|UNITED STATESSECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-K


(Mark One)
|-------------------------------------------------------------------------------------------------

||X| |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the Fiscal Year ended December 31, 2001
|--- |  | --------------------------------------------------------------------------------------------------------------------------------

||_| |  | 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
0-28536


NEW CENTURY EQUITY
HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
|-------------------------------------------------------------------------------------------------------------------------

|Delaware            
(State or other jurisdiction of
incorporation or organization) | 74-2781950       
    (I.R.S. Employer    
 Identification Number)
|----------------------------------------------------------------------------------- | ------------------------------------------------------------------

|10101 Reunion Place, Suite 450, San Antonio, Texas  
     (Address of principal executive offices) | 78216
(Zip code)
|-------------------------------------------------------------------------------------------------- | ----------------

|(210) 302-0444
(Registrants telephone number, including area code)


Securities Registered
Pursuant to Section 12(b) of the Act: None


Securities Registered
Pursuant to Section 12(g) of the Act: Common Stock, Par Value $0.01 Per Share
(Title of Class)


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 periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X]  Yes [] No


Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. []


The
aggregate market value of the Registrants outstanding Common Stock held by
non-affiliates of the Registrant as of April 10, 2002 was
approximately $19,161,867. There were 34,217,620 shares of
the Registrants Common Stock outstanding as of April 10, 2002.


DOCUMENTS
INCORPORATED BY REFERENCE


Portions
of the Registrants Definitive Proxy Statement for the 2002 Annual Meeting
of Stockholders to be held on June 6, 2002, are incorporated by
reference in Part III hereof.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIES


Annual Report
on Form 10-K


For the
Fiscal Year Ended December 31, 2001
|-----------------------------------------------------------------------------------------------------------------------------

| |  |  |  |  | PAGE
| |  |  |  |  | ----

| |  |  | Index |  | 2
| |  |  | ----- |  | -

|PART I
|------

| | Item 1. |  | Business |  | 3
| | ------- |  | -------- |  | -

| | Item 2. |  | Properties |  | 21
| | ------- |  | ---------- |  | --

| | Item 3. |  | Legal Proceedings |  | 21
| | ------- |  | ----------------- |  | --

| | Item 4. |  | Submission of Matters to a Vote of Security Holders |  | 21
| | ------- |  | --------------------------------------------------- |  | --

|PART II
|-------

| | Item 5. |  | Market for the Companys Common Equity and Related Stockholder Matters |  | 22
| | ------- |  | ---------------------------------------------------------------------- |  | --

| | Item 6. |  | Selected Financial Data |  | 23
| | ------- |  | ----------------------- |  | --

| | Item 7. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 24
| | ------- |  | ------------------------------------------------------------------------------------- |  | --

| | Item 7A. |  | Quantitative and Qualitative Disclosure About Market Risk |  | 30
| | -------- |  | --------------------------------------------------------- |  | --

| | Item 8. |  | Financial Statements and Supplementary Data |  | 30
| | ------- |  | ------------------------------------------- |  | --

| | Item 9. |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures |  | 62
| | ------- |  | ------------------------------------------------------------------------------------- |  | --

|PART III
|--------

| | Item 10. |  | Directors and Executive Officers of the Company |  | 63
| | -------- |  | ----------------------------------------------- |  | --

| | Item 11. |  | Executive Compensation |  | 63
| | -------- |  | ---------------------- |  | --

| | Item 12. |  | Security Ownership of Certain Beneficial Owners and Management |  | 63
| | -------- |  | -------------------------------------------------------------- |  | --

| | Item 13. |  | Certain Relationships and Related Transactions |  | 63
| | -------- |  | ---------------------------------------------- |  | --

|PART IV
|-------

| | Item 14. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K |  | 64
| | -------- |  | --------------------------------------------------------------- |  | --

| |  |  | Signatures |  | 66
| |  |  | ---------- |  | --

|2
|-

|PART I



ITEM I. BUSINESS


This
Annual Report on Form 10-K contains certain forward-looking
statements as such term is defined in the Private Securities Litigation Reform
Act of 1995 and information relating to the Company and its subsidiaries that
are based on the beliefs of the Companys management as well as assumptions
made by and information currently available to the Companys management.
When used in this report, the words anticipate, believe,
estimate, expect and intend and words or
phrases of similar import, as they relate to the Company or its subsidiaries or
Company management, are intended to identify forward-looking statements. Such
statements reflect the current risks, uncertainties and assumptions related to
certain factors including, without limitation, competitive factors, general
economic conditions, customer relations, relationships with vendors, the
interest rate environment, governmental regulation and supervision, seasonality,
distribution networks, product introductions and acceptance, technological
change, changes in industry practices, one-time events and other
factors described herein and in other filings made by the Company with the
Securities and Exchange Commission. Based upon changing conditions, should any
one or more of these risks or uncertainties materialize, or should any
underlying assumptions prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated, expected or
intended. The Company does not intend to update these forward-looking
statements.


Introduction


New
Century Equity Holdings Corp., formerly Billing Concepts Corp., (collectively,
the Company) is a holding company focused on high-growth,
technology-based companies and investments. Through its former wholly owned
subsidiary FIData, Inc. (FIData), the Company provided
Internet-based automated loan approval products to the financial services
industries. In October 2001, the Company announced the merger of FIData
into Microbilt Corporation (Microbilt) of Kennesaw, Georgia. In
exchange for 100% of the stock of FIData, the Company received an
equity interest in Microbilt. In August 2001, the Company purchased
an interest in Tanisys Technology, Inc. (Tanisys),
which designs, manufactures and markets production level automated test
equipment for a wide variety of memory technologies. The Company has an equity
interest in Princeton eCom Corporation (Princeton), which offers
electronic bill presentment and payment services via the Internet and telephone.
In October 2001, the Company purchased an equity interest in Sharps Compliance
Corp. (Sharps), which provides cost-effective logistical and
training solutions for the hospitality and healthcare industries. The
Companys holdings as of December 31, 2001, are summarized as follows
(in thousands):
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Investment | Ownership% | GrossInvestment |           | Net BookValue |  |     
| | ---------- | ---------- | --------------- | --------- | ------------- |  | ----
| |            |            |                 |           |               |  |     
| |            |            |                 | Princeton |               |  | 57.4
| |            |            |                 | Tanisys   |               |  | 35.2
| |            |            |                 | Sharps    |               |  | 7.1 
| |            |            |                 | Microbilt |               |  | 9.0 

|On
October 23, 2000, the Company completed the sale of the Transaction Processing
and Software operations to Platinum Equity Holdings (Platinum) of
Los Angeles, California (the Transaction). Total consideration
consisted of $49.7 million in cash and a royalty, assuming achievement of
certain revenue targets associated with the divested divisions, of up to $20.0
million. At this time, management does not believe it is probable that the
portion of the royalty related to the LEC Billing division of $10.0
million will be earned. Management cannot assess the probability of the
divested Aptis and OSC divisions achieving the revenue targets necessary
to generate the remaining $10.0 million in royalty payments to the Company.


In
addition, the Company will receive payments totaling $7.5 million for
consulting services provided to Platinum over the twenty-four month period
subsequent to the Transaction. The Company has received payments of $4.4 million
for consulting services through December 31, 2001, which are
included in other income (expense) as consulting income. All financial
information presented has been restated to reflect the Transaction Processing
and Software divisions as discontinued operations in accordance with Accounting
Principles Board No. 30.


3
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Continuing Operations  FIData


Products and Services


The
Company, through its former wholly owned subsidiary FIData, provided
Internet-based loan approval products to the financial services
industry. FIData developed and marketed a loan application engine for use
primarily by credit unions and small financial institutions throughout the
United States. The loan application engine allowed members of FIDatas
customers to complete a customized template via the Internet and submit for
review. FIData would combine the information submitted on the application with
the members credit bureau report to proceed through the application review
process. FIData applied the underwriting criteria, as established by the
applicable customer, to the application and credit bureau report to determine
the response of the application. The results of this review allowed FIData to
approve the loan application or refer the member to the customer for further
consultation.


FIDatas
loan application engine could be customized in a number of ways to suit the
particular needs of its customers and their products. The loan application
engine had been customized to provide loan applications for a variety of
consumer loans.


Operations


FIDatas
loan application engine was delivered to its customers and their members via the
customers individual website. Upon entering a customers website, the
member clicked on the indicated link to route the member to FIDatas
website/database. Customers paid FIData on a per-transaction basis. Every loan
application processed, whether approved or referred, was deemed a transaction.
In some situations, FIData provided additional services for the implementation
or training required to make the loan application engine operational. If a
customer desired some unique enhancements to the loan application engine,
FIDatas staff provided the services at an additional fee.


FIDatas
revenues were generated from transaction fees for processing loan applications,
implementation fees for new customers and a variety of customer service related
fees. The transaction fees were based upon the number of loans processed and the
fee per transaction charged to the customer. Implementation fees were based upon
the number of new customers utilizing the loan application engine. The customer
service fees included the time required to provide the additional services as
requested by the customer.


Customers and Competition


FIDatas
customer base was comprised primarily of credit unions and small financial
institutions. FIData marketed its loan application engine to financial
institutions that may not have the internal resources necessary to dedicate to
the development and maintenance of a loan application engine.


The
market for loan application packages is highly competitive. FIData competed with
independent developers of similar loan application packages, as well as the
internal resources of the financial institutions. Companies that offered a
breadth of financial software packages had the opportunity to gain significant
market share and establish long-term relationships with industry players. The
principal competitive factors in its market included responsiveness to
customers needs, timeliness of implementation and pricing. The ability to
compete depended on a number of competitive factors outside of FIDatas
control, including comparable services and products and the extent of a
competitors responsiveness to customer needs.


4
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Microbilt


In
October 2001, the Company completed the merger of FIData into privately held
Microbilt of Kennesaw, Georgia. Microbilt provides credit bureau data access and
retrieval to the financial, healthcare, leasing, insurance, law enforcement,
educational and utilities industries. In exchange for 100% of the stock of
FIData, the Company received a 9.0% equity interest in Microbilt. The merger of
FIData into Microbilt facilitates the significant operating, marketing and
management synergies between the two companies. Microbilt offers the opportunity
to provide a broader selection of financial solutions to the customers of
FIData.


Continuing Operations  Tanisys


In
August 2001, the Company purchased 1,060,000 shares of Tanisys
Series A Preferred Stock for $1.00 per share, of a total 2,575,000
shares purchased, in a private placement financing. As of December 31,
2001, the Company owned approximately 35.2% of the outstanding shares of
Tanisys. The Companys ownership percentage is based upon its voting
interest in Tanisys. For accounting purposes, the Company is deemed to have
control of Tanisys and therefore, must consolidate the financial statements of
Tanisys under the purchase method of accounting. The Company
consolidates Tanisys financial statements on a three-month lag, as the
Company has a different year-end than Tanisys. Accordingly, the operating
results of Tanisys from the purchase date to September 30, 2001, have been
included herein.


General


Tanisys
designs, manufactures and markets production level automated test equipment for
a wide variety of semiconductor memory technologies, including Dynamic Random
Access Memory (DRAM), Synchronous Dynamic Random Access Memory
(SDRAM), Double Data Rate Synchronous DRAM (DDR), Rambus
DRAM (RDRAM®) and Flash Memory. Operating under the
Tanisys name since 1994, Tanisys has developed into an independent manufacturer
of memory test systems for standard and custom semiconductor memory. These
systems are used at semiconductor manufacturers, computer and electronics
Original Equipment Manufacturers (OEMs) and independent memory
module manufacturers. Tanisys markets a line of memory test systems under the
DarkHorse® Systems brand name. Tanisys customer base covers
a number of worldwide markets including semiconductor manufacturers, memory
module manufacturers, computing systems OEMs and contract manufacturing
companies.


Industry Overview


The
economic downturn that has occurred during the year ended December 31, 2001, has
had an impact on purchases and capital spending in many of the worldwide markets
that Tanisys serves. Tanisys is uncertain as to how long the current downturn
may be in these markets. The demand for semiconductor memory in digital
electronic systems had grown significantly prior to 2001, according to
Dataquest, Semico Research and other market research firms. This demand results
from the increased importance of memory in determining system performance. An
increasing demand for greater system performance requires that electronics
manufacturers increase the amount of semiconductor memory incorporated into a
system.


Factors
contributing to the demand for memory include unit sale of personal computers
(PCs) in the business and consumer market segments, increasing use
of PCs to perform memory-intensive graphics tasks, increasingly faster
microprocessors, the release of increasingly memory intensive software and the
increasing performance requirements of PCs, workstations, servers and networking
and telecommunications equipment. Additionally, there are future high growth
requirements for semiconductor memory with the escalating needs of wireless and
portable devices such as cell phones, digital cameras, personal digital
assistants and other consumer oriented products.


5
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Semiconductor
memory products are segmented into three primary classes: DRAM, Static Random
Access Memory (SRAM) and non-volatile memory, such as Flash memory.
DRAM typically is the large main semiconductor memory of systems,
SRAM provides higher performance and Flash memory and other non-volatile memory
retain their contents when power is removed. In addition, within each of these
broad categories of memory products, semiconductor manufacturers are offering an
increasing variety of memory devices designed for application specific uses.


Products and Services


Tanisys
designs, manufactures and markets semiconductor memory test systems.
Tanisys memory test systems are oriented for both memory module assembly
manufacturing and memory aftermarket purposes and include a broad line of test
fixtures, test algorithm suites and test services. Tanisys has recently
completed and began the marketing of a Flash memory test system.


Customers, Sales and Marketing


In
North America and Europe, a majority of Tanisys memory test systems are
sold directly to semiconductor and independent memory module manufacturers. In
Asia, Tanisys also sells its test systems through distribution partners and
independent sales representative organizations. Sales to distribution partners
are recognized as revenue by Tanisys upon the shipment of products because the
distribution partners, like Tanisys other customers, have issued purchase
orders with fixed pricing and are responsible for payment to Tanisys.


Competition


The
memory module and memory test equipment industries are intensely competitive.
These markets include a large number of established companies, several of which
have achieved a substantial market share. Certain of Tanisys competitors
in these markets have substantially greater financial, marketing, technical,
distribution and other resources, greater name recognition, and larger customer
bases than Tanisys. In the memory module test systems market, Tanisys competes
primarily with companies supplying automatic test equipment. Tanisys also faces
competition from new and emerging companies that have recently entered or may in
the future, enter the markets in which Tanisys participates.


Tanisys
expects its competitors to continue to improve the performance of their current
products, to reduce their current product sales prices and to introduce new
products that may offer greater performance and improved pricing, any of which
could cause a decline in sales or loss of market acceptance of Tanisys
products. There can be no assurance that enhancements to or future generations
of competitive products will not be developed that offer better prices or
technical performance features than Tanisys products. To remain
competitive, Tanisys must continue to provide technologically advanced products,
improve quality levels, offer flexible delivery schedules, deliver finished
products on a reliable basis, reduce manufacturing costs and compete favorably
on the basis of price. In addition, increased competitive pressure has led in
the past and may continue to lead, to intensified price competition,
resulting in lower prices and gross margin, which could materially adversely
affect Tanisys business, financial condition and results of operations.
There can be no assurance that Tanisys will be able to compete successfully in
the future.


Research and Development


The
management of Tanisys believes that the timely development of new memory
test systems and technologies is essential to maintain Tanisys competitive
position. In the electronics market, Tanisys research and development
activities are focused primarily on new memory testing technology and continual
improvement in its memory test products. Additionally, Tanisys provides research
and development services for customers either as joint or contracted
development. Tanisys plans to continue to devote substantial research and
development efforts to the design of new memory test systems that address the
requirements of semiconductor companies, OEMs and independent memory module
manufacturers. Tanisys research and development expenses were $411,000
during the period from the purchase date to September 30, 2001. A portion of the
research and development expense is focused on creating a patent portfolio to
protect Tanisys intellectual property and to create a competitive edge
over its competitors.


6
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Intellectual Property


Tanisys
has filed multiple applications with the United States Patent and Trademark
Office for patents to protect its intellectual property rights in products and
technology that have been developed or are under development. There can be no
assurance that the pending patent applications will be approved or approved in
the form requested. Tanisys expects to continue to file patent applications
where appropriate to protect its proprietary technologies; however, Tanisys
believes that its continued success depends primarily on factors such as the
technological skills and innovation of its personnel rather than patent
protection. In addition, Tanisys attempts to protect its intellectual property
rights through trade secrets, copyrights, trademarks and a variety of other
measures, including non-disclosure agreements. There can be no assurance,
however, that such measures will provide adequate protection for Tanisys
trade secrets or other proprietary information, that disputes with respect to
the ownership of its intellectual property rights will not arise, that
Tanisys trade secrets or proprietary technology will not otherwise become
known or be independently developed by competitors or that its intellectual
property rights can otherwise be protected meaningfully. There can be no
assurance that patents will be issued from pending or future applications or
that if patents are issued, they will not be challenged, invalidated or
circumvented, or that rights granted thereunder will provide meaningful
protection or other commercial advantage. Furthermore, there can be no assurance
that third parties will not develop similar products, duplicate Tanisys
products or design around the patents owned by Tanisys or that third parties
will not assert intellectual property infringement claims against Tanisys. In
addition, there can be no assurance that foreign intellectual property laws will
adequately protect Tanisys intellectual property rights abroad. The
failure of Tanisys to protect its proprietary rights could have a material
adverse effect on its business, financial condition and results of operations.


No Assurance of Operating Results


In
general, Tanisys has no firm long-term volume commitments from its customers and
typically enters into individual purchase orders. Customer purchase orders are
subject to change, cancellation or delay with little or no consequence to the
customer. The replacement of canceled, delayed or reduced purchase orders with
new business cannot be assured. Tanisys business, financial condition and
results of operations will depend significantly on its ability to obtain
purchase orders from existing and new customers, upon the financial condition
and success of its customers, the success of customers products, the
semiconductor market and the overall economy. Factors affecting the industries
of Tanisys major customers could have a material adverse effect on the
business, financial condition and results of operations of Tanisys.


Continuing Operations  Princeton


Since
1998, the Company has made multiple investments in Princeton and accounts for
its investments under the equity method of accounting. The Companys
ownership percentage of the outstanding shares of Princeton as of December 31,
2001, was approximately 57.4%. The Companys ownership percentage is based
upon its voting interest in Princeton. The Companys fully diluted
ownership percentage of Princeton was approximately 49.0%. Although the
Companys ownership percentage is greater than 50%, the Company does not
consolidate the financial statements of Princeton as the Company is not deemed
to have control of Princeton.


7
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|Products


Princeton
provides electronic bill presentment and payment (EBPP) solutions to
businesses and financial institutions serving their consumers or other
businesses. Princetons primary solutions include the following:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Electronic
Collection (eCollect): The electronic withdrawal of authorized funds from a customers
credit card or bank account for the purposes of paying a delinquent account or making a
one-time electronic bill payment. eCollect is accessible through a website, the telephone
or a customer service specialist.
| |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Consumer
Billing (ePaybill): An integrated electronic billing solution that presents a bill to a
customer electronically, through a billers website, and allows a customer to
execute an electronic payment.
| |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Business
Billing (ePaybill Plus): An interactive electronic invoicing solution that eases the
ability for small business customers or service companies with recurring monthly bills to
receive and pay invoices.
| |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Electronic
Payment (Pay Anyone): Cost-effective, back office payment processing that integrates with
a customers online banking service or home banking software provider.
| |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Electronic
Balance Transfer (eBalance Transfer): The transfer of outstanding balances to the customers
credit services. Credit card and other balances, such as home equity loans, can be
transferred electronically and consolidated into one credit service.
| |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Electronic
Lockbox (eLockbox): An error-detection platform designed to search for and correct errors
prior to posting to the accounts receivable system.
| |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

|Each
of Princetons solutions is designed to seamlessly integrate with its
customers accounting systems. The use of electronic methods to
deliver billing solutions and to receive payment is designed to allow
the customer to reduce billing and collection costs, reduce the processing time
typically experienced with the traditional paper method, have faster
access to funds upon payment and to increase customer satisfaction by providing
an interactive means by which the customer can access at their convenience.


Markets


Princeton
markets its products to businesses and financial institutions which provide a
large volume of bills to its customers. The consumer billing market is focused
on businesses which bill consumers on a regular (typically monthly) basis. This
market includes telecommunication companies, mortgage institutions, insurance
companies and utility and cable companies. Princeton also provides services and
solutions to the business billing market. This market includes small
businesses and service companies with regular recurring monthly bills and large
manufacturing enterprises that require a more comprehensive and complex
invoicing solution such as NetTransact®, a Bottomline
Technologies business invoicing solution hosted and implemented by Princeton for
large business billers. The payment processing business is believed to be
one of the fastest growing markets. The payment processing business is comprised
of financial institutions that offer customers electronic bill payment
services as part of online banking products, electronic collections and payments
made as part of an electronic bill presentment and payment solution.


Industry


Electronic
bill payment is not a new industry. Automatic bank drafts and other forms of
electronic payment services have been available for years. The growth of the
Internet and the cost reduction pressures faced by
companies today lend new urgency to implementing more efficient
and cost effective electronic billing and payment options. EBPP is
designed to create higher satisfaction among customers by making bill
payment more convenient and offering an array of bill payment options. It also
provides the potential for cost savings as companies convert from costly
paper-based systems and more consumers adopt electronic bill presentment and
payment options. Many companies save from a significant reduction in
outbound customer service calls on overdue accounts and mailings of initial bill
and overdue payment notices. Additionally, the presence of frequently answered
questions and other online customer service capabilities can reduce the number
of customer service calls. To facilitate the handling of those inbound calls,
Princeton offers a customer service interface that provides a real-time online
exchange of customer and payment information. Due to the current
complexity, cost and time consumption involved in building,
implementing and maintaining an EBPP system, most companies are
partnering with an application service provider to utilize
its infrastructure and experience.


8
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|Competition


The
market for EBPP is highly competitive. Princeton competes with other independent
developers of EBPP solutions and services, as well as the internal departments
of companies that choose to develop their own EBPP solutions. The
growth in total expenditures and adoption rates for EBPP are expected to
increase significantly over the next few years. Companies that offer broad
solution capability have the opportunity to gain significant market share and
establish long-term relationships with industry players. The principal
competitive factors in Princetons market include responsiveness to client
needs, timeliness of implementation, quality of service and technical expertise.
The ability to compete depends on a number of competitive factors outside
Princetons control. Some of these factors include comparable services and
products, the extent of competitors responsiveness to customer needs and
the ability of Princetons competitors to hire, retain and motivate key
personnel.


Continuing Operations  Sharps


In
October 2001, the Company made a $770,000 cash investment in the common
stock of Sharps. The Company accounts for its investment in Sharps under
the cost method of accounting. As of December 31, 2001, the Company owned
approximately 7.1% of the outstanding common stock of Sharps.


Products


Sharps
focuses on developing cost-effective logistical and educational
solutions for the hospitality and healthcare industries. Sharps products
include the Sharps Disposal by Mail System, Pitch
It IV Poles, Trip LesSystem and Sharps
e-Tools. Sharps products and services are provided primarily to create cost and
logistical efficiencies. These products and services facilitate compliance with
state and federal regulations by tracking, incinerating and documenting the
disposal of medical waste. Additionally, these services facilitate compliance
with educational and training requirements required by federal, state, local and
regulatory agencies.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Sharps
Disposal by Mail Systems: A comprehensive solution for the containment,
transportation, destruction and tracking of medical waste for commercial and retail
industries.
| |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Pitch-It IV
Poles: A cost-effective, portable, lightweight and disposable alternative to traditional
IV poles used for gravity-fed or pump-administered infusions. The innovative pole design
provides opportunities for the home healthcare industry to improve logistical
efficiencies through the elimination of traditional delivery and pick-up of poles.
| |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Trip
LesSystem: A solution for the home healthcare industry that will free
them from making unnecessary and more costly trips to the patients home after
treatment has been completed.
| |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Sharps
e-Tools: A variety of online services allowing registered users access to databases that
contain the ability to track and certify regulated medical waste, manage capital assets
and educate users on medical waste compliance.
| |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Markets


Sharps
markets its various products primarily to home healthcare providers,
medical practices, hotels, restaurants, retail outlets and other
industries where the products and services may be bundled or cross-sold to
provide solutions to prospective customers. Sharps is involved in the mission to
help separate the potentially infectious medical waste from the regular waste.
The repeat order of Sharps business has helped drive its growth. Sharps
remains flexible and responsive to its customers needs in industries
that demand cost-effective and logistical solutions, quick response
and technological innovation.


9
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|Industry


The
large, fragmented medical waste industry has experienced significant growth
since its inception. The regulated medical waste industry arose with the Medical
Waste Tracking Act of 1988, which Congress enacted in response to media
attention after medical waste washed ashore on beaches, particularly in New York
and New Jersey. Since the 1980s, the public and government regulators have
increasingly demanded the proper handling and disposal of medical waste
generated by the healthcare industry. Regulated medical waste is generally
described as any medical waste that can cause an infectious disease, including
single-use disposable items, such as needles, syringes, gloves and other medical
supplies, cultures and stocks of infectious agents and blood and blood products.
Today, almost all businesses have waste disposal concerns for safety and
liability reasons.


Competition


There
are several competitors who offer disposal of medical waste systems such as
Stericycle, Inc.; however, no other company focuses primarily on the disposal of
sharps medical waste through transport by the United States Postal Service.
While Sharps currently does not face any significant competition in the mail
sharps business, Sharps must compete with other larger and better financed and
capitalized companies.


Continuing Operations  Coreintellect


In
March 2000, the Company completed the purchase of a voting preferred stock
investment of $6.0 million in Coreintellect, a Dallas, Texas-based company that
develops and markets Internet-based business-to-business products for the
acquisition, classification, retention and dissemination of business-critical
knowledge and information. As of December 31, 2001, the Companys
investment in Coreintellect was $0, having been reduced by the
Companys portion of Coreintellects net losses.
Coreintellect is currently negotiating the sale of its technology assets
in a private transaction. Management does not anticipate its portion of the
proceeds to be material.


Discontinued Operations  Transaction Processing


General


The
Company, through its wholly owned subsidiaries Billing Concepts, Inc., Enhanced
Services Billing, Inc., BC Transaction Processing Services, Inc. and Operator
Service Company (collectively, Billing), provided
third-party billing clearinghouse and information management services
to the telecommunications industry. Billing maintained contractual billing
arrangements with local telephone companies that provided access lines to, and
collected for services from, end-users of telecommunication services.
Billing processed telephone call records and other transactions and collected
the related end-user charges from these local telephone companies on behalf of
its customers. This process is known within the industry as Local Exchange
Carrier billing or LEC billing. Billings customers
included direct dial long distance telephone companies, operator services
providers, information providers, competitive local exchange companies, Internet
service providers and integrated communications services providers.


In
general, Billing performed four types of LEC billing services under different
billing and collection agreements with the local telephone companies. First,
Billing performed direct dial long distance billing, which was the billing of
1+ long distance telephone calls to individual residential customers
and small commercial accounts. Although such carriers could bill
end-users directly, Billing provided these carriers with a
cost-effective means of billing and collecting residential and small commercial
accounts through the local telephone companies. Second, Billing offered zero
plus  zero minus LEC billing services to customers providing operator
services largely to the hospitality, penal and private pay telephone industries.
Billing processed records for telephone calls that required operator assistance
and/or alternative billing options such as collect and person-to-person calls,
third-party billing and calling card billing. Since operator services providers
have only the billing number and not the name or address of the billed party,
they must have access to the services of the local telephone companies to
collect their charges. Billing provided this access to its customers through its
contractual billing arrangements with the local telephone companies that bill
and collect on behalf of these operator services providers. This service was the
original form of local telephone company billing provided by Billing and has
driven the development of the systems and infrastructure utilized by all of
Billings LEC billing services. Third, Billing performed enhanced LEC
billing services whereby it billed a wide array of charges that could be applied
to a local telephone company telephone bill, including charges for 900 access
pay-per-call transactions, cellular services, paging services, voice mail
services, Internet access, caller identification (ID) and other
nonregulated telecommunications equipment. Finally, in addition to its
full-service LEC billing product, Billing also offered billing management
services to customers who have their own billing and collection agreements with
the local telephone companies. These management services included data
processing, accounting, end-user customer service and
telecommunication tax processing and reporting.


10
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--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Billing
acted as an aggregator of telephone call records and other transactions from
various sources and, due to its large volume, received discounted billing costs
with the local telephone companies and could pass on these discounts to its
customers. Additionally, Billing provided its services to those long distance
carriers and operator services providers who would otherwise not be able to make
the investments in billing and collection agreements with the local telephone
companies, fees, systems, infrastructure and volume commitments required to
establish and maintain the necessary relationships with the local telephone
companies. The billing and collection agreements did not provide for any
penalties other than payment of the obligation should the usage levels not be
met. Billing met all such volume commitments in the past.


Industry Background


Billing
clearinghouse and information management services, or LEC billing, in the
telecommunications industry developed out of the 1984 breakup of the American
Telephone & Telegraph (AT&T) and the Bell System. In
connection with the breakup, the local telephone companies that made up the
Regional Bell Operating Companies (RBOCs), Southern New England
Telephone, Cincinnati Bell and the General Telephone Operating
Companies (GTE) were required to provide billing and collections on
a nondiscriminatory basis to all carriers that provided telecommunication
services to their end-user customers. Due to both the cost of acquiring and the
minimum charges associated with many of the local telephone company billing and
collection agreements, only the largest long distance carriers, including
AT&T, MCI Worldcom (MCI), and Sprint Incorporated
(Sprint), could afford the option of billing directly through the
local telephone companies. Several companies, including Billing, entered into
these billing and collection agreements and became aggregators of telephone call
records for operator services providers and second and third-tier long distance
carriers, thereby becoming third-party clearinghouses.


The
operator services industry began to develop in 1986 with deregulation that
allowed a zero-plus call (automated calling card call) or zero-minus (collect,
third-party billing, operator-assisted calling card or
person-to-person call) to be routed away from AT&T to a competitive long
distance services provider. Since a zero-plus or zero-minus call was placed by
an end-user whose billing information was unrelated to the telephone
being used to place the call, a long distance carrier would not typically have
adequate information to produce a bill. This information typically resided with
the billed partys local telephone company. In order to bill its telephone
call records, a long distance services provider carrying zero-plus and
zero-minus telephone calls either had to obtain billing and
collection agreements with the local telephone companies or utilize the services
of a third-party clearinghouse that had the billing and collection agreements
required.


11
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|Third-party
clearinghouses such as Billing, processed the telephone call records
and other transactions and submitted them to the local telephone companies for
inclusion in their monthly bills to end-users. As the local telephone companies
collected payments from end-users, they remitted them to the
third-party clearinghouses that, in turn, remitted payments to their carrier
customers.


Development of Business


On
August 2, 1996, U.S. Long Distance Corp. (USLD) distributed to its
stockholders all of the outstanding shares of common stock of Billing
(the Distribution), which, prior to the Distribution, was a wholly
owned subsidiary of USLD. Upon completion of the Distribution,
Billing became an independent, publicly held company that owned and
operated the billing clearinghouse and information management services business
previously operated by USLD.


In
1988, USLD acquired ZPDI and its billing and collection agreements with several
local telephone companies. USLD used these billing and collection agreements to
bill and collect through the local telephone companies for its own operator
services call record transactions. As USLDs operator services business
expanded, ZPDI entered into additional billing and collection agreements with
other local telephone companies, including the RBOCs, GTE and other independent
local telephone companies. Billing recognized the expense and time related to
obtaining and administering these billing and collection agreements and began
offering its services as a third-party clearinghouse to other operator services
businesses who did not have any proprietary agreements with the local telephone
companies. In 1992, Billing entered into a new set of billing and collection
agreements with the local telephone companies and began offering LEC billing
services to direct dial long distance services providers.


A
key factor in the evolution of Billings business had been the ongoing
development of its information management systems. In 1990, Billing developed a
comprehensive information system capable of processing, tracing and accounting
for telephone call record transactions (see Operations). Also in
1990, Billing became the first third-party billing clearinghouse to finance its
customers accounts receivable. In 1991, USLD separated the day-to-day
management and operations of Billing from its long distance and operator
services businesses (the Telecommunications Group). The purpose of
this separation was to satisfy some of Billings customers who were also
competitors of USLDs long distance and operator services businesses. These
customers had two main concerns: (i) that USLDs long distance and operator
services businesses could gain knowledge of its competitors through call records
processed by Billing and (ii) that Billing was somehow subsidizing USLDs
long distance and operator services businesses with which these customers
compete. Subsequent to the separation, Billing and the Telecommunications Group
operated independently, except for certain corporate activities conducted by
USLDs corporate staff.


In
1993, Billing began to offer billing management services to direct dial long
distance carriers and information services providers who have their own billing
and collection agreements with the local telephone companies. These customers
collected charges directly from the local telephone companies and, for marketing
purposes, may have desired to place their own logo, name and customer service
number on the long distance bill page. Billing management services provided by
Billing to such customers included contract management, transaction processing,
information management and reporting, tax compliance and customer service.


In
1994, Billing began offering enhanced billing clearinghouse and information
management services to other businesses within the telecommunications industry.
These businesses included telecommunications equipment providers, information
providers and other communication services providers of non-regulated services
and products such as 900 access pay-per-call transactions, cellular long
distance services, paging services, voice mail services, Internet access, caller
ID and other non-regulated telecommunications equipment charges. Billing entered
into additional billing and collection agreements with the local telephone
companies to process these types of transactions.


12
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|Process


LEC
billing referred to billing for transactions that were included in the monthly
local telephone bill of the end-user as opposed to a direct bill that
the end-user would receive directly from the telecommunications or
other services provider. Billings customers submitted telephone call
record data in batches on a daily to monthly basis, but typically in weekly
intervals. The data was submitted either electronically or via magnetic tape.
Billing, through its proprietary software, processed the telephone call record
data to determine the validity of each record and to include for each record
certain telecommunication taxes and applicable customer identification
information and set up an account receivable for each batch of call records
processed. Billing then submitted, through a third-party vendor, the relevant
billable telephone call records and other transactions to the appropriate local
telephone company for billing and collection. Billing monitored and tracked each
account receivable by customer and by batch throughout the billing and
collection process. The local telephone companies then included these telephone
call records and other transactions in their monthly local telephone bills and
remitted the collected funds to Billing for payment to its customers. The
complete cycle could take up to 18 months from the time the records were
submitted for billing until all bad debt reserves were trued-up with
actual bad debt experience. However, the billing and collection agreements
provided for the local telephone companies to purchase the accounts receivable,
with recourse, within a 40 to 90 day period.


Billing
did not record an allowance for doubtful accounts for LEC billing trade
receivables, but did accrue an estimated liability for end-user
customer service refunds and local telephone company adjustments related to
certain customers. Billing reviewed the activity of its customer base to detect
potential losses. If there was uncertainty with an account, Billing could
discontinue paying the customer in order to hold funds to cover future
end-user customer service refunds, bad debt and unbillable
adjustments. If a customer discontinued doing business with Billing and there
were insufficient funds being held to cover future refunds and adjustments,
Billings only recourse was through legal action. An allowance for doubtful
accounts was not necessary for LEC billing trade receivables since these
receivables were collected from the funds received from the local telephone
company before remittance was made to its customer.


Billing
processed the tax records associated with each customers submitted
telephone call records and other transactions and filed certain federal, excise,
state and local telecommunications-related tax returns covering such records and
transactions on behalf of many of its customers.


Billing
provided end-user inquiry and investigation (customer service) for
billed telephone call records. This service allowed end-users to
inquire regarding calls for which they were billed. Billings customer
service telephone number was included in the local telephone company bill to the
end-user and Billings customer service representatives were
authorized to resolve end-user disputes regarding such calls.


Billing
earned its revenues based on (i) a processing fee that was assessed to customers
either as a fee charged for each telephone call record or other transaction
processed or as a percentage of the customers revenue that was submitted
by Billing to the local telephone companies for billing and collection and (ii)
a customer service inquiry fee that was assessed to customers either as a fee
charged per record processed by the Company or a fee charged for each
billing inquiry made by end-users. Any charges assessed to Billing by
local telephone companies for billing and collection services were also included
in revenues and were passed through to the customer.


Through
its advance funding program, Billing offered its customers the option to
receive, within five days of the customers submission of records to
Billing, a significant portion of the revenue associated with such records. The
customer paid interest for the period of time between the purchase of records by
Billing and the time the local telephone company submitted payment to Billing
for the subject records.


13
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|Operations


Billings
LEC billing services were highly automated through Billings proprietary
computer software and state-of-the-art data transmission protocols. Except for
the end-user inquiry and investigation service (customer service),
the staff required to provide Billings LEC billing services was largely
administrative and the number of employees was not directly volume sensitive.
Many of Billings customers submitted their records to Billing using
electronic transmission protocols directly into Billings electronic
bulletin board, which was accessible through the Internet via Billings
BCWebTrack website. These records were automatically accessed by
Billings proprietary software, processed and submitted to the local
telephone companies electronically. Upon completion of the billing process,
Billing provided reports through its BCWebTrack website relating to billable
records and returned any unbillable records to its customers electronically
through the BCWebTrack Record Manager.


Billing
operated two independent computer systems to ensure continual, uninterrupted
processing of LEC billing services. One system was dedicated to daily processing
activities, and the other served as a back-up to the primary system and provided
storage for up to 12 months of billing detail, which was immediately accessible
to Billings customer service representatives who handled billing
inquiries. Detail of records older than 12 months was stored on CD-ROM and
magnetic tape for at least seven years. Since timely submission of call records
to the local telephone companies was critical to prompt collections and high
collection rates, Billing had made a significant investment in computer systems
so that its customers call records were processed and submitted to the
local telephone companies in a timely manner, generally within 24 hours of
receipt by Billing.


Billings
contracts with its customers provided for the LEC billing services required by
the customer, specifying among other things, the services to be provided and the
cost and terms of the services. Once the customer executed an agreement, Billing
updated tables within each of the local telephone companies billing
systems to control the type of records processed, the products or services
allowed by the local telephone companies and the printing of the customers
name on the end-users monthly bill. While these local telephone
company tables were being updated, Billings technical support staff tested
the customers records through its proprietary software to ensure that the
records could be transmitted to the local telephone companies.


Billing
maintained a relatively small direct sales force and accomplished most of its
marketing efforts through active participation in telecommunication industry
trade shows, educational seminars and workshops. Billing advertised to a limited
extent in trade journals and other industry publications.


Customers


Billing
provided LEC billing services and direct billing systems sales and development
to the following categories of telecommunications services providers:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Interexchange
Carriers or Long Distance Companies: Facilities-based carriers that possessed their own
telecommunications switching equipment and networks and provided traditional direct dial
telecommunications services. Certain long distance companies provided operator-assisted
services as well as direct dial services. These calls were billed to the end-user by the
local telephone company in the case of residential and small commercial accounts.
| |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Switchless
Resellers: Marketing organizations, affinity groups, or even aggregator operations that
bought direct dial long distance services in volume at wholesale rates from a
facilities-based long distance company and sold them back to individual customers at
market rates. These calls were billed to the end-user by the local telephone company in
the case of residential and small commercial accounts.
| |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14
|--

|
|

| |  |  |  | Operator
Services Providers: Carriers who handled liveoperator-assisted or automatedoperator-assisted
calls from remote locations using a centralized telecommunications switching device.
These calls were billed to a local telephone company calling card, collect, to a
third-party number or person-to-person.
| |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Customer
Owned Coin-Operated Telephone Providers: Privately owned, intelligent pay telephones that
handled automatedoperator-assisted calls that were billed to a local
telephone company calling card, collect or to a third-party number.
| |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Customer
Premise Equipment Providers: Carriers who installed equipment at aggregator locations,
such as hotels, university dormitories and penal institutions, which handled calls
originating from that location device. These calls were subsequently billed to a local
telephone company calling card, collect, to a third-party number or person-to-person.
| |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Information
Providers: Companies that provided various forms of information, entertainment or voice
mail services to subscribers. These services were typically billed to the end-user by the
local telephone company based on a 900 pay-per-call or a monthly recurring service fee.
| |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Competitive
Local Exchange Carriers (CLEC): Carriers that provided local exchange
services to subscribers who were previously served exclusively by the incumbent local
exchange carrier.
| |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Incumbent
Local Exchange Carriers (ILEC): The existing local telephone company who had previously
offered service as a regulated monopoly company.
| |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Internet
Service Provider (ISP): Companies that offered Internet access and Internet-based
services.
| |  | - |  | ------------------------------------------------------------------------------------------------------

| |  |  |  | Integrated
Communications Providers (ICP): Carriers who offered multiple communications services
through a combination of owned network facilities and
resale of other network facilities. These multiple services were typically bundled and
priced as a package of services.
| |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Other
Customers: Suppliers of various forms of telecommunications equipment and pager and
cellular telephone companies.
| |  | - |  | -----------------------------------------------------------------------------------------------------------------------

|Competition


Billing
competed with several other billing clearinghouses in servicing the
telecommunications industry. Billing was one of the largest participants in the
third-party clearinghouse industry in the United States. Competition among the
clearinghouses was driven by the quality of information reporting, collection
history, speed of collections and price of services.


There
were several significant challenges that faced potential new entrants in the LEC
billing industry. The cost to acquire the necessary billing and collection
agreements was significant, as was the cost to develop and implement the
required systems for processing telephone call records and other transactions.
Additionally, most billing and collection agreements required a user to make
substantial monthly or annual volume commitments. Given these factors, the
average cost of billing and collecting a record could hinder efforts to compete
effectively on price until a new entrant could generate sufficient volume. The
price charged by most local telephone companies for billing and collection
services was based on volume commitments and actual volumes being processed.


Since
most customers in the billing clearinghouse industry were under contract with
Billing or one of its competitors, the majority of the existing market may have
been committed for up to five years. In addition, a new entrant must have been
financially sound and had system integrity because funds collected by the local
telephone companies flowed through the third-party clearinghouse, which then
distributed the cash to the customer whose traffic was being billed. Billing
enjoyed a good reputation within the industry for the timeliness and accuracy of
its collections and disbursements to customers.


The
principal competitive factors in Billings market included responsiveness
to client needs, timeliness of implementation, quality of service, price,
project management capability and technical expertise. The ability to compete
depended in part on a number of competitive factors outside its control,
including the development by others of software that was competitive with
Billings services and products, the price at which competitors offered
comparable services and products, the extent of competitors responsiveness
to customer needs and the ability of Billings competitors to hire, retain
and motivate key personnel. As a result, Billings competitors may have
been able to adapt more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the promotion and sale
of their products than could Billing. In addition, the clearinghouse industry
continued to come under pressure from competitors offering a means of billing
end-users directly as consumer demand increased for bundled services
that could be directly billed cost-effectively due to the larger size of such
convergent accounts. The ongoing consolidation in the telecommunications
industry was also making it more feasible for the resulting larger companies to
have their own LEC billing agreements or bill consumers directly.


15
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|Billing
did not hold any patents and relied upon a combination of contractual
non-disclosure obligations and statutory and common law copyright, trademark and
trade secret laws to establish and maintain its proprietary rights to its
products. Due to the rapid pace of technological change in the telecommunication
and software industries, the legal protections for Billings products were
less significant factors in Billings success than the knowledge, ability
and experience of Billings employees, the frequency of product
enhancements and the timeliness and quality of support services provided by
Billing. Billing generally entered into confidentiality agreements with its
employees, consultants, clients and potential clients and limited access to and
distribution of, its proprietary information.


Research and Development


Billing
internally funded research and development activities with respect to efforts
associated with creating new and enhanced billing services products. Billing
explored customer care software applications that allowed
consumers to view their bills, request adjustments or make payments via the
Internet.


Discontinued Operations  Software


General


Aptis,
Inc. (Aptis) developed, marketed and supported convergent billing
and customer care software applications. Aptis customers included Network
Service Providers (NSPs), ISPs, ICPs and other providers of enhanced
data services via the Internet. Aptis offered products and services to these
companies through licensing agreements and outsourcing arrangements.


Aptis
developed and enhanced sophisticated software applications in order to meet the
current and evolving billing requirements of its customers. Aptis software
applications supported complex billing of NSP, ISP and ICP customers in a
multi-service environment. Aptis convergent billing platform had the
capability to produce a single convergent bill whereby multiple services and
products such as local exchange, long distance, wireless and data communications
could be billed directly to the end-user under one, unified billing
statement. The software also had the flexibility to be configured to meet a
companys unique business rules and product set.


In
addition to its software products, a full range of professional services
was also available through Aptis. These services included consulting,
development and systems operations services centered on the Internet and
telecommunications industry and its software products. Aptis also provided
ongoing support, maintenance and training related to customers billing and
customer care systems. In addition to its software applications and services,
Aptis was a reseller of IBM AS/400 hardware that was used as the hardware
platform to host certain Aptis software applications.


Development of Business


The
Company entered into the software market in June 1997 in conjunction with the
acquisition of Computer Resources Management, Inc. (CRM). At that
time, the software division was renamed Billing Concepts Systems, Inc.
(BCS). CRM developed and sold billing applications to the long
distance and convergent services markets. Additionally, in October 1998, the
Company acquired Expansion Systems Corp. (ESC) and integrated it
into BCS. ESC developed customer care and billing applications for ISPs that
automated the registration of new Internet subscribers and created bills for
customers services. In December 1998, the Company completed the merger of
Communications Software Consultants, Inc. (CommSoft). CommSoft was
an international software development and consulting firm specializing in the
telecommunications industry. In April 1999, the Company announced that BCS would
operate under the name Aptis. Through these actions, Aptis had expanded its
potential markets to include companies focused on providing sophisticated
broadband Internet Protocol (IP) and enhanced data services.


16
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|Industry Background


In
the competitive communications marketplace, companies increasingly realized the
value of a direct customer relationship as a means of growing its revenues. Many
companies who had relied on LEC billing had grown significantly and were looking
to implement solutions that would give them the option to bill customers
themselves. Companies who had systems that billed
customers were looking to replace them with solutions that provided
sophisticated capabilities such as convergent billing and product bundling.
Aptis provided such direct billing solutions through its software operations.


Increased
competition had ISPs rushing to offer a proliferation of services that did not
exist a few years ago: on-line chat, e-commerce support, broadband services,
Voice over Internet Protocol (VoIP), on-line backup, MP3, website design and
marketing and application leasing and maintenance. Several causes of this rush
related to the fact that customer need was acute and demand was strong. Also,
revenues from traditional dial-up services were dramatically declining due in
part to competition from free services. Bandwidth was difficult to acquire for
smaller ISPs and their costs were steadily increasing.


Adding
new service offerings was a necessity to stay in business. Finding a way to
maintain high levels of accessibility to the Internet, developing new avenues
for generating revenues and streamlining operations to lower costs were the
preeminent management challenges for ISPs. In light of the changing business
environment, ISPs were creating larger, more loyal customer bases and needed to
be able to bill them.


New
Internet services and the need for innovative billing options also added to the
demand for customer care and billing systems. IP and enhanced service providers
were faced with commoditization of services, rapid introduction of new and more
complex services and demands to generate more revenues from new and existing
customers. Many of these services were being offered by companies who already
offered other communications and/or enhanced data services and who wanted to
combine usage onto a single customer account, which was known in the industry as
convergent billing. This demand for convergent billing of Internet, enhanced
data and communications services had driven growth and spending by Internet and
communications companies on customer care and billing solutions.


Products and Services


With
the expansion into the software development business in 1997, Aptis broadened
its product offerings to include customer care and billing solutions and entered
additional markets not previously entered. Aptis ICP
was Aptis comprehensive software suite that was a fully
integrated, comprehensive and adaptable billing and customer care solution
designed to meet the evolving needs of ICPs, including and emphasizing the CLEC
market and those companies offering VoIP and/or enhanced data communications.
Aptis ICP was a web-enabled, remotely accessible software solution that
integrated existing product technology. Aptis ICP had enhanced the convergent
architecture model by providing a common application that provided key
functionality in all communications industry segments and provided tools for
order fulfillment, service assurance and billing and rating. Aptis ICP enabled
virtually all communications carriers (facilities-based, competitive, incumbent,
resale, wholesale or any combination) to facilitate growth and market expansion.
As an example, the hierarchical account structure inherent in the system easily
accommodated mergers and acquisitions, new market penetration and large,
multi-level corporate billing. In addition, the common application in Aptis ICP
provided the framework for optional software functionality to be added. Aptis
ICP offered components that delivered enhanced capabilities for every segment of
the communications industry, including Internet, cable television, local, long
distance and wireless. These components could have been further customized to
achieve operational goals by adding tools for provisioning, polling,
point-of-sale, facilities inventory management, data transfer interfaces and
more. Further, open application programming interfaces provided pre-integration
with other third-party applications.


17
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|With
the acquisition of ESC in October 1998, Aptis added
TotalBill to its product suite. With TotalBill
version 3.0, Aptis introduced a broader IP and data-focused product
strategy that incorporated distributed server architecture, multi-platform
availability and a host of other features such as upgraded hierarchical account
structures, anytime billing and an automated workflow engine. TotalBill 3.0 was
a browser-based, Oracle billing and customer management software solution
specifically designed for Internet and enhanced data service providers. Taking
full advantage of a distributed server environment, TotalBill provided separate
registration, application, data and reports servers. This architecture enabled
distributed workloads, ensured greater scalability, allowed for
geographically dispersed service centers and allowed Aptis to bring an
innovative measured-service billing solution to the emerging application service
provider market. With TotalBill 3.0, Aptis was updating and upgrading billing
features such as hierarchical and anytime billing. Hierarchical billing
gave service providers the flexibility and scalability
needed to facilitate and manage complex billing scenarios for businesses with
dispersed and growing offices, departments and employees. Anytime billing
enabled providers to generate bills via predetermined user intervals or by
individually processing bills on demand in order to meet customized billing
cycles. TotalBill 3.0 also would rate virtually any metered IP service or
scenario, including flat rate, usage based and volume discounting.
TotalBills innovative standards-based workflow engine acted as a master
process control to provide customized provisioning and interfaced with internal
and external entities. TotalBills workflow engine allowed service
providers to automate many of the processes normally associated with billing and
collecting revenues.


Instant-Reg,
the customer profile management component of TotalBill 3.0, provided a highly
flexible customer self-care and provisioning system that could be incorporated
into the providers existing Internet website or in a portal environment.
This feature allowed customers to register, self-maintain and modify their
profile, which freed internal resources for other tasks and reduced expensive
customer support costs.


With
the acquisition of CommSoft in December 1998, Aptis obtained CommSofts
flagship product, which was an account number-based, table-driven
suite of software applications that facilitated the administration of every
aspect of a companys business operations from application to service
order, to billing and collections. It was a suite of business operation software
for local telephone, long distance, paging, cellular and PCS services. More
specifically, the core modules of the product included Subscriber Management and
Billing, Rating and Call Plans, Customer Care and Telephone Plant Inventory
Systems. In addition to the billing product, Aptis acquired modules for Carrier
Access Billing, Full Function Accounting and Complete Inventory Management.
CommSofts 14-plus years of success with local and wireless
telephone companies, coupled with Aptis 10-plus years of success,
primarily with long distance companies and CLECs, was a complementary match of
experience. By combining CommSofts menu of products with those of Aptis,
the Company had a broader depth of telecom functionality to offer its customers.


In
1998, Aptis focused attention on its professional services resources, growing
the staff significantly to support current and new customers. This organization
provided consulting, application development, training, call center services and
back office support to customers in the IP and communications industry. The
organization had entered into a number of long-term arrangements to provide
outsourced services and consulting services to the IP and
TotalBill customers.


18
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Operations


Aptis
ICP and TotalBill were delivered to
customers in a number of ways. Aptis offered various outsourcing and facilities
management options that allowed providers to take advantage of
Aptis facilities and resources. In these situations, the
provider paid a right-to-use fee for access to the software and paid for other
services on an as-used basis. These arrangements included full systems hosting
and operations with back office services or any subset of services. Both
applications were available to be delivered to customers to use in their own
premises by licensing the applications. Customers purchased a license that
entitled them to use of the application in a defined enterprise and
they acquired their own hardware and operations resources. In most situations,
Aptis provided additional services for the implementation, conversion and
training required to make the application operational. If a customer desired
some unique enhancements to the application, professional services staff
provided the services at an additional fee.


Aptis
revenues were earned from license fees, right-to-use fees, maintenance fees,
professional services fees and facilities management fees. License fees and
right-to-use fees were based on the modules licensed and the number of customers
supported by the application. Maintenance fees were a percentage of the total
license fees. Professional services fees included time and material charges and
facilities management fees. Aptis revenue also included retail sales of IBM
AS/400 hardware and operating software.


Customers


Aptis
provided direct billing systems sales and development to the following
categories of communications services providers:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | NSPs:
Companies that provided business-to-business enhanced data services based on next
generation network architecture.
| |  | - |  | ------------------------------------------------------------------------------------------------------------------------

| |  |  |  | ISPs:
Companies that offered Internet access and Internet-based services.
| |  | - |  | -------------------------------------------------------------------------

| |  |  |  | ICPs:
Carriers who offered multiple communications services through a combination of owned
network facilities and resale of other network facilities. These multiple services were
typically bundled and priced as a package of services.
| |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Interexchange
Carriers or Long Distance Companies: Facilities-based carriers that processed their own
telecommunications switching equipment and networks and provided traditional direct dial
telecommunications services. Certain long distance companies provided operator-assisted
services as well as direct dial services. The local telephone company in the case of
residential and small commercial accounts, billed these calls to the end-user.
| |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Switchless
Resellers: Marketing organizations, affinity groups or aggregator operations that bought
direct dial long distance services in volume at wholesale rates from a facilities-based
long distance company and sold them back to individual customers at market rates. The
local telephone company in the case of residential and small commercial accounts billed
these calls to the end-user.
| |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | CLECs:
Carriers that provided local exchange services to subscribers who were previously served
exclusively by the incumbent local exchange carrier.
| |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | ILECs:
The existing local telephone company that had previously offered service as a regulated
monopoly company.
| |  | - |  | ----------------------------------------------------------------------------------------------------------------

| |  |  |  | Wireless
Carriers: Carriers that provided direct dial telecommunications services by means of
cellular or PCS technology that was not dependent on traditional landlines.
| |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | Cable
Companies: Facilities-based companies that possessed their own cable networks to provide
cable television access and may have offered telephone and Internet services.
| |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In
1999, an aggressive marketing and advertising campaign was implemented to
increase industry understanding and awareness of Aptis capabilities and
vision. As a means of highlighting Aptis expanded capabilities, a new
identity, positioning and messaging were created. This new identity was
consistently pervasive through all advertising and marketing materials. A
program designed to insure high visibility and contact with the industry began
in July 1998 and was supported by advertising, public relations and
participation in key industry events. Aptis added significant direct sales
resources to the organization, industry experience, knowledgeable individuals
and strategic partnerships with other vendors serving the industry. Aptis
maintained a direct sales force and accomplished most of its marketing efforts
through active participation in Internet and communications industry trade
shows, educational seminars and workshops. Aptis advertised in trade journals
and other industry publications.


19
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Aptis
had targeted as likely candidates for direct billing products and services the
following types of customers: network and enhanced data service providers,
Internet service providers, long distance providers serving commercial accounts,
cellular services providers, competitive local access providers and cable
television companies.


Competition


The
market for telecommunications billing systems and services was highly
competitive. Aptis competed with both independent providers of billing systems
and services and with the internal billing departments of telecommunications
service providers. The growth in total expenditures on customer care and billing
solutions was expected to increase at significant rates over the next few years.
Companies that offered broad solutions capability had the opportunity to gain
significant market share and established long-term relationships with industry
players. The principal competitive factors in its market included responsiveness
to client needs, timeliness of implementation, quality of service, price project
management capability and technical expertise. The ability to compete depended
on a number of competitive factors outside Aptis control. Some of these
factors included comparable services and products, the extent of
competitors responsiveness to customer needs and the ability of
Aptis competitors to hire, retain and motivate key personnel.


Aptis
also competed with a number of companies that had substantially greater
financial, technical, sales and marketing resources, as well as greater name
recognition. As a result, Aptis competitors may have been able to adapt
more quickly to emerging technologies, changes in customer requirements or to
devote greater resources to the promotion and sale of their products. Aptis did
not hold any patents and relied upon a combination of contractual non-disclosure
obligations as well as statutory and common law copyright, trademark and trade
secret laws to establish and maintain its proprietary rights to its products.
Due to the rapid pace of technological change in the enhanced data, Internet,
communications and software industries, the legal protections for its products
were less significant factors in Aptis success than the knowledge, ability
and experience of Aptis employees, the frequency of product enhancements
and the timeliness and quality of support services provided by Aptis. Aptis
generally entered into confidentiality agreements with its employees,
consultants, clients and potential clients and limited access to, and
distribution of, its proprietary information. Use of Aptis software
products was generally restricted to specified locations and was subject to
terms and conditions prohibiting unauthorized reproduction or transfer of the
software products.


Research and Development


Aptis
was actively involved in ongoing research and development efforts associated
with creating new billing modules and enhanced products related to its
convergent billing software platform for both communications and Internet
service providers.


Employees


As
of December 31, 2001, the Company had nine full-time corporate employees and no
part-time employees. None of the Companys employees are represented by a
union. The Company believes that its employee relations are good.


As
of September 30, 2001, Tanisys had forty-three employees, including twenty-seven
engineering, product development, manufacturing and technical support employees,
nine finance and administrative employees and seven employees in the
sales and marketing area. Recruitment of personnel in the computer industry,
particularly engineers, is highly competitive. Tanisys believes that its future
success will depend in part on its ability to attract and retain highly skilled
management, engineering, sales, marketing, finance and technical personnel.
There can be no assurance of Tanisys ability to recruit and retain the
employees that it may require.


20
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 2. PROPERTIES


As
of December 31, 2001, the Company occupied approximately 8,000 square feet of
space at 10101 Reunion Place, San Antonio, Texas, which serves as the corporate
headquarters. The lease expires in January 2004 and has certain renewal options.
Subsequent to December 31, 2001, the Company subleased approximately 3,000
square feet of its office space. The Company believes that its current
facilities are adequate to meet its current and future needs.


As
of September 30, 2001, Tanisys occupied approximately 15,000 square feet of
space at 12201 Technology Boulevard, Austin, Texas, which serves as the
corporate headquarters. The lease expires in April 2003 and has
certain renewal options. Tanisys believes that its current facilities
are adequate to meet its current and future needs.



ITEM 3. LEGAL PROCEEDINGS


A
lawsuit was filed on December 31, 1998, in the United States District Court in
San Antonio, Texas by an alleged stockholder of the Company against the Company
and various of its officers and directors, alleging unspecified damages as a
result of alleged false statements in various press releases prior to November
19, 1998. In September 1999, the United States District Court for the Western
District of Texas entered an order and judgment dismissing the plaintiffs
lawsuit. The plaintiff noticed an appeal of that decision on September 29, 1999.
In November 2000, the United States Court of Appeals for the Fifth Circuit
dismissed the appeal pursuant to a stipulation of the parties and settlement.


As
previously disclosed, the Company was engaged in discussion with the
staff of the Federal Trade Commissions (FTC) Bureau of
Consumer Protection regarding a proposed complaint by the FTC alleging potential
liability arising primarily from the alleged cramming of charges for
non-regulated telecommunication services by certain of the
Companys customers. Cramming is the addition of charges to a
telephone bill for programs, products or services the consumer did not knowingly
authorize. These allegations related to business conducted by the subsidiaries
sold by the Company on October 23, 2000. In August 2001, the Company reached a
settlement with the FTC which included a payment to the FTC of $350,000. This
settlement fully resolves all issues related to the FTCs inquiry.


The
Company is involved in various other claims, legal actions and regulatory
proceedings arising in the ordinary course of business. The Company believes it
is unlikely that the final outcome of any of the claims, litigation or
proceedings to which the Company is a party will have a material adverse effect
on the Companys financial position or results of operations; however, due
to the inherent uncertainty of litigation, there can be no assurance that the
resolution of any particular claim or proceeding would not have a material
adverse effect on the Companys results of operations for the fiscal period
in which such resolution occurs.



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


During
the quarter ended December 31, 2001, no matter was submitted by the Company to a
vote of its stockholders through the solicitation of proxies or otherwise.


21
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 5. MARKET FOR THE COMPANYS
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


Market Information


The
Companys common stock, par value $0.01 per share (the Common
Stock), is currently quoted on the Nasdaq National Market
(Nasdaq) under the symbol NCEH. Prior to February
8, 2001, the Common Stock was quoted on Nasdaq under the symbol
BILL. The table below sets forth the high and low bid prices for the
Common Stock from October 1, 1999, through April 10, 2002, as reported by
Nasdaq. These price quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | High                                       |  | Low   |  |      
| |  | ------------------------------------------ |  | ----- |  | -----
| |  | Fiscal Year Ended September 30, 2000:      |  |       |  |      
| |  | 1st Quarter                                |  | $8.19 |  | $3.88
| |  | 2nd Quarter                                |  | $9.94 |  | $5.00
| |  | 3rd Quarter                                |  | $7.63 |  | $3.13
| |  | 4th Quarter                                |  | $4.88 |  | $2.84
|
| |  | Transition Quarter Ended December 31, 2000 |  | $3.31 |  | $1.34
|
| |  | Fiscal Year Ended December 31, 2001:       |  |       |  |      
| |  | 1st Quarter                                |  | $4.00 |  | $1.00
| |  | 2nd Quarter                                |  | $2.06 |  | $1.00
| |  | 3rd Quarter                                |  | $1.30 |  | $0.41
| |  | 4th Quarter                                |  | $1.17 |  | $0.40
|
| |  | Fiscal Year Ended December 31, 2002:       |  |       |  |      
| |  | 1st Quarter (through April 10, 2002)       |  | $0.78 |  | $0.39

|Stockholders


At
April 10, 2002, there were 34,217,620 shares of Common Stock outstanding, held
by 558 holders of record. The last reported sales price of the Common Stock on
April 10, 2002, was $0.56 per share.


Dividend Policy


The
Company has never declared or paid any cash dividends on the Common Stock. The
Company presently intends to retain all earnings for the operation and
development of its business and does not anticipate paying any cash dividends on
the Common Stock in the foreseeable future.


22
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 6. SELECTED FINANCIAL DATA


The
following table presents selected financial and other data for the Company. The
statement of operations data for the year ended December 31, 2001, the transition quarter ended December 31, 2000 and the
years ended September 30, 2000, 1999, 1998 and 1997, and the balance sheet data
as of December 31, 2001 and 2000, and September 30, 2000, 1999, 1998 and 1997,
presented below are derived from the audited Consolidated Financial Statements
of the Company. The data presented below for the year ended December 31, 2001,
the transition quarter ended December 31, 2000 and the years ended September 30,
2000 and 1999, should be read in conjunction with the Consolidated Financial
Statements and the notes thereto, Managements Discussion and Analysis of
Financial Condition and Results of Operations and the other financial
information included in this report.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                            | YearEnded |  | QuarterEnded |         | Year Ended |  
|------------------------------------------- | --------- |  | ------------ | ------- | ---------- | -
|
|
|(in thousands, except per share data)       |           |  |              |         |            |  
|Consolidated Statement of Operations Data:  |           | 
|Operating revenues                          |           |  | $            | 1,187   |            | $
|Gross profit                                |           |  |              | 256     |            |  
|Loss from continuing operations             |           |  |              | (15,078 | )          |  
|Net loss from continuing operations         |           |  |              | (38,426 | )          |  
|Net income (loss) from discontinued         |           | 
|operations, net of income taxes             |           |  |              |        |            |  
|Net income (loss) from disposal of          |           | 
|discontinued operations, net of income      |           | 
|taxes                                       |           |  |              | 2,385   |            |  
|Net income (loss)                           |           |  |              | (36,041 | )          |  
|Basic and diluted net loss from continuing  |           | 
|operations per common share                 |           |  | $            | (1.10   | )          | $
|Basic and diluted net income (loss) from    |           | 
|discontinued operations, net of income      |           | 
|taxes per common share                      |           |  |              |        |            |  
|Basic and diluted net income (loss) from    |           | 
|disposal of discontinued operations, net of |           | 
|income taxes per common share               |           |  |              | 0.07    |            |  
|Basic and diluted net income (loss) per     |           | 
|common share                                |           |  | $            | (1.03   | )          | $
|Weighted average common stock               |           | 
|outstanding                                 |           |  |              | 34,910  |            |  

|                                 | December 31, |  | September 30, |        
|-------------------------------- | ------------ |  | ------------- | -------
|
|(in thousands)                   |              | 
|Consolidated Balance Sheet Data: |              | 
|Working capital                  |              |  | $             | 9,532  
|Total assets                     |              |  |               | 39,577 
|Additional paid-in capital(1)    |              |  |               | 70,342 
|Retained earnings (deficit)(2)   |              |  |               | (35,335

| |  | (1) |  | Additional
paid-in capital for the year ended September 30, 1997 was restated to give effect to the
one-for-one common stock dividend that was distributed on January 30, 1998 to
stockholders of record on January 20, 1998. No additional proceeds were received on the
dividend date and all costs associated with the share dividend were capitalized as a
reduction of additional paid-in capital.
| |  | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (2) |  | The
Company has never declared cash dividends on its Common Stock, nor does it anticipate
doing so in the foreseeable future.
| |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------

|23
|--

|ITEM 7. MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The
following discussion should be read in conjunction with the Companys
Business discussion, Consolidated Financial Statements, the Notes thereto
and the other financial information included elsewhere in this Report. For
purposes of the following discussion, references to yearly periods refer to the
Companys fiscal year ended December 31 for 2001 and September 30 for 2000
and prior.


Continuing Operations


Revenues


Revenues
for FIData are comprised of transaction fees for processing loan applications,
implementation fees for new customers and a variety of customer service related
fees. Revenues for Tanisys are comprised of sales of production-level automated
test equipment and related hardware and software, net of returns and discounts.
Total revenues for the year ended December 31, 2001 were $1,187,000, compared to
$410,000 in the year ended September 30, 2000. The consolidation of Tanisys
accounts for $686,000 of the increase in revenues. The additional increase in
revenues is primarily due to an increase in the amount charged per transaction
processed by FIData. The increase in revenues from 1999 to 2000 is related to
the acquisition of FIData in November 1999.


Cost of revenues


Cost
of revenues for FIData includes the costs incurred to offer a variety of
customer service opportunities to its customers. Cost of revenues for Tanisys
includes the cost of all components and materials purchased for the
manufacturing of products, direct labor and related overhead costs. Cost of
revenues increased by 167% during the year ended December 31, 2001, from
$349,000 during the year ended September 30, 2000. Tanisys accounts for $367,000
of the increase in cost of revenues. The additional increase in cost
of revenues is related to additional customer service opportunities made
available to customers of FIData. The increase in cost of revenues from 1999 to
2000 is related to the acquisition of FIData in November 1999.


Selling, general and
administrative expenses


Selling,
general and administrative (SG&A) expenses are comprised of all
selling, marketing and administrative costs incurred in direct support of the
business operations of the Company, FIData and Tanisys. SG&A expenses for
the year ended December 31, 2001, were $8.3 million, compared to $9.3 million
for the year ended September 30, 2000. The decrease in SG&A relates to an
overall reduction in expenditures and corporate personnel, offset by the
inclusion of Tanisys in the consolidated financial statements. SG&A expenses
for the year ended September 30, 2000, were $9.3 million compared to $5.3
million for the year ended September 30, 1999. The increase in SG&A during
the year ended September 30, 2000, is primarily due to the acquisition of FIData
in November 1999, as well as SG&A expenses incurred by efforts to develop a
financial services website focused on the credit union industry.


Research and development


Research
and development expenses incurred during the year ended December 31, 2001,
relate entirely to Tanisys. Tanisys research and development expenses
include all costs associated with the engineering design and testing of new
technologies and products. Tanisys research and development expenses for
the period from the purchase date to September 30, 2001 (as consolidated
herein), were $411,000. Research and development expenses incurred during the
years ended September 20, 2000 and 1999, are comprised of the salaries and
benefits of the employees involved in the development of a financial services
website, which was suspended during the quarter ended June 30, 2000.


24
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Depreciation and amortization


Depreciation
and amortization expenses are incurred with respect to certain assets, including
computer hardware, software, office equipment, furniture, goodwill and other
intangibles. Depreciation and amortization expense was $1.7 million during the
year ended December 31, 2001, compared to $1.6 million and $40,000 during the
years ended September 30, 2000 and 1999, respectively. As the depreciation and
amortization expense is primarily related to the amortization of the goodwill of
FIData, the expense remained constant during the year ended December 31, 2001
and the year ended September 30, 2000. The increase from the year ended
September 30, 1999, is attributable to the amortization of goodwill acquired in
connection with the acquisition of FIData in November 1999.


Goodwill Impairment


Goodwill
impairment for the year ended December 31,
2001, includes a $5.0 million impairment related to the
long-lived assets of FIData. The impairment write-down reflects the difference
between the carrying value of the assets and the net realizable value. The
impairment write-down consisted of $4.5 million related to goodwill and
$0.5 million related to software.


Net other expense


Net
other expense of $24.2 million in the year ended December 31, 2001, compared to
$15.0 million in the year ended September 30, 2000 and $1.8 million in the year ended
September 30, 1999. The increases in net other expenses are primarily related to the
increasing equity in net loss of Princeton (which includes the Companys portion of a
$13.3 million impairment charge recorded by Princeton) and Coreintellect. The net
other expense for the year ended December 31, 2001, also included (i) consulting
income from Platinum of $3.8 million, (ii) realized gains on the redemption of the
investments in available-for-sale securities of $0.6 million and (iii) receipt of payment
on a promissory note of $0.7 million from an Austin, Texas-based technology company.
During the year ended December 31, 2001, the Company also evaluated the
realizability of its investment in Princeton. Based upon current private equity markets,
the Company determined its investment in Princeton was impaired by $1.8 million and
accordingly, reduced its investment balance.


Income tax benefit (expense)


The
Companys effective income tax benefit rate was 2.1% for the year ended
December 31, 2001, compared to 15.1% for the year ended September 30, 2000 and
27.7% for the year ended September 30, 1999. The Companys effective income
tax benefit rate was lower than the federal statutory benefit rate due to
certain expenses recorded for financial reporting purposes that are not
deductible for federal income tax purposes, including the equity in net loss and
impairment of affiliates and the amortization and impairment of FIData goodwill.


Results of Discontinued Operations  Transaction Processing and Software


During
the year ended December 31, 2001, the Company reviewed the adequacy of the
accruals related to discontinued operations. As a result of this assessment, the
Company reduced such accruals and recognized income from the disposal of
discontinued operations of $2.4 million, based upon current estimates of future
liabilities related to the divested entities. The $2.4 million is reflected as
net income from disposal of discontinued operations in the year ended December 31, 2001.


The
following table presents the operating results of the Companys Transaction
Processing and Software divisions and as a percentage of related revenues for
each year, which are reflected as discontinued operations in the Consolidated
Statements of Operations.


25
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

| | Year ended September 30, | 
| | ------------------------ | 
|
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 

|Operating revenues


Transaction
Processing fees charged by Billing included processing and customer service
inquiry fees. Processing fees were assessed to customers either as a fee charged
for each telephone call record or other transaction processed, or as
a percentage of the customers revenue that was submitted by Billing to
local exchange carriers for billing and collection. Processing fees also
included any charges assessed to Billing by local exchange carriers for billing
and collection services that were passed through to the customer. Customer
service inquiry fees were assessed to customers either as a fee
charged for each record processed by Billing or as a fee charged for each
billing inquiry made by end-users.


Transaction
Processing revenues decreased $22.3 million, or 16.5%, from 1999. The decrease
in revenue from year to year was primarily attributed to an overall decrease in
the number of call records processed. The number of call records processed for
Billing was negatively impacted by market pressures that have occurred in the
long distance industry. Management continued to take actions in order to
mitigate the effects of slamming and cramming issues on the call
record volumes of its current customer base. Consequently, the number of call
records processed for Billing decreased from the prior year. Telephone call
record volumes were as follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Year ended September 30, |                                   
| |  | ------------------------ | ----------------------------------
|
| |  |                          | Direct dial long distance services
| |  |                          | Operator services                 
| |  |                          | Enhanced billing services         
| |  |                          | Billing management services       

|In
addition to license and maintenance fees charged by Software for the use of its
billing software applications, fees were charged on a time and materials basis
for software customization and professional services. Software revenues also
include retail sales of third-party computer hardware and software.
Software revenues decreased $14.4 million, or 31.4%, from 1999. The
decrease in revenues from 1999 was primarily attributable to lower sales of
billing systems in 2000, which corresponded to a decrease in software license
fees.


Cost of revenues


For
the Transaction Processing division, cost of revenues included billing and
collection fees charged by local exchange carriers as well as all costs
associated with the customer service organization, including staffing expenses
and costs associated with telecommunications services. Billing and collection
fees charged by the local exchange carriers included fees that were assessed for
each record submitted and for each bill rendered to its end-user
customers. For the Software division, cost of revenues included the cost of
third-party computer hardware and software sold and the salaries and benefits of
software support, technical and professional service personnel who generated
revenue from contracted services. The decrease in cost of revenues from 1999 is
primarily related to a reduction in the number of call records processed,
therefore resulting in a decrease of the corresponding billing and
collection costs charged by the local exchange carriers.


26
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Selling, general and
administrative


SG&A
expenses for 2000 were $28.8 million compared to $28.3 million in 1999. The
SG&A expenses remained relatively constant in 2000 as the growth
of the Software operations declined.


Bad debt expense


Bad
debt expense for 2000 was $6.1 million compared to $1.7 million in 1999. Bad
debt increased from 1999 primarily due to a $3.5 million charge taken in the
quarter ended June 30, 2000. Related to the Software division, this charge is a
result of the narrowing of various software product offerings, the refocusing of
software development efforts and a reserve associated with a significant
account.


Research and development


R&D
expenses were comprised of salaries and benefits of the employees involved in
software development and related expenses. The Company internally funded R&D
activities with respect to efforts associated with creating new and enhanced
Transaction Processing services products and products related to its convergent
billing software platform for both telecommunication and Internet service
providers. R&D expenses in 2000 were $11.8 million compared to $5.7 million
in 1999.


Advance funding program income
and expense


Advance
funding program income was $2.0 million in 2000 compared to $3.8 million in
1999. The decrease from the prior year was primarily the result of a lower level
of customer receivables financed under Billings advance funding program.
The quarterly average balance of purchased receivables was $20.4 million and
$48.2 million in 2000 and 1999, respectively.


The
advance funding program expense was $0.1 million in 2000 and 1999, due to the
Company financing all customer receivables during 2000 and 1999 with internally
generated funds rather than with funds borrowed through the Companys
revolving credit facility. The expense recognized represents unused credit
facility fees and was the minimum expense that Billing could have incurred
during these years.


Income from discontinued
operations


Including
special and other charges, loss from discontinued operations in 2000 was $12.7
million compared to income from discontinued operations in 1999 of $28.9
million. The decrease in income from discontinued operations from the prior year
is attributable to lower revenues and higher operating expenses.


Liquidity and Capital Resources


The
Companys cash balance decreased to $8.6 million at December 31, 2001, from
$36.5 million at December 31, 2000. This decrease is primarily related to the
$2.8 million purchase price adjustment recorded in April 2001 related to
the sale of the Transaction Processing and Software divisions, the
investments in Princeton made throughout the year totaling $22.8 million, the
$1.1 million investment in Tanisys in August 2001 and the $0.8 million
investment in Sharps in October 2001. The Companys working capital
position decreased to $9.5 million at December 31, 2001, from $32.5 million at
December 31, 2000. The decrease in the working capital was primarily
attributable to the decrease in the cash balance. Net cash used in
operating activities for the year ended December 31, 2001, was $3.6 million
compared to net cash provided by operating activities of $50.8
million for the year ended September 30, 2000.


27
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Capital
expenditures totaled $0.6 million during the year ended December 31, 2001, and
related primarily to the purchase of computer equipment and software for FIData.
The Company anticipates capital expenditures before acquisitions, if any, during
the year ended December 31, 2002, to be less than expenditures incurred during
the year ended December 31, 2001. The Company believes it will be able to fund
future expenditures with cash resources on hand.


The
Companys operating cash requirements consist principally of funding of
corporate expenses and capital expenditures.


During
the year ended December 31, 2002, the Companys corporate cash balance ($7.2
million at December 31, 2001, excluding Tanisyscash) is expected to increase
as a result of (i) the receipt of the $3.1 million consulting income from Platinum
through October 2002, (ii) the receipt of $0.5 million from a federal tax refund, (iii)
receipt of $0.6 million on a promissory note due from an Austin, Texas-based technology
company in February and May 2002 and (iv) the receipt of interest income of $0.1 million.
The total cash inflow of $4.3 million is expected to be less than the anticipated cash
expenditures of $7.7 million for 2002. The anticipated cash expenditures of $7.7 million are
comprised of corporate cash expenses of $2.4 million, investments of $3.3 million in
Princeton funded subsequent to December 31, 2001 and the Companys remaining
commitment to Princeton of $2.0 million. The anticipated cash receipts and expenditures
result in an expected cash balance of $3.8 million at December 31, 2002, assuming the
funding of the entire $2.0 million commitment to Princeton.


In
addition to the above anticipated items, the cash balance could be further
decreased by additional investments in Princeton or investments in or purchases
of additional companies or investments. The cash balance could be increased by
the liquidation of one or more of the Companys investments or subsidiaries.


Since
its inception, Princeton has incurred significant costs to develop and enhance its
technology, to establish marketing and customer relationships and to build its capital
infrastructure and administrative organization. As a result, Princeton has historically
incurred significant operating losses and expects to generate an operating loss for the
year ended December 31, 2002. Subsequent to December 31, 2001, Princeton has received
proceeds of $2.5 million from the sale of its mandatorily redeemable convertible
preferred stock (of which the Company contributed $1.5 million). Additionally, Princeton
secured an unconditional commitment from various investors to purchase $8.5 million of
manditorily redeemable convertible preferred stock during the year ended December 31,
2002 (of which the Company committed $3.75 million). Through April 2002, Princeton has
received $2.7 million of the aggregate $8.5 million commitment (of which the Company
contributed $1.8 million). Princeton believes that its current cash and cash equivalents
coupled with the proceeds received subsequent to December 31, 2001 and the additional
capital available under the investor commitment will be sufficient to fund its operations
and execute its strategy through March 2003. To the extent that Princeton does not meet
its targeted financial goals for 2002, Princetons business, results of
operations and financial condition may be materially and adversely affected.


Seasonality


The
Companys operations are not significantly affected by seasonality.


Effect of Inflation


Inflation
has not been a material factor affecting the Companys business. General
operating expenses, such as salaries, employee benefits and occupancy costs, are
subject to normal inflationary pressures.


New Accounting Standards


In
June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No 141, Business Combinations, which addresses the initial
recognition of goodwill and other intangible assets acquired in a business
combination and requires that all future business combinations 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
recognition and measurement of other intangible assets acquired outside of a
business combination whether acquired individually or with a group of assets. In
accordance with these statements, goodwill and certain intangible assets will no
longer be amortized, but will be subject to at least an annual assessment of
impairment. The Company adopted these statements on a prospective basis on
January 1, 2002, although certain provisions of these statements have been
applied to business combinations completed after June 30, 2001. Management does
not believe the adoption of these statements will have an adverse impact on the
financial statements of the Company in 2002 relative to business combinations
completed before June 30, 2001.


28
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In
August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations, which requires among other items, retirement obligations to
be recognized when they are incurred and displayed as liabilities, with a
corresponding amount capitalized as part of the related long-lived asset. The
capitalized element must be expensed using a systematic and rational method over
its useful life. Management does not believe the adoption of SFAS No. 143 will
have an adverse impact on the financial statements of the Company in 2002.


In
October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which requires, among other items, the
application of one accounting model for long-lived assets that are impaired or
to be disposed of by sale. Management does not believe the adoption of SFAS No.
144 will have an adverse impact on the financial statements of the Company in
2002.



Critical Accounting Policies


Consolidation of Subsidiaries


In
general, the accounting rules and regulations require the consolidation of
entities in which the company holds an interest greater than 50% and the use of
the equity method of accounting for entities in which the company holds an
interest between 20% and 50%. Exceptions to these rules are (i) when a company
does not exercise control over the decision making of an entity although the
company does own over 50% of the entity and (ii) when a company does exercise
control over the decision making of an entity but the company owns between 20%
and 50% of the entity.


The
first exception exists with respect to the Companys ownership percentage
in Princeton. As of December 31, 2001, the Company owns 57.4% of the outstanding
shares of Princeton but does not have the ability to exercise control over the
decision making of Princeton. Therefore, the Company does not consolidate the
financial statements of Princeton into the consolidated financial statements of
the Company. Alternatively, the Company records its interest in Princeton under
the equity method of accounting. Due to the significance of Princeton to the
     Company, the Company does file Princetons complete audited financial
statements as an amendment to its Form 10-K.


The
second exception exists with respect to the Companys ownership percentage
in Tanisys. As of December 31, 2001, the Company holds only a 35.2% ownership
interest, but does exercise control over the decision making of Tanisys.
Therefore, Tanisys is consolidated into the financial statements of the Company.


29
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK


The
Company is exposed to interest rate risk primarily through its portfolio of cash
equivalents and short-term marketable securities. The Company does not believe
that it has significant exposure to market risks associated with changing
interest rates as of December 31, 2001, because the Companys intention is
to maintain a liquid portfolio to take advantage of investment opportunities.
The Company does not use derivative financial instruments in its operations.



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


The
Consolidated Financial Statements of the Company and the related report of the
Companys independent public accountants thereon are included in this
report at the page indicated.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                      | Page | 
|------------------------------------------------------------------------------------- | ---- | 
|Report of Independent Public Accountants                                              |      | 
|Report of Management                                                                  |      | 
|Consolidated Balance Sheets as of December 31, 2001 and 2000 and September 30, 2000   |      | 
|Consolidated Statements of Operations for the Year Ended December 31, 2001,           |      | 
|the Transition Quarter Ended December 31, 2000 and the Years Ended                    |      | 
|September 30, 2000 and 1999                                                           |      | 
|Consolidated Statements of Stockholders Equity for the Year Ended December 31, 2001, |      | 
|the Transition Quarter Ended December 31, 2000 and the Years Ended                    |      | 
|September 30, 2000 and 1999                                                           |      | 
|Consolidated Statements of Cash Flows for the Year Ended December 31, 2001,           |      | 
|the Transition Quarter Ended December 31, 2000 and the Years Ended                    |      | 
|September 30, 2000 and 1999                                                           |      | 
|Notes to Consolidated Financial Statements                                            |      | 

|30
|--

|REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders of
New Century Equity Holdings Corp.:


We
have audited the accompanying consolidated balance sheets of New Century Equity Holdings
Corp. (formerly Billing Concepts Corp.) (a Delaware corporation) and subsidiaries
(collectively, the Company) as of December 31, 2001, December 31,
2000 and September 30, 2000, and the related consolidated statements of operations,
changes in stockholdersequity and cash flows for the year ended December 31,
2001, for the transition quarter ended December 31, 2000 and for the years ended
September 30, 2000 and September 30, 1999. We did not audit the financial statements of
Tanisys Technology, Inc. (Tanisys), which reflect total assets and total
revenues, respectively, of 9 percent and 58 percent of the related consolidated totals in
2001, and are summarized and included in Note 4. Those statements were audited by other
auditors whose report, which was qualified as to Tanisysability to continue as a
going concern, has been furnished to us, and our opinion, insofar as it relates to the
amounts included for Tanisys and the data in Note 4, is based solely on the report of the
other auditors. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements
based on our audits.


We
conducted our audits in accordance with auditing standards generally accepted in the
United States. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.


In our
opinion, based on our audit and the report of other auditors, the financial statements
referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2001, December 31, 2000 and September 30, 2000 and the results
of their operations and their cash flows for the year ended December 31, 2001, for the
transition quarter ended December 31, 2000 and for the years ended September 30, 2000 and
September 30, 1999 in conformity with accounting principles generally accepted in the
United States.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | /s/ ARTHUR ANDERSEN LLP
| |  | -----------------------

|San Antonio, Texas
March 25, 2002,
except as discussed in Note 22to the consolidated financial statements for whichthe
date is April 11, 2002


31
|--------------------------------------------------------------------------------------------------------------------------------------------------

|REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS


To Tanisys Technology, Inc.:


We
have audited the accompanying consolidated balance sheets of Tanisys Technology,
Inc. (a Wyoming corporation), and subsidiaries as of September 30, 2001 and
2000, and the related consolidated statements of operations, stockholders
equity and cash flows for the years ended September 30, 2001, 2000 and 1999. The
consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.


We
conducted our audits in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.


In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tanisys Technology,
Inc., and subsidiaries as of September 30, 2001 and 2000, and the results of
their operations and their cash flows for the years ended September 30, 2001,
2000 and 1999, in conformity with accounting principles generally accepted in
the United States of America.


Our
audits were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. Schedule II is presented for the purpose of
additional analysis and is not a required part of the basic financial
statements. Such information has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.


The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As shown in the financial
statements, the Company has incurred net losses of $2,360,995 and $8,966,728 for
the years ended September 30, 2001 and 1999, respectively. These factors, and
others discussed in Note 1, raise substantial doubt about Tanisys Technology,
Inc.s ability to continue as a going concern. The financial statements do
not include any adjustments relating to the recoverability and classification of
recorded assets, or the amounts and classification of liabilities that might be
necessary in the event the Company cannot continued in existence.


/s/ BROWN, GRAHAM AND COMPANY, P.C.


Austin, TexasOctober 30, 2001



32
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|REPORT OF
MANAGEMENT


The
financial statements included herein have been prepared in conformity with accounting
principles generally accepted in the United States. Management is responsible for
preparing the consolidated financial statements and maintaining and monitoring the Companys
system of internal accounting controls. The Company believes that the existing system of
internal controls provides reasonable assurance that errors or irregularities that could
be material to the financial statements are prevented or would be detected in a timely
manner. Key elements of the Companys system of internal controls include careful
selection of management personnel, appropriate segregation of conflicting
responsibilities, periodic evaluations of Company financial and business practices,
communication practices that provide assurance that policies and managerial authorities
are understood throughout the Company, and periodic meetings between the Companys
Audit committee, senior financial management personnel and independent public
accountants.


The
consolidated financial statements were audited by Arthur Andersen LLP, independent public
accountants, who have also issued a report on the consolidated financial statements.


/s/ PARRIS H. HOLMES, JR.


Parris H. Holmes, Jr.Chairman of
the Board and Chief Executive Officer


/s/ DAVID P. TUSA


David P. TusaExecutive Vice
President, Chief Financial Officer  and Corporate Secretary




33
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
                                                    CONSOLIDATED BALANCE SHEETS
                                                 (In thousands, except share data)


ASSETS
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                     | December 31, |  | September 30, |        
|---------------------------------------------------- | ------------ |  | ------------- | -------
|
|                                                     |              |  |               |        
|Current Assets:                                      |              |  |               |        
|Cash and cash equivalents                            |              |  | $             | 8,649  
|Accounts receivable, net of allowance for doubtful   |              | 
|accounts of $119, $46 and $25, respectively          |              |  |               | 1,431  
|Inventory                                            |              |  |               | 1,042  
|Prepaids and other                                   |              |  |               | 444    
|Net current assets from discontinued operations      |              | 
|(see Note 21)                                        |              |  |               |       
|                                                     |              |  |               |        
|Total current assets                                 |              |  |               | 11,566 
|Property and equipment                               |              |  |               | 1,135  
|Accumulated depreciation                             |              |  |               | (366   
|                                                     |              |  |               |        
|Net property and equipment                           |              |  |               | 769    
|Other assets, net of accumulated amortization of     |              | 
|$2, $1,717, and $1,348, respectively                 |              |  |               | 838    
|Investments in affiliates                            |              |  |               | 26,404 
|Net non-current assets from discontinued             |              | 
|operations (see Note 21)                             |              |  |               |       
|                                                     |              |  |               |        
|Total assets                                         |              |  | $             | 39,577 
|                                                     |              |  |               |        
|                                                    
|LIABILITIES AND STOCKHOLDERS EQUITY                
|                                                    
|Current liabilities:                                 |              | 
|Accounts payable                                     |              |  | $             | 534    
|Accrued liabilities                                  |              |  |               | 979    
|Deferred income taxes                                |              |  |               | 174    
|Revolving credit note                                |              |  |               | 88     
|Net current liabilities from discontinued operations |              |  |               | 259    
|                                                     |              |  |               |        
|Total current liabilities                            |              |  |               | 2,034  
|Executive deferred compensation and other liabilites |              |  |               | 759    
|Long-term debt to minority stockholders, net of      |              | 
|discount                                             |              |  |               | 207    
|                                                     |              |  |               |        
|Total liabilities                                    |              |  |               | 3,000  
|Commitments and contingencies (see Notes 9 and 17)   |              | 
|Minority interest in consolidated affiliate          |              |  |               | 1,228  
|Stockholders Equity:                                |              | 
|Preferred stock, $0.01 par value, 10,000,000         |              | 
|shares authorized; no shares issued or outstanding   |              |  |               |       
|Common stock, $0.01 par value, 75,000,000 shares     |              | 
|authorized; 34,205,920 issued and outstanding;       |              | 
|42,506,960 shares issued and 35,652,560 shares       |              | 
|outstanding; 41,732,632 shares issued and            |              | 
|41,227,832 shares outstanding; respectively          |              |  |               | 342    
|Additional paid-in capital                           |              |  |               | 70,342 
|Retained (deficit) earnings                          |              |  |               | (35,335
|Deferred compensation                                |              |  |               |       
|Treasury stock, at cost; 0, 6,854,400 and            |              | 
|504,800 shares, respectively                         |              |  |               |       
|                                                     |              |  |               |        
|Total stockholders equity                           |              |  |               | 35,349 
|                                                     |              |  |               |        
|Total liabilities and stockholders equity           |              |  | $             | 39,577 
|                                                     |              |  |               |        

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


34
|--------------------------------------------------------------------------------------------

|NEW CENTURY EQUITY
HOLDINGS CORP. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(In
thousands, except per share data)
|----------------------------------------------------------------------------------------------------------------------------

|                                                  | YearEndedDecember 31, |  | QuarterEndedDecember 31, |         | Year EndedSeptember 30, |  
|------------------------------------------------- | --------------------- |  | ------------------------ | ------- | ----------------------- | -
|
|                                                  |                       |  |                          |         |                         |  
|Operating revenues                                |                       |  | $                        | 1,187   |                         | $
|Cost of revenues                                  |                       |  |                          | 931     |                         |  
|                                                  |                       |  |                          |         |                         |  
|Gross profit                                      |                       |  |                          | 256     |                         |  
|Selling, general and administrative expenses      |                       |  |                          | 8,258   |                         |  
|Research and development expenses                 |                       |  |                          | 411     |                         |  
|Depreciation and amortization expenses            |                       |  |                          | 1,700   |                         |  
|Goodwill impairment                               |                       |  |                          | 4,965   |                         |  
|Special charges                                   |                       |  |                          |        |                         |  
|                                                  |                       |  |                          |         |                         |  
|Loss from continuing operations                   |                       |  |                          | (15,078 | )                       |  
|Other income (expense):                           |                       | 
|Interest income                                   |                       |  |                          | 1,045   |                         |  
|Interest expense                                  |                       |  |                          | (111    | )                       |  
|Equity in net loss of affiliates                  |                       |  |                          | (28,830 | )                       |  
|Impairment of investments in affiliates           |                       |  |                          | (1,777  | )                       |  
|In-process research and development of            |                       | 
|affiliates                                        |                       |  |                          |        |                         |  
|Consulting income                                 |                       |  |                          | 3,750   |                         |  
|Realized gains on available-for-sale securities   |                       |  |                          | 566     |                         |  
|Other, net                                        |                       |  |                          | 670     |                         |  
|Minority interest in consolidated affiliate       |                       |  |                          | 519     |                         |  
|                                                  |                       |  |                          |         |                         |  
|Total other expense, net                          |                       |  |                          | (24,168 | )                       |  
|                                                  |                       |  |                          |         |                         |  
|Loss from continuing operations before income     |                       | 
|tax benefit                                       |                       |  |                          | (39,246 | )                       |  
|Income tax benefit                                |                       |  |                          | 820     |                         |  
|                                                  |                       |  |                          |         |                         |  
|Net loss from continuing operations               |                       |  |                          | (38,426 | )                       |  
|Discontinued operations:                          |                       | 
|Net (loss) income from discontinued operations,   |                       | 
|net of income tax benefit (expense) of $0, $0,    |                       | 
|$229 and ($13,585), respectively                  |                       |  |                          |        |                         |  
|Net income (loss) from disposal of discontinued   |                       | 
|operations, including income tax benefit          |                       | 
|(expense) of $500, $0, ($5,629) and $0,           |                       | 
|respectively                                      |                       |  |                          | 2,385   |                         |  
|                                                  |                       |  |                          |         |                         |  
|Net income (loss) from discontinued operations    |                       |  |                          | 2,385   |                         |  
|                                                  |                       |  |                          |         |                         |  
|Net (loss) income                                 |                       |  | $                        | (36,041 | )                       | $
|                                                  |                       |  |                          |         |                         |  
|Basic and diluted (loss) income per common share: |                       | 
|Net loss from continuing operations               |                       |  | $                        | (1.10   | )                       | $
|Net (loss) income from discontinued               |                       | 
|operations                                        |                       |  |                          |        |                         |  
|Net income (loss) from disposal of                |                       | 
|discontinued operations                           |                       |  |                          | 0.07    |                         |  
|                                                  |                       |  |                          |         |                         |  
|Net loss                                          |                       |  | $                        | (1.03   | )                       | $
|                                                  |                       |  |                          |         |                         |  
|Weighted average common shares outstanding        |                       |  |                          | 34,910  |                         |  
|                                                  |                       |  |                          |         |                         |  

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


35
|--------------------------------------------------------------------------------------------

|NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


For the Year ended December 31, 2001, the Transition Quarter ended
December 31, 2000 and the Years ended September 30, 2000 and 1999
(In thousands)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                          | Common Stock |  | AdditionalPaid-in |        | RetainedEarnings | Deferred | Treasury Stock |   |  
|----------------------------------------- | ------------ |  | ----------------- | ------ | ---------------- | -------- | -------------- | - | -
|
|                                          |              |  |                   |        |                  |          |                |   |  
|Balances at September 30, 1998            |              |  |                   | 36,643 |                  | $        | 366            |   | $
|Issuance of common stock                  |              |  |                   | 268    |                  |          | 3              |   |  
|Issuance of stock options                 |              |  |                   |       |                  |          |               |   |  
|Exercise of stock options and warrants    |              |  |                   | 467    |                  |          | 5              |   |  
|Compensation expense                      |              |  |                   |       |                  |          |               |   |  
|Net income                                |              |  |                   |       |                  |          |               |   |  
|                                          |              |  |                   |        |                  |          |                |   |  
|Balances at September 30, 1999            |              |  |                   | 37,378 |                  |          | 374            |   |  
|Issuance of common stock                  |              |  |                   | 129    |                  |          | 1              |   |  
|Issuance of common stock for acquisitions |              |  |                   | 4,177  |                  |          | 42             |   |  
|Issuance of stock options                 |              |  |                   |       |                  |          |               |   |  
|Exercise of stock options and warrants    |              |  |                   | 49     |                  |          |               |   |  
|Compensation expense                      |              |  |                   |       |                  |          |               |   |  
|Purchase of treasury stock                |              |  |                   |       |                  |          |               |   |  
|Net loss                                  |              |  |                   |       |                  |          |               |   |  
|                                          |              |  |                   |        |                  |          |                |   |  
|Balances at September 30, 2000            |              |  |                   | 41,733 |                  |          | 417            |   |  
|Issuance of common stock                  |              |  |                   | 769    |                  |          | 8              |   |  
|Exercise of stock options                 |              |  |                   | 5      |                  |          |               |   |  
|Compensation expense                      |              |  |                   |       |                  |          |               |   |  
|Purchase of treasury stock                |              |  |                   |       |                  |          |               |   |  
|Net loss                                  |              |  |                   |       |                  |          |               |   |  
|                                          |              |  |                   |        |                  |          |                |   |  
|Balances at December 31, 2000             |              |  |                   | 42,507 |                  |          | 425            |   |  
|Issuance of common stock                  |              |  |                   | 7      |                  |          |               |   |  
|Exercise of stock options                 |              |  |                   | 4      |                  |          |               |   |  
|Forfeiture of restricted common stock     |              |  |                   | (20    | )                |          |               |   |  
|Compensation expense                      |              |  |                   |       |                  |          |               |   |  
|Purchase of treasury stock                |              |  |                   |       |                  |          |               |   |  
|Cancellation of treasury stock            |              |  |                   | (8,292 | )                |          | (83            | ) |  
|Net loss                                  |              |  |                   |       |                  |          |               |   |  
|                                          |              |  |                   |        |                  |          |                |   |  
|Balances at December 31, 2001             |              |  |                   | 34,206 |                  | $        | 342            |   | $
|                                          |              |  |                   |        |                  |          |                |   |  

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


36
|--------------------------------------------------------------------------------------------

|NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|-------------------------------------------------------------------------------------------------------

|                                                     | YearEndedDecember 31, |  | QuarterEndedDecember 31, |         | Year EndedSeptember 30, |  
|---------------------------------------------------- | --------------------- |  | ------------------------ | ------- | ----------------------- | -
|
|                                                     |                       |  |                          |         |                         |  
|Cash flows from operating activities:                |                       |  |                          |         |                         |  
|Net loss from continuing operations                  |                       |  | $                        | (38,426 | )                       | $
|Adjustments to reconcile net loss from continuing    |                       | 
|operations to net cash (used in) provided by         |                       | 
|operating activities:                                |                       | 
|Depreciation and amortization                        |                       |  |                          | 1,700   |                         |  
|Goodwill impairment                                  |                       |  |                          | 4,965   |                         |  
|Equity in net loss and impairment of affiliates      |                       |  |                          | 30,607  |                         |  
|In-process research and development of affiliates    |                       |  |                          |        |                         |  
|Realized gains on available-for-sale securities      |                       |  |                          | (566    | )                       |  
|Amortization of discount on long-term debt           |                       |  |                          | 101     |                         |  
|Non-cash special charges                             |                       |  |                          |        |                         |  
|Changes in operating assets and liabilities:         |                       | 
|Decrease (increase) in accounts receivable           |                       |  |                          | 3,981   |                         |  
|Decrease in inventory                                |                       |  |                          | 209     |                         |  
|Increase in prepaids and other                       |                       |  |                          | (27     | )                       |  
|(Decrease) increase in accounts payable              |                       |  |                          | (354    | )                       |  
|(Decrease) increase in accrued liabilities           |                       |  |                          | (1,642  | )                       |  
|Increase in deferred income taxes                    |                       |  |                          |        |                         |  
|(Decrease) increase in other liabilities and         |                       | 
|other noncash items                                  |                       |  |                          | (206    | )                       |  
|                                                     |                       |  |                          |         |                         |  
|Net cash provided by (used in) continuing            |                       | 
|operating activities                                 |                       |  |                          | 342     |                         |  
|Net cash (used in) provided by discontinued          |                       | 
|operating activities                                 |                       |  |                          | (3,946  | )                       |  
|                                                     |                       |  |                          |         |                         |  
|Net cash (used in) provided by operating             |                       | 
|activities                                           |                       |  |                          | (3,604  | )                       |  
|                                                    
|Cash flows from investing activities:                |                       | 
|Purchases of property and equipment                  |                       |  |                          | (616    | )                       |  
|Investments in available-for-sale securities         |                       |  |                          | (16,500 | )                       |  
|Proceeds from sale of available-for-sale securities  |                       |  |                          | 17,265  |                         |  
|Proceeds from disposal of operating companies        |                       |  |                          |        |                         |  
|Purchase of FIData, Inc., net of cash acquired       |                       |  |                          |        |                         |  
|Investment in consolidated affiliate                 |                       |  |                          | 1,380   |                         |  
|Investments in affiliates                            |                       |  |                          | (23,549 | )                       |  
|Other investing activities                           |                       |  |                          | (21     | )                       |  
|                                                     |                       |  |                          |         |                         |  
|Net cash (used in) provided by investing activities  |                       |  |                          | (22,041 | )                       |  
|                                                    
|Cash flows from financing activities:                |                       | 
|Proceeds from issuance of common stock               |                       |  |                          | 14      |                         |  
|Minority interest in consolidated affiliate          |                       |  |                          | (649    | )                       |  
|Repayments on revolving credit line                  |                       |  |                          | (235    | )                       |  
|Purchases of treasury stock                          |                       |  |                          | (1,314  | )                       |  
|                                                     |                       |  |                          |         |                         |  
|Net cash (used in) provided by financing activities  |                       |  |                          | (2,184  | )                       |  
|                                                     |                       |  |                          |         |                         |  
|Net (decrease) increase in cash and cash equivalents |                       |  |                          | (27,829 | )                       |  
|                                                    
|Cash and cash equivalents, beginning of period       |                       |  |                          | 36,478  |                         |  
|                                                     |                       |  |                          |         |                         |  
|Cash and cash equivalents, end of period             |                       |  | $                        | 8,649   |                         | $
|                                                     |                       |  |                          |         |                         |  

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


37
|--------------------------------------------------------------------------------------------

|NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 2001 and 2000 and September 30, 2000 and 1999


Note 1. Business Activity


New
Century Equity Holdings Corp. (NCEH), formerly known as Billing
Concepts Corp. (BCC), was incorporated in the state of Delaware in
1996. BCC was previously a wholly owned subsidiary of U.S. Long Distance Corp.
(USLD) that, upon its spin-off from USLD, became an independent,
publicly held company. NCEH and its subsidiaries (collectively, the
Company) is a holding company focused on high-growth,
technology-based companies and investments. Through its former wholly owned
subsidiary, FIData, Inc. (FIData), the Company provided
Internet-based automated loan approval products to the financial services
industries. The Companys consolidated affiliate Tanisys Technology, Inc.
(Tanisys), of which the Company owns approximately 35.2%, designs,
manufactures and markets production level automated test equipment for a variety
of semiconductor memory technologies (see Note 3). Through its
telecommunication companies (Transaction Processing), the
Company provided billing clearinghouse and information management services in
the United States to the telecommunications industry. Through its subsidiary
Aptis, Inc. (Software), the Company developed, licensed
and supported convergent billing systems for telecommunications and Internet
service providers and provided direct billing outsourcing services.


In
October 2000, the Company completed the sale of the Transaction Processing and
Software operations to Platinum Equity Holdings (Platinum) of Los
Angeles, California (the Transaction). Total consideration consisted
of $49.7 million in cash and a royalty, assuming achievement of certain revenue
targets associated with the divested divisions, of up to $20.0 million. At this
time, management does not believe it is probable that
the portion of the royalty related to the LEC Billing division of $10.0 million
will be earned. Management cannot assess the probability of the divested
Aptis and OSC divisions achieving the revenue targets necessary to generate the remaining
$10.0 million in royalty payments to the Company. In addition, the Company will
receive payments totaling $7.5 million for consulting services provided to
Platinum over the twenty-four month period subsequent to the Transaction. The Company has
received payments of $4.4 million for consulting services through December 31,
2001, which are included in other income (expense) as consulting income. All
financial information presented has been restated to reflect the
Transaction Processing and Software divisions as discontinued operations in
accordance with Accounting Principles Board No. 30.


In
December 2000, the Board of Directors approved a change in the fiscal year end
of the Company from September 30 to December 31, effective with the calendar
year beginning January 1, 2001. The quarter ended December 31, 2000, represents
the three-month transition period between fiscal years 2001 and 2000.


In
October 2001, the Company announced the merger of FIData into Microbilt
Corporation (Microbilt), of Kennesaw, Georgia. In exchange for 100%
of the stock of FIData, the Company received a 9% equity interest in Microbilt
(see Note 3).


Note 2. Summary of Significant Accounting Policies


Principles of Consolidation and
Basis of Presentation


The
accompanying consolidated financial statements include the accounts of the
Company, its wholly owned subsidiaries and subsidiaries in which the Company is
deemed to have control for accounting purposes. The Companys investments
in the capital stock of Princeton eCom Corporation (Princeton) and
Coreintellect, Inc. (Coreintellect) are accounted for
using the equity method of accounting. The Companys investments in the
capital stock of Microbilt and Sharps Compliance Corp. (Sharps) are
accounted for under the cost method of accounting. All significant intercompany
accounts and transactions have been eliminated in consolidation.


38
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|NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Estimates in the Financial
Statements


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


Cash and Cash Equivalents


The
Company considers all highly liquid investments with original maturities of
three months or less to be classified as cash and cash equivalents. The
estimated fair values of the Companys cash and cash equivalents and all
other financial instruments have been determined using appropriate valuation
methodologies and approximate their related carrying values.


Inventory


Tanisys
inventory is valued at standard cost which approximates actual cost
computed on a first-in, first-out basis, not in excess of market value.
Inventory costs include direct materials and certain indirect manufacturing
overhead expenses. Tanisys policy concerning inventory
impairment charges is to establish a new, reduced cost basis for the affected
inventory that remains until the inventory is sold or disposed. Only additional
impairment charges could affect the cost basis. If subsequent to the date of
impairment, it is determined that the impairment charges are
recoverable, Tanisys does not increase the carrying costs of the affected
inventory and corresponding income.


Property and Equipment


Property
and equipment are stated at cost. Depreciation and amortization are computed on
a straight-line basis over the estimated useful lives of the related assets,
which range from three to seven years. Upon disposition, the cost and related
accumulated depreciation or amortization are removed from the
accounts and the resulting gain or loss is reflected in other income (expense)
for that period. Expenditures for maintenance and repairs are charged to expense
as incurred and major improvements are capitalized.


Other Assets


Other
assets primarily include goodwill and other intangibles related to the
acquisition of FIData, which were being amortized over a five-year period (see
Note 5).


Treasury Stock


During
the year ended September 30, 2000, the Companys Board of Directors
approved the adoption of a common stock repurchase program. Under the terms of
the program, the Company may purchase an aggregate $25.0
million of the Companys common stock in the open market or in privately
negotiated transactions. The Company records repurchased common stock at cost
(see Note 11).


Revenue Recognition


The
Company recognized FIDatas transaction processing revenue when loans were
processed. Implementation and customer service revenue was recognized when an
agreement was in place, services had been rendered, the cost of services
performed were determinable and collectibility was reasonably assured.


39
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|NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Tanisys
recognizes revenue when persuasive evidence of an arrangement exists, such as a
purchase order; the related products are shipped to the purchaser, typically
freight on board shipping point or at the time the services are rendered; the
price is fixed or determinable; and collectibility is reasonably assured.
Tanisys warrants products against defects and accrues the cost of warranting
these products as the items are shipped. Tanisys sales to distribution
partners are recognized as revenue upon the shipment of products because the
distribution partners, like Tanisys other customers, have issued purchase
orders with fixed pricing and are obligated to pay the Company.


Income Taxes


Deferred
tax assets and liabilities are recorded based on enacted income tax rates that
are expected to be in effect in the period in which the deferred tax asset or
liability is expected to be settled or realized. A change in the tax laws or
rates results in adjustments to the deferred tax assets and liabilities. The
effects of such adjustments are required to be included in income in the period
in which the tax laws or rates are changed.


Net Loss Applicable to Common
Stockholders


Net
loss applicable to common stockholders was as follows (in thousands):
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | YearEndedDecember 31, |  | QuarterEndedDecember 31,               |  | Year EndedSeptember 30, |  
| | --------------------- |  | -------------------------------------- |  | ----------------------- | -
|
| |                       |  |                                        |  |                         |  
| |                       |  | Net loss from continuing operations    |  |                         | $
| |                       |  | Dividend and amortization of the value |  |                        
| |                       |  | of the beneficial
 on                  |  |                        
| |                       |  | stock issued by consolidated affiliate |  |                         |  
| |                       |  | Minority interest in consolidated      |  |                        
| |                       |  | affiliate                              |  |                         |  
| |                       |  |                                        |  |                         |  
| |                       |  | Net loss applicable to common          |  |                        
| |                       |  | stockholders                           |  |                         | $
| |                       |  |                                        |  |                         |  

|Net Loss per Common Share


Statement
of Financial Accounting Standards (SFAS) No. 128, Earnings Per
Share, established standards for computing and presenting earnings per
share for entities with publicly held common stock or potential common stock. As
the Company had a net loss from continuing operations for the year ended
December 31, 2001, the transition quarter ended December 31, 2000 and the years
ended September 30, 2000 and 1999, diluted EPS equals basic EPS, as potentially
dilutive common stock equivalents are antidilutive in loss periods.


New Accounting Standards


In
June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 141, Business Combinations, which addresses the initial
recognition of goodwill and other intangible assets acquired in a business
combination and requires that all future business combinations 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
recognition and measurement of other intangible assets acquired outside of a
business combination whether acquired individually or with a group of assets. In
accordance with these statements, goodwill and certain intangible assets will no
longer be amortized, but will be subject to at least an annual assessment of
impairment. The Company adopted these statements on a prospective basis on
January 1, 2002, although certain provisions of these statements have been
applied to business combinations completed after June 30, 2001. Management does
not believe the adoption of these statements will have an adverse impact on the
financial statements of the Company in 2002 relative to business combinations
completed before June 30, 2001.


In
August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations, which requires among other items, retirement obligations to
be recognized when they are incurred and displayed as liabilities, with a
corresponding amount capitalized as part of the related long-lived asset. The
capitalized element must be expensed using a systematic and rational method over
its useful life. Management does not believe the adoption of SFAS No. 143 will
have an adverse impact on the financial statements of the Company in 2002.




40
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)


In
October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which requires, among other items, the
application of one accounting model for long-lived assets that are impaired or
to be disposed of by sale. Management does not believe the adoption of SFAS No.
144 will have an adverse impact on the financial statements of the Company in
2002.


Statements of Cash Flow


Cash
payments and non-cash activities during the periods indicated were as follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                             | YearEnded |  | QuarterEnded |      | YearEnded |  
|------------------------------------------------------------ | --------- |  | ------------ | ---- | --------- | -
|
|
|                                                             |           |  |              |      |           |  
|(in thousands)                                               |           |  |              |      |           |  
|Cash payments for income taxes                               |           |  | $            | 500  |           | $
|Noncash investing and financing activities:                  |           | 
|Tax benefit recognized in connection with stock option       |           | 
|exercises                                                    |           |  |              |     |           |  
|Assets (disposed of) acquired in connection with FIData      |           | 
|(disposition) acquisition                                    |           |  |              | (711 | )         |  
|Liabilities disposed of (acquired in) connection with FIData |           | 
|disposition (acquisition)                                    |           |  |              | 355  |           |  
|Common stock issued in connection with FIData acquisition    |           |  |              |     |           |  

|Note 3. Acquisitions and Investments


Princeton


The
Company made its initial investment in Princeton during the year ended September
30, 1998. Princeton is a privately held company located in Princeton, New
Jersey, specializing in electronic bill presentment and payment solutions
utilizing the Internet and telephone. The Company accounts for its investment in
Princeton under the equity method of accounting.


In
September 1998, the Company acquired 22% of the capital stock of Princeton for
$10.0 million. During fiscal year 1999, the Company acquired additional shares
of Princeton stock, increasing the Companys ownership percentage to
approximately 24% at September 30, 1999.


In
March 2000, the Company invested an additional $33.5 million equity investment,
consisting of $27.0 million of convertible preferred stock and $6.5 million of
common stock. In connection with this investment, the Company expensed $2.5
million of in-process research and development costs. In June 2000, under the
terms of a Convertible Promissory Note, the Company advanced $5.0 million to
Princeton. During the quarter ended September 30, 2000, the Convertible
Promissory Note was converted into shares of Princeton preferred stock. The
Companys ownership percentage in Princeton as of September 30, 2000, was
approximately 42.5% (see Note 18). The Companys ownership percentage is
based upon its voting interest in Princeton.


In
connection with the $33.5 million investment in Princeton, the Company acquired
certain intangible assets, including goodwill and in-process research and
development. In connection with the investment, the Company expensed
approximately $2.5 million of its investment in Princeton as in-process research
and development. In performing this allocation, the Company considered
Princetons research and development projects in process at the date of
acquisition, among other factors such as the stage of development of the
technology at the time of investment, the importance of each project to the
overall development plan, alternative future use of the technology and the
projected incremental cash flows from the projects when completed and any
associated risks.


41
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The
in-process research and development purchased from Princeton focused on next
generation Internet-based bill publishing and payment systems and solutions. Due
to their specialized nature, the in-process research and development projects
had no alternative future use, either for re-deployment elsewhere in the
business or in liquidation, in the event the projects failed.


The
Income Approach was the primary technique utilized in valuing the purchased
research and development. The valuation technique employed in the appraisals was
designed to properly reflect all intellectual property rights in the intangible
assets, including core technology. The value of the developed technology was
derived from direct sales of existing products, including their contribution to
in-process research and development. In this way, value was properly attributed
to the engineering know-how embedded in the existing product that will be used
in developmental products. The appraisals also considered the fact that the
existing know-how diminishes in value over time as new technologies are
developed and changes in market conditions render current products and
methodologies obsolete. The assumptions underlying the cash flow projections
used were derived primarily from investment banking reports, historical results,
company records and discussions with management.


Revenue
estimates for each in-process project were developed by management and based on
an assessment of the industry. Cost of goods sold for each project is expected
to be in line with historical industry accepted pricing. Due to the
technological and economic risks associated with the developmental projects, a
discount rate of 25% was used to discount cash flows from the in-process
projects for Princeton. The Company believes that the foregoing assumptions used
in the forecasts were reasonable at the time of the acquisition. No assurance
can be given, however, that the underlying assumptions used to estimate sales,
development costs or profitability, or the events associated with such projects,
will transpire as estimated. For these reasons, actual results may vary from
projected results. The most significant and uncertain assumptions relating to
the in-process projects relate to the timing of completion and revenues
attributable to each project.


In
April 2001, the Company contributed $15.0 million in an aggregate $22.5 million
private convertible debt financing for Princeton. In exchange, the
Company received $15.0 million of convertible promissory notes. In
addition to the convertible debt, the Company also received warrants to purchase
shares of Princetons convertible preferred stock.


In
November 2001, the Company advanced $1.8 million, of an aggregate
$3.1 million, to Princeton under the terms of a secured
debt financing. Under the terms of the debt financing with Princeton, the
Company received a convertible promissory note secured by certain data center
assets of Princeton. The note accrued interest at a rate per annum of
15% and the principal with accrued interest was payable in November 2002.
Notwithstanding the terms set forth above, upon the occurrence of a qualifying
change of control or equity financing of Princeton, the rate of interest under
the note increased to a rate per annum equal to 50%, which shall be prepaid upon
such event. If such payment was made, no additional interest would be payable.


In
December 2001, in conjunction with a recapitalization of the capital
structure of Princeton, the Company invested $6.0 million, of an aggregate
$8.5 million, in the preferred stock of Princeton through a
private equity financing. In addition, the convertible promissory notes
issued in April and November 2001, plus accrued interest, were
converted into equity. The Companys ownership percentage of the
outstanding shares of Princeton as of December 31, 2001, was approximately
57.4%. The Companys ownership percentage is based upon its voting
interest in Princeton. The Companys fully diluted ownership percentage of
Princeton was approximately 49.0%. Although the Companys ownership
percentage is greater than 50%, the Company does not consolidate the financial
statements of Princeton as the Company is not deemed to have control of
Princeton. See Note 22.


42
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|NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)


FIData/Microbilt


In
November 1999, the Company completed the acquisition of FIData, a company
located in Austin, Texas that provided Internet-based automated loan approval
products to the financial services industries. Total consideration for the
acquisition was approximately $4.2 million in cash and debt assumption and 1.1
million shares of the Companys common stock. This acquisition has been
accounted for as a purchase. Accordingly, the results of operations for FIData
have been included in the Companys consolidated financial statements and
the shares related to the acquisition have been included in the weighted average
shares outstanding for purposes of calculating net loss per common share since
the date of acquisition. Approximately $7.4 million was recorded as goodwill and
other intangibles and is included in other assets. During the quarter ended
December 31, 1999, the Company expensed $1.7 million of in-process research and
development acquired in connection with this acquisition.


In
connection with the acquisition of FIData, the Company acquired certain
intangible assets, including goodwill and in-process research and development.
In connection with the purchase, the Company expensed approximately $1.7 million
of the purchase price of FIData as in-process research and development. In
performing this allocation, the Company considered FIDatas research and
development projects in process at the date of acquisition, among other factors
such as the stage of development of the technology at the time of investment,
the importance of each project to the overall development plan, alternative
future use of the technology and the projected incremental cash flows from the
projects when completed and any associated risks.


The
in-process research and development purchased from FIData focused on next
generation Internet-based automated loan approval products and banking systems
and solutions. Due to their specialized nature, the in-process research and
development projects had no alternative future use, either for re-deployment
elsewhere in the business or in liquidation, in the event the projects failed.


The
Income Approach was the primary technique utilized in valuing the purchased
research and development. The valuation technique employed in the appraisals was
designed to properly reflect all intellectual property rights in the intangible
assets, including core technology. The value of the developed technology was
derived from direct sales of existing products, including their contribution to
in-process research and development. In this way, value was properly attributed
to the engineering know-how embedded in the existing product that will be used
in developmental products. The appraisals also considered the fact that the
existing know-how diminishes in value over time as new technologies are
developed and changes in market conditions render current products and
methodologies obsolete. The assumptions underlying the cash flow projections
used were derived primarily from investment banking reports, historical results,
company records and discussions with management.


Revenue
estimates for each in-process project were developed by management and based on
an assessment of the industry. Cost of goods sold for each project is expected
to be in line with historical industry accepted pricing. Due to the
technological and economic risks associated with the developmental projects, a
discount rate of 35% was used to discount cash flows from the in-process
projects for FIData. The Company believes that the foregoing assumptions used in
the forecasts were reasonable at the time of the acquisition. No assurance can
be given, however, that the underlying assumptions used to estimate sales,
development costs or profitability, or the events associated with such projects,
will transpire as estimated. For these reasons, actual results may vary from
projected results. The most significant and uncertain assumptions relating to
the in-process projects relate to the timing of completion and revenues
attributable to each project.


43
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|NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)


In
October 2001, the Company completed the merger of FIData into privately held
Microbilt of Kennesaw, Georgia. Microbilt provides credit bureau data access and
retrieval to the financial, healthcare, leasing, insurance, law enforcement,
educational and utilities industries. In exchange for 100% of the stock of
FIData, the Company received a 9% equity interest in Microbilt. The Company has
valued, for accounting purposes, its investment in Microbilt to be approximately
$0.4 million. In addition, the Company is entitled to appoint one member of
Microbilts Board of Directors. The Company accounts for its investment in
Microbilt under the cost method of accounting.


Tanisys


In
August 2001, the Company entered into a Series A Preferred Stock Purchase
Agreement (Purchase Agreement) with Tanisys to purchase 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 into 33.334 shares of Tanisys common stock. The Companys
ownership percentage of the outstanding shares of Tanisys as of December 31,
2001, was approximately 35.2%. The Companys ownership percentage is
based upon its voting interest in Tanisys.


In
connection with the Purchase Agreement, Tanisys will make payments to the
holders of the Series A Preferred Stock, to the extent its cash flow meets
certain levels, until the holders have received the amount of their investment
in the Series A Preferred Stock. At the sole option of the Company, these
payments may be converted into additional shares of Series A Preferred Stock, in
lieu of cash, to be delivered to the holders of the Series A Preferred Stock.
Tanisys has agreed to issue additional shares of Series A Preferred Stock, equal
to 50% of the then fully diluted common stock, to the holders of the Series A
Preferred Stock if Tanisys fails to return the amount of their investment, plus
cumulative dividends at the rate of 15% annually, by July 15, 2003. At the sole
option of the Company, dividend payments may be converted into additional shares
of Series A Preferred Stock, in lieu of cash, to be delivered to the holders of
Series A Preferred Stock. Tanisys also agreed to issue, at up to six different
times, additional shares of Series A Preferred Stock to the holders of the
Series A Preferred Stock equal to 25% of the then fully diluted common stock, if
Tanisys fails to meet any of certain financial requirements for six periods of
time, beginning with the quarters ended September 30, 2001 and December 31,
2001, and then for the four six-month periods ending June 30, 2002, December 31,
2002, June 30, 2003 and December 31, 2003. Each failure to meet any one of the
several financial requirements in any of the six periods will result in Tanisys
being required to issue additional shares of Series A Preferred Stock, for no
additional consideration, to the holders of the Series A Preferred Stock.
Tanisys failed to meet the financial requirements for the quarters
ended September 30, 2001 and December 31, 2001, resulting in the
issuance of 999,051 and 1,340,510 additional shares,
respectively, of Series A Preferred Stock to the holders of the Series A
Preferred Stock.


For
accounting purposes, the Company is deemed to have control of Tanisys and
therefore, must consolidate the financial statements of Tanisys. The Company
consolidates the financial statements of Tanisys on a
three-month lag, as the Company has a different year-end than
Tanisys. Tanisys balance sheet as of September 30, 2001, has been
consolidated with the Companys balance sheet as of December 31, 2001.
The statement of operations of Tanisys from the purchase
date to September 30, 2001, has been consolidated with the Companys
statement of operations for the year ended December 31, 2001.


Sharps


In
October 2001, the Company participated in a private placement financing with
publicly traded Sharps. Sharps, a Houston, Texas-based company,
provides cost-effective logistical and training solutions for the hospitality
and healthcare industries. The Company purchased 700,000 shares of Sharps
common stock for $770,000, of an aggregate $1.2 million financing.
Through the 700,000 shares of common stock, the Company owns approximately 7.1%
of the voting securities of Sharps. The Company accounts for its ownership
interest in Sharps under the cost method of accounting.


44
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|NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Coreintellect


In
March 2000, the Company completed the purchase of a voting preferred stock
investment of $6.0 million in Coreintellect, a Dallas, Texas-based company that
develops and markets Internet-based business-to-business products for the
acquisition, classification, retention and dissemination of business-critical
knowledge and information. In connection with this investment, the Company
expensed $2.5 million of in-process research and development costs acquired.


As
of December 31, 2001, the Companys investment in Coreintellect was
$0, having been reduced by the Companys portion of
Coreintellects net losses. Coreintellect is currently
negotiating the sale of its technology assets in a private transaction.
Management does not anticipate its portion of the proceeds to be material.


In
connection with the investment in Coreintellect, the Company acquired
certain intangible assets, including goodwill and in-process research and
development. In connection with this allocation, the Company expensed
approximately $2.5 million of its equity investment in Coreintellect as
in-process research and development. In performing these allocations, the
Company considered Coreintellects research and development projects
in process at the date of acquisition, among other factors such as the stage of
development of the technology at the time of investment, the importance of each
project to the overall development plan, alternative future use of the
technology and the projected incremental cash flows from the projects when
completed and any associated risks.


The
in-process research and development purchase from Coreintellect focused
on next generation Internet-based acquisition, classification, retention and
dissemination of business-critical knowledge and information. Due to their
specialized nature, the in-process research and development projects had no
alternative future use, either for re-deployment elsewhere in the business or in
liquidation, in the event the projects failed.


The
Income Approach was the primary technique utilized in valuing the purchased
research and development. The valuation technique employed in the appraisals was
designed to properly reflect all intellectual property rights in the intangible
assets, including core technology. The value of the developed technology was
derived from direct sales of existing products, including their contribution to
in-process research and development. In this way, value was properly attributed
to the engineering know-how embedded in the existing product that will be used
in developmental products. The appraisals also considered the fact that the
existing know-how diminishes in value over time as new technologies are
developed and changes in market conditions render current products and
methodologies obsolete. The assumptions underlying the cash flow projections
used were derived primarily from investment banking reports, historical results,
company records and discussions with management.


Revenue
estimates for each in-process project were developed by management and based on
an assessment of the industry. Cost of goods sold for each project is expected
to be in line with historical industry accepted pricing. Due to the
technological and economic risks associated with the developmental projects, a
discount rate of 40% was used to discount cash flows from the in-process
projects for Coreintellect. The Company believes that the foregoing
assumptions used in the forecasts were reasonable at the time of the
acquisition. No assurance can be given, however, that the underlying assumptions
used to estimate sales, development costs or profitability, or the events
associated with such projects, will transpire as estimated. For these reasons,
actual results may vary from projected results. The most significant and
uncertain assumptions relating to the in-process projects relate to the timing
of completion and revenues attributable to each project.


45
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 4. Tanisys Financial Statements


In
August 2001, the Company invested $1,060,000 in Tanisys (see Note 3). For
accounting purposes, the Company consolidates Tanisys into the
financial statements of the Company under the purchase method of
accounting. As the Company consolidates Tanisys on a three-month lag,
Tanisys balance sheet as of September 30, 2001, including adjustments
made under the purchase method of accounting, has been consolidated in
the Companys balance sheet as of December 31, 2001. Tanisys balance
sheet consolidated herein is as follows (in thousands):
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Cash and cash equivalents                                                                                  |  |  | $ | 1,370    |   |  |  | 
| |  |  | ---------------------------------------------------------------------------------------------------------- |  |  | - | -------- | - |  |  | 
| |  |  | Accounts receivable, net of accumulated                                                                    |  |  |   |          |  
| |  |  | depreciation of $119                                                                                       |  |  |   | 601      |   |  |  | 
| |  |  | Inventory:
                 Raw materials
                 Work in process
                 Finished goods |  |  |   | 72136285 |   |  |  | 
| |  |  |                                                                                                           
| |  |  | Total inventory                                                                                            |  |  |   | 1,042    |   |  |  | 
| |  |  | Prepaids and other                                                                                         |  |  |   | 140      |   |  |  | 
| |  |  |                                                                                                           
| |  |  | Total current assets                                                                                       |  |  |   | 3,153    |   |  |  | 
| |  |  | Property and equipment                                                                                     |  |  |   | 379      |   |  |  | 
| |  |  | Accumulated depreciation                                                                                   |  |  |   | (15      | ) |  |  | 
| |  |  |                                                                                                           
| |  |  | Net property and equipment                                                                                 |  |  |   | 364      |   |  |  | 
| |  |  | Other assets, net of accumulated amortization                                                              |  |  |   |          |  
| |  |  | of $2                                                                                                      |  |  |   | 148      |   |  |  | 
| |  |  |                                                                                                           
| |  |  | Total assets                                                                                               |  |  | $ | 3,665    |   |  |  | 
| |  |  |                                                                                                           
|
| |  |  | Accounts payable                                                                                           |  |  | $ | 502      |   |  |  | 
| |  |  | Accrued liabilities                                                                                        |  |  |   | 601      |   |  |  | 
| |  |  | Revolving credit note                                                                                      |  |  |   | 88       |   |  |  | 
| |  |  |                                                                                                           
| |  |  | Total current liabilities                                                                                  |  |  |   | 1,191    |   |  |  | 
| |  |  | Other liabilities                                                                                          |  |  |   | 77       |   |  |  | 
| |  |  | Long-term debt to minority stockholders, net of                                                            |  |  |   |          |  
| |  |  | discount                                                                                                   |  |  |   | 207      |   |  |  | 
| |  |  |                                                                                                           
| |  |  | Total liabilities                                                                                          |  |  | $ | 1,475    |   |  |  | 
| |  |  |                                                                                                           
|
| |  |  | Minority interest in consolidated affiliate                                                                |  |  | $ | 1,228    |   |  |  | 
| |  |  | Retained deficit                                                                                           |  |  | $ | (98      | ) |  |  | 

|Tanisys
statement of operations from the purchase date through September 30, 2001, has
been consolidated in the Companys statement of operations for the year
ended December 31, 2001. Tanisys statement of operations consolidated
herein is as follows (in thousands):


46
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|--------------------------------------------------------------------------------------------------------

| |  |  | Operating revenues                               |  |  | $ | 686    |   |  |  | 
| |  |  | ------------------------------------------------ |  |  | - | ------ | - |  |  | 
| |  |  | Cost of revenues                                 |  |  |   | 367    |   |  |  | 
| |  |  |                                                 
| |  |  | Gross profit                                     |  |  |   | 319    |   |  |  | 
| |  |  | Selling, general and administrative expenses     |  |  |   | 378    |   |  |  | 
| |  |  | Research and development expenses                |  |  |   | 411    |   |  |  | 
| |  |  | Depreciation and amortization expenses           |  |  |   | 16     |   |  |  | 
| |  |  |                                                 
| |  |  | Loss from continuing operations                  |  |  |   | (486   | ) |  |  | 
| |  |  | Other income (expense):                          |  | 
| |  |  | Interest income                                  |  |  |   | 2      |   |  |  | 
| |  |  | Interest expense                                 |  |  |   | (110   | ) |  |  | 
| |  |  | Other, net                                       |  |  |   | (23    | ) |  |  | 
| |  |  | Minority interest in consolidated affiliate      |  |  |   | 519    |   |  |  | 
| |  |  |                                                 
| |  |  | Total other income, net                          |  |  |   | 388    |   |  |  | 
| |  |  |                                                 
| |  |  | Loss from continuing operations before income    |  | 
| |  |  | tax benefit                                      |  |  | $ | (98    | ) |  |  | 
| |  |  |                                                 
| |  |  | Net loss from continuing operations              |  |  | $ | (98    | ) |  |  | 
| |  |  | Dividend and amortization of the value of the    |  | 
| |  |  | beneficial conversion feature on stock issued by |  | 
| |  |  | consolidated affiliate                           |  |  |   | (1,508 | ) |  |  | 
| |  |  | Minority interest in consolidated affiliate      |  |  |   | 1,508  |   |  |  | 
| |  |  |                                                 
| |  |  | Net loss applicable to common stockholders       |  |  | $ | (98    | ) |  |  | 
| |  |  |                                                 

|Revolving credit note


Tanisys
entered into an Accounts Receivable Financing Agreement (Debt
Agreement) with Silicon Valley Bank (Silicon) on May 30, 2001,
to fund accounts receivable and provide working capital up to a maximum of $2.5
million. As of September 30, 2001, Tanisys owed $88,000 under the Debt
Agreement. The applicable interest rate is prime plus 1.5%, decreasing to 1.0%
if Tanisys meets 90% of its planned revenue. Tanisys failed to meet the
financial covenants under the Debt Agreement as of September 30 and December 31,
2001, but received a waiver of the covenants from Silicon. In addition, Tanisys
does not believe it will be able to meet the financial covenants for the quarter
ended March 31, 2002 due to current economic conditions. However,
Tanisys believes that Silicon will continue to provide financing of
Tanisys accounts receivable, although the terms of the
financing may be less favorable.




Long-term debt to minority
stockholders, net of discount


In
connection with the Purchase Agreement, Tanisys will make payments to the
holders of the Series A Preferred Stock, to the extent its cash flow meets
certain levels, until the holders have received the amount of their investment
in the Series A Preferred Stock. The liability was recorded at a fair market
value of $0.2 million in the consolidated financial statements and will be
accreted up to $1.6 million through July 2003 using the effective interest
method. The accretion of the discount will be recorded as interest expense and
allocated to the minority interest in consolidated affiliate.


Beneficial conversion feature


The
beneficial conversion feature for the convertible Series A Preferred Stock, in
the amount of $4.5 million is limited to the proceeds allocated to the Series A
Preferred Stock of $1.5 million. Due to the Series A Preferred Stock being
immediately convertible, the $1.5 million has been recorded as a dividend and
allocated to the minority interest in consolidated affiliate.



No Assurance of Operating Results


In
general, Tanisys has no firm long-term volume commitments from its customers and
typically enters into individual purchase orders. Customer purchase orders are
subject to change, cancellation or delay with little or no consequence to the
customer. The replacement of canceled, delayed or reduced purchase orders with
new business cannot be assured. Tanisys business, financial condition and
results of operations will depend significantly on its ability to obtain
purchase orders from existing and new customers, upon the financial condition
and success of its customers, the success of customers products, the
semiconductor market and the overall economy. Factors affecting the industries
of Tanisys major customers could have a material adverse effect on the
business, financial condition and results of operations of Tanisys.


47
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 5. Other Assets


Other
assets is comprised of the following (in thousands):
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | December 31, | September 30, |                                                 
| | ------------ | ------------- | ------------------------------------------------
|
| |              |               |                                                 
| |              |               | Goodwill-FIData, net of accumulated amortization
| |              |               | of $0, $1,717 and $1,348, respectively          
| |              |               | Executive deferred compensation assets          
| |              |               | Other non-current assets, net of accumulated    
| |              |               | amortization of $2, $0 and $0, respectively     
| |              |               |                                                 
|
| |              |               | Total other assets                              
| |              |               |                                                 

|Note 6. Investments in Affiliates


Investments
in affiliates is comprised of the following (in thousands):
|-----------------------------------------------------------------------------------------------------------

| | December 31, | September 30, |                                          
| | ------------ | ------------- | -----------------------------------------
|
| |              |               |                                          
| |              |               | Investment in Princeton:                 
| |              |               | Cash investments                         
| |              |               | In-process research and development costs
| |              |               | Amortization and equity loss pick-up     
| |              |               | Impairment of investment in Princeton    
| |              |               | Other                                    
| |              |               |                                          
| |              |               | Net investment in Princeton              
|
| |              |               | Investment in Coreintellect:             
| |              |               | Cash investment                          
| |              |               | In-process research and development costs
| |              |               | Amortization and equity loss pick-up     
| |              |               | Other                                    
| |              |               |                                          
| |              |               | Net investment in Coreintellect          
|
| |              |               | Investment in Sharps:                    
| |              |               | Cash investment                          
| |              |               | Other                                    
| |              |               |                                          
| |              |               | Net investment in Sharps                 
|
| |              |               | Investment in Microbilt:                 
| |              |               | Equity investments                       
| |              |               | Other                                    
| |              |               |                                          
| |              |               | Net investment in Microbilt              
| |              |               |                                          
|
| |              |               | Total investments in affiliates          
| |              |               |                                          

|48
|--

|NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 7. Income Taxes


The
income tax benefit is comprised of the following (in thousands):
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | YearEndedDecember 31, |          | QuarterEndedDecember 31, |  | Year EndedSeptember 30, |  
| | --------------------- | -------- | ------------------------ |  | ----------------------- | -
|
| |                       |          |                          |  |                         |  
| |                       | Current: |                         
| |                       |          | Federal                  |  |                         | $
| |                       |          | State                    |  |                         |  
| |                       |          |                          |  |                         |  
| |                       |          | Total                    |  |                         | $
| |                       |          |                          |  |                         |  

|The income
tax benefit differs from the amount computed by applying the statutory federal
income tax rate of 35% to loss from continuing operations before income tax
benefit. The reasons for these differences were as follows (in thousands):
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | YearEndedDecember 31, |  | QuarterEndedDecember 31,                     |  | Year EndedSeptember 30, |  
| | --------------------- |  | -------------------------------------------- |  | ----------------------- | -
|
| |                       |  |                                              |  |                         |  
| |                       |  | Computed income tax benefit at               |  |                         |  
| |                       |  | statutory rate                               |  |                         | $
| |                       |  | (Decrease) increase in taxes resulting from: |  |                         |  
| |                       |  | Nondeductible in-process research            |  |                         |  
| |                       |  | and development expenses                     |  |                         |  
| |                       |  | Nondeductible losses in affiliates           |  |                         |  
| |                       |  | Nondeductible goodwill amortization          |  |                         |  
| |                       |  | and impairment                               |  |                         |  
| |                       |  | State income taxes, net of federal           |  |                         |  
| |                       |  | benefit                                      |  |                         |  
| |                       |  | Other, net                                   |  |                         |  
| |                       |  |                                              |  |                         |  
| |                       |  | Income tax benefit                           |  |                         | $
| |                       |  |                                              |  |                         |  

|The
tax effect of significant temporary differences, which comprise the deferred tax
liability, is as follows:
|--------------------------------------------------------------------------------------------------------------

| | December 31, | September 30, |                           
| | ------------ | ------------- | --------------------------
|
| |              |               |                           
| |              |               | Deferred tax asset:       
| |              |               | Net loss carryforward     
| |              |               | Valuation allowance       
| |              |               | Deferred tax liability:   
| |              |               | Estimated tax liability   
| |              |               |                           
| |              |               | Net deferred tax liability
| |              |               |                           

|As
of December 31, 2001, the Company has a federal tax loss carryforward
of $3.7 million, which expires in 2019.
Realization of the Companys carryforward is dependent on future taxable
income. The Company cannot assess at this time whether or not
the carryforward will be realized, therefore a valuation allowance has
been recorded as shown above.


Note 8. Debt


In
December 1996, the Company secured a $50.0 million revolving line of credit
facility with certain lenders primarily for use of its LEC Billing division to
draw upon to advance funds to its billing customers prior to the collection of
the funds from the local exchange carriers. This credit facility terminated on
March 20, 2000. The Company currently does not have a need for a line of credit
due to its cash resources on hand.


49
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 9. Leases


The
Company leases certain equipment and office space under operating leases. Rental
expense was $311,000 for the year ended December 31, 2001, $159,000 for the
transition quarter ended December 31, 2000, $3,000 for the year ended September
30, 2000 and $0 for the year ended September 30, 1999. Future minimum lease
payments under non-cancelable operating leases as of December 31, 2001 are
$210,000 for the year ended December 31, 2002, $164,000 for the year ended
December 31, 2003, $13,000 for the year ended December 31, 2004 and $0 for all
years thereafter. Subsequent to December 31, 2001, the Company entered into a
sublease agreement for approximately 3,000 square feet of its office space.
Under this sublease agreement, the Companys future minimum lease payments
will be reduced by approximately $40,000 for the year ended December 31, 2002,
$44,000 for the year ended December 31, 2003 and $4,000 for the year ended
December 31, 2004.


Note 10. Share Capital


On
July 10, 1996, the Company, upon authorization of the Board of Directors,
adopted a Shareholder Rights Plan (Rights Plan) and declared a
dividend of one preferred share purchase right on each share of its outstanding
common stock. The rights will become exercisable if a person or group acquires
15% or more of the Companys common stock or announces a tender offer, the
consummation of which would result in ownership by a person or group of 15% or
more of the Companys common stock. These rights, which expire on July 10,
2006, entitle stockholders to buy one ten-thousandth of a share of a new series
of participating preferred shares at a purchase price of $130 per one
ten-thousandth of a preferred share. The Rights Plan was designed to ensure that
stockholders receive fair and equal treatment in the event of any proposed
takeover of the Company.


No
cash dividends were paid on the Companys common stock during the year
ended December 31, 2001, the transition quarter ended December 31, 2000 or the
years ended September 30, 2000 and 1999.


Note 11. Treasury Stock


During
the year ended September 30, 2000, the Companys Board of Directors
approved the adoption of a common stock repurchase program. Under the terms of
the program, the Company can purchase an aggregate $25.0 million of the
Companys common stock in the open market or in privately negotiated
transactions. During the year ended December 31, 2001, the Company purchased
$1.3 million, or 1,437,700 shares, of treasury stock. During the transition
quarter ended December 31, 2000, the Company purchased $16.9 million, or
6,349,600 shares, of treasury stock. During the year ended September 30, 2000,
the Company purchased $1.9 million, or 504,800 shares, of treasury stock. As of
December 31, 2001, the Company had purchased an aggregate $20.1 million, or 8.3
million shares, of treasury stock under this program. The Company cancelled
all treasury stock outstanding under this program during the year ended December 31, 2001.


Note 12. Stock Options and Stock Purchase Warrants


The
Company has adopted the NCEH 1996 Employee Comprehensive Stock Plan
(Comprehensive Plan) and the NCEH 1996 Non-Employee Director Plan
(Director Plan) under which officers and employees, and non-employee
directors, respectively, of the Company and its affiliates are eligible to
receive stock option grants. Employees of the Company are also eligible to
receive restricted stock grants under the Comprehensive Plan. The Company has
reserved 14.5 million and 1.3 million shares of its common stock for issuance
pursuant to the Comprehensive Plan and the Director Plan, respectively. Under
each plan, options vest and expire pursuant to individual award agreements;
however, the expiration date of unexercised options may not exceed ten years
from the date of grant under the Comprehensive Plan and five and seven years for
automatic and discretionary grants, respectively, under the Director Plan.


50
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)


For
those employees who became Platinum employees in connection with the
Transaction, the Company offered two elections to amend their options. Under the
first election, as long as the employee did not voluntarily terminate employment
with Platinum within six months of the date of the Transaction, all vested
options at the time of the Transaction remain exercisable for eighteen months
subsequent to the Transaction. All unvested options at the time of the
Transaction vested six months subsequent to the Transaction and shall remain
exercisable for twelve months from such vesting date. In April 2002, 2,143,091
options will expire for those Platinum employees who selected the first
election. Under the second election, as long as the employee remains a Platinum
employee, their options continue to vest according to their vesting schedule and
remain exercisable through the expiration date as defined in the respective
agreement. The compensation expense related to the amendment of the vesting
periods was minimal.


Option
activity for the year ended December 31, 2001, the transition quarter ended
December 31, 2000 and the years ended September 30, 2000 and 1999 is summarized
as follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Numberof Shares | Weighted AverageExercise Price  | 
| |  | --------------- | ------------------------------- | 
| |  |                 |                                 | 
| |  |                 | Outstanding, September 30, 1998 | 
| |  |                 | Granted                         | 
| |  |                 | Canceled                        | 
| |  |                 | Exercised                       | 
| |  |                 |                                
| |  |                 | Outstanding, September 30, 1999 | 
| |  |                 | Granted                         | 
| |  |                 | Canceled                        | 
| |  |                 | Exercised                       | 
| |  |                 |                                
| |  |                 | Outstanding, September 30, 2000 | 
| |  |                 | Granted                         | 
| |  |                 | Canceled                        | 
| |  |                 |                                
| |  |                 | Outstanding, December 31, 2000  | 
| |  |                 | Granted                         | 
| |  |                 | Canceled                        | 
| |  |                 | Exercised                       | 
| |  |                 |                                
| |  |                 | Outstanding, December 31, 2001  | 
| |  |                 |                                

|At
December 31, 2001 and 2000 and September 30, 2000 and 1999, stock options to
purchase an aggregate of 6,820,182, 5,664,479, 5,456,155 and
3,273,766 shares were exercisable and had weighted average exercise prices of
$7.78, $9.79, $10.15 and $10.89 per share, respectively.


51
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Stock
options outstanding and exercisable at December 31, 2001, were as follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Options Outstanding |  | Options Exercisable | 
| | ------------------- |  | ------------------- | 

| | Range ofExercisePrices |                   | NumberOutstanding |           | WeightedAverageRemainingLife(years) |     | RemainingAverageExercise Price |         | WeightedNumberExercisable |           | WeightedAverageExercise Price |         | 
| | ---------------------- | ----------------- | ----------------- | --------- | ----------------------------------- | --- | ------------------------------ | ------- | ------------------------- | --------- | ----------------------------- | ------- | 
| |                        |                   |                   |           |                                     |     |                                |         |                           |           |                               |         | 
| |                        | $  0.42 - $  1.98 |                   | 1,785,002 |                                     | 6.8 |                                | $  0.52 |                           | 497,755   |                               | $  0.53 | 
| |                        | $  2.00 - $  3.31 |                   | 1,245,442 |                                     | 4.6 |                                | $  2.53 |                           | 936,443   |                               | $  2.67 | 
| |                        | $  4.25 - $  6.88 |                   | 2,231,511 |                                     | 2.8 |                                | $  4.61 |                           | 2,007,761 |                               | $  4.62 | 
| |                        | $  8.06 - $  9.97 |                   | 1,660,181 |                                     | 1.5 |                                | $  8.43 |                           | 1,638,223 |                               | $  8.43 | 
| |                        | $10.19 - $29.00   |                   | 1,740,000 |                                     | 1.8 |                                | $15.65  |                           | 1,740,000 |                               | $15.65  | 
| |                        |                   |                   |          
|
| |                        |                   |                   | 8,662,136 |                                     | 3.4 |                                | $  6.42 |                           | 6,820,182 |                               | $  7.78 | 
| |                        |                   |                   |          

|The
Company has adopted SFAS No. 123, Accounting for Stock-Based
Compensation, but has elected to apply APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related
interpretations in accounting for its stock option plans as allowed under SFAS
No. 123. Accordingly, the Company has not recognized compensation expense for
stock options granted where the exercise price is equal to the market price of
the underlying stock at the date of grant. During the year ended December 31,
2001, the transition quarter ended December 31, 2000 and the years ended
September 30, 2000 and 1999, the Company recognized $0, $0, $240,000 and
$255,000, respectively, of compensation expense for options granted below the
market price of the underlying stock on such measurement date. In addition, in
accordance with the provisions of APB Opinion No. 25, the Company has not
recognized compensation expense for employee stock purchased under the NCEH
Employee Stock Purchase Plan (ESPP).


Had
compensation expense for the Companys stock options granted and ESPP
purchases during the year ended December 31, 2001, the transition quarter ended
December 31, 2000 and the years ended September 30, 2000 and 1999 been
determined based on the fair value at the grant dates consistent with the
methodology of SFAS No. 123, pro forma net (loss) income and net (loss) income
per common share would have been as follows (in thousands, except per share
data):
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | YearEndedDecember 31, |  | QuarterEndedDecember 31,         |  | Year EndedSeptember 30, |  
| | --------------------- |  | -------------------------------- |  | ----------------------- | -
|
| |                       |  |                                  |  |                         |  
| |                       |  | Pro forma net (loss) income      |  |                         | $
| |                       |  | Pro forma net (loss) income per  |  |                        
| |                       |  | common share - basic and diluted |  |                         | $

|The
fair value for these options was estimated at the respective grant dates using
the Black-Scholes option-pricing model with the following weighted average
assumptions:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | YearEndedDecember 31, | QuarterEndedDecember 31, | Year EndedSeptember 30,
| | --------------------- | ------------------------ | -----------------------
|
| |                       |                          | Expected volatility    
| |                       |                          | Expected dividend yield
| |                       |                          | Expected life (years)  
| |                       |                          | Risk-free interest rate

|52
|--

|NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The
weighted average fair value and weighted average exercise price of options granted where
the exercise price was equal to the market price of the underlying stock at the grant
date were $0.30 and $0.57 for the year ended December 31, 2001, $1.26 and $2.06 for the
transition quarter ended December 31, 2000, $2.58 and $4.09 for the year ended September
30, 2000 and $3.56 and $6.18 for the year ended September 30, 1999, respectively. For
purposes of the pro forma disclosures, the estimated fair value of options is amortized
to pro forma compensation expense over the options vesting periods.


Note 13. Benefit Plans


In
November 2000, the Company established the NCEH 401(k) Plan (the
Plan) for eligible employees of the Company. Generally, all
employees of the Company who are at least 21 years of age and who have completed
one-half year of service are eligible to participate in the Plan. The Plan is a
defined contribution plan which provides that participants may make voluntary
salary deferral contributions, on a pretax basis, between 1% and 15% of their
compensation in the form of voluntary payroll deductions, up to a maximum amount
as indexed for cost-of-living adjustments. The Company will match a
participants salary deferral, up to 5% of a participants
compensation. The Company may make additional discretionary contributions. No
discretionary contributions were made during the year ended December 31, 2001 or
the transition quarter ended December 31, 2000. The Companys matching
contributions to this plan totaled approximately $66,000 and
$17,000 for the year ended December 31, 2001 and the transition
quarter ended December 31, 2000, respectively.


Prior
to November 2000, the Company had established the BCC 401(k) Retirement Plan
(the Retirement Plan). The Retirement Plan was assumed by Platinum
in connection with the Transaction (see Note 21).


Note 14. Impairment


During
the year ended December 31, 2001, the Company evaluated the long-lived assets of
FIData for impairment in accordance with SFAS No. 121. The Company compared the
net realizable value of the long-lived assets of FIData against the carrying
value of those assets to determine the impairment write-down. The Company
recorded a $5.0 million impairment, which consisted of $4.5 million related to
goodwill (carrying value prior to write-down was $4.5 million) and $0.5 million
related to capitalized software (carrying value prior to write-down was $0.8
million). This impairment is included in loss from continuing
operations as goodwill impairment.


During
the year ended December 31, 2001, the Company evaluated its investment in
Princeton for impairment in accordance with SFAS No. 121. The Company compared
the net realizable value of its investment in Princeton against the carrying
value of the investment to determine the impairment write-down. The Company
recorded a $1.8 million impairment write-down, which is included in other income
(expense) as impairment of investments in affiliates.


Note 15. Special Charges


During
the year ended September 30, 2000, the Company recognized special charges in the
amount of $2.2 million. The special charges related primarily to the $1.7
million of in-process research and development expenses acquired in connection
with the acquisition of FIData (see Note 3).


Note 16. Realized Gains on Available-for-Sale Securities


In
January 2001, the Company invested $15.0 million in a portfolio of fixed income
securities. The Company classified these investments as available-for-sale
securities in accordance with SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The maturities of these
investments ranged from two to five years. The Company sold $1.0 million and
$0.5 million of the investments in April and May 2001, respectively. In June
2001, the Company re-invested the $1.5 million in the investments, for a net
investment of $15.0 million. In September 2001, the Company sold the $15.0
million investment due to changes in the market conditions of fixed income
securities. The Company realized a $0.6 million gain on the sale of these
securities. The Company invested the proceeds from the sale into short-term
securities.


53
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 17. Commitments and Contingencies


A
lawsuit was filed on December 31, 1998, in the United States District Court in
San Antonio, Texas by an alleged stockholder of the Company against the Company
and various of its officers and directors, alleging unspecified damages as a
result of alleged false statements in various press releases prior to November
19, 1998. In September 1999, the United States District Court for the Western
District of Texas entered an order and judgment dismissing the plaintiffs
lawsuit. The plaintiff noticed an appeal of that decision on September 29, 1999.
In November 2000, the United States Court of Appeals for the Fifth Circuit
dismissed the appeal pursuant to a stipulation of the parties and settlement.


As
previously disclosed, the Company has been engaged in discussion with the staff
of the Federal Trade Commissions (FTC) Bureau of Consumer
Protection regarding a proposed complaint by the FTC alleging potential
liability arising primarily from the alleged cramming of charges for
non-regulated telecommunication services by certain of the
Companys customers. Cramming is the addition of charges to a
telephone bill for programs, products or services the consumer did not knowingly
authorize. These allegations related to business conducted by the subsidiaries
sold by the Company on October 23, 2000. In August 2001, the Company reached a
settlement with the FTC, which included a payment to the FTC of $350,000. This
settlement fully resolves all issues related to the FTCs inquiry.


The
Company is involved in various other claims, legal actions and regulatory
proceedings arising in the ordinary course of business. The Company believes it
is unlikely that the final outcome of any of the claims, litigation or
proceedings to which the Company is a party will have a material adverse effect
on the Companys financial position or results of operations; however, due
to the inherent uncertainty of litigation, there can be no assurance that the
resolution of any particular claim or proceeding would not have a material
adverse effect on the Companys results of operations for the fiscal period
in which such resolution occurs.


Note 18. Summarized Financial Information for Unconsolidated Subsidiary


The
Company accounts for its investment in Princeton under the equity method. The
Companys ownership percentage in Princeton was 57.4%, 42.4% and 42.5% as
of December 31, 2001, December 31, 2000 and September 30, 2000, respectively. As
the Company records the equity in net loss of Princeton on a three-month lag,
the unaudited summarized financial information for Princeton as of September 30,
2001 is presented in the table below (in thousands).
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | September 30, |  | June 30,                           | 
| | ------------- |  | ---------------------------------- | 
|
| |               |  | Current assets                     | 
| |               |  | Non-current assets                 | 
| |               |  | Current liabilities                | 
| |               |  | Non-current liabilities            | 
| |               |  | Manditorily redeemable convertible | 
| |               |  | preferred stock                    | 

|54
|--

|NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|--------------------------------------------------------------------------------------------------------

| |  | YearEnded |                      | QuarterEnded |  | YearEnded |        
| |  | --------- | -------------------- | ------------ |  | --------- | -------
|
|
| |  |           | Total revenues       |              |  | $         | 19,920 
| |  |           | Gross profit         |              |  |           | 3,442  
| |  |           | Loss from operations |              |  |           | (42,501
| |  |           | Net loss             |              |  |           | (59,435

|The
loss from operations of $42.5 million for the year ended September 30, 2001,
includes impairment charges totaling $13.3 million. Approximately $10.7 million
of the impairment charges relate to the impairment of the long-lived assets
acquired through the Quicken Bill Manager acquisition (see further discussion
below). The impairment of the long-lived assets was measured by Princeton due to
factors including accumulated costs significantly in excess of the amount
originally expected, a significant current period operating and cash flow loss
and a projection that demonstrated continuing losses associated with these
assets. The additional impairment charges of $2.6 million relate to capitalized
software license fees used by Princeton to generate revenues from multiple
customers. The solutions to generate these revenues were no longer being
utilized by Princetons customers and therefore the assets were impaired.
Princetons complete audited financial statements as of December 31, 2001,
are filed as an exhibit to this Form 10-K.



In
May 2001, Princeton announced its acquisition of Quicken Bill Manager from
Intuit Inc. (Intuit). Quicken Bill Manager provides online bill
presentment and payment services by processing payments for customers utilizing
Intuits Quicken personal financial management software. Under the terms of
the acquisition agreement, Princeton acquired the assets of Intuits
Quicken Bill Manager through the purchase of certain technologies from Intuit
and all of the outstanding shares of Venture Finance Services Corp., a wholly
owned subsidiary of Intuit.


The
pro forma adjustments to the Companys financial statements relate to the
additional equity in net loss of affiliates the Company would have recorded had
Princeton acquired Quicken Bill Manager at the beginning of the period
presented. The following pro forma financial information for the Company is
provided for the year ended September 30, 2000, the transition quarter ended
December 31, 2000 and the year ended December 31, 2001, based upon the assumption that Princeton had acquired
Quicken Bill Manager as of October 1, 1999.


For
the year ended September 30, 2000, the Company recorded equity in net loss of
affiliates of $10.1 million, loss from continuing operations before income tax
benefit of $31.3 million, net loss from continuing operations of $26.6 million
and net loss of $42.4 million. The basic and diluted net loss from continuing
operations per share and the net loss per share were $0.67 and $1.06,
respectively. Had the Transaction occurred on October 1, 1999, the Company would
have recorded an additional equity in net loss of affiliates of $15.0 million.
Including the pro forma adjustment, the Company would have recorded total equity
in net loss of affiliates of $25.1 million, loss from continuing operations
before income tax benefit of $46.3 million, net loss from continuing operations
of $41.6 million and net loss of $57.4 million. The basic and diluted net loss
from continuing operations per share and the net loss per share would have been
$1.05 and $1.44, respectively. The pro forma adjustment decreases the balance of
investments in 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 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 net
loss per share was $0.13. Had the transaction occurred on October 1, 1999, the
Company would have recorded an additional equity in net loss of affiliates of
$5.5 million. Including the pro forma adjustment, the Company would have
recorded total equity in net loss of affiliates 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 decrease the balance of investments
in affiliates from $33.5 million to $13.0 million as of December 31, 2000.


For
the year ended December 31, 2001, the Company
recorded equity in net loss of affiliates of $28.8 million, loss from
continuing operations before income tax benefit of $39.2 million, net
loss from continuing operations of $38.4 million and net loss of
$36.0 million. The basic and diluted net loss from continuing
operations per share and net loss per share were $1.10 and
$1.03, respectively. Had the Transaction occurred on October 1, 1999,
the Company would have recorded an additional equity in net loss of affiliates
of $4.1 million. Including the pro forma adjustment, the Company
would have recorded total equity in net loss of affiliates of $32.9
million, loss from continuing operations before income tax benefit of
$43.3 million, net loss from continuing operations of
$42.5 million and net loss of $40.1 million. The basic and
diluted net loss from continuing operations per share and net loss per share
would have been $1.22 and $1.15, respectively. The
cumulative pro forma adjustments decrease the December 31,
2001 balance of investments in affiliates from $26.4
million to $1.7 million.


55
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|NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)


In
the first quarter of 2002, Princeton suspended its development of the Quicken
Bill Manager as a result of an overall corporate shift in focus and an
effort to reduce expenditures. Princeton continues to retain the
front-end technology acquired from Intuit, but is currently
placing greater emphasis on its core transaction processing
businesses.



Since
its inception, Princeton has incurred significant costs to develop and enhance
its technology, to establish marketing and customer relationships and to build
its capital infrastructure and administrative organization. As a result,
Princeton has historically incurred significant operating losses and expects to
generate an operating loss for the year ended December 31, 2002. Subsequent to
December 31, 2001, Princeton has received proceeds of $8.5 million from the sale
of its mandatorily redeemable convertible preferred stock (of which the Company
contributed $1.5 million (see Note 22)). Additionally, Princeton secured an
unconditional commitment from various investors to purchase $8.5 million of
mandatorily redeemable convertible preferred stock during the year ended December 31, 2002 (of which the Company
committed $3.75 million (see Note 22)). Through April 2002, Princeton has
received $2.7 million of the aggregate $8.5 million commitment (of which the
Company contributed $1.8 million (see Note 22)). Princeton believes that its
current cash and cash equivalents coupled with the proceeds received subsequent
to December 31, 2001 and the additional capital available under the investor
commitment will be sufficient to fund its operations and execute its strategy
through March 2003. To the extent that Princeton does not meet its targeted
financial goals for 2002, Princetons business, results of operations and
financial condition may be materially and adversely affected.



Note 19. Related Parties


From
time to time, the Company has made advances to or was owed amounts from certain
officers of the Company. The highest aggregate amount outstanding of advances to
officers during the years ended September 2000 and 1999 was $252,000. The
Company had a $50,000 note receivable bearing interest at 10.0% from an officer
of the Company at September 30, 2000. The Company had a $69,000 note receivable
bearing interest at 7.0% from an officer of the Company at September 30, 1999.
In January 2000, the Company forgave a certain note receivable from an officer
of the Company with a principal balance and accrued interest totaling
approximately $70,000, in lieu of a cash bonus. In April 2000, the Company
forgave a certain note receivable from an officer of the Company with a
principal balance and accrued interest totaling approximately $133,000, in lieu
of a cash bonus.


On
April 5, 2000, the Board of Directors of the Company approved a restricted stock
grant to the Chief Executive Officer (CEO) of the Company. The
restricted stock consists of Princeton equity, equal to 2% of
Princetons fully diluted shares. The restricted stock grant vests on April
30, 2003. The Company expenses the fair market value of the restricted stock
grant over the three-year period ending April 30, 2003. The Company recognized
$600,000, $150,000 and $300,000 during the year ended December 31, 2001, the
transition quarter ended December 31, 2000 and the year ended September 30,
2000, respectively, as compensation expense related to the stock grant. The
Company estimates it will recognize $600,000 as compensation expense related to
the stock grant during the year ended December 31, 2002.


The
Company chartered a jet airplane from a company associated with an
officer/director of the Company. Under the terms of the charter agreement, the
Company was obligated to pay annual minimum fees of $500,000 over the five years
ending March 31, 2003, for such charter services. During the quarter ended
September 30, 2000, the Company terminated this contract with no future
obligations. During the years ended September 30, 2000 and 1999, the Company
paid approximately $615,000 and $727,000, respectively, in fees related to this
agreement.


During
the year ended September 30, 1999, the Company entered into an agreement to
guarantee the terms of Princetons lease for office space at 650
College Road, Princeton, New Jersey. Through December 2009, the
payments remaining under the terms of the lease approximate
$9.6 million. This guarantee terminates should Princeton raise $25.0
million of capital through an initial public offering.
Subsequent to December 31, 2001, Princetons management has been in
negotiations with the landlord of the office space to replace
the Companys guarantee with an alternative security. Although
no assurances can be made, it is Princetons intention to provide
sufficient security in order to eliminate the need for the
Companys guarantee. The Company does not believe it is probable that
the lease guarantee will be exercised.


56
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-----------------------------------------------

|NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The
CEO of the Company also served as Chairman of the Board of Tanisys at the
time of the Companys investment in Tanisys and until his resignation in
February 2002. The Company also appointed the Companys CFO and
one of its Board members to the Board of Tanisys. In the first
quarter of 2002, upon the resignation of the Companys CEO as
Chairman of the Board of Tanisys, another member of the Companys Board
became Chairman of the Board and CEO of Tanisys. Therefore,
three of the five members of the Board of Tanisys are officers or directors of
the Company.


The
CEO of the Company also serves as Chairman of the Board of Princeton. In
August 2001, the Company also appointed the Companys CFO to the
Board of Princeton.


The
Companys CEO and one of its Board members serve on the Board of
Sharps and did so at the time the Company invested in Sharps.
The Companys CFO serves as an advisor to the Board of Sharps.


The
CFO of the Company serves on the Board of Microbilt.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## Note 20. Selected Quarterly Financial Data (Unaudited)

| |  | Quarter Ended |                                                      
| |  | ------------- | -----------------------------------------------------
|
| |  |               | Operating revenues                                   
| |  |               | Loss from continuing operations                      
| |  |               | Net loss from continuing operations                  
| |  |               | Net income from disposal of discontinued             
| |  |               | operations                                           
| |  |               | Net loss                                             
| |  |               | Basic and diluted net income (loss) per common share:
| |  |               | Net loss from continuing operations                  
| |  |               | Net income from disposal of discontinued             
| |  |               | operations                                           
| |  |               | Net loss                                             
|
|
| |  |               | Operating revenues                                   
| |  |               | Loss from continuing operations                      
| |  |               | Net loss                                             
| |  |               | Net loss per common share - basic and diluted        

|57
|--

|NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|--------------------------------------------------------------------------------------------------------

| |  | Quarter Ended |                                                      
| |  | ------------- | -----------------------------------------------------
|
| |  |               | Operating revenues                                   
| |  |               | Loss from continuing operations                      
| |  |               | Net loss from continuing operations                  
| |  |               | Net income (loss) from discontinued operations       
| |  |               | Net income from disposal of discontinued             
| |  |               | operations                                           
| |  |               | Net loss                                             
| |  |               | Basic and diluted net income (loss) per common share:
| |  |               | Net loss from continuing operations                  
| |  |               | Net income (loss) from discontinued operations       
| |  |               | Net income from disposal of discontinued             
| |  |               | operations                                           
| |  |               | Net loss                                             

|Note 21. Discontinued Operations


The
following table shows the balance sheets of the Transaction Processing and
Software divisions, as they were reported as discontinued operations (in
thousands):
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |                                                         |  | September 30,2000 |  |  |  |   |        
| |  |  | ------------------------------------------------------- |  | ----------------- |  |  |  | - | -------
| |  |  | Current assets:                                         |  |                   |  |  |  |   |        
| |  |  | Cash and cash equivalents                               |  |                   |  |  |  | $ | 102,157
| |  |  | Accounts receivable, net of allowance for doubtful      |  |                   |  |  |  |   |        
| |  |  | accounts of $4,627                                      |  |                   |  |  |  |   | 27,173 
| |  |  | Purchased receivables                                   |  |                   |  |  |  |   | 16,213 
| |  |  | Prepaids and others                                     |  |                   |  |  |  |   | 1,257  
| |  |  |                                                        
| |  |  | Total current assets                                    |  |                   |  |  |  |   | 146,800
| |  |  | Property and equipment                                  |  |                   |  |  |  |   | 52,242 
| |  |  | Accumulated depreciation                                |  |                   |  |  |  |   | (29,652
| |  |  |                                                        
| |  |  | Net property and equipment                              |  |                   |  |  |  |   | 22,590 
| |  |  | Other assets, net of accumulated amortization of $5,526 |  |                   |  |  |  |   | 24,755 
| |  |  |                                                        
| |  |  | Total assets                                            |  |                   |  |  |  | $ | 194,145
| |  |  |                                                        
|
| |  |  | Current liabilities:                                    |  |                  
| |  |  | Trade accounts payable                                  |  |                   |  |  |  | $ | 15,926 
| |  |  | Accounts payable - billing customers                    |  |                   |  |  |  |   | 104,856
| |  |  | Accrued liabilities                                     |  |                   |  |  |  |   | 24,642 
| |  |  |                                                        
| |  |  | Total current liabilities                               |  |                   |  |  |  |   | 145,424
| |  |  | Other liabilities                                       |  |                   |  |  |  |   | 292    
| |  |  | Deferred income taxes                                   |  |                   |  |  |  |   | 1,643  
| |  |  |                                                        
| |  |  | Total liabilities                                       |  |                   |  |  |  | $ | 147,359
| |  |  |                                                        

|58
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|NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The
following table shows the operating results of the Transaction Processing and Software
divisions (in thousands):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For the Year Ended September 30, | 
| | -------------------------------- | 
|
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 
| |                                  | 

|59
|--

---

|Revenue Recognition Policies


The
Company recognized revenue from its Transaction Processing services when records that
were to be billed and collected by the Company were processed. Revenue from the sale of
convergent billing systems, including the licensing of software rights, was recognized at
the time the product was delivered to the customer, provided that the Company had no
significant related obligations or collection uncertainties remaining. If there were
significant obligations related to the installation or development of the system
delivered, revenue was recognized in the period that the Company fulfilled the
obligation. Services revenue related to the Software division were recognized in the
period that the services were provided. The Company recorded bad debt expense of $6.8
million and $1.8 million and bad debt expense write-offs of $3.8 million and $0.5 million
to its allowance for doubtful accounts for the years ended September 30, 2000 and 1999,
respectively.


Leases


The
Company leased certain equipment and office space under operating leases for discontinued
operations. Rental expense was $4.7 million and $3.9 million for the years ended
September 30, 2000 and 1999, respectively. Under the terms of the Transaction, all leases
associated with the Transaction Processing and Software divisions were assumed by
Platinum. The Company guaranteed two of the operating leases of the divested divisions.
Management does not believe that the guarantees will be exercised.


Acquisitions


In
October 1998, the Company acquired Expansion Systems Corporation (ESC), a
privately held company headquartered in Glendale, California, that developed and marketed
billing and registration systems to Internet service providers under its flagship
products TotalBill and InstantReg. An aggregate of 170,000 shares of the
Companys common stock was issued in connection with this transaction, which has
been accounted for as a pooling of interests. The consolidated financial statements for
period prior to the combination have not been restated to include the accounts and
results of operations of ESC due to the transaction not having a significant impact on
the Companys prior period financial position or results of operations as none of ESCs
assets, liabilities, revenues, expenses or income (loss) exceeded two percent of the
Companys consolidated respective amounts as of or for any of the three years in the
period ended September 30, 1998.


60
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|NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)


In
December 1998, the Company completed the merger of Communication Software Consultants,
Inc. (CommSoft) in consideration of 2,492,759 shares of the Companys common stock.
CommSoft was a privately held, international software development and consulting firm
specializing in the telecommunications industry. The business combination was accounted
for as a pooling of interests. The consolidated financial statements for periods prior to
the combination have been restated to include the accounts and results of operations of
CommSoft. The revenues and net income for CommSoft from October 1, 1998 to the date of
the merger were approximately $3.8 million and $0.4 million, respectively.


In
April 2000, the Company completed the acquisition of Operator Service Company (OSC), a
Lubbock, Texas-based provider of inbound directory assistance, interactive voice response
and customer relationship management services to the telecommunications and consumer
products industries. The Company acquired OSC through the issuance of 3.8 million shares
of common stock, of which 0.7 million shares were held in escrow until achievement of a
certain level of earnings. This acquisition was accounted for under the purchase method
of accounting. Accordingly, the results of operations of OSC have been included in the
Companys consolidated financial statements, and the shares related to the acquisition
have been included in the weighted average shares outstanding for purposes of calculating
net loss per common share, since the date of acquisition. A portion of the total purchase
price of $19.2 million has been allocated to assets acquired and liabilities assumed
based on estimated fair market value at the date of acquisition. The additional balance
of $17.1 million was recorded as goodwill and was being amortized over twenty years on a
straight-line basis. In connection with the Transaction, the 0.7 million shares held in
escrow were released.


Special Charges


During
the quarter ended March 31, 2000, the Company recognized special charges in the amount of
$1.2 million related to severance related costs. During the quarter ended June 30, 2000,
the Company recorded a $3.5 million special charge related to the Software division. The
charge was a result of the narrowing of various software product offerings, the
refocusing of software development efforts and a reserve associated with a significant
customer account.


Benefit Plans


The
BCC 401(k) Retirement Plan (the Retirement Plan) was assumed by Platinum in connection
with the Transaction. Participation in the Retirement Plan was offered to eligible
employees of the Company. Generally, all employees of the Company who were at least 21
years of age or older and who had completed six months of service during which they
worked at least 500 hours were eligible for participation in the Retirement Plan. The
Retirement Plan was a defined contribution plan which provided that participants
generally make voluntary salary deferral contributions, on a pretax basis, of between 1%
and 15% of their compensation in the form of voluntary payroll deductions up to a maximum
amount as indexed for cost-of-living adjustments. The Company made matching contributions
as a percentage determined annually of the first 5% of a participants compensation
contributed as salary deferral. The Company could have made additional discretionary
contributions. No discretionary contributions were made during the years ended September
30, 2000 or 1999. The Companys matching contributions to this plan totaled approximately
$894,000 and $635,000 during the years ended September 30, 2000 and 1999, respectively.


61
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|NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 22. Subsequent Events (Unaudited)


In
February 2002, the Company received a $328,000 payment
(principal and interest) on a promissory note from an Austin,
Texas-based technology company. The Company anticipates receiving a final
$300,000 payment on the promissory note during the quarter ending
June 30, 2002.



During
the quarter ended March 31, 2002, the Company invested $1.5 million, of an
aggregate $2.5 million equity financing, in Princeton. In exchange for its
investment, the Company received 1.5 million shares of Princetons
manditorily redeemable convertible preferred stock. Subsequent to this
investment, the Companys ownership percentage of the outstanding shares of
Princeton was approximately 57.5%. The Companys ownership interest is
based upon its voting interest. The Companys fully diluted ownership was
approximately 49.5% subsequent to this investment.


In
April 2002, the Company committed to finance $3.75 million, of an aggregate
$8.5 million equity commitment, to Princeton during the year ended December 31,
2002. Through April 2002, the Company has funded $1.8 million of its total $3.75
million commitment in exchange for a convertible promissory note. The
convertible promissory note bears an annual interest rate of 12% and matures in
April 2003. Assuming the completion of the above noted $8.5 million equity
financing and conversion of the convertible promissory note, the Companys
ownership of the outstanding and fully diluted stock of Princeton would be
approximately 49.6% and 55.0%, respectively.



ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


The information required by this item is not applicable.


62
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|PART III




ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS


The
information required by this item is incorporated herein by reference from the
information under the captions Election of Directors (Item 1 on proxy), Board
of Directors and Executive Officers, and Section 16(a) Beneficial Ownership
Reporting Compliance of the Companys definitive proxy statement (the Definitive
Proxy Statement) to be filed pursuant to Regulation 14A with the Securities and
Exchange Commission relating to its Annual Meeting of Stockholders to be held on May 23,
2002.




ITEM 11.
EXECUTIVE COMPENSATION


The
information required by this item is incorporated herein by reference from the
information under the caption Compensation of Directors and from the
information under the caption Executive Compensation of the Companys
Definitive Proxy Statement.




ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


The
information required by this item is incorporated herein by reference from the
information under the caption Ownership of Common Stock of the Companys
Definitive Proxy Statement.




ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


The
information required by this item is incorporated herein by reference from the
information under the caption Related Transactions of the Companys Definitive Proxy
Statement.


63
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|PART IV



ITEM 14. EXHIBITS, FINANCIAL
STATEMENT SCHEDULES AND REPORTS ON FORM 8-K


(a)
Documents Filed as Part of Report
|---------------------------------------------------------------------------------------------------------------------------

| |  | 1. |  | Financial
Statements:
| |  | -- |  | ---------------------

| | The
Consolidated Financial Statements of the Company and the related report of the Companys
independent public accountants thereon have been filed under Item 8 hereof.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 2. |  | Financial
Statement Schedules:
| |  | -- |  | ------------------------------

| | The
information required by this item is not applicable.
| | --------------------------------------------------------

| |  | 3. |  | Exhibits:
| |  | -- |  | ---------

| | The
exhibits listed below are filed as part of or incorporated by reference in this report.
Where such filing is made by incorporation by reference to a previously filed document,
such document is identified in parentheses. See the Index of Exhibits included with the
exhibits filed as a part of this report.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ExhibitNumber |  | Description of Exhibits
|------------- |  | -----------------------

|2.1 |  | Plan
of Merger and Acquisition Agreement between BCC, CRM Acquisition Corp., Computer
Resources Management, Inc. and Michael A. Harrelson, dated June 1, 1997 (incorporated by
reference from Exhibit 2.1 to Form 10-Q, dated June 30, 1997)
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.2 |  | Stock Purchase Agreement between BCC and Princeton TeleCom Corporation, dated
September 4, 1998 (incorporated by reference from Exhibit 2.2 to Form 10-K,
dated September 30, 1998)
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.3 |  | Stock Purchase Agreement between BCC and Princeton eCom Corporation, dated
February 21, 2000 (incorporated by reference from Exhibit 2.1 to Form 8-K, dated
March 16, 2000)
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.1 |  | Amended and Restated Certificate of Incorporation of BCC (incorporated by
reference from Exhibit 3.1 to Form 10/A, Amendment No. 1, dated July 11, 1996);
as amended by Certificate of Amendment to Certificate of Incorporation, filed
with the Delaware Secretary of State, amending Article I to change the name of
the Company to Billing Concepts Corp. and amending Article IV to increase the
number of authorized shares of common stock from 60,000,000 to 75,000,000, dated
February 27, 1998 (incorporated by reference from Exhibit 3.4 to Form 10-Q,
dated March 31, 1998)
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2 |  | Certificate
of Designation of Series A Junior Participating Preferred Stock (incorporated by
reference from Form 10/A, Amendment No. 1, dated July 11, 1996)
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.3 |  | Amended
and Restated Bylaws of BCC (incorporated by reference from Exhibit 3.3 to Form 10-K,
dated September 30, 1998
|--- |  | ---------------------------------------------------------------------------------------------------------------------

|4.1 |  | Form of Stock Certificate of Common Stock of BCC (incorporated by reference from
Exhibit 4.1 to Form 10-Q, dated March 31, 1998)
|--- |  | --------------------------------------------------------------------------------------------------------------------------------

|10.1 |  | BCCs 1996 Employee Comprehensive Stock Plan, amended as of August 31, 1999
(incorporated by reference from Exhibit 10.8 to Form 10-K, dated September 30,
1999)
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|64
|--

|
|

|10.2 |  | Form of Option Agreement between BCC and its employees under the 1996 Employee
Comprehensive Stock Plan (incorporated by reference from Exhibit 10.9 to Form
10-K, September 30, 1999)
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 |  | Amended and Restated 1996 Non-Employee Director Plan of BCC, amended as of
August 31, 1999 (incorporated by reference from Exhibit 10.10 to Form 10-K,
dated September 30, 1999)
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.4 |  | Form of Option Agreement between BCC and non-employee directors (incorporated by
reference from Exhibit 10.11 to Form 10-K, dated September 30, 1998)
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

|10.5 |  | BCCs 1996 Employee Stock Purchase Plan, amended as of January 30, 1998
(incorporated by reference from Exhibit 10.12 to Form 10-K, dated September 30,
1998)
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.6 |  | BCCs
Executive Compensation Deferral Plan (incorporated by reference from Exhibit 10.12 to
Form 10/A, Post Effective Amendment No. 2, dated August 1, 1996)
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.7 |  | BCCs
Executive Qualified Disability Plan (incorporated by reference from Exhibit 10.14 to Form
10/A, Amendment No. 1, dated July 11, 1996)
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------

|10.8 |  | Office Building Lease Agreement between Billing Concepts, Inc. and Medical Plaza
Partners (incorporated by reference from Exhibit 10.21 to Form 10/A, Amendment
No. 1, dated July 11, 1996), as amended by First Amendment to Lease Agreement,
dated September 30, 1996 (incorporated by reference from Exhibit 10.31 to Form
10-Q, dated March 31, 1998), Second Amendment to Lease Agreement, dated November
8, 1996 (incorporated by reference from Exhibit 10.32 to Form 10-Q, dated March
31, 1998), and Third Amendment to Lease Agreement, dated January 24, 1997
(incorporated by reference from Exhibit 10.33 to Form 10-Q, dated March 31,
1998)
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.9 |  | Put
Option Agreement between BCC and Michael A. Harrelson, dated June 1, 1997 (incorporated
by reference from Exhibit 10.1 to Form 10-Q, dated June 30, 1997)
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.10 |  | Employment
Agreement, as amended, between BCC and W. Audie Long, dated January 15, 1999
(incorporated by reference to Form 10-K, dated September 30, 2000)
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|10.11 |  | Amended
and Restated Employment Agreement between NCEH Corp. and Parris H. Holmes, Jr., dated
January 11, 2002 (filed herewith)
|----- |  | -------------------------------------------------------------------------------------------------------------------------------

|10.12 |  | Employment
Agreement between NCEH Corp. and David P. Tusa, dated November 1, 2001 (filed herewith)
|----- |  | --------------------------------------------------------------------------------------------------

|10.13 |  | Office
Building Lease Agreement between Prentiss Properties Acquisition Partners, L.P. and
Aptis, Inc., dated November 11, 1999 (incorporated by reference from Exhibit 10.33 to
Form 10-K, dated September 30, 1999)
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.14 |  | BCCs 401(k) Retirement Plan (incorporated by reference from Exhibit 10.14
to Form 10-K, dated September 30, 2000)
|----- |  | ------------------------------------------------------------------------------------------------------------------

|10.15 |  | Agreement
and Plan of Merger between BCC, Billing Concepts, Inc., Enhanced Services Billing, Inc.,
BC Transaction Processing Services, Inc., Aptis, Inc., Operator Service Company, BC
Holding I Corporation, BC Holding II Corporation, BC Holding III Corporation, BC
Acquisition I Corporation, BC Acquisition II Corporation, BC Acquisition III Corporation
and BC Acquisition IV Corporation, dated September 15, 2000 (incorporated by reference
from Exhibit 2.1 to Form 8-K, dated September 15, 2000)
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.16 |  | Office Building Lease Agreement between BCC and EOP-Union Square Limited
Partnership, dated November 6, 2000 (filed herewith)
|----- |  | -----------------------------------------------------------------------------------------------------------------------------

|10.17 |  | Office
Building Sublease Agreement between BCC and CCC Centers, Inc., dated February 11, 2002
(filed herewith)
|----- |  | --------------------------------------------------------------------------------------------------------------

|21.1 |  | List
of Subsidiaries (filed herewith)
|---- |  | -------------------------------------

|23.1 |  | Consent
of Arthur Andersen LLP (filed herewith)
|---- |  | -----------------------------------------------

|23.2 |  | Consent
of Brown, Graham and Company, P.C.  (filed herewith)
|---- |  | ------------------------------------------------------------

|99.1 |  | Letter
to the Securities and Exchange Commission regarding representations of Arthur Andersen LLP (filed herewith)
|---- |  | ------------------------------------------------------------------------------------------------------------------

|99.2 |  | Princeton
eCom Corporations Consolidated Financial Statements as of December 31, 2001 (filed herewith)
|---- |  | -------------------------------------------------------------------------------------------------------

|(b)
Reports on Form 8-K
|-----------------------

| | Form
8-K, dated October 4, 2001, filed October 15, 2001, announcing the withdrawal of The
Nasdaq Stock Market, Inc.s previous notice and the purchase of 700,000 shares of
common stock of Sharps Compliance Corp., giving the Company an approximate 7% ownership.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Form
8-K, dated October 29, 2001, filed October 30, 2001, announcing the sale of FIData, Inc.
to Microbilt Corporation (Microbilt) in exchange for a 9% ownership interest
in Microbilt.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|65
|--

|SIGNATURE


Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date: April 11, 2002 |  | NEW CENTURY EQUITY HOLDINGS CORP.
        (Registrant)
By: /s/ PARRIS H. HOLMES, JR.

Parris H. Holmes, Jr.Chairman of the Board and
Chief Executive Officer
|-------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Pursuant
to the requirement of the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 11th day of April, 2002.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Signature                                            |  | Title                                                                            | 
|---------------------------------------------------- |  | -------------------------------------------------------------------------------- | 
|                                                    
|                                                    
|/s/ PARRIS H. HOLMES, JR.
     Parris H. Holmes, Jr. |  | Chairman of the Board andChief Executive Officer(Principal Executive Officer)    | 
|                                                    
|                                                    
|/s/ DAVID P. TUSA
     David P. Tusa                 |  | Executive Vice President andChief Financial Officer(Principal Financial Officer) | 
|                                                    
|                                                    
|/s/ J. STEPHEN BARLEY
     J. Stephen Barley         |  | Director                                                                         | 
|                                                    
|                                                    
|/s/ GARY BECKER
     Gary Becker                     |  | Director                                                                         | 
|                                                    
|                                                    
|/s/ C. LEE COOKE, JR.
     C. Lee Cooke, Jr.         |  | Director                                                                         | 
|                                                    
|                                                    
|/s/ JUSTIN FERRERO
     Justin Ferrero               |  | Director                                                                         | 

|66
|--

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

|ExhibitNumber |  | Description
|------------- |  | -----------

|10.11 |  | Amended
and Restated Employment Agreement between NCEH Corp. and Parris H. Holmes, Jr., dated
January 11, 2002
|----- |  | --------------------------------------------------------------------------------------------------------------

|10.12 |  | Employment
Agreement between NCEH Corp. and David P. Tusa, dated November 1, 2001
|----- |  | ---------------------------------------------------------------------------------

|10.16 |  | Office
Building Lease Agreement between BCC and EOP-Union Square Limited Partnership, dated
November 6, 2000
|----- |  | ------------------------------------------------------------------------------------------------------------

|10.17 |  | Office
Building Sublease Agreement between BCC and CCC Centers, Inc., dated February 11, 2002
|----- |  | ---------------------------------------------------------------------------------------------

|21.1 |  | List
of Subsidiaries
|---- |  | --------------------

|23.1 |  | Consent
of Arthur Andersen LLP
|---- |  | ------------------------------

|23.2 |  | Consent
of Brown, Graham and Company, P.C.
|---- |  | ------------------------------------------

|99.1 |  | Letter
to the Securities and Exchange Commission regarding representations of Arthur Andersen LLP
|---- |  | -------------------------------------------------------------------------------------------------

|99.2 |  | Princeton
eCom Corporations Consolidated Financial Statements as of December 31, 2001
|---- |  | --------------------------------------------------------------------------------------