<PAGE> 1
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 SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE 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 May 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> 2
IRATA, INC.
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1998
<TABLE>
<S> <C>
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
Signatures.................................................................................... 9
</TABLE>
<PAGE> 3
IRATA, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
---------------------------- ----------------------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Booth Services ...................................... $ 1,245,529 $ 4,329,492 $ 542,467
Booth Sales ......................................... 5,500 13,000 13,500
----------- ----------- ----------- -----------
Total revenues ......................................... 1,251,029 0 4,342,492 555,967
Cost of booth services:
Site rent ........................................... 500,326 1,674,621 249,453
Route labor ......................................... 143,523 475,303 96,204
Equipment depreciation .............................. 264,107 774,411 91,445
Consumables ......................................... 132,737 449,108 56,183
Other costs of service .............................. 172,060 501,738 9,625
----------- ----------- ----------- -----------
Total cost of booth services ........................... 1,212,753 0 3,875,181 502,910
Cost of booths sold .................................... 5,574 13,028 14,403
----------- ----------- ----------- -----------
Gross profit ........................................... 32,702 0 454,283 38,654
Selling, general and administrative expenses:
Salaries and wages .................................. 273,370 6,000 787,625 331,049
Professional fees ................................... 65,069 8,351 316,752 36,065
Insurance ........................................... 37,987 17,004 107,397 54,981
Other ............................................... 119,585 1,095 394,878 76,931
Depreciation and amortization ....................... 13,473 2,101 38,612 17,773
----------- ----------- ----------- -----------
Total selling, general and administrative expenses ..... 509,484 34,551 1,645,264 516,799
----------- ----------- ----------- -----------
Operating (loss) ....................................... (476,782) (34,551) (1,190,981) (478,145)
Other income (expense):
Interest expense .................................... (66,914) (197,758) (22,992)
Financing costs ..................................... (74,310) (83,589) (214,556) (219,831)
Other, net .......................................... (13,123) 1,787 20,483 91,991
----------- ----------- ----------- -----------
Total other income (expense) ........................... (154,347) (81,802) (391,831) (150,832)
----------- ----------- ----------- -----------
(Loss) before minority interest in Image Dynamics LLC .. (631,129) (116,353) (1,582,812) (628,977)
(Loss) from minority interest in Image Dynamics LLC .... -- (288,500) -- (604,150)
----------- ----------- ----------- -----------
Net (loss) ............................................. $ (631,129) $ (404,853 $(1,582,812) $(1,233,127)
=========== =========== =========== ===========
Net loss per share ..................................... $ (0.10) $ (0.06) $ (0.35) $ (0.19)
=========== =========== =========== ===========
Weighted average number of common shares outstanding ... 6,421,369 6,443,215 4,555,261 6,443,215
=========== =========== =========== ===========
</TABLE>
See accompanying notes
2
<PAGE> 4
IRATA, INC.
BALANCE SHEET
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
1998
-----------
<S> <C>
Current assets:
Cash ....................................................................... $ 1,828
Other current assets ....................................................... 65,412
-----------
Total current assets ............................................ 67,240
Investment in Image Dynamics LLC ............................................... 2,064,045
Other assets:
Deferred loan costs, net ................................................... 61,454
Other, net ................................................................. 34,873
-----------
96,327
===========
Total assets .................................................... $ 2,227,612
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ..................................................... $ 260,655
Sales and use tax payable .................................................. 147,727
Advances from Image Dynamics LLC ........................................... 548,949
Other accrued liabilities .................................................. 258,030
-----------
Total current liabilities ....................................... 1,215,361
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 ........................................................ (7,770,193)
-----------
Total stockholders' equity ...................................... 1,012,251
===========
Total liabilities and stockholders' equity ...................... $ 2,227,612
===========
</TABLE>
See accompanying notes.
3
<PAGE> 5
IRATA, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
----------------------------
1997 1998
----------- -----------
<S> <C> <C>
Operating activities
Net (loss) .............................................. $(1,582,812) $(1,233,127)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Depreciation and amortization ........................... 813,025 109,218
Financing costs ......................................... 214,556 219,831
Loss from minority interest in Image Dynamics LLC ....... -- 604,150
Other ................................................... 98,339 --
Net book value of booths sold ........................... 13,028 14,403
Changes in operating assets and liabilities:
Accounts receivable--trade .............................. 92,251 284,945
Other current assets .................................... (4,282) (3,962)
Other assets ............................................ (103,481) (35,417)
Accounts payable ........................................ (23,955) (353,903)
Advances from Image Dynamics LLC ........................ -- 548,949
Other accrued liabilities ............................... (509,036) (96,674)
----------- -----------
Net cash provided (used) by operating activities ........... (992,367) 58,413
Investing activities
Purchases of property and equipment ..................... (424,858) (59,070)
----------- -----------
Net cash used in investing activities ....................... (424,858) (59,070)
Financing activities
Proceeds from Private Placement, net .................... 1,253,721 --
----------- -----------
1,253,721 --
----------- -----------
Net (decrease) increase in cash and cash equivalents ........ (163,504) (657)
Cash and cash equivalents at beginning of year .............. 174,352 2,485
=========== ===========
Cash and cash equivalents at end of period .................. $ 10,848 $ 01,828
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE> 6
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>
1997 1998
---- ----
<S> <C> <C>
Interest paid ............................. 197,800 --
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> 7
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 ...................... 188,600
Photo booths and other fixed assets, net .. 3,711,600
Components and hardware ................... 644,200
Other assets, net ......................... 284,400
Long-term debt ............................ (2,247,600)
-----------
Total investment .......................... $ 2,668,200
===========
</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 eight months ended March
31, 1998 in its Statement of Operations for the nine months ended March 31,
1998. 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 March 31, 1998:
- --------------------------------
<S> <C>
Current assets .............................. $ 845,600
Photo booths and other operating equipment .. 19,849,200
Other assets ................................ 81,300
-----------
Total assets ................................ $20,776,100
===========
Current liabilities ......................... $ 3,661,200
Long-term debt .............................. 14,273,800
-----------
Total liabilities ........................... 17,935,000
Equity ...................................... 2,841,100
-----------
Total liabilities and equity ................ $20,776,100
===========
</TABLE>
6
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
Condensed Financial Statements of Image Dynamics (continued)
<TABLE>
<CAPTION>
Statement of operations for the eight months ended March 31, 1998:
- ------------------------------------------------------------------
<S> <C>
Net revenue ................... $ 12,919,600
Gross profit .................. (46,900)
Operating expenses ............ 1,487,900
Operating (loss) .............. (1,534,800)
Interest expense .............. 724,600
Net (loss) .................... (2,329,400)
</TABLE>
7
<PAGE> 9
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 did
not join Image Dynamics. 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 eight months of operations, the management focused on
consolidation of service routes and relocation of operations to Texas. Because
of severance payments and certain other non-recurring cost the full benefit of
major cost reductions was not achieved until March 1998. Image Dynamics'
strategy is to reduce its site and route expenses by increasing the density of
and upgrading operating equipment. In this regard, 130 photo sticker machines
were installed in late December 1997. In addition, 50 color video foto booths
were installed in March and 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 1998 period includes revenue and cost
of services for the month of July 1997 only. For the months of August 1997
through March 1998 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 nine month period ended March 31, 1997 for revenues, cost of
booth services and selling general and administrative expenses is not
meaningful.
For the three months ended March 31, 1998, Image Dynamics incurred a net
loss of approximately $1,100,000. This loss was primarily caused by a 10%
decline in revenues as a result of fewer operating booths from the same period
in 1997. In April 1998 Image Dynamics implemented a plan to increase the number
of operating booths through the installation of new and refurbished photo booths
at mall locations. Revenue from these new installations and from seasonal theme
parks is expected to significantly reduce the loss for the three months ended
June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES.
During the three months ended March 31, 1998, the Company received cash
advances from Image Dynamics of approximately $60,000 to settle obligations.
Until Image Dynamics achieves profitability, no significant amount of funds will
be available to the Company.
8
<PAGE> 10
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 15, 1998
9
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 1,828
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 67,240
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,227,612
<CURRENT-LIABILITIES> 1,215,361
<BONDS> 0
0
0
<COMMON> 659,321
<OTHER-SE> 352,930
<TOTAL-LIABILITY-AND-EQUITY> 2,227,612
<SALES> 555,967
<TOTAL-REVENUES> 555,967
<CGS> 517,313
<TOTAL-COSTS> 517,313
<OTHER-EXPENSES> 516,799
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,992
<INCOME-PRETAX> (1,233,127)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,233,127)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,233,127)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
