FORM 10-QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1999
ATI NETWORKS, INC.
(Exact name of registrant as specified in its charter)
COLORADO 84-1089801
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
460 Cedar Street
Fond du Lac, Wisconsin 54935
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(920) 922-7030
(920) 922-7011 (fax)
Check whether the issuer (1) 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 report(s), and (2) has been subject to such filing requirements for the
past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common Stock, $0 Par Value - 3,233,030 shares as of SEPTEMBER 30, 1999.
PART I - FINANCIAL INFORMATION
ATI NETWORKS, INC.
BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(UNAUDITED)
SEPTEMBER 30, 1999
ASSETS
Current Assets
Cash and Cash Equivalents $ 1,036
Accounts Receivable 72,267
Inventory 11,396
Security Deposits 647
Prepaid Expenses 1,738
Total Current Assets 87,084
Property and Equipment 83,978
Less: Accum. Depreciation <45,815>
Total Property and Equipment 38,163
Other Assets
Capitalized R&D Costs - Net 232,058
Media Gems - Net 32,432
Total Other Assets 264,490
Total Assets $ 389,737
LIABILITIES AND CAPITAL
Current Liabilities
Accounts Payable $ 32,902
Accrued Payroll and Taxes 142,267
Current Portion Deferred Revenue 52,416
Line of Credit - Firstar Bank 250,000
Total Current Liabilities 477,585
Long-Term Liabilities
Notes Payable 4,220
Deferred Revenue <39,312>
Total Long-Term Revenues <35,092>
Total Liabilities $442,493
Capital
Common Stock 1,170,716
Treasury Stock <35,000>
Accumulated Deficit <1,108,696>
Net Income <79,776>
Total Capital <52,756
Total Liabilities and Capital $389,737
ATI NETWORKS, INC.
STATEMENT OF OPERATIONS
(Unaudited)
Summary Income Statement
For the nine months ending SEPTEMBER 30, 1999
Total Revenues $ 63,286
Cost of Sales 8,565
Gross Profit 54,721
Operating Expenses
Sales and Marketing Expense 23,284
General and Administrative 71,357
Research and Development Expense 25,682
Total Operating Expenses 120,323
Net Operating Income (Loss) <65,602>
Other Income (Expenses)
Interest Expense <13,934>
Net Other Income (Expenses) <51>
Net Income (Loss) before Taxes <79,587>
Income Tax Provision 10
Net Income (Loss) <79,597>
ATI NETWORKS, INC.
STATEMENT OF CASH FLOW
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1999
(Unaudited)
Current Quarter SEPTEMBER 30, 1999
Cash Flow from operating activities
Net Income $ <28,001>
Adjustments to reconcile net income to net
Cash provided by operating activities
Accounts receivable changes 4,400
Inventory Changes 1,813
Other Current asset changes <78>
Accounts Payable Changes 15,087
Other Current Liability Changes 17,176
Total Adjustments 34,928
Net Cash provided by Operations 6,927
Cash Flows from investing activities
Used for Equipment <1,022>
Net Cash used in investing <1,022>
Cash Flows from financing activities
Proceeds From
Line of Credit - Firstar Bank 0
Paid In Capital 5,000
Used For:
Note Payable - Advanta <680>
Deferred Revenue <17,472>
Net Cash used in financing <13,150>
Net increase <decrease> in cash <7,245>
Summary
Cash Balance at End of Period 1,036
Cash Balance at Beginning of Period <2,767>
Net Increase <Decrease> in Cash 3,803
ATI NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 1. Summary of Significant Accounting Policies
The accompanying unaudited financial statements have been prepared in
accordance with Generally Accepted Accounting Principles for interim
financial information and with the instructions to Form 10QSB and Rule 310 of
Regulation S-B. Accordingly, they do not include all the information and
footnotes required by Generally Accepted Accounting Principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals)considered necessary for presentation
have been included.
NOTE 2. Long Term Debt - Short Term Financing
All loans and repayment of lines of credit payable to Firstar Bank and future
borrowings under any such credit facilities have been collateralized by the
accounts receivable and equipment of the Company.
NOTE 3. Major Stockholders
Larry Bestor presently owns approximately 38% of the outstanding Common Stock
of the Company. Oshkosh Truck Corp. owns approximately 20% of the outstanding
Common Stock of the Company.
ITEM 1. IMPORTANT FACTORS RELATED TO FORWARD-LOOKING
STATEMENTS AND ASSOCIATED RISKS
The statements contained in this report that are not purely historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act") and Section 21E of the Security
Exchange Act of 1934, as amended (the "Exchange Act"), including statements
regarding the Company's expectations, hopes, intentions or strategies regarding
the future. All forward-looking statements included herein are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward-looking statements. It is important
to note that the Company's actual results could differ materially from those
in such forward-looking statements. Among the factors that could cause actual
results to differ materially are the risk factors which may be listed from
time to time in the Company's reports on Form 10-QSB, 10-KSB and registration
statements filed under the Securities Act.
Forward-looking statements encompass the (i) expectation that the Company can
secure additional capital, (ii) continued expansion of the Company's operations
through joint ventures and acquisitions, (iii) success of existing and new
marketing initiatives undertaken by the Company, and (iv) success in
controlling the cost of services provided and general administrative expenses
as a percentage of revenues.
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. These
forward-looking statements were based on assumptions that the Company would
continue to expand, that capital will be available to fund the Company's
growth at a reasonable cost, that competitive conditions within the industry
would not change materially or adversely, that demand for the Company's
services would remain strong, that there would be no material adverse change
business, and that changes in laws and regulations or court decisions will
not adversely or significantly alter the operations of the Company.
Assumptions relating to the foregoing involve judgments with respect to,
among other things, future economic, competitive, regulatory and market
conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of
the Company. Although the Company believes that the assumptions underly
nts are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the forward-looking information
will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking information included herein, the inclusion
of such information should not be regarded as a representation by the Company
or any other person that the objectives or plans of the Company will be
achieved.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the Financial
Statements thereto.
In third quarter, the Company downsized its development staff to reduce
expenses and management began active efforts to selloff ownership rights to
its GPS software product line, in order to raise capital and refocus the
company as an Internet content and service provider. Management expects to
complete the sale of both LogiTrak and NavQuest, its GPS software technologies,
early in 4th quarter. Concurrent with the sale of these products, Company
management is attempting to raise venture capital to effectively market and
brand it websites.
Management believes the current share price of the Company to be undervalued
relative to other technology companies trading in the public market. The
Company partnered with JetDisc.com, a startup venture, to create a new market
and distribution channel for NavQuest, its mapping and routing software
product. As well, the Company began marketing of its online voting site,
tallyvotes.com. The tallyvotes.com website enables members of the online
community to vote for a variety of candidates, or topices, such as political
candidates, public company proxy votes, club elections, surveys, etc. The
company expects the site to become increasingly popular with voters and media
people during the upcoming election year.
The jetdisc.com site is an informational site that is being used by the company
to promote its exciting new JetDisc product. JetDisc uses the NavQuest product
platform as a free promotion to provide a compelling medium for the placement
of corporate sponsor's digital advertising.
The Company and its products have received positive exposure in the national
media, and is seeking venture capital to fully implement its new marketing
plan. The growth of the Internet as a distribution medium for software and
information has greatly expanded the global market for the Company's core
products, while at the same time created new opportunities for the Company
to create and sell variations of its products. It is expected that with the
additional exposure of the Company and its products to the online community,
that demand will continue to increase for the Company's products. The Company
believes continuing to expand exposure to the online community is a must to
creating brand name recognition, while partnering and distribution contracts
are expanded. Company management expects to see significant growth in its
future sales figures as awareness of the company's products expands. However,
to create and maintain mindshare of the Company's products in the mind of the
public requires an increase in marketing and sales related expenses. The
ability of the company to meet its new customer contract requirements requires
additional operating capital until these contracts are filled. As the company
expands the awareness of its Internet websites, it is expected that the
increased use of its online auction sites will impact positively on the company
net profits during the balance of 1999.
Like many early stage technology companies, the majority of the Company's
assets are intangible assets such as copyrights, trademarks, and its technology.
The existing gross margin (net sales less cost of such sales as presented in
accordance with generally accepted accounting principles) as a percentage of
sales for the quarter was 87%, an increase of 12% over the same period in 1998.
The anticipated gross margin for software during the next year of operations is
approximately 85%. GPS equipment and related hardware sales margins are
anticipated at approximately 50%. The trend of the Company's sales margins is
expected to decrease for the balance of 1999, as the Company seeks to
increase revenues. This is do in part to the contribution of a significant
portion of sales revenues to be spent on sales and marketing expenses and the
marketing of it new Internet media products. The Company feels that due to
increased competition in the marketplace, the company must give away free
copies of its software, in order to increase its market share.
It is expected that the percentage of foreign sales will remain the same, or
increase slightly, since this closely represents the approximate ratio of
foreign users to total users of the Internet. The Company does not market
directly to the government and does not expect any significant sales to come
from this sector.
YEAR 2000 ISSUE: Issues involving the Year 2000 are the result of computer
programs being written using two digits rather than four to define the
applicable year. The Company has tested its software and its internal systems
and presently believes that the Year 2000 Issue will not pose significant
operational problems for its computer systems. However, if vendors of the
Company that supply GPS hardware and firmware technologies experience
problems due to the Year 2000 Issue, it could have a material impact on the
Company's future operations. The company is working with its vendors to insure
Year 2000 compliance for all of its product lines.
PART II - OTHER INFORMATION
ITEM 1. DESCRIPTION OF BUSINESS
EXECUTIVE SUMMARY
The Company has evolved from its roots as a GPS Technology Development Company
to become a developer of web technology and web content. The Company's first
product, NavQuest for Windows, was selected by Automotive Engineering Magazine
readers as one of the Top 50 Products of the Year. Its next product, LogiTrak,
became the first product in the world to enable wireless communications and
tracking of a wireless device over the INTERNET.
The company has also developed a proprietary Internet auction website,
www.artgems.com and an informational website for the purchase of real estate,
www.arealgem.com. The company is currently seeking a venture capital partner
to provide funds for advertising and marketing budgets. Upon raising additional
capital, it is management's plan to substantially grow revenues and public
awareness of these properties, spin-off or sell the Internet website properties
as a new company, and then sell the new entity either publicly or privately.
At the time the new company is formed, it is management's intention that
existing shareholders will receive an equity interest in the Internet company
acquiring these properties.
BUSINESS
The company has developed proprietary software technologies for real time
data communications over the internet, vehicle tracking, vehicle navigation,
and e-commerce. The Company designs and develops the technologies it sells,
both with its own in-house engineers and privately contracted developers.
When outside developers are used, as well as with its employee engineers and
scientists, all ownership, trade secrets, and proprietary rights to the
technology are usually retained by the Company. This may change in the future
as the company begins doing contract work and developing websites for others.
Future revenue sources include development fees, software licensing fees,
advertising fees, wireless communications fees, and the sale of mobile data
communications and tracking equipment.
INVESTMENT HIGHLIGHTS
WIRELESS COMMUNICATIONS AND MAPPING PRODUCTS
A recent FCC mandate requiring all cellular companies to accurately pinpoint
the location of all incoming 911 calls has opened a tremendous window of
opportunity for ATI Networks shareholders. Ever since late 1995, when ATI
first demonstrated that it had successfully combined digital mapping with
satellite and cellular wireless communications technology, it has emerged as
a world recognized leader in this type of software. The US now has over 50
million cellular phones in use, and the average lifecycle of a estimated life
cycle of 3 years. It has been anticipated by the many experts that to comply
with the e-911 mandate by the end of the year 2001, it is likely that a
majority of cell phones in the US will include built-in GPS receiver
chipsets. Andrew Seybold, a well recognized expert in the field of wireless
communications, has estimated the total number of cell phones worldwide by
the year 2003 at over 600 million. Since ATI's existing software technology
and world recognized name in the industry perfectly positions it to capitalize
on this emergin market opportunity, company management is now seeking the
capital it needs to fund its rapid future growth, and to enable it to
aggressively increase its market share of GPS enhanced wireless
communications products.
The Company has emerged as a leading developer of GPS applications software and
is now implementing an aggressive growth plan that will enable it to
significantly influence and profit from the future growth of GPS enabled,
wireless devices.
PRODUCTS AND MARKET
ATI Networks has developed the following products:
* NavQuest - Comprehensive mapping and routing software product on CD-Rom.
NavQuest includes most U.S. and Canadian streets and highways, advance
routing features, optional GPS tracking capabilities, city and address search
features, and a database of thousands of attractions and points of interest.
The market for this product includes the owners of over 17 million new
vehicles each year. Market research by Automotive Engineering Magazine
suggests the vehicle navigation market will grow to over 3,000,000 units
annually by the year 2000.
* LogiTrak - Map Based Tracking and Messaging via the Internet - A Windows 95
software application for communicating with, and viewing the locations of,
multiple wireless devices from a remote PC via the Internet. Two-way messages
can be quickly transmitted and received through a graphic interface utilizing
GPS satellites, communications satellites, and the Internet. The market for
this product includes most transportation companies and over 100 million
existing cellular telephone users. The ever-increasing use of wireless
communications generates tremendous future potential for LogiTrak.
* aRealGem.com - Internet website property known on the web as arealgem.com,
the site enables Timeshare property buyers and sellers around the world to
connect with each other. Visitors to the site may view and search for
available properties for sale in 70 countries. Visitors may list their
property for sale, submit photos or video files using easy online
instructions. The website is available for viewing and use by 70 million
users of the internet. The Company charges a basic fee of $20 per month per
listing.
* ArtGems.com - Internet website property known on the web as artgems.com,
this site provides viewers with access to a large inventory of art and a live
auction environment. Digital pictures of the inventory may be viewed and
multiple bids can be made on multiple items by anyone logged onto the site.
The Company currently has internet marketing rights to art inventory with
a number of nationally recognized artists.
* Tallyvotes.com -
MARKET DEFINITION
Mapping, Routing and Navigation Software
With NavQuest, the Company is competing in the computer mapping and routing
market. This market was composed of approximately 1,000,000 units last year,
according to IDC. ATI believes the major future trend in the industry will be
toward high quality, value oriented mapping product offerings. This market
will continue to grow substantially over the next decade as automobile
manufacturers and aftermarket automobile equipment manufacturers begin to
offer these products in the US, as they already do in Japan and Germany. The
Company has begun marketing initiatives that management believes will increase
NavQuest's share of this market over the next 24 months.
The US auto market is comprised of over 17 million new vehicles annually, and
is a virtually untapped market for vehicle navigation systems. Market
research by Automotive Engineering Magazine and the Big 3 automakers suggests
the vehicle navigation market will grow to over 3,000,000 units annually by
the year 2000. Company management expects the niche in which it competes to
grow over the next decade, as more automotive equipment and electronics
manufacturers seek to enter the US market with their product offerings.
The major forces affecting this change will be the falling cost of electronic
components, more travel by technically capable baby boomers, and the growing
use of personal computers.
Map Based Tracking and Messaging
LogiTrak - This market includes over 10,000 long haul truck companies, and
thousands of local delivery companies that represent over 11 million pickup
and delivery vehicles in the US alone. Internationally, anyone that wishes to
track or communicate with mobile fleets, service technicians, or salespeople
can use ATI's tracking and data communications services. Sales are comprised
of LogiTrak software that is used by dispatchers in addition to the mobile
communication units for vehicles.
E-commerce
The market for online commerce is growing exponentially. At the end of 1996,
were 40 million online Internet Users worldwide. At the end of 1997 that
number had grown to 100 million, and it is now estimated that by the year
2002 the Internet population will grow to a staggering one billion online
users, or one out of every five people on the planet.
According to IDC, worldwide commerce revenue on the Internet is expected to
increase from approximately $30 billion at the end of 1998 to more than
$425 billion in 2002. Accordingly, Jupiter Communications estimates that the
amount of advertising dollars spent on the Internet is expected to increase
from approximately $1.9 billion in 1998 to $7.7 billion by 2002. The Internet
enables features and functions that are unavailable in traditional media,
permitting on-line retailers to interact effectively with customers and
advertisers to target specific demographic groups by capturing valuable data
on customer tastes, preferences, shopping, and buying patterns.
The company has focused the development of its e-commerce sites on certain
demographic groups in an effort to provide these groups with interesting
and compelling content and products it believes of interest to these groups.
POSITION
The NavQuest software CD-ROM is a consumer mapping product that is useful,
inexpensive, and fun. Various demographic groups have a need for this
product, and the Company plans to tailor national advertising and marketing
accordingly. The product will continue to be revised and updated continuously
to provide increasingly better value as well as expanded demographic market
penetration.Although the Company originally positioned its LogiTrak mobile
data communications and tracking software to meet the need of the
transportation industry to keep touch with their drivers, it plans to expand
the market to others. With this goal in mind, ATI designed and developed
LogiTrak as an easy to use tool for anyone with a PC running Windows 95.
Using a modular approach to product development, the ATI development team has
made it possible to add communications drivers for cellular, CDPD, and PCS
systems to the software's existing satellite and RF communications
capabilities. The Company expects that by the addition of these drivers to
the software, this it can expand the potential market for users of its
tracking software to include everyone with a computer that uses the Windows
95 operating system.
All website products are positioned to provide the INTERNET web user with the
ability to use the Company's products anywhere in the world, with any of the
three major web browsers. The Company's server architecture is scaleable to
allow growth as usage of the Company's websites continues to grow.
PRICING
Pricing strategy for all products is to be competitive with the market. The
company arrives at pricing based on a combination of gross margin objectives
and market prices of similar product offerings. This pricing is reviewed
monthly to ensure that potential profits are not squandered, while enabling
the Company to continue selling its products at competitive pricing that
enable rapid increase in market share. Duplication and distribution costs
are less than 20% of current wholesale prices, so profit margins are
adequate to maintain this pricing strategy, while enabling ATI to reach its
market share objectives.
DISTRIBUTION CHANNELS
The distribution channels used for NavQuest mapping and routing navigation
software product are cataloguers, retailers, and tourist information
services. With the additional funding, ATI would like to extend distribution
to include national direct response TV ads. The Company began an ad campaign
just prior to the summer travel season, since the desire to plan for
vacations on one's home computer increases consumer response to advertising.
These channels make sense for delivering the product to the end user
profile and geography. Some of the competition uses the wholesaler channel,
while no competitor uses all of the same channels as ATI. ATI's distribution
strategy is advantageous because the partnership with CPNM into established
distribution channels enables ATI to increase market share of its consumer
products, without substantially sacrificing profit margins.
To sell mobile data communications services effectively, ATI believes it is
necessary to recruit and train a technically competent, direct sales
organization, while also continuing to license reseller/partners to sell its
wireless communications technology. Upon completing funding, the Company
plans to hire additional sales people to market and license its products
globally.
CUSTOMERS
ATI Network's customers number in the tens of thousands and include the
following companies:
WP6-34; AT&T
WP6-34; Harley Davidson
WP6-34; Bell South Mobility
WP6-34; Trimble Navigation Limited.
WP6-34; Flash, Inc.
WP6-34: Goodwill Industries
COPYRIGHTS/PATENTS
The Company owns the Copyrights and Trademarks for AutoNav, LogiTrak, and
NavQuest, as well as its website properties. Intellectual property and
trademark protection is an integral part of the corporate strategy to
maximize exclusivity and legally protect ownership of the Company's
proprietary technology properties in the marketplace.
None of the Company's business, products, or properties are subject to
material regulation (including environmental regulation) by federal, state,
or local governmental agencies.
INSURANCE
The Company maintains director and officer ("D&O") liability insurance on a
claims made basis for all of its current officers and directors. Insurance
coverage under such policies is contingent upon a policy being in effect when
a claim is made, regardless of when the events which caused the claim
occurred. The cost and availability of such coverage has varied widely in
recent years. While the Company believes its insurance policies are adequate
in amount and coverage for its current operations, there can be no
assurance that the coverage maintained by the Company is sufficient to cover
all future claims or will continue to be available in adequate amounts or at
a reasonable cost.
ITEM 2. LEGAL PROCEEDINGS
No material legal proceedings to which the Company (or any of its directors
and officers in their capacities as such) is party or to which property of
the Company is subject is pending and no such material proceeding is known by
management of the Company to be contemplated.
ITEM 3. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ATI NETWORKS, INC.
Registrant
OCTOBER 28, 1999 /s/ LAWRENCE BESTOR
Lawrence Bestor
President/Director