UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

Commission File Number 0-28536

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

(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

PART I

PART II

PART III

PART IV

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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):

     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:

     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.

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:

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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, pollin