ASCENDANT SOLUTIONS INC - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended September 30, 2002

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

Commission File Number: 000-27945

ASCENDANT SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

Delaware		75-2900905
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

16250 Dallas Parkway, Suite 102, Dallas, Texas		75248
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 972-250-0945

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

At September 30, 2002, there were 21,230,900 shares of common stock outstanding.

PART I.

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ASCENDANT SOLUTIONS, INC.


Consolidated Balance Sheets as of September 30, 2002 (unaudited) and December 31, 2001		2

Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001		3

Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001		4

Notes to Consolidated Interim Financial Statements		5

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ASCENDANT SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEETS

(000’s omitted, except per share amounts)

	September 30, 2002			December 31, 2001
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	3,268		$	4,204
Accounts receivable		54			26
Prepaid expenses		15			120

Total current assets		3,337			4,350
Property, equipment and software, net		84			6
Investments in limited partnerships		400			—
Other assets		—			5

Total assets	$	3,821		$	4,361

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	82		$	234
Accrued liabilities		18			116

Total current liabilities		100			350
Limited partnership interests		167			—
Commitments and contingencies		—			—
Stockholders’ equity:
Preferred stock, $0.0001 par value:
Authorized shares—7,500,000
Issued and outstanding—none		—			—
Common stock, $0.0001 par value:
Authorized shares—50,000,000
Issued and outstanding shares—21,230,900 at September 30, 2002 and December 31, 2001		2			2
Additional paid-in capital		59,822			59,718
Deferred compensation		(96	)		—
Accumulated deficit		(56,174	)		(55,709	)

Total stockholders’ equity		3,554			4,011

Total liabilities and stockholders’ equity	$	3,821		$	4,361

See accompanying notes.

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ASCENDANT SOLUTIONS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(000’s omitted, except per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2002			2001			2002			2001
Revenues	$	—		$	—		$	—		$	2,284

Operating expenses:
Cost of revenues		—			—			—			2,242
Selling, general and administrative expenses		251			1,090			644			9,041
Depreciation and amortization		6			—			9			2,098
Write-down of assets held for sale		—			—			—			1,047
Write-down of computer software		—			4,990			—			4,990

Total operating expenses		257			6,080			653			19,418

Operating loss		(257	)		(6,080	)		(653	)		(17,134	)
Investment income		28			—			62			—
Interest income (expense), net		15			59			47			337
Minority interest		79			—			79			—

Net loss	$	(135	)	$	(6,021	)	$	(465	)	$	(16,797	)

Basic and diluted net loss per share	$	(0.01	)	$	(0.28	)	$	(0.02	)	$	(0.79	)

Shares used in computing basic and diluted net loss per share		21,230,900			21,230,900			21,230,900			21,230,900

See accompanying notes.

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ASCENDANT SOLUTIONS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(000’s omitted)

	Nine Months Ended September 30,
	2002			2001
Operating Activities
Net cash used in operating activities	$	(700	)	$	(9,009	)


Investing Activities
Investments in limited partnerships		(400	)		—
Proceeds from sale of assets		8			1,105
Purchases of property and equipment		(15	)		(3,578	)
Acquisition of assets		(75	)		—

Net cash used in investing activities		(482	)		(2,473	)


Financing Activities
Proceeds from sale of limited partnership interests		246			—
Payments of long-term debt		—			(170	)

Net cash used in financing activities		246			(170	)

Net decrease in cash and cash equivalents		(936	)		(11,652	)
Cash and cash equivalents at beginning of year		4,204			16,837

Cash and cash equivalents at end of quarter	$	3,268		$	5,185

See accompanying notes.

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ASCENDANT SOLUTIONS, INC.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1. Basis of Presentation

The unaudited financial statements included herein reflect all adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary to fairly state Ascendant Solutions, Inc.’s (“Ascendant Solutions” or the “Company”) financial position, results of operations and cash flows for the periods presented. These financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Form 10-K for the year ended December 31, 2001 as filed with the Securities and Exchange Commission. The results of operations for the period ended September 30, 2002 are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire fiscal year ending December 31, 2002. The December 31, 2001 balance sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. These financial statements are presented on the basis that the Company is an on-going enterprise and do not reflect adjustments, if any, necessary if management is unable to execute its business strategy (see Note 2—Reduction of Size and Scope of Operations).

On August 1, 2002, the Company formed a new wholly owned subsidiary, Ascendant VTE, LLC, which serves as the corporate general partner of VTE, L.P., a partnership which acquired the assets of Venue Ticket Exchange, Inc. VTE, L.P. is seeking to rollout an online, electronic ticket exchange for the purchase and sale of secondary tickets to sporting events and other entertainment venues. In connection with its formation, VTE, L.P. received approximately $246,000 from the issuance of various limited partnership interests to outside investors. The Company invested $75,000 in this venture. Mr. Leslie, our Chairman, and Mr. Bowe, our President and CEO, are also limited partners of VTE, L.P. VTE, L.P. acquired the assets (primarily software) of Venue Ticket Exchange, Inc. for approximately $75,000. The assets, liabilities, partnership interests, and results of operations of VTE, L.P. have been included in the consolidated financial statements.

2. Reduction of Size and Scope of Operations

After the Company reviewed its preliminary operating results for the first quarter of 2001 as well as the overall economic and market environment for e-commerce businesses, it determined that the capital requirements under its existing business plan were greater than the capital resources then currently available. As a result, beginning in May 2001, the Company reduced the size and scope of its operations and implemented a plan to preserve assets and reduce its expenditures, liabilities and commitments. In connection with this action, the Company effected a reduction in workforce, whereby all but the two remaining full time employees were terminated during 2001.

As a result of the termination of its customer contracts, beginning July 1, 2001, the Company has no revenue producing contracts or operations.

In connection with its asset preservation plan, the Company took actions to reduce expenditures, liabilities and commitments and to preserve cash. As of March 31, 2002, the Company had substantially eliminated all liabilities and commitments associated with its prior operations that were discontinued in 2001.

The Company is currently seeking to (1) most effectively deploy its remaining cash, debt capacity (if any) and its net operating loss carryforwards and (2) capitalize on the experience and contacts of its officers and directors. Toward that end, it is pursuing, among other things, the acquisition of manufacturing, distribution or service companies and is actively seeking out possible acquisition candidates. The Company is currently in discussion with several prospective acquisition candidates, however, there can be no assurance that the Company will be successful in these discussions or in any of its acquisition endeavors.

We face all of the risks of a new business and the special risks inherent in the investigation, acquisition, or involvement in a new business opportunity. We must be regarded as a new or “start-up” venture with all of the unforeseen costs, expenses, problems, and difficulties, to which such ventures are subject.

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costs, which gives rise to reimbursements to both the Company and the Landlord. The Company believes that such lease arrangement has been on terms no less favorable to the Company than could have been obtained in a transaction with an independent third party.

Long-Term Investments

Our long-term investments are accounted for using the cost method accounting for investments and none represent investments in publicly traded companies. The cost method is used as the Company does not have a majority interest and does not have significant influence over the management of the respective companies. Distributions received by the Company are recorded as investment income on the statements of operations to the extent the distribution does not exceed the Company’s proportionate share of the company’s earnings.

During the second quarter, the Company invested $400,000 for a 10% limited partnership interest in Ampco Partners, Ltd. (“Ampco”), a newly formed entity, which acquired the assets and intellectual property of the Ampco Safety Tools division of Ampco Metals Incorporated of Milwaukee, Wisconsin in a Chapter 11 bankruptcy proceeding. Ampco Safety Tools, founded in 1922, is a leading manufacturer of non-sparking, non-magnetic and corrosion resistant safety tools. Income received from this investment is reflected in “Investment income” in the accompanying statements of operations.

In October 2002, the Company formed a capital markets subsidiary, CRESA Capital Markets Group, L.P., (“Capital Markets”) and entered into a Licensing and Co-Marketing Agreement with CRESA Partners LLC, a national real estate services firm. Capital Markets is expected to provide real estate financial advisory services to corporate clients on a fee basis which could provide the Company with a future source of revenue. These services are planned to include, but not be limited to, analysis, consulting, acquisition and/or disposition of property, capital placement and acquisition, contract negotiation, and other matters related to real estate finance. Jim Leslie, our Chairman, also serves as an advisor to the Board of Directors of CRESA Partners, LLC.

In connection with the establishment of Capital Markets, the Company is currently evaluating ways in which it might engage as a principal to acquire certain corporate real estate assets. There can be no assurances that the Company will decide to acquire real estate assets in the future or how it might do so.

In September 2002, the Board of Directors of the Company authorized the extension of the maturity of 800,000 warrants held by Jonathan Bloch, a Director of the Company, from February 5, 2004 to February 5, 2006. The warrants have an exercise price ranging from $1.00–$3.00 per share.

3. Computation of Basic and Diluted Net Loss Per Common Share

During the second quarter, the Company issued, pursuant to a registration statement on Form S-8, 435,000 shares of restricted stock under the 2002 Equity Incentive Plan. Under the restricted stock agreements, the restricted shares will vest annually over a three-year period. These shares have not been included in the EPS calculation, as they have not yet vested.

	Three months ended September 30,						Nine months ended September 30,
	2002			2001			2002			2001
Net loss	$	(135,000	)	$	(6,021,000	)	$	(465,000	)	$	(16,797,000	)
Weighted average number of shares outstanding		21,230,900			21,230,900			21,230,900			21,230,900
Basic and diluted net loss per share	$	(0.01	)	$	(0.28	)	$	(0.02	)	$	(0.79	)

The average exercise price for options issued under the Company’s 1999 Long Term Incentive Plan is $0.24 per share.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our financial statements and notes thereto included elsewhere in this report together with the financial statements, notes and management’s discussion contained in our Form 10-K for the year ended December 31, 2001. Except for the historical information contained herein, the discussion in this report contains certain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. In addition, the realization of our expectations depends on, among other things, our ability to successfully defend outstanding litigation, our ability to preserve the Company’s assets and reduce expenditures, and our ability to successfully make one or more profitable acquisitions or investments. Our actual results could differ significantly from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below under “Risks Related to Our Business” and “Other Risks.” Our forward-looking statements are based on the current expectations of management, and we assume no obligation to update this information. The cautionary statements made in this report should be read as being applicable to all related forward-looking statements, wherever they appear in this report.

The Company

Ascendant Solutions, Inc. is a Delaware corporation with principal executive offices located at 16250 Dallas Parkway, Suite 102, Dallas, Texas 75248. The Company’s telephone number is (972) 250-0945.

Reduction of Size and Scope of Operations

As a result of the termination of its customer contracts, beginning July 1, 2001, the Company has no revenue producing contracts or operations.

As of May 1, 2002, the Company sublets its office space from Leslie Enterprises, L.P. (“Landlord”), an entity controlled by Jim Leslie, our Chairman. The Company currently pays monthly rent of approximately $1,700. In connection with its sharing of office space with the Landlord, both the Company and Landlord incur certain shared costs, which gives rise to reimbursements to both the Company and the Landlord. The Company believes that such lease arrangement has been on terms no less favorable to the Company than could have been obtained in a transaction with an independent third party.

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NASDAQ Delisting

On May 11, 2001, the Company’s stock was delisted from the Nasdaq National Market and began trading on the OTC Bulletin Board (“OTCBB”). The OTCBB is a regulated quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter (“OTC”) securities. An OTC security is not listed or traded on Nasdaq or a national securities exchange, and Nasdaq has no business relationship with the issuers quoted in the OTCBB. Issuers of all securities quoted on the OTCBB are subject to periodic filing requirements with the Securities and Exchange Commission or other regulatory authority. OTCBB requirements include, among other things, a broker-dealer acting as a market maker willing to enter a quote for the securities and requires the Company to remain current in its periodic filings under the Securities Exchange Act of 1934, as amended. Even with OTCBB eligibility and trading, delisting adversely affects the ability or willingness of investors to purchase the common stock, which, in turn, severely affects the market liquidity of the Company’s securities. There can be no assurance that the Company’s stock will indefinitely continue to be traded on the OTCBB. See “Other Risks” below.

Other Recent Events

During the second quarter, the Company invested $400,000 cash for a 10% limited partnership interest in Ampco Partners, Ltd., a newly formed entity, which acquired the assets and intellectual property of the Ampco Safety Tools division of Ampco Metals Incorporated of Milwaukee, Wisconsin in a Chapter 11 bankruptcy proceeding. Income received from this investment is reflected in “Investment income” in the accompanying statements of operations.

Ampco Safety Tools, founded in 1922, is a leading manufacturer of non-sparking, non-magnetic and corrosion resistant safety tools. These tools meet Occupational Safety and Health Administration and National Fire Protection Association requirements for use in locations where flammable vapors of combustible residues are present. Safety tools are used in industrial applications, primarily in manufacturing and maintenance operations. Typical safety tool users include, but are not limited to, the armed forces, federal, state and local governments, chemical manufacturers, explosives and pyrotechnics; petrochemicals handling; petroleum refining; steel and aluminum mills; hazardous material handling; confined space and grain storage facilities maintenance; shipyards and non-magnetic applications.

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Results of Operations

Factors Affecting Operating Results

As a result of our reduction in operations, period-to-period comparison of our operating results is not meaningful and should not be relied upon as an indicator of future performance. Beginning July 1, 2001, the Company had no revenue producing contracts. We expect our future operating results to fluctuate. Factors that are likely to cause these fluctuations include:

•

our ability to successfully defend outstanding litigation;

•

our ability to preserve the Company’s assets and reduce expenditures;

•

our ability to effectively deploy our remaining cash, debt capacity (if any) and our net operating loss carryforwards; and

•

our ability to locate and successfully acquire one or more business enterprises.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to long-term investments. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following accounting policies and the related judgments and estimates affect the preparation of our financial statements.

Long-Term Investments

Our long-term investments are accounted for using the cost method of accounting for investments and none represent investments in publicly traded companies. The cost method is used as the Company does not have a majority interest and does not have significant influence over the operations of the respective companies. Distributions received by the Company are recorded as investment income on the statements of operations to the

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extent the distribution does not exceed the Company’s proportionate share of the company’s earnings. Distributions in excess of the Company’s proportionate share would reduce the Company’s investment.

The fair value of our long-term investments is dependent upon the performance of the companies in which we have invested, as well as volatility inherent in the external markets for these investments. The fair value of the Company’s ownership interests in, and advances to, privately held companies is generally determined based on overall market conditions, availability of capital as well as the value at which independent third parties have invested in similar private equity transactions. The Company evaluates, on an ongoing basis, the carrying value of its ownership interests in and advances to the companies in which it has invested for possible impairment based on achievement of business plan objectives, the financial condition and prospects of the company and other relevant factors, including overall market conditions. Such factors may be financial or non-financial in nature. If as a result of the review of this information, the Company believes its investment should be reduced to a fair value below its cost, the reduction would be charged to “loss on investments” on the statements of operations. Although we believe our estimates reasonably reflect the fair value of our investments, our key assumptions regarding future results of operations and other factors may not reflect those of an active market, in which case the carrying values may have been materially different than the amounts reported.

Comparison of the Three Months Ended September 30, 2002 to the Three Months Ended September 30, 2001

Revenues. As discussed above, the Company had no operating revenues during the three months ended September 30, 2002 and September 30, 2001. Beginning July 1, 2001, the Company has no revenue producing contracts.

Cost of Revenues. As discussed above, the Company had no operating revenue producing costs or operations during the three months ended September 30, 2002 and September 30, 2001 . Beginning July 1, 2001, the Company has no revenue producing operations.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses decreased to approximately $251,000 for the three months ended September 30, 2002 from approximately $1,090,000 as a result of the Company’s reduction of size and scope of operations.

Depreciation and Amortization. As a result of the elimination of operations on July 1, 2001, the Company discontinued depreciation and amortization and commenced to evaluate the marketability of its assets, the final disposition of which occurred in the first quarter of 2002. In the second quarter of 2002, the Company acquired certain administrative assets in connection with its relocation to new executive offices and commenced to record depreciation. Depreciation expense of approximately $6,000 was recorded in the third quarter compared with no depreciation expense for the three months ended September 30, 2001.

Write-down of property held for sale. During the third quarter of 2001, the Company wrote down the carrying value of its MARKETBridges software to its estimated realizable value in light of the business failure of a key supplier to the MARKETBridges software platform. There was no comparable charge against operations for the third quarter of 2002.

Investment income. During the third quarter of 2002, the Company earned approximately $28,000 on its investment in Ampco Partners, Ltd. There was no comparable investment income during the third quarter of 2001.

Interest income (expense), net. For the three months ended September 30, 2002, interest income, net of expense, was approximately $15,000 compared to approximately $59,000 in net interest income for the three months ended September 30, 2001. The decrease is due to the decrease in the average balance of cash and cash equivalents from September 30, 2001 to September 30, 2002 coupled with an overall reduction in money market interest rates.

Comparison of the Nine Months Ended September 30, 2002 to the Nine Months Ended September 30, 2001

Revenues. As discussed above, the Company had no operating revenues during the nine months ended September 30, 2002 compared with approximately $2,284,000 for the nine months ended September 30, 2001. Beginning July 1, 2001, the Company has no revenue producing contracts.

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Cost of Revenues. As discussed above, the Company had no operating revenue producing costs or operations during the nine months ended September 30, 2002 compared with approximately $2,242,000 for the nine months ended September 30, 2001. Beginning July 1, 2001, the Company has no revenue producing operations.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses decreased to approximately $644,000 for the nine months ended September 30, 2002 from approximately $9,041,000 as a result of the Company’s reduction of size and scope of operations.

Depreciation and Amortization. As a result of the elimination of operations on July 1, 2001, the Company discontinued depreciation and amortization and commenced to evaluate the marketability of its assets, the final disposition of which occurred in the first quarter of 2002. In the second quarter of 2002, the Company acquired certain administrative assets in connection with its relocation to new executive offices and commenced to record depreciation. Depreciation expense of approximately $9,000 was recorded in the nine months ended September 30, 2002 compared with depreciation expense for the nine months ended September 30, 2001 of approximately $2,098,000.

Write-down of property held for sale. During the second quarter of 2001, the Company reclassified certain of its property and equipment, primarily hardware and related equipment, to assets held for sale and wrote the carrying value down to the estimated net realizable value resulting in a charge against second quarter earnings of approximately $1,047,000. During the third quarter of 2001, the Company wrote down the carrying value of its MARKETBridges software to its estimated realizable value in light of the business failure of a key supplier to the MARKETBridges software platform. There were no comparable charges against operations for the nine months ended September 30, 2002.

Investment income. During the second and third quarters of 2002, the Company earned approximately $62,000 on its investment in Ampco Partners, Ltd. There was no comparable investment income during the nine months ended September 30, 2001.

Interest income (expense), net. For the nine months ended September 30, 2002, interest income, net of expense, was approximately $47,000 compared to approximately $337,000 in net interest income for the nine months ended September 30, 2001. The decrease is due to the decrease in the average balance of cash and cash equivalents from September 30, 2001 to September 30, 2002 coupled with an overall reduction in money market interest rates.

Seasonality

Prior to July 1, 2001, our revenues and business have historically been seasonal. In view of the termination of our customer contracts, we no longer expect a seasonal component to our business, although it is possible if we are successful in acquiring a business, that such business could be seasonal.

Liquidity and Capital Resources

By the start of the second quarter 2002, the Company had liquidated substantially all liabilities and commitments associated with its prior operations and had reduced the size of its work force to two personnel, its CEO, President and Chief Financial Officer and his executive assistant.

At September 30, 2002, the Company had approximately $3,268,000 in cash and $3,237,000 in working capital.

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are planned to include, but not be limited to, analysis, consulting, acquisition and/or disposition of property, capital placement and acquisition, contract negotiation, and other matters related to real estate finance. Jim Leslie, our Chairman, also serves as an advisor to the Board of Directors of CRESA Partners, LLC. The capital requirements of Capital Markets are not expected to be material to the Company.

There can be no assurance that the Company will be successful in any of its acquisition endeavors or in the rollout of Capital Markets. We face all of the risks of a new business and the special risks inherent in the investigation, acquisition, or involvement in a new business opportunity. We must be regarded as a new or “start-up” venture with all of the unforeseen costs, expenses, problems, and difficulties, to which such ventures are subject.

However, the Company currently does not have any revenue producing operations to offset current operating expenses. The adequacy of the Company’s liquidity and capital resources will be largely dependent upon future acquisition activities. The Company will continue to incur expenses in connection with investigating potential acquisitions and meeting general corporate overhead expenses, including the payment of employees’ salaries.

Historical Information

Since inception in January 1998, we have financed our operations principally through funds from the private and public placement of equity securities. We completed our initial public offering of 5,750,000 shares of common stock in November 1999, which yielded net proceeds of approximately $41,880,000.

For the nine months ended September 30, 2002, net cash used in operating activities was approximately $700,000, which includes approximately $150,000 in cash paid to settle an Internet and data center hosting service contract compared to approximately $9,009,000 for the nine months ended September 30, 2001. The decrease in cash used resulted primarily from reductions in operations during 2001 and the sale of the Company’s fulfillment and call center operations in December 2000 and February 2001.

For the nine months ended September 30, 2002, net cash used in investing activities was approximately $482,000, which consists primarily of $400,000 of investments in limited partnerships and capital expenditures of $75,000 to purchase the assets of Venue Ticket Exchange, Inc. and approximately $15,000 associated with the relocation to, and the construction of, new executive offices. Cash used in investing activities during the nine month period ended September 30, 2001 was approximately $2,473,000 which consisted of $3,578,000 of capital expenditures primarily for the development of internet software applications, net of $1,105,000 of proceeds from the sale of the company’s call center operations and other assets.

For the nine months ended September 30, 2002, the company had financing activities of $246,000 which represents proceeds from the sale of limited partnership interests as compared to the nine month period ended September 30, 2001, in which the company had $170,000 of payments on long-term debt.

At December 31, 2001, we had approximately $48,000,000 of federal and state net operating loss carryforwards, which subject to limitations are available to offset future taxable income. These NOLs, if not utilized, will fully expire from 2018 to 2021. See “Risks Related to Our Business—Restrictions on net operating loss carryforwards” below.

Risks Related to Our Business

We have eliminated substantially all operations and have no current sources of ongoing operating revenues.

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Company effected a reduction in workforce, whereby all but the two remaining full time employees were terminated during 2001.

As a result of the termination of its customer contracts, beginning July 1, 2001, the Company currently has no revenue producing contracts or operations.

We have a history of losses and negative cash flow and anticipate continued losses.

Since our formation on January 1, 1998, we have incurred operating losses and negative cash flow. As of September 30, 2002, we had an accumulated deficit of approximately $56,174,000. In addition, for the periods ended October 13, 1997 and December 31, 1997, predecessors to the Company also experienced net losses. We have not achieved profitability and expect to continue to incur operating losses for the foreseeable future.

We are currently in litigation and may be subject to additional litigation in the future.

See Part II. Other Information (Item 1 – Legal Proceedings) for a discussion of current pending litigation.

Our current litigation, plus any future claims, with or without merit, may result in substantial costs and divert management’s attention and resources, which may seriously harm our business, prospects, financial condition and results of operations and may also harm our reputation, all of which may have a material adverse effect on our ability to pursue various strategic and financial alternatives as well as have a material adverse effect on our stock price. The Company may be unable to pay expenses or liabilities that may arise out of any possible legal claims. We cannot predict the outcome of any potential legal claims.

We have limited funds and may require additional financing.

We have very limited funds, and such funds may not be adequate to take advantage of available business opportunities. Even if our funds prove to be sufficient to invest in, or complete a transaction with, an operating company, we may not have enough capital to exploit the opportunity. Our ultimate success may depend upon our ability to raise additional capital. We have not investigated the availability, source, or terms that might govern the acquisition of additional capital and will not do so until we determine a more definitive and specific need for additional financing. If additional capital is needed, there is no assurance that funds will be available from any

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source or, if available, that they can be obtained on terms acceptable to us. If not available, our operations will be limited to those that can be financed with our existing capital.

We currently have no operating business.

As of December 31, 2001, we had terminated our prior operations and have no relevant operating history. We face all of the risks of a new business and the special risks inherent in the investigation, acquisition, or involvement in a new business opportunity. We must be regarded as a new or “start-up” venture with all of the unforeseen costs, expenses, problems, and difficulties to which such ventures are subject.

We cannot provide any assurance of success or profitability.

There is no assurance that we will invest in a favorable business opportunity. Even if we should become involved in a business opportunity, there is no assurance that such acquisition will be successful or profitable or that the market price of our stock will be increased thereby.

We are subject to reporting requirements that may delay or preclude acquisition.

Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires companies subject thereto to provide certain information about significant acquisitions, including certified financial statements for the company acquired, covering one or two years, depending on the relative size of the acquisition. The time and additional costs that may be incurred by some target entities to prepare such statements may significantly delay or essentially preclude consummation of an otherwise desirable acquisition by us. Acquisition prospects that do not have or are unable to obtain the required audited statements may not be appropriate for acquisition so long as the reporting requirements of the Exchange Act are applicable.

We are seeking to invest in one or more business opportunities.

We cannot disclose the risks and hazards of a business or opportunity that we may enter into except in a general manner. An investor can expect a potential business opportunity to be quite risky. Our acquisition of or participation in a business opportunity will likely be highly illiquid and could result in a total loss to us and our stockholders if the business or opportunity proves to be unsuccessful. It is possible that we may elect to enter into a transaction with a business entity having no significant or only limited operating history, may have a cumulative deficit and operating or other losses, limited or no potential for immediate earnings, limited assets, negative net worth or other characteristics which may be considered negative by the investment community. There is no assurance that we will be able to negotiate a transaction on favorable terms and conditions, if at all.

We are not likely to conduct an exhaustive investigation in connection with an acquisition opportunity.

Our limited funds and limited management personnel will likely make it impracticable to conduct a complete and exhaustive investigation and analysis of a business opportunity before we commit our capital or other resources thereto. Management decisions, therefore, will likely be made without detailed feasibility studies, independent analysis, market surveys and the like which, if we had more funds or personnel available to us, would be desirable. We will be particularly dependent in making decisions upon information provided by the promoter, owner, sponsor, or others associated with the business opportunity seeking our participation. A significant portion of our available funds may be expended for investigative expenses and other expenses related to preliminary aspects of completing an acquisition transaction, whether or not any business opportunity investigated is eventually acquired.

We may enter into a leveraged transaction in connection with an acquisition opportunity.

There is a possibility that any acquisition of a business opportunity by us may be leveraged, i.e., we may finance the acquisition of the business opportunity by borrowing against the assets of the business opportunity to be acquired, or against the projected future revenues or profits of the business opportunity. This could increase our exposure to larger losses. A business opportunity acquired through a leveraged transaction is profitable only if it generates enough revenues to cover the related debt and expenses. Failure to make payments on the debt incurred to purchase the business opportunity could result in the loss of a portion or all of the assets acquired. There is no assurance that any business opportunity acquired through a leveraged transaction will generate sufficient revenues to cover the related debt and expenses.

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We are dependent upon management.

The Company currently has its Chairman and one individual who is serving as its CEO, President and Chief Financial Officer. The Company is heavily dependent upon their skills, talents and abilities to implement its business plan. Because investors will not be able to evaluate the merits of possible business acquisitions by the Company, they should critically assess the information concerning the Company’s management and Board of Directors.

There is a scarcity of and competition for business opportunities and combinations.

We are and will continue to be an insignificant participant in the business of seeking mergers with and acquisitions of operating business entities. A large number of established and well-financed entities, including venture capital firms, are active in seeking mergers and acquisitions of operating companies, some of which may also be potential merger or acquisition candidates for the Company. Many such entities targeting business acquisition transactions have significantly longer operating history, greater financial resources, technical expertise and managerial capabilities than we have and, consequently, we may be at a competitive disadvantage in identifying possible business opportunities and successfully completing a transaction on acceptable terms and conditions. Moreover, we may also compete with numerous other small public companies in seeking merger or acquisition candidates. These competitive conditions may exist in any industry in which we may become interested. In addition, some acquisition candidates may negatively regard our prior history.

Restrictions on net operating loss carryforwards.

At December 31, 2001, the Company had accumulated approximately $48 million of federal and state net operating loss carryforwards, which may be used to offset taxable income and reduce income taxes in future years. The use of these losses to reduce future income taxes will depend on the generation of sufficient taxable income prior to the expiration of the net operating loss carryforwards. The carryforwards, if not fully utilized, will expire from 2018 to 2021. Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”) imposes an annual limitation on the portion of the Company’s net operating loss carryforwards that may be used to offset taxable income. The Company believes that the issuance of shares of common stock pursuant to the initial public offering on November 15, 1999 caused an “ownership change” for purposes of Section 382 of the Code on such date. Consequently, the Company believes that utilization of the portion of the Company’s net operating loss carryforwards attributable to the period prior to November 16, 1999 is limited by Section 382 of the Code. The date of an “ownership change” is based upon a factual determination of the value of the stock of the Company on such date. If the “ownership change” were determined to have occurred at a date after November 15, 1999, additional net operating loss carryforwards would be limited by Section 382 of the Code. In addition, a second “ownership change” may occur in the future as a result of future changes in the ownership of the Company’s stock, including the issuance by the Company of stock in connection with the acquisition of a business by the Company. A second “ownership change” would result in Code Section 382 limiting the Company’s deduction of its future net operating loss carryforwards.

We are controlled by principal stockholders, officers and directors.

Our principal stockholders, officers and directors beneficially own approximately 50% of our Common Stock. As a result, such persons may have the ability to control and direct our affairs and business. Such concentration of ownership may also have the effect of delaying, deferring or preventing a change in control.

Other Risks

Our stock has been delisted from The Nasdaq National Market.

On May 11, 2001 the Company’s stock was delisted from The Nasdaq National Market for failure to satisfy the minimum bid price requirement for continued listing set forth in Marketplace Rule 4450(a) or (b) and commenced trading on the OTC Bulletin Board (“OTCBB”). The OTCBB is a regulated quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter (“OTC”) securities. An OTC security is not listed or traded on Nasdaq or a national securities exchange, and Nasdaq has no business relationship with the issuers quoted in the OTCBB. Issuers of all securities quoted on the OTCBB are subject to periodic filing requirements with the Securities and Exchange Commission or other regulatory authority.

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Even with OTCBB eligibility and trading, delisting adversely affects the ability or willingness of investors to purchase the common stock, which, in turn, severely affects the market liquidity of the Company’s securities. The delisting of our common stock means that, among other things, fewer investors have access to trade our common stock, which will limit our ability to raise capital through the sale of our securities.

In addition, our common stock is subject to penny stock regulations, which could cause fewer brokers and market makers to execute trades in our common stock. This is likely to hamper our common stock trading with sufficient volume to provide liquidity and could cause our stock price to further decrease. The penny stock regulations require that broker-dealers who recommend penny stocks to persons other than institutional accredited investors must make a special suitability determination for the purchaser, receive the purchaser’s written consent to the transaction prior to the sale and provide the purchaser with risk disclosure documents which identify risks associated with investing in penny stocks. These requirements have historically resulted in reducing the level of trading activity in securities that become subject to the penny stock rules. Holders of our common stock may find it more difficult to sell their shares of common stock, which is expected to have an adverse effect on the market price of the common stock.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We currently do not engage in commodity futures trading or hedging activities and do not enter into derivative financial instrument transactions for trading or other speculative purposes. We also do not currently engage in transactions in foreign currencies or in interest rate swap transactions that could expose us to market risk.

We may be exposed, in the normal course of doing business, to market risk through changes in interest rates. We currently minimize such risk by investing our temporary cash in overnight money market instruments. As a result, we do not believe that we have a material interest rate risk to manage.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by new Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), within 90 days prior to the date of filing this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including Mr. David Bowe as the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, Mr. Bowe concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. However, due to the limited size of the Company’s staff, there is inherently a lack of segregation of duties related to the authorization, recording, processing and reporting of transactions. We periodically assess the cost versus benefit of adding the resources that would remedy this situation and currently, with the concurrence of the board of directors, do not consider the benefits to outweigh the costs of adding additional staff in light of the limited number of transactions related to the company’s operations.

Changes in Internal Controls

There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation.

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PART II.

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Between January 23, 2001 and February 21, 2001, five putative class action lawsuits were filed in the United States District Court for the Northern District of Texas, against the Company, certain of its directors, and a limited partnership of which a director is a partner. The five lawsuits assert causes of action under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, for an unspecified amount of damages on behalf of a putative class of individuals who purchased the Company’s common stock between various periods ranging from November 11, 1999 to January 24, 2000. The lawsuits claim that the Company and the individual defendants made misstatements and omissions concerning the Company’s products and customers. The Company denies the plaintiffs’ allegations and intends to vigorously defend against the lawsuits.

In April 2001, the Court consolidated the lawsuits and on July 26, 2002, Plaintiffs filed a Consolidated Amended Complaint (“CAC”). The Company filed a motion to dismiss the CAC on or about September 9, 2002.

The Company is also occasionally involved in other claims and proceedings which are incidental to its business. The Company cannot determine what, if any, material affect these matters will have on its future financial position and results of operations.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Use of Proceeds

(1) On November 10, 1999, the Securities and Exchange Commission declared effective the Registration Statement on Form S-1 (File No. 333-85983) relating to our initial public offering. Net offering proceeds to us from this offering were approximately $41,880,000.

(2) From November 10, 1999 (the effective date of the Registration Statement) to September 30, 2002 (the ending date of this report), we expended net offering proceeds for the following uses:


• Construction of plant, building and facilities	$	0

• Purchase and installation of machinery, equipment and software	$	8,737,000

• Purchase of real estate	$	0

• Acquisition of other businesses	$	0

• Repayment of indebtedness	$	4,135,000

• Working capital	$	25,740,000

• Temporary investments	$	3,268,000	*

All of the payments referenced above were direct or indirect payments to others.

Pending final application of the net proceeds of the offering, we have invested such proceeds primarily in cash and cash equivalents.

As of September 30, 2002, we have approximately $3,268,000 remaining from the proceeds derived from the offering. Our management has broad discretion in the application of these remaining proceeds and may use them to invest in manufacturing, distribution or service companies. Our stockholders will not have the opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use the proceeds.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5. OTHER INFORMATION

In October 2002, Melissa Crane, a partner with VantagePoint Venture Partners, a stockholder of the Company, resigned her position from the Board of Directors of the Company.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits


3.1		Certificate of Incorporation of the Company (incorporated by reference from Exhibit 3.1 to the Company’s Form 8-K filed October 23, 2000, File no. 0-27945).

3.2		Bylaws of the Company (incorporated by reference from Exhibit 3.2 to the Company’s Form 8-K filed October 23, 2000, File no. 0-27945).

(b) Reports on Form 8-K

On August 14, 2002, the Company filed a current report on Form 8-K to report under Item 7 and Item 9 the certification required by Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURE

Pursuant to the requirements 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: November 19, 2002	ASCENDANT SOLUTIONS, INC.

	By:	/s/ DAVID E. BOWE
		David E. Bowe
		Chief Executive Officer, President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)

CERTIFICATIONS

I, David E. Bowe, certify that:

I have reviewed this quarterly report on Form 10-Q of Ascendant Solutions, Inc.;

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

(c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

(a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

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(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:

November 19, 2002


/s/ David E. Bowe
David E. Bowe President, Chief Executive Officer, and Chief Financial Officer

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