Alternative Technology Resources Inc – ‘10KSB’ for 6/30/99

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Annual Report — Small Business   —   Form 10-KSB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10KSB       Annual Report -- Small Business                       36    173K 
 2: EX-23       Consent of Ernst & Young LLP                           1      6K 
 3: EX-27       Financial Data Schedule                                1      8K 

10KSB   —   Annual Report — Small Business
Document Table of Contents

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 Form 10-KSB
(Mark One)                                                            
[X]    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934                              

FOR THE FISCAL YEAR ENDED JUNE 30, 1999           

    [  ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934                              
For the transition period from _____ to _____       

Commission file number   0-20468                    

       ALTERNATIVE TECHNOLOGY RESOURCES, INC .
       (Exact name of small business issuer as specified in its charter)

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

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

(916) 231-0400
(Issuer's telephone number, including area code)

Securities registered under Section 12 (b) of the Act:            
   Title of Each Class             Name of Each Exchange on Which Registered
         None                      -----------------------------------------

Securities registered under Section 12(g) of the Act:                           

 Common Stock, par value $0.01 per share
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X    No__                                

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-B is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [ ]                                                           

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

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

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

 DOCUMENTS INCORPORATED BY REFERENCE

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

              Exhibit index is located on page 12.

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PART I                                                                          

Item 1.  Description of Business                                                

General                                                                         

Alternative  Technology  Resources,  Inc. ("ATR" or the  "Company"),  a Delaware
corporation,  was  founded  in 1989 to  develop  and  sell  computer  integrated
laboratory  systems  ("LIS").  The Company operated under the name 3Net Systems,
Inc. and was never successful in the LIS market.  Therefore, in fiscal 1996, the
Company stopped new system development and later decided to exit LIS entirely.  

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

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

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

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

Services                                                                        

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

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

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

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

The process works as follows:                                                   

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

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

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

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

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

Customers                                                                       

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

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

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

Sales                                                                           

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

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Competition                                                                     

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

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

Government Regulation                                                           

The  Company's  operations  are subject to various  federal and state laws.  ATR
believes that its operations  currently  comply with such laws, but there can be
no assurance  that  subsequent  laws, or  subsequent  changes in current laws or
legal interpretations, will not adversely affect the Company's operations.      

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

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

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

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

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

Year 2000 Issues                                                                

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

Human Resources                                                                 

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

Insurance                                                                       

The annual  coverage  limits for the Company's  general  premises  liability and
workers' compensation  insurance policies are $2,000,000 for liability insurance
policies and  $1,000,000  for workers'  compensation.  ATR also has a $1,000,000
policy for errors and omissions  insurance.  Management believes such limits are
adequate for the Company's  business;  however,  there can be no assurance  that
potential claims will not exceed the limits on these policies.                  

Item 2.  Description of Property                                                

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

Item 3.  Legal Proceedings                                                      

The Company is not currently a party to any pending legal proceedings.          

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

No matters were  submitted  during the quarter  ended June 30, 1999 to a vote of
security holders.                                                               

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PART II                                                                         

Item 5.  Market for Common Equity and Related Stockholder Matters               

Price Range of Common Stock                                                     

ATR's common stock is traded on the OTC Bulletin  Board under the symbol "ATEK".
Transactions  in ATR's common stock are subject to the "penny stock"  disclosure
requirements of Rule 15g-9 under the Exchange Act.                              

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

                                                                [Download Table]
                                                 
           Period                  High      Low 
            ------                -----    ------
Quarter ended September 30, 1997   $ 1.31  $ 0.91
Quarter ended December 31, 1997    $ 1.19  $ 0.45
Quarter ended March 31, 1998       $ 1.06  $ 0.38
Quarter ended June 30, 1998        $ 1.22  $ 0.75
Quarter ended September 30, 1998   $ 1.03  $ 0.44
Quarter ended December 31, 1998    $ 0.50  $ 0.28
Quarter ended March 31, 1999       $ 0.75  $ 0.28
Quarter ended June 30, 1999        $ 0.75  $ 0.38

ATR  had  approximately  182  common  stockholders  of  record  and 3  preferred
stockholders  of record as of August 31, 1999. The last reported sales price for
the Company's common stock was $1.78 on August 31, 1999.                        
Dividend Policy                                                                 

The  Company  has never paid a cash  dividend  on its common  stock and does not
anticipate paying cash dividends on its common stock in the foreseeable  future.
ATR's Series D Preferred Stock carries a cumulative  dividend of $0.60 per share
per year which has been accrued  beginning July 1, 1994 and is payable quarterly
to the extent permitted by law.                                                 

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

Item 6.  Management's Discussion and Analysis                                   

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

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Results of Operation                                                            

Contract Programming                                                            

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

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

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

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

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

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

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ATR  expenses  start-up  and other costs as  incurred,  which  results in timing
differences  between the  incurring  of expense  and  recognition  of  resulting
revenue.  Such differences may be particularly  evident in ATR's case because of
its relatively  small revenue base and because of its growth.  The effect may be
particularly  noticeable  whenever  the timing of placement of employees is such
that the major start-up costs occur late in one reporting period and programmers
begin to generate revenue in subsequent periods.                                

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

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

Selling, General and Administrative Expenses                                    

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

Other Income (Expense)                                                          

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

Income Taxes                                                                    

     The  Company  accounts  for  income  taxes  under  Statement  of  Financial
Accounting  Standards  No.  109.  As of June 30,  1999,  the  Company  had a net
operating  loss  carryforward  for federal and state  income tax purposes of $25
million  and  $5  million,   respectively.   The  federal  net  operating   loss
carryforward  expires in the years 2006 through 2018 and the state net operating
loss carryforward expires in 1999 through 2004. In connection with the Company's
initial public offering,  a change of ownership (as defined i Section 382 of the
Internal Revenue Code of 1986, as amended), occurred. As a result, the Company's
net operating loss  carryforwards  generated through August 10, 1992 are subject
to an annual limitation of approximately $300,000.                              

In 1993, a controlling interest of the Company's stock was purchased,  resulting
in a second annual limitation of approximately $398,000 on the Company's ability
to utilize net operating loss  carryforwards  generated between August 11, 1992,
and  September  13, 1993.  The Company  expects that the  aforementioned  annual
limitations  will result in $4.1 million of net operating loss carryovers  which
will not be utilized prior to the expiration of the carryover period.           

Net Loss                                                                        

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

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Basic and Diluted Net Loss Per Share                                            

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

Liquidity and Capital Resources                                                 

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

As a result,  the report of independent  auditors on the Company's June 30, 1999
financial  statements  includes an  explanatory  paragraph  indicating  there is
substantial  doubt about the Company's  ability to continue as a going  concern.
The  financial  statements  do  not  include  any  adjustments  to  reflect  the
uncertainties  related to the recoverability and classification of assets or the
amounts and  classification of liabilities that may result from the inability of
the Company to continue as a going  concern.  Based on the steps the Company has
taken to reduce its expenses and refocus its  operations,  the Company  believes
that it has developed a viable plan to address the Company's ability to continue
as a going  concern  and that this plan will enable the Company to continue as a
going concern through the end of fiscal year 2000. However,  considering,  among
other things, the Company's historical operating losses and its short history in
the contract computer programming industry,  there can be no assurance that this
plan will be successfully  implemented.  The Company does not expect to generate
positive cash flow from  operations  during fiscal 2000 or to be able to pay off
current obligations, fund growth of its computer programmer business, and pursue
the  establishment  of an Internet  medical  provider  network;  therefore,  the
Company  contemplates  needing to raise additional financing during fiscal 2000,
the receipt of which cannot be assured.                                         

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

On April 21, 1997,  the Company  issued an unsecured note payable (the "Straight
Note") to Mr.  Cameron  for  $1,000,000  in  accordance  with the  Reimbursement
Agreement  the Company  signed on February 28, 1994.  Terms of the note provided
for an interest rate of 9.5% and monthly interest payments. No maturity date was
stated in the note;  however,  under the terms of the  Reimbursement  Agreement,
upon written  demand by Mr.  Cameron,  the Straight Note was to be replaced by a
note convertible into ATR's common stock (the "Convertible Note") in a principal
amount equal to the  Straight  Note and bearing  interest at the same rate.  The
conversion price of the Convertible Note was equal to 20% of the average trading

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price of the  Company's  common stock over the period of ten trading days ending
on the trading day next preceding the date of issuance of such Convertible Note.
Since the Company had not made interest  payments on the Straight Note,  accrued
interest of $208,479 was included in accounts  payable to stockholders a of June
30, 1999.                                                                       

Subsequent to June 30, 1999, Mr.  Cameron  disposed of a portion of his interest
in the Straight  Note,  reducing  the balance due him to $711,885,  plus accrued
interest.  On August 19, 1999, the Company's Board of Directors  agreed with the
Straight Note holders to fix the  conversion  price of the  Convertible  Note to
$0.044 in exchange for the Straight and/or  Convertible  Notes ceasing to accrue
interest  as of that date.  Because of the  decline  in  revenues  caused by the
non-renewal of programmer contracts and th steady decline in the quoted value of
the Company's  common stock over the last several  months  (trading price was at
$0.25 on August 19,  1999),  the Board agreed it was in the best interest of the
Company to eliminate  the future  market risk that the  conversion  price become
lower than a fixed conversion price of $0.044.                                  

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

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

The Company must obtain additional funds during fiscal 2000 in order to meet its
obligations  while  attempting to grow revenues to a level necessary to generate
cash from  operations.  Although  the Company  has not entered  into any written
agreements  with  Messrs.  Cameron  or  Negri,  management  believes,  based  on
discussions  with these two  individuals,  that  either one or both of them will
continue to fund  operations  and extend the maturity dates of the various notes
payable  until at least June 30,  2000,  or until such time as the  Company  can
repay the notes.  However,  there can be no assurance that events will not arise
which may affect these stockholders'  ability to finance the Company or that the
Company will not experience  significant  and  unanticipated  cash flow problems
which may cause these two stockholders to reconsider their investment.  Further,
if the Company  experiences  significant cash flow problems,  the Company may be
required  to reduce  the level of its  operating  activities  or be forced  into
seeking protection under federal bankruptcy laws.                               

In  particular,  future  operating  cash flows may be  affected  by an  existing
uncertainty  with regard to the Company's  filings of petitions with the INS for
H1-B  visas.  See  Part  I,  Item  1  "Description  of  Business  --  Government
Regulation."                                                                    

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

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

Effects of Inflation                                                            

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

Item 7.  Financial Statements                                                   

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

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

Not applicable.                                                                 

PART III                                                                        

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

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

Item 10.  Executive Compensation                                                

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

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Item 11.  Security Ownership of Certain Beneficial Owners and Management        

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

Item 12.  Certain Relationships and Related Transactions                        

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

Item 13.  Exhibits and Reports on Form 8-K                                      

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

      3.1       Second  Amended and  Restated  Bylaws of the  Registrant
                    (incorporated by reference to Exhibit 3.3 to Amendment No. 1
                    to Registration  Statement on Form S-18, Reg. No. 33-48666).
                    Amendment  to  Second  Amended  and  Restated  Bylaws of the
                    Registrant  (incorporated by reference to Exhibit 3.3 of the
                    Registrant's  Annual  Report on Form  10-KSB  for the fiscal
year ended June 30, 1994).              

      3.2       Amended and Restated Certificate of Incorporation of the
Registrant.                             

      3.3       Amended and Restated  Certificate  of  Incorporation  of
                    Registrant,   including  Certificates  of  Designation  with
                    respect  to Series  A,  Series  B,  Series C,  Series D, and
                    Series E Preferred Stock,  including any amendments  thereto
                    (incorporated  by reference  to Exhibit 4.1 to  Registration
  Statement on Form S-3, Reg. No. 33-86962).

    10.1       Form of Director and Executive Officer  Indemnification
                    Agreement  (incorporated  by reference  to Exhibit  10.19 to
                    Registration  Statement on Form S-18,  Reg.  No.  33-48666).
                    Form of  Reimbursement  Agreement,  dated February 28, 1994,
                    between   the   Registrant   and  James  W.   Cameron,   Jr.
                    (incorporated  by reference to Exhibit  10.29 to Form 10-KSB
 for the fiscal year ended June 30, 1994).

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

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

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

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

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

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

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

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

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

10.11+       1993 Stock  Option/Stock  Issuance Plan (incorporated
                    by reference to Exhibit  10.47 to Form 10-KSB for the fiscal
year ended June 30, 1994).              

10.12+       Stock  Option  Agreement,  dated  August  11,  1993, 
                    between the Registrant and Russell J. Harrison (incorporated
                    by reference to Exhibit  10.51 to Form 10-KSB for the fiscal
year ended June 30, 1994).              

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

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

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

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

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

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

 10.18        Note  Payable  between  the  Registrant  and the Negri
                    Foundation   dated  December  24,  1996   (incorporated   by
                    reference  to Exhibit  10.60 to Form  10-QSB for the quarter
ended December 31, 1996).               

 10.19        Note  Payable  between  the  Registrant  and the Negri
                    Foundation   dated  December  31,  1996   (incorporated   by
                    reference  to Exhibit  10.61 to Form  10-QSB for the quarter
ended December 31, 1996).               

 10.20        Note Payable  between the Registrant and the Max Negri
                    Trust dated December 31, 1996  (incorporated by reference to
                    Exhibit 10.62 to Form 10-QSB for the quarter ended  December
31, 1996).                              

 10.21        Note Payable  between the  Registrant  and the Cameron
                    Foundation   dated  December  31,  1996   (incorporated   by
                    reference  to Exhibit  10.63 to Form  10-QSB for the quarter
ended December 31, 1996).               

 10.22        Note Payable  between the  Registrant and the James W.
                    Cameron,  Jr., as an  individual,  dated  December  31, 1996
                    (incorporated  by reference to Exhibit  10.64 to Form 10-QSB
 for the quarter ended December 31, 1996).

10.23        Note  Payable  between  the  Registrant  and James W.
                    Cameron,  Jr.,  as an  individual,  dated  January  16, 1997
                    (incorporated  by reference to Exhibit  10.65 to Form 10-QSB
 for the quarter ended December 31, 1996).

10.24        Note  Payable  between  the  Registrant  and James W.
                    Cameron,  Jr.,  as an  individual,  dated  January  31, 1997
                    (incorporated  by reference to Exhibit  10.66 to Form 10-QSB
 for the quarter ended December 31, 1996).

10.25        Note  Payable  between  the  Registrant  and James W.
                    Cameron,  Jr.,  as an  individual,  dated  February  7, 1997
                    (incorporated  by reference to Exhibit  10.67 to Form 10-QSB
 for the quarter ended December 31, 1996).

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

 10.27        Sale of Cortex  between the  Registrant  and  Omnitech
                    Migrations International,  Inc. (formerly known as Centre de
                    Traitment  I.T.I.   Omnitech,   Inc.),  dated  May  2,  1997
                    (incorporated  by reference to Exhibit  10.69 to Form 10-QSB
for the quarter ended March 31, 1997).  

 10.28        Mutual  Release and Settlement  Agreement  between the
                    Registrant  and  Omnitech  Migrations  International,   Inc.
                    (formerly  known as Centre  de  Traitment  I.T.I.  Omnitech,
                    Inc.),  dated  May 6, 1997  (incorporated  by  reference  to
                    Exhibit 10.70 to Form 10-QSB for the quarter ended March 31,
1997).                                  

10.29        Note  Payable  between  the  Registrant  and James W.
                    Cameron,   Jr.,  dated  April  21,  1997   (incorporated  by
                    reference to Exhibit 10.29 to Form 10-KSB for the year ended
June 30, 1997).                         

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

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

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

10.32          Third Addendum to Lease between James W. Cameron, Jr., 
                    and the Registrant,  dated January 5, 1998  (incorporated by
                    reference  to Exhibit  10.32 to Form  10-QSB for the quarter
ended December 31, 1997).               

10.33+         Alternative  Technology  Resources,  Inc. 1997 Stock   
                    Option Plan  (incorporated  by reference to Exhibit 10.33 to
      Form 10-KSB for the year ended June 30, 1998).

10.34          Memorandum  regarding  rent  reduction  on that Lease  
                    between James W.  Cameron,  Jr., and the  Registrant,  dated
                    July 15, 1998 (incorporated by reference to Exhibit 10.34 to
      Form 10-KSB for the year ended June 30, 1998).

10.35          Fourth  Addendum to Lease  between  James W.  Cameron, 
                    Jr.,  and  the   Registrant,   effective   January  1,  1999
                    (incorporated  by reference to Exhibit  10.35 to Form 10-QSB
for the quarter ended March 31, 1999).  

23.1           Consent of Ernst & Young LLP, Independent Auditors     

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

Reports on Form 8-K                                         

          There were no reports on Form 8-K filed during the last quarter of the
period covered by this report.                              

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SIGNATURES

In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.                                                                     

Dated: September 21, 1999 ALTERNATIVE TECHNOLOGY RESOURCES, INC.                

                                            By  /S/  JAMES W. CAMERON, JR.
                                                       -----------------------
                                                     James W. Cameron, Jr.
                                                       Chief Executive Officer

         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  Registrant and in the capacities and
on the dates indicated.                                                         

   Signature                       Title                      Date
--------------------------       -----------------------     -------------------

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

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

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

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

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       INDEX TO FINANCIAL STATEMENTS

      Alternative Technology Resources, Inc.

                                                        [Enlarge/Download Table]
                                                                                       
                                                                                   Page
                                                                                   ----

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


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F-1

Report of Ernst & Young LLP, Independent Auditors 

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

We have  audited  the  accompanying  balance  sheet  of  Alternative  Technology
Resources,  Inc. as of June 30, 1999, and the related  statements of operations,
stockholders'  deficit,  and cash flows for the years  ended  June 30,  1999 and
1998.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.                                                 

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.          

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,   the  financial  position  of  Alternative  Technology
Resources, Inc. at June 30, 1999, and the results of its operations and its cash
flows for the years ended June 30, 1999 and 1998 in  conformity  with  generally
accepted accounting principles.                                                 

The  accompanying   financial   statements  have  been  prepared  assuming  that
Alternative Technology Resources, Inc. will continue as a going concern. As more
fully described in Note 1, the Company has incurred  recurring  operating losses
and has a working capital deficit and  stockholders'  deficit.  These conditions
raise  substantial  doubt  about the  Company's  ability to  continue as a going
concern.  Management's  plans in regard to these  matters are also  described in
Note 1. The financial  statements do not includ any  adjustments  to reflect the
uncertainties  related to the recoverability and classification of assets or the
amounts and  classification  of liabilities  that may result from the outcome of
this uncertainty.                                                               

ERNST & YOUNG LLP                                                               

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

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Alternative Technology Resources, Inc.

 Balance Sheet
 June 30, 1999

Assets
------

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

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

Liabilities and Stockholders' Deficit         

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

Commitments and contingencies                                                   

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

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

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Alternative Technology Resources, Inc.

Statements of Operations

                                                                [Download Table]
                                                                                    

                                                      Year ended June 30,           

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

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

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

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

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

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

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

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

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

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


See accompanying notes.                                                         

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Alternative Technology Resources, Inc.
 Statements of Stockholders' Deficit

                                                        [Enlarge/Download Table]
                                                                                                                                    

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

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

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

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

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

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

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


See accompanying notes.                                                         

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Alternative Technology Resources, Inc.

Statements of Cash Flows
 Increase (decrease) in Cash

                                                        [Enlarge/Download Table]
                                                                                       

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

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

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

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

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

See accompanying notes.                                                                


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F-6

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

June 30, 1999 and 1998

1. Summary of Significant Accounting Policies                                   

Description of Business                                                         

The  Company  was  founded  in 1989 to  develop  and  sell  computer  integrated
laboratory  systems  ("LIS").  The Company operated under the name 3Net Systems,
Inc. and was never successful in the LIS market.  Therefore, in fiscal 1996, the
Company  stopped  new  system  development  and  later  decided  to exit the LIS
software market entirely.                                                       

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

Basis of Presentation                                                           

The Company has incurred operating losses since inception which have resulted in
an accumulated deficit of $35,816,577 at June 30, 1999. In addition, at June 30,
1999 the Company had a working capital  deficit and a  stockholders'  deficit of
$5,587,475 each.                                                                

The report of  independent  auditors on the  Company's  June 30, 1999  financial
statements  includes an explanatory  paragraph  indicating  there is substantial
doubt about the Company's ability to continue as a going concern.  The financial
statements do not include any adjustments to reflect the  uncertainties  related
to  the   recoverability  and  classification  of  assets  or  the  amounts  and
classification  of liabilities that may result from the inability of the Company
to  continue  as a going  concern.  Based on the steps the  Company has taken to
reduce its expenses and refocus its operations, the Company believes that it has
developed a viable plan to address the Company's  ability to continue as a going
concern  and that this plan will  enable  the  Company  to  continue  as a going
concern through the end of fiscal year 2000. However,  considering,  among other
things, the Company's  historical  operating losses and its short history in the
contract computer  programming industry (Note 7), there can be no assurance that
this plan will be  successfully  implemented.  The  Company  does not  expect to
generate positive cash flow from operations during fiscal 2000 or be able to pay
off current obligations,  fund growth of its computer programmer  business,  and
pursue the establishment of an Internet medical provider network; therefore, the
Company  contemplates  needing to raise additional financing during fiscal 2000,
the receipt of which cannot be assured.                                         

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

June 30, 1999 and 1998

1.  Summary of Significant Accounting Policies (continued)                      

Property and Equipment                                                          

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

Revenue Recognition                                                             

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

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

Income Taxes                                                                    

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

Stock-Based Compensation                                                        

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

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F-8

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

June 30, 1999 and 1998

1.  Summary of Significant Accounting Policies (continued)                      

Concentration of Credit Risk                                                    

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

Net Loss Per Share                                                              

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

Significant Customers and Labor Suppliers                                       

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

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

Financial Instruments                                                           

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

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

June 30, 1999 and 1998

1.  Summary of Significant Accounting Policies (continued)                      

Financial Instruments (continued)                                               

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

Use of Estimates in Preparation of Financial Statements                         

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

2. Investor Group Transactions                                                  

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

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

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

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

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

June 30, 1999 and 1998

3. Financing Arrangements                                                       

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

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

The Company must obtain additional funds during fiscal 2000 in order to meet its
obligations  while  attempting to grow revenues to a level necessary to generate
cash from  operations.  Although  the Company  has not entered  into any written
agreements  with  Messrs.  Cameron  or  Negri,  management  believes,  based  on
discussions  with these two  individuals,  that  either one or both of them will
continue to fund  operations  and extend the maturity dates of the various notes
payable  until at least June 30,  2000,  or until such time as the  Company  can
repay the notes.  However,  there can be no assurance that events will not arise
which may affect these stockholders'  ability to finance the Company or that the
Company will not experience  significant  and  unanticipated  cash flow problems
which may cause these two stockholders to reconsider their investment.  Further,
if the Company  experiences  significant cash flow problems,  the Company may be
required  to reduce  the level of its  operating  activities  or be forced  into
seeking protection under federal bankruptcy laws.                               

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

June 30, 1999 and 1998

4. Income Taxes                                                                 

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

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

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

As of June 30, 1999 the Company has net operating loss carryforwards for federal
and state  income tax  purposes  of  approximately  $25  million and $5 million,
respectively.  The  federal  net  operating  loss  carryforward  expires in 2006
through  2018 and the state net  operating  loss  carryforward  expires  in 1999
through 2004. The Company also has approximately $98,000 and $25,000 of research
and  development  tax credit  carryforwards  for  federal  and state  income tax
purposes,   respectively.  The  federal  research  and  development  tax  credit
carryforwards expire in 2005.                                                   

In  connection  with the  Company's  initial  public  offering in August 1992, a
change of ownership  (as defined in Section 382 of the Internal  Revenue Code of
1986, as amended)  occurred.  As a result,  the  Company's  net  operating  loss
carryforwards generated through August 20, 1992 (approximately  $1,900,000) will
be subject to an annual limitation in the amount of approximately $300,000.     

In August and September of 1993, a controlling  interest of the Company's  stock
was  purchased,  resulting  in a  second  annual  limitation  in the  amount  of
approximately  $398,000 on the Company's  ability to utilize net operating  loss
carryforwards   generated  between  August  11,  1992  and  September  13,  1993
(approximately $7,700,000).                                                     

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

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

June 30, 1999 and 1998

5. Commitments                                                                  

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

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

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

6. Stockholders' Deficit                                                        

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

Series D Preferred Stock                                                        

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

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

June 30, 1999 and 1998

6. Stockholders' Deficit (continued)                                            

Series D Preferred Stock (continued)                                            

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

Warrants                                                                        

Warrant activity during the periods indicated is as follows:                    

                                                                [Download Table]
                                                                    

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

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

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

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

Balance at June 30, 1999      559,800    $ 0.01-$25.00      $ 0.94  
                           ===========   ==============    =========

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

Stock Option/Stock Issuance Plans                                               

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

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F-14

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

June 30, 1999 and 1998

6. Stockholders' Deficit (continued)                                            

Stock Option/Stock Issuance Plans (continued)                                   

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

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

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

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

                                                                [Download Table]
                                                                           
                                                                  Weighted 
                                                Range of          Average  
                            Number of            Exercise          Exercise
                             Shares              Prices            Price   
                          --------------   -----------------  -------------

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

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


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F-15

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

June 30, 1999 and 1998

6. Stockholders' Deficit (continued)                                            

Stock Option/Stock Issuance Plans (continued)                                   

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

                                                        [Enlarge/Download Table]
                                                                                           

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

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


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

                                                        [Enlarge/Download Table]
                                                                                           

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

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


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

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

June 30, 1999 and 1998

6. Stockholders' Deficit (continued)                                            

Stock Option/Stock Issuance Plans (continued)                                   

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

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

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

                                                                [Download Table]
                                                                              

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

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


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

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

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

June 30, 1999 and 1998

6. Stockholders' Deficit (continued)                                            

Stock Reserved for Issuance                                                     

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

7. Government Regulation                                                        

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

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

8. Subsequent Events                                                            

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

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

June 30, 1999 and 1998

8. Subsequent Events (continued)                                                

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

Subsequent to June 30, 1999, Mr.  Cameron  disposed of a portion of his interest
in the  $1,000,000  Straight  Note (Note 3),  reducing  the  balance  due him to
$711,885,  plus accrued  interest.  On August 19, 1999,  the Company's  Board of
Directors  agreed to fix the conversion  price of the Convertible Note to $0.044
in exchange for the Straight and/or Convertible Notes ceasing to accrue interest
as of that date.  Because of a decline in revenues  caused by the non-renewal of
programmer  contracts from a high of 109 programmers during the fiscal year 1999
to a low at August 31,  1999 of 43  programmers  at  customer  locations  in the
United  States,  and the steady  decline in the  quoted  value of the  Company's
common stock over the last several months  (trading price was at $0.25 on August
19,  1999),  the Board  agreed it was in the best  interest  of the  Company  to
eliminate the future market risk that the  conversion  price become lower than a
fixed conversion price of $0.044.                                               

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

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10KSB’ Filing		Date		First		Last			Other Filings
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		9/30/99		5					10QSB
Filed on:		9/22/99
		9/21/99		17
		8/31/99		1		36			4
		8/27/99		11					8-K
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		8/23/99		36
		8/19/99		11		36
		8/17/99		19
For Period End:		6/30/99		1		36
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		11/18/97		12		32			DEF 14A
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