UNITED STATES
SECURITIES 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, 2003|_|
  
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
  EXCHANGE ACT OF 1934For 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
  
  74-2781950(State or other jurisdiction of 
  incorporation or organization)
  
  (IRS Employer 
  Identification Number)10101 Reunion Place, Suite 450, San
  Antonio, Texas
  
  78216(Address of principal executive offices)
  
  (Zip code)(210) 302-0444(Registrants telephone number, including area code)Securities Registered Pursuant to Section 12(b) of the Act:  NoneSecurities 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 (§229.405 of this chapter) 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. |X| Indicate by
check mark whether the Registrant is an accelerated filer (as defined in Rule
12b-2 of the Act).  |_| Yes |X| No The
aggregate market value of the Registrants outstanding Common Stock held by
non-affiliates of the Registrant as of June 30, 2003 was $11,291,815. As of March
22, 2004, the Registrant had 34,653,104 shares of Common Stock outstanding.   NEW CENTURY EQUITY HOLDINGS CORP. AND
SUBSIDIARIES
Annual Report on Form 10-K
For the Year Ended December 31, 2003
PAGEPART IItem 1.
  Business
  3Item 2.
  Properties
  10Item 3.
  Legal Proceedings
  10Item 4.
  Submission of Matters to a Vote of Security Holders
  10PART IIItem 5.
  Market for Registrants Common Equity and Related Stockholder Matters
  11Item 6.
  Selected Financial Data
  12Item 7.
  Managements Discussion and Analysis of Financial Condition and
  Results of Operations
  13Item 7A.
  Quantitative and Qualitative Disclosure About Market Risk
  22Item 8.
  Financial Statements and Supplementary Data
  22Item 9.
  Changes in and Disagreements with Accountants on Accounting and
  Financial Disclosures
  50Item 9A.
  Controls and Procedures
  51PART IIIItem 10.
  Directors and Executive Officers of the Registrant
  51Item 11.
  Executive Compensation
  54Item 12.
  Security Ownership of Certain Beneficial Owners and Management and
  Related Stockholder Matters
  58Item 13.
  Certain Relationships and Related Transactions
  59Item 14.
  Principal Accountant Fee and Services
  60PART IVItem 15.
  Exhibits, Financial Statement Schedules and Reports on Form 8-K
  62Signatures
  652

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.

The Company
provides access to all of its filings with the Securities and Exchange
Commission (SEC) through its website at www.newcenturyequity.com,
as soon as reasonably practicable after the reports are filed with the
SEC.  These filings are also available
free of charge upon request from the Companys investor relations department.

Introduction
New Century
Equity Holdings Corp., formerly Billing Concepts Corp., (collectively, the
Company) is focused on high-growth companies.  The Company has an equity interest in Princeton eCom Corporation
(Princeton), which offers electronic bill presentment and payment services
via the internet and telephone.  The
Company also has an equity interest in Sharps Compliance Corp. (Sharps),
which provides cost-effective medical-related disposal solutions for the
healthcare, retail, residential and hospitality industries.  The Companys holdings as of December 31,
2003, are summarized as follows (in thousands, except ownership percentages):



Investment
  
  Ownership
  %
  
  Gross
  Investment
  
  Net Book
  ValuePrinceton
  
  
  36.2
  %
  
  $
  77,276
  
  $
  6,567Sharps
  
  
  8.5
  %
  
  $
  970
  
  $
  666In March
2004, the Companys ownership percentage in Princeton decreased to 28.9%, in
conjunction with a $10.3 million equity financing of Princeton, in which the
Company did not participate.  In January
2004, the Companys investment in Sharps decreased to $277,000, which
represents 3.6% of the outstanding shares (see section Continuing Operations 
Sharps for further discussion).
In October
2000, the Company completed the sale of its Transaction Processing and Software
divisions to Platinum Holdings (Platinum) of Los Angeles, California (the
Transaction), for initial consideration of $49.7 million.  In conjunction with the Transaction, the Company
may have received additional consideration consisting of royalty payments,
assuming the achievement of certain post-closing revenue targets, of $10.0
million related to the LEC Billing division, $5.0 million related to the Aptis
division and $5.0 million related to the OSC division.  The post-closing revenue target for the LEC
Billing division applied to the eighteen-month period subsequent to the
Transaction, while the post-closing revenue targets for the Aptis and OSC
divisions apply to the three-year period subsequent to the Transaction.  None of the three divisions achieved the
post-closing revenue targets necessary to generate a

3

potential royalty payment to the Company.  The Company also received payments totaling $7.5 million for
consulting services provided to Platinum over the twenty-four month period
subsequent to the Transaction, which were reported in other income (expense) as
consulting income.
Continuing Operations  Princeton
Since 1998,
the Company has made multiple investments in Princeton and accounts for its investments
under the equity method of accounting. 
As of December 31, 2003, the Companys ownership percentage of the
preferred stock, the outstanding stock and the fully diluted stock of Princeton
was approximately 34.0%, 36.2% and 31.7%, respectively.  In March 2004, the Companys percentage of
the preferred stock, the outstanding stock and the fully diluted stock of
Princeton decreased to 26.5%, 28.9% and 22.9%, respectively, in conjunction
with a $10.3 million equity financing of Princeton, in which the Company did
not participate.
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.

4

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 EBPP 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.
Competition

The market
for EBPP is highly competitive. 
Princeton competes with other providers and developers of EBPP solutions
and services, as well as the internal departments of companies that choose to
develop their own EBPP solutions.  Two
of Princetons competitors are large organizations with greater financial
resources than Princeton.  To date,
Princeton has successfully competed with its competitors.  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 participated in a private placement financing with publicly
traded Sharps, a Houston, Texas-based company. 
The Company purchased 700,000 shares of common stock of Sharps for
$770,000, of an aggregate $1.2 million financing.  In January 2003, the Company purchased an additional 200,000
shares of common stock of Sharps for $200,000. 
As of December 31, 2003, the Company owned approximately 8.5% of the
outstanding common stock of Sharps.  The
Company accounts for its investment in Sharps under Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities.
In January
2004, the Company entered into an agreement with the former majority shareholders of
Operator Service Company (OSC) to settle all claims related to the April 2000
acquisition of OSC by the Company. 
Under the terms of the agreement, the Company transferred to the former
OSC majority shareholders 525,000 shares of the common stock of Sharps owned by the Company, valued at approximately $389,000.  Additionally, the former OSC majority
shareholders agreed to a voting rights agreement which allows the Company to
direct the vote of New Century shares owned by them.  Subsequent to the transfer of the Sharps common stock shares, the Companys interest in Sharps is
3.6% of the outstanding shares.
Products

Sharps is a
leading developer of cost effective solutions for improving safety and
efficiency related to the proper disposal of medical waste by industry and
consumers.  Sharps products include the
Sharps Disposal by Mail System, Pitch It IV Poles, Trip
LesSystem, Sharps Pump Return Box, Sharps Enteral Pump Return Box,
Sharps SureTemp Tote, Sharps e-Tools, Sharps Environmental Services
and Sharps Consulting.  Some products
and services facilitate compliance with state and federal regulations by
tracking, incinerating and documenting the disposal of medical waste.  Additionally, some

5

products and services facilitate compliance with educational and
training requirements required by federal, state, local and regulatory agencies.

  Sharps
  Disposal by Mail System: A comprehensive solution for the
  containment, transportation, destruction and tracking of medical waste for
  commercial (healthcare and non-healthcare) and retail industries.
  Pitch It
  IV Pole: 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 by eliminating the costs and inconvenience of retrieving,
  cleaning, bagging, tagging and storing of traditional IV poles.
  Trip
  LesSystem: A solution for the home healthcare (commercial)
  industry that eliminates costly trips by healthcare providers to the
  patients home after therapy has been completed.
  Sharps Pump
  Return Box and Sharps Enteral Pump Return Box: Asset return boxes for home
  healthcare providers, primarily for use with home infusion patients, that
  deliver and retrieve expensive equipment between the healthcare provider and
  the patient.
  Sharps
  SureTemp Tote: A disposable cooler that maintains a safe range
  for temperature-sensitive materials, such as IV medications, used in home
  infusion.
  Sharps
  e-Tools: Online services including Sharps Tracer (manifest
  imaging and tracking program to track and certify the transportation and
  disposal of regulated medical waste), Asset Tracer (database
  which manages effectively all types of capital assets) and ComplianceTrak
  (employee centered compliance and education programs).
  Sharps
  Environmental Services: Environmental solutions for customers with a wide
  variety of waste disposal needs, including the destruction and disposal of
  medical sharps waste, legal/confidential documents, pharmaceutical products
  and non-hazardous industrial waste.
  Sharps
  Consulting: Broad range of services including legal and regulatory implications
  of present waste handling practices, communication of new legislation and
  industry best practices, intermediary with regulatory agencies and education
  regarding infection control practices and the dangers of improperly handled
  medical waste.Markets
Sharps
target markets include the home healthcare industry, assisted living facilities
and dental, veterinarian and physician markets (commercial healthcare);
hospitality and other industrial markets (commercial non-healthcare); home
self-injectors (retail) and other markets where Sharps 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 nature
of Sharps business and an infrastructure, which is nationwide, has helped
drive its growth.  Sharps remains
flexible and responsive to its customer needs in industries that demand
effective cost and logistical solutions, quick response and technological
innovation.

In May
2002, Sharps signed a three-year, renewable agreement with BD Consumer Health
Care, a division of Becton, Dickinson and Company (BD), the worlds largest
syringe manufacturer.  The agreement names
Sharps as the exclusive supplier of Sharps Disposal by Mail Systems
for retail sale nationally.  BD will
market the mail-back disposal system to Sharps target market of home
self-injectors in BDs syringe boxes, diabetic newsletter and Getting Started
kits for newly diagnosed diabetics. 
Sharps is also marketing to the retail customer through a joint sales
and marketing agreement with Waste Management, Inc. (WM), a leading waste
services provider.  WM will market
Sharps disposal by mail systems to WMs 25 million residential customers.
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 governmental regulators have
increasingly restricted the 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,
6


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.  Regulated waste such as
syringes, razor blades, bloodborne items, bio-hazard waste spills and other
sharps waste can occur in the following situations: treating cuts, abrasions
and burns; finding needles, syringes or blood-soaked items in the workplace;
laundering blood-soaked linens or finding needles or razor blades in linens;
and cleaning up broken glass with blood stains or bio-hazardous waste.
Competition
There are
several competitors who offer disposal of medical waste services such as
Stericycle, Inc.; however, no other company focuses primarily on the disposal
of sharps medical waste, nationally, through transport by the United States
Postal Service.  While Sharps currently
does not face any significant competition in the mail sharps disposal business,
Sharps must compete with larger and better-capitalized companies.
Continuing Operations  FIData,
Inc./MicroBilt Corporation
Products and Services
The
Company, through its former wholly owned subsidiary FIData, Inc. (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 combined 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 was 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
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.
7

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.
Microbilt

In October
2001, the Company completed the merger of FIData into privately held Microbilt
Corporation (Microbilt).  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.

In April
2003, the Company received notice that Bristol Investments, Ltd. (Bristol)
and Microbilt filed suit against the Company and one of its officers alleging
breach of contract and misrepresentation in conjunction with the merger of
FIData into Microbilt.  In October 2003,
the Company settled the suit by surrendering its ownership of the common stock
of Microbilt to Bristol.  This
settlement resolves all claims brought by and against the Company and one of
its officers.
Continuing Operations - Coreintellect
In March
2000, the Company completed the purchase of a voting preferred stock investment
of $6.0 million in Coreintellect,
a company that developed and marketed internet-based business-to-business
products for the acquisition, classification, retention and dissemination of
business-critical knowledge and information. 
During the year ended December 31, 2001, the Companys investment in
Coreintellect was reduced to $0
by the Companys portion of Coreintellects
net losses.  Coreintellect ceased operations in August
2001.
Discontinued 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,
2002, the Company owned approximately 36.2% (based upon its voting interest) of
the outstanding shares of Tanisys.  For
accounting purposes, the Company was deemed to have control of Tanisys and
therefore, consolidated the financial statements of Tanisys.  The Company consolidated Tanisys financial
statements on a three-month lag, as the Company had a different year-end than
Tanisys.  Accordingly, the operating
results of Tanisys from the purchase date to September 30, 2002, were included
herein.
In February
2003, the Company sold its preferred stock in Tanisys to ATE Worldwide LLC,
whose majority shareholder is a leader in the semiconductor testing equipment
market.  Accordingly, the operations of
Tanisys have been classified as discontinued operations.  The Company received approximately $0.2
million in exchange for its preferred stock.

Products and Services
Tanisys
designed, manufactured and marketed 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 developed into an independent manufacturer of
memory test systems for standard and custom semiconductor memory.  These systems were used at semiconductor
8

manufacturers, computer and electronics Original Equipment
Manufacturers (OEMs) and independent memory module manufacturers.  Tanisys marketed a line of memory test
systems under the DarkHorse® Systems brand name.  Tanisys customer base covered a number of
worldwide markets including semiconductor manufacturers, memory module
manufacturers, computing systems OEMs and contract manufacturing companies.
Customers, Sales and Marketing
In North
America and Europe, a majority of Tanisys memory test systems were sold
directly to semiconductor and independent memory module manufacturers.  In Asia, Tanisys sold its test systems
through distribution partners and independent sales representative
organizations.  Sales to distribution
partners were recognized as revenue by Tanisys upon the shipment of products
because the distribution partners, like Tanisys other customers, issued
purchase orders with fixed pricing and were responsible for payment to Tanisys.
Competition

The memory
module and memory test equipment industries were intensely competitive. These
markets included a large number of established companies, several of which
achieved a substantial market share. Certain of Tanisys competitors in these
markets had 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 competed primarily
with companies supplying automatic test equipment. Tanisys also faced
competition from new and emerging companies that entered the markets in which
Tanisys participated.

Research and
Development
The
management of Tanisys believed that the timely development of new memory test
systems and technologies was essential to maintain Tanisys competitive
position.  In the electronics market,
Tanisys research and development activities focused primarily on new memory
testing technology and improvement in its memory test products.  Additionally, Tanisys provided research and
development services for customers as either joint or contracted
development.  Tanisys devoted
substantial research and development efforts to the design of new memory test
systems that addressed the requirements of semiconductor companies, OEMs and
independent memory module manufacturers. 
Tanisys research and development expenses were $1.5 million and $0.4
million during the year ended September 30, 2002 and the period from the
purchase date to September 30, 2001, respectively, as consolidated herein.  A portion of the research and development
expense focused on creating a patent portfolio to protect Tanisys intellectual
property and to create a competitive edge over its competitors.
Discontinued Operations  Transaction
Processing
The
Company, through its former 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.
Discontinued Operations  Software

Aptis, Inc.
(Aptis) developed, marketed and supported convergent billing and customer
care software applications primarily to the telecommunications industry.  Aptis offered products and services to these
companies through licensing agreements and outsourcing arrangements.

Employees
As of
December 31, 2003, the Company had five 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.
9

ITEM 2. PROPERTIES
As of
December 31, 2003, the Company leased approximately 8,000 square feet of space
at 10101 Reunion Place, Suite 450, San Antonio, Texas, which serves as the
corporate headquarters.  In February
2002, the Company subleased approximately 3,000 square feet of this office
space.  The lease expired in January
2004.  In February 2004, the Company
leased approximately 1,700 square feet of space at 10101 Reunion Place, Suite
970, San Antonio, Texas, which will serve as the corporate headquarters
beginning in April 2004.  The Company
believes that the new facility is adequate to meet its current and future
needs.
ITEM 3. LEGAL PROCEEDINGS
The Company
was engaged in discussions 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.
In April
2003, the Company received notice that Bristol and Microbilt filed suit against
the Company and one of its officers alleging breach of contract and
misrepresentation in conjunction with the October 2001 merger of a former
subsidiary, FIData, into Microbilt.  In
October 2003, the Company settled the suit by surrendering its ownership of the
common stock of Microbilt to Bristol. 
This settlement resolves all claims brought by and against the Company
and one of its officers.

In January
2004, the Company entered into an agreement with the former majority shareholders of OSC
to settle all claims related to the April 2000 acquisition of OSC by the
Company.  Under the terms of the
agreement, the Company will transfer to the former OSC majority shareholders
525,000 shares of the common stock of Sharps
owned by the Company, valued at
approximately $389,000. 
Additionally, the former OSC majority shareholders agreed to a voting
rights agreement which allows the Company to direct the vote of New Century
shares owned by them.  Subsequent to the
transfer of the Sharps common stock shares,
the Companys interest in Sharps is 3.6% of the outstanding shares.
The Company
is not currently involved in any material litigation, claims or assessments.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the
three months ended December 31, 2003, no matter was submitted by the Company to
a vote of its stockholders through the solicitation of proxies or otherwise.
10

PART II
ITEM 5. MARKET FOR REGISTRANT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 Over-the-Counter Bulletin Board under the symbol
NCEH.OB.  From June 21, 2002 to
October 9, 2003, the Common Stock was quoted on the Nasdaq SmallCap Market
under the symbol NCEH.  From February
8, 2001 to June 20, 2002, the Common Stock was quoted on the Nasdaq National
Market under the symbol NCEH.  Prior
to February 8, 2001, the Common Stock was quoted on the Nasdaq National Market
under the symbol BILL.  The table below
sets forth the high and low bid prices for the Common Stock from January 1, 2002,
through December 31, 2003, 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
  
  LowYear Ended
  December 31, 2002:1st Quarter
  
  $
  0.78
  
  $
  0.392nd Quarter
  
  $
  0.78
  
  $
  0.143rd Quarter
  
  $
  0.47
  
  $
  0.294th Quarter
  
  $
  0.39
  
  $
  0.25Year Ended
  December 31, 2003:1st Quarter
  
  $
  0.45
  
  $
  0.272nd Quarter
  
  $
  0.59
  
  $
  0.193rd Quarter
  
  $
  0.75
  
  $
  0.204th Quarter
  
  $
  0.52
  
  $
  0.27Stockholders
As of March
22, 2004, there were 34,653,104 shares of Common Stock outstanding, held by 538
holders of record.  The last reported
sales price of the Common Stock on March 22, 2004, was $0.34 per share.

Dividend Policy
The Company
has never declared or paid any cash dividends on its Common Stock.  The Company does not anticipate paying any
cash dividends on its Common Stock, unless and until the Company makes
liquidating distributions to its stockholders pursuant to the proposed plan of
liquidation as discussed in this Annual Report on Form 10-K.
11

ITEM 6. SELECTED FINANCIAL DATA
The
following table presents selected financial and other data for the
Company.  The statement of operations
data for the years ended December 31, 2003, 2002 and 2001, the transition
quarter ended December 31, 2000 and the years ended September 30, 2000 and
1999, and the balance sheet data as of December 31, 2003, 2002, 2001 and 2000,
and September 30, 2000 and 1999, presented below are derived from the audited
Consolidated Financial Statements of the Company.  The data presented below for the years ended December 31, 2003,
2002 and 2001, 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.
Year Ended
  
  Quarter(1)
  Ended
  
  Year EndedDecember
  31,
  
  September
  30,(in
  thousands, except per share data)
  
  2003
  
  2002
  
  2001
  
  2000
  
  2000
  
  1999Consolidated
  Statement of Operations Data:Operating
  revenues
  
  $
  
  
  $
  
  
  $
  502
  
  $
  163
  
  $
  410
  
  $
  Gross (loss)
  profit
  
  
  
  
  
  
  
  
  (62
  )
  
  10
  
  
  61
  
  
  Operating
  loss from continuing operations
  
  
  (3,174
  )
  
  (3,560
  )
  
  (14,590
  )
  
  (2,316
  )
  
  (16,303
  )
  
  (5,421
  )Net loss
  from continuing operations
  
  
  (6,486
  )
  
  (18,538
  )
  
  (38,328
  )
  
  (5,086
  )
  
  (26,579
  )
  
  (5,224
  )Net (loss)
  income from discontinued operations, net of income taxes
  
  
  
  
  
  (962
  )
  
  (98
  )
  
  
  
  
  (6,565
  )
  
  21,046Net (loss)
  income from disposal of discontinued operations, net of income taxes
  
  
  (30
  )
  
  2,254
  
  
  2,385
  
  
  
  
  
  (9,277
  )
  
  Net (loss)
  income
  
  
  (6,516
  )
  
  (17,246
  )
  
  (36,041
  )
  
  (5,086
  )
  
  (42,421
  )
  
  15,822Basic and
  diluted net (loss) income per common share:Net loss
  from continuing operations
  
  $
  (0.19
  )
  $
  (0.54
  )
  $
  (1.10
  )
  $
  (0.13
  )
  $
  (0.67
  )
  $
  (0.14
  )Net (loss)
  income from discontinued operations, net of income taxes
  
  
  
  
  
  (0.03
  )
  
  
  
  
  
  
  
  (0.16
  )
  
  0.57Net (loss)
  income from disposal of  discontinued
  operations, net of income taxes
  
  
  
  
  
  0.07
  
  
  0.07
  
  
  
  
  
  (0.23
  )
  
  Net (loss)
  income
  
  $
  (0.19
  )
  $
  (0.50
  )
  $
  (1.03
  )
  $
  (0.13
  )
  $
  (1.06
  )
  $
  0.43Dividends
  per common share
  
  $
  
  
  $
  
  
  $
  
  
  $
  
  
  $
  
  
  $
  Weighted
  average common shares outstanding
  
  
  34,379
  
  
  34,217
  
  
  34,910
  
  
  38,737
  
  
  39,909
  
  
  37,116December 31,
  
  September 30,(in
  thousands)
  
  2003
  
  2002
  
  2001
  
  2000
  
  2000
  
  1999Consolidated
  Balance Sheet Data:Working
  capital
  
  $
  4,357
  
  $
  8,454
  
  $
  9,532
  
  $
  32,454
  
  $
  2,968
  
  $
  73,553Total assets
  
  
  13,036
  
  
  20,124
  
  
  39,577
  
  
  81,176
  
  
  97,103
  
  
  113,417Long-term
  obligations and redeemable preferred stock
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  Additional
  paid-in capital
  
  
  70,476
  
  
  70,346
  
  
  70,342
  
  
  90,403
  
  
  88,819
  
  
  63,771(Accumulated
  deficit) Retained earnings
  
  
  (59,097
  )
  
  (52,581
  )
  
  (35,335
  )
  
  706
  
  
  5,792
  
  
  48,213(1) The quarter ended December 31,
2000, represents the three-month transition period between fiscal years 2001
and 2000.
12


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.
Continuing Operations
Operating Revenues
Operating
revenues, generated by the Companys former wholly owned subsidiary FIData,
were comprised of transaction fees for processing loan applications,
implementation fees for new customers and a variety of customer service related
fees.  The Company sold FIData in
October 2001.
Cost of Revenues
Cost of
revenues, also generated by FIData, included the costs incurred to offer a
variety of customer service opportunities to its customers.  The Company sold FIData in October 2001.
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.  During the
year ended December 31, 2003, SG&A expenses totaled $3.0 million, compared
to $3.4 million during the year ended December 31, 2002 and $7.9 million during
the year ended December 31, 2001.  The
decrease in SG&A expenses relates to an overall reduction in expenditures
and corporate personnel, as well as the sale of FIData in October 2001.
In November
2001, the Company entered into an Amended and Restated Employment Agreement
(Employment Agreement) with the Companys Chairman and Chief Executive
Officer (CEO).  As part of the
Employment Agreement, the Company entered into a Split-Dollar Life Insurance
Agreement (Insurance Agreement) with a trust beneficially owned by the CEO
pursuant to which the Company paid the annual insurance premium of
$172,000.  The underlying life insurance
policy (New York Life policy number 46731037) had a face value of $4.5 million
and required remaining annual premium payments through March 2012, totaling
$1,548,000.  In December 2003, the CEO
and the Company agreed to amend the Employment Agreement and terminate the
provisions of the Employment Agreement related to the Insurance Agreement in
exchange for payments by the Company to, and on behalf of, the CEO totaling
$699,391 in cash.  Accordingly, the
Company assigned to the CEO, and the CEO assumed, all future obligations and
benefits related to the Insurance Agreement. 
The CEO released and discharged the Company from any further obligation
to provide or fund any life insurance for the benefit of the CEO, including the
Insurance Agreement.  The remaining
provisions of the Employment Agreement remain in full force and effect.  The entire $0.7 million is included in
SG&A during the year ended December 31, 2003.  In December 2003, $0.2 million of the total $0.7 million was
paid.  The remaining $0.5 million was
accrued at December 31, 2003 and paid in January 2004.
Depreciation and Amortization

Depreciation
and amortization expense is incurred with respect to certain assets, including
computer hardware, software, office equipment, furniture, goodwill and other
intangibles.  During the year ended
December 31, 2003, depreciation and amortization expense totaled $0.2 million,
compared to $0.2 million during the year ended December 31, 2002 and $1.7
million during the year ended December 31, 2001.  Depreciation and amortization expense primarily related to the
amortization of the goodwill of FIData during the year ended December 31, 2001.  The decrease in depreciation and amortization
expense results from the sale of FIData in October 2001.

Impairment Loss
Impairment
loss for the year ended December 31, 2001, includes a $5.0 million impairment
related to the long-lived assets of FIData. 
The impairment loss reflects the difference between the
13

carrying value and the net realizable value of the assets.  The impairment loss consisted of $4.5
million related to goodwill (carrying value prior to impairment was $4.5
million) and $0.5 million related to capitalized software (carrying value prior
to impairment was $0.8 million).
Equity in Net Loss of Affiliates
Equity in
net loss of affiliates totaled $2.7 million during the year ended December 31,
2003, compared to $18.9 million and $28.8 million during the years ended
December 31, 2002 and 2001, respectively. 
The decline in the equity pickups of Princeton is the result of the
declining net loss generated by Princeton, coupled with the Companys lower
ownership percentages over the years. 
See Princeton caption
below for further discussion on the results of operations of Princeton.
Impairment of Investments in Affiliates
During the
year ended December 31, 2003, the Company evaluated the realizability of its
investment in Sharps in accordance with Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and
Equity Securities.  The Company
compared the fair market value of its investment in Sharps to the carrying value
of the investment to determine the impairment. 
Based upon the current fair market value, the Company determined that
its investment in Sharps was permanently impaired by $0.3 million and,
accordingly, recorded an impairment write-down, which is included in other
income (expense) as impairment of investments in affiliates.

During the
year ended December 31, 2001, the Company evaluated the realizability of its
investment in Princeton in accordance with SFAS No. 121, Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
of.  The Company compared the fair
market value of its investment in Princeton to the carrying value of the
investment to determine the impairment. 
Based upon private equity markets at that time, the Company determined
that its investment in Princeton was impaired by $1.8 million and accordingly,
recorded an impairment write-down, which is included in other income (expense)
as impairment of investments in affiliates.
Litigation Settlement
During the
year ended December 31, 2003, net other expense includes a litigation
settlement of $0.3 million, representing the transfer of the Companys
investment in Microbilt to Bristol.  In
April 2003, the Company received notice that Bristol and Microbilt filed suit
against the Company and one of its officers alleging breach of contract and
misrepresentation in conjunction with the October 2001 merger of FIData into
Microbilt.  In October 2003, the Company
settled the suit by surrendering its ownership of the common stock of Microbilt
to Bristol.  This settlement resolves
all claims brought by and against the Company and one of its officers.
Income Tax Benefit
The
Companys effective income tax benefit rate was 0% for the years ended December
31, 2003 and 2002, compared to 2.1% for the year ended December 31, 2001.  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.

14

Princeton
Princetons
statements of operations for the years ended September 30, 2003, 2002 and 2001,
have been used to calculate the equity in net loss recorded in the Companys
statements of operations for the years ended December 31, 2003, 2002 and 2001,
respectively.  Princetons summarized
statements of operations are as follows:
Year Ended
  September 30,(in thousands)
  
  2003
  
  2002
  
  2001Revenues
  
  $
  35,309
  
  $
  28,559
  
  $
  19,920Gross profit
  
  
  16,026
  
  
  11,300
  
  
  3,442Loss from
  operations
  
  
  (7,965
  )
  
  (30,234
  )
  
  (55,771
  )Net loss
  
  
  (7,674
  )
  
  (32,462
  )
  
  (59,435
  )Earnings
before interest, taxes, depreciation and amortization (EBITDA) is a key
indicator used by management to evaluate the operating performance of
Princeton.  While EBITDA is not intended
to represent cash flow from operations as defined by generally accepted accounting
principles  and should not be considered
as an indicator of operating performance or an alternative to cash flow as a
measure of liquidity, it is included herein to provide additional information
with respect to Princetons ability to meet future debt service, capital
expenditure and working capital requirements. 
This calculation may differ in method of calculation from similarly
titled measures used by other companies. 
Princetons EBITDA is calculated as follows:
Year Ended
  September 30,(in thousands)
  
  2003
  
  2002
  
  2001Net loss
  
  $
  (7,674
  )
  $
  (32,462
  )
  $
  (59,435
  )Less:Depreciation
  and amortization expense
  
  
  (5,878
  )
  
  (6,620
  )
  
  (5,298
  )Interest
  (expense) income
  
  
  
  
  
  (2,294
  )
  
  (2,992
  )Income tax benefit
  
  
  292
  
  
  
  
  
  EBITDA
  
  $
  (2,088
  )
  $
  (23,548
  )
  $
  (51,145
  )Princetons
revenues increased to $35.3 million during the year ended September 30, 2003,
from $28.6 million and $19.9 million during the years ended September 30, 2002
and 2001, respectively.  The increase in
revenues is a result of an increase in the number of financial institution and
biller customers coupled with an increase in bill presentment and payment
transactions.
During the
quarter ended December 31, 2003, Princetons revenues were adversely affected
by the loss of certain customers.  As a
result, the management team of Princeton intensified its new sales efforts and
implemented a channel partner strategy with the goal of replacing the loss of
revenues as quickly as possible.  There
can be no assurances that Princeton will replace the revenues attributable to
the lost customers.

Princetons
gross profit, loss from operations and net loss improved during the year ended
September 30, 2003 compared to the prior years.  This improvement is the result of the increase in revenues
(discussed above), reductions to operating expenses made in 2002 and impairment
charges recorded during the years ended September 30, 2002 and 2001, relating
to property and equipment, employee separations and contract settlements
(discussed below).  Princetons gross
profit, loss from operations and net loss for the year ending September 30,
2004, will be negatively impacted by the loss of revenues mentioned above.
For the
year ended September 30, 2002, loss from operations of $30.2 million includes
special charges totaling $12.5 million. 
Approximately $9.3 million of the special charges relate to the
implementation of a strategic restructuring plan to streamline Princetons
operations by reducing
15

operating expenses primarily through workforce reductions ($5.8
million) and renegotiating significant contracts and leases ($3.5 million). The
additional charges relate to the write-down of a portion of the asset value of
Princetons property and equipment.  The
impairment was recognized as the future undiscounted cash flows for Princeton
were estimated to be insufficient to recover the related carrying values of the
property and equipment.
For the
year ended September 30, 2001, loss from operations of $55.8 million includes
special charges totaling $13.3 million. 
Approximately $10.7 million of the special 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.
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.

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.
Discontinued Operations
Net Loss from Discontinued Operations
Tanisys
statements of operations for the year ended September 30, 2002 and from the
purchase date through September 30, 2001, including adjustments made under the
purchase method of accounting, were consolidated in the Companys statements of
operations for the years ended December 31, 2002 and 2001, respectively.  Tanisys statements of operations
consolidated herein (presented as net loss from discontinued operations) are as
follows:
16

Year ended
  September 30,
  2002
  
  Purchase
  date
  through
  September 30,
  2001(in
  thousands)Operating
  revenues
  
  
  $
  2,619
  
  
  
  $
  686Operating
  expenses:Cost of
  revenues
  
  
  
  1,999
  
  
  
  
  367Selling,
  general and administrative expenses
  
  
  
  1,511
  
  
  
  
  378Research and
  development expenses
  
  
  
  1,506
  
  
  
  
  411Depreciation
  and amortization expense
  
  
  
  139
  
  
  
  
  16Operating
  loss from discontinued operations
  
  
  
  (2,536
  )
  
  
  
  (486
  )Other income
  (expense):Interest
  income
  
  
  
  5
  
  
  
  
  2Interest
  expense
  
  
  
  (816
  )
  
  
  
  (110
  )Other income
  (expense), net
  
  
  
  83
  
  
  
  
  (23
  )Minority
  interest in consolidated affiliate
  
  
  
  2,302
  
  
  
  
  519Total other
  income, net
  
  
  
  1,574
  
  
  
  
  388Net loss
  from discontinued operations
  
  
  $
  (962
  )
  
  
  $
  (98
  )Operating
revenues were comprised of sales of production-level equipment along with
related hardware and software, less returns and discounts.
Cost of
revenues was comprised of the costs of all components and materials purchased
for the manufacture of products, direct labor and related overhead costs.  Cost of revenues for the year ended
September 30, 2002, included a $0.5 million inventory write-down for excess and
obsolete inventories of Tanisys, due to the decline in the semiconductor
industry and the uncertainty of future sales volumes.

Selling,
general and administrative expenses were comprised of all selling, marketing
and administrative costs incurred in direct support of the business operations
of Tanisys.
Research
and development expenses consisted of all costs associated with the engineering
design and testing of new technologies and products.
Depreciation
and amortization expenses were incurred with respect to certain assets,
including computer hardware, software, office equipment, furniture and other
intangibles.
Net other income
consisted primarily of interest income, interest expense and minority interest,
plus other miscellaneous income and expenses including interest expense
resulting from the amortization of debt discount related to the note payable to
the minority stockholders.
Net (Loss) Income from Disposal of
Discontinued Operations
During the
year ended December 31, 2003, net loss from disposal of discontinued operations
is comprised of income of $0.2 million from the sale of Tanisys and $0.2
million from the reduction of accruals related to discontinued operations,
offset by expense of $0.4 million to settle claims related to the April 2000
acquisition of OSC.  In exchange for
approximately $0.2 million, the Company sold its preferred stock in Tanisys to
ATE Worldwide LLC, whose majority shareholder is a leader in the semiconductor
testing equipment market.  Based upon
estimates of future liabilities related to the divested entities classified as
discontinued operations, the Company reduced its related accruals to $0 and
accordingly, recorded $0.2 million as income. 
In January 2004, the Company entered into an agreement with the former majority shareholders of OSC
to settle all claims related to the April 2000 acquisition of OSC by the
Company.  Under the terms of the
agreement, the Company will transfer to the former OSC majority shareholders
525,000 shares of the common stock of Sharps
owned by the Company, which
17


results in a non-cash charge in 2003 of approximately $0.4 million
in conjunction with the settlement agreement.
During the
year ended December 31, 2002, net income from disposal of discontinued
operations is comprised of income of $2.2 million related to an income tax
refund and $0.1 million from the reduction of accruals related to the divested
entities classified as discontinued operations (based upon estimates of future
liabilities at that time).  During 2002,
the Company filed its federal income tax return with the Internal Revenue
Service for the tax fiscal year ended September 30, 2001 (which includes the
Transaction completed in October 2000) and received a refund claim totaling
$2.2 million.  The income tax refund is
included in net income from disposal of discontinued operations as the refund
relates to those companies sold in the Transaction.
During the
year ended December 31, 2001, net income from disposal of discontinued
operations includes income of $2.4 million related to the reduction of accruals
related to the divested entities classified as discontinued operations (based
upon estimates of future liabilities at that time).
Liquidity and Capital Resources
The
Companys cash balance decreased to $5.3 million at December 31, 2003, from
$8.7 million at December 31, 2002.  This
decrease relates to the receipt of $0.2 million from the sale of Tanisys
preferred stock in January 2003, offset by the $1.2 million invested in
Princeton in August 2003, the $0.2 million invested in Sharps in January 2003
and the cash portion of corporate expenses.
The Companys
operating cash requirements consist principally of funding of corporate
expenses and capital expenditures.
During the
year ended December 31, 2003, capital expenditures, totaling $6,000, related
primarily to the purchase of computer equipment and software.  The Company anticipates minimal capital
expenditures before acquisitions, if any, during the year ended December 31,
2004.
The
Companys cash balance of $5.3 million at December 31, 2003, is expected to
decrease to approximately $3.1 million at December 31, 2004, primarily as a
result of anticipated corporate cash expenditures of $1.6 million, plus
payments totaling $0.5 million (disbursed in January 2004) related to the
termination of a split-dollar life insurance agreement.  The Company believes that the cash balance at
December 31, 2003 is sufficient to fund its operations for the next
twelve-month period.  As a result of the
expected cash expenditures during 2004, the Company does not plan to
participate in any future financings of Princeton, Sharps or any other
investment.  The Companys cash position
could be increased by any proceeds from the sale or partial sale of its
investments in Princeton or Sharps.  See
discussion below regarding the proposed sale of the Companys interest in
Princeton and the corresponding plan of liquidation of the Company.

Effective March
25, 2004, the Company entered into a definitive agreement to sell
all of its holdings in Princeton to existing and new investors of Princeton for
$10 million in cash.  This agreement was
executed in conjunction with an equity financing that has infused an additional
$10.3 million in Princeton for working capital purposes.  In conjunction with this financing, the
Companys ownership percentage of the preferred stock, the outstanding stock
and the fully diluted stock of Princeton decreased to 26.5%, 28.9% and 22.9%,
respectively.  In addition, the Company
lost its right to appoint a member to Princetons Board of Directors.
In addition,
the Companys Board of Directors unanimously approved a plan of
liquidation of the Company. The Company will file a proxy statement seeking
shareholder approval of the proposed sale of the Companys holdings in Princeton and the
proposed liquidation of New Century.
As of July
31, 2004 (the anticipated date of a special stockholders meeting), the
Companys cash position is estimated to be approximately $4.0 million. In
addition to the Companys cash, the liquidation
18


proceeds would include $10.0 million in cash from the sale of the
Companys holdings in Princeton. The Company also currently holds 375,000
common shares in Sharps which would be sold for an estimated $0.3 million. The
above items represent approximately $14.3 million in estimated liquidation
proceeds, before related transaction expenses.
In
conjunction with the proposed liquidation, the Company anticipates utilizing
cash through completion of the liquidation, including but not limited to: (i)
ongoing operating costs of approximately $0.2 million for a sixty (60) day
period subsequent to shareholder approval, (ii) payment of approximately $0.6
million to the Companys CEO for his interest in the Companys holdings of
Princeton, (iii) legal, consulting and other transaction related fees estimated
at $0.5 million, (iv) severance related expenditures totaling approximately
$2.6 million, (iii) other costs, including costs of accrued liabilities,
insurance, vendor arrangement and lease termination and other wind down costs
estimated to range from $0.6 million to $1.5 million. In addition, the Company
has initially determined that approximately $0.6 million to $0.8 million should
be reserved for any unknown liabilities that may arise. As a result, the
Company currently estimates that it should be able to distribute to its
shareholders, in one or more cash distributions over time, approximately $8.1
million to $9.2 million, or $0.23 to $0.27 per share, in liquidation.  These amounts are estimates only and could
ultimately be higher or lower.
Lease Guarantees
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
East, Princeton, New Jersey.  Effective March 25, 2004, this
guarantee was terminated with a substitute collateral arrangement entered
into by Princeton and its landlord.
Under the
terms of the Transaction, all leases and corresponding obligations associated
with the Transaction Processing and Software divisions were assumed by
Platinum.  Prior to the Transaction, the
Company guaranteed two operating leases for office space of the divested
divisions.  The first lease is related
to office space located in San Antonio, Texas, and expires in 2006.  Under the original terms of the first lease,
the remaining minimum undiscounted rent payments total $5.2 million at December
31, 2003.  The second lease is related
to office space located in Austin, Texas, and expires in 2010.  Under the original terms of the second
lease, the remaining minimum undiscounted rent payments total $8.5 million at
December 31, 2003.  The Company does not
believe it is probable that it will be required to perform under these lease
guarantees.  In conjunction with the
Transaction, Platinum indemnified the Company should the underlying operating
companies not perform under the terms of the office leases.
Off-Balance-Sheet Arrangements

The Company
presently guarantees the terms of two leases for office space (discussed
above).  However, the Company does not
believe it is reasonably likely that the Company will be required to perform
under the lease guarantees nor will the guarantees have a future effect on the
Companys financial condition.

19

Contractual Obligations
The
Companys contractual obligations are as follows (in thousands):
Payments
  due by periodContractual
  Obligations
  
  Total
  
  Less than
  1 year
  
  1-3 years
  
  3-5 years
  
  More than
  5 yearsLong-term
  debt obligations
  
  $
  
  
  $
  
  
  $
  
  
  $
  
  
  $
  Capital
  lease obligations
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  Operating
  lease obligations
  
  
  114
  
  
  41
  
  
  73
  
  
  
  
  
  Purchase
  obligations
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  Other
  long-term liabilities  reflected on
  balance sheet under GAAP
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  Total
  
  $
  114
  
  $
  41
  
  $
  73
  
  $
  
  
  $
  The
operating lease obligations reflected in the table above represent the
Companys leases for office space, which are discussed further under Item 2 of
this annual report.
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, insurance and occupancy costs, are subject to
normal inflationary pressures.
New Accounting Standards
In June
2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities, which requires
among other items, that liabilities for the costs associated with exit or
disposal activities be recognized when the liabilities are incurred, rather
than when an entity commits to an exit plan. 
SFAS No. 146 is effective for exit or disposal activities initiated
after December 31, 2002.  The effect of
adoption of SFAS No. 146 is dependent on the Companys activities subsequent to
adoption.
In November
2002, the FASB issued FASB Interpretation No. 45 (FIN 45), Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, which requires a guarantor to recognize,
at the inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee and expands the disclosures
required to be made by a guarantor about its obligations under guarantees that
it has issued.  Initial recognition and
measurement provisions of FIN 45 are applicable on a prospective basis to
guarantees issued or modified.  The
disclosure requirements were effective immediately and adopted for the
Companys Annual Report on Form 10-K for the year ended December 31, 2002.
In December
2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation 
Transition and Disclosure, which provides alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation and amends the disclosure requirements of
SFAS 123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results.  The transition guidance and annual disclosure
requirements were effective for fiscal years ending after December 15,
2002.  The Company adopted the
disclosure
20


provisions for its Annual Report on Form 10-K for the year ended
December 31, 2002.  As the Company
continues to apply APB Opinion No. 25, Accounting for Stock Issued to Employees,
the accounting for stock-based employee compensation will not change as a
result of SFAS No. 148.  The new interim
disclosure provisions were effective for the Company beginning with the quarter
ended March 31, 2003.
In January
2003, the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of
Variable Interest Entities, which requires that companies that control another
entity through interests other than voting interests should consolidate the
controlled entity.  FIN 46 applies to
variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that
date.  The related disclosure
requirements were effective immediately. 
Management does not believe the adoption of FIN 46 will have any impact
on the Companys financial position or results of operations.
In May
2003, the Financial Accounting Standards Board issued SFAS No. 150, Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and
Equity.  SFAS No. 150 establishes
standards on the classification and measurement of financial instruments with
characteristics of both liabilities and equity.  The Company does not believe the adoption of SFAS No. 150 will
have a material impact on the Companys consolidated financial statements.
Critical Accounting Policies
Impairment of Investments
The Company
evaluates its investments in affiliates when events or changes in
circumstances, such as a significant economic slowdown, indicate that the
carrying value of the investments may not be recoverable.  Reviews are performed to determine whether
the carrying value is impaired and if the comparison indicates that impairment
exists, the investment is written down to fair value.  Significant management judgment based on estimates is required to
determine whether and how much an investment is impaired.
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
existed with respect to the Companys ownership interest in Princeton.  As of December 31, 2001, the Company owned
57.4% of the outstanding shares of Princeton but the voting control was only
temporary and the Company did not have the ability to exercise control over the
decision making of Princeton. 
Therefore, the Company did not consolidate the financial statements of
Princeton into the consolidated financial statements of the Company.  Accordingly, the Company recorded its
interest in Princeton under the equity method of accounting.  As of December 31, 2003, the Company owned
34.0% of the outstanding shares of Princeton. 
Due to the significance of Princeton to the Company, the Company files
Princetons complete audited financial statements as a financial statement
schedule in our Annual Report on Form 10-K.
The second
exception existed with respect to the Companys ownership interest in
Tanisys.  As of December 31, 2002 and
2001, the Companys ownership interest was only 36.2% and 35.2%,
respectively.  However, the Company
exercised control over the decision making of Tanisys.  Therefore, Tanisys was consolidated into the
financial statements of the Company. 
The Company sold its interest in Tanisys in February 2003.
21

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, 2003,
because the Companys intention is to maintain a liquid portfolio.  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 reports of
the Companys independent public accountants thereon, are included in this
report at the page indicated.
PageReport of Management
  23Reports of Independent Public Accountants
  24Consolidated Balance Sheets as of December 31, 2003 and 2002
  27Consolidated Statements of Operations for the Years Ended December
  31, 2003, 2002 and 2001
  28Consolidated Statements of Stockholders Equity for the Years Ended
  December 31, 2003, 2002 and 2001
  29Consolidated Statements of Cash Flows for the Years Ended December
  31, 2003, 2002 and 2001
  30Notes to Consolidated Financial Statements
  3122

REPORT OF
MANAGEMENT

The
financial statements included herein have been prepared in conformity with
accounting principles generally accepted in the United States of America.  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 as of and for the years ended December 31,
2003 and 2002, were audited by Burton McCumber & Cortez, L.L.P.,
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 of Directors 
  and Chief Executive Officer/s/ DAVID P.
  TUSADavid P.
  TusaExecutive Vice President,Chief Financial Officer 
     and Corporate Secretary23

REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors
New Century Equity Holdings Corp.

We have audited the accompanying consolidated balance sheets of New
Century Equity Holdings Corp. (a Delaware corporation) and Subsidiaries as of
December 31, 2003 and 2002, and the related consolidated statements of
operations, stockholders equity and cash flows for the years then ended.  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 of America. 
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, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of New Century Equity Holdings Corp. and Subsidiaries as of December 31, 2003
and 2002, and the consolidated results of their operations and their
consolidated cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/ BURTON
  McCUMBER & CORTEZ, L.L.P.Brownsville,
  TexasMarch 29,
  200424

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 LLPSan Antonio,
  TexasMarch 25,
  2002, except as discussed in Note 22 to the consolidated financial statements
  for whichthe date is April 11, 2002THIS REPORT IS A COPY OF A PREVIOUSLY ISSUED
ARTHUR ANDERSEN LLP
REPORT AND IT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.
25

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tanisys Technology, Inc.:
We have audited the accompanying consolidated balance sheet of Tanisys
Technology, Inc. (a Wyoming corporation), and subsidiaries as of September 30,
2001, and the related consolidated statements of operations, stockholders
equity and cash flows for the year then ended. 
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 audit.
We conducted our audit 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 audit provides 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 the results of
their operations and their cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States of America.

Our audit was 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 audit 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 for the year ended September 30,
2001.  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 continue in existence.
/s/ BROWN, GRAHAM AND COMPANY, P.C.
Austin, Texas
October 30, 2001
26

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

December
  31,2003
  
  2002ASSETSCurrent
  assets:Cash and
  cash equivalents
  
  $
  5,330
  
  $
  8,704Accounts receivable
  
  
  28
  
  
  9Prepaid and
  other assets
  
  
  309
  
  
  330Net current
  assets from discontinued operations
  
  
  
  
  
  1,427Total
  current assets
  
  
  5,667
  
  
  10,470Property and
  equipment
  
  
  616
  
  
  687Accumulated
  depreciation
  
  
  (533
  )
  
  (439
  )Net property
  and equipment
  
  
  83
  
  
  248Other
  non-current assets
  
  
  53
  
  
  53Investments
  in affiliates
  
  
  7,233
  
  
  9,353Total assets
  
  $
  13,036
  
  $
  20,124LIABILITIES AND STOCKHOLDERS EQUITYCurrent
  liabilities:Accounts
  payable
  
  $
  58
  
  $
  30Accrued
  liabilities
  
  
  1,252
  
  
  551Net current
  liabilities from discontinued operations
  
  
  
  
  
  1,435Total
  current liabilities
  
  
  1,310
  
  
  2,016Other
  non-current liabilities
  
  
  
  
  
  1Total
  liabilities
  
  
  1,310
  
  
  2,017Commitments
  and contingencies  see Note 6Stockholders
  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; 34,653,104 and
  34,217,620 shares issued and outstanding
  
  
  347
  
  
  342Additional
  paid-in capital
  
  
  70,476
  
  
  70,346Accumulated
  deficit
  
  
  (59,097
  )
  
  (52,581
  )Total
  stockholders equity
  
  
  11,726
  
  
  18,107Total
  liabilities and stockholders equity
  
  $
  13,036
  
  $
  20,124The accompanying notes are an integral part of these
consolidated financial statements.
27


NEW CENTURY EQUITY HOLDINGS CORP. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year Ended
  December 31,2003
  
  2002
  
  2001Operating
  revenues
  
  $
  
  
  $
  
  
  $
  502Operating
  expenses:Cost of
  revenues
  
  
  
  
  
  
  
  
  564Selling,
  general and administrative expenses
  
  
  3,021
  
  
  3,403
  
  
  7,879Depreciation
  and amortization expense
  
  
  153
  
  
  157
  
  
  1,684Impairment
  loss
  
  
  
  
  
  
  
  
  4,965Operating
  loss from continuing operations
  
  
  (3,174
  )
  
  (3,560
  )
  
  (14,590
  )Other income
  (expense):Interest
  income
  
  
  77
  
  
  158
  
  
  1,043Interest
  expense
  
  
  
  
  
  (4
  )
  
  (1
  )Equity in
  net loss of affiliates
  
  
  (2,723
  )
  
  (18,891
  )
  
  (28,830
  )Impairment
  of investments in affiliates
  
  
  (306
  )
  
  
  
  
  (1,777
  )Litigation
  settlement
  
  
  (354
  )
  
  
  
  
  Consulting
  income
  
  
  
  
  
  3,125
  
  
  3,750Realized
  gains on available-for-sale securities
  
  
  
  
  
  
  
  
  566Other
  (expense) income, net
  
  
  (6
  )
  
  634
  
  
  691Total other
  expense, net
  
  
  (3,312
  )
  
  (14,978
  )
  
  (24,558
  )Loss from
  continuing operations before income tax benefit
  
  
  (6,486
  )
  
  (18,538
  )
  
  (39,148
  )Income tax
  benefit
  
  
  
  
  
  
  
  
  820Net loss
  from continuing operations
  
  
  (6,486
  )
  
  (18,538
  )
  
  (38,328
  )Discontinued
  operations:Net loss
  from discontinued operations
  
  
  
  
  
  (962
  )
  
  (98
  )Net (loss)
  income from disposal of discontinued operations, including income tax benefit
  of $0, $2,176 and $500, respectively
  
  
  (30
  )
  
  2,254
  
  
  2,385Net (loss)
  income from discontinued operations
  
  
  (30
  )
  
  1,292
  
  
  2,287Net loss
  
  $
  (6,516
  )
  $
  (17,246
  )
  $
  (36,041
  )Basic and
  diluted net (loss) income per common share:Net loss
  from continuing operations
  
  $
  (0.19
  )
  $
  (0.54
  )
  $
  (1.10
  )Net loss
  from discontinued operations
  
  
  
  
  
  (0.03
  )
  
  Net income
  from disposal of discontinued operations
  
  
  
  
  
  0.07
  
  
  0.07Net loss
  
  $
  (0.19
  )
  $
  (0.50
  )
  $
  (1.03
  )Weighted
  average common shares outstanding
  
  
  34,379
  
  
  34,217
  
  
  34,910The accompanying notes are an integral part of these
consolidated financial statements.
28


NEW CENTURY EQUITY HOLDINGS CORP. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For the Years Ended December 31, 2003, 2002 and
2001
(In thousands)
Common
  Stock
  
  Additional
  Paid-in
  Capital
  
  Accumulated
  Deficit
  
  Deferred
  Compensation
  
  Treasury
  Stock
  
  TotalShares
  
  Amount
  Shares
  
  AmountBalances at
  December 31, 2000
  
  
  42,507
  
  $
  425
  
  $
  90,403
  
  $
  706
  
  $
  (49
  )
  
  (6,854
  )
  $
  (18,755
  )
  $
  72,730Issuance of
  common stock
  
  
  7
  
  
  
  
  
  7
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  7Exercise of
  stock options
  
  
  4
  
  
  
  
  
  8
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  8Forfeiture
  of restricted common stock
  
  
  (20
  )
  
  
  
  
  (89
  )
  
  
  
  
  
  
  
  
  
  
  
  
  
  (89
  )Compensation
  expense
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  49
  
  
  
  
  
  
  
  
  49Purchase of
  treasury stock
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  (1,438
  )
  
  (1,315
  )
  
  (1,315
  )Cancellation
  of treasury stock
  
  
  (8,292
  )
  
  (83
  )
  
  (19,987
  )
  
  
  
  
  
  
  
  8,292
  
  
  20,070
  
  
  Net loss
  
  
  
  
  
  
  
  
  
  
  
  (36,041
  )
  
  
  
  
  
  
  
  
  
  
  (36,041
  )Balances at
  December 31, 2001
  
  
  34,206
  
  
  342
  
  
  70,342
  
  
  (35,335
  )
  
  
  
  
  
  
  
  
  
  
  35,349Issuance of
  common stock
  
  
  12
  
  
  
  
  
  4
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  4Net loss
  
  
  
  
  
  
  
  
  
  
  
  (17,246
  )
  
  
  
  
  
  
  
  
  
  
  (17,246
  )Balances at
  December 31, 2002
  
  
  34,218
  
  
  342
  
  
  70,346
  
  
  (52,581
  )
  
  
  
  
  
  
  
  
  
  
  18,107Issuance of
  common stock
  
  
  435
  
  
  5
  
  
  130
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  135Net loss
  
  
  
  
  
  
  
  
  
  
  
  (6,516
  )
  
  
  
  
  
  
  
  
  
  
  (6,516
  )Balances at
  December 31, 2003
  
  
  34,653
  
  $
  347
  
  $
  70,476
  
  $
  (59,097
  )
  $
  
  
  
  
  
  $
  
  
  $
  11,726The accompanying notes are an integral part of these
consolidated financial statements.
29


NEW CENTURY EQUITY HOLDINGS CORP. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended
  December 31,2003
  
  2002
  
  2001Cash flows
  from operating activities:Net loss
  from continuing operations
  
  $
  (6,486
  )
  $
  (18,538
  )
  $
  (38,328
  )Adjustments
  to reconcile net loss from continuing operations to net cash provided by
  (used in) operating activities:Depreciation
  and amortization expense
  
  
  153
  
  
  157
  
  
  1,684Equity in
  net loss of and impairment of investments in affiliates
  
  
  3,029
  
  
  18,891
  
  
  30,607Litigation
  settlement
  
  
  354
  
  
  
  
  
  Loss on
  disposition of fixed assets
  
  
  17
  
  
  
  
  
  Impairment
  loss
  
  
  
  
  
  
  
  
  4,965Realized
  gains on available-for-sale securities
  
  
  
  
  
  
  
  
  (566
  )Changes in
  operating assets and liabilities:(Increase)
  decrease in accounts receivable
  
  
  (19
  )
  
  821
  
  
  3,934Decrease
  (increase) in prepaid and other assets
  
  
  156
  
  
  620
  
  
  (68
  )Increase
  (decrease) in accounts payable
  
  
  28
  
  
  (1
  )
  
  (22
  )Increase
  (decrease) in accrued liabilities
  
  
  486
  
  
  (744
  )
  
  (1,550
  )Increase
  (decrease) in other liabilities and other noncash items
  
  
  136
  
  
  620
  
  
  (129
  )Net cash
  (used in) provided by continuing operating activities
  
  
  (2,146
  )
  
  1,826
  
  
  527Net cash provided
  by (used in) discontinued operating activities
  
  
  178
  
  
  2,002
  
  
  (5,006
  )Net cash
  (used in) provided by operating activities
  
  
  (1,968
  )
  
  3,828
  
  
  (4,479
  )Cash flows
  from investing activities:Purchases of
  property and equipment
  
  
  (6
  )
  
  (20
  )
  
  (615
  )Investments
  in available-for-sale securities
  
  
  
  
  
  
  
  
  (16,500
  )Proceeds
  from sale of available-for-sale securities
  
  
  
  
  
  
  
  
  17,265Investments
  in affiliates
  
  
  (1,400
  )
  
  (3,849
  )
  
  (23,549
  )Redemption
  of investments in affiliates
  
  
  
  
  
  1,471
  
  
  Other
  investing activities
  
  
  
  
  
  (9
  )
  
  (21
  )Net cash
  used in investing activities
  
  
  (1,406
  )
  
  (2,407
  )
  
  (23,420
  )Cash flows
  from financing activities:Proceeds
  from issuance of common stock
  
  
  
  
  
  4
  
  
  14Purchases of
  treasury stock
  
  
  
  
  
  
  
  
  (1,314
  )Net cash
  provided by (used in) financing activities
  
  
  
  
  
  4
  
  
  (1,300
  )Net (decrease)
  increase in cash and cash equivalents
  
  
  (3,374
  )
  
  1,425
  
  
  (29,199
  )Cash and
  cash equivalents, beginning of period
  
  
  8,704
  
  
  7,279
  
  
  36,478Cash and
  cash equivalents, end of period
  
  $
  5,330
  
  $
  8,704
  
  $
  7,279Supplemental
  cash flow information:Cash
  payments for income taxes
  
  $
  
  
  $
  
  
  $
  500Cash
  payments for interest
  
  
  
  
  
  4
  
  
  1Non-cash
  investing and financing activities:Assets
  disposed of in connection with FIData, Inc. disposition
  
  
  
  
  
  
  
  
  (711
  )Liabilities
  disposed of in connection with FIData, Inc. disposition
  
  
  
  
  
  
  
  
  355The accompanying notes are an integral part of these
consolidated financial statements.
30


NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
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 focused on high-growth
companies.  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 August 2001, the Company purchased an
interest in Tanisys Technology, Inc. (Tanisys), which designed, manufactured
and marketed production level automated test equipment for a variety of memory
technologies.  The Company sold its
interest in Tanisys in February 2003. 
The Company has an equity interest in Sharps Compliance Corp.
(Sharps), which provides cost-effective medical-related disposal solutions
for the healthcare, retail, residential and hospitality industries.  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 exchanged 100%
of its stock of FIData for an equity interest in Microbilt Corporation
(Microbilt), which was surrendered in October 2003 (see Note 3).
In October
2000, the Company completed the sale of its Transaction Processing and Software
divisions to Platinum Holdings (Platinum) of Los Angeles, California (the
Transaction), for initial consideration of $49.7 million.  In conjunction with the Transaction, the
Company may have potentially received additional consideration consisting of
royalty payments, assuming the achievement of certain post-closing revenue
targets, of $10.0 million related to the LEC Billing division, $5.0 million
related to the Aptis division and $5.0 million related to the OSC
division.  The post-closing revenue
target for the LEC Billing division applied to the eighteen-month period
subsequent to the Transaction, while the post-closing revenue targets for the
Aptis and OSC divisions apply to the three-year period subsequent to the
Transaction.  None of the three
divisions achieved the post-closing revenue targets necessary to generate a
potential royalty payment to the Company. 
The Company also received payments totaling $7.5 million for consulting
services provided to Platinum over the twenty-four month period subsequent to
the Transaction, which were reported in other income (expense) as consulting
income.
In February
2003, the Company sold its interest in Tanisys.  In accordance with Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, the operations of Tanisys, as consolidated herein, have been
classified as discontinued operations. 
All financial information presented for the year ended December 31,
2001, was restated to reflect Tanisys as discontinued operations (see Note 18).

Effective March
25, 2004, the Company entered into a definitive agreement to sell
all of its holdings in Princeton to existing and new investors of Princeton for
$10.0 million in cash.  In addition, the Companys Board of Directors
unanimously approved a plan of liquidation of the Company. See Note 19 for further discussion.
31

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 Princeton and Coreintellect, Inc. (Coreintellect) are accounted for using the
equity method of accounting.  The
Companys investment in Sharps is accounted for in accordance with SFAS No.
115, Accounting for Certain Investments in Debt and Equity Securities.  The Companys investment in Microbilt was
accounted for under the cost method of accounting.  All significant intercompany accounts and transactions have been
eliminated in consolidation.
Estimates in the Financial Statements

The preparation
of financial statements in conformity with accounting principles generally
accepted in the United States of America 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.
Financial Instruments
SFAS No.
107, Disclosures About Fair Value of Financial Instruments, requires the
disclosure of fair value information about financial instruments, whether or
not recognized on the balance sheet, for which it is practicable to estimate
the value.  SFAS No. 107 excludes
certain financial instruments from its disclosure requirements.  Accordingly, the aggregate fair market value
amounts are not intended to represent the underlying value of the Company.  The carrying amounts of cash and cash
equivalents, current receivables and payables and long-term liabilities
approximate fair value because of the short-term nature of these instruments.
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.
Investments in Equity Securities

The Company
follows the standards of SFAS No. 115 for those investments in which the
securities are publicly traded.  For
those investments in which the securities are privately held, the Company
follows the guidance of Accounting Principles Board (APB) Opinion No. 18,
The Equity Method of Accounting for Investments in Common Stock.  The Company accounts for its investment in
Sharps under SFAS No. 115, as Sharps common stock is publicly traded.  SFAS No. 115 establishes standards for
accounting and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities.  Unrealized holdings gains and losses, other
than those considered permanent, related to the Companys investment in
Sharps are excluded from net loss and reported as a separate component of other
comprehensive loss.

32

Treasury Stock
In 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 8).
Revenue Recognition
The Company
recognized FIDatas transaction processing revenue when loans were
processed.  Implementation and customer
service revenues were recognized when an agreement was in place, services had
been rendered, the cost of services performed was determinable and
collectibility was reasonably assured.
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.
Discontinued Operations

Effective
for the Companys fiscal year ended December 31, 2002, SFAS No. 144,
Accounting for the Impairment or Disposal of Long-lived Assets, establishes
standards for accounting and reporting for long-lived assets to be disposed of
by sale.  The Company adopted SFAS No.
144 and determined that the operations of Tanisys qualified as discontinued
operations and, accordingly, are reported separately from continuing
operations.

Net Loss per Common Share
SFAS No.
128, Earnings Per Share, establishes 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 years ended December 31, 2003, 2002 and
2001, diluted EPS equals basic EPS, as potentially dilutive common stock equivalents
are antidilutive in loss periods.
Stock-Based Compensation
The Company
adopted SFAS No. 123, Accounting for Stock-Based Compensation, but elected to
apply APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations in accounting for its stock option plans (see Note
9).  Accordingly, the Company has not
recognized compensation expense for stock options granted where the exercise
price is equal to or greater than the market price of the underlying stock at the
date of grant.  In accordance with the
provisions of APB Opinion No. 25, the Company did not recognize compensation
expense for employee stock purchased under the NCEH Employee Stock Purchase
Plan (ESPP).
33

The
following table illustrates the effect on net loss and net loss per common
share had compensation expense for the Companys stock option grants and ESPP
purchases been determined based on the fair value at the grant dates consistent
with the methodology of SFAS No. 123 and SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure.  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.
Year Ended
  December 31,(in thousands, except per share data)
  
  2003
  
  2002
  
  2001Net loss, as
  reported
  
  $
  (6,516
  )
  $
  (17,246
  )
  $
  (36,041
  )Less:  Total stock based employee compensation
  expense determined under fair value based method for all awards, net of
  related tax effects
  
  
  (347
  )
  
  (602
  )
  
  (4,640
  )Net loss,
  pro forma
  
  $
  (6,863
  )
  $
  (17,848
  )
  $
  (40,681
  )Basic and
  diluted net loss per common share:Net loss, as
  reported
  
  $
  (0.19
  )
  $
  (0.50
  )
  $
  (1.03
  )Net loss,
  pro forma
  
  $
  (0.20
  )
  $
  (0.52
  )
  $
  (1.17
  )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: expected volatility of 96.3%, 96.3% and 95.1% for the years ended
December 31, 2003, 2002 and 2001, respectively; no dividend yield; expected
life of 2.5 years for all option grants and 0.5 years for all ESPP purchases;
and risk-free interest rates of 1.8%, 2.2% and 3.2% for the years ended
December 31, 2003, 2002 and 2001, respectively.
Note 3. Acquisitions and Investments

Princeton

The Company
made its initial investment in Princeton in September 1998.  Princeton is a privately held company
located in Princeton, New Jersey, that specializes 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 the year ended
September 30, 1999, the Company acquired additional shares of Princeton stock,
increasing the Companys ownership percentage to approximately 24%.
In March
2000, the Company invested $33.5 million in the equity of Princeton, consisting
of $27.0 million of convertible preferred stock and $6.5 million of common
stock.  In June 2000, under the terms of
a Convertible Promissory Note, the Company advanced $5.0 million to Princeton,
which converted into shares of Princeton preferred stock, during the quarter
ended September 30, 2000.  The Companys
ownership percentage in Princeton, based upon its voting interest, as of
September 30, 2000, was approximately 42.5%.
In April
2001, the Company invested $15.0 million, of an aggregate $22.5 million private
convertible debt financing, in 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
34


qualifying change of control or an equity financing of Princeton, the
rate of interest under the note increased to a rate per annum equal to 50%,
which would be prepaid upon such event. 
If such payment was made, no additional interest was 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 (based upon voting interest) and the fully
diluted shares of Princeton as of December 31, 2001, was approximately 57.4%
and 49.0%, respectively.  Although the
Companys ownership percentage was greater than 50%, the Company did not
consolidate the financial statements of Princeton as the voting control was
only temporary and the Company was not deemed to have control of Princeton.
During the
quarter ended March 31, 2002, the Company invested $1.5 million, of a total
$2.5 million equity financing, in Princeton. 
In exchange for its investment, the Company received 1.5 million shares
of Princetons mandatorily redeemable convertible preferred stock.  In April 2002, the Company committed to
finance $3.75 million, of a total $8.5 million equity commitment, to Princeton
during the year ended December 31, 2002. 
During April and May 2002, the Company funded $2.4 million of its total
$3.75 million commitment in exchange for shares of Princetons mandatorily
redeemable convertible preferred stock.
In
conjunction with the completion of Princetons equity financing in June 2002,
the Company received $1.5 million in proceeds from the redemption of
mandatorily redeemable convertible preferred stock of Princeton.  In addition, the Company is no longer
required to fund its remaining $1.4 million commitment to Princeton.  As of December 31, 2002, the Companys
ownership of the outstanding and fully diluted shares (considering all issued
options and warrants) of Princeton was 38.0% and 32.9%, respectively.
In
September 2003, the Company invested $1.2 million, of a total $5.0 million
equity financing, in Princeton.  In
exchange for its investment, the Company received 4.0 million shares of
Princetons mandatorily redeemable convertible preferred stock.  As of December 31, 2003, the Companys
ownership of the outstanding and fully diluted shares (considering all issued
options and warrants) of Princeton was 36.2% and 31.7%, respectively.  See Note 19.

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.  Approximately $7.4 million was
recorded as goodwill and other intangibles. 
This acquisition was 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.
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.  For accounting purposes, the Company valued
its investment in Microbilt at approximately $0.4 million.  In addition, the Company was entitled to
appoint one member of Microbilts Board of Directors.
In April
2003, the Company received notice that Bristol Investments, Ltd. (Bristol)
and Microbilt filed suit against the Company and one of its officers alleging
breach of contract and misrepresentation in conjunction with the merger of
FIData into Microbilt.  In October 2003,
the
35


Company settled the suit by surrendering its ownership of the common
stock of Microbilt to Bristol.  This
settlement resolves all claims brought by and against the Company and one of
its officers.
Sharps
In October
2001, the Company participated in a private placement financing with publicly
traded Sharps.  Sharps, a Houston,
Texas-based company, provides medical-related waste services to the healthcare,
retail, residential and hospitality markets. 
The Company purchased 700,000 shares of Sharps common stock for
$770,000, of an aggregate $1.2 million financing.  In January 2003, the Company purchased an additional 200,000
shares of Sharps common stock for $200,000. 
As of December 31, 2003, the Company owned approximately 8.5% of Sharps
outstanding stock.  During the year
ended December 31, 2003, the Company recorded a $0.3 million impairment
write-down related to its investment in Sharps (see Note 10 for further
discussion).
In January
2004, the Company entered into an agreement with the former majority shareholders of OSC
to settle all claims related to the April 2000 acquisition of OSC by the
Company.  Under the terms of the
agreement, the Company transferred to the former OSC majority shareholders
525,000 shares of the common stock of Sharps
owned by the Company, valued at
approximately $389,000. 
Additionally, the former OSC majority shareholders agreed to a voting
rights agreement which allows the Company to direct the vote of New Century
shares owned by them.  Subsequent to the
transfer of the Sharps common stock shares,
the Companys interest in Sharps is 3.6% of the outstanding shares.  The Company recorded a non-cash charge to
net loss from disposal of discontinued
operations in 2003 of $389,000 in conjunction with the settlement
agreement.
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.
During the
year ended December 31, 2001, the Companys investment in Coreintellect was reduced to $0 by the
Companys portion of Coreintellects
net losses.  Coreintellect ceased operations in August
2001.

36

Note 4. Investments in Affiliates
Investments
  in affiliates is comprised of the following:December
  31,(in thousands)
  
  2003
  
  2002Investment
  in Princeton:Cash
  investments
  
  $
  77,276
  
  $
  76,076In-process
  research and development costs
  
  
  (4,465
  )
  
  (4,465
  )Amortization
  and equity loss pick-up
  
  
  (62,986
  )
  
  (60,263
  )Impairment
  of investment
  
  
  (1,777
  )
  
  (1,777
  )Other
  
  
  (1,481
  )
  
  (1,344
  )Net
  investment in Princeton
  
  
  6,567
  
  
  8,227Investment
  in Sharps:Cash
  investments
  
  
  970
  
  
  770Other
  
  
  2
  
  
  2Impairment
  of investment
  
  
  (306
  )
  
  Net
  investment in Sharps
  
  
  666
  
  
  772Investment
  in Microbilt:Equity
  investments
  
  
  
  
  
  348Other
  
  
  
  
  
  6Net
  investment in Microbilt
  
  
  
  
  
  354Total
  investments in affiliates
  
  $
  7,233
  
  $
  9,353Note
5. Accrued Liabilities
Accrued
  liabilities is comprised of the following:December 31,(in
  thousands)
  
  2003
  
  2002Accrued
  income taxes
  
  $
  
  
  $
  174Accrued
  vacation
  
  
  136
  
  
  140Accrued
  audit fees
  
  
  62
  
  
  90Accrued
  annual report fees
  
  
  53
  
  
  56Accrued
  split dollar life insurance (see Note 16)
  
  
  561
  
  
  Accrued
  settlement
  
  
  389
  
  
  Other
  
  
  51
  
  
  91Total
  accrued liabilities
  
  $
  1,252
  
  $
  551Note
6. Commitments and Contingencies
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
East, Princeton, New Jersey. Effective March 25, 2004, this
guarantee was terminated with a substitute collateral arrangement entered
into by Princeton and its landlord.

Under the
terms of the Transaction, all leases and corresponding obligations associated
with the Transaction Processing and Software divisions were assumed by
Platinum.  Prior to the Transaction, the
Company guaranteed two operating leases for office space of the divested
divisions.  The first lease is related to
office space located in San Antonio, Texas, and expires in 2006.  Under the original terms of the first lease,
the remaining minimum undiscounted rent payments total $5.2 million at December
31, 2003.  The second lease is related
to office space located in Austin, Texas, and expires in 2010.  Under the original terms of the second
lease, the remaining minimum undiscounted rent payments total $8.5 million at
December 31, 2003.  The Company does not
believe it is probable that it will be required to perform under these lease
guarantees and therefore, no liability has been accrued on the Companys
37

financial statements.  In
conjunction with the Transaction, Platinum indemnified the Company should the
underlying operating companies not perform under the terms of the office
leases.
Note 7. 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 years ended
December 31, 2003, 2002 and 2001.

Note 8. Treasury Stock
In 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.  During the year ended December 31, 2001, the
Company purchased $1.3 million or 1,437,700 shares of treasury stock.  As of December 31, 2003, the Company had
purchased an aggregate $20.1 million, or 8.3 million shares, of treasury stock
under this program.  The Company has no
plans to make any future treasury stock purchases.
Note 9. 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 seven years from the date of grant under the Director
Plan.
38

Option
activity for the years ended December 31, 2003, 2002 and 2001, is summarized as
follows:
Number
  of Shares
  
  Weighted Average
  Exercise PriceOutstanding,
  December 31, 2000
  
  
  8,931,599
  
  
  $
  8.16Granted
  
  
  1,852,333
  
  
  $
  0.57Canceled
  
  
  (2,117,518
  )
  
  $
  8.64Exercised
  
  
  (4,278
  )
  
  $
  1.98Outstanding,
  December 31, 2001
  
  
  8,662,136
  
  
  $
  6.42Granted
  
  
  1,040,000
  
  
  $
  0.36Canceled
  
  
  (2,988,704
  )
  
  $
  7.77Outstanding,
  December 31, 2002
  
  
  6,713,432
  
  
  $
  4.88Granted
  
  
  90,000
  
  
  $
  0.29Canceled
  
  
  (1,025,245
  )
  
  $
  9.53Outstanding,
  December 31, 2003
  
  
  5,778,187
  
  
  $
  3.98At
December 31, 2003, 2002 and 2001, stock options to purchase an aggregate of
4,995,062, 4,955,685 and 6,820,182 shares were exercisable and had weighted
average exercise prices of $4.53, $6.38 and $7.78 per share, respectively.
Stock
options outstanding and exercisable at December 31, 2003, were as follows:




Options
  Outstanding
  
  Options
  ExercisableRange of
  Exercise
  Prices
  
  Number
  Outstanding
  
  Weighted
  Average
  Remaining
  Life
  (years)
  
  Remaining
  Average
  Exercise Price
  
  Weighted
  Number
  Exercisable
  
  Weighted
  Average
  Exercise Price$  0.29 - $    1.98
  
  
  2,767,951
  
  
  
  5.3
  
  
  
  $
  0.44
  
  
  
  1,999,201
  
  
  $
  0.45$  2.03 - $    4.56
  
  
  1,691,653
  
  
  
  3.3
  
  
  
  $
  3.34
  
  
  
  1,677,778
  
  
  $
  3.35$  4.88 - $    8.31
  
  
  636,583
  
  
  
  2.4
  
  
  
  $
  7.04
  
  
  
  636,083
  
  
  $
  7.05$  9.75 - $  29.00
  
  
  682,000
  
  
  
  1.4
  
  
  
  $
  17.09
  
  
  
  682,000
  
  
  $
  17.095,778,187
  
  
  
  3.9
  
  
  
  $
  3.98
  
  
  
  4,995,062
  
  
  $
  4.53The
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 $0.20 and $0.29 for the year ended
December 31, 2003, $0.22 and $0.35 for the year ended December 31, 2002 and
$0.30 and $0.57 for the year ended December 31, 2001, respectively.
Note 10. Impairment

During the
year ended December 31, 2003, the Company evaluated the realizability of its
investment in Sharps in accordance with SFAS No. 115.  The Company compared the fair market value of its investment in
Sharps to the carrying value of the investment to determine the impairment.  Based upon the current fair market value,
the Company determined that its investment in Sharps was permanently impaired
by $0.3 million and, accordingly, recorded an impairment write-down, which is
included in other income (expense) as impairment of investments in affiliates.

During the
year ended December 31, 2001, the Company evaluated the long-lived assets of
FIData for impairment in accordance with SFAS No. 121, Accounting for the
Impairment of Long-lived Assets and for Long-lived
39

Assets to be Disposed of.  The
Company compared the net realizable value of the long-lived assets of FIData to
the carrying value of those assets to determine the impairment.  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 operating
loss from continuing operations as impairment loss.
During the
year ended December 31, 2001, the Company evaluated the realizability of its
investment in Princeton in accordance with SFAS No. 121.  The Company compared the net realizable
value of its investment in Princeton to the carrying value of the investment to
determine the impairment.  Based upon
private equity markets at that time, the Company determined that its investment
in Princeton was impaired by $1.8 million and accordingly, recorded an
impairment write-down, which is included in other income (expense) as
impairment of investments in affiliates.
Note 11. 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 in short-term securities.

Note 12. Leases
The Company
leases certain office space and equipment under operating leases.  Rental expense was $164,000, $173,000 and
$311,000 for the years ended December 31, 2003, 2002 and 2001.  Future minimum lease payments under
non-cancelable operating leases as of December 31, 2003 are $41,000 for the
year ending December 31, 2004, $35,000 for the year ending December 31, 2005,
$35,000 for the year ending December 31, 2006, $3,000 for the year ending
December 31, 2007 and $0 for all years thereafter.
Note 13. Income Taxes
The income
tax benefit is comprised of the following:
Year Ended
  December 31,(in thousands)
  
  2003
  
  2002
  
  2001Current:Federal
  
  $
  
  
  $
  
  
  $
  776State
  
  
  
  
  
  
  
  
  44Total
  
  $
  
  
  $
  
  
  $
  82040

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:

Year Ended
  December 31,(in thousands)
  
  2003
  
  2002
  
  2001Computed
  income tax benefit at statutory rate
  
  $
  2,270
  
  $
  6,488
  
  $
  13,702(Decrease)
  increase in taxes resulting from:Nondeductible
  losses in and impairments of affiliates
  
  
  (1,060
  )
  
  (6,790
  )
  
  (10,712
  )Nondeductible
  goodwill amortization and impairment
  
  
  
  
  
  
  
  
  (2,116
  )State income
  taxes, net of federal benefit
  
  
  
  
  
  
  
  
  45Permanent
  and other deductions, net
  
  
  (218
  )
  
  (85
  )
  
  (99
  )Valuation
  allowance
  
  
  (992
  )
  
  387
  
  
  Income tax
  benefit
  
  $
  
  
  $
  
  
  $
  820The
tax effect of significant temporary differences, which comprise the deferred
tax liability, is as follows:
December
  31,(in thousands)
  
  2003
  
  2002Deferred tax
  asset:Net loss
  carryforward
  
  $
  2,428
  
  $
  1,436Valuation
  allowance
  
  
  (2,428
  )
  
  (1,436
  )Deferred tax
  liability:Estimated
  tax liability
  
  
  
  
  
  (174
  )Net deferred
  tax liability
  
  $
  
  
  $
  (174
  )As
of December 31, 2003, the Company had a federal tax loss carryforward of $6.9
million, which begins expiring in 2019. 
Realization of the Companys carryforward is dependent on future taxable
income.  At this time, the Company
cannot assess whether or not the carryforward will be realized; therefore, a
valuation allowance has been recorded as shown above.
Note 14. Benefit Plans

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 twenty-one 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 years ended December 31, 2003,
2002 or 2001.  The Companys matching
contributions to this plan totaled approximately $29,000, $30,000 and $66,000
for the years ended December 31, 2003, 2002 and 2001, respectively.

Note 15. Summarized Financial Information for
Unconsolidated Subsidiary
The Company
accounts for its investment in Princeton under the equity method of accounting
(as the Company does not exhibit control over Princeton) and records the equity
in net loss of Princeton on a three-month lag. 
The Companys ownership percentage of the preferred stock, the
outstanding stock and the fully diluted stock of Princeton was 34.0%, 36.2% and
31.7%, respectively, as of December 31, 2003.
41

The Companys ownership percentage of the preferred stock, the
outstanding stock and the fully diluted stock of Princeton was 35.6%, 38.0% and
32.9%, respectively, as of December 31, 2002. 
See Note 19.
Princetons
summarized balance sheets are as follows:
September
  30,(in thousands)
  
  2003
  
  2002Current
  assets
  
  $
  34,750
  
  $
  59,363Non-current
  assets
  
  
  12,681
  
  
  17,522Current
  liabilities
  
  
  30,386
  
  
  56,648Non-current
  liabilities
  
  
  486
  
  
  934Mandatorily
  redeemable convertible preferred stock
  
  
  39,587
  
  
  31,767Princetons
statements of operations for the years ended September 30, 2003, 2002 and 2001,
have been used to calculate the equity in net loss recorded in the Companys
statements of operations for the years ended December 31, 2003, 2002 and 2001,
respectively.  Princetons summarized
statements of operations are as follows:
Year Ended
  September 30,(in thousands)
  
  2003
  
  2002
  
  2001Total
  revenues
  
  $
  35,309
  
  $
  28,559
  
  $
  19,920Gross profit
  
  
  16,026
  
  
  11,300
  
  
  3,442Loss from
  operations
  
  
  (7,965
  )
  
  (30,234
  )
  
  (55,771
  )Net loss
  
  
  (7,674
  )
  
  (32,462
  )
  
  (59,435
  )During
the quarter ended December 31, 2003, Princetons revenues were adversely
affected by the loss of certain customers. 
As a result, the management team of Princeton intensified its new sales
efforts and implemented a channel partner strategy with the goal of replacing
the loss of revenues as quickly as possible. 
There can be no assurances that Princeton will replace the revenues
attributable to the lost customers.
For the
year ended September 30, 2002, loss from operations of $30.2 million includes
special charges totaling $12.5 million. 
Approximately $9.3 million of the special charges relate to the
implementation of a strategic restructuring plan to streamline Princetons
operations by reducing operating expenses primarily through workforce
reductions ($5.8 million) and renegotiating significant contracts and leases
($3.5 million).  The additional charges
relate to the write-down of a portion of the asset value of Princetons
property and equipment.  The impairment
was recognized as the future undiscounted cash flows for Princeton were
estimated to be insufficient to recover the related carrying values of the
property and equipment.

For the
year ended September 30, 2001, loss from operations of $55.8 million includes
special charges totaling $13.3 million. 
Approximately $10.7 million of the special 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.
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
42

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 December
31, 2001, based upon the assumption that Princeton had acquired Quicken Bill
Manager as of October 1, 1999.

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 $39.1 million, net loss from continuing operations of $38.3 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 $43.2
million, net loss from continuing operations of $42.4 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 would have decreased the balance of
investments in affiliates from $26.4 million to $1.7 million as of December 31,
2001.
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.
Note 16. Related Parties
In November
2001, the Company entered into an Amended and Restated Employment Agreement
(Employment Agreement) with the Companys Chairman and Chief Executive Officer
(CEO).  As part of the Employment
Agreement, the Company entered into a Split-Dollar Life Insurance Agreement
(Insurance Agreement) with a trust beneficially owned by the CEO pursuant to
which the Company paid the annual insurance premium of $0.2 million.  The underlying life insurance policy (New
York Life policy number 46731037) had a face value of $4.5 million and required
remaining annual premium payments through March 2012, totaling $1.5 million.  In December 2003, the CEO and the Company
agreed to amend the Employment Agreement and terminate the provisions of the
Employment Agreement related to the Insurance Agreement in exchange for
payments by the Company to, and on behalf of, the CEO totaling $0.7 million in
cash.  Accordingly, the Company assigned
to the CEO, and the CEO assumed, all future obligations and benefits related to
the Insurance Agreement.  The CEO
released and discharged the Company from any further obligation to provide or
fund any life insurance for the benefit of the CEO, including the Insurance
Agreement.  The remaining provisions of
the Employment Agreement remain in full force and effect.  The entire $0.7 million is included in
SG&A during the year ended December 31, 2003.  In December 2003, $0.2 million of the total $0.7 million was
paid.  The remaining $0.5 million was
accrued at December 31, 2003 and paid in January 2004.
In August
2003, the Company issued 435,484 shares of its common stock to its CEO in
exchange for a salary reduction of $135,000 for the employment period of
October 1, 2003 to September 30, 2004. 
These shares were issued under the Companys Comprehensive Plan, which
allows for this type of issuance without any material amendments.

In April
2000, the Board of Directors of the Company approved a restricted stock grant
to the Companys CEO.  The restricted
stock grant consists of Princeton stock equal to 2% of Princetons fully
diluted shares.  The restricted stock
grant vested on April 30, 2003.  The
Company expensed the fair market value of the restricted stock grant over the
three-year period ended April 30, 2003. 
The Company
43

recognized $150,000, $600,000 and $600,000 during the years ended
December 31, 2003, 2002 and 2001, respectively, as compensation expense related
to the stock grant.
The
Companys CEO 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.  A member of the Companys Board
served as Tanisys Chairman of the Board and CEO from February 2002 until
February 2003 and as a member of Tanisys Board from February 2002 to March
2003.  This Board member was entitled to
receive approximately $15,000 per month from Tanisys as compensation for services
as Chairman of the Board and CEO.  The
Company also appointed the Companys Chief Financial Officer (CFO) and
another one of its Board members to the Board of Tanisys.  This Board member resigned from the Board of
Tanisys in February 2003 and the Companys CFO resigned from the Board of
Tanisys in March 2003.
The CEO of
the Company has served on the Board of Princeton since September 1998 (see Note
19).  The CEO served as Chairman of the
Board of Princeton from January 2002 until December 2002.  The Companys CFO served as a member of the
Board of Princeton from August 2001 until June 2002.
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 was appointed CFO of Sharps in February
2003.  In March 2003, Sharps began
reimbursing the Company for certain expenses incurred by the Companys
CFO.  As of December 31, 2003,
approximately $17,000 was due to the Company by Sharps for the unpaid portion
of these expenses, all of which was collected in January 2004.

Note 17. Selected Quarterly Financial Data
(Unaudited)
Three
  Months Ended(in
  thousands, except per share data)
  
  December 31,2003
  
  September 30,2003
  
  June 30,2003
  
  March 31,2003Operating
  revenues
  
  
  $
  
  
  
  
  $
  
  
  
  $
  
  
  
  $
  Operating
  loss from continuing operations
  
  
  
  (1,330
  )
  
  
  
  (543
  )
  
  
  (581
  )
  
  
  (720
  )Net loss
  from continuing operations
  
  
  
  (2,194
  )
  
  
  
  (1,638
  )
  
  
  (1,326
  )
  
  
  (1,328
  )Net loss
  from discontinued operations
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  Net (loss)
  income from disposal of discontinued operations
  
  
  
  (389
  )
  
  
  
  212
  
  
  
  
  
  
  
  147Net loss
  
  
  
  (2,583
  )
  
  
  
  (1,426
  )
  
  
  (1,326
  )
  
  
  (1,181
  )Basic and
  diluted net (loss) income per common share:Net loss
  from continuing operations
  
  
  
  (0.06
  )
  
  
  
  (0.05
  )
  
  
  (0.04
  )
  
  
  (0.04
  )Net loss
  from discontinued operations
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  Net (loss)
  income from disposal of discontinued operations
  
  
  
  (0.01
  )
  
  
  
  0.01
  
  
  
  
  
  
  
  0.01Net loss
  
  
  
  (0.07
  )
  
  
  
  (0.04
  )
  
  
  (0.04
  )
  
  
  (0.03
  )44

Three Months Ended(in
  thousands, except per share data)
  
  December 31,
  2002
  
  September 30,
  2002
  
  June 30,
  2002
  
  March 31,
  2002Operating
  revenues
  
  
  $
  
  
  
  
  $
  
  
  
  $
  
  
  
  $
  Operating
  loss from continuing operations
  
  
  
  (876
  )
  
  
  
  (718
  )
  
  
  (957
  )
  
  
  (1,009
  )Net loss
  from continuing operations
  
  
  
  (1,665
  )
  
  
  
  (922
  )
  
  
  (1,965
  )
  
  
  (13,985
  )Net loss
  from discontinued operations
  
  
  
  
  
  
  
  
  (420
  )
  
  
  (325
  )
  
  
  (218
  )Net income
  from disposal of discontinued operations
  
  
  
  78
  
  
  
  
  
  
  
  
  2,176
  
  
  
  Net loss
  
  
  
  (1,587
  )
  
  
  
  (1,342
  )
  
  
  (114
  )
  
  
  (14,203Basic and
  diluted net (loss) income per common share:Net loss
  from continuing operations
  
  
  
  (0.05
  )
  
  
  
  (0.03
  )
  
  
  (0.05
  )
  
  
  (0.41
  )Net loss
  from discontinued operations
  
  
  
  
  
  
  
  
  (0.01
  )
  
  
  (0.01
  )
  
  
  (0.01
  )Net income
  from disposal of discontinued operations
  
  
  
  
  
  
  
  
  
  
  
  
  0.06
  
  
  
  Net loss
  
  
  
  (0.05
  )
  
  
  
  (0.04
  )
  
  
  
  
  
  
  (0.42
  )Note
18. Discontinued Operations
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 was initially convertible into 33.334 shares of Tanisys common
stock.  The Companys ownership
percentage of the outstanding shares of Tanisys was approximately 36.2%, based
upon its voting interest, as of December 31, 2002.

In
connection with the Purchase Agreement, Tanisys committed to make payments to
the holders of the Series A Preferred Stock, to the extent its cash flow met
certain levels, until the holders received the amount of their investment in
the Series A Preferred Stock.  At the
sole option of the Company, these payments might have been 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 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 failed 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 have been 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 failed 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 would 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
and the six months ended June 30, 2002 and December 31, 2002, resulting in the
issuance of 999,051, 1,340,510, 1,693,696 and 2,232,482 additional shares,
respectively, of Series A Preferred Stock to the holders of the Series A
Preferred Stock.
For
accounting purposes, the Company was deemed to have control of Tanisys and,
therefore, consolidated the financial statements of Tanisys.  The Company consolidated the financial
statements of Tanisys on a three-month lag, as the Company had a different
year-end than Tanisys.  Tanisys balance
sheet as of September 30, 2002 was consolidated with the Companys balance
sheet as of December 31, 2002.  The
statements of operations of Tanisys for the year ended September 30, 2002 and
from the

45

purchase date to September 30, 2001, were consolidated with the
Companys statements of operations for the years ended December 31, 2002 and
2001, respectively.
In February
2003, the Company sold its preferred stock in Tanisys to ATE Worldwide LLC,
whose majority shareholder is a leader in the semiconductor testing equipment
market.  Accordingly, the operations of
Tanisys have been classified as discontinued operations.  The Company received approximately $0.2
million in exchange for its preferred stock, which is reported in net loss from
disposal of discontinued operations during the year ended December 31, 2003.
Pro Forma
The
following unaudited pro forma consolidated balance sheet includes adjustments
that give effect to the sale of the Companys preferred stock of Tanisys, as if
the sale had occurred on December 31, 2002. 
The pro forma adjustments reflect the elimination of the divested
operations, the consideration received at the closing of the sale and estimated
transaction costs.
As
  Reported
  
  Adjustments
  
  Pro
  Forma(in
  thousands)
  
  
  
  (Unaudited)
  
  (Unaudited)Cash and
  cash equivalents
  
  $
  8,704
  
  $
  193
  
  $
  8,897Other
  current assets
  
  
  339
  
  
  
  
  
  339Net current
  assets from discontinued operations
  
  
  1,427
  
  
  (1,427
  )
  
  Total
  current assets
  
  
  10,470
  
  
  (1,234
  )
  
  9,236Non-current
  assets
  
  
  9,654
  
  
  
  
  
  9,654Total assets
  
  $
  20,124
  
  $
  (1,234
  )
  $
  18,890Current
  liabilities
  
  $
  581
  
  $
  
  
  $
  581Net current
  liabilities from discontinued operations
  
  
  1,435
  
  
  (1,384
  )
  
  51Total
  current liabilities
  
  
  2,016
  
  
  (1,384
  )
  
  632Non-current
  liabilities
  
  
  1
  
  
  
  
  
  1Total
  liabilities
  
  
  2,017
  
  
  (1,384
  )
  
  633Stockholders
  equity
  
  
  18,107
  
  
  150
  
  
  18,257Total
  liabilities and stockholders equity
  
  $
  20,124
  
  $
  (1,234
  )
  $
  18,89046

Financial Statements

As the
Company consolidated Tanisys on a three-month lag, Tanisys balance sheet as of
September 30, 2002, including adjustments made under the purchase method of
accounting, was consolidated in the Companys balance sheet as of December 31,
2002.  Tanisys balance sheet
consolidated herein (presented as net assets and liabilities from discontinued
operations) is as follows:

(in thousands)Cash and cash equivalents
  
  $
  147Accounts
  receivable, net of accumulated depreciation of $95
  
  
  454Inventory:Raw
  materials
  
  
  284Work in
  process
  
  
  48Finished
  goods
  
  
  84Total
  inventory
  
  
  416Prepaid and
  other assets
  
  
  90Total
  current assets
  
  
  1,107Property and
  equipment
  
  
  310Accumulated
  depreciation
  
  
  (118
  )Net property
  and equipment
  
  
  192Other
  assets, net of accumulated amortization of $23
  
  
  128Total assets
  
  $
  1,427Accounts
  payable
  
  $
  612Accrued
  liabilities
  
  
  763Revolving credit
  note
  
  
  152Note payable
  to minority stockholders, net of discount
  
  
  953Total
  current liabilities
  
  
  2,480Other
  liabilities
  
  
  4Note payable
  to minority stockholders, net of discount
  
  
  Total
  liabilities
  
  $
  2,484Minority
  interest in consolidated affiliate
  
  $
  (1,100
  )Accumulated
  deficit
  
  $
  (1,060
  )47

Tanisys
statements of operations for the year ended September 30, 2002 and from the
purchase date through September 30, 2001, including adjustments made under the
purchase method of accounting, were consolidated in the Companys statements of
operations for the years ended December 31, 2002 and 2001, respectively.  Tanisys statements of operations
consolidated herein (presented as net loss from discontinued operations) are as
follows:

(in
  thousands)
  
  Year ended
  September 30,
  2002
  
  Purchase date
  through
  September 30,
  2001Operating
  revenues
  
  
  $
  2,619
  
  
  
  $
  686Operating
  expenses:Cost of
  revenues
  
  
  
  1,999
  
  
  
  
  367Selling,
  general and administrative expenses
  
  
  
  1,511
  
  
  
  
  378Research and
  development expenses
  
  
  
  1,506
  
  
  
  
  411Depreciation
  and amortization expense
  
  
  
  139
  
  
  
  
  16Operating
  loss from discontinued operations
  
  
  
  (2,536
  )
  
  
  
  (486
  )Other income
  (expense):Interest
  income
  
  
  
  5
  
  
  
  
  2Interest
  expense
  
  
  
  (816
  )
  
  
  
  (110
  )Other income
  (expense), net
  
  
  
  83
  
  
  
  
  (23
  )Minority
  interest in consolidated affiliate
  
  
  
  2,302
  
  
  
  
  519Total other
  income, net
  
  
  
  1,574
  
  
  
  
  388Net loss
  from discontinued operations
  
  
  $
  (962
  )
  
  
  $
  (98
  )Net loss
  from discontinued operations
  
  
  $
  (962
  )
  
  
  $
  (98
  )Preferred
  stock dividend and amortization of the value of the beneficial conversion
  feature on stock issued by consolidated affiliate
  
  
  
  (249
  )
  
  
  
  (1,508
  )Minority
  interest in consolidated affiliate
  
  
  
  249
  
  
  
  
  1,508Net loss
  from discontinued operations applicable to common stockholders
  
  
  $
  (962
  )
  
  
  $
  (98
  )Inventory
Tanisys
inventory was valued at standard cost which approximated actual cost computed
on a first-in, first-out basis, not in excess of market value.  Inventory costs included direct materials
and certain indirect manufacturing overhead expenses.  Tanisys policy concerning inventory write-down charges was to
establish a new, reduced cost basis for the affected inventory that remained
until the inventory was sold or disposed. 
Only additional impairment charges would affect the cost basis.  If subsequent to the date of impairment, it
was determined that the impairment charges were recoverable, Tanisys would not
increase the carrying costs of the affected inventory and corresponding income.

Due to the
dramatic decline in the semiconductor business cycle and the impact on revenues
since early 2001, and continued uncertainty of future sales volumes, Tanisys
monitored its inventory levels in light of product development changes and
future sales forecasts.  As a result,
Tanisys recorded a special charge to cost of goods sold of $0.5 million during
the year ended September 30, 2002, for the write-down of excess and obsolete
inventories.
Revolving Credit Note
In May
2001, Tanisys entered into an Accounts Receivable Financing Agreement (Debt
Agreement) with Silicon Valley Bank (Silicon) 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 was prime plus 1.5%, decreasing to 1.0% if Tanisys met
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.
48

In March
2002, Tanisys entered into a new Accounts Receivable Purchase Agreement
(Purchase Agreement) with Silicon, replacing the Debt Agreement, to fund
accounts receivable and provide working capital up to a maximum of $2.5
million.  The applicable interest rate
was 1.5% per month of the average daily balance outstanding during the month.  As of September 30, 2002, Tanisys owed
$152,000 under the Purchase Agreement.
Note Payable to Minority Stockholders, net of
Discount

In
connection with the Purchase Agreement, Tanisys committed to make payments to
the holders of the Series A Preferred Stock, to the extent its cash flow met
certain levels, until the holders 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 to be accreted to
$1.6 million through July 2003, using the effective interest method.  The accretion of the discount was recorded
as interest expense and allocated to the minority interest in consolidated
affiliate.

Revenue Recognition
Tanisys
recognized revenue when persuasive evidence of an arrangement existed, such as
a purchase order; the related products were shipped to the purchaser, typically
freight on board shipping point or at the time the services were rendered; the
price was fixed or determinable; and collectibility was reasonably
assured.  Tanisys warranted products
against defects, generally for a period of one year, and accrued the cost of
warranting these products as the items were shipped.  Tanisys sales to distribution partners were 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.
Beneficial Conversion Feature
The
beneficial conversion feature for the convertible Series A Preferred Stock, in
the amount of $4.5 million, was 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
was recorded as a dividend and allocated to the minority interest in
consolidated affiliate during the year ended September 30, 2001.
Advances
During
2002, the Company advanced $43,000 to Tanisys. 
These advances were due to the Company under the terms of a promissory
note bearing interest at twelve percent (12%) and matured in March 2003.  This promissory note was repaid in February
2003.
(Loss) Income from Disposal of Discontinued
Operations

During the
year ended December 31, 2003, net loss from disposal of discontinued operations
is comprised of income of $0.2 million from the sale of Tanisys and $0.2
million from the reduction of accruals related to discontinued operations,
offset by expense of $0.4 million to settle claims related to the April 2000
acquisition of OSC.  In exchange for
approximately $0.2 million, the Company sold its preferred stock in Tanisys to
ATE Worldwide LLC, whose majority shareholder is a leader in the semiconductor
testing equipment market.  Based upon
estimates of future liabilities related to the divested entities classified as
discontinued operations, the Company reduced its related accruals to $0 and
accordingly, recorded $0.2 million as income. 
In January 2004, the Company entered into an agreement with the former majority shareholders of OSC
to settle all claims related to the April 2000 acquisition of OSC by the
Company.  Under the terms of the
agreement, the Company will transfer to the former OSC majority shareholders
525,000 shares of the common stock of Sharps
owned by the Company, which
results in a non-cash charge in 2003
of approximately $0.4 million in conjunction with the settlement agreement.

During the
year ended December 31, 2002, net income from disposal of discontinued
operations is comprised of income of $2.2 million related to an income tax
refund and $0.1 million from the reduction of accruals related to the divested
entities classified as discontinued operations (based upon estimates of future
liabilities at that time).  During 2002,
the Company filed its federal income tax return

49

with the Internal Revenue Service for the tax fiscal year ended
September 30, 2001 (which includes the Transaction completed in October 2000)
and received a refund claim totaling $2.2 million.  The income tax refund is included in net income from disposal of
discontinued operations as the refund relates to those companies sold in the
Transaction.
During the
year ended December 31, 2001, net income from disposal of discontinued
operations includes income of $2.4 million related to the reduction of accruals
related to the divested entities classified as discontinued operations (based
upon estimates of future liabilities at that time).
Note 19. Subsequent Events (Unaudited)

Effective March
25, 2004, the Company entered into a definitive agreement to sell
all of its holdings in Princeton to existing and new investors of Princeton for
$10.0 million in cash.  This agreement
was executed in conjunction with an equity financing that has infused an
additional $10.3 million in Princeton for working capital purposes.  In conjunction with this financing, the
Companys ownership percentage of the preferred stock, the outstanding stock
and the fully diluted stock of Princeton decreased to 26.5%, 28.9% and 22.9%,
respectively.  In addition, the Company
lost its right to appoint a member to Princetons Board of Directors.

In addition, the Companys
Board of Directors unanimously approved a plan of
liquidation of the Company. The Company will file a proxy statement seeking
shareholder approval of the proposed sale of the Companys holdings in Princeton and the proposed
liquidation of New Century.
As of July
31, 2004 (the anticipated date of a special stockholders meeting), the
Companys cash position is estimated to be approximately $4.0 million. In
addition to the Companys cash, the liquidation proceeds would include $10.0
million in cash from the sale of the Companys holdings in Princeton. The
Company also currently holds 375,000 common shares in Sharps which would be
sold for an estimated $0.3 million. The above items represent approximately
$14.3 million in estimated liquidation proceeds, before related transaction
expenses.
In
conjunction with the proposed liquidation, the Company anticipates utilizing
cash through completion of the liquidation, including but not limited to: (i)
ongoing operating costs of approximately $0.2 million for a sixty (60) day
period subsequent to shareholder approval, (ii) payment of approximately $0.6
million to the Companys CEO for his interest in the Companys holdings of
Princeton, (iii) legal, consulting and other transaction related fees estimated
at $0.5 million, (iv) severance related expenditures totaling approximately
$2.6 million (see Item 11 in this annual report on Form 10-K for further
discussion of the Companys employment agreements), (iii) other costs,
including costs of accrued liabilities, insurance, vendor arrangement and lease
termination and other wind down costs estimated to range from $0.6 million to
$1.5 million. In addition, the Company has initially determined that
approximately $0.6 million to $0.8 million should be reserved for any unknown
liabilities that may arise. As a result, the Company currently estimates that
it should be able to distribute to its shareholders, in one or more cash
distributions over time, approximately $8.1 million to $9.2 million, or $0.23
to $0.27 per share, in liquidation. 
These amounts are estimates only and could ultimately be higher or
lower.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

On May 13,
2002, the Audit Committee of the Board of Directors of the Company elected to
terminate its relationship with and dismiss Arthur Andersen LLP (Andersen) as
its independent public accountants. 
Andersens report on the Companys consolidated financial statements as
of December 31, 2001, December 31, 2000 and September 30, 2000 and for the year
ended December 31, 2001, the transition quarter ended December 31, 2000 and the
years ended September 30, 2000 and September 30, 1999, did not contain an
adverse opinion or disclaimer of opinion, nor was it qualified or modified as
to uncertainty, audit scope or accounting principles.  No disagreements occurred with Andersen on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure

50

which, if not resolved to Andersens satisfaction, would have caused
Andersen to make reference to the subject matter in connection with its report
on the Companys consolidated financial statements for such years; and there
were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.
On July 2,
2002, the Audit Committee of the Board of Directors of the Company engaged
Burton McCumber & Cortez, L.L.P. (BMC) as the Companys independent
public accountants for the year ended December 31, 2002.  Prior to BMCs engagement, neither the
Company nor anyone on its behalf consulted with BMC regarding any of the
matters or reportable events listed in Items 304(a)(2)(i) and (ii) of Regulation
S-K.
ITEM 9A.CONTROLS AND PROCEDURES
Within the
ninety days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Companys
management, including the Companys Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Companys
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14.  Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company (including its consolidated
subsidiaries) required to be included in the Companys periodic SEC
filings.  There were no significant
changes in the Companys internal controls or in other factors that could
significantly affect these controls subsequent to the date of the Companys
evaluation.
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

BOARD OF DIRECTORS AND EXECUTIVE OFFICERS

Set forth
below is information with respect to the Board of Directors (Board) and
Executive Officers of the Company.  The
Executive Officers are elected by and serve at the discretion of the
Board.  There are no family
relationships between any two Directors or Executive Officers.

Name
  
  Age
  
  PositionParris H.
  Holmes, Jr.
  
  60
  
  Chairman of
  the Board and Chief Executive OfficerDavid P.
  Tusa
  
  43
  
  Executive
  Vice President, Chief Financial Officer and Corporate
  SecretaryGary D.
  Becker
  
  44
  
  Director(1)(2)C. Lee
  Cooke, Jr.
  
  59
  
  Director(2)Justin L.
  Ferrero
  
  30
  
  Director(1)Stephen M.
  Wagner
  
  47
  
  Director(1)(2)(1)Member of the Audit Committee
          (2)Member of the Compensation CommitteeParris
H. Holmes, Jr. has served as Chairman of the Board and
Chief Executive Officer (CEO) of the Company since May 1996.  Mr. Holmes served as both Chairman of the
Board and CEO of USLD Communications Corp., formerly U.S. Long Distance Corp.
(USLD), from September 1986 until August 1996, and served as Chairman of the
Board of USLD until June 2, 1997.  Prior
to March 1993, Mr. Holmes also served as President of USLD.  Mr. Holmes has been a member of the Board of
Directors of Princeton eCom Corporation (Princeton), a leading provider of
electronic bill presentment and payment services, since September 1998.  In January 2002, Mr. Holmes was appointed as
Chairman of

51


the Board of Princeton.  In
December 2002, Mr. Holmes resigned as Chairman of the Board of Princeton, but
remains on Princetons Board of Directors. 
Mr. Holmes also serves as a Director of Sharps Compliance Corp.
(Sharps), a provider of medical-related sharps disposal services for certain types
of medical sharps (needles, syringes and razors) products.  Mr. Holmes served on the Board of Tanisys
Technology, Inc. (Tanisys), a developer and marketer of semiconductor testing
equipment, but resigned as Chairman of the Board and a Board member in January
2002.
David
P. Tusa, CPA, Executive Vice President, Chief
Financial Officer (CFO) and Corporate Secretary joined the Company in August
1999.  Prior to joining the Company, Mr.
Tusa was Executive Vice President and CFO of U.S. Legal Support, Inc., a
provider of litigation support services with over 36 offices in seven states,
from September 1997 to August 1999. 
Prior to this, Mr. Tusa served as Senior Vice President and CFO of
Serv-Tech, Inc., a $300 million publicly held provider of specialty services to
industrial customers in multiple industries, from April 1994 through August
1997.  Additionally, Mr. Tusa was with
CRSS, Inc. a $600 million publicly held diversified services company, from May
1990 through April 1994.  Mr. Tusa served
on the Board of Directors of Tanisys from August 2001 to March 2003.  Mr. Tusa served as a member of the Board of
Directors of Princeton from December 2001 to June 2002.   Mr. Tusa served as an Advisor to the Board
of Directors of Sharps from October 2001 to January 2003.  Mr. Tusa has served as the CFO of Sharps
since February 2003.
Gary D. Beckerwas appointed as a Director
of the Company in May 2001.  Mr. Becker
has served as the Chairman of the Audit Committee of the Company since December
2002.  He was Chairman and CEO of PACE
Motor Sports, a subsidiary of PACE Entertainment, which was acquired by SFX
Entertainment in 1998 and subsequently acquired by Clear Channel Communications
in 2000.  Mr. Becker served on the Board
of Directors of USLD from September 1986 to August 1996.  He is the immediate past President of the
Houston Childrens Charity, which supports over 40 childrens agencies in the
Houston, Texas area.

C. Lee Cooke, Jr. has served as a Director
of the Company since May 1996 and was a Director of USLD from February 1991
until July 1996.  Since September 1991,
he has been President of Habitek International, Inc., d/b/a U.S. Medical
Systems, Inc, a biomedical company.  Mr.
Cooke served as Chairman of the Board for Tanisys from February 2002 until
February 2003 and served as CEO from March 2002 until February 2003.  He served as an Advisor to the Board of
Tanisys from July 2001 to February 2002. 
Mr. Cooke resigned as a member of the Board of Tanisys in March
2003.  Since July 1998, Mr. Cooke has
served as a Director of Sharps.  Since
October 2000, Mr. Cooke has served as a Director of the Staubach Group, CTLLC,
a real estate representation company, from October 2000.  He was President and CEO of CUVille, Inc.,
d/b/a good2CU.com, from 1999 until 2000 and served as CEO of The Greater Austin
Chamber of Commerce from 1983 to 1987. 
From 1972 to 1983, he served in various management roles at Texas
Instruments.  From 1988 to 1991, he
served in the elected position as Mayor of Austin, Texas.
Justin L. Ferrero has served as a Director
of the Company since June 2001.  Mr.
Ferrero has been a Partner with the Media and Entertainment Holding Company of
Convex Group since June 2002.  He also
served as a Director of Clique Capital, a venture capital fund focused
primarily on healthcare and technology, from January 2000 to May 2002.   Mr. Ferrero also served on the Board of
Directors of Tanisys from August 2001 to February 2003.  Mr. Ferrero served as an Associate for
Conseco Private Capital, the Merchant Bank division of Conseco, Inc., from 1997
to 1999.  Conseco Private Capital has a
generalist focus making growth capital investments in telecommunications,
manufacturing, technology and real estate.
Stephen
M. Wagner has served as a Director of the Company
since January 2003. Mr. Wagner has been the Executive Vice President of Grande
Communications since February 2003.  Mr.
Wagner also served as Director of ATSI Communications (ATSI) from October
2001 until February 2003.  From August
2001 through February 2003, Mr. Wagner served as President and CEO of
ATSI.  Prior to joining ATSI, Mr. Wagner
served as President of Qwest Communications International Inc.s (Qwest)
Local Broadband, Southern Region, from November 1999 to March 2001.  From December 1997 until

52


June 1998, Mr. Wagner served as Vice President of Wholesale Markets for
LCI International and from June 1998 until November 1999, he served in that
same role for Qwest upon their acquisition of LCI International.  Prior to December 1997, Mr. Wagner served in
various senior management positions with USLD including Vice President of
Sales, Marketing and Business Development until their acquisition by LCI
International in December 1997.
Audit Committee of the Board of Directors
The Audit
Committee is comprised of certain Directors who are not employees of the
Company or any of its subsidiaries. 
Messrs. Becker (Chairman), Ferrero and Wagner are the current members of
the Audit Committee.  The Audit
Committee meets with the independent auditors and management representatives,
recommends to the Board of Directors appointment of independent auditors,
approves the scope of audits, interim reviews and other services to be
performed by the independent auditors, approves in advance all permissible
non-audit services, considers whether the performance of any professional
services by the auditors other than services provided in connection with the
audit function could impair the independence of the auditors and reviews the
results of audits and interim reviews and the accounting principles applied in
financial reporting and financial and operational controls.  The independent auditors have unrestricted
access to the Audit Committee and vice versa.
Audit Committee Financial Expert

The
Companys Board has determined that Mr. Ferrero is an independent director who
qualifies as an audit committee financial expert, as that term is defined in
Item 401(h) of Regulation S-K under the Securities Act of 1933, as amended.

Section 16(a) Beneficial Ownership Reporting
Compliance
Section
16(a) of the Exchange Act requires that the Companys directors, executive
officers and persons who own more than 10% of a registered class of the
Companys equity securities, file with the Securities and Exchange Commission
(SEC) initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company.  Directors, executive officers and stockholders
holding more than 10% are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file.
To the
Companys knowledge, based solely on a review of the copies of the Section
16(a) reports furnished to the Company and written representations that no
other reports were required during the year ended December 31, 2003, all
Section 16(a) filing requirements applicable to its directors, executive
officers and greater than 10% beneficial owners were in compliance.
Code of Ethics
The Companys
Board adopted a Code of Ethics for all of our directors, officers and
employees, as defined in Item 406 of Regulation S-K under the Securities Act of
1933, as amended.  The Companys Code of
Ethics is filed as an exhibit to this Annual Report on Form 10-K.  You may also request a free copy of the
Companys Code of Ethics from the Companys investor relations department.  The Company intends to disclose any
amendments to, or waivers from, the provisions of its Code of Ethics within
five business days of the amendment or waiver under Item 10 of Form 8-K.
53

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

The following Summary Compensation Table sets forth certain information
concerning compensation of the named Executive Officers of the Company.

Annual Compensation
  
  Long-TermCompensation
  Awards(1)Name and
  Principal Position
  
  Fiscal
  Year
  
  Salary
  
  Bonus
  
  Other Annual
  Compensation
  
  Securities
  Underlying
  Options(#)
  
  All Other
  CompensationParris H. Holmes, Jr.
  
  
  2003
  
  $
  344,883
  
  $
  0
  
  
  $
  335,375
  (2)
  
  
  0
  
  
  $
  182,000
  (3)Chairman of the Board and
  
  
  2002
  
  $
  375,000
  
  $
  0
  
  
  $
  59,808
  (4)
  
  
  450,000
  
  
  $
  201,853
  (5)Chief
  Executive Officer
  
  
  2001
  
  $
  375,000
  
  $
  0
  
  
  $
  23,944
  (6)
  
  
  941,667
  
  
  $
  211,919
  (7)David P.
  Tusa
  
  
  2003
  
  $
  192,500
  (8)
  $
  0
  
  
  $
  18,541
  (9)
  
  
  0
  
  
  $
  9,625
  (10)Executive Vice President,
  
  
  2002
  
  $
  192,500
  
  $
  20,000
  
  
  $
  20,178
  (11)
  
  
  200,000
  
  
  $
  13,723
  (12)Chief Financial Officer and Corporate Secretary
  
  
  2001
  
  $
  192,500
  
  $
  80,000
  
  
  $
  18,259
  (13)
  
  
  325,000
  
  
  $
  21,543
  (14)(1)
  Messrs.
  Holmes and Tusa received no restricted stock awards or long-term incentive
  plan payouts during 2003, 2002 and 2001.(2)
  Represents
  $158,085 for the payment of taxes reimbursed to Mr. Holmes in conjunction
  with the termination of the split-dollar life insurance policy, $135,000 of
  compensation issued in the form of Company stock to Mr. Holmes in exchange
  for a salary reduction for the period October 1, 2003 to September 30, 2004,
  $26,875 for taxable fringe benefits and $15,415 for payment of certain taxes
  reimbursed to Mr. Holmes during 2003.(3)
  Represents
  $10,000 in 401(k) Retirement Plan contributions and $172,000 in life
  insurance premiums made or paid on behalf of Mr. Holmes during 2003.(4)
  Includes
  $35,855 for taxable fringe benefits and $23,953 for payment of certain taxes
  reimbursed to Mr. Holmes during 2002.(5)
  Represents
  $10,000 in 401(k) Retirement Plan contributions, $7,500 in deferred
  compensation contributions and $184,353 in life insurance premiums made or
  paid on behalf of Mr. Holmes during 2002.(6)
  Includes
  $14,115 for taxable fringe benefits and $9,829 for payment of certain taxes
  reimbursed to Mr. Holmes during 2001.(7)
  Represents
  $10,500 in 401(k) Retirement Plan contributions, $30,000 in deferred
  compensation contributions and $171,419 in life insurance premiums made or
  paid on behalf of Mr. Holmes during 2001.(8)
  During the
  year ended December 31, 2003, $112,500 of Mr. Tusas salary included herein
  was billed to and reimbursed by Sharps Compliance Corp.(9)
  Includes
  $11,783 for taxable fringe benefits and $6,758 for the payment of certain
  taxes reimbursed to Mr. Tusa during 2003.(10)
  Represents
  $9,625 in 401(k) Retirement Plan contributions made on behalf of Mr. Tusa
  during 2003.(11)
  Includes
  $12,097 for taxable fringe benefits and $8,081 for the payment of certain
  taxes reimbursed to Mr. Tusa during 2002.(12)
  Represents
  $9,223 in 401(k) Retirement Plan contributions and $4,500 in deferred
  compensation contributions made on behalf of Mr. Tusa during 2002.(13)
  Includes
  $10,764 for taxable fringe benefits and $7,495 for the payment of certain
  taxes reimbursed to Mr. Tusa during 2001.(14)
  Represents
  $6,293 in 401(k) Retirement Plan contributions and $15,250 in deferred
  compensation contributions made on behalf of Mr. Tusa during 2001.Employment
Agreements
The Company
entered into an Amended and Restated Employment Agreement (Employment
Agreement) with Parris H. Holmes, Jr. in November 2001.  The Agreement provides for a five-year term,
subject to automatic extension for an additional one-year term on each one-year
anniversary of the

54

Agreement unless terminated early as provided therein, including
termination by the Company for cause (as defined in the Employment Agreement)
or termination by Mr. Holmes for good reason (as defined in the Employment
Agreement).  This Employment Agreement
provides for an annual, calendar year base salary of $375,000 and an incentive
bonus at the discretion of the Compensation Committee.  This Agreement also provides for a
company-paid automobile allowance, club memberships, certain tax reimbursements
and other benefits.
On August
18, 2003, the Company and Mr. Holmes reached an arrangement whereby Mr. Holmes
agreed to a salary reduction of $135,000 for the employment period from October
1, 2003 through September 30, 2004 in exchange for the issuance to Mr. Holmes
of 435,484 shares of the Companys common stock.
The Company
entered into Split-Dollar Life Insurance Agreements (Insurance Agreements)
with trusts beneficially owned by Mr. Holmes, pursuant to which the Company
paid the premiums on insurance policies that provided total death benefits of
approximately $5.5 million over a 60 month period beginning November 1,
2001.  If Mr. Holmes left the Company
for good cause, terminated without cause, change of control or was permanently
disabled, the Company would have continued to pay the premiums of the policy,
one-third on each of November 1, 2002, 2003 and 2004.  Upon the death of Mr. Holmes or the cancellation of the Insurance
Agreements, the Company was entitled to receive repayment of its premiums paid
under the policy out of any cash value or death benefits payable under the
policy.
Mr. Holmes
and the Company agreed to amend the Employment Agreement and terminate the
provisions of the Employment Agreement related to the Insurance Agreement in
exchange for payments by the Company to, and on behalf of, Mr. Holmes totaling
$699,391 in cash.  Accordingly, the
Company assigned to Mr. Holmes, and Mr. Holmes assumed, all future obligations
and benefits related to the Insurance Agreement.  Mr. Holmes released and discharged the Company from any further
obligation to provide or fund any life insurance for the benefit of Mr. Holmes,
including the Insurance Agreements. 
Except as specifically set forth herein, the remaining provisions of the
Employment Agreement remain in full force and effect.
The
Employment Agreement also provides that, if the Company terminates Mr. Holmes
employment without cause (including the Companys election to not extend the
Employment Agreement at any renewal date) or if he resigns his employment for
good reason, he will be entitled to a lump-sum payment in the amount equal to
his base salary for the unexpired portion of the five-year term of his
Agreement then in effect and without giving effect to any further extension (a
maximum payment of approximately $1,875,000), continuation of his benefits
through the unexpired term of his Employment Agreement and vesting of all
outstanding stock options, which options would remain exercisable for the
longer of the remainder of the exercise period established under the option
agreement or three years following the date of termination.  Upon death or permanent disability, Mr.
Holmes would receive his then effective salary for 60 months and Company paid
premiums for 60 months.

The
Employment Agreement with Mr. Holmes provides that if, at any time within 24
months of a change of control, he ceases to be an employee of the Company (or
its successor) by reason of (i) termination by the Company without cause (as
defined in the Employment Agreement), or (ii) voluntary termination by the
employee for good reason upon change of control (as defined in the Employment
Agreement), in addition to the severance stated above, he will be entitled to
receive (a) an additional payment, if any, that, when added to all other
payments received in connection with a change of control, will result in the
maximum amount allowed to be paid to an employee without triggering an excess
parachute payment (as defined by the Internal Revenue Code), and (b) a payment
or payments equaling the amount of any taxes and interest imposed on any
payment or distribution by the Company to the employee upon termination under
(i) or (ii) above that constitutes an excess parachute payment.
The Company
entered into an Amended Employment Agreement with David P. Tusa in November
2001.  This Agreement expires eighteen
months from its effective date, subject to automatic extension of successive
eighteen-month terms unless the Company elects not to extend the Employment
55


Agreement.  The Employment
Agreement is subject to early termination as provided therein, including
termination by the Company for cause (as defined in the Employment Agreement)
or terminated by Mr. Tusa for good reason (as defined in the Employment
Agreement).  Mr. Tusas annual base
salary under the Employment Agreement is $192,500.  The Employment Agreement provides for incentive bonuses at the discretion
of the Compensation Committee. This Agreement also provides for a company-paid
automobile allowance, club memberships, certain tax reimbursements and other
benefits.
The
Employment Agreement of Mr. Tusa provides that, if the Company terminates his
employment without cause (including the Companys election to not extend the
Employment Agreement at any renewal date) or if he resigns his employment for
good reason (as defined in his Employment Agreement), he will be entitled to
a lump-sum payment equal to eighteen months of his then effective annual base
salary, currently $288,750, and continuation of his benefits through the
severance period.  After August 1, 2004,
Mr. Tusa would be entitled to a lump-sum payment equal to twenty-four months of
his then effective annual base salary and continuation of his benefits through
the severance period.
The
Employment Agreement provides that if, at any time within 24 months of a change
of control or liquidation of the Company, Mr. Tusa ceases to be an employee of
the Company (or its successor) by reason of (i) termination by the Company (or
its successor) without cause (as defined in the Employment Agreement), or
(ii) voluntary termination by the employee for good reason upon change of
control (as defined in the Employment Agreement), he will be entitled to receive
a lump-sum payment in the amount equal to 24 months of his then effective
annual base salary, continuation of his benefits for 24 months from such
termination and vesting of all outstanding stock options.
A change of
control is deemed to have occurred if (i) more than 30% of the combined voting
power of the Companys then outstanding securities is acquired, directly or
indirectly, (ii) at any time during the 24 month period after a tender offer,
merger, consolidation, sale of assets or contested election or any combination
of such transactions, at least a majority of the Companys Board of Directors
shall cease to consist of continuing directors (meaning directors of the
Company who either were directors prior to such transaction or who subsequently
became directors and whose election or nomination for election by the Companys
stockholders, was approved by a vote of at least two-thirds of the directors
then still in office who were directors prior to such transaction), (iii) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation other than a merger or consolidation that would
result in the voting securities of the Company outstanding, immediately prior
to continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least 60% of the
total voting power represented by the voting securities of the Company or such
surviving entity outstanding, immediately after such merger or consolidation,
or (iv) the stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement of sale or disposition by the Company of all, or
substantially all, of the Companys assets.
Stock Option Grants in 2003

No options
were granted by the Company to the named Executive Officers during 2003
pursuant to the Employee Comprehensive Stock Plan.

56

Aggregated Option Exercises in 2003 and
Fiscal Year-End Option Values
The
following table provides information related to options of New Century
exercised by the named Executive Officers of the Company during 2003 and the
number and value of New Century options held at December 31, 2003.
Name
  
  Shares
  Acquired on
  Exercise
  
  Value
  Realized(1)
  
  Number of
  Securities
  Underlying Unexercised
  Options at FY-End
  
  Value(2)
  of Unexercised
  In-the-Money Options
  at FY-End($)Exercisable
  
  Unexercisable
  Exercisable
  
  UnexercisableParris H.
  Holmes, Jr.
  
  0
  
  
  $
  0
  
  
  2,520,833
  (3)
  
  
  337,500
  
  
  
  $
  0
  
  
  
  $
  0David P.
  Tusa
  
  0
  
  
  $
  0
  
  
  706,667
  
  
  
  150,000
  
  
  
  $
  0
  
  
  
  $
  0(1)
  Market value
  of the underlying securities at exercise date, minus the exercise price.(2)
  Market value
  of the underlying securities at December 31, 2003 ($0.32), minus the exercise
  price.(3)
  Includes
  333,333 exercisable options held by Mr. Holmes spouse at December 31, 2003.Compensation
of Directors
A total of
1,300,000 shares of Common Stock are subject to the Companys 1996 Non-Employee
Director Plan (the Director Plan).  In
November of 2002, the Board of Directors revised the Director Plan to reflect
the following (effective with the Board of Director meetings to be held in
2003):  Each non-employee Director of
the Company will be entitled to annual compensation consisting of $28,000 or
100,000 Company stock options.  As an
alternative, each non-employee Director may choose a combination of stock and
options.  Cash compensation is paid on
or about the day of each quarterly Board meeting.  Stock option compensation is issued within 60 days prior to the
respective year of service.  In addition
to the above, the Chairman of the Audit Committee is issued an additional
annual stock option grant of 40,000 shares and the Chairman of the Compensation
Committee is issued an additional annual stock option grant of 30,000 shares.
In
conjunction with the Director Plan for 2003, all non-employee Directors elected
to receive $14,000 in annual cash compensation and 50,000 Company stock
options.  The following stock options
were issued to the Directors as compensation for their service for 2003:




Gary D.
  Becker
  90,000C. Lee
  Cooke, Jr.
  80,000Justin L.
  Ferrero
  50,000Stephen M.
  Wagner
  50,000The
awards are for services to be performed during the year 2003.  For each quarterly Board meeting not
attended by a non-employee Director, twenty-five percent (25%) of such annual
compensation (both cash and stock options) will be forfeited.
In conjunction with the Director Plan for
2004, all non-employee Directors elected to receive $28,000 in annual cash
compensation.
Compensation Committee Interlocks and Insider
Participation
Parris H.
Holmes, Jr., Chairman of the Board and CEO, also served as Chairman of the
Board of Tanisys.  In August 2002, the
Company appointed David P. Tusa and Justin L. Ferrero to the Board of
Tanisys.  In February 2002, upon the
resignation of Mr. Holmes as Chairman of the Board of Tanisys, C. Lee Cooke,
Jr. became Chairman of the Board.  Mr.
Cooke was then appointed CEO of Tanisys in March 2002 until his resignation in
February 2003.  Mr. Cooke and Mr. Tusa
resigned as members of the Board
57


of Directors of Tanisys in March 2003. 
Mr. Ferrero resigned as a Tanisys Board member in February 2003.
Mr. Holmes
also serves as a Director of the Board of Princeton.  In December 2002, Mr. Holmes resigned as Chairman of the Board of
Princeton, but remains a member of the Board of Directors.  In December 2001, Mr. Tusa was appointed to
the Board of Princeton.  Mr. Tusa
resigned from the Princeton Board in June 2002.
Mr. Holmes
and Mr. Cooke serve on the Board of Sharps. 
Mr. Tusa served as an Advisor to the Board of Directors of Sharps from
October 2001 to January 2003.  Mr. Tusa
has served as the CFO of Sharps since February 2003.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information at
December 31, 2003
(a)
  
  (b)
  
  (c)Plan
  category
  
  Number of Securities to
  be issued upon exercise
  of outstanding
  options, warrants
  and rights
  
  Weighted
  average exercise
  price of
  outstanding
  options, warrants
  and rights
  
  Number of
  securitiesremaining available for
  future issuance under
  equity compensation plans
  (excluding securities
  reflected in column a)Equity
  compensation plans approved by security holders
  
  
  5,778,187
  
  
  
  $
  3.98
  
  
  
  10,021,813Equity
  compensation plans not approved by security holders
  
  
  
  
  
  
  
  
  
  
  
  Total
  
  
  5,778,187
  
  
  
  $
  3.98
  
  
  
  10,021,813Security
Ownership of Certain Beneficial Owners And Management
The
following table sets forth certain information known to the Company with
respect to beneficial ownership as of March 22, 2004, by (i) all persons who
are beneficial owners of five percent (5%) or more of the Companys Common
Stock, (ii) each Director and nominee, (iii) the named Executive Officers and
(iv) all current Directors and Executive Officers as a group.

As of March
22, 2004, 34,653,104 shares of the Companys Common Stock were
outstanding.  Beneficial ownership is
defined in accordance with the rules of the SEC to mean generally the power to
vote to dispose of shares, regardless of any economic interest therein.  The persons listed have sole voting power
and sole dispositive power with respect to all shares set forth in the table
unless otherwise specified in the footnotes to the table.
Information
with respect to beneficial ownership of the Directors and named Executive
Officers is based upon information furnished by each Director or Officer of the
Company or contained in filings made with the SEC.  With the exception of shares that may be acquired by employees
pursuant to the 401(k) Retirement Plan, the amount of beneficial ownership
includes shares subject to acquisition within 60 days of March 22, 2004 by such
person or group.
58

Name
  
  
  Amount and
  Nature ofBeneficial Ownership
  
  
  Percent of
  Class (1)5% StockholdersJack Silver
  
  
  2,392,000
  (2)
  
  
  6.9
  %660 Madison
  AvenueNew York, NY
  10021Michael R.
  Smith
  
  
  2,308,841
  (3)(4)
  
  
  6.7
  %5302 Avenue
  QLubbock, TX 79412Named Executive Officers and DirectorsParris H.
  Holmes, Jr.
  
  
  3,646,201
  (5)
  
  
  10.5
  %David P.
  Tusa
  
  
  725,367
  (6)
  
  
  2.1
  %Gary D.
  Becker
  
  
  263,400
  (7)
  
  
  *C. Lee
  Cooke, Jr.
  
  
  554,616
  (8)
  
  
  1.6
  %Justin L.
  Ferrero
  
  
  100,000
  (9)
  
  
  *Stephen M.
  Wagner
  
  
  50,000
  (10)
  
  
  *All
  executive officers and directors as a group
  
  
  5,339,584
  (11)
  
  
  15.4
  %*
  Represents
  less than 1% of the issued and outstanding shares of Common Stock.(1)
  Based on a
  total of 34,653,104 shares of Common Stock issued and outstanding on March
  22, 2004.(2)
  Based on
  information provided by The Nasdaq Stock Market, Inc. for record ownership as
  of December 31, 2003, the most recent date for which information is available
  to the Company.(3)
  Based on
  record ownership as of March 22, 2004.(4)
  Based upon a
  January 2004 voting rights agreement, the Company holds the right to direct
  the vote of the common stock owned by Mr. Smith.(5)
  Includes
  2,187,500 shares that Mr. Holmes has the right to acquire upon the exercise
  of stock options, 333,333 shares that his spouse has the right to acquire
  upon the exercise of stock options, 3,500 shares held in an individual
  retirement account and 63,319 shares held by his spouse in an individual
  retirement account.(6)
  Includes
  706,667 shares that Mr. Tusa has the right to acquire upon the exercise of
  stock options.(7)
  Includes
  130,000 shares that Mr. Becker has the right to acquire upon the exercise of
  stock options.(8)
  Represents
  548,656 shares that Mr. Cooke has the right to acquire upon the exercise of
  stock options and 5,960 shares that Mr. Cooke holds in an individual
  retirement account.(9)
  Represents
  100,000 shares that Mr. Ferrero has the right to acquire upon the exercise of
  stock options.(10)
  Represents
  50,000 shares that Mr. Wagner has the right to acquire upon the exercise of
  stock options.(11)
  Includes
  4,056,156 shares that the six (6) Directors and Executive Officers have the
  right to acquire upon exercise of stock options and 72,779 shares held in
  individual retirement accounts at March 22, 2004.ITEM
13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
In November
2001, the Company entered into an Amended and Restated Employment Agreement
(Employment Agreement) with the Companys Chairman and Chief Executive
Officer (CEO).  As part of the
Employment Agreement, the Company entered into a Split-Dollar Life Insurance
Agreement (Insurance Agreement) with a trust beneficially owned by the CEO
pursuant to which the Company paid the annual insurance premium of $0.2
million.  The underlying life insurance
policy (New York Life policy number 46731037) had a face value of $4.5 million
and required remaining annual premium payments through March 2012, totaling
$1.5 million.  In December 2003, the CEO
and the Company agreed to amend the Employment Agreement and terminate the
provisions of the Employment Agreement

59

related to the Insurance Agreement in exchange for payments by the
Company to, and on behalf of, the CEO totaling $0.7 million in cash.  Accordingly, the Company assigned to the
CEO, and the CEO assumed, all future obligations and benefits related to the
Insurance Agreement.  The CEO released
and discharged the Company from any further obligation to provide or fund any
life insurance for the benefit of the CEO, including the Insurance
Agreement.  The remaining provisions of
the Employment Agreement remain in full force and effect.  Of the total payments of $0.7 million,
approximately $0.2 million was paid in December 2003 while the remaining $0.5
million was paid in January 2004.
In August
2003, the Company issued 435,484 shares of its common stock to Mr. Holmes in
exchange for a salary reduction of $135,000 for the employment period of
October 1, 2003 to September 30, 2004. 
These shares were issued under the Companys Comprehensive Plan, which
allows for this type of issuance without any material amendments.
In April
2000, the Board of Directors of the Company approved a restricted stock grant
to Mr. Holmes.  The restricted stock
grant consists of Princeton stock equal to 2% of Princetons fully diluted
shares.  The restricted stock grant
vested on April 30, 2003.  The Company
expensed the fair market value of the restricted stock grant over the
three-year period ended April 30, 2003.
Mr. Holmes
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.  Mr. Cooke served as Tanisys Chairman of the
Board and CEO from February 2002 until February 2003 and as a member of
Tanisys Board from February 2002 to March 2003.  Mr. Cooke was entitled to receive approximately $15,000 per month
from Tanisys as compensation for services as Chairman of the Board and CEO.  The Company also appointed Mr. Tusa and Mr.
Ferrero to the Board of Tanisys.  Mr.
Ferrero resigned from the Board of Tanisys in February 2003 and Mr. Tusa
resigned from the Board of Tanisys in March 2003.

Mr. Holmes
has served on the Board of Princeton since September 1998.  Mr. Holmes served as Chairman of the Board
of Princeton from January 2002 until December 2002.  Mr. Tusa served as a member of the Board of Princeton from August
2001 until June 2002.
Mr. Holmes
and Mr. Cooke serve on the Board of Sharps and did so at the time the Company
invested in Sharps.  Mr. Tusa was
appointed CFO of Sharps in February 2003. 
In March 2003, Sharps began reimbursing the Company for certain expenses
incurred by Mr. Tusa.  As of December
31, 2003, approximately $17,000 was due to the Company by Sharps for the unpaid
portion of these expenses, all of which was collected in January 2004.
ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT COMMITTEE REPORT
General
The Audit
Committee consists of three Directors, each of whom is independent as defined
in the listing standards of Nasdaq.  A
brief description of the responsibilities of the Committee is set forth in Item
10, under the heading Committees of the Board of Directors.
The Audit
Committee has reviewed and discussed the Companys audited financial statements
for the year ended December 31, 2003 with management of the Company.  The Audit Committee has discussed with
Burton McCumber & Cortez, L.L.P., the Companys independent accountants,
the matters required to be discussed by SAS 61 (Codification of Statements on
Auditing Standards).  The Audit
Committee has also received the written disclosures and the letter from Burton
McCumber & Cortez, L.L.P. required by Independence Standards Board Standard
No. 1, and has discussed with Burton McCumber & Cortez, L.L.P. its
independence.
60


Based on
the review and the discussions referred to above, the Audit Committee
recommended to the Board that the Companys audited financial statements be
included in the Companys Annual Report on Form 10-K for the fiscal year ended
December 31, 2003 for filing with the SEC.
Audit
Fees
The
aggregate fees billed by Burton McCumber & Cortez, L.L.P. for professional
services required for the audit of the Companys annual financial statements
and the review of the interim financial statements included in the Companys
Form 10-Qs were $82,381 and $74,750 for 2003 and 2002, respectively.
Audit-Related
Fees
The
aggregate fees billed by Burton McCumber & Cortez, L.L.P. for assurance and
related services that are reasonably related to the performance of the audit of
the Companys annual financial statements or the review of the interim
financial statements included in the Companys Form 10-Qs were $0 and $1,115
for 2003 and 2002, respectively.
Tax Fees
The Company
did not engage nor pay Burton McCumber & Cortez, L.L.P. for professional
services relating to tax compliance, tax advice or tax planning.
All
Other Fees
The
aggregate fees billed for additional services rendered by Burton McCumber &
Cortez, L.L.P. in 2003 and 2002, other than the services described above, were
$0 and $555, respectively.  In engaging
for these additional services, the Audit Committee considered whether the
provision of these services was compatible with maintaining independence.
Audit Committee of the Board of DirectorsGary D.
  Becker, ChairmanJustin L.
  FerreroStephen M.
  Wagner61

PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a)
  Documents Filed as Part of Report1.
  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
  Consolidated Financial Statements of Princeton eCom Corporation and the
  related report of Princetons independent public accountants thereon are
  included in this report and are referenced as pages S-1 to S-30.  The additional 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.Exhibit
  Number
  
  Description of Exhibits2.1
  
  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)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)62

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 (incorporated by reference from Exhibit 10.11 to Form
  10-K, dated December 31, 2001)10.12
  
  Employment
  Agreement between NCEH Corp. and David P. Tusa, dated November 1, 2001
  (incorporated by reference from Exhibit 10.12 to Form 10-K, dated December
  31, 2001)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 (incorporated by reference from Exhibit
  10.16 to Form 10-K, dated December 31, 2001)10.17
  
  Office
  Building Sublease Agreement between BCC and CCC Centers, Inc., dated February
  11, 2002 (incorporated by reference from Exhibit 10.17 to Form 10-K, dated
  December 31, 2001)10.18
  
  Office
  Building Lease Agreement between SAOP Union Square, L.P. and New Century
  Equity Holdings Corp., dated February 11, 2004 (filed herewith)14.1
  
  New Century
  Equity Holdings Corp. Code of Ethics (filed herewith)21.1
  
  List of
  Subsidiaries (filed herewith)31.1
  
  Certification
  of Chief Executive Officer in Accordance with Section 302 of the
  Sarbanes-Oxley Act (filed herewith)31.2
  
  Certification
  of Chief Financial Officer in Accordance with Section 302 of the
  Sarbanes-Oxley Act (filed herewith)32.1
  
  Certification
  of Chief Executive Officer in Accordance with Section 906 of the
  Sarbanes-Oxley Act (filed herewith)32.2
  
  Certification
  of Chief Financial Officer in Accordance with Section 906 of the
  Sarbanes-Oxley Act (filed herewith)99.1
  
  Letter to
  the Securities and Exchange Commission regarding representations of Arthur
  Andersen LLP (incorporated by reference from Exhibit 99.1 to Form 10-K, dated
  December 31, 2001)63

(b)
  
  Reports on Form 8-KForm 8-K,
  dated October 8, 2003, filed October 9, 2003, announcing the delisting of the
  Companys common stock from the Nasdaq SmallCap Market effective October 10,
  2003.  The Companys common stock was
  immediately eligible for and began trading on the Over-The-Counter Bulletin
  Board on October 10, 2003.Form 8-K,
  dated October 31, 2003, filed November 3, 2003, announcing the settlement of
  the lawsuit brought against the Company and one of its officers by Bristol
  Investments Ltd. and Microbilt Corp.Form 8-K,
  dated November 4, 2003, filed November 5, 2003, announcing the Companys
  results of operations for the three and nine months ended September 30, 2003.Form 8-K,
  dated and filed December 19, 2003, announcing an agreement between the
  Company and its Chief Executive Officer (CEO) to amend the CEOs Amended
  and Restated Employment Agreement (Employment Agreement) and terminate the
  provisions of the Employment Agreement related to the Split-Dollar Life
  Insurance Agreement in exchange for payments by the Company to, and on behalf
  of, the CEO totaling $699,391 in cash.Form 8-K,
  dated January 22, 2004, filed January 23, 2004, announcing an agreement
  between the Company and the former majority shareholders of Operator Service
  Company (OSC) to settle all claims related to the April 2000 acquisition of
  OSC by the Company.Form 8-K,
  dated and filed March 29, 2004, announcing a definitive agreement
  to sell the Companys holdings in Princeton eCom Corporation, the Companys
  Plan of Liquidation and Dissolution and the Companys results of operations
  for the fourth quarter and year ended December 31, 2003.64

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.

NEW CENTURY
  EQUITY HOLDINGS CORP.(Registrant)Date:  March
  29, 2004
  By:
  /s/ PARRIS H. HOLMES, JR.Parris H. Holmes, Jr.Chairman of the Board andChief Executive OfficerPursuant
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 29th day of March, 2004.
Signature
  
  Title/s/ PARRIS H. HOLMES, JR.
  
  Chairman of the Board andChief Executive OfficerParris H. Holmes, Jr.
  
  (Principal Executive Officer)/s/ DAVID P. TUSA
  
  Executive Vice President andChief Financial OfficerDavid P. Tusa
  
  (Principal Financial Officer)/s/ GARY D. BECKER
  
  DirectorGary D. Becker/s/ C. LEE COOKE, JR.
  
  DirectorC. Lee Cooke, Jr./s/ JUSTIN L. FERRERO
  
  DirectorJustin L. Ferrero/s/ STEPHEN M. WAGNER
  
  DirectorStephen M. Wagner65


PRINCETON eCOM CORPORATION FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS DECEMBER 31, 2003 and 2002 S-1  Report of Independent Certified Public Accountants
To
the Stockholders
Princeton eCom Corporation
We
have audited the accompanying balance sheets of Princeton eCom Corporation as
of December 31, 2003 and 2002, and the related statements of operations,
changes in stockholders deficit and cash flows for the two years then ended
(See note B1).  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.  The consolidated financial statements of Princeton eCom
Corporation and Subsidiaries as of December 31, 2001, were audited by other
auditors whose report dated March 28, 2002, expressed an unqualified opinion on
those statements.
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 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, the financial statements referred to above present fairly, in all
material respects, the financial position of Princeton eCom Corporation as of
December 31, 2003 and 2002, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
/s/ BURTON MCCUMBER &
  CORTEZ, L.L.P.Brownsville, TexasMarch 3, 2004, except for
  Note O,as to which
  the date is March 25, 2004S-2

Report
of independent public accountants
To Princeton eCom Corporation:
We have audited the accompanying consolidated balance sheets of
Princeton eCom Corporation (a Delaware corporation) and Subsidiaries, as of
December 31, 2000 and 2001, and the related consolidated statements of
operations, stockholders equity (deficit) and cash flows for each of the three
years in the period ended December 31, 2001. These 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. 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, the financial statements referred to above present
fairly, in all material respects, the financial position of Princeton eCom
Corporation and Subsidiaries as of December 31, 2000 and 2001, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.
/s/ ARTHUR
  ANDERSEN LLPPhiladelphia,
  PennsylvaniaMarch 28,
  2002THIS REPORT IS A COPY OF A PREVIOUSLY ISSUED
ARTHUR ANDERSEN LLP
REPORT AND IT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.
S-3

FINANCIAL STATEMENTS
S-4

PRINCETON eCOM CORPORATION
BALANCE SHEETSDECEMBER 31,
ASSETS
2003
  
  2002Current assets:Consumer depositsCash
  
  $
  33,236,324
  
  $
  30,128,584Receivables from billers
  
  
  443,680
  
  
  3,973,584Total consumer deposits
  
  
  33,680,004
  
  
  34,102,168Cash and cash equivalents
  
  
  3,869,513
  
  
  6,258,589Accounts receivable, net of
  allowance of $196,911 and $186,468
  
  
  3,327,360
  
  
  3,794,050Prepaid expenses and other
  
  
  1,165,943
  
  
  1,477,276Total current assets
  
  
  42,042,820
  
  
  45,632,083Property and equipment, net
  
  
  9,915,960
  
  
  13,502,414Restricted cash
  
  
  1,041,266
  
  
  2,078,176Other assets
  
  
  374,750
  
  
  405,350Total Assets
  
  $
  53,374,796
  
  $
  61,618,023The
accompanying notes are an integral part of these financial statements.
S-5

PRINCETON eCOM CORPORATION
BALANCE SHEETS - CONTINUEDDECEMBER 31,LIABILITIES AND STOCKHOLDERS DEFICIT
2003
  
  2002Current liabilities:Consumer deposits payable
  
  $
  33,680,004
  
  $
  34,102,168Service fees payable
  
  
  
  
  
  3,884,158Line of credit
  
  
  1,499,707
  
  
  Current portion of
  long-term debt
  
  
  41,380
  
  
  Accounts payable
  
  
  1,127,983
  
  
  1,949,948Accrued expenses
  
  
  2,809,141
  
  
  2,732,329Deferred revenue
  
  
  317,513
  
  
  316,532Total current liabilities
  
  
  39,475,728
  
  
  42,985,135Long-term debt
  
  
  81,701
  
  
  Deferred revenue
  
  
  398,399
  
  
  841,291Other liabilities
  
  
  407,759
  
  
  314,804Total liabilities
  
  
  40,363,587
  
  
  44,141,230Series A-1 mandatorily
  redeemable convertible preferred
  stock and warrants (liquidation value of $18,098,756)
  
  
  18,073,619
  
  
  16,545,038Series B-1 mandatorily
  redeemable convertible preferred
  stock (liquidation value of $4,375,258)
  
  
  4,308,337
  
  
  3,961,937Series C-1 mandatorily
  redeemable convertible preferred
  stock (liquidation value of $13,170,014)
  
  
  12,974,914
  
  
  11,935,010Series D-1 mandatorily
  redeemable convertible preferred
  stock (liquidation value of $5,133,333)
  
  
  4,196,146
  
  
  Commitments and
  contingencies (Note J)
  
  
  
  
  
  STOCKHOLDERS DEFICIT:Preferred stock, $.01 par
  value, 100,000,000 shares authorized
  
  
  
  
  
  Common
  stock, $.01 par value, 200,000,000 shares authorized; 29,725,555 and
  29,699,802 shares issued and outstanding
  
  
  297,256
  
  
  296,998Additional paid-in capital
  
  
  192,940,967
  
  
  191,981,362Accumulated deficit
  
  
  (219,780,030
  )
  
  (207,243,552
  )Deferred compensation
  
  
  
  
  
  Total stockholders deficit
  
  
  (26,541,807
  )
  
  (14,965,192
  )Total Liabilities and
  Stockholders Deficit
  
  $
  53,374,796
  
  $
  61,618,023The
accompanying notes are an integral part of these financial statements.
S-6

PRINCETON eCOM CORPORATION
STATEMENTS OF OPERATIONS
For the years ended December 31,
2003
  
  2002
  
  2001Revenues:Transaction fees
  
  $
  29,648,080
  
  $
  28,483,712
  
  $
  16,149,283Professional services and
  other
  
  
  2,272,796
  
  
  2,171,383
  
  
  3,396,882Interest revenue
  
  
  637,060
  
  
  801,347
  
  
  1,986,358Total revenues
  
  
  32,557,936
  
  
  31,456,442
  
  
  21,532,523Operating expenses:Cost of servicesCost of transaction fees
  
  
  16,162,554
  
  
  14,538,006
  
  
  12,904,631Cost of professional
  services and other
  
  
  2,517,007
  
  
  2,840,515
  
  
  4,359,993Research and development
  costs
  
  
  6,665,258
  
  
  6,240,814
  
  
  8,981,954Selling, general and
  administrative
  
  
  15,999,976
  
  
  17,276,788
  
  
  34,473,872Financing related costs
  
  
  
  
  
  
  
  
  400,000Non-cash commissions
  related to warrants
  
  
  
  
  
  
  
  
  56,807Restructuring, severance
  and asset impairment charges
  
  
  828,013
  
  
  2,052,160
  
  
  23,890,929Amortization of deferred
  compensation
  
  
  
  
  
  4,175
  
  
  652,409Total operating expenses
  
  
  42,172,808
  
  
  42,952,458
  
  
  85,720,595Operating loss
  
  
  (9,614,872
  )
  
  (11,496,016
  )
  
  (64,188,072
  )Interest income
  
  
  37,586
  
  
  96,953
  
  
  444,736Interest expense
  
  
  (58,319
  )
  
  (247,220
  )
  
  (3,562,120
  )Amortization of original
  issuance discount
  
  
  
  
  
  (538,718
  )
  
  (2,267,518
  )Net loss before income
  taxes
  
  
  (9,635,605
  )
  
  (12,185,001
  )
  
  (69,572,974
  )Income tax benefit
  
  
  250,942
  
  
  291,518
  
  
  Net loss
  
  
  (9,384,663
  )
  
  (11,893,483
  )
  
  (69,572,974
  )Accretion of preferred
  stock and amortization of warrant costs
  
  
  (378,204
  )
  
  (230,579
  )
  
  (167,743
  )Preferred stock dividends
  
  
  (2,773,611
  )
  
  (1,905,214
  )
  
  (2,649,407
  )Issuance of warrants
  treated as a dividend
  
  
  
  
  
  
  
  
  (5,303,935
  )Beneficial conversion
  feature treated as a dividend
  
  
  
  
  
  (39,975,834
  )
  
  (7,995,376
  )Net loss applicable to
  common stockholders
  
  $
  (12,536,478
  )
  $
  (54,005,110
  )
  $
  (85,689,435
  )Basic and diluted net loss
  applicable to common stockholders per share
  
  $
  (0.42
  )
  $
  (1.82
  )
  $
  (24.52
  )Shares used in computing
  basic and diluted net loss applicable to common stockholders per share
  
  
  29,710,935
  
  
  29,648,175
  
  
  3,494,795The
accompanying notes are an integral part of these financial statements.
S-7

PRINCETON eCOM CORPORATION
STATEMENTS OF STOCKHOLDERS DEFICIT
For the years ended December 31, 2003, 2002 and 2001
Common stock
  
  Additional
  paid-in
  Capital
  
  AccumulatedDeficit
  
  Deferred
  Compensation
  
  TotalShares
  
  AmountBalance,
  January 1, 2001
  
  
  2,278,761
  
  $
  22,788
  
  $
  35,358,302
  
  $
  (67,549,007
  )
  $
  (1,514,956
  )
  $
  (33,682,873
  )Exercise
  of stock options and warrants
  
  
  36,826
  
  
  368
  
  
  1,801
  
  
  
  
  
  
  
  
  2,169Compensation
  expense resulting from grant of options
  
  
  
  
  
  
  
  
  343,189
  
  
  
  
  
  
  
  
  343,189Amortization
  of deferred compensation, net of forfeitures
  
  
  
  
  
  
  
  
  (826,914
  )
  
  
  
  
  1,479,323
  
  
  652,409Issuance
  of common stock warrants to Series C holders
  
  
  
  
  
  
  
  
  5,303,935
  
  
  (5,303,935
  )
  
  
  
  
  Accretion
  of preferred stock to redemption value
  
  
  
  
  
  
  
  
  
  
  
  (167,743
  )
  
  
  
  
  (167,743
  )Cumulative
  preferred stock dividends
  
  
  
  
  
  
  
  
  
  
  
  (2,649,407
  )
  
  
  
  
  (2,649,407
  )Beneficial
  conversion feature treated as dividend
  
  
  
  
  
  
  
  
  7,995,376
  
  
  (7,995,376
  )
  
  
  
  
  Paid
  in capital in connection with VFSC acquisition
  
  
  
  
  
  
  
  
  13,014,925
  
  
  
  
  
  
  
  
  13,014,925Non-cash
  interest related to warrants
  
  
  
  
  
  
  
  
  56,807
  
  
  
  
  
  
  
  
  56,807Conversion
  of preferred stock and dividends into common stock
  
  
  3,604,464
  
  
  36,045
  
  
  64,022,192
  
  
  
  
  
  
  
  
  64,058,237Conversion
  of note payable and accrued interest into common stock
  
  
  24,525,000
  
  
  245,250
  
  
  24,279,750
  
  
  
  
  
  
  
  
  24,525,000Surrender
  of common stock
  
  
  (829,479
  )
  
  (8,295
  )
  
  8,295
  
  
  
  
  
  
  
  
  Surrender
  of warrants to purchase Series C
  
  
  
  
  
  
  
  
  2,267,518
  
  
  
  
  
  
  
  
  2,267,518Issuance
  of warrants in connection with contract settlement
  
  
  
  
  
  
  
  
  198,028
  
  
  
  
  
  
  
  
  198,028Net
  loss
  
  
  
  
  
  
  
  
  
  
  
  (69,572,974
  )
  
  
  
  
  (69,572,974
  )Balance,
  December 31, 2001
  
  
  29,615,572
  
  
  296,156
  
  
  152,023,204
  
  
  (153,238,442
  )
  
  (35,633
  )
  
  (954,715
  )Exercise
  of stock options and warrants
  
  
  84,230
  
  
  842
  
  
  13,812
  
  
  
  
  
  
  
  
  14,654Redemption
  of fractional common shares
  
  
  
  
  
  
  
  
  (30
  )
  
  
  
  
  
  
  
  (30
  )Amortization
  of deferred compensation, net of forfeitures
  
  
  
  
  
  
  
  
  (31,458
  )
  
  
  
  
  35,633
  
  
  4,175Accretion
  of preferred stock to redemption value
  
  
  
  
  
  
  
  
  
  
  
  (230,579
  )
  
  
  
  
  (230,579
  )Cumulative
  preferred stock dividends
  
  
  
  
  
  
  
  
  
  
  
  (1,905,214
  )
  
  
  
  
  (1,905,214
  )Beneficial
  conversion feature treated as dividend
  
  
  
  
  
  
  
  
  39,975,834
  
  
  (39,975,834
  )
  
  
  
  
  Net
  loss
  
  
  
  
  
  
  
  
  
  
  
  (11,893,483
  )
  
  
  
  
  (11,893,483
  )Balance,
  December 31, 2002
  
  
  29,699,802
  
  
  296,998
  
  
  191,981,362
  
  
  (207,243,552
  )
  
  
  
  
  (14,965,192
  )Exercise
  of stock options and warrants
  
  
  25,753
  
  
  258
  
  
  4,268
  
  
  
  
  
  
  
  
  4,526Accretion
  of preferred stock to redemption value and amortization of warrant costs
  
  
  
  
  
  
  
  
  
  
  
  (378,204
  )
  
  
  
  
  (378,204
  )Cumulative
  preferred stock dividends
  
  
  
  
  
  
  
  
  
  
  
  (2,773,611
  )
  
  
  
  
  (2,773,611
  )Issuance
  of Series D-1 preferred stock warrants
  
  
  
  
  
  
  
  
  955,337
  
  
  
  
  
  
  
  
  955,337Net
  loss
  
  
  
  
  
  
  
  
  
  
  
  (9,384,663
  )
  
  
  
  
  (9,384,663
  )Balance,
  December 31, 2003
  
  
  29,725,555
  
  $
  297,256
  
  $
  192,940,967
  
  $
  (219,780,030
  )
  $
  
  
  $
  (26,541,807
  )The accompanying notes are an
integral part of these financial statements.

S-8

PRINCETON eCOM CORPORATION
STATEMENTS OF CASH FLOWS
For the years ended December 31,
2003
  
  2002
  
  2001Operating activities:Net loss
  
  $
  (9,384,663
  )
  $
  (11,893,483
  )
  $
  (69,572,974
  )Adjustments to reconcile
  net loss to net cash used in operating activities-Depreciation and
  amortization
  
  
  6,040,793
  
  
  5,614,274
  
  
  7,512,453Asset impairment charge
  
  
  
  
  
  
  
  
  16,106,889Warrants issued in
  connection with restructuring
  
  
  
  
  
  
  
  
  198,028Non-cash interest on bridge
  notes
  
  
  
  
  
  36,969
  
  
  3,525,000Non-cash compensation
  expense
  
  
  
  
  
  
  
  
  343,189Amortization of lease
  guarantee
  
  
  40,052
  
  
  40,049
  
  
  40,000Amortization of original
  issuance discount
  
  
  
  
  
  538,718
  
  
  2,267,518Amortization of deferred
  compensation, net
  
  
  
  
  
  4,175
  
  
  652,409Provision for bad debts
  
  
  10,443
  
  
  (8,451
  )
  
  84,294Non-cash commissions
  related to warrants
  
  
  
  
  
  
  
  
  56,807Compensation
  expense related to note receivable forgiveness
  
  
  
  
  
  
  
  
  750,000Loss on disposal of assets
  
  
  3,314
  
  
  5,117
  
  
  Changes in operating assets
  and liabilities-Consumer deposits
  
  
  422,164
  
  
  (27,819,829
  )
  
  3,265,780Accounts receivable
  
  
  456,247
  
  
  1,301,327
  
  
  (1,439,456
  )Prepaid expenses and other
  assets
  
  
  301,881
  
  
  (604,399
  )
  
  535,977Consumer deposits payable
  
  
  (422,164
  )
  
  27,819,829
  
  
  (3,265,780
  )Service fees payable
  
  
  (3,884,158
  )
  
  2,387,056
  
  
  (189,913
  )Deferred revenue
  
  
  (441,911
  )
  
  64,996
  
  
  328,316Accounts payable
  
  
  (821,965
  )
  
  (1,884,589
  )
  
  346,744Accrued expenses
  
  
  76,812
  
  
  (7,351,892
  )
  
  7,734,776Other liabilities
  
  
  92,955
  
  
  (160,765
  )
  
  164,609Net cash used in operating
  activities
  
  
  (7,510,200
  )
  
  (11,910,898
  )
  
  (30,555,334
  )Investing activities:Purchases of property and
  equipment
  
  
  (2,462,367
  )
  
  (2,734,246
  )
  
  (19,542,087
  )Proceeds from sale of
  property and equipment
  
  
  4,714
  
  
  15,722
  
  
  Business acquisition, net
  of cash paid
  
  
  
  
  
  
  
  
  6,172,000Restricted cash
  
  
  1,036,910
  
  
  1,363,414
  
  
  (3,441,590
  )Net cash used in investing
  activities
  
  
  (1,420,743
  )
  
  (1,355,110
  )
  
  (16,811,677
  )The
accompanying notes are an integral part of these financial statements.
S-9

PRINCETON eCOM CORPORATION
STATEMENTS OF CASH FLOWS - CONTINUED
For the years ended December 31,
2003
  
  2002
  
  2001Financing activities:Proceeds from convertible
  note and warrant
  
  $
  
  
  $
  2,690,000
  
  $
  25,600,000Proceeds from sale of
  preferred stock, net
  
  
  4,914,553
  
  
  14,937,527
  
  
  7,560,241Proceeds (repayments) on
  line of credit
  
  
  1,499,707
  
  
  (918,311
  )
  
  918,311Proceeds from long-term
  debt
  
  
  149,697
  
  
  
  
  
  Payments on long-term debt
  
  
  (26,616
  )
  
  
  
  
  (15,793
  )Proceeds from exercise of stock options
  
  
  4,526
  
  
  14,624
  
  
  2,169Net cash provided by
  financing activities
  
  
  6,541,867
  
  
  16,723,840
  
  
  34,064,928Net (decrease) increase in
  cash and cash Equivalents
  
  
  (2,389,076
  )
  
  3,457,832
  
  
  (13,302,083
  )Cash and cash equivalents,
  beginning of year
  
  
  6,258,589
  
  
  2,800,757
  
  
  16,102,840Cash and cash equivalents,
  end of year
  
  $
  3,869,513
  
  $
  6,258,589
  
  $
  2,800,757S-10

PRINCETON eCOM CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 2003, 2002 and 2001
NOTE A  BACKGROUND
Princeton eCom Corporation (the Company) was incorporated on January
25, 1984 in the state of Delaware.  The
Company maintains its headquarters in Princeton, NJ.  The Company operates in one business segment and provides a fully
integrated end-to-end payment solution for both banks and billers and is a
leader in the electronic bill presentment and payment industry.  The Companys solutions enable consumers to
process bill payments from the web, telephone (integrated voice response),
customer service representative and home banking platforms, resulting in
significant cost savings, faster collections and improved service for its bank
and biller customers.  These solutions,
which include lockbox and concentration payment products; one-time, enrolled
and convenience pay products; and electronic bill presentment products are
utilized by more than 1500 banks, billers and distribution partners to help
them meet their payment needs.   The
Company generates revenue from (i) transaction fees, including invoice
presentment and payment processing fees, (ii) professional services fees
for implementation and customized solutions and (iii) interest on funds
held.
NOTE B  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Principles
of Consolidation
The accompanying consolidated financial statements include the accounts
of Princeton eCom Corporation and its subsidiaries.  During 2002, the subsidiaries were dissolved.  All intercompany balances and transactions
for the years 2002 and 2001 have been eliminated.
2. Use of
estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
3. Revenue
recognition
Transaction fees are amounts charged to billers and financial
institutions based on contractual rates. 
Transaction fees are recognized as the services are performed based upon
actual transactions.  Professional
service fees and other consist primarily of consulting services provided to
customers on a time and materials basis. 
Revenues from consulting services are recognized as the services are
performed.
S-11

NOTE B  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  continued
3. Revenue
recognition - continued
Included in professional service fees and other category are fees
earned for implementation services.  A certain
portion of these implementation fees is deferred and recognized as revenue over
the term of the ongoing transaction service period.  Interest revenue reflects amounts earned on the overnight
investment of funds received from consumers pending payment processing and is
recorded as revenue as earned.
4. Cash
and cash equivalents
Cash and cash equivalents include highly liquid investments with
original maturities of three months or less and funds received from consumers
pending payment processing.  The Company
maintains cash and cash equivalents with various major financial
institutions.  At times such amounts may
exceed the FDIC limits.  The Company
limits the amount of credit exposure with any one financial institution and
management believes that no significant concentration of credit risk exists
with respect to cash investments.
5. Allowance
for doubtful accounts
The
Company performs ongoing credit evaluations of its customers financial
condition and limits that amount of credit extended when deemed necessary, but
generally does not require collateral. 
Management believes that any risk of loss is significantly reduced due
to the nature of the customers being financial institutions and credit unions
as well as the number of its customers and geographic areas.  The Company maintains an allowance for
doubtful accounts to provide for probable losses in accounts receivable.  A receivable is considered past due if
payment has not been received within the agreed-upon terms.
6. Property
and equipment
Property and equipment are recorded at cost.  Property and equipment also includes fees paid to third parties
for software licenses and consulting services related to the development of
internal-use software applications in accordance with Statement of Position
(SOP) 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use.  
Depreciation and amortization are provided using the straight-line
method over the estimated useful lives. 
Expenditures for maintenance, repairs and betterments that do not
prolong the useful life of an asset have been charged to operations as
incurred.  Additions and betterments
that substantially extend the useful life of the asset are capitalized.  Upon sale or other disposition of assets,
the cost and related accumulated depreciation and amortization are removed from
the respective accounts, and the resulting gain or loss, if any, is included in
operating results.
S-12

NOTE B  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
7. Long-lived
assets
Prior to 2002, the Company followed Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of.  
SFAS No. 121 required that long-lived assets and certain identifiable
intangibles held and used by the Company be reviewed for possible impairment
whenever events or changes in circumstances indicate the carrying amount of an
asset may not be recoverable.  SFAS No.
121 also requires that long-lived assets held for sale or disposal be reported
at the lower of the carrying amount or fair value less cost to sell.  If changes in circumstances indicate that
the carrying amount of the asset may not be recoverable, future undiscounted
cash flows expected to result from the use of the asset and its disposition
must be estimated to determine if the carrying value is impaired.
In October 2001 the FASB issued SFAS No. 144, Accounting for the
Impairment for Disposal of Long-Lived Assets. 
SFAS No. 144 supercedes SFAS No. 121 and applies to all long-lived
assets (including discontinued operations) and consequently amends Accounting
Principles Board (APB) Opinion No. 30, Reporting Results of
Operations-Reporting Effects of Disposal of a Segment of a Business.  SFAS No. 144 is effective for financial
statements issued for fiscal years beginning after December 12, 2001, and as
required, was adopted by the Company on January 1, 2002.
8. Restricted
Cash
Restricted cash relates to outstanding letters of credit required by
certain operating lease and vendor agreements.
9. Other
assets
Other assets primarily consist of prepaid lease guarantee and
deposits.  In December 1999, the Company
entered into a lease for its primary operating facility.  In order to induce an existing stockholder
to guarantee the lease, the Companys then Chief Executive Officer sold the
investor 28,871 shares of Common stock from his personal account at $27.69 per
share, which was below the then estimated fair market value of $41.56 per
share.  The in-the-money value of the
Common stock sold of approximately $400,000 was recorded as a deferred asset
with a corresponding credit to additional paid-in capital.  The deferred asset is being amortized to
rent expense over the ten-year lease term. 
For each of the three years in the period ended December 31, 2003, the
Company recognized approximately $40,000 of rent expense related to this
deferred asset.
10. Consumer
deposits payable
Consumer deposits represent assets held on behalf of consumers for the
satisfaction of payment processing and includes both cash and receivables from
billers.  Receivables from billers are
created when payment processing has been completed, however collection of funds
from consumer bank accounts is delayed. 
Management believes that receivables from billers are fully realizable
assets because contractual agreements permit reversals from biller accounts or
stipulate that the biller is obligated to reimburse the Company for such
payments.
S-13

NOTE B  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
11. Deferred
rent
Rent expense on leases is recorded on a straight-line basis over the
lease period.  The excess of accrued
rent expense over the actual cash paid is recorded as deferred rent.
12. Development
costs
Research and development costs are charged to expense as incurred.
13. Advertising
and marketing expense
The Company charges to expense advertising and marketing costs as
incurred.  Advertising and marketing
expense totaled $375,867, $421,413 and $3,663,696 for 2003, 2002 and 2001,
respectively.
14. Income
taxes
Income taxes are accounted for using the liability method in accordance
with SFAS No. 109, Accounting for Income Taxes.  Accordingly, deferred income tax assets and liabilities are
determined based on differences between the financial statement carrying
amounts of assets and liabilities and their respective income tax basis,
measured using enacted tax rates.
15. Restatement
of certificate of incorporation and stock split
As part of a recapitalization of the Company in December 2001, the
Company declared a one-for-5.1955 reverse stock split of its Common stock.   In addition, the holders of the Series A, B
and C Preferred stock agreed to convert their shares as follows:  one share of Series A to 0.00187861 shares
of Common, one share of Series B to 0.001542 shares of Common and one share of
Series C to 0.498 shares of Common.  In
August 2003, the Companys Certificate of Incorporation was amended to
authorize 100,000,000 shares of Preferred stock and 200,000,000 shares of
Common stock.   The increase in
authorized capital stock and the reverse stock split of the Common stock have
been retroactively reflected in the consolidated financial statements.
16. Stock
compensation
In December 2002, the Financial Accounting Standards Board issued SFAS
No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure,
which provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation and
amends the disclosure requirements of SFAS No. 123, Accounting for Stock-Based
Compensation, to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results.  The transition guidance and annual
disclosure requirements are effective for fiscal years ending after December
15, 2002.  The Company adopted the
disclosure provisions for the accompanying consolidated financial
statements.  As the Company will
continue to apply APB Opinion No. 25, the accounting for stock-based employee
compensation will not change as a result of SFAS No. 148.
S-14

NOTE B  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Pro forma information provided below has been determined as if the
Company had accounted for its employee stock options in accordance with SFAS
No. 123.  The determination of the
fair value of the options noted above was estimated at the date of grant using
a Black-Scholes options pricing model with the following weighted-average
assumptions for 2003, 2002 and 2001: risk-free interest rate of 2.3%, 3.0% and
6.1%, respectively; dividend yield of 0%; volatility factor of the expected
market price of the Companys Common stock of 70%; and an expected life of the
options of 4 years.
16. Stock
compensation - continued
The weighted average fair value of the options granted is as follows:
Year ended December 312003
  
  2002
  
  2001Granted at
  fair market value
  
  $
  0.13
  
  $
  0.18
  
  $
  15.69Granted below fair market value
  
  
  
  
  
  
  
  
  For purposes
of pro forma disclosures, the estimated fair value of the options is amortized
to expense over the option vesting periods. 
The Companys pro forma information is as follows:
Year ended December 312003
  
  2002
  
  2001Net loss
  applicable to
  common stockholders, as
  reported
  
  $
  (12,536,478
  )
  $
  (54,005,110
  )
  $
  (85,689,435
  )Less: Total
  stock-based
  employee compensation
  expense determined under
  fair value based method for
  all awards, net of related tax
  effects
  
  
  (2,445,318
  )
  
  (2,276,807
  )
  
  (6,140,094
  )Pro forma
  net loss applicable
  to common stockholders
  
  $
  (14,981,796
  )
  $
  (56,281,917
  )
  $
  (91,829,529
  )Net loss per
  common share,
  as reported
  
  $
  (0.42
  )
  $
  (1.82
  )
  $
  (24.52
  )Net loss per
  common share,
  pro forma
  
  $
  (0.50
  )
  $
  (1.90
  )
  $
  (26.28
  )S-15

NOTE B  SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - continued
17. Net
loss per share
Basic EPS is computed by dividing net loss by the weighted average
number of shares of Common stock outstanding for the period.  Diluted EPS includes the dilutive effect, if
any, from the potential exercise or conversion of securities such as stock
options, warrants and convertible preferred stock, which would result in the
issuance of additional shares of common stock. 
For 2003, 2002 and 2001 the impact of stock options, warrants and
mandatorily redeemable convertible preferred stock was not considered as the
effect on net loss per share would be anti-dilutive.
18. Fair
value of financial instruments
The Companys financial instruments consist of consumer deposits, cash
and cash equivalents, accounts receivable, prepaid expenses and other assets,
consumer deposits payable, accounts payable, accrued expenses and deferred
revenue.   Management believes the
carrying values of these assets and liabilities are representative of their
fair values based on the liquidity of these financial instruments or based on
their relatively short-term nature.   An
allowance for doubtful accounts for accounts receivable is established when the
fair value is less than the carrying amounts.
Amounts outstanding under long-term debt
agreements are considered to be carried on the financial statements at their
estimated fair values because they were entered into recently and terms are
comparable to other financing arrangements available.
19. Comprehensive
loss
The Company follows SFAS No. 130, Reporting Comprehensive
Income.   This statement requires the
classification of items of other comprehensive income by their nature and
disclosure of the accumulated balance of other comprehensive income, separately
from retained earnings and additional paid-in capital, in the equity section of
the balance sheet.  Net loss was the
only comprehensive loss item for 2003, 2002 and 2001.
20. Supplemental
cash flow information
For 2003, 2002 and 2001, the Company paid interest of $58,007, $210,251
and $116,289, respectively.
21. Reclassification
Certain amounts in the prior periods have been reclassified to conform
to the 2003 presentation.
22. Recent
Pronouncement
In
May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This
statement establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity,
including financial instruments issued in the form of shares that are
mandatorily redeemable. The Company is required to adopt this new standard in
the first quarter of fiscal year 2004. 
In 2004, the Company will classify manditorily redeemable convertible
preferred stock as long-term
S-16

liabilities
and record dividend payments as interest expense in the statement of
operations.
NOTE C  BUSINESS ACQUISITION
On May 15, 2001, the Company acquired all of the outstanding
shares of Venture Finance Software Corporation (VFSC) formerly known as
WebQuicken, Inc., a wholly owned subsidiary of Intuit, Inc., for an aggregate
purchase price of $13,542,925, including transaction costs of $528,000.  VFSC operated in the Internet commerce
industry developing and deploying server-based personal finance products
including WebQuicken.  The Company had
three payment options; (1) issue Common stock, (2) cash payment or (3)
combination of Common stock and cash. 
Also, the consideration was not to be exchanged until the earlier of 20
days after an Initial Public Offering by the Company or February 1,
2002.  The purchase price was determined
based on the Companys decision to issue only Common stock.  Accordingly, the Company measured the
purchase price as of May 15, 2001, based on the fair value of 2,277,307
shares of Common stock to be issued in the future.  The Company determined that the fair value of its Common stock
was approximately $5.72 per share on May 15, 2001.  The acquisition was recorded using the
purchase method of accounting.  The
accompanying statements of operations include the operating results for the
acquisition from May 15, 2001 through December 31, 2001.  A summary of the allocation of the purchase
price to the net assets acquired is as follows:
Purchase
  price
  
  $
  13,542,925Purchase
  price allocation:Cash
  
  
  6,700,000Property and
  equipment
  
  
  997,000Acquired
  technology
  
  
  5,845,925$
  13,542,925The allocation
of the purchase price to identifiable acquired technology has been determined
by management based on an analysis of factors such as historical operating
results, discounts on cash flow projections and specific evaluations of
products, customers and other information. The acquired technology was being
amortized over five years based on its estimated useful life. During 2001, the
Company recorded $460,944 of amortization expense on acquired technology, which
is included in selling, general, and administrative expense in the accompanying
consolidated statements of operations.
S-17

NOTE C  BUSINESS ACQUISITION - continued
The following unaudited pro forma operating results have been presented
assuming the acquisition occurred on January 1, 2001.  The pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of the results of
operations which actually would have resulted had the acquisitions been made on
January 1, 2001 or of results which may occur in the future.
Year ended
  December 31, 2001Revenues
  
  $
  21,557,064Loss from
  operations
  
  
  (78,279,903
  )Net loss per
  share
  
  
  (26.91
  )As of
September 30, 2001, management determined the long-lived assets related to the
VFSC acquisition were impaired and decided to exit the business entirely in
December 2001 (see Note D).
NOTE D  ASSET IMPAIRMENT AND RESTRUCTURING CHARGES
The Company recorded restructuring and asset impairment charges as
follows:
Year ended
  December 312003
  
  2002
  
  2001VFSC
  acquired technology impairment
  
  $
  
  
  $
  
  
  $
  5,384,981VFSC related
  fixed asset impairment
  
  
  
  
  
  
  
  
  5,288,657Subtotal
  VFSC asset impairment
  
  
  
  
  
  
  
  
  10,673,638Other fixed
  asset impairment
  
  
  
  
  
  
  
  
  5,433,251Restructuring
  charge
  
  
  828,013
  
  
  2,052,160
  
  
  7,784,040$
  828,013
  
  $
  2,052,160
  
  $
  23,890,929VFSC
asset impairments
Subsequent to the VFSC acquisition date and through September 30, 2001,
the Company made significant investments in software, hardware and property and
equipment to build-out the VFSC business.  
In accordance with SFAS No. 121, the Company evaluated whether later
events and circumstances occurred that indicated that the remaining useful life
of its long-lived assets warranted revision or that the remaining balance was
not recoverable.  Management determined
that as of September 30, 2001, its long-lived assets related to the VFSC acquisition
had been impaired.   The impairment was
measured by the Company due to the following factors:
(a)
  The Company
  had accumulated costs significantly in excess of the amount originally
  expected.(b)
  A
  significant current period operating loss and cash flow loss combined with a
  projection that demonstrated continuing losses associated with assets
  acquired.S-18

NOTE D  ASSET IMPAIRMENT AND RESTRUCTURING CHARGES - continued
The expected undiscounted cash flows directly related to the VFSC
assets were negative.  As of September
30, 2001, the Company recorded an impairment charge of $10,673,638 which
reduced acquired technology and VFSC related fixed assets to $0 as of September
30, 2001.   The impairment charge was
determined based upon the estimated fair value of the business using a discounted
cash flow analysis compared to the tangible net book value of the Company.
In December 2001, the Company decided to exit
the VFSC business.   The Company
terminated 28 employees and 6 subcontractors in December 2001 (see
restructuring charges below) and on February 28, 2002, the Company entered into
a Modification, Release and Termination Agreement, an Asset Purchase Agreement
and a Software License Agreement (together the Termination Agreements) with
Intuit, Inc.   As a result of the
Termination Agreements, the Company and Intuit agreed that no shares of Common
stock would be issued to Intuit in the future and that the Company would
continue to maintain ownership of certain assets acquired from Intuit in May
2001.   Intuit agreed to repurchase hardware
and other equipment for $35,612.  
Additionally, the Company granted to Intuit, Inc. a license for
presentment of electronic bills desktop software and retained ownership of the
licensed software purchased in May 2001.  
The license fee paid to the Company was $33,000.    Additionally, the Company agreed to pay
$328,000 to Intuit, Inc. for consulting services performed during 2001, which
was accrued at December 31, 2001.
Other fixed asset
impairment
During 2001, the Company recorded $5,433,251
in impairment charges to fixed assets in addition to the aforementioned VFSC
charges, which included $3,137,610 for property and equipment and $2,295,641
for two software license agreements.
In accordance with SFAS No. 121, based upon a
review of the Companys long-lived assets in December 2001, the Company
recorded a non-cash impairment charge of $3,137,610 related to the write-down
of a portion of the asset value of the Companys property and equipment.  The impairment was recognized as the future
undiscounted cash flows for the Company were estimated to be insufficient to
recover the related carrying values of the property and equipment.   As such, the carrying values of these
assets were written down to the Companys estimates of their fair value.  Fair value was based on the present value of
estimated expected future cash flows using a discount rate of 30%.  Management believes this provision was
adequate to cover any future losses incurred relating to these assets.  However, actual losses could vary significantly
from these estimates.
The Company capitalized a $1,000,000
nonrefundable software license fee in 1999. 
During 2000 and through the third quarter of 2001, the Company utilized
the software to generate revenues from one significant customer.   During the third quarter of 2001, the
significant customer informed the Company that it was exiting its strategy to
resell this product to its business customers.   As a result of the lost customer and in accordance with SFAS No.
121, the Company determined that the software license fee had been impaired and
recorded an impairment charge in the amount of $692,308 (carrying value
including $307,692 of accumulated amortization) which reduced the asset to $0.
S-19

NOTE D  ASSET
IMPAIRMENT AND RESTRUCTURING CHARGES - continued
During 2001,
the Company entered into a software license agreement that required upfront
payments of $1,950,000.  The Company
utilized the software to provide a solution to several large customers.  Based upon significant changes in market
conditions during the third quarter of 2001, the Company decided to stop
providing the solution to its customers.  
In accordance with SFAS No. 121, the Company recorded an impairment
charge in the amount of $1,603,333 (carrying value including $346,667 of
accumulated amortization), which reduced the asset to $0.
Restructuring charge
The Company implemented a strategic restructuring plan in the fourth
quarter of 2001 (including exiting the VFSC business) and the first quarter of
2002 and recorded restructuring charges of $2,052,160 and $7,784,040 in 2002
and 2001, respectively.  The focus of
the Companys restructuring plan was to streamline its operations by reducing
operating expenses primarily through workforce reductions and renegotiating
significant contracts and leases.  The
Company essentially completed the restructuring program in 2002.
Effective
for 2003, the Company adopted SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, which nullifies EITF No. 94-3 Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity.  Up to the effective date,
the Company followed EITF No. 94-3. The components of the restructuring charge
are as follows:
Year ended December 312003
  
  2002
  
  2001Employee severance
  
  $
  828,013
  
  $
  1,725,339
  
  $
  4,126,339Contract settlements
  
  
  
  
  
  326,821
  
  
  3,241,616Facility closings
  
  
  
  
  
  
  
  
  416,085$
  828,013
  
  $
  2,052,160
  
  $
  7,784,040In 2001, included in the employee severance
charge is the non-cash charge in the amount of $750,000, which reflects the
forgiveness of a note receivable due from a former executive.
Contract settlements include settlements of
purchase commitments and contractual agreements with vendors and property
owners.  In 2001, approximately 88% of
the contract settlements relate to buyouts of real estate lease agreements.
In 2001, facility closings reflect the costs
associated with the consolidation of offices as a result of employee
separations and product rationalization. 
In connection with the cancellation of an office lease, the Company
agreed to issue warrants to the landlord to purchase 400,000 shares of the
Companys Common stock at $0.36 per share and recorded a restructuring charge
of $198,028 in the accompanying consolidated statement of operations.
S-20

NOTE E  PROPERTY AND EQUIPMENT
December 31Useful lives
  
  2003
  
  2002Computer and
  telephone equipment
  
  
  3-5 years
  
  $
  10,052,031
  
  $
  10,891,065Purchased
  software and capitalized development costs
  
  
  3 years
  
  
  14,572,927
  
  
  13,802,713Furniture
  and fixtures
  
  
  5-7 years
  
  
  1,194,024
  
  
  1,264,389Leasehold
  improvements
  
  
  Lease term
  
  
  1,422,191
  
  
  1,450,52727,241,173
  
  
  27,408,694Less-
  Accumulated depreciation and
  amortization
  
  
  
  
  
  (17,325,213
  )
  
  (13,906,280
  )$
  9,915,960
  
  $
  13,502,414Property and equipment includes assets from capital leases totaling
$150,427 and accumulated depreciation of $22,452 at December 31, 2003.
Depreciation and amortization expense for 2003, 2002 and 2001 was
$6,040,793, $5,614,274 and $7,512,453, respectively.
NOTE F  LINE OF CREDIT
In 2001, the Company entered into a line of
credit agreement with a financial institution.   The line of credit allows the Company to borrow the lesser of
$5,000,000 or 80% of eligible accounts receivable, as defined, at an interest rate
of prime plus 3.5%.  The Company was
subject to an annual interest rate of 7.5% and 9.5% at December 31, 2003 and
2002, respectively.  Substantially all
assets of the Company serve as collateral for the line of credit.  Outstanding borrowings were $1,499,707 and
$0 as of December 31, 2003 and 2002, respectively.
In connection with the line of credit, the
financial institution was issued fully vested warrants to purchase 125,000
shares of the Companys Common stock at an exercise price of $1.00 per share.  In 2001, the Company recorded non-cash
commissions totaling $56,807 in the accompanying consolidated statement of
operations relating to the grant of the warrants.
NOTE G MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK, BRIDGE
NOTES AND WARRANTS
Mandatorily
redeemable convertible preferred stock
As of December 31, 2003, the Company has
authorized 100,000,000 shares of Preferred stock with a par value of $.01 per
share, of which 16,500,000 shares have been designated as Series A-1
mandatorily redeemable convertible preferred stock (Series A-1),
11,000,000 shares have been designated as Series B-1 mandatorily redeemable
convertible preferred stock (Series B-1), 47,000,000 shares have been
designated as Series C-1 mandatorily redeemable convertible preferred stock
S-21

NOTE G MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK, BRIDGE
NOTES AND WARRANTS - continued
(Series C-1) and 23,500,000 shares have been designated as
Series D-1 mandatorily redeemable convertible preferred stock (Series D-1), collectively
(Series A-1, B-1, C-1 and D-1).
The holders of Series A-1, B-1, C-1 and D-1
are entitled to liquidation preferences equal to the original purchase price,
plus all accrued but unpaid dividends. 
The Series D-1 preference is senior to the preferences of Series A-1,
B-1 and C-1 and would be distributed in full to the Series D-1 holders before
any distribution to the holders of Series A-1, B-1 and C-1.
The holders of the Series A-1, B-1, C-1 and
D-1 are entitled to receive cumulative dividends at an annual rate of 8%.  The Series A-1, B-1, C-1 and D-1 are
redeemable at the option of the holders and upon the receipt of notice of the
election of 75% of said holders of each Series, in December 2006.
The Series A-1, B-1, C-1 and D-1 are
convertible at any time into common stock at the holders option at a
conversion rate of one-to-three and one third (1:3 1/3), one-to-one and one
half (1:1 1/2), one-to-one (1:1) and one-to-one (1:1), respectively, at
December 31, 2003.  All outstanding
shares of the Series A-1, B-1, C-1 and D-1 are automatically convertible into
common stock upon the closing of a qualified underwritten public offering, as
defined.  The holders of Series A-1,
B-1, C-1 and D-1 are entitled to certain voting, anti-dilution and registration
rights, as defined.
The Company would have issued 120,185,988 and
103,519,321 shares of Common stock had all of Series A-1, B-1, C-1 and D-1 been
converted at December 31, 2003 and 2002, respectively.
In August 2003, the Company sold 16,666,667
shares of Series D-1 at $0.30 per share for proceeds of $4,914,553, net of
offering costs of $85,447.  In addition,
the Series D-1 investors received warrants to purchase 4,837,551 shares of
Series D-1 at $0.30 per share.
The Company allocated the proceeds to the
Series D-1 and the warrants based on their relative fair values.  The fair value of the warrants was based on
the Black-Scholes option-pricing model. 
As a result, the Company allocated $4,044,633 to the Series D-1 and
$955,337 to the warrants.
The cost allocated to the warrants is being
amortized as a dividend using the effective interest method from the date of
issue of Series D-1 through the redemption date.  For 2003, the Company recorded a total of $95,533 of amortization.
In June 2002, the Company sold 39,011,536
shares of Series C-1 at $0.30 per share for proceeds of $11,416,258, net of
offering costs of $287,203.
In May 2002, the Company sold 8,560,745
shares of Series B-1 at $0.45 per share for proceeds of $3,748,236, net of
offering costs of $104,098.   The
proceeds included the conversion of the March and April 2002 bridge notes in
the amount $2,690,000 and accrued coupon interest of $33,674.
S-22

NOTE G MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK, BRIDGE
NOTES AND WARRANTS - continued
In January and February 2002, the Company
sold, in the aggregate, 2,500,000 shares of Series A-1 at $1.00 per share for
proceeds of $2,500,000.
In December 2001, the Company sold 8,500,000
shares of Series A-1 at $1.00 per share for proceeds of $7,560,241, net of
offering costs of $939,759, and two investors converted $3,000,000 of the
November 2001 bridge note plus prepayment penalty into 4,500,000 shares of
Series A-1.
The offering costs for each series of
preferred stock will be accreted using the effective interest method from the
date the shares were issued through the redemption date.  For 2003 and 2002, the Company recorded a
total of $378,204 and $230,579 of such accretion for the Series A-1, B-1, C-1
and D-1.
Conversion price
adjustments
In connection with the issuance of the Series D-1 and warrants, the
holders of the Series A-1, B-1 and C-1 agreed to waive the anti-dilution
provisions of these securities.  As
such, no adjustment was made to the conversion features of the Series A-1, B-1
and C-1 as a result of the issuance of Series D-1.
In connection with the issuance of the Series C-1 in June 2002, the
conversion price of the Series A-1, Series B-1 and the warrants to
purchase Series A-1 was adjusted to $0.30 per share from $0.45.  This conversion price adjustment created a
beneficial conversion feature for financial reporting purposes.  Upon the issuance of the Series C-1, the
Company recorded a preferred stock dividend to the Series A-1, Series B-1
and warrants to purchase Series A-1 of $17,222,222, $1,926,168 and $896,666,
respectively, in the accompanying consolidated statements of operations.
In connection with the issuance of the Series B-1 in May 2002, the
conversion price of the Series A-1 and the warrants to purchase Series A-1
was adjusted to $0.45 per share from $1.00. 
This conversion price adjustment created a beneficial conversion feature
for financial reporting purposes.  Upon
the issuance of the Series B-1, the Company recorded a preferred stock dividend
to the Series A-1 and warrants to purchase Series A-1 of $18,944,444 and
$986,334, respectively, in the accompanying consolidated statements of
operations.
In connection with the issuance of the April 2001 bridge note, the
conversion price of Series A and Series B was adjusted to $3.46 per
share from $4.50.  This conversion price
adjustment created a beneficial conversion feature for financial reporting
purposes.  Upon the issuance of the
bridge note, the Company recorded a preferred stock dividend to the
Series A and Series B of $7,213,873 and $781,503, respectively, in
the accompanying consolidated statements of operations.
Accounting for bridge
notes and warrants
In March and April 2002, the Company issued
bridge notes in the aggregate of 
$2,690,000.  The bridge notes
bore interest at 12% per annum and had a maturity date of one year from the
date of issuance.  The note holders were
also issued warrants to purchase 807,000 shares of Series A-1 at an exercise
price of $1.00 per share.
S-23

NOTE G MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK, BRIDGE
NOTES AND WARRANTS - continued
The Company allocated the proceeds from the
bridge note to the note and the warrant based on their relative fair
values.  The fair value of the note was
determined based on a discounted cash flow analysis using a discount rate of
30%.  The fair value of the warrant was
based on the Black-Scholes option-pricing model.  As a result, the Company allocated $2,151,282 to the notes and
$538,718 to the warrants.
The Company recognized interest expense on
the note of $572,392 in 2002, of which $33,674 was accrued coupon interest and
$538,718 was amortization of the debt discount.   In May 2002, the principal amount of the note and coupon
interest were converted into Series B-1.
In November 2001, the Company issued a
$3,100,000 bridge note to two investors and the Companys CEO.  The bridge note was convertible into a
subsequent series of mandatorily redeemable convertible preferred stock at the
offering price of a subsequent closing of mandatorily redeemable convertible
preferred stock.  The bridge note bore
interest at 15% and the principal was due on November 13, 2002.  The bridge note also bore a prepayment
penalty of 50%.  In December 2001, in
connection with the close of Series A-1, the principal amount of the notes held
by two investors and prepayment penalty were converted into Common stock.  The note held by the Companys CEO was
repaid during 2002.
In April 2001, the Company issued a
$22,500,000 bridge note to several investors. 
The bridge note was convertible into a subsequent series of mandatorily
redeemable convertible preferred stock at the offering price of a subsequent
closing of mandatorily redeemable convertible preferred stock.  The bridge note bore interest at 12% prior
to the due date of September 15, 2001 and 18% thereafter.  In connection with the bridge note, the note
holders were issued warrants to purchase 3,251,445 shares of Series C at
an exercise price of $3.46 per share.
The Company allocated the proceeds from the
bridge note to the note and the warrant based on their relative fair
values.  The fair value of the note was
determined based on a discounted cash flow analysis using a discount rate of
30%.  The fair value of the warrant was
based on the Black-Scholes option-pricing model.  As a result, the Company allocated $20,232,483 to the note and
$2,267,518 to the warrant.
The Company recognized interest expense on
the note of $4,292,518 in 2001, of which $2,025,000 was accrued coupon interest
and $2,267,518 was amortization of the debt discount.   In December 2001, in connection with the close of
Series A-1, the principal amount of the note and coupon interest were
converted into Common stock and the warrants were cancelled.
In connection with the April 2001 bridge
note, the Company agreed to issue warrants to purchase an additional 5,202,312
shares of Series C at an exercise price of $3.46 per share.  These additional shares were issuable only
in the event the Company failed to consummate a subsequent series of
mandatorily redeemable convertible preferred stock by September 15,
2001.  The subsequent series of
mandatorily redeemable convertible preferred stock occurred in
December 2001.  Accordingly, the
Company issued warrants to purchase 5,202,312 shares of Series C.  Management determined that the value of the
warrants was zero and in connection with the recapitalization in
December 2001, all of the warrants were cancelled.
S-24

NOTE H  COMMON STOCK AND COMMON STOCK
WARRANTS
Common stock
In connection with the recapitalization of
the Company in December 2001, certain investors surrendered 829,479 shares of
Common stock to the Company.
Common stock warrants
In April 2001, the Company granted warrants to the Series C
investors to purchase 437,115 shares of Common stock at $0.05 per share.  The warrants vested immediately.  The Company recorded a deemed preferred
dividend in the amount of $2,486,378. 
In July 2001, warrants to purchase 25,712 were exercised.  In December 2001, in connection with the
close of Series A-1, warrants to purchase 321,408 shares were cancelled.
NOTE I  STOCK OPTIONS
Effective December 13, 2001, the Company
adopted the 2001 Stock Plan (the Plan). 
The Plan provides for the granting of incentive and nonqualified stock
options to employees and consultants of the Company.  The Compensation Committee of the Board of Directors administers
the Plan and awards grants and determines the terms of such grants at its
discretion.  The Company has reserved
approximately 24,000,000 shares of Common stock for issuance pursuant to the
Plan.
Information with respect to the Companys
common stock options is as follows:
Shares
  
  Exercise price
  
  Weighted
  average
  exercise
  priceBalance, December 31, 2000
  
  
  1,562,458
  
  $
  0.16-41.57
  
  $
  22.42Granted at fair market value
  
  
  454,372
  
  
  7.79-41.57
  
  
  16.83Exercised
  
  
  (2,452
  )
  
  0.16
  
  
  0.16Canceled
  
  
  (557,750
  )
  
  0.16-41.57
  
  
  21.15Balance, December 31, 2001
  
  
  1,456,628
  
  
  0.16-41.57
  
  
  21.20Granted at fair market value
  
  
  22,972,024
  
  
  0.24-1.00
  
  
  0.33Exercised
  
  
  (84,230
  )
  
  0.16-0.24
  
  
  0.16Canceled
  
  
  (1,557,330
  )
  
  0.16-41.57
  
  
  10.64Balance, December 31, 2002
  
  
  22,787,092
  
  
  0.16-41.57
  
  
  0.96Granted at fair market value
  
  
  3,056,226
  
  
  0.24
  
  
  0.24Exercised
  
  
  (25,753
  )
  
  0.16-0.24
  
  
  0.18Canceled
  
  
  (4,304,856
  )
  
  0.16-41.57
  
  
  1.44Balance, December 31, 2003
  
  
  21,512,709
  
  $
  0.16-41.57
  
  $
  0.77All options have terms ranging from 2 to 10 years and generally vest
over 3 to 4 years.  The total number of
shares available for future grants under the Plan was 2,356,241 as of
December 31, 2003.
S-25

NOTE I  STOCK OPTIONS - continued
The following table summarizes information relating to the Plan as of
December 31, 2003 based upon each exercise price:
Outstanding stock options

  Exercisable stock optionsExercise
  price
  
  Shares
  
  Weighted
  average
  exercise
  price
  
  Weighted
  average
  remaining
  contractual
  life (years)
  
  Shares
  
  Weighted
  average
  exercise price$
  0.16
  
  
  19,246
  
  $
  0.16
  
  
  4.83
  
  
  19,128
  
  $
  0.160.24
  
  
  20,598,749
  
  
  0.24
  
  
  7.87
  
  
  9,079,107
  
  
  0.240.80
  
  
  434,400
  
  
  0.80
  
  
  8.09
  
  
  217,450
  
  
  0.801.00
  
  
  20,000
  
  
  1.00
  
  
  8.01
  
  
  20,000
  
  
  1.007.79
  
  
  11,740
  
  
  7.79
  
  
  7.74
  
  
  5,869
  
  
  7.7917.98
  
  
  68,416
  
  
  17.98
  
  
  5.37
  
  
  46,498
  
  
  17.9820.78
  
  
  27,136
  
  
  20.78
  
  
  5.01
  
  
  27,130
  
  
  20.7823.38
  
  
  161,495
  
  
  23.38
  
  
  6.80
  
  
  118,696
  
  
  23.3827.69
  
  
  65,435
  
  
  27.69
  
  
  5.20
  
  
  65,435
  
  
  27.6933.77
  
  
  87,318
  
  
  33.77
  
  
  6.12
  
  
  71,622
  
  
  33.7741.57
  
  
  18,774
  
  
  41.57
  
  
  5.99
  
  
  18,764
  
  
  41.5721,512,709
  
  $
  0.77
  
  
  7.83
  
  
  9,689,699
  
  $
  1.20In February 2003, the Company offered option holders the opportunity to
exchange certain options granted at $0.80 per share during 2002.  For each option exchanged, the option holder
received one option at the then fair market value of the Companys common stock
six months and one day after the exchange period expired.  Options to purchase 1,906,600 shares of
Common stock were exchanged and reissued at the strike price of $0.24 per share
under this program in September 2003.
In connection with certain options granted to employees during 2000,
the Company recorded $2,439,476 of deferred compensation.  These amounts represent the difference
between the fair market value of the Companys Common stock on the date of
grant and the exercise price of options to purchase 398,838 shares of the
Companys Common stock.  Deferred
compensation is amortized over the vesting periods of the options, which range
from immediate vesting to periods of up to four years.  For 2002 and 2001, $4,175 and $652,409 of
deferred compensation, net of forfeitures, was charged to expense,
respectively.
S-26

NOTE J  COMMITMENTS AND CONTINGENCIES
Lease commitments
The Company leases its main office facility and computer software and
equipment.  Future minimum lease
payments under operating and capital leases that have initial or remaining
noncancelable lease terms in excess of one year at December 31, 2003, are:
Year
  
  Operating
  Leases
  
  Capital
  Leases2004
  
  $
  2,340,595
  
  $
  55,4282005
  
  
  1,593,859
  
  
  55,4282006
  
  
  1,622,356
  
  
  21,5032007
  
  
  1,480,138
  
  
  12,5672008
  
  
  1,480,138
  
  
  4,189Thereafter
  
  
  1,480,138
  
  
  Total
  minimum lease payments
  
  $
  9,997,224
  
  
  149,115Less amount
  representing interest
  
  
  
  
  
  (26,034
  )Present
  value of minimum lease payments
  
  
  
  
  
  123,081Less current
  portion
  
  
  
  
  
  (41,380
  )Long-term
  portion of minimum lease payments
  
  
  
  
  $
  81,701Rent expense amounted to $2,877,175, $2,716,854 and $2,114,340 for
2003, 2002 and 2001, respectively.
Litigation
The Company is involved, from time to time, in various legal matters
and claims which are being defended and handled in the ordinary course of
business.  None of these matters are
expected, in the opinion of management, to have a material adverse effect on
the financial position or results of operations of the Company.
Employment agreements
The Company has employment agreements with certain officers of the
Company. The agreements provide for, among other things, salaries, bonuses,
stock options, and severance payments.
Government regulation
Management believes, based upon consultation with legal counsel, that
the Company is not required to be licensed by the Office of the Comptroller of
the Currency, the Federal Reserve Board or other federal or state agencies that
regulate or monitor banks or other providers of electronic commerce.  However, the Company may be periodically
examined by banking authorities since the Company is a supplier of services to
financial institutions. Laws regulating internet commerce may be enacted to
address issues such as, trust accounting, user privacy, pricing, content,
taxation and the characteristics and quality of online products and services,
among other things.  If enacted, these
laws could have a material adverse effect on the Companys business.
S-27

NOTE K  INCOME TAXES
The reconciliation of the statutory federal income tax rate to the
Companys effective income tax rate is as follows:
Year ended December 312003
  
  2002
  
  2001Statutory
  federal income tax rate
  
  
  34.0
  %
  
  34.0
  %
  
  34.0
  %State income
  taxes, net of federal tax benefit
  
  
  5.9
  %
  
  5.9
  %
  
  6.3
  %Nondeductible
  expenses
  
  
  (0.4
  )%
  
  (0.3
  )%
  
  (3.3
  )%Sale of New
  Jersey NOL
  
  
  (2.7
  )%
  
  (2.4
  )%
  
  0.0
  %Net
  operating loss
  
  
  (39.6
  )%
  
  (39.6
  )%
  
  (37.0
  )%(2.7
  )%
  
  (2.4
  )%
  
  0.0
  %The Company participates in the New Jersey Emerging Technology and
Biotechnology Financial Assistance Program (the Program).  Under the Program, the Company received net
proceeds of $250,942 and $291,518 in 2003 and 2002, respectively, in exchange
for the rights to approximately $3.2 million and $3.7 million of its unused New
Jersey NOL carry-forwards.  These
transactions have been recorded as an income tax benefit in the accompanying
consolidated statements of operations.
Deferred taxes are determined based upon the estimated future tax
effects of differences between the financial statements and income tax basis of
assets and liabilities given the provisions of the enacted tax laws.  The tax effect of temporary differences that
give rise to deferred taxes are as follows:
December 312003
  
  2002Deferred tax
  assets:Net
  operating loss carry-forwards
  
  $
  34,500,000
  
  $
  29,400,000Deferred
  compensation
  
  
  2,100,000
  
  
  2,100,000Development
  costs
  
  
  300,000
  
  
  300,000Accruals and
  reserves not currently deductible
  
  
  900,000
  
  
  800,000Property and
  equipment
  
  
  
  
  
  300,000Total deferred
  tax assets
  
  
  37,800,000
  
  
  32,900,000Deferred tax
  liabilities:Property and
  equipment
  
  
  (1,600,000
  )
  
  Total
  deferred tax liabilities
  
  
  (1,600,000
  )
  
  Net deferred tax asset,
  prior to valuation allowance
  
  
  36,200,000
  
  
  32,900,000Less: valuation allowance
  
  
  (36,200,000
  )
  
  (32,900,000
  )Net deferred
  tax asset
  
  $
  
  
  $
  S-28

NOTE K  INCOME TAXES - continued
As of December 31, 2003, the Company had net operating loss carry-forwards
totaling approximately $86,000,000 for federal tax purposes.  The availability of the net operating loss
carry-forwards and future tax deductions to reduce taxable income is subject to
various limitations under Section 382 of the Internal Revenue Code of 1986, as
amended (Code), in the event of a further ownership change.   This section states that after
reorganization or other changes in corporate ownership (50% cumulative change
in ownership over a three year period), the use of certain carry-forwards may
be limited or prohibited.  Due to the
uncertainty surrounding the realization of the net deferred tax asset,
management has provided a full allowance. 
As of December 31, 2003, the Company has net operating loss
carry-forwards of approximately $117,000,000 for state tax purposes.
Net operating loss carry-forward amounts and expiration dates for both
federal and state purposes are as follows:
Federal
  
  Net Operating
  Loss
  
  Expiration DateNet operating loss
  carry-forwards1995
  
  $
  1,600,000
  
  
  20151996
  
  
  2,000,000
  
  
  20161997
  
  
  2,000,000
  
  
  20171998
  
  
  3,000,000
  
  
  20181999
  
  
  12,000,000
  
  
  20192000
  
  
  28,400,000
  
  
  20202001
  
  
  16,000,000
  
  
  20212002
  
  
  9,400,000
  
  
  20222003
  
  
  11,600,000
  
  
  2023$
  86,000,000State
  
  Net Operating
  Loss
  
  Expiration DateNet operating loss
  carry-forwards1999
  
  $
  11,000,000
  
  
  20082000
  
  
  28,400,000
  
  
  20092001
  
  
  49,000,000
  
  
  20102002
  
  
  17,000,000
  
  
  20112003
  
  
  11,600,000
  
  
  2012$
  117,000,000NOTE L  EMPLOYEE BENEFIT PLAN
The Company has a Section 401(k) retirement savings plan (the 401(k)
Plan).  The 401(k) Plan allows employees
to contribute from 2% to 15% of their annual compensation subject to statutory
limitations.  Company contributions to
the 401(k) Plan are discretionary.  In
past years, the Company, at its discretion, has made matching contributions of
50% to 100% of the first 6% of employee contributions.  For 2003, 2002 and 2001, the Company made
matching contributions of $292,780, $288,451 and $440,435, respectively, to the
401(k) Plan.
S-29

NOTE M  CONCENTRATION OF CREDIT RISK
For 2003, 2002 and 2001, the Company had two, three and one customer(s)
which accounted for 35%, 51% and 22% of total revenues, respectively.  At December 31, 2003 and 2002, the
Company had aggregate accounts receivable from these customers of $278,325 and
$1,421,367, respectively.  The loss of
one or more of these customers could have a materially adverse effect on the
Companys business.  During the fourth
quarter 2003, the Company lost one customer which accounted for 18% of 2003
total revenues.
NOTE N  RELATED PARTY TRANSACTONS
The Company provides services to a customer who is also a
stockholder.  The Company recognized
revenue totaling $301,606, $323,728 and $2,537,765 for 2003, 2002 and 2001,
respectively, related to this arrangement. 
The Company had an accounts receivable balance of $46,408 and $40,865
due from this customer at December 31, 2003 and 2002, respectively.
The Company receives banking services from a vendor who is also a
stockholder.  The Company paid
$1,976,584, $1,430,765 and $571,808 in fees to this vendor in 2003, 2002 and
2001, respectively, and received interest income of $567,725, $424,702 and
$193,393 in 2003, 2002 and 2001, respectively.
NOTE O  SUBSEQUENT EVENTS
On March 25, 2004, the Company sold 34,333,333 shares of Series D-1 at
$0.30 per share for proceeds of $10,300,000. 
In addition, the Series D-1 investors received warrants to purchase
8,583,333 shares of Series D-1 at $0.30 per share.
The terms of the Series A-1, B-1, C-1 and D-1 remained the same except
the mandatory redemption date was extended to March 31, 2008 for Series D-1 and
September 30, 2008 for Series A-1, B-1 and C-1.
In connection with the issuance
of the Series D-1 and warrants on March 25, 2004, the holders of the Series
A-1, B-1 and C-1 agreed to waive the anti-dilution provisions of these
securities.  As such, no adjustment was
made to the conversion features of the Series A-1, B-1 and C-1 as a result of
this issuance of Series D-1.
S-30