===============================================================================
UNITED STATES
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly
period ended December 31, 1996
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: 0-21322
OUT-TAKES, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4363944
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 116
1419 Peerless Place
Los Angeles, California 90035 (Zip Code)
(Address of principal executive offices)
(310) 788-9440
(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 ___
The number of shares outstanding of the registrant's common stock as of
February 12, 1997 was 20,495,726.
<PAGE>
OUT-TAKES, INC.
FORM 10-Q QUARTERLY REPORT FOR
QUARTERLY PERIOD ENDING DECEMBER 31, 1996
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION 1
ITEM 1. FINANCIAL STATEMENTS 1
Balance Sheets
As of December 31, 1996 and March 31, 1996 [Unaudited] 1
Statements of Operations
[Unaudited] -- for the three and nine month periods
ended December 31, 1996 and 1995 2
Statement of Stockholders' Equity
[Unaudited] -- for the nine months ended December 31, 1996 3
Statements of Cash Flows
[Unaudited] -- for the nine months ended December 31, 1996
and 1995 4
Notes to Financial Statements
[Unaudited] 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION 8
Overview 8
Results of Operations 9
Liquidity and Capital Resources 13
Other Matters 13
PART II OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURE 15
<PAGE>
================================================================================
2
================================================================================
<TABLE>
3
PART I
ITEM 1. FINANCIAL STATEMENTS
OUT-TAKES, INC.
BALANCE SHEETS
[Unaudited]
Assets
<S> <C> <C>
As of As of
December 31, March 31,
1996 1996
---------------- -----------------
Current Assets:
Cash and Cash Equivalents $ 43,177 $ 61,672
Prepaid Royalties 2,582 4,969
Inventory 37,040 36,598
Other Current Assets 28,594 15,701
--------------- ---------------
Total Current Assets 111,393 118,940
Non-Current Assets:
Property, Plant & Equipment - Net 977,913 1,252,100
Deposits 40,777 38,712
---------------- -----------------
Total Non-Current Assets 1,018,690 1,290,812
================ -----------------
Total Assets $ 1,130,083 $ 1,409,752
================ =================
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable $ 134,499 $ 88,923
Accrued Payroll 16,120 218,291
Accrued Expenses 189,062 203,928
Notes Payable - 15,036
Accrued Interest - Related Parties 4,071 29,975
Accrued Management Fee - Related Party - 130,000
Loan Payable - Related Parties 137,760 -
Loan from Related Party 50,500 649,500
---------------- -----------------
Total Current Liabilities 532,012 1,335,653
Non-Current Liabilities:
Notes Payable 48,000 48,000
Loan Payable - Related Parties 33,652 -
---------------- -----------------
Total Non-Current Liabilities 81,652 48,000
Commitments - -
Stockholders' Equity:
Preferred Stock, par value $.01 per share; 5,000,000 shares
authorized; none issued - -
Common Stock, par value $.01 per share; 35,000,000 shares
authorized (March 31,1996: 25,000,000); 20,788,122 and 11,168,122
shares issued as of December 31, 1996 and March 31, 1996 respectively, 207,882 111,682
of which 292,396 shares are in Treasury
Capital in excess of par value 10,014,980 9,071,180
Accumulated deficit (includes $6,990,000 in accumulated losses during
the development stage and a $722,000 loss on impairment of assets) (9,454,037 ) (8,904,357 )
---------------- -----------------
Total 768,825 278,505
Less: Treasury Stock, at cost (108,406 ) (108,406 )
Deferred Compensation (144,000 ) (144,000 )
---------------- -----------------
Total Stockholders' Equity 516,419 26,099
---------------- -----------------
================ =================
Total Liabilities and Stockholders' Equity $ 1,130,083 $ 1,409,752
================ =================
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements
<PAGE>
<TABLE>
=========================================================================================================================
=========================================================================================================================
OUT-TAKES, INC.
STATEMENTS OF OPERATIONS
[UNAUDITED]
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
----------------------------------- ------------------------------------
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
---------------- ----------------- ----------------- -----------------
Revenues $ 520,666 $ 375,711 $ 1,646,496 $ 1,177,775
---------------- ----------------- ----------------- -----------------
Cost of Revenues:
Compensation and Related 191,321 122,027 569,351 391,684
Benefits
Depreciation and Amortization 80,777 64,758 240,972 183,139
Rent 77,466 51,446 229,396 151,073
Other Cost of Revenues 156,021 121,759 446,535 265,547
---------------- ----------------- ----------------- -----------------
Total Cost of Revenues 505,585 359,990 1,486,254 991,443
---------------- ----------------- ----------------- -----------------
Gross Income 15,081 15,721 160,242 186,332
General and Administrative
Expenses:
Compensation and Related 61,782 96,342 302,366 209,951
Benefits
Professional Fees 19,362 25,357 60,644 185,847
Management Fee - Related Party 35,000 50,000 131,000 100,000
Rent of Offices 9,847 4,350 30,958 15,380
(Profit) / Loss on Disposal of (658 ) (658 ) 997
Plant and -
Equipment
Depreciation and Amortization 22,863 24,688 68,335 102,230
Loss on Impairment of 722,000
Long-Lived Assets - - -
Other G & A Expenses 28,512 25,856 71,727 91,459
---------------- ----------------- ----------------- -----------------
Total Expenses 176,708 226,593 664,372 1,427,864
---------------- ----------------- ----------------- -----------------
Loss from Operations (161,627 ) (210,872 ) (504,130 ) (1,241,532 )
---------------- ----------------- ----------------- -----------------
Other Income (Expense)
Interest Income 794 141 2,904
-
Interest Expense (2,823 ) (4,103 )
- -
Interest Expense - Related (8,080 ) (41,588 )
Parties - -
---------------- ----------------- ----------------- -----------------
Total Other Income (Expense) (10,903 ) 794 (45,550 ) 2,904
---------------- -----------------
----------------- -----------------
Net Loss ($ 172,530 ) ($ 210,078 ) ($ 549,680 ) ($ 1,238,628 )
================ ================= ================= =================
Net Loss per Share ($ ) ($ ) ($ ) ($ )
0.01 0.02 0.04 0.13
================ ================= ================= =================
Weighted Average
Common Shares Outstanding 15,160,072 10,875,726 13,003,940 9,223,531
================ ================= ================= =================
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements
<PAGE>
<TABLE>
===================================================================================================================================
OUT-TAKES, INC.
===================================================================================================================================
STATEMENTS OF STOCKHOLDERS' EQUITY
[UNAUDITED]
Capital
Common Stock Retained
-------------------------- in excess
Number of of Par Earnings Treasury Deferred
Shares Amount Value (Deficiency) Stock Compensation Total
------------- ----------- ------------- --------------- -------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -- March 31, 1996 11,168,122 $ 111,682 $ 9,071,180 ($ 8,904,357) ($ 108,406) ($ 144,000) $ 26,099
Cash proceeds from issuance of
stock (see Note [4B]) 650,000 6,500 123,500 - - 130,000
Stock issued upon conversion of
debt (see Note [4C]) 8,970,000 89,700 820,300 - - 910,000
Net Loss for the nine months
ended December 31, 1996 - - - (549,680) - (549,680)
============ ========= =========== ============ ============== ========== =========
Balance as of December 31, 1996 20,788,122 $ 207,882 $10,014,980 ($ 9,454,037) ($ 108,406) ($ 144,000) $516,419
=========== ========= ============ ============= ============== =========== ========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements
<PAGE>
<TABLE>
====================================================================================================================================
====================================================================================================================================
OUT-TAKES, INC.
STATEMENTS OF CASH FLOWS
[UNAUDITED]
Nine Months Ended
-----------------------------------
OPERATING ACTIVITIES: December 31, December 31,
1996 1995
<S> <C> <C>
---------------- ----------------
Net Loss ($ 549,680 ) ($ 1,238,628 )
---------------- ----------------
Adjustments to Reconcile Net Loss to
Net Cash Used in Operating Activities:
Depreciation and Amortization $ 309,307 $ 285,369
Loss on Impairment of Long-Lived Assets - 722,000
(Profit)/Loss on Disposal of Plant and Equipment (658) 997
Change in Assets and Liabilities:
(Increase) Decrease in:
Prepaid Royalties 2,387 1,332
Accounts Receivable - (3,262 )
Deposits (2,065 ) (17,440 )
Inventory (442 ) (8,743 )
Other Current Assets (12,893 ) (2,544 )
Other Non-Current Assets - (66,687 )
Increase (Decrease) in:
Accounts Payable 45,576 (169,028 )
Accrued Payroll (202,171 ) 21,404
Accrued Expenses (14,866 ) 115,851
Notes Payable (15,036 ) -
Accrued Interest -Related Parties (25,904 ) -
Accrued Management Fee-Related Party 131,000 100,000
Loan Payable - Related Parties 171,412 -
---------------- ----------------
Total Adjustments $ 385,647 $ 979,249
---------------- ----------------
Net Cash used in Operating Activities ($ 164,033 ) ($ 259,379)
---------------- ----------------
INVESTING ACTIVITIES:
Acquisition of Equipment and Leasehold Improvements ($35.462 ) ($645,076 )
Proceeds on Disposal of Plant and Equipment 1,000 1,050
---------------- ----------------
Net Cash Used in Investing Activities ($ 34,462 ) ($ 644.026 )
---------------- ----------------
FINANCING ACTIVITIES:
Proceeds from the Issuance of Stock $ 130,000 $ 510,000
130,000
Proceeds from Notes Payable - 39,425
Loan from Related Party 50,000 449,500
Payment of Notes Payable - (61,000 )
---------------- ----------------
Net Cash Provided by Financing Activities $ 180,000 $ 937,925
---------------- ----------------
Net (Decrease) Increase in Cash and Cash Equivalents ($ 18,495 ) $ 34,520
Cash and Cash Equivalents - Beginning of Periods 61,672 53,970
---------------- ----------------
Cash and Cash Equivalents - End of Periods $ 43,177 $ 88,490
================ ================
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES:
On May 7, 1996, the majority stockholder, Photo Corporation Group Pty. Ltd.
"PCG", converted $130,000 of its $649,500 loan payable into 650,000 shares of
the Company's Common Stock. On November 29, 1996, PCG converted an additional
$780,000 into 8,320,000 shares of the Company's Common Stock. This represented
loan principal of $519,000 and accrued management fees of $261,000 payable to
Photo Corporation of Australia Pty Limited ("PCA") which debt was assumed by
Photo Corporation Group Pty Limited ("PCG")
The Accompanying Notes are an Integral Part of These Financial Statements
<PAGE>
[1] Summary of Significant Accounting Policies
Basis of Presentation - The accompanying interim financial statements
are unaudited and have been prepared in accordance with the requirements of
Regulation S-K and Form 10-Q and, therefore, do not include all information and
footnotes required by generally accepted accounting principles for complete
financial statements. However, in the opinion of the management of the Company,
all adjustments consisting only of normal recurring adjustments necessary for a
fair presentation of financial position, results of operations and cash flows
for the three and nine month periods ended December 31, 1996 and 1995 have been
made. The results of operations for any interim period are not necessarily
indicative of the results for the full year. These financial statements should
be read in conjunction with the financial statements and notes thereto contained
in the annual report on Form 10-KSB for the year ended March 31, 1996.
Property, Plant and Equipment and Depreciation - The Company's
property, plant and equipment is shown net of accumulated depreciation of
$1,638,857 as of December 31, 1996, and $1,331,100 as of March 31, 1996.
[2] Net Loss Per Share
Net loss per share was calculated based on the weighted average number
of shares outstanding during the periods. Neither the 292,396 shares held in
Treasury nor the 750,000 shares held in escrow pursuant to an escrow agreement
between the founding stockholders and the Company have been included in the
weighted average shares outstanding during the year as their inclusion would be
anti-dilutive. The effect of outstanding stock warrants and options was not
included in the calculations as their effect would also be anti-dilutive.
[3] Notes Payable
Notes payable of $15,036 at March 31,1996 represented the remaining
outstanding balance of a Promissory Note of $173,425 due to the former corporate
counsel to the Company pursuant to an agreement dated May 1, 1995. The balance
has been repaid in full and the Promissory Note has been discharged as of
December 31, 1996.
A note payable of $48,000 is due to a former financial consultant to
the Company pursuant to a settlement agreement dated August 17, 1994. The note
is non-interest bearing and payment is subject to availability of future cash
flows from the Company's operations.
[4] Capital Stock Transactions
A. Authorization for Issuance of Additional Shares
On April 24, 1996, the Board of Directors authorized the issuance of up
to 3 million shares of the Company's Common Stock for a price of $0.20 per
share, which represented the Board of Directors' determination of the fair
market value for restricted shares of stock on April 24, 1996.
On November 29, 1996 the Board of Directors agreed to reduce the price
for any additional issuance of shares of Common Stock to $0.09375, which
represented the fair market value at that time.
<PAGE>
OUT-TAKES, INC.
NOTES TO FINANCIAL STATEMENTS
[Unaudited, continued ]
[4] Capital Stock Transactions (continued)
B. Stock Subscription
On May 6 and 7, 1996, the Company received stock subscriptions from six
investors totaling $130,000 for 650,000 shares of Common Stock. The Company
received total payment on these subscriptions as of June 6, 1996.
C. Debt to Equity Conversion
On May 7, 1996, the majority stockholder, Photo Corporation Group Pty.
Ltd. ("PCG"), converted $130,000 of its $649,500 loan payable into 650,000
shares of the Company's Common Stock. This represented a value of $0.20 per
share of Common Stock, which represented the Board of Directors' determination
of the fair market value on this date and the same price also paid by the six
independent investors in May 1996 (See Capital Stock Transactions, Note [4B]).
On November 29, 1996, PCG converted $519,000 of the remaining $519,500
note payable, together with $261,000 of accrued management fees payable to Photo
Corporation of Australia Pty Limited ("PCA"), which debt was assumed by PCG,
into 8,320,000 shares of the Company's Common Stock. This represented a value of
$0.09375 per share of Common Stock, which the Board of Directors determined to
be a fair price at that time. In addition, PCG suspended management fees to it
or its related parties pursuant to the Personnel Consulting Agreement with the
Company dated June 28, 1995 for a period of two years commencing December 1,
1996.
D. Increase in Authorized Number of Shares
On July 24, 1996, at the Annual Meeting of Stockholders of the Company,
the stockholders approved an amendment to the Company's certificate of
incorporation to increase the authorized number of shares of Common Stock of the
Company from 25,000,000 to 35,000,000.
[5] Going Concern
The Company incurred a net loss of $6,990,000 for the cumulative period
from March 18, 1992, (inception) to December 31, 1994, the period during which
the Company was considered to be a development stage enterprise. The Company
commenced commercial operations on May 24, 1993 and the revenues generated by
such operations have been insufficient to cover all of the Company's
non-operating overhead.
The accompanying financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business. The
continuation of the Company as a going concern is dependent upon its ability to
have a successful commercial operating history.
[6] Impairment of Long Lived Assets
During the fiscal year ended June 30, 1995, the Company adopted
Statement of Financial Accounting Standard (SFAS) No. 121, Accounting for the
Impairment of Long-Lived Assets.
OUT-TAKES, INC.
NOTES TO FINANCIAL STATEMENTS
[Unaudited, continued]
[6] Impairment of Long Lived Assets (continued)
As a result of the Company's continuing operating losses and the
information obtained during research and the development of the studio at The
Entertainment Center at Irvine Spectrum located in Irvine, Orange County,
California (the "Irvine Studio"), the Company reviewed the carrying value of the
assets at its studio at MCA/Universal CityWalk (the "CityWalk Studio") for
impairment in the June 1995 quarter. Management determined that an impairment
loss of $722,000 should be recognized. This loss was determined as the excess of
carrying value over fair value. Fair value was determined by reference to costs
for similar assets for the Irvine Studio.
[7] Related Party Transactions
Robert Shelton, Vice President Development and a Director of the
Company, and Leah Peterson Shelton, Vice President Operations, ceased employment
with the Company and Mr. Shelton also ceased as a director of the Company from
and effective September 1, 1996.
Deferred salaries owing to Mr. Shelton and Mrs. Peterson Shelton,
accrued interest on deferred salaries, accrued vacation pay and amounts payable
on termination totaling $274,373 were consolidated into a loan on September 1,
1996, which is being repaid over the period through April 17, 1998. The loan is
presented on the balance sheet as "Loan Payable - Related Parties". The loan is
secured by the assets of the Company pursuant to the Settlement and Mutual
Release Agreement as of September 1, 1996, between the Company, Mr. Shelton,
Mrs. Peterson Shelton and PCG. Interest expense is incurred at the prime rate of
interest (approximately 8.25%) and in the nine months ended December 31, 1996,
was $2,823. As of December 31, 1996, interest of $554 was accrued.
The Settlement and Mutual Release Agreement inter alia provides for
Mr. Shelton and Mrs. Peterson Shelton to act as consultants to the Company
as requested by the Company and as agreed to by them.
Management fees of $261,000 payable to PCA, were accrued pursuant to
the Personnel Consulting Agreement with the Company dated June 28, 1995. These
charges cover the period from July 1, 1995, through November 30, 1996.
Management fees for the two months ended November 30, 1996, were $35,000. On
November 29, 1996 PCG suspended management fees to it or its related parties
pursuant to the Personnel Consulting Agreement with the Company dated June 28,
1995 for a period of two years from December 1, 1996. On November 29, 1996, the
accrued management fees of $261,000 were converted into shares of the Company's
Common Stock (See Capital Stock Transactions Note [4C]).
The Loan from Related Party of $50,500 ($649,500 as of March 31, 1996)
was advanced by PCG. The proceeds of the $649,500 loan were used predominantly
to fund the construction of the Irvine Studio and to upgrade the technology in
relation to the studio's operation. Of the $649,500 loan, $649,000 was converted
into shares of the Company's Common Stock on November 29, 1996 (See Capital
Stock Transactions, Note [4B]). A further $50,000 cash was advanced by PCG in
the quarter ended December 31, 1996. The Loan from Related Party is unsecured
and is payable on demand. Interest expense is incurred at a rate of 10% per
annum and in the three months ended December 31, 1996, was $8,080. As of
December 31, 1996, interest of $4,071 was accrued.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
historical financial statements of the Company and notes thereto included
elsewhere in this Form 10-Q.
Overview
The Company currently operates two photographic portrait studios, the
first of which was opened on May 24, 1993 at the MCA/Universal CityWalkSM
project in Los Angeles, California ("the CityWalk Studio"). The second studio
opened on December 9, 1995 at The Entertainment Center at Irvine Spectrum
located in Irvine, Orange County, California ("the Irvine Studio"). The Company
engaged a consultant during the quarter ended December 31, 1996 to work with its
technical staff to determine whether the Travelling Studio could be made
operational and after some effort and expenditure the Travelling Studio has been
used in two, two day promotions. The following table summarizes the Company's
adjusted results for the three and nine month periods ended December 31, 1996
and December 31, 1995.
<TABLE>
Three months ended Nine months ended
-------------------------------------- ------------------------------------
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1996 Dec. 31, 1995
----------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Gross Sales Revenue $ 520,666 $ 375,711 $ 1,646,496 $ 1,177,775
Gross Income 15,081 15,721 160,242 186,332
Adjusted Net Loss for the Period (172,530 ) (210,078 ) (498,430 ) 1 (406,628 )2,3
Adjusted Net Loss per Share ($ 0.01 ) ($ 0.02 ) ($ 0.04 ) ($ 0.04 )
Closing Bid Price per
Share of Common Stock $ 0.065 $ 0.13 $ 0.065 $ 0.13
- --------------------------------------------------------------------------------
</TABLE>
1 As indicated in the following notes, the figures have been adjusted in order
to facilitate 1 comparison:
2 The net loss for the nine month period ended Dec. 31, 1996 excludes
termination payments totaling 2 $51,250 paid to officers of the Company. Such
payments were expensed prior to October 1, 1996.
3 The net loss for the nine month period ended Dec. 31, 1995 excludes
$110,000 of non-recurring professional costs associated with closing
the Photo Corporation Group Pty. Ltd. ("PCG") transaction. These costs
were incurred prior to October 1, 1995.
The net loss for the nine month period ended Dec. 31, 1995 also excludes a
$722,000 non-recurring loss on impairment of long-lived assets, a non-cash
accounting adjustment pursuant to the adoption of SFAS No. 121. The loss was
recorded prior to October 1, 1995.
----------------------------------------------------------------------------
As noted in the table presented above, the Company continues to operate
at a net loss. This is predominantly due to the poor performance of the Irvine
Studio.
Management's focus is on improving revenues from the Irvine Studio by
developing marketing programs to attract more customers and creating a
background image portfolio suitable for the market in which the Irvine Studio is
located. There is no assurance that this program for the Irvine Studio will be
successful.
The Company is committed to continuing to minimize overheads to reduce
the negative cash flow from operations.
The Company's short term objectives are to increase the revenues of the
Irvine Studio, source additional opportunities and venues for the utilization of
the Travelling Studio, continue to reduce operating expenses and minimize
overhead costs and as a consequence improve cash flows to reduce liabilities and
to enable additional studios to be opened in the future. Net losses (which
include depreciation expenses of approximately $103,000 per quarter) are
expected to continue until the Company opens additional studios or revenues from
the existing studios, especially the Irvine Studio, increase substantially.
On April 24, 1996 the Board of Directors authorized the issuance of up
to 3 million shares of the Company's Common Stock for a price of $0.20 per
share, which represented the fair market value of the stock on April 24, 1996 as
determined by the Company's Board of Directors. On May 6 and 7, 1996, the
Company received stock subscriptions from six investors totaling $130,000 for
650,000 shares of Common Stock with all of the subscriptions being paid by June
6, 1996. On May 7, 1996, PCG converted $130,000 of its $649,500 loan payable
into 650,000 shares of Common Stock. This represented a value of $0.20 per share
of Common Stock, which was the fair market value on this date and the same price
paid by the six independent investors.
On November 29, 1996 PCG converted an additional $780,000 into
8,320,000 shares of the Company's Common Stock. This represented a loan of
$519,000 and accrued management fees of $261,000 payable to Photo Corporation of
Australia Pty Limited ("PCA"), a subsidiary of PCG, which debt was assumed by
PCG. This represented a value of $0.09375 per share of Common Stock, which the
Board of Directors' determined, after extensive deliberations, to be a fair
price, after taking into account, among other things, the market price for the
Company's Common Stock, the company's financial condition, the illiquid nature
of the shares to be issued to PCG, and the benefits to be dervied by the Company
by the conversion of the debt into equity. In addition PCG has suspended
management fees to it or its related parties pursuant to the Personnel
Consulting Agreement with the Company dated June 28, 1995, for a period of two
years from December 1, 1996.
Results of Operations
Three Months Ended December 31, 1996 Compared to Three Months Ended December 31,
1995.
The following table shows Revenues, Cost of Revenues and Gross Income
/ (Loss) during the three months ended December 31, 1996 and 1995, by studio.
<TABLE>
Fiscal Quarter Ended Dec. 31, 1996 Fiscal Quarter Ended Dec. 31, 1995
------------------------------------------------- -------------------------------------------------
CityWalk Irvine Travelling CityWalk Irvine Travelling
Studio Studio Studio Studio Studio Studio
(Opened (Not
12/9/95) operational)
---------------- --------------- ----------------- ---------------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 365,814 $ 149,807 $5,045 $ 324,659 $ 51,052 -
Cost of Revenues: -
Compensation &
Related 112,034 78,350 937 74,767 47,260 -
Benefits
Depreciation &
Amortization 36,002 44,723 52 32,759 31,999 -
Rent 48,736 25,130 3,600 44,641 6,805 -
Other Cost
of Revenues 90,879 61,535 3,607 103,422 18,337 -
---------------- ---------------- ----------------- ---------------- ------------ ------------------
Total Cost
of 287,651 209,738 8,196 255,589 104,401 -
Revenues
---------------- ---------------- ---------------- ---------------- ------------ ------------------
-
Gross
Income/(Loss) $ 78,163 ($ 59,931 ($ 3,151 ) $ 69,070 ($ 53,349) -
================ ================================ ================ =============== =================
</TABLE>
In the fiscal quarter ended December 31, 1996, the Company generated
$520,666 in revenues, compared to revenues of $375,711 during the same period
last year, a net increase of $144,955. CityWalk Studio revenues increased by
$41,155 to $365,814, an increase of 13%. Revenues from the Irvine Studio in the
fiscal quarter ended December 31, 1996 were $149,807. Revenues from the
Travelling Studio were $5,045 which Studio was used in two, two day promotions.
Cost of revenues increased to $505,587 overall during the fiscal
quarter ended December 31, 1996, compared to $359,990 for the same period last
year.
Cost of revenues for the CityWalk Studio increased by $32,062, or 13%
in the fiscal quarter ended December 31, 1996 to $287,651 as compared to
$255,589 in the same period last year, in line with the increase in sales.
Compensation and related benefits for the CityWalk studio were $37,267 higher
than in the fiscal quarter ended December 31, 1995 as a consequence of the
increase in revenues. Cost of revenues, as a percentage of sales, remained
constant between the two quarters at 79% of sales. Depreciation for the CityWalk
Studio was higher than the fiscal quarter ended December 31, 1995, by $3,243 as
a result of the purchase, and consequent depreciation, of additional equipment.
Rent for the CityWalk Studio was higher than the fiscal quarter ended December
31, 1995 by $4,095, as a result of the Company paying rent based on a percentage
of revenues, such revenues being higher than in the fiscal quarter ended
December 31, 1995 by $41,155. Other cost of revenues for the CityWalk Studio
decreased by $12,543 as a result of tighter controls over the ordering of
supplies, and expenditure in general. The CityWalk Studio earned gross income of
$78,163 during the fiscal quarter ended December 31, 1996 compared to gross
income of $69,070 for the same period last year, an improvement of $9,093, or
13%.
Cost of revenues for the Irvine Studio was $209,738, resulting in a
gross loss of $59,931. Included in cost of revenues was $44,723 of depreciation,
a non-cash expense. The Irvine Studio continues to perform well below
expectation and the Company is committed to the continued development of the
portfolio of products available at the Irvine Studio as well as pursuing
business opportunities through corporate accounts and marketing activities to
consumers in the greater Orange County area in an endeavor to improve its
revenues.
Following continued modification to and development of the Travelling
Studio during the preceding months, limited operation of the unit commenced in
the fiscal quarter ended December 31, 1996. The Travelling Studio generated
$5,045 of revenues during the quarter, from two, two day promotions, and
incurred $8,196 of costs, resulting in a gross loss of $3,151. Development costs
associated with the Travelling Studio have been included in General and
Administrative expenses. The Travelling Studio is administered by the Irvine
Studio and the Company is committed to finding additional opportunities and
venues for the utilization of the Travelling Studio.
Overall, the Company earned gross income of $15,081 during the fiscal
quarter ended December 31, 1996 compared to gross income of $15,721 for the same
period last year. The reduction in gross income of $640 comprises the additional
gross loss of $6,582 incurred by the Irvine Studio and the gross loss of the
Travelling Studio of $3,151, offset by the increase in gross income of $9,093
earned by the CityWalk Studio.
General and administrative expenses decreased by $49,885 to $176,708 in
the quarter ended December 31, 1996 from $226,593 in the same period last year,
a decrease of 22%. Compensation and related benefits decreased by $34,560 to
$61,782 as compared to $96,342 for the same period last year. This decrease was
the result of the cessation of employment of the Vice President Operations and
the Vice President Development as of September 1, 1996. Professional fees
decreased in the fiscal quarter ended December 31, 1996 to $19,362 from $25,357
in the same period last year. General and administrative expenses for the fiscal
quarter ended December 31, 1996 include $35,000 of management fees payable to
PCA, pursuant to the Personnel Consulting Agreement dated June 28, 1995 as
compared to $50,000 for the same period last year, a decrease of $15,000. A
profit of $658 was recorded following the sale of surplus plant and equipment.
Depreciation and amortization costs were lower as a result of previously
non-producing assets being put into production in the Travelling and Irvine
Studios and the consequential depreciation charge being reported in cost of
revenues. Other general and administrative expenses increased by $2,656 to
$28,512 for the fiscal quarter ended December 31, 1996, compared to $25,856 for
the same period last year.
The loss from operations of the Company for the three month period
ended December 31, 1996 was $161,627, compared with a loss from operations for
the three month period ended December 31, 1995, of $210,872, a reduction in the
loss from operations of $49,245.
Interest charges totaling $10,903 were incurred on the loan from PCG
and on the deferred salaries accrual owing to former executives of the Company.
There were no such charges in the prior year.
The net loss of the Company for the fiscal quarter ended December 31,
1996 was $172,530 as compared to a net loss of $210,078, incurred in the same
period last year, a reduction in the net loss of $37,548.
Nine Months Ended December 31, 1996 Compared to Nine Months Ended December 31,
1995.
<TABLE>
The following table showsRevenues, Cost of Revenues and Gross Income / (Loss) during the nine months ended
December 31, 1996 and 1995, by studio.
Nine Months Ended December 31, 1996 Nine Months Ended Dec. 31, 1995
------------------------------------------------- ------------------------------------------------
CityWalk Irvine Travel CityWalk Irvine Travelling
Studio Studio Studio Studio Studio Studio
(Opened (Not
12/9/95) operational)
---------------- ----------------- -------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 1,210,027 $ 431,424 $5,045 $ 1,126,723 $ 51,052 -
Cost of Revenues:
Compensation &
Related 349,169 219,245 937 344,424 47,260 -
Benefits
Depreciation &
Amortization 107,785 133,135 52 151,140 31,999 -
Rent 154,874 70,922 3,600 144,268 6,805 -
Other Cost
of Revenues 261,672 181,256 3,607 247,210 18,337 -
---------------------------------- -------------- --------------- ---------------- ---------------
Total Cost
of Revenues 873,500 604,558 8,196 887,042 104,401 -
--------------- ---------------- -------------- -------------- ---------------- --------------
Gross
Income/(Loss) $ 336,527 ($ 173,134 ) ($ 3,151 ) $239,681 ($ 53,349 ) -
239,681
================ ================= ============== =============== ================ ===============
</TABLE>
In the nine months ended December 31, 1996, the Company generated
$1,646,496 in revenues, compared to revenues of $1,177,775 during the same
period last year, for a net increase of $468,721. CityWalk Studio revenues
increased by $83,304 to $1,210,027, an increase of 7%. Revenues from the Irvine
Studio in the nine months ended December 31, 1996 were $431,424. Revenues from
the Travelling Studio were $5,045.
Cost of revenues increased by 51% to $1,486,254 during the nine months
ended December 31, 1996, compared to $991,443 for the same period last year.
This increase is predominantly due to the inclusion of the Irvine Studio for a
full nine months in the period to December 31, 1996 compared with only
twenty-three days of operation in the period to December 31, 1995.
Cost of revenues for the CityWalk Studio decreased by $13,542 or 2% in
the nine months ended December 31, 1996 to $873,500 as compared to $887,042 in
the same period last year. Compensation and related benefits for the CityWalk
studio were, despite the increase in revenue, only $4,745 higher than in the
nine months ended December 31, 1995 predominantly as a result of tighter control
over the number of hours worked in the studio. Depreciation for the CityWalk
Studio was lower by $43,355 as a result of the adoption in June 1995 of SFAS No.
121 and the recognition pursuant thereto of a $722,000 loss on impairment of
CityWalk Studio assets. Rent for the CityWalk Studio was higher as a result of
the Company paying rent based on a percentage of revenues, such revenues being
higher than in the previous year by $83,304. Other cost of revenues for the
CityWalk Studio increased by $14,462 as a result of the allocation of costs to
the studio which in the nine months ended December 31, 1995 had been classified
as general and administrative expenses. The CityWalk Studio earned gross income
of $336,527 during the nine months ended December 31, 1996 compared to a gross
income of $239,681 for the same period last year, an improvement of $96,846, or
40%.
Cost of revenues for the Irvine Studio was $604,558, resulting in a
gross loss of $173,134. Included in cost of revenues was $133,135 of
depreciation, a non-cash expense. The Irvine Studio is performing well below
expectation and the Company is continuing to develop the portfolio of products
available at the Irvine Studio as well as pursuing business opportunities
through corporate accounts and marketing activities to consumers in the greater
Orange County area in an endeavor to improve its revenues.
Overall, the Company earned gross income of $160,242 during the nine
months ended December 31, 1996 compared to gross income of $186,332 for the same
period last year. The reduction in gross income of $26,090 comprises the
increase in gross loss of $119,785 incurred by the Irvine Studio and the gross
loss of $3,151 incurred by the Travelling Studio, offset by the increase in
gross income of $96,846 earned by the CityWalk Studio.
General and administrative expenses for the nine months ended December
31, 1995 includes a $722,000 non-cash loss on impairment of long-lived assets
and $110,000 of non-recurring professional cost expenses relating to the PCG
transaction. General and administrative expenses for the nine months ended
December 31, 1996 include $131,000 of management fees payable to PCA, pursuant
to the Personnel Consulting Agreement dated June 28, 1995 (as compared to
$100,000 for the same period last year) and termination payments to former
officers of the Company totaling $51,250. After adjusting for the above items,
the Company's general and administrative expenses decreased by $13,742 to
$482,122 in the nine months ended December 31, 1996 from $495,864 in the same
period last year, a decrease of 3%. Compensation and related benefits, excluding
the termination payments to former officers of the Company totaling $51,250,
increased by $41,165 to $251,116 as compared to $209,951 for the same period
last year. This increase was the result of the full allocation of costs of the
Vice President Operations and the Vice President Development to general and
administrative expenses up until the time of their cessation of employment
together with the costs associated with the appointment of an Accounting
Assistant and costs associated with the development of the Travelling Studio.
Professional fees decreased in the nine months ended December 31, 1996 to
$60,644 from $75,847 (excluding the $110,000 non-recurring professional costs
referred to above) in the same period last year. Depreciation and amortization
costs were lower as a result of previously non-producing assets being put into
production in the Irvine Studio and the Travelling Studio and the consequential
depreciation charge being reported in cost of revenues and as a result of the
impact of the Company's adoption of SFAS No. 121. The Company recorded a profit
of $658 upon the sale of surplus plant and equipment. Other general and
administrative expenses decreased by $19,732 to $71,727 for the nine months
ended December 31, 1996, compared to $91,459 for the same period last year due
to tighter cost controls and the allocation of costs to the studios which
previously had been classified as general and administrative expenses.
During the months of July through November, 1995, the Company designed
and constructed the Irvine Studio. In connection with this work and the
Company's continuing operating losses, the Company adopted SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets. In this regard, the Company
reviewed the carrying value of its CityWalk Studio assets for impairment and
determined that an impairment loss of $722,000 should be recognized in June
1995. This loss was reflected in the Company's statement of operations for the
nine months ended December 31, 1995. The loss was calculated as the excess of
carrying value over fair value, the latter determined by reference to prices for
the Irvine Studio assets. This adjustment did not affect the Company's working
capital.
The loss from operations of the Company for the nine months ended
December 31, 1996, excluding the non-recurring termination payments of $51,250,
was $452,880, compared with a loss from operations for the nine month period
ended December 31, 1995, excluding the non-recurring loss on impairment of
long-lived assets of $722,000 and the $110,000 non-recurring professional cost
expense relating to the PCG transaction was $409,532, an increase in the loss of
$43,348 over the same period last year.
Interest charges totalling $45,691 were incurred on the loan from PCG
and on the deferred salaries accrual owing to former officers of the Company.
There were no such charges in the prior year.
The net loss of the Company for the nine months ended December 31, 1996
was $549,680 as compared to a net loss of $1,238,628 incurred in the same period
last year.
As of December 31, 1996, the Company has net operating loss carry
forwards of approximately $9.5 million. The ability to utilize $8.3 million of
these losses to be offset against future taxable income is restricted as a
result of the change in control arising from the PCG transaction. The losses
will expire in June, 2011.
Liquidity and Capital Resources
On December 31, 1996, the Company had a working capital deficit of
$420,619 as compared to a working capital deficit on March 31, 1996 of
$1,216,713. The reduction in working capital deficit of $796,094 was primarily
attributable to the cash proceeds of stock subscriptions received in the fiscal
quarter ended June 30, 1996 from six investors totaling $130,000 for 650,000
shares of Common Stock, together with the conversion of a $649,000 loan from PCG
and $261,000 of accrued management fees payable to PCA, which debt was assumed
by PCG, into 8,970,000 shares of Common Stock.
Net cash used in operating activities was $164,033 for the nine months
ended December 31, 1996, compared to $259,379 for the same period last year.
This decrease was primarily a result of the reduction in the Company's net loss.
It was also the result of the Company having virtually completed the previously
agreed repayments over time of certain long outstanding trade payables and
accrued liabilities. These agreements were entered into in fiscal 1995.
The Company currently has no commitments for capital expenditure.
In the three months ended December 31, 1996, $50,000 of funds were
loaned to the Company by PCG for working capital requirements. A further
$120,000 has been loaned to the Company in the period to February 6, 1997.
The Company does not currently have any established, external sources
of funding. To the extent that the Company requires additional funds, it would
currently seek to raise such funds through the sale of securities or through new
borrowings from PCG. However, no assurance can be given that additional funds
can be obtained from such sources.
Other Matters
On August 31, 1996, Michael C. Roubicek, Vice President of the Company,
was elected to the Board of Directors of the Company to fill the vacancy created
by Mr. Robert Shelton's cessation as a director of the Company.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
<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.
Out-Takes, Inc.
Dated: February 12, 1997 By: s/s Peter C. Watt________________________
Peter C. Watt, President and Principal
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Unaudited)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> mar-31-1997
<PERIOD-END> dec-31-1996
<CASH> 43,177
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 37,040
<CURRENT-ASSETS> 111,393
<PP&E> 977,913
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,130,083
<CURRENT-LIABILITIES> 532,012
<BONDS> 0
0
0
<COMMON> 207,882
<OTHER-SE> 308,537
<TOTAL-LIABILITY-AND-EQUITY> 1,130,083
<SALES> 520,666
<TOTAL-REVENUES> 520,666
<CGS> 505,585
<TOTAL-COSTS> 176,708
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,903
<INCOME-PRETAX> (172,530)
<INCOME-TAX> 0
<INCOME-CONTINUING> (172,530)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (172,530)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
