ALTERNATIVE TECHNOLOGY RESOURCES INC
10QSB, 2000-02-08
COMPUTER PROGRAMMING SERVICES
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                     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 December 31, 1999

                         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 of           (IRS Employer Identification No.)
   incorporation or organization)


                       629 J Street, Sacramento, CA 95814
                    ----------------------------------------
                    (Address of principal executive offices)

                                 (916) 231-0400
                           --------------------------
                           (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 X    No


Number of shares of common stock outstanding as of January 31, 2000:  55,078,862


<PAGE>2


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements


                     ALTERNATIVE TECHNOLOGY RESOURCES, INC.
                             Condensed Balance Sheet
                                December 31, 1999
                                   (Unaudited)

<TABLE>
<S>                                                                                       <C>
                                     Assets

Current assets:
  Cash                                                                                        $       737,672
  Accounts receivable, net                                                                            226,549
  Other current assets, including notes
  receivable from employees and officers                                                              105,959
                                                                                               --------------

     Total current assets                                                                           1,070,180
                                                                                               --------------
Property and equipment:
  Equipment                                                                                            42,139
  Accumulated depreciation and amortization                                                            (1,755)
                                                                                               --------------
     Property and equipment, net                                                                       40,384
                                                                                               --------------

                                                                                               $    1,110,564
                                                                                               ==============

                                       Liabilities and Stockholders' Deficit

Current liabilities:
  Notes payable to stockholders                                                                $    3,258,090
  Notes payable to directors                                                                           43,469
  Accounts payable to stockholders                                                                    696,338
  Accounts payable                                                                                    105,664
  Accrued payroll and related expenses                                                                184,861
  Accrued preferred stock dividends                                                                   673,751
  Other current liabilities                                                                           171,805
                                                                                               --------------
     Total current liabilities                                                                      5,133,978
                                                                                               --------------
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 $1,898,753                                                                  1,225,002
  Common stock, $0.01 par value - 100,000,000 shares
    authorized, 54,366,186 shares issued and outstanding                                              543,662
  Common stock to be issued                                                                         2,561,999
  Common stock subscriptions receivable                                                            (2,561,999)
  Additional paid-in capital                                                                       33,227,256
  Accumulated deficit                                                                             (39,019,334)
                                                                                                --------------

    Total stockholders' deficit                                                                    (4,023,414)
                                                                                                --------------

                                                                                                $   1,110,564
                                                                                                ==============

See accompanying notes to condensed financial statements.

</TABLE>


<PAGE>3




                     ALTERNATIVE TECHNOLOGY RESOURCES, INC.
                       Condensed Statements of Operations
                                   (Unaudited)
<TABLE>
<S>                                                       <C>             <C>              <C>                 <C>

                                                                 Three Months                        Six Months
                                                              Ended December 31,                 Ended December 31,
                                                        -----------------------------    --------------------------------
                                                            1999            1998               1999              1998
                                                        -----------     ------------     -------------      -------------

Contract programming:
  Contract programming revenue                          $  700,626      $  1,809,755     $  1,645,277       $  3,519,763
  Contract termination fees                                    203                 -            5,453                  -
  Programmer costs                                        (454,404)       (1,291,561)      (1,106,468)        (2,562,819)
  Start-up and other costs                                (153,846)         (239,068)        (356,969)          (397,591)
                                                        -----------     -------------    -------------      -------------

    Contract programming gross profit                       92,579           279,126          187,293            559,353


Internet Provider Network Costs                           (234,232)                -         (235,820)                 -

Selling, general and administrative                       (279,124)         (302,151)        (554,480)          (642,345)
                                                        -----------     -------------    -------------      -------------


Loss from operations                                      (420,777)          (23,025)        (603,007)           (82,992)

Other income (expense):
  Interest income                                            7,798                 -           18,907                  -
  Interest expense                                         (95,146)         (175,766)      (2,618,657)          (287,594)
                                                        -----------     -------------    -------------      -------------
                                                           (87,348)         (175,766)      (2,599,750)          (287,594)
                                                        -----------     -------------    -------------      -------------

Net loss                                                $ (508,125)      $  (198,791)    $ (3,202,757)      $   (370,586)
                                                        ===========     =============    =============      =============
Preferred stock dividends in arrears                       (30,625)          (30,625)         (61,250)           (61,250)
                                                        -----------     -------------    -------------      -------------
Net loss applicable to
  common stockholders                                   $ (538,750)      $  (229,416)    $ (3,264,007)      $   (431,836)
                                                        ===========     =============    =============      =============

Net loss per share                                      $    (0.01)      $     (0.01)    $      (0.07)      $      (0.02)
                                                        ===========     =============    =============      =============


Shares used in per share calculations                   54,299,591        26,120,499       45,559,169         26,120,499
                                                        ===========     =============    =============      =============


</TABLE>

See accompanying notes to condensed financial statements.


<PAGE>4




                     ALTERNATIVE TECHNOLOGY RESOURCES, INC.
                       Condensed Statements of Cash Flows
                                   (Unaudited)

<TABLE>
<S>                                                                      <C>                    <C>

                                                                                      Six Months
                                                                                  Ended December 31,
                                                                          -------------------------------
                                                                              1999                 1998
                                                                          ----------           -----------

Net cash used in operating activities                                     $ (437,439)         $  (298,897)
                                                                          -----------          -----------

Cash flows from investing activities:
   Purchase of equipment                                                     (42,139)                   -
                                                                          -----------          -----------
Net cash provided by investing activities                                    (42,139)                   -
                                                                          -----------          -----------

Cash flows from financing activities:
   Proceeds from sale of common stock                                      1,150,346                    -
   Proceeds from exercise of options and warrants                             32,402                    -
   Proceeds from notes payable to stockholders                                33,500              273,647
   Proceeds from notes payable to directors                                    1,860                1,860
   Payments on notes payable to stockholders                                 (33,500)             (12,960)
                                                                          -----------          -----------
Net cash provided by financing activities                                  1,184,608              262,547
                                                                          -----------          -----------

Net increase (decrease) in cash                                              705,030              (36,350)
Cash at beginning of period                                                   32,642               89,696
                                                                         -----------          -----------

Cash at end of period                                                   $    737,672          $    53,346
                                                                         ===========          ===========

</TABLE>

See accompanying notes to condensed financial statements.


<PAGE>5



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements


                     ALTERNATIVE TECHNOLOGY RESOURCES, INC.
                     Notes to Condensed Financial Statements
                                December 31, 1999

                                   (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, 1999.

In the opinion of  management,  the  unaudited  condensed  financial  statements
contain all adjustments,  consisting of normal recurring adjustments, considered
necessary to present  fairly the  Company's  financial  position at December 31,
1999,  results of operations  for the three and six month periods ended December
31, 1999 and 1998,  and cash flows for the three and six months  ended  December
31, 1999 and 1998.  The results for the period  ended  December 31, 1999 are not
necessarily  indicative of the results to be expected for the entire fiscal year
ending June 30, 2000.

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
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,  the  expected  substantial  cost to develop  and
establish the Company's  Internet  medical  provider  network (IPN) [see Part I,
Item 2  "Management's  Discussion  and  Analysis  and Results of  Operations  --
Overview"], and its 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 the establishment of its
IPN or  growth of its  computer  programmer  business.  Therefore,  the  Company
contemplates  needing to raise  additional  financing  during  fiscal 2000,  the
receipt of which cannot be assured.

Note 2 - Financing Arrangements
- --------------------------------

See  Part I,  Item 2  "Management's  Discussion  and  Analysis  and  Results  of
Operations -- Liquidity and Capital Resources."

<PAGE>6

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements


Note 3 - Healtheon Agreement
- ------------------------------

In  September  1999  the  Company  entered  into  an  agreement  with  Healtheon
Corporation  to allow  under  insured  and  uninsured  healthcare  consumers  to
register to use ATR's IPN, when it is developed,  through the use of Healtheon's
WebMD Internet consumer portal.  The agreement  provides for development fees to
Healtheon  estimated to cost $160,000.  The agreement  also requires  payment to
Healtheon of $250,000  upon a promotional  announcement  of ATR's IPN program on
Healtheon's  Internet  portal,  and a  sharing  of  revenues  when  operational.
Operations  are to begin no later than six months  following  acceptance  of the
application software or the IPN has 100,000 primary care providers, whichever is
earlier.  The  agreement  term is three years,  but subject to  modification  or
withdrawal  of  services by  Healtheon  with  certain  financial  penalties.  In
addition,  revenue sharing is subject to  renegotiation on an annual basis based
on the date the program becomes operational.

On October  12,  1999,  the  Company  and  Healtheon  received a letter from the
California  Department  of  Corporations  ("DOC")  inquiring  whether or not the
Company's  proposed  services,  when offered to California  consumers  under the
agreement  with  Healtheon,  may constitute a health care service plan requiring
the  Company to be licensed  with the DOC in  California.  The Company  does not
believe that its  proposed  business  services  constitute a health care service
plan.  The  Company  has  provided  additional  documentation  in support of its
position to the DOC. No assurance  can be given that the DOC will agree with the
Company's  position.  If the DOC determines that the Company's proposed business
services  constitute a health care service  plan,  the Company will consider its
options  including  licensing with the DOC or  restructuring  its agreement with
Healtheon.


<PAGE>7

PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis and Results of Operations

Management's Discussion and Analysis

The following  discussion  provides  information to facilitate the understanding
and  assessment  of  significant  changes  in trends  related  to the  financial
condition  of the Company and its  results of  operations.  It should be read in
conjunction  with the Company's  financial  statements and the notes thereto and
other financial information included elsewhere in the 10-KSB for the fiscal year
ended June 30, 1999.

Overview

Alternative  Technology  Resources,  Inc. ("ATR" or the  "Company"),  a Delaware
corporation, was founded in 1989 to develop and sell computer integrated medical
laboratory information 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.  and focused its efforts on its computer  programmer  placement
business.  ATR 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. ATR's computer programmer placement business has not
generated  and  currently  is not  generating  sufficient  cash flow to  support
operations.  Further,  there has been a decline in contract programming revenues
caused by the non-renewal of programmer  contracts from a high of 96 programmers
at customer  locations  during fiscal year 1999 to 31 programmers as of December
31,  1999.  The  Company is  exploring  various  options,  including  whether to
continue in the computer programmer placement business.

In August 1999, ATR decided to pursue the  establishment  of an Internet medical
provider  network  (IPN).  The Company plans to use its experience in healthcare
and information  technology to offer the nation's 600,000 plus medical providers
the ability to more  directly  link their  practice  via the Internet to parties
that pay for medical services.  ATR is initially focusing on those who are under
insured and the 44 million  Americans who are uninsured.  In September 1999, the
Company  entered into an agreement  with  Healtheon  Corporation  to allow under
insured  and  uninsured  consumers  to  register  to use ATR's  IPN,  when it is
developed,  through the use of Healtheon's  WebMD Internet  consumer portal.  In
October 1999, the Company began its IPN development efforts. No assurance can be
given  that  the  Company  will be able to  develop  and  market  an IPN,  or if
developed, that it will be profitable.

Results of Operation

Contract programming

Contract  Programming  Revenue.  Contract  programming revenue results primarily
from sales of programmer  services.  Revenue for the three and six month periods
ended  December 31, 1999  decreased  $1,109,000  or 61% and  $1,874,000  or 53%,

<PAGE>8

PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis and Results of Operations

respectively,  over the same periods of the previous year.  This decrease is due
to a reduction in the average number of contract programmers working at customer
sites in the periods  ended  December 31, 1999,  compared to the same periods in
the prior year.  There was an average of 39 and 32 programmers at customer sites
for the three and six month periods  ended  December 31, 1999 compared to 92 and
93 for the same periods ended  December 31, 1998. Two events in the last half of
fiscal 1999 began to impact 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 termination 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 of programmers, or programmers converted to customer employees.

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 decreased 65% and 57% for the
three and six month periods ended December 31, 1999 compared to the same periods
last year.  This  decrease is  primarily  due to the  reduction in the number of
contract  programmers  working at customer sites as discussed above in "Contract
Programming Revenue."

Start-up and Other Costs.  Start-up and other costs are the costs of recruiting,
training,  and travel for programmer  employees coming to the United States from
the Former Soviet Union for the first time,  relocation  costs within the United
States,  and  legal  and  other  costs  related  to  obtaining  and  maintaining
compliance with required visas, postings and notifications.

Included  in this  category  of  costs  is  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.

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. 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.

<PAGE>9

PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis and Results of Operations


Start-up  and other  costs  decreased  $85,000  and $41,000 in the three and six
month periods ended December 31, 1999, as compared to the same periods in fiscal
1999.  This decrease is due to a decrease in the number of programmers  who were
in the United States but not working at customer  sites,  an average of 3 during
the second  quarter of fiscal 2000 compared to 5 in the second quarter of fiscal
1999.

Contract  Programming  Gross  Profit.  The gross profit on contract  programming
revenue was 13% and 11% for the three and six month periods  ended  December 31,
1999, respectively, compared to 15% and 16% for the same periods in fiscal 1999.
Decreases  are  primarily  due to  start-up  and  other  costs  being  a  higher
proportion  of revenue in fiscal 2000  compared to fiscal 1999,  22% for the six
months  ended  December  31,  1999  compared  to 11% for the same  period  ended
December 31, 1998.

Internet Provider Network Costs

In October 1999 the Company began its IPN development. Costs incurred consist of
selling and administrative, including marketing healthcare providers.

Selling, General and Administrative Expenses

Selling,  General and Administrative  Expenses ("SG&A"). SG&A expenses decreased
$23,000 or (8%) and $88,000 or (14%) for the three and six month  periods  ended
December  31,  1999,  respectively,  compared  to the same  periods of the prior
fiscal year.  This decrease is primarily due to a decrease in non-cash  employee
compensation  related to stock  grants in fiscal  1999 to the  Company's  former
Chief Executive Officer.

Other Income (Expense)

Interest  Income.  Interest  income is related to short term  investment of cash
balances and to notes receivable from employees and officers of the Company.

Interest  Expense.  Interest expense decreased $81,000 in the three months ended
December 31, 1999 due to conversion of a $1,000,000 note payable to common stock
in the first quarter of fiscal 2000.  Interest expense  increased  $2,331,000 in
the six months ended December 31, 1999, compared to the same period in the prior
fiscal year due to the  benefit  accruing  to the note  holders of amending  the
conversion terms of the $1,000,000  convertible note (see "Liquidity and Capital
Resources").

Income Taxes

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.  The Company  expects that annual  limitations  on the use of loss
carryforwards generated before September 13, 1993 will result in $4.1 million of
net operating loss carryovers  which may not be utilized prior to the expiration
of the carryover period.

<PAGE>10

PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis and Results of Operations


Net Loss

Net loss  increased  $2,832,000  for the six  months  ended  December  31,  1999
compared  to the same  period in fiscal 1999  primarily  due to the  increase in
interest expense,  decrease in contract  programming gross margin, and beginning
IPN development efforts.

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  ($30,625 in each of the three months ended
December 31, 1999 and 1998, and $61,250 in each of the six months ended December
31, 1999 and 1998,  respectively)  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 net loss per share  calculations  as their
inclusion would be anti-dilutive.

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 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, the expected substantial cost to develop
and  establish  the  Company's  IPN,  and its 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  the  establishment  of its  IPN or  growth  of its  computer
programming  business.  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 in the form of notes
payable of  $3,258,090  in the  aggregate  from two  stockholders,  Mr. James W.
Cameron,  Jr., a director and the Company's Chief Executive Officer, and Dr. Max
Negri.  These notes bear interest at 10.25%.  Effective January 1, 2000, Messrs.
Cameron and Negri  extended the maturity  date on all notes  payable  originally
maturing December 31, 1999, to the earlier of December 31, 2000, 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, 1999, was included in the extended principal amounts.


<PAGE>11

PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis and Results of 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 they will continue to fund operations and extend the maturity
dates of the various  notes  payable until at least June 30, 2001, or 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.

During fiscal 1999,  approximately 50 visa petitions submitted by the Company to
the U. S. Immigration and  Naturalization  Service (the "INS") were denied based
on what ATR  believed  was a  misunderstanding  by the INS of facts the  Company
previously  submitted to the California INS office. In an effort to bring to the
attention of the INS what it believed to be errors in the INS's  analysis of the
Company and an inadequate understanding of the Company's business practices, ATR
representatives  and its  immigration  attorney  met in  January  2000  with the
Director  and  other  officials  of the  California  INS  office.  This  meeting
confirmed  that the Company is not precluded  from filing  additional  H1-B visa
petitions,  including  those  that  had  previously  been  denied.  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 due to the annual  limitation on the number of H1-B visas
which can be granted,  the Company's  operations and financial position could be
adversely affected.

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.

Subsequent to June 30, 1999, Mr.  Cameron  disposed of a portion of his interest
in the Straight  Note,  reducing  the balance due him to $711,885,  plus accrued
interest.  On August 19, 1999, the Company's Board of Directors  agreed with the
Straight Note holders to fix the  conversion  price of the  Convertible  Note to
$0.044 in exchange for the Straight and/or  Convertible  Notes ceasing to accrue
interest  as of that date.  Because of the  decline  in  revenues  caused by the
non-renewal  of programmer  contracts and the steady decline in the quoted value
of the Company's common stock at that time (trading price was at $0.25 on August
19,  1999),  the Board  agreed it was in the best  interest  of the  Company  to
eliminate the future market risk that the  conversion  price become lower than a
fixed  conversion  price of $0.044.  The benefit  accruing  to the note  holders
resulting from the amendment to the conversion  terms, as measured on August 19,
1999,  was  approximately  $2.4 million and was recorded as additional  interest
expense in the quarter ended September 30, 1999.

<PAGE>12

PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis and Results of Operations


Subsequent  to August 19, 1999,  Mr.  Cameron  elected to replace his  remaining
interest in the Straight Note, including accrued interest,  with the Convertible
Note and then  simultaneously  converted the  Convertible  Note into  19,762,786
shares of ATR's  common  stock.  All other  Straight  Note  holders  have  since
replaced their Straight Notes,  including  accrued  interest,  with  Convertible
Notes and converted such Convertible Notes into an aggregate of 7,998,411 shares
of the Company's common stock.

On August 26, 1999, Mr. 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 IPN (see
Part I, Item 1, "Note 3 - Healtheon Agreement" and Part I, Item 2, "Management's
Discussion and Analysis -- Overview").

Since  September  1999, the Company has received  $1,150,347 in private sales of
its common stock at an average price of $3.08 per share,  and in December  1999,
the Company received a $2,561,999  common stock  subscription in another private
sale at an average  price of $3.59 per share.  These funds were  received by the
Company in January 2000.

The Company has incurred operating losses since inception which have resulted in
an  accumulated  deficit of  $39,019,334 at December 31, 1999. The Company had a
working  capital  deficit  and a  stockholders'  deficit of  $4,023,414  each at
December 31, 1999.  Going forward,  ATR's IPN  development  efforts will require
substantial  funds  prior to  generating  revenues.  Therefore,  ATR is pursuing
additional  funds through private equity financing or additional debt financing.
Although there can be no assurance that additional  financing can be obtained or
that if obtained such  financing  will be sufficient to prevent the Company from
having  to  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 to meet its obligations when they become due.

Effects of Inflation

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


PART II. OTHER INFORMATION

Items    1, 2, 3

None

Item 4.  Submission of Matters to a Vote of Security Holders

<PAGE>13


An annual  meeting of  stockholders  was held November 16, 1999 at the Company's
offices in  Sacramento,  California.  The  stockholders  voted on the  following
matters and approved:

     1)   The  election of James W.  Cameron,  Jr., W.  Robert  Keen,  Edward L.
          Lammerding  and Thomas W.  O'Neil,  Jr. as  directors  of the Company:
          50,037,660 shares were received in favor of Mr. Cameron,  4,260 shares
          were withheld;  50,031,660  shares were received in favor of Mr. Keen,
          10,260 shares were withheld;  49,648,035 shares were received in favor
          of Mr.  Lammerding,  393,885 shares were withheld;  49,654,035  shares
          were received in favor of Mr. O'Neil, 387,885 shares were withheld.

Items 5 and 6

None



<PAGE>14

                                   SIGNATURES


In accordance with the requirements of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.


                             ALTERNATIVE TECHNOLOGY
                                 RESOURCES, INC.
                                  (Registrant)



Dated:  February 8, 2000                    /s/   JAMES W. CAMERON, JR.
                                            -----------------------------------
                                                  James W. Cameron, Jr.
                                                  Chief Executive Officer
                                                  (Principal Executive Officer)



Dated:  February 8, 2000                    /s/   EDWARD L. LAMMERDING
                                            -----------------------------------
                                                  Edward L. Lammerding
                                                  Chief Financial Officer
                                                  (Principal Financial Officer)


<TABLE> <S> <C>

<ARTICLE>                     5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL  INFORMATION  EXTRACTED FROM THE 10-QSB
FOR THE PERIOD ENDED DECEMBER 31, 1999, FOR ALTERNATIVE TECHNOLOGY RESOURCES AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S>                                                <C>
<PERIOD-TYPE>                                             6-MOS
<FISCAL-YEAR-END>                                   Jun-30-2000
<PERIOD-END>                                        Dec-31-1999
<CASH>                                                  737,672
<SECURITIES>                                                  0
<RECEIVABLES>                                           226,549
<ALLOWANCES>                                                  0
<INVENTORY>                                                   0
<CURRENT-ASSETS>                                      1,070,180
<PP&E>                                                   42,139
<DEPRECIATION>                                            1,755
<TOTAL-ASSETS>                                        1,110,564
<CURRENT-LIABILITIES>                                 5,133,978
<BONDS>                                                       0
                                         0
                                           1,225,002
<COMMON>                                                543,662
<OTHER-SE>                                          (5,792,078)
<TOTAL-LIABILITY-AND-EQUITY>                          1,110,564
<SALES>                                                       0
<TOTAL-REVENUES>                                      1,650,730
<CGS>                                                         0
<TOTAL-COSTS>                                         2,253,737
<OTHER-EXPENSES>                                      2,599,750
<LOSS-PROVISION>                                              0
<INTEREST-EXPENSE>                                    2,618,657
<INCOME-PRETAX>                                     (3,202,757)
<INCOME-TAX>                                                  0
<INCOME-CONTINUING>                                 (3,202,757)
<DISCONTINUED>                                                0
<EXTRAORDINARY>                                               0
<CHANGES>                                                     0
<NET-INCOME>                                        (3,202,757)
<EPS-BASIC>                                             (.07)
<EPS-DILUTED>                                             (.07)


</TABLE>


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