-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HecCv4NVZ2ToW7JElaqcIds8UdZ7HQgeBuaRIXxyt8jYFPhdJlWZlupGoQtGahcJ j/+Mm9YSsm312PkhTERdyw== 0000835951-98-000010.txt : 19980817 0000835951-98-000010.hdr.sgml : 19980817 ACCESSION NUMBER: 0000835951-98-000010 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATI NETWORKS INC /CO/ CENTRAL INDEX KEY: 0000835951 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 841089801 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 033-22832-D FILM NUMBER: 98690489 BUSINESS ADDRESS: STREET 1: 460 CEDAR STREET CITY: FOND DU LAC STATE: WI ZIP: 54935 BUSINESS PHONE: 9209227030 MAIL ADDRESS: STREET 1: 460 CEDAR STREET CITY: FOND DU LAC STATE: WI ZIP: 54935 FORMER COMPANY: FORMER CONFORMED NAME: WATERFORD INTERNATIONAL INC DATE OF NAME CHANGE: 19980710 10QSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1998 Commission file Number 33-2832-D ATI Networks, Inc. (Exact name of registrant as specified in its charter.) Colorado 84-1089801 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 460 Cedar Street, Fond du Lac, WI U.S.A. 54935 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (920) 922-7030 (920) 922-7011 telecopier Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X ] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date: Common Stock, $0 Par Value - 3,184,357 shares as of June 30, 1998. 1 PART I. - FINANCIAL INFORMATION ATI NETWORKS, INC. BALANCE SHEET AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED) (AUDITED) June 30 December 31 __________________ _________________ 1998 1997 __________________ _________________ ASSETS Current Assets Cash and Cash Equivalents $ 8,139 $ 24,938 Investment Accounts 20,000 - Accounts Receivable 1,009,045 8,113 Stock Subscriptions Receivable 500,000 - Security Deposits 647 - Inventories at Whsl Cost 9,949 10,050 Prepaid Expenses 3,134 1,376 Total Current Assets 1,550,914 48,477 Property and Equipment Equipment 73,501 78,749 Accum. Depr. - Equipment (37,259) (36,095) Furniture & Fixtures 8,432 - Accum. Depr. - F&F (3,696) - Total Property and Equipment 40,978 42,654 Other Assets Capitalized R&D Costs - Net 313,118 426,610 Media Gems - Net 32,432 - Total Other Assets 345,550 - Total Assets $ 1,937,442 $ 517,741 2 LIABILITIES AND CAPITAL Current Liabilities Accounts Payable $ 210,395 $ 14,840 Accrued PR Taxes 397 - Accrued Payroll 13,542 - Accrued Vacation 2,708 - Other Withholding 584 - Accrued Sec125 FSA (711) - Sales Tax Payable 7 - Current Portion Deferred Revenue 52,416 52,416 Line of Credit - Bank One 50,000 50,000 Total Current Liabilities 329,338 125,382 Long-Term Liabilities Note Payable - Advanta 10,406 - Note Payable - L&S Bestor 20,000 - Deferred Revenue 39,312 52,416 Total Long-Term Liabilities 69,718 - Total Liabilities 399,057 183,275 Capital Common Stock 1,163,391 1,126,391 Stock Subscribed 500,000 - Accumulated Deficit (125,005) (775,125) Unrealized Loss on Investments - (16,800) Total Capital 1,538,386 334,466 Total Liabilities & Capital $ 1,937,442 $ 517,741 See Accompanying Notes to Financial Statements
3 ATI NETWORKS, INC. STATEMENT OF OPERATIONS (Unaudited)
Six Months Ended Six Months Ended June 30, 1998 June 30, 1997 ________________ ________________ Total Revenues $ 1,027,392 $ 64,928 Cost of Sales 200,622 12,596 Gross Profit 826,770 52,332 Operating Expenses Sales and Marketing Expense 17,001 28,802 General and Administrative Expense 50,924 30,543 Research & Development Expense 3,981 4,000 Amort. of Capitalized R&D 81,060 57,865 Depreciation 4,860 4,860 Total Operating Expenses 157,826 126,070 Net Operating Income (Loss) 668,944 (73,738) Other Income (Expenses) Dividend & Interest Income 82 487 Capital Gains (Losses) (15,953) (6,345) Interest Expense (2,953) - Net Other Income (Expenses) (18,824) (5,858) Net Income (Loss) $ 650,120 $ (79,596) Net Income Per Share $ 0.20 $ (0.03) See Accompanying Notes to Financial Statements
4 ATI NETWORKS, INC. STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 (Unaudited)
Current Year to Quarter Date June 30, June 30, 1998 1998 ------------- ------------- Cash Flows from operating activities Net Income $ (79,990) $ 650,120 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 2,430 4,860 Amortization 40,530 81,060 Accounts Receivable 3,395 (996,917) Stock Subscriptions Receivable 0 (500,000) Bad Debt Reserve (4,015) (4,015) Inventories at Whsl Cost 1,270 100 Accounts Payable (1,298) 195,555 Accrued Fed. PR Taxes (1,370) (333) Accrued FICA 735 735 Accrued State WH (169) 0 Accrued UC Taxes (440) (211) Accrued Payroll 0 10,834 Other Withholding 642 642 Accrued Sec125 FSA (734) (711) Sales Tax Payable 0 (29) Total Adjustments 40,977 (1,208,430) Net Cash provided by Operations (39,013) (558,310) Cash Flows from investing activities Used For Investments (20,000) (16,000) Equipment (1,587) (3,185) Net cash used in investing (21,587) (19,185) 5 Current Year to Quarter Date June 30, June 30, 1998 1998 ------------- ------------- Cash Flows from financing activities Proceeds From Note Payable - L & S Bestor 20,000 20,000 Paid-in Capital 37,000 37,000 Unrealized Loss on Investments 0 16,800 Stock Subscribed 0 500,000 Deferred Revenue 0 (13,104) Net cash used in financing 57,000 560,696 Net increase in cash $ (3,600) $ (16,799) Summary Cash Balance at End of Period $ 8,139 $ 8,139 Cash Balance at Beginning of Period (11,739) (24,938) Net Increase in Cash $ (3,600) $ (16,799) See Accompanying Notes to Financial Statements
6 ATI NETWORKS, INC. NOTES TO FINANCIAL STATEMENTS June 30, 1998 Note 1. Summary of Significant Accounting Policies The accompanying unaudited financial statements have been prepared in accordance with Generally Accepted Accounting Principles for interim financial information and with the instructions to Form 10QSB and Rule 310 of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by Generally Accepted Accounting Principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. The accompanying unaudited financial statements should be read in conjunction with the audited balance sheet of ATI Networks Inc. ("the Company") included in the 1997 Annual Report and filed on Form 10KSB. The unaudited financial statements have been prepared in the ordinary course of business for the purpose of providing information with respect to the interim period. Note 2. Net Income Per Common Share Computation of net income per common share was based on the weighted average number of shares outstanding during such periods. These amounted to 3,184,357 shares for the six months ending June 30, 1998 and 2,582,540 shares for the six months ending June 30, 1997 as adjusted. Note 3. Long Term Debt - Short Term Financing All loans and repayment of lines of credit payable to Bank One of Fond du Lac and future borrowings under any such credit facilities have been collateralized by the accounts receivable and equipment of the Company, as well as the personal guarantee of the chief executive officer and majority stockholder. Note 4. Majority Stockholder Mr. Larry Bestor presently owns approximately 42.6% of the Common Stock of the Company. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ACCOUNTING STANDARDS Note: Financial Accounting Standard No. 96 "Accounting for Income Taxes" which requires that no later than 1996, companies change from the deferred method to the liability method of accounting for income taxes, has not been adopted by the Company for 1996. Implementation of the Standard is not expected to have any material affect on the Company's financial condition or results of operations. FORWARD-LOOKING INFORMATION This Analysis and Discussion contains certain forward-looking statements within the meaning of Section 27 (A) of the Securities and Exchange Act of 1933 and Section 21 (E) of the Securities and Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of certain risks factors set forth below and elsewhere in this report. In addition to the other information contained in this report, individuals should carefully consider the following risk factors: 1. The Company believes that its assumptions are based upon reasonable data derived from and known about its business and operations. No assurances are made that actual results of operations or the results of the Company's future activities will not differ materially from its assumptions; 2. Additional risks factors such as the uncertainty of the Company's marketing activities, and the results of bringing additional acquisitions and affiliations into a smooth operation with Company are unknown; 3. Additional concerns regarding the year 2000 compliance standards as they effect the Company's operating technology as well as the technologies of the industry which effect the Company's operations; 8 4. In addition to the uncertainties regarding Federal and state government regulations; and the Company's approach to defining and maintaining an appropriate and thorough compliance program for such Federal and state standards; 5. Additional uncertainties regarding the ability for operating cash to meet the current and projected cash flow needs of the organization; 6. Readers are cautioned not to place undue reliance on these forward-looking statements, as they attempt to speak only of activities known or anticipated as of this date. YEAR 2000 COMPLIANCE The Company continues to review its technology systems to attempt to discover what effects year 2000 issues may have on its operations. Many of the earlier systems, found not to be compliant, have been replaced while others are being modified to comply. The Company is working with its known suppliers of technology or services controlled by technology that might be effected by the year 2000 events and are seeking written assurances from those determined to have a potential effect upon Company's operations. However, there can be assurance that the Company will identify all of its data handling problems in its business systems or those of its suppliers or clients in advance of any effect upon Company's operations. The Company, therefore, bears some unlimited and unknown risks to the year 2000 issue and could also be adversely effected if other entities do not adequately or timely resolve their problems. RESULTS OF OPERATIONS SALES Cost of sales as a percentage of net sales and operating revenues remained virtually unchanged compared with the same period in the prior year. OPERATING EXPENSES Increases in operating expenses during the period were principally due to the initial expenses of becoming a fully reporting public company, which resulted in increases in legal and accounting fees. 9 LIQUIDITY ATI Networks completed most of its corporate organization costs prior to this quarter. Anticipated public reporting expenses and planned acquisitions will place additional demands on liquidity during the remainder of the next year. Management will maintain a routine analysis of the lines of credit and the Company's capital needs. CAPITAL RESOURCES Management plans to invest $100,000 in new equipment expenditures in the next six months. RESEARCH AND DEVELOPMENT RESOURCES The Company has completed several software products. Management continues to fund the further development of these products as needed to stay competitive in the marketplace.. The Company has recently brought these products to market, which has illustrated both the demand for the products and the need to continue upgrading and maintaining these software products. Management plans to continue upgrades and improvements to existing products utilizing state of the art technology and to re-market these products to the growing client base. Management expects sales and profits to significantly increase as the company implements its marketing plan. 10 PART II - OTHER INFORMATION Item No. 1 Legal Proceedings Neither the Registrant nor any of its affiliates are a party, nor is any of their property subject, to material pending legal proceedings or material proceedings known to be contemplated by governmental authorities. Item No. 2 Changes in Securities None Item No. 3 Defaults Upon Senior Securities None Item No. 4 Submission of Matters to a Vote of Security Holders None ITEM No 5. Other Information ATI Networks, Inc. spent this third quarter of fiscal 1998 preparing their organization for rapid sales growth and expansion. We have revised our operating policies, continue to refine our new financial management system and continue to recruit experienced, operational and management personnel. Additionally, we maintain our current public reporting status pursuant to Section 12 of the Securities Exchange of 1934 (the "Exchange Act") and have applied to have our common equity listed for trading on the OTC Bulletin Board under the symbol OTCBB: ATII. This will allow the Company to approach capital markets and initiate the raising of equity when needed to fuel growth through mergers and acquisitions. Access to public markets is critical, since the growth rates will be too rapid to fund through earnings or debt. ATI Networks has initiated and maintains ongoing discussions with businesses regarding potential business alliances. The Company is working with investment firms, specializing in computer technology, information systems and the Internet, who may arrange future capitalization. ATI Networks is also developing relationships with retail brokerage firms who will assist in providing stock support to the public float. 11 MAJOR ACQUISITION The Company has ongoing discussions with various companies concerning potential business mergers and acquisitions that would continue to strengthen ATI Networks and its product lines. EXECUTIVE SUMMARY The Company was founded as a Research and Development Company to create and license leading edge software applications. In December of 1995, the Company's first product, AutoNav for Windows, was selected by Automotive Engineering Magazine readers as one of the Top 50 Products of the Year. In 1996, with its LogiTrak software, ATI became the first company in the world to enable wireless communications and vehicle tracking over the INTERNET. In 1997, ATI completed the development and recently began marketing of two proprietary website properties. The first is a fully automated, global real estate exchange website known as ARealGem.com. The second is ArtGems.com, the first fully automated, online art auction on the Internet. Having already received thousands of timeshare listings for aRealGem.com, and $7,000,000 of art inventory for ArtGems.com, the Company is well on its way to meeting its sales objectives for these sites in 1998. The company is a C-Corporation with its principal business offices located at 460 Cedar Street, Fond du Lac, Wisconsin. Business The company has developed proprietary software technologies for real time data communications over the Internet, vehicle tracking, vehicle navigation, and Internet commerce. The Company designs and develops the technologies it sells, both with its own in-house engineers and privately contracted developers. When outside developers are used, as well as with its employee engineers and scientists, all ownership, trade secrets and copyrights, to the technology retained by the Company. Future revenue sources include development fees, software licensing fees, Internet advertising fees, wireless communications fees, and the sale of mobile data communications and tracking equipment. Future sales will also include upgrades for software map data bases, software mapping applications, and sales commissions for properties sold on its websites. The Company is now in the growth stage of business, having begun international sales of its software technologies and is experiencing growing consumer awareness of its Internet websites. 12 Products ATI has developed the following products: NavQuest - Mapping, Routing, and Navigation Software. A CD-ROM product that includes all US and many Canadian streets and highways on one CD. NavQuest also contains advanced routing features, as found in more expensive programs, that permit the user to look up and locate nearly any street address in the United States, and calculate the shortest route to a destination. Included with the software are 35,000 attractions across the U.S. that can be located quickly and easily using NavQuest. An earlier version of this mapping software, under the tradename AutoNav, received Automotive Engineering Magazine's prestigious Top 50 Products Award. Sale of the NavQuest mapping, routing, and navigation software product is now in the growth stage. Having shipped just over 5,000 copies in 1996, the Company was back ordered for 6,000 units in January of 1998 alone. Management expects to ship over 100,000 units in 1998. They plan to follow the US/Canadian product with extensions to their line, which will include versions for distribution in France, Germany, and the United Kingdom. LogiTrak - Map Based Tracking and Messaging Via the INTERNET- Incorporating the NavQuest mapping and routing engines, LogiTrak includes all the functionality of NavQuest plus enabling the user to do multiple vehicle tracking and wireless data communications over the INTERNET. LogiTrak can be configured to operate in a regional mode without an INTERNET connection using a local wireless device such as the MicroTracker. Internet WebSites - At the end of 1997, ATI completed the development and began marketing two proprietary website properties, www.aRealGem.com and www.ArtGems.com. Known on the web as arealgem.com, (pronounced A Real Gem), the site enables Timeshare property buyers and sellers around the world to connect with each other directly in one place on the Internet. Visitors to the site may view or search for available properties for sale in 70 countries around the world. By following the easy, step-by-step instructions to list property(s) for sale, individual users complete an on-line listing form, submit a picture, or video file of the property, and all of their property information is immediately available for viewing by any of the 70 million users of the Internet. The Company provides a complete buyer's service to online timeshare buyers by handling escrow and title insurance for every timeshare sold on its sites. Technology - When creating its web sites, the Company's engineers creatively utilized the latest active server technology from Microsoft, to provide online buyers access to a large database of inventory in a compelling and exciting, live auction environment. The site allows multiple auctions to take place simultaneously by enabling participants to scan through all of the currently available inventory, view digital pictures of each item, then make bids on their favorite(s). Multiple bids can be made on multiple items by anyone logged onto the sites, with the Company's web server acting as the traffic cop for all auction transactions. Imagine a combination of a stock exchange and 13 art, and you have the format for ArtGems. Similar technology has been employed for the sale of timeshares on ARealGem.com. The result is dynamic and friendly environments to engage in electronic commerce of art and timeshare properties. By applying sophisticated database technology to the Internet, ATI has created an easy to use, yet powerful, real estate information website that can be viewed by any Internet Web Browser. Unlike other real estate sites established solely for Realtors, the aRealGem website now makes it easy for everyone, realtor and layman alike to list their property for sale on the most comprehensive high-traffic, Internet website dedicated to real estate sales of all kinds. The aRealGem website was formed to use ATI's proprietary Internet technology to facilitate and promote the listing and sale of properties in 70 countries to the global online community, by providing a convenient, central point of exchange. Known on the web as arealgem.com, (pronounced A Real Gem), the site enables real estate property buyers and sellers around the world to connect with each other directly in one place on the world wide web. For Sale by Owner (FSBO) types and Realtors alike can now advertise their properties to the global community by going to the Real Gem website. Visitors to the site may view or search for available properties for sale in 70 countries around the world. By following the easy, step-by-step instructions to list property(s) for sale, individual users complete an on-line listing form, submit a picture or video file of the property, and all of their property information is immediately available for viewing by any of the 70 million+ users of the Internet. Market NavQuest Sale of the NavQuest mapping, routing, and navigation software product is now in the growth stage. Having shipped just over 5,000 copies in 1996, the Company was back ordered for 6,000 units in January of 1998 alone. Management expects to ship over 100,000 units in 1998. They plan to follow the US/Canadian product with extensions to their line, which will include versions for distribution in France, Germany, and the United Kingdom. LogiTrak The global market for LogiTrak is as broad and compelling as the number of wireless devices currently in use. In the transportation industry, it can be used by the over 600,000 businesses that make their living by hauling freight. On the consumer side, it could eventually be used to track the over 70 million cellular phone users in the US, or 10+ million pager users that want to save money on communication with their homes and offices. Internationally, the market demand would be similar. 14 The INTERNET and the World Wide Web The INTERNET is a global collection of computer networks, linking millions of public and private computers around the world. Historically, the INTERNET was used by academic institutions and government agencies to exchange information and send and receive electronic mail. A number of factors, including the proliferation of communication-enabled personal computers, the availability of intuitive, graphical software and wide accessibility to an increasingly robust network infrastructure, have allowed widespread access to the INTERNET at a rapidly declining cost, and have facilitated the emergence of the Web, a client/server system of hyper-link, multimedia databases. The Web enables non-technical users to easily access information on the INTERNET and enables individuals or organizations to offer textual or graphical and other information directly to end users. Users can easily access information on the Web using client software known as Web "browsers." In recent years, the Web has experienced a rapid increase in the number of individual users. Price Waterhouse and International Data Corporation ("IDC") have estimated that the number of INTERNET users will exceed 200 million people by the end of 1999, from approximately 70 million in mid-1997; and an October 1995 Commerce Net/Nielsen INTERNET Demographics Survey indicated that approximately 18 million people in the U.S. and Canada had used the Web during the three month period prior to the survey. Additionally, many businesses and individuals in developing countries have purchased personal computers in increasing numbers, but lack access to reliable telecommunications services in their area. Since these businesses and individuals do not want to be left behind in the race for access to global information, it is anticipated by all Internet research firms that growth in developing nations will also increase at a rapid pace. Marketing The Company plans to promote the site nationally and internationally over the Internet with banner ads on high traffic sites such as HomeNet, USAToday, and YAHOO, that link directly to arealgem.com. Currently a travel promotion is being offered in conjunction with Advantage Travel for each listing placed on the site. The Company has partnered with a major marketing partner, to manage the media rollout and promotion of both the new RealGem website, as well as future Company websites. By applying brand name development strategies, Company management intends to position AREALGEM as the definitive source on the Internet to advertise and exchange all types of real estate. 15 Advertising and Promotion The Company has a marketing agreement with a US marketing firm that owns interests in cable television networks, newspapers, magazines, and Direct Broadcast satellite channels. Under the terms of the agreement, the marketing partner will market and advertise arealgem.com through a variety of Direct Response advertising promotions in its national media. These venues include Family Guide magazine, hundreds of weekly newspapers, and Direct Response cable and satellite television infomercials. In addition, the partner will be nationally advertising and promoting the Company's future media properties through these same channels. The audience for this combined media blitz represents over 35 million US households. The partnership gives the Company recurring national exposure for its consumer products through well established national media. Additionally, the Company is working with editors of national magazines to position its Internet consumer products as major brand names. The capital investment the Company is seeking will help expand this national advertising effort to rapidly build the site's brand name awareness. The Company has secured exclusive, 24-month Internet marketing rights with nationally known artists and publishers, for the online sale of over $7,000,000 of art inventory on its ArtGems site and related partner sites. Additional artist's and publisher's inventories are being added weekly. Additionally, the company has received thousands of timeshare listings for aRealGem.com. The company receives a minimum sales commission of $500 for each of the timeshares purchased from the company's sites. The Company has agreed to supply some of its inventory to Onsale.com, a publicly traded, online general auction site with over $85 million in 1997 sales. OnSale states in their Prospectus that they are the largest revenue generating, general consumer auction site on the Internet. This website partner currently generates between 500 and 700 orders per day of general merchandise sales. Similar arrangements have been made with Home Shopping Network's online auction, FirstAuction.com, under a lucrative revenue sharing agreement. Company management believes the strategic relationships with many distribution partners enhances the Company's brand name awareness among the Internet community, and significantly improves its ability to achieve future revenue and profit goals. Market Definition Mapping, Routing and Navigation Software With NavQuest, the Company is competing in the computer mapping and routing market. This market was composed of approximately 300,000 units last year, according to IDC. ATI believes the major future trend in the industry will be toward high quality, value oriented mapping product offerings. This market will continue to grow substantially over the next decade as automobile manufacturers and aftermarket automobile equipment manufacturers begin to offer these products in the US, as they already do in Japan and Germany. 16 The US auto market is comprised of over 17 million new vehicles annually, and is a virtually untapped market for vehicle navigation systems. Market research by Automotive Engineering Magazine and the Big 3 automakers suggests the vehicle navigation market will grow to over 3,000,000 units annually by the year 2000. Company management expects the niche in which it competes to grow over the next decade, as more automotive equipment and electronics manufacturers seek to enter the US market with their product offerings. The major forces affecting this change will be the falling cost of electronic components, more travel by technically capable baby boomers, and the growing use of personal computers. Map Based Tracking and Messaging LogiTrak - This market includes over 10,000 long haul truck companies, and thousands of local delivery companies that represent over 11 million pickup and delivery vehicles in the US alone. Internationally, anyone that wishes to track or communicate with mobile fleets, service technicians, or salespeople can use ATI's tracking and data communications services. Sales are comprised of LogiTrak software that is used by dispatchers in addition to the mobile communication units for vehicles. Wireless Telecommunications Since the 1980's, the availability and use of wireless telecommunications services has grown dramatically. The major growth sectors have included mobile cellular telephone and specialized mobile radio which provide voice and data communications, paging, and satellite-based mobile data services which provide data communications. The growth in wireless services has been driven primarily by technology advances and changes in telecommunications regulations and consumer behavior. In addition, in less developed markets, wireless services have become an alternative to fixed wireline services which are characterized by poor quality, limited capacity and long installation waiting periods. Wireless Communications systems increasingly are being adopted in developing markets in order to more quickly implement fixed communications services. In many international markets, including the People's Republic of China ("PRC"). India, Indonesia and Brazil, fixed telephone systems are inadequate to handle demand with telephone line penetration ranging from less than 1% to less than 10% compared with over 50% in major developed markets. Wireless Communications systems provide an attractive alternative to traditional copper and fiber based fixed services with the potential to be implemented more quickly and at lower cost than wireline services. The installation of Wireless Communications systems minimizes the need to obtain right-of-ways and excavate existing roads and infrastructure to lay copper or fiber cables. There is a rapidly growing global demand for the use of wireless communications devices, and the software that makes these devices communicate. 17 Position The NavQuest software CDROM is a consumer mapping product that is useful, inexpensive, and fun. Various demographic groups have a need for this product, and ATI plans to tailor national advertising and marketing accordingly. The product will continue to be revised and updated continuously to provide increasingly better value as well as expanded demographic market penetration. Although the Company originally positioned its LogiTrak mobile data communications and tracking software to meet the need of the transportation industry to keep in touch with their drivers, it plans to expand the market to others. With this goal in mind, ATI designed and developed LogiTrak as an easy to use tool for anyone with a PC running Windows 95. Using a modular approach to product development, the ATI development team has made it possible to add communications drivers for cellular, CDPD, and PCS systems to the software's existing satellite and RF communications capabilities. The Company expects that by the addition of these drivers to the software, this it can expand the potential market for users of its tracking software to include everyone with a computer that uses the Windows 95 operating system. All website products are positioned to provide the INTERNET web user with the ability to use the Company's products anywhere in the world, with any of the three major web browsers. The Company's server architecture is scaleable to allow growth as usage of the Company's websites continues to grow. Pricing Pricing strategy for all products is to be competitive with the market. The company arrives at pricing based on a combination of gross margin objectives and market prices of similar product offerings. This pricing is reviewed monthly to ensure that potential profits are not squandered, while enabling the Company to continue selling its products at competitive pricing that enable rapid increase in market share. Duplication and distribution costs are less than 20% of current wholesale prices, so profit margins are adequate to maintain this pricing strategy, while enabling ATI to reach its market share objectives. Distribution Channels The distribution channels used for NavQuest mapping and routing navigation software product are cataloguers, retailers, and tourist information services. With the additional funding, ATI would like to extend distribution to include national direct response TV ads. The Company began an ad campaign just prior to the summer travel season, since the desire to plan for vacations on one's home computer increases consumer response to advertising. These channels make sense for delivering the product to the end user because of customer profile and geography. Some of the competition uses the wholesaler channel, while no competitor uses all of the same channels as ATI. ATI's distribution strategy is advantageous because the partnership with CPNM into 18 established distribution channels enables ATI to increase market share of its consumer products, without substantially sacrificing profit margins. To sell mobile data communications services effectively, ATI believes it is necessary to recruit and train a technically competent, direct sales organization, while also continuing to license reseller/partners to sell its wireless communications technology. Upon completing funding, the Company plans to hire additional sales people to market and license its products globally. Customers ATI's customers number in the tens of thousands and include the following major companies: WP6-34; AT&T WP6-34; Harley Davidson WP6-34; Bell South Mobility WP6-34; Trimble Navigation Limited. WP6-34; Flash, Inc. Item No. 6 Exhibits and Reports on Form 8-K a. Exhibits Exhibit 27. Financial Data Schedule b. Reports on Form 8-K The Registrant filed a Form 8-K during this quarter on July 10-13, 1998. 19 ATI NETWORKS INC. SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly cause this report to be signed on its behalf by the undersigned thereunto duly authorized. ATI NETWORKS, INC. Registrant August 14, 1998 /s/ Mark T. Thatcher Date MARK T. THATCHER, Secretary and Filing Agent August 14, 1998 /s/ Larry Bestor Date LARRY BESTOR Principal Executive Officer EX-27 2 ARTICLE 5 FIN. DATA SCHEDULE FOR 3RD QTR 10-QSB
5 1 6-MOS DEC-31-1998 APR-01-1998 JUN-30-1998 8,139 20,000 1,009,045 0 9,950 1,548,510 73,501 (37,259) 1,935,038 329,339 0 215,000 0 0 948,391 1,935,038 1,027,392 1,027,392 200,622 157,826 0 0 (2,881) 668,944 (25) 0 0 0 0 650,137 .20 .20
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