     (1,521,620)
                                                                   ---------------

     TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY                $    5,754,519
                                                                   ===============
</TABLE>

            See Notes to Unaudited Consolidated Financial Statements.

                                       2
<PAGE>

                      Y3K SECURE ENTERPRISE SOFTWARE, INC.
                 UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED                        NINE MONTHS ENDED
                                                   MARCH 31                                 MARCH 31
                                          2004                 2003                2004                2003
                                       ------------        ------------        ------------        ------------
<S>                                    <C>                        <C>             <C>                     <C>
Revenues                               $  1,650,655               1,783           1,650,655               2,214

Cost of revenues                            848,353                                 848,353
                                       ------------        ------------        ------------        ------------

Gross margins                               802,302               1,783             802,302               2,214

Operating expenses
      Selling expenses                      121,140                                 121,140
      General and administrative          2,057,784              82,874           3,268,541             591,719
                                       ------------        ------------        ------------        ------------

Total operating expenses                  2,178,924              82,274           3,389,681             591,719
                                       ------------        ------------        ------------        ------------

Operating loss                           (1,376,622)            (81,091)         (2,587,379)           (589,505)
                                       ------------        ------------        ------------        ------------

Other income (expense)
     Interest income                              2                                       2
     Interest (expense)                     (39,836)                                (71,643)
     Miscellaneous other                      8,647                                   8,647
                                       ------------        ------------        ------------        ------------

Total other income (expense)                (31,187)                                (62,994)
                                       ------------        ------------        ------------        ------------

Net loss                               $ (1,407,809)            (81,091)         (2,650,373)           (589,505)
                                       ============        ============        ============        ============

Basic loss per share                   $       (.02)                Nil        $       (.03)       $       (.01)

Weighted Average Number of
  Common Shares Outstanding              76,342,306          51,946,280          76,342,306          51,946,280

Diluted loss per share                 $       (.02)                N/A        $       (.03)                N/A

Diluted weighted average
  shares outstanding                     81,719,844                 N/A          81,719,844                 N/A
</TABLE>

            See Notes to Unaudited Consolidated Financial Statements.

                                       3
<PAGE>

                      Y3K SECURE ENTERPRISE SOFTWARE, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                          Nine Months Ended
                                                                               March 31
                                                                        2004               2003
                                                                    -----------        -----------
<S>                                                                 <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net loss                                                        (2,650,373)          (589,505)

ADJUSTMENTS TO RECONCILE NET INCOME TO
  NET CASH FROM OPERATING ACTIVITIES
     Depreciation and amortization                                      225,677              3,551
     Stock issued for services                                        1,294,764            166,667
     Change in prepaids                                                 (70,750)                --
     Change in accounts receivable                                     (719,556)              (571)
     Change in deposits on advanced billings                            335,297                 --
     Change in deposits                                                 (35,484)           (50,000)
      Change in payables and accrued liabilities                        984,912            386,026
                                                                    -----------        -----------
         Cash used by operating activities                             (635,513)           (83,057)
                                                                    -----------        -----------

 CASH FLOWS FROM INVESTING ACTIVITIES
     Purchase of equipment and property                              (1,109,290)                --
     Acquisition of Fox subscriber base                              (4,024,554)                --
     Common stock issued for Fox asset purchase                       1,151,882                 --
                                                                    -----------        -----------
        Cash used by investing activities                            (3,981,962)                --
                                                                    -----------        -----------

CASH FLOWS FROM FINANCING ACTIVITIES
       Loans payable                                                  3,321,247                 --
       Change in subscriptions receivable                                (4,429)                --
       Capital contribution from Shareholder                                 --             75,000
       Issuance of common stock for cash
                and options exercised                                   384,181                 --
       Sale of convertible debentures                                   700,000                 --
       Increases in capital lease obligations, net                      231,616                 --
                                                                    -----------        -----------
          Cash provided by financing activities                       4,632,615             75,000
                                                                    -----------        -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                                                                         15,140             (8,057)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                              653             10,722
                                                                    -----------        -----------

                     CASH AND CASH EQUIVALENTS, END OF PERIOD            15,793              2,665
                                                                    ===========        ===========
   Interest paid during the periods                                 $    71,643                n/a
   Income taxes paid                                                $        --                 --
</TABLE>

            See Notes to Unaudited Consolidated Financial Statements.

                                       4
<PAGE>

                      Y3K SECURE ENTERPRISE SOFTWARE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2004
                                   (UNAUDITED)

1.    BASIS OF PRESENTATION

      The  unaudited  consolidated  financial  statements  as of March 31,  2004
      included herein have been prepared by Y3K Secure Enterprise Software, Inc.
      ("Y3K, YTHK or Company") and include all normal and recurring  adjustments
      which are, in the opinion of management, necessary for a fair presentation
      of the financial position at March 31, 2004 and 2003 pursuant to the rules
      and   regulations  of  the  Securities   and  Exchange   Commission.   The
      consolidated  financial  statements  include  the  accounts  of Y3K Secure
      Enterprise Software, Inc. and its wholly owned subsidiaries.  All material
      intercompany  accounts and  transactions  have been  eliminated.  Prior to
      January 2, 2004,  the Company had been a Development  stage  enterprise in
      accordance with Statement of Financial Standards number 7.

      This  Quarterly  Report on Form 10-Q is  qualified  in its entirety by the
      information  included in the  Company's  Annual  Report to the SEC on Form
      10-KSB for the period ending June 30, 2003.

2.    ACQUISITION OF ASSETS AND SUBSIDIARIES

      Y3K, Inc. - Effective March 22, 2002, Y3K Secure Enterprise Software, Inc.
      acquired 100% of the issued and outstanding  shares of Y3K Incorporated by
      issuing 13,100,000 common shares. In addition,  the former shareholders of
      Y3K  Incorporated  received an  additional  4,981,374  common  shares in a
      separate  transaction  from the issued and outstanding  shares provided by
      existing  shareholders.  Since these  transactions  resulted in the former
      shareholders of Y3K Incorporated  owning the majority of the issued shares
      of Y3K  Secure  Enterprise  Software,  Inc.,  the  transaction,  which  is
      referred to as a "reverse  take-over",  has been  treated  for  accounting
      purposes  as an  acquisition  by Y3K  Incorporated  of the net  assets and
      liabilities of Y3K Secure  Enterprise  Software,  Inc. Under this purchase
      method of accounting,  the results of operations of Y3K Secure  Enterprise
      Software,  Inc. are included in these  consolidated  financial  statements
      from March 22, 2002.

      Y3K Secure  Enterprise  Software,  Inc. had a net asset  deficiency at the
      acquisition date;  therefore,  the 13,100,000 shares issued on acquisition
      were issued at fair value of $0 with the net asset  deficiency  of $25,743
      charged to deficit.  Y3K  Incorporated  is deemed to be the  purchaser for
      accounting  purposes.  Accordingly,  its net  assets are  included  in the
      consolidated balance sheet at their previously recorded amounts.

      The acquisition is summarized as follows:

      Current Liabilities

         Accounts payable                                   $    25,743
                                                            -------------

      Net Asset Deficiency                                  $   (25,743)
                                                            =============


                                       5
<PAGE>

                      Y3K SECURE ENTERPRISE SOFTWARE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 2004


2.    ACQUISITION OF ASSETS AND SUBSIDIARIES (CONTINUED)

      Fox  Communications,  Corporation - Effective  January 2, 2004, Y3K Secure
      Enterprise  Software,  Inc.  through its wholly  owned  subsidiary  Ecuity
      Advance  Communications  (Initially  incorporated  under the name  "Ecuity
      Holdings,  Inc."),  a  Washington  corporation  ("Ecuity"),   purchased  a
      substantial  portion  of the  assets  ("Assets")  of  Fox  Communications,
      Corporation,   a  Washington   corporation   ("Fox").  The  purchase  (the
      "Transaction")  was  pursuant to an Asset  Purchase  Agreement  ("Purchase
      Agreement") dated January 14, 2004.

      Fox Communications  Corporation formerly Phonelink, Inc. ("Fox") is in the
      business of providing  business and  residential  long distance  telephone
      service, internet dial up, web design, web hosting services and conference
      calling  services.  Fox was  incorporated  in the state of  Washington  on
      January 5, 1989.

      The  acquisition  was based on cash,  common  shares and a Note Payable as
      follows:

      $3,775,000 in cash payable by Ecuity and 6,775,775  shares of Y3K's common
      stock.  Based on the closing bid price for the  Company's  common stock on
      January 14, 2004 of $.17 per share, the shares issued to Fox in connection
      with the  asset  purchase  have  been  valued  at  $1,151,882.  The  total
      transaction  has been valued at $4,926,882.  The Company has paid $300,000
      toward  the  cash  portion  of the  purchase  price  and  the  balance  of
      $3,475,000  is to be paid  pursuant  to the  terms  of a  promissory  note
      ("Note") issued to Fox by Ecuity. The Note calls for remaining payments of
      the following amounts on the following dates:

          March 5, 2004 (in default) *                    $   150,000
          April 5, 2004                                   $ 2,125,000
          August 15, 2004                                 $ 1,200,000
          Final Payment credit of **                      $  (726,000)
          Net Final Payment Due                           $   474,000

      Payment  of the Note is secured by all of the Assets and by the issued and
      outstanding shares of Ecuity, all of which shares are held by the Company.
      In addition,  the Company is a guarantor of the Note  pursuant to a Parent
      Guaranty  agreement  between the  Company and Fox.  The Company and Ecuity
      expect to finance the Note payments through  additional equity investments
      into the Company including invested capital it anticipates it will receive
      under a Standby Equity Distribution Agreement (formerly the Equity Line of
      Credit Agreement) with Cornell Capital Partners, L.P.

            * The  Company  had  defaulted  on the  March 5  installment  to Fox
            Communications  Corporation  in part as a  result  in an  unexpected
            delay in the effective date of the Form SB-2 registration  statement
            the Company  filed with the SEC. The Company had  anticipated  using
            funds  available  to  it  under  its  Standby  Equity   Distribution
            Agreement with Cornell  Capital  Partners,  L.P. to make the March 5
            payment.  However,  the  Company  may not  access  funds  under that
            agreement  until it has  registered  the shares sold to Cornell with
            the SEC. The Company  fully  anticipates  that the Form SB-2 will be
            declared  effective by the Securities and Exchange  Commission which
            will  allow the  Company  to cure the  default  and make the  future
            payments on time.


                                       6
<PAGE>

                      Y3K SECURE ENTERPRISE SOFTWARE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 2004


2.    ACQUISITION OF ASSETS AND SUBSIDIARIES (CONTINUED)

            ** The terms of the asset purchase  agreement provide that the final
            payment  may be  reduced  by an  amount  representing  the  total of
            accounts receivable,  less the sum of the accounts payable, accruals
            and deferred  income  balances,  which amounts to credit  balance of
            $726,000.  Therefore  the  Company  will  receive  the offset to the
            credit  assumed  based on the opening  balances,  as defined,  as an
            offset  to the  final  note  payment  issued  as part  of the  Asset
            Purchase Agreement.

      The assets acquired by Y3K include the competitive  local exchange carrier
      ("CLEC")  consisting of a customer base of 18,000 residential and business
      customers,  conferencing and ISP operations,  voice over internet protocol
      services,  fully  functioning  customer service and billing  capabilities.
      Additionally,  the  Transaction  included  the recently  upgraded  Network
      Operation  Center  ("NOC")  that allows for the  significant  expansion of
      unified end-to-end  communication  solutions through the addition of voice
      over IP (VoIP).  In  addition to the growth of the  unified  products  and
      services,  Y3K believes that the new NOC increases  efficiencies,  reduces
      costs and has a positive impact on operating revenue.  The Assets acquired
      by the Company include:

            o  Certain  fixed  assets  and  equipment,  as  well  as any and all
      permits, licenses, consents and approvals held by Fox which are assignable
      to Ecuity. All such fixed assets and equipment,  which Fox had used in its
      operation  as a  converged  internet  content  provider  and  producer  of
      affinity portals, shall be used in a similar manner by Ecuity.

            o All of Fox's  right,  title  and  interest  in and to a number  of
      websites,  including  foxinternet.com,  as well as any other  tangible  or
      intangible  assets  of Fox used or useful  in the  joint  operations  that
      existed prior to the Transaction,  but excluding  certain assets listed in
      the Purchase Agreement.

            As part of the Transaction,  those Fox employees that are associated
      with the  operation  and  management  of the business  represented  by the
      Assets  became  employees  of Ecuity and the former  President of Fox, Mr.
      Lonnie Benson, became a consultant to Ecuity.

      Karunga  Technologies,  Inc. - At a Board of Directors meeting on February
      22, 2004,  Y3K Secure  Enterprise  Software,  Inc.,  voted to complete the
      purchase of the ICS  Technology  from  Karunga  Technologies,  Corporation
      ("Karunga"),  a Utah  Corporation  (herein  referred to as the "Technology
      Asset Purchase Agreement" or "Purchase Agreement")

      Y3K and  Karunga  have  worked  together  over a period in excess of three
      years, initially with Y3K as a Licensee of Karunga, and subsequently,  for
      a period of two years, as joint venture partners,  pursuant to a series of
      agreements,  both  written and oral,  working  together  to leverage  each
      others resources, abilities and assets to jointly create a viable business
      model,  to generate  adequate  cash flow and to  continue  and build joint
      operations.


                                       7
<PAGE>

                      Y3K SECURE ENTERPRISE SOFTWARE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 2004


2.    ACQUISITION OF ASSETS AND SUBSIDIARIES (CONTINUED)

      The Agreement to purchase all assets and liabilities related  specifically
      to the  ICS  Technology,  its  development  and  deployment,  (hereinafter
      Technology or ICS), including all intellectual  property rights associated
      with ICS is waiting for a vote of the  Shareholders  of Karunga to approve
      the Purchase Agreement.

      The acquisition is based on the issuance of commons shares, the assumption
      of certain  obligations  of  Karunga,  and the  granting  of  options  and
      warrants.

3.    LOANS PAYABLE

      The Loans Payable are due to various entities and individuals as follows:

<TABLE>
<CAPTION>
<S>                                                                                    <C>
      Loans due to shareholders with unsecured demand notes at 12% per annum           $   322,500
      Loans due to shareholder with unsecured demand note at 10 to 12% per annum *         178,256
      Loan due to bank - defaulted in year 2001 (unsecured) **                             155,666
      Promissory Note Payable ***                                                          400,000
      Loan due to Fox Communications Corporation ****                                    2,748,991
                                                                                       -----------
         Total Loans Payable                                                           $ 3,805,413
                                                                                       ===========
</TABLE>


      * The Company  issued a note for  $153,700 for 1 year (due January 2, 2005
      at 10%  interest  per annum,  the  proceeds  of which were used to pay the
      secured Cornell Capital Partners, L.P. , principal and accrued interest of
      $3,700),  a note for $20,000 at 12% interest due September 21, 2004, and a
      non-interest bearing demand loan of $4,556.

      ** The loan to bank was issued by Y3k, Inc., a wholly owned subsidiary and
      is not guaranteed by the Company.

      *** The  promissory  note  payable  arose  as a  result  of the  Company's
      guarantee  of the  indebtedness  of a non  related  entity  with  whom the
      Company has entered into an agreement to license and market software which
      this entity is developing.

      ****  The  Company   guaranteed  the  note  issued  by  its  wholly  owned
      subsidiary,  Ecuity Advanced  Communications,  Inc., to Fox Communications
      Corporation


                                       8
<PAGE>

                      Y3K SECURE ENTERPRISE SOFTWARE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 2004

3.    LOANS PAYABLE (CONTINUED)

      CONVERTIBLE DEBENTURES

<TABLE>
<CAPTION>
<S>                                                                                    <C>
    Convertible debentures due to Cornell Capital Partners, L.P. bearing interest
        at 5% per annum all due and payable January 7, 2007                            $  700,000
                                                                                       ==========
</TABLE>

            o  Convertible  debentures  were issued at a face value of $700,000,
      less an initial  discount of 10%,  less  attorney  fees.  Cornell  Capital
      Partners,  L.P.  purchased all of the debentures.  The Company has filed a
      SB-2 registration  statement in order to register 12,867,647 common shares
      that may be  issued  under the terms  and  conditions  of the  convertible
      debentures.  The Company has the option to pay the debentures plus accrued
      interest  on the due date  above,  or at the  option of the  holder of the
      convertible  debentures  they  may be  converted  to  common  stock of the
      Company at the option  price of either 120% of the stock  market  price at
      the date of the execution of the Convertible Note, or at any time based on
      80% of the 5 day price of the stock prior to the conversion date election,
      at a price whichever is lower.

      STANDBY EQUITY DISTRIBUTION AGREEMENT

      On February 2, 2004 the Company filed a Form SB-2  registration  statement
      with the SEC in order to register the resale of  60,000,000  common shares
      sold  to  Cornell  Capital   Partners,   L.P.  under  the  Standby  Equity
      Distribution  Agreement  entered  into  between the Company and Cornell on
      January 29, 2004.  In response to comments from the SEC, the Company filed
      amendments  to the Form SB-2 on March 15, 2004,  April 22, 2004 and May12,
      2004. The registration  statement was declared effective by the SEC on May
      14, 2004.

      The Standby  Equity  Distribution  Agreement  provides that we may, at our
      discretion,  periodically issue and sell to Cornell Capital Partners, L.P.
      shares of common  stock for a total  purchase  price of $20  million.  The
      amount of each advance is subject to a maximum advance amount of $280,000,
      and we may not submit any advance  within  seven  trading  days of a prior
      advance.

4.    OPERATING SEGMENTS

      Statement of Financial  Accounting  Standards No. 131,  "Disclosures about
      Segments of an Enterprise and Related Information"  establishes  standards
      for reporting  information about operating  segments in interim and annual
      financial  statements,  including  segments  by product  and  service,  by
      geographic  area,  by legal  entity  and by type of  customer.  Further  a
      reportable segment shall be segregated if it represents 10 percent or more
      of combined revenue.  All sales of the Registrant are in the United States
      as of the nine  months  ended  March 31,  2004 and for all prior  periods.
      There are no  customers  that  represent  more  than 10% of the  Company's
      consolidated revenues.

      Although the Company has  residential  and  commercial  customers they are
      considered one segment and management  makes decisions to employ assets as
      one segment.


                                       9
<PAGE>

                      Y3K SECURE ENTERPRISE SOFTWARE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 2004


5.    INCOME TAXES

      Deferred tax assets and liabilities are recognized for the expected future
      tax  consequences  of  events  that have been  reported  in the  Company's
      financial  statements  or tax returns.  At June 30, 2003,  the Company had
      available net operating loss carryforwards for federal income tax purposes
      of $4,064,405,  which expires  beginning in 2020.  Because of the inherent
      uncertainty of the Company  generating  sufficient taxable income prior to
      the expiration of the loss  carryforward,  a valuation  allowance has been
      provided for the entire deferred tax asset.

<TABLE>
<CAPTION>
      Deferred tax assets
<S>                                                                                     <C>
            Net operating losses carried forward at current statutory rates             $   1,111,800
            Less:  Valuation allowance                                                     (1,111,800)
                                                                                        ---------------

                                                                                        $          --
                                                                                        ===============
</TABLE>


      A  valuation   allowance   reflects   the   unrecognized   U.S.  tax  loss
      carryforward. There are no state tax liabilities in Nevada or Washington.

6.    EARNINGS PER SHARE

      Statement of Financial  Accounting Standards No. 128, "Earnings per Share"
      requires the presentation of basic earnings per share and diluted earnings
      per share. Basic and diluted earnings per share computations  presented by
      the Company conform to the standard and are based on the weighted  average
      number of shares of Common Stock outstanding  during the year. At December
      31, 2003 the Company had remaining stock options of 3,000,000  shares that
      has been  granted to various  employees,  directors  and lenders at prices
      ranging  from $.10 to $.40 per share.  During the quarter  ended March 31,
      2004 options were issued to 2 former  directors  totaling  920,000  common
      shares at a price of $.11 per share.  As part of the purchase of assets of
      Fox  Communications,  Corporation,  options  were issued to key  employees
      totaling  6,375,000  common  shares at a price of $.11 per share,  vesting
      monthly  over four years as long as they are  employed.  At March 31, 2004
      398,438 of the  granted  options  had vested.  Total  options  granted and
      outstanding at March 31, 2004 total  11,537,100 at exercise prices ranging
      from  $.03 to $.40.  At March 31,  2004  there  were a total of  5,377,538
      options vested.

7.    CAPITAL ASSETS

      The following  table sets forth the capital  assets of the Company and its
      wholly owned subsidiaries.


                                       10
<PAGE>

                      Y3K SECURE ENTERPRISE SOFTWARE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 2004


<TABLE>
<CAPTION>

MARCH 31, 2004
--------------

--------------------------------------------------------------------------------------------------------------
DESCRIPTION OF ASSET                       COST BASIS          ACCUMULATED DEPRECIATION    NET BOOK VALUE
--------------------------------------------------------------------------------------------------------------
<S>                                      <C>                   <C>                         <C>
Office Furniture, Computers, and
Equipment                                  $ 981,235                   36,614                 944,621
--------------------------------------------------------------------------------------------------------------
Computer Software                            108,420                    3,172                 105,248
--------------------------------------------------------------------------------------------------------------
Leasehold Improvements                        40,318                      577                  39,741
--------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------
                                          $1,129,973                   40,363               1,089,610
--------------------------------------------------------------------------------------------------------------
</TABLE>


8.    ACQUIRED SUBSCRIBER BASE

      The following  table  presents the  components  of the Company's  acquired
      definite life  intangible  assets and goodwill and other  indefinite  life
      intangible assets included in the accompanying Consolidated Balance Sheets
      as of March 31, 2004:

<TABLE>
<CAPTION>
                                                        -----------------------------------------------------
                                         GROSS                                                  NET
                                        CARRYING                 ACCUMULATED                  CARRYING
                                         VALUE                   AMORTIZATION                  VALUE
                              ------------------------- -----------------------------------------------------
<S>                                 <C>                      <C>                          <C>
       Acquired subscriber
          bases for Telephony
          and ISPs                    $ 4,024,554,               $ (201,228)               $ 3,823,326
</TABLE>

            During  the  three  months  ended  March  31,  2004,   the  acquired
      subscriber base increased as a result of the costs of the assets purchased
      from the Fox Communications  Corporation,  that were not identified in the
      valuation of the fixed assets purchased of Fox Communications, Corporation
      The  amortization  of the acquired  subscriber  base purchased from Fox is
      being  amortized  over  its  projected  useful  life  of  five  (5)  years
      commencing January 2, 2004.


                                       11
<PAGE>

                      Y3K SECURE ENTERPRISE SOFTWARE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 2004


8.    ACQUIRED SUBSCRIBER BASE (CONTINUED)

            Acquisition-related  amortization in the Consolidated  Statements of
      Operations  for the three and nine months ended March 31, 2004  represents
      the  amortization  of  definite  life  intangible  assets.  The  Company's
      definite life  intangible  assets  consist of  subscriber  bases and other
      assets  that  are  not  deemed  to  have  indefinite   lives  acquired  in
      conjunction  with the purchases of businesses and subscribers of ISPs, but
      exclude any acquired software.  Generally, definite life intangible assets
      are  amortized on a  straight-line  basis over five years from the date of
      their  respective  acquisitions.  Based on the current  amount of definite
      life intangible assets, the Company expects to record amortization expense
      of approximately  $201,228 for every three-month  period and for the years
      ending June 30, 2004 through June 30, 2009 as follows:


           Year Ending June 30, 2004                            $402,456
           Year Ending June 30, 2005                            $804,912
           Year Ending June 30, 2006                            $804,912
           Year Ending June 30, 2007                            $804,912
           Year Ending June 30, 2008                            $804,912
           Year Ending June 30, 2009                            $402,450

9.    LEASE COMMITMENTS

      The Company is currently leasing two office spaces as follows.

      The prior corporate  offices at 108 Stewart St, Puyallup,  WA were vacated
      and there is no further lease obligation.

      As part of the xSides  Agreement,  effective  September  3, 2003,  Y3K has
      leased office space to accommodate employees of xSides and provide housing
      for Y3K's network equipment. The office space is located at 100 South King
      Street,  Suite  525,  Seattle,  WA 98104 and  comprises  2,302 sq.  ft. of
      rentable  space.  The lease is for one year with a base rent of $3,165 per
      month.

      Effective  February 1, 2004 the Company obtained new corporate  offices at
      800 Bellevue Way, Suite 600,  Bellevue,  WA 90004.  These new offices were
      leased (as a sub-lease) to accommodate the space  requirements  for Ecuity
      personnel  (formerly the  personnel  associated  with Fox  Communications,
      Corporation) as well as the new corporate offices of the Company.

      The lease is for 11,046 sq. ft.  with an  expiration  date of October  31,
      2007  with an  initial  lease  rate of  $9,205  per  month  with  periodic
      increases through the lease termination date.

      The  lease  commitments  through  the  lease  terms of all  leases  are as
      follows:


                   Year 2004                                77,675
                   Year 2005                               142,566
                   Year 2006                               160,172
                   Year 2007                               176,736
                   Year 2008                                60,752



                                       12
<PAGE>


                      Y3K SECURE ENTERPRISE SOFTWARE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 2004


9.    LEASE COMMITMENTS (CONTINUED)

      A subsidiary,  Y3K, Inc. had leased office space with two separate  leases
      on two floors  expiring in March and June 2005 in the city of Tacoma.  The
      Company had believed that its lease  obligations  were  terminated in June
      2002 as the  landlord has leased the office  space to other  tenants.  The
      terms and conditions of the new lease were then unknown.  The landlord has
      now commenced a lawsuit in which the  allegations  state that the rent was
      due through July 2002.  Further  allegations state charges have been added
      to the  unpaid  base  lease  such  as  outside  broker's  commissions  and
      additional  tenant  improvements that were necessary to bring the space up
      to the new tenants' specifications.  Accordingly,  Y3k, Inc., has reserved
      the full amount of the charges alleged in the lawsuit. This amounted to an
      additional  charge to rent in the  amount of  $232,000.  The total  amount
      alleged by the landlord for rent,  brokerage  commissions  and  additional
      tenant improvements totals $471,557.

10.   STOCK-BASED COMPENSATION

      In December 2002, the Financial Accounting Standards Board ("FASB") issued
      Statement No. 148,  "Accounting for Stock-Based  Compensation,  Transition
      and  Disclosure"  ("FAS  148").  FAS 148 provides  alternative  methods of
      transition  for a voluntary  change to the  recognition of the cost of the
      options  in the  statement  of  operations.  FAS 148  also  requires  that
      disclosures  of the pro forma  effect of using  the fair  value  method of
      accounting  for  stock-based  employee   compensation  be  displayed  more
      prominently  and in a  tabular  format.  Additionally,  FAS  148  requires
      disclosure of the pro forma effect in interim  financial  statements.  The
      transition and annual  disclosure  requirements  of FAS 148 were effective
      for fiscal years ended after  December 15,  2002.  The interim  disclosure
      requirements of FAS 148 are effective for interim periods  beginning after
      December 15, 2002.  The adoption of the provisions of FAS 148 did not have
      an impact on the Company's consolidated financial statements.

      The Company follows the provisions of FASB Statement No. 123,  "Accounting
      for Stock-Based Compensation" ("FAS 123"). The provisions of FAS 123 allow
      companies to either  expense the estimated  fair value of stock options or
      to continue to follow the  intrinsic  value method set forth in Accounting
      Principles  Board  Opinion  No.  25,   "Accounting  for  Stock  Issued  to
      Employees"  ("APB 25"),  but disclose the pro forma  effects on net income
      (loss) had the fair value of the options been  expensed.  YTHK has elected
      to continue to apply APB 25 in accounting  for its stock option  incentive
      plans.

      In  accordance  with  APB 25  and  related  interpretations,  compensation
      expense for stock options is recognized in income based on the excess,  if
      any,  of the  quoted  market  price of the stock at the grant  date of the
      award or other  measurement  date over the amount an employee  must pay to
      acquire the stock. The Company's policy is to grant the exercise price for
      stock  options to  employees  at or in excess of the fair market  value of
      YTHK's  common  stock  at the  date  of  grant,  thereby  resulting  in no
      recognition  of  compensation  expense by the  Company.  For  awards  that
      generate  compensation  expense  as  defined  under  APB 25,  the  Company
      calculates the amount of  compensation  expense and recognizes the expense
      over the vesting period of the award.


                                       13
<PAGE>


                      Y3K SECURE ENTERPRISE SOFTWARE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 2004

11.   PRO-FORMA INFORMATION

      The following  table presents the interim  proforma  information for the 9
      months  ended March 31,  2004 and the 9 months  ended March 31, 2003 as if
      the  acquisition of the Fox assets had taken place at the beginning of the
      Company's fiscal year.

<TABLE>
<CAPTION>
       -----------------------------------------------------------------------------------------------
                                                  9 month period Ended         9 month period Ended
                                                     March 31, 2004                March 31, 2003
       -----------------------------------------------------------------------------------------------
<S>                                              <C>                            <C>
       Revenues                                  $           9,620,576             11,607,818
       -----------------------------------------------------------------------------------------------
       Loss from continuing operations           $             (63,003)              (697,466)
       -----------------------------------------------------------------------------------------------
       Net Loss                                  $          (1,014,750)            (2,088,941)
       -----------------------------------------------------------------------------------------------
       Loss per share                            $               (.01)                  (.04)
       -----------------------------------------------------------------------------------------------
</TABLE>


12.   GOING CONCERN

      Since  inception,  the Company has suffered  recurring losses and net cash
      outflows  from  operations.  The  Company  expects  to  continue  to incur
      substantial losses to complete the development of its business.  Since its
      inception,   the  Company  has  funded  operations  through  common  stock
      issuances  and  related  party  loans  in  order  to  meet  its  strategic
      objectives.  Management believes that sufficient funding will be available
      to meet its  business  objectives,  including  anticipated  cash needs for
      working capital,  and is currently  evaluating  several financing options.
      However, there can be no assurance that the Company will be able to obtain
      sufficient  funds  to  continue  the  development  of and the  sale of its
      products.  As a result of the foregoing,  there exists  substantial  doubt
      about  the  Company's  ability  to  continue  as a  going  concern.  These
      consolidated  financial  statements  do not include any  adjustments  that
      might result from the outcome of this uncertainty.

      The Company  has  obtained  an  approval  on the  submission  of its SB-2,
      effective May 13, 2004,  which will allow the Company to obtain funds from
      its  Standby  Equity  Distribution  Agreement  ("SEDA" or "Equity  Line of
      Credit") from Cornell Capital  Partners,  L.P. That will allow the Company
      to obtain  funding as necessary  for working  capital as well as allow the
      Company to continue  with the ability to obtain  loans with the  repayment
      opportunity  to secure  said loans with the  proceeds  available  from the
      Equity Line of Credit.


                                       14
<PAGE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

During the year ended June 30, 2002, we completed our  acquisition of Y3K, Inc.,
a private  Washington  State company that owns FusionPak,  a suite of enterprise
business  software designed for the  telecommunications,  banking and government
sectors.

Effective January 2, 2004 we completed our acquisition of selected assets of Fox
Communications, Corporation through our wholly owned subsidiary, Ecuity Advanced
Communications,  Inc.  (Formerly  Ecuity  Holdings,  Inc.").  These  assets  are
associated  with the  business  lines as  follows:  The local  exchange  carrier
("CLEC")  consisting  of a  customer  base of 18,000  residential  and  business
customers,  conferencing  and  ISP  operations,  voice  over  internet  protocol
services,   fully  functioning   customer  service  and  billing   capabilities.
Additionally,  the Transaction  included the recently upgraded Network Operation
Center ("NOC") that allows for the significant  expansion of unified  end-to-end
communication  solutions  through the  addition  of voice over IP (VoIP).  Other
assets  include:  Certain  fixed  assets and  equipment,  as well as any and all
permits,  licenses,  consents and approvals  held by Fox which are assignable to
Ecuity. All such fixed assets and equipment, which Fox had used in its operation
as a converged internet content provider and producer of affinity portals, shall
be used in a similar manner by Ecuity. All of Fox's right, title and interest in
and to a number of  websites,  including  foxinternet.com,  as well as any other
tangible or intangible assets of Fox used or useful in the joint operations that
existed prior to the  Transaction,  but excluding  certain  assets listed in the
Purchase  Agreement.  Prior to the consummation of the Transaction,  the Company
and Fox had been operating under a Joint Operating Agreement the parties entered
into in  September  2003.  In  December  2003 the  Company  and Fox began  joint
development  and  marketing   operations  for  their  emerging  line  of  secure
communication  solutions  for the  consumer  and small to medium  size  business
markets.   The  Assets  acquired  by  Y3K  under  the  Purchase  Agreement  were
principally those Fox Assets that were necessary for the complete integration of
Fox's business into the Company's.

      The first  three  months of revenue  and  expenses  of the Fox  operations
      acquired  which are  included in the  Company's  3rd  quarter  results are
      summarized as follows:

          Long Distance                                            $  883,089
          Internet Service Provider                                   404,423
          Conference Calling                                          249,842
          All other revenues                                          113,301
                                                                   ----------
          Revenues for the three months ended March 31, 2004        1,650,655
          Cost of Sales                                               848,353
                                                                   ----------
          Gross Margin                                                802,302
          Selling, General and Administrative                         745,418
          Depreciation and amortization                                20,897
                                                                   ----------
              Operating income for the three month period              35,946
                                                                   ----------

          Other income (expense)
          Interest expense                                         (   15,469)
          Interest income                                                   2
          Miscellaneous other                                           8,647
                                                                   ----------

               Net income for the three month period               $   29,126
                                                                   ==========


                                       15
<PAGE>

Effective  February 22, 2004 the Board of Directors of the Company  approved the
acquisition  of  certain  of the  technology  assets  of  Karunga  Technologies,
Corporation,  a Utah  Corporation.  Y3K and Karunga have worked  together over a
period  in excess of three  years,  initially  with  Karunga  wherein  Y3K was a
Licensee,  and  subsequently,  for a  period  of two  years,  as  joint  venture
partners,  pursuant to a series of  agreements,  both written and oral,  working
together to  leverage  each others  resources,  abilities  and assets to jointly
create a viable business  model, to generate  adequate cash flow to continue and
build joint operations,  and to jointly pursue adequate financing to support the
acquisition of strategically  important partners, each relying on the other that
at the  appropriate  time, and in the most strategic  manner,  the two companies
would formally come together.

The Agreement to purchase all assets and liabilities related specifically to the
ICS Technology, its development and deployment, (hereinafter Technology or ICS),
including all  intellectual  property rights  associated with ICS as outlined in
the  "Technology  Asset  Purchase  Agreement"  ("Purchase  Agreement)  is in the
process of approval by the Karunga shareholders. The acquisition is based on the
issuance of commons  shares,  the assumption of certain  obligations of Karunga,
and the granting of options and warrants.

LIQUIDITY AND CAPITAL RESOURCES

The working capital deficit increased to $5,637,378 from a deficit of $1,302,415
as of June 30,  2003,  primarily  as a result of the  following:  an increase in
accounts payable and accrued  liabilities of $1,384,911,  the issuance of a note
in the principal  amount of  $3,775,000  with a remaining  principal  balance of
$2,748,991 at March 31, 2004 as part of the Fox asset purchase, with an increase
in  working  capital  as  a  result  in  the  increase  in  accounts  receivable
($719,556), and prepaids ($70,750). Fixed assets increased by $1,109,290 and the
purchased subscriber base of Fox which has been valued at $4,024,554 (at date of
inception of January 2, 2004). The purchase of the Fox assets,  as defined,  was
through  the  wholly  owned   subsidiary   of  the  Company,   Ecuity   Advanced
Communications,  Inc., which also issued the initial $3,775,000 note to Fox. Y3K
Secure Enterprises Software,  Inc., issued an additional 6,775,775 shares of its
common  stock in order to complete  the Fox asset  purchase.  The  Company  also
raised cash from the issuance to Cornell Capital Partners, L.P. , of $700,000 of
5% convertible debentures, all due and payable January 7, 2007.

The Company had a  consolidated  operating net loss of  $2,650,373  for the nine
months  ended  March 31, 2004  compared  to a net loss of $589,505  for the same
period last year. The operating income for Ecuity Advanced Communications, Inc.,
was  $35,946  for both the three  month and nine month  periods  ended March 31,
2004. The substantial  increase in losses for the Company,  exclusive of Ecuity,
is the result of fees paid to Cornell Capital  Partners,  L.P. for providing the
Company's new Stand By Distribution  Agreement,  $250,000 in additional reserves
established  for the Y3k,  Inc.,  lawsuit for its prior  leased  space in Tacoma
which has now resulted in a lawsuit,  substantial consulting agreements provided
to  individuals  for  business  consulting,  including  shares  issued for these
services.

Revenues  from  the Fox  asset  purchase  are  recognized  in its  wholly  owned
subsidiary,  Ecuity Advanced  Communications,  Inc. Ecuity is in the business of
providing  business and residential long distance  telephone  service,  internet
dial up, web design, web hosting services and conference  calling services.  The
ISP hosting line is sold on a monthly,  quarterly and annual  subscription basis
with fees for services billed to the customer and paid in advance.  This cash is
received and booked to deferred income on the balance sheet to be applied as the
monthly sales  revenues are earned and  recognized on a pro-rata  basis.  As the
cash is received,  it is used to pay current operating  expenses.  The Company's
long  distance and  conferencing  services are billed in arrears based on actual
usage based on agreed upon service plans.  Appropriate Federal,  State and other
fees are added to the service  minutes and are billed to the  customer  using an
automated billing system.


                                       16
<PAGE>


All of the of the Company's  sales  revenues  from billed  services flow through
accounts receivable.

At March 31,  2004,  the  Company's  principal  financial  commitments,  are its
convertible  debt  obligations  to  Cornell  Capital  Partners,  L.P. , the note
obligations  to  Fox  for  its  purchase  of  designated  assets  including  the
subscriber  customer base, its prior accounts  payable incurred through its Y3k,
Inc., subsidiary,  a bank line of credit, the defaulted equipment leases and the
prior office lease  involved the lease of  corporate  facilities  in Tacoma,  WA
along with the new office lease facility in Bellevue, WA.

PLAN OF OPERATION

During the nine month period ended March 31, 2004,  we continued our attempts to
raise the necessary  funds to continue to conduct our business plan.  Except for
debt and shares  issued for the  acquisition  of the assets  purchased  from Fox
Communications,  Corporation we were successful in securing  $150,000 in private
debt  financing  from Cornell,  $20,000 from a private  investor,  both of these
loans which were paid off by a major  shareholder  and a new loan issued to him,
the sale of  $700,000  in  convertible  debenture  issues  purchased  by Cornell
Capital Partners, L.P., and common stock issuances to retire $6,000 in debt. The
net raise in debt, including the debenture issue and the note issued for the Fox
asset purchase totaled $4,021,247 for the nine month period ended March 31, 2004
(See Note 3 to financial  statements  above).  In addition during the nine month
period we sold  2,148,696  common shares for net proceeds of $144,681 and issued
10,812,916  common  shares  for  services  totaling  $1,294,764.  As part of the
purchase of assets of Fox  Communications,  Corporation,  options were issued to
key  employees  totaling  6,375,000  common shares at a price of $.11 per share,
vesting  quarterly  over four years as long as they  continue as  employees.  At
March 31, 2004 398,438 of the granted options had vested.

The Company also issued  1,555,556  common shares to Cornell  Capital  Partners,
L.P. as collateral  for their loan of $150,000.  Since the loan was paid off and
replaced by a Company shareholder,  these shares will be returned to the Company
and cancelled.  In addition to funding our operations,  the funding also allowed
us to contract  with third party  software  developers  for the  development  of
certain  enhancements  to  our  Fusion  Pak  suite  of  software  products.  The
enhancements to the software  products have included further  development of the
software to refine the functionality and appearance of the suite of products; to
better integrate the products into a single,  seamless suite; and to install the
enhanced  products into beta testing sites.  In order to continue  operations we
will need  additional  capital,  the amount of which will be  dependant in large
part in our  ability to  increase  our  marketing  efforts to begin to  generate
revenues in an amount that will reduce our ongoing need for  additional  capital
investment.

Our plan of  operations  for the next twelve months is to complete the following
objectives  within the time  period  specified,  some  items are  subject to our
obtaining additional financing for the continued development of YTHK's business:

      o     Completion of the Karunga Technology Purchase Agreement.

      o     We plan to undertake an advertising,  marketing,  and sales campaign
            upon raising adequate funding.  We anticipate that the expenses will
            be  approximately  $500,000.  We plan to undertake  an  advertising,
            marketing,  and sales campaign to market the bundled services of our
            subsidiary   (Ecuity)   from   the   assets   purchased   from   Fox
            Communications,  Corporation,  and the ICS technology purchased from
            Karunga  Technologies,  Corp.  The monthly  minimum out of pocket we
            anticipate  to market these  bundled  services is $50,000 until such
            time as increased  revenues are  sufficient to offset the additional
            costs associated with the marketing of theses products.


                                       17
<PAGE>


      o     Our SB-2 registration became effective May 14, 2004 which will allow
            us to sell common shares to Cornell Capital Partners, L.P. under the
            terms of the Standby Equity Distribution Agreement (the "Equity Line
            of Credit").  (See discussion  below  regarding  history and current
            status of SEDA).  Discussions  are underway with Cornell to obtain a
            letter of credit  enhancement for YTHK to borrow funds which will be
            collateralized  by the Equity Line of Credit.  This will provide the
            Company with the  opportunity  to borrow funds and allow  sufficient
            time to reflect a higher  stock price  prior to the  issuance of the
            Company's common stock under the Equity Line of Credit with Cornell.

      o     We plan to purchase and lease  additional  office  equipment for our
            business at an approximate  cost of $40,000 and other  equipment and
            upgrades for communications of approximately $500,000.

      o     From operations associated with our wholly owned subsidiary,  Ecuity
            Advanced Communications, Inc., we anticipate continued monthly sales
            revenues  of  $600,000  and  continued  monthly  operating  costs of
            approximately  the same for a break-even  in  operations  until such
            time as there is an increase in the customer  base.  As marketing of
            our product  increases  our  revenues,  it is likely we will require
            only a minimum of additional  costs associated with said incremental
            revenues. Therefore, increased revenues will provide additional cash
            flow to contribute to the ongoing corporate overhead.

      o     The  administrative  costs of the parent  company are  approximately
            $60,000 for payroll and an additional  $60,000 to $100,000 per month
            for     general     overhead     including     legal,     insurance,
            travel/meals/lodging/   and  product  development  costs.  Once  our
            funding is completed with Cornell,  the officers of Y3K will receive
            an increase in their  current base pay of $4,000 per month to a more
            appropriate amount commensurate with their positions.

      o     We anticipate our consolidated operating costs will be approximately
            $990,000  per month in order to  achieve  our  consolidated  planned
            operations  compared  to a minimum  of  $750,000  per month  just to
            sustain consolidated minimum operations.

In order to explore the  possible  bundling of services  with other  proprietary
software,  the  Company  has  signed an  agreement  with  xSides,  a  Washington
Corporation  that is the developer of a secure platform that allows companies to
control content displayed on the PC desktop.  The 2 year agreement gives Y3K the
opportunity to introduce and populate the space with their software applications
that  will  interoperate  with the  xSides  technology  and  allows  Y3K to sell
(license) the xSides  product to enterprise  level  customers.  xSides  patented
technology  manages data  delivered to and  displayed on a computer and can even
create an  alternate  start  menu or a  completely  new  secure  space  residing
directly on the desktop.

As part of the xSides  Agreement,  effective  September 3, 2003,  Y3K has leased
office space to accommodate  employees of xSides. The office space is located at
100 South King Street,  Suite 525, Seattle, WA 98104 and comprises 2,302 sq. ft.
of  rentable  space.  The lease is for one year  with a base rent of $3,165  per
month.


                                       18
<PAGE>


In January  2004,  Cornell  Capital  Partners,  L.P.  entered  into a securities
purchase agreement with Y3K under which Cornell Capital Partners, L.P. agreed to
purchase the total amount of $350,000 in convertible debentures. Cornell Capital
Partners, L.P. purchased $200,000 of convertible debentures on January 14, 2004,
and purchased  $150,000 on February 2, 2004. The  debentures are  convertible at
the holder's  option any time up to maturity at a conversion  price equal to the
lower of (i)  $0.204 or (ii) 80% of the lowest  closing  bid price of the common
stock for the five trading days  immediately  preceding the conversion date. The
debentures  are secured by the assets of Y3K. The  debentures  have a three-year
term and accrue  interest  at 5% per year.  At  maturity,  Y3K has the option to
either pay the holder the outstanding  principal balance and accrued interest or
to convert the  debentures  into shares of common  stock at a  conversion  price
equal to the lower of (i) $0.204 or (ii) 80% of the lowest  closing bid price of
the common stock for five  trading days  immediately  preceding  the  conversion
date.  Cornell  Capital  Partners,  L.P. is entitled to a 10% discount  from the
purchase price of the convertible  debentures.  Cornell Capital  Partners,  L.P.
purchased the convertible debentures from Y3K in a private placement.

On January 29, 2004,  Y3K entered into a Standby Equity  Distribution  Agreement
(the "Equity Line of Credit")  with Cornell  Capital  Partners.  Pursuant to the
Equity Line of Credit,  we may, at our discretion,  periodically sell to Cornell
Capital  Partners,  L.P. shares of common stock for a total purchase price of up
to $20.0 million. For each share of common stock purchased under the Equity Line
of Credit, Cornell Capital Partners,  L.P. will pay Y3K 97% of, or a 3% discount
to, the lowest  closing  bid price of our common  stock on the  Over-the-Counter
Bulletin Board or other principal market on which our common stock is traded for
the five days immediately  following the notice date.  Further,  Cornell Capital
Partners,  L.P.  will retain 5% of each advance under the Equity Line of Credit.
While the commitment  amount of the Equity Line of Credit is $20 million,  at an
assumed  price of  $0.1649  per share,  Y3K would only be able to receive  gross
proceeds of $9,894,000  using the entire 60 million  shares being  registered in
this  registration  statement.  In  connection  with the Equity  Line of Credit,
Cornell Capital Partners,  L.P. is entitled to a one-time  commitment fee in the
form of  2,941,176  shares  of  common  stock  on  January  26,  2004,  equaling
approximately $500,000.

Cornell Capital  Partners,  L.P.  intends to sell any shares purchased under the
Equity Line of Credit at the then prevailing  market price.  YTHK intends to use
this type of  financing  sparingly  since  credit line draws will  increase  the
number of our  issued  and  outstanding  shares and is likely to have a dilutive
effect on our existing  shareholders.  Further, until our stock price is higher,
it would  take a  substantial  number of shares to be issued  for even a minimal
amount of funding  under the equity  credit line.  We will continue to focus our
efforts towards  increasing  sales and revenues,  which will reduce our need for
additional  capital as well as increase the intrinsic value of our stock,  which
we  hope  will  also  cause  an  increase  in the  price  for our  stock  in the
forthcoming months.

If the funds  available  under the  Equity  Line of Credit are  insufficient  or
unavailable,  or we elect to not draw the amount of funds  necessary to fund our
cash  needs.  We need to raise  additional  funds.  It is likely  that this will
require us to sell additional  amounts of our common shares. If we are unable to
secure  additional  infusions  of either debt or equity  financing in the amount
sufficient to maintain our business,  it will fail. With additional revenues, we
plan to retain staffing levels  sufficient to achieve our goals. This additional
staffing may include full-time and part-time employees, and consultants.

Completion of our plan of operation is subject to obtaining adequate  financing.
However, we cannot assure investors that adequate financing will be obtained. In
the absence of our projected revenues, we may be unable to proceed with our plan
of operation.  Even without significant  revenues within the next twelve months,
we still anticipate being able to continue with our present  activities,  but we
will require  financing to potentially  achieve our goal of profit,  revenue and
growth.


                                       19
<PAGE>


The  foregoing  represents  our best estimate of our cash needs based on current
planning and business conditions.  The exact allocation,  purposes and timing of
any  monies  raised in  subsequent  private  financings  may vary  significantly
depending upon the exact amount of funds raised and status of our business plan.
In the event we are not  successful  in reaching  our initial  revenue  targets,
additional  funds may be required  and we would then not be able to proceed with
our business plan for the development and marketing of the our core products and
services.  Should  this occur,  we would  likely seek  additional  financing  to
support the continued operation of our business.

RESULTS OF OPERATIONS

During the quarter ended March 31, 2004 the Company completed the acquisition of
the  assets  of  Fox  Communications,  Corporation,  through  its  wholly  owned
subsidiary  Ecuity Advanced  Communications,  Inc.  (initially formed as "Ecuity
Holdings, Inc."), effective January 2, 2004.

The financial  statements  presented herein compares the statement of operations
for the three-month  periods and the nine-month periods ended March 31, 2004 and
March 31, 2003 the balance sheets at March 31, 2004 and our year end of June 30,
2003.  Our financial  statements  are prepared on a  consolidated  basis and all
intercompany transactions have been eliminated.

Revenues for the three and nine months  ended March 31, 2004 totaled  $1,650,655
as compared  to $1,783 and $2,214,  respectively,  for the prior  periods.  This
increase in revenue is a direct result of the acquisition of the asset producing
revenues acquired from Fox Communications, Corporation

Operating expenses increased from $82,274 for the three month period ended March
31, 2003 compared to $2,178,924 for the three month period ended March 31, 2004.
This  increase  in  operating  costs  is  partially  attributable  to the  costs
associated with the Fox asset purchase. Operating expenses for Fox were $766,356
for both the three and nine  month  periods  ended  March  31,  2004.  Operating
expenses  increased from $591,719 for the nine month period ended March 31, 2003
to $3,389,681  for the  equivalent  nine month period ended March 31, 2004.  The
increase in the operating costs was due to higher  operation and  administrative
expenses  associated  with the  acquisition  of the fox assets,  the cost of the
increase in the Cornell Capital Partners, L.P. Equity Line of Credit, consulting
fees paid to outside consultants and a referral fee paid to a board member.

In the  three-month  period  ended  March 31,  2004,  we  incurred a net loss of
$1,407,809  as compared to a loss of $81,091 for the same period last year.  For
the nine month period ended March 31, 2004 we incurred a net loss of  $2,650,373
compared to a loss of $589,505 for the same period last year.

Since  incorporation,  we have funded our operations  through  private loans and
equity financings.  As at March 31, 2004, our assets were recorded at $5,754,519
consisting of cash ($15,793),  accounts  receivable,  net  ($719,556),  prepaids
($70,750),  capital assets ($1,089,610) and the purchased subscriber list of Fox
in the amount of $3,823,326 (net of  amortization of $201,228).  Our liabilities
totaled  $7,276,139,  consisting  of $984,911  in  accounts  payable and accrued
liabilities,  deposits on advanced  billings of $335,297,  loans  payable to the
seller of the Fox assets and Company  shareholders  of  $3,321,247,  convertible
debentures of $700,000,  a defaulted bank loan payable of $155,666 and equipment
lease obligations of $353,190.


                                       20
<PAGE>


NEW ACCOUNTING PRONOUNCEMENTS

      In January  2003,  FASB  issued FIN 46, an  interpretation  of  Accounting
Research  Bulletin No. 51. FIN 46, requires us to consolidate  variable interest
entities  for which we are deemed to be the  primary  beneficiary  and  disclose
information  about  variable  interest  entities in which we have a  significant
variable  interest.  FIN 46 became effective  immediately for variable  interest
entities  formed after  January 31, 2003 and will become  effective in the third
quarter of 2003 for any variable  interest  entities formed prior to February 1,
2003.  The adoption of this  standard is expected to have no material  effect on
our financial statements for the period ended March 31, 2003 and March 31, 2004.

ITEM 3. CONTROLS AND PROCEDURES

Within 90 days prior to the date of this quarterly report on Form 10-QSB for the
third quarter ended March 31, 2004, the Company carried out an evaluation, under
the  supervision  and  with  the  participation  of  the  Company's  management,
including the Company's  President,  its principal  executive officers and Chief
Financial  Officer,  of the  effectiveness  of the design and  operation  of the
Company's  disclosure  controls  and  procedures  pursuant to Rule 13a-14 of the
Securities  Exchange Act of 1934.  Based upon that  evaluation,  these principal
executive officers and principal  financial officer concluded that the Company's
disclosure  controls and  procedures  are  effective in timely  alerting them to
material  information  relating  to  the  Company,  including  its  consolidated
subsidiaries, required to be included in the Company's periodic SEC filings.

There have not been any changes in the Company's internal control over financial
reporting  during the 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.

PART II- OTHER INFORMATION

Item1. Legal Proceedings

We are the plaintiff in a lawsuit filed in Pierce County,  Washington,  Superior
Court which we commenced in October  2002.  In this  litigation we are asserting
claims against a corporation and one of its apparent principals related to their
alleged  breach of  contract  to  provide  debt  financing  to the  Company.  In
addition, the Company is seeking compensation for the damages it suffered as the
result of the defendants'  attempts to dispose of shares of the Company's common
stock that had been pledged to secure the promised,  but undelivered  financing.
The  defendants  have asserted a counterclaim  against the company,  pursuant to
which they seek a money judgment  against us in an unspecified  amount.  We have
been  advised by the  attorney  representing  us in the lawsuit that he believes
that the counterclaim has little or no merit.

Y3K, Inc., a wholly owned  subsidiary,  is a defendant in a lawsuit filed by the
Plaintiff who was the Lessor of the office space previously  occupied in Tacoma,
WA. The suit alleges the defendant  vacated the premises,  was in default of the
lease and seeks  damages to recover  costs  associated  with the  release of the
space,  including the lease payments due through the date that the Plaintiff has
released the space,  effective  July 2003 in  reimbursement  of broker's fees to
release the space as well as the  additional  costs of tenant  improvements  for
work done to accommodate the new tenant.

The Company is not a party to any other pending legal proceeding.  Management is
not aware of any threatened litigation, claims or assessments.


                                       21
<PAGE>


Item 2. Changes in Securities

During the quarter, the Company issued additional common shares as follows:

      6,775,775  shares of common stock were issued for the  acquisition  of the
      assets of Fox  Communications,  Corporation at the price of $.17 per share
      respectively with detail as follows:


<TABLE>
<CAPTION>
         ---------------------------------------- ------------------ ------------------------- -------------------------------
         Name of Entity/Type                           # of Shares          Value of              Effective Date of
                                                         Issued           Transaction               Transaction
         ---------------------------------------- ------------------ ------------------------- -------------------------------
<S>                                               <C>                    <C>                      <C>
         Fox Communications                               6,775,775         $1,151,882              January 2, 2004
         ---------------------------------------- ------------------ ------------------------- -------------------------------
</TABLE>

      During the  quarter,  3,415,960  shares of common  stock  were  issued for
      services  amounting  to $468,405 at prices  ranging  from $.10 to $.19 per
      share.

      The table below details the common shares issued for services:


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Person/Class                 # of              Consideration              Date of                    Description of
                             Shares            (Value of                  Transaction                 Services Rendered
                             Issued            Service)
-----------------------------------------------------------------------------------------------------------------------------
<S>                        <C>              <C>                         <C>                        <C>
Pearl Communications            60,000           $ 11,400.00            Jan. 08, 2004              Shares for marketing
David Canon                    250,000           $ 45,000.00            Jan. 08, 2004              B of D Bonus
Cornell Capital              1,294,000           $194,100.00            March 09, 2004             Consulting
Individual                      83,333           $ 12,500.00            Feb. 01, 2004              Stock in lieu of wages
Individual                      18,900           $  2,835.00            Feb. 01, 2004              Stock in lieu of wages
Individual                      59,727           $  6,570.00            Feb. 29, 2004              Stock in lieu of wages
Jeffrey Galpren              1,500,000           $180,000.00            Jan. 9, Feb. 20 and        Planning, financial
                                                                        March 19, 2004             consulting
Corporation                    100,000           $ 11,000.00            Feb. 16, 2004              Promotional services
Individual                      50,000           $  5,000.00            March 16, 2004             Business Development
-----------------------------------------------------------------------------------------------------------------------------
   Totals                    3,415,960           $468,405.00
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>


      A net of  66,341  additional  new  common  shares  were  issued  for  cash
      comprised  of 215,508  newly  issued  shares of common  stock for cash and
      166,667  shares of common  stock  that were  cancelled  to correct a prior
      period issuance of common shares for cash as follows:


                                       22
<PAGE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
 Person/Class                          # of                      Sales Price                Date of
                                       Shares                                             Transaction
                                       Sold/(Cancelled)
---------------------------------------------------------------------------------------------------------------
<S>                                   <C>                       <C>             <C>
 Individual                                       88,235            $15,000      January 2, 2004
---------------------------------------------------------------------------------------------------------------
 Individual                                      127,273            $14,000      February 24, 2004
 Individual (Correction)                        -166,667                 $0      January 4, 2004
---------------------------------------------------------------------------------------------------------------
     Totals                                       66,341            $29,000
---------------------------------------------------------------------------------------------------------------
</TABLE>


On January 29,  2004,  Y3K entered  into the Equity Line of Credit with  Cornell
Capital  Partners.  Pursuant  to the  Equity  Line of  Credit,  we  may,  at our
discretion, periodically sell to Cornell Capital Partners, L.P. shares of common
stock  for a total  purchase  price of up to $20.0  million.  For each  share of
common  stock  purchased  under  the  Equity  Line of  Credit,  Cornell  Capital
Partners,  L.P. will pay Y3K 97% of, or a 3% discount to, the lowest closing bid
price  of our  common  stock  on the  Over-the-Counter  Bulletin  Board or other
principal  market  on which  our  common  stock  is  traded  for the  five  days
immediately following the notice date. Further,  Cornell Capital Partners,  L.P.
will  retain 5% of each  advance  under the  Equity  Line of  Credit.  While the
commitment  amount of the Equity  Line of Credit is $20  million,  at an assumed
price of $0.1649 per share,  Y3K would only be able to receive gross proceeds of
$9,894,000  using  the  entire  60  million  shares  being  registered  in  this
registration  statement.  In connection with the Equity Line of Credit,  Cornell
Capital Partners,  L.P. is entitled to a one-time  commitment fee in the form of
2,941,176  shares of common  stock on January 26, 2004,  equaling  approximately
$500,000.

In January  2004,  Cornell  Capital  Partners,  L.P.  entered  into a securities
purchase agreement with Y3K under which Cornell Capital Partners, L.P. agreed to
purchase the total amount of $350,000 of convertible debentures. Cornell Capital
purchased $200,000 of convertible  debentures on January 15, 2004, and purchased
$150,000 on February 2, 2004.  The  debentures  are  convertible at the holder's
option any time up to maturity at a  conversion  price equal to the lower of (i)
$0.204 or (ii) 80% of the lowest  closing bid price of the common  stock for the
five trading days immediately  preceding the conversion date. The debentures are
secured by the assets of Y3K. The debentures  have a three-year  term and accrue
interest  at 5% per  year.  Interest  accrues  and  must be paid at or  prior to
maturity.  At  maturity,  Y3K has the  option  to  either  pay  the  holder  the
outstanding  principal balance and accrued interest or to convert the debentures
into  shares of common  stock at a  conversion  price  equal to the lower of (i)
$0.204 or (ii) 80% of the lowest  closing bid price of the common stock for five
trading days immediately  preceding the conversion  date. No principal  payments
are due prior to maturity.  Cornell Capital Partners,  L.P. is entitled to a 10%
discount from the purchase price of the convertible  debentures and,  therefore,
the net proceeds received by the Company is 10% less than the face amount of the
convertible debentures. Cornell Capital Partners, L.P. purchased the convertible
debentures from Y3K in a private placement.

All of these securities were issued pursuant to the exemption from  registration
under Section 4(6) of the  Securities  Act of 1933 and  Regulation D. Based upon
information  provided to Y3K it reasonably  believes that all persons  acquiring
the shares were accredited investors as such term is defined under Regulation D.

Item 3. Defaults Upon Senior Securities

      None.

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

      None.


                                       23
<PAGE>


Item 5. Other Information

      None.

Item 6. Exhibits and Reports on Form 8-K

(a) Index to Exhibits:

<TABLE>
<CAPTION>
<S>                                                                             <C>
31.1    Certification of the Chief Executive Officer                            Provided herewith
        Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2    Certification of The Chief Financial Officer                            Provided herewith
        Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1    Certification by King Cole Pursuant to                                  Provided herewith
        Section 906 of the Sarbanes-Oxley Act of 2002

32.2    Certification by Leon Caldwell Pursuant to                              Provided herewith
        Section 906 of the Sarbanes-Oxley Act of 2002
</TABLE>


(b) The following Form 8-K reports were filed during the period.

On January 26, 2004,  the Company filed an 8-K Report,  reporting  under Items 2
and  7  the  acquisition  of  a  substantial   portion  of  the  assets  of  Fox
Communications  Corporation. As of the date of filing of the Report on Form 8-K,
it was impracticable to provide the financial  statements  required by Item 7(a)
of Form 8-K and in  accordance  with Item  7(a)(4) of Form 8-K,  such were to be
filed by amendment to the Report.

On March 30, 2004, the Company filed an amendment to the 8-K Report it had filed
on January 26, 2004 amending Item 7 to list the  financial  statements  filed as
part of the amended Report.  The amended Form 8-K included the audited financial
statements  for Fox  Communications  Corporation  as of and for the  year  ended
December 31, 2003. It also included pro forma financial information including an
unaudited pro-forma consolidated balance sheet, pro-forma consolidated statement
of operations  and  explanatory  notes giving effect to the  acquisition  of Fox
Communications'  assets  and  certain  liabilities  by  the  Company  as if  the
acquisition had occurred on December 31, 2003.

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.

                                       Y3K SECURE ENTERPRISE SOFTWARE, INC.

                                       /S/ KING COLE
Date:  May 19, 2004                    King Cole, President and CEO



                                       24