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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from  to
 Commission File Number 0-25995
 NEXTERA ENTERPRISES, INC.
  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    95-4700410
(I.R.S. Employer
Identification Number)
 
 
  þ o
  o þ
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Page No.PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of
September 30, 2005 and December 31, 2004
    
    
    3Condensed Consolidated Statements of Operations for the Three
Months Ended September 30, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Operations for the
Nine Months Ended September 30, 2005 and 2004
    
    
    5Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2005 and 2004
    
    
    6Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    17Item 4. Controls and Procedures
    
    
    18PART II. OTHER INFORMATIONItem 6. Exhibits and Reports on Form 8-K
    
    
    19Signatures
    
    
    19EXHIBIT 31EXHIBIT 32
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September 30,
    
    December 31,2005
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    15,312
    
    
    $
    16,713Prepaid expenses and other current assets
    
    
    231
    
    
    
    474Total current assets
    
    
    15,543
    
    
    
    17,187Property and equipment, net
    
    
    26
    
    
    
    39Other assets
    
    
    47
    
    
    
    Total assets
    
    $
    15,616
    
    
    $
    17,226Liabilities and Stockholders EquityCurrent liabilities:Accounts payable and accrued expenses
    
    $
    736
    
    
    $
    843Current portion of long-term debt
    
    
    337
    
    
    
    258Total current liabilities
    
    
    1,073
    
    
    
    1,101Long-term debt
    
    
    391
    
    
    
    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,
48,072 and 45,619 Series A issued and
outstanding at September 30, 2005 and
December 31, 2004, respectively
    
    
    4,807
    
    
    
    4,562Class A Common Stock, $0.001 par value,
95,000,000 shares authorized, 30,025,441
shares issued and outstanding at
September 30, 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
September 30, 2005 and December 31, 2004
    
    
    4
    
    
    
    4Additional paid-in capital
    
    
    161,212
    
    
    
    161,453Accumulated deficit
    
    
    (152,301
    )
    
    
    (150,794
    )Total stockholders equity
    
    
    13,752
    
    
    
    15,255Total liabilities and stockholders equity
    
    $
    15,616
    
    
    $
    17,226
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Three Months EndedSeptember 302005
    
    2004Net revenues
    
    $
    
    
    
    $
    Cost of revenues
    
    
    
    
    
    
    Gross profit
    
    
    
    
    
    
    Selling, general and administrative expenses
    
    
    491
    
    
    
    662Operating loss
    
    
    (491
    )
    
    
    (662
    )Interest income, net
    
    
    64
    
    
    
    44Other expense
    
    
    (142
    )
    
    
    Loss from continuing operations before income taxes
    
    
    (569
    )
    
    
    (618
    )Provision for income taxes
    
    
    6
    
    
    
    Loss from continuing operations
    
    
    (575
    )
    
    
    (618
    )Income from discontinued operations
    
    
    19
    
    
    
    Net loss
    
    
    (556
    )
    
    
    (618
    )Preferred stock dividends
    
    
    (84
    )
    
    
    (78
    )Net loss applicable to common stockholders
    
    $
    (640
    )
    
    $
    (696
    )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
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Nine Months EndedSeptember 302005
    
    2004Net revenues
    
    $
    
    
    
    $
    Cost of revenues
    
    
    
    
    
    
    Gross profit
    
    
    
    
    
    
    Selling, general and administrative expenses
    
    
    1,623
    
    
    
    2,113Operating loss
    
    
    (1,623
    )
    
    
    (2,113
    )Interest income, net
    
    
    182
    
    
    
    127Other expense
    
    
    (179
    )
    
    
    Loss from continuing operations before income taxes
    
    
    (1,620
    )
    
    
    (1,986
    )Provision for income taxes
    
    
    18
    
    
    
    Loss from continuing operations
    
    
    (1,638
    )
    
    
    (1,986
    )Income from discontinued operations
    
    
    131
    
    
    
    Net loss
    
    
    (1,507
    )
    
    
    (1,986
    )Preferred stock dividends
    
    
    (245
    )
    
    
    (229
    )Net loss applicable to common stockholders
    
    $
    (1,752
    )
    
    $
    (2,215
    )Net loss per common share, basic and dilutedContinuing operations
    
    $
    (0.06
    )
    
    $
    (0.07
    )Discontinued operations
    
    
    0.00
    
    
    
    Net loss per common share, basic and diluted
    
    $
    (0.05
    )
    
    $
    (0.07
    )Weighted average common shares outstanding, basic and diluted
    
    
    33,870
    
    
    
    33,870
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Nine Months Ended September 302005
    
    2004Operating activitiesNet loss
    
    $
    (1,507
    )
    
    $
    (1,986
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation and amortization
    
    
    13
    
    
    
    11Reversal of allowance
    
    
    (131
    )
    
    
    Non-cash other
    
    
    4
    
    
    
    4Change in operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    528Prepaid expenses and other assets
    
    
    90
    
    
    
    607Accounts payable and accrued expenses
    
    
    (107
    )
    
    
    (2,370
    )Restructuring costs
    
    
    
    
    
    
    (173
    )Net cash used in operating activities
    
    
    (1,638
    )
    
    
    (3,379
    )Investing activitiesPurchase of property and equipment
    
    
    
    
    
    
    (40
    )Proceeds from sale of business
    
    
    237
    
    
    
    828Net cash provided by investing activities
    
    
    237
    
    
    
    788Net decrease in cash and cash equivalents
    
    
    (1,401
    )
    
    
    (2,591
    )Cash and cash equivalents at beginning of period
    
    
    16,713
    
    
    
    20,124Cash and cash equivalents at end of period
    
    $
    15,312
    
    
    $
    17,553
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Note 1. Basis of Presentation
      Note 2. Significant Accounting Policies
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Stock-Based Compensation  Transition and Disclosure- an amendment of FASB Statement No. 123 Accounting for
Stock-Based Compensation
 Accounting for Stock Issued to Employees
  Three months ended
    
    Nine months endedSeptember 30
    
    September 302005
    
    2004
    
    2005
    
    2004(Amounts in thousands, except per share data)Net loss as reported
    
    $
    (556
    )
    
    $
    (618
    )
    
    $
    (1,507
    )
    
    $
    (1,986
    )Compensation
expense under SFAS 123
    
    
    (43
    )
    
    
    (278
    )
    
    
    (136
    )
    
    
    (850
    )Pro forma net loss
    
    $
    (599
    )
    
    $
    (896
    )
    
    $
    (1,643
    )
    
    $
    (2,836
    )Net loss per
common share, basic
and diluted:As reported
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.05
    )
    
    $
    (0.07
    )Pro forma
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    (0.06
    )
    
    $
    (0.09
    )
  2005
    
    
    2004Risk-free interest rates
    
    
    3.50
    %
    
    
    3.75
    %Expected lives (years)
    
    
    4
    
    
    
    6Expected volatility
    
    
    80
    %
    
    
    121
    %Dividend rate
    
    
    0
    %
    
    
    0
    %
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(Continued)
    Note 3. Basic and Diluted Net Income (Loss) per Common Share
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(dollar amounts in thousands, except per share data)Loss from continuing operations
    
    $
    (575
    )
    
    $
    (618
    )
    
    $
    (1,638
    )
    
    $
    (1,986
    )Preferred stock dividends
    
    
    (84
    )
    
    
    (78
    )
    
    
    (245
    )
    
    
    (229
    )Loss from continuing operations
applicable to common stockholders
    
    
    (659
    )
    
    
    (696
    )
    
    
    (1,883
    )
    
    
    (2,215
    )Income from discontinued operations
    
    
    19
    
    
    
    
    
    
    
    131
    
    
    
    Net loss applicable to common
stockholders
    
    $
    (640
    )
    
    $
    (696
    )
    
    $
    (1,752
    )
    
    $
    (2,215
    )Weighted average common shares
outstandingbasic and diluted
    
    
    33,870
    
    
    
    33,870
    
    
    
    33,870
    
    
    
    33,870
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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Basic and diluted net loss per
common shareLoss from continuing operations
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.06
    )
    
    $
    (0.07
    )Income from discontinued operations
    
    
    0.00
    
    
    
    
    
    
    
    0.00
    
    
    
    Net loss per common share, basic
and diluted
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.05
    )
    
    $
    (0.07
    )
  Note 4. Special Charges
  UtilizedBalance atBalance at
    
    
    
    
    
    
    
    
    
    
    September 30,December 31, 2003
    
    
    Non-Cash
    
    
    Cash
    
    
    2004Severance
    
    $
    77
    
    
    $
    
    
    
    $
    77
    
    
    $
    Facilities
    
    
    45
    
    
    
    
    
    
    
    45
    
    
    
    Operating lease obligations
    
    
    51
    
    
    
    
    
    
    
    51
    
    
    
    $
    173
    
    
    $
    
    
    
    $
    173
    
    
    $
    
 Note
5. Income Taxes
  Note
6. Comprehensive Income (loss)
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Note
7. Commitments and Contingencies
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.
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   .
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  13




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LIQUIDITY AND CAPITAL RESOURCES
     Critical Accounting Policies
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We will likely liquidate if we are unable to acquire a new business.
  The Asset Purchase Agreement exposes us to contingent liabilities.
  Our ability to utilize our net operating loss carryforwards may be limited or eliminated in its entirety
  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.
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Krest, LLC (successor to Knowledge Universe, LLC and Knowledge Universe, Inc.) controls 71.9% of
the voting power of our stock and can control all matters submitted to our stockholders and its
interests may be different from yours.
    We have a history of losses and there is no assurance that we can achieve or sustain profitability
in the future.
   Our stock price may be volatile and you could lose all or part of your investment.
  
    
    quarter-to-quarter variations in operating results; and
    
    market conditions in the economy as a whole.
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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.
  
    
    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.
 
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.
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31
    
    Rule 13a-14(a)/15(d)-14(a) Certification32
    
    Section 1350 Certification
  1.
    
    A Current Report on Form 8-K filed on July 21, 2005 regarding a press release
issued with financial information for the second quarter ended June 30, 2005.
 
   NEXTERA ENTERPRISES, INC.(Registrant)Date: November 3, 2005
    
    By: /s/ Michael P. MuldowneyMichael P. MuldowneyPresident and Chief Financial Officer(Principal Executive Officer and Principal Financial Officer)Date: November 3, 2005
    
    By: /s/ Michael J. DolanMichael J. DolanChief Accounting Officer and Corporate Controller(Principal Accounting Officer)
 19