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 September 30, 1997
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT OF 1934
Commission File Number 0-22101
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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
Incorporation or organization) Identification No.)
Geschaftshaus Wasserschloss
Aarestrasse 17
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 October 31, 1997
- ---------------------------- -------------------------------
Common Stock, $.01 par value 9,555,000 shares
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
FORM 10-Q INDEX
FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1997 3
(unaudited) and December 31, 1996
Consolidated Statements of Operations for Three Months 4
ended September 30, 1997 and 1996 (unaudited)
Consolidated Statements of Operations for Nine Months 5
ended September 30, 1997 and 1996 (unaudited)
Consolidated Statements of Cash Flows for Nine Months 6
ended September 30, 1997 and 1996 (unaudited)
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 10-15
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 15
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURE PAGE 17
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, Year ended
1997 December 31,
(unaudited) 1996
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Assets
Current assets:
Cash and cash equivalents $ 7,938,344 $ 264,661
Marketable securities 3,177,570
Accounts receivable, less allowance for doubtful
accounts of $46,520 in 1997 and $20,000 in 1996 127,305 309,133
Inventories 348,566 437,128
Prepaid expenses and other current assets 319,875 192,996
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Total current assets 11,911,660 1,203,918
Equipment and improvements, less accumulated
depreciation and amortization 655,644 638,955
Other assets:
Other assets 438,030 96,667
Deferred registration costs - 276,525
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$ 13,005,334 $ 2,216,065
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Liabilities and Stockholders' Equity(Deficit)
Current liabilities:
Notes payable, banks $ 1,460,726 $ 1,811,837
Accounts payable and other current liabilities 751,347 1,013,400
Loans payable, stockholders 448,276 1,107,407
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Total current liabilities 2,660,349 3,932,644
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Loans payable, stockholders, net of current portion 425,690 963,704
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Series A Convertible Preferred Stock, $.01 par value,
redeemable, 1,875,000 shares authorized, 1,875,000
shares issued and outstanding at December 31, 1996
and 0 shares issued and outstanding at
September 30, 1997 - 1,400,000
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Stockholders' equity(deficit):
Preferred stock, $.01 par value, authorized
500,000 shares, none issued
Common stock, $.01 par value, 20,000,000 shares
authorized, 9,605,000 shares issued and
9,555,000 shares outstanding at
September 30, 1997 and 4,375,000 shares issued
and outstanding at December 31, 1996 96,050 43,750
Capital in excess of par value 26,194,723 8,002,884
Accumulated deficit (16,647,906) (12,293,447)
Treasury stock at cost, 50,000 shares (206,260) -
Cumulative translation adjustments 482,688 166,530
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Total stockholders' equity(deficit) 9,919,295 (4,080,283)
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$ 13,005,334 $ 2,216,065
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See Notes to Consolidated Financial Statements
-3-
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
September 30,
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1997 1996
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Net Sales $ 122,310 $ 178,775
Cost of Sales 82,867 157,293
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Gross margin 39,443 21,482
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Operating expenses:
Research and development costs:
Expenses incurred 540,045 663,223
Less participations received 5,389 45,726
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Research and development costs, net 534,656 617,497
Selling expenses 515,996 344,206
General and administrative expenses 547,760 367,827
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1,598,412 1,329,530
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Operating loss (1,558,969) (1,308,048)
Other income (expense):
Interest expense (45,671) (52,854)
Interest income 171,874 -
Other income(expense) 1,351 447
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Net loss $ (1,431,415) $ (1,360,455)
============ =============
Loss per share of common stock $ (0.16) $ (0.24)
============ =============
Weighted average number of
common shares outstanding 9,059,324 5,751,715
============ =============
See Notes to Consolidated Financial Statements
-4-
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended
September 30,
--------------------------------
1997 1996
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Net Sales $ 537,561 $ 961,257
Cost of Sales 328,613 689,952
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Gross margin 208,948 271,305
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Operating expenses:
Research and development costs:
Expenses incurred 1,967,604 1,952,079
Less participations received 94,070 272,071
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Research and development costs, net 1,873,534 1,680,008
Selling expenses 1,474,334 1,156,324
General and administrative expenses 1,374,210 1,041,894
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4,722,078 3,878,226
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Operating loss (4,513,130) (3,606,921)
Other income (expense):
Interest expense (169,454) (138,922)
Interest income 362,322 -
Other income 17,428 12,862
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Net loss $ (4,302,834) $ (3,732,981)
============ =============
Loss per share of common stock $ (0.54) $ (0.65)
============ =============
Weighted average number of
common shares outstanding 7,970,762 5,751,715
============ =============
See Notes to Consolidated Financial Statements
-5-
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
--------------------------------
1997 1996
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Cash flows from operating activities:
Net loss $ (4,302,834) $ (3,732,981)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 212,410 166,659
Common stock issued for services 22,500 -
Increase (decrease) in cash attributable to
changes in assets and liabilities:
Accounts receivable 189,068 491,199
Inventories 58,415 (279,871)
Other current assets (168,748) (15,859)
Other assets (341,363) -
Accounts payable and other current liabilities (192,852) 118,475
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Net cash used in operating activites (4,523,404) (3,252,378)
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Cash flows from investing activites
Purchases of equipments and improvements (295,765) (168,855)
Purchase of marketable securities (3,177,570) -
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Net cash used in investing activites (3,473,335) (168,855)
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Cash flows from financing activites
Proceeds from (repayments of) loans payable,
stockholders (1,054,310) 1,117,708
Proceeds from issuance of common stock 17,098,164 1,539,583
Deferred registration costs - (160,000)
Payment of preferred stock dividend (51,625) -
Payment for treasury stock (206,260) -
Proceeds from (repayments of) short-term
bank loan (226,158) 682,485
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Net cash provided by financing activites 15,559,811 3,179,776
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Effect of exchange rate changes on cash 110,611 55,962
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Net increase(decrease) in cash and cash
equivalents 7,673,683 (185,495)
Cash, beginning of period 264,661 198,879
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Cash and cash equivalents, end of period $ 7,938,344 $ 13,384
============ =============
Supplemental disclosures of cash flow
information, cash paid during the
period for interest $ 181,028 $ 128,281
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Supplemental schedule of non-cash
operating activities, Common stock issued
for services $ 22,500 $ 0
============ =============
Supplemental schedule of non-cash financing
activities, deferred registration costs
paid included in other assets and in
proceeds from issuance of common stock $ 276,525 $ 0
============ =============
See Notes to Consolidated Financial Statements
-6-
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 September 30, 1997, and the consolidated results
of operations and cash flows of the Company for the periods presented. 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, including the Independent Auditors' Report, filed with the Securities
and Exchange Commission as part of the Company's Registration Statement on
Form S-1.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of IAT Multimedia, Inc., its wholly owned subsidiary IAT
AG, Switzerland, ("IAT Switzerland") and a 74.9% owned subsidiary, IAT
Deutschland GmbH Interaktive Medien Systeme ("IAT GmbH"), Bremen. All
intercompany accounts and transactions have been eliminated.
FOREIGN CURRENCY TRANSLATION - The Company has determined that the
Swiss Franc, the local currency of IAT Switzerland, 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 (1.45 and 1.35 Swiss Francs for each U.S. Dollar at September 30,
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' equity (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. 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. Shares of common stock placed in escrow upon completion
of the IPO have been excluded from the calculation of loss per share.
-7-
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2. INVENTORIES
September 30, December 31,
1997 1996
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Raw Materials..............................$ 272,635 $ 406,202
Finished Goods............................. 75,931 30,926
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$ 348,566 $ 437,128
============ ============
NOTE 3. IPO PROCEEDS
On April 1, 1997 the Company received the proceeds from its
IPO of the sale of 3,350,000 shares of its common stock at $6.00 per share,
which generated net proceeds of approximately $16,822,000 after Underwriters`
commission and offering expenses of approximately $3,278,000.
NOTE 4. SUBSEQUENT EVENT
On November 13, 1997, the Company and Dr. Alfred Simmet, the only
limited partner of FSE Computer-Handel GmbH & Co. KG ("FSE") and the only
general shareholder of FSE Computer-Handel Verwaltungs GmbH ("FSE GmbH"),
which is the only general partner of FSE, entered into a purchase agreement
(the "Purchase Agreement"), pursuant to which the Company has agreed to
purchase 80% of Dr. Simmet's shares in FSE and 100% of his shares in FSE GmbH
for an aggregate purchase price of DM 6.4 million, payable in cash and Common
Stock. The Purchase Agreement provides for the payment of the purchase price
in two installments. The first installment was payable to Dr. Simmet in an
amount of DM 3.2 million in cash and 146,949 shares of Common Stock, which
were payable on the date of the Purchase Agreement. The Purchase Agreement
further provides that the shares of Common Stock issued to Dr. Simmet shall
not be sold or transferred by him prior to November 13, 1998. The second
installment of DM 1.6 million is payable in cash to Dr. Simmet on March 13,
1998. As collateral for the payment of the second installment of the purchase
price, the Company has issued to Dr. Simmet a bank guaranty for DM 1.6
million. This guaranty has been secured by the Company through the
establishment of a letter of credit facility with The Citibank Private Bank.
The Purchase Agreement also grants the Company the right to acquire
an additional 10% of the shares of the limited partnership for a purchase
price of DM 1 million. The Company has the right to exercise this option at
any time upon presentment of a written statement of its intent to do so
subject to a right of first refusal of Dr. Simmet's son. Additionally, Dr.
Simmet has the right, under certain conditions, to sell the remaining 10% of
his shares in FSE to the Company, with the purchase price thereof to be
determined from a formula agreed upon by the parties. Until the time that
these respective options are exercised, however, both the Company and Dr.
Simmet have agreed, in their capacity as shareholders of FSE, to grant FSE's
executives the ability to purchase shares in FSE. In connection therewith,
-8-
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Dr. Simmet has agreed to transfer to the participating executives, at the
request of the Company, a limited partner share in FSE for 10% of FSE.
Pursuant to this management option, the participating managers may purchase up
to 10% of the shares of FSE for an aggregate price of DM 800,000.
-9-
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
INTRODUCTION
The following management's discussion and analysis of results of
operations and financial condition include forward-looking statements with
respect to the Company's future financial performance. These forward-looking
statements are subject to various risks and uncertainties which could cause
actual results to differ materially from historical results of those currently
anticipated.
The Company is a developer, manufacturer and marketer of
customizable, high-quality visual communications technology for use in
personal computer systems ("PCs").
The Company's visual communications technology currently has three
applications: the Vision and Live multifunctional communications system
("Vision and Live"), computer boards utilizing the Company's visual
communication system technology (the "Wonderboard") and proprietary wavelet
data compression technology for high-performance, high-quality still image
transfer.
The Vision and Live systems permit users of PCs to hold multi-point
video conferences at multiple sites, as well as provide additional video,
audio and data transfer features not available in traditional video
conferencing systems. The technology utilized in the Vision and Live systems
can produce substantially higher quality image and video transmissions,
including reduced noise and artifacts, truer color representation and higher
frame rates, than software-only products and low cost hardwired systems, while
using less of the computing power of the host PC, which permits other
applications to continue to operate without interruption. These systems, which
include both proprietary and third-party software and hardware, are
inter-operable with products from certain other vendors and comply with all
relevant international standards, including H.320. While the Company's Vision
and Live technology has applications in many industrial and professional
fields, the Company has decided to initially focus its efforts on telemedicine
and teleservice.
The Company is currently developing a third generation of its video
communications technology utilizing a programmable digital signal processor
(the "C8x chip"), which was developed by the Company together with several
other companies, including Texas Instruments ("TI"). The C8x chip will allow
for easier upgrades and customization than systems using hardwired chips. The
Company will use the C8x chip in its Wonderboard, which the Company
anticipates marketing and selling to original equipment manufacturers
("OEMs"), VARs and end users for integration into high-performance PCs. The
Company also intends to customize this technology for a variety of industrial
and professional applications. In addition, the Company, together with the
Technical University of Berlin, has developed wavelet data compression and
decompression technology which enhances the quality and speed of still images
transmitted by visual communications systems. The company intends to integrate
this technology into high-performance PCs and continues to evaluate other uses
for the wavelet data compression and decompression software, including
potential Internet applications and sales to OEMs, VARs and end users.
-10-
The Company's strategy focuses on developing its visual
communications technology as well as selling its existing products. It intends
to continue developing new technologies aimed at the high quality professional
visual communications market. In addition, it intends to expand the fields in
which its current products are utilized gradually and, in certain
circumstances, in partnership with established market leaders such as Olympus.
An integral part of the Company's business strategy is growth through
acquisitions. The Company expects to make additional acquisitions in the
future in the technology or distribution fields.
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.
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTH PERIOD
ENDED SEPTEMBER 30, 1996
The average exchange rate for the U.S. Dollar increased by approximately 23.1%
as compared to the Swiss Franc resulting in a decrease in all revenue and
expense accounts in the third quarter 1997 by this same percentage. The
average Swiss Franc to U.S. Dollar exchange rate was SF 1.49 = $1.00 in the
third quarter 1997 as compared to SF 1.21 = $1.00 in the third quarter 1996.
REVENUES. The Company's revenues for the third quarter 1997 decreased
by 31.6% to $122,000 from $179,000 in the comparable period of the prior year.
The decrease is primarily a result of the strengthening of the U.S. Dollar
against the Swiss Franc.
COST OF SALES. Cost of sales for the third quarter 1997 decreased to
$83,000 from $157,000 in the third quarter 1996. The cost of sales as a
percentage of sales decreased to 67.8% from 88.0%. This decrease is primarily
a result of a more competitive pricing structure on the Company's system
sales.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs
incurred decreased by 18.6% to $540,000 in the third quarter 1997 from
$663,000 in the third quarter 1996. This decrease is primarily a result of the
strengthening of the US Dollar against the Swiss Franc. Research
participations decreased by 88.2% to $5,000 for the third quarter 1997 from
$46,000 for the third quarter 1996. This decrease is primarily a result of the
completion of all of the joint development projects with Deutsche Telekom in
1997.
SELLING EXPENSES. Selling expenses increased by 49.9% to $516,000 in
the third quarter 1997 from $344,000 in the third quarter 1996. This increase
is primarily a result of expenses incurred in connection with the production
of market and product communication brochures, an increase of the sales and
marketing personnel and costs related to the marketing agreement entered into
between the Company and General Capital on October 24, 1996, as amended (the
"Marketing Agreement").
-11-
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased by 48.9% to $548,000 in the third quarter 1997 from
$368,000 in the third quarter 1996. The increase is primarily a result of the
Company being a public company since April 1, 1997 the attendant D&O liability
and life insurance premiums, investor relations services not incurred in the
prior year comparable period and in an increase of board member fees, legal
and auditing expenses and other corporate overhead.
INTEREST. Interest expense decreased by 13.6% to $46,000 in the third
quarter 1997 from $53,000 in the third quarter 1996 as a result of a reduction
in outstanding bank loans. Interest income increased to $172,000 in the third
quarter 1997 from zero in the third quarter 1996 as a result of the investment
of the IPO proceeds in short and medium-term investments bearing interest in
the average of approximately 5.5%.
NET LOSS. Net loss for the three months ended September 30, 1997
increased by 5.2% to $1,431,000 from $1,360,000 for the comparable prior year
period. The loss primarily increased as a result of higher operating expenses
partially offset by higher interest income.
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1996
The average exchange rate for the U.S. Dollar increased by approximately 20.8%
as compared to the Swiss Franc resulting in a decrease in all revenue and
expense accounts in the nine months ended September 30, 1997 by this same
percentage. The average Swiss Franc to U.S. Dollar exchange rate was SF 1.45 =
$1.00 in the nine months ended September 30, 1997 as compared to SF 1.20 =
$1.00 in the nine months ended September 30, 1996.
REVENUES. The Company's revenues for the nine months ended September
30, 1997 decreased by 44.1% to $538,000 from $961,000 in the comparable period
of the prior year. Sales in the nine months ended September 30, 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 nine months ended September
30, 1997 as the customers await the release of the Company's third generation
systems.
COST OF SALES. Cost of sales for the nine months ended September 30,
1997 decreased to $329,000 from $690,000 in the nine months ended September
30, 1996. The cost of sales as a percentage of sales decreased to 61.1% from
71.8%. The decrease is primarily a result of proportionately higher royalty
income from various customers generating high profit margins partially offset
by sales of second generation systems generating lower gross margins at the
end of their life-cycle.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs
incurred increased by 0.8% to $1,968,000 in the nine months ended September
30, 1997 from $1,952,000 in the comparable period of the prior year. The
Company has increased during the first six months of 1997 as compared to the
first six months 1996 the number of employees involved in product development
to complete its third generation of products and has incurred additional
development costs by third parties in connection with the development of the
wavelet compression technology performed by the Technical University of Berlin
and of software and product licenses acquired in connection with the
development of the third generation products. This increase in the six months
period ended June 30, 1997 was partially offset by a decrease in the three
months period ended September 30, 1997. Research participations have
-12-
decreased by 65.4% to $94,000 for the nine months ended September 30, 1997
from $272,000 for the nine months ended September 30, 1996. This decrease is
primarily a result of the completion of all of the joint development projects
with Deutsche Telekom. In the nine months ended September 30, 1997 $81,000
were received in research participations through a government subsidy granted
by the state government of Berlin. The subsidy is granted for approximately
35%-40% of the actual expenditures incurred in Berlin in connection with the
development of the Wavelet Compression Technology by the Technical University
of Berlin.
SELLING EXPENSES. Selling expenses increased by 27.5% to $1,474,000
in the nine months ended September 30, 1997 from $1,156,000 in the nine months
ended September 30, 1996. This increase is a result of expenses incurred in
connection with the production of market and product communication brochures,
an increase in trade fair expenses, an enhancement of the sales and marketing
personnel and costs related to the Marketing Agreement concluded with General
Capital.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased by 31.9% to $1,374,000 in the nine months ended September
30, 1997 from $1,042,000 in nine months ended September 30, 1996. The increase
is primarily a result of the Company being a public company since April 1,
1997, the attendant D&O liability and life insurance premiums, investor
relations services not incurred in the prior year comparable period and in an
increase of board member fees, legal and auditing expenses and other corporate
overhead.
INTEREST. Interest expense increased by 22.0% to $169,000 in the nine
months ended September 30, 1997 from $139,000 in the nine months ended
September 30, 1996. This increase is principally due to the increase in
stockholders' loans in the first quarter 1997 which were repaid in April 1997,
partially offset by a reduction of outstanding bank loans in the second and
third quarter 1997. Interest income increased to $362,000 in the nine months
ended September 30, 1997 from zero in the nine months ended September 30, 1996
as a result of the investment of the IPO proceeds in short and medium-term
investments bearing interest in the average of approximately 5.5%.
NET LOSS. Net loss for the nine months ended September 30, 1997
increased by 15.3% to $4,303,000 from $3,733,000 for the comparable prior year
period. The loss primarily increased as a result of the Company's increase in
operating expenses, a decrease in research participations partially offset by
an increase of interest income.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $7,674,000 during the nine
months ended September 30, 1997 as compared to a decrease of $185,000 during
the nine months ended September 30, 1996. The increase is the result of the
IPO proceeds received on April 1, 1997
Net cash used in operating activities totaled $4,523,000 during the
nine months ended September 30, 1997 compared to $3,252,000 during the nine
months ended September 30, 1996. The increase is primarily due to prepaid
insurance premiums and marketing agreement expenses and an increase of the net
loss for the nine months ended September 30, 1997.
-13-
Net cash used in investing activities totaled $3,473,000 during nine
months ended September 30, 1997 compared to $169,000 during the nine months
ended September 30, 1996. The increase is primarily a result of the investment
of part of the IPO proceeds in marketable securities.
Net cash provided by financing activities totaled $15,560,000 during
the nine months ended September 30, 1997 as compared to $3,180,000 during the
nine months ended September 30, 1996. During the nine months ended September
30, 1997 cash was provided by net proceeds from issuance of common stock of
$17,098,000 partially offset by repayments of loans to stockholders and of
short-term bank loans, the payment of a preferred stock dividend and a
repurchase by the Company of its common stock pursuant to a stock repurchase
plan. In the nine months ended September 30, 1996 cash was provided by loans
from stockholders ($1,118,000), an increase of short term bank loans
($682,000) and net proceeds from issuance of common stock ($1,540,000).
The Company has credit lines and loans with a Swiss and a German bank
in the aggregate of approximately $1,500,000. The credit lines and loans are
due on demand. The Swiss bank line of credit currently has outstanding
approximately $900,000 and will be repaid in monthly installments of
approximately $140,000 starting on October 31, 1997.
The Company's expenditures are currently exceeding its revenues by
approximately $480,000 per month, principally as a result of continued
research and development related to new products which are expected to
generate additional revenue for the Company. In the third quarter of 1997,
certain of the Company's product development projects were completed resulting
in a decrease in product development expenditures. In addition, the Company is
restructuring its workforce to eliminate future duplication of cost, in
particular in the sales and marketing organization in light of potential
acquisitions. The Company has reduced marketing expenses in its German
subsidiary including the termination effective as of September 30, 1997 of
approximately 15 of 45 employees. While these terminations may require certain
severance payments under German Labor Law resulting in short-term increases in
expenses, the Company believes that the long-term effect will be a reduction
in expenses for the Company and a better competitive position. The Company
continues to evaluate the acquisition of potential strategic partners of
additional applications and broader marketing of its technology. 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.
Cash and cash equivalents at September 30, 1997 amount to $7,938,000.
Investments in marketable securities at September 30, 1997 amount to
$3,178,000. The Company believes that its funds should be sufficient to
finance its research and development, capital and debt service requirements
and its working capital requirements for approximately the 12 months period
following September 30, 1997. However, the Company's requirements are subject
to numerous contingencies associated with the early stage of the Company's
third generation products.
SUBSEQUENT EVENT
On November 13, 1997, the Company and Dr. Alfred Simmet, the only
limited partner of FSE Computer-Handel GmbH & Co. KG ("FSE") and the only
general shareholder of FSE Computer-Handel Verwaltungs GmbH ("FSE GmbH"),
which is the only general partner of
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FSE, entered into a purchase agreement (the "Purchase Agreement"), pursuant to
which the Company has agreed to purchase 80% of Dr. Simmet's shares in FSE and
100% of his shares in FSE GmbH for an aggregate purchase price of DM 6.4
million, payable in cash and Common Stock. The Purchase Agreement provides for
the payment of the purchase price in two installments. The first installment
was payable to Dr. Simmet in an amount of DM 3.2 million in cash and 146,949
shares of Common Stock, which were payable on the date of the Purchase
Agreement. The Purchase Agreement further provides that the shares of Common
Stock issued to Dr. Simmet shall not be sold or transferred by him prior to
November 13, 1998. The second installment of DM 1.6 million is payable in cash
to Dr. Simmet on March 13, 1998. As collateral for the payment of the second
installment of the purchase price, the Company has issued to Dr. Simmet a bank
guaranty for DM 1.6 million. This guaranty has been secured by the Company
through the establishment of a letter of credit facility with The Citibank
Private Bank.
The Purchase Agreement also grants the Company the right to acquire
an additional 10% of the shares of the limited partnership for a purchase
price of DM 1 million. The Company has the right to exercise this option at
any time upon presentment of a written statement of its intent to do so
subject to a right of first refusal of Dr. Simmet's son. Additionally, Dr.
Simmet has the right, under certain conditions, to sell the remaining 10% of
his shares in FSE to the Company, with the purchase price thereof to be
determined from a formula agreed upon by the parties. Until the time that
these respective options are exercised, however, both the Company and Dr.
Simmet have agreed, in their capacity as shareholders of FSE, to grant FSE's
executives the ability to purchase shares in FSE. In connection therewith, Dr.
Simmet has agreed to transfer to the participating executives, at the request
of the Company, a limited partner share in FSE for 10% of FSE. Pursuant to
this management option, the participating managers may purchase up to 10% of
the shares of FSE for an aggregate price of DM 800,000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company completed an initial public offering of Common Stock
in the United States (the "Offering"). The registration statement for the
Offering (file no. 333-18529) became effective on March 26, 1997. The
Offering began on March 26, 1997. Of the 3,350,000 shares of Common Stock
registered (at a proposed maximum aggregate offering price of $20,100,000,
3,350,000 were sold (at an aggregate sales price of $20,100,000), and the
over-allotment option granted to the underwriters to purchase an additional
502,500 shares of Common Stock expired unexercised and the shares were
deregistered. The managing underwriter for the Offering was Royce Investment
Group, Inc.
During the period from March 26, 1997 through June 26, 1997,
the Company paid a total of $2,840,276 in expenses in connection with
the Offering, including $1,608,000 in underwriters's commissions and
discounts, $452,500 for underwriters' expenses, and $779,776 in other
expenses. None of these expenses were paid, directly or indirectly, to
directors, officers, 10% shareholders or affiliates of the Company or their
associates.
The net proceeds received by the Company from the Offering, after
deducting the payments referred to above, were $17,259,724. During the
period from March 26, 1997 through September 30, 1997, the Company
utilized $6,259,637 of the proceeds from the Offering. Of this amount,
approximately $1,821,000 were utilized for repayment of shareholders' loans,
approximately $417,000 for repayment of bank loans, approximately $400,000
for prepayment of marketing agreement expenses, approximately $230,000
for the purchase of machinery and equipment, approximately $1,260,000 for
research and development and approximately $2,132,000 went for working
capital and general corporate purposes including approximately $206,000 for
repurchase of 50,000 shares of the Company's Common Stock. On the Company's
Form S-R, filed on June 26, 1997, the Company reported that $12,423,150 of
the proceeds from the Offering remain unused. As of September 30, 1997,
$11,000,087 of the proceeds from the Offering remain unused.
In July 1997, the Company issued 5,000 shares of Common Stock to
Ballin & Partners, as compensation for services rendered to the Company. This
issuance of Common Stock was in a private transaction not involving a public
offering and, thus, exempt from the registration provisions of the Securities
Act of 1933, as amended, pursuant to Section 4(2) thereof.
ITEM 5. OTHER INFORMATION
In July, 1997, the Company repurchased 50,000 shares of its Common
Stock pursuant to its July, 1997 stock repurchase plan. The purchase was made
in an open-market transaction at the then-prevailing market price.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.1 - Amendment No. 1 to the Joint Development
and Cross License Agreement, dated June 2, 1997,
between Texas Instruments Incorporated and IAT AG.
Exhibit 10.2 - License Agreement, dated June 2, 1997,
between Texas Instruments Incorporated and IAT AG.
Exhibit 11 - Statement re computation of per share earnings
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K filed with the Securities and Exchange Commission
on September 5, 1997 under Item 5, reporting the appointment
of Reiner Hallauer as the Managing Director of IAT
Deutschland GmbH and the restructuring of its workforce.
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SIGNATURE
Pursuant to the requirements of the Securities and 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.
/s/ Dr. Viktor Vogt
--------------------------------
Dr. Viktor Vogt
Co-Chairman of the Board of
Directors and Chief Executive
Officer and President
/s/ Klaus Grissemann
--------------------------------
Klaus Grissemann
Chief Financial Officer
Date: November 13, 1997
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