UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-28536
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NEW CENTURY EQUITY HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2781950
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
10101 REUNION PLACE, SUITE 450 78216
SAN ANTONIO, TEXAS (Zip code)
(Address of principal executive offices)
(210) 302-0444
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicated below is the number of shares outstanding of the registrant's
only class of common stock at May 1, 2001:
TITLE OF CLASS NUMBER OF SHARES
-------------- OUTSTANDING
-----------
Common Stock, $.01 par value 35,146,139
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - March 31, 2001, December 31, 2000 and
September 30, 2000.......................................................................... 3
Condensed Consolidated Statements of Operations - For the Quarters Ended March 31,
2001 and 2000............................................................................... 4
Condensed Consolidated Statements of Cash Flows - For the Quarters Ended March 31,
2001 and 2000............................................................................... 5
Condensed Consolidated Statements of Comprehensive Loss - For the Quarters Ended
March 31, 2001 and 2000..................................................................... 6
Notes to Interim Condensed Consolidated Financial Statements.................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 12
Item 3. Quantitative and Qualitative Disclosure about Market Risk....................................... 14
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................................................... 15
Item 6. Exhibits and Reports on Form 8-K................................................................ 15
SIGNATURE..................................................................................................... 16
2
PART I FINANCIAL INFORMATION
ITEM 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS
MARCH 31, DECEMBER 31, SEPTEMBER 30,
2001 2000 2000
------------ --------------- -----------------
Current assets:
Cash and cash equivalents....................................................... $ 18,291 $ 36,478 $ (156)
Short-term investments.......................................................... 1,000 - -
Accounts receivable, net........................................................ 4,366 3,427 5,013
Prepaids and other.............................................................. 406 254 224
Net current assets from discontinued operations................................. - - 1,376
---------- ---------- ----------
Total current assets........................................................... 24,063 40,159 6,457
Property and equipment, net....................................................... 1,100 723 620
Investments in available-for-sale securities...................................... 14,123 - -
Other assets, net................................................................. 6,460 6,775 6,784
Investments in equity affiliates.................................................. 31,003 33,519 37,832
Net non-current assets from discontinued operations............................... - - 45,410
---------- ---------- ----------
Total assets.................................................................... $ 76,749 $ 81,176 $ 97,103
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 223 $ 95 $ 74
Accrued liabilities............................................................. 703 1,564 609
Accrued income taxes............................................................ 494 2,525 2,806
Net current liabilities from discontinued operations............................ 4,088 3,521 -
---------- ---------- ----------
Total current liabilities...................................................... 5,508 7,705 3,489
Other liabilities................................................................. 583 741 569
---------- ---------- ----------
Total liabilities............................................................... 6,091 8,446 4,058
Commitments and contingencies (see Note 7)
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; no shares
issued or outstanding at March 31, December 31 or September 30................ - - -
Common stock, $0.01 par value, 75,000,000 shares authorized;
42,512,239 shares issued and 35,457,839 shares outstanding at March 31;
42,506,960 shares issued and 35,652,560 shares outstanding at December 31;
41,732,632 shares issued and 41,227,832 shares
outstanding at September 30................................................... 425 425 417
Additional paid-in capital........................................................ 90,413 90,403 88,819
Retained (deficit) earnings ...................................................... (1,261) 706 5,792
Deferred compensation............................................................. (39) (49) (82)
Accumulated other comprehensive income............................................ 123 - -
Treasury stock, at cost, 7,054,400 shares at March 31; 6,854,4000 shares
at December 31; 504,800 shares at September 30.................................. (19,003) (18,755) (1,901)
---------- ---------- ----------
Total stockholders' equity...................................................... 70,658 72,730 93,045
---------- ---------- ----------
Total liabilities and stockholders' equity...................................... $ 76,749 $ 81,176 $ 97,103
========== ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
QUARTER ENDED
MARCH 31,
----------------------------
2001 2000
----------- -----------
Operating revenues........................................................................... $ 118 $ 97
Cost of revenues............................................................................. 176 80
----------- -----------
Gross (loss) profit........................................................................ (58) 17
Selling, general and administrative expenses................................................. 2,095 2,689
Research and development expenses............................................................ - 1,877
Depreciation and amortization expenses....................................................... 501 463
Special charges.............................................................................. - 34
----------- -----------
Loss from continuing operations............................................................ (2,654) (5,046)
Other income (expense):
Interest income, net....................................................................... 314 -
Equity in net loss of equity affiliates.................................................... (2,438) (1,703)
In-process research and development of equity affiliates................................... - (4,965)
Consulting income.......................................................................... 938 -
Other, net................................................................................. 14 (12)
----------- -----------
Total other expense, net.................................................................. (1,172) (6,680)
----------- -----------
Loss from continuing operations before income tax benefit.................................... (3,826) (11,726)
Income tax benefit........................................................................... 359 1,723
----------- -----------
Net loss from continuing operations........................................................ (3,467) (10,003)
Discontinued operations:
Net income (loss) from disposal of discontinued operations, net of income
tax expense of $0 and $139, respectively.................................................. 1,500 (3,870)
----------- -----------
Net loss................................................................................... $ (1,967) $ (13,873)
=========== ===========
Basic and Diluted:
Net loss from continuing operations per common share....................................... $ (0.10) $ (0.26)
Net income (loss) from disposal of discontinued operations per common share................ 0.04 (0.10)
----------- -----------
Net loss per common share.................................................................. $ (0.06) $ (0.36)
=========== ===========
Weighted average common shares outstanding................................................... 35,646 38,579
=========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
QUARTER ENDED
MARCH 31,
-------------------------------
2001 2000
------------- -------------
Cash flows from operating activities:
Net loss from continuing operations............................................................ $ (3,467) $ (10,003)
Adjustments to reconcile net loss from continuing operations to net cash
(used in) provided by operating activities:
Depreciation and amortization................................................................ 501 463
Equity in net loss of equity affiliates...................................................... 2,438 1,703
In-process research and development costs.................................................... - 4,965
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable.................................................. 459 (4,489)
Increase in prepaids and other.............................................................. (152) (104)
Increase (decrease) in accounts payable..................................................... 128 (348)
(Decrease) increase in accrued liabilities.................................................. (1,721) 1,190
(Decrease) increase in other liabilities and other noncash items............................ (650) 57
---------- ----------
Net cash used in continuing operating activities................................................. (2,464) (6,566)
Net cash provided by discontinued operating activities........................................... - 45,920
---------- ----------
Net cash (used in) provided by operating activities........................................... (2,464) 39,354
Cash flows from investing activities:
Purchases of property and equipment............................................................ (476) -
Investments in available-for-sale securities................................................... (15,000) -
Investments in net assets of equity affiliates................................................. - (39,500)
Other investing activities..................................................................... (9) (41)
---------- ----------
Net cash used in investing activities............................................................ (15,485) (39,541)
Cash flows from financing activities:
Proceeds from issuance of common stock......................................................... 10 654
Purchases of treasury stock.................................................................... (248) (432)
---------- ----------
Net cash (used in) provided by financing activities.............................................. (238) 222
---------- ----------
Net (decrease) increase in cash and cash equivalents............................................. (18,187) 35
Cash and cash equivalents, beginning of period................................................... 36,478 (455)
---------- ----------
Cash and cash equivalents, end of period......................................................... $ 18,291 $ (420)
========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
(UNAUDITED)
QUARTER ENDED
MARCH 31,
----------------------------
2001 2000
------------ -----------
Net loss..................................................................................... $ (1,967) $ (13,873)
Other comprehensive income:
Unrealized gains on investments in available-for-sale securities,
net of income tax expense of $72 and $0, respectively.................................... 123 -
----------- -----------
Comprehensive loss........................................................................... $ (1,844) $ (13,873)
=========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The interim condensed consolidated financial statements included herein
have been prepared by New Century Equity Holdings Corp. ("NCEH") and
subsidiaries, formerly known as Billing Concepts Corp., (collectively referred
to as the "Company"), without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of the Company's
management, the accompanying interim condensed consolidated financial statements
reflect all adjustments that are necessary for a fair presentation of the
Company's financial position, results of operations and cash flows for such
periods. All such adjustments are of a normal recurring nature. It is
recommended that these interim condensed consolidated financial statements be
read in conjunction with the consolidated financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
September 30, 2000. Results of operations for interim periods are not
necessarily indicative of results that may be expected for any other interim
periods or the full fiscal year. Certain prior period amounts have been
reclassified for comparative purposes.
On October 23, 2000, the Company completed the sale of the Transaction
Processing and Software divisions to Platinum Equity Holdings ("Platinum") of
Los Angeles, California (the "Transaction"). Total consideration consisted of
$49.7 million in cash (see Note 11) and a royalty, assuming achievement of
certain revenue targets associated with the divested divisions, of up to $20
million. At this time, management cannot assess the probability of the divested
divisions achieving the revenue targets necessary to generate a royalty payment
to the Company. In addition, the Company is receiving payments totaling $7.5
million for consulting services provided to Platinum over the twenty-four month
period subsequent to the Transaction, which is included in other income
(expense) as consulting income. The Company has received payments of $1.6
million for consulting services as of March 31, 2001. All financial information
presented has been restated to reflect the Transaction Processing and Software
divisions as discontinued operations in accordance with Accounting Principles
Board Opinion No. 30.
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, represented the three-month transition period between fiscal years 2000
and 2001. The quarter ended March 31, 2001, represents the first quarter of
fiscal year 2001.
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
NOTE 2. EARNINGS PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share," established standards for computing and presenting earnings per
share ("EPS") for entities with publicly held common stock or potential common
stock. SFAS No. 128 requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures.
Basic EPS excludes dilution and is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the period.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in earnings
of the Company. As the Company had a net loss from continuing operations for the
quarters ended March 31, 2001 and 2000, diluted EPS equals basic EPS, as
potentially dilutive common stock equivalents are antidilutive in loss periods.
If the Company would have had net income from continuing operations for the
quarters ended March 31, 2001 and 2000, the denominator (weighted average number
of common shares and common share equivalents outstanding) in the diluted EPS
calculation would have
7
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
been increased, through application of the treasury stock method, for each class
of options for which the average market price per share of the Company's common
stock exceeded the common stock equivalent's exercise price.
For the quarter ended March 31, 2001, certain options to purchase
6,900,000 shares of common stock at prices ranging from $2.41 to $29.00 per
share would not have been included in the computation of diluted EPS because the
options' exercise price was greater than the average market price of the common
shares. There were additional options to purchase 807,000 shares of common stock
at prices ranging from $1.98 to $2.38 per share which were excluded as they were
antidilutive for the losses incurred for the quarter ended March 31, 2001.
For the quarter ended March 31, 2000, certain options to purchase
5,278,000 shares of common stock at prices ranging from $6.88 to $29.00 per
share would not have been included in the computation of diluted EPS because the
options' exercise price was greater than the average market price of the common
shares. There were additional options to purchase 2,653,000 shares of common
stock at prices ranging from $1.98 to $6.19 per share which were excluded as
they were antidilutive for the losses incurred for the quarter ended March 31,
2000.
NOTE 3. INVESTMENTS IN AVAILABLE-FOR-SALE SECURITIES
In January 2001, the Company invested $15.0 million in a portfolio of
fixed income securities. The Company classifies these investments as
available-for-sale securities in accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." These available-for-sale securities are measured at fair
value, with unrealized holding gains and losses reported in other comprehensive
income (loss).
Of the $15.0 million investment, $1.0 million is included in Short-term
investments as a current asset, while the remaining investments are included in
Investments in available-for-sale securities as a long-term asset. The
maturities of these investments range from two to five years. The Company sold
the fixed income securities classified as Short-term investments in April 2001.
The Company intends to hold the remaining investments until maturity, but may
sell the investments prior to their maturity if warranted by a change in market
conditions for fixed income securities.
NOTE 4. OTHER ASSETS
Other assets is comprised of the following:
March 31, December 31, September 30,
2001 2000 2000
-------------- ---------------- ---------------
(In thousands)
Goodwill - FIData, Inc., net of accumulated amortization
of $2,085 at March 31, $1,717 at December 31 and
$1,348 at September 30, 2000.................................. $ 5,284 $ 5,652 $ 6,016
Executive deferred compensation assets.......................... 519 670 569
Other non-current assets........................................ 657 453 199
---------- -------- ---------
Total other assets............................................ $ 6,460 $ 6,775 $ 6,784
========== ======== =========
8
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. INVESTMENTS IN EQUITY AFFILIATES
Investments in equity affiliates is comprised of the following:
March 31, December 31, September 30,
2001 2000 2000
-------------- ---------------- ---------------
(In thousands)
Equity investment in Princeton eCom Corporation:
Cash investments.............................................. $ 50,919 $ 50,919 $ 50,919
In-process research and development costs..................... (4,465) (4,465) (4,465)
Amortization and equity loss pick-up.......................... (16,423) (15,435) (11,545)
Other......................................................... (420) (342) (244)
---------- -------- ---------
Net equity investment in Princeton eCom Corporation......... 29,611 30,677 34,665
Equity investment in CoreINTELLECT, Inc.:
Cash investments.............................................. 6,000 6,000 6,000
In-process research and development costs..................... (2,500) (2,500) (2,500)
Amortization and equity loss pick-up.......................... (2,113) (663) (333)
Other......................................................... 5 5 -
---------- -------- ---------
Net equity investment in CoreINTELLECT, Inc................. 1,392 2,842 3,167
---------- -------- ---------
Total investments in equity affiliates................... $ 31,003 $ 33,519 $ 37,832
========== ======== =========
NOTE 6. ACQUISITIONS AND INVESTMENTS
In March 2000, the Company completed the purchase of a voting preferred
stock investment of $6.0 million in privately-held CoreINTELLECT, Inc. ("Core"),
giving the Company an approximate 22% equity ownership stake, assuming
conversion of the voting preferred stock. This investment is accounted for under
the equity method. Based in Dallas, Texas, Core develops and markets
Internet-based solutions that acquire, filter and disseminate business-critical
knowledge and information. During 2000, the Company expensed $2.5 million of
in-process research and development costs acquired in connection with this
equity investment.
In March 2000, the Company increased its ownership percentage in
Princeton eCom Corporation ("Princeton") with an additional $33.5 million equity
investment, which consists of $27.0 million of convertible preferred stock and
$6.5 million of common stock. The Company expensed $2.5 million of in-process
research and development in connection with this additional equity investment.
In June 2000, under the terms of a Convertible Promissory Note, the Company
advanced $5.0 million to Princeton. During the quarter ended September 30, 2000,
the Convertible Promissory Note was converted into shares of Princeton's
preferred stock, which are convertible into 1,111,111 shares of Princeton's
common stock. The Company's ownership percentage in Princeton at March 31, 2001,
was approximately 42.2%.
In November 1999, the Company completed the acquisition of FIData, Inc.
("FIData"), an Austin, Texas-based company that provides Internet-based
automated loan approval products to the financial services industries. The total
consideration for the acquisition of FIData was approximately $4.2 million in
cash and debt assumption and 1,100,000 shares of the Company's common stock.
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. Approximately $7.4
million was recorded as goodwill and other intangibles and is being amortized on
a straight-line basis over five years. The remaining balance of $1.7 million was
expensed as acquired in-process research and development during the quarter
ended December 31, 2000.
9
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with the acquisition of FIData and the investments in
Princeton and CORE, the Company acquired certain intangible assets, including
goodwill and in-process research and development. In connection with these
allocations, the Company expensed $1.7 million of the purchase price for FIData
and $2.5 million of each of its equity investments in Princeton and CORE as
in-process research and development. In performing these allocations, the
Company considered the respective company'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. The in-process research and development purchased from
Princeton focused on next generation Internet-based bill publishing and payment
systems and solutions. The in-process research and development purchased from
CORE 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, discount rates of 35%, 25% and 40% were used to discount
cash flows from the in-process projects for FIData, Princeton and Core,
respectively. 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 projected timing of completion and
revenues attributable to each project.
NOTE 7. COMMITMENTS AND CONTINGENCIES
As previously disclosed, the Company has been engaged in discussions
with the staff of the Federal Trade Commission's ("FTC") Bureau of Consumer
Protection regarding a proposed complaint by the FTC alleging potential
liability arising primarily from the alleged cramming of charges for
non-regulated telecommunication services by certain of its customers. Cramming
is the addition of charges to a telephone bill for programs, products or
services the consumer did not knowingly authorize. These allegations relate to
businesses conducted by the subsidiaries sold by the Company on October 23,
2000. Management cannot assess either the likelihood that this matter will have
an adverse financial impact on the Company or the extent of any such impact.
The Company is involved in various other claims, legal actions and
regulatory proceedings arising in the ordinary course of business. The Company
believes it is unlikely that the final outcome of any of the claims, litigation
or proceedings to which the Company is a party will have a material adverse
effect on the Company's financial position or
10
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
results of operations; however, due to the inherent uncertainty of litigation,
there can be no assurance that the resolution of any particular claim or
proceeding would not have a material adverse effect on the Company's results of
operations for the fiscal period in which such resolution occurs.
NOTE 8. TREASURY STOCK
In February 2000, the Company's Board of Directors approved the
adoption of a common stock repurchase program. Under the terms of the program,
the Company could purchase up to a total of $10.0 million of Company common
stock in the open market or in privately negotiated transactions. In November
and December 2000, the Board of Directors approved additional common stock
repurchase programs, which allow the Company to cumulatively purchase up to a
total of $25.0 million. As of March 31, 2001, the Company had purchased $19.0
million, or 7.1 million shares, of treasury stock.
NOTE 9. RELATED PARTY TRANSACTIONS
On April 5, 2000, the Board of Directors of the Company approved a
restricted stock grant to the Chief Executive Officer of the Company. The
restricted stock consists of 400,000 shares of Princeton common stock, which
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 $150,000 during the quarter ended March 31, 2001, as
compensation expense related to the stock grant. The Company estimates it will
recognize $0.6 million as compensation expense related to the stock grant in
2001.
NOTE 10. SPECIAL CHARGES
During the quarter ended March 31, 2000, the Company recognized a
$34,000 special charge related to severance costs.
NOTE 11. SUBSEQUENT EVENTS
In April 2001, the Company contributed $15.0 million, in an aggregate
$20.0 million private convertible debt financing for Princeton. The Company
purchased $15.0 million of convertible promissory notes, which are expected to
be converted into preferred stock at a rate to be determined in the future based
on certain events. In addition to the convertible debt, the Company also
received warrants to purchase shares of Princeton's convertible preferred stock.
In connection with the Transaction, the Company guaranteed to Platinum
a minimum working capital balance associated with the divested entities of $4.0
million. Based upon post-closing reviews of the financial statements of the
divested entities, it was mutually determined by the Company and Platinum that
the working capital balance was $2.8 million below the required $4.0 million.
The working capital deficit of $2.8 million was paid to Platinum in April 2001,
thereby reducing the cash consideration of the Transaction to $49.7 million from
$52.5 million.
11
ITEM 2.
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS CERTAIN "FORWARD-LOOKING"
STATEMENTS AS SUCH TERM IS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995 AND INFORMATION RELATING TO THE COMPANY AND ITS SUBSIDIARIES THAT
ARE BASED ON THE BELIEFS OF THE COMPANY'S MANAGEMENT AS WELL AS ASSUMPTIONS MADE
BY AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY'S MANAGEMENT. WHEN USED IN
THIS REPORT, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT" AND
"INTEND" AND WORDS OR PHRASES OF SIMILAR IMPORT, AS THEY RELATE TO THE COMPANY
OR ITS SUBSIDIARIES OR COMPANY MANAGEMENT, ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT RISKS,
UNCERTAINTIES AND ASSUMPTIONS RELATED TO CERTAIN FACTORS INCLUDING, WITHOUT
LIMITATIONS, COMPETITIVE FACTORS, GENERAL ECONOMIC CONDITIONS, CUSTOMER
RELATIONS, RELATIONSHIPS WITH VENDORS, THE INTEREST RATE ENVIRONMENT,
GOVERNMENTAL REGULATION AND SUPERVISION, SEASONALITY, DISTRIBUTION NETWORKS,
PRODUCT INTRODUCTIONS AND ACCEPTANCE, TECHNOLOGICAL CHANGE, CHANGES IN INDUSTRY
PRACTICES, ONETIME EVENTS AND OTHER FACTORS DESCRIBED HEREIN AND IN OTHER
FILINGS MADE BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION. BASED
UPON CHANGING CONDITIONS, SHOULD ANY ONE OR MORE OF THESE RISKS OR UNCERTAINTIES
MATERIALIZE, OR SHOULD ANY UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL
RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN AS ANTICIPATED,
BELIEVED, ESTIMATED, EXPECTED OR INTENDED. THE COMPANY DOES NOT INTEND TO UPDATE
THESE FORWARD-LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following is a discussion of the consolidated financial condition
and results of operations for New Century Equity Holdings Corp. ("NCEH") and
subsidiaries (collectively referred to as the "Company"), as of and for the
quarters ended March 31, 2001 and 2000. It should be read in conjunction with
the Unaudited Interim Condensed Consolidated Financial Statements of the
Company, the notes thereto and other financial information included elsewhere in
this report, and the Company's Annual Report on Form 10-K for the year ended
September 30, 2000. For purposes of the following discussion, references to year
periods refer to the Company's fiscal year ended December 31 and references to
quarterly periods refer to the Company's fiscal quarter ended March 31.
RESULTS OF OPERATIONS
The Company's revenues are derived entirely from its wholly owned
subsidiary FIData, Inc. ("FIData"), acquired in November 1999. FIData provides
Internet-based automated loan approval products to the financial services
industries. The Company has an equity interest in Princeton eCom Corporation
("Princeton"), which offers electronic bill presentment and payment services via
the Internet and telephone. As of March 31, 2001, the Company's ownership
percentage in Princeton was approximately 42.2%. During the second quarter of
2000, the Company purchased a 22% equity interest in CoreINTELLECT, Inc.
("Core"), which provides Internet-based solutions that acquire, filter and
disseminate business-critical knowledge and information.
On October 23, 2000, the Company completed the sale of the Transaction
Processing and Software divisions to Platinum Equity Holdings ("Platinum") of
Los Angeles, California (the "Transaction"). Total consideration consisted of
$49.7 million in cash and a royalty, assuming achievement of certain revenue
targets associated with the divested divisions, of up to $20 million. At this
time, management cannot assess the probability of the divested divisions
achieving the revenue targets necessary to generate a royalty payment to the
Company. In addition, the Company will receive payments totaling $7.5 million
for consulting services provided to Platinum over the twenty-four month period
subsequent to the Transaction, which is included in other income (expense) as
consulting income. The Company has received payments of $1.6 million for
consulting services as of March 31, 2001. All financial information presented
has been restated to reflect the Transaction Processing and Software divisions
as discontinued operations in accordance with Accounting Principles Board
Opinion No. 30.
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CONTINUING OPERATIONS
Total revenues for the quarter ended March 31, 2001 were $118,000,
compared to $97,000 in the quarter ended March 31, 2000. The increase in total
revenues from the prior year quarter was due to an increase in the number of
customers utilizing FIData's loan approval products.
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. SG&A expenses for the quarter ended
March 31, 2001 were $2.1 million compared to $2.7 million in the quarter ended
March 31, 2000. SG&A expenses decreased from the prior year quarter primarily
due to a reduction in expenditures.
Research and development ("R&D") expenses are comprised of the salaries
and benefits of the employees involved in development and related expenses. R&D
expenses were $0 million and $1.9 million in the quarters ended March 31, 2001
and 2000, respectively. The R&D expenses incurred during the quarter ended March
31, 2000, were related to the development of a financial services website, which
was suspended during the quarter ended June 30, 2000.
Net other expense of $1.2 million in the quarter ended March 31,
2001 compares to net other expense of $6.7 million in the quarter ended March
31, 2000. The decrease in net other expense from the prior year period is
primarily due to the Company's in-process research and development expense of
$5.0 million incurred in the quarter ended March 31, 2000, related to equity
investments in Princeton and Core. The net other expense for the quarter ended
March 31, 2001, also includes consulting income of $0.9 million from Platinum.
The Company's effective tax rate was 9.4% and 14.7% in the quarters
ended March 31, 2001 and 2000, respectively. The Company's effective income tax
benefit was lower than the federal statutory benefit due to certain expenses
recorded for financial reporting purposes that are not deductible for federal
income tax purposes.
The Company reported a net loss from continuing operations of $3.5
million for the quarter ended March 31, 2001, and $10.0 million for the quarter
March 31, 2000. The net loss for the quarter ended March 31, 2000, includes
special charges of $34,000 in severance related costs.
DISCONTINUED OPERATIONS
In connection with the Transaction, the Company guaranteed to Platinum
a minimum working capital balance associated with the divested entities of $4.0
million. Based upon post-closing reviews of the financial statements of the
divested entities, it was mutually determined by the Company and Platinum that
the working capital balance was $2.8 million below the required $4.0 million.
The working capital deficit of $2.8 million was paid to Platinum in April 2001,
thereby reducing the cash consideration of the Transaction to $49.7 million from
$52.5 million.
At March 31, 2001, the Company reviewed the accruals related to
discontinued operations to assess the adequacy of the accruals. As a result of
this assessment, the Company reduced such accruals and recognized income from
the disposal of discontinued operations of $1.5 million based upon current
estimates of future liabilities related to the divested entities.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance increased to $18.3 million at March 31,
2001, from a cash deficit of $0.2 million at September 30, 2000. This increase
is primarily related to the $52.5 million received from Platinum in connection
with the Transaction, net of treasury stock purchases and investments in
available-for-sale securities. The Company's working capital position increased
to $18.6 million at March 31, 2001, from $3.0 million at September 30, 2000. The
increase in the working capital was primarily attributable to the increase in
the cash balance. In January 2001, the Company invested $15.0 million of cash
into a portfolio of fixed income securities. Net cash used in operating
activities was $2.5 million in the quarter ended March 31, 2001, as compared to
net cash provided by operating activities of $39.4 million in the quarter ended
March 31, 2000.
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Capital expenditures amounted to approximately $0.5 million in the
quarter ended March 31, 2001 and related primarily to the purchase of computer
equipment and software. The Company anticipates additional capital expenditures
before acquisitions, if any, of approximately $0.8 million during the remainder
of the fiscal year ended December 31, 2001, largely related to expenditures for
furniture, fixtures, leasehold improvements, computer software and hardware
upgrades. The Company believes that it will be able to fund expenditures with
cash on hand.
In November 1999, the Company completed the acquisition of FIData, a
company located in Austin, Texas, that provides internet-based automated loan
approval products to the financial services industries. The total consideration
for the acquisition was approximately $4.2 million in cash and debt assumption
and 1,100,000 shares of the Company's common stock. 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 from continuing
operations per common share since the date of the acquisition. Approximately
$7.4 million was recorded as goodwill and other intangibles and is included in
other assets. During the quarter ended December 31, 1999, the Company expensed
$1.7 million of in-process R&D acquired in connection with this acquisition.
In March 2000, the Company increased its ownership percentage in
Princeton with an additional $33.5 million equity investment, which consisted of
$27.0 million of convertible preferred stock and $6.5 million of common stock.
In connection with this investment, the Company expensed $2.5 million of
in-process R&D costs during 2000. In June 2000, under the terms of a Convertible
Promissory Note, the Company advanced $5.0 million to Princeton. In the quarter
ended September 30, 2000, the Convertible Promissory Note was converted into
shares of Princeton preferred stock, which are convertible into 1,111,111 shares
of Princeton common stock. The Company's ownership percentage in Princeton at
March 31, 2001, was approximately 42.2%. In April 2001, the Company contributed
$15.0 million, in an aggregate $20.0 million private convertible debt financing
for Princeton. The Company purchased $15.0 million of convertible promissory
notes, which are expected to be converted into preferred stock at a rate to be
determined in the future based on certain events. In addition to the convertible
debt, the Company also received warrants to purchase shares of Princeton's
convertible preferred stock.
In March 2000, the Company completed the purchase of a voting preferred
stock investment of $6.0 million in Core, a Dallas, Texas-based company that
develops and markets Internet-based solutions that acquire, filter and
disseminate business-critical knowledge and information. During 2000, the
Company expensed $2.5 million of in-process R&D costs acquired in connection
with this equity investment.
The Company's operating cash requirements consist principally of
funding of corporate and FIData expenses and capital expenditures.
ITEM 3. 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 and its
recent investments in available-for-sale securities. The Company's investments
in available-for-sale securities are measured at fair market value on the
balance sheet. Purchased in January 2001, these investments are comprised of
fixed income securities maturing over a two to five year period. Changes in
interest rates and market conditions will impact the fair market value of the
fixed income securities. The Company intends to hold the investments until
maturity, but may sell the investments prior to their maturity if warranted by a
change in market conditions for fixed income securities.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously disclosed, the Company has been engaged in discussions
with the staff of the Federal Trade Commission's ("FTC") Bureau of Consumer
Protection regarding a proposed complaint by the FTC alleging potential
liability arising primarily from the alleged cramming of charges for
non-regulated telecommunication services by certain of its customers. Cramming
is the addition of charges to a telephone bill for programs, products or
services the consumer did not knowingly authorize. These allegations relate to
businesses conducted by the subsidiaries sold by the Company on October 23,
2000. Management cannot assess either the likelihood that this matter will have
an adverse financial impact on the Company or the extent of any such impact.
The Company is involved in various other claims, legal actions and
regulatory proceedings arising in the ordinary course of business. The Company
believes it is unlikely that the final outcome of any of the claims, litigation
or proceedings to which the Company is a party will have a material adverse
effect on the Company's financial position or results of operations; however,
due to the inherent uncertainty of litigation, there can be no assurance that
the resolution of any particular claim or proceeding would not have a material
adverse effect on the Company's results of operations for the fiscal period in
which such resolution occurs.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Current Reports on Form 8-K:
Form 8-K dated February 12, 2001, announcing the change in
the Company's name to New Century Equity Holdings Corp. from
Billing Concepts Corp.
ITEMS 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
NEW CENTURY EQUITY HOLDINGS CORP.
(Registrant)
Date: May 4, 2001 By: /s/ DAVID P. TUSA
--------------------------------------
David P. Tusa
SENIOR VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND CORPORATE SECRETARY
(Duly authorized and principal
financial officer)
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