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 June 30, 2000
ATI NETWORKS, INC.
COLORADO
84-1089801
460 Cedar Street
Fond du Lac, Wisconsin
54935
(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 -
4,412,630 shares as of June 30, 2000.
PART I - FINANCIAL INFORMATION
ATI NETWORKS, INC.
BALANCE SHEET
AS OF JUNE 30, 2000
ASSETS
Current Assets
Cash and equivalents $ 5,888
Sterling Capital Fund 10,000,000
Accounts Receivable 15,000
Inventories at Whsl Cost 1,342
Prepaid Expense (335)
Security Deposit 647
Total Current Assets 10,022,542
Property and Equipment 83,454
Accum. Depreciation
(62,740)
Total Property and Equipment 20,714
Total Assets $ 10,043,256
LIABILITIES AND CAPITAL
Current Liabilities
Accounts Payable 24,672
Accrued Expenses 25,763
Deferred Payroll 47,518
Line of Credit - Firstar Bank 124,470
Total Current Liabilities 222,423
Long-Term Liabilities
Notes Payable 172,897
Total Liabilities 395,320
Capital
Common Stock
Class A - 4,412,630 issued 1,365,424
Class B - 3,000,000 reserved 10,000,000
Accumulated Deficit <1,567,659>
Stock subscription receivable <9,659>
Total stockholders equity 9,647,936
Net income <140,170>
Total Liabilities & Capital $ 10,043,256
ATI NETWORKS, INC.
STATEMENT OF OPERATIONS (Unaudited)
ATI Networks, Inc. Summary Income Statement
For the Three Months Ending June 30, 2000
Total Revenues 306
Operating Expenses
Cost of Sales 1,376
Sales and Marketing Expense 11,510
General And Administrative Expense 71,227
Research & Development Expense 5,315
Depreciation 3,000
Total Operating Expenses 91,052
Net Operating Income (Loss) (92,122)
Other Income (Expenses)
Interest Expense <2,094>
Other 0
Net Other Income (Expenses) <2,094>
Net Income (Loss) before Taxes (94,216)
Income Tax Provision 80
Net Income (Loss) $ (94,296)
Net loss per common share $ (.01)
(basic and diluted)
Weighted average number of common shares outstanding
4,412,630
ATI NETWORKS, INC.
STATEMENT OF CASH FLOW FOR THE THREE MONTHS
ENDED JUNE 30, 2000 (Unaudited)
ATI Networks, Inc.
Statement of Cash Flow
For the three Months Ended June 30, 2000
Cash Flows from operating activities:
Net Loss $ <94,296>
Adjustments to reconcile net
loss to net cash used in
operating activities
Depreciation and Amortization 3,000
Accounts Receivable(net) 225
Inventory <335>
Line of Credit <150,000>
Accounts Payable and accrued expenses 5,710
Accrued salaries - officer/stockholders 20,347
Net cash used in operating activities <214,482>
Cash Flows From Investing Activities:
Purchases of property and equipment <515>
Cash Flows from Financing Activities:
Note Payable <170,000>
Payments on Capital Lease obligations <1,694>
Proceeds from Capital Stock Issuances 36,000
Net Cash provided by Financing activities 204,306
Change in Cash and Equivalents <10,691>
Cash and Cash Equivalents,beginning of Pd. <12,836>
Cash and Cash Equivalents, end of year 5,888
Net Increase <Decrease> in Cash <6,948>
ATI Networks, Inc. and Subsidiary
Notes to Consolidated Financial Statements(unaudited)June
30,2000
A. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and
Item 310 (b) of Regulation S-B. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete
financial statements. In the opinion of management, all
adjustments (consisting of normal recurring
accruals)considered necessary for a fair presentation have
been included. Operating results for the three months
ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the year ended December
31, 2000. For further information, refer to the
consolidated financial statements and footnotes thereto
included in the Company's Form 10-KSB/A filed on May 11,
2000.
B. ORGANIZATION
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.
C. CREDIT LINES
In September 1998, the Company signed an 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 was
collateralized by a general business security agreement.
Outstanding borrowings, including interest and other
charges, under this line-of-credit amounted to $276,996
and the bank entered a judgement for $276,996 on May 31,
2000. On June 2nd, 2000, the company paid Firstar Bank
$150,000 of this amount, and has agreed to pay off the
$100,000 principal balance, plus interest by September 30,
2000.
On June 1st, 2000 the company entered into a new business
credit agreement with JetDisc.com, in which JetDisc.com
agreed to lend up to $300,000 to the Company. This note
has been collateralized by a general business security
agreement.
D. NET LOSS PER COMMON SHARE
As required by SFAS No. 128, the following is a
reconciliation of the basic and diluted EPS calculations
for the three months ended June 30:
2000 1999
Net loss (numerator) (94,296) (40,789)
Weighted average share
(denominator) 4,412,630 2,597,840
Basic net loss per share $ (.01) $ (.03)
Dilutive shares
(denominator) 4,412,630 2,597,840
Diluted net loss per share $ (.01) $ (.03)
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.
E. 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 three months ended June 30, 2000:
Shares options:
Granted - 0
Exercised - 42,000
Canceled - 0
June 30:
Outstanding 5,717,410
Exercisable 5,174,360
Average exercise price per share
Granted -
Exercised $0.10
Canceled -
June 30:
Outstanding $1.33
Exercisable $1.31
Stock options outstanding at June 30, 2000 had a range of
exercise prices of $.10 to $5.00 and an average remaining
contractual life of three years.
Options outstanding with an exercise price of $1.00 or
less totaled 4,976,410, of which 4,513,210 were
exercisable at June 30, 2000.
The remaining 741,000 options outstanding had a price of greater
than $1.00, of which 619,150 were exercisable at June 30, 2000.
The weighted-average remaining contractual life for each of these
groups of options was two years and six years, respectively.
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 three months ended June 30, 2000:
Reported ProForma Net Loss
$(45,875) $(72,720)
Basic and diluted
earnings per share $(.01) $(.02)
For the three months ended June 30, 1999:
Reported ProForma Net Loss
$(68,886) $(102,411)
Basic and diluted
earnings per share $(.03) $(.04)
F. MEDIA CREDITS
On March 7, 2000, the Company received, for consideration, $10
million in estimated value of media credits from Cable Print News
Media. The Company subsequently conveyed the media credits to
another company, which is consolidating such media credits for
potential future gain, in exchange for 10 partnership units valued
at $10 million in the Sterling Capital Fund.
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 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 3-31-2000. 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 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. 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 and its products have received positive exposure in
the national media, but thus far 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 and traffic will continue to
increase for the Company's products and websites. 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 2000 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 2000.
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 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.
PART II - OTHER INFORMATION
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS 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 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 recently launched its newest web site,
YouthNetworks.com, on June 26th, with a live video broadcast of
teen celebrity, Howie Donough, of the popular music group, the
Backstreet Boys. In the days preceding the broadcast, advertising
cards were distributed at the National Youth Summit being held in
Orlando, FL. The teens quickly spread the news online and the
broadcast was viewed by a large audience of viewers. The T-1 line
dedicated to the broadcast in fact became so overloaded with
viewers that many were not able to view it live and the response
in the hours that followed was huge. The company responded by
archiving the video on YouthNetworks which allowed everyone to
view it at their convenience and as many times as they desired.
Students attending the National Youth Summit were also interviewed
regarding current issues and the purpose and focus of the
conference. These interviews were also archived on the site. Plans
are underway for future broadcasts of celebrities. The most recent
celebrity video webcast was an interview with the recently crowned
America's Junior Miss. As the school year begins, high schools
around the country will be submitting video of their unique events
for possible selection by YouthNetworks to be featured on the
site. With approximately 25 million teenagers in high schools in
the U.S., the celebrity webcasts are expected to draw a high
volume of traffic to the Youth Networks site.
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 e-commerce 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.
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 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 and specialty products.
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.
The company's newest site, YouthNetworks.com, expects to build
repeat traffic by continually updating content, including unique
high school videos submitted to YouthNetworks by students on a
regular basis, and exclusive celebrity interviews. A database of
registered users is being established for a newsletter to be
distributed on a regular basis in the near future. The
YouthNetworks site features channel links to various areas of
content provided by affiliate companies. These sites are monitored
for quality content and popularity with the YouthNetworks audience
and are updated as necessary. There are currently over a dozen
affiliates and sponsors for the site and it is expected that as
the YouthNetworks traffic continues to increase, that advertising
revenues will also increase. The site recently acquired the
exclusive marketing rights for an inexpensive sports-related
product that is expected to become popular with the teen market.
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.
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 the 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.
*YouthNetworks.com - Internet website property known on the web as
youthnetworks.com, this site features streaming video broadcasts
and archived files of celebrity interviews, teen interest
broadcasts, and featured high school events. Student viewers are
invited to submit video of their high school event for possible
selection as the featured event of the week, and for inclusion in
the broadcast archives. Viewers also have access to channel links
to popular teen sites, and are invited to enter contests, and
register for an opt-in newsletter.
*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.
JetDisc was developed by ATI Networks for a private client
company, JetDisc.com, Inc. which is now being considered for
acquisition by ATI Networks.
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
exceeded 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. Major market
forecasters predict 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.
However, company management believes it can continue to build a
rapidly growing base of new customers and new member/affiliates,
by combining a large selection of products and technologies into a
community-like network. By utilizing online, print, and other
media advertising, and by offering promotions and incentives for
return online traffic, ATI Networks believes a strong familiar
presence can be created for the ever growing Internet audience to
choose and remain loyal to the ATI Networks portal as their
gateway to ATI Networks community of websites.
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
and affiliates include the following:
Sony
Alta Vista
Discover Card
Essential.com
Hewlett Packard
Dell
Mortgageit.com
RocketLinks.com
GM
BellSouth
American Family
Wells Fargo Online
Intelihealth.com
Smartgroups Health
Central 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
Demasido
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
IPSOS-ASI Coke
Treeway iMotors
Wildjack Casino
Furniture Online
Career Engine PureTec
Pets.com
PocketCard.com
AmericanGreetings.com
EatSleepMusic.com
HotHoops
GlobalRanch.com
SportsSleuth.com
SoccerCompany.com
TeeTime.com
SportingGoodsAtCost.com
GolfShop2000.com
BigFishTackle.com
Engage Media
Flycast Communications
800Predict.com
TradeAway.com
4Tests.com
College Connection
Gamesville.com
Global-Fitness.com
NetFlix.com
DayTips.com
UnbeatableDeals.com
OnlineSports.com
Sportmates.com
GameFever.com
TowerRecords.com
VBCNet.com
About.com
EntertainmentSleuth.com
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.
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 3-31-2000. 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
Location Footage
Rental
Lessor
Executive Offices 2,500
$600
Wisconsin Lumber Co.
460 Cedar Street Fond du Lac, WI 54935
ITEM 3. LEGAL PROCEEDINGS
A judgement was entered against the company by
Firstar Bank for a line-of-credit business
loan, in the amount of $267,000. Since the
judgement was entered, the loan has been
partially repaid by the company and the current
existing balance is $117,000 plus interest.
Additionally, there was a judgement entered
against the company by a disgruntled former
employee for $25,000, which has been partially
paid by 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.
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. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On May 23, 2000, the Company received the
resignation of Hoffman, Morrison, and
Fitzgerald, P.C. (HMF) as its independent
certifying accountant. In connection with the
Company's Form 10-QSB for the period ended
March 31, 2000, HMF disagreed with Company
Management regarding the Balance Sheet entry
listed as "Sterling Capital Fund", and the
related Footnote F, which states, "On March 7,
2000, the Company received, for consideration,
(emphasis added) $10 million in estimated value
of media credits from Cable Print News Media".
The Company Management and HMF failed to reach
an agreement on the value of the consideration
received by the Company for these media
credits.
The Company has begun interviewing accounting
firms and plans to engage the services of a new
accounting firm as its certifying independent
accountants. The decision to change to an
accounting firm more familiar with the Internet
media industry was accepted by the Company's
audit committee.
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
August 4, 2000
/s/ Lawrence Bestor
Lawrence Bestor
Chief Executive Officer/Director
/s/ Steven Sorenson
Steven Sorenson
Secretary/ Director
