UNITED STATES

               SECURITIES AND EXCHANGE COMMISSION
                      WASHINGTON, DC 20549


                            FORM 10-Q

                           (Mark One)

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

        For the quarterly period ended December 31, 2003

                               OR

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

 For the transition period from _____________ to ______________


                 COMMISSION FILE NUMBER 0-28579


                       NOVO NETWORKS, INC.
      (Exact Name of Registrant as Specified in Its Charter)


          Delaware                         75-2233445
(State or Other Jurisdiction            (I.R.S. Employer
     of Incorporation)                  Identification No.)


               2311 Cedar Springs Road, Suite 400
                       Dallas, Texas 75201
            (Address of Principal Executive Offices)

                         (214) 777-4100
      (Registrant's Telephone Number, Including Area Code)


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

Yes   X    No
    -----    -----

     Indicate by check mark whether the registrant is an
accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

 Yes        No  X
     -----    -----

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

On February 13, 2004, 52,323,701 shares of the registrant's
common stock, $.00002 par value per share, were outstanding.




<PAGE>

                       NOVO NETWORKS, INC.

                   QUARTERLY REPORT FORM 10-Q
                              INDEX



                                                       PAGE NO.
                                                       --------
PART I:   FINANCIAL INFORMATION

  Item 1. Financial Statements

       Consolidated Balance Sheets as of
          December 31, 2003 and June 30, 2003              3

       Consolidated Statements of Operations for
          the three and six months ended
          December 31, 2003 and 2002                       4

       Consolidated Statements of Cash Flows for
          the six months ended December 31, 2003
          and 2002                                         5

       Notes to Consolidated Financial Statements          6

  Item 2.    Management's Discussion and Analysis
             of Financial Condition and Results
             of Operations                                14

  Item 3.    Quantitative and Qualitative Disclosures
             About Market Risk                            24

  Item 4.    Controls and Procedures                      24


PART II:    OTHER INFORMATION

  Item 1.    Legal Proceedings                            24

  Item 2.    Changes in Securities and Use
             of Proceeds                                  25

  Item 3.    Defaults Upon Senior Securities              25

  Item 4.    Submission of Matters to Vote of
             Securities Holders                           25

  Item 5.    Other Information                            25

  Item 6.    Exhibits and Reports on Form 8-K             25

SIGNATURES                                                27




                               -2-

<PAGE>

                       NOVO NETWORKS, INC.
                   CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                            December 31, 2003     June 30, 2003
                                                            -----------------   ----------------

                                                         <c>                 <c>
ASSETS                                                         (unaudited)
CURRENT ASSETS
  Cash and cash equivalents                                 $       2,486,147   $      3,894,081
  Note receivable and other receivables,
    net of allowance ($4,076,839 at December 31, 2003
    and June 30, 2003)                                                      -                  -
  Prepaid expenses                                                    520,593            441,940
                                                            -----------------   ----------------
                                                                    3,006,740          4,336,021
LONG-TERM ASSETS
  Prepaid expenses                                                    275,000             26,736
  Deposits                                                              5,745              5,745
  Property and equipment, net                                         312,493            379,783
  Equity investments                                                1,250,000          2,255,523
                                                            -----------------   ----------------
                                                                    1,843,238          2,667,787
                                                            -----------------   ----------------
                                                            $       4,849,978   $      7,003,808
                                                            =================   ================
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Accounts payable                                          $               -   $          5,935
  Accrued liabilities                                                 514,469            496,443
  Customer deposits                                                     2,000              2,000
                                                            -----------------   ----------------
                                                                      516,469            504,378
                                                            -----------------   ----------------
COMMITMENTS AND CONTINGENCIES                                               -                  -

STOCKHOLDERS' EQUITY
  Preferred stock, $0.00002 par value, $1,000 liquidation
    preference per share, authorized 25,000,000, issued
    and outstanding 27,812 and 27,480, liquidation value
    - $27,812,000 and $27,480,000, respectively                            -                  -
  Common stock, $0.00002 par value, authorized 200,000,000,
    issued and outstanding, 52,323,701                                  1,050              1,050
  Additional paid-in capital                                      257,514,439        257,165,054
  Accumulated deficit                                            (253,181,980)      (250,666,674)
                                                            -----------------   ----------------
                                                                    4,333,509          6,499,430
                                                            -----------------   ----------------
                                                            $       4,849,978    $     7,003,808
                                                            =================   ================

</TABLE>

The accompanying notes are an integral part of these financial
statements.
                               -3-
<PAGE>
                       NOVO NETWORKS, INC.
              CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                      For the Three Months          For the Six Months
                                                       Ended December 31,            Ended December 31,
                                                  ---------------------------   ---------------------------
                                                      2003           2002           2003           2002
                                                  ------------   ------------   ------------   ------------
                                                          (unaudited)                   (unaudited)

                                               <c>            <c>            <c>            <c>
Operating expenses:
  Selling, general and administrative expenses    $    491,761   $    738,389   $  1,122,409   $  1,405,754
  Impairment loss                                      757,801              -        757,801              -
  Depreciation and amortization                         32,344         38,595         67,290         76,457
                                                  ------------   ------------   ------------   ------------
                                                     1,281,906        776,984      1,947,500      1,482,211
                                                  ------------   ------------   ------------   ------------
Loss from operations, before
  other (income) expense                            (1,281,906)      (776,984)    (1,947,500)    (1,482,211)

Other (income) expense:
  Interest income                                       (5,870)       (16,974)       (14,182)       (41,781)
  Loss in equity investments                           142,290              -        247,722        264,751
  Net gain on liquidation of debtor subsidiaries             -       (214,000)             -       (214,000)
  Other                                                 12,723         (1,661)       (15,119)       (37,105)
                                                  ------------   ------------   ------------   ------------
                                                       149,143       (232,635)       218,421        (28,135)
                                                  ------------   ------------   ------------   ------------
Net loss                                            (1,431,049)      (544,349)    (2,165,921)    (1,454,076)

Series D preferred dividends                          (176,436)      (163,000)      (349,385)      (322,779)
                                                  ------------   ------------   ------------   ------------
Net loss allocable to common shareholders         $ (1,607,485)  $   (707,349)  $ (2,515,306)  $ (1,776,855)
                                                  ============   ============   ============   ============
Basic
  Net loss per share                              $      (0.03)  $      (0.01)  $      (0.05)  $      (0.03)
                                                  ============   ============   ============   ============
  Weighted average number of shares outstanding     52,323,701     52,323,701     52,323,701     52,323,701
                                                  ------------   ------------   ------------   ------------
</TABLE>

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

                               -4-
<PAGE>

                       NOVO NETWORKS, INC.
              CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                            Six Months Ended
                                                               December 31,
                                                       ---------------------------
                                                           2003           2002
                                                       ------------   ------------
                                                               (unaudited)

                                                    <c>            <c>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                             $ (2,165,921)  $ (1,454,076)
  Adjustments to reconcile net loss to net cash
    used in operating activities:
    Depreciation and amortization                            67,290         76,457
    Other non-cash charges and credits:
     Stock-based compensation                                     -         31,944
     Bad debt expense                                             -        231,811
     Loss in equity investments                             247,722        264,751
     Net gain on sale of fixed assets                             -         (1,661)
     Impairment loss                                        757,801              -
     Net gain on liquidation of debtor subsidiaries               -       (214,000)
    Change in operating assets and liabilities:
     Note receivable and other receivables                        -       (231,811)
     Prepaid expenses                                      (326,917)      (147,951)
     Accounts payable                                        (5,935)       (16,329)
     Accrued liabilities                                     18,026       (144,747)
                                                       ------------   ------------
Net cash used in operating activities                    (1,407,934)    (1,605,612)
                                                       ------------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment                              -        (11,633)
  Sale of property and equipment                                  -         10,720
  Investments in equity investments                               -     (2,500,000)
                                                       ------------   ------------
Net cash used in  investing activities                            -     (2,500,913)
                                                       ------------   ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS                  (1,407,934)    (4,106,525)
CASH AND CASH EQUIVALENTS, beginning of year              3,894,081      9,871,305
                                                       ------------   ------------
CASH AND CASH EQUIVALENTS, end of period               $  2,486,147   $  5,764,780
                                                       ------------   ------------
</TABLE>

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

                               -5-
<PAGE>

                       NOVO NETWORKS, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   BUSINESS

General

Novo Networks, Inc. is a company that, through its operating
subsidiaries, previously engaged in the business of providing
telecommunications services over a facilities-based network until
December, 2001. For further details regarding our prior
operations, see the section entitled  "Business - Bankruptcy
Proceedings"). References to "Novo Networks," "Company," "we,"
"us" or "our" refer to Novo Networks, Inc., the ultimate parent
of the operating subsidiaries and the registrant under the
Securities Exchange Act of 1934. Prior to September 22, 1999, we
were a publicly held company with no material operations. We were
formerly known as eVentures Group, Inc., and prior to that, as
Adina, Inc., which was incorporated in Delaware on June 24, 1987.

During fiscal 2002, our principal telecommunications operating
subsidiaries, including AxisTel Communications, Inc. ("AxisTel"),
e.Volve Technology Group, Inc. ("e.Volve") and Novo Networks
Operating Corp. ("NNOC") filed voluntary petitions under Chapter
11 of Title 11 of the United States Code (the "Bankruptcy Code")
as described more fully below. We will refer to the subsidiaries
that have filed for bankruptcy protection as our "debtor
subsidiaries" throughout this quarterly report (this "Quarterly
Report"). In December of 2002, we purchased an ownership interest
in an Italian gelato company, as described more fully below.

Due to the ongoing liquidation of substantially all of our debtor
subsidiaries' assets, we currently have no operations or
revenues. We are not providing any products or services of any
kind (including telecommunications services) to any customers.

On December 19, 2002, we executed a purchase agreement (the
"Purchase Agreement") with Ad Astra Holdings LP, a Texas limited
partnership ("Ad Astra"), Paciugo Management LLC, a Texas limited
liability company and the sole general partner of Ad Astra
("PMLLC"), and the collective equity owners of both Ad Astra and
PMLLC, being Ugo Ginatta, Cristiana Ginatta and Vincent Ginatta
(collectively, the "Equity Owners"). Pursuant to the Purchase
Agreement, we acquired a 33% membership interest in PMLLC and a
32.67% limited partnership interest in Ad Astra, which results in
our holding an aggregate interest, including the PMLLC general
partnership interest, in Ad Astra equal to 33% (the "Initial
Interest"), for a purchase price of $2.5 million.

In addition, we hold an option, exercisable for a period of two
years from December 19, 2002, to purchase a 17.3% membership
interest in PMLLC and a 17.127% interest in Ad Astra (the
"Subsequent Interest") for $1.5 million. Together, the Initial
Interest and the Subsequent Interest would result in our holding
a 50.3% membership interest in PMLLC and a 49.797% limited
partnership interest in Ad Astra, for a total aggregate interest
in Ad Astra, including the PMLLC general partner interest, of
50.3%.

Collectively, Ad Astra and PMLLC, through a number of wholly
owned subsidiaries, own and manage a gelato manufacturing,
retailing and catering business operating under the brand name
"Paciugo." Throughout this Quarterly Report, we refer
collectively to Ad Astra, PMLLC, and their subsidiaries as
"Paciugo." Under the terms of the Purchase Agreement, we provide
services to support the business operations of Paciugo, including
administrative, accounting, financial, human resources,
information technology, legal, and marketing services (the
"Support Services"). The Support Services expressly exclude
providing certain capital expenditures as well as services that
are customarily performed by third party professionals. In
exchange for our providing the Support Services, we are entitled
to receive an annual amount equal to the greater of $0.25 million
or 2% of the consolidated gross revenues of Paciugo (excluding
any gross revenues shared with third parties under existing
contractual arrangements). Effective January 1, 2003, we began
receiving monthly payments from Paciugo in the amount of $20,833,
with positive cumulative differences, if any, between 2% of such
gross revenues and $20,833 per month to be paid within ten days
of the end of such month. In July and August, 2003, we recorded
other income from the provision of the Support Services to
Paciugo as agreed upon in the Purchase Agreement. In August of
2003, certain disagreements arose between us and Paciugo
concerning the amount of the monthly payment for July of 2003, as
well as our performance of the Support Services. As a result,
Paciugo has failed to make these payments since August of 2003.

                               -6-
<PAGE>

Under the terms of the Purchase Agreement, we are entitled to
such representation on the governing board of PMLLC (the "Board
of Managers") as is proportionate to our ownership interests
therein. Effective as of December 19, 2002, PMLLC's Board of
Managers was composed of Ugo Ginatta and Cristiana Ginatta, as
the Equity Owners' designees, and Barrett N. Wissman, as our
designee. PMLLC, as the sole general partner of Ad Astra, is
empowered to make all decisions associated with Ad Astra, except
for those requiring the approval of the limited partners, as set
forth in the limited partnership agreement of Ad Astra or under
applicable law.

We effectively maintain no ability to control the day-to-day
affairs of our Paciugo interest. On August 1, 2003, Susie C.
Holliday resigned from her position as Senior Vice President and
Chief Financial Officer of Paciugo along with her resignation
from her position with us. On August 15, 2003, Patrick G. Mackey
was named Senior Vice President and Chief Financial Officer of
Paciugo. On August 25, 2003, Barrett N. Wissman resigned from the
position of President of Paciugo. In addition, during the first
three calendar quarters of 2003, our Board of Directors became
increasingly more concerned about Paciugo's market position, the
industry in which Paciugo competes and Paciugo's prospects for
meaningful success therein. Accordingly, during the fourth
quarter of Fiscal 2003, we concluded that it was reasonably
unlikely that we would expand our Paciugo interest and exercise
our option to acquire the Subsequent Interest. Therefore,
effective on October 1, 2003, Steven W. Caple and Patrick G.
Mackey resigned their positions as Senior Vice President and
General Counsel and Senior Vice President and Chief Financial
Officer, respectively, of Paciugo.

During the quarter ended December 31, 2003, we engaged in
discussions with Paciugo that resulted in our entering into a
sales agreement on January 13, 2004 (the "Sales Agreement") with
Ad Astra, PMLLC, and the Equity Owners, whereby we agreed,
subject to customary closing conditions, to (i) sell and transfer
to Ad Astra all of our right, title, and interest in Ad Astra,
(ii) sell and transfer to PMLLC all of our right, title, and
membership interest in PMLLC, and (iii) terminate our right to
exercise the option to acquire the Subsequent Interest, all in
exchange for a total proposed Sales Price of $1.250 million (the
"Sales Price'), to be paid in cash at closing by Ad Astra and
PMLLC. The closing of the Sales Agreement is expected to take
place on or about May 12, 2004, unless consummated earlier or
later than this date, as provided for in the Sales Agreement.
Also, in connection with the execution of the Sales Agreement
with Paciugo, we will give up any rights to receive any
additional payments for the provision of Support Services under
the Purchase Agreement.

Bankruptcy Proceedings

On April 2, 2001, another one of our subsidiaries, Internet
Global Services, Inc. ("iGlobal") filed a voluntary petition for
protection under Chapter 7 of the Bankruptcy Code in the United
States Bankruptcy Court for the Northern District of Texas (the
"Texas Bankruptcy Court") due to iGlobal's inability to service
its debt obligations and contingent liabilities, as well as our
inability to raise sufficient capital to fund operating losses at
iGlobal. As a result of the filing, we recorded an impairment
loss of $62.4 million during fiscal 2001, the majority of which
related to non-cash goodwill recorded in connection with our
acquisition of iGlobal. During April 2003, iGlobal's trustee
filed an adversary proceeding against us.

On July 30, 2001, the debtor subsidiaries filed voluntary
petitions for protection under the Bankruptcy Code in the United
States Bankruptcy Court for the District of Delaware (the
"Delaware Bankruptcy Court") in order to stabilize their
operations and protect their assets while attempting to
reorganize their businesses.

We have set forth below a table summarizing the current status of
our wholly owned subsidiaries.

                               -7-
<PAGE>

                                              Status as     Subject to
                                    Date     of February Bankruptcy Plan
     Wholly Owned Subsidiary      Acquired   12, 2004(1) or Proceedings?
  -----------------------------  ----------  ----------- ---------------
  Novo Networks Operating Corp.   2/8/00(2)   Inactive   Yes, Chapter 11

  AxisTel Communications, Inc.    9/22/99     Inactive   Yes, Chapter 11

  Novo Networks International     9/22/99     Inactive   Yes, Chapter 11
    Services, Inc.

  Novo Networks Global            9/22/99     Inactive   Yes, Chapter 11
    Services, Inc.

  Novo Networks Metro Services,   9/22/99     Inactive   Yes, Chapter 11
    Inc.

  Novo Networks Metro Services    9/22/99     Inactive         No
    (Virginia), Inc.

  Novo Networks Media Services,   9/22/99     Inactive         No
    Inc.

  e.Volve Technology Group,       10/19/99    Inactive   Yes, Chapter 11
    Inc.

  Internet Global Services,       3/10/00     Inactive    Yes, Chapter 7
    Inc.

  eVentures Holdings, LLC         9/7/99(2)   Active(3)         No

  -----------------------
  (1)    "Active" status indicates current operations within the
          respective entity; "Inactive" status indicates no
          current operations, but may include certain activities
          associated with the administration of an estate
          pursuant to a bankruptcy filing or plan.

  (2)     Indicates the date of incorporation, and if the entity
          was organized by us.

  (3)     This entity has no operations other than to hold
          certain equity interests.

As originally contemplated, the goal of the reorganization effort
relating to our debtor subsidiaries that filed voluntary
petitions under Chapter 11 of the Bankruptcy Code was to preserve
the going concern value of our debtor subsidiaries' core assets
and to provide distributions to their creditors. However, based
largely on the fact that our debtor subsidiaries ceased receiving
traffic from their sole remaining customer, a determination was
made that the continued viability of the debtor subsidiaries was
not realistic. Accordingly, the bankruptcy plan was amended. The
amended plan and disclosure statement were filed with the
Delaware Bankruptcy Court on December 31, 2001. The amended plan
provides for a liquidation of substantially all of the assets of
our debtor subsidiaries, pursuant to Chapter 11 of the Bankruptcy
Code, instead of a reorganization as previously planned.

On January 14, 2002, the Delaware Bankruptcy Court approved the
amended disclosure statement, with certain minor modifications,
and on March 1, 2002, the Delaware Bankruptcy Court confirmed the
amended plan, again with minor modifications. On April 3, 2002,
the amended plan became effective and a liquidating trust was
formed, with funding provided by us in the amount of $0.2
million. Assets to be liquidated of $0.7 million were transferred
to the liquidating trust during the fourth quarter of fiscal
2002. The purpose of the liquidating trust is to collect,
liquidate and distribute the remaining assets of the debtor
subsidiaries and prosecute certain causes of action against
various third parties, including, without limitation, Qwest
Communications Corporation ("Qwest"). No assurance can be given
that the liquidating trust will be successful in liquidating
substantially all of the debtor subsidiaries' assets pursuant to
the amended plan. Also, it is not possible to predict the outcome
of the prosecution of causes of action against third parties,
including, without limitation, Qwest, as described in the amended
plan and disclosure statement. We have previously guaranteed
certain indebtedness of one or more of the debtor subsidiaries
and, depending upon the treatment of and distribution to holders
of such indebtedness under the amended plans, we may be liable
for some or all of this indebtedness.

                               -8-
<PAGE>

In connection with the bankruptcy proceedings, we initially
provided our debtor subsidiaries with approximately $1.9 million
in secured debtor-in-possession financing to fund their
reorganization efforts. The credit facility made funds available
to permit the debtor subsidiaries to pay employees, vendors,
suppliers, customers and professionals consistent with the
requirements of the Bankruptcy Code. In connection with the
amended plan being confirmed by the Delaware Bankruptcy Court and
becoming effective on April 3, 2002, the credit facility was
converted into a new secured note. During fiscal 2003, we
provided additional funding of $0.5 million to the liquidating
trust. The current balance on the new secured note is
approximately $3.3 million, which has been fully reserved due to
the uncertainty surrounding the collection of this note. For
further details regarding the funding provided to the debtor
subsidiaries, see Item 2 "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and
Capital Resources."

Litigation Against Qwest

On June 17, 2002, we, along with the liquidating trust, filed a
lawsuit seeking damages resulting from numerous disputes over
business dealings and agreements with Qwest, a former customer
and vendor, and John L. Higgins, a former employee and
consultant. No assurances can be given that any recoveries will
result from the prosecution of such causes of action against
Qwest and Mr. Higgins. Furthermore, if there are any recoveries,
they may or may not inure to our benefit. Qwest filed a motion to
stay the litigation and compel arbitration on August 14, 2002. On
March 13, 2003, a hearing was held to determine the proper forum
for the various claims. After listening to oral arguments, the
district judge granted Qwest's motion. On April 2, 2003, we,
along with the liquidating trust, filed a petition with the
Supreme Court of Nevada, asking it to direct the district judge
to reconsider her order. On August 13, 2003, our petition was
denied. Accordingly, an arbitrator was appointed on December 30,
2003. He presided over a preliminary hearing on February 4, 2004,
and he set the matter for a final hearing on July 7, 2004. For
further details regarding this litigation, see Note 8 entitled
"Legal Proceedings."

2.   LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2003, we had consolidated current assets of $3.0
million, including cash and cash equivalents of approximately
$2.5 million and net working capital of $2.5 million. Principal
uses of cash have been to fund (i) operating losses, (ii)
acquisitions and strategic business opportunities, (iii) working
capital requirements, and (iv) expenses related to the bankruptcy
plan administration process. Due to our financial performance,
the lack of stability in the capital markets and the economy's
downturn, our only current source of funding is expected to be
cash on hand.

Effectively, our only ability to satisfy our current obligations
is our cash on hand.  Our current obligations include (i) funding
working capital, (ii) funding the liquidating trust, and (iii)
funding the Qwest litigation. We estimate that it will take
approximately $1.5 million of our remaining cash to satisfy these
obligations for the next 12 months.  This would leave us with
approximately $1.0 million of cash available for funding
potential business opportunities. Consequently, if we deployed
this remaining cash in a transaction, we would need to realize
revenues from such a transaction in an amount to satisfy our
current obligations before December 31, 2004.  In the event we
expend all of our $1.0 million on a transaction and achieve no
return or cash flow from that transaction before December 31,
2004, we would likely be required to cease operations altogether
or to pursue other alternatives, such as liquidating or filing a
voluntary petition for relief under the Bankruptcy Code.

To the extent we are able to successfully consummate the Sale
Agreement with Paciugo and obtain the Sales Price, or are able to
successfully realize a cash settlement or obtain a judgment in
connection with the Qwest litigation, we would have additional
resources to either deploy in pursuit of a business opportunity
or to continue meeting our current obligations.  We can offer no
assurances that either of these events will occur at all, nor
whether they might occur on or before December 31, 2004.

Our debtor subsidiaries filed bankruptcy proceedings under the
Bankruptcy Code. As the ultimate parent, we agreed to provide our
debtor subsidiaries with up to $1.6 million in secured debtors-in-
possession financing. Immediately prior to the confirmation
hearing, we increased this credit facility to approximately $1.9
million, which was advanced as of March 31, 2002. The credit
facility made funds available to permit the debtor subsidiaries
to pay employees, vendors, suppliers, customers and professionals
consistent with the requirements of the Bankruptcy Code. The
credit facility provided for interest at the rate of prime plus
3.0% per annum and provided "super-priority" lien status, meaning
that we had a valid first lien, pursuant to the Bankruptcy Code,
on substantially all of the debtor subsidiaries' assets. We are
currently not recording the interest associated with the debtors-
in-possession loan due to the uncertainty surrounding the
collection of this note. In addition, the credit facility
maintained a default interest rate of prime plus 5.0% per annum.

                               -9-
<PAGE>

In connection with the amended plan being confirmed by the
Delaware Bankruptcy Court and becoming effective on April 3,
2002, the credit facility was converted into a new secured note
in the principal amount of approximately $2.5 million,
representing the principal amount of the debtors-in-possession
financing, certain payroll expenses, accrued interest and
applicable attorneys' fees. Subsequent to June 30, 2002, the new
secured note was amended to approximately $2.9 million,
representing additional trust funding, certain payroll expenses
and applicable attorneys' fees. The new secured note is
guaranteed by the debtor subsidiaries under an agreement in which
the debtor subsidiaries have pledged substantially all of their
remaining assets as collateral. During fiscal 2003, we provided
additional funding of $0.5 million to the liquidating trust. A
new secured note of approximately $3.3 million to the liquidating
trust was signed on May 15, 2003. Due to the uncertainty
surrounding the collection of the new secured note, it has been
fully reserved.

We currently anticipate that we will not generate any revenue
from operations in the near term based on (i) the termination of
the operations of our debtor subsidiaries, which have
historically provided all of our significant revenues on a
consolidated basis, and (ii) the uncertainties surrounding other
potential business opportunities that we may consider, if any.

As noted above, we do not believe that any of the traditional
funding sources will be available to us and that our only option
will likely be cash on hand. Consequently, our failure to
identify other potential business opportunities, if any, will
jeopardize our ability to continue as a going concern. Due to
these factors, we are unable to determine whether current
available financing will be sufficient to meet the funding
requirements of (i) our debtor subsidiaries bankruptcy plan
administration process and (ii) our ongoing general and
administrative expenses. No assurances can be given that adequate
levels of financing will be available to us on acceptable terms,
if at all.

3.   GENERAL

The accompanying consolidated financial statements as of December
31, 2003, and for the three and six month periods ended December
31, 2003, and December 31, 2002, respectively, have been prepared
by us, without audit, pursuant to the interim financial
statements rules and regulations of the United States Securities
and Exchange Commission ("SEC"). In our opinion, the accompanying
consolidated financial statements include all adjustments
necessary to present fairly the results of our operations and
cash flows at the dates and for the periods indicated. The
results of operations for the interim periods are not necessarily
indicative of the results for the full fiscal year. The
accompanying consolidated financial statements should be read in
conjunction with the audited consolidated financial statements
included in our Annual Report on Form 10-K for the fiscal year
ended June 30, 2003.

The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures 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. The consolidated financial statements include
our accounts and those of our wholly owned subsidiaries not
currently involved in the bankruptcy plan administration process.

As of June 30, 2002, the assets and liabilities of the debtor
subsidiaries were deconsolidated, as the liquidating trust
controls their assets. For further details regarding the
bankruptcy proceedings, see Note 1 entitled "Business -
Bankruptcy Proceedings." We have recorded an accrual of
approximately $0.3 million in the accompanying financial
statements for the estimated costs of liquidating substantially
all of the assets and liabilities of the debtor subsidiaries. The
estimated realizable values and settlement amounts may be
different from the proceeds ultimately received or payments
ultimately made.

Certain fiscal 2003 balances have been reclassified for
comparative purposes to be consistent with the fiscal 2004
presentation. Such reclassifications have no impact on the
reported net loss. All significant intercompany accounts have
been eliminated.

4.   LOSS PER SHARE

We calculate earnings (loss) per share in accordance with SFAS
No. 128, "Earnings Per Share" ("EPS"). SFAS No. 128 requires dual
presentation of basic EPS and diluted EPS on the face of the
income statement for all entities with complex capital
structures. Basic EPS is computed as net income (loss) less
preferred dividends divided by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur from common shares
issuable through stock options, warrants and convertible
debentures. For the three and six months ended December 31, 2003,
and 2002, respectively, diluted EPS are not presented, as the
assumed conversion would be antidilutive. Had the effect not been
antidilutive, an additional 15,403,158 and 14,482,873 shares of
common stock would have been included in the diluted earnings per
share calculation for the three months and six months ended
December 31, 2003, and 2002, respectively.

                              -10-
<PAGE>

5.   EQUITY INVESTMENTS

Subsidiaries whose results are not consolidated, but over whom we
exercise significant influence, are generally accounted for under
the equity method of accounting.  Whether we exercise significant
influence with respect to a subsidiary depends on an evaluation
of several factors, including, without limitation, representation
on the subsidiary's governing board and ownership level, which is
generally a 20% to 50% interest in the voting securities of the
subsidiary, including voting rights associated with our holdings
in common stock, preferred stock and other convertible
instruments in the subsidiary. Under the equity method of
accounting, the subsidiary's accounts will not be reflected in
our consolidated financial statements. Our proportionate share of
a subsidiary's operating earnings and losses will be included in
the caption "Loss in equity investments" in our consolidated
statements of operations.

Currently, we have minority equity interests in Paciugo, an ongoing
gelato manufacturing, retailing and catering business, and certain
development stage Internet and communications companies, which
are currently either winding up their affairs or liquidating.
During the second fiscal 2003 quarter, we purchased the Initial
Interest in Paciugo. For further details regarding this
transaction, see Note 1 entitled "Business - General." The
Initial Interest is accounted for under the equity method.

For the six-month period ended December 31, 2003, our
proportionate share of equity losses totaled approximately $0.248
million. The value of our outstanding equity interests, other
than Paciugo, have been reduced to zero either by recording our
proportionate share of losses incurred by the subsidiary up to
the cost of that interest or from impairment losses. Based on the
negotiation and execution of the Sales Agreement (see Note 1
entitled "Business - General"), we recorded an impairment loss in
the current quarter on our interest in Paciugo so that that our
carrying value will equal the proposed Sales Price. For those
equity interests that were completely impaired in previous
quarters, we ceased recording our share of losses incurred by the
subsidiary. Our equity interests consist of the following at
December 31, 2003:

<TABLE>
<CAPTION>

                                                % Ownership *         Accounting     Carrying
Company Name                                  Common   Preferred        Method         Value
-----------------------------------------    --------  ---------      ----------     ----------

                                             <c>      <c>           <c>           <c>
Paciugo                                         33.0%     33.0%        Equity        $1,250,000
Gemini Voice Solutions (f/k/a PhoneFree)**      17.2%     31.7%        Equity                 -
ORB Communications & Marketing, Inc. ***        19.0%    100.0%        Equity                 -
FonBox, Inc.                                    14.0%     50.0%        Equity                 -
Launch Center 39 ("LC39")                        0.0%      2.1%         Cost                  -
Spydre Labs                                      5.0%      0.0%         Cost                  -
                                                                                     ----------
                                                                                     $1,250,000
                                                                                     ==========
*    Reflects our ownership percentage at December 31, 2003.

**   Gemini Voice began the process of winding up its affairs
     in August of 2003.

***  ORB filed a voluntary petition under Chapter 7 of the
     Bankruptcy Code in February of 2003.

</TABLE>

Paciugo meets the criteria for a "significant subsidiary" as set
forth in Rule 1.02(w) of Regulation S-X under the Exchange Act.
Summarized unaudited financial information for Paciugo as of
December 31, 2003, and for the three and six months ended
December 31, 2003, is as follows:

                              -11-
<PAGE>


Financial position information:
Current assets                     $        656,852
Non-current assets                        1,654,157
Current liabilities                         411,031
Non-current liabilities                     502,581
Net assets                                1,397,397
Income statement information:
                                   For three months    For the six months
                                         ended                ended
                                   December 31, 2003   December 31, 2003
                                   -----------------   -----------------
Revenues                           $         397,552   $       1,004,655
Gross profit                                 279,027             788,395
Net loss                                    (395,372)           (715,121)
Our equity in Paciugo's net loss   $        (142,290)  $        (247,722)


6.   Stock Options

At December 31, 2003, we sponsor two stock option plans: (i) the 1999 Omnibus
Securities Plan (the "1999 Plan") and (ii) the 2001 Equity Incentive Plan (the
"2001 Plan"). We have elected to account for those plans under Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees."

We have adopted the disclosure-only provision of SFAS 123, "Accounting for Stock
Based Compensation" and SFAS 148, "Accounting for Stock-Based Compensation-
Transition and Disclosure an Amendment to SFAS 123." Pro forma information is
presented as if we have accounted for the stock options granted during the
fiscal periods presented using the fair value method.  We did not grant any
stock options pursuant to the two stock option plans referenced above during the
quarters ended December 31, 2003, and 2002, respectively. However, we expect to
grant stock options to each of our three directors on or before February 28,
2004, pursuant to the resolution of the Board of Directors on January 24, 2003,
which approved annual grants of 25,000 options to each of our directors in
recognition of the services that they render to us.

For purposes of pro forma disclosure, the estimated fair values of the options
are amortized to expense over the options' vesting period. The Company's pro
forma information relative to the 2001 Plan and 1999 Plan is as follows:

<TABLE>
<CAPTION>
                                   For the three months ended     For the six months ended
                                           December 31,                  December 31,
                                   ---------------------------   ---------------------------
                                       2003           2002           2003           2002
                                   ------------   ------------   ------------   ------------
                                    (unaudited)    (unaudited)    (unaudited)    (unaudited)
Pro Forma Net Loss
------------------
  
                              <c>            <c>            <c>            <c>
  Net loss allocable to common
    shareholders as reported       $ (1,607,485)  $   (707,349)  $ (2,515,306)  $ (1,776,855)
  Compensation recorded                       -         31,944              -         31,944
  Additional compensation expense
    under SFAS 123                       (2,500)      (618,000)        (5,000)    (2,270,006)
                                   ------------   ------------   ------------   ------------
  Net loss allocable to common
    shareholders, pro forma        $ (1,609,985)  $ (1,293,405)  $ (2,520,306)  $ (4,014,917)
                                   ============   ============   ============   ============
  Net loss per share, pro forma    $      (0.03)  $      (0.02)  $      (0.05)  $      (0.08)
  Net loss per share, basic and
    diluted, as reported           $      (0.03)  $      (0.01)  $      (0.05)  $      (0.03)

</TABLE>


                              -12-
<PAGE>


7.   LEGAL PROCEEDINGS

As previously reported, Eos Partners, LP, Eos Partners SBIC, LP,
Eos Partners (Offshore), LP, Kuwait Fund for Arab Economic
Development and TBV Holdings Ltd. (collectively, the
"Plaintiffs") filed a lawsuit against us, Fred Vierra, Barrett N.
Wissman, Clark K. Hunt, Mark R. Graham, Olaf Guerrand-Hermes,
Stuart Subotnick, Jan Robert Horsfall, Stuart Chasanoff, John
Stevens Robling, Jr., Samuel Litwin, Mitchell Arthur, BDO
Seidman, LP, Hunt Asset Management, LLC, HW Partners, LP, HW
Finance, LLC, HW Capital, LP and HW Group, LLC (collectively, the
"Defendants") in the 190th Judicial District Court of Harris
County, Texas, on December 19, 2002. The lawsuit alleged breach
of contract, fraud and conspiracy in connection with the
Plaintiffs' purchase of certain of our Series C Convertible
Preferred Stock in December of 1999 and January of 2000. The
Defendants denied the allegations and vigorously defended against
the Plaintiffs' claims and sought all other appropriate relief.
The Plaintiffs claimed actual damages of approximately $17.4 million
and requested additional exemplary damages, costs of court and
attorneys' fees.  The Defendants submitted the claims to their
insurance carriers. The district judge denied the Plaintiffs' motion
to transfer the case to Dallas County and ruled that it should
instead proceed in Harris County. However, it was reassigned to the
280th Judicial District Court.  The Plaintiffs and the Defendants
mediated the case on February 9, 2004, and the claims were settled
at that time on terms in which we did not expend any cash or assets.
As part of the settlement, either we or our designee will receive
all of the outstanding Series C Convertible Preferred Stock from
the holders thereof, including the Plaintiffs, without any
additional consideration. When the shares are tendered, they will
either be cancelled or held in treasury.

As previously reported, we, along with the liquidating trust,
filed a lawsuit on June 17, 2002, against Qwest, a former
customer and vendor, and John L. Higgins, a former employee and
consultant, in the Eighth Judicial District Court of Clark
County, Nevada. The amended plan called for certain causes of
action to be pursued by the liquidating trust against various
third parties, including Qwest, in an attempt to marshal
sufficient assets to make distributions to creditors. We were a
co-proponent of the amended plan and suffered independent damages
as a result of Qwest's actions. Accordingly, we and the
liquidating trust asserted, among other things, the following
claims against Qwest: (i) breach of contract, (ii) conversion,
(iii) misappropriation of trade secrets, (iv) breach of a
confidential relationship, (v) fraud, (vi) breach of the covenant
of good faith and fair dealing, (vii) tortious interference with
existing and prospective business relations, (viii) aiding and
abetting Mr. Higgins's misconduct, (ix) civil conspiracy, and (x)
unjust enrichment. The following claims also have been asserted
against Mr. Higgins: (i) breach of contract, (ii) breach of
fiduciary duties, (iii) breach of a confidential relationship,
(iv) fraud, (v) aiding and abetting Qwest's misconduct, (vi)
civil conspiracy, and (vii) unjust enrichment. In addition to an
award of attorneys' fees, we and the liquidating trust are
seeking such actual, consequential and punitive damages as may be
awarded by a jury or other trier of fact. Qwest filed a motion to
stay the litigation and compel arbitration on August 14, 2002. On
March 13, 2003, a hearing was held to determine the proper forum
for the various claims. After listening to oral arguments, the
district judge granted Qwest's motion. On April 2, 2003, we,
along with the liquidating trust, filed a petition with the
Supreme Court of Nevada, asking it to direct the district judge
to reconsider her order. On August 13, 2003, our petition was
denied. Accordingly, an arbitrator was appointed on December 30,
2003.  He presided over a preliminary hearing on February 4,
2004, and he set the matter for a final hearing on July 7, 2004.

We have previously disclosed in other reports filed with the
United States Security and Exchange Commission (the "SEC")
certain other legal proceedings pending against us and our
subsidiaries. Consistent with the rules promulgated by the SEC,
descriptions of these matters have not been included in this
Quarterly Report because they have neither been terminated nor
has there been any material developments during the fiscal year
ended June 30, 2003. Readers are encouraged to refer to our prior
reports for further information concerning other legal
proceedings affecting us and our subsidiaries.

We and our subsidiaries are involved in other legal proceedings
from time to time, none of which we believe, if decided adversely
to us or our subsidiaries, would have a material adverse effect
on our business, financial condition or results of operations.

                              -13-
<PAGE>

Item 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS

"Forward-looking" statements appear in the following Management's
Discussion and Analysis of Financial Condition and Results of
Operations as well as elsewhere in this Quarterly Report. We have
based these forward-looking statements on our current
expectations and projections about future events.

Forward-looking statements include, without limitation, the
following:

     *    statements regarding our future capital requirements
          and our ability to satisfy our capital needs;

     *    statements regarding our ability to continue as a going
          concern;

     *    statements regarding our exposure, if any, arising from
          litigation matters currently pending against us;

     *    statements regarding our ability to collect amounts
          owed by Qwest and other third parties and to
          successfully pursue causes of action against Qwest and
          other third parties;

     *    statements regarding the ability of our debtor
          subsidiaries to successfully liquidate and distribute
          substantially all of their assets, pursuant to the
          amended plan, without causing a material adverse impact
          on us;

     *    statements regarding the consummation of the Sales
          Agreement and realization of the proposed Sales Price;

     *    statements regarding the redeployment of our remaining
          cash assets, if any, in furtherance of a potential
          business opportunity;

     *    statements regarding the potential generation of
          revenue resulting from the redeployment of our cash
          assets;

     Statements concerning our debtor subsidiaries:

     *    statements regarding the estimated liquidation value of
          assets and settlement amounts of liabilities;

     Statements concerning our Paciugo interest:

     *    statements regarding our ability to realize any benefit
          from the Paciugo Sales Agreement;

     Other statements:

     *    statements that contain words like "believe,"
          "anticipate," "expect" and similar expressions are also
          used to identify forward-looking statements.

     You should be aware that all of our forward-looking
statements are subject to a number of risks, assumptions and
uncertainties, such as (and in no particular order):

     *    risks inherent in our ability to redeploy our remaining
          assets, including remaining cash assets;

     *    risks associated with competition in the sector or
          industry that we may enter;

     *    our ability to successfully prosecute claims against
          Qwest and other third parties;

     *    risks associated with our ability to close the Sales
          Agreement and the realization of the proposed Sales
          Price;

     *    risks associated with having no current operations or
          revenue;

     *    risks that we will be unable to redeploy our remaining
          cash assets, or if so deployed, risks that we will not
          be able to generate positive cash flow or revenue after
          consummating such a transaction sufficient to satisfy
          our current obligation;

     *    risks associated with preserving the net operating loss
          carryforwards of our debtor subsidiaries;

     *    uncertainties in the implementation of the amended plan
          concerning the liquidation of substantially all of the
          remaining assets of our debtor subsidiaries; and

     *    changes in the laws and regulations that govern us.

This list is only an example of the risks that may affect the
forward-looking statements. If any of these risks or
uncertainties materialize (or if they fail to materialize), or if
the underlying assumptions are incorrect, then actual results may
differ materially from those projected in the forward-looking
statements.

                              -14-
<PAGE>

Additional factors that could cause actual results to differ
materially from those reflected in the forward-looking statements
include those discussed in this section, elsewhere in this
report, in our Quarterly Report on Form 10-Q for our fiscal
quarter ended September 30, 2003, and the risks discussed in the
"Business Considerations" section included in our Annual Report
on Form 10-K for our fiscal year ended June 30, 2003, as filed
with the SEC. Readers are cautioned not to place undue reliance
on these forward-looking statements, which reflect the Company's
analysis, judgment, belief or expectation only as of the date of
this Quarterly Report. We undertake no obligation to publicly
revise these forward-looking statements to reflect events or
circumstances that arise after the date of this report.

ACQUISITION OF THE INITIAL INTEREST IN PACIUGO

On December 19, 2002, we executed a purchase agreement (the
"Purchase Agreement") with Ad Astra Holdings LP, a Texas limited
partnership ("Ad Astra"), Paciugo Management LLC, a Texas limited
liability company and the sole general partner of Ad Astra
("PMLLC"), and the collective equity owners of both Ad Astra and
PMLLC, being Ugo Ginatta, Cristiana Ginatta and Vincent Ginatta
(collectively, the "Equity Owners"). Pursuant to the Purchase
Agreement, we purchased a 33% membership interest in PMLLC and a
32.67% limited partnership interest in Ad Astra, which results in
our holding an aggregate interest, including the PMLLC general
partnership interest, in Ad Astra equal to 33% (the "Initial
Interest"), for a purchase price of $2.5 million.

In addition, we hold an option, exercisable for a period of two
years from December 19, 2002, to purchase a 17.3% membership
interest in PMLLC and a 17.127% interest in Ad Astra (the
"Subsequent Interest") for $1.5 million. Together, the Initial
Interest and the Subsequent Interest would result in our holding
a 50.3% membership interest in PMLLC and a 49.797% limited
partnership interest in Ad Astra, for a total aggregate interest
in Ad Astra, including the PMLLC general partner interest, of
50.3%.

Collectively, Ad Astra and PMLLC, through a number of wholly
owned subsidiaries, own and manage a gelato manufacturing,
retailing and catering business operating under the brand name
"Paciugo." Throughout this Quarterly Report, we refer
collectively to Ad Astra, PMLLC, and their subsidiaries as
"Paciugo." Under the terms of the Purchase Agreement, we provide
services to support the business operations of Paciugo, including
administrative, accounting, financial, human resources,
information technology, legal, and marketing services (the
"Support Services"). The Support Services expressly exclude
providing certain capital expenditures as well as services that
are customarily performed by third party professionals. In
exchange for our providing the Support Services, we are entitled
to receive an annual amount equal to the greater of $0.25 million
or 2% of the consolidated gross revenues of Paciugo (excluding
any gross revenues shared with third parties under existing
contractual arrangements). Effective January 1, 2003, we began
receiving monthly payments from Paciugo in the amount of $20,833,
with the positive cumulative difference, if any, between 2% of
such gross revenues and $20,833 per month to be paid within ten
days of the end of such month. In July and August, 2003, we
recorded other income from the provision of the Support Services
to Paciugo as agreed upon in the Purchase Agreement. In August of
2003, certain disagreements arose between us and Paciugo
concerning the amount of the monthly payment for July of 2003, as
well as our performance of the Support Services. As a result,
Paciugo has failed to make these monthly payments since August of
2003. In connection with the execution of the Sales Agreement
with Paciugo, we gave up any rights to receive any additional
payments for the provision of Support Services under the Purchase
Agreement.

We are entitled, under the terms of the Purchase Agreement, to
such representation on the governing board of PMLLC (the "Board
of Managers") as is proportionate to our ownership interests
therein. Effective as of December 19, 2002, PMLLC's Board of
Managers was composed of Ugo Ginatta and Cristiana Ginatta, as
the Equity Owners' designees, and Barrett N. Wissman, as our
designee. PMLLC, as the sole general partner of Ad Astra, is
empowered to make all decisions associated with Ad Astra, except
for those requiring the approval of the limited partners, as set
forth in the limited partnership agreement of Ad Astra or under
applicable law.

We effectively maintain no ability to control the day-to-day
affairs of our Paciugo interest. On August 1, 2003, Susie C.
Holliday resigned from her position as Senior Vice President and
Chief Financial Officer of Paciugo along with her resignation
from her position with us. On August 15, 2003, Patrick G. Mackey
was named Senior Vice President and Chief Financial Officer of
Paciugo. On August 25, 2003, Barrett N. Wissman resigned from the
position of President of Paciugo. In addition, during the first
three calendar quarters of 2003, our Board of Directors became
increasingly more concerned about Paciugo's market position, the
industry in which Paciugo competes and Paciugo's prospects for
meaningful success therein. Accordingly, during the fourth
quarter of Fiscal 2003, we concluded that it was reasonably
unlikely that we would expand our Paciugo interest and exercise
our option to acquire the Subsequent Interest. Therefore,
effective on October 1, 2003, Steven W. Caple and Patrick G.
Mackey resigned their positions as Senior Vice President and
General Counsel and Senior Vice President and Chief Financial
Officer, respectively, of Paciugo.

                              -15-
<PAGE>

During the quarter ended December 31, 2003, we engaged in
discussions with Paciugo that resulted in our entering into a
sales agreement on January 13, 2004 (the "Sales Agreement") with
Ad Astra, PMLLC, and the Equity Owners, whereby we agreed,
subject to customary closing conditions, to (i) sell and transfer
to Ad Astra all of our right, title, and interest in Ad Astra,
(ii) sell and transfer to PMLLC all of our right, title, and
membership interest in PMLLC, and (iii) terminate our right to
exercise the option to acquire the Subsequent Interest, all in
exchange for a total proposed sales price of $1.250 million (the
"Sales Price"), to be paid in cash at closing by Ad Astra and
PMLLC. The closing of the Sales Agreement is expected to take
place on or about May 12, 2004, unless consummated earlier or
later than this date, as provided for in the Sales Agreement.

BANKRUPTCY PROCEEDINGS

During fiscal 2002, our principal telecommunications operating
subsidiaries, including AxisTel Communications, Inc. ("AxisTel"),
e.Volve Technology Group, Inc. ("e.Volve") and Novo Networks
Operating Corp. ("NNOC") filed voluntary petitions under Chapter
11 of Title 11 of the United States Code (the "Bankruptcy Code").
We will refer to the subsidiaries that have filed for bankruptcy
protection as our "debtor subsidiaries" throughout this Quarterly
Report. At this same time, we announced that we were exploring
the option of diversifying our business by entering into other
lines of business.

On April 2, 2001, another one of our subsidiaries, Internet
Global Services, Inc. ("iGlobal") filed a voluntary petition for
protection under Chapter 7 of the Bankruptcy Code in the United
States Bankruptcy Court for the Northern District of Texas (the
"Texas Bankruptcy Court") due to iGlobal's inability to service
its debt obligations and contingent liabilities, as well as our
inability to raise sufficient capital to fund operating losses at
iGlobal. As a result of the filing, we recorded an impairment
loss of $62.4 million during fiscal 2001, the majority of which
related to non-cash goodwill recorded in connection with our
acquisition of iGlobal. During April 2003, iGlobal's trustee
filed an adversary proceeding against us.

On July 30, 2001, the debtor subsidiaries filed voluntary
petitions for protection under the Bankruptcy Code in the United
States Bankruptcy Court for the District of Delaware (the
"Delaware Bankruptcy Court") in order to stabilize their
operations and protect their assets while attempting to
reorganize their businesses.

As of September 28, 2001, the goal of the reorganization effort
was to preserve the going concern value of our debtor
subsidiaries' core assets and to provide distributions to their
creditors. However, after that date, and based largely on the
fact that our debtor subsidiaries ceased receiving traffic from
their sole remaining customer, Qwest Communications Corporation
(and its affiliates) ("Qwest"), a determination was made that the
continued viability of the debtor subsidiaries was not realistic.
An amended plan and disclosure statement were filed with the
Delaware Bankruptcy Court on December 31, 2001. The amended plan
provides for a liquidation of substantially all of the assets of
our debtor subsidiaries, pursuant to the Bankruptcy Code, instead
of a reorganization, as previously planned.

On January 14, 2002, the Delaware Bankruptcy Court approved the
amended disclosure statement, with certain minor modifications,
and on March 1, 2002, the Delaware Bankruptcy Court confirmed the
amended plan, again with minor modifications. On April 3, 2002,
the amended plan became effective and a liquidating trust was
formed, with funding provided by us in the amount of $0.2
million. Assets to be liquidated of $0.7 million were transferred
to the liquidating trust during the fourth quarter of fiscal
2002. The purpose of the liquidating trust is to collect,
liquidate and distribute the remaining assets of the debtor
subsidiaries and prosecute certain causes of action against
various third parties, including, without limitation, Qwest
Communications Corporation. No assurance can be given that the
liquidating trust will be successful in liquidating substantially
all of the debtor subsidiaries' assets pursuant to the amended
plan. Also, it is not possible to predict the outcome of the
prosecution of causes of action against third parties, including,
without limitation, Qwest, as described in the amended plan and
disclosure statement. We have previously guaranteed certain
indebtedness of one or more of the debtor subsidiaries and,
depending upon the treatment of and distribution to holders of
such indebtedness under the amended plan, we may be liable for
some or all of this indebtedness.

                              -16-
<PAGE>


In connection with the bankruptcy proceedings, we provided our
debtor subsidiaries with approximately $1.9 million in secured
debtor-in-possession financing to fund their reorganization
efforts. The credit facility made funds available to permit the
debtor subsidiaries to pay employees, vendors, suppliers,
customers and professionals consistent with the requirements of
the Bankruptcy Code. In connection with the amended plan being
confirmed by the Delaware Bankruptcy Court and becoming effective
on April 3, 2002, the credit facility was converted into a new
secured note. During fiscal 2003, we provided additional funding
of $0.5 million to the liquidating trust. The current balance on
the new secured note is approximately $3.3 million, which has
been fully reserved due to the uncertainty surrounding the
collection of this note. For further details regarding the
funding provided to the debtor subsidiaries, see Item 2 entitled
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."

OPERATIONS SUMMARY

As of December 31, 2003, we effectively had no operations, no
sources of revenue and no profits, and we do not anticipate being
in a position to resume operations until such time, if any, as we
identify an appropriate opportunity and promulgate a new business
plan. During fiscal 2003, we purchased the Initial Interest in
Paciugo. During the eight months ended August 31, 2003, we
received $166,667 from Paciugo for the provision of Support
Services. In connection with the execution of the Sales Agreement
with Paciugo, we will give up any rights to receive any
additional payments for the provision of Support Services under
the Purchase Agreement in exchange for receipt of the proposed
Sales Price. We cannot predict when or if we will receive the
proposed Sales Price or when or if we will be successful in a
business venture or other potential business opportunities that
we may consider, if any.  For further details, see the section
entitled "Acquisition of Initial Interest in Paciugo", above.

During the six months ended December 31, 2003, no revenues from
operations were generated based on (i) the termination of
operations of our debtor subsidiaries, which have historically
provided all significant revenues for us and (ii) the
uncertainties surrounding other potential business opportunities
that we may consider, if any. In August of 2003, certain
disagreements arose between us and Paciugo concerning the amount
of the monthly payment for July of 2003, as well as our
performance of the Support Services. As a result, Paciugo has
failed to make the monthly payment since August of 2003. In
connection with the execution of the Sales Agreement with
Paciugo, we will give up any rights to receive any additional
payments for the provision of Support Services under the Purchase
Agreement For further details regarding the Support Services, see
the section entitled "Acquisition of Initial Interest in
Paciugo," above.

BASIS OF PRESENTATION

The accompanying consolidated financial statements for the six
months ended December 31, 2003, include us and our subsidiaries
that are not involved in the bankruptcy proceedings.  The debtor
subsidiaries assets and liabilities were deconsolidated effective
June 30, 2002.

For the six months ended December 31, 2003, the consolidated
financial statements include only our accounts and do not include
our wholly owned subsidiaries, including the debtor subsidiaries.
The debtor subsidiaries assets and liabilities were
deconsolidated effective June 30, 2002.  For us and our
subsidiaries, which are not involved in the bankruptcy plan
administration process (such subsidiaries have nominal
operations), the financial statements, consisting primarily of
cash, investments and office equipment, have been prepared in
accordance with generally accepted accounting principles
generally accepted in the United States of America. We recorded
an accrual estimate of $0.3 million in the accompanying financial
statements for the costs of completing such bankruptcy
proceedings, including, without limitation, liquidating the
assets of these entities. The estimated realizable values and
settlement amounts may be different from the proceeds ultimately
received or payments ultimately made.

Revenues.  For the quarters ended December 31, 2003, and December
31, 2002, no revenues were generated. We currently do not
anticipate that we will have revenue from telecommunications or
any other services.

Selling, General and Administrative Expenses.  These expenses
include general corporate expenses, management salaries,
professional fees, travel expenses, benefits, rent and
administrative expenses. Currently, we maintain our corporate
headquarters in Dallas, Texas. We provided administrative
services to our debtor subsidiaries pursuant to an administrative
services agreement approved by the Bankruptcy Court. Initially,
the agreement dictated that our debtor subsidiaries pay us
$30,000 per week for legal, accounting, human resources and other
services. The original agreement expired on April 2, 2002, and an
interim agreement was reached whereby, the liquidating trust, as

                              -17-
<PAGE>

successor-in-interest to our debtor subsidiaries, paid us $40,000
per month for some of the same services. The interim agreement
expired on August 15, 2002. During the fourth quarter of fiscal
2003, we negotiated an on-going agreement with the liquidating
trust, whereby we provide administrative services to the debtor
subsidiaries on a per hour basis. Pursuant to the terms of this
arrangement, the debtor subsidiaries owed us $0.65 million as of
December 31, 2003. Due to the uncertainty surrounding the
collection of this receivable, it has not been recorded in our
financial statements. Under the terms of the administrative
services agreement, any payments to us are deferred until such
time that the trustee receives funds in excess of the outstanding
claims, which most likely will depend on a positive outcome of
the Qwest litigation.

Impairment Loss.  Impairment loss results from an assessment as
to whether the net book value of the assets can be recovered
through projected undiscounted future cash flows.  Due to the
execution of the Sales Agreement with Paciugo, the Company
recorded an impairment loss of $0.758 million during the three
months ended December 31, 2003 reducing the net book value of the
investment to the proposed Sales Price.

Depreciation and Amortization.  Depreciation and amortization
represents the depreciation of property and equipment. Due to the
significant impairment losses recorded during fiscal years 2002
and 2001, and the liquidation accounting for our debtor
subsidiaries, our depreciation and amortization costs have
decreased significantly, and we do not expect these costs to
increase in the near term.

Loss in equity investments.  Loss in equity investments results
from our minority ownership interests that are accounted for
under the equity method of accounting. Under the equity method,
our proportionate share of each of our subsidiary's operating
loss is included in equity in loss of investments. In December of
2002, we purchased the Initial Interest in Paciugo. For further
details regarding Paciugo, see the section entitled "Acquisition
of Initial Interest in Paciugo", above. The value of our
outstanding equity interests, other than Paciugo, have been
reduced to zero either by recording our proportionate share of
prior period losses incurred by each subsidiary up to the cost of
that investment or from impairment losses. As mentioned
previously, our previous strategic investments, other than
Paciugo, are either winding up their affairs of liquidating;
however, we do not expect to record future charges related to
those losses, as the investments have no carrying value. We
expect Paciugo to continue in the near future to incur operating
losses, but we do not intend to record our portion of Paciugo's
future losses since our investment in Paciugo reflects the
proposed Sales Price in the Sales Agreement.

Other Income.  Other income results from the Support Services we
provided to Paciugo. For further details regarding the Support
Services to Paciugo, see the section entitled "Acquisition of
Initial Interest in Paciugo," above. In July and August, 2003, we
recorded other income from the provision of the Support Services
to Paciugo as agreed upon in the Purchase Agreement. In August of
2003, certain disagreements arose between us and Paciugo
concerning the amount of the monthly payment for July of 2003, as
well as our performance of the Support Services. As a result,
Paciugo has failed to make these payments since August of 2003.
In connection with the execution of the Sales Agreement with
Paciugo, we will give up any rights to receive any additional
payments for the provision of Support Services under the Purchase
Agreement in exchange for the proposed Sales Price. The
administrative services agreement with our debtor subsidiaries
initially dictated that our debtor subsidiaries pay us $30,000
per week for legal, accounting, human resources and other
services. The original agreement expired on April 2, 2002, and an
interim agreement was reached whereby, the liquidating trust, as
successor-in-interest to our debtor subsidiaries, paid us $40,000
per month for some of the same services. During the fourth
quarter of fiscal 2003, we negotiated an on-going agreement with
the liquidating trust, whereby we provide administrative services
to the debtor subsidiaries on a per hour basis. As of December
31, 2003, we had an outstanding receivable from the debtor
subsidiaries relating to the provision of such administrative
services of approximately $0.65 million. Under the terms of the
administrative services agreement, any payments to us are
deferred until such time that the trustee receives funds in
excess of the outstanding claims, which most likely will depend
on a positive outcome of the Qwest litigation. Due to the
uncertainty surrounding the collection of the receivable, it has
been fully reserved.



                              -18-
<PAGE>

SUMMARY OF OPERATING RESULTS

The table below summarizes our operating results.

<TABLE>
<CAPTION>
                                                      For the Three Months          For the Six Months
                                                       Ended December 31,            Ended December 31,
                                                  ---------------------------   ---------------------------
                                                      2003           2002           2003           2002
                                                  ------------   ------------   ------------   ------------
                                                          (unaudited)                   (unaudited)

                                               <c>            <c>            <c>            <c>
Operating expenses:
  Selling, general and administrative expenses    $    491,761   $    738,389   $  1,122,409   $  1,405,754
  Impairment loss                                      757,801              -        757,801              -
  Depreciation and amortization                         32,344         38,595         67,290         76,457
                                                  ------------   ------------   ------------   ------------
                                                     1,281,906        776,984      1,947,500      1,482,211
                                                  ------------   ------------   ------------   ------------
Loss from operations, before
  other (income) expense                            (1,281,906)      (776,984)    (1,947,500)    (1,482,211)
Other (income) expense:
  Interest income                                       (5,870)       (16,974)       (14,182)       (41,781)
  Loss in equity investments                           142,290              -        247,722        264,751
  Net gain on liquidation of debtor subsidiaries             -       (214,000)             -       (214,000)
  Other                                                 12,723         (1,661)       (15,119)       (37,105)
                                                  ------------   ------------   ------------   ------------
                                                       149,143       (232,635)       218,421        (28,135)
                                                  ------------   ------------   ------------   ------------
Net loss                                            (1,431,049)      (544,349)    (2,165,921)    (1,454,076)

Series D preferred dividends                          (176,436)      (163,000)      (349,385)      (322,779)
                                                  ------------   ------------   ------------   ------------
Net loss allocable to common shareholders         $ (1,607,485)  $   (707,349)  $ (2,515,306)  $ (1,776,855)
                                                  ============   ============   ============   ============
Basic
  Net loss per share                              $      (0.03)  $      (0.01)  $      (0.05)  $      (0.03)
                                                  ============   ============   ============   ============
  Weighted average number of shares outstanding     52,323,701     52,323,701     52,323,701     52,323,701
                                                  ------------   ------------   ------------   ------------
</TABLE>



THREE MONTHS ENDED DECEMBER 31, 2003 COMPARED TO THREE MONTHS
ENDED DECEMBER 31, 2002

Revenues.  No revenues were generated during either period
presented. No revenues were generated based on (i) the
termination of all operations of our debtor subsidiaries by
December of 2001, which have historically provided all of our
significant revenues and (ii) the uncertainty surrounding our
plans to explore other opportunities.

Direct costs. No direct costs were incurred during the three
months ended December 31, 2003, and 2002, respectively.

Selling, General and Administrative.  Selling, general and
administrative expenses decreased approximately $247,000 during
the three months ended December 31, 2003, from approximately
$738,000 during the three months ended December 31, 2002, a
decrease of 33%. The drop in selling, general and administrative
expenses is primarily due to (i) the downsizing of the workforce,
(ii) the reduction in professional fees relating to the
bankruptcy plan administrative process, (iii) reduction in legal
fees, and (iv) an overall reduction of overhead related to office
expenses.

Selling, general and administrative expenses for the three months
ended December 31, 2003, consisted primarily of approximately (i)
$131,000 of salaries and benefits, (ii) $50,000 of legal fees,
(iii) $57,000 of consulting and professional fees, (iv) $142,000
of business insurance and (v) $112,000 of other operating
expenses. Selling, general and administrative expenses for the
three months ended December 31, 2002, consisted primarily of
approximately

                              -19-
<PAGE>


(i) $215,000 of salaries and benefits, (ii) $55,000 of bad debt
expense, (iii) $180,000 of legal fees, (iv) $51,000 of consulting
and professional fees, (v) $158,000 of business insurance and
(vi) $79,000 of other operating expenses. We anticipate that
selling, general and administrative expenses will remain
relatively constant as (i) we currently have no operations, (ii)
we completed personnel reductions and (iii) we continue to work
toward the conclusion of the various bankruptcy proceedings. We
expect our selling, general and administrative expense to be
approximately $125,000 per month until such time, if any, as we
are able to develop an alternative business strategy.

Impairment Loss.  Due to the execution of the Sales Agreement
with Paciugo, the Company recorded an impairment loss of $0.758
million during the three months ended December 31, 2003 reducing
the net book value of the investment to the proposed Sales Price.

Depreciation and Amortization.  Depreciation recorded on fixed
assets during the three months ended December 31, 2003, totaled
approximately $32,000, as compared to approximately $38,000 for
the three months ended December 31, 2002. We expect our
depreciation expense to remain relatively constant until such
time, if any, as we are able to develop an alternative business
strategy.

Interest Income.  We recorded interest income from cash
investments of approximately $6,000 for the three months ended
December 31, 2003, as compared to approximately $17,000 for the
three months ended December 31, 2002. The decrease in interest
income during the current quarter is a result of lower amounts of
cash available to be invested.

Loss in Equity Investments.  Loss in equity investments resulted
from our minority ownership in certain non-impaired interests
that are accounted for under the equity method of accounting.
Under the equity method, our proportionate share of each of our
subsidiary's operating loss is included in equity in loss of
investments. During the three months ended December 31, 2003,
there was a loss of approximately $0.15 million, as compared to
zero during the three months ended December 31, 2002. The current
fiscal quarter loss resulted from our 33% Initial Interest in
Paciugo. For further details regarding Paciugo, see the section
entitled "Acquisition of Initial Interest in Paciugo", above. The
value of our outstanding equity interests, other than Paciugo,
have been reduced to zero either by recording our proportionate
share of prior period losses incurred by each subsidiary up to
the cost of that investment or from impairment losses. We
anticipate that those interests will continue to incur operating
losses; however, we do not expect to record future charges
related to them since they are completely impaired. As mentioned
previously, our previous strategic investments, other than
Paciugo, are either winding up their affairs or liquidating;
however, we do not expect to record future charges related to
those losses, as the investments have no carrying value. We
expect Paciugo to continue in the near future to incur operating
losses, but we do not intend to record our portion of Paciugo's
future losses since our investment reflects the proposed Sales
Price in the Sales Agreement.

SIX MONTHS ENDED DECEMBER 31, 2003 COMPARED TO SIX MONTHS ENDED
DECEMBER 31, 2002

Revenues.  No revenues were generated during either period
presented. No revenues were generated based on (i) the
termination of all operations of our debtor subsidiaries by
December of 2001, which historically provided all of our
significant revenues and (ii) the uncertainty surrounding our
plans to explore other opportunities.

Direct costs. No direct costs were incurred during the six months
ended December 31, 2003, 2002, respectively.

Selling, General and Administrative.  Selling, general and
administrative expenses decreased approximately $284,000 during
the six months ended December 31, 2003, from approximately
$1,406,000 during the six months ended December 31, 2002, a
decrease of 20%. The drop in selling, general and administrative
expenses is primarily due to (i) the downsizing of the workforce,
(ii) the reduction in professional fees relating to the
bankruptcy plan administrative process, (iii) reduction in legal
fees, and (iv) an overall reduction of overhead related to office
expenses.

Selling, general and administrative expenses for the six months
ended December 31, 2003, consisted primarily of approximately (i)
$275,000 of salaries and benefits, (ii) $225,000 of legal fees,
(iii) $127,000 of consulting and professional fees, (iv) $303,000
of business insurance, (v) $73,000 of office rent and expenses,
and (vi) $119,000 of other operating expenses. Selling, general
and administrative expenses for the six months ended December 31,
2002, consisted primarily of approximately (i) $564,000 of
salaries and benefits, (ii) $121,000 of bad debt expense (iii)
$204,000 of legal fees, (iv) $275,000 of business insurance, (v)
$91,000 of office rent and expenses, and (vi) $151,000 of other
operating expenses. We anticipate that selling, general and
administrative expenses will remain

                              -20-
<PAGE>

relatively constant as (i) we currently have no operations, (ii)
we completed personnel reductions, and (iii) we continue to work
toward the conclusion of the various bankruptcy proceedings. We
expect our selling, general and administrative expense to be
approximately $125,000 per month until such time, if any, as we
are able to develop an alternative business strategy.

Impairment Loss.  Due to the execution of the Sales Agreement
with Paciugo, the Company recorded an impairment loss of $757,801
during the six months ended December 31, 2003 reducing the net
book value of the investment to the proposed Sales Price.

Depreciation and Amortization.  Depreciation recorded on fixed
assets during the six months ended December 31, 2003, totaled
approximately $67,000, as compared to approximately $76,000 for
the six months ended December 31, 2002. We expect our
depreciation expense to remain relatively constant until such
time, if any, as we are able to develop an alternative business
strategy.

Interest Income.  We recorded interest income from cash
investments of approximately $14,000 for the six months ended
December 31, 2003, as compared to approximately $42,000 for the
six months ended December 31, 2002. The decrease in interest
income during the current period is a result of lower amounts of
cash available to be invested.

Loss in Equity Investments.  Loss in equity investments resulted
from our minority ownership in certain non-impaired interests
that are accounted for under the equity method of accounting.
Under the equity method, our proportionate share of each of our
subsidiary's operating loss is included in equity in loss of
investments. During the six months ended December 31, 2003, there
was a loss of approximately $0.25 million, as compared to $0.26
million during the six months ended December 31, 2002. The
current six-month loss resulted from our 33% Initial Interest in
Paciugo. For further details regarding Paciugo, see the section
entitled "Acquisition of Initial Interest in Paciugo", above. The
value of our outstanding equity interests, other than Paciugo,
have been reduced to zero either by recording our proportionate
share of prior period losses incurred by each subsidiary up to
the cost of that investment or from impairment losses. As
mentioned previously, our previous strategic investments are
either winding up their affairs or liquidating; however, we do
not expect to record future charges related to them since they
are completely impaired. We expect Paciugo to continue in the
near future to incur operating losses, but we do not intend to
record our portion of Paciugo's future losses due the impairment
of asset to the proposed Sales Price in the Sales Agreement.

Other. In July and August of 2003, we recorded other income from
the provision of the Support Services to Paciugo as agreed upon
in the Purchase Agreement. In August of 2003, certain
disagreements arose between us and Paciugo concerning the amount
of the monthly payment for July of 2003, as well as our
performance of the Support Services. As a result, Paciugo has
failed to make these payments since August of 2003. In connection
with the execution of the Sales Agreement with Paciugo, we will
give up any rights to receive any additional payments for the
provision of Support Services under the Purchase Agreement in
exchange for the receipt of the proposed Sales Price.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2003, we had consolidated current assets of $3.0
million, including cash and cash equivalents of approximately
$2.5 million and net working capital of $2.45 million. Principal
uses of cash have been to fund (i) operating losses, (ii)
acquisitions and strategic business opportunities, (iii) working
capital requirements, and (iv) expenses related to the bankruptcy
plan administration process. Due to our financial performance,
the lack of stability in the capital markets and the economy's
downturn, our only current source of funding is expected to be
cash on hand.

Effectively, our only ability to satisfy our current obligations
is our cash on hand.  Our current obligations include (i) funding
working capital, (ii) funding the liquidating trust, and (iii)
funding the Qwest litigation. We estimate that it will take
approximately $1.5 million of our remaining cash to satisfy these
obligations for the next 12 months.  This would leave us with
approximately $1.0 million of cash available for funding
potential business opportunities. Consequently, if we deployed
this remaining cash in a transaction, we would need to realize
revenues from such a transactions in an amount to satisfy our
current obligations before December 31, 2004.  In the event we
expend all of our $1.0 million on a transaction and achieve no
return or cash flow from that transaction before December 31,
2004, we would likely be required to cease operations altogether
or to pursue other alternatives, such as liquidating or filing a
voluntary petition for relief under the United States Bankruptcy
Code.

                              -21-
<PAGE>

To the extent we are able to successfully consummate the Sale
Agreement with Paciugo and obtain the proposed Sales Price, or
are able to successfully realize a cash settlement or obtain a
judgment in connection with the Qwest litigation, we would have
additional resources to either deploy in pursuit of a business
opportunity or to continue meeting our current obligations.  We
can offer no assurances that either of these events will occur at
all, nor whether they might occur on or before December 31, 2004.

Our debtor subsidiaries filed bankruptcy proceedings under the
Bankruptcy Code. As the ultimate parent, we agreed to provide our
debtor subsidiaries with up to $1.6 million in secured debtors-in-
possession financing. Immediately prior to the confirmation
hearing, we increased this credit facility to approximately $1.9
million, which was advanced as of March 31, 2002. The credit
facility made funds available to permit the debtor subsidiaries
to pay employees, vendors, suppliers, customers and professionals
consistent with the requirements of the Bankruptcy Code. The
credit facility provided for interest at the rate of prime plus
3.0% per annum and provided "super-priority" lien status, meaning
that we had a valid first lien, pursuant to the Bankruptcy Code,
on substantially all of the debtor subsidiaries' assets. We are
currently not recording the interest associated with the debtors-
in-possession loan due to the uncertainty surrounding the
collection of this note.  In addition, the credit facility
maintained a default interest rate of prime plus 5.0% per annum.

In connection with the amended plan being confirmed by the
Delaware Bankruptcy Court and becoming effective on April 3,
2002, the credit facility was converted into a new secured note
in the principal amount of approximately $2.5 million,
representing the principal amount of the debtors-in-possession
financing, certain payroll expenses, accrued interest and
applicable attorneys' fees. Subsequent to June 30, 2002, the new
secured note was amended to approximately $2.9 million,
representing additional trust funding, certain payroll expenses
and applicable attorneys' fees. The new secured note is
guaranteed by the debtor subsidiaries under an agreement in which
the debtor subsidiaries have pledged substantially all of their
remaining assets as collateral. During fiscal 2003, we provided
additional funding of $0.5 million to the liquidating trust. A
new secured note of approximately $3.3 million to the liquidating
trust was signed on May 15, 2003. Due to the uncertainty
surrounding the collection of the new secured note, it has been
fully reserved.

We currently anticipate that we will not generate any revenue
from operations in the near term based on (i) the termination of
the operations of our debtor subsidiaries, which have
historically provided all of our significant revenues on a
consolidated basis, and (ii) the uncertainties surrounding other
potential business opportunities that we may consider, if any.

As noted above, we do not believe that any of the traditional
funding sources will be available to us and that our only option
will likely be cash on hand. Consequently, our failure to
identify other potential business opportunities, if any, will
jeopardize our ability to continue as a going concern. Due to
these factors, we are unable to determine whether current
available financing will be sufficient to meet the funding
requirements of (i) our debtor subsidiaries bankruptcy plan
administration process and (ii) our ongoing general and
administrative expenses. No assurances can be given that adequate
levels of financing will be available to us on acceptable terms,
if at all.

The net cash provided by or used in operating, investing, and
financing activities for the six months ended December 31, 2003,
and December 31, 2002, is summarized below:

Cash used in operating activities in the six months ended
December 31, 2003, totaled approximately $1.4 million as compared
to approximately $1.6 million in the six months ended December
31, 2002. During the six months ended December 31, 2003, cash
flow used by operating activities primarily resulted from
operating losses, net of non-cash charges, totaling approximately
$1.1 million, and an increase in prepaid expenses of
approximately $0.3 million. During the six months ended December
31, 2002, cash flow used by operating activities primarily
resulted from operating losses, net of non-cash charges, totaling
$1.1 million, an increase in prepaid expenses of $0.15 million,
an increase in note and other receivables of $0.2 million, and a
net decrease in accounts payable and accrued liabilities of $0.16
million.

ABILITY TO CONTINUE AS A GOING CONCERN

The accompanying consolidated financial statements have been
prepared assuming that we will continue as a going concern. The
financial statements do not include any adjustments that might
result should we be unable to continue as a going concern. No
assurances can be given that we will continue as a going concern.

                              -22-
<PAGE>


Our independent accountants have previously included an
explanatory paragraph in their report on our financial statements
for the year ended June 30, 2003, contained in our most recent
Annual Report on Form 10-K, which states that although our
financial statements have been prepared assuming that we will
continue as a going concern, but that substantial doubt exists as
to our ability to do so.

PLAN OF OPERATION

     Our plan of operation in the near term principally involves
locating, negotiating and, if possible, consummating a
transaction for the redeployment of our remaining cash assets. We
intend to examine the following factors, among others, in
deciding upon an appropriate use for our remaining cash assets:

     *    the historical liquidity, financial condition and
          results of operation of the business or opportunity, if
          any;

     *    the growth potential and future capital requirements of
          the business or opportunity;

     *    the nature, competitive position and market potential
          of the products, processes or services of the business
          or opportunity;

     *    the relative strengths and weaknesses of the
          intellectual property of the business or opportunity;

     *    the education, experience and abilities of management
          and key personnel of the business or opportunity;

     *    the regulatory environment within the business industry
          or opportunity; and

     *    the market performance of similarly situated companies
          in the particular industry or opportunity.

     The foregoing is not an exhaustive list of the factors that
we consider when evaluating potential business opportunities. We
will also consider other factors that we deem relevant under the
circumstances. In evaluating a potential opportunity, we intend
to conduct a due diligence review that will include, among other
things:

     *    meetings with industry participants;

     *    meetings with management or "promoters;"

     *    inspection of organizational data, properties,
          facilities, business models, products, services,
          material contracts, employee information, regulatory
          materials, etc., if any;

     *    analysis of historical financial statements and
          projections; and

     *    any other inquiry or actions we believe are relevant
          under the circumstances.

     Our plan of operation for the upcoming twelve months also
calls for the following:

     *    continuing the liquidation of substantially all of the
          assets of our debtor subsidiaries in accordance with
          the bankruptcy plan administration process;

     *    minimizing, to the extent possible, the expenses and
          liabilities incurred by us as the ultimate parent of
          the debtor subsidiaries;

     *    minimizing, to the extent possible, expenses and
          liabilities incurred by us pending our decision to
          redeploy our remaining cash assets;

     *    maintaining the current number of employees until such
          time as we locate additional business opportunities, if
          any.

As of December 31, 2003, we maintained cash and cash equivalents
of approximately $2.5 million. We currently anticipate that after
paying certain bankruptcy obligations related to the debtor
subsidiaries and current operating expenses for fiscal year 2004,
we will have approximately $1.0 million of remaining cash
available to redeploy into one or more business opportunities and
to support our monthly cash requirements. We currently have a
monthly cash requirement of approximately $0.125 million to fund
recurring corporate general and administrative expenses,
excluding costs associated with the debtor subsidiaries'
bankruptcy proceedings. We do not believe that additional funding
sources will be available to us in the near term. Accordingly,
the cash assets available for redeployment may be limited. We may
only have the ability to participate in one business opportunity.
Consequently, if we deployed

                              -23-
<PAGE>


this remaining cash in a transaction, we would need to realize
revenues from such a transactions in an amount to satisfy our
current obligations before December 31, 2004.  In the event we
expend all of our $1.0 million on a transaction and achieve no
return or cash flow from that transaction before December 31,
2004, we would likely be required to cease operations altogether
or to pursue other alternatives, such as liquidating or filing a
voluntary petition for relief under the Bankruptcy Code. To the
extent we are able to successfully consummate the Sale Agreement
with Paciugo and obtain the proposed Sales Price, or are able to
successfully realize a cash settlement or judgment in connection
with the Qwest litigation, we would have additional resources to
either deploy in pursuit of a business opportunity or to continue
meeting our current obligations.  We can offer no assurances that
either of these events will occur at all, nor whether they might
occur on or before December 31, 2004. Our probable lack of
diversification may subject us to a variety of economic,
competitive and regulatory risks, any or all of which may have a
substantial adverse impact on our continued viability.

We do not intend to provide information to our stockholders
regarding potential business opportunities that we are
considering. Our Board of Directors has the executive and voting
power to unilaterally approve all corporate actions related to
the redeployment of our cash assets. As a result, our
stockholders will have no effective voice in decisions made by
our Board of Directors and will be entirely dependent on its
judgment in the selection of an appropriate business opportunity
and the negotiation of the specific terms thereof.

Item 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
          RISK

We are exposed to the impact of interest rate and other risks. We
had investments in money market funds of approximately $2.5
million as of December 31, 2003. Due to the short-term nature of
our investments, we believe that the effects of changes in
interest rates are limited and would not materially affect
profitability.

Item 4.   CONTROLS AND PROCEDURES

Within the 90 days prior to the filing date of this Quarterly
Report, we carried out an evaluation, under the supervision and
with the participation of our Principal Executive Officer and
Principal Accounting Officer, of the effectiveness of the design
and operation of our disclosure controls and procedures as
defined in Rule 13a-14 of the Securities Exchange Act of 1934.
Based upon that evaluation, the Principal Executive Officer and
the Principal Accounting Officer concluded that our disclosure
controls and procedures are effective in timely alerting them to
material information relating to us (including our consolidated
subsidiaries) required to be included in this Quarterly Report.
There have been no significant changes in our internal controls
over financial reporting or in other factors, which could
significantly affect such internal controls, subsequent to the
date we carried out our evaluation.

PART II:  OTHER INFORMATION

Item 1.   LEGAL PROCEEDINGS

As previously reported, Eos Partners, LP, Eos Partners SBIC, LP,
Eos Partners (Offshore), LP, Kuwait Fund for Arab Economic
Development and TBV Holdings Ltd. (collectively, the
"Plaintiffs") filed a lawsuit against us, Fred Vierra, Barrett N.
Wissman, Clark K. Hunt, Mark R. Graham, Olaf Guerrand-Hermes,
Stuart Subotnick, Jan Robert Horsfall, Stuart Chasanoff, John
Stevens Robling, Jr., Samuel Litwin, Mitchell Arthur, BDO
Seidman, LP, Hunt Asset Management, LLC, HW Partners, LP, HW
Finance, LLC, HW Capital, LP and HW Group, LLC (collectively, the
"Defendants") in the 190th Judicial District Court of Harris
County, Texas, on December 19, 2002. The lawsuit alleged breach
of contract, fraud and conspiracy in connection with the
Plaintiffs' purchase of certain of our Series C Convertible
Preferred Stock in December of 1999 and January of 2000. The
Defendants denied the allegations and vigorously defended against
the Plaintiffs' claims and sought all other appropriate relief. The
Plaintiffs claimed actual damages of $17.4 million and requested
additional exemplary damages, costs of court and attorneys' fees. The
Defendants submitted the claims to their insurance carriers. The
district judge denied the Plaintiffs' motion to transfer the case to
Dallas County and ruled that it should instead proceed in Harris County.
However, it was reassigned to the 280th Judicial District Court.  The
Plaintiffs and the Defendants mediated the case on February 9, 2004,
and the claims were settled at that time on terms in which we did not
expend any cash or assets. As part of the settlement, either we or our
designee will receive all of the outstanding Series C Convertible
Preferred Stock from the holders thereof, including the Plaintiffs,
without any additional consideration. When the shares are tendered,
they will either be cancelled or held in treasury.

                              -24-
<PAGE>


As previously reported, we, along with the liquidating trust,
filed a lawsuit on June 17, 2002, against Qwest, a former
customer and vendor, and John L. Higgins, a former employee and
consultant, in the Eighth Judicial District Court of Clark
County, Nevada. The amended plan called for certain causes of
action to be pursued by the liquidating trust against various
third parties, including Qwest, in an attempt to marshal
sufficient assets to make distributions to creditors. We were a
co-proponent of the amended plan and suffered independent damages
as a result of Qwest's actions. Accordingly, we and the
liquidating trust asserted, among other things, the following
claims against Qwest: (i) breach of contract, (ii) conversion,
(iii) misappropriation of trade secrets, (iv) breach of a
confidential relationship, (v) fraud, (vi) breach of the covenant
of good faith and fair dealing, (vii) tortious interference with
existing and prospective business relations, (viii) aiding and
abetting Mr. Higgins's misconduct, (ix) civil conspiracy, and (x)
unjust enrichment. The following claims also have been asserted
against Mr. Higgins: (i) breach of contract, (ii) breach of
fiduciary duties, (iii) breach of a confidential relationship,
(iv) fraud, (v) aiding and abetting Qwest's misconduct, (vi)
civil conspiracy, and (vii) unjust enrichment. In addition to an
award of attorneys' fees, we and the liquidating trust are
seeking such actual, consequential and punitive damages as may be
awarded by a jury or other trier of fact. Qwest filed a motion to
stay the litigation and compel arbitration on August 14, 2002. On
March 13, 2003, a hearing was held to determine the proper forum
for the various claims. After listening to oral arguments, the
district judge granted Qwest's motion. On April 2, 2003, we,
along with the liquidating trust, filed a petition with the
Supreme Court of Nevada, asking it to direct the district judge
to reconsider her order. On August 13, 2003, our petition was
denied. Accordingly, an arbitrator was appointed on December 30,
2003. He presided over a preliminary hearing on February 4, 2004,
and he set the matter for a final hearing on July 7, 2004.

We have previously disclosed in other reports filed with the SEC
certain other legal proceedings pending against us and our
subsidiaries. Consistent with the rules promulgated by the SEC,
descriptions of these matters have not been included in this
Quarterly Report because they have neither been terminated nor
has there been any material developments during the fiscal year
ended June 30, 2003. Readers are encouraged to refer to our prior
reports for further information concerning other legal
proceedings affecting us and our subsidiaries.

We and our subsidiaries are involved in other legal proceedings
from time to time, none of which we believe, if decided adversely
to us or our subsidiaries, would have a material adverse effect
on our business, financial condition or results of operations.

Item 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

Item 3.   DEFAULTS UPON SENIOR SECURITIES

None.

Item 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

Item 5.   OTHER INFORMATION

None.

Item 6.   EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits

          31.1 Certification of the Principal Executive
               Officer pursuant to Section 302 of the Sarbanes-
               Oxley Act    of 2002.

          31.2 Certification of the Principal Financial and
               Accounting Officer pursuant to Section 302 of the
               Sarbanes-Oxley Act of 2002.

          32.1 Certification pursuant to Section 906 of the
               Sarbanes-Oxley Act of 2002.


                              -25-
<PAGE>


     (b)  Reports on Form 8-K

          On January 15, 2004 we filed a Report on Form 8-K,
          disclosing the execution of a Sales Agreement to sell
          our interests in Paciugo.











                              -26-
<PAGE>


SIGNATURES

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



NOVO NETWORKS, INC.


Date:  February 13, 2004 By: /s/ Steven W. Caple
                            --------------------------------
                              Steven W. Caple
                              President
                              (Principal Executive Officer)



Date:  February 13, 2004 By:  /s/ Patrick G. Mackey
                            -----------------------------
                               Patrick G. Mackey
                               Senior Vice President
                               (Principal Financial and
                               Accounting Officer)






                              -27-


<PAGE>



                         INDEX TO EXHIBITS
                         -----------------


    Exhibit
      No.      Description
    -------    ---------------------------------------------

     31.1      Certification of the Principal Executive
               Officer pursuant to Section 302 of the Sarbanes-
               Oxley Act    of 2002.

     31.2      Certification of the Principal Financial and
               Accounting Officer pursuant to Section 302 of the
               Sarbanes-Oxley Act of 2002.

     32.1      Certification pursuant to Section 906 of the
               Sarbanes-Oxley Act of 2002.