<PAGE>   1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    Form 10-Q

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

                                       Or

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

                      For the Quarter Ended March 31, 2001

                          Commission File Number 0-8358

                            MICRO GENERAL CORPORATION
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

               Delaware                                    95-2621545
   -------------------------------                   ----------------------
   (State or other jurisdiction of                      (I.R.S. Employer
    incorporation or organization)                   Identification Number)

2510 N. Red Hill Avenue, Suite 230, Santa Ana, California          92705
---------------------------------------------------------        ----------
         (Address of principal executive offices)                (Zip Code)

                                 (949) 622-4444
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

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

                                 YES [X] NO [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.

$.05 par value Common Stock 13,317,541 shares as of  May 10, 2001

Exhibit Index appears on page 10 of 10 sequentially numbered pages.

<PAGE>   2

                                    FORM 10-Q

                                QUARTERLY REPORT
                          Quarter Ended March 31, 2001

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                              PAGE NUMBER
                                                                              -----------
<S>                                                                           <C>
Part I:  FINANCIAL INFORMATION

    Item 1.  Condensed Consolidated Financial Statements

         A.  Condensed Consolidated Balance Sheets as of March 31, 2001
             and December 31, 2000........................................         3

         B.  Condensed Consolidated Statements of Operations for the
             three-month periods ended March 31, 2001 and 2000............         4

         C.  Condensed Consolidated Statements of Cash Flows for the
             three-month periods ended March 31, 2001 and 2000............         5

         D.  Notes to Condensed Consolidated Financial Statements.........         6

   Item 2.   Management's Discussion and Analysis of Financial Condition
             and Results of Operations....................................         8

   Item 3.   Quantitative and Qualitative Disclosures About Market Risk...        10

Part II: OTHER INFORMATION

   Items 1-3 and 5. of Part II have been omitted because they are not
             applicable with respect to the current reporting period

   Item 4.   Submission of Matters to Vote of Security Holders............        10

   Item 6.   Exhibits and Reports on Form 8-K.............................        10
</TABLE>

                                   Signatures

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

                            MICRO GENERAL CORPORATION
                                  (Registrant)


By: /s/ Dale W. Christensen
    ----------------------------------
        Dale W. Christensen
        Chief Financial Officer
        (Principal Financial and Accounting
        Officer)                                      Date: May 14, 2001


                                       2
<PAGE>   3

Part I: FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

                   MICRO GENERAL CORPORATION AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                          MARCH 31,          DECEMBER 31,
                                                                            2001                 2000
                                                                        ------------         ------------
                                                                         (UNAUDITED)
<S>                                                                     <C>                  <C>
                                     ASSETS
Current assets:
    Cash and cash equivalents                                           $  5,026,463         $  5,337,553
    Trade accounts receivable, less allowance for doubtful
      accounts of $1,761,199 in 2001 and $1,394,555 in 2000                2,966,145            2,853,971
    Trade accounts receivable due from affiliates                         17,815,995           14,033,919
    Inventories                                                               45,000                   --
    Prepaid expenses and other assets                                      2,330,471            3,276,205
                                                                        ------------         ------------
        Total current assets                                              28,185,074           25,501,648
Property and equipment, net                                               21,348,033           17,462,272
Goodwill less accumulated amortization of $6,429,963 in 2001 and
   $5,789,224 in 2000                                                      5,344,564            6,774,736
Investments                                                                1,660,893            1,660,893
                                                                        ------------         ------------
                                                                        $ 56,538,564         $ 51,399,549
                                                                        ============         ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable and accrued expenses                               $ 12,918,319         $ 15,038,673
    Income and other taxes payable                                         1,321,715            1,311,966
    Deferred tax liabilities                                                 361,726              361,726
    Deferred revenue                                                         606,570              612,955
    Other current liabilities                                                500,755              374,315
    Current portion of capital leases with affiliates                        423,638              406,550
    Current portion of notes payable                                       6,761,386            4,804,734
                                                                        ------------         ------------
        Total current liabilities                                         22,894,109           22,901,919
Amounts and notes payable to affiliates                                    5,265,408            5,265,408
Capital leases with affiliates                                             1,306,335            1,407,257
Deferred revenue                                                           2,882,467            1,569,478
Notes payable                                                              2,826,470            1,933,308
Other long term liabilities                                                   97,378              146,067
                                                                        ------------         ------------
        Total liabilities                                                 35,272,167           33,232,437
Commitments and contingencies
Subsequent event
Stockholders' equity:
  Preferred stock, $.05 par value. Authorized 1,000,000 shares;
    none issued and outstanding                                                   --                   --
  Common stock, $.05 par value. Authorized 20,000,000 shares;
    issued and outstanding 13,316,187 at March 31, 2001 and
    13,222,553 shares at December 31, 2000                                   665,809              661,128
  Additional paid-in capital                                              29,096,193           28,809,431
  Accumulated deficiency                                                  (8,495,605)         (11,303,447)
                                                                        ------------         ------------
        Total stockholders' equity                                        21,266,397           18,167,112
                                                                        ------------         ------------
                                                                        $ 56,538,564         $ 51,399,549
                                                                        ============         ============
</TABLE>


            See Notes to Condensed Consolidated Financial Statements.


                                       3
<PAGE>   4

                   MICRO GENERAL CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                             THREE MONTH PERIODS ENDED
                                                                     MARCH 31,
                                                         ---------------------------------
                                                             2001                 2000
                                                         ------------         ------------
                                                                    (UNAUDITED)
<S>                                                      <C>                  <C>

Revenues:
Hardware, software and maintenance revenues              $  4,138,336         $  4,261,871
Service and consulting revenues                            21,466,472            3,721,810
Telecommunication service revenues                          8,994,680           12,555,733
                                                         ------------         ------------
        Total revenues (related party
          revenues, see note 5)                            34,599,488           20,539,414
                                                         ------------         ------------
Cost of sales:
Hardware, software and maintenance cost of sales            2,941,271            2,676,795
Service and consulting cost of sales                       12,473,184            2,342,659
Telecommunication service cost of sales                     9,200,046           12,305,786
                                                         ------------         ------------
        Total cost of sales                                24,614,501           17,326,240
                                                         ------------         ------------
        Gross profit                                        9,984,987            3,213,174
Selling, general and administrative expenses                5,501,035            3,836,740
                                                         ------------         ------------
        Operating income (loss)                             4,483,952             (623,566)
Amortization of goodwill                                     (640,739)            (614,882)
Joint venture loss                                                 --             (286,389)
Interest income (expense), net                               (245,938)             (90,547)
                                                         ------------         ------------
        Income (loss) before income taxes                   3,597,275           (1,615,384)
Income tax expense                                            789,433                   --
                                                         ------------         ------------
        Net income (loss)                                $  2,807,842         $ (1,615,384)
                                                         ============         ============

Income (loss) per share - basic (see note 7)             $        .19         $       (.12)
                                                         ============         ============
Income (loss) per share - diluted (see note 7)           $        .18         $       (.12)
                                                         ============         ============
Number of shares used in per share computations -
  Basic (see note 7)                                       14,609,107           14,041,638
  Diluted (see note 7)                                     15,962,999           14,041,638
</TABLE>


            See Notes to Condensed Consolidated Financial Statements.


                                       4
<PAGE>   5

                   MICRO GENERAL CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                     THREE MONTH PERIODS ENDED
                                                                             MARCH 31,
                                                                  -------------------------------
                                                                     2001                2000
                                                                  -----------         -----------
                                                                            (UNAUDITED)
<S>                                                               <C>                 <C>

Cash flows from operating activities:
    Net income (loss)                                             $ 2,807,842         $(1,615,384)
    Adjustments to reconcile net income (loss) to net cash
      provided by (used in) operating activities:
       Depreciation and amortization                                1,636,854           1,259,631
       Loss on disposal of property and equipment                     137,816                  --
       Provision for doubtful accounts                                359,500              84,070
       Joint venture loss                                                  --             286,389
       Tax expense against goodwill                                   789,433                  --
    Changes in assets and liabilities:
       Trade accounts receivable                                     (471,674)         (1,618,806)
       Inventories                                                    (45,000)            123,402
       Prepaid expenses and other assets                              945,734             539,270
       Accounts payable and accrued expenses                       (1,993,914)            620,515
       Income and other taxes payable                                   9,749             (84,157)
       Deferred revenue                                             1,306,604             680,961
       Other long term liabilities                                    (48,689)                 --
       Amounts due from affiliates                                 (3,782,076)         (3,050,510)
                                                                  -----------         -----------
           Net cash provided by (used in)
             operating activities                                   1,652,179          (2,774,619)
                                                                  -----------         -----------
Cash flows from investing activities:
    Purchases of property and equipment                            (2,132,707)         (1,173,623)
                                                                  -----------         -----------
       Net cash used in investing activities                       (2,132,707)         (1,173,623)
                                                                  -----------         -----------
Cash flows from financing activities:
    Net increase in borrowings on line of credit                    1,000,000           2,200,000
    Capital lease obligation                                         (140,177)           (134,309)
    Stock issues or exercise of stock options                         203,949           1,413,366
    Stock purchase plan                                                87,494              50,049
    Net paydown on notes payable                                     (980,828)                 --
                                                                  -----------         -----------
       Net cash provided by financing activities                      170,438           3,529,106
                                                                  -----------         -----------
       Net decrease in cash and cash equivalents                     (310,090)           (419,136)
Cash and cash equivalents at beginning of period                    5,337,553           1,400,874
                                                                  -----------         -----------
Cash and cash equivalents at end of period                        $ 5,027,463         $   981,738
                                                                  ===========         ===========
Supplemental cash flow information:
Cash paid during the quarter for:
    Income taxes paid                                             $    26,818         $        --
                                                                  ===========         ===========
    Interest paid                                                 $   372,907         $   688,362
                                                                  ===========         ===========
Noncash investing and financing activities:
      Note financing of hardware/software                         $ 2,886,985         $        --
                                                                  ===========         ===========
</TABLE>


            See Notes to Condensed Consolidated Financial Statements.


                                       5
<PAGE>   6

                    MICRO GENERAL CORPORATION & SUBSIDIARIES

              Notes to Condensed Consolidated Financial Statements

(1) Basis of Financial Statements

The financial information included in this report includes the accounts of Micro
General Corporation and its subsidiaries (collectively, the "Company") and has
been prepared in accordance with generally accepted accounting principles and
the instructions to Form 10-Q and Article 10 of Regulation S-X. All adjustments,
consisting of normal recurring accruals considered necessary for a fair
presentation, have been included. This report should be read in conjunction with
the Company's Annual Report on Form 10-K for the year ended December 31, 2000.

Certain reclassifications have been made in the 2000 condensed consolidated
financial statements to conform to classifications used in 2001.

Basic earnings per share is based on the weighted-average number of shares
outstanding and excludes any dilutive effects of options and convertible
securities. Diluted earnings per share gives effect to assumed conversions of
potentially dilutive securities. All outstanding options and warrants have been
excluded from the calculations of diluted loss per share for the three month
period ended March 31, 2000, as their inclusion would be antidilutive. The
number of exercisable options and warrants outstanding at March 31, 2001 was
2,442,693 and 587,500 respectively.

(2) Description of Business

Historically, the operations of Micro General Corporation consisted of the
design, manufacture and sale of computerized parcel shipping systems, postal
scales and piece-count scales. These operations were performed through the
Company's postage meter and scale division. Following the acquisition of ACS
Systems, Inc. ("ACS") in mid-1998, which is described below, the Company shifted
its focus to information technology and telecommunication services.

On May 14, 1998, the Company and Fidelity National Financial, Inc.("FNFI")
completed the merger of Micro General with ACS, a wholly-owned subsidiary of
FNFI. As a result of the merger, all of the outstanding shares of ACS were
exchanged for 4.6 million shares of Micro General common stock. The transaction
was appraised at $1.3 million. Following the merger of Micro General and ACS,
FNFI owned 81.4% of the common stock of the Company on an undiluted basis. The
transaction has been accounted for as a reverse merger, i.e., Micro General has
been acquired by FNFI as a majority-owned subsidiary through a merger with ACS,
with Micro General as the legal surviving entity and ACS as the surviving entity
for accounting purposes. At December 31, 2000, ACS was formally merged into
Micro General. FNFI owned 65.7% of the Company's outstanding common stock at
March 31, 2001.

On November 17, 1998, the Company completed the acquisition of LDExchange.com,
Inc. ("LDExchange"), an emerging multinational carrier focused primarily on the
international long distance market. LDExchange is a facilities-based, wholesale
long distance carrier providing low cost international telecommunication
services primarily to U.S. based long distance carriers. In 2000, LDExchange
obtained the necessary state certifications to begin offering domestic long
distance services across the country. In addition, the telecommunication assets
and customers of ACS were transferred into LDExchange and have become an
integral part of the LDExchange telecommunication product offerings. The
LDExchange purchase price was $3.1 million, payable $1.1 million in cash and
$2.0 million in Micro General restricted common stock (1,000,000 shares). The
acquisition was accounted for as a purchase.

(3) Escrow.com

On October 1, 1999, Micro General entered into an Intellectual Property Transfer
Agreement that provided the financing to launch escrow.com as a new company.
Under the agreement, the Company sold the escrow.com name and trademark, the
escrow.com internet URL, a license for the Micro General proprietary escrow
trust accounting software, the Company's computer services provider business
unit and approximately $535,000 of related computer equipment. Under the terms
of the Intellectual Property Transfer Agreement, the Company received from
escrow.com a $4.5 million note with a term of seven years and an interest rate
of three percent. The Company also received a warrant giving the Company the
right to purchase 15.0 million shares of escrow.com common stock at a price of
$0.40 per share.


                                       6
<PAGE>   7

Escrow.com offers on-line escrow-related services designed to provide buyers and
sellers with a safe, secure and easy to use system for managing payment for and
delivery of products and services purchased via the Intranet. As an internet
transaction services provider, escrow.com provides for the secure transmission
of funds between a buyer and seller by placing the funds in escrow, confirming
and verifing the receipt of merchandise by the buyer, and releasing the funds
from escrow to the seller.

Because of the start-up nature of escrow.com, the Company has fully reserved the
$4.5 million note receivable on its consolidated balance sheet. The gain on the
sale of assets will be realized at such time escrow.com has sufficient funding
in place to reasonably assure the payment of the note. While the Company has no
equity interest in escrow.com as of March 31, 2001, the 15.0 million warrants
give the Company the opportunity to acquire a substantial interest in
escrow.com. Escrow.com is incurring substantial losses and may need to raise
additional funds in order to continue its operations. The Company's potential
ownership in escrow.com may be substantially diluted if escrow.com issues
additional shares to raise the necessary capital.

As previously described, the Company has warrants that, upon their exercise,
will give the Company substantial ownership in escrow.com. In April 2000,
escrow.com completed a private placement in which it raised gross proceeds of
$30 million. As an inducement to invest, the Company assigned to two of the
investors 250,000 of its 15.0 million warrants in escrow.com. As a result of
this funding, escrow.com has 10,541,813 shares outstanding as of March 31, 2001.
Although escrow.com has raised additional capital, those funds are not being
used for repayment of the $4.5 million note receivable discussed above.
Therefore, the note will be fully reserved until such time that escrow.com has
sufficient funding in place to reasonably ensure payment of the note. Assuming
exercise of the warrants, the Company would have a 58% ownership in escrow.com.

(4) RealEC Technologies, Inc.

On October 8, 1998, the Company announced the creation of RealEC, one of the
largest real estate electronic commerce networks in the nation. RealEC commenced
operations in mid-1999 and was a 50% owned joint venture with Stewart Title
Corporation, a subsidiary of Stewart Information Services Corporation
(NYSE:STC). RealEC provides a standardized, electronic platform which lenders
and realtors can utilize to order and receive products and services from
multiple vendors such as credit, flood, appraisal, title and closing. This open,
eCommerce network currently gives lenders and realtors access to over 2,000
vendors located across the United States.

On May 19, 2000, the Company created TXMNet, Inc. and transferred its 50%
ownership of RealEC into the new entity along with certain other intellectual
property in exchange for 6,650,000 shares of convertible, non-voting preferred
stock. The Company's investment in TXMNet was $1,660,893, which was the book
value of its 50% ownership in RealEC that was part of the assets contributed by
the Company into TXMNet, Inc. On December 31, 2000, Stewart Title Corporation
exchanged its 50% ownership position in RealEC for 2,935,000 shares of
convertible, non-voting preferred stock in TXMNet, Inc. TXMNet, Inc. changed its
name to RealEC Technologies, Inc. on February 13, 2001. The Company has
accounted for the approximately $2.7 million advanced to RealEC Technologies
using the modified equity accounting method, and has, as of March 31, 2001,
fully reserved this receivable. The reserve will be reversed at such time RealEC
Technologies has sufficient funding to repay the amounts advanced to it by the
Company and to conduct its operations for at least the next year. RealEC
Technologies has also retained an investment banker to raise $4 - $8 million
which is expected to be completed in the second quarter of 2001. On a fully
diluted basis, the Company has a 62% ownership in RealEC Technologies, Stewart
Title Corporation has a 27% ownership and the remaining 11% ownership is by
other investors.

(5) Segment Information

The Company's condensed consolidated financial statements as of and for the
quarters ended March 31, 2001 and 2000 include two reportable segments.

As of March 31, 2001:

<TABLE>
<CAPTION>
                                                                       INTRA-COMPANY
                                    MICRO GENERAL      LDEXCHANGE      ELIMINATIONS       TOTAL
                                    -------------      ----------      -------------      -----
<S>                                  <C>              <C>              <C>             <C>

Total revenues                       $ 25,604,809      $ 8,994,679     $               $34,599,488
Related party revenues                 24,477,751          710,518                      25,188,269
Operating income (loss)                 5,453,217         (969,265)                      4,483,592
Interest expense (net)                    212,378           33,560                         245,938
Income (loss) before income taxes       4,630,100       (1,032,825)                      3,597,275
Depreciation and amortization           1,245,592          391,262                       1,636,854
Total assets                           60,703,496        8,682,144     (12,847,076)     56,538,564
</TABLE>


                                       7
<PAGE>   8

As of March 31, 2000:

<TABLE>
<CAPTION>
                                                                       INTRA-COMPANY
                                    MICRO GENERAL      LDEXCHANGE      ELIMINATIONS       TOTAL
                                    -------------      ----------      -------------      -----
<S>                                  <C>              <C>              <C>             <C>

Total revenues                       $  7,983,682     $ 12,555,732     $               $20,539,414
Related party revenues                  6,865,339          597,456                       7,462,795
Operating income (loss)                   194,212         (817,778)                       (623,566)
Joint Venture loss                       (286,389)              --                        (286,389)
Interest expense (net)                      6,637           83,910                          90,547
Income (loss) before income taxes        (611,748)      (1,003,636)                     (1,615,384)
Depreciation and amortization             933,252          326,379                       1,259,631
Total assets                           27,938,252       10,499,054      (8,463,151)     29,974,155
</TABLE>

(6) Options

Under the Company's stock option plan, in the three-months ended March 31, 2001,
the Company granted options to acquire 156,000 shares at the then current market
price. Of the stock options granted, 0 shares are vested and the remaining
156,000 shares will vest over periods up to four years.

(7) Subsequent Event

On May 8, 2001, the Company declared a stock dividend of 10 percent to
shareholders of record at the close of business on May 18, 2001, payable June 1,
2001. Cash is to be paid in lieu of fractional shares. Accordingly, the weighted
average shares outstanding have been restated to reflect the stock dividend of
approximately 1,331,700 shares for the periods presented. The earnings per share
would have been $0.21 basic and $0.19 diluted for the first quarter of 2001 and
$(0.13) basic and diluted earnings per share for the first quarter of 2000.
After the inclusion of shares related to the stock dividend, the earnings per
share are $0.19 basic and $0.18 diluted for the first quarter of 2001 and
$(0.12) basic and diluted for the first quarter of 2000.


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

Factors That May Affect Operating Results

The statements contained in this report on Form 10-Q that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding the Company's expectations, hopes,
intentions or strategies regarding the future. All forward-looking statements
included in this document are based on information available to the Company on
the date hereof, and the Company assumes no obligation to update any such
forward-looking statements. It is important to note that the Company's actual
results could differ materially from those in such forward-looking statements.
The reader should consult the risk factors listed from time to time in the
Company's reports on Forms 10-Q, 10-K and filings under the Securities Act of
1933, as amended.

Results of Operations

Revenue

Revenues increased $14.0 million, or 68%, to $34.6 million in the quarter ended
March 31, 2001 from $21.5 million in the comparable 2000 period. Although
telecommunication services revenue declined by $3.6 million, service and
consulting revenue climbed $17.7 million to $22.5 million from $3.7 million. The
increase in service and consulting revenue can be attributed to the additional
business that has been directed to the Company by FNFI as a result of its
acquisition of Chicago Title and the substantial development of Net Global
Solutions ("NGS"), a web-based software platform developed to substantially
increase the efficiency of the title production process, that began in the last
half of 2000. In April 2000, the Company hired approximately 150 Chicago Title
information technology employees and entered into an agreement to provide
information technology service to Fidelity/Chicago Title. Hardware, software and
maintenance revenues fell slightly by $124,000 or 3%, to $4.1 million from $4.3
million in the comparable 2000 period while telecommunications service revenues
fell $3.6 million or 28%, to $9.0 million from $12.6 million. The drop in
telecommunications service revenues in the Company's LDExchange subsidiary
resulted from the loss of several international telecommunications services
agreements combined with the decision to decrease the amount of certain low
margin international traffic.

Gross Profit

Gross profit increased $6.8 million or 211%, to $10.0 million from $3.2 million
in the comparable 2000 period and represents a gross margin percentage of 29%
versus 16%. The change in revenue mix away from the lower margin
telecommunications revenue and into the higher margin service and consulting
revenues resulted in a substantial improvement over the quarter ended March 31,
2000. In


                                       8
<PAGE>   9

addition, the Company's gross profit increased to 42% of service and consulting
revenues in the March 31, 2001 quarter, as compared to 37% in the March 31, 2000
quarter. This increase in gross profit was primarily due to a significant
increase in billable hours in support of multiple projects, including NGS.

Expenses

Selling, general and administrative expenses ("SG&A") increased $1.7 million or
43%, to $5.5 million from $3.8 million in the comparable period. The increase
was due primarily to a $1.4 million reserve expense for receivables due from
RealEC Technologies. Under modified equity accounting, the Company was required
to fully reserve the receivable from RealEC Technologies until such time it is
deemed RealEC Technologies has sufficient funding in place to pay the receivable
in full and recover losses previously recognized through subsequent income.

The amortization of goodwill is a function of the characteristics of the
intangible assets recorded during a particular period and the estimated useful
life of the intangible assets. Fluctuations in the amortization of goodwill
result from the amount, mix and characteristics of the intangible assets
recorded as well as the circumstances surrounding the Company's estimate of the
appropriate useful life.

Interest income (expense), net, is related to the use of the Company's working
capital, which is in the form of available cash and lines of credit. The
increase in interest expense to $246,000 from $91,000 can be attributed to
additional software and hardware financing arrangements entered into by the
Company.

Income tax expense (benefit) is recorded on the amounts the Company estimates
based on the Company's taxation structure, will be due to state and federal
taxation authorities. Certain acquired Net Operating Loss carryforwards were
available to the Company for applying against income. For the quarter ending
March 31, 2001, the Company recorded a tax expense of $789,000 that was offset
as a reduction in goodwill.

Liquidity and Capital Resources

The Company's current cash requirements include debt service, personnel and
other operating expenses, capital expenditures coupled with capital for
potential acquisitions and expansion. Internally generated funds fluctuate in a
pattern generally consistent with revenues. For the quarter ended March 31,
2001, the Company reported a pre-tax profit of $3.6 million versus a loss of
$1.6 million in the comparable 2000 period. The Company believes as a result of
its current revenue base, improved profitability, increased margins and the
anticipated availability of funds in the form of existing lines of credit, all
cash requirements will be met for at least 12 months.

The Company had relied on FNFI as the primary source of capital to fund its
operations in the form of revenues generated by the Company related to products
and services provided to FNFI. FNFI had also been a source of funds via
available financing arrangements and is a guarantor of certain of the Company's
lending arrangements. The Company has a five-year convertible note with FNFI.
The Company also has a $5.0 million revolving line of credit with Imperial Bank
guaranteed by FNFI, which extends through July 31, 2001. As of March 31, 2001,
the Company has borrowed $3.5 million. In addition, the Company has also entered
into a number of note financing arrangements with both IBM Global Credit and GE
Capital totaling $6.1 million.

The Company's LDExchange subsidiary continues to operate in a difficult,
extremely competitive pricing environment. In the quarter ended March 31, 2001,
LDExchange experienced a loss of $1,032,825 and an earnings before interest,
tax, depreciation and amortization (EBITDA) loss of $608,003. The Company had
entered into an agreement to sell the telecommunications subsidiary in the
fourth quarter of 2000, but the buyer was unable to complete its financing of
the purchase. While the Company believes that it can have LDExchange operate on
a positive cash flow basis in the second half of 2001, the Company is currently
reviewing the operations of LDExchange and is evaluating its options for this
business.

While the Company believes it has funds on hand and funds available through
existing lines of credit sufficient to meet its projected needs for the next
twelve months, the Company also believes it may have the option of raising
additional funds through an offering of its common stock. If undertaken, the
proceeds from an offering would be used to pay down existing debt, finance the
development of potential new business opportunities and potential acquisitions,
and also for general working capital purposes. There can be no guarantee the
Company will undertake an offering of its common stock, or that if undertaken,
it will be successful in raising additional funds.


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The Company must comply with certain affirmative and negative covenants related
to its outstanding debt and notes payable. The Company was in compliance with
these covenants at March 31, 2001.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

The Company's consolidated balance sheets include liabilities whose fair values
are subject to market risks. The following sections address the significant
market risks associated with the Company's financial activities as of March 31,
2001.

Market Risk Exposures

The following discussion about our market risk disclosures contains
forward-looking statements. Forward-looking statements are subject to risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements. We are exposed to market risk related to changes
in interest rates. We do not have derivative financial instruments for hedging,
speculative or trading purposes.

Interest Rate Risk

The Company's borrowings are subject to interest rate risk. Increases and
decreases in prevailing interest rates generally translate into decreases and
increases in fair values of those instruments. Additionally, fair values of
interest rate sensitive instruments may be affected by the creditworthiness of
the issuer, prepayment options, relative values of alternative investments, the
liquidity of the instrument and other general market conditions.

Caution should be used in evaluating the Company's overall market risk from the
information below. Actual results could differ materially because the
information was developed using estimates and assumptions as described below.

The fair value of the Company's notes payable approximate their carrying value
at March 31, 2001 as the interest rates paid approximate the market value of
borrowings of a similar nature.

The hypothetical effects of changes in market rates or prices on the fair values
of financial instruments, which relate to the Company's line of credit, would be
an increase (decrease) of the fair value approximately $25,000, if interest
rates increased (decreased) 100 basis points.

Part II: OTHER INFORMATION

Item 4. Submission of Matters to Vote of Security Holders - None.

Item 6. Exhibits and Reports on Form 8-K

    (a) Exhibits:

    None

    (b) Reports on Form 8-K:

    None


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