<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 1997
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-13068
IRATA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0366015
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8554 KATY FREEWAY, SUITE 100, HOUSTON, TEXAS 77024
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 467-4300
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
---- ----
At May 14, 1997 there were 6,443,215 shares of Class A Common Stock, par
value $0.10 per share, outstanding and 1,500,000 shares of Class B Common Stock,
par value $0.01 per share, outstanding.
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IRATA, INC.
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1997
Part I Financial Information (unaudited)
Item 1. Financial Statements
Statement of Operations........................................ 2
Balance Sheet.................................................. 3
Statement of Cash Flows........................................ 5
Notes to Financial Statements.................................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..... ...................... 8
Part II Other Information
None
Signatures................................................................... 10
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IRATA, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------- ------------------------
1996 1997 1996 1997
----------- ---------- ----------- -----------
Revenues:
Booth Services............. $ 1,645,373 $ 1,245,529 $5,606,854 $ 4,329,492
Booth Sales................ - 5,500 - 13,000
----------- ---------- ----------- -----------
Total revenues............... 1,645,373 1,251,029 5,606,854 4,342,492
Cost of booth services:
Site rent.................. 649,220 500,326 2,107,364 1,674,621
Route labor................ 184,745 143,523 599,899 475,303
Equipment depreciation..... 265,307 264,107 765,243 774,411
Consumables................ 169,664 132,737 511,126 449,108
Freight and re-installation
costs..................... 53,589 100,645 202,935 266,614
Loss on disposal of property
& equipment............... 415,698 35,425 557,364 122,541
Other costs of service..... 110,436 35,990 204,426 112,583
----------- ---------- ----------- -----------
Total cost of booth services. 1,848,659 1,212,753 4,948,357 3,875,181
Cost of booths sold.......... - 5,574 - 13,028
Gross profit................. (203,286) 38,276 658,497 467,311
----------- ---------- ----------- -----------
Selling, general and
administrative expenses:
Salaries and wages......... 300,209 273,370 874,735 787,625
Professional fees.......... 100,663 65,069 261,381 316,752
Insurance.................. 44,608 37,987 120,092 107,397
Marketing.................. 27,692 10,945 86,153 38,793
Travel and entertainment... 15,529 27,887 39,074 46,526
Depreciation and amortization 10,985 13,473 28,429 38,612
Personal property and
franchise taxes........... 10,500 18,185 15,479 93,207
Office expense............. 86,932 57,568 216,592 206,352
Bad debt................... 64,021 5,000 68,845 10,000
----------- ---------- ----------- -----------
Total selling, general and
administrative expense...... 661,139 509,484 1,710,780 1,645,264
----------- ---------- ----------- -----------
Operating ( loss)............ (864,425) (476,782) (1,052,283) (1,190,981)
Other income (expense):
Interest expense........... (111,913) (66,914) (300,222) (197,758)
Financing costs............ (67,842) (74,310) (204,183) (214,556)
Interest income............ 33 921 265 4,071
Other, net................. 275 (14,044) 3,478 16,412
----------- ---------- ----------- -----------
Total other income (expense). (179,447) (154,347) (500,662) (391,831)
----------- ---------- ----------- -----------
Net (loss)................... $(1,043,872) $ (631,129) $(1,552,945) $(1,582,812)
=========== ========== =========== ===========
Net loss per share........... $ (0.41) $ (0.10) $ (0.61) $ (0.35)
=========== ========== =========== ===========
Weighted average number of
common shares outstanding... 2,544,318 6,421,369 2,544,318 4,555,261
=========== ========== =========== ===========
See accompanying notes.
2
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IRATA, INC.
BALANCE SHEET
(Unaudited)
ASSETS
March 31,
1997
-----------
Current assets:
Cash................................................ $ 10,848
Accounts receivable-trade, net of
$20,000 allowance.................................. 354,187
Accounts receivable-other........................... 36,334
Consumable inventory................................ 216,157
Prepaids and other current asset.................... 63,823
-----------
Total current assets.............................. 681,349
Property and equipment, at cost:
Equipment-Booths.................................... 6,230,384
Components and hardware............................. 679,505
Furniture, fixtures and equipment................... 271,694
-----------
7,181,583
Accumulated depreciation............................ (2,337,893)
-----------
Total property and equipment, net................. 4,843,690
Other assets:
Deferred loan costs, net............................ 314,426
Other, net.......................................... 149,147
-----------
463,573
-----------
Total assets...................................... $ 5,988,612
===========
3
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IRATA, INC.
BALANCE SHEET (continued)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31,
1997
-----------
Current liabilities:
Trade accounts payable............................. $ 501,340
Sales and use tax payable.......................... 223,924
Site rents payable................................. 2,088
Other accrued liabilities.......................... 126,830
-----------
Total current liabilities....................... 854,182
Long-term debt....................................... 2,247,639
Commitments
Stockholders' equity:
Preferred stock, $1 par value:
100,000 shares authorized, zero issued........ -
Class A common stock, $.10 par value:
20,000,000 shares authorized, 6,443,215
issued and outstanding........................ 644,321
Class B common stock, $.01 par value:
1,500,000 shares authorized, issued
and outstanding............................... 15,000
Additional paid-in capital......................... 8,145,844
Accumulated deficit................................ (5,918,374)
-----------
Total stockholders' equity..................... 2,886,791
-----------
Total liabilities and stockholders' equity..... $ 5,988,612
===========
See accompanying notes.
4
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IRATA, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
-------------------------
1996 1997
----------- -----------
Operating activities
Net (loss).................................... $(1,552,945) $(1,582,812)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization................. 793,671 813,025
Financing costs............................... 204,183 214,556
Loss on disposal of property and equipment.... 557,364 112,541
Stock awards.................................. 6,829 (14,202)
Net book value of booths sold................. - 13,028
Changes in operating assets and liabilities:
Accounts receivable-trade..................... 184 118,400
Accounts receivable-other..................... 16,985 (26,149)
Other current assets.......................... (33,958) (4,282)
Other assets.................................. (85,022) (103,481)
Accounts payable.............................. 177,726 (23,955)
Sales and use tax payable..................... 370,512 (341,022)
Site rents payable............................ 143,114 (132,930)
Other accrued liabilities..................... 133,987 (35,084)
----------- -----------
Net cash provided (used) by operating
activities..................................... 732,630 (992,367)
Investing activities
Purchases of property and equipment........... (1,159,769) (424,858)
----------- -----------
Net cash used in investing activities........... (1,159,769) (424,858)
Financing activities
Proceeds from Private Placement , net........ - 1,253,721
Proceeds from Loan Agreement, net............ 315,000 -
Proceeds from short-term notes................ 160,000 -
Principal payments on short-term notes........ (93,947) -
----------- -----------
Net cash provided by financing activities....... 381,053 1,253,721
----------- -----------
Net (decrease) increase in cash and cash
equivalents.................................... (46,086) (163,504)
Cash and cash equivalents at beginning of year.. 186,052 174,352
----------- -----------
Cash and cash equivalents at end of period...... $ 139,966 $ 10,848
=========== ===========
See accompanying notes.
5
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IRATA, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
IRATA, Inc. (the ''Company'') was incorporated March 20, 1992 under the laws
of the State of Texas, for the purpose of acquiring and operating Video Foto
booths throughout the United States in shopping malls, theme parks, discount
stores and other high traffic areas. The booths produce a black and white
computer generated, laser printed image superimposed on a variety of background
options.
The accompanying unaudited interim financial statements of the Company have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information in footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to these rules and
regulations. The accompanying unaudited interim financial statements reflect
all adjustments which the Company considers necessary for a fair presentation of
the results of operations for the interim periods covered and for the financial
condition of the Company at the date of the interim balance sheet. All such
adjustments (except as otherwise disclosed herein) are of a normal recurring
nature. Results for the interim periods are not necessarily indicative of
results for the year.
Revenue Recognition
The Company recognizes booth services revenue as photos are produced by the
booth. Location owners where booths are sited are paid a fixed rental,
percentage of net revenues or a combination thereof, which is recorded as site
rent. The independent service contractor is also paid a fixed commission, a
percentage based upon the net revenues generated by the Booths serviced by him,
or a combination thereof, which is recorded as route labor.
The Company recognizes booth sales revenue as of the booth delivery date.
Cost of booths sold includes the undepreciated cost of the booth and direct
expenses related to the sale.
Statement of Cash Flows
Supplemental disclosures of cash flow information are as follows:
1996 1997
---- ----
Interest paid 196,000 198,000
Taxes paid - -
Reduction of Sales and Use Taxes Payable - 55,000
Property and Equipment
Property and equipment is recorded at cost. Expenditures for major additions
and improvements are capitalized while minor replacements, maintenance and
repairs which do not improve or extend the life of such assets are expensed as
incurred. Depreciation is provided using the straight line method over the
estimated useful lives of the various classes of assets, as follows:
ESTIMATED
USEFUL LIFE
-----------
Booths............................... 5 to 7 Years
Furniture, Fixtures and Equipment.... 3 to 7 Years
Components and hardware consist of parts used to construct and repair booths.
No depreciation is provided on new parts until they are installed into a booth
and that booth is placed into service.
6
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IRATA, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
2. STOCKHOLDERS' EQUITY
On January 8, 1997, the Company completed a private placement of 3,245,000
shares of Class A Common Stock and 3,245,000 Private Placement Warrants. The
private placement was sold in $25,000 units consisting of 50,000 shares of Class
A Common Stock priced at $0.50 per share and 50,000 Private Placement Warrants.
Net proceeds to the Company were approximately $1,250,000.
Each Private Placement Warrant will be exerciseable for a period of three
years after the initial closing date into one share of common stock at an
exercise price equal to $1.00 per share during the first two years and $1.50 per
share thereafter. The Warrants will be protected against dilution upon the
occurrence of certain events, including, but not limited to, sales of shares of
common stock for less than fair market value, certain dividends, split-ups,
reclassifications, and asset sales.
On February 18,1997 a Registration Statement on Form SB-2, filed with The
Securities and Exchange Commission on January 28, 1997 (File No. 333-20559), was
declared effective. This occurrence fulfilled the Company's agreement to
register for resale the shares of Class A Common Stock issued at the closing of
the Private Placement and the shares issued or issuable upon exercise of the
Warrants under the Securities Act of 1933.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with the
Financial Statements and Notes thereto, and is qualified in its entirety by the
foregoing and by other more detailed financial information appearing elsewhere.
Irata, Inc. (the "Company") has developed and operates a computerized version
of the traditional self-service photo booth. The Company's photo booths are
operated under the trade name Video Foto. Video Foto booths provide consumers
with traditional black and white photo options combined with a variety of
souvenir, novelty, and amusement options, utilizing computer imaging technology,
a laser printing device, and other computer hardware and software. Photo product
options, include traditional prints ranging in size up to 8" x 10", and novelty
items such as "wanted" posters, newspaper front pages, photo greeting cards, and
photo calendars.
In July 1996, the Company began the final phase of its color Video Foto booth
development project, a next generation product design. This development effort
included booth size and shape configuration, hardware component selection, and
software systems design. Out of this effort, the Company successfully completed
its first prototype color photo booth and displayed it at the International
Arcade & Amusement Parks Association annual convention in November 1996. At
March 31, 1997 three color booths were operating at regional mall locations in
Houston, Texas. By the end of May 1997, the Company intends to have eleven color
booths installed and operating at high volume regional mall and theme park
locations.
The Company's strategy is to grow the Company by placing on location a
steadily increasing number of additional Video Foto booths. The Company is also
attempting to maximize average revenue per booth by placing them in locations
that meet the Company's criteria. At March 31, 1997, the Company had 684 Video
Foto booths in operation. Booths are generally placed on a revenue-sharing
basis, with the Company retaining responsibility for operational, service, and
product costsThe Company's continued growth and capacity for production and
operation of photo booths will depend on its ability to obtain additional
financing, through operations or outside funding. There can be no assurance
that additional financing will be available.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1997
Revenues. Revenues decreased 32% from $1,645,373 for the three month period
ended March 31, 1996 to $1,251,029 for the three month period ended March 31,
1997. The decrease in revenues was primarily attributable to 61 fewer booths on
location and attrition in revenue at booths installed for more than one year.
Cost of Booth Services. Cost of services, as a percent of revenue, decreased
from 112% to 97% for the three months ended March 31, 1996 and 1997,
respectively. The primary reason for the higher percentage in 1996 was the
approximately $400,000 writeoff of early prototype booths acquired in 1992 and
certain obsolete booth hardware and components.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses were $661,139 and $509,484 for the quarters ending March
31, 1996 and 1997, respectively. The decrease was primarily attributable to
lower manpower expenses, professional fees and bad debt expense.
Other Expense. Interest expense of approximately $67,000 in both three month
periods is attributable to the line of credit loan. The three month period
ended March 31, 1996 includes $45,000 in interest expense for delinquent sales
and use taxes.
8
<PAGE>
Net Operating Results. For the three months ended March 31, 1997 the Company
realized a net loss of $631,129 versus a net loss of $1,043,872 for the three
months ended March 31, 1996. The fiscal 1997 loss is attributable to lower
revenues and reduced gross profit. A significant portion of the fiscal 1996
loss is attributable to the costs associated with certain non-recurring events
including the writeoff of early protoype booths.
Nine Months Ended March 31, 1996 Compared to Nine Months Ended March 31, 1997
Revenues. Revenues decreased 29% from $5,606,854 for the nine month period
ended March 31, 1996 to $4,342,492 for the nine month period ended March 31,
1997. The decrease in revenues was primarily attributable to 50 fewer booths on
location and attrition in revenue at booths installed for more than one year.
Cost of Booth Services. Cost of services, as a percent of revenue, increased
from 88% to 90% for the nine months ended March 31, 1996 and 1997, respectively.
The primary reason for the higher than anticipated percent of revenue in 1996 is
the $557,000 loss on disposal of property and equipment. Fiscal 1997 cost of
services as a percent of revenue exceeded plan due to high freight and re-
installation costs incurred to move booths to new sites, and equipment
depreciation, a fixed expense, increasing from 14% to 18% of revenue, as a
result of the decline in revenues.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses were $1,710,780 and $1,645,264 for the nine month period
ending March 31, 1996 and 1997, respectively. The decrease in fiscal 1997 was
due primarily to manpower reductions and reduced discretionary spending.
Other Expense. Interest expense of approximately $200,000 in both nine month
periods is attributable to the line of credit loan. The nine month period ended
March 31, 1996 includes $100,000 in interest expense for delinquent sales and
use taxes.
Net Operating Results. For the nine months ended March 31, 1997 the Company
realized a net loss of $1,582,812 versus a net loss of $1,552,945 for the nine
months ended March 31, 1996. The fiscal 1997 loss is attributable to lower
revenues and reduced gross profit. A significant portion of the fiscal 1996
loss is attributable to the costs associated with certain non-recurring events
including the writeoff of early protoype booths.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended March 31, 1997 net cash used in operating
activities was $992,367 as compared to $732,630 cash provided by operating
activities for the nine months ended March 31, 1996. Net cash used in 1997 is
primarily due to reductions in sales and use tax payable, and site rents payable
to mall locations. The net cash provided in 1996 is primarily attributable to
increases in current liabilities.
The net proceeds from the Private Placement of approximately $1,250,000
allowed the Company to settle all past due obligations to creditors including
sales and use taxes. In addition, the proceeds from the Private Placement were
used to fund the final phase of the Company's color Video Foto booth project and
to construct an initial 10 color photo booths which were placed in mall and
theme park locations beginning March 1997. Additional color booths will be
funded from operations or new outside financing. Other than the purchase of new
color booths, the Company does not expect to have any significant capital
expenditures for the foreseeable future.
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Irata, Inc.
By: /s/ Lance P. Wimmer
------------------------------
Lance P. Wimmer
President
Dated: May 13, 1997
10
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 10,848
<SECURITIES> 0
<RECEIVABLES> 390,521
<ALLOWANCES> 0
<INVENTORY> 216,157
<CURRENT-ASSETS> 681,349
<PP&E> 7,181,583
<DEPRECIATION> (2,337,893)
<TOTAL-ASSETS> 5,988,612
<CURRENT-LIABILITIES> 584,182
<BONDS> 0
0
0
<COMMON> 644,321
<OTHER-SE> 2,242,470
<TOTAL-LIABILITY-AND-EQUITY> 5,988,612
<SALES> 4,342,492
<TOTAL-REVENUES> 4,342,492
<CGS> 3,888,209
<TOTAL-COSTS> 3,888,209
<OTHER-EXPENSES> 1,710,780
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 197,758
<INCOME-PRETAX> (1,582,812)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,582,812)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,582,812)
<EPS-PRIMARY> (.35)
<EPS-DILUTED> (.35)
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