10-K

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 1934
For the Fiscal Year ended December 31, 2001

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from     to

Commission File Number 0-28536

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

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

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

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

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

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

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [   ] No

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

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

DOCUMENTS INCORPORATED BY REFERENCE

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

NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES

Annual Report on Form 10-K

For the Fiscal Year Ended December 31, 2001

PAGE

Index 2

PART I

Item 1. Business 3

Item 2. Properties 21

Item 3. Legal Proceedings 21

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

PART II

Item 5. Market for the Company’s Common Equity and Related Stockholder Matters 22

Item 6. Selected Financial Data 23

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24

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

Item 8. Financial Statements and Supplementary Data 30

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

PART III

Item 10. Directors and Executive Officers of the Company 63

Item 11. Executive Compensation 63

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

Item 13. Certain Relationships and Related Transactions 63

PART IV

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

Signatures 66

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PART I

ITEM I. BUSINESS

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

Introduction

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

Investment		Ownership %			Gross Investment		Net Book Value
	Princeton		57.4	%	$	73,697	$	25,278
	Tanisys		35.2	%	$	1,060	$	962
	Sharps		7.1	%	$	770	$	772
	Microbilt		9.0	%	$	348	$	354

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

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

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Continuing Operations – FIData

Products and Services

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

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

Operations

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

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

Customers and Competition

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

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

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Microbilt

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

Continuing Operations – Tanisys

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

General

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

Industry Overview

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

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

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

Products and Services

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

Customers, Sales and Marketing

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

Competition

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

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

Research and Development

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

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Intellectual Property

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

No Assurance of Operating Results

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

Continuing Operations – Princeton

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

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Products

     Princeton provides electronic bill presentment and payment (“EBPP”) solutions to businesses and financial institutions serving their consumers or other businesses. Princeton’s primary solutions include the following:

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

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

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

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

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

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

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

Markets

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

Industry

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

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Competition

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

Continuing Operations – Sharps

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

Products

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

– Sharps Disposal by Mail^™ Systems: A comprehensive solution for the containment, transportation, destruction and tracking of medical waste for commercial and retail industries.

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

– Trip LesSystem^™: A solution for the home healthcare industry that will free them from making unnecessary and more costly trips to the patient’s home after treatment has been completed.

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

Markets

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

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Industry

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

Competition

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

Continuing Operations – Coreintellect

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

Discontinued Operations – Transaction Processing

General

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

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

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

Industry Background

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

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

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

Development of Business

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

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

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

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

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

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Process

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

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

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

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

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

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

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Operations

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

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

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

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

Customers

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

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

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

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

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

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

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

– Competitive Local Exchange Carriers (“CLEC”): Carriers that provided local exchange services to subscribers who were previously served exclusively by the incumbent local exchange carrier.

– Incumbent Local Exchange Carriers (“ILEC”): The existing local telephone company who had previously offered service as a regulated monopoly company.

– Internet Service Provider (“ISP”): Companies that offered Internet access and Internet-based services.

– Integrated Communications Providers (“ICP”): Carriers who offered multiple communications services through a combination of owned network facilities and resale of other network facilities. These multiple services were typically bundled and priced as a package of services.

– Other Customers: Suppliers of various forms of telecommunications equipment and pager and cellular telephone companies.

Competition

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

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

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

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

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

Research and Development

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

Discontinued Operations – Software

General

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

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

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

Development of Business

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

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Industry Background

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

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

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

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

Products and Services

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

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

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

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

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

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Operations

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

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

Customers

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

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

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

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

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

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

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

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

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

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

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

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

Competition

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

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

Research and Development

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

Employees

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

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

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ITEM 2. PROPERTIES

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

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

ITEM 3. LEGAL PROCEEDINGS

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

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

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

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

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

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

Market Information

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

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

Stockholders

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

Dividend Policy

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

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ITEM 6. SELECTED FINANCIAL DATA

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

	Year Ended			Quarter Ended			Year Ended
	December 31,						September 30,
	2001			2000			2000			1999			1998			1997
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Operating revenues	$	1,187		$	163		$	410		$	—		$	—		$	—
Gross profit		256			10			61			—			—			—
Loss from continuing operations		(15,078	)		(2,316	)		(16,303	)		(5,421	)		(3,344	)		(2,930	)
Net loss from continuing operations		(38,426	)		(5,086	)		(26,579	)		(5,224	)		(4,109	)		(1,846	)
Net income (loss) from discontinued
operations, net of income taxes		—			—			(6,565	)		21,046			30,812			6,086
Net income (loss) from disposal of
discontinued operations, net of income
taxes		2,385			—			(9,277	)		—			—			—
Net income (loss)		(36,041	)		(5,086	)		(42,421	)		15,822			26,703			4,238
Basic and diluted net loss from continuing
operations per common share	$	(1.10	)	$	(0.13	)	$	(0.67	)	$	(0.14	)	$	(0.12	)	$	(0.05	)
Basic and diluted net income (loss) from
discontinued operations, net of income
taxes per common share		—			—			(0.16	)		0.57			0.86			0.18
Basic and diluted net income (loss) from
disposal of discontinued operations, net of
income taxes per common share		0.07			—			(0.23	)		—			—			—
Basic and diluted net income (loss) per
common share	$	(1.03	)	$	(0.13	)	$	(1.06	)	$	0.43		$	0.74		$	0.13
Weighted average common stock
outstanding		34,910			38,737			39,909			37,116			35,844			33,525

	December 31,					September 30,
	2001			2000		2000		1999		1998		1997
(in thousands)
Consolidated Balance Sheet Data:
Working capital	$	9,532		$	32,454	$	2,968	$	73,553	$	60,246	$	28,594
Total assets		39,577			81,176		97,103		113,417		95,317		50,389
Additional paid-in capital(1)		70,342			90,403		88,819		63,771		60,028		42,905
Retained earnings (deficit)(2)		(35,335	)		706		5,792		48,213		34,141		7,438

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

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

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

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

Continuing Operations

Revenues

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

Cost of revenues

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

Selling, general and administrative expenses

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

Research and development

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

24

Depreciation and amortization

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

Goodwill Impairment

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

Net other expense

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

Income tax benefit (expense)

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

Results of Discontinued Operations – Transaction Processing and Software

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

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

25

	Year ended September 30,
(in thousands, except percentages)	2000					1999
Transaction Processing revenues	$	113,085		78.2	%	$	135,403		74.7	%
Software revenues		31,522		21.8			45,921		25.3
Operating revenues		144,607		100.0			181,324		100.0
Cost of revenues		100,010		69.2			109,519		60.4
Gross profit		44,597		30.8			71,805		39.6
Selling, general and administrative expenses		28,830		19.9			28,333		15.6
Bad debt expense		6,081		4.2			1,663		0.9
Research and development expenses		11,763		8.1			5,725		3.2
Advance funding program income, net		(1,856	)	(1.3	)		(3,673	)	(2.0	)
Depreciation and amortization expenses		11,273		7.8			9,286		5.1
Special and other charges		1,216		0.9			1,529		0.8
(Loss) income from discontinued operations
before other income and income tax
benefit (expense)	$	(12,710	)	(8.8	)%	$	28,942		16.0	%

Operating revenues

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

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

	Year ended September 30,
(in millions)	2000		1999
Direct dial long distance services		457.8		599.0
Operator services		76.3		97.2
Enhanced billing services		3.5		4.7
Billing management services		204.0		230.4

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

Cost of revenues

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

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Selling, general and administrative

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

Bad debt expense

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

Research and development

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

Advance funding program income and expense

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

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

Income from discontinued operations

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

Liquidity and Capital Resources

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

27

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

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

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

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

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

Seasonality

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

Effect of Inflation

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

New Accounting Standards

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

28

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

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

Critical Accounting Policies

Consolidation of Subsidiaries

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

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

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

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

	Page
Report of Independent Public Accountants		31
Report of Management		33
Consolidated Balance Sheets as of December 31, 2001 and 2000 and September 30, 2000		34
Consolidated Statements of Operations for the Year Ended December 31, 2001,
the Transition Quarter Ended December 31, 2000 and the Years Ended
September 30, 2000 and 1999		35
Consolidated Statements of Stockholders’ Equity for the Year Ended December 31, 2001,
the Transition Quarter Ended December 31, 2000 and the Years Ended
September 30, 2000 and 1999		36
Consolidated Statements of Cash Flows for the Year Ended December 31, 2001,
the Transition Quarter Ended December 31, 2000 and the Years Ended
September 30, 2000 and 1999		37
Notes to Consolidated Financial Statements		38

30

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

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

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

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

/s/ ARTHUR ANDERSEN LLP

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

31

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Tanisys Technology, Inc.:

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

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

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

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

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

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

Austin, Texas
October 30, 2001

32

REPORT OF MANAGEMENT

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

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

/s/ PARRIS H. HOLMES, JR.

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

/s/ DAVID P. TUSA

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

33

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

ASSETS

	December 31,						September 30,
	2001			2000			2000
Current Assets:
Cash and cash equivalents	$	8,649		$	36,478		$	(156	)
Accounts receivable, net of allowance for doubtful
accounts of $119, $46 and $25, respectively		1,431			3,427			5,013
Inventory		1,042			—			—
Prepaids and other		444			254			224
Net current assets from discontinued operations
(see Note 21)		—			—			1,376
Total current assets		11,566			40,159			6,457
Property and equipment		1,135			1,097			912
Accumulated depreciation		(366	)		(374	)		(292	)
Net property and equipment		769			723			620
Other assets, net of accumulated amortization of
$2, $1,717, and $1,348, respectively		838			6,775			6,784
Investments in affiliates		26,404			33,519			37,832
Net non-current assets from discontinued
operations (see Note 21)		—			—			45,410
Total assets	$	39,577		$	81,176		$	97,103
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	534		$	95		$	74
Accrued liabilities		979			1,564			609
Deferred income taxes		174			2,525			2,806
Revolving credit note		88			—			—
Net current liabilities from discontinued operations		259			3,521			—
Total current liabilities		2,034			7,705			3,489
Executive deferred compensation and other liabilites		759			741			569
Long-term debt to minority stockholders, net of
discount		207			—			—
Total liabilities		3,000			8,446			4,058
Commitments and contingencies (see Notes 9 and 17)
Minority interest in consolidated affiliate		1,228			—			—
Stockholders’ Equity:
Preferred stock, $0.01 par value, 10,000,000
shares authorized; no shares issued or outstanding		—			—			—
Common stock, $0.01 par value, 75,000,000 shares
authorized; 34,205,920 issued and outstanding;
42,506,960 shares issued and 35,652,560 shares
outstanding; 41,732,632 shares issued and
41,227,832 shares outstanding; respectively		342			425			417
Additional paid-in capital		70,342			90,403			88,819
Retained (deficit) earnings		(35,335	)		706			5,792
Deferred compensation		—			(49	)		(82	)
Treasury stock, at cost; 0, 6,854,400 and
504,800 shares, respectively		—			(18,755	)		(1,901	)
Total stockholders’ equity		35,349			72,730			93,045
Total liabilities and stockholders’ equity	$	39,577		$	81,176		$	97,103

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

34

NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

	Year Ended December 31,			Quarter Ended December 31,			Year Ended September 30,
	2001			2000			2000			1999
Operating revenues	$	1,187		$	163		$	410		$	—
Cost of revenues		931			153			349			—
Gross profit		256			10			61			—
Selling, general and administrative expenses		8,258			1,882			9,317			5,315
Research and development expenses		411			—			3,247			63
Depreciation and amortization expenses		1,700			444			1,631			43
Goodwill impairment		4,965			—			—			—
Special charges		—			—			2,169			—
Loss from continuing operations		(15,078	)		(2,316	)		(16,303	)		(5,421	)
Other income (expense):
Interest income		1,045			536			12			—
Interest expense		(111	)		—			(3	)		—
Equity in net loss of affiliates		(28,830	)		(4,220	)		(10,069	)		(1,809	)
Impairment of investments in affiliates		(1,777	)		—			—			—
In-process research and development of
affiliates		—			—			(4,965	)		—
Consulting income		3,750			625			—			—
Realized gains on available-for-sale securities		566			—			—			—
Other, net		670			8			34			—
Minority interest in consolidated affiliate		519			—			—			—
Total other expense, net		(24,168	)		(3,051	)		(14,991	)		(1,809	)
Loss from continuing operations before income
tax benefit		(39,246	)		(5,367	)		(31,294	)		(7,230	)
Income tax benefit		820			281			4,715			2,006
Net loss from continuing operations		(38,426	)		(5,086	)		(26,579	)		(5,224	)
Discontinued operations:
Net (loss) income from discontinued operations,
net of income tax benefit (expense) of $0, $0,
$229 and ($13,585), respectively		—			—			(6,565	)		21,046
Net income (loss) from disposal of discontinued
operations, including income tax benefit
(expense) of $500, $0, ($5,629) and $0,
respectively		2,385			—			(9,277	)		—
Net income (loss) from discontinued operations		2,385			—			(15,842	)		21,046
Net (loss) income	$	(36,041	)	$	(5,086	)	$	(42,421	)	$	15,822
Basic and diluted (loss) income per common share:
Net loss from continuing operations	$	(1.10	)	$	(0.13	)	$	(0.67	)	$	(0.14	)
Net (loss) income from discontinued
operations		—			—			(0.16	)		0.57
Net income (loss) from disposal of
discontinued operations		0.07			—			(0.23	)		—
Net loss	$	(1.03	)	$	(0.13	)	$	(1.06	)	$	0.43
Weighted average common shares outstanding		34,910			38,737			39,909			37,116

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

35

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

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

	Common Stock						Additional Paid-in			Retained Earnings		Deferred				Treasury Stock
	Shares			Amount			Capital			(Deficit)		Compensation				Shares			Amount			Total
Balances at September 30, 1998		36,643		$	366		$	60,028		$	34,141		$	(394	)		—		$	—		$	94,141
Issuance of common stock		268			3			694			(1,750	)		—			—			—			(1,053	)
Issuance of stock options		—			—			84			—			(84	)		—			—			—
Exercise of stock options and warrants		467			5			2,965			—			—			—			—			2,970
Compensation expense		—			—			—			—			255			—			—			255
Net income		—			—			—			15,822			—			—			—			15,822
Balances at September 30, 1999		37,378			374			63,771			48,213			(223	)		—			—			112,135
Issuance of common stock		129			1			304			—			(222	)		—			—			83
Issuance of common stock for acquisitions		4,177			42			24,702			—			—			—			—			24,744
Issuance of stock options		—			—			(31	)		—			31			—			—			—
Exercise of stock options and warrants		49			—			215			—			—			—			—			215
Compensation expense		—			—			(142	)		—			332			—			—			190
Purchase of treasury stock		—			—			—			—			—			(505	)		(1,901	)		(1,901	)
Net loss		—			—			—			(42,421	)		—			—			—			(42,421	)
Balances at September 30, 2000		41,733			417			88,819			5,792			(82	)		(505	)		(1,901	)		93,045
Issuance of common stock		769			8			1,573			—			—			—			—			1,581
Exercise of stock options		5			—			11			—			—			—			—			11
Compensation expense		—			—			—			—			33			—			—			33
Purchase of treasury stock		—			—			—			—			—			(6,349	)		(16,854	)		(16,854	)
Net loss		—			—			—			(5,086	)		—			—			—			(5,086	)
Balances at December 31, 2000		42,507			425			90,403			706			(49	)		(6,854	)		(18,755	)		72,730
Issuance of common stock		7			—			7			—			—			—			—			7
Exercise of stock options		4			—			8			—			—			—			—			8
Forfeiture of restricted common stock		(20	)		—			(89	)		—			—			—			—			(89	)
Compensation expense		—			—			—			—			49			—			—			49
Purchase 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	)	$	—			—			—		$	35,349

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

36

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

	Year Ended December 31,			Quarter Ended December 31,			Year Ended September 30,
	2001			2000			2000			1999
Cash flows from operating activities:
Net loss from continuing operations	$	(38,426	)	$	(5,086	)	$	(26,579	)	$	(5,224	)
Adjustments to reconcile net loss from continuing
operations to net cash (used in) provided by
operating activities:
Depreciation and amortization		1,700			444			1,631			43
Goodwill impairment		4,965			—			—			—
Equity in net loss and impairment of affiliates		30,607			4,220			10,069			1,809
In-process research and development of affiliates		—			—			4,965			—
Realized gains on available-for-sale securities		(566	)		—			—			—
Amortization of discount on long-term debt		101			—			—			—
Non-cash special charges		—			—			2,136			—
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		3,981			1,586			(3,794	)		1,075
Decrease in inventory		209			—			—			—
Increase in prepaids and other		(27	)		(30	)		(125	)		(28	)
(Decrease) increase in accounts payable		(354	)		21			(25	)		54
(Decrease) increase in accrued liabilities		(1,642	)		674			49			(195	)
Increase in deferred income taxes		—			—			2,806			—
(Decrease) increase in other liabilities and
other noncash items		(206	)		33			(54	)		246
Net cash provided by (used in) continuing
operating activities		342			1,862			(8,921	)		(2,220	)
Net cash (used in) provided by discontinued
operating activities		(3,946	)		(469	)		59,757			1,281
Net cash (used in) provided by operating
activities		(3,604	)		1,393			50,836			(939	)
Cash flows from investing activities:
Purchases of property and equipment		(616	)		(185	)		(50	)		(8	)
Investments in available-for-sale securities		(16,500	)		—			—			—
Proceeds from sale of available-for-sale securities		17,265			—			—			—
Proceeds from disposal of operating companies		—			52,500			—			—
Purchase of FIData, Inc., net of cash acquired		—			—			(4,264	)		—
Investment in consolidated affiliate		1,380			—			—			—
Investments in affiliates		(23,549	)		—			(45,580	)		(1,339	)
Other investing activities		(21	)		(220	)		(327	)		(129	)
Net cash (used in) provided by investing activities		(22,041	)		52,095			(50,221	)		(1,476	)
Cash flows from financing activities:
Proceeds from issuance of common stock		14			—			891			2,654
Minority interest in consolidated affiliate		(649	)		—			—			—
Repayments on revolving credit line		(235	)		—			—			—
Purchases of treasury stock		(1,314	)		(16,854	)		(1,901	)		—
Net cash (used in) provided by financing activities		(2,184	)		(16,854	)		(1,010	)		2,654
Net (decrease) increase in cash and cash equivalents		(27,829	)		36,634			(395	)		239
Cash and cash equivalents, beginning of period		36,478			(156	)		239			—
Cash and cash equivalents, end of period	$	8,649		$	36,478		$	(156	)	$	239

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

37

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

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

Note 1. Business Activity

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

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

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

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

Note 2. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

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

38

NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Estimates in the Financial Statements

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

Cash and Cash Equivalents

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

Inventory

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

Property and Equipment

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

Other Assets

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

Treasury Stock

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

Revenue Recognition

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

39

NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Income Taxes

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

Net Loss Applicable to Common Stockholders

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

	Year Ended December 31,			Quarter Ended December 31,			Year Ended September 30,
	2001			2000			2000			1999
Net loss from continuing operations	$	(38,426	)	$	(5,086	)	$	(26,579	)	$	(5,224	)
Dividend and amortization of the value
of the beneficial on
stock issued by consolidated affiliate		(1,508	)		—			—			—
Minority interest in consolidated
affiliate		1,508			—			—			—
Net loss applicable to common
stockholders	$	(38,426	)	$	(5,086	)	$	(26,579	)	$	(5,224	)

Net Loss per Common Share

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

New Accounting Standards

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

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

40

NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Statements of Cash Flow

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

	Year Ended			Quarter Ended		Year Ended
	December 31,					September 30,
	2001			2000		2000			1999
(in thousands)
Cash payments for income taxes	$	500		$	—	$	2,000		$	11,694
Noncash investing and financing activities:
Tax benefit recognized in connection with stock option
exercises		—			—		37			1,089
Assets (disposed of) acquired in connection with FIData
(disposition) acquisition		(711	)		—		4,966			—
Liabilities disposed of (acquired in) connection with FIData
disposition (acquisition)		355			—		(85	)		—
Common stock issued in connection with FIData acquisition		—			—		4,881			—

Note 3. Acquisitions and Investments

Princeton

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

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

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

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

41

NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

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

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

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

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

42

NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FIData/Microbilt

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

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

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

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

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

43

NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Tanisys

     In August 2001, the Company entered into a Series A Preferred Stock Purchase Agreement (“Purchase Agreement”) with Tanisys to purchase 1,060,000 shares of Tanisys’ Series A Preferred Stock for $1,060,000, in an aggregate $2,575,000 financing. Each share of Series A Preferred Stock is initially convertible into 33.334 shares of Tanisys’ common stock. The Company’s ownership percentage of the outstanding shares of Tanisys as of December 31, 2001, was approximately 35.2%. The Company’s ownership percentage is based upon its voting interest in Tanisys.

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

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

Sharps

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

44

NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Coreintellect

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

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

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

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

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

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

45

NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 4. Tanisys’ Financial Statements

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

Cash and cash equivalents	$	1,370
Accounts receivable, net of accumulated
depreciation of $119		601
Inventory:   Raw materials   Work in process   Finished goods		721 36 285
Total inventory		1,042
Prepaids and other		140
Total current assets		3,153
Property and equipment		379
Accumulated depreciation		(15	)
Net property and equipment		364
Other assets, net of accumulated amortization
of $2		148
Total assets	$	3,665
Accounts payable	$	502
Accrued liabilities		601
Revolving credit note		88
Total current liabilities		1,191
Other liabilities		77
Long-term debt to minority stockholders, net of
discount		207
Total liabilities	$	1,475
Minority interest in consolidated affiliate	$	1,228
Retained deficit	$	(98	)

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

46

NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Revolving credit note

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

Long-term debt to minority stockholders, net of discount

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

Beneficial conversion feature

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

No Assurance of Operating Results

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

47

NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 5. Other Assets

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

	December 31,				September 30,
	2001		2000			2000
Goodwill-FIData, net of accumulated amortization
of $0, $1,717 and $1,348, respectively	$	—	$	5,652		$	6,016
Executive deferred compensation assets		638		670			569
Other non-current assets, net of accumulated
amortization of $2, $0 and $0, respectively		200		453			199
Total other assets	$	838	$	6,775		$	6,784

Note 6. Investments in Affiliates

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

	December 31,					September 30,
	2001			2000			2000
Investment in Princeton:
Cash investments	$	73,697		$	50,919		$	50,919
In-process research and development costs		(4,465	)		(4,465	)		(4,465	)
Amortization and equity loss pick-up		(41,372	)		(15,435	)		(11,545	)
Impairment of investment in Princeton		(1,777	)		—			—
Other		(805	)		(342	)		(244	)
Net investment in Princeton		25,278			30,677			34,665
Investment in Coreintellect:
Cash investment		6,000			6,000			6,000
In-process research and development costs		(2,500	)		(2,500	)		(2,500	)
Amortization and equity loss pick-up		(3,556	)		(663	)		(333	)
Other		56			5			—
Net investment in Coreintellect		—			2,842			3,167
Investment in Sharps:
Cash investment		770			—			—
Other		2			—			—
Net investment in Sharps		772			—			—
Investment in Microbilt:
Equity investments		348			—			—
Other		6			—			—
Net investment in Microbilt		354			—			—
Total investments in affiliates	$	26,404		$	33,519		$	37,832

48

NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 7. Income Taxes

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

		Year Ended December 31,		Quarter Ended December 31,		Year Ended September 30,
		2001		2000		2000		1999
Current:
	Federal	$	776	$	266	$	4,460	$	1,898
	State		44		15		255		108
	Total	$	820	$	281	$	4,715	$	2,006

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

	Year Ended December 31,			Quarter Ended December 31,			Year Ended September 30,
	2001			2000			2000			1999
Computed income tax benefit at
statutory rate	$	13,736		$	1,878		$	10,953		$	2,531
(Decrease) increase in taxes resulting from:
Nondeductible in-process research
and development expenses		—			—			(2,333	)		—
Nondeductible losses in affiliates		(10,712	)		(1,477	)		(3,524	)		(633	)
Nondeductible goodwill amortization
and impairment		(2,116	)		(129	)		(471	)		—
State income taxes, net of federal
benefit		45			14			255			108
Other, net		(133	)		(5	)		(165	)		—
Income tax benefit	$	820		$	281		$	4,715		$	2,006

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

	December 31,					September 30,
	2001			2000			2000
Deferred tax asset:
Net loss carryforward	$	1,281		$	2,542		$	2,823
Valuation allowance		(1,281	)		(2,542	)		—
Deferred tax liability:
Estimated tax liability		(174	)		(2,525	)		(5,629	)
Net deferred tax liability	$	(174	)	$	(2,525	)	$	(2,806	)

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

Note 8. Debt

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

49

NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 9. Leases

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

Note 10. Share Capital

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

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

Note 11. Treasury Stock

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

Note 12. Stock Options and Stock Purchase Warrants

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

50

NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

	Number of Shares			Weighted Average Exercise Price
Outstanding, September 30, 1998		5,999,674		$	11.46
Granted		3,069,139		$	6.18
Canceled		(620,001	)	$	15.72
Exercised		(467,643	)	$	10.33
Outstanding, September 30, 1999		7,981,169		$	9.53
Granted		1,646,780		$	4.40
Canceled		(1,177,435	)	$	8.21
Exercised		(54,495	)	$	4.07
Outstanding, September 30, 2000		8,396,019		$	8.74
Granted		828,500		$	2.11
Canceled		(292,920	)	$	7.80
Outstanding, December 31, 2000		8,931,599		$	8.16
Granted		1,852,333		$	0.57
Canceled		(2,117,518	)	$	8.64
Exercised		(4,278	)	$	1.98
Outstanding, December 31, 2001		8,662,136		$	6.42

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

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NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Options Outstanding Options Exercisable

Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Life (years)	Remaining Average Exercise Price	Weighted Number Exercisable	Weighted Average Exercise Price
$  0.42 - $  1.98	1,785,002	6.8	$  0.52	497,755	$  0.53
$  2.00 - $  3.31	1,245,442	4.6	$  2.53	936,443	$  2.67
$  4.25 - $  6.88	2,231,511	2.8	$  4.61	2,007,761	$  4.62
$  8.06 - $  9.97	1,660,181	1.5	$  8.43	1,638,223	$  8.43
$10.19 - $29.00	1,740,000	1.8	$15.65	1,740,000	$15.65
	8,662,136	3.4	$  6.42	6,820,182	$  7.78

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

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

	Year Ended December 31,			Quarter Ended December 31,			Year Ended September 30,
	2001			2000			2000			1999
Pro forma net (loss) income	$	(40,681	)	$	(6,552	)	$	(47,128	)	$	12,146
Pro forma net (loss) income per
common share - basic and diluted	$	(1.17	)	$	(0.17	)	$	(1.18	)	$	0.33

     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:

	Year Ended December 31,			Quarter Ended December 31,			Year Ended September 30,
	2001			2000			2000			1999
Expected volatility		95.08	%		95.08	%		77.00	%		66.00	%
Expected dividend yield		0.00	%		0.00	%		0.00	%		0.00	%
Expected life (years)		2.5			2.5			2.5			2.5
Risk-free interest rate		3.16	%		5.98	%		5.95	%		5.35	%

52

NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Note 13. Benefit Plans

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

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

Note 14. Impairment

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

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

Note 15. Special Charges

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

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

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

53

NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 17. Commitments and Contingencies

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

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

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

Note 18. Summarized Financial Information for Unconsolidated Subsidiary

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

	September 30,				June 30,
	2001		2000		2000
Current assets	$	20,496	$	38,703	$	14,676
Non-current assets		21,175		12,894		11,944
Current liabilities		44,794		15,660		12,626
Non-current liabilities		408		185		2,282
Manditorily redeemable convertible
preferred stock		65,645		57,313		—

54

NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	Year Ended			Quarter Ended			Year Ended
	September 30,						June 30,
	2001			2000			2000
Total revenues	$	19,920		$	3,807		$	8,078
Gross profit		3,442			1,745			1,980
Loss from operations		(42,501	)		(6,960	)		(20,143	)
Net loss		(59,435	)		(6,888	)		(20,097	)

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

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

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

     For the year ended September 30, 2000, the Company recorded equity in net loss of affiliates of $10.1 million, loss from continuing operations before income tax benefit of $31.3 million, net loss from continuing operations of $26.6 million and net loss of $42.4 million. The basic and diluted net loss from continuing operations per share and the net loss per share were $0.67 and $1.06, respectively. Had the Transaction occurred on October 1, 1999, the Company would have recorded an additional equity in net loss of affiliates of $15.0 million. Including the pro forma adjustment, the Company would have recorded total equity in net loss of affiliates of $25.1 million, loss from continuing operations before income tax benefit of $46.3 million, net loss from continuing operations of $41.6 million and net loss of $57.4 million. The basic and diluted net loss from continuing operations per share and the net loss per share would have been $1.05 and $1.44, respectively. The pro forma adjustment decreases the balance of investments in affiliates from $37.8 million to $22.8 million as of September 30, 2000.

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

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

55

NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

Note 19. Related Parties

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

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

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

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

56

NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

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

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

Note 20. Selected Quarterly Financial Data (Unaudited)

	Quarter Ended
(In thousands, except per share data)	December 31, 2001			September 30, 2001			June 30, 2001			March 31, 2001
Operating revenues	$	747		$	169		$	153		$	118
Loss from continuing operations		(1,944	)		(7,495	)		(2,985	)		(2,654	)
Net loss from continuing operations		(15,719	)		(12,224	)		(7,016	)		(3,467	)
Net income from disposal of discontinued
operations		885			—			—			1,500
Net loss		(14,834	)		(12,224	)		(7,016	)		(1,967	)
Basic and diluted net income (loss) per common share:
Net loss from continuing operations		(0.45	)		(0.35	)		(0.20	)		(0.10	)
Net income from disposal of discontinued
operations		0.03			—			—			0.04
Net loss		(0.42	)		(0.35	)		(0.20	)		(0.06	)
				Quarter Ended December 31, 2000
Operating revenues				$	163
Loss from continuing operations					(2,316	)
Net loss					(5,086	)
Net loss per common share - basic and diluted					(0.13	)

57

NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	Quarter Ended
	September 30, 2000			June 30, 2000			March 31, 2000			December 31, 1999
Operating revenues	$	173		$	109		$	97		$	31
Loss from continuing operations		(2,342	)		(3,572	)		(5,046	)		(5,343	)
Net loss from continuing operations		(5,544	)		(5,929	)		(10,003	)		(5,103	)
Net income (loss) from discontinued operations		(1,010	)		(3,128	)		(3,870	)		1,443
Net income from disposal of discontinued
operations		(9,277	)		—			—			—
Net loss		(15,831	)		(9,057	)		(13,873	)		(3,660	)
Basic and diluted net income (loss) per common share:
Net loss from continuing operations		(0.13	)		(0.14	)		(0.26	)		(0.14	)
Net income (loss) from discontinued operations		(0.02	)		(0.08	)		(0.10	)		0.04
Net income from disposal of discontinued
operations		(0.23	)		—			—			—
Net loss		(0.38	)		(0.22	)		(0.36	)		(0.10	)

Note 21. Discontinued Operations

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

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

58

NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

	For the Year Ended September 30,
	2000			1999
Transaction Processing revenues	$	113,085		$	135,403
Software revenues		31,522			45,921
Total revenues		144,607			181,324
Cost of revenues		100,010			109,519
Gross profit		44,597			71,805
Selling, general and administrative expenses		34,911			29,996
Research and development expenses		11,763			5,725
Advance funding program income, net		(1,856	)		(3,673	)
Depreciation and amortization expenses		11,273			9,286
Special charges		1,216			1,529
(Loss) income from discontinued operations		(12,710	)		28,942
Other income (expense):
Interest income		6,381			5,805
Interest expense		(33	)		(16	)
Other, net		(432	)		(100	)
Total other income, net		5,916			5,689
(Loss) income from discontinued operations before
income tax benefit (expense)		(6,794	)		34,631
Income tax benefit (expense)		229			(13,585	)
Net (loss) income from discontinued operations	$	(6,565	)	$	21,046

59

Revenue Recognition Policies

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

Leases

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

Acquisitions

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

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NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

Special Charges

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

Benefit Plans

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

61

NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 22. Subsequent Events (Unaudited)

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

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

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

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

     The information required by this item is not applicable.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

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

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item is incorporated herein by reference from the information under the caption “Related Transactions” of the Company’s Definitive Proxy Statement.

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PART IV

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

     (a) Documents Filed as Part of Report

1. Financial Statements:

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

2. Financial Statement Schedules:

The information required by this item is not applicable.

3. Exhibits:

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

Exhibit
Number
Description of Exhibits

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

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

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

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

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

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

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

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

64

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

21.1 List of Subsidiaries (filed herewith)

23.1 Consent of Arthur Andersen LLP (filed herewith)

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

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

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

     (b) Reports on Form 8-K

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

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

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SIGNATURE

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

Date: April 11, 2002 NEW CENTURY EQUITY HOLDINGS CORP.
        (Registrant)

By: /s/ PARRIS H. HOLMES, JR.
——————————————
Parris H. Holmes, Jr.
Chairman of the Board and
Chief Executive Officer

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

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

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INDEX TO EXHIBITS

Exhibit
Number Description

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

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

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

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

21.1 List of Subsidiaries

23.1 Consent of Arthur Andersen LLP

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

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

99.2 Princeton eCom Corporation’s Consolidated Financial Statements as of December 31, 2001

EX-10.11

EXHIBIT 10.11

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

     This Amended and Restated Employment Agreement (this “Agreement”) is entered into the 11th day of January 2002, by and between Parris H. Holmes, Jr. (“Employee”) and New Century Equity Holdings Corp., a Delaware corporation (the “Company”). Subject to the conditions set forth below, this Agreement is to be effective as of November 1, 2001.

W I T N E S S E T H:

     WHEREAS, the Company (f/k/a Billing Concepts Corp.) and Employee previously entered into an Amended and Restated Employment Agreement through which Employee was employed as the Company’s Chairman of the Board and Chief Executive Officer; and

     WHEREAS, the Company and Employee now wish to amend and restate the terms of that prior Employment Agreement so as to set forth the ongoing terms of Employee’s employment with the Company and each party’s duties and obligations to the other on and after the Effective Date of the Amendment and Restatement of the Employment Agreement;

     NOW, THEREFORE, in consideration of the foregoing premises, the mutual agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Prior Agreement is hereby amended and restated in its entirety effective as of November 1, 2001 (the “Effective Date”) to read as follows:

ARTICLE 1

DUTIES

     1.1 Duties. During the term of this Agreement, the Company agrees to employ Employee as the Company’s Chairman of the Board and Chief Executive Officer, and Employee agrees to serve the Company in such capacities or in such other capacities (subject to Employee’s termination rights under Section 4.2) as the Board of Directors of the Company may direct, all upon the terms and subject to the conditions set forth in this Agreement.

     1.2 Extent of Duties. Employee shall devote sufficient business time, energy and skill to the affairs of the Company as shall reasonably be necessary to discharge Employee’s duties in such capacities. Employee may participate in social, civic, charitable, religious, business, education or professional associations, so long as such participation would not materially detract from Employee’s ability to perform his duties under this Agreement.

ARTICLE 2

TERM OF EMPLOYMENT

     The term of this Agreement shall commence on the Effective Date and continue for a period of five years, provided that, on each one-year anniversary of this Agreement, the term of this Agreement shall automatically be extended for an additional one year. This Agreement is subject to earlier termination as hereinafter provided.

ARTICLE 3

COMPENSATION

     3.1 Annual Base Compensation. As compensation for services rendered under this Agreement, Employee shall be entitled to receive from Company an annual base salary of $375,000 (before standard deductions) during the first year of this Agreement. Employee’s annual base salary shall be subject to review and adjustment by the Compensation Committee of the Company (the “Compensation Committee”) on an annual basis, provided that any such adjustment shall not result in a reduction in Employee’s annual base salary below $375,000, without Employee’s consent. Employee’s annual base salary shall be payable at regular intervals in accordance with the prevailing practice and policy of the Company.

     3.2 Incentive Bonus. As additional compensation for services rendered under this Agreement, the Compensation Committee may, in its sole discretion and without any obligation to do so, declare that Employee shall be entitled to an annual incentive bonus (whether payable in cash, stock, stock rights or other property) as the Compensation Committee shall determine. If any such bonus is declared, the bonus shall be payable in accordance with the terms prescribed by the Compensation Committee.

     3.3 Other Benefits. Employee shall, in addition to the compensation provided for in Sections 3.1 and 3.2 above, be entitled to the following additional benefits:

     (a) Automobile Allowance. An automobile to be chosen by the Employee, replaceable every two years and complete payment of all operating, insurance and maintenance expenses attendant thereto. Upon termination of the Company’s obligation to provide this benefit, Employee shall have an option, exercisable within 90 days of such termination, to purchase such automobile at its net book value as shown upon the Company’s records as of the date of termination.

     (b) Country Club Membership. Payment in full of membership fees and dues to a country club of the Employee’s choice in the area of his employment together with payment or reimbursement of all charges incurred at such club relating to entertainment of business guests. Upon termination of this Agreement under Section 4.1, 4.2 or 4.6 hereof, such country club membership shall be transferred to Employee without further consideration.

     (c) Health Club Membership. Payment in full of membership fees and dues in a lunch or health club of the Employee’s choice, in the area of his employment together with payment or reimbursement of all charges incurred at such club relating to entertainment of business guests.

     (d) Life Insurance. New York Life Insurance Policy Numbers 43695145 and 43950342 owned by Frost National Bank, Trustee of the Parris H. Holmes, Jr. Trust of May 1992 and New York Life Insurance Policy Number 46731037 owned by Frost National Bank, Trustee of the Parris H. Holmes, Jr. 2000 Trust, in the aggregate amount of approximately $5,539,334, insuring the life of Employee. The premiums on the policies owned by Frost National Bank, Trustee of the Parris H. Holmes, Jr. Trust of May 1992 are to be paid by the Company pursuant to that certain Split Dollar Life Insurance Agreement dated March 16, 1998, as such may have been amended from time to time. The premiums on the policy owned by Frost National Bank, Trustee of the Parris H. Holmes, Jr. 2000 Trust shall be paid by the Company pursuant to that certain Split Dollar Life Insurance Agreement dated September 6, 2000, as such may have been amended from time to time. Such policies shall be collaterally assigned to the Company to secure the Company’s investment in such policies pursuant to the terms of the referenced Split Dollar Agreements.

     (e) Medical, Health and Disability Benefits. Employee shall be entitled to receive all of the medical, health and disability benefits that may, from time to time, be provided by the Company to its executive officers.

     (f) Other Benefits. Employee shall also be entitled to receive any other benefits provided by the Company to all employees of Company as a group, or all executive officers of the Company as a group, including any profit sharing, 401(k) or retirement benefits.

     (g) Vacation Pay. Employee shall be entitled to an annual vacation as determined in accordance with the prevailing practice and policy of the Company.

     (h) Holidays.Employee shall be entitled to holidays in accordance with the prevailing practice and policy of the Company.

     (i) Reimbursement of Expenses. The Company shall reimburse Employee for all expenses reasonably incurred by Employee on behalf of the Company in accordance with the prevailing practice and policy of the Company.

     (j) Tax Gross Up. The Company shall also provide additional compensation to the Employee in an amount such that after payment by Employee of all taxes on benefits received under Section 3.3(a) through (i) above that Employee retains an amount of such gross up payment equal to the taxes imposed upon said benefits under Sections 3.3(a) through (i) above.

ARTICLE 4

TERMINATION

     4.1 Termination by the Company Without Cause. Subject to the provisions of this Section 4.1, this Agreement may be terminated by the Company without cause upon 30 days prior written notice thereof given to Employee. In the event of termination pursuant to this Section 4.1, (a) the Company shall pay Employee, within 15 days of such termination, a lump-sum payment equal to (without discounting to present value) his then effective base salary under Section 3.1 hereof through the expiration of the five-year term then in effect (without giving effect to any further extensions thereof under Article II hereof), (b) Employee shall be entitled to all benefits under Section 3.3 hereof, with the exception of life insurance under Subsection (d) thereof, through the expiration of the five year term then in effect, to the extent continuation of such benefits is not prohibited by applicable state and/or federal law, and (c) all outstanding stock options held by Employee not already vested and exercisable shall become fully vested and exercisable. With respect to life insurance under Subsection 3.3(d), Employee shall be entitled to an additional twenty (20) months of premium payments by the Company if Employee’s employment is terminated under this Section 4.1 prior to November 1, 2002; forty (40) months of continued premium payments by the Company if Employee’s employment is terminated between November 1, 2002 and October 31, 2003, and sixty (60) months of continued premium payments by the Company if Employee’s employment is terminated on or after November 1, 2003. Payment by the Company in accordance with this Section shall constitute Employee’s full severance pay and the Company shall have no further obligation to Employee arising out of such termination.

     4.2 Voluntary Termination by Employee for Good Reason. Employee may at any time voluntarily terminate his employment for “good reason” (as defined below) upon 30 days prior written notice thereof to the Company. In the event of such voluntary termination for “good reason,” (a) the Company shall pay Employee, within 15 days of such termination, a lump-sum payment equal to (without discounting to present value) his then effective base salary under Section 3.1 hereof through the expiration of the five-year term then in effect (without giving effect to any further extensions thereof under Article II hereof), (b) the Company shall provide the continued benefit coverage described in Section 4.1 in the event of the Employee’s termination by the Company without cause, and (c) all outstanding stock options held by Employee not already vested and exercisable shall become fully vested and exercisable.

     For purposes of this Agreement, “good reason” shall mean the occurrence of any of the following events:

     (a) Removal from the offices Employee holds on the date of this Agreement or a material reduction in Employee’s authority or responsibility, including, without limitation, involuntary removal from the Board of Directors, but not including termination of Employee for “cause”, as defined below;

     (b) relocation of the Company’s headquarters from Bexar County, Texas;

     (c) a reduction in the Employee’s then effective base salary under Section 3.1; or

     (d) The Company otherwise commits a material breach of this Agreement.

     4.3 Termination by the Company for Cause. The Company may terminate this Agreement at any time if such termination is for “cause” (as defined below), by delivering to Employee written notice describing the cause of termination 30 days before the effective date of such termination and by granting Employee at least 30 days to cure the cause. In the event the employment of Employee is terminated for “cause”, Employee shall be entitled only to the base salary earned pro rata to the date of such termination with no entitlement to any base salary continuation payments or benefits continuation (except as specifically provided by the terms of an employee benefit plan of the Company). Except as otherwise provided in this Agreement, the determination of whether Employee shall be terminated for “cause” shall be made by the Board of Directors of the Company, in the reasonable exercise of its business judgment, and shall be limited to the occurrence of the following events:

     (a) Conviction of or a plea of nolo contendere to the charge of a felony (which, through lapse of time or otherwise, is not subject to appeal);

     (b) Willful refusal without proper legal cause to perform, or gross negligence in performing, Employee’s duties and responsibilities;

     (c) Material breach of fiduciary duty to the Company through the misappropriation of Company funds or property; or

     (d) The unauthorized absence of Employee from work (other than for sick leave or disability) for a period of 30 working days or more during any period of 45 working days during the term of this Agreement.

     4.4 Termination Upon Death or Permanent Disability. In the event that Employee dies, this Agreement shall terminate 90 days following the Employee’s death. Likewise, if the Employee becomes unable to perform the essential functions of the position with or without reasonable accommodation, on account of illness, disability, or other reason whatsoever for a period of more than six consecutive or non-consecutive months in any twelve month period, this Agreement shall terminate effective 90 days following such incapacity, and Employee (or his legal representatives) shall be entitled to (a) a lump sum payment equal to (without discounting to present value) his then effective base salary under Section 3.1 hereof for a period of sixty (60) months; (b) the Company shall provide the continued benefit coverage described in Section 4.1 in the event of the Employee’s said disability, and (c) all outstanding stock options held by Employee not already vested and exercisable shall become fully vested and exercisable.

     4.5 Voluntary Termination by Employee. Employee may terminate this Agreement at any time upon delivering 30 days’ written notice of resignation to the Company. In the event of such voluntary termination other than for “good reason” (as defined above), Employee shall be entitled to his base salary earned pro rata to the date of his resignation, but no base salary continuation payments or benefits continuation (except as specifically provided by the terms of an employee benefit plan of the Company). On or after the date the Company receives notice of Employee’s resignation, the Company may, at its option, pay Employee his base salary through the effective date of his resignation and terminate his employment immediately.

     4.6 Termination following Change of Control.

     (a) Notwithstanding anything to the contrary contained herein, should Employee at any time within 24 months of the occurrence of a “change of control” (as defined below) cease to be an employee of the Company (or its successor), by reason of (i) termination by the Company (or its successor) other than for “cause” (following a change of control, “cause” shall be limited to the conviction of or a plea of nolo contendere to the charge of a felony which, through lapse of time or otherwise, is not subject to appeal, or a material breach of fiduciary duty to the Company through the misappropriation of Company funds or property) or (ii) voluntary termination by Employee for “good reason upon change of control” (as defined below), then in any such event, (1) the Company shall pay Employee, within 45 days of the severance of employment described in this Section 4.6, a lump-sum payment equal to (without discounting to present value) his then effective base salary under Section 3.1 hereof through the expiration of the five-year term then in effect (without giving effect to any further extensions thereof under Article II hereof), (2) the Company shall provide the continued benefit coverage described in Section 4.1 in the event of the Employee’s termination by the Company without cause, and (3) all outstanding stock options held by Employee not already vested and exercisable shall become fully vested and exercisable.

     (b) Employee shall be entitled to an additional payment, to the extent all payments to Employee (whether pursuant to this Agreement or any other agreement whatsoever) in connection with a change of control as defined in this Section 4.6 do not exceed in aggregate, the maximum amount that could be paid to Employee, without triggering an excess parachute payment under Section 280G(b) of the Internal Revenue Code of 1986, as amended (the “Code”), and the resulting excise tax under Section 4999 of the Code, (referred to herein as the “maximum payment amount”) equal to an amount, which when added to the amounts payable to the Employee under paragraph (a) equals the maximum payment amount; it being the express intention of the parties that Employee in all cases (whether through this Agreement or any other agreement whatsoever) receive the maximum payment amount in connection with a change of control without creating an excess parachute payment. If such a payment is required under this paragraph (b) in addition to the amounts set forth in paragraph (a) above, it shall be paid at the time and in the manner set forth under paragraph (a)(1).

     (c) In determining the amount to be paid to Employee under this Section 4.6, as well as the limitation determined under Section 280G of the Code, (i) no portion of the total payments which Employee has waived in writing prior to the date of the payment of benefits under this Agreement will be taken into account, (ii) no portion of the total payments which nationally recognized tax counsel (whether through consultation or retention of any actuary, consultant or other expert), selected by the Company’s independent auditors and acceptable to Employee, (referred to herein as “Tax Counsel”) determines not to constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code will be taken into account, (iii) no portion of the total payments which Tax Counsel determines to be reasonable compensation for services rendered within the meaning of Section 280G(b)(4) of the Code will be taken into account, and (iv) the value of any non-cash benefit or any deferred payment or benefit included in the total payments will be determined by the Company’s independent auditors in accordance with Sections 280G(d)(3) and (iv) of the Code.

     (d) As used in this Section, voluntary termination by Employee for “good reason upon change of control” shall mean (i) removal of Employee from the offices Employee holds on the date of this Agreement, (ii) a material reduction in Employee’s authority or responsibility, including, without limitation, involuntary removal from the Board of Directors, (iii) relocation of the Company’s headquarters from Bexar County, Texas, (iv) a reduction in Employee’s then effective base salary under Section 3.1, or (v) the Company otherwise commits a breach of this Agreement.

     (e) As used in this Agreement, a “change of control” shall be deemed to have occurred if (i) any "Person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is or becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 30% of the combined voting power of the Company’s then outstanding securities, or (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), or (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 thereto 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.

     (f) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company or any of its affiliates to or for the benefit of Employee, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (any such payments or distributions being individually referred to herein as a “Payment”, and any two or more of such payments or distributions being referred to herein as “Payments”), would be subject to the excise tax imposed by Section 4999 of the Code (such excise tax, together with any interest thereon, any penalties, additions to tax, or additional amounts with respect to such excise tax, and any interest in respect of such penalties, additions to tax or additional amounts, being collectively referred herein to as the “Excise Tax”), then Employee shall be entitled to receive an additional payment or payments (individually referred to herein as a “Gross-Up Payment” and any two or more of such additional payments being referred to herein as “Gross-Up Payments”) in an amount such that after payment by Employee of all taxes (as defined in paragraph (p) below) imposed upon the Gross-Up Payment, Employee retains an amount of such Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

     (g) Subject to the provisions of paragraph (h) through (n) below, any determination (individually, a “Determination”) required to be made under this Section 4.6, including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall initially be made, at the Company’s expense, by Tax Counsel. Tax Counsel shall provide detailed supporting legal authorities, calculations, and documentation both to the Company and Employee within 15 business days of the termination of Employee’s employment, if applicable, or such other time or times as is reasonably requested by the Company or Employee. If Tax Counsel makes the initial Determination that no Excise Tax is payable by Employee with respect to a Payment or Payments, it shall furnish Employee with an opinion reasonably acceptable to Employee that no Excise Tax will be imposed with respect to any such Payment or Payments. Employee shall have the right to dispute any Determination (a “Dispute”) within 15 business days after delivery of Tax Counsel’s opinion with respect to such Determination. The Gross-Up Payment, if any, as determined pursuant to such Determination shall, at the Company’s expense, be paid by the Company to Employee within five business days of Employee’s receipt of such Determination. The existence of a Dispute shall not in any way affect Employee’s right to receive the Gross-Up Payment in accordance with such Determination. If there is no Dispute, such Determination shall be binding, final and conclusive upon the Company and Employee, subject in all respects, however, to the provisions of paragraph (h) through (n) below. As a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that Gross-Up Payments (or portions thereof) which will not have been made by the Company should have been made (“Underpayment”), and if upon any reasonable written request from Employee or the Company to Tax Counsel, or upon Tax Counsel’s own initiative, Tax Counsel, at the Company’s expense, thereafter determines that Employee is required to make a payment of any Excise Tax or any additional Excise Tax, as the case may be, Tax Counsel shall, at the Company’s expense, determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to Employee.

     (h) The Company shall defend, hold harmless, and indemnify Employee on a fully grossed-up after tax basis from and against any and all claims, losses, liabilities, obligations, damages, impositions, assessments, demands, judgments, settlements, costs and expenses (including reasonable attorneys’, accountants’, and experts’fees and expenses) with respect to any tax liability of Employee resulting from any Final Determination (as defined in paragraph (o) below) that any Payment is subject to the Excise Tax.

     (i) If a party hereto receives any written or oral communication with respect to any question, adjustment, assessment or pending or threatened audit, examination, investigation or administrative, court or other proceeding which, if pursued successfully, could result in or give rise to a claim by Employee against the Company under this paragraph (i) (“Claim”), including, but not limited to, a claim for indemnification of Employee by the Company under paragraph (h) above, then such party shall promptly notify the other party hereto in writing of such Claim (“Tax Claim Notice”).

     (j) If a Claim is asserted against Employee (“Employee Claim”), Employee shall take or cause to be taken such action in connection with contesting such Employee Claim as the Company shall reasonably request in writing from time to time, including the retention of counsel and experts as are reasonably designated by the Company (it being understood and agreed by the parties hereto that the terms of any such retention shall expressly provide that the Company shall be solely responsible for the payment of any and all fees and disbursements of such counsel and any experts) and the execution of powers of attorney, provided that:

     (i) within 30 calendar days after the Company receives or delivers, as the case may be, the Tax Claim Notice relating to such Employee Claim (or such earlier date that any payment of the taxes claimed is due from Employee, but in no event sooner than five calendar days after the Company receives or delivers such Tax Claim Notice), the Company shall have notified Employee in writing (“Election Notice”) that the Company does not dispute its obligations (including, but not limited to, its indemnity obligations) under this Agreement and that the Company elects to contest, and to control the defense or prosecution of, such Employee Claim at the Company’s sole risk and sole cost and expense; and

     (ii) the Company shall have advanced to Employee on an interest-free basis, the total amount of the tax claimed in order for Employee, at the Company’s request, to pay or cause to be paid the tax claimed, file a claim for refund of such tax and, subject to the provisions of the last sentence of paragraph (l) below, sue for a refund of such tax if such claim for refund is disallowed by the appropriate taxing authority (it being understood and agreed by the parties hereto that the Company shall only be entitled to sue for a refund and the Company shall not be entitled to initiate any proceeding in, for example, United States Tax Court) and shall indemnify and hold Employee harmless, on a fully grossed-up after tax basis, from any tax imposed with respect to such advance or with respect to any imputed income with respect to such advance; and

     (iii) the Company shall reimburse Employee for any and all costs and expenses resulting from any such request by the Company and shall indemnify and hold Employee harmless, on fully grossed-up after-tax basis, from any tax imposed as a result of such reimbursement.

     (k) Subject to the provisions of paragraph (j) above, the Company shall have the right to defend or prosecute, at the sole cost, expense and risk of the Company, such Employee Claim by all appropriate proceedings, which proceedings shall be defended or prosecuted diligently by the Company to a Final Determination; provided, however, that (i) the Company shall not, without Employee’s prior written consent, enter into any compromise or settlement of such Employee Claim that would adversely affect Employee, (ii) any request from the Company to Employee regarding any extension of the statute of limitations relating to assessment, payment, or collection of taxes for the taxable year of Employee with respect to which the contested issues involved in, and amount of, the Employee Claim relate is limited solely to such contested issues and amount, and (iii) the Company’s control of any contest or proceeding shall be limited to issues with respect to the Employee Claim and Employee shall be entitled to settle or contest, in his sole and absolute discretion, any other issue raised by the Internal Revenue Service or any other taxing authority. So long as the Company is diligently defending or prosecuting such Employee Claim, Employee shall provide or cause to be provided to the Company any information reasonably requested by the Company that relates to such Employee Claim, and shall otherwise cooperate with the Company and its representatives in good faith in order to contest effectively such Employee Claim. The Company shall keep Employee informed of all developments and events relating to any such Employee Claim (including, without limitation, providing to Employee copies of all written materials pertaining to any such Employee Claim), and Employee or his authorized representatives shall be entitled, at Employee’s expense, to participate in all conferences, meetings and proceedings relating to any such Employee Claim.

     (l) If, after actual receipt by Employee of an amount of a tax claimed (pursuant to an Employee Claim) that has been advanced by the Company pursuant to paragraph (j)(ii) above, the extent of the liability of the Company hereunder with respect to such tax claimed has been established by a Final Determination, Employee shall promptly pay or cause to be paid to the Company any refund actually received by, or actually credited to, Employee with respect to such tax (together with any interest paid or credited thereon by the taxing authority and any recovery of legal fees from such taxing authority related thereto), except to the extent that any amounts are then due and payable by the Company to Employee, whether under the provisions of this Agreement or otherwise. If, after the receipt by Employee of an amount advanced by the Company pursuant to paragraph (j)(ii) above, a determination is made by the Internal Revenue Service or other appropriate taxing authority that Employee shall not be entitled to any refund with respect to such tax claimed and the Company does not notify Employee in writing of its intent to contest such denial of refund prior to the expiration of thirty days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of any Gross-Up Payments and other payments required to be paid hereunder.

     (m) With respect to any Employee Claim, if the Company fails to deliver an Election Notice to Employee within the period provided in paragraph (j)(i) above or, after delivery of such Election Notice, the Company fails to comply with the provisions of paragraph (j)(ii) above and (iii) and (k) above, then Employee shall at any time thereafter have the right (but not the obligation), at his election and in his sole and absolute discretion, to defend or prosecute, at the sole cost, expense and risk of the Company, such Employee Claim. Employee shall have full control of such defense or prosecution and such proceedings, including any settlement or compromise thereof. If requested by Employee, the Company shall cooperate, and shall cause its affiliates to cooperate, in good faith with Employee and his authorized representatives in order to contest effectively such Employee Claim. The Company may attend, but not participate in or control, any defense, prosecution, settlement or compromise of any Employee Claim controlled by Employee pursuant to this paragraph (m) and shall bear its own costs and expenses with respect thereto. In the case of any Employee Claim that is defended or prosecuted by Employee, Employee shall, from time to time, be entitled to current payment, on a fully grossed-up after tax basis, from the Company with respect to costs and expenses incurred by Employee in connection with such defense or prosecution.

     (n) In the case of any Employee Claim that is defended or prosecuted to a Final Determination pursuant to the terms of this paragraph (n), the Company shall pay, on a fully grossed-up after tax basis, to Employee in immediately available funds the full amount of any taxes arising or resulting from or incurred in connection with such Employee Claim that have not theretofore been paid by the Company to Employee, together with the costs and expenses, on a fully grossed-up after tax basis, incurred in connection therewith that have not theretofore been paid by the Company to Employee, within ten calendar days after such Final Determination. In the case of any Employee Claim not covered by the preceding sentence, the Company shall pay, on a fully grossed-up after tax basis, to Employee in immediately available funds the full amount of any taxes arising or resulting from or incurred in connection with such Employee Claim at least ten calendar days before the date payment of such taxes is due from Employee, except where payment of such taxes is sooner required under the provisions of this paragraph (n), in which case payment of such taxes (and payment, on a fully grossed-up after tax basis, of any costs and expenses required to be paid under this paragraph (n) shall be made within the time and in the manner otherwise provided in this paragraph (n).

     (o) For purposes of this Agreement, the term “Final Determination” shall mean (i) a decision, judgment, decree or other order by a court or other tribunal with appropriate jurisdiction, which has become final and non-appealable; (ii) a final and binding settlement or compromise with an administrative agency with appropriate jurisdiction, including, but not limited to, a closing agreement under Section 7121 of the Code; (iii) any disallowance of a claim for refund or credit in respect to an overpayment of tax unless a suit is filed on a timely basis; or (iv) any final disposition by reason of the expiration of all applicable statutes of limitations.

     (p) For purposes of this Agreement, the terms “tax” and “taxes” mean any and all taxes of any kind whatsoever (including, but not limited to, any and all Excise Taxes, income taxes, and employment taxes), together with any interest thereon, any penalties, additions to tax, or additional amounts with respect to such taxes and any interest in respect of such penalties, additions to tax, or additional amounts.

     (q) For purposes of this Agreement, the terms “affiliate” and “affiliates” mean, when used with respect to any entity, individual, or other person, any other entity, individual, or other person which, directly or indirectly, through one or more intermediaries controls, or is controlled by, or is under common control with such entity, individual or person. The term “control” and derivations thereof when used in the immediately preceding sentence means the ownership, directly or indirectly, of 50% or more of the voting securities of an entity or other person or possessing the power to direct or cause the direction of the management and policies of such entity or other person, whether through the ownership of voting securities, by contract or otherwise.

     (r) The Company shall defend, hold harmless, and indemnify Employee on a fully grossed-up after tax basis from and against any and all costs and expenses (including reasonable attorneys’, accountants’and experts’fees and expenses) incurred by Employee from time to time as a result of any contest (regardless of the outcome) by the Company or others contesting the validity or enforcement of, or liability under, any term or provision of this Agreement, plus in each case interest at the applicable federal rate provided for in Section 7872(f)(2)(B) of the Code.

     4.7 Exclusivity of Termination Provisions. The termination provisions of this Agreement regarding the parties’ respective obligations in the event Employee’s employment is terminated, are intended to be exclusive and in lieu of any other rights or remedies to which Employee or the Company may otherwise be entitled at law, in equity or otherwise. It is also agreed that, although the personnel policies and fringe benefit programs of the Company may be unilaterally modified from time to time, the termination provisions of this Agreement are not subject to modification, whether orally, impliedly or in writing, unless any such modification is mutually agreed upon and signed by the parties.

ARTICLE 5

CONFIDENTIAL INFORMATION, NONCOMPETITION AND COOPERATION

     5.1 Nondisclosure. During the term of this Agreement and thereafter, Employee shall not, without the prior written consent of the Board of Directors, disclose or use for any purpose (except in the course of his employment under this Agreement and in furtherance of the business of the Company) confidential information, proprietary data or trade secrets of the Company (or any of its subsidiaries), including but not limited to customer, business planning or business strategy information, except as required by applicable law or legal process; provided, however, that confidential information shall not include any information known generally to the public or ascertainable from public or published information (other than as a result of unauthorized disclosure by Employee) or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that conducted by the Company (or any of its subsidiaries). All documents which Employee prepared or which may have been provided or made available to Employee in the course of work for the Company shall be deemed the exclusive property of the Company and shall remain in the Company’s possession. Upon the termination of Employee’s employment with the Company, regardless of the reason for such termination, Employee shall promptly deliver to the Company all materials of a confidential nature relating to the business of the Company (or any of its subsidiaries) which are within Employee’s possession or control.

     5.2 Noncompetition. The Company and Employee agree that the services rendered by Employee hereunder are unique and irreplaceable. For this reason and in consideration of the benefits of this Agreement, specifically including but not limited to applicable termination pay provisions, as well as confidential/proprietary/trade secret information provided to Employee, Employee hereby agrees that, during the term of this Agreement and for a period of eighteen months thereafter, he shall not (except in the course of his employment under this Agreement and in furtherance of the business of the Company (or any of its subsidiaries)) (i) engage in as principal, consultant or employee in any segment of a business of a company, partnership or firm (“Business Segment”) that is directly competitive with any significant business of the Company in one of its major commercial or geographic markets or (ii) hold an interest (except as a holder of less than 5% interest in a publicly traded firm or mutual funds, or as a minority stockholder or unitholder in a form not publicly traded) in a company, partnership or firm with a Business Segment that is directly competitive, without the prior written consent of the Company.

     5.3 Validity of Noncompetition. The foregoing provisions of Section 5.2 shall not be held invalid because of the scope of the territory covered, the actions restricted thereby, or the period of time such covenant is operative. Any judgment of a court of competent jurisdiction may define the maximum territory, the actions subject to and restricted by Section 5.2 and the period of time during which such agreement is enforceable.

     5.4 Noncompetition Covenants Independent. The covenants of the Employee contained in Section 5.2 will be construed as independent of any other provision in this Agreement; and the existence of any claim or cause of action by the Employee against the Company will not constitute a defense to the enforcement by the Company of said covenants. The Employee understands that the covenants contained in Section 5.2 are essential elements of the transaction contemplated by this Agreement and, but for the agreement of the Employee to Section 5.2, the Company would not have agreed to enter into such transaction. The Employee has been advised to consult with counsel in order to be informed in all respects concerning the reasonableness and propriety of Section 5.2 and its provisions with specific regard to the nature of the business conducted by the Company and the Employee acknowledges that Section 5.2 and its provisions are reasonable in all respects.

     5.5 Cooperation. In the event of termination, and regardless of the reason for such termination, Employee agrees to cooperate with the Company and its representatives by responding to questions, attending meetings, depositions, administrative proceedings and court hearings, executing documents and cooperating with the Company and its legal counsel with respect to issues, claims, litigation or administrative proceedings of which Employee has personal or corporate knowledge. Employee further agrees to maintain in strict confidence any information or knowledge Employee has regarding current or future claims, litigation or administrative proceedings involving the Company (or any of its subsidiaries). Employee agrees that any communication with a party adverse to the Company, or with a representative, agent or counsel for such adverse party, relating to any claim, litigation or administrative proceeding, shall be solely and exclusively through counsel for the Company.

     5.6 Remedies. In the event of a breach or threatened breach by the Employee of any of the provisions of Sections 5.1, 5.2 or 5.5, the Company shall be entitled to a temporary restraining order and an injunctive restraining the Employee from the commission of such breach. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of money damages.

ARTICLE 6

ARBITRATION

     Except for the provisions of Sections 5.1, 5.2 and 5.5 dealing with issues of nondisclosure, noncompetition and cooperation, with respect to which the Company reserves the right to petition a court directly for injunction or other relief, any controversy of any nature whatsoever, including but not limited to tort claims or contract disputes, between the parties to this Agreement or between the Employee, his heirs, executors, administrators, legal representatives, successors, and assigns and the Company and its affiliates, arising out of or related to the Employee’s employment with the Company, any resignation from or termination of such employment and/or the terms and conditions of this Agreement, including the implementation, applicability and interpretation thereof, shall, upon the written request of one party served upon the other, be submitted to and settled by arbitration in accordance with the provisions of the Federal Arbitration Act, 9 U.S.C. §§1-15, as amended. Each of the parties to this Agreement shall appoint one person as an arbitrator to hear and determine such disputes, and if they should be unable to agree, then the two arbitrators shall chose a third arbitrator from a panel made up of experienced arbitrators selected pursuant to the procedures of the American Arbitration Association (the “AAA”) and, once chosen, the third arbitrator’s decision shall be final, binding and conclusive upon the parties to this Agreement. Each party shall be responsible for the fees and expenses of its arbitrator and the fees and expenses of the third arbitrator shall be shared equally by the parties. The terms of the commercial arbitration rules of AAA shall apply except to the extent they conflict with the provisions of this paragraph. It is further agreed that any of the parties hereto may petition the United States District Court for the Western District of Texas, San Antonio Division, for a judgment to be entered upon any award entered through such arbitration proceedings.

ARTICLE 7

MISCELLANEOUS

     7.1 Complete Agreement. This Agreement constitutes the entire agreement between the parties and cancels and supersedes all other agreements between the parties which may have related to the subject matter contained in this Agreement.

     7.2 Modification; Amendment; Waiver. No modification, amendment or waiver of any provisions of this Agreement shall be effective unless approved in writing by both parties. The failure at any time to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of either party thereafter to enforce each and every provision hereof in accordance with its terms.

     7.3 Governing Law; Jurisdiction. This Agreement and performance under it, and all proceedings that may ensue from its breach, shall be construed in accordance with and under the laws of the State of Texas.

     7.4 Employee’s Representations. Employee represents and warrants that he is free to enter in to this Agreement and to perform each of the terms and covenants of it. Employee represents and warrants that he is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement, and that his execution and performance of this Agreement is not a violation or breach of any other agreement between Employee and any other person or entity.

     7.5 Company’s Representations. Company represents and warrants that it is free to enter into this Agreement and to perform each of the terms and covenants of it. Company represents and warrants that it is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement and that its execution and performance of this Agreement is not a violation or breach of any other agreements between Company and any other person or entity. The Company represents and warrants that this Agreement is a legal, valid and binding agreement of the Company, enforceable in accordance with its terms.

     7.6 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

     7.7 Assignment. The rights and obligations of the parties under this Agreement shall be binding upon and inure to the benefit of their respective successors, assigns, executors, administrators and heirs, provided, however, that neither the Company nor Employee any assign any duties under this Agreement without the prior written consent of the other.

     7.8 Limitation. This Agreement shall not confer any right or impose any obligation on the Company to continue the employment of Employee in any capacity, or limit the right of the Company or Employee to terminate Employee’s employment.

     7.9 Attorneys’ Fees and Costs. If any action at law or in equity is brought to enforce or interpret the terms of this Agreement or any obligation owing thereunder, venue will be in Bexar County, Texas and the prevailing party shall be entitled to reasonable attorney’s fees and all costs and expenses of suit, including, without limitation, expert and accountant fees, and such other relief which a court of competent jurisdiction may deem appropriate.

     7.10 Notices. All notices and other communications under this Agreement shall be in writing and shall be given in person or by either personal delivery, overnight delivery, or first class mail, certified or registered with return receipt requested, with postage or delivery charges prepaid, and shall be deemed to have been duly given when delivered personally, upon actual receipt, and on the next business day when sent via overnight delivery, or three days after mailing first class, certified or registered with return receipt requested, to the respective persons named below:

If to the Company: Corporate Secretary
New Century Equity Holdings Corp.
10101 Reunion Place
San Antonio, Texas 78216

If to the Employee: Parris H. Holmes, Jr.
10101 Reunion Place
San Antonio, Texas 78216

     IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the day and year indicated above.

COMPANY: NEW CENTURY EQUITY HOLDINGS CORP.
By: /s/  C. LEE COOKE      
Name: C. Lee Cooke
Title: Chairman, Compensation Committee

EMPLOYEE: By: /s/  PARRIS H. HOLMES, JR.      
Parris H. Holmes, Jr.

EX-10.12

EXHIBIT 10.12

EMPLOYMENT AGREEMENT

     This Employment Agreement (this “Agreement”) is entered into as of and effective on the 1st day of November, 2001 (the “Effective Date”) by and between DAVID P. TUSA (“Employee”) and NEW CENTURY EQUITY HOLDINGS CORP., a Delaware corporation (the “Company”).

WITNESSETH:

     WHEREAS, the Company and Employee desire to enter into an agreement to establish the terms of Employee’s employment with the Company and to set forth each party’s duties and obligations to the other;

     NOW, THEREFORE, in consideration of the foregoing promises, the mutual agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, this Agreement is entered into to read as follows:

ARTICLE I

DUTIES

     1.1 Duties. During the term of this Agreement, the Company agrees to employ Employee as Executive Vice President and Chief Financial Officer of the Company, and Employee agrees to serve the Company in such capacities or in such other capacities (subject to Employee’s termination rights under Section 4.2) as the Board of Directors of and Company may direct, all upon the terms and subject to the conditions set forth in this Agreement.

     1.2 Extent of Duties. Employee shall devote all of his business time, energy and skill to the affairs of the Company as the Company, acting through its Board of Directors, shall reasonably deem necessary to discharge Employee’s duties in such capacities. Employee may participate in social, civic, charitable, religious, business, education or professional associations, so long as such participation would not materially detract from Employee’s ability to perform his duties under this Agreement. Employee shall not engage in any other business activity during the term of this Agreement without the prior written consent of the Company, other than the passive management of employee’s personal investments or activities which would not materially detract from Employee’s ability to perform his duties under this Agreement.

ARTICLE II

TERM OF EMPLOYMENT

     2.1 General Term of Employment. The term of this Agreement shall commence on the Effective Date and continue for a period of eighteen (18) months. The term of this Agreement shall be automatically extended at the conclusion of each eighteen (18) month period after the Effective Date for an additional eighteen (18) month term unless, at least thirty (30) days prior to the end of the then effective term, the Company shall give Employee written notice of its election to terminate this Agreement as of the end of each effective term. This Agreement is also subject to earlier termination as hereinafter provided. In the event the Agreement is terminated, the Employee is entitled to payment under the applicable provisions of Article IV.

ARTICLE III COMPENSATION

     3.1 Annual Base Compensation. As compensation for services rendered under this Agreement, Employee shall be entitled to receive from Company an annual base salary of $192,500 (before standard deductions) during the term of this Agreement. Employee’s base salary, shall be subject to review and adjustment by the Compensation Committee of the Company (the “Compensation Committee”) on an annual basis, provided that any such adjustment shall not result in a reduction in Employee’s annual base salary below $192,500 without Employee’s consent. Employee’s annual base salary shall be payable at regular intervals in accordance with the prevailing practice and policy of the Company.

     3.2 Incentive Bonus. As additional compensation for services rendered under this Agreement, the Compensation Committee may, in its sole discretion and without any obligation to do so, declare that Employee shall be entitled to an annual incentive bonus (whether payable in cash, stock, stock rights or other property) as the Compensation Committee shall determine. If any such bonus is declared, the bonus shall be payable in accordance with the terms prescribed by the Compensation Committee.

     3.3 Other Benefits. Employee shall, in addition to the compensation provided for in Sections 3.1 and 3.2 above, be entitled to all benefits available to Company executives, including the following:

     (a) Automobile Allowance. An automobile to be chosen by the Employee, replaceable every two years and complete payment of all lease, operating, insurance and maintenance expenses attendant thereto. Upon termination of the Company’s obligation to provide this benefit, Employee shall have an option, exercisable within 90 days of such termination, to purchase such automobile at its net book value as shown upon the Company’s records (or the leasing company records) as of the date of termination.

     (b) Country Club Membership. Payment in full of membership fees and dues to a country club of the Employee’s choice in the area of his employment together with payment or reimbursement of all charges incurred at such club relating to entertainment of business guests. Upon termination of this Agreement under Section 4.1, 4.2 or 4.6 hereof, such country club membership shall be transferred to Employee without further consideration.

     (c) Health Club Membership. Payment in full of membership fees and dues in a lunch or health club of the Employee’s choice, in the area of his employment together with payment or reimbursement of all charges incurred at such club relating to entertainment of business guests.

     (d) Medical, Health and Disability Benefits. Employee shall be entitled to receive all of the medical, health and disability benefits that may, from time to time, be provided by the Company to its executive officers.

     (e) Other Benefits. Employee shall, also be entitled to receive any other benefits provided by the Company to all employees of the Company as a group, or all executive officers of the Company as a group, including any profit sharing, 401(k), deferred compensation or retirement benefits.

     (f) Vacation Pay. Employee shall be entitled to an annual vacation as determined in accordance with the prevailing practice and policy of the Company.

     (g) Holidays. Employee shall be entitled to holidays in accordance with the prevailing practice and policy of the Company.

     (h) Reimbursement of Expenses. The Company shall reimburse Employee for all expenses reasonably incurred by Employee on behalf of the Company in accordance with the prevailing practice and policy of the Company, including those necessary to maintain his professional licenses.

     (i) Taxes Payable on Benefits. Not later than 45 days after the conclusion of each calendar year during which any term of this Agreement shall be effective, Company shall pay to Employee an amount of money equal to the federal, state and local taxes payable by Employee on account of the treatment of any benefits hereunder (including this subparagraph (i)) as Employee’s imputed or “gross income” (as defined by the Internal Revenue Code, as amended) during such calendar year.

ARTICLE IV
TERMINATION

     4.1 Termination by the Company Without Cause. Subject to the provisions of this Section 4.1, this Agreement may be terminated by the Company without cause upon thirty (30) days’ prior written notice thereof given to Employee. In the event of termination pursuant to this Section 4.1, after the dates designated hereinafter, the Company shall pay Employee, within fifteen (15) days of the effective date of such termination, a lump-sum payment equal to (without discounting to present value) (a) an amount equal to all compensation and benefits payable for a period of eighteen (18) months under Article III hereof if such termination occurs between November 1, 2001 and August 1, 2004, or (b) an amount equal to all compensation and benefits payable for a period of twenty-four (24) months under Article III hereof if such termination occurs after August 1, 2004. Payment of such sum by the Company shall constitute Employee’s full severance pay, and the Company shall have no further obligation to Employee arising out of such termination.

     4.2 Voluntary Termination by Employee for Good Reason. Employee may at any time voluntarily terminate his employment for “good reason” (as defined below). In the event of such voluntary termination for “good reason”, after the dates designated hereinafter, the Company shall pay Employee, within fifteen (15) days of the effective date of such termination, a lump-sum payment equal to (without discounting to present value) (a) an amount equal to all compensation and benefits payable for a period of eighteen (18) months under Article III hereof if such termination occurs between November 1, 2001 and August 1, 2004, or (b) an amount equal to all compensation and benefits payable for a period of twenty-four (24) months under Article III hereof if such termination occurs after August 1, 2004. Payment of such sum by the Company shall constitute Employee’s full severance pay, and the Company shall have no further obligation to Employee arising out of such termination.

     For purposes of this Agreement, “good reason” shall mean the occurrence of any of the following events:

     (a) Removal from the offices Employee holds on the date of this Agreement or a material reduction in Employee’s authority or responsibility, including, without limitation, involuntary removal from the Board of Directors, but not including termination of Employee for “cause,” as defined below;

     (b) A reduction in the Employee’s then effective base salary under Section 3.1; or

     (c) A requirement that Employee relocate more than, thirty-five (35) miles from the Company’s current corporate headquarters; or

     (d) The Company otherwise commits a material breach of this Agreement.

     4.3 Termination by the Company for Cause. The Company may terminate this Agreement at any time if such termination is for cause, (as defined below), by delivering to Employee written notice describing the cause of termination thirty (30) days before the effective date of such termination and by granting Employee at least thirty (30) days to cure the cause. In the event the employment of Employee is terminated for “cause,” Employee shall be entitled only to the base salary earned pro rata to the date of such termination with no entitlement to any base salary continuation payments or benefits continuation (except as specifically provided by the terms of an employee benefit plan of the Company). Except as otherwise provided in this Agreement, the determination of whether Employee shall be terminated for cause, shall be made by the Board of Directors of the Company, in the reasonable exercise of its business judgment, and shall be limited to the occurrence of the following events:

     (a) Conviction of or a plea of nolo contendere to the charge of a felony (which, through lapse of time or otherwise, is not subject to appeal);

     (b) Willful refusal without proper legal cause to perform, or negligence in performing, Employee’s duties and responsibilities;

     (c) Material breach of fiduciary duty to the Company through the misappropriation of Company funds or property; or

     (d) The unauthorized absence of Employee from work (other than for sick leave or disability) for a period of thirty (30) working days or more during any period of forty-five (45) working days during the term of this Agreement.

     4.4 Termination Upon Death or Permanent Disability. In the event that Employee dies, this Agreement shall terminate upon Employee’s death. Likewise, if Employee becomes unable to perform the essential functions of the position, with or without reasonable accommodation, on account of illness, disability or other reason whatsoever for a period of more than six (6) consecutive or nonconsecutive months in any twelve (12)-month period, this Agreement shall terminate effective upon such incapacity, and Employee (or his legal representatives) shall be entitled only to the base salary earned pro rata to the date of such termination with no entitlement to any base salary continuation payments or benefits continuation (except as specifically provided by the terms of an employee benefit plan of the Company).

     4.5 Voluntary Termination by Employee. Employee may terminate this Agreement at any time upon delivering thirty (30) days’ written notice of resignation to the Company. In the event of such voluntary termination other than for “good reason” (as defined above), Employee shall be entitled to his base salary earned pro rata to the date of his resignation, but no base salary continuation payments or benefits continuation (except as specifically provided by the terms of an employee benefit plan of the Company). On or after the date the Company receives notice of Employee’s resignation, the Company may, at its option, pay Employee his base salary through the effective date of his resignation and terminate his employment immediately.

     4.6 Termination following Change of Control.

     (a) Notwithstanding anything to the contrary contained herein, should Employee at any time within 24 months of the occurrence of a “change of control” (as defined below), cease to be an employee of the Company (or its successor), by reason of (i) termination by the Company (or its successor) other than for “cause”, (following a change of control, “cause” shall be limited to the conviction of or a plea of nolo contendere to the charge of a felony which, through lapse of time or otherwise, is not subject to appeal, or a material breach of fiduciary duty to the Company through the misappropriation of Company funds or property) or (ii) voluntary termination by Employee for “good reason upon change of control” (as defined below), then in any such event, (1) the Company shall pay Employee, within 30 days of the severance of employment described in this Section 4.6, an amount equal to all compensation and benefits payable under Article III hereof for a period of twenty-four (24) months, to the extent continuation of such compensation and benefits is not prohibited by applicable state and/or federal law, and (2) immediately prior to the effective date of such termination, all outstanding stock options held by Employee, not already vested and exercisable, shall become fully vested and exercisable by Employee for the remainder of the exercise period established under the option agreement or two (2) years following the date of termination, whichever occurs later.

     (b) As used in this Section, voluntary termination by Employee for “good reason upon change of control” shall mean (i) removal of Employee from the offices and responsibilities Employee holds on the date of this Agreement, (ii) a material reduction in Employee’s authority or responsibility, including, without limitation, involuntary removal from the Board of Directors, including the Board of Directors of an investee, subsidiary or affiliate of the Company, (iii) relocation of the Employee’s office location from Bexar County, Texas, (iv) a reduction in Employee’s then effective base salary under Section 3.1 or (v) the Company otherwise commits a breach of this Agreement.

     (c) As used in this Agreement, a “change of control” shall be deemed to have occurred if (i) any “Person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is or becomes a “beneficial owner” (as defined in Rule l3d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 30% of the combined voting power of the Company’s then outstanding securities, or (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), or (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 thereto 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.

     4.7 Exclusivity of Termination Provisions. The termination provisions of this Agreement regarding the parties’ respective obligations in the event Employee’s employment is terminated are intended to be exclusive and in lieu of any other rights or remedies to which Employee or the Company may otherwise be entitled at law, in equity or otherwise. It is also agreed that, although the personnel policies and fringe benefit programs of the Company may be unilaterally modified from time to time, the termination provisions of this Agreement are not subject to modification, whether orally, impliedly or in writing, unless any such modification is mutually agreed upon and signed by the parties.

ARTICLE V
CONFIDENTIAL INFORMATION AND NONCOMPETITION

     5.1 Nondisclosure. During the term of this Agreement and thereafter, Employee shall not, without the prior written consent of the Board of Directors, disclose or use for any purpose (except in the course of his employment under this Agreement and in furtherance of the business of the Company) confidential information, proprietary data or trade secrets of the Company (or any of its subsidiaries), including but not limited to customer, business planning or business strategy information, except as required by applicable law or legal process; provided, however, that confidential information shall not include any information known generally to the public or ascertainable from public or published information (other than as a result of unauthorized disclosure by Employee) or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that conducted by the Company (or any of its subsidiaries). All documents which Employee prepared or which may have been provided or made available to Employee in the course of work for the Company shall be deemed the exclusive property of the Company and shall remain in the Company’s possession. Upon the termination of Employee’s employment with the Company, regardless of the reason for such termination, Employee shall promptly deliver to the Company all materials of a confidential nature relating to the business of the Company (or any of its subsidiaries) which are within Employee’s possession or control.

     5.2 Noncompetition. The Company and Employee agree that the services rendered by Employee hereunder are unique and irreplaceable. For this reason and in consideration of the benefits of this Agreement, specifically including but not limited to applicable termination pay provisions, as well as confidential/proprietary/trade secret information provided to Employee, Employee hereby agrees that, during the term of this Agreement, he shall not (except in the course of his employment under this Agreement and in furtherance of the business of the Company (or any of its subsidiaries)) (i) engage in, as principal, consultant or employee, any segment of a business of a company, partnership or firm (“Business Segment”) that is directly competitive with any significant business of the Company (and only including significant businesses in which the Company owns at least a 50% interest) in one of its major commercial or geographic markets or (ii) hold an interest (except as a holder of less than 5% interest in a publicly traded firm or mutual funds, or as a minority stockholder or unitholder in a form not publicly traded) in a company, partnership or firm, with a Business Segment that is directly competitive, without the prior written consent of the Company. Such provision shall not be applicable should Employee be terminated under Section 4.6 of the Agreement.

     5.3 Validity of Noncompetition. The foregoing provisions of Section 5.2 shall not be held invalid because of the scope of the territory covered, the actions restricted thereby or the period of time such covenant is operative. Any judgment of a court of competent jurisdiction may define the maximum territory, the actions subject to and restricted by Section 5.2 and the period of time during which such agreement is enforceable.

     5.4 Noncompetition Covenants Independent. The covenants of Employee contained in Section 5.2 will be construed as independent of any other provision in this Agreement, and the existence of any claim or cause of action by the Employee against the Company will not constitute a defense to the enforcement by the Company of said covenants. Employee understands that the covenants contained in Section 5.2 are essential elements of the transaction contemplated by this Agreement, and but for the agreement of Employee to Section 5.2, the Company would not have agreed to enter into such transaction. Employee has been advised to consult with counsel in order to be informed in all respects concerning the reasonableness and propriety of Section 5.2 and its provisions with specific regard to the nature of the business conducted by the Company, and Employee acknowledges that Section 5.2 and its provisions are reasonable in all respects.

     5.5 Cooperation. In the event of termination, and regardless of the reason for such termination, Employee agrees to cooperate with the Company and its representatives by responding to questions, attending meetings, depositions, administrative proceedings and court hearings, executing documents and cooperating with the Company and its legal counsel with respect to issues, claims, litigation or administrative proceedings of which Employee has personal or corporate knowledge. Employee further agrees to maintain in strict confidence any information or knowledge Employee has regarding current or future claims, litigation or administrative proceedings involving the Company (or any of its subsidiaries). Employee agrees that any communication with a party adverse to the Company, or with a representative, agent or counsel for such adverse party, relating to any claim, litigation or administrative proceeding, shall be solely and exclusively through counsel for the Company.

     5.6 Remedies. In the event of a breach or threatened breach by the Employee of any of the provisions of Sections 5.1, 5.2 or 5.5, the Company shall be entitled to a temporary restraining order and an injunctive restraining the Employee from the commission of such breach. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of money damages.

ARTICLE VI
INDEMNIFICATION

     The Company shall indemnify and hold harmless Employee from any and all claims (whether in court or before a regulatory or administrative body), liabilities, damages and expenses, including without limitation reasonable attorneys’ fees incurred by Employee or his agents, arising out of or related to the acts or omissions (including negligence) of Employee in the provision of services or performance of duties under this Agreement. This indemnification section shall survive and continue in full force and effect after the expiration of this Agreement.

ARTICLE VII
ARBITRATION

     Except for the provisions of Sections 5.1, 5.2 and 5.5 dealing with issues of nondisclosure, noncompetition and cooperation, with respect to which the Company reserves the right to petition a court directly for injunction or other relief, any controversy of any nature whatsoever, including but not limited to tort claims or contract disputes, between the parties to this Agreement or between Employee, his heirs, executors, administrators, legal representatives, successors and assigns and the Company and its affiliates, arising out of or related to the Employee’s employment with the Company, any resignation from or termination of such employment and/or the terms and conditions of this Agreement, including the implementation, applicability and interpretation thereof, shall, upon the written request of one party served upon the other, be submitted to and settled by arbitration in accordance with the provisions of the Federal Arbitration Act, 9 U.S.C. §§1-15, as amended. Each of the parties to this Agreement shall appoint one person as an arbitrator to hear and determine such disputes, and if they should be unable to agree, then the two arbitrators shall choose a third arbitrator from a panel made up of experienced arbitrators selected pursuant to the procedures of the American Arbitration Association (the “AAA”) and, once chosen, the third arbitrator’s decision shall be final, binding and conclusive upon the parties to this Agreement. Each party shall be responsible for the fees and expenses of its/his arbitrator, and the fees and expenses of the third arbitrator shall be shared equally by the parties. The terms of the commercial arbitration rules of the AAA shall apply except to the extent they conflict with the provisions of this paragraph. It is further agreed that any of the parties hereto may petition the United States District Court for the Western District of Texas, San Antonio Division, for a judgment to be entered upon any award entered through such arbitration proceedings.

ARTICLE VIII
MISCELLANEOUS

     8.1 Complete Agreement. This Agreement constitutes the entire agreement between the parties and cancels and supersedes all other agreements between the parties which may have related to the subject matter contained in this Agreement.

     8.2 Modification; Amendment; Waiver. No modification, amendment or waiver of any provisions of this Agreement shall be effective unless approved in writing by both parties. The failure at any time to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of either party thereafter to enforce each and every provision hereof in accordance with its terms.

     8.3 Governing Law; Jurisdiction. This Agreement and performance under it, and all proceedings that may ensue from its breach, shall be construed in accordance with and under the laws of the State of Texas.

     8.4 Employee’s Representations. Employee represents and warrants that he is free to enter into this Agreement and to perform each of the terms and covenants of it. Employee represents and warrants that he is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement, and that his execution and performance of this Agreement is not a violation or breach of any other agreement between Employee and any other person or entity.

     8.5 The Company’s Representations. The Company represents and warrants that it is free to enter into this Agreement and to perform each of the terms and covenants of it. The Company represents and warrants that it is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement and that its execution and performance of this Agreement is not a violation or breach of any other agreements between the Company and any other person or entity. The Company represents and warrants that this Agreement is a legal, valid and binding agreement of the Company, enforceable in accordance with its terms.

     8.6 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

     8.7 Assignment. The rights and obligations of the parties under this Agreement shall be binding upon and inure to the benefit of their respective successors, assigns, executors, administrators and heirs, provided however, that neither the Company nor Employee may assign any duties under this Agreement without the prior written consent of the other.

     8.8 Limitation. This Agreement shall not confer any right or impose any obligation on the Company to continue the employment of Employee in any capacity, or limit the right of the Company or Employee to terminate Employee’s employment.

     8.9 Attorneys’ Fees and Costs. If any action at law or in equity is brought to enforce or interpret the terms of this Agreement or any obligation owing thereunder, venue will be in Bexar County, Texas and the prevailing party shall be entitled to reasonable attorney’s fees and all costs and expenses of suit, including, without limitation, expert and accountant fees, and such other relief which a court of competent jurisdiction may deem appropriate.

     8.10 Notices. All notices and other communications under this Agreement shall be in writing and shall be given in person or by either personal delivery, overnight delivery or first-class mail, certified or registered with return receipt requested, with postage or delivery charges prepaid, and shall be deemed to have been duly given when delivered personally, upon actual receipt, and on the next business day when sent via overnight delivery, or three (3) days after mailing first class, certified or registered with return receipt requested, to the respective persons named below:

If to the Company: Corporate Secretary
New Century Equity Holdings Corp.
10101 Reunion Place, Suite 450
San Antonio, Texas 78216

If to Employee: David P. Tusa
10101 Reunion Place,
Suite 450
San Antonio, Texas 78216

     IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the day and year indicated above.

COMPANY: NEW CENTURY EQUITY HOLDINGS CORP.


By: /s/ PARRIS H. HOLMES, JR.
——————————————
Name: Parris H. Holmes, Jr.
Title: Chairman & CEO

EMPLOYEE:       /s/ DAVID P. TUSA
——————————————
David P. Tusa

EX-10.16

EXHIBIT 10.16

UNION SQUARE
SAN ANTONIO, TEXAS

OFFICE LEASE AGREEMENT

BETWEEN

EOP-UNION SQUARE LIMITED PARTNERSHIP,
an Illinois limited partnership
(“LANDLORD”)

AND

BILLING CONCEPTS CORP.,
a Delaware corporation
(“TENANT”)

TABLE OF CONTENTS

I. Basic Lease Information

II. Lease Grant

III. Adjustment of Commencement Date; Possession

IV. Rent

V. Compliance with Laws; Use

VI. Security Deposit

VII. Services to be Furnished by Landlord

VIII. Leasehold Improvements

IX. Repairs and Alterations

X. Use of Electrical Services by Tenant

XI. Entry by Landlord

XII. Assignment and Subletting

XIII. Liens

XIV. Indemnity and Waiver of Claims

XV. Insurance

XVI. Subrogation

XVII. Casualty Damage

XVIII. Condemnation

XIX. Events of Default

XX. Remedies

XXI. Limitation of Liability

XXII. No Waiver

XXIII. Quiet Enjoyment

XXIV. Relocation

XXV. Holding Over

XXVI. Subordination to Mortgages; Estoppel Certificate

XXVII. Attorneys’ Fees

CXXVIII. Notice

XXIX. Excepted Rights

XXX. Surrender of Premises

XXXI. Miscellaneous

XXXII. Entire Agreement

     i

OFFICE LEASE AGREEMENT

     This Office Lease Agreement (the “Lease”) is made and entered into as of the 6th day of November, 2000, by and between EOP-UNION SQUARE LIMITED PARTNERSHIP, an Illinois limited partnership (“Landlord”) and BILLING CONCEPTS CORP., a Delaware corporation (“Tenant”).

I. Basic Lease Information.

A. “Building” shall mean the building located at 10101 Reunion Place Boulevard, San Antonio, Texas 78216, and commonly known as Union Square.

B. “Rentable Square Footage of the Building” is deemed to be 194,398 square feet.

C. “Premises” shall mean the area shown on Exhibit A to this Lease. The Premises are located on the fourth (4^th) floor and known as Suite Number 450. The “Rentable Square Footage of the Premises” is deemed to be 7,662 square feet. If the Premises include one or more floors in their entirety, all corridors and restroom facilities located on such full floor(s) shall be considered part of the Premises. Landlord and Tenant stipulate and agree that the Rentable Square Footage of the Building and the Rentable Square Footage of the Premises are correct and shall not be remeasured.

D. “Base Rent”:

Period	Annual Rate Per Square Foot	Annual Base Rent	Monthly Base Rent
Months 1-36	$20.20	$154,772.40	$12,897.70

E. “Tenant’s Pro Rata Share”: 3.9414%.

F. “Base Year” for Taxes: 2001; “Base Year” for Expenses: 2001. -

G. “Term”: A period of thirty-six (36) months and seventeen (17) days. The Term shall commence on January 15, 2001 (the “Commencement Date”) and, unless terminated early in accordance with this Lease, end on January 31, 2004 (the “Termination Date”). However, if Landlord is required to Substantially Complete (defined in Section III.A) any Landlord Work (defined in Section I.O.) prior to the Commencement Date under the terms of a Work Letter (defined in Section I.O): (1) the date set forth in the prior sentence as the “Commencement Date” shall instead be defined as the “Target Commencement Date” by which date Landlord will use reasonable efforts to Substantially Complete the Landlord Work; and (2) the actual “Commencement Date” shall be the date on which the Landlord Work is Substantially Complete, as determined by Section III.A. In such circumstances, the Termination Date will instead be the last day of the Term as determined based upon the actual Commencement Date. Landlord’s failure to Substantially Complete the Landlord Work by the Target Commencement Date shall not be a default by Landlord or otherwise render Landlord liable for damages. Promptly after the determination of the Commencement Date, Landlord and Tenant shall enter into a commencement letter agreement in the form attached as Exhibit C.

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Notwithstanding the foregoing, if there have been no Delays and the Commencement Date does not occur by May 15, 2001 (the “Outside Completion Date”), Tenant, as its sole remedy, may terminate this Lease by giving Landlord written notice of termination on or before the earlier to occur of: (i) five (5) Business Days after the Outside Completion Date; and (ii) the Commencement Date. In such event, this Lease shall be deemed null and void and of no further force and effect and Landlord shall promptly refund any prepaid Rent and Security Deposit previously advanced by Tenant under this Lease and, so long as Tenant has not previously defaulted under any of its obligations under the Work Letter, the parties hereto shall have no further responsibilities or obligations to each other with respect to this Lease. Landlord and Tenant acknowledge and agree that: (i) the determination of the Commencement Date shall take into consideration the effect of any Delays by Tenant; and (ii) the Outside Completion Date shall be postponed by the number of days the Commencement Date is delayed due to events of Force Majeure. Notwithstanding anything herein to the contrary, if Landlord determines that it will be unable to cause the Commencement Date to occur by the Outside Completion Date, Landlord shall have the right to immediately cease its performance of the Landlord Work and provide Tenant with written notice (the “Outside Extension Notice”) of such inability, which Outside Extension Notice shall set forth the date on which Landlord reasonably believes that the Commencement Date will occur. Upon receipt of the Outside Extension Notice, Tenant shall have the right to terminate this Lease by providing written notice of termination to Landlord within five (5) Business Days after the date of the Outside Extension Notice. In the event that Tenant does not terminate this Lease within such five (5) Business Day period, the Outside Completion Date shall automatically be amended to be the date set forth in Landlord’s Outside Extension Notice.

H. Tenant allowance: Subject to the terms and conditions set forth in Exhibit D, Landlord, provided Tenant is not in default, agrees to provide Tenant with an allowance (the “Allowance”) in an amount not to exceed $45,972.00 (i.e., $6.00 per rentable square foot of the Premises) to be applied toward the cost of the Landlord Work in the Premises.

I. “Security Deposit”: $12,897.70.

J. “Guarantor(s)”: Any party that agrees in writing to guarantee this Lease. As of the date hereof, there are no Guarantors.

K. “Broker(s)”: None.

L. “Permitted Use”: General office use.

M. “Notice Addresses”:

Tenant:

On and after the Commencement Date, notices shall be sent to Tenant at the Premises. Prior to the Commencement Date, notices shall be sent to Tenant at the following address:

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David P. Tusa
7411 John Smith Drive
Suite 1500
San Antonio, Texas 78229-4898
Phone #: 210-949-4010
Fax #: 210-949-7014

Landlord:

EOP-Union Square Limited Partnership
c/o Equity Office Properties
9601 McAllister Freeway, Suite 1100
San Antonio, Texas 78216
Attention: Building Manager With a copy to:

Equity Office Properties
Two North Riverside Plaza
Suite 1600
Chicago, Illinois 60606
Attention: Southwest Regional
Counsel

Rent (defined in Section IV.A) is payable to the order of Equity Office Properties at the following address: P.O. Box 844548, Dallas, Texas 75284-4548.

N. “Business Day(s)” are Monday through Friday of each week, exclusive of New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day (“Holidays”). Landlord may designate additional Holidays, provided that the additional Holidays are commonly recognized by other office buildings in the area where the Building is located.

O. “Landlord Work” means the work, if any, that Landlord is obligated to perform in the Premises pursuant to a separate work letter agreement (the “Work Letter”), if any, attached as Exhibit D. If a Work Letter is not attached to this Lease or if an attached Work Letter does not require Landlord to perform any work, the occurrence of the Commencement Date shall not be conditioned upon the performance of work by Landlord and, accordingly, Section III.A. shall not be applicable to the determination of the Commencement Date.

P. “Law(s)” means all applicable statutes, codes, ordinances, orders, rules and regulations of any municipal or governmental entity.

Q. “Normal Business Hours” for the Building are 8:00 A.M. to 6:00 P.M. on Business Days and 8:00 A.M. to 1:00 P.M. on Saturdays.

R. “Property” means the Building and the parcel(s) of land on which it is located and, at Landlord’s discretion, the Building garage and other improvements serving the Building, if any, and the parcel(s) of land on which they are located.

II. Lease Grant.

     Landlord leases the Premises to Tenant and Tenant leases the Premises from Landlord, together with the right in common with others to use any portions of the Property that are designated by Landlord for the common use of tenants and others, such as sidewalks, unreserved parking areas, common corridors, elevator foyers, restrooms, vending areas and lobby areas (the “Common Areas”).

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III. Adjustment of Commencement Date; Possession.

A. The Landlord Work shall be deemed to be “Substantially Complete” on the date that all Landlord Work has been performed, other than any details of construction, mechanical adjustment or any other similar matter, the noncompletion of which does not materially interfere with Tenant’s use of the Premises. However, if Landlord is delayed in the performance of the Landlord Work as a result of any Tenant Delay(s) (defined below), the Landlord Work shall be deemed to be Substantially Complete on the date that Landlord could reasonably have been expected to Substantially Complete the Landlord Work absent any Tenant Delay. “Tenant Delay” means any act or omission of Tenant or its agents, employees, vendors or contractors that actually delays the Substantial Completion of the Landlord Work, including, without limitation: (1) Tenant’s failure to furnish information or approvals within any time period specified in this Lease, including the failure to prepare or approve preliminary or final plans by any applicable due date; (2) Tenant’s selection of equipment or materials that have long lead times after first being informed by Landlord that the selection may result in a delay; (3) changes requested or made by Tenant to previously approved plans and specifications; (4) performance of work in the Premises by Tenant or Tenant’s contractor(s) during the performance of the Landlord Work; or (5) if the performance of any portion of the Landlord Work depends on the prior or simultaneous performance of work by Tenant, a delay by Tenant or Tenant’s contractor(s) in the completion of such work.

B. Subject to Landlord’s obligation, if any, to perform Landlord Work and Landlord’s obligations under Section IX.B., the Premises are accepted by Tenant in “as is” condition and configuration. By taking possession of the Premises, Tenant agrees that the Premises are in good order and satisfactory condition, and that there are no representations or warranties by Landlord regarding the condition of the Premises or the Building. If Landlord is delayed delivering possession of the Premises or any other space due to the holdover or unlawful possession of such space by any party, Landlord shall use reasonable efforts to obtain possession of the space at the earliest possible time. If Landlord is not required to Substantially Complete Landlord Work before the Commencement Date, the Commencement Date shall be postponed until the date Landlord delivers possession of the Premises to Tenant free from occupancy by any party, and the Termination Date, at the option of Landlord, may be postponed by an equal number of days. If Landlord is required to Substantially Complete Landlord Work before the Commencement Date, the Commencement Date and Termination Date shall be determined by Section I.G.

C. If Tenant takes possession of the Premises before the Commencement Date, such possession shall be subject to the terms and conditions of this Lease and Tenant shall pay Rent (defined in Section IV.A.) to Landlord for each day of possession before the Commencement Date. However, except for the cost of services requested by Tenant (e.g. freight elevator usage), Tenant shall not be required to pay Rent for any days of possession before the Commencement Date during which Tenant, with the approval of Landlord, is in possession of the Premises for the sole purpose of performing improvements or installing furniture, equipment or other personal property.

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IV. Rent.

A. Payments. As consideration for this Lease, Tenant shall pay Landlord, without any setoff or deduction, the total amount of Base Rent and Additional Rent due for the Term. “Additional Rent” means all sums (exclusive of Base Rent) that Tenant is required to pay Landlord. Additional Rent and Base Rent are sometimes collectively referred to as “Rent”. Tenant shall pay and be liable for all rental, sales and use taxes (but excluding income taxes), if any, imposed upon or measured by Rent under applicable Law. Base Rent and recurring monthly charges of Additional Rent shall be due and payable in advance on the first day of each calendar month without notice or demand, provided that the installment of Base Rent for the first full calendar month of the Term shall be payable upon the execution of this Lease by Tenant. All other items of Rent shall be due and payable by Tenant on or before 30 days after billing by Landlord. All payments of Rent shall be by good and sufficient check or by other means (such as automatic debit or electronic transfer) acceptable to Landlord. If Tenant fails to pay any item or installment of Rent when due, Tenant shall pay Landlord an administration fee equal to 5% of the past due Rent, provided that Tenant shall be entitled to a grace period of 5 days for the first 2 late payments of Rent in a given calendar year. If the Term commences on a day other than the first day of a calendar month or terminates on a day other than the last day of a calendar month, the monthly Base Rent and Tenant’s Pro Rata Share of any Tax Excess (defined in Section IV.B.) or Expense Excess (defined in Section IV.B.) for the month shall be prorated based on the number of days in such calendar month. Landlord’s acceptance of less than the correct amount of Rent shall be considered a payment on account of the earliest Rent due. No endorsement or statement on a check or letter accompanying a check or payment shall be considered an accord and satisfaction, and either party may accept the check or payment without prejudice to that party’s right to recover the balance or pursue other available remedies. Tenant’s covenant to pay Rent is independent of every other covenant in this Lease.

B. Expense Excess and Tax Excess. Tenant shall pay Tenant’s Pro Rata Share of the amount, if any, by which Expenses (defined in Section IV.C.) for each calendar year during the Term exceed Expenses for the Base Year (the “Expense Excess”) and also the amount, if any, by which Taxes (defined in Section IV.D.) for each calendar year during the Term exceed Taxes for the Base Year (the “Tax Excess”). If Expenses and/or Taxes in any calendar year decrease below the amount of Expenses and/or Taxes for the Base Year, Tenant’s Pro Rata Share of Expenses and/or Taxes, as the case may be, for that calendar year shall be $0. Landlord shall provide Tenant with a good faith estimate of the Expense Excess and of the Tax Excess for each calendar year during the Term. On or before the first day of each month, Tenant shall pay to Landlord a monthly installment equal to one-twelfth of Tenant’s Pro Rata Share of Landlord’s estimate of the Expense Excess and one-twelfth of Tenant’s Pro Rata Share of Landlord’s estimate of the Tax Excess. If Landlord determines that its good faith estimate of the Expense Excess or of the Tax Excess was incorrect by a material amount, Landlord shall provide Tenant with a revised estimate. After its receipt of the revised estimate, Tenant’s monthly payments shall be based upon the revised estimate. If Landlord does not provide Tenant with an estimate of the Expense Excess or of the Tax Excess by January 1 of a calendar year, Tenant shall continue to pay monthly installments based on the previous year’s estimate(s) until Landlord provides Tenant with the new estimate. Upon delivery of the new estimate, an adjustment shall be made for any month for which Tenant paid monthly installments based on the previous year’s estimate(s). Tenant shall pay Landlord the amount of any underpayment within 30 days after receipt of the new estimate. Any overpayment shall be refunded to Tenant within 30 days or credited against the next due future installment(s) of Additional Rent.

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As soon as is practical following the end of each calendar year, Landlord shall furnish Tenant with a statement of the actual Expenses and Expense Excess and the actual Taxes and Tax Excess for the prior calendar year. If the estimated Expense Excess and/or estimated Tax Excess for the prior calendar year is more than the actual Expense Excess and/or actual Tax Excess, as the case may be, for the prior calendar year, Landlord shall apply any overpayment by Tenant against Rent due or next becoming due, provided if the Term expires before the determination of the overpayment, Landlord shall refund any overpayment to Tenant after first deducting the amount of Rent due. If the estimated Expense Excess and/or estimated Tax Excess for the prior calendar year is less than the actual Expense Excess and/or actual Tax Excess, as the case may be, for such prior year, Tenant shall pay Landlord, within 30 days after its receipt of the statement of Expenses and/or Taxes, any underpayment for the prior calendar year.

C. Expenses Defined. “Expenses” means all costs and expenses incurred in each calendar year in connection with operating, maintaining, repairing, and managing the Building and the Property, as reasonably determined by Landlord, including, but not limited to:

1. Labor costs, including, wages, salaries, social security and employment taxes, medical and other types of insurance, uniforms, training, and retirement and pension plans.

2. Management fees, the cost of equipping and maintaining a management office, accounting and bookkeeping services, legal fees not attributable to leasing or collection activity, and other administrative costs. Landlord, by itself or through an affiliate, shall have the right to directly perform or provide any services under this Lease (including management services), provided that the cost of any such services shall not exceed the cost that would have been incurred had Landlord entered into an arms-length contract for such services with an unaffiliated entity of comparable skill and experience.

3. The cost of services, including amounts paid to service providers and the rental and purchase cost of parts, supplies, tools and equipment.

4. Premiums and deductibles paid by Landlord for insurance, including workers compensation, fire and extended coverage, earthquake, general liability, rental loss, elevator, boiler and other insurance customarily carried from time to time by owners of comparable office buildings.

5. Electrical Costs (defined below) and charges for water, gas, steam and sewer, but excluding those charges for which Landlord is reimbursed by tenants. “Electrical Costs” means: (a) charges paid by Landlord for electricity; (b) costs incurred in connection with an energy management program for the Property; and (c) if and to the extent permitted by Law, a fee for the services provided by Landlord in connection with the selection of utility companies and the negotiation and administration of contracts for electricity, provided that such fee shall not exceed 50% of any savings obtained by Landlord. Electrical Costs shall be adjusted as follows: (i) amounts received by Landlord as reimbursement for above standard electrical consumption shall be deducted from Electrical Costs; (ii) the cost of electricity incurred to provide overtime HVAC to specific tenants (as reasonably estimated by Landlord) shall be deducted from Electrical Costs; and (iii) if Tenant is billed directly for the cost of building standard electricity to the Premises as a separate charge in addition to Base Rent, the cost of electricity to individual tenant spaces in the Building shall be deducted from Electrical Costs.

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6. The amortized cost of capital improvements (as distinguished from replacement parts or components installed in the ordinary course of business) made to the Property which are: (a) performed primarily to reduce operating expense costs or otherwise improve the operating efficiency of the Property; or (b) required to comply with any Laws that are enacted, or first interpreted to apply to the Property, after the date of this Lease. The cost of capital improvements shall be amortized by Landlord over the lesser of the Payback Period (defined below) or 7 years. The amortized cost of capital improvements may, at Landlord’s option, include actual or imputed interest at the rate that Landlord would reasonably be required to pay to finance the cost of the capital improvement. “Payback Period” means the reasonably estimated period of time that it takes for the cost savings resulting from a capital improvement to equal the total cost of the capital improvement.

If Landlord incurs Expenses for the Property together with one or more other buildings or properties, whether pursuant to a reciprocal easement agreement, common area agreement or otherwise, the shared costs and expenses shall be equitably prorated and apportioned between the Property and the other buildings or properties. Expenses shall not include: the cost of capital improvements (except as set forth above); depreciation; interest (except as provided above for the amortization of capital improvements); principal payments of mortgage and other non-operating debts of Landlord; the cost of repairs or other work to the extent Landlord is reimbursed by insurance or condemnation proceeds; costs in connection with leasing space in the Building, including brokerage commissions; lease concessions, including rental abatements and construction allowances, granted to specific tenants; costs incurred in connection with the sale, financing or refinancing of the Building; fines, interest and penalties incurred due to the late payment of Taxes (defined in Section IV.D) or Expenses; organizational expenses associated with the creation and operation of the entity which constitutes Landlord; or any penalties or damages that Landlord pays to Tenant under this Lease or to other tenants in the Building under their respective leases. If the Building is not at least 95% occupied during any calendar year or if Landlord is not supplying services to at least 95% of the total Rentable Square Footage of the Building at any time during a calendar year, Expenses shall be determined as if the Building had been 95% occupied and Landlord had been supplying services to 95% of the Rentable Square Footage of the Building during that calendar year. If Tenant pays for its Pro Rata Share of Expenses based on increases over a “Base Year” and Expenses for a calendar year are determined as provided in the prior sentence, Expenses for the Base Year shall also be determined as if the Building had been 95% occupied and Landlord had been supplying services to 95% of the Rentable Square Footage of the Building. The extrapolation of Expenses under this Section shall be performed by appropriately adjusting the cost of those components of Expenses that are impacted by changes in the occupancy of the Building.

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D. Taxes Defined. “Taxes” shall mean: (1) all real estate taxes and other assessments on the Building and/or Property, including, but not limited to, assessments for special improvement districts and building improvement districts, taxes and assessments levied in substitution or supplementation in whole or in part of any such taxes and assessments and the Property’s share of any real estate taxes and assessments under any reciprocal easement agreement, common area agreement or similar agreement as to the Property; (2) all personal property taxes for property that is owned by Landlord and used in connection with the operation, maintenance and repair of the Property; and (3) all costs and fees incurred in connection with seeking reductions in any tax liabilities described in (1) and (2), including, without limitation, any costs incurred by Landlord for compliance, review and appeal of tax liabilities. Without limitation, Taxes shall not include any income, capital levy, franchise, capital stock, gift, estate or inheritance tax. If an assessment is payable in installments, Taxes for the year shall include the amount of the installment and any interest due and payable during that year. For all other real estate taxes, Taxes for that year shall, at Landlord’s election, include either the amount accrued, assessed or otherwise imposed for the year or the amount due and payable for that year, provided that Landlord’s election shall be applied consistently throughout the Term. If a change in Taxes is obtained for any year of the Term during which Tenant paid Tenant’s Pro Rata Share of any Tax Excess, then Taxes for that year will be retroactively adjusted and Landlord shall provide Tenant with a credit, if any, based on the adjustment. Likewise, if a change is obtained for Taxes for the Base Year, Taxes for the Base Year shall be restated and the Tax Excess for all subsequent years shall be recomputed. Tenant shall pay Landlord the amount of Tenant’s Pro Rata Share of any such increase in the Tax Excess within 30 days after Tenant’s receipt of a statement from Landlord.

E. Audit Rights. Tenant may, within 90 days after receiving Landlord’s statement of Expenses, give Landlord written notice (“Review Notice”) that Tenant intends to review Landlord’s records of the Expenses for that calendar year. Within a reasonable time after receipt of the Review Notice, Landlord shall make all pertinent records available for inspection that are reasonably necessary for Tenant to conduct its review. If any records are maintained at a location other than the office of the Building, Tenant may either inspect the records at such other location or pay for the reasonable cost of copying and shipping the records. If Tenant retains an agent to review Landlord’s records, the agent must be with a licensed CPA firm. Tenant shall be solely responsible for all costs, expenses and fees incurred for the audit. Within 60 days after the records are made available to Tenant, Tenant shall have the right to give Landlord written notice (an “Objection Notice”) stating in reasonable detail any objection to Landlord’s statement of Expenses for that year. If Tenant fails to give Landlord an Objection Notice within the 60 day period or fails to provide Landlord with a Review Notice within the 90 day period described above, Tenant shall be deemed to have approved Landlord’s statement of Expenses and shall be barred from raising any claims regarding the Expenses for that year. If Tenant provides Landlord with a timely Objection Notice, Landlord and Tenant shall work together in good faith to resolve any issues raised in Tenant’s Objection Notice. If Landlord and Tenant determine that Expenses for the calendar year are less than reported, Landlord shall provide Tenant with a credit against the next installment of Rent in the amount of the overpayment by Tenant. Likewise, if Landlord and Tenant determine that Expenses for the calendar year are greater than reported, Tenant shall pay Landlord the amount of any underpayment within 30 days. The records obtained by Tenant shall be treated as confidential. In no event shall Tenant be permitted to examine Landlord’s records or to dispute any statement of Expenses unless Tenant has paid and continues to pay all Rent when due.

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V. Compliance with Laws; Use.

     The Premises shall be used only for the Permitted Use and for no other use whatsoever. Tenant shall not use or permit the use of the Premises for any purpose which is illegal, dangerous to persons or property or which, in Landlord’s reasonable opinion, unreasonably disturbs any other tenants of the Building or interferes with the operation of the Building. Tenant shall comply with all Laws, including the Americans with Disabilities Act, regarding the operation of Tenant’s business and the use, condition, configuration and occupancy of the Premises. Tenant, within 10 days after receipt, shall provide Landlord with copies of any notices it receives regarding a violation or alleged violation of any Laws. Tenant shall comply with the rules and regulations of the Building attached as Exhibit B and such other reasonable rules and regulations adopted by Landlord from time to time. Tenant shall also cause its agents, contractors, subcontractors, employees, customers, and subtenants to comply with all rules and regulations. Landlord shall not knowingly discriminate against Tenant in Landlord’s enforcement of the rules and regulations.

VI. Security Deposit.

     The Security Deposit shall be delivered to Landlord upon the execution of this Lease by Tenant and shall be held by Landlord without liability for interest (unless required by Law) as security for the performance of Tenant’s obligations. The Security Deposit is not an advance payment of Rent or a measure of Tenant’s liability for damages. Landlord may, from time to time, without prejudice to any other remedy, use all or a portion of the Security Deposit to satisfy past due Rent or to cure any uncured default by Tenant. If Landlord uses the Security Deposit, Tenant shall on demand restore the Security Deposit to its original amount. Landlord shall return any unapplied portion of the Security Deposit to Tenant within 45 days after the later to occur of: (1) the determination of Tenant’s Pro Rata Share of any Tax Excess and Expense Excess for the final year of the Term; (2) the date Tenant surrenders possession of the Premises to Landlord in accordance with this Lease; or (3) the Termination Date. If Landlord transfers its interest in the Premises, Landlord may assign the Security Deposit to the transferee and, following the assignment, Landlord shall have no further liability for the return of the Security Deposit. Landlord shall not be required to keep the Security Deposit separate from its other accounts.

VII. Services to be Furnished by Landlord.

A. Landlord agrees to furnish Tenant with the following services: (1) Water (hot and cold) service for use in the lavatories on each floor on which the Premises are located; (2) Heat and air conditioning in season during Normal Business Hours, at such temperatures and in such amounts as are standard for comparable buildings or as required by governmental authority. Tenant, upon such advance notice as is reasonably required by Landlord, shall have the right to receive HVAC service during hours other than Normal Business Hours. Tenant shall pay Landlord the standard charge for the additional service as reasonably determined by Landlord from time to time; (3) Maintenance and repair of the Property as described in Section IX.B.; (4) Janitor service on Business Days. If Tenant’s use, floor covering or other improvements require special services in excess of the standard services for the Building, Tenant shall pay the additional cost attributable to the special services; (5) Elevator service; (6) Electricity to the Premises for general office use, in accordance with and subject to the terms and conditions in Article X; and (7) such other services as Landlord reasonably determines are necessary or appropriate for the Property; (8) access to the Premises at all times, including weekends, except as otherwise provided in this Lease, (9) building service personnel for the Building, to the extent determined necessary and appropriate by Landlord in its sole discretion, and (10) courtesy patrols in the Garage, to the extent determined necessary and appropriate by Landlord in its sole discretion.

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B. Landlord’s failure to furnish, or any interruption or termination of, services due to the application of Laws, the failure of any equipment, the performance of repairs, improvements or alterations, or the occurrence of any event or cause beyond the reasonable control of Landlord (a “Service Failure”) shall not render Landlord liable to Tenant, constitute a constructive eviction of Tenant, give rise to an abatement of Rent, nor relieve Tenant from the obligation to fulfill any covenant or agreement. However, if the Premises, or a material portion of the Premises, is made untenantable for a period in excess of 2 consecutive Business Days as a result of the Service Failure, then Tenant, as its sole remedy, shall be entitled to receive an abatement of Rent payable hereunder during the period beginning on the 3^rd consecutive Business Day of the Service Failure and ending on the day the service has been fully restored. If the entire Premises has not been rendered untenantable by the Service Failure, the amount of abatement that Tenant is entitled to receive shall be prorated based upon the percentage of the Premises rendered untenantable and not used by Tenant. In no event, however, shall Landlord be liable to Tenant for any loss or damage, including the theft of Tenant’s Property (defined in Article XV), arising out of or in connection with the failure of any security services, personnel or equipment.

VIII. Leasehold Improvements.

     All improvements to the Premises (collectively, “Leasehold Improvements”) shall be owned by Landlord and shall remain upon the Premises without compensation to Tenant. However, Landlord, by written notice to Tenant within 30 days prior to the Termination Date, may require Tenant to remove, at Tenant’s expense: (1) Cable (defined in Section IX.A) installed by or for the exclusive benefit of Tenant and located in the Premises or other portions of the Building; and (2) any Leasehold Improvements that are performed by or for the benefit of Tenant and, in Landlord’s reasonable judgment, are of a nature that would require removal and repair costs that are materially in excess of the removal and repair costs associated with standard office improvements (collectively referred to as “Required Removables”). Without limitation, it is agreed that Required Removables include internal stairways, raised floors, personal baths and showers, vaults, rolling file systems and structural alterations and modifications of any type. The Required Removables designated by Landlord shall be removed by Tenant before the Termination Date, provided that upon prior written notice to Landlord, Tenant may remain in the Premises for up to 5 days after the Termination Date for the sole purpose of removing the Required Removables. Tenant’s possession of the Premises shall be subject to all of the terms and conditions of this Lease, including the obligation to pay Rent on a per diem basis at the rate in effect for the last month of the Term. Tenant shall repair reasonable damage caused by the installation or removal of Required Removables. If Tenant fails to remove any Required Removables or perform related repairs in a timely manner, Landlord, at Tenant’s expense, may remove and dispose of the Required Removables and perform the required repairs. Tenant, within 30 days after receipt of an invoice, shall reimburse Landlord for the reasonable costs incurred by Landlord. Notwithstanding the foregoing, Tenant, at the time it requests approval for a proposed Alteration (defined in Section IX.C), may request in writing that Landlord advise Tenant whether the Alteration or any portion of the Alteration will be designated as a Required Removable. Within 5 Business Days after receipt of Tenant’s request, Landlord shall advise Tenant in writing as to which portions of the Alteration, if any, will be considered to be Required Removables.

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IX. Repairs and Alterations.

A. Tenant’s Repair Obligations. Tenant shall, at its sole cost and expense, promptly perform all maintenance and repairs to the Premises that are not Landlord’s express responsibility under this Lease, and shall keep the Premises in good condition and repair, reasonable wear and tear excepted. Tenant’s repair obligations include, without limitation, repairs to: (1) floor covering; (2) interior partitions; (3) doors; (4) the interior side of demising walls; (5) electronic, phone and data cabling and related equipment (collectively, “Cable”) that is installed by or for the exclusive benefit of Tenant and located in the Premises or other portions of the Building; (6) supplemental air conditioning units, private showers and kitchens, including hot water heaters, plumbing, and similar facilities serving Tenant exclusively; and (7) Alterations performed by contractors retained by Tenant, including related HVAC balancing. All work shall be performed in accordance with the rules and procedures described in Section IX.C. below. If Tenant fails to make any repairs to the Premises for more than 15 days after notice from Landlord (although notice shall not be required if there is an emergency), Landlord may make the repairs, and Tenant shall pay the reasonable cost of the repairs to Landlord within 30 days after receipt of an invoice, together with an administrative charge in an amount equal to 10% of the cost of the repairs.

B. Landlord’s Repair Obligations. Landlord shall keep and maintain in good repair and working order and make repairs to and perform maintenance upon: (1) structural elements of the Building; (2) mechanical (including HVAC), electrical, plumbing and fire/life safety systems serving the Building in general; (3) Common Areas; (4) the roof of the Building; (5) exterior windows of the Building; and (6) elevators serving the Building. Landlord shall promptly make repairs (considering the nature and urgency of the repair) for which Landlord is responsible.

C. Alterations. Tenant shall not make alterations, additions or improvements to the Premises or install any Cable in the Premises or other portions of the Building (collectively referred to as “Alterations”) without first obtaining the written consent of Landlord in each instance, which consent shall not be unreasonably withheld or delayed. However, Landlord’s consent shall not be required for any Alteration that satisfies all of the following criteria (a “Cosmetic Alteration”): (1) is of a cosmetic nature such as painting, wallpapering, hanging pictures and installing carpeting; (2) is not visible from the exterior of the Premises or Building; (3) will not affect the systems or structure of the Building; and (4) does not require work to be performed inside the walls or above the ceiling of the Premises. However, even though consent is not required, the performance of Cosmetic Alterations shall be subject to all the other provisions of this Section IX.C. Prior to starting work, Tenant shall furnish Landlord with plans and specifications reasonably acceptable to Landlord; names of contractors reasonably acceptable to Landlord (provided that Landlord may designate specific contractors with respect to Building systems); copies of contracts; necessary permits and approvals; evidence of contractor’s and subcontractor’s insurance in amounts reasonably required by Landlord; and any security for performance that is reasonably required by Landlord. Changes to the plans and specifications must also be submitted to Landlord for its approval. Alterations shall be constructed in a good and workmanlike manner using materials of a quality that is at least equal to the quality designated by Landlord as the minimum standard for the Building. Landlord may designate reasonable rules, regulations and procedures for the performance of work in the Building and, to the extent reasonably necessary to avoid disruption to the occupants of the Building, shall have the right to designate the time when Alterations may be performed. Tenant shall reimburse Landlord within 30 days after receipt of an invoice for sums paid by Landlord for third party examination of Tenant’s plans for non-Cosmetic Alterations. In addition, within 30 days after receipt of an invoice from Landlord, Tenant shall pay Landlord a fee for Landlord’s oversight and coordination of any non-Cosmetic Alterations equal to 10% of the cost of the non-Cosmetic Alterations. Upon completion, Tenant shall furnish “as-built” plans (except for Cosmetic Alterations), completion affidavits, full and final waivers of lien and receipted bills covering all labor and materials. Tenant shall assure that the Alterations comply with all insurance requirements and Laws. Landlord’s approval of an Alteration shall not be a representation by Landlord that the Alteration complies with applicable Laws or will be adequate for Tenant’s use.

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X. Use of Electrical Services by Tenant.

A. Electricity used by Tenant in the Premises shall, at Landlord’s option, be paid for by Tenant either: (1) through inclusion in Expenses (except as provided in Section X.B. for excess usage); (2) by a separate charge payable by Tenant to Landlord within 30 days after billing by Landlord; or (3) by separate charge billed by the applicable utility company and payable directly by Tenant. Electrical service to the Premises may be furnished by one or more companies providing electrical generation, transmission and distribution services, and the cost of electricity may consist of several different components or separate charges for such services, such as generation, distribution and stranded cost charges. Landlord shall have the exclusive right to select any company providing electrical service to the Premises, to aggregate the electrical service for the Property and Premises with other buildings, to purchase electricity through a broker and/or buyers group and to change the providers and manner of purchasing electricity. Landlord shall be entitled to receive a fee (if permitted by Law) for the selection of utility companies and the negotiation and administration of contracts for electricity, provided that the amount of such fee shall not exceed 50% of any savings obtained by Landlord.

B. Tenant’s use of electrical service shall not exceed, either in voltage, rated capacity, use beyond Normal Business Hours or overall load, that which Landlord deems to be standard for the Building. If Tenant requests permission to consume excess electrical service, Landlord may refuse to consent or may condition consent upon conditions that Landlord reasonably elects (including, without limitation, the installation of utility service upgrades, meters, submeters, air handlers or cooling units), and the additional usage (to the extent permitted by Law), installation and maintenance costs shall be paid by Tenant. Landlord shall have the right to separately meter electrical usage for the Premises and to measure electrical usage by survey or other commonly accepted methods.

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XI. Entry by Landlord.

     Except in an emergency (in which such entry may be at any time without notice), upon 24 hours notice to Tenant (which may be oral), Landlord, its agents, contractors and representatives may enter the Premises to inspect or show the Premises, to clean and make repairs, alterations or additions to the Premises, and to conduct or facilitate repairs, alterations or additions to any portion of the Building, including other tenants’ premises. Except in emergencies or to provide janitorial and other Building services after Normal Business Hours, Landlord shall provide Tenant with reasonable prior notice of entry into the Premises, which may be given orally. If reasonably necessary for the protection and safety of Tenant and its employees, Landlord shall have the right to temporarily close all or a portion of the Premises to perform repairs, alterations and additions. However, except in emergencies, Landlord will not close the Premises if the work can reasonably be completed on weekends and after Normal Business Hours. Entry by Landlord shall not constitute constructive eviction or entitle Tenant to an abatement or reduction of Rent.

XII. Assignment and Subletting.

A. Except in connection with a Permitted Transfer (defined in Section XII.E. below), Tenant shall not assign, sublease, transfer or encumber any interest in this Lease or allow any third party to use any portion of the Premises (collectively or individually, a “Transfer”) without the prior written consent of Landlord, which consent shall not be unreasonably withheld if Landlord does not elect to exercise its termination rights under Section XII.B below. Without limitation, it is agreed that Landlord’s consent shall not be considered unreasonably withheld if: (1) the proposed transferee’s financial condition does not meet the criteria Landlord uses to select Building tenants having similar leasehold obligations; (2) the proposed transferee’s business is not suitable for the Building considering the business of the other tenants and the Building’s prestige, or would result in a violation of another tenant’s rights; (3) the proposed transferee is a governmental agency or occupant of the Building; (4) Tenant is in default after the expiration of the notice and cure periods in this Lease; or (5) any portion of the Building or Premises would likely become subject to additional or different Laws as a consequence of the proposed Transfer. Tenant shall not be entitled to receive monetary damages based upon a claim that Landlord unreasonably withheld its consent to a proposed Transfer and Tenant’s sole remedy shall be an action to enforce any such provision through specific performance or declaratory judgment. Any attempted Transfer in violation of this Article shall, at Landlord’s option, be void. Consent by Landlord to one or more Transfer(s) shall not operate as a waiver of Landlord’s rights to approve any subsequent Transfers. In no event shall any Transfer or Permitted Transfer release or relieve Tenant from any obligation under this Lease.

B. As part of its request for Landlord’s consent to a Transfer, Tenant shall provide Landlord with financial statements for the proposed transferee, a complete copy of the proposed assignment, sublease and other contractual documents and such other information as Landlord may reasonably request. Landlord shall, by written notice to Tenant within 30 days of its receipt of the required information and documentation, either: (1) consent to the Transfer by the execution of a consent agreement in a form reasonably designated by Landlord or reasonably refuse to consent to the Transfer in writing; or (2) exercise its right to terminate this Lease with respect to the portion of the Premises that Tenant is proposing to assign or sublet. Any such termination shall be effective on the proposed effective date of the Transfer for which Tenant requested consent. Tenant shall pay Landlord a review fee of $750.00 for Landlord’s review of any Permitted Transfer or requested Transfer, provided if Landlord’s actual reasonable costs and expenses (including reasonable attorney’s fees) exceed $750.00, Tenant shall reimburse Landlord for its actual reasonable costs and expenses in lieu of a fixed review fee.

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C. Tenant shall pay Landlord 50% of all rent and other consideration which Tenant receives as a result of a Transfer that is in excess of the Rent payable to Landlord for the portion of the Premises and Term covered by the Transfer. Tenant shall pay Landlord for Landlord’s share of any excess within 30 days after Tenant’s receipt of such excess consideration. Tenant may deduct from the excess all reasonable and customary expenses directly incurred by Tenant attributable to the Transfer (other than Landlord’s review fee), including brokerage fees, legal fees and construction costs. If Tenant is in Monetary Default (defined in Section XIX.A. below), Landlord may require that all sublease payments be made directly to Landlord, in which case Tenant shall receive a credit against Rent in the amount of any payments received (less Landlord’s share of any excess).

D. Except as provided below with respect to a Permitted Transfer, if Tenant is a corporation, limited liability company, partnership, or similar entity, and if the entity which owns or controls a majority of the voting shares/rights at any time changes for any reason (including but not limited to a merger, consolidation or reorganization), such change of ownership or control shall constitute a Transfer. The foregoing shall not apply so long as Tenant is an entity whose outstanding stock is listed on a recognized security exchange, or if at least 80% of its voting stock is owned by another entity, the voting stock of which is so listed.

E. Tenant may assign its entire interest under this Lease to a successor to Tenant by purchase, merger, consolidation or reorganization without the consent of Landlord, provided that all of the following conditions are satisfied (a “Permitted Transfer”): (1) Tenant is not in default under this Lease; (2) Tenant’s successor shall own all or substantially all of the assets of Tenant; (3) Tenant’s successor shall have a net worth which is at least equal to the greater of Tenant’s net worth at the date of this Lease or Tenant’s net worth as of the day prior to the proposed purchase, merger, consolidation or reorganization; (4) the Permitted Use does not allow the Premises to be used for retail purposes; and (5) Tenant shall give Landlord written notice at least 30 days prior to the effective date of the proposed purchase, merger, consolidation or reorganization. Tenant’s notice to Landlord shall include information and documentation showing that each of the above conditions has been satisfied. If requested by Landlord, Tenant’s successor shall sign a commercially reasonable form of assumption agreement.

XIII. Liens.

     Tenant shall not permit mechanic’s or other liens to be placed upon the Property, Premises or Tenant’s leasehold interest in connection with any work or service done or purportedly done by or for benefit of Tenant. If a lien is so placed, Tenant shall, within 10 days of notice from Landlord of the filing of the lien, fully discharge the lien by settling the claim which resulted in the lien or by bonding or insuring over the lien in the manner prescribed by the applicable lien Law. If Tenant fails to discharge the lien, then, in addition to any other right or remedy of Landlord, Landlord may bond or insure over the lien or otherwise discharge the lien. Tenant shall reimburse Landlord for any amount paid by Landlord to bond or insure over the lien or discharge the lien, including, without limitation, reasonable attorneys’ fees (if and to the extent permitted by Law) within 30 days after receipt of an invoice from Landlord.

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XIV. Indemnity and Waiver of Claims.

A. Except to the extent caused by the negligence or willful misconduct of Landlord or any Landlord Related Parties (defined below), Tenant shall indemnify, defend and hold Landlord, its trustees, members, principals, beneficiaries, partners, officers, directors, employees, Mortgagee(s) (defined in Article XXVI) and agents (“Landlord Related Parties”) harmless against and from all liabilities, obligations, damages, penalties, claims, actions, costs, charges and expenses, including, without limitation, reasonable attorneys’ fees and other professional fees (if and to the extent permitted by Law), which may be imposed upon, incurred by or asserted against Landlord or any of the Landlord Related Parties and arising out of or in connection with any damage or injury occurring in the Premises or any acts or omissions (including violations of Law) of Tenant, the Tenant Related Parties (defined below) or any of Tenant’s transferees, contractors or licensees.

B. Except to the extent caused by the negligence or willful misconduct of Tenant or any Tenant Related Parties (defined below), Landlord shall indemnify, defend and hold Tenant, its trustees, members, principals, beneficiaries, partners, officers, directors, employees and agents (“Tenant Related Parties”) harmless against and from all liabilities, obligations, damages, penalties, claims, actions, costs, charges and expenses, including, without limitation, reasonable attorneys’ fees and other professional fees (if and to the extent permitted by Law), which may be imposed upon, incurred by or asserted against Tenant or any of the Tenant Related Parties and arising out of or in connection with the acts or omissions (including violations of Law) of Landlord, the Landlord Related Parties or any of Landlord’s contractors.

C. Landlord and the Landlord Related Parties shall not be liable for, and Tenant waives, all claims for loss or damage to Tenant’s business or loss, theft or damage to Tenant’s Property or the property of any person claiming by, through or under Tenant resulting from: (1) wind or weather; (2) the failure of any sprinkler, heating or air-conditioning equipment, any electric wiring or any gas, water or steam pipes; (3) the backing up of any sewer pipe or downspout; (4) the bursting, leaking or running of any tank, water closet, drain or other pipe; (5) water, snow or ice upon or coming through the roof, skylight, stairs, doorways, windows, walks or any other place upon or near the Building; (6) any act or omission of any party other than Landlord or Landlord Related Parties; and (7) any causes not reasonably within the control of Landlord. Tenant shall insure itself against such losses under Article XV below.

XV. Insurance.

     Tenant shall carry and maintain the following insurance (“Tenant’s Insurance”), at its sole cost and expense: (1) Commercial General Liability Insurance applicable to the Premises and its appurtenances providing, on an occurrence basis, a minimum combined single limit of $2,000,000.00; (2) All Risk Property/Business Interruption Insurance, including flood and earthquake, written at replacement cost value and with a replacement cost endorsement covering all of Tenant’s trade fixtures, equipment, furniture and other personal property within the Premises (“Tenant’s Property”); (3) Workers’ Compensation Insurance as required by the state in which the Premises is located and in amounts as may be required by applicable statute; and (4) Employers Liability Coverage of at least $1,000,000.00 per occurrence. Any company writing any of Tenant’s Insurance shall have an A.M. Best rating of not less than A-VIII. All Commercial General Liability Insurance policies shall name Tenant as a named insured and Landlord (or any successor), Equity Office Properties Trust, a Maryland real estate investment trust, EOP Operating Limited Partnership, a Delaware limited partnership, and their respective members, principals, beneficiaries, partners, officers, directors, employees, and agents, and other designees of Landlord as the interest of such designees shall appear, as additional insureds. All policies of Tenant’s Insurance shall contain endorsements that the insurer(s) shall give Landlord and its designees at least 30 days’ advance written notice of any change, cancellation, termination or lapse of insurance. Tenant shall provide Landlord with a certificate of insurance evidencing Tenant’s Insurance prior to the earlier to occur of the Commencement Date or the date Tenant is provided with possession of the Premises for any reason, and upon renewals at least 15 days prior to the expiration of the insurance coverage. So long as the same is available at commercially reasonable rates, Landlord shall maintain so called All Risk property insurance on the Building at replacement cost value, as reasonably estimated by Landlord. Except as specifically provided to the contrary, the limits of either party’s insurance shall not limit such party’s liability under this Lease.

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XVI. Subrogation.

     Notwithstanding anything in this Lease to the contrary, Landlord and Tenant hereby waive and shall cause their respective insurance carriers to waive any and all rights of recovery, claim, action or causes of action against the other and their respective trustees, principals, beneficiaries, partners, officers, directors, agents, and employees, for any loss or damage that may occur to Landlord or Tenant or any party claiming by, through or under Landlord or Tenant, as the case may be, with respect to Tenant’s Property, the Building, the Premises, any additions or improvements to the Building or Premises, or any contents thereof, INCLUDING ALL RIGHTS OF RECOVERY, CLAIMS, ACTIONS OR CAUSES OF ACTION ARISING OUT OF THE NEGLIGENCE OF LANDLORD OR ANY LANDLORD RELATED PARTIES OR THE NEGLIGENCE OF TENANT OR ANY TENANT RELATED PARTIES, which loss or damage is (or would have been, had the insurance required by this Lease been carried) covered by insurance.

XVII. Casualty Damage.

A. If all or any part of the Premises is damaged by fire or other casualty, Tenant shall immediately notify Landlord in writing. During any period of time that all or a material portion of the Premises is rendered untenantable as a result of a fire or other casualty, the Rent shall abate for the portion of the Premises that is untenantable and not used by Tenant. Landlord shall have the right to terminate this Lease if: (1) the Building shall be damaged so that, in Landlord’s reasonable judgment, substantial alteration or reconstruction of the Building shall be required (whether or not the Premises has been damaged); (2) Landlord is not permitted by Law to rebuild the Building in substantially the same form as existed before the fire or casualty; (3) the Premises have been materially damaged and there is less than 2 years of the Term remaining on the date of the casualty; (4) any Mortgagee requires that the insurance proceeds be applied to the payment of the mortgage debt; or (5) a material uninsured loss to the Building occurs (provided that during the Lease Term, Landlord shall maintain so-called “all-risk” property insurance covering the Building in an amount equal to 90% of the replacement cost thereof at the time in question). Landlord may exercise its right to terminate this Lease by notifying Tenant in writing within 75 days after the date of the casualty. If Landlord does not terminate this Lease, Landlord shall commence and proceed with reasonable diligence to repair and restore the Building and the Leasehold Improvements (excluding any Alterations that were performed by Tenant in violation of this Lease). However, in no event shall Landlord be required to spend more than the insurance proceeds received by Landlord. Landlord shall not be liable for any loss or damage to Tenant’s Property or to the business of Tenant resulting in any way from the fire or other casualty or from the repair and restoration of the damage. Landlord and Tenant hereby waive the provisions of any Law relating to the matters addressed in this Article, and agree that their respective rights for damage to or destruction of the Premises shall be those specifically provided in this Lease.

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B. If all or any portion of the Premises shall be made untenantable by fire or other casualty, Landlord shall, with reasonable promptness, cause an architect or general contractor selected by Landlord to provide Landlord and Tenant with a written estimate of the amount of time required to substantially complete the repair and restoration of the Premises and make the Premises tenantable again, using standard working methods (“Completion Estimate”). If the Completion Estimate indicates that the Premises cannot be made tenantable within 180 days from the date the repair and restoration is started, then regardless of anything in Section XVII.A above to the contrary, either party shall have the right to terminate this Lease by giving written notice to the other of such election within 10 days after receipt of the Completion Estimate. Tenant, however, shall not have the right to terminate this Lease if the fire or casualty was caused by the negligence or intentional misconduct of Tenant, Tenant Related Parties or any of Tenant’s transferees, contractors or licensees.

XVIII. Condemnation.

     Either party may terminate this Lease if the whole or any material part of the Premises shall be taken or condemned for any public or quasi-public use under Law, by eminent domain or private purchase in lieu thereof (a “Taking”). Landlord shall also have the right to terminate this Lease if there is a Taking of any portion of the Building or Property which would leave the remainder of the Building unsuitable for use as an office building in a manner comparable to the Building’s use prior to the Taking. In order to exercise its right to terminate the Lease, Landlord or Tenant, as the case may be, must provide written notice of termination to the other within 45 days after the terminating party first receives notice of the Taking. Any such termination shall be effective as of the date the physical taking of the Premises or the portion of the Building or Property occurs. If this Lease is not terminated, the Rentable Square Footage of the Building, the Rentable Square Footage of the Premises and Tenant’s Pro Rata Share shall, if applicable, be appropriately adjusted. In addition, Rent for any portion of the Premises taken or condemned shall be abated during the unexpired Term of this Lease effective when the physical taking of the portion of the Premises occurs. All compensation awarded for a Taking, or sale proceeds, shall be the property of Landlord, any right to receive compensation or proceeds being expressly waived by Tenant. However, Tenant may file a separate claim at its sole cost and expense for Tenant’s Property and Tenant’s reasonable relocation expenses, provided the filing of the claim does not diminish the award which would otherwise be receivable by Landlord.

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XIX. Events of Default.

     Tenant shall be considered to be in default of this Lease upon the occurrence of any of the following events of default:

A. Tenant’s failure to pay when due all or any portion of the Rent, if the failure continues for 5 days after written notice to Tenant (“Monetary Default”).

B. Tenant’s failure (other than a Monetary Default) to comply with any term, provision or covenant of this Lease, if the failure is not cured within 15 days after written notice to Tenant. However, if Tenant’s failure to comply cannot reasonably be cured within 15 days, Tenant shall be allowed additional time (not to exceed 60 days) as is reasonably necessary to cure the failure so long as: (1) Tenant commences to cure the failure within 15 days, and (2) Tenant diligently pursues a course of action that will cure the failure and bring Tenant back into compliance with the Lease. However, if Tenant’s failure to comply creates a hazardous condition, the failure must be cured immediately upon notice to Tenant. In addition, if Landlord provides Tenant with notice of Tenant’s failure to comply with any particular term, provision or covenant of the Lease on 3 occasions during any 12 month period, Tenant’s subsequent violation of such term, provision or covenant shall, at Landlord’s option, be an incurable event of default by Tenant.

C. Tenant or any Guarantor becomes insolvent, makes a transfer in fraud of creditors or makes an assignment for the benefit of creditors, or admits in writing its inability to pay its debts when due.

D. The leasehold estate is taken by process or operation of Law.

E In the case of any ground floor or retail Tenant, Tenant does not take possession of, or abandons or vacates all or any portion of the Premises.

F. Tenant is in default beyond any notice and cure period under any other lease or agreement with Landlord, including, without limitation, any lease or agreement for parking.

XX. Remedies.

A. Upon any default, Landlord shall have the right without notice or demand (except as provided in Article XIX) to pursue any of its rights and remedies at Law or in equity, including any one or more of the following remedies:

1. Terminate this Lease, in which case Tenant shall immediately surrender the Premises to Landlord. If Tenant fails to surrender the Premises, Landlord may, in compliance with applicable Law and without prejudice to any other right or remedy, enter upon and take possession of the Premises and expel and remove Tenant, Tenant’s Property and any party occupying all or any part of the Premises. Tenant shall pay Landlord on demand the amount of all past due Rent and other losses and damages which Landlord may suffer as a result of Tenant’s default, whether by Landlord’s inability to relet the Premises on satisfactory terms or otherwise, including, without limitation, all Costs of Reletting (defined below) and any deficiency that may arise from reletting or the failure to relet the Premises. “Costs of Reletting” shall include all costs and expenses incurred by Landlord in reletting or attempting to relet the Premises, including, without limitation, reasonable legal fees, brokerage commissions, the cost of alterations and the value of other concessions or allowances granted to a new tenant.

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2. Terminate Tenant’s right to possession of the Premises and change the locks, without judicial process, and, in compliance with applicable Law, expel and remove Tenant, Tenant’s Property and any parties occupying all or any part of the Premises. If Landlord terminates Tenant’s possession of the Premises under this Section XX.A.2., Landlord shall have no obligation to post any notice and Landlord shall have no obligation whatsoever to tender to Tenant a key for new locks installed in the Premises. Landlord may (but shall not be obligated to) relet all or any part of the Premises, without notice to Tenant, for a term that may be greater or less than the balance of the Term and on such conditions (which may include concessions, free rent and alterations of the Premises) and for such uses as Landlord in its absolute discretion shall determine. Landlord may collect and receive all rents and other income from the reletting. Tenant shall pay Landlord on demand all past due Rent, all Costs of Reletting and any deficiency arising from the reletting or failure to relet the Premises. Landlord shall not be responsible or liable for the failure to relet all or any part of the Premises or for the failure to collect any Rent. The re-entry or taking of possession of the Premises shall not be construed as an election by Landlord to terminate this Lease unless a written notice of termination is given to Tenant.

3. In lieu of calculating damages under Sections XX.A.1 or XX.A.2 above, Landlord may elect to receive as damages the sum of (a) all Rent accrued through the date of termination of this Lease or Tenant’s right to possession, and (b) an amount equal to the total Rent that Tenant would have been required to pay for the remainder of the Term discounted to present value at the Prime Rate (defined in Section XX.B. below) then in effect, minus the then present fair rental value of the Premises for the remainder of the Term, similarly discounted, after deducting all anticipated Costs of Reletting.

B. Unless expressly provided in this Lease, the repossession or re-entering of all or any part of the Premises shall not relieve Tenant of its liabilities and obligations under the Lease. No right or remedy of Landlord shall be exclusive of any other right or remedy. Each right and remedy shall be cumulative and in addition to any other right and remedy now or subsequently available to Landlord at Law or in equity. If Landlord declares Tenant to be in default, Landlord shall be entitled to receive interest on any unpaid item of Rent at a rate equal to the Prime Rate plus 4%. For purposes hereof, the “Prime Rate” shall be the per annum interest rate publicly announced as its prime or base rate by a federally insured bank selected by Landlord in the state in which the Building is located. Forbearance by Landlord to enforce one or more remedies shall not constitute a waiver of any default.

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XXI. Limitation of Liability.

     NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS LEASE, THE LIABILITY OF LANDLORD (AND OF ANY SUCCESSOR LANDLORD) TO TENANT SHALL BE LIMITED TO THE INTEREST OF LANDLORD IN THE PROPERTY. TENANT SHALL LOOK SOLELY TO LANDLORD’S INTEREST IN THE PROPERTY FOR THE RECOVERY OF ANY JUDGMENT OR AWARD AGAINST LANDLORD. NEITHER LANDLORD NOR ANY LANDLORD RELATED PARTY SHALL BE PERSONALLY LIABLE FOR ANY JUDGMENT OR DEFICIENCY. BEFORE FILING SUIT FOR AN ALLEGED DEFAULT BY LANDLORD, TENANT SHALL GIVE LANDLORD AND THE MORTGAGEE(S) (DEFINED IN ARTICLE XXVI BELOW) WHOM TENANT HAS BEEN NOTIFIED HOLD MORTGAGES (DEFINED IN ARTICLE XXVI BELOW) ON THE PROPERTY, BUILDING OR PREMISES, NOTICE AND REASONABLE TIME TO CURE THE ALLEGED DEFAULT.

XXII. No Waiver.

     Either party’s failure to declare a default immediately upon its occurrence, or delay in taking action for a default shall not constitute a waiver of the default, nor shall it constitute an estoppel. Either party’s failure to enforce its rights for a default shall not constitute a waiver of its rights regarding any subsequent default. Receipt by Landlord of Tenant’s keys to the Premises shall not constitute an acceptance or surrender of the Premises.

XXIII. Quiet Enjoyment.

     Tenant shall, and may peacefully have, hold and enjoy the Premises, subject to the terms of this Lease, provided Tenant pays the Rent and fully performs all of its covenants and agreements. This covenant and all other covenants of Landlord shall be binding upon Landlord and its successors only during its or their respective periods of ownership of the Building, and shall not be a personal covenant of Landlord or the Landlord Related Parties.

XXIV. Relocation.

     Landlord, at its expense, at any time before or during the Term, may relocate Tenant from the Premises to reasonably comparable space (“Relocation Space”) within the Building or adjacent buildings within the same project upon 60 days’ prior written notice to Tenant. From and after the date of the relocation, “Premises” shall refer to the Relocation Space into which Tenant has been moved and the Base Rent and Tenant’s Pro Rata Share shall be adjusted based on the rentable square footage of the Relocation Space. Landlord shall pay Tenant’s reasonable costs for moving Tenant’s furniture and equipment and printing and distributing notices to Tenant’s customers of Tenant’s change of address and one month’s supply of stationery showing the new address. Notwithstanding the foregoing, Landlord shall not be entitled to relocate Tenant under this Section during the last 18 months of the initial Lease Term, and shall not be entitled to relocate Tenant under this Section any more than once during the initial Term, provided Tenant is not in default.

XXV. Holding Over.

     Except for any permitted occupancy by Tenant under Article VIII, if Tenant fails to surrender the Premises at the expiration or earlier termination of this Lease, occupancy of the Premises after the termination or expiration shall be that of a tenancy at sufferance. Tenant’s occupancy of the Premises during the holdover shall be subject to all the terms and provisions of this Lease and Tenant shall pay an amount (on a per month basis without reduction for partial months during the holdover) equal to 150% of the greater of: (1) the sum of the Base Rent and Additional Rent due for the period immediately preceding the holdover; or (2) the fair market gross rental for the Premises as reasonably determined by Landlord. No holdover by Tenant or payment by Tenant after the expiration or early termination of this Lease shall be construed to extend the Term or prevent Landlord from immediate recovery of possession of the Premises by summary proceedings or otherwise. In addition to the payment of the amounts provided above, if Landlord is unable to deliver possession of the Premises to a new tenant, or to perform improvements for a new tenant, as a result of Tenant’s holdover and Tenant fails to vacate the Premises within 15 days after Landlord notifies Tenant of Landlord’s inability to deliver possession, or perform improvements, Tenant shall be liable to Landlord for all damages, including, without limitation, consequential damages, that Landlord suffers from the holdover.

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XXVI. Subordination to Mortgages; Estoppel Certificate.

     Tenant accepts this Lease subject and subordinate to any mortgage(s), deed(s) of trust, ground lease(s) or other lien(s) now or subsequently arising upon the Premises, the Building or the Property, and to renewals, modifications, refinancings and extensions thereof (collectively referred to as a “Mortgage”). The party having the benefit of a Mortgage shall be referred to as a “Mortgagee”. This clause shall be self-operative, but upon request from a Mortgagee, Tenant shall execute a commercially reasonable subordination agreement in favor of the Mortgagee. In lieu of having the Mortgage be superior to this Lease, a Mortgagee shall have the right at any time to subordinate its Mortgage to this Lease. If requested by a successor-in-interest to all or a part of Landlord’s interest in the Lease, Tenant shall, without charge, attorn to the successor-in-interest. Landlord and Tenant shall each, within 10 days after receipt of a written request from the other, execute and deliver an estoppel certificate to those parties as are reasonably requested by the other (including a Mortgagee or prospective purchaser). The estoppel certificate shall include a statement certifying that this Lease is unmodified (except as identified in the estoppel certificate) and in full force and effect, describing the dates to which Rent and other charges have been paid, representing that, to such party’s actual knowledge, there is no default (or stating the nature of the alleged default) and indicating other matters with respect to the Lease that may reasonably be requested. Notwithstanding the foregoing, upon written request by Tenant, Landlord will use reasonable efforts to obtain a non-disturbance, subordination and attornment agreement from Landlord’s then current Mortgagee on such Mortgagee’s then current standard form of agreement. “Reasonable efforts” of Landlord shall not require Landlord to incur any cost, expense or liability to obtain such agreement, it being agreed that Tenant shall be responsible for any fee or review costs charged by the Mortgagee. Upon request of Landlord, Tenant will execute the Mortgagee’s form of non-disturbance, subordination and attornment agreement and return the same to Landlord for execution by the Mortgagee. Landlord’s failure to obtain a non-disturbance, subordination and attornment agreement for Tenant shall have no effect on the rights, obligations and liabilities of Landlord and Tenant or be considered to be a default by Landlord hereunder.

XXVII. Attorneys’ Fees.

     If either party institutes a suit against the other for violation of or to enforce any covenant or condition of this Lease, or if either party intervenes in any suit in which the other is a party to enforce or protect its interest or rights, the prevailing party shall be entitled to all of its costs and expenses, including, without limitation, reasonable attorneys’ fees.

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XXVIII. Notice.

     If a demand, request, approval, consent or notice (collectively referred to as a “notice”) shall or may be given to either party by the other, the notice shall be in writing and delivered by hand or sent by registered or certified mail with return receipt requested, or sent by overnight or same day courier service at the party’s respective Notice Address(es) set forth in Article I, except that if Tenant has vacated the Premises (or if the Notice Address for Tenant is other than the Premises, and Tenant has vacated such address) without providing Landlord a new Notice Address, Landlord may serve notice in any manner described in this Article or in any other manner permitted by Law. Each notice shall be deemed to have been received or given on the earlier to occur of actual delivery or the date on which delivery is refused, or, if Tenant has vacated the Premises or the other Notice Address of Tenant without providing a new Notice Address, three (3) days after notice is deposited in the U.S. mail or with a courier service in the manner described above. Either party may, at any time, change its Notice Address by giving the other party written notice of the new address in the manner described in this Article.

XXIX. Excepted Rights.

     This Lease does not grant any rights to light or air over or about the Building. Landlord excepts and reserves exclusively to itself the use of: (1) roofs, (2) telephone, electrical and janitorial closets, (3) equipment rooms, Building risers or similar areas that are used by Landlord for the provision of Building services, (4) rights to the land and improvements below the floor of the Premises, (5) the improvements and air rights above the Premises, (6) the improvements and air rights outside the demising walls of the Premises, and (7) the areas within the Premises used for the installation of utility lines and other installations serving occupants of the Building. Landlord has the right to change the Building’s name or address. Landlord also has the right to make such other changes to the Property and Building as Landlord deems appropriate, provided the changes do not materially affect Tenant’s ability to use the Premises for the Permitted Use. Landlord shall also have the right (but not the obligation) to temporarily close the Building if Landlord reasonably determines that there is an imminent danger of significant damage to the Building or of personal injury to Landlord’s employees or the occupants of the Building. The circumstances under which Landlord may temporarily close the Building shall include, without limitation, electrical interruptions, hurricanes and civil disturbances. A closure of the Building under such circumstances shall not constitute a constructive eviction nor entitle Tenant to an abatement or reduction of Rent.

XXX. Surrender of Premises.

     At the expiration or earlier termination of this Lease or Tenant’s right of possession, Tenant shall remove Tenant’s Property (defined in Article XV) from the Premises, and quit and surrender the Premises to Landlord, broom clean, and in good order, condition and repair, ordinary wear and tear excepted. Tenant shall also be required to remove the Required Removables in accordance with Article VIII. If Tenant fails to remove any of Tenant’s Property within 2 days after the termination of this Lease or of Tenant’s right to possession, Landlord, at Tenant’s sole cost and expense, shall be entitled (but not obligated) to remove and store Tenant’s Property. Landlord shall not be responsible for the value, preservation or safekeeping of Tenant’s Property. Tenant shall pay Landlord, upon demand, the expenses and storage charges incurred for Tenant’s Property. In addition, if Tenant fails to remove Tenant’s Property from the Premises or storage, as the case may be, within 30 days after written notice, Landlord may deem all or any part of Tenant’s Property to be abandoned, and title to Tenant’s Property shall be deemed to be immediately vested in Landlord.

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XXXI. Miscellaneous.

A. This Lease and the rights and obligations of the parties shall be interpreted, construed and enforced in accordance with the Laws of the state in which the Building is located and Landlord and Tenant hereby irrevocably consent to the jurisdiction and proper venue of such state. If any term or provision of this Lease shall to any extent be invalid or unenforceable, the remainder of this Lease shall not be affected, and each provision of this Lease shall be valid and enforced to the fullest extent permitted by Law. The headings and titles to the Articles and Sections of this Lease are for convenience only and shall have no effect on the interpretation of any part of the Lease.

B. Tenant shall not record this Lease or any memorandum without Landlord’s prior written consent.

C. Landlord and Tenant hereby waive any right to trial by jury in any proceeding based upon a breach of this Lease.

D. Whenever a period of time is prescribed for the taking of an action by Landlord or Tenant, the period of time for the performance of such action shall be extended by the number of days that the performance is actually delayed due to strikes, acts of God, shortages of labor or materials, war, civil disturbances and other causes beyond the reasonable control of the performing party (“Force Majeure”). However, events of Force Majeure shall not extend any period of time for the payment of Rent or other sums payable by either party or any period of time for the written exercise of an option or right by either party.

E. Landlord shall have the right to transfer and assign, in whole or in part, all of its rights and obligations under this Lease and in the Building and/or Property referred to herein, and upon such transfer Landlord shall be released from any further obligations hereunder, and Tenant agrees to look solely to the successor in interest of Landlord for the performance of such obligations.

F. Tenant represents that it has dealt directly with and only with the Broker as a broker in connection with this Lease. Tenant shall indemnify and hold Landlord and the Landlord Related Parties harmless from all claims of any other brokers claiming to have represented Tenant in connection with this Lease. Landlord agrees to indemnify and hold Tenant and the Tenant Related Parties harmless from all claims of any brokers claiming to have represented Landlord in connection with this Lease.

G. Tenant covenants, warrants and represents that: (1) each individual executing, attesting and/or delivering this Lease on behalf of Tenant is authorized to do so on behalf of Tenant; (2) this Lease is binding upon Tenant; and (3) Tenant is duly organized and legally existing in the state of its organization and is qualified to do business in the state in which the Premises are located. If there is more than one Tenant, or if Tenant is comprised of more than one party or entity, the obligations imposed upon Tenant shall be joint and several obligations of all the parties and entities. Notices, payments and agreements given or made by, with or to any one person or entity shall be deemed to have been given or made by, with and to all of them.

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H. Time is of the essence with respect to Tenant’s exercise of any expansion, renewal or extension rights granted to Tenant. This Lease shall create only the relationship of landlord and tenant between the parties, and not a partnership, joint venture or any other relationship. This Lease and the covenants and conditions in this Lease shall inure only to the benefit of and be binding only upon Landlord and Tenant and their permitted successors and assigns.

I. The expiration of the Term, whether by lapse of time or otherwise, shall not relieve either party of any obligations which accrued prior to or which may continue to accrue after the expiration or early termination of this Lease. Without limiting the scope of the prior sentence, it is agreed that Tenant’s obligations under Sections IV.A, IV.B., VIII, XIV, XX, XXV and XXX shall survive the expiration or early termination of this Lease.

J. Landlord has delivered a copy of this Lease to Tenant for Tenant’s review only, and the delivery of it does not constitute an offer to Tenant or an option. This Lease shall not be effective against any party hereto until an original copy of this Lease has been signed by such party.

K. All understandings and agreements previously made between the parties are superseded by this Lease, and neither party is relying upon any warranty, statement or representation not contained in this Lease. This Lease may be modified only by a written agreement signed by Landlord and Tenant.

L. Tenant, within 15 days after request, shall provide Landlord with a current financial statement and such other information as Landlord may reasonably request in order to create a “business profile” of Tenant and determine Tenant’s ability to fulfill its obligations under this Lease. Landlord, however, shall not require Tenant to provide such information unless Landlord is requested to produce the information in connection with a proposed financing or sale of the Building. Upon written request by Tenant, Landlord shall enter into a commercially reasonable confidentiality agreement covering any confidential information that is disclosed by Tenant.

M. TENANT HEREBY WAIVES ALL RIGHTS TO PROTEST THE APPRAISED VALUE OF THE PROPERTY OR TO APPEAL THE SAME AND ALL RIGHTS TO RECEIVE NOTICES OF REAPPRAISALS AS SET FORTH IN SECTIONS 41.413 AND 42.015 OF THE TEXAS TAX CODE.

N. TENANT HEREBY WAIVES ALL ITS RIGHTS UNDER THE TEXAS DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION ACT, SECTION 17.41 ET. SEQ. OF THE TEXAS BUSINESS AND COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF TENANT’S OWN SELECTION, TENANT VOLUNTARILY CONSENTS TO THIS WAIVER.

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XXXII. Entire Agreement.

     This Lease and the following exhibits and attachments constitute the entire agreement between the parties and supersede all prior agreements and understandings related to the Premises, including all lease proposals, letters of intent and other documents: Exhibit A (Outline and Location of Premises), Exhibit B (Rules and Regulations), Exhibit C (Commencement Letter), Exhibit D (Work Letter Agreement) and Exhibit E (Additional Provisions).

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     Landlord and Tenant have executed this Lease as of the day and year first above written.

LANDLORD:

EOP-UNION SQUARE LIMITED PARTNERSHIP, an
Illinois limited partnership

By: EOP-Union Square GP, L.L.C., a Delaware limited liability         company, its general partner

     By: EOP-Franklin Street Limited Partnership, an Illinois             limited partnership, its sole member

          By: EOP-Franklin Street GP, L.L.C., a Delaware limited                  liability company, its general partner

               By: EOP Operating Limited Partnership, a Delaware
                      limited partnership, its sole member

                          By: Equity Office Properties Trust, a
                                 Maryland real estate investment trust,
                                 its general partner


                                By: /s/ BRAD FRICKS
                                ——————————————
                                      Name: Brad Fricks
                                      Title: Vice President - Leasing

TENANT:
BILLING CONCEPTS CORP.,
a Delaware corporation

By: /s/ DAVID P. TUSA
——————————————
Name: David P. Tusa
Title: Senior Vice President & CFO

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EX-10.17

EXHIBIT 10.17

SUBLEASE

     THIS SUBLEASE (“Sublease”) is made as of the 11^th day of February, 2002 by and between Billing Concepts Corp., a Delaware Corporation (“Sublessor”) and CCC Centers, Inc. a Texas Corporation, as sublessee (“Sublessee”).

RECITALS

     A. Pursuant to a certain lease agreement and amendments thereto by and between Sublessor, as tenant, and EOP-Union Square Limited Partnership, an Illinois Limited Partnership, as landlord (“Landlord”), dated as of November 6, 2000 (the “Prime Lease”), Sublessor leased from Landlord certain premises, including, without limitation, 7,662 rentable square feet (Suite 450), (the “Prime Premises”), of that certain building commonly known as Union Square (the “Building”) more particularly described in the Prime Lease and Amendment thereto. A true and complete copy of the Prime Lease and amendments is attached hereto and made a part hereof as Exhibit “A”.

     B. Sublessor desires to sublet to Sublessee and Sublessee desires to sublease from Sublessor the Prime Premises, which is comprised of approximately 2,571 rentable square feet of the Prime Premises included in the Prime Lease, subject to and in accordance with the terms and conditions hereof.

AGREEMENT

     NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties hereto do hereby agree as follows:

     1.  Premises and Term. Sublessor hereby subleases to Sublessee and Sublessee hereby subleases and takes from Sublessor the Prime Premises, which is comprised of approximately 2,571 rentable square feet as more particularly reflected on the floor plan attached hereto as Exhibit “B” and all existing leasehold improvements thereto (the “Sublease Premises”). The term of this Sublease (“Term”) shall commence on the later of 2/1/02 or the date that Landlord shall grant its consent to the Sublease and the space is ready for occupancy (the “Commencement Date”) and shall terminate 1/31/04 (the “Termination Date”), unless earlier termination pursuant to the terms of this Sublease or the Prime Lease.

     2.  Incorporation of Prime Lease. Except as otherwise provided herein, all of the terms and conditions of the Prime Lease with respect to the Sublease Premises are herby incorporated by reference into this Sublease and shall be binding upon the parties hereto. Notwithstanding anything contained in the Prime Lease, Sublessee is not granted hereby an option to extend the term of this Sublease, a right of notice of availability of additional space, parking and signage rights (other than as expressly stated herein), and/or an option to terminate this Sublease. A copy of the Prime Lease is attached as Exhibit A.

     3.  Base Rent. Commencing on the Commencement Date, Sublessee shall pay monthly rent to Sublessor in the amount of $3,642.25 in advance, without demand, set off or deduction, on the first day of each and every calendar month during the Term hereof. Upon the execution hereof, Sublessee shall pay Sublessor $3,642.25 as first month’s rent. Rental payments for partial months, if any, shall be prorated on a daily basis.

     Sublessee agrees to pay to Sublessor, at the same time and in the same manner as Base Rent and other charges due hereunder, all sales and use taxes and excise taxes imposed or levied upon all payments to be made by Sublessee hereunder by the State of Texas, if any, or any other governmental authority having jurisdiction, and any and all taxes assessed upon all of the equipment, furniture, fixtures and personal property located in the Sublease Premises.

     Sublessee shall pay to Sublessor, as additional Base Rent, any increase in Taxes and Operating Costs (as defined in the Prime Lease) at the same times and in the same manner as Sublessor is obligated to make such payments to Landlord pursuant to the Prime Lease in an amount equal to Sublessee’s Proportionate Share (as hereinafter defined) of the amount of Tenant’s Share (as defined in the Prime Lease) of any increase in estimated Common Area Maintenance Charge, Taxes and Operating Costs for each calendar year of the Term hereof over the amount as shown in Exhibit A. “Sublessee’s Proportionate Share” shall mean a fraction, the numerator of which is the net rentable square feet contained in the Sublease Premises, and the denominator of which is the total net rentable square feet being leased by Sublessor pursuant to the Prime Lease.

     All payments of Base Rent and other amounts due hereunder from Sublessee to Sublessor shall be made to Sublessor at the address set forth in Paragraph 25 hereof or such other address as Sublessor shall designate from time to time by written notice to Sublessee. Any Base Rent or other amounts owing by Sublessee to Sublessor and not paid within five (5) days of the date due shall bear interest from the sixth date until the date paid at the rate of eighteen percent (18%) per annum.

     4.  Services. In the event that any additional utilities and/or services are provided by Landlord to Sublessee beyond the times and amounts normally provided by Landlord, such services and/or utilities shall be payable by Sublessee at Landlord’s actual cost and any other amounts charged by Landlord. Sublessor shall not be obligated to provide any services to Sublessee. Sublessee’s sole source of all services is Landlord, pursuant to the Prime Lease. Sublessor makes no representation about the availability and adequacy of such services. As of the date of this Sublease, Sublessor has no agreement with Landlord for after-hours air conditioning. Sublessor shall use commercially reasonable efforts to assist Sublessee in obtaining the services required by the Prime Lease from Landlord.

     5.  Security Deposit. Sublessee, concurrently with Landlord’s consent to this Sublease, shall deposit with Sublessor a Security Deposit in the amount of $3,642.25 to be held by Sublessor without interest, and shall be applied by Sublessor toward the cost of repairing or replacing any equipment damaged or removed from the Sublease Premises and toward repair of damage (other than ordinary wear, tear, damage and condemnation) to the Sublease Premises or for any other liabilities or indebtedness of Sublessee to Sublessor. The deposit is not to be used or applied by Sublessee as a substitute for rent due any month but may be so applied by Sublessor at any time at Sublessor’s option. The use, application, or retention of the Security Deposit, or any portion thereof, by Sublessor shall not prevent Sublessor from exercising any other right or remedy provided by this Sublease, the Prime Lease or by law and shall not operate as a limitation on any recovery to which Sublessor may otherwise be entitled. If the Security Deposit is used, applied, or retained by Sublessor for the purpose set forth above, Sublessee agrees, within ten (10) days after a written demand therefore is made by Sublessor, to deposit cash with the Sublessor in an amount sufficient to restore the Security Deposit to its original amount; however, nothing contained herein shall require Sublessor to make such demand upon Sublessee. The balance of the Security Deposit, if any, will be refunded to Sublessee within thirty (30) days after the end of the lease term and after Sublessee has vacated said Sublease Premises, subject to Sublessee’s satisfactory compliance with the terms and conditions of this Sublease and the Prime Lease.

     6.  Provisions of Prime Lease. Sublessee covenants that, with respect to the Sublease Premises, Sublessee will: (a) at its own cost and expense, promptly perform and observe all of the duties and obligations of the tenant under the Prime Lease that accrue with respect to the Term of the Sublease (other than the amount of rent) as fully as if Sublessee were said tenant; (b) comply with all restrictions and requirements of the Prime Lease applicable to the tenant thereunder; and (c) not do, cause or omit to do any act or thing whereby an event of default will occur under the Prime Lease or which would, after notice or lapse of time, constitute an event of default under the Prime Lease.

     7.  Sublessee’s Use of the Sublease Premises. Sublessee shall use and occupy the Sublease Premise only for general office purposes and for no other use or purpose whatsoever and Sublessee shall not use or permit the Sublease Premises to be used in any way that would violate the terms of the Prime Lease.

     8.  Waiver of Claim and Indemnity. Sublessee hereby releases and waives all claims against Sublessor and Landlord and each of their respective officers, directors, agents and employees for injury or damage to person, property or business sustained in or about the Building or the Sublease Premises by Sublessee or any of its employees, agents, guests or invitees, except in any case which would render this release and waiver void under law. Notwithstanding the foregoing, Sublessee does not release or waive any such claims caused by the gross negligence or willful misconduct of Sublessor, its agents or employees.

     Sublessee will indemnify, defend and save harmless Sublessor and Landlord and each of their officers, directors, agents and employees from and against any and all demands, liabilities, obligations, damages, penalties, claims, costs, charges and expenses, including reasonable attorneys’ fees, which may be imposed upon or incurred by or asserted against Sublessor or Landlord or either of their officers, directors, agents or employees by reason of any act or omission of Sublessee or its agents, officers, employees, guests, contractors, sublessees, licensees, invitees or customers occurring during the Term of this Sublease.

     9.  Sublessee’s Insurance. Sublessee, at Sublessee’s expense, agrees to maintain in force during the Term of this Sublease, with respect to the Sublease Premises, such insurance policies required to be maintained by tenant pursuant to Pages 11-12, Article XV of the Prime Lease. All of such insurance policies shall list the Landlord, Sublessor and such other parties required by such provisions of the Prime Lease, if any, (the “Indemnities”) as additional insureds. Sublessee agrees to look solely to, and to seek recovery only from, its insurance carrier in the event of any such covered loss or damage, notwithstanding that such loss or damage may result from the negligence of Sublessor or of the Indemnities. Sublessee shall use its best efforts to obtain its insurer’s consent to the preceding sentence without thereby invalidating its insurance or affecting its right to proceeds payable thereunder.

     10.  No Warranties. Except as otherwise expressly provided herein, Sublessor does not make any representations or warranties of Landlord under the Prime Lease and does not undertake to perform or observe any of the terms, covenants and conditions on the part of Landlord to be performed or observed. Sublessee is fully familiar with the physical condition of the Sublease Premises, accepts possession of the Sublease Premises in its “as is” condition and agrees that Sublessor shall have no obligation to prepare the same for Sublessee’s occupancy. Except as otherwise provided herein, Sublessor has made no representations of whatever nature in connection with the condition of the Sublease Premises, and Sublessor shall not be liable for any latent or patent defects therein or for any action or inaction by Landlord with respect to the condition of the Sublease Premises or the Building.

     11. Americans with Disabilities Act. Sublessor makes no representations with respect to whether the Sublease Premises are in compliance with the Americans with Disabilities Act (“ADA”). Sublessor hereby disclaims any and all liability associated with ADA compliance in connection with the Sublease Premises.

     12. Alterations. Sublessee shall not make any alterations, improvements, additions, installations or decorations in or to the Sublease Premises, except as expressly permitted by the Prime Lease. In the event that Sublessee shall make any alterations, improvements, additions, installations or decorations which, pursuant to the terms of the Prime Lease or pursuant to any consent of or agreement with Landlord are required to be removed upon the expiration of the Term hereof or of the Prime Lease, Sublessee shall remove the same at its own cost.

     13.  Fire and Casualty. In the event the Sublease Premises shall be destroyed or damaged by fire or other casualty, the following shall be applicable: (a) Landlord, and not Sublessor, shall be responsible for reconstruction if and to the extent required by the Prime Lease; (b) if the Prime Lease is terminated by Landlord or Sublessor as a result of such casualty, this Sublease shall also be terminated as of the same date; and (c) if this Sublease is terminated, Sublessee shall be responsible for all rental and other obligations up to the date of such damage or destruction and all such obligations incurred after the date of such termination shall cease.

     14.  Sublessor’s Performance. The performance by Landlord of its obligations under the Prime Lease shall, for all purposes of this Sublease, be deemed to satisfy all corresponding obligations of Sublessor under this Sublease, and Sublessor’s obligations hereunder with respect to the obligations of Landlord shall be limited to the extent to which Landlord performs its obligations under the Prime Lease.

     15.  Time for Required Action. Whenever any provision of the Prime Lease, which has been incorporated herein by reference, requires the tenant thereunder to take any action within a certain period of time after notice from the Landlord thereunder, then, upon notice from Sublessor to Sublessee, Sublessee shall take such action before the expiration of the period of time set forth in said notice under the Prime Lease; provided however, that in the event of a non-monetary default under the Prime Lease, Sublessee shall cure said default within the earlier of fifteen (15) days from the date of said notice under the Prime Lease or ten (10) days before the expiration of the period of time set forth in said notice.

     16.  Default. Sublessee shall be in default hereunder if (a) Sublessee fails to pay when due any rent or other sum to be paid by Sublessee hereunder; or (b) Sublessee fails to observe and perform any of the other terms, covenants, conditions, and/or rules and regulations of this Sublease or the Prime Lease and such failure continues for ten (10) days after notice (provided, however, if such default is incapable of being cured within ten (10) days, Sublessee shall not be in default if Sublessee has commenced curative action within such ten (10) day period, continues diligently to complete the cure, and actually completes the cure within the period required by the Prime Lease or if no such period is specified in the Prime Lease, then within a reasonable time; or (c) Sublessee abandons or deserts the Sublease Premises without notice to Sublessor and the continued payment of rent; or (d) if Sublessee assigns this Sublease or sub-sublets any portion of the Sublease Premises without the prior written consent of Landlord and Sublessor; or (e) if any petitions shall be filed by or against Sublessee to declare Sublessee bankrupt or to delay, reduce, or modify Sublessee’s debts or obligations or if any petition shall be filed or other action taken to reorganize or modify Sublessee’s capital structure; or (f) if Sublessee admits in writing its inability to pay its debts, or if a receiver, trustee, or other court appointee is appointed for all or a substantial part of Sublessee’s property; or (g) if the leasehold interest of Sublessee is levied upon or attached by process of law; or (h) if Sublessee makes an assignment for the benefit of creditors or takes the benefit of any insolvency act, or if any proceedings are filed by or against Sublessee to declare Sublessee insolvent or unable to meet its debts; or (i) if a receiver or similar type of appointment or court appointee or nominee of any name or character is made for Sublessee or its property.

     In the event of any default by Sublessee, Sublessor may have any one or more of the remedies described in the Prime Lease, in addition to all other rights and remedies available at law or in equity.

     17.  Removal of Sublessee’s Personal Property. Upon the Termination Date of the Sublease Term, Sublessee shall remove from the Sublease Premises all of its personal property and shall peaceably surrender such Sublease Premises and the keys thereto to Sublessor in as good order and condition as when delivered to Sublessee, excepting ordinary wear and tear, repairs required to be made by the Sublessor or Landlord, damage by fire and other unavoidable casualty and damage due to Sublessor or Landlord. Sublessee shall have the right to remove trade fixtures installed and paid for by the Sublessee provided these items can be removed without material damage to the Building or Sublease Premises and provided that any holes or other damage to the Building or Sublease Premises caused by the removal of such items shall be restored or repaired by Sublessee promptly. If Sublessor or Landlord re-enters or retakes possession of the Sublease Premises prior to the normal expiration of this Sublease, Sublessor or Landlord shall have the right, but not the obligation, to remove from the Sublease Premises all personal property located therein belonging to Sublessee, and either party may place the property in storage in a public warehouse at the expense and risk of Sublessee.

     18.  Holding Over. In no event shall Sublessee remain in possession of the Sublease Premises after the Termination Date of the Sublease. In the event that Sublessee remains in possession of the Sublease Premises after the Termination Date, Sublessee shall be subject to hold over charges equal to 150% of the Base Rent, as well as any damages incurred by Sublessor levied by Landlord, under the Prime Lease, applicable to such holdover. In the event Sublessee creates a Hold Over situation for the entire Premises leased by Sublessor, provided Sublessor has vacated its space in accordance with the terms and conditions of the Prime Lease, Sublessee shall be subject to hold over charges at a rate of two hundred percent of the rent stated in the Prime Lease, for the entire Premises leased by Sublessor, for the Hold Over period. In no event shall there by any renewal of this Sublease by operation of law.

     19.  Assignment of Sublease. Sublessee shall not assign this Sublease, or any part hereof, or further sublet all or any part of the Sublease Premises without obtaining the prior written consent of Sublessor and of Landlord. Notwithstanding any such sublease or assignment, Sublessee shall remain fully liable on this Sublease and shall not be released from performing any of the terms, covenants and conditions hereof. Any attempt by Sublessee to assign or sublease all or any part of the Sublease Premises without obtaining such prior written consent or without Sublessee remaining fully liable on this Sublease shall be null and void and shall confer no rights on any third person.

     20. Conflict or Inconsistency. In case of any conflict or inconsistency between the provisions of the Prime Lease and those of this Sublease, the provisions hereof shall, as between the Sublessor and Sublessee, control.

     21. Non-Waiver. Failure of Sublessor to declare any default or delay in taking any action in connection herewith shall not waive such default. No receipt of moneys by Sublessor from Sublessee after the termination in any way of the Term of this Sublease or of Sublessee’s right of possession hereunder or after the giving of any notice shall reinstate, continue or extend the Term of this Sublease or affect any notice given to Sublessee or any suit commenced or judgment entered prior to receipt of such moneys.

     22. Cumulative Rights and Remedies. All rights and remedies of Sublessor under this Sublease shall be cumulative and none shall exclude any other rights or remedies allowed by law.

     23.  Brokerage. Sublessee and Sublessor represent and warrant to each other that they each have not dealt or consulted with any real estate broker or agent in connection with this Sublease, other than Grubb & Ellis and Providence Commercial (“Brokers”), and agree to indemnify and hold each other harmless from and against any claims by any other real estate broker or agent claiming a commission or other form of compensation by virtue of having dealt with them with regard to this leasing transaction.

     24.  Attorneys’ Fees. In connection with any litigation arising out of this Sublease, the prevailing party shall be entitled to recover all costs incurred, including reasonable attorneys’ fees, which include, without limitation, those reasonable attorneys’ fees incurred by such prevailing party for the services of its attorneys through all trial and appellate levels and post-judgment proceedings.

     25.  Notices. All notices, demands, approvals, consents, requests for approval or consents or other writings required in this Sublease or in the Prime Lease to be given, made or sent by either party hereto to the other (“Notice”) shall be in writing and shall be deemed to have been fully given, made or sent when made by personal service or deposited in the United States Mail, certified or registered, and postage prepaid and properly addressed as follows:

To Sublessor: New Century Equity Holdings Corp.
10101 Reunion Place Suite 450
San Antonio, Texas 78216
Attn: David Tusa

To Sublessee: CCC Centers, Inc.
10101 Reunion Place Suite 440
San Antonio, Texas 78216
Attn: Bryan Asvestas

     The address to which any Notice should be given, made or sent to either party may be changed by written notice given by such party as above provided.

     26. Parking. As specified in Exhibit E of the Prime Lease, Sublessor shall make available to Sublessee eight (8) non-reserved parking spaces in, or on the roof of, the building garage for the term of this sublease. These non-reserved spaces shall be made available to the Sublessee at no charge for the term of the sublease.

     27.  Entire Agreement. This Sublease and the Consent and Exhibits A-D, attached hereto and forming a part hereof, set forth all of the covenants, promises, agreements, conditions and understandings between Sublessor and Sublessee concerning the Sublease Premises and there are no covenants, promises, agreements, conditions or understandings, either oral or written, between them other than as are herein set forth. Except as herein otherwise provided, no subsequent alteration, amendment, change or addition to this Sublease shall be binding upon Sublessor or Sublessee unless reduced to writing and signed by each of them.

     IN WITNESS WHEREOF, the parties hereto have caused this Sublease to be duly executed and delivered as of the day and year first above written.

SUBLESSOR:
BILLING CONCEPTS CORP.

Signature: /s/ DAVID P. TUSA
——————————————
By: David P. Tusa
——————————————
Its: Executive VP & CFO
—————————————— SUBLESSEE:
CCC CENTERS, INC.

Signature: /s/ BRYAN ALLEN ASVESTAS
——————————————————
By: Bryan Allen Asvestas
——————————————————
Its: CEO
——————————————————

EX-21.1

EXHIBIT 21.1

LIST OF SUBSIDIARIES

     The following is a list of all subsidiaries of the Company, jurisdiction of incorporation or organization and the percentage of shares owned, directly or indirectly, by the Company, as of December 31, 2001.

Name	State or Other Jurisdiction of Incorporation	Percentage of Shares Owned
Princeton eCom Corporation	Delaware	57.4	%
Tanisys Technology, Inc.	Wyoming	35.2	%
Coreintellect, Inc.	Texas	22.0	%
Microbilt Corporation	Delaware	9.0	%
Sharps Compliance Corp.	Delaware	7.1	%

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

     As independent public accountants, we hereby consent to the incorporation of our report on New Century Equity Holdings Corp. (the Company) included in this Form 10-K, into the Company’s previously filed Registration Statements (SEC File No. 333-08249, 333-08251, 333-08257, 333-08303, 333-11492, 333-30854, 333-30856, 333-30926, 333-36785, 333-37420, 333-55316, 333-64325, 333-66903, 333-70947 and 333-70951).

/s/ ARTHUR ANDERSEN LLP

San Antonio, Texas
April 11, 2002

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

     As independent public accountants, we hereby consent to the incorporation of our report dated October 30, 2001, on the consolidated financial statements of Tanisys Technology, Inc. as of September 30, 2001 and 2000, and for the years ended September 30, 2001, 2000 and 1999, included in Tanisys Technology, Inc.’s Form 10-K/A file number 0-29038, into this Form 10-K for New Century Equity Holdings Corp. for the fiscal year ended December 31, 2001 and into New Century Equity Holdings Corp.’s previously filed Registration Statements (SEC File No. 333-08249, 333-08251, 333-08257, 333-08303, 333-11492, 333-30854, 333-30856, 333-30926, 333-36785, 333-37420, 333-55316, 333-64325, 333-66903, 333-70947 and 333-70951).

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

Austin, Texas
April 11, 2002

EX-99.1

EXHIBIT 99.1

April 11, 2002

Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549

VIA EDGAR

Dear Sir or Madam:

     In accordance with Temporary Note 3T to Article 3 of Regulation S-X, the Company has received from Arthur Andersen LLP, the Company’s independent auditors, a letter indicating their audit was subject to their quality control system for the United States accounting and auditing practice to provide reasonable assurance that the audit engagement was conducted in compliance with professional standards, there was appropriate continuity of Arthur Andersen personnel working on the audit, there was availability of national office consultation and the availability of personnel at foreign affiliates of Arthur Andersen to conduct the relevant portions of the audit. These representations were obtained in conjunction with Arthur Andersen’s consent filed today as Exhibit 23.1 to the Form 10-K of the Company.

Sincerely,

/s/ DAVID P. TUSA

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

EX-99.2

EXHIBIT 99.2

Princeton eCom Corporation and Subsidiaries

Consolidated financial statements
As of December 31, 2001
Together with auditors’ report

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 .

Philadelphia, Pennsylvania
March 28, 2002

Princeton eCom Corporation and Subsidiaries

Table of contents

Consolidated balance sheets
As of December 31, 2000 and 2001	1
Consolidated statements of operations
For the years ended December 31, 1999, 2000 and 2001	2
Consolidated statements of stockholders’ equity (deficit)
For the years ended December 31, 1999, 2000 and 2001	3
Consolidated statements of cash flows
For the years ended December 31, 1999, 2000 and 2001	4
Notes to consolidated financial statements
December 31, 2001	5

Princeton eCom Corporation and Subsidiaries

Consolidated balance sheets
As of December 31, 2000 and 2001

	2000		2001
Assets
Current assets:
Consumer deposits-
Cash	$8,201,841		$4,113,722
Receivables from billers	1,346,278		2,168,617
Total consumer deposits	9,548,119		6,282,339
Cash and cash equivalents	16,102,840		2,800,757
Accounts receivable, net of allowance of $110,625
and $194,919	3,731,764		5,086,926
Cash held in reserve at a third-party	—		431,374
Prepaid expenses and other	1,458,803		870,356
Total current assets	30,841,526		15,471,752
Property and equipment, net	12,772,229		16,403,284
Restricted cash	—		3,441,590
Other assets, net	435,450		447,920
Software license	865,385		—
	$44,914,590		$35,764,546
Liabilities and stockholders’ deficit
Current liabilities:
Consumer deposits payable	$9,548,119		$6,282,339
Service fees payable	1,687,015		1,497,102
Current debt obligations	15,793		1,349,685
Accounts payable	3,487,793		3,834,537
Accrued expenses	2,249,445		10,084,221
Deferred revenue	136,523		348,507
Total current liabilities	17,124,688		23,396,391
Deferred revenue	627,988		744,320
Other liabilities	310,960		475,569
Total liabilities	18,063,636		24,616,280
Series A-1 mandatorily redeemable convertible preferred
stock (liquidation value of $13,042,470)	—		12,102,981
Series A mandatorily redeemable convertible preferred
stock	24,004,409		—
Series B mandatorily redeemable convertible preferred
stock	2,558,416		—
Series C mandatorily redeemable convertible preferred
stock	33,971,002		—
Commitments and contingencies (Note 10)
Stockholders’ deficit:
Common stock, $.01 par value, 100,000,000 shares authorized,
2,286,746 and 29,784,636 shares issued
and outstanding	22,867		297,846
Additional paid-in capital	30,525,274		151,049,986
Common stock warrants	4,832,949		971,528
Accumulated deficit	(67,549,007	)	(153,238,442	)
Deferred compensation	(1,514,956	)	(35,633	)
Total stockholders’ deficit	(33,682,873	)	(954,715	)
	$44,914,590		$35,764,546

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

1

Princeton eCom Corporation and Subsidiaries

Consolidated statements of operations
For the years ended December 31, 1999, 2000 and 2001

	1999		2000		2001
Revenues:
Payment and presentment
transactions	$3,686,663		$9,494,496		$16,149,283
Implementation and other
professional services	158,000		1,265,916		3,396,882
Interest	1,465,857		2,301,672		1,986,358
Total revenues	5,310,520		13,062,084		21,532,523
Operating expenses:
Cost of services:
Cost of payment and
presentment transactions	3,537,914		8,527,720		12,904,631
Cost of implementation and
other professional services	151,680		1,947,497		4,359,993
Development costs	3,393,865		3,485,268		8,981,954
Selling, general and
administrative:
Other selling, general and
administrative	8,536,788		22,982,067		34,473,872
Financing related costs	970,038		1,316,815		400,000
Noncash commissions related to
warrants	—		2,718,518		56,807
Restructuring and asset
impairment charges	—		—		23,890,929
Amortization of deferred
compensation	1,285,792		2,201,701		652,409
Total operating expenses	17,876,077		43,179,586		85,720,595
Operating loss	(12,565,557	)	(30,117,502	)	(64,188,072	)
Interest income	—		(528,369	)	(444,736	)
Interest expense	9,510		110,097		3,562,120
Amortization of original issuance
discount	—		323,462		2,267,518
Net loss	(12,575,067	)	(30,022,692	)	(69,572,974	)
Accretion of preferred stock	—		100,227		167,743
Preferred stock dividends	—		1,020,000		2,649,407
Issuance of warrants treated as a
dividend	—		—		5,303,935
Beneficial conversion feature
treated as a dividend	—		12,937,192		7,995,376
Net loss applicable to common
stockholders	$(12,575,067	)	$(44,080,111	)	$(85,689,435	)
Basic and diluted net loss
applicable to common stockholders
per share	$(5.77	)	$(19.67	)	$(24.41	)
Shares used in computing, basic and
diluted net loss applicable to
common stockholders per share	2,181,071		2,241,298		3,509,910

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

2

Princeton eCom Corporation and Subsidiaries

Consolidated statements of stockholders’ equity (deficit)
For the years ended December  31, 1999 , 2000 and 2001

	Common Stock						Common Stock Warrants
	Shares		Amount		Additional paid-in capital		Shares		Amount		Accumulated deficit		Subscriptions receivable		Deferred compensation		Total
Balance, December 31, 1998	2,147,734		$   21,477		$   12,283,902		—		$             —		$(10,893,829	)	$(266,507	)	$  (866,756	)	$      278,287
Sale of common stock	25,954		260		538,588		—		—		—		—		—		538,848
Exercise of stock options	21,246		212		3,455		—		—		—		—		—		3,667
Deferred compensation    resulting from grant of options	—		—		1,819,467		—		—		—		—		(1,819,467	)	—
Compensation resulting from nonemployee    option grants	—		—		307,694		—		—		—		—		—		307,694
Compensation resulting from options    granted in connection with terminated
employee	—		—		567,750		—		—		—		—		—		567,750
Sale of common stock by majority    stockholder	—		—		400,000		—		—		—		—		—		400,000
Amortization of deferred compensation, net    of forfeitures	—		—		(123,250	)	—		—		—		—		1,409,042		1,285,792
Repayment of subscription receivable	—		—		—		—		—		—		171,804		—		171,804
Net loss	—		—		—		—		—		(12,575,067	)	—		—		(12,575,067	)
Balance, December 31, 1999	2,194,934		21,949		15,797,606		—		—		(23,468,896	)	(94,703	)	(1,277,181	)	(9,021,225	)
Sale of common stock	28,971		290		974,710		—		—		—		—		—		975,000
Exercise of stock options	62,838		628		34,300		—		—		—		—		—		34,928
Compensation resulting from nonemployee    option grants	—		—		132,959		—		—		—		—		—		132,959
Deferred compensation resulting from grant    of options	—		—		2,439,476		—		—		—		—		(2,439,476	)	—
Amortization of deferred compensation	—		—		—		—		—		—		—		2,201,701		2,201,701
Issuance of common stock warrant	—		—		—		96,574		2,114,431		—		—		—		2,114,431
Noncash commissions relating to warrants	—		—		—		116,837		2,718,518		—		—		—		2,718,518
Accretion of preferred stock redemption    value	—		—		—		—		—		(100,227	)	—		—		(100,227	)
Cumulative preferred stock dividends	—		—		—		—		—		(1,020,000	)	—		—		(1,020,000	)
Beneficial conversion feature on preferred    stock	—		—		11,146,223		—		—		—		—		—		11,146,223
Beneficial conversion feature treated as a    dividend	—		—		—		—		—		(12,937,192	)	—		—		(12,937,192	)
Repayment of subscription receivable	—		—		—		—		—		—		94,703		—		94,703
Net loss	—		—		—		—		—		(30,022,692	)	—		—		(30,022,692	)
Balance, December 31, 2000	2,286,743		22,867		30,525,274		213,411		4,832,949		(67,549,007	)	—		(1,514,956	)	(33,682,873	)
Exercise of stock options and warrants	36,967		370		255,250		(34,504	)	(253,451	)	—		—		—		2,169
Compensation expense resulting from    option modification	—		—		343,189		—		—		—		—		—		343,189
Amortization of deferred compensation, net    of forfeitures	—		—		(826,914	)	—		—		—		—		1,479,323		652,409
Issuance of common stock warrants to    Series C holders	—		—		—		1,194,252		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 business    acquisition	—		—		13,014,925		—		—		—		—		—		13,014,925
Non-cash interest related to warrants	—		—		—		125,000		56,807		—		—		—		56,807
Conversion of preferred stock and    dividends into common stock	3,770,470		37,704		64,020,533		—		—		—		—		—		64,058,237
Conversion of note payable and accrued    interest into common stock	24,525,000		245,250		24,279,750		—		—		—		—		—		24,525,000
Surrender of common stock	(834,544	)	(8,345	)	8,345		—		—		—		—		—		—
Surrender of common stock warrants	—		—		9,166,740		(1,277,828	)	(9,166,740	)	—		—		—		—
Surrender of warrants to purchase Series C	—		—		2,267,518		—		—		—		—		—		2,267,518
Issuance of warrants in connection with    contract settlement	—		—		—		250,000		198,028		—		—		—		198,028
Net loss	—		—		—		—		—		(69,572,974	)	—		—		(69,572,974	)
Balance, December 31, 2001	29,784,636		$ 297,846		$ 151,049,986		470,331		$    971,528		$(153,238,442	)	$          —		$   (35,633	)	$    (954,715	)

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

3

Princeton eCom Corporation and Subsidiaries

Consolidated statements of cash flows
For the years ended December  31, 1999 , 2000 and 2001

	1999		2000		2001
Operating activities:
Net loss	$(12,575,067	)	$(30,022,692	)	$(69,572,974	)
Adjustments to reconcile net
loss to net cash used in
operating activities-
Depreciation and amortization	547,933		2,408,835		7,512,453
Asset impairment change	—		—		16,106,889
Warrants to be issued in
connection with restructuring	—		—		198,028
Non-cash interest on bridge
notes	—		—		3,525,000
Non-cash compensation expense	875,444		132,959		343,189
Amortization of lease guaranty	—		40,000		40,000
Amortization of original
issuance discount	—		323,462		2,267,518
Amortization of deferred
compensation, net	1,285,792		2,201,701		652,409
Noncash commissions relating
to warrants	—		2,718,518		56,807
Provision for bad debts	34,317		51,000		84,294
Compensation expense related
to note receivable forgiveness	—		—		750,000
Loss on disposal of assets	11,195		80,380		—
Changes in operating assets
and liabilities-
Consumer deposits	(3,570,087	)	1,474,001		3,265,780
Accounts receivable	(643,704	)	(2,535,774	)	(1,439,456	)
Prepaid expenses and other
assets	621,024		(633,317	)	535,977
Customer deposits payable	3,570,087		(1,474,001	)	(3,265,780	)
Service fees payable	—		1,687,015		(189,913	)
Deferred revenue	—		764,511		328,316
Accounts payable	1,163,044		1,822,099		346,744
Accrued expenses	1,255,275		558,257		7,734,776
Other liabilities	(11,397	)	125,946		164,609
Net cash used in operating activities	(7,436,144	)	(20,277,100	)	(30,555,334	)
Investing activities:
Purchases of property and
equipment	(8,254,844	)	(6,608,971	)	(17,592,087	)
Purchase of software license	—		(1,000,000	)	(1,950,000	)
Business acquisition, net of
cash acquired	—		—		6,172,000
Restricted cash	—		—		(3,872,964	)
Net cash used in investing activities	(8,254,844	)	(7,608,971	)	(17,243,051	)
Financing activities:
(Decrease)/increase in bank
overdraft	15,006,110		(16,495,499	)	—
Proceeds from convertible note
and warrant	—		5,000,000		25,600,000
Proceeds from sale of preferred
stock, net	—		54,413,600		7,560,241
Advances under accounts
receivable funding	—		—		1,349,685
Payments on capital leases	(29,441	)	(33,821	)	(15,793	)
Proceeds from sale of common
stock	538,848		975,000		—
Proceeds from repayment of
subscription receivable	171,804		94,703		—
Proceeds from exercise of stock
options and warrants	3,667		34,928		2,169
Net cash provided by financing activities	15,690,988		43,988,911		34,496,302
Net increase (decrease) in cash and cash equivalents	—		16,102,840		(13,302,083	)
Cash and cash equivalents, beginning of year	—		—		16,102,840
Cash and cash equivalents, end of year	$               —		$ 16,102,840		$   2,800,757

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

4

Princeton eCom Corporation and Subsidiaries

Notes to consolidated financial statements
December 31, 2001

1. Background, liquidity and basis of presentation:

On January 25, 1984, Princeton eCom Corporation (the Company) was incorporated in the State of Delaware as Princeton TeleCom Corporation. In March 1999, the Company changed its name to Princeton eCom Corporation. The Company, which operates in one business segment, is a provider of comprehensive electronic bill presentment and payment services to financial institutions and large businesses who generate a significant number of recurring bills. The Company’s current customers consist primarily of financial institutions, utilities, telephone companies, cable companies, credit card companies, mortgage companies and an international package delivery company (billers).

The Company has incurred significant operating losses and expects to incur operating losses into 2002. As of December 31, 2001, the Company had an accumulated deficit of $153,238,442 and during 2001 the Company incurred a net loss of $69,572,974. Since its inception, the Company has incurred costs to develop and enhance its technology, establish marketing and customer relationships and build its capital infrastructure and administrative organization. Management believes that additional financing will be required for the Company to fund its operations and continue to execute its strategy. In January and February 2002, the Company received proceeds of $2,500,000 from the sale of Series A-1 mandatorily redeemable convertible preferred stock (Series A-1). Additionally, the Company received an unconditional commitment from its investors to provide additional proceeds of $8.5 million in 2002. Management believes that its current cash and cash equivalents, proceeds received from the sale of Series A-1 and the capital available under the investor commitment will be sufficient to fund its operations through March 31, 2003.

To the extent that significant increased revenues are not realized, the Company’s business, results of operations and financial condition will be materially and adversely affected. In addition, the Company’s business model is unproven and evolving and could be subject to possible changing governmental regulations (see Note 9). The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

2. Significant accounting policies:

Principles of consolidation

The accompanying consolidated financial statements include the accounts of Princeton eCom Corporation and its subsidiaries. All material intercompany balances and transactions have been eliminated.

5

Use of estimates

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

Revenue recognition

Payment and presentment fee revenues primarily consist of transaction fees charged to billers and financial institutions based on contractual rates. Transaction fees are recognized as the services are performed. Professional service fees consist of professional consulting services provided to customers on a time and materials basis. Revenues from professional consulting services are recognized as the services are performed. Fees earned for implementation services are deferred and recognized as revenue over the term of the ongoing transaction service period. Interest on the overnight investment of funds received from consumers pending payment processing is recorded as revenue as earned.

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. As of December 31, 2000 and 2001, the Company had $17,670,572 and $3,194,828 of cash equivalents, respectively.

Property and equipment

Property and equipment are recorded at cost. Property and equipment capitalized under capital leases are recorded at the present value of the minimum lease payments due over the term of the lease. Depreciation and amortization are provided using the straight-line method over the estimated useful lives or the lease term, whichever is shorter. 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.

Impairment of property and equipment

The Company follows 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 requires 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 an 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.

6

In accordance with SFAS No. 121, based upon a review of the Company’s long-lived assets in December 2001, the Company recorded a noncash impairment charged of $3,137,610 related to the write-down of a portion of the asset value of the Company’s property and equipment (see Note 3). An 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 percent. Management believes this provision will be adequate to cover any future losses incurred relating to these assets. However, actual losses could vary significantly from these estimates.

Restricted cash

Restricted cash relates to outstanding letters of credit required by certain operating lease agreements.

Other assets

Other assets primarily consists of prepaid lease guarantee and deposits. In December 1999, the Company entered into a lease for their primary operating facility. In order to induce an existing shareholder, New Century Equity Holdings Corp., (NCEH) to guarantee the lease, the Company’s then Chief Executive Officer sold NCEH 28,972 shares of Common stock from his personal account at $27.60 per share, which was below the then estimated fair market value of $41.41 per share. The in-the-money value of the common stock sold to NCEH of approximately $400,000 has been 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. In 2000 and 2001, the Company recognized $40,000 and $40,000, respectively, of rent expense related to this deferred asset. The guaranty will automatically terminate upon an initial public offering, as defined, at which time any unamortized balance will be recognized as a charge to operations.

Software license

On October 19, 1999, the Company entered into an agreement with Bottomline Technologies, Inc. (Bottomline) pursuant to which the Company agreed to purchase a five-year license to certain Bottomline software products. The Bottomline agreement became effective in April 2000 when the Company took possession of the license and paid Bottomline a $1,000,000 nonrefundable license fee. In accordance with Statement of Position (SOP) 98-1 “Accounting for costs of Computer Software Developed or Obtained for Internal Use,” the Company capitalized the license into fixed assets. Amortization of the license fee was $134,615 and $173,077 for the years ended December 31, 2000 and 2001. (see Note 3).

7

Consumer deposits

Consumer deposits represent assets held on behalf of consumers for the satisfaction of payment processing. Receivables from billers are created when payment processing has been completed and funds are subsequently drawn from consumer deposit accounts by the consumer’s financial institutions. 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.

Deferred rent

Rent expense on leases is recorded on a straight-line basis over the lease period. The excess of rent expense over the actual cash paid is recorded as deferred rent.

Development costs

Research and development costs are charged to expense as incurred.

Advertising and marketing expense

The Company charges to expense advertising and marketing costs as incurred. Advertising and marketing expense was $457,346, $1,266,903, and $3,663,696 for the years ended December 31, 1999, 2000, and 2001, respectively.

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.

Restatement of certificate of incorporation and stock split

In December 2001, the Company declared the following reverse stock split on common stock. Also, in December 2001, the Company’s Certificate of Incorporation was amended to authorize 25,000,000 shares of preferred stock and 100,000,000 shares of common stock. The increase in authorized capital stock and the reverse stock split have been retroactively reflected in the consolidated financial statements.

Stock compensation

The Company has elected to follow Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its employee stock options. Under APB No. 25, if the exercise price of the Company’s employee stock options equals or exceeds the market price of the underlying stock on the date of the grant, no compensation expense is recognized. If the exercise price of an option is below the market price of the underlying stock on the date of grant, compensation cost is recorded and is recognized in the statements of operations over the vesting period (see Note 8). In 1995, the Financial Accounting Standards Board issued SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123 established a fair value based method of accounting for stock-based compensation plans. SFAS No. 123 requires that a company’s financial statements include certain disclosures about stock-based employee compensation arrangement regardless of the method used to account for the plan.

8

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, shares issuable to Intuit, Inc. (see Note 3), and convertible preferred stock, which would result in the issuance of additional shares of common stock. For each of the three years in the period ended December 31, 2001, the impact of stock options, warrants to acquire common stock shares issuable to Intuit, Inc. and the conversion of mandatorily convertible preferred stock was not considered as the effect on net loss per share would be anti-dilutive.

Fair value of financial instruments

The Company’s financial instruments consist of consumer deposits, cash and cash equivalents, accounts receivable, prepaid expenses and other, consumer deposits payable, accounts payable, accrued expenses and deferred revenue. Management believes the carrying value of these assets and liabilities are representative of their fair value due to the relatively short-term nature of those instruments.

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. The only comprehensive loss item for the years ended December 31, 1999, 2000 and 2001, was net loss.

Supplemental cash flow information

For the years ended December 31, 1999, 2000 and 2001, the Company paid interest of $9,510, $5,929 and $116,289, respectively.

Reclassification

Certain items in the prior year financial statements were reclassified to conform to the 2001 financial statement presentation.

9

Recent accounting pronouncements

In July 2001, the FASB issued SFAS No. 141 “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting, and broadens the criteria for recording intangible assets separate from goodwill. Recorded goodwill and intangibles will be evaluated against this new criteria and may result in certain intangibles being subsumed into goodwill, or alternatively, amounts initially recorded as goodwill may be separately identified and recognized apart from goodwill. SFAS No. 142 requires the use of a nonamortization approach to account for purchased goodwill and certain intangibles. Under a nonamortization approach goodwill and certain intangibles will not be amortized into results of operations, but instead would be reviewed for impairment and written down and charged to results of operations only in the periods in which the recorded value of goodwill and certain intangibles is more than its fair value. The provisions of each statement which apply to goodwill and intangible assets acquired prior to June 30, 2001 was adopted by the Company on January 1, 2002. The adoption of these accounting standards will not have a material effect on the Company’s consolidated financial position or results of operations.

In August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations,” which is effective for fiscal year beginning after June 15, 2002. SFAS No. 143 addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets and retirement of assets. Management does not expect that the adoption of SFAS No. 143 will have a significant impact on the consolidated financial position and results of operations.

In August 2001, the FASB issued SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144). SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. SFAS No. 144 supersedes SFAS No. 121 and APB Opinion No. 30 “Reporting the Results of Operations and Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transitions.” SFAS No. 144 requires that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and broadens the presentation of discontinued operations. Management does not expect that the adoption of this accounting standard will have a material effect on the Company’s consolidated financial position or results of operations.

3. Business acquisition, asset impairments, and restructuring charges:

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 payment. 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 2,285,279 shares of Common Stock to be issued in the future. The Company determined that the fair value of its Common Stock on May 15, 2001 was approximately $5.70 per share. 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	$13,542,925
Purchase price allocation:
Cash	6,700,000
Property and equipment	997,000
Acquired technology	5,845,925
	$13,542,925

10

The 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 other selling, general, and administrative expense in accompanying consolidated statements of operation.

The following unaudited pro forma operating results have been presented assuming the acquisition occurred on January 1, 2000. 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, 2000 or of results which may occur in the future.

	Year ended December 31
	2000		2001
Revenues	$ 13,069,369		$ 21,557,064
Loss from operations	(61,735,138	)	(78,279,903	)
Net loss per share	(33.40	)	(26.91	)

During 2001, the Company recorded Restructuring and Asset Impairment charges as follows:

Acquired technology impairment	$  5,384,981
VFSC-related fixed assets impairment	5,288,657
Other fixed assets impairment (see Note 2)	3,137,610
Other assets impairment	2,295,641
Restructuring charge	7,784,040
	$23,890,929

11

VFSC 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 continuously evaluates whether later events and circumstances have occurred that indicate that the remaining useful life of its long-lived assets may warrant revision or that the remaining balance may not be 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.

The expected undiscounted cash flows directly related to the VFSC assets was 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. The following table displays the components of the VFSC asset impairment charges recorded of the Company:

Acquired technology	$  5,384,981
Fixed assets	5,288,657
	$10,673,638

In December 2001, the Company decided to exit the VFSC business. The Company terminated 28 employees and 6 subcontractors in December 2001 (see Restructuring charge 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.

12

Other asset impairment

As discussed in Note 2, 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.

During 2001, the Company entered into a software license agreement that required upfront payments of $1,950,000. These payments were capitalized into fixed assets in accordance with SOP 98-1. 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 a restructuring charge of $7,784,040 in December 2001. 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 expects to complete the restructuring program by March 31, 2002. There can be no assurance that management will be successful in implementing the restructuring plan or that the Company will not have further restructurings or be profitable in the future. In accordance with Emerging Issues Task Force No. 94-3 “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity,” the components of the restructuring charge is as follows:

Employee separations	$4,126,339
Contract settlements	3,241,616
Facility closings	416,085
	$7,784,040

13

The Company recorded charges during 2001 associated with voluntary and involuntary employee separations totaling approximately 164 employees. Included in the employee separation charge is the noncash 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. Approximately 88 percent of the contract settlements relate to buyouts of real estate lease agreements.

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 250,000 shares of the Company’s common stock at $0.01 per share. The Company recorded restructuring charges of $198,028 in the accompanying consolidated statement of operations in relation to the granting of warrants. The costs of the buyout of real estate lease agreements are included in contract settlements.

4. Property and equipment:

		December 31
	Useful lives	2000		2001
Computer and telephone equipment
and software	3-5 years	$ 13,373,675		$ 22,346,016
Furniture and fixtures	5 years	1,137,550		1,122,193
Leasehold improvements	Lease term	1,420,165		1,293,383
		15,931,390		24,761,592
Less-Accumulated
depreciation and amortization		(3,159,161	)	(8,358,308	)
		$ 12,772,229		$ 16,403,284

Depreciation and amortization expense for the years ended December 31, 1999, 2000 and 2001, was $547,933, $2,274,220 and $6,531,765, respectively. As of December 31, 2000 and 2001, the Company had property and equipment under capitalized lease obligations of $134,069, net of accumulated amortization of $118,276 and $134,069, respectively.

5. Accrued expenses:

Other accrual liabilities consist of the following:

	December 31
	2000	2001
Accrued restructuring	$              —	$  5,060,722
Accrued software license	—	2,085,000
Other	2,249,445	2,938,499
	$  2,249,445	$10,084,221

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6. Current debt obligations:

On September 4, 2001, the Company entered into an accounts receivable funding agreement (funding agreement) with a financial institution. The funding agreement allows the Company to sell accounts receivable to the financial institution. The Company receives an advance of 80 percent of the accounts receivable balance sold. The accounts receivable balance is sold with full recourse. The Company is subject to a 12 percent annual interest rate on all funds received while the sold accounts receivable remains outstanding. The 20 percent that is held back by the financial institution has been classified as cash held in reserve at a third-party on the accompanying consolidated balance sheet as of December 31, 2001. As the accounts receivable are sold with full recourse, the Company has accounted for the funds received as a current debt obligation of $1,349,685 in the accompanying consolidated balance sheet as of December 31, 2001.

In connection with the funding agreement, the financing 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. The Company recorded noncash commissions related to warrants of $56,807 relating to the grant of the warrants in the accompanying consolidated statement of operations.

7. Bridge note, warrant, and mandatorily redeemable convertible preferred stock:

Accounting for bridge note and warrant

On November 13, 2001, the Company issued a $3,100,000 bridge note to NCEH, the Company’s CEO and one other investor. The bridge note was convertible into a subsequent series of mandatorily redeemable preferred stock at the offering price of a subsequent closing of mandatorily redeemable preferred stock. The bridge note bore interest at 15 percent and the principal was due on November 13, 2002. The bridge note also bore a prepayment penalty of 50 percent. On December 14, 2001, in connection with the sale of Series A-1, the principal amount of the notes held by NCEH and one other investor ($3,000,000) and the prepayment penalty ($1,500,000) totaling $4,500,000 was converted into common stock. The note payable to the Company’s CEO ($100,000) plus accrued interest ($25,000) was unpaid and included in accrued expenses as of December 31, 2001.

On April 12, 2001, the Company issued a $22,500,000 bridge note to NCEH and other investors. The bridge note was convertible into a subsequent series of mandatorily redeemable preferred stock at the offering price of a subsequent closing of mandatorily redeemable preferred stock. The bridge note bore interest at 12 percent prior to the due date of September 15, 2001 and 18 percent thereafter. In connection with the bridge note, the note holders were issued warrants to purchase 3,251,445 shares of Series C mandatorily redeemable preferred stock (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 percent. 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.

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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. On December 14, 2001, in connection with the close of Series A-1 mandatorily redeemable preferred stock, the principal amount of the note and coupon interest was converted into common stock and the warrants were cancelled.

Also, in connection with the April 12, 2001 bridge notes, 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 preferred stock by September 15, 2001. The Company did not account for the additional warrants on the commitment date as management determined that a subsequent series of mandatorily redeemable preferred stock would be completed prior to September 15, 2001. However, due to unfavorable market conditions, the subsequent series of mandatorily redeemable preferred stock did not occur until December 14, 2001. Accordingly, the Company issued warrants to purchase 5,202,312 shares of Series C effective September 15, 2001. Management determined that the value of the warrants was zero and in connection with the recapitalization on December 14, 2001, all of the warrants were cancelled.

On June 1, 2000, the Company issued a $5,000,000 bridge note to NCEH. The bridge note was convertible into shares of Series C at the Series C offering price. The bridge note bore interest at 10 percent and the principal was due on July 1, 2001. In connection with the bridge note, NCEH was issued warrants to purchase 96,574 shares of the Company’s common stock at an exercise price of $12.94 per share. On December 14, 2001, in connection with the sale of Series A-1, warrants to purchase 91,552 shares of the remaining warrants were cancelled. 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 percent. The fair value of the warrant was determined based on the Black-Scholes option-pricing model. As a result, the Company allocated $2,885,569 to the note and $2,114,431 to the warrant.

The Company recognized interest expense on the note of $427,630 in 2000, of which $104,168 was accrued coupon interest payable in cash as of December 31, 2000, and $323,462 was amortization of the debt discount.

Mandatorily redeemable preferred stock

As of December 31, 2001, the Company has authorized 25,000,000 shares of Preferred stock with a par value of $.01 per share, of which 19,000,000 shares have been designated as Series A-1.

On December 14, 2001, the Company sold 8,500,000 shares of Series A-1 to NCEH and one other existing investor at $1.00 per share for proceeds of $7,560,241, net of offering costs of $939,759, and NCEH and one other investor converted the November 13, 2001 bridge note plus prepayment penalty into 4,500,000 shares of Series A-1. The offering costs will be accreted using the effective interest method through the December 2006 redemption date of Series A-1.

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The Series A-1 are convertible at any time into common stock at the holders’ option at a conversion rate, as defined (one-to-one at December 31, 2001). All outstanding shares of the Series A-1 are automatically convertible into common stock upon the closing of a qualified underwritten public offering, as defined. The Series A-1 have voting rights equivalent to the number of common shares into which they are convertible. The holders of Series A-1 are entitled to certain registration rights, as defined.

The Series A-1 are redeemable, upon the receipt of notice of the election of two-thirds of the Series A-1 holders to redeem the Series A-1, at the option of the holders in December 2006. The holders of Series A-1 are entitled to liquidation preferences equal to the original purchase price of $1.00 per share, plus all accrued but unpaid dividends. The holders of the Series A-1 are entitled to receive cumulative dividends at an annual rate of 8 percent.

As of December 31, 2000, the Company had authorized 15,000,000 shares of Preferred stock with a par value of $.01 per share. The authorized shares were designated as 3,753,846 shares of Series A mandatorily redeemable convertible preferred stock (Series A), 487,805 shares of Series B mandatorily redeemable convertible preferred stock (Series B) and 7,555,556 shares of Series C.

The Series A, Series B, and Series C were convertible at any time into common stock at the holders’ option at a conversion rate, as defined (one-to-one at December 31, 2000). All outstanding shares of the Series A, Series B, and Series C were automatically convertible into common stock upon the closing of a qualified underwritten public offering, as defined. The Series A, Series B, and Series C had voting rights equivalent to the number of common shares into which they were convertible. The holders of Series A, Series B, and Series C were entitled to certain anti-dilution and registration rights, as defined.

The Series A, Series B, and Series C were redeemable, upon the receipt of notice of the election of two-thirds of the Series C holders to redeem the Series C, at the option of the holders in March 2005. The holders of Series A, Series B and Series C were entitled to liquidation preferences equal to the original purchase prices of $6.50, $5.33 and $4.50 per share, respectively, plus all accrued but unpaid dividends. The holders of the Series C were entitled to receive cumulative dividends at an annual rate of 8 percent. The Company has recorded cumulative dividends of $1,020,000 for the year ended December 31, 2000 and $2,606,667 for the period from January 1, 2001 through December 14, 2001. The holders of Series A and Series B were not entitled to cumulative dividends.

In March 2000, the Company sold 3,753,846 shares of Series A for $6.50 per share and 487,805 shares of Series B for $5.33 per share to NCEH for aggregate proceeds of $26,489,241, net of offering costs of $510,759. The offering costs were being accreted using the effective interest method through the March 2005 redemption date of the Series A and Series B. The Company recorded accretion of $73,584 for the year ended December 31, 2000 and $99,614 from January 1, 2001 through December 14, 2001. On December 14, 2001, in connection with the sale of Series A-1, the Series A and Series B converted into 7,804 shares of the Company’s common stock.

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In August 2000, the Company sold 6,111,112 shares of Series C to new investors at $4.50 per share for proceeds of $27,174,359, net of offering costs of $325,641, and NCEH converted the June 1, 2000 bridge note into 1,111,111 shares of Series C. The offering costs were being accreted using the effective interest method through the March 2005 redemption date of the Series C. The Company recorded accretion of $26,643 for the year ended December 31, 2000 and $68,129 from January 1, 2001 through December 14, 2001. In connection with the conversion of the bridge note, the Company recorded a beneficial conversion feature as a preferred stock dividend for the difference between the carrying amount of the bridge note and the fair value of the common shares to be issued upon conversion in the amount of $1,790,969. Also in August 2000, the Company sold 333,333 shares of Series C at $4.50 per share to the Company’s Chief Executive Officer for cash of $750,000 and a full recourse note of $750,000. The note accrued interest at 6.18 percent. In December 2001, the note was forgiven and the Company recorded a charge to selling, general and administrative expense of $750,000. The note receivable was recorded as a reduction of the Series C on the December 31, 2000 consolidated balance sheets. On December 14, 2001, in connection with the sale of Series A-1, the Series C converted into 3,762,666 shares of the Company’s common stock.

Series A and Series B conversion price adjustment

In connection with the sale of Series C, the conversion prices of the Series A and Series B were adjusted to $23.30 per share from $33.65 and $27.60, respectively. These conversion price adjustments created a contingent beneficial conversion feature for financial reporting purposes. Upon the issuance of the Series C, the Company recorded a discount on the Series A and Series B of $10,666,667 and $479,556, respectively, for the beneficial conversion feature. This beneficial conversion feature is being treated as a preferred stock dividend. During 2000, the Company recorded a deemed preferred stock dividend in the amount of $11,146,223.

In connection with the issuance of the April 12, 2001 bridge note, the conversion prices of the Series A and Series B were adjusted to $17.91 per share from $23.30. These conversion price adjustments created a beneficial conversion feature for financial reporting purposes. Upon the issuance of the bridge note, the Company recorded a discount on the Series A and Series B of $7,213,873 and $781,503, respectively, for the beneficial conversion feature. This beneficial conversion feature is treated as a preferred stock dividend. During 2001, the Company recorded a deemed preferred stock dividend in the amount of $7,995,376.

8. Common stock and common stock warrants:

Common stock

On September 4, 1998, the Company entered into an agreement with NCEH whereby NCEH acquired 481,686 shares of the Company’s common stock for $10,000,000. NCEH was also given the right to purchase 25,954 shares of the Company’s common stock, as defined. This right was exercised on March 30, 1999. In addition, this agreement provides for, among other things, the right of first refusal on certain equity transactions.

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In February 1999, the Company’s then Chairman of the Board sold 19,701 shares of his holdings of the Company’s common stock to certain NCEH affiliates and to a former director of the Company at $27.60 per share. In addition, in July 1999, the Company’s then Chief Executive Officer sold 28,972 shares of his holdings of the Company’s common stock to NCEH in connection with NCEH’s guarantee of the lease on the Company’s new operating facility (see Note 2).

In March 2000, the Company sold 28,971 shares of common stock to a director of the Company at $33.65 per share.

In connection with the recapitalization of the Company in December 2001, certain investors surrendered 834,544 shares of common stock back to the Company.

Common stock warrants

In August 2000, the Company agreed to grant warrants to certain Series C investors to purchase 178,636 shares of common stock at $0.05 per share in exchange for certain future performance obligations. In 2000, one of the Series C investors satisfied a portion of the obligation and the Company recorded a noncash commission charge of $2,718,518 related to the granting of 116,837 fully vested warrants. During 2001, 8,701 shares under these fully vested warrants were exercised. On December 14, 2001, in connection with the sale of Series A-1, the remaining warrants to purchase 108,136 shares were cancelled.

In connection with the sale of Series C, the Company agreed to grant warrants to the Series C investors to purchase 438,646 shares of common stock at $0.05 per share if certain criteria were not met by the Company by a certain period of time. In April 2001, the Company determined that the criteria would not be met in the specified time period and the Company recorded a deemed preferred dividend of $2,486,378 related to the granting of 438,646 fully vested warrants to purchase common stock. During 2001, 25,803 shares under these fully vested warrants were exercised. On December 14, 2001, in connection with the sale of Series A-1, warrants to purchase 322,534 shares of the remaining warrants were cancelled.

In connection with the issuance of the April 12, 2001 bridge note, the Series C holders were entitled to an adjustment of their conversion price from $23.30 to $17.91. However, in exchange for fully vested warrants to purchase 755,606 shares of common stock at $17.91 per share, the Series C holders waived the conversion price adjustment. The Company recorded a deemed preferred dividend of $2,817,557 relating to the grant of the warrants. On December 14, 2001, in connection with the sale of Series A-1, the warrants were cancelled.

9. Stock options:

Effective August 17, 2000, the Company adopted the 2000 Stock Option 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 1,924,557 shares of common stock for issuance pursuant to the Plan. The Plan supercedes the 1996 Stock Option Plan and the 1998 Non-Employee Director Plan. All available and unissued shares previously authorized under the 1996 Stock Option Plan and the 1998 Non-Employee Director Plan expired on August 17, 2000.

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Information with respect to the Company’s common stock options is as follows:

	Shares		Exercise price	Weighted average exercise price
Balance, December 31, 1998	423,557		$.16-20.71	$  4.81
Granted at fair market value	200,918		33.65-41.42	38.67
Granted below fair market value	127,671		20.71-27.60	25.37
Exercised	(21,170	)	.16	.16
Canceled	(69,820	)	.16-41.42	6.99
Balance, December 31, 1999	661,156		.16-41.42	18.48
Granted at fair market value	645,326		23.30-33.65	27.39
Granted below fair market value	400,273		.16-20.71	17.60
Exercised	(62,613	)	.16-41.42	.57
Canceled	(81,685	)	.16-41.42	24.95
Balance, December 31, 2000	1,562,457		.16-41.42	22.16
Granted at fair market value	453,989		7.79-41.57	16.83
Exercised	(2,463	)	.16	.16
Canceled	(557,741	)	.16-41.57	21.15
Balance, December 31, 2001	1,456,242		$.16-41.57	$21.19

All options have terms ranging from five to ten years and generally vest over four years. The weighted average remaining contractual life of all options outstanding as of December 31, 2001, was 7.11 years. The total number of shares available for future grant under the Plan as of December 31, 2001, was 1,137,133.

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The following table summarizes information relating to the Plan as of December 31, 2001 based upon each exercise price:

Outstanding stock options							Exercisable stock options
Exercise price		Shares	Weighted-average exercise price		Weighted-average remaining contractual life (years)		Shares	Weighted-average exercise price
$       0	.16	183,717	$	.16	1	.84	183,414	$	.16
7	.79	47,248	7	.79	9	.67	—	—
17	.98	174,557	17	.98	9	.28	—	—
18	.90	223,889	18	.90	5	.61	223,899	16	.19
20	.78	94,302	20	.79	6	.95	81,728	20	.78
23	.38	336,668	23	.38	8	.73	93,189	23	.38
27	.69	85,653	27	.69	7	.21	81,312	27	.69
33	.77	234,978	33	.77	8	.12	76,469	33	.77
41	.57	75,230	41	.57	7	.54	40,131	41	.57
$.16-41	.57	1,456,242	$      21	.19	7	.11	780,142	$     18	.56

In connection with certain options granted to employees during the years ended December 31, 1999, and 2000, the Company recorded $1,819,467 and $2,439,476 of deferred compensation, respectively. 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 127,671 and 400,273 shares, respectively, 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 the years ended December 31, 1999, 2000 and 2001, $1,285,792, $2,201,701 and $652,409 of deferred compensation, net of forfeitures, was charged to expense, respectively.

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, “Accounting for Stock-Based Compensation.” 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 the years ended December 31, 1999, 2000, and 2001: risk-free interest rate of 4.9 percent, 5.6 percent, and 6.1 percent, respectively, dividend yield of 0 percent, volatility factor of the expected market price of the Company’s common stock of 70 percent, and an expected life of the options of four years.

The weighted- average fair value of the options granted is as follows:

	Year ended December 31
	1999	2000	2001
Granted at fair market value	$37.56	$27.61	$15.69
Granted below fair market value	42.34	23.70	—

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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 31
	1999		2000		2001
Net loss applicable to common
stockholders, as reported	$(12,575,067	)	$(44,080,111	)	$(85,689,435	)
Net loss per share, as reported	(5.77	)	(19.67	)	(24.41	)
Pro forma net loss applicable to
common stockholders	(13,823,739	)	(46,179,134	)	(91,829,529	)
Pro forma net loss per share	(6.33	)	(20.60	)	(26.16	)

10. Commitments and contingencies:

Lease commitments

The Company leases facilities and equipment under noncancellable operating leases with expiration dates through December 2009. Rent expense for the years ended December 31, 1999, 2000, and 2001, was $147,561, $1,431,570, and $2,114,340, respectively. Future minimum lease payments as of December 31, 2001, are as follows:

	Operating leases
2002	$1,340,980
2003	1,340,980
2004	1,404,233
2005	1,404,233
2006	1,480,138
2007 and thereafter	4,440,413
Total minimum lease payments	$11,410,977

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. In August 2000, the Company entered into an employment agreement with its Chief Executive Officer. The agreements provide for, among other things, salaries, bonuses, severance payments, and certain other payments payable upon a change in control, as defined. In December 2001, the Company’s chief executive officer’s employment was terminated. The Company has recorded the severance as part of the restructuring charge in 2001 (see Note 3).

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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.

11. 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 31
	1999		2000		2001
Statutory federal income tax rate	(34.0	)%	(34.0	)%	(34.0	)%
State income taxes, net of federal
tax benefit	(6.3	)	(6.3	)	(6.3	)
Nondeductible expenses	0.7		0.1		3.3
Valuation allowance	39.6		40.2		37.0
	—	%	—	%	—	%

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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 31
	2000		2001
Deferred tax assets:
Net operating loss carryforwards	$ 19,187,707		$ 38,734,256
Deferred compensation	2,178,408		2,448,546
Development costs	525,005		525,005
Accruals and reserves not currently deductible	588,577		694,175
Property and equipment	—		2,725,326
Restructuring reserve	—		2,039,471
	22,479,697		47,166,779
Deferred tax liabilities:
Property and equipment	(880,106	)	—
Other	(640,643	)	(640,643	)
	(1,520,749	)	(640,643	)
	20,958,948		46,526,136
Less- Valuation allowance	(20,958,948	)	(46,526,136	)
Net deferred tax asset	$               —		$               —

Due to the uncertainty surrounding the realization of the net deferred tax asset, management has provided a full valuation allowance. As of December 31, 2001, the Company has net operating loss carryforwards of approximately $96,100,000 for federal tax purposes, which will begin to expire in 2003, and $94,000,000 for state tax purposes, which have begun to expire. The Tax Reform Act of 1986 contains provisions that may limit the net operating loss carryforwards available in any given year in the event of a 50 percent cumulative change in ownership over a three-year period.

12. 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 2 percent to 15 percent of their annual compensation subject to statutory limitations. Company contributions to the 401(k) Plan are discretionary. Effective January 1999, the Company began matching contributions of 50 to 100 percent of the first 6 percent of employee compensation. For the years ended December 31, 1999, 2000, and 2001, the Company made matching contributions of $171,522, $235,162, and $440,435, respectively, to the 401(k) Plan.

13. Concentration of credit risk:

For the years ended December 31, 1999, 2000, and 2001, the Company had two, one, and one customer(s) which accounted for 12 percent, 19 percent, and 20 percent of service fee revenues, respectively. At December 31, 2000 and 2001, the Company had aggregate accounts receivable for these customers of $676,497 and $887,448, respectively. The loss of one or more of these customers could have a materially adverse effect on the Company’s business.

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14. Related-party transactions:

During 1999, the Company’s then Chief Executive Officer sold certain of his holdings of the Company’s common stock to NCEH (see Note 8).

In connection with the Series A and Series B financing, the Company paid $975,000 to a director and shareholder of the Company. This amount was charged to financing costs on the accompanying consolidated statements of operations.

In connection with the Series C financing, the Company issued a $750,000 note receivable to the Company’s Chief Executive Officer (see Note 7).

The Company provides services to a customer who is also a stockholder. The payment and presentment transaction fees and implementation and other professional service fees recognized from this customer were $945,000 and $360,948, respectively, for the year ended December 31, 2000 and $2,101,978 and $435,787, respectively, for the year ended December 31, 2001. The total accounts receivable, accrued expenses, and deferred revenue for this customer were $1,179,953, $500,000, and $139,052, respectively, as of December 31, 2000 and $1,169,825, $500,000, and $114,600, respectively, as of December 31, 2001.