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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2004

OR

¨    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)

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  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

At August 13, 2004, there were approximately 21,883,400 shares of Ascendant Solutions, Inc. common stock outstanding.

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ASCENDANT SOLUTIONS, INC.

FORM 10-Q

For the Quarterly Period Ended June 30, 2004

PART I.

CONSOLIDATED FINANCIAL INFORMATION

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ASCENDANT SOLUTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(000’s omitted, except per share amounts)

See accompanying notes to the Condensed Consolidated Financial Statements

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ASCENDANT SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(000's omitted, except per share amounts)

(Unaudited)

See accompanying notes to the Condensed Consolidated Financial Statements.

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ASCENDANT SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(000’s omitted)

(Unaudited)

See accompanying notes to the Condensed Consolidated Financial Statements.

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ASCENDANT SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The unaudited condensed consolidated 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”) consolidated financial position, consolidated results of operations and consolidated cash flows for the periods presented. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2003 as filed with the Securities and Exchange Commission. The consolidated results of operations for the period ended June 30, 2004 are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire fiscal year ending December 31, 2004. The December 31, 2003 consolidated balance sheet was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

2. Description of Business

Ascendant Solutions is a diversified financial services company which is seeking to, or has invested in or acquired, manufacturing, distribution or service companies. The Company is organized in three segments: (i) healthcare, (ii) real estate services and (iii) corporate and other businesses.

On March 24, 2004, the Company acquired, through a newly formed, wholly owned subsidiary, Dougherty’s Holdings, Inc. (“DHI”), substantially all of the assets of Park Pharmacy Corporation (the “Park Assets”) pursuant to the Joint Plan and the Asset Purchase Agreement (the “Agreement”) entered into December 9, 2003 between Park Pharmacy and DHI. Park Pharmacy had been operating as a debtor in possession since December 2, 2002. The Company’s healthcare operations are primarily engaged in the sale of prescription and over-the-counter medications, healthcare products and related services and sells its products and services to a variety of customers including individuals, hospices, assisted-living facilities and other institutional healthcare providers.

Effective May 1, 2004, the Company acquired, through a newly formed, wholly owned subsidiary, ASDS of Orange County, Inc., a Delaware corporation f/k/a Orange County Acquisition Corp. (“ASDS”), all of the issued and outstanding stock of CRESA Partners of Orange County, Inc., a California corporation f/k/a The Staubach Company – West, Inc. (“CPOC”), pursuant to the Stock Purchase Agreement dated March 23, 2004 between Kevin Hayes, the sole stockholder of CPOC (the “Seller”), and ASDS for $6.9 million, plus closing costs. Following the acquisition of CPOC, ASDS contributed the assets and liabilities of CPOC to CRESA Partners of Orange County, LP (the “Operating LP”). The results of Operating LP will be consolidated with ASDS and ultimately the Company, in accordance with FIN 46R “Consolidation of Variable Interest Entities”, until such time that the Purchase Price is paid in its entirety. The Company entered into the variable interest entity in an effort to utilize its net operating loss carryforwards as an investment tool in connection with the acquisition of CPOC. When and if the Purchase Price is fully paid and distributions are made, and the Company’s residual interest shall become 10%, the principles of consolidation for financial reporting purposes will no longer be satisfied under FIN 46R or APB 18. Accordingly, the Company would no longer consolidate the results of operations of the Operating LP and would instead record its share of income from the Operating LP as “Investment Income” in its consolidated statement of operations.

The Company’s real estate advisory service operations perform a variety of real estate advisory services for corporate clients.

Please see Note 14 “Segment Data” in the notes hereto for additional information.

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Purchase Accounting

The Park Assets and CPOC acquisitions have been accounted for using the purchase method of accounting and the purchase prices have been allocated as follows:

The excess of the purchase price over the net tangible assets acquired have been allocated to (i) patient prescriptions for the Park Assets acquisition which are being amortized over 3 years and (ii) preliminarily to goodwill for the CPOC acquisition. The Company has not completed its analysis or allocation of the CPOC purchase price and as such, the following purchase accounting information should be considered preliminary and subject to change. The preliminary allocation for CPOC does not include potential purchase price adjustments based upon the operating results of CPOC’s business and the collections of CPOC’s trade receivables outstanding as of May 1, 2004. The Company may also incur additional costs in connection with the CPOC purchase. Accordingly, the allocation of the purchase price over the net tangible assets acquired of CPOC, which has been tentatively allocated entirely to goodwill, may be adjusted in the future. Depending on the final determination of amortizable intangible assets versus goodwill, amortization expense will likely increase in the future. Such future (non-cash) amortization expense could be material to the condensed consolidated statement of operations of the Company.

Summary of Significant Accounting Policies

Use of estimates

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

Healthcare product sales and other

Healthcare product sales and other revenues are reported at the estimated net realizable amounts expected to be received from individuals, third-party payors, institutional healthcare providers and others. The Company recognizes revenue from the sale of pharmaceutical products and retail merchandise as transactions occur and product is delivered to the customer. Revenue from product sales is recognized at the point of sale and service revenue is recognized at the time services are provided.

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Real estate advisory services

Revenues from real estate advisory services are recognized as revenue based upon completion of the services performed. Participation interests in rental income are recognized over the life of the lease.

With respect to CPOC, revenue is recognized when the tenant lease contract is signed by all appropriate parties and as the following consulting services are provided; facility and site acquisition and disposition, lease management, design, construction and development consulting, move coordination and strategic real estate advisory services.

Healthcare product inventory

Inventory consists of healthcare finished goods held for resale, valued at the lower of cost, using the first-in, first-out method, or market and were comprised of approximately $1,341,000 in pharmaceutical products and approximately $1,052,000 in retail and other merchandise at June 30, 2004.

Accounting for impairment of goodwill and other intangible assets

In accordance with the Statement of Financial Accounting Standards No. 142, Goodwill and other Intangible Assets, the Company has adopted a policy of recording an impairment loss on Goodwill and other Intangible Assets when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount.

Stock-Based Compensation

See Note 12 to the condensed consolidated financial statements.

Certain prior year balances have been reclassified to conform to the current year presentation.

3. Cash and Cash Equivalents

The Company considers all non-restrictive, highly liquid short-term investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents, which amount to approximately $3.1 million and approximately $2.0 million at June 30, 2004 and December 31, 2003, respectively, consist principally of interest-bearing cash deposits placed with various financial institutions.

4. Trade Accounts Receivable

Trade accounts receivable comprised the following at June 30, 2004:

DHI’s trade accounts receivable consists primarily of amounts receivable from third-party payers (insurance companies and governmental agencies) under various medical reimbursement programs, institutional healthcare providers, individuals and others and are not collateralized. Certain receivables are recorded at estimated net realizable amounts. Amounts that may be received under medical reimbursement programs are affected by changes in payment criteria and are subject to legislative actions. DHI reduces its accounts receivable by an allowance for the amounts deemed to be uncollectible. In general, an allowance for retail pharmacy accounts aged in excess of 60 days and infusion therapy accounts aged in excess of 180 days is established. Accounts that management has ultimately determined to be uncollectible are written off against the allowance.

The Company’s real estate advisory services operations grants credit to customers of various sizes and provides an allowance for doubtful accounts equal to the estimated uncollectible amounts based on historical collection

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experience and a review of the current status of trade accounts receivable. For the two months ended June 30, 2004, in which the Company owned CPOC, there were no provisions for bad debt expenses for real estate advisory service accounts receivable. For the two months ended June 30, 2004, the Company’s real estate advisory services operations derived revenues in excess of ten percent from two customers totaling approximately $1,590,000.

DHI’s accounts receivable from Medicare and Medicaid combined were approximately 17% of total accounts receivable at June 30, 2004. No other single customer or third-party payer accounted for more than 10% of DHI’s accounts receivable at June 30, 2004.

5. Prepaid Expenses

Prepaid expenses comprised the following:

The Company’s real estate advisory services operations defer direct costs associated with its tenant representation services until such time a lease is signed between the tenant and landlord. Upon execution of a signed lease, the Company expenses 50% of these direct costs associated with the transactions, with the balance being paid by the individual broker through a reduction in the commission earned. The Company regularly reviews these direct costs and expenses such costs related to canceled or unlikely to be completed transactions.

6. Computation of Basic and Diluted Net Income (Loss) Per Common Share

Basic income (loss) per common share is based on the net income (loss) divided by the weighted average number of common shares outstanding during the period. Diluted income (loss) per common share is based on the net income (loss) divided by the weighted average number of common shares including equivalent common shares of dilutive common stock options and warrants outstanding during the period. No effect has been given to outstanding options or warrants in the diluted computation, for periods with net losses as their effect would be anti-dilutive. A reconciliation of basic and diluted income (loss) per common share follows:

During the second quarter of 2002, 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

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restricted shares will vest annually over a three-year period. The restricted stock certificates were issued on April 2, 2003. In July 2004, the Company issued 17,500 shares of restricted stock under the 2002 Equity Incentive Plan to a new member of its Board of Directors. Under the restricted stock agreements, the restricted shares will vest annually over a three-year period.

Deferred compensation equivalent to the market value of these shares at date of issuance is reflected in Shareholders’ Equity and is being amortized to operating expense over three years. Deferred compensation expense included in the accompanying condensed consolidated statement of operations amounted to $8,700 per quarter and $17,400 per six-month period, respectively, for the periods ended June 30, 2004 and June 30, 2003.

7. Property and Equipment

Property and equipment comprised the following:

The Company provides for depreciation based on the estimated useful lives of depreciable assets using the straight-line method. Depreciation expense was $65,000 and $15,000 for the second quarters ended June 30, 2004 and 2003, respectively and $71,000 and $30,000 for the six month periods ended June 30, 2004 and 2003, respectively.

8. Goodwill and Other Intangibles

Goodwill and other intangibles comprised the following:

The Company amortizes its patient prescriptions acquired in the acquisition of the Park Assets over 3 years and has recorded amortization expense of $19,000 for the quarter ended June 30, 2004.

The allocation for CPOC is preliminary and does not include potential purchase price adjustments based upon the operating results of CPOC’s business and the collections of CPOC’s trade receivables outstanding as of May 1, 2004. The Company has not completed its analysis of this purchase and as such the associated purchase accounting information should be considered preliminary. The Company may also incur additional costs in connection with the CPOC purchase. Accordingly, the allocation of the purchase price over the net tangible assets acquired of CPOC, which has been tentatively allocated entirely to goodwill, may be adjusted in the future. Depending on the final determination of amortizable intangible assets versus goodwill, amortization expense will likely increase in the future. Such future (non-cash) amortization expense could be material to the condensed consolidated statement of operations of the Company.

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9. Investments in Limited Partnerships

Investments in limited partnerships comprised the following:

10. Accrued Liabilities

Accrued liabilities comprised the following:

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11. Notes Payable

Notes payable comprised the following at June 30, 2004:

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The aggregate maturities of notes payable for the 12 months ended June 30 are as follows:

12. Stock Options

The Company accounts for its stock-based compensation plans under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. In October 1995, the Financial Accounting Standards Board issued Statement No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), which establishes a fair value-based method of accounting for stock-based compensation plans. The Company has adopted the disclosure-only alternative under SFAS No. 123. The Company accounts for stock based compensation to non-employees using the fair value method in accordance with SFAS No. 123 and Emerging Issues Task Force (EITF) Issue No. 96-18. The Company has recognized deferred stock compensation related to certain stock option and grants of restricted stock. During the nine months ended September 30, 2002, the Company granted 1,310,000 options, on a net basis, to purchase shares of common stock at $0.24 per share. The Company valued these options based on the Black-Scholes option pricing model.

The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS Statement No. 123, Accounting for Stock-Based Compensation, to stock-based compensation.

Stock Options

(unaudited)

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13. Commitments and Contingencies

Operating Leases

The Company leases its pharmacy, real estate advisory service and corporate offices and certain pharmacy equipment under non-cancelable operating lease agreements. Certain leases contain renewal options and provide that the Company pay taxes, insurance, maintenance and other operating expenses. Total rent expense for operating leases was approximately $283,000 and $10,000 for the second quarters ended June 30, 2004 and 2003, respectively, and $309,000 and 21,000 for the six months ended June 30, 2004 and 2003, respectively.

Future minimum lease payments under non-cancelable operating leases are as follows:

14. Business Segment Information

The Company is organized in three segments: (i) healthcare, (ii) real estate services and (iii) corporate and other businesses. The healthcare segment consists of the operations of DHI while the real estate advisory services segment consists of the operations of the CRESA Partners of Orange County LP and the operations of CRESA Capital Markets Group LP. Condensed statements of operations by the Company’s principal business segments for the three and six months ended June 30, 2004 and 2003 follows (000’s omitted):