1
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, 2002
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, Portsmouth, N.H. 03801
(Address of principal executive offices)
(603) 501-3200
(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, 2002: 60,941,353
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 2002 2001
------
---------------------- --------------------
Current assets:
Cash and cash equivalents $ 1,541,144 $ 3,159,017
Short-term investments - 1,354,137
Trade accounts receivable 284 24,252
Interest receivable 288 52,134
Prepaid expenses and other current assets 147,106 267,635
---------------------- --------------------
Total current assets 1,688,822 4,857,175
---------------------- --------------------
Property and equipment:
Equipment and software 746,215 501,626
Accumulated depreciation and amortization (236,331) (107,848)
---------------------- --------------------
Property and equipment, net 509,884 393,778
---------------------- --------------------
Prepaid annual license and service fees 236,476 259,155
Other non-current assets 25,308 67,550
---------------------- --------------------
$ 2,460,490 $ 5,577,658
====================== ====================
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Payable to Healthcare Exchange participants $ 305,515 $ 40,756
Trade accounts payable 297,067 151,371
Accrued payroll and related expenses 251,984 181,028
Accrued preferred stock dividends 283,195 283,195
Accounts payable and accrued interest payable to stockholders 706,564 728,941
Other current liabilities 362,510 295,680
---------------------- --------------------
Total current liabilities 2,206,835 1,680,971
---------------------- --------------------
Notes payable to stockholder 1,745,529 1,511,635
Convertible notes payable to stockholder 2,423,823 2,228,815
---------------------- --------------------
Total notes payable to stockholders 4,169,352 3,740,450
---------------------- --------------------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $0.01 par value - 100,000,000 shares authorized; 60,941,128
shares issued and outstanding at March 31, 2002
(59,394,844 at June 30, 2001) 609,411 593,949
Additional paid-in capital 52,211,468 49,109,283
Accumulated other comprehensive loss - (22)
Accumulated deficit (56,736,576) (49,546,973)
---------------------- --------------------
Total stockholders' equity (deficit) (3,915,697) 156,237
---------------------- --------------------
$ 2,460,490 $ 5,577,658
====================== ====================
See accompanying notes to condensed financial statements.
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALTERNATIVE TECHNOLOGY RESOURCES, INC.
Condensed Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
2002 2001 2002 2001
Healthcare exchange
Healthcare exchange revenue $ 430,308 $ - $ 792,402 $ -
Healthcare exchange costs (401,529) - (976,530) -
--------------- --------------- ---------------- --------------
Healthcare exchange gross profit (loss) 28,779 - (184,128) -
Contract programming
Contract programming revenue - 46,385 - 272,215
Programmer costs - (35,937) - (210,108)
Start-up and other costs - (982) - (9,265)
--------------- --------------- ---------------- --------------
Contract programming gross profit - 9,466 - 52,842
Selling, marketing and product development costs (1,852,186) (1,227,696) (4,903,843) (3,523,618)
General and administrative expenses (673,076) (640,279) (1,778,955) (3,271,838)
---------------- --------------- ---------------- --------------
Loss from operations (2,496,483) (1,858,509) (6,866,926) (6,742,614)
Other income (expense)
Interest income 744 114,057 41,523 379,693
Interest expense to stockholders and directors (111,673) (102,789) (364,200) (339,380)
--------------- --------------- ---------------- --------------
Total other income (expense) (110,929) 11,268 (322,677) 40,313
--------------- --------------- ---------------- --------------
Net loss (2,607,412) (1,847,241) (7,189,603) (6,702,301)
Preferred stock dividends in arrears - - - (886,142)
--------------- --------------- ---------------- --------------
Net loss applicable to common stockholders $ (2,607,412) $ (1,847,241) $ (7,189,603) $(7,588,443)
=============== =============== ================ ==============
Basic and diluted net loss applicable to common
stockholders per share $ (0.04) $ (.03) $ (0.12) $ (0.13)
=============== =============== ================ ==============
Shares used in per share calculations 61,261,644 59,358,090 60,019,455 58,454,427
=============== =============== ================ ==============
See accompanying notes to condensed financial statements.
4
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALTERNATIVE TECHNOLOGY RESOURCES, INC.
Condensed Statements of Cash Flows
(Unaudited)
Nine Months Ended
March 31,
2002 2001
------------------------ ----------------------
Net cash used in operating activities $ (6,138,409) $ (5,100,044)
------------------------ ----------------------
Cash flows used in investing activities:
Purchases of property and equipment (244,589) (134,709)
Purchase of short-term investments - (3,358,676)
Maturities of short-term investments 1,354,159 -
------------------------ ----------------------
Net cash provided (used) by investing activities 1,109,570 (3,493,385)
------------------------ ----------------------
Cash flows from financing activities:
Proceeds from sale of common stock 2,743,787 9,560,345
Proceeds from exercise of options and warrants 238,277 42,233
Proceeds from notes payable to stockholders 428,902 233,026
Payments on notes payable to stockholders - (60,000)
Payments on notes payable to directors - (23,324)
------------------------ ----------------------
Net cash provided by financing activities 3,410,966 9,752,280
------------------------ ----------------------
Net increase (decrease) in cash and cash equivalents (1,617,873) 1,158,851
Cash and cash equivalents at beginning of period 3,159,017 1,909,421
------------------------ ----------------------
Cash and cash equivalents at end of period $ 1,541,144 $ 3,068,272
======================== ======================
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, 2002
(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,
2001.
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, 2002
and June 30, 2001, results of operations for the three and nine months ended
March 31, 2002 and 2001, and cash flows for the nine months ended March 31, 2002
and 2001. The results for the period ended March 31, 2002 are not necessarily
indicative of the results to be expected for the entire fiscal year ending June
30, 2002.
The Company has incurred operating losses since inception, which have resulted
in an accumulated deficit of $56,736,576 at March 31, 2002. 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, at least through the end of fiscal
year 2002. The company is currently seeking to raise up to $12,000,000 by
selling up to 5,333,333 shares of its common stock at $2.25 per share. Through
March 31, 2002 the Company has received $2,773,315 through the sale of 1,232,585
shares pursuant to this offering. Proceeds net of offering costs were $2,743,786
[see Part I Item 2 "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources"].
There can be no assurance that this plan will be successfully implemented. If
the offering is not fully subscribed, the Company may be required to reduce the
development efforts of its Healthcare Exchange or be forced into seeking
protection under federal bankruptcy laws. As a result, the report of independent
auditors on the Company's June 30, 2001 financial statements includes an
explanatory paragraph indicating there is substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
6
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Note 2 - Financing Arrangements
See Part I, Item 2 "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
Note 3 - Comprehensive Loss
Total comprehensive loss for the three months ended March 31, 2002 and 2001 was
$2,607,412, and $1,849,730, and $7,189,581 and $6,700,691 for the nine months
ended March 2002 and 2001 respectively. Other comprehensive income (loss)
represents the net change in unrealized gains (losses) on available-for-sale
securities.
Note 4 - Net Loss Per Share
Loss per share amounts for all periods have been presented in accordance with
Statement of Financial Accounting Standards Board No. 128, "Earnings per Share."
As the Company has reported net losses in all periods presented, basic and
diluted loss per share have been calculated on the basis of net loss applicable
to common stockholders divided by the weighted average number of common stock
shares outstanding without giving effect to outstanding options, warrants, and
convertible securities whose effects are anti-dilutive. For the three and nine
months ended March 31, 2002 and 2001 there were stock options, stock warrants,
and a convertible note payable outstanding, which could potentially dilute
earnings per share in the future but were not included in the computation of
diluted loss per share as their effect was anti-dilutive in the periods
presented.
Note 5 - Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Boards issued Statements of
Financial Accounting Standards No. 141, "Business Combinations," or SFAS 141 and
No. 142, "Goodwill and Other Intangible Assets," or SFAS 142. SFAS 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. Use of the pooling-of-interests method is no
longer permitted. SFAS 141 also includes guidance on the initial recognition and
measurement of goodwill and other intangible assets acquired in a business
combination that is completed after June 30, 2001. SFAS 142 no longer permits
the amortization of goodwill and indefinite-lived intangible assets. Instead,
these assets must be reviewed annually (or more frequently under certain
conditions) for impairment in accordance with this statement. Intangible assets
that do not have indefinite lives will continue to be amortized over their
useful lives and reviewed for impairment in accordance with existing guidance.
We are required to adopt SFAS 142 effective July 1, 2002. Because the Company
has historically not been party to any business combinations and therefore has
not recorded related goodwill and intangible assets, the adoption of SFAS 141
and 142 did not and will not, respectively, have an effect on the Company's
results of operations, financial position or cash flows.
7
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
In October 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 supersedes
SFAS 121, however it retains the fundamental provisions of that statement
related to the recognition and measurement of the impairment of long-lived
assets to be "held and used." Among other things, SFAS 144 provides more
guidance on estimating cash flows when performing a recoverability test. The
Company will adopt SFAS 144 effective July 1, 2002. Management does not expect
that the adoption of SFAS 144 will have an effect on the Company's results of
operations, financial condition or cash flows.
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 Form 10-K for the fiscal
year ended June 30, 2001.
Overview
General
Alternative Technology Resources, Inc. (hereinafter referred to as "ATR," the
"Company," "we" or "us") has developed and is operating an Exchange for
healthcare services ("Healthcare Exchange"). The purpose of the Healthcare
Exchange is to utilize the Internet and other technologies to facilitate
Provider initiated discounts and administrative, billing and remittance services
for all commercial lines of business in the healthcare industry. The Healthcare
Exchange offers a direct and efficient conduit between Providers and Purchasers
of healthcare services and/or their agents, such as Preferred Provider
Organizations.
The purpose of the Healthcare Exchange is to utilize the Internet and other
technologies to facilitate Provider initiated discounts and administrative,
billing and remittance services for all commercial lines of business within the
healthcare industry. Our Healthcare Exchange offers a direct and efficient
conduit between Providers and Purchasers of health care services, their PPOs'
and/or their agents. Providers submit bills to the Company, who reprices the
bills to the rate set by the Providers, including adding a
transaction-processing fee, and then routes them to Purchasers or their
intermediaries. The Company receives payments from Purchasers on behalf of
Providers, and then remits payments to Providers.
ATR's Healthcare Exchange began operations with a limited number of Providers
and Purchasers in the quarter ending June 30, 2001. The Company continues to
receive, process and analyze operating data, and the results of the Company's
analysis will determine the amount and timing of remaining development related
efforts.
The Company is currently recruiting medical doctors, medical groups, hospitals
and other health care practitioners (collectively, "Providers") in thirty-two
markets in twenty-two states to offer their services through the Healthcare
Exchange to those who purchase or facilitate the purchase of healthcare services
("Purchasers").
8
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The Company has outsourced to multiple vendors portions of the development and
operations of the information systems for its Healthcare Exchange. 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 Healthcare Exchange. ATR has also signed agreements to receive
claims from Providers through electronic clearinghouses and to convert paper
claims into electronic formats. ATR is evaluating other potential technology
vendors as well.
ATR does not provide healthcare services, but rather expects to act as a neutral
conduit for efficiency between Providers, Purchasers and their intermediaries
including preferred provider organizations, that should benefit all. ATR
believes that reducing 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.
History
Alternative Technology Resources, Inc. was founded as 3Net Systems, Inc. in
1989. In August 1999, James W. Cameron, Jr., the Company'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 a Healthcare Exchange
under the name "DoctorandPatient."
In February 2000, Jeffrey S. McCormick assumed the position of the Company'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 the Company's CEO, Mr. McCormick is responsible for all
phases of development, implementation and operation of the Company's Healthcare
Exchange. Mr. Cameron still acts as Chairman and Chief Financial Officer and
continues to play an active and substantial role in formulating the Company's
business strategy and policy.
The Company is using its management's experience in health care and information
technology to establish the Healthcare Exchange, which has become the Company's
sole focus. At present, the Healthcare Exchange is operating with a limited
number of Providers so the Company can refine its model and determine the amount
and timing of remaining development efforts. ATR's previous business was
recruiting, hiring, and training foreign computer programmers and placing them
with U.S. companies. In line with the Company's strategy to focus on the
establishment of a Healthcare Exchange for health care services, ATR suspended
recruitment of foreign computer programmers in December 1999 and began pursuing
the conversion of foreign computer programmers to become employees of ATR's
customers. This conversion process was complete as of June 30, 2001, and the
Company is no longer in that line of business.
9
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Critical Accounting Policies
Revenue Recognition. The Company has developed a proof of concept of its
Healthcare Exchange. The Company recognizes revenue for the
transaction-processing fee when it is earned and if no other contractual
obligations or contingencies exist.
Product Development Costs. In October 1999, the Company began incurring costs to
develop its Healthcare Exchange. In accordance with SOP 98-5, "Reporting Costs
on Start-Up Activities," start-up costs associated with the Healthcare Exchange
have been expensed as incurred.
Stock-Based Compensation. The Company has elected to account for stock-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Under the intrinsic value method, compensation cost is the excess, if any, of
the quoted market price or fair value of the stock at the grant date or other
measurement date over the amount an employee must pay to acquire the stock.
Prepaid License and Service Fees. Prepaid license and services fees are recorded
at cost and amortized on a straight-line basis over the service period of 66
months. Management considers whether indicators of impairment of these assets
are present at each balance sheet date and an impairment loss is recorded, if
necessary.
Financial Condition
Cash and cash equivalents decreased approximately $1,617,873 and short-term
investments decreased $1,354,137 since June 30, 2001. At March 31, 2002
substantially all of ATR's cash was invested in money market accounts.
Because the Company is emphasizing the development of the Healthcare Exchange,
the results of operation for the nine months ended March 31, 2002 may not be
indicative of results of operations for the year ended June 30, 2002.
Results of Operation
Healthcare Exchange
Healthcare Exchange Revenue. The Company developed a proof of concept of its
Healthcare Exchange, which began operations with a limited number of Providers
in the three-month period ending June 30, 2001. Providers submit bills to ATR,
who reprices the bills to the Provider's Healthcare Exchange rate, including
adding a transaction-processing fee, and then routes them to Purchasers or their
intermediaries. ATR receives payments from Purchasers on behalf of Providers,
and then remits payments to Providers. The Company recognizes revenue for the
transaction-processing fee when earned and no other contractual obligations or
10
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
contingencies exist. During the three and nine month periods ending March 31,
2002 $430,308 and $792,402 of revenue was recognized, respectively. No
Healthcare Exchange revenue was generated during the three and nine month
periods ending March 31, 2001.
Healthcare Exchange Costs. Healthcare Exchange costs are the direct costs
related to the processing of the bills submitted by Providers and payments
received from Purchasers. These costs include the salary and other wage and
benefit costs of the Healthcare Exchange operations staff and the operating cost
of the application services provider. The costs for three and nine month periods
ending March 31, 2002 were $401,529 and $976,530, respectively. No Healthcare
Exchange costs were incurred for the three and nine month periods ending March
31, 2001.
Contract Programming
Contract Programming Revenue. ATR's previous business was recruiting, hiring,
training and placing foreign computer programmers with U.S. companies. In line
with the Company's strategy to focus on the establishment of the Healthcare
Exchange for health care services, ATR suspended recruitment of foreign computer
programmers in December 1999 and began pursuing the conversion of computer
programmers to employees of ATR's former customers. This conversion process was
complete as of June 30, 2001. For the three and nine month periods ending March
31, 2001, $46,385 and $272,215 in revenue was generated primarily from sales of
programmer services.
Programmer Costs. Programmer costs were salary, and other wage and benefit costs
of ATR's programmer employees. Due to the final phase out of contract
programming business through conversion of the computer programmers to employees
of ATR's customers as of June 30, 2001, as discussed above in "Contract
Programming Revenue," no contract programming costs were incurred for the three
and nine month periods ending March 31, 2002. There were $35,937 and $210,108 in
programmer costs for the three and nine month periods ending March 31, 2001.
Start-up and Other Costs. Start-up and other costs represent 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 were expensed as incurred. There were no start-up and other
costs for the three and nine month periods ending March 31, 2002 as compared to
$982 and $9,265 for the three and nine month periods ending March 31, 2001.
Selling, Marketing and Product Development Costs
In October 1999 the Company began incurring costs to develop its Healthcare
Exchange. Costs incurred are primarily salary, other wage and benefit costs of
ATR's employees and other operational costs associated with recruiting the
11
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
network of healthcare Providers. The cost increase of $624,490 and $1,380,225
for the three and nine month periods ending March 31, 2002 compared to the same
period in the prior fiscal year is primarily the result of the increase of sales
and marketing staff to 71 at quarter end March 31, 2002 from 32 at quarter end
March 31, 2001.
General and Administrative Expenses
General and administrative expenses increased $32,797 for the three-month period
ended March 31, 2002 over the same period of the prior fiscal year due to
additional support staff and related administrative expenses. The nine month
period ending March 31, 2002 decreased $1,492,883 compared to the same period of
the prior fiscal year due primarily to 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 and non-cash
compensation due to conversion of Series D Preferred Stock into common stock by
the Company's Chairman of the Board recorded during the nine-month period ended
March 31, 2001. During the nine-month period ending March 31, 2002 non-cash
compensation expense of $135,583, related to the purchase of common stock in the
Company's January 2002 private placement by the Company's Chairman, was
recorded. The period ending March 31, 2002 reflects an increase of employees and
related costs to support development efforts of the Healthcare Exchange.
Other Income (Expense)
Interest Income. Interest income is related to the short-term investment of cash
balances. The decrease is the result of reduced cash balances in the three and
nine month period ending March 31, 2002 as compared to the same period in fiscal
2001.
Interest Expense. Interest expense increased $8,884 and $24,820 in the three and
nine months ended March 31, 2002 primarily due to the increase in Notes Payable
to Stockholder and Convertible Notes Payable to Stockholder balances.
Income Taxes
As of June 30, 2001 the Company had net operating loss carryforwards for federal
and state income tax purposes of approximately $37 million and $21 million,
respectively. The federal net operating loss carryforwards expire in 2004
through 2020 and the state net operating loss carryforwards expire in 2001
through 2010. The Company also has approximately $98,000 and $25,000 of research
and development tax credit carryforwards for federal and state income tax
purposes, respectively. The federal research and development tax credit
carryforwards expire in 2005.
Under certain provisions of the Internal Revenue Code of 1986, as amended,
portions of the net operating loss carryforward and research and development tax
credit carryforward are subject to annual limitations as a result of changes in
the ownership of the company.
12
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
Beginning in the three-month period ended June 30, 2001, ATR began limited
operations of its Healthcare Exchange. For the nine-months ended March 31, 2002,
the Company earned $792,402 in revenues but incurred a $7,189,603 loss. Until
the Company can generate sufficient revenue to finance its operations, the
Company will have to seek other financing. 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 $56,736,576
at March 31, 2002.
The Company's Healthcare Exchange development efforts will require substantial
funds prior to generating sufficient revenues to fund operations and repay debt.
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, at least through the end of fiscal
year 2002. The Company is currently seeking to raise up to $12,000,000 by
selling up to 5,333,333 shares of its common stock at $2.25 per share in a
private placement. The common stock to be issued in the private placement will
be restricted securities. In the event that within one year from the final
closing the Company sells shares of common stock, or securities exercisable to
convertible into common stock, at a price less than $2.25 per share, the Company
will issue additional shares to Investors in an amount such that the overall
purchase price will be equal to the lower, subsequent sales price. The forgoing
shall exclude common stock that may be issued in connection with a merger, as a
dividend, pursuant to the exercise of outstanding options, warrants and other
convertible securities and pursuant to options subsequently issued to employees.
Through March 31, 2002 the Company has received $2,773,315 through the sale of
1,232,585 shares pursuant to this offering. Proceeds net of offering costs were
$2,743,786. The proceeds from the private placement will be used to funds
operations and repay debt. The Company's Chairman and Chief Financial Officer
purchased 222,222 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 $135,583 during the quarter ending March 31, 2002.
During the quarter ending March 31, 2002, the Company issued 284,200 shares of
common stock through the exercise of warrants for the amount of $213,150.
On August 28, 2000, the Company sold 3,333,334 shares of its common stock at
$3.00 per share. Proceeds, net of offering costs, were approximately $9,560,345.
Proceeds are being used to develop the Company's Healthcare Exchange. 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 $1,458,334 in the
first fiscal quarter ended September 30, 2000.
13
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
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 $316,702 in compensation expense and $862,000 in preferred stock
dividends.
The Company has received short-term, unsecured financing to fund its operations
in the form of notes payable of $3,740,450 as of June 30, 2001, 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 September 1, 2001 the due dates of these notes
were extended from December 31, 2001 to December 31, 2002. Mr. Cameron's
extended notes total $1,630,529, including accrued interest and extension fees
of 2%, and bear interest at 10.25% per annum. The convertible promissory notes
total $2,423,823, including accrued interest at 10.25% per annum. During the
quarter ending March 31, 2002 Mr. Cameron extended to the Company a short-term
note of $115,000 bearing interest at 10.25% per annum with a due date of April
10, 2002. Subsequent to March 31, 2002, this note and accrued interest of
$1,259.31 was paid prior to the due date.
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 Healthcare Exchange. The agreements are for 66
months. They required payment of an initial base license fee of $250,000, which
is being amortized over 66 months, and start-up costs, including data center set
up, training and implementation fees of approximately $145,000, which were
expensed. The agreements require monthly minimum payments currently of about
$35,000 and additional fees that are transaction based if volumes exceed levels
included in the monthly minimums.
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 2002. However, the Company needs to raise additional funds during
fiscal 2002. There can be no assurance that this plan will be successfully
implemented. If unsuccessful the Company may be required to reduce the
development efforts or its Healthcare Exchange or be forced into seeking
14
PART I. Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
protection under federal bankruptcy laws. As a result, the report of independent
auditors on the Company's June 30, 2001 financial statements includes an
explanatory paragraph indicating there is substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
Effects of Inflation
Management does not expect inflation to have a material effect on the Company's
operating expense.
PART I. FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has long-term debt in the aggregate amount of $4,169,352 as of March
31, 2002 payable to two stockholders of the Company. The debt bears interest at
10.25% per annum and is due December 31, 2002. The Company does not believe that
any change in interest rates will have a material impact on the Company during
fiscal 2002. Further, the Company has no foreign operations and therefore is not
subject to foreign currency fluctuations.
PART II. OTHER INFORMATION
Item 1 None
Item 2 Changes in Securities and Use of Proceeds.
(c) On January 9, 2002 the Board of Directors unanimously approved to issue and
sell up to 5,333,333 shares of Common Stock at $2.25 pursuant to a Private
Placement. Assuming that the offering is fully subscribed, the Company will
receive approximately $12,000,000 in gross proceeds. This amount is before
expenses of the offering of approximately $100,000 and potential finders fees,
which will not exceed 10% of the gross proceeds in the aggregate. We intend to
use the net proceeds of the offering (after expenses) to develop our Healthcare
Exchange and for other general working capital purposes. Subscription proceeds
received as of quarter ending March 31, 2002 are $2,773,315 through the sale of
1,232,585 shares of common stock. The Company's Chief Financial Officer, James
W. Cameron, Jr., purchased 222,222 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 dates of purchase, the Company recorded compensation
expense of $135,583 in the quarter ending March 31, 2002. The Company is relying
on Regulation D, Rule 506, as an exemption from registration.
Item 3, 4, 5, 6 None
15
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 13, 2002
/S/ JAMES W. CAMERON, JR.
-------------------------------------------------
James W. Cameron, Jr.
Chairman of the Board and Chief Financial Officer
(Principal Executive and Financial Officer)