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FORM 10-KSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998
ATI NETWORKS, INC.
(Name of small business 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)
Insurer's telephone number, including area code:
(920) 922-7030
Securities registered pursuant to Section 12 (b) of the
Securities Exchange Act:
Title of each class Name of each exchange on which registered
NONE NASDAQ OTC:BB
Securities registered pursuant to section 12 (g) of the
Securities Exchange Act:
COMMON STOCK,
NO PAR VALUE PER SHARE N/A
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 [ ]
Check is there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated be reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ ]
State issuer's revenues for its most recent fiscal year: $ 99,404
As of December 31,1998, 3,184,357 shares of the issuer's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
See Part III, Item 13, Exhibits and Reports on Form 8-K
Transitional Small Business Disclosure Format: Yes No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
EXECUTIVE SUMMARY
The Company was founded as a Technology Development Company to create and market
leading edge software and wireless applications. In December of 1995, 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. In 1996,
with its LogiTrak software, ATI became the first company in the world to enable
wireless communications and tracking of a wireless device over the INTERNET.
The company has also developed two proprietary Internet auction website
properties, www.artgems.com and www.arealgem.com, that it seeks to increase
public awareness of by increasing 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 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, existing ATI Networks
shareholders will retain an equity interest in the new spin-off Internet
company.
BUSINESS
The company has developed proprietary software technologies for real time data
communications over the internet, vehicle tracking, vehicle navigation, and an
informational database internet website. 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 assigned to ATI.
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.
The Company has recently begun sales of its software technologies and use of its
internet websites.
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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 cell phone is estimated at 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 emerging 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.
ATI 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 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 demand for tracking and wireless
communications generates tremendous future potential for LogiTrak.
. A Real Gem - 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.
. Art Gems - 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 three nationally
known artists.
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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.
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.
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 wire line 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.
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POSITION
The NavQuest software CDROM is a consumer mapping product that is useful,
inexpensive, and fun. 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
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 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 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.
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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.
EMPLOYEES
Presently One Year From Now
Operations 4 25
Clerical 2 6
Administrative 2 4
None of the Company's employees are subject to collective bargaining agreements
and the Company considers its relations with its employees to be excellent.
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.
In 1998 the Company acquired 87% of Waterford International, an inactive public
company domiciled in the State of Colorado. A one for one stock exchange with
Waterford has been completed and approval for active trading on the NASDAQ
Over-the-Counter (OTC) Exchange has been granted by the NASD. The trading
symbol is ATIW.
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.
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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 Securities
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 in the Company's
operations or 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 underlying the
forward-looking statements 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. DESCRIPTION OF PROPERTY
FACILITIES
The following tabulates certain information with respect to the lease currently
executed between the Company and
Current
Square Monthly Lease
Location Footage Rental Lessor Expiration
Executive Offices 2,500 $600.00 Wisconsin
460 Cedar Street Lumber Co.
Fond du Lac, WI
54935
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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.
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There has been limited trading in ATI Networks, Inc. Common Stock, and there can
be no assurance that an active trading market will develop or be sustained.
Provided a trading market does develop in the future, the market price of the
shares of Common Stock is likely to be highly volatile and may be significantly
affected by factors such as fluctuations in the Company's operating results,
announcements of technological innovations or new products by the Company or its
competitors, governmental regulatory action, developments with respect to
patents or proprietary rights and general market conditions. The Company plans
to be listed on Standard and Poor's Standard Corporation Description and
Records.
The last reported sale price of the Common Stock on December 31, 1998 was
2.125 per share. The number of shareholders of the Company's Common Stock was
one hundred forty (140) on December 31, 1998.
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Company's Board of Directors. No dividends on the Common Stock
have been paid by the Company, nor does the Company anticipate that dividends
will be paid in the foreseeable future.
As reflected in the price quotations above, there have not been significant
price fluctuations in the Company's Common Stock. Factors that may cause or can
cause market prices to fluctuate include any purchase or sale of a significant
number of securities during a relatively short time period, quarterly
fluctuations in results of operations, announcements of new facilities, issuance
of additional securities, registration of securities and entrance of such
securities into the public float, market conditions specific to the Company's
industry and market conditions in general. In addition, in recent years the
stock market in general has experienced significant price and volume
fluctuations. These fluctuations, which may be unrelated to the operating
performance of specific
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companies, have had a substantial effect on the market price for many small
capitalization companies such as the Company. Factors such as those cited above,
as well as other factors that may be unrelated to the operating performance of
the Company, may adversely affect the price of the Common Stock.
DESCRIPTION OF SECURITIES
The authorized capital stock of ATI Networks, Inc. consists of twenty million
(20,000,000) shares of Common Stock, no par value, of which 3,184,357 shares
will be outstanding on the Distribution Record Date.
Holders of ATI Networks, Inc. Common Stock will be entitled to one vote per
share on all matters submitted to any vote of stockholders. Cumulative voting
for the election of directors is not permitted and therefore the holders of a
majority of the shares of ATI Networks, Inc. Common Stock will be able to elect
all of the directors. The ATI Networks, Inc. Common Stock does not have
preemptive rights and is not convertible, redeemable or assessable. The holders
of ATI Networks, Inc. Common Stock are entitled to receive dividends as may be
declared by the Board of Directors out of funds legally available therefor.
See Dividends on ATI Networks, Inc. Common Stock below. Upon liquidation or
dissolution, holders of ATI Networks, Inc. Common Stock are entitled to share
ratably in all net assets available for distribution to stockholders.
RESTRICTIONS OF TRANSFER
Shares of ATI Networks, Inc. Common Stock held by non-affiliate ATI Networks,
Inc.'s stockholders will be freely transferable, except for shares held by
persons who may be deemed to be "affiliates" of ATI Networks, Inc. under the
Securities Act of 1933, as amended (the "Securities Act"). Persons who may be
deemed to be affiliates of ATI Networks, Inc. generally include individuals or
entities that control, are controlled by, or are under common control with ATI
Networks, Inc. and may include certain officers and directors of ATI Networks,
Inc. as well as principal stockholders of ATI Networks, Inc.. Persons who are
affiliates of ATI Networks, Inc. will be permitted to sell their shares of ATI
Networks, Inc. only pursuant to an effective registration statement under the
Securities Act or an exemption from the registration requirements of the
Securities Act, such exemptions afforded by Section 4(1) or Rule 701 of the
Securities Act or Rule 144 thereunder.
DIVIDENDS ON ATI NETWORKS, INC. COMMON STOCK
ATI Networks, Inc. does not intend to pay any dividends in the foreseeable
future and will follow a policy of retaining its earnings for use in its
operations. In addition, under its proposed loan agreement, ATI Networks, Inc.
will be prohibited from paying cash dividends without prior approval of its
lender banks.
TRANSFER AGENTS
The transfer agent for the ATI Networks, Inc. Common Stock is American
Securities Transfer, Inc., whose address is 1825 Lawrence Street, Suite 444,
Denver, Colorado 80202-1817 and whose telephone number is (303) 298-5370.
ITEM 6. SELECTED FINANCIAL DATA
Not Applicable
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ITEM 7. 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.
The Company experienced a year of continued development of its core GPS software
systems, namely NavQuest and LogiTrak. In expanding LogiTrak's technical
capability to function with Orbcomm's Low Earth Orbit satellite system, the
Company has increased the long term future value of this industry leading
software technology. Efforts to raise capital have resulted in company
management entering into an exclusive agreement with EBI Securities to privately
place $10 million of the company's common stock with institutional investors.
Management believes the current share price of the Company to be undervalued
relative to market values of related technology companies, due to the Company
being relatively unknown in the investor community. In an effort to increase
awareness in the investor community, Company management signed a contract with
the producers of World Business Review, hosted by Casper Weinberger, the
Chairman of Forbes magazine, to discuss the company and its wireless software
products.
Throughout 1998, the Company continued to focus on expansion of new resellers of
its mapping software and wireless communications products. Ongoing development
and completion of the new Internet informational database website also occurred
in 1998.
The software industry is extremely competitive and dynamic. The Company and its
products have received positive exposure in the national media, but has lacked
the capital to fully implement its 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 create brand name recognition, while partnering and
distribution contracts are expanded. The Company expects to see significant
growth in its future sales figures in 1999. To create and maintain awareness of
the Company's products in the mind of the public requires an increase in
marketing and sales related expenses, as the company expands the awareness of
its website Internet properties. Partnerships with other online auction sites
will expand the use of the company's sites, but will impact net profits
throughout 1999. Delay of Orbcomm's satellite network implementation resulted in
a loss to the Company of a $1 million exclusive license fee of LogiTrak in 1998.
As a result of Traxall defaulting on this agreement, the Company now retains
full marketing rights to this product.
Like many early stage technology companies, the majority of the Company's assets
are intangible assets such as copyrights, trademarks, and Research and
Development costs. 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 last fiscal year is 65 %. The anticipated gross
margin for software sales during the next year of operations is approximately 65
%. GPS equipment and related hardware margins are anticipated at approximately
50%. The trend of the Company sales margins is to stay the same or increase,
since the Company plans to focus its future sales and licenses on software and
advertising products.
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
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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 operations of
the Company.
ITEM 8. FINANCIAL STATEMENTS
The financial statements are included beginning at F-2. See page F-1 for
the Index to the Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINCIAL
DISCLOSURE
From the date the Registrant commenced operations through any subsequent
interim period preceding the dismissal there have been no disagreements with the
former accountant on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope of procedure.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Chief Executive Officer: Larry Bestor
Age: 47
Office Street Address: 460 Cedar Street
Fond du Lac, WI 54935
Telephone: (920) 922-7030
Duties include contract negotiation, capitalization, and business direction.
Prior to founding the company, Mr. Bestor served in a variety of management
positions. He has over 10 years experience in the financial services field, as
an investment consultant for IDS/American Express and Prudential Insurance
Company. Mr. Bestor is listed in U.S. Registry's WHO'S WHO of American Colleges
and Universities, and WHO'S WHO in Leading American Executives. He attended the
University of Wisconsin Engineering School, and has a Business Degree from
Marian College. Mr. Bestor is also a Director of the company.
VP Marketing: Blade Thomas
Age: 46
Office Street Address: Same as above
Mr. Thomas previously served as Vice President of Marketing for Entrepreneur
Magazine and MET-Rx. At MET-Rx USA, he conceptualized and engineered the
production of radio, print and TV ad campaigns to create demand for retail
distribution of the company's products. Over a three year period, using his
direct response ads to increase demand for the company's products, annual
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sales grew from $7.2 million to over $65 million. While with Entrepreeur
Magazine, he was the leading executive responsible for the sale of over 200
"howto" business startup and operations manuals, the company's subscription and
news stand sales, as well as trade shows, and business seminars.
Secretary: Steve Sorenson
Age: 47
Office Street Address: Same as above
Mr. Sorenson practices law in the Fox River Valley area as the owner of the
Sorenson Law Offices. He concentrates his practice in the areas of commercial,
corporate, and financial law. As a member of the State Bar Corporation and
Banking Section, he has been involved in projects that involve the revision
development of Wisconsin corporate and banking laws. Mr. Sorenson is the past
President of the Wisconsin State Bar Association. He received his Juris
Doctorate from Marquette University.
Chief Financial Officer: William Geenen
Age: 60
Office Street Address: Same as above
Mr. Geenen has over 30 years of accounting experience prior to joining the
Company. He has previously served in accounting positions as Controller, Vice
President, Treasurer and CFO at Air Wisconsin up until its sale to United
Airlines in 1992. While there he managed the airline's initial public stock
offering in 1980, a secondary offering in 1982, and subsequent related
transactions. Since 1992 he has a been a principal in the firm of W.H. Geenen
and Assoiciate, a financial management firm. Mr. Geenen received a B.S. in
Accounting from Marquette University in 1959. He is also a Director of the
Company. Mr. Geenen spends an estimated 2-3 days per week on Company business.
DIRECTORS OF THE COMPANY
Number of Directors:
All Officers above serve as Directors. In addition Dr. William Sybesma
serves as a Director. Lawrence Bestor and Steven Sorenson have served on the
Board since the inception of the company. Dr. Sybesma was added to the board in
1995, Mr. Geenen in 1997, and Mr. Thomas in 1998.
Name: Dr. William Sybesma
Age: 51
Title: Director
Home Street Address: 865 Mullen Drive
Fond du Lac, WI 54935
54935
Telephone: (920) 921-6363
Dr. Sybesma is Board Certified in the specialty of Otolaryngology - Head
and Neck Surgery, and practices at Agnesian Healthcare. He has served as
President of the Fond du Lac County Medical Society and on the Board of
Directors of the Fond du Lac Medical Clinic. Dr. Sybesma received his MD from
the University of Iowa School of Medicine.
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Mr. Bestor and Mr. Thomas have worked previously in management positions in
startup businesses. Neither individual had signed non-compete agreements with
their former employers. Further, all technology has been created since beginning
employment with ATI, exclusively for use by the Company, and is owned by ATI,
Inc.
Both CFO and CEO have experience managing startups. From 1974-1981, Mr.
Bestor was the founder of two companies, one of which specialized in
architectural design, the other in building construction. Mr. Geenen is the
founder of a firm that specializes in small business consulting and is a
recognized expert in the area in startup companies. He was also an early part of
the senior management team at Air Wisconsin, seeing it through many stages of
its growth and expansion over the 22 years he was there.
Key man life insurance exists on Mr. Bestor for $1 million that is owned
by the Company, and for which Mrs. Susan Bestor is the primary beneficiary.
COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT
The following material contains information concerning the directors, including
their recent employment, positions with the Company, other directorships and age
as of the date of this Form 10-KSB.
CAPACITY
NAME AGE WHICH SERVED OFFICER SINCE
- -----------------------------------------------------------
Lawrence Bestor 47 Chairman Inception
460 Cedar Street CEO and President
Fond du Lac, WI
54935
Blade Thomas 46 Vice President 1998
460 Cedar Street Marketing
Fond du Lac, WI
54935
William Geenen 60 Chief Financial Officer, 1998
460 Cedar Street Treasurer
Fond du Lac, WI
54935
Steven Sorenson 47 Secretary 1998
460 Cedar Street (Director since Inception)
Fond du Lac, WI
54935
William Sybesma 51 Director 1996
460 Cedar Street
Fond du Lac, WI 54935
- -----------------------------------------------------------
<PAGE>
Each director holds office until the next annual meeting of shareholders or
until a successor has been duly elected and qualified. There are currently
vacancies on the board of directors. The Board is seeking qualified nominees to
fill vacancies. Officers are appointed by and serve at the discretion of the
Board of Directors.
Under the securities laws of the United States, the Company's directors, its
executive officers, and any persons holding more than ten percent of the
company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Commission and the company. Specific due dates for these reports have been
established and the Company is required to disclose any failure to file, or late
filing, of such reports. Based solely on the Company's review of Forms 3, 4 and
5 and amendments thereto furnished to the Company and written representations
with respect to filing of such Forms, the Company is aware that all Forms have
been filed timely to date.
COMMITTEES OF THE BOARD
The Board of Directors will delegate certain of its authority to a Compensation
Committee and a Audit Committee. There are currently vacancies on both of these
Committees. The Board expects to fill these vacancies after it has filled the
vacancies on the Board of Directors.
The primary function of the Compensation Committee will be to review and make
recommendations to the Board with respect to the compensation, including
bonuses, of the Company's officers and to administer the Company's proposed
Option Plan.
The function of the Audit Committee is to review and approve the scope of audit
procedures employed by the Company's independent auditors, to review and approve
the audit reports rendered by both the Company's independent auditors and to
approve the audit fee charge by the independent auditors. The Audit Committee
will report to the Board of Directors with respect to such mattes and recommends
the selection of independent auditors.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
- ---------------------------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Rest.
Name and Annual Stock LTIP Other
Principal Comp. Award(s) Opt. P/outs Comp.
Position Year Salary Bonus ($) ($) ($) SARs(#) ($) ($)
- ---------------------------------------------------------------------------------------------------------
Larry Bestor 1997 $65,000
460 Cedar St. 1998 $65,000
Fond du Lac, WI
Blade Thomas 1998 $ 5,000 10,000
460 Cedar Street
Fond du Lac, WI
William Geenen 1998 $ 6,000 4,000
460 Cedar Street
Fond du Lac, WI
</TABLE>
<PAGE>
No employee of the Company receives any additional compensation for his service
as a director. Non-management directors receive no salary for their services as
such, but are entitled to receive reasonable travel or other out-of-pocket
expenses incurred by non-management directors in attending meetings of the Board
of Directors and a fee of $100.00 per meeting attended.
The Company has no retirement, pension or profit sharing program for the benefit
of its directors, officers or other employees. The Board of Directors may
recommend one or more such programs for adoption in the future.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of December 31, 1998 by (i) each person known by
the Company to own beneficially more than 5% of the outstanding Common Stock,
(ii) each director, and (iii) all executive officers and directors as a group.
Each person has sole voting and sole investment or dispositive power with
respect to the shares shown except as noted.
Principal owners of the Company (those who beneficially own directly or
indirectly 10% or more of the common and preferred stock presently outstanding)
starting with the largest stockholder. Include separately all common stock
issuable upon conversion of convertible securities (identifying them by
asterisk) and show average price per share as if conversion has occurred.
Indicate by footnote if the price paid was for a consideration other than cash
and the nature of any such consideration.
Shares of ATI Networks
Common Stock
Beneficially Owned Percent
Name and as of the 12-31-98 of
Address Record Date Class
Lawrence Bestor 1,356,640 43.00%
460 Cedar Street
Fond du Lac, WI 54935
Oshkosh Truck Corp. 600,000 18.80%
2307 Oregon Street.
Oshkosh, WI 54901
William Sybesma 80,000 2.60%
460 Cedar Street
Fond du Lac, WI 54935
Steven Sorenson 22,000 0.7%
460 Cedar Street
Fond du Lac, WI 54935
Blade Thomas 10,000 0.3%
460 Cedar Street
Fond du Lac, WI 54935
William Geenen 4,000 0.1%
460 Cedar Street
Fond du Lac, WI
All Directors and Officers
As a Group 1,472,640 46.7%
<PAGE>
The transactions described below were fair and reasonable to the Company on the
basis that such transactions were on terms at least as favorable as could have
been obtained from unaffiliated third parties. The transactions between officers
and directors of the Company, on the one hand, and the Company, on the other,
have inherent conflicts of interest.
(a) The number of shares subject to issuance under presently outstanding stock
purchase agreements, stock options, warrants or rights: 7,213,000 shares
(67% of total shares to be outstanding after the completion of the offering
if all securities sold, assuming exercise of options and conversion of
convertible securities). Indicate which have been approved by shareholders.
State expiration dates, exercise prices and other basic terms for these
securities:
Year of Expiration Exercise Price Number of Shares
2004 $0.10 6,176,000
2004 $1.00 142,000
2004 $2.50 112,000
2005 $2.50 640,000
2006 $5.00 143,000
2007 $5.00 101,000
(b) Number of common shares subject to issuance under existing stock purchase
or option plans but not yet covered by outstanding purchase agreements,
options or warrants: 697,000 shares.
Shareholder approval is not required for grants made under the Employee
Stock Option Plan. Board approval is required for all other increases in
capitalization. The board is currently composed of two Company officers and
one non-employee shareholder representative.
All employees except the President have signed two year non-compete
agreements. In addition, the Company has an employee stock option plan that
vests stock options awarded each year over a 5 year period at 20% per year.
IV. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following documents are filed herewith or have been included as
exhibits to previous filings with the Commission and are incorporated
herein by this reference:
EXHIBIT NO. DOCUMENT
*3.1 Articles of Incorporation of the Company, as amended;
*3.2 Bylaws of the Company, as amended;
*23.1 Law Offices of Mark T. Thatcher, Consent of Counsel
*23.2 Consent of Schenck and Associates, independent certified
public accountants for the Company
27 Financial Data Schedule
* Incorporated by reference from the issuer's Annual Report on Form 10KSB
(S.E.C> File No. 33-22832-d) filed June 30, 1998.
-------------------------------------------------------------------------
(b) REPORTS ON FORM 8-K
Report date May 1, 1998 reporting the changes in beneficial ownership of
ATI Networks, Inc. and the Plan of Share Exchange of Waterford, a Colorado
corporation, and ATI, a Wisconsin corporation. Report dated October 30,
1998 reporting a press release regarding the initial agreement to purchase
Position, Inc.
<PAGE>
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.
A majority of the Directors and the Chief Executive and Financial
Officers of the Company shall sign this Disclosure Document on behalf of
the Company and by so doing thereby certify that each has made diligent
efforts to verify the material accuracy and completeness of the information
herein contained. By signing this Disclosure Document, the Chief Executive
and Chief Financial Officers agree to make themselves, the Company's books
and records, copies of any contract, lease or other document referred to in
the Disclosure Document, or any other material contract or lease (including
stock options and employee benefit plans), except any proprietary or
confidential portions thereof, and a set of the exhibits to this Disclosure
Document, available to each investor prior to the time of investment, and
to respond to questions and otherwise confirm the information contained
herein prior to the making of any investment by such investor.
The Chief Financial Officer signing this form is hereby certifying
that the financial statements submitted fairly state the Company's
financial position and results of operations, or receipts and
disbursements, as of the dates and period(s) indicated, all in accordance
with generally accepted accounting principles consistently applied (except
as stated in the notes thereto) and (with respect to year-end figures)
including all adjustments necessary for fair presentation under the
circumstances.
In accordance with the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant
and in capacities and on the dates indicated.
Chief Executive Officer/Director Secretary/Director
/s/ Lawrence Bestor /s/ Steven Sorenson
Lawrence Bestor Steven Sorenson
Chief Financial Officer Director
/s/ William Geenen /s/ Dr. William Sybesma
/s/ William Geenen Dr. William Sybesma
<PAGE>
F-1
FINANCIAL STATEMENTS
December 31, 1997 and December 31, 1998
With Independent Auditors' Report
TABLE OF CONTENTS
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS
Balance Sheets F- (3-4)
Statements of Operations F- (5-6)
Statements of Stockholders' Equity F - 7
Statements of Cash Flows F - (8-9)
<PAGE>
F-2
Independent Auditors' Report
Board of Directors
ATI, INC.
Fond du Lac, WI 54935
We have audited the accompanying balance sheets of ATI, Inc. as of December
31, 1997 and 1996, and the related statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our 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 ATI, INC. as of
December 31, 1997 and December 31, 1996, and the results of its operations
and its cash flows for the years ended in conformity with generally
accepted accounting principles.
/s/ Schenck & Associates
____________________
Fond du Lac, WI
May 1, 1998
<PAGE>
F-3
BALANCE SHEETS
December 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
ASSETS Unaudited Audited
1998 1997
---------- --------
<S> <C> <C>
Current assets
Cash and cash
equivalents $ 14,814 24,938
Investment securities 4,000
Accounts receivable 566,833 8,113
allowance, 1997 Net
allowance of $4,015
Inventories 10,084 10,050
Prepaid Expenses 2,850 1,376
---------- ---------
Total Current Assets 594,581 48,477
Property and equipment
Office furniture and equipment 80,635 78,749
Less accumulated depreciation (45,815) (36,095)
---------- ---------
Net property and equipment 34,820 42,654
Other Assets
Capitalized software development
cost, 1997 net of accumulated
amortization of 278,677 264,490 426,610
---------- ---------
$ 893,891 517,741
</TABLE>
<PAGE>
F-4
LIABILITIES AND STOCKHOLDERS' EQUITY
Unaudited Audited
1998 1997
--------- -------
Current liabilities
Note payable 200,238 50,000
Current maturities of
long-term debt 2,524
Accounts payable 19,747 14,840
Accrued liabilities 89,918 5,602
Deferred revenue 52,416 52,416
Total current liabilities 362,319 125,382
Long-term debt, less
current maturities 6,727 5,477
Deferred Revenue 52,416
Total Liabilities 369,046 183,275
Stockholders equity
Common stock, no par
value 1,168,391 1,126,391
Accumulated deficit (775,122) (775,122)
Unrealized loss on
investments (16,800)
Treasury Stock (35,000)
Stock Subscribed 500,000
Net Income (333,424)
---------- ---------
Total Stockholders' Equity 524,845 334,466
---------- ---------
$ 893,891 $ 517,741
<PAGE>
F - 5
ATI, NETWORKS, INC.
STATEMENTS OF OPERATIONS
Years Ended December 31, 1998 and 1997
Unaudited Audited
1998 1997
---------- -------
Total Revenues $ 99,404 83,525
Cost of sales 17,597 24,623
Operating expenses
Amortization of
capitalized software
development costs 162,120 119,743
Research and
development expenses 15,683 8,093
Sales and marketing
expenses 31,228 57,918
General and
administrative
expenses 172,387 36,281
Depreciation expense 9,720 10,882
Net Operating Income
(Loss) from Operations (309,331) (174,015)
Other income (expenses)
Loss on sale of investment
securities (15,953) (6,545)
Dividend and interest
income 238 1,063
Miscellaneous income (30) 702
Interest expense (7,880) (399)
Other income (expense), net (23,625) (5,811)
Loss before income taxes (332,981) (179,826)
Net loss $ (332,981) (179,826)
<PAGE>
F - 6
ATI NETWORKS, INC.
Statements of Operations, continued
Years Ended December 31, 1998 and 1997
Unaudited Audited
1998 1997
----------- ---------
Net Loss $ (332,981) (179,826)
Net loss per share (0.10) (0.07)
Weighted - average number
of common shares outstanding 3,184,357 2,592,840
<PAGE>
F - 7
ATI NETWORKS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Unrealized
Common Stock Accumulated Loss on
Shares Amount Deficit Investments Total
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1996. 2,560,500 940,281 (595,299) (20.400) 324,582
Issuance of
common stock 37,340 191,110 - - 191,110
Repurchase of
common Stock (5,000) (5,000) (5,000)
Unrealized loss
on investments - - (179,826) - (179,826)
Balance,
December 31, 1997 2,592,840 1,126,391 (775,125) (16,800) 334,466
Issuance of
common Stock 417,500 41,000 - - 41,000
Repurchase of
common Stock - - - - -
Unrealized loss
on investments - - (332,981) (332,981)
Balance,
December 31, 1998 3,010,340 1,167,391 (1,108,106) - 42,485
</TABLE>
<PAGE>
F - 8
ATI Networks, Inc.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Unaudited Audited
1998 1997
--------- ---------
<S> <C> <C>
Operating activities
Net loss (333,424) (179,826)
Adjustments to
reconcile net loss to
net cash provided by
(used for)
operating activities:
Depreciation and
amortization 171,840 130,625
Loss on sale of
property and equipment - -
Loss on sale of
investment securities - 6,545
Provision for losses (4,015) 3,889
on accounts receivable
Deferred revenue (52,411)
Decrease (increaase) in:
Accounts receivable (558,720) 98,992
Inventories 34 16,229
Prepaid expenses (693)
Other 84,318
Increase (decrease) in:
Accounts payable 4,906 (4,799)
Accrued liabilities (931) (8,736)
Net cash provided by (used
for) operating
activities (634,198) 9,815
Investing activities
Purchase of property
and equipment (5,763) (16,854)
Purchase of
investment securities (20,000)
available for sale -
Proceeds from sale of
investment securities
available for sale 3,855
Capitalized software
development costs (274,640)
Net cash used for
investing activities (25,763) (287,639)
Financing activities
Proceeds from
issuance of note
payable 200,238
and long-term debt 58,001
Retirement of note
payable and
long-term debt (53,679) -
Proceeds from sale of
common stock 563,800 191,110
Purchase of common
stock (5,000)
Deferred Revenue (52,416)
Net cash provided by
financing activities 657,943 244,111
</TABLE>
<PAGE>
F - 9
ATI NETWORKS, INC.
Statements of Cash Flows, continued
Years Ended December 31, 1998 and 1997
Unaudited Audited
1998 1997
--------- --------
Cash and cash equivalents
Net increase (decrease) (10,125) (33,713)
Beginning of year (24,939) 58,651
End of year 14,814 24,938
Supplemental cash flow information
Cash paid for interest 399
<PAGE>
ATI, NETWORKS, INC.
Financial Statements
CONSENT OF COUNSEL
I hereby consent to the use of my name as legal counsel in the Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended December 31, 1997 filed by ATI Networks, Inc.
on Form 10-KSB.
MARK T. THATCHER, P.C.
/S/ Mark T. Thatcher
By:_____________________________
MARK T. THATCHER, President
Newport, RI
June 3, 1998
<PAGE>
We hereby consent to the use of our name as auditing firm in the Annual
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended December 31, 1997 filed by ATI Networks, Inc.
on Form 10-KSB.
Schneck and Associates
December 31, 1997
Fond du Lac, Wisconsin
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 14,814
<SECURITIES> 0
<RECEIVABLES> 566,833
<ALLOWANCES> 0
<INVENTORY> 10,084
<CURRENT-ASSETS> 594,581
<PP&E> 80,635
<DEPRECIATION> 45,815
<TOTAL-ASSETS> 893,891
<CURRENT-LIABILITIES> 362,319
<BONDS> 6,727
0
0
<COMMON> 1,168,391
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 524,845
<SALES> 99,404
<TOTAL-REVENUES> 99,404
<CGS> 17,597
<TOTAL-COSTS> 391,138
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (332,981)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (332,981)
<INCOME-TAX> (332,981)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (332,981)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
