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 September 30, 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                    (I.R.S. Employer
Jurisdiction 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 November 13, 2003, 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
          September 30, 2003 and June 30, 2003.......     3

       Consolidated Statements of Operations
          for the three months ended September
          30, 2003 and 2002..........................     4

       Consolidated Statements of Cash Flows
          for the three months ended
          September 30, 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>

                                                  September 30,     June 30,
                                                      2003           2003
                                                  -------------  -------------

                                               <c>            <c>
ASSETS                                             (unaudited)
CURRENT ASSETS
  Cash and cash equivalents                       $   3,709,430  $   3,894,081
  Note receivable and other receivables,
    net of allowance ($4,076,839 at
    September 30, 2003 and June 30, 2003)                     -              -
  Prepaid expenses                                      541,376        441,940
                                                  -------------  -------------
                                                      4,250,806      4,336,021
                                                  -------------  -------------

LONG-TERM ASSETS
  Prepaid expenses                                      386,103         26,736
  Deposits                                                5,745          5,745
  Property and equipment, net                           344,837        379,783
  Equity investments                                  2,150,092      2,255,523
                                                  -------------  -------------
                                                      2,886,777      2,667,787
                                                  -------------  -------------
                                                  $   7,137,583  $   7,003,808
                                                  =============  =============

LIABILITIES & STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable                                $       1,100  $       5,935
  Accrued liabilities                                 1,369,925        496,443
  Customer deposits                                       2,000          2,000
                                                  -------------  -------------
                                                      1,373,025        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 27,648
    and 27,480, liquidation value - $27,648,000
    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                        257,338,003    257,165,054
  Accumulated deficit                              (251,574,495)  (250,666,674)
                                                  -------------  -------------
                                                      5,764,558      6,499,430
                                                  -------------  -------------
                                                  $   7,137,583  $   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 ended
                                                          September 30,
                                                      2003           2002
                                                  ------------   ------------
                                                   (unaudited)    (unaudited)

                                               <c>            <c>
Operating expenses:
  Selling, general and administrative expenses    $    630,648   $    680,721
  Depreciation and amortization                         34,946         37,862
                                                  ------------   ------------
                                                       665,594        718,583
                                                  ------------   ------------

Loss from operations, before
   other (income) expense                             (665,594)      (718,583)

Other (income) expense:
  Interest income                                       (8,312)       (38,163)
  Loss in equity investments                           105,432        264,751
  Other                                                (27,842)       (35,444)
                                                  ------------   ------------
                                                        69,278        191,144
                                                  ------------   ------------

Net loss                                              (734,872)      (909,727)

Series D preferred dividends                          (172,949)      (159,779)
                                                  ------------   ------------

Net loss allocable to common shareholders         $   (907,821)  $ (1,069,506)
                                                  ============   ============

Net loss per share - (basic and diluted)          $      (0.02)  $      (0.02)
                                                  ============   ============

Weighted average number of shares
   outstanding - (basic and diluted)                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>

                                                  For the three months ended
                                                         September 30,
                                                  ---------------------------
                                                      2003           2002
                                                  ------------   ------------
                                                   (unaudited)    (unaudited)

                                               <c>            <c>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                        $   (734,872)  $   (909,727)
  Adjustments to reconcile net loss to net
     cash used in operating activities:
       Depreciation and amortization                    34,946         37,862
       Other non-cash charges and credits:
         Stock-based compensation                            -         31,944
         Bad debt expense                                    -          5,403
         Loss on equity investments                    105,431        264,751
       Change in operating assets and liabilities:
         Note receivable and other receivables               -         (5,403)
         Prepaid expenses                             (458,803)       108,622
         Accounts payable                               (4,835)       (16,193)
         Accrued liabilities                           873,482       (162,938)
                                                  ------------   ------------
Net cash used in operating activities                 (184,651)      (645,679)
                                                  ------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment                         -        (11,635)

NET CHANGE IN CASH AND CASH EQUIVALENTS               (184,651)      (657,314)
CASH AND CASH EQUIVALENTS, beginning of period       3,894,081      9,871,305
                                                  ------------   ------------
CASH AND CASH EQUIVALENTS, end of period          $  3,709,430   $  9,213,992
                                                  ------------   ------------


</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, 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 thereto, 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.
The loss of these monthly payments by Paciugo could adversely
affect our financial condition. While we are attempting to work
through our disagreements with Paciugo, we can offer no
assurances that these issues will be resolved without any
material adverse effect on our plan of operation. Paciugo may not
cancel or alter the scope of the Support Services without our
prior approval or consent.



                               -6-

<PAGE>


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 current
quarter, 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 of Paciugo,
respectively.

Depending upon a variety of factors, including those outlined
above, most of which are beyond our control, we may determine it
necessary to record impairment charges against the Paciugo
interest in our 2004 fiscal year. The factors that may result in
the impairment of our Paciugo interest include, without
limitation:

     *    Paciugo's ability, outside of our exercise of the
          option to acquire the Subsequent Interest, to locate
          additional working capital;

     *    Paciugo's ability to expand sales while controlling and
          reducing costs; and

     *    Paciugo's ability to compete against more well-known
          gelato, frozen dessert, and ice cream stores, many of
          which maintain greater management, financial and other
          resources.

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. For further details
regarding this proceeding, see Note 8 entitled "Legal
Proceedings."

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.



                               -7-

<PAGE>

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

<TABLE>
<CAPTION>

                                                   Status as of
                                                   November 13,      Subject to
                                         Date          2003        Bankruptcy Plan
        Wholly Owned Subsidiary        Acquired       [FN-1]       or Proceedings?
  ----------------------------------- -----------  -------------  ----------------
  
                                 <c>          <c>            <c>
  Novo Networks Operating Corp.         2/8/00     Inactive        Yes, Chapter 11
                                        [FN-2]
  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 Services, Inc.   9/22/99    Inactive        Yes, Chapter 11
  Novo Networks Metro Services, Inc.    9/22/99    Inactive        Yes, Chapter 11
  Novo Networks Metro Services          9/22/99    Inactive              No
  (Virginia), Inc.
  Novo Networks Media Services, Inc.    9/22/99    Inactive              No
  e.Volve Technology Group, Inc.       10/19/99    Inactive        Yes, Chapter 11
  Internet Global Services, Inc.        3/10/00    Inactive        Yes, Chapter 7
  eVentures Holdings, LLC               9/7/99     Active[FN-3]          No
                                        [FN-2]

</TABLE>


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

  (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 date of incorporation, if 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. We now expect the case to proceed before a panel of
arbitrators in Washington, DC. For further details regarding this
litigation, see Note 8 entitled "Legal Proceedings."

2.   Liquidity and Capital Resources
     -------------------------------

     At September 30, 2003, we had consolidated current assets of
$4.3 million, including cash and cash equivalents of
approximately $3.7 million and net working capital of $2.9
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.

     Assuming we complete a transaction within the next year,
with no current return on that transaction and given our current
obligations, we expect to have approximately $1.3 million of cash
available for funding potential business opportunities. Current
obligations include (i) funding working capital, (ii) funding the
liquidating trust and (iii) funding the Qwest litigation. No
assurance can be given that we will be able to deploy any
remaining cash assets or that if deployed we can continue as a
going concern with the new business model.

     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.



                               -9-

<PAGE>

     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.
However, if we choose to purchase a greater than 50% interest in
Paciugo (such as would be the result if we acquire the Subsequent
Interest), we would consolidate its revenues and operations into
our consolidated financial statements at that time. As previously
discussed, we do not currently anticipate exercising our option
to acquire the Subsequent Interest. In the meantime, we will
continue to record other income from the provision of the Support
Services to Paciugo as agreed upon in the Purchase Agreement.
However, there can be no assurances as to the continuation of
these payments, as Paciugo has not made the monthly payment since
the month of August of 2003 due to disagreements between us and
Paciugo regarding these monthly payments. For further details
regarding these disputes, see Note 1 entitled "Business -
General."

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 (i)
purchase the Subsequent Interest or any additional interest in
Paciugo (ii) implement a successful business plan for Paciugo and
(iii) 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 (x) our debtor subsidiaries bankruptcy plan
administration process and (y) 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
September 30, 2003, and for the three month periods ended
September 30, 2003, and 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.

The consolidated financial statements include our subsidiaries
that are not involved in the bankruptcy proceedings and have been
prepared in accordance with accounting principles generally
accepted in the United States of America. 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 2002 balances have been reclassified for
comparative purposes to be consistent with the fiscal 2003
presentation. Such reclassifications have no impact on the
reported net loss. All significant intercompany accounts have
been eliminated.

4.   Long-lived Assets
     -----------------

Our long-lived assets consist of property and equipment. We
evaluate impairment of our long-lived assets in accordance with
the Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." SFAS No. 144
establishes one accounting model to be used for long-lived assets
to be disposed of by sale and broadens the presentation of
discontinued operations to include more disposal transactions.
SFAS No. 144 supercedes SFAS No. 121,



                              -10-

<PAGE>


"Accounting for the Impairment of Long-lived Assets and for Long-
lived Assets to be Disposed of" and the accounting and reporting
provisions of APB Opinion No. 30. SFAS No. 144 is effective for
fiscal years beginning after December 15, 2001.

We assess the recoverability of long-lived assets by determining
whether the net book value of the assets can be recovered through
projected undiscounted future cash flows. The amount of
impairment, if any, is measured based on fair value and is
charged to operations in the period in which the impairment
occurs. No impairment losses were recorded during the three
months ended September 30, 2003, and 2002.

Property and equipment consist of leasehold improvements,
computer equipment and furniture and fixtures. Each class of
assets is depreciated over its estimated useful life using the
straight-line method.

5.   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 months ended September 30, 2003, and
2002, respectively, diluted EPS are not presented, as the assumed
conversion would be antidilutive. Had the effect not been
antidilutive, an additional 16,280,944 and 18,924,628 shares of
common stock would have been included in the diluted earnings per
share calculation for the quarter ended September 30, 2003 and
September 30, 2002, respectively.

6.   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, a gelato
manufacturing, retailing and catering business, and certain
development stage Internet and communications companies. 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. At such time, if any, as
our aggregate ownership interest in Paciugo is increased to
greater than 50%, (such as upon the acquisition of the Subsequent
Interest), we will use the consolidation method of accounting.
Companies in which we directly or indirectly own more than 50% of
the outstanding voting securities are generally accounted for in
such a way. Under the consolidation method, Paciugo's accounts
would be reflected within our financial statements. As previously
discussed, we do not currently anticipate exercising our option
to acquire the Subsequent Interest.

We account for the majority of our interests using the equity
method. For the three months ended September 30, 2003 and 2002
our proportionate share of equity losses totaled approximately
$0.1 million and $0.3 million, respectively. 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. For those equity interests previously
impaired completely, we ceased recording our share of losses
incurred by the subsidiary. Our equity interests consist of the
following at September 30, 2003:




                              -11-

<PAGE>

<TABLE>
<CAPTION>

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

                                                 <c>      <c>             <c>          <c>
Paciugo Management LLC                              33.3%      0.0%          Equity       $ 2,150,092
Gemini Voice Solutions (f/k/a PhoneFree.com)**      17.2%     31.7%          Equity                 -
ORB Communications & Marketing, Inc***              19.0%    100.0%          Equity                 -
FonBox, Inc.                                        14.0%     50.0%          Equity                 -
Launch Center 39                                     0.0%      2.1%           Cost                  -
Spydre Labs                                          5.0%      0.0%           Cost                  -
                                                                                          -----------
                                                                                          $ 2,150,092
                                                                                          ===========

*    Reflects our ownership percentage at September 30, 2003.

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

***  ORB filed a voluntary petition under Chapter 7 of the bankruptcy code in
     February, 2003.


</TABLE>

At September 30, 2003, Paciugo met 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 and for the three months
ended September 30, 2003 is as follows:

Financial position information:
 Current assets                     $    476,283
 Non-current assets                    1,800,828
 Current liabilities                     360,566
 Non-current liabilities                 484,081
 Net assets                            1,793,031

Income statement information:
 Revenues                                607,104
 Gross profit                            509,630
 Net loss                               (319,487)

Our equity in Paciugo's net loss    $    105,432


7.   Stock Options
     -------------

At September 30, 2003, the Company sponsors two stock option
plans, the 1999 Omnibus Securities Plan ("the 1999 Plan") and the
2001 Equity Incentive Plan ("the 2001 Plan"). The Company has
elected to account for those plans under Accounting Principles
Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees."

The Company has 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 the Company had 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
September 30, 2003 and September 30, 2002, respectively.

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:



                              -12-

<PAGE>

<TABLE>
<CAPTION>

                                                             For the three months ended
                                                                    September 30,
                                                            ---------------------------
                                                                2003           2002
                                                            ------------   ------------
                                                             (unaudited)    (unaudited)

                                                         <c>            <c>
Pro Forma Net Loss
------------------
   Net loss allocable to common shareholders as reported    $   (907,821)  $ (1,069,506)
   Compensation recorded                                               -         31,944
   Additional compensation expense under SFAS 123                 (2,500)    (1,652,006)
                                                            ------------   ------------
   Net loss allocable to common shareholders, pro forma     $   (910,321)  $ (2,689,568)
                                                            ============   ============

   Net loss per share, pro forma                            $      (0.02)  $      (0.05)
   Net loss per share, basic and diluted, as reported       $      (0.02)  $      (0.02)

</TABLE>

8.   Legal Proceedings
     -----------------

As previously reported, Robert Newhouse, the trustee for Internet
Global Services, Inc. ("iGlobal"), filed an adversary proceeding
against us in the Texas Bankruptcy Court on April 1, 2003. The
lawsuit sought to avoid certain alleged preferential and
fraudulent transfers of approximately $0.3 million. In addition,
it sought to disallow our claim in the bankruptcy proceeding. We
denied the receipt of any improper payments or transfers, and we
vigorously defended against the allegations. On August 25, 2003,
an order was entered by the Texas Bankruptcy Court dismissing all
of Mr. Newhouse's claims against us.

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 have denied the allegations and intend to vigorously
defend against the Plaintiffs' claims and seek all other
appropriate relief. Since the process has not proceeded beyond
the discovery stage, no realistic assessment can be made with
respect to the potential exposure, except to refer to the amounts
paid for the stock, approximately $14.5 million, and note that
the Plaintiffs seek to recover compensatory and exemplary
damages, interest, costs of court and attorneys' fees. The
Defendants have submitted the claims to their insurance carriers.
The district judge recently denied the Plaintiffs' motion to
transfer the case to Dallas County and ruled that it should
instead proceed in Harris County.

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. We now expect the case to proceed before a panel of
arbitrators in Washington, DC.



                              -13-

<PAGE>

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.

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 our ability to successfully
          redeploy our remaining cash assets, if any;

  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 interest;

     *    statements regarding our ability to resolve certain
          unresolved disputes with management of Paciugo in a
          manner that does not have a material adverse effect on
          our plan of operations;

  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 the minority interest we hold in
          Paciugo;

     *    risks that we may not be able to resolve certain
          disputes with Paciugo's management;



                              -14-

<PAGE>

     *    risks that we may be unable to address our concerns
          about Paciugo's market position, the industry in which
          Paciugo competes, and Paciugo's prospects for
          meaningful success therein;

     *    risks associated with having no current operations or
          revenue;

     *    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.

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
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. The loss of these monthly payments by Paciugo could
adversely affect our financial condition. While we are attempting
to work through our disagreements with Paciugo, we can offer no
assurances that these issues will be resolved without any
material adverse effect on our plan of operation. Paciugo may not
cancel or alter the scope of the Support Services without our
prior approval or consent.


                              -15-

<PAGE>


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 current
quarter, 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 of Paciugo,
respectively.

Depending upon a variety of factors, including those outlined
above, most of which are beyond our control, we may determine it
necessary to record impairment charges against the Paciugo
interest in our 2004 fiscal year. The factors that may result in
the impairment of our Paciugo interest include, without
limitation:

     *    Paciugo's ability, outside of our exercise of the
          option to acquire the Subsequent Interest, to locate
          additional working capital;

     *    Paciugo's ability to expand sales while controlling and
          reducing costs; and

     *    Paciugo's ability to compete against more well-known
          gelato, frozen dessert, and ice cream stores, many of
          which maintain greater management, financial and other
          resources.

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. For further details
regarding this proceeding, see Note 8 entitled "Legal
Proceedings."

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.



                              -16-

<PAGE>

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.

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 September 30, 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
promulgate a new business plan, either as it relates to Paciugo
or another opportunity. During fiscal 2003, we purchased the
Initial Interest in Paciugo. We cannot predict when or if we will
be successful in such a new business venture or other potential
business opportunities that we may consider, if any. During the
eight months ended August 31, 2003, we received $166,667 from
Paciugo for the provision of Support Services. There can be no
assurances as to the continuation of these payments, as Paciugo
has not made the payments since August of 2003 due to
disagreements between us and Paciugo regarding these monthly
payments. For further details regarding these disputes, see the
section entitled "Acquisition of Initial Interest in Paciugo",
above.

During the three months ended September 30, 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. However, if we choose to purchase a
greater than 50% interest in Paciugo (such as the acquisition of
the Subsequent Interest), we expect to consolidate its revenues
and operations into our consolidated financial statements at that
time. As previously discussed, we do not currently anticipate
exercising our option to acquire the Subsequent Interest. 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. For further details regarding the Support
Services, see the section entitled "Acquisition of Initial
Interest in Paciugo," above.

During the three months ended September 30, 2003, no revenues
were generated from operations. Subsequent to December 31, 2002,
AxisTel and e.Volve ceased all operations, and as part of our
debtor subsidiaries' amended plan, substantially all of the
assets associated with such services were liquidated.

We currently anticipate that we will not have any revenue from
telecommunications or any other services in the near term. In
addition, and as part of the amended plan, substantially all of
the telecommunications assets of the debtor subsidiaries were
sold, and they will be unable to provide such services in the
future.



                              -17-

<PAGE>

Basis of Presentation
---------------------

The accompanying consolidated financial statements for the three
months ended September 30, 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 three months ended September 30, 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 September 30, 2003, and
September 30, 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
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 at
September 30, 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 any funds from the positive
outcome of the Qwest litigation.

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. We anticipate that our
previous strategic investments will continue to incur operating
losses. However, we do not expect to record future charges
related to those losses as they are completely impaired. We will
record our proportionate share of future earnings or losses
related to our Initial Interest in Paciugo, until such time, if
any, that we purchase an additional interest in Paciugo (such as
the acquisition of the Subsequent Interest), resulting in our
holding a greater than 50% interest in Paciugo, at which time, we
would begin to consolidate its operations into our financial
statements. As previously discussed, we do not anticipate
exercising our option to acquire the Subsequent Interest.



                              -18-

<PAGE>

OTHER INCOME.  Other income results from the Support Services we
provided to Paciugo, pursuant to the Purchase Agreement and
administrative services we provided to our debtor subsidiaries
pursuant to an administrative services agreement approved by the
Delaware Bankruptcy Court. 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 the
month of August of 2003.  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 September 30, 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 any funds from the positive outcome of the Qwest
litigation. Due to the uncertainty surrounding the collection of
the receivable, it has been fully reserved.







                              -19-

<PAGE>

Summary of Operating Results
----------------------------

The table below summarizes our operating results.

<TABLE>
<CAPTION>

                                                  For the three months ended
                                                          September 30,
                                                      2003           2002
                                                  ------------   ------------
                                                   (unaudited)    (unaudited)

                                               <c>            <c>
Operating expenses:
  Selling, general and administrative expenses    $    630,648   $    680,721
  Depreciation and amortization                         34,946         37,862
                                                  ------------   ------------
                                                       665,594        718,583
                                                  ------------   ------------
Loss from operations, before
   other (income) expense                             (665,594)      (718,583)

Other (income) expense:
  Interest income                                       (8,312)       (38,163)
  Loss in equity investments                           105,432        264,751
  Other                                                (27,842)       (35,444)
                                                  ------------   ------------
                                                        69,278        191,144
                                                  ------------   ------------

Net loss                                              (734,872)      (909,727)

Series D preferred dividends                          (172,949)      (159,779)
                                                  ------------   ------------

Net loss allocable to common shareholders         $   (907,821)  $ (1,069,506)
                                                  ============   ============

Net loss per share - (basic and diluted)          $      (0.02)  $      (0.02)
                                                  ============   ============
Weighted average number of shares
     outstanding - (basic and diluted)              52,323,701     52,323,701
                                                  ------------   ------------
</TABLE>

Three months ended September 30, 2003 Compared to Three months
ended September 30, 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. However, if we choose to
purchase a greater than 50% interest in Paciugo (such as the
acquisition of the Subsequent Interest), we expect to consolidate
its revenues and operations into our consolidated financial
statements at that time. 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.
As previously discussed, we do not currently anticipate
exercising our option to acquire the Subsequent Interest. For
further details regarding the Support Services, see the section
entitled "Acquisition of Initial Interest in Paciugo", above.

DIRECT COSTS. No direct costs were incurred during the three
months ended September 30, 2003 and September 30, 2002.

SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and
administrative expenses decreased approximately $50,000 during
the three months ended September 30, 2003, from approximately
$680,000 during the three months ended September 30, 2002, a
decrease of 7%. The drop in selling, general and administrative
expenses is primarily due to (i) the downsizing of the workforce,
(ii) the termination of operations as a result of the various
bankruptcy proceedings, (iii) the reduction in professional fees
relating to the bankruptcy plan administrative process and (iv)
an overall reduction of overhead related to office expenses and
travel and entertainment that was offset by increased legal and
professional fees during the quarter for a nonrecurring
transaction.



                              -20-

<PAGE>


Selling, general and administrative expenses for the three months
ended September 30, 2003, consisted primarily of approximately
(i) $145,000 of salaries and benefits, (ii) $175,000 of legal and
professional fees, (iii) $70,000 of consulting and professional
fees, (iv) $160,000 of business insurance and (v) $80,000 of
other operating expenses. Selling, general and administrative
expenses for the three months ended September, 2002, consisted
primarily of approximately (i) $350,000 of salaries and benefits,
(ii) $100,000 of bad debt expense (iii) $100,000 of business
insurance and (v) $100,000 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.

DEPRECIATION AND AMORTIZATION.  Depreciation recorded on fixed
assets during the three months ended September 30, 2003, totaled
approximately $35,000, as compared to approximately $38,000 for
the three months ended September 30, 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 $8,000 for the three months ended
September 30, 2003, as compared to approximately $38,000 for the
three months ended September 30, 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 September 30, 2003,
there was a loss of approximately $0.1 million, as compared to
$0.3 million during the three months ended September 30, 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. We
will record our proportionate share of future earnings or losses
related to our Initial Interest in Paciugo, until such time, if
any, that we purchase an additional interest in Paciugo (such as
the acquisition of the Subsequent Interest), resulting in our
holding a greater than 50% interest in Paciugo, at which time, we
would begin to consolidate its operations into our financial
statements. As previously discussed, we do not currently
anticipate exercising our option to acquire the Subsequent
Interest.

Liquidity and Capital Resources
-------------------------------

     At September 30, 2003, we had consolidated current assets of
$4.3 million, including cash and cash equivalents of
approximately $3.7 million and net working capital of $2.9
million. Our cash and cash equivalents as of September 30, 2003,
were reduced by approximately $0.9 million in October of 2003
with the payment of accrued liabilities recorded in September of
2003 for business insurance and legal and professional fees.
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.

     Assuming we complete a transaction within the next year,
with no current return on that transaction, given our current
obligations, we expect to have approximately $1.3 million of cash
available for funding potential business opportunities. Current
obligations include (i) funding working capital, (ii) funding the
liquidating trust and (iii) funding the Qwest litigation. No
assurance can be given that we will be able to deploy any
remaining cash assets or that if deployed we can continue as a
going concern with the new business model.



                              -21-

<PAGE>

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.
However, if we choose to purchase a greater than 50% interest in
Paciugo (such as the acquisition of the Subsequent Interest), we
would consolidate its revenues and operations into our
consolidated financial statements at that time. As previously
discussed, we do not currently anticipate exercising our option
to acquire the Subsequent Interest. However, there can be no
assurances as to the continuation of these payments, as Paciugo
has not made the monthly payment since August of 2003 due to
disagreements between us and Paciugo regarding these monthly
payments. For further details regarding these disputes, see the
section entitled "Acquisition of Initial Interest in Paciugo",
above.

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 (i) purchase the Subsequent Interest or any additional
interest in Paciugo; (ii) implement a successful business plan
for Paciugo and (iii) 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 (x) our debtor subsidiaries
bankruptcy plan administration process and (y) 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 three months ended September 30,
2003and 2002, is summarized below:

Cash used in operating activities in the three months ended
September 30, 2003, totaled approximately $0.2 million as
compared to approximately $0.7 million in the three months ended
September 30. 2002. During the three months ended September 30,
2003, cash flow used by operating activities primarily resulted
from operating losses, net of non-cash charges, totaling
approximately $0.6 million, and an increase in prepaid expenses
of approximately $0.5 million, and an increase in accrued
expenses of $0.8 million. During the three months ended September
30, 2002, cash flow used by operating activities primarily
resulted from operating losses, net of non-cash charges, totaling
$0.6 million, a decrease in prepaid expenses of $0.1 million, and
a net decrease in accounts payable and accrued liabilities of
$0.2 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 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 equity securities of
          similarly 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 properties, facilities, business models,
          products, services, material contracts, 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; and

     *    resolving our open issues with the management of
          Paciugo, if at all possible, and determining the best
          course of action with respect to our Paciugo Interest.

As of September 30, 2003, we maintained cash and cash
equivalents of approximately $3.7 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 $1.3 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



                              -23-

<PAGE>

be limited. We may only have the ability to participate in one
business opportunity. 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
have investments in money market funds of approximately $3.7
million at September 30, 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
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, Robert Newhouse, the trustee for
iGlobal, filed an adversary proceeding against us in the Texas
Bankruptcy Court on April 1, 2003. The lawsuit sought to avoid
certain alleged preferential and fraudulent transfers of
approximately $0.3 million. In addition, it sought to disallow
our claim in the bankruptcy proceeding. We denied the receipt of
any improper payments or transfers, and we vigorously defended
against the allegations. On August 25, 2003, an order was entered
by the Texas Bankruptcy Court dismissing all of Mr. Newhouse's
claims against us.

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 have denied the allegations and intend to vigorously
defend against the Plaintiffs' claims and seek all other
appropriate relief. Since the process has not proceeded beyond
the discovery stage, no realistic assessment can be made with
respect to the potential exposure, except to refer to the amounts
paid for the stock, approximately $14.5 million, and note that
the Plaintiffs seek to recover compensatory and exemplary
damages, interest, costs of court and attorneys' fees. The
Defendants have submitted the claims to their insurance carriers.
The district judge recently denied the Plaintiffs' motion to
transfer the case to Dallas County and ruled that it should
instead proceed in Harris County.

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



                              -24-

<PAGE>

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. We now expect the case to proceed before a panel of
arbitrators in Washington, DC.

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

Currently, the Audit Committee of our Board of Directors consists
of Russell W. Beiersdorf and John Stevens Robling, Jr.  While
these two individuals are "independent" for purposes of National
Association of Securities Dealers ("NASD") Rule 4200(a)(15), our
Audit Committee Charter and other NASD rules require this
committee to be composed of at least three directors, with the
NASD rules requiring each of them to be independent.  We are not
presently governed by NASD rules and will not be until such time,
if any, we re-apply and are accepted on the NASD Small Cap or
National Market.  We are currently considering our options,
including, without limitation, the possible appointment of
another independent director to serve on the audit committee or
the amendment of our Audit Committee Charter.

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 August 14, 2003, we filed a Report on Form 8-K, disclosing (1)
the resignation of Jan Robert Horsfall as a director; (2) the
resignation of Susie C. Holliday from the position of Senior Vice
President of Accounting; and (3) the appointment of Patrick G.
Mackey, our Senior Vice President of Administration, as our new
Senior Vice President of Accounting.














                              -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:  November 13, 2003      By:     /s/ Steven W. Caple
                                 -------------------------------
                                   Steven W. Caple
                                   President
                                   (Principal Executive Officer)



Date:  November 13, 2003      By:     /s/ Patrick G. Mackey
                                   -----------------------------
                                   Patrick G. Mackey
                                   Senior Vice President
                                   (Principal Financial and
                                     Accounting Officer)









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