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, 20052006 as filed with the Securities and Exchange Commission. The consolidated results of operations for the three and nine month periodsquarter ended September 30, 2006March 31, 2007 are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire fiscal year ending December 31, 2006.2007. The December 31, 20052006 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. Terms not otherwise defined herein shall have the meaning given to them in the Company’s Form 10-K for the year ended December 31, 20052006 as filed with the Securities and Exchange Commission.

Ascendant Solutions is a diversified financial services company which is seeking to or has invested in or acquired, healthcare, manufacturing, distribution or service companies. The Company also conducts various real estate activities, performing real estate advisory services for corporate clients, and, through an affiliate, purchases real estate assets, as a principal investor.

The following is a summary of the Company’s identifiable business segments, consolidated subsidiaries and their related business activities:

During 2002, the Company made its first investments, and it has continued to make additional investments and acquisitions throughout 2003, 2004 and 2005.

A summary of the Company’s investment and acquisition activity is shown in the table below:

Certain of these transactions involved related parties or affiliates as more fully described in the Company’s consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2005.2006.

The Company will continue to look for acquisition opportunities, however, its current cash resources are limited and it will be required to expend significant executive time to assist the management of its acquired businesses. The Company will continue seeking to (1) most effectively deploy its remaining cash and debt capacity (if any) and (2) capitalize on the experience and contacts of its officers and directors.

The condensed consolidated financial statements include the accounts of Ascendant Solutions and all subsidiaries for which the Company has significant influence over operations. All intercompany balances and transactions have been eliminated. The limited partnership interests for the subsidiaries and related minority interests are included on the balance sheet as Minority Interests.

The preparation of the condensed consolidated 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 reported condensed consolidated financial statements and accompanying notes, including allowance for doubtful accounts and inventory reserves. Actual results could differ from those estimates.  

Equity method investments represent investments in limited partnerships accounted for using the equity method of accounting for investments, and none represent investments in publicly traded companies. The equity 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. The Company also uses the equity method for investments in real estate limited partnerships where it owns more than 3% to 5% of the limited partnership interests. Accordingly, the Company records its proportionate share of the income or losses generated by equity method investees in the condensed consolidated statements of operations. If the Company receives distributions in excess of its equity in earnings, they are recorded as a reduction of its investment.

Healthcare 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.

Real estate advisory services revenue is primarily from brokerage commissions earned from project leasing and tenant representation transactions. Brokerage commission revenue is generally recorded upon execution of a lease contract, unless additional activities are required to earn the commission pursuant to a specific brokerage commission agreement. Participation interests in rental income are recognized over the life of the lease. Other revenue is recognized 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. Participation interests in rental income are recognized over the life of the lease.

Basic and diluted net income (loss) per share is computed based on the net income (loss) applicable to common stockholders divided by the weighted average number of shares of common stock outstanding during each period. The number of dilutive shares resulting from assumed conversion of stock options and warrants are determined by using the treasury stock method.   See Note 4 for more information regarding the calculation of net income (loss) per share.

In May 2006, the State of Texas replaced the current franchise tax system with a new Texas Margin Tax (“TMT”). The TMT is a 1% gross receipts tax based on the Company’s taxable margin, as defined by the new law. However, for taxable entities primarily engaged in retail and wholesale trade, the rate is 0.5% of taxable margin. The Company is currently evaluatinghas evaluated the impact of the TMT which is effectiveon our consolidated financial position, results of operations or cash flows and has concluded that the TMT does not appear it will have a material impact on its results of operations.

Effective January 1, 2008.

As disclosed in a Current Report on Form 8-K filed on May 24, 2006, the board of directors decided to retain the operations of Park InfusionCare, which had previously been reported as a discontinued operation while the Company was pursuing a potential disposition or strategic transaction for its infusion therapy business. In connection with the decision to retain the operations of Park InfusionCare, DHI entered into an employment agreement on May 18, 2006 with Scott R. Holtmyer to be the Vice President of its Park InfusionCare infusion therapy business.

Critical accounting policies not otherwise included herein are included in the Company’s Form 10-K for the year ended December 31, 20052006 as filed with the Securities and Exchange Commission.

Healthcare trade accounts receivable consists primarily of amounts receivable from third-party payors (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. Healthcare 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.

Healthcare accounts receivable from Medicare and Medicaid combined were approximately 17.9%8.5% and 18.1%13.3% of total accounts receivable at September 30, 2006March 31, 2007 and December 31, 2005,2006, respectively. Additionally, at DecemberMarch 31, 2005,2007 Healthcare had accounts receivable outstanding from one insurance company of approximately 13.1%10.3% of total Healthcare accounts receivable. No other single customer or third-party payor accounted for more than 10% of Healthcare’s accounts receivable at September 30, 2006March 31, 2007 or December 31, 2005,2006, respectively. In addition, for the three month periods ended March 31, 2007 and 2006, the Healthcare operations did not derive revenue in excess of ten percent from any single customer.

The Company’s real estate advisory services operations grant credit to customers of various sizes and provide an allowance for doubtful accounts equal to the estimated uncollectible amounts based on historical collection experience and a review of the current status of trade accounts receivable. At March 31, 2007, the Company’s real estate advisor services operations had accounts receivable outstanding from two customers of approximately 39.8% of total real estate advisor services accounts receivables. For the three months ended September 30, 2006,March 31, 2007, the Company’s real estate advisory services operations derived revenues in excess of ten percent from three customers totaling approximately $1,206,000$2,439,000 which represents 61.2%62.8% of total real estate advisory services revenue, and it derived revenues in excess of ten percent from two customersone customer totaling $1,366,000,$1,536,000, which represents 56.1%47% of total real estate advisory services revenue for the three months ended September 30, 2005.

Basic lossnet income (loss) per common share is based on the net lossincome (loss) divided by the weighted average number of common shares outstanding during the period. Diluted lossnet income (loss) per common share is based on the net lossincome (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 the three and nine month periods ended September 30,March 31, 2006 and 2005, respectively, as their effect would be anti-dilutive due to the net loss.

The number of potentially dilutive stock options and warrants excluded from the computation for the three and nine month periods ended September 30,March 31, 2006 was approximately 308,785 and 430,699 in 2006 and 956,000 and 973,000 in 2005, respectively.524,562. A reconciliation of basic and diluted lossnet income (loss) per common share follows:

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 the costs related to canceled or unlikely to be completed transactions.

The BankTerm Loan bears interest at the Lender’s prime rate plus 0.25%. Principal payments of Texas credit facility contains$45,833 and accrued and unpaid interest on the Term Loan is due monthly beginning on March 20, 2007. All outstanding principal under the Term Loan plus all accrued and unpaid interest thereon is due and payable in full on February 20, 2011.

Both the Term Loan and the Amegy Revolver are subject to certain financial covenants including, but not limited to, a borrowing base formula with whichcap on management fees, a limit on dividends and distributions except for dividends and distributions between Borrowers or any of the Borrowers’ subsidiaries, a limit on payments of subordinated debt to the Company must comply. Ifand a limit on additional debt of the outstanding borrowings underBorrowers. Furthermore, the facility exceedloan agreement provides that the borrowing base, theBorrowers will maintain a maximum ratio of funded debt to earnings before interest, taxes, depreciation and amortization plus certain non-recurring charges and fees (“Adjusted EBITDA”) and a minimum ratio of Adjusted EBITDA to current maturities of long term bank debt and interest. The Company is obligated to make additional principal payments to reduce the outstanding borrowings. As of September 30, 2006 and December 31, 2005, the Company wascurrently in compliance with this borrowing base requirement. these financial covenants.

Both the First Republic Bank term note and revolving line of credit are subject to certain financial covenants including a minimum ratio of earnings before interest, taxes, depreciation and amortization to debt service and a limit on annual capital expenditures. As of September 30, 2006March 31, 2007, CPOC was in compliance with these financial covenants. The Term Note is being guaranteed by CPOC. The term note and the revolver are also being personally guaranteed, subject to certain limits, by certain officers and minority limited partners of CPOC. The Company is not paying any compensation to the individuals providing these guaranties.

The Company and its subsidiaries lease its pharmacy, real estate advisory services 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 $386,000$351,000 for the three months ended September 30, 2006.March 31, 2007.

Future minimum lease payments under non-cancelable operating leases for the twelve months ending September 30,March 31, are as follows:

OnIn September 25, 2006, the Chapter 7 trustee for the bankruptcy estate of Quantum North America, Inc. sought to enforce two default judgments against the Company for alleged preferential and fraudulent transfers to the Company's predecessor, ASD Systems, Inc. in the aggregate amount of approximately $150,000, plus interest and attorneys fees. The transfers at issue occurred in 2000. The adversary proceedings filed in the bankruptcy case were styled: David Gottlieb Trustee v. ASD Systems, Inc.; Adv. Nos. 1:02-ap-02131-GM and 1:02-ap-01948. The Company believestook the position that the judgments should be set aside aswere void since thebased on defective service of the underlying complaints was defective and neither ASD SystemsAscendant nor the CompanyASD were afforded the opportunity to defend. If the default judgments are set aside, the Company intends to defend the claims based on several available defenses.claims. The Company anticipates thatalso disputed the hearingunderlying claims and was prepared to considerfully defend the enforceability ofTrustee's suit once the judgments will be in December 2006.

Under the Company’s 2002 Equity Incentive Plan, it can issue up to 2,000,000 shares of restricted stock to employees and non-employee directors pursuant to restricted stock agreements. Under the restricted stock agreements, the restricted shares will vest annually over a three-year period, or such other restriction period as the Company’s Board of Directors may approve.

Deferred compensation equivalent to the market value of restricted common shares at date of issuance is reflected in stockholders’ equity and is being amortized to operating expense over three years. Deferred compensation expense included in the accompanying condensed consolidated statements of operations amounted to $33,000$5,000 and $23,000$9,000 for the three month periods ended September 30,March 31, 2007 and 2006, and 2005, respectively, and $51,000 and $58,000 for the nine month periods ended September 30, 2006 and 2005, respectively. The Company has not recognized any tax benefit related to this deferred compensation expense due to the existence of its federal tax net operating loss carryforward. During the three month period ended September 30, 2006,March 31, 2007, the Company issued 22,17841,666 shares of restricted common stock to non-employee directors in lieu of paying cash for quarterly directors’ fees. The fair value of these shares was $13,750$18,750 based on the share price of the shares on the date of grant. This amount is also equal to the cash amount that would have been paid for the director’s fees, and is included in selling, general and administrative expense for the three months ended September 30, 2006.March 31, 2007. The Company has deferred compensation expense of approximately $30,000$20,000 at September 30, 2006March 31, 2007 which will be recognized over the weighted average remaining life of the unvested restricted shares of approximately 2014 months.

The Company’s Long-Term Incentive Plan (the “Plan”), approved in May 1999 and last amended in October 2000, provides for the issuance to qualified participants options to purchase up to 2,500,000 of common stock. As of September 30, 2006March 31, 2007 and December 31, 2005 respectively,2006 options to purchase 490,000 and 915,000460,000 shares of common stock were outstanding under the Plan.

The exercise price of the options is determined by the administrators of the Plan, but cannot be less than the fair market value of the Company’s common stock on the date of the grant. Options vest ratably over periods of one to six years from the date of the grant. The options have a maximum life of ten years. The exercise price and the market price of the options were the same on the date of grant and thus there is no intrinsic value related to the outstanding options.