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 March 31, 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 - 3,086,240 shares as of March 31, 1999.
PART I - FINANCIAL INFORMATION
ATI NETWORKS, INC.
BALANCE SHEET
AS OF MARCH 31, 1999
(UNAUDITED)
March 31, 1999
ASSETS
Current Assets
Cash and Cash Equivalents $ 30,745
Accounts Receivable 87,750
Inventory 10,438
Security Deposits 647
Prepaid Expenses 1,970
Total Current Assets 131,550
Property and Equipment 83,156
Less: Accum. Depreciation <45,815>
Total Property and Equipment 37,341
Other Assets
Capitalized R&D Costs - Net 232,058
Media Gems - Net 32,432
Total Other Asset s 264,490
Total Assets $ 433,381
LIABILITIES AND CAPITAL
Current Liabilities
Accounts Payable $ 20,130
Accrued Payroll and Taxes 120,602
Current Portion Deferred Revenue 52,416
Line of Credit - Firstar Bank 250,000
Total Current Liabilities 443,381
Long-Term Liabilities
Notes Payable 5,708
Deferred Revenue <13,104>
Total Long-Term Revenues <7,396>
Total Liabilities $435,752
Capital
Common Stock 1,165,716
Treasury Stock <35,000>
Accumulated Deficit <1,108,546>
Net Income <24,541>
Total Capital <2,371>
Total Liabilities and Capital $433,381
ATI NETWORKS, INC.
STATEMENT OF OPERATIONS
(Unaudited)
Summary Income Statement
For the Three Months Ending March 31, 1999
Total Revenues $ 34,994
Cost of Sales 4,347
Gross Profit 30,637
Operating Expenses
Sales and Marketing Expense 10,749
General and Administrative 35,027
Research and Development Expense 4,801
Total Operating Expenses 50,577
Net Operating Income (Loss) <19,940>
Other Income (Expenses)
Interest Expense <4,413>
Net Other Income (Expenses) <4,413>
Net Income (Loss) before Taxes <24,353>
Income Tax Provision 10
Net Income (Loss) <24,363>
ATI NETWORKS, INC.
STATEMENT OF CASH FLOW
FOR THE THREE MONTHS
ENDED MARCH 31, 1999
(Unaudited)
Current Quarter
March 31, 1999
Cash Flow from operating activities
Net Income $ <24,542>
Adjustments to reconcile net income to net
Cash provided by operating activities
Accounts receivable changes <20,917>
Stock Subscriptions Receivable 500,000
Inventory Changes 354
Other Current asset changes <233>
Accounts Payable Changes 383
Other Current Liability Changes 30,683
Total Adjustments 510,028
Net Cash provided by Operations 485,486
Cash Flows from investing activities
Used for Equipment <2,621>
Net Cash used in investing <2,621>
Cash Flows from financing activities
Proceeds From
Line of Credit - Firstar Bank 49,762
Paid In Capital 1,200
Used For:
Note Payable - Advanta <1,019>
Deferred Revenue <13,104>
Net Cash used in financing 36,839
Net increase <decrease> in cash 519,704
Summary
Cash Balance at End of Period 30,745
Cash Balance at Beginning of Period <6,629>
Net Increase <Decrease> in Cash 24,116
ATI NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 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 Stockholder
Larry Bestor presently owns approximately 38% of the 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.
The Company experienced 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.
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 order to increase
company awareness in the investor community, the Company's CEO recently
appeared on World Business Review, hosted by Casper Weinberger, the Chairman
of Forbes magazine. He was selected by the producers of the program to
discuss the company and its wireless software products.
Throughout the quarter, the Company also continued expansion of its reseller
distribution channel for its mapping software and wireless communications
products. As well, the Company continued its development of its Internet
websites, ArtGems.com and ArealGem.com.
The Company and its products have received positive exposure in the national
media, but has lacked sufficient 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
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 survive will require additional capital in 1999 to
fund operations until profitability is reached. 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's net profits
throughout 1999.
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 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 stay the same or increase, as
the Company begins receiving revenues from future website sales, where
margins equal or exceed current software sales margins.
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.
PART II - OTHER INFORMATION
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
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.
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.
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
ss 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.
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 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.
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 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'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
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
May 12, 1999 /s/ Lawrence Bestor
Lawrence Bestor
Chief Executive Officer/Director
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