** **

** **

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

 

# **Washington, D.C. 20549**

 

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# **FORM 10-Q**

 

**(Mark One)**

 

**ý        QUARTERLY REPORT PURSUANT TO SECTION 13OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended September 30, 2001**

 

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

 

**For the transition period from _________ to _________**

 

**Commission File Number 0-28536**

 

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**NEW CENTURY EQUITY HOLDINGS CORP.**

(Exactname of registrant as specified in its charter)

 

| **Delaware**                                                   |   | **74-2781950**                          |
|----------------------------------------------------------------|--------|-----------------------------------------|
| (State or other jurisdiction of incorporation or organization) |   | (I.R.S. Employer Identification Number) |
|                                                           |   |                                    |
| **10101  Reunion Place, Suite 450, San Antonio, Texas**        |   | **78216**                               |
| (Address  of principal executive offices)                      |   | (Zip  code)                             |
|                                                           |   |                                    |
| **(210) 302-0444**                                             |
| (Registrant’s  telephone number, including area code)     |

 

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15 (d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter periods that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. **ý**  Yes o No

 

Indicated below is the number of shares outstanding of the registrant’sonly class of common stock at November 13, 2001:

 
|                           |   | **Number of Shares** |       |
|--------------------------------|--------|----------------------|------------|
| **Title of  Class**            |   | **Outstanding**      | ** ** |
| Common Stock, $0.01 par  value |   | 34,215,920           |       |

 

** **

**NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES**

 

# **INDEX**

 
| **PART I FINANCIAL  INFORMATION** |                                                                                                                        |
|-----------------------------------|-----------------------------------------------------------------------------------------------------------------------------|
|                              |                                                                                                                        |   |
| Item  1.                          | Interim  Condensed Consolidated Financial Statements (Unaudited)                                                            |
|                              | Condensed  Consolidated Balance Sheets – September 30, 2001 and December 31, 2000                                      |
|                              | Condensed  Consolidated Statements of Operations – For the Quarters and Nine Months  Ended September 30, 2001 and 2000 |
|                              | Condensed  Consolidated Statements of Cash Flows  – For the Nine Months Ended September 30, 2001 and 2000              |
|                              | Notes  to Interim Condensed  Consolidated Financial Statements                                                              |
| Item 2.                           | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                 |
| Item  3.                          | Quantitative  and Qualitative Disclosure about Market Risk                                                                  |
|                              |                                                                                                                        |   |
| **PART II OTHER INFORMATION**     |                                                                                                                        |
|                              |                                                                                                                        |   |
| Item  1.                          | Legal  Proceedings                                                                                                          |
| Item 6.                           | Exhibits and Reports  on Form 8-K                                                                                           |
|                              |                                                                                                                        |   |
| SIGNATURE                         |                                                                                                                        |

 

 

#### **PART I FINANCIAL INFORMATION**

 

**Item 1. Interim Condensed Consolidated Financial Statements**

# ** **

# **NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES**

 

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(In thousands, except share data)**

**(Unaudited)**

 

**ASSETS**

 
|                                                                                                                                                                                                                 |   | **September  30,** |                 | **December 31,** |                 |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|----------------------|------------------|----------------------|
|                                                                                                                                                                                                                 |   | **2001**           |                 | **2000**         |                 |
| Current Assets:                                                                                                                                                                                                      |   |               |                 |             |                 |
| Cash and cash equivalents                                                                                                                                                                                            |   | $                  | 18,366               |             | $                    | 36,478 |   |
| Accounts receivable, net                                                                                                                                                                                             |   | 969                |                 | 3,427            |                 |
| Inventory                                                                                                                                                                                                            |   | 1,251              |                 | -                |                 |
| Prepaids and other                                                                                                                                                                                                   |   | 568                |                 | 254              |                 |
| Total current assets                                                                                                                                                                                                 |   | 21,154             |                 | 40,159           |                 |
| Property and equipment, net                                                                                                                                                                                          |   | 825                |                 | 723              |                 |
| Other assets, net                                                                                                                                                                                                    |   | 1,365              |                 | 6,775            |                 |
| Net assets held for sale                                                                                                                                                                                             |   | 440                |                 | -                |                 |
| Investments in and advances to equity affiliates                                                                                                                                                                     |   | 33,012             |                 | 33,519           |                 |
| Total assets                                                                                                                                                                                                         |   | $                  | 56,796               |             | $                    | 81,176 |   |
|                                                                                                                                                                                                                 |   |               |                 |             |                 |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                        |
|                                                                                                                                                                                                                 |   |               | ** **           |             | ** **           |
| Current liabilities:                                                                                                                                                                                                 |   |               |                 |             |                 |
| Accounts payable                                                                                                                                                                                                     |   | $                  | 931                  |             | $                    | 95 |   |
| Accrued liabilities                                                                                                                                                                                                  |   | 1,002              |                 | 1,564            |                 |
| Accrued income taxes                                                                                                                                                                                                 |   | 356                |                 | 2,525            |                 |
| Revolving credit note                                                                                                                                                                                                |   | 323                |                 | -                |                 |
| Note payable to minority stockholders                                                                                                                                                                                |   | 132                |                 | -                |                 |
| Net current liabilities from discontinued operations                                                                                                                                                                 |   | 650                |                 | 3,521            |                 |
| Total current liabilities                                                                                                                                                                                            |   | 3,394              |                 | 7,705            |                 |
| Other liabilities                                                                                                                                                                                                    |   | 606                |                 | 741              |                 |
| Long-term debt to minority stockholders, net of discount                                                                                                                                                             |   | 1,300              |                 | -                |                 |
| Total liabilities                                                                                                                                                                                                    |   | 5,300              |                 | 8,446            |                 |
| Commitments and contingencies (see Note 13)                                                                                                                                                                          |   |               |                 |             |                 |
| Minority interest in consolidated affiliate (see Note 4)                                                                                                                                                             |   | 1,290              |                 | -                |                 |
| Stockholders’ Equity:                                                                                                                                                                                           |   |               |                 |             |                 |
| Preferred stock, $0.01 par value, 10,000,000 shares authorized; no  shares issued or outstanding at September 30 or December 31                                                                                      |   | -                  |            | -                |            |
| Common stock, $0.01 par value, 75,000,000 shares authorized;  35,653,620 shares issued and 34,215,920 shares outstanding at September 30;  42,506,960 shares issued and 35,652,560 shares outstanding at December 31 |   | 357                |       | 425              |       |
| Additional paid-in capital                                                                                                                                                                                           |   | 71,687             |                 | 90,403           |                 |
| Retained (deficit) earnings                                                                                                                                                                                          |   | (20,501            | )                    | 706              |                 |
| Deferred compensation                                                                                                                                                                                                |   | (22                | )                    | (49              | )                    |
| Treasury stock, at cost, 1,437,700 shares at September 30; 6,854,400  shares at December 31                                                                                                                          |   | (1,315             | )                    | (18,755          | )                    |
| Total stockholders’ equity                                                                                                                                                                                      |   | 50,206             |                 | 72,730           |                 |
| Total liabilities and stockholders’ equity                                                                                                                                                                      |   | $                  | 56,796               |             | $                    | 81,176 |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

**NEW CENTURYEQUITY HOLDINGS CORP. AND SUBSIDIARIES**

 

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**(In thousands, except per share data)**

**(Unaudited)**

 
|                                                                                                                              |   | **Quarter  Ended** |                 | **Nine  Months Ended** |       |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|----------------------|------------------------|------------|
|                                                                                                                              |   | **September 30,**  |                 | **September 30,**      |       |
|                                                                                                                              |   | **2001**           | ** **           | **2000**               | ** ** | **2001** |   | **2000** |   |
| Operating revenues                                                                                                                |   | $                  | 169                  |                   | $          | 173 |   | $ | 440 |   | $ | 379 |   |
| Cost of revenues                                                                                                                  |   | 188                |                 | 128                    |       | 564 |   | 315 |   |
| Gross (loss) profit                                                                                                               |   | (19                | )                    | 45                     |       | (124 | ) | 64 |   |
|                                                                                                                              |   |               |                 |                   |       |   |   |   |   |
| Selling, general and administrative expenses                                                                                      |   | 2,274              |                 | 1,554                  |       | 6,766 |   | 7,318 |   |
| Research and development expenses                                                                                                 |   | -                  |                 | (45                    | )          | - |   | 1,877 |   |
| Depreciation and amortization expenses                                                                                            |   | 551                |                 | 443                    |       | 1,593 |   | 1,360 |   |
| Goodwill impairment                                                                                                               |   | 4,651              |                 | -                      |       | 4,651 |   | - |   |
| Special charges                                                                                                                   |   | -                  |                 | 435                    |       | - |   | 469 |   |
| Loss from continuing operations                                                                                                   |   | (7,495             | )                    | (2,342                 | )          | (13,134 | ) | (10,960 | ) |
|                                                                                                                              |   |               |                 |                   |       |   |   |   |   |
| Other income (expense):                                                                                                           |   |               |                 |                   |       |   |   |   |   |
| Interest income, net                                                                                                              |   | 351                |                 | -                      |       | 962 |   | 6 |   |
| Equity in net loss of equity affiliates                                                                                           |   | (7,041             | )                    | (3,781                 | )          | (15,229 | ) | (9,051 | ) |
| In-process research and development of equity affiliates                                                                          |   | -                  |                 | -                      |       | - |   | (4,965 | ) |
| Consulting income                                                                                                                 |   | 938                |                 | -                      |       | 2,814 |   | - |   |
| Realized gain on available-for-sale securities                                                                                    |   | 553                |                 | -                      |       | 566 |   | - |   |
| Other, net                                                                                                                        |   | 670                |                 | 17                     |       | 676 |   | 37 |   |
| Total other expense, net                                                                                                          |   | (4,529             | )                    | (3,764                 | )          | (10,211 | ) | (13,973 | ) |
|                                                                                                                              |   |               |                 |                   |       |   |   |   |   |
| Loss from continuing operations before income tax (expense) benefit                                                               |   | (12,024            | )                    | (6,106                 | )          | (23,345 | ) | (24,933 | ) |
| Income tax (expense) benefit                                                                                                      |   | (200               | )                    | 562                    |       | 638 |   | 3,457 |   |
| Net loss from continuing operations                                                                                               |   | (12,224            | )                    | (5,544                 | )          | (22,707 | ) | (21,476 | ) |
|                                                                                                                              |   |               |                 |                   |       |   |   |   |   |
| Discontinued operations:                                                                                                          |   |               |                 |                   |       |   |   |   |   |
| Net loss from discontinued operations, net of income tax (expense)  benefit of $0, ($152), $0 and $1,426, respectively            |   | -                  |            | (1,010                 | )          | - |   | (8,008 | ) |
| Net (loss) income from disposal of discontinued operations, net of  income tax expense of $0, $5,629, $0 and $5,629, respectively |   | -                  |       | (9,277                 | )          | 1,500 |       | (9,277 | ) |
| Net loss                                                                                                                          |   | $                  | (12,224              | )                      | $          | (15,831 | ) | $ | (21,207 | ) | $ | (38,761 | ) |
|                                                                                                                              |   |               |                 |                   |       |   |   |   |   |
| Basic and diluted:                                                                                                                |   |               |                 |                   |       |   |   |   |   |
| Net loss from continuing operations per common share                                                                              |   | $                  | (0.35                | )                      | $          | (0.13 | ) | $ | (0.64 | ) | $ | (0.53 | ) |
| Net loss from discontinued operations per common share                                                                            |   | -                  |                 | (0.02                  |  )    | - |    | (0.20 |  ) |
| Net income from disposal of discontinued operations per common share                                                              |   | -                  |                 | (0.23                  | )          | 0.04 |    | (0.23 | ) |
| Net loss per common share                                                                                                         |   | $                  | (0.35                | )                      | $          | (0.38 | ) | $ | (0.60 | ) | $ | (0.96 | ) |
|                                                                                                                              |   |               |                 |                   |       |   |   |   |   |
| Weighted average common shares outstanding                                                                                        |   | 34,646             |                 | 41,534                 |       | 35,142 |   | 40,525 |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

**NEW CENTURYEQUITY HOLDINGS CORP. AND SUBSIDIARIES**

 

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In thousands)**

**(Unaudited)**

 
|                                                                                                                  |   | **Nine Months Ended** |          |
|-----------------------------------------------------------------------------------------------------------------------|--------|-----------------------|---------------|
|                                                                                                                  |   | **September 30,**     |          |
|                                                                                                                  |   | **2001**              |          | **2000** |   |
| Cash flows from operating activities:                                                                                 |   |                  |          |   |   |
| Net loss from continuing operations                                                                                   |   | $                     | (22,707       | ) | $ | (21,476 | ) |
| Adjustments to reconcile net loss from continuing operations to net  cash (used in) provided by operating activities: |   |                  |     |   |     |
| Depreciation and amortization                                                                                         |   | 1,593                 |          | 1,360 |   |
| Impairment of goodwill                                                                                                |   | 4,651                 |          | - |   |
| Equity in net loss of equity affiliates                                                                               |   | 15,229                |          | 9,051 |   |
| In-process research and development costs                                                                             |   | -                     |          | 4,965 |   |
| Realized gains from sale of available-for-sale securities                                                             |   | (566                  | )             | - |   |
| Non-cash special charges                                                                                              |   | -                     |          | 436 |   |
| Changes in operating assets and liabilities:                                                                          |   |                  |          |   |   |
| Decrease (increase) in accounts receivable                                                                            |   | 4,458                 |          | (3,267 | ) |
| (Increase) decrease in prepaids and other                                                                             |   | (151                  | )             | 35 |   |
| Increase (decrease) in accounts payable                                                                               |   | 114                   |          | (441 | ) |
| Decrease in accrued liabilities                                                                                       |   | (1,907                | )             | (159 | ) |
| Increase in deferred income taxes                                                                                     |   | -                     |          | 2,806 |   |
| Decrease in other liabilities and other noncash items                                                                 |   | (43                   | )             | (80 | ) |
| Net cash provided by (used in) continuing  operating activities                                                       |   | 671                   |          | (6,770 | ) |
|                                                                                                                  |   |                  |          |   |   |
| Net cash (used in) provided by discontinued operating activities                                                      |   | (3,940                | )             | 54,124 |   |
| Net cash (used in) provided by operating activities                                                                   |   | (3,269                | )             | 47,354 |   |
|                                                                                                                  |   |                  |          |   |   |
| Cash flows from investing activities:                                                                                 |   |                  |          |   |   |
| Purchases of property and equipment                                                                                   |   | (615                  | )             | (50 | ) |
| Investments in available-for-sale securities                                                                          |   | (16,500               | )             | - |   |
| Proceeds from sale of available-for-sale securities                                                                   |   | 17,265                |          | - |   |
| Investment in consolidated affiliate                                                                                  |   | 1,379                 |          | - |   |
| Investments in net assets of and advances to equity affiliates                                                        |   | (15,000               | )             | (45,580 | ) |
| Other investing activities                                                                                            |   | (72                   | )             | (385 | ) |
| Net cash used in investing activities                                                                                 |   | (13,543               | )             | (46,015 | ) |
|                                                                                                                  |   |                  |          |   |   |
| Cash flows from financing activities:                                                                                 |   |                  |          |   |   |
| Proceeds from issuance of common stock                                                                                |   | 14                    |          | 861 |   |
| Purchases of treasury stock                                                                                           |   | (1,314                | )             | (1,901 | ) |
| Net cash used in financing activities                                                                                 |   | (1,300                | )             | (1,040 | ) |
|                                                                                                                  |   |                  |          |   |   |
| Net (decrease) increase in cash and cash equivalents                                                                  |   | (18,112               | )             | 299 |   |
|                                                                                                                  |   |                  |          |   |   |
| Cash and cash equivalents, beginning of period                                                                        |   | 36,478                |          | (455 | ) |
|                                                                                                                  |   |                  |          |   |   |   |   |
| Cash and cash equivalents, end of period                                                                              |   | $                     | 18,366        |   | $ | (156 | ) |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

**NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES**

**NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

**Note 1.Basis of Presentation**

 

Theinterim condensed consolidated financial statements included herein have beenprepared by New Century Equity Holdings Corp. and subsidiaries, formerly knownas Billing Concepts Corp., (collectively, the “Company”), without audit,pursuant to the rules and regulations of the Securities and Exchange Commission(“SEC”).  Certain information andfootnote disclosures normally included in financial statements prepared inaccordance with United States generally accepted accounting principles havebeen condensed or omitted pursuant to such rules and regulations.  In the opinion of the Company’s management,the accompanying interim condensed consolidated financial statements reflectall adjustments that are necessary for a fair presentation of the Company’sfinancial position, results of operations and cash flows for such periods.  All such adjustments are of a normalrecurring nature.  It is recommendedthat these interim condensed consolidated financial statements be read inconjunction with the consolidated financial statements and the notes theretoincluded in the Company’s Annual Report on Form 10-K for the year endedSeptember 30, 2000.  Results ofoperations for the interim periods are not necessarily indicative of resultsthat may be expected for any other interim periods or the full fiscalyear.  Certain prior period amounts havebeen reclassified for comparative purposes.

 

OnOctober 23, 2000, the Company completed the sale of the Transaction Processingand Software divisions to Platinum Equity Holdings (“Platinum”) of Los Angeles,California (the “Transaction”).  Totalconsideration consisted of $49.7 million in cash and a royalty, assumingachievement of certain revenue targets associated with the divested divisions,of up to $20 million.  At this time,management cannot assess the probability of the divested divisions achievingthe revenue targets necessary to generate a royalty payment to theCompany.  In addition, the Companyreceives payments totaling $7.5 million for consulting services provided toPlatinum over the twenty-four month period subsequent to the Transaction, whichis included in other income (expense) as consulting income.  The Company has received payments of $3.4million for consulting services as of September 30, 2001.  All financial information presented has beenrestated to reflect the Transaction Processing and Software divisions asdiscontinued operations in accordance with Accounting Principles Board No. 30.

 

InDecember 2000, the Board of Directors approved a change in the fiscal year endof the Company from September 30 to December 31, effective with the calendaryear beginning January 1, 2001.  Thequarter ended December 31, 2000, represented the three-month transition periodbetween fiscal years 2000 and 2001.  Thequarter ended March 31, 2001, represented the first quarter of fiscal year2001.

 

Thepreparation of financial statements in conformity with United States generallyaccepted accounting principles requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer from those estimates.

 

**Note 2. NewAccounting Standards**

 

InJune 2001, the Financial Accounting Standards Board (“FASB”) issued Statementof Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations”,which addresses the initial recognition of goodwill and other intangible assetsacquired in a business combination and requires that all future businesscombinations be accounted for under the purchase method of accounting.  In June 2001, the FASB also issued SFAS No.142, “Goodwill and Other Intangible Assets”, which addresses the recognitionand measurement of other intangible assets acquired outside of a businesscombination whether acquired individually or with a group of assets.  In accordance with the statements, goodwilland certain intangible assets will no longer be amortized, but will be subjectto at least an annual assessment of impairment.  The Company will adopt these statements on a prospective basis onJanuary 1, 2002, although certain provisions of these statements have beenapplied to business combinations completed after June 30, 2001.  Management does not believe the adoption ofthese statements will have an adverse impact on the financial statements of theCompany in 2002 relative to business combinations completed before June 30,2001.

 

**Note 3.Acquisitions and Investments**

 

InAugust 2001, the Company entered into a Series A Preferred Stock PurchaseAgreement (“Purchase Agreement”) with Tanisys Technology, Inc. (“Tanisys”) topurchase 1,060,000 shares of Tanisys’ Series A Preferred Stock for $1,060,000,in an aggregate $2,575,000 financing. Each share of Series A Preferred Stock is initially convertible into33.334 shares of Tanisys’ common stock. The Company’s ownership percentage of the outstanding shares of Tanisysat September 30, 2001, was approximately 33.5%.  The Company’s ownership percentage is based upon its votinginterest in Tanisys.

 

Inconnection with the Purchase Agreement, Tanisys will make payments to theholders of the Series A Preferred Stock, to the extent its cash flow meetscertain levels, until the holders have received the amount of their investmentin the Series A Preferred Stock.  At thesole option of the Company, these payments may be converted into additionalshares of Series A Preferred Stock, in lieu of cash, to be delivered to theholders of the Series A Preferred Stock. Tanisys has granted a security interest in all of its assets to secureits obligation to make these payments, and has agreed to issue additionalshares of Series A Preferred Stock, equal to 50% of the then fully dilutedcommon stock, to the holders of the Series A Preferred Stock if Tanisys failsto return the amount of their investment, plus cumulative dividends at the rateof 15% annually, by July 15, 2003.  Atthe sole option of the Company, dividend payments may be converted intoadditional shares of Series A Preferred Stock, in lieu of cash, to be deliveredto the holders of Series A Preferred Stock. Tanisys also agreed to issue, at up to six different times, additionalshares of Series A Preferred Stock to the holders of the Series A PreferredStock equal to 25% of the then fully diluted common stock if Tanisys fails tomeet any of certain financial requirements for six periods of time, beginningwith the quarters ended September 30, 2001 and December 31, 2001, and then forthe four six-month periods ending June 30, 2002, December 31, 2002, June 30,2003 and December 31, 2003.  Eachfailure to meet any one of the several financial requirements in any of the sixperiods will result in Tanisys being required to issue additional shares ofSeries A Preferred Stock, for no additional consideration, to the holders ofthe Series A Preferred Stock.  Tanisysfailed to meet the financial requirements for the quarter ended September 30,2001, resulting in the issuance of 999,051 additional shares of Series APreferred Stock to the holders of the Series A Preferred Stock.

 

Foraccounting purposes, the Company is deemed to have control of Tanisys andtherefore, must consolidate the financial statements of Tanisys.  The Company will consolidate Tanisys’financial statements on a three-month lag. Tanisys’ balance sheet as of the purchase date has been consolidatedwith the Company’s balance sheet as of September 30, 2001.

 

InApril 2001, the Company contributed $15.0 million, in an aggregate $22.5million private convertible debt financing for Princeton eCom Corporation(“Princeton”).  The Company purchased$15.0 million of convertible promissory notes, which are expected to beconverted into preferred stock at a rate to be determined in the future basedon certain events.  In addition to theconvertible debt, the Company also received warrants to purchase shares ofPrinceton’s convertible preferred stock. The Company’s ownership percentage of the outstanding shares ofPrinceton at September 30, 2001, was approximately 41.5%.  The Company’s ownership percentage is basedupon its voting interest in Princeton.

 

**Note 4.Consolidated Balance Sheet of Tanisys**

 

InAugust 2001, the Company invested $1,060,000 in Tanisys (see Note 3).  For accounting purposes, the Companyconsolidates Tanisys into the financial statements of the Company.  As the Company is consolidating Tanisys on athree-month lag (due to the difference in the fiscal years of the Company andTanisys), Tanisys’ balance sheet, including acquisition adjustments, as of the financingdate has been consolidated in the Company’s balance sheet as of September30.  Tanisys’ balance sheet consolidatedherein is as follows:

 
| (in thousands)                               |   |   |   |
|----------------------------------------------|--------|--------|--------|
| Cash and cash equivalents                    |   | $      | 2,440  |   |
| Accounts receivable, net                     |   | 648    |   |
| Inventory                                    |   | 1,251  |   |
| Prepaids and other                           |   | 181    |   |
| Property and equipment, net                  |   | 377    |   |
| Other assets                                 |   | 757    |   |
|                                         |   |   |   |
| Accounts payable                             |   | 834    |   |
| Accrued liabilities                          |   | 692    |   |
| Revolving credit note                        |   | 323    |   |
| Note payable to minority stockholders        |   | 132    |   |
| Other liabilities                            |   | 23     |   |
| Long-term debt to minority stockholders      |   | 1,300  |   |
| Minority interest in consolidated affiliates |   | 1,290  |   |
|                                              |        |        |        |  |

 

 

Tanisysentered into an Accounts Receivable Financing Agreement (“Debt Agreement”) withSilicon Valley Bank on May 30, 2001, to fund accounts receivable and provideworking capital up to a maximum of $2.0 million secured by the assets ofTanisys.

 

**Note 5.Investments in Available-for-sale Securities**

 

InJanuary 2001, the Company invested $15.0 million in a portfolio of fixed incomesecurities.  The Company classifiedthese investments as available-for-sale securities in accordance with SFAS No.115, “Accounting for Certain Investments in Debt and Equity Securities”.  These available-for-sale securities weremeasured at fair value, with unrealized holding gains (losses) reported inother comprehensive income (loss) (see Note 12).

 

Theinvestments were included in Investments in available-for-sale securities as along-term asset.  The maturities ofthese investments ranged from two to five years.  The Company sold $1.0 million and $0.5 million of the investmentsin April and May 2001, respectively.  InJune 2001, the Company re-invested the $1.5 million in the investments, for anet investment of $15.0 million.  InSeptember 2001, the Company sold the $15.0 million investment due to changes inthe market conditions of fixed income securities.  The Company realized a $0.6 million gain on the sale of thesesecurities.  The Company has investedthe proceeds from the sale into short-term securities.

 

**Note 6.Other Assets**

 

Otherassets is comprised of the following:

 
|                                                                                                                         |   | **September 30,**  |   | **December  31,** |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------|-------------------|--------|
|                                                                                                                         |   | **2001**           |   | **2000**          |   |
|                                                                                                                         |   | **(In thousands)** |   |
| Goodwill – FIData, Inc., net of accumulated amortization of $0 at  September 30 (see Note 11) and $1,717 at December 31 |   | $                  | -      |              | $      | 5,652 |   |
| Executive deferred compensation assets                                                                                       |   | 554                |   | 670               |   |
| Other non-current assets                                                                                                     |   | 811                |   | 453               |   |
|                                                                                                                         |   |               |   |              |   |   |   |
| Total other assets                                                                                                           |   | $                  | 1,365  |              | $      | 6,775 |   |

 

**Note 7. NetAssets Held for Sale**

 

Duringthe third quarter of 2001, the Company formalized plans to dispose of the FIData,Inc. (“FIData”) operations.  The Companyentered into an agreement to merge the FIData operations into those ofMicrobilt Corporation (“Microbilt”) and in accordance with SFAS No. 121,“Accounting for the Impairment of Long-lived Assets and for Long-lived Assetsto be Disposed of”, recorded an impairment loss to reduce the carrying value ofthe assets to the net realizable value including an accrual for the costsincurred during the sale (see Note 11). In October 2001, the Company completed the merger of FIData intoMicrobilt (see Note 15).

 

AtSeptember 30, 2001, the assets held for sale totaled $440, are classified asnon-current assets on the Company’s balance sheet herein and are summarized asfollows:

 
| (in  thousands)             |   |   |   |
|-----------------------------|--------|--------|--------|
| Cash and cash equivalents   |   | $      | (113   | ) |
| Accounts receivable, net    |   | 46     |   |
| Prepaids and other          |   | 22     |   |
| Property and equipment, net |   | 391    |   |
| Other assets                |   | 549    |   |
|                        |   |   |   |
| Accounts payable            |   | 112    |   |
| Accrued liabilities         |   | 343    |   |
|                             |        |        |        |  |

 

**Note 8.Investments in and Advances to Equity Affiliates**

 

Investmentsin and advances to equity affiliates is comprised of the following:

 
|                                                    |   | **September 30,**  |   | **December  31,** |   |
|---------------------------------------------------------|--------|--------------------|--------|-------------------|--------|
|                                                    |   | **2001**           |   | **2000**          |   |
|                                                    |   | **(In thousands)** |   |
| Equity investment in Princeton eCom Corporation:        |   |               |   |              |   |
| Cash investments                                        |   | $                  | 65,919 |              | $      | 50,919 |   |
| In-process research and development costs               |   | (4,465             | )      | (4,465            | )      |
| Amortization and equity loss pick-up                    |   | (27,771            | )      | (15,435           | )      |
| Other                                                   |   | (671               | )      | (342              | )      |
| Net equity investment in Princeton eCom  Corporation    |   | 33,012             |   | 30,677            |   |
|                                                    |   |               |   |              |   |
| Equity investment in Core*intellect*, Inc.:             |   |               |   |              |   |
| Cash investments                                        |   | 6,000              |   | 6,000             |   |
| In-process research and development costs               |   | (2,500             | )      | (2,500            | )      |
| Amortization and equity loss pick-up                    |   | (3,556             | )      | (663              | )      |
| Other                                                   |   | 56                 |   | 5                 |   |
| Net equity investment in Core*intellect*, Inc.          |   | -                  |   | 2,842             |   |
|                                                    |   |               |   |              |   |   |   |
| Total investments in and advances to equity  affiliates |   | $                  | 33,012 |              | $      | 33,519 |   |

** **

**Note 9.Summarized Financial Information for Unconsolidated Subsidiary**

 

TheCompany accounts for its investment in Princeton under the equity method.  The Company’s ownership percentage of theoutstanding shares of Princeton was approximately 41.5% and 42.2% as ofSeptember 30, 2001 and December 31, 2000, respectively.  The Company’s ownership percentage is basedupon its voting interest in Princeton. The Company records the equity in net loss of Princeton on a three-monthlag; therefore, the unaudited summarized financial information for Princeton asof June 30, 2001 and September 30, 2000, and the quarter and nine months endedthereof is presented in the table below (in thousands).

 
|                                               |   | **June 30,** |   | **September  30,** |         |
|----------------------------------------------------|--------|--------------|--------|--------------------|--------------|
|                                               |   | **2001**     |   | **2000**           |         |
| Current assets                                     |   | $            | 31,518 |               | $            | 38,703 |   |
| Non-current assets                                 |   | 32,690       |   | 12,894             |         |
| Current liabilities                                |   | 41,785       |   | 15,660             |         |
| Non-current liabilities                            |   | 376          |   | 185                |         |
| Manditorily redeemable convertible preferred stock |   | 64,249       |   | 57,313             |    |
|                                                    |        |              |        |                    |              |  |  |

 
|                 |   | **Quarters  Ended** |   | **Nine  months Ended** |   |
|----------------------|--------|---------------------|--------|------------------------|--------|
|                 |   | **June 30,**        |   | **June 30,**           |   |
|                 |   | **2001**            |   | **2000**               |   | **2001** |   | **2000** |   |
| Total revenues       |   | $                   | 5,300  |                   | $      | 2,691 |   | $ | 14,332 |   | $ | 6,901 |   |
| Gross profit         |   | 955                 |   | 396                    |   | 2,127 |   | 1,021 |   |
| Loss from operations |   | (10,732             | )      | (5,284                 | )      | (31,585 | ) | (17,174 | ) |
| Net loss             |   | (12,210             | )      | (5,314                 | )      | (32,747 | ) | (17,188 | ) |
| EBITDA               |   | (9,132              | )      | (4,400                 | )      | (27,620 | ) | (14,132 | ) |
|                      |        |                     |        |                        |        |  |  |  |  |  |  |  |  |

 

In May 2001, Princeton announced its acquisition of Quicken BillManager from Intuit Inc. (“Intuit”) (the “Princeton Transaction”).  Quicken Bill Manager provides online billpresentment and payment services by processing payments for customers utilizingIntuit’s Quicken personal financial management software.  Under the terms of the acquisitionagreement, Princeton acquired the assets of Intuit’s Quicken Bill Managerthrough the purchase of certain technologies from Intuit and all of theoutstanding shares of Venture Finance Services Corp., a wholly owned subsidiaryof Intuit.  In exchange, Intuit willreceive, in February 2002, at Princeton’s election, either an equity stake inPrinceton equivalent to approximately 21 percent of Princeton’s outstandingshares at the close of the Princeton Transaction or cash.  If elected, the cash payment would be madeas a lump-sum payment or in four annual installments.

 

Thepro forma adjustments to the Company’s financial statements related to theadditional equity in net loss of equity affiliates the Company would haverecorded had Princeton acquired Quicken Bill Manager at the beginning of theperiod presented.  The following proforma financial information for the Company is provided for the year endedSeptember 30, 2000, the transition quarter ended December 31, 2000 and the ninemonths ended September 30, 2001, based upon the assumption that Princeton hadacquired Quicken Bill Manager as of October 1, 1999.

 

For the year ended September 30, 2000, the Companyrecorded equity in net loss of equity affiliates of $10.1 million, loss fromcontinuing operations before income tax benefit of $31.3 million, net loss fromcontinuing operations of $26.6 million and net loss of $42.4 million.  The basic and diluted net loss fromcontinuing operations per share and the net loss per share were $0.67 and$1.06, respectively.  Had the PrincetonTransaction occurred on October 1, 1999, the Company would have recorded anadditional equity in net loss of equity affiliates of $15.0 million. Includingthe pro forma adjustment, the Company would have recorded total equity in netloss of equity affiliates of $25.1 million, loss from continuing operationsbefore income tax benefit of $46.3 million, net loss from continuing operationsof $41.6 million and net loss of $57.4 million.  The basic and diluted net loss from continuing operations pershare and the net loss per share would have been $1.05 and $1.44,respectively.  The pro forma adjustmentdecreases the balance of Investments in equity affiliates from $37.8 million to$22.8 million as of September 30, 2000.

 

For the transition quarter ended December 31, 2000,the Company recorded equity in net loss of equity affiliates of $4.2 million,loss from operations before income tax benefit of $5.4 million and net loss of$5.1 million.  The basic and diluted netloss per share was $0.13.  Had thePrinceton Transaction occurred on October 1, 1999, the Company would haverecorded an additional equity in net loss of equity affiliates of $5.5million.  Including the pro formaadjustment, the Company would have recorded total equity in net loss of equityaffiliates of $9.7 million, loss from operations before income tax benefit of$10.9 million and net loss of $10.6 million. The basic and diluted net loss per share would have been $0.27.  The cumulative pro forma adjustments decreasethe balance of Investments in equity affiliates from $33.5 million to $13.0million as of December 31, 2000.

 

Forthe nine months ended September 30, 2001, the Company recorded equity in netloss of equity affiliates of $15.2 million, loss from continuing operationsbefore income tax benefit of $23.3 million, net loss from continuing operationsof $22.7 million and net loss of $21.2 million.  The basic and diluted net loss from continuing operations pershare and net loss per share were $0.64 and $0.60, respectively.  Had the Princeton Transaction occurred onOctober 1, 1999, the Company would have recorded an additional equity in netloss of equity affiliates of $4.1 million. Including the pro forma adjustment, the Company would have recordedtotal equity in net loss of equity affiliates of $19.3 million, loss fromcontinuing operations before income tax benefit of $27.4 million, net loss fromcontinuing operations of $26.8 million and net loss of $25.3 million.  The basic and diluted net loss fromcontinuing operations per share and net loss per share would have been $0.75and $0.71, respectively.  The cumulativepro forma adjustments decrease the September 30, 2001 balance of Investments inequity affiliates from $33.0 million to $8.3 million.

 

**Note 10.Treasury Stock**

 

InFebruary 2000, the Company’s Board of Directors approved the adoption of acommon stock repurchase program.  Underthe terms of the program, the Company could purchase up to a total of $10.0million of Company common stock in the open market or in privately negotiated transactions.  In November and December 2000, the Board ofDirectors approved additional common stock repurchase programs, which allow theCompany to cumulatively purchase a total of $25.0 million of common stock.  During the quarter and nine months ended September30, 2001, the Company purchased $0.7 million, or 925,000 shares, and $1.3million, or 1,437,700 shares, respectively, of treasury stock.  As of September 30, 2001, the Company hadpurchased $20.1 million, or 8.3 million shares, of treasury stock, under thisprogram.

 

**Note 11.Impairment Loss**

 

Duringthe quarter ended September 30, 2001, the Company evaluated the long-livedassets of FIData for impairment in accordance with SFAS No. 121.  The Company compared the net realizablevalue of the long-lived assets of FIData against the carrying value of thoseassets to determine the impairment write-down. The Company recorded a $4.7 million impairment write-down, whichconsisted of $4.5 million related to goodwill (carrying value prior towrite-down was $4.5 million) and $0.2 million related to capitalized software(carrying value prior to write-down was $0.6 million).

 

**Note 12.Comprehensive Loss**

 

In accordance with SFAS No.130, “Reporting Comprehensive Income”, the unrealized gains (losses) on theCompany’s Investments in available-for-sale securities (see Note 5) areincluded as a component of other comprehensive income (loss).  For the quarter ended September 30, 2001,the Company incurred a reclassification adjustment for gains of $79,000, net ofincome tax expense of $47,000.  Nounrealized holding gains (losses) existed as of September 30, 2001.  Comprehensive loss equals net loss for thenine months ended September 30, 2001.

 

**Note 13.Commitments and Contingencies**

 

Aspreviously disclosed, the Company has been engaged in discussion with the staffof the Federal Trade Commission’s (“FTC”) Bureau of Consumer Protectionregarding a proposed complaint by the FTC alleging potential liability arisingprimarily from the alleged cramming of charges for non-regulatedtelecommunication services by certain of its customers.  Cramming is the addition of charges to atelephone bill for programs, products or services the consumer did notknowingly authorize.  These allegationsrelated to businesses conducted by the subsidiaries sold by the Company on October23, 2000.  In August 2001, the Companyreached a settlement with the FTC, which included a payment to the FTC of$350,000.  This settlement fullyresolves all issues related to the FTC’s inquiry.

 

TheCompany is involved in various other claims, legal action and regulatoryproceedings arising in the ordinary course of business.  The Company believes it is unlikely that thefinal outcome of any of the claims, litigation or proceedings to which theCompany is a party will have a material adverse effect on the Company’sfinancial position or results of operations; however, due to the inherentuncertainty of litigation, there can be no assurance that the resolution of anyparticular claim or proceeding would not have a material adverse effect on theCompany’s results of operations for the fiscal period in which such resolutionoccurs.

 

**Note 14.Related Party Transactions**

 

TheChief Executive Officer (“CEO”) of the Company is also the Chairman of theBoard of Directors of Tanisys.  Inconjunction with the Purchase Agreement, the Company also appointed twoadditional directors to the Board of Directors of Tanisys.

 

OnApril 5, 2000, the Board of Directors of the Company approved a restrictedstock grant to the CEO of the Company. The restricted stock grant consists of Princeton stock, equal to 2% ofPrinceton’s fully diluted shares.  Therestricted stock grant vests on April 30, 2003.  The Company expenses the fair market value of the restrictedstock grant over the three-year period ending April 30, 2003.  The Company recognized $150,000 and $450,000during the quarter and nine months ended September 30, 2001, respectively, ascompensation expense related to the stock grant.  The Company estimates it will recognize $600,000 as compensationexpense related to the stock grant in 2001.

 

**Note 15.Subsequent Events**

 

InOctober 2001, the Company announced the merger of FIData into Microbilt, ofKennesaw, Georgia.  In exchange for 100%of the stock of FIData, the Company received a 9% equity interest in Microbilt.  The Company has valued, for accountingpurposes, its investment in Microbilt to be approximately $0.4 million.  In addition, the Company is entitled toappoint one member of Microbilt’s Board of Directors.  The Company will account for the ownership interest in Microbiltunder the cost method of accounting.

 

InOctober 2001, the Company participated in a private placement financing withSharps Compliance Corp. (“Sharps”).  TheCompany purchased 700,000 shares of Sharps’ common stock for $770,000, of thetotal $1.21 million financing.  Throughthe 700,000 shares of common stock, the Company owns approximately 7.1% of thevoting securities of Sharps.  TheCompany will account for the ownership interest in Sharps under the cost methodof accounting.  The CEO of the Companyis also a member of the Board of Directors of Sharps.

 

In November 2001, theCompany participated in a $3.1 million secured debt financing ofPrinceton.  Under the terms of the loanagreement with Princeton, the Company received a promissory note in theprincipal amount of $1,777,778 which is secured by certain data center assetsof Princeton.  The note bears interestat a rate per annum of 15% and the principal with accrued interest is requiredto be paid in November 2002. Notwithstanding the terms set forth above, upon the occurrence of aqualifying change of control or equity financing of Princeton, the rate ofinterest under the notes shall be increased to a rate per annum equal to 50%which shall be prepaid upon such event. If such a payment is made, no additional interest would be payable.

 

**Item 2.**

 

*This Quarterly Report on Form 10-Q contains certain“forward-looking” statements as such term is defined in the Private SecuritiesLitigation Reform Act of 1995 and information relating to the Company and itssubsidiaries that are based on the beliefs of the Company’s management as wellas assumptions made by and information currently available to the Company’smanagement.  When used in this report,the words “anticipate’, “believe”, “estimate”, “expect” and “intend” and wordsor phrases of similar import, as they relate to the Company or its subsidiariesor Company management, are intended to identify forward-lookingstatements.  Such statements reflect thecurrent risks, uncertainties and assumptions related to certain factorsincluding, without limitation, competitive factors, general economicconditions, customer relations, relationships with vendors, the interest rateenvironment, governmental regulation and supervision, seasonality, distributionnetworks, products introductions and acceptance, technological change, changesin industry practices, onetime events and other factors described herein and inother filings made by the Company with the Securities and Exchange Commission.  Based upon changing conditions, should anyone or more of these risks or uncertainties materialize, or should anyunderlying assumptions prove incorrect, actual results may vary materially fromthose described herein as anticipated, believed, estimated, expected or intended.  The Company does not intend to update theseforward-looking statements.*

 

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL**

**CONDITION AND RESULTS OF OPERATIONS**

 

**General**

 

Thefollowing is a discussion of the interim condensed consolidated financial conditionand results of operations for New Century Equity Holdings Corp. andsubsidiaries (collectively, the “Company”), for the quarters and nine monthsended September 30, 2001 and 2000.  Itshould be read in conjunction with the Unaudited Interim Condensed ConsolidatedFinancial Statements of the Company, the notes thereto and other financialinformation included elsewhere in this report, and the Company’s Annual Reporton Form 10-K for the year ended September 30, 2000.  For purposes of the following discussion, references to yearperiods refer to the Company’s fiscal year ended December 31 and references toquarterly periods refer to the Company’s fiscal quarter ended September 30.

 

**Results ofOperations**

 

TheCompany’s revenues are derived entirely from its wholly owned subsidiaryFIData, Inc. (“FIData”), acquired in November 1999. FIData providesInternet-based automated loan approval products to the financial servicesindustries.  In October 2001, theCompany announced the merger of FIData into Microbilt Corporation (“Microbilt”)of Kennesaw, Georgia.  In exchange for100% of the stock of FIData, the Company received a 9% equity interest inMicrobilt.  The Company has an equityinterest in Princeton eCom Corporation (“Princeton”), which offers electronicbill presentment and payment services via the Internet and telephone.  As of September 30, 2001, the Company’sownership percentage of the outstanding shares of Princeton was approximately41.5%.  The Company’s ownershippercentage is based upon its voting interest in Princeton.  During the second quarter of 2000, theCompany purchased an approximate 22% equity interest in Coreintellect, Inc.(“Core”), which provides Internet-based solutions that acquire, filter anddisseminate business-critical knowledge and information.

 

OnOctober 23, 2000, the Company completed the sale of the Transaction Processingand Software divisions to Platinum Equity Holdings (“Platinum”) of Los Angeles,California (the “Transaction”).  Totalconsideration consisted of $49.7 million in cash and a royalty, assumingachievement of certain revenue targets associated with the divested divisions,of up to $20.0 million.  At this time,management cannot assess the probability of the divested divisions achievingthe revenue targets necessary to generate a royalty payment to theCompany.  In addition, the Companyreceives payments totaling $7.5 million for consulting services provided toPlatinum over the twenty-four month period subsequent to the Transaction, whichis included in other income (expense) as consulting income.  The Company has received payments of $3.4million for consulting services as of September 30, 2001.  All financial information presented has beenrestated to reflect the Transaction Processing and Software divisions asdiscontinued operations in accordance with Accounting Principles Board OpinionNo. 30.

 

**ContinuingOperations**

 

Revenuesare comprised of transaction fees for processing loan applications,implementation fees for new customers and a variety of customer service relatedfees.  Total revenues for the quarterended September 30, 2001 were $169,000, compared to $173,000 in the quarterended September 30, 2000.  Revenues forthe nine months ended September 30, 2001, were $440,000, compared to $379,000for the nine months ended September 30, 2000. The decrease in revenues during the quarter ended September 30, 2001,was due to a decrease in the number of transactions processed.  The increase in revenues for the nine monthsended September 30, 2001, was primarily due to an increase in the amountcharged per transaction processed.

 

Selling,general and administrative (“SG&A”) expenses are comprised of all selling,marketing and administrative costs incurred in direct support of the businessoperations of the Company.  SG&Aexpenses for the quarter ended September 30, 2001, were $2.3 million, comparedto $1.6 million for the quarter ended September 30, 2000.  SG&A expenses for the nine months endedSeptember 30, 2001, were $6.8 million, compared to $7.3 million for the ninemonths ended September 30, 2000. SG&A expenses for the quarter ended September 30, 2001, increasedprimarily to an increase in the headcount of FIData employees over the prioryear quarter.

 

Researchand development (“R&D”) expenses are comprised of the salaries and benefitsof the employees involved in development and related expenses.  R&D expenses (income) were $0 and($45,000) in the quarters ended September 30, 2001 and 2000, respectively.  R&D expenses were $0 and $1.9 millionfor the nine months ended September 30, 2001 and 2000, respectively.  The R&D expenses (income) incurredduring the quarter and nine months ended September 30, 2000, were related tothe development of a financial services website, which was suspended during thequarter ended June 30, 2000.

 

Impairmentloss for the quarter and nine months ended September 30, 2001, included a $4.7million impairment write-down related to the long-lived assets of FIData.  The impairment write-down reflects thedifference between the carrying value of the assets and the net realizablevalue.  The impairment write-downconsisted of $4.5 million related to goodwill and $0.2 million related tocapitalized software.

 

Netother expense of $4.5 million in the quarter ended September 30, 2001, comparedto $3.8 million in the quarter ended September 30, 2000.  Net other expense of $10.2 million for thenine months ended September 30, 2001, compared to $14.0 million for the ninemonths ended September 30, 2000.  Thefluctuations in net other expenses are primarily related to the increasingequity in net loss of Princeton and Core as well as the in-process research anddevelopment expense related to the equity investments in Princeton andCore.  The net other expense for thequarter and nine months ended September 30, 2001, also included (i) consultingincome from Platinum of $0.9 million and $2.8 million, respectively, (ii) arealized gain on the redemption of the investments in available-for-salesecurities of $0.6 million and (iii) receipt of payment on a promissory note of$0.6 million from an Austin, Texas-based technology company.

 

TheCompany’s effective income tax expense rate was 1.7% for the quarter endedSeptember 30, 2001 and the effective tax benefit rate was 9.2% for the quarterended September 30 2000.  The effectiveincome tax benefit rate for the nine months ended September 30, 2001 and 2000,was 2.7% and 13.9%, respectively.  TheCompany’s effective income tax benefit rate was lower than the federalstatutory benefit rate due to certain expenses recorded for financial reportingpurposes that are not deductible for federal income tax purposes, including theequity in net loss of equity affiliates and the amortization and impairment ofFIData goodwill.

 

TheCompany reported a net loss from continuing operations of $12.2 million for thequarter ended September 30, 2001 and $5.5 million for the quarter endedSeptember 30, 2000.  For the nine monthsended September 30, 2001 and 2000, the Company reported a net loss fromcontinuing operations of $22.7 million and $21.5 million, respectively.

 

**DiscontinuedOperations**

 

TheCompany reviewed the accruals related to discontinued operations to assess theadequacy of the accruals.  As a resultof this assessment, the Company reduced such accruals and recognized incomefrom the disposal of discontinued operations of $1.5 million, based uponcurrent estimates of future liabilities related to the divested entities.  The $1.5 million is reflected as net incomefrom disposal of discontinued operations in the nine months ended September 30,2001.

 

**Liquidityand Capital Resources**

 

TheCompany’s cash balance decreased to $18.4 million at September 30, 2001, from$36.5 million at December 31, 2000. This decrease is primarily related to the $2.8 million working capitaltrue-up payment to Platinum in April 2001 and the $15.0 million investment inPrinceton in April 2001.  The Company’sworking capital position decreased to $17.8 million at September 30, 2001, from$32.5 million at December 31, 2000.  Thedecrease in the working capital was primarily attributable to the decrease inthe cash balance.  Net cash used inoperating activities for the nine months ended September 30, 2001, was $3.3million, compared to net cash provided by operating activities of $47.4 millionfor the nine months ended September 30, 2000.

 

Capitalexpenditures amounted to $0.6 million in the nine months ended September 30,2001, and related primarily to the purchase of computer equipment and softwarefor FIData.  The Company anticipatesminimal capital expenditures before acquisitions, if any, during the remainderof the fiscal year ended December 31, 2001. The Company believes it will be able to fund expenditures with cash onhand.

 

TheCompany’s operating cash requirements consists principally of funding ofcorporate and capital expenditures and FIData expenses (through October 2001).

 

**Item 3. Quantitative and Qualitative Disclosure about MarketRisk**

 

TheCompany is exposed to interest rate risk primarily through its portfolio ofcash equivalents and short-term marketable securities.  The Company does not believe that it hassignificant exposure to market risks associated with changing interest rates asof September 30, 2001, because the Company’s intention is to maintain a liquidportfolio to take advantage of investment opportunities.  The Company does not use derivativefinancial instruments in its operations.

 

**PART II OTHER INFORMATION**

 

**Item 1.Legal Proceedings**

 

Aspreviously disclosed, the Company has been engaged in discussions with the staffof the Federal Trade Commission’s (“FTC”) Bureau of Consumer Protectionregarding a proposed complaint by the FTC alleging potential liability arisingprimarily from the alleged cramming of charges for non-regulatedtelecommunication services by certain of its customers.  Cramming is the addition of charges to atelephone bill for programs, products or services the consumer did notknowingly authorize.  These allegationsrelated to businesses conducted by the subsidiaries sold by the Company onOctober 23, 2000.  In August 2001, theCompany reached a settlement with the FTC, which included a payment to the FTCof $350,000.  This settlement fullyresolves all issues related to the FTC’s inquiry.

 

TheCompany is involved in various other claims, legal actions and regulatoryproceedings arising in the ordinary course of business.  The Company believes it is unlikely that thefinal outcome of any of the claims, litigation or proceedings to which theCompany is a party will have a material adverse effect on the Company’sfinancial position or results of operations; however, due to the inherentuncertainty of litigation, there can be no assurance that the resolution of anyparticular claim or proceeding would not have a material adverse effect on theCompany’s results of operations for the fiscal period in which such resolutionoccurs.

 

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

 

(a)    Exhibits:

 

Notapplicable

 

(b)   CurrentReports on Form 8-K:

 

Form8-K, dated August 13, 2001, filed August 29, 2001, announcing the purchase of1,000,000 shares of Series A Preferred Stock of Tanisys Technology, Inc.,giving the Company an approximate 30% ownership.

 

Form8-K, dated September 4, 2001, filed September 6, 2001, announcing the receiptof notification from The Nasdaq Stock Market, Inc. regarding potentialdelisting.

 

Form8-K, dated October 4, 2001, filed October 15, 2001, announcing the withdrawalof The Nasdaq Stock Market, Inc.’s previous notice and the purchase of 700,000shares of common stock of Sharps Compliance Corp., giving the Company anapproximate 7% ownership.

 

Form8-K, dated October 29, 2001, filed October 30, 2001, announcing the merger ofFIData, Inc. into Microbilt Corporation (“Microbilt”) in exchange for a 9%ownership interest in Microbilt.

 

**Items 2, 3,4 and 5 are not applicable and have been omitted.**

**SIGNATURE**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, as amended, theregistrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
|                                | NEW CENTURY EQUITY  HOLDINGS CORP. |
|-------------------------------------|------------------------------------|
|                                |                               | (Registrant) |
|                                |                               |   |
| Date:   November 14, 2001 | By:                                | /s/ DAVID P. TUSA |
|                                |                               | David P. Tusa |
|                                |                               | *Senior Vice President, Chief Financial* |
|                                |                               | *Officer and Corporate Secretary* |
|                                |                               | (Duly authorized and principal financial officer) |