UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
Commission File Number 0-22101
IAT MULTIMEDIA, INC.
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(exact name of registrant as specified in its charter)
Delaware 13-3920210
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
Aarestrasse 17
Geschafshaus Wasserschloss
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CH-5300 Vogelsang-Turgi, Switzerland
(Address of principal executive offices)
(011) (41) (56) 223-5022
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(Registrant's telephone number, including area code)
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 close of the latest practicable date.
Class Outstanding at April 30, 1997
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Common Stock, $.01 par value 9,600,000 shares
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
FORM 10-Q INDEX
FOR QUARTERLY PERIOD ENDED MARCH 31, 1997
Page No.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 8-10
Item 3. Quantitative and Qualitative Disclosures 10
About Market Risk
PART II. OTHER INFORMATION
Item 6. Exhibits and Report on Form 8-K 11
Signature Page 12
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
1997 December 31,
(Unaudited) 1996
------------ ------------
ASSETS
Current assets:
Cash $ 4,324 $ 264,661
Accounts receivable, less allowance for doubtful accounts of
$35,481 in 1997 and $20,000 in 1996 205,786 309,133
Inventories 386,488 437,128
Other current assets 146,930 192,996
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Total current assets 743,528 1,203,918
Equipment and improvements, less accumulated
depreciation and amortization 597,799 638,955
Other assets:
Other assets 91,667 96,667
Deferred registration costs 1,175,504 276,525
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$ 2,608,498 $ 2,216,065
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Note payable, banks $ 1,954,181 $ 1,811,837
Accounts payable and other current liabilities 1,812,264 1,013,400
Loans payable, stockholders 2,233,327 1,107,407
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Total current liabilities 5,999,772 3,932,644
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Loans payable, stockholders, net of current portion 449,479 963,704
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Series A Convertible Preferred Stock, $.01 par value, redeem-
able, authorized, issued and outstanding 1,875,000 shares 1,400,000 1,400,000
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Stockholders' deficit:
Preferred stock, $.01 par value,
authorized 500,000 shares, none issued
Common stock, $.01 par value, authorized 20,000,000 shares,
issued and outstanding 4,375,000 shares 43,750 43,750
Capital in excess of par value 8,002,884 8,002,884
Accumulated deficit (13,666,651) (12,293,447)
Cumulative translation adjustments 379,264 166,530
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Total stockholders' deficit (5,240,753) (4,080,283)
------------ ------------
$ 2,608,498 $ 2,216,065
============ ============
See Notes to Consolidated Financial Statements.
3
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Period
Ended March 31,
---------------------------------------
1997 1996
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Net Sales $ 199,005 515,966
Cost of Sales 139,511 340,706
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Gross margin 59,494 175,260
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Operating expense:
Research and development costs:
Expenses incurred 656,057 656,260
Less participation received 41,175 195,203
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Research and development costs, net 614,882 461,057
Selling expenses 428,686 436,659
General and administrative expenses 325,329 352,446
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1,368,897 1,250,162
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Operating loss (1,309,403) (1,074,902)
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Other income (expense):
Interest expense (85,318) (36,940)
Interest income 1,929 --
Other income 19,588 1,433
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Net loss $(1,373,204) $(1,110,409)
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Loss per share of common stock $ (0.24) $ (0.19)
=========== ===========
Weighted average number of common shares
outstanding 5,751,715 5,751,715
=========== ===========
See Notes to Consolidated Financial Statements.
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IAT MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Period
Ended March 31,
-------------------------------------
1997 1996
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Cash flows from operating activities:
Net loss $(1,373,204) $(1,110,409)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 63,857 58,480
Increase (decrease) in cash attributable
to changes in assets and liabilities:
Accounts receivable 129,622 80,197
Inventories 23,483 (113,793)
Other current assets (10,766) (9,235)
Other assets 5,000
Accounts payable and other current liabilities 273,976 93,599
----------- -----------
Net cash used in operating activities (888,032) (1,001,161)
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Net cash used in investing activities, purchases of
equipment and improvements (64,988) (62,256)
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Cash flows from financing activities
Proceeds from loans payable, stockholders 746,322 253,572
Deferred registration costs paid (310,128)
Proceeds from short-term bank loan 257,371 686,392
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Net cash provided by financing activities 693,565 939,964
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Effect of exchange rate changes on cash (882) 5,890
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Net decrease in cash (260,337) (117,563)
Cash, beginning of period 264,661 198,879
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Cash, end of period $ 4,324 $ 81,316
=========== ===========
Supplemental disclosures of cash flow information,
cash paid during the period for interest $ 35,950 $ 32,856
=========== ===========
Supplemental schedule of non-cash financing
activities, deferred registration costs included
in accounts payable and other liabilities $ 588,851 $ --
=========== ===========
See Notes to Consolidated Financial Statements.
5
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION - The unaudited interim consolidated
financial statements contain all adjustments consisting of normal recurring
adjustments, which are, in the opinion of the management of IAT Multimedia,
Inc. (the "Company"), necessary to present fairly the consolidated financial
position of the Company as of March 31, 1997, and the consolidated results of
operations and cash flows of the Company for the three month periods ended
March 31, 1997 and 1996 respectively. Results of operations for the periods
presented are not necessarily indicative of the results for the full fiscal
year. These financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto included in the
Independent Auditors' Report filed with the Securities and Exchange Commission
as part of the Company's Registration Statement on Form S-1 filed.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of IAT Multimedia Inc., its wholly owned subsidiary IAT
AG, Switzerland, and a 74.9% owned subsidiary, IAT Deutschland GmbH
Interaktive Medien Systeme ("IAT GmbH"), Bremen (collectively the "Company").
All intercompany accounts and transactions have been eliminated.
FOREIGN CURRENCY TRANSLATION - The Company has determined that the
local currency of its Switzerland subsidiary, Swiss Francs, is the functional
currency. The financial statements of the subsidiaries have been translated
into U.S. dollars in accordance with Statement of Financial Accounting
Standards No. 52 (SFAS No. 52), "Foreign Currency Translation", SFAS No. 52
provides that all balance sheet accounts are translated at period end rates of
exchange (1.44 and 1.35 Swiss Francs for each U.S. Dollar at March 31 1997 and
December 31, 1996, respectively), except for equity accounts which are
translated at historical rates. Income and expense accounts are translated at
the average of the exchange rates in effect during the period. The resulting
translation adjustments are included as a separate component of stockholders'
deficit, whereas gains or losses arising from foreign currency transactions
are included in results of operations.
LOSS PER COMMON SHARE - Loss per share of common stock is based upon
the weighted average number of shares outstanding, including common stock
equivalents. Shares of common stock to be placed in escrow upon completion of
the public offering, which are common stock equivalents, have been excluded
from the calculation of loss per share. The weighted average includes shares
and common stock equivalents issued within one year of the completion of the
Company's initial public offering (the "IPO") on April 1, 1997 with an issue
price less than the anticipated IPO price.
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IAT MULTIMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2. INVENTORIES:
March 31, December 31,
1997 1996
----------- -----------
Raw Materials $ 362,356 $ 406,202
Finished Goods 24,132 30,926
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$ 386,488 $ 437,128
=========== ===========
NOTE 3. SUBSEQUENT EVENT
On April 1, 1997 the Company completed its IPO and sold 3,350,000
shares of its Common Stock at $6.00 per share, which generated net proceeds of
approximately $16,814,000 after Underwriters' commissions and offering
expenses of $3,286,000.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
INTRODUCTION
The Company develops, manufactures and markets customizable high
quality visual communications systems for use in desktop computers which
permit users to hold multi-point video conferences in two or more locations,
as well as providing additional video, audio and data transfer features not
available in traditional video conferencing systems. Unlike traditional video
conferencing companies, the Company's focus is on high quality system
solutions.
The Company has developed two generations and is currently developing a
third generation of its technology. The first generation was developed using a
large number of computer boards and readily available components as the
Company's initial entry in the visual communications field and to assess
customer needs. The second generation, utilized in the Company's current
systems, is characterized by a substantially reduced number of computer boards
and improved capabilities. These systems use a combination of fully
programmable digital signal processors and less-flexible hardwired processors.
The second generation systems have inherently high prices per unit. Third
generation systems, which the Company expects to begin shipping in the third
and fourth quarter of 1997, utilize Texas Instruments' C8x programmable
digital signal processor and are designed for commercial production with
target sales prices below the sales prices of the second generation systems.
The Company believes that its third generation of systems will be its
first systems which have the potential for widespread commercialization and
that increasing sales of these products will result in corresponding decreases
in sales, and eventual phasing out of its second generation products.
The Company's revenues have quarterly fluctuations in which the fourth
quarter has historically reflected the highest quarterly revenues, as a result
of the perceived desire by its customers to deplete allocated budgets for the
Company's products prior to the end of the calendar year. There can be no
assurance that this trend will continue. Quarterly fluctuations depend in part
on the timing of introduction of new products by the Company and its
competitors. The Company's sales in the first quarter 1996 were
proportionately higher compared to the past years as a result of the
introduction of the Company's second generation systems. The volume of sales
has decreased in the first quarter 1997 as the customers await the release of
the Company's third generation systems.
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 1997
The average exchange rate for the U.S. Dollar increased substantially as
compared to the Swiss Franc by approximately 20.2% resulting in a decrease in
all revenue and expense accounts in the first quarter 1997 by this same
percentage. The average Swiss Franc to U.S. Dollar exchange rate was SF 1.43 =
$1.00 in the first quarter 1997 as compared to SF 1.19 = $1.00 in the first
quarter 1996.
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REVENUES. The Company's revenues for the first quarter 1997 decreased
by 61.4% to $199,000 from $516,000 in the comparable period of the prior year.
Sales in the first quarter 1996 reached a peak as a result of the introduction
of the Company's second generation systems. The volume of sales has dropped in
the first quarter 1997 as the customers await the release of the Company's
third generation systems.
COST OF SALES. Cost of sales for the first quarter 1997 decreased to
$140,000 from $341,000 in the first quarter 1996. The cost of sales as a
percentage of sales increased to 70.1% from 66.0%. This increase is primarily
a result of lower gross margins at the end of the life cycle of second
generation systems. Additionally, the Company's fixed costs for plant,
indirect labor and other costs increased as a percentage of sales.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs incurred
were $656,000 in each of the first quarter 1997 and 1996. The Company has
increased the number of employees involved in research and development to
complete their third generation of products. The resulting increased payroll
costs in Swiss Francs are offset by the strengthening of the U.S. Dollar
against the Swiss Franc. Research participations which are reimbursements from
Deutsche Telekom, one of the Company's strategic partners, for research and
development projects in which each party benefits and at the conclusion of
which each party retains legal rights to the products developed ("Research
Participations") have decreased to $41,000 in the first quarter 1997 from
$195,000 in the first quarter 1996 as a result of the completion of the
development project for Deutsche Telekom.
SELLING EXPENSES. Selling expenses decreased by 1.8% to $429,000 in the
first quarter 1997 from $437,000 in the first quarter 1996. Selling expenses
vary with the introduction of new products into the market, which is planned
for the third or fourth quarter of 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses decreased by 7.7% to $325,000 in the first quarter 1997 from $352,000
in the first quarter 1996. The decrease is primarily due to the strengthening
of the U.S. Dollar against the Swiss Franc.
INTEREST. Interest expense increased by 131.0% to $85,000 in the first
quarter 1997 from $37,000 in the first quarter 1996, principally due to the
increase in stockholder loans.
NET LOSS. Net loss for the three months ended March 31, 1997 increased
by 23.7% to $1,373,000 from $1,110,000 for the comparable prior year period.
The loss primarily increased as a result of the Company's decrease in sales, a
decrease in research participations and an increase in interest expense.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $260,000 during first quarter
1997 as compared to a decrease of $118,000 during first quarter 1996.
Net cash used in operating activities totaled $888,000 during first
quarter 1997 compared to $1,001,000 during first quarter 1996. The decrease is
primarily a result of an increase of accounts payable and other current
liabilities and a decrease in accounts receivable and inventories.
Net cash provided by financing activities totaled $694,000 during first
quarter 1997 as compared to $940,000 during first quarter 1996. During first
quarter 1997 cash was provided by loans from stockholders of $746,000 and an
increase of short term bank loans of $257,000 partially offset by an increase
of deferred costs in connection with the IPO totaling $310,000. In first
quarter 1996 cash was provided by loans from stockholders ($254,000) and an
increase of short term bank loans ($686,000).
9
IAT AG has a line of credit and two loans with a Swiss bank for
approximately $1,320,000 in the aggregate, bearing interest of 6.5% per annum.
IAT GmbH has a line of credit with a German bank for approximately $630,000.
This loan bears interest at 10.5% annually. The credit lines and loans of the
Swiss and German bank were outstanding as of March 31, 1997 and are due on
demand. Since the end of April 1997 the Company has been renegotiating the
terms and conditions of certain loans with its Swiss bank, which may include
repayment of certain indebtedness. In the event the Company is required to pay
a portion, or all of its indebtedness to the Swiss bank, it will utilize a
portion of the proceeds from the IPO.
The Company's expenditures are currently exceeding its revenues by
approximately $475,000 per month, principally as a result of the continued
research and development related to new products and operating losses.
Research Participations have declined, and are expected to continue to decline
to a minimal level since the Company has developed the base technology for its
third generation. Research and development expenses however, are expected to
increase moderately during the next quarter in order to develop additional
products and customized software which are expected to generate additional
revenues for the Company. The Company's ability to become profitable is
dependent on the completion of the development of its third generation of
products, a timely release of the products and market penetration.
SUBSEQUENT EVENT
On April 1, 1997 the Company completed its IPO and sold 3,350,000
shares of its Common Stock at $6.00 per share, which generated net proceeds of
approximately $16,814,000 after Underwriters' commissions and offering
expenses of $3,286,000.
The Company believes that the proceeds should be sufficient to finance
its research and development, expansion of marketing activities, capital and
debt service requirements and its working capital requirements for
approximately the 18 month period following March 31, 1997. However, the
Company's requirements are subject to numerous contingencies associated with
the early stage of the Company's third generation products.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
NOT APPLICABLE
10
PART II OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during
the first quarter of 1997.
11
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 MULTIMEDIA, INC.
By: /s/Viktor Vogt
-------------------
Dr. Viktor Vogt
Co-Chairman of the
Board of Director and
Chief Executive Officer
And President
By: /s/Klaus Grissemann
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Klaus Grissemann
Chief Financial Officer
Date: May 14, 1997
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