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 June 30, 2003
[_] 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
incorporation or organization) Identification No.)
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 [_].
Check whether the issuer is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Yes [_] No [X].
The number of shares of the issuer's common stock outstanding on August 11, 2003
was approximately 182,003,919.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 - CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS...................2
Consolidated Balance Sheets as of June 30, 2003 (unaudited)
and December 31, 2002.................................................2
Consolidated Statements of Operations for the three
months ended June 30, 2003 and 2002 (unaudited).......................3
Consolidated Statements of Operations for the six
months ended June 30, 2003 and 2002 (unaudited).......................4
Consolidated Statements of Stockholders' Equity for the six
months ended June 30, 2003 (unaudited)................................5
Consolidated Statements of Cash Flows for the six
months ended June 30, 2003 and 2002 (unaudited).......................6
Notes to Unaudited Interim Condensed Consolidated
Financial Statements..................................................7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................21
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ..........29
ITEM 4 - CONTROLS AND PROCEDURES..............................................29
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS....................................................31
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS............................31
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES......................................31
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................31
ITEM 5 - OTHER INFORMATION....................................................31
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.....................................31
ITEM 7 - SIGNATURES...........................................................36
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
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)
4 JUNE 30, DECEMBER 31,
2003 2002
-----------------------------------------
(Unaudited)
ASSETS
Cash and cash equivalents............................................ $ 7,252 $ 2,944
Related party receivable............................................. 115 194
Other Receivable..................................................... 300 318
Notes receivable..................................................... -- 4,926
Prepaid expenses and other current assets............................ 842 672
Current assets related to discontinued operations.................... -- 465
-----------------------------------------
Total current assets............................... 8,509 9,519
Notes receivable, excluding current portion.......................... -- 424
Investments in and loans to unconsolidated subsidiaries.............. 92 449
Property and equipment, net.......................................... 140 281
Goodwill related to discontinued operations.......................... -- 1,782
Long term assets related to discontinued operations.................. -- 155
Other assets......................................................... -- 123
-----------------------------------------
Total assets....................................... $ 8,741 $ 12,733
=========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable..................................................... $ 257 $ 123
Accrued expenses..................................................... 344 580
Capital lease obligation............................................. 23 70
Liabilities related to discontinued operations, net.................. -- 333
-----------------------------------------
Total current liabilities.......................... 624 1,106
Capital lease obligation, less current portion....................... 4 8
-----------------------------------------
Total liabilities.................................. 628 1,114
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 June 30, 2003 and December 31, 2002, with an aggregate
liquidation preference of $1.................................... -- --
Common stock:
$.01 par value; 500,000,000 shares authorized, 177,503,920 and
182,003,920 shares issued and outstanding at June 30, 2003 and
December 31, 2002, respectively................................. 1,775 1,820
Additional paid-in capital........................................... 94,334 94,369
Deferred compensation................................................ (88) (268)
Accumulated deficit.................................................. (87,908) (84,302)
-----------------------------------------
Total stockholders' equity......................... 8,113 11,619
-----------------------------------------
Total liabilities and stockholders' equity......... $ 8,741 $ 12,733
=========================================
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
JUNE 30,
2003 2002
------------- -------------
Operating expenses:
General and administrative expenses, exclusive of equity based
compensation of $90 and $132, respectively ................. $ 516 $ 1,173
Equity based compensation .................................... 180 132
Severance, exclusive of equity based compensation of $90 ..... 140 --
------------- -------------
Loss from operations ............................ (836) (1,305)
Other income (expense):
Interest and dividend income ................................. 13 257
Equity in losses and impairment of investments in
unconsolidated affiliates ................................ (44) (260)
------------- -------------
Total other income (expense) ................................. (31) (3)
------------- -------------
Net loss from continuing operations ............. (867) (1,308)
Loss from discontinued operations (including loss on
disposal), net ........................................... (1,967) (44)
------------- -------------
Net loss ........................................ (2,834) (1,352)
============= =============
Weighted average common shares outstanding,
basic and diluted ............................................ 181,979,058 179,048,437
============= =============
Basic and diluted net loss per common share from continuing
operations.................................................... (0.01) (0.01)
Basic and diluted net loss per common share from discontinued
operations.................................................... (0.01) (0.00)
------------- -------------
Basic and diluted net loss per common share........................ (0.02) (0.01)
============= =============
See accompanying notes to unaudited condensed consolidated interim financial
statements.
3
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
(in thousands, except share and per share amounts)
SIX MONTHS ENDED
JUNE 30,
2003 2002
------------- -------------
Operating expenses:
General, and administrative expenses, exclusive of equity
based compensation of $180 and $263, respectively.......... $ 1,545 $ 1,922
Equity based compensation...................................... 270 263
Severance, exclusive of equity based compensation of $90....... 140 --
------------- -------------
Loss from operations.............................. (1,955) (2,185)
Other income (expense):
Interest and dividend income................................... 69 407
Equity in losses and impairment of investments in
unconsolidated affiliates.................................. (107) (582)
Realized gain on sale of Excelsior stock and warrants.......... 286 --
------------- -------------
Total other income (expense)................................... 248 (175)
------------- -------------
Net loss from continuing operations............... (1,707) (2,360)
Loss from discontinued operations (including loss on
disposal), net............................................. (1,899) 88
------------- -------------
Net loss.......................................... $ (3,606) $ (2,272)
============= =============
Weighted average common shares outstanding,
basic and diluted.............................................. 181,979,058 179,023,094
============= =============
Basic and diluted net loss per common share from continuing
operations..................................................... $ (0.01) $ (0.01)
Basic and diluted net loss per common share from discontinued
operations..................................................... (0.01) (0.00)
------------- -------------
Basic and diluted net loss per common share......................... $ (0.02) $ (0.01)
============= =============
See accompanying notes to unaudited condensed consolidated interim financial
statements.
4
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Unaudited Consolidated Statement of Stockholders' Equity
Six Months Ended June 30, 2003
(in thousands, except share amounts)
SERIES A TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL PAID DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT IN CAPITAL COMPENSATION DEFICIT EQUITY
------ ------ ------ ------ --------------- ------------ ----------- -------------
Balance at December 31, 2002..... 645 $ -- 182,003,920 $ 1,820 $ 94,369 $ (268) $ (84,302) $ 11,619
Common stock received as
consideration for Canned.... -- -- (4,500,000) (45) (125) -- -- (170)
Modification of former Chief
Executive Officer's options. -- -- -- -- 90 -- -- 90
Amortization of deferred
compensation................. -- -- -- -- -- 180 -- 180
Net loss......................... -- -- -- -- -- -- (3,606) (3,606)
----- ----- ----------- ------- -------- ------ --------- --------
Balance at June 30, 2003
(unaudited)................. 645 $ -- 177,503,920 $ 1,775 $ 94,334 $ (88) $ (87,908) $ 8,113
===== ===== =========== ======= ======== ====== ========= ========
See accompanying notes to unaudited condensed consolidated interim financial
statements.
5
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
(in thousands)
SIX MONTHS ENDED
JUNE 30,
2003 2002
------------- -------------
Cash flows from operating activities:
Net loss.........................................................$ (3,606) $ (2,272)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation................................................. 141 141
Equity based compensation.................................... 270 263
Equity in losses of unconsolidated subsidiary................ 107 155
Accretion of loan discount................................... -- (54)
Impairment loss.............................................. -- 427
Accrued interest on notes receivable......................... (8) (233)
Receipt of accrued interest on notes receivable.............. 166 48
Gain on sale of Excelsior stock and warrant.................. (286) --
Valuation allowance on notes receivable...................... 473 --
Discontinued operations, net................................. (159) (88)
Loss on disposal of discontinued operations.................. 2,058 --
Changes in operating assets and liabilities, net of
acquisitions:
Related party receivable..................................... 79 27
Receivable from Canned....................................... 18 (140)
Prepaid expenses and other assets............................ (159) 140
Accounts payable and accrued liabilities..................... (102) (436)
------------- -------------
Net cash used in operating activities............... (1,008) (2,022)
Cash flows from investing activities:
Cash paid for notes receivable................................... -- (4,708)
Principle payments - received.................................... 4,719 25
Sale of Excelsior investment and warrant......................... 648 --
Cash paid for cost method investments and acquisitions,
net of cash acquired......................................... -- (278)
------------- -------------
Net cash used in investing activities............... 5,367 (4,961)
Cash flows from financing activities:
Principal payments under capital leases.......................... (51) (52)
------------- -------------
Net cash used in financing activities............... (51) (52)
Net increase (decrease) in cash and cash
equivalents.........................................$ 4,308 $ (7,035)
Cash and cash equivalents at beginning of period......................$ 2,944 $ 8,702
------------- -------------
Cash and cash equivalents at end of period............................$ 7,252 $ 1,667
============= =============
See accompanying notes to unaudited condensed consolidated interim financial
statements.
6
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
June 30, 2003
(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 June 30, 2003, has offices in Connecticut. 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 June 30, 2003, the Company's sole consolidated subsidiary is:
o Iguana Studios, Inc. (which has limited continuing operating
activities)
Based on the Company's assessment of the opportunities in the radio business, in
2001 the Board of Directors decided to merge with Franklin Capital Corporation
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 with Franklin Capital. On July 1, 2002, the Company
received a notice of termination from Franklin Capital terminating the proposed
merger.
On September 30, 2002, the Board of Directors announced the adoption of a plan
of liquidation and dissolution in order to maximize stockholder value and noted
that if no suitable business opportunities became available to it, subject to
stockholder approval, it would commence liquidation in 2003. However, the plan
permits the Board of Directors to amend, modify or abandon the plan,
notwithstanding stockholder approval, if the Board determines doing so would be
in the best interests of the Company and its stockholders.
On June 17, 2003, the individual filling the roles of President, Chief Executive
Officer and Chief Financial Officer of the Company resigned. The former
executive had an employment agreement dated September 17, 2001 governing the
terms and conditions of his employment. On June 17, 2003, the Company and such
former executive entered into a separation agreement and general release (the
"Separation Agreement"). The Company will pay the former executive the severance
he is entitled to under the Separation Agreement, totaling $140, and has
recorded a charge in the Statement of Operations for the three months ended June
30, 2003 for the value of expected payments and benefits payable to the former
executive.
The Company announced on June 18, 2003 that it signed a Letter of Intent (the
"Letter of Intent") with Neurologix, Inc. ("Neurologix") to merge a
newly-formed, wholly-owned subsidiary of the Company with and into Neurologix,
with Neurologix surviving as a wholly-
7
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
June 30, 2003
(in thousands, except share data)
owned subsidiary of the Company (the "Merger"). In the event the Merger is
consummated, the Company expects to abandon the plan of liquidation and
dissolution. If the Merger is not consummated, the Company expects to pursue the
plan of liquidation and dissolution previously adopted.
On June 30, 2003, the Company sold to Textor Family Limited Partnership all of
the issued and outstanding shares of capital stock of Papke-Textor, Inc. d/b/a
Canned Interactive ("Canned").
INTERIM RESULTS
The accompanying unaudited consolidated balance sheet as of June 30, 2003, the
unaudited consolidated statements of operations and cash flows for the periods
ended June 30, 2003 and 2002, and the unaudited consolidated statement of
stockholders' equity as of June 30, 2003 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. Certain prior
period amounts have been reclassified to conform to the current period's
presentation.
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.
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, 2002, which are
contained in the Company's Annual Report on Form 10-K. As a result of the
divestiture of Canned, the Company's last remaining revenue generating
operation, the results for the six month period ended June 30, 2003 will not be
indicative of the results to be expected for the full fiscal year or for any
future periods.
8
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
June 30, 2003
(in thousands, except share data)
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.
REVENUE RECOGNITION
Revenues are recognized for fixed price arrangements in the period services are
rendered using the percentage-of-completion method, 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.
Through September 30, 2002 the Company's revenues were recognized under the
completed contract method of accounting as the Company did not have reasonably
dependable estimates with respect to projects at its former subsidiary, Canned.
Beginning in the fourth quarter of 2002, Canned's revenues were recognized using
the percentage of completion method. Canned's projects were typically short term
in nature, generally spanning less than 90 days.
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 enters into 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 connection with the divestiture of Canned by the Company, revenues are now
included in discontinued operations.
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 are full time employees and
subcontractors whose time is spent servicing client projects.
9
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
June 30, 2003
(in thousands, except share data)
In connection with the divestiture of Canned by the Company, such costs are now
included in discontinued operations.
EQUITY-BASED COMPENSATION
The Company accounts for its employee stock option plans in accordance with the
provisions of the Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations
including Financial Accounting Standards Board Interpretation No. 44. As such,
compensation expense related to employee stock options is recorded only if, on
the date of grant, the fair value of the underlying stock exceeds the exercise
price. All such deferred compensation is amortized over the related vesting
period on a straight-line basis. The Company adopted the disclosure-only
requirements of SFAS No. 123 "Accounting for Stock-Based Compensation," which
allows entities to continue to apply the provisions of APB Opinion No. 25 for
transactions with employees and provide pro forma net income (loss) and pro
forma earnings (loss) per share disclosures for employee stock grants made as if
the fair value based method of accounting in SFAS No. 123 had been applied to
these transactions.
Had compensation cost for these awards been determined based on the fair value
at the grant dates consistent with the method prescribed by SFAS No. 123, the
Company's net loss would have been adjusted to the pro forma amounts indicated
below:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2003 2002 2003 2002
---- ---- ---- ----
Net loss, as reported ............................ $(2,834) $(1,392) $(3,606) $(1,352)
Add back: compensation expense related to stock
options, as reported ............................. 180 132 270 263
Deduct: compensation expense related to stock
options under fair value based method ............ (381) (225) (509) (361)
------- ------- ------- -------
Pro forma net loss ............................... (3,035) (1,445) (3,845) (1,450)
Basic and diluted net loss per share as reported.. (0.02) (0.01) (0.02) (0.01)
Pro forma basic income loss per share............. (0.02) (0.01) (0.02) (0.01)
10
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
June 30, 2003
(in thousands, except share data)
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:
JUNE 30, JUNE 30,
2003 2002
---------- ----------
Stock Options ...................... 14,585,747 9,985,747
Warrants ........................... 25,856,252 25,856,252
Series A Convertible Preferred
Stock.......................... 645 645
As a result, the basic and diluted net loss per share is equal for all periods
presented.
GOODWILL
Effective January 1, 2002, the Company adopted SFAS 142, "Goodwill and
Intangible Assets." At January 1, 2002 the intangible assets consisted of
goodwill and the subsumed workforce acquired in connection with the acquisition
of the Company's former subsidiary, Canned. Management reviewed goodwill for
impairment in the fourth quarter of each year or earlier if indicators of
potential impairment exist. In connection with the sale of the Canned reporting
unit in June 2003, goodwill totaling $1,782 was charged to loss on disposal of
discontinued operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146, which is effective
prospectively for exit or disposal activities initiated after December 31, 2002,
applies to costs associated with an exit activity, including restructurings, or
with a disposal of long-lived assets. Those activities can include eliminating
or reducing product lines, terminating employees and contracts and relocating
plant facilities or personnel. SFAS No. 146 requires that exit or disposal costs
are recorded as an operating expense when the liability is incurred and can be
measured at fair value. Commitment
11
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
June 30, 2003
(in thousands, except share data)
to an exit plan or a plan of disposal by itself will not meet the requirement
for recognizing a liability and the related expense under SFAS No. 146. SFAS No.
146 grandfathers the accounting for liabilities that were previously recorded
under EITF Issue 94-3. Accordingly, SFAS No. 146 will have no effect on the exit
costs recorded by the Company prior to December 31, 2002.
Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation" ("SFAS 148"), is an amendment to Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", and provides
alternative methods of transition for an entity that voluntarily changes from
the intrinsic value based method of accounting for stock-based employee
compensation prescribed in APB No. 25 to the fair value method prescribed in
SFAS 123. As permitted under SFAS 148, the Company has continued to apply the
accounting provisions of APB No. 25, and to provide the annual pro forma
disclosures of the effect of adopting the fair value method as required by SFAS
123. SFAS 148 also requires pro forma disclosure to be provided on a quarterly
basis. The Financial Accounting Standards Board recently indicated that they
will require stock-based employee compensation to be recorded as a charge to
earnings beginning in 2004. The Company will continue to monitor their progress
on the issuance of this standard, as well as evaluate the Company's position
with respect to current guidance.
12
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
June 30, 2003
(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):
Carrying Value
---------------------------
June 30, December 31, Cost
2003 2002 Basis
---- ---- -----
Equity method investments:
Broadstream.com Inc. ("Broadstream") ....... $ -- $ -- $7,100
NetPro Holdings, Inc. ("NetPro") ........... -- -- 400
InSys LLC ("InSys") ........................ 14 121 323
Cost method investments:
Livesky, Inc. ("Livesky") .................. -- -- 125
Excelsior Radio Networks, Inc. ("Excelsior") -- 250 250
Alacra, Inc. ("Alacra") .................... 78 78 78
------ ------ ------
Total investments ............................... $ 92 $ 449 $8,276
====== ====== ======
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.
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
13
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
June 30, 2003
(in thousands, except share data)
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 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 close 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, 2001 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 of
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
14
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
June 30, 2003
(in thousands, except share data)
NetPro. As a result of this action, the Company evaluated the recoverability of
this investment by comparison of its carrying value relative to estimated 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 six months ended
June 30, 2003, totaling $0, is included in equity in losses and impairment of
investments in unconsolidated affiliates in the accompanying statement of
operations.
INVESTMENT IN AND NOTE RECEIVABLE FROM EXCELSIOR RADIO NETWORKS
The Company 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
from Excelsior in August 2001 and in December 2001 purchased 250,000 common
shares of Excelsior from Franklin Capital for $250. In April 2002 the Company
purchased an additional promissory note from Excelsior for $4,708 in conjunction
with the purchase by Excelsior of Dial Communication Group Inc. and Dial
Communications Group LLC. The $2,250 promissory note was paid in full, together
with related accrued interest, on October 1, 2002. The $4,708 note was repaid in
full, together with related accrued interest, on January 21, 2003.
On January 15, 2003, the Company sold the Excelsior shares and the Excelsior
warrant to Sunshine III, LLC for total consideration of approximately $648 in
cash.
INVESTMENT IN LIVESKY
On December 21, 2000, the Company purchased 625,001 shares of Series A
Convertible preferred stock, representing an approximate 2% equity interest of
LiveSky Solutions, Inc. ("LiveSky") in exchange for $125. LiveSky is a developer
of wireless technology, including mobile business strategy and assessment as
well as mobile application design and development. This investment is being
accounted for under the cost method of accounting.
In June 2002, the Company received notice that the board of directors of LiveSky
had voted to liquidate LiveSky in the context of a Chapter 7 bankruptcy case.
The Company has no obligation to provide additional funding to LiveSky. 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 totaling
$125 in the second quarter of 2002 to reduce the remaining balance to $0.
15
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
June 30, 2003
(in thousands, except share data)
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.
(3) ACQUISITIONS AND DIVESTITURES
DIVESTITURE OF INSYS TECHNOLOGIES, LLC
On November 8, 2001 the Company sold a 51% voting interest in InSys Technology,
Inc. ("InSys"), a wholly-owned subsidiary, 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, on an annual basis, at a minimum, 50% of the excess of its annual earnings
before taxes.
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. The Company's pro rata share of InSys'
net loss for the six months ended June 30, 2003 and 2002 totaled $107 and $155,
respectively, which is included in equity in losses and impairment of
investments in unconsolidated affiliates in the accompanying statement of
operations.
On June 17, 2003, in connection with the resignation of the Company's Chief
Executive Officer, the Company entered into an agreement to transfer its
interest in InSys to the former executive, contingent upon the approval of the
other member of InSys. Upon receipt of such approval, the then book value of
InSys will be charged to severance expense.
DIVESTITURE OF RAND INTERACTIVE CORPORATION
On November 2, 2001 the Company sold all issued and outstanding shares of RAND
Interactive Corporation ("RAND"), a wholly-owned subsidiary, to certain members
of management 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
16
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
June 30, 2003
(in thousands, except share data)
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.
ACQUISITION OF IGUANA STUDIOS, INC.
In connection with the acquisition of Iguana Studios, Inc. ("Iguana"), in March
2001, 2,300,000 shares of the Company's common stock were placed in escrow. The
related contingency period expired in July 2002, and the fair value of such
shares was included in the aggregate purchase price at that time. 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. Accordingly, the Company recorded additional impairment
charges in July 2002 totaling $69 representing the fair value of such shares.
ACQUISITION AND DIVESTITURE 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 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. 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. 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. The related contingency period expired in December 2002, at
which time the cash and the then fair value of the shares, totaling $214, was
included in the aggregate purchase price.
On June 30, 2003, the Company sold all of the issued and outstanding shares of
Canned to a limited partnership of which Canned's managing director is the
general partner. Consideration paid to the Company consisted of 4,500,000 shares
of the Company's common stock with a fair market value of $170. As a result of
this divestiture, the Company recognized a loss of $274.
17
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
June 30, 2003
(in thousands, except share data)
Additionally, the Company recognized an impairment charge of $1,782, which is
included in discontinued operations, to reduce the carrying amount of the
Company's goodwill ascribed to its single reporting unit to zero.
The results of operations for Canned, including the loss on sale and goodwill
impairment in 2003, are reported as discontinued operations for all periods
presented. The accompanying consolidated Statements of Operations for the three
and six month periods ending June 30, 2002 were restated to reflect such
classification. Revenues included in discontinued operations were $839 and $594
for the three months ended June 30, 2003 and 2002, respectively, and $1,547 and
$1,333 for the six months ended June 30, 2003 and 2002, respectively. Net income
(loss) of Canned included in discontinued operations was $91 and ($44) for the
three months ended June 30, 2003 and 2002, respectively, and $159 and $88 for
the six months ended June 30, 2003 and 2002, respectively. Additionally,
Canned's assets and liabilities were classified as discontinued operations in
the accompanying consolidated Balance Sheet as of December 31, 2002.
At June 30, 2003, there was a remaining receivable balance of $300, which was
subsequently repaid by Canned. This amount is included in other receivables in
the accompanying Balance Sheet.
(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. During the
second quarter of 2003, the Company received installment payments, totaling $36.
This amount was less than the $86 due in that period. As a result of the
underpayment and management's assessment of the likelihood of future collection,
the Company established a valuation allowance for the remaining principal amount
of the notes totaling $473.
(5) COMMITMENTS AND CONTINGENCIES
In July 2001, the Board of Directors terminated the employment of the Company's
then President and Chief Executive Officer. The former executive had an
employment agreement dated August 21, 2000 that provided for severance benefits.
As of June 30, 2003, the Company has paid the former executive the full
severance he is entitled to under his employment agreement; the related
obligation totaled $0 at June 30, 2003.
On June 17, 2003, the individual filling the roles of President, Chief Executive
Officer and Chief Financial Officer of the Company resigned and entered into the
Separation Agreement with the Company. The former executive had an employment
agreement dated September 17, 2001
18
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
June 30, 2003
(in thousands, except share data)
governing the terms and conditions of his employment. The Company will pay the
former executive the severance he is entitled to under the Separation Agreement,
totaling $140, and has recognized a charge in the Statement of Operations for
the three months ended June 30, 2003 for the value of expected payments and
benefits payable to the former executive (See Note 6).
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 June 30, 2003:
Period Ended December 31, Operating Capital
-------------------------------------------------------------------------------
2003..................................... $ 229 $ 17
2004..................................... -- 10
Thereafter............................... -- --
-------------------------------
Total Lease Obligation.................. $ 209 27
Amount Representing Interest............. --
------------
27
Current Portion.......................... 23
------------
Long Term Portion........................ $ 4
============
Total minimum lease payments, above, have not been reduced for future minimum
sublease rentals totaling approximately $103.
As a result of the Company's divestiture of certain operations, employee
terminations and terminated business combination, the Company evaluated its
alternatives with respect to its contractual obligations concerning leased
facilities. As of June 30, 2002, the Company determined that certain facilities
had no substantive future use or benefit to the Company. The Company accrued the
remaining costs relating to these leases, net of sublease income, in the second
quarter of 2002. At June 30, 2003, $106 of this amount remained.
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) STOCKHOLDER'S EQUITY
In April, 2002 the Company cancelled 15,468,748 outstanding warrants with a
weighted average exercise price of $0.85 in exchange for no consideration.
19
CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Interim Financial Statements
June 30, 2003
(in thousands, except share data)
In August, 2002 the Company's shareholders approved the grant to the former
Chief Executive Officer of an option to purchase 6,000,000 shares of the
Company's common stock. Under the Separation Agreement entered into in
connection with such former Chief Executive Officer's resignation on June 17,
2003, such options, together with 3,000,000 previously granted, were immediately
vested and may be exercised at any time on or before March 31, 2005. As a result
of this modification to the terms of the options, the Company has recorded a
charge of $90. This amount is included in stock-based compensation in the
accompanying Statement of Operations for the period ended June 30, 2003.
(7) RELATED PARTY TRANSACTIONS
During the six months ended June 30, 2003, the Company incurred legal fees in
connection with certain transactions and other matters in the normal course of
business. A portion of these services were provided by a firm of which a former
member of the Board of Directors is a partner. Such former member of the Board
of Directors resigned on June 12, 2003. Fees incurred by this firm totaled
approximately $148 in the six months ended June 30, 2003.
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 former President and Chief
Executive Officer of the Company was previously affiliated. Such former
President and Chief Executive Officer of the Company resigned on June 17, 2003.
Fees incurred by the Company to this firm totaled $75 in the three months ended
March 31, 2002. As of June 30, 2002, the Company no longer utilizes this firm to
perform any services for the Company. Additionally, this firm occupies a portion
of the Company's office space in Connecticut, for which it pays rent at an
amount which approximates fair market value. Such payments to the Company
totaled $156 and $115 during the six months ended June 30, 2003 and 2002,
respectively. Furthermore, the firm was indebted to the Company in the amount of
$115 and $194 at June 30, 2003 and December 31, 2002, respectively, 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.
20
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, 2002. 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.
Prior to the divestiture of Canned, the Company derived its revenues
from services performed under one of two pricing arrangements:
time-and-materials or fixed-price. The services performed under either of these
arrangements were substantially identical.
Revenues were recognized for fixed-price arrangements in the period
services were rendered using the percentage-of-completion method, based on the
percentage of costs incurred to date to total estimated projects costs, provided
the Company had the ability to produce reasonably dependable estimates,
collection of the resulting receivable was probable and no significant
obligations remained. The cumulative impact of any revision in estimates of the
cost to complete and losses on projects in process were reflected in the period
in which they became known. Through September 30, 2002 the Company's revenues
were recognized under the completed contract method of accounting as the Company
did not have reasonably dependable estimates with respect to projects at the
Company's former subsidiary, Canned. Beginning in the fourth quarter of 2002,
Canned's revenues were recognized using the percentage of completion method.
Canned's projects were typically short term in nature, generally spanning less
than 90 days.
Revenues were recognized for time-and-materials based arrangements in
the period when the underlying services were rendered, provided collection of
the resulting receivable was probable and no significant obligations remained.
Provisions for estimated project specific losses on both types of
contracts were made during the period in which such losses became probable and
could be estimated. To date, such losses have not been significant. The Company
reports revenue net of reimbursable expenses.
Any estimation process, including that used in preparing contract
accounting models, involves inherent risk. The Company reduced 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 were considered in
21
the estimation process. For all client contracts, provisions for estimated
losses on individual contracts were made in the period in which the loss first
became apparent.
The Company maintained 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 deteriorated, resulting in the
customers' inability to make payments, additional allowances were 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 its results of
operations or other changes in circumstances. If the financial condition of an
issuer deteriorates, resulting in such issuer's inability to fulfill its
obligation under the promissory note evidencing such a loan, 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, 2002 and June 30, 2003. 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 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.
On December 4, 2001 the Company entered into an agreement and plan of
merger with Franklin Capital Corporation, a Delaware corporation. On July 1,
2002 the Company received a notice of termination from Franklin terminating the
proposed merger.
The Company 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 2001
purchased 250,000 common shares of Excelsior from Franklin Capital for $250,000.
In April 2002 the Company purchased an additional promissory note from Excelsior
for $4,708,000 in conjunction with the purchase by Excelsior of Dial
Communication Group Inc. and Dial Communications Group LLC. The $2,250,000
promissory note was paid in full, together with related accrued interest, on
October 1, 2002. The $4,708,000 note was repaid in full, together with related
accrued interest, on January 21, 2003.
On January 15, 2003, the Company sold the Excelsior shares and the
Excelsior warrant to Sunshine III, LLC for total consideration of approximately
$648,000 in cash.
On September 30, 2002, the Board of Directors announced the adoption of
a plan of liquidation and dissolution in order to maximize stockholder value and
noted that if no suitable
22
business opportunities became available to it, subject to stockholder approval,
it would commence liquidation in 2003. However, the plan permits the Board of
Directors to amend, modify or abandon the plan, notwithstanding stockholder
approval, if the Board determines doing so would be in the best interests of the
Company and its stockholders.
On June 17, 2003, the individual filling the roles of President, Chief
Executive Officer and Chief Financial Officer of the Company resigned. The
former executive had an employment agreement dated September 17, 2001 governing
the terms and conditions of his employment. Upon such former executive's
resignation, the Company entered into the Separation Agreement. The Company will
pay the former executive the severance he is entitled to under the Separation
Agreement and has recorded a charge in the Statement of Operations for the three
months ended June 30, 2003 for the value of expected payments and benefits
payable to the former executive.
The Company announced on June 18, 2003 that it signed a Letter of
Intent in connection with its proposed Merger with Neurologix. In the event the
Merger is consummated, the Company expects to abandon the plan of liquidation
and dissolution. If the Merger is not consummated, the Company expects to pursue
the plan of liquidation and dissolution previously adopted.
On June 30, 2003, the Company sold to Textor Family Limited Partnership
all of the issued and outstanding shares of capital stock of Canned. As a result
of the divestiture, the Company has no continuing revenue generating operations.
OVERVIEW OF OPERATIONS
Canned Interactive was the Company's sole revenue generating subsidiary
from December 2001 through June 30, 2003. 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 designed interactive content for those titles,
enriching the viewer experience and creating value for Canned's clients. Canned
also used its design and technology skills to create and enhance web sites with
interactive and streaming content.
Agreements entered into in connection with time-and-materials projects
were generally terminable by the client upon 30-days' prior written notice, and
clients were required to pay the Company for all time, materials and expenses
incurred by the Company through the effective date of termination. Agreements
entered into in connection with fixed-price projects were generally terminable
by the client upon payment for work performed and the next progress payment due.
Canned's costs consisted primarily of compensation and related costs of
personnel dedicated to customer assignments. Project personnel costs also
included fees paid to subcontractors for work performed in connection with
projects and non-reimbursed travel expenses.
23
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 a former President and Chief Executive
Officer whose employment was terminated by the Board of Directors in July 2001.
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 equity based compensation is a charge, totaling
$90,000, associated with the modification of the former Chief Executive's
options upon his resignation in June 2003. The Company incurred approximately
$270,000 and $263,000 in equity based compensation expense during the six months
ended June 30, 2003 and 2002, respectively.
ACQUISITIONS AND DIVESTITURES
The Company evaluated 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.
INSYS. On November 8, 2001 the Company sold a 51% voting interest in
InSys, a wholly-owned subsidiary, to a member of its 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. This note bears interest at a rate equal to the London Interbank Offer
Rate plus 2%.
RAND INTERACTIVE CORPORATION. On November 2, 2001 the Company sold all
of the issued and outstanding shares of RAND, a wholly-owned subsidiary, to a
member of its management team in exchange for 375,039 shares of 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. The warrant has an aggregate
exercise price of $1.00, is exercisable upon the occurrence of certain events
and expires on November 3, 2013.
IGUANA. In connection with the acquisition of Iguana in March 2001,
2,300,000 shares of the Company's common stock were placed in escrow. The
related contingency period expired in July 2002, and the fair value of such
shares was included in the aggregate purchase price. 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. Accordingly, the Company recorded additional impairment charges in July 2002
totaling $69,000 representing the fair value of such shares.
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
24
$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.
Also in connection with the acquisition of Canned, $200,000 in cash and
715,172 shares of the Company's common stock were placed in escrow. The related
contingency period expired in December 2002, at which time the cash and the then
fair value of the shares, totaling $214,000, was included in the aggregate
purchase price.
On June 30, 2003, the Company sold all of the issued and outstanding
shares of the capital stock of Canned to Textor Family Limited Partnership in
exchange for 4,500,000 shares of the Company's common stock owned by Textor
Family Limited Partnership, with a fair market value of $170. In connection with
such sale, all Inter-Company Loans in excess of $300,000 were converted by the
Company into equity of Canned without the issuance to the Company of any
additional capital stock or the granting of any right to receive any additional
equity in Canned. Additionally, the Company received $300,000 from Canned as
payment in full of the outstanding Inter-Company Loans.
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
25
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.
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
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS AND SIX
MONTHS ENDED JUNE 30, 2003
REVENUES. In connection with the divestiture of Canned by the Company, revenues
are now included in discontinued operations.
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 were our primary source of
revenue. In connection with the divestiture of Canned by the Company, such costs
are now included in discontinued operations.
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 $1,777,000 in the three
months ended June 30, 2002 to $516,000 in the three months ended June 30, 2003
and from $1,858,000 in the six months ended June 30, 2002 to $1,545,000 in the
six months ended June 30, 2003. This decrease was primarily a result of the
decreased rent expense associated with facilities abandoned in the second
quarter of 2002, and a decrease in professional services fees as a result of the
termination in 2002 of the proposed merger with Franklin.
EQUITY IN LOSSES AND IMPAIRMENT OF INVESTMENTS IN UNCONSOLIDATED AFFILIATES.
Equity in losses and Impairment of investments in unconsolidated affiliates was
$260,000 in the three months ended June 30, 2002 and $44,000 in the three months
ended June 30, 2003, and $582,000 in the six months ended June 30, 2002 and
$107,000 in the six months ended June 30, 2003. Equity in losses of
unconsolidated affiliates is a result of the Company's minority ownership in
Broadstream, NetPro and InSys that 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
26
result of the cessation of NetPro's and LiveSky's operations in 2002. The
Company evaluated the recoverability of its investments in light of the carrying
values relative to future cash flows. As a result of this analysis, in 2002 the
Company recorded impairment charges that reduced the remaining NetPro and
Livesky investment balances to $0.
INTEREST AND DIVIDEND INCOME. Interest and dividend income was $257,000 in the
three months ended June 30, 2002 and $13,000 in the three months ended June 30,
2003, and $407,000 in the six months ended June 30, 2002 and $69,000 in the six
months ended June 30, 2003. The decrease in interest and dividend income for the
six months ended June 30, 2003 was attributable to a decrease in the Company's
notes receivable as a result of repayment. Interest income in future periods may
fluctuate as a result of the average cash the Company maintains and changes in
the market rates of the Company's cash equivalents. The Company expects 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 carry
forwards for income tax purposes of approximately $23,137,000 through the period
ended June 30, 2003, which expire on various dates from 2003 through 2023. A
full 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.
27
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 $7,252,000 in cash and cash equivalents available as of June 30,
2003, 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 June 30, 2003, the
Company has no revenue generating operations, a limited number of employees and
has significantly reduced fixed expenses. During the six months ended June 30,
2003, the Company used $1,008,000 to fund operations.
The Company's future contractual obligations at June 30, 2003 were as follows:
Amounts Due in Fiscal Year Ending December 31,
-----------------------------------------------------------------------------------------------------------
2007 and
2003 2004 2005 2006 Thereafter
------- ------- ------- ------- ----------
(in thousands)
Operating leases....................... $ 229 $ -- $ -- $ -- $ --
Capital Leases......................... 17 10 -- -- --
------- ------- ------- ------- -------
$ 246 $ 10 $ -- $ -- $ --
======= ======= ======= ======= =======
The Company intends to fund these obligations from its cash on hand at
June 30, 2003.
In January, 2003, the Company sold its shares of Excelsior common stock
and the Excelsior warrant to Sunshine III, LLC for total consideration of
approximately $648,000 in cash. Also in January, 2003 the $4,708,000 note from
Excelsior was repaid in full, together with related accrued interest totaling
$142,000.
Given the Company's current level of operations, the Company's capital
resources are sufficient to meet anticipated cash needs for working capital and
capital expenditures relating to existing operations for at least the next 12
months. However, the Company continues to review suitable business
opportunities. If the Merger is consummated, the plan of liquidation and
dissolution adopted by the Board is abandoned and the Company's operations
require significant cash outlays to fund operations, the Company may be required
to seek additional sources of financing or to sell certain assets.
28
If the plan of liquidation and dissolution adopted by the Board is
pursued, the Company will begin the process of negotiating settlements with
respect to its remaining obligations and liabilities. In the event the Company
is unable to negotiate successfully the termination of these obligations, the
Company may have less or no cash proceeds to distribute to its stockholders.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q,
including information with respect to the Company's future business plans,
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements, subject to a number of risks and
uncertainties that could cause actual results to differ significantly from those
described in this report. These forward-looking statements include statements
regarding, among other things, the Company's business strategy and operations,
future plans, future prospects, financial position, anticipated revenues or
losses and projected costs, and objectives of management. Without limiting the
foregoing, the words "may," "will," "should," "anticipates," "believes,"
"plans," "expects" and similar expressions are intended to identify
forward-looking statements. There are a number of important factors that could
cause the results of the Company to differ materially from those indicated by
such forward-looking statements. These factors include, but are not limited to,
those set forth in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2002, under Part I, Item 1.A "Risk Factors."
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 June 30, 2003, the Company held cash and cash equivalents with an
average maturity of 45 days or less.
ITEM 4 - CONTROLS AND PROCEDURES
As required by Rule 13a-15(b), the President, Chief Executive Officer
and Chief Financial Officer of the Company conducted an evaluation as of the end
of the period covered by this report, of the effectiveness of the Company's
disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e).
Based on that evaluation, the President, Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures were effective as of the end of the period covered by this report. As
required by Rule 13a-15(d), the President, Chief Executive Officer and Chief
Financial Officer of the Company also conducted an evaluation of the Company's
internal
29
control over financial reporting to determine whether any changes occurred
during the quarter covered by this report that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting. Based on that evaluation, there has been no such change
during the quarter covered by this report.
30
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 4, 2002 and incorporated herein by reference).
31
2.5 Plan of Liquidation and Dissolution of Change Technology Partners,
Inc., dated September 30, 2002 (filed as an exhibit to Registrant's
Report on Form 8-K dated October 2, 2002 and incorporated herein by
reference).
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 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).
10.5 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).
32
10.6 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).
10.7 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).
10.8 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).
10.9 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).
10.10 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).
10.11 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).
10.12 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).
10.13 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).
10.14 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).
10.15 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).
33
10.16 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).
10.17 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).
10.18 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).
10.19 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).
10.20 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).
10.21 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).
10.22 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 4, 2002 and
incorporated herein by reference).
10.23 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 4, 2002
and incorporated herein by reference).
10.24 Purchase Agreement between Sunshine III, LLC and Change Technology
Partners, Inc., dated January 15, 2003 (filed as an exhibit to the
Registrant's Report on Form 8-K dated January 17, 2003 and incorporated
herein by reference).
10.25 Stock Purchase Agreement by and among Textor Family Limited
Partnership, Canned Interactive, Inc., Douglas Textor and Change
Technology Partners, Inc. dated as of June 30, 2003 (filed as an
exhibit to the Registrant's Report on Form 8-K dated July 15, 2003 and
incorporated herein by reference).
10.26 Separation Agreement and General Release by and between Change
Technology Partners, Inc. and William B. Avery, dated as of June 17,
2003.
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
34
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) The following reports on Form 8-K were filed with the SEC
during the second quarter of 2003:
(i) On June 18, 2003 reporting matters under Item 5,
Other Events, and Item 7, Financial Statements and Exhibits.
(ii) On July 15, 2003 reporting matters under Item 2,
Acquisition or Disposition of Assets, and Item 7, Financial Statements and
Exhibits.
35
ITEM 7 - 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: August 14, 2003
CHANGE TECHNOLOGY PARTNERS, INC.
By: /s/ Michael Gleason
---------------------------------------
Michael Gleason
President, Chief Executive Officer and
Chief Financial Officer
36