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 quarter ended March 31, 2002
[_] 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: 0-13347
CHANGE TECHNOLOGY PARTNERS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1582875
(State or other jurisdiction of (I.R.S. Employer Identification no.)
incorporation or organization)
537 STEAMBOAT ROAD, GREENWICH, CONNECTICUT 06830
(Address of principal executive offices) (Zip Code)
(203) 661-6942
--------------
(Issuer's telephone number, including area code)
N/A
-----------------------------------------------------
(Former names, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [_].
The number of shares of the issuer's common stock outstanding on May 8, 2002 was
approximately 182,037,507.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 - CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 2002
(unaudited) and December 31, 2001.....................................2
Consolidated Statements of Operations for the three
months ended March 31, 2002 and 2001 (unaudited)......................3
Consolidated Statements of Stockholders' Equity for the three
months ended March 31, 2002 (unaudited)...............................4
Consolidated Statements of Cash Flows for the three
months ended March 31, 2002 and 2001 (unaudited)......................5
Notes to Unaudited Interim Condensed Consolidated
Financial Statements..................................................6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..........................20
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ..........29
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS....................................................30
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS............................30
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES......................................30
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................30
ITEM 5 - OTHER INFORMATION....................................................30
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.....................................30
ITEM 7 - SIGNATURES...........................................................34
PART I - FINANCIAL INFORMATION
ITEM 1 - CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS:
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands except share and per share amounts)
MARCH 31, DECEMBER 31,
2002 2001
------------------------------------
(Unaudited)
ASSETS
Cash and cash equivalents, excluding restricted cash of $200............. $ 7,864 $ 8,892
Accounts receivable...................................................... 129 147
Related party receivable................................................. 189 204
Notes receivable......................................................... 2,468 2,393
Prepaid expenses and other current assets, including restricted cash of
$200 at March 31, 2002 and December 31, 2001...................... 585 442
-------------- --------------
Total current assets................................... $ 11,235 $ 12,078
Notes receivable, excluding current portion.............................. 333 333
Investments in and loans to unconsolidated subsidiaries.................. 676 720
Property and equipment, net.............................................. 680 786
Goodwill, net............................................................ 1,568 1,568
Other assets............................................................. 607 667
-------------- --------------
Total assets........................................... 15,099 16,152
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable......................................................... 487 280
Accrued expenses......................................................... 438 983
Deferred revenues........................................................ 108 4
Capital lease obligation................................................. 92 92
-------------- --------------
Total current liabilities.............................. 1,125 1,359
Capital lease obligation, less current portion........................... 88 124
Deferred rent............................................................ 15 9
-------------- --------------
Total liabilities...................................... 1,228 1,492
Stockholders' equity:
Preferred stock:
Series A - $.06 per share cumulative, convertible share-for-share
into common stock; $.10 par value; 500,000 shares authorized, 645
shares issued and outstanding at March 31, 2002 and December 31,
2001, with an aggregate liquidation preference of $1 ............ -- --
Common stock:
$.01 par value; 500,000,000 shares authorized, 179,022,881 shares
issued and outstanding at March 31, 2002 and December 31, 2001...... 1,790 1,790
Additional paid-in capital............................................... 94,637 94,637
Deferred compensation.................................................... (835) (966)
Accumulated deficit...................................................... (81,721) (80,801)
-------------- --------------
Total stockholders' equity............................. 13,871 14,660
-------------- --------------
Total liabilities and stockholders' equity............. $ 15,099 $ 16,152
============== ==============
See accompanying notes to unaudited condensed consolidated interim financial
statements.
2
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
(in thousands except share and per share amounts)
THREE MONTHS ENDED
MARCH 31,
------------------------------------
2002 2001
-------------- --------------
Revenues............................................................... $ 739 1,874
Cost of revenues, including amortization of purchased
intangibles of $0 and $315, respectively.......................... 281 2,052
-------------- --------------
Gross profit (loss).................................... 458 (178)
Operating expenses:
Selling, general, and administrative expenses exclusive of
equity based compensation of $131 and $2,629, respectively........ 1,070 2,784
Equity based compensation.............................................. 131 2,629
-------------- --------------
Total operating expenses............................... 1,201 5,413
Loss from operations................................... (743) (5,591)
Other income (expense):
Interest and dividend income...................................... 150 366
Interest expense.................................................. (5) (3)
Equity in losses and impairment of investments in unconsolidated
affiliates........................................................ (322) (813)
-------------- --------------
Net loss............................................... (920) (6,041)
============== ==============
Weighted average common shares outstanding,
basic and diluted................................................. 179,022,881 52,793,361
============== ==============
Basic and diluted net loss per common share............................ $ (0.01) (0.11)
============== ==============
See accompanying notes to unaudited condensed consolidated interim financial
statements.
3
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Unaudited Consolidated Statement of Stockholders' Equity
Three Months Ended March 31, 2002
(in thousands except share amounts)
SERIES A
PREFERRED STOCK COMMON STOCK ADDITIONAL PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
------ ------ ------ ------ ------- ------------
Balance at December 31,
2001.................. -- $ -- 179,022,881 $ 1,790 $ 94,637 $ (966)
Amortization of deferred
Compensation........... -- -- -- -- -- 131
Net loss................... -- -- -- -- -- --
------ ------ ----------- ------- --------- ---------
Balance at March 31,
2002 (unaudited)........... $ -- $ -- 179,022,881 $ 1,790 $ 94,637 $ (835)
------ ====== =========== ======= ========= =========
ACCUMULATED TOTAL STOCKHOLDERS'
DEFICIT EQUITY
------- ------
Balance at December 31,
2001.................. $ (80,801) $ 14,660
Amortization of deferred
Compensation........... -- 131
Net loss................... (920) (920)
---------- ----------
Balance at March 31,
2002 (unaudited)........... $ (81,721) $ 13,871
========== ==========
See accompanying notes to unaudited condensed consolidated interim financial
statements.
4
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
(in thousands)
THREE MONTHS ENDED
MARCH 31,
------------------------------------
2002 2001
-------------- --------------
Cash flows from operating activities:
Net loss............................................................... $ (920) $ (6,041)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization....................................... 106 580
Provision for doubtful accounts..................................... -- 56
Equity based compensation........................................... 131 2,629
Equity in losses of unconsolidated subsidiary....................... 89 813
Accretion of loan discount.......................................... (27) --
Impairment loss..................................................... 233 --
Accrued interest on notes receivable................................ (48) --
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable.............................................. 18 304
Unbilled receivables............................................. -- (79)
Related party receivable......................................... 15 --
Prepaid expenses and other assets................................ (83) (335)
Deferred revenue................................................. 104 (171)
Accounts payable and accrued liabilities......................... (338) (4)
Deferred rent.................................................... 6 --
-------------- --------------
Net cash used in operating activities..................... (714) (2,248)
Cash flows from investing activities:
Purchase of property and equipment..................................... -- (560)
Cash paid for equity investments and acquisitions, net of cash acquired (278) (2,973)
-------------- --------------
Net cash used in investing activities..................... (278) (3,533)
Cash flows from financing activities:
Principal payments under capital leases................................ (36) (3)
-------------- --------------
Net cash provided by (used in) financing activities....... (36) (3)
Net decrease in cash and cash equivalents................. (1,028) (5,784)
Cash and cash equivalents at beginning of period............................ $ 8,892 $ 30,333
-------------- --------------
Cash and cash equivalents at end of period, excluding
restricted cash of $200................................................ $ 7,864 $ 24,549
============== ==============
See accompanying notes to unaudited condensed consolidated interim financial
statements.
5
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
March 31, 2002
(in thousands, except share data)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Arinco Computer Systems Inc., the predecessor of the Company and its
subsidiaries, (the "Company"), was incorporated on March 31, 1978; however, the
Company formally commenced implementation of its plan to provide professional
consulting services on June 15, 2000. The Company provided a broad range of
professional consulting services, including e-services and technology strategy,
online branding, web architecture and design, systems integration, systems
architecture and outsourcing. The Company has served clients throughout the
United States and, as of March 31, 2002, has offices in Connecticut, New York
and California. During the year ended December 31, 2001, the Board of Directors
voted to divest the Company of a majority of its then existing operations.
At March 31, 2002, the Company's remaining consolidated subsidiaries are:
o Iguana Studios, Inc. (which has limited continuing operating
activities)
o Papke-Textor, Inc. d/b/a Canned Interactive ("Canned")
Simultaneous with the divestiture, the Company is evaluating new strategic
business and investment opportunities.
Based on the Company's assessment of the opportunities in the radio business,
the board of directors decided to merge with Franklin Capital and jointly
develop and acquire network radio programming and sales and syndication
businesses. On December 4, 2001 the Company entered into an agreement and plan
of merger (the "Merger Agreement") with Franklin Capital Corporation, a Delaware
corporation. In relation to the merger, on April 29, 2002 Franklin Capital
Corporation filed a form N-14 with the Securities and Exchange Commission.
Subject to the terms of the agreement, the Company will be merged with and into
Franklin Capital in a transaction intended to qualify as a tax-free
reorganization. The merger is subject to review by various government entities
and to stockholder approval. The companies anticipate closing the transaction in
the second or third quarter of 2002; however, the Merger Agreement may be
terminated after June 30, 2002 by either party.
INTERIM RESULTS
The accompanying unaudited consolidated balance sheet as of March 31, 2002, the
unaudited consolidated Statements of Operations and cash flows for the periods
ended March 31, 2002 and 2001, and the unaudited consolidated statement of
stockholders' equity as of March 31, 2002 have been prepared by the Company. In
the opinion of management, the accompanying condensed consolidated financial
statements have been prepared on the same basis as the annual audited financial
statements and contain all adjustments, which include only normal recurring
adjustments, considered necessary for a fair presentation of the Company's
financial position, results of operations and cash flows at the dates and for
the periods presented in conformity with accounting principles generally
accepted in the United States applicable to interim periods.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expense during the reporting period. Actual
results could differ from those estimates.
6
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
March 31, 2002
(in thousands, except share data)
While the Company believes that the disclosures presented are adequate to make
the information not misleading, these condensed consolidated financial
statements should be read in conjunction with the audited financial statements
and related notes for the fiscal year ended December 31, 2001, which are
contained in the Company's Annual Report on Form 10-K. The results for the three
month period ended March 31, 2002 are not necessarily indicative of the results
to be expected for the full fiscal year or for any future periods.
PRINCIPLES OF CONSOLIDATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of Change Technology Partners, Inc. and its majority-owned and
controlled subsidiaries from the date of acquisition. All significant
intercompany transactions and balances have been eliminated in consolidation.
Investments in less than majority-owned entities over which the Company has
significant influence are accounted for using the equity method.
Since the Company was the only contributor of capital to a majority-owned
subsidiary, eHotHouse, Inc., ("eHotHouse") and the minority interest holders had
no obligation to provide additional capital, 100% of those losses were included
in the Company's results for the period prior to the Company's acquisition of
the outstanding minority interest in February, 2001. In May, 2001, eHotHouse
merged with and into Change Technology Partners, Inc.
REVENUE RECOGNITION
Revenues are recognized for fixed price arrangements in the period services are
rendered using the percentage-of-completion method, based on the percentage of
costs incurred to date to total estimated projects costs, provided the Company
has the ability to produce reasonably dependable estimates, collection of the
resulting receivable is probable and no significant obligations remain. The
cumulative impact of any revision in estimates of the cost to complete and
losses on projects in process are reflected in the period in which they become
known.
Revenues are recognized for time-and-materials based arrangements in the period
when the underlying services are rendered, provided collection of the resulting
receivable is probable and no significant obligations remain.
The Company generally enters into short-term, project specific contracts with
its clients who are generally billed in the same period in which services are
rendered. If services are rendered in advance of billings, the Company records
and presents the related amounts as unbilled revenue. If amounts are received in
advance of services being performed, the amounts are recorded and presented as
deferred revenues.
In November 2001, the Emerging Issues Task Force ("EITF") concluded that
reimbursements for out-of-pocket-expenses incurred should be included in revenue
in the income statement and subsequently issued EITF 01-14, "Income Statement
Characterization of Reimbursements Received for 'Out-of-Pocket' Expenses
Incurred" in January 2002. The Company adopted EITF 01-14 on January 1, 2001 and
has reclassified financial statements for prior periods to comply with the
guidance in this EITF. Reimbursable expenses were de minimus for all periods
presented.
COST OF REVENUES
Cost of revenues consists primarily of compensation of billable employees,
travel, subcontractor costs, and other costs directly incurred in the delivery
of services to clients. Billable employees
7
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
March 31, 2002
(in thousands, except share data)
are full time employees and subcontractors whose time are spent servicing client
projects. Also included in Cost of Revenues in the Statement of Operations for
the three months ended March 31, 2001 is the amortization of certain purchased
intangible assets, representing the value of customer relationships and
workforces acquired. Amortization of the remaining acquired workforce ceased
upon adoption of SFAS 142 on January 1, 2002.
SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
Financial instruments that subject the Company to credit risks consist primarily
of cash and cash equivalents, notes receivable, and trade accounts receivable.
Cash and cash equivalents consist of deposits, money market funds, and
investments in short term "AAA" rated debt instruments. The Company performs
ongoing credit evaluations, generally does not require collateral, and
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of customers, historical trends, and other information. To date,
such losses have been within management's expectations. Notes receivable are
generally collateralized, and bear a market rate of interest commensurate with
the associated risks.
The Company derived revenues from two key customers during the three months
ended March 31, 2002. These two customers accounted for 52% and 25% of total
revenues during the three months ended March 31, 2002. No other customer
accounted for more than 10% of the Company's revenues during the three months
ended March 31, 2002 or 2001.
At March 31, 2002, these two customers comprised 17% and 0% of accounts
receivable. One other customer comprised 32% of total accounts receivable at
March 31, 2002. At December 31, 2001, these customers comprised 39%, 4% and 2%
of total accounts receivable, respectively. Additionally, one other customer
comprised 20% of accounts receivable at December 31, 2001.
BASIC AND DILUTED NET LOSS PER COMMON SHARE
Basic net loss per common share excludes the effect of potentially dilutive
securities and is computed by dividing net income or loss available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted net loss per share adjusts for the effect of convertible
securities, warrants and other potentially dilutive financial instruments only
in the periods in which such effect would have been dilutive.
The following securities were not included in the computation of diluted net
loss per share because to do so would have had an antidilutive effect for the
periods presented:
March 31, December 31,
2002 2001
----------- ----------
Stock Options.............................. 15,690,373 16,133,768
Warrants................................... 41,250,000 41,250,000
Series A Convertible Preferred Stock....... 645 645
As a result, the basic and diluted net loss per share is equal for all periods
presented.
PURCHASED INTANGIBLE ASSETS AND GOODWILL
Effective June 2001, the Company adopted Financial Accounting Standards Board
Statement of Accounting Standards (SFAS) 141, "Business Combinations". Effective
January 1, 2002, the Company adopted SFAS 142, "Goodwill and Intangible Assets"
and SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
SFAS 141 requires that acquisitions entered into after June 30, 2001 be
accounted for using the purchase method and establishes criteria to be used in
determining whether acquired intangible assets are to be separated from
goodwill. At January 1, 2002 the remaining intangible assets consisted of
goodwill and the workforce acquired in connection with
8
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
March 31, 2002
(in thousands, except share data)
the acquisition of Canned. As a result of the Company's analysis, the value of
the assembled workforce was subsumed into goodwill at January 1, 2002.
SFAS 142 sets forth the accounting for goodwill and intangible assets already
recorded. Commencing January 1, 2002, goodwill is no longer being amortized into
results of operations. Management conducted valuations of its reporting units in
order to test goodwill for impairment by comparing the asset's fair value to the
carrying value. This analysis did not indicate an impairment as of January 1,
2002. In accordance with the statement, amounts in 2001 have not been restated.
The following table reflects the reconciliation of reported net loss and loss
per share to amounts adjusted for the exclusion of goodwill amortization.
Three months ended March 31,
----------------------------
2002 2001
---- ----
NET LOSS
Reported loss............................... $ (920) $ (6,041)
Add back: Goodwill amortization............. -- 469
------- --------
Adjusted net loss........................... $ (920) $ (5,572)
======= ========
PER SHARE OF COMMON STOCK
Basic and Diluted:
Reported loss............................... $ (0.01) $ (0.11)
Add back: Goodwill amortization............. -- 0.01
------- --------
Adjusted net loss........................... $ (0.01) $ (0.10)
======= ========
9
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
March 31, 2002
(in thousands, except share data)
(2) INVESTMENTS IN AND LOANS TO UNCONSOLIDATED SUBSIDIARIES
The following summarizes the Company's ownership interests in unconsolidated
subsidiaries accounted for under the equity method or cost method of accounting
(in thousands):
March 31 December 31,
2002 2001
------------------------ -----------------------
Carrying Cost Carrying Cost
Value Basis Value Basis
----- ----- ----- -----
Equity method investments:
Broadstream.com Inc. ("Broadstream")................. $ -- $ 7,100 $ -- $ 7,100
NetPro Holdings, Inc. ("NetPro")..................... -- 400 33 200
InSys LLC ("InSys").................................. 223 323 312 323
Cost method investments:
Livesky, Inc. ("Livesky")............................ 125 125 125 125
Excelsior Radio Networks, Inc. ("Excelsior")......... 250 250 250 250
Alacra, Inc. ("Alacra").............................. 78 78 -- --
-------- -------- -------- --------
Total investments......................................... $ 676 $ 8,276 $ 720 $ 7,998
======== ======== ======== ========
INVESTMENTS IN BROADSTREAM AND NETPRO
In June 2000, the Company purchased 7,626,165 shares of Series A Convertible
Redeemable Preferred Stock ("Series A") of Broadstream, Inc. (d/b/a Network
Prophecy) ("Broadstream"), representing an approximately 30% equity interest
(calculated on an as-if-converted basis) and approximately 47% voting interest,
in exchange for $6,500.
Broadstream is a streaming media management services company that provides
software to measure, manage and monitor delivery of streaming media content and
data. The investment in Broadstream is being accounted for under the equity
method. Based upon the capital structure of, and the equity participation in,
the equity investee, the Company has assumed conversion of Series A shares in
computing its share of losses of this investee. The Company's proportionate
share of Broadstream's net loss was $495 for the three months ended March 31,
2001, and the amortization of the excess of cost over the Company's
proportionate interest in the underlying equity was $318 for the same period.
These amounts are included in equity in losses of affiliate in the accompanying
Statement of Operations.
In May 2001, Broadstream completed a recapitalization whereby all of the holders
of Series A shares exchanged their Series A shares for shares of Series A-1
Convertible Redeemable Preferred Stock ("Series A-1"). The recapitalization
modified the conversion ratio, policies regarding dividends and voting rights
for Series A-1 holders. No additional consideration was paid by the Company or
any other Series A-1 shareholder in connection with this transaction. As a
result of the recapitalization the voting interest of common shareholders was
reduced from 31% to 13%.
10
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
March 31, 2002
(in thousands, except share data)
Also in May 2001, in connection with the recapitalization, the Company
transferred 1,191,569 Series A-1 shares to Adelson Investors, LLC ("Adelson"),
another shareholder of Broadstream, as payment for certain financing-related
services performed by Adelson on behalf of Broadstream. This transfer has been
accounted for as a contribution by the Company of such shares to Broadstream in
exchange for no consideration. Subsequent to the recapitalization and
non-reciprocal share transfer, the Company owned 6,434,596 shares of Series A-1
Convertible Redeemable Preferred Stock of Broadstream, representing an
approximately 43% equity interest (calculated on an as-if-converted basis) and a
49% voting interest.
On August 15, 2001 the Company purchased a secured convertible promissory note
from Broadstream in exchange for $600 in connection with an aggregate $1,600
bridge loan financing consummated by Broadstream. The aggregate bridge loan
financing was secured by all of Broadstream's assets. The note also contained
certain conversion provisions in the event Broadstream were to a new round of
financing or enter into certain transactions.
On November 30, 2001 the Company assigned its Broadstream promissory note to a
newly formed entity, NetPro Holdings Inc. ("NetPro") in exchange for 13,674,753
shares of NetPro Series A-1 Convertible Redeemable Participating Preferred
Stock. On November 30, 2001 as a result of the application of the equity method,
the net book value of the note approximated zero and no gain or loss was
recorded as a result of this exchange. Concurrent with this transaction, NetPro
foreclosed on the note and elected to take possession of all of Broadstream's
assets in full satisfaction of the notes.
On December 15, 2001, the Company purchased 1,585,479 shares of NetPro Series
B-1 Convertible Redeemable Participating Preferred Stock in exchange for $200 in
connection with a larger ongoing financing arrangement.
As of December 31, the Company's interest in NetPro represented approximately
38% of NetPro outstanding equity, and was being accounted for under the equity
method of accounting. The Company's proportionate share NetPro's net losses
totaled $167 from the date of investment through December 31, 2001.
On January 10, 2002, the Company invested an additional $100 in NetPro Series
B-1 stock, and on March 7, 2002 the Company invested a final $100 in NetPro
Series B-1 stock. On March 14, 2002, the Board of Directors of NetPro voted to
suspend all of NetPro's business operations and immediately terminate
substantially all of its employees due to NetPro's loss of significant clients
and associated revenues. The Company has no obligation to provide additional
funding to NetPro. As a result of this action, the Company evaluated the
recoverability of this investment by comparison of its carrying value relative
to future cash flows. As a result of this analysis, the Company recorded an
impairment charge to reduce the remaining investment balance to $0. The
Company's proportionate share of net loss, and impairment charge, for the three
months ended March 31, 2002, totaling $233 is included in equity in net loss and
impairment of investment in unconsolidated affiliates in the accompanying
statement of operations.
11
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
March 31, 2002
(in thousands, except share data)
INVESTMENT IN AND NOTE RECEIVABLE FROM EXCELSIOR RADIO NETWORKS
On August 28, 2001 the Company purchased a promissory note and warrant from
Excelsior Radio Networks, Inc. (d/b/a Excelsior Capital, Inc.) ("Excelsior") for
$2,250. Excelsior, a subsidiary of Franklin Capital Corporation ("Franklin"),
recently purchased certain assets from affiliates of Winstar Communications,
Inc. which produce, syndicate and distribute radio programs and services. The
note earns interest at a rate of 8.5% per annum, matures on September 30, 2002
and is secured by all of Excelsior's assets.
The warrant to purchase 482,955 shares of Excelsior's common stock at an
exercise price of $1.125 per share had an allocated fair value of approximately
$112 and represented 11% of Excelsior's fully diluted capital stock as of the
date of issuance. The warrant is included in other assets in the accompanying
Balance Sheet.
The allocated fair value of the note receivable, totaling $2,138, is included in
notes receivable in the accompanying Balance Sheet. Also included in notes
receivable is the periodic accretion of the note discount, totaling $27 for the
quarter ended March 31, 2002, which is charged to interest income in the
accompanying statement of operations.
On December 4, 2001 the Company purchased from Franklin 250,000 shares of common
stock or an approximate 10% equity interest of Excelsior for $250. In August,
2001 Excelsior acquired certain assets from affiliates of Winstar
Communications, Inc. and, since that time, creates, produces, distributes and is
a sales representative for national radio programs.
On December 4, 2001 the Company initiated a business combination whereby the
Company will acquire all issued and outstanding common stock of Franklin in a
stock-for-stock exchange. In relation to the merger, on April 29, 2002, Franklin
filed a Form N-14 with the Securities and Exchange Commission. This business
combination is contingent upon certain terms and conditions and is subject to
shareholder approval. The Company anticipates closing the transaction in the
second or third quarter of 2002. Franklin is a business development company and
provides private investment capital to private and public companies in a variety
of industries throughout the United States. Franklin's lending and investment
activity has been focused principally on securities issued by companies involved
in early stage high technology sectors such as wireless communications, other
telecommunications services, internet software and information services.
Franklin is listed on the American Stock Exchange and trades under the symbol
"FKL."
INVESTMENT IN ALACRA
On January 31, 2002, the Company purchased 38,840 shares of common stock,
representing less than 1% equity interest, of Alacra, Inc. ("Alacra") in
exchange for $78. The Company has no obligation to provide additional funding to
Alacra. Alacra provides a diverse portfolio of online and offline services that
allow users to quickly find, analyze, package and present mission-critical
business information. This investment is being accounted for under the cost
method of accounting.
12
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
March 31, 2002
(in thousands, except share data)
(3) ACQUISITIONS AND DIVESTITURES
ACQUISITION OF EHOTHOUSE, INC.
On September 15, 2000, the Company acquired majority voting control of eHotHouse
pursuant to a transaction where eHotHouse issued Series A Convertible
Participating Preferred Stock to the Company in exchange for $3 million in cash
and a covenant, by the Company, to issue 6,374,502 shares of the Company's
common stock as directed by eHotHouse. The operations of eHotHouse prior to
acquisition were de minimus, and the fair value of the identifiable net assets
at the time of acquisition approximated $0. Such transactions fully eliminate in
consolidation and do not impact the consolidated financial statements of the
Company. No consideration was provided to the existing shareholders of eHotHouse
in the transaction. Accordingly, this transaction effectively represented the
initial capitalization of eHotHouse and no goodwill was recorded. During the
period from September 2000 through February 2001 eHotHouse completed several
business combinations. However, eHotHouse did not exercise its right under the
aforementioned covenant to have the Company issue additional shares of the
Company's common stock.
In February 2001, the Company acquired the former Chief Executive Officer's (of
the Company and eHotHouse) shares of eHotHouse common stock in exchange for
approximately $182 in cash and 3,144,494 shares of Company common stock. This
transaction was accounted for as the settlement of a prior stock award and,
accordingly, the Company recognized $2.6 million in related compensation
expense, representing the excess of the fair value of the cash and Company
shares issued as settlement over the fair value of the eHotHouse shares on the
original date of grant. Of this amount, $2.5 million, representing the stock
portion of the settlement, was included in equity-based compensation in the
statement of operations for the three months ended March 31, 2001.
Also in February 2001, the Company acquired the remaining outstanding minority
interest of its subsidiary, eHotHouse, for 2,155,519 shares of the Company's
common stock valued at $2.7 million and approximately $218 in cash. The
acquisition was accounted for using the purchase method of accounting and
accordingly, the purchase price was allocated to the pro rata portion of
tangible and intangible assets acquired on the basis of their respective fair
values on the date of acquisition. Of the total purchase price, approximately
$2.9 million was allocated to identified intangible assets, including the
assembled workforce. The fair value of acquired intangible assets was
capitalized and is being amortized over the estimated useful life of three
years. Related amortization for the three months ended March 31, 2001 totaled
$162 .
Subsequent to the acquisition of the remaining outstanding minority interest,
eHotHouse was merged with and into the Company.
In July 2001, the Board of Directors terminated the employment of the Company's
President and Chief Executive Officer. The former executive had an employment
agreement dated August 21, 2000 that provided for severance benefits. The
Company has paid, and will continue to pay, the former executive the severance
he is entitled to under his employment agreement. The related
13
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
March 31, 2002
(in thousands, except share data)
obligation totaled $368 at March 31, 2002 and is included in accrued expenses in
the accompanying Balance Sheet.
Additionally, the Company recorded an impairment loss reflecting the impact of
the executive's termination upon the carrying value of certain acquired
intangible assets, and reversed certain unamortized deferred compensation
related to unvested options that were forfeited in connection with the
termination. The impairment loss reduced the remaining carrying value of the
related intangibles to $0 as of December 31, 2001.
ACQUISITION AND DIVESTITURE OF INSYS TECHNOLOGIES, LLC
On October 18, 2000, eHotHouse acquired substantially all of the operating
assets and assumed certain liabilities of InSys Technology, Inc. ("InSys"), a
provider of systems integration services. The acquisition was accounted for
using the purchase method of accounting and accordingly, the purchase price was
allocated to the tangible and identified intangible assets acquired on the basis
of their respective fair values on the date of acquisition. The results of
operations of InSys and the estimated fair value of the assets acquired and
liabilities assumed are included in the Company's consolidated financial
statements from the date of acquisition. The fair value of the intangible assets
was determined based upon a combination of methods, including the income
approach for the customer list, and the replacement cost approach for the value
of the assembled workforce.
The total purchase price of $867 consisted of cash, including acquisition
related expenses consisting primarily of payments for legal and financial
advisory services. Of the total purchase price, approximately $700 was allocated
to net tangible assets and the remainder was allocated to identified intangible
assets, including the customer list and assembled workforce. The fair value of
acquired intangible assets was capitalized and was being amortized over their
estimated useful lives of three years. Related amortization for the three months
ended March 31, 2001 $13.
During the year ended December 31, 2001, as a result of the aforementioned
terminations, coupled with the historical, current and projected operating and
cash flow losses, the Company evaluated the recoverability of its acquired
intangible assets by comparison of the carrying value relative to future cash
flows. As a result, the Company recorded impairment charges which reduced the
remaining carrying value of the related intangibles to $0 as of December 31,
2001.
On November 8, 2001 the Company sold a 51% voting interest in InSys to a certain
member of the management team in exchange for $50 and concurrently forgave
approximately $400 of advances to InSys. The Company has no obligation to
provide additional funding to InSys.
Concurrently the Company loaned InSys $100 evidenced by a promissory note. The
note bears interest at a rate equal to the London Interbank offer rate plus 2%,
until the principal amount of the note is paid in full. InSys is obligated to
pay, at a minimum, on an annual basis 50% of the excess of its annual earnings
before taxes.
14
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
March 31, 2002
(in thousands, except share data)
The Company's retained equity interest and note receivable, net of the Company's
pro rata share of InSys' net losses absorbed during the period from November 8,
2001 to December 31, 2001, totaled $312 which is included investments in and
loans to unconsolidated subsidiaries on the accompanying Balance Sheet as of
December 31, 2001. The Company's pro rata share of InSys' net loss for the three
months ended March 31, 2002 totaled $89,000, which is included in equity in
losses of unconsolidated affiliates in the accompanying Statement of Operations.
ACQUISITION AND DIVESTITURE OF RAND INTERACTIVE CORPORATION
On November 30, 2000, eHotHouse acquired all of the issued and outstanding
common stock of RAND Interactive Corporation ("RAND"), a leading provider of
media and technical services. The acquisition was accounted for using the
purchase method of accounting and, accordingly, the total consideration was
allocated to the tangible and intangible net assets acquired and liabilities
assumed on the basis of their respective fair values on the date of acquisition.
The results of operations of RAND and the estimated fair value of the assets
acquired and liabilities assumed are included in the Company's consolidated
financial statements from the date of acquisition.
The total purchase price of approximately $1,400 consisted of $700 of eHotHouse
common stock (1,020,000 shares), $700 in cash including other acquisition
related expenses, consisting primarily of payments for legal and financial
advisory services. Of the total purchase price, $47 was allocated to net
tangible liabilities assumed, and the remainder was allocated to identified
intangible assets, including customer lists and the assembled workforce. The
fair value of the identified intangible assets was determined using the income
approach for the customer list, and the replacement cost approach for the value
of the assembled workforce. The purchased intangible assets are being amortized
over their estimated useful lives of three years. Related amortization for the
three months ended March 31, 2001 totaled $119.
As a result of the aforementioned terminations, coupled with the historical and
projected operating and cash flow losses, the Company evaluated the
recoverability of its acquired intangible assets by comparison of the carrying
value relative to future cash flows. As a result, the Company recorded
impairment charges which reduced the remaining carrying value of the related
intangibles to $0 as of December 31, 2001.
On November 2, 2001 the Company sold all issued and outstanding shares of RAND
to certain members of management team in exchange for 375,039 shares of the
Company's common stock, and a warrant to purchase such amount of shares of
common stock that shall equal, at the time of exercise, 30% of the issued and
outstanding shares of RAND common stock on a fully diluted basis. Such warrants
have a stated exercise price of $1.00 in the aggregate, expire on November 3,
2013, and are contingently exercisable upon the occurrence of certain
prospective events, as defined.
15
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
March 31, 2002
(in thousands, except share data)
ACQUISITION OF IGUANA STUDIOS, INC.
In March 2001, the Company acquired Iguana Studios, Inc. ("Iguana"), a New York
City-based interactive agency, for approximately $5,771, including $2,786 in
cash, 2,700,000 shares of the Company's common stock valued at $1,990, and
replacement options to purchase 1,681,888 shares of Company common stock, which
vested upon the change in control, valued at approximately $995.
The business combination was accounted for using the purchase method of
accounting and, accordingly, the total consideration was allocated to the
tangible and intangible assets acquired and liabilities assumed on the basis of
their respective fair values on the date of acquisition. The results of
operations of Iguana, and the estimated fair value of the assets acquired and
liabilities assumed are included in the Company's consolidated financial
statements from the date of acquisition. Of the total purchase price,
approximately $1,815 was allocated to the net tangible assets acquired, $1,300
was allocated to identified intangible assets, including customer base and
assembled workforce, and the remainder was allocated to goodwill. The fair value
of the identified intangible assets was determined using an income approach for
the customer base, and the replacement cost approach for the assembled
workforce. The purchased intangible assets and goodwill were being amortized
over their estimated useful lives of three years. Related amortization for the
three months ended March 31, 2001 totaled $183 .
Also in connection with the acquisition of Iguana 2,300,000 shares of the
Company's common stock were placed in escrow (the "Escrow Shares") for a period
to end no later than June 2002. The then fair value of such shares will be
included in the aggregate purchase price if and when released from escrow,
pending the outcome of the contingency, as defined.
As a result of the aforementioned terminations, coupled with the historical,
current and projected operating and cash flow losses the Company evaluated the
recoverability of its acquired intangible assets and goodwill by comparison of
the carrying value relative to future cash flows. As a result, the Company
recorded impairment charges which reduced the remaining carrying value of the
related intangibles to $0 as of December 31, 2001.
As of December 31, 2001 all employees of Iguana had been terminated, and the
subsidiary's operating activities had ceased. The remaining net book value of
Iguana intangibles was $0. If and when the Escrow Shares are released from
escrow, the Company will record additional impairment charges representing the
then fair value of such shares.
ACQUISITION OF PAPKE-TEXTOR, INC.
In June 2001, the Company acquired Papke-Textor, Inc. d/b/a Canned Interactive
("Canned"), a Los Angeles-based media and entertainment interactive agency, for
approximately $1,100 in cash, including acquisition costs, and 6,436,552 shares
of the Company's common stock valued at approximately $1,000.
The business combination was accounted for using the purchase method of
accounting and, accordingly, the total consideration was allocated to the
tangible and intangible assets acquired
16
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
March 31, 2002
(in thousands, except share data)
and liabilities assumed on the basis of their respective fair values on the date
of acquisition. The results of operations of Canned, and the estimated fair
value of the assets acquired and liabilities assumed are included in the
Company's consolidated financial statements from the date of acquisition. Of the
total purchase price, approximately $104 was allocated to the net tangible
liabilities assumed, $2,177 was allocated to identified intangible assets,
primarily assembled workforce, and to goodwill. The fair value of the identified
intangible assets was determined using the replacement cost approach for the
assembled workforce. The purchased intangible assets and goodwill were being
amortized over their estimated useful lives of three years. On January 1, 2002,
in connection with the Company's adoption of SFAS 142, the value ascribed to the
acquired workforce was subsumed into goodwill, and amortization of these assets
ceased. The remaining unamortized amount, totaling $1,568 at March 31, 2002 is
included in purchased intangibles and goodwill, net in the accompanying Balance
Sheet.
Also in connection with the acquisition of Canned, $200 in cash and 715,172
shares of the Company's common stock were placed in escrow for a period ending
December 12, 2002. The then fair value of this contingent consideration will be
included in the aggregate purchase price, if and when released from escrow,
pending the outcome of the contingency, as defined.
(4) NOTES RECEIVABLE
In April 2001, the Company loaned two consultants an aggregate of $500. The full
recourse promissory notes, with initial principal amounts of $350 and $150,
respectively, accrue interest at the rate of 7.25% per annum. Payments are due
in various installments of principal plus accrued interest commencing on April
25, 2002 and continuing annually thereafter through April 25, 2006. In April
2002, the Company received the first such installment, totalling $60.
(5) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its facilities under operating lease agreements. The
following are the future minimum lease payments under non-cancelable leases as
of March 31, 2002:
PERIOD ENDED
DECEMBER 31, OPERATING CAPITAL
------------ --------- -------
2002................................... 706 74
2003................................... 842 110
2004................................... 332 --
2005................................... 46 --
-------- -------
Total Lease Obligation................ $ 1,926 184
Amount Representing Interest........... (4)
-------
Current Portion........................ 180
Long Term Portion...................... 92
-------
88
17
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
March 31, 2002
(in thousands, except share data)
As a result of the Company's divestiture of certain operations, employee
terminations and pending business combination, the Company is evaluating its
numerous alternatives with respect to its contractual obligations concerning
leased facilities. As of March 31, 2002, the method and timing regarding
alternative prospective uses or potential disposition were uncertain and no
definite action had been taken.
LEGAL PROCEEDINGS
The Company is involved in various legal actions arising in the ordinary course
of business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the Company's consolidated
financial position, results of operation or liquidity.
(6) EQUITY BASED COMPENSATION
During 2000, the Company granted stock options to purchase 4,600,000 shares of
common stock to the former Chief Executive Officer and members of the Board of
Directors at a weighted average exercise price of $1.21, all of which were
granted at less than the fair value of the common stock on the measurement date.
The Company recorded deferred compensation of approximately $2,480 in connection
with the grant of these options. This amount is presented as deferred
compensation within the accompanying balance sheet and is being amortized over
the related vesting period, of either three or four years. In July 2001, in
connection with the termination of the Chief Executive Officer, the Company
reversed certain of this unamortized deferred compensation related to unvested
options forfeited as a result of the termination. The Company amortized $123 and
$164 of related deferred compensation during the three months ended March 31,
2002 and 2001, respectively. The Company will amortize the remaining deferred
compensation of $835 over the remaining vesting period of two and three years.
In September 2001, the Compensation Committee of the Board of Directors, granted
to the newly appointed Chief Executive Officer options to purchase 9,000,000
shares of the Company's common stock at an exercise price of $0.03 per share,
the then fair value of the underlying common stock. Of this grant, options to
purchase 6,000,000 shares of the Company's common stock are subject to
shareholder approval, which was not obtained as of March 31, 2002. Accordingly,
the intrinsic value of these options is being re-measured at each intervening
balance sheet date to bring the total charge up to the then current intrinsic
value. At March 31, 2002, the gross intrinsic value of these options totaled
$120, and has been included in deferred compensation in the accompanying balance
sheet, net of cumulative amortization of $16. The Company amortized $8 of
related deferred compensation during the three months ended March 31, 2002.
(7) RELATED PARTY TRANSACTIONS
During the three months ended March 31, 2002, the Company incurred legal fees in
connection with certain transactions and other matters in the normal course of
business. A portion of these services was provided by a firm of which a member
of the Board of Directors of the Company is a partner. Fees incurred by this
firm totaled approximately $153 in the three months ended March 31, 2002.
18
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
March 31, 2002
(in thousands, except share data)
Additionally, during the three months ended March 31, 2002, the Company incurred
management and investment advisory service fees in connection with identifying,
evaluating, negotiating, and managing investment opportunities for the Company.
These services were provided by a firm of which the current President and Chief
Executive Officer of the Company was previously affiliated. Fees incurred by
this firm totaled $60 the three months ended March 31, 2002. Additionally, this
firm occupies a portion of the Company's office space in Connecticut, for which
it pays rent at fair market value. Such payments to the Company totaled $70
during the three months ended March 31, 2002. Furthermore, the firm was indebted
to the Company in the amount of $189 at March 31, 2002 for its pro rata share of
certain leasehold improvements and rental payments due, which are reflected in
the Related Party Receivable in the accompanying balance sheet.
(8) SUBSEQUENT EVENTS
On April 3, 2002, the Company loaned to Excelsior an aggregate principal amount
of approximately $4,708 for the purposes of funding the initial cash purchase
price of Excelsior's acquisition of certain assets of Dial Communications Group,
LLC and Dial Communications Group, Inc. (the "Dial Acquisition"). To secure the
payment of the loan, Excelsior granted a security interest in certain of
Excelsior's assets to the Company.
19
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's audited consolidated financial statements and accompanying notes for
the fiscal year ended December 31, 2001. Certain statements contained within
this discussion constitute forward-looking statements. See "Special Note
Regarding Forward Looking Statements."
ACCOUNTING POLICIES
The preparation of the Company's financial statements in conformity
with generally accepted accounting principles in the United States requires the
Company to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The Company's estimates, judgments and
assumptions are continually evaluated based on available information and
experience. Because of the use of estimates inherent in the financial reporting
process, actual results could differ from those estimates.
The Company provides services under time-and-material or fixed-price
contracts which are generally short term. Under time-and-material and
fixed-price contracts costs are generally incurred in proportion with contracted
billing schedules and revenue is recognized when the services are rendered based
on the percentage of costs incurred to date to total estimated project costs.
Cumulative revenues recognized may be less or greater than cumulative costs and
profits billed at any point in time during a contract's term. The resulting
difference is recognized as unbilled or deferred revenue.
Any estimation process, including that used in preparing contract
accounting models, involves inherent risk. The Company reduces the inherent risk
relating to revenue and cost estimates in percentage-of-completion models
through corporate policy, approval and monitoring processes. Risks relating to
service delivery, productivity and other factors are considered in the
estimation process. For all client contracts, provisions for estimated losses on
individual contracts are made in the period in which the loss first becomes
apparent.
The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of customers to make payments. If the
financial condition of the Company's customers deteriorate, resulting in the
customers' inability to make payments, additional allowances will be required.
Additionally, the Company assesses the need for provisions for estimated
uncollectible amounts with respect to its loans receivable resulting from the
inability of an issuer to make payments when they become due. The Company bases
this estimate on the financial condition of the issuer, trends in their results
of operations or other changes in circumstances. If the financial condition of
an issuer deteriorates, resulting in their inability to fulfill their obligation
under the promissory note, additional allowances will be required.
The Company has reduced its deferred tax assets to an amount that the
Company believes is more likely than not to be realized, which was $0 at
December 31, 2001 and March 31, 2002. In so doing, the Company has estimated
future taxable losses in determining the valuation allowance. In the event that
actual results differ from these estimates or these estimates are
20
adjusted in future periods, the Company may need to modify its valuation
allowance which could materially affect its financial position and results of
operations.
OVERVIEW AND RECENT DEVELOPMENTS
Prior to commencement of the operational divestiture described in the
Company's Form 10-K for the year ended December 31, 2001, the Company was a
provider of a broad range of professional consulting services, including
e-services and technology strategy, online branding, web architecture and design
systems integration, system architecture and outsourcing. The Company has served
clients throughout the United States with offices in New York, Connecticut,
Maryland, California and New Jersey.
On December 4, 2001 the Company entered into an agreement and plan of
merger (the "Merger Agreement") with Franklin Capital Corporation, a Delaware
corporation. In relation to the merger, on April 29, 2002 Franklin Capital
Corporation filed a form N-14 with the Securities and Exchange Commission.
Subject to the terms of the agreement, the Company will be merged with and into
Franklin Capital in a transaction intended to qualify as a tax-free
reorganization. The merger is subject to review by various government entities
and to stockholder approval. The companies anticipate closing the transaction in
the second or third quarter of 2002; however, the Merger Agreement may be
terminated after June 30, 2002 by either party.
The Company has made two investments in 2001 and one in the first
quarter of 2002 in Excelsior Radio Networks, Inc. (f/k/a eCom Capital, Inc.), a
subsidiary of Franklin Capital, which produces, syndicates and distributes radio
programs and related services. The Company purchased a promissory note and
warrant for $2,250,000 from Excelsior in August 2001 and in December of 2001
purchased 250,000 common shares of Excelsior from Franklin Capital for $250,000.
On April 1, 2002 the company purchased an additional promissory note from
Excelsior for $4,708,200 in conjunction with the purchase by Excelsior of Dial
Communication Group Inc. and Dial communication Group LLC.
Based on the Company's assessment of this investment and its review of
the opportunities in the radio business, the board of directors decided to merge
with Franklin Capital and jointly develop and acquire network radio programming
and sales and syndication businesses.
OTHER SIGNIFICANT DEVELOPMENTS
During the year ended December 31, 2001, in response to continued
unfavorable market conditions for its services, the Company embarked on a review
of all operations with the goal of formulating a course of action to minimize
near-term losses, capital expenditures and reduce cash outflows. As an initial
course of action, the Company terminated the employment of approximately 90% of
its existing workforce.
As a result of these terminations, coupled with historical, current and
projected operating and cash flow losses, the Company evaluated the
recoverability of its acquired intangible assets and goodwill by comparison of
the carrying value relative to future cash flows. As a result, the Company
recorded impairment charges, totaling $7,263,000, which reduced the carrying
value of certain intangibles to $0 as of December 31, 2001.
21
Also as a result of these actions, the Company incurred severance
charges totaling $1,326,000. As of March 31, 2002, $957,000 of this amount has
been paid.
On November 2, 2001, the Company executed a Share Purchase Agreement
pursuant to which the Company sold all of the issued and outstanding capital
stock of RAND to a member of its management team. Under the terms of the Share
Purchase Agreement, the Company received 375,039 shares of Common Stock and a
warrant to purchase 30%, on a fully diluted basis when exercised of RAND's
common stock, at an aggregate price of $1.00. The warrant, exercisable upon the
occurrence of certain events, expires on November 3, 2013.
On November 8, 2001, the Company sold a 51% voting interest in InSys to
a member of its management team in exchange for $50,000 and concurrently forgave
approximately $400,000 in advances to InSys. In addition, the Company loaned
Insys $100,000 evidenced by a promissory note. The note bears interest at a rate
equal to the London Interbank Offer Rate plus 2%.
OVERVIEW OF HISTORICAL OPERATIONS
Canned Interactive is currently the Company's sole revenue generating
subsidiary. Canned is based in Los Angeles, California and designs and produces
interactive media such as digital video discs (DVD) and web sites, primarily for
entertainment, consumer goods, sports and technology companies.
Most theatrical films, including new and library releases, are now
released in DVD format. Canned designs interactive content for those titles,
enriching the viewer experience and creating value for Canned's clients. Canned
also uses its design and technology skills to create and enhance web sites with
interactive and streaming content.
The Company derives its revenues from services performed under one of
two pricing arrangements: time-and-materials and fixed price. The services
performed under either of these arrangements are substantially identical.
Revenues are recognized for fixed price arrangements as services are
rendered using the percentage-of-completion method, based on the percentage of
costs incurred to date to total estimated project costs, provided the Company
has the ability to produce reasonably dependable estimates, and collection of
the resulting receivable is probable. The cumulative impact of any revision in
estimates of the costs to complete and losses on projects are reflected in the
period in which they become known.
Revenues are recognized for time-and-materials based arrangements in
the period when the underlying services are rendered, provided collection of the
resulting receivable is probable and no significant obligations remain.
Provisions for estimated project specific losses on both types of
contracts are made during the period in which such losses become probable and
can be estimated. To date, such losses have not been significant. The Company
reports revenue net of reimbursable expenses.
Agreements entered into in connection with time-and-materials projects
are generally terminable by the client upon 30-days' prior written notice, and
clients are required to pay the
22
Company for all time, materials and expenses incurred by the Company through the
effective date of termination. Agreements entered into in connection with
fixed-fee projects are generally terminable by the client upon payment for work
performed and the next progress payment due. If clients terminate existing
agreements or if the Company is unable to enter into new agreements, the
Company's business, financial condition and results of operations could be
materially and adversely affected. In addition, because a significant portion of
the Company's expenses are fixed, a variation in the number of client
engagements can cause significant variations in operating results from quarter
to quarter.
The Company's projects vary in size and source. Therefore, a client
that accounts for a significant portion of the Company's revenues in one period
may not generate a similar amount of revenue in subsequent periods. However,
there is a risk that the source of the Company's revenues may be generated from
a small number of clients and these clients may not retain the Company in the
future. Any cancellation, deferral or significant reduction in work performed
for these principal clients or a significant number of smaller clients could
have a material adverse affect on the Company's business, financial condition
and results of operations.
The Company's costs consist primarily of compensation and related costs
of personnel dedicated to customer assignments. Project personnel costs also
include fees paid to subcontractors for work performed in connection with
projects and non-reimbursed travel expenses.
The Company's selling, general and administrative costs consist
primarily of compensation and related costs of the management and administrative
functions, including finance and accounting, marketing, human resources and
internal information technology, the costs of the Company's facilities, and
other general corporate expenses.
The Company's equity based compensation expense is comprised of
amortization of the deferred compensation associated with the grant of stock
options to the board of directors and President and Chief Executive Officer.
Such cost is measured as the difference between the exercise price of options
granted and the fair market value of the underlying stock on the date of
measurement, and is being recognized as expense over the vesting period of the
options. Also included in the equity based compensation during the three months
ended March 31, 2001 is the cost associated with 3,144,494 shares of Common
Stock issued as partial consideration in exchange for the former President and
Chief Executive Officer's shares of eHotHouse, a subsidiary. Such cost is
measured as the difference between the fair value of the shares issued over that
of the eHotHouse shares on the original date of grant. The Company incurred
approximately $131,000 and $2,629,000 in equity based compensation expense
during the three months ended March 31, 2002 and 2001, respectively.
ACQUISITIONS AND DIVESTITURES
The Company evaluates acquisitions based on numerous quantitative and
qualitative factors. Quantitative factors include historical and projected
revenues and profitability, geographic coverage and backlog of projects under
contract. Qualitative factors include strategic and cultural fit, management
skills, customer relationships and technical proficiency.
23
EHOTHOUSE. On February 21, 2001, the Company acquired the remaining
outstanding interests in eHotHouse, and merged eHotHouse with a newly formed,
wholly owned subsidiary of the Company. The Company acquired this minority
interest for approximately 2,200,000 shares of Common Stock, valued at
approximately $2,700,000, and $200,000 in cash. The acquisition was accounted
for using the purchase method of accounting. On May 16, 2001, eHotHouse merged
with and into the Company.
As a result of the aforementioned terminations, coupled with the
historical, current and projected operating and cash flow losses, the Company
evaluated recoverability of its acquired intangible assets acquired from
eHotHouse by comparison of the carrying value relative to future cash flows. As
a result, the Company recorded impairment charges which reduced the carrying
value of the eHothouse intangibles to $0 as of December 31, 2001.
INSYS. On October 18, 2000, eHotHouse acquired substantially all of the
operating assets and assumed certain liabilities of InSys, a provider of systems
integration services, in exchange for $900,000 in cash including acquisition
costs. The business combination was accounted for using the purchase method.
During the year ended December 31, 2001 as a result of the
aforementioned terminations, coupled with the historical, current and projected
operating and cash flow losses, the Company evaluated the recoverability of its
acquired intangible assets by comparison of the carrying value relative to
future cash flows. As a result, the Company recorded impairment charges which
reduced the carrying value of the Insys intangibles to $0 as of December 31,
2001.
As discussed above, on November 8, 2001 the Company sold a 51% voting
interest in InSys to a certain member of the management team in exchange for
$50,000 and concurrently forgave approximately $400,000 of advances to InSys. In
addition, the Company loaned InSys $100,000 evidenced by a promissory note.
RAND INTERACTIVE CORPORATION. On November 30, 2000, eHotHouse acquired
all of the issued and outstanding common stock of RAND Interactive Corporation,
a provider of media and technical services in exchange for $700,000 of eHotHouse
common stock and $700,000 in cash including acquisition costs. The business
combination was accounted for using the purchase method of accounting.
As a result of the aforementioned terminations, coupled with the
historical, current and projected operating and cash flow losses, the Company
evaluated the recoverability of its acquired intangible assets by comparison of
the carrying value relative to future cash flows. As a result, the Company
recorded impairment charges which reduced the carrying value of the RAND
intangibles to $0 as of December 31, 2001.
As discussed above, on November 2, 2001 the Company sold all of the
issued and outstanding shares of RAND to certain members of the management team
in exchange for 375,039 shares of the Common Stock, and a warrant to purchase
such amount of shares of RAND common stock that equals, at the time of exercise,
30% of the issued and outstanding shares of RAND common stock on a fully diluted
basis.
IGUANA. On March 1, 2001, the Company acquired all outstanding shares
of Iguana Studios, Inc., a leading provider of media and technical services, in
exchange for approximately
24
$2,800,000 in cash, including acquisition costs, 2,700,000 shares of Common
Stock, valued at approximately $2,000,000, and replacement options to purchase
1,681,888 shares of Common Stock valued at approximately $1,000,000. The
acquisition was accounted for using the purchase method of accounting. As a
result of the terminations referred to above, coupled with the historical,
current and projected operating and cash flow losses, the Company evaluated
recoverability of its acquired intangible assets and goodwill acquired from
Iguana by comparison of the carrying value relative to future cash flows. As a
result, the Company recorded impairment charges which reduced the carrying value
of the Iguana intangibles to $0 as of December 31, 2001.
CANNED. On June 12, 2001, the Company acquired Papke-Textor, Inc. d/b/a
Canned Interactive, a Los Angeles based media and entertainment interactive
agency, for approximately $1,100,000 in cash, including acquisition costs, and
6,436,552 shares of Common Stock, valued at approximately $1,000,000. The
business combination was accounted for using the purchase method of accounting.
BROADSTREAM AND NETPRO. In May 2001, Broadstream completed a
recapitalization whereby the holders of Series A Convertible Redeemable
Preferred Stock exchanged their Series A shares for shares of Series A-1
Convertible Redeemable Preferred Stock. The recapitalization modified the
conversion ratio, policies regarding dividends and voting rights for Series A-1
holders. No additional consideration was paid by the Company or any other
preferred shareholder in connection with this transaction. As a result of the
recapitalization the voting interest of common shareholders was reduced from 31%
to 13%.
Also in May 2001, in connection with the recapitalization, the Company
transferred 1,191,569 Series A-1 Convertible Redeemable Preferred shares to
Adelson Investors, LLC, another shareholder of Broadstream. This transfer is
accounted for as a contribution by the Company of such shares to Broadstream in
exchange for no consideration. Subsequent to the recapitalization, and
non-reciprocal share transfer, the Company owned 6,434,596 shares of Series A-1
convertible redeemable preferred stock of Broadstream, representing an
approximately 43% equity interest (calculated on an as-if-converted basis) and
49% voting interest.
On August 15, 2001 the Company purchased a secured convertible
promissory note from Broadstream in exchange for $600,000 in connection with an
aggregate $1,600,000 bridge loan financing consummated by Broadstream. The
aggregate bridge loan financing was secured by all of Broadstream's assets. The
note also contained certain conversion provisions in the event Broadstream
closed a new round of financing or entered into a change of control transaction.
On November 30, 2001 the Company assigned its note to a newly formed
entity, NetPro Holdings Inc. in exchange for 13,674,753 shares of NetPro Series
A-1 convertible redeemable participating preferred stock. On November 30, 2001
as a result of the application of the equity method, the net book value of the
note approximated zero. No gain or loss was recorded as a result of this
exchange. Concurrent with this transaction, NetPro foreclosed on the note and
elected to take possession of all of Broadstream's assets in full satisfaction
of the notes. Broadstream remains in existence but is not conducting any
business.
25
On December 24, 2001, the Company purchased 1,585,479 shares of NetPro
Series B-1 convertible redeemable participating preferred stock in exchange for
$200,000 in connection with a larger ongoing financing effort by NetPro. On
January 10, 2002, the Company invested an additional $100,000 in NetPro Series
B-1 stock, and on March 7, 2002 the Company invested a final $100,000 in NetPro
Series B-1 stock. On March 14, 2002, the board of directors of NetPro voted to
suspend all of the company's business operations and immediately terminate
substantially all of its employees due to NetPro's loss of significant clients
and associated revenues. NetPro's board of directors continues to evaluate
alternatives to maximize the value of the company's remaining assets.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002
REVENUES. Revenues decreased from $1,874,000 in the three months ended March 31,
2001 to $739,000 in the three months ended March 31, 2002. This decrease is a
result of the divestitures and continued unfavorable market conditions for the
Company's services.
COST OF REVENUES. Cost of revenues consists principally of costs directly
incurred in the delivery of services to clients, primarily consisting of
compensation of billable employees. Billable employees are full time employees
and sub-contractors whose time spent working on client projects is charged to
that client at agreed-upon rates. Billable employees are our primary source of
revenue. Such costs decreased from $2,052,000 in the three months ended March
31, 2001 to $281,000 in the three months ended March 31, 2002, or 38% of
revenues. The decrease is a result of the divestitures of InSys and RAND, and
the downsizing of Iguana's operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consist primarily of compensation and related benefits,
professional services fees, facilities costs, and advertising and promotional
costs. Selling, general and administrative expenses decreased from $2,784,000 in
the three months ended March 31, 2001 to $1,070,000 in the three months ended
March 31, 2002. This decrease was primarily a result of the decreased number of
employees resulting in decreased compensation, decreased professional services
fees, and decreases in other costs associated with the decreased scope of
operations over the prior year.
EQUITY IN LOSSES AND IMPAIRMENT OF INVESTMENTS IN UNCONSOLIDATED AFFILIATES.
Equity in losses and Impairment of investments in unconsolidated affiliates was
$813,000 in the three months ended March 31, 2001 and $322,000 in the three
months ended March 31, 2002. Equity in losses of unconsolidated affiliates is a
result of the Company's minority ownership in Broadstream, NetPro and InSys
which have been accounted for under the equity method of accounting. Under the
equity method of accounting, the Company's proportionate share, calculated on an
as-if-converted basis, of the investee's operating losses and amortization of
the Company's net excess investment over its equity in the investee's net assets
is included in equity in losses of unconsolidated affiliates. Impairment of
investments in unconsolidated affiliates is a result of the cessation of
NetPro's operations on March 14, 2002. The Company evaluated the recoverability
of its investment in light of the carrying value relative to future cash flows.
As a result of this analysis, the Company recorded an impairment charge which
reduced the remaining investment balance to $0.
26
INTEREST AND DIVIDEND INCOME. Interest and dividend income was $366,000 in the
three months ended March 31, 2001 and $150,000 in the three months ended March
31, 2002. The decrease in interest income for the three months ended March 31,
2002 over the prior year was attributable to a decrease in the Company's
invested cash balance as it has funded its ongoing operations. Interest income
in future periods may fluctuate as a result of the average cash we maintain and
changes in the market rates of our cash equivalents, and we expect that the
average cash balance may continue to decrease as the Company continues to incur
operating losses.
INCOME TAXES. The Company has available estimated net operating loss
carryforwards for income tax purposes of approximately $20,500,000 through the
period ended March 31, 2002, which expire on various dates from 2001 through
2021. A valuation allowance has been established due to uncertainty whether the
Company will generate sufficient taxable earnings to utilize the available net
operating loss carryforwards. A portion of the Company's net operating loss
carryforwards may also be limited due to significant changes in ownership under
Section 382 of the Tax Reform Act of 1986.
LIQUIDITY AND CAPITAL RESOURCES
HISTORICAL SOURCE OF FUNDING
On March 28, 2000, an investor group led by Pangea Internet Advisors, LLC
purchased 4,000,000 shares of Series B convertible preferred stock for net
proceeds to the Company of approximately $39,450,000 in cash. Also on March 28,
2000, certain other investors purchased warrants to purchase 41,250,000 shares
of common stock for $100,000.
WORKING CAPITAL AND RESULTS OF OPERATIONS
The Company had $7,864,000 in cash and cash equivalents available as of March
31, 2002, invested predominantly in instruments that are highly liquid,
investment grade securities that have maturities of less than 45 days.
Beginning in the third quarter of 2001, in response to continued unfavorable
market conditions for its services, the Company embarked on a review of its
operations with the goal of formulating a course of action to minimize near term
losses, capital expenditures and reduce cash outflows. As of March 31, 2002, the
Company has a single operating subsidiary, a limited number of employees and has
significantly reduced fixed expenses. During the three months ended March 31,
2002, the Company used $1,028,000 to fund operations and to make strategic
investments. Given the Company's current level of operations, the Company's
existing capital resources will be sufficient to meet anticipated cash needs for
working capital and capital expenditures for at least the next 12 months.
PROPOSED MERGER WITH FRANKLIN CAPITAL CORPORATION
The Company has initiated a merger transaction with Franklin Capital, subject to
certain terms, conditions and stockholder approvals, which would require outlays
of capital to complete. On April 3, 2002, the Company loaned to Excelsior
approximately $4,708,000 to fund Excelsior's acquisition of certain assets. If
the business combination is consummated, and the post combination operations
require significant cash outlays to fund operations, the Company may be required
to seek additional sources of financing or to sell certain assets.
If the merger is not consummated, the Company may not be able to realize its
full investment in Excelsior in the near term. Additionally, the Company is
continuously evaluating future acquisitions of businesses and other strategic
assets which may also require considerable outlays of capital.
27
The Company's future contractual obligations at March 31, 2002 were as follows:
2006 and
2002 2003 2004 2005 Thereafter
---- ---- ---- ---- ----------
(in thousands)
Operating leases.............. $ 706 $ 842 $ 332 $ 46 $ -
Capital Leases................ 92 124 - - -
Involuntary termination....... 154 216 - - -
------ ------ ------ ------ ------
$ 952 $1,182 $ 332 $ 46 -
====== ====== ====== ====== ======
The Company intends to fund these obligations from its cash on hand at
March 31, 2002.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements in this report, including information appearing under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations" constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). The Company
desires to take advantage of certain "Safe Harbor" provisions of the Reform Act
and is including this special note to enable the Company to do so.
Forward-Looking Statements involve known and unknown risks, uncertainties, and
other factors, which could cause the Company's actual results, performance
(financial or operating) or achievements to differ materially from the future
results, performance (financial or operating) or achievements expressed or
implied by such Forward-Looking Statements. Such risks, uncertainties and other
factors include, among others:
o the Company's clients may not adopt an internet business
model;
o the Company is still in an early stage of development and may
not be able to implement its business strategy;
o the Company has a limited operating history so it will be
difficult to predict the Company's future performance;
o the Company is not currently profitable and expects to incur
future losses;
o the Company must successfully complete and integrate
acquisitions to continue its growth;
o the Company's success depends on its ability to retain its key
personnel;
o the Company does not have long-term contracts with clients and
needs to establish relationships with new clients;
o the Company operates in a highly competitive market with low
barriers to entry; and
28
o the Company's revenues could be harmed if growth in the use of
the internet does not occur.
As a result, no assurance can be given as to future results, levels of activity
or achievements.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The primary objective of the Company's investment activities is to preserve
principal while at the same time maximizing yields without significantly
increasing risk. To achieve this objective, the Company maintains its portfolio
of cash, cash equivalents and money market funds.
As of March 31, 2002, the Company held cash and cash equivalents with an average
maturity of 45 days or less.
29
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is subject to certain legal claims and is involved in litigation
from time to time in the ordinary course of its business. It is the Company's
opinion that it either has adequate legal defenses to such claims or that any
liability that might be incurred due to such claims will not, in the aggregate,
exceed the limits of the Company's insurance policies or otherwise result in any
material adverse effect on the Company's operations or financial position.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are incorporated herein by reference to
other documents previously filed with the SEC:
2.1 Agreement and Plan of Merger of Arinco Computer Systems Inc. with and
into Change Technology Partners, Inc. (d/b/a Pangea Internet, Inc.),
dated April 21, 2000 (filed as an exhibit to the Registrant's Report on
Form 8-K dated September 12, 2000 and incorporated herein by
reference).
2.2 Agreement and Plan of Merger of CTPI Acquisition Corp. with and into
eHotHouse, Inc., dated February 5, 2001 (filed as an exhibit to the
Registrant's Annual Report on Form 10-K dated March 27, 2001 and
incorporated herein by reference).
2.3 Agreement and Plan of Merger among Change Technology Partners, Inc. and
Franklin Capital Corporation, dated December 4, 2001 (filed as an
exhibit to the Registrant's Report on Form 8-K dated December 5, 2001
and incorporated herein by reference).
2.4 Amendment No. 1 to Agreement and Plan of Merger by and between Change
Technology Partners, Inc. and Franklin Capital Corporation, dated April
3, 2002 (filed as an exhibit to the Registrant's Report on Form 8-K
dated April 3, 2002 and incorporated herein by reference).
30
3.1 Certificate of Incorporation of Change Technology Partners, Inc. (filed
as an exhibit to the Registrant's quarterly report on Form 10-Q for the
fiscal quarter ended September 30, 2000 and incorporated herein by
reference).
3.2 Bylaws of Change Technology Partners, Inc. (filed as an exhibit to the
Registrant's quarterly report on Form 10-Q for the fiscal quarter ended
September 30, 2000 and incorporated herein by reference).
4.1 Form of stock certificate for common stock (filed as an exhibit to the
Registrant's Annual Report on Form 10-K dated March 27, 2001 and
incorporated herein by reference).
4.2 Registration Rights Agreement by and among Arinco Computer Systems
Inc., Pangea Internet Advisors LLC and the persons party to the
Securities Purchase Agreement, dated as of March 28, 2000 (filed as an
exhibit to the Registrant's Report on Form 8-K dated March 28, 2000 and
incorporated herein by reference).
10.1 Securities Purchase Agreement, dated March 9, 2000, by and between
Arinco Computer Systems Inc., Pangea Internet Advisors LLC and the
purchasers listed on Schedule I attached thereto (filed as an exhibit
to the Registrant's Report on Form 8-K dated March 28, 2000, and
incorporated herein by reference).
10.2 Amended and Restated Business Opportunity Allocation and Miscellaneous
Services Agreement by and between Change Technology Partners, Inc., FG
II Ventures, LLC and Pangea Internet Advisors LLC, dated as of November
10, 2000 (filed as an exhibit to the Registrant's Annual Report on Form
10-K dated March 27, 2001 and incorporated herein by reference).
10.3 Warrants for William Avery, Cary S. Fitchey, The Roberts Family
Revocable Trust U/D/T dated as of December 15, 1997, David M. Roberts
and Gail M. Simpson, Trustees, Roberts Children Irrevocable Trust U/D/T
dated October 21, 1996, Stephen H. Roberts, Trustee and Turtle Holdings
LLC (filed as an exhibit to the Registrant's Report on Form 8-K dated
March 28, 2000 and incorporated herein by reference).
10.4 Stock Purchase Agreement dated June 29, 2000 by and between Arinco
Computer Systems Inc., Broadstream.com, Inc. and the purchasers listed
on Schedule I attached thereto (filed as an exhibit to the Registrant's
Report on Form 8-K dated June 29, 2000 and incorporated herein by
reference).
10.5 Stock Purchase Agreement, dated September 15, 2000, by and between
Change Technology Partners, Inc. and eHotHouse, Inc. (filed as an
exhibit to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 15, 2000 and incorporated herein by reference).
10.6 Agreement for Sale and Purchase of Business Assets among InSys
Technology Inc., ATC InSys Technology, Inc., and ATC Group Services
Inc. dated October 5, 2000 (filed as an exhibit to the Registrant's
Report on Form 8-K dated October 18, 2000 and incorporated herein by
reference).
31
10.7 Assumption Agreement among InSys Technology, Inc., ATC InSys Technology
Inc. and ATC Group Services Inc. dated October 18, 2000 (filed as an
exhibit to the Registrant's Report on Form 8-K dated October 18, 2000
and incorporated herein by reference).
10.8 Employment Agreement entered into by and between Arinco Computer
Systems Inc. and Matthew Ryan dated as of August 21, 2000 (filed as an
exhibit to the Registrant's Report on Form 8-K dated November 20, 2000
and incorporated herein by reference).
10.9 Employment Agreement entered into by and between Change Technology
Partners, Inc. and Kathleen Shepphird dated as of November 10, 2000
(filed as an exhibit to the Registrant's Annual Report on Form 10-K
dated March 27, 2001 and incorporated herein by reference).
10.10 Agreement and Plan of Merger among eHotHouse Inc., eHH Merger I, Inc.,
RAND Interactive Corporation, and Todd Burgess, David Kelley, John
Snow, Stephen Riddick and Brobeck, Phleger and Harrison LLP dated
November 30, 2000 (filed as an exhibit to the Registrant's Report on
Form 8-K dated November 30, 2000 and incorporated herein by reference).
10.11 Agreement and Plan of Merger among Change Technology Partners, Inc.,
Iguana Studios I, Inc., and Iguana Studios, Inc., dated March 1, 2001
(filed as an exhibit to the Registrant's Report on Form 8-K dated March
14, 2001 and incorporated herein by reference).
10.12 Stockholders Agreement entered into by Change Technology Partners,
Inc., and Stockholders of Iguana dated March 1, 2001 (filed as an
exhibit to the Registrant's Report on Form 8-K dated March 14, 2001 and
incorporated herein by reference).
10.13 Agreement and Plan of Merger among Change Technology Partners, Inc.,
Canned Interactive, Inc., Papke-Textor, Inc., Textor Family Limited
Partnership, Papke Family Limited Partnership, Douglas Textor and Jay
Papke, dated June 12, 2001 (filed as an exhibit to the Registrant's
Report on Form 8-K dated June 12, 2001 and incorporated herein by
reference).
10.14 Employment Agreement effective as of September 19, 2001 by and between
Change Technology Partners, Inc. and William Avery (filed as an exhibit
to the Registrant's Annual Report on Form 10-K dated March 26, 2002 and
incorporated herein by reference).
10.15 Severance Compensation Agreement effective as of September 19, 2001 by
and between Change Technology Partners, Inc. and William Avery (filed
as an exhibit to the Registrant's Annual Report on Form 10-K dated
March 26, 2002 and incorporated herein by reference).
10.16 Stock Purchase Agreement by and among NetPro Holdings, Inc., Change
Technology Partners, Inc., and Adelson Investors LLC dated November 30,
2001 (filed as an exhibit to the Registrant's Annual Report on Form
10-K dated March 26, 2002 and incorporated herein by reference).
32
10.17 Purchase and Sale Agreement by and between John J. Goodwin and Change
Technology Partners, Inc. dated November 8, 2001 (filed as an exhibit
to the Registrant's Report on Form 8-K dated November 8, 2001 and
incorporated herein by reference).
10.18 Promissory Note issued by InSys Technology LLC to Change Technology
Partners, Inc. dated November 8, 2001 (filed as an exhibit to the
Registrant's Report on Form 8-K dated November 8, 2001 and incorporated
herein by reference).
10.19 Share Purchase Agreement by and between Change Technology Partners,
Inc. and John Snow, dated November 2, 2001 (filed as an exhibit to the
Registrant's Report on Form 8-K dated November 2, 2001 and incorporated
herein by reference).
10.20 Warrant to Purchase Common Stock, issued by RAND Interactive
Corporation to Change Technology Partners, Inc. dated November 2, 2001
(filed as an exhibit to the Registrant's Report on Form 8-K dated
November 2, 2001 and incorporated herein by reference).
10.21 Promissory Note issued by eCom Capital, Inc. to Change Technology
Partners, Inc. dated August 28, 2001 (filed as an exhibit to the
Registrant's Report on Form 8-K dated August 28, 2001 and incorporated
herein by reference).
10.22 Security Agreement among eCom Capital, Inc., Franklin Capital
Corporation and Change Technology Partners, Inc. dated August 28, 2001
(filed as an exhibit to the Registrant's Report on Form 8-K dated
August 28, 2001 and incorporated herein by reference).
10.23 Warrant, issued by eCom Capital, Inc. to Change Technology Partners,
Inc. dated August 28, 2001 (filed as an exhibit to the Registrant's
Report on Form 8-K dated August 28, 2001 and incorporated herein by
reference).
10.24 Stock Purchase Agreement between Change Technology Partners, Inc. and
Franklin Capital Corporation dated December 4, 2001 (filed as an
exhibit to the Registrant's Annual Report on Form 10-K dated March 26,
2002 and incorporated herein by reference).
10.25 Promissory Note issued by Excelsior Radio Networks, Inc. to Change
Technology Partners, Inc. dated April 3, 2002 (filed as an exhibit to
the Registrant's Report on Form 8-K dated April 3, 2002 and
incorporated herein by reference).
10.26 Security Agreement among Excelsior Radio Networks, Inc., Sunshine II,
LLC and Change Technology Partners, Inc. dated April 3 2002 (filed as
an exhibit to the Registrant's Report on Form 8-K dated April 3, 2002
and incorporated herein by reference).
(b) The following report on Form 8-K was filed with the SEC during
the first quarter of 2002:
(i) On April 3, 2002 reporting matters under
Item 5, Other Events, and Item 7, Financial
Statements and Exhibits.
33
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: May 15, 2002
CHANGE TECHNOLOGY PARTNERS, INC.
By: /s/ William Avery
---------------------------------------
William Avery
President, Chief Executive Officer, and Chief
Financial Officer
34