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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from _____ to ____
Commission file number 0-20468
ALTERNATIVE TECHNOLOGY RESOURCES, INC.
(Exact name of issuer as specified in its charter)
Delaware 68-0195770
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
33 Jewell Court, Portsmouth, N.H. 03801
(Address of principal executive offices, including zip code)
(603) 501-3200
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
None
Securities registered under Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No__
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the Registrant's common voting stock held by
non-affiliates of the Registrant on September 12, 2002 was $38,410,596 (based on
the final trading price on that date).
Number of shares of Common Stock outstanding at August 31, 2002: 60,916,017
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement for the Company's Annual
Meeting of Stockholders are incorporated by reference in Part III. The Proxy
Statement will be filed within 120 days of the Company's fiscal year end.
Exhibit index is located on page 24.
PART I
Item 1. Business
General
Alternative Technology Resources, Inc. (hereinafter referred to as "ATR,"
the "Company," "we" or "us") has developed and is operating an Exchange for
healthcare services ("Healthcare Exchange"). The purpose of the Healthcare
Exchange is to utilize the Internet and other technologies to facilitate
Provider initiated discounts and administrative, billing and remittance services
for all commercial lines of business in the healthcare industry. The Healthcare
Exchange offers a direct and efficient conduit between Providers and Purchasers
of healthcare services and/or their agents, such as Preferred Provider
Organizations.
Providers submit bills to the Company, who reprices the bills to the rate
set by the Providers, including adding a transaction-processing fee, and then
routes them to Purchasers or their intermediaries. The Company receives payments
from Purchasers on behalf of Providers, and then remits payments to Providers.
ATR's Healthcare Exchange began operations with a limited number of
Providers and Purchasers in the quarter ending June 30, 2001. The Company
continues to receive, process and analyze operating data, and the results of the
Company's analysis will determine the amount and timing of remaining development
related efforts.
The Company is currently recruiting medical doctors, medical groups,
hospitals and other health care practitioners (collectively, "Providers") in
thirty-two markets in twenty-two states to offer their services through the
Healthcare Exchange to those who purchase or facilitate the purchase of
healthcare services ("Purchasers").
The Company has outsourced to multiple vendors portions of the development
and operations of the information systems for its Healthcare Exchange. The
Company contracts with an application services provider to license, support and
run software to process medical bills submitted to the Company's Healthcare
Exchange. ATR also works with vendors to receive claims from Providers through
electronic clearinghouses and to convert paper claims into electronic formats.
ATR is evaluating other potential technology vendors as well.
ATR does not provide healthcare services, but rather expects to act as a
neutral conduit for efficiency between Providers, Purchasers and their
intermediaries including preferred provider organizations, that should benefit
all. ATR believes that reducing the costs associated with traditional "bricks
and mortar" operations, creating economies of scale, facilitating access to
Providers and Purchasers, streamlining overhead costs, exploiting possibilities
for functional integration, reducing errors and speeding the payment of claims
should allow Purchasers to pay less and Providers to recover more of what they
bill.
History
Alternative Technology Resources, Inc. was founded as 3Net Systems, Inc. in
1989. In August 1999, James W. Cameron, Jr., the Company's largest stockholder,
was named Chairman and Chief Executive Officer. Under his direction the Company
identified what it believes to be a significant business opportunity and began
developing a business model involving the establishment of a Healthcare Exchange
under the name "DoctorandPatient."
In February 2000, Jeffrey S. McCormick assumed the position of the
Company's Chief Executive Officer. Mr. McCormick has significant experience in
financing, managing and growing early stage development companies as a managing
director of Boston-based Saturn Asset Management, Inc. Mr. McCormick has served
as an advisor or director of several Internet and electronic commerce companies
over the last six years. As the Company's CEO, Mr. McCormick is responsible for
all phases of development, implementation and operation of the Company's
Healthcare Exchange. Mr. Cameron still acts as Chairman and Chief Financial
Officer and continues to play an active and substantial role in formulating the
Company's business strategy and policy.
The Company is using its management's experience in health care and
information technology to establish the Healthcare Exchange, which has become
the Company's sole focus. ATR's Healthcare Exchange began operations with a
limited number of Providers and Purchasers in the quarter ending June 30, 2001.
The Company continues to receive, process and analyze operating data, and the
results of the Company's analysis will determine the amount and timing of
remaining development related efforts. ATR's previous business was recruiting,
hiring, and training foreign computer programmers and placing them with U.S.
companies. In line with the Company's strategy to focus on the establishment of
the Healthcare Exchange, ATR suspended recruitment of foreign computer
programmers in December 1999 and began pursuing the conversion of foreign
computer programmers to become employees of ATR's customers. This conversion
process was complete as of June 30, 2001, and the Company is no longer in that
business.
Overview of the Industry
According to the Healthcare Financing Administration ("HCFA"), in 1999
health care 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 health care 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. The Company believes 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, health care 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 health care services, their PPOs' and/or their agents. Providers
submit bills to the Company, who reprices the bills to the Provider's Healthcare
Exchange rate, including adding a transaction-processing fee, and then routes
them to Purchasers or their intermediaries. The Company receives payments from
Purchasers on behalf of Providers, and then remits payments to Providers.
Relationship to the Provider
The Company has developed the Healthcare Exchange for Providers (including
Provider groups) to market their services to Purchasers more efficiently. The
Company believes 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). The Company is 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
The Company has developed the Healthcare Exchange so Purchasers can access
services offered by Providers. The Company believes eliminating costs and delays
in the billing process should allow Purchasers to reduce costs. The Company 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, 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. 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. (See Note 4 to Financial
Statements.)
Application Services Provider
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 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
The Company's 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 the
Company's business and operating results. The Company's success depends on the
ability to market the Healthcare Exchange to potential Providers and Purchasers
and their agents. The Company believes 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 health care industry, the Company's potential
competitors have longer operating histories, significantly greater financial,
technical, marketing and other resources and significantly greater name
recognition. In addition, many of the Company's competitors have
well-established relationships with the Company's 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 the Company 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
The Company's operations are subject to various federal and state laws. The
Company believes that its 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 the Company's 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.
The Company was aware of and tried to incorporate HIPAA requirements or
their timely adoption as its 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 the Company's 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 the Company's databases. If these laws
are extended to cover the Company's business, the Company may be required to
expend additional resources in order to comply with these laws, including
changes to the Company's 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 the Company's Healthcare Exchange is a referral agency, which
requires licensing under many state laws, or that Providers are paying
prohibited referral fees, which could subject the Provider or the Company to
civil or criminal penalties. In addition, the Company's relationships with
Purchasers may require licensing or certifications in some states. Also,
although the Company does 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.
Human Resources
At August 31, 2002, the Company had 119 employees, consisting of 73
employees located in Sacramento, and 44 employees in satellite offices in 17
states, including California, and 2 employees in the Company's headquarters
located in Portsmouth, New Hampshire. This includes Provider Development staff
of 44 that is recruiting medical providers for contracting in 32 markets in 22
states for the Healthcare Exchange.
Insurance
The annual coverage limits for the Company's 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. ATR also has a $1,000,000 policy for errors and omissions
insurance. Management believes such limits are adequate for the Company's
business; however, there can be no assurance that potential claims will not
exceed the limits on these policies.
RISK FACTORS
An investment in our common stock involves considerable risk. In addition
to the other information contained in this annual report, you should carefully
consider the following factors in evaluating an investment in the Company. This
annual report contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from the results
discussed in such forward-looking statements. Factors that might cause such a
difference includes those discussed below. Note that this is not an
all-inclusive list of the risks to which we are subject.
We only have a limited operating history in the health care and Internet
industries that investors may use to assess our future prospects.
Although we have been an operating company in the computer programmer
recruiting and placement industry for several years, we only recently began
operating in the Internet and health care 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 health care 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. 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 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.
We need additional financing.
Based on the steps the Company has taken to refocus its operations and
obtain additional financing, the Company believes that it has developed a viable
plan to address the Company's ability to continue as a going concern, and that
this plan will enable the Company to continue as a going concern through at
least the end of fiscal 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. However there can be no assurance that the Company will be able to
raise sufficient funds to successfully implement its business plan. 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. 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 growth depends on industry acceptance of our health care 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.
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.
The Company signed agreements effective in January 2001 with an application
services provider to license, support and run software to process medical bills
submitted to the Company's Healthcare Exchange. ATR has also signed agreements
to receive claims from Providers through electronic clearing houses and to
convert paper claims into electronic formats. These relationships are
non-exclusive.
In September 1999, ATR 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 finding 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 health care 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.
The Company was aware of and tried to incorporate HIPAA requirements or
their timely adoption as its 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 the Company's Healthcare Exchange is a referral agency, which
requires licensing under many state laws, or that Providers are paying
prohibited referral fees, which could subject the Provider or the Company to
civil or criminal penalties. In addition, the Company's relationships with
Purchasers may require licensing or certifications in some states. Also,
although the Company does 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 the Company is 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 health care 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.
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
June 30, 2002, the closing price of a share of our Common Stock ranged from a
low of $2.00 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.
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 80% of the
outstanding shares of our common stock as of June 30, 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.
Our stock price may be affected by the availability of shares for sale in the
near future, and the future sale of large amounts of our stock, or the
perception that such sales could occur, could negatively affect our stock price.
To finance its operations, the Company has sold shares of its common stock
and a convertible promissory note convertible into common stock in private
placements to accredited investors. Pursuant to these private placements, the
Company has agreed to register the shares of common stock sold in the private
placement and that may be issued upon the conversation of the convertible
promissory note with the SEC. In light of our limited trading market, the market
price of our common stock could drop as a result of sales of a large number of
restricted shares of our common stock in the market, or the perception that such
sales could occur, due to the shares of common stock being registered for resale
pursuant to a registration statement file with the SEC.
In addition, as of August 31, 2002, the Company has reserved a total of
11,682,713 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. Our outstanding options, warrants and
convertible debt may have a detrimental impact on the price of our shares of
common stock since they may be dilutive to new investors.
Future issuances of preferred stock could reduce the value of our common stock.
We are authorized to issue up to 1,200,000 shares of our preferred stock.
The preferred stock may be issued in one or more series, on such terms and with
such rights, preferences and designations as our board of directors may
determine, without action by stockholders. The issuance of any preferred stock
could adversely affect the rights of the holders of common stock, and therefore
reduce the value of the common stock. In particular, specific rights granted to
future holders of preferred stock could be used to restrict our ability to merge
with or sell our assets to a third party, thus making it more difficult for a
third party to acquire a majority of our outstanding voting stock. We have no
current plans to issue shares of preferred stock.
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.
Item 2. Description of Property
The Company's 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, the Company has an office located in Sacramento, California.
The Company occupies approximately 7,523 square feet of office space in
Sacramento, which it leases from Mr. James W. Cameron, Jr., the Company's
Chairman of the Board and 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.
Item 3. Legal Proceedings
As of September 12, 2002 the Company is not currently a party to any
pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted during the quarter ended June 30, 2002 to a vote
of security holders.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
ATR's common stock is quoted on the OTC Bulletin Board under the symbol
"ATEK." Transactions in ATR's common stock are subject to the "penny stock"
disclosure requirements of Rule 15g-9 under the Exchange Act.
The table below sets forth the high and low closing prices for the common
stock of the Company for each of the last eight quarters. Such over the counter
market quotations reflect inter dealer prices without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions.
Period High Low
------ ---- ---
Quarter ended September 30, 2000 $4.81 $2.75
Quarter ended December 31, 2000 $3.38 $1.38
Quarter ended March 31, 2001 $2.31 $1.34
Quarter ended June 30, 2001 $2.26 $1.90
Quarter ended September 30, 2001 $3.70 $2.08
Quarter ended December 31, 2001 $3.09 $2.62
Quarter ended March 31, 2002 $3.06 $2.06
Quarter ended June 30, 2002 $2.55 $2.00
As of August 27, 2002, the Company had approximately 244 holders of its
shares of common stock, excluding holders of the Company's common stock held in
street name.
Dividend Policy
The Company has never paid a cash dividend on its common stock and does not
anticipate paying cash dividends on its common stock in the foreseeable future.
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 Board of Directors, on the basis of various factors, including the
Company's results of operations, financial condition, capital requirements and
other relevant factors, will determine ATR's future dividend policy.
Item 6. Selected Financial Data
The following table presents a summary of unaudited selected financial data
for each of the five years ended June 30. The data should be read in conjunction
with the Financial Statements and related notes included herein.
Years Ended June 30,
2002 2001 2000 1999 1998
Statement of Operations Data
Healthcare Exchange revenue $ 1,642,565 $ 50,944 $ - $ - $ -
Healthcare Exchange gross profit (loss) 179,048 (33,584) - - -
Contract programming revenue - 308,469 2,561,101 6,340,235 5,250,002
Contract programming gross profit - 62,797 422,062 1,030,893 530,379
Selling, marketing and 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) (1,223,539) (1,336,342)
Loss from operations (9,379,782) (8,919,271) (2,008,908) (192,646) (805,963)
Total other income (expense) (436,124) 4,516 (2,806,733) (524,101) (437,981)
Net loss (9,815,906) (8,914,755) (4,815,641) (716,747) (1,243,944)
Preferred stock dividends - (886,142) (122,500) (122,500) (122,500)
Net loss applicable to common stockholders (9,815,906) (9,800,897) (4,938,141) (839,247) (1,366,444)
Basic and diluted net loss per share $(0.16) $(0.17) $(0.10) $(0.03) $(0.05)
Shares used in per share calculation 59,936,435 58,686,778 50,329,614 26,127,730 25,964,142
Balance Sheet Data
Total assets $ 1,203,309 $ 5,577,658 $2,502,703 $ 599,440 $ 837,353
Long term obligations - 3,740,450 3,567,424 4,258,090 4,006,565
Accrued preferred stock dividends 283,195 283,195 735,001 612,501 490,001
Redeemable Preferred Stock, Series D - - 1,225,002 1,225,002 1,225,002
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation
The following discussion provides information to facilitate the
understanding and assessment of significant changes in trends related to the
financial condition of the Company and its results of operations. It should be
read in conjunction with the audited financial statements and footnotes
appearing elsewhere in this annual report.
Critical Accounting Policies
Revenue Recognition. The Company recognizes revenue for the
transaction-processing fee when earned and the Company has substantially
completed all of its obligations under the contract.
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 the Company's prepaid license and
service fees, the Company 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, the Company
may be required to record impairment charges for these assets not previously
recorded.
Results of Operation
Year ended June 30, 2002 compared to year ended June 30, 2001
Healthcare Exchange
Healthcare Exchange Revenue. The Company began operations with a limited
number of Providers in the quarter ending June 30, 2001. Providers submit bills
to ATR, 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. ATR receives payments from Purchasers on behalf of Providers,
and then remits payments to Providers. The Company recognizes revenue for the
transaction-processing fee when earnedand the Company has substantially
completed all of its obligations under the contract. 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. 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 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
ATR's previous business was recruiting, hiring, training and placing
foreign computer programmers with U.S. companies. In line with the Company's
strategy to focus on the establishment of the Healthcare Exchange for health
care services, ATR suspended recruitment of foreign computer programmers in
December 1999 and began pursuing the conversion of computer programmers to
employees of ATR's 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 were recognized in fiscal year 2001
Programmer Costs. Programmer costs represent the salary and other wage and
benefit costs of ATR's 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 ATR 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, ATR, 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 was recognized in fiscal year 2001.
Selling, Marketing and Product Development Costs
In October 1999 the Company began incurring costs to develop its Healthcare
Exchange. Costs incurred are primarily the salary, other wage and benefit costs
of ATR's 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 the Company's August 2000 private placement by the Company's Chief Executive
Officer and related entities and non-cash compensation due to conversion of
Series D Preferred Stock into common stock by the Company's Chairman of the
Board 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 the Company's 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. The Company 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, ATR's
programmers to their employees. The Company escalated this conversion process
during fiscal years 2000 and 2001 to enable it to focus its business strategy
toward developing its 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 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.
Programmer Costs. Programmer costs represent the salary and other wage and
benefit costs of ATR's 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 the Company began incurring costs to develop its Healthcare
Exchange. Costs incurred are primarily the salary, other wage and benefit costs
of ATR's 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 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 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 fiscal year ending June 30, 2002, the Company earned revenues of
$1,642,565 but incurred a net loss of $9,815,906. Until the Company can generate
sufficient revenue to finance its operations, the Company will have to seek
other financing. Traditionally, the Company has used a combination of equity and
debt financing and revenue generated to fund operations but has incurred
operating losses since its inception, which has resulted in an accumulated
deficit of $59,362,879 at June 30, 2002.
The Company's Healthcare Exchange development efforts will require
substantial funds prior to generating sufficient revenues to fund operations and
repay debt. The Company believes that it has developed a viable plan to address
the Company's ability to continue as a going concern, and that this plan will
enable the Company to continue as a going concern, at least through the end of
fiscal year 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. However
there can be no assurance that the Company will be able to raise sufficient
funds to successfully implement its business plan. Traditionally, the Company
has relied on major stockholders or affiliates to finance its operations.
However, 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. 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.
During the period between January 9, 2002 and March 28, 2002, the Company
sold 1,232,585 shares of its 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. Net proceeds from the offering were
$2,742,519. The proceeds from the private placement were used to fund operations
and repay debt. The Company's Chairman and Chief Financial Officer purchased
222,222 shares of the Company's common stock in the private placement. Because
the purchase price of such stock was less than the public trading price on the
date of purchase, the Company recorded compensation expense of $138,583 during
fiscal year 2002.
Subsequent to year-end, 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 26, 2009.
During fiscal year 2002, the Company issued 284,200 shares of common stock
pursuant to the exercise of warrants for the amount of $213,150.
On August 28, 2000, the Company sold 3,333,334 shares of its common stock
at $3.00 per share. Proceeds, net of offering costs, were approximately
$9,560,345. Proceeds were used to develop the Company's Healthcare Exchange. The
Company's Chief Executive Officer and related entities purchased 2,333,335
shares of the Company's common stock in the private placement. Because the
purchase price of such stock was less than the public trading price on the date
of purchase, the Company recorded compensation expense of $1,458,334 in the
first fiscal quarter ended September 30, 2000.
During fiscal year 2000, the Company received $3,712,348 in private sales
of its common stock at an average price of $3.42 per share.
On September, 11, 2000, the Company agreed with the Series D Preferred
stockholders to exchange all their outstanding Series D shares and $475,915 in
accrued preferred stock dividends into 566,972 shares of common stock based on a
purchase price of $3.00 per common share. The benefit accruing to the Series D
Preferred stockholders was recorded in the quarter ended September 30, 2000,
approximately $316,702 in compensation expense and $862,000 in preferred stock
dividends.
The Company has received short-term, unsecured financing to fund its
operations in the form of notes payable of $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 the quarter ending
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
Reimbursement Agreement the Company signed on February 28, 1994. 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 the Company's common stock (the "Convertible
Note") in a principal amount equal to the Straight Note and bearing interest at
9.5%. 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 $2.4 million and was recorded as additional interest
expense in the quarter ended September 30, 1999. Subsequent to August 19, 1999,
Mr. Cameron elected to replace his remaining interest in the Straight Note,
including accrued interest, with the Convertible Note and then simultaneously
converted the Convertible Note into 19,762,786 shares of the Company's common
stock. All other Straight Note holders also replaced their Straight Notes,
including accrued interest, with Convertible Notes and converted such
Convertible Notes into an aggregate of 7,998,411 shares of the Company's common
stock during fiscal 2000.
The following table represents the debt requirements pertaining to
contractual obligations of the Company over the next five years:
- -------------------------------------------------------------------------------------------------------------------------
Contractual Obligations Payments Due by Period
- -------------------------------------------------------------------------------------------------------------------------
Total Less than 1 1-3 years 4-5 years After 5
year years
- -------------------------------------------------------------------------------------------------------------------------
Notes payable to stockholder $ 2,212,529 $ 2,212,529 $ - $ - $ -
Convertible notes payable to stockholder 2,423,823 2,423,823 - - -
Operating leases - facilities - payable to
stockholder 222,722 147,753 74,969 - -
Operating leases - equipment 165,277 51,641 101,528 12,108 -
Application services provider 1,618,824 404,706 1,214,118 - -
- -------------------------------------------------------------------------------------------------------------------------
Total contractual cash obligations $ 6,643,175 $ 5,240,452 $ 1,390,615 $ 12,108 $ -
- -------------------------------------------------------------------------------------------------------------------------
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Boards issued Statements
of Financial Accounting Standards No. 141, "Business Combinations," or SFAS 141
and No. 142, "Goodwill and Other Intangible Assets," or SFAS 142. SFAS 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. Use of the pooling-of-interests
method is no longer permitted. SFAS 141 also includes guidance on the initial
recognition and measurement of goodwill and other intangible assets acquired in
a business combination that is completed after June 30, 2001. SFAS 142 no longer
permits the amortization of goodwill and indefinite-lived intangible assets.
Instead, these assets must be reviewed annually (or more frequently under
certain conditions) for impairment in accordance with this statement. Intangible
assets that do not have indefinite lives will continue to be amortized over
their useful lives and reviewed for impairment in accordance with existing
guidance. We are required to adopt SFAS 142 effective July 1, 2002. Because the
Company has historically not been party to any business combinations and
therefore has not recorded related goodwill and intangible assets, the adoption
of SFAS 141 and 142 did not 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 will adopt 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.
Effects of Inflation
Management does not expect inflation to have a material effect on the
Company's operating expenses.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company has notes payable in the aggregate amount of $4,636,352 as of
June 30, 2002, payable to two stockholders of the Company. The notes bears
interest at 10.25% per annum and are due December 31, 2002. The Company does not
believe that any change in interest rates will have a material impact on the
Company during fiscal 2003. Further, the Company has no foreign operations and
therefore is not subject to foreign currency fluctuations.
Item 8. Financial Statements and Supplementary Data
The financial statements of the Company, including the notes thereto and
report of the independent auditors thereon, and the supplementary financial
information required by Item 302, are attached hereby as exhibits following page
number 27.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Company
The information required by this item is incorporated by reference to the
Captions "Election of Directors", "Further Information concerning the Board of
Directors" and "Section 16 (a) Information" of the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders, which will be filed within 120
days of the Company's fiscal year end.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to the
Caption "Principal Stockholders" of the Company's definitive Proxy Statement for
the Annual Meeting of Stockholders, which will be filed within 120 days of the
Company's fiscal year end.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to the
Caption "Principal Stockholders" of the Company's definitive Proxy Statement for
the Annual Meeting of Stockholders, which will be filed within 120 days of the
Company's fiscal year end.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to the
Caption "Certain Relationships and Related Transactions" of the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders which will be
filed within 120 days of the Company's fiscal year end.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
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 Consent of Ernst & Young LLP, Independent Auditors
99.1 Chief Executive Officer Certification
99.2 Chief Financial Officer Certification
+ Indicates a management contract or compensatory plan or arrangement
as required by Item 13(a).
Financial Statement Schedules
All schedules have been omitted because they are not required or are not
applicable or the required information is shown in the financial statements or
related notes
Reports on Form 8-K
There were no reports on Form 8-K filed during the last quarter of the
period covered by this report.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: September 20, 2002 ALTERNATIVE TECHNOLOGY RESOURCES, INC.
By /S/ JEFFREY S. MCCORMICK
------------------------------------
Jeffrey S. McCormick.
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signature Title Date
- --------- ----- ----
/S/ JAMES W. CAMERON, JR. Chairman of the Board, Director September 20, 2002
- ------------------------ And Chief Financial Officer
James W. Cameron, Jr.
/S/ EDWARD L. LAMMERDING Director September 20, 2002
- ------------------------
Edward L. Lammerding
/S/ JEFFREY S. MCCORMICK Director September 20, 2002
- ------------------------
Jeffrey S. McCormick
INDEX TO FINANCIAL STATEMENTS
Alternative Technology Resources, Inc.
Page
----
Report of Ernst & Young LLP, Independent Auditors............................F-1
Balance Sheets as of June 30, 2002 and 2001..................................F-2
Statements of Operations for the Years Ended June 30, 2002, 2001 and 2000....F-3
Statements of Stockholders' Equity (Deficit) for the Years Ended June 30,
2002, 2001 and 2000.........................................................F-4
Statements of Cash Flows for the Years Ended June 30, 2002, 2001 and 2000....F-5
Notes to Financial Statements................................................F-7
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
Accumu-
lated
Convertible Preferred Other Total
Stock Common Stock Additional Compre- Stockholders
------------------------------------------- Paid-In Accumulated hensive 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
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 health care 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 health care services, their PPOs'
and/or their agents. Providers submit bills to the Company, who reprices the
bills to the rate set by the Providers, including adding a
transaction-processing fee, and then routes them to Purchasers or their
intermediaries. The Company receives payments from Purchasers on behalf of
Providers, and then remits payments to Providers.
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 o