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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q (Mark One) þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005 OR o 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 0-25995 NEXTERA ENTERPRISES, INC.  Delaware
    
    95-4700410(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)
 One Exeter Plaza
699 Boylston Street,
Boston, Massachusetts 02116
(Address of principal executive office, including zip code) (617) 262-0055
(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 and 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 þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in rule
12b-2 of the Exchange Act). Yes o No þ As of April 28, 2005 there were 30,025,441 shares of $.001 par value Class A Common Stock
outstanding and 3,844,200 shares of $.001 par value Class B Common Stock outstanding.




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NEXTERA ENTERPRISES, INC.
Quarterly Report on Form 10-Q
for the Quarter Ended March 31, 2005 INDEX Page No.PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of March
31, 2005 and December 31, 2004
    
    
    3Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2005 and 2004
    
    
    5Notes
to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    15Item 4. Controls and Procedures
    
    
    16PART II. OTHER INFORMATIONItem 6. Exhibits and Reports on Form 8-K
    
    
    17Signatures
    
    
    18EXHIBIT 31EXHIBIT 32
 2




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PART I  FINANCIAL INFORMATION 
 Item 1. Financial Statements Nextera Enterprises, Inc. 
 Condensed Consolidated Balance Sheets
(Dollar amounts in thousands, except per share data; unaudited) March 31,
    
    
    December 31,2005
    
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    16,291
    
    
    $
    16,713Prepaid expenses and other current assets
    
    
    350
    
    
    
    474Total current assets
    
    
    16,641
    
    
    
    17,187Property and equipment, net
    
    
    34
    
    
    
    39Other assets
    
    
    70
    
    
    
    Total assets
    
    $
    16,745
    
    
    $
    17,226Liabilities and Stockholders EquityCurrent liabilities:Accounts payable and accrued expenses
    
    $
    852
    
    
    $
    843Current portion of long-term debt
    
    
    258
    
    
    
    258Total current liabilities
    
    
    1,110
    
    
    
    1,101Long-term debt
    
    
    470
    
    
    
    470Other long-term liabilities
    
    
    400
    
    
    
    400Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity:Preferred Stock, $0.001 par value,
10,000,000 shares authorized, 600,000
authorized shares designated Series A,
46,402 and 45,619 Series A issued and
outstanding at March 31, 2005 and
December 31, 2004, respectively
    
    
    4,640
    
    
    
    4,562Class A Common Stock, $0.001 par value,
95,000,000 shares authorized, 30,025,441
shares issued and outstanding at March
31, 2005 and December 31, 2004
    
    
    30
    
    
    
    30Class B Common Stock, $0.001 par value,
4,300,000 shares authorized, 3,844,200
shares issued and outstanding at March
31, 2005 and December 31, 2004
    
    
    4
    
    
    
    4Additional paid-in capital
    
    
    161,376
    
    
    
    161,453Accumulated deficit
    
    
    (151,285
    )
    
    
    (150,794
    )Total stockholders equity
    
    
    14,765
    
    
    
    15,255Total liabilities and stockholders equity
    
    $
    16,745
    
    
    $
    17,226
 See Notes to Condensed Consolidated Financial Statements 3




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Nextera Enterprises, Inc. 
 Condensed Consolidated Statements of Operations
(Dollar amounts in thousands, except per share amounts; unaudited) Three Months EndedMarch 312005
    
    
    2004Net revenues
    
    $
    
    
    
    $
    Cost of revenues
    
    
    
    
    
    
    Gross profit
    
    
    
    
    
    
    Selling, general and administrative expenses
    
    
    565
    
    
    
    760Operating loss
    
    
    (565
    )
    
    
    (760
    )Interest income, net
    
    
    59
    
    
    
    40Loss from continuing operations before income taxes
    
    
    (506
    )
    
    
    (720
    )Provision for income taxes
    
    
    6
    
    
    
    Loss from continuing operations
    
    
    (512
    )
    
    
    (720
    )Income from discontinued operations
    
    
    21
    
    
    
    Net loss
    
    
    (491
    )
    
    
    (720
    )Preferred stock dividends
    
    
    (78
    )
    
    
    (73
    )Net loss applicable to common stockholders
    
    $
    (569
    )
    
    $
    (793
    )Net loss per
common share, basic and dilutedContinuing operations
    
    $
    (0.02
    )
    
    $
    (0.02
    )Discontinued operations
    
    
    
    
    
    
    Net loss per common share, basic and diluted
    
    $
    (0.02
    )
    
    $
    (0.02
    )Weighted average common shares outstanding, basic and diluted
    
    
    33,870
    
    
    
    33,870
 See Notes to Condensed Consolidated Financial Statements 4




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Nextera Enterprises, Inc. 
 Condensed Consolidated Statements of Cash Flows
(Dollar amounts in thousands; unaudited) Three Months Ended March 312005
    
    
    2004Operating activitiesNet loss
    
    $
    (491
    )
    
    $
    (720
    )Adjustments to reconcile net loss to net cash used
in operating activities:Depreciation and amortization
    
    
    5
    
    
    
    2Non-cash, other
    
    
    1
    
    
    
    Change in operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    528Prepaid expenses and other assets
    
    
    (33
    )
    
    
    305Accounts payable and accrued expenses
    
    
    9
    
    
    
    (1,501
    )Restructuring costs
    
    
    
    
    
    
    (173
    )Net cash used in operating activities
    
    
    (509
    )
    
    
    (1,559
    )Investing activitiesPurchase of property and equipment
    
    
    
    
    
    
    (19
    )Proceeds from sale of business
    
    
    87
    
    
    
    Net cash provided by (used in) investing activities
    
    
    87
    
    
    
    (19
    )Net decrease in cash and cash equivalents
    
    
    (422
    )
    
    
    (1,578
    )Cash and cash equivalents at beginning of period
    
    
    16,713
    
    
    
    20,124Cash and cash equivalents at end of period
    
    $
    16,291
    
    
    $
    18,546
 See Notes to Condensed Consolidated Financial Statements 5




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NEXTERA ENTERPRISES, INC. 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1.Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Nextera Enterprises, Inc.
(Nextera or the Company) have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and footnotes required
by U.S. generally accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the three-month period ended
March 31, 2005 are not necessarily indicative of the results that may be expected for the year
ending December 31, 2005. The balance sheet as of December 31, 2004 has been derived from the audited financial statements at
that date but does not include all of the information and footnotes required by U.S. generally
accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the financial statements and notes
thereto, together with managements discussion and analysis of financial condition and results of
operations, contained in the Companys Annual Report on Form 10-K filed by the Company with the
Securities and Exchange Commission on March 25, 2005. On November 28, 2003, Nextera Enterprises, Inc. sold substantially all of the assets Lexecon and
its subsidiaries used in their economic consulting business (Asset Sale) to FTI Consulting, Inc.
and LI Acquisition Company, LLC, a wholly owned subsidiary of FTI (collectively, FTI). As of March
31, 2005 and December 31, 2004, Nextera had no business operations. Krest, LLC (successor to
Knowledge Universe, LLC and Knowledge Universe, Inc.) controls a majority
of the voting power of the Companys equity securities through its ownership of the Companys Class
A Common Stock, Class B Common Stock and Series A Cumulative Preferred Stock. Note 2. Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries.
Significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates. 6




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NEXTERA ENTERPRISES, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued) Recently Issued Accounting Pronouncements In December of 2004, The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 123 (revised 2004), Share Based Payment(SFAS 123R) which revises SFAS
123 and supersedes APB 25. SFAS 123R requires that all share-based payments to employees,
including grants of employee stock options, be recognized in the financial statements based on
their fair value. The pro forma disclosures previously permitted under SFAS 123 will no
longer be an alternative to financial statement recognition. The cost will be recognized in the
financial statements over the period during which the employee is required to provide the service.
The Company expects the annual impact of the adoption of SFAS 123R on earnings per share to be less than
$0.01 per share. To the extent that share-based payments by the Company increase in the future,
the impact on the statement of operations or earnings per share could be materially affected. On April 14, 2005 the U.S. Securities and Exchange Commission (the SEC) announced a deferral of
the effective date of SFAS 123R for calendar year companies until the beginning of 2006. Stock-Based Compensation and Other Equity Instruments The Company has adopted the disclosure standards of Statement of Financial Accounting Standards No.
148, Stock-Based Compensation  Transition and Disclosure- an amendment of FASB Statement No. 123
(SFAS 148). SFAS 148 amends Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation(SFAS 123) to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based compensation and also amends
the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. As allowed under SFAS 123 and SFAS 148, the Company has elected to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related
Interpretations in accounting for its employee stock options. Under APB 25, if the exercise price
of the Companys employee stock options equals or exceeds the market price of the underlying stock
on the date of grant, no compensation expense is recognized. The Company accounts for equity instruments issued to non-employees in exchange for goods or
services using the fair value method. If the Company had adopted the optional recognition provisions of SFAS 123, as amended by SFAS 148,
for its stock option plans, net loss and net loss per common share would have been changed to the
pro forma amounts indicated below: 7




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NEXTERA ENTERPRISES, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued) Three months ended March 31,2005
    
    
    2004(dollar amounts in thousands, except per share data)Net loss as reported
    
    $
    (491
    )
    
    $
    (720
    )Compensation expense under SFAS 123
    
    
    (50
    )
    
    
    (294
    )Pro forma net loss
    
    $
    (541
    )
    
    $
    (1,014
    )Net loss per common share, basic and diluted:As reported
    
    $
    (0.02
    )
    
    $
    (0.02
    )Pro forma
    
    $
    (0.02
    )
    
    $
    (0.03
    )
 The weighted average fair value of options granted during the first quarter of 2005 and 2004 were
$0.26 and $0.38, respectively, at the date of the grants. The 2004 options were granted at an
exercise price below the Companys stock price on the day of the grant. Accordingly, a nominal
compensation charge is being recorded in the financial statements over the vesting period. As
recommended by SFAS 123, the fair values of options were estimated using the Black-Scholes option
pricing model utilizing the following assumptions: 2005
    
    
    2004Risk-free interest rates
    
    
    3.50
    %
    
    
    3.75
    %Expected lives (years)
    
    
    3
    
    
    
    6Expected volatility
    
    
    80
    %
    
    
    121
    %Dividend rate
    
    
    0
    %
    
    
    0
    %
 Note 3. Basic and Diluted Net Income (Loss) per Common Share Basic net income (loss) per share (Basic EPS) is computed by dividing income (loss) from
continuing operations applicable to common stockholders and net income (loss) applicable to common
stockholders by the weighted average number of common shares outstanding. Diluted net income
(loss) per common share (Diluted EPS) is the same as the basic loss per share for the three-month
periods ended March 31, 2005 and 2004 as the computation of diluted income (loss) per share would
have an anti-dilutive effect on loss per share. Basic and diluted loss per share were calculated as follows: 8




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NEXTERA ENTERPRISES, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued) Three Months Ended March 312005
    
    
    2004(amounts in thousandsexcept per share data)Loss from continuing operations
    
    $
    (512
    )
    
    $
    (720
    )Preferred stock dividends
    
    
    (78
    )
    
    
    (73
    )Loss from continuing operations
applicable to common stockholders
    
    
    (590
    )
    
    
    (793
    )Income from discontinued operations
    
    
    21
    
    
    
    Net loss applicable to common
stockholders
    
    $
    (569
    )
    
    $
    (793
    )Weighted average common shares
outstandingbasic and diluted
    
    
    33,870
    
    
    
    33,870Basic and diluted net loss per common shareLoss from continuing operations
    
    $
    (0.02
    )
    
    $
    (0.02
    )Income from discontinued operations
    
    
    
    
    
    
    Net loss per common share, basic and
diluted
    
    $
    (0.02
    )
    
    $
    (0.02
    )
 Note 4. Special Charges Accrued restructuring charges and their utilization for the period presented below is summarized as
follows (in thousands): UtilizedBalance
    
    
    
    
    
    
    
    
    Balanceat December 31, 2003
    
    
    Non-Cash
    
    
    Cash
    
    
    at March 31, 2004Severance
    
    $
    77
    
    
    $
    
    
    
    $
    77
    
    
    $
    Facilities
    
    
    45
    
    
    
    
    
    
    
    45
    
    
    
    Operating lease obligations
    
    
    51
    
    
    
    
    
    
    
    51
    
    
    
    $
    173
    
    
    $
    
    
    
    $
    173
    
    
    $
    
 9




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NEXTERA ENTERPRISES, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued) Note 5. Income Taxes No federal tax benefit was recorded for the three-month periods ended March 31, 2005 and 2004 due
to the Companys uncertainty associated with utilizing its net operating losses. The Company did
record de minimis state tax expense for the three month period ended March 31, 2005. Note 6. Comprehensive Income Comprehensive income (loss) combines net income (loss) and other comprehensive items which represent
certain amounts that are reported as components of stockholders equity in the accompanying balance
sheet. For the period ended March 31, 2005, the Company did not have any other comprehensive
items; thus, comprehensive loss equaled net loss. During the first quarter 2004, comprehensive
loss was $0.5 million. Accumulated other comprehensive loss at March 31, 2004 consisted solely of
unrealized investment losses. Note 7. Commitments and Contingencies The Company, from time to time, is subject to certain asserted claims arising in the ordinary
course of business. The Company intends to vigorously assert its rights and defend itself in any
litigation that may arise from such claims. While the ultimate outcome of these matters could
affect the results of operations of any one quarter or year when resolved in future periods, and
while there can be no assurance with respect thereto, management believes that after final
disposition, any financial impact to the Company would not be material to the Companys financial
position and results of operations or liquidity. In connection with the 2003 sale of the Companys economic consulting business, the Company agreed
to indemnify the buyer for a number of matters including the breach of its representations,
warranties and covenants contained in the Asset Purchase Agreement. These representations,
warranties and covenants related to organization, corporate, financial statement, business,
operational, tax, legal, insurance, intellectual property, title to assets, employee, labor,
leases, environmental, record keeping, contracts, permits, licenses, authorizations, solvency,
cooperation and other matters. A breach or inaccuracy of any of these representations, warranties
and covenants could lead to an indemnification claim by the buyer against the Company. Any such
indemnification claims could require the Company to pay substantial sums and incur related costs
and expenses and have a material adverse effect on the Companys liquidity, financial condition,
future prospects and ability to acquire a new operating business. 10




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NEXTERA ENTERPRISES, INC. 
 Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS The disclosure and analysis in this quarterly report contain forward-looking statements.
Forward-looking statements give our current expectations or forecasts of future events. These
statements can be identified by the fact that they do not relate strictly to historic or current
facts. They use words such as anticipate, estimate, expect, project, intend, plan,
believe, and other words and terms of similar meaning in connection with any discussion of future
operating or financial performance. In particular, these forward-looking statements include
statements relating to future actions or the outcome of financial results. From time to time, we
also may provide oral or written forward-looking statements in other materials released to the
public. Any or all of the forward-looking statements in this quarterly report and in any other
public statements may turn out to be incorrect. They can be affected by inaccurate assumptions or
by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be
guaranteed. Actual results may vary materially. Forward-looking statements are based on many factors that may be outside our control, causing
actual results to differ materially from those suggested. These factors include, but are not
limited to, those disclosed below under the heading Factors That May Affect Our Future
Performance. New factors emerge from time to time, and it is not possible for us to predict all
these factors nor can we assess the impact of these factors on our business or the extent to which
any factor or combination of factors may cause actual results to differ materially from those
contained in any forward-looking statements. Given these risks and uncertainties, you should not
place undue reliance on forward-looking statements as a prediction of actual results. Overview Nextera Enterprises, Inc. (Nextera or the Company) was formed in 1997 and focused on building a
portfolio of consulting companies through multiple acquisitions. The Company formerly offered
services in three practice areas: technology consulting, human capital consulting, and economic
consulting. The technology consulting business was exited during the latter half of 2001 and the
human capital consulting business was sold on January 30, 2002. On November 28, 2003, Nextera and
its direct and indirect subsidiaries, Lexecon Inc., CE Acquisition Corp. and ERG Acquisition Corp.,
sold substantially all of the assets Lexecon and its subsidiaries used in their economic consulting
business (Asset Sale) to FTI Consulting, Inc. and LI Acquisition Company, LLC, a wholly owned
subsidiary of FTI Consulting, Inc. (collectively, FTI) in accordance with the terms of an asset
purchase agreement dated September 25, 2003 (Asset Purchase Agreement). As a result of the Asset Sale, Nextera ceased to have business operations. The continuing
operations in the financial statements consist of operating expenses incurred in operating the
corporate entity. Selling, general and administrative expenses consist primarily of salaries and
benefits of certain senior management and other administrative personnel, director fees, insurance,
legal, professional, marketing, and promotional costs, and facility costs. These expenses are
associated with our efforts to identify and develop new business operations and with our
management, finance, marketing and administrative activities. We are currently actively engaged in the process of identifying acquisition candidates and related
activities. We have retained a financial advisor to assist in these efforts. Our tax provision has historically varied from the federal statutory rate of 34% predominately due
to deferred tax valuation allowance adjustments, the utilization of net operating losses, and state
and local taxes. 11




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COMPARISON OF THREE MONTHS ENDED MARCH 31, 2005 AND THREE MONTHS ENDED
MARCH 31, 2004 Selling, General and Administrative Expenses.Selling, general and administrative expenses
decreased 25.7%, or $0.2 million, to $0.6 million for the three months ended March 31, 2005 from
$0.8 million for the three months ended March 31, 2004. The decrease in selling, general and
administrative expenses from the first quarter of 2004 was primarily attributed to the following
components: a decrease of $0.1 million in insurance expense, due to a softening of the insurance
markets and reduction in coverage, and a $0.1 million decrease in various expense items including
salaries expense, directors fees, and legal and audit expenses. These latter cost reductions were
due to decreases in the number of employees, directors, and outsourced professional services in the
first quarter of 2005 from the first quarter of 2004. The Company anticipates that selling,
general, and administrative expenses will approximate $0.55 million per quarter under the Companys
current structure. If the Company acquires a business, it is expected that the selling, general,
and administrative expenses will materially exceed the $0.55 million per quarter. Interest Income, Net.Interest Income, net increased from $0.04 million for the three months ended
March 31, 2004 to $0.06 million for the three months ended March 31, 2005. The increase was due in
part to the elimination of minor interest expense charges in 2005 that existed in the first quarter
of 2004. Income taxes. No federal tax benefit was recorded for the three months ended March 31, 2005 and
2004 due to the Companys uncertainty associated with utilizing its net operating losses. The
Company did record de minimis state tax expense for the three month period ended March 31, 2005. LIQUIDITY AND CAPITAL RESOURCES Consolidated working capital was $15.5 million on March 31, 2005, compared with working capital of
$16.1 million on December 31, 2004. Included in working capital were cash and cash equivalents of
$16.3 million and $16.7 million on March 31, 2005 and December 31, 2004, respectively. Net cash used in operating activities was $0.5 million for the three-months ended March 31, 2005.
The primary component of net cash used in operating activities was the net loss of $0.5 million. Net cash provided by
investing activities was $0.1 million for the three-months ended March 31,
2005 relating to the partial collection of the Asset Sale proceeds that were held in escrow. The
Company anticipates that its capital expenditures for 2005 will be immaterial, unless it acquires
business operations. In such case, capital expenditures may be materially increased. The Companys primary source of liquidity is cash on hand. The Company believes that its current
cash on hand is sufficient to meet all expenditures over the next twelve months. The Company is in
the process of identifying opportunities to acquire one or more operating businesses and expects
that it will use a combination of cash on hand, third party debt, and the Companys equity
securities to acquire any such on-going businesses or operations. We believe that additional
liquidity sources, if necessary, could be obtained by borrowing funds from a third party or raising
equity through a public or private transaction. Critical Accounting Policies Our Condensed Consolidated Financial Statements have been prepared in accordance with U.S.
generally accepted accounting principles. The preparation of these financial statements requires
management to make judgments and estimates that affect the reported amounts of assets, liabilities,
revenues and expense, and related disclosure of contingent assets and liabilities. On an on-going
basis, the Company evaluates its estimates. The Company bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Results may differ
from these estimates under different assumptions or conditions. A summary of significant
accounting polices and a description of accounting policies that are considered critical may be
found in our 2004 Annual Report on Form 10-K, filed on March 25, 2005, in the Notes to the
Consolidated Financial Statements, Note 2 and the Critical Accounting Policies Section. 12




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Factors That May Affect Our Future Performance You should carefully consider the following risk factors in your evaluation of our company. If any
of the following risks actually occur it could materially harm our business and impair the price of
our stock. We will likely liquidate if we are unable to acquire a new business. We are in the process of identifying new business acquisition candidates and related activities in
order to maximize the use of our assets and balance sheet. If we are unable to acquire new
business operations, we will commence a process to liquidate, however, no timeframe has been set
for completion of our acquisition efforts. If we decide to liquidate, we expect to commence
liquidation proceedings shortly thereafter. No assurance can be given as to the amount or timing
of when funds will be available to distribute to our stockholders if we liquidate. The Asset Purchase Agreement exposes us to contingent liabilities. In accordance with the Asset Purchase Agreement, we agreed to indemnify FTI for a number of matters
including the breach of our representations, warranties and covenants contained in the Asset
Purchase Agreement. These representations, warranties and covenants related to organization,
corporate, financial statement, business, operational, tax, legal, insurance, intellectual
property, title to assets, employee, labor, leases, environmental, record keeping, contracts,
permits, licenses, authorizations, solvency, cooperation and other matters. A breach or inaccuracy
of any of these representations, warranties and covenants could lead to an indemnification claim by
FTI against us. Any such indemnification claims could require us to pay substantial sums and incur
related costs and expenses and have a material adverse effect on our liquidity, financial
condition, future prospects and ability to acquire a new operating business. Our ability to utilize our net operating loss carryforwards may be limited or eliminated in its
entirety. As of March 31, 2005, we had approximately $52.0 million of net operating loss carryforwards that
begin to expire in 2022, for which a 100% valuation allowance has been recorded. The utilization
of the net operating loss carryforwards in the future is dependent upon our having U.S. federal
taxable income. Currently, we have no business operations and are unable to generate U.S. federal
taxable income to utilize the net operating loss carryforwards. We will need to acquire an
operating business in order to generate such taxable income. Even if we are able to acquire an
operating business, there can be no assurance that we will be able to generate taxable income in
the future. Furthermore, the likelihood of an annual limitation on our ability to utilize the net
operating loss carryforwards to offset future U.S. federal taxable income is increased by (1) the
issuance of common stock, certain convertible preferred stock, options, warrants, or other
securities exercisable for common stock, (2) changes in the equity ownership occurring in the last
three years and (3) potential future changes in the equity ownership. The amount of an annual
limitation can vary significantly based on factors existing at the date of an ownership change. A
substantial portion of the net operating loss was used to offset our federal tax liability, other
than alternative minimum tax, generated by the Asset Sale. If the net operating loss carryforwards
were determined to be subject to annual limitations prior to its utilization to offset the taxable
gain from the Asset Sale, our federal tax liability and the net operating loss carryforwards could
be materially different and our financial position could be adversely affected. Such limitations
could have a material adverse impact on our financial condition, results of operations and cash
flows. The delisting of our Class A Common Stock from the Nasdaq SmallCap Market may make our Class A
Common Stock more difficult to trade, harm our business reputation and adversely affect our ability
to raise funds in the future. Our Class A Common Stock was delisted from the Nasdaq SmallCap Market on November 28, 2003 due to
our failure to have an operating business after the Asset Sale. As a result of the delisting, our
common stock may be more difficult to trade and we may suffer harm to our general business
reputation and have greater difficulty in the future raising funds in the capital markets. Each of
these consequences could have a material adverse effect on our business, results of operations and
financial condition. We currently do not 13




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meet Nasdaqs initial listing requirements to be re-listed on the Nasdaq SmallCap Market because we
do not have business operations and do not satisfy the minimum bid price requirement. Krest, LLC (successor to Knowledge Universe, LLC and Knowledge Universe, Inc.) controls 71.8% of
the voting power of our stock and can control all matters submitted to our stockholders and its
interests may be different from yours. Krest, LLC owns 8,810,000 shares of Class A Common Stock, 3,844,200 shares of Class B Common Stock,
and 46,402 shares of our Series A Preferred Stock, which combined represents approximately 71.8% of
the voting power of our outstanding common and preferred stock. The Class A Common Stock entitles
its holders to one vote per share, and the Class B Common Stock entitles its holders to ten votes
per share, on all matters submitted to a vote of our stockholders, including the election of the
members of the Board of Directors. Holders of Series A Preferred Stock are entitled to 145 votes
per share, which equals the number of whole shares of Class A Common Stock into which one share of
Series A Preferred Stock is convertible. Accordingly, Krest, LLC will be able to determine the
disposition of all matters submitted to a vote of our stockholders, including mergers, transactions
involving a change in control and other corporate transactions and the terms thereof. In addition,
Krest, LLC will be able to elect all of our directors. This control by Krest, LLC could materially
adversely affect the market price of the Class A Common Stock or delay or prevent a change in
control of our company. Krest, LLC was formed by Lawrence J. Ellison, Michael R. Milken and Lowell J. Milken to build,
through a combination of internal development and acquisitions, leading companies in a broad range
of areas relating to career management, technology and education and the improvement of individual
and corporate performance. Krest, LLC may form, invest in or acquire other businesses which are
involved in these and related areas, among others, which businesses may be operated under the
direct or indirect control of Krest, LLC independently of us. Potential conflicts of interest
between Krest, LLC and us may arise and may not be resolved in our favor. These potential conflicts
of interest include competitive business activities, indemnity arrangements, registration rights,
sales or distributions by Krest, LLC of our Class A Common Stock, Class B Common Stock or Series A
Preferred Stock and the exercise by Krest, LLC of its ability to control our management and
affairs. This control and the potential conflicts of interest it creates could adversely affect our
future prospects and results of operations. We were formed in February 1997 by entities which were under the direct or indirect control of
Lawrence J. Ellison, Michael R. Milken and Lowell J. Milken. After our formation, ownership of our
common stock originally held by our founding entities was transferred to Krest, LLC. Lawrence J.
Ellison, Michael R. Milken and Lowell J. Milken may each be deemed to have the power to control
Krest, LLC. As a result, Lawrence J. Ellison, Michael R. Milken and Lowell J. Milken may each be
deemed to have the power to direct the voting and disposition of, and to share beneficial ownership
of, any shares of common stock owned by Krest, LLC. We have a history of losses and there is no assurance that we can achieve or sustain profitability
in the future. Since our inception in February 1997, we have incurred, on an historical basis, net losses of $3.0
million and $17.2 million for the years ended December 31, 1997 and 1998, respectively, and net
losses of $24.0 million, $117.5 million, and $2.3 million for the years ended December 31, 2000,
2001, and 2004, respectively. Currently, we have no
business operations and are not profitable. There is no assurance that even if we are able to acquire business operations that we will be profitable in the future. Our stock price may be volatile and you could lose all or part of your investment. We expect that the market price of our common stock will be volatile. Stock prices have risen and
fallen in response to a variety of factors, including:  
    quarter-to-quarter variations in operating results; and
    market conditions in the economy as a whole. 14




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The market price for our common stock may also be affected by our ability to meet investors or
securities analysts expectations. Any failure to meet these expectations, even slightly, may
result in a decline in the market price of our common stock. Furthermore, because our common stock
has limited volume, the stock price may be subject to extreme volatility based on a limited number
of transactions. In addition, the stock market is subject to extreme price and volume
fluctuations. This volatility has had a significant effect on the market prices of securities
issued by many companies for reasons unrelated to the operating performance of these companies. In
the past, following periods of volatility in the market price of a companys securities, securities
class action litigation has often been instituted against that company. If similar litigation were
instituted against us, it could result in substantial costs and a diversion of our managements
attention and resources. Provisions in our charter documents and Delaware law may delay or prevent an acquisition of us,
which could decrease the value of our common stock. Provisions of our certificate of incorporation and bylaws and provisions of Delaware law could
delay, defer or prevent an acquisition or change of control of us or otherwise decrease the price
of our common stock. These provisions include:  
    authorizing our board of directors to issue additional preferred stock;
    prohibiting cumulative voting in the election of directors;
    limiting the persons who may call special meetings of stockholders;
    prohibiting stockholder actions by written consent; and
    establishing advance notice requirements for nominations for election to the Board of
Directors or for proposing matters that can be acted on by stockholders at stockholder
meetings. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk We are not currently exposed to changes in interest rates because we do not have any borrowings. Foreign Currency Risk We are not currently exposed to foreign currency risk because we do not currently have business
operations and related sales and expenses. 15




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Item 4. Controls and Procedures The Company maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the Companys Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms and that such information is accumulated and communicated to the
Companys management, including its President and Chief Financial Officer, as appropriate, to allow
for timely decisions regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and
with the participation of the Companys management, including the Companys President and Chief
Financial Officer, of the effectiveness of the design and operation of the Companys disclosure
controls and procedures as of the end of the period covered by this report. Based on the foregoing,
the Companys President and Chief Financial Officer concluded that the Companys disclosure
controls and procedures were effective at the reasonable assurance level. There has been no change in the Companys internal controls over financial reporting during the
Companys most recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Companys internal controls over financial reporting. 16




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PART II  OTHER INFORMATION 
 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 31 Rule 13a-14(a)/15(d)-14(a) Certification 32 Section 1350 Certification (b) Reports on Form 8-K  1.
    A Current Report on Form 8-K filed on February 23, 2005 regarding a press
release issued with financial information for the fourth quarter and year ended
December 31, 2004. 17




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEXTERA ENTERPRISES, INC.
(Registrant)Date: April 29, 2005
    
    By: /s/ Michael P. MuldowneyMichael P. MuldowneyPresident and Chief Financial Officer(Principal Executive Officer and Principal Financial
Officer)Date: April 29, 2005
    
    By: /s/ Michael J. DolanMichael J. DolanChief Accounting Officer and Corporate Controller(Principal Accounting Officer)
 18