FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
the fiscal year ended December 31, 1997
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED
For the transition period from _____________ to
___________
Commission File Number: 0-13347
_______
ARINCO COMPUTER SYSTEMS INC.
______________________________________
(Exact of small business issuer in its charter)
New Mexico 085-0272154
_____________ ____________
(State or otherjurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
1650 University Blvd., N, S.E., Suite 100,
Albuquerque, New Mexico 897102
______________________________________________ ______
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 505-243-4949
____________
Securities registered pursuant to Section 12(b)
of the Act: None
Securities registered pursuant to Section
12(g) of the Act:
$0.001 Par Value Common Stock
_________________________________
(Title of Class)
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 if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB. X
______
State issuer's revenues for its most recent fiscal year. $16,000
_________
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock
was sold, or the average bid and asked prices of such stock, as of a
specified date within the past 60 days. (See definition of affiliate in
Rule 12b-2 of the Exchange Act). $117,795
________
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: $0.001
par value common stock, its only class of equity securities, as of
March 15, 1998, was: 4,396,000.
__________
PART I
Item 1. Business.
Arinco Computer Systems, Inc. (Arinco, Company or Registrant)
was incorporated under the laws of the State of New Mexico on March
31, 1978. Arinco is a publicly held, over-the-counter traded company
organized principally to serve its subsidiary operations.
On March 1, 1983, acquired a telephone inter-connect company which
had engaged in selling and installing telecommunications equipment in
commercial and governmental facilities. In July of 1987, operations
ceased when two creditors of the telephone inter-connect subsidiary
received the assets of the company. A negotiated settlement was
agreed upon because of continued default by the company in payment of
its secured obligations.
In July of 1985, the Registrant sold its interest in a
computer retail chain to a public company involved in a similar
business. Upon the default of the purchaser to meet its cash and
securities payment obligations to the Registrant, the Registrant
instituted suit and secured a judgment against the purchaser and
guarantor for the balance owing on notes, interest thereon, and
attorneys fees. In 1986, the purchaser filed bankruptcy and in 1987,
the guarantor filed bankruptcy. In 1995, the Registrant received an
interim distribution of $284,000 from the bankrupt estate of the
guarantor. During 1996, a creditor whose claim had been disallowed was
successful in having the order disallowing its claim set aside. If the
claim is subsequently allowed, the creditor could petition the court
to have the bankruptcy trustee recall the distribution; however, to
date, no action has been taken. Management believes court action
requiring recall of the distribution is unlikely; nevertheless, it
is reasonably possible that such an event will occur, although the
amount of the recall cannot currently be estimated.
At the end of the fiscal year ended December 31, 1995 the
Registrant was without any business, had assets consisting of $39,000
in cash and a receivable from a related party of $215,000 and had
liabilities of $572,000. At the end of the Fiscal Year ending December
31, 1996 it had assets consisting of $265,000 in cash and liabilities
of $610,000. The increase of liabilities and increase in assets from
the last fiscal period were due to the following actions and events.The
increase in cash assets was due to the Registrant's accumulation of
interest income earned from time deposits, while the increase of
liabilities resulted from accrued interest expense associated with
"Other Debt" (see Item 7. Financial Statements, Note D- Debt to
Nonrelated Parties).
Employees.
The Registrant currently has no employees who are compensated
for their efforts on behalf of the Registrant. The sole officer of the
Registrant is employed without compensation, but is to be reimbursed
all out of pocket expenses incurred by him on the Registrants business.
The Registrants' sole director is not paid for being a director
or for attending directors meetings, but is to be reimbursed all out of
pocket expenses incurred in attending such meetings. The time incurred
by Mr. Arias is minimal.
Item 2. Description of Properties.
The Registrant utilizes office space of a company managed by its
President and sole director, Mr. James A. Arias, at 1650 University
Blvd., N.E., Suite 5-100, Albuquerque, New Mexico 87102. The Registrant
is not presently paying rent for the use of this office space, however,
the space used is negligible.
Item 3. Legal Proceedings.
1. The Registrant has been subjected to the following judgments:
a) On July 21, 1988, a Judgment was entered in the First
Judicial District, County of Santa Fe, New Mexico for legal fees in
the amount of $5,869.97.
b) During fiscal 1987 pursuant to a Stipulation in the US
District Court of the Eastern District of New York, a prior supplier
of material to a formally owned subsidiary, obtained Judgment against
the Registrant in the amount of $245,738, plus interest.
These two judgments remain unpaid at the date of this Report.
2. In 1995, the Registrant received an interim distribution of
approximately $284,000 in connection with a bankruptcy case in which
the Registrant is a creditor. The bankruptcy case has not yet been
closed, however, no additional distributions are contemplated because
the remaining amounts are committed for administrative expenses and
recent settlement entered into by the Trustee.
A large creditor filed a motion to set aside a previous order
disallowing its claim based upon a lack of notice. The court set aside
the default order disallowing its claim, but parties in interest may
still object to the claim. The creditor threatened to take action in
February, 1996 and is continuing to attempt to recover previous
distrubutions but no action has been taken to date. Management
believes court action requiring recall of the distribution is unlikely;
nevertheless, it is reasonably possible that such an event will occur,
although the amount of the recall cannot currently be estimated.
Insofar as is known to the Company's management, there are no
other proceedings now pending, threatened, or contemplated, or
unsatisfied judgments outstanding which have not been provided for
in any court or agency to which the Company or any of its officers or
directors, in such capacity, are or may be a party, except as discussed
above.
Item 4. Submission of Matters to a Vote of Securities Holders.
No matters were submitted to a vote of shareholders during the
fourth quarter of the company's fiscal year.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Registrant's common stock has been listed in by the National
Daily Quotation Bureau, Inc. in its Pink Sheets and the OTC Bulletin
Board under the symbol "ARCS". The high and low bid prices during each
quarter of 1996 and 1997 are as follows
<TABLE>
Bid Prices Bid Prices
High Low High Low
____ ___ ____ ___
<S> <C> <C> <S> <C> <C>
March 31, 1997 $0.02 $0.01 March 31, 1996 $0.02 $0.01
June 30, 1997 $0.02 $0.01 June 30, 1996 $0.02 $0.01
September 30,1997 $0.02 $0.01 September 30,1996 $0.02 $0.01
December 31, 1997 $0.02 $0.01 December 31, 1996 $0.02 $0.01
</TABLE>
There were approximately 350 holders of the Registrant's common
stock on March 25, 1998.
The Registrant has never paid dividends on its common stock.
Item 6. Management's' Discussion and Analysis or Plan of Operations
Liquidity and Capital Resources.
________________________________
The Registrant's cash position improved during the past
fiscal year as a result of its earnings of interest on its time
deposits. The Registrant currently has approximately $270,000.
The Registrant's sole officer and director is
currently devoting his services, as needed, to the
Registrant without compensation. Other costs and expenses,
including legal and accounting costs are being paid from the cash
held by the Registrant. The Registrant may continue to operate in
a limited manner utilizing the funds it currently has. It is
believed that the Registrant has sufficient funds to maintain
its current activities, for the year ending December 31, 1998,
while it seeks to acquire or establish a new business.
Financial Condition and Changes in Financial Condition
_______________________________________________________
As stated above, the Registrant's cash position improved as
a result of interest income and liabilities increased as a
result of accrued interest expense during the fiscal year ended
December 31, 1997. At December 31, 1997, the Registrant had
assets of $270,000 Assets increased by $ 5,000 as a result of
interest on its time deposits. Liabilities increased $37,000 to
$ 647,000 at december 31, 1997 by the continuning accural of interest
on debt. Management believes that any additional debts and
expenses may be time barred from collection throught application of
the statutes of limitations and has retained the services to an
attorney to review the status of those debts and expenses and
furnish the Registrant an opinion relating to that matter.
Item 7. Financial Statements.
Report of Independent Certified Public Accountants
Shareholders and Board of Directors
Arinco Computer Systems, Inc.
We have audited the consolidated balance sheet of Arinco Computer
Systems, Inc. and Subsidiary, as of December 31, 1997, and the
related consolidated statements of operations, shareholders' deficit,
and cash flows for each of the two years in the period ended December
31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As disclosed in Note A to the consolidated financial statements, the
Company ceased operations upon the disposal of its subsidiary on
October 7, 1987. Although no formal plan of liquidation has been
adopted, no material business activity has occurred since October 7,
1987. As a result, the Company uses the liquidation basis of
accounting.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Arinco Computer Systems, Inc. and Subsidiary, as of December 31,
1997, and the consolidated results of their operations and their
consolidated cash flows for each of the two years in the period ended
December 31, 1997 in conformity with generally accepted accounting
principles.
As disclosed in Note A, the amounts which will ultimately be paid to
creditors in settlement of the obligations due them is not presently
determinable and such amounts may differ materially from the amounts
shown in the accompanying financial statements.
GRANT THORNTON LLP
Oklahoma City, Oklahoma
February 20, 1998
Arinco Computer Systems, Inc.
CONSOLIDATED BALANCE SHEET
December 31, 1997
ASSETS (note H)
CURRENT ASSETS
Cash $ 270,000
===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Debt (note C) $ 252,000
Accrued expenses 395,000
-----------
Total current liabilities 647,000
COMMITMENTS AND CONTINGENCIES (notes E, F, and G) -
SHAREHOLDERS' DEFICIT
Preferred stock, $.06 per share cumulative,
convertible share-for-share into common stock
- $.10 par value, $396,000 liquidation
preference; authorized, 5,000,000 shares;
issued and outstanding, 396,000 shares (note
E) 40,000
Common stock - $.01 par value; authorized,
4,500,000 shares; issued and outstanding,
4,396,000 shares (note E) 44,000
Additional paid-in capital
Preferred stock 1,250,000
Common stock 1,273,000
Accumulated deficit (2,984,000)
----------
(377,000)
----------
$ 270,000
==========
Arinco Computer Systems Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
1997 1996
------ ------
Operating expenses - general and administrative $ 3,000 $ 5,000
------ ------
Operating loss (3,000) (5,000)
Other (income) expense
Interest income (9,000) (16,000)
Interest expense 38,000 38,000
------ ------
29,000 22,000
------ ------
NET LOSS (32,000) (27,000)
Preferred stock dividend requirement 24,000 24,000
------ ------
NET LOSS APPLICABLE TO COMMON
SHARES $ (56,000) $ (51,000)
======== ========
Loss per common share (note B1)
BASIC AND DILUTED NET LOSS $ (.01) $ (.01)
======== ========
Weighted average of common
shares outstanding, basic and diluted 4,395,837 4,097,672
========= =========
The accompanying notes are an integral part of this statement.
Arinco Computer Systems, Inc.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
Years ended December 31, 1997 and 1996
Additional
paid-in capital
---------------
Preferred stock Common stock Preferred Common
--------------- ----------------
Shares Amount Shares Amount stock stock
------ ------ ------ ------ --------- --------
Balances at
1-1-1996 807,000 $81,000 4,085,000 $41,000 $1,282,000 $1,278,000
Net loss - - - - - -
Preferred stock
exchanged for
common stock (361,000) (36,000) 361,000 3,000 - 33,000
Retirement of
treasury stock (50,000) (5,000) (50,000) - (32,000) (38,000)
--------- -------- -------- ------- ----------- ---------
Balances at
12-31-1996 396,000 40,000 4,396,000 44,000 1,250,000 1,273,000
Net loss - - - - - -
-------- ------- --------- ------- ---------- ----------
Balances at
12-31-1997 396,000 $40,000 4,396,000 $44,000 $1,250,000 $1,273,000
======== ======= ========= ======= ========== ==========
The accompanying notes are an integral part of this statement.
Arinco Computer systems, Inc.
CONSOLIDATED STATEMENT OF SHAREHOLDERS" DEFICIT
Years ended December 31, 1997 and 1996
Accumulated Treasury stock
-----------------
deficit Shares Amount Total
------------ ------ ------ -----
Balances at
1-1-1996 $(2,925,000) 100,000 $(75,000) $(318,000)
Net loss (27,000) - - (27,000)
Preferred stock
exhganged for
common stock - - - -
Retirement of
treasury stock - (100,000) 75,000 -
----------- -------- --------- ---------
Balances at
12-31-1996 (2,952,000) - - (345,000)
Net loss (32,000) - - (32,000)
------------ -------- --------- ----------
Balances at
12-31-1997 $(2,984,000) - $ - $(377,000)
============ ======== ========= ==========
The accompanying notes are an integral part of this statement.
Arinco computer Systems, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
1997 1996
-------- ---------
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net loss $ (32,000) $ (27,000)
Adjustments to reconcile net loss to net
cash provided by operating activities
Changes in operating assets and liabilities
Accrued expenses 37,000 38,000
------- --------
Net cash provided by operating activities 5,000 11,000
Cash flows from investing activities
Repayments by related party - 215,000
------- --------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 5,000 226,000
Cash and cash equivalents at beginning of year 265,000 39,000
------- -------
Cash and cash equivalents at end of year $ 270,000 $ 265,000
======= =======
The accompanying notes are an integral part of these statments.
Arinco Computer Systems, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE A - ORGANIZATION
Arinco Computer Systems, Inc. (the "Company") was incorporated under
the laws of the State of New Mexico on March 31, 1978. The Company is
a publicly-held, over-the-counter traded company. The Company's
subsidiary, New Start, Inc., has no business operations, and
intercompany transactions and balances are eliminated in
consolidation.
Since inception, the Company has operated on minimal amounts of
invested capital and continuing losses have severely impaired the
Company's cash flow. The Company relinquished the assets of its
subsidiary on October 7, 1987 in settlement of two notes payable. The
Company has essentially ceased its operations, reduced its existence
to a shell corporation, and its activities consist primarily of paying
general and administrative costs. It is not presently determinable as
to what the ultimate settlement amounts with creditors will be and, as
such, may differ materially from the amounts shown in the financial
statements. Management will continue its efforts to improve the
Company's capital but does not anticipate developing a formal plan of
liquidation.
NOTE B - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied
in the accompanying consolidated financial statements follows.
1. Loss Per Common Share
Loss per common share has been computed using the weighted average
number of common shares outstanding during each period after deduction
of preferred stock dividends. Basic and diluted loss per share are
the same because the effect of warrants and convertible preferred
stock would be antidilutive.
2. Cash Accounts
The Company maintains its cash in bank deposit accounts which may
exceed federally insured limits. The Company has not experienced any
losses on such accounts and believes it is not exposed to any
significant credit risk on cash.
3. 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 amounts reported in the financial
statements and accompanying notes; accordingly, actual results could
differ from those estimates.
NOTE C - DEBT
Debt which was previously collateralized by substantially all of the
assets of the Company's former subsidiary bears interest at 15%. The
Company has defaulted on payment; accordingly, the amount is currently
due and payable.
NOTE D - INCOME TAXES
The following is a reconciliation between the Company's tax provision
to the tax computed at the statutory federal rate:
Year ended December 31,
-----------------------
1997 1996
------- ------
Tax benefit at statutory rate $ (11,000) $ (9,000)
State income taxes (1,000) (1,000)
Change in valuation allowance 16,000 10,000
Other (4,000) -
------- -------
$ - $ -
======= =======
As of December 31, 1997, the Company has net operating loss
carryforwards for financial reporting and income tax purposes as
follows:
Expiration date
2008 $ 65,000
2009 73,000
2011 27,000
2012 32,000
-------
$197,000
========
The Company's deferred tax assets and liabilities consist of the
following at December 31, 1997:
Net operating loss carryforward $ 79,000
Valuation allowance (79,000)
--------
Deferred tax liability $ -
========
The valuation allowance for deferred tax assets increased $16,000 and
decreased $105,000, respectively, for the years ended December 31,
1997 and 1996.
NOTE E - CAPITAL STOCK
1. Warrants
--------
In connection with a public offering of the Company's stock, warrants
to purchase 503,000 shares of its common stock at $1 per share, remain
outstanding at December 31, 1997.
2. Preferred Stock
---------------
The Company's preferred stock has full voting rights, accumulates $.06
per share cumulative dividends annually, and is convertible on a share-
for-share basis to the Company's common stock. Dividends on
outstanding preferred stock are payable annually each May 31 beginning
May 31, 1985. Dividends in arrears amount to $309,000 at December 31,
1997. Preferred stockholders are not entitled to payment of any
accrued but unpaid dividends existing at the time of a voluntary
conversion of such stock to common stock.
3. Exchange and Retirement of Stock
--------------------------------
In July 1996, 361,082 shares of outstanding preferred stock were
exchanged for 361,082 shares of the Company's $.01 par value common
stock under the share-for-share conversion rights of the preferred
stock. During 1996, the Company retired 50,000 shares of preferred
stock and 50,000 shares of common stock which was previously held as
treasury stock.
NOTE F - COMMITMENTS AND CONTINGENCIES
Management believes that certain liabilities formerly reported by the
Company are now time barred from collection and are no longer reported
as liabilities of the Company.
NOTE G - SETTLEMENT OF LITIGATION
On March 31, 1986, the Company filed a lawsuit against Pathfinder
Computer Centers Corporation and its organizers (defendants) seeking
the balance due of $450,000 on a note plus accrued interest
(guaranteed by Aaron D. and Jerilyn H. Silver). On February 14, 1990,
the Company settled the litigation and received settlement proceeds in
1995 of approximately $284,000. Subsequent to receipt of settlement
proceeds, a creditor whose claim had been disallowed in the defendants
bankruptcy proceedings was successful in having the order disallowing
its claim set aside. If the claim is subsequently allowed, the
creditor could petition the court to have the bankruptcy trustee
recall the settlement proceeds; however, to date, no action has been
taken. Management believes court action requiring recall of the
settlement proceeds is unlikely; nevertheless, it is reasonably
possible that such an event will occur, although the amount of the
recall cannot currently be estimated.
NOTE H - FINANCIAL INSTRUMENTS
The following table includes various estimated fair value information
as of December 31, 1997 as required by Statement of Financial
Accounting Standards ("SFAS") No. 107, "Disclosures About Fair Value
of Financial Instruments". Such information, which pertains to the
Company's financial instruments, is based on the requirements set
forth in SFAS No. 107 and does not purport to represent the aggregate
net fair value of the Company. The carrying amounts in the table
below are the amounts at which the financial instruments are reported
in the consolidated financial statements. All of the Company's
financial instruments are held for purposes other than trading.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
1. Cash
----
The carrying amount approximates fair value because of the short
maturity and highly liquid nature of those instruments.
2. Debt to Unrelated Parties
-------------------------
These amounts, which accrue interest at 15%, are past due the maturity
date and it is not practicable to estimate fair value.
The carrying amounts and estimated fair values of the Company's
financial instruments are as follows:
Carrying Estimated
amount fair value
-------- ----------
Financial assets
Cash $ 270,000 $270,000
Financial liabilities
Notes payable for which it is
not practicable to
estimate fair value (252,000) -
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ARINCO COMPUTER SYSTEMS INC..
s/James A. Arias
__________________________________________ Date: April 12, 1997
James A. Arias*, President and Chief
<F3> Executive Officer and
Chief Financial Officer
In accordance with the Exchange Act,, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
s/James A. Arias
____________________________________ Date: April 12, 1997
James A. Arias*., Director
<F3> *Only Mr. Arias is an officer or a director of the Registrant.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 270,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 270,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 270,000
<CURRENT-LIABILITIES> 647,000
<BONDS> 0
0
40,000
<COMMON> 44,000
<OTHER-SE> (461,000)
<TOTAL-LIABILITY-AND-EQUITY> 270,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,000
<INCOME-PRETAX> (32,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (56,000)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
