UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
Form 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,1996
Commission file number 0-23062
ATLANTA TECHNOLOGY GROUP, INC.
(Name of small business issuer in its charter)
Delaware 58-2077053
(State or other jurisdiction of (IRS. Employer
incorporation or organization) Identification No.)
400 Embassy Row
Suite 570
Atlanta, GA 303328
(Address of principal executive offices)
(Zip code)
(770) 671-0600
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
(Title of Class)
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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will 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. [X]
Revenues for the registrant for the fiscal year ended December 31, 1996 were
$1,600,785.
The aggregate market value of voting stock held by non-affiliates of the
registrant was approximately $3,075,734.70 as of December 31, 1996.
As of December 31, 1996, the Registrant had 3,812,275 shares of Common Stock,
par value $0.001, outstanding.
Total number of pages 40
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
PART 1
Item 1. Description of Business
General
Atlanta Technology Group Inc. ("ATG" or the "Company") was incorporated
in the State of Delaware on October 12, 1993 under the name of Time Value
Corporation as a holding company for high technology companies and changed its
name to Atlanta Technology Group, Inc. in February 1994 by filing a Certificate
of Amendment in the State of Delaware. Atlanta Technology Group, Inc. is the
parent company of one medical technology entity, its primary subsidiary, Time
Value Corp., a Georgia corporation, and Net City, Inc., a Georgia corporation.
The principal office of the company is located at 400 Embassy Row, Suite 570,
Atlanta, Georgia, 30328 and its telephone number is (770) 671-0600. The Company
has 14 employees on staff, including 6 in sales, 3 in administration, 3 in
programming and 2 in technical support.
Subsidiaries
Time Value Corporation
Time Value Corporation ("TVC") was incorporated in June 1991 for the
purpose of developing, marketing and supporting a solution to reduce the
clinical and administrative costs of producing documentation, correspondence,
and record-keeping for the medical community. The solution is a proprietary
product of TVC and is known as Documentplus.
The Documentplus system was released to the market in September 1994. In 1996,
the Company attended over 102 seminars and meetings thus increasing the
exposure to clinicians. The additional exposure resulted in the sale of an
additional 200 systems during 1996. The sales cycle for the Documentplus system
ranges from one month to nine months from initial contact to contract execution.
The Company has historically closed a sale of the Documentplus system with 10%
of the clinicians who attend the presentation of the Documentplus system. In
1997, the Company has plans to attend 60 seminars between January and June.
The seminar schedule for the third and fourth quarters of 1997 will be
determined in May 1997.
TVC accepts checks, credit cards and approved leases at the time of
order. Most of the systems are sold under leasing arrangements which the
individual doctor arranges with independent companies.
Income. The Documentplus system is sold directly to end-users in the
medical field. Currently, TVC is marketing Documentplus to chiropractors, neck
and back pain clinics in the United States. The total number of end-users of
the Documentplus system approximately doubled from 231 at December 31, 1995 to
431 at December 31, 1996. Revenue from the sale of systems increased $525,431,
from $553,933 in fiscal 1995 to $1,079,364 in fiscal 1996.
Each system module requires the use of different scan sheets. The scan
sheets used with each specialty module are manufactured by National Computer
Systems, Inc. ("NCS"), a Minnesota corporation, and Scantron Corporation
("Scantron"), a California corporation, according to specifications supplied by
TVC. TVC purchases these forms from NCS and Scantron and then resells the forms
to users of the specialty modules. TVC is currently receiving approximately
$49,200 per month from the sale of scan forms to current users. Revenue from
the sale of scannable forms increased from $194,170 in fiscal year 1995 to
$379,926 in fiscal year 1996. Revenue from support fees was $38,050 for fiscal
1995 and $84,400 for fiscal 1996.
The increases experienced in each category were the direct result of
the additional 200 systems sold during 1996. Each system which is sold will
generate recurring revenue for TVC as users purchase the copyrighted scannable
forms from TVC and support fees are billed to users on an annual basis.
Future Development. The Company, along with TVC, has adopted a plan to
address the issues which caused the report of the Company's independent
certified public accountant to contain a going concern qualification.
Management's adherence to the plan, which was developed in 1996, resulted in the
Company posting its first quarterly profits for the third quarter of 1996.
Management plans to continue the implementation of their plan to sustain and
expand this profitability through (1) diversification of existing product lines,
(2) enhancement of existing product lines, (3) expansion of the geographical
area in which it operates, and (4) raising capital through private placements.
Because the incremental costs of developing a Documentplus system for a new
medical specialty is relatively small (approximately $75,000), TVC expects to be
able to grow quickly by offering different Documentplus specialty modules. TVC
plans to introduce four new modules in the next 24 months: orthopedics, physical
therapy, orthodontics and neurology. Eventually, TVC anticipates introducing
modules for each area of medical specialty.
TVC is also seeking to market its products nationwide through trade
publications and seminars. TVC is currently working with two national physician
management consulting groups to assist in marketing and promoting. TVC has also
signed a distributorship agreement to market Documentplus in Spain, Mexico,
Puerto Rico and Australia. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The business plan currently being pursued by the Company is based on
information available to Management at the time of its preparation. The Company
and TVC recognize that difficulties could arise that could have an adverse
effect on TVC's ability to successfully implement its business plan. There
could be delays in getting new products to market. One potential source for
delay is the availability of independent medical professionals to devote
sufficient time to assist in the development of these new products. TVC could
experience cost overruns in the development and marketing of new products.
Because TVC is heavily dependent on others to supply the basic components of its
products, any increase in the cost of supplies may have an adverse effect on
sales and/or profitability. While TVC believes that there is a viable market
for computer generated medical records and it has a superior product to those
currently on the market, there can be no assurance that TVC's products will be
accepted by enough medical practitioners to support profitability. In addition,
the competitive advantage that TVC believes it currently enjoys may prove to be
illusory or easily overcome by a competitor in the future. In short, TVC cannot
anticipate the myriad of things that may occur that could have an adverse impact
on its ability to successfully implement its business plan.
Product. Documentplus is a comprehensive computer based system designed
to reduce the time clinicians and their staff spend preparing paperwork,
documentation and correspondence in a medical, dental, or chiropractic practice.
A complete Documentplus system consists of a microcomputer, a printer, an
optical mark scanner, one or more of the Documentplus software programs, a word
processing program, and copyrighted Documentplus optical mark scannable forms.
If the practitioner already owns an IBM compatible computer and a word
processing program (compatible with TVC's proprietary software), a separate
computer and word processing program are normally not purchased. At the
present time, TVC's software is compatible with several word processing
programs. As part of its service, TVC offers its customers hardware products
including microcomputers and Scantron optical scanners.
Documentplus provides the healthcare practitioner with automatic patient
letter generation capabilities which TVC believes are needed today to promote
informed consent and reduce legal exposure. Today's healthcare practitioner is
acutely aware of the need for documentation in the area of patient
communications. However, because of the considerable time and cost involved
with such documentation, patient communications are primarily oral and create a
significant potential for misunderstanding and inadequate retention. Such
misunderstandings can create unnecessary malpractice exposure.
Documentplus is a computer based product designed to generate
individualized correspondence to patients and referring and consulting dentists,
physicians and chiropractors quickly, accurately and efficiently. TVC believes
that effective patient communication is essential for maintaining and expanding
a dental, medical, or chiropractic practice and for maintaining a record of
diagnosis and recommended treatment which can be used in the defense of
malpractice or similar claims. Documentplus is designed to provide clinicians
with a comprehensive and time-efficient means of communicating essential
clinical information to the patient, referring practitioners, and insurance
companies.
Using Documentplus scannable forms for patient and clinician input in
conjunction with Documentplus software, a microcomputer and an optical mark
scanner, Documentplus generates individualized correspondence from the
healthcare practitioner to the patient, referring and/or consulting physicians,
dentists, chiropractors, insurance companies and others. TVC's copyrighted
optical mark scannable forms ("OMS forms"), including Patient Health
Questionnaires, Clinical Evaluation forms, Clinical Radiographic Findings forms,
Clinical Re-evaluation and Treatment forms, Daily SOAP Note forms (SOAP stands
for subjective, objective, assessment and plan, and represents the four parts of
a written account of the health problem made by a doctor), and Patient Outcome
Assessment forms, are filled out by patients and clinicians and input into the
Documentplus software by an optical mark scanner. The Documentplus program uses
the data read by the optical scanning device to generate customized letters from
the physician, dentist, or chiropractor to patients explaining objectives and
treatment recommendations.
Documentplus is comprised of various sub-modules. Each sub-module
provides the practitioner with customized written communications for the
practitioner's specialty area in order to better inform the patient, the
patient's referring or consulting clinicians and the insurance providers of the
status of the patient's condition.
Documentplus begins with OMS forms designed by TVC with assistance from
medical, dental or chiropractic practitioners. Each submodule requires a series
of OMS forms designed to manage a patient throughout his or her association with
the physician, dentist or chiropractor. The OMS forms include a medical
history of the patient, which the patient completes during his/her initial
visit, an examination and evaluation OMS form completed by the clinician, a
radiographic diagnosis and treatment OMS form completed by the clinician
and/or staff member,clinical daily note forms and periodic progress OMS forms
completed by the clinician or staff member.
The OMS forms contain a series of questions answered by darkening with a
pencil a round circle or "bubble" adjacent to the appropriate response on the
OMS forms. The OMS forms are designed to provide a logical flow of information
and clinical findings from the general to the very specific. The division of
information on the OMS forms provides a readable, understandable, and efficient
means of case evaluation and diagnosis. The OMS form is completed as the
physician, dentist, chiropractor, or an assistant, examines the patient or
evaluates other data, such as x-rays or results from laboratory tests. The use
of OMS forms provides the practitioner with a method for standardizing the
examination and diagnostic procedures for all new patients, thereby providing a
comprehensive and accurate record from the beginning of treatment.
Documentplus also generates progress letters once the patient is under
a physician's, dentist's, or chiropractor's care. The healthcare practitioner
determines the desired interval for the progress letter, then marks the
appropriate response adjacent to the clinical description on the OMS form, after
which Documentplus generates a letter of treatment status to the patient.
Referral letters also can be generated by Documentplus to advise
referring doctors, dentists or chiropractors of the recommended treatment for
patients. Simultaneously, clinicians being consulted concerning contributing
problems are notified as to the specific reason the patient has been referred
to them.
Using a OMS form with Documentplus, the healthcare practitioner also can
generate billing and information narratives for the patient's insurance company
with specific diagnosis and treatment plan and charges billed to the patient.
All correspondence generated by Documentplus can be reviewed and edited
in the word processing program prior to being printed in final form.
The OMS forms used with Documentplus are manufactured by Scantron
Corporation("Scantron") and National Computer Systems, Inc. ("NCS"). Completed
OMS forms are scanned by an optical mark scanner. Documentplus has been
developed for use with a Scantron optical mark scanner and a NCS optical mark
scanner. These scanners read the data on the OMS form by identifying the
darkness of each mark. Light transmitted through the OMS form allows the
scanner to read accurately both sides of the sheet in a single pass, and the
data read by the optical scanner is then transmitted to a microcomputer. TVC's
proprietary software processes the data into the appropriate correspondence and
documentation requested by the clinician. The correspondence and documentation
are transferred into a word processor for review, editing (if so desired),
printing and distribution.
The following is a partial list of correspondence and documentation
automatically prepared from the OMS forms. In many cases multiple narratives of
the same document are prepared for distribution to referring or consulting
clinicians, the patient, the insurance provider, as well as for in-practice use.
Patient Health Questionnaire - elicits additional information after the
preliminary history is taken
Doctor Heath Questionnaire - summarizes the information the patient has provided
Patient Initial Letter - summarizes the patient's initial visit and outlines
planned treatment
Doctor Initial Letter - to referring clinician summarizing patient's initial
visit and planned treatment
Medical summary - to consulting clinician summarizing findings after medical
history, clinical exam, and radiographic findings
Informed Consent - indicates informed consent for specific procedures on behalf
of patient
Progress Reports - summarizes progress and expected developments during various
phases of treatment
Insurance Letter - provides information to the insurance company using proper
diagnosis and treatment coding
Patient Complete Letter - includes additional information from lab test reports
Doctor Complete Letter - to referring doctor with additional information from
lab test reports
Medico-legal Letter - to patient's attorney with information regarding patient's
history and treatment procedures
Outcome Assessments - provides standardized measured information regarding
patient's progress and rationale for treatment
TVC introduced the spinal clinic module on September 10, 1994 and has
sold and installed over 431 systems since the introduction. These sales have
been the result of TVC's attending seminars under the direction of several
physician management groups as well as independent trade shows during 1996.
Benefits of Documentplus
The Company believes that the Documentplus system has the following benefits:
Improves Patient Education and Communication. Creates an environment for
attracting and developing new patients through the use of an effective, written
personal patient education and communication program.
Increases Patient Confidence. Intended to increase patient confidence in the
clinician by educating patients about their particular needs through written
communications.
Improves Communication Between Clinicians. Develops a mutually beneficial
relationship between referring and consulting clinicians through detailed
correspondence relating to patient treatment and needs.
Eliminates Routine Dictation. Eliminates most of the requirements for routine
dictation, thus allowing for an increased patient load or redirection of time to
developing the practice.
Effective Time Management. Reduces consultation time and improves the quality
of care by providing an easy-to-use diagnostic tool and standardized
comprehensive records, documentation, and correspondence from initial visit
through on-going treatment.
Enhances Marketing. Creates an on-line records and documentation research data
bank for patient call backs as new techniques, procedures and treatments, become
available for their conditions.
Increases Revenues. Enhances insurance claims turnaround and improves cash
flows by providing complete documentation and correspondence for insurance
companies.
Reduces Malpractice Exposure. Provides added protection against possible
litigation with comprehensive documentation supporting the diagnosis, treatment
and informed consent of the patient.
Improves Administration. Provides systems which improve financial planning,
processing of insurance claims, and communications.
Warranties and Training
TVC warrants its products for 90 days. After the expiration of the
initial warranty period, TVC will provide continuing technical support for its
software for an additional annual maintenance fee. The actual amount of the
annual maintenance fee depends upon the software purchased by the customer. The
optical mark scanners are sold by TVC for use with the Documentplus system and
are warranted by Scantron Corporation or NCS for a period of 150 days after
shipment. A maintenance agreement for the scanners is available directly from
Scantron or NCS.
Training of the clinician's staff to use Documentplus is provided by
TVC. TVC will provide users with a video tape and an instruction manual for
installation of the Documentplus system. Additional training is available if
requested by users. If on-site training is requested, the clinician is
responsible for all expenses incurred by TVC's personnel.
Competition and Marketing
Competition. Many firms have developed independent software
applications which are designed to solve only a portion of the problems facing
medical/dental/chiropractic practices. Accordingly, the medical, dental and
chiropractic market is very fragmented in its approach to office management
systems. As a result, TVC believes there is a need for a single software system
which will combine and/or integrate groups of individual applications and
technologies to create a comprehensive approach for managing office paperwork.
As with any new product, the extent to which the targeted community will
perceive a need for TVC's products is uncertain. The computer software industry
is highly competitive. TVC competes with other entities having established
marketing and distribution networks, greater resources and capabilities, and
wider name recognition in the marketplace. TVC's competitors could develop
products which are functionally equivalent or superior to TVC's system, in which
case TVC's perceived competitive advantage concerning the nature of its products
would be lost.
Marketing. TVC's potential market includes over 600,000 physicians,
dentists and chiropractors in private practice covering approximately 38
specialties in the United States. TVC's products are designed to provide
clinicians with a comprehensive and efficient means of providing quality
services to patients, developing a large referral/consulting clinician base,
processing accurate and timely insurance claims and operating a practice with
lower expenses.
The present marketing plan of TVC consists of the following elements:
1) To utilize experienced medical/dental/chiropractic clinicians to
develop specific patient communications packages that relate to
particular specialties in their particular fields.
2) To demonstrate Documentplus at symposiums, regional, and national
trade shows (for each medical, dental, or chiropractic specialty and
their specific associations) and study club groups.
3) To introduce and incorporate Documentplus as part of the formal
curriculum where healthcare practitioners receive their training.
Previous versions of the Orthodontic and TMJ modules have been used at
Marquette University and Tufts University.
4) To develop a product "users" group to assist TVC in monitoring the
target specialties in dentistry, chiropractic, and medicine, as well as
responding to the needs of clinicians.
The Company has not undertaken any marketing or feasibility studies to
date.
In order to successfully market its products, TVC will need to penetrate
and depend heavily on established medical/dental/chiro- practic distribution
networks. TVC intends to develop an initial network of distributors. Primary
distribution will be through direct and indirect sales channel, with special
large marketing opportunities requiring direct sales representation, and
indirect sales to be made by dealers or distributors. Each salesperson and
distributor will be required to attend a training program that will include
computer technical basics, demonstration techniques, and specific product
features, functions and benefits. TVC has negotiated marketing contracts for
its system with several unaffiliated medical management companies that conduct
seminars for healthcare practitioners on how to operate their offices more
efficiently as well as sponsor classes for recertification in the field. The
contracts will provide for national exposure of Documentplus in catalogs, at
seminars and through articles in chiropractic journals and magazines published
by these organizations. In addition, TVC has been utilizing national
advertising in journals and other professional medical publications.
Net City, Inc.
Net City, Inc. was incorporated in September 1994 for the purpose of
developing an online service. Net City, Inc. is not currently conducting any
operations.
ITEM 2. DESCRIPTION OF PROPERTY
Time Value Corporation currently is subleasing facilities totaling 3038
sq. feet at 400 Embassy Row, Atlanta, Georgia under a lease which expires on
December 31, 1999. The Company shares this space with Time Value Corporation,
on a rent free basis. The monthly lease payment for these facilities is
approximately $3800. The Company believes that its facilities will meet its
needs through the next several years.
ITEM 3. LEGAL PROCEEDINGS
The Company was the defendant in an action in Fulton County Superior
Court, Atlanta, Georgia entitled Furukawa vs. Atlanta Technology Group, Inc. In
this action, suit was brought against the Company as a successor in interest to
Millennium Global Inc. for non-payment of a promissory note in the amount of
$50,000 made by Millennium Global Inc. Management believes that the Company is
not a successor in interest to Millennium Global Inc. and is not responsible for
the payment of the note. The Company intends to vigorously defend this suit.
This case is in the discovery stages and no court date has been set.
The Company may be subject, from time to time, to various legal
proceedings relating to claims arising out of its operations in the ordinary
course of business. The Company, currently is not party to any legal
proceedings, the adverse outcome of which, individually or in the aggregate,
management believes would have a material adverse effect on the business,
financial condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock has traded on the over-the-counter market on
the National Association of Securities Dealers, Inc.'s Electronic Bulletin Board
since May 12, 1994. The following table sets forth the quarterly high and low
bid prices of the Company's Common Stock as quoted by the NASD's Electronic
Bulletin Board. These quotations represent prices between dealers in
securities, do not include retail mark-ups, mark-downs or commissions and do not
necessarily represent actual transactions.
Common Stock High Low
Fiscal Quarter Ended:
June 30, 1994 $10.19 $4.19
September 30, 1994 $12.00 $4.00
December 31, 1994 $12.00 $3.00
March 31, 1995 $3.75 $0.25
June 30, 1995 $4.50 $1.00
September 30, 1995 $1.00 $1.00
December 31, 1995 $1.00 $0.375
March 31, 1996 $3.125 $0.375
June 30, 1996 $4.00 $0.50
September 30, 1996 $4.00 $2.25
December 31, 1996 $3.75 $0.75
(b) Approximate Number of Shareholders. At December 31, 1996, there
were 786 holders of record of the Company's Common Stock. Since certain of the
shares of Common Stock are held in street name, it is believed that there are
substantial additional beneficial holders of Common Stock.
(c) Dividends. Holders of Common Stock are entitled to dividends
when and if declared by the Board of Directors out of funds legally available
therefor. No dividends have been paid with respect to the Company's Common Stock
and no cash dividends are anticipated to be paid in the foreseeable future.
Recent Sales of Unregistered Securities
On May 10, 1994, the Company granted an employee/consultant, as payment
for outside consulting services, options to purchase 200,000 shares of Common
Stock. As of December 31, 1996, there are 86,000 options outstanding, all of
which are exercisable. The options are exercisable at $5.00 per share and are
due to expire on May 10, 1999.
The options issued in the transactions described above were restricted
securities as defined in Rule 144. No general forms of advertising were used in
connection with the issuance of the options. The options were issued for
investment purposes only and without a view to distribution. The option holder
acquired the options for his own account and was fully informed and advised
about matters concerning the Company, including its business, financial affairs
and other matters. The holder of the options has signed an agreement providing
that the options, as well as the shares issuable upon the exercise of the
options, may not be offered, sold or transferred other than pursuant to an
effective registration statement under the Act, or pursuant to an applicable
exemption from such registration. No underwriters were involved in the sale of
the options and no commissions or other forms of remuneration were paid to any
person in connection with such sale. The issuance of the options described
above was exempt from the registration provisions of the Act by virtue of
Section 4(2) of the Act, as transactions not involving any public offering.
On July 15, 1994, the Company entered into an agreement with Rubix
Marketing, Inc., a Georgia corporation ("Rubix") to market certain on-line
computer services. As compensation for its efforts, Rubix is entitled to
options for up to 1,000,000 shares of the Company's common stock exercisable at
$9.50 per share and due to expire on July 31, 1997. The options are issued only
after certain revenue levels are attained by Net City, Inc. As of December 31,
1996 there have been no options issued to Rubix for its services.
The options issued in the transactions described above were restricted
securities as defined in Rule 144. No general forms of advertising were used in
connection with the transaction. The options are to be issued for investment
purposes only and without a view to distribution. Rubix was fully informed and
advised about matters concerning the Company, including its business, financial
affairs and other matters. Rubix has signed an agreement attesting to its
understanding that the options, as well as the shares issuable upon the exercise
of the options, may not be offered, sold or transferred other than pursuant to
an effective registration statement under the Act, or pursuant to an applicable
exemption from such registration. No underwriters were involved in the
transaction described above and no commissions or other forms of remuneration
were paid to any person in connection with such transaction. The issuance of
the options described above, should they occur, will be exempt from the
registration provisions of the Act by virtue of Section 4(2) of the Act, as
transactions by an issuer not involving any public offering.
In March 1995, ATG initiated a private offering of units that included
one promissory note in the face amount of $50,000, bearing interest at ten
percent per annum and due eighteen months from the date of issuance, and one
warrant to purchase 10,000 shares of the Common Stock for $5.00 per share. The
amount raised in this offering was $160,320. In August 1995, ATG initiated a
private offering of units that ultimately included one promissory note in the
face amount of $50,000, bearing interest at twelve percent per annum and due
six months from the date of issuance, and one warrant to purchase 16,666 shares
of the Common Stock. The amount raised in this offering was $400,800.
(Collectively, the "1995 Offerings").
All of the securities sold in connection with the 1995 Offerings were
restricted securities as defined in Rule 144. No general forms of advertising
were used in connection with the 1995 Offerings. All investors in the 1995
Offerings received information concerning the Company, including audited
financial statements. No underwriters were used in connection with the sale of
the Company's securities in the 1995 Offerings, although the company paid sales
commissions of $17,000 to Brookstreet Securities Corporation for soliciting
investors. Sales of the Company's securities pursuant to the 1995 Offerings
were exempt from the registration provisions of the Act by virtue of Section
4(2) of the Act and Regulation D promulgated by the Commission, as transactions
by an issuer not involving any public offering.
On April 3, 1995, the Company issued 5,000 shares to two individuals for
marketing services rendered. The securities issued for these services were
restricted securities as defined in Rule 144. No general forms of advertising
were used in connection with the issuance of the shares to the two individuals.
The individuals were, prior to the sale of the Company's securities to them,
fully informed and advised about such matters concerning the Company,
including its business, financial affairs and other matters. No underwriters
were used in connection with the issuance of these shares and no sales
commissions were paid to any person. The issuance of Common Stock to these
individuals was exempt from the registration provisions of the Act by virtue of
Section 4(2) of the Act, as transactions by an issuer not involving any public
offering.
On December 19, 1995, the Company issued a promissory note in the face
amount of $36,000, bearing interest at ten percent per annum and due three
months from the date of issuance to an individual investor. On February 2, 1996,
the Company issued a promissory note in the face amount of $50,000, bearing
interest at twelve percent per annum and due six months from the date of
issuance to an individual investor. On February 9, 1996, the Company issued
a promissory note in the face amount of $24,000 with no interest and due three
months from the date of issuance to an individual investor. On July 24, 1996,
the Company issued a promissory note in the face amount of $50,000, bearing
interest at twelve percent per annum and due three months from the date of
issuance to an individual investor. No general forms of advertising were used
in connection with the issuance of these promissory notes. The individual
investors were, prior to the sale of the Company's securities to them, fully
informed and advised about such matters concerning the Company, including
its business, financial affairs and other matters. No underwriters were used in
connection with the issuance of these promissory notes and no sales commissions
were paid to any persons. These transactions were exempt from the registration
provisions of the Act by virtue of Section 4(2) of the Act, as transactions by
an issuer not involving any public offering.
In July 1996, ATG initiated a private offering of 1,000,000 units which
included one share of common stock and one warrant to purchase common stock at
an exercise price of $2.00. These units were sold pursuant to Regulation S.
Payment for these securities was made via a secured promissory note in the
amount of $1,000,000 which had a balance owing of $660,000 at December 31, 1996.
During the first quarter of 1997, additional payments totaling $260,000 were
made which reduced the note receivable to $400,000.
All of the securities sold in connection with the offerings were
restricted securities as defined in Rule 144. No general forms of advertising
were used in connection with the 1996 offerings. All investors in the Offering
received information concerning the Company, including audited financial
statements. No underwriters were used in connection with the sale of the
Company's securities in the 1996 Offerings, although the company paid sales
commissions of $30,000 to Brookstreet Securities Corporation for soliciting
investors. Sales of the Company's securities pursuant to the offerings were
exempt from the registration provisions of the Act by virtue of Section 4(2) of
the Act and Regulation D promulgated by the Commission, as transactions by an
issuer not involving any public offering.
In the first quarter of 1997,the Company repaid $249,100 of the
principal amount due on notes issued in September 1995 and purchased 158,329
warrants outstanding in exchange for $225,010 in cash and 778,808 shares of its
common stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Atlanta Technology Group, Inc. ("ATG") is a holding company based in Atlanta,
Georgia with two subsidiaries in the information technology field. The primary
subsidiary is Time Value Corporation, a Georgia corporation ("TVC") that was
formed to develop, market and support a medical cost containment system designed
to reduce the clinical and administrative costs of producing documentation,
correspondence and record keeping for the medical community. The medical
cost containment system is known as Documentplus. Net City Inc. is not currently
conducting operations.
Plan to Address Going Concern Opinion
The Company's independent auditor has expressed the opinion that the Company's
ability to continue as a going concern is jeopardized unless the Company obtains
an infusion of capital to sustain the Company until it can market its products
on a profitable basis. The basis of this opinion is the fact that the Company
has yet to achieve profitability and does not have long-term financing in
place. The Company has developed a plan to achieve profitability and
allay doubts as to its ability to continue as a going concern. This plan
includes (1) diversification of existing product lines; (2) enhancement of
existing product lines; (3) expansion of the geographical area in which it
operates; and (4) raising capital through private placements.
Diversification. The Company has designed its software product so that the
research and development expense of creating new Documentplus systems for
different medical specialty areas will be minimal. The Company has already
completed the basic system platform which enables it to complete the development
of additional medical specialty systems at a cost substantially lower than
developing the original Documentplus system. The primary costs of developing
a Documentplus module for a new medical specialty are creating the copyrighted
scannable forms and customizing the narrative output for the specific medical
specialty produced.
Presently, the Company is developing simultaneously Documentplus systems in
orthopedics, physical therapy, orthodontics and neurology. The Company
estimates that the cost of releasing these additional systems to the market
will be approximately $300,000 in total. The Company intends to fund the
development and release of these products from the proceeds of the private
placements. The Company plans to release these new Documentplus systems in the
next 24 months. The orthopedics, physical therapy and orthodontics specialty
systems will be scheduled for release in the fourth quarter of 1997 if funding
for the projects is available in April 1997. The neurology specialty system is
scheduled for release in the second quarter 1998.
Based on information obtained by the Company in 1995, there are 20,000
orthopedists and 64,000 physical therapists licensed to practice in the United
States. The Company believes that this expansion could add as many as 8,500
users to its current base in six years in these two specialties alone. This
figure is based upon a market penetration of ten percent of licensed
practitioners in those specialties over that period of time. The Company
intends to market the new specialties by demonstrating the Documentplus
systems at seminars and trade shows for each medical specialty during the year.
The Company will also advertise in trade publications for each specialty.
The Company already has established sales, training and support personnel.
Since the Documentplus system works basically the same way in each medical
specialty, the Company feels that its personnel in the sales, training and
support departments will be adequate to launch the new specialty systems.
As future funding is available, the Company has identified additional
specialties that it intends to develop.
Enhancement of Existing Product Lines. During 1996, the Company developed
additional Documentplus forms used in patient assessment and released these
forms to the market in the third quarter of 1996. These copyrighted forms are
marketed to existing Documentplus users and will be used in the orthopedics,
physical therapy, neurology and anesthesiology Documentplus systems.
Expansion. The Company has increased its number of salespersons from four in
1995 to six in 1996. The Company is now working with three management
consultant groups with national exposure instead of one that is located
primarily in the Eastern United States. Additionally, the Company is achieving
more exposure from advertising in national trade catalogs and directories as
well as articles written in national trade publications about its products.
These activities have resulted in increased leads and sales over the same time
period in 1995. The Company has signed a agreement for distribution of
Documentplus in Mexico, Spain, Puerto Rico and Australia.
Raising Capital. The Company filed a Registration Statement on Form SB-2
(file #33-00256) for the offer and sale of 1,400,000 shares of its common stock
at $3.00 per share (the "Offering")in January 1996. The Company intends to
withdraw the pending statement and effected a charge to earnings for deferred
offering costs which had accumulated during 1996. The Company intends to raise
funds for product development and working capital during 1997 through private
placements. The Company projects that after the completion of its financing
activities, it will be able to fund the development of future specialty systems
from the recurring revenue produced from the sale of its Documentplus systems,
sales of copyrighted scannable forms and annual support fees. Management
believes that the proceeds from the financing activities, together with the
anticipated cash flow from the operations of its subsidiaries, will be
sufficient to support currently anticipated working capital requirements for at
least 12 months. A portion of the net proceeds will be used to satisfy the
Company's existing debt, which carries interest, thereby reducing interest
expense in future periods. Management believes that at that time the Company
will have sustained a level of profitability that will enable it to conduct
operations and continue expansion efforts without the need for outside
financing.
The going concern qualification is contained in the 1995 and 1996 audited
financial statements. The independent auditor has indicated that the language
can be removed in 1997 as soon as the Company has completed its financing
activities and has sufficient capital to fund operations for twelve months. The
independent auditor also has indicated that the language can be removed once the
Company has achieved sustained profitability.
Fiscal Year 1996
Results from operations. Revenues for 1996 were $1,600,785, a 2% increase over
revenues of $1,559,701 generated in 1995. During 1996, the Company focused its
efforts on Documentplus product sales rather than the sale of engineering
consulting services. TVC ended the year with the sale of 200 Documentplus
systems. This was an increase of 38 over the sales of 164 systems during 1995.
TVC had 431 systems operating by the end of 1996.
Sales and gross profits for the year ended December 31, 1996 increased over the
1995 levels principally as a result of the increased sales by Time Value
Corporation's Documentplus software product and affiliated form sales and
support revenues.
Operating expenses for the year ended December 31, 1996 decreased by $128,087
over the year ended December 31, 1995. This represents a decrease of
approximately 8%. While advertising and interest expenses increased during the
year, significant decreases were realized in show and demo expenses, legal fees
and rent. Interest expenses increased due to interest on the notes payable
issued in the 1995 offering. These notes were issued in September 1995.
Interest expense during 1995 was $51,865 and $178,900 for 1996. Interest
was accrued for the full twelve months in 1996 as opposed to three months of
1995.
Cost of sales for the year ended December 31, 1996 decreased to 36.6% from 41.6%
for 1995. Cost of sales decreased due to the lower cost of sales for forms and
software support.
Liquidity and Capital Resources
The Company has financed operations through sales, stockholder loans and the
issuance of Common Stock.
Working capital decreased during 1996, due to increased interest expenses
related to notes issued during 1995 and additional short term borrowings to fund
operations of ATG's subsidiaries.
On February 2, 1996, the Company issued a promissory note in the face amount of
$50,000, bearing interest at twelve percent per annum and due six months from
the date of issuance to an individual investor.
On February 9, 1996, the Company issued a promissory note in the face amount of
$24,000 with no interest and due three months from the date of issuance to an
individual investor.
On July 24, 1996, the Company issued a promissory note in the face amount of
$50,000, bearing interest at twelve percent per annum and due three months from
the date of issuance to an individual investor.
In July 1996, ATG initiated a private offering of 1,000,000 units which included
one share of common stock and one warrant to purchase common stock at an
exercise price of $2.00. These units were sold pursuant to Regulation S.
Payment for these securities was made via a secured promissory note in the
amount of $1,000,000 which had a balance owing of $660,000 at December 31, 1996.
During the first quarter 1997, additional payments totaling $260,00 were made
and the note was reduced to $400,000.
In July 1996, the Company's subsidiary Time Value Corporation entered into a
Distributorship Agreement with Einzelhaft as amended August 31, 1996, whereby
Time Value Corporation appointed Einzelhaft as an exclusive distributor of
certain medical software products for Mexico, Spain, Puerto Rico and Australia
in exchange for a distribution fee of $238,000. The initial term of the
agreement is for one year. The distribution fee included 119 units of the
Documentplus medical software, but excluded the optical mark scanners which must
be purchased from a non-related party.
In December 1996, the Company sold its ownership of Silver Ridge Software Inc.
("SRS") to Einzelhaft Partners AG for $20,000. At the time of the sale, SRS had
a negative net worth of approximately $252,000. The net loss of SRS through the
date of the sale ($93,770, or $.03 per share) has been included in the
consolidated statement of operations of the Company for the year ended December
31, 1996. However, no gain or loss on the sale of SRS has been included in the
results of operations. The Company reduced its debt to Einzelhaft by the amount
of the purchase price.
ATG plans to derive its income from the sale of its subsidiaries' existing
products, including products released or to be released in 1997, from the sale
of scannable forms and support services to Documentplus users. Until ATG's
revenues are sufficient to fund its subsidiaries' operations, ATG will need
additional outside sources of capital to finance its subsidiaries' operations
and research and development activities. ATG anticipates that the proceeds from
the planned private offerings will be sufficient to finance its activities and
also the activities of its subsidiaries' until revenues are sufficient to fund
such activities.
Fiscal Year 1995
Results from operations. Revenues for 1995 were $1,559,701 in 1995, a 52%
increase from revenues of $1,023,414 for 1994. The reason for this increase
was primarily the fact that TVC had a full year of sales of the chiropractic
Documentplus system. TVC ended 1994 with the sale of 67 Documentplus systems.
During 1995, TVC sold 164 systems. TVC had 231 systems operating by the end of
1995.
Sales and gross profits for the year ended December 31, 1995 increased over the
1994 levels principally as a result of the increased business generated by SRS
in 1995 versus 1994 and the increased sales of TVC's Documentplus system in the
chiropractic market and the increased growth in the sale of scannable forms.
Revenues for the year ended December 31, 1995 increased to $1,559,701 from
$1,023,414 for the year ended December 31, 1994, an increase of $536,287. The
increase in revenues is the result of increased sales of TVC's Documentplus and
copyrighted scannable forms, and SRS's increased growth. TVC also began billing
for annual support of its Documentplus system to the first system purchasers
during the first quarter of 1995.
Operating expenses for the year ended December 31, 1995 increased by $370,804
over the year ended December 31, 1994. The most significant increases were in
salaries, payroll taxes, trade show expenses and interest on short term debt.
The increase in salaries and payroll taxes reflects the hiring of additional
engineering, sales, administrative and research and development personnel as
well as the cost of contract personnel used by SRS as part of its computer
consulting service operations. Marketing expenses increased as a result of
TVC's Documentplus system being demonstrated to clinicians at seminars and trade
shows. Operating expenses for the year ended December 31, 1995 also include
commissions of $12,000 and offering expenses of $28,000 for the interim
financing obtained by the Company as well as a charge of $66,665 for
amortization of debt discount incurred by the issuance of warrants to purchase
shares of the Company's common stock which were issued to various investors in
September 1995.
Cost of sales for the year ended December 31, 1995 decreased from 52.8% in
fiscal 1994 to 41.6% for fiscal 1995. The reduction in cost of sales was due to
an increase in sales of scannable forms in the first quarter of 1995. This
increase was due to the fact that there were increased numbers of Documentplus
users which led to increased sales of the scannable forms associated with the
system. The scannable forms have a greater profit margin and as revenues from
the sales of forms increases, the cost of goods will decrease.
Liquidity and Capital Resources
The Company has financed operations through sales, stockholder loans and the
issuance of Common Stock.
Working capital decreased during the year ended December 31, 1995 principally as
a result of ATG borrowing funds on a short term basis to fund operations of its
subsidiaries.
In January 1995, the Company borrowed $30,000 from an unaffiliated company at
an interest rate of 8.5% per annum.
In March 1995, the Company initiated a private offering of units that included
one promissory note in the face amount of $50,000, bearing interest at ten
percent per annum and due 18 months from the date of issuance, and one warrant
to purchase 10,000 shares of the Common Stock for $5.00 per share. The amount
raised in this offering was $160,320. In January 1996, the Company exchanged one
warrant to purchase 10,000 shares of Common Stock for $5.00 per share with one
warrant to purchase 16,666 shares of Common Stock for $100.
In May 1995, the Company borrowed $35,000 on a demand note from the wife of Hale
R. Spiegelberg, Chairman and Chief Executive Officer of the Company. This note
carried an interest rate of ten percent per annum. This note was repaid in
October 1995.
In August 1995, the Company initiated a private offering of units that
ultimately included one promissory note in the face amount of $50,000, bearing
interest at twelve percent per annum and due six months from the date of
issuance, and one warrant to purchase 16,666 shares of Common Stock for $100.
The amount raised in this offering was $400,800.
In December 1995, the Company borrowed $36,000 from an unrelated third party.
This note carries an interest rate of ten percent and is due March 1996.
Inflation
ATG does not believe that inflation had a significant impact on its results of
operations in the past two years.
Seasonality
Management does not believe that the Company's business is seasonal.
Item 7. Financial Statements
The following financial statements are attached hereto commencing on Page 27.
Independent Auditor's Report (December 31, 1996 and 1995).
Consolidated Balance Sheets at December 31, 1996 and 1995.
Consolidated Statements of Operations for the years ended December 31, 1996 and
1995
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1996, and 1995
Consolidated Statement of Cash Flows for the years ended December 31, 1996 and
1995.
Notes to Consolidated Financial Statements for the years ended December 31, 1996
and 1995.
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons
The present members of the Company's Board of Directors are as follows:
Name Age Position
Hale R. Spiegelberg 46 Chairman, CEO,
Secretary, and
Director
James Cassidy 64 President, CFO
and Director
Mr. Hale R. Spiegelberg has been Chairman of the Board and a director
of ATG since its inception, and has been actively involved in the development
and marketing of medical information technology using optical mark scanning,
and other high technology industries for the past seven years. Currently, he is
a full-time employee of ATG, and is committed to managing ATG on a full-time
basis. Since 1994, he has served as a director of Avionics One, Inc., a company
organized to design and develop an aircraft navigational system. In 1994, he
served as a director of Fiberoptic Atlanta, Inc. He is a former director and
former President of Total Software Inc., a computer software system and hardware
set-up company. Since 1989, he has been a director of Patient Communication
Systems Inc., a company that developed software for the dental profession using
an optical mark scanning system. Patient Communication Systems is currently
inactive. He has previously served as a director of Acquisition Advisors, Inc.,
a company formed to provide consulting services on mergers and acquisitions.
During the same period he has served as an officer or director of several
financial companies, including Norris Hirschberg (1991) and Masters Financial
Group, Inc. (1991).
Mr. James Cassidy has been a director of ATG since December 1995 and
President and CFO since March 15, 1996. He is President of Ye Olde Cookie
Company. Mr. Cassidy has been associated with Ye Olde Cookie Company since
1987. He has been a consultant to Durham Temporary Services since 1990. All
three of these companies are located in Atlanta, Georgia. From 1988 until 1990,
Mr. Cassidy served as Chairman of Patient Communication Systems, Inc. in
Atlanta. From 1960 until his retirement in 1987, Mr. Cassidy held various
positions at Sears Roebuck & Co. From 1980 until 1987 he assumed responsibility
for facilities planning operations in the Southeast, Southwest, and Puerto Rican
regions. In 1978, he was named National Sales Manager. Mr. Cassidy graduated
from Mt. St. Mary's College in 1960 with a degree in Business Administration.
Compliance With Section 16(a) of the Securities Exchange Act of 1934.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten-percent shareholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company, and written representations that no other
reports were required during fiscal year ended December 31, 1995, the Company's
directors, executive officers and greater than ten-percent shareholders complied
with all applicable Section 16(a) filing requirements.
Item 10. Executive Compensation
Mr. Spiegelberg received no remuneration for his services between 1995 and 1996,
and there were no executives of the Company whose aggregate cash and cash
equivalent forms of remuneration was in excess of $100,000 between 1995 and
1996.
No officer or director of ATG has ever been granted any stock options or awards
under a Long Term Incentive Plan. ATG does not have a defined benefit, pension,
profit sharing or other retirement plan.
Compensation of Directors.
Standard Arrangements. The Company does not pay its directors for attending
meetings of the Board of Directors. The Company has no standard arrangement
pursuant to which directors of the Company are compensated for any services
provided as a directors or for committee participation or special assignments.
Other Arrangements. During the year ended December 31, 1996 and except as
disclosed above, no director of the Company received any form of compensation
from the Company.
Employment Contracts
The Company does not have any written employment contracts with
respect to any of its executive officers, and does not have any compensatory
plan or arrangement that results or will result from the resignation,
retirement, or any other termination of any executive officer's employment with
the Company or from a change-in-control of the Company or a change in an
executive officer's responsibilities following a change-in-control.
Item 11. Security Ownership by Certain Beneficial Owners and Management.
The following table sets forth as of December 31, 1996, information
concerning beneficial ownership of the common stock of the Company by (i) each
person (including any "group" as that term is defined in Section 13(d)(3) of the
Securities Exchange Act of 1934) known by the Company to own beneficially more
than 5% of such common stock, (ii) each officer and director of the Company, and
(iii) all directors and executive officers as a group.
Number of Shares of
Name and Address of Common Stock Percentage of
Beneficial Owner Beneficially Owned Common Stock
Total Software Inc. 644,948 (2) 16.9%
P.O. Box 1062
Grand Cayman, Cayman Islands
Einzelhaft Partners, A.G. 350,000 (1) 9.2%
P.O. Box 1062
Grand Cayman, Cayman Islands
Axis Capital, A.G. 250,000 (3) 6.5%
P.O. Box 1062
Grand Cayman, Cayman Islands
Acquisitions Advisors, Inc. 568,832 (2) 14.9%
P.O. Box 1062
Grand Cayman
Cayman Islands
Euro Pacific Securities 512,000 13.4%
Service GmbH & Co, Kg
Werdener Strasse 4
40227 Dusseldorf
GERMANY
Greg Richter 96,500 (3) 2.5%
860 Cold Harbor
Roswell, GA
All Executive Officers,Directors 1,910,280 (1) 50.1%
and former Directors as a Group
(1) Hale R. Spiegelberg is Chairman and Chief Executive Officer of ATG. He has
the right to name the beneficiaries of the trust that owns Einzelhaft Partners
A.G. but is not the beneficiary of the trust. Mr. Spiegelberg is not an
officer, director, shareholder or trustee of Einzelhaft Partners A.G. nor a
director of the trust. Mr. Spiegelberg is a former director of Capital
Placement Corporation which owns 11,597 shares (.3%) of Common Stock.
(2) Total Software Inc. and Acquisition Advisors, Inc. are both owned by
Einzelhaft Partners A.G. Mr. Spiegelberg is a former officer and director of
Total Software Inc. and Acquisition Advisors Inc.
(3)Greg Richter was the former President of the Company and Silver Ridge
Software Inc. He resigned on March 15, 1996. Mr. Richter has the right to name
the beneficiaries of the trust that owns Axis Capital A.G. but is not the
beneficiary of the trust.
Item 12. Certain Relationships and Related Party Transactions
In February 1995, the Company sold 5,114 shares of PRCC Common Stock on the open
market for approximately $3350.
In December 1995, the Company accepted computer equipment from Greg Richter in
exchange for a $12,000 note which was outstanding during 1994.
As of December 31, 1995, the Company owed $24,500 to TSI and $143,720 to AAI.
During 1996, the Company borrowed approximately $664,000 and repaid
approximately $178,000 to Einzelhaft, AAI and TSI. In 1995, the Company
borrowed $14,000 and repaid $46,000 to these affiliates. At December 31, 1995,
substantially all of the assets of SRS, approximating $171,000 were subject to a
security interest in favor of TSI. At December 31, 1996, the Company owed
Einzelhaft approximately $108,000. At December 31, 1996, the Company owed
nothing to TSI or AAI.
In December 1996, the Company sold its ownership of Silver Ridge Software Inc.
("SRS") to Einzelhaft Partners AG for $20,000. At the time of the sale, SRS had
a negative net worth of approximately $252,000. The net loss of SRS through the
date of the sale ($93,770, or $.03 per share) has been included in the
consolidated statement of operations of the Company for the year ended December
31, 1996. However, no gain or loss on the sale of SRS has been included in the
results of operations. The Company reduced its debt to Einzelhaft by the amount
of the purchase price.
13. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit
3.1 Certificate of Incorporation of Time Value Corporation, a Delaware
corporation*
3.2 Certificate of Amendment of Certificate of Incorporation, a
Delaware corporation to Change Name to Atlanta Technology Group, Inc. *
3.3 By-Laws of Time Value Corporation, a Delaware corporation*
10.1 Authorship and Booth Rental Agreement between Markson Management
Services, Inc. and Time Value Corporation, a Georgia corporation*
10.2 Authorship and Booth Rental Agreement between Activator Methods, Inc.
and Time Value Corporation, a Georgia corporation*
11 Statement re: Computation of Per Share Earnings*
22 Subsidiaries of Registrant*
24 Consent of Allen P. Fields
________________________________
* Incorporated by reference to the Company's Registration Statement on Form SB-2
(file no. 33-00256) filed January 12, 1996
(b) Reports on Form 8-K
.
The Company did not file any reports on Form 8-K during 1995.
ATLANTA TECHNOLOGY GROUP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Date
__________________________ _______________________
Hale R. Spiegelberg
Chairman of the Board,
Chief Executive Officer
Secretary, Director
______________________________ _________________________
James Cassidy
President, Chief Financial Officer,
Director
<PAGE>
ATLANTA TECHNOLOGY GROUP, INC., AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1996 and 1995
Allen P. Fields
Certified Public Accountant
1801 Piedmont Avenue, Suite 103
Atlanta, Georgia 30324
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Atlanta Technology Group, Inc.
I have audited the accompanying consolidated balance sheets of Atlanta
Technology Group, Inc. and Subsidiaries (the "Company") as of December 31, 1996
and 1995 and the related consolidated statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits 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 the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31, 1996
and 1995 and the results of its operations and its cash flows for each of the
two years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has incurred losses from operations during
each year since inception that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
April 7, 1997
<PAGE>
<TABLE>
ATLANTA TECHNOLOGY GROUP, INC.
Consolidated Balance Sheet
December 31, 1996 and 1995
<CAPTION>
1996 1995
<S> <C> <C>
Current Assets
Cash $163,583 $53,187
Marketable securities (Notes 2, 4 and 8) 102,173
Accounts receivable - trade net of allowance
for doubtful accounts of $32,000 at December
31, 1996 and $12,000 at December 31, 1995,
respectively 145,252 166,481
Inventory 40,707 19,513
Other current assets 11,521 5,755
_______ _______
Total Current Assets 463,236 244,936
Equipment, Fixtures and Computers
Equipment, fixtures and computers, net of
accumulated depreciation of $129,023 and
$104,516 at December 31, 1996 and 1995
respectively 109,675 130,136
Other Assets
Software development costs, net of accumulated
depreciation of $152,611 at December 31, 1996
and $104,516 at December 31, 1995(Notes 2 and 5) 624,891 451,617
Deferred offering costs (Note 6) 130,025
Other Assets 1,534 69,817
_______ _______
Total Assets $1,199,336 $1,026,531
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable (Note 7) $624,720 $592,800
Notes payable to affiliates (Note 8) 108,087 168,220
Accounts payable - trade 217,905 221,827
Accrued salaries and payroll taxes payable 39,613 26,090
Accrued interest payable 111,985 27,509
Other current liabilities 205,580 75,447
_______ _______
Total Current Liabilities 1,307,890 1,111,893
Note payable - Non-current (Note 7) 50,000
Commitments and Contingencies (Notes 11 and 12)
Stockholders' Equity (Notes 1,2, 10 and 13)
Common stock 3,812 2,800
Additional paid-in capital 3,731,424 2,520,783
Retained earnings (deficit) (3,183,790) (2,658,945)
Stock subscriptions receivable (660,000)
__________ ___________
Total Stockholders' Equity (108,554) (135,362)
___________ ___________
Total Liabilities and Stockholders'
Equity $1,199,336 $1,026,531
__________ ___________
<FN>
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
ATLANTA TECHNOLOGY GROUP, INC.
Consolidated Statement of Operations
Years Ended December 31, 1996 and 1995
<CAPTION>
1996 1995
<S> <C> <C>
Revenues $1,600,785 $1,559,701
Cost of Sales 586,899 649,426
Gross Profit 1,013,886 910,275
Operating Expenses
Selling, general & administrative 1,310,389 1,501,544
Depreciation and amortization 46,352 110,409
Interest (Note 7) 178,990 51,865
_________ _________
Total operating expenses 1,538,731 1,663,818
Loss from operations (524,845) (753,543)
Provision for taxes (Notes 2 and 9) - -
________ ________
Loss before minority interests (524,845) (753,543)
Minority interests - 66,667
__________ ________
Net loss $(524,845) $(686,876)
___________ __________
Weighted average number of common shares
outstanding 3,279,935 2,948,525
_________ __________
Loss per common share (Note2) $(0.16) $(0.23)
_________ __________
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ATLANTA TECHNOLOGY GROUP, INC.
Consolidated Statement of Stockholders' Equity
Years Ended December 31, 1996 and 1995
<CAPTION>
Additional Stock
Common Paid-in Retained Subscription
Stock Capital Earnings Receivable Total
<S> <C> <C> <C> <C> <C>
Balance,
Jan.1, 1995 $2,795 $2,371,338 $(1,972,069) $402,064
Issuance of
5,000 shares
in exchange
for marketing
services 5 14,995 15,000
Issuance of
171,996
warrants to
purchase
common stock 134,450 134,450
Net loss (686,876) (686,876)
_______ ___________ _________ ___________ _________
Balance,
Dec. 31,1995 $2,800 $2,520,783 $(2,658,945) $(135,362)
Proceeds from
the sale of a
subsidiary to
an affiliate
in excess of
net worth 279,278 279,278
Issuance of stock
subscriptions for
1,000,000
shares 1,000 999,000 $(1,000,000)
Proceeds from
payment of stock
subscriptions 340,000 340,000
Issuance of stock
as commission for
subscription
agreement 12 (12)
Costs relating
to stock
subscription
agreement (67,625) (67,625)
Net loss (524,845) (524,845)
________ ___________ ____________ ____________ ___________
Balance,
Dec. 31,
1996 $3,812 $3,731,424 $(3,183,790) $(660,000) $(99,254)
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
ATLANTA TECHNOLOGY GROUP, INC.
Consolidated Statement of Cash Flows
Years Ended December 31, 1996 and 1995
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(524,845) $(686,876)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 93,135 367,307
Minority interest shares of loss (66,667)
Provision for losses on accounts receivable 20,000
Changes in operating assets and liabilities
Decrease in accounts receivable-trade, net 1,229 48,273
(Decrease) Increase in account payable -trade, net (3,922) 28,237
Increase in other assets 40,519 19,579
Increase in accrued interest 84,476
Increase in other liabilities 143,656 61,907
_______ _______
Net cash used by operating activities (145,752) (228,240)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) Decrease in marketable securities (102,173) 3,095
Additions to equipment, fixtures and computers (4,046) (39,818)
Additions to software development costs (241,098) (197,259)
_________ _________
Net cash provided by (used in) investing activities (347,317) (233,982)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayment of) Proceeds from the issuance of
notes payable, net (18,080) 604,800
Proceeds from the issuance of common stock 340,000 15,000
Costs associated with terminated common stock offering 130,025 (107,025)
Costs associated with issuance of common stock (67,625) -
Decrease in borrowing from affiliates (60,133) (32,480)
Decrease in loans to officers - 12,000
Other equity changes - 1,120
Increase in equity from sale of subsidiary
to affiliate 279,278 -
_________ ________
Net cash provided by financing activities 603,465 493,415
_________ ________
Net increase in cash 110,396 31,193
Cash at beginning of period 53,187 21,994
________ _______
Cash at end of period $163,583 $53,187
________ _______
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:
Taxes paid during period 0 0
Interest paid during period $45,686 $24,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
See Notes 1, 2 and 10 of Notes to Consolidated Financial Statements
<FN>
See accompanying notes to financial statements
</TABLE>
<PAGE>
ATLANTA TECHNOLOGY GROUP, INC.
Notes to Consolidated Financial Statements
For the Two Years Ended
December 31, 1996 and 1995
1. Organization and Intercorporate Relationships
(A) The Company
Atlanta Technology Group, Inc. ("the Company") was incorporated under
the laws of the State of Delaware in October 1993. The financial statements
include the accounts of the Company and its subsidiaries, Time Value
Corporation ("TVC"), Net City, Inc., and Silver Ridge Software Inc. ("SRS")
(Note 1B).
(B) Mergers and Acquisitions
In May 1994, the Company acquired all the issued and outstanding shares
of SRS, in exchange for 500,000 shares of the Company's common stock. SRS was
incorporated in Georgia in August 1993 by Axis Capital, A.G. and Einzelhaft
Partners, A.G. ("Einzelhaft"), affiliates of the Company (Note 1C).
In December 1996, the Company sold its ownership of SRS to Einzelhaft
for $20,000. At the time of the sale, SRS had a negative net worth of
approximately $252,000. The net loss of SRS through the date of the sale
($93,770, or $.03 per share) has been included in the consolidated statement of
operations of the Company for the year ended December 31, 1996. However, no
gain or loss on the sale of SRS has been included in the results of operations.
The Company reduced its debt to Einzelhaft by the amount of the purchase price.
In 1995, a minority interest existed in a subsidiary of SRS.
(C) Affiliated Companies And Related Parties
Hale R. Spiegelberg is Chairman of the Board and Chief Executive Officer of the
Company. He has the right to name the beneficiaries of the trust that owns
Einzelhaft, but is not the beneficiary of the trust. He is not an officer,
director, shareholder or trustee of Einzelhaft, nor a director of the trust.
Mr. Spiegelberg is a former director of Capital Placement Corporation, which
owns 11,597 shares (.3%) of the common stock of the Company. Mr. Spiegelberg
is also a former officer and director of both Total Software, Inc. ("TSI") and
Acquisition Advisors, Inc. ("AAI"), affiliates of the Company with whom the
Company has had numerous business transactions.
Gregory Richter is the former President of the Company and SRS. He resigned on
March 15, 1996. Mr. Richter has the right to name the beneficiaries of the
trust that owns Axis Capital A.G., but is not the beneficiary of the trust.
During 1996, the Company borrowed approximately $664,000 and repaid
approximately $178,000 to Einzelhaft, AAI and TSI. In 1995, the Company
borrowed $14,000 and repaid $46,000 to these affiliates. At December 31, 1995,
substantially all of the assets of SRS, approximating $171,000 were subject to a
security interest in favor of TSI. At December 31, 1996, the Company owed
Einzelhaft approximately $108,000. At December 31, 1995, the Company owed
TSI and AAI approximately $168,000.
(C) Affiliated Companies and Related Parties
The significant shareholders of the Company at December 31, 1996 are as follows:
Shareholder Number of shares owned Percent of issued and
outstanding shares
Total Software Inc. 644,948 16.9
Acquisition Advisors Inc. 568,832 14.9
Euro Pacific Securities
Service GmbH & Co. KG 512,000 13.4
Einzelhaft Partners, A.G. 350,000 9.2
Axis Capital A.G. 250,000 6.6
Gregory Richter 96,500 2.5
________ ____
Total 2,422,780 63.5
In July 1996, the Company entered into a Distributorship Agreement with
Einzelhaft, as amended August 31, 1996, whereby the Company appointed
Einzelhaft as an exclusive distributor of certain medical software products of
the Company for Mexico, Spain, Puerto Rico and Australia in exchange for a
distribution fee of $238,000. The initial term of the agreement is for one
year. The distribution fee included 119 units of the Company's Documentplus
medical software, but excluded the optical scanners which must be purchased from
a non-related party. Since the Company has no significant obligations remaining
subsequent to delivery of the product, the entire distribution fee has been
recognized as income in 1996. The effect of this transaction was to increase
earnings by approximately $238,000 or $.07 per share.
During 1996, the Company entered into a consulting agreement with CPG, Inc., an
Atlanta based engineering consulting firm. CPG, Inc. is owned by the family of
Mr. James Cassidy, President, Chief Financial Officer and director of the
Company. Mr. Cassidy is not an officer, shareholder or director of CPG, Inc.
During 1996, the Company paid or accrued $8,000 to CPG, Inc. and $2,000 to Mr.
Cassidy. At December 31, 1996, the Company owed $2,000 to CPG, Inc.
(D) Operations and Industry Concentration
During 1996, the operations of the Company were conducted primarily through TVC.
TVC's products include a computer generated system for healthcare practitioners
using a microcomputer, printer, optical mark scanner, and scannable forms to
generate individualized correspondence, reports to patients, doctors, and
insurance companies and to maintain a record of diagnosis and recommended
treatment. TVC currently sells this product to chiropractors, neck and back
pain clinics, and spinal clinics throughout the United States. SRS is a
computer consulting and software engineering firm that provides customized
software solutions and contract engineering services in a wide variety of
industries. During 1996, the operations of SRS were significantly reduced.
(Note 1B).
TVC currently purchases all its optical mark scanners from one supplier and its
scannable forms from two suppliers. Although there is a limited number of
suppliers of these products, management believes that other suppliers could
provide similar products on comparable terms. However, a change in suppliers
could cause a delay in shipments, and a possible loss of sales which would
adversely effect operations.
2. Summary of Significant Accounting Policies
Accrual accounting
The Company uses the accrual method of accounting for financial accounting
reporting purposes.
Marketable Securities
The Company has adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115").
Under SFAS 115, securities held principally for the purpose of selling them in
the near future are classified as "trading securities" and are reported at fair
market value as of the balance sheet date. All realized and unrealized gains
and losses during the period are included in the consolidated statement of
operations. Securities classified as "available for sale securities" are
reported at fair market value as of the balance sheet date with unrealized gains
and losses excluded from the consolidated statement of operations and reported
as a separate component of shareholders' equity.
Inventories
Inventories are stated at the lower of cost (first-in, first-out basis) or
market and consist primarily of optical scannnable forms.
Depreciation of Equipment, Fixtures, and Computers
Equipment, fixtures and computers are recorded at cost and depreciation is
provided using the straight-line method by charges to operations over the
estimated useful lives of the various classes of depreciable assets ranging from
three to five years.
Capitalized Software Development Costs
Capitalized software development costs are amortized on a product-by-product
basis by charges to operations beginning when a product becomes available for
sale. Amortization is computed either 1) on a straight-line method over the
remaining economic useful life of the product (estimated to be five years) or,
2) using the ratio that current gross revenues for a product bear to the total
of current and anticipated future gross revenues for that product, whichever is
greater.
Revenue Recognition
Revenues from the sale of computer hardware and software products are recognized
upon delivery to customers (provided that collection of the receivable is deemed
probable) since the Company has no significant remaining obligation subsequent
to delivery. Insignificant obligations remaining after delivery are accrued.
Revenues from annual customer maintenance fees are recognized ratably over the
period of the maintenance contracts.
Income Taxes
The Company has adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes"("SFAS109") which requires an asset and liability
approach to financial accounting and reporting for income taxes. Under SFAS
109, deferred tax assets and liabilities are provided for differences between
the financial statement and tax bases of assets and liabilities that will result
in future taxable or deductible amounts. The deferred tax assets and
liabilities are measured using the enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Income tax expense is computed as the tax payable or refundable
for the period plus or minus the change during the period in deferred tax assets
and liabilities.
Earnings (loss) per share
Earnings or loss per share are computed by dividing the net income or loss by
the weighted average number of common stock and common stock equivalents
outstanding during the period. Common stock equivalents have been excluded from
the computation if the effect of their inclusion would be anti-dilutive.
Fair Value of Financial Instruments
In 1996, the Company adopted Statement of Financial Accounting Standards
No. 107, "Disclosures about Fair Value of Financial Instruments", which requires
disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet. The carrying amounts reported in the
consolidated balance sheets at December 31, 1996 and 1995 for cash, accounts
receivable, notes payable, accounts payable and accrued expenses payable
approximate fair value due to the short-term nature of these instruments.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Change in Presentation
Certain amounts in the prior year statements have been reclassified to conform
with the 1996 presentation.
3. Going Concern Disclosure
The Company has incurred losses each year since its inception and has a negative
net worth and negative working capital at December 31, 1996. Since the Company
has no long-term financing in place, it must rely on its own financial resources
and those of its affiliates and/or its stockholders to provide the necessary
funds to sustain operations until the Company begins to market its products on a
profitable basis. Management has developed a plan to achieve profitability and
projects that the Company will break-even in 1997. Management's plan includes
1) diversification of existing product lines, 2) enhancement of existing product
lines, 3) expansion of the geographical area in which it operates and 4) raising
capital through securities offerings. Management believes that its
profitability plan will provide sufficient funds to meet the Company's cash
requirements during the next twelve months.
4. Marketable Securities
Marketable securities consist of 68,115 shares of Halis, Inc. common stock.
These shares were acquired from Einzelhaft on December 31, 1996, at the fair
market value on that date. These shares are classified as "trading securities"
under SFAS No. 115 (Note 8).
5. Capitalized Software Development Costs
Capitalized software development costs represent expenses incurred in producing
and enhancing product masters subsequent to establishing the "technological
feasibility" of the products, as that term is defined in the Statement of
Financial Accounting Standards No. 86. Capitalization of costs ceases when a
product is available for general release to customers. The Company produces a
complete working model of the product to establish technological feasibility.
The Company is currently distributing one product module to customers.
Amortization included in cost of sales during 1996 and 1995 amounted to $67,824
and $256,898 respectively.
6. Deferred Offering Costs
At December 31, 1995, the Company had deferred costs in the amount of $107,025
associated with filing a registration statement on Form SB-2 with the Securities
and Exchange Commission. Since the registration statement has been withdrawn,
these costs have been charged against operations in 1996. Also included in
deferred offering costs at December 31, 1995 were $23,000 of expenses relating
to the private placements of debt instruments. These costs were charged to
operations ratably over the life of the debt instruments with which they were
associated. Accordingly, charges to operations amounted to $23,000 in 1996 and
$24,000 in 1995 (Note 7).
7. Notes Payable
As of December 31, 1996 and 1995, notes payable is comprised of the following:
December 31
1996 1995
10% notes issued as part of
private placement in August 1995 $150,000 $160,000
15% notes issued as part of private placement
in September 1995 350,020 400,000
10% demand note payable to an employee 15,000 15,000
8.5% note payable to Supermail International Inc.
due May 22, 1995 (Note 12) 30,000 30,000
6% installment note payable 19,700 -
10% note due March 19, 1996 36,000 36,000
Non-interest bearing note payable due May 9, 1996 24,000 -
Other 1,800
________ ________
Total $624,720 $642,800
Less Non-current portion 50,000
________ ________
Notes payable current $624,720 $592,800
During 1995, the Company borrowed $560,000 in two separate private placement
offerings. The first offering, ending in August 1995, included $160,000 in
notes payable bearing interest at 10% per annum and due 18 months from the date
of issuance. One of these notes in the amount of $50,000 is due in February
1997, and, accordingly, is classified as a non-current liability at December 31,
1995. In connection with this transaction, the Company issued to the
noteholders, warrants to purchase 38,000 shares of common stock at $5.00 per
share for a total consideration of $320. In January 1996, the Company exchanged
a warrant to purchase 10,000 shares of common stock at $5 per share with a
warrant to purchase 16,666 shares of common stock for $100. In December 1996,
notes in the principal amount of $10,000 were repaid with accrued interest from
the date of issuance. The balance of the notes remain outstanding beyond their
original maturity dates.
The second private placement, ending in September 1995, included $400,000 in
notes payable bearing interest at 12% per annum (increased to 15% in 1996) and
due six months from the date of issuance. Noteholders were also issued a
warrant to purchase a Convertible Adjustable Secured Bond ("CAS Bonds") in the
amount of $50,000 for a total consideration of $800. In January 1996, the
Company exchanged each warrant to purchase CAS Bonds in the face amount of
$50,000 for a warrant to purchase 16,666 shares of common stock for $100. In
October 1996, principal payments aggregating $88,870 were made to the
noteholders. The balance of the notes remain outstanding beyond their original
maturity dates (Note 13). Costs associated with these private placements
amounting to $47,000 were capitalized and amortized over the initial term of the
notes as interest expense. (Note 6).
8. Notes Payable to Affiliates
On April 17, 1996, pursuant to a letter agreement, TVC borrowed 250,000 shares
of Halis, Inc. from Einzelhaft for a term of eighteen months ending on
October 17, 1997. TVC agreed as follows:
1. To repay Einzelhaft the value of the shares on April 17, 1996; or
2. To return the 250,000 shares to Einzelhaft on October 17, 1997; or
3. To repay Einzelhaft the proceeds from the sale of the shares and return any
unsold shares at October 17, 1997.
Since TVC had no market risk, the sale of 181,885 shares during 1996, for a
total of $311,464, was recorded as a loan from Einzelhaft. On December 31,
1996, the Company purchased the remaining 68,115 shares from Einzelhaft at the
fair market value on that date of $102,173 (Note 4).
9. Income Taxes
At December 31, 1996 and 1995, the Company has approximately $2,997,000 and
$2,371,000 respectively, of net operating loss carryforwards for income tax
purposes which are available for offset against future taxable income, subject
to certain limitations. Such losses expire in the years 2006 through 2011. At
December 31, 1996 and 1995, deferred tax assets of approximately $212,000 and
$255,000 exist principally with respect to these net operating losses. Based on
an assessment of all available evidence as of December 31,1996, management has
concluded that these deferred tax assets should be reduced by valuation
allowances equal to the amounts of the deferred tax assets. No tax benefits are
recognized in the financial statements presented since the realization of future
taxable income cannot be assured.
10. Common Stock
The Company is authorized to issue up to 10,000,000 shares of common stock, par
value $.001. At December 31, 1996 and December 31, 1995, 3,812,275 shares and
2,800,275 shares were issued and outstanding. Each share is fully paid and
non-assessable and entitled to one vote. Stockholders do not have cumulative
voting rights for the election of directors, nor do they have any preemptive
rights to receive additional shares, should any be issued.
In 1995, the Company issued 5,000 shares of its common stock in exchange for
marketing services in connection with the Company's product lines. These shares
were recorded at fair market value on the date of issuance by a charge against
income.
In July 1996, the Company signed a Subscription Agreement, as amended November
19, 1996, with Euro Pacific Securities Service GmbH & Co KG ("EPS") whereby EPS
agreed to purchase up to 1,000,000 units of stock from the Company at a price of
$1.00 per unit. Each unit consists of one share of common stock of the Company
and one warrant to purchase one additional share of common stock at $2.00 per
share. The warrants expire on December 31, 1999. During 1996, $360,000 was
received from EPS (Note 13).
The Company also entered into a Consulting Agreement with EPS and as
compensation for services rendered by EPS in connection with the Subscription
Agreement, issued 12,000 shares of its common stock to EPS. The fair market
value of these shares and other costs associated with the Subscription Agreement
aggregating $61,325, have been charged against paid-in capital in the
consolidated balance sheet.
Under a stock option agreement with an employee, there are 86,000 options
outstanding at December 31, 1996 and 1995, all of which are exercisable. The
options are exercisable at a price of $5.00 per share and expire on May 10,1999.
The Company has common stock warrants outstanding as follows:
No. Of Warrants
Outstanding at
December 31
1996 1995
Warrants exercisable at $5.00 per share 22,000 22,000
Warrants exercisable at $2.00 per share 340,000 -
Warrants exercisable at under $1.00 per share
(Note 13) 149,996 149,996
_______ _______
Total 511,996 171,996
The warrants issued to noteholders in 1995 with an exercise price of less than
$1.00 per share were recorded by a credit to Paid-in Capital in the amount of
$134,000, the approximate fair market value of the Warrants at date of issue,
with a corresponding charge to Other Non-current Assets. This amount was
amortized to interest expense in the consolidated statement of operations over
the initial term of the loans received from holders of the warrants.
Amortization for 1996 and 1995 amounts to approximately $67,000 for each year.
11. Commitments And Contingencies
The Company had two operating leases in effect during 1996. One expired in
May 1996 and the other expires in December 1999. Rental expense under these
leases amounted to $49,670 and $93,638 for 1996 and 1995 respectively. Future
minimum rental commitments required under non-cancelable operating leases having
a term of more than one year at December 31, 1996 were as follows: $46,330 in
1997; $46,330 in 1998; and $46,330 in 1999.
The Company has three distributorship agreements in effect under which the
Company has agreed to pay specified amounts or percentages of sales to
distributors in exchange for their marketing services. All amounts paid or owed
under these agreements are included in cost of sales in the consolidated
statement of operations.
12. Legal Matters
In June 1995, the Company and Fiberoptic Atlanta Inc. entered into a Settlement
Agreement whereby all lawsuits were dismissed and the parties agreed to share
ongoing costs pending the sale of certain assets of Fiberoptic Atlanta Inc. The
Company's share of any estimated future costs have been accrued at December 31,
1996 and 1995. No additional costs were incurred during either year.
In December 1995, the Company settled an action entitled Gregory S. Roe vs. Hale
Spiegelberg and Atlanta Technology Group, Inc. The Company agreed to pay Mr.
Roe a total of $2,000 in ten consecutive monthly installments. The final
installment was paid in 1996.
The Company is a defendant in an action entitled Furukawa vs. Atlanta Technology
Group, Inc. which is pending in Superior Court of Fulton County, Georgia. The
matter relates to a transaction between the Company and its acquisition of
Millennium Global Inc. ("MGI") in 1994. The plaintiff made a loan to MGI in the
amount of $50,000 and alleges that the Company assumed responsibility to repay
this loan when the Company acquired MGI.
The matter has been tried before a panel of arbitrators in Fulton County,
Georgia and the arbitrators found in favor of the plaintiff in an amount in
excess of $90,000 which included principal, interest and attorneys' fees. The
matter has been appealed and a jury trial requested. Management believes that
the plaintiff's claims are without merit and intends to defend the action
vigorously. In accordance with the provisions of Statement of Financial
Accounting Standards No. 5, "Accounting for Contingencies", a provision for
losses in the amount of $90,000 has been charged against income in the
consolidated financial statements.
In an action entitled Malen vs. Acquisition Advisors, Inc. in the Fulton County
State Court, the plaintiff obtained a garnishment on March 25, 1997 against AAI
in the amount of $80,000. At this time, however, management cannot determine
with any accuracy the status of the Company's liability, if any, associated with
this matter. Management believes that the plaintiff's claims are without merit
and intends to defend the action vigorously.
The Company is a defendant in an action entitled Andrew Jackson Eckles, d/b/a
The Atlanta Technology Group vs. the Company. This matter related to trade name
dispute involving the Company' use of Atlanta Technology Group. The Company's
use of the trade name was upheld in the Superior Court of Fulton County,
Georgia. On appeal, the Georgia Supreme Court reversed the lower court's
decision and the case will be reopened in Superior Court. No monetary damages
have been requested by the parties involved. Management believes that the
plaintiff's claims are without merit and intends to defend the action
vigorously.
On February 10, 1997, Supermail International Inc., a noteholder of the Company
(Note 7), obtained a default judgment against the Company in the amount of
$37,814, representing the principal amount of the loan of $30,000 plus interest
and attorneys' fees. The Company's bank has been served with a notice of
garnishment and funds in the amount of approximately $14,600 have been offset
in favor of this judgment. Post judgment interest of 12% per annum accrues on
the unpaid portion of the judgment.
13. Subsequent Events
In 1997, the Company received an additional $260,000 as payment on the stock
subscriptions from EPS. These funds were used, to repay certain notes payable.
In 1997, the Company repaid $249,100 in principal to certain noteholders and
exchanged the balance of their notes for 213,244 shares of common stock. The
Company also exchanged 158,329 warrants for 525,000 shares of common stock. The
noteholders forgave $74,998 of interest accrued on these notes.
In 1997, the Company sold 50,000 shares of Halis Inc. common stock for a total
of approximately $98,000 and recorded a gain of approximately $23,000
(Notes 4 and 8).
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<C>
<CASH> $ 163,583
<SECURITIES> 102,173
<RECEIVABLES> 177,252
<ALLOWANCES> 32,000
<INVENTORY> 40,707
<CURRENT-ASSETS> 463,236
<PP&E> 238,698
<DEPRECIATION> 129,023
<TOTAL-ASSETS> 1,199,336
<CURRENT-LIABILITIES> 1,307,890
<BONDS> 0
0
0
<COMMON> 3,812
<OTHER-SE> (112,336)
<TOTAL-LIABILITY-AND-EQUITY> 1,199,336
<SALES> 1,600,785
<TOTAL-REVENUES> 1,600,785
<CGS> 586,899
<TOTAL-COSTS> 586,899
<OTHER-EXPENSES> 1,518,731
<LOSS-PROVISION> 20,000
<INTEREST-EXPENSE> 178,990
<INCOME-PRETAX> (524,845)
<INCOME-TAX> 0
<INCOME-CONTINUING> (524,845)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (524,845)
<EPS-PRIMARY> $(0.16)
<EPS-DILUTED> 0
</TABLE>
