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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
|X|
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF THE SECURITIES
EXCHANGE ACT OF1934
OF 1934
For the Fiscal Year ended December 31, 2006
|_| 2007
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from ________ to -------- --------
________
Commission File Number 0-28536
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NEW CENTURY EQUITY HOLDINGS CORP.
(Exact
(Exact name of registrant as specified in its charter)
Delaware 74-2781950
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
200 Crescent Court, Suite 1400, Dallas, Texas 75201
(Address of principal executive offices) (Zip Code)
Delaware | 74-2781950 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification Number) |
| |
200 Crescent Court, Suite 1400, Dallas, Texas | 75201 |
(Address of principal executive offices) | (Zip Code) |
(214) 661-7488
(Registrant's
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act: NONE
None
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE
Common Stock, Par Value $0.01 PER SHARE
SERIESPer Share
Series A JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS
(TitleJunior Participating Preferred Stock Purchase Rights
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. |_|o Yes |X|x No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. |_|o Yes |X|x No
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. |X|x Yes |_|o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant'sregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X|
x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a non-accelerated filer.smaller reporting company. See definitionthe definitions of "accelerated“large accelerated filer,” “accelerated filer” and large accelerated filer"“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer |_| Accelerated Filer |_| Non-Accelerated Filer |X|
Large Accelerated Filer o | | Accelerated Filer o |
| | |
Non-Accelerated Filer x | | Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |_|o Yes |X|x No
The aggregate market value of the registrant'sregistrant’s outstanding Common Stock held by non-affiliates of the registrant computed by reference to the price at which the Common Stock was last sold as of the last business day of the registrant'sregistrant’s most recently completed second fiscal quarter was $8,280,745.
$8,970,807.
As of March 30, 2007,28, 2008, the registrant had 53,883,872 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12, 13 and 14 of Part III of this Form 10-K incorporate by reference portions of an amendment to this Form 10-K or portions of a definitive proxy statement of the registrant for its 20072008 Annual Meeting of Stockholders to be held on a date to be determined, which in either case will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year ended December 31, 2006.
2007.
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
ANNUAL REPORT ON FORM
Annual Report on Form 10-K
FOR THE YEAR ENDED DECEMBER
For the Year Ended December 31, 2006
PAGE
----
2007
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PART I |
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| | 10 |
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PART II |
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| | 12 |
| | 14 |
| | 15 |
| | 19 |
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| | 39 |
| | 39 |
| | 40 |
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PART III |
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| | 41 |
| | 41 |
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| | 41 |
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PART IV |
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PART I
Item
ITEM 1. Business....................................................... 4
Item 1A. Risk Factors.....................................................7
Item 1B. Unresolved Staff Comments.......................................11
Item 2. Properties..................................................... 11
Item 3. Legal Proceedings.............................................. 11
Item 4. SubmissionBUSINESS
This Annual Report on Form 10-K contains certain “forward-looking” statements as such term is defined in the Private Securities Litigation Reform Act of
Matters1995 and information relating to
a Votethe Company and its subsidiaries that are based on the beliefs of
Security Holders............ 13
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Mattersthe Company’s management as well as assumptions made by and
Issuer Purchasesinformation currently available to the Company’s management. When used in this report, the words “anticipate”, “believe”, “estimate”, “expect” and “intend” and words or phrases of
Equity Securities...............13
Item 6. Selected Financial Data........................................ 14
Item 7. Management's Discussionsimilar import, as they relate to the Company or its subsidiaries or Company management, are intended to identify forward-looking statements. Such statements reflect the current risks, uncertainties and
Analysisassumptions related to certain factors including, without limitation, competitive factors, general economic conditions, the interest rate environment, governmental regulation and supervision, seasonality, changes in industry practices, one-time events and other factors described herein and in other filings made by the Company with the Securities and Exchange Commission (“SEC”). Based upon changing conditions, should any one or more of
Financial Condition
and Results of Operations.......................................15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk......21
Item 8. Financial Statements and Supplementary Data.................... 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................44
Item 9A. Controls and Procedures.........................................44
Item 9B. Other Information...............................................44
PART III
Item 10. Directors, Executive Officers and Corporate Governance..........45
Item 11. Executive Compensation..........................................45
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters......................45
Item 13. Certain Relationships and Related Transactions,
and Director Independence.......................................45
Item 14. Principal Accountant Fees and Services..........................45
PART IV
Item 15. Exhibits and Financial Statement Schedules......................45
Signatures......................................................49
3
PART I
ITEM 1. BUSINESS
THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN "FORWARD-LOOKING"
STATEMENTS AS SUCH TERM IS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995 AND INFORMATION RELATING TO THE COMPANY AND ITS SUBSIDIARIES THAT
ARE BASED ON THE BELIEFS OF THE COMPANY'S MANAGEMENT AS WELL AS ASSUMPTIONS MADE
BY AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY'S MANAGEMENT. WHEN USED IN
THIS REPORT, THE WORDS "ANTICIPATE", "BELIEVE", "ESTIMATE", "EXPECT" AND
"INTEND" AND WORDS OR PHRASES OF SIMILAR IMPORT, AS THEY RELATE TO THE COMPANY
OR ITS SUBSIDIARIES OR COMPANY MANAGEMENT, ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT RISKS,
UNCERTAINTIES AND ASSUMPTIONS RELATED TO CERTAIN FACTORS INCLUDING, WITHOUT
LIMITATION, COMPETITIVE FACTORS, GENERAL ECONOMIC CONDITIONS, THE INTEREST RATE
ENVIRONMENT, GOVERNMENTAL REGULATION AND SUPERVISION, SEASONALITY, CHANGES IN
INDUSTRY PRACTICES, ONE-TIME EVENTS AND OTHER FACTORS DESCRIBED HEREIN AND IN
OTHER FILINGS MADE BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION
("SEC"). BASED UPON CHANGING CONDITIONS, SHOULD ANY ONE OR MORE OF THESE RISKS
OR UNCERTAINTIES MATERIALIZE, OR SHOULD ANY UNDERLYING ASSUMPTIONS PROVE
INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN AS
ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED OR INTENDED. THE COMPANY DOES NOT
INTEND TO UPDATE THESE FORWARD-LOOKING STATEMENTS.
INTRODUCTION
these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. The Company does not intend to update these forward-looking statements.
Introduction
New Century Equity Holdings Corp. ("NCEH"(“NCEH” or the "Company"“Company”) is a company in transition. The Company is currently seeking to redeploy its assets to enhance stockholder value and is seeking, analyzing and evaluating potential acquisition and merger candidates. On October 5, 2005, the Company made an investment in ACP Investments L.P. (d/b/a Ascendant Capital Partners) ("Ascendant"(“Ascendant”). Ascendant is a Berwyn, Pennsylvania based alternative asset management company whose funds have investments in long/short equity funds and which distributes its registered funds primarily through various financial intermediaries and related channels. The Company'sCompany’s interest in Ascendant currently represents the Company'sCompany’s sole operating business.
HISTORICAL OVERVIEW
Historical Overview
The Company, which was formerly known as Billing Concepts Corp. ("BCC"(“BCC”), was incorporated in the state of Delaware in 1996. BCC was previously a wholly-owned subsidiary of U.S. Long Distance Corp. ("USLD"(“USLD”) and principally provided third-party billing clearinghouse and information management services to the telecommunications industry (the "Transaction“Transaction Processing and Software Business"Business”). Upon its spin-off from USLD, BCC became an independent, publicly-held company. In October 2000, the Company completed the sale of several wholly-owned subsidiaries that comprised the Transaction Processing and Software Business to Platinum Holdings ("Platinum"(“Platinum”) for consideration of $49,700,000 (the "Platinum Transaction"“Platinum Transaction”). The Company also received payments totaling $7,500,000 for consulting services provided to Platinum over the twenty-four month period subsequent to the Platinum Transaction.
Beginning in 1998, the Company made multiple investments in Princeton eCom Corporation ("Princeton"(“Princeton”) totaling approximately $77,300,000 before selling all of its interest for $10,000,000 in June 2004. The Company'sCompany’s strategy, beginning with its investment in Princeton, of making investments in high-growth companies was also facilitated through several other investments.
In early 2004, the Company announced that it would seek stockholder approval to liquidate the Company. In June of 2004, the board of directors of the Company determined that it would be in the best interest of the Company to accept an investment from Newcastle Partners, L.P. ("Newcastle"(“Newcastle”), an investment fund with a long track record of investing in public and private companies. On June 18, 2004, the Company sold 4,807,692 newly issued shares of its Series A 4% Convertible Preferred Stock (the "Series“Series A Preferred Stock"Stock”) to Newcastle for $5,000,000 (the "Newcastle Transaction"“Newcastle Transaction”). The Series A Preferred Stock was convertible into approximately thirty-five percent of the Company'sCompany’s common stock (the "Common Stock"“Common Stock”), at any time after the expiration of twelve months from the date of its issuance at a conversion price of $0.26 per share of Common Stock, subject to adjustment for dilution. The holders of the Series A Preferred Stock were entitled to a four percent annual cash dividend (the "Preferred Dividends"). Following the investment by Newcastle, the management team resigned and new executives and board members were appointed. On July 3, 2006, Newcastle converted its Series A Preferred Stock into 19,230,768 shares of Common Stock.
During May 2005, the Company sold its equity interest in Sharps Compliance Corp. ("Sharps"(“Sharps”) for approximately $334,000. Following the sale of its interest in Sharps,
interest, the Company no longer holds any investments made by former management and which reflected former management'smanagement’s strategy of investing in high-growth companies.
DERIVATIVE LAWSUIT
Derivative Lawsuit
On August 11, 2004, Craig Davis, allegedly a stockholder of the Company, filed a lawsuit in the Chancery Court of New Castle County, Delaware (the "Lawsuit"“Lawsuit”). The Lawsuit asserted direct claims, and also derivative claims on the Company'sCompany’s behalf, against five former and three current directors of the Company. On April 13, 2006, the Company announced that it reached an agreement with all of the parties to the Lawsuit to settle all claims relating thereto (the "Settlement"“Settlement”). On June 23, 2006, the Chancery Court approved the Settlement, and on July 25, 2006, the Settlement became final and non-appealable. As part of the Settlement, the Company set up a fund (the "Settlement Fund"“Settlement Fund”), which was distributed to stockholders of record as of July 28, 2006, with a payment date of August 11, 2006. The portion of the Settlement Fund distributed to stockholders pursuant to the Settlement was $2,270,017 or approximately $.04 per common share on a fully diluted basis, provided that any Common Stock held by defendants in the Lawsuit who were formerly directors of the Company would not be entitled to any distribution from the Settlement Fund. The total Settlement proceeds of $3,200,000 were funded by the Company'sCompany’s insurance carrier and by Parris H. Holmes, Jr., the Company'sCompany’s former Chief Executive Officer, who contributed $150,000. Also included in the total Settlement proceeds is $600,000 of reimbursement for legal and professional fees paid to the Company by its insurance carrier and subsequently contributed by the Company to the Settlement Fund. Therefore, the Company has recognized a loss of $600,000 related to the Lawsuit for the year ended December 31, 2006. As part of the Settlement, the Company and the other defendants in the Lawsuit agreed not to oppose the request for fees and expenses by counsel to the plaintiff of $929,813. Under the Settlement, the plaintiff, the Company and the other defendants (including Mr. Holmes) also agreed to certain mutual releases.
The Settlement provided that, if the Company had not acquired a business that generated revenues by March 1, 2007, the plaintiff maintained the right to pursue a claim to liquidate the Company. This custodian claim was one of several claims asserted in the Lawsuit. Even if such a claim is elected to be pursued, there is no assurance that it will be successful. In addition, the Company believes that it has preserved its right to assert that the Ascendant investment meets the foregoing requirement to acquire a business.
In connection with the resolution of the Lawsuit, the Company has ceased funding of legal and professional fees of the current and former director defendants. The funding of legal and professional fees was made pursuant to indemnification arrangements that were in place during the respective terms of each of the defendants. The Company has met the $500,000 retention as stipulated in the Company's directors'Company’s directors’ and officers'officers’ liability insurance policy. The directors'directors’ and officers'officers’ liability insurance policy carries a maximum coverage limit of $5,000,000. As of December 31, 2006,During October 2007, the Company has recorded a
receivable fromand the insurance carrier of approximately $300,000agreed to settle all claims for reimbursement of legal and professional fees incurred in excess of the policy
retention, net of the $600,000 reimbursement from the insurance carrier as part
of the Settlement. The Company is currently negotiating a settlementassociated with the insurance carrier with respect to remaining reimbursement amounts. The Company
is vigorously pursuing enforcementLawsuit for $240,000.
Alternative Asset Management Operations
On October 5, 2005, the Company entered into an agreement (the "Ascendant
Agreement"“Ascendant Agreement”) with Ascendant to acquire an interest in the revenues generated by Ascendant. Pursuant to the Ascendant Agreement, the Company is entitled to a 50% interest, subject to certain adjustments, in the revenues of Ascendant, which interest declines if the assets under management of Ascendant reach certain levels. Revenues generated by Ascendant include revenues from assets under management or any other sources or investments, net of any agreed commissions. The Company also agreed to provide various marketing services to Ascendant. Steven J. Pully, CEOOn November 5, 2007, John Murray, Chief Financial Officer of the Company, was appointed to the Investment Advisory Committee of Ascendant.Ascendant to serve in the place of the Company’s former CEO. The total potential purchase price under the terms of the Ascendant Agreement is $1,550,000, payable in four equal installments of $387,500. The first installment was paid at the closing and the second installment was paid on January 5, 2006. Subject to the provisions of the Ascendant Agreement, including Ascendant'sAscendant’s compliance with the terms thereof, the third installment was payable on April 5, 2006 and the fourth installment was payable on July 5, 2006. On April 5, 2006, the Company elected not to make the April installment payment and subsequently determined not to make the installment payment due July 5, 2006. The Company believed that it was not required to make the payments because Ascendant did not satisfy all of the conditions in the Ascendant Agreement.
Subject to the terms of the Ascendant Agreement, if the Company does not make an installment payment and Ascendant is not in breach of the Ascendant Agreement, Ascendant has the right to acquire the Company'sCompany’s revenue interest at a price which would yield a 10% annualized return to the Company. The Company has been notified by Ascendant that Ascendant is exercising this right as a result of the Company'sCompany’s election not to make its third and fourth installment payments. The Company believes that Ascendant has not satisfied the requisite conditions to repurchase the Company'sCompany’s revenue interest.
Ascendant had assets under management of approximately $27,100,000$37,500,000 and $17,800,000$27,100,000 as of December 31, 20062007 and December 31, 2005,2006, respectively. Under the Ascendant Agreement, revenues earned by the Company from the Ascendant revenue interest (as determined in accordance with the terms of the Ascendant Agreement) are payable in cash within 30 days after the end of each quarter. Under the terms of the Ascendant Agreement, Ascendant has 45 days following notice by the Company to cure any material breach by Ascendant of the Ascendant Agreement, including with respect to payment obligations. Ascendant failed to make the required revenue sharing payments for the quarters ended June 30, 2006, September 30, 2006 and December 31, 2006 in a timely manner and did not cure
such failures withinfor the required 45 day period.year ended December 31, 2007. Under the terms of the Ascendant Agreement, upon notice of an uncured material breach, Ascendant is required to fully refund all amounts paid by the Company, and the Company'sCompany’s revenue interest remains outstanding.
As part of the parties' discussions regarding non-payment of amounts under
the Ascendant Agreement by each party, the Company has proposed an amendment
that would permit Ascendant to temporarily defer certain payments to the
Company, including the payments owed related to the quarters ended June 30,
2006, September 30, 2006 and December 31, 2006. There is no assurance that an
amendment will be effected on such terms or that any resolution of the foregoing
matter will be reached.
Based on the parties' discussions, the Company has charged off the revenue
interest receivable of $34,000, which was accrued by the Company at June 30,
2006, for its portion of the 50% revenue interest for that quarter.
The Company has not recorded any revenue or
corresponding receivable forreceived any revenue sharing payments for the quarters ended September 30, 2006 and December 31,
2006.2006 and for the year ended December 31, 2007. According to the
Ascendant Agreement,
with Ascendant, if Ascendant acquires the revenue interest from the Company, Ascendant must pay the Company a return on the capital that it invested. Pursuant to the
Ascendant Agreement, the required return
on the Company’s invested capital will not be impacted by any
revenue sharing payments
missedmade or not made by
Ascendant or written off by the
Company.
6
Ascendant.
In connection with the Ascendant Agreement, the Company also entered into the Principals Agreement with Ascendant and certain limited partners and key employees of Ascendant (the "Principals Agreement"“Principals Agreement”) pursuant to which, among other things, the Company has the option to purchase limited partnership interests of Ascendant under certain circumstances. Effective March 14, 2006, in accordance with the terms of the Principals Agreement, the Company acquired a 7% limited partnership interest from a limited partner of Ascendant for nominal consideration. The Principals Agreement contains certain noncompete and nonsolicitation obligations of the partners of Ascendant that apply during their employment and the twelve month period following the termination thereof.
EMPLOYEES
Since the Ascendant revenue interest meets the indefinite life criteria outlined in SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), the Company does not amortize this intangible asset, but instead reviews this asset quarterly for impairment. Each reporting period, the Company assesses whether events or circumstances have occurred which indicate that the indefinite life criteria are no longer met. If the indefinite life criteria are no longer met, the Company assesses whether the carrying value of the asset exceeds its fair value, and an impairment loss is recorded in an amount equal to any such excess.
The Company assesses whether the entity in which the acquired revenue interest exists meets the indefinite life criteria based on a number of factors including: the historical and potential future operating performance; the historical and potential future rates of attrition among existing clients; the stability and longevity of existing client relationships; the recent, as well as long-term, investment performance; the characteristics of the entities’ products and investment styles; the stability and depth of the management team and the history and perceived franchise or brand value.
Employees
As of December 31, 2006,2007, the Company had two employees. None of the
Company's employees areone employee. The Company’s employee is not represented by a union. The Company believes that its employee relations are good.
ITEM
The following paragraphs discuss certain factors that may affect the Company'sCompany’s business, financial condition and operating results. For the purposes of the following paragraphs, unless the context otherwise requires, the terms "we"“we”, "us"“us” and "our"“our” refer to NCEH. You should consider carefully the risks and uncertainties described below and the other information in this report. The risks set forth below are not the only ones we face. Additional risks and uncertainties that we are not aware of or that we currently deem immaterial also may become important or impair our business. If any of the following risks actually occur, our business, financial condition and results could be materially adversely affected, the trading price of our Common Stock could decline and the likelihood of there being any potential return to stockholders would diminish.
OUR RESULTS OF OPERATIONS COULD BE HARMED AS A RESULT OF CERTAIN ISSUES RELATING
TO THE SETTLEMENT OF THE DAVIS LITIGATON, INCLUDING IF WE DO NOT COLLECT A
RECEIVABLE FROM OUR INSURANCE CARRIER WITH RESPECT TO DEFENSE COSTS.
Our results of operations could be harmed as a result of certain issues relating to the settlement of the Davis litigation.
As discussed in Item 3
"Legal Proceedings"“Legal Proceedings”, on August 11, 2004, Craig Davis, allegedly a stockholder of the Company, filed a lawsuit in the Chancery Court of New Castle County, Delaware. The lawsuit asserted direct claims, and also derivative claims on the
Company'sCompany’s behalf, against five former and three current directors of the Company. On April 13, 2006, we announced that we reached an agreement with all of the parties to the lawsuit to settle all claims relating thereto. On July 25, 2006, the Settlement became final and non-appealable.
In connection with the resolution of the Lawsuit, the Company ceased
funding of legal and professional fees of the current and former director
defendants. The funding of legal and professional fees was made pursuant to
indemnification arrangements that were in place during the respective terms of
each of the defendants. We have met the $500,000 retention as stipulated in our
directors' and officers' liability insurance policy. The directors' and
officers' liability insurance policy carries a maximum coverage limit of
$5,000,000. As of December 31, 2006, we have recorded a receivable from the
insurance carrier of approximately $300,000 for reimbursement of legal and
professional fees incurred in excess of the policy retention, net of the
$600,000 reimbursement from the insurance carrier as part of the Settlement. We
are currently negotiating a settlement with the insurance carrier with respect
to remaining reimbursement amounts. We are vigorously pursuing enforcement of
our rights under the policy. Nonpayment of the claim for reimbursement of legal
and professional fees could have a material adverse effect on the results of
operations of the Company. The Settlement does not preclude us from seeking
reimbursement of legal and professional fees up to the amount remaining within
the policy limit.
7
The Settlement provides that, if the Company has not acquired a business that generates revenues by the date of March 1, 2007, the plaintiff maintains the right to pursue a claim to liquidate the Company. This custodian claim was one of several claims asserted in the Lawsuit. Even if such a claim is elected to be pursued, there is no assurance that it will be successful. In addition, the Company believes that it has preserved its right to assert that the Ascendant investment meets the foregoing requirement to acquire a business.
THE
The SEC OR A COURT MAY TAKE THE POSITION THAT THE COMPANY WAS PREVIOUSLY IN
VIOLATION OF THE INVESTMENT COMPANY ACT OFor a court may take the position that the Company was previously in violation of the Investment Company Act of 1940.
Among the claims filed by Mr. Davis iswas a claim that the Company operated as an illegal investment company in violation of the Investment Company Act of 1940 (the "Investment“Investment Company Act"Act”). Although we do not believe that we have violated the Investment Company Act in the past, or at present, there can be no assurance that we have not, or are not, in violation of, the Investment Company Act. In the event the SEC or a court took the position that we were an investment company, our failure to register as an investment company would not only raise the possibility of an enforcement or other legal action by the SEC and potential fines and penalties, but also could threaten the validity of corporate actions and contracts entered into by us during the period we were deemed to be an unregistered investment company, among other remedies.
WE MAY BE UNABLE TO REDEPLOY OUR ASSETS SUCCESSFULLY.
We may be unable to redeploy our assets successfully.
As part of our strategy to limit operating losses and enable us to redeploy our assets and use our cash and short-term investment assets to enhance stockholder value, we are pursuing a strategy of identifying suitable acquisition candidates, merger partners or otherwise developing new business operations. We may not be successful in acquiring such a business or in operating any business that we acquire, merge with or develop. Although we made an investment in Ascendant, we may not be successful in investing in or acquiring other businesses. Failure to redeploy our assets successfully will prevent us from becoming profitable. Future cash expenditures are expected to consist of funding corporate expenses, the cost associated with maintaining a public company and expenses incurred in pursuing and operating new business activities, during which time operating losses are likely to be generated.
ANY ACQUISITIONS THAT WE ATTEMPT OR COMPLETE COULD PROVE DIFFICULT TO INTEGRATE
OR REQUIRE A SUBSTANTIAL COMMITMENT OF MANAGEMENT TIME AND OTHER RESOURCES.
Any acquisitions that we attempt or complete could prove difficult to integrate or require a substantial commitment of management time and other resources.
Our strategy of acquiring other businesses involves a number of unique risks including: (i) completing due diligence successfully; (ii) exposure to unforeseen liabilities of acquired companies; and (iii) increased risk of costly and time-consuming litigation, including stockholder lawsuits. We may be unable to address these problems successfully. Moreover, our future operating results will depend to a significant degree on our ability to integrate acquisitions (if any) successfully and manage operations while also controlling our expenses. We may be unable to select, manage or absorb or integrate any future acquisitions successfully, particularly acquisitions of large companies. Any acquisition, even if effectively integrated, may not benefit our stockholders.
THE SUCCESS OF THE INVESTMENT IN ASCENDANT WILL BE IMPACTED BY THE GROWTH OF ITS
ASSETS UNDER MANAGEMENT AND THE SUCCESS OF THE PERFORMANCE OF ITS UNDERLYING
FUNDS, EACH OF WHICH MAY BE IMPACTED BY THE SECURITIES MARKETS.
The success of the investment in Ascendant will be impacted by the growth of its assets under management and the success of the performance of its underlying funds, each of which may be impacted by the securities markets.
The operations of Ascendant will be affected by many economic factors, including the performance of the securities markets. Declines in the securities markets, in general, and the equity markets, in particular, would likely reduce Ascendant'sAscendant’s assets under management and consequently reduce our revenues. In addition, any continuing decline in the equity markets, failure of these markets to sustain their prior rates of growth, or continued volatility in these markets could result in investors withdrawing from the equity markets or decreasing their rate of investment, either of which would likely adversely affect Ascendant which, in turn, could impair our revenue interest. In addition, our decision not to make additional installment payments under the Ascendant Agreement, and thereby cease funding Ascendant, could have a material impact on Ascendant'sAscendant’s operations if Ascendant is unable to grow its assets under management in order to sustain itself and could cause Ascendant to take one or more of several actions, including to seek financial support from other sources and/or cease operations.
8
WE MAY BE UNABLE TO REALIZE THE BENEFITS OF OUR NET OPERATING LOSS
We may be unable to realize the benefits of our net operating loss ("NOL") AND
CAPITAL LOSS CARRYFORWARDS.
and capital loss carryforwards.
NOLs and capital losses may be carried forward to offset federal and state taxable income and capital gains, respectively, in future years and eliminate income taxes otherwise payable on such taxable income and capital gains, subject to certain adjustments. Based on current federal corporate income tax rates, our NOL and capital loss carryforwards, if fully utilized, could provide a benefit to us of future tax savings. However, our ability to use these tax benefits in future years will depend upon the amount of our otherwise taxable income and capital gains. If we do not have sufficient taxable income and capital gains in future years to use the tax benefits before they expire, we will lose the benefit of these NOL and capital loss carryforwards, permanently. Consequently, our ability to use the tax benefits associated with our NOL and capital loss carryforwards will depend largely on our success in identifying suitable merger partners and/or acquisition candidates, and once identified, consummating a merger with and/or acquisition of these candidates.
Additionally, if we underwent an ownership change within the meaning of Sections 382 and 383 of the Internal Revenue Code, the NOL and capital loss carryforward limitations would impose an annual limit on the amount of the taxable income and capital gain that may be offset by our NOL and capital loss generated prior to the ownership change. If an ownership change were to occur, we wouldmay be unable to use a significant portion of our NOL and capital loss carryforwards to offset taxable income and capital gains. In general, an ownership change occurs when, as of any testing date, the aggregate of the increase in percentage points of the total amount of a corporation's stock owned by "5-percent shareholders" (within the meaning of Section 382 and 383 of the Internal Revenue Code) whose percentage ownership of the stock has increased as of such date over the lowest percentage of the stock owned by each such "5-percent shareholder" at any time during the three-year period preceding such date, is more than 50 percentage points. In general, persons who own 5% or more of a corporation's stock are "5-percent shareholders," and all other persons who own less than 5% of a corporation's stock are treated, together as a single, public group "5-percent shareholder," regardless of whether they own an aggregate of 5% of a corporation's stock.
The amount of NOL and capital loss carryforwards that we have claimed have not been audited or otherwise validated by the U.S. Internal Revenue Service. The IRS could challenge our calculation of the amount of our NOL and capital loss or our determinations as to when a prior change in ownership occurred and other provisions of the Internal Revenue Code may limit our ability to carry forward our NOL and capital loss to offset taxable income and capital gains in future years. If the IRS was successful with respect to any such challenge, the potential tax benefit of the NOL and capital loss carryforwards to us could be substantially reduced.
ANY TRANSFER RESTRICTIONS IMPLEMENTED BY THE COMPANY TO PRESERVE OUR
Any transfer restrictions implemented by the Company to preserve our NOL MAY NOT
BE EFFECTIVE OR MAY HAVE SOME UNINTENDED NEGATIVE EFFECTS.
may not be effective or may have some unintended negative effects.
The board of directors previously adopted an amendment to our former Shareholders Rights Plan
("(“Rights
Plan"Plan”) which reduced the triggering of the Rights Plan from 15% of the Common Stock to 5% of the Common Stock. During the year ended December 31, 2006, the board of directors replaced this Rights Plan with a new plan with the same lowered 5% threshold. This 5% threshold was adopted to help preserve our NOL and capital loss carryforwards. There is no guarantee that the new Rights Plan will prevent a stockholder from acquiring more than 5% of the Common Stock.
9
Any transfer restrictions will require any person attempting to acquire a significant interest in the Company to seek the approval of our board of directors. This may have an "anti-takeover" effect because our board of directors may be able to prevent any future takeover. Similarly, any limits on the amount of capital stock that a stockholder may own could have the effect of making it more difficult for stockholders to replace current management. Additionally, because transfer restrictions will have the effect of restricting a stockholder's ability to dispose of or acquire our Common Stock, the liquidity and market value of our Common Stock might suffer.
OUR COMMON STOCK IS ILLIQUID.
Our Common Stock is illiquid.
Our Common Stock is currently quoted on the OTC Bulletin Board ("OTCBB"(“OTCBB”), and has traded as low as $0.15$0.19 per share during 2006.2007. Since our Common Stock was delisted from a national exchange and is trading at a price below $5.00 per share, it is subject to certain other rules of the Securities Exchange Act of 1934, as amended. Such rules require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a "penny stock". "Penny stock" is defined as any non-NASDAQ equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Such rules require the delivery of a disclosure schedule explaining the penny stock market and the risks associated with that market before entering into any penny stock transaction. Disclosure is also required to be made about compensation payable to both the broker-dealer and the registered representative and current quotations for the securities. The rules also impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors. For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and must receive the purchaser's written consent to the transaction prior to the sale. Finally, monthly statements are required to be sent disclosing recent price information for the penny stocks. The additional burdens imposed upon broker-dealers by such requirements could discourage broker-dealers from effecting transactions in our Common Stock. This could severely limit the market liquidity of our Common Stock and the ability of a stockholder to sell the Common Stock.
OUR SUCCESS IS DEPENDENT ON OUR KEY PERSONNEL WHOM WE MAY NOT BE ABLE TO RETAIN,
AND WE MAY NOT BE ABLE TO HIRE ENOUGH ADDITIONAL QUALIFIED PERSONNEL TO MEET OUR
GROWING NEEDS.
Our success is dependent on our key personnel whom we may not be able to retain, and we may not be able to hire enough additional qualified personnel to meet our growing needs.
Our performance is substantially dependent on the services and on the performance of our officers and directors. Our performance also depends on our ability to attract, hire, retain, and motivate our officers and key employees. The loss of the services of any of the executive officers or other key employees could have a material adverse effect on our business, prospects, financial condition, and results of operations. We have not entered into employment agreements with any of our key personnel and currently have no "Key Man" life insurance policies. Our future success may also depend on our ability to identify, attract, hire, train, retain, and motivate other highly skilled technical, managerial, marketing and customer service personnel. Competition for such personnel are intense, and there can be no assurance that we will be able to successfully attract, assimilate or retain sufficiently qualified personnel. The failure to attract and retain the necessary technical, managerial, marketing and customer service personnel could have a material adverse effect on our business.
THE ASSETS ON OUR BALANCE SHEET INCLUDE A REVENUE INTEREST IN ASCENDANT, AND ANY
IMPAIRMENT OF THE REVENUE INTEREST COULD ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS AND FINANCIAL POSITION.
The assets on our balance sheet include a revenue interest in Ascendant, and any impairment of the revenue interest could adversely affect our results of operations and financial position.
As of December 31,
2006,2007, our total assets were approximately
$13,490,000$13,519,000 of which approximately $803,000 were intangible assets relating to the revenue interest in Ascendant. We cannot be certain that we will ever realize the value of such intangible assets. If we were to record an impairment charge for the intangible asset, our results of operations could be adversely affected.
10
ITEM 1B.UNRESOLVED STAFF COMMENTS
Not applicable
In February 2004, the Company leased approximately 1,700 square feet of space at 10101 Reunion Place, Suite 970, San Antonio, Texas, which served as the corporate headquarters from April 2004 until September 2004. On October 8, 2004, the Company entered into a sublease agreement to sublet the office space located at 10101 Reunion Place, Suite 970, San Antonio, Texas. Under the terms of the original lease, the Company was obligated to make monthly rental installments of approximately $3,000 through January 31, 2007, the expiration of the lease. The sublease agreement providesprovided for the subtenant to make monthly rental installments of approximately $2,500 per month through January 31, 2007. The Company'sCompany’s corporate headquarters are currently located at 200 Crescent Court, Suite 1400, Dallas, Texas 75201, which are also the offices of Newcastle Capital Management, L.P. ("NCM"(“NCM”). NCM is the general partner of Newcastle. The Company occupies a portion of NCM'sNCM’s space on a month-to-month basis at $2,500 per month, pursuant to a services agreement entered into between the parties on October 1, 2006.
ITEM 3. LEGAL PROCEEDINGS
On August 11, 2004, Craig Davis, allegedly a stockholder of the Company,
filed a lawsuit in the Chancery Court of New Castle County, Delaware (the
"Lawsuit"). The Lawsuit asserted direct claims, and also derivative claims on
the Company's behalf, against five former and three current directors of the
Company. On April 13, 2006, the Company announced that it reached an agreement
with all of the parties to the Lawsuit to settle all claims relating thereto
(the "Settlement"). On June 23, 2006, the Chancery Court approved the
Settlement, and on July 25, 2006, the Settlement became final and
non-appealable. As part of the Settlement, the Company set up a fund (the
"Settlement Fund"), which was distributed to stockholders of record as of July
28, 2006, with a payment date of August 11, 2006. The portion of the Settlement
Fund distributed to Stockholders pursuant to the Settlement was $2,270,017 or
approximately $.04 per common share on a fully diluted basis, provided that any
Common Stock held by defendants in the Lawsuit who were formerly directors of
the Company would not be entitled to any distribution from the Settlement Fund.
The total Settlement proceeds of $3,200,000 were funded by the Company's
insurance carrier and by Parris H. Holmes, Jr., the Company's former Chief
Executive Officer, who contributed $150,000. Also included in the total
Settlement proceeds is $600,000 of reimbursement for legal and professional fees
paid to the Company by its insurance carrier and subsequently contributed by the
Company to the Settlement Fund. Therefore, the Company has recognized a loss of
$600,000 related to the Lawsuit for the year ended December 31, 2006. As part of
the Settlement, the Company and the other defendants in the Lawsuit agreed not
to oppose the request for fees and expenses by counsel to the plaintiff of
$929,813. Under the Settlement, the plaintiff, the Company and the other
defendants (including Mr. Holmes) also agreed to certain mutual releases of
claims arising out of transactions referenced in the Lawsuit.
11
In connection with the resolution of the Lawsuit, the Company ceased
funding of legal and professional fees of the current and former director
defendants. The funding of legal and professional fees was made pursuant to
indemnification arrangements that were in place during the respective terms of
each of the defendants. The Company has met the $500,000 retention as stipulated
in the Company's directors' and officers' liability insurance policy. The
directors' and officers' liability insurance policy carries a maximum coverage
limit of $5,000,000. As of December 31, 2006, the Company has recorded a
receivable from the insurance carrier of approximately $300,000 for
reimbursement of legal and professional fees incurred in excess of the policy
retention, net of the $600,000 reimbursement from the insurance carrier as part
of the Settlement. The Company is currently negotiating a settlement with the
insurance carrier with respect to remaining reimbursement amounts. The Company
is vigorously pursuing enforcement of its rights under the policy and believes
its claims to be valid. Nonpayment of the claim for reimbursement of legal and
professional fees could have a material adverse effect on the results of
operations of the Company. The Settlement does not preclude the Company from
seeking reimbursement of legal and professional fees up to the amount remaining
within the policy limit.
Pursuant to the sale of 4,807,692 newly issued shares of the Series A Preferred Stock to Newcastle on June 18, 2004, the Company agreed to indemnify Newcastle from any liability, loss or damage, together with all costs and expenses related thereto, that the Company may suffer which arises out of affairs of the Company, its board of directors or employees prior to the closing of the Newcastle Transaction. The Company's obligation to indemnify may be satisfied at
the option of the purchaser by issuing additional Series A Preferred Stock to
the purchaser, modifying the conversion price of the Series A Preferred Stock, a
payment of cash or a redemption of Series A Preferred Stock or a combination of
the foregoing. On July 3, 2006, Newcastle converted its Series A Preferred Stock
into 19,230,768 shares of the Common Stock.
On December 12, 2005, the Company received a letter from the SEC, based on a review of the Company'sCompany’s Form 10-K filed for the year ended December 31, 2004, requesting that the Company provide a written explanation as to whether the Company is an "investment company"“investment company” (as such term is defined in the Investment Company Act of 1940). The Company provided a written response to the SEC, dated January 12, 2006, stating the reasons why it believes it is not an "investment
company"“investment company”. The Company has provided certain confirmatory information requested by the SEC. In the event the SEC or a court took the position that the Company is an investment company, the Company'sCompany’s failure to register as an investment company would not only raise the possibility of an enforcement or other legal action by the SEC and potential fines and penalties, but also could threaten the validity of corporate actions and contracts entered into by the Company during the period it was deemed to be an unregistered investment company, among other remedies.
During February 2006, the Company entered into an agreement with a former employee to settle a dispute over a severance agreement the employee had entered into with the Company. The severance agreement, which was executed by former management, provided for a payment of approximately $98,000 upon the occurrence of certain events. The Company paid approximately $85,000 to settle all claims associated with the severance agreement.
During May 2006, the Company entered into an agreement to settle a dispute with a law firm that had previously been hired by the Company. In accordance with the terms of the agreement, the Company received a refund of legal and professional fees of $125,000 during May 2006. In connection with this matter, the Company reversed accrued legal and professional fees of approximately $38,000 during the quarter ended March 31, 2006.
12
In a letter to the Company dated October 16, 2007, a lawyer representing Steven J. Pully (the former CEO) alleged that the Company filed false and misleading disclosure with the Securities and Exchange Commission with respect to the elimination of Mr. Pully’s compensation (see the Company’s Forms 8-K filed on September 5, 2007 and October 17, 2007). No specifics were provided as to such allegations. The Company believes such allegations are unfounded and, if a claim is made, the Company intends to vigorously defend itself.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 2006,2007, no matter was submitted by the Company to a vote of its stockholders through the solicitation of proxies or otherwise.
PART II
ITEM 5.MARKET FOR REGISTRANT'SREGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
Market Information
The Company'sCompany’s Common Stock, par value $0.01 per share, is currently quoted on the OTCBB under the symbol "NCEH.OB"“NCEH.OB”. The table below sets forth the high and low bid prices for the Common Stock from January 1, 20052006 through December 31, 2006.2007. These price quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions:
High Low
-------- --------
Year Ended December 31, 2005:
1st Quarter $ 0.31 $ 0.23
2nd Quarter $ 0.25 $ 0.21
3rd Quarter $ 0.28 $ 0.19
4th Quarter $ 0.31 $ 0.18
Year Ended December 31, 2006:
1st Quarter $ 0.23 $ 0.15
2nd Quarter $ 0.25 $ 0.19
3rd Quarter $ 0.26 $ 0.18
4th Quarter $ 0.23 $ 0.20
STOCKHOLDERS
| | | | | | |
Year Ended December 31, 2006: | | | | | | |
1st Quarter | | $ | 0.23 | | | $ | 0.15 | |
2nd Quarter | | $ | 0.25 | | | $ | 0.19 | |
3rd Quarter | | $ | 0.26 | | | $ | 0.18 | |
4th Quarter | | $ | 0.23 | | | $ | 0.20 | |
| | | | | | | | |
Year Ended December 31, 2007: | | | | | | | | |
1st Quarter | | $ | 0.31 | | | $ | 0.22 | |
2nd Quarter | | $ | 0.29 | | | $ | 0.22 | |
3rd Quarter | | $ | 0.26 | | | $ | 0.21 | |
4th Quarter | | $ | 0.23 | | | $ | 0.18 | |
Stockholders
As of March 30, 2007,28, 2008, there were 53,883,872 shares of Common Stock outstanding, held by 502500 holders of record as of December 31, 2006.2007. The last reported sales price of the Common Stock was $0.29$0.16 per share on March 30, 2007.
DIVIDEND POLICY
27, 2008.
Dividend Policy
The Company has never declared or paid any cash dividends on its Common Stock. Approximately $2,270,017 was distributed to certain stockholders pursuant to the Settlement in August 2006. On June 30, 2006, Newcastle elected to receive Preferred Dividends in cash for the period from June 19, 2005 through June 30, 2006. On July 3, 2006, Newcastle elected to convert all of its Series A Preferred Stock into 19,230,768 shares of Common Stock. The Company may not pay dividends on its Common Stock unless all declared and unpaid Preferred Dividends have been paid. In addition, whenever the Company shall declare or pay any dividend on its Common Stock, the holders of Series A Preferred Stock are entitled to receive such Common Stock dividends on a ratably as-converted basis.
PERFORMANCE GRAPH
Performance Graph
The Company'sCompany’s Common Stock has been traded publicly since August 5, 1996. Prior to such date, there was no established market for the Common Stock. Set forth below is a line graph comparing the yearly percentage change in the cumulative total stockholder return on our Common Stock to the cumulative return of the S&P 500 Stock Index, the Russell MicroCap Index and the S&P Data Processing and Outsourced Services Index for the period commencing on December 31, 20012002 and ending December 31, 20062007 (the "Measuring Period"“Measuring Period”). The Company selected the S&P Data Processing and Outsourced Services Index as a basis of comparison as it believes the issuers comprising this index are in the same line of
business as Princeton eCom Corporation
("Princeton"(“Princeton”), the investment in which the Company held an interest up until June 2004. The graph assumes that the value of the investment in the
Company'sCompany’s Common Stock and each index was $100 on December 31,
2001.2002. The yearly change in cumulative total return is measured by dividing (1) the sum of (i) the cumulative amount of dividends for the Measuring Period, assuming dividend reinvestment, and (ii) the change in share price between the beginning and end of the Measuring Period, by (2) the share price at the beginning of the Measuring Period.
[GRAPHIC OMITTED]
Cumulative Total Return
--------------------------------------------------
12/01 12/02 12/03 12/04 12/05 12/06
----- ----- ----- ----- ----- -----
New Century Equity Holdings 100.00 52.00 64.00 60.00 42.50 51.09
S&P 500 Index 100.00 77.90 100.24 111.15 116.61 135.03
S&P Data Processing &
Outsourced Services Index 100.00 71.08 83.19 87.71 92.54 102.12
Russell MicroCap Index 100.00 83.90 139.57 159.31 163.40 190.43
13
| | 12/02 | | | | 12/03 | | | | 12/04 | | | | 12/05 | | | | 12/06 | | | | 12/07 | |
| | | | | | | | | | | | | | | | | | | | | | | |
New Century Equity Holdings | | 100.00 | | | | 123.08 | | | | 115.38 | | | | 81.73 | | | | 98.25 | | | | 90.80 | |
S&P 500 Index | | 100.00 | | | | 128.68 | | | | 142.69 | | | | 149.70 | | | | 173.34 | | | | 182.87 | |
S&P Data Processing & Outsourced Services Index | | 100.00 | | | | 117.04 | | | | 123.40 | | | | 130.20 | | | | 143.68 | | | | 146.72 | |
Russell MicroCap Index | | 100.00 | | | | 166.36 | | | | 189.89 | | | | 194.76 | | | | 226.98 | | | | 208.82 | |
The Performance Graph is based on historical data and is not necessarily indicative of future performance. The Performance Graph is not deemed to be "soliciting material"“soliciting material” or to be "filed"“filed” with the SEC or subject to the SEC'sSEC’s proxy rules or to the liabilities of Section 18 of the Exchange Act, and the Performance Graph shall not be deemed incorporated by reference into any prior or subsequent filing by the Company under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference to such filing.
ITEM 6.SELECTED FINANCIAL DATA
The following table presents selected financial and other data for the Company. The statement of operations data for the years ended December 31, 2007, 2006, 2005, 2004 2003 and 20022003 and the balance sheet data as of December 31, 2007, 2006, 2005, 2004 2003 and 20022003 presented below are derived from the audited Consolidated Financial Statements of the Company. The data presented below for the years ended December 31, 2007, 2006 2005 and 20042005 should be read in conjunction with the Consolidated Financial Statements and the notes thereto, Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations and the other financial information included in this report.
Year Ended December 31,
---------------------------------------------------------
(in thousands, except per share data) 2006 2005 2004 2003 2002
--------- --------- --------- --------- ---------
Consolidated Statement
| | Year Ending December 31, | |
(in thousands, except per share data) | | 2007 | | | 2006 | | | 2005 | | | 2004 | | | 2003 | |
Consolidated Statement of Operations Data: | | | | | | | | | | | | | | | |
Operating revenues | | $ | - | | | $ | 69 | | | $ | 33 | | | $ | - | | | $ | - | |
Gross profit | | | - | | | | 69 | | | | 33 | | | | - | | | | - | |
Operating loss | | | (552 | ) | | | (573 | ) | | | (1,009 | ) | | | (4,854 | ) | | | (3,174 | ) |
Net income (loss) | | | 55 | | | | (591 | ) | | | (543 | ) | | | (1,903 | ) | | | (6,516 | ) |
Preferred stock dividend | | | - | | | | (100 | ) | | | (200 | ) | | | (107 | ) | | | - | |
Net income (loss) applicable to common stockholders | | | 55 | | | | (691 | ) | | | (743 | ) | | | (2,010 | ) | | | (6,516 | ) |
Basic and diluted net loss per common share: | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 0.00 | | | $ | (0.02 | ) | | $ | (0.02 | ) | | $ | (0.06 | ) | | $ | (0.19 | ) |
Dividends per common share | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
Weighted average common shares outstanding | | | 53,884 | | | | 44,268 | | | | 34,653 | | | | 34,653 | | | | 34,379 | |
| | | | | | | | | | | | | | | | | | | | |
| | December 31, | |
Consolidated Balance Sheet Data: | | | | | | | | | | | | | | | |
Working capital | | $ | 12,585 | | | $ | 12,513 | | | $ | 13,554 | | | $ | 14,428 | | | $ | 4,357 | |
Total assets | | | 13,519 | | | | 13,490 | | | | 14,578 | | | | 15,095 | | | | 13,036 | |
Long-term obligations and redeemable preferred stock | | | - | | | | - | | | | 2 | | | | 2 | | | | - | |
Additional paid-in capital | | | 75,357 | | | | 75,340 | | | | 75,450 | | | | 75,428 | | | | 70,476 | |
Accumulated deficit | | $ | (62,508 | ) | | $ | (62,563 | ) | | $ | (61,872 | ) | | $ | (61,107 | ) | | $ | (59,097 | ) |
Table of Operations Data:
Operating revenues ................................ $ 69 $ 33 $ -- $ -- $ --
Gross profit ...................................... 69 33 -- -- --
Operating loss from continuing operations ......... (573) (1,009) (4,854) (3,174) (3,560)
Net loss from continuing operations ............... (591) (543) (1,903) (6,486) (18,538)
Net loss from discontinued
operations, net of income taxes .............. -- -- -- -- (962)
Net (loss) income from disposal of
discontinued operations, net of income
taxes ........................................ -- -- -- (30) 2,254
Net loss .......................................... (591) (543) (1,903) (6,516) (17,246)
Preferred stock dividend .......................... (100) (200) (107) -- --
Net loss applicable to common stockholders ........ (691) (743) (2,010) (6,516) (17,246)
Basic and diluted net loss per common share:
Net loss from continuing operations ............... $ (.01) $ (.02) $ (.06) $ (0.19) $ (0.54)
Net loss from discontinued
operations, net of income taxes .............. -- -- -- -- (0.03)
Net income from disposal of
discontinued operations, net of
income taxes ................................. -- -- -- -- 0.07
Net loss .......................................... $ (.01) $ (.02) $ (.06) $ (0.19) $ (0.50)
Dividends per common share ........................ $ -- $ -- $ -- $ -- $ --
Weighted average common shares
outstanding .................................. 44,268 34,653 34,653 34,379 34,217
December 31,
---------------------------------------------------------
(in thousands) 2006 2005 2004 2003 2002
--------- --------- --------- --------- ---------
Consolidated Balance Sheet Data:
Working capital ................................... $ 12,513 $ 13,554 $ 14,428 $ 4,357 $ 8,454
Total assets ...................................... 13,490 14,578 15,095 13,036 20,124
Long-term obligations and redeemable
preferred stock .............................. -- 2 2 -- --
Additional paid-in capital ........................ 75,340 75,450 75,428 70,476 70,346
Accumulated deficit ............................... $(62,563) $(61,872) $(61,107) $(59,097) $(52,581)
14
Contents ITEM 7. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Business section discussion, the Consolidated Financial Statements and the Notes thereto and the other financial information included elsewhere in this Report.
CONTINUING OPERATIONS
OPERATING REVENUES
Continuing Operations
Operating Revenues
On October 5, 2005, the Company entered into the Ascendant Agreement with Ascendant to acquire an interest in the revenues generated by Ascendant. Pursuant to the Ascendant Agreement, the Company is entitled to a 50% interest, subject to certain adjustments, in the revenues of Ascendant, which interest declines if the assets under management of Ascendant reach certain levels. Revenues generated by Ascendant include revenues from assets under management or any other sources or investments, net of any agreed commissions. The Company also agreed to provide various marketing services to Ascendant. Steven J. Pully, CEOOn November 5, 2007, John Murray, Chief Financial Officer of the Company, was appointed to the Investment Advisory Committee of Ascendant.Ascendant to serve in the place of the Company’s former CEO. The total potential purchase price under the terms of the Ascendant Agreement is $1,550,000, payable in four equal installments of $387,500. The first installment was paid at the closing and the second installment was paid on January 5, 2006. Subject to the provisions of the Ascendant Agreement, including Ascendant'sAscendant’s compliance with the terms thereof, the third installment was payable on April 5, 2006 and the fourth installment was payable on July 5, 2006. As ofOn April 5, 2006, the Company elected not to make the April installment payment and subsequently determined not to make any additionalthe installment payments.
payment due July 5, 2006. The Company believed that it was not required to make the payments because Ascendant did not satisfy all of the conditions in the Ascendant Agreement.
Subject to the terms of the Ascendant Agreement, if the Company does not make an installment payment and Ascendant is not in breach of the Ascendant Agreement, Ascendant has the right to acquire the Company'sCompany’s revenue interest at a price which would yield a 10% annualized return to the Company. The Company has been notified by Ascendant that Ascendant is exercising this right as a result of the Company'sCompany’s election not to make its third and fourth installment payments. The Company believes that Ascendant has not satisfied the requisite conditions to repurchase the Company'sCompany’s revenue interest.
Ascendant had assets under management of approximately
$27,100,000$37,500,000 and
$17,800,000$27,100,000 as of December 31,
20062007 and December 31,
2005,2006, respectively. Under the Ascendant Agreement, revenues earned by the Company from the Ascendant revenue interest (as determined in accordance with the terms of the Ascendant Agreement) are payable in cash within 30 days after the end of each quarter. Under the terms of the Ascendant Agreement, Ascendant has 45 days following notice by the Company to cure any material breach by Ascendant of the Ascendant Agreement, including with respect to payment obligations. Ascendant failed to make the required revenue sharing payments for the quarters ended June 30, 2006, September 30, 2006 and December 31, 2006
in a timely manner and
did not cure
such failure withinfor the
45 day period.year ended December 31, 2007. Under the terms of the Ascendant Agreement, upon notice of an uncured material breach, Ascendant is required to fully refund all amounts paid by the Company, and the
Company'sCompany’s revenue interest remains outstanding.
As part of the parties' discussions regarding non-payment of amounts under
the Ascendant Agreement by each party, the Company has proposed an amendment
that would permit Ascendant to temporarily defer certain payments to the
Company, including the payments owed related to the quarters ended June 30,
2006, September 30, 2006 and December 31, 2006. There is no assurance that an
amendment will be effected on such terms or that any resolution of the foregoing
matter will be reached.
15
Based on the parties' discussions, the Company has charged off the revenue
interest receivable of $34,000, which was accrued by the Company at June 30,
2006 for its portion of the 50% revenue interest for that quarter.
The Company has not recorded any revenue or corresponding receivable for areceived any revenue sharing paymentpayments for the quarters ended September 30, 2006 and December 31, 2006.2006 and for the year ended December 31, 2007. According to the Ascendant Agreement, with Ascendant, if Ascendant acquires the revenue interest from the Company, Ascendant must pay the Company a return on the capital that it invested. Pursuant to the Ascendant Agreement, the required return on the Company’s invested capital will not be impacted by any revenue sharing payments missedmade or not made by Ascendant or written off by the
Company.
In connection with the Ascendant Agreement, the Company also entered into
the Principals Agreement with AscendantAscendant.
General and certain limited partners and key
employees of Ascendant (the "Principals Agreement") pursuant to which, among
other things, the Company has the option to purchase limited partnership
interests of Ascendant under certain circumstances. Effective March 14, 2006, in
accordance with the terms of the Principals Agreement, the Company acquired a 7%
limited partnership interest from a limited partner of Ascendant for nominal
consideration. The Principals Agreement contains certain noncompete and
nonsolicitation obligations of the partners of Ascendant that apply during their
employment and the twelve month period following the termination thereof.
GENERAL AND ADMINISTRATIVE EXPENSES
Administrative Expenses
General and administrative ("(“G&A"&A”) expenses are comprised of all costs incurred in direct support of the business operations of the Company. During the year ended December 31, 2006,2007, G&A expenses totaled $642,000,$552,000 compared to $642,000 during the year ended December 31, 2006 and $1,035,000 during the year ended December 31, 2005 and $4,826,000 during the
year ended December 31, 2004. The major components of G&A expenses for the year
ended December 31, 2006 are as follows: officers and directors compensation and
benefits of approximately $241,000; audit and tax fees of approximately $95,000;
directors and officers insurance coverage of approximately $76,000; legal fees
and other public company costs of approximately $88,000; and legal fees of
approximately $183,000 which relate to the derivative action filed by Craig
Davis (see "Part I - Item 3. Legal Proceedings"). These costs were partially
offset by a refund of legal and professional fees of $125,000 received during
May 2006 in connection with the settlement of a dispute with a law firm that had
been previously hired by the Company.2005. The decrease in G&A for the year ended December 31, 2005,2007, when compared to the year ended December 31, 2004,2006, is the result of theprimarily attributable to a decrease in the number of
salaried employees from five to onelegal and a significant reductionprofessional fees and officer compensation expense. The decrease in executive
compensation and benefits. G&A expenses for the year ended December 31, 2004,
included a total of approximately $2,600,000 of severance paid2006, when compared to Parris H.
Holmes, Jr. and David P. Tusa, the Company's former Chief Executive Officer and
Chief Financial Officer, respectively. G&A expenses for 2004 also included
approximately $700,000 foryear ended December 31, 2005, is primarily attributable to the decrease in legal and professional expenses, of which
approximately $240,000 relates to the Complaint filed by Craig Davis (see "Part
I - Item 3. Legal Proceedings")fees and approximately $500,000 relates to completing
the proposed proxy statement seeking stockholder approval to liquidate the
Company (which was subsequently withdrawn)directors & officers liability insurance expense.
Depreciation and completing the sale of
approximately 4,807,692 newly issued shares of the Series A Preferred Stock to
Newcastle on June 18, 2004. The Company also decreased its rent expense as a
result of the sublease entered into on October 8, 2004 to sublet the Company's
office space located at 10101 Reunion Place, Suite 970, San Antonio, Texas.
DEPRECIATION AND AMORTIZATION
Amortization
Depreciation and amortization expense is incurred with respect to certain assets, including computer hardware, software, office equipment, furniture, goodwill and other intangibles. During the
yearyears ended
December 31, 2007 and December 31, 2006, depreciation and amortization expense totaled $0, compared to $7,000 during the year ended December 31,
2005 and $28,000 during the year ended December 31,
2004.2005. The decrease in depreciation and amortization from prior periods is principally the result of fixed asset sales. The Company made no fixed asset purchases during the year ended December 31,
2006.
16
INTEREST INCOME
2007.
Interest Income
Interest income totaled $582,000$607,000 during the year ended December 31, 2006,2007, compared to $423,000$582,000 and $121,000$423,000 during the years ended December 31, 2006 and 2005, and
2004, respectively. The increase in interest income for the year ended December 31, 2007, as compared to the year ended December 31, 2006, was attributable to higher average cash balances. The increase in interest income for the year ended December 31, 2006, as compared to the year ended December 31, 2005, was attributable to increased yields available for short-term investments. The increase in interest
income for the year ended December 31, 2005, as compared to the year ended
December 31, 2004, was attributable to higher cash balances available for
short-term investment as the Company's cash resources were increased by the
Newcastle Transaction and the sale of Princeton (see Notes 1 and 4 of the
accompanying Consolidated Financial Statements).
EQUITY IN NET LOSS OF AFFILIATES
Equity in net loss of affiliates totaled $0 during the year ended December
31, 2006, compared to $0 and $2,985,000 during the years ended December 31, 2005
and 2004, respectively. In June 2004, the Company sold all of its holdings in
Princeton, which offers electronic bill presentment and payment services via the
Internet and telephone.
GAIN ON SALE OF EQUITY AFFILIATE
The sale of Princeton for $10,000,000 in June 2004 generated a capital
loss for federal income tax purposes of approximately $67,000,000 and a book
gain of approximately $5,817,000 during the year ended December 31, 2004.
DERIVATIVE SETTLEMENT COSTS
balances.
Derivative Settlement Costs
On April 13, 2006, the Company announced that it reached an agreement with all of the parties to the Lawsuit to settle all claims relating thereto. The total Settlement proceeds of $3,200,000 were funded by the Company'sCompany’s insurance carrier and by Parris H. Holmes, Jr., the Company'sCompany’s former Chief Executive Officer, who contributed $150,000. Also included in the total Settlement proceeds is $600,000 of reimbursement for legal and professional fees paid to the Company by its insurance carrier and subsequently contributed by the Company to the Settlement Fund. The Company has recognized a net loss of $600,000 related to the Lawsuit for the year ended December 31, 2006.
INCOME TAXES
Income Taxes
As a result of the operating losses incurred
in recentfor the years
ended December 31, 2006 and 2005 and the utilization of prior year net operating losses to offset income for the year ended December 31, 2007, no provision or benefit for income taxes was recorded for the years ended December 31,
2007, 2006
2005 and
2004.
17
LIQUIDITY AND CAPITAL RESOURCES
2005.
Liquidity and Capital Resources
The Company'sCompany’s cash balance decreasedincreased to $12,679,000 at December 31, 2007, from $12,319,000 at December 31, 2006,
from $12,487,000 at December 31, 2005.2006. The decreasemajority of the increase is attributable to the following: G&A expenses incurred during the year ended December 31, 2006;
fundingcollection of legal and professional feesan insurance receivable related to the Davis Lawsuit including the
$600,000 of reimbursement for legal and professional fees paid to the Company by
its insurance carrier which was subsequently contributed by the Company to the
Settlement Fund; the settlement of a dispute with a former employee over a
severance agreement; the second installment paid under the Ascendant Agreement
and a cash dividend paid on the Series A Preferred Stock; partially offset by interest income revenues from Ascendant and settlement proceeds from the
resolution of a dispute with a law firm that had previously been hired by the
Company. There were no capital expenditures during the twelve months ended
December 31, 2006.
In connection with the resolution of the Lawsuit, the Company has ceased
funding of legal and professional fees of the current and former director
defendants. The funding of legal and professional fees was made pursuant to
indemnification arrangements that were in place during the respective terms of
each of the defendants. The Company has met the $500,000 retention as stipulated
in the Company's directors' and officers' liability insurance policy. The
directors' and officers' liability insurance policy carries a maximum coverage
limit of $5,000,000. As of December 31, 2006, the Company has recorded a
receivable from the insurance carrier of approximately $300,000 for
reimbursement of legal and professional fees incurred in excess of the policy
retention, netcash paid for G&A expenses.
During the next 12 months, the Company'sCompany’s operating cash requirements are expected to consist principally of funding corporate expenses, the costs associated with maintaining a public company and expenses incurred in pursuing the Company'sCompany’s business plan. Additionally, the total potential purchase price under the terms of the Ascendant Agreement was $1,550,000, payable in four equal installments of $387,500. Subject to the provisions of the Ascendant Agreement, the third installment was payable on April 5, 2006 and the fourth installment was payable on July 5, 2006. On April 5, 2006, the Company elected not to make the April installment payment and subsequently determined not to make the installment payment due July 5, 2006.
Subject to the terms of the Ascendant Agreement, if the Company does not make an installment payment and Ascendant is not in breach of the Ascendant Agreement, Ascendant has the right to acquire the Company'sCompany’s revenue interest at a price which would yield a 10% annualized return to the Company. The Company has been notified by Ascendant that Ascendant is exercising this right as a result of the Company'sCompany’s election not to make its third and fourth installment payments. The Company believes that Ascendant has not satisfied the requisite conditions to repurchase the Company'sCompany’s revenue interest, including as a result of Ascendant'sAscendant’s failure to make required revenue sharing payments for the quarters ended June 30, 2006, September 30, 2006 and December 31, 2006 and for the year ended December 31, 2007, and at this time the Company believes it is not obligated to make the third and fourth installment payments to Ascendant. As part
Under the terms of
the
parties' discussions regarding non-payment of amounts under the Ascendant Agreement,
upon notice of an uncured material breach, Ascendant is required to fully refund all amounts paid by
each party, the Company,
and the Company’s revenue interest remains outstanding. The Company has
proposed an amendment that would permit
Ascendant to temporarily defer certainnot recorded any revenue or received any revenue sharing payments
to the Company, including the
payments owed in respect offor the quarters ended
June 30, 2006, September 30, 2006 and December 31,
2006 and for the year ended December 31, 2007.
There is no assuranceAccording to the Ascendant Agreement, if Ascendant acquires the revenue interest from the Company, Ascendant must pay the Company a return on the capital that
an amendmentit invested. Pursuant to the Ascendant Agreement, the required return on the Company’s invested capital will
not be
effected
on such termsimpacted by any revenue sharing payments made or
that any resolution of the foregoing matter will be reached.not made by Ascendant. The Company
expects tomay incur additional operating losses through fiscal
20072008 which will continue to have a negative impact on liquidity and capital resources.
18
LEASE GUARANTEES
Lease Guarantees
In October 2000, the Company completed the Platinum Transaction. Under the terms of the Platinum Transaction, all leases and corresponding obligations associated with the Transaction Processing and Software Business were assumed by Platinum. Prior to the Platinum Transaction, the Company guaranteed two operating leases for office space of the divested companies. The first lease is related to office space located in San Antonio, Texas, and expired in 2006. The second lease is related to office space located in Austin, Texas, and expires in 2010. Under the original terms of the second lease, the remaining minimum undiscounted rent payments total approximately $4,255,000$2,837,000 at December 31, 2006.2007. In conjunction with the Platinum Transaction, Platinum agreed to indemnify the Company should the underlying operating companies not perform under the terms of the office leases. The Company can provide no assurance as to Platinum'sPlatinum’s ability, or willingness, to perform its obligations under the indemnification. The Company does not believe it is probable that it will be required to perform under the remaining lease guarantee and, therefore, no liability has been accrued in the Company'sCompany’s financial statements.
OFF-BALANCE-SHEET ARRANGEMENTS
Off-Balance-Sheet Arrangements
The Company guaranteed two operating leases for office space for certain of its wholly-owned subsidiaries prior to the Platinum Transaction (see Liquidity and Capital Resources-Lease Guarantees above). One such lease expired in 2006.
CONTRACTUAL OBLIGATIONS
Contractual Obligations
The Company'sCompany’s contractual obligations are as follows (in thousands):
Payments Due by Period
---------------------------------------------
Less than 1-3 3-5 More than
Contractual Obligations Total 1 Year Years Years 5 Years
- ------------------------------------- ------ ------ ----- ----- -------
Long-term debt obligations ............ $-- $-- $-- $-- $--
Capital lease obligations ............. -- -- -- -- --
Operating lease obligations ........... 6 6 -- -- --
Purchase obligations .................. -- -- -- -- --
Other long-term liabilities
reflected on balance sheet
under GAAP ........................... -- -- -- -- --
---- ---- ---- ---- ----
Total ................................. $6 $6 $-- $-- $--
==== ==== ==== ==== ====
| | Payments due by period | |
Contractual Obligations | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Long-term debt obligations | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
Capital lease obligations | | | - | | | | - | | | | - | | | | - | | | | - | |
Operating lease obligations | | | - | | | | - | | | | - | | | | - | | | | - | |
Purchase obligations | | | - | | | | - | | | | - | | | | - | | | | - | |
Other long-term liabilities | | | | | | | | | | | | | | | | | | | | |
reflected on balance sheet | | | | | | | | | | | | | | | | | | | | |
under GAAP | | | - | | | | - | | | | - | | | | - | | | | - | |
Total | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
Seasonality
The operating lease obligations reflected in the table above represent the
Company's lease for office space, which is discussed further under Item 2 of
this annual report.
SEASONALITY
The Company'sCompany’s current operations are not significantly affected by seasonality.
EFFECT OF INFLATION
Effect of Inflation
Inflation has not been a material factor affecting the
Company'sCompany’s business. General operating expenses, such as salaries, employee benefits, insurance and occupancy costs, are subject to normal inflationary pressures.
19
NEW ACCOUNTING STANDARDS
New Accounting Standards
In June 2006,February 2007, the Financial Accounting Standards Board ("FASB"(“FASB”) issued FINStatement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB No. 115,” (“SFAS 159”). SFAS 159 allows a company to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and financial liabilities on a contract-by-contract basis, with changes in fair value recognized in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007 and will be applied prospectively. The Company believes the adoption of this statement will not have a material impact on its consolidated financial statements.
Effective January 1, 2007, we adopted FASB Interpretation No. 48, "Accounting“Accounting for Uncertainty in Income Taxes--anTaxes - an interpretation of FASB Statement No. 109,"” or (“FIN 48”), which seeks to reduceclarifies the diversity in practice associated
with the accounting and reporting for uncertainty in income tax positions. This
Interpretationtaxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a comprehensive modelrecognition threshold and measurement attribute for the financial statement recognition and measurement presentation and disclosure of uncertaina tax positionsposition taken or expected to be taken in an incomea tax return. FIN 48 presentsalso provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. There was no change to the net amount of assets and liabilities recognized in the statement of financial condition as a two-step processresult of our adoption of FIN 48. At January 1, 2007, we had no unrecognized tax benefits.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements”, (“SFAS 157”), which establishes a framework for evaluating a tax position. The
first step isreporting fair value and expands disclosures about fair value measurements. SFAS 157 was effective for the Company on January 1, 2008, with the exception that the applicability of SFAS 157’s fair value measurement requirements to determine whether it is more-likely-than-notnonfinancial assets and liabilities that a tax
position will be sustained upon examination, based on the technical merits of
the position. The second step is to measure the benefitare not required or permitted to be recorded from tax
positions that meetrecognized or disclosed at fair value on a recurring basis has been delayed by the more-likely-than-not recognition threshold, by
determining the largest amount of tax benefit that is greater than 50 percent
likely of being realized upon ultimate settlement, and recognizing that amount
in the financial statements. FIN 48 is effectiveFASB for fiscal years beginning
after December 15, 2006.one year. The Company does not expectbelieve that the adoptionrequirements of FIN 48 toSFAS 157 which were effective for the Company on January 1, 2008 will have a material impact on itsthe Company’s consolidated financial statements. The Company is currently evaluating the impact of the SFAS 157 requirements which will be effective for the Company on January 1, 2009 on the Company’s results of operations and financial position, and cash flows.
position.
In September 2006,December 2007, the SEC issued Staff Accounting Bulletin ("SAB") No.
108, "Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements". SAB No. 108 was issued in
order to eliminate the diversity in practice surrounding how public companies
quantify financial statement misstatements. SAB No. 108 requires that
registrants quantify errors using both a balance sheet (iron curtain) approach
and an income statement (rollover) approach and then evaluate whether either
approach results in a misstated amount that, when all relevant quantitative and
qualitative factors are considered, is material. SAB No. 108 is effective for
fiscal years ending after November 15, 2006. The Company adopted the bulletin
during 2006. See Note 15 of the accompanying Consolidated Financial Statements.
FASB released Statement of Financial Accounting Standards ("SFAS") No. 157, Fair
Value Measurements, issued141(R), Business Combinations (revised 2007) (“SFAS 142(R)”), which changes many well-established business combination accounting practices and significantly affects how acquisition transactions are reflected in September 2006,the financial statements. Additionally, SFAS 141(R) will affect how companies negotiate and structure transactions, model financial projections of acquisitions and communicate to stakeholders. SFAS 141(R) must be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currently evaluating the impact the adoption of this statement could have on its financial condition, results of operations and cash flows.
In December 2007, the FASB released Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51 (“SFAS 160”), which establishes accounting and reporting standards for the noncontrolling interests in a formal frameworksubsidiary and for measuring fair value under GAAP. It definesthe deconsolidation of a subsidiary. SFAS 160 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and codifies the many definitions of
fair value included among various other authoritative literature, clarifiesnoncontrolling interests and in some instances, expandsrequires disclosure, on the guidance for implementing fair value
measurements,face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and increasesto the level of disclosure required for fair value
measurements. Althoughnoncontrolling interest. Previously, net income attributable to the noncontrolling interest was reported as an expense or other deduction in arriving at consolidated net income. SFAS No. 157 applies to and amends the provisions of
existing FASB and AICPA pronouncements, it does not, of itself, require any new
fair value measurements, nor does it establish valuation standards. SFAS No. 157
applies to all other accounting pronouncements requiring or permitting fair
value measurements, except for: SFAS No. 123 (R), share-based payment and
related pronouncements, the practicability exceptions to fair value
determinations allowed by various other authoritative pronouncements, and AICPA
Statements of Position 97-2 and 98-9 that deal with software revenue
recognition. This statement160 is effective for financial statements issued for fiscal years beginning after NovemberDecember 15, 2007, and interim periods within those
fiscal years.2008. The Company does not expectbelieves the adoption of SFAS No. 157 tothis statement will not have a material impact on its consolidated resultsfinancial statements.
Critical Accounting Policies
Impairment of
operations, financial position,
and cash flows.
20
CRITICAL ACCOUNTING POLICIES
IMPAIRMENT OF INVESTMENTS
Investments
The Company evaluates its investments in affiliates when events or changes in circumstances, such as a significant economic slowdown, indicate that the carrying value of the investments may not be recoverable. Reviews are performed to determine whether the carrying value is impaired and if the comparison indicates that impairment exists, the investment is written down to fair value. Significant management judgment based on estimates is required to determine whether and how much an investment is impaired.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate risk through its portfolio of cash equivalents and short-term investments. The Company does not believe that it has significant exposure to market risks associated with changing interest rates as of December 31,
2006,2007, because the
Company'sCompany’s intention is to maintain a liquid portfolio. The Company has not used derivative financial instruments in its operations.
21
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company and the related reports of the Company'sCompany’s independent registered public accounting firm thereon, are included in this report at the page indicated.
Page
----
| Page |
Report of Independent Registered Public Accounting Firm | 21 |
Consolidated Balance Sheets as of December 31, 2007 and 2006 | 22 |
Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006 and 2005 | 23 |
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2007, 2006 and 2005 | 24 |
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005 | 25 |
Notes to Consolidated Financial Statements | 26 |
Table of Management.................................................... 23
Report of Independent Registered Public Accounting Firm................. 24
Consolidated Balance Sheets as of December 31, 2006 and 2005............ 25
Consolidated Statements of Operations for the Years Ended
December 31, 2006, 2005 and 2004.......................................26
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2006, 2005 and 2004...................................... 27
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2006, 2005 and 2004......................................28
Notes to Consolidated Financial Statements.............................. 29
22
REPORT OF MANAGEMENT
The financial statements included herein have been prepared in conformity
with accounting principles generally accepted in the United States of America.
Management is responsible for preparing the consolidated financial statements
and maintaining and monitoring the Company's system of internal accounting
controls. The Company believes that the existing system of internal controls
provides reasonable assurance that errors or irregularities that could be
material to the financial statements are prevented or would be detected in a
timely manner. Key elements of the Company's system of internal controls include
careful selection of management personnel, appropriate segregation of
conflicting responsibilities, periodic evaluations of Company financial and
business practices, communication practices that provide assurance that policies
and managerial authorities are understood throughout the Company, and periodic
meetings between the Company's audit committee, senior financial management
personnel and independent public accountants.
The consolidated financial statements as of and for the years ended
December 31, 2006 and 2005, were audited by Burton McCumber & Cortez, L.L.P.,
independent public accountants, who have also issued a report on the
consolidated financial statements.
/s/ STEVEN J. PULLY
- --------------------------
Steven J. Pully
CHIEF EXECUTIVE OFFICER
/s/ JOHN P. MURRAY
- --------------------------
John P. Murray
CHIEF FINANCIAL OFFICER
23
Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
New Century Equity Holdings Corp.
We have audited the accompanying consolidated balance sheets of New Century Equity Holdings Corp. (a Delaware corporation) and Subsidiaries as of December 31, 20062007 and 2005,2006, and the related consolidated statements of operations, stockholders'stockholders’ equity and cash flows for the years ended December 31, 2007, 2006 2005
and 2004.2005. These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (U.S.). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of New Century Equity Holdings Corp. and Subsidiaries as of December 31, 20062007 and 2005,2006, and the consolidated results of their operations and their consolidated cash flows for the years ended December 31, 2007, 2006 2005 and 20042005 in conformity with accounting principles generally accepted in the United States of America.
/s/ BURTON McCUMBER & CORTEZ, L.L.P.
Brownsville, Texas
March
7, 2007
24
25, 2008
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In
(In thousands, except share data)
December 31,
2006 2005
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents ...................................... $ 12,319 $ 12,487
Accounts receivable ............................................ -- 33
Insurance receivable and other assets .......................... 368 1,637
----------- -----------
Total current assets ......................................... 12,687 14,157
Other non-current assets ......................................... -- 6
Revenue interest ................................................. 803 415
----------- -----------
Total assets ................................................ $ 13,490 $ 14,578
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................... $ 13 $ 53
Accrued liabilities ............................................ 161 550
----------- -----------
Total current liabilities .................................... 174 603
Other non-current liabilities .................................... -- 2
----------- -----------
Total liabilities ......................................... 174 605
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized;
4,807,692 Shares designated as Series A convertible preferred
stock issued and outstanding in 2005 ......................... -- 48
Common stock, $0.01 par value, 75,000,000 shares authorized;
53,883,872 and 34,653,104 shares issued and outstanding ...... 539 347
Additional paid-in capital ..................................... 75,340 75,428
Accumulated deficit ............................................ (62,563) (61,850)
Total stockholders' equity ................................... 13,316 13,973
----------- -----------
Total liabilities and stockholders' equity .............. $ 13,490 $ 14,578
=========== ===========
| | December 31, | |
| | | | | | |
| | | | | | |
ASSETS | | | | | | |
| | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 12,679 | | | $ | 12,319 | |
Insurance receivable and other assets | | | 37 | | | | 368 | |
| | | | | | | | |
Total current assets | | | 12,716 | | | | 12,687 | |
| | | | | | | | |
Revenue interest | | | 803 | | | | 803 | |
| | | | | | | | |
Total assets | | $ | 13,519 | | | $ | 13,490 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | - | | | $ | 13 | |
Accrued liabilities | | | 131 | | | | 161 | |
| | | | | | | | |
Current and total liabilities | | | 131 | | | | 174 | �� |
| | | | | | | | |
Commitments and contingencies | | | | | | | | |
Stockholders’ equity: | | | | | | | | |
Preferred stock, $0.01 par value, 10,000,000 shares authorized; none outstanding | | | - | | | | - | |
Common stock, $0.01 par value, 75,000,000 shares authorized; 53,883,872 shares issued and outstanding | | | 539 | | | | 539 | |
Additional paid-in capital | | | 75,357 | | | | 75,340 | |
Accumulated deficit | | | (62,508 | ) | | | (62,563 | ) |
Total stockholders’ equity | | | 13,388 | | | | 13,316 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 13,519 | | | $ | 13,490 | |
The accompanying notes are an integral part of these consolidated financial statements.
25
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In
(In thousands, except per share data)
Year Ended December 31,
2006 2005 2004
--------- -------- ---------
Operating revenues ........................................ $ 69 $ 33 $-
Operating expenses:
General and administrative expenses ..................... 642 1,035 4,826
Depreciation and amortization expense ................... -- 7 28
-------- -------- --------
Operating loss ............................................ (573) (1,009) (4,854)
Other income (expense):
Derivative settlement costs .............................. (600) -- --
Interest income .......................................... 582 423 121
Equity in net loss of affiliates ......................... -- -- (2,985)
Gain on sale of equity affiliate ......................... --
-- 5,817
Other, net ............................................... -- 43 (2)
-------- -------- --------
Total other income (expense), net ......................... (18) 466 2,951
-------- -------- --------
Net loss .................................................. (591) (543) (1,903)
Preferred stock dividend .................................. (100) (200) (107)
Net loss applicable to common stockholders ................ $ (691) $ (743) $ (2,010)
======== ======== ========
Basic and diluted net (loss) income per common share:
Net loss ................................................. $ (.02) $ (.02) $ (.06)
======== ======== ========
Weighted average common shares outstanding ................ 44,268 34,653 34,653
======== ======== ========
| | Year Ended December 31, | |
| | | | | | | | | |
| | | | | | | | | |
Operating revenues | | $ | - | | | $ | 69 | | | $ | 33 | |
| | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | |
General and administrative expenses | | | 552 | | | | 642 | | | | 1,035 | |
Depreciation and amortization expense | | | - | | | | - | | | | 7 | |
| | | | | | | | | | | | |
Operating loss | | | (552 | ) | | | (573 | ) | | | (1,009 | ) |
Other income (expense): | | | | | | | | | | | | |
Derivative settlement costs | | | - | | | | (600 | ) | | | - | |
Interest income | | | 607 | | | | 582 | | | | 423 | |
Other, net | | | - | | | | - | | | | 43 | |
| | | | | | | | | | | | |
Total other income (expense), net | | | 607 | | | | (18 | ) | | | 466 | |
| | | | | | | | | | | | |
Net Income (loss) | | | 55 | | | | (591 | ) | | | (543 | ) |
| | | | | | | | | | | | |
Preferred stock dividend | | | - | | | | (100 | ) | | | (200 | ) |
Net income (loss) applicable to common stockholders | | $ | 55 | | | $ | (691 | ) | | $ | (743 | ) |
| | | | | | | | | | | | |
Basic and diluted net income (loss) per common share: | | | | | | | | | | | | |
Net income (loss) | | $ | .00 | | | $ | (.02 | ) | | $ | (.02 | ) |
| | | | | | | | | | | | |
Weighted average common shares outstanding | | | 53,884 | | | | 44,268 | | | | 34,653 | |
The accompanying notes are an integral part of these consolidated financial statements.
26
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'STOCKHOLDERS’ EQUITY
for
For the Years Ended December 31, 2007, 2006 2005 and 2004
(In2005
(In thousands)
Accumulated
Additional Other
Common Stock Paid-in Accumulated Preferred Stock Comprehensive
Shares Amount Capital Deficit Shares Amount Income Total
------ ------ ------- ------- ------ ------ ------ ------
Balances at December 31, 2003 ........... 34,653 347 70,476 (59,097) -- -- -- 11,726
Issuance of preferred stock ........... -- -- 4,952 -- 4,808 48 -- 5,000
Comprehensive income (loss):
Unrealized gain on investment ..... -- -- -- -- -- -- 49 49
Net loss applicable to common
stockholders ..................... -- -- -- (2,010) -- -- -- (2,010)
Comprehensive loss .................... -- -- -- (2,010) -- -- 49 (1,961)
------ -------- ------ ------- ----- ---- ---- ---------
Balances at December 31, 2004 ........... 34,653 347 75,428 (61,107) 4,808 48 49 14,765
Comprehensive income (loss):
Reclassification of unrealized
gain on investment .............. -- -- -- -- -- -- (49) (49)
Net loss applicable to common
stockholders ..................... -- -- -- (743) -- -- -- (743)
Comprehensive loss .................... -- -- -- (743) -- -- (49) (792)
------ -------- ------ ------- ----- ---- ---- ---------
Balances at December 31, 2005 ........... 34,653 347 75,428 (61,850) 4,808 48 -- 13,973
------ -------- ------ ------- ----- ---- ---- ---------
SAB 108 cumulative effect adjustment
(note 15) .............................. -- -- 22 (22) -- -- -- --
------ -------- ------ ------- ----- ---- ---- ---------
Balance January 1, 2006, as adjusted .... 34,653 347 75,450 (61,872) 4,808 48 -- --
------ -------- ------ ------- ----- ---- ---- ---------
Fair market value of services ........... -- -- 17 -- -- -- -- 17
Share based payment expense ............. -- -- 17 -- -- -- -- 17
Comprehensive income (loss):
Conversion of preferred stock ...... 19,231 192 (144) -- (4,808) (48) -- --
Net loss applicable to common
stockholders ..................... -- -- -- (691) -- -- -- (691)
Comprehensive loss ..................... -- -- -- (691) -- -- -- (691)
------ -------- ------ ------- ----- ---- ---- ---------
Balances at December 31, 2006 ........... 53,884 $ 539 $ 75,340 $(62,563) -- -- $ -- $ 13,316
====== ======== ====== ======== ===== ==== ==== ========
| | Common Stock | | | Additional Paid-in | | | Accumulated | | | Preferred Stock | | | Accumulated Other Comprehensive | | | | |
| | Shares | | | Amount | | | Capital | | | Deficit | | | Shares | | | Amount | | | Income | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balances at December 31, 2004 | | | 34,653 | | | $ | 347 | | | $ | 75,428 | | | $ | (61,107 | ) | | | 4,808 | | | $ | 48 | | | $ | 49 | | | $ | 14,765 | |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Reclassification of unrealized gain on investment | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (49 | ) | | | (49 | ) |
Net loss applicable to common stockholders | | | - | | | | - | | | | - | | | | (743 | ) | | | - | | | | - | | | | - | | | | (743 | ) |
Comprehensive loss | | | - | | | | - | | | | - | | | | (743 | ) | | | - | | | | - | | | | (49 | ) | | | (792 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances at December 31, 2005 | | | 34,653 | | | | 347 | | | | 75,428 | | | | (61,850 | ) | | | 4,808 | | | | 48 | | | | - | | | | 13,973 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SAB 108 cumulative effect adjustment (note 14) | | | - | | | | - | | | | 22 | | | | (22 | ) | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance January 1, 2006, as adjusted | | | 34,653 | | | | 347 | | | | 75,450 | | | | (61,872 | ) | | | 4,808 | | | | 48 | | | | - | | | | 13,973 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair market value of services | | | - | | | | - | | | | 17 | | | | - | | | | - | | | | - | | | | - | | | | 17 | |
Share based payment expense | | | - | | | | - | | | | 17 | | | | - | | | | - | | | | - | | | | - | | | | 17 | |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Conversion of preferred stock | | | 19,231 | | | | 192 | | | | (144 | ) | | | - | | | | (4,808 | ) | | | (48 | ) | | | - | | | | - | |
Net loss applicable to common stockholders | | | - | | | | - | | | | - | | | | (691 | ) | | | - | | | | - | | | | - | | | | (691 | ) |
Comprehensive loss | | | - | | | | - | | | | - | | | | (691 | ) | | | - | | | | - | | | | - | | | | (691 | ) |
Balances at December 31, 2006 | | | 53,884 | | | | 539 | | | | 75,340 | | | | (62.563 | ) | | | - | | | | - | | | | - | | | | 13,316 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Share based payment expense | | | - | | | | - | | | | 17 | | | | - | | | | - | | | | - | | | | - | | | | 17 | |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net Income applicable to common stockholders | | | - | | | | - | | | | - | | | | 55 | | | | - | | | | - | | | | - | | | | 55 | |
Comprehensive income | | | - | | | | - | | | | - | | | | 55 | | | | - | | | | - | | | | - | | | | 55 | |
Balances at December 31, 2007 | | | 53,884 | | | $ | 539 | | | $ | 75,357 | | | $ | (62,508 | ) | | | - | | | $ | - | | | $ | - | | | $ | 13,388 | |
The accompanying notes are an integral part of these consolidated financial statements.
27
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
(In thousands)
Year Ended December 31,
2006 2005 2004
--------- --------- ---------
Cash flows from operating activities:
Net loss ................................................................ $ (591) $ (543) $ (1,903)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation and amortization expense .................................. -- 7 27
Equity in net loss of and impairment of investments in affiliates ...... -- -- 2,985
Gain on sale of equity affiliate ....................................... -- -- (5,817)
Loss on sale of treasury bill .......................................... -- 14 --
Gain on sale of Sharps Compliance Corp. common stock ................... -- (57) --
Share based payment expense ............................................ 17 -- --
Charge off of revenue interest receivable .............................. 34 -- --
Fair market value of services .......................................... 17
Loss on disposition of fixed assets .................................... -- -- 30
Accretion of discount on securities .................................... -- (185) (36)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ............................ (1) (33) 28
(Increase) decrease in insurance receivable and other assets .......... 1,275 (1,492) 171
Increase (decrease) in accounts payable ............................... (40) 8 (13)
Increase (decrease) in accrued liabilities ............................ (284) 267 (687)
-------- -------- --------
Net cash provided by (used in) operating activities ....................... 427 (2,014) (5,215)
Cash flows from investing activities:
Purchases of property and equipment ..................................... -- -- (3)
Proceeds from sale of short-term investments ............................ -- 27,186 --
Purchase of short-term investments ...................................... -- (13,786) (12,858)
Purchase of revenue interest ............................................ (388) (415)
Proceeds from sale of equity affiliate (all holdings in Princeton) ...... -- -- 10,000
Proceeds from sale of equity affiliate (all holdings in Princeton)
allocated to former chief executive officer ............................. -- -- (600)
Other investing activities .............................................. -- -- 62
-------- -------- --------
Net cash provided by (used in) investing activities ....................... (388) 12,985 (3,399)
Cash flows from financing activities:
Cash dividends paid on preferred stock .................................. (207) (200) --
Proceeds from sale of preferred stock ................................... -- -- 5,000
-------- -------- --------
Net cash used in financing activities ..................................... (207) (200) 5,000
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ...................... (168) 10,771 (3,614)
Cash and cash equivalents, beginning of period ............................ 12,487 1,716 5,330
-------- -------- --------
Cash and cash equivalents, end of period .................................. $ 12,319 $ 12,487 $ 1,716
======== ======== ========
Supplemental disclosure of non-cash transactions:
Increase in fair market value of investments ............................. $ -- $ -- $ 49
Preferred stock dividend ................................................. $ 107 $ -- $ 107
| | Year Ended December 31, | |
| | | | | | | | | |
| | | | | | | | | |
Cash flows from operating activities: | | | | | | | | | |
Net income (loss) | | $ | 55 | | | | (591 | ) | | $ | (543 | ) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | | | | | | | | |
Depreciation and amortization expense | | | - | | | | - | | | | 7 | |
Loss on sale of Treasury bill | | | - | | | | - | | | | 14 | |
Gain on sale of Sharps Compliance Corp. common stock | | | - | | | | - | | | | (57 | ) |
Share based payment expense | | | 17 | | | | 17 | | | | - | |
Charge off of revenue interest receivable | | | - | | | | 34 | | | | - | |
Fair market value of services | | | - | | | | 17 | | | | | |
Accretion of discount on securities | | | - | | | | - | | | | (185 | ) |
Changes in operating assets and liabilities: | | | | | | | | | | | | |
(Increase) decrease in accounts receivable | | | - | | | | (1 | ) | | | (33 | ) |
(Increase) decrease in insurance receivable and other assets | | | 331 | | | | 1,275 | | | | (1,492 | ) |
Increase (decrease) in accounts payable | | | (13 | ) | | | (40 | ) | | | 8 | |
Increase (decrease) in accrued liabilities | | | (28 | ) | | | (284 | ) | | | 267 | |
| | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | | 362 | | | | 427 | | | | (2,014 | ) |
| | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | |
Purchases of property and equipment | | | (2 | ) | | | - | | | | - | |
Proceeds from sale of short-term investments | | | - | | | | - | | | | 27,186 | |
Purchase of short-term investments | | | - | | | | - | | | | (13,786 | ) |
Purchase of revenue interest | | | - | | | | (388 | ) | | | (415 | ) |
| | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | (2 | ) | | | (388 | ) | | | 12,985 | |
| | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | |
Cash dividends paid on preferred stock | | | - | | | | (207 | ) | | | (200 | ) |
| | | | | | | | | | | | |
Net cash used in financing activities | | | - | | | | (207 | ) | | | (200 | ) |
| | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 360 | | | | (168 | ) | | | 10,771 | |
Cash and cash equivalents, beginning of period | | | 12,319 | | | | 12,487 | | | | 1,716 | |
| | | | | | | | | | | | |
Cash and cash equivalents, end of period | | $ | 12,679 | | | $ | 12,319 | | | $ | 12,487 | |
| | | | | | | | | | | | |
Supplemental disclosure of non-cash transactions: | | | | | | | | | | | | |
Increase in fair market value of investments | | $ | | | | $ | - | | | $ | - | |
Preferred stock dividend | | $ | | | | $ | 107 | | | $ | - | |
The accompanying notes are an integral part of these consolidated financial statements.
28
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 20042007, 2006 and 2003
NOTE2005
Note 1. BUSINESS ACTIVITY
Business Activity
New Century Equity Holdings Corp. is a company in transition. The Company is currently seeking to redeploy its assets to enhance stockholder value and is
actively seeking, analyzing and evaluating potential acquisition and merger candidates. On October 5, 2005, the Company made an investment in ACP Investments L.P. (d/b/a Ascendant Capital Partners) ("Ascendant"(“Ascendant”). Ascendant is a Berwyn, Pennsylvania based alternative asset management company whose funds have investments in long/short equity funds and which distributes its registered funds primarily through various financial intermediaries and related channels. The Company’s interest in Ascendant currently represents the Company’s sole operating business.
The Company, which was formerly known as Billing Concepts Corp. ("BCC"(“BCC”), was incorporated in the state of Delaware in 1996. BCC was previously a wholly-owned subsidiary of U.S. Long Distance Corp. ("USLD"(“USLD”) and principally provided third-party billing clearinghouse and information management services to the telecommunications industry (the "Transaction“Transaction Processing and Software Business"Business”). Upon its spin-off from USLD, BCC became an independent, publicly-held company. In October 2000, the Company completed the sale of several wholly-owned subsidiaries that comprised the Transaction Processing and Software Business to Platinum Holdings ("Platinum"(“Platinum”) for consideration of $49,700,000 (the "Platinum Transaction"“Platinum Transaction”). The Company also received payments totaling $7,500,000 for consulting services provided to Platinum over the twenty-four month period subsequent to the Platinum Transaction.
Beginning in 1998, the Company made multiple investments in Princeton eCom Corporation ("Princeton"(“Princeton”) totaling approximately $77,300,000 before selling all of its interest for $10,000,000 in June 2004. The Company'sCompany’s strategy, beginning with its investment in Princeton, of making investments in high-growth companies was also facilitated through several other investments.
In early 2004, the Company announced that it would seek stockholder approval to liquidate the Company. In June of 2004, the board of directors of the Company determined that it would be in the best interest of the Company to accept an investment from Newcastle Partners, L.P. ("Newcastle"(“Newcastle”), an investment fund with a long track record of investing in public and private companies. On June 18, 2004, the Company sold 4,807,692 newly issued shares of its Series A 4% Convertible Preferred Stock (the "Series“Series A Preferred Stock"Stock”) to Newcastle for $5,000,000 (the "Newcastle Transaction"“Newcastle Transaction”). The Series A Preferred Stock was convertible into approximately thirty-five percent of the Common Stock,Company’s common stock (the “Common Stock”), at any time after the expiration of twelve months from the date of its issuance at a conversion price of $0.26 per share of Common Stock, subject to adjustment for dilution. The holders of the Series A Preferred Stock were entitled to a four percent annual cash dividend (the "Preferred Dividends"). Following the investment by Newcastle, the management team resigned and new executives and board members were appointed. On July 3, 2006, Newcastle converted its Series A Preferred Stock into 19,230,768 shares of Common Stock.
During May 2005, the Company sold its equity interest in Sharps Compliance Corp. ("Sharps"(“Sharps”) for approximately $334,000. Following the sale of its interest in Sharps,
interest, the Company no longer holds any investments made by former management and which reflected former management'smanagement’s strategy of investing in high-growth companies.
Derivative Lawsuit
On August 11, 2004, Craig Davis, allegedly a stockholder of the Company, filed a lawsuit in the Chancery Court of New Castle County, Delaware (the "Lawsuit"“Lawsuit”). The Lawsuit asserted direct claims, and also derivative claims on the Company'sCompany’s behalf, against five former and three current directors of the Company. On April 13, 2006, the Company announced that it reached an agreement with all of the parties to the Lawsuit to settle all claims relating thereto (the "Settlement"“Settlement”). On June 23, 2006, the Chancery Court approved the Settlement, and on July 25, 2006, the Settlement became final and non-appealable
(See non-appealable. As part of the Settlement, the Company set up a fund (the “Settlement Fund”), which was distributed to stockholders of record as of July 28, 2006, with a payment date of August 11, 2006. The portion of the Settlement Fund distributed to stockholders pursuant to the Settlement was
$2,270,017 or approximately $.04 per common share on a fully diluted basis, provided that any Common Stock held by defendants in the Lawsuit who were formerly directors of the Company would not be entitled to any distribution from the Settlement Fund. The total Settlement proceeds of $3,200,000 were funded by the Company’s insurance carrier and by Parris H. Holmes, Jr., the Company’s former Chief Executive Officer, who contributed $150,000. Also included in the total Settlement proceeds is $600,000 of reimbursement for legal and professional fees paid to the Company by its insurance carrier and subsequently contributed by the Company to the Settlement Fund. Therefore, the Company recognized a loss of $600,000 related to the Lawsuit for the year ended December 31, 2006. As part of the Settlement, the Company and the other defendants in the Lawsuit agreed not to oppose the request for fees and expenses by counsel to the plaintiff of $929,813. Under the Settlement, the plaintiff, the Company and the other defendants (including Mr. Holmes) also agreed to certain mutual releases.
The Settlement provided that, if the Company had not acquired a business that generated revenues by March 1, 2007, the plaintiff maintained the right to pursue a claim to liquidate the Company. This custodian claim was one of several claims asserted in the Lawsuit. Even if such a claim is elected to be pursued, there is no assurance that it will be successful. In addition, the Company believes that it has preserved its right to assert that the Ascendant investment meets the foregoing requirement to acquire a business.
In connection with the resolution of the Lawsuit, the Company has ceased funding of legal and professional fees of the current and former director defendants. The funding of legal and professional fees was made pursuant to indemnification arrangements that were in place during the respective terms of each of the defendants. The Company has met the $500,000 retention as stipulated in the Company’s directors’ and officers’ liability insurance policy. The directors’ and officers’ liability insurance policy carries a maximum coverage limit of $5,000,000. During October 2007, the Company and the insurance carrier agreed to settle all claims for reimbursement of legal and professional fees associated with the Lawsuit for $240,000.
Note
6).
29
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and subsidiaries in which the Company is deemed to have control for accounting purposes. The Company's investment in
Princeton was accounted for using the equity method of accounting. The Company'sCompany’s investment in Sharps was accounted for in accordance with Statement of Financial Accountings Standards No. 115 (SFAS No. 115), "Accounting“Accounting for Certain Investments in Debt and Equity Securities"Securities”. All significant intercompanyinter-company accounts and transactions have been eliminated in consolidation.
ESTIMATES IN THE FINANCIAL STATEMENTS
Estimates in the Financial Statements
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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash and cash equivalents.
REVENUE RECOGNITION
Revenue Recognition
The Company's consolidated revenues represent revenue from the revenue interest in Ascendant. Such revenues are recognized monthly as services are rendered and are based upon a percentage of the market value of assets under management (see Note 3).
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are accounted for at fair value, do not bear interest and are short-term in nature. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability to collect on accounts receivables.receivable. Based on management's assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to the valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. The Company generally does not require collateral.
FINANCIAL INSTRUMENTS
Financial Instruments
SFAS No. 107,
"Disclosures“Disclosures About Fair Value of Financial
Instruments"Instruments”, requires the disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practicable to estimate the value. SFAS No. 107 excludes certain financial instruments from its disclosure requirements. Accordingly, the aggregate fair market value amounts are not intended to represent the underlying value of the Company. The carrying amounts of cash and cash equivalents, current receivables and
payables and
long-termcurrent liabilities approximate fair value because of the nature of these instruments.
30
REVENUE INTEREST
Revenue Interest
The Company has determined that the revenue interest that it acquired in 2005 meets the indefinite life criteria outlined in SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). Accordingly, the Company does not amortize this intangible asset, but instead reviews this asset quarterly for impairment. Each reporting period, the Company assesses whether events or circumstances have occurred which indicate that the indefinite life criteria are no longer met. If the indefinite life criteria are no longer met, the Company assesses whether the carrying value of the asset exceeds its fair value, and an impairment loss is recorded in an amount equal to any such excess.
The Company assesses whether the entity in which the acquired revenue interest exists meets the indefinite life criteria based on a number of factors including: the historical and potential future operating performance; the historical and potential future rates of attrition among existing clients; the stability and longevity of existing client relationships; the recent, as well as long-term, investment performance; the characteristics of the firm's products and investment styles; the stability and depth of the management team and the history and perceived franchise or brand value.
INVESTMENTS IN EQUITY SECURITIES
Investments in Equity Securities
The Company follows the standards of SFAS No. 115, "Accounting“Accounting for Certain Investments in Debt and Equity Securities,"” (“SFAS 115”) for those investments in which the securities are publicly traded. For those investments in which the securities are privately held, the Company follows the guidance of Accounting Principles Board ("APB"(“APB”) Opinion No. 18, "The“The Equity Method of Accounting for Investments in Common Stock"Stock”. The Company accounted for its investment in Sharps under SFAS No. 115, as Sharps'Sharps’ common stock is publicly traded. SFAS No. 115 establishes standards for accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. Unrealized holdings gains and losses, other than those considered permanent, related to the Company'sCompany’s investment in Sharps are excluded from net loss and reported as a separate component of other comprehensive income.
SHORT-TERM INVESTMENTS
Short-Term Investments
The Company invests its excess cash in money market accounts, U.S. Treasury bills, and short-term debt securities. Investments with an original maturity at the time of purchase over three months but less than a year are classified as short-term investments. Investments with an original maturity at the time of purchase of greater than one year are classified as long-term investments. Management determines the appropriate classification of investments at the time of purchase and reevaluates such designations at the end of each period.
CONCENTRATIONS OF CREDIT RISK
Concentrations of Credit Risk
Treasury Stock
In 2000, the
Company'sCompany’s board of directors approved the adoption of a common stock repurchase program. Under the terms of the program, the Company may purchase an aggregate $25,000,000 of the
Company'sCompany’s Common Stock in the open market or in privately negotiated transactions. The Company records repurchased Common Stock at cost (see Note 8).
31
INCOME TAXES
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recorded based on enactedrecognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates thatexpected to apply to taxable income in the years in which those temporary differences are expected to be inrecovered or settled. The effect in the period in which theon deferred tax asset or liability is expected to be settled or realized. A change in the
tax laws or rates results in adjustments to the deferredincome tax assets and liabilities. The effectsliabilities of such adjustments are required to be includeda change in tax rates is recognized in income in the period that includes the enactment date. The Company continually assesses the need for a tax valuation allowance based on all available information. As of December 31, 2007, and as a result of this assessment, the Company does not believe that its deferred tax assets are more likely than not to be realized. In addition, the Company continuously evaluates its tax contingencies in which the tax laws or rates are changed.
RECLASSIFICATIONS
accordance with Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109,” (“FIN 48”).
Reclassifications
Certain amounts have been reclassified in the prior year to conform to the current year presentation.
NET LOSS PER COMMON SHARE
Net Loss per Common Share
SFAS No. 128, "Earnings“Earnings Per Share"Share”, establishes standards for computing and presenting earnings per share ("EPS"(“EPS”) for entities with publicly-held common stock or potential common stock. As the Company had a net loss from continuing operations for the years ended December 31, 2006 2005 and 2004,2005 diluted EPS equals basic EPS, as potentially dilutive common stock equivalents are anti-dilutive in loss periods.
STOCK-BASED COMPENSATION
Stock-Based Compensation
Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment" (SFAS 123R)“Share-Based Payment” (“SFAS 123R”) using the modified prospective transition method. Under this method, previously reported amounts should not be restated to reflect the provisions of SFAS 123R. SFAS 123R requires the Company to record compensation expense for all awards granted after the date of adoption, and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. The fair value concepts have not changed significantly in SFAS 123R; however, in adopting this standard, companies must choose among alternative valuation models and amortization assumptions. After assessing alternative valuation models and amortization assumptions, the Company will continue using both the Black-Scholes valuation model and straight-line amortization of compensation expense over the requisite service period for each separately vesting portion of the grant. The Company will reconsider use of this model if additional information becomes available in the future that indicates another model would be more appropriate, or if grants issued in future periods have characteristics that cannot be reasonably estimated using this model. The Company utilizes stock-based awards as a form of compensation for employees, officers and directors.
The fair value of the stock option grants included in the Company's net
lossCompany’s statement of operations totaled approximately $17,000 for the yearyears ended December 31, 2007 and 2006. The expense relates to the unvested portion of previously granted awards that remain outstanding at the date of adoption.
Previously, the Company had applied the provisions of Accounting Principles Board Opinion No. 25,
"Accounting“Accounting for Stock Issued to
Employees" (APB
25)Employees” and related interpretations and elected to utilize the disclosure option of Statement of Financial Accounting Standards No. 123,
"Accounting“Accounting for Stock-Based
Compensation" (SFAS 123)Compensation” (“SFAS 123”).
32
For the year ended December 31, 2005, and December 31, 2004, the following table illustrates the effect on net loss and net loss per common share had compensation expense for the Company'sCompany’s stock option grants been determined based on the fair value at the grant dates consistent with the methodology of SFAS No.
123 and SFAS No. 148, "Accounting“Accounting for Stock-Based Compensation -– Transition and Disclosure"Disclosure”. For purposes of the pro forma disclosures, the estimated fair value of options is amortized to pro forma compensation expense over the options'options’ vesting periods.
Year Ended December 31,
(in thousands, except per share data) 2005 2004
--------- --------
Net loss, as reported .............................................. $ (743) $(1,903)
Less: Total stock based employee compensation expense
determined under the fair value based method for all awards,
net of related tax effects ....................................... (32) (100)
------- -------
Net loss, pro forma ................................................ $ (775) $(2,003)
======= =======
Basic and diluted net loss per common share:
Net loss, as reported ............................................ $ (0.02) $ (0.06)
======= =======
Net loss, pro forma .............................................. $ (0.02) $ (0.06)
======= =======
| | Year Ended December 31, | |
(in thousands, except per share data) | | | |
Net loss, as reported | | $ | (743 | ) |
| | | | |
| | | | |
Less: Total stock based employee compensation expense determined under the fair value based method for all awards, net of related tax effects | | (32) | |
Net loss, pro forma | | $ | (775 | ) |
| | | | |
Basic and diluted net loss per common share: | | | | |
Net loss, as reported | | $ | (0.02 | ) |
Net loss, pro forma | | $ | (0.02 | ) |
The fair value for these options was estimated at the respective grant dates using the Black-Scholes option-pricing model with the following weighted average assumptions: expected volatility of 99.2% and 99.2% for the years ended
December 31, 2005 and 2004, respectively;; no dividend yield; expected life of 2.5 years and a risk-free interest ratesrate of 4.75% for the years ended December 31,
2005 and 2004, respectively.
NOTE.
Note 3. REVENUE INTEREST
Revenue Interest
On October 5, 2005, the Company entered into thean agreement (the “Ascendant Agreement”) with Ascendant Agreement (the
"Agreement") to acquire an interest in the revenues generated by Ascendant. Pursuant to the Ascendant Agreement, the Company is currently entitled to a 50% interest, subject to certain adjustments, in the revenues of Ascendant, which interest declines if the assets under management of Ascendant reach certain levels. Revenues generated by Ascendant include revenues from assets under management or any other sources or investments, net of any agreed commissions. The Company also agreed to provide various marketing services to Ascendant. Steven J. Pully, CEOOn November 5, 2007, John Murray, Chief Financial Officer of the Company, was appointed to the Investment Advisory Committee of Ascendant.Ascendant to serve in the place of the Company’s former CEO. The total potential purchase price under the terms of the Ascendant Agreement wasis $1,550,000, payable in four equal installments of $387,500. The first installment was paid at the closing and the second installment was paid on January 5, 2006. Subject to the provisions of the Ascendant Agreement, including Ascendant'sAscendant’s compliance with the terms thereof, the third installment was payable on April 5, 2006 and the fourth installment was payable on July 5, 2006. On April 5, 2006, the Company elected not to make the April installment payment and subsequently determined not to not make the installment payment due July 5, 2006. The Company believed that it was not required to make the payments because Ascendant did not satisfy all of the conditions in the Ascendant Agreement.
Subject to the terms of the Ascendant Agreement, if the Company does not make an installment payment and Ascendant is not in breach of the Ascendant Agreement, Ascendant has the right to acquire the
Company'sCompany’s revenue interest at a price which would yield a 10% annualized return to the Company. The Company has been notified by Ascendant that Ascendant is exercising this right as a result of the
Company'sCompany’s election not to make its third and fourth installment payments. The Company believes that Ascendant has not satisfied the requisite conditions to repurchase the
Company'sCompany’s revenue
interest, including as a result
of Ascendant's failure to make required revenue sharing payments for the
quarters ended June 30, 2006, September 30, 2006 and December 31, 2006, and at
this time the Company believes it is not obligated to make the third and fourth
installment payments to Ascendant.
33
interest.
Ascendant had assets under management of approximately $27,100,000$37,500,000 and $17,800,000$27,100,000 as of December 31, 20062007 and December 31, 2005,2006, respectively. Under the Ascendant Agreement, revenues earned by the Company from the Ascendant revenue interest (as determined in accordance with the terms of the Ascendant Agreement) are payable in cash within 30 days after the end of each quarter. Under the terms of the Ascendant Agreement, Ascendant has 45 days following notice by the Company to cure any material breach by Ascendant of the Ascendant Agreement, including with respect to payment obligations. Ascendant failed to make the required revenue sharing payments for the quarters ended June 30, 2006, September 30, 2006 and December 31, 2006 in a timely manner and did not cure
such failure withinfor the 45 day period.year ended December 31, 2007. Under the terms of the Ascendant Agreement, upon notice of an uncured material breach, Ascendant is required to fully refund all amounts paid by the Company, and the Company'sCompany’s revenue interest remains outstanding.
As part
Table of the parties' discussions regarding non-payment of amounts under
the Ascendant Agreement by each party, the Company has proposed an amendment
that would permit Ascendant to temporarily defer certain payments to the
Company, including the payments related to the quarters ended June 30, 2006,
September 30, 2006 and December 31, 2006. There is no assurance that an
amendment will be effected on such terms or that any resolution of the foregoing
matter will be reached.
Based on the parties' discussions, the Company has charged off the revenue
interest receivable of $34,000, which was accrued by the Company at June 30,
2006 for its portion of the 50% revenue interest for that quarter. Contents
The Company has not recorded any revenue or corresponding receivable for areceived any revenue sharing paymentpayments for the quarters ended September 30, 2006 and December 31, 2006.2006 and for the year ended December 31, 2007. According to the Ascendant Agreement, with Ascendant, if Ascendant acquires the revenue interest from the Company, Ascendant must pay the Company a return on the capital that it invested. Pursuant to the Ascendant Agreement, the required return on the Company’s invested capital will not be impacted by any revenue sharing payments missedmade or not made by Ascendant or written off by the
Company.
Ascendant.
In connection with the Ascendant Agreement, the Company also entered into the Principals Agreement with Ascendant and certain limited partners and key employees of Ascendant (the "Principals Agreement"“Principals Agreement”) pursuant to which, among other things, the Company has the option to purchase limited partnership interests of Ascendant under certain circumstances. Effective March 14, 2006, in accordance with the terms of the Principals Agreement, the Company acquired a 7% limited partnership interest from a limited partner of Ascendant for nominal consideration. The Principals Agreement contains certain noncompete and nonsolicitation obligations of the partners of Ascendant that apply during their employment and the twelve month period following the termination thereof.
NOTE 4. ACQUISITIONS AND INVESTMENTS
PRINCETON
Since the Ascendant revenue interest meets the indefinite life criteria outlined in SFAS 142, , the Company does not amortize this intangible asset, but instead reviews this asset quarterly for impairment. Each reporting period, the Company assesses whether events or circumstances have occurred which indicate that the indefinite life criteria are no longer met. If the indefinite life criteria are no longer met, the Company assesses whether the carrying value of the asset exceeds its fair value, and an impairment loss is recorded in an amount equal to any such excess.
The Company made its initialassesses whether the entity in which the acquired revenue interest exists meets the indefinite life criteria based on a number of factors including: the historical and potential future operating performance; the historical and potential future rates of attrition among existing clients; the stability and longevity of existing client relationships; the recent, as well as long-term, investment in Princeton in September 1998.
Princeton was previously a privately held company located in Princeton, New
Jersey, that specialized in electronic bill presentmentperformance; the characteristics of the entities’ products and payment solutions
utilizinginvestment styles; the Internetstability and telephone. Beginning in 1998depth of the management team and through 2003 the Company invested a total of approximately $77,300,000 in Princeton. In June
2004, the Company sold all its interest in Princeton for $10,000,000. The sale
generated a capital loss for federal income tax purposes of approximately
$67,000,000history and a book gain of approximately $5,800,000.
SHARPS
perceived franchise or brand value.
Note 4. Acquisitions and Investments
Sharps
In October 2001, the Company participated in a private placement financing with publicly traded Sharps. Sharps, a Houston, Texas-based company provides medical-related waste services to the healthcare, retail, residential and hospitality markets. The Company purchased 700,000 shares of
Sharps'Sharps’ common stock for $770,000. In January 2003, the Company purchased an additional 200,000 shares of
Sharps'Sharps’ common stock for $200,000.
34
In January 2004, the Company entered into an agreement with the former majority stockholders of Operator Service Company ("OSC"(“OSC”) to settle all claims related to the April 2000 acquisition of OSC by the Company. Under the terms of the agreement, the Company transferred to the former OSC majority stockholders 525,000 shares of the common stock of Sharps owned by the Company, valued at approximately $389,000. During the period from April 1, 2005 through May 5, 2005, the Company sold its equity interest in Sharps for approximately $334,000, resulting in a $57,000 gain for financial reporting purposes.
NOTE
Note 5. ACCRUED LIABILITIES
Accrued liabilities are comprised of the following:
December 31,
(in thousands) 2006 2005
------ ------
Accrued public company cost .................. $108 $129
Accrued preferred stock dividend ............. -- 107
Accrued legal ................................ 13 223
Accrued settlement ........................... -- 85
Other ........................................ 40 6
---- ----
Total accrued liabilities .................. $161 $550
==== ====
During February 2006, the Company entered into an agreement with a former
employee to settle a dispute over a severance agreement the employee had entered
into with the Company. The severance agreement which was executed by former
management provided for a payment of approximately $98,000 upon the occurrence
of certain events. The Company paid approximately $85,000 to settle all claims
associated with the severance agreement.
During May 2006, the Company entered into an agreement to settle a dispute
with a law firm that had previously been hired by the Company. In accordance
with the terms of the agreement, the Company received a refund of legalLiabilities
Accrued liabilities are comprised of the following: | | | | | | |
| | December 31, | |
(in thousands) | | | | | | |
Accrued public company cost | | $ | 83 | | | $ | 108 | |
Accrued legal | | | 8 | | | | 13 | |
Other | | | 40 | | | | 40 | |
| | | | | | | | |
Total accrued liabilities | | $ | 131 | | | $ | 161 | |
Note 6. Commitments and professional fees of $125,000 during May 2006. In connection with this matter,
the Company reversed accrued legal and professional fees of approximately
$38,000 during the quarter ended March 31, 2006.
NOTE 6. COMMITMENTS AND CONTINGENCIES
Contingencies
In October 2000, the Company completed the Platinum Transaction. Under the terms of the Platinum Transaction, all leases and corresponding obligations associated with the Transaction Processing and Software Business were assumed by Platinum. Prior to the Platinum Transaction, the Company guaranteed two operating leases for office space of the divested companies. The first lease is related to office space located in San Antonio, Texas, and expired in 2006. The second lease is related to office space located in Austin, Texas, and expires in 2010. Under the original terms of the second lease, the remaining minimum undiscounted rent payments total approximately
$4,255,000$2,837,000 at December 31,
2006.2007. In conjunction with the Platinum Transaction, Platinum agreed to indemnify the Company should the underlying operating companies not perform under the terms of the office leases. The Company can provide no assurance as to
Platinum'sPlatinum’s ability, or willingness, to perform its obligations under the indemnification. The Company does not believe it is probable that it will be required to perform under the remaining lease guarantee and, therefore, no liability has been accrued in the
Company'sCompany’s financial statements.
35
On August 11, 2004, Craig Davis, allegedly a stockholder of the Company,
filed a lawsuit in the Chancery Court of New Castle County, Delaware (the
"Lawsuit"). The Lawsuit asserted direct claims, and also derivative claims on
the Company's behalf, against five former and three current directors of the
Company. On April 13, 2006, the Company announced that it reached an agreement
with all of the parties to the Lawsuit to settle all claims relating thereto
(the "Settlement"). On June 23, 2006, the Chancery Court approved the
Settlement, and on July 25, 2006, the Settlement became final and
non-appealable. As part of the Settlement, the Company set up a fund (the
"Settlement Fund"), which was distributed to stockholders of record as of July
28, 2006, with a payment date of August 11, 2006. The portion of the Settlement
Fund distributed to stockholders pursuant to the Settlement was $2,270,017 or
approximately $.04 per common share on a fully diluted basis, provided that any
Common Stock held by defendants in the Lawsuit who were formerly directors of
the Company would not be entitled to any distribution from the Settlement Fund.
The total Settlement proceeds of $3,200,000 were funded by the Company's
insurance carrier and by Parris H. Holmes, Jr., the Company's former Chief
Executive Officer, who contributed $150,000. Also included in the total
Settlement proceeds is $600,000 of reimbursement for legal and professional fees
paid to the Company by its insurance carrier and subsequently contributed by the
Company to the Settlement Fund. Therefore, the Company has recognized a loss of
$600,000 related to the Lawsuit for the year ended December 31, 2006. As part of
the Settlement, the Company and the other defendants in the Lawsuit agreed not
to oppose the request for fees and expenses by counsel to the plaintiff of
$929,813. Under the Settlement, the plaintiff, the Company and the other
defendants (including Mr. Holmes) also agreed to certain mutual releases of
claims arising out of transactions referenced in the Lawsuit.
The Settlement provides that, if the Company has not acquired a business
that generates revenues by the date of March 1, 2007, the plaintiff maintains
the right to pursue a claim to liquidate the Company. This custodian claim was
one of several claims asserted in the Lawsuit. Even if such a claim is elected
to be pursued, there is no assurance that it will be successful. In addition,
the Company believes that it has preserved its right to assert that the
Ascendant investment meets the foregoing requirement to acquire a business.
In connection with the resolution of the Lawsuit, the Company ceased
funding of legal and professional fees of the current and former director
defendants. The funding of legal and professional fees was made pursuant to
indemnification arrangements that were in place during the respective terms of
each of the defendants. The Company has met the $500,000 retention as stipulated
in the Company's directors' and officers' liability insurance policy. The
directors' and officers' liability insurance policy carries a maximum coverage
limit of $5,000,000. As of December 31, 2006, the Company has recorded a
receivable from the insurance carrier of approximately $300,000 for
reimbursement of legal and professional fees incurred in excess of the policy
retention, net of the $600,000 reimbursement from the insurance carrier as part
of the Settlement. The Company is currently negotiating a settlement with the
insurance carrier with respect to remaining reimbursement amounts. The Company
is vigorously pursuing enforcement of its rights under the policy and believes
its claims to be valid. Nonpayment of the claim for reimbursement of legal and
professional fees could have a material adverse effect on the results of
operations of the Company. The Settlement does not preclude the Company from
seeking reimbursement of legal and professional fees up to the amount remaining
within the policy limit.
Pursuant to the sale of 4,807,692 newly issued shares of the Series A Preferred Stock to Newcastle on June 18, 2004, the Company agreed to indemnify Newcastle from any liability, loss or damage, together with all costs and expenses related thereto, that the Company may suffer which arises out of affairs of the Company, its board of directors or employees prior to the closing of the Newcastle Transaction.
The Company's obligation to indemnify may be satisfied at
the option of the purchaser by issuing additional Series A Preferred Stock to
the purchaser, modifying the conversion price of the Series A Preferred Stock, a
payment of cash or a redemption of Series A Preferred Stock or a combination of
the foregoing. On July 3, 2006, Newcastle converted its Series A Preferred Stock
into 19,230,768 shares of the Common Stock.
36
On December 12, 2005, the Company received a letter from the SEC, based on a review of the Company'sCompany’s Form 10-K filed for the year ended December 31, 2004, requesting that the Company provide a written explanation as to whether the Company is an "investment company"“investment company” (as such term is defined in the Investment Company Act of 1940). The Company provided a written response to the SEC, dated January 12, 2006, stating the reasons why it believes it is not an "investment
company"“investment company”. The Company has provided certain confirmatory information requested by the SEC. In the event the SEC or a court took the position that the Company is an investment company, the Company'sCompany’s failure to register as an investment company would not only raise the possibility of an enforcement or other legal action by the SEC and potential fines and penalties, but also could threaten the validity of corporate actions and contracts entered into by the Company during the period it was deemed to be an unregistered investment company, among other remedies.
NOTE
During February 2006, the Company entered into an agreement with a former employee to settle a dispute over a severance agreement the employee had entered into with the Company. The severance agreement, which was executed by former management, provided for a payment of approximately $98,000 upon the occurrence of certain events. The Company paid approximately $85,000 to settle all claims associated with the severance agreement.
During May 2006, the Company entered into an agreement to settle a dispute with a law firm that had previously been hired by the Company. In accordance with the terms of the agreement, the Company received a refund of legal and professional fees of $125,000 during May 2006. In connection with this matter, the Company reversed accrued legal and professional fees of approximately $38,000 during the quarter ended March 31, 2006.
In a letter to the Company dated October 16, 2007, a lawyer representing Steven J. Pully (the former CEO) alleged that the Company filed false and misleading disclosure with the Securities and Exchange Commission with respect to the elimination of Mr. Pully’s compensation (see the Company’s Forms 8-K filed on September 5, 2007 and October 17, 2007). No specifics were provided as to such allegations. The Company believes such allegations are unfounded and, if a claim is made, the Company intends to vigorously defend itself.
Note 7. SHARE CAPITAL
Share Capital
On July 10, 2006, the Company entered into a stockholders rights plan (the "Rights Plan") that replaced the Company's stockholders rights plan dated July 10, 1996 (the "Old Rights Plan") that expired according to its terms on July 10, 2006. The Rights Plan provides for a dividend distribution of one preferred share purchase right (a "Right") for each outstanding share of Common Stock. The dividend was payable on July 10, 2006, to the Company's stockholders of record at the close of business on that date (the "Record Date"). The terms of the Rights and the Rights Plan are set forth in a Rights Agreement, dated as of July 10, 2006, by and between New Century Equity Holdings Corp. and The Bank of New York Trust Company, N.A., as Rights Agent.
The Company's Board of Directors adopted the Rights Plan to protect stockholder value by protecting the Company's ability to realize the benefits of its net operating loss carryforwards
("NOLs"(“NOLs”) and capital loss carryforwards. In general terms, the Rights Plan imposes a significant penalty upon any person or group that acquires 5% or more of the outstanding Common Stock without the prior approval of the
Company'sCompany’s Board of Directors. Stockholders that own 5% or more of the outstanding Common Stock as of the close of business on the Record Date may acquire up to an additional 1% of the outstanding Common Stock without penalty so long as they maintain their ownership above the 5% level (such increase subject to downward adjustment by the Company's Board of Directors if it determines that such increase will endanger the availability of the Company's NOLs and/or its capital loss carryforwards). In addition, the Company's Board of Directors has exempted Newcastle, the Company's largest stockholder, and may exempt any person or group that owns 5% or more if the Board of Directors determines that the
person'sperson’s or group's ownership will not endanger the availability of the Company's NOLs and/or its capital loss carryforwards. A person or group that acquires a percentage of Common Stock in excess of the applicable threshold is called an "Acquiring Person." Any Rights held by an Acquiring Person are void and may not be exercised. The Company's Board of Directors authorized the issuance of one Right per each share of Common Stock outstanding on the Record Date. If the Rights become exercisable, each Right would allow its holder to purchase from the Company one one-hundredth of a share of the Company's Series A Junior Participating Preferred Stock, par value $0.01 (the "Preferred Stock"), for a purchase price of $10.00. Each fractional share of Preferred Stock would give the stockholder approximately the same dividend, voting and liquidation rights as does one share of Common Stock. Prior to exercise, however, a Right does not give its holder any dividend, voting or liquidation rights.
37
The Company has never declared or paid any cash dividends on its Common Stock, other than approximately $2,270,017 distributed to the stockholders pursuant to the Settlement in August 2006 (See Note 6)1). On June 30, 2006, Newcastle elected to receive Preferred Dividends in cash for the period from June 19, 2005 through June 30, 2006. On July 3, 2006, Newcastle elected to convert all of its Series A Preferred Stock into 19,230,768 shares of Common Stock.
NOTE
Note 8. TREASURY STOCK
Treasury Stock
In 2000, the Company'sCompany’s board of directors approved the adoption of a common stock repurchase program. Under the terms of the program, the Company may purchase an aggregate $25,000,000 of the Company'sCompany’s Common Stock in the open market or in privately negotiated transactions. Through December 31, 2006,2007, the Company had purchased an aggregate $20,100,000, or 8,300,000 shares, of treasury stock under this program. The Company made no treasury stock purchases during the yearyears ended December 31, 2005, December 31, 2006 and December 31, 2007, and has no plans to make any future treasury stock purchases.
NOTE
Note 9. STOCK OPTIONS AND STOCK PURCHASE WARRANTS
Stock Options and Stock Purchase Warrants
The Company has adopted the NCEH 1996 Employee Comprehensive Stock Plan ("(“Comprehensive Plan"Plan”) and the NCEH 1996 Non-Employee Director Plan ("(“Director Plan"Plan”) under which officers and employees, and non-employee directors, respectively, of the Company and its affiliates are eligible to receive stock option grants. Employees of the Company are also eligible to receive restricted stock grants under the Comprehensive Plan. The Company has reserved 14,500,000 and 1,300,000 shares of its Common Stock for issuance pursuant to the Comprehensive Plan and the Director Plan, respectively. Under each plan, options vest and expire pursuant to individual award agreements; however, the expiration date of unexercised options may not exceed ten years from the date of grant under the Comprehensive Plan and seven years from the date of grant under the Director Plan.
Option activity for the years ended December 31, 2007, 2006 2005 and 2004,2005, is summarized as follows:
Number Weighted Average
of Shares Exercise Price
---------- ----------------
Outstanding, December 31, 2003 ............ 5,778,187 $ 3.98
Granted ................................. 300,000 $ 0.28
Canceled ................................ (3,308,583) $ 4.54
---------
Outstanding, December 31, 2004 ............ 2,769,604 $ 2.90
Granted ................................. 90,000 $ 0.24
Canceled ................................ (643,406) $ 2.68
---------
Outstanding, December 31, 2005 ............ 2,216,198 $ 2.86
Granted ................................. -- --
Canceled ................................ (1,241,198) $ 1.73
---------
Outstanding, December 31, 2006 ............ 975,000 $ 4.30
=========
| | Number of Shares | | | Weighted Average Exercise Price | |
| | | | | | |
| | | | | | |
Outstanding, December 31, 2004 | | | 2,769,604 | | | $ | 2.90 | |
Granted | | | 90,000 | | | $ | 0.24 | |
Canceled | | | (643,406 | ) | | $ | 2.68 | |
| | | | | | | | |
Outstanding, December 31, 2005 | | | 2,216,198 | | | $ | 2.86 | |
Granted | | | - | | | | - | |
Canceled | | | (1,241,198 | ) | | $ | 1.73 | |
| | | | | | | | |
Outstanding, December 31, 2006 | | | 975,000 | | | $ | 4.30 | |
Granted | | | - | | | | - | |
Canceled | | | (735,000 | ) | | $ | 5.61 | |
Outstanding, December 31, 2007 | | | 240,000 | | | $ | 0.27 | |
At December 31,
2007, 2006
2005 and
2004,2005, stock options to purchase an aggregate of
240,000, 908,334
2,082,865 and
2,500,854,2,082,865, shares were exercisable and had weighted average exercise prices of
$0.27, $4.59
$3.02 and
$3.13$3.02 per share, respectively.
38
Stock options outstanding and exercisable at December 31, 2006, were as
follows:
Options Outstanding Options Exercisable
--------------------------------------------- -----------------------------
Weighted Average
Range
| | | | |
Range of Exercise | | Number | | Weighted Average Remaining Life | | Remaining Average | | Weighted Number | | Weighted Average |
| | | | | | | | | | |
$0.24 - $0.28 | | 240,000 | | 5.5 | | $0.27 | | 240,000 | | $0.27 |
The weighted average fair value and weighted aver ageaverage exercise price of options granted where the exercise price was equal to the market price of the underlying stock at the grant date were,was $0.24 and $0 .24 for the year ended December 31, 2005 and $0.25 and $0.28 for the year ended December 31, 2004,
respectively.2005. There were no option grants for the yearyears ended December 31, 2007 and 2006.
NOTE
Note 10. SHORT-TERM INVESTMENTS
Short-Term Investments
In October 2004, the Company purchased a 26 week U.S. Treasury bill for approximately $12,859,000 which matured on May 5, 2005 for $13,000,000. In May 2005, the Company purchased a 26 week U.S. Treasury bill for approximately $13,786,000 which was sold on July 27, 2005 for approximately $13,863,000. As of December 31, 2006,2007, the Company held all short-term investments in cash.
NOTE
Note 11. LEASES
Leases
The Company leases certain office space and equipment under operating leases. Rental expense was approximately
$31,000, $45,000
$36,000 and
$58,000$36,000 for the years ended December 31,
2007, 2006
and 2005,
and 2004, respectively.
FutureThe Company has no future minimum lease payments under non-cancelable operating leases as of December 31,
2006 are
$6,000 for the year ending December 31, 2007 and $0 for all years thereafter.
Future minimum sub-lease receipts under sub-lease rentals for the year ending
December 31, 2007, are $5,000 and $0 for all years thereafter.
39
NOTE2007.
Note 12. INCOME TAXES
Income Taxes
The income tax benefit (expense) is comprised of the following:
Year Ended December 31,
2006 2005 2004
(in thousands) ------- ------- -------
Current:
Federal ........................... $-- $-- $--
State ............................. -- -- --
--- --- ---
Total ............................ $-- $-- $--
=== === ===
| | Year Ended December 31, | |
(in thousands) | | | | | | | | | |
Current: | | | | | | | | | |
Federal | | $ | - | | | $ | - | | | $ | - | |
State | | | - | | | | - | | | | - | |
Total | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | |
The income tax benefit (expense) differs from the amount computed by applying the statutory federal income tax rate of 35% to the net loss before income tax benefit. The reasons for these differences were as follows:
Year Ended December 31,
(in thousands) 2006 2005 2004
-------- -------- ---------
Computed income tax benefit at statutory rate ............... $ 207 $ 190 $ 666
(Decrease) increase in taxes resulting from:
Nondeductible losses in and impairments
| | Year Ended December 31, | |
(in thousands) | | | | | | | | | |
| | | | | | | | | |
Computed income tax benefit (expense) at statutory rate | | $ | (19 | ) | | $ | 207 | | | $ | 190 | |
(Decrease) increase in taxes resulting from: | | | | | | | | | | | | |
Permanent and other deductions, net | | | 8 | | | | 9 | | | | 20 | |
Valuation allowance | | | 11 | | | | (216 | ) | | | (210 | ) |
Income tax benefit | | $ | - | | | $ | - | | | $ | - | |
The tax effect of significant temporary differences, which comprise the deferred tax liability, is as follows:
December 31,
(in thousands) 2006 2005
--------- ---------
Deferred tax asset:
Net operating loss carryforward .............. $ 4,577 $ 4,361
Capital loss carryforward .................... 24,574 24,574
Valuation allowance .......................... (29,151) (28,935)
Deferred tax liability:
Estimated tax liability ...................... -- --
-------- --------
Net deferred tax liability .................. $ -- $ --
======== ========
| | December 31, | |
(in thousands) | | | | | | |
Deferred tax asset: | | | | | | |
Net operating loss carryforward | | $ | 4,760 | | | $ | 4,771 | |
Capital loss carryforward | | | 24,559 | | | | 24,559 | |
Valuation allowance | | | (29,319 | ) | | | (29,330 | ) |
Deferred tax liability: | | | | | | | | |
Estimated tax liability | | | - | | | | - | |
Net deferred tax liability | | $ | - | | | $ | - | |
As of December 31, 2006,2007, the Company had a federal income tax loss carryforward of approximately $13,000,000,$13,400,000, which begins expiring in 2019. In addition, the Company had a federal capital loss carryforward of approximately $70,000,000$70,300,000 which expires in 2009. Realization of the Company'sCompany’s carryforwards is dependent on future taxable income and capital gains. At this time, the Company cannot assess whether or not the carryforward will be realized; therefore, a valuation allowance has been recorded as shown above.
Ownership changes, as defined in the Internal Revenue Code, may have limited the amount of net operating loss carryforwards that can be utilized annually to offset future taxable income. Subsequent ownership changes could further affect the limitation in future years.
40
NOTE
Note 13. BENEFIT PLANS
Benefit Plans
The Company established the NCEH 401(k) Plan (the "Plan"“Plan”) for eligible employees of the Company. Generally, all employees of the Company who are at least twenty-one years of age and who have completed one-half year of service are eligible to participate in the Plan. The Plan is a defined contribution plan which provides that participants may make voluntary salary deferral contributions, on a pretax basis, between 1% and 15% of their compensation in the form of voluntary payroll deductions, up to a maximum amount as indexed for cost-of-living adjustments. The Company will match a participant'sparticipant’s salary deferral, up to 5% of a participant'sparticipant’s compensation. The Company may make additional discretionary contributions. No discretionary contributions were made during the years ended December 31, 2007, 2006 2005 or 2004.2005. The Company'sCompany’s matching contributions to this plan totaled approximately $7,500,$5,000, $7,500 and $22,000$7,500 for the years ended December 31, 2007, 2006 and 2005, and 2004, respectively.
NOTE
Note 14.
SUMMARIZED FINANCIAL INFORMATION FOR UNCONSOLIDATED SUBSIDIARY
In June 2004, the Company sold all of its interest in Princeton for
$10,000,000. The sale of Princeton generated a capital loss for federal income
tax purposes of approximately $67,000,000. Prior to selling its interest in
Princeton in June 2004, the Company accounted for its investment in Princeton
under the equity method of accounting and recorded the equity in net loss of
Princeton on a three-month lag. As a result of the sale of the Company's
holdings in Princeton, the Company accelerated the recording of its equity in
net loss of Princeton to the date of sale. Princeton's statement of operations
for the eight months ended May 31, 2004 was used to calculate the equity in net
loss recorded in the Company's statement of operations for the year ended
December 31, 2004.
Princeton's summarized balance sheet is as follows:
May 31, September 30,
(in thousands) 2004 2003
------- -------
Current assets ......................................... $47,528 $34,750
Non-current assets ..................................... 9,464 12,681
Current liabilities .................................... 38,188 30,386
Non-current liabilities ................................ 1,209 486
Mandatorily redeemable convertible preferred stock ..... 49,845 39,587
Princeton's summarized statements of operations are as follows:
Eight
Months Ended Year Ended
May 31, September 30,
(in thousands) 2004 2003
--------- ----------
Revenues ............................... $ 16,695 $ 35,309
Gross profit ........................... 7,258 16,026
Loss from operations ................... (9,188) (7,965)
Net loss ............................... (9,214) (7,674)
41
NOTE 15. RELATED PARTIES
Related Parties
In June 2004, in connection with the Newcastle Transaction, Mark Schwarz, Chief Executive Officer and Chairman of Newcastle Capital Management, L.P. ("NCM"(“NCM”), Steven J. Pully, former President of NCM, and John Murray, Chief Financial Officer of NCM, assumed positions as Chairman of the Board, Chief Executive Officer and Chief Financial Officer, respectively, of the Company. Mr. Pully receivesreceived an annual salary of $150,000 as Chief Executive Officer of the Company. Mr. Pully resigned as Chief Executive Officer of the Company effective October 15, 2007. Mr. Schwarz is performing the functions of Chief Executive Officer. NCM is the general partner of Newcastle, which owns 19,380,768 shares of Common Stock of the Company.
The Company'sCompany’s corporate headquarters are currently located at 200 Crescent Court, Suite 1400, Dallas, Texas 75201, which are also the offices of NCM. The Company occupies a portion of NCM space on a month-to-month basis at $2,500 per month, pursuant to a services agreement entered into between the parties. NCM is the general partner of Newcastle. The Company incurred expenses pursuant to the services agreement totaling $30,000 and $7,500 for the years ended December 31, 2007 and 2006, respectively. The Company owed NCM -0- and $7,500 as of December 31, 2007 and 2006, respectively.
The Company also receives accounting and administrative services from employees of NCM at market rates pursuant to such agreement. The expense for the year totaled $7,500 which was owed to NCM at
December 31, 2006.
In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108 ("SAB 108"), which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB 108 requires the use of both the "iron curtain" and "rollover" approach in quantifying the materiality of misstatements. SAB 108 provides transitional guidance for the correction of errors in prior periods.
SAB 108 is effective for the Company no later than the year ending
December 31, 2006.
The Company adopted SAB 108 as of September 30, 2006. Upon initial application of SAB 108, the Company evaluated the uncorrected financial statement misstatements that were previously considered immaterial under the "rollover" method using the dual methodology required by SAB 108. As a result of this dual methodology approach of SAB 108, the Company corrected the cumulative error in its accounting for the fair market value of office space provided at no charge and accounting and administrative services received for the
current
fiscal year
ended December 31, 2006, by recording an expense of $16,500 with a corresponding credit to additional paid-in capital. In accordance with the transitional guidance in SAB 108, the Company also made an adjustment of $22,500 within stockholders' equity that increased additional paid-in capital and increased accumulated deficit for such costs prior to January 1, 2006.
42
NOTE 16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Three Months Ended
-------------------------------------------------------
December 31, September 30, June 30, March 31,
(in thousands, except per share data) 2006 2006 2006 2006
------ ------ ------ -------
Operating revenues ........................................ $-- $-- $ 56 $ 13
Operating income (loss) ................................... (275) (235) 20 (83)
Net income (loss) ......................................... (123) (82) 173 (559)
Preferred stock dividend .................................. -- -- (50) (50)
Net income (loss) available to common stockholders ........ (123) (82) 123 (609)
Basic and diluted net income (loss) per common share:
Net income (loss) ......................................... (0.0) (0.0) .01 (.02)
Three Months Ended
-------------------------------------------------------
December 31, September 30, June 30, March 31,
(in thousands, except per share data) 2005 2005 2005 2005
------ ------ ------ -------
Operating revenues ........................................ $ 33 $-- $-- $--
Operating loss from continuing operations ................. (121) (287) (246) (355)
Net (loss) income ......................................... 13 (193) (89) (274)
Preferred stock dividend .................................. (50) (50) (50) (50)
Net loss available to common stockholders ................. (37) (243) (139) (324)
Basic and diluted net income (loss) per common share:
Net income (loss) ......................................... 0.0 (.01) (0.0) (.01)
43
Note 15. Selected Quarterly Financial Data (Unaudited)
| | | |
| | December 31, | | | September 30, | | | June 30, | | | March 31, | |
(in thousands, except per share data) | | | | | | | | | | | | |
Operating revenues | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
Operating loss | | | (103 | ) | | | (121 | ) | | | (149 | ) | | | (179 | ) |
Net income (loss) | | | 37 | | | | 34 | | | | 7 | | | | (23 | ) |
Net income (loss) available to common stockholders | | | 37 | | | | 34 | | | | 7 | | | | (23 | ) |
Basic and diluted net income (loss) per common share: | | | | | | | | | | | | | | | | |
Net income (loss) | | | 0.00 | | | | 0.00 | | | | 0.00 | | | | (0.00 | ) |
| | | |
| | December 31, | | | September 30, | | | June 30, | | | March 31, | |
(in thousands, except per share data) | | | | | | | | | | | | |
Operating revenues | | $ | - | | | $ | - | | | $ | 56 | | | $ | 13 | |
Operating income (loss) | | | (275 | ) | | | (235 | ) | | | 20 | | | | (83 | ) |
Net income (loss) | | | (123 | ) | | | (82 | ) | | | 173 | | | | (559 | ) |
Preferred stock dividend | | | - | | | | - | | | | (50 | ) | | | (50 | ) |
Net income (loss) available to common stockholders | | | (123 | ) | | | (82 | ) | | | 123 | | | | (609 | ) |
Basic and diluted net income (loss) per common share: | | | | | | | | | | | | | | | | |
Net income (loss) | | | (0.0 | ) | | | (0.0 | ) | | | .01 | | | | (.02 | ) |
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in the Company'sCompany’s reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”), such as this Form 10-K, is reported in accordance with the rules of the SEC. Disclosure controls are also designed with the objective of ensuring that such information is accumulated appropriately and communicated to management, including the chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosures.
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company'sCompany’s management, including the Company'sCompany’s chief executive officer and chief financial officer, of the effectiveness of the design and operation of the Company'sCompany’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, the chief executive officer and chief financial officer concluded that the Company'sCompany’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company'sCompany’s periodic SEC filings. There were no significant changes in the Company'sCompany’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the Company’s evaluation.
Management's Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's evaluation.
internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The Company's internal control over financial reporting includes those policies and procedures that:
| ● | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| ● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
| ● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As required by Section 404 of the Sarbanes-Oxley Act of 2002, management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2007. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework.
Based on our assessment and those criteria, management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2007.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
ITEM 9B.OTHER INFORMATION
PART III
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by Item 10 will be furnished on or prior to April 30, 200729, 2008 (and is hereby incorporated by reference) by an amendment hereto or pursuant to a definitive proxy statement of the Company's 2007Company’s 2008 Annual Meeting of Stockholders for the fiscal year ended December 31, 2006.
2007.
ITEM 11.EXECUTIVE COMPENSATION
The information required by Item 11 will be furnished on or prior to April 30, 200729, 2008 (and is hereby incorporated by reference) by an amendment hereto or pursuant to a definitive proxy statement of the Company's 2007Company’s 2008 Annual Meeting of Stockholders for the fiscal year ended December 31, 2006.
2007.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by Item 12 will be furnished on or prior to April 30, 200729, 2008 (and is hereby incorporated by reference) by an amendment hereto or pursuant to a definitive proxy statement of the Company's 2007Company’s 2008 Annual Meeting of Stockholders for the fiscal year ended December 31, 2006.
2007.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by Item 13 will be furnished on or prior to April 30, 200729, 2008 (and is hereby incorporated by reference) by an amendment hereto or pursuant to a definitive proxy statement of the Company's 2007Company’s 2008 Annual Meeting of Stockholders for the fiscal year ended December 31, 2006.
2007.
ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by Item 14 will be furnished on or prior to April 30, 200729, 2008 (and is hereby incorporated by reference) by an amendment hereto or pursuant to a definitive proxy statement of the Company's 2007Company’s 2008 Annual Meeting of Stockholders for the fiscal year ended December 31, 2006.
2007.
PART IV
ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) DOCUMENTS FILED AS PART OF REPORT
Documents Filed as Part of Report
1. Financial Statements:
The Consolidated Financial Statements of the Company and the related report of the Company'sCompany’s independent public accountants thereon have been filed under Item 8 hereof.
2. Financial Statement Schedules:
The information required by this item is not applicable.
45
3. Exhibits:
The exhibits listed below are filed as part of or incorporated by reference in this report. Where such filing is made by incorporation by reference to a previously filed document, such document is identified in parentheses. See the Index of Exhibits included with the exhibits filed as a part of this report.
Exhibit
Number Description of Exhibits
2.1
2.1 | Plan of Merger and Acquisition Agreement between BCC, CRM Acquisition Corp., Computer Resources Management, Inc. and Michael A. Harrelson, dated June 1, 1997 (incorporated by reference from Exhibit 2.1 to Form 10-Q, dated June 30, 1997). |
2.2 | Stock Purchase Agreement between BCC and Princeton TeleCom Corporation, dated September 4, 1998 (incorporated by reference from Exhibit 2.2 to Form 10-K, dated September 30, 1998). |
2.3 | Stock Purchase Agreement between BCC and Princeton eCom Corporation, dated February 21, 2000 (incorporated by reference from Exhibit 2.1 to Form 8-K, dated March 16, 2000). |
2.4 | Agreement and Plan of Merger between BCC, Billing Concepts, Inc., Enhanced Services Billing, Inc., BC Transaction Processing Services, Inc., Aptis, Inc., Operator Service Company, BC Holding I Corporation, BC Holding II Corporation, BC Holding III Corporation, BC Acquisition I Corporation, BC Acquisition II Corporation, BC Acquisition III Corporation and BC Acquisition IV Corporation, dated September 15, 2000 (incorporated by reference from Exhibit 2.1 to Form 8-K, dated September 15, 2000). |
2.5 | Stock Purchase Agreement by and among New Century Equity Holdings Corp., Mellon Ventures, L.P., Lazard Technology Partners II LP, Conning Capital Partners VI, L.P. and Princeton eCom Corporation, dated March 25, 2004 (incorporated by reference from Exhibit 10.1 to Form 8-K, dated March 29, 2004). |
2.6 | Series A Convertible 4% Preferred Stock Purchase Agreement by and between New Century Equity Holdings Corp. and Newcastle Partners, LP, dated June 18, 2004 (incorporated by reference from Exhibit 2.1 to Form 8-K, dated June 30, 2004). |
3.1 | Amended and Restated Certificate of Incorporation of BCC (incorporated by reference from Exhibit 3.1 to Form 10/A, Amendment No. 1, dated July 11, 1996); as amended by Certificate of Amendment to Certificate of Incorporation, filed with the Delaware Secretary of State, amending Article I to change the name of the Company to Billing Concepts Corp. and amending Article IV to increase the number of authorized shares of common stock from 60,000,000 to 75,000,000, dated February 27, 1998 (incorporated by reference from Exhibit 3.4 to Form 10-Q, dated March 31, 1998). |
3.2 | Amended and Restated Bylaws of BCC (incorporated by reference from Exhibit 3.3 to Form 10-K, dated September 30, 1998). |
3.3 | Certificate of Elimination of Series A Junior Participating Preferred Stock, filed with the Secretary of State of Delaware on July 10, 2006 (incorporated by reference from Exhibit 3.1 to Form 8-K, dated July 10, 2006). |
4.1 | Form of Stock Certificate of Common Stock of BCC (incorporated by reference from Exhibit 4.1 to Form 10-Q, dated March 31, 1998). |
4.2 | Rights Agreement, dated as of July 10, 2006, by and between New Century Equity Holdings Corp. and The Bank of New York Trust Company, N.A. (incorporated by reference from Exhibit 4.2 to Form 8-K, dated July 10, 2006). |
4.3 | Certificate of Designation of Series A Junior Participating Preferred Stock, filed with the Secretary of State of Delaware on July 10, 2006 (incorporated by reference from Exhibit 3.2 to Form 8-K, dated July 10, 2006). |
4.4 | Form of Rights Certificate (incorporated by reference from Exhibit 4.1 to Form 8-K, dated July 10, 2006). |
Table of Merger and Acquisition Agreement between BCC, CRM Acquisition
Corp., Computer Resources Management, Inc. and Michael A. Harrelson,
dated June 1, 1997 (incorporated by reference from Exhibit 2.1 to Form
10-Q, dated June 30, 1997).
2.2 Stock Purchase Agreement between BCC and Princeton TeleCom Corporation,
dated September 4, 1998 (incorporated by reference from Exhibit 2.2 to
Form 10-K, dated September 30, 1998).
2.3 Stock Purchase Agreement between BCC and Princeton eCom Corporation,
dated February 21, 2000 (incorporated by reference from Exhibit 2.1 to
Form 8-K, dated March 16, 2000).
2.4 Agreement and Plan of Merger between BCC, Billing Concepts, Inc.,
Enhanced Services Billing, Inc., BC Transaction Processing Services,
Inc., Aptis, Inc., Operator Service Company, BC Holding I Corporation,
BC Holding II Corporation, BC Holding III Corporation, BC Acquisition I
Corporation, BC Acquisition II Corporation, BC Acquisition III
Corporation and BC Acquisition IV Corporation, dated September 15, 2000
(incorporated by reference from Exhibit 2.1 to Form 8-K, dated
September 15, 2000).
2.5 Stock Purchase Agreement by and among New Century Equity Holdings
Corp., Mellon Ventures, L.P., Lazard Technology Partners II LP, Conning
Capital Partners VI, L.P. and Princeton eCom Corporation, dated March
25, 2004 (incorporated by reference from Exhibit 10.1 to Form 8-K,
dated March 29, 2004).
2.6 Series A Convertible 4% Preferred Stock Purchase Agreement by and
between New Century Equity Holdings Corp. and Newcastle Partners, LP,
dated June 18, 2004 (incorporated by reference from Exhibit 2.1 to Form
8-K, dated June 30, 2004).
3.1 Amended and Restated Certificate of Incorporation of BCC (incorporated
by reference from Exhibit 3.1 to Form 10/A, Amendment No. 1, dated July
11, 1996); as amended by Certificate of Amendment to Certificate of
Incorporation, filed with the Delaware Secretary of State, amending
Article I to change the name of the Company to Billing Concepts Corp.
and amending Article IV to increase the number of authorized shares of
common stock from 60,000,000 to 75,000,000, dated February 27, 1998
(incorporated by reference from Exhibit 3.4 to Form 10-Q, dated March
31, 1998).
3.2 Amended and Restated Bylaws of BCC (incorporated by reference from
Exhibit 3.3 to Form 10-K, dated September 30, 1998).
3.3 Certificate of Elimination of Series A Junior Participating Preferred
Stock, filed with the Secretary of State of Delaware on July 10, 2006
(incorporated by reference from Exhibit 3.1 to Form 8-K, dated July 10,
2006).
4.1 Form of Stock Certificate of Common Stock of BCC (incorporated by
reference from Exhibit 4.1 to Form 10-Q, dated March 31, 1998).
4.2 Rights Agreement, dated as of July 10, 2006, by and between New Century
Equity Holdings Corp. and The Bank of New York Trust Company, N.A.
(incorporated by reference from Exhibit 4.2 to Form 8-K, dated July 10,
2006).
4.3 Certificate of Designation of Series A Junior Participating Preferred
Stock, filed with the Secretary of State of Delaware on July 10, 2006
(incorporated by reference from Exhibit 3.2 to Form 8-K, dated July 10,
2006).
4.4 Form of Rights Certificate (incorporated by reference from Exhibit 4.1
to Form 8-K, dated July 10, 2006).
46
*10.1 BCC's 1996 Employee Comprehensive Stock Plan amended as of August 31,
1999 (incorporated by reference from Exhibit 10.8 to Form 10-K, dated
September 30, 1999).
*10.2 Form of Option Agreement between BCC and its employees under the 1996
Employee Comprehensive Stock Plan (incorporated by reference from
Exhibit 10.9 to Form 10-K, dated September 30, 1999).
*10.3 Amended and Restated 1996 Non-Employee Director Plan of BCC, amended as
of August 31, 1999 (incorporated by reference from Exhibit 10.10 to
Form 10-K, dated September 30, 1999).
*10.4 Form of Option Agreement between BCC and non-employee directors
(incorporated by reference from Exhibit 10.11 to Form 10-K, dated
September 30, 1998).
10.5 Office Building Lease Agreement between Billing Concepts, Inc. and
Medical Plaza Partners (incorporated by reference from Exhibit 10.21 to
Form 10/A, Amendment No. 1, dated July 11, 1996), as amended by First
Amendment to Lease Agreement, dated September 30, 1996 (incorporated by
reference from Exhibit 10.31 to Form 10-Q, dated March 31, 1998),
Second Amendment to Lease Agreement, dated November 8, 1996
(incorporated by reference from Exhibit 10.32 to Form 10-Q, dated March
31, 1998), and Third Amendment to Lease Agreement, dated January 24,
1997 (incorporated by reference from Exhibit 10.33 to Form 10-Q, dated
March 31, 1998).
10.6 Office Building Lease Agreement between Prentiss Properties Acquisition
Partners, L.P. and Aptis, Inc., dated November 11, 1999 (incorporated
by reference from Exhibit 10.33 to Form 10-K, dated September 30,
1999).
*10.7 BCC's 401(k) Retirement Plan (incorporated by reference from Exhibit
10.14 to Form 10-K, dated September 30, 2000).
10.8 Office Building Lease Agreement between BCC and EOP-Union Square
Limited Partnership, dated November 6, 2000 (incorporated by reference
from Exhibit 10.16 to Form 10-K, dated December 31, 2001).
10.9 Office Building Sublease Agreement between BCC and CCC Centers, Inc.,
dated February 11, 2002 (incorporated by reference from Exhibit 10.17
to Form 10-K, dated December 31, 2001).
10.10 Office Building Lease Agreement between SAOP Union Square, L.P. and New
Century Equity Holdings Corp., dated February 11, 2004 (incorporated by
reference from Exhibit 10.18 to Form 10-K, dated December 31, 2003).
10.11 Sublease agreement entered into by and between New Century Equity
Holdings Corp. and the Law Offices of Alfred G. Holcomb, P.C.
(incorporated by reference from Exhibit 10.1 to Form 10-Q, dated
September 30, 2004).
10.12 Revenue Sharing Agreement, dated as of October 5, 2005, between New
Century Equity Holdings Corp. and ACP Investments LP (incorporated by
reference from Exhibit 10.1 to Form 10-Q, dated September 30, 2005).
47
10.13 Principals Agreement, dated as of October 5, 2005, by and among New
Century Equity Holdings Corp. and ACP Investments LP (incorporated by
reference from Exhibit 10.2 to Form 10-Q, dated September 30, 2005).
14.1 New Century Equity Holdings Corp. Code of Ethics (incorporated by
reference from Exhibit 14.1 to Form 10-K, dated December 31, 2003).
21.1 List of Subsidiaries: New Century Equity Holdings of Texas, Inc.
(incorporated in Delaware) New Century Equity Holdings, Inc.
(incorporated in Texas)
23.1 Consent of Burton, McCumber & Cortez, L.L.P. (filed herewith).
31.1 Certification of Chief Executive Officer in Accordance with Section 302
of the Sarbanes-Oxley Act (filed herewith).
31.2 Certification of Chief Financial Officer in Accordance with Section 302
of the Sarbanes-Oxley Act (filed herewith). 32.1 Certification of Chief
Executive Officer in Accordance with Section 906 of the Sarbanes-Oxley
Act (filed herewith).
32.2.1 Certification of Chief Financial Officer in Accordance with Section 906
of the Sarbanes-Oxley Act (filed herewith).
Contents
*10.1 | BCC’s 1996 Employee Comprehensive Stock Plan amended as of August 31, 1999 (incorporated by reference from Exhibit 10.8 to Form 10-K, dated September 30, 1999). |
*10.2 | Form of Option Agreement between BCC and its employees under the 1996 Employee Comprehensive Stock Plan (incorporated by reference from Exhibit 10.9 to Form 10-K, dated September 30, 1999). |
*10.3 | Amended and Restated 1996 Non-Employee Director Plan of BCC, amended as of August 31, 1999 (incorporated by reference from Exhibit 10.10 to Form 10-K, dated September 30, 1999). |
*10.4 | Form of Option Agreement between BCC and non-employee directors (incorporated by reference from Exhibit 10.11 to Form 10-K, dated September 30, 1998). |
10.5 | Office Building Lease Agreement between Billing Concepts, Inc. and Medical Plaza Partners (incorporated by reference from Exhibit 10.21 to Form 10/A, Amendment No. 1, dated July 11, 1996), as amended by First Amendment to Lease Agreement, dated September 30, 1996 (incorporated by reference from Exhibit 10.31 to Form 10-Q, dated March 31, 1998), Second Amendment to Lease Agreement, dated November 8, 1996 (incorporated by reference from Exhibit 10.32 to Form 10-Q, dated March 31, 1998), and Third Amendment to Lease Agreement, dated January 24, 1997 (incorporated by reference from Exhibit 10.33 to Form 10-Q, dated March 31, 1998). |
10.6 | Office Building Lease Agreement between Prentiss Properties Acquisition Partners, L.P. and Aptis, Inc., dated November 11, 1999 (incorporated by reference from Exhibit 10.33 to Form 10-K, dated September 30, 1999). |
*10.7 | BCC’s 401(k) Retirement Plan (incorporated by reference from Exhibit 10.14 to Form 10-K, dated September 30, 2000). |
10.8 | Office Building Lease Agreement between BCC and EOP-Union Square Limited Partnership, dated November 6, 2000 (incorporated by reference from Exhibit 10.16 to Form 10-K, dated December 31, 2001). |
10.9 | Office Building Sublease Agreement between BCC and CCC Centers, Inc., dated February 11, 2002 (incorporated by reference from Exhibit 10.17 to Form 10-K, dated December 31, 2001). |
10.10 | Office Building Lease Agreement between SAOP Union Square, L.P. and New Century Equity Holdings Corp., dated February 11, 2004 (incorporated by reference from Exhibit 10.18 to Form 10-K, dated December 31, 2003). |
10.11 | Sublease agreement entered into by and between New Century Equity Holdings Corp. and the Law Offices of Alfred G. Holcomb, P.C. (incorporated by reference from Exhibit 10.1 to Form 10-Q, dated September 30, 2004). |
10.12 | Revenue Sharing Agreement, dated as of October 5, 2005, between New Century Equity Holdings Corp. and ACP Investments LP (incorporated by reference from Exhibit 10.1 to Form 10-Q, dated September 30, 2005). |
10.13 | Principals Agreement, dated as of October 5, 2005, by and among New Century Equity Holdings Corp. and ACP Investments LP (incorporated by reference from Exhibit 10.2 to Form 10-Q, dated September 30, 2005). |
14.1 | New Century Equity Holdings Corp. Code of Ethics (incorporated by reference from Exhibit 14.1 to Form 10-K, dated December 31, 2003). |
| New Century Equity Holdings of Texas, Inc. (incorporated in Delaware). |
| New Century Equity Holdings, Inc. (incorporated in Texas). |
23.1 | Consent of Burton, McCumber & Cortez, L.L.P. (filed herewith). |
31.1 | Certification of Chief Executive Officer in Accordance with Section 302 of the Sarbanes-Oxley Act (filed herewith). |
31.2 | Certification of Chief Financial Officer in Accordance with Section 302 of the Sarbanes-Oxley Act (filed herewith). |
32.1 | Certification of Chief Executive Officer in Accordance with Section 906 of the Sarbanes-Oxley Act (filed herewith). |
32.2.1 | Certification of Chief Financial Officer in Accordance with Section 906 of the Sarbanes-Oxley Act (filed herewith). |
* Includes compensatory plan or arrangement.
48
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NEW CENTURY EQUITY HOLDINGS CORP.
(Registrant)
Date: March 30, 2007 By: /s/ Steven J. Pully
-------------------------------------
Steven J. Pully
CHIEF EXECUTIVE OFFICER
| NEW CENTURY EQUITY HOLDINGS CORP. |
| (Registrant) |
| |
Date: March 28, 2008 | By: | |
| | Mark Schwarz |
| | Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 30th28th day of March 2007.
SIGNATURE TITLE
/s/ Steven J. Pully
------------------------ Chief Executive Officer
Steven J. Pully (Principal Executive Officer)
/s/ John P. Murray
------------------------ Chief Financial Officer
John P. Murray (Principal Financial and Accounting Officer)
/s/ Mark E. Schwarz
------------------------ Director and
Mark E. Schwarz Chairman of the Board
/s/ James Risher
------------------------ Director
James Risher
/s/ Jonathan Bren Director
------------------------
Jonathan Bren
2008.
Signature | Title |
| |
| Chief Executive Officer |
Mark Schwarz | (Principal Executive Officer) |
| |
| |
| Chief Financial Officer |
John P. Murray | (Principal Financial and Accounting Officer) |
| |
| |
| Director and |
Mark E. Schwarz | Chairman of the Board |
| |
| |
| Director |
James Risher | |
| |
| |
| Director |
Jonathan Bren | |
| |
| |
| |
Steve Pully | Director |