AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 5, 1997
REGISTRATION NO. 333-18529
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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IAT MULTIMEDIA, INC.
(Name of Registrant as Specified in Its Charter)
Delaware 7371 13-3920210
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Identification No.)
Organization) Code Number)
Geschaftshaus Wasserschloss
Aarestrasse 17
CH-5300 Vogelsang-Turgi, Switzerland
(011)(41)(56) 223-5022
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
-----------
Viktor Vogt
Geschaftshaus Wasserschloss
Aarestrasse 17
CH-5300 Vogelsang-Turgi, Switzerland
(011)(41)(56) 223-5022
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
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Copies to:
Malcolm I. Ross, Esq. Sheldon E. Misher, Esq.
Baker & McKenzie Bachner, Tally, Polevoy & Misher LLP
805 Third Avenue 380 Madison Avenue
New York, New York 10022 New York, New York 10017
(212) 751-5700 (212) 687-7000
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Approximate Date of Commencement Proposed Sale to the Public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |B*
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |B*
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |B*
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================
Proposed
Proposed Maximum
Maximum Aggregate
Title of Each Class of Amount to be Offering Price Offering Amount of
Securities to be Registered Registered Per Share(4) Price(4) Registration Fee
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value(1) 3,565,000(3) $6.00 $21,390,000 $6,482
- ------------------------------------------------------------------------------------------------
Underwriters' Warrants 310,000 $.001 $ 310 $ (5)
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Common Stock, $0.1 par
value(2)(3) ................... 310,000 $9.90 3,069,000 930
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Total ..................... $24,459,000 $7,412*
================================================================================================
</TABLE>
(1) Includes 465,000 shares that may be purchased by the Underwriters from the
Company to cover over-allotments, if any.
(2) Issuable upon exercise of warrants granted to the Underwriters (the
"Underwriters' Warrants").
(3) Pursuant to Rule 416, there are also being registered such additional shares
of Common Stock as may become issuable pursuant to anti- dilution provisions
of the Underwriters' Warrants.
(4) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) and (g).
(5) Pursuant to Rule 457(g), no additional fee is payable.
* A registration fee of $18,167 was paid to the Commission on December 23,
1996.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION -- DATED FEBRUARY 5, 1997
PROSPECTUS
[LOGO]
IAT MULTIMEDIA, INC.
3,100,000 shares of Common Stock
IAT Multimedia, Inc., a Delaware corporation (the "Company"), hereby
offers 3,100,000 shares of its Common Stock, par value $.01 per share (the
"Common Stock").
Prior to this Offering, there has been no public market for the Common
Stock and there can be no assurance that such a market will develop. The Company
has applied for quotation of the Common Stock on the Nasdaq National Market
under the symbol IATA, and may apply for trading privileges for the Common Stock
on the over the counter trading system of the Frankfurt and Berlin Stock
Exchanges. It is anticipated that the initial public offering price will be
between $5.50 and $6.50 per share of Common Stock. See "Underwriting" for a
discussion of factors considered in determining the initial public offering
price.
The securities offered hereby involve a high degree of risk and immediate
substantial dilution. See "Risk Factors," which begin on page 11, and
"Dilution."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
Price to Underwriting Discounts Proceeds to
Public and Commissions (1) Company (2)
- --------------------------------------------------------------------------------
Per Share ... $ $ $
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Total ((3)) .. $ $ $
================================================================================
(1) Does not include additional compensation to be received by Royce
Investment Group, Inc., the representative of the Underwriters (the
"Representative") and Continental Broker-Dealer Corp. (collectively, the
"Underwriters") in the form of (i) a non-accountable expense allowance of
$____, or $____ per share of Common Stock ($____ if the over-allotment
option is exercised in full) and (ii) warrants to be issued to the
Underwriters or their designees, to purchase up to 310,000 shares of
Common Stock at $___ per share (the "Underwriters' Warrants"). In
addition, the Company has agreed to indemnify the Underwriters against
certain liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting estimated expenses of $____ payable by the Company,
including the Underwriters' non-accountable expense allowance.
(3) The Company has granted to the Underwriters a 45-day option to purchase up
to 465,000 additional shares of Common Stock on the same terms and
conditions as set forth above, solely to cover over-allotments, if any. If
the over-allotment option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$____, $____ and $____, respectively. See "Underwriting."
The shares of Common Stock are being offered on a "firm commitment" basis
by the Underwriters when, as and if delivered and accepted by the Underwriters,
subject to their right to reject orders in whole or in part and subject to
certain other conditions. It is expected that delivery of the certificates
representing the Common Stock will be made against payment at the offices of
Royce Investment Group, Inc., 199 Crossways Park Drive, Woodbury, New York,
11797, on or about ____________, 1997.
ROYCE INVESTMENT GROUP, INC. CONTINENTAL BROKER-DEALER CORP.
The date of this Prospectus is __________, 1997
<PAGE>
[PHOTO - Researcher using tele-microscope and computer screen showing remote
picture]
Caption 1:
IAT is developing, in conjunction with Olympus, systems for tele-microscopy
and tele-endoscopy using Texas Instruments' TMS320C80 programable digital
signal processor (the "C8x"). These systems allow instant collaboration
between healthcare professionals, saving valuable time in patient diagnosis
and treatment.
[PHOTO - IAT multimedia kiosk]
Caption 2:
A multimedia kiosk developed by IAT, Deutsche Telekom and IBM,
incorporating Texas Instruments' C8x digital signal processor, provides
consumers with customized product information as well as instant video
conferencing with a trained teleconsultant. Information on the kiosk is
updated remotely, with one authoring system providing content to many
kiosks."
Joint Development Joint Development with IBM and
with Olympus Deutsche Telekom
IAT
-----------------------------------------
THE ELECTRONIC MEETING
Customized Solution for MAN Roland
[PHOTO - showing tele-consultant, photo showing remote site and graphics showing
satellite and ISDN links.]
Caption 3:
MAN Roland, a subsidiary of MAN, a Multinational German conglomerate uses
an IAT customized solution to maintain and inspect high output printing
presses. MFKS technology is also being used in tele-surveillance by
Grundig, a Multinational German conglomerate as well as for document
analysis by the Police Department of Zurich, Switzerland.
------------
Upon completion of this Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith will file reports and other
information with the Securities and Exchange Commission (the "Commission"). The
Company intends to furnish its stockholders with annual reports containing
financial statements audited by its independent certified public accountant and
quarterly reports for the first three quarters of each fiscal year containing
unaudited interim financial information.
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE THE MARKET PRICE OF THE COMMON STOCK AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
The Company is organized under the laws of the State of Delaware.
Investors in the Common Stock will be able to effect service of process in the
United States upon the Company and may be able to effect service of process upon
its directors. However, the Company is primarily a holding company which holds
stock in entities in Switzerland and Germany and all or a substantial portion of
the assets of the Company are located outside the United States. In addition,
all of the Company's four directors and all of its executive officers are
residents of foreign countries and all or a substantial portion of the assets of
such directors and officers are located outside of the United States. As a
result, it may not be possible for investors to enforce judgments of U.S. courts
predicated upon the civil liability provisions of U.S. laws against the
Company's, the foreign directors' and officers' assets.
The Company has been advised by its counsel, Baker & McKenzie, that there
is doubt as to the enforceability in Switzerland of judgments of U.S. courts,
against Multimedia's subsidiaries and against shareholders, directors, officers
and employees of Multimedia or its subsidiaries who are domiciled in
Switzerland. In addition, awards of punitive damages in actions brought in the
United States or elsewhere may be unenforceable in Switzerland.
The Company has been advised by its counsel, Dr. Schackow & Partner, that
there is doubt as to the enforceability in Germany in original actions or in
actions for enforcement of judgments of U.S. courts, of civil liabilities
predicated solely upon the laws of the United States against Multimedia's
subsidiaries and against shareholders, directors, officers and employees of
Multimedia or its subsidiaries who are domiciled in Germany. In addition, awards
of punitive damages in actions brought in the United States or elsewhere may be
unenforceable in Germany.
-----------
Amounts and percentages appearing in this Prospectus may not total due to
rounding.
-----------
Prospective investors are cautioned that the statements in this Prospectus
that are not historical facts may be "forward-looking statements" that are
subject to risks and uncertainties. Such forward-looking statements, include
statements regarding, among other items, the Company's growth strategy, future
products, sales, ability to market products and anticipated trends in the
Company's business. These forward-looking statements are based largely on the
Company's expectations and are subject to a number of risks and uncertainties,
certain of which are beyond the Company's control. Actual results could differ
materially from these forward-looking statements as a result of a number of
factors including, but not limited to, the Company's ability to successfully
complete the development of its third generation products, the ability to
achieve market penetration, the need for additional financing, intense
competition in various aspects of its business, the Company's ability to expand
into the United States, its dependence on key personnel, and other factors
described in the Risk Factors section and elsewhere herein.
3
<PAGE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this Prospectus.
Except as otherwise noted, all information in this Prospectus (i) gives effect
to a 0.94697 for one reverse stock split effected in December 1996 (the "Reverse
Stock Split"), (ii) assumes an initial public offering price of $6.00 per share
of Common Stock, (iii) assumes no exercise of the Underwriters' over-allotment
option or the Underwriters' Warrants and (iv) gives effect to the automatic
conversion, upon the consummation of this Offering, of 1,875,000 shares of
Series A Preferred Stock, $.01 par value (the "Series A Preferred Stock") issued
in Multimedia's private placement in October 1996 (the "Private Placement"),
into an equal amount of shares of Common Stock. Unless the context otherwise
requires, "Multimedia" refers to IAT Multimedia, Inc. and the "Company" or "IAT"
refers to IAT Multimedia, Inc. and its subsidiaries. Investors should consider
carefully the information set forth under "Risk Factors." The Company's
functional currency is the Swiss Franc. Foreign currency amounts in the
Company's Financial Statements (as hereinafter defined) have been converted into
U.S. dollars. See "Note 2 -- Consolidated Financial Statements of the Company."
For the convenience of the reader, certain other amounts have been converted at
the rate of SF 1.26 = $1.00 and DM 1.53 = $1.00, the exchange rate at September
30, 1996. There can be no assurance that such amounts could be converted at such
rates. Certain terms used herein have the meanings assigned to them in the
Glossary.
THE COMPANY
The Company develops, manufactures and markets customizable high quality
visual communications systems for use in desktop computers which permit users to
hold multi-point video conferences in two or more locations, as well as
providing additional video, audio and data transfer features not available in
traditional video conferencing systems. Unlike traditional video conferencing
companies, the Company's focus is on high quality system solutions. The Company
believes that the needs of its target customers cannot be addressed by currently
available lower quality software-only products (including Internet products) or
by high quality traditional video conferencing products. In addition to
providing audio and video images of the other participants in the
tele-conference, the Company's systems are also capable of simultaneously
providing images and data in windows on the computer screen which can be viewed
by all participants in the video conference and permit users at remote computer
terminals to modify data and manipulate images through the operation of
apparatus, such as microscopes and video cameras. These systems, which include
both proprietary and third-party software and hardware, are inter-operable with
products from certain vendors and comply with all relevant international
standards, including H.320. The Company sells its systems and kits to end-users
in a variety of industries and to OEMs and integrators. The Company has sold an
aggregate of approximately 500 systems and kits, including pilot projects, since
1990.
The Company's technology has been developed with several companies, which
the Company, based on various agreements, considers to be its strategic partners
("Strategic Partners"), including Deutsche Telekom ("DT"), Texas Instruments
("Texas Instruments"), IBM Deutschland Informationssysteme GmbH ("IBM Germany")
and Olympus Optical Co. (Europe) GmbH ("Olympus"). The Company believes that its
technology 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 desktop computer
which permits other applications to continue to operate without interruption. In
addition, the Company's new generation of systems currently being developed is
based on a programmable digital signal processor which provides flexibility for
adapting to new algorithms, standards or user requirements. The Company believes
that the high image quality and other features provided by the Company's systems
will meet the requirements of various professional users including tele-medicine
(i.e., transferring microscope, x-ray, video or other diagnostic images for
evaluation by a physician at a remote site) and tele-surveillance (i.e., remote
viewing and control of surveillance cameras and remote access control). In
excess of $18 million was invested in the Company by its stockholders and the
Company has invested approximately $10 million in
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4
<PAGE>
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the research and development of its technology (including approximately $4
million in participations from the Company's Strategic Partners). This
investment does not include additional amounts invested directly by the
Company's Strategic Partners in the development of their components used in
the Company's systems.
The Company believes that the multimedia communications market will be
divided between mass- market low quality software-only solutions and high
quality system solutions which principally utilize hardwired processors. The
Company believes that mass market solutions do not meet the needs of its
potential customers because of the lower quality image and video transmissions
and that hardwired processors are inflexible and difficult to adapt to new
algorithms and standards. In addition, the Company believes that its use of
programmable digital signal processors combined with its proprietary technology
offers a competitive advantage over competitors using hardwired chips or
software-only solutions. The Company is not aware of other companies which offer
similar customized complete systems at comparable prices.
The Company has developed two generations and is currently developing a
third generation of its technology. The first generation was developed using a
large number of computer boards and readily available components as the
Company's initial entry in the visual communications field and to assess
customer needs. The second generation, utilized in the Company's current
systems, is characterized by a substantially reduced number of computer boards
and improved capabilities. These systems use a combination of fully programmable
digital signal processors and less-flexible hardwired processors. The second
generation systems have inherently high prices per unit. For example, the
Company's second generation MFKS Vision and Live multifunctional communications
systems ("MFKS") have average wholesale prices of approximately $6,500 to
$20,000 per system (depending on the composition of systems required by the
user). Third generation systems, which the Company expects to begin shipping in
1997, utilize Texas Instruments' TMS320C80 programmable digital signal processor
(the "C8x") and are designed for commercial production with target wholesale
sales prices of approximately $1,500 to $8,000 per system for corresponding MFKS
systems. The Company believes that its third generation of systems will be its
first systems which have the potential for widespread commercialization and that
increasing sales of these products will result in corresponding decreases in
sales, and eventual phasing out, of its second generation products.
The Company's existing products include the MFKS Vision and Live
multi-functional communications system and the MIKS Interactive Kiosk ("MIKS").
MFKS is a high quality visual communications system which combines hardware and
software for use in desktop computers and permits users to hold multi-point
video conferences with simultaneous video, audio and data transfer. MIKS is an
electronic kiosk system which allows consumers to access information stored in
the electronic kiosk or in remote locations, including high quality video, while
allowing instant contact to a video conference with a tele- consultant who has
full access to the images and data seen by the consumer.
The Company developed its MFKS systems jointly with DT. The Company offers
MFKS 128 systems which include software, two computer boards and two optional
computer boards and MFKS 384 systems which include six to nine computer boards.
These systems permit tele-conferencing and simultaneous full screen video with a
second smaller video window ("PIP"), audio and data communications on a desktop
computer and, in the case of MFKS 384 systems, the ability to view two
full-screen video windows simultaneously. The Company believes that the
combination of the tele-conference and additional functions performed by its
MFKS systems provide features required by professional users and not generally
available in existing tele-conferencing systems. MFKS systems are currently used
by DT for administrative tasks; by customers of DeTeSystems, an integrator and
affiliate of DT, for a variety of tasks in different industries; by MAN Roland
for tele-servicing of large, high-speed printing presses; by Grundig for tele-
surveillance in an underground subway system; by the water quality control
industry for visual water testing from remote sites; and by hospitals for pilot
projects in tele-microscopy and tele-endoscopy.
The Company is jointly developing base hardware and software with Texas
Instruments and DT for its third generation MFKS system incorporating the C8x
which will allow for easier upgrades than systems using hardwired chips. These
new systems will provide all of the functions of the corresponding
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5
<PAGE>
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existing second generation systems at substantially lower target prices. The
third generation MFKS 128 uses a single proprietary computer board while the
third generation MFKS 384 system only requires three computer boards. The
Company expects to release the third generation of MFKS systems in 1997 jointly
with certain of its Strategic Partners. In addition to complete systems, the
Company offers MFKS kits utilizing its existing second generation technology to
OEMs and integrators and expects to begin offering kits utilizing its third
generation technology in 1997. No assurance can be given that such systems or
kits will be introduced on a timely basis, if at all, or that such systems will
be accepted by the market.
The Company is presently working with Olympus to integrate MFKS systems
into tele-microscopes. These products are expected to allow physicians in
different locations to engage in a video conference while concurrently reviewing
microscopic slides, and in some models, to remotely operate the microscope. The
Company does not believe that the images from current visual communications
systems provide sufficient image quality to transmit pictures of microscopic
slides which would permit their use for diagnosis. The Company believes that the
high quality images produced by the MFKS system offer images with resolutions
and life-like colors sufficient for medical diagnoses.
In addition, the Company is jointly developing with the Technical
University of Berlin proprietary wavelet data compression technology, which the
Company believes will almost eliminate the time delay in viewing still images
which are transmitted by visual communications systems and that this reduction
will make the Company's MFKS systems more attractive. The Company believes that
it will be able to offer wavelet compression in its MFKS systems beginning in
1997 and that one of the first applications for this technology will be in the
tele-microscopes being jointly developed with Olympus.
MIKS was jointly developed with DT and IBM Germany. MIKS consists of
consumer electronic kiosks, tele-consultant stations, an authoring system, a
proprietary database management system and related proprietary software. The
Company believes MIKS systems can enable companies to more efficiently utilize
their personnel and to rapidly collect market information on consumers using the
electronic kiosks. The authoring system reduces the cost and time to develop
menus and pages for electronic kiosk displays. The Company's proprietary
database management system allows rapid and accurate updating of information
stored in the electronic kiosks and collection of consumer data. The Company's
second generation MIKS system requires two desktop computers per electronic
kiosk and has an average retail price of approximately $45,000 per electronic
kiosk. To date, the Company has only installed pilot MIKS systems. The Company,
IBM and DT are jointly developing the third generation MIKS systems which will
reduce the hardware demands to only one desktop computer with two proprietary
computer boards per electronic kiosk. The Company has a target retail price for
the third generation MIKS system is approximately $20,000 per electronic kiosk
and expects to begin selling third generation MIKS systems in 1997. No assurance
can be given that such systems will be introduced on a timely basis, if at all,
or that such systems will be accepted by the market.
The Company's systems are flexible and can be configured in a variety of
ways to meet the requirements of specific customers. The Company, on a project
by project basis, designs systems which provide solutions on a customized basis
for the specific requirements of particular customers.
The Company currently markets, its products, both through its own sales
staff and through certain of its Strategic Partners, primarily in Europe. A
substantial part of the potential market for the Company's products are in the
United States due to the geographic spread, technological sophistication and
number of potential users of the Company's products. Entering into the United
States market is a fundamental part of the Company's strategy. The Company
intends to expand its marketing efforts, both by expanding its sales and
marketing staff in Europe as well as establishing an office and a sales and
marketing staff in the United States during 1997. The Company continually
evaluates potential strategic partners for additional applications and broader
marketing of IAT's technology. The Company may make acquisitions or other
investments or may enter into joint venture agreements for strategic reasons.
The Company was incorporated in Delaware in September 1996 as a holding
company for the existing business of IAT AG ("IAT AG") and IAT Deutschland GmbH
Interaktive Medien Systeme ("IAT Germany") which were organized in 1989 and
1991, respectively. IAT AG is a wholly-owned subsidiary of IAT and IAT Germany
is a 74.9% subsidiary of IAT AG. HIBEG, a wholly-owned subsidiary of the fed-
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6
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eral state of Bremen, Germany which promotes business, is the holder of 25.1%
of the outstanding share capital of IAT Germany. The Company's executive
offices are located at Geschaftshaus Wasserschloss, Aarestrasse 17, CH-5300,
Vogelsang-Turgi, Switzerland and its telephone number is (011)(41)(56)
223-5022. The Company intends to establish a Web site and IAT Germany
maintains a Web site at http://www.iat-gmbh.de.
THE OFFERING
Securities Offered ............ 3,100,000 shares of Common Stock.
Common Stock Outstanding
Before the Offering ......... 6,250,000 shares(1)(2)
Common Stock Outstanding
After the Offering........... 9,350,000 shares(2)(3)
Use of Proceeds................ Net proceeds of the Offering are expected to
be approximately $16.0 million, assuming a
price per share of Common Stock of $6.00.
The Company plans to use approximately $6.0
million for research and development,
approximately $1.7 million for repayment of
loans made by stockholders of the Company,
and payment of a dividend on the Series A
Preferred Stock and $400,000 for payment to
General Capital pursuant to the provisions
of the Marketing Agreement (as defined
herein). The remaining approximately $7.9
million will be used for working capital and
general corporate purposes including
increases in sales staff and expansion in
the United States and possible acquisitions,
other investments or joint venture agreements.
See "Risk Factors -- Benefits of the Offering
to Insiders," "Use of Proceeds," "Business --
Strategy" and "Certain Transactions."
Dividends...................... The Company has never paid cash dividends on
its Common Stock and does not anticipate or
intend paying cash dividends in the
foreseeable future on its Common Stock. See
"Dividend Policy" and "Management's
Discussion and Analysis of Financial
Condition and Results of Operations --
Liquidity."
- ----------
(1) Excludes (i) 1,875,000 shares of Common Stock issuable upon exercise of
warrants issued to the holders of Series A Preferred Stock (the "Investor
Warrants"), (ii) 473,485 shares of Common Stock issuable upon exercise of
warrants issued to certain stockholders of the Company (the "Stockholder
Warrants") and, (iii) 500,000 shares of Common Stock reserved for issuance
under the Company's 1996 Stock Option Plan, none of which have been
granted.
(2) Includes 500,000 shares of Common Stock which the existing stockholders
have deposited into escrow (the "Escrow Shares"). The Escrow Shares will
be subject to cancellation and will be contributed to the capital of the
Company if the Company does not attain certain earnings levels or the
market price of the Common Stock does not achieve certain levels. If such
earnings or market price levels are met, the Company will record a
substantial non-cash charge to operations, for financial reporting
purposes, as compensation expense relating to the value of the Escrow
Shares released to the Company's officers, directors and employees. See
"Risk Factors -- Charge to Earnings in the Event of Release of Escrow
Shares" and "Principal Stockholders -- Escrow Shares."
(3) Excludes (i) up to 465,000 shares of Common Stock issuable upon exercise
of the Underwriters' over-allotment option, (ii) 310,000 shares of Common
Stock issuable upon exercise of the Underwriters' Warrants, (iii)
1,875,000 shares of Common Stock issuable upon exercise of the Investor
Warrants, (iv) 473,485 shares of Common Stock issuable upon exercise of
the Stockholder Warrants and (v) 500,000 shares of Common Stock reserved
for issuance under the Company's 1996 Stock Option Plan, none of which
have been granted.
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7
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Quotation...................... The Company has applied for quotation of the
Common Stock on the Nasdaq National Market and
the Company may apply for trading privileges
for the Common Stock on the over the counter
trading system of the Frankfurt and Berlin
Stock Exchanges. There can be no assurance that
the Company will be successful in obtaining
such trading privileges and that if obtained,
they will be maintained.
Proposed Nasdaq National
Market Symbol................ IATA
Proposed Frankfurt Stock
Exchange Symbol.............. IATA.F
Proposed Berlin Stock Exchange
Symbol....................... IATA.BE
Risk Factors................... This Offering involves a high degree of risk
and immediate substantial dilution. See "Risk
Factors" and "Dilution."
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8
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following historical financial data, except for the information
provided for the nine months ended September 30, 1995 and 1996, have been
derived from historical consolidated financial statements of the Company that
have been audited by Rothstein, Kass & Company, independent auditors (the
"Consolidated Financial Statements"). The historical financial data provided for
the nine months ended September 30, 1995 and 1996 are unaudited (the
"Consolidated Interim Financial Statements," and together with the Consolidated
Financial Statements, the "Financial Statements"), but in the opinion of the
Company's management contain all adjustments, consisting only of normal
recurring accruals, which are necessary for a fair presentation of the
information included herein. Multimedia was formed in September 1996 as a
holding company for the existing operations of IAT AG and IAT Germany.
The following summary consolidated financial information is derived from,
and should be read in conjunction with, the Consolidated Financial Statements of
the Company and the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------ ------------------------
1994 1995 1995 1996
---------- ---------- ---------- ----------
(unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net sales .................................. $ 1,053 $ 1,510 $ 768 $ 961
Cost of sales .............................. 700 968 516 690
------- ------- ------- -------
Gross margin ............................... 353 542 252 271
------- ------- ------- -------
Operating Expenses:
Research and development costs ............. 2,269 2,531 1,966 1,952
Less participations received ............... (2,207) (868) (585) (272)
------- ------- ------- -------
Research and development costs, net ........ 62 1,663 1,382 1,680
Selling, general and administrative expenses 1,538 2,640 1,969 2,198
------- ------- ------- -------
Operating loss ............................. $(1,247) $(3,761) $(3,099) $(3,607)
======= ======== ======= =======
Net loss ................................... $(1,335) $(3,730) $(3,162) $(3,733)
======= ======== ======= =======
Net loss per common share .................. $ (0.33) $ (0.77) $ (0.71) $ (0.65)
Weighted average number of shares
outstanding ............................... 4,000 4,837 4,445 5,750
<CAPTION>
December 31, 1995 September 30, 1996
----------------- ---------------------------------------
(unaudited)
---------------------------------------
Pro As
Actual Actual Forma(1) Adjusted(2)
----------------- --------- ------------ -----------
(In thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Current assets ................... $ 1,489 $ 1,006 $ 2,506 $17,784
Working capital (deficiency) ..... (1,106) (3,052) (1,552) 14,627
Total assets ..................... 2,056 1,695 3,195 18,813
Total liabilities ................ 2,944 4,550 4,550 4,168
Stockholders equity
(deficiency)(3) ................. (888) (2,855) (1,355) 14,645
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
- ----------
(1) Gives effect to the issuance of 1,875,000 shares of Series A Preferred
Stock in October 1996 for $1,500,000, and the automatic conversion of the
Series A Preferred Stock into 1,875,000 shares of Common Stock upon the
consummation of this Offering.
(2) Gives effect to the net proceeds of $16,000,000 from the sale of 3,100,000
shares of Common Stock at an assumed price per share of $6.00, the payment
of $500,000 pursuant to the Marketing Agreement, the issuance in October
1996 of 1,875,000 shares of Series A Preferred Stock for $1,500,000 and
their automatic conversion into 1,875,000 shares of Common Stock upon the
consumation of this Offering, the receipt of an aggregate of approximately
$1,420,000 of stockholder loans received subsequent to September 30, 1996
and to be received in early February 1997, and the repayment of an aggregate
of approximately $1,802,000 of stockholder loans, of which $120,000 was
repaid in November 1996.
(3) Includes 500,000 Escrow Shares. See "Principal Stockholders -- Escrow
Shares." Excludes (i) 500,000 shares of Common Stock reserved for issuance
under the Company's 1996 Stock Option Plan, none of which have been
granted, (ii) 310,000 shares of Common Stock issuable upon exercise of the
Underwriters' Warrants, (iii) 1,875,000 shares of Common Stock issuable upon
exercise of the Investor Warrants, (iv) 473,485 shares of Common Stock
issuable upon exercise of the Stockholder Warrants and (v) 465,000 shares of
Common Stock issuable upon exercise of the Underwriters' over-allotment
option.
- --------------------------------------------------------------------------------
10
<PAGE>
RISK FACTORS
The securities offered hereby are speculative in nature and an investment
in the Common Stock offered hereby involves a high degree of risk. Prospective
investors are cautioned that the statements in this Prospectus that are not
historical facts may be forward-looking statements that are subject to risks and
uncertainties. Such forward-looking statements, including statements regarding,
among other items, the Company's growth strategy, future products, sales,
ability to market products and anticipated trends in the Company's business.
These forward-looking statements are based largely on the Company's expectations
and are subject to a number of risks and uncertainties, certain of which are
beyond the Company's control. Actual results could differ materially from these
forward-looking statements as a result of a number of factors including, but not
limited to, the Company's ability to successfully complete the development of
its third generation products, the ability to achieve market penetration, the
need for additional financing, intense competition in various aspects of its
business, the Company's ability to expand into the United States, its dependence
on key personnel, and other factors described in the Risk Factors sections set
forth below and elsewhere herein. In light of these risks and uncertainties,
there can be no assurance that the forward-looking information contained in this
Prospectus will in fact take place or prove to be accurate. In addition to the
other information contained in this Prospectus (including the Financial
Statements and the notes thereto), prospective investors should carefully
consider the following risk factors before purchasing the Common Stock offered
hereby.
History of Operating Losses. The Company incurred net losses of
approximately $1.3 million, $3.7 million and $3.7 million in the years ended
December 31, 1994 and December 31, 1995 and in the nine months ended September
30, 1996, respectively. At September 30, 1996, the Company had an accumulated
deficit of approximately $10.9 million and a stockholder's deficiency of
approximately $2.9 million. While the Company's products have been marketed for
several years, the Company's products are still in the development stage and
have generated limited sales to date which has resulted in operating losses. The
Company is in the process of developing a third generation of its products which
it expects to release during 1997. However, there can be no assurance that the
products incorporating the Company's third generation technology will be
completed, will be released in a timely manner, can be manufactured at the
anticipated reduced costs, will be sold at the reduced purchase price or will
achieve market acceptance and penetration. In the years ended December 31, 1994
and December 31, 1995 and the nine months ended September 30, 1996, the Company
made significant expenditures of approximately $62,000, $1.7 million and $1.7
million for product development and expects that it will be required to continue
to invest heavily in product development and marketing programs in order to be
competitive in a rapidly developing technology market and to capture market
share in the segments of the multimedia market in which it seeks to compete. As
a result, the Company may incur further losses in the future. There can be no
assurance that the Company will achieve profitable operations in any future
period, if at all.
Multimedia's subsidiaries are subject to German and Swiss law, which
require, among other things, that companies which incur losses have to take
appropriate measures to ensure that the claims of the company's obligees are
covered by the assets of those companies. Such measures include, among others,
increasing paid-in capital or obtaining declarations from the obligees which
subordinate their claims. If those measures are not taken, the board of
directors of the subsidiaries must notify a judge in order to commence
bankruptcy proceedings which, under Swiss and German law, usually leads to the
dissolution of the corporate existence. Between May 1992 and April 1993, in
accordance with Swiss law, IAT AG underwent a financial reorganization. IAT AG
filed and was granted an application for a stay of payment with the applicable
court in Switzerland and eventually reached a court-approved agreement with its
unsecured creditors to accept forgiveness of 90% of their claims and to be paid
the remaining 10%. In addition, IAT AG also altered its capital structure in
June 1993. Since 1993 and in compliance with Swiss law, IAT AG took steps to
safeguard the interests of its creditors and to raise capital to fund its
operations by obtaining unsecured subordinated loans from stockholders of
Multimedia (former stockholders of IAT AG) and by obtaining additional
shareholder equity by increasing the share capital of IAT AG, which according to
Swiss law is required to be fixed. For more specific information regarding the
measures taken, see "Certain Transactions." The Company continues to undertake
measures to obtain and maintain operating funds. In connection therewith, the
Company expects to obtain an aggregate of approximately $500,000 in stockholder
loans from Vertical Financial Holdings ("Vertical"), Walther Glas Gmbh ("Walther
Glas") and Messrs. Vogt and Sippel in early February 1997 which the Company
expects will be sufficient to fund its operations only until the end of February
1997 at which time the Company will have exhausted its operat-
11
<PAGE>
ing funds without the proceeds of this Offering. While IAT AG and IAT Germany
have successfully undertaken these measures in the past, there can be no
assurance that such measures will not have to be undertaken in the future or
that the corporate existence of IAT AG and IAT Germany can be maintained.
Failure to maintain such corporate existence would have a material adverse
effect on the Company. See "Certain Transactions."
Substantial Doubt as to Ability to Continue as a Going Concern. Potential
investors should be aware that the report of the Company's independent certified
public accountants relating to the Company's December 31, 1995 Consolidated
Financial Statements contains an explanatory paragraph expressing substantial
doubt about the Company's ability to continue as a going concern as a result of
the Company's recurring losses and working capital and stockholder's deficits.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Note 8 -- Consolidated Financial Statements of the Company."
Dependence Upon Agreements. The Company's ability to develop, modify,
market and distribute its products derives in large part from its agreements
with Texas Instruments, DT, IBM Germany and Olympus. These agreements do not
grant the Company exclusive licenses, and the Company's Strategic Partners may,
at any time, develop products or technology which compete with those of the
Company. In addition, the Company's Strategic Partners may, under certain
circumstances grant licenses to other companies, including competitors of the
Company, to develop, sell and sublicense versions of the products developed in
conjunction with the Company. The Company intends to use the technology
developed with its Strategic Partners to design high quality systems which
provide solutions tailored to the requirements of particular customers of the
Company. As a result, the Company may need to collaborate with its Strategic
Partners to create solutions, which could require the Company to enter into new
agreements with its Strategic Partners. There can be no assurance that the
Company will be able to enter into such agreements in the future or that such
agreements will contain terms acceptable or beneficial to the Company.
The Company's agreements with its Strategic Partners generally have fixed
terms and, unless extended, many of the agreements may terminate during the next
year. There can be no assurance that these agreements will be extended or
renewed or if they are renewed that the terms will be acceptable or beneficial
to the Company. In addition, the Company may determine that additional
agreements with its existing Strategic Partners or future partners may be
necessary. Failure to extend or renew these agreements or enter into new
agreements could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Agreements with
Strategic Partners."
Limited Proprietary Protection. The Company's success is heavily dependent
upon its proprietary technology. The Company currently has no patents and relies
primarily on copyright, trademark and trade secrets law, as well as third-party
non-disclosure agreements, to protect its intellectual property. The Company
intends to apply for patents on certain aspects of its technology. However,
there can be no assurance that such patents will be granted or, if granted, that
such patents will provide protection against infringement. There can be no
assurance that the steps taken by the Company to protect its proprietary rights
will be adequate to prevent misappropriation of its technology or independent
development by others of similar technology.
Substantially all of the Company's revenues in the years ended December
31, 1995 and 1996 were generated from operations located in Germany and
Switzerland, where the Company believes that regardless of differences in legal
systems, it enjoys substantially equivalent protection for its proprietary
protection rights as it would in the United States. However, the laws of some
foreign countries where the Company may in the future sell its products, may not
protect the Company's proprietary rights to the same extent as do laws in the
United States. There can be no assurance that the protections afforded by the
laws of such countries will be adequate to protect the Company's proprietary
rights, the unenforceability of any of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
Litigation may be necessary to enforce the Company's intellectual property
rights or to protect the Company's trade secrets. There can be no assurance that
any such litigation would be successful. Any such litigation, whether or not
successful, could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company has not been charged with infringement of any proprietary
rights of others; however, there can be no assurance that third parties will not
assert infringement and other claims against the Company or that
12
<PAGE>
such claims will not be successful. From time to time, the Company may receive
in the future notice of claims of infringement of other parties' proprietary
rights. Many participants in the Company's industry have frequently demonstrated
a readiness to commence litigation based on allegations of patent or other
intellectual property infringement. Third parties may assert exclusive patent,
trademark, copyright and other intellectual property rights to technologies that
are important to the Company. In addition, patents held by third parties in
certain countries may require the Company to obtain a license or may prevent it
from marketing certain solutions in such countries. The Company is aware of one
patent in the United States held by a third-party which has claims related to
tele-pathology including using remote control microscopes. While the Company
does not believe that the U.S. patent will have a significant impact on the
sales of the Company, there can be no assurance that infringement claims (or
claims for indemnification resulting from infringement claims) will not be
asserted or prosecuted against the Company or that any such assertion or
prosecution will not have a material adverse effect on the Company's business,
financial condition or results of operations. Regardless of the validity or the
successful assertion of any such claims, the Company could incur significant
costs and diversion of resources in defending such claims, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, any party making such claims could secure a
judgment awarding substantial damages, as well as injunctive or other equitable
relief, which could effectively block the Company's ability to make, use, sell,
distribute or market its products and services in the United States or abroad.
Any such judgment could have a material adverse effect on the Company's
business, financial condition and results of operations. In circumstances where
claims relating to proprietary technology or information are asserted against
the Company, the Company may be required to seek licenses to such intellectual
property. There can be no assurance, however, that such licenses would be
available or, if available, that such licenses could be obtained on terms that
are commercially reasonable and acceptable to the Company. The failure to obtain
the necessary licenses or other rights could preclude the sale, manufacture or
distribution of the Company's products and, therefore, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Intellectual Property."
Further Development; Need for Additional Financing. The Company's business
will continue to require additional expenditures for research and development,
sales and marketing, the expansion into the United States and, to the extent
losses continue, working capital. The Company intends to use a portion of the
proceeds of this Offering for the repayment of certain stockholder loans, the
payment of a dividend on the Series A Preferred Stock and the payment of a fee
pursuant to the Marketing Agreement. The Company anticipates that the remaining
proceeds of this Offering will be sufficient to fund its operations for the 18
month period following this Offering, although the Company's capital
requirements are subject to numerous contingencies associated with the
early-stage of the Company's third generation products. The Company's existing
bank lines of credit in the aggregate amount of approximately $2.2 million are
due on demand and there can be no assurance that the Company's lenders will
continue to extend credit to the Company. In addition, in the event of delays or
unanticipated expenses associated with the Company's third generation products,
and after the 18 month period following this Offering, in the event sales do not
increase sunstantially and cash flow generated from future operations is not
sufficient to fund ongoing operations, the Company will require additional
financing. The Company has no commitments to obtain additional financing and
there can be no assurance that such financing will be available on terms that
are satisfactory to the Company, or at all. Failure to obtain such additional
financing on terms that are satisfactory to the Company, or at all, could have a
material adverse effect on the Company's business, financial condition and
results of operations. Any additional equity financings may be dilutive to
stockholders, and debt financings, if available, may involve restrictive
covenants. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Developing Market. The multimedia communications market has only recently
begun to develop, continues to be defined, is evolving rapidly and is
characterized by a large number of market entrants. Moreover, the Company
intends to market its technology and its products to the professional market
which is not currently utilizing visual communications systems. The Company
believes that this market requires high quality systems which provide solutions
tailored to its requirements and contain higher quality image and video
transmissions, including reduced noise and artifacts, true color representation
and higher frame rates, than traditional video conferencing communications
systems. Such market includes customers using tele-medicine and tele-
surveillance. The Company's success in this market will be dependent in part
upon its ability, and in certain cases, the ability of its Strategic Partners,
to convince potential customers that the Company's products satisfy
13
<PAGE>
their needs and to purchase those products. In addition, the Company has only
released pilots of its MIKS Interactive Kiosk systems to customers, such as
supermarkets, airports and train stations, for evaluation, and has not had
any commercial sales of such product to date. There can be no assurance that
potential customers in this market will accept the Company's technology and
products, that the Company will be successful in creating solutions tailored
to the requirements of these potential customers or that a market for the
Company's products will become established. In addition, the Company's future
success will depend in large part on the continued expansion of the
multimedia communications market in general, the expansion of the
professional market specifically, the identification of customers with
technological requirements which can be met by the Company's systems in
particular and the acceptance of the Company's systems. As is typical in a
rapidly evolving industry, demand for and acceptance of products are subject
to a high level of uncertainty. Certain factors, including the
incompatibility of the Company's current visual communications systems with
certain vendors' video conferencing products, the level of technical skill
required by the operator of the Company's systems and the willingness on the
consumer's part to await the next generation of more advanced equipment may
limit demand for and acceptance of the Company's products. In addition, sales
of systems introduced into the multi-media communications market requires
intense effort over long periods of time.
Furthermore, new customers typically acquire a pilot system to evaluate
before purchasing systems. In many cases, customers need to purchase a number of
systems to meet their requirements and such purchases require the approval of
the customer's senior management or board of directors prior to the purchase,
which could lead to delays in the purchase or, in some cases, eliminate
decisions to purchase the Company's products. See "-- Dependence on New Products
and Rapidly Developing Technologies."
Dependence on New Products and Rapidly Developing Technologies. While the
Company's products have been marketed for several years, the Company's products
have generated limited sales to date. While the prices of the Company's products
vary with the composition of systems required by the user, the Company's second
generation MFKS systems had average wholesale prices of approximately $6,500 to
$20,000 (depending on the composition of systems required by the user). Because
of the costs of manufacturing the second generation and the resulting sales
price, the Company does not believe that it could achieve market penetration in
the market for which its products are intended. The Company expects to release
the third generation of MFKS systems in 1997 at target wholesale prices of
approximately $1,500 per system ($1,000 to OEMs in quantity) for the single
board MFKS 128 system and approximately $6,500 per system ($3,500-$4,500 to OEMs
depending on the composition of systems required by the user) for the MFKS 384
system. To date, the Company has only installed pilots of its second generation
MIKS Interactive Kiosk systems which sell for a retail price of approximately
$45,000 per electronic kiosk. The Company intends to introduce its third
generation of MIKS Interactive Kiosks during 1997 at a retail price of
approximately $20,000. In addition, the Company intends to use the technology
developed with its Strategic Partners and its basic MFKS Vision and Live and
MIKS Interactive Kiosk systems to design solutions tailored to the requirements
of particular customers of the Company. The Company expects that the
introduction of its third generation products and increasing sales of these
products will result in corresponding decreases in sales, and eventual phasing
out, of its second generation products. There can be no assurance that the third
generation of MFKS Vision and Live or MIKS Interactive Kiosk will be completed,
will be released in a timely manner, can be manufactured at the anticipated
reduced costs, will be sold at the reduced purchase price or will achieve market
acceptance and penetration. Furthermore, if the market for these products is
established, competitors of the Company may develop and manufacture products
similar to the Company's products and may be able to manufacture competitive
products which provide higher quality than the Company's systems or can be
manufactured at lower cost. See "-- Developing Market."
In addition, the Company's systems are subject to rapid technological
change and product obsolescence. The Company has primarily focused on developing
its technology and products and believes that its future success will depend in
part upon its ability to develop and enhance its existing products and develop
new products and to meet such anticipated technological changes. To the extent
products developed by the Company are based upon anticipated changes, sales for
such products may be adversely affected if other technology becomes accepted in
the industry. If the Company does not successfully introduce new products or
enhanced versions of its current products in a timely manner, any competitive
position the Company has or may develop could be lost and the Company's sales
would be reduced. There can be no assurance that the Company will be able to
develop and introduce enhanced or new products which satisfy a broad range of
customer needs and achieve market acceptance. See "Business -- Systems."
14
<PAGE>
Supply. Certain critical components and parts used in the Company's
systems, including the C8x, are procured from a single source. The Company
believes that the C8x will substantially decrease the cost of the hardware the
Company uses in its third generation systems and is necessary to permit the
Company's systems to be sold at prices which create the potential for market
penetration. The C8x is only manufactured by Texas Instruments and the Company
does not have any other source for obtaining a programmable digital signal
processor which would provide the Company with the same functions at a similar
price. The Company obtains other parts and certain components only from a single
supplier of such parts or components, even where multiple sources are available,
to maintain quality control and enhance the working relationship with suppliers.
The Company does not have supply contracts with any of its vendors and purchases
are made with purchase orders. The failure of a supplier, including Texas
Instruments, to deliver on schedule, or at all, would delay or interrupt the
Company's delivery of systems and thereby could have a material adverse effect
on the Company's business, financial condition and results of operations.
Competition. The visual communications business is highly competitive. The
Company estimates that more than 100 companies world-wide offer products which
compete in its market segments and expects that whether or not the Company is
successful in capturing market share, the competition will intensify in the
future. The Company believes that the majority of its competitors focus on
low-cost products or closed device solutions such as videophones. The Company
believes that the principal competitive factors in the visual communications
industry are price, video and audio quality, the ability to connect auxiliary
devices such as video diskplayers, reliability, service and support, and vendor
and product reputation. The Company believes that its ability to compete
successfully will depend on a number of factors both within and outside its
control, including the adoption and evolution of industry standards, the pricing
policies of its competitors and suppliers, the timing of the introduction of new
systems and services by the Company and others, the Company's ability to hire
and retain employees, and industry and general economic trends. The Company
anticipates that the trend in the visual communications market towards
polarization, with certain providers focusing on capturing the mass consumer
market with lower quality and less costly software-only products or products
based on hardwired chips while other providers, including the Company, are
seeking to provide hardware and software systems for more specialized and
dedicated markets, will continue to manifest itself. The Company intends to
market its technology and its products to professional customers many of whom
are not currently utilizing visual communications systems. If the market for
these products is established, competitors of the Company may begin to
manufacture products similar to the Company's products. In addition, while the
Company believes that it has created proprietary technology and advantages in
manufacturing its products and that a competitor would require significant
investment and the efforts of a highly-skilled team, there are no barriers
restricting competitors from entering into the market in which the Company's
intends to sell its products. While the Company believes the mass market
solutions do not meet the needs of its customers, the availability of these
products may have an adverse effect on the pricing of the Company's products.
Many of the Company's current and potential competitors, have
significantly longer operating histories and/or significantly greater
managerial, financial, marketing, technical and other competitive resources, as
well as greater name recognition, than the Company. As a result, the Company's
competitors may be able to adapt more quickly to new or emerging technologies
and changes in customer requirements and may be able to devote greater resources
to the promotion and sale of their products and services. There can be no
assurance that the Company will be able to compete successfully with existing or
new competitors. In addition, competition could increase if new companies enter
the market or if existing competitors expand their service offerings. An
increase in competition could result in material price reductions or loss of
market share by the Company and could have a material adverse effect on the
Company's business, financial condition and results of operations.
To remain competitive, the Company will need to continue to invest in
research and development and sales and marketing. There can be no assurance that
the Company will have sufficient resources to make such investments or that the
Company will be able to make the technological advances and adaptions necessary
to remain competitive. In addition, current and potential competitors have
established or may in the future establish collaborative relationships among
themselves or with third parties, including the Company's Strategic Partners, to
increase the visibility and utility of their products and services. Accordingly,
it is possible that new competitors or alliances may emerge and rapidly acquire
significant market shares. Such an eventuality could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Competition."
15
<PAGE>
Risks Associated with Expanded Operations in the United States. As part of
its business strategy, the Company intends to seek opportunities to expand the
sale of its products into markets in the United States. The Company believes
that expansion into the United States markets is critical to the Company's
ability to continue to grow and to market its systems. Failure to successfully
expand into the United States market would have a material adverse effect on the
Company's business, financial condition and results of operations. In marketing
its systems in the United States, the Company will likely face new competitors.
There can be no assurance that the Company will be successful in marketing or
distributing systems in this market or that its revenue generated in the United
States will be adequate to offset the expense of establishing and maintaining
operations. In addition, in connection with its expansion, the Company will be
required to make substantial expenditures for, among other things, office space,
sales and marketing personnel and distributors in the United States. Competition
for such personnel is intense and the Company will compete for qualified
personnel with numerous other employers, some of whom have greater financial and
other resources than the Company. There can be no assurance that the Company
will be able to hire and retain qualified employees in the United States. See
"Business -- Strategy."
Foreign Markets. Substantially all of the Company's revenues in the years
ended December 31, 1994 and 1995 and in the nine months ended September 30, 1996
were generated from operations located in Germany and Switzerland. While these
countries have well developed economic markets, the annual growth has averaged
2.8% in 1994 and 1.9% in 1995 for Germany and 2.1% in 1994 and 0.8% in 1995 for
Switzerland, respectively. Historically, all of the Company's revenues have been
denominated in Swiss Francs and Deutsche Marks and the Company anticipates that
it will continue to generate most of its revenues in these currencies in the
foreseeable future. Any fluctuations in the value of the Swiss Franc or Deutsche
Mark against the U.S. dollar that the Company is unable to offset through price
adjustments could have a material adverse effect on the Company's financial
condition and results of operations. Conducting an international business
inherently involves a number of other difficulties and risks, such as export
restrictions, export controls relating to technology, compliance with existing
and changing regulatory requirements, tariffs and other trade barriers,
difficulties in staffing and managing international operations, longer payment
cycles, problems in collecting accounts receivable, software piracy, political
instability, seasonal reductions in business activity in Europe during the
summer months, and potentially adverse tax consequences. There can be no
assurance that one or more of these factors will not have a material adverse
effect on any international operations established by the Company and,
consequently, on the Company's business, financial condition and results of
operations. In addition, the Company intends to have operations in the United
States and in other countries. There can be no assurance that transfers of funds
to and from those countries to Germany and Switzerland will not be taxable
events for the Company. The Company's results of operations, the market price of
the Common Stock offered hereby may be affected by changes in German and Swiss
policy, taxation and economic developments. See "Exchange Rates."
Enforcement of Civil Liabilities. Multimedia is organized under the laws
of the State of Delaware. Investors in the Common Stock will be able to effect
service of process in the United States upon the Company. However, the Company
is primarily a holding company which holds stock in entities in Switzerland and
Germany and all or a substantial portion of the assets of the Company are
located outside the United States. In addition, all of the Company's four
directors and all of its executive officers are residents of foreign countries
and all or a substantial portion of the assets of such directors and officers
are located outside of the United States. As a result, it may not be possible
for investors to enforce to effect service of process upon Multimedia's
directors and officers or to judgments of U.S. courts predicated upon the civil
liability provisions of U.S. laws against the Company's, the foreign directors'
and officers' assets.
The Company has been advised by its counsel, Baker & McKenzie, that there
is doubt as to the enforceability in Switzerland of judgments of U.S. courts,
against Multimedia's subsidiaries and against stockholders, directors, officers
and employees of Multimedia or its subsidiaries who are domiciled in
Switzerland. In addition, awards of punitive damages in actions brought in the
United States or elsewhere may be unenforceable in Switzerland.
The Company has been advised by its counsel, Dr. Schackow & Partner, that
there is doubt as to the enforceability in Germany in original actions or in
actions for enforcement of judgments of U.S. courts, of civil
16
<PAGE>
liabilities predicated solely upon the laws of the United States against
Multimedia's subsidiaries and against stockholders, directors, officers and
employees of Multimedia or its subsidiaries who are domiciled in Germany. In
addition, awards of punitive damages in actions brought in the United States or
elsewhere may be unenforceable in Germany.
The market price of the Common Stock offered hereby may be affected by the
impossibility for investors to enforce judgements of U.S. courts.
Dependence on Key Personnel. The Company's success depends upon the
contributions of its current executive officers including Dr. Viktor Vogt, the
Co-Chairman and Chief Executive Officer of the Company with whom the Company
intends to enter into an employment agreement. In addition, the Company employs
a number of highly specialized computer engineers who are an integral part of
the Company's operations. There can be no assurance that these individuals will
continue to devote sufficient time to the Company's business. The loss of
services of, or a material reduction in the amount of time devoted to the
Company by, certain of such individuals could adversely affect the business of
the Company. The Company intends to obtain key-man insurance for its benefit in
the amount of $2 million on Dr. Vogt. See "Management" and "Certain
Transactions."
Dependence on Major Customer. Approximately 86%, 87%, 68% and 87% of the
Company's revenues for the years ended December 31, 1993, 1994 and 1995 and the
nine months ended September 30, 1996, respectively have been received from DT
and its affiliates. The Company currently anticipates that DT and its affiliates
will remain large customers of the Company but there can be no assurance that
sales to DT and its affiliates will continue at their historic levels. The
Company's volume of sales to DT and its affiliates has dropped in the third and
fourth quarters of 1996 from the corresponding periods in the prior year as
these customers awaited the release of the Company's third generation systems.
The loss of sales or a significant reduction in sales to DT and its affiliates
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Customers."
Risks Associated with Creating and Accessing New Distribution Channels. In
addition to marketing its products independently or jointly with certain of its
Strategic Partners, the Company's strategy for marketing its products is to
license its products to OEMs and integrators who have access to a wide range of
competing products. The Company expects that its future success will depend in
large part upon these OEMs and integrators. The performance of those OEMs and
integrators will be outside the control of the Company, and the Company is
unable to predict the extent to which these organizations will be successful in
marketing and selling their products. The Company's failure to establish
relationships with OEMs and integrators could have a material adverse effect on
the Company's business, financial condition and results of operations.
Risk of System Defects; Product Liability Exposure. Systems developed by
the Company jointly with its Strategic Partners may contain significant
undetected errors when first installed on the premises of a customer or as new
versions are installed. Although the Company tests its systems before
installation, there can be no assurance that errors in the system will not be
found after customers begin to use the system. Any error in the Company's
products may result in decreased revenue or increased expenses because of
adverse publicity, reduced orders, product returns, uncollectible accounts
receivable, delays in collecting accounts receivable, and additional and
unexpected costs of further product development to correct the errors. Sale of
the Company's products involves the inherent risk of product liability claims
against the Company. The Company currently does not maintain product liability
insurance and believes that it cannot obtain such insurance except at
substantial cost. While no product liability claims have been made against the
Company in the past, there can be no assurance that such claims will not arise
in the future. Any substantial uninsured liability would have a material adverse
effect on the Company's operations, financial conditions and results of
operations.
Potential Fluctuations in Quarterly Results. The Company has experienced
fluctuations in its quarterly results of operations and anticipates that such
fluctuations will continue and could increase. The Company's quarterly results
of operations may vary significantly depending on a number of factors, some of
which are outside of the Company's control. These factors include the timing of
the introduction or acceptance of new products or new generations offered by the
Company or its competitors, changes in the mix of products provided by the
Company, changes in pricing strategies by the Company and its competitors,
changes in the markets served by the Company, changes in the Company's operating
expenses, capital expenditures and other costs relating to
17
<PAGE>
the expansion of operations, changes in its personnel and general economic
conditions. In addition, fluctuations in exchange rates may render the Company's
products less competitive relative to local product offerings or result in
foreign exchange losses. The Company does not currently engage in hedging
transactions to offset the risk in currency fluctuations but may engage in such
transactions in the future. There can be no assurance that such hedging
techniques will be successful. The Company's revenue in the fourth quarter of
each calendar year has historically been higher due to the introduction of new
products and new generations of existing products in the second and third
quarters of past years, the extended time period required for the approval by
management of a customer for the purchase of the Company's products and
perceived desire by its customers to apply allocated budgets for the Company's
products prior to the end of the calendar year and the increase in business
activity after the summer months. Quarterly fluctuations depend, in part, on the
timing of introduction of new products by the Company and its competitors. The
Company's sales for the fourth quarter of 1996 were not as high proportionately
as in past years or as compared to the first three quarters of 1996 as the
Company's customers await the release of the Company's third generation systems.
Fluctuations in results of operations may result in volatility in the price of
the Common Stock offered hereby.
A significant portion of the Company's expenses are fixed and difficult to
reduce in the event that revenue does not meet the Company's expectations, thus
magnifying the adverse effect of any revenue shortfall. Furthermore,
announcements by the Company or its competitors of new products, services or
technologies could cause customers to defer or cancel purchases of the Company's
products. Any such deferral or cancellations could have a material adverse
effect on the Company's business, financial conditions and results of
operations. Accordingly, revenue shortfalls can cause significant variations in
results of operations from quarter to quarter and could have a material adverse
effect on the Company's business, financial condition and results of operations.
As a result of the foregoing factors, it is possible that in some future
quarters the Company's results of operations will be below prior results or the
expectations of public market analysts and investors. In such event, the price
of the Common Stock offered hereby would likely be materially and adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Benefits of the Offering to Insiders. The Company intends to use a portion
of the net proceeds of the Offering (i) to repay stockholder loans aggregating
approximately $1.7 million made or expected to be made to the Company by
Vertical, Walther Glas and Messrs. Vogt and Sippel, (ii) to pay a $400,000
marketing fee payable to General Capital, an affiliate of Vertical, a
stockholder of the Company, pursuant to the Marketing Agreement, as amended,
between Multimedia and General Capital (the "Marketing Agreement"), (iii) to pay
the salaries of its executive officers and (iv) to make monthly payments of
$12,000 to Vertical as compensation for the services of the Co-Chairman of the
Company nominated by Vertical, pursuant to the provisions of the Stock Purchase
Agreement among Multimedia, IAT AG, IAT Germany and Vertical (the "Stock
Purchase Agreement"). See "Use of Proceeds," "Management" and "Certain
Transactions."
Control by Existing Stockholders; Potential Anti-takeover Provisions. Upon
completion of this Offering the Company's existing stockholders will control
approximately 66.85% of the outstanding Common Stock of the Company. As a
result, such stockholders will be able to elect all of the Company's directors
and otherwise control the Company's operations.
Furthermore, the Company and Vertical, one of the Company's stockholders,
have entered into the Investor Rights Agreement (as defined herein), which
provides that so long as Vertical holds at least 10% of the Common Stock to be
issued upon conversion of the Series A Preferred Stock, Vertical has the right,
but not the obligation, to nominate two persons as members of the management
slate for election to the Company's Board of Directors. So long as Vertical
holds at least 5% of such securities, it has the right, but not the obligation
to nominate one such person. The existence of such rights solidifies control
over the Company by its existing stockholders. Pursuant to the Investor Rights
Agreement, Vertical has nominated, and the stockholders of the Company have
elected, Jacob Agam as a director of the Company and may elect the second
director in the future. Pursuant to the Stock Purchase Agreement, Vertical
nominated and Mr. Agam was elected as the Co-Chairman of the Company. Mr. Agam
is a director of Vertical.
18
<PAGE>
The Company is also subject to a Delaware statute regulating business
combinations, which could discourage, hinder or preclude an unsolicited
acquisition of the Company and could make it less likely that stockholders
receive a premium for their shares as a result of any such attempt. See "Certain
Transactions," "Principal Stockholders" and "Description of Securities."
Possible Adverse Effects of Authorization of Preferred Stock. Multimedia's
Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") authorizes the issuance of 500,000 shares of preferred stock,
par value $.01 per share ("Blank Check Preferred Stock"), on terms which may be
fixed by the Company's Board of Directors without further stockholder action.
The terms of any series of Blank Check Preferred Stock, which may include
priority claims to assets and dividends and special voting rights, could
adversely affect the rights of holders of the Common Stock. The issuance of the
Blank Check Preferred Stock, while providing flexibility in connection with
possible acquisitions, financing transactions and other corporate transactions,
could have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from acquiring, capital stock of the Company,
which may adversely affect the market price of the Common Stock. The Company has
no present plans to issue shares of Blank Check Preferred Stock. See "-- Control
by Existing Stockholders; Potential Anti-takeover Provisions" and "Description
of Capital Stock -- Preferred Stock."
Immediate and Substantial Dilution; Recent Sales of Securities to
Insiders. Investors participating in this Offering will incur immediate and
substantial dilution in net tangible book value of approximately $4.35 per
share, assuming an initial public offering price of $6.00 per share of Common
Stock. During 1996, IAT AG and Multimedia have issued shares to their respective
stockholders to finance working capital needs. IAT AG issued 2,000 shares of its
capital stock to its existing stockholders (which were exchanged for 875,000
shares of Multimedia) at a purchase price equivalent to approximately $1.76 per
share of Common Stock of Multimedia. In October 1996, Multimedia completed the
Private Placement of the Series A Preferred Stock pursuant to which it sold
1,875,000 shares of Series A Preferred Stock and the Investor Warrants for an
aggregate purchase price of $1.5 million, or $.80 per share of Series A
Preferred Stock (which will automatically convert upon completion of this
Offering into 1,875,000 shares of Common Stock). In addition, in connection with
the Private Placement, the Company issued the Stockholder Warrants to purchase
473,485 shares of Common Stock. The Investor Warrants and the Stockholder
Warrants are exercisable into an aggregate of 2,348,485 shares of Common Stock
at an exercise price of 130% of the initial public offering price of the Common
Stock. See "Dilution." and "Certain Transactions -- Private Placement and
Related Transactions."
Charge to Earnings in the Event of Release of Escrow Shares. Following
completion of this Offering, the Company will have outstanding 500,000 Escrow
Shares which will be released from escrow if the Company attains certain
earnings levels over the next one to three years or if the Common Stock trades
at certain levels for any 30 consecutive trading days, commencing 24 months
after the consummation of this Offering. For more specific information regarding
these earnings levels and trading levels, see "Principal Stockholders -- Escrow
Shares." The Escrow Shares will not be deemed to be outstanding for the purpose
of calculating earnings per share until either of such conditions is probable of
being met. The position of the Commission with respect to such escrow
arrangements provides that in the event any shares are released from escrow to
the stockholders of the Company who are officers, directors, employees or
consultants of the Company, a non-cash compensation expense will be recorded for
financial reporting purposes. Accordingly, in the event of the release of the
Escrow Shares, the Company will recognize during the period in which the
earnings thresholds are probable of being met or such stock levels achieved, a
substantial non-cash charge to operations, which will not be deductible for
income tax purposes, equal to the then fair value of such shares, which would
have the effect of significantly increasing the Company's loss or reducing or
eliminating earnings, if any, at such time. By way of example, if at the time of
the release of the Escrow Shares the market price of the Common Stock was
$14.00, the Company would be required to recognize compensation expense of
approximately $2.6 million. The recognition of such compensation expense may
depress the market price of the Company's Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Principal Stockholders -- Escrow Shares." Notwithstanding the foregoing
discussion, there can be no assurance that the Company's earnings or its stock
price will attain the targets that would enable the Escrow Shares to be released
from escrow.
Dividend Policy. The Company has never declared or paid a cash dividend on
its Common Stock. The Company intends to retain its earnings, if any, for use in
its business and does not anticipate paying cash dividends in the foreseeable
future. See "Dividend Policy."
19
<PAGE>
No Public Market for Securities. Prior to this Offering, there has not
been any market for the Company's Common Stock, and there can be no assurance
that an active trading market will develop or be sustained after this Offering.
Arbitrary Determination of Offering Price. The initial public offering
price of the Common Stock has been determined by negotiation between the Company
and the Underwriters and is not necessarily related to the Company's asset
value, net worth, results of operations or any other criteria of value and may
not be indicative of the prices that may prevail in the public market.
Possible Volatility of Market Price. In recent years, the stock markets in
general, and the shares of technology companies in particular, have experienced
extreme price fluctuations in response to such occurrences as quarterly
variations in operating results, changes in earnings estimates by analysts,
announcements concerning new products, strategic relationships or technological
innovations by companies in the visual communications market, general conditions
of such industry and other events or facts. This pattern of extreme volatility
in the stock market, which in many cases were unrelated to the operating
performance of, or announcements concerning, the issuers of the affected stock
may adversely affect the market price of the Common Stock. See "Underwriting."
Possible Delisting of Securities from the Nasdaq National Market. While
the Company's Common Stock meets the current Nasdaq National Market listing
requirements and is expected to be initially included on the Nasdaq National
Market, there can be no assurance that the Company will meet the criteria for
continued listing. Continued inclusion on Nasdaq National Market generally
requires that (i) the Company maintain at least $4,000,000 in "net tangible
assets" (total assets less total liabilities and goodwill), (ii) the minimum bid
price of the Common Stock be $1.00 per share, (iii) there be at least 100,000
shares in the public float valued at $1,000,000 or more, (iv) the Common Stock
have at least two active market makers and (v) the Common Stock be held by at
least 400 holders.
On November 6, 1996, the Nasdaq National Market proposed changes to the
listing and maintenance requirements which will be submitted to the Commission
for final approval. If the current proposal is approved without modification,
the Company's qualification for continued listing on the Nasdaq National Market
would require that (i) the Company maintain at least $4,000,000 in "net tangible
assets," (ii) the minimum bid price of the Common Stock be $1.00 per share,
(iii) there be at least 750,000 shares in the public float, valued at least
$5,000,000 or more, (iv) the Common Stock have at least two active market makers
and (v) the Common Stock be held by at least 400 holders.
If the Company is unable to satisfy the Nasdaq National Market's
maintenance requirements, the Common Stock may be delisted from the Nasdaq
National Market. In such event, trading, if any, in the Common Stock would
thereafter be conducted on the Nasdaq SmallCap Market, subject to meeting the
requirements for listing on the Nasdaq SmallCap Market, or in the
over-the-counter market in the so-called "pink sheets" or the NASD's "Electronic
Bulletin Board." Consequently, the liquidity of the Company's securities could
be impaired, not only in the number of securities which could be bought and
sold, but also through delays in the timing of transactions, reduction in
security analysts and the news media's coverage of the Company and lower prices
for the Common Stock than might otherwise be attained.
Risks of Low-Priced Stock. If the Company's Common Stock was delisted from
Nasdaq National Market and could not be quoted on Nasdaq SmallCap Market (see
"-- Possible Delisting of Securities from the Nasdaq National Market"), it could
become subject to Rule 15g-9 under the Exchange Act, which imposes additional
sales practice requirements on broker-dealers which sell such securities to
persons other than established customers and "accredited investors" (generally,
individuals with net worths in excess of $1,000,000 or annual incomes exceeding
$200,000, or $300,000 together with their spouses). For transactions covered by
this rule, a broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transaction
prior to sale. Consequently, such rule may adversely affect the ability of
broker-dealers to sell the Common Stock and may adversely affect the ability of
purchasers in this Offering to sell any of the shares of Common Stock acquired
hereby in the secondary market.
Commission regulations define a "penny stock" to be, among others, any
non-exchange listed equity security that has a Market Price (as therein defined)
of less than $5.00 per share or with an exercise price of less
20
<PAGE>
than $5.00 per share, subject to certain exceptions. For any transaction
involving a penny stock, unless exempt, the rules require delivery, prior to any
transaction in a penny stock, of a disclosure schedule prepared by the
Commission relating to the penny stock market. Disclosure is also required to be
made about commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities. Finally, monthly
statements are required to be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in penny
stocks.
The foregoing required penny stock restrictions will not apply to the
Common Stock if such securities are quoted on the Nasdaq National Market or the
Nasdaq SmallCap Market and have certain price and volume information provided on
a current and continuing basis or meet certain minimum net tangible assets or
average revenue criteria. There can be no assurance that the Common Stock will
qualify for exemption from these restrictions. In any event, even if the Common
Stock was exempt from such restrictions, it would remain subject to Section
15(b)(6) of the Exchange Act, which gives the Commission the authority to
prohibit any person that is engaged in unlawful conduct while participating in a
distribution of a penny stock from associating with a broker-dealer or
participating in a distribution of a penny stock, if the Commission finds that
such a restriction would be in the public interest. If the Common Stock were
subject to the rules on penny stocks, the market liquidity for the Common Stock
could be severely adversely affected.
Shares Eligible for Future Sale; Effect of Outstanding Options and
Warrants. Future sales of Common Stock by existing stockholders pursuant to Rule
144 under the Securities Act could have an adverse effect on the price of the
Common Stock. All of the 6,250,000 shares of Common Stock held by existing
stockholders are eligible for sale under Rule 144 beginning in October 1998. Of
the 6,250,000 shares of Common Stock outstanding, 500,000 are Escrow Shares.
Currently, 5,827,040 of the 6,250,000 shares of Common Stock outstanding are
held by affiliates and will be subject to volume limitations after October 1998.
In addition, the existing stockholders have entered into lock-up agreements (the
"Lock-Up Agreements") with the Underwriters wherein they agreed not to sell or
otherwise dispose of any shares of Common Stock or to exercise registration
rights for a period of 24 months from the consummation of this Offering without
the prior written consent of the Representative; provided, however, that
stockholders of the Company (other than officers and directors of the Company)
may sell or otherwise dispose of shares of Common Stock in one or more private
sales without such consent if the acquirors (and any subsequent acquirors) of
such shares enter into a Lock-Up Agreement with the Underwriters restricting the
transferability of such shares for the remainder of such 24 month period. The
Underwriters have demand and piggy-back registration rights covering the
securities underlying the Unit Purchase Options and Vertical, Walther Glas, and
Messrs. Vogt and Sippel have demand and piggy-back registration rights with
respect to their respective securities. Sales of Common Stock or the possibility
of such sales, in the public market may adversely affect the market price of the
securities offered hereby. See "Shares Eligible for Future Sale."
Upon completion of this Offering, the Company will have outstanding (i)
the Investor Warrants to purchase 1,875,000 shares of Common Stock, (ii) the
Stockholder Warrants to purchase 473,485 shares of Common Stock and (iii) the
Underwriters' Warrants to purchase an aggregate of 310,000 shares of Common
Stock. In addition, the Company has reserved for issuance 500,000 shares of
Common Stock in connection with the 1996 Stock Option Plan, none of which have
been granted. If the Underwriters' Warrants are exercised, the value of the
Common Stock held by public investors will be diluted, if the value of such
stock immediately prior to the exercise of such Underwriters' Warrants exceeds
the exercise price thereof, with the extent of such dilution depending upon such
excess. The Underwriters' Warrants afford the holders thereof the opportunity,
at nominal cost, to profit from a rise in the market price of the Common Stock,
which may adversely affect the terms upon which the Company could issue
additional Common Stock during the term thereof. The existence of these
securities could have an adverse effect on the price of the Company's
outstanding securities. In addition, holders of such warrants and options are
likely to exercise them when, in all likelihood, the Company could obtain
additional capital on terms more favorable than those provided by the warrants
and options. Further, while these warrants and options are outstanding, the
Company's ability to obtain additional financing on favorable terms may be
adversely affected. See "Description of Securities" and "Underwriting."
21
<PAGE>
USE OF PROCEEDS
The net proceeds of this Offering to the Company, after deducting
underwriting discounts and commissions and other estimated expenses of this
Offering payable by the Company, are expected to be approximately $16.0 million
(approximately $18.0 million if the Underwriter's over-allotment option is
exercised in full), assuming an initial public offering price of $6.00 per share
of Common Stock. The Company intends to use the net proceeds as follows:
<TABLE>
<CAPTION>
Approximate
Amount of Net Percentage of
Proceeds Net Proceeds
--------------- --------------
<S> <C> <C>
Research and development ................................................. $ 6,000,000 37.5%
Repayment of certain shareholder loans(1) and payment of
dividend on Series A Preferred Stock(2) ................................. 1,700,000 10.6%
Payment under Marketing Agreement(3) ...................................... 400,000 2.5%
Working capital and general corporate purposes including increases in
sales staff, expansion in the United States and possible acquisitions,
other investments or joint venture agreements ........................... 7,900,000 49.4%
----------- ------
Total .................................................................. $16,000,000 100.0%
=========== ======
</TABLE>
- ----------
(1) Consists of (i) loans in the aggregate amount of approximately $1.2
million made to IAT AG by Walther Glas, a stockholder of Multimedia,
during 1996 for working capital, bearing interest at 10% annually and
maturing at the earlier of the consummation of this Offering or June 30,
1997, and (ii) loans expected to be made in early February 1997 in the
aggregate amount of approximately $500,000 by Vertical, Walther Glas and
Messrs. Vogt and Sippel for working capital, bearing interest at 8%
annually and maturing at the earlier of the consummation of this Offering
or June 30, 1997, unless extended by mutual agreement by the parties. In
connection with these loans, the Company granted Walther Glas and Messrs.
Vogt and Sippel certain registration rights. See "Certain Transactions."
(2) The 1,875,000 shares of Series A Preferred Stock issued on October 24,
1996 of which 890,152 were issued to Vertical, will automatically convert
into Common Stock upon consummation of this Offering. The Series A
Preferred Stock has an annual dividend of $.056 per share (equal to a 7%
dividend per annum on the purchase price of such shares). The dividend
payable on the Series A Preferred Stock is approximately $25,000 at
January 31, 1996.
(3) The Company will pay a $400,000 fee pursuant to the Marketing Agreement to
General Capital, an affiliate of Vertical, a stockholder of the Company.
See "Certain Transactions."
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of this Offering based on the current status of its business.
Future events, including changes in competitive conditions and the status of the
Company's business from time to time, may make changes in the allocation of the
net proceeds of this Offering necessary or desirable. The Company anticipates
that the remaining proceeds of this Offering will be sufficient to fund its
operations for the 18 month period following this Offering, although the
Company's capital requirements are subject to numerous contingencies associated
with the early-stage of the Company's third generation products. Pending
application, the net proceeds will be invested in short-term, interest-bearing
investments. Any proceeds received upon exercise of the Underwriters'
over-allotment option or the Underwriters' Warrant will be added to working
capital. See "Certain Transactions."
The Company continually evaluates potential strategic partners for
additional applications and broader marketing of its technology. The Company may
make acquisitions, other investments or may enter into joint venture agreements
for strategic reasons.
A substantial part of the potential market for the Company's products are
in the United States due to the geographic spread, technological sophistication
and number of potential users of the Company's products. Entering into the
United States market is a fundamental part of the Company's strategy. The
Company intends to expand its marketing efforts, both by expanding its sales and
marketing staff in Europe as well as establishing an office and a sales and
marketing staff in the United States during 1997.
22
<PAGE>
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and does not
anticipate or intend paying cash dividends in the foreseeable future on its
Common Stock.
EXCHANGE RATE
The following table sets forth, for the periods indicated, the noon
exchange rate as certified for custom purposes by the Federal Reserve Bank of
New York for the Deutsche Mark ("DM") and the Swiss Franc ("SF"), respectively,
per U.S. dollar. On February 3, 1997, such rate was DM 1.6399=$1.00 and
1.4205=$1.00, respectively.
<TABLE>
<CAPTION>
As of and for the As of and for the
Year Ended December 31 Nine Months Ended
----------------------------------------------------------------
1994 1995 1996 September 30, 1996
------------------- -------------------- -------------------- --------------------
DM SF DM SF DM SF DM SF
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exchange rate at end of period ....... 1.5495 1.3100 1.4345 1.1540 1.5411 1.3427 1.5270 1.2555
Average exchange rate during period(a) 1.6216 1.3367 1.4371 1.1820 1.5044 1.2358 1.4988 1.2213
Highest exchange rate during period .. 1.7658 1.4861 1.5591 1.3141 1.5665 1.3505 1.5482 1.2742
Lowest exchange rate during period ... 1.4921 1.2441 1.3543 1.1670 1.4313 1.1507 1.4347 1.1569
</TABLE>
- ----------
(a) The average of the exchange rates on the last day of each month during the
applicable period.
23
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996, on an actual basis, on a pro forma basis and on an as
adjusted basis to give effect to the sale of the Common Stock offered hereby at
an assumed price per share of Common Stock of $6.00 (assuming no exercise of the
Underwriters' over-allotment option), and the application of net proceeds.
<TABLE>
<CAPTION>
September 30, 1996
-------------------------------------------------
As
Actual Pro Forma(1) Adjusted(2)
-------------- -------------- --------------
<S> <C> <C> <C>
Loans payable - stockholders ............................. $ 1,394,000 $ 1,394,000 $ 1,012,000
Preferred stock, par value $.01 per share; 2,375,000
shares authorized, 1,875,000 shares Series A issued and
outstanding(3) .......................................... -- -- --
Stockholders' equity:(4)
Common stock, par value $.01 per share; 20,000,000
shares authorized, 4,375,000 shares issued and
outstanding, and 6,250,000 pro forma and 9,350,000
shares as adjusted ................................ 43,750 62,500 93,500
Capital in excess of par value ........................... 8,002,884 9,484,134 25,453,134
Accumulated deficit ...................................... (10,917,950) (10,917,950) (10,917,950)
Cumulative translation adjustments ....................... 16,089 16,089 16,089
------------ ------------ ------------
Total stockholders' equity .......................... (2,855,227) (1,355,227) 14,644,773
------------ ------------ ------------
Total capitalization ..................................... $ (1,461,227) $ 38,773 $ 15,656,773
============ ============ ============
</TABLE>
- ----------
(1) Gives effect to the issuance of 1,875,000 shares of Series A Preferred
Stock in October 1996 for $1,500,000 and the conversion of the Series A
Preferred Stock into 1,875,000 shares of Common Stock upon the
consummation of this Offering.
(2) Gives effect to the net proceeds of $16,000,000 from the sale of 3,100,000
shares of Common Stock at an assumed price per share of $6.00, the issuance
in October 1996 of 1,875,000 shares of Series A Preferred Stock for
$1,500,000 and their automatic conversion into 1,875,000 shares of Common
Stock upon the consummation of this Offering the receipt of an aggregate of
approximately $1,420,000 of stockholder loans received subsequent to
September 30, 1996 and to be received in early February 1997, and the
repayment of an aggregate of approximately $1,802,000 of stockholder loans,
of which $120,000 was repaid in November 1996.
(3) Upon consummation of this Offering, 1,875,000 shares of Series A Preferred
Stock will be converted into an equal number of shares of Common Stock and
the shares of the Series A Preferred Stock will be cancelled.
Consequently, the Company will have 500,000 shares of Blank Check
Preferred Stock authorized.
(4) Includes 500,000 Escrow Shares. See "Principal Stockholders -- Escrow
Shares." Excludes (i) 500,000 shares of Common Stock reserved for issuance
under the Company's 1996 Stock Option Plan, none of which have been granted,
(ii) 310,000 shares of Common Stock issuable upon exercise of the
Underwriters' Warrants, (iii) 1,875,000 shares of Common Stock issuable upon
exercise of the Investor Warrants, (iv) 473,485 shares of Common Stock
issuable upon exercise of the Stockholder Warrants and (v) 465,000 shares of
Common Stock issuable upon exercise of the Underwriters' over-allotment
option.
24
<PAGE>
DILUTION
At September 30, 1996, the pro forma net tangible book value of the
Company was $(1,526,807) or $(.27) per share of Common Stock, after giving
effect to the issuance of 1,875,000 shares of Series A Preferred Stock in
October 1996 for $1,500,000 and upon the automatic conversion of the Series A
Preferred Stock into 1,875,000 shares of Common Stock upon the consummation of
this Offering. The pro forma net tangible book value per share represents the
amount of the Company's total assets, less the amount of its intangible assets
and liabilities, divided by the number of shares of Common Stock outstanding
(exclusive of the Escrow Shares). After giving effect to (i) the sale of the
Common Stock offered hereby (assuming no exercise of the Underwriters' over-
allotment option) at an assumed offering price of $6.00 per share, (ii) after
deducting the underwriting discounts and estimated expenses of the Offering,
(iii) the receipt of an aggregate of approximately $1,420,000 of stockholder
loans received subsequent to September 30, 1996 and to be received in early
February 1997, and the repayment of an aggregate of approximately $1,802,000 of
stockholder loans, of which $120,000 was repaid in November 1996, (iv) the
payment of $500,000 ($100,000 of which was paid in October 1996) pursuant to the
Marketing Agreement, and (v) the issuance of 1,875,000 shares of Common Stock
issuable upon the automatic conversion of all the outstanding shares of Series A
Preferred Stock upon the consummation of this Offering, the net pro forma
tangible book value of the Company as of September 30, 1996 would have been
$14,633,193 or $1.65 per share. This represents an immediate increase in net
tangible book value of $1.92 per share to existing stockholders and an immediate
dilution in net tangible book value of $4.35 per share to new investors in this
Offering. The following table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Public offering price per share ................................. $6.00
Pro forma net tangible book value per share at September 30,
1996 .......................................................... $ (0.27)
Increase in net tangible book value attributable to new
investors ..................................................... 1.92
------
Pro forma net tangible book value after the Offering ........... 1.65
-----
Dilution to new investors ...................................... $4.35
=====
</TABLE>
The following tables sets forth on an unaudited pro forma basis at
September 30, 1996, the difference between the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid by the existing holders of Common Stock and by the new investors,
before deducting the underwriting discounts and commissions and estimated
offering expenses payable by the Company, at an assumed initial public offering
price of $6.00 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
--------------------------------------------------- --------------------------
Non-Escrow Escrow Total Average Price
Shares Shares Number Percent Amount Percent Per Share
--------------------- ------------ --------- ----------- --------- ------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Existing stockholders . 5,750,000 500,000 6,250,000 66.8% $ 9,546,634 33.9% 1.53
New investors ....... 3,100,000 -- 3,100,000 33.2% 18,600,000 66.1% 6.00
--------- ------- --------- ------ ----------- ------
Total .......... 8,850,000 500,000 9,350,000 100.0% $28,146,634 100.0%
========= ======= ========= ====== =========== ======
</TABLE>
The foregoing tables do not give effect to Common Stock issuable upon
exercise of outstanding warrants. See "Capitalization."
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following historical financial data, except for the information
provided for the years ended December 31, 1991 and 1992, respectively and for
the nine months ended September 30, 1995 and 1996, respectively, have been
derived from the Consolidated Financial Statements. Consolidated Interim
Financial Statements and the historical financial data for the years ended
December 31, 1991 and 1992, respectively are unaudited, but in the opinion of
the Company's management contain all adjustments, consisting only of normal
recurring accruals, which are necessary for a fair presentation of the
information included herein. Multimedia was formed in September 1996 as a
holding company for the existing business of IAT AG and IAT Germany.
The following selected consolidated financial data is derived from, and
should be read in conjunction with, the Consolidated Financial Statements of the
Company and the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
---------------------------------------------------------------- -----------------------
1991 1992 1993 1994 1995 1995 1996
---------- ----------- ---------- ---------- ---------- ---------- --------
(unaudited) (unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales ............................. $ 635 $ 1,216 $ 1,963 $ 1,053 $ 1,510 $ 768 $ 961
Cost of sales ......................... 425 903 1,171 700 968 516 690
------- ------- ------ ------- ------- ------- ------
Gross margin .......................... 210 313 792 353 542 252 271
------- ------- ------ ------- ------- ------- ------
Operating Expenses:
Research and development costs ........ 699 434 1,828 2,269 2,531 1,966 1,952
Less participations received .......... -- -- (962) (2,207) (868) (585) (272)
------- ------- ------ ------- ------- ------- ------
Research and development expenses, net . 699 434 866 62 1,663 1,382 1,680
Selling, general and administrative
expenses ............................. 2,498 2,009 1,193 1,538 2,640 1,969 2,198
------- ------- ------ ------- ------- ------- ------
Operating loss ........................ $(2,987) $(2,130) $(1,267) $(1,247) $(3,761) $(3,099) $(3,607)
======= ======= ======= ======= ======= ======= =======
Extraordinary item .................... $ -- $ 4,838(1) $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= ======= ======= =======
Net Income (loss) ..................... $(3,155) $ 2,639 $(1,324) $(1,335) $(3,730) $(3,162) $(3,733)
======= ======= ======= ======= ======= ======= =======
Net Income (loss) per common share .... $ (0.89) $ 0.74 $ (0.36) $ (0.33) $ (0.77) $ (0.71) $ (0.65)
Weighted average number of shares
outstanding. ......................... 3,563 3,563 3,647 4,000 4,837 4,445 5,750
</TABLE>
- ----------
(1) Represents gain on restructuring.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1991 1992 1993 1994 1995 September 30, 1996
--------- --------- -------- -------- --------- ------------------------------------
(unaudited)
------------------------------------
Pro As
Actual Actual Actual Actual Actual Actual Forma(1) Adjusted(2)
--------- --------- -------- -------- --------- -------- --------- -----------
(unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Current assets ................... $ 903 $ 527 $1,671 $1,308 $ 1,489 $ 1,006 $ 2,506 $17,784
Working capital (deficiency) ..... (425) (1,125) 274 (865) (1,106) (3,052) (1,552) 14,627
Total assets ..................... 1,815 974 2,065 1,771 2,056 1,695 3,195 18,813
Current liabilities .............. 1,328 1,652 1,397 2,173 2,595 4,058 4,058 3,156
Loans payable - stockholders ..... 4,072 112 91 336 349 492 492 1,012
Total liabilities ................ 5,400 1,764 1,488 2,509 2,944 4,550 4,550 4,168
Stockholders equity
(deficiency)(3) ................. (3,585) (790) 577 (738) (888) (2,855) (1,355) 14,645
</TABLE>
26
<PAGE>
- ----------
(1) Gives effect to the issuance of 1,875,000 shares of Series A Preferred
Stock in October 1996 for $1,500,000, and the automatic conversion of the
Series A Preferred Stock into 1,875,000 shares of Common Stock upon the
consummation of the Offering.
(2) Gives effect to the net proceeds of $16,000,000 from the sale of 3,100,000
shares of Common Stock at an assumed price per share of $6.00, the payment
of $500,000 pursuant to the Marketing Agreement, the issuance in October
1996 of 1,875,000 shares of Series A Preferred Stock for $1,500,000 and
their automatic conversion into 1,875,000 shares of Common Stock upon the
consummation of this Offering, the receipt of an aggregate of approximately
$1,420,000 of stockholder loans received subsequent to September 30, 1996
and to be received in early February 1997, and the repayment of an aggregate
of approximately $1,802,000 of stockholder loans, of which $120,000 was
repaid in November 1996.
(3) Includes 500,000 Escrow Shares. See "Principal Stockholders -- Escrow
Shares" Excludes (i) 500,000 shares of Common Stock reserved for issuance
under the Company's 1996 Stock Option Plan, none of which have been granted,
(ii) 310,000 shares of Common Stock issuable upon exercise of the
Underwriters' Warrants, (iii) 1,875,000 shares of Common Stock issuable upon
exercise of the Investor Warrants, (iv) 473,485 shares of Common Stock
issuable upon exercise of the Stockholder Warrants and (v) 465,000 shares of
Common Stock issuable upon exercise of the Underwriters' over-allotment
option.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the consolidated financial condition and
results of operations of the Company should be read in conjunction with the
Financial Statements and Notes to Financial Statements included elsewhere in
this Prospectus. This Prospectus contains forward-looking statements which
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors."
Overview
The Company develops, manufactures and markets customizable high quality
visual communications systems for use in desktop computers which permit users to
hold multi-point video conferences in two or more locations, as well as
providing additional video, audio and data transfer features not available in
traditional video conferencing systems. Unlike traditional video conferencing
companies, the Company's focus is on high quality system solutions. The Company
believes that the needs of its target customers cannot be addressed by currently
available lower quality software-only products (including Internet products) or
by high quality traditional video conferencing products. In addition to
providing audio and video images of the other participants in the
tele-conference, the Company's systems are also capable of simultaneously
providing images and data in windows on the computer screen which can be viewed
by all participants in the video conference and permit users at remote computer
terminals to modify data and manipulate images through the operation of
apparatus, such as microscopes and video cameras. These systems, which include
both proprietary and third-party software and hardware, are inter-operable with
products from certain vendors and comply with all relevant international
standards, including H.320. The Company sells its systems and kits to end-users
in a variety of industries and to OEMs and integrators. The Company has sold an
aggregate of approximately 500 systems and kits, including pilot projects, since
1990.
The Company's technology has been developed with its Strategic Partners,
including DT, Texas Instruments, IBM Germany and Olympus. The Company believes
that its technology 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 desktop computer
which permits other applications to continue to operate without interruption. In
addition, the Company's new generation of systems currently being developed is
based on a programmable digital signal processor which provides flexibility for
adapting to new algorithms, standards or user requirements. The Company believes
that the high image quality and other features provided by the Company's systems
will meet the requirements of various professional users including tele-medicine
(i.e., transferring microscope, x-ray, video or other diagnostic images for
evaluation by a physician at a remote site) and tele- surveillance (i.e., remote
viewing and control of surveillance cameras and remote access control via
switched networks). In excess of $18 million was invested in the Company by its
stockholders and the Company has invested approximately $10 million in the
research and development of this technology (including approximately $4 million
in participations from the Company's Strategic Partners). This investment in the
Company's technology does not include additional amounts invested directly by
the Company's Strategic Partners in the development of their components used in
the Company's systems.
The Company has developed two generations and is currently developing a
third generation of its technology. The first generation was developed using a
large number of computer boards and readily available components as the
Company's initial entry in the visual communications field and to assess
customer needs. The second generation, utilized in the Company's current
systems, is characterized by a substantially reduced number of computer boards
and improved capabilities. These systems use a combination of fully programmable
digital signal processors and less-flexible hardwired processors. The second
generation systems have inherently high prices per unit. For example, the
Company's second generation MFKS Vision and Live systems have average wholesale
prices of approximately $6,500 to $20,000 per system (depending on the
composition of systems required by the user). Third generation systems, which
the Company expects to begin shipping in 1997, utilize Texas Instruments' C8x
programmable digital signal processor and are designed for commercial production
with target wholesale sales prices of approximately $1,500 to $8,000 per system
for corre-
28
<PAGE>
sponding MFKS systems. The Company believes that its third generation of
systems will be its first systems which have the potential for widespread
commercialization and that increasing sales of these products will result in
corresponding decreases in sales, and eventual phasing out of its second
generation products.
The Company currently markets its products, both through its own sales
staff and through certain of its Strategic Partners, primarily in Europe. A
substantial part of the potential market for the Company's products are in the
United States due to the geographic spread, technological sophistication and
number of potential users of the Company's products. Entering into the United
States market is a fundamental part of the Company's strategy. The Company
intends to expand its marketing efforts, both by expanding its sales and
marketing staff in Europe as well as establishing an office and a sales and
marketing staff in the United States during 1997. The Company continually
evaluates potential strategic partners for additional applications and broader
marketing of IAT's technology. The Company may make acquisitions and other
investments or may enter into joint venture agreements for strategic reasons.
The Company's results of operations will be dependent upon the Company's ability
to market its products in the United States, to launch its third generation of
products on a timely basis and to achieve market acceptance and penetration.
The Company's revenues have quarterly fluctuations in which the fourth
quarter has historically reflected the highest quarterly revenues, as a result
of the perceived desire by its customers to deplete allocated budgets for the
Company's products prior to the end of the calendar year. There can be no
assurance that this trend will continue. Quarterly fluctuations depend in part
on the timing of introduction of new products by the Company and its
competitors. The Company's sales for the fourth quarter of 1996 were not as high
proportionately as in past years or as compared to the first three quarters of
1996 as the Company's customers await the release of the Company's third
generation systems.
The Company anticipates the net loss for the year ended December 31, 1996
to be approximately $5,100,000.
Approximately 86%, 87%, 68% and 87% of the Company's revenues for the
years ended December 31, 1993, 1994, 1995 and the nine months ended September
30, 1996, respectively have been received from DT and its affiliates. The
Company's volume of sales to DT and its affiliates has dropped in the third and
fourth quarter of 1996 from the corresponding periods in the prior year as these
customers awaited the release of the Company's third generation systems. The
loss of sales or a significant reduction in sales to DT and its affiliates could
have an adverse effect on the financial condition, results of operations and
cash flows of the Company.
The Company's sales are made to customers principally in Switzerland and
Germany with revenues created in Deutsche Marks and Swiss Francs. The Company's
functional currency is the Swiss Franc. The Company does not currently engage in
hedging transactions to offset the risk of currency fluctuations but may engage
in such transactions in the future.
RESULTS OF OPERATIONS
Nine Months ended September 30, 1996 and 1995
The average Swiss Franc to U.S. Dollar exchange rate was SF 1.20 = $1.00
in the nine months ended September 30, 1996 as compared to SF 1.18 = $1.00 in
the nine months ended September 30, 1995.
Revenues. The Company's revenues from the sale of multimedia systems
products for the nine months ended September 30, 1996 increased by approximately
25.1% to $961,000 from $768,000 for the nine months ended September 30, 1995.
The increase in sales resulted primarily from an increase in the number of units
shipped partially offset by a decrease in unit sales price as the Company's
technology shifted and lower priced kits were introduced.
Cost of sales. Cost of sales for the nine months ended September 30, 1996
increased to $690,000 from $516,000 for the nine months ended September 30,
1995. The cost of sales as a percentage of sales increased to 71.8% for the nine
months ended September 30, 1996 from 67.2% for the nine months ended September
30, 1995. Although the Company realized savings from purchasing economies for
the additional units produced, the savings were more than offset due to the
aforementioned decrease in the unit sales price for the Company's products
resulting in a higher cost of sales percentage in 1996.
29
<PAGE>
Research and development costs. Research and development costs incurred
decreased by approximately 0.7% to $1,952,000 for the nine months ended
September 30, 1996 from $1,966,000 for the nine months ended September 30, 1995.
Although there was no significant change in these costs, the Company increased
the number of employees involved in research and development to complete their
third generation of products. The increased payroll costs resulting from the
additional employees were offset by comparable decreases in the material and
outside contracting costs during 1996. The Company receives participations which
are reimbursements from certain companies for research and development projects
in which the Company and such companies can both benefit ("Research
Participations"). Research Participations decreased to $272,000 for the nine
months ended September 30, 1996 compared to $585,000 for the nine months ended
September 30, 1995. The decrease in Research Participations received was
primarily a result of the completion of certain development projects for DT.
Selling expenses. Selling expenses increased by approximately 23.1% to
$1,156,000 for the nine months ended September 30, 1996 from $939,000 for the
nine months ended September 30, 1995. This is primarily a result of an increase
in the number of personnel in sales and marketing in an effort to create the
demand for the Company's product as well as help expand the product base of
applications for the Company's products.
General and administrative expenses. General and administrative expenses
increased by approximately 1.1% to $1,042,000 for the nine months ended
September 30, 1996 from $1,031,000 for the nine months ended in the year ended
September 30. 1995.
Interest. Interest expense increased by approximately 51.1% to $139,000
for the nine months ended September 30, 1996, from $92,000 for the nine months
ended September 30, 1995, principally due to the increase in stockholder and
bank loans.
Net Loss. Net loss for the nine months ended September 30, 1996 increased
by approximately 18.1% to $3,733,000 from $3,162,000 for the nine months ended
September 30, 1995. The loss primarily increased as a result of the Company
commencing the marketing of the third generation of its products and a decrease
in Research Participations.
YEARS ENDED DECEMBER 31, 1995 AND 1994
The average exchange rate for the U.S. Dollar declined substantially as
compared to the Swiss Franc by approximately 13.2% resulting in an increase in
all revenue and expense accounts in 1995 by this same percentage. The average
Swiss Franc to U.S. Dollar exchange rate was SF 1.18 = $1.00 in 1995 as opposed
to SF 1.36 = $1.00 in 1994.
Revenues. The Company's revenues for the year ended December 31, 1995
increased by approximately 43.4% to $1,510,000 from $1,053,000 for the year
ended December 31, 1994, an increase of $457,000. Approximately $139,000 of the
increase was a result of the weakening of the U.S. Dollar against the Swiss
Franc. The remaining increase of approximately $318,000 was primarily a result
of an increase in the unit sales resulting from the introduction of the second
generation of products.
Cost of sales. Cost of sales for the year ended December 31, 1995
increased to $968,000 from $700,000 for the year ended December 31, 1994. The
cost of sales as a percentage of sales decreased to 64.1% for the year ended
December 31, 1995 from 66.4% for the year ended December 31, 1994 as a result of
purchase price savings due to larger quantities purchased in 1995. Additionally
the Company's fixed costs for plant and indirect labor and other costs decreased
as a percentage of sales.
Research and development. Research and development costs increased by
approximately 11.5% to $2,531,000 for the year ended December 31, 1995 from
$2,269,000 for the year ended December 31, 1994. The increase was caused
principally by the weakening in the U.S. Dollar versus the Swiss Franc. The
number of personnel engaged in research activities during the two periods
remained constant. Research Participations received decreased to $868,000 during
the year ended December 31, 1995 from $2,207,000 received for the year ended
December 31, 1994 due to the lower number of joint projects in progress during
1995 and the completion of certain large projects in 1994 with DT.
30
<PAGE>
Selling expenses. Selling expenses increased by approximately 71.3% to
$1,266,000 for the year ended December 31, 1995 from $739,000 for the year ended
December 31, 1994, an increase of $527,000. Approximately $100,000 of this
increase is due to the weakening of the U.S. Dollar compared to the Swiss Franc.
The remainder of the increase was due to an increase in personnel costs, trade
shows, advertising and other selling expenses.
General and administrative expenses. General and administrative expenses
increased by approximately 72.0% to $1,374,000 for the year ended December 31,
1995 from $799,000 for the year ended December 31, 1994, an increase of
$575,000. Approximately $106,000 of this increase is a result of the weakening
of the U.S. Dollar compared to the Swiss Franc. Personnel costs were increased
by approximately $220,000 with the remaining increase resulting from an increase
in professional fees, rents and other fixed costs in addition to an increase in
the capital stock tax paid in Switzerland.
Interest. Interest expense increased by approximately 3.2% to $129,000 for
the year ended December 31, 1995 from $125,000 for the year ended December 31,
1994, principally due to the increase in bank loans.
Net Loss. Net loss for the year ended December 31, 1995 increased by
approximately 179.4% to $3,730,000 from $1,335,000 for the year ended December
31, 1994. The loss increased principally due to the decrease in Research
Participations received in 1995, and the increase in the selling, general and
administrative expenses previously discussed.
YEARS ENDED DECEMBER 31, 1994 AND 1993
The average Swiss Franc to U.S. Dollar exchange rate was SF 1.36 = $1.00
in 1994 as compared to SF 1.48 = $1.00 in 1993.
Revenues. Revenues decreased by approximately 46.4% to $1,053,000 for the
year ended December 31, 1994 from $1,963,000 for the year ended December 31,
1993, a decrease of $910,000. The decrease was principally due to a combination
of less units sold as the Company was developing its second generation of
products along with substantially lower unit selling prices in 1994 since the
Company's products contained less hardware than in 1993.
Cost of sales. Cost of sales for the year ended December 31, 1994
decreased to $700,000 from $1,171,000 for the year ended December 31, 1993. The
cost of sales as a percentage of sales increased to 66.4% for the year ended
December 31, 1994 from 59.6% for the year ended December 31, 1993. The increase
was principally a direct result of the fixed costs being a higher percentage of
the lower sales volume.
Research and development. Research and development costs increased by
approximately 24.1% to $2,269,000 for the year ending December 31, 1994 from
$1,828,000 for the year ended December 31, 1993, an increase of $441,000. The
increase was caused by the Company shifting their emphasis to research and
development in 1994 to create new and improved products. At the same time the
Research Participations increased as a result of DT's demand for new projects.
During 1994 the Company's Research Participations received reached $2,207,000 as
compared to $962,000 received in 1993.
Selling expenses. Selling expenses increased approximately 68.3% to
$739,000 for the year ended December 31, 1994 from $439,000 for the year ended
December 31, 1993, an increase of $300,000. The increase in selling expenses was
a result of an increase in personnel costs of approximately $170,000, an
increase in trade shows and advertising of approximately $80,000, and the
balance of the increase due to other selling expenses including telephone,
utilities and travel.
General and administrative expenses. General and administrative costs
increased by approximately 6.0% to $799,000 for the year ended December 31, 1994
from $754,000 for the year ended December 31, 1993. The increase was principally
due to an increase in the capital stock tax paid to Switzerland.
Interest. Interest expense increased by approximately 78.6% to $125,000
for the year ended December 31, 1994 from $70,000 for the year ended December
31, 1993, principally due to the increase in notes payable banks.
31
<PAGE>
Net Loss. Net loss for the year ended December 31, 1994 increased by
approximately 0.8% to $1,335,000 from $1,324,000 for the year ended December 31,
1993.
INCOME TAXES
The Company, since inception, has not generated any taxable income. The
Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 ("FAS 109"). The Company has not realized any taxable income
or loss in the United States through September 30, 1996. At September 30, 1996
the Company has net operating loss carryforwards ("NOL") for Swiss and German
income tax purposes of approximately $13,373,000 and $1,251,000 respectively.
The Swiss NOL's expire between 1996 and 2002, and the German NOL's have no
expiration date.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficiency of $3,052,000 and $1,107,000
and a stockholders' deficiency of $2,855,000 and $888,000 at September 30, 1996
and December 31, 1995, respectively. The significant increase in the working
capital deficiency, and the stockholders' deficiency resulted from the excess of
the loss incurred of $3,733,000 during the nine months ended September 30, 1996
over the capital of $1,540,000 contributed by the stockholders. Net cash used in
operations was $3,231,000 and $3,252,000 for the year ended December 31, 1995
and the nine months ended September 30, 1996 respectively. The Company generated
cash of $491,000 from the collection of trade receivables during the nine month
period ended September 30, 1996 and used $280,000 for increased inventories. The
Company's audited financial statements for the year ended December 31, 1995
contain an emphasis paragraph concerning the Company's ability to continue as a
going concern.
Since inception, the Company's expenses have significantly exceeded its
net sales, resulting in an accumulated deficit of $10,918,000 and $7,185,000 at
September 30, 1996 and December 31, 1995, respectively. The Company has funded
its operations since inception primarily through the private placement of equity
securities, loans from stockholders and Research Participations. Through
September 30, 1996 the Company had raised approximately $14 million from private
placements, including approximately $6 million of loans and capital previously
restructured, $1.4 million in stockholder loans and approximately $4.3 million
in Research Participation agreements. Additionally, the Company generated
capital through debt forgiveness from vendors of approximately $1.4 million in
1992.
IAT AG has a line of credit and two loans with a Swiss bank for
approximately $1,520,000 in the aggregate, bearing interest at 7% per annum and
of which approximately $1,446,000 is outstanding as of September 30, 1996. IAT
Germany has a line of credit with a German bank for approximately $700,000 which
is outstanding as of September 30, 1996. This loan bears interest at 10.5%
annually. In November 1996, IAT Germany has received a conditional grant from
the Senate Administration for the Economy and Business of the State of Berlin,
Germany whereby IAT Germany will be reimbursed approximately $130,000 for
development costs to be incurred subsequent to September 30, 1996. In compliance
with the conditions of this grant, IAT Germany intends to locate facilities with
respect to its wavelet research in Berlin and to fund a portion of this research
with the proceeds of this grant.
During the nine months ended September 30, 1996, the Company received
loans from stockholders aggregating approximately $1,045,000. In October 1996,
the Company received $1.5 million in connection with the Private Placement of
the Series A Preferred Stock. In addition, in October and November 1996, the
Company received loans from its stockholders aggregating $920,000, and repaid an
existing loan of $120,000 to a company controlled by one of its principal
stockholders. The Company expects that additional stockholder loans will be made
to it in early February 1997 in the aggregate amount of $500,000 by Vertical,
Walther Glas and Messrs. Vogt and Sippel for working capital, bearing interest
at 8% annually and maturing at the earlier of the consummation of this Offering
or June 30, 1997 unless extended by mutual agreement by the parties. Research
Participations have declined, and are expected to continue at a reduced rate
since the Company has developed the base technology for its third generation.
Research and development expenses however, are expected to continue at the same
rate in order to develop additional products and customized software which are
expected to generate additional revenues for the Company.
32
<PAGE>
The Company's expenditures are currently exceeding its revenues by
approximately $450,000 per month (for the nine months ended September 30, 1996
the expenditures exceeded revenues by approximately $400,000 per month),
principally as a result of the continued research and development related to new
products and operating losses, therefore, the $1.5 million received upon the
consummation of the Private Placement and the additional stockholder loans
expected to be received are expected to be sufficient only to cover the
Company's operations through February 1997 at which time the Company will have
exhausted its operating funds without the proceeds of this Offering. The Company
intends to finance its research and development, expansion of marketing
activities and working capital with the net proceeds of this Offering.
Management believes that the proceeds of this Offering should be sufficient to
fund the Company's operations and its working capital requirements for the 18
month period following this Offering, although the Company's requirements are
subject to numerous contingencies associated with the early-stage of the
Company's third generation products. 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. The Company
may need to raise equity or debt financing. There can be no assurance that the
Company will be able to raise such financing on acceptable terms, if at all. In
addition, there can be no assurance that such financing will not be dilutive to
the existing stockholders. Failure to raise capital when needed could have a
material adverse effect on the financial condition and results of operations of
the Company.
ESCROW SHARES
The Company contemplates that the release of Escrow Shares, should it
occur, will result in a substantial non-cash compensation charge to operations,
based on the then fair market value of such shares. Such charge could
substantially increase the Company's loss or reduce or eliminate the Company's
net income, if any, for financial reporting purposes for the period during which
shares are or become probable of being released from escrow. Although the amount
of compensation expense recognized by the Company will not effect the Company's
total stockholders equity, it may depress the market price of the Company's
securities. See "Principal Stockholders--Escrow Shares."
33
<PAGE>
BUSINESS
GENERAL
The Company develops, manufactures and markets customizable high quality
visual communications systems for use in desktop computers which permit users to
hold multi-point video conferences in two or more locations, as well as
providing additional video, audio and data transfer features not available in
traditional video conferencing systems. Unlike traditional video conferencing
companies, the Company's focus is on high quality system solutions. The Company
believes that the needs of its target customers cannot be addressed by currently
available lower quality software-only products (including Internet products) or
by high quality traditional video conferencing products. In addition to
providing audio and video images of the other participants in the
tele-conference, the Company's systems are also capable of simultaneously
providing images and data in windows on the computer screen which can be viewed
by all participants in the video conference and permit users at remote computer
terminals to modify data and manipulate images through the operation of
apparatus, such as microscopes and video cameras. These systems, which include
both proprietary and third-party software and hardware, are inter-operable with
products from certain vendors and comply with all relevant international
standards, including H.320. The Company sells its systems and kits to end-users
in a variety of industries and to OEMs and integrators. The Company has sold an
aggregate of approximately 500 systems and kits, including pilot projects, since
1990.
The Company's technology has been developed with its Strategic Partners,
including DT, Texas Instruments, IBM Germany and Olympus. The Company believes
that its technology 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 lower cost hardwired
systems, while using less of the computing power of the host desktop computer
which permits other applications to continue to operate without interruption. In
addition, the Company's new generation of systems currently being developed is
based on a programmable digital signal processor which provides flexibility for
adapting to new algorithms, standards or user requirements. The Company believes
that the high image quality and other features provided by the Company's systems
will meet the requirements of various professional users including tele-medicine
(i.e., transferring microscope, x-ray, video or other diagnostic images for
evaluation by a physician at a remote site) and tele- surveillance (i.e., remote
viewing and control of surveillance cameras and remote access control via
switched networks). In excess of $18 million was invested in the Company by its
stockholders and the Company has invested approximately $10 million in the
research and development of its technology (including approximately $4 million
in participations from the Company's Strategic Partners). This investment in the
Company's technology does not include additional amounts invested directly by
the Company's Strategic Partners in the development of their components used in
the Company's systems.
The Company believes that the multimedia communications market will be
divided between mass-market low quality software-only solutions and high quality
system solutions which principally utilize hardwired processors. The Company
believes that mass market solutions do not meet the needs of its potential
customers because of the lower quality image and video transmissions and that
hardwired processors are inflexible and difficult to adapt to new algorithms and
standards. In addition, the Company believes that its use of programmable
digital signal processors combined with its proprietary technology offers a
competitive advantage over competitors using hardwired chips or software-only
solutions. The Company is not aware of other companies which offer similar
customized complete systems at comparable prices.
The Company has developed two generations and is currently developing a
third generation of its technology. The first generation was developed using a
large number of computer boards and readily available components as the
Company's initial entry in the visual communications field and to assess
customer needs. The second generation, utilized in the Company's current
systems, is characterized by a substantially reduced number of computer boards
and improved capabilities. These systems use a combination of fully programmable
digital signal processors and less-flexible hardwired processors. The second
generation systems have inherently high prices per unit. For example, the
Company's second generation MFKS systems have average wholesale prices of
approximately $6,500 to $20,000 per system (depending on the composition of
systems required by the user). The Company's third generation systems, utilize
Texas Instruments' C8x programmable digital signal processor
34
<PAGE>
and are designed for commercial production with target wholesale sales prices of
approximately $1,500 to $6,500 per system for corresponding MFKS systems. The
Company believes that its third generation of systems will be its first systems
which have the potential for widespread commercialization and that increasing
sales of these products will result in corresponding decreases in sales, and
eventual phasing out of its second generation products.
The Company's existing products include the MFKS Vision and Live
multi-functional communications system and the MIKS Interactive Kiosk. MFKS is a
high quality visual communications system which combines hardware and software
for use in desktop computers and permits users to hold multi-point video
conferences with simultaneous video, audio and data transfer. MIKS is an
electronic kiosk system which allows consumers to access information stored in
the electronic kiosk or in remote locations, including high quality video, while
allowing instant contact to a video conference with a tele-consultant who has
full access to the images and data seen by the consumer.
The Company's systems are flexible and can be configured in a variety of
ways to meet the requirements of specific customers. The Company, on a project
by project basis, designs systems which provide solutions on a customized basis
for the specific requirements of particular customers.
INDUSTRY
The driving force behind the growth of the video conferencing market was
the desire to achieve the effectiveness of face-to-face meetings with the cost
and convenience of the telephone. Video conferencing systems can improve worker
productivity and reduce costs by eliminating or reducing travel, improving the
timely exchange of information between dispersed work groups and leveraging the
use of scarce personnel resources located at a distance from the person needing
their expertise. Initial video conferencing products were relatively expensive
and typically required dedicated, high speed transmission facilities, trained
operators and special rooms, with customized lighting and acoustics, resulting
in low demand. In recent years, however, the rapid growth and decreasing cost of
world-wide switched digital telephone services, technological improvements in
both audio and video quality and the availability of lower cost, easy to use
turnkey communications systems have led to greater use of video conferencing.
Historically, the multimedia communications market has been dominated by systems
using hardwired processors. Today, desktop video conferencing systems using
hardwired processors priced as low as $1,000 per unit have emerged. The Company
believes, however, that such low cost systems provide lower quality video and
still images and that, to reduce costs, many of such systems rely heavily on the
host computer's CPU reducing the systems ability to simultaneously run other
applications. Hardwired processors are inflexible and difficult to adapt to
changes in technology, standards or customer needs.
In recent years international industry standards intended to facilitate
interoperability among different vendors video conferencing systems without
additional special equipment or arrangements have appeared including the current
standard, H.320. While the implementation of emerging industry standards and
other technological improvements have helped to increase sales of hardware-based
video conferencing systems in recent years, the relatively high price and
limited interoperability of these systems have impeded the widespread adoption
of video conferencing as a mass communication medium. In an effort to expand the
availability of video conferencing as a communications tool, a number of
developers commenced efforts to develop software-based video conferencing
technology that did not require expensive proprietary hardware. However, these
systems often require intensive use of the desktop computer's CPU which limits
the ability of the computer to simultaneously run other applications. For
example, implementation of the full H.320 video conferencing standard using a
software-only solution utilizing a Pentium CPU requires approximately 6 times
the processing power of a common 150 MHz Pentium. In most of these systems,
tradeoffs have been made to limit the demands on the CPU by keeping the picture
size small and accepting lower picture clarity and frame rate. The Company
expects that the mass market will be characterized by software bundled with
operating systems offered by companies such as Microsoft which will be enhanced
by shipments of desktop computers incorporating Intel's Pentium MMX software
interface which offer improved video processing.
The Company believes that mass market solutions do not meet the needs of
certain professional customers who demand better image clarity than is currently
available using software-only products, such as doctors who will use visual
communication systems to review microscope slides or other diagnostic images.
Depending on the application, these customers may demand full-frame video,
reduced noise and artifacts, truer color represen-
35
<PAGE>
tation and/or higher frame rates. In addition, many of these customers need
solutions which allow for data sharing and full remote operation of
applications. Software-only solutions require such a large portion of the
CPU's processing capacity for video conferencing that they have difficulty in
integrating these additional functions on their customers existing desktop
computers.
In addition, many customers, especially OEMs and integrators, are
concerned that their investment in visual communications technology will become
obsolete. Systems using programmable digital signal processors, such as the C8x,
may be attractive to OEMs and integrators because these systems are relatively
easy to reprogram to handle new algorithms and standards as technology improves
or to be customized to meet specialized customer needs. Hardwired chips have
limited lives as upgrades or other changes require that a new chip be engineered
and fabricated. Digital signal processors also substantially reduce the burden
on the CPU of the host computer allowing other applications to run
uninterrupted.
STRATEGY
The Company intends to continue to jointly develop with its Strategic
Partners innovative hardware and software alternatives to lower quality
software-only products. The Company is in the process of completing development
of its third generation of products and intends to continue to develop newer
generations of its products as technology or the needs of its customers change.
In addition, the Company seeks to identify new applications for its technology.
The Company's strategy of joint development with its Strategic Partners
allows the Company to increase the effectiveness of its research and development
by taking advantage of the knowledge and resources of its Strategic Partners
(including skilled personnel, existing hardware and software libraries and
participations) by eliminating unnecessary duplicative work and minimizing the
Company's research and development expenditures.
The Company intends to target its technology and its products at the
professional market, including customers using tele-medicine and
tele-surveillance. The Company believes that these markets require high quality
systems which provide solutions tailored to their requirements and contain
higher quality image and video transmissions and other features than traditional
video conferencing communications systems. The Company's systems are being
designed to provide such high quality features and the Company intends to
actively promote its products to this market.
The Company currently markets its products, both through its own sales
staff and through certain of its Strategic Partners, primarily in Europe. A
substantial part of the potential market for the Company's products are in the
United States due to the geographic spread, technological sophistication and
number of potential users of the Company's products. Entering in the United
States market is a fundamental part of the Company's strategy. The Company
intends to expand its marketing efforts, both by expanding its sales and
marketing staff in Europe as well as establishing an office and a sales and
marketing staff in the United States during 1997. The Company continually
evaluates potential strategic partners for additional applications and broader
marketing of IAT's technolgy. The Company may make acquisitions or other
investments or may enter into joint venture agreements for strategic reasons.
The Company's strategy will continue to follow a solution oriented
approach. In many cases, potential customers of the Company's products will not
need a standard system but will require a system designed specifically to meet
their specific needs. The Company intends to continue developing, on a project
by project basis, and in collaboration with its Strategic Partners, systems
which provide solutions on a customized basis for the specific requirements of
particular customers. See "Risk Factors -- Dependence Upon Agreements," "--
Further Development; Need for Additional Financing," "-- Developing Market," "--
Dependence on New Products and Rapidly Developing Technologies" and "-- Risk
Associated with Expanded Operations in the United States."
SYSTEMS
The Company's systems include both proprietary and third-party software
and hardware, and are inter- operable with products from certain vendors and
fully comply with all relevant international standards, including H.320. The
software includes compression algorithms and routines to control
video-conferencing, data trans
36
<PAGE>
fer, transmission of still and moving video images, remote control of other
applications and customizable features to meet the specific needs of
customers. The hardware, consisting of a board or boards for insertion into a
host desktop computer includes a codec (a combination of a coder and decoder
for compressing the number of bytes representing audio or video information
and recovering the original bytes from the compressed bytes after they have
been transmitted), a video inlay or overlay, a video switch and audio mixer.
Compression algorithms and codecs reduce the number of bytes necessary to
represent a specific piece of information in order to reduce the cost and
time of transmitting data. However, the process of compression and
decompression results in the loss of some of the original data and can
introduce artifacts into the resulting image. The Company believes that its
proprietary combination of software and hardware offer high image quality,
including reduced noise and artifacts, truer color representation and high
frame rates while still allowing simultaneous transmission of other data and
audio signals.
The Company's systems are flexible and can be configured in a variety of
ways to meet the requirements of specific customers. The Company, on a project
by project basis, designs systems which provide solutions on a customized basis
for the specific requirements of particular customers. The Company sells its
systems and kits to end-users in a variety of industries and to OEMs and
integrators. The Company's existing systems include the MFKS Vision and Live
multifunctional communications system and the MIKS Interactive Kiosk.
The following graph sets forth the relationship between the Company's
technology and its products:
[Graphic indicating how the Company's base
technology is combined with the MFKS specific
hardware and software for MFKS based systems
and is combined with MIKS specific hardware and
software for MIKS systems.]
37
<PAGE>
MKFS Vision and Live. The MFKS Vision and Live multifunctional
communications system, allows simultaneous video, audio and data communications
using the Company's software and hardware computer boards in IBM compatible
standard desktop computers. The following shows the major elements of the MFKS
Vision and Live system:
[Schematic depicting elements
of MFKS Vision and Live]
IAT offers MFKS 128 and MFKS 384 systems which communicate at speeds of up
to 128 kbps or up to 384 kbps, respectively, to match the communications needs
of its customers. IAT developed its MFKS systems jointly with DT. The second
generation of MFKS 128 consists of software, two computer boards (a codec and an
ISDN (or other network) connection) and two optional computer boards and permits
tele-conferencing and simultaneous full screen video with a PIP and audio and
data communications on a desktop computer. IAT's MFKS 384 systems consist of
software and six to nine computer boards. MFKS 384 systems offer all of the
features of MFKS 128 systems plus the ability to view two full-screen video
windows simultaneously. The Company believes that its MFKS systems offer
substantially higher image quality, including reduced noise and artifacts, truer
color representation and higher frame rates, than software-only products. MFKS
systems fully implement all current relevant international communications
standards. While second generation MFKS systems used a combination of hardwired
chips and programmable digital signal processors, IAT's third generation MFKS
systems will exclusively use fully programmable C8x digital signal processors,
communicate using widely available switched networks and are designed to work
with ISDN or faster lines. Use of fully programmable digital signal processors
allows easier upgrades and customization than systems using hardwired
processors. The Company believes that the combination of the tele-conference and
additional functions performed by its MFKS systems provide features not
generally available in existing tele-conferencing systems and will meet the
requirements of the professional users the Company intends to target. The
following charts set forth the features and development of the Company's MFKS
128 and MFKS 384 systems:
38
<PAGE>
MFKS 128
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
First Generation Second Generation
Available 1991-1992 1995-1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Hardware Requirements Mandatory Mandatory
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
codec codec ISDN codec ISDN
SO SO
[GRAPHIC OMITTED] Optional
1st communi- [GRAPHIC OMITTED]
overlay cations
Optional
[GRAPHIC OMITTED] video audio
switch mix
2nd video audio
overlay switch mix
Minimum: 5 boards Minimum: 2 boards
Fully equipped with options: 8 boards Fully equipped with options: 4 boards
- ----------------------------------------------------------------------------------------------------------------------------------
Operating System Windows 3.X Windows 3.X
Windows 95 (32 bit)
- ----------------------------------------------------------------------------------------------------------------------------------
Design and Architecture Complete systems built exclusively into Complete systems built into PC's
PC's Kits
No kits No OEM's
No OEM's
- ----------------------------------------------------------------------------------------------------------------------------------
Software Video conferencing, including Video conferencing with full-frame picture and PIP
- with features as in first generation PLUS:
Control boards Data conferencing (T.120 standard)
- - application sharing
Video conference using ISDN - file transfer
2 B-channels (1 ISDN line)(128 kbs) - still video
- remote control laser disk Specialized application software
- source switching video/audio
- application sharing version 1
- ----------------------------------------------------------------------------------------------------------------------------------
Application Traditional video conferencing Same as First Generation PLUS
Pilot projects - Scientific works in information technology
Office communications - Tele-Support
- Tele-Microscopy pilots
- Tele-Commuting
- ----------------------------------------------------------------------------------------------------------------------------------
Approximate Average Wholesale Price $20,000 $6,500
- ----------------------------------------------------------------------------------------------------------------------------------
MFKS 128
<CAPTION>
- ----------------------------------------------------------------------------------------
Third Generation
Available 1997
- ----------------------------------------------------------------------------------------
<S> <C>
Hardware Requirements
[GRAPHIC OMITTED]
Codec+
Video Inlay+
Video Switch+
Audio Mix+
Still Video
(Digital video/audio,
in development)
single board based on C8x technology
- ----------------------------------------------------------------------------------------
Operating System Windows 95 (16 bit)
- ----------------------------------------------------------------------------------------
Design and Architecture Complete systems built into PC's
Kits
OEM's & integrators can purchase:
- Evaluation kits
- Production license
- ----------------------------------------------------------------------------------------
Software Video conferencing and data conferencing as in
second generation PLUS
Better still video (wavelets/JPEG)
Digital video/audio (MPEG)
Specialized application software
- ----------------------------------------------------------------------------------------
Application All types of telecommunications including
- Tele-Medicine
- Tele-Surveillance
- ----------------------------------------------------------------------------------------
Approximate Average Wholesale Price $1,500 ($1,000 for OEM's in quantity)
- ----------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
MFKS 384
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Second Generation Third Generation
- --------------------------------------------------------------------------------------------------------------------------------
Available 1995-1996 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Hardware Requirements Mandatory Mandatory
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
codec codec 1st overlay High-End ISDN High-End
Multimedia 3xSO VGA board
Including
[GRAPHIC OMITTED] Codec+
Video Inlay+
Communi- Inverse ISDN Hi Fi Audio+
cations Multiplexer 3xSO Basic video
Switch+
Basic audio mix
Optional (Digital video/
audio in
[GRAPHIC OMITTED] development)
2nd video audio
overlay switch mix
[GRAPHIC OMITTED]
bus 3 boards high-end set based on C8x technology
extension
box
Minimum: 6 boards
Fully equipped with options: 9 boards
- --------------------------------------------------------------------------------------------------------------------------------
Design and Architecture Complete systems in desktop PC Complete systems in desktop PC
No kits Kits
No OEM's OEM's
- --------------------------------------------------------------------------------------------------------------------------------
Operating System Windows 3.X Windows 95 (32 bit)
Windows 95 (16 bit)
- --------------------------------------------------------------------------------------------------------------------------------
Software Same as Second-Generation MFKS 128 Same as Third-Generation MFKS 128
PLUS PLUS
- can control 6 ISDN B-channels - can control 6 ISDN B-channels
(3 ISDN lines) 384 kbps (3 ISDN lines) 384 kbps
- multiplexing - multiplexing
- 2 Full Screen Video Windows - 2 Full Screen Video Windows
- --------------------------------------------------------------------------------------------------------------------------------
Applications Tele-Service All types of telecommunications including
Tele-Consulting - Tele-Service
Tele-Medicine pilots - Tele-Medicine; including tele-endoscopy and
tele-microscopy
- Tele-Security
- --------------------------------------------------------------------------------------------------------------------------------
Approximate Average Wholesale Price $20,000 $8,000
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
MFKS systems can be customized to meet customer needs. The basic MFKS
Vision & Live system can connect up to seven video sources including,
microscopes, endoscopes, video cameras, document cameras, and laser disc
players. It can display, send and receive images in two windows and grab
(memorize single frames) in both the send and receive windows. In addition, the
MFKS system allows for remote control of the remote computer and attached
devices. MFKS systems can be configured with up to five ISDN or other high-speed
connections (e.g. Ethernet LAN or T.1 telephone lines) to match customers'
desired video imaging speed and resolution requirements. All MFKS systems have
the ability to make multipoint and point to point connections.
The Company believes that the combination of the tele-conference and
additional functions performed by its MFKS systems provide features required by
professional users and not generally available in existing tele- conferencing
systems. MFKS systems are currently used by DT for administrative tasks; by
customers of DeTeSystems, an integrator and affiliate of DT, for a variety of
tasks in different industries; by MAN Roland for tele- servicing of large,
high-speed printing presses; by Grundig for tele-surveillance in an underground
subway system; by the water quality control industry for visual water testing
from remote sites; and by hospitals for pilot projects in tele-microscopy and
tele-endoscopy.
The Company is jointly developing with Texas Instruments and DT its third
generation MFKS system incorporating Texas Instrument's C8x programmable digital
signal processor which will allow for easier upgrades than systems using
hardwired chips. These new systems will provide all of the functions of the
corresponding existing second generation systems at a substantially lower target
prices. The third generation MFKS 128 uses a single proprietary computer board
while the third generation MFKS 384 system shrinks the required hardware from
six computer boards down to three. The Company expects to release the third
generation of MFKS systems in 1997 at target wholesale prices of approximately
$1,500 per system ($1,000 to OEMs in quantity) for the single board MFKS 128
system and approximately $6,500 per system ($3,500-$4,500 to OEMs depending on
the composition of systems required by the user) for the MFKS 384 system. The
Company believes that the third generation of MFKS is the first system that it
has manufactured which has the potential for market penetration. No assurance
can be given that such systems will be introduced on a timely basis, if at all,
or that such systems will be accepted by the market. See "Risk Factors --
Dependence on New Products and Rapidly Developing Technology."
The Company is presently working with Olympus to integrate MFKS systems
into tele-microscopes. These products are expected to allow doctors in different
locations to engage in a video conference while concurrently reviewing
microscopic slides, and in some models, to remotely operate the microscope. The
Company does not believe that the images from currently available visual
communications systems provide sufficient image quality to transmit pictures of
microscopic slides which would permit their use for diagnosis. The Company
believes that the high quality images produced by the MFKS system offer images
with resolutions and life-like colors sufficient for medical diagnoses.
Wavelet Compression. The Company is jointly developing with Professor
Seiler of the Technical University of Berlin proprietary wavelet data
compression technology which offers up to 300 to 1 compression with scalable
data loss. The Company believes that the wavelet compression that it is
developing will almost eliminate the time delay in viewing still images which
are transmitted by visual communications systems and that this reduction will
make the Company's MFKS systems more attractive. The Company believes that it
will be able to offer wavelet compression in its MFKS systems beginning in 1997
and that one of the first applications for this technology will be in the
tele-microscopes being jointly developed with Olympus.
41
<PAGE>
MIKS Interactive Kiosk. The MIKS Interactive Kiosk was jointly developed
with DT and IBM Germany. As shown below, the MIKS Interactive Kiosk consists of
consumer electronic kiosks, tele-consultant stations, an authoring system and
related proprietary software.
[Schematic depicting elements of MIKS Interactive Kiosk]
Electronic Kiosks can present consumers with access to information stored
in the electronic kiosk or in remote locations, including high quality video
while allowing instant contact to a video conference with a tele- consultant who
has full access to the images and data seen by the consumer. Routine inquiries
can be handled by the stored information allowing each tele-consultant to
eservice a number of electronic kiosks. The Company believes the MIKS
Interactive Kiosk system can enable companies to more efficiently utilize their
personnel and to rapidly collect market information on consumers using the
electronic kiosks.
The MIKS Interactive Kiosk system also includes a proprietary database
management system and an authoring system for electronic kiosks. An authoring
system is, in effect, a sophisticated word processor which can also handle the
development of menus and integration of audio and video data for the electronic
kiosks. The Company's authoring system substantially reduces the cost and time
to develop menus and pages for electronic kiosk displays. IAT may offer this
authoring system to end-users and designers for use with other companies'
electronic kiosk systems. The Company's proprietary database management system
allows rapid and accurate updating of information stored in the electronic
kiosks and collection of consumer data. The Company's existing second generation
MIKS system requires two desktop computers per electronic kiosk and has an
average retail price of approximately $45,000 per electronic kiosk. The Company
has only installed pilot MIKS systems.
IAT and certain of its Strategic Partners are jointly developing the third
generation MIKS Interactive Kiosk system which will reduce the hardware demands
to only one desktop computer with two proprietary computer boards per electronic
kiosk. The Company's target retail price for the third generation MIKS system is
approximately $20,000 per electronic kiosk. IAT expects to begin selling third
generation MIKS systems in 1997, but no assurance can be given that such systems
will be introduced on a timely basis, if at all, or that such systems will be
accepted by the market. See "Risk Factors -- Dependence on New Products and
Rapidly Developing Technology."
42
<PAGE>
The following chart sets forth features and development of the MIKS
Interactive Kiosk:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
First Generation Second Generation Third Generation
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Available 1993 1994-1995 1997
- ----------------------------------------------------------------------------------------------------------------------------------
Hardware Requirements Pilot Systems Commercial Systems
for Electronic Kiosks Prototype Only - 2 desktop computers - 1 desktop
computer with 2 boards
- ----------------------------------------------------------------------------------------------------------------------------------
Software - OS/2 operating system for MIKS software - Authoring Tool
- Windows 3.x for communications software - Data base updating software
- Communication software
- Multimedia software
- ----------------------------------------------------------------------------------------------------------------------------------
Applications o Test model o Fair Information Systems o Same as Second-Generation PLUS
o Citizen Information Systems o Tele-Ordering of shipping service
o Tele-Shopping o Tele-Banking
- ----------------------------------------------------------------------------------------------------------------------------------
Average Retail Price
per Electronic Kiosk -- $45,000 $20,000
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
OEM. In addition to complete systems, the Company offers OEMs and
integrators MFKS kits utilizing its existing second generation technology and
expects to begin offering kits utilizing its third generation technology in
1997. OEMs and integrators install the Company's hardware and software in their
own systems. In addition to the MFKS kits described in the following table, the
Company also offers MIKS kits.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Vision & Live Basic Vision & Live Universal Vision & Live Special
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Description Low-Cost PC-Board based Mid-range ISA PC-Board High-end ISA PC-Board
on MFKS 128 based on MFKS 384 based on MFKS 384
- -----------------------------------------------------------------------------------------------------------------------------------
Features H.320 videoconferencing or JPEG still video H.320 videoconferencing
o Communications encoding/decoding or optional MPEG1 decoding and with simultaneous JPEG still
optional wavelet high-quality and optional still video video encoding/decoding or
optional MPEG1 decoding
- -----------------------------------------------------------------------------------------------------------------------------------
o ISDN 2 ISDN B-Channels o Up to 6 ISDN B-Channels (3 ISDN lines) 384 kbps
(1 ISDN line) 128 kbps o Other network interfaces available
- -----------------------------------------------------------------------------------------------------------------------------------
o Video Full-Screen Video Window with PIP 2 Full-Screen Video Windows
- -----------------------------------------------------------------------------------------------------------------------------------
o Others o Hi Fi Audio
o Includes all drivers
- -----------------------------------------------------------------------------------------------------------------------------------
Applications o Low-end solution for o Tele-Surveillance o Desktop Multimedia
desktop video conferencing o Tele-Security o POI/POS
o Tele-Medicine o Medicine
- -----------------------------------------------------------------------------------------------------------------------------------
Availability 2nd Half of 1997 1996 (1st Half of 1997 for licenses) 1st Half of 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Wholesale Price Less than $1,000 $3,500 plus license of $ 4,500
(in quantity) $20,000 - $150,000
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company expects that a majority of its sales will come from OEMs and
integrators. The Company's sales will therefore be dependent on the sales
efforts of third parties which it cannot control. There can be no assurance that
such systems will be introduced on a timely basis, if at all, or that such
systems will be accepted by the market.
STRATEGIC PARTNERS
The Company's Strategic Partners have played an important role in the
development of the Company's technology and products and in some cases, have
been substantial customers of the Company's products. See "Risk Factors --
Dependence on Agreements" and "Business -- Customers."
43
<PAGE>
The Company and its Strategic Partners have conducted the research and
development of the Company's products pursuant to various contracts. Once
development of the Company's products is complete, it intends to enter into
marketing agreements with the relevant Strategic Partners. Cooperation with its
strategic partners enables the Company to take advantage of its partners'
knowledge, technology and resources.
Deutsche Telekom. DT is the Company's oldest Strategic Partner with a
relationship extending back to 1992. The Company and DT jointly developed and
contributed $3.1 million and $2.5 million, respectively, to the first and second
generations of the MFKS Vision and Live systems. The Company and DT each have
the right to market the MFKS Vision and Live Systems and other uses of the
technology developed in connection with this product. Approximately 86%, 87%,
68% and 87% of the Company's revenues for the years ended December 31, 1993,
1994 and 1995 and the nine months ended September 30, 1996, respectively have
been received from DT and its affiliates. The Company continues to work with DT
to develop parts of the third generation of MFKS Vision and Live.
IBM Germany and Deutsche Telekom. The Company and DT made a strategic
alliance with IBM Germany to develop the MIKS Interactive Kiosk by expanding the
MFKS technology. Since the beginning of the development of the MIKS Interactive
Kiosk, the parties have each contributed one-third to the total of research and
development costs of $4.0 million. Currently, the partners cooperate informally
to supply components for new MIKS systems which can be sold by any partner. The
partners are negotiating a marketing agreement to formalize this arrangement.
Texas Instruments. The Company is jointly developing base hardware and
software with Texas Instruments for its third generation MFKS Vision and Live
system incorporating the C8x chip. The Company believes that the C8x chip offers
the best price to value ratio for the demanding high quality multimedia systems
it builds for its customers in all of its markets. The Company expects that it
will continue to work with Texas Instruments to expand the range of the
Company's products utilizing the C8x. The Company expects that it will launch
the single board version of MFKS Vision and Live during 1997. Both parties have
the right to sell and license the board. TI and IAT are in negotiations to
define the role of each partner in marketing and supporting products based on
the C8x and supporting customers working on C8x products (OEMs). See "Risk
Factors -- Suppliers."
Olympus. In 1995, the Company began to collaborate with Olympus to combine
its MFKS Vision and Live technology with Olympus' expertise in microscopes to
produce systems for tele-microscopy and tele-endoscopy. Each of the Company and
Olympus have contributed to the development of these specialized systems.
Olympus will use its position in the microscopy business to market the MFKS
based tele-microscopy system jointly with the Company. To further enhance the
capabilities of the products developed with Olympus, the Company is jointly
developing wavelet compression technology with Dr. Seiler of the Technical
University of Berlin. See "Business -- Systems -- MFKS Vision and Live --
Wavelet Compression."
RESEARCH AND DEVELOPMENT
The Company believes that research and development is vital to the success
of its business and intends to continue, and to devote substantial resources to,
its research and development efforts to improve its products and adapt to the
changing environment and the demands of its customers.
The Company's strategy of joint development with its Strategic Partners
allows the Company to increase the effectiveness of its research and development
by taking advantage of the knowledge and resources of its Strategic Partners
(including skilled personnel, existing hardware and software libraries and
Research Participations) by eliminating unnecessary duplicative work and
minimizing the Company's research and development expenditures. The Company's
technology has been developed with Strategic Partners, including DT, Texas
Instruments, IBM Germany and Olympus. In excess of $18 million was invested in
the Company by its stockholders and the Company has invested approximately $10
million in the research, development of its technology (including approximately
$4 million in participations from the Company's Strategic Partners). This
investment in the Company's technology does not include additional amounts
invested directly by the Company's Strategic Partners in the development of
their components used in the Company's systems.
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To date, the Company has generally focused first on developing systems
which can be utilized by customers in the field to assess the needs of such
customers. IAT and its Strategic Partners have then refined these systems and
tried to reduce costs while continuing to upgrade the systems to take into
account changes in standards and technology. In addition, a key function with
development of a proprietary library of processing algorithms which can be
adapted to a variety of platforms. IAT is jointly developing with Texas
Instruments and DT its third generation of technology with the functionality of
the second generation systems plus additional features at a substantially lower
price. The Company views its third generation products as the first products
that it has produced that have the potential for market penetration. Once IAT's
third generation products are introduced, the Company's research emphasis will
shift from basic research and initial product development to improvements in the
Company's systems to meet the needs of specific customers or groups of customers
and to take into account advances in technology or standards. However, IAT
expects to continue to conducts research and development jointly with its
Strategic Partners who contribute to the costs of research and development.
"Risk Factors -- Dependence on New Products and Rapidly Developing
Technologies."
The Company is currently working with Olympus to integrate MFKS systems
into tele-microscopes and is jointly developing wavelet compression technology
with Professor Seiler of the Technical University of Berlin. See "--Systems --
MFKS Vision and Live -- Wavelet Compression."
The Company is working to develop versions of MFKS systems and MIKS
Interactive Kiosks available as pure software products to take advantage of
Intel's Pentium MMX software interface. In addition, the Company is conducting
research on applying its technology to digital television area as well as
providing intranet capabilities for its systems. There can be no assurance that
the Company will be able to develop its business in these areas, if at all.
MARKETING
The Company targets professional users who need the highest available
communications quality for demanding applications such as tele-medicine and
tele-surveillance. The Company believes that the needs of its target customers
cannot be addressed by currently available lower quality software-only products
(including Internet products) or by high quality traditional video conferencing
products. Depending on the application, these customers may demand full frame
video, reduced noise and artifacts, truer color representation and/or higher
frame rates. In addition, many of these customers need solutions which allow for
data sharing and full remote operation of applications. The Company believes
that its proprietary know-how for combining hardware and software solutions in
complete systems is unique. The Company believes that its technology can produce
substantially higher quality image and video transmissions than other systems,
while using less of the computing power of the general purpose CPU of the host
desktop computer which permits other applications to continue to operate without
interruption.
In addition, IAT targets OEMs and integrators and offers these customers
products with a range of compatibilities and prices. See "-- OEM." The Company's
use of programmable digital signal processors and proprietary software offers
full implementation of relevant standards and allows these companies to preserve
their investment in visual communications technology. Systems using programmable
digital signal processors, such as the C8x used in the Company's
third-generation systems, are attractive to OEMs and integrators because these
systems are relatively easy to reprogram to handle new algorithms and standards
as technology improves or to be customized to meet specialized customer needs.
Hardwired chips are not as flexible as programmable digital signal processors as
upgrades or other changes require that a new chip be engineered and fabricated.
To date, the Company has invested approximately $4 million in the
marketing of its products. Currently, the Company markets its products, both
through its own sales staff and through certain of its Strategic Partners,
primarily in Europe. IAT's sales and marketing force of 11 persons is located
primarily in Germany. A substantial part of the potential market for the
Company's products are in the United States due to the geographic spread,
technological sophistication and number of potential users of the Company's
products. Entering into the United States market is a fundamental part of the
Company's strategy. The Company intends to expand its marketing efforts, both by
expanding its sales and marketing staff in Europe as well as establishing an
office and a sales and marketing staff in the United States during 1997. The
Company continually evaluates potential strategic partners for additional
applications and broader marketing of IAT's technology. The Company may make
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acquisitions or other investments or may enter into joint venture agreements for
strategic reasons. Once development of the Company's products is complete, it
may enter into marketing agreements with the relevant Strategic Partners. IAT
contacts customers via its sales force, web site, articles, advertising, and
through certain of its Strategic Partners. In several cases the Company has
supplied MIKS Interactive Kiosks to fairs and exhibitions to gain customer
exposure.
Currently, purchase decision cycles for the Company's products are
relatively long because the technology is new and costs are relatively high. New
customers typically acquire a pilot system or systems to evaluate before
purchasing a number of systems. While the Company sells these pilot units in
most cases, it may lend evaluation units to certain accounts. In many cases, the
customer requires the approval of its senior management or the board of
directors before purchasing a number of the Company's systems. The Company is
not aware of other companies which offer similar customized complete systems at
comparable prices. The Company believes that the market for high end systems
will expand and purchase decision cycles will shorten once the price of
introductory systems decrease. Currently, the target wholesale price of a third
generation MFKS system is approximately $1,500 per unit and the Company has
targeted a $1,000 per unit price for a third-generation OEM kit unless
competition from other products would induce the Company to reduce its target
prices.
CUSTOMERS
The Company believes that there are numerous potential uses by
professional users for its MFKS systems. MFKS systems are currently used by DT
for administrative tasks; by customers of DeTeSystems, an integrator and
affiliate of DT, for a variety of tasks in different industries; by MAN Roland
for tele-servicing of large, high-speed printing presses; by Grundig for
tele-surveillance in an underground subway system; by the water quality control
industry for visual water testing from remote sites; and by hospitals for pilot
projects in tele- microscopy and tele-endoscopy. The following table sets forth
certain of the Company's customers and their respective industries:
DT and DeTeSystem ........ Telecom and Integrator
MAN Roland ............... Printing Presses
Olympus .................. Medical, Scientific and Industrial Devices
Grundig .................. Tele-surveillance
Kantonspolizei Zurich .... Document analysis
Approximately 86%, 87%, 68% and 87% of the Company's revenues for the
years ended December 31, 1993, 1994 and 1995 and the nine months ended September
30, 1996, respectively have been received from DT and its affiliates. The loss
of sales or a significant reduction in sales to DT could have a material adverse
effect on the Company's business, financial condition and result of operations.
There can be no assurance that any of the customers listed above will continue
to purchase products from the Company in the future.
INTELLECTUAL PROPERTY
The Company's success is heavily dependent upon its proprietary
technology. The Company currently has no patents and relies primarily on
copyright, trademark and trade secrets law, as well as employee and third- party
non-disclosure agreements, to protect its intellectual property. The Company
intends to apply for patents on certain aspects of its technology. However,
there can be no assurance that such patents will be granted or, if granted, that
such patents will provide protection against infringement. There can be no
assurance that the steps taken by the Company to protect its proprietary rights
will be adequate to prevent misappropriation of its technology or independent
development by others of similar technology.
Substantially all of the Company's revenues in the years ended December
31, 1995 and 1996 were generated from operations located in Germany and
Switzerland, where the Company believes that regardless of differences in legal
systems, it enjoys substantially equivalent protection for its proprietary
rights as it would in the United States. However, the laws of some foreign
countries where the Company may in the future sell its products may not protect
the Company's proprietary rights to the same extent as do laws in the United
States. There can be no assurance that the protections afforded by the laws of
such countries will be adequate to protect the Company's proprietary rights, the
unenforceability of any of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
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Litigation may be necessary to enforce the Company's intellectual property
rights or to protect the Company's trade secrets. There can be no assurance that
any such litigation would be successful. Any such litigation, even if
successful, could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company has not been charged with infringement of any proprietary
rights of others; however, there can be no assurance that third parties will not
assert infringement and other claims against the Company or that such claims
will not be successful. From time to time, the Company may receive in the future
notice of claims of infringement of other parties' proprietary rights. Many
participants in the Company's industry have frequently demonstrated a readiness
to commence litigation based on allegations of patent or other intellectual
property infringement. Third parties may assert exclusive patent, trademark,
copyright and other intellectual property rights to technologies that are
important to the Company. In addition, patents held by third parties in certain
countries may require the Company to obtain a license or may prevent it from
marketing certain solutions in such countries. The Company is aware of one
patent in the United States held by a third-party which has claims related to
tele-pathology including using remote control microscopes. While the Company
does not believe that the U.S. patent will have a significant impact on the
sales of the Company, there can be no assurance that infringement claims (or
claims for indemnification resulting from infringement claims) will not be
asserted or prosecuted against the Company or that any such assertion or
prosecution will not have a material adverse effect on the Company's business,
financial condition or results of operations. Regardless of the validity or the
successful assertion of any such claims, the Company could incur significant
costs and diversion of resources in defending such claims, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, any party making such claims could secure a
judgment awarding substantial damages, as well as injunctive or other equitable
relief, which could effectively block the Company's ability to make, use, sell,
distribute or market its products and services in the United States or abroad.
Any such judgment could have a material adverse effect on the Company's
business, financial condition and results of operations. In circumstances where
claims relating to proprietary technology or information are asserted against
the Company, the Company may seek licenses to such intellectual property. There
can be no assurance, however, that such licenses would be available or, if
available, that such licenses could be obtained on terms that are commercially
reasonable and acceptable to the Company. The failure to obtain the necessary
licenses or other rights could preclude the sale, manufacture or distribution of
the Company's products and, therefore, could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company believes its MFKS Vision and Live and MIKS Kiosk trademarks
are important to the development of its business and will attempt to register
them as trademarks in the United States, Germany and elsewhere. The Company
intends to vigorously protect its trademarks.
COMPETITION
The visual communications business is highly competitive. The Company
estimates that more than 100 companies world-wide offer products which compete
in its market segments and expects that whether or not the Company is successful
in capturing market share, the competition will intensify in the future. The
Company believes that the majority of its competitors focus on low-cost products
or closed device solutions such as video phones. The Company believes that the
principal competitive factors in the visual communications industry are price,
video and audio quality, the ability to connect auxiliary devices such as video
disk players, reliability, service and support, and vendor and product
reputation. The Company believes that its ability to compete successfully will
depend on a number of factors both within and outside its control, including the
adoption and evolution of industry standards, the pricing policies of its
competitors and suppliers, the timing of the introduction of new hardware and
software systems and services by the Company and others, the Company's ability
to hire and retain employees, and industry and general economic trends. The
Company anticipates that the trend in the visual communications market towards
polarization, with certain providers focusing on capturing the mass consumer
market with lower quality and less costly software-only products or products
based on hardwired chips while other providers including the Company, are
seeking to provide hardware and software systems for more specialized and
dedicated markets, will continue to manifest itself. The Company intends to
market its technology and its products to professional customers, many of whom
are not currently utilizing visual communications systems. If the market for
these products is established, competitors of the Company may begin to
manufacture products
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similar to the Company's products. In addition, while the Company believes it
has created proprietary technology and advantages in manufacturing its products
and that a competitor would require significant investment and the efforts of a
highly skilled team, there are no barriers restricting competitors from entering
into the market in which the Company's intends to sell its products. While the
Company believes the mass market solutions do not meet the needs of its
customers, the availability of these products may have an adverse effect on the
pricing of the Company's products.
Many of the Company's current and potential competitors, have
significantly longer operating histories and/or significantly greater
managerial, financial, marketing, technical and other competitive resources, as
well as greater name recognition, than the Company. As a result, the Company's
competitors may be able to adapt more quickly to new or emerging technologies
and changes in customer requirements and may be able to devote greater resources
to the promotion and sale of their products and services. There can be no
assurance that the Company will be able to compete successfully with existing or
new competitors. In addition, competition could increase if new companies enter
the market or if existing competitors expand their service offerings. An
increase in competition could result in material price reductions or loss of
market share by the Company and could have a material adverse effect on the
Company's business, financial condition and results of operations.
To remain competitive, the Company will need to continue to invest in
research and development and sales and marketing. There can be no assurance that
the Company will have sufficient resources to make such investments or that the
Company will be able to make the technological advances necessary to remain
competitive. In addition, current and potential competitors have established or
may in the future establish collaborative relationships among themselves or with
third parties, including the Company's Strategic Partners, to increase the
visibility and utility of their products and services. Accordingly, it is
possible that new competitors or alliances may emerge and rapidly acquire
significant market shares. Such an eventuality could have a material adverse
effect on the Company's business, financial condition and results of operations.
SUPPLIERS AND PRODUCTION
The Company does not have supply contacts with any of its vendors and
purchases are made with purchase orders. Certain critical components and parts
used in the Company's systems, including the C8x, are procured from a single
source. The Company believes that the C8x will substantially decrease the cost
of the hardware the Company uses in its third generation products and is
necessary to permit the Company's systems to be sold at prices which create the
potential for market penetration. The C8x is only manufactured by Texas
Instruments and the Company does not have any other source for obtaining a
programmable digital signal processor which would provide the Company with the
same functions at a similar price. The Company obtains other parts and certain
components only from a single supplier of such parts or components, even where
multiple sources are available, to maintain quality control and enhance the
working relationship with suppliers. There can be no assurance that the Company
will be able to continue to obtain these parts from these sources or that it can
obtain alternatives from other terms on terms acceptable to the Company. Any
interruption in the supply of such parts could have a short-term material
adverse effect on the business and results of operations of the Company.
The Company relies on third-party manufacturers located in Germany,
Switzerland and Finland to produce its products. To insure the quality of the
Company's systems, all of the Company's manufacturers have the demanding ISO
9000 quality certification. The Company contracts with such suppliers to
manufacture batches of products and does not have long-term contracts with these
companies. These manufacturers supply services to a variety of other companies
some of whom may be competitors of the Company. IAT's current manufacturers
specialize in relatively small batches of products. If the Company's sales
increase, it anticipates entering into agreements with other manufacturers who
specialize in larger batches. The Company has identified one such manufacturer
and is in the process of testing its facilities and manufacturing processes. The
Company believes that it can reach an agreement with this or other manufacturers
in time to fulfill the Company's potential demands. However, there can be no
assurance that the Company will be able to reach an agreement with this or other
manufacturers on terms acceptable to the Company, or at all, continue to obtain
the services of its existing manufacturers on terms acceptable to the Company or
that it can obtain alternatives from other terms on terms acceptable to the
Company. Any interruption in the supply of such parts could have a short-term
material adverse effect on the business and results of operations of the
Company. However, over the space of one to two quarters the Company believes
that it could identify and qualify alternate parts, with the except of C8x
chips. Over a longer-term the Company believes it could re-engineer its products
to use alternate parts.
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AGREEMENTS WITH STRATEGIC PARTNERS
Texas Instruments. The Company's relationship with Texas Instruments is
evidenced by, among others, the MVP Cross License Agreement (the "MVP Cross
License Agreement") between IAT AG and Application Specific Product Group of
Texas Instruments France in 1994. The MVP Cross License Agreement expires in
2004 and can be extended for one year periods by written agreement. Pursuant to
the MVP Cross License Agreement, the Company was granted a worldwide,
non-transferable, non-assignable, non-exclusive, fully paid license to use,
modify, compile or otherwise develop as applicable certain software programs
relating to encoding and decoding pursuant to H.320, JPEG, H.261, G.728 and
G.722 standards and to make, have made, use, sell or otherwise dispose of
hardware and software products incorporating object code versions of such
software programs. Texas Instruments was granted a worldwide, non-transferable,
non-assignable, non-exclusive, fully paid license to use, modify, compile or
otherwise develop as applicable certain software programs relating to encoding
and decoding pursuant to H.221, H.242, H.230 standards and to make, have made,
use, sell or otherwise dispose of hardware and software products incorporating
object code versions of such software programs. The Company has the obligation
to keep the source code of these programs confidential but may sublicense these
programs provided that it enters into a sublicense agreement on substantially
the same terms as the MVP Cross License Agreement. Either party to the MVP Cross
License Agreement may terminate this agreement upon written notice upon the
occurrence of certain events of default including the other party having a
substantial change in ownership such as to create a material conflict of
interest.
On June 12, 1996, IAT AG and Texas Instruments entered into the Joint
Development and Cross License Agreement (the "Texas Instruments Agreement") to
reflect the changes in technology and to determine the parties rights and
obligations in light thereof. Pursuant to the Texas Instruments Agreement, which
expires on April 1, 1999, Texas Instruments and IAT AG agreed to develop or
acquire and deliver software and hardware products to each other and to provide
engineering support to each other. Subject to completing its obligations, IAT AG
is to receive a non-transferable, non-assignable, non-exclusive license under
Texas Instruments' copyrights and associated trade secrets, solely to use,
modify, compile or otherwise develop as applicable software programs to provide
quality Windows 95 video conferencing implementation for personal computers and
to make, have made, use and sublicense use of object code versions of such
software programs solely for operation on the C8x. The license is fully paid
except for T.123 Databeam software which is royalty bearing and for which Texas
Instruments negotiates the royalty payable by IAT on a case by case basis and on
a most favored nations status. IAT AG may sublicense the programs it develops
jointly with Texas Instruments pursuant to the Texas Instruments Agreement but
has the obligation to keep the source code confidential. If Texas Instruments
licenses the use of its H.320 software library to a third party, it will pay IAT
AG the greater of 50% of the license fee or $20,000, provided, however, that if
Texas Instruments grants licenses to existing users of IAT AG's systems, no
royalty will be due to IAT AG. If Texas Instruments licenses to third parties
the use of the reference design produced by IAT AG, Texas Instruments will pay
IAT AG the greater of 35% of the license fee or $7,000. If Texas Instruments
sells evaluator kits defined as bundled hardware and software as produced by
IAT, Texas Instruments has to pay to IAT 10% of the kit fee provided, however,
that Texas Instruments has the right to provide the kit without the fee or
without separately identifying fees and in such event no fees are due to IAT AG.
The Texas Instruments Agreement may be terminated by either party upon the same
terms and conditions as stated in the MVP Cross License Agreement described
above.
Deutsche Telekom. In December 1992, IAT Germany and DT entered into the
Contract of the Communication Computer Development Community (the "Development
Agreement") to jointly develop software for MFKS on commercially available
boards. IAT Germany and DT were responsible for equal parts of the development
cost of these components which were used in first and second generations of the
MFKS system. The agreement provided that upon full development of the
components, the parties would enter into a licensing agreement setting forth the
rights to the jointly developed intellectual property.
In March 1994, IAT AG and DT entered into a Licensing and General
Distribution Agreement (the "DT Licensing Agreement") which provides for a
framework within which both parties will endeavor to jointly launch and exploit
products developed pursuant to the Development Agreement. The DT Licensing
Agreement has an unspecified duration and may be terminated upon breach by
either party. Each party has the right to grant sublicenses upon receipt of
consent to the other party. If one party decides not to participate in the joint
exploitation of products, the other party shall be given the possibility to
exploit the product on its own. The DT Licensing Agreement was intended to
provide a framework within which to develop products, and royalty payments are
to be determined by the parties in the future.
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In October 1995, IAT AG and DT entered into the General Cooperation
Agreement Concerning Joint Further Development of IAT/Deutsche Telekom Software
Codec on the Basis of the Texas Instruments Parallel Processor TMS320C8x (the
"DT Cooperation Agreement"). It provides that the prototype of the codec
developed pursuant to the Development Agreement will be further refined and
integrated with the C8x. Each partner to the DT Cooperation Agreement bears the
cost of the research and development. To date, each partner has contributed $1.0
million to the cost of research and development. The DT Cooperation Agreement
further provides that IAT AG transfers to DT all of its rights and obligations
under the MVP Cross License Agreement. Each party has the right to terminate the
DT Cooperation Agreement in whole or in part upon written notice if the other
party does not pursue the goals described in the DT Cooperation Agreement, the
cost projections provided for in the DT Cooperation Agreement are exceeded and
the completion deadlines are not met. This agreement has been extended several
times. Since the product development goals of the DT Cooperation Agreement are
expected to be met in the near future, the DT Cooperation Agreement will expire
on March 31, 1997. The parties have agreed that each party retains all rights
to use of the products developed pursuant to the DT Cooperation Agreement upon
expiration of such agreement. The parties can transfer a portion of such rights
or, with the prior written consent of the other party, all of such rights.
IBM Deutschland Informationssysteme GmbH and Deutsche Telekom. In December
1994, IAT AG, DT and IBM Germany entered into the Cooperation Contract Covering
the Development of Version 3 of the Multimedia Information and Communication
System MIKS (the "MIKS Agreement"). The MIKS Agreement supersedes agreements
between IAT AG, DT and IBM Germany with respect to versions 1 and 2 of the MIKS
Interactive Kiosk and expires on December 30, 1996. The Company believes the
goals of the MIKS Agreement have been achieved and does not intend to extend the
agreement. The MIKS Agreement provides that IAT AG, DT and IBM Germany will
jointly develop the MIKS Interactive Kiosk as a dual-board solution with each
partner bearing one-third of the expenses of this development. Pursuant to the
MIKS Agreement, each party has the right to use the jointly developed components
and parts for their own use, to sell to third parties for their internal usage
and to allow third parties to utilize components and parts for marketing as
resellers. The MIKS Agreement provides for the collection of royalties in the
amount of 3,000 Deutsche Marks for each component and nine (9%) percent of the
sales per part used outside the MIKS Interactive Kiosk. Each party is to receive
one- third of the royalties until the development costs have been recovered. The
Company believes it is possible that it may enter into a new agreement with DT
and IBM Germany with respect to MIKS but no assurance can be given that such an
agreement will be entered into on terms favorable to the Company, if at all.
Olympus Optical Co. (Europe) GmbH. In March 1996, IAT Germany entered into
a Cooperation Agreement with Olympus pursuant to which IAT Germany agreed to
provide Olympus with IAT Germany's resale price list and to allow Olympus to
resell IAT Germany's products to its customers. In addition, IAT Germany may
procure Olympus microscopes, including any and all accessories, at a resale
discount of 20% of the retail cost. IAT Germany and Olympus agree to provide
initial training for their respective employees in the use of their products and
to consider a long-term partnership.
EMPLOYEES
As of December 31, 1996, the Company had a total of 54 full-time employees
of which 38 and 16 are located in Germany and in Switzerland respectively. Of
these employees, 33 are employed in engineering and product development, 11 in
sales and marketing, and 10 in managerial and administrative functions. The
Company's employees are not party to any collective bargaining agreements or
labor unions. The Company has not experienced any work stoppages and believes
that its relations with its employees are good.
PROPERTY
The Company does not own but leases approximately 6500 square feet of
office space and approximately 350 square feet of storage space in Turgi,
Switzerland, approximately 12,000 square feet of office and work space in
Bremen, Germany and approximately 430 square feet of office space in Berlin,
Germany. Acquisition of real property located in Switzerland by the Company or
any of its subsidiaries is severely restricted under Swiss law. However, IAT
does not intend to acquire real property in Switzerland and believes that none
of its facilities are material to its operations and believes that it could find
alternate space with minimal interruption to its operations.
LITIGATION
The Company's subsidiaries are parties to certain legal proceedings. The
Company believes that none of these proceedings is likely to have a material
adverse effect on the Company's financial position.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of the
executive officers and directors of Multimedia:
Name Age Position
- ---- --- --------
Viktor Vogt ...... 49 Co-Chairman of the Board, Chief Executive Officer
and President
Jacob Agam ....... 41 Co-Chairman of the Board
Klaus Grissemann 53 Chief Financial Officer and Director
Volker Walther .... 35 Director
Franz Muller ...... 45 Chief Technical Officer
Wilhelm Gudauski 46 Managing Director, IAT Germany
Dr. Viktor Vogt has served as the Co-Chairman of the Board, Chief
Executive Officer and President of Multimedia since its organization in October
1996. Dr. Vogt is a co-founder and has served as Chief Executive Officer and
director of IAT AG and Managing Director of IAT Germany since their formations
in 1989 and 1990, respectively. He has also served as Chairman of the Board of
IAT AG since October 1996. Prior to 1988, Dr. Vogt was Professor for mathematics
and computer-science at the University of Erlangen-Nurnberg, Germany. He was a
pioneer scientist at the Academy for Economics and Administration in Nurnberg in
the implementation of computer science in education and published several works
in the fields of multimedia, authoring and computer aided instruction (CAI)
systems. Dr. Vogt received his degree in Mathematics and Physics (Dr. rer. nat.)
from Friedrich-Alexander University in Erlangen in 1980.
Jacob Agam has served as the Co-Chairman of the Board of Multimedia since
its organization in October 1996. Mr. Agam is a founder and Chairman of the
Board of Orida Capital Ltd. ("Orida"), a merchant banking and venture capital
firm, since its inception in 1993, and a director of Vertical, a principal
shareholder of the Company, since 1995. Mr. Agam, in his capacity as Chairman of
Orida, spends a portion of his business time providing services to companies
other than IAT. Orida provides services for Vertical pursuant to an agreement
between Orida and Vertical. Mr. Agam received a law degree from Tel Aviv
University in 1984 and his LLM in Securities and Corporate Finance from the
University of Pennsylvania in 1986.
Klaus Grissemann has served as Chief Financial Officer of Multimedia since
the organization of Multimedia in October 1996 and was elected to serve as a
director in December 1996. Mr. Grissemann joined IAT AG in 1989 as Chief
Financial Officer and was elected as a Director of IAT AG in 1993. From 1979
until 1988, Mr. Grissemann was Chief Financial Officer of Jaeger Le Coultre AG,
a Swiss watch manufacturer. Mr. Grissemann graduated from Kantonale
Handelsschule (Business School) in Zurich.
Volker Walther was elected to serve as a director of Multimedia in
December 1996. In 1996, Mr. Walther became Chief Executive Officer and majority
shareholder of Walther Glas, a glass manufacturing company in Germany which
produces car lights, household glassware and gift items, where he was general
manager from 1993 to 1996 and buying manager from 1991 to 1993. Mr. Walther
holds a degree in Economics from Ludwig Maximilian-University in Munich.
Wilhelm Gudauski joined IAT Germany in January 1994 as General Manager.
From 1988 until 1994, Mr. Gudauski has served as Managing Director for
Schlutersche Verlagsanstalt and Druckerei Hannover/Germany, publishing houses,
as head of on-line media. Mr. Gudauski holds a master degree in philosophy,
classical studies and political science from the Carl von Ossietzky University
in Oldenburg.
Franz Muller joined IAT AG in 1991 to head its Research and Development
department and has been its Chief Technical Officer since 1994. From 1977 until
1991, Mr. Muller was employed by Siemens Germany where he was head of research
and development for mainframe computer systems from 1987 until 1991. Mr. Muller
holds a degree as graduate communications engineer from Technical University,
Osnabruck.
The Board of Directors of Multimedia has determined that, within 90 days
of this Offering, it will elect two directors who are not affiliated with or
employed by the Company and who in the opinion of the Board of Directors do not
have a relationship which would interfere with the exercise of independent
judgement in carrying out the responsibilities of a director (the "Independent
Directors").
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Directors serve until the next annual meeting or until their successors
are elected and qualified subject to the provisions of the Investor Rights
Agreement (as defined herein) which provides that so long as Vertical holds at
least 10% of the Common Stock to be issued upon conversion of the Series A
Preferred Stock, Vertical has the right, but not the obligation, to nominate two
persons as members of the management state for election to Multimedia's Board of
Directors. So long as Vertical holds at least 5% of such securities, it has the
right, but not the obligation to nominate one such person. Mr. Agam, the
Co-Chairman of the Board, is the person designated by Vertical and elected to
the Board of Directors. Vertical plans to nominate a second director and the
Board of Directors has determined that it will elect such person to the Board of
Directors. The existence of such rights solidified the control over the Company
by its existing stockholders. See "Certain Transactions -- Private Placement and
Related Transactions." Officers serve at the discretion of the Board of
Directors, subject to rights, if any, under contracts of employment with the
Company.
Board Committees
The Board of Directors has appointed Mr. Agam, Dr. Vogt and Mr. Grissemann
to the Underwriting Committee. Pursuant to the provisions of the Stock Purchase
Agreement, the Underwriting Committee shall consist of four members with two
members appointed by each of Vertical and Multimedia. Pending the nomination of
a second director by Vertical, Vertical has waived its right to name a second
member to the Underwriting Committee. Mr. Agam, as designated by Vertical,
serves as the Chairman of the Underwriting Committee. The Underwriting Committee
is vested with full and exclusive responsibility and authority on behalf of
Multimedia to select an underwriter and to negotiate all of the terms and
conditions of any such underwriting including, without limitation, this
Offering. In the event that the Underwriting Committee is unable to produce a
majority vote on any particular issue, such issue shall be decided by a vote of
the Board of Directors of Multimedia provided that the resolution of any such
issue by the Board of Directors shall not be effectuated without the written
consent of Vertical.
Multimedia intends to establish an Audit Committee, a Compensation
Committee and a Stock Option Committee. Upon the election of the Independent
Directors it is expected that the Independent Directors will be members of the
Compensation Committee with Mr. Agam and the sole members of the Audit Committee
and the Stock Option Committee.
Executive Compensation
The following summary compensation table sets forth the aggregate
compensation paid or accrued by the Company to Dr. Vogt, the Co-Chairman and
Chief Executive Officer of Multimedia and the three most highly compensated
executive officers other than Dr. Vogt whose annual salary and bonus exceeds
$100,000 (the "Named Executive Officers"), during the fiscal year ended December
31, 1996:
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SUMMARY COMPENSATION TABLE
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Long-Term Compensation
---------------------------------------------------
Annual Compensation(1) Awards Payouts
------------------------------------ ------------------------ ----------------------
Restricted
Other Annual Stock Options/ LTIP All Other
Name and Salary Bonus Compensation Award(s) SARs Payouts Compensation
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
- -------------------------- ---- ------ ----- ------------ ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Viktor Vogt ............ 1996 133,845(2) -- 16,812(3) -- -- -- --
Co-Chairman and 10,329(4)
Chief Executive Officer
1995 133,845(2) 7,692 15,458(3) -- -- -- --
10,329(4)
1994 133,845(2) 11,538 15,462(3) -- -- -- --
9,701(4)
Klaus Grissemann(5) .. 1996 150,827 -- 9,738(4) -- -- -- --
Chief Financial Officer
1995 126,981 -- 4,058(4) -- -- -- --
1994 114,885 -- -- -- -- -- --
Franz Muller ........... 1996 96,700 -- 8,561(3) -- -- -- --
Chief Technical Officer 9,563(4)
1995 96,700 -- 5,952(3) -- -- -- --
9,563(4)
1994 89,700 -- 5,807(3) -- -- -- --
Wilhelm Gudauski ....... 1996 113,164 -- 7,600(3) -- -- -- --
Managing Director, 11,713(4)
IAT Germany 1995 106,196 -- 7,578(3)
11,713(4) -- -- -- --
1994 99,560 -- 7,560(3) -- -- -- --
8,785(4)
</TABLE>
- ----------
(1) Compensation is paid in Swiss Francs or Deutsche Marks, as the case may
be, and is converted into U.S. dollars at the exchange rate of $1.00 =
1.30 SF and $1.00 = 1.55 DM on December 8, 1996.
(2) Includes a non-accountable expense allowance of $9,230.
(3) Pursuant to the pension system in existence in Switzerland, the Company
contributes these amounts to pension funds selected by the executive
officer from among several independent pension funds chartered by the
government to collect pension contributions and to make pension payments
upon retirement. In the case of Mr. Gudauski, the Company contributes
these amounts to the mandatory pension fund.
(4) Represents payments made by the Company for automobile leases for the
Named Executive Officers.
(5) Mr. Grissemann is not an employee of the Company. His services are
provided on a per diem basis by Grissemann Consulting S.A. See "--
Employment and Consulting Agreements."
COMPENSATION OF DIRECTORS
Directors of Multimedia currently do not receive any compensation or
reimbursement of expenses in connection with their service on the Board of
Directors but the Company may establish compensation policies in the future.
Pursuant to the provisions of the Stock Purchase Agreement, Vertical is entitled
to receive a monthly payment of $5,000 prior to, and a monthly payment of
$12,000 subsequent to, the consummation of this Offering as compensation for the
services of the Co-Chairman of the Company nominated by Vertical. Jacob Agam is
the current nominee of Vertical. To date, the Company has not made these
payments but has accrued such payments and intends to make such payments
(including accrued payments) in the future.
Employment and Consulting Agreements
The Company and Dr. Vogt intend to enter into an employment agreement
pursuant to which Dr. Vogt agrees to serve as the Company's Co-Chairman, Chief
Executive Officer and President for an initial term of three
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years. It is anticipated that the employment agreement will provide that Dr.
Vogt will receive $140,000 in annual salary, a non-accountable expense allowance
in the amount of approximately $9,230 and pension fund contributions in
accordance with Swiss pension system, as well as a cash bonus in the amount of
one half of one percent of the Company's net sales in excess of $5.0 million
provided that such cash bonus will not be less than $10,000. In addition, Dr.
Vogt will be eligible to receive stock options for a number of shares of the
Company's Common Stock to be determined by the Stock Option Committee. The
employment agreement with Dr. Vogt is also expected to contain a provision
prohibiting Dr. Vogt from competing with the Company for a period of two years
from the date of termination of his employment.
Mr. Grissemann is not an employee of the Company. His services are
provided on a per diem basis by Grissemann Consulting S.A. pursuant to an
agreement (the "Grissemann Agreement") dated September 1, 1992 and amended on
December 19, 1994 between IAT AG and Grissemann Consulting S.A. The Grissemann
Agreement has an indefinite term and provides that Mr. Grissemann is responsible
for the administration and accounting of IAT AG and that the amount of his
business time which he is to devote to IAT AG's affairs is to be agreed among
the parties but will in no event be less than thirty percent of Mr. Grissemann's
business time. Grissemann Consulting S.A. is paid a per diem fee of SF 775
(approximately $596) to be amended yearly in line with increases in salary of
IAT AG's other executive officers. In addition, the Grissemann Agreement
provides that Mr. Grissemann will be provided with an automobile at IAT AG's
expense.
IAT AG and Franz Muller entered into an employment agreement on March 1,
1991 (the "Muller Agreement") pursuant to which Mr. Muller was appointed
Director of Product Development (Hardware), Technical Support of IAT AG. The
Muller Agreement has an indefinite term and provides for an annual salary of SF
110,110 (approximately $84,700), subject to increases in the Company's
discretion and may be terminated by either party upon three months notice. In
addition, the Muller Agreement contains a confidentiality provision which
extends beyond termination of the employment relationship. The Muller Agreement
was amended effective as of July 1, 1993 to provide that Mr. Muller assigns to
IAT AG any and all rights to work and computer programs which he develops singly
or in cooperation with others during the performance of his duties.
IAT Germany and Wilhelm Gudauski entered into an employment agreement
effective on January 3, 1994 (the "Gudauski Agreement") pursuant to which Mr.
Gudauski was appointed Manager of Marketing and Sales. On July 12, 1994, Mr.
Gudauski became Managing Director of IAT Germany. The Gudauski Agreement has an
indefinite term and under German law, ends at the mandatory retirement age of
65. The Gudauski Agreement provides for an annual salary of DM 150,000
(approximately $96,774), certain benefits and the payment of an undetermined
bonus upon reaching certain goals to be agreed upon by the parties. The Gudauski
Agreement may be terminated by either party upon six months notice and provides
that Mr. Gudauski may not compete in Germany with IAT Germany for one year upon
termination during which period IAT Germany will be obligated to pay Mr.
Gudauski 70% of his salary, bonus and certain other benefits unless Mr. Gudauski
was terminated for cause.
1996 STOCK OPTION PLAN
The Company's Board of Directors has approved and stockholders have
approved the Company's 1996 Stock Option Plan (the "1996 Plan"). The 1996 Plan,
which provides for a grant of a limited number of non- qualified and incentive
stock options in respect of up to 500,000 shares of Common Stock, none of which
have been granted as of this date, to eligible employees and advisors, is
designed to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to key employees,
officers and advisors to the Company and its subsidiaries and to promote the
success of the Company's business.
Each option granted pursuant to the 1996 Plan is designated at the time of
grant as either an "incentive stock option" or as a "non-qualified stock
option." Grants to executive officers may be made only at the fair market value
of the underlying stock on the date of issuance. The issuance of options at fair
market value on grant date constitutes a performance goal under Section 162(m)
of the Internal Revenue Code. The following summary description of the Plan is
qualified in its entirety by reference to the Plan itself, which is filed as an
exhibit to the registration statement of which this Prospectus is a part.
Administration of the Plan. The 1996 Plan will be administered by the
Stock Option Committee (the "Committee"), which will be appointed by the Board
of Directors. Only the Independent Directors may serve on
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the Committee. The Committee determines who among those eligible will be granted
options, the time or times at which options will be granted, the number of
shares to be subject to each option, the duration of options, any conditions to
the exercise of options and the date or dates on, and the price at which,
options may be exercised.
The 1996 Plan may be amended by the Board without stockholder approval,
except that stockholder approval is required to (i) decrease the minimum
exercise price for incentive stock options ("ISOs"); (ii) extend the term of the
1996 Plan beyond ten years; (iii) extend the maximum term of the options granted
under the 1996 Plan beyond ten years; (iv) withdraw the administration of the
1996 Plan from the Committee; (v) expand the class of eligible participants;
(vi) increase the aggregate number of shares of Common Stock which may be issued
pursuant to the provisions of the 1996 Plan; and (vii) change the material terms
of the performance goal within the meaning of Internal Revenue Code Section
162(m).
Unless the Plan is terminated earlier by the Board of Directors, it will
terminate on the earlier of (i) the date when all shares of the Common Stock
reserved for issuance under the Plan have been acquired through the exercise of
options granted thereunder, (ii) January 2007 or (iii) such earlier date as the
Board of Directors may determine.
Shares Subject to the Plan. The 1996 Plan provides that options may be
granted with respect to a total of 500,000 shares of Common Stock. Under certain
circumstances involving a change in the number of shares of Common Stock without
receipt by the Company of any consideration therefor, such as a stock split,
stock consolidation or payment of a stock dividend, the class and aggregate
number of shares subject to options under the 1996 Plan will be proportionally
adjusted. In addition, if the Company is involved in a merger, consolidation,
dissolution or liquidation, the options granted under the 1996 Plan will be
adjusted. If any option expires or terminates for any reason, without having
been exercised in full, the unpurchased shares subject to such option will be
available again for the purposes of the 1996 Plan.
Participation. Grants under the 1996 Plan may be granted to employees of
the Company and its subsidiaries and any other individual who, in the judgment
of the Committee, provides valuable and important services to the Company.
Non-employee directors are not eligible to participate in the 1996 Plan. No
participant may receive, in the aggregate, options in respect of more than
100,000 shares.
Option Price. The exercise price of each option will be determined by the
Committee. With respect to incentive stock options, the exercise price may not
be less than 100% of the fair market value of the shares of Common Stock covered
by the option on the date the option is granted. If an incentive stock option is
granted to an employee who owns over 10% of the total combined voting power of
all classes of the Company's stock, then the exercise price may not be less than
110% of the fair market value of the Common Stock underlying the option on the
date the option is granted. The exercise price of non-qualified stock options
may be any price set by the Committee; provided, however, that the exercise
price of any grant to any executive officer shall not be lower than the fair
market value of the underlying Common Stock on the date of grant. The issuance
of options at fair market value on the date of grant constitutes a performance
goal under Section 162(m) of the Internal Revenue Code. Accordingly, grants
under the Plan should qualify as performance-based compensation.
Term of Options. The Committee shall fix the term of each option, provided
that the maximum term of each option shall be ten years. Incentive stock options
granted to a person who owns over 10% of the total combined voting power of all
classes of the Company's stock shall expire not more than five years after the
date of grant. The 1996 Plan provides for the earlier expiration of options held
by a participant under certain terminations of employment with the Company. The
Committee will have discretion on a case by case basis, with respect to any
optionee whose employment is terminated for any reason whatsoever, to accelerate
the vesting of any options outstanding on the date employment is terminated to
permit the optionee to exercise the option during the remaining term of such
options. Shares purchased pursuant to the exercise of options granted under the
1996 Plan must be paid for in United States currency, or, at the Committee's
discretion, in shares of the Company's Common Stock already owned by the
participant exercising the options.
Restrictions on Transfer, Grant and Exercise. An option may not be
transferred other than to members of the holder's family, trusts and charities.
Any other transfers are permissible only upon prior written approval of the
Committee. Notwithstanding the above, the option agreement accompanying the
issuance of any incentive stock options shall limit the transferability of such
ISOs (as defined herein) to the extent required by the then-
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applicable tax provisions governing the qualification of ISOs. The aggregate
fair market value (determined at the time the option is granted) of the shares
as to which a Grantee may first exercise incentive stock options in any one
calendar year may not exceed $100,000. The Committee may impose any other
conditions on the exercise of options it deems appropriate.
Federal Income Tax Consequences to the Company and the Participant.
Incentive Stock Options. Options granted under the 1996 Plan which
constitute ISOs will, in general, be subject to the following Federal income tax
treatment:
(i) The grant of an ISO will give rise to no Federal income tax
consequences to either the Company or the participant.
(ii) A participant's exercise of an ISO will result in no Federal income
tax consequences to the Company.
(iii) A participant's exercise of an ISO will not result in ordinary
Federal taxable income to the participant, but may result in the imposition of,
or an increase in, the alternative minimum tax. A participant's holding period
for shares acquired upon the exercise of an ISO will commence the day after
acquisition. If shares acquired upon exercise of an ISO are not disposed of
within the same taxable year the ISO is exercised, the excess of the fair market
value of the shares at the time the ISO is exercised over the option price is
included in the participant's computation of alternative minimum taxable income.
(iv) If shares acquired upon the exercise of an ISO are disposed of within
two years of the date of the option grant, or within one year of the date of the
option exercise, the participant will realize ordinary Federal taxable income at
the time of the disposition to the extent that the fair market value of the
shares at the time of exercise exceeds the option price, but not in an amount
greater than the excess, if any, of the amount realized on the disposition over
the option price.
(v) Short-term or long-term capital gain will be realized by the
participant at the time of such a disposition to the extent that the amount of
proceeds from the sale exceeds the fair market value at the time of the exercise
of the ISO.
(vi) Short-term or long-term capital loss will be realized by the
participant at the time of such a disposition to the extent that the option
price exceeds the amount of proceeds from the sale.
(vii) If a disposition is made as described in this section, the Company
will be entitled to a Federal income tax deduction in the taxable year in which
the disposition is made in an amount equal to the amount of ordinary Federal
taxable income realized by the participant.
(viii) If shares acquired upon the exercise of an ISO are disposed of
after the later of two years from the date of the option grant or one year from
the date of the option exercise, the participant will realize long-term capital
gain or loss in an amount equal to the difference between the amount realized by
the participant on the disposition and the participant's Federal income tax
basis in the shares, usually the option exercise price. In such event, the
Company will not be entitled to any Federal income tax deduction with respect to
the ISO.
Non-Qualified Stock Options ("NQSOs"). Options granted under the 1996 Plan
which constitute NQSOs will, in general, be subject to the following Federal
income tax treatment:
(i) The grant of an NQSO will give rise to no Federal income tax
consequences to either the Company or the participant.
(ii) The exercise of an NQSO will generally result in ordinary Federal
taxable income to the participant in an amount equal to the excess of the fair
market value of the shares at the time of exercise over the option price.
(iii) A deduction from Federal taxable income will be allowed to the
Company in an amount equal to the amount of ordinary income recognized by the
participant.
(iv) Upon a subsequent disposition of shares, a participant will recognize
a short-term or long-term capital gain or loss equal to the difference between
the amount received and the tax basis of the shares, usually fair market value
at the time of exercise.
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CERTAIN TRANSACTIONS
TRANSACTIONS UNDERTAKEN PRIOR TO ORGANIZATION AND FORMATION OF THE COMPANY
Multimedia was formed in September 1996 as a holding company for the
existing business of IAT AG and IAT Germany which were organized in 1989 and
1991, respectively. IAT AG and IAT Germany incurred operating losses since their
inception. As a result, between May 1992 and April 1993, in compliance with
Swiss law, IAT AG underwent a financial reorganization. IAT AG filed and was
granted an application for a stay of payment with the applicable court in
Switzerland and eventually reached a court-approved agreement with its unsecured
creditors to accept forgiveness of 90% of their claims and to be paid the
remaining 10%. In addition, IAT AG also altered its capital structure in June
1993.
Since 1993 and in compliance with Swiss law, IAT AG took steps to
safeguard the interests of its creditors and to raise capital to fund its
operations by obtaining unsecured subordinated loans not bearing interest and
having no specific maturity date from former stockholders of IAT AG (current
stockholders of Multimedia) and by obtaining additional shareholders equity by
increasing the share capital of IAT AG, which according to Swiss law is required
to be fixed. The share capital was increased in various steps from SF 3,000,000
to SF 10,000,000 between 1993 and 1996 and, except for one instance where Robert
Klein Handel & Co. GmbH was issued 1,500 shares of IAT AG for cash consideration
of SF 1.875 million (approximately $1.49 million), and one instance in June 1993
where shareholders made their capital contribution of SF 0.3 million by transfer
of the rights to certain proprietary licenses instead of by cash consideration,
the 7,000 additional shares were either paid for in cash on the basis of one
share for a cash payment of SF 1,000 or by converting loans into share capital
on the basis of one share for each SF 1,000 in loan forgiveness. In October
1996, in connection with the formation of Multimedia, all of the 10,000 shares
of IAT AG for which the shareholders of IAT AG had contributed SF 10.375 million
(approximately $8.05 million at historic exchange rates) were exchanged (the
"Exchange") for 4,375,000 shares of Common Stock of Multimedia and the
Shareholder Warrant to Messrs. Sippel, Suter and Holthuisen at a purchase price
equivalent to approximately $1.84 per share of Common Stock of Multimedia.
In connection with the increase in share capital in July 1996, whereby IAT
AG issued 900 shares to Volker Walther, a director and stockholder of
Multimedia, for total consideration of SF 900,000 (approximately $714,300), bmp
Management Consultants, also a stockholder of Multimedia, was paid a finders fee
by the Company of approximately $60,000.
During the period from August to October 1996, Walther Glas made several
unsecured subordinated loans to IAT AG in the aggregate amounts of SF 900,000
(approximately $714,300) and DM 700,000 (approximately $457,500). These loans
have an annual interest rate of 10% and provide that they will be repaid at the
earlier of the consummation of this Offering or June 30, 1997.
On November 6, 1996, Klaus-Dirk Sippel, a principal stockholder of
Multimedia, made an unsecured subordinated loan to IAT AG in the amount of SF
650,000 (approximately $515,900). A portion of this loan was used to repay an
unsecured non-interest bearing loan in the amount of SF 150,000 (approximately
$119,000) made in February 1996 to IAT AG by Telefutura, a company controlled by
Klaus-Dirk Sippel. This loan has an annual interest rate of 8% and principal and
accrued interest are due and payable on January 1, 1998. In December 1996,
Vertical transferred 200,000 Investor Warrants it had purchased in the Private
Placement to Mr. Sippel.
The Company expects to obtain an aggregate of approximately $500,000 in
stockholder loans in early February 1997 from Vertical, Walther Glas and Messrs.
Vogt and Sippel. These loans bear annual interest at 8% and mature at the
earlier of the consummation of this Offering or June 30, 1997 unless extended by
mutual agreement of the parties. In connection with these loans, the Company
granted registration rights to Walther Glas and Messrs. Vogt and Sippel
evidenced by registration rights agreements (the "Registration Rights
Agreements"). Pursuant to these agreements, each of these three stockholders
have one demand and unlimited piggy-back registration rights for all of the
shares of Common Stock owned by such stockholder except for Dr. Vogt whose
registration rights are limited to 250,000 of his shares of Common Stock. The
Registration Rights Agreements further provide that any demand registration at a
minimum will include an amount of shares of Common Stock equal to 25% of the
demanding stockholder's share ownership at the time of this Offering. In
addition, the Registration Rights Agreements provide that any exercise of
registration rights in such agreements is subject to Vertical's approval.
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In connection with the operations of IAT Germany, the capital was
increased in 1993 and 1995 from the initial DM 100,000 (approximately $65,400)
to the current DM 700,000 (approximately $457,500). In addition, on December 19,
1995, HIBEG, the 25.1% shareholder of IAT Germany, made an unsecured
subordinated loan to IAT Germany in the amount of approximately DM 750,000
(approximately $490,200) (the "HIBEG Loan"). The HIBEG Loan bears interest at 5%
per annum payable semi-annually and will be increased to 10% per annum during
the year when the retained earnings of IAT Germany exceeds DM 87,500
(approximately $58,000). IAT Germany will be required to make semi-annual
payments of 10% of the principal starting on June 30, 2000 until the principal
is repaid in full.
In addition to the transactions listed above, Messrs. Sippel and Suter
have jointly and severally guaranteed two loans each in the amount of SF 600,000
(approximately $476,200) and each of Messrs. Sippel, Suter and Holthuisen have
jointly and severally guaranteed IAT AG's credit line in the amount of SF
700,000 (approximately $555,600) under IAT AG's credit agreement with Swiss Bank
Corporation for SF 1,900,000 (approximately $1.51 million). IAT Germany entered
into a line of credit with Volksbank Sottrum in the amount of DM 1,050,000
(approximately $686,300). IAT AG, HIBEG, Dr. Vogt and Mr. Gudauski have each
guaranteed the amount of DM 350,000 (approximately $228,800) of this line of
credit. These guarantees are offset by a lien on accounts receivable balances.
In addition, IAT AG has agreed with Volksbank Sottrum that IAT AG will insure
that IAT Germany has sufficient capital to ensure that IAT Germany will be able
to meet all of its obligations, including its obligatons under its loan
agreement to Volksbank Sottrum. In addition, IAT AG has guaranteed IAT Germany's
loan from Bremer Bank in the amount of DM 125,000 (approximately $81,600).
PRIVATE PLACEMENT AND RELATED TRANSACTIONS
Simultaneously with the Exchange, pursuant to the Stock Purchase Agreement
between the Company, IAT AG, IAT Germany and Vertical dated October 24, 1996,
the Company completed the Private Placement and issued an aggregate of 1,980,000
shares of Series A Preferred Stock (which was subsequently adjusted in the
Company's recapitalization) and the Investor Warrants to Vertical, Behala
Anstalt, Lupin Investments Services Ltd., Henilia Financial Ltd. and Avi Suriel
for an aggregate purchase price of $1.5 million or $.76 per share of Series A
Preferred Stock of Multimedia. See "Principal Stockholders."
The Stock Purchase Agreement contains certain continuing obligations of
the Company. Pursuant to the Stock Purchase Agreement, Multimedia is obligated
to use all reasonable efforts to file a registration statement containing this
Prospectus no later than December 31, 1996. In addition, Multimedia is obligated
to establish an underwriting committee of its Board of Directors consisting of
four members with two members appointed by each of Vertical and Multimedia.
Vertical has the right to designate the Chairman of the underwriting committee
which is vested with full and exclusive responsibility and authority on behalf
of Multimedia to select an underwriter and to negotiate all of the terms and
conditions of any such underwriting including, without limitation, this
Offering. In the event that the underwriting committee is unable to produce a
majority vote on any particular issue, such issue shall be decided by a vote of
the Board of Directors of Multimedia, provided, that the resolution of any such
issue by the Board of Directors shall not be effectuated without the written
consent of Vertical.
The Stock Purchase Agreement further provides that, if on the effective
date of this Offering, the aggregate value of the shares of Common Stock (as
measured by the per share offering price of the shares of Common Stock offered
in this Offering) owned by non-management stockholders of Multimedia (the
"Non-Management Stockholders") is less than $15,000,000 (the amount of such
shortfall being hereinafter referred to as the "Shortfall"), Vertical and Dr.
Viktor Vogt, Klaus Grissemann, Wilhelm Gudauski, Franz Muller and other members
of management (the "Management Stockholders") shall, within five business days
of the consummation of this Offering, transfer to the Non-Management
Stockholders such additional number of shares of Common Stock as shall have a
value equal to the Shortfall, with Vertical contributing 60% of the Shortfall
and the Management Stockholders contributing 40% of the shortfall, pro rata.
Alternatively, if on the effective date of this Offering, the aggregate value of
the shares of Common Stock (as measured by the per share offering price of the
shares of Common Stock offered in this Offering) owned by the Non-Management
Stockholders is greater than $25,000,000 (the amount of such excess amount being
hereinafter referred to as the "Excess Amount"), the
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Non-Management Stockholders shall, within five business days of the consummation
of this Offering, distribute, without any further consideration, such number of
shares of Common Stock as shall have a value equal to (i) 60% of the Excess
Amount to Vertical and (ii) 40% of the Excess Amount to the Management
Stockholders, pro rata according to their respective stockholdings.
The Stock Purchase Agreement further provides that until October 24, 1999
Multimedia shall pay to Vertical monthly compensation for the services of the
Co-Chairman of the Company nominated by Vertical each month prior to the
consummation of this Offering of $5,000 and for each month subsequent to the
consummation of this Offering of $12,000. Jacob Agam is the current nominee of
Vertical. To date, the Company has not made these payments but has accrued such
payments and intends to make such payments (including accrued payments) in the
future.
Multimedia further agreed that, for so long as Vertical shall hold the
Series A Preferred Stock (or Common Stock issued upon conversion thereof or upon
exercise of the Investor Warrant), without Vertical's consent, the composition
of the Board of Directors of IAT AG and IAT Germany shall be identical to the
composition of the Board of Directors of Multimedia; provided, that consent
shall not be withheld if required to comply with Swiss law.
Multimedia has further agreed that it will cause IAT AG and IAT Germany
not to issue, and will not permit the issuance of, any shares of capital stock
(or any security convertible into shares of capital stock) of IAT AG or IAT
Germany, it being the intention of Multimedia and Vertical that IAT AG shall
remain a direct or indirect wholly-owned subsidiary of Multimedia and IAT
Germany shall remain a direct or indirect subsidiary of Multimedia.
Amendment No. 1 to the Stock Purchase Agreement provides that Vertical
shall not enter into an agreement or make any investment in an entity engaged in
the video conferencing business prior to January 1, 1998 and that subsequent to
January 1, 1998, Vertical, prior to entering into an agreement or making any
investment in an entity engaged in the video conferencing business will provide
the Company the opportunity to enter into such agreement or make such investment
instead of Vertical.
In connection with the Private Placement, the Company also entered into
the Investor Rights Agreement with Vertical (the "Investor Rights Agreement")
which provides that Vertical has the right, but not the obligation, to nominate
as a member of the management slate for election to the Company's Board of
Directors one or two persons for so long as Vertical will hold at least 5% or
10%, respectively, of the Series A Preferred Stock (or at least 5% or 10%,
respectively, of the Common Stock issuable upon conversion of the Series A
Preferred Stock or upon exercise of the Investor Warrants). The Company agreed
that one such person shall be elected Co-Chairman of the Board of Directors of
the Company. The Investor Rights Agreement further provides for one demand and
two piggy-back registration rights with respect to the Common Stock issuable
upon conversion of the Series A Preferred Stock and the exercise of the Investor
Warrants.
In addition, also in connection with the Private Placement, the Company
entered into the Marketing Agreement with General Capital, an affiliate of
Vertical. The Marketing Agreement provides that General Capital will assist the
Company in connection with marketing its products worldwide, arranging debt or
equity financing for the Company's products to be purchased by its customers,
and arranging financing for the Company's operations, leasing programs, joint
ventures and distribution arrangements, in each case for the further enhancement
of the Company's marketing strategy. Currently, General Capital is working with
the Company to structure a possible marketing joint venture with an Israeli
company relating to marketing of the Company's products in the United States and
to structure a possible marketing joint venture with a German company related to
the marketing by the Company of certain products of the German company. There
can be no assurance that the Company will be able to structure these joint
ventures on terms acceptable to the Company, or at all. The Marketing Agreement
has a five year term and expires on October 26, 2001. Pursuant to the Marketing
Agreement, the Company paid $100,000 at the closing of the Private Placement and
is obligated to pay $300,000 at such time as the Company's consolidated
stockholders' equity exceeds $6,000,000 and an additional $100,000 payable at
such time as the Company's consolidated stockholders' equity exceeds $8,000,000,
provided that the current liabilities of the Company used to determine the
consolidated stockholders' equity of the Company shall not exceed $3,500,000
and, to the extent it exceeds $3,500,000, any such additional amounts shall not
reduce such stock-
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holders' equity. The consummation of this Offering will trigger the $400,000
payment which will be made with the proceeds of this Offering. The Marketing
Agreement further provides that Multimedia will provide General Capital with
certain technical and other information relating to its business and operations
as is reasonable and necessary for General Capital to market the Company's
products. In addition, Multimedia will provide General Capital with the
necessary sales promotion materials to market the Company's products and
Multimedia shall make its management available to General Capital and
prospective customers at such reasonable times and locations as is necessary for
General Capital to market Multimedia's products. In connection with these
provisions, General Capital agrees that, during the term of the Marketing
Agreement and for a period of five years following such term, it shall not
disclose to any third party any trade secrets or other confidential information
for any purpose other than the performance of its duties under the Marketing
Agreement and upon the prior written approval of Multimedia. General Capital
further agreed that during the term of the Marketing Agreement and for a period
of two years thereafter it shall not directly or indirectly own, manage,
control, participate in, consult with, render services for, or in any manner
engage in any business competing with the business of Multimedia as such
business exists within any geographical area in which Multimedia conducts its
business. Either party may terminate the Marketing Agreement at any time after
June 30, 1997 if the Company's working capital does not exceed $4,000,000 by
such date, provided, however, that in the event that the Company's working
capital exceeds such amount by June 30, 1997, the Marketing Agreement will not
be terminable by either party.
Amendment No. 1 to the Marketing Agreement provides that General Capital,
during the term of the Marketing Agreement and for a period of three years
thereafter shall not directly or indirectly own, manage, control, participate
in, consult with, render services for, or in any manner engage in the video
conferencing business without any geographical limitation.
STOCKHOLDERS' AGREEMENT
Prior to the closing of this Offering, all of the existing stockholders of
the Company will enter into a stockholders' agreement (the "Stockholders'
Agreement"). Pursuant to the Stockholders' Agreement, Walther Glas and Messrs.
Vogt and Sippel (the "Registration Rights Group") have agreed not to sell or
otherwise dispose of any shares of Common Stock or exercise any registration
rights, or seek the consent of the Representative for such sale, disposition or
exercise, without Vertical's prior written consent for a period of 24 months
after the consummation of the Offering. In addition, pursuant to the
Stockholders' Agreement, all of the existing stockholders of the Company other
than Vertical and the Registration Rights Group have agreed not to sell or
otherwise dispose of any shares of Common Stock or seek the consent of the
Representative for such sale or disposition, without the prior written consent
of each member of the Registration Rights Group and Vertical for a period of 24
months after the consummation of this Offering. In addition, the Stockholders'
Agreement prohibits any sale or other disposition of shares of Common Stock
unless the acquiror (and any subsequent acquirors) of such shares becomes a
party to the Stockholders' Agreement.
REVERSE STOCK SPLIT
In connection with the Reverse Stock Split effected by the Company in
December 1996, the outstanding capital stock of the Company was reduced from an
aggregate of 6,600,000 shares to 6,250,000 resulting in 4,375,000 shares of
Common Stock and 1,875,000 shares of Series A Preferred Stock outstanding.
ESCROW SHARES
In connection with this Offering, the existing stockholders will deposit
500,000 shares of Common Stock into escrow. See "Principal Stockholders --
Escrow Shares."
EMPLOYMENT AGREEMENTS
The Company has entered into written employment and consulting agreements
with Grissemann Consulting S.A., Franz Muller and Wilhelm Gudauski and intends
to enter into a written employment agreement with Dr. Vogt prior to or
concurrently with the completion of this Offering. See "Management -- Employment
and Consulting Agreements."
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding ownership of
Common Stock prior to this Offering and as adjusted to give effect to the sale
of the 3,100,000 shares of Common Stock offered hereby by (i) each director of
Multimedia, (ii) each of the Named Executive Officers, (iii) all executive
officers and directors of the Company as a group, and (iv) each person known by
the Company to own beneficially more than five percent of the outstanding Common
Stock.
<TABLE>
<CAPTION>
Number of Shares Percentage of Shares
Beneficially Owned Beneficially Owned
------------------------------ ------------------------
Name and Address Before After Before After
of Beneficial Owner(1) Offering Offering Offering Offering
------------------------------------------- ----------- --------------- ---------- ----------
<S> <C> <C> <C> <C>
Viktor Vogt(2) ............................. 775,382 775,382(3) 12.41% 8.29%
Jacob Agam(4) .............................. -- -- -- --
Klaus Grissemann(2) ........................ 189,395 189,395(5) 3.03% 2.03%
Volker Walther(6) .......................... 890,750 890,750 14.25% 9.53%
Franz Muller(2) ............................ 94,697 94,697(7) 1.52% 1.01%
Wilhelm Gudauski(2) ........................ 142,046 142,046(8) 2.27% 1.52%
All executive officers and directors of the
Company as a group 6 persons ............. 2,092,270 2,092,270 33.48% 22.38%
Vertical Financial Holdings(4)(9) .......... 890,152 1,580,304(10) 14.24% 15.74%
Behala Anstalt(11) ........................ 296,402 592,804(12) 4.74% 6.15%
Lupin Investments Services Ltd.(13) ........ 296,402 592,804(14) 4.74% 6.15%
Henilia Financial Ltd.(15) ................. 297,347 594,694(16) 4.76% 6.16%
Klaus-Dirk Sippel(17) ...................... 707,059 1,105,923(18) 11.31% 11.34%
Richard Suter(19) .......................... 572,687 771,551(20) 9.16% 8.08%
Robert Klein Handel GmbH & Co.
KG(21) ................................... 455,438 455,438 7.29% 4.87%
</TABLE>
- ----------
(1) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them. See "Certain Transactions."
(2) The address of all directors and officers is c/o IAT Multimedia Co.,
Geschaftshaus Wasserschloss, Aarestrasse 17, CH-5300 Vogelsang-Turgi,
Switzerland.
(3) Includes 62,030 shares of Common Stock which are held in escrow but in
respect of which Dr. Vogt retains the power to vote. See "-- Escrow
Shares."
(4) Jacob Agam, the Co-Chairman of the Company, is a director of Vertical.
Pursuant to an agreement between Orida and Vertical, Orida has the right
to receive a portion of the profits from the sale of the shares held by
Vertical. Mr. Agam is the Chairman and a significant owner of Orida. Mr.
Agam disclaims beneficial ownership of the shares held by Vertical.
(5) Includes 15,151 shares of Common Stock which are held in escrow but in
respect of which Mr. Grissemann retains the power to vote. See "-- Escrow
Shares."
(6) Volker Walther's address is Pestalozziweg 8, D-34439, Willebadessen,
Germany. Includes 156,188 shares held by Walther Glas GmbH of which Mr.
Walther is a majority shareholder. Also includes 58,765 and 12,495 shares
of Common Stock which are held in escrow but in respect of which Mr.
Walther and Walther Glas GmbH, respectively, retain the power to vote. See
"-- Escrow Shares."
(7) Includes 7,575 shares of Common Stock which are held in escrow but in
respect of which Mr. Muller retains the power to vote. See "-- Escrow
Shares."
(8) Includes 11,364 shares of Common Stock which are held in escrow but in
respect of which Mr. Gudauski retains the power to vote. See "-- Escrow
Shares."
(9) The address of Vertical is Hombrechtikerstrasse 61, CH-8640 Rapperswil,
Switzerland.
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(10) Includes 690,152 shares of Common Stock issuable upon exercise of an equal
amount of Investor Warrants beneficially owned by Vertical and exercisable
within 60 days. Also includes 71,212 shares of Common Stock which are held
in escrow but in respect of which Vertical retains the power to vote. See
"-- Escrow Shares."
(11) The address of Behala Anstalt is Heiligkreuz 6, PL-9490 Vaduz,
Liechtenstein.
(12) Includes 296,402 shares of Common Stock issuable upon exercise of an equal
amount of Investor Warrants beneficially owned by Behala Anstalt and
exercisable within 60 days. Also includes 23,712 shares of Common Stock
which are held in escrow but in respect of which Behala Anstalt retains
the power to vote. See "-- Escrow Shares."
(13) The address of Lupin Investments Services Ltd. is P.O. Box 3186,
Tortola/BVI, Road Town, Tortola, British Virgin Islands.
(14) Includes 296,402 shares of Common Stock issuable upon exercise of an equal
amount of Investor Warrants beneficially owned by Lupin Investments
Services Ltd. and exercisable within 60 days. Also includes 23,712 shares
of Common Stock which are held in escrow but in respect of which Lupin
Investments Services Ltd. retains the power to vote. See "-- Escrow
Shares."
(15) The address of Henilia Financial Ltd. is 35A Regent Street, Belize City,
Belize.
(16) Includes 297,347 shares of Common Stock issuable upon exercise of an equal
amount of Investor Warrants beneficially owned by Henilia Financial Ltd.
and exercisable within 60 days. Also includes 23,788 shares of Common
Stock which are held in escrow but in respect of which Henilia Financial
Ltd. retains the power to vote. See "-- Escrow Shares."
(17) The address of Klaus-Dirk Sippel is Tannenweg 2, CH-5415 Nussbaumen,
Switzerland. In October 1996, Mr. Sippel sold 76,941 shares to Mr. Jurgen
Henning. While Mr. Sippel does not have any voting or dispositive power
with respect to these shares, the agreement between Messrs. Sippel and
Henning provides that Mr. Sippel will share in the proceeds of the sale of
Mr. Henning's shares.
(18) Includes 398,864 shares of Common Stock issuable upon exercise of an equal
amount of Shareholder Warrants beneficially owned by Klaus-Dirk Sippel and
exercisable within 60 days. Also includes 56,565 shares of Common Stock
which are held in escrow but in respect of which Mr. Sippel retains the
power to vote. See "-- Escrow Shares."
(19) Richard Suter's address is Lendikerstrasse 25, CH-8484 Weisslingen,
Switzerland.
(20) Includes 198,864 shares of Common Stock issuable upon exercise of an equal
amount of Shareholder Warrants beneficially owned by Richard Suter and
exercisable within 60 days. Also includes 45,815 shares of Common Stock
which are held in escrow but in respect of which Mr. Suter retains the
power to vote. See "-- Escrow Shares."
(21) Robert Klein Handel GmbH & Co. KG's address is Perlengraben 2, D-50676
Koln.
ESCROW SHARES
The existing stockholders of the Company will deposit an aggregate of
500,000 shares of Common Stock into escrow. The Escrow Shares are not assignable
or transferable. Of the Escrow Shares,
(i) 166,666 shall be released from escrow if, for the fiscal year
ending December 31, 1997, the Company's minimum revenues (the "Minimum
Revenues") equals or exceeds $5.5 million;
(ii) 166,666 Escrow Shares (or, if the conditions set forth in (i)
above was not met, 333,332 Escrow Shares) shall be released, if, for the
fiscal year ending December 31, 1998, the Minimum Revenues equals or
exceeds $8.0 million;
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(iii) 166,668 Escrow Shares (or, if the conditions set forth in
either (i) or (ii) were not met, the remaining Escrow Shares) shall be
released if, for the fiscal year ending December 31, 1999, the Minimum
Revenues equals or exceeds $12.0 million and the Company's income before
provision for taxes (the "Minimum Pretax Income") equals or exceeds $1.0
million; and
(iv) all of the Escrow Shares will be released from escrow if one or
more of the following conditions is/are met:
(a) the average of the closing bid prices of the Company's
Common Stock for any 30 consecutive trading days commencing 24
months after the Effective Date exceeds $13.00 per share; or
(b) the Company is acquired by or merged into another entity
during the period set forth in (a) above in a transaction in which
the value of the per share consideration received by the
stockholders of the Company (after giving effect to the release from
escrow) on the date of such transaction exceeds $13.00 per share.
The Minimum Revenues and Minimum Pretax Income Amounts set forth above
shall be (i) derived solely from the business currently owned and operated by
the Company and shall not give effect to any operations relating to business or
assets acquired in the future; (ii) calculated exclusive of any extraordinary
earnings including, but not limited to, any charge to income resulting from the
release of the Escrow Shares and (iii) audited by the Company's independent
public accountants.
Any money, securities, rights or property distributed in respect of the
Escrow Shares shall be received by the escrow agent, including any property
distributed as dividends or pursuant to any stock split, merger,
recapitalization, dissolution or total or partial liquidation of the Company
(the "Escrow Property"). On March 31, 2000, any remaining Escrow Shares, as well
as any dividends or other distributions made with respect thereto, will be
canceled and contributed to the capital of the Company. The Company expects that
the release of the Escrow Shares to officers, directors, employees and
consultants of the Company will be deemed compensatory and, accordingly, will
result in a substantial charge to operations, which would equal the then fair
market value of such shares. Such charges could substantially increase the loss
or reduce or eliminate the Company's net income for financial reporting purposes
for the period during which such shares are, or become probable of being,
released from escrow. Although the amount of compensation expense recognized by
the Company will not affect the Company's total stockholder's equity, it may
have a negative effect on the market price of the Common Stock. See "Risk
Factors -- Charge to Earnings in the Event of Release of Escrow Shares",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 4 -- Consolidated Financial Statements of the Company.
The Minimum Revenues and Minimum Pretax Income amounts and closing bid
price levels set forth above were determined by negotiation between the Company
and the Underwriters and should not be construed to imply or predict any future
earnings by the Company or any increase in the market price of the Common Stock.
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DESCRIPTION OF SECURITIES
The authorized capital stock of Multimedia consists of 20,000,000 shares
of Common Stock, par value $.01 per share, 2,375,000 shares of preferred stock,
par value $.01 per share (the "Preferred Stock"), including 500,000 shares of
Blank Check Preferred Stock. Prior to this Offering, Multimedia had issued and
outstanding 4,375,000 shares of its Common Stock and 1,875,000 shares of Series
A Preferred Stock. Upon consummation of this Offering, Multimedia will have
issued and outstanding an aggregate of 9,350,000 shares of its Common Stock
including 1,875,000 shares of Common Stock issued upon automatic conversion of
all of the outstanding Series A Preferred Stock. Upon conversion of the Series A
Preferred Stock, all of the Series A Preferred Stock will be cancelled.
COMMON STOCK
Holders of Common Stock have the right to cast one vote for each share
held of record on all matters submitted to a vote of the stockholders, including
the election of directors. Holders of Common Stock are entitled to receive such
dividends, pro rata, based on the number of shares held, when, as and if
declared by the Board of Directors, from funds legally available therefor,
subject to the rights of holders of any outstanding preferred stock. Multimedia
has never paid cash dividends on its Common Stock and does not anticipate or
intend paying cash dividends in the foreseeable future on its Common Stock. In
the event of the liquidation, dissolution or winding up of the affairs of
Multimedia, all assets and funds of Multimedia remaining after the payment of
all debts and other liabilities, subject to the rights of the holders of any
outstanding Preferred Stock, shall be distributed to the holders, pro rata on a
per share basis, among the holders of the Common Stock. Holders of Common Stock
are not entitled to preemptive, subscription, cumulative voting or conversion
rights, and there are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are, and the shares of
Common Stock offered hereby will be, when issued, fully paid and non-assessable.
PREFERRED STOCK
SERIES A PREFERRED STOCK
Dividends. The holders of the Series A Preferred Stock are entitled to
receive mandatory preferential dividends at the rate of $.056 per share (as
adjusted for stock splits, combinations or similar events) during the one year
period from October 4, 1996 to October 24, 1997, which dividends shall be
accrued and shall be paid, in cash, upon the earlier of (i) the consummation of
this Offering at which time all shares of Series A Preferred Stock will
automatically convert at the then-effective Conversion Rate (as defined below)
or (ii), in the event this Offering is not consummated, on October 24, 1997.
Liquidation Preference. In the event of any liquidation, dissolution or
winding up of Multimedia, either voluntary or involuntary, the holders of the
Series A Preferred Stock are entitled to receive, prior and in preference to any
distribution of any of the assets of Multimedia to any holders of Common Stock,
an amount per share equal to $.080 (as adjusted for stock splits, combinations
or similar events) for each outstanding share of Series A Preferred Stock plus
any accrued or declared but unpaid dividends (the "Liquidation Preference"). If,
upon the occurrence of such an event, the assets and funds thus distributed
among the holders of the Series A Preferred Stock shall be insufficient to
permit the payment to such holders of the full Liquidation Preference, then the
entire assets and funds of Multimedia legally available for distribution shall
be distributed ratably among the holders of the Series A Preferred Stock such
that an equal amount shall be paid with respect to each outstanding share of
Series A Preferred Stock.
Redemption. Multimedia is obligated to redeem the Series A Preferred Stock
at the Liquidation Preference upon the written request of the holders of any
outstanding shares of Series A Preferred Stock at any time following October 4,
1998. If, at any time after December 31, 1997, Multimedia has not consummated
this Offering, Multimedia may redeem all, but not less than all, of the
outstanding shares of Series A Preferred Stock at the Liquidation Preference. To
the extent that Multimedia does not have funds legally available to fund any
required redemption of shares of Series A Preferred Stock, Multimedia shall use
its commercially reasonable best efforts to raise sufficient capital to fund
such required redemption within 60 days of the date such redemption is required
to be made. To the extent that Multimedia is unable to raise sufficient capital
to fund such required
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redemption within such period, Multimedia shall commence, as of the 61st day
following the date such redemption is required to be made, a rights offering of
Multimedia's Common Stock to all of Multimedia's shareholders of an adequate
number of shares at a purchase price per share equal to its then fair market
value such that the total dollar amount to be raised from such rights offering
will equal or exceed the dollar amount needed by Multimedia to fund such
required redemption.
Conversion. Each share of Series A Preferred Stock is convertible, at the
option of the holder thereof at any time after the date of issuance of such
share. Each share of Series A Preferred Stock shall be convertible into the
number of fully paid and nonassessable shares of Common Stock equal to a
fraction, the numerator of which is the "Conversion Value" per share of such
Series A Preferred Stock and the denominator of which is the "Conversion Price"
per share in effect for such Series A Preferred Stock at the time of conversion.
The number of shares of Common Stock into which each share of Series A Preferred
Stock is convertible is hereinafter collectively referred to as the "Conversion
Rate" for such series. The Conversion Price of each of the Series A Preferred
Stock is subject to adjustment to protect against certain antidilutive events.
The initial Conversion Price per share of Series A Preferred Stock is $.80,
subject to adjustment for stock splits, combinations or similar events affecting
the Series A Preferred Stock. The Conversion Value per share of Series A
Preferred Stock is $.80. As of the date of this Prospectus, each share of Series
A Preferred Stock will convert into 1,875,000 shares of Common Stock upon the
consummation of this Offering.
Voting Rights. Except with respect to the election of members of
Multimedia's Board of Directors, the Series A Preferred Stock are entitled to
vote on all matters as to which the holders of Common Stock are entitled to vote
with each share of Series A Preferred Stock having that number of votes equal to
the number of shares of Common Stock into which it is then convertible.
Status of Converted Stock. Upon consummation of this Offering and the
conversion of the Series A Preferred Stock, the shares so converted shall be
canceled by Multimedia. See "-- Preferred Stock."
Right to Elect Certain Directors. Provided that there are at least five
directors, for so long as the holders of Series A Preferred Stock hold at least
5% of Multimedia's Series A Preferred Stock (or 5% of the Common Stock issued
upon conversion of the Series A Preferred Stock or upon exercise of any warrants
held by such holder), the holders of the Series A Preferred Stock voting as a
separate class, shall have the right to elect one individual to Multimedia's
Board of Directors and so long as the holders of at least 10% of Multimedia's
Series A Preferred Stock (or 10% of the Common Stock issued upon conversion of
the Series A Preferred Stock or upon exercise of any warrants held by such
holder), such holders voting as a separate class, shall have the right to elect
two individuals to Multimedia's Board of Directors, including one member who
shall be elected as Co-Chairman of the Board of Directors. The Series A
Directors shall be elected at the same time as the election of the other members
of the Board of Directors. In the event of the resignation or removal of a
Series A Directors, a special meeting shall be convened at which elections shall
be held for the election of a substitute Series A Director, provided that such
holders may act by unanimous consent in lieu of such meeting.
Covenants. So long as any shares of Series A Preferred Stock are
outstanding, Multimedia shall not without first obtaining the written consent of
the holders of at least two-thirds of the then outstanding shares of Series A
Preferred Stock, among other things, sell all or substantially all of the assets
of Multimedia, merge in any transaction in which more than 50% percent of the
voting power of Multimedia is disposed of, engage in any spin-out, distribution
or sale of any business unit of Multimedia, increase or decrease the total
number of authorized shares of Series A Preferred Stock or amend the terms of
the Series A Preferred Stock so as to affect adversely the Series A Preferred
Stock, authorize or issue any other equity security having a preference over, or
being on a parity with the Series A Preferred Stock with respect to dividends,
redemption or liquidation, redeem or repurchase any outstanding equity
securities of the Company, to issue shares of Common Stock to employees,
advisors, consultants or outside directors if the cumulative total number of
shares of Common Stock so issued exceeds 748,000, increase the authorized number
of directors of Multimedia to more than five members, liquidate, dissolve or
otherwise wind up the affairs of Multimedia, enter into any transactions with
affiliates of Multimedia except on arms-length terms or pay any dividend on or
any distribution with respect of any shares of capital stock other than the
dividends paid on the Series A Preferred Stock in accordance with its terms.
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BLANK CHECK PREFERRED STOCK
The Company is authorized to issue up to 500,000 shares of Blank Check
Preferred Stock. The Board of Directors has the authority to issue this Blank
Check Preferred Stock in one or more series and to fix the number of shares and
the relative rights, conversion rights, voting rights and terms of redemption
(including sinking fund provisions) and liquidation preferences, without further
vote or action by the stockholders. If shares of Blank Check Preferred Stock
with voting rights are issued, such issuance could affect the voting rights of
the holders of the Company's Common Stock by increasing the number of
outstanding shares having voting rights, and by the creation of class or series
voting rights. If the Board of Directors authorizes the issuance of shares of
Blank Check Preferred Stock with conversion rights, the number of shares of
Common Stock outstanding could potentially be increased by up to the authorized
amount. Issuances of Blank Check Preferred Stock could, under certain
circumstances, have the effect of delaying or preventing a change in control of
the Company and may adversely affect the rights of holders of Common Stock.
Also, Blank Check Preferred Stock could have preferences over the Common Stock
(and other series of preferred stock) with respect to dividend and liquidation
rights. The Company currently has no plans to issue any Blank Check Preferred
Stock.
INVESTOR WARRANTS AND SHAREHOLDER WARRANTS
Each of the Investor Warrants and the Shareholders Warrants entitle the
holder to purchase one share of Common Stock at an exercise price per share
equal to 130% of the initial public offering price at any time or from time to
time during the ten year period following the consummation of this Offering, but
not later than 5:00 P.M., New York City time, on December 31, 2006. Each of the
Investor Warrants and the Shareholders Warrants provide for adjustment of the
exercise price and for a change in the number of shares issuable upon exercise
to protect holders against dilution in the event of a stock dividend, stock
split, combination or reclassification of the Common Stock or upon issuances of
shares of Common Stock at prices lower than the market price of the Common
Stock, with certain exceptions. In addition, the Investor Warrants also contain
a cashless exercise option provision.
Each of the Investor Warrants and the Shareholder Warrants may be
exercised upon surrender of the certificate evidencing the Investor Warrant or
the Shareholder Warrant on or prior to its expiration date at the offices of the
Company or the Transfer Agent (as defined below), with the form of "Election to
Purchase" on the reverse side of the Warrant certificate completed and executed
as indicated, accompanied by payment of the full exercise price (by certified or
bank check payable to the order of the Company) for the number of shares with
respect to which the Investor Warrant or Shareholder Warrant is being exercised.
Shares issued upon exercise of Investor Warrants or Shareholder Warrants and
payment in accordance with the terms of the Investor Warrants or Shareholders
Warrants will be fully paid and non-assessable.
The Investor Warrants or the Shareholder Warrants do not confer upon the
holders of the Investor Warrants or the Shareholder Warrants any voting or other
rights of a stockholder of the Company.
Upon exercise of the Investor Warrants or the Shareholder Warrants, the
holders of the Common Stock issued upon such exercise will have registration
rights as set forth in the Investor's Rights Agreement. See "Certain
Transactions -- Private Placement and Related Transactions."
UNDERWRITERS' WARRANTS
For a description of the Underwriters' Warrants, see "Underwriting."
TRANSFER AGENT
American Stock Transfer & Trust Company serves as Transfer Agent for the
shares of Common Stock and Warrant Agent for the Warrants.
BUSINESS COMBINATION PROVISIONS
The Company is subject to the "business combination" statute of the
Delaware Law, an anti-takeover law enacted in 1988. In general, Section 203 of
the Delaware Law prohibits a publicly-held Delaware corporation from engaging in
a "business combination" with an "interested stockholder" for a period of three
years after the
66
<PAGE>
date of the transaction in which the person became an "interested stockholder,"
unless (a) prior to such date the board of directors of the corporation approved
either the "business combination" or the transaction which resulted in the
stockholder becoming an "interested stockholder," (b) upon consummation of the
transaction which resulted in the stockholder becoming an "interested
stockholder," the "interested stockholder" owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned (i) by persons who are directors and also officers and (ii)
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, or (c) on or subsequent to such date the
"business combination" is approved by the board of directors and authorized at
an annual or special meeting of stockholders by the affirmative vote of at least
66 2/3 % of the outstanding voting stock which is not owned by the "interested
stockholder." A "business combination" includes mergers, stock or asset sales
and other transactions resulting in a financial benefit to the "interested
stockholders." An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the corporation's voting stock. Although Section 203 permits the Company to
elect not to be governed by its provisions, the Company to date has not made
this election. Upon closing of this Offering and the registration of its shares
of Common Stock under the Exchange Act, the restrictions imposed by such statute
will apply to the Company and, as a result of the application of Section 203,
potential acquirers of the Company may be discouraged from attempting to effect
an acquisition transaction with the Company, thereby possibly depriving holders
of the Company s securities of certain opportunities to sell or otherwise
dispose of such securities at above-market prices pursuant to such transactions.
67
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering the Company will have 9,350,000 shares of
Common Stock outstanding. Of these shares outstanding, the 3,100,000 shares of
Common Stock offered hereby will be freely transferable without restriction or
further registration under the Securities Act, unless purchased by affiliates of
the Company as that term is defined in Rule 144 under the Securities Act ("Rule
144") described below. All of the 6,250,000 shares of Common Stock held by
existing stockholders are eligible for sale under Rule 144 beginning in October
1998. Of the outstanding shares of Common Stock, 500,000 shares are Escrow
Shares. Currently 5,827,000 of the 6,250,000 shares of Common Stock outstanding
are held by affiliates and will be subject to volume limitations after October
1998. The existing stockholders of the Company have entered into the Lock-Up
Agreements wherein they agreed not to sell or otherwise dispose of any shares of
Common Stock or to exercise any registration rights for a period of 24 months
from the consummation of this Offering without the prior written consent of the
Representative; provided, however, that stockholders of the Company (other than
officers and directors of the Company) may sell or otherwise dispose of shares
of Common Stock in one or more private sales without such consent if the
acquirors (and any subsequent acquirors) of such shares enter into a Lock-Up
Agreement with the Underwriters restricting the transferability of such shares
for the remainder of such 24 month period. See "Underwriting."
In addition, the Investor Warrants, the Shareholder Warrants and the
2,348,485 shares of Common Stock issuable upon exercise of the Investor Warrants
and the Shareholders Warrants are also "restricted securities" and may not be
sold publicly unless they are registered under the Securities Act or are sold
pursuant to Rule 144 or another exemption from registration. None of such
warrants or shares will be eligible for sale in the public market pursuant to
Rule 144 until October 1998.
Upon completion of this Offering, the Company will have outstanding in
addition to the securities referred to above, the Underwriters' Warrants to
purchase an aggregate of 310,000 shares of Common Stock. See "Underwriting." If
the Underwriters' Warrants are exercised, the value of the Common Stock held by
public investors will be diluted, if the value of such stock immediately prior
to the exercise of such Underwriters' Warrants exceeds the exercise price
thereof, with the extent of such dilution depending upon such excess. The
Underwriters' Warrants afford the holders thereof the opportunity, at nominal
cost, to profit from a rise in the market price of the Common Stock, which may
adversely affect the terms upon which the Company could issue additional Common
Stock during the term thereof. In addition, the Company has reserved for
issuance 500,000 shares of Common Stock in connection with the 1996 Stock Option
Plan.
In general under Rule 144, a person (or persons whose shares are
aggregated), including persons who may be deemed to be "affiliates" of the
Company as that term is defined under the Securities Act, is entitled to sell
within any three-month period a number of restricted shares beneficially owned
for at least two years that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock or (ii) the average weekly trading volume in
the Common Stock during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain requirements as to the manner of sale,
notice and the availability of current public information about the Company.
However, a person who is not an affiliate and has beneficially owned such shares
for at least three years is entitled to sell such shares without regard to the
volume or other resale requirements.
Vertical, Walther Glas and Messrs. Vogt and Sippel have certain demand and
piggy-back registration rights covering their respective securities. See
"Certain Transactions." In addition, the Underwriters also have demand and
piggy-back registration rights with respect to the securities underlying the
Underwriters' Warrants. See "Underwriting."
Prior to this Offering, there has been no market for the Common Stock of
the Company, and no predictions can be made of the effect, if any, that sales of
Common Stock or the availability of Common Stock for sale will have on the
market price of the Common Stock prevailing from time to time. Nevertheless,
sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices.
68
<PAGE>
UNDERWRITING
Royce Investment Group, Inc. and Continental Broker-Dealer Corp. (the
"Underwriters"), have severally agreed, subject to the terms and conditions of
the Underwriting Agreement between the Company and the Underwriters (the
"Underwriting Agreement"), to purchase from the Company, and the Company has
agreed to sell to the Underwriters, the number of shares of Common Stock set
forth opposite their respective names in the table below at the price set forth
on the cover page of this Prospectus:
Number of
Underwriters Shares
------------ ---------
Royce Investment Group, Inc.
Continental Broker-Dealer Corp.
---------
Total 3,100,000
=========
The Underwriters have advised the Company that they propose to offer the
Common Stock to the public at the public offering price set forth on the cover
page of this Prospectus and to certain dealers who are members of the National
Association of Securities Dealers, Inc. (the "NASD"), at such price less a
concession of not in excess of $ per share, of which a sum not in excess of $
may in turn be reallowed to other dealers who are members of the NASD. After the
commencement of the Offering, the public offering price, the concession and the
reallowance may be changed by the Underwriters. The Underwriters are committed
to purchase all of the shares offered hereby if any are purchased.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Underwriters a non-accountable expense allowance equal
to 2.5% of the gross proceeds derived from the sale of the shares offered
hereby, including any shares purchased pursuant to the Underwriters'
over-allotment option, $50,000 of which has been paid to date.
The Company has granted to the Underwriters an option exercisable during
the 45-day period commencing on the date of this Prospectus, to purchase from
the Company at the public offering price set forth on the cover page of this
Prospectus less underwriting discounts and commissions, up to 465,000 additional
shares for the purpose of covering over-allotments, if any, made in connection
with the sale of the shares of the Common Stock offered hereby.
The existing stockholders of the Company have entered into the Lock-Up
Agreements wherein they agreed not to sell or otherwise dispose of any shares of
Common Stock or to exercise any registration rights for a period of 24 months
from the consumation of this Offering without the prior written consent of the
Representative; provided, however, that stockholders of the Company (other
than officers and directors of the Company) may sell or otherwise dispose of
shares of Common Stock in one or more private sales without such consent if the
acquirors (and any subsequent acquirors) of such shares enter into a Lock-Up
Agreement with the Underwriters restricting the transferability of such shares
for the remainder of such 24 month period.
The Company has agreed to sell to the Underwriters or their designees, for
nominal consideration, the Underwriters' Warrants to purchase up to an aggregate
of 310,000 shares of Common Stock. The Underwriters' Warrants are exercisable
during the four-year period commencing one year from the date of this Prospectus
at an exercise price equal to 165% of the per share price set forth on the cover
page of this Prospectus, subject to adjustment in certain events, and are not
transferable for a period of one year from the date of this Prospectus except to
officers of the Underwriters or to members of the selling group. The
Underwriters' Warrants also contain a cashless exercise provision. The Company
has agreed to register under the Securities Act during the four-year period
commencing one year from the date of the Prospectus, on two separate occasions,
the securities issuable upon exercise thereof. The initial such registration
shall be at the Company's expense and the second at the expense of the holders.
During the five-year period from the date of this Prospectus, in the event
the Representative originates a financing or a merger, acquisition, joint
venture, strategic introduction or other similar transaction to which the
69
<PAGE>
Company is a party, the Representative will be entitled to receive a finder's
fee in consideration of the origination of such transaction. The fee is based
upon a percentage of the consideration paid in the transaction.
The Underwriters have informed the Company that they do not expect sales
to discretionary accounts to exceed 5% percent of the total number of the shares
offered hereby.
Prior to this Offering, there has been no public market for the Common
Stock offered hereby. Accordingly, the offering price of the shares of Common
Stock offered hereby has been determined by negotiation between the Company and
the Underwriters and is not necessarily related to the Company's asset value,
net worth or other established criteria of value. Factors considered in
determining such price in addition to prevailing market conditions, include the
history of and the prospects for the industry in which the Company competes, the
present state of the Company's development and its future prospects, an
assessment of the Company's management, the Company's capital structure, the
general condition of the securities markets and such other factors as were
deemed relevant.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Baker & McKenzie, New York. Certain legal matters related to this
Offering will be passed upon for the Underwriters by Bachner, Tally, Polevoy &
Misher LLP, New York. Baker & McKenzie, New York will rely, without independent
verification, on the opinion of Baker & McKenzie, Zurich and Dr. Schackow &
Partners, Bremen as to matters of Swiss and German law, respectively.
EXPERTS
The consolidated financial statements of IAT Multimedia, Inc. included in
this Prospectus and Registration Statement have been so included in reliance on
the report of Rothstein, Kass & Company, P.C., independent certified public
accountants, given on the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company will be subject to the informational requirements of the
Exchange Act, and in accordance therewith will file reports and other
information with the Commission. The Company has filed a Registration Statement
on Form S-1 under the Securities Act with the Commission in Washington, D.C.
with respect to the shares of Common Stock offered hereby. This Prospectus,
which is part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement and the exhibits thereto.
For further information with respect to the Company and the shares of Common
Stock offered hereby, reference is hereby made to the Registration Statement and
such exhibits, which may be inspected without charge at the office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at Seven World Trade Center, 13th Floor, New
York, New York 10048 and at 500 West Madison (Suite 1400), Chicago, Illinois
60661. Copies of such material may also be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in each
instance reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
71
<PAGE>
GLOSSARY
"Byte" means a sequence of binary digits or bits which represents one piece of
information such as a single letter. A byte is the unit of information processed
by a computer.
"Codec" means a combination of a coder and decoder. A coder uses a compression
algorithm to reduce the number of bytes needed to represent an audio or video
segment. A decoder recovers the original raw bytes from the compressed bytes
generated by the coder. In video and audio compression, the recovery does not
need to be exact; a good approximation of the original information is
appropriate for practical purposes.
"Compression algorithm" means a set of procedures (usually specified by
mathematical equations) that reduce the number of bytes necessary to represent
some piece of information, such as a video or audio segment.
"Compression ratio" means the average number of bytes at the input of codec that
will produce one byte at the output of the coder. The higher the ratio the lower
the necessary channel speed to transmit the information, and therefore the lower
the transmission cost.
"CPU" means central processing unit.
"ISDN" means integrated services digital network, an international switched
digital communication network that provides multiples of 64 Kbps per channel, up
to a maximum of 2 Mbps. ISDN is available in most countries from local telephone
service providers and, in some cases, others.
"Integrator" means a company which assembles third party components in systems.
"Kbps" means kilobits per second, 1 Kbps equals 1,000 bits per second.
"LAN" means Local Area Network, often a company computer network confined to one
physical location.
"Mbps" means megabits per second, 1 Mbps equals 1,000,000 bits per second.
"OEM" means original equipment manufacturer. Such manufacturers often acquire
components from outside suppliers which are then combined with the
manufacturer's proprietary knowledge, hardware and/or software.
"WAN" means Wide Area Network, often an enterprise computer network which ties a
company's various physical locations together.
72
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report ..................................... F-2
Consolidated Financial Statements
Consolidated Balance Sheets ................................. F-3
Consolidated Statements of Operations ....................... F-4
Consolidated Statements of Stockholders' Equity
(Deficit) ................................................. F-5
Consolidated Statements of Cash Flows ....................... F-6
Notes to Consolidated Financial Statements .................. F-7 - F-13
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
IAT Multimedia, Inc.
We have audited the accompanying consolidated balance sheets of IAT Multimedia,
Inc. and Subsidiaries as of December 31, 1994 and 1995, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of IAT Multimedia, Inc.
and Subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 8 to the
consolidated financial statements, the Company has sustained recurring losses
which raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 8. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Rothstein, Kass & Company, P.C.
Roseland, New Jersey
November 15, 1996 except for Note 1
as to which the date is December 18, 1996,
and Note 12 as to which the date is
January 30, 1997.
F-2
<PAGE>
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------- September 30,
1994 1995 1996
----------- ----------- ------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash ............................................ $ 13,821 $ 198,879 $ 13,384
Accounts receivable, less allowance for doubtful
accounts of $0 in 1994 and 1995 and $3,600 at
September 30, 1996 ........................... 788,312 600,904 179,348
Inventories ..................................... 318,224 476,487 707,044
Other current assets ............................ 187,810 212,330 106,102
----------- ----------- ------------
Total current assets .......................... 1,308,167 1,488,600 1,005,878
Equipment and improvements, less accumulated
depreciation and amortization .................... 459,534 544,471 517,773
Other assets:
Other assets .................................... 3,165 23,335 11,580
Deferred registration costs ..................... -- -- 160,000
----------- ----------- ------------
$ 1,770,866 $ 2,056,406 $ 1,695,231
=========== =========== ============
Liabilities and Stockholders' Deficit
Current liabilities:
Notes payable, banks ............................ $ 1,542,761 $ 1,616,669 $ 2,142,521
Accounts payable and other current liabilities .. 630,442 978,480 1,013,937
Loans payable, stockholders ..................... -- -- 902,000
----------- ----------- ------------
Total current liabilities ..................... 2,173,203 2,595,149 4,058,458
----------- ----------- ------------
Loans payable, stockholders, net of current portion 335,878 348,913 492,000
----------- ----------- ------------
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $.01 par value, authorized
2,375,000 shares, none issued
Common stock, $.01 par value, authorized
20,000,000 shares, issued and outstanding
1,750,000 3,500,000 and 4,375,000 shares,
respectively ................................. 17,500 35,000 43,750
Capital in excess of par value .................. 2,685,203 6,472,051 8,002,884
Accumulated deficit ............................. (3,454,792) (7,184,969) (10,917,950)
Cumulative translation adjustments .............. 13,874 (209,738) 16,089
----------- ----------- ------------
Total stockholders' deficit ................... (738,215) (887,656) (2,855,227)
----------- ----------- ------------
$ 1,770,866 $ 2,056,406 $ 1,695,231
=========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
---------------------------------------------- -----------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net sales .................................... $ 1,962,681 $ 1,053,148 $ 1,510,076 $ 767,801 $ 961,257
Cost of sales ................................ 1,171,103 699,701 967,909 515,774 689,952
----------- ----------- ----------- ----------- -----------
Gross margin ................................. 791,578 353,447 542,167 252,027 271,305
----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and development costs:
Expenses incurred ....................... 1,828,441 2,269,191 2,531,093 1,966,255 1,952,079
Less participations received ............ 962,028 2,206,888 868,335 584,550 272,071
----------- ----------- ----------- ----------- -----------
Research and development costs, net . 866,413 62,303 1,662,758 1,381,705 1,680,008
Selling expenses ........................... 439,437 739,385 1,265,697 938,955 1,156,324
General and administrative expenses ........ 753,574 798,766 1,374,379 1,030,646 1,041,894
----------- ----------- ----------- ----------- -----------
2,059,424 1,600,454 4,302,834 3,351,306 3,878,226
----------- ----------- ----------- ----------- -----------
Operating loss ............................... (1,267,846) (1,247,007) (3,760,667) (3,099,279) (3,606,921)
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest expense ........................... (70,164) (124,776) (128,804) (91,535) (138,922)
Other income ............................... 13,515 36,586 30,127 28,941 12,862
Minority interest in net loss of
subsidiaries -- -- 129,167 -- --
----------- ----------- ----------- ----------- -----------
(56,649) (88,190) 30,490 (62,594) (126,060)
----------- ----------- ----------- ----------- -----------
Net loss ..................................... $(1,324,495) $(1,335,197) $(3,730,177) $(3,161,873) $(3,732,981)
=========== =========== =========== =========== ===========
Loss per share of common stock ............... $ (0.36) $ (0.33) $ (0.77) $ (0.71) $ (0.65)
=========== =========== =========== =========== ===========
Weighted average number of common shares out-
standing 3,647,124 4,000,000 4,837,243 4,445,292 5,750,000
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Capital in Cumulative
--------------------- Excess of Accumulated Translation
Shares Amount Par Value Deficit Adjustments Total
--------- -------- ----------- ------------ ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1993 ................... 1,312,500 $ 13,125 $ 2,041,670 $ (2,849,895) $ 4,762 $ (790,338)
Common stock canceled in accordance with
corporate reorganization ................... (1,312,500) (13,125) (2,041,670) 2,054,795 -- --
Change in cumulative translation adjustments . -- -- -- -- (11,092) (11,092)
Issuance of common stock .................... 1,750,000 17,500 2,685,203 -- 2,702,703
Net loss .................................... -- -- -- (1,324,495) -- (1,324,495)
--------- -------- ----------- ------------ --------- -----------
Balances, December 31, 1993 ................. 1,750,000 17,500 2,685,203 (2,119,595) (6,330) 576,778
Change in cumulative translation adjustments . -- -- -- -- 20,204 20,204
Net loss .................................... -- -- -- (1,335,197) -- (1,335,197)
--------- -------- ----------- ------------ --------- -----------
Balances, December 31, 1994 ................. 1,750,000 17,500 2,685,203 (3,454,792) 13,874 (738,215)
Issuance of common stock .................... 1,750,000 17,500 3,786,848 -- -- 3,804,348
Change in cumulative translation adjustments . -- -- -- -- (223,612) (223,612)
Net Loss .................................... -- -- -- (3,730,177) -- (3,730,177)
--------- -------- ----------- ------------ --------- -----------
Balances, December 31, 1995 ................. 3,500,000 35,000 6,472,051 (7,184,969) (209,738) (887,656)
Issuance of common stock (unaudited) ........ 875,000 8,750 1,530,833 -- -- 1,539,583
Change in cumulative translation adjustments
(unaudited) ................................ -- -- -- -- 225,827 225,827
Net loss (unaudited) ........................ -- -- -- (3,732,981) -- (3,732,981)
--------- -------- ----------- ------------ --------- -----------
Balances, September 30, 1996 (unaudited) .... 4,375,000 $ 43,750 $ 8,002,884 $(10,917,950) $ 16,089 $(2,855,227)
========= ======== =========== ============ ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
---------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss ....................... $(1,324,495) $(1,335,197) $(3,730,177) $(3,161,873) $(3,732,981)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 127,862 152,413 194,274 149,333 166,659
Minority interest ........... -- -- (129,167) -- --
(Increase) decrease in cash
attributable to changes in
assets and liabilities:
Accounts receivable ........ (1,088,284) 448,460 291,512 206,450 491,199
Inventories ................ (141,730) (23,611) (111,089) (64,303) (279,871)
Other current assets ....... 3,747 18,282 (409) (1,149) (15,859)
Accounts payable and other
current liabilities ...... (113,699) (13,116) 253,707 86,663 118,475
----------- ----------- ----------- ----------- -----------
Net cash used in operating
activities ..................... (2,536,599) (752,769) (3,231,349) (2,784,879) (3,252,378)
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities, purchases of
equipment and improvements ..... (87,043) (169,435) (243,706) (153,340) (168,855)
----------- ----------- ----------- ----------- -----------
Cash flows from financing
activities:
Proceeds from (repayments of)
loans payable, stockholders . (708,638) 321,124 (130,524) (470,566) 1,117,708
Deferred registration costs .... -- -- -- -- (160,000)
Proceeds from issuance of
common stock ................ 2,702,703 -- 3,804,348 3,369,565 1,539,583
Issuance of common stock of a
subsidiary to a minority
interest .................... -- -- 129,167 -- --
Proceeds from (repayments of)
short-term bank loan ........ 570,609 501,507 (39,475) 129,914 682,485
----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities ..................... 2,564,674 822,631 3,763,516 3,028,913 3,179,776
----------- ----------- ----------- ----------- -----------
Effect of exchange rate changes on
cash ........................... (19,347) (4,261) (103,403) (98,208) 55,962
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash .. (78,315) (103,834) 185,058 (7,514) (185,495)
Cash, beginning of period ........ 195,970 117,655 13,821 13,821 198,879
----------- ----------- ----------- ----------- -----------
Cash, end of period .............. $ 117,655 $ 13,821 $ 198,879 $ 6,307 $ 13,384
=========== =========== =========== =========== ===========
Supplemental disclosures of cash
flow information, cash paid
during the period for interest . $ 66,544 $ 124,776 $ 128,804 $ 93,852 $ 128,281
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BUSINESS AND ORGANIZATION:
IAT Holdings, Inc. was incorporated under the laws of Delaware in
September 1996 and changed its name to IAT Multimedia, Inc. ("IAT") in December
1996. During October 1996, IAT issued 4,375,000 shares of its common stock for
100% of the outstanding shares of common stock of IAT AG, a corporation
organized under the laws of Switzerland, in a transaction accounted for as a
pooling of interests. IAT develops, produces and sells desktop video
conferencing communications systems to customers mainly in Germany and
Switzerland.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation -- The consolidated financial statements
include the accounts of IAT, its wholly-owned subsidiary IAT AG, Switzerland,
and a 74.9% owned subsidiary, IAT Deutschland GmbH Interaktive Mediem Systeme
("IAT GmbH"), Bremen (collectively the "Company"). All intercompany accounts and
transactions have been eliminated.
Inventories -- Inventories are valued at the lower of cost, on the
first-in, first-out method (FIFO), or market.
Revenue Recognition -- Revenues from the sale of communications systems
are recognized upon shipment to customers. Revenues from the rental of
communications systems are recognized on a straight-line basis over the rental
time period.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Equipment and Improvements -- Equipment and improvements are stated at
cost. Depreciation and amortization are provided using the straight-line method
over the following estimated useful lives:
Computer hardware and software 3-5 years
Office furniture and equipment 8 years
Leasehold improvements 10 years
Deferred Registration Costs -- The Company has incurred costs relating to
its proposed public offering (Note 8). If the offering is successful, these
costs will be charged to capital in excess of par value, otherwise, the costs
will be charged to operations.
Foreign Currency Translation -- The Company has determined that the local
currency of its Switzerland subsidiary, Swiss Francs, is the functional
currency. The financial statements of the subsidiaries have been translated into
U.S. dollars in accordance with Statement of Financial Accounting Standards No.
52 (SFAS No. 52), "Foreign Currency Translation". SFAS No. 52 provides that all
balance sheet accounts are translated at year-end rates of exchange (1.31, 1.15
and 1.25 Swiss Francs for each U.S. Dollar at December 31, 1994, 1995 and
September 30, 1996, respectively), except for equity accounts which are
translated at historical rates. Income and expense accounts are translated at
the average of the exchange rates in effect during the period. The resulting
translation adjustments are included as a separate component of stockholders'
deficit, whereas gains or losses arising from foreign currency transactions are
included in results of operations.
Fair Value of Financial Instruments -- The fair value of the Company's
assets and liabilities which qualify as financial instruments under Statement of
Financial Accounting Standards No. 107 approximate the carrying amounts
presented in the consolidated balance sheets.
Stock Options -- In October 1995, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires compensation
expense to be recorded (i) using the new fair value method or (ii) using
existing account
F-7
<PAGE>
ing rules prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") and related interpretations with pro
forma disclosure of what net income and earnings per share would have been had
the Company adopted the new fair value method. The Company intends to continue
to account for its stock based compensation plans in accordance with the
provisions of APB 25.
Income Taxes -- The Company complies with Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes", which
requires an asset and liability approach to financial reporting for income
taxes. Deferred income tax assets and liabilities are computed based on
differences between financial reporting and tax bases of assets and liabilities
that will result in taxable or deductible amounts in the future, based on
enacted tax laws and rates applicable to the period in which the differences are
expected to reverse. Valuation allowances are established, when necessary, to
reduce the deferred income tax assets to the amount expected to be realized.
Research and Development Costs -- Research and development expenditures
conducted for internal purposes are expensed as incurred. The expenditures
include the following cost elements directly relating to research and
development: materials costs, equipment and facilities depreciation, personnel
costs, contract services and certain general and administrative expenses.
Software development costs incurred subsequent to establishment of technological
feasibility have not been material.
Loss Per Common Share -- Loss per share of common stock is based upon the
weighted average number of shares outstanding, including common stock
equivalents. Shares of common stock to be placed in escrow upon completion of
the proposed public offering described in Note 12, which are common stock
equivalents, have been excluded from the calculation of loss per share. The
weighted average includes shares and common stock equivalents issued within one
year of the Company's proposed initial public offering (IPO) with an issue price
less than the anticipated IPO price (see Notes 8 and 12). In addition, all
shares have been adjusted to reflect the reverse stock split discussed in Note
12.
Unaudited Consolidated Financial Statements -- The unaudited interim
consolidated financial statements included herein have been prepared in
accordance with generally accepted accounting principles. In the opinion of
management, the unaudited consolidated financial statements include all
adjustments of a normal and recurring nature, which are necessary for a fair
presentation. The results of operations for the nine months are not necessarily
indicative of the results expected for the full year.
Minority Interest in Consolidated Subsidiary -- The Company records
minority interest in its consolidated subsidiary at the cost of the investment,
adjusted for the applicable income (loss) from operations. Losses from
operations, however, will be recorded only to the extent of the original
investment and previously recognized equity in earnings, if any.
Research and Development Participation Agreements -- The Company has
entered into various agreements relating to the joint development of the
Company's products. In accordance with these agreements, the Company and its
counterparts each have rights for the use of the developed technology.
Reimbursed research and development costs for the years ended December 31, 1993,
1994, 1995 and the nine months ended September 30, 1995 and 1996 were $962,028,
$2,206,888, $868,335, $584,550 and $272,071, respectively.
F-8
<PAGE>
NOTE 3. INVENTORIES:
Inventories consist of the following:
December 31,
------------------------ September 30,
1994 1995 1996
---------- ---------- ----------
(unaudited)
Raw Materials ................... $159,544 $343,814 $569,503
Finished Goods .................. 158,680 132,673 137,541
---------- ---------- ----------
$318,224 $476,487 $707,044
========== ========== ==========
NOTE 4. EQUIPMENT AND IMPROVEMENTS:
Equipment and improvements consists of the following:
December 31,
------------------------ September 30,
1994 1995 1996
---------- ---------- ----------
(unaudited)
Computer hardware and software .. $ 554,639 $ 624,876 $ 692,172
Office furniture and equipment .. 269,672 369,534 410,398
Leasehold improvements .......... 302,679 344,791 318,194
---------- ---------- ----------
1,126,990 1,339,201 1,420,764
Less accumulated depreciation
and amortization .............. 667,456 794,730 902,991
---------- ---------- ----------
$ 459,534 $ 544,471 $ 517,773
========== ========== ==========
NOTE 5. NOTES PAYABLE, BANKS:
Notes payable, banks consist of the following:
December 31,
------------------------ September 30,
1994 1995 1996
---------- ---------- ----------
(unaudited)
Note payable under a line of
credit with a Swiss Bank for
a maximum amount of
approximately $1.5 million,
bearing interest at 7% per
annum, due on demand and
guaranteed by certain of the
stockholders of IAT ........... $1,331,739 $1,365,457 $1,446,200
Notes payable to German banks
including a line of credit
arrangement for a maximum
amount of approximately
$700,000, bearing interest at
10.5% per annum, due on
demand, collateralized by
account receivable balances
and guaranteed by the
stockholders of IAT GmbH ...... 211,022 251,212 696,321
---------- ---------- ----------
$1,542,761 $1,616,669 $2,142,521
========== ========== ==========
F-9
<PAGE>
NOTE 6. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES:
Accounts payable and other current liabilities consist of the following:
December 31,
------------------------ September 30,
1994 1995 1996
---------- ---------- ----------
(unaudited)
Accounts payable, trade ........ $284,587 $416,663 $ 462,305
Value added taxes .............. 124,978 173,798 32,864
Payroll taxes .................. 100,977 143,393 104,666
Other current liabilities ....... 119,900 244,626 414,102
-------- -------- ----------
$630,442 $978,480 $1,013,937
======== ======== ==========
NOTE 7. LOANS PAYABLE, STOCKHOLDERS:
Loans payable, stockholders consist of the following:
December 31,
------------------------ September 30,
1994 1995 1996
---------- ---------- ----------
(unaudited)
Unsecured loan payable to
minority stockholder of IAT
GmbH, bearing interest at 5%
per annum and adjustable to
10% based upon the attainment
of retained earnings of IAT
GmbH, as defined. Semi-annual
principal payments at 10% of
outstanding principal balance
commence June 30, 2000. The
loan is subordinated to all
other creditor claims, except
for amounts due from IAT GmbH
to IAT AG ..................... $348,913 $ 492,000
Unsecured loans payable to IAT
AG stockholders, bearing
interest at 10% per annum.
The loans are due the earlier
of June 30, 1997 or the
completion of an IPO. The
loans are subordinated to all
other creditor claims
(Note 12) ..................... 902,000
Unsecured loan payable to IAT
AG stockholder. The loan was
converted to common stock
during 1995.................... $335,878
-------- -------- ----------
335,878 348,913 1,394,000
Less current portion ........... 902,000
-------- -------- ----------
$335,878 $349,913 $ 492,000
======== ======== ==========
NOTE 8. UNCERTAINTY -- ABILITY TO CONTINUE AS A GOING CONCERN:
The consolidated financial statements have been prepared assuming the
Company will continue as a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. The
Company has sustained recurring losses and has working capital and stockholders'
deficits. The Company's subsidiaries are subject to German and Swiss law, which
require, among other things, that companies which incur losses have to take
appropriate measures to ensure that the claims of the Company's subsidiaries'
obligees are covered by the assets of those respective subsidiaries. Such
measures include, among others, increasing paid-in capital or obtaining
declarations from the obligees which subordinates their claims. If those
measures are not taken, the board of directors of the subsidiaries must notify a
judge in order to commence bankruptcy proceedings which, under Swiss and German
law, usually leads to the dissolution of the corporate existence. As of
September 30, 1996 (unaudited) the Company's subsidiaries have not filed for
bankruptcy. Continuation of the Company as a going concern is dependent on its
ability to resolve its liquidity problems and attain profitable operations. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Management plans to raise equity capital and execute a letter of intent
with an underwriter for an IPO on a Form S-1 Registration Statement.
F-10
<PAGE>
NOTE 9. DEPENDENCE UPON KEY RELATIONSHIPS:
Approximately $1,686,000, $915,000, $1,032,000, $532,000 and $833,000 of
the Company's revenues for the years ended December 31, 1993, 1994, 1995 and for
the nine months ended September 30, 1995 (unaudited) and 1996 (unaudited),
respectively, were attributable to sales to one customer or affiliates of the
customer. Sales for the years ended December 31, 1993, 1994, 1995 and the nine
months ended September 30, 1995 and 1996, respectively are from customers
located in Switzerland and Germany. At December 31, 1994 and 1995 and September
30, 1996 substantially all of the Company's assets and liabilities were located
in Germany and Switzerland.
The Company purchases several parts used in the production of its products
from certain vendors, even where multiple sources are available in an effort to
maintain quality control. The loss of any of these vendors could have a material
adverse effect on the Company's operations until the Company can redesign its
products or find an alternative source.
NOTE 10. INCOME TAXES:
For the years ended December 31, 1993, 1994 and 1995 and the nine months
ended September 30, 1995 (unaudited) and 1996 (unaudited), income taxes computed
at the statutory federal rates differ from the Company's effective rate due to
the change in the deferred tax asset valuation allowance. The Company, since
inception, has not generated taxable income within any taxing jurisdiction in
which the Company operates.
At December 31, 1995 and September 30, 1996 (unaudited), the Company has
net operating loss carryforwards ("NOL") for Swiss and German income tax
purposes of approximately $11,336,000 and $537,000 and $13,373,000 and
$1,251,000, respectively. The Swiss NOLs expire between 1996 and 2002, and the
German NOLs have no expiration date. As a result, at December 31, 1994, 1995 and
September 30, 1996 (unaudited), the Company recorded deferred tax assets of
approximately $2,564,000, $3,669,000 and $4,638,000, respectively and valuation
allowances in the same amounts relating principally to Swiss and German NOLs.
SFAS 109 requires that the Company record a valuation allowance when it is
"more likely than not that some portion or all of the deferred tax asset will
not be realized". The ultimate realization of this deferred tax asset depends on
the ability to generate sufficient taxable income in the future.
NOTE 11. COMMITMENTS AND CONTINGENCIES:
The Company has entered into operating leases for the use of office,
manufacturing facilities and equipment. Rent expense for the years ended
December 31, 1993, 1994 and 1995 and the nine months ended September 30, 1995
(unaudited) and 1996 (unaudited) was approximately $238,000, $196,000, $306,000,
$218,000 and $304,000 respectively.
Aggregate approximate future minimum rental payment under these operating
leases are as follows:
Year Ending December 31,
------------------------
1996 $ 379,000
1997 339,000
1998 226,000
1999 204,000
----------
$1,148,000
==========
The Company currently does not maintain product liability insurance, and
believes that it cannot obtain such insurance except at substantial cost. While
no product liability claims have been made against the Company, there can be no
assurance that such claims will not arise in the future. Any substantial
uninsured liability would have a material adverse effect on the results of
operations, cash flows or financial position of the Company.
The Company is a party to various legal actions, the outcome of which, in
the opinion of management, will not have a material adverse effect on results of
operations, cash flows or financial position of the Company.
F-11
<PAGE>
NOTE 12. SUBSEQUENT EVENTS:
During October 1996, the Company issued 1,875,000 shares of Series A
Convertible Preferred Stock, par value $.01 per share (Series A), for
$1,500,000. The Series A stock is initially convertible into 1,875,000 shares of
the Company's common stock, however, will automatically convert upon the
consummation of the Company's proposed IPO under the Securities Act of 1933, as
amended. Each share of Series A has voting rights equivalent to a common
stockholder on an as converted basis. The Company is required to pay a dividend
at a rate of $.056 per share for the first year and $.80 per share for each year
thereafter. At any time after December 31, 1997, the Company has the option to
redeem all outstanding shares of Series A, and the preferred stockholder has the
option to require the Company to purchase all, or a portion, of the Series A
shares at any time following the second anniversary of purchase, for an amount
equal to the liquidation preference, as defined, currently $0.80 per share. In
addition, the Company issued warrants to purchase 1,875,000 shares of common
stock. The warrants are exercisable at a per share price equal to 130% of the
IPO price per share, and expire at the earlier of the ten year anniversary date
of the IPO, or December 31, 2006.
In connection with the sale of the Series A shares, the Company entered
into a marketing agreement, with an affiliate of a Series A stockholder, to
assist with marketing the Company's products worldwide, and to arrange financing
for the Company's operations, leasing programs and distribution arrangements.
The agreement terminates in October 2001. Compensation under the agreement is as
follows:
$100,000 payable on the signing of the contract, $300,000 payable at such
time as the Company's consolidated stockholders' equity exceeds $6
million, and an additional $100,000 payable at such time the Company's
consolidated stockholders' equity exceeds $8 million, as defined. The
agreement may be terminated at any time after June 30, 1997, if the
Company's working capital does not exceed $4 million.
In connection with the issuance of the Company's common stock to certain
former IAT AG stockholders, the Company issued warrants to purchase an aggregate
of 473,485 shares of the Company's common stock. The warrants are exercisable at
a per share price equal to 130% of the IPO price per share, and expire at the
earlier of the ten year anniversary date of the IPO, or December 31, 2006.
During October and November 1996, certain stockholders loaned the Company
an aggregate of $920,000 bearing interest ranging from 8% to 10% per annum. The
Company will repay $400,000 of this loan from proceeds of the proposed IPO and
the remaining balance is due on January 1, 1998. The loan is subordinated to all
other creditor claims. In addition, approximately $120,000 of a stockholder loan
received during the nine months ended September 30, 1996 was repaid.
In December 1996, the Company signed a letter of intent with an investment
banking firm for the purpose of underwriting an IPO.
Certain of the Company's stockholders have agreed to place an aggregate of
500,000 shares of the Company's common stock in escrow. These shares will not be
assignable or transferable (but may be voted) until such time as they are
released from escrow based upon the Company meeting certain annual revenue and
or income levels or the common stock attaining certain price levels. All
reserved shares remaining in escrow on March 31, 2000 will be forfeited and
contributed to the Company's capital. In the event the Company attains any of
the earnings thresholds or stock prices providing for the release of escrow
shares to the stockholders, the Company will recognize compensation expense at
such time based on the fair market value of the shares.
In December 1996, the Company's board of directors and stockholders
approved the adoption of the Company's 1996 Stock Option Plan (the "1996 Plan").
The 1996 Plan provides for a grant of a limited number of non-qualified and
incentive stock options in respect of up to 500,000 shares of Common Stock to
eligible employees and advisors. The 1996 Plan is administered by the Stock
Option Committee consisting of the independent directors of the Company. Each
option granted pursuant to the 1996 Plan is designated at the time of grant as
either an incentive stock option or as a non-qualified stock option.
In December 1996, the Board of Directors and stockholders of the Company
approved a reverse stock split whereby .947 shares of the common stock and
preferred stock were issued for each share outstanding at that time. All share
information in the consolidated financial statements have been restated to
reflect such stock split. In addition, the Company increased the amount of
authorized Preferred Stock $.01 par value, to 2,375,000 shares.
F-12
<PAGE>
In January 1997, certain stockholders have represented to the Company
their intention to advance the Company, in early February 1997, an aggregate
amount of approximately $500,000. These loans will bear interest at 8% per annum
and will mature at the earlier of the consummation of an IPO or June 30, 1997,
unless extended by mutual consent of the parties.
F-13
<PAGE>
[Schematic depicting elements of
MFKS Vision and Live superimposed
over a map of the world]
<PAGE>
=============================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or by the Underwriters.
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, any securities offered hereby by anyone in any jurisdiction in
which such offer or solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so or to anyone to whom it is
unlawful to make such offer, or solicitation.
-------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary ....................................................... 4
Risk Factors ............................................................. 11
Use of Proceeds .......................................................... 22
Dividend Policy .......................................................... 23
Exchange Rates ........................................................... 23
Capitalization ........................................................... 24
Dilution ................................................................. 25
Selected Financial Data .................................................. 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .............................................................. 28
Business ................................................................. 34
Management ............................................................... 51
Certain Transactions ..................................................... 57
Principal Stockholders ................................................... 61
Description of Securities ................................................ 64
Shares Eligible for Future Sale .......................................... 68
Underwriting ............................................................. 69
Legal Matters ............................................................ 70
Experts .................................................................. 70
Additional Information ................................................... 70
Glossary ................................................................. 71
Index to Financial Statements ............................................ F-1
Until , 1997, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a Prospectus. This is an addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
=============================================================================
=============================================================================
[LOGO]
IAT MULTIMEDIA, INC.
3,100,000 SHARES
OF
COMMON STOCK
--------
PROSPECTUS
--------
ROYCE INVESTMENT
GROUP, INC.
CONTINENTAL
BROKER-DEALER CORP.
, 1997
=============================================================================
<PAGE>
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation and By-Laws of the Registrant provide
that the Registrant shall indemnify any person to the full extent permitted by
the General Corporation Law of the State of Delaware (the "GCL"). Section 145 of
the GCL, relating to indemnification, is hereby incorporated herein by
reference.
In accordance with Section 102(a)(7) of the GCL, the Certificate of
Incorporation of the Registrant eliminates the personal liability of directors
to the Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director with certain limited exceptions set forth in
Section 102(a)(7).
Reference is made to Section 6 of the Underwriting Agreement (Exhibit 1.1)
which provides for indemnification by the Underwriter of the Registrant and its
directors.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered (other than
underwriting discounts and commissions and the Underwriter's non- accountable
expense allowance of $465,000) are as follows:
Amount
------
SEC Registration Fee ..................... $ 18,167
NASD Filing Fee .......................... 6,495
Nasdaq Filing Fees ....................... 20,500
Printing and Engraving Expenses .......... 95,000
Accounting Fees and Expenses ............. 130,000
Legal Fees and Expenses .................. 300,000
Blue Sky Fees and Expenses ............... 15,000
Transfer Agent's Fees and Expenses ........ 3,500
Miscellaneous Expenses ................... 58,338
--------
Total .................................... $647,000
========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with its organization in October 1996, the Registrant
exchanged 4,620,000 of its Common Stock and warrants to purchase 500,000 shares
of Common Stock for all of the issued and outstanding stock of IAT AG, a
corporation organized under the laws of Switzerland. Since its organization, the
Registrant has sold and issued the following unregistered securities:
In October 1996, the Registrant sold 1,980,000 shares of Series A
Preferred Stock and warrants to purchase 1,980,000 shares of Common Stock to
Vertical Financial Holdings, Behala Anstalt, Henilia Financial Limited, Lupin
Investment Services Ltd. and Avi Suriel.
The above transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities Act
of 1933, as amended, pursuant to Section 4(2) thereof. The sale of securities
was without the use of an underwriter, and the certificates evidencing the
shares bear a restrictive legend permitting the transfer thereof only upon
registration of the shares or an exemption under the Securities Act of 1933, as
amended.
In December 1996, the Registrant effected a reverse stock split resulting
in a reduction of its outstanding stock from 4,620,000 shares of Common Stock to
4,375,000 shares and from 1,980,000 shares of Series A Preferred Stock to
1,875,000 shares. The Registrant's outstanding Warrants were similarly effected.
II-1
<PAGE>
ITEM 27. EXHIBITS
*1.1 Form of Underwriting Agreement
*3.1 Amended and Restated Certificate of Incorporation of the Registrant
*3.2 By-laws of the Registrant
4.1 (Reserved)
++4.2 Form of Underwriters' Warrant
*4.3 Warrant issued to Vertical Financial Holdings (one in a series of
warrants with identical terms)
*4.4 Warrant issued to Stockholders (one in a series of warrants with
identical terms)
*4.5 Form of Escrow Agreement
5.1 Opinion of Baker & McKenzie
*10.1 IAT Multimedia, Inc. 1996 Stock Option Plan
*10.2 Stock Purchase Agreement, dated as of October 4, 1996, by and among
IAT Multimedia, Inc. (formerly known as IAT Holdings, Inc.), IAT AG,
IAT Deutschland, GmbH, Vertical Financial Holdings, and the
stockholders of IAT AG
*10.3 Investor's Rights Agreement, dated as of October 24, 1996, by and
between IAT Multimedia, Inc. (formerly known as IAT Holdings, Inc.)
and Vertical Financial Holdings
*10.4 Marketing Agreement, dated as of October 24, 1996, by and between IAT
Multimedia, Inc. (formerly known as IAT Holdings, Inc.) and General
Capital
*10.5 Contract of the Communications Computer Development Community (EGKR),
dated August 12, 1992, by and between IAT Deutschland GmbH and
Deutsche Bundespost Telekom Siegen Telecommunications Office, SfE EKOM
*10.6+ Cooperation Contract Covering the Development of Version 3 of the
Multimedia Information and Communications System MIKS, dated December
16, 1994, by and among The Deutsche Bundespost Telekom, IBM
Deutschland Informationssysteme GmbH and IAT Schwiez AG
*10.7 General Cooperation Agreement Concerning Joint Further Development of
the IAT/Deutsche Telekom Software Codec on the Basis of the Texas
Instruments Parallel Processor TMS320C8x, dated October 16, 1995, by
and between Deutsche Telekom AG and IAT Schweiz AG
*10.8 Extension of Agreement Concerning MIKS Version 3, dated July 30, 1996,
by and among IBM Deutschland Informationssysteme GmbH, Deutsche
Telekom AG and IAT AG
*10.9+ Licensing and General Distribution Agreement, dated as of April 11,
1994, by and between Deutsche Bundespost Telekom and IAT AG
*10.10 Program License Agreement, dated November 10, 1993, by and between
Texas Instruments Deutschland GmbH and IAT AG Geschaeftshaus
Wasserschloss
*10.11 Form of MVP Cross License Agreement by and between the Texas
Instruments France and IAT AG
*10.12+ Form of Joint Development and Cross License Agreement by and between
Texas Instruments, Inc. and IAT AG
*10.13 Wavelet Data Compression for the Transmission of High-Quality Still
Video Images, dated as of May 15, 1996, by and between IAT AG and
Prof. Dr. R. Seiler
*10.14 Cooperation Agreement, dated March 18, 1996, by and between Olympus
Optical (Europe) GmbH and IAT Deutschland GmbH
II-2
<PAGE>
*10.15 Loan Agreement between IAT Deutschland GmbH and Bremer Bank
*10.16 Directly Enforceable Minimum Guarantee for Securing All Claims Under
the Banking Relationship among IAT AG, IAT Deutschland GmbH and Bremer
Bank
*10.17 Loan Agreement for Current Account Credit Lines between IAT
Deutschland GmbH and Volksbank Sottrum eG
*10.18 Agreement, dated September 1, 1992, by and between Grissemann
Consulting SA and IAT AG
*10.19 Addendum to the Agreement of September 1, 1992, dated December 14,
1994, by and between Grissemann Consulting SA and IAT AG
*10.20 Management Contract, dated December 14, 1995, by and between IAT GmbH
and Mr. Wilhelm Gudauski
*10.21 Employment Contract, dated as of July 1, 1993, by and between IAT AG
and Mr. Franz Muller
10.22 Amendment No. 1 to Stock Purchase Agreement, dated as of October 4,
1996, by and among IAT Multimedia, Inc. (formerly known as IAT
Holdings, Inc.), IAT AG, IAT Deutschland GmbH Vertical Financial
Holdings, and the stockholders of IAT AG.
10.23 Amendment No. 1 to Marketing Agreement, dated as of October 24, 1996,
by and between IAT Multimedia, Inc. (formerly known as IAT Holdings,
Inc.) and General Capital.
*10.24 Letters of Consent, dated December 20, 1996
++10.25 Employment Agreement, dated _______, between IAT Multimedia, Inc. and
Dr. Viktor Vogt
++10.26 Registration Rights Agreement, dated _______, between IAT Multimedia,
Inc. and Walter Glas, GmbH
++10.27 Registration Rights Agreement, dated ______, between IAT Multimedia,
Inc. and Dr. Viktor Vogt
++10.28 Registration Rights Agreement, dated ______, between IAT Multimedia,
Inc. and Klaus-Dirk Sippel
++10.29 Stockholders' Agreement, dated , 1997 between all existing
stockholders of IAT Multimedia, Inc.
11 Statement regarding computation of per share earnings.
*21.1 List of Subsidiaries of Registrant
23.1 Consent of Baker & McKenzie included in Exhibit 5.1
23.2 Consent of Rothstein Kass & Company
23.3 Consent of Dr. Schackow & Partner
- ----------
* Previously filed.
+ Confidential treatment has been requested with respect to portions of this
exhibit.
++ To be filed by amendment.
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in
II-3
<PAGE>
the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration
statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post- effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of the
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereto.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 1 to the registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York on the 4th of February, 1997.
IAT MULTIMEDIA, INC.
By: /s/ Viktor Vogt
----------------------------------
Viktor Vogt
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the registration statement has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ Viktor Vogt Co-Chairman of the Board of February 4, 1997
- --------------------- Directors and Chief Executive
Viktor Vogt Officer and President (Principal
Executive Officer)
/s/ Jacob Agam Co-Chairman of the Board of February 4, 1997
- --------------------- Directors
Jacob Agam
* Chief Financial Officer and February 4, 1997
- --------------------- Director (Principal Accounting
Klaus Grissemann and Financial Officer)
* Director February 4, 1997
- ---------------------
Volker Walther
*By: /s/ Jacob Agam February 4, 1997
------------------
Jacob Agam
as Attorney-in-Fact
II-5
<PAGE>
EXHIBITS
*1.1 Form of Underwriting Agreement
*3.1 Amended and Restated Certificate of Incorporation of the Registrant
*3.2 By-laws of the Registrant
4.1 (Reserved)
++4.2 Form of Underwriters' Warrant
*4.3 Warrant issued to Vertical Financial Holdings (one in a series of
warrants with identical terms)
*4.4 Warrant issued to Stockholders (one in a series of warrants with
identical terms)
*4.5 Form of Escrow Agreement
5.1 Opinion of Baker & McKenzie
*10.1 IAT Multimedia, Inc. 1996 Stock Option Plan
*10.2 Stock Purchase Agreement, dated as of October 4, 1996, by and among
IAT Multimedia, Inc. (formerly known as IAT Holdings, Inc.), IAT AG,
IAT Deutschland, GmbH, Vertical Financial Holdings, and the
stockholders of IAT AG
*10.3 Investor's Rights Agreement, dated as of October 24, 1996, by and
between IAT Multimedia, Inc. (formerly known as IAT Holdings, Inc.)
and Vertical Financial Holdings
*10.4 Marketing Agreement, dated as of October 24, 1996, by and between IAT
Multimedia, Inc. (formerly known as IAT Holdings, Inc.) and General
Capital
*10.5 Contract of the Communications Computer Development Community (EGKR),
dated August 12, 1992, by and between IAT Deutschland GmbH and
Deutsche Bundespost Telekom Siegen Telecommunications Office, SfE EKOM
*10.6+ Cooperation Contract Covering the Development of Version 3 of the
Multimedia Information and Communications System MIKS, dated December
16, 1994, by and among The Deutsche Bundespost Telekom, IBM
Deutschland Informationssysteme GmbH and IAT Schwiez AG
*10.7 General Cooperation Agreement Concerning Joint Further Development of
the IAT/Deutsche Telekom Software Codec on the Basis of the Texas
Instruments Parallel Processor TMS320C8x, dated October 16, 1995, by
and between Deutsche Telekom AG and IAT Schweiz AG
*10.8 Extension of Agreement Concerning MIKS Version 3, dated July 30, 1996,
by and among IBM Deutschland Informationssysteme GmbH, Deutsche
Telekom AG and IAT AG
*10.9+ Licensing and General Distribution Agreement, dated as of April 11,
1994, by and between Deutsche Bundespost Telekom and IAT AG
*10.10 Program License Agreement, dated November 10, 1993, by and between
Texas Instruments Deutschland GmbH and IAT AG Geschaeftshaus
Wasserschloss
*10.11 Form of MVP Cross License Agreement by and between the Texas
Instruments France and IAT AG
*10.12+ Form of Joint Development and Cross License Agreement by and between
Texas Instruments, Inc. and IAT AG
*10.13 Wavelet Data Compression for the Transmission of High-Quality Still
Video Images, dated as of May 15, 1996, by and between IAT AG and
Prof. Dr. R. Seiler
*10.14 Cooperation Agreement, dated March 18, 1996, by and between Olympus
Optical (Europe) GmbH and IAT Deutschland GmbH
*10.15 Loan Agreement between IAT Deutschland GmbH and Bremer Bank
<PAGE>
*10.16 Directly Enforceable Minimum Guarantee for Securing All Claims Under
the Banking Relationship among IAT AG, IAT Deutschland GmbH and Bremer
Bank
*10.17 Loan Agreement for Current Account Credit Lines between IAT
Deutschland GmbH and Volksbank Sottrum eG
*10.18 Agreement, dated September 1, 1992, by and between Grissemann
Consulting SA and IAT AG
*10.19 Addendum to the Agreement of September 1, 1992, dated December 14,
1994, by and between Grissemann Consulting SA and IAT AG
*10.20 Management Contract, dated December 14, 1995, by and between IAT GmbH
and Mr. Wilhelm Gudauski
*10.21 Employment Contract, dated as of July 1, 1993, by and between IAT AG
and Mr. Franz Muller
10.22 Amendment No. 1 to Stock Purchase Agreement, dated as of October 4,
1996, by and among IAT Multimedia, Inc. (formerly known as IAT
Holdings, Inc.), IAT AG, IAT Deutschland GmbH Vertical Financial
Holdings, and the stockholders of IAT AG.
10.23 Amendment No. 1 to Marketing Agreement, dated as of October 24, 1996,
by and between IAT Multimedia, Inc. (formerly known as IAT Holdings,
Inc.) and General Capital.
*10.24 Letters of Consent, dated December 20, 1996
++10.25 Employment Agreement, dated _______, between IAT Multimedia, Inc. and
Dr. Viktor Vogt
++10.26 Registration Rights Agreement, dated _______, between IAT Multimedia,
Inc. and Walter Glas, GmbH
++10.27 Registration Rights Agreement, dated ______, between IAT Multimedia,
Inc. and Dr. Viktor Vogt
++10.28 Registration Rights Agreement, dated ______, between IAT Multimedia,
Inc. and Klaus-Dirk Sippel
++10.29 Stockholders' Agreement, dated ______, 1997 between all existing
stockholders of IAT Multimedia, Inc.
11 Statement regarding computation of per share earnings.
*21.1 List of Subsidiaries of Registrant
23.1 Consent of Baker & McKenzie included in Exhibit 5.1
23.2 Consent of Rothstein Kass & Company
23.3 Consent of Dr. Schackow & Partner
- ----------
* Previously filed.
+ Confidential treatment has been requested with respect to portions of this
exhibit.
++ To be filed by amendment.
February 4, 1997
IAT Multimedia, Inc.
Geschaftshaus Wasserschloss
Aarestrasse 17
CH-5300 Vogelsang-Turgi
Switzerland
Re: Securities and Exchange Commission
Registration Statement on Form S-1
Gentlemen:
As counsel to IAT Multimedia, Inc., a Delaware corporation (the "Company"),
we have assisted in the preparation of the Company's Registration Statement on
Form S-1, File No. 333-18529, filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, covering (i) 3,100,000 shares of
Common Stock, $.01 par value (the "Common Stock") be sold to the Underwriters
named in the Registration Statement pursuant to the Underwriting Agreement filed
as an Exhibit to the Registration Statement (the "Underwriting Agreement"); (ii)
up to 465,000 shares of Common Stock for which the Underwriters have an option
to purchase from the Company solely to cover over-allotments; and (iii)
Underwriters Warrants to purchase 310,000 shares of Common Stock to be granted
by the Company to the Underwriters or their designees.
In this connection, we have examined and considered the original or copies,
certified or otherwise identified to our satisfaction, of the Company's
Certificate of Incorporation, as amended to date, its By-laws, resolutions of
its Board of Directors, officers' certificates and such other documents and
corporate records relating to the Company and the issuance and sale of the
Common Stock, as we have deemed appropriate for purposes of rendering this
opinion.
In all examinations of documents, instruments and other papers, we have
assumed the genuineness of all signatures on original and certified documents
and the conformity to original and certified documents of all copies submitted
to us as conformed, photostat or other
<PAGE>
IAT Multimedia, Inc.
February 4, 1997
Page 2
copies. As to matters of fact which have not been independently established, we
have relied upon representations of officers of the Company.
Based upon the foregoing examination, and the information thus supplied, it
is our opinion that (i) the shares of Common Stock, when sold as contemplated by
the Registration Statement, will be legally issued, fully paid and
non-assessable and (ii) the Underwriters' Warrants, when sold as contemplated by
the Registration Statement, will constitute legal, valid and binding obligations
of the Company.
We hereby expressly consent to the reference to our Firm in the
Registration Statement under the Prospectus caption "Legal Matters," to the
inclusion of this opinion as an exhibit to the Registration Statement, and to
the filing of this opinion with any other appropriate government agency.
Very truly yours,
/s/ Baker & McKenzie
Baker & McKenzie
HMB/JFF/WD/GFB
AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT
AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT (this
"Agreement"), dated as of December 19, 1996, by and among IAT Multimedia, Inc.,
a Delaware corporation (formerly known as IAT Holdings, Inc.) ("Multimedia"),
IAT AG, a corporation organized under the laws of Switzerland ("IAT AG"), IAT
Deutschland GmbH, a corporation organized under the laws of Germany ("IAT
Germany"), Vertical Financial Holdings, a corporation organized under the laws
of Liechtenstein ("Vertical") and the stockholders listed on Exhibit A of the
Stock Purchase Agreement (the "Stockholders").
W I T N E S S E T H
WHEREAS, the undersigned entered into a Stock Purchase
Agreement, dated as of October 4, 1996 (the "Stock Purchase Agreement"), by and
among Multimedia, IAT AG, IAT Germany, Vertical and the Stockholders;
WHEREAS, Section 7.4 of the Stock Purchase Agreement provides
during the three year period following the Closing (as such term is defined in
the Stock Purchase Agreement), Multimedia shall pay to Jacob Agam monthly
compensation (the "Compensation") as follows: (i) for each month prior to the
Closing, $5,000 and (ii) for each month subsequent to the Closing, $12,000;
WHEREAS, in consideration of Vertical making available Jacob
Agam to serve as Co-Chairman of Multimedia, the undersigned wish to amend the
Stock Purchase Agreement to make the Compensation payable to Vertical in place
of Jacob Agam; and
WHEREAS, the undersigned wish to amend the Stock Purchase
Agreement to provide for certain agreements with respect to the ability of
Vertical to enter into an agreement with, or make an investment in, an entity
engaged in the visual communications business.
NOW, THEREFORE, intending to be legally bound, the undersigned
hereby agree as follows:
1. Section 7.4 of the Stock Purchase Agreement shall be, and
hereby is, amended to read in its entirety as follows:
"7.4 Vertical Compensation. During the three year period
following the date of the Closing, Holdings shall pay to Investor
monthly compensation as follows: (i) for each month prior to the
Closing of the IPO, $5,000 and (ii) for each month subsequent to the
Closing of the IPO, $12,000."
2. The Stock Purchase Agreement shall be, and hereby is,
amended to include
<PAGE>
a new Section 7.8, which such section shall read in its entirety as follows:
"7.8 Non-Competition by Investor.
(a) The Investor agrees that, on or before January 1,
1998, the Investor shall not enter into an agreement with, or make any
investment in, an entity engaged in the visual communications business.
(b) The Investor agrees that, subsequent to January
1, 1998 and for so long, or during any period, as the Investor shall
hold at least 5% of the shares of Series A Preferred Stock (or at least
5% of the Common Stock issuable upon conversion of the Preferred Stock
or upon exercise of the Warrant), the Investor, prior to entering into
any agreement with, or making any investment in, a person or an entity
engaged in the video conferencing business, will give written notice to
Holdings of the intention to undertake these actions no later than 20
days prior to the entering in such agreement or making such investment
and will provide Holdings the opportunity to enter into such agreement
or make such investment, on terms equal to those available to the
Investor, instead of the Investor."
3. Section 9.1 of the Stock Purchase Agreement shall be, and
hereby is, amended to read in its entirety as follows:
"9.1 Survival of Warranties. Except as otherwise provided
herein, the warranties, representations, and covenants of Holdings, the
Stockholders, and the Investor contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement
and the Closing for a period of two years from the date of this
Agreement and shall in no way be affected by any investigation of the
subject matter thereof made by or on behalf of Holdings, the Investor
or the Stockholders."
4. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, and all of which shall constitute one
and the same instrument.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
IAT MULTIMEDIA, INC.
By: /s/ Viktor Vogt
-------------------------------
Name:
Title:
VERTICAL FINANCIAL HOLDINGS
By: /s/ Jacob Agam
-------------------------------
Name:
Title:
-3-
<PAGE>
AMENDMENT NO. 1 TO MARKETING AGREEMENT
AMENDMENT NO. 1 TO MARKETING AGREEMENT (this "Agreement"),
dated as of December 19, 1996, by and between IAT Multimedia, Inc., a Delaware
corporation (formerly known as IAT Holdings, Inc.) ("IAT"), and General Capital,
a corporation organized under the laws of Switzerland ("General").
W I T N E S S E T H
WHEREAS, the undersigned entered into a Marketing Agreement,
dated as of October 24, 1996 (the "Marketing Agreement"), by and between IAT and
General; and
WHEREAS, the undersigned wish to amend the Marketing Agreement
to provide that, during the term of the Marketing Agreement and for a period of
three years thereafter, General shall not directly or indirectly own, manage,
control, participate in, consult with, render services for, or in any manner
engage in, any business competing with the business of IAT without geographical
limitation.
NOW, THEREFORE, intending to be legally bound, the undersigned
hereby agree as follows:
1. Section 7 of the Marketing Agreement ("Section 7") shall be, and
hereby is, amended by adding a new sentence between the third and fourth
sentences of Section 7, which new sentence shall read in its entirety as
follows:
"Subject to the limitations set forth herein, General agrees that,
without any geographical limitation, during the Term and for a period
of three years thereafter, General shall not directly or indirectly
own, manage, control, participate in, consult with, render services
for, or in any manner engage in, any video conferencing business."
2. This agreement may be executed in one or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
IAT MULTIMEDIA, INC.
By: /s/ Viktor Vogt
-------------------------------
Name:
Title:
GENERAL CAPITAL
By: /s/ Jacob Agam
-------------------------------
Name:
Title:
-2-
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
The computation of weighted average number of shares for IAT Multimedia, Inc. is
comprised of the weighted average number of shares issued prior to December 31,
1995 calculated based upon the date of issuance within the respective period. In
addition to the weighted average number of shares computed the computation
includes the Common Stock issued in September 1996 at an issue price less than
the anticipated initial public offering price ("IPO"), the automatic conversion
of the Series A Preferred Stock into Common Stock upon the consummation of this
Offering at an issued price less than the anticipated IPO price, and reduced by
the number of shares placed in escrow by the respective stockholders. The
computation for the periods presented is as follows:
<TABLE>
<CAPTION>
December 31, September 30,
Number ------------------------------------ --------------------------
Date of Shares 1993 1994 1995 1995 1996
---- --------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance carried forward 1-Jan-93 1,312,500 1,312,500 1,312,500 1,312,500 1,312,500 1,312,500
Stock issued 23-Jun-93 131,250 68,682 131,250 131,250 131,250 131,250
12-Dec-93 306,250 15,942 306,250 306,250 306,250 306,250
31-May-95 875,000 513,013 292,466 875,000
7-Jul-95 656,250 318,237 152,826 656,250
12-Dec-95 218,750 5,993 218,750
1996 875,000 875,000 875,000 875,000 875,000 875,000
Conversion of Series A Preferred 1,875,000 1,875,000 1,875,000 1,875,000 1,875,000 1,875,000
Less escrow shares (500,000) (500,000) (500,000) (500,000) (500,000) (500,000)
--------- --------- --------- --------- ---------
Total 3,647,124 4,000,000 4,837,243 4,445,292 5,750,000
========= ========= ========= ========= =========
</TABLE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in the Registration Statement of IAT Multimedia, Inc. on
Form S-1 of our report dated November 15, 1996, except for Note 1 as to which
the date is December 18, 1996 and Note 12 as to which the date is January 30,
1997, on the consolidated financial statements of IAT Multimedia, Inc. and to
the reference to our firm under the caption "Experts" in such Prospectus.
/s/ Rothstein, Kass & Company, P.C.
-------------------------------
ROTHSTEIN, KASS & COMPANY, P.C.
Roseland, New Jersey
February 3, 1997
EXHIBIT 23.3
CONSENT
We hereby consent to the use of our firm name in IAT Multimedia, Inc.'s
Amendment No. 1 to the Registration Statement on Form S-1 and in the Prospectus
forming a part of such Registration Statement. In giving this consent, we do not
concede that we come within the category of persons whose consent is required by
Section 7 of the Securities Act of 1933, as amended.
Dr. Schackow & Partner
/s/ Dr. Gross
-------------------------------
By: Dr. Gross
Dated: February 4, 1997
