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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 2004
|_| 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.
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(Exact name of registrant as specified in its charter)
DELAWARE 74-2781950
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
300 CRESCENT COURT, SUITE 1110, DALLAS, TEXAS 75201
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(Address of principal executive offices) (Zip Code)
(214) 661-7488
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(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
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COMMON STOCK, PAR VALUE $0.01 PER SHARE
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |X|
Indicate by check mark whether the Registrant is an accelerated
filer (as defined in Exchange Act Rule 12b-2). |_| Yes |X| No
The aggregate market value of the Registrant's voting and non-voting
common equity held by non-affiliates of the Registrant as of June 30, 2004 was
$11,386,024.
As of March 30, 2005, the Registrant had 34,653,104 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Form 10-K is
incorporated by reference to portions of the Registrant's definitive proxy
statement (the "Proxy Statement") of the Registrant's 2005 Annual Meeting of
Stockholders, which is expected to be filed by the Registrant within 120 days
after its fiscal year ended December 31, 2004.
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NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2004
PAGE
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PART I
Item 1. Business........................................................ 3
Risk Factors.................................................... 6
Item 2. Properties...................................................... 9
Item 3. Legal Proceedings............................................... 9
Item 4. Submission of Matters to a Vote of Security Holders............. 10
PART II
Item 5. Market for Registrant's Common Equity, and Related
Stockholder Matters and Issuer Purchases of Equity Securities... 10
Item 6. Selected Financial Data......................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 13
Item 7A. Quantitative and Qualitative Disclosure About Market Risk....... 19
Item 8. Financial Statements and Supplementary Data..................... 20
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 45
Item 9A. Controls and Procedures......................................... 45
Item 9B. Other Information............................................... 45
PART III
Item 10. Directors and Executive Officers of the Registrant.............. 46
Item 11. Executive Compensation.......................................... 46
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters...................... 46
Item 13. Certain Relationships and Related Transactions.................. 46
Item 14. Principal Accountant Fees and Services.......................... 46
PART IV
Item 15. Exhibits and Financial Statement Schedules...................... 46
Signatures...................................................... 50
PART I
ITEM 1. BUSINESS
THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN "FORWARD-LOOKING"
STATEMENTS AS SUCH TERM IS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995 AND INFORMATION RELATING TO THE COMPANY AND ITS SUBSIDIARIES THAT
ARE BASED ON THE BELIEFS OF THE COMPANY'S MANAGEMENT AS WELL AS ASSUMPTIONS MADE
BY AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY'S MANAGEMENT. WHEN USED IN
THIS REPORT, THE WORDS "ANTICIPATE", "BELIEVE", "ESTIMATE", "EXPECT" AND
"INTEND" AND WORDS OR PHRASES OF SIMILAR IMPORT, AS THEY RELATE TO THE COMPANY
OR ITS SUBSIDIARIES OR COMPANY MANAGEMENT, ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT RISKS,
UNCERTAINTIES AND ASSUMPTIONS RELATED TO CERTAIN FACTORS INCLUDING, WITHOUT
LIMITATION, COMPETITIVE FACTORS, GENERAL ECONOMIC CONDITIONS, 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, ONE-TIME EVENTS AND OTHER FACTORS DESCRIBED HEREIN AND IN OTHER
FILINGS MADE BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION ("SEC").
BASED UPON CHANGING CONDITIONS, SHOULD ANY ONE OR MORE OF THESE RISKS OR
UNCERTAINTIES MATERIALIZE, OR SHOULD ANY UNDERLYING ASSUMPTIONS PROVE INCORRECT,
ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN AS ANTICIPATED,
BELIEVED, ESTIMATED, EXPECTED OR INTENDED. THE COMPANY DOES NOT INTEND TO UPDATE
THESE FORWARD-LOOKING STATEMENTS.
INTRODUCTION
New Century Equity Holdings Corp. ("NCEH" or the "Company") is a
company in transition. The Company is currently seeking to redeploy its assets
to enhance stockholder value and is seeking, analyzing and evaluating potential
acquisition and merger candidates. In June 2004, the Company sold all its
interest in Princeton eCom Corporation ("Princeton"), which offers electronic
bill presentment and payment services via the Internet and telephone, for $10
million. The Company continues to hold a small equity interest in publicly
traded Sharps Compliance Corp. ("Sharps"), which provides cost-effective
medical-related disposal solutions for the healthcare, retail, residential and
hospitality industries.
HISTORICAL OVERVIEW
The Company, which was 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") and principally
provided third-party billing clearinghouse and information management services
to the telecommunications industry (the "Transaction Processing and Software
Business"). Upon its spin-off from USLD, BCC became an independent,
publicly-held company. In October 2000, the Company completed the sale of
several wholly-owned subsidiaries that comprised the Transaction Processing and
Software Business to Platinum Holdings ("Platinum") for consideration of $49.7
million (the "Platinum Transaction"). The Company also received payments
totaling $7.5 million for consulting services provided to Platinum over the
twenty-four month period subsequent to the Platinum Transaction.
Beginning in 1998, the Company made multiple investments in
Princeton totaling approximately $77.3 million before selling all of its
interest for $10 million in June 2004. The Company's strategy, beginning with
its investment in Princeton, of making investments in high-growth companies was
also facilitated through several other investments.
In November 1999, the Company completed the acquisition of FIData,
Inc. ("FIData"), a company that provided Internet-based automated loan approval
products to the financial services industry. 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, par value $0.01 per share ("Common
Stock"). In October 2001, the Company exchanged 100% of its stock of FIData for
a 9% equity interest in Microbilt Corporation ("Microbilt"), which was
3
surrendered in October 2003 in settlement of a related lawsuit (see Note 3 to
the Consolidated Financial Statements).
In March 2000, the Company completed the purchase of a voting
preferred stock investment of $6.0 million in CoreINTELLECT, a company that
developed and marketed internet-based business-to-business products for the
acquisition, classification, retention and dissemination of business-critical
knowledge and information. 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.
In August 2001, the Company purchased 1,060,000 shares of Tanisys
Technology Inc. ("Tanisys") Series A Preferred Stock for $1.00 per share, in a
private placement financing. Tanisys designed, manufactured and marketed
production level automated test equipment for a wide variety of semiconductor
memory technologies. The Company sold its interest in Tanisys in February 2003
for approximately $200,000.
In October 2001, the Company purchased 700,000 shares of common
stock of Sharps for $770,000. In January 2003, the Company purchased an
additional 200,000 shares of common stock of Sharps for $200,000. In January
2004, under the terms of a settlement agreement in connection with a lawsuit
against the Company, the Company transferred 525,000 shares of the common stock
of Sharps valued at approximately $389,000 to a third party. As of December 31,
2004, the Company held 375,000 shares of the common stock of Sharps.
RECENT DEVELOPMENTS
In March 2004, the Company filed preliminary proxy materials with
the SEC seeking stockholder approval of a liquidation of the Company. On June 2,
2004, the Company announced that it had been in discussions with various
organizations that had expressed an interest in exploring strategic alternatives
to the Company's previously proposed plan of liquidation. The contemplated
transactions, proposed as alternatives to the previous plan of liquidation, were
focused on the use of the Company's cash and operating and capital loss
carryforwards. On June 10, 2004, the Company amended its July 10, 1996
Shareholder Rights Agreement by reducing the Common Stock ownership threshold
for triggering the distribution of rights under such agreement from fifteen
percent to five percent. The purpose of such amendment was to help ensure the
preservation of the Company's net operating loss and capital loss carryforwards.
On June 18, 2004, the Company sold approximately 4.8 million newly issued shares
of its Series A 4% Convertible Preferred Stock (the "Series A Preferred Stock")
to Newcastle Partners, L.P. ("Newcastle") for $5.0 million (the "Newcastle
Transaction"). Newcastle was exempted from the five percent ownership limitation
in the Shareholder Rights Agreement. In connection with the announcement of the
Newcastle Transaction, the Company announced that the Board of Directors
determined that it was not in the best interests of the Company's stockholders
to liquidate the Company and withdrew all proxy materials filed with the SEC
related to the proposed liquidation. At the time of the aforementioned events,
the Company's board of directors consisted of C. Lee Cooke, Jr., Gary D. Becker,
Justin L. Ferrero, Parris H. Holmes, Jr. and Stephen M. Wagner.
The Series A Preferred Stock issued to Newcastle is convertible into
approximately thirty-five percent of the Common Stock at any time after the
expiration of twelve months from the date of its issuance at a conversion price
of $0.26 per share of Common Stock, subject to adjustment for dilution. The
holders of the Series A Preferred Stock are entitled to a four percent annual
cash dividend (the "Preferred Dividends"). The Preferred Dividends shall accrue
and shall be cumulative from the date of initial issuance of the shares of the
Series A Preferred Stock, whether or not declared by the Company's board of
directors. In lieu of cash dividends, the holders of Series A Preferred Stock
may elect to receive such number of shares of Series A Preferred Stock that is
equal to the aggregate dividend amount divided by $1.04.
4
So long as any shares of the Series A Preferred Stock remain
outstanding, (1) the Company's board of directors shall not exceed four members,
(2) the Company may not increase its authorized capitalization and (3) the
Company may not create rights, rankings or preferences that adversely affect the
rights, rankings and preferences of the Series A Preferred Stock, without the
written consent of the holders of at least a majority of the shares of Series A
Preferred Stock then outstanding, voting as a separate class. So long as any
shares of the Series A Preferred Stock remain outstanding, the holders of shares
of Series A Preferred Stock shall be entitled (1) to vote as a separate class to
elect two directors to the Company's board of directors and to pass upon any
matters that affect the rights, value or ranking of the Series A Preferred Stock
and (2) to vote on all other matters on which holders of Common Stock shall be
entitled to vote, casting such number of votes in respect of such shares of
Series A Preferred Stock as shall equal the largest whole number of shares of
Common Stock into which such shares of Series A Preferred Stock are then
convertible. The other powers, preferences, rights, qualifications and
restrictions of the Series A Preferred Stock are more fully set forth in the
Certificate of Designations of Series A Convertible Preferred Stock filed with
the Secretary of State of the State of Delaware simultaneously with the closing
of the Newcastle Transaction.
In conjunction with the Newcastle Transaction, (1) Parris H. Holmes,
Jr., Gary D. Becker, and Stephen M. Wagner resigned from the board of directors
and (2) Mr. Holmes resigned as the Chief Executive Officer and David P. Tusa
resigned as the Chief Financial Officer, Executive Vice President and Corporate
Secretary. Pursuant to employment agreements executed prior to the Newcastle
Transaction, upon their resignation, the Company paid severance, accrued
vacation and other amounts to Mr. Holmes and Mr. Tusa totaling approximately
$2.1 million and $0.5 million, respectively. In addition, the Company entered
into consulting agreements with Mr. Holmes and Mr. Tusa through October 31, 2004
and September 30, 2004, respectively. Mr. Holmes and Mr. Tusa were paid
pro-rated consulting payments for the month of June 2004 in conjunction with
their severance. Thereafter, the Company engaged the consulting services of Mr.
Tusa for the month of July 2004 only (see Note 6 to the Consolidated Financial
Statements).
Mark E. Schwarz, currently the Chief Executive Officer and Chairman
of Newcastle Capital Management, L.P. ("Newcastle Capital Management"), and
Steven J. Pully, currently the President of Newcastle Capital Management, were
appointed to fill the director positions vacated by Messrs. Holmes, Becker and
Wagner. Messrs. Schwarz and Pully were appointed as directors of the class whose
terms of office expire at the 2006 annual meeting of stockholders of the
Company. Mr. Schwarz, Mr. Pully and John P. Murray, Chief Financial Officer of
Newcastle Capital Management, assumed positions as Chairman of the Board, Chief
Executive Officer and Chief Financial Officer, respectively, of the Company.
Pursuant to the Newcastle Transaction, the Company was to have
caused the number of directors serving on the board of directors to be increased
and fixed at five (5) directors and an additional representative of Newcastle
was to have been appointed as a director of the class whose term of office
expires at the 2004 annual meeting of stockholders of the Company to fill the
vacancy created by such expansion. Newcastle has waived the requirement that an
additional representative of Newcastle was to have been appointed by August 1,
2004. On October 27, 2004, the Company announced that James Risher had been
appointed to the Company's board of directors. Mr. Risher was also named as a
member of the Company's audit committee.
On August 11, 2004, Craig Davis, allegedly a stockholder of the
Company, filed a complaint in the Chancery Court of New Castle County, Delaware
against various former directors and current directors of the Company and the
Company as a nominal defendant. See "Item 3. Legal Proceedings" for a
description of this matter.
5
RISK FACTORS
The following paragraphs discuss certain factors that may affect the
Company's business, financial condition and operating results. For the purposes
of the following paragraphs, unless the context otherwise requires, the terms
"we", "us" and "our" refer to NCEH. You should consider carefully the risks and
uncertainties described below and the other information in this report. The
risks set forth below are not the only ones we face. Additional risks and
uncertainties that we are not aware of or that we currently deem immaterial also
may become important or impair our business. If any of the following risks
actually occur, our business, financial condition and operating results could be
materially adversely affected, the trading price of our Common Stock could
decline and the likelihood of there being any potential return to stockholders
would diminish.
WE MAY BE UNABLE TO REDEPLOY OUR ASSETS SUCCESSFULLY.
As part of our strategy to limit operating losses and enable the
Company to redeploy its assets and use its cash and short-term investment assets
to enhance stockholder value, we are pursuing a strategy of identifying suitable
acquisition candidates, merger partners or otherwise developing new business
operations. We may not be successful in acquiring such a business or in
operating any business that we acquire, merge with or develop. Failure to
redeploy our assets successfully will prevent us from becoming profitable.
Future cash expenditures are expected to consist of funding corporate expenses,
the costs associated with maintaining a public company, expenses incurred in
pursuing and operating new business activities and litigation expenses, during
which time operating losses are likely to be generated.
ANY ACQUISITIONS THAT WE ATTEMPT OR COMPLETE COULD PROVE DIFFICULT TO INTEGRATE
OR REQUIRE A SUBSTANTIAL COMMITMENT OF MANAGEMENT TIME AND OTHER RESOURCES.
Acquisitions involve a number of unique risks including: (i)
completing due diligence successfully; (ii) exposure to unforeseen liabilities
of acquired companies; and (iii) increased risk of costly and time-consuming
litigation, including stockholder lawsuits. We may be unable to address these
problems successfully. Moreover, our future operating results will depend to a
significant degree on our ability to integrate acquisitions (if any)
successfully and manage operations while also controlling our expenses. We may
be unable to select, manage or absorb or integrate any future acquisitions
successfully, particularly acquisitions of large companies. Any acquisition,
even if effectively integrated, may not benefit our stockholders.
WE MAY BE UNABLE TO REALIZE THE BENEFITS OF OUR NET OPERATING LOSS ("NOL") AND
CAPITAL LOSS CARRYFORWARDS.
NOLs and capital losses may be carried forward to offset federal and
state taxable income and capital gains, respectively, in future years and
eliminate income taxes otherwise payable on such taxable income and capital
gains, subject to certain adjustments. Based on current federal corporate income
tax rates, our NOL and capital loss carryforwards, if fully utilized, could
provide a benefit to us of future tax savings. However, our ability to use these
tax benefits in future years will depend upon the amount of our otherwise
taxable income and capital gains. If we do not have sufficient taxable income
and capital gains in future years to use the tax benefits before they expire, we
will lose the benefit of these NOL and capital loss carryforwards, permanently.
Consequently, our ability to use the tax benefits associated with our NOL and
capital loss will depend largely on our success in identifying suitable merger
partners and/or acquisition candidates, and once identified, consummating a
merger with and/or acquisition of these candidates.
6
Additionally, if we underwent an ownership change within the meaning
of Sections 382 and 383 of the Internal Revenue Code, the NOL and capital loss
carryforward limitations would impose an annual limit on the amount of the
taxable income and capital gain that may be offset by our NOL and capital loss
generated prior to the ownership change. If an ownership change were to occur,
we would be unable to use a significant portion of our NOL and capital loss
carryforwards to offset taxable income and capital gains. In general, an
ownership change occurs when, as of any testing date, the aggregate of the
increase in percentage points of the total amount of a corporation's stock owned
by "5-percent shareholders" (within the meaning of Sections 382 and 383 of the
Internal Revenue Code) whose percentage ownership of the stock has increased as
of such date over the lowest percentage of the stock owned by each such
"5-percent shareholder" at any time during the three-year period preceding such
date, is more than 50 percentage points. In general, persons who own 5% or more
of a corporation's stock are "5-percent shareholders," and all other persons who
own less than 5% of a corporation's stock are treated, together as a single,
public group "5-percent shareholder," regardless of whether they own an
aggregate of 5% of a corporation's stock.
The amount of NOL and capital loss carryforwards that we have
claimed have not been audited or otherwise validated by the U.S. Internal
Revenue Service. The IRS could challenge our calculation of the amount of our
NOL and capital loss or our determinations as to when a prior change in
ownership occurred and other provisions of the Internal Revenue Code may limit
our ability to carry forward our NOL and capital loss to offset taxable income
and capital gains in future years. If the IRS was successful with respect to any
such challenge, the potential tax benefit of the NOL and capital loss
carryforwards to us could be substantially reduced.
ANY TRANSFER RESTRICTIONS IMPLEMENTED BY THE COMPANY TO PRESERVE OUR NOL MAY NOT
BE EFFECTIVE OR MAY HAVE SOME UNINTENDED NEGATIVE EFFECTS.
The Company may seek to preserve its NOL and capital loss through an
amendment of its certificate of incorporation and/or bylaws, which would impose
restrictions on the transfer of the Company's capital stock. Any transfer
restrictions on the Company's capital stock will be designed to restrict only
those transfers that could result in an impermissible ownership change limiting
our ability to utilize our NOL and capital loss. Although any transfer
restriction imposed on our capital stock is intended to reduce the likelihood of
an impermissible ownership change, there is no guarantee that such restriction
would prevent all transfers that would result in an impermissible ownership
change.
The board of directors adopted an amendment to the Company's
Shareholders Rights Plan ("Rights Plan") which reduces the triggering of the
Rights Plan from 15% of the Common Stock to five percent of the Common Stock.
There is no guarantee that the amendment of the Rights Plan will prevent a
stockholder from acquiring more than five percent of the Common Stock.
Any transfer restrictions will require any person attempting to
acquire a significant interest in the Company to seek the approval of our board
of directors. This may have an "anti-takeover" effect because our board of
directors may be able to prevent any future takeover. Similarly, any limits on
the amount of capital stock that a stockholder may own could have the effect of
making it more difficult for stockholders to replace current management.
Additionally, because transfer restrictions will have the effect of restricting
a stockholder's ability to dispose of or acquire our Common Stock, the liquidity
and market value of our Common Stock might suffer.
OUR STOCK IS ILLIQUID.
Our stock is currently quoted on the OTC Bulletin Board ("OTCBB"),
and has traded as low as $0.20 per share during 2004. Since our Common Stock was
delisted from a national exchange and is trading at a price below $5.00 per
share, it is subject to certain other rules of the Securities Exchange Act of
1934, as amended.
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Such rules require additional disclosure by broker-dealers in
connection with any trades involving a stock defined as a "penny stock". "Penny
stock" is defined as any non-Nasdaq equity security that has a market price of
less than $5.00 per share, subject to certain exceptions. Such rules require the
delivery of a disclosure schedule explaining the penny stock market and the
risks associated with that market before entering into any penny stock
transaction. Disclosure is also required to be made about compensation payable
to both the broker-dealer and the registered representative and current
quotations for the securities. The rules also impose various sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors. For these types of transactions,
the broker-dealer must make a special suitability determination for the
purchaser and must receive the purchaser's written consent to the transaction
prior to the sale. Finally, monthly statements are required to be sent
disclosing recent price information for the penny stocks. The additional burdens
imposed upon broker-dealers by such requirements could discourage broker-dealers
from effecting transactions in our Common Stock. This could severely limit the
market liquidity of our Common Stock and the ability of a stockholder to sell
the Common Stock.
DEPENDENCE ON KEY PERSONNEL; POTENTIAL NEED FOR ADDITIONAL PERSONNEL.
The Company's performance is substantially dependent on the services
and on the performance of its officers and directors. The Company's performance
also depends on its ability to attract, hire, retain, and motivate its officers
and key employees. The loss of the services of any of the executive officers or
other key employees could have a material adverse effect on the Company's
business, prospects, financial condition, and results of operations. The Company
has not entered into employment agreements with any of its key personnel and
currently has no "Key Man" life insurance policies. The Company's future success
may also depend on its ability to identify, attract, hire, train, retain, and
motivate other highly skilled technical, managerial, marketing and customer
service personnel. Competition for such personnel is intense, and there can be
no assurance that the Company will be able to successfully attract, assimilate
or retain sufficiently qualified personnel. The failure to attract and retain
the necessary technical, managerial, marketing and customer service personnel
could have a material adverse effect on the Company's business.
OUR BUSINESS COULD BE HARMED IF THERE IS A NON-FAVORABLE RESOLUTION TO THE
DERIVATIVE ACTION COMMENCED AGAINST US BY CRAIG DAVIS OR IN OTHER LITIGATION OR
REGULATORY PROCEEDINGS AGAINST THE COMPANY.
As discussed in "Item 3. Legal Proceedings", certain of the
Company's former and existing directors are defendants in a derivative action
filed by Craig Davis, who allegedly is a stockholder of the Company. The Company
is a nominal defendant. The Company is currently funding legal expenses of the
defendants pursuant to indemnification arrangements that were in place during
the respective terms of each of the defendants. Among the claims filed by Mr.
Davis is a claim that the Company operated as an illegal investment company in
violation of the Investment Company Act of 1940 (the "Investment Company Act").
The Company may have violated the Investment Company Act in the past, and
although the Company does not believe that it is currently violating the
Investment Company Act, there can be no assurance that the Company is not
currently in violation of, or in the future will not be in violation of the
Investment Company Act. In the event the SEC or a court took the position that
we were an investment company, our failure to register as an investment company
would not only raise the possibility of an enforcement or other legal action by
the SEC and potential fines and penalties, but also could threaten the validity
of corporate actions and contracts entered into by us during the period we were
deemed to be an unregistered investment company, among other remedies. An
adverse outcome in the lawsuit filed by Mr. Davis or any other claim, which may
arise in the ordinary course of our business, may result in significant monetary
damages, a liquidation of the Company's assets or injunctive relief against us,
among other remedies. While management currently believes that resolving the
lawsuit filed by Mr. Davis will not have a material adverse impact on our
8
financial position or results of operations, litigation is subject to inherent
uncertainties and management's view of these matters may change in the future.
There exists the possibility of a material adverse impact on our financial
position and the results of operations for the period in which the effect of an
unfavorable final outcome becomes probable and reasonably estimable.
EMPLOYEES
As of December 31, 2004, the Company had two employees. None of the
Company's employees are represented by a union. The Company believes that its
employee relations are good.
ITEM 2. PROPERTIES
In February 2004, the Company leased approximately 1,700 square feet
of space at 10101 Reunion Place, Suite 970, San Antonio, Texas, which served as
the corporate headquarters from April 2004 until September 2004. On October 8,
2004, the Company entered into a sublease agreement to sublet the office space
located at 10101 Reunion Place, Suite 970, San Antonio, Texas. Under the terms
of the original lease, the Company is obligated to make monthly rental
installments of approximately $3,000 through January 31, 2007, the expiration of
the lease. The sublease agreement provides for the subtenant to make monthly
rental installments of approximately $2,500 per month through January 31, 2007.
The Company's corporate headquarters are currently located at 300 Crescent
Court, Suite 1110, Dallas, Texas 75201, which are also the offices of Newcastle.
Pursuant to an oral agreement, the Company subleases a portion of Newcastle's
space on a month-to-month basis at no charge.
ITEM 3. LEGAL PROCEEDINGS
On August 11, 2004, Craig Davis, allegedly a stockholder of the
Company, filed a complaint in the Chancery Court of New Castle County, Delaware
(the "Complaint"). That Complaint asserts direct claims, and also derivative
claims on the Company's behalf, against five former and three current directors
of the Company. The individual defendants are Parris H. Holmes, Jr., C. Lee
Cooke, Jr., Justin L. Ferrero, Gary D. Becker, J. Stephen Barley, Stephen M.
Wagner, Mark E. Schwarz and Steven J. Pully; the Company is a nominal defendant.
In his Complaint, Mr. Davis seeks the appointment of a receiver for the Company
under Section 226(a) of the Delaware General Corporation Law and other remedies.
Mr. Davis alleges that different director defendants breached their fiduciary
duties to the Company. The allegations involve, among other things, transactions
with, and payments to, Mr. Holmes, and whether the Company operated as an
unregistered investment company. The Company is currently funding legal expenses
of the defendants pursuant to indemnification arrangements that were in place
during the respective terms of each of the defendants.
The Company and certain of the defendants responded to the Complaint
by filing a motion to dismiss or stay the action on October 18, 2004 and on
November 3, 2004 filed a memorandum of law in support of such positions. The
motion to dismiss filed by the Company and various defendants was heard by the
Chancery Court of New Castle County, Delaware on January 18, 2005. The court
denied the motion to dismiss. On February 23, 2005, Mr. Davis filed a motion for
the appointment of a receiver. The Company plans to vigorously contest this
motion.
On October 27, 2004, the board of directors appointed Messrs. Pully,
Risher and Schwarz to a special litigation committee to investigate the claims
of the plaintiff. Prior to the filing of the Complaint, the Company had
commenced an investigation of various transactions involving former management,
including, among other things, the payment of approximately $600,000 to Mr.
Holmes in connection with a restricted stock agreement (see Note 16 to the
Consolidated Financial Statements) and the reimbursement of various expenses
involving meals and entertainment, travel and other reimbursed expenses. As part
of the investigative work commenced by the Company prior to the filing of the
Complaint, the Company sought reimbursement from Mr. Holmes for various amounts
paid to him. The Company and Mr. Holmes were unable to agree on the amount that
Mr. Holmes should reimburse the Company.
9
The Company has been notified by counsel to both Messrs. Holmes and
Tusa that each of Messrs. Holmes and Tusa believe that approximately $60,000 and
$34,000, respectively, are owed to each of them under their respective
consulting agreements. In addition to notifying both Messrs. Holmes and Tusa
that their consulting services were not required and that no obligation
therefore existed under their respective agreements, both have also been
notified that the Company is investigating various transactions, including,
among other things, the payment of approximately $600,000 to Mr. Holmes in
connection with a restricted stock agreement (see Note 16 to the Consolidated
Financial Statements) and the reimbursement of various expenses involving meals
and entertainment, travel and other reimbursed expenses. The Company disputes
that any additional amounts are owed under the consulting agreements and,
therefore, has not provided for such amounts in the accompanying financial
statements for the period ended December 31, 2004.
Pursuant to the Newcastle Transaction, the Company agreed to
indemnify Newcastle as the purchaser of the Series A Preferred Stock, from any
liability, loss or damage, together with all costs and expenses related thereto
that the Company may suffer which arises out of affairs of the Company, its
board of directors or employees prior to the closing of the Newcastle
Transaction. The Company's obligation to indemnify may be satisfied at the
option of the purchaser by issuing additional Series A Preferred Stock to the
purchaser, modifying the conversion price of the Series A Preferred Stock, a
payment of cash or a redemption of Series A Preferred Stock or a combination of
the foregoing. The Company and the purchaser have not yet determined whether
events that have arisen since the closing will trigger the indemnity provisions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 2004, no matter was submitted by
the Company to a vote of its stockholders through the solicitation of proxies or
otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, AND RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
The Company's Common Stock, par value $0.01 per share, is currently
quoted on the OTCBB under the symbol "NCEH.OB". From June 21, 2002 to October 9,
2003, the Common Stock was quoted on the Nasdaq SmallCap Market under the symbol
"NCEH". From February 8, 2001 to June 20, 2002, the Common Stock was quoted on
the Nasdaq National Market under the symbol "NCEH". The table below sets forth
the high and low bid prices for the Common Stock from January 1, 2003 through
December 31, 2004. These price quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not necessarily represent
actual transactions:
High Low
---- ---
Year Ended December 31, 2003:
1st Quarter $0.45 $0.27
2nd Quarter $0.59 $0.19
3rd Quarter $0.75 $0.20
4th Quarter $0.52 $0.27
Year Ended December 31, 2004:
1st Quarter $0.39 $0.20
2nd Quarter $0.35 $0.22
3rd Quarter $0.34 $0.24
4th Quarter $0.34 $0.23
10
STOCKHOLDERS
As of March 30, 2005, there were 34,653,104 shares of Common Stock
outstanding, held by 517 holders of record. The last reported sales price of the
Common Stock on March 30, 2005 was $.24 per share.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its
Common Stock. The Company may not pay dividends on its Common Stock unless all
declared and unpaid Preferred Dividends have been paid. In addition, whenever
the Company shall declare or pay any dividend on its Common Stock, the holders
of Series A Preferred Stock are entitled to receive such Common Stock dividends
on a ratably as-converted basis.
RECENT SALE OF UNREGISTERED SECURITIES
On June 18, 2004, the Company sold approximately 4.8 million newly
issued shares of its Series A 4% Convertible Preferred Stock to Newcastle for
$5.0 million. The offer, sale and issuance of the Series A Preferred Stock were
exempt from the registration requirements of Section 5 of the Securities Act of
1933, as amended. Reference is made to the Form 8-K filed by the Company with
the SEC on June 30, 2004.
11
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial and other data for
the Company. The statement of operations data for the years ended December 31,
2004, 2003, 2002, 2001, the transition quarter ended December 31, 2000 and the
year ended September 30, 2000, and the balance sheet data as of December 31,
2004, 2003, 2002, 2001 and 2000 presented below are derived from the audited
Consolidated Financial Statements of the Company. The data presented below for
the years ended December 31, 2004, 2003 and 2002 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.
Quarter(1) Year
Year Ended Ended Ended
---------------------------------------- ----- ---------
December 31, Sept. 30,
----------------------------------------------------- ---------
(in thousands, except per share data) 2004 2003 2002 2001 2000 2000
---- ---- ---- ---- ---- ----
Consolidated Statement of Operations Data:
Operating revenues .................................. $ -- $ -- $ -- $ 502 $ 163 $ 410
Gross (loss) profit ................................. -- -- -- (62) 10 61
Operating loss from continuing operations ........... (4,854) (3,174) (3,560) (14,590) (2,316) (16,303)
Net loss from continuing operations ................. (1,903) (6,486) (18,538) (38,328) (5,086) (26,579)
Net loss from discontinued
operations, net of income taxes ................... -- -- (962) (98) -- (6,565)
Net (loss) income from disposal of
discontinued operations, net of income
taxes ............................................. -- (30) 2,254 2,385 -- (9,277)
Net loss ............................................ (1,903) (6,516) (17,246) (36,041) (36,041) (42,421)
Preferred stock dividend ............................ (107) -- -- -- -- --
Net loss applicable to common stockholders .......... (2,010) (6,516) (17,246) (36,041) (36,041) (42,421)
Basic and diluted net (loss) income per common share:
Net loss from continuing operations ............... $ (.06) $ (0.19) $ (0.54) $ (1.10) $ (0.13) $ (0.67)
Net loss from discontinued
operations, net of income taxes .................. -- -- (0.03) -- -- (0.16)
Net (loss) income from disposal of
discontinued operations, net of
income taxes ..................................... -- -- 0.07 0.07 -- (0.23)
Net loss .......................................... $ (.06) $ (0.19) $ (0.50) $ (1.03) $ (0.13) $ (1.06)
Dividends per common share .......................... $ -- $ -- $ -- $ -- $ -- $ --
Weighted average common shares
outstanding ....................................... 34,653 34,379 34,217 34,910 38,737 39,909
December 31,
-------------------------------------------------------------------
(in thousands) 2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Consolidated Balance Sheet Data:
Working capital..................................... $ 14,428 $ 4,357 $ 8,454 $ 9,532 $32,454
Total assets........................................ 15,095 13,036 20,124 39,577 81,176
Long-term obligations and redeemable
preferred stock.................................. 2 -- -- -- --
Additional paid-in capital.......................... 75,428 70,476 70,346 70,342 90,403
(Accumulated deficit) Retained earnings............. $ (61,107) $(59,097) $(52,581) $(35,335) $ 706
(1) The quarter ended December 31, 2000 represents the three-month transition
period between fiscal years 2001 and 2000.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Business section discussion, the Consolidated Financial Statements and the Notes
thereto and the other financial information included elsewhere in this Report.
In June 2004, the Company sold all its interest in Princeton for $10
million, which comprised the largest asset of the Company. As part of the
Company's strategy to redeploy the assets of the Company and use its cash and
short-term investments to enhance stockholder value, the Company is seeking,
analyzing and evaluating potential acquisition and merger candidates. Therefore,
the information appearing below, which relates to prior periods, is not
indicative of the results which may be expected for any subsequent periods.
Until the Company completes the transition of its business, the Company
currently expects future periods to consist principally of funding corporate
expenses, the costs associated with maintaining a public company, expenses
incurred in pursuing new business activities and litigation expenses.
CONTINUING OPERATIONS
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, 2004,
SG&A expenses totaled $4.8 million, compared to $3.0 million during the year
ended December 31, 2003 and $3.4 million during the year ended December 31,
2002. SG&A expenses for year ended December 31, 2004 included a total of $2.6
million of severance paid to Parris H. Holmes, Jr. and David P. Tusa, the
Company's former Chief Executive Officer and Chief Financial Officer,
respectively. SG&A expenses also included $0.7 million for legal and
professional expenses, of which $0.2 million relates to the derivative action
filed by Craig Davis (see "Part I - Item 3. Legal Proceedings") and $0.5 million
relates to completing the proposed proxy statement seeking stockholder approval
to liquidate the Company (which was subsequently withdrawn) and completing the
Newcastle Transaction. See "Part I-Item 1. Business" for a detailed description
of the Newcastle Transaction.
In November 2001, the Company entered into an Amended and Restated
Employment Agreement ("Employment Agreement") with Parris H. Holmes, Jr., the
Company's then Chairman and Chief Executive Officer. As part of the Employment
Agreement, the Company entered into a Split-Dollar Life Insurance Agreement
("Insurance Agreement") with a trust beneficially owned by Mr. Holmes pursuant
to which the Company paid the annual insurance premium of $172,000. The
underlying life insurance policy had a face value of $4.5 million and required
remaining annual premium payments through March 2012 totaling $1,548,000. In
December 2003, Mr. Holmes and the Company agreed to amend the Employment
Agreement and terminate the provisions of the Employment Agreement related to
the Insurance Agreement in exchange for payments by the Company to, and on
behalf of, Mr. Holmes totaling $699,391 in cash. Accordingly, the Company
assigned to Mr. Holmes, and Mr. Holmes assumed, all future obligations and
benefits related to the Insurance Agreement. Mr. Holmes released and discharged
the Company from any further obligation to provide or fund any life insurance
for the benefit of Mr. Holmes, including the Insurance Agreement. The entire
$0.7 million is included in SG&A during the year ended December 31, 2003. In
December 2003, $0.2 million of the total $0.7 million was paid. The remaining
$0.5 million was accrued at December 31, 2003 and paid in January 2004.
13
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense is incurred with respect to
certain assets, including computer hardware, software, office equipment,
furniture, goodwill and other intangibles. During the year ended December 31,
2004, depreciation and amortization expense totaled $28,000, compared to
$153,000 during the year ended December 31, 2003 and $157,000 during the year
ended December 31, 2002. The decrease in depreciation and amortization from
prior periods is principally the result of fixed asset sales.
INTEREST INCOME
Interest income totaled $121,000 during the year ended December 31,
2004, compared to $77,000 and $158,000 during the years ended December 31, 2003
and 2002, respectively. The increase in interest income in 2004 was attributable
to higher cash balances available for short-term investment as the Company's
cash resources were increased by the Newcastle Transaction and the sale of
Princeton (see Notes 1 and 3 to the Consolidated Financial Statements).
EQUITY IN NET LOSS OF AFFILIATES
Equity in net loss of affiliates totaled $3.0 million during the
year ended December 31, 2004, compared to $2.7 million and $18.9 million during
the years ended December 31, 2003 and 2002, respectively. In June 2004, the
Company sold all of its holdings in Princeton, which offers electronic bill
presentment and payment services via the Internet and telephone. See PRINCETON
caption below for Princeton's summarized results of operations.
GAIN ON SALE OF EQUITY AFFILIATE
The sale of Princeton generated a capital loss for federal income
tax purposes of approximately $67 million and a book gain of approximately $5.8
million.
IMPAIRMENT OF INVESTMENTS
During the year ended December 31, 2003, the Company evaluated the
realizability of its investment in Sharps in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". The Company compared the fair market
value of its investment in Sharps to the carrying value of the investment to
determine the impairment. Based upon the current fair market value, the Company
determined that its investment in Sharps was permanently impaired by $0.3
million and, accordingly, recorded an impairment write-down, which is included
in other income (expense) as impairment of investments in affiliates.
LITIGATION SETTLEMENT
During the year ended December 31, 2003, net other expense includes
a litigation settlement of $0.3 million, representing the transfer of the
Company's investment in Microbilt to Bristol Investments, Ltd. ("Bristol"). In
April 2003, the Company received notice that Bristol and Microbilt filed suit
against the Company and one of its officers alleging breach of contract and
misrepresentation in conjunction with the October 2001 merger of FIData into
Microbilt. In October 2003, the Company settled the suit by surrendering its
ownership of the common stock of Microbilt to Bristol. This settlement resolves
all claims brought by and against the Company and the officer.
14
CONSULTING INCOME
In October 2000, the Company completed the Platinum Transaction. In
conjunction with the Platinum Transaction, the Company also received payments
totaling $3.1 million for consulting services provided to Platinum during the
year ended December 31, 2002.
INCOME TAXES
As a result of the operating losses incurred in recent years, no
provision or benefit for income taxes was recorded for the years ended December
31, 2004, 2003 and 2002.
PRINCETON
Princeton's statements of operations for the eight months ended May 31, 2004,
and the twelve months ended September 30, 2003 and 2002, have been used to
calculate the equity in net loss recorded in the Company's statements of
operations for the years ended December 31, 2004, 2003 and 2002, respectively.
In June 2004, the Company sold all its interest in Princeton for $10 million.
The sale generated a capital loss for federal income tax purposes of
approximately $67 million and book gain of approximately $5.8 million.
Princeton's summarized statements of operations are as follows:
Eight
Months Ended Year Ended
May 31, September 30,
(in thousands) 2004 2003 2002
-------- --------- ---------
Revenues ........... $ 16,695 $ 35,309 $ 28,559
Gross profit ....... 7,258 16,026 11,300
Loss from operations (9,188) (7,965) (30,234)
Net loss ........... (9,214) (7,674) (32,462)
DISCONTINUED OPERATIONS
NET LOSS FROM DISCONTINUED OPERATIONS
Tanisys' statement of operations for the year ended September 30,
2002, including adjustments made under the purchase method of accounting, was
consolidated in the Company's statement of operations for the year ended
December 31, 2002. Tanisys' statement of operations consolidated herein
(presented as net loss from discontinued operations) is as follows:
Year ended
September 30,
2002
----
(in thousands)
Operating revenues .......................... $ 2,619
Operating expenses:
Cost of revenues ........................... 1,999
Selling, general and administrative expenses 1,511
Research and development expenses .......... 1,506
Depreciation and amortization expense ...... 139
-------
Operating loss from discontinued operations (2,536)
Other income (expense):
Interest income ............................ 5
Interest expense ........................... (816)
Other income (expense), net ................ 83
Minority interest in consolidated affiliate 2,302
-------
Total other income, net ................... 1,574
-------
Net loss from discontinued operations........ $ (962)
=======
Operating revenues were comprised of sales of production-level
equipment along with related hardware and software, less returns and discounts.
15
Costs of revenues were 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 included
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.
Selling, general and administrative expenses were comprised of all
selling, marketing and administrative costs incurred in direct support of the
business operations of Tanisys.
Research and development expenses consisted of all costs associated
with the engineering design and testing of new technologies and products.
Depreciation and amortization expenses were incurred with respect to
certain assets, including computer hardware, software, office equipment,
furniture and other intangibles.
Net other income consisted 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 (LOSS) INCOME FROM DISPOSAL OF DISCONTINUED OPERATIONS
During the year ended December 31, 2003, net loss from disposal of
discontinued operations is comprised of income of $0.2 million from the sale of
Tanisys and $0.2 million from the reduction of accruals related to discontinued
operations, offset by expense of $0.4 million to settle claims related to the
April 2000 acquisition of Operator Service Company ("OSC"). In exchange for
approximately $0.2 million, the Company sold its preferred stock in Tanisys to
ATE Worldwide LLC, whose majority stockholder is a leader in the semiconductor
testing equipment market. Based upon estimates of future liabilities related to
the divested entities classified as discontinued operations, the Company reduced
its related accruals to $0 and accordingly, recorded $0.2 million as income. In
January 2004, the Company entered into an agreement with the former majority
stockholders of OSC to settle all claims related to the April 2000 acquisition
of OSC by the Company. Under the terms of the agreement, the Company transferred
to the former OSC majority stockholders 525,000 shares of the common stock of
Sharps owned by the Company, which resulted in a non-cash charge in 2003 of
approximately $0.4 million in conjunction with the settlement agreement.
During the year ended December 31, 2002, net income from disposal of
discontinued operations is comprised of income of $2.2 million related to an
income tax refund and $0.1 million from the reduction of accruals related to the
divested entities classified as discontinued operations (based upon estimates of
future liabilities at that time). 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 Platinum Transaction completed in
October 2000) and received a refund claim totaling $2.2 million. The income tax
refund is included in net income from disposal of discontinued operations as the
refund relates to those companies sold in the Platinum Transaction.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance and short-term investments increased to
$14.6 million at December 31, 2004, from $5.3 million at December 31, 2003. The
increase relates to the receipt of $10.0 million in proceeds from the sale of
the Company's holdings in Princeton and $5.0 million from the sale of preferred
stock to Newcastle, offset by severance payments totaling $2.6 million made to
Mr. Holmes and Mr. Tusa, a $0.6 million payment made to Mr. Holmes in connection
with a restricted stock grant, a $0.5 million payment related to the termination
of the split dollar life insurance agreement with Mr. Holmes, $0.5 million for
legal and professional expenses related to completing the proposed liquidation
proxy (which was subsequently withdrawn) and completing the sale of preferred
16
stock to Newcastle, $0.2 million for legal and professional fees related to the
lawsuit filed by Craig Davis and the cash portion of corporate expenses of $1.3
million. Capital expenditures totaled $3,000 during the year ended December 31,
2004.
During 2005, the Company's operating cash requirements is expected
to consist principally of funding corporate expenses, the costs associated with
maintaining a public company, expenses incurred in pursuing and operating new
business activities and litigation expenses. The Company expects to incur
additional operating losses through fiscal 2005, which will continue to have a
negative impact on liquidity and capital resources.
LEASE GUARANTEES
In October 2000, the Company completed the Platinum Transaction.
Under the terms of the Platinum Transaction, all leases and corresponding
obligations associated with the Transaction Processing and Software Business
were assumed by Platinum. Prior to the Platinum Transaction, the Company
guaranteed two operating leases for office space of the divested companies. The
first lease is related to office space located in San Antonio, Texas, and
expires in 2006. Under the original terms of the first lease, the remaining
minimum undiscounted rent payments total $3.3 million at December 31, 2004. The
second lease is related to office space located in Austin, Texas, and expires in
2010. Under the original terms of the second lease, the remaining minimum
undiscounted rent payments total $7.1 million at December 31, 2004. In
conjunction with the Platinum Transaction, Platinum agreed to indemnify the
Company should the underlying operating companies not perform under the terms of
the office leases. The Company can provide no assurance as to Platinum's
ability, or willingness, to perform its obligations under the indemnification.
The Company does not believe it is probable that it will be required to perform
under these lease guarantees and, therefore, no liability has been accrued in
the Company's financial statements.
OFF-BALANCE-SHEET ARRANGEMENTS
The Company guaranteed two operating leases for office space for
certain of its wholly-owned subsidiaries prior to the Platinum Transaction (see
Liquidity and Capital Resources-Lease Guarantees above).
CONTRACTUAL OBLIGATIONS
The Company's contractual obligations are as follows (in thousands):
Payments due by period
--------------------------------------------------------------------
Less than More than
Contractual Obligations Total 1 year 1-3 years 3-5 years 5 years
-------------------------------- ----------- ----------- --------- --------- -----------
Long-term debt obligations .. $ 2 $ -- $ 2 $ -- $ --
Capital lease obligations ... -- -- -- -- --
Operating lease obligations . 75 36 39 -- --
Purchase obligations ........ -- -- -- -- --
Other long-term liabilities
reflected on balance sheet
under GAAP ............... -- -- -- -- --
------- ------- ------ ---------- ---------
Total ....................... $ 77 $ $36 $ 41 $ -- $ --
======= ======= ====== ========== =========
The operating lease obligations reflected in the table above
represent the Company's lease for office space, which is discussed further under
Item 2 of this annual report.
17
SEASONALITY
The Company's current operations are not significantly affected by
seasonality.
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
During December 2004, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standard No. 123 (revised
2004) "Share-Based Payment" (SFAS 123R). SFAS 123R replaces SFAS 123,
"Accounting for Stock-Based Compensation", and supercedes APB Opinion 25,
"Accounting for Stock Issued to Employees ("APB 25"). SFAS 123R requires that
the cost of share-based payment transactions with employees be recognized in the
financial statements as compensation cost. That cost will be measured based on
the fair value of equity or liability instrument issued. SFAS 123R is effective
for the Company beginning September 1, 2005. The Company currently accounts for
stock options issued to employees under APB 25.
In December 2004, the FASB issued Statement of Financial Accounting
Standard No. 153 "Exchanges of Nonmonetary Assets-An Amendment of APB Opinion
No. 29 ("SFAS 153"). The amendments made by SFAS 153 are based on the principle
that exchanges on nonmonetary assets should be measured based on the fair value
of the assets exchanged. The provisions in SFAS 153 are effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. Early application is permitted and companies must apply the standard
prospectively. The Company has determined that SFAS 153 will not have a material
impact on the consolidated results of operations, financial position or cash
flows.
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 based on estimates 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 existed 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, 2003, the Company owned 34.0% of
the outstanding shares of Princeton. In June 2004, the Company sold all its
interest in Princeton for $10 million.
The second exception existed with respect to the Company's ownership
interest in Tanisys. As of December 31, 2002, the Company's ownership interest
was only 36.2%. 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 DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate risk primarily through its
portfolio of cash equivalents and short-term investments. The Company does not
believe that it has significant exposure to market risks associated with
changing interest rates as of December 31, 2004, because the Company's intention
is to maintain a liquid portfolio. The Company does not use derivative financial
instruments in its operations.
19
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 ..................................................................... 21
Reports of Independent Public Accountants ................................................ 22
Consolidated Balance Sheets as of December 31, 2004 and 2003 ............................. 23
Consolidated Statements of Operations for the Years Ended December 31, 2004, 2003 and 2002 24
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2004, 2003 and 2002 ...................................................... 25
Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002 26
Notes to Consolidated Financial Statements ............................................... 27
20
REPORT OF MANAGEMENT
The financial statements included herein have been prepared in
conformity with accounting principles generally accepted in the United States of
America. Management is responsible for preparing the consolidated financial
statements and maintaining and monitoring the Company's system of internal
accounting controls. The Company believes that the existing system of internal
controls provides reasonable assurance that errors or irregularities that could
be material to the financial statements are prevented or would be detected in a
timely manner. Key elements of the Company's system of internal controls include
careful selection of management personnel, appropriate segregation of
conflicting responsibilities, periodic evaluations of Company financial and
business practices, communication practices that provide assurance that policies
and managerial authorities are understood throughout the Company, and periodic
meetings between the Company's audit committee, senior financial management
personnel and independent public accountants.
The consolidated financial statements as of and for the years ended
December 31, 2004, 2003 and 2002, were audited by Burton McCumber & Cortez,
L.L.P., independent public accountants, who have also issued a report on the
consolidated financial statements.
/s/ STEVEN J. PULLY
-------------------
Steven J. Pully
CHIEF EXECUTIVE OFFICER
/s/ JOHN P. MURRAY
------------------
John P. Murray
CHIEF FINANCIAL OFFICER
21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
New Century Equity Holdings Corp.
We have audited the accompanying consolidated balance sheets of New Century
Equity Holdings Corp. (a Delaware corporation) and Subsidiaries as of December
31, 2004 and 2003, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 2004, 2003
and 2002. 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 the standards of the Public Company
Accounting Oversight Board (U.S.). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of New
Century Equity Holdings Corp. and Subsidiaries as of December 31, 2004 and 2003,
and the consolidated results of their operations and their consolidated cash
flows for the years ended December 31, 2004, 2003 and 2002 in conformity with
accounting principles generally accepted in the United States of America.
/s/ BURTON McCUMBER & CORTEZ, L.L.P.
----------------------------------------
Brownsville, Texas
March 16, 2005
22
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
2004 2003
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 1,716 $ 5,330
Accounts receivable ................................................ -- 28
Prepaid and other assets ........................................... 145 309
Short-term investments ............................................. 12,895 --
-------- --------
Total current assets .............................................. 14,756 5,667
Property and equipment ............................................... 183 616
Accumulated depreciation ............................................. (176) (533)
-------- --------
Net property and equipment ......................................... 7 83
Other non-current assets ............................................. 6 53
Investments .......................................................... 326 7,233
-------- --------
Total assets ....................................................... $ 15,095 $ 13,036
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................... $ 45 $ 58
Accrued liabilities ................................................ 283 1,252
-------- --------
Total current liabilities ......................................... 328 1,310
Other non-current liabilities ........................................ 2 --
-------- --------
Total liabilities ................................................. 330 1,310
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized;
4,807,692 Shares designated as Series A convertible preferred stock
issued and outstanding ............................................ 48 --
Common stock, $0.01 par value, 75,000,000 shares authorized;
34,653,104 shares issued and outstanding .......................... 347 347
Additional paid-in capital ......................................... 75,428 70,476
Accumulated deficit ................................................ (61,107) (59,097)
Accumulated other comprehensive income ............................. 49 --
-------- --------
Total stockholders' equity ........................................ 14,765 11,726
-------- --------
Total liabilities and stockholders' equity ...................... $ 15,095 $ 13,036
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
23
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
2004 2003 2002
--------- -------- --------
Operating revenues .......................................... $ -- $ -- $ --
Operating expenses:
Selling, general and administrative expenses .............. 4,826 3,021 3,403
Depreciation and amortization expense ...................... 28 153 157
-------- -------- --------
Operating loss from continuing operations ................... (4,854) (3,174) (3,560)
Other income (expense):
Interest income ............................................ 121 77 158
Interest expense ........................................... -- -- (4)
Equity in net loss of affiliates ........................... (2,985) (2,723) (18,891)
Gain on sale of equity affiliate ........................... 5,817 -- --
Impairment of investments in affiliates .................... -- (306) --
Litigation settlement ...................................... -- (354) --
Consulting income .......................................... -- -- 3,125
Other (expense) income, net ................................ (2) (6) 634
-------- -------- --------
Total other (expense) income, net ........................... 2,951 (3,312) (14,978)
-------- -------- --------
Net loss from continuing operations ......................... (1,903) (6,486) (18,538)
Discontinued operations:
Net loss from discontinued operations ...................... -- -- (962)
Net (loss) income from disposal of discontinued operations,
including income tax benefit of $0, $0 and $2,176,
respectively ............................................. -- (30) 2,254
-------- -------- --------
Net (loss) income from discontinued operations ............ -- (30) 1,292
-------- -------- --------
Net loss .................................................... (1,903) (6,516) (17,246)
Preferred stock dividend .................................... (107) -- --
-------- -------- --------
Net loss applicable to common stockholders .................. $ (2,010) $ (6,516) $(17,246)
======== ======== ========
Basic and diluted net (loss) income per common share:
Net loss from continuing operations ........................ $ (.06) $ (0.19) $ (0.54)
Net loss from discontinued operations ...................... -- -- (0.03)
Net income from disposal of discontinued operations ........ -- -- 0.07
-------- -------- --------
Net loss ................................................... $ (.06) $ (0.19) $ (0.50)
======== ======== ========
Weighted average common shares outstanding .................. 34,653 34,379 34,217
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
24
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(IN THOUSANDS)
ACCUMULATED
ADDITIONAL OTHER
COMMON STOCK PAID-IN ACCUMULATED PREFERRED STOCK COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT INCOME TOTAL
------ ------ ------- ------- ------ --------- -------------- --------
Balances at December 31, 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
Issuance of common stock .......... 435 5 130 -- -- -- -- 135
Net loss .......................... -- -- -- (6,516) -- -- -- (6,516)
-------- -------- -------- -------- -------- -------- -------- --------
Balances at December 31, 2003 ....... 34,653 347 70,476 (59,097) -- -- -- 11,726
Issuance of preferred stock ....... -- -- 4,952 -- 4,808 48 -- 5,000
Comprehensive income (loss):
Unrealized gain on investment -- -- -- -- -- -- 49 49
Net loss ..................... -- -- -- (2,010) -- -- -- (2,010)
-------- -------- --------
Comprehensive loss ................. -- -- -- (2,010) -- -- 49 (1,961)
-------- -------- -------- -------- -------- -------- -------- --------
Balances at December 31, 2004 ....... 34,653 $ 347 $ 75,428 $(61,107) 4,808 $ 48 $ 49 $ 14,765
======== ======== ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
25
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
2004 2003 2002
---------- -------- --------
Cash flows from operating activities:
Net loss from continuing operations .............................. $ (1,903) $ (6,486) $(18,538)
Adjustments to reconcile net loss from continuing operations to
net cash provided by (used in) operating activities:
Depreciation and amortization expense ........................... 27 153 157
Equity in net loss of and impairment of investments in affiliates 2,985 3,029 18,891
Gain on sale of equity affiliate ................................ (5,817) -- --
Litigation settlement .......................................... -- 354 --
Loss on disposition of fixed assets ............................ 30 17 --
Accretion of discount on securities ............................ (36) -- --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable .................... 28 (19) 821
Decrease in prepaid and other assets .......................... 171 156 156
Increase (decrease) in accounts payable ....................... (13) 28 (1)
Increase (decrease) in accrued liabilities .................... (687) 486 (744)
Increase in other liabilities and other noncash items ......... -- 136 620
-------- -------- --------
Net cash (used in) provided by continuing operating activities ..... (5,215) (2,146) 1,826
Net cash provided by discontinued operating activities ............. -- 78 2,002
-------- -------- --------
Net cash (used in) provided by operating activities .............. (5,215) (1,968) 3,828
Cash flows from investing activities:
Purchases of property and equipment .............................. (3) (6) (20)
Investments in available-for-sale securities ..................... (12,858) -- --
Investments in affiliates ........................................ -- (1,400) (3,849)
Redemption of investments in affiliates .......................... -- -- 1,471
Proceeds from sale of equity affiliate (all holdings in Princeton) 10,000 -- --
Proceeds from sale of equity affiliate (all holdings in Princeton)
allocated to former chief executive officer ...................... (600) -- --
Other investing activities ....................................... 62 -- (9)
-------- -------- --------
Net cash used in investing activities .............................. (3,399) (1,406) (2,407)
Cash flows from financing activities:
Proceeds from issuance of common stock ........................... -- -- 4
Proceeds from sale of preferred stock ............................ 5,000 -- --
-------- -------- --------
Net cash provided by financing activities .......................... 5,000 -- 4
-------- -------- --------
Net (decrease) increase in cash and cash equivalents ............... (3,614) (3,374) 1,425
Cash and cash equivalents, beginning of period ..................... 5,330 8,704 7,279
-------- -------- --------
Cash and cash equivalents, end of period ........................... $ 1,716 $ 5,330 $ 8,704
======== ======== ========
Supplemental cash flow information:
Cash payments for income taxes .................................... $ -- $ -- $ --
Cash payments for interest ........................................ -- -- 4
The accompanying notes are an integral part of these consolidated financial
statements.
26
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
NOTE 1. BUSINESS ACTIVITY
New Century Equity Holdings Corp. ("NCEH" or the "Company") is a
company in transition. The Company is currently seeking to redeploy its assets
to enhance stockholder value and is seeking, analyzing and evaluating potential
acquisition and merger candidates. The Company was formerly known as Billing
Concepts Corp. ("BCC") and was incorporated in the state of Delaware in 1996.
BCC was previously a wholly-owned subsidiary of U.S. Long Distance Corp.
("USLD"). Upon its spin-off from USLD, BCC became an independent, publicly-held
company. Beginning in 1998, the Company made multiple investments in Princeton
eCom Corporation ("Princeton") totaling approximately $77.3 million before
selling all of its interest for $10 million in June 2004. The Company
subsequently made investments in other high growth companies. In June 2004, the
Company sold all its interest in Princeton for $10 million. Princeton offers
electronic bill presentment and payment services via the Internet and telephone.
The Company continues to hold an equity interest in publicly traded Sharps
Compliance Corp. ("Sharps"), which provides cost-effective medical-related
disposal solutions for the healthcare, retail, residential and hospitality
industries.
In March 2004, the Company filed preliminary proxy materials with
the SEC seeking stockholder approval of a liquidation of the Company. On June 2,
2004, the Company announced that it had been in discussions with various
organizations that had expressed an interest in exploring strategic alternatives
to the Company's previously proposed plan of liquidation. The contemplated
transactions, proposed as alternatives to the previous plan of liquidation, were
focused on the use of the Company's cash and operating and capital loss
carryforwards. On June 10, 2004, the Company amended its July 10, 1996
Shareholder Rights Agreement by reducing the Common Stock ownership threshold
for triggering the distribution of rights under such agreement from fifteen
percent to five percent. The purpose of such amendment was to help ensure the
preservation of the Company's net operating loss and capital loss carryforwards.
On June 18, 2004, the Company sold approximately 4.8 million newly issued shares
of its Series A 4% Convertible Preferred Stock (the "Series A Preferred Stock")
to Newcastle Partners, L.P. ("Newcastle") for $5.0 million (the "Newcastle
Transaction"). Newcastle was exempted from the five percent ownership limitation
in the Shareholder Rights Agreement. In connection with the announcement of the
Newcastle Transaction, the Company announced that the board of directors
determined that it was not in the best interests of the Company's stockholders
to liquidate the Company and withdrew all proxy materials filed with the SEC
related to the proposed liquidation. At the time of the aforementioned events,
the Company's board of directors consisted of C. Lee Cooke, Jr., Gary D. Becker,
Justin L. Ferrero, Parris H. Holmes, Jr. and Stephen M. Wagner.
In conjunction with the Newcastle Transaction, (1) Parris H. Holmes,
Jr., Gary D. Becker, and Stephen M. Wagner resigned from the Company's board of
directors and (2) Mr. Holmes resigned as the Company's Chief Executive Officer
and David P. Tusa resigned as the Company's Chief Financial Officer, Executive
Vice President and Corporate Secretary. Pursuant to employment agreements
executed prior to the Newcastle Transaction, upon their resignation, the Company
paid severance, accrued vacation and other amounts to Mr. Holmes and Mr. Tusa
totaling approximately $2.1 million and $0.5 million, respectively. In addition,
the Company entered into consulting agreements with Mr. Holmes and Mr. Tusa
through October 31, 2004 and September 30, 2004, respectively. Mr. Holmes and
Mr. Tusa were paid pro-rated consulting payments for the month of June 2004 in
conjunction with their severance. Thereafter, the Company engaged the consulting
services of Mr. Tusa for the month of July 2004 only (see Note 6).
27
Mark E. Schwarz, currently the Chief Executive Officer and Chairman
of Newcastle Capital Management, L.P. ("Newcastle Capital Management"), and
Steven J. Pully, currently the President of Newcastle Capital Management, were
appointed to fill the director positions vacated by Messrs. Holmes, Becker and
Wagner. Messrs. Schwarz and Pully were appointed as directors of the class whose
terms of office expire at the 2006 annual meeting of stockholders of the
Company. Mr. Schwarz, Mr. Pully, and John P. Murray, Chief Financial Officer of
Newcastle Capital Management, assumed positions as Chairman of the Board, Chief
Executive Officer and Chief Financial Officer, respectively, of the Company.
Pursuant to the Newcastle Transaction, the Company was to have
caused the number of directors serving on the board of directors to be increased
and fixed at five (5) directors and an additional representative of Newcastle
was to have been appointed as a director of the class whose term of office
expires at the 2004 annual meeting of stockholders of the Company to fill the
vacancy created by such expansion. Newcastle has waived the requirement that an
additional representative of Newcastle was to have been appointed by August 1,
2004. On October 27, 2004, the Company announced that James Risher had been
appointed to the Company's board of directors. Mr. Risher was also named as a
member of the Company's audit committee.
On August 11, 2004, Craig Davis, allegedly a stockholder of the
Company, filed a complaint in the Chancery Court of New Castle County, Delaware
against various former directors and current directors of the Company and the
Company as a nominal defendant (see Note 6).
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, it's wholly owned subsidiaries and subsidiaries in
which the Company is deemed to have control for accounting purposes. The
Company's investment in Princeton was accounted for using the equity method of
accounting. The Company's investment in Sharps is accounted for in accordance
with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". The Company's investment in Microbilt Corporation was accounted for
under the cost method of accounting. All significant intercompany accounts and
transactions have been eliminated in consolidation.
28
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.
FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments", requires the disclosure of fair value information about financial
instruments, whether or not recognized on the balance sheet, for which it is
practicable to estimate the value. SFAS No. 107 excludes certain financial
instruments from its disclosure requirements. Accordingly, the aggregate fair
market value amounts are not intended to represent the underlying value of the
Company. The carrying amounts of cash and cash equivalents, current receivables
and payables and long-term liabilities approximate fair value because of the
nature of these instruments.
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.
INVESTMENTS IN EQUITY SECURITIES
The Company follows the standards of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," for those investments in
which the securities are publicly traded. For those investments in which the
securities are privately held, the Company follows the guidance of Accounting
Principles Board ("APB") Opinion No. 18, "The Equity Method of Accounting for
Investments in Common Stock". The Company accounts for its investment in Sharps
under SFAS No. 115, as Sharps' common stock is publicly traded. SFAS No. 115
establishes standards for accounting and reporting for investments in equity
securities that have readily determinable fair values and for all investments in
debt securities. Unrealized holdings gains and losses, other than those
considered permanent, related to the Company's investment in Sharps are excluded
from net loss and reported as a separate component of other comprehensive
income.
SHORT-TERM INVESTMENTS
The Company invests its excess cash in money market accounts, U.S.
Treasury bills, and short-term debt securities. Investments with an original
maturity at the time of purchase over three months but less than a year are
classified as short-term investments. Investments with an original maturity at
the time of purchase of greater than one year are classified as long-term
investments. Management determines the appropriate classification of investments
at the time of purchase and reevaluates such designations at the end of each
29
period. At December 31, 2004, short-term investments are classified as
available-for-sale and consist principally of U.S. Treasury bills.
TREASURY STOCK
In 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).
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.
DISCONTINUED OPERATIONS
Effective for the Company's fiscal year ended December 31, 2002,
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets",
establishes standards for accounting and reporting for long-lived assets to be
disposed of by sale. The Company adopted SFAS No. 144 and determined that the
operations of Tanisys Technology, Inc. ("Tanisys") qualified as discontinued
operations and, accordingly, are reported separately from continuing operations.
NET LOSS PER COMMON SHARE
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, 2004, 2003 and 2002,
diluted EPS equals basic EPS, as potentially dilutive common stock equivalents
are anti-dilutive in loss periods.
STOCK-BASED COMPENSATION
The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," but elected to apply 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. 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 and SFAS No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure". 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.
30
Year Ended December 31,
(in thousands, except per share data) 2004 2003 2002
---------- ---------- ---------
Net loss, as reported ..................................... $ (1,903) $ (6,516) $(17,246)
Less: Total stock based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects ............................. (100) (347) (602)
-------- -------- --------
Net loss, pro forma ....................................... $ (2,003) $ (6,863) $(17,848)
======== ======== ========
Basic and diluted net loss per common share:
Net loss, as reported ................................... $ (0.06) $ (0.19) $ (0.50)
======== ======== ========
Net loss, pro forma ..................................... $ (0.06) $ (0.20) $ (0.52)
======== ======== ========
The fair value for these options was estimated at the respective
grant dates using the Black-Scholes option-pricing model with the following
weighted average assumptions: expected volatility of 99.2%, 96.3% and 96.3% for
the years ended December 31, 2004, 2003 and 2002, respectively; no dividend
yield; expected life of 2.5 years for all option grants and 0.5 years for all
ESPP purchases; and risk-free interest rates of 4.75%, 1.8%, and 2.2% for the
years ended December 31, 2004, 2003 and 2002, respectively.
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 the investment in Princeton
under the equity method of accounting.
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 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.
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.
31
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%. 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.
In September 2003, the Company invested $1.2 million, of a total
$5.0 million equity financing, in Princeton. In exchange for its investment, the
Company received 4.0 million shares of Princeton's mandatorily redeemable
convertible preferred stock. As of December 31, 2003, the Company's ownership of
the outstanding and fully-diluted shares (considering all issued options and
warrants) of Princeton was 36.2% and 31.7%, respectively. In June 2004, the
Company sold all its interest in Princeton for $10 million. The sale generated a
capital loss for federal income tax purposes of approximately $67 million and
book gain of approximately $5.8 million.
FIDATA/MICROBILT
In November 1999, the Company completed the acquisition of FIData
Inc. ("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. This
acquisition was accounted for as a purchase. In October 2001, the Company
exchanged 100% of its stock of FIData for a 9% equity interest in Microbilt
Corporation ("Microbilt").
In April 2003, the Company received notice that Bristol Investments,
Ltd. ("Bristol") and Microbilt filed suit against the Company and one of its
officers alleging breach of contract and misrepresentation in conjunction with
the merger of FIData into Microbilt. In October 2003, the Company settled the
suit by surrendering its ownership of the common stock of Microbilt to Bristol.
This settlement resolves all claims brought by and against the Company and the
officer. During the year ended December 31, 2003, net other expense includes a
litigation settlement of $0.3 million, representing the transfer of the
Company's investment in Microbilt to Bristol.
32
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. In January 2003, the Company purchased an additional 200,000
shares of Sharps' common stock for $200,000. As of December 31, 2003, the
Company owned approximately 8.5% of Sharps outstanding stock. During the year
ended December 31, 2003, the Company recorded a $0.3 million impairment
write-down related to its investment in Sharps (see Note 10 for further
discussion).
In January 2004, the Company entered into an agreement with the
former majority stockholders of Operator Service Company ("OSC") to settle all
claims related to the April 2000 acquisition of OSC by the Company. Under the
terms of the agreement, the Company transferred to the former OSC majority
stockholders 525,000 shares of the common stock of Sharps owned by the Company,
valued at approximately $389,000. Additionally, the former OSC majority
stockholders agreed to a voting rights agreement which allows the Company to
direct the vote of the Company's shares owned by them. Subsequent to the
transfer of the Sharps common stock shares, the Company's interest in Sharps is
3.6% of the outstanding shares. The Company recorded a non-cash charge to net
loss from disposal of discontinued operations in 2003 of $389,000 in conjunction
with the settlement agreement.
NOTE 4. INVESTMENTS
Investments consist of the following:
December 31, December 31,
(in thousands) 2004 2003
--------- ------------
Investment in Princeton:
Cash investments ........................................ $ 77,276 $ 77,276
Proceeds from sale of all holdings in Princeton ......... (10,000) --
Proceeds from sale of all holdings in Princeton allocated
to former chief executive officer ..................... 600 --
Gain on sale of Princeton ............................... 5,817 --
Amortization and equity loss pick-up .................... (65,971) (62,986)
In-process research and development costs ............... (4,465) (4,465)
Impairment of investment ................................ (1,777) (1,777)
Other ................................................... (1,480) (1,481)
-------- --------
Net investment in Princeton .......................... -- 6,567
Investment in Sharps:
Cash investments ........................................ 970 970
Settlement .............................................. (389) --
Impairment of investment ................................ (306) (306)
Unrealized holding gain ................................. 49 --
Other ................................................... 2 2
-------- --------
Net investment in Sharps ............................. 326 666
-------- --------
Total investments in affiliates ......................... $ 326 $ 7,233
======== ========
33
NOTE 5. ACCRUED LIABILITIES
Accrued liabilities is comprised of the following:
December 31,
(in thousands) 2004 2003
--------- ---------
Accrued vacation ................................ $ -- $ 136
Accrued audit fees .............................. 8 62
Accrued annual report fees ...................... 70 53
Accrued split dollar life insurance (see Note 16) -- 561
Accrued settlement .............................. -- 389
Accrued preferred stock dividend ................ 107 --
Accrued legal ................................... 64 --
Other ........................................... 34 51
------ ------
Total accrued liabilities .................... $ 283 $1,252
====== ======
NOTE 6. COMMITMENTS AND CONTINGENCIES
In October 2000, the Company completed the sale of several
wholly-owned subsidiaries that principally provided third-party billing
clearinghouse and information management services to the telecommunications
industry (the "Transaction Processing and Software Business") to Platinum
Holdings ("Platinum"), for consideration of $49.7 million (the "Platinum
Transaction"). Under the terms of the Platinum Transaction, all leases and
corresponding obligations associated with the Transaction Processing and
Software Business were assumed by Platinum. Prior to the Platinum Transaction,
the Company guaranteed two operating leases for office space of the divested
companies. The first lease is related to office space located in San Antonio,
Texas, and expires in 2006. Under the original terms of the first lease, the
remaining minimum undiscounted rent payments total $3.3 million at December 31,
2004. The second lease is related to office space located in Austin, Texas, and
expires in 2010. Under the original terms of the second lease, the remaining
minimum undiscounted rent payments total $7.1 million at December 31, 2004. In
conjunction with the Platinum Transaction, Platinum agreed to indemnify the
Company should the underlying operating companies not perform under the terms of
the office leases. The Company can provide no assurance as to Platinum's
ability, or willingness, to perform its obligations under the indemnification.
The Company does not believe it is probable that it will be required to perform
under these lease guarantees and, therefore, no liability has been accrued in
the Company's financial statements.
On August 11, 2004, Craig Davis, allegedly a stockholder of the
Company, filed a complaint in the Chancery Court of New Castle County, Delaware
("the Complaint"). That Complaint asserts direct claims, and also derivative
claims on the Company's behalf, against five former and three current directors
of the Company. The individual defendants are Parris H. Holmes, Jr., C. Lee
Cooke, Jr., Justin L. Ferrero, Gary D. Becker, J. Stephen Barley, Stephen M.
Wagner, Mark E. Schwarz, and Steven J. Pully; the Company is a nominal
defendant. In his Complaint, Mr. Davis seeks the appointment of a receiver for
the Company under Section 226(a) of the Delaware General Corporation Law and
other remedies. Mr. Davis alleges that different director defendants breached
their fiduciary duties to the Company. The allegations involve, among other
things, transactions with, and payments to, Mr. Holmes, and whether the Company
operated as an unregistered investment company. The Company is currently funding
legal expenses of the defendants pursuant to indemnification arrangements that
were in place during the respective terms of each of the defendants.
The Company and certain of the defendants responded to the Complaint
by filing a motion to dismiss or stay the action on October 18, 2004 and on
November 3, 2004 filed a memorandum of law in support of such positions. The
motion to dismiss filed by the Company and various defendants was heard by the
34
Chancery Court of New Castle County, Delaware on January 18, 2005. The court
denied the motion to dismiss. On February 23, 2005, Mr. Davis filed a motion for
the appointment of a receiver. The Company plans to vigorously contest this
motion.
On October 27, 2004, the board of directors appointed Messrs. Pully,
Risher and Schwarz to a special litigation committee to investigate the claims
of the plaintiff. Prior to the filing of the Complaint, the Company had
commenced an investigation of various transactions involving former management,
including, among other things, the payment of approximately $600,000 to Mr.
Holmes in connection with a restricted stock agreement (see Note 16) and the
reimbursement of various expenses involving meals and entertainment, travel and
other reimbursed expenses. As part of the investigative work commenced by the
Company prior to the filing of the Complaint, the Company sought reimbursement
from Mr. Holmes for various amounts paid to him. The Company and Mr. Holmes were
unable to agree on the amount that Mr. Holmes should reimburse the Company.
The Company has been notified by counsel to both Messrs. Holmes and
Tusa that each of Messrs. Holmes and Tusa believe that approximately $60,000 and
$34,000, respectively, are owed to each of them under their respective
consulting agreements. In addition to notifying both Messrs. Holmes and Tusa
that their consulting services were not required and that no obligation
therefore existed under their respective agreements, both have also been
notified that the Company is investigating various transactions, including,
among other things, the payment of approximately $600,000 to Mr. Holmes in
connection with a restricted stock agreement (see Note 16) and the reimbursement
of various expenses involving meals and entertainment, travel and other
reimbursed expenses. The Company disputes that any additional amounts are owed
under the consulting agreements and, therefore, has not provided for such
amounts in the accompanying financial statements for the period ended December
31, 2004.
Pursuant to the Newcastle Transaction, the Company agreed to
indemnify Newcastle, as the purchaser of the Series A Preferred Stock, from any
liability, loss or damage, together with all costs and expenses related thereto
that the Company may suffer which arises out of affairs of the Company, its
board of directors or employees prior to the closing of the Newcastle
Transaction. The Company's obligation to indemnify may be satisfied at the
option of the purchaser by issuing additional Series A Preferred Stock to the
purchaser, modifying the conversion price of the Series A Preferred Stock, a
payment of cash or a redemption of Series A Preferred Stock or a combination of
the foregoing. The Company and the purchaser have not yet determined whether
events that have arisen since the closing will trigger the indemnity provisions.
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.
35
On June 10, 2004, the Company amended its July 10, 1996 Shareholder
Rights Agreement by reducing the Common Stock ownership threshold for triggering
the distribution of rights under such agreement from fifteen percent to five
percent. Newcastle and its successors and assigns are exempted from the five
percent ownership limitation. The purpose of such amendment was to help ensure
the preservation of the Company's net operating loss and capital loss
carryforwards.
The Company has never declared or paid any cash dividends on its
Common Stock. The Company may not pay dividends on its Common Stock unless all
declared and unpaid Preferred Dividends have been paid. In addition, whenever
the Company shall declare or pay any dividends on its Common Stock, the holders
of Series A Preferred Stock are entitled to receive such Common Stock dividends
on a ratably as-converted basis.
The Series A Preferred Stock is convertible into approximately
thirty-five percent of the Company's Common Stock, par value $.01 per share
("Common Stock") at any time after the expiration of twelve months from the date
of its issuance at a conversion price of $0.26 per share of Common Stock,
subject to adjustment for dilution. The holders of the Series A Preferred Stock
are entitled to a four percent annual cash dividend (the "Preferred Dividends").
The Preferred Dividends shall accrue and shall be cumulative from the date of
initial issuance of the shares of the Series A Preferred Stock, whether or not
declared by the Company's board of directors. In lieu of cash dividends, the
holders of Series A Preferred Stock may elect to receive such number of shares
of Series A Preferred Stock that is equal to the aggregate dividend amount
divided by $1.04.
So long as any shares of the Series A Preferred Stock remain
outstanding, (1) the Company's board of directors shall not exceed four members,
(2) the Company may not increase its authorized capitalization and (3) the
Company may not create rights, rankings or preferences that adversely affect the
rights, rankings and preferences of the Series A Preferred Stock, without the
written consent of the holders of at least a majority of the shares of Series A
Preferred Stock then outstanding, voting as a separate class. So long as any
shares of the Series A Preferred Stock remain outstanding, the holders of shares
of Series A Preferred Stock shall be entitled (1) to vote as a separate class to
elect two directors to the Company's board of directors and to pass upon any
matters that affect the rights, value or ranking of the Series A Preferred Stock
and (2) to vote on all other matters on which holders of Common Stock shall be
entitled to vote, casting such number of votes in respect of such shares of
Series A Preferred Stock as shall equal the largest whole number of shares of
Common Stock into which such shares of Series A Preferred Stock are then
convertible. The other powers, preferences, rights, qualifications and
restrictions of the Series A Preferred Stock are more fully set forth in the
Certificate of Designations of Series A Convertible Preferred Stock filed with
the Secretary of State of the State of Delaware simultaneously with the closing
of the Newcastle Transaction.
36
NOTE 8. TREASURY STOCK
In 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. Through December 31, 2004, the
Company had purchased an aggregate $20.1 million, or 8.3 million shares, of
treasury stock under this program. The Company made no treasury stock purchases
during the year ended December 31, 2004 and has no plans to make any future
treasury stock purchases.
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.
Option activity for the years ended December 31, 2004, 2003 and
2002, is summarized as follows:
Number Weighted Average
of Shares Exercise Price
--------- --------------
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
Granted ......................................................... 90,000 $ 0.29
Canceled ........................................................ (1,025,245) $ 9.53
----------
Outstanding, December 31, 2003 ..................................... 5,778,187 $ 3.98
Granted ......................................................... 300,000 $ 0.28
Canceled ........................................................ (3,308,583) $ 4.54
----------
Outstanding, December 31, 2004 ..................................... 2,769,604 $ 2.90
==========
At December 31, 2004, 2003 and 2002, stock options to purchase an
aggregate of 2,500,854, 4,995,062 and 4,955,685 shares were exercisable and had
weighted average exercise prices of $3.13, $4.53 and $6.38 per share,
respectively.
37
Stock options outstanding and exercisable at December 31, 2004, were
as follows:
Options Outstanding Options Exercisable
------------------- -------------------
Weighted Average
Range of Remaining Remaining Weighted Weighted
Exercise Number Life Average Number Average
Prices Outstanding (years) Exercise Price Exercisable Exercise Price
-------------------------- ----------- ----------- --------------- ------------ ----------------
$ 0.28 - $ 1.98 1,355,451 4.1 $ 0.39 1,095,451 $ 0.42
$ 2.03 - $ 4.88 1,115,820 2.0 $ 3.20 1,107,070 $ 3.23
$ 5.69 - $ 16.84 298,333 2.0 $ 12.68 298,333 $ 12.68
--------- ----------
2,769,604 3.0 $ 2.90 2,500,854 $ 3.13
========= ==========
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 $0.25 and $0.28 for the year ended
December 31, 2004, $0.20 and $0.29 for the year ended December 31, 2003 and
$0.22 and $0.35 for the year ended December 31, 2002, respectively.
NOTE 10. IMPAIRMENT
During the year ended December 31, 2003, the Company evaluated the
realizability of its investment in Sharps in accordance with SFAS No. 115. The
Company compared the fair market value of its investment in Sharps to the
carrying value of the investment to determine the impairment. Based upon the
current fair market value, the Company determined that its investment in Sharps
was permanently impaired by $0.3 million and, accordingly, recorded an
impairment write-down, which is included in other income (expense) as impairment
of investments in affiliates.
NOTE 11. INVESTMENT IN SECURITIES AVAILABLE-FOR-SALE
In October 2004, the Company purchased a 26 week U.S. Treasury bill
for $12.9 million. The fair value was $12.9 million at December 31, 2004.
NOTE 12. LEASES
The Company leases certain office space and equipment under
operating leases. Rental expense was $58,000, $164,000 and $173,000 for the
years ended December 31, 2004, 2003 and 2002, respectively. Future minimum lease
payments under non-cancelable operating leases as of December 31, 2004 are
$36,000 for the year ending December 31, 2005, $36,000 for the year ending
December 31, 2006, $3,000 for the year ending December 31, 2007 and $0 for all
years thereafter. Sub-lease rentals are $30,000, $30,000 and $2,500 during the
same periods.
The Company's corporate headquarters are currently located at 300
Crescent Court, Suite 1110, Dallas, Texas 75201, which are also the offices of
Newcastle. Pursuant to an oral agreement, the Company subleases a portion of
Newcastle's space on a month-to-month basis at no charge.
38
NOTE 13. INCOME TAXES
The income tax benefit is comprised of the following:
Year Ended December 31,
(in thousands) 2004 2003 2002
------------- ------------ ------------
Current:
Federal.......... $ -- $ -- $ --
State ........... -- -- --
------------ ------------ ------------
Total........... $ -- $ -- $ --
============ ============ ============
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:
Year Ended December 31,
(in thousands) 2004 2003 2002
---------- -------- ---------
Computed income tax benefit at statutory rate ....... $ 666 $ 2,270 $ 6,488
(Decrease) increase in taxes resulting from:
Nondeductible losses in and impairments of affiliates (1,045) (1,060) (6,790)
Book gain on sale of equity affiliate ............... 2,036 -- --
Tax capital loss on sale of equity affiliate ........ 23,547 -- --
Permanent and other deductions, net ................. (754) (218) (85)
Valuation allowance ................................. (24,450) (992) 387
-------- -------- --------
Income tax benefit .................................. $ -- $ -- $ --
======== ======== ========
The tax effect of significant temporary differences, which comprise
the deferred tax liability, is as follows:
December 31,
(in thousands) 2004 2003
-------- --------
Deferred tax asset:
Net operating loss carryforward $ 3,331 $ 2,428
Capital loss carryforward ..... 23,547 --
Valuation allowance ........... (26,878) (2,428)
Deferred tax liability:
Estimated tax liability ....... -- --
-------- --------
Net deferred tax liability . $ -- $ --
======== ========
As of December 31, 2004, the Company had a federal tax loss
carryforward of $9.5 million, which begins expiring in 2019. In addition, the
Company had a federal capital loss carryforward of $67 million which expires in
2009. Realization of the Company's carryforwards is dependent on future taxable
income and capital gains. At this time, the Company cannot assess whether or not
the carryforward will be realized; therefore, a valuation allowance has been
recorded as shown above.
Ownership changes, as defined in the Internal Revenue Code, may have
limited the amount of net operating loss carryforwards that can be utilized
annually to offset future taxable income. Subsequent ownership changes could
further affect the limitation in future years.
39
NOTE 14. BENEFIT PLANS
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, 2004, 2003 or 2002.
The Company's matching contributions to this plan totaled approximately $22,000,
$29,000 and $30,000 for the years ended December 31, 2004, 2003 and 2002,
respectively.
NOTE 15. SUMMARIZED FINANCIAL INFORMATION FOR UNCONSOLIDATED SUBSIDIARY
The Company accounts for its investment in Princeton under the
equity method of accounting (as the Company does not exhibit control over
Princeton). The Company recorded the equity in net loss of Princeton on a
three-month lag for the year ended December 31, 2003 and 2002. Princeton's
statement of operations for the eight months ended May 31, 2004, has been used
to calculate the equity in net loss recorded in the Company's statements of
operations for the year ended December 31, 2004. The Company's ownership
percentage of the preferred stock, the outstanding stock and the fully-diluted
stock of Princeton was 34.0%, 36.2% and 31.7%, respectively, as of December 31,
2003. In June 2004, the Company sold all its interest in Princeton for $10
million.
Princeton's summarized balance sheet is as follows:
May 31, September 30,
(in thousands) 2004 2003
------- ------
Current assets ...................................................... $47,528 $34,750
Non-current assets .................................................. 9,464 12,681
Current liabilities ................................................. 38,188 30,386
Non-current liabilities ............................................. 1,209 486
Mandatorily redeemable convertible preferred stock .................. 49,845 39,587
Princeton's summarized statements of operations are as follows:
Eight
Months Ended Year Ended
May 31, September 30,
(in thousands) 2004 2003 2002
-------- --------- ---------
Revenues ........... $ 16,695 $ 35,309 $ 28,559
Gross profit ....... 7,258 16,026 11,300
Loss from operations (9,188) (7,965) (30,234)
Net loss ........... (9,214) (7,674) (32,462)
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
40
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.
NOTE 16. RELATED PARTIES
Mr. Holmes (former Chairman of the Board and Chief Executive Officer
of the Company) served on the Board of Princeton from September 1998 until March
2004. Mr. Holmes served as Chairman of the Board of Princeton from January 2002
until December 2002. Mr. Tusa (former Chief Financial Officer of the Company)
served as a member of the Board of Princeton from August 2001 until June 2002.
Mr. Holmes has been a member of the board of directors of Sharps
since July 1998. According to public filings by Sharps, Mr. Holmes continues to
be a director of Sharps, although he is not serving in such capacity on behalf
of the Company. Mr. Tusa was appointed Chief Financial Officer of Sharps in
February 2003. In March 2003, Sharps began reimbursing the Company for certain
expenses incurred by Mr. Tusa. As of December 31, 2004, no amount was due to the
Company by Sharps for these expenses. A current member of the Company's board of
directors, Lee Cooke, served on the board of directors of Sharps from March 1992
until November 2004.
Mr. Holmes served as Chairman of the Board of Tanisys Technology,
Inc. ("Tanisys") from the time of the Company's investment in Tanisys until his
resignation in February 2002. Mr. Cooke also served as Tanisys' Chairman of the
Board and Chief Executive Officer from February 2002 until February 2003 and as
a member of Tanisys' board of directors from February 2002 to March 2003. Mr.
Cooke was entitled to receive approximately $15,000 per month from Tanisys as
compensation for services as Chairman of the Board and Chief Executive Officer.
The Company also appointed Mr. Tusa and another one of its Board members, Mr.
Ferrero, to the board of directors of Tanisys. Mr. Ferrero resigned from the
board of directors of Tanisys in February 2003 and Mr. Tusa resigned from the
board of directors of Tanisys in March 2003.
In July 2001, the Company retained Habitek International, Inc.
("Habitek") to provide operational consulting services for FiData, Inc and
Tanisys. Habitek was paid $137,500 for this one-year agreement. Habitek's
majority owner is Mr. Cooke.
In August 2003, the Company issued 435,484 shares of its common
stock to Mr. Holmes in exchange for a salary reduction of $135,000 for the
employment period of October 1, 2003 to September 30, 2004. These shares were
issued under the New Century Equity Holdings Corp. 1996 Employee Comprehensive
Stock Plan, which allows for this type of issuance without any material
amendments.
In November 2001, the Company entered into an Amended and Restated
Employment Agreement ("Employment Agreement") with Mr. Holmes. As part of the
Employment Agreement, the Company entered into a Split-Dollar Life Insurance
Agreement ("Insurance Agreement") with a trust beneficially owned by Mr. Holmes
pursuant to which the Company paid the annual insurance premium of approximately
$200,000. The underlying life insurance policy had a face value of $4,500,000
and required remaining annual premium payments through March 2012, totaling
$1,500,000. In December 2003, Mr. Holmes and the Company agreed to amend the
Employment Agreement and terminate the provisions of the Employment Agreement
related to the Insurance Agreement in exchange for payments by the Company to,
and on behalf of, Mr. Holmes totaling approximately $700,000 in cash.
Accordingly, the Company assigned to Mr. Holmes, and Mr. Holmes assumed, all
future obligations and benefits related to the Insurance Agreement. Mr. Holmes
released and discharged the Company from any further obligation to provide or
fund any life insurance for the benefit of Mr. Holmes, including the Insurance
Agreement. The entire $700,000 was included in general and administrative
expenses during the year ended December 31, 2003. In December 2003, $200,000 of
the total $700,000 was paid. The remaining $500,000 was accrued at December 31,
2003 and paid in January 2004.
41
Prior to the Newcastle Transaction during the quarter ended June 30,
2004, the Company sold certain office furniture to Mr. Holmes for approximately
$7,000 and provided Mr. Holmes with title to the automobile that had been
furnished to him by the Company at no cost. The Company had purchased the office
furniture for approximately $28,000 during the period October 1994 through April
2003 and the furniture had a book value of $4,000. Pursuant to the terms of his
employment agreement, Mr. Holmes was provided with an automobile. The automobile
was acquired by the Company for $75,000 in 2000. At the time of transfer, the
net book value of the automobile was zero and the fair market value was $20,000.
In accordance with the terms of Mr. Holmes' employment agreement, the income
taxes incurred by Mr. Holmes as a result of the transfer of title to him were
borne by the Company.
The Company paid Mr. Holmes approximately $600,000 on June 2, 2004,
purportedly as a result of a restricted stock grant as described below. In April
2000, the board of directors of the Company approved a restricted stock grant to
Mr. Holmes. The restricted stock grant consisted of 400,000 shares of Princeton
common stock and was modified in June 2001 to provide for certain anti-dilution
and ratchet protections. The restricted stock grant vested on April 30, 2003.
The Company expensed the fair market value of the restricted stock grant over
the three-year period ended April 30, 2003. The Company recognized $150,000
during the year ended December 31, 2003, as compensation expense related to the
stock grant. The Company has commenced an investigation of various transactions
involving former management, including, among other things, the $600,000
payment.
In June 2004, in connection with the Newcastle Transaction, Mr.
Schwarz, Chief Executive Officer and Chairman of Newcastle Capital Management,
Mr. Pully, President of Newcastle Capital Management, and Mr. Murray, Chief
Financial Officer of Newcastle Capital Management, assumed positions as Chairman
of the Board, Chief Executive Officer and Chief Financial Officer, respectively,
of the Company. Mr. Pully receives an annual salary of $150,000 as Chief
Executive Officer of the Company. Newcastle Capital Management is the general
partner of Newcastle, which owns 4,807,692 shares of Series A Preferred Stock
and 150,000 shares of Common Stock of the Company.
The Company's corporate headquarters are currently located at 300
Crescent Court, Suite 1110, Dallas, Texas 75201, which are also the offices of
Newcastle. Pursuant to an oral agreement, the Company subleases a portion of
Newcastle's space on a month-to-month basis at no charge.
The Company also receives accounting and administrative services
from employees of Newcastle Capital Management at no charge.
42
NOTE 17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Three Months Ended
--------------------------------------------------
December 31, September 30, June 30, March 31,
(in thousands, except per share data) 2004 2004 2004 2004
----------- ------------ -------- ---------
Operating revenues .................................. $ -- $ -- $ -- $ --
Operating loss from continuing operations ........... (283) (292) (3,618) (661)
Net (loss) income from continuing operations ........ (217) (262) 428 (1,852)
Net (loss) income ................................... (217) (262) 428 (1,852)
Preferred stock dividend ............................ (50) (50) (7) --
Net loss available to common stockholders ........... (267) (312) 421 (1,852)
Basic and diluted net (loss) income per common share:
Net (loss) income from continuing operations ...... (0.01) (0.01) 0.01 (0.05)
Net (loss) income ................................. (0.01) (0.01) 0.01 (0.05)
Three Months Ended
--------------------------------------------------
December 31, September 30, June 30, March 31,
(in thousands, except per share data) 2003 2003 2003 2003
------------ ----------- ---------- ---------
Operating revenues .................................. $ -- $ -- $ -- $ --
Operating loss from continuing operations ........... (1,330) (543) (581) (720)
Net loss from continuing operations ................. (2,194) (1,638) (1,326) (1,328)
Net loss from discontinued operations ............... -- -- -- --
Net (loss) income from disposal of
discontinued operations .......................... (389) 212 -- 147
Net loss ............................................ (2,583) (1,426) (1,326) (1,181)
Basic and diluted net (loss) income per common share:
Net loss from continuing operations ............... (0.06) (0.05) (0.04) (0.04)
Net loss from discontinued operations ............. -- -- -- --
Net (loss) income from disposal of
discontinued operations .......................... (0.01) 0.01 -- 0.01
Net loss .......................................... (0.07) (0.04) (0.04) (0.03)
NOTE 18. DISCONTINUED OPERATIONS
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 Tanisys' 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.
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 sheet as
of September 30, 2002 was consolidated with the Company's balance sheet as of
December 31, 2002. The statement of operations of Tanisys for the year ended
September 30, 2002, was consolidated with the Company's statements of operations
for the years ended December 31, 2002.
43
In February 2003, the Company sold its preferred stock in Tanisys to
ATE Worldwide LLC, whose majority stockholder is a leader in the semiconductor
testing equipment market. Accordingly, the operations of Tanisys have been
classified as discontinued operations in the consolidated statements of
operation for the year ended December 31, 2002. The Company received
approximately $0.2 million in exchange for its preferred stock, which is
reported in net loss from disposal of discontinued operations during the year
ended December 31, 2003.
Tanisys' statement of operations for the year ended September 30,
2002, including adjustments made under the purchase method of accounting, was
consolidated in the Company's statement of operations for the year ended
December 31, 2002. Tanisys' statement of operations consolidated herein
(presented as net loss from discontinued operations) is as follows:
Year ended
September 30,
(in thousands) 2002
---------
Operating revenues ............................................. $ 2,619
Operating expenses:
Cost of revenues ............................................. 1,999
Selling, general and administrative expenses ................. 1,511
Research and development expenses ............................ 1,506
Depreciation and amortization expense ........................ 139
-------
Operating loss from discontinued operations ................ (2,536)
Other income (expense):
Interest income ............................................... 5
Interest expense .............................................. (816)
Other income (expense), net ................................... 83
Minority interest in consolidated affiliate ................... 2,302
-------
Total other income, net ...................................... 1,574
-------
Net loss from discontinued operations .......................... $ (962)
=======
Net loss from discontinued operations .......................... $ (962)
Preferred stock dividend and amortization of the value of the
beneficial conversion feature on stock issued by consolidated
affiliate ................................................... (249)
Minority interest in consolidated affiliate .................... 249
-------
Net loss from discontinued operations applicable to
common stockholders ......................................... $ (962)
=======
(LOSS) INCOME FROM DISPOSAL OF DISCONTINUED OPERATIONS
During the year ended December 31, 2003, net loss from disposal of
discontinued operations is comprised of income of $0.2 million from the sale of
Tanisys and $0.2 million from the reduction of accruals related to discontinued
operations, offset by expense of $0.4 million to settle claims related to a
prior acquisition. Based upon estimates of future liabilities related to the
divested entities classified as discontinued operations, the Company reduced its
related accruals to $0 and accordingly, recorded $0.2 million as income. In
January 2004, the Company entered into an agreement with the former majority
stockholders of OSC to settle all claims related to the April 2000 acquisition
of OSC by the Company. Under the terms of the agreement, the Company transferred
to the former OSC majority stockholders 525,000 shares of the common stock of
Sharps owned by the Company, which resulted in a non-cash charge of
approximately $0.4 million in 2003 in conjunction with the settlement agreement.
44
During the year ended December 31, 2002, net income from disposal of
discontinued operations is comprised of income of $2.2 million related to an
income tax refund and $0.1 million from the reduction of accruals related to the
divested entities classified as discontinued operations (based upon estimates of
future liabilities at that time). 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 Platinum Transaction completed in
October 2000) and received a refund claim totaling $2.2 million. The income tax
refund is included in net income from disposal of discontinued operations as the
refund relates to those companies sold in the Platinum Transaction.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure controls are procedures that are designed with the
objective of ensuring that information required to be disclosed in the Company's
reports under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), such as this Form 10-K, is reported in accordance with the rules of the
SEC. Disclosure controls are also designed with the objective of ensuring that
such information is accumulated appropriately and communicated to management,
including the chief executive officer and chief financial officer as appropriate
to allow timely decisions regarding required disclosures.
As of the end of the period covered by this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company'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 Rules
13a-15(e) and 15d-15(e). 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.
ITEM 9B. OTHER INFORMATION
None.
45
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information in the Proxy Statement set forth under the caption "Information
Regarding Directors and Executive Officers" is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information in the Proxy Statement set forth under the captions "Information
Regarding Executive Officer Compensation" and "Information About the Board and
its Committees--Director Compensation" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information in the Proxy Statement set forth under the captions "Equity
Compensation Plan Information" and "Information Regarding Beneficial Ownership
of Principal Stockholders, Directors, and Management" is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Relationships and Related
Transactions" of the Proxy Statement is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information concerning principal accountant fees and services appears in the
Proxy Statement under the heading "Fees Billed by Burton, McCumber & Cortez,
L.L.P." and is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(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.
46
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).
2.4 Agreement and Plan of Merger between BCC, Billing Concepts, Inc.,
Enhanced Services Billing, Inc., BC Transaction Processing Services,
Inc., Aptis, Inc., Operator Service Company, BC Holding I
Corporation, BC Holding II Corporation, BC Holding III Corporation,
BC Acquisition I Corporation, BC Acquisition II Corporation, BC
Acquisition III Corporation and BC Acquisition IV Corporation, dated
September 15, 2000 (incorporated by reference from Exhibit 2.1 to
Form 8-K, dated September 15, 2000).
2.5 Stock Purchase Agreement by and among New Century Equity Holdings
Corp., Mellon Ventures, L.P., Lazard Technology Partners II LP,
Conning Capital Partners VI, L.P. and Princeton eCom Corporation,
dated March 25, 2004 (incorporated by reference from Exhibit 10.1 to
Form 8-K, dated March 29, 2004).
2.6 Series A Convertible 4% Preferred Stock Purchase Agreement by and
between New Century Equity Holdings Corp. and Newcastle Partners,
L.P., dated June 18, 2004 (incorporated by reference from Exhibit
2.1 to Form 8-K, dated June 30, 2004).
3.1 Amended and Restated Certificate of Incorporation of BCC
(incorporated by reference from Exhibit 3.1 to Form 10/A, Amendment
No. 1, dated July 11, 1996); as amended by Certificate of Amendment
to Certificate of Incorporation, filed with the Delaware Secretary
of State, amending Article I to change the name of the Company to
Billing Concepts Corp. and amending Article IV to increase the
number of authorized shares of common stock from 60,000,000 to
75,000,000, dated February 27, 1998 (incorporated by reference from
Exhibit 3.4 to Form 10-Q, dated March 31, 1998).
47
3.2 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).
4.2 Rights Agreement, dated as of July 10, 1996, between BCC and U.S.
Trust Company of Texas, N.A. (incorporated by reference from Exhibit
4.2, to the Registration Statement on Form 10-12G/A, dated July 11,
1996).
4.3 Certificate of Designation of Series A Junior Participating
Preferred Stock (incorporated by reference from Form 10/A, Amendment
No. 1, dated July 11, 1996).
4.4 Certificate of Designation of Series A Convertible Preferred Stock
(incorporated by reference from Exhibit 4.1 to Form 8-K, dated June
30, 2004).
4.5 First Amendment to the Rights Agreement by and between New Century
Equity Holdings Corp. and The Bank of New York Trust Company, N.A.
dated as of June 10, 2004 (incorporated by reference from Exhibit
4.3 to Form 10-12G/A, dated July 9, 2004).
*10.1 BCC's 1996 Employee Comprehensive Stock Plan amended as of August
31, 1999 (incorporated by reference from Exhibit 10.8 to Form 10-K,
dated September 30, 1999).
*10.2 Form of Option Agreement between BCC and its employees under the
1996 Employee Comprehensive Stock Plan (incorporated by reference
from Exhibit 10.9 to Form 10-K, dated September 30, 1999).
*10.3 Amended and Restated 1996 Non-Employee Director Plan of BCC, amended
as of August 31, 1999 (incorporated by reference from Exhibit 10.10
to Form 10-K, dated September 30, 1999).
*10.4 Form of Option Agreement between BCC and non-employee directors
(incorporated by reference from Exhibit 10.11 to Form 10-K, dated
September 30, 1998).
*10.5 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 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).
48
10.7 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).
*10.8 Amended and Restated Employment Agreement between New Century Equity
Holdings 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).
*10.9 Employment Agreement between New Century Equity Holdings Corp. and
David P. Tusa, dated November 1, 2001 (incorporated by reference
from Exhibit 10.12 to Form 10-K, dated December 31, 2001).
10.10 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).
*10.11 BCC's 401(k) Retirement Plan (incorporated by reference from Exhibit
10.14 to Form 10-K, dated September 30, 2000).
10.12 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).
10.13 Office Building Sublease Agreement between BCC and CCC Centers,
Inc., dated February 11, 2002 (incorporated by reference from
Exhibit 10.17 to Form 10-K, dated December 31, 2001).
10.14 Office Building Lease Agreement between SAOP Union Square, L.P. and
New Century Equity Holdings Corp., dated February 11, 2004
(incorporated by reference from Exhibit 10.18 to Form 10-K, dated
December 31, 2003).
10.15 Sublease agreement entered into by and between New Century Equity
Holdings Corp. and the Law Offices of Alfred G. Holcomb, P.C.
(incorporated by reference from Exhibit 10.1 to Form 10-Q, dated
September 30, 2004).
14.1 New Century Equity Holdings Corp. Code of Ethics (incorporated by
reference from Exhibit 14.1 to Form 10-K, dated December 31, 2003).
21.1 List of Subsidiaries:
New Century Equity Holdings of Texas, Inc. (incorporated in Delaware)
New Century Equity Holdings, Inc. (incorporated in Texas)
23.1 Consent of Burton, McCumber & Cortez, L.L.P. (filed herewith).
31.1 Certification of Chief Executive Officer in Accordance with Section
302 of the Sarbanes-Oxley Act (filed herewith).
31.2 Certification of Chief Financial Officer in Accordance with Section
302 of the Sarbanes-Oxley Act (filed herewith).
32.1 Certification of Chief Executive Officer in Accordance with Section
906 of the Sarbanes-Oxley Act (filed herewith).
32.2 Certification of Chief Financial Officer in Accordance with Section
906 of the Sarbanes-Oxley Act (filed herewith).
--------------
*Indicates compensatory plan or arrangement.
49
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 31, 2005 By: /s/ Steven J. Pully
--------------------------------
Steven J. Pully
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed below by the following persons on behalf
of the registrant and in the capacities indicated on the 31st day of March 2005.
SIGNATURE TITLE
--------- -----
/s/ Steven J. Pully
---------------------------------- Chief Executive Officer
Steven J. Pully (Principal Executive Officer)
/s/ John P. Murray
---------------------------------- Chief Financial Officer
John P. Murray (Principal Financial and Accounting Officer)
/s/ Mark E. Schwarz
---------------------------------- Director and
Mark E. Schwarz Chairman of the Board
/s/ James Risher Director
----------------------------------
James Risher
50
