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, 1997
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.)
5535 State Bridge Road
Alpharetta, GA 30022
(Address of principal executive offices)
(Zip code)
(770) 814-2442
(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 No X
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, 1997 were
$1,235,940.
The aggregate market value of voting stock held by non-affiliates of the
registrant was approximately $1,138,853 as of December 31, 1997.
As of December 31, 1997, the Registrant had 5,601,083 shares of Common Stock,
par value $0.001, outstanding.
Total number of pages
Transitional Small Business Disclosure Format(Check one):Yes No X
ATLANTA TECHNOLOGY GROUP, INC.
Form 10-KSB
For the Fiscal Year Ended December 31, 1997
TABLE OF CONTENTS
Page
Part I
Item 1. Description of Business...................... 3
Item 2. Description of Property......................11
Item 3. Legal Proceedings............................11
Item 4. Submission of Matters to a Vote of
Security Holders.............................11
Part II
Item 5. Market for Common Equity and Related
Stockholder Matters..........................11
Item 6. Management's Discussion and Analysis of
Financial Condition and Plan of Operation....15
Item 7. Financial Statements.........................21
Item 8. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure...................................21
Part III.
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with
Section 16(a) of the Exchange Act............21
Item 10. Executive Compensation.......................22
Item 11. Security Ownership by Certain
Beneficial Owners and Management.............23
Item 12. Certain Relationships and Related
Transactions.................................24
Item 13. Exhibits and Reports on Form 8-K.............24
<PAGE>
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 Corporation, a Georgia corporation, and Net City, Inc.,
a Georgia corporation.
The principal office of the company is located at 5535 State Bridge Road,
Alpharetta, Georgia, 30022 and its telephone number is (770) 814-2442. The
Company has 12 employees on staff, including 3 in sales, 4 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
1997, the Company attended 72 seminars and meetings thus increasing the
exposure to clinicians. The additional exposure resulted in the sale of an
additional 140 systems during 1997. The sales cycle for the DocumentPlus system
ranges from one month to eighteen months from initial contact to contract
execution. The Company has historically closed a sale ofthe DocumentPlus system
with 10% of the clinicians who see the presentation of the DocumentPlus system.
In 1998, the Company will attend more than 75 seminars.
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 accident/injury
clinics, neck and back pain clinics, and rehabilitation clinics in the United
States as well as internationally. The total number of clinics using the
DocumentPlus system increased from 431 at December 31, 1996 to
571 at December 31, 1997.
Each system module requires the use of different scan sheets. The scan
sheets used with each specialty module are manufactured according to
specifications supplied by TVC. TVC purchases these forms from two
manufacturers and then resells the forms to users of the specialty modules.
TVC is currently receiving approximately $65,000 per month from the sale of
scan forms to current users. Revenue from the sale of DocumentPlus syetems
was $858,469 for fiscal 1996 and $583,690 for fiscal 1997. Revenue from the
sale of scannable forms increased from $379,926 in fiscal year 1996 to $578,349
in fiscal year 1997.
Revenue from support fees was $63,600 for fiscal 1996 and $73,750 for fiscal
1997.
The increases experienced in each category were the direct result of the
additional 140 systems sold during 1997. 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 believes, based on the results of operations for the first three
quarters of 1998, that adherence to the plan will result in reaching breakeven
in 1999. Management plans to achieve profitability include (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, orthopedics, physical therapy, orthodontics and neurology.
Eventually, TVC anticipates introducing modules for each area of medical
specialty.
TVC is also marketing 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. These relationships
have provided TVC with large networks of physicians and resulted in sales
increases during 1997. TVC has also signed a distributorship agreement to
market DocumentPlus in Spain, Mexico, Puerto Rico and Australia. In 1997, TVC
signed an additional distribution agreement for marketing and support with an
individual in Southern California who represents a practice management software
product which is interfaced with DocumentPlus. Management believes that this
agreement will increase sales by increasing the number of physicians who will
have one on one demonstrations of DocumentPlus. 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 optical scanners.
DocumentPlus provides the healthcare practitioner with automatic patient
letter generation and recordkeeping 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 and third party insurance reimbursement. The Kennedy-
Kassebaum legislation which became effective in 1997, requires medical
practitioners to provide exact documentation for Medicare reimbursement or
face penalties of up to $10,000 per incident. Insurance companies are also
demanding better documentation for payment of medical claims. 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 and long delays in receipt of payment for
services.
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"), include 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. These 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 and other entities explaining objectives and treatment recommendations.
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 their 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.
An additional feature developed in 1997 includes an interface with several
practice management and billing software programs. This interface enables the
clinician to input data via the DocumentPlus forms and have that information
directly available in the practice management and billing software. This
new function enables the practitioner's office staff to prepare the patient's
bill simply by pressing a key after the DocumentPlus forms are scanned.
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 to specifications
provided by TVC. Completed OMS forms are scanned by an optical mark scanner.
DocumentPlus has been developed for use with optical mark scanners. These
scanners read the data on the OMS form by identifying the darkness of each
mark. Light transmitted to 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 Health 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 - provide standardized measured information regarding
patient's progress and rationale for treatment.
Daily Note - Travel Card - provides the doctor with detailed information about
procedures completed on previous visits and areas for the doctor to make
notes about treatment provided on the current visit.
TVC introduced the accident/injury module on September 10, 1994 and has
sold and installed over 571 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 medical trade shows during 1997.
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 and
training 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 the manufacturers for a period of 150
days after shipment. A maintenance agreement for the scanners is available
directly from the manufacturers.
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. At the present time, TVC believes that there is no
product currently in the market place which has the capability of its
DocumentPlus program.
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.
5) To develop and distribute a video which will be used as a sales and
training tool. This new video will take the purchaser through the
installation and setup of the DocumentPlus system as well as serve as a
sales tool which will demonstrate the ease of integrating the DocumentPlus
system into their practices.
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/ chiropractic 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 leasing facilities totaling 5500 sq.
feet at 5535 State Bridge Road, Alpharetta, Georgia under a lease which expires
on May 31, 1999. The Company shares this space with Time Value Corporation, on
a rent free basis. The monthly lease payment for these facilities was
approximately $3000 per month for 1997. The Company believes that its
facilities will meet its needs through the next several years. TVC is leasing
these facilities from the wife of the Chairman of the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company is engaged in various civil complaints and lawsuits as
defendant involving primarily product liability and breaches of contract. A
trade name dispute was subsequently settled by the Company agreeing to a change
its name within six months. In management's opinion, based on advice of
counsel, the ultimate outcome of these lawsuits will not have a material effect
on the Company's consolidated financial statements.
During 1997 and subsequent to year end, the Company entered into
settlement agreements on various lawsuits, judgments or courses of action for
breach of contract. The estimated liabilities of these cases total $56,564
which is included in other liabilities in these financial statements.
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.
<PAGE>
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
[S] [C] [C]
Fiscal Quarter Ended:
March 31, 1996 $3.125 $ .375
June 30, 1996 $4.00 $ .50
September 30, 1996 $4.00 $2.25
December 31, 1996 $3.75 $.75
March 31, 1997 $2.375 $1.375
June 30, 1997 $2.00 $.875
September 30, 1997 $1.4375 $.875
December 31, 1997 $.8125 $.375
(b) Approximate Number of Shareholders. At December 31, 1997, there were
904 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, 1997, 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 transaction 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
purchase options for up to 1,000,000 shares of the Company's common stock
exercisable at $9.50 per share and expired on July 31, 1997. As of
December 31, 1997 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 i
nvestment 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.
In 1997, the Company repaid all of the notes issued in the September and
purchased 138,239 warrants outstanding in exchange for $225,010 in cash and
789,808 shares of its common stock. (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 1997, additional payments totaling $535,000 were made which
reduced the note receivable to $125,000.
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
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 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 May 1997, ATG initiated a private offering of 1,000,000 units which
consisted 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 $1,250,000. In September 1997, a default occurred in the payment of
the note and the offering was canceled. Subsequent to year end, the Company
requested that the shares be returned to the Company for cancellation.
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 May 1997 Offerings. All investors in the Offerings
received information concerning the Company, including audited financial
statements. 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.
On August 31, 1998, the Company granted two consultants, as payment for outside
consulting services, options to purchase 800,000 shares of Common Stock upon
completion of various tasks as stated in the consulting contract. The first
options are for 200,000 shares exercisable at $.25 per share. The second options
are for 150,000 shares exercisable at $.25 per share. The third options are
for 150,000 shares exercisable at $.30 per share. The fourth options are for
100,000 shares exercisable at $.35 per share. The fifth options are for
100,000 shares exercisable at $.40 per share and the sixth options are for
100,000 shares exercisable at $.45 per share. All of the options expire on
August 31, 1999. None of the options have been exercised as of the date of
this report.
All of the securities underlying the options in connection with the consulting
agreements were restricted securities as defined in Rule 144. No general forms
of advertising were used in connection with the consultants' options. All
investors in the offerings received information concerning the Company,
including audited financial statements. 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.
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 auditors have 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 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 private placements. The orthopedics,
physical therapy and orthodontics specialty systems will be scheduled for
release within 12 months after receipt of funding. The neurology specialty
system would be scheduled for release in 1999.
Based on information obtained by the Company in 1995, there are approximately
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
can be marketed to existing DocumentPlus users and will be used in the
orthopedics, physical therapy, neurology and anesthesiology DocumentPlus
systems. In 1997, the Company released an update to the program which
interfaces with existing practice management software programs to trade
information about procedures preformed for billing purposes.
Expansion. The Company is now working with three management consultant groups
with national exposure instead of one that was 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 1996.
The Company has signed an 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 1997 and 1996 audited
financial statements. The independent auditors have indicated that the language
can be removed as soon as the Company has completed its financing activities;
has sufficient capital to fund operations for twelve months, and has achieved
sustained profitability.
Fiscal Year 1996
Results from operations. Revenues for 1996 were $1,579,985 as restated, an
increase of $20,283 over revenues of $1,559,702 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 36 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 $6,979 as
restated over the year ended December 31, 1995. 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 $178,990,
as restated, 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 32.8% from
36.6% 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 1997, additional payments totaling $535,00 were made and the note
was reduced to $125,000.
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 medicalsoftware 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.
Revision of 1996 financial statements
The Company has decided not to capitalize and amortize certain costs related
to the development of its software products. Instead, the Company will charge
these costs to operations as incurred. The 1996 financial statements have
been revised to reflect this change. The effect of this change was to increase
the 1996 net loss by $173,000 or $.05 per share and to reduce retained earnings
at January 1, 1996 by $451,617.
During 1996, amounts totaling $56,000 originally charged as a reduction of debt
to an affiliate, should have been charged to selling, general and administrative
expenses. Additionally an adjustment was made to properly record unearned
revenue from support agreements on systems sold. The Company's revised
financial statements reflect these changes, which increased the net loss for
the year ended December 31, 1996 by $76,800, or $.02 per share and reduced
retained earnings by $16,000.
Fiscal Year 1997
Results from operations. Revenues for 1997 were $1,235,940, a decrease of
$344,045 from revenues of $1,579,985, as restated, generated in 1996.
Although revenues decreased approximately 22% from 1996 levels, operating
expenses for the year ended December 31, 1997 decreased by 28% or $462,485 from
the year ended December 31, 1996 as restated. While advertising and
maintenance expenses increased during the year, significant decreases were
realized in software development expenses, interest, and professional and
legal fees.
Cost of sales for the year ended December 31, 1997 decreased to 29.9% from
32.8% for 1996. 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.
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 1997, additional payments totaling $535,00 were made and the
note was reduced to $125,000.
In May 1997, 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 $1,250,000. In September 1997, a default occurred in the payment
of the note and the offering was canceled. Subsequent to year end, the Company
requested that the shares be returned to the Company for cancellation.
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.
Year 2000 Compliance
The Company uses a number of computer software programs and operating systems
with computer processing chips in its internal operations, including
applications used in the Company's financial business systems and administrative
functions. To the extent that the programs and operating systems contain source
code or computer chips that are unable to interpret appropriately the upcoming
calendar year 2000, some level of modification or possible replacement may be
necessary. The Company has upgraded its financial system and its database
programs to versions that the manufacturers have stated are 2000 compliant.
The Company does not believe that any changes or upgrades which may become
necessary will have any material effect upon the operations of the Company.
TVC's DocumentPlus system software has been Year 2000 compliant since 1996.
All customers of TVC have been upgraded to versions which are year 2000
compliant. TVC has been notifying its customers whose systems may not be year
2000 compliant that they may experience problems within their businesses. The
customers who have responded have stated their intentions to become compliant
during 1999.
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 Auditors' Report (December 31, 1997 and 1996).
Consolidated Balance Sheets at December 31, 1997 and 1996.
Consolidated Statements of Operations for the years ended December 31, 1997
and 1996
Consolidated Statements of Stockholders' Equity for the years ended December
31, 1997, and 1996
Consolidated Statement of Cash Flows for the years ended December 31, 1997 and
1996.
Notes to Consolidated Financial Statements for the years ended December 31,
1997 and 1996.
Item 8. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure.
The Company changed its auditing firm in August 1998. There were no
disagreements with either its original auditing firm or the newly hired firm.
A form 8-K was filed to report the changes in the auditing firms. The change
was approved by the Board of Directors.
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 Term Position
Hale R. Spiegelberg 46 1 yr. Chairman, CEO,
Secretary, and
Director
James Cassidy 65 1 yr. 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, 1997, 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 1996 and 1997,
and there were no executives of the Company whose aggregate cash and cash
equivalent forms of remuneration was in excess of $100,000 between 1996 and
1997.
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.
In October 1997, ATG established an Employee Stock Option Plan whereby qualified
employees can purchase stock of the Company As of December 31, 1997, there have
been no purchases under the 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 director or for committee participation or special assignments.
Other Arrangements. During the year ended December 31, 1997 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, 1997, 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
Acquisition Advisors 268,832 (2) 4.8%
P.O. Box 1062
Grand Cayman
Cayman Islands
Total Software Inc. 644,948 (2) 11.5%
P.O. Box 1062
Grand Cayman
Cayman Islands
Einzelhaft Partners, A.G. 650,361 (1) 11.6%
P.O. Box 1062
Grand Cayman, Cayman Islands
Anacapa Venture Partners 112,611 (4) 2.0%
10600 N. Deanza Blvd.
Cuoertino, CA
Larry Wells 223,677 (4) 4.0%
12791 Ione Court
Saratoga, CA
Axis Capital, A.G. 250,000 (3) 4.5%
PO Box 1062
Grand Cayman, Cayman Islands
Greg Richter 96,500 (3) 1.7%
860 Cold Harbor
Roswell, GA
All Executive Officers and 1,564,141 (1) 27.9%
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.
(4) Larry Wells is the managing partner of Anacapa Venture Partners.
Item 12. Certain Relationships and Related Party Transactions
During 1996, the Company borrowed approximately $664,000 and repaid
approximately $122,000 to Einzelhaft, AAI and TSI. At December 31, 1996, the
Company owed Einzelhaft approximately $164,000, as restated. At December 31,
1996, the Company owed nothing to TSI or AAI. During 1997, the Company repaid
$50,000 to Einzehaft.
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 ByLaws 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 Metcalfe, Rice, Fricke and Davis, auditors
________________________________
* 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 1997. As stated
in Item 8, a Form 8-KSB was filed in August 1998 for a change in the auditing
firm.
<PAGE>
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
[S] [C]
/s/ Hale R. Spiegelberg 11/18/98
Hale R. Spiegelberg
Chairman of the Board,
Chief Executive Officer
Secretary, Director
/s/ James E. Cassidy 11/18/98
James Cassidy
President, Chief Financial Officer,
Director
<PAGE>
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ATLANTA TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
ATLANTA, GEORGIA
DECEMBER 31, 1997
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Atlanta Technology Group, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Atlanta
Technology Group, Inc. and Subsidiaries (the "Company") as of December 31, 1997
and the related consolidated statements of operations, stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of Atlanta Technology Group, Inc. and Subsidiaries as of
December 31, 1996, before restatement, were audited by other auditors whose
report dated April 7, 1997, included an explanatory paragraph describing
conditions which raised substantial doubt about the entity's ability to continue
as a going concern.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note D to the
financial statements, the Company has incurred losses from operations during
each year since inception and is involved in certain legal matters at
December 31, 1997 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 D. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
In our opinion, except for the matter covered in the preceding paragraph,
the financial statements referred to above present fairly, in all material
respects, the financial position of the Company as of December 31, 1997 and
the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
We also audited the adjustments in notes A13 and A14 that were applied to
restate the 1996 financial statements. In our opinion, such adjustments are
appropriate and have been properly applied.
October 12, 1998
Atlanta, Georgia
<PAGE>
Atlanta Technology Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
<TABLE>
<CAPTION>
1997 1996
As restated
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 67,134 $163,583
Marketable securities (notes A11, E and G) - 102,173
Accounts receivable - trade, less
allowance for doubtfulreceivables of
$36,000 and $32,000 at December 31,
1997 and 1996, respectively 164,149 145,252
Inventory (note A4) 87,028 40,707
Other current assets 3,987 11,521
________ _______
Total current assets 322,298 463,236
EQUIPMENT, FIXTURES AND COMPUTERS
Equipment, fixtures and computers,
less accumulated depreciation of
$164,855 and $129,023 at December 31,
1997 and 1996, respectively 88,304 109,675
OTHER ASSETS 728 1,534
_______ _______
Total Assets $411,330 $574,445
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations $141,095 $624,720
Notes payable to affiliates (note G) 114,087 164,087
Accounts payable - trade 252,021 217,905
Accrued salaries and payroll taxes payable 34,208 39,613
Accrued interest payable 47,876 111,985
Other current liabilities (note H) 143,016 205,580
Deferred revenue (note A7) 40,700 36,800
______ _______
Total current liabilities 773,003 1,400,690
LONG-TERM OBLIGATIONS, less current maturities
(note F) 122,335 -
COMMITMENTS AND CONTINGENCIES (notes C, D, K and
L)
Stockholders' equity (notes A10, B, F and J)
Common stock 5,601 3,812
Additional paid-in capital 5,106,719 3,731,424
Retained earnings (deficit) (4,221,328) (3,901,481)
Stock subscriptions receivable (1,375,000) (660,000)
__________ _________
Total Stockholers' Equity (484,008) (826,245)
___________ _________
Total Liabilities and Stockholders' Equity $411,330 $574,445
</TABLE>
<PAGE>
Atlanta Technology Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
1997 1996
As restated
<S> <C> <C>
Revenues $1,235,940 $1,579,985
Cost of sales 370,480 519,075
__________ __________
Gross profit 865,460 1,060,910
Operating expenses
Selling, general and administrative 953,001 1,369,389
Depreciation and amortization 36,638 46,352
Research and development costs 204,715 241,098
_________ ___________
Total operating expenses 1,194,354 1,656,839
Loss from operations (328,894) (595,929)
Other income (expense)
Gain on sale of securities 29,910 -
Interest expense (note F) (20,863) (178,990)
________ _________
Total other imcome 9,047 (178,990)
Net loss before income taxes (319,847) (774,919)
Provision for income taxes (notes A8 and I) - -
__________ __________
Net loss $(319,847) $(774,919)
Basic loss per common share (note A9) $(0.07) $(0.24)
Basic weighted average common shares
outstanding 4,403,881 3,279,935
Diluted loss per common share (note A9) $(0.05) $(0.20)
Diluted weighted average common shares
outstanding 6,772,155 3,877,931
</TABLE>
<PAGE>
Atlanta Technology Group, Inc.and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Additional Stock
Common Paid in Retained Subscriptions
Stock Capital Earnings Receivable Total
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996, as
originally reported $2,800 $2,520,783 $(2,658,945) $ - $(135,362)
Restatement due to change in
accounting policy for software
development costs and recognition
of revenue on support agreements - - (467,617) - (467,617)
Balance at January 1,1996,as restated 2,800 2,520,783 (3,126,562) - (602,979)
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 - - (774,919) - (774,919)
_______ _________ ___________ _________ __________
Balance at January 1, 1997 3,812 3,731,424 (3,901,481) (660,000) (826,245)
Proceeds from payment of stock
subscriptions receivable - - - 535,000 535,000
Shares issued upon conversion of debt 789 226,295 - - 227,084
Costs relating to Stock Subscription
Agreement - (100,000) - - (100,000)
Issuance of stock subscriptions for
1,000,000 shares 1,000 1,249,000 - (1,250,000) -
Net loss - - (319,847) - (319,847)
______ _________ __________ ___________ __________
Balance at December 31, 1997 $5,601 $5,106,719 $(4,221,328) $(1,375,000) $(484,008)
</TABLE>
<PAGE>
Atlanta Technology Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 31,
1997 1996
As restated
<S> <C> <C>
Increase (Decrease) in Cash
Cash flows from operating activities
Net loss $(319,847) $(774,919)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 35,832 25,311
Provision for losses on accounts receivable 4,000 20,000
Changes in operating assets and liabilities:
Increase (decrease) in marketable securities 102,173 (102,173)
(Increase) decrease in accounts receivable-trade, net (22,897) 1,229
Increase (decrease) in account payable-trade, net 34,116 (3,922)
(Decrease) increase in other assets (37,981) 40,519
Increase in accrued interest 18,521 84,482
(Decrease) increase in other liabilities (64,069) 164,450
_________ ________
69,695 229,896
_________ ________
Net cash used in operating activities (250,152) (545,023)
Cash flows from investing activity
Additions to equipment, fixtures and computers (14,461) (4,046)
Cash flows from financing activities (note M)
New notes payable 138,436 -
Repayment of notes payable (355,272) (18,080)
Proceeds from the issuance of common stock 535,000 340,000
Costs associated with terminated common stock offering - 130,025
Costs associated with issuance of common stock (100,000) (67,625)
Payments on loans from affiliates - net (50,000) (4,133)
Increase in equity from sale of subsidiary to affiliate - 279,278
_________ _________
Net cash provided by financing activities 168,164 659,465
Net (decrease) increase in cash (96,449) 110,396
Cash at beginning of year 163,583 53,187
_______ _______
Cash at end of year $67,134 $163,583
Cash paid during the year for:
Interest $20,863 $45,686
</TABLE>
<PAGE>
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.
1. Principles of Consolidation
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"),
a Georgia Corporation, and Net City, Inc., a Georgia Corporation.
During 1997 and 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 accident injury
clinics, wellness centers and spinal clinics throughout the United States.
2. Mergers and Acquisitions
In May 1994, the Company acquired all the issued and outstanding shares of
Silver Ridge Software, Inc. (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 B).
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. The Company reduced its debt to
Einzelhaft by the amount of the purchase price.
3. 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 stockholders' equity.
4. Inventories
Inventories are stated at the lower of cost (first-in, first-out basis) or
market and consist primarily of optical scannable forms and scanners.
5. Depreciation
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.
6. Research and Development Costs
Research and development costs are charged to operations as incurred.
7. 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. Revenues from annual customer maintenance fees are recognized
ratably over the period of the maintenance contracts.
8. Income Taxes
The Company has adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109) 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 basis 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.
9. Earnings (Loss) Per Share
The Company has presented earnings per share in the accompanying statement of
operations based on the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings per share" (SFAS 128). SFAS 128 has replaced the
presentation of "primary" and "fully-diluted" earnings per common share required
under previously promulgated accounting standards with the presentation of
"basic" and "diluted" earnings per common share.
Basic earnings per common share are calculated by dividing net income by the
weighted average number of common shares outstanding during the period. The
calculation of diluted earnings per share is similar to that of basic earnings
per common share, except that the denominator is increased to include the number
of additional common shares that would have been outstanding if all potentially
dilutive common shares, such as those issuable upon the exercise of stock
options and warrants, were issued during the period.
10. Stock Options
In accordance with the provisions of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25), the Company will
recognize compensation costs as a result of the issuance of stock options based
on the excess, if any, of the fair market value of the underlying stock at the
date of the grant or award (or at an appropriate subsequent measurement date)
over the amount the employee must pay to acquire the stock. Therefore, the
Company will not be required to recognize compensation expense as a result of
any grants of stock options at an exercise price that is equivalent to or
greater than fair value. The Company will also make pro forma disclosures, as
required by Statement for Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS 123) of net income or loss as if a fair
value based method of accounting for stock options had been applied instead, if
such amounts differ greatly from the historical amounts.
11. 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, 1997 and 1996 for cash, accounts
receivable, notes payable, accounts payable and accrued expenses payable
approximate fair value due to the short-term nature of these instruments.
12. 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.
13. Revision of 1996 Financial Statements
During the 1997 audit, it was discovered that certain payments made during
1996, totaling $56,000, originally charged as a reduction of debt to an
affiliate, should have been charged to selling, general and administrative
expenses in the consolidated statement of operations. Additionally, an
adjustment was made to revenue in 1996 and 1995 amounting to $20,800 and
$16,000, respectively to properly record unearned revenue from support
agreements on systems sold. The Company's revised financial statements reflect
these changes, which increased the net loss for the year ended December
31, 1996 by $76,800, or $.02 per share and reduced retained earnings at
January 1, 1996 by $16,000. All information presented in the 1997 financial
statements relating to 1996 have been adjusted for this change.
Certain amounts in the prior year statements have been reclassified to conform
with the 1997
presentation.
14. Change in Accounting Principles
The Company has decided not to capitalize and amortize certain costs related to
the development of its software products. Instead, the Company will charge these
costs to operations as incurred. The 1996 financial statements have been revised
to reflect this change. The effect of this change was to increase the 1996
net loss by $173,000 or $.05 per share and to reduce retained earnings at
January 1, 1996 by $451,617.
NOTE B - RELATED PARTY TRANSACTIONS
The significant shareholders of the Company at
December 31, 1997 are as follows:
Number of Percent of issued and
Shareholder shares owned outstanding shares
Total Software, Inc. 644,94 11.5%
Acquisition Advisors, Inc. 268,832 4.8%
Einzelhaft Partners, A.G. 650,361 11.6%
All Executive Officers
and Directors as a Group 1,564,141 27.90%
Anacapa Venture Partners 112,611 2.0%
Larry Wells 223,677 4.0%
Axis Capital, A.G. 250,000 4.5%
Gregory Richter 96,500 1.7%
2,246,929 40.10%
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 percent) 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 $500,000 to Einzelhaft, AAI and TSI (see note G). At December
31, 1996 the Company owed Einzelhaft approximately $164,000. In 1997, the
Company repaid $50,000 to Einzelhaft.
Beginning in July 1997, the Company began occupying an office facility owned
by the wife of Hale R. Spiegelberg for a monthly rental of $3,000 plus certain
expenses totaling $37,800 which were paid to various third parties during 1997.
These payments have been charged to operations and are included in selling,
general and administrative expenses in the accompanying consolidated statement
of operations.
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. During
1997, the Company paid or accrued $24,000 to CPG, Inc. No amount is owed to
CPG, Inc. at December 31, 1997.
NOTE C - CONCENTRATIONS
TVC currently purchases all its optical mark scanners from two suppliers 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.
In addition, 100% of TVC's customers are in the medical industry.
NOTE D - 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, 1997.
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 plans to
achieve profitability and projects that the Company will break even in 1998.
Management's plans include: a) diversification of existing product lines;
b) enhancement of existing product lines; c) expansion of the geographical area
in which it operates through new marketing and product assessment arrangements;
and d) raising capital through private placement securities offerings.
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 enhancements
to 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. Presently, the Companyis developing
simultaneously DocumentPlus systems in orthopedics, physical therapy,
orthodontics and neurology, which will diversify the existing product lines.
The Company intends to raise funds for product development and working
capital during 1998 and 1999 through private placements. 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. 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. Management
believes that within 12 months 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.
NOTE E - MARKETABLE SECURITIES
At December 31, 1996, marketable securities consist of common stock held
as "trading securities" under SFAS No. 115 (note A3). These shares were
acquired from Einzelhaft on December 31, 1996, at the fair market value on that
date. During 1997, these shares were sold and the Company realized a profit of
$29,910, which is included in other income.
NOTE F - LONG-TERM OBLIGATIONS
As of December 31, 1997 and 1996 long-term obligations is comprised of
the following:
1997 1996
10 percent notes issued as part of private
placement in August 1995 $75,000 $150,000
15 percent notes issued as part of private
placement in September 1995 - 350,020
10 percent demand note payable to an employee - 15,000
12 percent note payable to Supermail
International, Inc., due May 22, 1995 13,914 30,000
6 percent installment note payable 11,077 19,700
10 percent note due March 19, 1996 1,000 36,000
Non-interest bearing note payable due May 9, 1996 24,000 24,000
Non-interest bearing note payable to
Kenneth and Mie Furukawa 39,954 -
Non-interest bearing obligation to
David S. Malen, MD 98,482 -
______ _______
Total 263,430 624,720
Less current maturities 141,095 624,720
________ ________
Long-term obligations $122,335 $-
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 percent per annum and due 18 months from
the date of issuance. 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. In 1997, notes in the principal amount of $55,000
were repaid with accrued interest and a note in the principal amount of $19,445
was converted into common stock of the Company. 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 percent per annum (increased to 15
percent 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 1996, principal payments aggregating $14,980 were made to the
noteholders. In 1997, principal payments totaling $260,010 were made to the
noteholders and notes with a principal balance of $125,010 were converted into
common stock of the Company. Costs associated with these private placements
amounting to $47,000 were capitalized and amortized over the initial term of
the notes as interest expense.
On February 10, 1997, a noteholder of the Company, 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.
The Company has a promissory note in the amount of $45,000 dated October 1,
1997. The note resulted from a settlement agreement whereby the Company agreed
to pay an individual $45,000 as follows: 18 consecutive monthly installments of
$500 commencing November 1, 1997; six consecutive monthly installments of
$1,000 commencing May 1, 1999; and a final payment of $30,000 due November 1,
1999. No interest is stated in the agreement; however, interest is imputed at
5.867%. The balance of this note was $39,954 at December 31, 1997 of which
$3,759 is considered current.
Subsequent to year end the Company entered into an agreement dated March 23,
1998 whereby the Company agreed to pay an individual $98,482, in settlement of
a judgment obtained several years ago. Payments are to be made as follows:
$14,593 on March 23, 1998; 23 monthly payments of $1,000 commencing October 31,
1998, and a final payment of $74,360 on September 30, 2000. No interest is
stated in the agreement; however, interest is imputed at 5.867%. The balance
of this agreement was $98,482 at December 31, 1997, of which $12,342
is considered current.
Aggregate maturities of long-term obligations for the three years following
December 31, 1997 are as follows:
1998 $141,095
1999 43,337
2000 78,998
NOTE G - NOTES PAYABLE TO AFFILIATES
On April 17, 1996, pursuant to a letter agreement, TVC borrowed 250,000
shares of trading securities from Einzelhaft for a term of 18 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 ofthe 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 payment on the 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 H - OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
1997 1996
Royalties payable $17,290 $29,684
Sales tax payable 477 715
Reserve for contingencies (note L) 56,564 134,289
Refunds to customers 16,190 -
Rent payable 23,160 -
Commissions payable - 6,300
Other 29,335 34,592
_______ ______
$143,016 $205,580
NOTE I - INCOME TAXES
At December 31, 1997 and 1996, the Company has approximately $3,202,000 and
$2,997,000, 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 2012. At
December 31, 1997 and 1996, deferred tax assets of approximately $480,000 and
$212,000, respectively, exist principally with respect to these net operating
losses. Based on an assessment of all available evidence as of December 31,
1997, management has concluded that these deferred tax assets should be reduced
by valuation allowances equal to the amounts of the deferred tax assets.
Accordingly no tax benefits are recognized in the financial statements presented
since the realization of future taxable income cannot be assured.
NOTE J - COMMON STOCK
The Company is authorized to issue 10,000,000 shares of common stock,
par value $.001. At December 31, 1997 and 1996, 5,601,083 and 3,812,275 shares,
respectively, were issued and outstanding. Each share is 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 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 per
share. The warrants expire on December 31, 1999. During 1997 and 1996, the
Company received $535,000 and $340,000, respectively, from EPS.
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 $67,625, have been charged against paid- in capital in
the consolidated balance sheet.
In addition, the Company paid a fee to EPS of $100,000 from the proceeds
received from the sale of common stock.
On May 16, 1997, the Company entered into a new stock subscription agreement
with EPS whereby EPS agreed to purchase up to 1,000,000 units of stock and
warrants from the Company at $1.25 per unit. During 1997, the units were
exchanged for a note. EPS failed to make the required payments under the note
and in September 1997, the agreement became void. The 1,000,000 shares were
issued to an escrow agent upon signing the agreement and as of the date of
this report have not been returned to the Company.
In 1997, the Company issued 788,808 shares of its common stock to noteholders
in exchange for notes outstanding in the principal amount of $226,000, accrued
interest of $82,000 and outstanding warrants to purchase 183,000 shares of the
Company's common stock.
Under a stock option agreement with an employee, there are 86,000 options
outstanding at December 31, 1997 and 1996, 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
at December 31,
1997 1996
Warrants exercisable at $5.00 per share 22,000 22,000
Warrants exercisable at $2.00 per share 1,000,000 340,000
Warrants exercisable at under $1.00 per share - 149,996
_________ ________
1,022,000 511,996
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 was approximately $67,000.
NOTE K - COMMITMENTS AND CONTINGENCIES
Under a lease agreement dated April 1997, the Company occupies an office
facility owned by the spouse of the Chairman of the Board and Chief Executive
Officer of the Company.
Rental expense under this lease amounted to $55,800 for 1997. Total rental
expense was $80,765 and $49,670 for 1997 and 1996, respectively. Future
commitments for this lease are approximately: $43,000 for 1998 and $20,000
for 1999.
The Company has one distributorship agreement 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 and accounts payable,
if applicable, in the consolidated balance sheet or statement of operations.
In October 1997, the Company established an Employee Stock Option Plan whereby
qualified employees can purchase stock of the Company. As of December 31, 1997
and the date of this report, there have been no purchases under the plan.
On August 31, 1998, the Company granted two consultants, as payment for
outside consulting services, options to purchase 800,000 shares of Common Stock
upon completion of various tasks as stated in the consulting contract. The first
options are for 200,000 shares exercisable at $.25 per share. The second
options are for 150,000 shares exercisable at $.25 per share. The third options
are for 150,000 shares exercisable at $.30 per share. The fourth options are
for 100,000 shares exercisable at $.35 per share. The fifth options are for
100,000 shares exercisable at $.40 per share and the sixth options are for
100,000 shares exercisable at $.45 per share. All of the options expire on
August 31, 1999. None of the options have been exercised as of the date of
this report.
NOTE L - LEGAL MATTERS
During 1997 and subsequent to year end, the Company entered into settlement
agreements on various lawsuits, judgments or courses of action for breach of
contract. The estimated liabilities of these cases total $56,564 which is
included in other liabilities in these financial statements.
The Company is engaged in various civil complaints and lawsuits as defendant
involving primarily product liability and breaches of contract. A trade name
dispute was subsequently settled by the Company agreeing to change its name
within six months. In the opinion of management, based upon advice of counsel,
the ultimate outcome of these lawsuits will not have a material impact on the
Company's consolidated financial statements.
NOTE M - NONCASH FINANCING ACTIVITIES
During the year, stock in the amount of $144,455 was issued for the
payment of notes payable and accrued interest.
CONSENT OF INDEPENDENT AUDITOR
We consent to the use of our audit report dated October 12,
1998 in the Form 10-KSB of Atlanta Technology Group, Inc., a
Delaware corporation for the year ended December 31, 1997.
METCALF RICE FRICKE & DAVIS
Certified Public Accountants
Atlanta, Georgia
October 12, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 67,134
<SECURITIES> 0
<RECEIVABLES> 200,149
<ALLOWANCES> 36,000
<INVENTORY> 87,028
<CURRENT-ASSETS> 322,298
<PP&E> 253,159
<DEPRECIATION> 164,855
<TOTAL-ASSETS> 411,330
<CURRENT-LIABILITIES> 773,003
<BONDS> 0
0
0
<COMMON> 5,601
<OTHER-SE> (478,407)
<TOTAL-LIABILITY-AND-EQUITY> 411,330
<SALES> 1,235,940
<TOTAL-REVENUES> 1,235,940
<CGS> 370,840
<TOTAL-COSTS> 370,840
<OTHER-EXPENSES> 1,194,354
<LOSS-PROVISION> 36,000
<INTEREST-EXPENSE> 20,863
<INCOME-PRETAX> (319,847)
<INCOME-TAX> 0
<INCOME-CONTINUING> (319,847)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (319,847)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.05)
</TABLE>
