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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 OF1934
For the Fiscal Year ended December 31, 2006
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from to
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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)
200 Crescent Court, Suite 1400, 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 a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):
Large Accelerated Filer |_| Accelerated Filer |_| Non-Accelerated Filer |X|
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 $8,280,745.
As of March 30, 2007, the registrant had 53,883,872 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12, 13 and 14 of Part III of this Form 10-K incorporate by
reference portions of an amendment to this Form 10-K or portions of a definitive
proxy statement of the registrant for its 2007 Annual Meeting of Stockholders to
be held on a date to be determined, which in either case will be filed with the
Securities and Exchange Commission within 120 days after the end of the fiscal
year ended December 31, 2006.
2
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2006
PAGE
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PART I
Item 1. Business....................................................... 4
Item 1A. Risk Factors.....................................................7
Item 1B. Unresolved Staff Comments.......................................11
Item 2. Properties..................................................... 11
Item 3. Legal Proceedings.............................................. 11
Item 4. 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 Disclosures About Market Risk......21
Item 8. Financial Statements and Supplementary Data.................... 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................44
Item 9A. Controls and Procedures.........................................44
Item 9B. Other Information...............................................44
PART III
Item 10. Directors, Executive Officers and Corporate Governance..........45
Item 11. Executive Compensation..........................................45
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters......................45
Item 13. Certain Relationships and Related Transactions,
and Director Independence.......................................45
Item 14. Principal Accountant Fees and Services..........................45
PART IV
Item 15. Exhibits and Financial Statement Schedules......................45
Signatures......................................................49
3
PART I
ITEM 1. BUSINESS
THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN "FORWARD-LOOKING"
STATEMENTS AS SUCH TERM IS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995 AND INFORMATION RELATING TO THE COMPANY AND ITS SUBSIDIARIES THAT
ARE BASED ON THE BELIEFS OF THE COMPANY'S MANAGEMENT AS WELL AS ASSUMPTIONS MADE
BY AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY'S MANAGEMENT. WHEN USED IN
THIS REPORT, THE WORDS "ANTICIPATE", "BELIEVE", "ESTIMATE", "EXPECT" AND
"INTEND" AND WORDS OR PHRASES OF SIMILAR IMPORT, AS THEY RELATE TO THE COMPANY
OR ITS SUBSIDIARIES OR COMPANY MANAGEMENT, ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT RISKS,
UNCERTAINTIES AND ASSUMPTIONS RELATED TO CERTAIN FACTORS INCLUDING, WITHOUT
LIMITATION, COMPETITIVE FACTORS, GENERAL ECONOMIC CONDITIONS, THE INTEREST RATE
ENVIRONMENT, GOVERNMENTAL REGULATION AND SUPERVISION, SEASONALITY, CHANGES IN
INDUSTRY PRACTICES, ONE-TIME EVENTS AND OTHER FACTORS DESCRIBED HEREIN AND IN
OTHER FILINGS MADE BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION
("SEC"). BASED UPON CHANGING CONDITIONS, SHOULD ANY ONE OR MORE OF THESE RISKS
OR UNCERTAINTIES MATERIALIZE, OR SHOULD ANY UNDERLYING ASSUMPTIONS PROVE
INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN AS
ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED OR INTENDED. THE COMPANY DOES NOT
INTEND TO UPDATE THESE FORWARD-LOOKING STATEMENTS.
INTRODUCTION
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"). 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 was
convertible into approximately thirty-five percent of the Company's common stock
(the "Common Stock"), at any time after the expiration of twelve months from the
date of its issuance at a conversion price of $0.26 per share of Common Stock,
subject to adjustment for dilution. The holders of the Series A Preferred Stock
were entitled to a four percent annual cash dividend (the "Preferred
Dividends"). Following the investment by Newcastle, the management team resigned
and new executives and board members were appointed. On July 3, 2006, Newcastle
converted its Series A Preferred Stock into 19,230,768 shares of Common Stock.
During May 2005, the Company sold its equity interest in Sharps Compliance
Corp. ("Sharps") 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.
DERIVATIVE LAWSUIT
On August 11, 2004, Craig Davis, allegedly a stockholder of the Company,
filed a lawsuit in the Chancery Court of New Castle County, Delaware (the
"Lawsuit"). The Lawsuit asserted direct claims, and also derivative claims on
the Company's behalf, against five former and three current directors of the
Company. On April 13, 2006, the Company announced that it reached an agreement
with all of the parties to the Lawsuit to settle all claims relating thereto
(the "Settlement"). On June 23, 2006, the Chancery Court approved the
Settlement, and on July 25, 2006, the Settlement became final and
non-appealable. As part of the Settlement, the Company set up a fund (the
"Settlement Fund"), which was distributed to stockholders of record as of July
28, 2006, with a payment date of August 11, 2006. The portion of the Settlement
Fund distributed to stockholders pursuant to the Settlement was $2,270,017 or
approximately $.04 per common share on a fully diluted basis, provided that any
Common Stock held by defendants in the Lawsuit who were formerly directors of
the Company would not be entitled to any distribution from the Settlement Fund.
The total Settlement proceeds of $3,200,000 were funded by the Company's
insurance carrier and by Parris H. Holmes, Jr., the Company's former Chief
Executive Officer, who contributed $150,000. Also included in the total
Settlement proceeds is $600,000 of reimbursement for legal and professional fees
paid to the Company by its insurance carrier and subsequently contributed by the
Company to the Settlement Fund. Therefore, the Company has recognized a loss of
$600,000 related to the Lawsuit for the year ended December 31, 2006. As part of
the Settlement, the Company and the other defendants in the Lawsuit agreed not
to oppose the request for fees and expenses by counsel to the plaintiff of
$929,813. Under the Settlement, the plaintiff, the Company and the other
defendants (including Mr. Holmes) also agreed to certain mutual releases.
In connection with the resolution of the Lawsuit, the Company has ceased
funding of legal and professional fees of the current and former director
defendants. The funding of legal and professional fees was made pursuant to
indemnification arrangements that were in place during the respective terms of
each of the defendants. The Company has met the $500,000 retention as stipulated
in the Company's directors' and officers' liability insurance policy. The
directors' and officers' liability insurance policy carries a maximum coverage
limit of $5,000,000. As of December 31, 2006, the Company has recorded a
receivable from the insurance carrier of approximately $300,000 for
reimbursement of legal and professional fees incurred in excess of the policy
retention, net of the $600,000 reimbursement from the insurance carrier as part
of the Settlement. The Company is currently negotiating a settlement with the
insurance carrier with respect to remaining reimbursement amounts. The Company
is vigorously pursuing enforcement of its rights under the policy and believes
its claims to be valid. Nonpayment of the claim for reimbursement of legal and
professional fees could have a material adverse effect on the results of
5
operations of the Company. The Settlement does not preclude the Company from
seeking reimbursement of legal and professional fees up to the amount remaining
within the policy limit.
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 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 Agreement is $1,550,000, payable in four equal installments of
$387,500. The first installment was paid at the closing and the second
installment was paid on January 5, 2006. Subject to the provisions of the
Ascendant Agreement, including Ascendant's compliance with the terms thereof,
the third installment was payable on April 5, 2006 and the fourth installment
was payable on July 5, 2006. On April 5, 2006, the Company elected not to make
the April installment payment and subsequently determined not to make the
installment payment due July 5, 2006.
Subject to the terms of the Ascendant Agreement, if the Company does not
make an installment payment and Ascendant is not in breach of the Ascendant
Agreement, Ascendant has the right to acquire the Company's revenue interest at
a price which would yield a 10% annualized return to the Company. The Company
has been notified by Ascendant that Ascendant is exercising this right as a
result of the Company's election not to make its third and fourth installment
payments. The Company believes that Ascendant has not satisfied the requisite
conditions to repurchase the Company's revenue interest.
Ascendant had assets under management of approximately $27,100,000 and
$17,800,000 as of December 31, 2006 and December 31, 2005, respectively. Under
the Ascendant Agreement, revenues earned by the Company from the Ascendant
revenue interest (as determined in accordance with the terms of the Ascendant
Agreement) are payable in cash within 30 days after the end of each quarter.
Under the terms of the Ascendant Agreement, Ascendant has 45 days following
notice by the Company to cure any material breach by Ascendant of the Ascendant
Agreement, including with respect to payment obligations. Ascendant failed to
make the required revenue sharing payments for the quarters ended June 30, 2006,
September 30, 2006 and December 31, 2006, in a timely manner and did not cure
such failures within the required 45 day period. Under the terms of the
Ascendant Agreement, upon notice of an uncured material breach, Ascendant is
required to fully refund all amounts paid by the Company, and the Company's
revenue interest remains outstanding.
As part of the parties' discussions regarding non-payment of amounts under
the Ascendant Agreement by each party, the Company has proposed an amendment
that would permit Ascendant to temporarily defer certain payments to the
Company, including the payments owed related to the quarters ended June 30,
2006, September 30, 2006 and December 31, 2006. There is no assurance that an
amendment will be effected on such terms or that any resolution of the foregoing
matter will be reached.
Based on the parties' discussions, the Company has charged off the revenue
interest receivable of $34,000, which was accrued by the Company at June 30,
2006, for its portion of the 50% revenue interest for that quarter. The Company
has not recorded any revenue or corresponding receivable for revenue sharing
payments for the quarters ended September 30, 2006 and December 31, 2006.
According to the Agreement with Ascendant, if Ascendant acquires the revenue
interest from the Company, Ascendant must pay the Company a return on the
capital that it invested. Pursuant to the Agreement, the required return will
not be impacted by any payments missed by Ascendant or written off by the
Company.
6
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, among
other things, the Company has the option to purchase limited partnership
interests of Ascendant under certain circumstances. Effective March 14, 2006, in
accordance with the terms of the Principals Agreement, the Company acquired a 7%
limited partnership interest from a limited partner of Ascendant for nominal
consideration. The Principals Agreement contains certain noncompete and
nonsolicitation obligations of the partners of Ascendant that apply during their
employment and the twelve month period following the termination thereof.
EMPLOYEES
As of December 31, 2006, 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 results could be
materially adversely affected, the trading price of our Common Stock could
decline and the likelihood of there being any potential return to stockholders
would diminish.
OUR RESULTS OF OPERATIONS COULD BE HARMED AS A RESULT OF CERTAIN ISSUES RELATING
TO THE SETTLEMENT OF THE DAVIS LITIGATON, INCLUDING IF WE DO NOT COLLECT A
RECEIVABLE FROM OUR INSURANCE CARRIER WITH RESPECT TO DEFENSE COSTS.
As discussed in Item 3 "Legal Proceedings", on August 11, 2004, Craig
Davis, allegedly a stockholder of the Company, filed a lawsuit in the Chancery
Court of New Castle County, Delaware. The lawsuit asserted direct claims, and
also derivative claims on the Company's behalf, against five former and three
current directors of the Company. On April 13, 2006, we announced that we
reached an agreement with all of the parties to the lawsuit to settle all claims
relating thereto. On July 25, 2006, the Settlement became final and
non-appealable.
In connection with the resolution of the Lawsuit, the Company ceased
funding of legal and professional fees of the current and former director
defendants. The funding of legal and professional fees was made pursuant to
indemnification arrangements that were in place during the respective terms of
each of the defendants. We have met the $500,000 retention as stipulated in our
directors' and officers' liability insurance policy. The directors' and
officers' liability insurance policy carries a maximum coverage limit of
$5,000,000. As of December 31, 2006, we have recorded a receivable from the
insurance carrier of approximately $300,000 for reimbursement of legal and
professional fees incurred in excess of the policy retention, net of the
$600,000 reimbursement from the insurance carrier as part of the Settlement. We
are currently negotiating a settlement with the insurance carrier with respect
to remaining reimbursement amounts. We are vigorously pursuing enforcement of
our rights under the policy. Nonpayment of the claim for reimbursement of legal
and professional fees could have a material adverse effect on the results of
operations of the Company. The Settlement does not preclude us from seeking
reimbursement of legal and professional fees up to the amount remaining within
the policy limit.
7
The Settlement provides that, if the Company has not acquired a business
that generates revenues by the date of March 1, 2007, the plaintiff maintains
the right to pursue a claim to liquidate the Company. This custodian claim was
one of several claims asserted in the Lawsuit. Even if such a claim is elected
to be pursued, there is no assurance that it will be successful. In addition,
the Company believes that it has preserved its right to assert that the
Ascendant investment meets the foregoing requirement to acquire a business.
THE SEC OR A COURT MAY TAKE THE POSITION THAT THE COMPANY WAS PREVIOUSLY IN
VIOLATION OF THE INVESTMENT COMPANY ACT OF 1940.
Among the claims filed by Mr. Davis 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 we do not believe that we have
violated the Investment Company Act in the past, or at present, there can be no
assurance that we have not, or are not, in violation of, the Investment Company
Act. In the event the SEC or a court took the position that we were an
investment company, our failure to register as an investment company would not
only raise the possibility of an enforcement or other legal action by the SEC
and potential fines and penalties, but also could threaten the validity of
corporate actions and contracts entered into by us during the period we were
deemed to be an unregistered investment company, among other remedies.
WE MAY BE UNABLE TO REDEPLOY OUR ASSETS SUCCESSFULLY.
As part of our strategy to limit operating losses and enable us to
redeploy our assets and use our cash and short-term investment assets to enhance
stockholder value, we are pursuing a strategy of identifying suitable
acquisition candidates, merger partners or otherwise developing new business
operations. We may not be successful in acquiring such a business or in
operating any business that we acquire, merge with or develop. Although we made
an investment in Ascendant, we may not be successful in investing in or
acquiring other businesses. Failure to redeploy our assets successfully will
prevent us from becoming profitable. Future cash expenditures are expected to
consist of funding corporate expenses, the cost associated with maintaining a
public company and expenses incurred in pursuing and operating new business
activities, during which time operating losses are likely to be generated.
ANY ACQUISITIONS THAT WE ATTEMPT OR COMPLETE COULD PROVE DIFFICULT TO INTEGRATE
OR REQUIRE A SUBSTANTIAL COMMITMENT OF MANAGEMENT TIME AND OTHER RESOURCES.
Our strategy of acquiring other businesses involves a number of unique
risks including: (i) completing due diligence successfully; (ii) exposure to
unforeseen liabilities of acquired companies; and (iii) increased risk of costly
and time-consuming litigation, including stockholder lawsuits. We may be unable
to address these problems successfully. Moreover, our future operating results
will depend to a significant degree on our ability to integrate acquisitions (if
any) successfully and manage operations while also controlling our expenses. We
may be unable to select, manage or absorb or integrate any future acquisitions
successfully, particularly acquisitions of large companies. Any acquisition,
even if effectively integrated, may not benefit our stockholders.
THE SUCCESS OF THE INVESTMENT IN ASCENDANT WILL BE IMPACTED BY THE GROWTH OF ITS
ASSETS UNDER MANAGEMENT AND THE SUCCESS OF THE PERFORMANCE OF ITS UNDERLYING
FUNDS, EACH OF WHICH MAY BE IMPACTED BY THE SECURITIES MARKETS.
The 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 impair our revenue interest. In addition, our
decision not to make additional installment payments under the Ascendant
Agreement, and thereby cease funding Ascendant, could have a material impact on
Ascendant's operations if Ascendant is unable to grow its assets under
management in order to sustain itself and could cause Ascendant to take one or
more of several actions, including to seek financial support from other sources
and/or cease operations.
8
WE MAY BE UNABLE TO REALIZE THE BENEFITS OF OUR NET OPERATING LOSS ("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.
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 previously adopted an amendment to our former
Shareholders Rights Plan ("Rights Plan") which reduced the triggering of the
Rights Plan from 15% of the Common Stock to 5% of the Common Stock. During the
year ended December 31, 2006, the board of directors replaced this Rights Plan
with a new plan with the same lowered 5% threshold. This 5% threshold was
adopted to help preserve our NOL and capital loss carryforwards. There is no
guarantee that the new Rights Plan will prevent a stockholder from acquiring
more than 5% of the Common Stock.
9
Any transfer restrictions will require any person attempting to acquire a
significant interest in the Company to seek the approval of our board of
directors. This may have an "anti-takeover" effect because our board of
directors may be able to prevent any future takeover. Similarly, any limits on
the amount of capital stock that a stockholder may own could have the effect of
making it more difficult for stockholders to replace current management.
Additionally, because transfer restrictions will have the effect of restricting
a stockholder's ability to dispose of or acquire our Common Stock, the liquidity
and market value of our Common Stock might suffer.
OUR COMMON STOCK IS ILLIQUID.
Our Common Stock is currently quoted on the OTC Bulletin Board ("OTCBB"),
and has traded as low as $0.15 per share during 2006. 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 our
ability to attract, hire, retain, and motivate our officers and key employees.
The loss of the services of any of the executive officers or other key employees
could have a material adverse effect on our business, prospects, financial
condition, and results of operations. We have not entered into employment
agreements with any of our key personnel and currently have no "Key Man" life
insurance policies. Our future success may also depend on our ability to
identify, attract, hire, train, retain, and motivate other highly skilled
technical, managerial, marketing and customer service personnel. Competition for
such personnel are intense, and there can be no assurance that we will be able
to successfully attract, assimilate or retain sufficiently qualified personnel.
The failure to attract and retain the necessary technical, managerial, marketing
and customer service personnel could have a material adverse effect on our
business.
THE ASSETS ON OUR BALANCE SHEET INCLUDE A REVENUE INTEREST IN ASCENDANT, AND ANY
IMPAIRMENT OF THE REVENUE INTEREST COULD ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS AND FINANCIAL POSITION.
As of December 31, 2006, our total assets were approximately $13,490,000
of which approximately $803,000 were intangible assets relating to the revenue
interest in Ascendant. We cannot be certain that we will ever realize the value
of such intangible assets. If we were to record an impairment charge for the
intangible asset, our results of operations could be adversely affected.
10
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable
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 was 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 200 Crescent Court,
Suite 1400, Dallas, Texas 75201, which are also the offices of Newcastle Capital
Management, L.P. ("NCM"). NCM is the general partner of Newcastle. The Company
occupies a portion of NCM's space on a month-to-month basis at $2,500 per month,
pursuant to a services agreement entered into between the parties on October 1,
2006.
ITEM 3. LEGAL PROCEEDINGS
On August 11, 2004, Craig Davis, allegedly a stockholder of the Company,
filed a lawsuit in the Chancery Court of New Castle County, Delaware (the
"Lawsuit"). The Lawsuit asserted direct claims, and also derivative claims on
the Company's behalf, against five former and three current directors of the
Company. On April 13, 2006, the Company announced that it reached an agreement
with all of the parties to the Lawsuit to settle all claims relating thereto
(the "Settlement"). On June 23, 2006, the Chancery Court approved the
Settlement, and on July 25, 2006, the Settlement became final and
non-appealable. As part of the Settlement, the Company set up a fund (the
"Settlement Fund"), which was distributed to stockholders of record as of July
28, 2006, with a payment date of August 11, 2006. The portion of the Settlement
Fund distributed to Stockholders pursuant to the Settlement was $2,270,017 or
approximately $.04 per common share on a fully diluted basis, provided that any
Common Stock held by defendants in the Lawsuit who were formerly directors of
the Company would not be entitled to any distribution from the Settlement Fund.
The total Settlement proceeds of $3,200,000 were funded by the Company's
insurance carrier and by Parris H. Holmes, Jr., the Company's former Chief
Executive Officer, who contributed $150,000. Also included in the total
Settlement proceeds is $600,000 of reimbursement for legal and professional fees
paid to the Company by its insurance carrier and subsequently contributed by the
Company to the Settlement Fund. Therefore, the Company has recognized a loss of
$600,000 related to the Lawsuit for the year ended December 31, 2006. As part of
the Settlement, the Company and the other defendants in the Lawsuit agreed not
to oppose the request for fees and expenses by counsel to the plaintiff of
$929,813. Under the Settlement, the plaintiff, the Company and the other
defendants (including Mr. Holmes) also agreed to certain mutual releases of
claims arising out of transactions referenced in the Lawsuit.
11
In connection with the resolution of the Lawsuit, the Company ceased
funding of legal and professional fees of the current and former director
defendants. The funding of legal and professional fees was made pursuant to
indemnification arrangements that were in place during the respective terms of
each of the defendants. The Company has met the $500,000 retention as stipulated
in the Company's directors' and officers' liability insurance policy. The
directors' and officers' liability insurance policy carries a maximum coverage
limit of $5,000,000. As of December 31, 2006, the Company has recorded a
receivable from the insurance carrier of approximately $300,000 for
reimbursement of legal and professional fees incurred in excess of the policy
retention, net of the $600,000 reimbursement from the insurance carrier as part
of the Settlement. The Company is currently negotiating a settlement with the
insurance carrier with respect to remaining reimbursement amounts. The Company
is vigorously pursuing enforcement of its rights under the policy and believes
its claims to be valid. Nonpayment of the claim for reimbursement of legal and
professional fees could have a material adverse effect on the results of
operations of the Company. The Settlement does not preclude the Company from
seeking reimbursement of legal and professional fees up to the amount remaining
within the policy limit.
Pursuant to the sale of 4,807,692 newly issued shares of the Series A
Preferred Stock to Newcastle on June 18, 2004, the Company agreed to indemnify
Newcastle from any liability, loss or damage, together with all costs and
expenses related thereto that the Company may suffer which arises out of affairs
of the Company, its board of directors or employees prior to the closing of the
Newcastle Transaction. The Company's obligation to indemnify may be satisfied at
the option of the purchaser by issuing additional Series A Preferred Stock to
the purchaser, modifying the conversion price of the Series A Preferred Stock, a
payment of cash or a redemption of Series A Preferred Stock or a combination of
the foregoing. On July 3, 2006, Newcastle converted its Series A Preferred Stock
into 19,230,768 shares of the Common Stock.
On December 12, 2005, the Company received a letter from the SEC, based on
a review of the Company'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, 2006, stating the reasons why it believes it is not an "investment
company". The Company has provided certain confirmatory information requested by
the SEC. In the event the SEC or a court took the position that the Company is
an investment company, the Company's failure to register as an investment
company would not only raise the possibility of an enforcement or other legal
action by the SEC and potential fines and penalties, but also could threaten the
validity of corporate actions and contracts entered into by the Company during
the period it was deemed to be an unregistered investment company, among other
remedies.
During February 2006, the Company entered into an agreement with a former
employee to settle a dispute over a severance agreement the employee had entered
into with the Company. The severance agreement, which was executed by former
management, provided for a payment of approximately $98,000 upon the occurrence
of certain events. The Company paid approximately $85,000 to settle all claims
associated with the severance agreement.
During May 2006, the Company entered into an agreement to settle a dispute
with a law firm that had previously been hired by the Company. In accordance
with the terms of the agreement, the Company received a refund of legal and
professional fees of $125,000 during May 2006. In connection with this matter,
the Company reversed accrued legal and professional fees of approximately
$38,000 during the quarter ended March 31, 2006.
12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 2006, 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, 2005 through December 31,
2006. These price quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions:
High Low
-------- --------
Year Ended December 31, 2005:
1st Quarter $ 0.31 $ 0.23
2nd Quarter $ 0.25 $ 0.21
3rd Quarter $ 0.28 $ 0.19
4th Quarter $ 0.31 $ 0.18
Year Ended December 31, 2006:
1st Quarter $ 0.23 $ 0.15
2nd Quarter $ 0.25 $ 0.19
3rd Quarter $ 0.26 $ 0.18
4th Quarter $ 0.23 $ 0.20
STOCKHOLDERS
As of March 30, 2007, there were 53,883,872 shares of Common Stock
outstanding, held by 502 holders of record as of December 31, 2006. The last
reported sales price of the Common Stock was $0.29 per share on March 30, 2007.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. Approximately $2,270,017 was distributed to certain stockholders pursuant
to the Settlement in August 2006. On June 30, 2006, Newcastle elected to receive
Preferred Dividends in cash for the period from June 19, 2005 through June 30,
2006. On July 3, 2006, Newcastle elected to convert all of its Series A
Preferred Stock into 19,230,768 shares of Common Stock. The Company may not pay
dividends on its Common Stock unless all declared and unpaid Preferred Dividends
have been paid. In addition, whenever the Company shall declare or pay any
dividend on its Common Stock, the holders of Series A Preferred Stock are
entitled to receive such Common Stock dividends on a ratably as-converted basis.
PERFORMANCE GRAPH
The Company's Common Stock has been traded publicly since August 5, 1996.
Prior to such date, there was no established market for the Common Stock. Set
forth below is a line graph comparing the yearly percentage change in the
cumulative total stockholder return on our Common Stock to the cumulative return
of the S&P 500 Stock Index, the Russell MicroCap Index and the S&P Data
Processing and Outsourced Services Index for the period commencing on December
31, 2001 and ending December 31, 2006 (the "Measuring Period"). The Company
selected the S&P Data Processing and Outsourced Services Index as a basis of
comparison as it believes the issuers comprising this index are in the same line
of business as Princeton eCom Corporation ("Princeton"), the investment in which
the Company held an interest up until June 2004. The graph assumes that the
value of the investment in the Company's Common Stock and each index was $100 on
December 31, 2001. The yearly change in cumulative total return is measured by
dividing (1) the sum of (i) the cumulative amount of dividends for the Measuring
Period, assuming dividend reinvestment, and (ii) the change in share price
between the beginning and end of the Measuring Period, by (2) the share price at
the beginning of the Measuring Period.
[GRAPHIC OMITTED]
Cumulative Total Return
--------------------------------------------------
12/01 12/02 12/03 12/04 12/05 12/06
----- ----- ----- ----- ----- -----
New Century Equity Holdings 100.00 52.00 64.00 60.00 42.50 51.09
S&P 500 Index 100.00 77.90 100.24 111.15 116.61 135.03
S&P Data Processing &
Outsourced Services Index 100.00 71.08 83.19 87.71 92.54 102.12
Russell MicroCap Index 100.00 83.90 139.57 159.31 163.40 190.43
13
The Performance Graph is based on historical data and is not necessarily
indicative of future performance. The Performance Graph is not deemed to be
"soliciting material" or to be "filed" with the SEC or subject to the SEC's
proxy rules or to the liabilities of Section 18 of the Exchange Act, and the
Performance Graph shall not be deemed incorporated by reference into any prior
or subsequent filing by the Company under the Securities Act or the Exchange
Act, except to the extent that the Company specifically incorporates it by
reference to such filing.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial and other data for the
Company. The statement of operations data for the years ended December 31, 2006,
2005, 2004, 2003 and 2002 and the balance sheet data as of December 31, 2006,
2005, 2004, 2003 and 2002 presented below are derived from the audited
Consolidated Financial Statements of the Company. The data presented below for
the years ended December 31, 2006, 2005 and 2004 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) 2006 2005 2004 2003 2002
--------- --------- --------- --------- ---------
Consolidated Statement of Operations Data:
Operating revenues ................................ $ 69 $ 33 $ -- $ -- $ --
Gross profit ...................................... 69 33 -- -- --
Operating loss from continuing operations ......... (573) (1,009) (4,854) (3,174) (3,560)
Net loss from continuing operations ............... (591) (543) (1,903) (6,486) (18,538)
Net loss from discontinued
operations, net of income taxes .............. -- -- -- -- (962)
Net (loss) income from disposal of
discontinued operations, net of income
taxes ........................................ -- -- -- (30) 2,254
Net loss .......................................... (591) (543) (1,903) (6,516) (17,246)
Preferred stock dividend .......................... (100) (200) (107) -- --
Net loss applicable to common stockholders ........ (691) (743) (2,010) (6,516) (17,246)
Basic and diluted net loss per common share:
Net loss from continuing operations ............... $ (.01) $ (.02) $ (.06) $ (0.19) $ (0.54)
Net loss from discontinued
operations, net of income taxes .............. -- -- -- -- (0.03)
Net income from disposal of
discontinued operations, net of
income taxes ................................. -- -- -- -- 0.07
Net loss .......................................... $ (.01) $ (.02) $ (.06) $ (0.19) $ (0.50)
Dividends per common share ........................ $ -- $ -- $ -- $ -- $ --
Weighted average common shares
outstanding .................................. 44,268 34,653 34,653 34,379 34,217
December 31,
---------------------------------------------------------
(in thousands) 2006 2005 2004 2003 2002
--------- --------- --------- --------- ---------
Consolidated Balance Sheet Data:
Working capital ................................... $ 12,513 $ 13,554 $ 14,428 $ 4,357 $ 8,454
Total assets ...................................... 13,490 14,578 15,095 13,036 20,124
Long-term obligations and redeemable
preferred stock .............................. -- 2 2 -- --
Additional paid-in capital ........................ 75,340 75,450 75,428 70,476 70,346
Accumulated deficit ............................... $(62,563) $(61,872) $(61,107) $(59,097) $(52,581)
14
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 to
acquire an interest in the revenues generated by Ascendant. Pursuant to the
Ascendant Agreement, the Company is entitled to a 50% interest, subject to
certain adjustments, in the revenues of Ascendant, which interest declines if
the assets under management of Ascendant reach certain levels. Revenues
generated by Ascendant include revenues from assets under management or any
other sources or investments, net of any agreed commissions. The Company also
agreed to provide various marketing services to Ascendant. Steven J. Pully, 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, including
Ascendant's compliance with the terms thereof, the third installment was payable
on April 5, 2006 and the fourth installment was payable on July 5, 2006. As of
April 5, 2006, the Company elected not to make the April installment payment and
subsequently determined not make any additional installment payments.
Subject to the terms of the Ascendant Agreement, if the Company does not
make an installment payment and Ascendant is not in breach of the Ascendant
Agreement, Ascendant has the right to acquire the Company's revenue interest at
a price which would yield a 10% annualized return to the Company. The Company
has been notified by Ascendant that Ascendant is exercising this right as a
result of the Company's election not to make its third and fourth installment
payments. The Company believes that Ascendant has not satisfied the requisite
conditions to repurchase the Company's revenue interest.
Ascendant had assets under management of approximately $27,100,000 and
$17,800,000 as of December 31, 2006 and December 31, 2005, respectively. Under
the Ascendant Agreement, revenues earned by the Company from the Ascendant
revenue interest (as determined in accordance with the terms of the Ascendant
Agreement) are payable in cash within 30 days after the end of each quarter.
Under the terms of the Ascendant Agreement, Ascendant has 45 days following
notice by the Company to cure any material breach by Ascendant of the Ascendant
Agreement, including with respect to payment obligations. Ascendant failed to
make the required revenue sharing payments for the quarters ended June 30, 2006,
September 30, 2006 and December 31, 2006, in a timely manner and did not cure
such failure within the 45 day period. Under the terms of the Ascendant
Agreement, upon notice of an uncured material breach, Ascendant is required to
fully refund all amounts paid by the Company, and the Company's revenue interest
remains outstanding.
As part of the parties' discussions regarding non-payment of amounts under
the Ascendant Agreement by each party, the Company has proposed an amendment
that would permit Ascendant to temporarily defer certain payments to the
Company, including the payments owed related to the quarters ended June 30,
2006, September 30, 2006 and December 31, 2006. There is no assurance that an
amendment will be effected on such terms or that any resolution of the foregoing
matter will be reached.
15
Based on the parties' discussions, the Company has charged off the revenue
interest receivable of $34,000, which was accrued by the Company at June 30,
2006 for its portion of the 50% revenue interest for that quarter. The Company
has not recorded any revenue or corresponding receivable for a revenue sharing
payment for the quarters ended September 30, 2006 and December 31, 2006.
According to the Agreement with Ascendant, if Ascendant acquires the revenue
interest from the Company, Ascendant must pay the Company a return on the
capital that it invested. Pursuant to the Agreement, the required return will
not be impacted by any payments missed by Ascendant or written off by 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, among
other things, the Company has the option to purchase limited partnership
interests of Ascendant under certain circumstances. Effective March 14, 2006, in
accordance with the terms of the Principals Agreement, the Company acquired a 7%
limited partnership interest from a limited partner of Ascendant for nominal
consideration. The Principals Agreement contains certain noncompete and
nonsolicitation obligations of the partners of Ascendant that apply during their
employment and the twelve month period following the termination thereof.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative ("G&A") expenses are comprised of all costs
incurred in direct support of the business operations of the Company. During the
year ended December 31, 2006, G&A expenses totaled $642,000, compared to
$1,035,000 during the year ended December 31, 2005 and $4,826,000 during the
year ended December 31, 2004. The major components of G&A expenses for the year
ended December 31, 2006 are as follows: officers and directors compensation and
benefits of approximately $241,000; audit and tax fees of approximately $95,000;
directors and officers insurance coverage of approximately $76,000; legal fees
and other public company costs of approximately $88,000; and legal fees of
approximately $183,000 which relate to the derivative action filed by Craig
Davis (see "Part I - Item 3. Legal Proceedings"). These costs were partially
offset by a refund of legal and professional fees of $125,000 received during
May 2006 in connection with the settlement of a dispute with a law firm that had
been previously hired by the Company.
The decrease in G&A for the year ended December 31, 2005, when compared to
the year ended December 31, 2004, is the result of the decrease in the number of
salaried employees from five to one and a significant reduction in executive
compensation and benefits. G&A expenses for the year ended December 31, 2004,
included a total of approximately $2,600,000 of severance paid to Parris H.
Holmes, Jr. and David P. Tusa, the Company's former Chief Executive Officer and
Chief Financial Officer, respectively. G&A expenses for 2004 also included
approximately $700,000 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, 2006,
depreciation and amortization expense totaled $0, compared to $7,000 during the
year ended December 31, 2005 and $28,000 during the year ended December 31,
2004. The decrease in depreciation and amortization from prior periods is
principally the result of fixed asset sales. The Company made no fixed asset
purchases during the year ended December 31, 2006.
16
INTEREST INCOME
Interest income totaled $582,000 during the year ended December 31, 2006,
compared to $423,000 and $121,000 during the years ended December 31, 2005 and
2004, respectively. The increase in interest income for the year ended December
31, 2006, as compared to the year ended December 31, 2005, was attributable to
increased yields available for short-term investments. The increase in interest
income for the year ended December 31, 2005, as compared to the year ended
December 31, 2004, was attributable to higher cash balances available for
short-term investment as the Company's cash resources were increased by the
Newcastle Transaction and the sale of Princeton (see Notes 1 and 4 of the
accompanying Consolidated Financial Statements).
EQUITY IN NET LOSS OF AFFILIATES
Equity in net loss of affiliates totaled $0 during the year ended December
31, 2006, compared to $0 and $2,985,000 during the years ended December 31, 2005
and 2004, respectively. In June 2004, the Company sold all of its holdings in
Princeton, which offers electronic bill presentment and payment services via the
Internet and telephone.
GAIN ON SALE OF EQUITY AFFILIATE
The sale of Princeton for $10,000,000 in June 2004 generated a capital
loss for federal income tax purposes of approximately $67,000,000 and a book
gain of approximately $5,817,000 during the year ended December 31, 2004.
DERIVATIVE SETTLEMENT COSTS
On April 13, 2006, the Company announced that it reached an agreement with
all of the parties to the Lawsuit to settle all claims relating thereto. The
total Settlement proceeds of $3,200,000 were funded by the Company's insurance
carrier and by Parris H. Holmes, Jr., the Company's former Chief Executive
Officer, who contributed $150,000. Also included in the total Settlement
proceeds is $600,000 of reimbursement for legal and professional fees paid to
the Company by its insurance carrier and subsequently contributed by the Company
to the Settlement Fund. The Company has recognized a net loss of $600,000
related to the Lawsuit for the year ended December 31, 2006.
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, 2006,
2005 and 2004.
17
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance decreased to $12,319,000 at December 31, 2006,
from $12,487,000 at December 31, 2005. The decrease is attributable to the
following: G&A expenses incurred during the year ended December 31, 2006;
funding of legal and professional fees related to the Lawsuit, including the
$600,000 of reimbursement for legal and professional fees paid to the Company by
its insurance carrier which was subsequently contributed by the Company to the
Settlement Fund; the settlement of a dispute with a former employee over a
severance agreement; the second installment paid under the Ascendant Agreement
and a cash dividend paid on the Series A Preferred Stock; partially offset by
interest income, revenues from Ascendant and settlement proceeds from the
resolution of a dispute with a law firm that had previously been hired by the
Company. There were no capital expenditures during the twelve months ended
December 31, 2006.
In connection with the resolution of the Lawsuit, the Company has ceased
funding of legal and professional fees of the current and former director
defendants. The funding of legal and professional fees was made pursuant to
indemnification arrangements that were in place during the respective terms of
each of the defendants. The Company has met the $500,000 retention as stipulated
in the Company's directors' and officers' liability insurance policy. The
directors' and officers' liability insurance policy carries a maximum coverage
limit of $5,000,000. As of December 31, 2006, the Company has recorded a
receivable from the insurance carrier of approximately $300,000 for
reimbursement of legal and professional fees incurred in excess of the policy
retention, net of the $600,000 reimbursement from the insurance carrier as part
of the Settlement. The Company is currently negotiating a settlement with the
insurance carrier with respect to remaining reimbursement amounts. The Company
is vigorously pursuing enforcement of its rights under the policy and believes
its claims to be valid. The Settlement does not preclude the Company from
seeking reimbursement of legal and professional fees up to the amount remaining
within the policy limit.
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 was $1,550,000, payable in four equal
installments of $387,500. Subject to the provisions of the Ascendant Agreement,
the third installment was payable on April 5, 2006 and the fourth installment
was payable on July 5, 2006. On April 5, 2006, the Company elected not to make
the April installment payment and subsequently determined not to make the
installment payment due July 5, 2006. Subject to the terms of the Ascendant
Agreement, if the Company does not make an installment payment and Ascendant is
not in breach of the Ascendant Agreement, Ascendant has the right to acquire the
Company's revenue interest at a price which would yield a 10% annualized return
to the Company. The Company has been notified by Ascendant that Ascendant is
exercising this right as a result of the Company's election not to make its
third and fourth installment payments. The Company believes that Ascendant has
not satisfied the requisite conditions to repurchase the Company's revenue
interest, including as a result of Ascendant's failure to make required revenue
sharing payments for the quarters ended June 30, 2006, September 30, 2006 and
December 31, 2006, and at this time the Company believes it is not obligated to
make the third and fourth installment payments to Ascendant. As part of the
parties' discussions regarding non-payment of amounts under the Ascendant
Agreement by each party, the Company has proposed an amendment that would permit
Ascendant to temporarily defer certain payments to the Company, including the
payments owed in respect of the quarters ended June 30, 2006, September 30, 2006
and December 31, 2007. There is no assurance that an amendment will be effected
on such terms or that any resolution of the foregoing matter will be reached.
The Company expects to incur additional operating losses through fiscal 2007
which will continue to have a negative impact on liquidity and capital
resources.
18
LEASE GUARANTEES
In October 2000, the Company completed the Platinum Transaction. Under the
terms of the Platinum Transaction, all leases and corresponding obligations
associated with the Transaction Processing and Software Business were assumed by
Platinum. Prior to the Platinum Transaction, the Company guaranteed two
operating leases for office space of the divested companies. The first lease is
related to office space located in San Antonio, Texas, and expired in 2006. The
second lease is related to office space located in Austin, Texas, and expires in
2010. Under the original terms of the second lease, the remaining minimum
undiscounted rent payments total approximately $4,255,000 at December 31, 2006.
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 the remaining lease guarantee 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). One such lease expired
in 2006.
CONTRACTUAL OBLIGATIONS
The Company's contractual obligations are as follows (in thousands):
Payments Due by Period
---------------------------------------------
Less than 1-3 3-5 More than
Contractual Obligations Total 1 Year Years Years 5 Years
------------------------------------- ------ ------ ----- ----- -------
Long-term debt obligations ............ $-- $-- $-- $-- $--
Capital lease obligations ............. -- -- -- -- --
Operating lease obligations ........... 6 6 -- -- --
Purchase obligations .................. -- -- -- -- --
Other long-term liabilities
reflected on balance sheet
under GAAP ........................... -- -- -- -- --
---- ---- ---- ---- ----
Total ................................. $6 $6 $-- $-- $--
==== ==== ==== ==== ====
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.
19
NEW ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board ("FASB") issued FIN
48, "Accounting for Uncertainty in Income Taxes--an interpretation of FASB
Statement No. 109," which seeks to reduce the diversity in practice associated
with the accounting and reporting for uncertainty in income tax positions. This
Interpretation prescribes a comprehensive model for the financial statement
recognition, measurement, presentation and disclosure of uncertain tax positions
taken or expected to be taken in an income tax return.
FIN 48 presents a two-step process for evaluating a tax position. The
first step is to determine whether it is more-likely-than-not that a tax
position will be sustained upon examination, based on the technical merits of
the position. The second step is to measure the benefit to be recorded from tax
positions that meet the more-likely-than-not recognition threshold, by
determining the largest amount of tax benefit that is greater than 50 percent
likely of being realized upon ultimate settlement, and recognizing that amount
in the financial statements. FIN 48 is effective for fiscal years beginning
after December 15, 2006. The Company does not expect the adoption of FIN 48 to
have a material impact on its consolidated results of operations, financial
position, and cash flows.
In September 2006, the SEC issued Staff Accounting Bulletin ("SAB") No.
108, "Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements". SAB No. 108 was issued in
order to eliminate the diversity in practice surrounding how public companies
quantify financial statement misstatements. SAB No. 108 requires that
registrants quantify errors using both a balance sheet (iron curtain) approach
and an income statement (rollover) approach and then evaluate whether either
approach results in a misstated amount that, when all relevant quantitative and
qualitative factors are considered, is material. SAB No. 108 is effective for
fiscal years ending after November 15, 2006. The Company adopted the bulletin
during 2006. See Note 15 of the accompanying Consolidated Financial Statements.
FASB Statement of Financial Accounting Standards ("SFAS") No. 157, Fair
Value Measurements, issued in September 2006, establishes a formal framework for
measuring fair value under GAAP. It defines and codifies the many definitions of
fair value included among various other authoritative literature, clarifies and,
in some instances, expands on the guidance for implementing fair value
measurements, and increases the level of disclosure required for fair value
measurements. Although SFAS No. 157 applies to and amends the provisions of
existing FASB and AICPA pronouncements, it does not, of itself, require any new
fair value measurements, nor does it establish valuation standards. SFAS No. 157
applies to all other accounting pronouncements requiring or permitting fair
value measurements, except for: SFAS No. 123 (R), share-based payment and
related pronouncements, the practicability exceptions to fair value
determinations allowed by various other authoritative pronouncements, and AICPA
Statements of Position 97-2 and 98-9 that deal with software revenue
recognition. This statement is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim periods within those
fiscal years. The Company does not expect the adoption of SFAS No. 157 to have a
material impact on its consolidated results of operations, financial position,
and cash flows.
20
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate risk through its portfolio of cash
equivalents and short-term investments. The Company does not believe that it has
significant exposure to market risks associated with changing interest rates as
of December 31, 2006, because the Company's intention is to maintain a liquid
portfolio. The Company has not used derivative financial instruments in its
operations.
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company and the related
reports of the Company's independent registered public accounting firm thereon,
are included in this report at the page indicated.
Page
----
Report of Management.................................................... 23
Report of Independent Registered Public Accounting Firm................. 24
Consolidated Balance Sheets as of December 31, 2006 and 2005............ 25
Consolidated Statements of Operations for the Years Ended
December 31, 2006, 2005 and 2004.......................................26
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2006, 2005 and 2004...................................... 27
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2006, 2005 and 2004......................................28
Notes to Consolidated Financial Statements.............................. 29
22
REPORT OF MANAGEMENT
The financial statements included herein have been prepared in conformity
with accounting principles generally accepted in the United States of America.
Management is responsible for preparing the consolidated financial statements
and maintaining and monitoring the Company's system of internal accounting
controls. The Company believes that the existing system of internal controls
provides reasonable assurance that errors or irregularities that could be
material to the financial statements are prevented or would be detected in a
timely manner. Key elements of the Company's system of internal controls include
careful selection of management personnel, appropriate segregation of
conflicting responsibilities, periodic evaluations of Company financial and
business practices, communication practices that provide assurance that policies
and managerial authorities are understood throughout the Company, and periodic
meetings between the Company's audit committee, senior financial management
personnel and independent public accountants.
The consolidated financial statements as of and for the years ended
December 31, 2006 and 2005, were audited by Burton McCumber & Cortez, L.L.P.,
independent public accountants, who have also issued a report on the
consolidated financial statements.
/s/ STEVEN J. PULLY
--------------------------
Steven J. Pully
CHIEF EXECUTIVE OFFICER
/s/ JOHN P. MURRAY
--------------------------
John P. Murray
CHIEF FINANCIAL OFFICER
23
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, 2006 and 2005, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 2006, 2005
and 2004. 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, 2006 and 2005,
and the consolidated results of their operations and their consolidated cash
flows for the years ended December 31, 2006, 2005 and 2004 in conformity with
accounting principles generally accepted in the United States of America.
/s/ BURTON McCUMBER & CORTEZ, L.L.P.
Brownsville, Texas
March 7, 2007
24
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31,
2006 2005
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents ...................................... $ 12,319 $ 12,487
Accounts receivable ............................................ -- 33
Insurance receivable and other assets .......................... 368 1,637
----------- -----------
Total current assets ......................................... 12,687 14,157
Other non-current assets ......................................... -- 6
Revenue interest ................................................. 803 415
----------- -----------
Total assets ................................................ $ 13,490 $ 14,578
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................... $ 13 $ 53
Accrued liabilities ............................................ 161 550
----------- -----------
Total current liabilities .................................... 174 603
Other non-current liabilities .................................... -- 2
----------- -----------
Total liabilities ......................................... 174 605
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized;
4,807,692 Shares designated as Series A convertible preferred
stock issued and outstanding in 2005 ......................... -- 48
Common stock, $0.01 par value, 75,000,000 shares authorized;
53,883,872 and 34,653,104 shares issued and outstanding ...... 539 347
Additional paid-in capital ..................................... 75,340 75,428
Accumulated deficit ............................................ (62,563) (61,850)
Total stockholders' equity ................................... 13,316 13,973
----------- -----------
Total liabilities and stockholders' equity .............. $ 13,490 $ 14,578
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
25
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year Ended December 31,
2006 2005 2004
--------- -------- ---------
Operating revenues ........................................ $ 69 $ 33 $-
Operating expenses:
General and administrative expenses ..................... 642 1,035 4,826
Depreciation and amortization expense ................... -- 7 28
-------- -------- --------
Operating loss ............................................ (573) (1,009) (4,854)
Other income (expense):
Derivative settlement costs .............................. (600) -- --
Interest income .......................................... 582 423 121
Equity in net loss of affiliates ......................... -- -- (2,985)
Gain on sale of equity affiliate ......................... --
-- 5,817
Other, net ............................................... -- 43 (2)
-------- -------- --------
Total other income (expense), net ......................... (18) 466 2,951
-------- -------- --------
Net loss .................................................. (591) (543) (1,903)
Preferred stock dividend .................................. (100) (200) (107)
Net loss applicable to common stockholders ................ $ (691) $ (743) $ (2,010)
======== ======== ========
Basic and diluted net (loss) income per common share:
Net loss ................................................. $ (.02) $ (.02) $ (.06)
======== ======== ========
Weighted average common shares outstanding ................ 44,268 34,653 34,653
======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements.
26
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the Years Ended December 31, 2006, 2005 and 2004
(In thousands)
Accumulated
Additional Other
Common Stock Paid-in Accumulated Preferred Stock Comprehensive
Shares Amount Capital Deficit Shares Amount Income Total
------ ------ ------- ------- ------ ------ ------ ------
Balances at December 31, 2003 ........... 34,653 347 70,476 (59,097) -- -- -- 11,726
Issuance of preferred stock ........... -- -- 4,952 -- 4,808 48 -- 5,000
Comprehensive income (loss):
Unrealized gain on investment ..... -- -- -- -- -- -- 49 49
Net loss applicable to common
stockholders ..................... -- -- -- (2,010) -- -- -- (2,010)
Comprehensive loss .................... -- -- -- (2,010) -- -- 49 (1,961)
------ -------- ------ ------- ----- ---- ---- ---------
Balances at December 31, 2004 ........... 34,653 347 75,428 (61,107) 4,808 48 49 14,765
Comprehensive income (loss):
Reclassification of unrealized
gain on investment .............. -- -- -- -- -- -- (49) (49)
Net loss applicable to common
stockholders ..................... -- -- -- (743) -- -- -- (743)
Comprehensive loss .................... -- -- -- (743) -- -- (49) (792)
------ -------- ------ ------- ----- ---- ---- ---------
Balances at December 31, 2005 ........... 34,653 347 75,428 (61,850) 4,808 48 -- 13,973
------ -------- ------ ------- ----- ---- ---- ---------
SAB 108 cumulative effect adjustment
(note 15) .............................. -- -- 22 (22) -- -- -- --
------ -------- ------ ------- ----- ---- ---- ---------
Balance January 1, 2006, as adjusted .... 34,653 347 75,450 (61,872) 4,808 48 -- --
------ -------- ------ ------- ----- ---- ---- ---------
Fair market value of services ........... -- -- 17 -- -- -- -- 17
Share based payment expense ............. -- -- 17 -- -- -- -- 17
Comprehensive income (loss):
Conversion of preferred stock ...... 19,231 192 (144) -- (4,808) (48) -- --
Net loss applicable to common
stockholders ..................... -- -- -- (691) -- -- -- (691)
Comprehensive loss ..................... -- -- -- (691) -- -- -- (691)
------ -------- ------ ------- ----- ---- ---- ---------
Balances at December 31, 2006 ........... 53,884 $ 539 $ 75,340 $(62,563) -- -- $ -- $ 13,316
====== ======== ====== ======== ===== ==== ==== ========
The accompanying notes are an integral part of these consolidated financial statements.
27
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2006 2005 2004
--------- --------- ---------
Cash flows from operating activities:
Net loss ................................................................ $ (591) $ (543) $ (1,903)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation and amortization expense .................................. -- 7 27
Equity in net loss of and impairment of investments in affiliates ...... -- -- 2,985
Gain on sale of equity affiliate ....................................... -- -- (5,817)
Loss on sale of treasury bill .......................................... -- 14 --
Gain on sale of Sharps Compliance Corp. common stock ................... -- (57) --
Share based payment expense ............................................ 17 -- --
Charge off of revenue interest receivable .............................. 34 -- --
Fair market value of services .......................................... 17
Loss on disposition of fixed assets .................................... -- -- 30
Accretion of discount on securities .................................... -- (185) (36)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ............................ (1) (33) 28
(Increase) decrease in insurance receivable and other assets .......... 1,275 (1,492) 171
Increase (decrease) in accounts payable ............................... (40) 8 (13)
Increase (decrease) in accrued liabilities ............................ (284) 267 (687)
-------- -------- --------
Net cash provided by (used in) operating activities ....................... 427 (2,014) (5,215)
Cash flows from investing activities:
Purchases of property and equipment ..................................... -- -- (3)
Proceeds from sale of short-term investments ............................ -- 27,186 --
Purchase of short-term investments ...................................... -- (13,786) (12,858)
Purchase of revenue interest ............................................ (388) (415)
Proceeds from sale of equity affiliate (all holdings in Princeton) ...... -- -- 10,000
Proceeds from sale of equity affiliate (all holdings in Princeton)
allocated to former chief executive officer ............................. -- -- (600)
Other investing activities .............................................. -- -- 62
-------- -------- --------
Net cash provided by (used in) investing activities ....................... (388) 12,985 (3,399)
Cash flows from financing activities:
Cash dividends paid on preferred stock .................................. (207) (200) --
Proceeds from sale of preferred stock ................................... -- -- 5,000
-------- -------- --------
Net cash used in financing activities ..................................... (207) (200) 5,000
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ...................... (168) 10,771 (3,614)
Cash and cash equivalents, beginning of period ............................ 12,487 1,716 5,330
-------- -------- --------
Cash and cash equivalents, end of period .................................. $ 12,319 $ 12,487 $ 1,716
======== ======== ========
Supplemental disclosure of non-cash transactions:
Increase in fair market value of investments ............................. $ -- $ -- $ 49
Preferred stock dividend ................................................. $ 107 $ -- $ 107
The accompanying notes are an integral part of these consolidated financial statements.
28
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005, 2004 and 2003
NOTE 1. BUSINESS ACTIVITY
New Century Equity Holdings Corp. is a company in transition. The Company
is currently seeking to redeploy its assets to enhance stockholder value and is
actively seeking, analyzing and evaluating potential acquisition and merger
candidates. On October 5, 2005, the Company made an investment in ACP
Investments L.P. (d/b/a Ascendant Capital Partners) ("Ascendant"). Ascendant 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, 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 was
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 were entitled to a four
percent annual cash dividend (the "Preferred Dividends"). Following the
investment by Newcastle, the management team resigned and new executives and
board members were appointed. On July 3, 2006, Newcastle converted its Series A
Preferred Stock into 19,230,768 shares of Common Stock.
During May 2005, the Company sold its equity interest in Sharps Compliance
Corp. ("Sharps") 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.
On August 11, 2004, Craig Davis, allegedly a stockholder of the Company,
filed a lawsuit in the Chancery Court of New Castle County, Delaware (the
"Lawsuit"). The Lawsuit asserted direct claims, and also derivative claims on
the Company's behalf, against five former and three current directors of the
Company. On April 13, 2006, the Company announced that it reached an agreement
with all of the parties to the Lawsuit to settle all claims relating thereto
(the "Settlement"). On June 23, 2006, the Chancery Court approved the
Settlement, and on July 25, 2006, the Settlement became final and non-appealable
(See Note 6).
29
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 Statement of Financial
Accountings Standards No. 115 (SFAS No. 115), "Accounting for Certain
Investments in Debt and Equity Securities". 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 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.
30
REVENUE INTEREST
The Company has determined that the revenue interest that it acquired in
2005 meets the indefinite life criteria outlined in SFAS No. 142, "Goodwill and
Other Intangible Assets" ("SFAS 142"). Accordingly, the Company does not
amortize this intangible asset, but instead reviews this asset quarterly for
impairment. Each reporting period, the Company assesses whether events or
circumstances have occurred which indicate that the indefinite life criteria are
no longer met. If the indefinite life criteria are no longer met, the Company
assesses whether the carrying value of the asset exceeds its fair value, and an
impairment loss is recorded in an amount equal to any such excess.
The Company assesses whether the entity in which the acquired revenue
interest exists meets the indefinite life criteria based on a number of factors
including: the historical and potential future operating performance; the
historical and potential future rates of attrition among existing clients; the
stability and longevity of existing client relationships; the recent, as well as
long-term, investment performance; the characteristics of the firm's products
and investment styles; the stability and depth of the management team and the
history and perceived franchise or brand value.
INVESTMENTS IN EQUITY SECURITIES
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.
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).
31
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.
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, 2006, 2005 and 2004, diluted EPS
equals basic EPS, as potentially dilutive common stock equivalents are
anti-dilutive in loss periods.
STOCK-BASED COMPENSATION
Effective January 1, 2006, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 123(R), "Share-Based Payment" (SFAS 123R)
using the modified prospective transition method. Under this method, previously
reported amounts should not be restated to reflect the provisions of SFAS 123R.
SFAS 123R requires the Company to record compensation expense for all awards
granted after the date of adoption, and for the unvested portion of previously
granted awards that remain outstanding at the date of adoption. The fair value
concepts have not changed significantly in SFAS 123R; however, in adopting this
standard, companies must choose among alternative valuation models and
amortization assumptions. After assessing alternative valuation models and
amortization assumptions, the Company will continue using both the Black-Scholes
valuation model and straight-line amortization of compensation expense over the
requisite service period for each separately vesting portion of the grant. The
Company will reconsider use of this model if additional information becomes
available in the future that indicates another model would be more appropriate,
or if grants issued in future periods have characteristics that cannot be
reasonably estimated using this model. The Company utilizes stock-based awards
as a form of compensation for employees, officers and directors.
The fair value of the stock option grants included in the Company's net
loss totaled approximately $17,000 for the year ended December 31, 2006. The
expense relates to the unvested portion of previously granted awards that remain
outstanding at the date of adoption.
Previously, the Company had applied the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related interpretations and elected to utilize the disclosure option of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123).
32
For the year ended December 31, 2005 and December 31, 2004, the following
table illustrates the effect on net loss and net loss per common share had
compensation expense for the Company's stock option grants been determined based
on the fair value at the grant dates consistent with the methodology of SFAS No.
123 and SFAS No. 148, "Accounting 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
--------- --------
Net loss, as reported .............................................. $ (743) $(1,903)
Less: Total stock based employee compensation expense
determined under the fair value based method for all awards,
net of related tax effects ....................................... (32) (100)
------- -------
Net loss, pro forma ................................................ $ (775) $(2,003)
======= =======
Basic and diluted net loss per common share:
Net loss, as reported ............................................ $ (0.02) $ (0.06)
======= =======
Net loss, pro forma .............................................. $ (0.02) $ (0.06)
======= =======
The fair value for these options was estimated at the respective grant
dates using the Black-Scholes option-pricing model with the following weighted
average assumptions: expected volatility of 99.2% and 99.2% for the years ended
December 31, 2005 and 2004, respectively; no dividend yield; expected life of
2.5 years and risk-free interest rates of 4.75% for the years ended December 31,
2005 and 2004, respectively.
NOTE 3. REVENUE INTEREST
On October 5, 2005, the Company entered into the Ascendant Agreement (the
"Agreement") to acquire an interest in the revenues generated by Ascendant.
Pursuant to the Ascendant Agreement, the Company is currently entitled to a 50%
interest, subject to certain adjustments, in the revenues of Ascendant, which
interest declines if the assets under management of Ascendant reach certain
levels. Revenues generated by Ascendant include revenues from assets under
management or any other sources or investments, net of any agreed commissions.
The Company also agreed to provide various marketing services to Ascendant.
Steven J. Pully, 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 was $1,550,000, payable in four equal installments of
$387,500. The first installment was paid at the closing and the second
installment was paid on January 5, 2006. Subject to the provisions of the
Ascendant Agreement, including Ascendant's compliance with the terms thereof,
the third installment was payable on April 5, 2006 and the fourth installment
was payable on July 5, 2006. On April 5, 2006, the Company elected not to make
the April installment payment and subsequently determined to not make the
installment payment due July 5, 2006.
Subject to the terms of the Ascendant Agreement, if the Company does not
make an installment payment and Ascendant is not in breach of the Ascendant
Agreement, Ascendant has the right to acquire the Company's revenue interest at
a price which would yield a 10% annualized return to the Company. The Company
has been notified by Ascendant that Ascendant is exercising this right as a
result of the Company's election not to make its third and fourth installment
payments. The Company believes that Ascendant has not satisfied the requisite
conditions to repurchase the Company's revenue interest, including as a result
of Ascendant's failure to make required revenue sharing payments for the
quarters ended June 30, 2006, September 30, 2006 and December 31, 2006, and at
this time the Company believes it is not obligated to make the third and fourth
installment payments to Ascendant.
33
Ascendant had assets under management of approximately $27,100,000 and
$17,800,000 as of December 31, 2006 and December 31, 2005, respectively. Under
the Ascendant Agreement, revenues earned by the Company from the Ascendant
revenue interest (as determined in accordance with the terms of the Ascendant
Agreement) are payable in cash within 30 days after the end of each quarter.
Under the terms of the Ascendant Agreement, Ascendant has 45 days following
notice by the Company to cure any material breach by Ascendant of the Ascendant
Agreement, including with respect to payment obligations. Ascendant failed to
make the required revenue sharing payments for the quarters ended June 30, 2006,
September 30, 2006 and December 31, 2006 in a timely manner and did not cure
such failure within the 45 day period. Under the terms of the Ascendant
Agreement, upon notice of an uncured material breach, Ascendant is required to
fully refund all amounts paid by the Company, and the Company's revenue interest
remains outstanding.
As part of the parties' discussions regarding non-payment of amounts under
the Ascendant Agreement by each party, the Company has proposed an amendment
that would permit Ascendant to temporarily defer certain payments to the
Company, including the payments related to the quarters ended June 30, 2006,
September 30, 2006 and December 31, 2006. There is no assurance that an
amendment will be effected on such terms or that any resolution of the foregoing
matter will be reached.
Based on the parties' discussions, the Company has charged off the revenue
interest receivable of $34,000, which was accrued by the Company at June 30,
2006 for its portion of the 50% revenue interest for that quarter. The Company
has not recorded any revenue or corresponding receivable for a revenue sharing
payment for the quarters ended September 30, 2006 and December 31, 2006.
According to the Agreement with Ascendant, if Ascendant acquires the revenue
interest from the Company, Ascendant must pay the Company a return on the
capital that it invested. Pursuant to the Agreement, the required return will
not be impacted by any payments missed by Ascendant or written off by 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, among
other things, the Company has the option to purchase limited partnership
interests of Ascendant under certain circumstances. Effective March 14, 2006, in
accordance with the terms of the Principals Agreement, the Company acquired a 7%
limited partnership interest from a limited partner of Ascendant for nominal
consideration. The Principals Agreement contains certain noncompete and
nonsolicitation obligations of the partners of Ascendant that apply during their
employment and the twelve month period following the termination thereof.
NOTE 4. ACQUISITIONS AND INVESTMENTS
PRINCETON
The Company made its initial investment in Princeton in September 1998.
Princeton was previously a privately held company located in Princeton, New
Jersey, that specialized 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.
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.
34
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 are comprised of the following:
December 31,
(in thousands) 2006 2005
------ ------
Accrued public company cost .................. $108 $129
Accrued preferred stock dividend ............. -- 107
Accrued legal ................................ 13 223
Accrued settlement ........................... -- 85
Other ........................................ 40 6
---- ----
Total accrued liabilities .................. $161 $550
==== ====
During February 2006, the Company entered into an agreement with a former
employee to settle a dispute over a severance agreement the employee had entered
into with the Company. The severance agreement which was executed by former
management provided for a payment of approximately $98,000 upon the occurrence
of certain events. The Company paid approximately $85,000 to settle all claims
associated with the severance agreement.
During May 2006, the Company entered into an agreement to settle a dispute
with a law firm that had previously been hired by the Company. In accordance
with the terms of the agreement, the Company received a refund of legal and
professional fees of $125,000 during May 2006. In connection with this matter,
the Company reversed accrued legal and professional fees of approximately
$38,000 during the quarter ended March 31, 2006.
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 expired in 2006. The
second lease is related to office space located in Austin, Texas, and expires in
2010. Under the original terms of the second lease, the remaining minimum
undiscounted rent payments total approximately $4,255,000 at December 31, 2006.
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 the remaining lease guarantee and, therefore, no liability has been
accrued in the Company's financial statements.
35
On August 11, 2004, Craig Davis, allegedly a stockholder of the Company,
filed a lawsuit in the Chancery Court of New Castle County, Delaware (the
"Lawsuit"). The Lawsuit asserted direct claims, and also derivative claims on
the Company's behalf, against five former and three current directors of the
Company. On April 13, 2006, the Company announced that it reached an agreement
with all of the parties to the Lawsuit to settle all claims relating thereto
(the "Settlement"). On June 23, 2006, the Chancery Court approved the
Settlement, and on July 25, 2006, the Settlement became final and
non-appealable. As part of the Settlement, the Company set up a fund (the
"Settlement Fund"), which was distributed to stockholders of record as of July
28, 2006, with a payment date of August 11, 2006. The portion of the Settlement
Fund distributed to stockholders pursuant to the Settlement was $2,270,017 or
approximately $.04 per common share on a fully diluted basis, provided that any
Common Stock held by defendants in the Lawsuit who were formerly directors of
the Company would not be entitled to any distribution from the Settlement Fund.
The total Settlement proceeds of $3,200,000 were funded by the Company's
insurance carrier and by Parris H. Holmes, Jr., the Company's former Chief
Executive Officer, who contributed $150,000. Also included in the total
Settlement proceeds is $600,000 of reimbursement for legal and professional fees
paid to the Company by its insurance carrier and subsequently contributed by the
Company to the Settlement Fund. Therefore, the Company has recognized a loss of
$600,000 related to the Lawsuit for the year ended December 31, 2006. As part of
the Settlement, the Company and the other defendants in the Lawsuit agreed not
to oppose the request for fees and expenses by counsel to the plaintiff of
$929,813. Under the Settlement, the plaintiff, the Company and the other
defendants (including Mr. Holmes) also agreed to certain mutual releases of
claims arising out of transactions referenced in the Lawsuit.
The Settlement provides that, if the Company has not acquired a business
that generates revenues by the date of March 1, 2007, the plaintiff maintains
the right to pursue a claim to liquidate the Company. This custodian claim was
one of several claims asserted in the Lawsuit. Even if such a claim is elected
to be pursued, there is no assurance that it will be successful. In addition,
the Company believes that it has preserved its right to assert that the
Ascendant investment meets the foregoing requirement to acquire a business.
In connection with the resolution of the Lawsuit, the Company ceased
funding of legal and professional fees of the current and former director
defendants. The funding of legal and professional fees was made pursuant to
indemnification arrangements that were in place during the respective terms of
each of the defendants. The Company has met the $500,000 retention as stipulated
in the Company's directors' and officers' liability insurance policy. The
directors' and officers' liability insurance policy carries a maximum coverage
limit of $5,000,000. As of December 31, 2006, the Company has recorded a
receivable from the insurance carrier of approximately $300,000 for
reimbursement of legal and professional fees incurred in excess of the policy
retention, net of the $600,000 reimbursement from the insurance carrier as part
of the Settlement. The Company is currently negotiating a settlement with the
insurance carrier with respect to remaining reimbursement amounts. The Company
is vigorously pursuing enforcement of its rights under the policy and believes
its claims to be valid. Nonpayment of the claim for reimbursement of legal and
professional fees could have a material adverse effect on the results of
operations of the Company. The Settlement does not preclude the Company from
seeking reimbursement of legal and professional fees up to the amount remaining
within the policy limit.
Pursuant to the sale of 4,807,692 newly issued shares of the Series A
Preferred Stock to Newcastle on June 18, 2004, the Company agreed to indemnify
Newcastle from any liability, loss or damage, together with all costs and
expenses related thereto that the Company may suffer which arises out of affairs
of the Company, its board of directors or employees prior to the closing of the
Newcastle Transaction. The Company's obligation to indemnify may be satisfied at
the option of the purchaser by issuing additional Series A Preferred Stock to
the purchaser, modifying the conversion price of the Series A Preferred Stock, a
payment of cash or a redemption of Series A Preferred Stock or a combination of
the foregoing. On July 3, 2006, Newcastle converted its Series A Preferred Stock
into 19,230,768 shares of the Common Stock.
36
On December 12, 2005, the Company received a letter from the SEC, based on
a review of the Company'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, 2006, stating the reasons why it believes it is not an "investment
company". The Company has provided certain confirmatory information requested by
the SEC. In the event the SEC or a court took the position that the Company is
an investment company, the Company's failure to register as an investment
company would not only raise the possibility of an enforcement or other legal
action by the SEC and potential fines and penalties, but also could threaten the
validity of corporate actions and contracts entered into by the Company during
the period it was deemed to be an unregistered investment company, among other
remedies.
NOTE 7. SHARE CAPITAL
On July 10, 2006, the Company entered into a stockholders rights plan (the
"Rights Plan") that replaced the Company's stockholders rights plan dated July
10, 1996 (the "Old Rights Plan") that expired according to its terms on July 10,
2006. The Rights Plan provides for a dividend distribution of one preferred
share purchase right (a "Right") for each outstanding share of Common Stock. The
dividend was payable on July 10, 2006 to the Company's stockholders of record at
the close of business on that date (the "Record Date"). The terms of the Rights
and the Rights Plan are set forth in a Rights Agreement, dated as of July 10,
2006, by and between New Century Equity Holdings Corp. and The Bank of New York
Trust Company, N.A., as Rights Agent.
The Company's Board of Directors adopted the Rights Plan to protect
stockholder value by protecting the Company's ability to realize the benefits of
its net operating loss carryforwards ("NOLs") and capital loss carryforwards. In
general terms, the Rights Plan imposes a significant penalty upon any person or
group that acquires 5% or more of the outstanding Common Stock without the prior
approval of the Company's Board of Directors. Stockholders that own 5% or more
of the outstanding Common Stock as of the close of business on the Record Date
may acquire up to an additional 1% of the outstanding Common Stock without
penalty so long as they maintain their ownership above the 5% level (such
increase subject to downward adjustment by the Company's Board of Directors if
it determines that such increase will endanger the availability of the Company's
NOLs and/or its capital loss carryforwards). In addition, the Company's Board of
Directors has exempted Newcastle, the Company's largest stockholder, and may
exempt any person or group that owns 5% or more if the Board of Directors
determines that the person's or group's ownership will not endanger the
availability of the Company's NOLs and/or its capital loss carryforwards. A
person or group that acquires a percentage of Common Stock in excess of the
applicable threshold is called an "Acquiring Person." Any Rights held by an
Acquiring Person are void and may not be exercised. The Company's Board of
Directors authorized the issuance of one Right per each share of Common Stock
outstanding on the Record Date. If the Rights become exercisable, each Right
would allow its holder to purchase from the Company one one-hundredth of a share
of the Company's Series A Junior Participating Preferred Stock, par value $0.01
(the "Preferred Stock"), for a purchase price of $10.00. Each fractional share
of Preferred Stock would give the stockholder approximately the same dividend,
voting and liquidation rights as does one share of Common Stock. Prior to
exercise, however, a Right does not give its holder any dividend, voting or
liquidation rights.
37
The Company has never declared or paid any cash dividends on its Common
Stock, other than approximately $2,270,017 distributed to the stockholders
pursuant to the Settlement in August 2006 (See Note 6). On June 30, 2006,
Newcastle elected to receive Preferred Dividends in cash for the period from
June 19, 2005 through June 30, 2006. On July 3, 2006, Newcastle elected to
convert all of its Series A Preferred Stock into 19,230,768 shares of Common
Stock.
NOTE 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, 2006, 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, 2006, and has no plans to make any future treasury
stock purchases.
NOTE 9. STOCK OPTIONS AND STOCK PURCHASE WARRANTS
The Company has adopted the NCEH 1996 Employee Comprehensive Stock Plan
("Comprehensive Plan") and the NCEH 1996 Non-Employee Director Plan ("Director
Plan") under which officers and employees, and non-employee directors,
respectively, of the Company and its affiliates are eligible to receive stock
option grants. Employees of the Company are also eligible to receive restricted
stock grants under the Comprehensive Plan. The Company has reserved 14,500,000
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, 2006, 2005 and 2004, is
summarized as follows:
Number Weighted Average
of Shares Exercise Price
---------- ----------------
Outstanding, December 31, 2003 ............ 5,778,187 $ 3.98
Granted ................................. 300,000 $ 0.28
Canceled ................................ (3,308,583) $ 4.54
---------
Outstanding, December 31, 2004 ............ 2,769,604 $ 2.90
Granted ................................. 90,000 $ 0.24
Canceled ................................ (643,406) $ 2.68
---------
Outstanding, December 31, 2005 ............ 2,216,198 $ 2.86
Granted ................................. -- --
Canceled ................................ (1,241,198) $ 1.73
---------
Outstanding, December 31, 2006 ............ 975,000 $ 4.30
=========
At December 31, 2006, 2005 and 2004, stock options to purchase an
aggregate of 908,334, 2,082,865 and 2,500,854, shares were exercisable and had
weighted average exercise prices of $4.59, $3.02 and $3.13 per share,
respectively.
38
Stock options outstanding and exercisable at December 31, 2006, 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 - $1.24 394,000 6.8 $ 0.28 327,334 $ 0.28
$2.03 - $4.88 401,000 0.7 $ 3.07 401,000 $ 3.07
$8.31 - $16.84 180,000 0.7 $ 15.42 180,000 $ 15.42
------- -------
975,000 3.2 $ 4.30 908,334 $ 4.59
======= =======
The weighted average fair value and weighted aver age 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 and $0.25 and $0.28 for the year ended December 31, 2004,
respectively. There were no option grants for the year ended December 31, 2006.
NOTE 10. SHORT-TERM INVESTMENTS
In October 2004, the Company purchased a 26 week U.S. Treasury bill for
approximately $12,859,000 which matured on May 5, 2005 for $13,000,000. In May
2005, the Company purchased a 26 week U.S. Treasury bill for approximately
$13,786,000 which was sold on July 27, 2005 for approximately $13,863,000. As of
December 31, 2006, the Company held all short-term investments in cash.
NOTE 11. LEASES
The Company leases certain office space and equipment under operating
leases. Rental expense was approximately $45,000, $36,000 and $58,000 for the
years ended December 31, 2006, 2005 and 2004, respectively. Future minimum lease
payments under non-cancelable operating leases as of December 31, 2006 are
$6,000 for the year ending December 31, 2007 and $0 for all years thereafter.
Future minimum sub-lease receipts under sub-lease rentals for the year ending
December 31, 2007, are $5,000 and $0 for all years thereafter.
39
NOTE 12. INCOME TAXES
The income tax benefit is comprised of the following:
Year Ended December 31,
2006 2005 2004
(in thousands) ------- ------- -------
Current:
Federal ........................... $-- $-- $--
State ............................. -- -- --
--- --- ---
Total ............................ $-- $-- $--
=== === ===
The income tax benefit differs from the amount computed by applying the
statutory federal income tax rate of 35% to the net loss before income tax
benefit. The reasons for these differences were as follows:
Year Ended December 31,
(in thousands) 2006 2005 2004
-------- -------- ---------
Computed income tax benefit at statutory rate ............... $ 207 $ 190 $ 666
(Decrease) increase in taxes resulting from:
Nondeductible losses in and impairments of affiliates ....... -- -- (1,045)
Book gain on sale of equity affiliate ....................... -- -- 2,036
Tax capital loss on sale of equity affiliate ................ -- -- 23,547
Permanent and other deductions, net ......................... 9 20 (754)
Valuation allowance ......................................... (216) (210) (24,450)
-------- --------
Income tax benefit .......................................... $ -- $ -- $ --
======== ======== ========
The tax effect of significant temporary differences, which comprise the
deferred tax liability, is as follows:
December 31,
(in thousands) 2006 2005
--------- ---------
Deferred tax asset:
Net operating loss carryforward .............. $ 4,577 $ 4,361
Capital loss carryforward .................... 24,574 24,574
Valuation allowance .......................... (29,151) (28,935)
Deferred tax liability:
Estimated tax liability ...................... -- --
-------- --------
Net deferred tax liability .................. $ -- $ --
======== ========
As of December 31, 2006, the Company had a federal income tax loss
carryforward of approximately $13,000,000, which begins expiring in 2019. In
addition, the Company had a federal capital loss carryforward of approximately
$70,000,000 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 13. 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, 2006, 2005 or 2004. The Company's matching
contributions to this plan totaled approximately $7,500, $7,500, and $22,000 for
the years ended December 31, 2006, 2005 and 2004, respectively.
NOTE 14. SUMMARIZED FINANCIAL INFORMATION FOR UNCONSOLIDATED SUBSIDIARY
In June 2004, the Company sold all of its interest in Princeton for
$10,000,000. The sale of Princeton generated a capital loss for federal income
tax purposes of approximately $67,000,000. Prior to selling its interest in
Princeton in June 2004, the Company accounted for its investment in Princeton
under the equity method of accounting and recorded the equity in net loss of
Princeton on a three-month lag. As a result of the sale of the Company's
holdings in Princeton, the Company accelerated the recording of its equity in
net loss of Princeton to the date of sale. Princeton's statement of operations
for the eight months ended May 31, 2004 was used to calculate the equity in net
loss recorded in the Company's statement of operations for the year ended
December 31, 2004.
Princeton's summarized balance sheet is as follows:
May 31, September 30,
(in thousands) 2004 2003
------- -------
Current assets ......................................... $47,528 $34,750
Non-current assets ..................................... 9,464 12,681
Current liabilities .................................... 38,188 30,386
Non-current liabilities ................................ 1,209 486
Mandatorily redeemable convertible preferred stock ..... 49,845 39,587
Princeton's summarized statements of operations are as follows:
Eight
Months Ended Year Ended
May 31, September 30,
(in thousands) 2004 2003
--------- ----------
Revenues ............................... $ 16,695 $ 35,309
Gross profit ........................... 7,258 16,026
Loss from operations ................... (9,188) (7,965)
Net loss ............................... (9,214) (7,674)
41
NOTE 15. RELATED PARTIES
In June 2004, in connection with the Newcastle Transaction, Mark Schwarz,
Chief Executive Officer and Chairman of Newcastle Capital Management, L.P.
("NCM"), Steven J. 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 19,380,768 shares of Common
Stock of the Company.
The Company's corporate headquarters are currently located at 200 Crescent
Court, Suite 1400, Dallas, Texas 75201, which are also the offices of NCM. The
Company occupies a portion of NCM space on a month-to-month basis at $2,500 per
month, pursuant to a services agreement entered into between the parties. NCM is
the general partner of Newcastle. The Company also receives accounting and
administrative services from employees of NCM at market rates pursuant to such
agreement. The expense for the year totaled $7,500 which was owed to NCM at
December 31, 2006.
In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108
("SAB 108"), which provides interpretive guidance on how the effects of the
carryover or reversal of prior year misstatements should be considered in
quantifying a current year misstatement. SAB 108 requires the use of both the
"iron curtain" and "rollover" approach in quantifying the materiality of
misstatements. SAB 108 provides transitional guidance for the correction of
errors in prior periods.
SAB 108 is effective for the Company no later than the year ending
December 31, 2006. The Company adopted SAB 108 as of September 30, 2006. Upon
initial application of SAB 108, the Company evaluated the uncorrected financial
statement misstatements that were previously considered immaterial under the
"rollover" method using the dual methodology required by SAB 108. As a result of
this dual methodology approach of SAB 108, the Company corrected the cumulative
error in its accounting for the fair market value of office space provided at no
charge and accounting and administrative services received for the current
fiscal year by recording an expense of $16,500 with a corresponding credit to
additional paid-in capital. In accordance with the transitional guidance in SAB
108, the Company also made an adjustment of $22,500 within stockholders' equity
that increased additional paid-in capital and increased accumulated deficit for
such costs prior to January 1, 2006.
42
NOTE 16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Three Months Ended
-------------------------------------------------------
December 31, September 30, June 30, March 31,
(in thousands, except per share data) 2006 2006 2006 2006
------ ------ ------ -------
Operating revenues ........................................ $-- $-- $ 56 $ 13
Operating income (loss) ................................... (275) (235) 20 (83)
Net income (loss) ......................................... (123) (82) 173 (559)
Preferred stock dividend .................................. -- -- (50) (50)
Net income (loss) available to common stockholders ........ (123) (82) 123 (609)
Basic and diluted net income (loss) per common share:
Net income (loss) ......................................... (0.0) (0.0) .01 (.02)
Three Months Ended
-------------------------------------------------------
December 31, September 30, June 30, March 31,
(in thousands, except per share data) 2005 2005 2005 2005
------ ------ ------ -------
Operating revenues ........................................ $ 33 $-- $-- $--
Operating loss from continuing operations ................. (121) (287) (246) (355)
Net (loss) income ......................................... 13 (193) (89) (274)
Preferred stock dividend .................................. (50) (50) (50) (50)
Net loss available to common stockholders ................. (37) (243) (139) (324)
Basic and diluted net income (loss) per common share:
Net income (loss) ......................................... 0.0 (.01) (0.0) (.01)
43
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.
44
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 will be furnished on or prior to April
30, 2007 (and is hereby incorporated by reference) by an amendment hereto or
pursuant to a definitive proxy statement of the Company's 2007 Annual Meeting of
Stockholders for the fiscal year ended December 31, 2006.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 will be furnished on or prior to April
30, 2007 (and is hereby incorporated by reference) by an amendment hereto or
pursuant to a definitive proxy statement of the Company's 2007 Annual Meeting of
Stockholders for the fiscal year ended December 31, 2006.
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, 2007 (and is hereby incorporated by reference) by an amendment hereto or
pursuant to a definitive proxy statement of the Company's 2007 Annual Meeting of
Stockholders for the fiscal year ended December 31, 2006.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by Item 13 will be furnished on or prior to April
30, 2007 (and is hereby incorporated by reference) by an amendment hereto or
pursuant to a definitive proxy statement of the Company's 2007 Annual Meeting of
Stockholders for the fiscal year ended December 31, 2006.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 will be furnished on or prior to April
30, 2007 (and is hereby incorporated by reference) by an amendment hereto or
pursuant to a definitive proxy statement of the Company's 2007 Annual Meeting of
Stockholders for the fiscal year ended December 31, 2006.
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.
45
3. Exhibits:
The exhibits listed below are filed as part of or incorporated by
reference in this report. Where such filing is made by incorporation
by reference to a previously filed document, such document is
identified in parentheses. See the Index of Exhibits included with
the exhibits filed as a part of this report.
Exhibit
Number Description of Exhibits
2.1 Plan of Merger and Acquisition Agreement between BCC, CRM Acquisition
Corp., Computer Resources Management, Inc. and Michael A. Harrelson,
dated June 1, 1997 (incorporated by reference from Exhibit 2.1 to Form
10-Q, dated June 30, 1997).
2.2 Stock Purchase Agreement between BCC and Princeton TeleCom Corporation,
dated September 4, 1998 (incorporated by reference from Exhibit 2.2 to
Form 10-K, dated September 30, 1998).
2.3 Stock Purchase Agreement between BCC and Princeton eCom Corporation,
dated February 21, 2000 (incorporated by reference from Exhibit 2.1 to
Form 8-K, dated March 16, 2000).
2.4 Agreement and Plan of Merger between BCC, Billing Concepts, Inc.,
Enhanced Services Billing, Inc., BC Transaction Processing Services,
Inc., Aptis, Inc., Operator Service Company, BC Holding I Corporation,
BC Holding II Corporation, BC Holding III Corporation, BC Acquisition I
Corporation, BC Acquisition II Corporation, BC Acquisition III
Corporation and BC Acquisition IV Corporation, dated September 15, 2000
(incorporated by reference from Exhibit 2.1 to Form 8-K, dated
September 15, 2000).
2.5 Stock Purchase Agreement by and among New Century Equity Holdings
Corp., Mellon Ventures, L.P., Lazard Technology Partners II LP, Conning
Capital Partners VI, L.P. and Princeton eCom Corporation, dated March
25, 2004 (incorporated by reference from Exhibit 10.1 to Form 8-K,
dated March 29, 2004).
2.6 Series A Convertible 4% Preferred Stock Purchase Agreement by and
between New Century Equity Holdings Corp. and Newcastle Partners, LP,
dated June 18, 2004 (incorporated by reference from Exhibit 2.1 to Form
8-K, dated June 30, 2004).
3.1 Amended and Restated Certificate of Incorporation of BCC (incorporated
by reference from Exhibit 3.1 to Form 10/A, Amendment No. 1, dated July
11, 1996); as amended by Certificate of Amendment to Certificate of
Incorporation, filed with the Delaware Secretary of State, amending
Article I to change the name of the Company to Billing Concepts Corp.
and amending Article IV to increase the number of authorized shares of
common stock from 60,000,000 to 75,000,000, dated February 27, 1998
(incorporated by reference from Exhibit 3.4 to Form 10-Q, dated March
31, 1998).
3.2 Amended and Restated Bylaws of BCC (incorporated by reference from
Exhibit 3.3 to Form 10-K, dated September 30, 1998).
3.3 Certificate of Elimination of Series A Junior Participating Preferred
Stock, filed with the Secretary of State of Delaware on July 10, 2006
(incorporated by reference from Exhibit 3.1 to Form 8-K, dated July 10,
2006).
4.1 Form of Stock Certificate of Common Stock of BCC (incorporated by
reference from Exhibit 4.1 to Form 10-Q, dated March 31, 1998).
4.2 Rights Agreement, dated as of July 10, 2006, by and between New Century
Equity Holdings Corp. and The Bank of New York Trust Company, N.A.
(incorporated by reference from Exhibit 4.2 to Form 8-K, dated July 10,
2006).
4.3 Certificate of Designation of Series A Junior Participating Preferred
Stock, filed with the Secretary of State of Delaware on July 10, 2006
(incorporated by reference from Exhibit 3.2 to Form 8-K, dated July 10,
2006).
4.4 Form of Rights Certificate (incorporated by reference from Exhibit 4.1
to Form 8-K, dated July 10, 2006).
46
*10.1 BCC's 1996 Employee Comprehensive Stock Plan amended as of August 31,
1999 (incorporated by reference from Exhibit 10.8 to Form 10-K, dated
September 30, 1999).
*10.2 Form of Option Agreement between BCC and its employees under the 1996
Employee Comprehensive Stock Plan (incorporated by reference from
Exhibit 10.9 to Form 10-K, dated September 30, 1999).
*10.3 Amended and Restated 1996 Non-Employee Director Plan of BCC, amended as
of August 31, 1999 (incorporated by reference from Exhibit 10.10 to
Form 10-K, dated September 30, 1999).
*10.4 Form of Option Agreement between BCC and non-employee directors
(incorporated by reference from Exhibit 10.11 to Form 10-K, dated
September 30, 1998).
10.5 Office Building Lease Agreement between Billing Concepts, Inc. and
Medical Plaza Partners (incorporated by reference from Exhibit 10.21 to
Form 10/A, Amendment No. 1, dated July 11, 1996), as amended by First
Amendment to Lease Agreement, dated September 30, 1996 (incorporated by
reference from Exhibit 10.31 to Form 10-Q, dated March 31, 1998),
Second Amendment to Lease Agreement, dated November 8, 1996
(incorporated by reference from Exhibit 10.32 to Form 10-Q, dated March
31, 1998), and Third Amendment to Lease Agreement, dated January 24,
1997 (incorporated by reference from Exhibit 10.33 to Form 10-Q, dated
March 31, 1998).
10.6 Office Building Lease Agreement between Prentiss Properties Acquisition
Partners, L.P. and Aptis, Inc., dated November 11, 1999 (incorporated
by reference from Exhibit 10.33 to Form 10-K, dated September 30,
1999).
*10.7 BCC's 401(k) Retirement Plan (incorporated by reference from Exhibit
10.14 to Form 10-K, dated September 30, 2000).
10.8 Office Building Lease Agreement between BCC and EOP-Union Square
Limited Partnership, dated November 6, 2000 (incorporated by reference
from Exhibit 10.16 to Form 10-K, dated December 31, 2001).
10.9 Office Building Sublease Agreement between BCC and CCC Centers, Inc.,
dated February 11, 2002 (incorporated by reference from Exhibit 10.17
to Form 10-K, dated December 31, 2001).
10.10 Office Building Lease Agreement between SAOP Union Square, L.P. and New
Century Equity Holdings Corp., dated February 11, 2004 (incorporated by
reference from Exhibit 10.18 to Form 10-K, dated December 31, 2003).
10.11 Sublease agreement entered into by and between New Century Equity
Holdings Corp. and the Law Offices of Alfred G. Holcomb, P.C.
(incorporated by reference from Exhibit 10.1 to Form 10-Q, dated
September 30, 2004).
10.12 Revenue Sharing Agreement, dated as of October 5, 2005, between New
Century Equity Holdings Corp. and ACP Investments LP (incorporated by
reference from Exhibit 10.1 to Form 10-Q, dated September 30, 2005).
47
10.13 Principals Agreement, dated as of October 5, 2005, by and among New
Century Equity Holdings Corp. and ACP Investments LP (incorporated by
reference from Exhibit 10.2 to Form 10-Q, dated September 30, 2005).
14.1 New Century Equity Holdings Corp. Code of Ethics (incorporated by
reference from Exhibit 14.1 to Form 10-K, dated December 31, 2003).
21.1 List of Subsidiaries: New Century Equity Holdings of Texas, Inc.
(incorporated in Delaware) New Century Equity Holdings, Inc.
(incorporated in Texas)
23.1 Consent of Burton, McCumber & Cortez, L.L.P. (filed herewith).
31.1 Certification of Chief Executive Officer in Accordance with Section 302
of the Sarbanes-Oxley Act (filed herewith).
31.2 Certification of Chief Financial Officer in Accordance with Section 302
of the Sarbanes-Oxley Act (filed herewith). 32.1 Certification of Chief
Executive Officer in Accordance with Section 906 of the Sarbanes-Oxley
Act (filed herewith).
32.2.1 Certification of Chief Financial Officer in Accordance with Section 906
of the Sarbanes-Oxley Act (filed herewith).
* Includes compensatory plan or arrangement.
48
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, 2007 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 2007.
SIGNATURE TITLE
/s/ Steven J. Pully
------------------------ Chief Executive Officer
Steven J. Pully (Principal Executive Officer)
/s/ John P. Murray
------------------------ Chief Financial Officer
John P. Murray (Principal Financial and Accounting Officer)
/s/ Mark E. Schwarz
------------------------ Director and
Mark E. Schwarz Chairman of the Board
/s/ James Risher
------------------------ Director
James Risher
/s/ Jonathan Bren Director
------------------------
Jonathan Bren
