sec document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2006
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 (I.R.S. 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)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. |X| Yes |_| No
Indicate by check mark 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.
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
Indicated below is the number of shares outstanding of the registrant's
only class of common stock at November 20, 2006:
Number of Shares
Title of Class Outstanding
----------------------------- ----------------
Common Stock, $0.01 par value 53,883,872
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
INDEX
PAGE
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September 30, 2006 (Unaudited)
and December 31, 2005....................................................................... 3
Unaudited Condensed Consolidated Statements of Operations - For the Three
and Nine Months ended September 30, 2006 and 2005........................................... 4
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) -
For the Three and Nine Months ended September 30, 2006 and 2005............................. 5
Unaudited Condensed Consolidated Statements of Cash Flows - For the
Nine Months ended September 30, 2006 and 2005............................................... 6
Notes to Unaudited Interim Condensed Consolidated Financial Statements......................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................................... 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk..................................... 16
Item 4. Controls and Procedures........................................................................ 16
PART II OTHER INFORMATION
Item 1. Legal Proceedings.............................................................................. 17
Item 1A. Risk Factors................................................................................... 19
Item 5. Other Information.............................................................................. 20
Item 6. Exhibits....................................................................................... 20
SIGNATURE ............................................................................................... 21
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
September 30, December 31,
2006 2005
------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents .................................................... $12,284 $12,487
Accounts receivable, net ..................................................... -- 33
Insurance receivable and other assets ........................................ 489 1,637
------- -------
Total current assets ........................................................... 12,773 14,157
Other non-current assets ..................................................... -- 6
Revenue interest ............................................................. 803 415
------- -------
Total assets ................................................................... $13,576 $14,578
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................. $ 5 $ 53
Accrued liabilities .......................................................... 132 550
------- -------
Total current liabilities ...................................................... 137 603
Other non-current liabilities ................................................ -- 2
------- -------
Total liabilities ............................................................ 137 605
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized;
0 and 4,807,692 shares designated as Series A convertible preferred stock
issued and outstanding....................................................... -- 48
Common stock, $0.01 par value, 75,000,000 shares authorized;
53,883,872 and 34,653,104 shares issued and outstanding .................... 539 347
Additional paid-in capital ................................................... 75,340 75,451
Accumulated deficit .......................................................... (62,440) (61,873)
-------- --------
Total stockholders' equity ..................................................... 13,439 13,973
-------- --------
Total liabilities and stockholders' equity ..................................... $ 13,576 $ 14,578
======== ========
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
3
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Operating revenues ........................................ $ -- $ -- $ 69 $ --
Operating expenses:
General and administrative expenses .................... 235 284 367 881
Depreciation and amortization expense .................. -- 3 -- 7
-------- -------- -------- --------
Operating loss ............................................ (235) (287) (298) (888)
Other income (expense):
Derivative settlement costs ............................ -- -- (600) --
Interest income, net ................................... 153 108 430 289
Other, net ............................................. -- (14) -- 43
-------- -------- -------- --------
Total other income (expense), net ......................... 153 94 (170) 332
-------- -------- -------- --------
Net loss .................................................. (82) (193) (468) (556)
Preferred stock dividend .................................. -- (50) (100) (150)
-------- -------- -------- --------
Net loss applicable to
common stockholders .................................... $ (82) $ (243) $ (568) $ (706)
======== ======== ======== ========
Basic and diluted net loss per common share:
Net loss ............................................... $ -- $ (0.01) $ (0.01) $ (0.02)
======== ======== ======== ========
Weighted average common shares outstanding ................ 53,883 34,653 41,063 34,653
======== ======== ======== ========
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
4
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/ (LOSS)
(IN THOUSANDS)
Three Months Ended Nine Months Ended
September 30, June 30,
------------------ -----------------
2006 2005 2006 2005
------- ------- ------- -------
Net loss ............................................. $ (82) $(193) $(468) $(556)
Other comprehensive income:
Reclassification of unrealized gain on investment... -- 5 -- (94)
Unrealized holding gains (losses), net of $0 tax.... -- -- -- 45
----- ----- ----- -----
Comprehensive loss ................................... $ (82) $(188) $(468) $(605)
===== ===== ===== =====
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
5
NEW CENTURY EQUITY HOLDINGS CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Nine Months Ended
September 30,
-----------------------
2006 2005
--------- ---------
Cash flows from operating activities:
Net loss ................................................. $ (468) $ (556)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization expenses ................. -- 7
Share based payment expense ............................ 17 --
Bad debt expense ....................................... 34 --
Loss on sale of treasury bill .......................... -- 14
Gain on sale of Sharps Compliance Corp. common stock ... -- (57)
Accretion of discount on securities .................... -- (185)
Fair market value of services........................... 17 --
Changes in operating assets and liabilities:
Increase in accounts receivable ....................... (1) --
Decrease (increase) in prepaid and other assets ....... 1,154 (1,307)
Increase (decrease) in accounts payable ............... (48) 6
Increase (decrease) in accrued liabilities ............ (313) 238
-------- --------
Net cash provided by (used in) operating activities ...... 392 (1,840)
Cash flows from investing activities:
Proceeds from sale of short-term investments ........... -- 27,186
Purchase of short-term investments ..................... -- (13,786)
Purchase of revenue interest ........................... (388) --
-------- --------
Net cash provided by (used in) investing activities ...... (388) 13,400
Cash flows from financing activities:
Cash dividends paid on preferred stock ................. (207) (200)
-------- --------
Net cash used in financing activities .................... (207) (200)
Net increase (decrease) in cash and cash equivalents ..... (203) 11,360
Cash and cash equivalents, beginning of period ........... 12,487 1,716
-------- --------
Cash and cash equivalents, end of period ................. $ 12,284 $ 13,076
======== ========
Supplemental disclosure of non-cash transactions:
Increase in fair market value of investments ........... $ -- $ 40
Preferred stock dividend ............................... $ 100 $ 100
Reclassification of gain on investment ................. $ -- $ (94)
The accompanying notes are an integral part of these interim condensed consolidated
financial statements.
6
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, 2005. 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 AND RECENT DEVELOPMENTS
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"), pursuant to
which the Company has the right to receive 50% of the revenues generated by
Ascendant. Ascendant is a Berwyn, Pennsylvania based alternative asset
management company whose funds have investments in long/short equity funds and
which distributes its registered funds primarily through various financial
intermediaries and related channels. The Company's revenue 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.
7
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 the 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. 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 approximately
$2,270,000 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. The Company has therefore
recognized a loss of $600,000 related to the Lawsuit for the nine months ended
September 30, 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 approximately $930,000. Under the Settlement, the
plaintiff, the Company and the other defendants (including Mr. Holmes) have also
agreed to certain mutual releases of claims arising out of transactions
referenced in the Lawsuit.
During the quarter ended September 30, 2006, 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
8
policy carries a maximum coverage limit of $5,000,000. As of September 30, 2006,
the Company has recorded a receivable from the insurance carrier of
approximately $435,000 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. Although the Company is vigorously pursuing enforcement
of its rights under the policy and believes its claims to be valid, during the
quarter ended September 30, 2006, management determined to write off
approximately $85,000 of the insurance receivable as unlikely to be collected.
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.
NOTE 3. 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.
Amortization of the fair value of the stock option grants has been
included in the Company's results since the grant date and totaled approximately
$0 and $17,000 for the quarter and nine months ended September 30, 2006,
respectively. 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).
For the quarter and nine months ended September 30, 2005, 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.
9
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands, except per share data) 2005 2005
------------------ -----------------
Net income (loss), as reported ...................... $ (193) $ (556)
Less: Total stock based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects ....... (4) (32)
-------- --------
Net income (loss), pro forma......................... $ (197) $ (588)
======== ========
Basic net income (loss) per common share:
Net income (loss), as reported ................... $ (0.01) $ (0.02)
Net income (loss), pro forma ..................... $ (0.01) $ (0.02)
Diluted net income (loss) per common share:
Net income (loss), as reported ................... $ (0.01) $ (0.02)
Net income (loss), pro forma ..................... $ (0.01) $ (0.02)
The fair value for these stock options was estimated at the respective grant
date using the Black-Scholes option-pricing model with the following weighted
average assumptions for the nine months ended September 30, 2005: expected
volatility of 99.22%, no dividend yield, expected life of 2.5 years and
risk-free interest rates of 4.75%.
NOTE 4. REVENUE INTEREST
On October 5, 2005, the Company entered into an agreement (the "Ascendant
Agreement") with Ascendant to acquire an interest in the revenues generated by
Ascendant. Pursuant to the Ascendant Agreement, the Company is currently
entitled to a 50% interest, subject to certain adjustments, in the revenues of
Ascendant, which interest declines if the assets under management of Ascendant
reach certain levels. Revenues generated by Ascendant include revenues from
assets under management or any other sources or investments, net of any agreed
commissions. The Company also agreed to provide various marketing services to
Ascendant. Steven J. Pully, CEO of the Company, was appointed to the Investment
Advisory Committee of Ascendant. The total potential purchase price under the
terms of the Ascendant 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, as of this time, has determined not to
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.
10
Ascendant had assets under management of approximately $24,000,000 and
$17,800,000 as of September 30, 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 payment for the quarter ended June 30, 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, the Company has proposed an amendment that would
permit Ascendant to temporarily defer certain payments to the Company, including
the payment owed in respect of the quarter ended June 30, 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 its review of Ascendant's financial position and cash flows,
the Company currently believes that Ascendant does not have the available cash
to pay the $34,000 accrued by the Company at June 30, 2006 for its portion of
the 50% revenue interest for that quarter. Therefore, the Company has fully
reserved the receivable during the quarter ended September 30, 2006. In
addition, the Company had not recorded any revenue for the quarter ended
September 30, 2006 from the revenue interest. The Company is currently
evaluating its investment in the revenue interest for impairment.
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 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 expires in 2006.
Under the original terms of the first lease, the remaining minimum undiscounted
rent payments total approximately $152,000 at September 30, 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 $4,610,000 at September 30, 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 these lease guarantees 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. Should the SEC or a court take 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.
11
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, 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.
The Company's corporate headquarters are currently located at 200
Crescent Court, Suite 1400, Dallas, Texas 75201, which are also the offices of
NCM. Pursuant to an oral agreement, the Company occupied a portion of NCM's
space on a month-to-month basis at no charge through September 30, 2006. The
Company also received accounting and administrative services from employees of
NCM at no charge through September 30, 2006. The Company will begin to pay a fee
to NCM for office space and for certain administrative services beginning on
October 1, 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 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.
12
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 its 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. On June 30, 2006, Newcastle elected to receive the 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.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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.
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 and nine months ended
September 30, 2006. 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, 2005.
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
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 $49,000 or 17%, and $514,000 or 58% for the three and
nine months ended September 30, 2006, respectively, as compared to the
corresponding periods of the prior fiscal year. The decrease is mainly
attributable to a decrease in legal and professional fees. Also, during the nine
months ended September 30, 2006, the Company reversed accrued legal and
professional fees of approximately $38,000 and recorded a refund of legal and
professional fees of $125,000 in accordance with the terms of an agreement to
settle a dispute with a law firm that had previously been hired by the Company.
INTEREST INCOME
Interest income increased by $45,000 or 42%, and $141,000 or 49% for
the three and nine months ended September 30, 2006, respectively, as compared to
the corresponding periods of the prior fiscal year. This increase was
attributable to higher yields on cash balances available for short-term
investment.
14
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 therefore recognized a loss of
$600,000 related to the Lawsuit for the nine months ended September 30, 2006.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance decreased to $12,284,000 at September 30,
2006, from $12,487,000 at December 31, 2005. The decrease relates to the
following: G&A expenses incurred during the nine months ended September 30,
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 nine
months ended September 30, 2006.
During the quarter ended September 30, 2006, 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 September 30, 2006,
the Company has recorded a receivable from the insurance carrier of
approximately $435,000 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. Although the Company is vigorously pursuing enforcement
of its rights under the policy and believes its claims to be valid, during the
quarter ended September 30, 2006, management determined to write off $85,000 of
the insurance receivable as unlikely to be collected. 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.
During the next 12 months, the Company's operating cash requirements
are expected to consist principally of funding corporate expenses, the costs
associated with maintaining a public company and expenses incurred in pursuing
the Company's business plan. Additionally, the total potential purchase price
under the terms of the Ascendant Agreement is $1,550,000, payable in four equal
installments of $387,500. Subject to the provisions of the Ascendant Agreement,
the third installment 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
15
make the April installment payment and, as of this time, has determined not to
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, including as a result of Ascendant's failure to make the required
revenue sharing payment for the quarter ended June 30, 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, the Company has proposed an amendment that would
permit Ascendant to temporarily defer certain payments to the Company, including
the payment owed in respect of the quarter ended June 30, 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 Ascendant's recent
financial performance and the Company's discussions with Ascendant, the Company
does not expect to recognize any revenues under the Ascendant Agreement for the
forseeable future. The Company expects to incur additional operating losses
through fiscal 2006 which will continue to have a negative impact on liquidity
and capital resources.
LEASE GUARANTEES
In October 2000, the Company completed the Platinum Transaction. Under
the terms of the Platinum Transaction, all leases and corresponding obligations
associated with the Transaction Processing and Software Business were assumed by
Platinum. Prior to the Platinum Transaction, the Company guaranteed two
operating leases for office space of the divested companies. The first lease is
related to office space located in San Antonio, Texas, and expires in 2006.
Under the original terms of the first lease, the remaining minimum undiscounted
rent payments total approximately $152,000 at September 30, 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 $4,610,000 at September 30, 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 these lease guarantees and, therefore, no liability has been accrued in
the Company's financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate risk primarily through its
portfolio of cash equivalents and short-term marketable securities. The Company
does not believe that it has significant exposure to market risks associated
with changing interest rates as of September 30, 2006, because the Company's
intention is to maintain a liquid portfolio. The Company has not used derivative
financial instruments in its 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 chief executive officer and chief financial officer, as
appropriate, to allow timely decisions regarding required disclosures.
16
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. 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 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 approximately
$2,270,000 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. The Company has therefore
recognized a loss of $600,000 related to the Lawsuit for the nine months ended
September 30, 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 approximately $930,000. Under the Settlement, the
plaintiff, the Company and the other defendants (including Mr. Holmes) have also
agreed to certain mutual releases of claims arising out of transactions
referenced in the Lawsuit.
During the quarter ended September 30, 2006, 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 September 30, 2006,
17
the Company has recorded a receivable from the insurance carrier of
approximately $435,000 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. Although the Company is vigorously pursuing enforcement
of its rights under the policy and believes its claims to be valid, during the
quarter ended September 30, 2006 management determined to write off
approximately $85,000 of the insurance receivable as unlikely to be collected.
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.
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 continues to provide certain confirmatory
information requested by the SEC. Should the SEC or a court take 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 and recorded a refund of legal and professional
fees of $125,000 during May 2006. In addition, the Company reversed accrued
legal and professional fees of approximately $38,000 during the quarter ended
March 31, 2006.
18
ITEM 1A. RISK FACTORS
The Risk Factors included in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 2005, have not materially changed other
than as set forth below.
OUR BUSINESS COULD BE HARMED IF THERE IS A NON-FAVORABLE RESOLUTION TO CERTAIN
LITIGATION OR REGULATORY PROCEEDINGS AGAINST THE COMPANY OR MATTERS RELATING
THERETO.
As discussed in Part II, Item 1. "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, the Company
announced that it 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.
During the quarter ended September 30, 2006, 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 September 30, 2006,
the Company has recorded a receivable from the insurance carrier of
approximately $435,000 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. Although the Company is vigorously pursuing enforcement
of its rights under the policy and believes its claims to be valid, during the
quarter ended September 30, 2006 management determined to write off
approximately $85,000 of the insurance receivable as unlikely to be collected.
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.
Among the claims filed by Mr. Davis is a claim that the Company
operated as an illegal investment company in violation of the Investment Company
Act of 1940 (the "Investment Company Act"). Although the Company believes that
it has not violated the Investment Company Act in the past, or is presently in
violation of the Investment Company Act, there can be no assurance that the
Company has not violated or is violating the Investment Company Act. Should the
SEC or a court take 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.
19
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 September 30, 2006, the Company's total assets were approximately
$13,576,000, of which approximately $803,000 were intangible assets relating to
the revenue interest in Ascendant. The Company cannot be certain that it will
ever realize the value of such intangible assets. If the Company were to record
an intangible impairment charge, its results of operations could be adversely
affected in the period in which the charge was recorded.
ITEM 5. OTHER INFORMATION
As part of the parties' discussions regarding non-payment of amounts
under the Ascendant Agreement, the Company has proposed an amendment that would
permit Ascendant to temporarily defer certain payments to the Company, including
the payment owed in respect of the quarter ended June 30, 2006. There is no
assurance that an amendment will be effected on such terms or that any
resolution on the foregoing matter will be reached. Based on the discussions,
the Company has fully reserved the receivable of $34,000 which was recorded for
the quarter ended June 30, 2006 and has not recorded any revenue or
corresponding receivable for a revenue sharing payment for the quarter ended
September 30, 2006. Based on Ascendant's recent financial performance and the
Company's discussions with Ascendant, the Company does not expect to recognize
any revenues under the Ascendant Agreement for the forseeable future.
ITEM 6. EXHIBITS
Exhibits:
31.1 Certification of Chief Executive Officer in Accordance with
Section 302 of the Sarbanes-Oxley Act (filed herewith)
31.2 Certification of Chief Financial Officer in Accordance with
Section 302 of the Sarbanes-Oxley Act (filed herewith)
32.1 Certification of Chief Executive Officer in Accordance with
Section 906 of the Sarbanes-Oxley Act (filed herewith)
32.2 Certification of Chief Financial Officer in Accordance with
Section 906 of the Sarbanes-Oxley Act (filed herewith)
20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
NEW CENTURY EQUITY HOLDINGS CORP.
(Registrant)
Date: November 20, 2006 By: /s/ John P. Murray
------------------------------
John P. Murray
CHIEF FINANCIAL OFFICER
(Duly authorized and principal
financial officer)
21