UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from to .
Commission File No. 0-21322
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OUT-TAKES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
-------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
No. 95-4363944
---------------------------------------
(I.R.S. Employer Identification No.)
3811 Turtle Creek Boulevard, Suite 350, Dallas, TX 75219
--------------------------------------------------------
(Address of principal executive offices)
(214) 528-8200
----------------------------------------------------
(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.
[X ] No [ ] Yes
The number of shares outstanding of the issuer's Common Stock outstanding as of
May 21, 1999 was 20,495,726.
Page 1
<PAGE>
OUT-TAKES, INC.
FORM 10Q - QUARTERLY REPORT FOR
QUARTERLY PERIOD ENDING DECEMBER 31, 1998
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of December 31, 1998 and March 31, 1998
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Operations (Unaudited) for the three and nine
months ended December 31, 1998 and 1997 . . . . . . . . . . . . . 5
Statements of Stockholders' Equity (Unaudited) for the nine months
Ended December 31, 1998 and 1997. . . . . . . . . . . . . . . . . 7
Statements of Cash Flows (Unaudited) for the nine months ended
December 31, 1998 and 1997. . . . . . . . . . . . . . . . . . . . 8
Notes to Financial Statements (Unaudited) . . . . . . . . . . . . . . 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . 14
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 15
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . 18
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 20
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
Page 3
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
---------------------
OUT-TAKES, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND MARCH 31, 1998
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
------------- ----------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ - $ 23,044
Accounts receivable . . . 15,173 -
Inventory . . . . . . . . - 10,082
Prepaid insurance . . . . - 8,949
Other current assets. . . 9,931 12,569
------------- ----------
Total Current Assets . . . 25,104 54,644
------------- ----------
Plant and Equipment, Net . 344,899 204,148
------------- ----------
Other Assets
Deposit and advances. . . 63,069 27,048
Organizational costs, net 1,565 -
------------- ----------
Total Other Assets . . . . 64,634 27,048
------------- ----------
TOTAL ASSETS . . . . . . . $ 434,637 $ 285,840
============= ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements
Page 4
<PAGE>
OUT-TAKES, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND MARCH 31, 1998
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
December 31, March 31, 1998
1998
-------------- --------------
<S> <C> <C>
Liabilities
Current Liabilities
Bank overdraft . . . . . . . . . . . . . . . . . . $ 13,298 $ -
Accounts payable . . . . . . . . . . . . . . . . . 137,100 31,173
Accrued payroll. . . . . . . . . . . . . . . . . . - 22,047
Accrued interest - related party . . . . . . . . . 90,508 56,452
Accrued interest . . . . . . . . . . . . . . . . . 2,500 -
Accrued expenses . . . . . . . . . . . . . . . . . 65,767 108,819
Royalties payable. . . . . . . . . . . . . . . . . 4,913 -
Provision for studio closure . . . . . . . . . . . - 31,878
Compensation payable . . . . . . . . . . . . . . . - 1,347
Note payable, current portion. . . . . . . . . . . 80,556 -
Joint venture payable. . . . . . . . . . . . . . . 153,835 -
Due to related parties . . . . . . . . . . . . . . 773,845 721,227
-------------- ----------------
Total Current Liabilities. . . . . . . . . . . . . . 1,322,322 972,943
Note payable . . . . . . . . . . . . . . . . . . . . 48,000 48,000
Deposits . . . . . . . . . . . . . . . . . . . . . . 4,600 -
-------------- ----------------
Total Liabilities. . . . . . . . . . . . . . . . . . 1,374,922 1,020,943
-------------- ----------------
Stockholders' Equity (Deficit)
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
Preferred stock, par value $0.01 per share,
5,000,000 shares authorized; none issued . . . . . - -
Capital in excess of par value . . . . . . . . . . . 9,913,230 9,905,430
Accumulated deficit. . . . . . . . . . . . . . . . . (10,952,991) (10,740,009)
-------------- ----------------
(831,879) (626,697)
Less: Treasury Stock, at cost . . . . . . . . . . . (108,406) (108,406)
-------------- ----------------
Total Stockholders' Equity (Deficit) . . . . . . . . (940,285) (735,103)
-------------- ----------------
Total Liabilities and Stockholders' Equity (Deficit) $ 434,637 $ 285,840
============== ================
</TABLE>
The accompanying notes are an integral
part of these financial statements
Page 5
<PAGE>
OUT-TAKES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended
December 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . $ 101,517 $ 306,588
------------ ------------
Cost of Revenues
Compensation and related benefits . 18,600 138,763
Depreciation and amortization . . . 33,802 105,936
Rent. . . . . . . . . . . . . . . . - 56,397
Lease operating expense . . . . . . 11,498 -
Other cost of revenues. . . . . . . - 106,652
------------ ------------
Total Costs of Revenues. . . . . . . 63,900 407,748
------------ ------------
Gross Income (Loss). . . . . . . . . 37,617 (101,160)
------------ ------------
General and Administrative Expenses
Compensation and related benefits . 22,482 26,758
Professional fees . . . . . . . . . 24,729 26,568
Rent of offices . . . . . . . . . . 8,500 7,950
Depreciation and amortization . . . 11,777 24,080
Other expenses. . . . . . . . . . . 22,033 24,931
------------ ------------
Total Expenses . . . . . . . . . . . 89,521 110,287
------------ ------------
Loss from Operations . . . . . . . . (51,904) (211,447)
------------ ------------
Other Income (Expense)
Interest income . . . . . . . . . . - 162
Interest expense. . . . . . . . . . (235) -
Interest expense - related parties. - (14,787)
------------ ------------
Total Other Income (expense) . . . . (235) (14,625)
------------ ------------
Net Loss . . . . . . . . . . . . . . $ (52,139) $ (226,072)
============ ============
Net Loss Per Share . . . . . . . . . $ (.01) $ (.01)
============ ============
Weighted Average Common Shares
Outstanding . . . . . . . . . . . . 20,788,122 20,495,726
============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements
Page 6
<PAGE>
OUT-TAKES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended
December 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenues. . . . . . . . . . . . . . . . . . $ 632,436 $ 982,353
------------ ------------
Cost of Revenues
Compensation and related benefits. . . . . 197,577 419,504
Depreciation and amortization. . . . . . . 101,406 319,413
Rent . . . . . . . . . . . . . . . . . . . 62,033 182,343
Lease operating expense. . . . . . . . . . 46,330 -
Other cost of revenues . . . . . . . . . . 124,773 307,505
------------ ------------
Total Costs of Revenues . . . . . . . . . . 532,119 1,228,765
------------ ------------
Gross Income (Loss) . . . . . . . . . . . . 100,317 (246,412)
------------ ------------
General and Administrative Expenses
Compensation and related benefits. . . . . 55,935 102,661
Professional fees. . . . . . . . . . . . . 126,377 82,774
Management fee - related party . . . . . . 7,800 -
Rent of offices. . . . . . . . . . . . . . 36,375 25,050
Depreciation and amortization. . . . . . . 35,332 69,042
Other expenses . . . . . . . . . . . . . . 66,259 80,746
------------ ------------
Total Expenses. . . . . . . . . . . . . . . 328,078 360,273
------------ ------------
Loss from Operations. . . . . . . . . . . . (227,761) (606,685)
------------ ------------
Other Income (Expense)
Interest income. . . . . . . . . . . . . . 45 318
Interest expense . . . . . . . . . . . . . (3,118) (326)
Interest expense - related parties . . . . (34,059) (35,666)
Gain on sale of assets . . . . . . . . . . 18,939 -
Taxes. . . . . . . . . . . . . . . . . . . (800) -
------------ ------------
Total Other Income (Expense). . . . . . . . (18,993) (35,674)
------------ ------------
Net Loss. . . . . . . . . . . . . . . . . . $ (246,754) $ (642,359)
============ ============
Net Loss Per Share. . . . . . . . . . . . . $ (.02) $ (.04)
============ ============
Weighted Average Common Shares Outstanding. 20,495,726 20,495,726
============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements
Page 7
<PAGE>
OUT-TAKES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
--------------------
Capital in
Number of Excess of Accumulated Treasury
Shares Amount Par Value Deficit Stock Total
---------- -------- ----------- ------------- ---------- ----------
<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. . . . . . - - 7,800 - - 7,800
Net loss for the nine
months ended
December 31, 1998. . . . - - - (246,754) - (246,754)
Elimination of subsidiary
retained earnings. . . . - - - 33,772 - 33,772
---------- -------- ----------- ------------- ---------- ----------
Balance,
December 31, 1998. . . . 20,788,122 $207,882 $ 9,913,230 $(10,952,991) $(108,406)
$(940,285)
========== ======== =========== ============= ==========
==========
</TABLE>
The accompanying notes are an integral part of these financial statements
Page 8
<PAGE>
OUT-TAKES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended December 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss. . . . . . . . . . . . . . . . . . . . . . $(246,754) $(642,359)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization . . . . . . . . . 136,738 388,455
(Gain) loss on sale of assets . . . . . . . . . (18,939) -
Management fee. . . . . . . . . . . . . . . . . 7,800 -
(Increase) decrease in assets:
Prepaid royalties . . . . . . . . . . . . . . - (37)
Accounts receivable . . . . . . . . . . . . . 4,931 -
Deposits. . . . . . . . . . . . . . . . . . . (375) 11,330
Inventory . . . . . . . . . . . . . . . . . . 10,082 11,685
Prepaid insurance . . . . . . . . . . . . . . 10,315 (375)
Prepaid taxes . . . . . . . . . . . . . . . . - 4,153
Other current assets. . . . . . . . . . . . . 2,844 (1,192)
Increase (decrease)in liabilities:
Accounts payable. . . . . . . . . . . . . . . 31,375 (52,864)
Accrued payroll . . . . . . . . . . . . . . . (22,047) (17,935)
Accrued expenses. . . . . . . . . . . . . . . (43,052) 21,283
Provision for studio closure. . . . . . . . . (31,878) -
Accrued interest - related parties. . . . . . 34,056 32,343
Accrued interest. . . . . . . . . . . . . . . 2,500 -
Royalties payable . . . . . . . . . . . . . . 4,913 -
Joint venture payable . . . . . . . . . . . . (11,744) -
Loan payable - related parties. . . . . . . . - (92,300)
Compensation payable. . . . . . . . . . . . . (1,347) -
Due to related party. . . . . . . . . . . . . 52,618 30,268
---------- ----------
Net Cash Used by Operating Activities . . . . . . . . (77,964) (307,545)
---------- ----------
Cash Flows from Investing Activities
Proceeds from sale of property. . . . . . . . . . . 19,078 -
Acquisition of equipment and leasehold improvements (10,019) (25,227)
---------- ----------
Net Cash Provided (Used) by Investing Activities. . . 9,059 (25,227)
---------- ----------
Cash Flows from Financing Activities
Contributed capital. . . . . . . . . . . . . . . . 7,563 -
Due to related party . . . . . . . . . . . . . . . - 335,000
Proceeds from note payable . . . . . . . . . . . . 25,000 -
---------- ----------
Net Cash Flows Provided by Financing Activities . . . 32,563 335,000
---------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents. (36,342) 2,227
Cash and Cash Equivalents at beginning of period. . . 23,044 70,908
---------- ----------
Cash and Cash Equivalents at end of period. . . . . . $ (13,298) $ 73,135
========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements
Page 9
<PAGE>
OUT-TAKES, INC
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
DECEMBER 31, 1998 AND 1997
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------
Basis of Presentation
- -----------------------
The accompanying interim consolidated notes to 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 December 31, 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 notes to 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.
Comparative Statements
- -----------------------
The balance sheet at March 31, 1998, and the related statements of operations
and cash flows for the three month periods ended December 31, 1997 have not been
restated to reflect the acquisition of the Company's wholly owned subsidiary,
Los Alamos Energy, LLC, on August 31, 1998. As such, the presentations at
December 31, 1998 and March 31, 1998 are not comparative.
Plant and Equipment and Depreciation
- ----------------------------------------
The Company's plant and equipment is shown net of accumulated depreciation of
$2,144,631 as of December 31, 1998, and $2,007,893 as of March 31, 1998.
Nature of Operations and Principles of Consolidation
- ----------------------------------------------------------
On August 31, 1998, Out-Takes, Inc. entered into a Share Purchase Agreement to
acquire all of the issued and outstanding equity interests of Los Alamos Energy,
LLC, a California limited liability company. The purchase price of $4,000,000
was paid with a promissory note to Los Alamos Energy, LLC with an annual
interest rate of 10%. The Note payments of principal and interest are to be
made monthly until maturity, which is five years from the date of the agreement.
This acquisition has been accounted for as an exchange between companies under
common control; accordingly, the investment has been recorded at historical cost
in a manner similar to a pooling of interest, and the face value of the note
given has been adjusted down to the net equity value of Los Alamos Energy, LLC
at the date of the exchange, which was $26,016.
As discussed above, the consolidated financial statements at December 31, 1998
include the accounts of Out-Takes, Inc. and its wholly owned subsidiary, Los
Alamos Energy, LLC (collectively, the Company). Significant intercompany items
and transactions have been eliminated in consolidation.
Page 10
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
----------------------------------------------
Use of Estimates in the Preparation of Financial Statements
- -------------------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Earnings Per Share (SFAS 128)
- ---------------------------------
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per
Share", which was adopted by the Company for the year ended December 31, 1997.
SFAS 128 replaces the presentation of primary earnings per share with a
presentation of basic earnings per share based upon the weighted average number
of common shares for the period. It also requires dual presentation of basic
and diluted earnings per share for companies with complex capital structures.
Under SFAS 128, the computation of diluted EPS shall not assume conversion or
exercise of securities that would have an antidilutive effect on earnings per
share.
Interim Period Financial Statements
- --------------------------------------
In the opinion of management, the unaudited consolidated financial statements
contain all adjustments which are of a normal recurring nature, necessary to
present fairly the financial position as of December 31, 1998 and 1997, and the
results of operations and cash flows for the nine months ended December 31, 1998
and 1997. Interim financial results are not necessarily indicative of operating
results for the entire year.
New Accounting Pronouncements
- -------------------------------
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130 (SFAS 130), Reporting Comprehensive Income. This statement requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS 130 will
be adopted by the Company for the year ended March 31, 1999. Prior period
financial statements provided for comparative purposes will be reclassified, as
required. Upon adoption, the Company does not expect SFAS 130 to have a
material effect upon the Company's financial condition or results of operations.
In June 1997, the FASB issued Statements of Financial Accounting Standards No.
131 (SFAS 131), Disclosures about Segments of an Enterprise and Related
Information. The statement requires the Company to report income/loss, revenue,
expense and assets by business segment including information regarding the
revenues derived from specific products and services and about the countries in
which the Company is operating. The Statement also requires that the Company
report descriptive information about the way that operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the Company's general-purpose financial statements, and changes in
the measurement of segment amounts from period to period. SFAS 131 has been
adopted by the Company for the year ended March 31, 1999. This statement has no
effect on financial statements traditionally presented by the Company, but
increases required disclosures.
Page 11
<PAGE>
NOTE 2 - 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 cash flow. Counsel has advised the Company that no
litigation has commenced and counsel is unable to assess a possible outcome,
should litigation be commenced.
Note Payable - Radovich
- --------------------------
This is an unsecured promissory note dated September 27, 1996. The note's
original maturity date was thirty (30) days, no interest. The note's maturity
date has been extended to December 31, 1999 without interest. Payable amount as
of December 31, 1998 is $30,556.
Note Payable - De Simone
- ----------------------------
This is an unsecured promissory note dated March 30, 1998. The note's original
maturity date was sixty (60) days, 10% per annum simple interest. The note's
maturity date has been extended to December 31, 1999 with interest. Payable
amount as of December 31, 1998 is $25,000.
Note Payable - Reeves
- ------------------------
This is an unsecured promissory note dated March 30, 1998. The note's original
maturity date was sixty (60) days, 10% annum simple interest. The note's
maturity date has been extended to December 31, 1999 with interest. Payable
amount as of December 31, 1998 is $25,000.
NOTE 3 - GOING CONCERN
--------------
The Company commenced commercial operations on May 24, 1993 and as of April 26,
1999 the Company has been unsuccessful in generating net cash from operations.
The net cash used by the Company in operating activities in the nine month
period ended December 31, 1998 was $30,948. The Company incurred a net loss of
$246,754 for the nine month period ended December 31, 1998 and has a working
capital deficit as of December 31, 1998 of $1,297,218.
The accompanying notes to 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 and expanding the
activities of Los Alamos Energy, LLC to include direct service of consumer
electricity. There can be no assurance that management will be successful in
these endeavors and if not, the Company will be dependent upon its ability to
raise external financing through investments or other means, none of which can
be assured will happen.
Page 12
<PAGE>
NOTE 3 - GOING CONCERN (Continued)
--------------
To the extent that it is unable to do so, 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 is,
accordingly, continuing to explore external means for financing of the Company's
operations and becoming profitable, including by outsourcing the management of
its photographic business and focusing on the expansion of the natural gas
conversion to electricity and related activities of Los Alamos Energy, LLC, its
wholly-owned subsidiary.
NOTE 4 - 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". The liability was paid
off by December 31, 1998.
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 $773,845 ($721,227 as of March 31, 1998) were
funds advanced by Photo Corporation Group Party, Ltd. ("PCG"), the Company's
largest shareholder. 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
owed to PCG is unsecured and is payable on demand. Interest expense is charged
at a rate of 10% per annum and for the nine months ended December 31, 1998 was
$34,059. As of December 31, 1998, interest of $90,508 was accrued. On September
1, 1998, the Company reached an agreement with PCG whereby PCG would receive
shares of the Company's Series A Redeemable Preferred Stock in satisfaction of
certain amounts owed it by the Company. The redemption value of the shares is
$177,000. As of December 1998, the shares had not yet been created or issued to
PCB, and no further interest has been accrued.
The weighted average interest rate on short term borrowings as of December 31,
1998 was approximately 10%.
Page 13
<PAGE>
NOTE 5 - 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 notes to 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.
Page 14
<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-QSB.
Overview
- --------
The Company currently leases 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.
On August 31, 1998, the Company acquired all of the issued and outstanding
equity interests in Los Alamos Energy, LLC ("Los Alamos") in exchange for a
promissory note. Los Alamos Energy, LLC is engaged in the collection and
distribution of waste natural gas in the State of California. Los Alamos
Energy, LLC gathers the gas and converts it into electricity which is then sold
to other providers of consumer electricity such as Pacific Gas & Electric. On
October 26, 1998, the Company entered into an agreement with an outside party to
lease all of its photographic business assets. Under the terms of the lease,
the Company will receive monthly rental payments equal to 7% of the gross
revenues generated from the photographic assets. Periods presented prior to
December 31, 1998 have not been restated to include the Company's wholly owned
subsidiary, Los Alamos Energy, LLC. As such, results of operations do not
reflect the consolidated activities of both companies at December 31, 1998, and
for the quarter and nine months then ended, and are not comparative to December
31, 1998. This information will be restated in subsequent quarterly and annual
reports. The following table summarizes the Company's results for the nine month
periods ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
For the Nine Months Ended
December 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Gross sales revenue:
Photographic Studio. . . . . . . . . . . $ 518,147 $ 982,353
Energy distribution. . . . . . . . . . . 114,290 -
Gross profit (loss):
Photographic Studio. . . . . . . . . . . 100,846 (246,412)
Energy distribution. . . . . . . . . . . (529) -
Net loss for the period . . . . . . . . . . $(246,742) $(642,359)
Net loss per share. . . . . . . . . . . . . $ (.02) $ (.03)
Closing bid price per share of common stock $ .04 $ .04
</TABLE>
Page 15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Overview (Continued)
- --------
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 $7,800 for management fees for the nine
months ended December 31, 1998 based upon management's belief that this
represents the reasonable cost of doing business, for services performed by PCG
personnel in the nine month period ended December 31, 1998.
Results of Operations
- ---------------------
Nine Months Ended December 31, 1998 Compared to Nine Months Ended December 31,
1997. As discussed previously, the Company acquired Los Alamos Energy, LLC on
August 31, 1998. Results of Operations for the nine months ended December 31,
1998 include the consolidated activities of both companies.
Page 16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Results of Operations (Continued)
- ---------------------
The following table shows Revenues, Cost of Revenues and Gross Income (Loss)
during the three months ended December 31, 1998 and 1997 by segment.
For the Three Months Ended December 31, 1998
- --------------------------------------------
<TABLE>
<CAPTION>
Energy Distribution Photographic Studios
-------------------- ---------------------
<S> <C> <C>
Revenues . . . . . . . . . . . . . $ 31,036 $ 70,481
-------------------- ---------------------
Cost of Revenues
Compensation and related benefits - 18,600
Depreciation and amortization . . 7,005 26,797
Lease operating expense . . . . . 11,498 -
-------------------- ---------------------
Total Cost of Revenues . . . . . . 18,503 45,397
-------------------- ---------------------
Gross Income . . . . . . . . . . . $ 12,533 $ 25,084
==================== =====================
</TABLE>
For the Three Months Ended December 31, 1997
- --------------------------------------------
<TABLE>
<CAPTION>
City Walk Studio Irvine Studio Traveling Studio
-------------- ------------- ----------------
<S> <C> <C> <C>
Revenues $ 216,418 $ 89,773 $ 397
-------------- ------------- ----------------
Cost of Revenues
Compensation and related benefits 90,741 46,251 1,771
Depreciation and amortization 42,688 63,096 152
Rent 31,360 23,037 2,000
Other cost of revenues 64,478 41,371 803
-------------- ------------- ----------------
Total Cost of Revenues 229,267 173,755 4,726
-------------- ------------- ----------------
Gross Income (Loss) $ (12,849) $ (83,982) $ (4,329)
============== ============= ================
</TABLE>
In the fiscal quarter ended December 31, 1998, the Company generated $101,517 in
revenues, compared to revenues of $306,588 during the same period last year, a
net decrease of $205,071. Revenues attributed to photographic studios declined
$236,107 from the same period last year, primarily due to the closure of the
Irvine Studio and leasing of the companies assets to CVI. Management continues
to explore promotional opportunities to increase the Studio's sales.
Page 17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Results of Operations (Continued)
- ---------------------
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 cash flow 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 $63,900 overall during the fiscal quarter ended
December 31, 1998, compared to $407,748 for the same period last year. $173,755
of the $343,848 decrease is due to the closure of the Irvine Studio.
Cost of revenues for the CityWalk Studio decreased in the third quarter,
decreasing by $183,870 or 81% in the fiscal quarter ended December 31, 1998 to
$45,397 as compared to $229,267 in the same period last year. Cost of revenues,
as a percentage of sale decreased during the quarter to 65% of sales compared to
106% for the same period last year. Compensation and related benefits for the
CityWalk Studio were $72,141 lower than in the fiscal quarter ended December 31,
1998, a decrease of 80%. Depreciation for the CityWalk Studio was lower than
the fiscal quarter ended December 31, 1998, by $15,891 as a consequence of many
of the Studio's assets being fully depreciated by December 1998. Rent for the
CityWalk Studio was lower than the fiscal quarter ended December 31, 1998 by
$31,360. Other cost of revenues for the CityWalk Studio decreased by $64,478 or
100%. The CityWalk Studio earned gross income of $25,084 during the fiscal
quarter ended December 31, 1998 compared to gross loss of $(12,849) for the same
period last year, an increase of $37,933.
Overall, the Company generated gross income of $37,617 during the fiscal quarter
ended December 31, 1998 compared to a gross loss of $101,160 for the same period
last year. The increase in gross income of $138,777 comprises the additional
gross income of $37,933 generated by the CityWalk Studio and the fact that the
Irvine Studio was closed and did not incur a gross loss similar to the $83,982
gross loss incurred for the three months ended December 31, 1998. The increase
is further attributed to revenues generated by the newly acquired subsidiary,
Los Alamos Energy, LLC and the leasing of Out-Take's assets to CVI.
Page 18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Results of Operations (Continued)
- ---------------------
General and administrative expenses decreased by $20,766 to $89,521 in the
quarter ended December 31, 1998 from $110,287 in the same period last year, an
decrease of 19%. Compensation and related benefits decreased by $2,029 to
$24,729 as compared to $26,758 for the same period last year, a decrease of 8%.
Professional fees decreased in the fiscal quarter ended December 31, 1998 to
$24,729 from $26,568 in the same period last year, a decrease of $1,839 or 7%.
Rent increased by $550 to $8,500 in the quarter ended December 31, 1998 from
$7,950 for the quarter ended December 31, 1997. Depreciation and amortization
costs were lower by $12,303 as many of the fixed assets were fully depreciated
by December 1998. Other general and administrative expenses decreased by $2,898
to $22,033 for the fiscal quarter ended December 31, 1998, compared to $24,931
for the same period last year.
The loss from operations of the Company for the nine month period ended December
31, 1998 was $(227,761), compared with a loss from operations for the nine month
period ended December 31, 1997, of $606,685, a decrease in the loss from
operations of $403,134.
Interest charges totaling $34,059 were incurred on the loan from PCG and on the
Compensation payable to former officers of the Company, compared with $35,666 of
charges during the fiscal quarter ended December 31, 1997.
The net loss of the Company for the fiscal quarter ended December 31, 1998 was
$246,754 as compared to a net loss of $642,359, incurred in the same period last
year, a decrease in the net loss of $395,605.
As of December 31, 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 December 31, 1998, the Company had a working capital deficit of $1,297,218 as
compared to a working capital deficit on March 31, 1998 of $918,299. The
increase of $378,919 is attributable mainly to the net loss from operations
incurred in the nine month period ended December 31, 1998.
Net cash used in operating activities was $77,964 for the nine months ended
December 31, 1998, compared to $307,545 for the same period last year. This
decrease is primarily attributable to the reduction in the loss from operations
for the three months ended December 31, 1998 compared with the nine months ended
December 31, 1997.
The Company currently has no specific commitments for capital expenditure.
Page 19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Liquidity and Capital Resources
- -------------------------------
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 its ability to raise external financing
through investments or other means, none of which can be assured will happen. To
the extent that it is unable to do so, 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 is,
accordingly, continuing to explore external means for financing of the Company's
operations and becoming profitable, including by outsourcing the management of
its photographic business and focusing on the expansion of the natural gas
conversion to electricity and related activities of Los Alamos Energy, LLC, its
wholly-owned subsidiary."
Despite its working capital deficiency, the Company has maintained generally
good relations with its vendors.
Page 20
<PAGE>
PART II - OTHER INFORMATION
Page 21
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-------------------------------------
(a) Exhibits - None.
(b) Reports on Form 8-K - None.
Page 22
<PAGE>
SIGNATURES
Pursuant to the requirement 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
---------------
(Registrant)
/s/ James C. Harvey
--------------------
James C. Harvey
President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 23
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 15,173
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,104
<PP&E> 344,899
<DEPRECIATION> 35,332
<TOTAL-ASSETS> 434,637
<CURRENT-LIABILITIES> 1,322,322
<BONDS> 0
0
0
<COMMON> 207,882
<OTHER-SE> 9,913,230
<TOTAL-LIABILITY-AND-EQUITY> 434,637
<SALES> 632,436
<TOTAL-REVENUES> 632,436
<CGS> 532,119
<TOTAL-COSTS> 328,078
<OTHER-EXPENSES> 18,993
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (37,177)
<INCOME-PRETAX> (246,754)
<INCOME-TAX> (246,754)
<INCOME-CONTINUING> (246,754)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (246,754)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
