Edgar Filing: CHANGE TECHNOLOGY PARTNERS INC

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 September 30, 2001

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ____ to ____

COMMISSION FILE NUMBER: 0-13347

CHANGE TECHNOLOGY PARTNERS, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 06-1582875
(State or other jurisdiction of (I.R.S. Employer Identification no.)
incorporation or organization)

537 STEAMBOAT ROAD, GREENWICH, CONNECTICUT 06830
(Address of principal executive offices) (Zip Code)

(203) 661-6942
--------------
(Issuer's telephone number, including area code)

N/A
--------------
(Former names, former address and former fiscal year,
if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ].

The number of shares of the issuer's common stock outstanding on November 14,
2001 was approximately 179,397,920.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

ITEM 1 - CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets as of September 30,
2001 (unaudited) and December 31, 2000...............................2

Condensed Consolidated Statements of Operations for the three
months ended September 30, 2001 and 2000 (unaudited).................3

Condensed Consolidated Statements of Operations for the nine
months ended September 30, 2001 and 2000 (unaudited).................4

Consolidated Statements of Stockholders' Equity for the nine
months ended September 30, 2001 (unaudited)..........................5

Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2001 and 2000 (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.........................19

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .........24

PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS...................................................25

ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS...........................25

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES.....................................25

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................25

ITEM 5 - OTHER INFORMATION...................................................25

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K....................................25

ITEM 7 - SIGNATURES..........................................................28

PART I. - FINANCIAL INFORMATION
ITEM 1 - CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS:

CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands except share and per share amounts)

SEPTEMBER 30, DECEMBER 31,
2001 2000
--------------- -----------------
(Unaudited)

ASSETS
Cash and cash equivalents, including restricted cash of $200............. $ 11,079 30,333
Accounts receivable, net of allowances of $289 and $62
at September 30, 2001 and December 31, 2000, respectively............ 1,107 839
Unbilled receivables..................................................... 130 --
Related party receivable................................................. 293 --
Notes receivable......................................................... 2,314 --
Prepaid expenses and other current assets................................ 600 219
--------------- -----------------
Total current assets.................................. 15,523 31,391

Notes receivable, excluding current portion.............................. 333 --
Investments in and loans to unconsolidated subsidiaries.................. 581 4,893
Investment in warrant.................................................... 112 --
Property and equipment, net.............................................. 1,607 510
Purchased intangible assets and goodwill, net............................ 1,967 1,531
Other assets............................................................. 619 251
--------------- -----------------
Total assets.......................................... $ 20,742 38,576
=============== =================

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable......................................................... $ 338 347
Accrued expenses......................................................... 1,539 917
Deferred revenues........................................................ 93 79
Loan payable............................................................. 5 36
Capital lease obligation................................................. 89 --
--------------- -----------------
Total current liabilities............................. 2,064 1,379

Loan payable, excluding current portion.................................. 8 15
Capital lease obligation, less current portion........................... 154 --
Deferred rent............................................................ 9 --
--------------- -----------------
Total liabilities....................................... 2,235 1,394

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 and 3,000
shares issued and outstanding at September 30, 2001 and December 31,
2000, respectively, with an aggregate liquidation preference of $1 -- --

Series B - convertible into common on a 1:40 basis; $.10 par value;
4,000,000 shares authorized, 0 and 3,000,000 shares issued and
outstanding at September 30, 2001 and December 31, 2000,
respectively........................................................ -- 300

Common stock:
$.01 par value; 500,000,000 shares authorized, 179,397,920 and
44,959,000 shares issued and outstanding at September 30, 2001
and December 31, 2000, respectively............................... 1,793 449
Additional paid-in capital............................................ 94,540 86,821
Deferred compensation................................................. (979) (1,787)
Accumulated deficit................................................... (76,847) (48,601)
--------------- -----------------
Total stockholders' equity.............................. 18,507 37,182
--------------- -----------------
Total liabilities and stockholders' equity.............. $ 20,742 $ 38,576
=============== =================

See accompanying notes to unaudited condensed consolidated financial statements.

CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations
(in thousands except share and per share amounts)

THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------------------
2001 2000
------------------ -----------------

Revenues............................................................... $ 1,740 6
Cost of revenues, including amortization of purchased
intangibles of $423............................................. 2,527 --
------------------ -----------------
Gross profit (loss).................................. (787) 6

Operating expenses:
Selling, general, and administrative expenses exclusive of
equity based compensation of $159 in 2001......................... 2,967 988
Equity based compensation.............................................. 159 64
Impairment losses...................................................... 7,263 --
Severance charges...................................................... 1,326
------------------ -----------------
Total operating expenses............................. 11,715 1,052

Loss from operations................................. (12,502) (1,046)

Other income (expense):
Interest and dividend income....................................... 144 541
Interest expense................................................... (4) --
Equity in losses of unconsolidated affiliate....................... (1,838) (504)
------------------ -----------------
Net loss............................................. (14,200) (1,009)

Weighted average common shares outstanding,
basic and diluted................................................. 179,397,920 44,958,000
================== =================

Basic and diluted net loss per common share............................ $ (0.08) (0.02)
================== =================

See accompanying notes to unaudited condensed consolidated financial statements.

CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations
(in thousands except share and per share amounts)

NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------
2001 2000
--------------- -----------------

Revenues................................................................ $ 5,144 6
Cost of revenues, including amortization of purchased
intangibles of $864.............................................. 6,891 --
--------------- -----------------
Gross loss........................................... (1,747) 6

Operating expenses:
Selling, general, and administrative expenses exclusive of
equity based compensation of $2,953 in 2001..................... 10,788 1,462
Equity based compensation............................................... 2,953 64
Impairment losses....................................................... 7,263 --
Severance charges....................................................... 1,326 --
--------------- -----------------
Total operating expenses............................. 22,330 1,526

Loss from operations................................. (24,077) (1,520)

Other income (expense):
Interest and dividend income........................................ 754 997
Interest expense.................................................... (11) --
Equity in losses of unconsolidated affiliate........................ (4,912) (504)
--------------- -----------------
Net loss............................................. (28,246) (1,027)

Deemed dividend attributable to issuance of convertible preferred stock
and warrants....................................................... -- (40,100)
--------------- -----------------

Net loss attributable to
common stockholders............................. $ (28,246) (41,127)
=============== =================

Weighted average common shares outstanding,
basic and diluted.................................................. 124,594,731 32,258,000
=============== =================

Basic and diluted net loss per common share............................. $ (0.23) (1.27)
=============== =================

See accompanying notes to unaudited condensed consolidated financial statements.

CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES

Unaudited Consolidated Statements of Stockholders' Equity
Nine Months Ended September 30, 2001
(Dollars in thousands)

SERIES A SERIES B ADDITIONAL
PREFERRED STOCK PREFERRED STOCK COMMON STOCK PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
------ ------ ------ ------ ------ ------ ------- ------------

Balance at December 31, 2000 ... 3,000 $ -- 3,000,000 $ 300 44,959,000 $ 449 $ 86,821 $ (1,787)

Amortization of deferred
compensation .............. -- -- -- -- -- -- -- 488

Forfeiture of unvested options . -- -- -- -- -- -- (320) 320

Acquisition of Iguana
Studios, Inc. .................. -- -- -- -- 2,700,000 27 2,958 --

Settlement of stock award to
CEO of eHotHouse, Inc. ......... -- -- -- -- 3,144,494 31 2,434 --

Acquisition of outstanding
minority interest of
eHotHouse, Inc. ............ -- -- -- -- 2,155,519 22 2,658 --

Acquisition of Canned
Interactive, Inc. ......... -- -- -- -- 6,436,552 64 889 --

Conversion of series A
preferred shares to common ..... (2,355) -- -- -- 2,355 -- -- --

Conversion of series B
preferred shares to common ..... -- -- (3,000,000) (300) 120,000,000 1,200 (900) --

Net loss ....................... -- -- -- -- -- -- -- --
-----------------------------------------------------------------------------------------------------
Balance at September 30, 2001 .. 645 $ -- -- $ -- 179,397,920 $1,793 $ 94,540 $ (979)
====== ======== ======= ======= =========== ====== ======== =========

TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------- ------

Balance at December 31, 2000 ... $ (48,601) $ 37,182

Amortization of deferred
compensation .............. -- 488

Forfeiture of unvested options . -- --

Acquisition of Iguana
Studios, Inc. .................. -- 2,985

Settlement of stock award to
CEO of eHotHouse, Inc. ......... -- 2,465

Acquisition of outstanding
minority interest of
eHotHouse, Inc. ............ -- 2,680

Acquisition of Canned
Interactive, Inc. ......... -- 953

Conversion of series A
preferred shares to common ..... -- --

Conversion of series B
preferred shares to common ..... -- --

Net loss ....................... (28,246) (28,246)
-------------------------------
Balance at September 30, 2001 .. $ (76,847 $ 18,507
========= =========

See accompanying notes to unaudited condensed consolidated financial statements.

CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)

NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
2001 2000
--------------- ---------------

Cash flows from operating activities:
Net loss......................................................................... $ (28,246) $ (1,027)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................................... 2,639 --
Provision for doubtful accounts............................................. 212 --
Equity based compensation................................................... 2,953 64
Equity in losses of unconsolidated subsidiary............................... 4,912 504
Accretion of loan discount.................................................. (9) --
Impairment loss............................................................. 7,263 --
Loss on disposal of equipment............................................... 19 --
Other....................................................................... -- 31
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable...................................................... 151 --
Related party receivable................................................. (293) --
Unbilled receivables..................................................... (28) --
Prepaid expenses and other assets........................................ (293) (331)
Deferred revenue......................................................... (133) --
Accounts payable and accrued liabilities................................. (44) 188
Deferred rent............................................................ 9 --
--------------- ---------------
Net cash used in operating activities.............................. (10,888) (571)

Cash flows from investing activities:
Decrease in trading securities................................................. -- 112
Purchase of other assets -- (113)
Purchase of property and equipment............................................. (662) --
Sale of property and equipment................................................. 4 --
Notes receivable and warrant................................................... (3,350) --
Cash paid for equity investments and acquisitions, net of cash acquired........ (4,076) 6,500
--------------- ---------------
Net cash used in investing activities.............................. (8,084) (6,501)

Cash flows from financing activities:
Principal payments under capital leases........................................ (23) --
Principal payments under loans payable......................................... (259) --
Issuance of series B preferred stock and warrants,
net of offering costs..................................................... -- 39,550
--------------- ---------------
Net cash provided by (used in) financing activities................ (282) 39,550

Net increase (decrease) in cash and cash equivalents............... $ (19,254) $ 32,478

Cash and cash equivalents at beginning of period.................................... $ 30,333 $ 133
--------------- ---------------

Cash and cash equivalents at end of period, including
restricted cash of $200...................................................... $ 11,079 $ 32,611
=============== ===============

See accompanying notes to unaudited condensed consolidated financial statements.

CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES

Notes to Unaudited Interim Condensed Financial Statements
September 30, 2001

(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

During 2000 and the nine months ended September 30, 2001, Change Technology
Partners, Inc. and its subsidiaries (collectively, the "Company") have 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 with offices in New York, Connecticut,
Maryland, California and New Jersey.

Arinco Computer Systems Inc., the predecessor to the Company, was incorporated
on March 31, 1978. However, the Company formally commenced implementation of its
business plan on June 15, 2000.

At September 30, 2001, the Company's consolidated subsidiaries are as follows:

o InSys Technology, Inc.
o RAND Interactive Corporation
o Iguana Studios, Inc.
o Canned Interactive, Inc.

In July 2001, the Board of Directors terminated the employment of the Company's
President and Chief Executive Officer. The former executive had an employment
agreement dated August 21, 2000 that provided for severance benefits. The
Company will pay the former executive the severance he is entitled to under his
employment agreement and has incurred a charge totaling $493,000, which is
included in severance charges in the Statement of Operations for the three
months ended September 30, 2001. Additionally, the Company has recorded an
impairment loss in the amount of $2,250,000 reflecting the impact of the
executive's termination upon the carrying value of certain acquired intangible
assets, and has reversed certain deferred compensation related to unvested
options that were forfeited in connection with the termination. The impairment
loss is included in impairment losses in the accompanying Statement of
Operations.

During the quarter ended September 30, 2001, the Board of Directors voted to
divest the Company of certain of its existing operations. Simultaneous with the
divestiture, the Company is evaluating new strategic business and investment
opportunities.

During the quarter ended September 30, 2001, in response to continued
unfavorable market conditions for its services the Company embarked on a review
of all operations with the goal of formulating a course of action to minimize
near-term losses, capital expenditures, and reduce cash outflows. As an initial
course of action, during July and August 2001, the Company terminated the
employment of approximately 80% of its existing workforce.

As a result of the aforementioned terminations, coupled with the historical,
current, and projected operating and cash flow losses the Company evaluated the
recoverability of its acquired intangible assets and goodwill by comparison of
the carrying value relative to future cash flows. As a result, the Company
recorded impairment charges totaling $5,013,000, which is included in impairment
charges in the accompanying Statement of Operations.

CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES

Notes to Unaudited Interim Condensed Financial Statements
September 30, 2001

Also as a result of the aforementioned terminations, the Company incurred
severance charges of $1,326,000, which are included in severance charges in the
accompanying Statement of Operations. $514,000 of this amount accrued has been
paid as of September 30, 2001.

INTERIM RESULTS

The accompanying unaudited condensed consolidated balance sheet as of September
30, 2001, the unaudited condensed consolidated Statements of Operations and cash
flows for the periods ended September 30, 2001 and 2000, and the unaudited
consolidated statement of stockholders' equity as of September 30, 2001 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.

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 year ended December 31, 2000, which are contained in
the Company's Annual Report on Form 10-K/A. The results for the three month and
nine month periods ended September 30, 2001 are not necessarily indicative of
the results to be expected for the full fiscal year or for any future periods.

PRINCIPLES OF CONSOLIDATION

The accompanying unaudited condensed consolidated financial statements include
the accounts of Change Technology Partners, Inc. and its majority-owned and
controlled subsidiaries from the date of acquisition (see note 3). All
significant intercompany transactions and balances have been eliminated in
consolidation. Investments in less than majority-owned entities over which the
Company has significant influence are accounted for using the equity method.

Since the Company was the only contributor of capital to a majority owned
subsidiary, eHotHouse, Inc., ("eHotHouse") and the minority interest holders had
no obligation to provide additional capital, 100% of those losses were included
in the Company's results for the period prior to the Company's acquisition of
the outstanding minority interest in February, 2001. In May, 2001, eHotHouse
merged with and into Change Technology Partners, Inc.

REVENUE RECOGNITION

Revenues are recognized for fixed price arrangements in the period services are
rendered using the percentage-of-completion method, based on the percentage of
costs incurred to date to total estimated projects costs, provided the Company
has the ability to produce reasonably dependable estimates, collection of the
resulting receivable is probable and no significant obligations remain. The
cumulative impact of any revision in estimates of the cost to complete and
losses on projects in process are reflected in the period in which they become
known.

CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES

Notes to Unaudited Interim Condensed Financial Statements
September 30, 2001

Revenues are recognized for time-and-materials based arrangements in the period
when the underlying services are rendered, provided collection of the resulting
receivable is probable and no significant obligations remain.

The Company generally enters into short-term, project specific contracts with
its clients who are generally billed in the same period in which services are
rendered. If services are rendered in advance of billings, the Company records
and presents the related amounts as unbilled revenue. If amounts are received in
advance of services being performed, the amounts are recorded and presented as
deferred revenues. Revenues exclude reimbursable expenses charged to customers.

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 are spent servicing client projects. Also included in
Cost of Revenues on the Statement of Operations for the three months and nine
months ended September 30, 2001 is the amortization of certain purchased
intangible assets, representing the value of customer relationships and
workforces acquired.

SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK

Financial instruments that subject the Company to credit risks consist primarily
of cash and cash equivalents, notes receivable, and trade accounts receivable.
Cash and cash equivalents consist of deposits, money market funds, and
investments in short term "AAA" rated debt instruments. The Company performs
ongoing credit evaluations, generally does not require collateral, and
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of customers, historical trends, and other information. To date,
such losses have been within management's expectations.

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.

At September 30, 2001, outstanding warrants to purchase 41,250,000 shares of
common stock with a weighted average exercise price of $0.63 per share, and
8,653,909 outstanding options to purchase common stock with a weighted average
exercise price of $0.19 per share 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. As a result, the basic and diluted net loss
per share is equal for all periods presented.

SEGMENT REPORTING

Although the Company is currently divesting itself of certain of its existing
operations (see note 7) and evaluating other business opportunities, it has
historically offered, largely through its acquired businesses, a wide variety of
professional consulting services such as e-services, technology services and
systems integration. Management does not manage its operations by product
offerings, but instead views the

CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES

Notes to Unaudited Interim Condensed Financial Statements
September 30, 2001

Company as one operating segment when making business decisions, with one
operating decision maker, the Chief Executive Officer. The Company manages its
operations as a cross-disciplinary integrated solutions provider, which attempts
to bring forth a coordinated service offering to its clients.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2000, the Financial Accounting Standards Board (FASB) issued SFAS No.
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an Amendment of FASB Statement No. 133." SFAS No. 138 was issued to
address a limited number of issues causing implementation difficulties for
entities that apply SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," issued in June 1998. SFAS No. 133 and SFAS No. 138 require
that all derivatives be measured at fair value and recognized as assets or
liabilities on the balance sheet. Changes in the fair value of derivatives
should be recognized in either net income (loss) or other comprehensive income
(loss), depending on the designated purpose of the derivative. The Company
adopted SFAS No. 133 and SFAS No. 138 in the first quarter of 2001. Adoption of
these pronouncements did not have a material impact on the Company's results of
operations, cash flows or financial position.

In July 2001 FASB issued SFAS No. 141 "Business Combinations" and SFAS No. 142
"Goodwill and Other Intangible Assets." SFAS No. 141 requires business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting, and broadens the criteria for recording
intangible assets separate from goodwill. Recorded goodwill and intangibles will
be evaluated against this new criteria and may result in certain intangibles
being subsumed into goodwill, or alternatively, amounts initially recorded as
goodwill may be separately identified and recognized apart from goodwill. SFAS
No. 142 requires the use of a nonamortization approach to account for purchased
goodwill and certain intangibles. Under a nonamortization approach, goodwill and
certain intangibles will not be amortized into results of operations, but
instead would be reviewed for impairment and written down and charged to results
of operations only in the periods in which the recorded value of goodwill and
certain intangibles is more than its fair value. The provisions of each
statement that apply to goodwill and intangible assets acquired prior to
September 30, 2001 will be adopted by the Company on January 1, 2002. Because of
the extensive effort needed to comply with adopting statements 141 and 142, it
is not practicable to reasonably estimate the impact of adopting these
statements on the Company's financial statements at the date of this report,
including whether any transitional impairment losses will be required to be
recognized as the cumulative effect of a change in accounting principle.

In August 2001, the FASB issued FASB Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
Statement 144 requires an entity to test an asset for recoverability whenever
events or changes in circumstances indicate that the entity may not be able to
recover the asset's carrying amount. Companies are required to adopt Statement
144 for fiscal years beginning after December 15, 2001, therefore the Company
plans to adopt this statement on January 1, 2002. The adoption of SFAS No. 144
is not expected to have a significant impact on the Company's financial position
or results of operations.

CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES

Notes to Unaudited Interim Condensed Financial Statements
September 30, 2001

(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
as of September 30, 2001 (in thousands):

SEPTEMBER 30, 2001
--------------------------------------
CARRYING COST
VALUE BASIS
---------------- -----------------

Investment in and Loan to Broadstream, Inc............ $ 456 6,500
Investment in LiveSky, Inc.......................... 125 125
---------------- -----------------
Total......................................... $ 581 6,625
================ =================

INVESTMENT IN BROADSTREAM, INC.

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 $6.5 million.

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 the equity investee the Company has
assumed conversion of Series A in computing its share of losses of this
investee. The Company's proportionate share of Broadstream's net loss, totaling
$4,041,000 from the date of investment through September 30, 2001, and the
amortization of the excess of cost over the Company's proportionate interest in
the underlying equity, totaling $1,587,000 from the date of investment through
September 30, 2001, are included in equity in losses of affiliate in the
accompanying consolidated statement of operations.

In May 2001, Broadstream completed a recapitalization whereby all of the holders
of Series A exchanged their Series A shares for shares of Series A-1 Convertible
Redeemable Preferred Stock ("Series A-1"). The recapitalization modified the
conversion ratio, policies regarding dividends and voting rights for Series A-1
holders. No additional consideration was paid by the Company or any other Series
A-1 shareholder in connection with this transaction. As a result of the
recapitalization the voting interest of common shareholders was reduced from 31%
to 13%.

Also in May 2001, in connection with the recapitalization, the Company
transferred 1,191,569 Series A-1 shares to Adelson Investors, LLC, another
shareholder of Broadstream, as payment for certain financing-related services
performed by Adelson Investors 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. As a result of this non-reciprocal transfer of
shares the Company recorded a charge of $1,016,000, equal to the Company's cost
basis in such shares, which approximated fair value and has been included in
equity in losses of affiliate in the accompanying statement of operations.
Subsequent to the recapitalization and non-reciprocal share transfer, the
Company owned 6,434,596 shares of Series A-1

CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES

Notes to Unaudited Interim Condensed Financial Statements
September 30, 2001

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 $600,000 in connection with an aggregate
$1,600,000 bridge loan financing consummated by Broadstream. This amount is
included in investments in and loans to unconsolidated subsidiaries in the
accompanying balance sheet. The note earns interest at a rate of 8% per annum,
is redeemable by CTPI on December 31, 2001 or prior under certain circumstances
as defined. The aggregate bridge loan financing is secured by all of
Broadstream's assets. The note also contains certain conversion provisions in
the event Broadstream closes a new round of financing or enters into a change of
control transaction.

INVESTMENT IN ECOM CAPITAL, INC.

On August 28, 2001 the Company purchased a promissory note and warrant from eCom
Capital, Inc. ("eCom") for $2,250,000. eCom, a subsidiary of Franklin Capital
Corporation, recently purchased certain assets of Winstar Radio which produce,
syndicate and distribute radio programs and services. The note earns interest at
a rate of 8.5% per annum, matures on September 30, 2002 and is secured by most
of eCom's assets. The warrant to purchase 482,955 shares of eCom's common stock,
with a fair value of approximately $112,000, represents 11.1% of eCom's fully
diluted capital stock as of the date of issuance; it has an exercise price of
$1.125 per share.

The allocated fair value of the note receivable totaling $2,138,000 is included
in notes receivable in the accompanying balance sheet. Also included in notes
receivable is the periodic accretion of the note discount, totaling $9,000 for
the quarter ended September 30, 2001, which is charged to interest income in the
accompanying statement of operations.

The Company's management performs on-going reviews of its investments in
unconsolidated subsidiaries and, based on quantitative and qualitative measures,
assesses the need to record impairment losses when impairment indicators are
present. Among other factors, when assessing evidence of impairment, management
considers the proximity of its investments to the date of evaluation, the
current period operating cash flow loss and projections that demonstrate
continuing losses, the Company's commitments to provide ongoing financing, and
the expectations at the time of investment of significant operating losses in
the short and long term. Where impairment indicators are identified, management
determines the amount of any impairment charge by comparing the carrying value
of the investment and other intangible assets to their fair value. As of
September 30, 2001 the Company has not recognized any impairment charges in
relation to its unconsolidated affiliates.

The Company's monitoring process will continue on a prospective basis and the
facts and circumstances surrounding the relevant impairment factors evaluated by
management may change in subsequent periods given that the Company operates in a
volatile business environment. This could result in material impairment charges
in future periods. Additionally, the Company expects Broadstream to continue to
invest in development of their products and services and to recognize operating
losses which will result in future charges recorded by the Company to reflect
its proportionate share of such losses. These circumstances may significantly
reduce the carrying value of this investment.

CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES

Notes to Unaudited Interim Condensed Financial Statements
September 30, 2001

(3) ACQUISITIONS

ACQUISITION OF EHOTHOUSE, INC.

On September 15, 2000, the Company acquired majority voting control of eHotHouse
pursuant to a transaction where eHotHouse issued Series A Convertible
Participating Preferred Stock to the Company in exchange for $3 million in cash
and a covenant, by the Company, to issue 6,374,502 shares of the Company's
common stock as directed by eHotHouse. The operations of eHotHouse prior to
acquisition were deminimus, and the fair value of the identifiable net assets at
the time of acquisition approximated $0. Such transactions fully eliminate in
consolidation and do not impact the consolidated financial statements of the
Company. No consideration was provided to the existing shareholders of eHotHouse
in the transaction. Accordingly, this transaction effectively represented the
initial capitalization of eHotHouse and no goodwill was recorded. During the
period from September 2000 through February 2001 eHotHouse completed several
business combinations. However, eHotHouse did not exercise its right under the
aforementioned covenant to have the Company issue additional shares of the
Company's common stock.

In February 2001, the Company acquired the former Chief Executive Officer's (of
the Company and eHotHouse) shares of eHotHouse common stock in exchange for
approximately $182,000 in cash and 3,144,494 shares of Company common stock.
This transaction was accounted for as the settlement of a prior stock award and,
accordingly, the Company recognized $2.6 million in related compensation
expense, representing the excess of the fair value of the cash and Company
shares issued as settlement over the fair value of the eHotHouse shares on the
original date of grant. Of this amount, $2.5 million, representing the stock
portion of the settlement, was included in equity-based compensation in the
statement of operations for the nine months ended September 30, 2001.

Also in February 2001, the Company acquired the remaining outstanding minority
interest of its subsidiary, eHotHouse, for 2,155,519 shares of the Company's
common stock valued at $2.7 million and approximately $218,000 in cash. The
acquisition was accounted for using the purchase method of accounting and
accordingly, the purchase price was allocated to the pro rata portion of
tangible and intangible assets acquired on the basis of their respective fair
values on the date of acquisition. Of the total purchase price, approximately
$2.9 million was allocated to identified intangible assets, including the
assembled workforce. The fair value of acquired intangible assets was
capitalized and is being amortized over the estimated useful life of three
years. Related amortization for the nine months ended September 30, 2001 totaled
$648,000.

As a result of the aforementioned terminations, coupled with the historical,
current and projected operating and cash flow losses, the Company evaluated the
recoverability of its acquired intangible assets by comparison of the carrying
value relative to future cash flows. As a result, the Company recorded an
impairment charge totaling $2,250,000 which is included in impairment charges in
the accompanying statement of operations.

CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES

Notes to Unaudited Interim Condensed Financial Statements
September 30, 2001

ACQUISITION OF INSYS TECHNOLOGIES, INC.

On October 18, 2000, eHotHouse acquired substantially all of the operating
assets and assumed certain liabilities of InSys Technology, Inc. ("InSys"), a
provider of systems integration services, in exchange for $0.9 million in cash
including acquisition costs. The business combination was accounted for using
the purchase method.

As a result of the aforementioned terminations, coupled with the historical,
current and projected operating and cash flow losses, the Company evaluated the
recoverability of its acquired intangible assets by comparison of the carrying
value relative to future cash flows. As a result, the Company recorded
impairment charges totaling $105,000 which are included in impairment charges in
the accompanying statement of operations.

ACQUISITION OF RAND INTERACTIVE CORPORATION

On November 30, 2000, eHotHouse acquired all of the issued and outstanding
common stock of RAND Interactive Corporation ("RAND"), a provider of media and
technical services in exchange for $0.7 million of eHotHouse common stock and
$0.7 million in cash including acquisition costs. The business combination was
accounted for using the purchase method.

As a result of the aforementioned terminations, coupled with the historical,
current and projected operating and cash flow losses, the Company evaluated the
recoverability of its acquired intangible assets by comparison of the carrying
value relative to future cash flows. As a result, the Company recorded
impairment charges totaling $1,030,000 which are included in impairment charges
in the accompanying statement of operations.

ACQUISITION OF IGUANA STUDIOS, INC.

In March 2001, the Company acquired Iguana Studios, Inc. ("Iguana"), a New York
City-based interactive agency, for approximately $5.8 million, including $2.8
million in cash, 2,700,000 shares of the Company's common stock valued at
approximately $2.0 million, and replacement options to purchase 1,681,888 shares
of Company common stock, which vested upon the change in control, valued at
approximately $1.0 million.

The business combination was accounted for using the purchase method of
accounting and, accordingly, the total consideration was allocated to the
tangible and intangible assets acquired and liabilities assumed on the basis of
their respective fair values on the date of acquisition. The results of
operations of Iguana, and the estimated fair value of the assets acquired and
liabilities assumed are included in the Company's consolidated financial
statements from the date of acquisition. Of the total purchase price,
approximately $1.0 million was allocated to the net tangible assets acquired,
$1.3 million was allocated to identified intangible assets, including customer
base and assembled workforce, and the remainder was allocated to goodwill. The
fair value of the identified intangible assets was determined using an income
approach for the customer base, and the replacement cost approach for the
assembled workforce. The purchased intangible assets and goodwill are being
amortized over their estimated useful lives of three years. Related amortization
for the nine months ended September 30, 2001 totaled $936,000.

CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES

Notes to Unaudited Interim Condensed Financial Statements
September 30, 2001

Also in connection with the acquisition of Iguana 2,300,000 shares of the
Company's common stock were placed in escrow for a period to end no later than
June 2002. The then fair value of such shares will be included in the aggregate
purchase price if and when released from escrow, pending the outcome of the
contingency, as defined.

As a result of the aforementioned terminations, coupled with the historical,
current and projected operating and cash flow losses the Company evaluated the
recoverability of its acquired intangible assets and goodwill by comparison of
the carrying value relative to future cash flows. As a result of the Company
recorded impairment charges totaling $3,878,000 which are included in impairment
charges in the accompanying statement of operations.

ACQUISITION OF PAPKE-TEXTOR, INC.

In June 2001, the Company acquired Papke-Textor, Inc. d/b/a Canned Interactive
("Canned"), a Los Angeles-based media and entertainment interactive agency, for
approximately $1.1 million in cash, including acquisition costs, and 6,436,552
shares of the Company's common stock valued at approximately $1.0 million. The
business combination was accounted for using the purchase method of accounting.

The Company is in the process of finalizing its estimates that will be used in
the assignment of the purchase price to identified intangible and tangible
assets acquired and liabilities assumed. At September 30, 2001, these estimates
are not completed, and the entire Canned excess purchase price has been included
within intangible assets in the accompanying unaudited condensed balance sheet
and has been amortized using a preliminary estimated useful life of three years.

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 for a period ending
December 12, 2002. The then fair value of this contingent consideration will be
included in the aggregate purchase price, if and when released from escrow,
pending the outcome of the contingency, as defined.

PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

The following unaudited pro forma information is presented as if the Company had
completed the above acquisitions as of January 1, 2000 and includes amortization
of related intangible assets resulting from the acquisitions. The unaudited pro
forma information is not necessarily indicative of what the results of
operations would have been had the acquisitions taken place at those dates or of
the future results of operations.

CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES

Notes to Unaudited Interim Condensed Financial Statements
September 30, 2001

NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------
2001 2000
------------------------------------------
(unaudited, in thousands)

Revenues............................................... $ 6,408,000 $ 12,827,000
================= ================

Net loss............................................... $ (28,093,000) $ (3,218,000)
================= =================

Net loss attributable to common stockholders........... $ (28,691,000) $ (43,218,000)
================= =================

Pro Forma weighted average common shares
outstanding, basic and diluted........................ 129,053,985 38,614,533
================= =================

Pro Forma basic and diluted net loss per common
share................................................. $ (0.22) (1.12)
================= =================

(4) NOTES RECEIVABLE

In April 2001, the Company loaned two consultants an aggregate of $500,000. The
full recourse promissory notes, with initial principal amounts of $350,000 and
$150,000, respectively, accrue interest at the rate of 7.25% per annum. Payments
are due in three equal installments of principal plus accrued interest
commencing on April 25, 2002 and continuing annually thereafter through April
25, 2004.

(5) COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

The Company leases its facilities under operating lease agreements. The
following are the future minimum lease payments under non-cancelable operating
leases as of September 30, 2001:

YEAR ENDED
DECEMBER 31,
------------

2001.............................. $ 287,000
2002.............................. 1,171,000
2003.............................. 965,000
2004.............................. 417,000
2005.............................. 64,000
-----------
$ 2,904,000

CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES

Notes to Unaudited Interim Condensed Financial Statements
September 30, 2001

As a result of the Company's divestiture of certain operations, and employee
terminations, the Company is evaluating its numerous alternatives with respect
to its contractual obligations. As of September 30, 2001, the method and timing
of potential disposition were uncertain and no definite action had been taken.
Further, the Company was not able to reasonably estimate incremental net costs
which may be incurred.

LOANS PAYABLE

As of September 30, 2001, the Company has a loan payable in the amount of
$13,000 representing the balance due under a five-year unsecured promissory note
with the landlord of one of the Company's subsidiaries. The loan bears interest
at 9.925% per annum. Monthly principal and interest payments in the amount of
$382 commenced in November 2000 and are scheduled to terminate in July 2005.

(6) EQUITY BASED COMPENSATION

On September 21, 2001, the Compensation Committee of the Board of Directors
granted to the newly appointed CEO, options to purchase 9,000,000 shares of the
Company's common stock at an exercise price of $0.03, the then fair value of the
underlying stock. Of this grant, options to purchase 6,000,000 shares of the
Company's common stock are subject to shareholder approval, which was not
obtained as of September 30, 2001.

Also, on September 21, 2001, the Compensation Committee of the Board of
Directors granted to certain members of the Board of Directors options to
purchase an aggregate of 3,000,000 shares of the Company's common stock at an
exercise price of $0.03, the then fair value of the underlying stock.

(7) RELATED PARTY TRANSACTIONS

During the nine months ended September 30, 2001, the Company incurred legal fees
in connection with certain transactions and other matters in the normal course
of business. A portion of these services was provided by a firm of which a
member of the Board of Directors of the Company is a partner. Fees incurred by
this firm totaled approximately $240,000 and $751,000 in the three months and
nine months ended September 30, 2001, respectively.

Additionally, during the nine months ended September 30, 2001, the Company
incurred management and investment advisory service fees in connection with
identifying, evaluating, negotiating, and managing investment opportunities for
the Company. These services were provided by a firm of which the current
President and Chief Executive Officer of the Company is affiliated. Fees
incurred by this firm totaled $50,000 and $410,000 in the three months and nine
months ended September 30, 2001, respectively. Additionally, this firm occupies
a portion of the Company's office space in Connecticut, for which it pays rent
at fair market value. Such payments to the Company totaled $252,000 during the
nine months ended September 30, 2001. Furthermore, the firm was indebted to the
Company in the amount of $293,000 at September 30, 2001 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.

CHANGE TECHNOLOGY PARTNERS, INC.
AND SUBSIDIARIES

Notes to Unaudited Interim Condensed Financial Statements
September 30, 2001

(8) SUBSEQUENT EVENTS

On November 2, 2001, the Company executed a Share Purchase Agreement pursuant to
which the Company sold all of the issued and outstanding capital stock of RAND
to a member of the RAND management team. Under the terms of the Share Purchase
Agreement, the Company received 375,039 shares of Company common stock and a
warrant to purchase 30%, on a fully diluted basis when exercised, of RAND's
common stock, at an aggregate exercise price of $1.00. The warrant, exercisable
upon the occurrence of certain events, expires on November 3, 2013.

On November 8, 2001, the Company executed a Purchase and Sale Agreement pursuant
to which the Company sold 51% of the total membership interest in InSys to a
member of the InSys management team, in exchange for $50,000 cash and a
promissory note with a principal amount of $100,000, bearing interest at a rate
equal to the London Interbank Offered Rate plus 2%. Until the principal amount
of the Note is paid in full, InSys is obligated to pay, on an annual basis, 50%
of the excess of InSys' annual earnings before taxes, depreciation and
amortization, subject to a reasonable reserve for working capital requirements,
as defined.

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the unaudited
Condensed Consolidated Financial Statements and accompanying notes, and with the
Company's audited Consolidated Financial Statements and accompanying notes for
the fiscal year ended December 31, 2000. Certain statements contained within
this discussion constitute forward-looking statements. See "Special Note
Regarding Forward Looking Statements."

OVERVIEW

Prior to commencement of the operational divestiture described in note 1, 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, systems architecture and outsourcing. The
Company has served clients throughout the United States with offices in New
York, Connecticut, Maryland, California and New Jersey.

The Company derives its revenues from services performed under one of two
pricing arrangements: time-and-materials and fixed price. The services performed
under either of these arrangements are substantially identical.

Revenues are recognized for fixed price arrangements as services are rendered
using the percentage-of-completion method, based on the percentage of costs
incurred to date to total estimated project costs, provided the Company has the
ability to produce reasonably dependable estimates, and collection of the
resulting receivable is probable. The cumulative impact of any revision in
estimates of the costs to complete and losses on projects in process are
reflected in the period in which they become known.

Provisions for estimated project specific losses on both types of contracts are
made during the period in which such losses become probable and can be
estimated. To date, such losses have not been significant. The Company reports
revenue net of reimbursable expenses.

Agreements entered into in connection with time-and-materials projects are
generally terminable by the client upon 30-days' prior written notice, and
clients are required to pay the Company for all time, materials and expenses
incurred by the Company through the effective date of termination. Agreements
entered into in connection with fixed-fee projects are generally terminable by
the client upon payment for work performed and the next progress payment due. If
clients terminate existing agreements or if the Company is unable to enter into
new agreements, the Company's business, financial condition and results of
operations could be materially and adversely affected. In addition, because a
proportion of the Company's expenses are fixed, a variation in the number of
client engagements can cause significant variations in operating results from
quarter to quarter.

The Company's projects vary in size and scope. Therefore, a client that accounts
for a significant portion of the Company's revenues in one period may not
generate a similar amount of revenue in subsequent periods. However, there is a
risk that the source of the Company's revenues may be generated from a small
number of clients and these clients may not retain the Company in the future.
Any cancellation, deferral or significant reduction in work performed for these
principal clients or a significant number of

smaller clients could have a material adverse affect on the Company's business,
financial condition and results of operations.

The Company's costs consist primarily of compensation and related costs of
personnel dedicated to customer assignments. Project personnel costs also
include fees paid to subcontractors for work performed in connection with
projects and non-reimbursed travel expenses.

The Company's selling, general and administrative costs consist primarily of
compensation and related costs of the management and administrative functions,
including finance and accounting, marketing, human resources and internal
information technology, the costs of the Company's facilities and other general
corporate expenses.

The Company' equity based compensation expense is comprised of amortization of
the deferred compensation associated with the grant of stock options to the
Company's Board of Directors and former President and Chief Executive Officer.
Such cost is measured as the difference between the exercise price of options
granted and the fair market value of the underlying stock on the date of
measurement, and is being recognized as expense over the vesting period of the
options. Also included in equity-based compensation during the nine months ended
September 30, 2001 is the cost associated with 3,144,494 shares of Company
common stock issued as partial consideration in exchange for the former
President and Chief Executive Officer's shares of eHotHouse common stock. Such
cost is measured as the excess of the fair value of the Company shares issued as
settlement over the fair value of the eHotHouse shares on the original date of
grant. The Company incurred approximately $2,953,000 in equity based
compensation expense during the nine months ended September 30, 2001.

RECENT DEVELOPMENTS

In July 2001, the Board of Directors terminated the employment of the Company's
President and Chief Executive Officer. The former executive had an employment
agreement dated August 21, 2000 that provided for severance benefits. The
Company will pay the former executive the severance he is entitled to under his
employment agreement and has incurred a charge totaling $493,000, which is
included in severance charges in the Statement of Operations for the three
months ended September 30, 2001. Additionally, the Company has recorded an
impairment loss in the amount of $2,250,000, reflecting the impact of the
executive's termination upon the carrying value of certain intangible assets,
and reversed certain deferred compensation related to unvested options that were
forfeited in connection with the termination. The impairment loss amount is
included in impairment loss in the accompanying statement of operations.

As a result of the aforementioned terminations, coupled with the historical,
current and projected operating and cash flow losses the Company evaluated the
recoverability of its acquired intangible assets and goodwill by comparison of
the carrying value relative to future cash flows. As a result, the Company
recorded impairment charges totaling $5,013,000 which are included in impairment
losses in the accompanying statement of operations.

Also as a result of such actions, the Company incurred severance charges of
$1,326,000 which are included in severance charges in the accompanying statement
of operations. $514,000 of this amount has been paid as of September 30, 2001.

ACQUISITIONS

We evaluate 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.

EHOTHOUSE. On February 21, 2001, the Company acquired the remaining outstanding
interests in eHotHouse, and merged eHotHouse with a newly formed, wholly owned
subsidiary of the Company. The Company acquired this minority interest for
approximately 2.2 million shares of the Company, valued at approximately $2.7
million, and $0.2 million in cash. The acquisition was accounted for using the
purchase method of accounting. On May 16, 2001, eHothouse merged with and into
the Company.

As a result of the aforementioned terminations, coupled with the historical,
current and projected operating and cash flow losses, the Company evaluated the
recoverability of its acquired intangible assets by comparison of the carrying
value relative to future cash flows. As a result, the Company recorded
impairment charges totaling $2,250,000 which are included in impairment charges
in the accompanying statement of operations.

IGUANA. On March 1, 2001, the Company acquired all outstanding shares of Iguana,
a leading provider of media and technical services, in exchange for
approximately $2.8 million in cash, including acquisition costs, 2,700,000
shares of Company common stock, valued at approximately $2.0 million, and
replacement options to purchase 1,681,888 shares of Company common stock valued
at approximately $1.0 million. The acquisition was accounted for using the
purchase method of accounting.

As a result of the aforementioned terminations, coupled with the historical,
current and projected operating and cash flow losses the Company evaluated the
recoverability of its acquired intangible assets and goodwill by comparison of
the carrying value relative to future cash flows. As a result the Company
recorded impairment charges totaling $3,878,000 which are included in impairment
charges in the accompanying statement of operations.

CANNED. On June 12, 2001, the Company acquired Papke-Textor, Inc. d/b/a Canned
Interactive ("Canned"), a Los Angeles-based media and entertainment interactive
agency, for approximately $1.1 million in cash, including acquisition costs, and
6,436,552 shares of the Company's common stock valued at approximately $1.0
million. The business combination was accounted for using the purchase method.

BROADSTREAM. 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. In connection with this non-reciprocal transfer
of shares the Company recorded a charge of $1,016,000, equal to the Company's
cost basis in such shares, which has been included in equity in losses of
affiliate in the accompanying statement of operations. 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.

RESULTS OF OPERATIONS

THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS
AND NINE MONTHS ENDED SEPTEMBER 30, 2000, RESPECTIVELY

REVENUES. Revenues increased from $6,000 in the three months ended September 30,
2000 to $1,740,000 in the three months ended September 30, 2001, and from $6,000
to $5,144,000 in the nine months ended September 30, 2000 and 2001,
respectively. These increases are a result of the contribution to revenues of
acquired companies' revenue streams. As a result of the Company's planned
divestitures and continued unfavorable market conditions for its services,
revenues from existing services are expected to decline on a prospective basis.

COST OF REVENUES. Cost of revenues consists principally of costs directly
incurred in the delivery of services to clients, primarily consisting of
compensation of billable employees. Billable employees are full time employees
and sub-contractors whose time spent working on client projects is charged to
that client at agreed-upon rates. Billable employees are our primary source of
revenue. Such costs increased from $0 in the three months ended September 30,
2000 to $2,527,000 in the three months ended September 30, 2001, or 145% of
revenues. These costs increased from $0 in the nine months ended September 30,
2000 to $6,891,000 in the six months ended September 30, 2001, or 134% of
revenues.

In connection with our acquisition of InSys, RAND, Iguana, and Canned, the
Company recorded intangible assets representing the value ascribed to the
customer lists and assembled workforces of the acquired companies. The aggregate
amortization of these intangible assets totaled $423,000 and $864,000 for the
three months and nine months ended September 30, 2001, respectively, and is
included in cost of revenues.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consist primarily of compensation and related benefits,
professional services fees, facilities costs, and advertising and promotional
costs. Selling, general and administrative expenses increased from $988,000 in
the three months ended September 30, 2000 to $2,967,000 in the three months
ended September 30, 2001, and from $1,462,000 to $10,788,000 in the nine months
ended September 30, 2000 and 2001, respectively. These increases were primarily
the result of increased compensation, increased professional services fees and
increases in other costs associated with the growth of our business and
operations over the prior year.

IMPAIRMENT LOSSES. As a result of the aforementioned terminations, coupled with
the historical, current and projected operating and cash flow losses the Company
evaluated the recoverability of its acquired intangible assets and goodwill by
comparison of the carrying value relative to future cash flows. As a result, the
Company recorded impairment charges totaling $7,263,000 which are included in
impairment losses in the accompanying statement of operations.

SEVERANCE COSTS. Severance costs were $0 in the three months ended September 30,
2000 and $1,326,000 in the three months ended September 30, 2001, and $0 and
$1,326,000 in the nine months ended September 30, 2000 and 2001, respectively.

EQUITY IN LOSSES OF UNCONSOLIDATED AFFILIATES. Equity in losses of
unconsolidated affiliates was $504 in the three months ended September 30, 2000
and $1,838,000 in the three months ended September 30, 2001, and $504 and
$4,912,000 in the nine months ended September 30, 2000 and 2001, respectively.
Equity in losses of unconsolidated affiliates resulting from the Company's
minority ownership in Broadstream, Inc. has 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 Broadstream's
operating losses and amortization of the Company's net excess investment over
its equity in Broadstream's net assets is included in equity in losses of
unconsolidated affiliates.

The Company's management performs on-going reviews of its investments and, based
on quantitative and qualitative measures, assesses the need to record impairment
losses when impairment indicators are present. Among other factors, when
assessing evidence of impairment, management considers the proximity of its
investments to the date of evaluation, the current period operating cash flow
loss and projections that demonstrate continuing losses, the Company's
commitments to provide ongoing financing, and the expectations at the time of
investment of significant operating losses in the short and long term. Where
impairment indicators are identified, management determines the amount of any
impairment charge by comparing the carrying value of the investment and other
intangible assets to their fair value. As of September 30, 2001 the Company has
not recognized any impairment charges with respect to its unconsolidated
affiliates.

INTEREST AND DIVIDEND INCOME. Interest and dividend income was $541,000 in the
three months ended September 30, 2000 and $144,000 in the three months ended
September 30, 2001, and $997,000 and $754,000 in the nine months ended September
30, 2000 and 2001, respectively. The decrease in interest income for the nine
months ended September 30, 2001 over the prior year was attributable to a
decrease in the Company's invested cash balance as it has funded its ongoing
operations. Interest income in future periods may fluctuate as a result of the
average cash we maintain and changes in the market rates of our cash
equivalents, and we expect that the average cash balance may continue to
decrease as the Company continues to incur operating losses.

INCOME TAXES. The Company has available estimated net operating loss
carryforwards for income tax purposes of approximately $16,800,000 through the
period ended September 30, 2001, which expire on various dates from 2001 through
2021. A valuation allowance has been established due to uncertainty whether the
Company will generate sufficient taxable earnings to utilize the available net
operating loss

carryforwards. A portion of the Company's net operating loss carryforwards may
also be limited due to significant changes in ownership under Section 382 of the
Tax Reform Act of 1986.

LIQUIDITY AND CAPITAL RESOURCES

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.

The Company had $11,079,000 in cash and cash equivalents available as of
September 30, 2001. The Company used $19,254,000 to fund operations, finance
acquisitions and make strategic investments during the nine months ended
September 30, 2001. Operating and investing activities on a long-term basis may
require the Company to seek additional equity or debt financing. The Company
expects that future acquisitions of businesses and other strategic assets will
require considerable outlays of capital.

The Company invests predominantly in instruments that are highly liquid,
investment grade securities that have maturities of less than 45 days.

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

Certain statements in this report, including information appearing under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations" constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). The Company
desires to take advantage of certain "Safe Harbor" provisions of the Reform Act
and is including this special note to enable the Company to do so.
Forward-Looking Statements involve known and unknown risks, uncertainties, and
other factors, which could cause the Company's actual results, performance
(financial or operating) or achievements to differ materially from the future
results, performance (financial or operating) or achievements expressed or
implied by such Forward-Looking Statements. Such risks, uncertainties and other
factors include, among others:

o the Company's clients may not adopt an internet business
model;

o the Company is still in an early stage of development and may
not be able to implement its business strategy;

o the Company has a limited operating history so it will be
difficult to predict the Company's future performance;

o the Company is not currently profitable and expects to incur
future losses;

o the Company must successfully complete and integrate
acquisitions to continue its growth;

o the Company's success depends on its ability to retain its key
personnel;

o the Company does not have long-term contracts with clients and
needs to establish relationships with new clients;

o the Company operates in a highly competitive market with low
barriers to entry; and

o the Company's revenues could be harmed if growth in the use of
the internet does not occur.

As a result, no assurance can be given as to future results, levels of activity
or achievements.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

The primary objective of the Company's investment activities is to preserve
principal while at the same time maximizing yields without significantly
increasing risk. To achieve this objective, the Company maintains its portfolio
of cash, cash equivalents and money market funds.

As of September 30, 2001, the Company held cash and cash equivalents with an
average maturity of 45 days or less.

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 by reference to other
documents previously filed with the Commission:

2.1 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).

2.2 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).

2.3 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 25, 2001 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).

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 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 (filed as an exhibit to the
Registrant's Report on Form 8-K dated March 28, 2000, and incorporated
herein by reference).

10.3 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).

10.4 Employment Agreement entered into by and between Arinco Computer
Systems Inc. and William Avery (filed as an exhibit to the Registrant's
Report on Form 8-K dated March 28, 2000, and incorporated herein by
reference).

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 (filed as an exhibit to the Registrant's Report on Form 8-K dated
March 28, 2000, and incorporated herein by reference).

10.6 Stock Purchase Agreement, dated June 29, 2000, by and between Arinco
Computer Systems Inc., Broadstream.com, Inc. and the purchasers listed
on Schedule I attached thereto (filed as an exhibit to the Registrant's
Report on Form 8-K dated June 29, 2000, and incorporated herein by
reference).

10.7 Employment Agreement entered into by and between Arinco Computer
Systems Inc. and Frank Gallagi dated as of June 12, 2000 (filed as an
exhibit to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000, and incorporated herein by reference).

10.8 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).

10.9 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).

10.10 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).

10.11 Employment Agreement entered into by and between Change Technology
Partners, Inc. and Kathleen Shepphird dated as of November 10, 2000
(filed as an exhibit to the Registrant's Annual Report on Form 10-K,
dated March 27, 2001 and incorporated herein by reference).

10.12 Employment Agreement entered into by and between Arinco Computer
Systems Inc. and Matthew Ryan dated as of August 21, 2000 (filed as an
exhibit to the Registrant Report on Form 8-K dated November 20, 2000,
and incorporated herein by reference).

10.13 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).

10.14 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).

10.15 Lock-Up Agreement among Change Technology Partners, Inc., Iguana
Studios I, Inc., Iguana Studios, 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).

19.1 Change Technology Partners, Inc. Annual Report on Form 10-K, dated
March 27, 2001 (filed as an exhibit to the Registrant's Annual Report
on Form 10-K dated March 27, 2001, and incorporated herein by
reference).

19.2 Change Technology Partners, Inc. Annual Report on Form 10-K/A, dated
May 9, 2001 (filed as an amendment to the Registrant's Annual Report on
Form 10-K dated March 27, 2001 and incorporated herein by reference).

(b) Reports on Form 8-K:

The Registrant filed a Current Report on Form 8-K on July 11, 2001
reporting matters under Item 7, Financial Statements and Exhibits. The
Registrant also filed two Current Reports on Form 8-K/A on July 17,
2001 to amend Item 7, Financial Statements and Exhibits, of the two
Current Reports on Form 8-K filed by Registrant on February 7, 2001.
The Registrant also filed a Form 8-K dated September 11, 2001 reporting
matters under Item 5, Other Events and Item 7, Financial Statements and
Exhibits.

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: November 14, 2001

CHANGE TECHNOLOGY PARTNERS, INC.

By: /s/ William Avery
---------------------------------------
William Avery
President, Chief Executive Officer, and Chief
Financial Officer