FORM 10-KSB/A
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
ATI NETWORKS, INC.
COLORADO
84-1089801
460 Cedar Street Fond du Lac, Wisconsin 54935
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 [ ]
State issuer's revenues for its most recent fiscal year: $ 50,717
As of December 31,1999, 3,233,030 shares of the issuer's Common Stock were
outstanding.
Transitional Small Business Disclosure Format: Yes No X
PART I
ITEM 1. DESCRIPTION OF BUSINESS
EXECUTIVE SUMMARY
ATI Networks is building a global e-business by leveraging its proprietary
online technology, compelling content, and proven marketing techniques, to
create high volume, high profit margin websites. The company plans to
continue expanding its exciting community of sites that enable people to
carry on retail and B2B commerce, download digital audio and video media,
while fostering a feeling of community among site visitors.
The company owns a number of public sites that range from www.landnet.com,
featuring the latest information on NASA space launches, to sites that offer
the user access to fine art and discount computers in an auction environment.
The company's auction technology is now being used at www.artgems.com, a
consumer website that offers fine art, direct to consumers over the Internet.
Areas of the company's websites are available only to businesses for business
to business transactions, while other site areas are available to the general
public.
The company has created a website, www.tallyvotes.com that enables webmasters
around the globe to quickly compose a survey, or election, on their website
using the tallyvotes.com template and voting server. Webmasters around the
world RIGHT NOW can implement and use the company's voting engine for free,
to do in minutes what would normally take webmaster/ programmers weeks to
create from scratch. Imagine the future of online voting, a worldwide need
that will increase voter turnout, while expanding democracy around the globe.
Millions of websites around the globe that can use the company's voting
engine to implement online voting, or create surveys, on their own websites
in 15 minutes or less. Analysts have estimated the future of online voting to
evolve into an estimated $10 billion per year business.
The company plans to expand its existing websites to include an online
recycling business, and discount computer products auction. These sites will
cross-link to one another, and will provide an e-commerce environment for
manufacturers of computers and electronic equipment to sell discounted excess
inventory through a global network of online affiliates and Value Added
Resellers (VAR's). The company is currently using its proprietary online
auction technologies and e-commerce websites, in which it has verified its web
auction technology.
It has also established banner advertising contracts with Flycast
Communications/Engage, both CMGI companies, and Cable, Print, News Media, a
consortium of 70 magazines and over 200 websites partnered with the company in
building its online brands. The company is positioning itself to become a
leading community of engaging destination websites that enable business to
business, e-tail commerce, and entertainment.
Through a related company, the company has begun to compile worldwide
distribution rights to a digital library of past and future movies.
There are over 3,500 movies produced each year, of which less than 10% get
distributed through movie theaters and television. Company management believes
this opens up a tremendous opportunity for the company that owns worldwide
digital distribution rights to some of these films. In exchange for
exclusive worldwide,digital distribution rights to the movies in its library,
it will create digital copies of these films. The sale and distribution of
these movies will be offered by the company to online customers in DVD
format, but eventually will be distributed digitally over the Internet through
secure, high speed servers.
SOURCES OF REVENUE
Company revenues are generated from a number of sources in three primary ways:
1)Advertising
2)Electronic retail sales
3)Percentage based, transaction fees received from online product
sales sold on the company's websites, and from the sale of advertising banners.
Since the company's revenue model is based on the use of its sites as online
commerce exchanges, it receives a percentage of each sale made, plus revenue
from information and advertising, not just on the sale of products. In this
way, the company provides a forum for people to meet and carry on business,
in exchange for which it charges a sales transaction fee, and for which it
charges advertisers to reach the company's online audiences.
The company's next generation websites combine the latest database, search
engine, language translation, and e-commerce technologies to link
manufacturers to VAR's, businesses to businesses, and manufacturers with the
general public. Although the majority of the company's initial ecommerce
sales were done in the US, the company has planned the growth of the business
to enable it to do business around the globe, 24 hours a day, 7 days per
week. A nonprofit organization partner, recycleit.org, will provide
businesses and individuals with an environmentally friendly, and tax
deductible process to dispose of old computer equipment such as computers,
monitors, and keyboards.
INDUSTRY OVERVIEW
The Online Marketplace is booming. Increasingly businesses are recognizing
the place to do business in the future is over the Internet. According to IDC,
the number of Internet users will grow from the current estimate of 150
million to reach approximately 320 million by the end of 2002. Other estimates
of the growing online community put the global user number over 1 billion
by 2002. Worldwide commerce revenue on the Internet grew to over $20 billion
in 1999, and is expected to surpass $204 billion in 2001, according to Zona
Research. Online advertising revenues are projected to grow to over $10
billion in 2002 (Jupiter).
Electronic commerce is one of the hottest subjects on the Net today. There is
no shortage of predictions about the number and value of electronic
transactions that will take place over the Internet over the next decade, but
these predictions vary wildly. This highlights one of the fundamental problems
of business on the Internet; that it is next to impossible to predict anything
accurately. Although the predictions vary, the surveys seem to unanimously
agree on one thing: electronic commerce will continue to grow exponentially.
One typical example last year from Forrester Research, states the following:
"Net merchants will this year sell over $50 billion worth of goods over the
Internet. By 2002 this will swell to over $200 billion."
MARKET OPPORTUNITY AND DEMAND
According to the latest statistics from Forrester Research, over 50% of the
nearly $4 billion in 1999 online retail sales occurred in the two industries
the company has focused its retail sales efforts, namely computer products and
entertainment. Additionally, the future of the online voting market is
estimated at over $10 Billion per year, and is in its earliest stages.
The company's online voting server and related website, TallyVotes.com, are
perfectly positioned to capitalize on this evolving global market.
According to statistics from IDC, over 50% of all households in the
US own a computer. Many of these same households own more than one. Globally,
the number of new computers and monitors shipped will exceed 100 million units
each in 1999, and is expected to grow to over 150 million units each for the
calendar year, 2002. The continued growth in the demand of new computers has
created closets and warehouses full of old computers, which has created a
tremendous need for businesses and individuals to dispose of this outdated
equipment. A recent USA Today feature story focused on the growing problem of
disposing of this old equipment in a responsible way, and the need for an
organized system of recycling. Since it is illegal in many states to dispose
of computer monitors and other electronic equipment that contains hazardous
material in landfills, it is obvious that the need for environmentally
responsible recycling of outdated computer equipment will only increase in the
coming decade. The company offers a viable and economical solution to this
growing problem.
According to a recent survey by Zona Research regarding the habits of online
retail shoppers, it was found that 93% of these buyers spend between $25 and
$249 when purchasing products online. The average business to
business transactions are considerably higher and the company is now
positioning itself to offer an online B2B environment that will provide an
ideal forum for businesses of all sizes to carry on global commerce and
develop new business.
The Internet has provided a low cost medium to reach the global audience.
Despite the rapid proliferation of websites, there is currently no company
specifically focused as we have envisioned and described here. Management
believes an excellent business opportunity exists for the company to create
the leading "central meeting place on the web" for both businesses and the
public to benefit from the purchase of discount products and the disposal of
outdated products through its nonprofit sister organization, the RecycleIt.org
network.
Additionally, decreasing profit margins of neighborhood computer retailers,
along with the increase of online computer and peripheral businesses, has
created a compelling need for the local neighborhood computer retailers to
change the way they do business. This compelling need gives the company an
opportunity to provide many of these retailers with a perfect solution to
increase foot traffic to their stores, while at the same time providing these
local retail affiliates with a way to do increase their profit margins by
purchasing from the company's website.
THE ATI NETWORKS ADVANTAGE
The company attracts people to its community of sites with regular
sweepstakes promotions and prize giveaways that reward people for subscribing
to its sites. It expects to retain people's interest on its family of
websites by providing them access to the best digital content, while
rewarding its website visitors with points and prize entries for referring
friends to the company's sites.
The company has established marketing agreements with certain well-
established, high traffic websites, to redirect and promote traffic to the
company's community of websites. The company also plans to promote its
websites using a variation of the marketing technique used by America Online
to generate millions of new customers each year. These plans include
advertising its Internet brands on the JetDisc, an innovative new CDROM that
will be distributed free to millions of airline travelers. JetDisc is a web-
enabled CDROM that millions of airline passengers will view each month. The
JetDisc showcases the latest products, technologies, upcoming movies, and
promotional giveaway offers on behalf of its sponsors. ATI Networks will
promote its web properties each month by offering premium incentives such as
frequent flyer miles and prizes for travelers that visit the company websites
and register as a customer.
In the entertainment sector, the company has formed alliances with MUZE, the
leading music database, to provide online access to its 1.7 million music
titles and 400,000 album titles, through the company's entertainment shopping
areas. The company will then enable its site visitors to create their own
custom CD's by choosing from song titles in its online MUZE database.
Through a related company, the company has begun to compile worldwide
distribution rights to a digital library of past and future movies.
There are over 3,500 movies produced each year, of which less than 10% get
distributed through movie theaters and television. This opens up a tremendous
opportunity for the company that owns worldwide digital distribution rights to
some of these films. In exchange for exclusive worldwide, digital
distribution rights to the movies in its library, it will create digital
copies of these films. The sale and distribution of these movies will be
offered initially to online customers in DVD format, but eventually will be
distributed digitally over the Internet through secure, high speed servers.
The company is focusing its e-business on building and acquiring websites that
meet the growing demands of both consumers and businesses in the categories of
computer products and entertainment. The company plans to enroll thousands of
online affiliates of the company, and its related nonprofit company,
recycleit.org, to serve as distribution avenues for discount computer and
electronic merchandise, as well as collection points for recycling
of discarded computers, computer peripherals, and monitors. In exchange for
becoming affiliates of the company, VAR's receive two major benefits:
First, VAR's will have daily, online access to discount inventory from all
major computer, monitor, and electronics manufacturers, which they currently
do not receive. This discount inventory often comes with similar
manufacturer's warranties as new equipment, but this inventory sells for a
fraction of the price of new equipment. Therefore, the discount inventory we
will provide them with access to, via our online auction, enables VAR's to
benefit from higher profit margins than they currently receive on brand new
equipment.
Second: Local VAR's will benefit from the increased foot traffic that will be
generated for them by turning their stores into local collection points for
the millions of outdated computers, keyboards, modems, and monitors.
With donated equipment going to recycleit.org, a related nonprofit entity, the
donors will receive tax benefits from otherwise useless and outdated computer
equipment.
Company management predicts that its website affiliate programs will motivate
small business users two ways. First, by allowing them to share in revenues
generated by the recycling of equipment brought into their facilities, while
also giving them access to computer equipment inventory from manufacturers
at discount prices. This e-business model, coupled with the company's ability
to provide users with a large inventory of discount products and daily prize
giveaways, will encourage business users to visit company auction sites daily
to both do business and be entertained.
INVESTMENT HIGHLIGHTS
Due to the capital intensive nature of rapidly growing Internet companies,
management expects to need to raise additional funds in future offerings to
fund its growth, to develop new or enhance existing services, and to acquire
complementary products, businesses, or technologies. If additional funds are
raised through the issuance of equity or convertible debt securities, the
percentage ownership of existing stockholders will be reduced and such
securities may have rights, preferences, or privileges senior to those of our
existing stockholders. If adequate funds are not available or are not
available on acceptable terms, the company's ability to fund its expansion,
take advantage of unanticipated opportunities, develop or enhance services or
products, or otherwise respond to competitive pressures would be
significantly limited.
Management is currently negotiating a private placement of equity funding with
accredited and institutional investors, which it believes will enable it to
continue additional website development, and provide enough working capital
to fund operations for the next 12 months.
This capital will be used to hire additional staff, expand national marketing
and branding promotions for the company's websites, and to make acquisitions
that will strengthen the company's growing network of web properties.
PRODUCTS AND MARKET
ATI Networks developers and engineers have previously developed the
following products:
*TallyVotes.com - This site enables webmasters around the globe to quickly
compose a survey, or election, on their website using the tallyvotes.com
template and voting server. Webmasters around the world can implement and use
the company's voting engine for free, to do in minutes what would normally
take webmaster/ programmers weeks to create from scratch. Millions of websites
around the globe can use the company's voting engine to implement online
voting, or create surveys, on their own websites in minutes.
*LotsofStuff.com - a portal site that enables its users to have direct access
to the latest search engine technology and destinations on the web. This
website provides a portal to art and computer product auctions, news, real
estate, weather, sports, sweepstakes, free lotteries, games, and virtual
tours of countries all over the globe.
*ArtGems.com - Internet website property known on the web as artgems.com, this
website 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.
*Landnet.com - Internet website property known on the web as landnet.com, this
site features information about the latest NASA space launch with real-time
NASA reports and pictures. The site also provides information about the
Company's GPS tracking and wireless communications technology and products.
*aRealGem.com - Internet website property known on the web as arealgem.com,
the site enables Timeshare property buyers and sellers around the world to
connect with each other. Visitors to the site may view and search for
available properties for sale in 70 countries. Visitors may list their
property for sale, submit photos or video files using easy online
instructions. The website is available for viewing and use by 70 million
users of the Internet. The site allows users to post and view listings for
free.
* 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. This
product was sold to JetDisc.com.
* 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.
* JetDisc and JetDisc.com - JetDisc is a web-enabled CDROM that millions of
airline passengers will view each month. The JetDisc and its website,
JetDisc.com are unique advertising tools that are used to showcase the latest
products, technologies, upcoming movies, and promotional giveaway offers on
behalf of its sponsors. ATI Networks plans to promote its web properties each
month by offering premium incentives such as frequent flyer miles and prizes
for travelers that visit the company websites and register as a customer.
ELECTRONIC COMMERCE
According to statistics from IDC, over 50% of all households in the US own a
computer. Many of these same households own more than one. Globally, the
number of new computers and monitors shipped will exceed 100 million units
each in 1999, and is expected to grow to over 150 million units each for the
calendar year, 2002.
According to a recent survey by Zona Research regarding the habits of online
retail shoppers, it was found that 93% of these buyers spend between $25 and
$249 when purchasing products online. However, the average business to
business transactions are considerably higher. The Internet has provided a
low cost medium to reach the global audience. Despite the rapid proliferation
of websites, management believes an excellent business opportunity exists for
the company to create the leading "central meeting place on the web" for both
businesses and the public to benefit.
GROWTH OF THE INTERNET AND ONLINE COMMERCE
The Internet Today: A Quick Overview
Consider the following examples of the extraordinary power of the Internet.
It took radio 37 years to get to 50,000,000 listeners.
It took television 13 years to get to 50,000,000 viewers.
It took the Internet a mere 4 years to get to 50,000,000 users.
At the end of 1999 that number had grown to over 150 million, and it is now
estimated by some analysts that by year-end 2002 the Internet population will
grow to a staggering one billion online users, or one out of every five people
on the planet.
According to a recent report on customer buying habits conducted by
Forrester Research, computer products and entertainment were respectively, the
number one and number three leading product categories consumers prefer to
buy over the Internet. It is predicted by all major market forecasters that
this trend will continue over the next decade at growth rates that exceed 50%
per year.
COMPETITION
The company has some competition from many online resellers of new and used
computer equipment. However, company management believes it can continue to
build a rapidly growing base of new customers and new member/affiliates, by
combining the largest selection of products, with the best prices on the
Internet for the discount products the company offers. Additionally, it will
be the only exchange organization in the US that is able to receive and
responsibly recycle outdated computer equipment, so the company will be the
leader in providing this online exchange service on the web.
The online market is characterized by rapidly changing technologies,
frequent new product, and service introductions, and evolving industry
standards. The recent growth of the Internet and intense competition compound
these market characteristics. To achieve our goals, we need to effectively
integrate the various software programs and tools required to enhance and
improve our Internet websites, and to effectively manage the growth of our
online business. The company is prepared to manage this growth with a team of
management people with prior successful experience in building high volume,
scaleable network systems.
Our future success will depend on our ability to adapt to rapidly changing
technologies by continually improving the performance features and reliability
of our web based services. In addition, future site enhancements must meet the
requirements of both current and future users, and must achieve significant
market acceptance. We believe that providing entertaining websites will
enhance the value of the ATI Networks community of websites, to the people and
businesses coming to our sites. Since the company's marketing efforts will be
focused on rapidly creating high traffic sites, building brand name awareness,
and rapidly building a network of affiliates, we believe it is imperative for
website visitors to have a positive experience each time they reach one of our
sites. Our focus on site quality and access speed will enhance our visitors'
experience by combining efficient ways of conducting e-commerce with
entertaining, web-based diversions, to meet the needs of a vibrant online
community.
CUSTOMERS
The customer base of website commerce is unlimited in scope and numbers. Some
of the companies currently contracted as advertisers include the following:
Sony
Alta Vista
Discover Card
Essential.com
Hewlett Packard
Dell
Mortgageit.com
RocketLinks.com GM
BellSouth Local
American Family
Wells Fargo Online
Intelihealth.com
Smartgroups
Healthcentral
Predict It
Washington Post
EZPrints.com
BargainBid.com
Food.com
VarsityBooks
Enonymous.com
Office Click
Hot Office
Sweepstakes
BOTWEB
Mediaworks
eCampus
Shop Center
CGU
Corvette Cars
Credit Counselor's
Office.com
Overstock.com
BizBuyer
eMD.com
Demasiado
Smart Portfolio
PetSmart
HealthExtras.com
Domini Social Investments
Hotbar.com
CarSmart
FirstSource
Sweeps
Computer Learning Centers
TradeCenter
Discovery Online Health
MentorLabs
VarsityBooks
Nedudomains
i-motors
Petfooddirect.com
Instant Ship
Passagen
How2.com / Cuervo
Medical Web
Bonzi99
AARP
GE Warranty
Brother Corp
TreeLoot
I Point
US West
Three Stooges
Enginehouse
Self- Test Software
Jones International University
Open Auto
Travelbreak.com
Boca Research
PNC Bank
USWest Local
BingoDabber
Playboy Enterprises
Loyalty ECM
Ford Outfitters
Boombots
Homepage
AnyLoan
Providian
PAR
BOTWEB
EntryPoint
Mr Jet
DW - Quickflight
Desktop
MSN
Banca Fideuram
Dash
bikeshop.com
eproject
VideoProfessor
Timedance
Storerunner
Stockwinners.com
Pier House Resort A
Letstalk
Entrepreneur.com
Coke
Treeway
iMotors
Wildjack Casino
Furniture Online
Career Engine
PureTec
EMPLOYEES
Operations 6
Clerical 2
Administrative 2
Technical 2
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 LogiTrak and plans to
acquire the rights to certain websites. 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 at a reasonable
cost.
<PAGE>
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 12-31-99.
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
judgements with respect to, among other things, future economic, competitive,
regulatory and market conditions, which are difficult to predict accurately
and many of which are beyond the control of the Company.
ITEM 2. DESCRIPTION OF PROPERTY
FACILITIES
The following tabulates certain information with respect to the lease
currently executed between the Company and the Leaseholder.
Square Monthly
Lease
Location Footage Rental
Lessor
Executive Offices 2,500 $600.00
Wisconsin Lumber Co.
460 Cedar Street
Fond du Lac, WI
54935
<PAGE>
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, although one material proceeding is known by
management of the Company to be contemplated, which, if begun and decided
against the company, could have an adverse effect on shareholders. However,
management believes this issue will be resolved prior to any adverse decision
against the company.
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, 1999 was
0.6875 per share. The company's stock traded from a high in 1999 of $2.125
per share. The number of known shareholders of the Company's Common Stock was
approximately one hundred forty (140) on December 31, 1999. 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 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, short sales by market makers 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 companies,
have had a substantial effect on the market place for many small
capitalization companies such as the Company. Factors such as those cited
above, as well as other factors that may be related 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)voting shares of Series A Common Stock, no par value, of which
3,233,030 shares were outstanding on December 31, 1999, 20 million
(20,000,000) non-voting shares of Series B Common Stock, no par value, of
which no shares were outstanding on December 31, 1999, and 20 million,
(20,000,000)Series A Convertible Preferred Shares, with a par value
of $100 per share, of which no shares were outstanding on December 31, 1999.
Holders of ATI Networks, Inc. Common Stock are 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. See Dividends on ATI Networks, Inc. Common Stock below.
Upon liquidation or dissolution, holders of ATI Networks, Inc. Common
Stock are entitled to share ratable in all net assets available for
distribution to stockholders.
RESTRICTIONS OF TRANSFER
Shares of ATI Networks, Inc. Common Stock held by non-affiliate ATI, 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 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 12039 W. Alameda Parkway,
Suite Z-2, Lakewood, Colorado 80228 and whose telephone number is
(303) 986-5400.
ITEM 6. SELECTED FINANCIAL DATA
See Section IV. EXHIBITS AND REPORTS, Financial Data Schedule
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Financial
Statements thereto.
During the year 1999, the Company focused its efforts on developing new
e-commerce sites, and expanding its Internet marketing and branding
partnerships. Existing website technologies were upgraded, the online
voting engine and server technology, TallyVotes.com, was completed, and the
new ReCycleIt.org partnership and website development was initiated.
Strategic business alliances for the websites were arranged. NavQuest was
sold to a private start-up firm, JetDisc.com, Inc.
The Company continued development of its wireless Internet communications
products group. A partnership with NASA and Lockheed's Jet Propulsion
Laboratory was established, and with it the Company agreed to host a mirror
website, landnet.com, for the delivery of live, up to the minute, news
coverage for NASA's future space launches. This website delivered live news,
audio, video, and animations of the Mars Polar Lander mission. In the future,
this site will continue to provide the latest coverage of future planned
space missions. The Company plans to license and sell its LogiTrak wireless
communications product to third parties under long-term licensing agreements.
The software and Internet industries are extremely competitive and dynamic.
The Company and its products have received positive exposure in the national
media, and is now poised to fully implement its marketing and branding 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 both its products and the products of others
from the company's websites. Like many early stage technology companies, much
of the Company's assets are intangible assets such as copyrights, trademarks,
and its proprietary Internet technologies.
The Company has an extremely limited operating history upon which an
evaluation of the Company and its prospects can be based. The Company and
its prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in the new and rapidly
evolving markets for Internet products and services. To address these risks,
the Company must, among other things, continue to respond to competitive
developments, attract, retain and motivate qualified personnel, implement
and successfully execute its advertising sales strategy, develop and market
additional media properties, upgrade its technologies and commercialize
products and services incorporating such technologies. There can be no
assurance that the Company will be successful in addressing such risks. As
of December 31, 1999, the Company had an accumulated deficit of $1,572,658.
There can be no assurance that revenues of the Company will increase or
continue at their current level. The extremely limited operating history of
the Company makes the prediction of future results of operations difficult or
impossible, and therefore, should not be taken as indicative of the rate of
revenue growth, if any, that can be expected in the future.
The Company believes that period to period comparisons of its operating
results are not meaningful and the results for any period should not be
relied upon as an indication of future performance.
As a result of the Company's extremely limited operating history, the
Company does not have historical financial data for any significant period of
time on which to base planned operating expenses. The Company's expense
levels are based in part on its expectations concerning future revenue and to
a large extent are fixed. Quarterly revenues and operating results depend
substantially upon the tracking revenues received within the quarter, which
are difficult to forecast accurately. Accordingly, the cancellation or
deferral of a number of tracking contracts could have a material adverse
effect on the Company's business, results of operations or financial
condition. The Company may be unable to adjust spending in a timely manner
to compensate for any unexpected revenue shortfall, and any significant
shortfall in revenue in relation to the Company's expectations would have an
immediate adverse effect on the Company's business, results of operations and
financial condition. In addition, the Company plans to significantly
increase its operating expenses to expand its sales and marketing operations,
to fund greater levels of product development and to develop and
commercialize additional software properties. To the extent that such
expenses precede or are not subsequently followed by increased revenues, the
Company's business, results of operations and financial condition will be
materially and adversely affected.
The Company's operating results may fluctuate significantly in the future as
a result of a variety of factors, many of which are outside the Company's
control. Due to all of the foregoing factors, in some future quarter the
Company's operating results may fall below the expectations of securities
analysts and investors. In such event, the trading price of the Company's
Common Stock would likely be materially and adversely affected.
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
FINANCIAL 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: 48
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.
<PAGE>
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
sales grew from $7.2 million to over $65 million. While with Entrepreneur
Magazine, he was the leading executive responsible for the sale of over 200
"how-to" business start-up 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.
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
1998.
Name: Dr. William Sybesma
Age: 51
Title: Director
Address: 460 Cedar Street
Fond du Lac, WI 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.
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.
In 1999, Mr. Bestor was the co-founder of two other companies, JetDisc.com,
an advertising media company, and Emerald Point Development, a real estate
development company. Dr. Sybesma and Mr. Sorenson are also co-founders of
JetDisc.com.
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 1998
460 Cedar Street CEO and President
Fond du Lac, WI
54935
Blade Thomas 46 Vice Presiden 1998
460 Cedar Street Marketing
Fond du Lac, WI
54935
Steven Sorenson 47 Secretary 1998
460 Cedar Street (Director since 1998)
Fond du Lac, WI
54935
William Sybesma 51 Director 1998
460 Cedar Street
Fond du Lac, WI 54935
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
auditor 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
matters and recommends the selection of independent auditors.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
_________________________________________
Long Term Compensation
Annual Compensation Awards
<S> <C> <C> <C> <C> <C> <C>
<C> <C>
Payouts______
(a) (b) (c) (d) (e) (f) (g)
(h) (i)
Other Restricted
Name and Annual Stock
LTIP Other Principal Comp. Award(s) Opt.
P/outs Comp. Position Year Salary Bonus ($) ($) ($)
SARs(#) ($) ($)
Larry Bestor 1999 $75,000
460 Cedar St.
Fond du Lac, WI
Blade Thomas 1998 $ 5,000 10,000
460 Cedar Street
Fond du Lac, WI
</TABLE>
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 a profit sharing program for the benefit of its directors,
officers and other employees. The Board of Directors may recommend one or
more such programs for adoption in the future. The company also has an
Employee Stock Option Program(ESOP), which awards stock options to employees
at the will of the President and CEO.
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, 1999 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 12-31-99 of
Address Record Date Class
Lawrence Bestor 956,640 30%
460 Cedar Street
Fond du Lac, WI 54935
Oshkosh Truck Corp. 600,000 19%
2307 Oregon Street.
Oshkosh, WI 54901
Floyd Skeins 400,000 12%
4179 Brentwood Park Circle
Tampa, FL 33624
Susan Bestor 190,000 6%
460 Cedar Street
Fond du Lac, WI 54935
William Sybesma 80,000 2.5%
460 Cedar Street
Fond du Lac, WI 54935
Martina Jane Sybesma 80,000 2.5%
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
All Directors and Officers
As a Group 1,148,640 33%
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.
The Company has a Stock Purchase and Option Plan ("Plan") under which it has
granted stock options and warrants to purchase common stock to employees,
directors, officers, and others at various times since 1994. Options and
warrants are granted at an option price per share equal to or greater than
fair value at the date of grant. Generally, options granted to employees vest
over a five-year period and expire 10 years after the date of grant. Canceled
options are available for future grant.
The following is a summary of stock option plan activity for the years ended
December 31, 1999 and 1998:
1999 1998
Shares:
Granted 5,000 5,000
Exercised (146,590) (20,000)
Canceled - (76,000)
December 31:
Outstanding 6,803,410 6,945,000
Exercisable 6,077,010 5,407,200
Average exercise price per share
Granted $1.00 $5.00
Exercised 0.10 $0.10
Canceled - $3.25
December 31:
Outstanding $1.28 $1.26
Exercisable $1.25 $1.14
Stock options outstanding at December 31, 1999 and 1998 had a range of
exercise prices of $.10 to $5.00 and an average remaining contractual life of
four years and five years, respectively.
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. 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
(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;
*4.0 Auditors Opinion, Notes, and Financial Data Schedule
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 Independent Auditors
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 upon written
request, 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 Executive 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
Director
/s/ Dr. William Sybesma
Dr. William Sybesma
ATI Networks, Inc. and Subsidiary
Consolidated Financial Statements
For the Years Ended December 31, 1999 and 1998
With Independent Auditors' Report
Financial Data Schedule
Balance Sheets F- (2-3)
Statements of Operations F- (4-5)
Statements of Stockholders' Equity F - 6
Statements of Cash Flows F - (7-8)
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS and SHAREHOLDERS
ATI Networks, Inc.
We have audited the accompanying consolidated balance sheets of ATI Networks,
Inc. and Subsidiary (the "Company") as of December 31, 1999 and 1998, and the
related consolidated statements of operations, statements of stockholders'
deficit and cash flows for the years then ended. These consolidated financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these consolidated 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 audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of ATI Networks, Inc. and Subsidiary as of December 31, 1999 and 1998, and
the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note A to the consolidated financial statements, the Company has incurred
recurring losses from operations and is in default of their bank loan and will
require additional capital to fund its operations. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans regarding these matters are also described in Note A. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
As described in Note J to the consolidated financial statements, the
accumulated deficit at the beginning of 1998 has been adjusted.
Hoffman, Morrison & Fitzgerald, P.C.
McLean, Virginia
April 28, 2000
A. ORGANIZATION AND FINANCING
The Company
ATI Networks, Inc., and its wholly-owned subsidiary, ATI, Inc. (the
"Company") is a U.S.-based company that is building a global e-business
that can be used for business advertising, automated vehicle tracking,
wireless communications, and entertainment. The principal market for the
Company's products and technologies are companies seeking to advertise
their products and services on these software platforms. Additional
markets include companies with mobile assets, organizations requiring the
wireless transfer of data and the general public.
Financing
The Company has incurred significant recurring losses from operations
since inception and is in default of their bank loan (see Note C) and will
require additional capital to fund its operations and meet its on-going
obligations for 2000 and potentially beyond. Management believes they
will be successful in their efforts to obtain such financing. There can be
no assurance that the Company will not incur additional losses or will not
require significant amounts of additional capital. The accompanying
consolidated financial statements have been prepared assuming the Company
will continue as a going concern. If the Company is unable to obtain
sufficient additional financing, management believes it will be able to
reduce discretionary spending in order to maintain its operations at a
reduced level. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation - The accompanying consolidated financial
statements present the consolidation of the financial statements of ATI
Networks, Inc. and its wholly-owned subsidiary, ATI, Inc. Material inter-
company transactions and balances have been eliminated in the
consolidation.
Basis of accounting - The accounts of the Company are maintained on the
accrual basis of accounting whereby revenue is recognized when earned,
and costs and expenses are recognized when incurred.
Use of estimates and assumptions - Management uses estimates and
assumptions in preparing consolidated financial statements in accordance
with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues
and expenses. Actual results could vary from those estimates.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounts receivable - The Company uses the allowance method to account
for amounts, if any, of its accounts receivable which are considered
uncollectible. The Company grants unsecured credit to its United States
customers.
Cash and cash equivalents - For purposes of the statement of cash flows,
the Company considers investments held in money funds to be cash
equivalents.
Inventories - Inventories, consisting of computer software and hardware,
are stated at the lower of cost, determined on the first-in, first-out method,
or market.
Property and equipment - Property and equipment are stated at cost.
Expenditures for additions and improvements are capitalized while
replacements, maintenance and repairs which do not improve or extend the
lives of the respective assets are expensed currently as incurred.
Depreciation is provided over the estimated useful lives, ranging from 3-10
years, of the respective assets, using the straight-line method.
Advertising - Advertising costs are charged to operations as incurred. For
the years ended December 31, 1999 and 1998, amounts charged to operations
were $37,093 and $4,667, respectively.
Revenue recognition - Revenue is principally derived from sales of licenses
for the Company's proprietary software, advertising on the Company's websites
and commissions and fees relating to website activity. The revenue generated
is recognized when the products are shipped or the services have been rendered.
Income Taxes - The Company, a C-corporation, accounts for income taxes
under Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." Under this method, deferred tax assets
and liabilities are determined based on differences between the financial
reporting and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized. The
principal differences are net operating loss and capital loss carryforwards
and the use of accelerated depreciation methods to calculate depreciation
expense for income tax purposes.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Software development costs - SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed", requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility and readiness of general release.
Costs incurred by the Company between the completion of technological
feasibility and general release have been insignificant and have been
expensed in the accompanying consolidated financial statements.
Net loss per common share - The Company reports basic and diluted earnings
per share ("EPS") according to the provisions of SFAS No. 128, "Earnings Per
Share." SFAS No. 128 requires the presentation of basic EPS and, for
companies with complex capital structures, diluted EPS. As the Company has
common stock and common stock equivalents outstanding, basic and diluted EPS
are presented. Basic EPS excludes dilution and is computed by dividing net
income (loss) available to common stockholders by the weighted average number
of common shares outstanding during the period. Diluted EPS is computed by
dividing net income (loss) available to common stockholders, adjusted by any
convertible preferred dividends; the after-tax amount of interest recognized
in the period associated with any convertible debt; and any other changes in
income or loss that would result from the assumed conversion of those
potential common shares, by the weighted number of common shares and common
share equivalents (unless their effect is anti-dilutive) outstanding.
Capital Structure - SFAS No. 129, "Disclosure of Information about Capital
Structure," requires a summary presentation of the pertinent rights and
privileges of the various securities outstanding. The Company's outstanding
stock is completely comprised of voting common stock. There are no other
rights or privileges to disclose. In addition, entities are required to
disclose the number of shares issued upon conversion, exercise, or
satisfaction of required conditions during the periods presented. See Note H
for the options granted during 1998 and 1999 in accordance with the Company's
Stock Option Plan.
Comprehensive Income - During 1998, the Company adopted Statement of
Financial Accounting Standard (SFAS) No. 130, "Reporting Comprehensive
Income." This pronouncement established standards for reporting and display
of comprehensive income and its components in the financial statements.
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from non-owner sources. Accordingly, the Company has modified
the presentation of its consolidated financial statements to present the
elements of comprehensive income, which included net income and unrealized
losses on available-for-sale securities.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-based compensation - In October 1995, the FASB issued SFAS No. 123,
"Accounting for Stock-Based Compensation", which encourages companies to
recognize expense for stock-based awards based on their estimated fair value
on the grant. SFAS is effective beginning with the year ending December 31,
1996. SFAS No. 123 permits companies to account for stock-based compensation
based on provisions prescribed in SFAS No. 123 or based on the authoritative
guidance in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees". The Company has elected to continue to account for its
stock based compensation in accordance with APB 25 which uses the intrinsic
value method, however, as required by SFAS No. 123,
the Company has disclosed the pro forma impact on the financial statements
assuming the measurement provisions of SFAS No. 123 had been adopted. The
Company accounts for all other issuances of equity instruments in accordance
with SFAS No. 123.
Segment Information - Effective for financial statements for periods beginning
after December 15, 1997, the FASB issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information." This pronouncement
requires public enterprises to report certain information about operating
segments, including products and services, geographic areas of operations,
and major customers. The Company has determined that it does not have any
separately reportable business segments for the years ended December 31, 1999
and 1998.
NEW ACCOUNTING PRONOUNCEMENTS:
Derivatives Instruments and Hedging Activities - In June 1998, the FASB
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." It establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the balance sheet and
measure those instruments at fair value. The FASB has recently issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities-
Deferral of Effective Date of FASB Statement No. 133." The Statement defers
for one year the effective date of SFAS No. 133. Management believes that
the adoption of this standard will not have a material effect on the
Company's financial position or results of operations.
C. REVOLVING LINE OF CREDIT
The Company had a $50,000 line-of-credit with Bank One of Fond du Lac,
which was due May 1998. Interest was payable monthly at prime plus 1/2%.
The line-of-credit was collateralized by a general business security agreement
and personal guarantee of the majority shareholder. The line-of credit was
paid off during 1998.
In September 1998, the Company signed another agreement for a $250,000 line-of-
credit with Firstar Bank of Wisconsin. Accrued interest and outstanding
principal was due and payable September 1999. The line-of-credit is
collateralized by a general business security agreement. Outstanding
borrowings, including interest and other charges, under this line-of-credit
amounted to $269,602 and $200,238 at December 31, 1999 and 1998,
respectively. As of December 31, 1999 the Company is in default under the
terms of the agreement. On March 30, 2000, the Company entered into an
agreement with the bank consenting to a money judgment of $287,309, under
which the bank consented to wait to docket and execute on the judgment until
after May 31, 2000.
D. COMMITMENTS AND CONTINGENCIES
Capital lease obligations
The Company leases certain equipment held under capital lease agreements
expiring in 2002. The assets and liabilities under capital leases are
recorded at the lower of the present value of the minimum lease payments or
the fair value of the asset. The assets are amortized over their estimated
productive lives. Amortization of assets under capital leases is included in
depreciation and amortization expense.
Future minimum lease payments due under the capital lease agreement as of
December 31, 1999 are as follows:
Year ending December 31:
2000 $ 3,762
2001 1,173
2002 684
Total minimum lease payments 5,619
Less: amount representing interest (861)
4,758
Less: current portion (3,043)
Long-term capital lease obligations $ 1,715
D. COMMITMENTS AND CONTINGENCIES (continued)
Operating lease
The Company leases its office facilities under a month-to-month operating
lease. Rent expense under all operating leases amounted to $7,200 for the
years ended December 31, 1999 and 1998.
Partnering agreement
The Company has entered into a partnering agreement with Sybesma Research,
LLC ("Sybesma"), whereby Sybesma reimbursed the Company for approximately
$157,000 of software development costs incurred by the Company for their
LogiTrak and NavQuest software. The Company is obligated to pay a royalty to
Sybesma equal to 15% of gross profits from their sale of these software
products.
E. INCOME TAXES
The benefit for income taxes is as follows for the years ended December 31:
1999 1998
Current $ - $ -
Deferred - -
Total benefit for income taxes $ - $ -
A reconciliation of income tax at the statutory rate to the Company's
effective rate is as follows for the periods ended December 31:
1999 1998
Computed at the expected statutory rate $ (83,400) $ (78,500)
State income tax - net of Federal tax benefit (12,200) (11,500)
Other, net 200 600
Less valuation allowance 95,400 89,400
Total benefit for income taxes $ - $ -
E. INCOME TAXES (continued)
Deferred tax assets and liabilities are as follows as of December 31:
1999 1998
Deferred tax assets:
Net operating loss carryforward $ 527,600 $ 468,600
Capital loss carryforwards 9,800 9,800
Accrued vacation 1,000 1,000
Accrued payroll 63,500 27,400
Gross deferred tax assets 601,900 506,800
Deferred tax liabilities:
Depreciation and amortization (5,300) (5,600)
Valuation allowance (596,600) (501,200)
Net deferred taxes $ - $ -
The change in the valuation allowance for the years ended December 31, 1999
and 1998 was $95,400 and $89,400 (as adjusted to reflect the prior-period
adjustment, see Note J), respectively.
At December 31, 1999 and 1998, the Company had net operating loss
carryforwards of approximately $1,318,000 and $1,193,000 respectively, for
federal and State income tax purposes, which expire through 2019.
F. RELATED PARTY TRANSACTIONS
As of December 31, 1999 and 1998, the balance of amounts due from the
President of the Company was $60,000 and $60,000, respectively.
G. EMPLOYEE INCENTIVE COMPENSATION PLAN
The Company has an incentive plan for the purpose of providing incentive
compensation to officers and employees ("Plan"). The Plan provides that 25%
of net income as defined in the Plan shall be placed in the Employee
Incentive Fund, to be distributed to employees in amounts to be determined,
at the sole discretion of the Employee Incentive Compensation Committee.
Participants in the Plan include all officers upon their initial hire date
and all salaried employees upon their completion of 12 months employment with
the Company. The Board of Directors reserves the right to amend, modify,
suspend, or discontinue the Plan at any time.
There were no Company payments made under the Plan during the years ended
December 31, 1999 and 1998.
H. STOCK OPTION PLAN
The Company has a Stock Purchase and Option Plan ("Plan") under which it has
granted stock options and warrants to purchase common stock to employees,
directors, officers, and others at various times since 1994. Options and
warrants are granted at an option price per share equal to or greater than
fair value at the date of grant. Generally, options granted to employees vest
over a five-year period and expire 10 years after the date of grant. Canceled
options are available for future grant.
The following is a summary of stock option plan activity for the years ended
December 31, 1999 and 1998:
1999 1998
Shares:
Granted: 5,000 5,000
Exercised: (146,590) (20,000)
Canceled: - (76,000)
December 31:
Outstanding 6,803,410 6,945,000
Exercisable 6,077,010 5,407,200
Average exercise price per share
Granted $1.00 $5.00
Exercised $0.10 $0.10
Canceled - $3.25
December 31:
Outstanding $1.28 $1.26
Exercisable $1.25 $1.14
Stock options outstanding at December 31, 1999 and 1998 had a range of
exercise prices of $.10 to $5.00 and an average remaining contractual life of
four years and five years, respectively.
Options outstanding at the beginning of the year ended December 31, 1998 have
been restated and total 7,036,000.
Options outstanding with an exercise price of less than $1.00 totaled
6,108,410, of which 5,526,410 were exercisable at December 31, 1999. The
remaining 695,000 options outstanding had a price of $1.00 or greater, of
which 550,600 were exercisable at December 31, 1999. The weighted-average
remaining contractual life for each of these groups of options was two years
and six years, respectively.
H. STOCK OPTION PLAN (continued)
The Company has adopted the disclosure only provisions of the Statements of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), but continues to measure compensation cost for the
stock options using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25. Accordingly, no compensation expense has
been recognized for the options granted, since the options are granted, at
the discretion of the Board of Directors, at an option price per share not
less than fair market value, as determined by the Board, at the date of grant.
If the Company had elected to recognize compensation expense based on the
value at the grant dates with the method prescribed by SFAS 123; net loss
would have been changed to the proforma amounts indicated in the table below:
For the year ended December 31, 1999:
Reported ProForma
Net Loss $(244,840) $(378,939)
Basic and diluted
earnings per share $(.08) $(.12)
For the year ended December 31, 1998:
Reported ProForma
Net Loss $(230,915) $(364,014)
Basic and diluted
earnings per share $(.08) $(.13)
For the years ended December 31, 1999 and 1998, the fair value of the stock
has been estimated using the Black-Scholes option pricing model with the
following assumptions: risk free interest rate of 5.65% and 5.26%, expected
volatility of 516% and 139%, a dividend payout rate of 0% and an expected
option life of 10 years.
I. SHARE EXCHANGE WITH WATERFORD INTERNATIONAL, INC.
ATI, Inc. and Waterford International, Inc. ("Waterford") entered into a Plan
of Share Exchange (the "Plan") dated as of April 21, 1998. Shareholders of
ATI, Inc., a privately-owned company, exchanged all of the outstanding common
shares of ATI, Inc. for an equal number of common shares of Waterford, a
publicly-held company. As of the date of the share exchange Waterford
International, Inc. was a non-operating public shell corporation with no net
assets. In addition, ATI, Inc. paid $35,000 that was distributed to an
existing shareholder of Waterford in exchange for shares distributed to
Shareholders of ATI, Inc. Pursuant to the Plan, ATI, Inc. became a
wholly-owned subsidiary of Waterford. Subsequent to the share exchange,
Waterford changed its name to ATI Networks, Inc. Subsequent to the share
exchange, shareholders of ATI, Inc. immediately prior to the share exchange,
owned approximately 86% of Waterford.
Pursuant to accounting interpretations and guidance issued by the Division of
Corporation Finance of the SEC, the share exchange was treated as a capital
transaction in substance, rather than a business combination. Accordingly,
the accompanying consolidated financial statements reflect the activities of
ATI, Inc. prior to the date of the share transfer.
J. PRIOR-PERIOD ADJUSTMENT
The accumulated deficit at the beginning of 1998 has been adjusted to correct
an error in the amount of capitalized software development costs and a
related item for the liability for shared development costs previously shown
as deferred revenue in the balance sheets of the wholly-owned subsidiary as
of December 31, 1997 and 1996. The accumulated deficit, as of the beginning
of 1998 has been increased by $321,778 due to this prior period adjustment.
The impact of this change on 1997 and 1996 is as follows:
Accumulated
Deficit
Net
Loss
Earnings
Per Share
As previously stated, December 31, 1996
$ (595,299)
$ (129,627)
$ (.05)
Adjustment:
Write-off of capitalized software
development costs and deferred
revenue, net
(114,470)
(114,470)
As restated, December 31, 1996
$ (709,769)
$ (244,097)
$ (.10)
As previously stated, December 31, 1997,
including 1996 adjustments
(889,595)
$ (179,826)
$ (.07)
Adjustment:
Write-off of capitalized software
development costs and deferred
revenue, net
(207,308)
(207,308)
As restated, December 31, 1997
$ (1,096,903)
$ (387,134)
$ (.15)
K. NET LOSS PER COMMON SHARE
As required by SAFS No. 128, the following is a reconciliation of the basic
and diluted EPS calculations for the periods presented:
December 31, 1999 December 31, 1998
Net loss (numerator) $ (244,840) $ (230,915)
Weighted average share
(denominator) 3,148,659 2,906,351
Basic net loss per share $ (.08) $(.08)
Dilutive shares
(denominator) 3,148,659 2,906,351
Diluted net loss per share $ (.08) $ (.08)
SFAS No. 128 also requires disclosure of any transaction occurring after the
end of the most recent period but before issuance of the financial statements
that would have materially changed the number of common shares or potential
common shares outstanding at the end of the period if the transaction had
occurred before the end of the period. There are no such matters to record.
1. SUBSEQUENT EVENTS
On March 7, 2000, the Company received, for nominal consideration, $10 million
in estimated value of media credits from Cable Print News Media company. The
Company subsequently conveyed the media credits to Sterling Media Capital
Fund, another company, which is consolidating such media credits for
potential future gain, in exchange for 10 partnership units.
FINANCIAL STATEMENTS
December 31, 1998 and December 31, 1999
TABLE OF CONTENTS
FINANCIAL STATEMENTS
Balance Sheets F- (2-3)
Statements of Operations F- (4)
Statements of Stockholders' Equity F - 5
Statements of Cash Flows F - (7-8)
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
BALANCE SHEETS
December 31, 1999 and December 31, 1998
1999 1998
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,001 $ 14,822
Accounts receivable, net 15,000 1,175
Inventories 896 375
Prepaid expenses - 662
Total current assets 16,897 17,034
PROPERTY AND EQUIPMENT:
Equipment 73,770 73,098
Furniture and fixtures 8,432 8,432
82,202 81,530
Less: accumulated
depreciation and amortization (56,740) (47,743)
Property and equipment, net 25,462 33,787
DUE FROM OFFICER/STOCKHOLDER 60,000 60,000
OTHER ASSETS:
Security deposit 647 647
$ 103,006 111,468
F-3
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable $ 269,602 $ 200,238
Capital lease obligations 3,043 3,070
Accounts payable and
accrued expenses 49,055 23,738
Accrued salaries-
officer/stockholders 164,583 73,666
Total current liabilities 486,283 300,712
Capital lease obligations 1,715 2,183
Total liabilities 487,998 302,895
Stockholders' deficit:
Series A convertible preferred stock, $100 par value;
authorized 20,000,000 shares; none issued - -
and outstanding
Common stock, no par value
Class A - authorized 20,000,000; 3,233,030 and
3,059,357 issued and outstanding for 1999
and 1998, respectively 1,192,325 1,136,391
Class B - authorized 20,000,000; none issued
and outstanding - -
Less: stock subscription receivable for
Class A common stock (9,659) -
Accumulated deficit (1,572,658) (1,327,818)
Total stockholders' deficit (374,992) (191,427)
$ 113,006 $ 111,468
F - 4
ATI, NETWORKS, INC.
STATEMENTS OF OPERATIONS
Years Ended December 31, 1999 and 1998
Consolidated Statements of Operations
For the Years Ended December 31, 1999 and 1998
1999 1998
Net sales:
Software $ 29,234 $ 36,105
Websites 15,000 4,100
Other 6,483 1,219
Total net sales 50,717 41,424
Operating expenses:
Cost of sales 13,604 28,270
Research and development 27,230 15,683
Sales and marketing 57,016 34,847
General and administrative 147,279 155,735
Depreciation and amortization 11,825 13,439
Total operating expenses 256,954 247,974
LOSS FROM OPERATIONS (206,237) (206,550)
OTHER INCOME (EXPENSES):
Loss on sale of investments 0 (15,953)
Gain on disposal of property
and equipment 100 342
Dividend and interest income 72 238
Interest expense (28,775) (8,992)
Total other expenses (28,603) (24,365)
NET LOSS $ (244,840) $ (230,915)
Net loss per common share
(basic and diluted) $ (0.08)$ (0.08)
Weighted average number of
common shares outstanding 3,148,659 2,906,351
F - 5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999 and 1998
Accumulated other
Shares Common Accumulated Stock comprehensive
Outstanding Stock Deficit Subscriptions income Total
Balance, December 31, 1997
2,597,840 $1,126,391 $(775,125) $ - $(16,800) $334,466
Prior period adjustment (see Note J)
- - (321,778) - - (321,778)
Restated Balance, December 31, 1997
2,597,840 1,126,391 (1,096,903) - (16,800) 12,688
COMPREHENSIVE INCOME:
Realized loss on sale of investments
- - - - 16,800 16,800
Net loss
- - (230,915) - - (230,915)
Total comprehensive income
- - (230,915) - 16,800 (214,115)
Stock issuances
12,000 30,000 - - - 30,000
Stock issuances in lieu of cash for compensation
12,000 13,000 - - - 13,000
Exercise of stock options
20,000 2,000 - - - 2,000
Share exchange (see Note I)
417,517 (35,000) - - - (35,000)
Balance, December 31, 1998
3,059,357 $ 1,136,391 $ (1,327,818) $ - $ - $ (191,427)
Stock issuances
300 1,200 - - - 1,200
Stock issuances in lieu of cash for compensation
26,783 40,075 - - - 40,075
Exercise of stock options
146,590 14,659 - (9,659) - 5,000
Net loss (comprehensive net loss)
- - (244,840) - - (244,840)
Balance, December 31, 1999
3,233,030 $ 1,192,325 $ (1,572,658) $ (9,659) $ - $ (389,992)
F - 7
ATI Networks, Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999 and 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (244,840) $(230,915)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 11,825 13,439
Gain on disposal of property and equipment (100) (342)
Loss on sale of investments - 15,953
Stock issued for services in lieu of cash 40,075 13,000
Change in assets and liabilities affecting operations:
Accounts receivable, net 1,175 6,938
Inventories (521) 9,675
Prepaid expenses 662 714
Security deposit - (647)
Accounts payable and accrued expenses 25,317 3,296
Accrued salaries- officer/stockholders 90,917 73,666
Net cash used in operating activities (75,490) (95,223)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investments - 4,847
Purchases of property and equipment (340) (4,230)
Increase in amounts due from officer/stockholder (10,000) (60,000)
Net cash used in investing activities (10,340) (59,383)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of note payable - (50,000)
Proceeds from note payable 69,364 200,238
Payments on capital lease obligations (3,555) (2,748)
Payment made for share exchange - (35,000)
Proceeds from capital stock issuances 6,200 32,000
Net cash provided by financing activities 72,009 144,490
CHANGE IN CASH AND CASH EQUIVALENTS (13,821) (10,116)
CASH AND CASH EQUIVALENTS, beginning of year 14,822 24,938
CASH AND CASH EQUIVALENTS, end of year $ 1,001 $ 14,822
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 28,775 $ 8,992
NON-CASH INVESTING AND FINANCING ACTIVITIES
Financed acquistion of equipment through
capital lease obligation $ 3,060 $ -
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> $ 1,001
<SECURITIES> 0
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