UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended March 31, 2000
[ ] 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
Arinco Computer Systems Inc.
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(Name of small business issuer in its charter)
New Mexico 85-0272154
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification no.)
20 Dayton Avenue, Greenwich, Connecticut 06830
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(Address of principal executive offices) (Zip Code)
(203) 661-6942
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(Issuer's telephone number, including area code)
Not Applicable
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(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 [ ] No [X]
The number of shares of the Registrant's common stock outstanding at May 8, 2000
was approximately 44,958,000.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
This amended and restated quarterly Form 10-QSB/A of the Company for the period
ended March 31, 2000 reflects only a change in the presentation of the sale of
Series B redeemable preferred stock. The accounting for this transaction has
been revised to reflect (a) the allocation of the total gross proceeds of $40.0
million to the beneficial conversion feature related to the preferred stock, and
(b) the amortization, in full, at the date of issuance of the beneficial
conversion feature. These revisions had no impact upon net loss for the period,
but increased net loss applicable to common shares from $10 million previously
reported to $40.0 million as revised. In addition, the Company has revised its
computation of the weighted average shares used in the basic and diluted
computation -- see Note 2 to the unaudited condensed financial statements.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 - CONDENSED INTERIM FINANCIAL STATEMENTS
Unaudited Condensed Balance Sheet as of March 31, 2000.............. 1
Unaudited Condensed Statement of Operations for the three months
ended March 31, 2000 and 1999....................................... 2
Unaudited Condensed Statement of Cash Flows for the three months
ended March 31, 2000 and 1999....................................... 3
Notes to Unaudited Condensed Financial Statements................... 4
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF PLAN OF OPERATION................................................ 7
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK................................................... 8
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS................................................... 9
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS........................... 9
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES..................................... 9
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ................ 10
ITEM 5 - OTHER INFORMATION................................................... 10
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K ................................... 10
ITEM 7 - SIGNATURES.......................................................... 11
ii
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
ARINCO COMPUTER SYSTEMS INC.
UNAUDITED CONDENSED BALANCE SHEET
MARCH 31, 2000
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 40,249,000
--------------
Total assets $ 40,249,000
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 558,000
--------------
Total current liabilities $ 558,000
REDEEMABLE PREFERRED STOCK
Series B - convertible into common,
as defined; $.10 par value; authorized
4,000,000 shares; issued and outstanding,
3,000,000 shares 30,000,000
STOCKHOLDERS' EQUITY
Preferred stock
Series A - $.06 per share cumulative, convertible
share-for-share into common stock -
$.10 par value; authorized, 500,000 shares;
issued and outstanding, 3,000 shares --
Common stock
$.01 par value; authorized,45,000,000 shares;
issued and outstanding, 44,958,000 shares 449,000
Additional paid-in capital 51,709,000
Subscription receivable (100,000)
Accumulated deficit (42,367,000)
--------------
Total stockholders' equity 9,691,000
--------------
Total liabilities and stockholders' equity $ 40,249,000
==============
See accompanying notes to unaudited
condensed financial statements
1
<PAGE>
ARINCO COMPUTER SYSTEMS INC.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
MARCH 31,
2000 1999
------------- -------------
Operating expenses - general
and administrative $ 4,000 $ 3,000
------------ ------------
Operating loss (4,000) (3,000)
Other income (expense)
Interest income -- 2,000
Unrealized gain (loss) on
trading securities -- 45,000
------------ ------------
-- 47,000
------------ ------------
NET INCOME / LOSS $ (4,000) $ 44,000
============ ============
Preferred stock dividend requirement -- (6,000)
Deemed dividend attributable to issuance
of convertible preferred stock (40,000,000) --
------------ ------------
Net income (loss) applicable to
common stockholders $(40,004,000) $ 8,000
============ ============
Basic and diluted net income (loss)
per common share $ (6.37) $ .01
============ ============
Weighted average of common shares
outstanding, basic and diluted 6,277,000 4,541,000
============ ============
See accompanying notes to unaudited
condensed financial statements
2
<PAGE>
ARINCO COMPUTER SYSTEMS INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31,
2000 1999
------------- -------------
Cash flows from operating activities
Net income (loss) $ (4,000) $ 4,000
Adjustments to reconcile net
earnings to net cash used in
operating activities:
Changes in operating assets and
Liabilities:
Accounts receivable 1,000 --
Accounts payable and accrued
liabilities 557,000 2,000
------------ ------------
Net cash provided by (used in)
operating activities 554,000 46,000
Cash flows from investing activities
Decrease (increase) in trading
Securities (including unrealized
appreciation of $45,000 in 1999) 112,000 (55,000)
Advances on related party note
receivable -- (20,000)
Receipts on related party note
receivable -- 36,000
------------ ------------
Net cash provided by (used in)
investing activities 112,000 (39,000)
Cash flows from financing activities
Bank overdraft -- (2,000)
Issuance of Series B preferred stock
and warrants, net of offering costs 39,450,000
------------ ------------
Net cash provided by (used in)
financing activities 39,450,000 (2,000)
------------ ------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 40,116,000 5,000
Cash and cash equivalents at
beginning of period 133,000 173,000
------------ ------------
Cash and cash equivalents at
end of period $ 40,249,000 $ 178,000
============ ============
See accompanying notes to unaudited
condensed financial statements
3
<PAGE>
ARINCO COMPUTER SYSTEMS INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2000
1. ORGANIZATION AND BASIS OF PRESENTATION
Interim Results
The accompanying unaudited condensed balance sheet as of March 31, 2000 and the
accompanying statements of operations and cash flows for the periods ended March
31, 2000 and 1999 have been prepared by the Company. In the opinion of
management, the accompanying condensed financial statements have been prepared
on the same basis as the annual 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 generally accepted accounting principals applicable to interim
periods.
While the Company believes that the disclosures presented are adequate to make
the information not misleading, these condensed financial statements should be
read in conjunction with the audited financial statements and related notes for
the year ended December 1, 1999, which are contained in the Company's Annual
Report on Form 10-KSB. The results for the three months ended March 31, 2000 are
not necessarily indicative of the results to be expected for the full fiscal
year or for any future periods.
2. BASIC AND DILUTED NET EARNINGS (LOSS) PER COMMON SHARE
Basic net (loss) / income per common share excludes the effect of potentially
dilutive securities and is computed by dividing net income or loss available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted net (loss) / income 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.
At March 31, 2000, outstanding warrants to purchase 41,250,000 shares of common
stock 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.
Similarly, the computation of diluted net loss per share excludes the effect of
120,000,000 shares issuable upon the conversion of redeemable convertible
preferred stock, since their inclusion would have had an antidilutive effect. As
a result, the basic and diluted net loss per share amounts are equal for all
periods presented.
The following are the basic and diluted net loss per common share for the three
months ended March 31, 2000 and the weighted average shares used in the basic
and diluted net loss per share computation as previously reported and as
revised.
4
<PAGE>
AS AS PREVIOUSLY
REVISED REPORTED
------------ -------------
Weighted average shares used in basic and
diluted net loss per share computation 6,277,000 6,716,000
Net earnings (loss) applicable to common
shares (see "capitalization," below) $(40,004,000) $(10,014,000)
------------ ------------
Basic and diluted net loss per share $ (6.37) $ (1.49)
============ ============
3. CAPITALIZATION
The presentation of the sale of Series B redeemable convertible preferred stock
has been revised to reflect (a) the allocation of the total gross proceeds of
$40.0 million to the beneficial conversion feature related to the preferred
stock, and (b) the amortization, of the beneficial conversion feature in full,
at the date of issuance.
On March 28, 2000, an investor group led by Pangea Internet Advisors, LLC
purchased 4,000,000 shares of Series B convertible preferred stock ("Series B
stock") for net proceeds to the Company of $39,450,000 in cash. Each share of
Series B stock is convertible into 40 common shares, and the Series B stock,
collectively, represents approximately 77% of the voting interest of the Company
on a fully diluted basis. If by December 31, 2000 the Company's authorized
common stock had not been increased to provide for the conversion of all Series
B shares, holders of 50% of the Series B stock could require the Company to
redeem all such series B stock at $10 per share on demand. Accordingly, Series B
stock was classified as temporary equity until shareholder approval had been
obtained to sufficiently increase the number of authorized common shares.
Also, on March 28, 2000 certain investors purchased warrants ("Warrants") to
purchase 41,250,000 shares of common stock for $100,000. Of these Warrants, 20%
have an exercise price of $.25 per share, 30% have an exercise price of $.50 per
share, 30% have an exercise price of $.75 per share and 20% have an exercise
price of $1.00 per share. The Warrants are exercisable at the election of the
holder for a period of five years.
The difference between the value of the Series B on an as if converted basis of
$0.25 and $4.88 (the fair value of common stock on the date of issuance), or
$4.63, multiplied by the number of shares of Series B on an as if converted
basis represents the intrinsic value of the beneficial conversion feature, which
totaled approximately $185 million. However, as the intrinsic value of the
beneficial conversion feature is greater than the $40.0 million in gross
proceeds received from the Series B preferred stock issuance, the amount of the
discount attributed to the beneficial conversion feature is limited to the $40.0
million of gross proceeds received. The beneficial conversion feature was
recorded in the quarter ended March 31, 2000 as a non-cash preferred stock
dividend as the Series B convertible preferred stock is effectively convertible
at the option of the preferred stockholders. The $40.0 million non-cash dividend
increased the Company's net loss attributable to common stockholders by the same
amount.
5
<PAGE>
The following are the deemed dividend attributable to issuance of convertible
preferred stock and the net loss applicable to common shares for the three
months ended March 31, 2000 as previously reported and as revised.
AS AS PREVIOUSLY
REVISED REPORTED
------------ -------------
Deemed dividend attributable to issuance of
convertible preferred stock (40,000,000) (10,010,000)
Net earnings (loss) applicable to common
shares (40,000,000) (10,010,000)
4. CHANGES IN EQUITY
The following table represents changes to the Company's equity accounts for the
three months ended March 31, 2000.
<TABLE>
<CAPTION>
SERIES B
REDEEMABLE
CONVERTIBLE SERIES A COMMON
PREFERRED PREFERRED STOCK
------------ ------------ -----------
<S> <C> <C> <C>
Balance at January 1, 2000.............. $ -- $ -- $ 49,000
Issuance of Preferred Stock and
warrants 40,000,000 -- --
Beneficial conversion feature
related to redeemable preferred
stock (40,000,000) -- --
Amortization of beneficial
conversion feature 40,000,000 -- --
Conversion of 1,000,00 Series B
preferred shares to 40,000,000
common shares (10,000,000) -- 400,000
------------ ----------- -----------
Balance at March 31, 2000 $ 30,000,000 $ -- $ 449,000
============ =========== ===========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN SUBSCRIPTION ACCUMULATED
CAPITAL RECEIVABLE DEFICIT
------------ ----------- -------------
<S> <C> <C> <C>
Balance at January 1, 2000 $ 2,559,000 $ - $ (2,363,000)
Issuance of preferred stock
and warrants.......... 100,000 (100,000) --
Offering costs related to preferred stock
and warrants.......... (550,000) -- --
Beneficial conversion feature
related to redeemable preferred
stock and warrants 40,000,000 -- --
Amortization of beneficial
conversion feature -- -- (40,000,000)
Conversion of 1,000,000 series B
preferred shares to 40,000,000
common shares 9,600,000 -- --
------------ ----------- ------------
Net loss................... -- -- (4,000)
Balance at March 31, 2000.. $ 51,709,000 $ (100,000) $(42,367,000)
============ =========== ============
</TABLE>
5. RELATED PARTY TRANSACTIONS
During the period ended March 31, 2000 the Company incurred legal fees in
connection with certain transactions and other matters in the normal course of
business. These services were provided by a firm of which a member of the Board
of Directors of the Company is a partner. Fees paid to this firm totaled
approximately $550,000 in the three month period ended March 31, 2000.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
THE FOLLOWING DISCUSSION OF THE PLAN OF OPERATIONS OF THE COMPANY CONTAINS
FORWARD-LOOKING STATEMENTS RELATING TO FUTURE EVENTS AND THE FUTURE PERFORMANCE
OF THE COMPANY WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933,
AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
STOCKHOLDERS ARE CAUTIONED THAT SUCH STATEMENTS INVOLVE RISKS AND UNCERTAINTIES.
THE COMPANY'S ACTUAL RESULTS AND TIMING OF CERTAIN EVENTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS AND ELSEWHERE IN THIS REPORT AND THE COMPANY'S OTHER
PUBLIC FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
7
<PAGE>
As the Company has not had revenues from operations in the fiscal year ended
December 31, 1999 and the three months ended March 31, 2000, the following
represents management's plans of operations for the next twelve months.
The Company is presently without revenues or significant cash flows from
operations. The Company plans to commence engaging in its primary activity,
which will be the acquisition and operation of enterprises that are, or propose
to be, engaged in businesses relating primarily to the Internet, e-commerce and
related technologies. The Company intends to begin acquiring controlling
interests in and actively managing companies that offer significant potential
for growth, profitability and value creation.
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL CONDITION
The Company invests predominantly in instruments that are highly liquid,
investment grade securities and have maturities of less than 45 days.
Management anticipates that it will experience a substantial increase in its
capital expenditures and lease commitments consistent with its anticipated
growth in operations, infrastructure and personnel and possible acquisitions.
The Company currently anticipates that it will continue to experience
significant growth in its operating expenses for the foreseeable future and that
its operating expenses will be a material use of its cash resources. The Company
believes that its existing cash and cash equivalents and investments will be
sufficient to meet its anticipated cash needs for working capital and capital
expenditures for at least the next twelve months.
Management believes that cash on hand and trading securities of approximately
$40,249,000 is sufficient to meet the Company's cash requirements for the next
twelve months, which are expected to consist of (1) payments to management and
consultants under employment and consulting agreements, (2) investments in
target companies and related expenses and (3) general administrative expenses.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The primary objective of our investment activities is to preserve principal
while at the same time maximizing yields without significantly increasing risk.
To achieve this objective, we maintain our portfolio of cash equivalents and
investments in government securities and money market funds.
As of March 31, 2000, we held cash and cash equivalents and investments in
marketable securities with average days to maturity of 30 days. We did not hold
derivative financial instruments as of March 31, 2000, and have never held these
instruments in the past.
8
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to certain legal claims from time to time and is involved
in litigation that has arisen 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
On March 28, 2000, the Company sold (the "Offering") 40,000,000 shares of the
Company's Series B Redeemable Convertible Preferred Stock, par value $.10 per
share (the "Series B Preferred Stock"), to principals of Pangea Internet
Advisors LLC ("Pangea Advisors") and other investors (the "Investors") for an
aggregate offering price of $40,000,000. Also on March 28, 2000 certain
investors purchased warrants to purchase 41,250,000 shares of common stock for
$100,000. The Company claimed an exemption from registration under the
Securities Act of 1933, as amended (the "Securities Act"), for the Offering
pursuant to Regulation D promulgated under the Securities Act. Each share of
Series B Preferred Stock is convertible into Common Stock by the holder thereof
at any time at a rate equal to $10.00 divided by the conversion price in effect
from time to time (the "Conversion Price"). The Conversion Price is initially
$0.25 (resulting in an initial conversion rate of 40 shares of Common Stock for
each share of Series B Preferred Stock). The Conversion Price is subject to
adjustment in the event of stock dividends, stock splits, or a reorganization,
reclassification, consolidation or merger.
The Series B Preferred Stock will be automatically converted into Common Stock
at the then prevailing Conversion Price upon the occurrence of either (x) the
consummation of a public offering by the Company of its Common Stock resulting
in proceeds to the Company of at least $10,000,000 and where the per share
offering price is at least four times the then prevailing conversion price and
(y) the conversion into Common Stock of at least 60% of the number of shares of
Series B Preferred Stock originally issued. The Warrants expire in five years
and 20% of the Warrants have an exercise price of $.25 per share, 30% of the
Warrants have an exercise price of $.50 per share, 30% of the Warrants have an
exercise price of $.50 per share and 20% of the Warrants have an exercise price
of $1.00 per share.
In the event of a liquidation, dissolution or winding up of the Company, each
share of Series B Preferred Stock will be entitled to receive the greater of (i)
the sum of $10.00 plus any declared but unpaid dividends and (ii) the amount
such share would be entitled to receive on an "as if converted" basis. After
this preferential distribution has been made, all remaining assets shall be
distributed to the holders of shares of Common Stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
9
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY OLDERS
None
ITEM 5. OTHER INFORMATION
In connection with the Offering, four (4) new directors, designated by Pangea
Advisors, were appointed to the Company's board of directors, James A. Arias,
previously the Company's sole director, resigned and four (4) new executive
officers were appointed. Each of the new executive officers of the Company, Cary
S. Fitchey, William Avery, David M. Roberts, William P. O'Donnell and Frederick
G. Noell, entered into employment agreements with the Company. Pangea Advisors
and the Investors entered into a registration rights agreement with the Company.
Pangea Advisors entered into a business opportunity allocation and miscellaneous
service with the Company. Each of Walter A. Forbes, an Investor, and James A.
Arias entered into consulting agreements with the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
3.1 * Articles of Incorporation.
3.2 * Bylaws
4.1 ** Certificate of Designations of Series B Convertible
Preferred Stock of Arinco Computer Systems Inc.
4.2 ** Amendment to Certificate of Resignations of Series A
Convertible Preferred Stock of Arinco Computer
Systems Inc.
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.
10.2 ** 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.
10.3 ** Business Opportunity Allocation and Miscellaneous
Services Agreement by and among Arinco Computer
Systems Inc. and Pangea Internet Advisors LLC, dated
as of March 28, 2000.
10.4 ** Employment Agreements entered into by and between
Arinco Computer Systems Inc. and each of Cary S.
Fitchey, William Avery, David M. Roberts, William P.
O'Donnell and Frederick G. Noell.
10.5 ** 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
--------------------
10
<PAGE>
* Filed as an exhibit to the Registrant's Form 10 Registration
Statement and is incorporated herein by reference.
** Filed as an exhibit to the Registrant's Form 8-K dated March
28, 2000, and is incorporated herein by reference.
(b) Reports on Form 8-K:
The Registrant filed Forms 8-K dated March 6, 2000, March 10, 2000, and
March 28 during the quarter ended March 31, 2000, all reporting matters
under Item 5, Other Events.
There are no other exhibits specified in Item 601 of Regulation S-B to be
included with this filing.
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: January 5, 2001
ARINCO COMPUTER SYSTEMS INC.
(now known as Change Technology Partners, Inc.)
By: /s/ Matthew Ryan
--------------------------------------------
Matthew Ryan, President and
Chief Executive Officer
By: /s/ Frank Gallagi
--------------------------------------------
Frank Gallagi, Chief Financial Officer
11
