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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended June 30, 1998
OR
o TRANSITION REPORT UNDER 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 stated in its charter)
Delaware 95-4363944
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1419 Peerless Place, Suite 116 90035
Los Angeles, California (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 preceeding 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 issuer's Common Stock as of August 10,
1998 was 20,495,726.
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<PAGE>
OUT-TAKES INC.
FORM 10Q - QUARTERLY REPORT FOR
QUARTERLY PERIOD ENDING JUNE 30, 1998
TABLE OF CONTENTS
Page
PART 1 FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS 1
Balance Sheets
As of June 30, 1998 and March 31, 1998 [Unaudited] 1
Statements of Operations [Unaudited] for the three months ended
June 30, 1998 and 1997 2
Statements of Stockholders' Equity [Unaudited] for the three months
ended June 30, 1998 3
Statements of Cash Flows [Unaudited] for the three months ended
June 30, 1998 and 1997 4
Notes to Financial Statements [Unaudited] 5
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION 7
Overview 7
Results of Operations 8
Liquidity and Capital Resources 9
PART II OTHER INFORMATION 11
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURE 12
<PAGE>
PART 1
ITEM 1. FINANCIAL STATEMENTS
OUT-TAKES INC.
BALANCE SHEETS
[Unaudited]
As of As of
June 30, 1998 March 31, 1998
------------- --------------
Assets
Current Assets:
Cash and Cash Equivalents $ 38,024 $ 23,044
Inventory 6,149 10,082
Prepaid Insurance 4,611 8,949
Prepaid Taxes 1,832 3,005
Other Current Assets 11,659 9,564
---------- -----------
Total Current Assets $ 62,275 $ 54,644
Plant and Equipment - Net $ 150,252 $ 204,148
Other Non-Current Assets:
Deposits 21,423 27,048
---------- -----------
Total Non-Current Assets $ 171,675 $ 231,196
---------- -----------
Total Assets $ 233,950 $ 285,840
========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable $ 33,480 $ 31,173
Accrued Payroll 13,263 22,047
Accrued Expenses 95,929 108,819
Accrued Interest - Related Party 77,812 56,452
Provision for Studio closure 9,332 31,878
Compensation Payable - Related Parties - 1,347
Due to Related Party 766,814 721,227
---------- -----------
Total Current Liabilities $ 996,630 $ 972,943
Non-Current Liabilities:
Note Payable $ 48,000 $ 48,000
---------- -----------
Total Non-Current Liabilities $ 48,000 $ 48,000
Commitments $ - $ -
Stockholders' Equity (Deficit):
Preferred Stock, par value $0.01 per share,
5,000,000 shares authorized; none issued $ - $ -
Common Stock, par value $0.01 per share,
35,000,000 shares authorized;
20,788,122 shares issued of which 292,396
shares are in Treasury 207,882 207,882
Capital in excess of par value 9,907,630 9,905,430
Accumulated Deficit (10,817,786) (10,740,009)
----------- -----------
Totals ($ 702,274) ($ 626,697)
Less: Treasury Stock - At Cost (108,406) (108,406)
----------- ------------
Total Stockholders' Equity (Deficit) ($ 810,680) ($ 735,103)
----------- ------------
Total Liabilities and Stockholders'
Equity $ 233,950 $ 285,840
=========== ===========
The Accompanying Notes are an Integral Part of These Financial Statements.
1
<PAGE>
OUT-TAKES INC.
STATEMENTS OF OPERATIONS
[Unaudited]
Three months ended
June 30, 1998 June 30, 1997
Revenues $ 245,918 $ 333,149
----------- -----------
Cost of Revenues:
Compensation and Related Benefits 90,672 140,276
Depreciation and Amortization 36,996 105,935
Rent 30,915 64,726
Other Cost of Revenues 59,655 94,491
----------- -----------
Total Cost of Revenues 218,238 405,428
----------- -----------
Gross Income / (Loss) 27,680 (72,279)
----------- -----------
General and Administrative Expenses:
Compensation and Related Benefits 19,729 35,672
Professional Fees 34,703 32,153
Management Fee - Related Party 2,200 -
Rent of Offices 15,669 8,700
Profit on disposal of plant and equipment (20,000) -
Depreciation and Amortization 16,900 22,294
Other General and Administrative Expenses 14,919 30,285
----------- -----------
Total Expenses 84,120 129,104
----------- -----------
Loss from Operations (56,440) (201,383)
----------- -----------
Other Income (Expense):
Interest Income 27 89
Interest Expense - Related Parties (21,364) (8,842)
----------- ------------
Total Other Expense (21,337) (8,753)
----------- ------------
Net Loss ($ 77,777) ($ 210,136)
========== ==========
Net Loss Per Share $ - ($ 0.01)
========== ===========
Weighted Average Common
Shares Outstanding 20,495,726 20,495,726
=========== ===========
The Accompanying Notes are an Integral Part of These Financial Statements.
2
<PAGE>
OUT-TAKES INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
[UNAUDITED]
<TABLE>
Common Stock Capital in
Number of Excess of Accumulated Treasury Total
Shares Amount Par Value Deficit Stock
<S> <C> <C> <C> <C> <C> <C>
Balance - March 31, 1998 20,788,122 $ 207,882 $9,905,430 ($10,740,009)($108,406) ($735,103)
Management fee - related party - - 2,200 - - 2,200
Net Loss for the three months
ended June 30, 1998 - - - (77,777) - (77,777)
--------- --------- ---------- ------------ -------- ---------
Balance - June 30, 1998 20,788,122 $ 207,882 $9,907,630 ($10,817,786)($108,406) ($810,680)
========== ========= ========== ============= ========= ==========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
3
<PAGE>
OUT-TAKES INC.
STATEMENT OF CASH FLOWS
[UNAUDITED]
Three months ended
June 30,
1998 1997
Operating Activities:
Net Loss ($ 77,777) ($ 210,136)
--------- -----------
Adjustments to Reconcile Net Loss to Net Cash
Used for Operating Activities:
Depreciation and Amortization $ 53,896 $ 128,229
Profit on Disposal of Plant and Equipment (20,000) -
Management fee - related party 2,200 -
Changes in Assets and Liabilities:
(Increase) Decrease in Assets:
Due from Related Party - 5,029
Deposits 5,625 5,625
Inventory 3,933 6,682
Prepaid Insurance 4,338 715
Prepaid Taxes 1,173 4,609
Other Current Assets (2,095) (222)
Increase (Decrease) in Liabilities:
Accounts Payable 2,307 (7,385)
Accrued Payroll (8,784) (12,488)
Accrued Expenses (12,890) (5)
Accrued Interest - Related Parties 21,360 7,331
Provision for Studio closure (22,546) -
Compensation Payable - Related Parties (1,347) (29,998)
----------- ------------
Total Adjustments $ 27,170 $ 108,122
---------- -----------
Net Cash used in Operating Activities ($ 50,607) ($ 102,014)
---------- -----------
Investing Activities:
Acquisition of Equipment and Leasehold Improvements $ - ($ 1,619)
Proceeds on Disposal of Plant and Equipment 20,000 -
---------- -----------
Net Cash used in Investing Activities $ 20,000 ($ 1,619)
---------- -----------
Financing Activities:
Due to Related Party $ 45,587 $ 55,000
---------- ----------
Net Cash provided by Financing Activities $ 45,587 $ 55,000
---------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents $ 14,980 ($ 48,633)
Cash and Cash Equivalents - Beginning of Periods 23,044 70,908
---------- -----------
Cash and Cash Equivalents - End of Periods $ 38,024 $ 22,275
========== ===========
The Accompanying Notes are an Integral Part of These Financial Statements.
4
<PAGE>
OUT-TAKES INC.
NOTES TO FINANCIAL STATEMENTS
[Unaudited]
[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-X 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 month periods ended June 30, 1998 and 1997 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-K for the year ended March 31, 1998.
Plant and Equipment and Depreciation - The Company's plant and equipment is
shown net of accumulated depreciation of $1,992,862 as of June 30, 1998, and
$2,007,893 as of March 31, 1998.
[2] Net Loss Per Share
Net loss per share was calculated based on the weighted average number of shares
outstanding during the periods. The 292,396 shares held in Treasury have not
been included in the weighted average shares outstanding during the year as
their inclusion would be anti-dilutive. The effect of outstanding stock options
was not included in the calculations as their inclusion would also be
anti-dilutive.
[3] Notes Payable
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.
The note holder has threatened to commence legal action, however management has
advised the note holder that no amount is due at the present time as the Company
has not generated positive cashflow. Counsel has advised the Company that no
litigation has commenced and counsel is unable to assess a possible outcome,
should litigation be commenced.
[4] New Authoritative Pronouncements
The Financial Accounting Standards Board ("FASB") has issued Financial
Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS No.
130 is effective for fiscal years beginning after December 15, 1997. Earlier
application is permitted. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. SFAS No. 130 is not
expected to have a material impact on the Company.
The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information". SFAS No. 131 changes how operating segments are
reported in financial statements and requires the reporting of selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 is effective for periods beginning after December 15,
1997 and comparative information for earlier years is to be restated. SFAS No.
131 need not be applied to interim financial statements in the initial year of
its application. SFAS No. 131 is not expected to have a material impact on the
Company.
5
<PAGE>
OUT-TAKES INC.
NOTES TO FINANCIAL STATEMENTS
[Unaudited, continued]
[5] Going Concern
The Company commenced commercial operations on May 24, 1993 and as of August 10,
1998 the Company has been unsuccessful in generating net cash from operations.
The net cash used by the Company in operating activities in the three month
period ended June 30, 1998 was $50,607. The Company incurred a net loss of
$77,777 for the three month period ended June 30, 1998 and has a working capital
deficit as of June 30, 1998 of $934,355.
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 generate net
cash from operations or to raise funds through debt and/or equity financing. The
Company's recurring operating losses and net working capital deficiency raises
substantial doubt about the entity's ability to continue as a going concern.
Management's plans include improving the revenues from the CityWalk Studio and
continuing the reduction of expenses. There can be no assurance that management
will be successful in these endeavors and if not, the Company will be dependent
upon the willingness and the ability of the majority stockholder, Photo
Corporation Group Pty Limited ("PCG"), to continue to provide additional
financing.
PCG has advised the Company that it is not committed to continue to fund the
Company and may at any time decide that it will not advance any additional funds
to the Company. In such event, it is likely that the Company will be unable to
meet its current obligations, which may result in the commencement of insolvency
proceedings with respect to the Company. The Board of Directors has,
accordingly, commenced exploration of alternative courses of action, to address
this contingency.
[6] 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 paid over the period through April 17, 1998.
The outstanding liability as of March 31, 1998 of $1,347 is presented on the
balance sheet as "Compensation Payable Related Parties". Interest expense was
incurred at the prime rate of interest (approximately 8.5%) and in the three
months ended June 30, 1998, was $4.
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.
The amount Due to Related Party of $766,814 ($721,227 as of March 31, 1998) was
advanced by PCG. The balance consists of $750,500 advanced to the Company and
$16,314 of expenses paid by Photo Corporation of Australia Pty Limited ("PCA") a
subsidiary of PCG, on behalf of the Company (March 31, 1998: $715,500 advanced
to the Company and $5,727 of expenses paid on behalf of the Company). The funds
advanced to the Company have been used predominantly to fund the day to day
operations of the business and to fund the payments due to former officers of
the Company. The amount Due to Related Party is unsecured and is payable on
demand. Interest expense is charged at a rate of 10% per annum and for the three
months ended June 30, 1998, was $21,360. As of June 30, 1998, interest of
$77,812 was accrued.
The weighted average interest rate on short term borrowings as of June 30, 1998
was approximately 10%.
[7] Capital Stock Transactions - Escrow Shares
In March, 1992, 1,900,000 shares were issued to the Company's founders
("Founders") and deferred compensation of $364,800 was recorded for the
1,900,000 shares. Included in the 1,900,000 shares were 1,150,000 shares issued
to the Founders for services in connection with the incorporation of the
Company. Accordingly, $220,800 was amortized as compensation expense in 1992.
The remaining 750,000 shares of the Company's Common Stock were placed into
escrow for the benefit of the Founders. As the Company's pre-tax earnings did
not equal or exceed the required threshold level, in May of 1998 the Company
requested that the shares be returned to the Company to be placed in Treasury.
The financial statements reflect the reversal of the deferred compensation
attributable to these shares, however the share data will be adjusted as of the
date the shares are returned.
6
<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 Out-Takes Inc. ("the Company") and notes thereto
included elsewhere in this Form 10-Q.
Overview
The Company currently operates a photographic portrait studio, which opened on
May 24, 1993 at the MCA/Universal CityWalkSM project in Los Angeles, California
("the CityWalk Studio"). The Company opened a second studio on December 9, 1995
at The Entertainment Center at Irvine Spectrum located in Irvine, Orange County,
California ("the Irvine Studio"). The Irvine Studio closed on April 22, 1998.
The following table summarizes the Company's results for the three month periods
ended June 30, 1998 and June 30, 1997.
Three months ended June 30,
1998 1997
---- ----
Gross Sales Revenue $ 245,918 $ 333,149
Gross Income / (Loss) 27,680 (72,279)
Net Loss for the Period (77,777) (210,136)
Net Loss Per Share - ($0.01)
Closing Bid Price per Share
of Common Stock $ 0.011 $ 0.06
As noted in the table presented above, the Company continues to operate at a net
loss. The Irvine Studio incurred net losses of $1,058,283 from the date of
opening in December 1995 until closure in April 1998. Management believes that
the closure of the Irvine Studio will have a positive impact on the Company's
operating results as no further losses will be incurred by the Irvine Studio.
The Company's short term objectives are to improve revenues from the CityWalk
Studio and continue the reduction of expenses. Notwithstanding, net losses are
expected to continue unless and until the revenue stream from the CityWalk
Studio increases substantially.
On April 22, 1998, following extensive negotiations with the landlord, the
Company closed the Irvine Studio and the lease was terminated with no further
obligations to the Company. Costs associated with the closure of the Irvine
Studio totaled $164,745 and were accrued as of March 31, 1998. Included in the
$164,745 was approximately a $135,000 non-cash loss on disposal of leasehold
improvements and write off of equipment identified as only being of use for
spare parts for the CityWalk Studio and an estimated $14,000 additional
operating losses for the period April 1, 1998, through the date of closure.
To assist the Company in funding its day to day operations, Photo Corporation
Group Pty Limited ("PCG") provided the Company with $35,000 of cash during the
period April 1, 1998 to August 10, 1998. In addition, effective December 1,
1996, PCG agreed not to charge management fees for services provided by it or
its related parties pursuant to the Personnel Consulting Agreement with the
Company dated June 28, 1995, for a period of two years. The Company has recorded
a capital contribution of $2,200 for management fees for the three months ended
June 30, 1998 based upon management's belief that this represents the reasonable
cost of doing business, for services performed by PCG personnel in the three
month period ended June 30, 1998.
7
<PAGE>
Results of Operations
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997.
The following table shows Revenues, Cost of Revenues and Gross Income/(Loss)
during the three months ended June 30, 1998 and 1997, by studio.
June 30, 1998 June 30, 1997
------------------------ ----------------------
City Walk Irvine City Walk Irvine,
Studio Studio Studio Studio
Revenues $ 245,918 $ - $ 247,116 $ 86,033
--------- ---------- --------- --------
Cost of Revenues:
Compensation and
Related Benefits 90,672 - 84,980 55,296
Depreciation and
Amortization 36,996 - 42,688 63,247
Rent 30,915 - 35,158 29,568
Other Cost of
Revenues 59,655 - 57,181 37,310
--------- ---------- --------- --------
Total Cost of
Revenues 218,238 - 220,007 185,421
--------- ---------- --------- --------
Gross Income/(Loss)$ 27,680 $ - $ 27,109 ($99,388)
========= ========== ========= ========
In the fiscal quarter ended June 30, 1998, the Company generated $245,918 in
revenues, compared to revenues of $333,149 during the same period last year, a
net decrease of $87,231. Of this decrease, $86,033 is attributable to the
closure of the Irvine Studio.
CityWalk Studio revenues remained consistent at $245,918 for the three months
ended June 30, 1998 compared with $247,116 for the same period last year.
Management continues to explore promotional opportunities to increase the
Studio's sales.
Despite management's substantial efforts to increase the revenues from the
Irvine Studio, management concluded in the fourth quarter of the year ended
March 31, 1998 that the only way to stop the negative cashflow effect generated
by the Irvine Studio was to close the Studio. Following lengthy negotiations
with the Studio's landlord, the landlord agreed to allow the Company to
terminate its lease at the Irvine Entertainment Center and the Company closed
the Irvine Studio on April 22, 1998. The costs associated with the closure of
the Studio totaled $164,745. This included approximately a $135,000 non-cash
loss on disposal of leasehold improvements and write off of equipment identified
as only being of use for spare parts for the CityWalk Studio and approximately
$14,000 in operating losses for the period from April 1, 1998 to the date of
closure.
Cost of revenues decreased to $218,238 overall during the fiscal quarter ended
June 30, 1998, compared to $405,428 for the same period last year. $185,421 of
the $187,190 decrease is due to the closure of the Irvine Studio.
Cost of revenues for the CityWalk Studio remained constant for the two periods,
decreasing by $1,769, or 1% in the fiscal quarter ended June 30, 1998 to
$218,238 as compared to $220,007 in the same period last year. Cost of revenues,
as a percentage of sales, remained constant between the two quarters at 89% of
sales. Compensation and related benefits for the CityWalk Studio were $5,692
higher than in the fiscal quarter ended June 30, 1997, an increase of 7%.
Depreciation for the CityWalk Studio was lower than the fiscal quarter ended
June 30, 1997, by $5,692 as a consequence of many of the Studio's assets being
fully depreciated by June 1998. Rent for the CityWalk Studio was lower than the
fiscal quarter ended June 30, 1997 by $4,243. Rent of $35,158 for the quarter
ended June 30, 1997 included approximately $780 per month for storage space
rented at Universal CityWalk and parking permits. There were no such expenses in
the quarter to June 30, 1998. Other cost of revenues for the CityWalk Studio
increased by $2,474 or 4%. The CityWalk Studio earned
8
<PAGE>
gross income of $27,680 during the fiscal quarter ended June 30, 1998 compared
to gross income of $27,109 for the same period last year, an increase of $571,
or 2%.
Overall, the Company generated gross income of $27,680 during the fiscal quarter
ended June 30, 1998 compared to a gross loss of $72,279 for the same period last
year. The increase in gross income of $99,959 comprises the additional gross
income of $571 generated by the CityWalk Studio and the fact that the Irvine
Studio was closed and did not incur a gross loss similar to the $99,388 gross
loss incurred for the three months to June 30, 1997.
General and administrative expenses decreased by $44,984 to $84,120 in the
quarter ended June 30, 1998 from $129,104 in the same period last year, a
decrease of 35%. Compensation and related benefits decreased by $15,943 to
$19,729 as compared to $35,672 for the same period last year, a decrease of 45%.
This decrease was predominantly the result of the cessation of employment of the
Operations Manager in the quarter ended December 31, 1997. Professional fees
increased in the fiscal quarter ended June 30, 1998 to $34,703 from $32,153 in
the same period last year, an increase of $2,550 or 8%. Included in the $34,703
is approximately $11,000 of costs associated with engaging a consultant to
assist with the training and development of the CityWalk Studio staff in an
effort to increase the level of revenues generated by the CityWalk Studio. The
prior year figure of $32,153 includes approximately $7,700 of costs associated
with engaging a consultant in the quarter ended June 30, 1997 to work with staff
at the Irvine Studio in an effort to expand the Studio's customer base and
increase revenues. General and administrative expenses for the fiscal quarter
ended June 30, 1998 include $2,200 of management fees. A capital contribution of
$2,200 has been recorded to reflect the reasonable cost of doing business, for
services performed by PCG personnel. There is no corresponding expense in the
quarter ended June 30, 1997. Rent increased by $6,969 to $15,669 in the quarter
ended June 30, 1998 from $8,700 for the quarter ended June 30, 1997. Included in
the rent expense of $15,669 is $5,625 relating to the Irvine Studio. This
represents the forfeiture of the security deposit held by the landlord in
relation to the Irvine premises. Also included in the category of rent expense
is the cost of the storage facility that the Company rents to temporarily store
certain items of equipment, furniture and materials. During the quarter to June
30, 1998, the Company was advised that the storage facility was to close and the
Company was required to find an alternative facility. Costs of approximately
$1,300 were incurred to move all of the equipment, furniture and materials to
another storage facility, located at 8540 Cedros Ave, Panorama City, California.
During the quarter to June 30, 1998 the Company derived a profit on disposal of
plant and equipment of $20,000. The Company sold to subsidiaries of PCG, certain
items of equipment, deemed by management to be surplus following the closure of
the Irvine Studio, for $20,000. This equipment originally cost $68,927 and at
the time of sale had nil book value and an estimated market value of $20,000.
Depreciation and amortization costs were lower by $5,394 as many of the fixed
assets were fully depreciated by June 1998. Other general and administrative
expenses decreased by $15,366 to $14,919 for the fiscal quarter ended June 30,
1998, compared to $30,285 for the same period last year.
The loss from operations of the Company for the three month period ended June
30, 1998 was $56,440, compared with a loss from operations for the three month
period ended June 30, 1997, of $201,383, a decrease in the loss from operations
of $144,943.
Interest charges totaling $21,364 were incurred on the loan from PCG and on the
Compensation payable to former officers of the Company, compared with $8,842 of
charges during the fiscal quarter ended June 30, 1997.
The net loss of the Company for the fiscal quarter ended June 30, 1998 was
$77,777 as compared to a net loss of $210,136, incurred in the same period last
year, a decrease in the net loss of $132,359.
As of June 30, 1998, the Company has net operating loss carry forwards of
approximately $10.8 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 acquisition by PCG in June 1995 of in excess
of 50% of the Common Stock of the Company. The losses will expire in March,
2011.
Liquidity and Capital Resources
On June 30, 1998, the Company had a working capital deficit of $934,355 as
compared to a working capital deficit on March 31, 1998 of $918,299. The
increase of $16,056 is attributable to the net loss from operations incurred in
the three month period ended June 30, 1998.
Net cash used in operating activities was $50,607 for the three months ended
June 30, 1998, compared to $102,014 for the same period last year. This decrease
is primarily attributable to the reduction in the loss from operations for the
three months ended June 30, 1998 compared with the three months ended June 30,
1997.
9
<PAGE>
The Company currently has no specific commitments for capital expenditure.
The continuation of the Company as a going concern is dependent upon its ability
to generate net cash from operations or to raise funds through debt and/or
equity financing. The Company's recurring operating losses and net working
capital deficiency raises substantial doubt about the entity's ability to
continue as a going concern. Management's plans include improving the revenues
from the CityWalk Studio and continuing the reduction of expenses. There can be
no assurance that management will be successful in these endeavors and if not,
the Company will be dependent upon the willingness and the ability of the
majority stockholder, PCG, to continue to provide additional financing. PCG has
advised the Company that it is not committed to continue to fund the Company and
may at any time decide that it will not advance any additional funds to the
Company. In such event, it is likely that the Company will be unable to meet its
current obligations, which may result in the commencement of insolvency
proceedings with respect to the Company. The Board of Directors has,
accordingly, commenced exploration of alternative courses of action, to address
this contingency.
In the three months ended June 30, 1998, $35,000 of funds were loaned to the
Company by PCG for working capital requirements. No further amounts have been
loaned to the Company in the period July 1, 1998 to August 10, 1998.
Despite its working capital deficiency, the Company has maintained generally
good relations with its vendors.
10
<PAGE>
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
11
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereon duly authorized.
OUT-TAKES INC.
Dated: August 10, 1998 By:/s/ Peter C. Watt
-----------------
Peter C. Watt
President and Principal Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement of operations and is
qualified in its entirety by reference to such information.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> mar-31-1998
<PERIOD-END> jun-30-1998
<CASH> 38,024
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 6,149
<CURRENT-ASSETS> 62,275
<PP&E> 150,252
<DEPRECIATION> 0
<TOTAL-ASSETS> 233,950
<CURRENT-LIABILITIES> 996,630
<BONDS> 0
0
0
<COMMON> 207,882
<OTHER-SE> (1,018,562)
<TOTAL-LIABILITY-AND-EQUITY> 233,950
<SALES> 245,918
<TOTAL-REVENUES> 245,918
<CGS> 218,238
<TOTAL-COSTS> 302,350
<OTHER-EXPENSES> (21,337)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (21,337)
<INCOME-PRETAX> (77,777)
<INCOME-TAX> 0
<INCOME-CONTINUING> (77,777)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (77,777)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
