<PAGE>
U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURI-
TIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EX-
CHANGE ACT
For the transition period from to
Commission file number 1-13068
IRATA, INC.
(Exact name of small business issuer as specified in its charter)
Texas 76-0366015
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1123 W. North Carrier Parkway, Grand Prairie, Texas 75050
(Address of principal executive offices) (Zip Code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of during the past 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 November 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.
<PAGE>
IRATA, INC.
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
Part I Financial Information (unaudited)
Item 1. Financial Statements
Statement of Operations............................................. 2
Balance Sheet....................................................... 3
Statement of Cash Flows............................................. 4
Notes to Financial Statements....................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 8
Part II Other Information
None
Signatures.................................................................... 9
<PAGE>
IRATA, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------
1996 1997
--------------------------
<S> <C> <C>
Revenues:
Booth Services ................................. $ 1,827,651 $ 542,467
Booth Sales .................................... -- 13,500
----------- -----------
Total revenues ...................................... 1,827,651 555,967
Cost of booth services:
Site rent ...................................... 691,768 249,453
Route labor .................................... 180,170 96,204
Equipment depreciation ......................... 247,295 91,445
Consumables .................................... 189,085 56,183
Other costs of service ......................... 172,949 9,625
----------- -----------
Total cost of booth services ........................ 1,481,267 502,910
Cost of booths sold ................................. -- 14,403
----------- -----------
Gross profit ........................................ 346,384 38,654
Selling, general and administrative expenses:
Salaries and wages ............................. 238,092 303,843
Professional fees .............................. 196,012 16,882
Insurance ...................................... 20,133 26,538
Other .......................................... 116,458 55,153
Depreciation and amortization .................. 11,384 10,916
----------- -----------
Total selling, general and administrative expenses .. 582,079 413,332
----------- -----------
Operating ( loss) ................................... (235,695) (374,678)
Other income (expense):
Interest expense ............................... (62,924) (22,992)
Financing costs ................................ (67,842) (70,689)
Other, net ..................................... 1,336 644
----------- -----------
Total other income (expense) ........................ (129,430) (93,037)
----------- -----------
(Loss) before minority interest in Image Dynamics LLC (365,125) (467,715)
(Loss) from minority interest in Image Dynamics LLC . -- (100,000)
----------- -----------
Net (loss) .......................................... $ (365,125 $ (567,715)
=========== ===========
Net loss per share .................................. ($ .14) $ (0.09)
=========== ===========
Weighted average number of common shares outstanding 2,542,611 6,443,215
=========== ===========
</TABLE>
See accompanying notes.
2
<PAGE>
IRATA, INC.
BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
ASSETS
September 30,
1997
-------------
<S> <C>
Current assets:
Cash.....................................................................................$ 18,849
Accounts receivable-trade, net of $30,000 allowance ...................................... 49,752
Other current assets ..................................................................... 21,766
-----------
Total current assets ........................................................... 90,367
Investment in Image Dynamics LLC .............................................................. 2,531,982
Other assets:
Deferred loan costs, net ................................................................. 183,164
Other, net ............................................................................... 41,730
-----------
224,894
-----------
Total assets...................................................................$ 2,847,243
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable...................................................................$ 264,834
Sales and use tax payable ................................................................ 200,981
Advances from Image Dynamics LLC ......................................................... 336,987
Other accrued liabilities ................................................................ 366,777
-----------
Total current liabilities ...................................................... 1,169,579
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 ............................................................... 8,123,123
Accumulated deficit ...................................................................... (7,104,780)
-----------
Total stockholders' equity ..................................................... 1,677,664
-----------
Total liabilities and stockholders' equity ..................................... $ 2,847,243
===========
</TABLE>
See accompanying notes.
3
<PAGE>
IRATA, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------
1996 1997
-------------------------
<S> <C> <C>
Operating activities
Net (loss)................................................................... $ (365,125) $(567,715)
Adjustments to reconcile net loss to net cash provided (used) by operating
activities:
Depreciation and amortization ............................................... 258,681 102,361
Financing costs ............................................................. 70,758 70,689
Loss from minority interest in Image Dynamics LLC ........................... -- 100,000
Other ....................................................................... 57,903 --
Net book value of booths sold ............................................... -- 14,403
Changes in operating assets and liabilities:
Accounts receivable--trade .................................................. 61,162 240,562
Other current assets ........................................................ (75,294) 32,309
Other assets................................................................. (10,476) (26,021)
Accounts payable ............................................................ (990) (349,723)
Advances from Image Dynamics LLC ............................................ -- 336,987
Other accrued liabilities ................................................... (99,773) 121,582
--------- ---------
Net cash provided (used) by operating activities ................................ (103,154) 75,434
Investing activities
Purchases of property and equipment ......................................... (54,839) (59,070)
--------- ---------
Net cash used in investing activities ............................................ (54,839) (59,070)
--------- ---------
Net (decrease) increase in cash and cash equivalents ............................. (157,993) 16,364
Cash and cash equivalents at beginning of year ................................... 174,352 2,485
========= =========
Cash and cash equivalents at end of period ....................................... $ 16,359 $ 18,849
========= =========
</TABLE>
See accompanying notes.
4
<PAGE>
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 ("Booths") throughout the United States at shopping malls, theme
parks, discount stores and other areas of high traffic. The Booths produce a
black & 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 revenue as products and services are provided.
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.
Statement of Cash Flows
Supplemental disclosures of cash flow information are as follows:
<TABLE>
1996 1997
---- ----
<S> <C> <C>
Interest paid................................... 65,200 --
Taxes paid...................................... -- --
Reduction of sales and use taxes payable........ 55,000 --
</TABLE>
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.
5
<PAGE>
IRATA, INC.
NOTES TO FINANCIAL STATEMENTS-(Continued)
(Unaudited)
2. IMAGE DYNAMICS LLC
General
On August 1,1997, the Company signed an agreement to combine operations with
Auto Photo Systems, Inc. ("APS") and form a new company, Image Dynamics LLC
("Image Dynamics"). The Company contributed all operating assets. The basis of
the investment was the historical cost of assets contributed less long-term debt
assumed by Image Dynamics. No gain or loss was recorded on the transaction. The
following schedule details the components of the initial investment in Image
Dynamics:
<TABLE>
<S> <C>
Accounts receivable......................... $ 107,000
Consumable inventory........................ 188,700
Photo booths and other fixed assets, net.... 3,711,600
Components and hardware..................... 644,200
Other assets, net........................... 284,400
-----------
Long-term debt including accrued interest... (2,303,900)
Total investment............................ $ 2,632,000
===========
</TABLE>
Accounting Method
The Company has elected to report its minority interest in Image Dynamics
under the equity method. Based on a valuation formula, the Company has included
26% of the net loss reported by Image Dynamics for the two months ended
September 30, 1997 in its Statement of Operations for the three months ended
September 30, 1997. The value of the investment account has been reduced
accordingly. Audited financial statements of Image Dynamics will be prepared as
of April 30, 1998 and for the nine month period then ended.
Condensed Financial Statements of Image Dynamics
<TABLE>
<CAPTION>
Balance Sheet as September 30, 1997 (unaudited):
------------------------------------------------
<S> <C>
Current assets.................................. $ 1,399,600
Photo booths and other operating equipment...... 18,913,400
Other assets.................................... 1,656,700
-------------
Total assets.................................... $ 21,969,700
=============
Current liabilities............................. $ 1,168,000
Long-term debt.................................. 13,270,000
-------------
Total liabilities............................... 14,438,100
Equity.......................................... 7,531,600
-------------
Total liabilities and equity.................... $ 21,969,700
=============
</TABLE>
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS-(Continued)
(Unaudited)
Condensed Financial Statements of Image Dynamics (continued)
<TABLE>
<CAPTION>
Statement of operations for the two months ended September 30, 1997 (unaudited):
--------------------------------------------------------------------------------
<S> <C>
Net revenue..................................................... $ 3,737,900
Gross profit.................................................... 231,700
Operating expenses.............................................. 421,000
Operating (loss)................................................ (189,300)
Interest expense................................................ 209,200
Net (loss)...................................................... (398,400)
</TABLE>
3. Stock Options
On July 31, 1997, the Board of Directors granted 25,000 shares under the
1996 Stock Option Plan to an outside director at $.125 per share. The Board also
reduced the exercise price for all outstanding options for current employees and
directors to $.125 per share which was the market price at that date.
4. Executive Bonus
On July 31, 1997, the Board of Directors awarded bonuses to the Company's
president and chief financial officer in the amounts of $140,000 and $39,000,
respectively. The president was granted the right to receive up to $100,000 of
this bonus in Class A Common Stock and the chief financial officer up to $15,000
of this bonus in Class A Common Stock. The market price at this date, which was
$.125 per share, will be used to compute the number of shares to be issued.
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.
As of August 1, 1997, the operations of the Company were transferred to
Image Dynamics and combined with the operations of Auto Photo Systems, Inc
("APS"). The president and chief financial officer of the Company assumed
similar positions with Image Dynamics. Several key managers with APS, including
regional operation managers and marketing personnel took positions with Image
Dynamics. Two APS executives and the Executive Vice President of the Company
resigned as of August 1, 1997. Image Dynamics currently has approximately 100
fulltime employees. The Company has closed its office in Houston and has
relocated approximately 10 employees to the former APS manufacturing facility
near Dallas which is now the corporate office and manufacturing facility for
Image Dynamics. APS has closed its former corporate office in Tustin,
California. Image Dynamics has regional support offices in California, Dallas,
Florida, Chicago and New York City.
During the first two months of operations, the management focused on
consolidation of service routes and relocation of operations to Texas. The full
benefit of cost reductions will not be achieved until later in the year. Image
Dynamics' strategy is to reduce its site and route expenses by increasing the
density of operating equipment. In this regard, management is investigating new
equipment to complement photo booths.
RESULTS OF OPERATIONS
The statement of operations for the 1997 period includes revenue and cost
of services for the month of July 1997 only. For the months of August and
September 1997 all revenue, related operating expenses and interest expense on
long-term debt were recorded on the books of Image Dynamics. As a result, a
comparison with the three month period ended September 30, 1996 for revenues,
cost of booth services and selling general and administrative expenses is not
meaningful.
For the month of July 1997 the Company incurred a net loss of approximately
$150,000. For the months of August and September 1997, the Company reported a
loss of $100,000 representing its 26% interest in the results of Image Dynamics.
The combined loss of appoximately $250,000 for the three months ended September
30, 1997 compares favorably to the net loss of $365,000 for the three months
ended September 30, 1996. In addition to the loss from ongoing operations of
$250,000 in 1997, the Company had non-recurring expenses of $180,000 in bonuses
to executives and $70,000 in severance and other shutdown expenses for its
Houston office. Lastly, the Company will continue to incur quarterly expenses of
approximately $70,000 in amortization of financing costs and $20,000 for
professional fees related to public company filing and reporting expenses.
LIQUIDITY AND CAPITAL RESOURCES.
During September the Company received cash advances to settle all current
obligations to creditors. A large percentage of the remaining obligations of the
Company are not currently due or are disputed. The Company believes that Image
Dynamics will continue to transfer funds to settle obligations when due.
8
<PAGE>
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: November 19, 1997
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM IRATA INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 18,849
<SECURITIES> 0
<RECEIVABLES> 49,752
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 90,367
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,847,243
<CURRENT-LIABILITIES> 1,169,579
<BONDS> 0
0
0
<COMMON> 659,321
<OTHER-SE> 1,018,343
<TOTAL-LIABILITY-AND-EQUITY> 2,847,243
<SALES> 555,967
<TOTAL-REVENUES> 555,967
<CGS> 517,313
<TOTAL-COSTS> 517,313
<OTHER-EXPENSES> 413,332
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,992
<INCOME-PRETAX> (567,715)
<INCOME-TAX> 0
<INCOME-CONTINUING> (567,715)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 567,715
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
