SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d) of the
Securities Exchange Act of 1934.
For Quarter Ended September 30, 1999
Commission file number 0-18410
IAT RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-4233050
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5757 Wilshire Blvd., PH1, Los Angeles, CA 90036
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (323) 634-8634
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(Former name, former address and former fiscal year,
if changed since last report)
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 PRACTICABLE DATE. COMMON STOCK, $.001 PAR
VALUE--13,117,737 SHARES AS OF NOVEMBER 12, 1999.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION.......................................... 1
ITEM 1. FINANCIAL STATEMENTS...........................................
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS........................... 13
PART II - OTHER INFORMATION.............................................. 18
ITEM 1. LEGAL PROCEEDINGS.............................................. 18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...................... 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................ 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 18
ITEM 5. OTHER INFORMATION.............................................. 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................... 19
IAT RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1999 AND JUNE 30, 1999
SEPTEMBER 30, 1999 JUNE 30, 1999
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(UNAUDITED) (AUDITED)
ASSETS
Current Assets
Cash and cash equivalents 231,485 $ 11,244
Accounts receivable, net trade 1,901,008 1,638,484
Receivable from related parties 99,891 102,156
Prepaid expenses 18,142 19,207
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Total current assets 1,901,008 1,769,091
Film costs, net 471,762 471,762
Fixed assets, net 90,303 100,843
Investments 1,068,750 800,000
Due from Infolocity 900,000 0
Goodwill 864,413 886,913
Other assets 10,035 10,035
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TOTAL ASSETS $ 5,306,271 $ 4,040,644
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LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $1,144,854 $ 1,018,476
Obligations under capital leases 21,084 33,258
Dividends payable 318,750 278,750
Due to related parties 44,046 69,046
Due to Astor Capital 50,000 0
Convertible Debenture 250,000 0
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TOTAL CURRENT LIABILITIES $1,828,734 $ 1,399,530
Shareholders' equity:
Preferred Stock, $.001 par value, authorized 20,000,000 shares
Series A Preferred Stock, $.001 par value, authorized
1,300,000 shares, 1,000,000 shares issued and outstanding 1,000 1,000
Series B Preferred Stock, $.001 par value, authorized 1,375,662
shares; none issued and outstanding 0 0
Series C Preferred Stock, $.001 par value, authorized 3,000,000
shares; 2,500,000 and 3,000,000 issued and outstanding 2,500 3,000
Series D Preferred Stock, $.001 par value, authorized 50,000
shares; issued and outstanding 50,000 shares 50 50
Series E Preferred Stock, $.001 par value, authorized 500,000
shares; issued and outstanding 225,000 shares 225 225
Series F Preferred Stock, $.001 par value, authorized 500,000
shares; issued and outstanding 275,000 shares 275 275
Series G Preferred Stock, $.001 par value, authorized 4,000,000
shares; issued and outstanding 1,050,000 shares 1,050 0
Common Stock, $.001 par value, authorized 50,000,000 shares;
issued and outstanding 13,683,659 and 11,975,974 shares 13,684 11,976
Additional paid-in capital 28,556,400 27,071,434
Accumulated deficit and dividends (24,356,205) (23,436,654)
Accumulated other comprehensive income 268,750 0
Treasury stock, 93,536 shares at cost (1,010,192) (1,010,192)
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Net shareholders' equity $3,477,537 $ 2,641,114
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,306,271 $ 4,040,644
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
IAT RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------
1999 1998
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Revenues $ 120,251 $ 1,033,223
Costs related to revenues:
Amortization of film costs 0 0
Costs of projects sold 3,008 730,470
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Net Revenues 117,242 302,753
General and administrative expenses 893,299 1,173,934
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Operating income (loss) (776,057) (871,181)
Other income (expenses):
Acquisition expense 0 6,695
Amortization of Goodwill (22,500) 34,000
Amortization of acquisition Costs 0 5,320
Settlements expense 0 69,000
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Net other income (expense) (22,500) (115,015)
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Net income (loss) (798,557) (986,196)
Provision for income taxes 14,744 5,204
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Net income (loss) (813,301) (991,500)
Dividend requirement on Series A Preferred Stock (106,250) (106,250)
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Net income (loss) applicable to common
shareholders ($919,551) ($ 1,097,750)
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Net income (loss) per share (basic and diluted) ($0.67) ($.15)
Average common shares
outstanding (basic and diluted) 13,683,659 7,228,027
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
IAT RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (919,551) $(991,500)
ADJUSTMENTS TO RECONCILE NET (LOSS) TO
NET CASH (USED IN) OPERATING ACTIVITIES:
Depreciation of fixed assets 10,540 24,298
Amortization of film costs 0 0
Write off of projects in development 0 0
Amortization of Goodwill 22,500 34,000
Amortization of Acquisition Costs 0 5,320
Amortization of non-competition agreement 0 69,000
Decrease deferred tax asset 0 51,300
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(Increase) decrease in accounts receivable 86,994 76,644
(Increase) decrease in other assets 0 69,837
Increase (decrease) in accounts payable
and accrued expenses 126,378 63,514
Increase(decrease) in prepaid expenses 1,065 4,428
Decrease (increase) in deferred revenues 0 (4,974,759)
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Net cash (used in) operating activities (672,074) (3,031,918)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Additions) to film costs, net 0 848,411
Capital (expenditures) on equipment 0 (84,081)
(Increase) in Investments 0 0
(Increase) in loans to Infolocity (900,000) 0
(Decrease) in Right to Receive Revenue 0 (196,105)
(Increase) decrease in receivables from related parties 2,265 (9,224)
Increase (decrease) in loans from related parties (25,000) 0
Increase in Acquisition Costs 0 (120,660)
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Net cash (used in) investing activities (922,735) 4,438,341
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CASH FLOWS FROM FINANCING ACTIVITIES:
Obligations Under Capital Leases 0 56,842
Proceeds from preferred and common stock issues 1,487,224 651,250
Proceeds from borrowings 300,000 0
(Repayment) of capital lease obligations (12,174) (31,111)
Increase in dividends payable 40,000 0
(Payment) of dividends on Preferred Stock 0 212,500
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Net cash provided by financing activities 1,815,050 889,481
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Net increase (decrease) in cash 220,241 2,295,904
Cash and cash equivalents at beginning of period 11,244 2,268,506
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Cash and cash equivalents at end of period. $ 231,485 $ (27,398)
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
IAT RESOURCES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
Series A Series A Series C Series C Series D
Preferred Shares Amount Preferred Shares Amount Preferred Shares
Balance June 30, 1999 1,000,000 1,000 3,000,000 3,000 50,000
Issuance of Common Shares in Payment
of Dividends on Series A Preferred Stock
Issuance of Common Stock
Issuance of Series C Preferred Stock
Conversion of Series C Preferred Stock (500,000) (500)
Issuance of Series D Preferred Stock
Conversion of Series D Preferred Stock
Issuance of Series E Preferred Stock
Conversion of Series E Preferred Stock
Issuance of Series F Preferred Stock
Issuance of Series G Preferred Stock
Net Loss
30-Sep-99 1,000,000 1,000 2,434 50,000
Less:
Treasury Stock
Net Shareholders Equity
Series D Series E Series E Series F Series F Series G
Amount Preferred Shares Amount Preferred Shares Amount Preferred Shares
Balance June 30, 1999 50 225,000 225 275,000 275
Issuance of Common Shares in Payment
of Dividends on Series A Preferred Stock
Issuance of Common Stock
Issuance of Series C Preferred Stock
Conversion of Series C Preferred Stock
Issuance of Series D Preferred Stock
Conversion of Series D Preferred Stock
Issuance of Series E Preferred Stock
Conversion of Series E Preferred Stock
Issuance of Series F Preferred Stock
Issuance of Series G Preferred Stock 1,050
Net Loss
30-Sep-99 50 225,000 225 275,000 275 1,050
Less:
Treasury Stock
Net Shareholders Equity
Accumulated
Other
Series G Common Common Add'l Paid-in Comprehensive Accumulated TOTAL
Amount Stock Amount Capital Income Deficit
Balance June 30, 1999 11,975,764 11,976 27,071,434 (23,436,654) 3,651,306
Issuance of Common Shares in Payment
of Dividends on Series A Preferred Stock 45,891 45 45
Issuance of Common Stock 1,162,004 1,163 369,766 370,929
Issuance of Series C Preferred Stock
Conversion of Series C Preferred Stock 500,000 500 0
Other Comprehensive income 268,750 268,750
Reversal of Divendend on
Series E Preferred 66,250 66,250
Issuance of Series G Preferred Stock 1,050 1,048,950 (1,050,000)
(919,551) (919,551)
Net Loss
30-Sep-99 1,050 13,683,659 13,684 28,556,400 268,750 (24,021,205) 4,487,729
Less:
Treasury Stock 1,010,192
Net Shareholders Equity 3,477,537
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
IAT RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 1999
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements of IAT Resources Corporation ("IATR" of the "Company") have been
prepared in accordance with generally accepted accounting principles for
interim financial information and in accordance with the instructions to Form
10-QSB. 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 material adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended September 30, 1999 are not necessarily indicative of the results that
may be expected for the year ended June 30, 2000. The information contained
in this Form 10-QSB should be read in conjunction with the audited financial
statements filed as part of the Company's Form 10-KSB for the fiscal year
ended June 30, 1999.
On September 23, 1999, the Company signed a definitive merger agreement
with Infolocity, Inc. ("Infolocity"), a Silicon Valley-based internet company
that provides business intelligence and information for both publicly traded and
privately held corporations using its proprietary search engine, FIRST (Fast
Internet Real-Time Search Technology) for which patents were filed in
September, 1999. In accordance with the merger agreement, upon closing, the
Company will issue 7,375,000 shares of common stock in exchange for all the
preferred and common stock of Infolocity. Completion of the merger is subject
to shareholder approval and other customary closing conditions.
On July 15, 1998, IAT acquired 100% of the capital stock of MWI
Distributions, Inc., dba MediaWorks International ("MWI"), a California
corporation. MWI provides international television and video distribution,
specializing in the licensing of children's and family programming and
animation. The transaction was accounted for as a purchase. The results of
operations of MWI are included in these financial statements from the date of
acquisition. The consideration paid at closing to the shareholders of MWI was
763,232 shares of IAT's common stock with an additional 440,472 shares held
in escrow pending collection of receivables and potential future revenues.
On March 22, 1999, IAT entered into an agreement with the
shareholders of MWI under which one of the shareholders cancelled 89,352
shares of common stock issued to him in connection with the acquisition.
(2) GOODWILL
Goodwill related to the acquisition of MWI is being amortized over a
period of ten years.
(3) DIVIDEND ON SERIES A PREFERRED STOCK
For the three months ended September 30, 1999, the Company issued
shares of its Common Stock at a market value equivalent to $106,250,
which represented the $106,250 quarterly dividend required to be paid on the
Series A Preferred Stock for the quarter ended September 30, 1999.
(4) LOSS PER SHARE
Loss per share for the three month period ended September 30, 1999
has been computed after deducting the dividend requirements of the Series A
Preferred Stock. It is based on the weighted average number of common and
common equivalent shares reported outstanding during the entire period ending
on September 30, 1999.
(5) STOCK OPTIONS AND WARRANTS
The Company uses APB Opinion No. 25 "Accounting for Stock Issued to
Employees" to calculate the compensation expense related to the grant of
options to purchase Common Stock under the intrinsic value method.
Accordingly, the Company makes no adjustments to its compensation expense or
equity accounts for the grant of options. The Company granted options during
the period ended September 30, 1999. At September 30, 1999 there were options
to acquire 5,589,792 shares outstanding at exercise prices ranging from $0.50
per share to $39.00 per share of Common Stock.
In addition to the Redeemable Warrants to purchase an aggregate of
1,700,000 shares of Common Stock at $5.25 per share issued in connection with
the September 1996 public offering, the Company has other existing warrants
outstanding to purchase an aggregate of 142,518 shares of Common Stock at
prices ranging from $23.10 to $43.20 per share. There were a total of
approximately 1,842,518 warrants outstanding as of September 30, 1999.
(6) RELATED PARTY TRANSACTIONS
As of the period ended September 30, 1999, the Company issued a
promissory note to Mountaingate Productions, LLC, an affiliate of Irwin
Meyer, Chief Executive Officer and Co-Chairman of the Board of Directors of
the Company, for the sum of $44,046.14 which represents amounts owed to
Mountaingate Productions, LLC under its production agreement with the
Company. The promissory note bears interest at the rate of ten percent (10%)
per annum.
(7) EXCHANGE OF 6% CONVERTIBLE SUBORDINATED DEBENTURES
In September 1999, the Company approved the exchange of $1,050,000
of the 6% Convertible Subordinated Debentures into Series G Convertible
Preferred Stock. While the holders of the debentures had elected to exchange
and the Board of Directors of the Company had approved the exchange, certain
of the legal documents related to the exchange were completed subsequent to
September 30, 1999.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
FORWARD AND LOOKING STATEMENTS. This report contains statements that
constitute "forward-looking statements" within the meaning of Section 21E of
the Securities Exchange Act of 1934 and Section 27A of the Securities Act of
1933 with respect to the Company and its operations that are subject to
certain risks and uncertainties which could cause the Company's future actual
results of operations and future financial condition to differ materially
from those described herein. The words "expect," "estimate," "anticipate,"
"predict," "believe" and similar expressions and variations thereof are
intended to identify forward-looking statements. These statements appear in a
number of places in this filing and include statements regarding the intent,
belief or current expectations of the Company with respect to, among other
things, the integration of the acquisition of MWI, trends affecting the
Company's financial condition and the Company's business and strategies. The
stockholders of IATR are cautioned not to put undue reliance on such
forward-looking statements. With respect to the entertainment related
activities, such forward-looking statements involve risks and uncertainties,
including the intensity of competition from other television distributors and
the status of the Company's liquidity in future fiscal periods. The readers
of this filing are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those projected in this
filing, including, without limitation, those risks and uncertainties
discussed under the headings "Factors That Could Impact Future Results" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1999 as well as the information set forth below. The Company
does not ordinarily make projections of its future operating results and
undertakes no obligation to publicly update or revise any forward looking
statements, whether as a result of new information, future events or
otherwise.
The Company's revenues in connection with its entertainment related
activities are primarily derived from the licensing of rights of family
oriented television programming, as well as the sale of home video
programming. The amount of revenues derived by the Company from its
entertainment activities in any one period is dependent upon, among other
factors, projects which are completed and available for distribution during
any such period. Accordingly, the amount of revenues recognized in any period
are not necessarily indicative of revenues to be recognized by the Company in
future periods.
OVERVIEW
In December, 1998, the Company commenced a restructuring of its
operations in order to
redirect its primary revenue sources. It determined that it would seek
opportunities in the internet and e-commerce sectors.
On February 4, 1999, the Company announced that it made an initial
investment in flowersandgifts.com, a storefront on the Internet to sell
flowers and gifts. The Company has executed an agreement with
flowersandgifts.com to acquire up to $1,000,000 of common stock in the
aggregate, subject to certain conditions. The initial investment was $200,000
for 100,000 shares, representing approximately 2% of the outstanding common
stock of flowersandgifts.com. Additionally, the Company has the right to
purchase up to an additional $1,000,000 in common stock of
flowersandgifts.com at a price of $2.10 per share. The Company then invested
the sum of $100,000 for an additional 50,000 shares of the common stock.
Subsequently, on February 24, 1999, the Company entered into a Stock Sale
Agreement with Pacific Softworks, Inc. ("Pacific") to purchase 100,000
restricted shares of Pacific's common stock for the total sum of $500,000.
The Company has executed an agreement with Pacific to acquire up to an
additional 100,000 of common stock in the aggregate at a price of $6.00 per
share, subject to certain conditions.
On September 23, 1999, the Company signed a definitive merger agreement
with Infolocity, Inc. ("Infolocity"), a Silicon Valley-based internet company
that provides business intelligence and information for both publicly traded and
privately held corporations using its proprietary search engine, FIRST (Fast
Internet Real-Time Search Technology) for which patents were filed in
September, 1999. In accordance with the merger agreement, upon closing, the
Company will issue 7,375,000 shares of common stock in exchange for all the
preferred and common stock of Infolocity. Completion of the merger is subject
to shareholder approval and other customary closing conditions.
In view of the diminished revenue resulting from the discontinuance
of certain television production and distribution activities, the Company has
focused on the following areas in order to generate working capital over the
next twelve months: collection of current accounts receivables; revenues
relating to international television sales made by MediaWorks, revenues to be
derived from a made-for-television movie currently in development and additional
equity financings currently being negotiated. Additionally, upon completion
of the merger with Infolocity, the Company expects to derive revenue from the
sale of goods and services by Infolocity.
It is the Company's intention to seek additional strategic
alliances, acquisitions, or mergers, that would enable it to generate
revenues sufficient to operate profitably, although there can be no assurance
that any such alliance, acquisition or merger will be successful.
Amortization of film costs is charged to operations on a project by
project basis. The cost charged per period is determined by multiplying the
remaining unamortized costs of the project by a fraction, whose numerator is
the income generated by the project during the period and whose denominator
is management's estimate of the total gross revenue to be derived by the
project over its useful life from all sources. This is commonly referred to
as the Individual Film Forecast Method under FASB 53. The effects on the
amortization of completed projects resulting from revision of management's
estimates of total gross revenue on certain projects are reflected in the
year in which such revisions are made.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues for the three months ended September 30, 1999 were
$120,250, an 88% decrease from $1,033,223 for the three months ended
September 30, 1998. Revenues for the three months ended September 30, 1999
and September 30, 1998 consisted of income from the continued international
distribution of completed projects. The substantial decrease in revenues is
attributable to the termination by Sony Music, Inc. of the Distribution
Agreement between Sony Music, Inc. and MWI. The Company disputes this
termination and has filed suit against Sony Music in this regard. No assurance
can be provided that the Company will be successful in this action.
Amortization of film costs for the three months ended September 30,
1999 and September 30, 1998 was $0.00 for both quarters, and was computed
using the Individual Film Forecast Method.
Cost of sales for the three months ended September 30, 1999 and
September 30, 1998, was $3,008 and $730,470, respectively. Cost of sales as a
percentage of total revenues decreased from 71% for the three months ended
September 30, 1998 to 2.5% for the three months ended September 30, 1999.
General and administrative expenses for the three months ended
September 30, 1999 were $893,299 compared to $1,173,934 for the three months
ended September 30, 1998. The $280,635, or 23%, decrease in general and
administrative expenses was primarily due to the elimination of certain
staff and related benefits of television development and production personnel in
the New York and Toronto office.
During the three months ended September 30, 1999, the Company
recorded no additional amortization related to a November 4, 1996
non-competition agreement with a former officer and director since such cost
was fully amortized as of December 31, 1998. The Company recorded $69,000
related to this expense for the quarter ended September 30, 1998.
During the three months ended September 30, 1999, and the three
months ended September 30, 1998, the Company recorded no interest income.
IATR reported a loss of $919,551 or $.06 per share in the three
months ended September 30, 1999 compared to a loss of $1,097,500 or $.15 per
share in the three months ended September 30, 1998. The income for both
compared periods included required dividend payments of $106,250 to holders
of the Company's outstanding Series A Preferred Stock. The number of average
common shares outstanding increased to 13,683,657 as of the three months
ended September 30, 1999 from 7,228,027 as of the three months ended
September 30, 1998 primarily as a result of the exercise of stock options,
the issuance of common stock in payment of the dividend due on the Series A
Preferred Stock and the conversion of the Series D and Series E Convertible
Preferred Stock by the holder thereof. The calculation of average common shares
for both periods reflects the effect of the one-for-three stock split completed
during the fourth quarter 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company had increased liquidity from
the comparable period ended September 30, 1998 primarily as a result of cash
generated from the issuance and sale of the Company's common stock. Cash and
cash equivalents as of September 30, 1999 were $231,485 and trade accounts
receivable were $1,551,490. As of September 30, 1999, the Company had recorded
accounts payable and accrued expenses of $1,144,854. In the comparable period
ending September 30, 1998, the Company had $11,244 in cash and cash equivalents
and $1,138434 in trade accounts receivable available to provide payment for
$1,018,476 of current liabilities.
In the event that the merger with Infolocity, Inc. is completed,
management estimates that, as of September 30, 1999, the Company's cash
commitments for the next twelve months will aggregate approximately
$12,500,000 a significant portion of which are requirements associated with
the business of Infolocity. In the event that the merger with Infolocity,
Inc. is not completed, management estimates that, as of September 30, 1999,
the Company's cash commitments for the next twelve months will aggregate
approximately $1,800,000.
The Company incurs expenses associated with base compensation to key
officers, independent contractors and consultants as well as expenses related
to its office lease. The Company incurs other general and administrative
costs such as staff salaries, employee benefits, employer taxes, premiums on
insurance policies, marketing costs, office expenses, professional fees,
consulting fees and other expenses. For the three months ended September 30,
1999, total cash general and administrative expenses for all categories
aggregated approximately $1,000,000. In addition to general and
administrative expenses, the required dividends on the shares of Series A
Preferred Stock are $425,000 annually. The dividends on the Series A
Preferred Stock and the Series E Preferred Stock may be paid either in shares
of the Company's Common Stock or in cash.
In the event the Company closes the acquisition of Infolocity,
management believes cash generated from operations will be sufficient to fund
the combined business for the next twelve months. If the acquisition of
Infolocity does not close, management believes that the Company will require
additional funding in order to continue its operations and to establish other
related businesses to its core business. An inability to raise additional
capital could prevent the Company from achieving its objectives and would
have a material adverse effect on the Company's business, results of
operations and financial condition.
The Company is seeking to obtain additional external financing or
capital. The Company's ability to rely on external sources of funds, rather
than its own liquid resources, will be significant in determining the extent
to which the Company will be able to seek those strategic alliances or
acquisitions required to diversify itself in the internet and e-commerce
industries. There is no assurance that such external sources of funds will be
available to the Company or that, if available, the terms thereof will be at
reasonable cost to the Company. No new agreements have been entered into for
any such external financing as of the date of this Report. In August,
September, October and November 1999 the Company issued $2,350,000 aggregate
principal amount 6% Convertible Subordinated Debentures to certain investors.
The net proceeds to the Company from this financing were approximately
$2,325,000.
In July 1998, the Company secured access to a $5,500,000
equity-based line of credit with an institutional investor. The Company's
ability to further draw on this equity-based line of credit is subject to
stockholder approval, among other requirements. Through September 30, 1999,
the Company has received approximately $2,500,000 from the investor in
exchange for the sale by the Company of Series D and Series E convertible
preferred stock and the issuance of Series F convertible preferred stock to
the investor. Subject to the restrictions described above, the Company was
committed to use $2,000,000 of the equity-based line of credit, which is
available to the Company through August 2000. All of the Series D Preferred
Stock issued has been converted into Common Stock. The holders of the
Company's Series E Preferred Stock are entitled to annual dividends of 6%,
all of which are payable quarterly in cash, or at the Company's option, in
shares of Common Stock.
The Company's ability to satisfy selling, general and administrative
costs with cash flow from operations depends on the revenues derived from the
continued collections of receivables relating to the international
distribution of television programs, the sales agent services rendered by
MediaWorks, producer fees derived from a made-for-television movie, as well
as, revenues derived from the sale of goods and services by Infolocity if the
merger is completed.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs being written
using two digits instead of four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software or facilities
or equipment containing embedded micro-controllers may recognize a date using
"00" as the year 1900 rather than the Year 2000. This could cause a system
failure or miscalculations resulting in potential disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities.
The Company has assessed its hardware and software systems, which
are comprised solely of an internal personal computer network and
commercially available software products. Based on this assessment, the
Company believes that its hardware and software systems are Year 2000
compliant. The Company has assessed the embedded system contained in its
leased equipment.
In addition, the Company is contacting its key vendors and
customers to determine if there are any significant Year 2000 exposures which
would have a material effect on the Company. The Company is not yet aware of
any Year 2000 issues relating to third parties with which the Company has a
material relationship. There can be no assurance, however, that the systems
of third parties on which the Company or its systems rely will not present
Year 2000 problems that could have a material adverse effect on the Company.
The Year 2000 issue presents a number of other risks and uncertainties that
could impact the Company, such as disruptions of service from third parties
providing electricity, water or telephone service. If such critical third
party providers experience difficulties resulting in disruption of service to
the Company, a shutdown of the Company's operations at individual facilities
could occur for the duration of the disruption.
The Year 2000 project cost has not been material to date and, based
on preliminary information, is not currently anticipated to have a material
adverse effect on the Company's financial condition, results of operations or
cash flow in future periods. However, if the Company, its customers or
vendors are unable to resolve any Year 2000 compliance problems in a timely
manner, there could result a material financial impact on the Company.
Accordingly, management plans to devote the resources it considers
appropriate to resolve all significant Year 2000 problems in a timely manner.
Readers are cautioned that forward-looking statements contained in
this Year 2000 disclosure should be read in conjunction with the Company's
disclosures under the heading, "Forward-looking Statements," beginning on
page 8 above. Readers should understand that the dates on which the Company
believes the Year 2000 project will be completed are based upon Management's
best estimates, which were derived utilizing numerous assumptions of future
events, including the availability of certain resources, third-party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved, or that there will not be a delay in, or
increased costs associated with, the implementation of the Company's Year
2000 compliance project. A delay in specific factors that might cause
differences between estimates and actual results include, but are not limited
to, the availability and costs of personnel trained in these areas, the
ability of locating and correcting all relevant computer code, timely
responses to and corrections by third parties and suppliers, the ability
implement interfaces between the new systems and the systems not being
replaced, and similar uncertainties. Due to the general uncertainty inherent
in the Year 2000 problem, resulting in part from the uncertainty of the Year
2000 readiness of third parties and the interconnection of national and
international businesses, the Company cannot ensure that its ability to
timely and cost effectively resolve problems associated with the Year 2000
issue will not affect its operations and business, or expose it to third
party liability.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
The Company has received a letter from NASDAQ stating that if the
net tangible assets of the Company is not in excess of $2,000,000, the
Company's shares of Common Stock may be delisted from the NASDAQ Small Cap
Market.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K AND FORM 8-K/A
(a) EXHIBITS
27.1 - Financial Data Schedule
(b) Reports on Form 8-K
(c) The Company filed a Current Report on Form 8-K/A on September 29,
1998. Item 7 was reported. The Company filed a Current Report
on Form 8-K on July 31, 1998. Item 2 was reported.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
IAT Resources Corporation
(Registrant)
Dated: November 15, 1999 /s/ IRWIN MEYER
---------------------------------
Irwin Meyer,
Chief Executive Officer
Dated: November 15, 1999 /s/ ARTHUR H. BERNSTEIN
----------------------------------
Arthur H. Bernstein,
Executive Vice President, Principal
Financial Officer