U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
COMMISSION FILE NUMBER 0-20468
ALTERNATIVE TECHNOLOGY RESOURCES, INC.
(FORMERLY KNOWN AS 3NET SYSTEMS, INC.)
(Exact name of small business issuer as specified in its charter)
Delaware 68-0195770
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
629 J Street, Sacramento, CA 95814
(Address of principal executive offices)
(916) 498-3900
(Issuer's telephone number)
(Former address if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes <checked-box> No <square>
Number of shares of common stock outstanding as of April 30, 1997: 25,489,998
<PAGE>2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALTERNATIVE TECHNOLOGY RESOURCES, INC.
(FORMERLY KNOWN AS 3NET SYSTEMS, INC.)
CONDENSED BALANCE SHEET
MARCH 31, 1997
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 5,264
Accounts receivable, net 248,226
Other current assets 73,884
----------------
Total current assets 327,374
PROPERTY AND EQUIPMENT:
Equipment 195,569
Purchased software 224,372
Furniture and fixtures 148,446
----------------
568,387
Accumulated depreciation and amortization (555,637)
----------------
Property and equipment, net 12,750
Other assets 829
----------------
$ 340,953
================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Line of credit $ 1,000,000
Notes payable to stockholders 1,508,262
Accounts payable to stockholder 165,885
Accounts payable 665,570
Accrued payroll and related expenses 261,052
Deferred revenue 131,181
Accrued customer obligations 242,848
Accrued preferred stock dividends 336,875
Other current liabilities 84,466
Other notes payable 35,206
---------------
Total current liabilities 4,431,345
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $6.00 par value - 1,200,000 shares authorized,
204,167 Series D shares issued and outstanding; liquidation
preference value of $1,561,877 1,225,002
Common stock, $0.01 par value - 100,000,000 shares
authorized, 25,489,998 shares issued and outstanding 254,901
Common stock to be issued 158,235
Unearned compensation (126,563)
Additional paid-in capital 28,407,623
Accumulated deficit (34,009,590)
--------------
Total stockholders' deficit (4,090,392)
--------------
$ 340,953
==============
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
<PAGE>3
<TABLE>
<CAPTION>
ALTERNATIVE TECHNOLOGY RESOURCES, INC.
(FORMERLY KNOWN AS 3NET SYSTEMS, INC.)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Nine Months
ENDED MARCH 31, ENDED MARCH 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
CONTRACT PROGRAMMING:
Contract programming revenue $ 587,686 $ 373,885 $1,354,944 $ 950,905
Programmer costs (510,112) (216,445) (1,174,632) (585,521)
Start-up and other costs (120,411) (68,574) (267,490) (113,006)
------------ ------------ ----------- -----------
Contract programming gross
profit (loss) (42,837) 88,866 (87,178) 252,378
------------ ------------ ----------- ------------
SYSTEM SERVICE AND SALES:
Service revenue and system sales 63,804 122,184 229,690 356,281
Cost of service and system sales (41,765) (59,093) (103,731) (235,112)
------------ ----------- ----------- ------------
System service and sales
gross profit 22,039 63,091 125,959 121,169
------------ ----------- ----------- ------------
Selling, general and administrative (304,357) (379,145) (855,432) (1,258,900)
Research and development 0 (59,690) 0 (494,840)
Settlement expense 0 0 0 75,125)
------------ ------------ ----------- -----------
Loss from operations (325,155) (286,878) (816,651) (1,455,318)
Other income (expense):
Interest expense (59,912) (40,196) (182,883) (106,524)
Recovery of legal costs 201,550 0 201,550 0
Other, net (222) 19,379 (3,908) 13,939
------------ ----------- ----------- -----------
141,416 (20,817) 14,759 (92,585)
------------ ----------- ----------- -----------
Net loss $ (183,739) $(307,695) $(801,892) $(1,547,903)
============ =========== =========== ============
Preferred stock dividends
in arrears (30,625) (30,625) (91,875) (91,875)
------------ ----------- ----------- ------------
Net loss applicable to
common stockholders $ (214,364) $(338,320) $(893,767) $(1,639,778)
============ =========== =========== ============
Net loss per share $ (0.01) $ (0.02) $ (0.04) $ (0.16)
============ =========== =========== ============
Shares used in per share
calculations 25,489,998 20,000,000 25,325,408 10,284,125
============ ============ =========== ============
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>4
ALTERNATIVE TECHNOLOGY RESOURCES, INC.
(FORMERLY KNOWN AS 3NET SYSTEMS, INC.)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
MARCH 31,
1997 1996
Net cash used in operating activities $(795,815) $(433,868)
Cash flows from investing activities:
Sale (purchases) of property and equipment 6,165 (3,960)
---------- ----------
Net cash used in investing activities 6,165 (3,960)
---------- ----------
Cash flows from financing activities:
Proceeds from exercise of options and warrants 16,702 239
Proceeds from notes payable to stockholders 769,510 494,500
Payments on notes payable and capital leases (43,404) (84,020)
---------- ----------
Net cash provided by financing activities 742,808 410,719
---------- ----------
Net decrease in cash (46,842) (27,109)
Cash at beginning of period 52,106 38,913
---------- ----------
Cash at end of period $ 5,264 $ 11,804
========== ==========
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
<PAGE>5
ALTERNATIVE TECHNOLOGY RESOURCES, INC.
(FORMERLY KNOWN AS 3NET SYSTEMS, INC.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. For further
information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-KSB for the fiscal year
ended June 30, 1996.
In the opinion of management, the unaudited condensed financial statements
contain all adjustments considered necessary to present fairly the
Company's financial position at March 31, 1997, results of operations for
the three and nine month periods ended March 31, 1997 and 1996 and cash
flows for the nine months ended March 31, 1997 and 1996. The results for
the period ended March 31, 1997, are not necessarily indicative of the
results to be expected for the entire fiscal year ending June 30, 1997.
The financial statements and notes thereto also include the effect of a
one-for-ten consolidation of the Company's outstanding Common Stock, par
value $0.01 per share, which became effective on December 2, 1996. In
addition, effective on December 2, 1996, the Company changed its name from
3Net Systems, Inc., to Alternative Technology Resources, Inc., and the
number of authorized shares of Common Stock was reduced from 200,000,000 to
100,000,000.
Certain amounts for the three and nine months ended March 31, 1997 and 1996
have been reclassified to conform with the March 31, 1997 presentation.
The report of the independent auditors on the Company's June 30, 1996,
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 uncertainties related to the recoverability and classification
of assets or the amounts and classification of liabilities that may result
from the inability of the Company to continue as a going concern. Based on
the recent steps the Company has taken to reduce its expenses and refocus
its operations, 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 the end
of fiscal year 1997. However, considering, among other things, the
Company's historical operating losses, its lack of experience in the
contract computer programming industry, and anticipated negative cash flow
<PAGE>6
from operations, there can be no assurance that this plan will be
successfully implemented. The Company does not expect to generate
sufficient cash flow from operations to sustain its operations during
fiscal 1997; therefore, the Company contemplates needing to raise
additional financing during fiscal 1997.
NOTE 2 - FINANCING ARRANGEMENTS
Since its inception, the Company has used a combination of equity and debt
financing and internal cash flow to fund research and development, support
operations, obtain capital equipment, and finance inventory and accounts
receivable. The Company believes that it will continue to be a net user of
cash for operations during fiscal 1997 as a direct result of attempting to
grow its contract computer programming and consulting services. During
fiscal 1996 and the first 3 quarters of fiscal 1997, the Company has
received short-term financing in the form of notes payable of approximately
$1.5 million from two stockholders, James W. Cameron, Jr. ("Cameron"), and
Max Negri ("Negri"), to fund its operations. The Company must obtain
additional funds during fiscal 1997 in order to meet its obligations while
attempting to grow revenues to a level necessary to generate cash from
operations. Although the Company has not entered into any written
agreement with Cameron or Negri, management believes, based on discussions
with these two individuals, that these two stockholders will continue to
finance the Company's operations during fiscal 1997. In December 1996,
Cameron and Negri extended the maturity date on notes payable totaling
approximately $1.2 million from December 31, 1996, to the earlier of
December 31, 1997, or such time as the Company obtains equity financing.
Management believes that Cameron and Negri will continue to fund operations
and extend the maturity dates of the various notes payable until such time
as the Company can repay the notes. However, there can be no assurance
that events may arise which may affect these stockholders' ability to
finance the Company or that the Company may experience significant and
unanticipated cash flow problems which may cause these two stockholders to
reconsider their investment. Further, if the Company experiences
significant cash flow problems, the Company may be required to reduce the
level of its operating activities or be forced into seeking protection
under federal bankruptcy laws.
In February 1994, the Company entered into a revolving line of credit with
Bank of America, NT&SA, (the "Bank") in the amount of $2,000,000 with a
maturity date of August 1, 1994. Since July 1994, the maturity date of the
line of credit has been extended several times, and in March 1995 the Bank
agreed to extend the maturity date of the line of credit, but reduced the
line of credit to $1,000,000. After several extensions, the maturity date
of the line of credit was extended by the Bank from March 1, 1997 to May 1,
1997. On April 21, 1997, Cameron became the named borrower under the line
of credit, and the Company issued a note payable (the "Straight Note") to
Cameron for the $1,000,000 in accordance with the Reimbursement Agreement
the Company signed on February 28, 1994. Terms of the note provide for an
interest rate of 9.5% and monthly interest payments. No maturity date is
stated in the note; however, under the terms of the Reimbursement
Agreement, upon written demand by Cameron, the Straight Note will be
replaced by a convertible note (the "Convertible Note") in a principal
amount equal to the Straight Note and bearing interest at the same rate.
<PAGE>7
The conversion ratio of the Convertible Note is equal to the "Applicable
Percentage," as defined in the Reimbursement Agreement, multiplied by the
average trading price of the Company's Common Stock over the period of ten
trading days ending on the trading day next preceding the date of issuance
of such Convertible Note. The Applicable Percentage, which was originally
50%, has been reduced to 20% per the terms of the Reimbursement Agreement
due to the Bank extending the maturity date of the line of credit. The
Applicable Percentage may not be reduced below 20%.
NOTE 3 - CONTINGENCIES
SUIT FROM FORMER CONSULTANT
In June 1995, a former consultant, officer and director filed suit against
the Company for breach of contract, among other claims. In February 1996,
an arbitration panel entered its order dismissing with prejudice all claims
of the former consultant. Subsequently, the former consultant filed a
notice of appeal with the 3rd District Appellate Court, which the Court
ultimately dismissed due to the consultant's failure to file an opening
brief. At the end of April 1997, the former consultant filed a motion to
reinstate his appeal, along with a copy of his opening brief; and in May
1997 the Court denied this motion to reinstate the appeal.
DISTRIBUTOR AND CO-DEVELOPMENT AGREEMENT
Since 1993, the Company and its Canadian distributor (the "Distributor")
have disputed several provisions of their Distributor and Co-Development
Agreement, modified certain provisions of the agreement in 1994 and 1995,
and continued to dispute several provisions of the modified agreement
during 1996 and 1997. On May 6, 1997, the Company and the Distributor
signed a Mutual Release and Settlement Agreement wherein both parties
agreed to the settlement of any and all issues arising from or relating to
the Distributor and Co-Development Agreement, and any of its modifications,
and any and all other matters arising from or relating to any relationship
or agreements(s) between the Company and the Distributor by mutually
agreeing to cancel and terminate the agreement(s) and by releasing each
other from any and all claims, demands, or liabilities which have arisen or
which may arise from the agreement(s). As a result of this agreement, in
the quarter ending June 30, 1997, the Company will reverse net accounts
payable previously recorded of $213,231.
NOTE 4 - RECOVERY OF LEGAL COSTS
During the quarter ended March 31, 1997, legal expenses and costs of
$201,550 recorded by the Company related to the suit from a former
consultant were reimbursed by insurers of Mr. Cameron and the Company.
<PAGE>8
NOTE 5 - LABORATORY SYSTEM (LIS) CUSTOMER ASSIGNMENTS
Congruent with its business strategy to exit the laboratory system (LIS)
products market and focus its resources totally on contract programming and
consulting, the Company entered into an agreement with Omnitech Migrations
International, Inc. (OMI) on May 2, 1997 to transfer its LIS product and
its software and hardware customer service contracts to OMI. Under this
agreement, the Company transferred and assigned to OMI all of the Company's
right, title, and interest in and to these customer agreements and
delegated to OMI all the Company's duties and obligations of performance
thereunder. As consideration, the Company will retain all fees previously
paid to it under these service agreements. As a result of this agreement,
in the quarter ending June 30, 1997, the Company will recognize $131,181 in
service revenue currently recorded as deferred revenue.
<PAGE>9
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATION
The following discussion and analysis should be read in connection with the
Company's financial statements and the notes thereto and other financial
information included elsewhere in the 10-KSB for the fiscal year ended
June 30, 1996.
OVERVIEW
The Company was founded in 1989 to develop and sell computer integrated
laboratory systems ("LIS"). The Company operated under the name 3Net
Systems, Inc. and was never successful in the LIS market. Therefore, in
fiscal 1996, the Company stopped new system development and later decided
to exit LIS entirely. This process was completed in May 1997.
During fiscal 1997, the Company changed its name to Alternative Technology
Resources, Inc. (ATR) and focused its efforts upon a business opportunity
not related to LIS. During fiscal years 1995 and 1996, the Company
developed and implemented a program whereby it recruits experienced,
qualified computer programmers primarily from the former Soviet Union,
obtains necessary visas, and places them for assignment in the United
States. The Company started this process to support its former LIS
business and the needs of a customer that was developing medical
administrative systems. However, ATR soon discovered an encouraging demand
for these programmers from others and began its present business on a
limited basis. Initial success placing programmers and increasing
expressions of demand have encouraged ATR to focus entirely upon growing
its niche in the contract programming marketplace.
RESULTS OF OPERATION
CONTRACT PROGRAMMING
CONTRACT PROGRAMMING REVENUE. Contract programming revenue results
primarily from sales of the programmer services described in Overview. To
a lesser extent, sales of custom programming and software development and
acting as an intermediary in providing such service are also included in
Contract Programming Revenue.
Revenues increased approximately $214,000 or 57% in the quarter ended
March 31, 1997, compared to the quarter ended March 31, 1996, and increased
approximately $404,000 or 43% for the first nine months of fiscal 1997
compared with the first nine months of fiscal 1996. The higher revenue in
the third quarter of fiscal 1997 resulted from having an average of 34
programming personnel placed at customer sites during the quarter ended
March 31, 1997, compared to an average of 16 programmers placed during the
third quarter of fiscal 1996. This increase was partially offset by a
decrease of approximately $248,000 in revenues for providing contract
system enhancements programming for LIS customers. The increase for the
first nine months of fiscal 1997 compared to the same period in fiscal 1996
<PAGE>10
also results from this approximate doubling of the number of programmers
placed, partially offset by a reduction of approximately $465,000 in
revenues from the sale of programming enhancements to LIS customers.
PROGRAMMER COSTS. Programmer costs are the salary, other wage and benefit
costs of ATR's programmer employees. These costs increased approximately
136% and 101% for the three and nine months ended March 31, 1997,
respectively, compared to the same periods last year. These increases are
primarily due to more than doubling the average number of programmers
placed during the comparable periods.
START-UP AND OTHER COSTS. Start-up and other costs primarily represent the
costs of recruiting, training, 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 and
fees related to obtaining and maintaining compliance with required visas,
postings and notifications.
Also included in this category of costs are wage, other salary and benefit
costs incurred by ATR whenever programmer employees are hired and enter the
United States or are relocated once in the United States but before these
programmers begin working at a customer's work site. There are sometimes
periods of up to several days when under immigration law, ATR, as employer,
must pay a programmer employee prevailing wages for his or her specialty
even when the programmer is not placed.
ATR expenses start-up and other costs as incurred, which results in timing
differences between the incurring of expense and recognition of resulting
revenue. Such differences may be particularly evident in ATR's case
because of its relatively small revenue base and rapid growth. The affect
may be particularly noticeable whenever the timing of placement of
employees is such that the major start-up costs occur late in one reporting
period and the revenues appear in subsequent periods. This was the case in
the quarter ended March 31, 1997, and is also expected to occur for the
quarter ending June 30, 1997, based on the timing of anticipated programmer
placements.
Start-up and other costs increased approximately $52,000 or 76% in the
quarter ended March 31, 1997, as compared to the same quarter in 1996, and
increased approximately $154,000 or 137% for the first nine months of
fiscal 1997 as compared with the same period of 1996. These increases are
due to placing or relocating approximately 26 programmers during fiscal
1997 compared to placing approximately 11 new programmers during fiscal
1996. In addition, the Company experienced increased costs in the current
period associated with expanding recruiting and training efforts overseas.
CONTRACT PROGRAMMING GROSS PROFIT (LOSS). The gross profit (loss) on
contract programming revenue was (7)% and (6)% for the three and nine
months ended March 31, 1997, respectively, compared to 24% and 27% in the
same periods of fiscal 1996. This decrease is primarily due to the
<PAGE>11
revenues from contract system enhancements for LIS customers during fiscal
1996 but not repeated in fiscal 1997. The timing of start-up and other
costs compared to matching revenue as discussed above also contributed to
the negative margins for the current periods.
SYSTEM DEVELOPMENT, SERVICE AND SALES
In January 1997 the Company decided to phase out within the year all LIS
development, software support and hardware services. The Company notified
its remaining LIS customers that it would not renew its contracts with them
on their next renewal date. In May 1997, the Company assigned all
remaining LIS contracts to a third party, thereby completing the phase out
more quickly than anticipated. Therefore, revenue from system sales,
service and enhancements has, as expected, been rapidly declining and will
soon be immaterial.
Now that the LIS phase out is complete, all remaining expenses associated
with this business will also be eliminated as soon as possible.
SYSTEM SERVICE AND SALES REVENUE. System service and sales revenue
decreased approximately $58,000 or 48% in the quarter ended March 31, 1997,
compared to the comparable quarter in fiscal 1996 and decreased $127,000 or
36% in the nine months ended March 31, 1997, compared to the comparable
period in fiscal 1996. Decreases are due to the phase out explained above.
SYSTEM SERVICE AND SALES REVENUE GROSS MARGIN. Gross margin from this line
of business decreased from 52% in the three months ended March 31, 1996, to
35% for the comparable period in fiscal 1997. In the nine months ended
March 31, 1997, the gross margin increased from 34% in fiscal 1996 to 55%
in fiscal 1997. This increase for the first nine months in fiscal 1997 is
due to the write down of the remaining net book value of purchased system
software during the first six months of fiscal 1996.
SALES, GENERAL AND ADMINISTRATIVE EXPENSES
SALES, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"). SG&A expenses
decreased approximately $75,000 or 20% and $403,000 or 32% for the three
and nine months ended March 31, 1997, respectively, compared to the same
periods of fiscal 1996. This decrease for the nine months ended March 31,
1997, is due to a reduction in legal and accounting expense of
approximately $173,000, the elimination of approximately $170,000 in
product sales costs and a decrease in travel expense of approximately
$53,000.
OTHER OPERATING EXPENSES
RESEARCH AND DEVELOPMENT EXPENSES. There were no research and development
expenses during the three and nine months ended March 31, 1997. None are
expected during fiscal 1997.
<PAGE>12
SETTLEMENT EXPENSE. There were no settlement expenses during the three and
nine months of fiscal 1997. Expenses in fiscal 1996 were primarily
settlement of a suit by a former employee.
OTHER INCOME (EXPENSE)
INTEREST EXPENSE. Interest expense increased approximately $76,000 in the
nine months ended March 31, 1997, compared to the same period in fiscal
1996 due to a net increase in notes payable of approximately $726,000.
RECOVERY OF LEGAL COSTS. During the quarter ended March 31, 1997, legal
expenses and costs of $201,550 recorded by the Company related to
litigation were reimbursed by insurers of Mr. Cameron and the Company.
INCOME TAXES
As of June 30, 1996, the Company had a net operating loss carryforward for
federal and state income tax purposes of approximately $23 million and
$11 million, respectively. The federal net operating loss carryforward
expires in the years 2005 through 2011 and the state net operating loss
carryforward expires in 1997 through 2001. In connection with the
Company's initial public offering, a change of ownership (as defined in
Section 382 of the Internal Revenue Code of 1986, as amended), occurred.
As a result, the Company's net operating loss carryforwards generated
through August 10, 1992, are subject to an annual limitation of
approximately $300,000.
In August and September 1993, a controlling interest of the Company's stock
was purchased, resulting in a second annual limitation of approximately
$398,000 on the Company's ability to utilize net operating loss
carryforwards generated between August 11, 1992, and September 13, 1993.
The Company expects that the aforementioned annual limitations will result
in approximately $3.6 million of net operating loss carryovers which may
not be utilized prior to the expiration of the carryover period.
NET LOSS
Net loss decreased $123,956 or 40% and $746,011 or 59% for the three and
nine months ended March 31, 1997, respectively, compared to the same
periods in fiscal 1996.
NET LOSS PER SHARE
The Company's net loss per share has been computed by dividing net loss
after deducting Preferred Stock dividends ($30,625 in each of the three
months ended March 31, 1997 and 1996, and $91,875 in each the nine months
ended March 31, 1997 and 1996, respectively) by the weighted average number
of shares of Common Stock outstanding during the quarters presented,
including Common Stock to be issued.
<PAGE>13
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has used a combination of equity and debt
financing and internal cash flow to fund research and development, support
operations, obtain capital equipment, and finance inventory and accounts
receivable. The Company expects to continue to be a net user of cash for
operations in the near future. In the first nine months of fiscal 1997 the
Company used an average of approximately $88,000 per month of cash for
operating activities, as compared with an average of approximately $48,000
per month in the first nine months of fiscal 1996. The Company expects
that the average rate at which cash is used during fiscal 1997 will not
decrease as a direct result of attempting to grow its contract computer
programming and consulting services.
In fiscal 1996 and the first nine months of fiscal 1997, the Company
suffered significant losses from operations. As of March 31, 1997, the
Company had a net working capital deficit of $4,103,971 and an accumulated
deficit of $34,009,590. The Company was unable to generate adequate cash
flow from operations to meet its cash flow requirements in the nine months
ended March 31, 1997, and, as a result, the Company met its cash flow
requirements primarily through short term financing from two stockholders.
During the first nine months of fiscal 1997, the Company consumed
approximately $796,000 on operating activities, and generated approximately
$743,000 from financing activities and $6,000 from investing activities.
During the first nine months of fiscal 1996, the Company consumed
approximately $434,000 on operating activities and $4,000 on investing
activities, and generated approximately $411,000 from financing activities.
The report of the independent auditors on the Company's June 30, 1996,
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 uncertainties related to the recoverability and classification
of assets or the amounts and classification of liabilities that may result
from the inability of the Company to continue as a going concern. Based on
the recent steps the Company has taken to reduce its expenses and refocus
its operations, 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 the end
of fiscal year 1997. However, considering, among other things, the
Company's historical operating losses, its lack of experience in the
contract computer programming industry, and anticipated negative cash flow
from operations, there can be no assurance that this plan will be
successfully implemented. The Company does not expect to generate
sufficient cash flow from operations to sustain its operations during
fiscal 1997; therefore, the Company contemplates needing to raise
additional financing during fiscal 1997.
Historically, the Company has relied upon cash infusions from two if its
<PAGE>14
major stockholders, Cameron and Negri, to fund its operations. Although
the Company has not entered into any written agreement with Cameron or
Negri, management believes, based on discussions with these individuals,
that these two stockholders will continue to finance the Company's
operations during fiscal 1997. In December 1996, Cameron and Negri
extended the maturity date on notes payable totaling approximately $1.2
million from December 31, 1996, to the earlier of December 31, 1997, or
such time as the Company obtains equity financing.
In addition, On April 21, 1997, Cameron became the named borrower under the
$1,000,000 line of credit with Bank of America, and the Company issued a
note payable (the "Straight Note") to Cameron for the $1,000,000 in
accordance with the Reimbursement Agreement the Company signed on
February 28, 1994. Terms of the note provide for an interest rate of 9.5% and
monthly interest payments. No maturity date is stated in the note;
however, under the terms of the Reimbursement Agreement, upon written
demand by Cameron, the Straight Note will be replaced by a convertible note
(the "Convertible Note") in a principal amount equal to the Straight Note
and bearing interest at the same rate. The conversion ratio of the
Convertible Note is equal to the "Applicable Percentage," as defined in the
Reimbursement Agreement, multiplied by the average trading price of the
Company's Common Stock over the period of ten trading days ending on the
trading day next preceding the date of issuance of such Convertible Note.
The Applicable Percentage, which was originally 50%, has been reduced to
20% per the terms of the Reimbursement Agreement due to the Bank extending
the maturity date of the line of credit. The Applicable Percentage may not
be reduced below 20%.
Based on discussions with Cameron and Negri, management believes that these
two stockholders will continue to fund operations and extend the maturity
dates of the various notes payable until such time as the Company can repay
the notes. However, there can be no assurance that events may arise which
may affect these stockholders' ability to finance the Company or that the
Company may experience significant and unanticipated cash flow problems
which may cause these two stockholders to reconsider their investment.
Further, if the Company experiences significant cash flow problems, the
Company may be required to reduce the level of its operating activities or
be forced into seeking protection under federal bankruptcy laws.
EFFECTS OF INFLATION
Management does not expect inflation to have a material effect on the
Company's operating expenses.
<PAGE>15
PART II. OTHER INFORMATION
Item 1
In June 1995, a former consultant, officer and director filed suit against
the Company for breach of contract, among other claims. In February 1996,
an arbitration panel entered its order dismissing with prejudice all claims
of the former consultant. Subsequently, the former consultant filed a
notice of appeal with the 3rd District Appellate Court, which the Court
ultimately dismissed due to the consultant's failure to file an opening
brief. At the end of April 1997, the former consultant filed a motion to
reinstate his appeal, along with a copy of his opening brief; and in May
1997 the Court denied this motion to reinstate the appeal.
Items 2, 3, 4 and 5
None
<PAGE>16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
NUMBER DESCRIPTION OF DOCUMENTS
10.68 Agreement between the Registrant and Adept, Inc. dated
February 1997.
10.69 Sale of Cortex between the Registrant and Omnitech
Migrations International, Inc. (formerly known as Centre de
Traitment I.T.I. Omnitech, Inc.), dated May 2, 1997.
10.70 Mutual Release and Settlement Agreement between the
Registrant and Omnitech Migrations International, Inc.
(formerly known as Centre de Traitment I.T.I. Omnitech,
Inc.), dated May 6, 1997.
27.1 Financial Data Schedule
(b) There were no reports on Form 8-K filed during the last quarter ended
March 31, 1997.
<PAGE>17
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ALTERNATIVE TECHNOLOGY RESOURCES, INC.
(FORMERLY KNOWN AS 3NET SYSTEMS, INC.)
(Registrant)
[CAPTION]
Dated: May 14, 1997 W. ROBERT KEEN
W. Robert Keen
Chief Executive Officer
(Principal Executive Officer)
Dated: May 14, 1997 EDWARD L. LAMMERDING
Edward L. Lammerding
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT 10.68
AGREEMENT
The terms of this Agreement are based upon an agreement prepared by the
National Association of Computer Consultant Businesses and are subject to the
copyright of that association. Any use of any language in this Agreement by
anyone who is not a member in good standing of that association is prohibited
and will subject the user to damages as well as other civil penalties.
An Agreement made MARCH 7, 1997 by and between ADEPT, INC. with its principal
place of business at 888 WORCESTER ROAD, WELLESLEY, MA 02181 (herein after
referred to as ADEPT) and ALTERNATIVE TECHNOLOGY RESOURCES with its principal
place of business at 629 J. STREET, SACRAMENTO, CA 95814 (hereinafter referred
to as Contractor).
The parties agree as follows:
1. SCOPE
Contractor agrees pursuant to the terms herein to provide programming and/or
engineering and other specialized services as an independent contractor
directly to the third party user ("TPU") who has engaged ADEPT (or for whom
ADEPT is proposing) to locate temporary staffing of the TPU's project according
to the training, skills, abilities, and experience as established as
requirements by the TPU. ADEPT agrees to examine Contractor's employees'
background for providing services to clients, to refer Contractor's employees
to the TPU for further evaluation and offer of assignment, to negotiate a rate
for those services and to otherwise perform as stated herein. In consideration
of the foregoing, each of the parties agrees to be bound to the other according
to the terms and conditions hereinafter set forth.
2. TERM OF AGREEMENT
Contractor services under this Agreement will terminate at the end of the
minimum time requirement period covered by the Purchase Order (Exhibit A)and
any renewals or extensions thereof ("end date"). Contractor may not voluntarily
terminate its services under this Agreement before the end date unless, as
stated in writing by the TPU, the project has been completed or the services
are no longer required. In addition, the provisions of paragraphs 4, 5, 8, 13,
and 14 shall apply even if the Contractor rejects an assignment offered by the
TPU and does not provide its services, in which case, however, ADEPT shall have
no further obligation to Contractor.
Prior to the commencement of such services, ADEPT and Contractor will execute a
Purchase Order on the form attached as Exhibit "A" for each Consultant provided
by the Contractor which shall be considered part of this Agreement and binding
upon both parties. Contractor's employees' services under this Agreement will
terminate at the end of the minimum time requirement period covered by the
Purchase Order and any renewals or extensions thereof ("end date"), or upon one
calendar day's notice if for any reason the TPU no longer desires the services
of Contractor. Contractor may not voluntarily terminate its services under
this Agreement before the end date unless, as stated in writing by the TPU, the
project has been completed or the services are no longer required.
3. ASSIGNMENT OF CONTRACT
Any work on a project will be in accordance with the terms of this Agreement
and the Purchase Order. Contractor is to provide services through its
personnel named in paragraph 7 of the Purchase Order, for whom it is
responsible, and may not assign its rights under this Agreement or any Purchase
Order and may not subcontract its obligations hereunder to others. ADEPT may
arrange for other independent contractors to perform the same work that
Contractor performs on any assignment in accordance with ADEPT's agreements
with the TPU.
4. RESTRICTIVE COVENANT, NON-COMPETITION, DAMAGES
During the term of this Agreement and any renewals thereof, and for one (1)
year after the expiration of the initial and renewal periods, Contractor agrees
that it will pay a Finder's Fee to ADEPT if (a) Contractor or any of its
personnel provides or attempts to provide (or advises others of the opportunity
to provide), directly or indirectly, any services to any TPU to which
Contractor has been introduced or about which Contractor has received
information through ADEPT or through any TPU for which Contractor has performed
services or to which Contractor was introduced under this Agreement, and (b)
such services are provided. This provision may be waived only on a case-by-
case basis in writing by an executive officer of ADEPT, in its sole discretion,
prior to Contractor taking the action for which waiver is sought. The term
"TPU" includes any affiliates and divisions of the TPU. All Contractor's
personnel working on projects covered by this Agreement are required to agree
in writing to this paragraph 4 and Contractor will provide evidence of same
within five (5) days of the date of this Agreement.
5. REPRESENTATION
Contractor acknowledges for itself and its personnel that information provided
by it (including, but not limited to, resume, interview, references) in
consideration for providing services to or on behalf of the TPU is true to the
best of Contractor's knowledge, that the Contractor is not restricted by any
employment or other Contractor agreement and Contractor understands that any
misstatements or lack of candor by Contractor of the qualifications or
availability of it or its personnel may be grounds for immediate termination by
the TPU of any assignment and constitutes a breach of this Agreement.
Contractor warrants that it maintains a set of books and records which reflect
items of income and expenses of its trade or business.
6. PAYMENT FOR SERVICES
Payment for services for hours actually worked will be made in the corporate or
business name of Contractor on the periodic basis set forth in the Purchase
Order. Payment to Contractor will be in accordance with the agreed-upon hourly
rate specified in the Purchase Order and no other compensation in any form,
including benefits, will be provided by ADEPT or anyone else. Contractor shall
maintain records of the hours that services have been performed by its
personnel, have a TPU representative verify those hours by signing the records
and submit to ADEPT those records along with Contractor's invoice for the
amount due to Contractor for the hours worked and verified. Payment to
Contractor per its invoice shall be made in accordance with the following:
ADEPT will bill the TPU based upon the hours contained in Contractor's invoice
at a rate agreed upon between ADEPT and TPU.
The difference between the amount paid to ADEPT by the TPU and the amount due
to Contractor per its invoice shall be retained by ADEPT as a commission from
the TPU to ADEPT for locating Contractor, arranging for interviews between
Contractor and the TPU, persuading Contractor to work on the project for the
TPU and performing associated administrative functions.
At the request of and as a convenience to Contractor, ADEPT may deliver funds
to it prior to receiving funds from the client. In that event, if ADEPT does
not receive funds from the client that cover all hours set forth in
Contractor's invoice to ADEPT for which such delivery of funds was made, then
Contractor must pay ADEPT an amount equal to any funds delivered by ADEPT to
Contractor based upon hours set forth in that invoice for which the client has
not made payments to ADEPT. Such repayments shall be due immediately upon
written demand mailed to Contractor.
7. TRAVEL, LIVING AND OTHER COSTS
No travel, living, training, entertainment or other costs will be allowed for
Contractors unless authorized and paid by the TPU for whom Contractor is
performing services. ADEPT will provide no training, tools, equipment or other
materials to Contractor. Contractor's invoiced hours will include no time
spent in formal training and any TPU-authorized costs will not include any
reimbursement of formal training. Contractor agrees that it will not reach any
other agreement with TPU or any other party that would permit Contractor to be
paid for any time spent at formal training, to be reimbursed for the costs of
such formal training, or to be provided such formal training by ADEPT, the TPU
or anyone on behalf of ADEPT or the TPU.
In the event the TPU requires an on site interview with Contractor's employee,
Contractor will bear the cost of transportation to the TPU site. ADEPT will
reimburse the Contractor for ground transportation, hotel, meals if necessary.
8. CONFIDENTIALITY/NON-DISCLOSURE
ADEPT is required to maintain the confidentiality of information obtained from
TPUs, as well as information regarding its own business. Contractor agrees
that neither it nor its personnel will disclose to any third party, without the
prior written consent of an executive officer of TPU, any information relating
to the business of TPU, if such information could reasonably be construed as
confidential and was obtained in the course of Contractor's assignment with a
TPU project. Contractor further agrees neither it nor its personnel will
reproduce in any way, divulge, or remove from the premises of TPU, or the
customers and clients of TPU, at any time during assignment or upon leaving the
assignment, any tangible or intangible property whatsoever (except personal
effects) which could reasonably be construed as constituting confidential
information of the TPU, or the customers or clients of the TPU. All
Contractor's personnel working on projects covered by this Agreement are to
agree in writing to this paragraph 8 and Contractor will provide evidence of
same within five days of the date of this Agreement. Contractor agrees to
execute any non-disclosure statement required by TPU in advance of Contractor's
performance on any project of TPU. Contractor further agrees to indemnify and
hold harmless ADEPT for any and all loss, costs and other liability incurred or
threatened, including attorneys' fees, related to violations of the obligations
set forth in this paragraph.
9. CONDUCT, INDEPENDENT STATUS, AND BENEFITS
A. Contractor shall provide competent, professional services in the required
disciplines without instructions from ADEPT, using its own appropriate
independent skill and judgment, and the manner and means that appear best
suitable to it to perform the work. Evaluation of Contractor's performance, if
any, shall be made by the TPU. ADEPT shall have no right or responsibility
hereunder to review such performances, require progress reports, set the order
or sequence for performing of services, or set Contractor's hours or location
of work except that Contractor shall not perform services on ADEPT's premises.
B. Contractor is: A corporation organized pursuant to the Laws of the State
of; doing business under the name and style of ALTERNATIVE TECHNOLOGY
RESOURCES; and certifies that Contractor's federal tax identification number
is.
C. The parties to this Agreement agree that the relationship created by this
Agreement is that of BROKER-INDEPENDENT CONTRACTOR. Contractor agrees and has
advised its personnel, who have agreed as set forth in writing to be provided
to ADEPT within five (5) days of the date of this Agreement, that neither
Contractor nor any of its personnel is an employee of ADEPT or the TPU or is
entitled to any benefits provided or rights guaranteed by ADEPT or the TPU, or
by operation of law, to their respective employees, including but not limited
to group insurance, liability insurance, disability insurance, paid vacation,
sick leave or other leave, retirement plans, health plans, premium "overtime"
pay, and the like. It is understood and agreed that since the Contractor is an
Independent Contractor, ADEPT will make no deductions from fees paid to
Contractor for any federal or state taxes or FICA. ADEPT and the TPU have no
obligation to provide Worker's Compensation insurance coverage for Contractor
or to make any premium "overtime" payments at any rate other than the normal
rate agreed to in the Purchase Order.
D. It shall be the Contractor's responsibility to PROVIDE WORKER'S
COMPENSATION INSURANCE and, if applicable, pay any premium "overtime" rate, for
its employees who work on the project covered by this Agreement and to make
required FICA, FUTA, income tax withholding or other payments related to such
employees, (and to provide ADEPT with suitable evidence of the same whenever
requested). In the event of any claims brought or threatened by any party
against ADEPT or the TPU relating to the status, acts or omissions of
Contractor or its personnel, Contractor agrees to cooperate in all reasonable
respects, including to support the assertions of employment status made in this
agreement.
10. WORKING FOR MULTIPLE FIRMS
Contractor may, to the extent consistent with this Agreement, provide its
services for others and through other BROKERS.
11. LIABILITY
Because of the independent status of the Contractor, it is solely and
completely accountable for the services it provides to the TPU, and neither the
TPU nor its customers and clients, nor ADEPT, shall have any liability
whatsoever to any party for such services provided by Contractor or its
personnel. ADEPT will not indemnify Contractor for any liability incurred by
Contractor, its agents or employees. Contractor understands that ADEPT will
act in good faith to describe the task requirements set forth by the TPU, but
that because Contractor has the opportunity to discuss directly with the TPU
these task requirements prior to acceptance of the project assignment offered
by the TPU, and because ADEPT has no right to control any aspect of the project
on which the Contractor will be working, Contractor hereby releases ADEPT from
any liability relating to representations about the task requirements or to the
conditions under which the Contractor will be working. Contractor also agrees
to release ADEPT from any liability for statements made by ADEPT, without
malice, to third parties who inquire about Contractor's performance.
12. INSURANCE
In addition to any other insurance required by this Agreement, Contractor will
obtain for itself and its personnel before providing services, at its own
expense, comprehensive GENERAL LIABILITY (GL) INSURANCE COVERAGE FOR PROJECTS
COVERED BY THIS AGREEMENT, FOR LIMITS OF LIABILITY NOT LESS THAN FIVE HUNDRED
THOUSAND $500,000 DOLLARS. A certificate of such insurance shall be furnished
to ADEPT within five (5) days of the date of this Agreement. Contractor agrees
to indemnify and hold ADEPT harmless from any and all liability or expense
that ADEPT may incur by reason of bodily injury to any person, or property
damage, or both, solely and proximately caused by the acts of Contractor, its
agents, servants, and employees while performing work or services pursuant to
this Agreement, including attorneys' fees.
13. BREACH
Any breach of any provision of this Agreement by Contractor or its personnel
entitles ADEPT to recover from Contractor damages and injunctive relief.
Contractor agrees that because monetary damages are likely to be inadequate,
ADEPT shall be entitled to temporary injunctive relief (by proving to a court a
likelihood of breach by Contractor) and to permanent injunctive relief (by
proving to a court such breach). If ADEPT is successful in recovering damages
or obtaining injunctive relief, Contractor agrees to be responsible for paying
all of ADEPT's expenses in seeking such relief, including all costs of bringing
suit and all reasonable attorneys' fees.
14. MISCELLANEOUS
A. This Agreement and any attachments or exhibits hereto represent the entire
agreement and understanding of the parties and any modification thereof shall
not be effective unless contained in writing signed by both parties. No other
document, including any agreement between ADEPT and the TPU, shall be deemed to
modify any terms of this Agreement unless expressly stated in writing to do so
and signed by both ADEPT and the Contractor.
B. Each provision of the Agreement shall be considered severable such that if
any one provision of clause conflicts with existing or future applicable law,
or may not be given full effect because of such law, this shall not affect any
other provision of the Agreement which can be given effect without the
conflicting provision of clause.
C. To the extent that there may be any conflict between the terms of this
Agreement and any Purchase Order which may be given hereto, this Agreement
shall take precedence.
D. Contractor represents that Contractor has read and understands the terms of
this Agreement, has had an opportunity to ask any questions and to review this
Agreement with legal counsel of its choice, and is not relying upon any advice
from ADEPT in this regard.
E. This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts and any litigation in connection herewith shall be brought in the
state or federal courts of said Commonwealth.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals on the
month, day, and year first above written.
ADEPT, Inc. ALTERNATIVE TECHNOLOGY RESOURCES
Business Name of Contractor
THOMAS J. LEONE GEORGE VAN DERVEN
By Thomas J. Leone By George Van Derven
Title: Chief Financial Officer Title: President
Date: February 28, 1997 Date: February 24, 1997
EXHIBIT 10.69
ASSIGNMENT
THIS ASSIGNMENT (the "Assignment") is made as of May 2, 1997, by
and between ALTERNATIVE TECHNOLOGY RESOURCES, INC., a Delaware corporation,
formerly known as 3Net Systems, Inc. ("ATR"), and OMNITECH MIGRATIONS
INTERNATIONAL, formerly known as Centre de Traitment I. T. I. Omnitech,
Inc., a Canadian corporation ("OMI") (each of ATR and OMI may be referred
to herein as a "Party" and both of whom together may sometimes be referred
to herein as the "Parties").
R E C I T A L S
A. WHEREAS, ATR has made a business decision to exit the laboratory
information system ("LIS") products market, and OMI is seeking to enlarge
its LIS market territory by establishing relationships with a base of
customers in the United States; and
B. WHEREAS, ATR desires to transfer its Cortex product and Cortex
software and hardware customer support business in its entirety to OMI, and
OMI has agreed to assume and perform all of the duties and obligations that
ATR currently has under its Cortex software and hardware customer support
service agreements as if OMI had been an original party to such service
agreements; and
C. WHEREAS, ATR and OMI have mutually developed a "Customer Support
Transition Plan", a copy of which is attached hereto as EXHIBIT A and
incorporated herein by this reference in order to clarify and supplement
the terms of this Assignment;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties hereto AGREE AS
FOLLOWS:
SECTION 1. ASSIGNMENT OF SERVICE AGREEMENTS.
1.1 ATR hereby transfers and assigns to OMI all of ATR's right,
title, and interest in and to those "Software License And Support Service
Agreements" and "Hardware Support Service Agreements" listed in the
attached EXHIBIT B which is incorporated herein by this reference (the
"Service Agreements"). By this Assignment, ATR delegates to OMI all of
ATR's duties and obligations of performance under the Service Agreements.
All monies previously paid to ATR under such Service Agreements shall be
retained in full by ATR as part of the consideration provided hereunder.
1.2 With respect to those Cortex customers of ATR who have not
executed a formal Service Agreement with ATR, ATR shall use its best
efforts to transition such customers to OMI as their provider of software
and hardware customer support services.
SECTION 2. DUTIES AND OBLIGATIONS OF OMI AS ASSIGNEE.
2.1 By accepting this Assignment, OMI agrees to assume and perform
all duties and obligations that ATR has under the Service Agreements
(including, without limitation, all costs associated with providing
customer support services), as if OMI had been an original party to the
Service Agreements.
2.2 Pursuant to Section 13 of the "Software License And Support
Service Agreements" and pursuant to Section 14 of the "Hardware Support
Service Agreements", representatives of OMI having access to the
proprietary materials of customers under the Service Agreements may be
required to execute a confidentiality agreement with such customers.
SECTION 3. TRANSFER AND DELIVERY OF CORTEX SOURCE CODE.
In addition to the assignment of its rights under the Service
Agreements, ATR also hereby transfers and assigns to OMI, and shall deliver
to OMI, all of ATR's right, title, and interest in and to all Cortex source
code in ATR's possession, including all existing versions, custom
modifications, instrument interfaces, and HIS interfaces, working and
compiled. ATR shall also deliver all required compilers, support
utilities, and other Cortex-related programs in ATR's possession (OMI shall
be responsible for any license fees and/or other costs associated with
transferring third-party software licenses, if required). This source code
and other related software will be shipped by ATR to OMI on appropriate
electronic storage media, including hard disk drive(s) and/or tape(s). OMI
is responsible for transferring this information to its own storage media
and performing all tasks necessary to make the software operational. ATR
will be available to answer questions, subject to the Hour Bank rules
described below in Section 6, if OMI deems it necessary. After OMI has
transferred this information to its own storage media, OMI will either
return the hard disk drive(s) and/or tape(s) to ATR or reimburse ATR for
these items at cost.
SECTION 4. NOTIFICATION OF CUSTOMERS UNDER SERVICE AGREEMENTS.
A letter shall be drafted by ATR, approved as to form and content by
OMI, and sent by an overnight delivery service to the customers under the
Service Agreements at least one week before the Effective Date (as defined
below in Section 14). The letter will notify each customer of the
assignment of its Service Agreement to OMI, inform the customer of the
Effective Date, provide necessary support procedure details, and provide a
reminder of the Service Agreement termination date. Within 48 hours of
letter distribution, ATR and OMI shall carry out a joint conference call
with each customer to further explain the new arrangement and answer
questions.
SECTION 5. DELIVERY OF REQUIRED INFORMATION TO OMI.
The following information shall be delivered by ATR to OMI:
5.1. Demographics (customer name, contact, phone, fax,
modem, e-mail address).
5.2. Software Environment (Cortex version/number of
licenses/modules, Btrieve version, Novell version/number of
users, compiler versions - where important).
5.3. Hardware Environment (server configuration,
workstations, list of supported equipment).
5.4. Support Environment (current outstanding problems,
support history, other subjective information about the
customer staff/environment that would facilitate the
transition).
5.5. Copies of all Service Agreements.
SECTION 6. ESTABLISHMENT OF HOUR BANK FOR SECOND-LEVEL
TECHNICAL SUPPORT.
ATR will establish a bank of hours (the "Hour Bank") to be used by OMI
for second-level technical support as needed up through and including
September 30, 1997 (the "Start-up Period"). The rules governing the use of
the Hour Bank are as follows:
6.1. The Hour Bank shall have an initial balance of 40
hours.
6.2. All requests for second-level technical support from
ATR applicable to the Hour Bank must be directly initiated
by OMI. Calls by OMI for information/reasons other than
technical support are not counted against the Hour Bank.
6.3. Each call carries a minimum 15 minute charge against
the Hour Bank.
6.4. The first 40 hours of second-level support requested
are free to OMI but must be used on or before the end of the
Start-up Period.
6.5. A statement of Hour Bank usage and remaining balance
will be produced by ATR each month during the Start-up
Period.
6.6. ll support provided by ATR beyond the 40 hour limits of
the Hour Bank is billable to OMI.
6.7. All support provided by ATR after the Start-up Period
is billable to OMI.
6.8. All support provided by ATR directly to a customer
(under circumstances described below in Section 7) is
billable to OMI.
6.9. The applicable ATR billing rate is $80 per hour.
6.10. Amounts billed hereunder shall be due within 30 days
of invoice. Failure by OMI to pay said amounts when due
shall relieve ATR of any further obligation hereunder to
provide second-level technical support.
SECTION 7. ONGOING SUPPORT PROCEDURES.
7.1 OMI shall provide a single toll-free 800 or 888 number for
customer telephone assistance which will be available 24 hours per day and
seven days per week. This line will be monitored at all times by either an
answering service or OMI support service personnel.
7.2 OMI will ensure that each customer call is returned within two
(2) hours of receipt.
7.3 Under normal circumstances, ATR will not respond directly to
calls from customers and will direct any such customers to call the OMI
support number. If OMI has not responded to a customer call within the
required two-hour period and that customer subsequently contacts ATR for
support, ATR may provide service directly to the customer and bill the call
to OMI. In such case, ATR will have first entered a support call to OMI
and will transfer the customer back to OMI as soon as a response is
received.
SECTION 8. REPRESENTATIONS OF ATR AND DISCLAIMER OF WARRANTIES.
8.1 ATR represents and warrants that this Assignment is exclusive and
made solely to OMI. None of the Service Agreements assigned herein have
been assigned to any other party.
8.2 ATR makes no warranty of any kind, express or implied, including
any warranty of merchantability or fitness for a particular purpose, with
respect to any hardware or software transferred hereunder, including, but
not limited to, all existing versions of the Cortex source code, custom
modifications, instrument interfaces, working and compiled HIS interfaces,
compilers, support utilities, and other Cortex-related programs
(collectively, the "LIS Hardware and Software"). The LIS Hardware and
Software is provided to OMI on strictly an "AS IS" basis only. ATR does
not warrant or represent that the operation of the LIS Hardware and
Software will be uninterrupted or error free or that any defects that may
exist in the LIS Hardware and Software are correctable or will be
corrected.
8.3 IN NO EVENT SHALL ATR BE LIABLE TO OMI FOR ANY SPECIAL,
CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES OF ANY KIND, HOWSOEVER
CAUSED, INCLUDING, WITHOUT LIMITATION, LOSS OF PROFIT OR LOSS OF DATA BY
ANY CUSTOMERS.
SECTION 9. INDEMNIFICATION.
OMI agrees to indemnify and hold ATR harmless from and against any
liability for any loss, costs, expenses, settlements, or damages howsoever
caused by reason of any performance or nonperformance of the Service
Agreements, or caused by reason of any injury (whether to body, property,
or personal or business character or reputation) sustained by any person or
to any person or to property by reason of any act, neglect, default, or
omission of OMI or any of its agents, employees, or other representatives
in fulfilling its obligations under the Service Agreements following the
Effective Date. If ATR is sued in any court for damages by reason of any
of the acts or omissions of OMI referred to in this paragraph, OMI shall
defend such action (or cause same to be defended) at its own expense and
shall pay and discharge any judgment that may be rendered in any such
action; if OMI fails or neglects to so defend in said action, ATR may
defend the same and any expenses, including reasonable attorneys' fees and
costs, which ATR may pay or incur in defending said action, and the amount
of any judgment which ATR may be required to pay, shall be promptly
reimbursed by OMI upon demand.
SECTION 10. SUCCESSORS AND ASSIGNS.
Except as otherwise provided herein, the terms and conditions of this
Assignment shall inure to the benefit of and be binding upon the respective
successors and assigns of the Parties.
SECTION 11. AMENDMENTS.
This Assignment may be amended only by a writing signed by the Party
against whom or against whose successors and assigns enforcement of the
change is sought.
SECTION 12. EFFECT OF PARTIAL INVALIDITY.
If any term, provision, or application of this Assignment is held
invalid or unenforceable, the remainder of this Assignment and any
application of the terms and provisions hereof shall not be affected
thereby, but shall remain valid and enforceable.
SECTION 13. GOVERNING LAW; VENUE.
This Assignment shall be governed by and construed in accordance with
the laws of the State of California. Venue of any action to enforce the
terms and conditions of this Assignment, including the arbitration
provisions of this Assignment, shall be in the County of Sacramento.
SECTION 14. EFFECTIVE DATE.
This Assignment is effective as of May 19, 1997 (the "Effective
Date").
SECTION 15. RESOLUTION OF DISPUTES.
In the case of any dispute concerning the terms and conditions of this
Assignment or the performance by either Party of the obligations of this
Assignment, the Parties agree that they shall make reasonable, good faith
efforts to resolve such dispute by informal means. Such efforts shall
include, but shall not be limited to, the following steps in this order:
1) personal meetings between the representatives of the Parties for the
purpose of conducting good faith discussions concerning resolution of the
dispute, and 2) mediation of such dispute using the services of a mutually
agreeable mediator. Such mediation shall be held in Sacramento,
California.
SECTION 16. BINDING ARBITRATION OF DISPUTES.
In case the Parties are unable to resolve any dispute as to or
concerning this Assignment by informal means, the Parties agree to submit
such dispute to final and binding arbitration in accordance with the
provisions of California law pertaining to the arbitration of private
disputes. Such arbitration shall be before a panel of three arbitrators,
one each selected by the Parties and the third, who shall serve as
presiding officer of the tribunal, selected jointly by the other two. The
Parties shall have the same right to discovery as is provided for in civil
actions in the Superior Courts in California and the procedural rules
governing such discovery shall apply to arbitration in accordance with this
Assignment. The provisions of this paragraph may be pled as a defense to
any action commenced concerning the terms and conditions of this Assignment
or the performance of the terms of this Assignment by either Party.
SECTION 17. FURTHER ACTS.
The Parties shall promptly take such further acts and execute such
other documents as shall be necessary to carry out the manifest intent of
this Assignment and the Customer Support Transition Plan.
SECTION 18. COUNTERPARTS.
This Assignment may be executed in two counterparts, each of which
shall be deemed an original, and both of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, ATR and OMI have caused this Agreement to be
executed and delivered by their duly authorized representatives as of the
date first written above.
ALTERNATIVE TECHNOLOGY OMNITECH MIGRATIONS
RESOURCES, INC. INTERNATIONAL, INC.
W. ROBERT KEEN ANDRE ST. JEAN
By W. Robert Keen By Andre St. Jean
Its: Chief Executive Officer Its: President and Chief
Executive Officer
EXHIBIT 10.70
MUTUAL RELEASE AND SETTLEMENT AGREEMENT
This Mutual Release and Settlement Agreement is entered into by and between
ALTERNATIVE TECHNOLOGY RESOURCES, INC., a Delaware corporation, formerly
known as 3Net Systems, Inc. ("ATR"), and Omnitech Migrations International,
Inc., formerly known as CENTRE de TRAITMENT I. T. I. OMNITECH, INC.
("Omnitech") (each of whom may be referred to herein as a "Party" and all
of whom may sometimes be referred to herein as the "Parties").
Whereas ATR and Omnitech have entered into a Distributor and Co-
Development Agreement dated April 1, 1994, as amended on June 1, 1994,
June 15, 1994, January 27, 1995, and March 22, 1995;
Whereas disputes have arisen between ATR and Omnitech regarding
performance under the Distributor and Co-Development Agreement, as amended;
and
Whereas ATR and Omnitech wish to terminate their relationship under
the Distributor and Co-Development Agreement and settle their differences.
Now therefore, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by all Parties, ATR and
Omnitech agree as follows:
1. SETTLEMENT. ATR and Omnitech agree to the settlement of any and all
issues arising from or relating to (i) the Distributor and Co-Development
Agreement dated April 1, 1994, including any successor agreement(s) or
modification(s) thereto, whether oral or written, entitled as modifications
or not, (collectively the "94 Agreement"); and (ii) any and all other
matters arising from or relating to any relationship or agreement(s)
between ATR and Omnitech arising prior to the effective date (as defined in
paragraph 8) of this Mutual Release and Settlement Agreement by mutually
agreeing to cancel and terminate the 94 Agreement except as set forth in
paragraph 5 below, and by releasing each other as hereinbelow agreed from
any and all claims, demands, or liabilities which have arisen or which may
arise from the 94 Agreement or the other issues recited in (i) through (ii)
above. ATR and Omnitech further agree that after the effective date,
Omnitech shall continue to have the right to serve its existing Cortex
clients and any marketing, territorial or ownership rights it had before
the effective date will continue.
2. MUTUAL RELEASE. ATR, on the one hand, and Omnitech, on the other hand,
agree to (a) release and discharge the other from any claims, causes of
action, liabilities, and demands each has or might have with respect to or
arising out of any matter set forth above; (b) never commence, aid,
prosecute or cause to be commenced or prosecuted against the other any
action or proceeding based directly or indirectly upon any such matter; and
(c) defend, indemnify, and hold the other Party harmless against all
claims, demands and causes of actions, including costs, expenses and
attorney's fees, directly or indirectly, arising from any action or other
proceeding brought or prosecuted contrary to this Mutual Release and
Settlement Agreement.
3. WAIVER. Each Party agrees that this is a general release and expressly
waives the application of Section 1542 of the California Civil Code, which
provides as follows:
A general release does not extend to claims that the
creditor does not know or suspect to exist in his favor
at the time of executing the release, which if known
must have materially affected his settlement with the
debtor.
Each Party understands and acknowledges that the significance and
consequence of this waiver of the application of California Civil Code
Section 1542 is that even if a Party should eventually suffer additional
damages arising out of the matters referred to above, the Party will not be
able to make any claim for those damages. Furthermore, each Party
acknowledges that the Party intends these consequences even as to claims
for damages that may exist as the date of execution of this Mutual Release
and Settlement Agreement, but as to which the Party does not have knowledge
of their existence and which, if known, would materially affect the Party's
decision to execute this Mutual Release Agreement, regardless of whether
the Party's lack of knowledge is the result of ignorance, oversight, error,
negligence, or any other cause.
4. REPRESENTATION. Each Party represents and warrants that in executing
this Mutual Release and Settlement Agreement, either (i) the Party has
relied upon legal advice from an attorney licensed to practice in the State
of California, who is the attorney of that Party's choice, or (ii) the
Party has been given the opportunity to and has voluntarily executed this
Mutual Release and Settlement Agreement without legal advice from an
attorney licensed to practice in the State of California. Each Party
further represents and warrants that the terms of this Mutual Release and
Settlement Agreement and its consequences have been completely read and
explained to the Party by the Party's attorney if that Party was
represented, and if the Party is unrepresented, that the Party fully
understands the terms of this Mutual Release and Settlement Agreement and
has specifically chosen not to consult an attorney of its choice for which
the other Party shall have no risk for such decision. Further, the Parties
represent and warrant that they, through the signatories indicated below,
are duly authorized to enter into this Mutual Release and Settlement
Agreement, to make its warranties and representations, to perform its
covenants, to give its releases, and to fulfill its conditions, and that
none of the rights, claims, demands, or obligations being released under
this Mutual Release and Settlement Agreement, have been conveyed, assigned,
or otherwise transferred.
5. INDEMNIFICATION, RESOLUTION OF DISPUTES, ARBITRATION, GOVERNING LAW,
VENUE, ATTORNEY'S FEES, AND REPRESENTATION. Nothing in this Mutual Release
and Settlement Agreement is intended to replace, supersede or amend
Articles 14.04, 14.16, 14.17, 14.18, 14.19, and 14.22 of the Distributor
and Co-Development Agreement dated April 1, 1994, as they apply to the
Parties, individually or collectively. Notwithstanding any provisions of
this Mutual Release and Settlement Agreement, and without limitation, the
Parties shall each continue to have all rights and other obligations which
they have pursuant to the provisions of Articles 14.04, 14.16, 14.17,
14.18, 14.19, and 14.22 of the Distributor and Co-Development Agreement.
6. ACKNOWLEDGMENT. Each Party acknowledges and warrants that the Party's
execution of this Mutual Release and Settlement Agreement is free and
voluntary.
7. INTEGRATION. This Mutual Release and Settlement Agreement shall
constitute the entire agreement between the Parties concerning its subject
matter and supersedes all prior or contemporaneous contracts, agreements,
understandings, negotiations and discussions of the Parties, whether oral
or written, concerning its subject matter.
8. EFFECTIVE DATE. This Mutual Release and Settlement Agreement is
effective when it has been fully executed by ATR and Omnitech.
9. SUCCESSORS AND ASSIGNS. This Mutual Release and Settlement Agreement
shall be binding on and inure to the benefit of the heirs, executor,
administrators, trustees, successors, assigns and transferees of the
respective Parties.
10. COUNTERPARTS. This Mutual Release and Settlement Agreement may be
executed in counterparts, and each of which shall be deemed an original,
but all of which together shall constitute one and same instrument.
Dated: May 6, 1997
ALTERNATIVE TECHNOLOGY RESOURCES, INC.
W. ROBERT KEEN
W. Robert Keen, Chief Executive Officer
Dated: May 6, 1997
OMNITECH MIGRATIONS INTERNATIONAL INC.
ANDRE ST. JEAN
Andre St. Jean, President and
Chief Executive Officer
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-QSB
FOR THE PERIOD ENDED MARCH 31, 1997 FOR ALTERNATIVE TECHNOLOGY RESOURCES, INC.
(FORMERLY KNOWN AS 3NET SYSTEMS, INC.) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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