<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
OF 1934
Commission File Number 0-22101
IAT MULTIMEDIA, INC.
(exact name of registrant as specified in its charter)
Delaware 13-3920210
(State or other jurisdiction of (I.R.S Employer
Incorporation or organization) Identification No.)
Geschaftshaus Wasserschloss
Aarestrasse 17
CH-5300 Vogelsang-Turgi, Switzerland
(Address of principal executive offices)
(011) (41) (56) 223-5022
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X__ No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
________Class________ Outstanding at April 30, 1998
Common Stock, $.01 par value 9,701,949 shares
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IAT MULTIMEDIA, INC. AND SUBSIDIARIES
FORM 10-Q INDEX
FOR QUARTERLY PERIOD ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Page No.
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1998 3
(unaudited) and December 31, 1997
Consolidated Statements of Operations for Three Months 4
ended March 31, 1998 and 1997 (unaudited)
Consolidated Statements of Cash Flows for Three Months 5
ended March 31, 1998 and 1997 (unaudited)
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of 8-11
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures 11
About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Default upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13-14
SIGNATURE PAGE 15
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IAT MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(unaudited)
--------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,146,623 $ 5,472,928
Investments 1,681,395 2,726,865
Accounts receivable, less allowance for doubtful accounts of
$92,623 in 1998 and $71,111 in 1997 1,519,728 1,258,914
Inventories 1,572,889 1,699,338
Other current assets 197,086 277,057
Assets held for disposition - 1,077,920
--------------- ----------------
Total current assets 8,117,721 12,513,022
Equipment and improvements, net 646,509 633,605
Other assets:
Notes receivable from affiliates 537,951
Investments in affiliated companies 18,937
Excess of cost over net assets acquired, net 3,334,535 3,373,254
Other assets 203,685 139,635
--------------- ----------------
$ 12,859,338 $ 16,659,516
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, banks $ 63,425 $ 449,121
Accounts payable and other current liabilities 2,748,623 3,649,882
Loans payable, stockholders 1,045,704 2,339,451
Liabilities held for disposition - 1,640,029
Deferred taxes payable 322,582 311,347
--------------- ----------------
Total current liabilities 4,180,334 8,389,830
--------------- ----------------
Minority interest 171,156 174,007
--------------- ----------------
Stockholders' equity:
Preferred stock, $.01 par value, authorized 500,000 shares,
none issued
Common stock, $.01 par value, authorized 20,000,000 shares,
issued 9,751,949 in 1997 and 1998 97,519 97,519
Capital in excess of par value 27,597,660 27,103,657
Accumulated deficit (19,274,105) (19,239,283)
Cumulative translation adjustment 293,034 340,046
Treasury stock (50,000 shares) (206,260) (206,260)
--------------- ----------------
Total stockholders' equity 8,507,848 8,095,679
--------------- ----------------
$ 12,859,338 $ 16,659,516
=============== ================
See Notes to Consolidated Financial Statements
</TABLE>
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IAT MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
Net Sales $ 8,762,063 $ 199,005
Cost of Sales 7,829,594 139,511
---------- ----------
Gross margin 932,469 59,494
Operating expenses:
Research and development costs, net - 583,093
Selling expenses 557,254 405,225
General and administrative expenses 302,504 316,722
---------- ----------
859,758 1,305,040
---------- ----------
Operating income (loss) before depreciation
and amortization 72,711 (1,245,546)
Depreciation and amortization 136,366 63,857
---------- ----------
Operating loss (63,655) (1,309,403)
Other income (expense):
Interest expense (23,394) (85,318)
Interest income 88,454 1,929
Other income 4,189 19,588
---------- ----------
Income (loss) before minority interest 5,594 (1,373,204)
Minority interest in net income of subsidiary (40,416) -
---------- ----------
Net loss $ (34,822) $(1,373,204)
========== ==========
Net loss per share - basic and diluted $ (0.00) $ (0.24)
========== ==========
Weighted average number of
common shares outstanding 9,203,664 5,751,715
========== ==========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
Net loss $ (34,822) $(1,373,204)
Other comprehensive income (loss) net of tax - Foreign
currency translation adjustments (47,012) 212,734
---------- ----------
Comprehensive loss $ (81,834) $(1,160,470)
========== ==========
See Notes to Consolidated Financial Statements
</TABLE>
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IAT MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1998 1997
---------- ----------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (34,822) $(1,373,204)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation of equipment 57,317 63,857
Amortization of goodwill 79,049
Minority interest in income 40,416
Increase (decrease) in cash attributable to
changes in assets and liabilities:
Accounts receivable (284,088) 129,622
Inventories 99,681 23,483
Other current assets 79,596 (10,766)
Other assets (37,663) 5,000
Accounts payable and other current liabilities (1,436,137) 273,976
---------- ----------
Net cash used in operating activites (1,436,651) (888,032)
---------- ----------
Cash flows from investing activities:
Loans to and investments in, affiliated companies (652,571)
Purchases of equipment and improvements (80,865) (64,988)
Sale of investments 1,045,470
---------- ----------
Net cash provided by (used in) investing activities 312,034 (64,988)
---------- ----------
Cash flows from financing activities:
Proceeds from (repayments of) loans payable,
stockholders (1,317,077) 746,322
Deferred registration costs (310,128)
Capital contribution, stockholders 494,003
Proceeds from (repayments of) short-term bank loan (385,696) 257,371
---------- ----------
Net cash provided by (used by) financing activities (1,208,770) 693,565
---------- ----------
Effect of exchange rate changes on cash 7,082 (882)
---------- ----------
Net decrease in cash (2,326,305) (260,337)
Cash and cash equivalents, beginning of period 5,472,928 264,661
---------- ----------
Cash and cash equivalents, end of period $ 3,146,623 $ 4,324
========== ==========
Supplemental disclosures of cash flow information,
cash paid during the period for interest $ 50,604 $ 35,950
========== ==========
cash paid during the period for income related taxes $ 50,817 $ -
========== ==========
Supplemental schedule of non-cash financing activities,
deferred registration costs included in accounts
payable and other liabilities $ - $ 588,851
========== ==========
Spinoff of assets and liabilities held for disposition $ 1,077,920 $ -
========== ==========
See Notes to Consolidated Financial Statements
</TABLE>
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IAT MULTIMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION - The unaudited interim consolidated
financial statements contain all adjustments consisting of normal recurring
adjustments, which are, in the opinion of the management of IAT Multimedia,
Inc. (the "Company"), necessary to present fairly the consolidated financial
position of the Company as of March 31, 1998, and the consolidated results of
operations and cash flows of the Company for the periods presented. Results of
operations for the periods presented are not necessarily indicative of the
results for the full fiscal year. These financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission for the year ended December 31, 1997.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of IAT Multimedia, Inc., its wholly owned subsidiaries IAT
AG, Switzerland and IAT Deutschland GmbH Interaktive Medien Systeme, Bremen
("IAT GmbH"), 100% of the General Partner of FSE Computer-Handel GmbH & Co. KG
(FSE) and 80% of the limited partnership interest of FSE. All intercompany
accounts and transactions have been eliminated in consolidation.
EXCESS OF COST OVER NET ASSETS ACQUIRED - Goodwill represents the
excess of cost over the fair market value of net assets of acquired business
and is amortized over a period of 10 years from the acquisition date. The
Company monitors the cash flows of the acquired operation to assess whether any
impairment of recorded goodwill has occurred. Amortization for the period ended
March 31, 1998 was approximately $79,000.
FOREIGN CURRENCY TRANSLATION -- The Company has determined that the
local currency of its Switzerland subsidiary, Swiss Francs, is the functional
currency for IAT AG and IAT GmbH and the Deutsch Mark is the functional
currency for FSE. The financial statements of the subsidiaries have been
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards (SFAS) No. 52, "Foreign Currency Translation". SFAS 52
provides that all balance sheet accounts are translated at period-end rates of
exchange (1.50 and 1.45 Swiss Francs and 1.83 and 1.80 Deutsch Mark for each
U.S. Dollar at March 31, 1998 and December 31, 1997, respectively), except for
equity accounts which are translated at historical rates. Income and expense
accounts and cash flows are translated at the average of the exchange rates in
effect during the year. The resulting translation adjustments are included as a
separate component of stockholders' equity, whereas gains or losses arising
from foreign currency transactions are included in results of operations.
LOSS PER COMMON SHARE -- Effective December 31, 1997, the Company
adopted SFAS 128, "Earnings Per Share." SFAS 128 requires dual presentation of
basic and diluted earnings per share for all periods presented. Basic earnings
per share excludes dilution and is computed by dividing loss applicable to
common stockholders by the weighted average number of common shares outstanding
for the period. The weighted average number of common shares includes shares
issued within one year of the Company's initial public offering (IPO) with an
issue price less than the IPO price, and excludes shares of common
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IAT MULTIMEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
stock placed in escrow upon the completion of the IPO. In addition, all shares
have been adjusted to reflect the reverse stock split. Diluted earnings per
share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that then shared in the earnings of
the entity. Prior period loss information has been restated as required by SFAS
No. 128. Diluted loss per common share is the same as basic loss per common
share for the periods ended March 31, 1998 and 1997. The Company has
unexercised options and warrants which are not included in the computation of
diluted loss per share because their effect would have been antidilutive as a
result of the Company's losses.
COMPREHENSIVE LOSS - Effective January 1, 1998 the Company adopted
SFAS 130, "Reporting Comprehensive Income". The Company reclassified its 1997
financial statements, as required.
NOTE 2. INVENTORIES:
March 31, December 31,
1998 1997
------------- --------------
Work in process............................$ 263,934 $ 124,445
Purchased finished goods................... 1,308,955 1,574,893
------------- --------------
$ 1,572,889 $ 1,699,338
============= ==============
NOTE 3. SPINOFF:
On March 6, 1998, the Company spun off substantially all of the assets
and the liabilities of its majority-owned subsidiary, IAT GmbH, to a
newly-formed German company (German Newco). German Newco is substantially owned
by the former Co-chairman of the Board of Directors of the Company. In
addition, IAT AG owns 15% of the outstanding common stock of the German Newco.
The spinoff was effective on January 1, 1998 and required the Company to infuse
approximately $650,000 of capital. In connection with the spinoff, IAT AG
purchased the remaining 25.1% interest in IAT GmbH from the minority
stockholder for a purchase price of approximately $100,000.
On March 24, 1998, the Company spun off certain of the assets and
liabilities of its wholly-owned subsidiary IAT AG to a newly-formed Swiss
company (Swiss Newco). Swiss Newco is substantially owned by the former
Co-chairman of the Board of Directors of the Company. In addition, IAT AG owns
15% of the outstanding common stock of the Swiss Newco. The spinoff was
effective on January 1, 1998. At closing, the Company received a note for
approximately $325,000 representing the value of the assets in excess of the
liabilities spunoff (Purchase Note) on March 24, 1998. In addition, the Company
loaned the Swiss Newco $250,000 (The Note) for operating cash flow. The notes
provide for the payment of interest semi-annually beginning September 1, 1998
at a rate of 3% per annum, but interest expense will be recorded using a
discount rate of 8% per annum. The Purchase Note is due on March 24, 2001. The
Note is due the earlier of the date that Swiss Newco raises either debt or
equity financing in excess of SF 1,000,000 or the end of three years.
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IAT MULTIMEDIA, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The following management's discussion and analysis of financial
condition and results of operations include forward-looking statements with
respect to the Company's future financial performance. These forward-looking
statements are subject to various risks and uncertainties which could cause
actual results to differ materially from historical results or those currently
anticipated.
The Company, through its recent acquisition of FSE, markets in Germany
high-performance PCs assembled according to customer specifications and sold
under the trade name "Trinology", as well as components and peripherals for
PCs. The Company also licenses its state-of-the-art, customizable proprietary
visual communications technology designed to enable users to participate in
real time, multi-point video conferencing and provide improved features and
functionality over competing technology.
FSE's product line includes high-performance IBM-compatible desktop PCs as
well as components, such as motherboards, hard disks, graphic cards and plug-in
cards, and peripherals, such as printers, monitors and cabinets, to its
customers. Substantially all of FSE's clients are corporate customers,
including industrial, pharmaceutical, service and trade companies, the military
and VARs. FSE markets its products directly through its internal sales force to
dealers and end-users and also maintains three retail showrooms and a
mail-order department. FSE works directly with a wide range of suppliers to
evaluate the latest developments in PC-related technology and engages in
extensive testing to optimize the compatibility and speed of the components
which are sold and integrated into Trinology PCs.
The Company has developed visual communications technology for
multi-functional visual communication systems, wavelet data
compression/decompression software technology for high-speed, high-quality
still image transfer, and related technology. The Company expects to receive
royalty income from this technology. The Company intends to offer products
incorporating its visual communication system technology which will be produced
by Communication AG and Communication Systems (see below), in FSE's computers.
Multimedia was formed in September 1996 as a holding company for the
existing business of IAT AG and IAT Germany. Since then, Multimedia has been
engaged in developing products for the visual communications industry. In
November 1997, Multimedia acquired 100% of the shares of capital stock of the
general partner of FSE and 80% of the outstanding limited partnership interests
of FSE, a German limited partnership.
In March 1998, the Company completed the restructuring of one of its
German subsidiaries and its Swiss subsidiary. On March 5 and 6, 1998, the
Company completed the spinoff of substantially all of the assets and the
liabilities (other than intercompany accounts) of one of its majority-owned
German subsidiaries, IAT Germany, which has provided the Company's research and
development and has functioned as the Company's sales and marketing arm for
multimedia products in Germany, into a newly formed German company,
Communication Systems GmbH. On March 24, the Company transferred certain of the
assets and liabilities of IAT AG, other than, among others, the Company's
intellectual property and
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<PAGE>
the ownership interests in IAT Germany to Communication AG, a newly formed
Swiss corporation. Both transfers were effective January 1, 1998. As a result
of the Spinoffs, the Company owns 80% of FSE, 100% of each of IAT AG and IAT
Germany and 15% of each of Communication Systems GmbH and Communication AG.
The FSE Acquisition and the Spinoffs of the German and the Swiss
subsidiaries will result in substantial differences in the business and results
of operations of the Company. Accordingly, results of operations of the Company
prior to the acquisition of FSE and of the Spinoffs will not be indicative of
the Company's results of operations after such acquisition and the Spinoffs.
The Company's sales are made to customers principally in Switzerland and
Germany with revenues created in Deutsche Marks and Swiss Francs. Multimedia's
functional currency is the Swiss Franc. FSE's functional currency is the
Deutsche Mark. The Company currently engages in limited hedging transactions,
which are not material to its operations, to offset the risk of currency
fluctuations. The Company may increase or discontinue these hedging activities
in the future.
In the following discussions, most percentages and dollar amounts have
been rounded to aid presentation. As a result, all such figures are
approximations.
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 1998 COMPARED TO THREE MONTH PERIOD ENDED
MARCH 31, 1997
The average exchange rate for the U.S. Dollar increased as compared to the
Swiss Franc and the Deutsch Mark by approximately 2.8% and 9.7% respectively.
The average Swiss Franc to U.S. Dollar exchange rate was SF 1.47 = $1.00 in the
first quarter 1998 as compared to SF 1.43 in the first quarter 1997. The
average Deutsch Mark to U.S. Dollar exchange rate was DM 1.81 = $1.00 in the
first quarter 1998 as compared to DM 1.65 in the first quarter 1997.
Revenues and expenses in the following discussion include IAT revenues and
expenses for the three months ended March 31, 1998 and March 31, 1997,
respectively, and FSE revenues and expenses for the three months ended March
31, 1998.
REVENUES. Revenues for the first quarter 1998 increased to $8,762,000
from $199,000 in the first quarter 1997. This increase is primarily a result of
sales of FSE high performance PCs and PC-components during the first quarter
1998. FSE was acquired on November 18, 1997 and FSE revenues are not included
in the three month period ended March 31, 1997.
COST OF SALES. Cost of sales increased to $7,830,000 in the first
quarter 1998 from $140,000 in the first quarter 1997. The cost of sales as a
percentage of sales increased to 89.4% in the first quarter 1998 from 70.1% in
the first quarter 1997 primarily as a result of lower profit margins on the
sale of FSE PCs, PC-components and PC peripherals.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs
decreased to nil in the first quarter 1998 from $583,000 in the first quarter
1997. The Company no longer incurs research and development costs as a result
of the spin-off of its research and development activities to Communication AG
and Communication Systems GmbH.
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SELLING EXPENSES. Selling expenses increased by 37.5% to $557,000 in
the first quarter 1998 from $405,000 in the first quarter 1997. This increase
is a result of a change in the business structure and a different marketing
approach for FSE PCs and products.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses decreased by 4.4% to $303,000 in the first quarter 1998 from $317,000
in the first quarter 1997 primarily due to the spinoff of the IAT Germany
business to Communication Systems GmbH.
INTEREST. Interest expense decreased by 72.9% to $23,000 in the first
quarter 1998 from $85,000 in the first quarter 1997. This decrease is primarily
a result of a reduction of outstanding bank loans and the repayment of certain
stockholders' loans. Interest income increased to $88,000 in the first quarter
1998 from $2,000 in the first quarter 1997 primarily as a result of the
investments of the remaining net proceeds from the IPO in investments bearing
interest of approximately 5.5%.
NET LOSS. The net loss for the three months ended March 31, 1998
decreased to $35,000 from $1,373,000 for the three months ended March 31, 1997.
This decrease is the result of the acquisition of the FSE operations in
November 1997 and of the spin-off of the research and development and marketing
activities to Communication AG and Communication Systems GmbH effective as of
January 1, 1998.
EBITDA. Earnings before interest, income taxes, depreciation and
amortization in the three months ended March 31, 1998 increased to $77,000 from
a negative EBITDA of $1,226,000 in the three months ended March 31, 1997. This
increase is primarily a result of the spinoff of the research and development
and marketing activities to Communication AG and Communication Systems GmbH
effective as of January 1, 1998 and of the acquisition of the FSE operations in
November 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company's cash and cash equivalents and
investments in corporate bonds decreased to $3,147,000 and $1,681,000,
respectively, as compared to $5,473,000 and $2,727,000, respectively, at
December 31, 1997.
Net cash used in operating activities totaled $1,437,000 during the
three months ended March 31, 1998 compared to $888,000 during the three months
ended March 31, 1997. This increase is primarily due to a reduction of accounts
payable and other short-term liabilities and an increase in accounts receivable
partially offset by a decrease of the net loss for the three months ended March
31, 1998 and the amortization of the goodwill on the FSE acquisition.
Net cash provided by investing activities totaled $312,000 during the
three months ended March 31, 1998 compared to $65,000 net cash used in
investing activities during the three months ended March 31, 1997. During the
three months ended March 31, 1998 cash was used to pay for the acquisition of
25.1% of the common stock of IAT Germany in the amount of $96,000, for 15% each
of the common stock of IAT Communication Systems GmbH and Communication AG in
the aggregate amount of $19,000 and for loans to these companies in the
aggregate amount of $538,000 and for the purchase of equipment. These payments
were offset by the sale of marketable securities. In the three months ended
March 31, 1997 cash was used for the purchase of equipment.
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Net cash used in financing activities amounted to $1,209,000 during
the three months ended March 31, 1998 as compared to net cash provided by
financing activities of $694,000 during the three months ended March 31, 1997.
During the three months ended March 31, 1998 cash was primarily used for the
repayment of stockholder loans including the second installment of the FSE
purchase price in the amount of $890,000 and the repayment of short-term bank
loans. These payments were partially offset by a capital contribution by
certain stockholders in exchange for the Company assuming the obligation of IAT
AG under the repayment of the Swiss bank loan. During the three months ended
March 31, 1997 cash was provided by an increase in stockholder loans, and an
increase in short-term bank loans partially offset by deferred registration
costs paid.
At March 31, 1998 the Company had a line of credit of approximately
$67,000 of which approximately $63,000 were outstanding, bearing interest at
6.5%. The loan under the line of credit is due on demand and was repaid on May
5, 1998.
Cash, cash equivalents and investments in corporate bonds at March 31,
1998 amount to $4,828,000. The Company believes that its funds should be
sufficient to finance its working capital requirements and its capital and debt
service requirements for approximately the 12 months period following March 31,
1998.
YEAR 2000 COMPLIANCE
The Company has ordered new accounting software at a cost of
approximately $10,000 in connection with an upgrade of its accounting systems.
This software will be Year 2000 compliant. The Company does not anticipate that
it will be required to make other expenditures to avoid Year 2000 problems.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company completed an initial public offering of Common Stock in
the United States (the "IPO"). The registration statement for the IPO (file no.
333-18529) became effective on March 26, 1997. The IPO began on March 26, 1997.
Of the 3,350,000 shares of Common Stock registered (at a proposed maximum
aggregate offering price of $20,100,000), 3,350,000 shares were sold (at an
aggregate sales price of $20,100,000), and the over-allotment option granted to
the underwriters to purchase an additional 502,500 shares of Common Stock
expired unexercised and the shares were deregistered. The managing underwriter
for the IPO was Royce Investment Group, Inc.
During the period from March 26, 1997 through March 31, 1998, the
Company paid a total of $3,020,485 in expenses in connection with the IPO,
including $1,608,000 in underwriter's commissions and discounts, $452,500 for
underwriters' expenses, and $959,985 in other expenses. None of these expenses
were paid, directly or indirectly, to directors, officers, 10% shareholders or
affiliates of the Company or their associates.
The net proceeds received by the Company from the IPO, after deducting
the payments referred to above, amounted to $17,079,515. In addition, prior to
the IPO, the Company had pre-paid expenses of $277,000 in connection with the
IPO, including $50,000 paid to the underwriters and $227,000 in other expenses.
None of these expenses were paid, directly or indirectly, to directors,
officers, 10% stockholders or affiliates of the Company or their associates.
During the period from March 26, 1997 through March 31, 1998, the Company
utilized approximately $12,759,000 of the proceeds from the IPO. Of this
amount, approximately $3,149,000 were utilized to pay for the FSE acquisition,
including acquisition expenses and for the acquisition of 25.1% of the common
stock of IAT Germany, and for the acquisition of 15% each of the common stock
of IAT Communication Systems GmbH and Communication AG. Approximately
$2,269,000 was used for repayment of stockholders' loans, approximately
$720,000 for repayment of bank loans net of a capital contribution of certain
stockholders in the amount of $494,000 in exchange for the Company assuming the
obligation of IAT AG under the repayment of the Swiss bank loan guaranteed by
certain stockholders, approximately $400,000 for prepayment of marketing
agreement expenses, approximately $353,000 for purchase of machinery and
equipment, approximately $1,811,000 for research and development and
approximately $4,057,000 for working capital and general corporate purposes
including approximately $206,000 for repurchase of 50,000 shares of the
Company's Common Stock. As of March 31, 1998, approximately $4,320,000 of the
proceeds from the IPO remain unused.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not Applicable.
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ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
10.1(1) Participation Agreement dated as of March 5, 1998 by and among
Communication Systems, IAT AG, Dr. Viktor Vogt, and HIBEG
10.2(1) Spinoff Agreement dated as of March 5, 1998 by and among IAT GmbH
and Communications Systems
10.3(1) Agreement concerning the Assignment and Transfer of Corporate
Shares dated as of March 5, 1998 by and among HIBEG, IAT GmbH, and
IAT AG.
10.4(1) Loan Transfer Agreement dated as of March 5, 1998 by and among
HIBEG, IAT GmbH, and Communications Systems.
10.5(1) Option Agreement dated as of March 5, 1998 by and among Dr. Viktor
Vogt and HIBEG.
10.6(1) Spinoff Agreement dated as of March 11, 1998 by and among the
Company, Dr. Viktor Vogt, and Swiss Newco.
10.7(1) Transfer Agreement dated as of March 11, 1998 by and among the
Company, IAT AG, Dr. Viktor Vogt, and IAT Communications AG.
10.8(1) Agreement on the Acquisition of Assets dated as of March 18, 1998
between IAT AG and Swiss Newco.
10.9(1) Restructuring Agreement dated as of March 5, 1998 by and among
IAT GmbH, IAT AG, Dr. Vogt and HIBEG.
10.10(2) Amendment to the Transfer Agreement dated as of March 24, 1998 by
and among the Company, IAT AG, Dr. Viktor Vogt and IAT
Communication AG.
10.11(2) Promissory Note dated March 24, 1998 by IAT Communication AG to the
Company.
10.12(2) Promissory Note dated March 24, 1998 by IAT Communication AG to Dr.
Viktor Vogt.
10.13(2) Promissory Note dated March 24, 1998 by IAT Communications AG to
IAT AG.
10.30(3) Amendment to Consulting Agreement between the Company and Arnold
Wasserman, dated March 2, 1998.
-13-
<PAGE>
11. Statement Re Computation of Per Share Earnings
27.1 Financial Data Schedule
(1) Incorporated by reference in the Company's Current Report on Form 8-K as
filed on March 20, 1998.
(2) Incorporated by reference in the Company's Current Report on Form 8-K/A as
filed on April 3, 1998.
(3) Incorporated by reference in the Company's report on form 10-K as filed on
April 15, 1998.
(b) The following reports on Form 8-K were filed during the quarter ended
March 31, 1998
Date of
Report Item Reported Financial Statement Filed
------- ------------- -------------------------
March 20, 1998 Swiss and German Spinoffs No
April 3, 1998 Completion of Swiss Spinoff No
-14-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IAT MULTIMEDIA, INC.
/s/ Jacob Agam
----------------------------------
Jacob Agam
Chairman of the Board of
Directors and Chief Executive
Officer
/s/ Klaus Grissemann
----------------------------------
Klaus Grissemann
Chief Financial Officer
Date: May 14, 1998
-15-
<PAGE>
EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
The computation of the weighted average number of shares for the
Company is comprised of the following:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
Number ---------------------------------
Date of Shares 1998 1997
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance carried 01-Jan-96 4,375,000 4,375,000 4,375,000
forward
Stock issued 01-Apr-97 3,350,000 3,350,000
22-Jul-97 5,000 5,000
13-Nov-97 146,949 146,949
Conversion of
Series A Preferred 1,875,000 1,875,000 1,875,000
Less Treasury stock 07-Jul-97 (50,000) (50,000)
Less escrow shares (498,285) (498,285) (498,285
---------------------------------
Total 9,203,664 5,751,715
=================================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 3,146,623
<SECURITIES> 1,681,395
<RECEIVABLES> 1,612,351
<ALLOWANCES> 92,623
<INVENTORY> 1,572,889
<CURRENT-ASSETS> 8,117,721
<PP&E> 646,509
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,859,338
<CURRENT-LIABILITIES> 4,180,334
<BONDS> 0
0
0
<COMMON> 97,519
<OTHER-SE> 8,410,329
<TOTAL-LIABILITY-AND-EQUITY> 12,859,338
<SALES> 8,762,063
<TOTAL-REVENUES> 8,762,063
<CGS> 7,829,594
<TOTAL-COSTS> 7,829,594
<OTHER-EXPENSES> 859,758
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,394
<INCOME-PRETAX> (34,822)
<INCOME-TAX> 0
<INCOME-CONTINUING> (34,822)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (34,822)
<EPS-PRIMARY> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
