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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year ended December 31, 2005
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from ________ to ________
Commission File Number 0-28536
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NEW CENTURY EQUITY HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2781950
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
300 CRESCENT COURT, SUITE 1110, DALLAS, TEXAS 75201
(Address of principal executive offices) (Zip Code)
(214) 661-7488
(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:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. |_| Yes |X| No
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. |_| Yes |X| No
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. |X| Yes |_| No
1
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
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). |_| Yes |X| No
The aggregate market value of the registrant's outstanding Common Stock
held by non-affiliates of the registrant computed by reference to the price at
which the Common Stock was last sold as of the last business day of the
registrant's most recently completed second fiscal quarter was $7,935,714.
As of March 30, 2006, the Registrant had 34,653,104 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12, 13 and 14 of Part III of this Form 10-K incorporate by
reference portions of an amendment to this Form 10-K or portions of a definitive
proxy statement of the registrant for its 2006 Annual Meeting of Stockholders to
be held on a date to be determined, which in either case will be filed with the
Securities and Exchange Commission within 120 days after the end of the fiscal
year ended December 31, 2005.
2
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2005
PAGE
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PART I
Item 1. Business........................................................ 4
Item 1A. Risk Factors.................................................... 6
Item 1B. Unresolved Staff Comments....................................... 11
Item 2. Properties...................................................... 11
Item 3. Legal Proceedings............................................... 11
Item 4. Submission of Matters to a Vote of Security Holders............. 13
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities............... 13
Item 6. Selected Financial Data......................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 15
Item 7A. Quantitative and Qualitative Disclosure About Market Risk....... 20
Item 8. Financial Statements and Supplementary Data..................... 21
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 46
Item 9A. Controls and Procedures......................................... 46
Item 9B. Other Information............................................... 46
PART III
Item 10. Directors and Executive Officers of the Registrant.............. 47
Item 11. Executive Compensation.......................................... 47
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters................................. 47
Item 13. Certain Relationships and Related Transactions.................. 47
Item 14. Principal Accountant Fees and Services.......................... 47
PART IV
Item 15. Exhibits and Financial Statement Schedules...................... 47
Signatures...................................................... 50
3
PART I
ITEM 1. BUSINESS
THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN "FORWARD-LOOKING"
STATEMENTS AS SUCH TERM IS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995 AND INFORMATION RELATING TO THE COMPANY AND ITS SUBSIDIARIES THAT
ARE BASED ON THE BELIEFS OF THE COMPANY'S MANAGEMENT AS WELL AS ASSUMPTIONS MADE
BY AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY'S MANAGEMENT. WHEN USED IN
THIS REPORT, THE WORDS "ANTICIPATE", "BELIEVE", "ESTIMATE", "EXPECT" AND
"INTEND" AND WORDS OR PHRASES OF SIMILAR IMPORT, AS THEY RELATE TO THE COMPANY
OR ITS SUBSIDIARIES OR COMPANY MANAGEMENT, ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT RISKS,
UNCERTAINTIES AND ASSUMPTIONS RELATED TO CERTAIN FACTORS INCLUDING, WITHOUT
LIMITATION, COMPETITIVE FACTORS, GENERAL ECONOMIC CONDITIONS, THE INTEREST RATE
ENVIRONMENT, GOVERNMENTAL REGULATION AND SUPERVISION, SEASONALITY, CHANGES IN
INDUSTRY PRACTICES, ONE-TIME EVENTS AND OTHER FACTORS DESCRIBED HEREIN AND IN
OTHER FILINGS MADE BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION
("SEC"). BASED UPON CHANGING CONDITIONS, SHOULD ANY ONE OR MORE OF THESE RISKS
OR UNCERTAINTIES MATERIALIZE, OR SHOULD ANY UNDERLYING ASSUMPTIONS PROVE
INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN AS
ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED OR INTENDED. THE COMPANY DOES NOT
INTEND TO UPDATE THESE FORWARD-LOOKING STATEMENTS.
INTRODUCTION
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. On October 5, 2005, the Company made an
investment in ACP Investments L.P. (d/b/a Ascendant Capital Partners)
("Ascendant"), pursuant to which the Company currently receives 50% of the
revenues generated by Ascendant. Ascendant is a Berwyn, Pennsylvania based
alternative asset management company whose funds have investments in long/short
equity funds and which distributes its registered funds primarily through
various financial intermediaries and related channels. The Company's interest in
Ascendant currently represents the Company's sole operating business.
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
$49,700,000 (the "Platinum Transaction"). The Company also received payments
totaling $7,500,000 for consulting services provided to Platinum over the
twenty-four month period subsequent to the Platinum Transaction.
Beginning in 1998, the Company made multiple investments in Princeton eCom
Corporation ("Princeton") totaling approximately $77,300,000 before selling all
of its interest for $10,000,000 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.
4
In early 2004, the Company announced that it would seek stockholder
approval to liquidate the Company. In June of 2004, the board of directors of
the Company determined that it would be in the best interest of the Company to
accept an investment from Newcastle Partners, L.P. ("Newcastle"), an investment
fund with a long track record of investing in public and private companies. On
June 18, 2004, the Company sold 4,807,692 newly issued shares of its Series A 4%
Convertible Preferred Stock (the "Series A Preferred Stock") to Newcastle for
$5,000,000 (the "Newcastle Transaction"). The Series A Preferred Stock 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. Following
the investment by Newcastle, the management team resigned and new executives and
board members were appointed.
During May 2005, the Company sold its equity interest in Sharps Compliance
Corp. ("Sharps") for approximately $334,000. Following the sale of its Sharps
interest, the Company no longer holds any investments made by former management
and which reflected former management's strategy of investing in high-growth
companies.
RECENT DEVELOPMENTS
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"). The Complaint asserts direct claims, and also derivative claims on
the Company's behalf, against five former and three current directors of the
Company. The Company is a nominal defendant. Mr. Davis alleges in the Complaint
that different director defendants breached their fiduciary duties to the
Company. The allegations involve, among other things, transactions with, and
payments to, Parris H. Holmes, Jr., a former executive officer and director, and
whether the Company operated as an unregistered investment company. Mr. Davis
seeks the appointment of a receiver for the Company under Section 226(a) of the
Delaware General Corporation Law and other remedies.
Management has spent extensive amounts of time and expense dealing with
matters related to the Complaint and has been diligently working to resolve the
asserted claims. The Company has had extensive meetings with the other parties
to the litigation in an attempt to settle the litigation. There can be no
assurance that the Company will be able to effect a settlement.
5
ALTERNATIVE ASSET MANAGEMENT OPERATIONS
On October 5, 2005, the Company entered into an agreement (the "Ascendant
Agreement") with Ascendant to acquire an interest in the revenues generated by
Ascendant. Pursuant to the Ascendant Agreement, the Company is entitled to a 50%
interest, subject to certain adjustments, in the revenues generated by
Ascendant, which interest declines if the assets under management of Ascendant
reach certain levels. Revenues generated by Ascendant include revenues from
assets under management or any other sources or investments, net of any agreed
commissions. The Company also agreed to provide various marketing services to
Ascendant. Steven J. Pully, CEO of the Company, was appointed to the Investment
Advisory Committee of Ascendant. The total potential purchase price under the
terms of the Ascendant Agreement is $1,550,000, payable in four equal
installments of $387,500. The first installment was paid at the closing and the
second installment was paid on January 5, 2006. Subject to the provisions of the
Ascendant Agreement, the third installment is payable on April 5, 2006 and the
fourth installment is payable on July 5, 2006. The Ascendant Agreement provides
for the repurchase of a portion of the revenue interest by Ascendant beginning
two years after October 5, 2005, under certain circumstances, at a price which
would yield a 25% annualized return to the Company.
If the Company does not make an installment payment and Ascendant is not
in breach of the Ascendant Agreement, Ascendant will have the right to acquire
the Company's revenue interest at a price which would yield a 10% annualized
return to the Company. If Ascendant were to materially breach its obligations
under the Ascendant Agreement, Ascendant could be obligated to refund to the
Company the amount of its investment. Such refund would not reduce the revenue
interest acquired by the Company.
Ascendant had assets under management of approximately $17,800,000 and
$13,577,000 as of December 31, 2005 and 2004, respectively. Ascendant manages
funds of funds with investments in long/short equity funds.
In connection with the Ascendant Agreement, the Company also entered into
a Principals Agreement with Ascendant and certain limited partners and key
employees of Ascendant (the "Principals Agreement") pursuant to which the
Company has the option to purchase limited partnership interests of Ascendant
under certain circumstances. Effective March 14, 2006, in accordance with the
terms of the Principals Agreement, the Company acquired a 7% limited partnership
interest from a limited partner of Ascendant for a nominal amount.
EMPLOYEES
As of December 31, 2005, 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 1A. 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.
6
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. 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 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.
The Company is currently funding legal and professional fees of the
defendants pursuant to indemnification arrangements that were in place during
the respective terms of each of the defendants. The Company has met the $500,000
deductible as stipulated in the Company's directors' and officers' liability
insurance policy. The directors' and officers' liability insurance policy
carries a maximum coverage limit of $5,000,000. Because this case is in the
early stages, it is not possible to evaluate the likelihood of exceeding the
policy limit. As of December 31, 2005, the Company has recorded a receivable
from the insurance carrier of approximately $1,522,000 for reimbursement of
legal and professional fees incurred in excess of the policy deductible, in
accordance with the provisions of the insurance policy. The Company has not
received any reimbursement from the insurance carrier and continues to have
ongoing discussions with the insurance carrier regarding reimbursement under the
provisions of the policy. Nonpayment of the claim for reimbursement of legal and
professional fees could have a material adverse effect on the financial
condition and results of operations of the Company. The Company intends to
vigorously seek enforcement of its rights under the policy.
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"). Although the Company does not believe that
it has violated the Investment Company Act in the past, or at present, there can
be no assurance that the Company has not, or is not, in violation of, the
Investment Company Act. In the event the SEC or a court took the position that
we were an investment company, our failure to register as an investment company
would not only raise the possibility of an enforcement or other legal action by
the SEC and potential fines and penalties, but also could threaten the validity
of corporate actions and contracts entered into by us during the period we were
deemed to be an unregistered investment company, among other remedies.
WE MAY BE UNABLE TO REDEPLOY OUR ASSETS SUCCESSFULLY.
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. Although we
recently made an investment in Ascendant, we may not be successful in investing
in or acquiring other businesses. Failure to redeploy our assets successfully
will prevent us from becoming profitable. Future cash expenditures are expected
to consist of funding corporate expenses, the cost associated with maintaining a
public company, expenses incurred in pursuing and operating new business
activities and litigation expenses, during which time operating losses are
likely to be generated.
7
ANY ACQUISITIONS THAT WE ATTEMPT OR COMPLETE COULD PROVE DIFFICULT TO INTEGRATE
OR REQUIRE A SUBSTANTIAL COMMITMENT OF MANAGEMENT TIME AND OTHER RESOURCES.
Our strategy of acquiring other businesses involves a number of unique
risks including: (i) completing due diligence successfully; (ii) exposure to
unforeseen liabilities of acquired companies; and (iii) increased risk of costly
and time-consuming litigation, including stockholder lawsuits. We may be unable
to address these problems successfully. Moreover, our future operating results
will depend to a significant degree on our ability to integrate acquisitions (if
any) successfully and manage operations while also controlling our expenses. We
may be unable to select, manage or absorb or integrate any future acquisitions
successfully, particularly acquisitions of large companies. Any acquisition,
even if effectively integrated, may not benefit our stockholders.
THE SUCCESS OF THE INVESTMENT IN ASCENDANT WILL BE IMPACTED BY THE GROWTH OF ITS
ASSETS UNDER MANAGEMENT AND THE SUCCESS OF THE PERFORMANCE OF ITS UNDERLYING
FUNDS, WHICH MAY BE IMPACTED BY THE SECURITIES MARKETS.
In the event that Ascendant does not meet growth targets, the Company may
cease to make or delay additional funding, which could cause Ascendant to seek
financial support from other sources. The operations of Ascendant will be
affected by many economic factors, including the performance of the securities
markets. Declines in the securities markets, in general, and the equity markets,
in particular, would likely reduce Ascendant's assets under management and
consequently reduce our revenues. In addition, any continuing decline in the
equity markets, failure of these markets to sustain their prior rates of growth,
or continued volatility in these markets could result in investors withdrawing
from the equity markets or decreasing their rate of investment, either of which
would likely adversely affect Ascendant which, in turn, could negatively impact
our revenues.
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
carryforwards will depend largely on our success in identifying suitable merger
partners and/or acquisition candidates, and once identified, consummating a
merger with and/or acquisition of these candidates.
8
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 Section 382 and 383 of the
Internal Revenue Code) whose percentage ownership of the stock has increased as
of such date over the lowest percentage of the stock owned by each such
"5-percent shareholder" at any time during the three-year period preceding such
date, is more than 50 percentage points. In general, persons who own 5% or more
of a corporation's stock are "5-percent shareholders," and all other persons who
own less than 5% of a corporation's stock are treated, together as a single,
public group "5-percent shareholder," regardless of whether they own an
aggregate of 5% of a corporation's stock.
The amount of NOL and capital loss carryforwards that we have claimed have
not been audited or otherwise validated by the U.S. Internal Revenue Service.
The IRS could challenge our calculation of the amount of our NOL and capital
loss or our determinations as to when a prior change in ownership occurred and
other provisions of the Internal Revenue Code may limit our ability to carry
forward our NOL and capital loss to offset taxable income and capital gains in
future years. If the IRS was successful with respect to any such challenge, the
potential tax benefit of the NOL and capital loss carryforwards to us could be
substantially reduced.
ANY TRANSFER RESTRICTIONS IMPLEMENTED BY THE COMPANY TO PRESERVE OUR NOL MAY NOT
BE EFFECTIVE OR MAY HAVE SOME UNINTENDED NEGATIVE EFFECTS.
The board of directors adopted an amendment to our Shareholders Rights
Plan ("Rights Plan") which reduces the triggering of the Rights Plan from 15% of
the Common Stock to 5% percent of the Common Stock. The amendment was adopted to
help preserve our NOL and capital loss carryforwards. There is no guarantee that
the amendment of the Rights Plan will prevent a stockholder from acquiring more
than 5% 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.
9
OUR STOCK IS ILLIQUID.
Our stock is currently quoted on the OTC Bulletin Board ("OTCBB"), and has
traded as low as $0.18 per share during 2005. Since our Common Stock was
delisted from a national exchange and is trading at a price below $5.00 per
share, it is subject to certain other rules of the Securities Exchange Act of
1934, as amended. Such rules require additional disclosure by broker-dealers in
connection with any trades involving a stock defined as a "penny stock". "Penny
stock" is defined as any non-Nasdaq equity security that has a market price of
less than $5.00 per share, subject to certain exceptions. Such rules require the
delivery of a disclosure schedule explaining the penny stock market and the
risks associated with that market before entering into any penny stock
transaction. Disclosure is also required to be made about compensation payable
to both the broker-dealer and the registered representative and current
quotations for the securities. The rules also impose various sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors. For these types of transactions,
the broker-dealer must make a special suitability determination for the
purchaser and must receive the purchaser's written consent to the transaction
prior to the sale. Finally, monthly statements are required to be sent
disclosing recent price information for the penny stocks. The additional burdens
imposed upon broker-dealers by such requirements could discourage broker-dealers
from effecting transactions in our Common Stock. This could severely limit the
market liquidity of our Common Stock and the ability of a stockholder to sell
the Common Stock.
OUR SUCCESS IS DEPENDENT ON OUR KEY PERSONNEL WHOM WE MAY NOT BE ABLE TO RETAIN,
AND WE MAY NOT BE ABLE TO HIRE ENOUGH ADDITIONAL QUALIFIED PERSONNEL TO MEET OUR
GROWING NEEDS.
Our performance is substantially dependent on the services and on the
performance of our officers and directors. Our performance also depends on the
Company's ability to attract, hire, retain, and motivate our officers and key
employees. The loss of the services of any of the executive officers or other
key employees could have a material adverse effect on the Company's business,
prospects, financial condition, and results of operations. We have not entered
into employment agreements with any of our key personnel and currently have no
"Key Man" life insurance policies. Our future success may also depend on our
ability to identify, attract, hire, train, retain, and motivate other highly
skilled technical, managerial, marketing and customer service personnel.
Competition for such personnel are intense, and there can be no assurance that
we will be able to successfully attract, assimilate or retain sufficiently
qualified personnel. The failure to attract and retain the necessary technical,
managerial, marketing and customer service personnel could have a material
adverse effect on our business.
THE ASSETS ON OUR BALANCE SHEET INCLUDE A REVENUE INTEREST IN ASCENDANT, AND ANY
IMPAIRMENT OF THE REVENUE INTEREST COULD ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS AND FINANCIAL POSITION.
As of December 31, 2005, our total assets were approximately $14,578,000,
of which $415,000 were intangible assets relating to the revenue interest in
Ascendant. We cannot be certain that we will ever realize the value of such
intangible assets. If we were to record an intangible impairment charge, our
results of operations and financial position could be adversely affected.
10
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable
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 Capital
Management, L.P. ("NCM"). NCM is the general partner of Newcastle. Pursuant to
an oral agreement, the Company occupies a portion of NCM'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 the Complaint in the Chancery Court of New Castle County, Delaware. The
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 named in the Complaint 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. Mr. Davis alleges in the Complaint that different director defendants
breached their fiduciary duties to the Company. The allegations involve, among
other things, transactions with, and payments to, Mr. Holmes, a former executive
officer and director, and whether the Company operated as an unregistered
investment company in violation of the Investment Company Act of 1940. Mr. Davis
seeks the appointment of a receiver for the Company under Section 226(a) of the
Delaware General Corporation Law and other remedies.
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 May 6, 2005, the Company and certain of the
defendants filed a response in opposition to plaintiff's motion for receiver.
Mediation among parties named in the Complaint took place in Wilmington,
Delaware on May 13, 2005. On May 31, 2005, Mr. Davis filed an amendment to the
Complaint to include James Risher, a current director, and Newcastle as
additional defendants. On July 8, 2005, the Company and certain defendants filed
a supplemental response in opposition to plaintiff's motion for appointment of
receiver. The Company has had extensive meetings with the other parties to the
litigation in an attempt to settle the litigation. There can be no assurance
that the Company will be able to effect a settlement.
The Company is currently funding legal and professional fees of the
defendants pursuant to indemnification arrangements that were in place during
the respective terms of each of the defendants. The Company has met the $500,000
deductible as stipulated in the Company's directors' and officers' liability
insurance policy. The directors' and officers' liability insurance policy
carries a maximum coverage limit of $5,000,000. Because this case is in the
early stages, it is not possible to evaluate the likelihood of exceeding the
policy limit. As of December 31, 2005, the Company has recorded a receivable
from the insurance carrier of approximately $1,522,000 for reimbursement of
11
legal and professional fees incurred in excess of the policy deductible, in
accordance with the provisions of the insurance policy. The Company has not
received any reimbursement from the insurance carrier and continues to have
ongoing discussions with the insurance carrier regarding reimbursement under the
provisions of the policy. Nonpayment of the claim for reimbursement of legal and
professional fees could have a material adverse effect on the financial
condition and results of operations of the Company. The Company intends to
vigorously seek enforcement of its rights under the policy.
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 6 to the
accompanying 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.
The Company has been notified by counsel to both Mr. Holmes and David P.
Tusa (former chief financial officer) 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 6 to the
accompanying 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.
Pursuant to the Newcastle Transaction, the Company agreed to indemnify
Newcastle from any liability, loss or damage, together with all costs and
expenses related thereto that the Company may suffer which arises out of affairs
of the Company, its board of directors or employees prior to the closing of the
Newcastle Transaction. The Company's obligation to indemnify may be satisfied at
the option of the purchaser by issuing additional Series A Preferred Stock to
the purchaser, modifying the conversion price of the Series A Preferred Stock, a
payment of cash or a redemption of Series A Preferred Stock or a combination of
the foregoing. The Company and the purchaser have not yet determined whether
events that have arisen since the closing will trigger the indemnity provisions.
On December 12, 2005, the Company received a letter from the SEC, based on
a review of the Company's Form 10-K filed for the year ended December 31, 2004,
requesting that the Company provide a written explanation as to whether the
Company is an "investment company" (as such term is defined in the Investment
Company Act of 1940). The Company provided a written response to the SEC, dated
January 12, 2005, stating the reasons why it believes it is not an "investment
company". The Company continues to provide certain confirmatory information
requested by the SEC. See Item 1A. "Risk Factors--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."
During February 2006, the Company entered into an agreement with a former
employee to settle a dispute over a severance agreement that the employee had
entered into with the Company. The severance agreement, which was executed by
former management, provided for a payment of approximately $98,000 upon the
occurrence of certain events. The Company paid approximately $85,000 to settle
all claims associated with the severance agreement.
12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 2005, 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, 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". The table below sets forth the high and
low bid prices for the Common Stock from January 1, 2004 through December 31,
2005. 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, 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
Year Ended December 31, 2005:
1st Quarter $0.31 $0.23
2nd Quarter $0.25 $0.21
3rd Quarter $0.28 $0.19
4th Quarter $0.31 $0.18
STOCKHOLDERS
As of March 29, 2006, there were 34,653,104 shares of Common Stock
outstanding, held by 509 holders of record. The last reported sales price of the
Common Stock on March 29, 2006 was $0.21 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.
13
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, 2005,
2004, 2003, 2002, and 2001 and the balance sheet data as of December 31, 2005,
2004, 2003, 2002 and 2001 presented below are derived from the audited
Consolidated Financial Statements of the Company. The data presented below for
the years ended December 31, 2005, 2004 and 2003 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.
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
(in thousands, except per share data) 2005 2004 2003 2002 2001
---- ---- ---- ---- ----
Consolidated Statement of Operations Data:
Operating revenues .................................. $ 33 $ -- $ -- $ -- $ 502
Gross (loss) profit ................................. 33 -- -- -- (62)
Operating loss from continuing operations ........... (1,009) (4,854) (3,174) (3,560) (14,590)
Net loss from continuing operations ................. (543) (1,903) (6,486) (18,538) (38,328)
Net loss from discontinued
operations, net of income taxes ................... -- -- -- (962) (98)
Net (loss) income from disposal of
discontinued operations, net of income
taxes ............................................. -- -- (30) 2,254 2,385
Net loss ............................................ (543) (1,903) (6,516) (17,246) (36,041)
Preferred stock dividend ............................ (200) (107) -- -- --
Net loss applicable to common stockholders .......... (743) (2,010) (6,516) (17,246) (36,041)
Basic and diluted net (loss) income per common share:
Net loss from continuing operations ............... $ (.02) $ (.06) $ (0.19) $ (0.54) $ (1.10)
Net loss from discontinued
operations, net of income taxes .................. -- -- -- (0.03) --
Net (loss) income from disposal of
discontinued operations, net of
income taxes ..................................... -- -- -- 0.07 0.07
Net loss .......................................... $ (.02) $ (.06) $ (0.19) $ (0.50) $ (1.03)
Dividends per common share .......................... $ -- $ -- $ -- $ -- $ --
Weighted average common shares
outstanding ....................................... 34,653 34,653 34,379 34,217 34,910
DECEMBER 31,
-----------------------------------------------------------
(in thousands) 2005 2004 2003 2002 2001
---- ---- ---- ---- ----
Consolidated Balance Sheet Data:
Working capital ..................................... $ 13,554 $ 14,428 $ 4,357 $ 8,454 $ 9,532
Total assets ........................................ 14,578 15,095 13,036 20,124 39,577
Long-term obligations and redeemable
preferred stock .................................. 2 2 -- -- --
Additional paid-in capital .......................... 75,428 75,428 70,476 70,346 70,342
Accumulated deficit ................................. $(61,850) $(61,107) $(59,097) $(52,581) $(35,335)
14
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.
CONTINUING OPERATIONS
OPERATING REVENUES
On October 5, 2005, the Company entered into the Ascendant Agreement,
whereby the Company is currently entitled to a 50% interest, subject to certain
adjustments, in the revenues generated by Ascendant, which interest declines as
the assets that Ascendant manages reach certain levels. Revenues generated by
Ascendant include revenues from assets under management or any other sources or
investments, net of any agreed commissions. The total potential purchase price
under the terms of the Ascendant Agreement is $1,550,000, payable in four equal
installments of $387,500. The first installment was paid at the closing and the
second installment was paid on January 5, 2006. Subject to the provisions of the
Agreement, the third installment is payable on April 5, 2006 and the fourth
installment is payable on July 5, 2006. If the Company does not make an
installment and Ascendant is not in breach of the Ascendant Agreement, Ascendant
will have the right to acquire the Company's revenue interest at a price which
would yield a 10% annualized return to the Company. If Ascendant were to
materially breach its obligations under the Agreement, Ascendant could be
obligated to refund the Company the amount of its investment. Such refund would
not reduce the revenue interest acquired by the Company.
Ascendant had assets under management of approximately $17,800,000 and
$13,577,000 as of December 31, 2005 and 2004, respectively. During the quarter
ended December 31, 2005, Ascendant generated revenues of approximately $66,000
of which the Company was entitled to approximately $33,000. Based upon the
assets under management of Ascendant as of December 31, 2005, the Company
expects to initially receive revenues from Ascendant on a quarterly basis
ranging from $30,000 to $35,000, which amount will increase if the assets under
management of Ascendant increase or will decrease if the assets under management
of Ascendant decrease. The revenues earned by the Company are payable in cash
within 30 days after the end of each quarter.
After the second anniversary of the Ascendant Agreement and upon the
occurrence of certain events, Ascendant has the option to repurchase a portion
of the Company's revenue interest at a price which would yield a 25% annualized
return to the Company. The Company also entered into the Principals Agreement
with Ascendant and the limited partners and key employees of Ascendant pursuant
to which the Company has the option to purchase limited partnership interests of
Ascendant under certain circumstances.
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, 2005,
SG&A expenses totaled $1,035,000, compared to $4,826,000 during the year ended
December 31, 2004 and $3,021,000 during the year ended December 31, 2003. The
major components of SG&A expenses for the year ended December 31, 2005 are as
follows: officers and directors compensation and benefits of approximately
$237,000; audit and tax fees of approximately
15
$104,000; directors and officers insurance coverage of approximately $150,000;
settlement costs associated with the resolution of a dispute over a severance
agreement with a former employee of approximately $92,000; legal fees and other
public company cost of approximately $143,000; and legal fees of approximately
$260,000 which relate to the derivative action filed by Craig Davis (see "Part I
- Item 3. Legal Proceedings"), and were incurred prior the Company meeting the
deductible as provider for in the directors and officers liability insurance
policy.
The decrease in SG&A for the year ended December 31, 2005 when compared to
the year ended December 31, 2004 and December 31, 2003 is the result of the
number of salaried employees being reduced from five to one and a significant
reduction in executive compensation and benefits. SG&A expenses for the year
ended December 31, 2004 included a total of approximately $2,600,000 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
for 2004 also included approximately $700,000 for legal and professional
expenses, of which approximately $240,000 relates to the Complaint filed by
Craig Davis (see "Part I - Item 3. Legal Proceedings") and approximately
$500,000 relates to completing the proposed proxy statement seeking stockholder
approval to liquidate the Company (which was subsequently withdrawn) and
completing the sale of approximately 4,807,692 newly issued shares of the Series
A Preferred Stock to Newcastle on June 18, 2004. The Company also decreased its
rent expense as a result of the sublease entered into on October 8, 2004, to
sublet the Company's office space located at 10101 Reunion Place, Suite 970, San
Antonio, Texas.
DEPRECIATION AND AMORTIZATION
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, 2005,
depreciation and amortization expense totaled $7,000, compared to $28,000 during
the year ended December 31, 2004 and $153,000 during the year ended December 31,
2003. The decrease in depreciation and amortization from prior periods is
principally the result of fixed asset sales. The Company made no fixed asset
purchases during the year ended December 31, 2005.
INTEREST INCOME
Interest income totaled $423,000 during the year ended December 31, 2005,
compared to $121,000 and $77,000 during the years ended December 31, 2004 and
2003, respectively. The increase in interest income for the year ended December
31, 2005, as compared the year ended December 31, 2004 was attributable to
increased yields available for short-term investments and higher cash balances
available for short-term investment as the Company's cash resources were
increased by the Newcastle Transaction and the sale of Princeton (see Notes 1
and 4 of the accompanying Consolidated Financial Statements).
EQUITY IN NET LOSS OF AFFILIATES
Equity in net loss of affiliates totaled $0 during the year ended December
31, 2005, compared to $2,985,000 and $2,723,000 during the years ended December
31, 2004 and 2003, respectively. In June 2004, the Company sold all of its
holdings in Princeton, which offers electronic bill presentment and payment
services via the Internet and telephone.
GAIN ON SALE OF EQUITY AFFILIATE
The sale of Princeton for $10,000,000 in June 2004 generated a capital
loss for federal income tax purposes of approximately $67,000,000 and a book
gain of approximately $5,817,000 during the year ended December 31, 2004.
16
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 $306,000
and, accordingly, recorded an impairment write-down, which is included in other
income (expense) as impairment of investments in affiliates.
LITIGATION SETTLEMENT
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. 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 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. During the year ended
December 31, 2003, net other expense includes a litigation settlement of
$354,000, representing the transfer of the Company's investment in Microbilt to
Bristol. This settlement resolves all claims brought by and against the Company
and the officer.
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, 2005,
2004 and 2003.
DISCONTINUED OPERATIONS
NET LOSS FROM DISPOSAL OF DISCONTINUED OPERATIONS
During the year ended December 31, 2003, a net loss of $30,000 resulted
from the disposal of the discontinued operations of Tanisys Technology Inc.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance and short-term investments decreased to
$12,487,000 at December 31, 2005, from $14,611,000 at December 31, 2004. The
significant cash receipts and disbursements affecting the cash balances and
short-term investments for the year ended December 31, 2005, are as follows: a
payment of $200,000 dividend on the Series A Preferred Stock; funding of legal
cost related to the Complaint of $1,623,000 of which $1,522,000 is expected to
be reimbursed under the terms of the directors and officers liability insurance
policy; the first installment under the Ascendant Agreement of $387,500; and the
funding of SG&A expenses which was partially offset by $423,000 of interest
income and $334,000 in proceeds from the sale of Sharps during the year ended
December 31, 2005.
17
The Company is currently funding legal and professional fees of the
current and former director defendants in the Complaint pursuant to
indemnification arrangements that were in place during the respective terms of
each of the defendants. The Company has met the $500,000 deductible as
stipulated in the Company's directors' and officers' liability insurance policy.
The directors' and officers' liability insurance policy carries a maximum
coverage limit of $5,000,000. Because this case is in the early stages, it is
not possible to evaluate the likelihood of exceeding the policy limit. As of
December 31, 2005, the Company has recorded a receivable from the insurance
carrier of approximately $1,522,000 for reimbursement of legal and professional
fees incurred in excess of the policy deductible, in accordance with the
provisions of the policy. The Company has not received any reimbursement from
the insurance carrier and continues to have ongoing discussions with the
insurance carrier regarding reimbursement under the provisions of the policy.
Nonpayment of the claim for reimbursement of legal and professional fees could
have a material adverse effect on the financial condition and results of
operations of the Company. The Company intends to vigorously seek enforcement of
its rights under the policy.
During the next 12 months, the Company's operating cash requirements are
expected to consist principally of funding corporate expenses, the costs
associated with maintaining a public company and expenses incurred in pursuing
the Company's business plan. Additionally, the total potential purchase price
under the terms of the Ascendant Agreement is $1,550,000, payable in four equal
installments of $387,500. Subject to the provisions of the Ascendant Agreement,
the third installment is payable on April 5, 2006 and the fourth installment is
payable on July 5, 2006. If the Company does not make an installment and
Ascendant is not in breach of the Ascendant Agreement, Ascendant will have the
right to acquire the Company's revenue interest at a price which would yield a
10% annualized return to the Company. If Ascendant were to materially breach its
obligations under the Ascendant Agreement, Ascendant could be obligated to
refund the Company the amount of its investment. Such refund would not reduce
the revenue interest acquired by the Company. The Company is not obligated to
make the third or fourth installment and has not determined whether or not the
installment payments will be made.
The Company expects to incur additional operating losses through fiscal
2006 which will continue to have a negative impact on liquidity and capital
resources. Capital expenditures totaled $0 and $3,000 during the years ended
December 31, 2005 and 2004, respectively.
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 approximately $1,519,000 at December 31, 2005. The second
lease is related to office space located in Austin, Texas, and expires in 2010.
Under the original terms of the second lease, the remaining minimum undiscounted
rent payments total approximately $5,674,000 at December 31, 2005. 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).
18
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........... $ - $ - $ - $ - $ -
Capital lease obligations............ - - - - -
Operating lease obligations.......... 39 36 3 - -
Purchase obligations................. - - - - -
Other long-term liabilities
reflected on balance sheet
under GAAP......................... 2 - 2 - -
----------- ----------- ----------- ---------- ----------
Total................................ $ 41 $ 36 $ 5 $ - $ -
=========== =========== =========== ========== ==========
The operating lease obligations reflected in the table above represent the
Company's lease for office space, which is discussed further under Item 2 of
this annual report.
SEASONALITY
The Company'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
In December 2004, the FASB issued SFAS No. 123 (revised 2004), SHARE-BASED
PAYMENT, which established accounting standards for transactions where the
entity exchanges equity instruments for goods and services. The revision of this
statement focuses on the accounting for transactions where the entity obtains
employee services in share-based payment transactions. This statement revision
eliminates the alternative use of APB 25 intrinsic value method and requires
that entities adopt the fair-value method for all share-based transactions. This
statement is effective the next fiscal year following June 15, 2005. The Company
will adopt the provisions of this standard on a modified prospective basis in
the first quarter of 2006, and the Company believes that the overall impact to
the financial statements will be immaterial.
In March 2005, the SEC issued Staff Accounting Bulletin No. 107 regarding
the SEC's interpretation of SFAS No. 123R and the valuation of share-based
payments for public companies. The Company is evaluating the requirements of
SFAS No. 123R and SAB No. 107 and expects that the adoption of SFAS No. 123R on
January 1, 2006 will not have a material adverse effect on its financial
position, results of operation and cash flows.
In May 2005, the FASB issued SFAS No. 154, ACCOUNTING CHANGES AND ERROR
CORRECTIONS--A REPLACEMENT OF APB OPINION NO. 20 AND FASB STATEMENT NO. 3. SFAS
No. 154 changes the requirements for the accounting for and reporting of a
change in accounting principle. This statement requires retrospective
application to prior periods' financial statements of changes in accounting
principle, unless it is impracticable to determine either the period-specific
effects or the cumulative effect of the change.
19
This statement redefines restatements as the revising of previously issued
financial statements to reflect the correction of an error. SFAS No. 154
requires that retrospective application of a change in accounting principle be
limited to the direct effects of the change. This statement also requires that a
change in depreciation, amortization, or depletion method for long-lived,
non-financial assets be accounted for as a change in accounting estimate
affected by a change in accounting principle. SFAS No. 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. The Company does not expect the adoption of this
standard to have a material effect on its financial position, results of
operations or cash flows.
In November 2005, the FASB issued FSP FAS 115-1 and FAS 124-1, "The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments" ("FSP 115-1"), which provides guidance on determining when
investments in certain debt and equity securities are considered impaired,
whether that impairment is other-than-temporary, and on measuring such
impairment loss. FSP 115-1 also includes accounting considerations subsequent to
the recognition of an other-than-temporary impairment and requires certain
disclosures about unrealized losses that have not been recognized as
other-than-temporary impairments. FSP 115-1 is required to be applied to
reporting periods beginning after December 15, 2005. The Company does not expect
the adoption of the standard to have a material effect on its financial
position, results of operations 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.
CONSOLIDATION OF SUBSIDIARIES
In general, the accounting rules and regulations require the consolidation
of entities in which the company holds an equity 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.
As of December 31, 2003, the Company owned 34.0% of the outstanding shares
of Princeton. In June 2004, the Company sold all of its interest in Princeton
for $10,000,000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate risk through its portfolio of cash
equivalents and short-term investments. The Company does not believe that it has
significant exposure to market risks associated with changing interest rates as
of December 31, 2005, because the Company's intention is to maintain a liquid
portfolio. The Company has not used derivative financial instruments in its
operations.
20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company, and the related
reports of the Company's independent registered public accounting firm thereon,
are included in this report at the page indicated.
Page
----
Report of Management........................................................ 22
Report of Independent Registered Public Accounting Firm..................... 23
Consolidated Balance Sheets as of December 31, 2005 and 2004................ 24
Consolidated Statements of Operations for the Years Ended December 31,
2005, 2004 and 2003....................................................... 25
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2005, 2004 and 2003.......................................... 26
Consolidated Statements of Cash Flows for the Years Ended December 31,
2005, 2004 and 2003....................................................... 27
Notes to Consolidated Financial Statements.................................. 28
21
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, 2005 and 2004, 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
22
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
New Century Equity Holdings Corp.
We have audited the accompanying consolidated balance sheets of New Century
Equity Holdings Corp. (a Delaware corporation) and Subsidiaries as of December
31, 2005 and 2004, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 2005, 2004
and 2003. 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, 2005 and 2004,
and the consolidated results of their operations and their consolidated cash
flows for the years ended December 31, 2005, 2004 and 2003 in conformity with
accounting principles generally accepted in the United States of America.
/s/ BURTON McCUMBER & CORTEZ, L.L.P.
Brownsville, Texas
March 7, 2006
23
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
December 31,
2005 2004
-------- --------
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 12,487 $ 1,716
Accounts receivable ................................................ 33 --
Insurance receivable and other assets .............................. 1,637 145
Short-term investments ............................................. -- 12,895
-------- --------
Total current assets .............................................. 14,157 14,756
Property and equipment ............................................... 183 183
Accumulated depreciation ............................................. (183) (176)
-------- --------
Net property and equipment ......................................... -- 7
Investments .......................................................... -- 326
Other non-current assets ............................................. 6 6
Revenue interest ..................................................... 415 --
-------- --------
Total assets ....................................................... $ 14,578 $ 15,095
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................... $ 53 $ 45
Accrued liabilities ................................................ 550 283
-------- --------
Total current liabilities ......................................... 603 328
Other non-current liabilities ........................................ 2 2
-------- --------
Total liabilities ................................................. 605 330
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 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 75,428
Accumulated deficit ................................................ (61,850) (61,107)
Accumulated other comprehensive income ............................. -- 49
-------- --------
Total stockholders' equity ........................................ 13,973 14,765
-------- --------
Total liabilities and stockholders' equity ....................... $ 14,578 $ 15,095
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
24
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended December 31,
2005 2004 2003
-------- -------- --------
Operating revenues .................................. $ 33 $ -- $ --
Operating expenses:
Selling, general and administrative expenses ...... 1,035 4,826 3,021
Depreciation and amortization expense .............. 7 28 153
-------- -------- --------
Operating loss from continuing operations ........... (1,009) (4,854) (3,174)
Other income (expense):
Interest income .................................... 423 121 77
Equity in net loss of affiliates ................... -- (2,985) (2,723)
Gain on sale of equity affiliate ................... -- 5,817 --
Impairment of investments in affiliates ............ -- -- (306)
Litigation settlement .............................. -- -- (354)
Other (expense) income, net ........................ 43 (2) (6)
-------- -------- --------
Total other (expense) income, net ................... 466 2,951 (3,312)
-------- -------- --------
Net loss from continuing operations ................. (543) (1,903) (6,486)
Discontinued operations:
Net loss from disposal of discontinued operations,
including income tax benefit of $0 ............... -- -- (30)
-------- -------- --------
Net loss from discontinued operations ............. -- -- (30)
-------- -------- --------
Net loss ............................................ (543) (1,903) (6,516)
Preferred stock dividend ............................ (200) (107) --
-------- -------- --------
Net loss applicable to common stockholders .......... $ (743) $ (2,010) $ (6,516)
======== ======== ========
Basic and diluted net (loss) income per common share:
Net loss from continuing operations ................ $ (.02) $ (0.06) $ (0.19)
Net loss from discontinued operations .............. -- -- --
Net income from disposal of discontinued operations -- -- --
-------- -------- --------
Net loss ........................................... $ (.02) $ (0.06) $ (0.19)
-------- -------- --------
Weighted average common shares outstanding .......... 34,653 34,653 34,379
-------- -------- --------
The accompanying notes are an integral part of these
consolidated financial statements.
25
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(IN THOUSANDS)
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
-------- -------- -------- --------
Balances at December 31, 2002 ............. 34,218 $ 342 $ 70,346 $(52,581)
Issuance of common stock ................ 435 5 130 --
Net loss ................................ -- -- -- (6,516)
-------- -------- -------- --------
Balances at December 31, 2003 ............. 34,653 347 70,476 (59,097)
Issuance of preferred stock ............. -- -- 4,952 --
Comprehensive income (loss):
Unrealized gain on investment ........ -- -- -- --
Net loss ............................. -- -- -- (2,010)
Comprehensive loss ...................... -- -- -- (2,010)
-------- -------- -------- --------
Balances at December 31, 2004 ............. 34,653 347 75,428 (61,107)
Comprehensive income (loss):
Reclassification of unrealized gain on
investment ......................... -- -- -- --
Net loss ............................. -- -- -- (743)
Comprehensive loss ...................... -- -- -- (743)
-------- -------- -------- --------
Balances at December 31, 2005 ............. 34,653 $ 347 $ 75,428 $(61,850)
======== ======== ======== ========
Accumulated
Other
Preferred Stock Comprehensive
Shares Amount Income Total
-------- -------- -------- --------
Balances at December 31, 2002 ............. -- $ -- $ -- $ 18,107
Issuance of common stock ................ -- -- -- 135
Net loss ................................ -- -- -- (6,516)
-------- -------- -------- --------
Balances at December 31, 2003 ............. -- -- -- 11,726
Issuance of preferred stock ............. 4,808 48 -- 5,000
Comprehensive income (loss):
Unrealized gain on investment ........ -- -- 49 49
Net loss ............................. -- -- -- (2,010)
Comprehensive loss ...................... -- -- 49 (1,961)
-------- -------- -------- --------
Balances at December 31, 2004 ............. 4,808 48 49 14,765
Comprehensive income (loss):
Reclassification of unrealized gain on
investment ......................... -- -- (49) (49)
Net loss ............................. -- -- -- (743)
Comprehensive loss ...................... -- -- (49) (792)
-------- -------- -------- --------
Balances at December 31, 2005 ............. 4,808 $ 48 $ -- $ 13,973
======== ======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
26
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Year Ended December 31,
2005 2004 2003
-------- -------- --------
Cash flows from operating activities:
Net loss from continuing operations ............................... $ (543) $ (1,903) $ (6,486)
Adjustments to reconcile net loss from continuing operations to
net cash used in operating activities:
Depreciation and amortization expense ............................ 7 27 153
Equity in net loss of and impairment of investments in affiliates -- 2,985 3,029
Gain on sale of equity affiliate ................................. -- (5,817) --
Loss on sale of treasury bill .................................... 14 -- --
Gain on sale of Sharps Compliance Corp. common stock ............. (57) -- --
Litigation settlement ............................................ -- -- 354
Loss on disposition of fixed assets .............................. -- 30 17
Accretion of discount on securities .............................. (185) (36) --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ...................... (33) 28 (19)
(Increase) decrease in insurance receivable and other assets .... (1,492) 171 156
Increase (decrease) in accounts payable ......................... 8 (13) 28
Increase (decrease) in accrued liabilities ...................... 267 (687) 486
Increase in other liabilities and other non-cash items .......... -- -- 136
-------- -------- --------
Net cash used in continuing operating activities .................... (1,238) (5,215) (2,146)
Net cash provided by discontinued operating activities .............. -- -- 78
-------- -------- --------
Net cash used in operating activities ............................. (1,238) (5,215) (1,968)
Cash flows from investing activities:
Purchases of property and equipment ............................... -- (3) (6)
Proceeds from sale of short-term investments ...................... 27,186 -- --
Purchase of short-term investments ................................ (13,786) (12,858) --
Purchase of revenue interest ...................................... (415)
Investments in affiliates ......................................... -- -- (1,400)
Proceeds from sale of equity affiliate (all holdings in Princeton) -- 10,000 --
Proceeds from sale of equity affiliate (all holdings in Princeton)
allocated to former chief executive officer ....................... -- (600) --
Other investing activities ........................................ -- 62 --
-------- -------- --------
Net cash provided by (used in) investing activities ................. 12,209 (3,399) (1,406)
Cash flows from financing activities:
Cash dividends paid on preferred stock ............................ (200) -- --
Proceeds from sale of preferred stock ............................. 5,000 --
-------- -------- --------
Net cash (used in) provided by financing activities ................. (200) 5,000 --
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ................ 10,771 (3,614) (3,374)
Cash and cash equivalents, beginning of period ...................... 1,716 5,330 8,704
-------- -------- --------
Cash and cash equivalents, end of period ............................ $ 12,487 $ 1,716 $ 5,330
======== ======== ========
Supplemental disclosure of non-cash transactions:
Increase in fair market value of investments ....................... $ -- $ 49 $ --
Preferred stock dividend ........................................... $ -- $ 107 $ --
The accompanying notes are an integral part of these
consolidated financial statements.
27
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005, 2004 AND 2003
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. On October 5, 2005, the Company made an
investment in ACP Investments L.P. (d/b/a Ascendant Capital Partners)
("Ascendant"), pursuant to which the Company currently receives 50% of the
revenues generated by Ascendant. Ascendant is a Berwyn, Pennsylvania based
alternative asset management company whose funds have investments in long/short
equity funds and which distributes its registered funds primarily through
various financial intermediaries and related channels. The Company's interest in
Ascendant currently represents the Company's sole operating business.
The Company, which was formerly known as Billing Concepts Corp. ("BCC")
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
$49,700,000 (the "Platinum Transaction"). The Company also received payments
totaling $7,500,000 for consulting services provided to Platinum over the
twenty-four month period subsequent to the Platinum Transaction.
Beginning in 1998, the Company made multiple investments in Princeton eCom
Corporation ("Princeton") totaling approximately $77,300,000 before selling all
of its interest for $10,000,000 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 early 2004, the Company announced that it would seek stockholder
approval to liquidate the Company. In June of 2004, the board of directors of
the Company determined that it would be in the best interest of the Company to
accept an investment from Newcastle Partners, L.P. ("Newcastle"), an investment
fund with a long track record of investing in public and private companies. On
June 18, 2004, the Company sold 4,807,692 newly issued shares of its Series A 4%
Convertible Preferred Stock (the "Series A Preferred Stock") to Newcastle for
$5,000,000 (the "Newcastle Transaction"). The Series A Preferred Stock 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. Following
the investment by Newcastle, the management team resigned and new executives and
board members were appointed.
During May, 2005, the Company sold its equity interest in Sharps
Compliance Corp. ("Sharps") for approximately $334,000. Following the sale of
its Sharps interest, the Company no longer holds any investments made by former
management and which reflected former management's strategy of investing in
high-growth companies.
28
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") (See Note 6). The Company has had extensive meetings with the other
parties to the litigation in an attempt to settle the litigation. There can be
no assurance that the Company will be able to effect a settlement.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company, its wholly owned subsidiaries and subsidiaries in which the Company
is deemed to have control for accounting purposes. The Company's investment in
Princeton was accounted for using the equity method of accounting. The Company's
investment in Sharps was 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.
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 cash and cash equivalents.
REVENUE RECOGNITION
The Company's consolidated revenues represent revenue from the revenue
interest in Ascendant. Such revenues are recognized monthly as services are
rendered and are based upon a percentage of the market value of assets under
management (see Note 3).
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are accounted for at fair value, do not bear interest
and are short-term in nature. The Company maintains an allowance for doubtful
accounts for estimated losses resulting from the inability to collect on
accounts receivables. Based on management's assessment, the Company provides for
estimated uncollectible amounts through a charge to earnings and a credit to the
valuation allowance. Balances that remain outstanding after the Company has used
reasonable collection efforts are written off through a charge to the valuation
allowance and a credit to accounts receivable. The Company generally does not
require collateral.
FINANCIAL INSTRUMENTS
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
29
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.
REVENUE INTEREST
The Company has determined that the revenue interest that it has acquired
in 2005 meets the indefinite life criteria outlined in SFAS No. 142, "Goodwill
and Other Intangible Assets" ("SFAS 142"). Accordingly, the Company does not
amortize this intangible asset, but instead reviews this asset quarterly for
impairment. Each reporting period, the Company assesses whether events or
circumstances have occurred which indicate that the indefinite life criteria are
no longer met. If the indefinite life criteria are no longer met, the Company
assesses whether the carrying value of the asset exceeds its fair value, and an
impairment loss is recorded in an amount equal to any such excess.
The Company assesses whether the entity in which the acquired revenue
interest exists meets the indefinite life criteria based on a number of factors
including: the historical and potential future operating performance; the
historical and potential future rates of attrition among existing clients; the
stability and longevity of existing client relationships; the recent, as well as
long-term, investment performance; the characteristics of the firm's products
and investment styles; the stability and depth of the management team and the
history and perceived franchise or brand value.
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 accounted 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
period.
30
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments. The
Company maintains cash and cash equivalents and short-term investments. Cash
deposits at a financial institution may from time to time exceed Federal Deposit
Insurance Corporation insurance limits.
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 $25,000,000 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.
RECLASSIFICATIONS
Certain amounts have been reclassified in the prior year to conform to the
current year presentation.
DISCONTINUED OPERATIONS
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 previously 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 ("EPS") for entities with publicly-held common
stock or potential common stock. As the Company had a net loss from continuing
operations for the years ended December 31, 2005, 2004 and 2003, 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").
31
In December 2004, the FASB issued SFAS No. 123 (revised 2004), SHARE-BASED
PAYMENT, which established accounting standards for transactions where the
entity exchanges equity instruments for goods and services. The revision of this
statement focuses on the accounting for transactions where the entity obtains
employee services in share-based payment transactions. This statement revision
eliminates the alternative use of APB 25 intrinsic value method and requires
that entities adopt the fair-value method for all share-based transactions. This
statement is effective the next fiscal year following June 15, 2005. The Company
will adopt the provisions of this standard on a modified prospective basis in
the first quarter of 2006. The Company believes that the overall impact to the
financial statements will be immaterial.
In March 2005, the SEC issued Staff Accounting Bulletin No. 107 regarding
the SEC's interpretation of SFAS No. 123R and the valuation of share-based
payments for public companies. The Company is evaluating the requirements of
SFAS No. 123R and SAB No. 107 and expects that the adoption of SFAS No. 123R on
January 1, 2006 will not have a material adverse effect on its financial
position, results of operation and cash flows.
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.
Year Ended December 31,
(in thousands, except per share data) 2005 2004 2003
------- ------- -------
Net loss, as reported .................................... $ (743) $(1,903) $(6,516)
Less: Total stock based employee compensation expense
determined under the fair value based method for all
awards, net of related tax effects ..................... (32) (100) (347)
------- ------- -------
Net loss, pro forma ...................................... $ (775) $(2,003) $(6,863)
======= ======= =======
Basic and diluted net loss per common share:
Net loss, as reported .................................. $ (0.02) $ (0.06) $ (0.19)
======= ======= =======
Net loss, pro forma .................................... $ (0.02) $ (0.06) $ (0.20)
======= ======= =======
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%, 99.2% and 96.3% for the years
ended December 31, 2005, 2004 and 2003, 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%, 4.75%, and 1.8% for the years
ended December 31, 2005, 2004 and 2003, respectively.
NOTE 3. REVENUE INTEREST
On October 5, 2005, the Company entered into an agreement (the "Ascendant
Agreement") with Ascendant to acquire an interest in the revenues generated by
Ascendant. Pursuant to the Ascendant Agreement, the Company is currently
entitled to a 50% interest, subject to certain adjustments, in the revenues of
Ascendant, which interest declines if the assets under management of Ascendant
reach certain levels. Revenues generated by Ascendant include revenues from
assets under management or any other sources or investments, net of any agreed
commissions. The Company also agreed to provide various marketing services to
Ascendant. Steven J. Pully, CEO of the Company, was appointed to the Investment
Advisory Committee of Ascendant. The total potential purchase price under the
terms of the Ascendant
32
Agreement is $1,550,000, payable in four equal installments of $387,500. The
first installment was paid at the closing and the second installment was paid on
January 5, 2006. Subject to the provisions of the Agreement, the third
installment is payable on April 5, 2006 and the fourth installment is payable on
July 5, 2006.
If the Company does not make an installment payment and Ascendant is not
in breach of the Ascendant Agreement, Ascendant will have the right to acquire
the Company's revenue interest at a price which would yield a 10% annualized
return to the Company. If Ascendant were to materially breach its obligations
under the Agreement, Ascendant could be obligated to refund the Company the
amount of its investment. Such refund would not reduce the revenue interest
acquired by the Company.
Ascendant had assets under management of approximately $17,800,000 and
$13,577,000 as of December 31, 2005 and 2004, respectively. During the quarter
ended December 31, 2005, Ascendant generated revenues of approximately $66,000
of which the Company was entitled to approximately $33,000. The revenues earned
by the Company from the Ascendant revenue interest are payable in cash within 30
days after the end of each quarter.
After the second anniversary of the Ascendant Agreement and upon the
occurrence of certain events, Ascendant has the option to repurchase a portion
of the Company's interest at a price which would yield a 25% annualized return
to the Company. In connection with the Ascendant Agreement, the Company also
entered into the Principals Agreement with Ascendant and certain limited
partners and key employees of Ascendant (the "Principals Agreement") pursuant to
which the Company has the option to purchase limited partnership interests of
Ascendant under certain circumstances (see Note 19).
NOTE 4. 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. Beginning in 1998 and through 2003 the Company invested
a total of approximately $77,300,000 in Princeton. In June 2004, the Company
sold all its interest in Princeton for $10,000,000. The sale generated a capital
loss for federal income tax purposes of approximately $67,000,000 and a book
gain of approximately $5,800,000.
FIDATA/MICROBILT
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. 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 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. During the year ended
December 31, 2003, net other expense includes a litigation settlement of
$354,000, representing the transfer of the Company's investment in Microbilt to
Bristol. This settlement resolves all claims brought by and against the Company
and the officer.
33
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. During the year ended December 31,
2003, the Company recorded an approximate $306,000 impairment write-down related
to its investment in Sharps (see Note 10).
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. During the period from April 1, 2005 through May 5,
2005, the Company sold its equity interest in Sharps for approximately $334,000,
resulting in a $57,000 gain for financial reporting purposes.
NOTE 5. ACCRUED LIABILITIES
Accrued liabilities is comprised of the following:
December 31,
(in thousands) 2005 2004
------ ------
Accrued public company cost .............. $ 129 $ 98
Accrued preferred stock dividend ......... 107 107
Accrued legal ............................ 223 64
Accrued settlement ....................... 85 --
Other .................................... 6 14
------ ------
Total accrued liabilities .............. $ 550 $ 283
====== ======
During February 2006, the Company entered into an agreement with a former
employee to settle a dispute over a severance agreement the employee had entered
into with the Company. The severance agreement which was executed by former
management provided for a payment of approximately $98,000 upon the occurrence
of certain events. The Company paid approximately $85,000 to settle all claims
associated with the severance agreement.
NOTE 6. COMMITMENTS AND CONTINGENCIES
In October 2000, the Company completed the Platinum Transaction. Under the
terms of the Platinum Transaction, all leases and corresponding obligations
associated with the Transaction Processing and Software Business were assumed by
Platinum. Prior to the Platinum Transaction, the Company guaranteed two
operating leases for office space of the divested companies. The first lease is
related to office space located in San Antonio, Texas, and expires in 2006.
Under the original terms of the first lease, the remaining minimum undiscounted
rent payments total approximately $1,519,000 at December 31, 2005. The second
lease is related to office space located in Austin, Texas, and expires in 2010.
Under the original terms of the second lease, the remaining minimum undiscounted
rent payments total approximately $5,674,000 at December 31, 2005. 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.
34
On August 11, 2004, Craig Davis, allegedly a stockholder of the Company,
filed the Complaint in the Chancery Court of New Castle County, Delaware. The
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 named in the Complaint 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. Mr. Davis alleges in the Complaint that different director defendants
breached their fiduciary duties to the Company. The allegations involve, among
other things, transactions with, and payments to, Mr. Holmes, a former executive
officer and director, and whether the Company operated as an unregistered
investment company. 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.
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 May 6, 2005, the Company and certain of the
defendants filed a response in opposition to plaintiff's motion for receiver.
Mediation among parties named in the Complaint took place in Wilmington,
Delaware on May 13, 2005. On May 31, 2005, Mr. Davis filed an amendment to the
Complaint to include James Risher, a current director, and Newcastle as
additional defendants. On July 8, 2005, the Company and certain of the
defendants filed a supplemental response in opposition to plaintiff's motion for
appointment of receiver. The Company has had extensive meetings with the other
parties to the litigation in an attempt to settle the litigation. There can be
no assurance that the Company will be able to effect a settlement.
The Company is currently funding legal and professional fees of the
defendants pursuant to indemnification arrangements that were in place during
the respective terms of each of the defendants. The Company has met the $500,000
deductible as stipulated in the Company's directors' and officers' liability
insurance policy. The directors' and officers' liability insurance policy
carries a maximum coverage limit of $5,000,000. Because this case is in the
early stages, it is not possible to evaluate the likelihood of exceeding the
policy limit. As of December 31, 2005, the Company has recorded a receivable
from the insurance carrier of approximately $1,522,000 for reimbursement of
legal and professional fees incurred in excess of the policy deductible, in
accordance with the provisions of the insurance policy. The Company has not
received any reimbursement from the insurance carrier and continues to have
ongoing discussions with the insurance carrier regarding reimbursement under the
provisions of the policy. Nonpayment of the claim for reimbursement of legal and
professional fees could have a material adverse effect on the financial
condition and results of operations of the Company. The Company intends to
vigorously seek enforcement of its rights under the policy.
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.
35
The Company has been notified by counsel to both Mr. Holmes and David P.
Tusa (former chief financial officer) 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.
Pursuant to the sale of 4,807,692 newly issued shares of the Series A
Preferred Stock to Newcastle on June 18, 2004 the Company agreed to indemnify
Newcastle from any liability, loss or damage, together with all costs and
expenses related thereto that the Company may suffer which arises out of affairs
of the Company, its board of directors or employees prior to the closing of the
Newcastle Transaction. The Company's obligation to indemnify may be satisfied at
the option of the purchaser by issuing additional Series A Preferred Stock to
the purchaser, modifying the conversion price of the Series A Preferred Stock, a
payment of cash or a redemption of Series A Preferred Stock or a combination of
the foregoing. The Company and the purchaser have not yet determined whether
events that have arisen since the closing will trigger the indemnity provisions.
On December 12, 2005, the Company received a letter from the SEC, based on
a review of the Company's Form 10-K filed for the year ended December 31, 2004,
requesting that the Company provide a written explanation as to whether the
Company is an "investment company" (as such term is defined in the Investment
Company Act of 1940). The Company provided a written response to the SEC, dated
January 12, 2005, stating the reasons why it believes it is not an "investment
company". The Company continues to provide certain confirmatory information
requested by the SEC. See Item 1A. of Form 10-K for the year ended December 31,
2005 - "Risk Factors--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."
During February 2006, the Company entered into an agreement with a former
employee to settle a dispute over a severance agreement the employee had entered
into with the Company. The severance agreement which was executed by former
management provided for a payment of approximately $98,000 upon the occurrence
of certain events. The Company paid approximately $85,000 to settle all claims
associated with the severance agreement.
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.
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.
36
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 dividends on the Series A Preferred Stock have been paid. In
addition, whenever the Company shall declare or pay any dividends on its Common
Stock, the holders of the 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 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 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. On June 18, 2005, the
holders of the Series A Preferred Stock elected to receive the Preferred
Dividends in cash for the annual period ended June 18, 2005.
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.
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 $25,000,000 of the Company's Common Stock in the open
market or in privately negotiated transactions. Through December 31, 2005, the
Company had purchased an aggregate $20,100,000, or 8,300,000 shares, of treasury
stock under this program. The Company made no treasury stock purchases during
the year ended December 31, 2005, and has no plans to make any future treasury
stock purchases.
37
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 14,500,000
and 1,300,000 shares of its Common Stock for issuance pursuant to the
Comprehensive Plan and the Director Plan, respectively. Under each plan, options
vest and expire pursuant to individual award agreements; however, the expiration
date of unexercised options may not exceed ten years from the date of grant
under the Comprehensive Plan and seven years from the date of grant under the
Director Plan.
Option activity for the years ended December 31, 2005, 2004 and 2003, is
summarized as follows:
Number Weighted Average
of Shares Exercise Price
--------- --------------
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
Granted................................. 90,000 $0.24
Canceled................................ (643,406) $2.68
----------
Outstanding, December 31, 2005............ 2,216,198 $2.86
==========
At December 31, 2005, 2004 and 2003, stock options to purchase an
aggregate of 2,082,865, 2,500,854, and 4,995,062 shares were exercisable and had
weighted average exercise prices of $3.02, $3.13, and $4.53 per share,
respectively.
38
Stock options outstanding and exercisable at December 31, 2005, 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
------ ----------- ------- -------------- ----------- --------------
$ 0.24 - $ 1.98 1,135,451 3.1 $ 0.35 1,002,118 $ 0.37
$ 2.03 - $ 4.88 876,414 1.0 $ 3.27 876,414 $ 3.27
$ 5.69 - $ 16.84 204,333 1.6 $ 14.62 204,333 $ 14.62
----------- -----------
2,216,198 2.2 $ 2.86 2,082,865 $ 3.02
=========== ===========
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 $0.24 and $0.24 for the year ended
December 31, 2005, $0.25 and $0.28 for the year ended December 31, 2004 and
$0.20 and $0.29 for the year ended December 31, 2003, 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 $306,000 and, accordingly, recorded an impairment
write-down, which is included in other income (expense) as impairment of
investments in affiliates.
NOTE 11. SHORT-TERM INVESTMENTS
In October 2004, the Company purchased a 26 week U.S. Treasury bill for
approximately $12,859,000 which matured on May 5, 2005 for $13,000,000. In May
2005, the Company purchased a 26 week U.S. Treasury bill for approximately
$13,786,000 which was sold on July 27, 2005 for approximately $13,863,000. As of
December 31, 2005, the Company held all short-term investments in cash.
NOTE 12. LEASES
The Company leases certain office space and equipment under operating
leases. Rental expense was approximately $36,000, $58,000 and $164,000 for the
years ended December 31, 2005, 2004 and 2003, respectively. Future minimum lease
payments under non-cancelable operating leases as of December 31, 2005 are
$36,000 for the year ending December 31, 2006 and $3,000 for the year ending
December 31, 2007 and $0 for all years thereafter. Future minimum sub-lease
receipts under sub-lease rentals for the year ending December 31, 2006 and the
year ending December 31, 2007, are $30,000 and $2,500, respectively.
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 occupies a portion of Newcastle's
space on a month-to-month basis at no charge.
39
NOTE 13. INCOME TAXES
The income tax benefit is comprised of the following:
Year Ended December 31,
(in thousands) 2005 2004 2003
-------- -------- --------
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) 2005 2004 2003
-------- -------- --------
Computed income tax benefit at statutory rate ....... $ 190 $ 666 $ 2,270
(Decrease) increase in taxes resulting from:
Nondeductible losses in and impairments of affiliates -- (1,045) (1,060)
Book gain on sale of equity affiliate ............... -- 2,036 --
Tax capital loss on sale of equity affiliate ........ -- 23,547 --
Permanent and other deductions, net ................. 20 (754) (218)
Valuation allowance ................................. (210) (24,450) (992)
-------- -------- --------
Income tax benefit .................................. $ -- $ -- $ --
======== ======== ========
The tax effect of significant temporary differences, which comprise the
deferred tax liability, is as follows:
December 31,
(in thousands) 2005 2004
--------- --------
Deferred tax asset:
Net operating loss carryforward.................... $ 3,541 $ 3,331
Capital loss carryforward.......................... 23,547 23,547
Valuation allowance................................ (27,088) (26,878)
Deferred tax liability:
Estimated tax liability............................ -- --
--------- --------
Net deferred tax liability...................... $ -- $ --
========= ========
As of December 31, 2005, the Company had a federal income tax loss
carryforward of approximately $10,000,000, which begins expiring in 2019. In
addition, the Company had a federal capital loss carryforward of approximately
$67,000,000 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.
40
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, 2005, 2004 or 2003. The Company's matching
contributions to this plan totaled approximately $7,500, $22,000 and $29,000 for
the years ended December 31, 2005, 2004 and 2003, respectively.
NOTE 15. SUMMARIZED FINANCIAL INFORMATION FOR UNCONSOLIDATED SUBSIDIARY
In June 2004, the Company sold all of its interest in Princeton for
$10,000,000. The sale of Princeton generated a capital loss for federal income
tax purposes of approximately $67,000,000. Prior to selling its interest in
Princeton in June 2004, the Company accounted for its investment in Princeton
under the equity method of accounting and recorded the equity in net loss of
Princeton on a three-month lag. As a result of the sale of the Company's
holdings in Princeton, the Company accelerated the recording of its equity in
net loss of Princeton to the date of sale. Princeton's statement of operations
for the eight months ended May 31, 2004, was used to calculate the equity in net
loss recorded in the Company's statement of operations for the year ended
December 31, 2004.
Princeton's summarized balance sheet is as follows:
May 31, September 30,
(in thousands) 2004 2003
---- ----
Current assets ................................... $47,528 $34,750
Non-current assets ............................... 9,464 12,681
Current liabilities .............................. 38,188 30,386
Non-current liabilities .......................... 1,209 486
Mandatorily redeemable convertible preferred stock 49,845 39,587
Princeton's summarized statements of operations are as follows:
Eight
Months Ended Year Ended
May 31, September 30,
(in thousands) 2004 2003
---- ----
Revenues ..................... $ 16,695 $ 35,309
Gross profit ................. 7,258 16,026
Loss from operations ......... (9,188) (7,965)
Net loss ..................... (9,214) (7,674)
41
NOTE 16. RELATED PARTIES
Parris H. Holmes, Jr. (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. David P. Tusa (former Chief Financial Officer
of the Company) served as a member of the Board of Princeton from August 2001
until June 2002.
According to public filings, Mr. Holmes has been a member of the board of
directors of Sharps since July 1998. Mr. Tusa was appointed Chief Financial
Officer of Sharps in February 2003. A former member of the Company's board of
directors, Lee Cooke, served on the board of directors of Sharps from March 1992
until November 2004.
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
$172,000. 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. In conjunction with the Insurance Agreement, the
Company relinquished its rights under two other split-dollar life insurance
policies previously entered into with Mr. Holmes. All premiums had been paid
under the two policies prior to 2004. The Company paid approximately $3,800 on
behalf of Mr. Holmes in connection with the transfer of rights to Mr. Holmes.
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 at no cost by the Company. 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.
42
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, Mark Schwarz,
Chief Executive Officer and Chairman of Newcastle Capital Management, L.P.
("NCM"), Steve Pully, President of NCM, and John Murray, Chief Financial Officer
of NCM, assumed positions as Chairman of the Board, Chief Executive Officer and
Chief Financial Officer, respectively, of the Company. Mr. Pully receives an
annual salary of $150,000 as Chief Executive Officer of the Company. NCM 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 NCM.
Pursuant to an oral agreement, the Company occupies a portion of NCM's space on
a month-to-month basis at no charge. The Company also receives accounting and
administrative services from employees of NCM at no charge.
43
NOTE 17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Three Months Ended
-----------------------------------------------------------
December 31, September 30, June 30, March 31,
(in thousands, except per share data) 2005 2005 2005 2005
------------ ------------- -------- ---------
Operating revenues .................................. $ 33 $ -- $ -- $ --
Operating loss from continuing operations ........... (121) (287) (246) (355)
Net (loss) income ................................... 13 (193) (89) (274)
Preferred stock dividend ............................ (50) (50) (50) (50)
Net loss available to common stockholders ........... (37) (243) (139) (324)
Basic and diluted net (loss) income per common share:
Net (loss) income from continuing operations ....... 0.00 (0.01) (0.00) (0.01)
Net (loss) income .................................. 0.00 (0.01) (0.00) (0.01)
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 ................................... (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)
NOTE 18. DISCONTINUED OPERATIONS
NET LOSS FROM DISPOSAL OF DISCONTINUED OPERATIONS
During the year ended December 31, 2003, net loss from disposal of
discontinued operations is comprised of income of approximately $147,000 from
the sale of Tanisys and approximately $212,000 from the reduction of accruals
related to discontinued operations, offset by a non-cash charge of approximately
$389,000 to settle claims related to the OSC acquisition.
44
NOTE 19. SUBSEQUENT EVENTS (UNAUDITED)
In connection with the Ascendant Agreement, the Company also entered into
the Principals Agreement with Ascendant and certain limited partners and key
employees of Ascendant pursuant to which the Company has the option to purchase
limited partnership interests of Ascendant under certain circumstances.
Effective March 14, 2006, in accordance with the terms of the Principals
Agreement, the Company acquired a 7% limited partnership interest from a limited
partner of Ascendant for a nominal amount.
45
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 for timely decisions regarding required disclosures.
As of the end of the period covered by this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company'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.
46
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 will be furnished on or prior to April
30, 2006 (and is hereby incorporated by reference) by an amendment hereto or
pursuant to a definitive proxy statement of the Company's 2006 Annual Meeting of
Stockholders for the fiscal year ended December 31, 2005.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 will be furnished on or prior to April
30, 2006 (and is hereby incorporated by reference) by an amendment hereto or
pursuant to a definitive proxy statement of the Company's 2006 Annual Meeting of
Stockholders for the fiscal year ended December 31, 2005.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by Item 12 will be furnished on or prior to April
30, 2006 (and is hereby incorporated by reference) by an amendment hereto or
pursuant to a definitive proxy statement of the Company's 2006 Annual Meeting of
Stockholders for the fiscal year ended December 31, 2005.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 will be furnished on or prior to April
30, 2006 (and is hereby incorporated by reference) by an amendment hereto or
pursuant to a definitive proxy statement of the Company's 2006 Annual Meeting of
Stockholders for the fiscal year ended December 31, 2005.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 will be furnished on or prior to April
30, 2006 (and is hereby incorporated by reference) by an amendment hereto or
pursuant to a definitive proxy statement of the Company's 2006 Annual Meeting of
Stockholders for the fiscal year ended December 31, 2005.
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.
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.
47
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, LP,
dated June 18, 2004 (incorporated by reference from Exhibit 2.1 to Form
8-K, dated June 30, 2004).
3.1 Amended and Restated Certificate of Incorporation of BCC (incorporated
by reference from Exhibit 3.1 to Form 10/A, Amendment No. 1, dated July
11, 1996); as amended by Certificate of Amendment to Certificate of
Incorporation, filed with the Delaware Secretary of State, amending
Article I to change the name of the Company to Billing Concepts Corp.
and amending Article IV to increase the number of authorized shares of
common stock from 60,000,000 to 75,000,000, dated February 27, 1998
(incorporated by reference from Exhibit 3.4 to Form 10-Q, dated March
31, 1998).
3.2 Amended and Restated Bylaws of BCC (incorporated by reference from
Exhibit 3.3 to Form 10-K, dated September 30, 1998).
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).
48
*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).
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).
10.16 Revenue Sharing Agreement, dated as of October 5, 2005, between New
Century Equity Holdings Corp. and ACP Investments LP (incorporated by
reference from Exhibit 10.1 to Form 10-Q, dated September 30, 2005).
10.17 Principals Agreement, dated as of October 5, 2005, by and among New
Century Equity Holdings Corp. and ACP Investments LP (incorporated by
reference from Exhibit 10.2 to Form 10-Q, dated September 30, 2005).
14.1 New Century Equity Holdings Corp. Code of Ethics (incorporated by
reference from Exhibit 14.1 to Form 10-K, dated December 31, 2003).
21.1 List of Subsidiaries:
New Century Equity Holdings of Texas, Inc. (incorporated in Delaware)
New Century Equity Holdings, Inc. (incorporated in Texas)
23.1 Consent of Burton, McCumber & Cortez, L.L.P. (filed herewith).
31.1 Certification of Chief Executive Officer in Accordance with Section 302
of the Sarbanes-Oxley Act (filed herewith).
31.2 Certification of Chief Financial Officer in Accordance with Section 302
of the Sarbanes-Oxley Act (filed herewith).
32.1 Certification of Chief Executive Officer in Accordance with Section 906
of the Sarbanes-Oxley Act (filed herewith).
32.2. Certification of Chief Financial Officer in Accordance with Section 906
of the Sarbanes-Oxley Act (filed herewith).
* Includes compensatory plan or arrangement.
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
NEW CENTURY EQUITY HOLDINGS CORP.
(Registrant)
Date: March 30, 2006 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 30th day of March 2006.
SIGNATURE TITLE
/s/ Steven J. Pully Chief Executive Officer
---------------------------- (Principal Executive Officer)
Steven J. Pully
/s/ John P. Murray Chief Financial Officer
---------------------------- (Principal Financial and Accounting Officer)
John P. Murray
/s/ Mark E. Schwarz Director and
---------------------------- Chairman of the Board
Mark E. Schwarz
/s/ James Risher Director
----------------------------
James Risher
/s/ Jonathan Bren Director
----------------------------
Jonathan Bren
50
