The following table presents selected financial and other data for the Company. The statement of operations data for the years ended December 31, 2002 and 2001, the transition quarter ended December 31, 2000 and the years ended September 30, 2000, 1999 and 1998, and the balance sheet data as of December 31, 2002, 2001 and 2000, and September 30, 2000, 1999 and 1998, presented below are derived from the audited Consolidated Financial Statements of the Company. The data presented below for the years ended December 31, 2002 and 2001, the transition quarter ended December 31, 2000 and the year ended September 30, 2000, should be read in conjunction with the Consolidated Financial Statements and the notes thereto, Management’s Discussion and Analysis of Financial Condition and Results of Operations and the other financial information included in this report.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company’s Business discussion, Consolidated Financial Statements, the Notes thereto and the other financial information included elsewhere in this Report. For purposes of the following discussion, references to yearly periods refer to the Company’s fiscal year ended December 31 for 2002 and 2001 and September 30 for 2000 and prior.
Continuing Operations
Operating Revenues
Operating revenues, generated by the Company’s former wholly owned subsidiary FIData, were comprised of transaction fees for processing loan applications, implementation fees for new customers and a variety of customer service related fees. Operating revenues were $0 for the year ended December 31, 2002, as a result of the sale of FIData in October 2001. For the year ended December 31, 2001, operating revenues totaled $502,000, compared to $410,000 in the year ended September 30, 2000. This increase was primarily related to an increase in the amount FIData charged its customers per transaction processed.
Cost of Revenues
Cost of revenues, also generated by FIData, included the costs incurred to offer a variety of customer service opportunities to its customers. Cost of revenues was $0 for the year ended December 31, 2002, as a result of the sale of FIData in October 2001. Cost of revenues increased to $564,000 during the year ended December 31, 2001, from $349,000 during the year ended September 30, 2000. The increase in cost of revenues was related to additional customer service opportunities made available to FIData’s customers.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses are comprised of all selling, marketing and administrative costs incurred in direct support of the business operations of the Company. During the year ended December 31, 2002, SG&A expenses totaled $3.4 million, compared to $7.9 million during the year ended December 31, 2001 and $9.3 million during the year ended September 30, 2000. The decrease in SG&A expenses during 2002 relates to an overall reduction in expenditures and corporate personnel, as well as the sale of FIData in October 2001. During the year ended December 31, 2001, the decrease in SG&A expenses related primarily to efforts to develop a financial services website focused on the credit union industry, which were eliminated during the quarter ended June 30, 2000.
Research and Development
Research and development expenses incurred during the year ended September 30, 2000, were comprised of the salaries and benefits of the employees involved in the development of a financial services website, which were eliminated during the quarter ended June 30, 2000.
Depreciation and Amortization
Depreciation and amortization expenses are incurred with respect to certain assets, including computer hardware, software, office equipment, furniture, goodwill and other intangibles. During the year ended December 31, 2002, depreciation and amortization expenses totaled $0.2 million, compared to $1.7 million during the year ended December 31, 2001 and $1.6 million during the year ended September 30, 2000. Depreciation and amortization expenses primarily related to the amortization of the goodwill of FIData during the years ended December 31, 2001 and September 30, 2000. The decrease in depreciation and amortization expenses results from the sale of FIData in October 2001.
Impairment Loss
Impairment loss for the year ended December 31, 2001, includes a $5.0 million impairment related to the long-lived assets of FIData. The impairment loss reflects the difference between the carrying value and the net realizable value of the assets. The impairment loss consisted of $4.5 million related to goodwill (carrying value prior to impairment was $4.5 million) and $0.5 million related to capitalized software (carrying value prior to impairment was $0.8 million).
14
Net Other Expense
Net other expense totaled $15.0 million in the year ended December 31, 2002, compared to $24.6 million in the year ended December 31, 2001 and $15.0 million in the year ended September 30, 2000. For the year ended December 31, 2002, the decrease in net other expense is primarily related to the reduction in the equity in net loss of Princeton. The increase in net other expense for the year ended December 31, 2001, related primarily to the increased equity in net loss of Princeton (which includes the Company’s portion of a $13.3 million impairment charge recorded by Princeton) and Coreintellect. During the year ended December 31, 2001, the Company also evaluated the realizability of its investment in Princeton. Based upon current private equity markets, the Company determined that its investment in Princeton was impaired by $1.8 million and accordingly, reduced its investment balance.
Income Tax Benefit
The Company’s effective income tax benefit rate was 0% for the year ended December 31, 2002, compared to 2.1% for the year ended December 31, 2001 and 15.1% for the year ended September 30, 2000. The Company’s effective income tax benefit rate was lower than the federal statutory benefit rate due to certain expenses recorded for financial reporting purposes that are not deductible for federal income tax purposes, including the equity in net loss and impairment of affiliates and the amortization and impairment of FIData goodwill.
Princeton
Princeton’s statements of operations for the years ended September 30, 2002 and 2001 and June 30, 2000, have been used to calculate the equity in net loss recorded in the Company’s statements of operations for the years ended December 31, 2002 and 2001 and September 30, 2000, respectively. Princeton’s summarized statements of operations are as follows:
| | Year
Ended | | Year
Ended | | Year
Ended | |
| | September 30, | | June 30, | |
| |
| |
| |
(in thousands) | | 2002 | | 2001 | | 2000 | |
| |
| |
| |
| |
Revenues | | $ | 28,559 | | $ | 19,920 | | $ | 8,078 | |
Gross profit | | 11,300 | | 3,442 | | 1,980 | |
Loss from operations | | (30,234 | ) | (55,771 | ) | (20,143 | ) |
Net loss | | | (32,462 | ) | | (59,435 | ) | | (20,097 | ) |
For the year ended September 30, 2002, loss from operations of $30.2 million includes special charges totaling $12.5 million. Approximately $9.3 million of the special charges relate to the implementation of a strategic restructuring plan to streamline Princeton’s operations by reducing operating expenses primarily through workforce reductions ($5.8 million) and renegotiating significant contracts and leases ($3.5 million). The additional charges relate to the write-down of a portion of the asset value of Princeton’s property and equipment. The impairment was recognized as the future undiscounted cash flows for Princeton were estimated to be insufficient to recover the related carrying values of the property and equipment.
For the year ended September 30, 2001, loss from operations of $55.8 million includes special charges totaling $13.3 million. Approximately $10.7 million of the special charges relate to the impairment of the long-lived assets acquired through the Quicken Bill Manager acquisition (see further discussion below). The impairment of the long-lived assets was measured by Princeton due to factors including accumulated costs significantly in excess of the amount originally expected, a significant current period operating and cash flow loss and a projection that demonstrated continuing losses associated with these assets. The additional impairment charges of $2.6 million relate to capitalized software license fees used by Princeton to generate revenues from multiple customers. The solutions to generate these revenues were no longer being utilized by Princeton’s customers and, therefore, the assets were impaired.
15
In May 2001, Princeton announced its acquisition of Quicken Bill Manager from Intuit Inc. (“Intuit”). Quicken Bill Manager provides online bill presentment and payment services by processing payments for customers utilizing Intuit’s Quicken personal financial management software. Under the terms of the acquisition agreement, Princeton acquired the assets of Intuit’s Quicken Bill Manager through the purchase of certain technologies from Intuit and all of the outstanding shares of Venture Finance Services Corp., a wholly owned subsidiary of Intuit.
In the first quarter of 2002, Princeton suspended its development of the Quicken Bill Manager as a result of an overall corporate shift in focus and an effort to reduce expenditures. Princeton continues to retain the front-end technology acquired from Intuit, but is currently placing greater emphasis on its core transaction processing businesses.
Discontinued Operations
Net Loss from Discontinued Operations
Net loss from discontinued operations for the years ended December 31, 2002 and 2001 relates to the operations of Tanisys that were consolidated beginning in August 2001. Net loss from discontinued operations for the year ended September 30, 2000 relates to the Transaction Processing and Software divisions sold to Platinum in October 2000.
Tanisys
Tanisys’ statements of operations for the year ended September 30, 2002 and from the purchase date through September 30, 2001, have been consolidated in the Company’s statements of operations for the years ended December 31, 2002 and 2001, respectively. Tanisys’ statements of operations consolidated herein are as follows:
(in thousands) | | Year ended
September 30,
2002 | | Purchase date
through
September 30,
2001 | |
| |
| |
| |
Operating revenues | | $ | 2,619 | | $ | 686 | |
Cost of revenues | | 1,999 | | 367 | |
| |
| |
| |
Gross profit | | 620 | | 319 | |
Selling, general and administrative expenses | | 1,511 | | 378 | |
Research and development expenses | | 1,506 | | 411 | |
Depreciation and amortization expenses | | 139 | | 16 | |
| |
| |
| |
Operating loss from discontinued operations | | (2,536 | ) | (486 | ) |
Other income (expense): | | | | | |
Interest income | | 5 | | 2 | |
Interest expense | | (816 | ) | (110 | ) |
Other income (expense), net | | 83 | | (23 | ) |
Minority interest in consolidated affiliate | | 2,302 | | 519 | |
| |
| |
| |
Total other income, net | | 1,574 | | 388 | |
| |
| |
| |
Net loss from discontinued operations | | $ | (962 | ) | $ | (98 | ) |
| |
|
| |
|
| |
Operating revenues are comprised of sales of production-level equipment along with related hardware and software, less returns and discounts.
Cost of revenues is comprised of the costs of all components and materials purchased for the manufacture of products, direct labor and related overhead costs. Cost of revenues for the year ended September 30, 2002, includes a $0.5 million inventory write-down for excess and obsolete inventories of Tanisys, due to the decline in the semiconductor industry and the uncertainty of future sales volumes.
16
Selling, general and administrative expenses are comprised of all selling, marketing and administrative costs incurred in direct support of the business operations of Tanisys.
Research and development expenses consist of all costs associated with the engineering design and testing of new technologies and products.
Depreciation and amortization expenses are incurred with respect to certain assets, including computer hardware, software, office equipment, furniture and other intangibles.
Net other income consists primarily of interest income, interest expense and minority interest, plus other miscellaneous income and expenses including interest expense resulting from the amortization of debt discount related to the note payable to the minority stockholders.
Net Income (Loss) from Disposal of Discontinued Operations
During 2002, the Company filed its federal income tax return with the Internal Revenue Service for the tax fiscal year ended September 30, 2001 (which includes the Transaction completed in October 2000). The Company received a refund claim totaling $2.2 million in July 2002. The income tax refund is included in net income from disposal of discontinued operations for the year ended December 31, 2002, as the refund relates to those companies sold in the Transaction.
The Company continually reviews the adequacy of the accruals related to discontinued operations. The Company reduced the accruals related to the Transaction Processing and Software divisions sold in October 2000 and recognized income from the disposal of discontinued operations of $0.1 million and $2.4 million during the years ended December 31, 2002 and 2001, respectively, based upon estimates of future liabilities related to the divested entities.
Liquidity and Capital Resources
The Company’s cash balance increased to $8.7 million at December 31, 2002, from $7.3 million at December 31, 2001. During 2002, cash increased as a result of (i) the $1.5 million redemption of a portion of the Company’s investment in Princeton in June 2002, (ii) the $2.7 million income tax refunds received in January and July 2002, (iii) the $3.1 million in consulting fees received from Platinum and (iv) the $0.6 million payments on a promissory note from an Austin, Texas-based technology company. These increases were partially offset by the Company’s investments in Princeton of $3.8 million and the cash portion of corporate expenses incurred during 2002 of $3.1 million.
The Company’s operating cash requirements consist principally of funding of corporate expenses and capital expenditures.
During the year ended December 31, 2002, capital expenditures, totaling $20,000, related primarily to the purchase of computer equipment and software. The Company anticipates minimal capital expenditures before acquisitions, if any, during the year ended December 31, 2003. The Company believes it will be able to fund future expenditures with cash resources on hand.
The Company’s cash balance of $8.7 million at December 31, 2002, is expected to decrease to approximately $6.5 million at December 31, 2003, primarily as a result of anticipated corporate cash expenditures of $2.2 million. The cash position could be reduced should the Company make additional investments in Princeton or investments in or purchases of additional companies. The cash balance could be increased by the liquidation of one or more of the Company’s investments or subsidiaries.
Seasonality
The Company’s operations are not significantly affected by seasonality.
17
Effect of Inflation
Inflation has not been a material factor affecting the Company’s business. General operating expenses, such as salaries, employee benefits, insurance and occupancy costs, are subject to normal inflationary pressures.
New Accounting Standards
In June 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, which requires among other items, that liabilities for the costs associated with exit or disposal activities be recognized when the liabilities are incurred, rather than when an entity commits to an exit plan. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. The effect of adoption of SFAS No. 146 is dependent on the Company’s activities subsequent to adoption.
In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, which requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee and expands the disclosures required to be made by a guarantor about its obligations under guarantees that it has issued. Initial recognition and measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified. The disclosure requirements are effective immediately and adopted for this Form 10-K.
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure”, which provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure requirements are effective for fiscal years ending after December 15, 2002. The Company adopted the disclosure provisions for this Form 10-K. As the Company will continue to apply APB Opinion No. 25, “Accounting for Stock Issued to Employees”, the accounting for stock-based employee compensation will not change as a result of SFAS No. 148. The new interim disclosure provisions will be effective for the Company beginning with the quarter ended March 31, 2003.
In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities”, which requires that companies that control another entity through interests other than voting interests should consolidate the controlled entity. FIN 46 applies to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. The related disclosure requirements are effective immediately. Management does not believe the adoption of FIN 46 will have any impact on the Company’s financial position or results of operations.
Critical Accounting Policies
Impairment of 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 is required to determine whether and how much an investment is impaired.
18
Consolidation of Subsidiaries
In general, the accounting rules and regulations require the consolidation of entities in which the company holds an interest greater than 50% and the use of the equity method of accounting for entities in which the company holds an interest between 20% and 50%. Exceptions to these rules are (i) when a company does not exercise control over the decision making of an entity although the company does own over 50% of the entity and (ii) when a company does exercise control over the decision making of an entity but the company owns between 20% and 50% of the entity.
The first exception exists with respect to the Company’s ownership interest in Princeton. As of December 31, 2001, the Company owned 57.4% of the outstanding shares of Princeton but the voting control was only temporary and the Company did not have the ability to exercise control over the decision making of Princeton. Therefore, the Company did not consolidate the financial statements of Princeton into the consolidated financial statements of the Company. Accordingly, the Company recorded its interest in Princeton under the equity method of accounting. As of December 31, 2002, the Company owned 38.0% of the outstanding shares of Princeton. Due to the significance of Princeton to the Company, the Company files Princeton’s complete audited financial statements as an exhibit to its Form 10-K.
The second exception exists with respect to the Company’s ownership interest in Tanisys. As of December 31, 2002 and 2001, the Company’s ownership interest was only 36.2% and 35.2%, respectively. However, the Company exercised control over the decision making of Tanisys. Therefore, Tanisys was consolidated into the financial statements of the Company. The Company sold its interest in Tanisys in February 2003.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to interest rate risk primarily through its portfolio of cash equivalents and short-term marketable securities. The Company does not believe that it has significant exposure to market risks associated with changing interest rates as of December 31, 2002, because the Company’s intention is to maintain a liquid portfolio to take advantage of investment opportunities. The Company does not use derivative financial instruments in its operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company, and the related reports of the Company’s independent public accountants thereon, are included in this report at the page indicated.
| Page |
| |
Report of Management | 20 |
| |
Reports of Independent Public Accountants | 21 |
| |
Consolidated Balance Sheets as of December 31, 2002 and 2001 | 24 |
| |
Consolidated Statements of Operations for the Years Ended December 31, 2002 and 2001, the Transition Quarter Ended December 31, 2000 and the Year Ended September 30, 2000 | 25 |
| |
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2002 and 2001, the Transition Quarter Ended December 31, 2000 and the Year Ended September 30, 2000 | 26 |
| |
Consolidated Statements of Cash Flows for the Years Ended December 31, 2002 and 2001, the Transition Quarter Ended December 31, 2000 and the Year Ended September 30, 2000 | 27 |
| |
Notes to Consolidated Financial Statements | 28 |
19
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 were audited by Burton McCumber & Cortez, L.L.P., independent public accountants, who have also issued a report on the consolidated financial statements.
| | | |
/s/ PARRIS H. HOLMES, JR.
| | |
|
| | | |
Parris H. Holmes, Jr.
Chairman of the Board and Chief Executive Officer | | | |
| | | |
/s/ DAVID P. TUSA
| | |
|
| | | |
David P. Tusa
Executive Vice President, Chief Financial Officer and
Corporate Secretary | | | |
20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
New Century Equity Holdings Corp.
We have audited the accompanying consolidated balance sheet of New Century Equity Holdings Corp. (a Delaware corporation) and Subsidiaries as of December 31, 2002, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides 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, 2002, and the consolidated results of their operations and their consolidated cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
| | | |
| | |
/s/ BURTON McCUMBER & CORTEZ, L.L.P.
|
Brownsville, Texas
January 31, 2003 | | | |
21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
New Century Equity Holdings Corp.:
We have audited the accompanying consolidated balance sheets of New Century Equity Holdings Corp. (formerly Billing Concepts Corp.) (a Delaware corporation) and subsidiaries (collectively, the “Company”) as of December 31, 2001, December 31, 2000 and September 30, 2000, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the year ended December 31, 2001, for the transition quarter ended December 31, 2000 and for the years then ended September 30, 2000 and September 30, 1999. We did not audit the financial statements of Tanisys Technology, Inc. (“Tanisys”), which reflect total assets and total revenues, respectively, of 9 percent and 58 percent of the related consolidated totals in 2001, and are summarized and included in Note 4. Those statements were audited by other auditors whose report, which was qualified as to Tanisys’ ability to continue as a going concern, has been furnished to us, and our opinion, insofar as it relates to the amounts included for Tanisys and the data in Note 4, is based solely on the report of the other auditors. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. 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, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2001, December 31, 2000 and September 30, 2000 and the results of their operations and their cash flows for the year ended December 31, 2001, for the transition quarter ended December 31, 2000 and for the years then ended September 30, 2000 and September 30, 1999 in conformity with accounting principles generally accepted in the United States.
| | | |
| | |
/s/ ARTHUR ANDERSEN LLP
|
San Antonio, Texas
March 25, 2002, except as discussed in Note 22 to the consolidated financial statements for which the date is April 11, 2002 | | | |
THIS REPORT IS A COPY OF A PREVIOUSLY ISSUED ARTHUR ANDERSEN LLP
REPORT AND IT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.
22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tanisys Technology, Inc.:
We have audited the accompanying consolidated balance sheet of Tanisys Technology, Inc. (a Wyoming corporation), and subsidiaries as of September 30, 2001, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended September 30, 2001 and 2000. The consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 financial position of Tanisys Technology, Inc., and subsidiaries as of September 30, 2001, and the results of their operations and their cash flows for the years then ended September 30, 2001 and 2000, in conformity with accounting principles generally accepted in the United States of America.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II is presented for the purpose of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company has incurred a net loss of $2,360,995 for the year ended September 30, 2001. This factor, and others discussed in Note 1, raise substantial doubt about Tanisys Technology, Inc.’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
| | | |
/s/ BROWN, GRAHAM AND COMPANY P.C.
| | |
|
Austin, Texas
October 30, 2001 | | | |
23
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| | December 31, | |
| |
| |
| | 2002 | | 2001 | |
| |
| |
| |
| | | | | |
ASSETS | | | | | |
| | | | | |
Current Assets: | | | | | |
Cash and cash equivalents | | $ | 8,704 | | $ | 7,279 | |
Accounts receivable | | 9 | | 830 | |
Prepaid and other assets | | 330 | | 304 | |
Net current assets from discontinued operations | | 1,427 | | 3,153 | |
| |
| |
| |
| | | | | |
Total current assets | | 10,470 | | 11,566 | |
Property and equipment | | 687 | | 755 | |
Accumulated depreciation | | (439 | ) | (350 | ) |
| |
| |
| |
| | | | | |
Net property and equipment | | 248 | | 405 | |
Executive deferred compensation and other non-current assets | | 53 | | 690 | |
Investments in affiliates | | 9,353 | | 26,404 | |
Net non-current assets from discontinued operations | | — | | 512 | |
| |
| |
| |
| | | | | |
Total assets | | $ | 20,124 | | $ | 39,577 | |
| |
|
| |
|
| |
| | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | |
| | | | | |
Current liabilities: | | | | | |
Accounts payable | | $ | 30 | | $ | 31 | |
Accrued liabilities | | 551 | | 553 | |
Net current liabilities from discontinued operations | | 1,435 | | 1,450 | |
| |
| |
| |
| | | | | |
Total current liabilities | | 2,016 | | 2,034 | |
Executive deferred compensation and other non-current liabilities | | 1 | | 682 | |
Net non-current liabilities from discontinued operations | | — | | 1,512 | |
| |
| |
| |
| | | | | |
Total liabilities | | 2,017 | | 4,228 | |
Commitments and contingencies | | — | | — | |
Stockholders’ Equity: | | | | | |
Preferred stock, $0.01 par value, 10,000,000 shares authorized; no shares issued or outstanding | | — | | — | |
Common stock, $0.01 par value, 75,000,000 shares authorized; 34,217,620 and 34,205,920 issued and outstanding, respectively | | 342 | | 342 | |
Additional paid-in capital | | 70,346 | | 70,342 | |
Accumulated deficit | | (52,581 | ) | (35,335 | ) |
| |
| |
| |
| | | | | |
Total stockholders’ equity | | 18,107 | | 35,349 | |
| |
| |
| |
| | | | | |
Total liabilities and stockholders’ equity | | $ | 20,124 | | $ | 39,577 | |
| |
|
| |
|
| |
The accompanying notes are an integral part of these consolidated financial statements.
24
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
| | Year
Ended
2002 | | Year
Ended
December 31,
2001 | | Quarter
Ended
2000 | | Year
Ended
September 30,
2000 | |
| |
| |
| |
| |
| |
| | | | | | | | | |
Operating revenues | | $ | | | $ | 502 | | $ | 163 | | $ | 410 | |
Cost of revenues | | — | | 564 | | 153 | | 349 | |
| |
| |
| |
| |
| |
Gross (loss) profit | | — | | (62 | ) | 10 | | 61 | |
| | | | | | | | | |
Selling, general and administrative expenses | | 3,403 | | 7,879 | | 1,882 | | 9,317 | |
Research and development expenses | | — | | — | | — | | 3,247 | |
Depreciation and amortization expenses | | 157 | | 1,684 | | 444 | | 1,631 | |
Impairment loss | | — | | 4,965 | | — | | — | |
Special charges | | — | | — | | — | | 2,169 | |
| |
| |
| |
| |
| |
Operating loss from continuing operations | | (3,560 | ) | (14,590 | ) | (2,316 | ) | (16,303 | ) |
| | | | | | | | | |
Other income (expense): | | | | | | | | | |
Interest income | | 158 | | 1,043 | | 536 | | 12 | |
Interest expense | | (4 | ) | (1 | ) | — | | (3 | ) |
Equity in net loss of affiliates | | (18,891 | ) | (28,830 | ) | (4,220 | ) | (10,069 | ) |
Impairment of investments in affiliates | | — | | (1,777 | ) | — | | — | |
In-process research and development of affiliates | | — | | — | | — | | (4,965 | ) |
Consulting income | | 3,125 | | 3,750 | | 625 | | — | |
Realized gains on available-for-sale securities | | — | | 566 | | — | | — | |
Other income, net | | 634 | | 691 | | 8 | | 34 | |
| |
| |
| |
| |
| |
Total other expense, net | | (14,978 | ) | (24,558 | ) | (3,051 | ) | (14,991 | ) |
| |
| |
| |
| |
| |
Loss from continuing operations before income tax benefit | | (18,538 | ) | (39,148 | ) | (5,367 | ) | (31,294 | ) |
Income tax benefit | | — | | 820 | | 281 | | 4,715 | |
| |
| |
| |
| |
| |
Net loss from continuing operations | | (18,538 | ) | (38,328 | ) | (5,086 | ) | (26,579 | ) |
| | | | | | | | | |
Discontinued operations: | | | | | | | | | |
Net loss from discontinued operations, net of income tax benefit of $0, $0, $0 and $229,respectively | | (962 | ) | (98 | ) | — | | (6,565 | ) |
Net income (loss) from disposal of discontinued operations, including income tax benefit (expense) of $2,176, $500, $0 and ($5,629), respectively | | 2,254 | | 2,385 | | — | | (9,277 | ) |
| |
| |
| |
| |
| |
Net income (loss) from discontinued operations | | 1,292 | | 2,287 | | — | | (15,842 | ) |
| |
| |
| |
| |
| |
Net loss | | $ | (17,246 | ) | $ | (36,041 | ) | $ | (5,086 | ) | $ | (42,421 | ) |
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | |
Basic and diluted (loss) income per common share: | | | | | | | | | |
Net loss from continuing operations | | $ | (0.54 | ) | $ | (1.10 | ) | $ | (0.13 | ) | $ | (0.67 | ) |
Net loss from discontinued operations | | (0.03 | ) | — | | — | | (0.16 | ) |
Net income (loss) from disposal of discontinued operations | | 0.07 | | 0.07 | | — | | (0.23 | ) |
| |
| |
| |
| |
| |
Net loss | | $ | (0.50 | ) | $ | (1.03 | ) | $ | (0.13 | ) | $ | (1.06 | ) |
| |
|
| |
|
| |
|
| |
|
| |
Weighted average common shares outstanding | | 34,217 | | 34,910 | | 38,737 | | 39,909 | |
| |
| |
| |
| |
| |
The accompanying notes are an integral part of these consolidated financial statements.
25
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Years ended December 31, 2002 and 2001, the Transition Quarter
ended December 31, 2000 and the Year ended September 30, 2000
(In thousands)
| | | | Additional
Paid-in
Capital | | | | | | | | | |
| | Common Stock | | | Accumulated
Deficit | | Deferred
Compensation | | Treasury Stock | | | |
| |
| | | | |
| | | |
| | Shares | | Amount | | | | | Shares | | Amount | | Total | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Balances at September 30, 1999 | | | 37,378 | | $ | 374 | | $ | 63,771 | | $ | 48,213 | | $ | (223 | ) | | — | | $ | — | | $ | 112,135 | |
Issuance of common stock | | 129 | | 1 | | 304 | | — | | (222 | ) | — | | — | | 83 | |
Issuance of common stock for acquisitions | | 4,177 | | 42 | | 24,702 | | — | | — | | — | | — | | 24,744 | |
Issuance of stock options | | — | | — | | (31 | ) | — | | 31 | | — | | — | | — | |
Exercise of stock options and warrants | | 49 | | — | | 215 | | — | | — | | — | | — | | 215 | |
Compensation expense | | — | | — | | (142 | ) | — | | 332 | | — | | — | | 190 | |
Purchase of treasury stock | | — | | — | | — | | — | | — | | (505 | ) | (1,901 | ) | (1,901 | ) |
Net loss | | — | | — | | — | | (42,421 | ) | — | | — | | — | | (42,421 | ) |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Balances at September 30, 2000 | | 41,733 | | 417 | | 88,819 | | 5,792 | | (82 | ) | (505 | ) | (1,901 | ) | 93,045 | |
Issuance of common stock | | 769 | | 8 | | 1,573 | | — | | — | | — | | — | | 1,581 | |
Exercise of stock options | | 5 | | — | | 11 | | — | | — | | — | | — | | 11 | |
Compensation expense | | — | | — | | — | | — | | 33 | | — | | — | | 33 | |
Purchase of treasury stock | | — | | — | | — | | — | | — | | (6,349 | ) | (16,854 | ) | (16,854 | ) |
Net loss | | — | | — | | — | | (5,086 | ) | — | | — | | — | | (5,086 | ) |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Balances at December 31, 2000 | | 42,507 | | 425 | | 90,403 | | 706 | | (49 | ) | (6,854 | ) | (18,755 | ) | 72,730 | |
Issuance of common stock | | 7 | | — | | 7 | | — | | — | | — | | — | | 7 | |
Exercise of stock options | | 4 | | — | | 8 | | — | | — | | — | | — | | 8 | |
Forfeiture of restricted common stock | | (20 | ) | — | | (89 | ) | — | | — | | — | | — | | (89 | ) |
Compensation expense | | — | | — | | — | | — | | 49 | | — | | — | | 49 | |
Purchase of treasury stock | | — | | — | | — | | — | | — | | (1,438 | ) | (1,315 | ) | (1,315 | ) |
Cancellation of treasury stock | | (8,292 | ) | (83 | ) | (19,987 | ) | — | | — | | 8,292 | | 20,070 | | — | |
Net loss | | — | | — | | — | | (36,041 | ) | — | | — | | — | | (36,041 | ) |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Balances at December 31, 2001 | | 34,206 | | 342 | | 70,342 | | (35,335 | ) | — | | — | | — | | 35,349 | |
Issuance of common stock | | 12 | | — | | 4 | | — | | — | | — | | — | | 4 | |
Net loss | | — | | — | | — | | (17,246 | ) | — | | — | | — | | (17,246 | ) |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Balances at December 31, 2002 | | | 34,218 | | $ | 342 | | $ | 70,346 | | $ | (52,581 | ) | $ | — | | | — | | $ | — | | $ | 18,107 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of these consolidated financial statements.
26
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | Year
Ended
2002 | | Year
Ended
December 31,
2001 | | Quarter
Ended
2000 | | Year
Ended
September 30,
2000 | |
| |
| |
| |
| |
| |
| | | | | | | | | |
Cash flows from operating activities: | | | | | | | | | |
Net loss from continuing operations | | $ | (18,538 | ) | $ | (38,328 | ) | $ | (5,086 | ) | $ | (26,579 | ) |
Adjustments to reconcile net loss from continuing operations to net cash provided by (used in) operating activities: | | | | | | | | | |
Depreciation and amortization expenses | | 157 | | 1,684 | | 444 | | 1,631 | |
Impairment loss | | — | | 4,965 | | — | | — | |
Equity in net loss and impairment of affiliates | | 18,891 | | 30,607 | | 4,220 | | 10,069 | |
In-process research and development of affiliates | | — | | — | | — | | 4,965 | |
Realized gains on available-for-sale securities | | — | | (566 | ) | — | | — | |
Non-cash special charges | | — | | — | | — | | 2,136 | |
Changes in operating assets and liabilities: | | | | | | | | | |
Decrease (increase) in accounts receivable | | 821 | | 3,934 | | 1,586 | | (3,794 | ) |
Decrease (increase) in prepaid and other assets | | 620 | | (68 | ) | (30 | ) | (125 | ) |
(Decrease) increase in accounts payable | | (1 | ) | (22 | ) | 21 | | (25 | ) |
(Decrease) increase in accrued liabilities | | (744 | ) | (1,550 | ) | 674 | | 49 | |
Increase in deferred income taxes | | — | | — | | — | | 2,806 | |
Increase (decrease) in other liabilities and | | | | | | | | | |
other noncash items | | 620 | | (129 | ) | 33 | | (54 | ) |
| |
| |
| |
| |
| |
Net cash provided by (used in) continuing operating activities | | 1,826 | | 527 | | 1,862 | | (8,921 | ) |
Net cash provided by (used in) discontinued operating activities | | 2,002 | | (5,006 | ) | (469 | ) | 59,757 | |
| |
| |
| |
| |
| |
Net cash provided by (used in) operating activities | | 3,828 | | (4,479 | ) | 1,393 | | 50,836 | |
| | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | |
Purchases of property and equipment | | (20 | ) | (615 | ) | (185 | ) | (50 | ) |
Investments in available-for-sale securities | | — | | (16,500 | ) | — | | — | |
Proceeds from sale of available-for-sale securities | | — | | 17,265 | | — | | — | |
Proceeds from disposal of operating companies | | — | | — | | 52,500 | | — | |
Purchase of FIData, Inc., net of cash acquired | | — | | — | | — | | (4,264 | ) |
Investments in affiliates | | (3,849 | ) | (23,549 | ) | — | | (45,580 | ) |
Redemption of investments in affiliates | | 1,471 | | — | | — | | — | |
Other investing activities | | (9 | ) | (21 | ) | (220 | ) | (327 | ) |
| |
| |
| |
| |
| |
Net cash (used in) provided by investing activities | | (2,407 | ) | (23,420 | ) | 52,095 | | (50,221 | ) |
| | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | |
Proceeds from issuance of common stock | | 4 | | 14 | | — | | 891 | |
Purchases of treasury stock | | — | | (1,314 | ) | (16,854 | ) | (1,901 | ) |
| |
| |
| |
| |
| |
Net cash provided by (used in) financing activities | | 4 | | (1,300 | ) | (16,854 | ) | (1,010 | ) |
| |
| |
| |
| |
| |
Net increase (decrease) in cash and cash equivalents | | 1,425 | | (29,199 | ) | 36,634 | | (395 | ) |
| | | | | | | | | |
Cash and cash equivalents, beginning of period | | 7,279 | | 36,478 | | (156 | ) | 239 | |
| |
| |
| |
| |
| |
Cash and cash equivalents, end of period | | $ | 8,704 | | $ | 7,279 | | $ | 36,478 | | $ | (156 | ) |
| |
|
| |
|
| |
|
| |
|
| |
The accompanying notes are an integral part of these consolidated financial statements.
27
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000 and September 30, 2000
Note 1. Business Activity
New Century Equity Holdings Corp. (“NCEH”), formerly known as Billing Concepts Corp. (“BCC”), was incorporated in the state of Delaware in 1996. BCC was previously a wholly owned subsidiary of U.S. Long Distance Corp. (“USLD”) that, upon its spin-off from USLD, became an independent, publicly held company. NCEH and its subsidiaries (collectively, the “Company”) is focused on high-growth companies. The Company has an equity interest in Princeton eCom Corporation (“Princeton”), which offers electronic bill presentment and payment services via the internet and telephone. In August 2001, the Company purchased an interest in Tanisys Technology, Inc. (“Tanisys”), which designs, manufactures and markets production level automated test equipment for a wide variety of memory technologies. The Company sold its interest in Tanisys in February 2003. The Company has an equity interest in Sharps Compliance Corp. (“Sharps”), which provides cost-effective medical-related disposal solutions for the healthcare, retail, residential and hospitality industries. Through its former wholly owned subsidiary FIData, Inc. (“FIData”), the Company provided Internet-based automated loan approval products to the financial services industries. In October 2001, the Company exchanged 100% of its stock of FIData for an equity interest in Microbilt Corporation (“Microbilt”). Through its telecommunication companies (“Transaction Processing”), the Company provided billing clearinghouse and information management services in the United States to the telecommunications industry. Through its subsidiary Aptis, Inc. (“Software”), the Company developed, licensed and supported convergent billing systems for telecommunications and Internet service providers and provided direct billing outsourcing services.
In October 2000, the Company completed the sale of its Transaction Processing and Software divisions to Platinum Holdings (“Platinum”) of Los Angeles, California (the “Transaction”), for initial consideration of $49.7 million. In conjunction with the Transaction, the Company may be entitled to receive additional consideration consisting of potential royalty payments, assuming the achievement of certain post-closing revenue targets, of $10.0 million related to the LEC Billing division, $5.0 million related to the Aptis division and $5.0 million related to the OSC division. The post-closing revenue target for the LEC Billing division applied to the eighteen-month period subsequent to the Transaction, while the post-closing revenue targets for the Aptis and OSC divisions apply to the three-year period subsequent to the Transaction. During 2002, it was determined that the post-closing revenue targets for the LEC Billing division were not achieved and, therefore, the Company did not receive the corresponding $10.0 million royalty payment. Management continues to monitor the revenue achievements of the Aptis and OSC divisions, but does not believe it is likely that either division will achieve the post-closing revenue targets necessary to generate a potential royalty payment to the Company. The Company also received payments totaling $7.5 million for consulting services provided to Platinum over the twenty-four month period subsequent to the Transaction, which have been reported in other income (expense) as consulting income.
In December 2000, the Board of Directors approved a change in the fiscal year end of the Company from September 30 to December 31, effective with the calendar year beginning January 1, 2001. The quarter ended December 31, 2000, represents the three-month transition period between fiscal years 2001 and 2000.
In February 2003, the Company sold its interest in Tanisys. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the operations of Tanisys, as consolidated herein, have been classified as discontinued operations. All financial information presented for the year ended December 31, 2001, has been restated to reflect Tanisys as discontinued operations (see Note 20).
28
Note 2. 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 investments in Princeton and Coreintellect, Inc. (“Coreintellect”) are accounted for using the equity method of accounting. The Company’s investments in Microbilt and Sharps are accounted for under the cost method of accounting. All significant intercompany accounts and transactions have been eliminated in consolidation.
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
The Company considers all highly liquid investments with original maturities of three months or less to be classified as cash and cash equivalents. The estimated fair values of the Company’s cash and cash equivalents and all other financial instruments have been determined using appropriate valuation methodologies and approximate their related carrying values.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the related assets, which range from three to seven years. Upon disposition, the cost and related accumulated depreciation or amortization are removed from the accounts and the resulting gain or loss is reflected in other income (expense) for that period. Expenditures for maintenance and repairs are charged to expense as incurred and major improvements are capitalized.
Treasury Stock
During the year ended September 30, 2000, the Company’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 $25.0 million of the Company’s common stock in the open market or in privately negotiated transactions. The Company records repurchased common stock at cost (see Note 8).
Revenue Recognition
The Company recognized FIData’s transaction processing revenue when loans were processed. Implementation and customer service revenues were recognized when an agreement was in place, services had been rendered, the cost of services performed were determinable and collectibility was reasonably assured.
Income Taxes
Deferred tax assets and liabilities are recorded based on enacted income tax rates that are expected to be in effect in the period in which the 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 deferred tax assets and liabilities. The effects of such adjustments are required to be included in income in the period in which the tax laws or rates are changed.
Net Loss per Common Share
Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings Per Share”, establishes standards for computing and presenting earnings per share 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, 2002 and 2001, the transition quarter ended December 31, 2000 and the year ended September 30, 2000, diluted EPS equals basic EPS, as potentially dilutive common stock equivalents are antidilutive in loss periods.
29
Stock Based Compensation
The Company adopted SFAS No. 123, “Accounting for Stock-Based Compensation,” but elected to apply Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its stock option plans (see Note 9). Accordingly, the Company has not recognized compensation expense for stock options granted where the exercise price is equal to or greater than the market price of the underlying stock at the date of grant. During the year ended September 30, 2000, the Company recognized $240,000 of compensation expense for options granted below the market price of the underlying stock on such measurement date. In addition, in accordance with the provisions of APB Opinion No. 25, the Company did not recognize compensation expense for employee stock purchased under the NCEH Employee Stock Purchase Plan (“ESPP”).
The following table illustrates the effect on net loss and net loss per common share had compensation expense for the Company’s stock option grants and ESPP purchases been determined based on the fair value at the grant dates consistent with the methodology of SFAS No. 123. For purposes of the pro forma disclosures, the estimated fair value of options is amortized to pro forma compensation expense over the options’ vesting periods.
(in thousands, except per share data) | | | Year
Ended
2002 | | Year
Ended
December 31,
2001 | | Quarter
Ended
2000 | | Year
Ended
September 30,
2000 | |
| | |
| |
| |
| |
| |
Net loss, as reported | | $ | (17,246 | ) | $ | (36,041 | ) | $ | (5,086 | ) | $ | (42,421 | ) |
Less: Total stock based employee compensation expense determined under fair value based method for all awards, net of related tax effects | | (602 | ) | (4,640 | ) | (1,466 | ) | (4,707 | ) |
| |
| |
| |
| |
| |
Pro forma net loss | | $ | (17,848 | ) | $ | (40,681 | ) | $ | (6,552 | ) | $ | (47,128 | ) |
| |
|
| |
|
| |
|
| |
|
| |
| | | | | | | | | |
Net loss per common share – basic and diluted, as reported | | $ | (0.50 | ) | $ | (1.03 | ) | $ | (0.13 | ) | $ | (1.06 | ) |
| |
|
| |
|
| |
|
| |
|
| |
Pro forma net loss per common share – basic and diluted | | $ | (0.52 | ) | $ | (1.17 | ) | $ | (0.17 | ) | $ | (1.18 | ) |
| |
|
| |
|
| |
|
| |
|
| |
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 96.32% for the year ended December 31, 2002, 95.08% for the year ended December 31, 2001 and the transition quarter ended December 31, 2000 and 77.00% for the year ended September 30, 2000; no dividend yield for all periods; expected life of 2.5 years for all option grants and 0.5 years for all ESPP purchases; and risk-free interest rates of 2.22% for the year ended December 31, 2002, 3.16% for the year ended December 31, 2001, 5.98% for the transition quarter ended December 31, 2000 and 5.95% for the year ended September 31, 2000.
New Accounting Standards
In June 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, which requires among other items, that liabilities for the costs associated with exit or disposal activities be recognized when the liabilities are incurred, rather than when an entity commits to an exit plan. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. The effect of adoption of SFAS No. 146 is dependent on the Company’s activities subsequent to adoption.
30
In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, which requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee and expands the disclosures required to be made by a guarantor about its obligations under guarantees that it has issued. Initial recognition and measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified. The disclosure requirements are effective immediately and adopted for this Form 10-K.
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure”, which provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure requirements are effective for fiscal years ending after December 15, 2002. The Company adopted the disclosure provisions for this Form 10-K. As the Company will continue to apply APB Opinion No. 25, “Accounting for Stock Issued to Employees”, the accounting for stock-based employee compensation will not change as a result of SFAS No. 148. The new interim disclosure provisions will be effective for the Company beginning with the quarter ended March 31, 2003.
In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities”, which requires that companies that control another entity through interests other than voting interests should consolidate the controlled entity. FIN 46 applies to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. The related disclosure requirements are effective immediately. Management does not believe the adoption of FIN 46 will have any impact on the Company’s financial position or results of operations.
Statements of Cash Flow
Cash payments and non-cash activities during the periods indicated were as follows:
| | Year
Ended
2002 | | Year
Ended
December 31,
2001 | | Quarter
Ended
2000 | | Year
Ended
September 30,
2000 | |
| |
| |
| |
| |
| |
(in thousands) | | | | | | | | | |
Cash payments for income taxes | | $ | — | | $ | 500 | | $ | — | | $ | 2,000 | |
Cash payments for interest | | 4 | | 1 | | — | | 3 | |
Noncash investing and financing activities: | | | | | | | | | |
Tax benefit recognized in connection with stock option exercises | | — | | — | | — | | 37 | |
Assets (disposed of) acquired in connection with FIData (disposition) acquisition | | — | | (711 | ) | — | | 4,966 | |
Liabilities disposed of (acquired in) connection with FIData disposition (acquisition) | | — | | 355 | | — | | (85 | ) |
Common stock issued in connection with FIData acquisition | | | — | | | — | | | — | | | 4,881 | |
Note 3. Acquisitions and Investments
Princeton
The Company made its initial investment in Princeton in September 1998. Princeton is a privately held company located in Princeton, New Jersey, that specializes in electronic bill presentment and payment solutions utilizing the internet and telephone. The Company accounts for its investment in Princeton under the equity method of accounting.
31
In September 1998, the Company acquired 22% of the capital stock of Princeton for $10.0 million. During the year ended September 30, 1999, the Company acquired additional shares of Princeton stock, increasing the Company’s ownership percentage to approximately 24%.
In March 2000, the Company invested $33.5 million in the equity of Princeton, consisting of $27.0 million of convertible preferred stock and $6.5 million of common stock. In June 2000, under the terms of a Convertible Promissory Note, the Company advanced $5.0 million to Princeton, which converted into shares of Princeton preferred stock, during the quarter ended September 30, 2000. The Company’s ownership percentage in Princeton, based upon its voting interest, as of September 30, 2000, was approximately 42.5%.
In connection with the $33.5 million investment in Princeton, the Company acquired certain intangible assets, including goodwill and in-process research and development. In connection with the investment, the Company expensed approximately $2.5 million of its investment in Princeton as in-process research and development. In performing this allocation, the Company considered Princeton’s research and development projects in process at the date of acquisition, among other factors such as the stage of development of the technology at the time of investment, the importance of each project to the overall development plan, alternative future use of the technology and the projected incremental cash flows from the projects when completed and any associated risks.
The in-process research and development purchased from Princeton focused on next generation Internet-based bill publishing and payment systems and solutions. Due to their specialized nature, the in-process research and development projects had no alternative future use, either for re-deployment elsewhere in the business or in liquidation, in the event the projects failed.
The Income Approach was the primary technique utilized in valuing the purchased research and development. The valuation technique employed in the appraisals was designed to properly reflect all intellectual property rights in the intangible assets, including core technology. The value of the developed technology was derived from direct sales of existing products, including their contribution to in-process research and development. In this way, value was properly attributed to the engineering know-how embedded in the existing product that will be used in developmental products. The appraisals also considered the fact that the existing know-how diminishes in value over time as new technologies are developed and changes in market conditions render current products and methodologies obsolete. The assumptions underlying the cash flow projections used were derived primarily from investment banking reports, historical results, company records and discussions with management.
Revenue estimates for each in-process project were developed by management and based on an assessment of the industry. Cost of goods sold for each project is expected to be in line with historical industry accepted pricing. Due to the technological and economic risks associated with the developmental projects, a discount rate of 25% was used to discount cash flows from the in-process projects for Princeton. The Company believes that the foregoing assumptions used in the forecasts were reasonable at the time of the acquisition. No assurance can be given, however, that the underlying assumptions used to estimate sales, development costs or profitability, or the events associated with such projects, will transpire as estimated. For these reasons, actual results may vary from projected results. The most significant and uncertain assumptions relating to the in-process projects relate to the timing of completion and revenues attributable to each project.
In April 2001, the Company invested $15.0 million, of an aggregate $22.5 million private convertible debt financing, in Princeton. In exchange, the Company received $15.0 million of convertible promissory notes. In addition to the convertible debt, the Company also received warrants to purchase shares of Princeton’s convertible preferred stock.
32
In November 2001, the Company advanced $1.8 million, of an aggregate $3.1 million, to Princeton under the terms of a secured debt financing. Under the terms of the debt financing with Princeton, the Company received a convertible promissory note secured by certain data center assets of Princeton. The note accrued interest at a rate per annum of 15% and the principal with accrued interest was payable in November 2002. Notwithstanding the terms set forth above, upon the occurrence of a qualifying change of control or an equity financing of Princeton, the rate of interest under the note increased to a rate per annum equal to 50%, which would be prepaid upon such event. If such payment was made, no additional interest was payable.
In December 2001, in conjunction with a recapitalization of the capital structure of Princeton, the Company invested $6.0 million, of an aggregate $8.5 million, in the preferred stock of Princeton through a private equity financing. In addition, the convertible promissory notes issued in April and November 2001, plus accrued interest, were converted into equity. The Company’s ownership percentage of the outstanding shares (based upon voting interest) and the fully diluted shares of Princeton as of December 31, 2001, was approximately 57.4% and 49.0%, respectively. Although the Company’s ownership percentage was greater than 50%, the Company did not consolidate the financial statements of Princeton as the voting control was only temporary and the Company was not deemed to have control of Princeton.
During the quarter ended March 31, 2002, the Company invested $1.5 million, of a total $2.5 million equity financing, in Princeton. In exchange for its investment, the Company received 1.5 million shares of Princeton’s mandatorily redeemable convertible preferred stock. In April 2002, the Company committed to finance $3.75 million, of a total $8.5 million equity commitment, to Princeton during the year ended December 31, 2002. During April and May 2002, the Company funded $2.4 million of its total $3.75 million commitment in exchange for shares of Princeton’s mandatorily redeemable convertible preferred stock.
In conjunction with the completion of Princeton’s equity financing in June 2002, the Company received $1.5 million in proceeds from the redemption of mandatorily redeemable convertible preferred stock of Princeton. In addition, the Company is no longer required to fund its remaining $1.4 million commitment to Princeton. As of December 31, 2002, the Company’s ownership of the outstanding and fully diluted shares (considering all issued options and warrants) of Princeton was 38.0% and 32.9%, respectively.
FIData/Microbilt
In November 1999, the Company completed the acquisition of FIData, a company located in Austin, Texas that provided Internet-based automated loan approval products to the financial services industries. Total consideration for the acquisition was approximately $4.2 million in cash and debt assumption and 1.1 million shares of the Company’s common stock. Approximately $7.4 million was recorded as goodwill and other intangibles. This acquisition has been accounted for as a purchase. Accordingly, the results of operations for FIData have been included in the Company’s consolidated financial statements and the shares related to the acquisition have been included in the weighted average shares outstanding for purposes of calculating net loss per common share since the date of acquisition.
In connection with the acquisition of FIData, the Company acquired certain intangible assets, including goodwill and in-process research and development. In connection with the purchase, the Company expensed approximately $1.7 million of the purchase price of FIData as in-process research and development (included in special charges). In performing this allocation, the Company considered FIData’s research and development projects in process at the date of acquisition, among other factors such as the stage of development of the technology at the time of investment, the importance of each project to the overall development plan, alternative future use of the technology and the projected incremental cash flows from the projects when completed and any associated risks.
The in-process research and development purchased from FIData focused on next generation Internet-based automated loan approval products and banking systems and solutions. Due to their specialized nature, the in-process research and development projects had no alternative future use, either for re-deployment elsewhere in the business or in liquidation, in the event the projects failed.
33
The Income Approach was the primary technique utilized in valuing the purchased research and development. The valuation technique employed in the appraisals was designed to properly reflect all intellectual property rights in the intangible assets, including core technology. The value of the developed technology was derived from direct sales of existing products, including their contribution to in-process research and development. In this way, value was properly attributed to the engineering know-how embedded in the existing product that will be used in developmental products. The appraisals also considered the fact that the existing know-how diminishes in value over time as new technologies are developed and changes in market conditions render current products and methodologies obsolete. The assumptions underlying the cash flow projections used were derived primarily from investment banking reports, historical results, company records and discussions with management.
Revenue estimates for each in-process project were developed by management and based on an assessment of the industry. Cost of goods sold for each project is expected to be in line with historical industry accepted pricing. Due to the technological and economic risks associated with the developmental projects, a discount rate of 35% was used to discount cash flows from the in-process projects for FIData. The Company believes that the foregoing assumptions used in the forecasts were reasonable at the time of the acquisition. No assurance can be given, however, that the underlying assumptions used to estimate sales, development costs or profitability, or the events associated with such projects, will transpire as estimated. For these reasons, actual results may vary from projected results. The most significant and uncertain assumptions relating to the in-process projects relate to the timing of completion and revenues attributable to each project.
In October 2001, the Company completed the merger of FIData into privately held Microbilt of Kennesaw, Georgia. Microbilt provides credit bureau data access and retrieval to the financial, healthcare, leasing, insurance, law enforcement, educational and utilities industries. In exchange for 100% of the stock of FIData, the Company received a 9% equity interest in Microbilt. For accounting purposes, the Company has valued its investment in Microbilt at approximately $0.4 million. In addition, the Company is entitled to appoint one member of Microbilt’s Board of Directors. The Company accounts for its investment in Microbilt under the cost method of accounting.
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’ common stock for $770,000, of an aggregate $1.2 million financing. Through the 700,000 shares of common stock, the Company owns approximately 7.1% of the voting securities of Sharps. In January 2003, the Company purchased an additional 200,000 shares of Sharps’ common stock for $1 per share (see Note 20). The Company accounts for its ownership interest in Sharps under the cost method of accounting.
Coreintellect
In March 2000, the Company completed the purchase of a voting preferred stock investment of $6.0 million in Coreintellect, a Dallas, Texas-based company that develops and markets Internet-based business-to-business products for the acquisition, classification, retention and dissemination of business-critical knowledge and information.
In connection with the investment in Coreintellect, the Company acquired certain intangible assets, including goodwill and in-process research and development. In connection with this allocation, the Company expensed approximately $2.5 million of its equity investment in Coreintellect as in-process research and development. In performing these allocations, the Company considered Coreintellect’s research and development projects in process at the date of acquisition, among other factors such as the stage of development of the technology at the time of investment, the importance of each project to the overall development plan, alternative future use of the technology and the projected incremental cash flows from the projects when completed and any associated risks.
34
The in-process research and development purchase from Coreintellect focused on next generation Internet-based acquisition, classification, retention and dissemination of business-critical knowledge and information. Due to their specialized nature, the in-process research and development projects had no alternative future use, either for re-deployment elsewhere in the business or in liquidation, in the event the projects failed.
The Income Approach was the primary technique utilized in valuing the purchased research and development. The valuation technique employed in the appraisals was designed to properly reflect all intellectual property rights in the intangible assets, including core technology. The value of the developed technology was derived from direct sales of existing products, including their contribution to in-process research and development. In this way, value was properly attributed to the engineering know-how embedded in the existing product that will be used in developmental products. The appraisals also considered the fact that the existing know-how diminishes in value over time as new technologies are developed and changes in market conditions render current products and methodologies obsolete. The assumptions underlying the cash flow projections used were derived primarily from investment banking reports, historical results, company records and discussions with management.
Revenue estimates for each in-process project were developed by management and based on an assessment of the industry. Cost of goods sold for each project is expected to be in line with historical industry accepted pricing. Due to the technological and economic risks associated with the developmental projects, a discount rate of 40% was used to discount cash flows from the in-process projects for Coreintellect. The Company believes that the foregoing assumptions used in the forecasts were reasonable at the time of the acquisition. No assurance can be given, however, that the underlying assumptions used to estimate sales, development costs or profitability, or the events associated with such projects, will transpire as estimated. For these reasons, actual results may vary from projected results. The most significant and uncertain assumptions relating to the in-process projects relate to the timing of completion and revenues attributable to each project.
During the year ended December 31, 2001, the Company’s investment in Coreintellect was reduced to $0 by the Company’s portion of Coreintellect’s net losses. Coreintellect ceased operations in August 2001.
35
Note 4. Investments in Affiliates
Investments in affiliates is comprised of the following:
| | December 31, | |
| |
| |
(in thousands) | | 2002 | | 2001 | |
| |
| |
| |
Investment in Princeton: | | | | | |
Cash investments | | $ | 77,547 | | $ | 73,697 | |
In-process research and development costs | | (4,465 | ) | (4,465 | ) |
Amortization and equity loss pick-up | | (60,263 | ) | (41,372 | ) |
Impairment of investment in Princeton | | (1,777 | ) | (1,777 | ) |
Redemption | | (1,471 | ) | — | |
Other | | (1,344 | ) | (805 | ) |
| |
| |
| |
Net investment in Princeton | | 8,227 | | 25,278 | |
Investment in Sharps: | | | | | |
Cash investment | | 770 | | 770 | |
Other | | 2 | | 2 | |
| |
| |
| |
Net investment in Sharps | | 772 | | 772 | |
Investment in Microbilt: | | | | | |
Equity investments | | 348 | | 348 | |
Other | | 6 | | 6 | |
| |
| |
| |
Net investment in Microbilt | | 354 | | 354 | |
| |
| |
| |
| | | | | |
Total investments in affiliates | | $ | 9,353 | | $ | 26,404 | |
| |
|
| |
|
| |
Note 5. Accrued Liabilities
Accrued liabilities is comprised of the following:
| | December 31, | |
| |
| |
(in thousands) | | 2002 | | 2001 | |
| |
| |
| |
Accrued income taxes | | $ | 174 | | $ | 174 | |
Accrued vacation | | 140 | | 97 | |
Accrued annual report fees | | 56 | | 128 | |
Other | | 181 | | 154 | |
| |
| |
| |
| | | | | |
Total accrued liabilities | | $ | 551 | | $ | 553 | |
| |
|
| |
|
| |
Note 6. Commitments and Contingencies
During the year ended September 30, 1999, the Company entered into an agreement to guarantee the terms of Princeton’s lease for office space at 650 College Road, Princeton, New Jersey. This guarantee terminates should Princeton raise $25.0 million of capital through an initial public offering. The landlord of the office space has agreed, subject to lender approval, to replace the Company’s guarantee with an alternative security equal to rent payments for approximately one year. Although no assurances can be made, it is Princeton’s intention to provide sufficient security in order to eliminate the need for the Company’s guarantee. The Company does not believe it is probable that the lease guarantee will be exercised. Through December 2009, the payments remaining under the terms of the lease approximate $8.5 million.
Note 7. Share Capital
On July 10, 1996, the Company, upon authorization of the Board of Directors, adopted a Shareholder Rights Plan (“Rights Plan”) and declared a dividend of one preferred share purchase right on each share of its outstanding common stock. The rights will become exercisable if a person or group acquires 15% or more of the Company’s common stock or announces a tender offer, the consummation of which would result in ownership by a person or group of 15% or more of the Company’s common stock. These rights, which expire on July 10, 2006, entitle stockholders to buy one ten-thousandth of a share of a new series of participating preferred shares at a purchase price of $130 per one ten-thousandth of a preferred share. The Rights Plan was designed to ensure that stockholders receive fair and equal treatment in the event of any proposed takeover of the Company.
36
No cash dividends were paid on the Company’s common stock during the years ended December 31, 2002 and 2001, the transition quarter ended December 31, 2000 or the year ended September 30, 2000.
Note 8. Treasury Stock
During the year ended September 30, 2000, the Company’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 $25.0 million of the Company’s common stock in the open market or in privately negotiated transactions. During the years ended December 31, 2002 and 2001, the transition quarter ended December 31, 2000 and the year ended September 30, 2000, the Company purchased $0, $1.3 million (1,437,700 shares), $16.9 million (6,349,600 shares) and $1.9 million (504,800 shares), respectively, of treasury stock. As of December 31, 2002, the Company had purchased an aggregate $20.1 million, or 8.3 million shares, of treasury stock under this program.
Note 9. Stock Options and Stock Purchase Warrants
The Company has adopted the NCEH 1996 Employee Comprehensive Stock Plan (“Comprehensive Plan”) and the NCEH 1996 Non-Employee Director Plan (“Director 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 14.5 million and 1.3 million 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.
For those employees who became Platinum employees in connection with the Transaction, the Company offered two elections to amend their options. Under the first election, as long as the employee did not voluntarily terminate employment with Platinum within six months of the date of the Transaction, all vested options at the time of the Transaction remained exercisable for eighteen months subsequent to the Transaction. All unvested options at the time of the Transaction vested six months subsequent to the Transaction and remained exercisable for twelve months from such vesting date. In April 2002, 2,143,091 options expired for those Platinum employees who selected the first election. Under the second election, as long as the employee remains a Platinum employee, his or her options continue to vest according to his or her vesting schedule and remain exercisable through the expiration date as defined in the respective agreement. The compensation expense related to the amendment of the vesting periods was minimal.
37
Option activity for the years ended December 31, 2002 and 2001, the transition quarter ended December 31, 2000 and the year ended September 30, 2000, is summarized as follows:
| | Number
of Shares | | Weighted Average
Exercise Price | |
| |
| |
| |
Outstanding, September 30, 1999 | | 7,981,169 | | $9.53 | |
Granted | | 1,646,780 | | $4.40 | |
Canceled | | (1,177,435 | ) | $8.21 | |
Exercised | | (54,495 | ) | $4.07 | |
| |
| | | |
Outstanding, September 30, 2000 | | 8,396,019 | | $8.74 | |
Granted | | 828,500 | | $2.11 | |
Canceled | | (292,920 | ) | $7.80 | |
| |
| | | |
Outstanding, December 31, 2000 | | 8,931,599 | | $8.16 | |
Granted | | 1,852,333 | | $0.57 | |
Canceled | | (2,117,518 | ) | $8.64 | |
Exercised | | (4,278 | ) | $1.98 | |
| |
| | | |
Outstanding, December 31, 2001 | | 8,662,136 | | $6.42 | |
Granted | | 1,040,000 | | $0.36 | |
Canceled | | (2,988,704 | ) | $7.77 | |
| |
| | | |
Outstanding, December 31, 2002 | | 6,713,432 | | $4.88 | |
| |
| | | |
At December 31, 2002, 2001 and 2000 and September 30, 2000, stock options to purchase an aggregate of 4,955,685, 6,820,182, 5,664,479 and 5,456,155 shares were exercisable and had weighted average exercise prices of $6.38, $7.78, $9.79 and $10.15 per share, respectively.
Stock options outstanding and exercisable at December 31, 2002, were as follows:
| | Options Outstanding | | Options Exercisable | |
| |
| |
| |
| | Weighted Average | | | | | |
Range of
Exercise
Prices | | Number
Outstanding | | Remaining
Life
(years) | | Remaining
Average
Exercise Price | | Weighted
Number
Exercisable | | Weighted
Average
Exercise Price | |
| |
| |
| |
| |
| |
| |
$ 0.31 - $ 1.98 | | 2,690,535 | | 6.3 | | $ 0.44 | | 1,111,037 | | $ 0.93 | |
$ 2.03 - $ 4.56 | | 1,915,723 | | 3.9 | | $ 3.45 | | 1,743,224 | | $ 3.54 | |
$ 4.88 - $ 8.31 | | 900,174 | | 2.6 | | $ 7.24 | | 896,924 | | $ 7.25 | |
$ 9.75 - $ 29.00 | | 1,207,000 | | 1.5 | | $15.27 | | 1,204,500 | | $15.28 | |
| |
| | | | | |
| | | |
| | 6,713,432 | | 4.3 | | $ 4.88 | | 4,955,685 | | $ 6.38 | |
| |
| | | | | |
| | | |
The weighted average fair value and weighted average exercise price of options granted where the exercise price was equal to the market price of the underlying stock at the grant date were $0.22 and $0.35 for the year ended December 31, 2002, $0.30 and $0.57 for the year ended December 31, 2001, $1.26 and $2.06 for the transition quarter ended December 31, 2000 and $2.58 and $4.09 for the year ended September 30, 2000, respectively.
Note 10. Impairment
During the year ended December 31, 2001, the Company evaluated the long-lived assets of FIData for impairment in accordance with SFAS No. 121, “Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of”. The Company compared the net realizable value of the long-lived assets of FIData to the carrying value of those assets to determine the impairment. The Company recorded a $5.0 million impairment, which consisted of $4.5 million related to goodwill (carrying value prior to write-down was $4.5 million) and $0.5 million related to capitalized software (carrying value prior to write-down was $0.8 million). This impairment is included in operating loss from continuing operations as impairment loss.
38
During the year ended December 31, 2001, the Company evaluated its investment in Princeton for impairment in accordance with SFAS No. 121. The Company compared the net realizable value of its investment in Princeton to the carrying value of the investment to determine the impairment. The Company recorded a $1.8 million impairment write-down, which is included in other income (expense) as impairment of investments in affiliates.
Note 11. Special Charges
During the year ended September 30, 2000, the Company recognized special charges in the amount of $2.2 million. The special charges related primarily to the $1.7 million of in-process research and development expenses acquired in connection with the acquisition of FIData (see Note 3).
Note 12. Realized Gains on Available-for-Sale Securities
In January 2001, the Company invested $15.0 million in a portfolio of fixed income securities. The Company classified these investments as available-for-sale securities in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”. The maturities of these investments ranged from two to five years. The Company sold $1.0 million and $0.5 million of the investments in April and May 2001, respectively. In June 2001, the Company re-invested the $1.5 million in the investments, for a net investment of $15.0 million. In September 2001, the Company sold the $15.0 million investment due to changes in the market conditions of fixed income securities. The Company realized a $0.6 million gain on the sale of these securities. The Company invested the proceeds from the sale in short-term securities.
Note 13. Leases
The Company leases certain office space and equipment under operating leases. Rental expense was $173,000 for the year ended December 31, 2002, $311,000 for the year ended December 31, 2001, $159,000 for the transition quarter ended December 31, 2000 and $3,000 for the year ended September 30, 2000. Future minimum lease payments under non-cancelable operating leases as of December 31, 2002 are $111,000 for the year ending December 31, 2003, $9,000 for the year ending December 31, 2004 and $0 for all years thereafter.
Note 14. Income Taxes
The income tax benefit is comprised of the following:
(in thousands) | | Year
Ended
2002 | | Year
Ended
December 31,
2001 | | Quarter
Ended
2000 | | Year
Ended
September 30,
2000 | |
| |
| |
| |
| |
| |
Current: | | | | | | | | | |
Federal | | $ | — | | $ | 776 | | $ | 266 | | $ | 4,460 | |
State | | — | | 44 | | 15 | | 255 | |
| |
| |
| |
| |
| |
Total | | $ | — | | $ | 820 | | $ | 281 | | $ | 4,715 | |
| |
|
| |
|
| |
|
| |
|
| |
39
The income tax benefit differs from the amount computed by applying the statutory federal income tax rate of 35% to loss from continuing operations before income tax benefit. The reasons for these differences were as follows:
(in thousands) | | Year
Ended
2002 | | Year
Ended
December 31,
2001 | | Quarter
Ended
2000 | | Year
Ended
September 30,
2000 | |
| |
| |
| |
| |
| |
Computed income tax benefit at statutory rate | | $ | 6,488 | | $ | 13,702 | | $ | 1,878 | | $ | 10,953 | |
(Decrease) increase in taxes resulting from: | | | | | | | | | |
Nondeductible in-process research and development expenses | | — | | — | | — | | (2,333 | ) |
Nondeductible losses in affiliates | | (6,790 | ) | (10,712 | ) | (1,477 | ) | (3,524 | ) |
Nondeductible goodwill amortization and impairment | | — | | (2,116 | ) | (129 | ) | (471 | ) |
State income taxes, net of federal benefit | | — | | 45 | | 14 | | 255 | |
Permanent and other deductions, net | | (85 | ) | (99 | ) | (5 | ) | (165 | ) |
Valuation allowance | | 387 | | — | | — | | | |
| |
| |
| |
| |
| |
Income tax benefit | | $ | — | | $ | 820 | | $ | 281 | | $ | 4,715 | |
| |
|
| |
|
| |
|
| |
|
| |
The tax effect of significant temporary differences, which comprise the deferred tax liability, is as follows:
| | December 31, | |
| |
| |
(in thousands) | | 2002 | | 2001 | |
| |
| |
| |
Deferred tax asset: | | | | | |
Net loss carryforward | | $ | 1,768 | | $ | 2,156 | |
Valuation allowance | | (1,768 | ) | (2,156 | ) |
Deferred tax liability: | | | | | |
Estimated tax liability | | (174 | ) | (174 | ) |
| |
| |
| |
Net deferred tax liability | | $ | (174 | ) | $ | (174 | ) |
| |
|
| |
|
| |
As of December 31, 2002, the Company had a federal tax loss carryforward of $5.1 million, which expires in 2019. Realization of the Company’s carryforward is dependent on future taxable income. 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.
Note 15. Benefit Plans
In November 2000, the Company established the NCEH 401(k) Plan (the “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’s salary deferral, up to 5% of a participant’s compensation. The Company may make additional discretionary contributions. No discretionary contributions were made during the years ended December 31, 2002 or 2001 or the transition quarter ended December 31, 2000. The Company’s matching contributions to this plan totaled approximately $30,000, $66,000 and $17,000 for the years ended December 31, 2002 and 2001 and the transition quarter ended December 31, 2000, respectively.
Prior to November 2000, the Company had established the BCC 401(k) Retirement Plan (the “Retirement Plan”). The Retirement Plan was assumed by Platinum in connection with the Transaction (see Note 19).
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Note 16. Summarized Financial Information for Unconsolidated Subsidiary
The Company has made numerous investments in Princeton since September 1998. The Company accounts for its investment in Princeton under the equity method of accounting (as the Company does not exhibit control over Princeton) and records the equity in net loss of Princeton on a three-month lag. The Company’s ownership percentage of the outstanding stock of Princeton was 38.0% and 57.4% as of December 31, 2002 and 2001, respectively.
Princeton’s summarized balance sheets are as follows:
| | September 30, | |
| |
| |
(in thousands) | | 2002 | | 2001 | |
| |
| |
| |
Current assets | | $ | 59,363 | | $ | 20,496 | |
Non-current assets | | 17,522 | | 21,175 | |
Current liabilities | | 56,648 | | 44,794 | |
Non-current liabilities | | 934 | | 408 | |
Mandatorily redeemable convertible preferred stock | | | 31,767 | | | 65,645 | |
Princeton’s statements of operations for the years ended September 30, 2002 and 2001, the quarter ended September 30, 2000 and the year ended June 30, 2000, have been used to calculate the equity in net loss recorded in the Company’s statements of operations for the years ended December 31, 2002 and 2001, the transition quarter ended December 31, 2000 and the year ended September 30, 2000, respectively. Princeton’s summarized statements of operations are as follows:
(in thousands) | | Year
Ended
2002 | | Year
Ended
September 30,
2001 | | Quarter
Ended
2000 | | Year
Ended
June 30,
2000 | |
| |
| |
| |
| |
| |
Total revenues | | $ 28,559 | | $ 19,920 | | $ 3,807 | | $ 8,078 | |
Gross profit | | 11,300 | | 3,442 | | 1,745 | | 1,980 | |
Loss from operations | | (30,234 | ) | (55,771 | ) | (6,960 | ) | (20,143 | ) |
Net loss | | (32,462 | ) | (59,435 | ) | (6,888 | ) | (20,097 | ) |
For the year ended September 30, 2002, loss from operations of $30.2 million includes special charges totaling $12.5 million. Approximately $9.3 million of the special charges relate to the implementation of a strategic restructuring plan to streamline Princeton’s operations by reducing operating expenses primarily through workforce reductions ($5.8 million) and renegotiating significant contracts and leases ($3.5 million). The additional charges relate to the write-down of a portion of the asset value of Princeton’s property and equipment. The impairment was recognized as the future undiscounted cash flows for Princeton were estimated to be insufficient to recover the related carrying values of the property and equipment.
For the year ended September 30, 2001, loss from operations of $55.8 million includes special charges totaling $13.3 million. Approximately $10.7 million of the special charges relate to the impairment of the long-lived assets acquired through the Quicken Bill Manager acquisition (see further discussion below). The impairment of the long-lived assets was measured by Princeton due to factors including accumulated costs significantly in excess of the amount originally expected, a significant current period operating and cash flow loss and a projection that demonstrated continuing losses associated with these assets. The additional impairment charges of $2.6 million relate to capitalized software license fees used by Princeton to generate revenues from multiple customers. The solutions to generate these revenues were no longer being utilized by Princeton’s customers and, therefore, the assets were impaired.
41
In May 2001, Princeton announced its acquisition of Quicken Bill Manager from Intuit Inc. (“Intuit”). Quicken Bill Manager provides online bill presentment and payment services by processing payments for customers utilizing Intuit’s Quicken personal financial management software. Under the terms of the acquisition agreement, Princeton acquired the assets of Intuit’s Quicken Bill Manager through the purchase of certain technologies from Intuit and all of the outstanding shares of Venture Finance Services Corp., a wholly owned subsidiary of Intuit.
The pro forma adjustments to the Company’s financial statements relate to the additional equity in net loss of affiliates the Company would have recorded had Princeton acquired Quicken Bill Manager at the beginning of the period presented. The following pro forma financial information for the Company is provided for the year ended September 30, 2000, the transition quarter ended December 31, 2000 and the year ended December 31, 2001, based upon the assumption that Princeton had acquired Quicken Bill Manager as of October 1, 1999.
For the year ended September 30, 2000, the Company recorded equity in net loss of affiliates of $10.1 million, loss from continuing operations before income tax benefit of $31.3 million, net loss from continuing operations of $26.6 million and net loss of $42.4 million. The basic and diluted net loss from continuing operations per share and the net loss per share were $0.67 and $1.06, respectively. Had the Transaction occurred on October 1, 1999, the Company would have recorded an additional equity in net loss of affiliates of $15.0 million. Including the pro forma adjustment, the Company would have recorded total equity in net loss of affiliates of $25.1 million, loss from continuing operations before income tax benefit of $46.3 million, net loss from continuing operations of $41.6 million and net loss of $57.4 million. The basic and diluted net loss from continuing operations per share and the net loss per share would have been $1.05 and $1.44, respectively.
For the transition quarter ended December 31, 2000, the Company recorded equity in net loss of affiliates of $4.2 million, loss from operations before income tax benefit of $5.4 million and net loss of $5.1 million. The basic and diluted net loss per share was $0.13. Had the transaction occurred on October 1, 1999, the Company would have recorded an additional equity in net loss of affiliates of $5.5 million. Including the pro forma adjustment, the Company would have recorded total equity in net loss of affiliates of $9.7 million, loss from operations before income tax benefit of $10.9 million and net loss of $10.6 million. The basic and diluted net loss per share would have been $0.27.
For the year ended December 31, 2001, the Company recorded equity in net loss of affiliates of $28.8 million, loss from continuing operations before income tax benefit of $39.1 million, net loss from continuing operations of $38.3 million and net loss of $36.0 million. The basic and diluted net loss from continuing operations per share and net loss per share were $1.10 and $1.03, respectively. Had the Transaction occurred on October 1, 1999, the Company would have recorded an additional equity in net loss of affiliates of $4.1 million. Including the pro forma adjustment, the Company would have recorded total equity in net loss of affiliates of $32.9 million, loss from continuing operations before income tax benefit of $43.2 million, net loss from continuing operations of $42.4 million and net loss of $40.1 million. The basic and diluted net loss from continuing operations per share and net loss per share would have been $1.22 and $1.15, respectively. The cumulative pro forma adjustments would have decreased the balance of investments in affiliates from $26.4 million to $1.7 million as of December 31, 2001.
In the first quarter of 2002, Princeton suspended its development of the Quicken Bill Manager as a result of an overall corporate shift in focus and an effort to reduce expenditures. Princeton continues to retain the front-end technology acquired from Intuit, but is currently placing greater emphasis on its core transaction processing businesses.
Note 17. Related Parties
Historically, the Company made periodic advances to certain officers of the Company. In January 2000, the Company forgave a certain note receivable from an officer of the Company with a principal balance and accrued interest totaling approximately $70,000, in lieu of a cash bonus. In April 2000, the Company forgave a certain note receivable from an officer of the Company with a principal balance and accrued interest totaling approximately $133,000, in lieu of a cash bonus. No advances have been made to officers of the Company since April 2000.
42
On April 5, 2000, the Board of Directors of the Company approved a restricted stock grant to the Company’s CEO. The restricted stock grant consists of Princeton stock equal to 2% of Princeton’s fully diluted shares. The restricted stock grant vests on April 30, 2003. The Company expenses the fair market value of the restricted stock grant over the three-year period ending April 30, 2003. The Company recognized $600,000, $600,000, $150,000 and $300,000 during the years ended December 31, 2002 and 2001, the transition quarter ended December 31, 2000 and the year ended September 30, 2000, respectively, as compensation expense related to the stock grant. The Company will recognize $150,000 as compensation expense related to the stock grant during the year ending December 31, 2003.
The Company chartered a jet airplane from a company associated with the Company’s CEO. Under the terms of the charter agreement, the Company was obligated to pay annual minimum fees of $500,000 over the five years ending March 31, 2003, for such charter services. During the quarter ended September 30, 2000, the Company terminated this contract with no future obligations. During the year ended September 30, 2000, the Company paid approximately $615,000 in fees related to this agreement.
The Company’s CEO served as Chairman of the Board of Tanisys at the time of the Company’s investment in Tanisys and until his resignation in February 2002. A member of the Company’s Board served as Tanisys’ Chairman of the Board and CEO from February 2002 until February 2003. This Board member also served as a member of Tanisys’ Board from February 2002 to March 2003. This Board member was entitled to receive approximately $15,000 per month from Tanisys as compensation for services as Chairman of the Board and CEO. As of December 31, 2002, Habitek International, Inc. (a company owned by this Board member) had received payments totaling $42,000 of the total $137,000 of compensation earned. All outstanding payments to Habitek International, Inc. were paid in February 2003. The Company also appointed the Company’s CFO and another one of its’ Board members to the Board of Tanisys. This Board member resigned from the Board of Tanisys in February 2003, while the Company’s CFO resigned from the Board of Tanisys in March 2003.
The CEO of the Company has served on the Board of Princeton since September 1998. The CEO served as Chairman of the Board of Princeton from January 2002 until December 2002. The Company’s CFO served as a member of the Board of Princeton from August 2001 until June 2002.
The Company’s CEO and one of its’ Board members serve on the Board of Sharps and did so at the time the Company invested in Sharps. The Company’s CFO was appointed CFO of Sharps in February 2003. Beginning in March 2003, Sharps will reimbursement the Company for certain expenses incurred by the Company’s CFO.
The Company is entitled to appoint one member of Microbilt’s Board of Directors.
43
Note 18. Selected Quarterly Financial Data (Unaudited)
| | Quarter Ended | |
| |
| |
(in thousands, except per share data) | | December 31,
2002 | | September 30,
2002 | | June 30,
2002 | | March 31,
2002 | |
| |
| |
| |
| |
| |
Operating revenues | | $ | — | | $ | — | | $ | — | | $ | — | |
Operating loss from continuing operations | | (876 | ) | (718 | ) | (957 | ) | (1,009 | ) |
Net loss from continuing operations | | (1,665 | ) | (922 | ) | (1,966 | ) | (13,985 | ) |
Net loss from discontinued operations | | — | | (419 | ) | (325 | ) | (218 | ) |
Net income from disposal of discontinued operations | | 78 | | — | | 2,176 | | — | |
Net loss | | (1,587 | ) | (1,341 | ) | (115 | ) | (14,203 | ) |
Basic and diluted (loss) income per common share: | | | | | | | | | |
Net loss from continuing operations | | (0.05 | ) | (0.03 | ) | (0.06 | ) | (0.41 | ) |
Net loss from discontinued operations | | — | | (0.01 | ) | (0.01 | ) | (0.01 | ) |
Net income from disposal of discontinued operations | | — | | — | | 0.07 | | — | |
Net loss | | | (0.05 | ) | | (0.04 | ) | | — | | | (0.42 | ) |
| | Quarter Ended | |
| |
| |
(in thousands, except per share data) | | December 31,
2001 | | September 30,
2001 | | June 30,
2001 | | March 31,
2001 | |
| |
| |
| |
| |
| |
Operating revenues | | $ | 62 | | $ | 169 | | $ | 153 | | $ | 118 | |
Operating loss from continuing operations | | (1,456 | ) | (7,495 | ) | (2,985 | ) | (2,654 | ) |
Net loss from continuing operations | | (15,621 | ) | (12,224 | ) | (7,016 | ) | (3,467 | ) |
Net loss from discontinued operations | | (98 | ) | — | | — | | — | |
Net income from disposal of discontinued operations | | 885 | | — | | — | | 1,500 | |
Net loss | | (14,834 | ) | (12,224 | ) | (7,016 | ) | (1,967 | ) |
Basic and diluted (loss) income per common share: | | | | | | | | | |
Net loss from continuing operations | | (0.46 | ) | (0.35 | ) | (0.20 | ) | (0.10 | ) |
Net loss from discontinued operations | | — | | — | | — | | — | |
Net income from disposal of discontinued operations | | 0.03 | | — | | — | | 0.04 | |
Net loss | | | (0.43 | ) | | (0.35 | ) | | (0.20 | ) | | (0.06 | ) |
Note 19. Discontinued Operations
Net loss from discontinued operations for the years ended December 31, 2002 and 2001 represents the results of operations of Tanisys that were consolidated in the Company’s financial statements beginning in August 2001. Net loss from discontinued operations for the year ended September 30, 2000, represents the results of operations of the Transaction Processing and Software divisions sold to Platinum in October 2000.
Tanisys
In August 2001, the Company entered into a Series A Preferred Stock Purchase Agreement (“Purchase Agreement”) with Tanisys to purchase 1,060,000 shares of Tanisys’ Series A Preferred Stock for $1,060,000, in an aggregate $2,575,000 financing. Each share of Series A Preferred Stock was initially convertible into 33.334 shares of Tanisys’ common stock. The Company’s ownership percentage of the outstanding shares of Tanisys was approximately 36.2%, based upon its voting interest, as of December 31, 2002.
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In connection with the Purchase Agreement, Tanisys committed to make payments to the holders of the Series A Preferred Stock, to the extent its cash flow met certain levels, until the holders received the amount of their investment in the Series A Preferred Stock. At the sole option of the Company, these payments might have been converted into additional shares of Series A Preferred Stock, in lieu of cash, to be delivered to the holders of the Series A Preferred Stock. Tanisys agreed to issue additional shares of Series A Preferred Stock, equal to 50% of the then fully diluted common stock, to the holders of the Series A Preferred Stock if Tanisys failed to return the amount of their investment, plus cumulative dividends at the rate of 15% annually, by July 15, 2003. At the sole option of the Company, dividend payments may have been converted into additional shares of Series A Preferred Stock, in lieu of cash, to be delivered to the holders of Series A Preferred Stock. Tanisys also agreed to issue, at up to six different times, additional shares of Series A Preferred Stock to the holders of the Series A Preferred Stock equal to 25% of the then fully diluted common stock, if Tanisys failed to meet any of certain financial requirements for six periods of time, beginning with the quarters ended September 30, 2001 and December 31, 2001, and then for the four six-month periods ending June 30, 2002, December 31, 2002, June 30, 2003 and December 31, 2003. Each failure to meet any one of the several financial requirements in any of the six periods would result in Tanisys being required to issue additional shares of Series A Preferred Stock, for no additional consideration, to the holders of the Series A Preferred Stock. Tanisys failed to meet the financial requirements for the quarters ended September 30, 2001 and December 31, 2001 and the six months ended June 30, 2002 and December 31, 2002, resulting in the issuance of 999,051, 1,340,510, 1,693,696 and 2,232,482 additional shares, respectively, of Series A Preferred Stock to the holders of the Series A Preferred Stock.
For accounting purposes, the Company was deemed to have control of Tanisys and, therefore, consolidated the financial statements of Tanisys. The Company consolidated the financial statements of Tanisys on a three-month lag, as the Company had a different year-end than Tanisys. Tanisys’ balance sheets as of September 30, 2002 and 2001, were consolidated with the Company’s balance sheets as of December 31, 2002 and 2001, respectively. The statements of operations of Tanisys for the year ended September 30, 2002 and from the purchase date to September 30, 2001, were consolidated with the Company’s statements of operations for the years ended December 31, 2002 and 2001, respectively.
In February 2003, the Company sold its preferred stock in Tanisys to ATE Worldwide LLC (“ATEWW”). ATEWW’s majority shareholder is a leader in the semiconductor testing equipment market. The Company received approximately $0.2 million in exchange for its preferred stock. Accordingly, the operations of Tanisys have been classified as discontinued operations.
45
Pro Forma
The following unaudited pro forma consolidated balance sheet includes adjustments that give effect to the sale of the Company’s preferred stock of Tanisys, as if the sale had occurred on December 31, 2002. The pro forma adjustments reflect the elimination of the divested operations, the consideration received at the closing of the sale and estimated transaction costs.
| | As
Reported | | Adjustments | | Pro
Forma | |
| |
| |
| |
| |
(in thousands) | | | | (Unaudited) | | (Unaudited) | |
Cash and cash equivalents | | $ | 8,704 | | $ | 193 | | $ | 8,897 | |
Other current assets | | | 339 | | | — | | | 339 | |
Net current assets from discontinued operations | | 1,427 | | (1,427 | ) | — | |
| |
| |
| |
| |
Total current assets | | 10,470 | | (1,234 | ) | 9,236 | |
Non-current assets | | 9,654 | | — | | 9,654 | |
| |
| |
| |
| |
Total assets | | $ | 20,124 | | $ | (1,234 | ) | $ | 18,890 | |
| |
|
| |
|
| |
|
| |
| | | | | | | |
Current liabilities | | $ | 581 | | $ | — | | $ | 581 | |
Net current liabilities from discontinued operations | | 1,435 | | (1,384 | ) | 51 | |
| |
| |
| |
| |
Total current liabilities | | 2,016 | | (1,384 | ) | 632 | |
Non-current liabilities | | 1 | | — | | 1 | |
| |
| |
| |
| |
Total liabilities | | 2,017 | | (1,384 | ) | 633 | |
Stockholders’ equity | | 18,107 | | 150 | | 18,257 | |
| |
| |
| |
| |
Total liabilities and stockholders’ equity | | $ | 20,124 | | $ | (1,234 | ) | $ | 18,890 | |
| |
|
| |
|
| |
|
| |
Financial Statements
As the Company consolidated Tanisys on a three-month lag, Tanisys’ balance sheets as of September 30, 2002 and 2001, including adjustments made under the purchase method of accounting, have been consolidated in the Company’s balance sheets as of December 31, 2002 and 2001. Tanisys’ balance sheets consolidated herein (presented as net assets and liabilities from discontinued operations) are as follows:
| | September 30, | |
| |
| |
(in thousands) | | 2002 | | 2001 | |
| |
| |
| |
Cash and cash equivalents | | $ | 147 | | $ | 1,370 | |
Accounts receivable, net of accumulated depreciation of $95 and $119 | | 454 | | 601 | |
Inventory: | | | | | |
Raw materials | | 284 | | 721 | |
Work in process | | 48 | | 36 | |
Finished goods | | 84 | | 285 | |
| |
| |
| |
Total inventory | | 416 | | 1,042 | |
Prepaid and other assets | | 90 | | 140 | |
| |
| |
| |
Total current assets | | 1,107 | | 3,153 | |
Property and equipment | | 310 | | 379 | |
Accumulated depreciation | | (118 | ) | (15 | ) |
| |
| |
| |
Net property and equipment | | 192 | | 364 | |
Other assets, net of accumulated amortization of $23 and $2 | | 128 | | 148 | |
| |
| |
| |
Total assets | | $ | 1,427 | | $ | 3,665 | |
| |
|
| |
|
| |
| | | | | |
Accounts payable | | $ | 612 | | $ | 502 | |
Accrued liabilities | | 763 | | 601 | |
Revolving credit note | | 152 | | 88 | |
Note payable to minority stockholders, net of discount | | 953 | | — | |
| |
| |
| |
Total current liabilities | | 2,480 | | 1,191 | |
Other liabilities | | 4 | | 77 | |
Note payable to minority stockholders, net of discount | | — | | 207 | |
| |
| |
| |
Total liabilities | | $ | 2,484 | | $ | 1,475 | |
| |
|
| |
|
| |
Minority interest in consolidated affiliate | | $ | (1,100 | ) | $ | 1,228 | |
Accumulated deficit | | $ | (1,060 | ) | $ | (98 | ) |
46
Tanisys’ statements of operations for the year ended September 30, 2002 and from the purchase date through September 30, 2001, have been consolidated in the Company’s statements of operations for the years ended December 31, 2002 and 2001, respectively. Tanisys’ statements of operations consolidated herein (presented as net loss from discontinued operations) are as follows:
(in thousands) | | Year ended
September 30,
2002 | | Purchase date
through
September 30,
2001 | |
| |
| |
| |
Operating revenues | | $ | 2,619 | | $ | 686 | |
Cost of revenues | | 1,999 | | 367 | |
| |
| |
| |
Gross profit | | 620 | | 319 | |
Selling, general and administrative expenses | | 1,511 | | 378 | |
Research and development expenses | | 1,506 | | 411 | |
Depreciation and amortization expenses | | 139 | | 16 | |
| |
| |
| |
Operating loss from discontinued operations | | (2,536 | ) | (486 | ) |
Other income (expense): | | | | | |
Interest income | | 5 | | 2 | |
Interest expense | | (816 | ) | (110 | ) |
Other income (expense), net | | 83 | | (23 | ) |
Minority interest in consolidated affiliate | | 2,302 | | 519 | |
| |
| |
| |
Total other income, net | | 1,574 | | 388 | |
| |
| |
| |
Net loss from discontinued operations | | $ | (962 | ) | $ | (98 | ) |
| |
|
| |
|
| |
| | | | | |
Net loss from discontinued operations | | $ | (962 | ) | $ | (98 | ) |
Preferred stock dividend and amortization of the value of the beneficial conversion feature on stock issued by consolidated affiliate | | (249 | ) | (1,508 | ) |
Minority interest in consolidated affiliate | | 249 | | 1,508 | |
| |
| |
| |
Net loss from discontinued operations applicable to common stockholders | | $ | (962 | ) | $ | (98 | ) |
| |
|
| |
|
| |
Inventory
Tanisys’ inventory is valued at standard cost which approximates actual cost computed on a first-in, first-out basis, not in excess of market value. Inventory costs include direct materials and certain indirect manufacturing overhead expenses. Tanisys’ policy concerning inventory write-down charges is to establish a new, reduced cost basis for the affected inventory that remains until the inventory is sold or disposed. Only additional impairment charges could affect the cost basis. If subsequent to the date of impairment, it is determined that the impairment charges are recoverable, Tanisys does not increase the carrying costs of the affected inventory and corresponding income.
Due to the dramatic decline in the semiconductor business cycle and the impact on revenues since early 2001, and continued uncertainty of future sales volumes, Tanisys continues to monitor its inventory levels in light of product development changes and future sales forecasts. As a result, Tanisys recorded a special charge to cost of goods sold of $0.5 million during the year ended September 30, 2002, for the write-down of excess and obsolete inventories.
Revolving Credit Note
In May 2001, Tanisys entered into an Accounts Receivable Financing Agreement (“Debt Agreement”) with Silicon Valley Bank (“Silicon”) to fund accounts receivable and provide working capital up to a maximum of $2.5 million. As of September 30, 2001, Tanisys owed $88,000 under the Debt Agreement. The applicable interest rate was prime plus 1.5%, decreasing to 1.0% if Tanisys met 90% of its planned revenue. Tanisys failed to meet the financial covenants under the Debt Agreement as of September 30 and December 31, 2001, but received a waiver of the covenants from Silicon.
47
In March 2002, Tanisys entered into a new Accounts Receivable Purchase Agreement (“Purchase Agreement”) with Silicon, replacing the Debt Agreement, to fund accounts receivable and provide working capital up to a maximum of $2.5 million. The applicable interest rate is 1.5% per month of the average daily balance outstanding during the month. As of September 30, 2002, Tanisys owed $152,000 under the Purchase Agreement.
Note Payable to Minority Stockholders, net of Discount
In connection with the Purchase Agreement, Tanisys committed to make payments to the holders of the Series A Preferred Stock, to the extent its cash flow met certain levels, until the holders received the amount of their investment in the Series A Preferred Stock. The liability was recorded at a fair market value of $0.2 million and will be accreted to $1.6 million through July 2003, using the effective interest method. The accretion of the discount was recorded as interest expense and allocated to the minority interest in consolidated affiliate.
Revenue Recognition
Tanisys recognized revenue when persuasive evidence of an arrangement existed, such as a purchase order; the related products were shipped to the purchaser, typically freight on board shipping point or at the time the services were rendered; the price was fixed or determinable; and collectibility was reasonably assured. Tanisys warranted products against defects, generally for a period of one year, and accrued the cost of warranting these products as the items were shipped. Tanisys’ sales to distribution partners were recognized as revenue upon the shipment of products because the distribution partners, like Tanisys’ other customers, have issued purchase orders with fixed pricing and are obligated to pay the Company.
Beneficial Conversion Feature
The beneficial conversion feature for the convertible Series A Preferred Stock, in the amount of $4.5 million, was limited to the proceeds allocated to the Series A Preferred Stock of $1.5 million. Due to the Series A Preferred Stock being immediately convertible, the $1.5 million was recorded as a dividend and allocated to the minority interest in consolidated affiliate during the year ended September 30, 2001.
Advances
During the year ended September 30, 2002, the Company advanced $43,000 to Tanisys. These advances are due to the Company under the terms of a promissory note bearing interest at twelve percent (12%) and maturing in March 2003. This promissory note was repaid in February 2003.
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Transaction Processing and Software
The following table shows the operating results of the Transaction Processing and Software divisions for the year ended September 30, 2000 (in thousands):
Transaction Processing revenues | | $ | 113,085 | |
Software revenues | | 31,522 | |
| |
| |
Total revenues | | 144,607 | |
Cost of revenues | | 100,010 | |
| |
| |
Gross profit | | 44,597 | |
Selling, general and administrative expenses | | 34,911 | |
Research and development expenses | | 11,763 | |
Advance funding program income, net | | (1,856 | ) |
Depreciation and amortization expenses | | 11,273 | |
Special charges | | 1,216 | |
| |
| |
Operating loss from discontinued operations | | (12,710 | ) |
Other income (expense): | | | |
Interest income | | 6,381 | |
Interest expense | | (33 | ) |
Other, net | | (432 | ) |
| |
| |
Total other income, net | | 5,916 | |
| |
| |
Loss from discontinued operations before income tax benefit | | (6,794 | ) |
Income tax benefit | | 229 | |
| |
| |
Net loss from discontinued operations | | $ | (6,565 | ) |
| |
|
| |
Revenue Recognition Policies
The Company recognized revenue from its Transaction Processing services when records billed and collected by the Company were processed. Revenue from the sale of convergent billing systems, including the licensing of software rights, was recognized at the time the product was delivered to the customer, provided that the Company had no significant related obligations or collection uncertainties remaining. If there were significant obligations related to the installation or development of the system delivered, revenue was recognized in the period in which the Company fulfilled the obligation. Service revenues related to the Software division were recognized in the period that the services were provided. The Company recorded bad debt expense of $6.8 million and bad debt expense write-offs of $3.8 million to its allowance for doubtful accounts for the year ended September 30, 2000.
Leases
The Company leased certain equipment and office space under operating leases for discontinued operations. Rental expense was $4.7 million for the year ended September 30, 2000. Under the terms of the Transaction, all leases associated with the Transaction Processing and Software divisions were assumed by Platinum. The Company guaranteed two of the operating leases of the divested divisions. Management does not believe that the guarantees will be exercised.
Acquisitions
In April 2000, the Company completed the acquisition of Operator Service Company (“OSC”), a Lubbock, Texas-based provider of inbound directory assistance, interactive voice response and customer relationship management services to the telecommunications and consumer products industries. The Company acquired OSC through the issuance of 3.8 million shares of common stock, of which 0.7 million shares were held in escrow until achievement of a certain level of earnings. This acquisition was accounted for under the purchase method of accounting. Accordingly, the results of operations of OSC have been included in the Company’s consolidated financial statements, and the shares related to the acquisition have been included in the weighted average shares outstanding for purposes of calculating net loss per common share, since the date of acquisition. A portion of the total purchase price of $19.2 million was allocated to assets acquired and liabilities assumed based on estimated fair market value at the date of acquisition. The additional balance of $17.1 million was recorded as goodwill and was being amortized over twenty years on a straight-line basis. In connection with the Transaction, the 0.7 million shares held in escrow were released.
49
Special Charges
During the quarter ended March 31, 2000, the Company recognized special charges in the amount of $1.2 million related to severance related costs. During the quarter ended June 30, 2000, the Company recorded a $3.5 million special charge related to the Software division. The charge was a result of the narrowing of various software product offerings, the refocusing of software development efforts and a reserve associated with a significant customer account.
Benefit Plans
The BCC 401(k) Retirement Plan (the “Retirement Plan”) was assumed by Platinum in connection with the Transaction. Participation in the Retirement Plan was offered to eligible employees of the Company. Generally, all employees of the Company who were at least 21 years of age or older and who had completed six months of service during which they worked at least 500 hours were eligible for participation in the Retirement Plan. The Retirement Plan was a defined contribution plan which provided that participants generally make voluntary salary deferral contributions, on a pretax basis, of 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 made matching contributions as a percentage determined annually of the first 5% of a participant’s compensation contributed as salary deferral. The Company could have made additional discretionary contributions. No discretionary contributions were made during the years ended September 30, 2000. The Company’s matching contributions to this plan totaled approximately $894,000 during the year ended September 30, 2000.
Income from Disposal of Discontinued Operations
During 2002, the Company filed its federal income tax return with the Internal Revenue Service for the tax fiscal year ended September 30, 2001 (which includes the Transaction completed in October 2000, as discussed in Note 1). The Company received a refund claim totaling $2.2 million in July 2002. The income tax refund is included in net income from disposal of discontinued operations for the year ended December 31, 2002, as the refund relates to those companies sold in the Transaction.
The Company continually reviews the adequacy of the accruals related to discontinued operations. The Company reduced the accruals related to the Transaction Processing and Software divisions sold in October 2000 and recognized income from the disposal of discontinued operations of $0.1 million and $2.4 million during the years ended December 31, 2002 and 2001, respectively, based upon estimates of future liabilities related to the divested entities.
Note 20. Subsequent Events (Unaudited)
In January 2003, the Company purchased an additional 200,000 shares of Sharps’ common stock for $1 per share. These shares were purchased from Sharps’ CEO. The additional shares increase the Company’s ownership in Sharps to approximately 9.0%.
In February 2003, the Company sold its preferred stock in Tanisys to ATE Worldwide LLC (“ATEWW”). ATEWW’s majority shareholder is a leader in the semiconductor testing equipment market. The Company received approximately $0.2 million in exchange for its preferred stock, which will be reflected as a gain on sale during the quarter ended March 31, 2003. Accordingly, the operations of Tanisys have been classified as discontinued operations.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On May 13, 2002, the Audit Committee of the Board of Directors of the Company elected to terminate its relationship with and dismiss Arthur Andersen LLP (“Andersen”) as its independent public accountants. Andersen’s report on the Company’s consolidated financial statements as of December 31, 2001, December 31, 2000 and September 30, 2000 and for the year ended December 31, 2001, the transition quarter ended December 31, 2000 and the years ended September 30, 2000 and September 30, 1999, did not contain an adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles. No disagreements occurred with Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to Andersen’s satisfaction, would have caused Andersen to make reference to the subject matter in connection with its report on the Company’s consolidated financial statements for such years; and there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.
On July 2, 2002, the Audit Committee of the Board of Directors of the Company engaged Burton McCumber & Cortez, L.L.P. (“BMC”) as the Company’s independent public accountants for the year ended December 31, 2002. Prior to BMC’s engagement, neither the Company nor anyone on its behalf consulted with BMC regarding any of the matters or reportable events listed in Items 304(a)(2)(i) and (ii) of Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required by this item is incorporated herein by reference from the information under the captions “Election of Directors”, “Board of Directors and Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance” of the Company’s definitive proxy statement (the “Definitive Proxy Statement”) to be filed pursuant to Regulation 14A with the Securities and Exchange Commission relating to its Annual Meeting of Stockholders to be held on June 5, 2003.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference from the information under the captions “Compensation of Directors” and “Executive Compensation” of the Company’s Definitive Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Equity Compensation Plan Information at December 31, 2002
| | (a) | | (b) | | (c) | |
Plan category | | Number of Securities to
be issued upon exercise
of outstanding
options, warrants
and rights | | Weighted
average exercise
price of
outstanding
options, warrants
and rights | | Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column a) | |
| |
| |
| |
| |
| | | | | | | |
Equity compensation plans approved by security holders | | 6,713,432 | | $ | 4.88 | | 9,086,568 | |
Equity compensation plans not approved by security holders | | — | | — | | — | |
| |
| |
| |
| |
Total | | | 6,713,432 | | $ | 4.88 | | | 9,086,568 | |
| |
|
| |
|
| |
|
| |
51
The additional information required by this item is incorporated herein by reference from the information under the caption “Ownership of Common Stock” of the Company’s Definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference from the information under the caption “Related Transactions” of the Company’s Definitive Proxy Statement.
ITEM 14. CONTROLS AND PROCEDURES
Within the ninety days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’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’s periodic SEC filings. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the Company’s evaluation.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of Report
1. Financial Statements:
The Consolidated Financial Statements of the Company and the related report of the Company’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.
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 | 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) |
| |
52
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 | Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by reference from Form 10/A, Amendment No. 1, dated July 11, 1996) |
| |
3.3 | Amended and Restated Bylaws of BCC (incorporated by reference from Exhibit 3.3 to Form 10-K, dated September 30, 1998) |
| |
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) |
| |
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, 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 | BCC’s 1996 Employee Stock Purchase Plan, amended as of January 30, 1998 (incorporated by reference from Exhibit 10.12 to Form 10-K, dated September 30, 1998) |
| |
10.6 | BCC’s Executive Compensation Deferral Plan (incorporated by reference from Exhibit 10.12 to Form 10/A, Post Effective Amendment No. 2, dated August 1, 1996) |
| |
10.7 | BCC’s Executive Qualified Disability Plan (incorporated by reference from Exhibit 10.14 to Form 10/A, Amendment No. 1, dated July 11, 1996) |
| |
10.8 | 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) |
| |
10.9 | Put Option Agreement between BCC and Michael A. Harrelson, dated June 1, 1997 (incorporated by reference from Exhibit 10.1 to Form 10-Q, dated June 30, 1997) |
| |
10.10 | Employment Agreement, as amended, between BCC and W. Audie Long, dated January 15, 1999 (incorporated by reference to Form 10-K, dated September 30, 2000) |
| |
10.11 | Amended and Restated Employment Agreement between NCEH Corp. and Parris H. Holmes, Jr., dated January 11, 2002 (incorporated by reference from Exhibit 10.11 to Form 10-K, dated December 31, 2001) |
| |
10.12 | Employment Agreement between NCEH Corp. and David P. Tusa, dated November 1, 2001 (incorporated by reference from Exhibit 10.12 to Form 10-K, dated December 31, 2001) |
| |
10.13 | 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) |
| |
10.14 | BCC’s 401(k) Retirement Plan (incorporated by reference from Exhibit 10.14 to Form 10-K, dated September 30, 2000) |
| |
10.15 | 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) |
| |
53
10.16 | 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) |
| |
10.17 | 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) |
| |
21.1 | List of Subsidiaries (filed herewith) |
| |
23.1 | Consent of Burton, McCumber & Cortez, L.L.P. (filed herewith) |
| |
23.2 | Consent of Brown, Graham and Company, P.C. (filed herewith) |
| |
99.1 | Certification of Chief Executive Officer in Accordance with Section 906 of the Sarbanes-Oxley Act (filed herewith) |
| |
99.2 | Certification of Chief Financial Officer in Accordance with Section 906 of the Sarbanes-Oxley Act (filed herewith) |
| |
99.3 | Letter to the Securities and Exchange Commission regarding representations of Arthur Andersen LLP (incorporated by reference from Exhibit 99.1 to Form 10-K, dated December 31, 2001) |
| |
99.4 | Princeton eCom Corporation’s Consolidated Financial Statements as of December 31, 2001 (incorporated by reference from Exhibit 99.2 to Form 10-K, dated December 31, 2001) |
| |
99.5 | Princeton eCom Corporation’s Consolidated Financial Statements as of December 31, 2002 (filed herewith) |
(b) Reports on Form 8-K
None.
54
SIGNATURE
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 25, 2003
| | By: |
/s/ PARRIS H. HOLMES, JR.
|
| | | Parris H. Holmes, Jr.
Chairman of the Board and
Chief Executive Officer |
Pursuant to the requirement 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 25th day of March, 2003.
Signature | | Title | |
| | | |
/s/ PARRIS H. HOLMES, JR. | | Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer) | |
|
Parris H. Holmes, Jr. |
| | | |
/s/ DAVID P. TUSA | | Executive Vice President and
Chief Financial Officer
(Principal Financial Officer) | |
|
David P. Tusa |
| | | |
/s/ GARY BECKER | | Director | |
|
Gary Becker |
| | | |
/s/ C. LEE COOKE, JR. | | Director | |
|
C. Lee Cooke, Jr. |
| | | |
/s/ JUSTIN FERRERO | | Director | |
|
Justin Ferrero |
| | | |
/s/ STEPHEN WAGNER | | Director | |
|
Stephen Wagner |
| | | |
55
CERTIFICATION
I, Parris H. Holmes, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of New Century Equity Holdings Corp.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | | |
Date: March 25, 2003
| | |
/s/ PARRIS H. HOLMES JR.
|
| | | Parris H. Holmes, Jr.
Chairman of the Board and
Chief Executive Officer |
56
CERTIFICATION
I, David P. Tusa, certify that:
7. I have reviewed this annual report on Form 10-K of New Century Equity Holdings Corp.;
8. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
9. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
10. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
d) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
e) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
f) �� presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
11. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
12. The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| | | |
Date: March 25, 2003
| | |
/s/ DAVID P. TUSA
|
| | | David P. Tusa
Executive Vice President,
Chief Financial Officer and
Corporate Secretary |
57
