Wilhelmina International, Inc. - Quarter Report: 2008 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM 10-Q
(Mark
One)
xQUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
quarterly period ended March 31,
2008
or
¨TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
transition period from
to
Commission File Number: 0-28536
|
NEW
CENTURY EQUITY HOLDINGS CORP.
|
|
(Exact
name of registrant as specified in its
charter)
|
|
Delaware
|
74-2781950
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
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)
|
|
(Former
name, former address and former fiscal year, if changed since last
report)
|
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. Yes x No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
|
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
|
Non-accelerated
filer o (Do
not check if a smaller reporting company)
|
Smaller
reporting company x
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of May 15, 2008, the registrant
had 53,883,872 shares of Common Stock outstanding.
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
INDEX
|
PAGE
|
||
|
3
|
||
|
4
|
||
|
5
|
||
|
6
|
||
|
12
|
||
|
14
|
||
|
15
|
||
|
16
|
||
|
17
|
||
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
NEW CENTURY EQUITY HOLDINGS CORP. AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands, except share data)
|
March
31,
|
December
31,
|
|||||||
|
2008
|
2007
|
|||||||
|
|
(Unaudited)
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 12,731 | $ | 12,679 | ||||
|
Prepaids
and other assets
|
187 | 37 | ||||||
|
Total
current assets
|
12,918 | 12,716 | ||||||
|
Revenue
interest
|
803 | 803 | ||||||
|
Total
assets
|
$ | 13,721 | $ | 13,519 | ||||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 96 | $ | - | ||||
|
Accrued
liabilities
|
231 | 131 | ||||||
|
Current
and total liabilities
|
327 | 131 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Stockholders’
equity:
|
||||||||
|
Preferred
stock, $0.01 par value, 10,000,000 shares authorized; none
outstanding
|
- | - | ||||||
|
Common
stock, $0.01 par value, 75,000,000 shares authorized; 53,883,872 shares
issued and outstanding
|
539 | 539 | ||||||
|
Additional
paid-in capital
|
75,357 | 75,357 | ||||||
|
Accumulated
deficit
|
(62,502 | ) | (62,508 | ) | ||||
|
Total
stockholders’ equity
|
13,394 | 13,388 | ||||||
|
Total
liabilities and stockholders’ equity
|
$ | 13,721 | $ | 13,519 | ||||
The
accompanying notes are an integral part of these interim condensed consolidated
financial statements.
NEW CENTURY EQUITY HOLDINGS CORP. AND
SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In
thousands, except per share data)
|
Three
Months Ended
|
||||||||
|
March 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Operating
revenues
|
$ | - | $ | - | ||||
|
Operating
expenses:
|
||||||||
|
General
and administrative expenses
|
95 | 169 | ||||||
|
Operating
loss
|
(95 | ) | (169 | ) | ||||
|
Other
income (expense):
|
||||||||
|
Interest
income
|
101 | 156 | ||||||
|
Total
other income
|
101 | 156 | ||||||
|
Net
income (loss) applicable to common stockholders
|
$ | 6 | $ | (13 | ) | |||
|
Basic
and diluted net income (loss) per common share:
|
||||||||
|
Net
income
(loss)
|
$ | 0.00 | $ | (0.00 | ) | |||
|
Weighted
average common shares outstanding
|
53,884 | 53,884 | ||||||
The
accompanying notes are an integral part of these interim condensed consolidated
financial statements.
NEW CENTURY
EQUITY HOLDINGS CORP. AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
thousands)
|
Three
Months Ended
|
||||||||
|
March
31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Cash
flows from operating activities:
|
||||||||
|
Net
income (loss)
|
$ | 6 | $ | (13 | ) | |||
|
Adjustments
to reconcile net income (loss) to net cash
|
||||||||
|
provided
by operating activities:
|
||||||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
(Increase)
decrease in prepaid and other assets
|
(150 | ) | 70 | |||||
|
Increase
(decrease) in accounts payable
|
96 | (8 | ) | |||||
|
Increase
(decrease) in accrued liabilities
|
100 | (11 | ) | |||||
|
Net
cash provided by operating activities
|
52 | 38 | ||||||
|
Cash
flows from investing activities:
|
||||||||
|
Purchase
of property and equipment
|
- | (2 | ) | |||||
|
Net
cash used in investing activities
|
- | (2 | ) | |||||
|
Cash
flows from financing activities
|
- | - | ||||||
|
Net
increase in cash and cash equivalents
|
52 | 36 | ||||||
|
Cash
and cash equivalents, beginning of period
|
12,679 | 12,319 | ||||||
|
Cash
and cash equivalents, end of period
|
$ | 12,731 | $ | 12,355 | ||||
The
accompanying notes are an integral part of these interim condensed consolidated
financial statements.
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
NOTES
TO THE INTERIM CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS
(UNAUDITED)
Note
1. Basis of Presentation
The
interim condensed consolidated financial statements included herein have been
prepared by New Century Equity Holdings Corp. (“NCEH” or the “Company”) and
subsidiaries without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (“SEC”). Although certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to those rules
and regulations, all adjustments considered necessary in order to make the
financial statements not misleading, have been included. In the
opinion of the Company’s management, the accompanying interim condensed
consolidated financial statements reflect all adjustments, of a normal recurring
nature, that are necessary for a fair presentation of the Company’s financial
position, results of operations and cash flows for such periods. It
is recommended that these interim condensed consolidated financial statements be
read in conjunction with the consolidated financial statements and the notes
thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2007. Results of operations for the interim periods are
not necessarily indicative of results that may be expected for any other interim
periods or the full fiscal year.
Note
2. Historical Overview
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
seeking, analyzing and evaluating potential acquisition and merger
candidates. On
October 5, 2005, the Company entered into an agreement (the “Ascendant
Agreement”) with ACP Investments, L.P. (d/b/a Ascendant Capital Partners)
(“Ascendant”) to acquire an interest in the revenues generated by
Ascendant. Ascendant is a Berwyn, Pennsylvania based alternative
asset management company whose funds have investments in long/short equity funds
and which distributes its registered funds primarily through various financial
intermediaries and related channels. The Company’s interest in
Ascendant currently represents the Company’s sole operating
business.
The
Company, which was formerly known as Billing Concepts Corp. (“BCC”), was
incorporated in the state of Delaware in 1996. BCC was previously a
wholly-owned subsidiary of U.S. Long Distance Corp. (“USLD”) and principally
provided third-party billing clearinghouse and information management services
to the telecommunications industry (the “Transaction Processing and Software
Business”). Upon its spin-off from USLD, BCC became an independent,
publicly-held company. In October 2000, the Company completed the
sale of several wholly-owned subsidiaries that comprised the Transaction
Processing and Software Business to Platinum Holdings (“Platinum”) for
consideration of $49,700,000 (the “Platinum Transaction”). The
Company also received payments totaling $7,500,000 for consulting services
provided to Platinum over the twenty-four month period subsequent to the
Platinum Transaction.
Beginning
in 1998, the Company made multiple investments in Princeton eCom Corporation
(“Princeton”) totaling approximately $77,300,000 before selling all of its
interest for $10,000,000 in June 2004. The Company’s strategy,
beginning with its investment in Princeton, of making investments in high-growth
companies was also facilitated through several other investments.
In early
2004, the Company announced that it would seek stockholder approval to liquidate
the Company. In June of 2004, the board of directors of the Company
determined that it would be in the best interest of the Company to accept an
investment from Newcastle Partners, L.P. (“Newcastle”), an investment fund with
a long track record of investing in public and private companies. On
June 18, 2004, the Company sold 4,807,692 newly issued shares of its Series A 4%
Convertible Preferred Stock (the “Series A Preferred Stock”) to Newcastle for
$5,000,000 (the “Newcastle Transaction”). The Series A Preferred
Stock 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
interest in Sharps, 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 was $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 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.
The
Settlement provided that, if the Company had not acquired a business that
generated revenues by March 1, 2007, the plaintiff maintained 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.
During
October 2007, in connection with the resolution of the Lawsuit, the Company and
the insurance carrier agreed to settle all claims for reimbursement of legal and
professional fees paid by the Company for $240,000.
Note
3. Stock Based Compensation
During
the quarter ended March 31, 2006, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 123(R), “Share-Based
Payment” (“SFAS 123R”) using the modified prospective application transition
method. Under this method, previously reported amounts should not be
restated to reflect the provisions of SFAS 123R. SFAS 123R
requires measurement of all employee stock-based compensation awards using a
fair-value method and recording of such expense in the consolidated financial
statements over the requisite service period. Previously, the Company
had applied the provisions of Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” and related interpretations and
elected to utilize the disclosure option of Statement of Financial Accounting
Standards No. 123, “Accounting for Stock-Based Compensation”. In the first
quarter of fiscal 2007 and 2008, the Company recorded no stock-based
compensation expense under the fair-value provisions of SFAS
123R. The Company utilizes stock-based awards as a form of
compensation for employees, officers and directors.
Note
4. Revenue Interest
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. On November 5, 2007, John Murray, Chief
Financial Officer of the Company, was appointed to the Investment Advisory
Committee of Ascendant to replace the Company’s former CEO. 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 not to make the
installment payment due July 5, 2006. The Company believed that it
was not required to make the payments because Ascendant did not satisfy all of
the conditions in the Ascendant Agreement.
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 $39,500,000 and $37,500,000 as of
March 31, 2008 and December 31, 2007, 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 and for the year ended December 31, 2007, in a timely manner and did
not cure such failures within the required 45 day period. In addition
Ascendant has not made the payment for the quarter ended March 31,
2008. 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.
The
Company has not recorded any revenue or received any revenue sharing payments
for the period from July 1, 2006 through March 31, 2008. According to
the Ascendant Agreement, 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 Ascendant Agreement, the required return on
the Company’s invested capital will not be impacted by any revenue sharing
payments made or not made by Ascendant.
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.
Since the
Ascendant revenue interest meets the indefinite life criteria outlined in
Statement of Financial Accounting Standards No. 142, “Goodwill and Other
Intangible Assets”, 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 entities’ products and investment styles;
the stability and depth of the management team and the history and perceived
franchise or brand value.
Note
5. 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 $2,482,000 at March 31, 2008. 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.
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.
In a
letter to the Company dated October 16, 2007, a lawyer representing Steven J.
Pully (the former CEO) alleged that the Company filed false and misleading
disclosure with the Securities and Exchange Commission with respect to the
elimination of Mr. Pully’s compensation (see the Company’s Forms 8-K filed on
September 5, 2007 and October 17, 2007). No specifics were provided
as to such allegations. The Company believes such allegations are
unfounded and, if a claim is made, the Company intends to vigorously defend
itself.
Note
6. Related Party Transactions
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, former 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 received an annual salary of $150,000 as Chief
Executive Officer of the Company. Mr. Pully resigned as Chief
Executive Officer of the Company effective October 15, 2007. Mr.
Schwarz is performing the functions of Chief Executive Officer. 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 incurred expenses pursuant to the
services agreement totaling $7,500 for each of the quarters ended March 31, 2008
and 2007, respectively. The Company owed NCM $0 as of March 31, 2008
and 2007, respectively. The Company also receives accounting and
administrative services from employees of NCM pursuant to such
agreement.
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 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.
The Company has never declared or paid
any cash dividends on its Common Stock, other than $2,270,017
distributed to the stockholders pursuant to the Settlement in August 2006 (See
Note 2). 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.
Item 2.
This
Quarterly Report on Form 10-Q contains certain “forward-looking” statements as
such term is defined in the Private Securities Litigation Reform Act of 1995 and
information relating to the Company and its subsidiaries that are based on the
beliefs of the Company’s management as well as assumptions made by and
information currently available to the Company’s management. When
used in this report, the words “anticipate”, “believe”, “estimate”, “expect” and
“intend” and words or phrases of similar import, as they relate to the Company
or its subsidiaries or Company management, are intended to identify
forward-looking statements. Such statements reflect the current
risks, uncertainties and assumptions related to certain factors including,
without limitation, competitive factors, general economic conditions, the
interest rate environment, governmental regulation and supervision, seasonality,
changes in industry practices, onetime events and other factors described herein
and in other filings made by the Company with the Securities and Exchange
Commission. Based upon changing conditions, should any one or more of
these risks or uncertainties materialize, or should any underlying assumptions
prove incorrect, actual results may vary materially from those described herein
as anticipated, believed, estimated, expected or intended. The
Company does not intend to update these forward-looking statements.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
General
The
following is a discussion of the interim unaudited condensed consolidated
financial condition and results of operations for New Century Equity Holdings
Corp. and subsidiaries for the three months ended March 31, 2008. It
should be read in conjunction with the Unaudited Interim Condensed Consolidated
Financial Statements of the Company, the notes thereto and other financial
information included elsewhere in this report, and the Company’s Annual Report
on Form 10-K for the year ended December 31, 2007.
Results
of Operations
Operating
Revenues
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. On November 5, 2007, John Murray, Chief
Financial Officer of the Company, was appointed to the Investment Advisory
Committee of Ascendant to replace the Company’s former CEO. 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 not to make the
installment payment due July 5, 2006. The Company believed that it
was not required to make the payments because Ascendant did not satisfy all of
the conditions in the Ascendant Agreement.
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 $39,500,000 and $37,500,000 as of
March 31, 2008 and December 31, 2007, 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 and for the year ended December 31, 2007, in a timely manner and did
not cure such failures within the required 45 day period. In addition
Ascendant has not made the payment for the quarter ended March 31,
2008. 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.
The
Company has not recorded any revenue or received any revenue sharing payments
for the period from July 1, 2006 through March 31, 2008. According to
the Ascendant Agreement, 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 Ascendant Agreement, the required return on
the Company’s invested capital will not be impacted by any revenue sharing
payments made or not made by Ascendant.
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. G&A
expenses decreased by $74,000, or 44%, to $95,000 during the three months ended
March 31, 2008, as compared to the corresponding period of the prior fiscal
year. This
decrease is primarily attributable to the absence of legal and professional fees
associated with the Lawsuit and officers’ compensation in the quarter ended
March 31, 2008.
Interest
Income
Interest
income decreased by $55,000, or 35%, to $101,000 during the three months ended
March 31, 2008, as compared to the corresponding period of the prior fiscal
year. This decrease is attributable to a decrease in yields on cash balances
available for short-term investment.
Liquidity
and Capital Resources
The
Company’s cash balance increased to $12,731,000 at March 31, 2008, from
$12,679,000 at December 31, 2007. The increase resulted from interest
income of approximately $101,000 offset by cash funding of general and
administrative expenses during the three months ended March 31,
2008.
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. The Company expects to incur operating losses through
fiscal 2008 which will continue to have a negative impact on liquidity and
capital resources.
Lease
Guarantees
In
October 2000, the Company completed the Platinum Transaction. Under
the terms of the Platinum Transaction, all leases and corresponding obligations
associated with the Transaction Processing and Software Business were assumed by
Platinum. Prior to the Platinum Transaction, the Company guaranteed
two operating leases for office space of the divested companies. The
first lease is related to office space located in San Antonio, Texas, and
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 $2,482,000 at March 31, 2008. 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.
New
Accounting Standards
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, “Fair Value Measurements” (“SFAS 157”), which establishes a
framework for reporting fair value and expands disclosures about fair value
measurements. SFAS 157 was effective for the Company on January 1, 2008, with
the exception that the applicability of SFAS 157’s fair value measurement
requirements to nonfinancial assets and liabilities that are not required or
permitted to be recognized or disclosed at fair value on a recurring basis has
been delayed by the FASB for one year. The Company does not believe that the
requirements of SFAS 157, which were effective for the Company on January 1,
2008, will have a material impact on the Company’s consolidated financial
statements. The Company is currently evaluating the impact of the SFAS 157
requirements, which will be effective for the Company on January 1, 2009, on the
Company’s financial position and results of operations.
Item 4. 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-Q, 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 principal executive officer and principal financial
officer as appropriate to allow timely decisions regarding required
disclosures. John Murray, the Company’s CFO, is the Company’s
principal financial officer. Up until his resignation as CEO in October 2007,
Steven J. Pully was the Company’s principal executive officer. Since Mr. Pully’s
resignation, Mark E. Schwarz, the Chairman of the Board of the Company, has
served the function of the CEO and is currently the principal executive officer
of the Company.
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 principal executive officer and principal 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 principal executive
officer and principal 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. No
change in the Company’s internal control over financial reporting (as defined in
Rule 13a-15(f) of the Exchange Act) occurred during the period covered by this
report that materially affected or is reasonably likely to materially affect the
Company’s internal control over financial reporting.
A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Because of inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of
fraud, if any, within a company have been detected.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
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.
In a
letter to the Company dated October 16, 2007, a lawyer representing Steven J.
Pully (the former CEO) alleged that the Company filed false and misleading
disclosure with the Securities and Exchange Commission with respect to the
elimination of Mr. Pully’s compensation (see the Company’s Forms 8-K filed on
September 5, 2007 and October 17, 2007). No specifics were provided
as to such allegations. The Company believes such allegations are
unfounded and, if a claim is made, the Company intends to vigorously defend
itself.
Item 6. Exhibits
Exhibits:
|
|
31.1
|
Certification
of Principal Executive Officer in Accordance with Section 302 of the
Sarbanes-Oxley Act (filed
herewith).
|
|
|
31.2
|
Certification
of Principal Financial Officer in Accordance with Section 302 of the
Sarbanes-Oxley Act (filed
herewith).
|
|
|
32.1
|
Certification
of Principal Executive Officer in Accordance with Section 906 of the
Sarbanes-Oxley Act (filed
herewith).
|
|
|
32.2
|
Certification
of Principal Financial Officer in Accordance with Section 906 of the
Sarbanes-Oxley Act (filed
herewith).
|
Pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
NEW
CENTURY EQUITY HOLDINGS CORP.
|
|||
|
(Registrant)
|
|||
|
Date:
|
May
15, 2008
|
By:
|
/s/
John P. Murray
|
|
John
P. Murray
|
|||
|
Chief
Financial Officer
|
|||
|
(Duly
authorized and principal financial
officer)
|
|||
17