As filed with Commission on February 7, 2003 File No. 333-101299
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Alternative Technology Resources, Inc.
(Exact name of registrant as specified in its charter)
Delaware 7371 93-1011046
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(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code) Identification No.)
organization)
33 Jewell Court, Portsmouth, New Hampshire 03801
Telephone: (916) 231-0400
(Address and telephone number of principal executive offices)
Jeffrey S. McCormick, Chief Executive Officer
Alternative Technology Resources, Inc.
33 Jewell Court
Portsmouth, New Hampshire 03801
Telephone: (916) 231-0400
(Name, address and telephone number of agent for service)
Copies to: Daniel B. Eng, Esq.
Bartel Eng & Schroder
300 Capitol Mall, Suite 1100, Sacramento, California 95814
Telephone: (916) 442-0400
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
====================================================================================================================
Title of each class of Amount of shares Proposed maximum Proposed maximum Amount of
securities to be registered to be Registered offering price per aggregate offering registration fee
share price
====================================================================================================================
Common Stock, par value $0.01 6,422,315 $0.90 (1) $5,780,084 $532(3)
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Common Stock, par value $0.01,
that may be issued upon the
conversion of Convertible Note 1,000,000 $0.90 (1) $ 900,000 $ 83(3)
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Common Stock, par value $0.01,
that may be issued upon
exercise of warrants 675,000 $0.90 (1) $607,500 $ 57(3)
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Common Stock, par value $0.01,
that may be issued upon
exercise of warrants 1,949,494 $0.50 (2) $974,747 $ 90
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Total 10,046,809 $8,262,331 $762(4)
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(1) Fee calculated in accordance with Rule 457 of the Securities Act of 1933, as
amended ("Securities Act"). Estimated for the sole purpose of calculating
the registration fee and based upon the average quotation of the high and
low price per share of our common stock on November 18, 2002, as quoted
on the OTC Bulletin Board.
(2) Fee calculated in accordance with Rule 457 of the Securities Act of 1933, as
amended ("Securities Act"). Estimated for the sole purpose of calculating
the registration fee and based upon the average quotation of the high and
low price per share of our common stock on February 5, 2003, as quoted
on the OTC Bulletin Board.
(3) Fee already paid.
(4) Includes filing fee of which $672 has been previously paid.
The registrant hereby amends this registration statement on the date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on the date as the Commission, acting pursuant to said Section 8(a),
may determine.
Subject to Completion
PROSPECTUS Dated February 7, 2002
10,028,809 Shares
Alternative Technology Resources, Inc.
Common Stock
--------------------------
This prospectus relates to the resale by the selling stockholders of up to
10,028,809 shares of common stock including 3,624,494 shares of common stock
that may be resold by selling stockholders upon the exercise of outstanding
warrants and upon the conversion of convertible notes. The selling stockholders
may sell the common stock from time to time in the over-the-counter market at
the prevailing market price or in negotiated transactions.
We will not receive any proceeds from the resale of shares of common stock
by the selling stockholders. We will pay for expenses of this offering.
Our common stock is quoted on the OTC Bulletin Board under the symbol ATEK.
On February 6, 2003, the closing bid quotation for one share of common stock was
$0.50. We do not have any other securities that are currently traded on any
other exchange or quotation system.
--------------------------
Investing in our common stock involves a high degree of risk. See "Risk Factors"
beginning on page 5 of this prospectus.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------------
The Date of this Prospectus is February 7, 2003
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission becomes effective. This prospectus is not an
offer to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted or would be
unlawful prior to registration or qualification under the securities laws of any
such state.
TABLE OF CONTENTS
Page
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PROSPECTUS SUMMARY............................................................3
RISK FACTORS..................................................................5
FORWARD LOOKING STATEMENTS...................................................10
THE OFFERING.................................................................10
USE OF PROCEEDS..............................................................11
PRICE RANGE OF OUR COMMON STOCK................. ............................11
DIVIDEND POLICY..............................................................12
SELECTED FINANCIAL DATA......................................................13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................................13
DESCRIPTION OF BUSINESS......................................................22
MANAGEMENT...................................................................28
PLAN OF DISTRIBUTION.........................................................34
SELLING SHAREHOLDERS.........................................................36
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................38
DESCRIPTION OF SECURITIES....................................................39
EXPERTS......................................................................40
AVAILABLE INFORMATION........................................................40
INDEX TO FINANCIAL STATEMENTS...............................................F-1
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are not
making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information provided by this
prospectus is accurate as of any date other than the date on the front cover
page for this prospectus.
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and the financial statements appearing elsewhere in this prospectus.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
those set forth under "Risk Factors" and elsewhere in this prospectus.
Our Business
We have developed and are currently operating an Exchange for healthcare
services ("Healthcare Exchange"). The purpose of the Healthcare Exchange is to
utilize the Internet and other technologies to facilitate healthcare 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 medical doctors, medical groups,
hospitals and other healthcare practitioners (collectively "Providers") and
those who purchase or facilitate the purchase of healthcare services
("Purchasers").
We do not provide healthcare services, but rather act as a neutral conduit
to promote efficiency between Providers, Purchasers and their intermediaries
including preferred provider organizations. Providers submit their bills to us,
and we process and reprice the bills to the rate set by the Providers, including
adding a transaction-processing fee. We then route the adjusted bills to the
Purchasers or their intermediaries. Upon receipt of the payments from the
Purchasers, we remit the payments to Providers. We believe 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.
Our Healthcare Exchange began operations with a limited number of Providers
and Purchasers in the quarter ending June 30, 2001. We continue to receive,
process and analyze operating data, and the results of our analysis will
determine the amount and timing of remaining development related efforts.
Our business address is 33 Jewell Court, Portsmouth, New Hampshire 03801,
and our telephone number is (916) 231-0400.
Offering Summary
The selling shareholders may sell up to 10,028,809 shares of common stock
for resale, including 3,624,494 shares that may be resold upon the exercise of
outstanding warrants and conversion of a convertible note.
The selling stockholders listed in the prospectus may sell all, some, or
none of their common stock registered pursuant to this Prospectus. We will not
receive any proceeds from the offering.
Summary of Selected Financial Data
As of and for the
Three Months Ended
As of and for the Years Ended June 30 September 30
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2002 2001 2000 1999 1998 2002 2001
Statement of Operations Data:
Healthcare exchange revenue $ 1,642,565 $ 50,944 $ - $ - $ - $ 776,560 $ 108,218
Healthcare exchange gross profit(loss $ 179,048 $ (33,584) $ - $ - $ - $ 232,858 $ (116,570)
Contract programming revenue $ - $ 308,469 $ 2,561,101 $ 6,340,235 $ 5,250,002 $ - $ -
Selling, market and product
development costs $(7,076,558) $(5,097,513) $ (1,154,244) $ - $ - $(1,397,306) $(1,105,195)
General and administrative expenses $(2,482,272) $(3,850,971) $ (1,276,726) $(1,223,539) $(1,336,342) $ (509,015) $ (505,834)
$(9,379,782) $(8,919,271) $ (2,008,908) $ (192,646) $ (805,963) $(1,673,463) $(2,127,599)
Loss from operations
$(9,815,906) $(8,914,755) $ (4,815,641) $ (716,747) $(1,243,944) $(1,886,806) $(2,233,983)
Net loss
Basic and diluted net loss per share $ (0.16) $ (0.17) $ (0.10) $ (0.03) $ (0.05) $ (0.03) $ (0.04)
Shares used in per share
calculations 59,936,435 58,686,778 50,329,614 26,127,730 25,964,142 61,016,315 59,401,860
Balance Sheet Data:
Total assets $ 1,203,309 $ 5,577,658 $ 2,502,703 $ 599,440 $ 837,353 $ 1,812,858 $ 3,733,569
Long-term obligations $ - $ 3,740,450 $ 3,567,424 $ 4,258,090 $ 4,006,565 $ - $ 4,054,352
Accrued preferred stock dividends $ 283,195 $ 283,195 $ 735,001 $ 612,501 $ 490,001 $ 283,195 $ 283,195
Redeemable preferred stock, Series D $ - $ - $ 1,225,002 $ 1,225,002 $ 1,225,002 $ - $ -
Stockholders' equity (deficit) $(5,890,914) $ 156,237 $ (2,974,406) $(5,587,475) $(4,844,274) $(7,315,766) $(2,058,472)
Note:
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Through fiscal year 2001, our business was recruiting, hiring, training and
placing foreign computer programmers with U.S. companies. In line with our
strategy to focus on the establishment of the Healthcare Exchange for
healthcare services, we suspended recruitment of foreign programmers in
December 1999 and began pursuing the conversion of computer programmers to
employees of our customers. This conversion was complete as of June 30,
2001.
RISK FACTORS
In addition to the other information we provide in this prospectus, you
should carefully consider the following risks before deciding whether to invest
in our common stock. These are not the only risks we face. Some risks are not
yet known to us and there are others we do not currently believe are material
but could later turn out to be so. All of these could impair our business,
operating results or financial condition. In evaluating the risks of investing
in us, you should also evaluate the other information set forth in this
prospectus, including our financial statements.
Risks Related to Our Business
We only have a limited operating history in the healthcare and Internet
industries that investors may use to assess our future prospects.
We only recently began operating in the Internet and healthcare industries.
We have not generated significant revenues and may never generate sufficient
revenues to achieve profitability in this new venture. We have limited
experience addressing challenges frequently encountered by early-stage companies
in the electronic commerce and healthcare industries. Accordingly, our limited
operating history does not provide investors with a meaningful basis for
evaluating an investment in our common stock.
The likelihood of our success must be considered in light of the potential
problems, expenses, difficulties, complications and delays frequently
encountered in connection with any enterprise starting a new business with a
completely new business plan, particularly in new and rapidly evolving markets
such as the Internet. Such risks include an evolving, untested and unpredictable
business model, the creation of brand identity, the expansion or creation of
competing services, the uncertainty of the acceptance of the marketing medium
and the management of anticipated growth.
Our current operations are not profitable and we have a history of significant
losses.
We have experienced losses since our inception. Our net loss applicable to
common stockholders for the years ended June 30, 2002 and 2001 was $9,815,906
and $9,800,897. For the three months ended September 30, 2002, we incurred a net
loss of $1,812,858. As of June 30, 2001 we had completed the phase out of the
contract programmer operations that resulted in previous operating losses.
However, there is no assurance we can develop our Healthcare Exchange into a
profitable and sustainable business. As a result, the report of independent
auditors on our June 30, 2002 financial statements includes an explanatory
paragraph indicating there is substantial doubt about our 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.
Our growth depends on industry acceptance of our healthcare products and
services.
The time, expense and effort of securing Purchasers and Providers may
exceed our expectations and may negatively impact our business and operating
results. The decision to implement our products and services requires time
intensive education of both Providers and Purchasers of the advantages of our
products and services. The failure of industry participants to accept our
services and products as a replacement for traditional methods of operations
could limit our revenue growth. We, therefore, will devote significant resources
and incur costs without any assurance that sufficient medical providers will
join our network or that Purchasers will use our products or services. In the
event that Purchasers do not use our products or services, we may have incurred
substantial costs that cannot be recovered and which will not result in future
revenues.
We need additional financing.
Based on the steps we have taken to refocus our operations and obtain
additional financing, we believe that we have developed a viable plan to address
our ability to continue as a going concern, and that this plan will enable us to
continue as a going concern through at least the end of fiscal 2003. However, we
may need to raise additional funds in the future to fully develop our Healthcare
Exchange and implement our business plan. If we are unable to raise additional
funds, we may be required to reduce the development efforts of our Healthcare
Exchange or be forced into seeking protection under federal bankruptcy laws.
Traditionally, we have relied on major stockholders or affiliates to finance our
operations. However, there can be no assurance that they will continue to do so.
The issuance of additional shares of common stock will dilute the ownership of
existing stockholders.
Our future revenue growth depends upon our establishment and maintenance of
successful relationships with Providers and strategic vendors in order to
attract Purchasers to our products and services.
We believe that our future revenue growth depends in part upon the
successful creation and maintenance of relationships with Providers, Purchasers
and strategic vendors. To date we have established relationships with a small
number of the Providers that we are targeting. In order to successfully attract
Purchasers, we may need to have a large number of relationships with Providers
with diverse practices and over broad geographic areas. We may not be able to
adequately develop relationships with the number of Providers necessary to
achieve this type of coverage and those already existing relationships with
Providers may not be ultimately successful.
We have signed agreements effective in January 2001 with an application
services provider to license, support and run software to process medical bills
submitted to our Healthcare Exchange. We have also signed agreements to receive
claims from Providers through electronic clearing houses and to convert paper
claims into electronic formats. These relationships are non-exclusive.
In September 1999, we entered into an agreement with WebMD Corp. to develop
a web-based portal through which patients can procure health services. This
relationship is nonexclusive and the status of the project is currently being
reevaluated by the parties.
We may enter into additional strategic relationships in the future and are
currently evaluating other potential technology vendors. Strategic vendors may
offer products or services of several different companies, including products
and services that compete with our products or services. Strategic vendors may
be influenced by our competitors to scale back or end their relationships with
us. We may not establish additional strategic relationships, and any
relationships we do establish ultimately may be unsuccessful.
If we are unable to establish and maintain successful relationships with
Providers or strategic vendors, we may have to devote substantially more
resources to the sales and marketing of our products and services.
The failure of our Providers to provide high quality services will diminish our
brand value and the number of Purchasers who use our proposed services may
decline.
Promotion of our brand value depends on our ability to provide a high
quality experience for both Purchasers and Providers. If our Providers do not
provide Purchasers high quality service, the value of our services could be
damaged and the number of Purchasers using our proposed services may decrease.
The failure by our Providers to provide the level of healthcare that Purchasers
expect will result in low satisfaction, damage to our brand name and could
materially and adversely affect our business, results of operations and
financial condition.
Failure to manage our growth effectively could harm our business and operating
results.
We have hired a significant number of new employees and will continue to
add personnel to maintain our ability to grow in the future. Our growth will
place significant strain upon our management and operational systems and
resources. We must integrate our new employees into a cohesive team and at the
same time increase the total number of employees and train and manage our
employee work force in a timely and effective manner to expand our business. We
may not be able to do so successfully.
Our business could suffer if the integrity of our systems and the systems of
those third parties we depend on are inadequate.
We will depend on third parties to develop significant portions of the
information systems for our Healthcare Exchange. Any failure of the systems we
are developing, or those of third parties, could harm our business and operating
results. We intend for these systems to process vast amounts of pricing and
financial data and execute large numbers of payment transactions. Any delay or
failure in these systems or in our ability to communicate electronically with
Purchasers or in our ability to collect, store, analyze or process accurately
pricing and financial data may result in the denial of claims, or in the delay
or failure to execute payment transactions accurately. This type of delay or
failure would harm our business and operating results.
Our business and reputation may be harmed if we are unable to protect the
privacy of our confidential health information.
Our information systems and Internet communications may be vulnerable to
damage from physical break-ins, computer viruses, programming errors, attacks by
computer hackers and similar disruptive problems. A user who is able to access
our computer or communication systems could gain access to confidential health
information of individuals. Therefore, a material security breach could harm our
business and our reputation or could result in liability to us.
Our future revenue growth depends in part on increasing use of the Internet and
on the growth of e-commerce.
Rapid growth in the use of the Internet is a recent phenomenon. As a
result, its acceptance and use may not continue to develop at historical rates
and a sufficiently broad base of business customers and individual customers may
not adopt or continue to use the Internet as a medium of commerce. Demand and
market acceptance for recently introduced products and services over the
Internet are subject to a high level of uncertainty, and there exist few proven
products and services.
Our future profitability depends, in part, upon increased Provider and
Purchaser demand for additional Internet and e-commerce solutions that we are in
the process of developing or may develop in the future.
Our ability to comply with the Health Insurance Portability and Accountability
Act of 1996 (HIPAA) could harm our business and operating results.
The Health Insurance Portability and Accountability Act of 1996 (HIPAA)
will impose obligations previously unknown on the healthcare industry. HIPAA is
designed to reduce the amount of administrative waste in the healthcare industry
and to protect the privacy of patients' medical information. HIPAA establishes
new requirements for the confidentiality of patient health information and
standard formats for the secure transmission of healthcare data among healthcare
providers and purchasers. HIPAA, among other things, will create federal
criminal penalties for health plans, providers and claims clearinghouses that
knowingly and improperly disclose information or obtain information under false
pretenses. The regulations regarding the standard formats for the secure
transmission of healthcare information will become effective in October 2002,
but extended to October 2003 if an extension is requested and a compliance plan
is filed with Secretary of the Department of Health and Human Services. The
regulations regarding privacy issues will become effective in April 2003.
We were aware of and tried to incorporate HIPAA requirements or their
timely adoption as our products and services were developed. We have filed a
compliance plan and a request for extension to October 2003 to comply with the
standard formats requirements. We are currently reviewing processes, systems or
policies that may require modification, and we are working to implement
appropriate changes to avoid any adverse impact on our ability to perform
services in accordance with HIPAA standards. We are also communicating with
significant third-party service providers to assess their readiness and the
extent to which we will need to modify our agreements or relationships with them
to comply with HIPAA standards.
The cost of this compliance effort is estimated to be less than $100,000.
However, there can be no guarantee that the costs will not materially exceed
this, or that changes in federal standards would require expending additional
resources.
State and local laws regarding confidentiality and security of health
information could harm our business and operating results.
The confidentiality of patient records and claims data and the
circumstances under which records and data may be released or must be secured
for inclusion in our databases may be subject to substantial regulation by state
governments. These state laws govern both the disclosure and the use of
confidential patient medical records. Although compliance with these laws
currently is principally the responsibility of Providers and health plans, these
regulations may be extended to cover our business and the claims data and other
information that we include in our databases. If these laws are extended to
cover our business, we may be required to expend additional resources in order
to comply with these laws, including changes to our security practices, and may
be exposed to greater liability in the event we fail to comply with these laws.
State laws and regulations concerning the marketing of health provider services
over the Internet could harm our business and operating results.
The offering of health provider services is subject to extensive regulation
under state laws. Under some state laws, regulators may take the position that a
registration fee for Purchaser access to favorable fees from Providers requires
meeting the requirements for licensing as a health plan or health insurer. In
addition, to the extent that fees are paid by Providers, state regulators could
assert that our Healthcare Exchange is a referral agency and/or collection
agency, which requires licensing under many state laws, or that Providers are
paying prohibited referral fees, which could subject the Provider or us to civil
or criminal penalties. In addition, our relationship with Purchasers may require
licensing or certifications in some states. Also, although we do not currently
anticipate entering the Medicare or state Medicaid markets, similar federal
regulations could adversely impact the business. Because the e-commerce business
is relatively new to the provider network industry, the impact of current or
future regulations is difficult to anticipate.
As we develop our business plan, compliance with or prohibitions by state
regulations could delay or eliminate certain aspects of our business or force us
to modify our business, which could have a material adverse impact on our
business and prospects.
Internet commerce has yet to attract significant regulation, but government
regulations may result in administrative monetary fines, penalties or taxes that
may reduce our future earnings.
There are currently few laws or regulations that apply directly to the
Internet. Because our business utilizes the Internet, the adoption of new (or
applications of existing) local, state, national or international laws or
regulations may decrease the growth of Internet usage or the acceptance of
Internet commerce which could, in turn, decrease the demand for our services and
increase our costs or otherwise have a material adverse effect on our business,
results of operations and financial condition.
We face a risk of litigation.
Although we are not currently involved in any litigation, we have been
involved in several significant litigation matters in our history. No assurances
can be given that additional legal proceedings will not be initiated against us.
In addition, involvement in litigation will require us to spend time and pay
expenses to defend ourselves, which will have an adverse effect on our
operations and financial condition and results. The healthcare and Internet
industry that we are entering into may cause us to face an increased risk of
litigation. Patients who file lawsuits against doctors often name as defendants
all persons and companies with any relationship to the doctors.
Risk Related to This Offering
Our common stock price is volatile and could be impacted by fluctuating results
in the future and by general market conditions.
Our common stock price is volatile and could be impacted by fluctuating
results in the future and by general market conditions. Our common stock is
quoted and traded on the OTC Bulletin Board and the public market for our common
stock has been limited, sporadic and highly volatile. Between July 1, 2001 and
December 31, 2002, the closing price of a share of our common stock ranged from
a low of $0.65 to a high of $3.70. There can be no assurance that a more active
trading market for our common stock will develop or be sustained.
The sale of a substantial amount of stock through this registration statement
could negatively affect our stock price.
Under an agreement with the selling stockholders, we have agreed to
register the common stock for resale by this prospectus. The number of shares of
common stock available for resale by this prospectus represents approximately
15% of our outstanding common stock. Because the trading price for our common
stock may be affected by the number of shares available for resale, the market
price of our common stock could drop as a result of sales of a large number of
shares of common stock in this market after this offering or the perception that
sales could occur.
Our executive officers and existing stockholders have significant control.
Our executive officers, directors and holders of over five percent (5%) of
our stock and their affiliates beneficially own approximately 65% of the
outstanding shares of our common stock as of December 31, 2002. As a result, if
these holders act as a group, they may be able to control us and direct our
affairs, including the election of directors and approval of significant
corporate transactions without further approval by other stockholders. This
concentration of ownership also may delay, defer or prevent a change in control
of our company, and make some transactions more difficult or impossible without
the support of these stockholders.
We have not paid dividends, and expect to retain our earnings for the
foreseeable future.
We have not paid cash dividends on our common stock since our inception. We
do not intend to pay cash dividends on our common stock in the foreseeable
future so that we may reinvest earnings, if any, in the development of our
business.
FORWARD LOOKING STATEMENTS
This prospectus contains forward-looking statements, as that term is
defined in the Private Securities Litigation Reform Act of 1995, in the sections
entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and
elsewhere. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "could," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of these terms or other comparable terminology. These statements
are only predictions and involve known and unknown risks, uncertainties and
other factors, including the risks outlined under "Risk Factors," that may cause
our or our industry's actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these
forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as required by applicable law,
including the securities laws of the United States, we do not intend to update
any of the forward-looking statements after the date of this prospectus to
conform these statements to actual results.
THE OFFERING
The selling stockholders listed in the prospectus may sell all, some, or
none of their common stock registered pursuant to this prospectus. We will not
receive any proceeds from the offering.
The shares of common stock offered for resale by the selling stockholders
were issued in connection with a private placement of the shares to accredited
investors in January 2002 and October 2002; warrants to purchase shares of
common stock were issued to the placement agent in connection with:
(i) a private placement in January 2002 through March 2002 in which we sold
an aggregate of 1,232,585 shares of our common stock at a purchase price of
$2.25 per share to 25 accredited investors,
(ii) a bridge financing in the form of a $1,000,000 promissory note
convertible into shares of common stock at $1.00 per share and warrants to
purchase 300,000 shares of common stock at an exercise price of $1.00 per share
were issued to an accredited investor in July 2002,
(iii) the issuance in September 2002 to certain service providers of 6,000
shares of our common stock at $2.00 per share,
(iv) a private placement in October 2002 to accredited investors of
4,125,000 shares of our common stock at a purchase price of $1.00 per share,
(v) the issuance of warrants to a placement agent to purchase 375,000
shares of our common stock at an exercise price of $1.00 per share in connection
with the October 2002 private placement,
(vi) the issuance to a finder as finder's fee a warrant to purchase 30,000
shares of our common stock at an exercise price of $1.00 per share in connection
with the October 2002 private placement,
(vii) the issuance of 1,540,729 shares of our common stock to the investors
of the January 2002 private placement as a result of the October 2002 private
placement at a lower purchase price, and
(viii) the issuance of warrants to purchase 2,069,494 shares of common
stock at an exercise price of $1.00 per share to the investors to the January
2002 and October 2002 private placements as a result of the warrants issued in
connection with the July 2002 bridge financing.
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares by the selling
stockholders.
PRICE RANGE OF OUR COMMON STOCK
The table below sets forth the high and low closing prices for our common
stock for each of the quarter ending December 31, 2002 and each of the quarters
for the past two fiscal years.
Period High Low
Quarter ended December 31, 2002 $1.40 $0.65
Quarter ended September 30, 2002 $2.25 $1.30
Quarter ended June 30, 2002 $2.55 $2.00
Quarter ended March 31, 2002 $3.06 $2.06
Quarter ended December 31, 2001 $3.09 $2.62
Quarter ended September 30, 2001 $3.70 $2.08
Quarter ended June 30, 2001 $2.26 $1.90
Quarter ended March 31, 2001 $2.31 $1.34
Quarter ended December 31, 2000 $3.38 $1.38
Quarter ended September 30, 2000 $4.81 $2.75
As of December 31, 2002, 66,758,529 shares were outstanding held by
approximately 269 holders, not including those held in street name by several
brokerage firms. As of December 31, 2002, a total of 22,086,794 shares of our
common stock underlie outstanding options, warrants, convertible notes and
future issuance of options to employees and non-employee directors.
DIVIDEND POLICY
We have never paid a cash dividend on out common stock and do not
anticipate paying cash dividends on our common stock in the foreseeable future.
Our Series D preferred stock carried a cumulative dividend of $0.60 per share
per year until the Series D preferred stock was exchanged for common stock on
September 11, 2000. On September 11, 2000, in connection with the exchange of
204,167 shares of Series D preferred stock, for 408,334 shares of common stock
based on a per share price of $3.00 per share, we declared accrued dividends of
$759,110 in the aggregate. Of the $759,110 in accrued dividends, two of the
Series D preferred stockholders agreed to accept 158,638 shares of common stock
for $475,915 in accrued dividends based on a $3.00 per share value.
The board of directors, on the basis of various factors, including our
results of operations, financial condition, capital requirements and other
relevant factors, will determine our future dividend policy.
SELECTED FINANCIAL DATA
In the table below, we provide you with unaudited summary historical
financial data of Alternative Technology Resources, Inc. ("ATR"). We have
prepared this information using the financial statements of ATR for the five
years ended June 30, 2002 and the three-month periods ended September 30, 2002
and 2001. When you read this unaudited summary historical financial data, it is
important that you read along with it the historical financial statements and
related notes in our annual and quarterly reports, as well as the section titled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
As of and for the
Three Months Ended
As of and for the Years Ended June 30 September 30
---------------------------------------------------------------- -----------------------------
2002 2001 2000 1999 1998 2002 2001
Statement of Operations Data:
Healthcare exchange revenue $ 1,642,565 $ 50,944 $ - $ - $ - $ 776,560 $ 108,218
Healthcare exchange gross profit
(loss $ 179,048 $ (33,584) $ - $ - $ - $ 232,858 $ (116,570)
Contract programming revenue $ - $ 308,469 $ 2,561,101 $ 6,340,235 $ 5,250,002 $ - $ -
Selling, market and product
development costs $(7,076,558) $(5,097,513) $(1,154,244) $ - $ - $(1,397,306) $(1,105,195)
General and administrative expenses $(2,482,272) $(3,850,971) $(1,276,726) $(1,223,539) $(1,336,342) $ (509,015) $ (505,834)
Loss from operations $(9,379,782) $(8,919,271) $(2,008,908) $ (192,646) $ (805,963) $(1,673,463) $(2,127,599)
Net loss $(9,815,906) $(8,914,755) $(4,815,641) $ (716,747) $(1,243,944) $(1,886,806) $(2,233,983)
Basic and diluted net loss per share $ (0.16) $ (0.17) $ (0.10) $ (0.03) $ (0.05) $ (0.03) (0.04)
Shares used in per share
calculations 59,936,435 58,686,778 50,329,614 26,127,730 25,964,142 61,016,315 59,401,860
Balance Sheet Data:
Total assets $ 1,203,309 $ 5,577,658 $ 2,502,703 $ 599,440 $ 837,353 $ 1,812,858 $ 3,733,569
Long-term obligations $ - $ 3,740,450 $ 3,567,424 $ 4,258,090 $ 4,006,565 $ - $ 4,054,352
Accrued preferred stock dividends $ 283,195 $ 283,195 $ 735,001 $ 612,501 $ 490,001 $ 283,195 $ 283,195
Redeemable preferred stock, Series D $ - $ - $ 1,225,002 $ 1,225,002 $ 1,225,002 $ - $ -
Stockholders' equity (deficit) $(5,890,914) $ 156,237 $(2,974,406) $(5,587,475) $(4,844,274) $(7,315,766) $ (2,058,472)
Note:
----
Through fiscal year 2001, our business was recruiting, hiring, training and
placing foreign computer programmers with U.S. companies. In line with our
strategy to focus on the establishment of the Healthcare Exchange for
healthcare services, we suspended recruitment of foreign programmers in
December 1999 and began pursuing the conversion of computer programmers to
employees of our customers. This conversion was complete as of June 30,
2001.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following management's discussion and analysis of financial condition
and results of operations contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of the factors
described in the section entitled "Risk Factors" and elsewhere in this document.
Critical Accounting Policies
Revenue Recognition. We recognize revenue for the transaction-processing
fee when earned and when we have substantially completed all of our obligations
under the contract.
Product Development Costs. In October 1999, we began incurring costs to
develop our 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. We have 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.
Management considers whether indicators of impairment of these assets are
present at each balance sheet date and an impairment loss is recorded, if
necessary. In assessing the recoverability of our prepaid license and service
fees, we must make assumptions regarding estimated future cash flows and other
factors to determine the fair value of the respective assets. If these estimates
or their related assumptions change in the future, we may be required to record
impairment charges for these assets not previously recorded.
Financial Condition
Cash and cash equivalents increased $482,434 since June 30, 2002. At
September 30, 2002, substantially all of our cash was invested in money market
accounts.
Because we are emphasizing the development of the Healthcare Exchange, the
results of operation for the three months ended September 30, 2002 may not be
indicative of results of operations for the year ended June 30, 2003.
Three months ended September 30, 2002 compared to three months ended September
30, 2001
Results of Operation
Healthcare Exchange
Healthcare Exchange Revenue. We began operations with a limited number of
Providers in the quarter ending June 30, 2001. Providers submit their bills to
us, and we process and reprice the bills to the rate set by the Providers,
including adding a transaction-processing fee. We then route the adjusted bills
to Purchasers or their intermediaries. We receive payments from Purchasers on
behalf of Providers, and then remit payments to Providers. We recognize revenue
for the transaction-processing fee when earned and when we have substantially
completed all of our obligations under the contract. During the three month
period ending September 30, 2002, $776,560 of revenue was recognized as compared
to $108,218 for the three month period ending September 30, 2001. The increase
is primarily the result of an increase in the number of healthcare providers
contracted with the Healthcare Exchange.
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 the three month period
ending September 30, 2002 were $543,702, an increase of 142% over costs of
$224,788 for the three month period ending September 30, 2001. As of September
30, 2002, there were 31 operations staff members responsible for the processing
of bills submitted by Providers and payments received from Purchasers, compared
to 9 operations staff members as of September 30, 2001.
Selling, Marketing and Product Development Costs
In October 1999, we began incurring costs to develop our Healthcare
Exchange. Costs incurred are primarily the salary, other wage and benefit costs
of our employees and other operational costs associated with recruiting the
network of healthcare Providers. The costs for the three month period ending
September 30, 2002 were $1,397,306, a decrease of 7% over costs of $1,505,195
for the three month period ending September 30, 2001. This decrease is primarily
the result of a decrease in payroll costs and travel related costs.
General and Administrative Expenses
General and administrative expenses were $509,015 for the three-month
period ended September 30, 2002, and did not fluctuate significantly from the
same period in the prior fiscal year.
Other Income (Expense)
Interest Income. Interest income is related to the short-term investment of
cash balances, primarily in money market accounts. The decrease is the result of
reduced cash balances in the three month period ending September 30, 2002 as
compared to the same period in fiscal 2001.
Interest Expense to Third Party. Interest expense to third party of
$77,315, for the three month period ending September 30, 2002, resulted
primarily from the fair value of a warrant issued in connection with a
convertible note and the beneficial conversion feature of the convertible note
to third party, which were recognized through interest expense, and the interest
accrued on the convertible note. No interest expense to third party was
recognized during the same period in the prior fiscal year.
Interest Expense to Stockholders and Directors. The decrease of interest
expense of $3,059, for September 30, 2002 in comparison to the same period in
fiscal year 2001, despite the increase in Notes Payable, resulted primarily from
the extension of stockholder notes as of September 1, 2001. The extension
included a 2% refinance fee, increasing the interest expense for the three month
period ending September 30, 2001.
Year ended June 30, 2002 compared to year ended June 30, 2001
Healthcare Exchange
Healthcare Exchange Revenue. We began operations with a limited number of
Providers in the quarter ending June 30, 2001. For fiscal year 2002, $1,642,565
of revenue was recognized as compared to $50,944 in fiscal year 2001. This
increase of $1,591,621 was primarily due to an increase in the number of
transactions processed by the Healthcare Exchange during a full year of
operations.
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. The costs for fiscal year 2002 were $1,463,517, an
increase of 1,631% over fiscal year 2001 cost of $84,528. As of June 30, 2002
there were 25 operations staff members responsible for the processing of bills
submitted by Providers and payments received from Purchasers, compared to 7
operations staff members as of June 30, 2001.
Contract Programming
Our previous business was recruiting, hiring, training and placing foreign
computer programmers with U.S. companies. In line with our strategy to focus on
the establishment of the Healthcare Exchange for healthcare services, we
suspended recruitment of foreign computer programmers in December 1999 and began
pursuing the conversion of computer programmers to employees of our customers.
This conversion process was complete as of June 30, 2001.
Contract Programming Revenue. Contract programming revenue resulted
primarily from sales of programmer services. There was no revenue recognized in
fiscal year 2002 due to the conversion of all contract programmers to customer
employees and the phase-out of-contract programming services as of June 30,
2001. Revenue of $308,469 was recognized in fiscal year 2001
Programmer Costs. Programmer costs represent the salary and other wage and
benefit costs of our programmer employees. There were no programmer costs in
fiscal year 2002 due to the conversion of all contract programmers to customer
employees and the phase-out of-contract programming services as of June 30,
2001. Programmer costs of $235,258 were recognized in fiscal year 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.
Included in this category of costs is compensation paid by us whenever
programmer employees were hired and entered the United States or were relocated
once in the United States but before these programmers began working at a
customer's work site. There were times when under immigration law, we, as
employer, paid a programmer employee at least 95% of prevailing wages for his or
her specialty even when the programmer was not placed.
There were no start-up-and-other-costs recognized in fiscal year 2002 due
to the conversion of all contract programmers to customer employees and the
phase-out of-contract programming services as of June 30, 2001.
Start-up-and-other-costs of $10,414 were recognized in fiscal year 2001.
Selling, Marketing and Product Development Costs
In October 1999, we began incurring costs to develop our Healthcare
Exchange. Costs incurred were primarily the salary, other wage and benefit costs
of our employees and other operational costs associated with recruiting the
network of healthcare Providers. The increase of the sales and marketing staff
from 55 in fiscal year 2001 to 77 in fiscal year 2002 resulted in the cost
increase of $1,979,045 for fiscal year 2002 as compared to fiscal year 2001.
General and Administrative Expenses
General and administrative expense decreased $1,368,699 in fiscal year 2002
compared to fiscal year 2001. This decrease was primarily due to non-cash stock
based compensation expense of $1,931,036 related to the purchase of common stock
in our August 2000 private placement by our chief executive officer and related
entities and non-cash compensation due to conversion of Series D Preferred Stock
into common stock by our chairman of the board in fiscal year 2001. This was
partially offset by an increase in the number of employees and related costs to
support the Healthcare Exchange, and non-cash compensation expense of $138,583
related to the purchase of common stock by our chairman.
Other Income (Expense)
Interest Income. Interest income decreased $405,179 in fiscal year 2002
compared to fiscal year 2001 primarily due to a decrease of average cash
balances generating interest income in fiscal year 2002.
Interest Expense. Interest expense increased $35,461 in fiscal year 2002
compared to fiscal year 2001 due to the increase in Notes Payable to
Stockholders and Convertible Notes Payable to Stockholders, and interest of
$31,076 paid on Provider claims when payment is received from the Purchaser and
paid to the Provider later than 21 days of receiving a claim in accordance with
the terms of the Provider contracts.
Year ended June 30, 2001 compared to year ended June 30, 2000
Healthcare Exchange
Healthcare Exchange Revenue. We began operations with a limited number of
Providers in the quarter ending June 30, 2001. During the quarter ending June
30, 2001, the first quarter of operations, $50,944 of revenue was recognized.
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. The costs for fiscal year 2001 were $84,528. No such
costs were incurred in fiscal year 2000.
Contract Programming
Contract Programming Revenue. Contract programming revenue resulted
primarily from sales of programmer services. Revenue decreased $2,252,632 or 88%
in fiscal year 2001 compared to fiscal year 2000. This decrease was due to a
reduction in the monthly average number of contract programmers working at
customer sites in fiscal year 2001 compared to fiscal year 2000. This decline in
the number of programmers at customer sites, started in the last half of fiscal
year 1999, was due to several customers choosing to exercise a contract
termination provision which allowed them to convert, for a fee, our programmers
to their employees. We escalated this conversion process during fiscal years
2000 and 2001 to enable us to focus on our business strategy toward developing
our Healthcare Exchange.
As of June 30, 2001, all contract programmers had been converted to
customer employees. The phase out of contract programming services is complete
and all expenses have been incurred.
Contract Termination Fees. Contract termination fees represent amounts
received from customers when they exercised the contract provision, which
allowed them to convert our programmer to their employee. In addition, these
fees were also received from programmers when they exercised their contract
provision to terminate their relationship with us prior to the termination date
of their contract. These fee amounts were stipulated in customer and programmer
contracts, were based on the length of time remaining under the contract, and
were recognized as revenue when such contract provisions were invoked.
Programmer Costs. Programmer costs represent the salary and other wage and
benefit costs of our programmer employees. These costs decreased by $1,509,753
or 87% in fiscal year 2001 compared to fiscal year 2000. This decrease was
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 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.
Start-up and other costs decreased $389,067 or 97% in fiscal year 2001 as
compared to fiscal year 2000. This decrease was due to a decrease in the number
of programmers who were in the United States but not working at customer sites.
In fiscal year 2001 there were no programmers temporarily unassigned compare to
2 in fiscal year 2000.
Product Development Costs
In October 1999, we began incurring costs to develop our Healthcare
Exchange. Costs incurred are primarily the salary, other wage and benefit costs
of our employees and other operational costs associated with recruiting the
network of healthcare Providers. The increase of the sales and marketing staff
from 23 in fiscal year 2000 to 55 in fiscal year 2001 resulted in the cost
increase of $3,943,269 for fiscal year 2001 as compared to fiscal year 2000.
General and Administrative Expenses
General and administrative expense increased $2,574,245 in fiscal year 2001
compared to fiscal year 2000. This increase was primarily due to non-cash stock
based compensation expense of $1,931,036 and costs relating to increases in
support staff, licensing and consulting fees and rent and facilities for the New
Hampshire headquarters.
Other Income (Expense)
Interest Income. Interest income increased $360,070 in fiscal year 2001
compared to fiscal year 2000 primarily due to increased interest income earned
on higher average cash balances as a result of funds received from the sale of
our common stock in August 2000.
Interest Expense. Interest expense decreased $2,451,179 in fiscal year 2001
compared to fiscal year 2000 due to the charges recorded as a result of the
benefit accruing to the note holders from amending the conversion terms of the
$1,000,000 convertible note in fiscal year 2000.
Income Taxes
As of June 30, 2002, we had net operating loss carryforwards for federal
and state income tax purposes of approximately $46,119,000 and $26,245,000,
respectively. The federal net operating loss carryforwards expire in 2004
through 2022 and the state net operating loss carryforwards expire in 2002
through 2022. We also have 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.
In connection with our initial public offering in August 1992, a change of
ownership (as defined in Section 382 of the Internal Revenue Code of 1986, as
amended) occurred. As a result, our net operating loss carryforwards generated
through August 20, 1992 (approximately $1,900,000) are subject to an annual
limitation in the amount of approximately $300,000.
In 1993, a controlling interest of our stock was purchased, resulting in a
second annual limitation in the amount of approximately $398,000 on our ability
to utilize net operating loss carryforwards generated between August 11, 1992
and September 13, 1993 (approximately $7,700,000).
In accordance with provisions of the Internal Revenue Code Section 382,
additional portions of the net operating loss carryforwards may be disallowed as
a result of additional changes in our ownership structure.
We expects the aforementioned annual limitations will result in net
operating loss carryovers, which will not be utilized prior to the expiration of
the carryover period.
Liquidity and Capital Resources
For the three month period ending September 30, 2002, we earned revenues of
$776,560 but incurred a net loss of $1,886,806. For the fiscal year ending June
30, 2002, we earned revenues of $1,642,565 but incurred a net loss of
$9,815,906. Traditionally, we have used a combination of equity and debt
financing and revenue generated to fund operations but have incurred operating
losses since our inception, which has resulted in an accumulated deficit of
$61,249,685 at September 30, 2002. We had negative working capital at September
30, 2002 of $8,025,655.
In October 2002, we sold 4,125,000 shares of our common stock at a purchase
price of $1.00 per share. The shares of common stock issued in the private
placement are restricted securities. Net cash proceeds from the offering were
$3,884,567. In connection with the private placement, we engaged Stonegate
Securities, Inc. as placement agent who received a placement fee of 6% on the
gross proceeds received from the sale of common stock place by them and a five
year warrant to purchase 10% of the common stock placed by them at $1.00 per
share.
On July 26, 2002, we received short-term unsecured financing in the form of
a convertible note of $1,000,000 from a lender. This note bears interest at 8%
and is payable at the earliest of July 25, 2003 or when we, in a Private
Placement of Common Stock, raises $8,000,000. All or a portion of the
convertible note may be converted into shares of common stock at the lower of
$1.00 per share, the subscription per share price of the October 2002 Private
Placement of Common Stock, or if further shares are offered at a lower price per
share at that price through March 29, 2003. In consideration for the loan we
issued three warrants. We issued to the lender one warrant to purchase 100,000
shares of common stock. The lender received a second warrant to purchase 100,000
shares of common stock that may only be exercisable if we do not repay the
convertible note within 180 days of the agreement. The lender received a third
warrant to purchase 100,000 shares of common stock that may be exercisable if we
do not repay the convertible note within one year of the agreement. Each of the
warrants has an exercise price of $1.00, the subscription per share price of the
October 2002 private placement of common stock, or if further shares are offered
at a lower price per share at that price through March 29, 2003. When, and if,
exercisable the lender may exercise these warrants through July 25, 2009.
In connection with the issuance of the convertible note and the issuance of
the first warrant, we estimated the fair value of the first warrant to be
$198,000 using the Black-Scholes model. In accordance with EITF 98-5,
"Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios," and EITF 00-27, "Application of
Issue No. 98-5 to Certain Convertible Instruments," we have recognized $62,630
through interest expense during the three months ended September 30, 2002 for a
portion of the fair value of the first warrant and a portion of the beneficial
conversion feature of the convertible note, which was estimated to be $177,778.
We will record additional amounts totaling $313,148 through interest expense
until July 25, 2003 for the remaining fair value of the first warrant and the
beneficial conversion feature of the Note recorded at the initial transaction
date.
Relating to the private placement of 4,125,000 shares of our common stock
at a purchase price of $1.00 per share in October 2002, the conversion price of
the convertible note and per share exercise price of the first warrant were
reset to $1.00. In accordance with EITF 00-27, we will record $624,222 for the
additional beneficial conversion amount relating to the value of the reset
feature. This amount will be recognized ratably through interest expense until
July 25, 2003.
During the period between January 9, 2002 and March 28, 2002, we sold
1,232,585 shares of our common stock at a purchase price of $2.25 per share. The
shares of common stock issued in the private placement are restricted
securities. Further pursuant to the private placement, it was agreed that in the
event that within one year from the final closing we sell shares of common
stock, or securities exercisable or convertible into common stock, at a price
less than $2.25 per share, we would issue additional shares to these 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. Net proceeds from the offering were
$2,742,519. The proceeds from the private placement were used to fund operations
and repay debt. Our chairman and chief financial officer purchased 222,222
shares our 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, we
recorded compensation expense of $138,583 during fiscal year 2002. In October
2002, resulting from the closing of the October 2002 private placement,
1,540,729 additional shares were issued to these investors based on the October
2002 private placement price of $1.00. Compensation expense to be recorded
during the second quarter ended December 31, 2002, for the additional shares
issued to our chairman and chief financial officer will be $377,778.
As of June 30, 2002, we had received short-term, unsecured financing to
fund our operations in the form of notes payable of $4,636,352, from Mr.
Cameron, our chairman and chief executive officer, and another stockholder.
These notes bear interest at 10.25%. On September 1, 2001, we agreed with Mr.
Cameron to extend the due date on notes payable to him until December 31, 2002
in exchange for an extension fee of 2%. These extended notes total $1,630,529,
including accrued interest and extension fees, and bear interest at 10.25% per
annum. On September 1, 2001, we agreed with the other note holder to extend the
due date of his convertible promissory notes until December 31, 2002. These
convertible promissory notes total $2,423,823, including accrued interest, bear
interest at 10.25% per annum and are convertible into common stock at $3.00 per
share at the note holder's option. During the three month period ending
September 30, 2002, Mr. Cameron loaned us an additional $619,000 bearing
interest at 10.25% payable on December 31, 2002. Subsequent to September 30,
2002, we agreed with Mr. Cameron to extend the due date on notes payable to him
until December 31, 2003 in exchange for an extension fee of 2%. These extended
notes total $2,873,691, including accrued interest and extension fees, and bear
interest at 10.25% per annum. Also subsequent to September 30, 2002, we agreed
with the other note holder to extend the due date of his convertible promissory
notes until December 31, 2003. These convertible promissory notes total
$2,681,415, including accrued interest, bear interest at 10.25% per annum and
are convertible into common stock at $3.00 per share at the note holder's
option.
In January 2001, we signed agreements with an application services provider
to license, support and run software to process medical bills submitted to our
Healthcare Exchange. The agreements are for 66 months. The application service
provider 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
approximately $35,000, and additional fees, that are transaction based, if
volumes exceed levels included in the monthly minimums.
Our Healthcare Exchange development efforts will require substantial funds
prior to generating sufficient revenues to fund operations and repay debt.
However, based on the steps we have taken to refocus our operations and obtain
additional financing, we believe that we have developed a viable plan to address
our ability to continue as a going concern, and that this plan will enable us to
continue as a going concern through at least the end of fiscal 2003. We may need
to raise additional funds in the future in order to fully develop our Healthcare
Exchange and implement our business plan. However, there can be no assurance
that we will be able to raise the additional funds necessary to implement our
business plan. If unsuccessful, we may be required to reduce the development
efforts of our Healthcare Exchange or be forced into seeking protection under
federal bankruptcy laws. As a result, the report of independent auditors on our
June 30, 2002 financial statements includes an explanatory paragraph indicating
there is substantial doubt about our 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.
The following table summarizes the debt requirements pertaining to our
contractual obligations over the next five years as of September 30, 2002:
---------------------------------------------------------------------------------------------------------------------------
Contractual Obligations Payments Due by Period
---------------------------------------------------------------------------------------------------------------------------
Total Less than 1 1-3 years 4-5 years After 5
year years
---------------------------------------------------------------------------------------------------------------------------
Notes payable to stockholder $ 2,831,529 $ 2,831,529 $ - $ - $ -
Convertible notes payable to stockholder 2,423,823 2,423,823 - - -
Convertible note payable to third party 1,000,000 1,000,000 - - -
Operating leases - facilities - payable to
stockholder 222,722 147,753 74,969 - -
Operating leases - equipment 145,455 44,847 90,481 10,127 -
Application services provider 1,483,922 404,706 1,079,216 - -
---------------------------------------------------------------------------------------------------------------------------
Total contractual cash obligations $ 8,107,451 $ 6,852,658 $ 1,244,666 $ 10,127 $ -
---------------------------------------------------------------------------------------------------------------------------
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Boards issued Statements
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets," or SFAS 142. 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 adopted SFAS 142 effective
July 1, 2002. Because we have historically not been party to any business
combinations and therefore has not recorded related goodwill and intangible
assets, the adoption of SFAS 142 did not have an effect on our results of
operations, financial position or cash flows.
In October 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" or 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. We
adopted SFAS 144 effective July 1, 2002. The adoption of SFAS 144 did not have
an effect on our results of operations, financial condition or cash flows.
Effects of Inflation
Management does not expect inflation to have a material effect on our
operating expenses.
Quantitative and Qualitative Disclosures About Market Risk
We have notes payable in the aggregate amount of $6,255,352 as of September
30, 2002 payable to two of our stockholders and another lender. The notes bear
interest at 8% to 10.25% per annum and are due from July 25, 2003 to December
31, 2003, or earlier if other funding is obtained. We do not believe that any
change in interest rates will have a material impact on us during fiscal 2003.
Further, we have no foreign operations and therefore are not subject to foreign
currency fluctuations.
DESCRIPTION OF BUSINESS
General
We have developed and are operating an exchange for healthcare services.
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.
Providers submit bills to us, and we process and reprice the bills to the
rate set by the Providers, including adding a transaction-processing fee. We
then route the adjusted bills to Purchasers or their intermediaries. We receive
payments from Purchasers on behalf of Providers, and then remit payments to
Providers.
Our Healthcare Exchange began operations with a limited number of Providers
and Purchasers in the quarter ending June 30, 2001. We continue to receive,
process and analyze operating data, and the results of our analysis will
determine the amount and timing of remaining development related efforts.
We are currently recruiting 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.
We have outsourced to multiple vendors portions of the development and
operations of the information systems for our Healthcare Exchange. We contract
with an application services provider to license, support and run software to
process medical bills submitted to our Healthcare Exchange. We also work with
vendors to receive claims from Providers through electronic clearinghouses and
to convert paper claims into electronic formats. We are evaluating other
potential technology vendors as well.
We do not provide healthcare services, but rather act as a neutral conduit
for efficiency between Providers, Purchasers and their intermediaries including
preferred provider organizations, that should benefit all. We believe 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., our largest stockholder, was named
chairman and chief executive officer. Under his direction, we identified what we
believe 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 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 our CEO, Mr. McCormick is responsible for all phases of
development, implementation and operation of our Healthcare Exchange. Mr.
Cameron still acts as chairman and chief financial officer and continues to play
an active and substantial role in formulating our business strategy and policy.
We are utilizing our management's experience in healthcare and information
technology to establish the Healthcare Exchange, which has become our sole
focus. Our Healthcare Exchange began operations with a limited number of
Providers and Purchasers in the quarter ending June 30, 2001. We continue to
receive, process and analyze operating data, and the results of our analysis
will determine the amount and timing of remaining development related efforts.
Our previous business was recruiting, hiring, and training foreign computer
programmers and placing them with U.S. companies. In line with our strategy to
focus on the establishment of the Healthcare Exchange, we suspended recruitment
of foreign computer programmers in December 1999 and began pursuing the
conversion of foreign computer programmers to become employees of our customers.
This conversion process was complete as of June 30, 2001, and we are no longer
in that business.
Overview of the Industry
According to the Healthcare Financing Administration ("HCFA"), in 1999
healthcare in the United States was a $1.2 trillion dollar industry, up 5.6%
from 1998 and comprising approximately 13% of gross domestic product. The
industry is characterized by extremely complex decision-making, high
fragmentation, high barriers to entry, rising costs and slow adoption and
incorporation of many information technologies. The healthcare industry's poor
rate of investment in technological innovation has created a system rampant with
inefficiencies. According to the Health Data Directory, less than 39% of private
sector billing claims (including commercial, indemnity, PPO and HMO claims) were
automated in 1999. Even those that are automated often have processing delays
because of a myriad of reasons, including improper coding of information,
inaccurate data on patients and improper eligibility information. Waste in the
acquisition, delivery and processing of billing and payment for health services
has been widely reported and documented. We believe that there are gaps and
inefficiencies in the purchasing process and in billing and claims processing
systems creating a key business opportunity for the Healthcare Exchange.
In its simplest form, healthcare can be described as the demand for
services by individuals ("Patients") and the supply of services by Providers,
which include medical doctors, hospitals, physical therapists and other health
practitioners. Providers often form groups and practice associations. Purchasers
include Patients and various forms of third parties, such as HMO's, insurance
companies, Medicare, Medicaid and self-insured employers, that act as purchaser
and payor for services provided to Patients.
In most instances, Patients are members of a health service purchasing
group or pool commonly offered by Purchasers. The members' health coverage is
described in a plan that spells out what care is fully, partially or not
covered, rules relating to payment and deductibles, selection of Providers, use
of specialists, required permissions, exclusions and so on. In these
circumstances, Patients rarely pay Providers directly except for co-payments and
deductibles that represent only a fraction of the total bill.
Purchasers pay Providers generally after considerable delay. Provider bills
are reviewed by Purchasers and their managed care companies to verify Patient's
eligibility, plan group membership, compliance with treatment and billing format
and rules, and other plan provisions. The Provider's bill often is adjusted for
violations and errors. Providers, like their Patients, often do not understand
many health plans and may accept incorrect payment lowered by reductions they do
not understand.
There are a large number of variations of the above
Patient-Provider-Purchaser relationship - such as HMOs, PPOs, Medicare, Medicare
enrolled HMOs, Medicaid - all of which involve some combination or
redistribution of some of the functions described.
In a cash model, the Patient will pay the Provider directly. For many
Americans, this simple cash model is the only one possible for all or much of
their care. In many cases, these individuals may have the financial wherewithal
to pay for many health services. However, Providers generally do not have the
time, inclination or capability to seek out these cash Patients.
Business Description
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. The
Healthcare Exchange offers a direct and efficient conduit between Providers and
Purchasers of healthcare services, their PPOs' and/or their agents. Providers
submit their bills to us, and we process and reprice the bills to the Provider's
Healthcare Exchange rate, including adding a transaction-processing fee. We then
route the adjusted bills to Purchasers or their intermediaries. We receive
payments from Purchasers on behalf of Providers, and then remit payments to
Providers.
Relationship to the Provider
We have developed the Healthcare Exchange for Providers (including Provider
groups) to market their services to Purchasers more efficiently. We believe
eliminating costs and delays in the billing process should allow Providers to
recover more of what they bill. In the United States, there are approximately
750,000 medical doctors, 6,000 hospitals and 539,000 licensed ancillary
Providers (such as chiropractors, optometrists, physical therapists and
physician assistants) and suppliers (such as pharmacies, durable medical
equipment suppliers, and transportation). We are currently marketing to and
entering into contracts with Providers. A transaction-processing fee will be
added to bills received from Providers and routed to Purchasers or their
intermediaries.
Relationship to Purchasers
We have developed the Healthcare Exchange so Purchasers can access services
offered by Providers. We believe eliminating costs and delays in the billing
process should allow Purchasers to reduce costs. We will process medical bills
submitted to the Healthcare Exchange so as to add efficiencies to the purchasing
and processing function. We will make these additional services available to
Purchasers on a contractual basis and through Provider initiated discount
offers. Purchasers may contract with us in order to receive Providers' offered
rates, and in order to lower their costs by receiving bills electronically and
pre-priced. The goal of this system is to introduce additional cost certainty
and to streamline the billing and payment process. A transaction-processing fee
will be charged to Purchasers or their intermediaries.
Relationship to Individual Uninsured and Under Insured Purchasers
In September 1999, we entered into an agreement with WebMD Corp. to develop
a web-based portal through which individual uninsured and under-insured Patients
can procure healthcare services. Currently both parties are reevaluating this
agreement, given changed directions and priorities of each company. The
agreement has not formally been modified or terminated, nor has either party
proposed any specific changes. However, neither party is currently devoting any
substantial resources to this project.
Application Services Provider
In January 2001, we signed agreements with an application services provider
to license, support and run software to process medical bills submitted to our
Healthcare Exchange. The agreements are for a period of 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.
Competition
Our Healthcare Exchange generally will endeavor to cooperate with certain
established preferred provider organizations, integrated delivery systems and
health plans and other companies offering "discount plans" to potential
Purchasers, and Internet companies. However, such plans and companies may choose
to compete against the Healthcare Exchange and its purchasers, providers and
affiliated organizations. These industries are intensely competitive and rapidly
evolving.
Increased competition in the industry could result in price reductions,
reduced gross margins or loss of market share, which could seriously harm our
business and operating results. Our success depends on the ability to market the
Healthcare Exchange to potential Providers and Purchasers and their agents. We
believe that the principal competitive factors in this market are health and
managed care expertise, data integration and transfer of technology, ability to
persuade Providers and Purchasers to accept new technology and new models,
customer service and support and product and service fees. Competition is
expected to increase in the future.
As a new participant in the healthcare industry, our potential competitors
have longer operating histories, significantly greater financial, technical,
marketing and other resources and significantly greater name recognition. In
addition, many of our competitors have well-established relationships with our
current and potential Purchasers and have extensive knowledge of the industry.
Current and potential competitors have established or may establish strategic
relationships among themselves or with third parties to increase the ability of
their products and services to address Purchaser needs. These competitors may
seek and obtain business method patents on portions of or all their operations,
which could effectively preclude us from competing with the most efficient
model. Also, other companies may implement a similar strategy. Accordingly, it
is possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share.
Government Regulation
Our operations are subject to various federal and state laws. We believe
that our operations currently comply with such laws, but there can be no
assurance that subsequent laws, or subsequent changes in current laws or legal
interpretations, will not adversely affect our operations.
The Health Insurance Portability and Accountability Act of 1996 (HIPAA)
will impose obligations previously unknown on the healthcare industry. HIPAA is
designed to reduce the amount of administrative waste in the healthcare industry
and to protect the privacy of patients' medical information. HIPAA establishes
new requirements for the confidentiality of patient health information and
standard formats for the secure transmission of healthcare data among healthcare
providers and purchasers. HIPAA, among other things, will create federal
criminal penalties for health plans, providers and claims clearinghouses that
knowingly and improperly disclose information or obtain information under false
pretenses. The regulations regarding the standard formats for the secure
transmission of healthcare information will become effective in October 2002,
but extended to October 2003 if an extension is requested and a compliance plan
is filed with Secretary of the Department of Health and Human Services. The
regulations regarding privacy issues will become effective in April 2003.
We were aware of and tried to incorporate HIPAA requirements or their
timely adoption as our products and services were developed. We have filed a
compliance plan and a request for extension to October 2003 to comply with the
standard formats requirements. We are currently reviewing processes, systems or
policies that may require modification, and we are working to implement
appropriate changes to avoid any adverse impact on our ability to perform
services in accordance with HIPAA standards. We are also communicating with
significant third-party service providers to assess their readiness and the
extent to which we will need to modify our agreements or relationships with them
to comply with HIPAA standards.
The cost of this compliance effort is estimated to be less than $100,000.
However, there can be no guarantee that the costs will not materially exceed
this, or that changes in federal standards would require expending additional
resources.
The confidentiality of patient records and claims data and the
circumstances under which records and data may be released or must be secured
for inclusion in our databases may be subject to substantial regulation by state
governments. These state laws govern both the disclosure and the use of
confidential patient medical records. Although compliance with these laws
currently is principally the responsibility of Providers and health plans, these
regulations may be extended to cover the business and the claims data and other
information that are included in our databases. If these laws are extended to
cover our business, we may be required to expend additional resources in order
to comply with these laws, including changes to our security practices, and may
be exposed to greater liability in the event of failure to comply with these
laws.
The offering of health provider services is subject to extensive regulation
under state laws. Under some state laws, regulators may take the position that a
registration fee for Purchaser access to favorable fees from Providers requires
meeting the requirements for licensing as a health plan or health insurer. In
addition, to the extent that fees are paid by Providers, state regulators could
assert that our Healthcare Exchange is a referral agency and/or collection
agency, which requires licensing under many state laws, or that Providers are
paying prohibited referral fees, which could subject the Provider or us to civil
or criminal penalties. In addition, our relationships with Purchasers may
require licensing or certifications in some states. Also, although we do not
currently anticipate entering the Medicare or state Medicaid markets, similar
federal regulations could adversely impact the business. Because the e-commerce
business is relatively new to the provider network industry, the impact of
current or future regulations is difficult to anticipate.
As we develop our business plan, compliance with or prohibitions by state
regulations could delay or eliminate certain aspects of our business or force us
to modify our business, which could have a material adverse impact on our
business and prospects.
Legal Proceedings
We are not currently a party to any pending legal proceedings.
Human Resources
At December 31, 2002, we had 98 employees, consisting of 70 employees
located in Sacramento, California, and 26 employees in satellite offices in 14
states, including California, and 2 employees in our headquarters located in
Portsmouth, New Hampshire. This includes provider development staff of 28 who
are recruiting medical providers for contracting in 27 markets in 17 states for
the Healthcare Exchange.
Insurance
The annual coverage limits for our general premises liability, professional
liability and workers' compensation insurance policies are $3,000,000 for
liability insurance policies and $1,000,000 for workers' compensation. We also
have a $1,000,000 policy for errors and omissions insurance. Management believes
such limits are adequate for our business; however, there can be no assurance
that potential claims will not exceed the limits on these policies.
Description of Property
Our headquarters are located in Portsmouth, New Hampshire, consisting of
approximately 2,340 square feet of office space for a monthly rent of $3,263.
The lease commenced December 1, 2000, and runs through May 31, 2003.
In addition, we have an office located in Sacramento, California. We occupy
approximately 7,523 square feet of office space, which it leases from Mr. James
W. Cameron, Jr., the chairman of our board and a majority stockholder, for a
monthly rent of $12,131. A February 1, 2000 addendum to the lease extended the
expiration of the lease to January 31, 2004.
MANAGEMENT
Directors and Executive Officers
The following table lists our current directors and executive officers as
of October 31, 2002:
Name Age Position
James W. Cameron, Jr. 55 Chairman of the Board, Chief Financial Officer
Jeffrey S. McCormick 41 Director, Chief Executive Officer
Edward L. Lammerding 73 Director
James W. Cameron, Jr., 55, has served as our chairman of our board of
directors since November 1999 and chief financial officer since November 2000.
Mr. Cameron also currently serves as the chief executive officer of Cameron and
Associates, a company he founded in 1992. From 1982 through 1992, Mr. Cameron
was the chief executive officer and chairman of the board of Occupational Urgent
Care Health Systems, Inc. ("OUCH"), a publicly-traded company he founded that,
which when sold to First Health Group Corp. in 1992, had a market capitalization
of $400 million. (Subsequent to the sale, Mr. Cameron served as a director on
the board of First Health Group.)
Jeffrey S. McCormick, 41, has served as our chief executive officer since
February 2000. In November 2000, he was elected director. For at least the
previous five years, Mr. McCormick served as the founder and managing director
of Saturn Asset Management, Inc., and its affiliates, a Boston based venture
capital and private equity firm which predominantly focuses on healthcare,
electronic commerce, digital media and telecommunications. Mr. McCormick
identifies, researches, and capitalizes emerging growth companies, and works
extensively with management teams on strategic partnerships, capitalization,
strategy and recruiting senior personnel. He currently sits on the board of
directors of Saturn and MediaSite, Inc., a Saturn portfolio company.
Edward L. Lammerding, 73, has served as our director since November 1993
and served as chief financial officer from 1995 to November 2000. Mr. Lammerding
also served as the chairman of our board from 1995 to 1999, president of Sierra
Resources Corporation from 1982 to 1996, and chairman of the board of Digital
Power Corporation from 1989 to 1998. Mr. Lammerding is a former member of the
California Lottery Commission; a member of the St. Mary's College Board of
Trustees and was a director and secretary of OUCH from September 1983 to
February 1992.
Family Relationships.
There are no family relationships between any of the directors or executive
officers.
Executive Compensation
Summary Compensation Table
The following table contains information regarding compensation paid with
respect to the three preceding fiscal years to our chief executive officer and
each other executive officer whose salary and bonus exceeded $100,000 for the
fiscal year ended June 30, 2002:
Long-Term Compensation
Annual Compensation Awards
------------------------------------------- -----------------------------------
Other Securities All Other
Fiscal Annual Underlying Compensation
Name Year Salary ($) Bonus Compensation Options/SARs# and LTIP
---------- --------
Jeffrey S. McCormick (1) 2002 $ 150,000 None None 57,143(2)(3) None
Chief Executive Officer 2001 $ 150,000 None None 25,000(7) None
2000 $ 25,000 None None 7,000,000(4) None
James W. Cameron, Jr. (5) 2002 None None $ 120,000(6) 25,000(2) None
Chief Financial Officer 2001 None None $ 120,000(6) 25,000(7) None
2000 None None $ 90,000(6) 25,000(8) None
(1) Mr. McCormick was named our chief executive officer on February 17,
2000 and was elected to the board of directors in November 2000. See
"Employment Agreement with Jeffrey S. McCormick."
(2) On January 2, 2002, we granted to Mr. McCormick and Mr. Cameron an
option to purchase 25,000 shares of common stock at $2.90 per share.
(3) On June 7, 2002, we granted to Mr. McCormick an option to purchase
32,143 shares of common stock at $0.01 per share.
(4) On April 14, 2000, we granted to Mr. McCormick a non-qualified option
to purchase 7,000,000 shares of common stock at $3.00, the closing
price per share of our common stock as of the date of his employment
agreement.
(5) Mr. Cameron was elected chairman of the board of directors in November
1999. From August 1999 until February 2000, he served as our chief
executive officer and director, and was named chief financial officer
in November 2000.
(6) Amounts were paid to Cameron and Associates, a company owned by Mr.
Cameron, for providing consulting services to ATR.
(7) On January 2, 2001, we granted to Mr. McCormick and Mr. Cameron an
option to purchase 25,000 shares of common stock at $1.34 per share.
(8) On January 3, 2000, we granted Mr. Cameron an option to purchase 25,000
shares of common stock at $4.44 per share.
Option/Sar Grants In Last Fiscal Year
The following table provides information relating to stock options granted
during fiscal year ended June 30, 2002.
% of Total Potential Realized Value at
Options Assumed Annual Rates of
Granted to Exercise Stock Price Appreciation for
Options/SARs Employees in Price per Expiration Option Term
-------------------------------
Granted# Fiscal Year Share Date 5% 10%
-------- ----------- ----- ---- -- ---
James W. Cameron, Jr. 25,000 2.03% $2.90 1/2/2012 $ 45,595 $ 115,546
Jeffrey S. McCormick 25,000 2.03% $2.90 1/2/2012 $ 45,595 $ 115,546
32,143 2.60% $0.01 6/7/2012 $ 41,238 $ 104,504
Percentages shown under "Percent of Total Options Granted to Employees in
the Last Fiscal Year" are based on an aggregate of 1,234,053 options granted to
our employees under the 1997 Stock Option Plan and outside of this plan during
the year ended June 30, 2002.
Potential realizable value is based on the assumption that our common stock
appreciates at the annual rate shown, compounded annually, from the date of
grant until the expiration of the ten-year term. These numbers are calculated
based on Securities and Exchange Commission regulations and do not reflect our
projection or estimate of future stock price growth. Potential realizable values
are computed by:
o Multiplying the number of shares of common stock subject to a given option by
the exercise price.
o Assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table for the entire ten-
year term of the option, and
o Subtracting from that result the aggregate option exercise price.
Fiscal Year End Option Values
The following table sets forth for each of the executive officers named in the
Summary Compensation Table the number and value of exercisable and unexercisable
options and SARs at June 30, 2002:
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options/SARs In-The-Money Options/SARs
Acquired on Value At June 30, 2002 At June 30, 2002
------------------------------ ---------------------------------
Exercise(#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
James W. Cameron, Jr. 0 0 25,000 0 $0 $0
0 25,000 0 $17,750 $0
0 0 25,000 0 $0 $0
Jeffrey s. McCormick 0 0 2,800,000 4,200,000 $0 $0
0 0 25,000 0 $17,750 $0
0 0 25,000 0 $0 $0
0 0 32,143 0 $65,572 $0
Amounts shown under the column "Value of Unexercised In-The-Money Options at
June 30, 2002," represent the difference between the trading price of a share of
common stock underlying the options at June 30, 2002, of $2.05 per share (the
closing price on June 30, 2002, as reported by the OTC Bulletin Board) less the
corresponding exercise price of such options.
Compensation of Directors
Directors do not receive cash compensation for serving as such; however,
each director can be granted annual stock options under our 1997 Stock
Option/Stock Issuance Plan. Messrs. Cameron, McCormick and Lammerding were
granted options to purchase 25,000 shares of our common stock at an exercise
price equal to the fair market value on the date of grant in January 2002 (for
fiscal year 2002 service).
Employment Agreement
In April 2000, we entered into an employment agreement with Mr. McCormick
to become our chief executive officer effective February 17, 2000. Beginning
July 1, 2000 and for the remaining term of Mr. McCormick's employment, the board
shall nominate him to serve as our director. The initial term of the agreement
is 5 years, automatically continuing for successive terms of one (1) year unless
terminated by either party by written notice at least 30 days prior to the end
of the initial or any succeeding terms. The agreement established Mr.
McCormick's initial annual base salary at $150,000 per year beginning May 1,
2000, and provided for a grant to Mr. McCormick of a non-qualified stock option
to purchase up to 7,000,000 shares of our common stock at an exercise price of
$3.00 (the fair market value of our common stock on the date of grant.)
The option vests ratably over 5 years and expires on April 14, 2010. The
agreement provides that vesting shall accelerate and the option become 100%
vested upon: death of Mr. McCormick, a change of control of ATR, a change of a
majority of the current board of directors during the term of his employment, or
a termination by Mr. McCormick for a "good reason" or termination by us without
"cause". "Piggy-back" registrations rights are applicable to all option stock
issued to Mr. McCormick, including stock related to a 6,000,000 option from Mr.
Cameron to Mr. McCormick. The agreement provides that in the event Mr. McCormick
terminates for a "good reason" or is terminated without "cause," he shall
receive an amount equal to 18 months of his base salary, at the rate then in
effect, to be paid in a lump sum no later than 30 days following termination,
and he shall continue to receive fringe benefits as in effect at the time of
termination for 18 months following such termination. In addition he shall also
receive any bonus amount, or pro rata share of any bonus amount that may have
been awarded to him as the compensation committee of the board, in its sole
discretion, may have authorized as a bonus.
1993 and 1997 Stock Option/Stock Issuance Plans
The 1993 Stock Option/Stock Issuance Plan (the "1993 Plan"), pursuant to
which our key employees (including officers) and consultants, and the
non-employee members of the board of directors may acquire an equity interest in
ATR, was adopted by the board of directors on August 31, 1993 and became
effective at that time. The 1993 Plan was approved by stockholders. The 1993
Plan provided that up to 400,000 shares of common stock could be issued over the
ten year term of the 1993 Plan. Upon stockholder approval of the 1997 Stock
Option Plan (the "1997 Plan"), the board of directors terminated the 1993 Plan,
which termination shall not alter the vesting provisions or any other term or
condition of any option granted prior to the termination of the 1993 Plan.
The 1997 Plan, pursuant to which key employees (including officers),
consultants and directors may acquire an equity interest in ATR, was adopted by
the board of directors on November 18, 1997 and became effective at that time.
This plan expires at November 17, 2002. The 1997 Plan was approved by the
stockholders.
An aggregate of 3,000,000 shares of common stock may be issued over the
five-year term of the 1997 Plan. Subject to the oversight and review of the
board of directors, the 1997 Plan shall generally be administered by our
compensation committee consisting of at least one non-employee directors as
appointed by the board of directors. The grant date, the number of shares
covered by an option and the terms and conditions for exercise of options, shall
be determined by the committee, subject to the 1997 Plan requirements. The board
of directors shall determine the grant date, the number of shares covered by an
option and the terms and conditions for exercise of options to be granted to
members of the committee.
During fiscal year 2002, we granted options to purchase shares of common
stock to Messrs. Cameron, and McCormick under the 1997 Plan (see table of
"Option/SAR Grants in Last Fiscal Year"). As of June 30, 2002, approximately
329,279 shares are available under the 1997 Plan for grant.
Equity Compensation Plans Not Approved by Security Holders
We have issued options to certain of our officers to purchase common stock
pursuant to agreements outside of our stock option plans (the "Agreements").
These are all non-statutory stock options. The grant of options under the
Agreements was administered by the compensation committee, which has discretion
to determine optionees, the number of shares to be covered by each option, the
exercise schedule and other terms of the options. Shares subject to options
under the Agreements may be purchased with (i) cash or (ii) promissory note, if
permitted by the compensation committee.
During fiscal year 2000, in accordance with an employment agreement, we
granted the current chief executive officer stock options to purchase 7,000,000
shares of common stock at $3.00 per share, the fair market value of the our
common stock on the date of grant. The options vest ratably over 5 years and
expire on April 14, 2010. As of June 30, 2002, 2,800,000 options have vested,
and 7,000,000 remain outstanding. After cessation of employment these options
remain exercisable until their expiration date.
In August 1993, we granted the then chief executive officer and director,
stock options to purchase shares of common stock with an expiration date of
August 10, 2003, these options fully vested as of June 30, 1994. As of June 30,
2002, 370,000 options remain outstanding at a purchase price of $0.10. These
options remain exercisable until their expiration date.
As of June 30, 2002, options to purchase a total of 7,370,000 shares, of
common stock issued under the Agreements were outstanding. The weighted average
exercise price per share was $2.85 as of June 30, 2002.
The following table sets forth certain information as of June 30, 2002,
concerning securities issued under all our equity compensation plans (including
individual compensation arrangements):
Weighted-Average Number of Securities
Exercise Price Remaining Available for
of Outstanding Future Issuance Under
Number of Securities to Options, Equity Compensation
be Issued Upon Exercise Warrants and Plans (Excluding
Plan Category of Outstanding Options, Rights Securities Reflected in
Warrants and Rights (b) Column (a))
(a) (c)
-----------------------------------------------------------------------------------------------------------------------
Equity compensation plans approved by
security stockholders:
1993 Stock Option/Stock Issuance Plan 140,000 $1.69 31,173
1997 Stock Option/Stock Issuance Plan 2,449,203 $2.09 329,279
------------------------------------------------------------------------
Sub-total 2,589,203 $2.07 360,452
Equity compensation plans not approved
by security holders:
Options, Warrants and Rights not
pursuant to any plan
Jeffrey S. McCormick 7,000,000 $3.00 NA
Other 370,000 $0.10 NA
-------------------------------------------
Sub-total 7,370,000 $2.85
-----------------------------------------------------------------------
Total 9,959,203 $2.65 360,452
Limitation of Liability and Indemnification
Section 145 of the General Corporation Law of the State of Delaware
empowers a corporation to indemnify its directors, officers, employees and
agents under certain circumstances. Article Seventh of our Amended and Restated
Certificate of Incorporation provides that we shall indemnify to the fullest
extent permitted by Section 145 of the General Corporation Law of the State of
Delaware, as amended from time to time, all persons whom it may indemnify
pursuant thereto. Article Sixth of the Amended and Restated Certificate of
Incorporation further provides that our director shall not be personally liable
to us or our stockholders for monetary damages for any breach of fiduciary duty
as a director; provided, however, that such clause shall not apply to any
liability of a director (1) for any breach of the director's duty of loyalty to
the us or our stockholders, (2) for acts or omissions that are not in good faith
or involve intentional misconduct or a knowing violation of the law, (3) under
Section 174 of the General Corporation Law of the State of Delaware, or (4) for
any transaction from which the director derived an improper personal benefit.
Disclosure of Commission Position on Indemnification for Securities Act
Liabilities
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling
Alternative Technology Resources, we have been informed that in the opinion of
the Securities and Exchange Commission, indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as to (i) the persons or
entities known to ATR to be beneficial owners of more than 5% of our common
stock as of December 31, 2002, (ii) all of our directors, (iii) all of our
executive officers and (iv) all of our directors and executive officers as a
group. The number of shares or common stock outstanding on December 31, 2002 was
66,758,529. The address of all owners is 629 J Street, Sacramento, California
95814, with the exception of Mr. McCormick whose address is 33 Jewell Court,
Portsmouth, New Hampshire 03801.
Common Stock
------------------------------------
Name of Beneficial Owner Number of Shares Percent
------------------------ ---------------- -------
James W. Cameron, Jr. 40,116,783(1) 59.89%
Jeffrey S. McCormick 11,527,278(2) 15.24%
Edward L. Lammerding 67,000(3) *
All directors and executive officers 45,711,061(4) 65.36%
as a group (3 persons)
* Less than 1.0%.
(1) Includes 75,000 shares issuable upon exercise of options, none of which are
subject to repurchase, 150,000 shares issuable upon exercise of a warrant
and 6,000,000 shares optioned to Mr. McCormick and immediately exercisable.
(2) Includes 2,882,143 shares issuable upon exercise of options, exercisable
within 60 days, none of which are subject to repurchase and includes
6,000,000 shares under option from Mr. Cameron and immediately exercisable.
(3) Represents 67,000 shares issuable upon exercise of options, none of which
are subject to repurchase.
(4) Includes 3,024,143 shares issuable upon exercise of options and 150,000
shares issuable upon exercise of a warrant.
PLAN OF DISTRIBUTION
The selling stockholders and any of their pledgees, assignees, and
successors-in-interest may, from time to time, sell any or all or none of their
common shares on any stock exchange, market, or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling stockholders may use any one or more of the
following methods when selling common shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-
dealer for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o short sales;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any of the above methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The selling stockholders may also engage in short sales against the box,
puts and calls and other transactions in securities of ours or derivatives of
our securities and may sell or deliver common shares in connection with these
trades. The selling stockholders may pledge their common shares to their brokers
under the margin provisions of customer agreements. If a selling stockholder
defaults on a margin loan, the broker may, from time to time, offer and sell the
pledged common shares.
Broker-dealers engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any broker-dealer acts as
agent for the purchaser of common shares, from the purchaser) in amounts to be
negotiated. The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The selling stockholders and any broker-dealers or agents that are involved
in selling the common shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration
of the common shares, including fees and disbursements of counsel to the selling
stockholders. We have agreed to indemnify certain of the selling stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
SELLING SHAREHOLDERS
The following table identifies the selling stockholders, as of December 31,
2002, and indicates certain information known to us with respect to (i) the
number of common shares beneficially owned by the selling stockholder, (ii) the
number of common shares to be offered for the selling stockholders' account, and
(iii) the number of common shares and percentage of outstanding common shares to
be beneficially owned by the selling stockholders after the sale of the common
shares offered by the selling stockholders. The term "beneficially owned" means
common shares owned or that may be acquired within 60 days. The number of common
shares outstanding as of December 31, 2002, was 66,758,529. The selling
stockholders may sell some, all, or none of their common shares.
Shares Beneficially Owned Shares to be Shares Beneficially
Prior to Offering Offered Owned After Offering
---------------------------------------- ------------ --------------------------
Name of Shareholder Number of Shares
Shares Underlying
Warrants (1) Total Percentage Number Number Percentage
------------------- --------- ------------ ----- ---------- ------ ------ ----------
Baron, Alan(1) 0 37,500 37,500 * 37,500 0 0
Baron, Sheri 375,000 112,500 487,500 * 487,500 0 0
BFPI Partnership 163,125 48,938 212,063 * 212,063 0 0
Louis H. Barnett 22,500 6,750 29,250 * 29,250 0 0
BGC Initial Partners 90,000 27,000 117,000 * 117,000 0 0
Cetlin, Norman 50,000 15,000 65,000 * 65,000 0 0
Cohn, Lawrence H., MD 22,500 6,750 29,250 * 29,250 0 0
Collin Family Ltd Partnership 50,000 15,000 65,000 * 65,000 0 0
CSM Partners(2) 1,000,000(2) 300,000 1,300,000 1.9% 1,300,000 0 0
D&G Partners, LP 27,000 8,100 35,100 * 35,100 0 0
Dahlson, Rick 50,000 15,000 65,000 * 65,000 0 0
Dolphin Offshore Partners, LP 800,000 240,000 1,040,000 1.6% 1,040,000 0 0
Downey, Walter L. 56,250 16,875 73,125 * 73,125 0 0
Dresher, Alan Richard 100,000 30,000 130,000 * 130,000 0 0
Duck Partners 50,000 15,000 65,000 * 65,000 0 0
Emerson Partners 100,000 30,000 130,000 * 130,000 0 0
Emerson, J. Steven 537,500 540,000 1,077,500 1.6% 1,077,500 0 0
Epstein, Harry L. 112,500 33,750 146,250 * 146,250 0 0
Gosman, Michael M. 25,000 7,500 32,500 * 32,500 0 0
Griffiths Childrens Trust/
Catherine Harrison 19,998 5,999 25,997 * 25,997 0 0
Griffiths Childrens Trust/
Jessica Griffiths 19,998 5,999 25,997 * 25,997 0 0
Griffith, Scott(1) 168,750 168,750 168,750 * 168,750 0 0
High Tide LLC 0 90,000 90,000 * 90,000 0 0
J. Steven Emerson IRA II, 200,000 101,250 301,250 * 301,250 0 0
Bear Stearns Securities Corp.,
Cust.
J. Steven Emerson Roth IRA, 1,600,000 0 1,600,000 2.4% 1,600,000 0 0
Bear Stearns Securities Corp.,
Cust.
JM Hull Associates 200,000 60,000 260,000 * 260,000 0 0
JMG Capital Partners, LP 251,000 75,300 326,300 * 326,300 0 0
JMG Triton Offshore Fund, Ltd. 251,000 75,300 326,300 * 326,300 0 0
Kovler, Everett 125,000 37,500 162,500 * 162,500 0 0
Kruger, Paul A. 100,000 30,000 130,000 * 130,000 0 0
LeNoir, Michael, MD 500 0 500 * 500 0 0
Little, Donald V. 50,000 15,000 65,000 * 65,000 0 0
Mathios, Anthony J., MD 500 0 500 * 500 0 0
McDonough, Sean 90,000 27,000 117,000 * 117,000 0 0
Michaelides, Kyriakos M., MD 1,000 0 1,000 * 1,000 0 0
Ramsdell Family Trust 100,125 30,038 130,163 * 130,163 0 0
Ramsdell Family Trust 100,000 30,000 130,000 * 130,000 0 0
u/a/d 7/7/94, W. Robert
and Marjorie F. Ramsdell,
TTEES
Ramsdell Irrevocable Trust 200,025 60,008 260,033 * 260,033 0 0
Ramsdell, Elyse A. 49,950 14,985 64,935 * 64,935 0 0
Ramsdell, W. Robert 149,850 44,955 194,805 * 194,805 0 0
Shaw, John J. 100,000 30,000 130,000 * 130,000 0 0
Shelmire, Jesse(1) 168,750 168,750 168,750 * 168,750 0 0
Stevenson Trust / Jane Meyer 19,998 5,999 25,997 * 25,997 0 0
Stevenson Trust / Jeffery 19,998 5,999 25,997 * 25,997 0 0
Stevenson
Stevenson Trust / Wendy Blau 19,998 5,999 25,997 * 25,997 0 0
Theise, Jay F. 100,000 30,000 130,000 * 130,000 0 0
Turgeon, Daniel G., MD 500 0 500 * 500 0 0
Virginia Women's Health Assoc. 3,500 0 3,500 * 3,500 0 0
Footnotes to Table
------------------
* Less than 1.0%
(1) Represents shares that may be acquired upon the exercise of warrants and
may be resold.
(2) Represents 1,000,000 shares that may be acquired upon the conversion of
convertible notes.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Financing Arrangements
We have has received short-term, unsecured financing to fund our operations
in the form of notes payable of $4,636,352 as of June 30, 2002 from Mr. Cameron,
our chairman and chief financial officer, and another stockholder. These notes
bear interest at 10.25%. On September 1, 2001, we agreed with Mr. Cameron to
extend the due date on notes payable to him until December 31, 2002, in exchange
for an extension fee of 2%. These extended notes total $1,630,529, including
accrued interest and extension fees, and bear interest at 10.25% per annum.
During the quarter ending June 30, 2002, Mr. Cameron loaned us an additional
$582,000 bearing interest at 10.25% payable on to him on December 31, 2002.
During the three month period ending September 30, 2002, Mr. Cameron loaned us
an additional $619,000 bearing interest at 10.25% payable on December 31, 2002.
Subsequent to September 30, 2002, we agreed with Mr. Cameron to extend the due
date of his convertible promissory notes until December 31, 2003 in exchange for
an extension fee of 2%. These convertible promissory notes total $2,873,691,
including accrued interest, extension fee, and bear interest at 10.25% per annum
and are convertible into common stock at $3.00 per share at the note holder's
option.
During the period between January 9, 2002 and March 28, 2002, we sold
1,232,585 shares of our common stock at a purchase price of $2.25 per share. Mr.
Cameron purchased 222,222 shares of our common stock in the January 2002 private
placement. Because the purchase price of such stock was less than the public
trading price on the date of purchase, we recorded compensation expense of
$138,583 during fiscal year 2002. Net proceeds from the offering were $2,742,519
and the proceeds were used to fund operations and repay debt. Pursuant to the
terms of the January 2002 private placement, in the event that within one year
from the final closing, we sold shares of common stock, or securities
exercisable to convertible into common stock, at a price less than $2.25 per
share, we will issue additional shares to these investors in an amount such that
the overall purchase price will be equal to the lower, subsequent sales price.
As a result of the October 2002 private placement at $1.00 per share, we issued
an aggregate of 1,540,729 additional shares of common stock to the investors of
the January 2002 private placement in which Mr. Cameron received 277,778
additional shares of our common stock as a result of his participation in the
January 2002 private placement. In addition, as a rsult of our July 2002 bridge
financing in which we granted warrants equal to 30% of the loan at an exercise
price of $1.00 per share, we granted to the investors of the January 2002 and
October 2002 private placements warrants to purchase 30% of their respective
investment at an exercise price of $1.00 per share. Mr. Cameron, as a
participant in the private placement, received a warrant to purchase 150,000
shares of common stock at an exercise price of $1.00 per share. Compensation
expense to be recorded during the second quarter ended December 31, 2002, for
the additional shares issued to Mr. Cameron, our chairman and chief financial
officer, will be $377,778. The shares of common stock issued in the private
placements are restricted securities.
Other
On August 1, 2000, Mr. Cameron entered into an agreement with Mr.
McCormick, our chief executive officer, to grant him the option to purchase
6,000,000 shares of our common stock from Mr. Cameron at the purchase price of
$3.625 per share, which represented the trading price of our stock on that date.
This option was vested immediately, and on September 17, 2001, the expiration
date of the option grant was extended from the original date of August 1, 2003
until August 1, 2006.
In November 1995, we entered into a lease agreement for our Sacramento,
California, facility under a one-year lease with Mr. Cameron. The lease has been
extended to January 31, 2004. At June 30, 2002, $527,896 of rent owed for fiscal
years 1996 through 2002 is included in the balance of accounts payable to
stockholders. Rent expense under this lease was $36,392 for the quarter ended
September 30, 2002, and $148,302, $139,272 and $114,285 for the years ended June
30, 2002, 2001 and 2000, respectively.
During the fiscal years ended June 30, 2002, 2001 and 2000, Cameron &
Associates, which is wholly owned by Mr. Cameron, provided consulting services
to us. Fees for such services totaled $30,000 for the quarter ended September
30, 2002, and $120,000, $120,000 and $90,000 in fiscal year 2002, 2001 and 2000,
respectively.
DESCRIPTION OF SECURITIES
We are authorized to issue 100,000,000 shares of common stock, par value
$0.01 and 1,200,000 shares of preferred stock, par value $6.00. As of December
31, 2002, the number of outstanding shares of common stock is 66,758,529. There
is no preferred stock outstanding.
Holders of common stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. Common stockholders are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the board of directors out of funds legally available therefor, subject to the
payment of any preferential dividends declared with respect to any preferred
stock that from time to time may be outstanding. The common stock has no
preemptive or conversion rights or other subscription rights and there are no
redemptive or sinking fund provisions application to the common stock. All
outstanding shares of common stock are fully paid and nonassessable, and all the
shares of common stock issued by us upon the exercise of outstanding warrants
will, when issued, be fully paid and nonassessable.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is Computershare
Trust Company, Inc., located at 12039 West Alameda Parkway Z-2, Lakewood,
Colorado, 80228, mailing address Post Office Box 1596, Denver Colorado 80201,
telephone number (303) 986-5400.
Legal Matters.
The validity of the share of common stock offered by the selling
stockholders will be passed by Bartel Eng & Schroder of Sacramento, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at June 30, 2002 and 2001, and for each of the three years in the
period ended June 30, 2002, as set forth in their report (which contains an
explanatory paragraph describing conditions that raise substantial doubt about
our ability to continue as a going concern as described in Note 1 to the
financial statements). We've included our financial statements in the prospectus
and elsewhere in the registration statement in reliance on Ernst & Young LLP's
report given on their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed a registration statement on Form S-1, together with all
amendments and exhibits, with the Securities and Exchange Commission. This
prospectus, which forms a part of that registration statement, does not contain
all information included in the registration statement. Certain information is
omitted and you should refer to the registration statement and its exhibits.
With respect to references made in this prospectus to any of our contracts or
other documents, the references are not necessarily complete and you should
refer to the exhibits attached to the registration statement for copies of the
actual contracts or documents. You may review a copy of the registration
statement at the Securities and Exchange Commission's public reference room, and
at Securities and Exchange Commission's regional offices located at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade
Center, 13th Floor, New York, New York 10048. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the operation
of the public reference rooms. Our filings and the registration statement can
also be reviewed by accessing the Securities and Exchange Commission's website
at http://www.sec.gov.
INDEX TO FINANCIAL STATEMENTS
Alternative Technology Resources, Inc.
Page
----
Financial Statements as of September 30, 2002 and June 30, 2002
and for the Three Months Ended September 30, 2002 and 2001 (unaudited)
Condensed Balance Sheets....................................................F-2
Condensed Statements of Operations..........................................F-3
Condensed Statements of Cash Flows..........................................F-4
Notes to Condensed Financial Statements.....................................F-5
Financial Statements as of June 30, 2002 and 2001 and for the Three
Years Ended June 30, 2002
Report of Ernst & Young LLP, Independent Auditors...........................F-9
Balance Sheets..............................................................F-10
Statements of Operations....................................................F-11
Statement of Stockholders' Equity (Deficit).................................F-12
Statements of Cash Flows....................................................F-13
Notes to Financial Statements...............................................F-15
ALTERNATIVE TECHNOLOGY RESOURCES, INC.
Condensed Balance Sheets
(Unaudited)
September 30, June 30,
Assets 2002 2002
------
---------------------- --------------------
Current assets:
Cash and cash equivalents $ 884,725 $ 402,291
Trade accounts receivable 20,651 3,602
Prepaid maintenance and service fees 90,149 -
Prepaid expenses and other current assets 107,444 81,223
---------------------- --------------------
Total current assets 1,102,969 487,116
---------------------- --------------------
Property and equipment:
Equipment and software 817,076 788,192
Accumulated depreciation and amortization (361,333) (297,987)
---------------------- --------------------
Property and equipment, net 455,743 490,205
---------------------- --------------------
Prepaid financing costs 52,626 -
Prepaid license and service fees 191,321 211,498
Other non-current assets 10,199 14,490
---------------------- --------------------
$ 1,812,858 $ 1,203,309
====================== ====================
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Payable to Healthcare Exchange participants $ 839,566 $ 409,738
Trade accounts payable 585,523 438,460
Accrued payroll and related expenses 279,750 274,777
Accrued preferred stock dividends 283,195 283,195
Accounts payable and accrued interest payable to stockholders 909,990 797,232
Notes payable to stockholder 2,831,529 2,212,529
Convertible notes payable to stockholder 2,423,823 2,423,823
Convertible notes payable to third party 686,852 -
Accrued interest payable to third party 14,685 -
Other current liabilities 273,711 254,469
---------------------- --------------------
Total current liabilities 9,128,624 7,094,223
---------------------- --------------------
Commitments and contingencies
Stockholders' equity (deficit):
Convertible preferred stock, $6.00 par value - 1,200,000 shares authorized
none issued and outstanding at September 30, 2002 and 2001, 204,167 shares
Designated Series D, none issued and outstanding at September 30, 2002 and
June 30, 2002
Common stock, $0.01 par value - 100,000,000 shares authorized; 61,069,255
shares issued and outstanding at September 30, 2002
(60,968,213 at June 30, 2002) 610,693 609,682
Additional paid-in capital 53,323,226 52,862,283
Accumulated deficit (61,249,685) (59,362,879)
---------------------- --------------------
Total stockholders' equity (deficit) (7,315,766) (5,890,914)
---------------------- --------------------
$ 1,812,858 $ 1,203,309
====================== ====================
See accompanying notes to condensed financial statements.
ALTERNATIVE TECHNOLOGY RESOURCES, INC.
Condensed Statements of Operations
(Unaudited)
Three Months Ended
September 30,
2002 2001
Healthcare exchange
Revenue $ 776,560 $ 108,218
Costs (543,702) (224,788)
-------------- ---------------------
Gross profit (loss) 232,858 (116,570)
Selling, marketing and product development costs (1,397,306) (1,505,195)
General and administrative expenses (509,015) (505,834)
-------------- ---------------------
Loss from operations (1,673,463) (2,127,599)
Other income (expense)
Interest income 430 33,133
Interest expense to third party (77,315) -
Interest expense to stockholders and directors (136,458) (139,517)
-------------- ---------------------
Total other income (expense) (213,343) (106,384)
-------------- ---------------------
Net loss $(1,886,806) $(2,233,983)
============== =====================
Basic and diluted net loss per share $ (0.03) $ (0.04)
============== =====================
Shares used in per share calculations 61,016,315 59,401,860
============== =====================
See accompanying notes to condensed financial statements.
ALTERNATIVE TECHNOLOGY RESOURCES, INC.
Condensed Statements of Cash Flows
(Unaudited)
Three Months Ended
September 30,
2002 2001
------------------------ ----------------------
Net cash used in operating activities $ (1,062,532) $ (2,005,312)
------------------------ ----------------------
Cash flows used in investing activities:
Purchases of property and equipment (28,884) (91,033)
Maturities of short-term investments - 1,354,159
------------------------ ----------------------
Net cash provided (used) by investing activities (28,884) 1,263,126
------------------------ ----------------------
Cash flows from financing activities:
Prepaid financing costs (52,626) -
Proceeds from exercise of options and warrants 7,476 19,251
Proceeds from notes payable to stockholders 619,000 313,902
Proceeds from convertible notes payable 1,000,000 -
------------------------ ----------------------
Net cash provided by financing activities 1,573,850 333,153
------------------------ ----------------------
Net increase (decrease) in cash and cash equivalents 482,434 (409,033)
Cash and cash equivalents at beginning of period 402,291 3,159,017
------------------------ ----------------------
Cash and cash equivalents at end of period $ 884,725 $ 2,749,984
======================== ======================
See accompanying notes to condensed financial statements.
ALTERNATIVE TECHNOLOGY RESOURCES, INC.
Notes to Condensed Financial Statements
September 30, 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, 2002.
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 September 30,
2002 and June 30, 2002, results of operations for the three months ended
September 30, 2002 and 2001, and cash flows for the three months ended September
30, 2002 and 2001. The results for the period ended September 30, 2002 are not
necessarily indicative of the results to be expected for the entire fiscal year
ending June 30, 2003.
The Company has incurred operating losses since inception, which have
resulted in an accumulated deficit of $61,249,685 at September 30, 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 2003. The Company engaged a placement agent to assist in
the sale of shares of the Company's common stock in a private placement.
Subsequent to September 30, 2002, the Company received gross proceeds of
$4,125,000 through the sale of 4,125,000 shares pursuant to this offering. Cash
proceeds net of offering costs were $3,884,567. In addition, the due dates of
Notes Payable to Stockholder and Convertible Notes Payable to Stockholder were
extended from December 31, 2002 to December 31, 2003. ["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, 2002 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.
Note 2. Financing Arrangements
On July 26, 2002, the Company received cash of $1,000,000 in exchange for
issuance of a convertible note (the "Note"). The Note bears interest at 8% and
is payable at the earliest of July 25, 2003 or when the Company, in a proposed
private placement of common stock, raises $8,000,000 (the "Private Placement").
Pursuant to the original terms of the Note, all or a portion of the Note may be
converted into shares of common stock at the lower of $2.25 per share; the
subscription per share price of the proposed Private Placement; or if the
Company sells shares of its common stock, or issues options, warrants or other
securities convertible into shares of its common stock before March 29, 2003 at
a price less than the lower of $2.25 or the subscription per share price of the
proposed Private Placement through March 29, 2003, then the per share price of
the common stock subsequently sold (excluding common stock that may be (i)
issued in connection with a merger, (ii) issued as a dividend, (iii) issued upon
the exercise of options subsequently issued after the closing to employees of or
consultants to the Company, or (iv) issued upon the exercise of existing
options, warrants or other convertible securities).
In connection with the issuance of the Note, the Company issued three
warrants. Each warrant provides for the purchase of 100,000 shares of the
Company's common stock at an exercise price equal to the lower of $2.14 or the
subscription per share price of the proposed Private Placement, or if further
shares are offered at a lower price per share through March 29, 2003, then at
that price. The First Warrant became exercisable on July 26, 2002. The Second
Warrant will become exercisable if the Company does not repay the Note within
180 days from the issuance of the Note. The Third Warrant will become
exercisable if the Company does not repay the Note within one year from the
issuance of the Note. When, and if, exercisable, the holder may exercise these
warrants through July 25, 2009.
In connection with the issuance of the Note and First Warrant, the Company
estimated the fair value of the First Warrant to be $198,000 using the
Black-Scholes model. In accordance with EITF 98-5, "Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios," and EITF 00-27, "Application of Issue No. 98-5 to Certain
Convertible Instruments," the Company has recognized $62,630 through interest
expense during the three months ended September 30, 2002 for a portion of the
fair value of the First Warrant and a portion of the beneficial conversion
feature of the Note, which was estimated to be $177,778. The Company will record
additional amounts totaling $313,148 through interest expense until July 25,
2003 for the remaining fair value of the First Warrant and the beneficial
conversion feature of the Note recorded at the initial transaction date.
Relating to the private placement of 4,125,000 shares of the Company's
common stock at a purchase price of $1.00 per share in October 2002, the
conversion price of the Note and per share exercise price of the First Warrant
were reset to $1.00. In accordance with EITF 00-27, the Company will record
$624,222 for the additional beneficial conversion amount relating to the value
of the reset feature. This amount will be recognized ratably through interest
expense until July 25, 2003.
Also during the period ended September 30, 2002, Mr. Cameron loaned the
Company an additional $619,000 which bears interest at 10.25% per annum and is
payable on December 31, 2002.
Note 3. Comprehensive Loss
Total comprehensive loss for the three months ended September 30, 2002 and
2001 was $1,886,806, and $2,233,961 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 months ended September 30, 2002 and 2001 there were stock options, stock
warrants, and convertible notes 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 Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets,"
or SFAS 142. 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. The Company adopted 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 142 did not have an effect on the
Company's results of operations, financial position or cash flows.
In October 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," or 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 adopted SFAS 144 effective July 1, 2002. The adoption of SFAS 144 did
not have an effect on the Company's results of operations, financial condition
or cash flows.
Note 6. Subsequent Events
The Company engaged a placement agent to assist in the sale of shares of
the Company's common stock in a private placement. Subsequent to September 30,
2002, the Company received gross proceeds of $4,125,000 through the sale of
4,125,000 shares pursuant to this offering. Cash proceeds net of offering costs
were $3,884,567. In addition, the Company granted the placement agent a five
year warrant to purchase 10% of the common stock placed by them at an exercise
price of $1.00 per share.
Subsequent to September 30, 2002, resulting from the closing of the October
2002 private placement of common stock, 1,540,729 additional shares were issued
to investors who purchased shares of common stock in the January 2002 private
placement based on the October 2002 private placement price of $1.00.
Compensation expense to be recorded during the second quarter ended December 31,
2002, for the additional shares issued to the Company's Chairman and Chief
Financial Officer, will be $377,778.
Subsequent to September 30, 2002, the Company agreed with Mr. Cameron to
extend the due date on notes payable to him until December 31, 2003 in exchange
for an extension fee of 2%. These extended notes total $2,873,691, including
accrued interest and extension fees, and bear interest at 10.25% per annum. Also
subsequent to September 30, 2002, the Company agreed with the other note holder
to extend the due date of his convertible promissory notes until December 31,
2003. These convertible promissory notes total $2,681,415, including accrued
interest, bear interest at 10.25% per annum and are convertible into common
stock at $3.00 per share at the note holder's option.
Subsequent to September 30, 2002, as a result of the July 2002 bridge
financing in which the Company granted warrants equal to 30% of the loan at an
exercise price of $1.00 per share, we granted warrants to the investors of the
January 2002 and October 2002 private placements warrants to purchase 30% of
their respective investment, or an aggregate of 2,069,494 shares of common
stock, at an exercise price of $1.00 per share. Included in this grant, the
Company granted a warrant to purchase 150,000 shares of common stock at an
exercise price of $1.00 per share to the Company's Chairman and Chief Financial
Officer as a result of his participation in the January 2002 private placement.
During the quarter ended December 31, 2002, the facilities lease agreement
between the Company and the Company's Chairman and Chief Financial Officer was
modified to reflect an annual base rent of $120.00 per year, until further
notice from the lessor in his sole and absolute discretion, to return the rent
to its previous level. To recognize the estimated market rate of this
transaction, a monthly expense of $11,424 is recognized through rent expense and
other capital contributions.
Subsequent to December 31, 2002, in consideration of the contributions to
the Company, the Company approved the issuance of a non-qualified option grant
to Mr. Jeffrey S. McCormick, Chief Executive Officer, to purchase up to
4,000,000 shares of common stock at the exercise price of $1.25 per share. The
effective date of the option grant is November 7, 2002. The option grant is to
vest over a four year period, commencing with the vesting of the first 1,000,000
shares of common stock on January 31, 2003. Thereafter, the option to purchase
additional 1,000,000 shares of common stock shall vest on January 31 of each
year through 2006.
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
Alternative Technology Resources, Inc.
We have audited the accompanying balance sheets of Alternative Technology
Resources, Inc. as of June 30, 2002 and 2001, and the related statements of
operations, stockholders' equity (deficit), and cash flows for each of the three
years in the period ended June 30, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Alternative Technology
Resources, Inc. at June 30, 2002 and 2001 and the results of its operations and
its cash flows for each of the three years in the period ended June 30, 2002 in
conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that
Alternative Technology Resources, Inc. will continue as a going concern. As more
fully described in Note 1, the Company has incurred recurring operating losses
and has an accumulated deficit of $59,362,879 as of June 30, 2002. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. 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.
/S/ ERNST & YOUNG LLP
Sacramento, California
August 16, 2002
Alternative Technology Resources, Inc.
Balance Sheets
June 30,
2002 2001
---- ----
Assets
Current assets:
Cash and cash equivalents $ 402,291 $ 3,159,017
Short-term investments - 1,354,137
Trade accounts receivable 3,602 24,252
Interest receivable - 52,134
Prepaid expenses and other current assets 81,223 267,635
------------------- ------------------
Total current assets 487,116 4,857,175
Property and equipment:
Equipment and software 788,192 501,626
Accumulated depreciation and amortization (297,987) (107,848)
------------------- ------------------
Property and equipment, net 490,205 393,778
Prepaid license and service fees 211,498 259,155
Other non-current assets 14,490 67,550
------------------- ------------------
$ 1,203,309 $ 5,577,658
=================== ==================
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Payable to Healthcare Exchange providers $ 409,738 $ 40,756
Trade accounts payable 438,460 151,371
Accrued payroll and related expenses 274,777 181,028
Accrued preferred stock dividends 283,195 283,195
Accounts payable and accrued interest payable to stockholders 797,232 728,941
Notes payable to stockholder 2,212,529 -
Convertible notes payable to stockholder 2,423,823 -
Other current liabilities 254,469 295,680
------------------- ------------------
Total current liabilities 7,094,223 1,680,971
Long term notes payable to stockholder - 1,511,635
Long term convertible notes payable to stockholder - 2,228,815
------------------- ------------------
Total long term liabilities - 3,740,450
Commitments and contingencies (Notes 1 and 6)
Stockholders' equity (deficit):
Convertible preferred stock, $6.00 par value - 1,200,000 shares authorized,
none issued and outstanding at June 30, 2002 and 2001, 204,167 shares
designated
Series D, none issued and outstanding at June 30, 2002 and 2001 Common
stock, $0.01 par value - 100,000,000 shares authorized
60,968,213 shares issued and outstanding at June 30, 2002 (59,394,844 at
June 30, 2001) 609,682 593,949
Additional paid-in capital 52,862,283 49,109,283
Accumulated deficit (59,362,879) (49,546,973)
Accumulated other comprehensive loss - (22)
------------------- ------------------
Total stockholders' equity (deficit) (5,890,914) 156,237
------------------- ------------------
$ 1,203,309 $ 5,577,658
=================== ==================
See accompanying notes.
Alternative Technology Resources, Inc.
Statements of Operations
Years Ended June 30,
-------------------------------------------------------------------
2002 2001 2000
------------------------- -------------------- --------------------
Healthcare Exchange:
Healthcare Exchange revenue $ 1,642,565 $ 50,944 $ -
Healthcare Exchange costs (1,463,517) (84,528) -
------------------------- -------------------- --------------------
Healthcare Exchange gross profit (loss) 179,048 (33,584) -
Contract Programming:
Contract programming revenue - 308,469 2,561,101
Contract termination fees - - 5,453
Programmer costs - (235,258) (1,745,011)
Start-up and other costs - (10,414) (399,481)
------------------------- -------------------- --------------------
Contract programming gross profit - 62,797 422,062
Selling, marketing & product development costs (7,076,558) (5,097,513) (1,154,244)
General and administrative expenses (2,482,272) (3,850,971) (1,276,726)
------------------------- -------------------- --------------------
Loss from operations (9,379,782) (8,919,271) (2,008,908)
------------------------- -------------------- --------------------
Other income (expense):
Interest income 42,563 447,742 87,672
Interest expense to stockholders and directors (478,687) (443,226) (2,894,405)
------------------------- -------------------- --------------------
Total other income (expense) (436,124) 4,516 (2,806,733)
------------------------- -------------------- --------------------
Net loss (9,815,906) (8,914,755) (4,815,641)
Preferred stock dividends - (886,142) (122,500)
------------------------- -------------------- --------------------
Net loss applicable to common stockholders $ (9,815,906) $ (9,800,897) $ (4,938,141)
========================= ==================== ====================
Basic and diluted net loss per share applicable to
common stockholders $ (0.16) $ (0.17) $ (0.10)
========================= ==================== ====================
Weighted-average common stock outstanding 59,936,435 58,686,778 50,329,614
========================= ==================== ====================
See accompanying notes.
Alternative Technology Resources, Inc.
Statements of Stockholders' Equity (Deficit)
Years ended June 30, 2002, 2001 and 2000
Convertible Preferred Accumulated Total
Stock Common Stock Additional Other Stockholders
-------------------------------------------- Paid-In Accumulated Comprehensive Equity
Shares Amount Shares Amount Capital Deficit Loss (Deficit)
------- ------ ------ ------ ------- ------- ---- ---------
Balance, June 30, 1999 204,167 $ 1,225,002 26,169,718 $ 261,697 $28,742,403 $(35,816,577) $ - $ (5,587,475)
Issuance of common
stock in settlement of
accounts payable - - 15,126 151 8,751 - - 8,902
Issuance of common stock
upon conversion of
notes payable - - 27,761,197 277,612 3,359,029 - - 3,636,641
Private placement of
common stock, net of
issuance costs - - 1,086,145 10,862 3,701,486 - - 3,712,348
Options and warrants
exercised - - 309,919 3,100 190,219 - - 193,319
Repurchase of common stock - - (12,500) (125) 125 - - -
Preferred stock dividends - - - - (122,500) - - (122,500)
Net loss - - - - - (4,815,641) - (4,815,641)
------- ----------- ----------- ---------- ------------ ------------ ----------- -------------
Balance, June 30, 2000 204,167 1,225,002 55,329,605 553,297 35,879,513 (40,632,218) - (2,974,406)
Issuance of common stock in
settlement of accounts
payable - - 80,000 800 155,200 - - 156,000
Issuance of common
stock upon conversion of
Series D preferred stock (204,167) (1,225,002) 566,972 5,670 2,011,949 - - 792,617
Issuance of common stock
upon conversion of note
payable - - 20,000 200 59,800 - - 60,000
Private placement of common
stock, net of issuance
costs - - 3,333,334 33,333 10,985,346 - - 11,018,679
Options exercised - - 64,933 649 41,584 - - 42,233
Preferred stock dividends - - - - (24,109) - - (24,109)
Other comprehensive income
(loss) - change in
unrealized gain/loss on
available-for-sale
securities - - - - - - (22) (22)
Net loss - - - - - (8,914,755) - (8,914,755)
------- ----------- --------- ---------- ----------- ---------- ----------- ------------
Balance, June 30, 2001 - - 59,394,844 593,949 49,109,283 (49,546,973) (22) 156,237
Private placement of
common stock, net of
issuance costs - - 1,232,584 12,325 2,868,777 - - 2,881,102
Compensation expense
related to grant of
stock options to
employees and issuance
of stock to a consultant - - - - 649,028 - - 649,028
Options and warrants exercised - - 340,785 3,408 235,195 - - 238,603
Other comprehensive income
(loss) - change in
unrealized gain/loss on
available-for-sale
securities - - - - - - 22 22
Net loss - - - - - (9,815,906) - (9,815,906)
------- ----------- --------- ---------- ----------- ---------- ----------- ------------
Balance, June 30, 2002 - $ - 60,968,213 $ 609,682 $52,862,283 $(59,362,879) $ - $(5,890,914)
======= =========== ========= ========== =========== ========== ================ =========
See accompanying notes.
Alternative Technology Resources, Inc.
Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Years ended June 30,
2002 2001 2000
-------------------- -------------------- --------------------
Cash flows from operating activities:
Net loss $ (9,815,906) $ (8,914,755) $ (4,815,641)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 190,139 93,404 14,444
Interest expense resulting from amendment to
conversion terms of notes payable - - 2,415,223
Interest expense included in notes payable to
stockholders 313,902 233,026 309,334
Write-off of WebMD prepaid service fee - 250,000 -
Stock based compensation 787,611 1,931,036 -
Changes in operating assets and liabilities:
Trade accounts receivable 20,650 73,876 374,008
Interest receivable 52,134 52,135 -
Prepaid expenses and other current assets 186,412 (287,721) (239,521)
Non-current assets 100,717 (326,705) -
Payable to Healthcare Exchange providers 368,982 40,756 -
Trade accounts payable 287,089 54,166 12,911
Accrued payroll and related expenses 93,749 13,521 (136,781)
Accounts payable and accrued interest payable to
stockholders 68,291 115,311 73,509
Other current liabilities (41,211) 22,662 157,329
-------------------- -------------------- --------------------
Net cash used by operating activities (7,387,441) (6,649,288) (1,835,185)
-------------------- -------------------- --------------------
Cash flows from investing activities:
Purchases of equipment and software (286,566) (326,211) (175,415)
Purchases of short-term investments - (6,306,989) -
Maturities of short-term investments 1,354,159 4,952,830 -
-------------------- -------------------- --------------------
Net cash provided (used) by investing activities 1,067,593 (1,680,370) (175,415)
-------------------- -------------------- --------------------
(Continued on next page)
Alternative Technology Resources, Inc.
Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(continued)
Years ended June 30,
2002 2001 2000
-------------------- ------------------- --------------------
Cash flows from financing activities:
Proceeds from private placement of common stock $ 2,742,519 $ 9,560,345 $ 3,712,348
Proceeds from exercise of options and warrants 238,603 42,233 193,319
Proceeds from notes payable to stockholders 582,000 - 33,500
Payments on notes payable to stockholders - - (33,500)
Proceeds from notes payable to directors - - 3,361
Payments on notes payable to directors - (23,324) (21,649)
-------------------- ------------------- --------------------
Net cash provided (used) by financing activities 3,563,122 9,579,254 3,887,379
-------------------- ------------------- --------------------
Net increase (decrease) in cash and cash equivalents (2,756,726) 1,249,596 1,876,779
Cash and cash equivalents at beginning of year 3,159,017 1,909,421 32,642
-------------------- ------------------- --------------------
Cash and cash equivalents at end of year $ 402,291 $ 3,159,017 $ 1,909,421
==================== =================== ====================
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 110,697 $ 94,611 $ 54,926
==================== =================== ====================
Supplemental disclosure of non-cash financing activities:
Conversion of notes payable to common stock $ - $ 60,000 $ 1,000,000
==================== =================== ====================
See accompanying notes.
Alternative Technology Resources, Inc.
Notes to Financial Statements (continued)
Years Ended June 30, 2002, 2001 and 2000
1. Summary of Significant Accounting Policies
Description of Business
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 Company contracts with medical
doctors, medical groups, hospitals and other healthcare practitioners
(collectively, "Providers") to offer their services through the Healthcare
Exchange to those who purchase or facilitate the purchase of healthcare services
("Purchasers"). ATR's Healthcare Exchange began operations with a limited number
of Providers and Purchasers in the quarter ending June 30, 2001
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 healthcare 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.
The Company's Healthcare Exchange development efforts will require
substantial funds. 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 2003. However, the Company believes it will need to raise
additional funds during fiscal 2003. The Company has engaged a placement agent
to assist in the sale of shares of the Company common stock in a private
placement, but there can be no assurance that the Company will be able to raise
sufficient funds to successfully implement its business plan. Also,
traditionally, the Company has relied on major stockholders or affiliates to
finance its operations, although there can be no assurance that they will
continue to do so. If unsuccessful the Company may be required to reduce the
development efforts of its Healthcare Exchange or be forced into seeking
protection under federal bankruptcy laws. 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.
Use of Estimates in Preparation of Financial Statements
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash, 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 June 30, 2002 and 2001 substantially all of the Company's cash
equivalents represent investments in money market accounts.
As of June 30, 2002 the Company's had no short-term investments. At June
30, 2001 short-term investments are corporate obligations with maturity dates of
91 days to one year from the date of purchase.
Prepaid License and Service Fees
Prepaid license and service fees are recorded at cost and amortized on a
straight-line basis over the service period. Management considers whether
indicators of impairment of these assets are present at each balance sheet date
and an impairment loss is recorded, if necessary.
Property and Equipment
Property and equipment are recorded at cost and are depreciated on a
straight-line basis over the estimated useful lives of the assets or the lease
term, whichever is shorter. The estimated useful lives range from three to five
years.
Revenue Recognition
The Company recognizes revenue for the transaction-processing fee when it
is earned and the Company has substantially completed all of its obligations
under the contract.
Contract programming revenue represented work performed for customers,
primarily on a time and materials basis, and was recognized when the related
services were rendered. Contract termination fees were amounts received from
customers when they exercised the contract provision, which allowed them to
convert ATR's programmer to their employee. In addition, these fees were also
received from programmers when they exercised their contract provision to
terminate their relationship with the Company prior to the termination date of
their contract. These fee amounts were stipulated in customer and programmer
contracts, were based on the length of time remaining under the contract, and
were recognized as revenue when such contract provisions were invoked. As of
June 30, 2001, the Company is no longer in the contract programming business.
Product Development Costs
In October 1999, the Company began incurring costs to develop its
Healthcare Exchange. In accordance with SOP 98-5, "Reporting on Costs of
Start-Up Activities," start-up costs associated with the Healthcare Exchange
have been expensed as incurred. The Company's Healthcare Exchange began
operations in the quarter ending June 30, 2001.
Stock-Based Compensation
As permitted under the provisions of Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
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" ("APB No. 25"). 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. Disclosures required
under SFAS No. 123 are included in Note 7 to the financial statements.
Net Loss Per Share
All 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 shares outstanding without giving effect to outstanding
options, warrants, and convertible securities whose effects are anti-dilutive.
For the fiscal years ended June 30, 2002, 2001 and 2000, there were stock
options, stock warrants and a convertible note payable outstanding, and for the
fiscal year ended June 30, 2000 there was also convertible preferred stock
outstanding (Notes 3 and 7), 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.
Segment Disclosures
As of June 30, 2002, the Company operates in one segment, the selling,
marketing, development and operation of an Exchange for healthcare services.
Prior to beginning operations with a limited number of Providers and Purchasers
in the quarter ending June 30, 2001, the Company was in the business of
recruiting, hiring and training foreign computer programmers and placing them
with U.S. companies.
Comprehensive Loss
Total comprehensive loss for fiscal years 2002, 2001 and 2000 was
$9,815,884, $8,914,777 and $4,815,641 respectively. Other comprehensive income
(loss) represents the net change in unrealized gains (losses) on
available-for-sale securities.
Concentrations of Risk
The Company invests its cash with high credit quality financial
institutions. The Company believes the financial risks associated with these
financial instruments are minimal.
During fiscal year 2002, no single healthcare provider represented 10% or
more of the Company's Healthcare Exchange revenues. During fiscal year 2001,
three customers individually accounted for 41%, 39% and 11% of Contract
Programming revenues. During fiscal year 2000, three customers individually
accounted for 40%, 21% and 10% of Contract Programming revenues.
At June 30, 2001, two Contract Programming customers individually accounted
for 55% and 31% of accounts receivable.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash, cash equivalents,
short-term investments, accounts receivable, and accounts and notes payable.
Fair values of cash, cash equivalents, short-term investments, accounts
receivable, and accounts payable (other than accounts payable to stockholders)
are considered to approximate their carrying values.
Fair values of accounts payable to stockholders and notes payable to
stockholders could not be determined with sufficient reliability because these
are instruments held by related parties and because of the cost involved in such
determination. Principal characteristics of these financial instruments that,
along with information on the financial position of the Company, are pertinent
to their fair values are described in Notes 2 and 3.
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. The Company was 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 have an effect on the Company's results of
operations, financial position or cash flows.
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 adopted SFAS 144 effective July 1, 2002. The adoption of SFAS 144 did
not have an effect on the Company's results of operations, financial condition
or cash flows.
2. Investor Group Transactions
In fiscal year 1994, the Company entered into a series of agreements with
James W. Cameron, Jr. pursuant to which Mr. Cameron and Dr. Max Negri became
principal stockholders of the Company. As of June 30, 2002, Mr. Cameron owned
39,614,006 shares of the Company's common stock. As of June 30, 2002 Dr. Negri
held less than 5% of the Company's common stock.
During fiscal years 2002, 2001 and 2000, the Company did not generate
sufficient cash flow from operations and borrowed funds from these two
stockholders. Notes payable to stockholders were $4,636,352 at June 30, 2002 and
$3,740,450 at June 30, 2001 (Note 3). Accrued interest of $269,435 at June 30,
2002 and $232,469 at June 30, 2001 on these notes is included in accounts
payable and accrued interest payable to stockholders.
The Company leases its office facilities in Sacramento, California from Mr.
Cameron (Note 6). Accrued lease expense of $527,896 at June 30, 2002 and
$496,472 at June 30, 2001 is also included in accounts payable and accrued
interest payable to stockholders.
During fiscal years 2002, 2001 and 2000, Cameron & Associates, which is
wholly owned by Mr. Cameron, provided consulting services to the Company. Fees
for such services totaled $120,000 in fiscal years 2002 and 2001, and $90,000 in
2000.
3. Financing Arrangements
The Company has received short-term, unsecured financing to fund its
operations in the form of notes payable of $4,636,352 as of June 30, 2002, from
Mr. Cameron and another stockholder. These notes bear interest at 10.25%. On
September 1, 2001, the Company agreed with Mr. Cameron to extend the due date on
notes payable to him until December 31, 2002,in exchange for an extension fee of
2%. These extended notes total $1,630,529, including accrued interest and
extension fees, and bear interest at 10.25% per annum. During fiscal year June
30, 2002 Mr. Cameron loaned the Company an additional $582,000 bearing interest
at 10.25% payable on December 31, 2002. On September 1, 2001, the Company agreed
with the other note holder to extend the due date of his convertible promissory
notes until December 31, 2002. These convertible promissory notes total
$2,423,823, including accrued interest, bear interest at 10.25% per annum and
are convertible into common stock at $3.00 per share at the note holder's
option. Subsequent to fiscal year end 2002, Mr. Cameron loaned the Company an
additional $426,000 bearing interest at 10.25% payable on December 31, 2002.
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 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 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 $2,415,222 and was recorded as additional interest
expense.
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 have since
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.
4. WebMD Corp. Agreement
In September 1999, the Company entered into an agreement with WebMD Corp.
to develop a web-based portal through which individual uninsured and under
insured Patients can procure healthcare services. The agreement required a
prepaid service fee to be paid to WebMD of $250,000 upon a promotional
announcement on WebMD's Internet portal, and a sharing of revenues when
operational. Currently both parties are reevaluating this agreement, given
changed directions and priorities of each company. The agreement has not
formally been modified or terminated, nor has either party proposed any specific
changes. However, neither party is currently devoting any substantial resources
to this project. Accordingly, the prepaid service fee was written off in fiscal
year 2001 and is included as a component of product development costs in the
statement of operations.
5. Income Taxes
Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes as of June 30, 2002 and 2001 are as follows:
June 30,
2002 2001
---------------------- -----------------------
Net operating loss carry forwards $ 18,043,000 $ 14,603,000
Research credits 123,000 123,000
Common stock options 2,818,000 2,539,000
Common stock warrants 789,000 789,000
Other - net 362,000 (572,000)
---------------------- -----------------------
Total deferred tax assets 22,135,000 17,482,000
Valuation allowance for deferred tax assets (22,135,000) (17,482,000)
---------------------- -----------------------
Net deferred tax assets $ - $ -
====================== =======================
The Company's valuation allowance as of June 30, 2002 and 2001 was
$22,135,000 and $17,482,000 respectively, resulting in a net change in the
valuation allowance of $4,653,000 and $2,893,000 in the fiscal years ended June
30, 2001 and 2000, respectively.
As of June 30, 2002 the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $46,119,000 million and
$26,245,000 million, respectively. The federal net operating loss carryforwards
expire in 2004 through 2022 and the state net operating loss carryforwards
expire in 2002 through 2022. 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.
In connection with the Company's initial public offering in August 1992, 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 20, 1992 (approximately $1,900,000) are
subject to an annual limitation in the amount of approximately $300,000.
In 1993, a controlling interest of the Company's stock was purchased,
resulting in a second annual limitation in the amount of approximately $398,000
on the Company's ability to utilize net operating loss carryforwards generated
between August 11, 1992 and September 13, 1993 (approximately $7,700,000).
In accordance with provisions of the Internal Revenue Code Section 382,
additional portions of the net operating loss carryforwards may be disallowed as
a result of additional changes in ownership of the Company.
The Company expects that the aforementioned annual limitations will result
in net operating loss carryovers which will not be utilized prior to the
expiration of the carryover period.
6. Commitments and Contingencies
The Company may from time to time become a party to various legal
proceedings arising in the ordinary course of its business. The Company is not
currently subject to any legal proceedings.
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 a period
of 66 months. They required payment of an initial base license fee of $250,000,
which is being amortized over 66 months, and data center set up, training and
implementation fees of about $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.
In November 1995, the Company entered into a lease agreement for its
facility in Sacramento, California under a one-year lease with Mr. Cameron. The
lease has been extended to January 31, 2004. Payments under this facilities
lease are approximately $141,330 per year. At June 30, 2002, $527,896 of rent
owed for fiscal years 1996 through 2002 is included in the balance of accounts
payable and accrued interest payable to stockholders. Rental expense for all
operating leases was approximately $230,897, $196,390 and $189,121, for fiscal
years June 30, 2002, 2001 and 2000, respectively, including approximately
$148,302, $139,272 and $114,285 related to the lease of the office facilities
from Mr. Cameron.
Minimum annual payments for all non-cancelable operating leases and amounts
due to an application services provider are as follows:
2003 $ 604,100
2004 $ 528,500
2005 $ 445,717
2006 $ 416,398
2007 $ 8,220
Thereafter $ 3,888
7. Stockholders' Equity (Deficit)
Series D Preferred Stock
In June 1994, existing stockholders purchased 204,167 shares of Series D
Convertible Preferred Stock for $1,225,002. ATR's Series D Preferred Stock
carried a cumulative dividend of $0.60 per share per year, until the Series D
preferred stock was exchanged for common stock on September 11, 2000. On
September 11, 2000, in connection with the exchange of 204,167 shares Series D
preferred stock, for 408,334 shares of common stock based on a per share price
of $3.00 per share, the Company declared accrued dividends of $759,110 in the
aggregate. Of the $759,110 in accrued dividends, two of the Series D preferred
stockholders agreed to accept 158,638 shares of common stock for $475,915 in
accrued dividends based on a $3.00 per share value. The benefit accruing to the
Series D Preferred stockholders recorded in the quarter ended September 30, 2000
was approximately $316,702 in compensation expense and $862,000 in preferred
stock dividends. As of June 30, 2002, cumulative unpaid, dividends were
$283,195.
Common Stock
The Company's Healthcare Exchange development efforts will require
substantial funds. On January 9, 2002, the Board of Directors of the Company
unanimously approved a private placement of up to $12,000,000 of the Company's
common stock at a purchase price of $2.25 per share. The shares of common stock
issued in the private placement are restricted securities. Further pursuant to
the private placement, in the event that within one year from the final closing
the Company sells shares of common stock, or securities exercisable or
convertible into common stock, at a price less than $2.25 per share, the Company
will issue additional shares to these 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. Proceeds to date, net of offering costs, are approximately
$2,742,519. Proceeds were used for further development and operation of the
Healthcare Exchange. 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 $138,583
in fiscal year 2002.
The Company received $9,560,345 in a private placement of its common stock
at a price of $3.00 in fiscal year 2001, and in fiscal year 2000 received
$3,712,348 in a private placement of its common stock at an average price of
$3.42 per share.
Warrants
Warrant activity during the periods indicated is as follows:
Number of Range of Weighted Average
Shares Exercise Prices Exercise Price
-------------------------------------------------
Balance at June 30, 1999 559,800 $0.01-$25.00 $0.94
Exercised (20,000) $0.75 $0.75
---------
Balance at June 30, 2000 539,800 $0.01-$25.00 $0.95
Expired/Canceled (40,000) $0.01 $0.01
---------
Balance at June 30, 2001 499,800 $0.01-$25.00 $1.02
Exercised (284,200) $0.75 $0.75
---------
Balance at June 30, 2002 215,600 $0.01-$25.00 $1.38
=========
At June 30, 2002, the weighted-average remaining contractual life of
outstanding warrants was 4.9 years. All warrants are immediately exercisable for
common stock at June 30, 2002.
Stock Option/Stock Issuance Plans
The 1993 Stock Option/Stock Issuance Plan (the "1993 Plan"), pursuant to
which key employees (including officers) and consultants of the Company and the
non-employee members of the Board of Directors may acquire an equity interest in
the Company, was adopted by the Board of Directors on August 31, 1993 and became
effective at that time. The 1993 Plan provided that up to 400,000 shares of
common stock could be issued over the ten-year term of the 1993 Plan. As of June
30, 2002, shares available for future issuance under this plan were 31,173.
The 1997 Stock Option Plan (the "1997 Plan"), pursuant to which key
employees (including officers) and consultants of the Company and the
non-employee members of the Board of Directors may acquire an equity interest in
the Company, was adopted by the Board of Directors on November 18, 1997 and
became effective at that time. An aggregate of 3,000,000 shares of common stock
may be issued over the five-year term of the 1997 plan. Subject to the oversight
and review of the Board of Directors, the 1997 Plan shall generally be
administered by the Company's Compensation Committee consisting of at least two
non-employee directors as appointed by the Board of Directors. The grant date,
the number of shares covered by an option and the terms and conditions for
exercise of options shall be determined by the Committee, subject to the 1997
Plan requirements. The Board of Directors shall determine the grant date, the
number of shares covered by an option and the terms and conditions for exercise
of options to be granted to members of the Committee. As of June 30, 2002,
shares available for future issuance under this plan were 329,279. This
five-year plan will expire November 18, 2002.
Option activity for the 1993 and the 1997 Plans during the periods
indicated is as follows:
Number of Weighted Average
Shares Exercise Price
---------------------------------------------
Balance at June 30, 1999 594,919 $0.98
Granted 880,000 $2.72
Exercised (269,919) $0.65
Cancelled (25,000) $0.25
------------
Balance at June 30, 2000 1,180,000 $2.36
Granted 920,600 $2.77
Exercised (49,933) $0.25
Cancelled (317,500) $4.04
------------
Balance at June 30, 2001 1,733,167 $2.33
Granted 1,234,053 $1.83
Exercised (51,585) $0.45
Cancelled (326,432) $2.60
------------
Balance at June 30, 2002 2,589,203 $2.07
============
The following table summarizes information about stock options outstanding
under the 1993 and the 1997 Plans at June 30, 2002:
Weighted
Average
Weighted Remaining Weighted
Range of Exercise Options Average Contractual Options Average
Prices Outstanding Exercise Price Life (Years) Exercisable Exercise Price
-----------------------------------------------------------------------------------------------------------
$ 0.01-1.95 1,028,369 $0.58 7 894,479 $0.55
$ 2.00-3.85 1,233,334 $2.50 9 255,834 $2.85
$ 4.00-6.63 312,500 $4.81 8 208,333 $4.81
$ 7.19 5,000 $7.19 8 3,333 $7.19
$ 13.10 10,000 $13.10 2 10,000 $13.10
---------- ----------
2,589,203 $2.07 1,371,979 $1.73
========== ==========
At June 30, 2001 and 2000 the number and weighted average exercise price of
options exercisable were 745,022 and $1.88 and 485,000 and $1.77, respectively.
In addition to options granted pursuant to the 1993 and 1997 Stock
Option/Stock Issuance Plans, the Company has granted options outside of these
plans. In fiscal year 1994, the Company granted to its former Chief Executive
Officer and director stock options to purchase 400,000 shares of common stock
exercisable at $0.10 per share. Of these options, 370,000 remain outstanding and
are fully vested as of June 30, 2002. These options expire on August 10, 2003.
During fiscal year 2000, in accordance with an employment agreement, the
Company granted the current Chief Executive Officer stock options to purchase
7,000,000 shares of common stock at $3.00 per share, the fair market value of
the Company's common stock on the date of grant. The options vest ratably over 5
years and expire on April 14, 2010. As of June 30, 2002, 2,800,000 options have
vested, and 7,000,000 remain outstanding. Also, on August 1, 2000, Mr. Cameron
entered into an agreement with the Company's current Chief Executive Officer to
grant him the option to purchase 6,000,000 shares of the Company's common stock
from Mr. Cameron at a purchase price of $3.625 per share, the fair market value
of the Company's stock on that date. As of June 30, 2002, these options are
fully vested and 6,000,000 remain outstanding.
Non-cash stock based compensation expense was $787,611 for fiscal year 2002
and $1,931,036 for fiscal year 2001. No such expense was incurred in fiscal year
2000. Costs incurred in fiscal year 2002 primarily represent $637,528 recorded
in connection with the grant of options to employees with an exercise less than
the public trading price on the date of grant and $138,583 recorded in
connection with the purchase of 222,222 shares of the Company's common stock by
the Company's Chairman and Chief Financial Officer because the purchase price of
such stock was less than the public trading price on the date of purchase.
SFAS No. 123 requires presentation of pro forma information regarding net
loss and loss per share as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value of ATR
options was estimated at the date of grant using the Black-Scholes model with
the following weighted average assumptions for fiscal years 2002, 2001 and 2000:
dividend yield of 0%, an expected life of five years, a risk-free interest rate
of 5.0%, and expected volatility of 1.168, 1.271 and 0.959.
The Black-Scholes model was developed for use in estimating the fair value
of traded options, which have no vesting restrictions and are fully
transferable. It requires the input of highly subjective assumptions, the
quality of which cannot be judged except by hindsight. The Company's pro forma
information is as follows:
Years Ended June 30,
--------------------------------------------------------------
2002 2001 2000
---------------------------------------------------------------
Net loss applicable to common stockholders:
As reported $ (9,815,906) $ (9,800,897) $ (4,938,141)
Pro forma $ (13,815,109) $ (14,153,429) $ (6,224,858)
Basic and diluted net loss per share:
As reported $ (0.16) $ (0.17) $ (0.10)
Pro forma $ (0.23) $ (0.24) $ (0.12)
Future pro forma results may be materially different from amounts reported
as future years will include the effects of additional stock option grants.
The weighted average fair value of options granted during the fiscal years
June 30, 2002, 2001 and 2000 whose exercise price equals the market price of the
stock on the grant date was $1.95, $2.30 and $2.58 respectively. The
weighted-average fair value of options granted in fiscal year 2002 whose
exercise price was less than the market price of the stock on the date of grant
was $2.03. For fiscal years 2001 and 2000, all options were granted with
exercise prices equal to the market price on the date of grant.
Stock Reserved for Issuance
As of June 30, 2002, the Company has reserved a total of 11,404,268 shares
of common stock pursuant to outstanding warrants, options, convertible notes
payable to stockholders, and future issuance of options to employees and
non-employee directors.
Common Shares Reserved for Issuance
---------------------------------------------------------------------------
Options 10,319,655
Warrants 215,600
Notes (including accrued interest) 869,013
----------------------
Total 11,404,268
======================
8. Subsequent Event
The Company has received short-term unsecured financing in the form of a
convertible note of $1,000,000 as of July 26, 2002 from a lender. This note
bears interest at 8% and is payable at the earliest of July 25, 2003 or when the
Company, in a proposed Private Placement of Common Stock offering, raises
$8,000,000. All or a portion of the convertible note may be converted into
shares of common stock at the lower of $2.25 per share or the subscription per
share price of the proposed Private Placement of Common Stock. In consideration
for the loan the Company will issue three warrants. The Company will issue to
the lender one warrant to purchase 100,000 shares of common stock. The lender
will also receive a second warrant to purchase 100,000 shares of common stock
that may only be exercisable if the Company does not repay the convertible note
within 180 days of the agreement. The lender will also receive a third warrant
to purchase 100,000 shares of common stock that may be exercisable if the
Company does not repay the convertible note within one year of the agreement.
Each of the warrants will have an exercise price equal to the lower of $2.14 or
the subscription per share price of the proposed Private Placement of Common
Stock. When, and if, exercisable, the lender may exercise these warrants through
July 25, 2009.
9. Quarterly Results of Operations (Unaudited)
The following table presents the Company's unaudited quarterly statement of
operations data for the four quarters of fiscal years 2002 and 2001. The Company
believes that this information has been prepared on the same basis as its
audited consolidated financial statements and that all necessary adjustments,
consisting only of normal recurring adjustments, have been included to present
fairly the selected quarterly information. The Company's quarterly results of
operations for these periods are not necessarily indicative of future results of
operations.
2002
------------------------------------------------------------------------------
September 30 December 31 March 31 June 30
Healthcare Exchange revenue $ 108,218 $ 253,876 $ 430,308 $ 850,163
Healthcare Exchange gross profit (loss) (116,570) (96,337) 28,779 363,176
Contract Programming revenue - - - -
Contract Programming gross profit - - - -
Selling, marketing and product development costs (1,505,195) (1,546,462) (1,852,186) (2,172,714)
General and administrative expenses (505,834) (600,045) (673,076) (703,317)
Loss from operations (2,127,599) (2,242,844) (2,496,483) (2,512,855)
Total other income (expense) (106,384) (105,364) (110,929) (113,447)
Net loss (2,233,983) (2,348,208) (2,607,412) (2,626,302)
Preferred stock dividends in arrears - - - -
Net loss applicable to common stockholders (2,233,983) (2,348,208) (2,607,412) (2,626,302)
Basic and diluted net loss per share $ (0.04) $ (0.04) $ (0.04) $ (0.04)
Shares used in per share calculation 59,401,860 59,421,866 61,261,644 60,945,581
-----------------------------------------------------------------------------------------------------------------------------------
2001
------------------------------------------------------------------------------
September 30 December 31 March 31 June 30
Healthcare Exchange revenue $ - $ - $ - $ 50,944
Healthcare Exchange gross profit (loss) - - - (33,584)
Contract Programming revenue 178,019 47,812 46,385 36,253
Contract Programming gross profit 42,217 1,160 9,466 9,954
Product development costs (1,057,426) (1,238,497) (1,227,696) (1,573,894)
General and administrative expenses (2,141,486) (490,072) (640,279) (579,134)
Loss from operations (3,156,695) (1,727,409) (1,858,509) (2,176,658)
Total other income (expense) (50,935) 79,980 11,268 (35,797)
Net loss (3,207,631) (1,647,429) (1,847,241) (2,212,454)
Preferred stock dividends in arrears (886,142) - - -
Net loss applicable to common stockholders (4,093,773) (1,647,429) (1,847,241) (2,212,454)
Basic and diluted net loss per share $ (0.07) $ (0.03) $ (0.03) $ (0.04)
Shares used in per share calculation 56,695,586 59,329,251 59,358,090 59,383,954
----------------------------------------------------------------------------------------------------------------------------------
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses payable by us in
connection with the issuance and distribution of the securities being registered
hereunder. No expenses will be borne by the selling stockholders. All of the
amounts shown are estimates, except for the SEC registration fee and the NASD
fee.
SEC registration fee $ 671
Printing and engraving expenses $ 3,000
Accounting fees and expenses $ 10,000
Legal fees and expenses $ 20,000
Transfer agent and registrar fees $ 2,500
Miscellaneous $ 2,500
Total $ 38,671
Item 14. Indemnification of Directors and Officers.
Our certificate of incorporation contains provisions eliminating or
limiting director liability to us and our stockholders for monetary damages
arising from acts or omissions in the capacity as a director. The provisions do
not, however, eliminate the personal liability of a director for any breach of a
director's duty of loyalty to us or our stockholders, for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law or for any transaction from which the director derived an improper personal
benefit. In addition, these provisions do not eliminate personal liability,
under a negligence standard, for violations of Delaware statutory provisions
concerning unlawful dividends or stock repurchases or redemptions. This
provision offers persons who serve on our board of directors protection against
awards of monetary damages resulting from breaches of their duty of care, except
as discussed above. As a result, our ability or our stockholders' ability to
successfully prosecute an action against a director for breach of his or her
duty of care is limited. However, the provision does not affect the availability
of equitable remedies such as an injunction or rescission based upon a
director's breach of his duty of care.
Our certificate of incorporation and bylaws also provide that we will
indemnify our directors and officers to the fullest extent permitted by
applicable law, subject to limited exceptions against liabilities arising by
reason of their status or services as an officer or director.
Item 15. Recent Sales of Unregistered Securities.
In October 2002, we sold 4,125,000 shares of our common stock at a purchase
price of $1.00 per share to 17 accredited investors. In January 2002 and March
2002, we sold an aggregate of 1,232,585 shares of our common stock at a purchase
price of $2.25 per share to 25 accredited investors. Net cash proceeds from
these offerings were $6,627,086. Pursuant to the terms of the respective private
placement, in the event that we sold shares of common stock, or securities
exercisable or convertible into common stock, at a price less their respective
offering price within one year from the final closing, we would issue additional
shares to these investors in an amount such that the overall purchase price will
be equal to the lower, subsequent sales price. As a result fo the October 2002
private placement at $1.00 per share, we issued an aggregate of 1,540,729
additional shares of common stock to the investors of the January 2002 private
placement. In addition, as a result of our July 2002 bridge financing in which
we granted warrants equal to 30% of the loan at an exercise price of $1.00 per
share, we granted to the investors of the October 2002 and January 2002 private
placements warrants to purchase 30% of their respective investment, or an
aggregate of 2,069,494 shares of common stock, at an exercise price of $1.00 per
share. In connection with the October 2002 private placement, we engaged
Stonegate Securities, Inc. as placement agent who received a placement fee of
$240,433 which represents 6% on the gross proceeds received from the sale of
common stock placed by them and a five year warrant to purchase 735,000 shares
of common stock at an exercise price of $1.00 per share which represents 10% of
the common stock placed by them. In addition, we paid a finder a finder's fee in
connection with the October 2002 private placement in an amount of $12,500 and a
warrant to purchse 30,000 shares of common stock at an exercise price of $1.00.
The placement of the common stock was exempt from registration pursuant to Rule
506 of Regulation D of the Securities Act.
In July 2002, we received short-term unsecured financing in the form of a
convertible note of $1,000,000 from an accredited investor. The convertible note
bears interest at 8% and is payable at the earlier of July 25, 2003 or when we,
in a private placement of common stock, raise $8,000,000. All or a portion of
the convertible note may be converted into shares of common stock at the lower
of $1.00 per share, the subscription share price of the October 2002 private
placement, or, if further shares are offered at a lower price per share through
March 29, 2003, at that lower price. As additional consideration for the
convertible note, we issued three warrants. We issued to the lender one warrant
to purchase 100,000 shares of common stock. The lender received a second warrant
to purchase 100,000 shares of common stock that may only be exercisable if we do
not repay the convertible note within 180 days of the agreement. The lender
received a third warrant to purchase 100,000 shares of common stock that may be
exercisable if we do not repay the convertible note within one year of the
agreement. Each of the warrants has an exercise price of $1.00 or, if we sell
additional shares in a financing at a price less than $1.00 per share through
March 29, 2003, at that lower price. When, and if, exercisable the lender may
exercise these warrants through July 25, 2009. The issuance of the convertible
note was exempt from registration pursuant to Rule 506 of Regulation D of the
Securities Act.
During the month of September 2002, we issued an aggregate of 6,000 shares
of our common stock at $2.00 per share to certain service providers in exchange
for their services valued at $12,000. No commissions were paid. The issuance of
the shares was made pursuant to Rule 506 of Regulation D of the Securities Act.
In August 2000, we sold a total of 3,333,334 shares of our common stock at
$3.00 per share to 22 accredited investors. We engaged Shattuck Hammond Partners
as placement agent, who received a commission of $318,000. The sales were exempt
from registration pursuant to Rule 506 of Regulation D of the Securities Act.
During the period of September 1999 to January 2000, we sold a total of
1,086,145 shares of common stock for aggregate proceeds of $3,712,348 to two
stockholders who are accredited investors. No commissions were paid. The sales
were exempt from registration pursuant to Rule 506 of Regulation D of the
Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
Unless otherwise noted, the following exhibits are filed with this
registration statement.
Exhibit
Number Description of Document
3.1 Second Amended and Restated Bylaws of the Registrant
(incorporated by reference to Exhibit 3.3 to Amendment No. 1
to Registration Statement on Form S-18, Reg. No. 33-48666).
3.2 Amendment to Second Amended and Restated Bylaws of the
Registrant (incorporated by reference to Exhibit 3.3 of the
Registrant's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1994).
3.3 Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.3 of Form
10-KSB for the fiscal year ended June 30, 1997).
4.1 Amended and Restated Certificate of Incorporation of
Registrant, including Certificates of Designation with respect
to Series A, Series B, Series C, Series D, and Series E
Preferred Stock, including any amendments thereto
(incorporated by reference to Exhibit 4.1 to Registration
Statement on Form S-3, Reg. No. 33-86962).
10.1 Form of Director and Executive Officer Indemnification
Agreement (incorporated by reference to Exhibit 10.19 to
Registration Statement on Form S-18, Reg. No. 33-48666).
10.11+ 1993 Stock Option/Stock Issuance Plan (incorporated by
reference to Exhibit 10.47 to Form 10-KSB for the fiscal year
ended June 30, 1994).
10.12+ Stock Option Agreement, dated August 11, 1993, between the
Registrant and Russell J. Harrison (incorporated by reference
to Exhibit 10.51 to Form 10-KSB for the fiscal year ended June
30, 1994).
10.18 Note Payable between the Registrant and the Negri Foundation
dated December 24, 1996 (incorporated by reference to Exhibit
10.60 to Form 10-QSB for the quarter ended December 31, 1996).
10.19 Note Payable between the Registrant and the Negri Foundation
dated December 31, 1996 (incorporated by reference to Exhibit
10.61 to Form 10-QSB for the quarter ended December 31, 1996).
10.20 Note Payable between the Registrant and the Max Negri Trust
dated December 31, 1996 (incorporated by reference to Exhibit
10.62 to Form 10-QSB for the quarter ended December 31, 1996).
10.21 Note Payable between the Registrant and the Cameron
Foundation dated December 31, 1996 (incorporated by reference
to Exhibit 10.63 to Form 10-QSB for the quarter ended December
31, 1996).
10.22 Note Payable between the Registrant and the James W. Cameron,
Jr., as an individual, dated December 31, 1996 (incorporated
by reference to Exhibit 10.64 to Form 10-QSB for the quarter
ended December 31, 1996).
10.23 Note Payable between the Registrant and James W. Cameron,
Jr., as an individual, dated January 16, 1997 (incorporated
by reference to Exhibit 10.65 to Form 10-QSB for the quarter
ended December 31, 1996).
10.24 Note Payable between the Registrant and James W. Cameron, Jr.,
as an individual, dated January 31, 1997 (incorporated by
reference to Exhibit 10.66 to Form 10-QSB for the quarter
ended December 31, 1996).
10.25 Note Payable between the Registrant and James W. Cameron, Jr.,
as an individual, dated February 7, 1997 (incorporated by
reference to Exhibit 10.67 to Form 10-QSB for the quarter
ended December 31, 1996).
10.29 Note Payable between the Registrant and James W. Cameron, Jr.,
dated April 21, 1997 (incorporated by reference to Exhibit
10.29 to Form 10-KSB for the year ended June 30, 1997).
10.33+ Alternative Technology Resources, Inc. 1997 Stock Option Plan
(incorporated by reference to Exhibit 10.33 to Form 10-KSB for
the year ended June 30, 1998).
10.34 Memorandum regarding rent reduction on that Lease between
James W. Cameron, Jr., and the Registrant, dated July 15, 1998
(incorporated by reference to Exhibit 10.34 to Form 10-KSB for
the year ended June 30, 1998).
10.35 Fourth Addendum to Lease between James W. Cameron, Jr.,
and the Registrant, effective January 1, 1999 (incorporated by
reference to Exhibit 10.35 to Form 10-QSB for the quarter
ended March 31, 1999).
10.36 Fifth Addendum to Lease between James W. Cameron, Jr., and the
Registrant, effective January 1, 2000 (incorporated by
reference to Exhibit 10.36 to Form 10-KSB for the year ended
June 30, 2000).
10.37 Healtheon Customer Agreement effective September 16, 1999
(incorporated by reference to Exhibit 10.37 to Form 10-K for
the year ended June 30, 2001).
10.38 Employment Agreement with Jeffrey McCormick. (Incorporated by
reference to Exhibit 10.38 to Form 10-K for year end June 30,
2001.)
10.40 Master Agreement for Computer Software Products and Related
Services between Alternative Technology Resources, Inc. and
Resource Information Management Systems, Inc. (incorporated by
reference to Exhibit 10.40 to Form 10-Q for the quarterly
period ended December 31, 2000).
23.1.1 Consent of Ernst & Young LLP, Independent Auditors
23.1.2 Consent of Bartel Eng & Schroder (contained in Exhibit 5.1)
+ Indicates a management contract or compensatory plan or arrangement as
required by Item 13(a).
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered that remain unsold at the termination of the
offering.
(4) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(5) For purposes of determining any liability under the Securities Act of
1933, the information omitted form the form of prospectus filed as part of this
registration statement in reliance up[on Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(6) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form or prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunder duly authorized, in Sacramento, California, on February
6, 2003.
ALTERNATIVE TECHNOLOGY RESOURCES, INC.,
a Delaware Corporation
/S/ JEFFREY S. MCCORMICK
---------------------------------------
Jeffrey S. McCormick,
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Known All Persons By These Present, that each person whose signature
appears below appoints Jeffrey S. McCormick or James W. Cameron, Jr. as his true
and lawful attorney-in-fact and agent, with full power of substitution, for him
and in his name, place and stead, to sign any amendment (including
post-effective amendments) to this registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he may do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or any of them, or of his substitutes, may
lawfully do or cause to be done by virtue hereof.
Date: February 6, 2003 /S/ JEFFREY S. MCCORMICK
----------------- ----------------------------------------------
Jeffrey S. McCormick,
Chief Executive Officer
(Principal Executive Officer)
Date: February 6, 2003 /S/ JAMES W. CAMERON, JR.
----------------- ----------------------------------------------
James W. Cameron, Jr.,
Chairman of the Board, Chief Financial Officer
(Principal Accounting and Financial Officer)
Date: February 6, 2002 /S/ EDWARD L. LAMMERDING
----------------- ----------------------------------------------
Edward L. Lammerding,
Director