ALTERNATIVE TECHNOLOGY RESOURCES INC, 10KSB, 1999-09-22

ALTERNATIVE TECHNOLOGY RESOURCES INC
10KSB, 1999-09-22
COMPUTER PROGRAMMING SERVICES

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-KSB
(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, 1999

[ ] 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 small business issuer as specified in its charter)

Delaware 68-0195770
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)

629 J Street, Sacramento, CA 95814
(Address of principal executive offices, including zip code)

(916) 231-0400
(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-B 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-KSB or any amendment to
this Form 10-KSB. [ ]

State issuer's revenue for its most recent fiscal year. $6,593,414

Aggregate market value of the Registrant's common voting stock held by
non-affiliates of the Registrant on August 31, 1999 was $18,831,284 (based on
the final trading price on that date).

Number of shares of Common Stock outstanding at August 31, 1999: 50,061,494

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's definitive Proxy Statement for the Company's Annual
Meeting of Stockholders to be held on November 16, 1999 (which will be filed
within 120 days of the Company's fiscal year end) are incorporated by reference
into Part III.

Exhibit index is located on page 12.

<PAGE>1

PART I

Item 1. Description of Business

General

Alternative Technology Resources, Inc. ("ATR" or the "Company"), a Delaware
corporation, 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.

During fiscal 1997, the Company changed its name to Alternative Technology
Resources, Inc. It has since focused its efforts upon its computer programmer
placement business, whereby it recruits experienced, qualified computer
programmers primarily from the former Soviet Union ("FSU"), obtains necessary
visas, and places them for assignment in the United States. ATR is also
recruiting programmers from South Korea for future placement.

In August 1999, ATR decided to pursue the establishment of an Internet medical
provider network. The Company believes that a market can be developed that
utilizes a business-to-business Internet strategy whereby the nation's 600,000
plus medical providers can directly access purchasers of medical services. ATR
is in the process of investigating the potential market for such a program and
formulating a business model under which it will proceed. The Company has not
yet contracted with any medical provider to join such a network, nor with any
purchasers of medical services to use such a network. Further, no assurance
exists that the Company will be able to successfully develop, finance and
implement this program.

ATR's computer programmer placement business generated new revenues and reduced
operating losses but did not generate sufficient cash flow in fiscal 1999 and
1998 to support operations. However, in the second half of fiscal 1999, there
was a decline in contract programming revenues caused by the non-renewal of
programmer contracts from a high of 109 programmers during the fiscal year 1999
to a low at August 31, 1999 of 43 programmers at customer locations in the
United States.

The Company has incurred operating losses since inception which have resulted in
an accumulated deficit of $35,816,577 at June 30, 1999. In addition, at June 30,
1999 the Company had a working capital deficit and a stockholders' deficit of
$5,587,475 each. Therefore, ATR is pursuing additional funds through private
equity financing or additional debt financing. Although there can be no
assurances that additional financing can be obtained or that if obtained, such
financing will be sufficient to prevent the Company from having to further
materially reduce its level of operations or be forced to seek protection under
federal bankruptcy laws, management of ATR believes that sufficient financing
will be available until operations can be internally funded. Ultimately, ATR
will need to achieve a profitable level of operations to fund growth and to meet
its obligations when they become due.

Services

The Company currently provides contract computer programming services to a
variety of customers. ATR recruits, tests, trains, and hires foreign information
technology professionals and negotiates contracts with customers to provide the
services of these ATR employees for the customer's information technology
projects.

<PAGE>2

ATR works primarily with two overseas companies that specialize in the
recruiting, testing, and training of information technology professionals and
also works with several U.S. placement agencies that assist in the
identification of customer requirements and the placement of ATR programmers to
meet those requirements.

The first overseas company with which ATR deals extensively is PRIZE-ITM, LTD.
("PRIZE"), a Latvian company with whom ATR has an exclusive contract for
candidates throughout the FSU. The key principals of PRIZE are former senior
executives and managers of the Research Division of the Riga Institute for Civil
Aviation Automation and Controls, Riga, Latvia. The Company pays monthly fees to
PRIZE for the services they perform in recruiting and training personnel for
U.S. assignments.

The second overseas company with which ATR deals extensively is PCII-Korea
("PCII"), a Korean company with whom ATR has a non-exclusive contract. In
September 1998, ATR began to recruit programmers from South Korea. Because of
business and economic conditions throughout Asia, many qualified computer
programmers in South Korea are under- or unemployed. PCII represents many such
programmers.

The process works as follows:

o The Company identifies information technology personnel requirements with
its U.S. customers, and provides PRIZE and PCII with technical job profiles
that describe the specific applications software, computer hardware,
operating systems and years experience required to qualify for U.S.
customer-identified positions. PRIZE and PCII use these profiles to
identify and select appropriate candidates. Both PRIZE and PCII have
developed databases of resumes of individuals who have technical and
language proficiency skills necessary to work in the United States, and who
have indicated a desire to work overseas. These databases are integrated
with the specific job criteria, and any personnel matches are further
interviewed to ascertain if the individual is technically qualified for the
specific job and has a desire to participate in the Company's U.S.
placement program. Both PRIZE and PCII may also advertise on the Internet,
in local newspapers, or in industry periodicals for information technology
professionals with specialized technical skills and work experience. These
advertisements are placed with a specific U.S. customer in mind that has
identified a need within its organization that cannot be filled through its
normal domestic U.S. personnel selection channels. In addition, PRIZE has
recruiting representatives in other cities in the FSU who participate in
job fairs and who recruit potential candidates through educational
institutions, technical companies or on-line services in their local area.

o PRIZE and PCII provide several types of training depending upon the U.S.
based customer needs and the needs of the people who are being recruited to
fill positions at the customer site. Computer based or classroom training
is provided in specific programming languages, computer operating systems,
and business subjects related to customer needs. Additional training is
provided in English, U.S. business practice, and cultural issues.

<PAGE>3

o The typical contract relationship with a foreign contractor starts with a
representation agreement which allows the Company to represent the
candidate for a fixed period of time in the U.S. information technology
market. Further, this contract authorizes ATR to process an H1-B work visa
with the U.S. Immigration and Naturalization Service (the "INS") when an
appropriate job has been found for the candidate. After the H1-B visa is
approved, the Company and the candidate sign a three-year, extendable
contract that supports the employment requirements of the H1-B visa and
identifies all the services to be performed by ATR and the contractor. All
terms of employment, compensation, and benefits are between the Company as
employer and the individual computer professional as an employee of ATR.

o The Company provides all visa application support, including application
fees, and also provides international and domestic transportation to the
customer's work-site. When necessary, ATR also provides housing and other
support services, e.g. utilities and telephone, until the contractor is
capable of establishing credit in order to provide these services for
himself or herself.

At August 31, 1999, the Company had 43 foreign employees assigned to U.S.-based
contracts at 19 different customer business locations in 12 states.

Customers

Customers have shown a trend toward utilizing individual programmers and small
(2 to 4 people) programming teams rather than large programming teams. In the
past, the Company focused on customers using mainframe computers because there
has been an ever-decreasing domestic labor pool of programmers who were
technically qualified and who desired to perform software maintenance tasks on
the older mainframe computer systems.

One of the main issues generating demand for mainframe computer programmers is
known as the "Y2k" problem. Also known as the "millennium bug," this problem
arises from the widespread use of only two digits to represent the year in
computer programs performing date computations and decision-making functions. As
the year 2000 approaches, most large companies will complete their work on the
Y2k problem and "freeze" their software development until the first few months
of the year 2000. As a result, ATR ha more recently focused on customers using
client-server computer systems.

In fiscal 1999 two customers provided approximately 83% of the Company's total
revenues, and in fiscal 1998 two customers constituted approximately 85% of
total revenues. It should be noted that the two customers cited are third party
placement agencies that work with ATR to place programmers at several of their
customer locations.

Sales

ATR's executive officers and certain technical staff members currently
participate in selling efforts by directly contacting potential contract
programming customers. The Company also relies upon and benefits from the
efforts of third-party business partners in the sale and placement of foreign
contractors in new customer contracts and the management of such accounts after
the sale.

<PAGE>4

Competition

The information technology temporary services industry is highly competitive
with limited barriers to entry. Within local markets, smaller firms actively
compete with ATR for business, and in most of these markets no single company
has a dominant share of the market. The Company also competes in national,
regional, and local markets with larger full-service and specialized competitors
which have significantly greater marketing, financial, and other resources than
ATR.

The Company's business is limited primarily by its ability to recruit, train,
and present qualified candidates to the customer and to obtain acceptance by
potential customers of using foreign contractors. Qualification attributes for
placement in U.S. customer contracts include the particular technical skills and
experience corresponding to the customer's requirements and sufficient English
language skills to communicate effectively in an American business environment.

Government Regulation

The Company's operations are subject to various federal and state laws. ATR
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.

In connection with its program using foreign employees, the Company must comply
with the laws and regulations of the INS. ATR has engaged the services of a
business immigration lawyer to assist in the filing of all appropriate documents
necessary for the Company to invite foreign workers to the United States for
contract programming assignments. While ATR and its immigration lawyer are very
familiar with the current rules and regulations, there can be no assurance that
the immigration laws of the United States will not be changed, resulting in a
potentially negative effect on the Company's ability to engage qualified foreign
employees.

At present there is a 115,000 person nationwide limitation on the number of H1-B
visas which can be granted in any twelve-month period ending on September 30.
This limitation has been reached in the two most recent periods; and during the
twelve-month period ending September 30, 1999, placements were delayed by the
lack of available H1-B visas. Future visa limitations could adversely impact the
Company's operations.

In September and October 1998, ATR submitted over 100 petitions for H1-B visas
to the INS. In December 1998, the Company received a request from the INS for
more information including: the size of ATR's offices, payroll information,
corporate tax information, and information about the Company's officers and
directors. This information was provided to the INS in late December 1998. In
April 1999, approximately 50 of the 100 visa petitions previously submitted were
denied based on what ATR and its attorneys believe is a misunderstanding by the
INS of the facts submitted in December 1998. Subsequently, additional
information has been provided to the INS by the Company; however, no further
decisions have been made by the INS.

ATR is aggressively working with its immigration attorneys to bring to the
attention of the INS what it believes to be errors in the INS' analysis of the
Company and an inadequate understanding of the Company's business practices. As
this situation continues, the Company is not precluded from filing additional

<PAGE>5

H1-B visa petitions. It is ATR's intention to continue to file H1-B visa
petitions as it identifies programmer placement opportunities; however, in the
event the Company is unable to obtain additional H1-B visas, the Company's
operations and financial position could be adversely affected in fiscal year
2000.

Year 2000 Issues

Management has made an assessment of its computer hardware and software programs
and has determined that it has no Year 2000 impairment in its computer systems
developed in-house and is relying on vendor declarations that their systems and
programs have no impairment related to the Year 2000 issue. Therefore,
management does not currently anticipate that the Company will incur significant
operating expenses or be required to invest heavily in computer systems
improvements to be Year 2000 compliant.

Human Resources

At August 31, 1999, the Company had 66 employees, consisting of 10 employees
located at the Company's headquarters in Sacramento, 7 employees in the FSU on a
leave of absence, 6 employees in the United States pending a customer
assignment, and 43 employees located at customer locations. None of ATR's
employees is represented by a labor union. Management considers its employee
relations to be good.

Insurance

The annual coverage limits for the Company's general premises liability and
workers' compensation insurance policies are $2,000,000 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.

Item 2. Description of Property

ATR's headquarters are located in Sacramento, California. The Company occupies
approximately 5,200 square feet of office space which it leases from Mr. James
W. Cameron, Jr. ("Cameron"), the Company's majority shareholder, for a monthly
rent of $7,613. The lease expires and is expected to be renewed in December
1999.

Item 3. Legal Proceedings

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, 1999 to a vote of
security holders.

<PAGE>6

PART II

Item 5. Market for Common Equity and Related Stockholder Matters

Price Range of Common Stock

ATR's common stock is traded 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.

Set forth below are the high ask and low bids for the common stock of the
Company for each of the last eight quarters. The quotations are derived either
from the IDD Information Services, Tradeline Database or the National
Association of Securities Dealers, Inc. and reflect inter-dealer prices, without
retail mark-up, mark-down or commissions and may not necessarily represent
actual transactions in the common stock. There is no public market for the
Company's Preferred Stock.

<TABLE>
<S> <C> <C>
Period High Low
------ ----- ------
Quarter ended September 30, 1997 $ 1.31 $ 0.91
Quarter ended December 31, 1997 $ 1.19 $ 0.45
Quarter ended March 31, 1998 $ 1.06 $ 0.38
Quarter ended June 30, 1998 $ 1.22 $ 0.75
Quarter ended September 30, 1998 $ 1.03 $ 0.44
Quarter ended December 31, 1998 $ 0.50 $ 0.28
Quarter ended March 31, 1999 $ 0.75 $ 0.28
Quarter ended June 30, 1999 $ 0.75 $ 0.38
</TABLE>

ATR had approximately 182 common stockholders of record and 3 preferred
stockholders of record as of August 31, 1999. The last reported sales price for
the Company's common stock was $1.78 on August 31, 1999.
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 carries a cumulative dividend of $0.60 per share
per year which has been accrued beginning July 1, 1994 and is payable quarterly
to the extent permitted by law.

ATR's future dividend policy will be determined by its Board of Directors on the
basis of various factors, including the Company's results of operations,
financial condition, capital requirements and other relevant factors.

Item 6. Management's Discussion and Analysis

The following discussion provides information to facilitate the understanding
and assessment of significant changes in trends related to the financial
condition of the Company and its results of operations. It should be read in
conjunction with the audited financial statements and footnotes appearing
elsewhere in this report.

<PAGE>7

Results of Operation

Contract Programming

Contract Programming Revenue. Contract programming revenue results from sales
of programmer services. Revenues increased $1,090,000 or 21% in fiscal 1999
compared to fiscal 1998. This increase was due to a 12% increase in the number
of programmers in fiscal 1999 compared to fiscal 1998 and due to billing rate
increases during fiscal 1999.

However, during the last half of fiscal 1999, two events impacted ATR's results
of operations: customers moving toward utilizing individual programmers or small
(2 to 4 people) programming teams rather than large programming teams, and
several customers choosing to exercise a contract provision which allowed them
to convert ATR's programmers to their employees. As a result, when contracts
with several customers approached their termination date, they were either not
renewed, renewed for a fewer number o programmers, or programmers converted to
customer employees. Therefore, in the last half of fiscal 1999, the monthly
average number of programmers at customer sites dropped to 70 from the 93
monthly average in the first half of fiscal 1999 and 88 in the last half of
fiscal 1998; and the number of programmers pending a customer assignment
increased to a monthly average of 13 in the second half of fiscal 1999 from the
3 monthly average in the first half of fiscal 1999 and the last half of fiscal
1998. Concurrently, the gross margin (excluding contract termination fees) for
the second half of fiscal 1999 was only 7.7%, compared to 15.9% in the first
half of fiscal 1999, and 12.3% for the full fiscal year 1999 compared to 10.1%
for fiscal 1998.

Contract Termination Fees. Contract termination fees are amounts received from
customers when they exercise the contract provision which allows them to convert
ATR's programmer to their employee. In addition, these fees can also be received
from programmers when they exercise their contract provision to terminate their
relationship with the Company prior to the termination date of their contract.
These fee amounts are stipulated in customer and programmer contracts, are based
on the length of time remaining under the contract, and are recognized as
revenue when such contract provisions are invoked. Although contract termination
fees are common in the industry, the number and frequency of exercises of the
"buy-out" provisions is unpredictable.

Programmer Costs. Programmer costs are the salary and other wage and benefit
costs of ATR's programmer employees. These costs increased $653,000, or 17% in
fiscal 1999 compared to fiscal 1998. This increase is due to the 12% increase in
the number of programmers and to increasing salaries for more experienced
programmers.

Start-up and Other Costs. Start-up and other costs are the costs of recruiting,
training, and travel for programmer employees coming to the United States 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.

Included in this category of costs is employee compensation paid by ATR whenever
programmer employees are hired and enter the United States or are relocated once
in the United States but before these programmers begin working at a customer's
work site. There are times when under immigration law, ATR, as employer, must
pay a programmer employee at least 95% of prevailing wages for his or her
specialty even when the programmer is not placed.

<PAGE>8

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 because of its growth. The effect 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 programmers
begin to generate revenue in subsequent periods.

Start-up and other costs increased $190,000 or 22% in fiscal 1999 compared to
fiscal 1998. This increase is due to an increase in the number of programmers in
the United States who were not working at customer sites. In fiscal 1999 there
was an average of 8 programmers per month temporarily unassigned compared to
approximately 3 in fiscal 1998.

Contract Programming Gross Profit. The gross profit percentage was 16% for
fiscal 1999 compared to 10% for fiscal 1998. Gross profit margin increased due
to the $253,000 in contract termination fees received in fiscal 1999. The
remaining difference is primarily due to billing rate increases exceeding
programmer salary increases.

Selling, General and Administrative Expenses

Selling, General and Administrative Expenses ("SG&A"). SG&A expense decreased
$113,000 or 8% in fiscal 1999 compared to fiscal 1998 primarily due to a
decrease in non-cash employee compensation related to stock grants to Mr. W.
Robert Keen (see "Liquidity and Capital Resources").

Other Income (Expense)

Interest Expense. Interest expense increased $86,000 in fiscal 1999 compared to
fiscal 1998 due to a net increase in notes payable and other debt over the last
two years of $1,500,000.

Income Taxes

The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109. As of June 30, 1999, the Company had a net
operating loss carryforward for federal and state income tax purposes of $25
million and $5 million, respectively. The federal net operating loss
carryforward expires in the years 2006 through 2018 and the state net operating
loss carryforward expires in 1999 through 2004. In connection with the Company's
initial public offering, a change of ownership (as defined i 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 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 $4.1 million of net operating loss carryovers which
will not be utilized prior to the expiration of the carryover period.

Net Loss

Net loss decreased to $716,747 in fiscal 1999 from $1,243,944 in fiscal 1998 due
to a greater gross margin and lower SG&A, offset by higher interest expense.

<PAGE>9

Basic and Diluted Net Loss Per Share

The Company's net loss per share has been computed by dividing net loss after
deducting Preferred Stock dividends ($122,500 in each of the fiscal years 1999
and 1998) by the weighted average number of shares of common stock outstanding
during the periods presented. Common stock issuable upon conversion of Preferred
Stock, common stock options and common stock warrants have been excluded from
the diluted net loss per share calculations as their inclusion would be
anti-dilutive. Net loss per share decreased as a result of a smaller loss and
only a slightly greater weighted average number of shares in fiscal 1999
compared to fiscal 1998.

Liquidity and Capital Resources

The Company has used a combination of equity and debt financing and internal
cash flow to fund operations and finance accounts receivable but has incurred
operating losses since its inception.

As a result, the report of independent auditors on the Company's June 30, 1999
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 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 2000. However, considering, among
other things, the Company's historical operating losses and its short history in
the contract computer programming industry, there can be no assurance that this
plan will be successfully implemented. The Company does not expect to generate
positive cash flow from operations during fiscal 2000 or to be able to pay off
current obligations, fund growth of its computer programmer business, and pursue
the establishment of an Internet medical provider network; therefore, the
Company contemplates needing to raise additional financing during fiscal 2000,
the receipt of which cannot be assured.

The Company has received short-term, unsecured financing to fund its operations
in the form of notes payable of $3,258,090 from two stockholders, Mr. Cameron
and Dr. Max Negri ("Negri"). These notes bear interest at 10.25%. In December
1998, Messrs. Cameron and Negri extended the maturity date on all notes payable
originally maturing December 31, 1998, to the earlier of December 31, 1999, or
such time as the Company obtains equity financing, in return for an extension
fee of 2% of the amounts extended. In addition, interest accrued on these notes
as of December 31, 1998 was included in the extended principal amounts.

<PAGE>10

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.
Since the Company had not made interest payments on the Straight Note, accrued
interest of $208,479 was included in accounts payable to stockholders a of June
30, 1999.

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 th steady decline in the quoted value of
the Company's common stock over the last several months (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.

Subsequent to August 19, 1999, Mr. Cameron elected to replace his remaining
interest in the Straight Note, including accrued interest, with the Convertible
Note and then simultaneously converted the Convertible Note into 19,762,786
shares of ATR's common stock. Other Straight Note holders also replaced their
Straight Notes, including accrued interest, with Convertible Notes and converted
such Convertible Notes into an aggregate of 4,136,764 shares of the Company's
common stock. As of August 31, 1999, th remaining outstanding balance of the
Straight Notes was $169,913, including accrued interest.

As a result of the conversion of the Convertible Notes, a total of 50,061,494
shares of the Company's common stock was outstanding at August 27, 1999, and Mr.
Cameron beneficially owned 79% of the outstanding shares.

The Company must obtain additional funds during fiscal 2000 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
agreements with Messrs. Cameron or Negri, management believes, based on
discussions with these two individuals, that either one or both of them will
continue to fund operations and extend the maturity dates of the various notes
payable until at least June 30, 2000, or until such time as the Company can
repay the notes. However, there can be no assurance that events will not arise
which may affect these stockholders' ability to finance the Company or that the
Company will not 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 particular, future operating cash flows may be affected by an existing
uncertainty with regard to the Company's filings of petitions with the INS for
H1-B visas. See Part I, Item 1 "Description of Business -- Government
Regulation."

<PAGE>11

On December 31, 1996, the Board of Directors named Mr. Keen as Chief Executive
Officer of the Company. In exchange for his services, Mr. Keen initially
received 225,000 shares of common stock with a fair market value on the date of
issuance of $168,750, and on November 18, 1997 Mr. Keen received 275,000 shares
of common stock with a fair market value on the date of issuance of $154,688.
Mr. Keen retired as Chief Executive Officer on January 15, 1999 but has
continued as a non-employee board member and is a consultant to the Company on a
regular basis. As a provision of his consulting agreement, Mr. Keen agreed to
extend the trading restrictions on these shares until March 2000.

On August 26, 1999, Mr. Cameron joined the Board of Directors and assumed the
position of Chief Executive Officer. Mr. Cameron intends for the Company to
pursue the establishment of an Internet medical provider network. See Part I,
Item 1 "Description of Business -- General."

Effects of Inflation

The Company's most significant cost is personnel. To the extent personnel costs
increase, management of the Company believes that customer billing rates can be
increased to cover such personnel increases.

Item 7. Financial Statements

The financial statements of the Company, including the notes thereto and report
of the independent auditors thereon, are attached hereby as exhibits following
page number 17.

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

Not applicable.

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act.

The information required by this item is incorporated by reference to the
Company's definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on November 16, 1999 under the Captions "Election of Directors",
"Further Information concerning the Board of Directors" and "Section 16(a)
Information." The Proxy Statement will be filed within 120 days of the Company's
fiscal year end.

Item 10. Executive Compensation

The information required by this item is incorporated by reference to the
Company's definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on November 16, 1999 under the Caption "Executive Compensation." The
Proxy Statement will be filed within 120 days of the Company's fiscal year end.

<PAGE>12

Item 11. Security Ownership of Certain Beneficial Owners and Management

The information required by this item is incorporated by reference to the
Company's definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on November 16, 1999 under the Caption "Principal Stockholders." The
Proxy Statement will be filed within 120 days of the Company's fiscal year end.

Item 12. Certain Relationships and Related Transactions

The information required by this item is incorporated by reference to the
Company's definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on November 16, 1999 under the Caption "Certain Relationships and
Related Transactions." The Proxy Statement will be filed within 120 days of the
Company's fiscal year end.

Item 13. Exhibits 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).
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).

3.2 Amended and Restated Certificate of Incorporation of the
Registrant.

3.3 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).
Form of Reimbursement Agreement, dated February 28, 1994,
between the Registrant and James W. Cameron, Jr.
(incorporated by reference to Exhibit 10.29 to Form 10-KSB
for the fiscal year ended June 30, 1994).

10.3 Form of Stock Purchase Warrant issued in connection
with the Confidential Private Placement Memorandum of the
Registrant, dated February 13, 1992 (Class A Warrant)
(incorporated by reference to Exhibit 10.31 to Form 10-KSB
for the fiscal year ended June 30, 1994).

10.4 Form of Stock Purchase Warrant issued April 22, 1993
(Class B Warrant) (incorporated by reference to Exhibit
10.32 to Form 10-KSB for the fiscal year ended June 30,
1994).

10.5+ Stock Purchase Warrant issued to William T. Manak on
April 6, 1994 for the purchase of 57,286 shares [restated to
reflect one-for-ten consolidation of the Company's
outstanding common stock effective December 2, 996] of the
Registrant's common stock (incorporated by reference to
Exhibit 10.34 to Form 10-KSB for the fiscal year ended June
30, 1994).

<PAGE>13

Exhibit
Number Description of Document
------- -----------------------

10.6 Stock Purchase Warrant issued to Dennis L. Montgomery
on April 6, 1994 for the purchase of 12,500 shares [restated
to reflect one-for-ten consolidation of the Company's
outstanding common stock effective December 2, 1996] of the
Registrant's common stock (incorporated by reference to
Exhibit 10.35 to Form 10-KSB for the fiscal year ended June
30, 1994).

10.7 Stock Purchase Warrant issued to Dennis L. Montgomery
on April 6, 1994 for the purchase of 58,000 shares [restated
to reflect one-for-ten consolidation of the Company's
outstanding common stock effective December 2, 1996] of the
Registrant's common stock (incorporated by reference to
Exhibit 10.36 to Form 10-KSB for the fiscal year ended June
30, 1994).

10.8 Form of Amended Stock Purchase Warrant issued to
certain Class A, Class B, Class C and Class D Warrant
Holders (incorporated by reference to Exhibit 10.37 to Form
10-KSB for the fiscal year ended June 30, 1994).

10.9 Form of Stock Purchase Warrant, dated June 30, 1994,
issued to stockholders of record on September 7, 1993
(incorporated by reference to Exhibit 10.38 to Form 10-KSB
for the fiscal year ended June 30, 1994).

10.10 Form of Stock Purchase Warrant to Jeff Buckner as
designee for James W. Cameron, Jr. (incorporated by
reference to Exhibit 10.40 to Form 10-KSB for the fiscal
year ended June 30, 1994).

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).

10.13 Contractor Agreement, dated June 3, 1996, between the
Registrant and Technical Directions, Inc. [formerly known as
The Systems Group, Inc.] (incorporated by reference to
Exhibit 10.42 to Form 10-KSB for the year ended June 30,
1996).

10.14 Lease, dated November 6, 1995, between the Registrant
and James W. Cameron, Jr. (incorporated by reference to
Exhibit 10.46 to Form 10-KSB for the year ended June 30,
1996).

10.15 Agreement with Technical Directions, Inc.
(incorporated by reference to Exhibit 10.47 to Form 10-KSB
for the year ended June 30, 1996).

10.16 First Addendum to Lease between James W. Cameron, Jr.,
and the Registrant, dated October 1, 1996 (incorporated by
reference to Exhibit 10.52 to Form SB-2 filed December 18,
1996).

<PAGE>14

Exhibit
Number Description of Document
-------- -----------------------

10.17 Agreement between Liberty Mutual Insurance Company and
the Registrant, dated October 9, 1996 (incorporated by
reference to Exhibit 10.53 to Form SB-2 filed December 18,
1996).

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).

10.26 Agreement between the Registrant and Adept, Inc. dated
February 1997 (incorporated by reference to Exhibit 10.68 to
Form 10-QSB for the quarter ended March 31, 1997).

10.27 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
(incorporated by reference to Exhibit 10.69 to Form 10-QSB
for the quarter ended March 31, 1997).

10.28 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 (incorporated by reference to
Exhibit 10.70 to Form 10-QSB for the quarter ended March 31,
1997).

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).

<PAGE>15

Exhibit
Number Description of Document
------- ------------------------

10.30 Second Addendum to Lease between James W. Cameron,
Jr., and the Registrant, dated June 3, 1997 (incorporated by
reference to Exhibit 10.30 to Form 10-KSB for the year ended
June 30, 1997).

10.31 Joint Services Agreement between the Registrant and
Prize-ITM, Ltd., dated August 1, 1997 (incorporated by
reference to Exhibit 10.31 to Form 10-KSB for the year ended
June 30, 1997).

10.32 Third Addendum to Lease between James W. Cameron, Jr.,
and the Registrant, dated January 5, 1998 (incorporated by
reference to Exhibit 10.32 to Form 10-QSB for the quarter
ended December 31, 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).

23.1 Consent of Ernst & Young LLP, Independent Auditors

+ Indicates a management contract or compensatory plan or arrangement as
required by Item 13(a).

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.

<PAGE>16

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 21, 1999 ALTERNATIVE TECHNOLOGY RESOURCES, INC.

By /S/ JAMES W. CAMERON, JR.
-----------------------
James W. Cameron, Jr.
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. Chief Executive Officer September 21, 1999
---------------------- and Director
James W. Cameron, Jr. (Principal Executive
Officer)

/S/ W. ROBERT KEEN Director September 21, 1999
------------------------
W. Robert Keen

/S/ EDWARD L. LAMMERDING Chairman of the Board, September 21, 1999
----------------------- Chief Financial Officer,
Edward L. Lammerding and Director
(Principal Financial
Officer)

/S/ THOMAS W. O'NEIL, JR. Director September 21, 1999
-----------------------
Thomas W. O'Neil, Jr.

<PAGE>17

INDEX TO FINANCIAL STATEMENTS

Alternative Technology Resources, Inc.

<TABLE>
<S> <C>
Page
----

Report of Ernst & Young LLP, Independent Auditors...................................F-1
Balance Sheet at June 30, 1999......................................................F-2
Statements of Operations for the Years Ended June 30, 1999 and 1998.................F-3
Statements of Stockholders' Deficit for the Years Ended June 30, 1999 and 1998......F-4
Statements of Cash Flows for the Years Ended June 30, 1999 and 1998.................F-5
Notes to Financial Statements.......................................................F-6

</TABLE>

<PAGE>F-1

Report of Ernst & Young LLP, Independent Auditors

The Board of Directors and Stockholders
Alternative Technology Resources, Inc.

We have audited the accompanying balance sheet of Alternative Technology
Resources, Inc. as of June 30, 1999, and the related statements of operations,
stockholders' deficit, and cash flows for the years ended June 30, 1999 and
1998. 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 generally accepted auditing
standards. 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, 1999, and the results of its operations and its cash
flows for the years ended June 30, 1999 and 1998 in conformity with generally
accepted accounting principles.

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 a working capital deficit and stockholders' deficit. 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 includ 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 outcome of
this uncertainty.

ERNST & YOUNG LLP

Sacramento, California August 17, 1999, except for Note 8, as to which the date
is August 31, 1999

<PAGE>F-2

Alternative Technology Resources, Inc.

Balance Sheet
June 30, 1999

Assets
------

Current assets:
Cash $ 32,642
Accounts receivable, net of allowance for doubtful accounts of
$5,516 472,136
Accounts and notes receivable from employees and officers 88,956
Other current assets 5,706
-----------
Total current assets 599,440
-----------

Property and equipment:
Furniture and fixtures 148,445
Accumulated depreciation and amortization (148,445)
-----------
Property and equipment, net -
-----------
$ 599,440
===========

Liabilities and Stockholders' Deficit

Current liabilities:
Notes payable to stockholders $ 4,258,090
Notes payable to directors 41,609
Accounts payable to stockholders 761,541
Accounts payable 84,294
Accrued payroll and related expenses 304,287
Accrued preferred stock dividends 612,501
Other current liabilities 124,593
------------
Total current liabilities 6,186,915

Commitments and contingencies

Stockholders' deficit:
Preferred stock, $6.00 par value -- 1,200,000
shares authorized, 204,167 shares designated
Series D issued and outstanding; liquidation
preference value of $1,837,503 1,225,002

Common stock, $0.01 par value - 100,000,000 shares
authorized, 26,169,718 shares
issued and outstanding 261,697
Additional paid-in capital 28,742,403
Accumulated deficit (35,816,577)
-----------
Total stockholders' deficit (5,587,475)
-----------
$ 599,440
============
See accompanying notes.

<PAGE>F-3

Alternative Technology Resources, Inc.

Statements of Operations

Year ended June 30,

1999 1998
------------- ---------------

Contract Programming:
Contract programming revenue $ 6,340,235 $ 5,250,002
Contract termination fees 253,179 -
Programmer costs (4,513,673) (3,860,641)
Start-up and other costs (1,048,848) (858,982)
Contract programming gross profit 1,030,893 530,379

Selling, general and administrative 1,223,539 1,336,342
------------- ---------------

Loss from operations (192,646) (805,963)

Other income (expense):
Interest expense to stockholders and directors (524,101) (437,981)
------------- ---------------

Net loss $ (716,747) $ (1,243,944)

Preferred stock dividends in arrears (122,500) (122,500)
------------- ---------------

Net loss applicable to common stockholders $ (839,247) $ (1,366,444)

Basic and diluted net loss per share $ (0.03) $ (0.05)

Shares used in per share calculations 26,127,730 25,964,142
============= ===============

</TABLE>

See accompanying notes.

<PAGE>F-4

Alternative Technology Resources, Inc.
Statements of Stockholders' Deficit

Years ended June 30, 1999 and 1998
Total
Additional Stock-
Preferred Stock Common Stock Unearned Paid-In Accumulated holders'
Shares Amount Shares Amount Compensation Capital Deficit Deficit
------------------------ ----------------------- ------------- ------------ ------------- ------------

Balance, June 30, 1997 204,167 $ 1,225,002 25,783,926 $ 257,839 $ (84,375) $ 28,768,907 $(33,855,886) $(3,688,513)

Issuance of common stock
in settlement of accounts
payable - - 5,712 57 - 5,265 - 5,322

Issuance of common stock
for future compensation - - 275,000 2,750 (154,688) 151,938 - -

Amortization of unearned
compensation - - - - 161,720 - - 161,720
Options exercised - - 55,861 559 - 43,082 - 43,641
Preferred stock dividends - - - - - (122,500) - (122,500)
Net loss - - - - - - (1,243,944) (1,243,944)
-------- ------------- ---------- --------- --------- ------------ ------------ -----------
Balance, June 30, 1998 204,167 1,225,002 26,120,499 261,205 (77,343) 28,846,692 (35,099,830) (4,844,274)

Issuance of common stock
in settlement of
accounts payable - - 36,719 367 - 18,211 - 18,578
Amortization of unearned
compensation - - - - 77,343 - - 77,343
Warrants exercised - - 12,500 125 - - - 125
Preferred stock dividends - - - - - (122,500) - (122,500)
Net loss - - - - - - (716,747) (716,747)

-------- ------------- ----------- --------- --------- ------------ ------------ -----------
Balance, June 30, 1999 204,167 1,225,00 $26,169,718 $261,697 $ - $ 28,742,403 $(35,816,577)$(5,587,475)
======== ============= =========== ========= ========= ============= ============= ===========

</TABLE>

See accompanying notes.

<PAGE>F-5

Alternative Technology Resources, Inc.

Statements of Cash Flows
Increase (decrease) in Cash

Year ended June 30,
1999 1998
------- -------

Cash flows from operating activities:
Net loss $ (716,747) $(1,243,944)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization - 8,525
Non-cash employee compensation 77,343 161,720
Changes in operating assets and liabilities:
Accounts receivable 167,221 (420,099)
Other current assets 13,638 (99,746)
Accounts payable to stockholders 199,296 286,016
Accounts payable (27,302) (38,545)
Accrued payroll and related expenses (42,215) 70,755
Other current liabilities 16,372 25,884
-------------- ------------
Net cash used in operating activities (312,394) (1,249,434)
-------------- ------------

Cash flows from investing activities:
Disposal of property and equipment - 2,063
-------------- ------------
Net cash provided by investing activities - 2,063
-------------- ------------

Cash flows from financing activities:
Proceeds from exercise of warrants and options $ 125 $ 43,641
Proceeds from notes payable to stockholders 1,266,190 1,494,303
Payments on notes payable to stockholders (1,014,665) (275,000)
Proceeds from notes payable to directors 72,690 37,919
Payments on notes payable to directors (69,000) -
Payments on other notes payable - (23,539)
-------------- ------------
Net cash provided by financing activities 255,340 1,277,324
-------------- ------------

Net (decrease) increase in cash (57,054) 29,953
Cash at beginning of year 89,696 59,743
-------------- ------------
Cash at end of year $ 32,642 $ 89,696
============== ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 89,699 $ 73,448

See accompanying notes.

</TABLE>

<PAGE>F-6

Alternative Technology Resources, Inc.
Notes to Financial Statements (continued)

June 30, 1999 and 1998

1. Summary of Significant Accounting Policies

Description of Business

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 the LIS
software market entirely.

During fiscal 1997, the Company changed its name to Alternative Technology
Resources, Inc. ("ATR"). It has since focused its efforts entirely upon its
computer programmer placement business, 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. ATR is
also recruiting programmers from South Korea for future placement.

Basis of Presentation

The report of independent auditors on the Company's June 30, 1999 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 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 2000. However, considering, among other
things, the Company's historical operating losses and its short history in the
contract computer programming industry (Note 7), there can be no assurance that
this plan will be successfully implemented. The Company does not expect to
generate positive cash flow from operations during fiscal 2000 or be able to pay
off current obligations, fund growth of its computer programmer business, and
pursue the establishment of an Internet medical provider network; therefore, the
Company contemplates needing to raise additional financing during fiscal 2000,
the receipt of which cannot be assured.

<PAGE>F-7

Alternative Technology Resources, Inc.
Notes to Financial Statements (continued)

June 30, 1999 and 1998

1. Summary of Significant Accounting Policies (continued)

Property and Equipment

Property and equipment are recorded at cost and were fully depreciated at June
30, 1998. No property or equipment has been acquired since then.

Revenue Recognition

Contract programming revenue represents work performed for customers, primarily
on a time and materials basis, and is recognized when the related services are
rendered.

Contract termination fees are amounts received from customers when they exercise
the contract provision which allows them to convert ATR's programmer to their
employee. In addition, these fees can also be received from programmers when
they exercise their contract provision to terminate their relationship with the
Company prior to the termination date of their contract. These fee amounts are
stipulated in customer and programmer contracts, are based on the length of time
remaining under the contract, an are recognized as revenue when such contract
provisions are invoked.

Income Taxes

The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Under SFAS
No. 109, the liability method is used to account for income taxes. Deferred tax
assets and liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.

Stock-Based Compensation

As permitted under the provisions of Statement of Financial Accounting Standards
No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Company
has elected to account for stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25"). Under the intrinsic value method,
compensation cost is the excess, if any, of the quoted market price or fair
value of the stock at the grant date or other measurement date over the amount
an employee must pay to acquire the stock. Disclosures required under SFAS No.
123 are included in Note 6 to the financial statements.

<PAGE>F-8

Alternative Technology Resources, Inc.
Notes to Financial Statements (continued)

June 30, 1999 and 1998

1. Summary of Significant Accounting Policies (continued)

Concentration of Credit Risk

The Company's accounts receivable are primarily with companies in the contract
placement and consulting industry. The Company performs periodic credit
evaluations of its customers and believes that adequate provision for
uncollectable accounts receivable has been made in the accompanying financial
statements. The Company maintains substantially all of its cash at one financial
institution.

Net Loss Per Share

All loss per share amounts for all periods have been presented in accordance
with Statement of Financial Accounting Standards Board No. 128, "Earnings per
Share". As the Company has reported net losses in all periods presented, basic
and diluted loss per share have been calculated on the basis of net loss
applicable to common stockholders divided by the weighted average number of
common stock shares outstanding without giving effect to outstanding options,
warrants, and convertible securities whose effects are anti-dilutive. As of June
30, 1999 and 1998, there were stock options, stock warrants, convertible
preferred stock and a convertible note payable (Notes 3 and 6) which could
potentially dilute basic earnings per share in the future but were not included
in the computation of diluted loss per share as their effect was anti-dilutive
in the periods presented.

Significant Customers and Labor Suppliers

During the year ended June 30, 1999, two customers individually accounted for
52% and 31% of total revenues. During the year ended June 30, 1998, two
customers individually accounted for 51% and 34% of total revenues.

During the years ended June 30, 1999 and 1998, two suppliers identified 100% of
the computer programmer candidates employed by the Company.

Financial Instruments

The Company's financial instruments consist of cash, accounts and notes
receivable, and accounts and notes payable. Fair values of cash, accounts and
notes receivable, and accounts payable (other than accounts payable to
stockholders) are considered to approximate their carrying values.

<PAGE>F-9

Alternative Technology Resources, Inc.
Notes to Financial Statements (continued)

June 30, 1999 and 1998

1. Summary of Significant Accounting Policies (continued)

Financial Instruments (continued)

Fair values of accounts payable to stockholders and notes payable could not be
determined with sufficient reliability because these are instruments held by
related parties and because of the cost involved in such determination.
Principal characteristics of these financial instruments that, along with
information on the financial position of the Company, are pertinent to their
fair values, are described in Notes 2 and 3.

Use of Estimates in Preparation of Financial Statements

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

2. Investor Group Transactions

In fiscal 1994, the Company entered into a series of agreements with Mr. Cameron
pursuant to which Mr. Cameron and Dr. Max Negri ("Negri") became principal
stockholders of the Company, each holding more than 5% of the Company's common
stock and Preferred Stock, Series D.

As of June 30, 1999, Mr. Cameron beneficially owned 19,875,886 shares of common
stock (Notes 3 and 6), which includes 68,550 shares issuable upon conversion of
76,167 shares of Preferred Stock, Series D, which are currently convertible.
Also included are 213,250 shares held by the Cameron Foundation, for which Mr.
Cameron disclaims beneficial ownership.

As of June 30, 1999, Dr. Negri beneficially owned 2,576,700 shares of common
stock, which includes 74,700 shares issuable upon conversion of 83,000 shares of
Preferred Stock, Series D, which are currently convertible.

During fiscal 1999 and 1998, the Company did not generate sufficient cash flow
from operations and borrowed from these two stockholders. Notes payable to
stockholders were $4,258,090 at June 30, 1999 (Note 3). Accrued interest of
$337,618 on these notes is included in accounts payable to stockholders at June
30, 1999. The Company also leases its office facilities from Mr. Cameron (Note
5). Accrued rent expense of $423,923 is also included in accounts payable to
stockholders at June 30, 1999.

<PAGE>F-10

Alternative Technology Resources, Inc.
Notes to Financial Statements (continued)

June 30, 1999 and 1998

3. Financing Arrangements

The Company has received short-term, unsecured financing to fund its operations
in the form of notes payable of $3,258,090 from two stockholders, Messrs.
Cameron and Negri. These notes bear interest at 10.25%. In December 1998,
Messrs. Cameron and Negri extended the maturity date on all notes payable
originally maturing December 31, 1998, to the earlier of December 31, 1999, or
such time as the Company obtains equity financing, in return for an extension
fee of 2% of the amounts extended. In addition, interest accrued on these notes
as of December 31, 1998 was included in the extended principal amounts.

On April 21, 1997, the Company issued an unsecured note payable (the "Straight
Note") to Mr. Cameron for $1,000,000 in accordance with the Reimbursement
Agreement the Company signed on February 28, 1994. Terms of the note provided
for an interest rate of 9.5% and monthly interest payments. No maturity date was
stated in the note; however, under the terms of the Reimbursement Agreement,
upon written demand by Mr. Cameron, the Straight Note was to be replaced by a
note convertible into ATR's common stock (the "Convertible Note") in a principal
amount equal to the Straight Note and bearing interest at the same rate. The
conversion price of the Convertible Note was equal to 20% of the average trading
price of the Company's common stock over the period of ten trading days ending
on the trading day next preceding the date of issuance of such Convertible Note.
Since the Company had not made interest payments on the Straight Note, accrued
interest of $208,479 was included in accounts payable to stockholders a of June
30, 1999.

<PAGE>F-11

Alternative Technology Resources, Inc.
Notes to Financial Statements (continued)

June 30, 1999 and 1998

4. Income Taxes

Significant components of the Company's deferred tax assets and liabilities for
federal and state income taxes as of June 30, 1999 are as follows:

Net operating loss carryforwards $ 8,595,000
Research credits 123,000
Common stock options 2,539,000
Common stock warrants 789,000
Other - net 466,000
------------
Total deferred tax assets 12,512,000
Valuation allowance for deferred tax assets (12,512,000)
Net deferred tax assets $ -
============

The Company's valuation allowance as of June 30, 1998 was $12,609,000, resulting
in a net change in the valuation allowance of $97,000.

As of June 30, 1999 the Company has net operating loss carryforwards for federal
and state income tax purposes of approximately $25 million and $5 million,
respectively. The federal net operating loss carryforward expires in 2006
through 2018 and the state net operating loss carryforward expires in 1999
through 2004. 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) will
be subject to an annual limitation in the amount of approximately $300,000.

In August and September of 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).

The Company expects that the aforementioned annual limitations will result in
approximately $4,100,000 of net operating loss carryovers which will not be
utilized prior to the expiration of the carryover period.

<PAGE>

Alternative Technology Resources, Inc.
Notes to Financial Statements (continued)

June 30, 1999 and 1998

5. Commitments

In November 1995, the Company entered into a lease agreement for its current
facility under a one year lease with Mr. Cameron. The lease has been extended to
December 31, 1999. At June 30, 1999, $423,923 of rent owed for fiscal years 1996
through 1999 is included in the balance of accounts payable to stockholders.
Rental expense for all operating leases was approximately $224,598 and $181,589
for the years ended June 30, 1999 and 1998, respectively, including
approximately $88,676 and $86,769 related to the lease of the office facilities
from Mr. Cameron for the years ended June 30, 1999 and 1998, respectively.

Minimum annual rental payments for all non-cancelable operating leases are as
follows:

2000 $ 169,700
2001 $ 35,100
2002 $ 11,600
2003 $ 11,100
2004 $ 700

6. Stockholders' Deficit

On December 31, 1996, the Board of Directors named Mr. W. Robert Keen as Chief
Executive Officer of the Company. On November 18, 1997 in exchange for his
services, Mr. Keen received 275,000 shares of common stock with a fair market
value on the date of issuance of $154,688.

Series D Preferred Stock

In June 1994, existing stockholders purchased 204,167 shares of Series D
Convertible Preferred Stock for $1,225,002. The Company is required to pay
cumulative preferential dividends to holders of Series D Preferred Stock on a
quarterly basis beginning July 1, 1994, at a rate of $0.60 per year per share.
As of June 30, 1999, cumulative unpaid, undeclared dividends were $612,501. Each
share of Series D Preferred Stock is convertible at the option of the
stockholder into such number of fully paid shares of common stock as is
determined by dividing the sum of $6.00 and the accrued but unpaid dividends by
the Series D conversion price, as defined in the agreement, in effect on the
conversion date. The Series D conversion price is $10.00 per share.
Additionally, the Series D Preferred Stock is redeemable at any time at the
Company's option at a price of $6.00 per share plus accrued but unpaid
dividends. The liquidation preference is $6.00 per share plus accrued but unpaid
dividends.

<PAGE>F-13

Alternative Technology Resources, Inc.
Notes to Financial Statements (continued)

June 30, 1999 and 1998

6. Stockholders' Deficit (continued)

Series D Preferred Stock (continued)

Each share of Series D Preferred Stock bears the right to one vote for each
share of common stock into which such Series D Preferred Stock could then be
converted (183,750 votes in the aggregate at June 30, 1999), and with respect to
such vote, such holder has full voting rights and powers equal to the voting
rights and powers of the holders of common stock.

Warrants

Warrant activity during the periods indicated is as follows:

Weighted
Range of Average
Number of Exercise Exercise
Shares Prices Price
----------- -------------- -----------

Balance at June 30, 1997 1,177,415 $ 0.01-$28.80 $10.87

Expired/Canceled (471,832) $13.75-$28.80 $21.94
----------- -------------- -----------

Balance at June 30, 1998 705,583 $ 0.01-$28.80 $ 3.47
Exercised (12,500) $0.01 $ 0.01
Expired/Canceled (133,283) $ 5.00-$15.00 $14.40
----------- -------------- ----------

Balance at June 30, 1999 559,800 $ 0.01-$25.00 $ 0.94
=========== ============== =========
</TABLE>

At June 30, 1999 and 1998, the weighted-average remaining contractual life of
outstanding warrants was 6.2 years and 4.2 years, respectively. All warrants
were immediately exercisable for common stock at June 30, 1999.

Stock Option/Stock Issuance Plans

The 1993 Stock Option/Stock Issuance Plan (the "1993 Plan"), pursuant to which
key employees (including officers) and consultants of the Company and the
non-employee members of the Board of Directors may acquire an equity interest in
the Company, was adopted by the Board of Directors on August 31, 1993 and became
effective at that time.

<PAGE>F-14

Alternative Technology Resources, Inc.
Notes to Financial Statements (continued)

June 30, 1999 and 1998

6. Stockholders' Deficit (continued)

Stock Option/Stock Issuance Plans (continued)

The 1993 Plan provided that up to 400,000 shares of common stock could be issued
over the ten year term of the 1993 Plan.

The 1997 Stock Option Plan (the "1997 Plan"), pursuant to which key employees
(including officers) and consultants of the Company and the non-employee members
of the Board of Directors may acquire an equity interest in the Company, was
adopted by the Board of Directors on November 18, 1997 and became effective at
that time.

An aggregate of 3,000,000 shares of common stock may be issued over the five
year term of the 1997 plan. Subject to the oversight and review of the Board of
Directors, the 1997 Plan shall generally be administered by the Company's
Compensation Committee consisting of at least two non-employee directors as
appointed by the Board of Directors. The grant date, the number of shares
covered by an option and the terms and conditions for exercise of options shall
be determined by the Committee, subject to the 1997 Plan requirements. The Board
of Directors shall determine the grant date, the number of shares covered by an
option and the terms and conditions for exercise of options to be granted to
members of the Committee.

Outstanding option activity for the 1993 and the 1997 Plans during the periods
indicated is as follows:

<TABLE>
<S> <C> <C> <C>
Weighted
Range of Average
Number of Exercise Exercise
Shares Prices Price
-------------- ----------------- -------------

Balance at June 30, 1997 415,780 $0.75-$13.10 $1.11
Granted 240,000 $0.75 $0.75
Exercised (55,861) $0.78 $0.78
Expired/Canceled (30,000) $0.78 $0.78
-------------- ------------------- -------------

Balance at June 30, 1998 569,919 $0.75-$13.10 $1.01
Granted 25,000 $0.28 $0.28
-------------- ------------------- -------------
Balance at June 30, 1999 594,919 $0.28-$13.10 $0.98
============== =================== =============

</TABLE>

<PAGE>F-15

Alternative Technology Resources, Inc.
Notes to Financial Statements (continued)

June 30, 1999 and 1998

6. Stockholders' Deficit (continued)

Stock Option/Stock Issuance Plans (continued)

The following table summarizes information about stock options outstanding under
the 1993 and the 1997 Plans at June 30, 1999:

Weighted
Weighted Average
Range of Average Remaining Weighted
Exercise Options Exercise Contractual Options Exercise
Prices Outstanding Price Price Exercisable Price
- --------------- -------------- ------------- ------------- ------------- -------------

$0.28 25,000 $ 0.28 9.05 25,000 $ 0.28
$0.75 - $0.78 469,919 $ 0.76 7.47 447,919 $ 0.76
$0.91 - $1.62 90,000 $ 0.95 7.43 90,000 $ 0.95
13.10 10,000 $ 13.10 4.79 10,000 $ 13.10
---------- -----------
594,919 572,919
========== ===========

</TABLE>

The following table summarizes information about stock options outstanding under
the 1993 and the 1997 Plans at June 30, 1998:

$0.75 - $0.78 469,919 $ 0.76 8.47 145,919 $ 0.78
$0.91 - $1.62 90,000 $ 0.95 8.43 8,333 $ 1.37
$ 13.10 10,000 $ 13.10 5.79 10,000 $ 13.10
----------- ------------
569,919 164,252
=========== ============

</TABLE>

In addition to options granted pursuant to the 1993 and 1997 Stock Option/Stock
Issuance Plans, the Company has granted options outside these plans. In the
fiscal year 1994, the Company granted to its former Chief Executive Officer and
director, stock options for 400,000 shares of common stock exercisable at $0.10
per share. Out of these options 390,000 remain outstanding and are fully vested
as of June 30, 1999, 1998 and 1997. These options expire on August 10, 2003.

<PAGE>F-16

Alternative Technology Resources, Inc.
Notes to Financial Statements (continued)

June 30, 1999 and 1998

6. Stockholders' Deficit (continued)

Stock Option/Stock Issuance Plans (continued)

In September 1996, the Board of Directors granted a non-statutory option to
purchase 20,000 shares of the Company's common stock at an exercise price of
$2.00 per share to the Chairman of the Board. The option vests over 3 years and
expires in September 2001.

SFAS No. 123 requires presentation of pro forma information regarding net income
(loss) and earnings per share as if the Company had accounted for its employee
stock options under the fair value method of that Statement. The fair value for
ATR options was estimated at the date of grant using the binomial option pricing
model with the following weighted average assumptions for fiscal 1999: dividend
yield of 0%, an expected life of five years from grant date, risk-free interest
rate of 5.0%; and an expected volatility of 0.959. For fiscal year 1998,
dividend yield was 0%, expected life was three years from grant date, risk-free
interest rate was 6.6%, and expected volatility was 0.955.

The model was developed for use in estimating the fair value of traded options
which have no vesting restrictions and are fully transferable. It requires the
input of highly subjective assumptions, the quality of which cannot be judged
except by hindsight. The Company's pro forma information follows:

1999 1998
---------------- ----------------
Net loss applicable to common stockholders:
As reported $ (839,247) $(1,366,444)
Pro forma $ (938,388) $(1,477,071)

Basic and diluted net loss per share:
As reported $ (0.03) $ (0.05)
Pro forma $ (0.04) $ (0.06)

</TABLE>

The weighted average fair value of options granted during the years ended June
30, 1999 and 1998 was $0.21 and $0.47, respectively. Because SFAS No. 123 is
applicable only to options granted subsequent to June 30, 1995, its pro forma
effect will not be fully reflected until 2001.

Total compensation cost recognized for stock-based employee compensation awards
was $77,343 in fiscal year 1999 and $161,720 in fiscal year 1998.

<PAGE>F-17

Alternative Technology Resources, Inc.
Notes to Financial Statements (continued)

June 30, 1999 and 1998

6. Stockholders' Deficit (continued)

Stock Reserved for Issuance

As of June 30, 1999, the Company has reserved a total of 4,474,642 shares of
common stock pursuant to outstanding warrants, options, conversion of Series D
Preferred Stock, and future issuance of options to employees and non-employee
directors. No shares of common stock are specifically reserved for conversion of
the Straight Note (Note 3) since that number of shares cannot be determined at
June 30, 1999.

7. Government Regulation

In September and October 1998, ATR submitted over 100 petitions for H1-B visas
to the U. S. Immigration and Naturalization Service (the "INS"). In December
1998, the Company received a request from the INS for more information
including: the size of ATR's offices, payroll information, corporate tax
information, and information about the Company's officers and directors. This
information was provided to the INS in late December 1998. In April 1999,
approximately 50 of the 100 visa petitions previously submitted were denied
based on what ATR believes is a misunderstanding by the INS of the facts
submitted in December 1998. Subsequently, additional information has been
provided to the INS by the Company; however, no further decisions have been made
by the INS.

ATR is aggressively working with its immigration attorney to bring to the
attention of the INS what it believes to be errors in the INS' analysis of the
Company and an inadequate understanding of the Company's business practices. As
this situation continues, the Company is not precluded from filing additional
H1-B visa petitions. It is ATR's intention to continue to file H1-B visa
petitions as it identifies programmer placement opportunities; however, in the
event the Company is unable to obtain additional H1-B visas, the Company's
operations and financial position could be adversely affected in fiscal year
2000.

8. Subsequent Events

On August 26, 1999, Mr. James, W. Cameron, Jr. ("Cameron"), the Company's
majority stockholder, joined the Board of Directors and assumed the position of
Chief Executive Officer. Under Mr. Cameron's direction, ATR decided to pursue
the establishment of an Internet medical provider network. The Company believes
that a market can be developed that utilizes a business-to-business Internet
strategy whereby the nation's 600,000 plus medical providers can directly access
purchasers of medical services. ATR is in the process of investigating the

<PAGE>F-18

Alternative Technology Resources, Inc.
Notes to Financial Statements (continued)

June 30, 1999 and 1998

8. Subsequent Events (continued)

potential market for such a program and formulating a business model under which
it will proceed. The Company has not yet contracted with any medical providers
to join such a network, nor with any purchasers of medical services to use such
a network. Further, no assurance exists that the Company will be able to
successfully develop, finance and implement this program.

Subsequent to June 30, 1999, Mr. Cameron disposed of a portion of his interest
in the $1,000,000 Straight Note (Note 3), reducing the balance due him to
$711,885, plus accrued interest. On August 19, 1999, the Company's Board of
Directors agreed 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 a decline in revenues caused by the non-renewal of
programmer contracts from a high of 109 programmers during the fiscal year 1999
to a low at August 31, 1999 of 43 programmers at customer locations in the
United States, and the steady decline in the quoted value of the Company's
common stock over the last several months (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.

On August 23, 1999, Mr. Cameron elected to replace his remaining interest in the
Straight Note, including accrued interest, with the Convertible Note and then
simultaneously converted the Convertible Note into 19,762,786 shares of ATR's
common stock. Other Straight Note holders also replaced their Straight Notes,
including accrued interest, with Convertible Notes and converted such
Convertible Notes into an aggregate of 4,136,764 shares of the Company's common
stock. As of August 31, 1999, the remaining outstanding balance of the Straight
Notes was $169,913, including accrued interest, and a total of 50,061,494 shares
of the Company's common stock was outstanding. Mr. Cameron beneficially owned
79% of the outstanding shares as of August 31, 1999.

EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements
listed below of our report dated August 17, 1999, except for Note 8, as to which
the date was August 31, 1999, with respect to the financial statements of
Alternative Technology Resources, Inc. included in the Annual Report (Form
10-KSB) for the year ended June 30, 1999:

Form S-8 No. 33-60100 pertaining to the 3Net Systems, Inc. Employee Savings Plan

Form S-8 No. 33-73166 pertaining to the 3Net Systems, Inc. Employee Savings Plan

Form S-8 No. 33-80186 pertaining to the 3Net Systems, Inc. Special Stock Option
Plan

Form S-8 No. 33-80300 pertaining to the 3Net Systems, Inc. 1993 Stock
Option/Issuance Plan

Form S-8 No. 33-84576 pertaining to the Nonstatutory Stock Option Agreement by
and between 3Net Systems, Inc. and Russell J. Harrison

Form S-3 No. 33-86962 pertaining to 3Net Systems, Inc. common stock being
offered by selling stockholders

ERNST & YOUNG LLP

Sacramento, California
September 21, 1999

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-KSB
FOR THE PERIOD ENDED JUNE 30, 1999, FOR ALTERNATIVE TECHNOLOGY RESOURCES, INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Jun-30-1999
<PERIOD-END> Jun-30-1999
<CASH> 32,642
<SECURITIES> 0
<RECEIVABLES> 472,136
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 599,440
<PP&E> 148,445
<DEPRECIATION> 148,445
<TOTAL-ASSETS> 559,440
<CURRENT-LIABILITIES> 6,186,915
<BONDS> 0
0
1,225,002
<COMMON> 261,697
<OTHER-SE> 28,742,403
<TOTAL-LIABILITY-AND-EQUITY> 599,440
<SALES> 0
<TOTAL-REVENUES> 6,593,414
<CGS> 0
<TOTAL-COSTS> 6,786,060
<OTHER-EXPENSES> 524,101
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 524,101
<INCOME-PRETAX> (716,747)
<INCOME-TAX> 0
<INCOME-CONTINUING> (716,747)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (716,747)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)

</TABLE>