UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
OF 1934
Commission File Number 0-22101
IAT MULTIMEDIA, INC.
--------------------
(exact name of registrant as specified in its charter)
Delaware 13-3920210
- -------- ----------
(State or other jurisdiction of (I.R.S Employer
Incorporation or organization) Identification No.)
70 East 55th Street
24th Floor
New York, New York 10022
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(212) 754 - 4271
----------------
(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 November 12, 1999
----- --------------------------------
Common Stock, $.01 par value 9,875,569 shares
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
FORM 10-Q INDEX
FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1999 3
(unaudited) and December 31, 1998
Consolidated Statements of Operations for Three Months 4
ended September 30, 1999 and 1998 (unaudited)
Consolidated Statements of Operations for Nine Months 5
ended September 30, 1999 and 1998 (unaudited)
Consolidated Statements of Cash Flows for Nine Months 6
ended September 30, 1999 and 1998 (unaudited)
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of 12-20
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures 20
About Market Risk
Part II. Other Information
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Default upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21-23
Item 6. Exhibits and Reports on Form 8-K 23
Signature Page 24
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30,
1999 December 31,
(unaudited) 1998
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ASSETS
Current assets:
Cash and cash equivalents $ 5,101,571 $ 5,614,182
Marketable securities 746,156 750,000
Securities held for sale 2,940,000
Accounts receivable, less allowance for doubtful accounts of
$142,283 in 1999 and $166,159 in 1998 1,964,710 1,564,945
Inventories 1,713,492 2,359,896
Other current assets 176,563 396,924
------------ ------------
Total current assets 12,642,492 10,685,947
Equipment and improvements, net 391,125 578,939
Other assets:
Other receivables 602,413 580,385
Notes receivable from affiliates 0 562,286
Excess of cost over net assets acquired, net 3,436,681 4,155,972
Other assets 523,503 300,541
------------ ------------
$ 17,596,214 $ 16,864,070
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, banks $ 355,615 $
Accounts payable 1,902,298 2,696,911
Other current liabilities 958,882 1,104,774
------------ ------------
Total current liabilities 3,216,795 3,801,685
------------ ------------
Convertible debenture 2,848,000 3,000,000
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Minority interest 26,596 72,079
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Stockholders' equity:
Preferred stock, $.01 par value, authorized 10,000,000 shares,
issued 2,000 shares in 1999 and nil shares in 1998 20
Common stock, $.01 par value, authorized 50,000,000 shares,
issued 10,123,824 in 1999 and 10,048,826 in 1998 101,238 100,488
Capital in excess of par value 32,595,559 30,416,979
Accumulated deficit (19,391,550) (20,982,472)
Accumulated comprehensive income 403,833 661,571
Treasury stock (248,255 shares in 1999 and 50,000
shares in 1998) (2,204,277) (206,260)
------------ ------------
Total stockholders' equity 11,504,823 9,990,306
------------ ------------
$ 17,596,214 $ 16,864,070
============ ============
See Notes to Consolidated Financial Statements
-3-
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
September 30,
-----------------------------------
1999 1998
----------- -----------
Net sales $ 9,610,457 $ 8,093,257
Cost of sales 9,290,702 7,516,272
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Gross margin 319,755 576,985
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Operating expenses:
Selling expenses 535,228 710,698
General and administrative expenses 130,854 133,705
----------- -----------
666,082 844,403
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Operating loss before corporate overhead
depreciation and amortization (346,327) (267,418)
Corporate overhead 305,968 317,803
Depreciation and amortization 194,359 165,409
----------- -----------
Operating loss (846,654) (750,630)
Other income (expense):
Interest expense (58,125) (52,225)
Interest income 67,448 99,154
Other income (expense) 3,459,158 (31,453)
Minority interest in net loss of subsidiary (1,156) 53,754
----------- -----------
Income (loss) before income taxes (benefit) 2,620,671 (681,400)
Income taxes (benefit) (5,296) (203,560)
----------- -----------
Net income (loss) $ 2,625,967 $ (477,840)
=========== ===========
Net income (loss) per share - basic $ 0.28 $ (0.05)
=========== ===========
Net income (loss) per share - diluted $ 0.25 $ (0.05)
=========== ===========
Weighted average number of
common shares outstanding
- basic 9,350,021 9,401,919
=========== ===========
- diluted 10,632,021 9,401,919
=========== ===========
See Notes to Consolidated Financial Statements
-4-
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended
September 30,
-----------------------------------
1999 1998
----------- -----------
Net sales $ 31,164,654 $ 23,544,503
Cost of sales 29,375,953 21,524,407
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Gross margin 1,788,701 2,020,096
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Operating expenses:
Selling expenses 1,824,327 1,752,816
General and administrative expenses 453,905 492,926
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2,278,232 2,245,742
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Operating loss before corporate overhead
depreciation and amortization (489,531) (225,646)
Corporate overhead 954,460 807,560
Depreciation and amortization 558,577 463,839
------------ ------------
Operating loss (2,002,568) (1,497,045)
Other income (expense):
Interest expense (157,854) (107,344)
Interest income 194,253 252,666
Discount on convertible debenture (448,277)
Other income (expense) 3,452,588 (24,528)
Minority interest in net loss of subsidiary 104,064 68,844
------------ ------------
Income (loss) before income taxes (benefit) 1,590,483 (1,755,684)
Income taxes (benefit) (439) (334,666)
------------ ------------
Net income (loss) $ 1,590,922 $ (1,421,018)
============ ============
Net income (loss) per share - basic $ 0.17 $ (0.15)
============ ============
Net income (loss) per share - diluted $ 0.16 $ (0.15)
============ ============
Weighted average number of
common shares outstanding
- basic 9,332,005 9,278,444
============ ============
- diluted 10,614,005 9,278,444
============ ============
See Notes to Consolidated Financial Statements
-5-
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
-------------------------------------
1999 1998
----------- ------------
Cash flows from operating activities:
Net income (loss) $ 1,590,922 $(1,421,018)
Adjustments to reconcile net income (loss) to net
cash provided (used) in operating activities:
Discount on convertible debenture 0 448,277
Gain on sale of intellectual property (3,440,268)
Depreciation of equipment 219,740 199,798
Amortization of goodwill 338,837 264,041
Common stock issued for services and interest expense 8,276 37,500
Minority interest in loss (104,064) (68,844)
Deferred taxes payable (508) (356,719)
Increase (decrease) in cash attributable to
changes in assets and liabilities:
Accounts receivable (540,349) (640,100)
Inventories 433,078 228,189
Other current assets 91,796 111,872
Other assets 25,425 (13,855)
Accounts payable and other current liabilities (661,979) (1,614,395)
----------- -----------
Net cash used in operating activites (2,039,094) (2,825,254)
----------- -----------
Cash flows from investing activities:
Loans to and investments in, affiliated companies (966,725)
Repayment of loans receivable, affiliates 695,271
Purchases of equipment and improvements (343,257) (224,206)
Proceeds from sale of intellectual property 3,440,268
Sale (purchase) of investments (2,462,599) 1,976,865
----------- -----------
Net cash provided by investing activities 1,329,683 785,934
----------- -----------
Cash flows from financing activities:
Repayment of loans payable, stockholders (1,326,923)
Proceeds from (repayment of) convertible debenture 3,000,000
Proceeds from issuance of Common stock, net proceeds 1,608,698
Capital contribution, stockholders 464,002
Proceeds from (repayments of) shortterm bank loan 356,098 (54,845)
----------- -----------
Net cash provided by financing activities 356,098 3,690,932
----------- -----------
Effect of exchange rate changes on cash (159,298) 94,476
----------- -----------
Net increase (decrease) in cash (512,611) 1,746,088
Cash and cash equivalents, beginning of period 5,614,182 5,472,928
----------- -----------
Cash and cash equivalents, end of period $ 5,101,571 $ 7,219,016
=========== ===========
Supplemental disclosures of cash flow information,
Cash paid during the period for interest $ 28,704 $ 66,899
=========== ===========
Cash paid during the period for income related taxes $ 34,187 $ 96,748
=========== ===========
Supplemental disclosure of noncash financing activities,
Common stock issued for repayment of convertible
debentures $ 160,276 $ 0
=========== ===========
Common stock issued for services $ 0 $ 37,500
=========== ===========
Spinoff of assets and liabilities held for disposition $ 0 $ 1,077,920
=========== ===========
See Notes to Consolidated Financial Statements
-6-
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.
(hereinafter the "Company" or "IAT"), necessary to present fairly the
consolidated financial position of the Company as of September 30, 1999, 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 included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission for the year ended December 31,
1998.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of IAT, its wholly-owned subsidiaries IAT AG, Switzerland
("IAT AG"), IAT Multimedia Bremen ("IAT GmbH"), 100% of the General Partner of
FSE Computer-Handel GmbH & Co. KG, and 80% of the limited partnership interest
of FSE (collectively "FSE"), and 100% of each of Columbus-Computer-Handels und
Vertriebs-Verwaltungs GmbH and Columbus Computerhandel und Vertrieb, Branch
office of IAT Multimedia Gmbh ("Columbus") (collectively the "Company"). All
intercompany accounts and transactions have been eliminated.
EXCESS OF COST OVER NET ASSETS ACQUIRED - Goodwill represents the
excess of cost over the fair market value of net assets of acquired businesses
and is amortized over a period of 10 years from the acquisition date. The
Company monitors the cash flows of the acquired operations to assess whether any
impairment of recorded goodwill has occurred. Amortization for the nine month
periods ended September 30, 1999 and 1998 was approximately $338,000 and
$264,000, respectively.
FOREIGN CURRENCY TRANSLATION - The Company has determined that the
local currency of its Switzerland subsidiary, Swiss Francs, is the functional
currency for IAT AG and IAT GmbH and the Deutsch Mark is the functional currency
for FSE and Columbus. The financial statements of the subsidiaries have been
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52 (SFAS 52), "Foreign Currency Translation". SFAS 52
provides that all balance sheet accounts are translated at period-end rates of
exchange ( 1.50 and 1.37 Swiss Francs and 1.84 and 1.67 Deutsch Marks for each
U.S. dollar at September 30, 1999 and December 31, 1998, respectively), except
for equity accounts which are translated at historical rates. Income and expense
accounts and cash flows 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 other comprehensive income in the statements of
stockholders' equity and consolidated statement of comprehensive loss, whereas
gains or losses arising from foreign currency transactions are included in
results of operations.
LOSS PER COMMON SHARE - Basic earnings per share excludes dilution and
is computed by dividing loss applicable to common stockholders by the weighted
average number of common shares outstanding for the period. The weighted average
number of common shares excludes shares of the Company's common stock (the
"Common Stock") placed in escrow upon the completion of the Company's initial
public offering in March 1997. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue Common Stock
were exercised or converted into Common Stock or resulted in the issuance of
Common Stock that then shared in the earnings of the entity.
-7-
Diluted loss per common share is the same as basic loss per common share for the
period ended September 30, 1998. The Company has unexercised options and
warrants in addition to shares issuable upon conversion of its convertible
debentures which are not included in the computation of diluted loss per share
for the period ended Sepember 30,1998 because their effect would have been
antidilutive as a result of the Company's losses.
COMPREHENSIVE LOSS - Effective January 1, 1998 the Company adopted SFAS
130, "Reporting Comprehensive Income".
NOTE 2. INVENTORIES:
September 30, December 31,
1999 1998
------------- ------------
Work in process.......................... $ 0 $ 70,659
Purchased finished goods................. 1,713,492 2,289,237
---------- ----------
$1,713,492 $2,359,896
========== ==========
NOTE 3 - SPINOFFS:
On March 6, 1998, the Company transferred the business and
substantially all of the assets and the liabilities of its majority-owned
subsidiary, IAT GmbH, to a newly-formed German company, Algo Vision Systems (the
"German Spinoff"). Algo Vision Systems was substantially owned by an entity
controlled by the former co-chairman of the Board of Directors. The German
Spinoff was effective on January 1, 1998 and required the Company to infuse
approximately $650,000 of capital. In connection with the German Spinoff, IAT AG
purchased the remaining 25.1% interest in IAT GmbH from the minority stockholder
for a purchase price of approximately $100,000. In addition, the Company
provided Algo Vision Systems with a loan of approximately $300,000 for working
capital requirements through March 6, 1998, which accrued interest at a rate of
5% per annum. The loan was repaid in two installments 1998 and 1999 and the 15 %
interest in Algo Vision Systems owned by the Company was exchanged for shares of
Algo Vision plc. (See Note 5).
On March 24, 1998, the Company transferred the business and certain of
the assets and liabilities of its wholly-owned subsidiary IAT AG to a
newly-formed Swiss company, Algo Vision Schweiz (the "Swiss Spinoff"). Algo
Vision Schweiz was substantially owned by an entity controlled by the former
co-chairman of the Board of Directors. The Swiss Spinoff was effective January
1, 1998. At closing, the Company received a note ("Purchase Note"), due March
24, 2001, for approximately $325,000 representing the value of the assets in
excess of the liabilities that were transferred on March 24, 1998. In addition,
the Company loaned Algo Vision Schweiz $250,000 for operating cash flow, which
note was due the earlier of the date that Algo Vision Schweiz raises either debt
or equity financing in excess of SF 1,000,000 or March 24, 2001. Both notes
provided for the payment of interest semi-annually beginning September 1, 1998
at a rate of 3% per annum. The notes were repaid in August 1999 in connection
with the Algo Vision Transaction and the 15% interest in Algo Vision Schweiz
owned by the Company was exchanged for shares of Algo Vision plc.(See Note 5).
-8-
NOTE 4 - CONVERTIBLE DEBENTURE:
The Company entered into a securities purchase agreement (the
"Purchase Agreement"), dated as of June 19, 1998. The transaction consisted of
the issuance of 198,255 shares of the Company's common stock and $3 million
aggregate principal amount of the Company's 5% Convertible Debenture due 2001
(the "Debenture") for $5 million. The Debenture is convertible into shares of
common stock at the option of either the Company (subject to certain
limitations) or the investor. Sales of the shares of common stock issuable upon
conversion by the investor are subject to certain volume limitations. Any
portion of the Debenture remaining unconverted on October 27, 2000 shall convert
automatically into shares of common stock. The number of shares of common stock
issuable upon conversion of the Debenture is the lesser of (i) $13.45 or (ii)
87% of the average of the five lowest closing bid prices during the 15 trading
days immediately preceding the conversion date. The Company recorded a discount
on the Debenture due to the conversion feature of approximately $450,000 which
is included in interest expense in the nine month period ended September 30,
1998.
In January 1999, the Company exchanged the 198,255 shares of common
stock issued in June 1998 for 2,000 shares of Series B Convertible Preferred
Stock ("Series B Stock"). Each share of Series B Stock shall be convertible into
shares of common stock, and at the option of the holder, at any time from the
issue date at $10.88 per share. The Series B Stock shall be convertible into
shares of common stock, at the option of the Company, at any time on or after
December 30, 1999, if certain conditions are met, or prior to such time if the
common stock reaches certain thresholds. All shares of Series B Stock not
previously converted into shares of common stock shall automatically convert in
January 2002.
To date, the holder of the Debenture has converted an aggregate of
$152,000 of the principal amount of the Debenture, plus accrued interest, on the
principal amount converted, and received an aggregate of 66,437 shares of the
Company's common stock.
As of September 30, 1999, $2,848,000 principal amount, plus accrued
interest, remained on the Debenture. Under the terms of Debenture, the holder
will have the right to accelerate repayment of the Debenture upon the Company's
previously announced transaction with Spigadoro. (See Note 7).
NOTE 5 - ALGO VISION TRANSACTION:
In connection with the transfer of our research and development
activities in March 1998, the Company granted Algo Vision Schweiz AG, one of the
entities formed in connection with the transfer, an option to purchase a 50%
co-ownership interest in the Company's visual communications intellectual
property. In July 1999, as part of the reorganization of the Algo Vision
entities, Algo Vision Schweiz and Algo Vision Systems Gmbh, the other entity
formed in connection with the transfer, became wholly-owned subsidiaries of Algo
Vision plc, an English company whose shares began trading on the European
Association of Securities Dealers Automated Quotation System on July 23, 1999.
Under the terms of a series of agreements between the Company, Algo Vision plc
and Algo Vision Schweiz, (i) Algo Vision Schweiz transferred its option to
purchase the Company's intellectual property rights to Algo Vision plc, (ii)
Algo Vision plc agreed to purchase the Company's visual communications
intellectual property rights ( other than the IAT name or
-9-
mark) and (iii) the Company agreed to exchange its 15% equity interest in each
of Algo Vision Systems and Algo Vision Schweiz, for shares of capital stock of
Algo Vision plc. Dr. Vogt, one of the Company's former directors, owns
approximately 26.2% of the outstanding shares of Algo Vision plc.
Under the terms of the agreements, Algo Vision plc purchased a 50%
interest in the Company's visual communications intellectual property rights for
$1,000,000 in July 1999 and purchased the remaining 50% interest for an
additional $2,500,000 in August 1999. Algo Vision plc also agreed to pay the
Company royalties (ranging from 5% to 10%) on the sale of certain products
utilizing the visual communications technology until August 2001. In connection
with the transaction, Algo Vision Schweiz repaid in August 1999 outstanding
loans, aggregating approximately $500,000, made by the Company to Algo Vision
Schweiz in March 1998.
In addition, as part of the reorganization of the Algo Vision
entities, the Company exchanged its 15% interest in each of Algo Vision Systems
and Vision Schweiz, for 500,000 shares of Algo Vision plc. These shares are
subject to a lock-up agreement until January 24, 2000, subject to certain
exceptions. In August 1999, the Company purchased an additional 250,000 shares
of Algo Vision plc for a purchase price of $2,500,000. These shares were subject
to a lock-up agreement which expired in November 1999.
This transaction resulted in a one time gain during the three months
ended September 30,1999 of approximately $3,500,000, approximately $2,500,000 of
which was used to purchase the Algo Vision shares.
NOTE 6 - CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ ------------------------------------
1999 1998 1999 1998
----------------- ----------------- ----------------- -----------------
Net income (loss) $ 2,625,967 $ (477,840) $1,590,922 $(1,421,018)
Other comprehensive
income (loss) net of tax- Foreign
currency translation adjustments 120,362 330,437 (706,516) 333,735
Gain on securities held available
for sale 448,778 - 448,778 -
----------- ---------- ---------- -----------
$ 3,195,107 $ (147,403) $1,963,184 $(1,087,283)
=========== ========== ========== ===========
-10-
NOTE 7 - SUBSEQUENT EVENTS
On November 3, 1999, the Company entered into a definitive Stock
Purchase Agreement with Gruppo Spigadoro, N.V. under which the Company will
acquire all of the outstanding common stock of Petrini, S.p.A. Petrini is an
Italian company that produces and sells animal feed and pasta and flour products
principally in Italy, and also in the United States, Europe and Southeast Asia.
Under the terms of the Stock Purchase Agreement, the Company will issue
47,354,465 shares of the Company's common stock to Spigadoro, subject to
adjustment if the anti-dilution provisions of the agreement are triggered. The
Company will also assume approximately $20 million of short term indebtedness of
Spigadoro in the acquisition, of which $12.5 million will be convertible into
shares of the Company's common stock. All of the indebtedness will be payable or
convertible into the Company's common stock during 2000.
Consummation of the acquisition is subject to a number of conditions,
including stockholder approval of the issuance of the shares of the Company's
common stock to be issued in the acquisition and other proposals. Following the
acquisition, the Company intends to sell its computer business. The Board of
Directors of the Company authorized management to evaluate and seek candidates
for the potential sale of the computer business. Management has commenced
discussions relating to the sale of the computer business. However, no agreement
has been reached with any party regarding the terms of a potential transaction
and the Company cannot assure that it will be able to sell the computer business
on terms favorable to the Company or at all.
-11
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Unless the context otherwise requires, "we" or "us" refers to IAT
Multimedia, Inc., the Delaware corporation, and its subsidiaries. The
subsidiaries are:
o FSE Computer-Handel GmbH & Co. KG, a German limited partnership of
which we own 80% of the partnership interest, and FSE Computer-Handel
Verwaltungs GmbH, a German corporation of which we own 100% of the
stock ; and
o the following subsidiaries of which we own 100% of the equity:
o Columbus Computer Handel und Vertrieb , Branch office of IAT
Multimedia Gmbh, and Columbus Computer Handels- und Vertriebs-
Verwaltungs GmbH, a German corporation;
o IAT AG, a Swiss corporation, and
o IAT Multimedia Gmbh, a German corporation
This Form 10-Q contains forward-looking statements within the meaning of the
"safe Harbor" provision under Section 21E of the Securities Exchange Act of 1934
and the Private Securities Litigation Reform Act of 1995. We use forward-looking
statements in our description of our plans and objectives for future operations
and assumptions underlying these plans and objectives. Forward-looking
terminology includes the words "may", "expects", "believes", "anticipates",
"intends", "projects", or similar terms, variations of such terms or the
negative of such terms. These forward-looking statements are based on
management's current expectations and are subject to factors and uncertainties
which could cause actual results to differ materially from those described in
such forward-looking statements. We expressly disclaim any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained in this Form 10-Q to reflect any change in our expectations
or any changes in events, conditions or circumstances on which any
forward-looking statement is based. Factors which could cause such results to
differ materially from those described in the forward-looking statements include
those set forth under "Risk Factors" and elsewhere in, or incorporated by
reference from time to time into our filings with the Securities and Exchange
Commission. These factors include risks relating to the proposed acquisition and
the following: we have experienced significant operating losses, changed our
principal business and we cannot predict whether we will become profitable; our
operating results will be adversely affected by charges from acquisitions; our
strategy of acquiring other companies for growth may not succeed; we need
additional funds for future acquisitions; our substantial debt reduces cash
available for our business, may adversely affect our ability to obtain
additional funds and increase our vulnerability to economic or business
downturns; we face intense competition in the German PC industry; risks relating
to foreign operations and other risks.
-12-
OVERVIEW
We were formed in September 1996 as a holding company for the existing
business of IAT AG and IAT Germany, which were engaged in developing products
for the visual communications industry. In November 1997, we acquired 100% of
the shares of capital stock of the general partner of FSE and 80% of the
outstanding limited partnership interests of FSE. Effective October 31, 1998, we
acquired 100% of the shares of capital stock of the general partner of Columbus
and all of the outstanding limited partnership interests of Columbus.
Through FSE and Columbus, we market in Germany, high-performance PCs
assembled according to customer specifications and sold under the trade name
"Trinology," as well as components, software and peripherals for PCs. Our
product line includes high-performance IBM-compatible desktop PCs as well as
components, such as motherboards, hard disks, graphic cards and plug-in cards,
peripherals, such as printers, monitors and cabinets, and software. Our clients
are corporate customers, including industrial, pharmaceutical, service and trade
companies, the military and value added resellers. We market our products
directly through our internal sales force to dealers and end-users and also
maintain two retail showrooms and a mail-order department. We work directly with
a wide range of suppliers to evaluate the latest developments in PC-related
technology and engage in extensive testing to optimize the compatibility and
speed of the components which are sold and integrated into Trinology PCs.
In connection with the Columbus acquisition we consolidated a portion
of our existing peripherals business into that of Columbus. FSE concentrates
primarily on the marketing of its high-performance built-to-order PCs and
Columbus focuses primarily on the distribution of components and peripherals.
In July 1999, we sold a 50% interest in our visual communications
intellectual property rights to Algo Vision plc. In August 1999, Algo Vision plc
purchased the remaining 50% interest in our visual communications intellectual
property and agreed to pay us royalties (ranging from 5% to 10%) on the sale of
certain products utilizing the visual communications technology until August
2001. In connection with the transaction, Algo Vision Schweiz, a wholly owned
subsidiary of Algo Vision plc, repaid outstanding loans, aggregating
approximately $500,000, made by us to Algo Vision Schweiz as a part of the
spin-off in March 1998. (See "Note 5 - Algo Vision Transaction" and "Item 5
- -Other Information").
In addition, as a part of the reorganization of the Algo Vision
entities, we exchanged our 15% interest in each of Algo Vision Systems and Algo
Vision Schweiz, for 500,000 shares of Algo Vision plc. These shares are subject
to a lock-up agreement until January 24, 2000, subject to certain exceptions. In
August 1999, we purchased an additional 250,000 shares of Algo Vision plc. (See
"Note 5 - Algo Vision Transaction" and "Item 5 - Other Information").
On November 3, 1999, we entered into a definitive Stock Purchase
Agreement with Gruppo Spigadoro, N.V. under which we will acquire all of the
outstanding common stock of Petrini, S.p.A. Petrini is an Italian company that
produces and sells animal feed and pasta and flour products principally in
Italy, and also in the United States, Europe and Southeast Asia. Under the terms
of the Stock Purchase Agreement, we will issue 47,354,465 shares of the
Company's common stock to Spigadoro, subject to adjustment if the anti-dilution
provisions of the agreement are triggered. We will also assume approximately $20
million of short term indebtedness of Spigadoro in the acquisition, of which
$12.5 million will be convertible into
-13-
shares of our common. All of the indebtedness will be payable or convertible
into our common stock during 2000.
Spigadoro is controlled by affiliates of Vertical Financial Holdings,
one of our principal stockholders. Jacob Agam, our Chairman of the Board and
Chief Executive Officer, is the Chairman of the Board of Spigadoro and Vertical
Financial Holdings. As a result, a special committee of the Board of Directors
comprised of independent directors was established to review the transaction.
The special committee and the entire Board of Directors have each concluded that
the transaction is fair and in the best interests of all of our stockholders.
Consummation of the acquisition is subject to a number of conditions,
including stockholder approval of the issuance of the shares of our common stock
to be issued in the acquisition and other proposals. Following the acquisition,
we intend to sell our computer business. The Board of Directors of the Company
also authorized us to evaluate and seek candidates for the potential sale of our
computer business. We have commenced discussions relating to the sale of our
computer business. However, no agreement has been reached with any party
regarding the terms of a potential transaction and we cannot assure that we will
be able to sell our computer business on terms favorable to us or at all (See
"Item 5 - Petrini Acquisition").
Our sales are made to customers principally in Switzerland and Germany
with revenues created in Deutsche Marks and Swiss Francs. The functional
currency of IAT Switzerland and IAT Germany is the Swiss Franc. The functional
currency of Columbus and FSE is the Deutsche Mark. We currently engage in
limited hedging transactions, which are not material to our operations, to
offset the risk of currency fluctuations. We may increase or discontinue these
hedging activities in the future.
In the following discussions, most percentages and dollar amounts have
been rounded to aid presentation. As a result, all such figures are
approximations.
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTH PERIOD ENDED
SEPTEMBER 30, 1998
The average exchange rate for the U.S. Dollar increased as compared to the Swiss
Franc and the Deutsch Mark by approximately 6.3% and 6.9% respectively. The
average Swiss Franc to U.S. Dollar exchange rate was SF1.53 = $1.00 in the third
quarter of 1999 as compared to SF 1.44 = $1.00 in the third quarter of 1998. The
average Deutsch Mark to U.S. Dollar exchange rate was DM 1.86 = $1.00 in the
third quarter of 1999 as compared to DM 1.74 = $1.00 in the third quarter of
1998.
We acquired FSE in November 1997 and Columbus effective as of October
31, 1998 and transferred the assets and liabilities and the businesses of one of
our German subsidiaries and our Swiss subsidiary in March 1998, effective
January 1998. These transactions cause a lack of quarter to quarter
comparability because our results of operations for the three months ended
September 30, 1999 include the operations of FSE and Columbus, while our results
of operations for the three months ended September 30, 1998 include only the
operations of FSE.
-14-
REVENUES. Revenues for the third quarter 1999 increased by 18.7% to
$9,610,000 from $8,093,000 in the third quarter 1998. This increase is primarily
a result of Columbus's PC peripheral sales, which are not included in the third
quarter 1998, partially offset by a decrease of FSE's PC and PC-component sales
primarily due to the restructuring of the FSE business.
COST OF SALES. Cost of sales increased by 23.6% to $9,291,000 in the
third quarter 1999 from $7,516,000 in the third quarter 1998. The cost of sales
as a percentage of sales increased to 96.7% in the third quarter 1999 from 92.9%
in the third quarter 1998 primarily as a result of an increase in sales of PC
components, which generally produce lower profit margins than fully assembled
PC's. In addition cost of sales increased due to certain inventory adjustments.
SELLING EXPENSES. Selling expenses decreased by 24.8% to $535,000 in
the third quarter 1999 from $711,000 in the third quarter 1998. This decrease is
due primarily to a reduction of selling expenses incurred by FSE due to the
restructuring of FSE, including the termination of sales and warehousing
personnel, partially offset by selling expenses incurred by Columbus which are
not included in the third quarter 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses decreased by 2.2% to $131,000 in the third quarter 1999 from $134,000
in the third quarter 1998, primarily due to a reduction of expenses incurred by
FSE as a result of our restructuring of FSE, partially offset by administrative
expenses incurred by Columbus which are not included in the third quarter 1998.
CORPORATE OVERHEAD. Corporate overhead decreased by 3.8% to $306,000 in
the third quarter 1999 from $318,000 in the third quarter 1998, primarily due to
cost reduction for professional services and consulting expenses.
INTEREST. Interest expense increased by 11.5% to $58,000 in the third
quarter 1999 from $52,000 in the third quarter 1998. This increase is primarily
a result of interest expenses incurred by FSE on short-term bank overdrafts,
which were incurred for working capital purposes.
Interest income decreased by 32.3% to $67,000 in the third quarter 1999
from $99,000 in the third quarter 1998, primarily as a result of a reduction of
our interest bearing time deposits and marketable securities and a reduction of
interest rates in the market-place.
NET INCOME. The net income for the third quarter 1999 increased to
$2,626,000 from a net loss of $478,000 for the third quarter 1998. Net income
for the third quarter 1999 is the result of the sale of our intellectual
property to Algo Vision plc included in other income in the amount of $
3,440,000, net of expenses incurred. Excluding the one time gain relating to the
Algo Vision transaction, net loss for the third quarter 1999 would have
increased by 70,3% to $814,000 in the third quarter 1999 from $478,000 in third
quarter 1998 primarily as a result of reduced gross profit margins and a
reduction of deferred income taxes benefit.
OPERATING LOSS BEFORE CORPORATE OVERHEAD, INTEREST, INCOME TAXES,
DEPRECIATION AND AMORTIZATION. Operating loss before corporate overhead,
interest, income taxes, depreciation and amortization in the third quarter 1999
increased to $346,000 from $267,000 in the third quarter 1998. This increase is
primarily the result of a decline of gross profit margins due to higher PC
peripheral sales and reduced PC-sales and certain inventory adjustments,
partially offset by a reduction in operating expenses.
-15-
Operating loss before corporate overhead; interest, income taxes,
depreciation and amortization should not be considered an alternative to
operating income, net income, cash flows or any other measure of performance as
determined in accordance with generally accepted accounting principles, as an
indicator of operating performance or as a measure of liquidity.
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1998
The average Swiss Franc to U.S. Dollar exchange rate was SF1.49 = $1.00
in the nine months ended September 30, 1999 as compared to SF1.47 = $1.00 in the
nine months ended September 30, 1998. The average Deutsch Mark to U.S. Dollar
exchange rate was DM1.82 =$1.00 in the nine months ended September 30, 1999 and
DM1.78 = $1.00 in the nine months ended September 30, 1998.
We acquired FSE in November 1997 and Columbus effective as of October
31, 1998 and transferred the assets and liabilities and the businesses of one of
our German subsidiaries and our Swiss subsidiary in March 1998, effective
January 1998. These transactions cause a lack of comparability because our
results of operations for the nine months ended September 30, 1999 include the
operations of FSE and Columbus, while our results of operations for the nine
months ended September 30, 1998 include only the operations of FSE.
REVENUES. Revenues for the nine month ended September 30, 1999
increased by 32.4% to $31,165,000 from $23,545,000 in the nine month ended
September 30, 1998. This increase is a result of Columbus's PC peripheral sales,
which are not included in the third quarter 1998, partially offset by a decrease
of FSE's sales due primarily to restucturing of the FSE business, including the
closing of one of the retail stores.
COST OF SALES. Cost of sales increased by 36.5% to $29,376,000 in the
nine month ended September 30, 1999 from $21,524,000 in the nine month ended
September 30, 1998. The cost of sales as a percentage of sales increased to
94.3% in nine month ended September 30, 1999 from 91.4% in the nine month ended
September 30, 1998 primarily as a result of an increase in sales of PC
components, which generally produce lower gross profit margins than fully
assembled PCs. In addition, many of the components purchased by us during the
nine months ended September 30, 1999 were purchased in U.S. Dollars and we
incurred higher costs for these components as a result of the strengthening of
the U.S. Dollar against the Deutsch Mark of approximately 10% since January 1,
1999. In addition cost of sales increased due to certain inventory adjustments.
SELLING EXPENSES. Selling expenses increased by 4.1% to $1,824,000 in
the nine month ended September 30, 1999 from $1,753,000 in the nine month ended
September 30, 1998. This increase is due to selling expenses incurred by
Columbus which are not included in the nine month ended September 30, 1998,
partially offset by a reduction of selling expenses incurred by FSE due to the
restructuring of FSE.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses decreased by 7.9% to $454,000 in the nine month ended September 30,
1999 from $493,000 in the nine month ended September 30, 1998, primarily due to
a reduction of expenses incurred by FSE as a result of our restructuring of FSE,
partially offset by administrative expenses incurred by Columbus which are not
included in the nine month ended September 30, 1998.
-16-
CORPORATE OVERHEAD. Corporate Overhead increased by 18.2% to $954,000
in the nine month ended September 30, 1999 from $808,000 in the nine month ended
September 30, 1998, primarily due to a new corporate structure resulting from
the Columbus and FSE acquisitions.
INTEREST. Interest expense increased by 47.7% to $158,000 in the nine
month ended September 30, 1999 from $107,000 in the nine month ended September
30, 1998. This increase is primarily a result of interest accrued on our 5%
convertible debentures.
Interest income decreased by 23.3% to $194,000 in the nine month ended
September 30, 1999 from $253,000 in the nine month ended September 30, 1998,
primarily as a result of a reduction of our interest bearing time deposits and
marketable securities and a reduction of interest rates in the market-place.
NET INCOME. The net income for the nine months ended September 30, 1999
increased to $1,591,000 from a net loss of $1,421,000 for the nine months ended
September 30, 1998. Net income for the nine months ended September 30, 1999 is
the result of the sale of our intellectual property to Algo Vision plc. included
in other income in the amount of $3,440,000, net of expenses incurred. Excluding
the one time gain relating to the Algo Vision transaction, net loss for the nine
months ended September 30, 1999 would have increased by 30.1% to $1,849,000 from
$1,421,000 for the nine months ended September 30, 1998 primarily as a result of
reduced gross profit margins, a reduction of the deferred income taxes benefits,
partially offset by a one time charge for discount on convertible debenture
recorded during the nine months ended September 30, 1998.
OPERATING LOSS BEFORE CORPORATE OVERHEAD, INTEREST, INCOME TAXES,
DEPRECIATION AND AMORTIZATION. Operating loss before corporate overhead,
interest, income taxes, depreciation and amortization in the nine months ended
September 30, 1999 increased to $490,000 from $226,000 in the nine months ended
September 30, 1998. This increase is primarily a result of increased costs for
components purchased by us during the first quarter 1999 in U.S. Dollars
resulting in lower gross profit margins due to the strengthening of the U.S.
Dollar against the Deutsch Mark. Operating loss before corporate overhead;
interest, income taxes, depreciation and amortization should not be considered
an alternative to operating income, net income, cash flows or any other measure
of performance as determined in accordance with generally accepted accounting
principles, as an indicator of operating performance or as a measure of
liquidity.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company's cash and cash equivalents and
investments in corporate bonds decreased to $5,102,000 and $746,000,
respectively, as compared to $5,614,000 and $750,000, respectively, at December
31, 1998.
Net cash used in operating activities totaled $2,039,000 during the
nine months ended September 30, 1999 compared to $2,825,000 net cash used in
operating activities during the nine months ended September 30, 1998. The
decrease of net cash used in operating activities is primarily the result of a
reduction of cash used for the payment of accounts payable and other current
liabilities.
Net cash provided by investing activities totaled $1,330,000 during the
nine months ended September 30, 1999 compared to $786,000 net cash provided by
investing activities
-17-
during the nine months ended September 30, 1998. During the nine months ended
September 30, 1999 cash was primarily used for the purchase of Algo Vision plc
shares in the amount of $2,466,000 and for the purchase of equipment and for the
new accounting, procuring, order management and invoicing system, offset by the
repayment of certain loans by Algo Vision in the amount of $695,000 and the net
proceeds from the sale of intellectual property to Algo Vision in the amount of
$3,440,000. During the nine months ended September 30, 1998 cash was used to pay
for the acquisition of 25.1% of the common stock of IAT Germany and for 15% each
of the common stock of Algo Vision Systems and Algo Vision Schweiz in the
aggregate amount of $135,000 and for loans to the Algo Vision companies in the
aggregate amount of $832,000 and for the purchase of equipment. These payments
were offset by the sale of marketable securities in the amount of $1,977,000.
Net cash provided by financing activities during the nine month ended
September 30, 1999 amounted to $356,000 due to an increase in short-term bank
loans as compared to $3,691,000 during the nine months ended September 30, 1998.
During the nine months ended September 30, 1998 cash was primarily provided from
the issuance of common stock and the issuance of convertible debentures in the
aggregate amount of $4,609,000. In addition, cash was provided by a capital
contribution by certain stockholders. These amounts were partially offset by the
repayment of stockholder loans, including the third installment of the FSE
purchase price and the repayment of short-term bank loans.
Cash, cash equivalents and investments in corporate bonds at September
30, 1999 amounted to $5,848,000. We believe that our funds should be sufficient
to finance our working capital requirements and our capital and debt service
requirements for approximately the 12 months period following September 30,
1999, depending on acquisitions. If the proposed Petrini acquisition is
completed, we will assume $20 million of short term indebtedness, of which $12.5
million will be convertible into shares of our common stock. All of the
indebtedness will be payable in 2000 and, as a result, we may need to obtain
additional funds to repay this debt if the acquisition is completed. We may also
require additional funds for acquisitions and integration and management of
acquired businesses. However, we have no commitments or arrangements to obtain
any additional funds and we cannot predict whether additional funds will be
available on terms favorable to us or at all. If we cannot obtain funds when
required, the growth of our business may be adversely affected.
In June 1998, we sold $3,000,000 aggregate principal amount of our 5%
Convertible Debenture due 2001. As of September 30, 1999 the holder of the
debenture converted an aggregate of $152,000 of such debenture, plus accrued
interest on the principal amount converted, and received an aggregate of 66,437
shares of our common stock. As a result, as of September 30, 1999, $2,848,000
aggregate principal amount of such debenture, plus interest, remained
outstanding. (See Note 4).
In July 1999, we sold a 50% interest in our visual communications
intellectual property rights to Algo Vision plc for $1,000,000. In August 1999,
Algo Vision purchased the remaining 50% interest in our visual communication
intellectual property for an additional $2,500,000 and agreed to pay us
royalties (ranging from 5% to 10%) on the sale of certain products utilizing the
visual communications technology until August 2001. In connection with the
transaction, Algo Vision Schweiz, a wholly owned subsidiary of Algo Vision plc,
repaid in August 1999, outstanding loans, aggregating approximately $500,000
made by us to Algo Vision Schweiz as part of the spin-off in March 1998.
In addition, as part of the reorganization of the Algo Vision entities,
we exchanged our 15% interest in each of Algo Vision Systems and Algo Vision
Schweiz, for 500,000 shares of
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Algo Vision plc. These shares are subject to a lock-up agreement until January
24, 2000, subject to certain exceptions. In August 1999, we purchased an
additional 250,000 shares of Algo Vision plc for a purchase price of $2,500,000.
These shares were subject to a lock-up agreement which expired in November 1999.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of using only the last two digits to
indicate the year in computer hardware and software programs and embedded
technology such as micro-controllers. As a result, these programs do not
properly recognize a year that ends with "00" instead of the familiar "99." If
uncorrected, such programs will be unable to interpret dates beyond the year
1999, which could cause computer system failure or miscalculations and could
disrupt our operations and adversely affect its cash flows and results of
operations.
We recognize the importance of the Year 2000 issue and have established
a project team with the objective to ensure an uninterrupted transition to the
year 2000 by assessing, testing and modifying products and information
technology and non-IT systems so that such systems and software will perform as
intended and information and dates can be processed with expected results. The
scope of the Year 2000 compliance effort includes (i) IT such as software and
hardware; (ii) non-IT systems or embedded technology; and (iii) the readiness of
key third parties, including suppliers and customers, and the electronic date
interchange with those key third parties.
Independent of the Year 2000 issue, we have installed new financial
accounting, procurement, order management and invoicing systems. These systems
are fully operational. Testing of these systems for Year 2000 compliance has
been completed and we believe that such systems are Year 2000 compliant. In the
event such systems are not Year 2000 compliant, we have developed a contingency
plan which includes increasing normal inventories of critical supplies prior to
December 31, 1999 and ensuring that all critical staff are available or
scheduled to work prior to, during and immediately after December 31, 1999.
THIRD PARTIES. In addition to internal Year 2000 IT and non-IT remediation
activities, we are in contact with key suppliers and vendors to minimize
disruptions in the relationship between us and these important third parties
from the Year 2000 issue. We have requested Year 2000 compliance certification
from each of such vendors and suppliers for their hardware and software products
and for their internal business applications and processes. While we cannot
guarantee compliance by third parties, we will consider alternate sources of
supply, which we believe are generally available in the event a key supplier
cannot demonstrate its systems or products are Year 2000 compliant.
OUR PRODUCTS. We believe that all hardware products included in Trinology PCs
shipped since the fourth quarter of 1997 are Year 2000 compliant and hardware
products included in Trinology PCs shipped prior to such time can be made Year
2000 compliant through upgrade of software patches. We have requested Year 2000
compliance certificates from each of our suppliers and vendors from parts and
components installed in our Trinology PCs.
The replacement of our existing financial accounting, procurement,
order management and invoicing systems is estimated at approximately $350,000,
however, only a portion of the cost of these systems is attributable to the Year
2000 issue. While we estimate that the Year 2000 effort will have a nominal cost
impact, there can be no assurance as to the ultimate cost of the Year 2000
effort or the total cost of information systems.
-19-
Our current estimates of the amount of time and costs necessary to
achieve Year 2000 compliance are based on the facts and circumstances existing
at this time. The estimates were made using assumptions of future events
including the continued availability of certain resources, Year 2000
modification plans, implementation success by key third-parties, and other
factors. New developments may occur that could affect our estimates of the
amount of time and costs needed to achieve Year 2000 compliance. These
developments include, but are not limited to: (i) the availability and cost of
personnel trained in this area; (ii) unanticipated failures in our IT and non-IT
systems; and (iii) the planning and Year 2000 compliance success that suppliers
and vendors attain.
We cannot determine the impact of these potential developments on the
current estimate of probable costs of achieving Year 2000 compliance.
Accordingly, we are not able to estimate our possible future costs beyond the
current estimate of costs. As new developments occur, these cost estimates may
be revised to reflect the impact of these developments on the costs to us of
making our products and IT and non-IT systems Year 2000 compliant. Such
revisions in costs could have a material adverse impact on our results of
operations in the quarterly period in which they are recorded. Although we
consider it unlikely, such revisions could also have a material adverse effect
on our business, financial condition or results of operations.
Like virtually every company, we are at risk for the failure of major
infrastructure providers to adequately address potential Year 2000 problems. We
are highly dependent on a variety of public and private infrastructure providers
to conduct our business in numerous jurisdictions throughout the country.
Failures of the banking system, basic utility providers, telecommunication
providers and other services, as a result of Year 2000 problems, could have a
material adverse effect on our ability to conduct our business. While we are
cognizant of these risks, a complete assessment of all such risks is beyond the
scope of our Year 2000 assessment or our ability to address. We have focused our
resources and attention on the most immediate and controllable Year 2000 risks.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
-20-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
We did not issue any equity securities during the three months ended
September 30, 1999 which were not registered under the Securities Act of 1933,
except as follows:
In August 1999, we issued 47,599 shares of our common stock to the
holder of our 5% Convertible Debentures upon the conversion of $100,000 of the
principal amount of the debenture, plus accrued interest on the principal amount
converted.
In September 1999, we issued 12,206 shares of our common stock to the
holder of our 5% Convertible Debentures upon the conversion of $25,000 of the
principal amount of the debenture, plus accrued interest on the principal amount
converted.
The above transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities Act
of 1933 under Section 4(2) or Regulation D of the Securities Act. The sale of
such securities was without the use of an underwriter, and the certificates for
the shares contain a restrictive legend permitting the transfer of such
securities only upon registration of the shares or an exemption under the
Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
At an annual stockholders meeting held on September 27, 1999, the
following matters were approved:
o election of five directors; and
o approval and ratification of the appointment of Rothstein, Kass &
Company, P.C. as independent auditors for the fiscal year ending
December 31, 1999.
The respective vote tabulations are detailed below:
Proposal 1 For Withhold
- ---------- --- --------
Jacob Agam 5,136,443 12,690
Klaus Grissemann 5,136,443 12,690
Marc S. Goldfarb 5,136,443 12,690
Dr. Erich Weber 5,136,443 12,690
Robert Weiss 5,136,443 12,690
Proposal 2 For Against Abstain
- ---------- --- ------- -------
Appointment of Rothstein, 5,140,243 8,200 690
Kass & Company, P.C.
ITEM 5. OTHER INFORMATION
ALGO VISION TRANSACTION
In connection with the transfer of our research and development
activities in March 1998, we granted Algo Vision Schweiz AG, one of the entities
formed in connection with the transfer, an option to purchase a 50% co-ownership
interest in our visual communications intellectual property. In July 1999, as
part of the reorganization of the Algo Vision entities, Algo Vision Schweiz and
Algo Vision Systems GmbH, the other entity formed in connection with the
spin-off, became wholly-owned subsidiaries of Algo Vision plc, an English
company whose shares began trading on the European Association of Securities
Dealers Automated Quotation System on July 23, 1999. Under the terms of a series
of agreements between us, Algo Vision plc and Algo Vision Schweiz (i) Algo
Vision Schweiz transferred its option to purchase our intellectual property
rights to Algo Vision plc, (ii) Algo Vision plc agreed to purchase our visual
communications intellectual property rights ( other than the IAT name or mark)
and (iii) we agreed to exchange our 15% equity interest in each of Algo Vision
Systems
-21-
and Algo Vision Schweiz, for shares of capital stock of Algo Vision plc.
Dr. Vogt, one of our former directors, owns approximately 26.2% of the
outstanding shares of Algo Vision plc.
Under the terms of the agreements, Algo Vision plc purchased a 50%
interest in our visual communications intellectual property rights for
$1,000,000 in July 1999 and purchased the remaining 50% interest for an
additional $2,500,000. In August 1999 Algo Vision plc also agreed to pay us
royalties (ranging from 5% to 10%) on the sale of certain products utilizing the
visual communications technology until August 2001. In connection with the
transaction, Algo Vision Schweiz repaid outstanding loans, aggregating
approximately $500,000 made by us to Algo Vision Schweiz in March 1998.
In addition, as part of the reorganization of the Algo Vision
entities, we exchanged our 15% interest in each of Algo Vision Systems and
Vision Schweiz, for 500,000 shares of Algo Vision plc. These shares are subject
to a lock-up agreement until January 24, 2000, subject to certain exceptions. In
August 1999, we purchased an additional 250,000 shares of Algo Vision plc for a
purchase price of $2,500,000. These shares were subject to a lock-up agreement
which expired in November 1999.
PETRINI ACQUISITION
On November 3, 1999, we entered into a definitive Stock Purchase
Agreement with Gruppo Spigadoro, N.V. under which we will acquire all of the
outstanding common stock of Petrini, S.p.A. Petrini is an Italian company that
produces and sells animal feed and pasta and flour products principally in
Italy, and also in the United States, Europe and Southeast Asia. Under the terms
of the Stock Purchase Agreement, we will issue 47,354,465 shares of common stock
to Spigadoro, subject to adjustment if the anti-dilution provisions of the
agreement are triggered. We will also assume approximately $20 million of short
term indebtedness of Spigadoro in the acquisition, of which $12.5 million will
be convertible into shares of our common. All of the indebtedness will be
payable or convertible into our common stock during 2000. Of the shares of
common stock to be issued to Spigadoro, 12,241,400 shares will be transferred to
Carlo Petrini, the former owner of Petrini, to satisfy a part of Spigadoro's
obligations to Mr. Petrini incurred when Spigadoro acquired Petrini in July
1998.
Spigadoro is controlled by affiliates of Vertical Financial Holdings,
one of our principal stockholders. Jacob Agam, our Chairman of the Board and
Chief Executive Officer, is the Chairman of the Board of Spigadoro and Vertical
Financial Holdings. As a result, a special committee of the Board of Directors
comprised of independent directors was established to review the transaction.
The special committee and the entire Board of Directors have each concluded that
the transaction is fair and in the best interests of all of our stockholders.
If we issue any shares of our common stock prior to the completion of
the acquisition at a price of less than $2.50 per share or following the closing
of the acquisition upon conversion of our Series A Convertible Debenture, we
have agreed to issue additional shares of our common stock to Spigadoro to
partially offset the dilutive effect of the issuance.
After the acquisition, Mr. Petrini will become a director of IAT.
Following the closing of the acquisition, Spigadoro and Mr. Petrini will own
approximately 61.4% and 21.4%, respectively, of our outstanding common stock and
Vertical Financial Holdings, and entities affiliated with Vertical, will have
the ability to vote approximately 58.4% of our outstanding common stock.
-22-
Consummation of the acquisition is subject to a number of conditions,
including stockholder approval of the issuance of the shares of our common stock
to be issued in the acquisition and other proposals. Following the acquisition,
we intend to sell our computer business. The Board of Directors also authorized
us to evaluate and seek candidates for the potential sale of our computer
business. We have commenced discussions relating to the sale of our computer
business. However, no agreement has been reached with any party regarding the
terms of a potential transaction and we cannot assure that we will be able to
sell our computer business on terms favorable to us or at all.
The Stock Purchase Agreement is attached hereto as Exhibit 2.1 and is
incorporated herein by reference.
1999 STOCK OPTION PLAN
On November 2, 1999, our Board of Directors approved our 1999 Stock
Option Plan under which we have reserved for issuance 2,500,000 shares of
our common stock. Shares of our common stock may be issued to our officers,
directors, employees and consultants.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Stock Purchase Agreement dated as of November 3, 1999 by and
between the Company and Gruppo Spigadoro,N.V.
10.62 Agreement for the Acquisition of Intellectual Property Rights dated
July 22,1999 among the Company, IAT AG, Algo Vision Schweiz AG and Algo
Vision plc (1).
10.63 Intellectual Property Assignment dated July 22, 1999 among the
Company, IAT AG and Algo Vision plc (1).
10.64 Intellectual Property Assignment dated July 22, 1999 among the
Company, IAT AG and Algo Vision plc (1).
10.65 Share Exchange and Subscription Agreement dated July 22, 1999
between Algo Vision plc and IAT AG (1).
10.66 Second Subscription Agreement dated July 22, 1999 between Algo
Vision plc and IAT AG (1).
10.67 Lock-In Agreement dated July 22, 1999 among Algo Vision plc,
Beeson Gregory Limited and IAT AG (1).
10.68 1999 Stock Option Plan
27.1 Financial Data Schedule
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(1) Incorporated by reference to our Current Report on Form 8-K filed on August
4, 1999.
(b) Reports on Form 8-K. During the quarter ended September 30, 1999 we filed a
Current Report on Form 8-K on August 4, 1999 and a Current Report on Form
8-K/A on August 24, 1999, reporting information under Item 2.
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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.
By: /s/ Jacob Agam
-----------------------------
Jacob Agam
Chairman of the Board of
Directors and Chief Executive
Officer
/s/ Klaus Grissemann
-----------------------------
Klaus Grissemann
Chief Financial Officer
Date: November 12, 1999
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