<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 December 31, 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 February 11, 1998 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 DECEMBER 31, 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
Item 4. Submission of Matters to a Vote of Security Holders.................. 9
Signatures................................................................... 9
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IRATA, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------- -----------------------
1996 1997 1996 1997
----------------------- -----------------------
<S> <C> <C> <C> <C>
Revenues:
Booth Services....................... $1,256,312 $3,083,963 $ 542,467
Booth Sales.......................... 7,500 7,500 13,500
---------- ---------- ---------- ----------
Total revenues.......................... 1,263,812 0 3,091,463 555,967
Cost of booth services:
Site rent............................ 482,527 1,174,295 249,453
Route labor.......................... 151,610 331,780 96,204
Equipment depreciation............... 263,009 510,304 91,445
Consumables.......................... 127,286 316,371 56,183
Other costs of service............... 156,729 329,678 9,625
---------- ---------- ---------- ----------
Total cost of booth services............ 1,181,161 0 2,662,428 502,910
Cost of booths sold..................... 7,454 7,454 14,403
---------- ---------- ---------- ----------
Gross profit............................ 75,197 0 421,581 38,654
Selling, general and administrative
expenses:
Salaries and wages................... 276,163 21,206 514,255 325,049
Professional fees.................... 55,671 10,832 251,683 27,714
Insurance............................ 49,277 11,439 69,410 37,977
Other................................ 158,835 20,683 275,293 75,836
Depreciation and amortization........ 13,755 4,756 25,139 15,672
---------- ---------- ---------- ----------
Total selling, general and
administrative expenses................ 553,701 68,916 1,135,780 482,248
---------- ---------- ---------- ----------
Operating (loss)........................ (478,504) (68,916) (714,199) (443,594)
Other income (expense):
Interest expense..................... (67,920) (130,844) (22,992)
Financing costs...................... (72,404) (65,553) (140,246) (136,242)
Other, net........................... 32,270 89,560 33,606 90,204
---------- ---------- ---------- ----------
Total other income (expense)............ (108,054) 24,007 (237,484) (69,030)
---------- ---------- ---------- ----------
(Loss) before minority interest in
Image Dynamics LLC..................... (586,558) (44,909) (951,683) (512,624)
(Loss) from minority interest in
Image Dynamics LLC..................... -- (215,650) -- (315,650)
---------- ---------- ---------- ----------
Net (loss).............................. $ (586,558) $ (260,559) $ (951,683) $ (828,274)
========== ========== ========== ==========
Net loss per share...................... $ (0.12) $ (0.04) $ (0.26) $ (0.13)
========== ========== ========== ==========
Weighted average number of common
shares outstanding..................... 4,694,344 6,443,215 3,622,208 6,443,215
========== ========== ========== ==========
</TABLE>
See accompanying notes
2
<PAGE>
IRATA, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
1997
------------
<S> <C>
Current assets:
Cash................................................ $ 402
Other current assets................................ 80,420
------------
Total current assets.......................... 80,822
Investment in Image Dynamics LLC....................... 2,316,332
Other assets:
Deferred loan costs, net............................ 117,611
Other, net.......................................... 36,974
------------
154,585
------------
Total assets.................................. $ 2,551,739
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.............................. $ 269,574
Sales and use tax payable........................... 150,981
Advances from Image Dynamics LLC.................... 435,712
Other accrued liabilities........................... 278,367
------------
Total current liabilities..................... 1,134,634
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................................. (7,365,339)
------------
Total stockholders' equity.................... 1,417,105
------------
Total liabilities and stockholders' equity.... $ 2,551,739
============
</TABLE>
See accompanying notes.
3
<PAGE>
IRATA, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
-----------------------
1996 1997
-----------------------
<S> <C> <C>
Operating activities
Net (loss)......................................... $ (365,125) $ (828,274)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization...................... 258,681 107,117
Financing costs.................................... 70,758 136,242
Loss from minority interest in Image Dynamics LLC.. -- 315,650
Other.............................................. 57,903 --
Net book value of booths sold...................... -- 14,403
Changes in operating assets and liabilities:
Accounts receivable-trade.......................... 61,162 284,541
Other current assets............................... (75,294) (20,572)
Other assets....................................... (10,476) (26,021)
Accounts payable................................... (990) (344,983)
Advances from Image Dynamics LLC................... -- 435,712
Other accrued liabilities.......................... (99,773) (16,828)
---------- ----------
Net cash provided (used) by operating activities...... (103,154) 56,987
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) (2,083)
Cash and cash equivalents at beginning of year........ 174,352 2,485
---------- ----------
Cash and cash equivalents at end of period............ $ 16,359 $ 402
========== ==========
</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>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Interest paid........................................ 131,000 --
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:
<TABLE>
<CAPTION>
ESTIMATED
---------
USEFUL LIFE
----------
<S> <C>
Booths............................................. 5 to 7 Years
Furniture, Fixtures and Equipment.................. 3 to 7 Years
</TABLE>
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 five months ended
December 31, 1997 in its Statement of Operations for the six months ended
December 31, 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 December 31, 1997:
----------------------------------
<S> <C>
Current assets................................ $ 1,618,500
Photo booths and other operating equipment.... 19,551,700
Other assets.................................. 86,500
-------------
Total assets.................................. $21,256,700
=============
Current liabilities........................... $ 2,898,500
Long-term debt................................ 13,579,400
-------------
Total liabilities............................. 16,477,900
Equity........................................ 4,778,000
-------------
Total liabilities and equity.................. $21,256,700
=============
</TABLE>
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(Unaudited)
Condensed Financial Statements of Image Dynamics (continued)
<TABLE>
<CAPTION>
Statement of operations for the five months ended December 31, 1997:
--------------------------------------------------------------------
<S> <C>
Net revenue.................................... $ 8,544,600
Gross profit................................... 188,800
Operating expenses............................. 919,500
Operating (loss)............................... (730,700)
Interest expense............................... 483,400
Net (loss)..................................... (1,214,000)
</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>
ITEM 2 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 five 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 March 1998. Image
Dynamics' strategy is to reduce its site and route expenses by increasing the
density of operating equipment. In this regard, 50 new Print Club photo sticker
machines were installed in late December 1997. In addition, 50 color video foto
booths will be assembled and installed by April 1998. This new equipment should
have a positive impact on the financial results of Image Dynamics.
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 through
December 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 and six month period ended December 31,
1996 for revenues, cost of booth services and selling general and administrative
expenses is not meaningful.
For the three months ended December 31, 1997, the Company incurred a net loss
of $260,559. The loss before minority interest in Image Dynamics of $44,909
includes approximately $40,000 of non-recurring expenses including severance
payments to terminated employees and rent on the closed Houston office of the
Company. The loss was reduced by other income of approximately $80,000
resulting from a reduction in accruals for estimated sales tax and other
obligations attributable to operations prior to the formation of Image Dynamics.
LIQUIDITY AND CAPITAL RESOURCES.
During the three months ended December 31, 1997, the Company received cash
advances of approximately $100,000 to settle 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>
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 28, 1998, the Company held its Annual Meeting of Shareholders
which was adjourned until February 4, 1998. The matters acted on at the meeting
were:
1 The election of three members of the Board of Directors, including Messrs.
Lance P. Wimmer, John D. Higgins and Robert R. Salyard, to serve until the
1998 Annual Meeting of Shareholders and in each case until their
respective successors are elected and qualified. Each nominee for director
received a vote of 3,654,540 shares for, 195,558 shares withheld and no
shares abstaining; and
2 The approval of an amendment to the Company's Certificate of Incorporation
to effect a one-for-six reverse stock split of the Class A Common Stock.
The proposal received a vote of 3,498,074 shares for, 326,964 shares
against and 25,060 shares abstaining; as a result of such vote, the
proposal failed to achieve the required vote of two-thirds of the
6,443,215 shares outstanding and was not approved.
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: February 17, 1998
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 402
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 80,822
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,551,739
<CURRENT-LIABILITIES> 1,134,634
<BONDS> 0
0
0
<COMMON> 659,321
<OTHER-SE> 757,784
<TOTAL-LIABILITY-AND-EQUITY> 2,551,739
<SALES> 555,967
<TOTAL-REVENUES> 555,967
<CGS> 517,313
<TOTAL-COSTS> 517,313
<OTHER-EXPENSES> 482,248
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,992
<INCOME-PRETAX> (828,274)
<INCOME-TAX> 0
<INCOME-CONTINUING> (828,274)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (828,274)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
