United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2001
Commission file number 0-20468
ALTERNATIVE TECHNOLOGY RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Delaware 68-0195770
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
33 Jewel Court, Portsmith, N.H. 03801
(Address of principal executive offices)
(916) 231-0400
(Registrant's telephone number, including area code)
(Former address if changed since last report)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
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
Number of shares of common stock outstanding as of April 30, 2001: 59,368,844
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALTERNATIVE TECHNOLOGY RESOURCES, INC.
Condensed Balance Sheets
(Unaudited)
Fiscal Quarter Fiscal Year End
March 31, June 30,
Assets 2001 2000
------ ------------- --------------
Current assets:
Cash and cash equivalents $ 3,068,272 $ 1,909,421
Short-term investments 3,360,286 -
Trade accounts receivable 19,945 98,128
Other current assets 307,059 84,183
------------- -------------
Total current assets 6,755,562 2,091,732
------------- -------------
Property and equipment:
Equipment and software 310,125 175,415
Accumulated depreciation and amortization (76,871) (14,444)
------------- -------------
Property and equipment, net 233,254 160,971
------------- -------------
Prepaid annual license and service fees 526,170 250,000
------------- -------------
$ 7,514,986 $ 2,502,703
============= =============
Liabilities and Stockholders' Equity (Deficit)
----------------------------------------------
Current liabilities:
Accounts payable and accrued interest payable to stockholders $ 648,781 $ 613,630
Notes payable to directors - 23,324
Trade accounts payable 147,346 97,205
Accrued payroll and related expenses 163,621 167,507
Accrued preferred stock dividends 283,195 735,001
Other current liabilities 212,769 273,018
------------- -------------
Total current liabilities 1,455,712 1,909,685
------------- -------------
Convertible notes payable to stockholder 2,228,815 -
Notes payable to stockholder(s) 1,511,635 3,567,424
------------- -------------
Total notes payable to stockholders 3,740,450 3,567,424
------------- -------------
Commitments and contingencies
Stockholders' equity (deficit):
Convertible preferred stock, $6.00 par value - 1,200,000 shares authorized,
204,167 shares designated Series D issued and outstanding at June 30, 2000;
liquidation preference value of $1,960,003
At June 30, 2000 - 1,225,002
Common stock, $0.01 par value - 100,000,000 shares authorized;
59,368,844 shares issued and outstanding at March 31, 2000
(55,329,605 at June 30, 2000) 593,689 553,297
Additional paid-in capital 49,058,044 35,879,513
Accumulated other comprehensive income (loss) 1,610 -
Accumulated deficit (47,334,519) (40,632,218)
------------- -------------
Total stockholders' equity (deficit) 2,318,824 (2,974,406)
------------- -------------
$ 7,514,986 $ 2,502,703
============= =============
See accompanying notes to condensed financial statements.
3
ALTERNATIVE TECHNOLOGY RESOURCES, INC.
Condensed Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Contract Programming
Contract programming revenue $ 46,385 $ 543,133 $ 272,215 $ 2,188,410
Contract termination fees - - - 5,453
Programmer costs (35,937) (377,446) (210,108) (1,483,913)
Start-up and other costs (982) (36,104) (9,265) (393,074)
------------ ------------ ------------ ------------
Contract programming gross profit 9,466 129,583 52,842 316,876
Product development and start-up costs (1,227,696) (307,854) (3,523,618) (543,674)
Selling, general and administrative (640,279) (322,242) (3,271,838) (876,722)
------------ ------------ ------------ ------------
Loss from operations (1,858,509) (500,513) (6,742,614) (1,103,520)
Other income (expense)
Interest income 114,057 23,588 379,693 42,495
Interest expense to stockholders
and directors (102,789) (173,457) (339,380) (2,792,114)
------------ ------------ ------------ ------------
Total other income (expense) 11,268 (149,869) 40,313 (2,749,619)
------------ ------------ ------------ ------------
Net loss $ (1,847,241) $ (650,382) $ (6,702,301) $ (3,853,139)
============ ============ ============ ============
Preferred stock dividends in arrears - (30,625) (886,142) (91,875)
------------ ------------ ------------ ------------
Net loss applicable to common stockholders $ (1,847,241) $ (681,007) (7,588,443) $ (3,945,014)
============ ============ ============ ============
Net loss per share $ (0.03) $ (0.01) $ (0.13) $ (0.08)
============= ============ ============ ===========
Shares used in per share calculations 59,358,090 55,056,986 58,454,427 48,702,083
============= ============ ============ ============
See accompanying notes to condensed financial statements.
4
ALTERNATIVE TECHNOLOGY RESOURCES, INC.
Condensed Statements of Cash Flows
(Unaudited)
Nine Months Ended
March 31,
2001 2000
------------ ------------
Net cash used in operating activities $ (5,100,044) $ (1,247,688)
Cash flows used in investing activities:
Purchases of property and equipment (134,709) (54,198)
Purchases of short-term investments
(net of securities) (3,358,676) -
------------ ------------
Net cash used in investing activities (3,493,385) (54,198)
Cash flows from financing activities:
Proceeds from sale of common stock 9,560,345 3,712,346
Proceeds from exercise of options and warrants 42,233 120,584
Proceeds from notes payable to stockholders 233,026 342,834
Payments on notes payable to stockholders (60,000) (33,500)
Proceeds from notes payable to directors - 2,780
Payments on notes payable to directors (23,324) (21,646)
------------ ------------
Net cash provided by financing activities 9,752,280 4,123,398
------------ ------------
Net increase in cash 1,158,851 2,821,512
Cash at beginning of period 1,909,421 32,643
Cash at end of period $ 3,068,272 $ 2,854,155
============ ============
See accompanying notes to condensed financial statements.
5
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
ALTERNATIVE TECHNOLOGY RESOURCES, INC.
Notes to Condensed Financial Statements
March 31, 2001
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. For further
information, refer to the financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the fiscal year ended June 30,
2000.
In the opinion of management, the unaudited condensed financial statements
contain all adjustments, consisting of normal recurring adjustments, considered
necessary to present fairly the Company's financial position at March 31, 2001
and June 30, 2000, results of operations for the three and nine month periods
ended March 31, 2001 and 2000, and cash flows for the nine months ended March
31, 2001 and 2000. The results for the period ended March 31, 2001 are not
necessarily indicative of the results to be expected for the entire fiscal year
ending June 30, 2001.
The Company has taken steps to refocus its operations and obtain additional
financing, and believes that is has developed a viable plan to continue as a
going concern, at least through the end of fiscal year 2001. However, there can
be no assurance that this plan will be successfully implemented. The Company
does not expect to generate positive cash flow from operations during fiscal
2001 to be able to pay off obligations and pursue the establishment of the
Internet Exchange [see Part I, Item 2 "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Overview"]; therefore, the
Company has raised additional financing during fiscal 2001, as well as
negotiated deferral of payment under its existing obligations [see Part I, Item
2 "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources"].
Note 2 - Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments with an original maturity of
three months or less from the date of purchase to be cash equivalents. At March
31, 2001 substantially all of ATR's cash was invested in corporate bonds and
money market accounts. Such investments where the original maturity date is 90
days or less are considered to be cash equivalents, short-term investments are
those with maturity dates of 91 days to one year from the date of purchase.
Pursuant to Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", all debt securities are
6
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
designated as available-for-sale. Available-for-sale securities are carried at
fair value, which is determined based upon the quoted market prices of the
securities with unrealized gains and losses reported in stockholders equity
(deficit). Realized gains and losses and declines in value judged to be other
than temporary on available-for-sale securities are included in interest income.
The cost of securities sold is based on the specific identification method.
Interest and dividends on securities classified as available-for-sale are
included in interest income.
Note 3 - WebMD Corp. Agreement
In fiscal year 2000, the Company paid $250,000 to WebMD upon a promotional
announcement of the Company's Internet Exchange program on WebMD's Internet
consumer portal. This payment is an annual service fee, which will be amortized
over a 12-month period beginning in the month that the Internet Exchange is
available on WebMD's Internet consumer portal. No amounts have been amortized to
date.
Note 4 - Financing Arrangements
See Part I, Item 2 "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
Note 5 - Commitments
The Company signed agreements effective in January 2001 with an application
services provider to license, support and run software to process medical bills
submitted to the Company's Internet exchange for healthcare services. The
agreements are for a term of 66 months. They require payment for set-up,
training and implementation estimated to be about $145,000, monthly minimum
payments currently of about $35,000 and additional fees that are transaction
based if volumes exceed levels included in the monthly minimums. In addition, an
initial base license fee of $250,000 was paid in the quarter ending March 31,
2001. This license fee is classified as a non-current asset and is being
amortized over the term of the agreement.
These agreements may be terminated upon the occurrence of an event permitting
termination outlined in the Master Agreement without penalty to either party.
Note 6 - Comprehensive Loss
Total comprehensive loss for the three months ended March 31, 2001 and 2000 was
$1,849,730, and $650,382, and $6,700,691 and $3,853,139 for the nine months
ended March 31, 2001 and 2000, respectively. Other comprehensive income (loss)
represents the net change in unrealized gains (losses) on available-for-sale
securities.
7
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Note 7 - Related Party Transactions
On October 17, 2000, the Company engaged Saturn Capital, Inc. to assist the
Company on certain financial advisory and business matters. In consideration for
Saturn Capital's services, the Company issued 55,000 shares of common stock at
that day's closing value of $1.90 per share. Accordingly, in November 2000, the
Company recorded an expense of $105,000 for these consulting services. Saturn
Capital is an affiliate company of Saturn Asset Management, Inc. of which Mr.
McCormick, the Company's Chief Executive Officer, is a managing director.
Note 8 - Derivative Financial Instruments
In June 1998, the FASB issued Statement of Financial Accounting Standard No.
133, "Accounting for Derivative Instruments and Hedging Activities", (SFAS 133)
which was adopted by the Company on January 1, 2001. This statement, as amended,
establishes accounting and reporting standards requiring that every derivative
instrument, including certain derivative instruments embedded in other
contracts, be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement also requires that changes in the
derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. The adoption of SFAS 133 did not have an effect on
the Company's financial statements, since the Company does not invest in
derivative instruments or engage in hedging activities.
Note 9 - Product Development and Start-Up Costs
In accordance with SOP 98-5 "Reporting on the Costs of Start-Up Activities",
start-up costs associated with the Internet Exchange business have been expensed
as incurred.
8
PART I. FINANCIAL INFORMATION
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's Discussion and Analysis
The following discussion provides information to facilitate the understanding
and assessment of significant changes in trends related to the financial
condition of the Company and its results of operations. It should be read in
conjunction with the Company's financial statements and the notes thereto and
other financial information included elsewhere in the 10-K for the fiscal year
ended June 30, 2000.
Overview
Alternative Technology Resources, Inc. ("ATR" or the "Company") was founded as
3Net Systems, Inc. in 1989 to develop and sell medical laboratory information
systems. In 1996, the Company began to focus on the business of recruiting,
hiring, training and placing foreign computer programmers with U.S. companies
and soon changed its name to Alternative Technology Resources, Inc.
In August 1999, James W. Cameron, Jr., ATR's largest stockholder, was named
Chairman and Chief Executive Officer. Under his direction the Company identified
what it believes to be a significant business opportunity and began developing a
business model involving the establishment of an Internet Exchange for
healthcare services under the name "DoctorAndPatient." In line with its business
strategy to focus on the establishment of an Internet Exchange, the Company
suspended recruitment for the contract programming division in December 1999 and
is currently finalizing the conversion of the remaining computer programmers to
become the customers' employees.
In February 2000, Jeffrey S. McCormick assumed the position of ATR's Chief
Executive Officer. Mr. McCormick has significant experience in financing,
managing and growing early stage development companies as a managing director of
Boston-based Saturn Asset Management, Inc. Mr. McCormick has served as an
advisor or director of several Internet and electronic commerce companies over
the last six years. As ATR's CEO, Mr. McCormick is responsible for all phases of
development, implementation and operation of ATR's Internet Exchange. Mr.
Cameron still acts as Chairman and the Company's Chief Financial Officer, and
expects to continue to play an active and substantial role in formulating ATR's
business strategy and policy. Mr. Cameron and Mr. McCormick have focused ATR on
using the experience of the management team in health care and information
technology to establish the Internet Exchange. The development of this business
has become the Company's primary focus.
The purpose of the Internet Exchange is to utilize the Internet and other
technologies to provide administrative, billing and re-pricing services, as well
as a direct and efficient connection between Providers and Purchasers (both
defined below) and/or their agents ATR is developing a proof of concept of its
Internet Exchange, which it began testing with a limited number of providers in
9
PART I. FINANCIAL INFORMATION
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
this quarter ending March 31, 2001. The Company is still receiving, processing
and analyzing data and the results of the Company's testing will determine the
amount and timing of remaining development related costs and when the Internet
Exchange may become commercially available.
The Company is recruiting medical doctors, medical groups, hospitals and other
health care practitioners (collectively, "Providers") to offer their services
through the Internet Exchange, on a non-exclusive basis, to individuals and
others who purchase or facilitate the purchase of health care services
("Purchasers"). The Company signed agreements effective in January 2001 with an
application services provider to license, support and run software to process
medical bills submitted to the Company's Internet exchange for healthcare
services. ATR is also evaluating other potential technology vendors.
ATR will not provide health care services, but rather expects to act as an
intermediary between Providers and Purchasers that should benefit both. ATR
believes that eliminating the costs associated with traditional "bricks and
mortar" operations, creating economies of scale, facilitating access to
Providers and Purchasers, streamlining overhead costs, exploiting possibilities
for functional integration, reducing errors and speeding the payment of claims
should allow Purchasers to pay less and Providers to recover more of what they
bill.
Financial Condition
Cash and cash equivalents increased approximately $1.2 million and short-term
investments increased approximately $3.4 million since June 30, 2000 primarily
as a result of the Company selling 3,333,334 shares of its common stock at a
price of $3.00 per share in a private placement in August 2000 [See Part I, Item
2 "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."]. The transaction was also the
primary cause for the Company's stockholders' deficit of $2,974,406 at June 30,
2000 becoming positive stockholders' equity of $2,318,824 at March 31, 2001. At
March 31, 2001 substantially all of ATR's cash was invested in corporate bonds
and money market accounts.
Because the Company is emphasizing the development of the Internet Exchange and
phasing out its contract programming services, the results of operation for the
nine months ended March 31, 2001 may not be indicative of results of operations
for the year ended June 30, 2001.
Results of Operation
Contract programming
Contract Programming Revenue. Contract programming revenue results primarily
from sales of programmer services. Revenue for the three and nine month periods
ended March 31, 2001 decreased $496,748 or 91% and $1,916,195 or 88% over the
10
PART I. FINANCIAL INFORMATION
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
same periods of the previous year. This decrease is due to a reduction in the
monthly average number of contract programmers working at customer sites in the
period ended March 31, 2001, compared to the same period in the prior year. This
decline in the number of programmers at customer sites started in the last half
of fiscal year 1999, and is due to several customers choosing to exercise a
contract termination provision which allowed them to convert, for a fee, ATR's
programmers to their employees. The Company escalated this conversion process
during fiscal years 2000 and 2001 to enable it to focus its business strategy
toward developing its Internet Exchange for healthcare services.
The remaining contract programmers will be converted to customer employees and
the phase out of contract programming services is expected to be complete and
all expenses incurred by the end of this fiscal year, June 30, 2001.
Contract Termination Fees. Contract termination fees are amounts received from
customers when they exercise the contract provision, which allows them to
convert ATR's programmer to their employee. These fee amounts are stipulated in
customer contracts, are based on the length of time remaining under the
contract, and are recognized as revenue when such contract provisions are
invoked. Although contract termination fees are common in the industry, the
number and frequency of exercises of the "buy-out" provisions is unpredictable.
Programmer Costs. Programmer costs are the salary, and other wage and benefit
costs of ATR's programmer employees. These costs decreased 90% and 86% for the
three and nine month periods ended March 31, 2001, compared to the same periods
last year. This decrease is primarily due to the reduction in the number of
contract programmers working at customer sites as discussed above in "Contract
Programming Revenue".
Start-up and Other Costs. Start-up and other costs are the costs of recruiting
fees, training, and travel for programmer employees coming to the United States
from the Former Soviet Union for the first time, relocation costs within the
United States, and legal and other costs related to obtaining and maintaining
compliance with required visas, postings and notifications. Start-up and other
costs are expensed as incurred.
Included in this category of costs is compensation paid by ATR whenever
programmer employees are hired and enter the United States or are relocated once
in the United States but before these programmers begin working at a customer's
work site. There are times when under immigration law, ATR, as employer, must
pay a programmer employee at least 95% of prevailing wages for his or her
specialty even when the programmer is not placed.
Start-up and other costs decreased $35,122 and $383,809 in the three and nine
month periods ended March 31, 2001, as compared to the same periods in fiscal
11
PART I. FINANCIAL INFORMATION
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
2000. This decrease is due to ceasing to recruit programmer employees and a
decrease in the number of programmers who were in the United States but not
working at customer sites.
Contract Programming Gross Profit. The gross profit on contract programming
revenue was 20% and 19% for the three and nine month periods ended March 31,
2001, compared to 24% and 14% for the same periods in fiscal 2000. The decrease
for the three month period ending March 31, 2001 is primarily due to the average
number of two programmers placed at customer sites compared to the average
number of twenty-six for the same quarter at March 31, 2000. The increase for
the six month period ending March 31, 2001 is primarily due to the significant
decrease in start-up and other costs compared to the same period of the previous
year.
Product Development and Start-Up Costs
In October 1999 the Company began incurring costs to develop its Internet
Exchange. Costs incurred are primarily the salary and other wage and benefit
costs of ATR's employees involved in recruiting the network of healthcare
providers and other start-up costs. In accordance with SOP 98-5 "Reporting on
the Costs of Start-Up Activities", start-up costs associated with the Internet
Exchange business have been expensed as incurred.
ATR is developing a proof of concept of its Internet Exchange, which it began
testing with a limited number of providers in this quarter ending March 31,
2001. The Company is still receiving, processing and analyzing data and the
results of the Company's testing will determine the amount and timing of
remaining development related costs and when the Internet Exchange may become
commercially available.
Selling, General and Administrative Expenses
Selling, General and Administrative Expenses ("SG&A"). SG&A expenses increased
$318,037 and $2,395,116 for the three and nine month periods ended March 31,
2001 respectively, compared to the same periods of the prior fiscal year. This
increase is due primarily to non-cash compensation in the engagement of Saturn
Capital Inc., in a financial advisory capacity ($105,000) in November 2000,
non-cash employee compensation related to the purchase of common stock in the
Company's August 2000 private placement by the Company's Chief Executive Officer
and related entities ($1,458,000), non-cash compensation due to conversion of
Series D Preferred Stock into common stock by the Company's Chairman of the
Board ($317,000) in September 2000 [see "Liquidity and Capital Resources"], and
due to increased number of employees and related costs to support development
efforts of the Internet Exchange.
12
PART I. FINANCIAL INFORMATION
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Other Income (Expense)
Interest Income. Interest income in fiscal 2001 is related to the short-term
investment of cash balances. In fiscal 2000 interest income is related to the
short-term investment of cash balances and to notes receivable from employees
and officers of the Company. The increase is the result of greater cash balances
in fiscal 2001 over fiscal 2000.
Interest Expense. Interest expense decreased $70,668 in the three months ended
March 31, 2001 due to the September 2000 extension, from December 31, 2000 until
December 31, 2001, of notes payable and accrued interest and fees to Mr. Cameron
and the other note holder. Interest expense decreased $2,452,734 in the nine
months ended March 31, 2001 primarily due to the benefit accruing to note
holders in fiscal 2000 when conversion terms of a $1,000,000 convertible note
were amended and due to the resulting decrease in Notes Payable to Stockholders
[see "Liquidity and Capital Resources"].
Income Taxes
As of June 30, 2000, the Company had a net operating loss carryforward for
federal and state income tax purposes of $30 million and $13 million,
respectively. The federal net operating loss carryforward expires in the years
2006 through 2019 and the state net operating loss carryforward expires in 2000
through 2005. In connection with the Company's initial public offering, a change
of ownership (as defined in Section 382 of the Internal Revenue Code of 1986, as
amended) occurred. As a result, the Company's net operating loss carryforwards
generated through August 10, 1992 are subject to an annual limitation of
approximately $300,000.
Net Loss
Net loss increased $2,849,162 for the nine months ended March 31, 2001, compared
to the same period in fiscal 2000 primarily due to the increases in product
development and selling, general and administrative costs, offset by the
increase in interest income and decrease in interest expense.
Preferred Stock Dividends in Arrears
Dividends are $794,267 higher for the nine months ended March 31, 2001, compared
to the same period in fiscal 2000 due to the benefit associated with the
exchange of the Series D Preferred Stock on September 11, 2000 for common stock
in the amount of $862,033 [see "Liquidity and Capital Resources"].
13
PART I. FINANCIAL INFORMATION
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Basic and Diluted Net Loss Per Share
The Company's net loss per share has been computed by dividing net loss after
deducting Preferred Stock dividends ($886,142 in fiscal year 2001 and $91,875 in
fiscal year 2000) by the weighted average number of shares of Common Stock
outstanding during the periods presented. Common Stock issuable upon conversion
of Preferred Stock (for fiscal year 2000), common stock options and common stock
warrants have been excluded from the net loss per share calculations as their
inclusion would be anti-dilutive.
Liquidity and Capital Resources
Traditionally, the Company has used a combination of equity and debt financing
and internal cash flow to fund operations and finance accounts receivable, but
has incurred operating losses since its inception, which has resulted in an
accumulated deficit of $47,334,519 at March 31, 2001. The Company's working
capital at the end of March 31, 2001 was $5,299,850.
The Company has received short-term, unsecured financing to fund its operations
in the form of notes payable of $3,567,424 as of June 30, 2000, from Mr. Cameron
and another stockholder. These notes bear interest at 10.25%. On September 11,
2000, the Company agreed with Mr. Cameron to extend the due date on notes
payable to him until December 31, 2001 in exchange for an extension fee of 2%.
These extended notes total $1,511,635, including accrued interest and extension
fees, and bear interest at 10.25% per annum. Also on September 11, 2000, the
Company agreed with the other note holder to extend the due date of his notes
until December 31, 2001 in consideration of such notes becoming convertible
promissory notes. The convertible promissory notes total $2,288,815, including
accrued interest, bear interest at 10.25% per annum and are convertible into
common stock at $3.00 per share (approximate public trading price on that date)
at the note holder's option.
On April 21, 1997, the Company issued an unsecured note payable (the "Straight
Note") to Mr. Cameron for $1,000,000 in accordance with the Reimbursement
Agreement the Company signed on February 28, 1994. Terms of the note provided
for an interest rate of 9.5% and monthly interest payments. No maturity date was
stated in the note; however, under the terms of the Reimbursement Agreement,
upon written demand by Mr. Cameron, the Straight Note was to be replaced by a
note convertible into ATR's common stock (the "Convertible Note") in a principal
amount equal to the Straight Note and bearing interest at the same rate. The
conversion price of the Convertible Note was equal to 20% of the average trading
price of the Company's common stock over the period of ten trading days ending
on the trading day next preceding the date of issuance of such Convertible Note.
Subsequent to June 30, 1999, Mr. Cameron disposed of a portion of his interest
in the Straight Note, reducing the balance due him to $711,885, plus accrued
interest. On August 19, 1999, the Company's Board of Directors agreed with the
14
PART I. FINANCIAL INFORMATION
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Straight Note holders to fix the conversion price of the Convertible Note to
$0.044 in exchange for the Straight and/or Convertible Notes ceasing to accrue
interest as of that date. Because of the decline in revenues caused by the
non-renewal of programmer contracts and the steady decline in the quoted value
of the Company's common stock at that time (trading price was at $0.25 on August
19, 1999), the Board agreed it was in the best interest of the Company to
eliminate the future market risk that the conversion price become lower than a
fixed conversion price of $0.044. The benefit accruing to the note holders
resulting from the amendment to the conversion terms, as measured on August 19,
1999, was approximately $2.4 million and was recorded as additional interest
expense in the quarter ended September 30, 1999.
Subsequent to August 19, 1999, Mr. Cameron elected to replace his remaining
interest in the Straight Note, including accrued interest, with the Convertible
Note and then simultaneously converted the Convertible Note into 19,762,786
shares of ATR's common stock. All other Straight Note holders also replaced
their Straight Notes, including accrued interest, with Convertible Notes and
converted such Convertible Notes into an aggregate of 7,998,411 shares of the
Company's common stock during fiscal 2000.
The Company received $3,712,348 in private sales of its common stock at an
average price of $3.42 per share during fiscal year 2000.
ATR's Internet Exchange development efforts will require substantial funds prior
to generating revenues. Therefore, ATR engaged a New York based financial and
investment banking firm to assist the Company in raising capital. On August 28,
2000, the Company sold $10 million of its common stock at $3.00 per share.
Proceeds net of offering costs were approximately $9.6 million. The proceeds
from the private placement will be used to develop the Company's proposed
Internet Exchange and are expected to be sufficient to meet ATR's working
capital needs through at least this fiscal year. The Company's Chief Executive
Officer and related entities purchased 2,333,335 shares of the Company's common
stock in the private placement. Because the purchase price of such stock was
less than the public trading price on the date of purchase, the Company recorded
compensation expense of approximately $1,458,000 in the first fiscal quarter
ended September 30, 2000.
On September, 11, 2000, the Company agreed with the Series D Preferred
stockholders to exchange all their outstanding Series D shares and $475,915 in
accrued preferred stock dividends into 566,972 shares of common stock based on a
purchase price of $3.00 per common share. The benefit accruing to the Series D
Preferred stockholders was recorded in the quarter ended September 30, 2000,
approximately $317,000 in compensation expense and $862,000 in preferred stock
dividends.
The Company signed agreements effective in January 2001 with an application
services provider to license, support and run software to process medical bills
submitted to the Company's Internet exchange for healthcare services. The
agreements are for 66 months. They require payment for set-up, training and
implementation estimated to be about $145,000, monthly minimum payments
currently of about $35,000 and additional fees that are transaction based if
15
PART I. FINANCIAL INFORMATION
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
volumes exceed levels included in the monthly minimums. In addition, an initial
base license fee of $250,000 was paid in this quarter ending March 31, 2001.
Based on the steps the Company has taken to refocus its operations and obtain
additional financing, the Company believes that it has developed a viable plan
to address the Company's ability to continue as a going concern, and that this
plan will enable the Company to continue as a going concern through at least the
end of fiscal 2001. However, there can be no assurance that this plan will be
successfully implemented.
Effects of Inflation
Management does not expect inflation to have a material effect on the Company's
operating expense.
16
PART I FINANCIAL INFORMATION
Item 3 Quantitative and Qualitative Disclosures About Market Risk
The Company has long-term debt in the aggregate amount of $3,740,450 as of March
31, 2001 payable to two stockholders of the Company. The debt bears interest at
10.25% per annum and is due December 31, 2001. The Company does not believe that
any change in interest rates will have a material impact on the Company during
fiscal 2001. Further, the Company has no foreign operations and therefore is not
subject to foreign currency fluctuations.
PART II. OTHER INFORMATION
Item 1, 2, 3, 4, 5, 6
None
17
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ALTERNATIVE TECHNOLOGY RESOURCES, INC.
(Registrant)
Dated: May 8, 2001 /s/ JAMES W. CAMERON, JR.
------------------------------------------
James W. Cameron, Jr.
Chairman of the Board and Chief Financial Officer
(Principal Executive and Financial Officer)