UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1998
Commission file Number 33-2832-D
ATI Networks, Inc.
(Exact name of registrant as specified in its charter.)
Colorado 84-1089801
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
460 Cedar Street, Fond du Lac, WI U.S.A. 54935
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(920) 922-7030
(920) 922-7011 telecopier
<PAGE>
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 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 - 3,184,357 shares as of September 30, 1998.
<PAGE> 1
PART I. - FINANCIAL INFORMATION
ATI NETWORKS, INC.
BALANCE SHEET
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
September 30 December 31
__________________ _________________
1998 1997
__________________ _________________
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents $ 30,437 $ 24,938
Investment Accounts 20,000 -
Accounts Receivable 1,008,425 8,113
Inventory 10,036 10,050
Stock Subscriptions Receivable 500,000 -
Security Deposits 647 -
Prepaid Expenses 2,436 1,376
Total Current Assets 1,571,981 48,477
Property and Equipment 80,292 78,749
Less: Accum. Dep'n. (43,385) (36,095)
Total Property and Equipment 36,907 42,654
Other Assets
Capitalized R&D Costs - Net 272,588 426,610
Media Gems - Net 32,432
Total Other Assets 305,020
Total Assets $ 1,913,908 $ 517,741
<PAGE> 2
LIABILITIES AND CAPITAL
Current Liabilities
Accounts Payable $ 206,678 $ 14,840
Accrued Payroll and Taxes 15,717
Current Portion Deferred Reven 52,416 52,416
Line of Credit - Firstar Bank 110,238 50,000
Total Current Liabilities 385,049 125,382
Long-Term Liabilities
Notes Payable 7,348 0
Notes Payable - Officer 0
Deferred Revenue 13,104 52,416
Total Long-Term Liabilities 20,452
Total Liabilities 405,501 183,275
Capital
Common Stock 1,168,391 1,126,391
Stock Subscribed 500,000 0
Accumulated Deficit (775,127) (775,125)
Net Income 615,143 (79,596)
Total Capital 1,508,407 334,466
Total Liabilities & Capital $ 1,913,908 $ 517,741
<FN>
See Accompanying Notes to
Financial Statements
</TABLE>
<PAGE> 3
ATI NETWORKS, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Summary Income Statement (Audited) (Unaudited)
For the Nine Months Ending September 30, 1997 September 30, 1998
<S> <C> <C>
Total Revenues $ 82,389 $ 1,054,419
Cost of Sales 9,097 201,252
Gross Profit 73,292 853,167
Operating Expenses
Sales and Marketing Expense 50,595 20,986
General And Administrative Expense 58,481 57,145
Research & Development Expense 181,102 9,080
Amort. of Capitalized R&D 86,800 121,590
Depreciation 7,290 7,290
Total Operating Expenses 384,268 216,091
Net Operating Income (Loss) (310,976) 637,076
Other Income (Expenses) 0 0
Gain/Loss - Sale of Assets 200 0
Dividend & Interest Income 559 190
Capital Gains (Losses) (6,545) (15,953)
Interest Expense 0 (6,115)
Other (29) (30)
Net Other Income (Expenses) (5,815) (21,908)
Net Income (Loss) before Taxes (316,818) 615,168
Income Tax Provision 27 25
Net Income (Loss) $ (316,818) $ 615,143
<FN>
See Accompanying Notes to
Financial Statements
</TABLE>
<PAGE> 4
ATI NETWORKS, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS AND THE NINE MONTHS
ENDED SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Current Year to
Quarter Date
September 30, September 30,
1998 1998
------------- -------------
Cash Flows from operating activities
<S> <C> <C>
Net Income $ (48,119) $ 615,143
Adjustments to reconcile net
income to net cash provided
by operating activities
Depreciation 2,430 7,290
Amortization of R&D 40,530 121,590
Accounts Receivable changes 620 (1,000,312)
Stock Subscriptions Receivable 0 (500,000)
Bad Debt Reserve 0 (4,015)
Inventory changes 86 (14)
Other Current Asset changes (233) (698)
Deferred Rev. changes 0 0
Accounts Payable changes (3,216) 191,837
Other Curr. Liab. changes (811) 10,116
Total Adjustments 39,700 (1,172,782)
Net Cash provided by Operations (8,419) (557,639)
Cash Flows from investing activities
Used For
Investment Accounts 0 (20,000)
Equipment (1,735) (4,920)
Net cash used in investing (1,735) (24,920)
Cash Flows from financing activities
Proceeds From
Line of Credit - Firstar Bank 110,238 110,238
Note Payable - L & S Bestor 0 20,000
Paid-in Capital 10,000 47,000
Stock Subscribed 0 500,000
Accumulated Deficit 1 16,799
Used For
Line of Credit - Bank One (50,000) (50,000)
Note Payable - Advanta (3,058) (3,058)
Note Payable - L & S Bestor (20,000) (20,000)
Deferred Revenue (13,104) (39,312)
Net cash used in financing 34,077 581,667
Net increase <decrease> in cash $ 23,923 $ (892)
Summary
Cash Balance at End of Period $ 30,437 $ 30,437
Cash Balance at Beginning of Period (8,944) (24,939)
Net Increase <Decrease> in Cash $ 21,493 $ 5,498
<FN>
See Accompanying Notes to
Financial Statements
</TABLE>
<PAGE> 6
ATI NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
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 of 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 fair presentation have been included.
The accompanying unaudited financial statements should be read
in conjunction with the audited balance sheet of ATI Networks Inc. ("the
Company") included in the 1997 Annual Report and filed on Form 10KSB.
The unaudited financial statements have been prepared in the ordinary
course of business for the purpose of providing information with respect
to the interim period.
Note 2. Net Income Per Common Share
Computation of net income per common share was based on the weighted
average number of shares outstanding during such periods. These amounted
to 2,659,597 shares for the six months ending September 30, 1998 and
2,561,900 shares for the six months ending September 30, 1997 as
adjusted. Fully diluted shares outstanding are 9,760,973 for the
six months ended September 30, 1998.
Note 3. 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 4. Major Stockholder
Mr. Larry Bestor presently owns approximately 42% of the Common
Stock of the Company.
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
ACCOUNTING STANDARDS
Note:
Financial Accounting Standard No. 96 "Accounting for Income
Taxes" which requires that no later than 1996, companies change
from the deferred method to the liability method of accounting
for income taxes, has not been adopted by the Company for 1996.
Implementation of the Standard is not expected to have any
material affect on the Company's financial condition or results
of operations.
FORWARD-LOOKING INFORMATION
This Analysis and Discussion contains certain forward-looking
statements within the meaning of Section 27 (A) of the Securities
and Exchange Act of 1933 and Section 21 (E) of the Securities and
Exchange Act of 1934. Actual results could differ materially from
those projected in the forward-looking statements as a result of certain
risk factors set forth below and elsewhere in this report. In addition
to the other information contained in this report, individuals should
carefully consider the following risk factors:
1. The Company believes that its assumptions are based upon
reasonable data derived from and known about its business
and operations. No assurances are made that actual results of
operations or the results of the Company's future activities
will not differ materially from its assumptions;
2. Additional risks factors such as the uncertainty of the Company's
marketing activities, and the results of bringing additional
acquisitions and affiliations into a smooth operation with
Company are unknown;
3. Additional concerns regarding the year 2000 compliance standards
as they effect the Company's operating technology as well as the
technologies of the industry which affect the Company's operations;
<PAGE> 8
4. In addition to the uncertainties regarding Federal and state
government regulations; and the Company's approach to defining
and maintaining an appropriate and thorough compliance
program for such Federal and state standards;
5. Additional uncertainties regarding the ability for operating cash
to meet the current and projected cash flow needs of the organization;
6. Readers are cautioned not to place undue reliance on these
forward-looking statements, as they attempt to speak only of activities
known or anticipated as of this date.
YEAR 2000 COMPLIANCE
The Company continues to review its technology systems to attempt to
discover what effects year 2000 issues may have on its operations. Many
of the earlier systems, found not to be compliant, have been replaced while
others are being modified to comply. The Company is working with its
known suppliers of technology or services controlled by technology that
might be effected by the year 2000 events and are seeking written
assurances from those determined to have a potential effect upon
Company's operations. However, there can be no assurance that the Company
will identify all of its data handling problems in its business systems or
those of its suppliers or clients in advance of any effect upon Company's
operations. The Company, therefore, bears some unlimited and unknown
risks to the year 2000 issue and could also be adversely effected if other
entities do not adequately or timely resolve their problems.
RESULTS OF OPERATIONS
SALES REVENUE
One million dollars ($1,000,000) of revenue reported for the first
half of 1998 resulted from an exclusive licensing agreement for the
sale of Logitrak to Traxall. Due to delays in deployment of the
satellite network required to utilize the software, no payments have
yet been received under this agreement. While management expects
the network to be operational in early Fall, there could be a
shortfall in the fulfillment of the agreement if the operational dates
slip further. In that case, it may be necessary to renegotiate the
agreement to a lessor amount or extend it beyond its current expiration
date of December 1998.
Cost of sales, consisting primarily of royalties, remained virtually
unchanged as a percentage of net sales and operating revenues,
compared with the same period in the prior year.
OPERATING EXPENSES
Increase in General and Administrative expenses during the period were
principally due to the initial expenses of becoming a fully reporting
company, which resulted in increases in legal and accounting fees.
Amortization of capitalized R&D expenses increased $23,000 due to
the capitalization of $175,000 in 1997. The asset is amortized over
three years.
<PAGE> 9
NET INCOME
The increase in net income over 1997 was a result of the commencement
of the company's national sales effort and a significant increase in
sales revenues.
LIQUIDITY
The Company defines liquidity as its ability to generate resources to
finance business expansion, construct capital assets, and pay its
current obligations. ATI Networks completed most of its corporate
organization costs prior to this quarter.
Anticipated public reporting expenses and planned acquisitions will
place additional demands on liquidity during the remainder of the next
year. Management will maintain a routine analysis of the lines of
credit and the Company's capital needs. The Company requires
substantial capital to operate and expand its existing wireless systems,
to construct new wireless systems, and to acquire interests in
existing wireless systems.
<PAGE> 9
Other Requirements
The Company plans to continue to buy shares of its common stock on the
open market from time to time, based on market conditions.
CAPITAL RESOURCES
Provided Management can secure equity financing of not less than five
million dollars ($5,000,000), it will invest two million dollars
($2,000,000) in acquisitions of equipment and related companies, and
will implement the expansion of its marketing programs.
RESEARCH AND DEVELOPMENT RESOURCES
The Company has completed several software products. Management
continues to fund the further development of upgrades and enhancements
to these products as needed to stay competitive in the marketplace.
The Company recently brought these products to market, which has
illustrated both the demand for the products and the need to continue
upgrading and maintaining these software products. Management plans to
continue upgrades and improvements to existing products utilizing state
of the art technology, and to re-market these products to its growing
client base. Management expects sales revenues and profits to increase
as the company implements its marketing plan in 1999.
<PAGE> 10
PART II - OTHER INFORMATION
Item No. 1 Legal Proceedings
Neither the Registrant nor any of its affiliates are a
party, nor is any of their property subject, to material
pending legal proceedings or material proceedings known
to be contemplated by governmental authorities.
Item No. 2 Changes in Securities
None
Item No. 3 Defaults Upon Senior Securities
None
Item No. 4 Submission of Matters to a Vote of Security Holders
None
Item No 5. Other Information
ATI Networks, Inc. spent the third quarter of fiscal 1998 preparing
their organization for rapid sales growth and expansion. We have
revised our operating policies, continue to expand our customer base and
recruit experienced, operational and management personnel. Additionally,
we maintain our current public reporting status pursuant to Section 12 of
the Securities Exchange of 1934 (the "Exchange Act") and have applied to
have our common equity listed for trading on the OTC Bulletin Board
under the symbol OTCBB: ATIW. This will allow the Company to
approach capital markets and initiate the raising of equity when
needed to fuel growth through mergers and acquisitions. Access to
public markets is critical, since the growth rates will be too rapid to
fund through earnings or debt.
ATI Networks has initiated and maintains ongoing discussions with
businesses regarding potential business alliances. The Company is
working with investment firms, specializing in computer technology,
information systems and the Internet, who may arrange future
capitalization. ATI Networks is also developing relationships with
retail brokerage firms who will assist in providing stock support to
the public float.
<PAGE> 11
MAJOR ACQUISITION
The Company has ongoing discussions with various companies
concerning potential business mergers and acquisitions that would
continue to strengthen ATI Networks and its product lines.
EXECUTIVE SUMMARY
The Company was founded as a Research and Development Company to
create and license leading edge software applications. In December of
1995, the Company's first product, AutoNav for Windows, was selected
by Automotive Engineering Magazine readers as one of the Top 50
Products of the Year. In 1996, with its LogiTrak software, ATI became
the first company in the world to enable wireless communications and
vehicle tracking over the INTERNET. In 1997, ATI completed the
development and recently began marketing of two proprietary website
properties. The first is a fully automated, global real estate exchange
website known as ARealGem.com. The second is ArtGems.com, the first
fully automated, online art auction on the Internet. Having already received
thousands of timeshare listings for aRealGem.com, and $7,000,000 of art
inventory for ArtGems.com, the Company is well on its way to meeting
its sales objectives for these sites in 1998.
The company is a C-Corporation with its principal business offices located
at 460 Cedar Street, Fond du Lac, Wisconsin.
Business
The company has developed proprietary software technologies for real time data
communications over the Internet, vehicle tracking, vehicle navigation, and
Internet 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 copyrights, to the technology
retained by the Company.
Future revenue sources include development fees, software licensing fees,
Internet advertising fees, wireless communications fees, and the sale of
mobile data communications and tracking equipment. Future sales will also
include upgrades for software map data bases, software mapping
applications, and sales commissions for properties sold on its websites.
The Company is now in the growth stage of business, having begun international
sales of its software technologies and is experiencing growing consumer
awareness of its Internet websites.
<PAGE> 12
Products
ATI has developed the following products:
NavQuest - Mapping, Routing, and Navigation Software. A CD-ROM product that
includes all US and many Canadian streets and highways on one CD. NavQuest
also contains advanced routing features, as found in more expensive programs,
that permit the user to look up and locate nearly any street address in the
United States, and calculate the shortest route to a destination. Included
with the software are 35,000 attractions across the U.S. that can be located
quickly and easily using NavQuest. An earlier version of this mapping
software, under the tradename AutoNav, received Automotive Engineering
Magazine's prestigious Top 50 Products Award.
Sale of the NavQuest mapping, routing, and navigation software product is
now in the growth stage. Having shipped just over 5,000 copies in 1996, the
Company was back ordered for 6,000 units in January of 1998 alone. Management
expects to ship over 100,000 units in 1998. They plan to follow the
US/Canadian product with extensions to their line, which will include
versions for distribution in France, Germany, and the United Kingdom.
LogiTrak - Wireless Messaging and tracking via the INTERNET- Incorporating
the NavQuest mapping and routing engines, LogiTrak includes all the
functionality of NavQuest plus enabling the user to do wireless data
communications and tracking of a wireless device over the INTERNET.
LogiTrak can be configured to operate in a regional mode without an
INTERNET connection using a local wireless device such as the MicroTracker.
Internet WebSites - At the end of 1997, ATI completed the development and
began marketing two proprietary website properties, www.aRealGem.com and
www.ArtGems.com.
Known on the web as arealgem.com, (pronounced A Real Gem), the site enables
Timeshare property buyers and sellers around the world to connect with each
other directly in one place on the Internet. Visitors to the site may view or
search for available properties for sale in 70 countries around the world. By
following the easy, step-by-step instructions to list property(s) for sale,
individual users complete an on-line listing form, submit a picture, or video
file of the property, and all of their property information is immediately
available for viewing by any of the 140 million users of the Internet. The
Company provides a complete buyer's service to online timeshare buyers by
handling escrow and title insurance for every timeshare sold on its sites.
Technology - When creating its web sites, the Company's engineers creatively
utilized the latest active server technology from Microsoft, to provide online
buyers access to a large database of inventory in a compelling and exciting,
live auction environment. The site allows multiple auctions to take place
simultaneously by enabling participants to scan through all of the currently
available inventory, view digital pictures of each item, then make bids on
their favorite(s). Multiple bids can be made on multiple items by anyone
logged onto the sites, with the Company's web server acting as the traffic
cop for all auction transactions. Imagine a combination of a stock exchange
and
<PAGE> 13
art, and you have the format for ArtGems. Similar technology has been
employed for the sale of timeshares on ARealGem.com. The result is
dynamic and friendly environments to engage in electronic commerce
of art and timeshare properties.
By applying sophisticated database technology to the Internet, ATI has
created an easy to use, yet powerful, real estate information website that
can be viewed by any Internet Web Browser. Unlike other real estate sites
established solely for Realtors, the aRealGem website now makes it easy
for everyone, realtor and layman alike to list their property for sale on the
most comprehensive high-traffic, Internet website dedicated to real estate
sales of all kinds. The aRealGem website was formed to use ATI's
proprietary Internet technology to facilitate and promote the listing and
sale of properties in 70 countries to the global online community, by
providing a convenient, central point of exchange.
Known on the web as arealgem.com, (pronounced A Real Gem), the site enables
real estate property buyers and sellers around the world to connect with each
other directly in one place on the world wide web. For Sale by Owner (FSBO)
types and Realtors alike can now advertise their properties to the global
community by going to the Real Gem website. Visitors to the site may view or
search for available properties for sale in 70 countries around the world. By
following the easy, step-by-step instructions to list property(s) for sale,
individual users complete an on-line listing form, submit a picture or video
file of the property, and all of their property information is immediately
available for viewing by any of the 140 million+ users of the Internet.
Market
NavQuest
Sale of the NavQuest mapping, routing, and navigation software product is now
in the growth stage. Having shipped just over 5,000 copies in 1996, the
Company expects to ship over 100,000 units in 1998. They plan to follow the
US/Canadian product with extensions to their line, which will include
versions for distribution in France, Germany, and the United Kingdom.
LogiTrak
The global market for LogiTrak is as broad and compelling as the number of
wireless devices currently in use. In the transportation industry, it can be
used by the over 600,000 businesses that make their living by hauling freight.
On the consumer side, it could eventually be used to track the over 70 million
cellular phone users in the US, or 10+ million pager users that want to save
money on communication with their homes and offices. Internationally, the
market demand would be similarly compelling as GPS-enabled cellular telephones
replace existing cellphones.
<PAGE> 14
The INTERNET and the World Wide Web
The INTERNET is a global collection of computer networks, linking millions of
public and private computers around the world. Historically, the INTERNET was
used by academic institutions and government agencies to exchange information
and send and receive electronic mail. A number of factors, including the
proliferation of communication-enabled personal computers, the availability of
intuitive, graphical software and wide accessibility to an increasingly robust
network infrastructure, have allowed widespread access to the INTERNET at a
rapidly declining cost, and have facilitated the emergence of the Web, a
client/server system of hyper-link, multimedia databases.
The Web enables non-technical users to easily access information on the
INTERNET and enables individuals or organizations to offer textual or
graphical and other information directly to end users. Users can easily access
information on the Web using client software known as Web "browsers." In
recent years, the Web has experienced a rapid increase in the number of
individual users. Price Waterhouse and International Data Corporation ("IDC")
have estimated that the number of INTERNET users will exceed 200 million
people by the end of 1999, from approximately 70 million in mid-1997; and an
October 1995 Commerce Net/Nielsen INTERNET Demographics Survey indicated
that approximately 18 million people in the U.S. and Canada had used the Web
during the three month period prior to the survey.
Additionally, many businesses and individuals in developing countries have
purchased personal computers in increasing numbers, but lack access to
reliable telecommunications services in their area. Since these businesses and
individuals do not want to be left behind in the race for access to global
information, it is anticipated by all Internet research firms that growth in
developing nations will also increase at a rapid pace.
Marketing
The Company plans to promote the site nationally and internationally over the
Internet with banner ads on high traffic sites such as HomeNet, USAToday, and
YAHOO, that link directly to arealgem.com. Currently a travel promotion is
being offered in conjunction with Advantage Travel for each listing placed on
the site. The Company has partnered with a major marketing partner, to manage
the media rollout and promotion of both the new RealGem website, as well as
future Company websites. By applying brand name development strategies,
Company management intends to position AREALGEM as the definitive source on
the Internet to advertise and exchange all types of real estate.
<PAGE> 15
Advertising and Promotion
The Company has a national marketing agreement with a firm that owns
interests in cable television networks, newspapers, magazines, and Direct
Broadcast satellite channels. Under the terms of the agreement, the marketing
partner will market and advertise arealgem.com through a variety of Direct
Response advertising promotions in its national media. These venues include
Family Guide magazine, hundreds of weekly newspapers, and Direct Response
cable and satellite television infomercials. In addition, the partner will be
nationally advertising and promoting the Company's future media properties
through these same channels. The audience for this combined media blitz
represents over 35 million US households. The partnership gives the Company
recurring national exposure for its consumer products through well established
national media. Additionally, the Company is working with editors of national
magazines to position its Internet consumer products as major brand names.
The capital investment the Company is seeking will help expand this national
advertising effort to rapidly build the site's brand name awareness.
The Company has secured exclusive, 24-month Internet marketing rights with
nationally known artists and publishers, for the online sale of over $7,000,000
of art inventory on its ArtGems site and related partner sites. Additional
artist's and publisher's inventories are being added weekly. Additionally,
the company has received thousands of timeshare listings for aRealGem.com.
The company receives a minimum sales commission of $500 for each of the
timeshares purchased from the company's sites. The Company has agreed to
supply some of its inventory to Onsale.com, a publicly traded, online
general auction site with over $85 million in 1997 sales. OnSale states in
their Prospectus that they are the largest revenue generating, general consumer
auction site on the Internet. This website partner currently generates between
500 and 700 orders per day of general merchandise sales. Similar arrangements
have been made with Home Shopping Network's online auction, FirstAuction.com,
under a lucrative revenue sharing agreement. Company management believes the
strategic relationships with many distribution partners enhances the Company's
brand name awareness among the Internet community, and improves its ability
to achieve future revenue and profit goals.
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 300,000 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.
<PAGE> 16
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 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.
Wireless Telecommunications
Since the 1980's, the availability and use of wireless telecommunications
services has grown dramatically. The major growth sectors have included mobile
cellular telephone and specialized mobile radio which provide voice and data
communications, paging, and satellite-based mobile data services which provide
data communications. The growth in wireless services has been driven primarily
by technology advances and changes in telecommunications regulations and
consumer behavior. In addition, in less developed markets, wireless services
have become an alternative to fixed wireline services which are characterized
by poor quality, limited capacity and long installation waiting periods.
Wireless Communications systems increasingly are being adopted in developing
markets in order to more quickly implement fixed communications services. In
many international markets, including the People's Republic of China ("PRC").
India, Indonesia and Brazil, fixed telephone systems are inadequate to handle
demand with telephone line penetration ranging from less than 1% to less than
10% compared with over 50% in major developed markets. Wireless Communications
systems provide an attractive alternative to traditional copper and fiber
based fixed services with the potential to be implemented more quickly and at
lower cost than wireline services. The installation of Wireless Communications
systems minimizes the need to obtain right-of-ways and excavate existing roads
and infrastructure to lay copper or fiber cables. There is a rapidly growing
global demand for the use of wireless communications devices, and the software
that makes these devices communicate.
<PAGE> 17
Position
The NavQuest software CDROM is a consumer mapping and navigation product that
is distributed nationally. Various demographic groups have a need for this
product, and ATI 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 in touch with their drivers, it plans to expand the market
to include the ability to communicate with, and remotely track any wireless
device. 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 because of
customer 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
<PAGE> 18
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's customers number in the tens of thousands and include the following
major 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
Item No. 6 Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27. Financial Data Schedule
b. Reports on Form 8-K
The Registrant filed a Form 8-K
during this quarter on July 10-13, 1998.
<PAGE> 19
ATI NETWORKS INC.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of
1934, the registrant has duly cause this report to be signed on its
behalf by the undersigned thereunto duly authorized.
ATI NETWORKS, INC.
Registrant
November 15, 1998 /s/ William Geenen
Date
WILLIAM GEENEN
Chief Financial Officer
November 15, 1998 /s/ Larry Bestor
Date
LARRY BESTOR
Principal Executive Officer
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