UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10Q
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended SEPTEMBER 30, 1999
( ) Transition report pursuant of Section 13 or 15(d) of the Securities
Exchange Act of 1939 for the transition period ____ to______
COMMISSION FILE NUMBER 0-21322
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OUT TAKES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-4363944
- ---------------------------------- ----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3811 Turtle Creek Blvd., Suite 350 Telephone 214-528-8200
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(Address of Principal Executive Offices, including Registrant's zip code
and telephone number)
NONE
- --------------------------------------------------------------
Former name, former address and former fiscal year, if changed
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
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The number of shares of the registrant's common stock as of June 30, 1999:
35,000,000 shares.
Transitional Small Business Disclosure Format (check one): Yes No X
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TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
(a) Balance Sheet
(b) Statement of Income
(c) Statement of Cashflows
(d) Statement of Shareholders' Equity
(e) Notes to Financial Statements
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Item 3. Risks
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults On Senior Securities
Item 4. Submission of Items to a Vote
Item 5. Other Information
Item 6
(a) Exhibits
(b) Reports on Form 8K
Report on Form 8K was filed on May 4, 1998
SIGNATURES
FINANCIAL DATA SCHEDULE
[CAPTION]
OUT TAKES, INC.
BALANCE SHEET
AS OF JUNE 30, 1999 AND JUNE 30, 1998
(unaudited)
1999 1998
Assets
Current Assets
Cash and cash equivalents $119 $38,024
Accounts receivable 4,358 -0-
Inventory -0- 6,149
Prepaid expenses -0- 6,443
Other current assets -0- 11,659
Total Current Assets 4,477 62,275
Property, Plant and Equipment-net 232,762 150,252
Other Non-Current Assets
Goodwill 4,252,314 -0-
Deposits and advances 24,691 21,423
Total Assets $4,514,244 $233,950
Liabilities and Stockholders' Equity
Current Liabilities
Bank overdraft $10,612 $-0-
Accounts payable 2,509 33,480
Accrued expenses 224,614 109,192
Accrued interest 11,610 -0-
Accrued interest-related parties 112,355 77,812
Provision for studio closure -0- 9,332
Deferred income 7,651 -0-
Short-term notes 502,834 -0-
Due to related parties 877,087 766,814
Total Current Liabilities 1,749,272 996,630
Long-Term Debt
Notes payable 4,000,000 48,000
Stockholders' Equity
Common stock, par value $0.01
per share, 35,000,000 shares
authorized; 20,788,122
shares issued of which 292,396
are in Treasury 207,882 207,882
Preferred stock, par value $0.01 per
share, 5,000,00 shares authorized;
none issued -0- -0-
Capital in excess of par 9,913,230 9,907,630
Retained earnings (11,247,734) (10,817,786)
(1,126,622) (702,274)
Treasury stock, at cost (108,406) (108,406)
Total Liabilities and
Stockholders' Equity $4,514,244 $233,950
See accountants' compilation report.
[CAPTION]
OUT TAKES, INC.
CONSOLIDATED STATEMENT OF INCOME
AS OF JUNE 30, 1999 AND JUNE 30, 1998
(unaudited)
1999 1998
Revenues $45,238 $245,918
Cost of Revenues
Compensation and related benefits 7,500 90,672
Depreciation and amortization1 3,750 36,996
Rent -0- 30,915
Other cost of revenues 9,317 59,655
Total Cost of Revenues 20,567 218,238
Gross Margin1 24,671 27,680
General and Administrative Expenses
Compensation and related benefits 7,500 19,729
Professional fees 50,577 34,703
Management fee-related party -0- 2,200
Rent of offices 2,448 15,669
Profit on disposal of plant and equipment -0- (20,000)
Depreciation and amortization 27,141 16,900
Other general and administrative 12,219 14,919
99,885 84,120
Income (loss) from operations (75,214) (56,440)
Other Income (Expense)
Interest income -0- 27
Interest expense-related parties (23,430) (21,364)
Interest expense (7,529) -0-
(30,959) (21,337)
Provision for income taxes -0- -0-
Net Income (Loss) ($106,173) ($77,777)
Net Income (Loss) per share ($0.01) ($0.01)
Weighted average common
Shares outstanding 20,495,726 20,495,726
[CAPTION]
OUT TAKES, INC.
CONSOLIDATED STATEMENT OF INCOME
AS OF JUNE 30, 1999 AND JUNE 30, 1998
(unaudited)
Additional
Number of Paid-In
Shares Amount
Capital
Balance, March 31, 1999 20,788,122 $ 207,882 $9,913,230
Net loss for the three
Months ended June 30
1999 _________ _______ _________
Balance June 30, 1999 20,788,122 $ 207,882 $9,913,230
Accumulated Treasury
Deficit Stock
Total
Balance, March 31, 1999 $(11,131,561) $(108,406) $(1,118,855)
Net loss for the three
Months ended June 30
1999 (116,173) (116,173)
Balance June 30, 1999 $(11,247,734) $(108,406) $(1,235,028)
[CAPTION]
OUT TAKES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
AS OF JUNE 30, 1999 AND JUNE 30, 1998
(unaudited)
1999 1998
Cash Flows From
Operating Activities
Net Income (Loss) ($116,173) ($77,777)
Noncash items included
In net income (loss)
Depreciation and amortization 40,891 53,896
Profit on disposal of
Plant and equipment -0- (20,000)
Management fee-related party -0- 2,200
Changes in:
Accounts receivable(4,358)-0-
Inventory-0-3,933
Prepaid expenses -0- 5,511
Deposits and advances -0- 5,625
Other current assets -0- (2,095)
Bank overdraft 10,612 -0-
Accounts payable 2,361 2,307
Accrued expenses 2,674 (21,674)
Accrued interest 9,545 -0-
Accrued interest-related party 21,411 21,360
Provision for studio closure -0- (22,546)
Deferred income(22,953)-0-
Compensation payable-related party 15,000 (1,347)
Net cash provided (used)
by operating activities (40,990) (50,607)
Cash Flows From
Investing Activities
Purchase of property, plant
and equipment (2,453) -0-
Disposal of property, plant
and equipment -0- 20,000
Net cash provided (used)
by investing activities (2,453) 20,000
Cash Flows From
Financing Activities
Advances from related parties -0- 45,587
Payments to related parties (32,794) -0-
Proceeds from short-term debt 75,000 -0-
Net cash provided (used)
By financing activities 42,206 45,587
Net increase in cash and
cash equivalents (1,237) 14,980
Cash and cash equivalents-
beginning of period 1,356 23,044
Cash and cash equivalents-
end of period $119 $38,024
[CAPTION]
OUT TAKES, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999 AND JUNE 30, 1998
(unaudited)
[1] Summary of Significant Accounting Policies
Basis of Presentation - The accompanying financial statements are presented on
an accrual basis. Revenues are recognized when merchandise is sold and expenses
are recognized when incurred. Where applicable, the figures for the years ended
March 31, 1999 and March 31, 1998 have been reclassified in order to facilitate
comparison with the figures for the current year.
Plant and Equipment and Depreciation - Plant and equipment consists primarily of
generators, computers, photography equipment and leasehold improvements, and
are stated at cost. Depreciation is provided over the estimated useful asset
lives using the straight-line method over 5 years for all equipment and
furniture. Leasehold improvements are amortized on a straight-line basis
over the shorter of the useful life of the improvement or the term of the lease.
Maintenance, repairs and minor purchases are expensed as incurred.
Royalties - Royalties are calculated as a percentage of sales as specified in
each License Agreement and are expensed over the life of the agreement except
where this amount is less than the minimum guarantee provided by the agreement.
In the latter situation, royalty expense is equal to the minimum guarantee,
amortized on a straight-line basis over the period of the guarantee. Where
royalties have been paid in advance, such amounts are disclosed on the Company's
balance sheet as prepaid royalties, net of amounts expensed.
Stock Options - The difference between the fair market value and the exercise
price, if below fair market value, of a stock option granted under the Company's
Employee Stock Option Plan is charged to expense in the period in which the
option is granted. All transactions in which goods or services are the
consideration received for the issuance of equity instruments are accounted for
based on the fair value of the consideration received or the fair market value
of the equity instruments issued, whichever is more reliably measurable
Inventories - Inventories consisting principally of frames, bags, mattes,
chemicals, paper products and other supplies are priced at cost determined using
the FIFO method.
Cash and Cash Equivalents - The Company classifies all highly liquid debt
instruments, readily convertible to cash and purchased with a maturity of three
months or less at date of purchase, as cash equivalents. The Company had no cash
equivalents at March 31, 1998.
Risk Concentrations - Financial instruments, which potentially subject the
Company to concentrations of credit risk, consist principally of cash. At March
31, 1998, the Company had no deposits in financial institutions which exceeded
the $100,000 federally insured limit. The excess of the institution's deposit
liability to the Company over the federally insured limit was therefore zero.
A significant part of the Company's ability to generate revenues is dependent on
the continuation of the License Agreements with the various Licensors. Three of
the License Agreements provide a portfolio of images that each result in
approximately 15% of the revenues of the Company. While the Company has License
Agreements relating to the use of the images there can be no assurance that the
License Agreements will be renewed or renewed on commercially acceptable terms
after their current expiry dates. In such event, unless alternative License
Agreements can be obtained, the loss of the License Agreements would have a
material adverse affect on the Company (see note 3[A]).
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts. Accordingly, actual
amounts could differ from those estimates.
Advertising - Advertising costs are expensed as incurred. Advertising
expenditure for the years ended March 31, 1998, 1997 $21,069, $28,552
respectively.
Loss per share - The Financial Accounting Standards Board ("FASB") has issued
Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings Per
Share" which is effective for financial statements issued for periods ending
after December 15, 1997. Accordingly, earnings per share data in the financial
statements for the year ended March 31, 1998 has been calculated in accordance
with SFAS No. 128. Prior periods earnings per share data have been recalculated
as necessary to conform prior years data to SFAS No. 128.
SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15, "Earnings
per Share" and replaces its primary earnings per share with a new basic earnings
per share representing the amount of earnings for the period available to each
share of common stock outstanding during the reporting period. SFAS No. 128
also requires a dual presentation of basic and diluted earnings per share in the
face of the statement of operations for all companies with complex capital
structures. Diluted earnings per share reflects the amount of earnings for the
period available to each share of common stock outstanding during the
reporting period, while giving effect to all dilutive potential common shares
that were outstanding during the period, such as common shares that could result
from the potential exercise or conversion of securities into common stock. The
computation of diluted earnings per share does not assume conversion,
exercise or contingent issuance of securities that would have an antidilutive
effect on earnings per share (i.e. increasing earnings per share or reducing
loss per share). The dilutive effect of outstanding options and warrants and
their equivalents are reflected in dilutive earnings per share by the
application of the treasury stock method which recognizes the use of proceeds
that could be obtained upon exercise of options and warrants in computing
diluted earnings per share. It assumes that any proceeds would be used to
purchase common stock at the average market price during the period. Options and
warrants will have a dilutive effect only when the average market price of the
common stock during the period exceeds the exercise price of the options or
warrants. Potential common shares of 125,000 are not currently dilutive, but
may be in the future.
Deferred Taxes - There are no material differences between the accounting
methods used for financial and tax purposes. The Company has sustained losses in
recent years and has a large net operating loss carryforward. No deferred taxes
are reflected in these financial statements.
[2] Organization and Business
The Company was incorporated on March 18, 1992, under the laws of the State of
Delaware. The Company is engaged in the production and sale of photographic
portraits of children, adults and family groups using proprietary hardware and
digital imaging software. The Company currently operates and derives
substantially all of its revenues from a retail studio, called Out-Takes(R),
which opened on May 24, 1993 and is located at MCA/Universal's CityWalkSM
project in Los Angeles, California ("the CityWalk Studio"). During the period
December 1, 1995 to April 22, 1998, the Company operated a second Studio, at the
Entertainment Center in the Bazaar at the Irvine Spectrum, located in Irvine,
Orange County, California ("the Irvine Studio").
[3] [A] License Agreements and Royalties
The Company has merchandise licensing agreements ("License Agreements") with
Paramount Pictures Corporation ("Paramount"), MCA/Universal Merchandising, Inc.
("Universal"), Warner Bros. Consumer Products ("Warner"), Twentieth Century Fox
Licensing & Merchandising ("Fox"), Jay P. Morgan Photography ("Morgan"), MTV
Networks ("MTV"), Saban Merchandising Inc. ("Saban"), The Baywatch Production
Company ("Baywatch") and various other agencies and photographers that grant the
Company the right to manufacture, sell and distribute in a defined geographic
area, still photographs which combine a digital photograph taken of the customer
in the studio with a licensed background from one of the Licensors which may be
sold separately or affixed to items approved by these licensors, including
photographic enlargements, greeting cards, posters, books, t-shirts, mugs,
buttons and other novelty items. Royalties expense for the year ending March 31,
1998, 1997 and 1996 was $39,365, $66,816 and $35,622 respectively.
Although the Company has not commenced to market all Licensed Articles on a
timely basis, as of March 31, 1998, the Company has not received any notice that
any Licensor intends, by virtue of this matter, to exercise any of the remedies
provided for in its respective License Agreements. The Company is current with
respect to all payments and required reports to all Licensors.
[B] Sublicense Agreement - Related Party
On March 1, 1995, the Company entered into a sublicense agreement with Photo
Corporation of Australia Pty Limited ("PCA"), a subsidiary of Photo Corporation
Group Pty. Ltd. ("PCG") (see note 5), that, subject to the prior approval of the
Licensors, grants PCA a non-exclusive license to utilize the Licensed Articles
on substantially the same terms as provided in the License Agreements. The
sublicense also provides that PCA will pay the Company an amount equal to 120%
of the royalties the Company pays to Licensors for such images. The Company
has received consent from Morgan, Fox and Paramount and otherLicensors
indicating their willingness to support utilization of the Licensed Articles
in countries where PCA operates. As of March 31, 1998, the PCA
sublicense agreement has not yet generated any royalties. [4] Plant and
Equipment
March 31, 1999 March 31, 1998
The components of plant and equipment are:
Photographic Equipment $ - $ 620,750
Computers and Software 1,300 660,348
Equipment and Furniture - 301,316
Leasehold Improvements - 609,494
Motor Vehicle 5,500 26,933
Generators 377,912 246,977
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Total - At Cost 384,712 2,465,818
Less: Accumulated Depreciation 95,747 2,065,967
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Net $ 291,456 399,851
============= =============
Depreciation is provided over the estimated useful asset lives using the
straight-line method over five years for all equipment and furniture. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
useful life of the improvement or the term of the lease. Maintenance, repairs
and minor purchases are expensed as incurred.
[5] Related Party Transactions
Mr Robert Shelton, Vice President Development and Mrs Leah Peterson-Shelton,
Vice President Operations, ceased employment with the Company from and effective
September 1, 1996. 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 on September 1, 1996, and were repaid over
the period to April 17, 1998. This liability is presented on the balance sheet
as "Compensation payable - Related Party". The liability 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
Photo Corporation Group Pty Limited ("PCG"), the majority stockholder. Interest
expense is incurred at the prime rate of interest (approximately 8.5%) and in
the period to March 31, 1998 interest expense totaled $3,618.
As of March 31, 1998, interest of $67 was accrued and unpaid.
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. No consulting fees were incurred or paid
during the year ended March 31, 1998.
During the year to March 31, 1997, PCG charged the Company $131,000 in
management fees pursuant to the Personnel Consulting Agreement with the Company
dated June 28, 1995. Effective December 1, 1996, PCG agreed not to charge
management fees for services provided by it or its related parties for a period
of two years. The Company has recorded a capital contribution of $31,200 for
management fees for the year to March 31, 1998. Management believes that this
represents the reasonable cost of doing business, for services provided by PCG
personnel in the year to March 31, 1998.
At March 31, 1998 the $721,227 "Due to Related Party" ($260,500 as of March 31,
1997) was advanced by PCG. This balance consists of $715,500 advanced to the
Company and $5,727 of expenses paid by PCA on behalf of the Company (1997:
$7,343 "Due from Related Party" representing monies advanced by the Company
during fiscal 1997 on behalf of PCA). The funds advanced to the Company have
been used predominantly to fund the day to day operation 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
incurred at a rate of 10% per annum on the
[5] Related Party Transactions - (continued)
funds advanced to the Company and for the year ended March 31, 1998 was $48,581.
As of March 31, 1998, interest of $56,452 was accrued.
The weighted average interest rate on short term borrowings as of March 31, 1998
was approximately 10.0%.
[6] Capital Stock Transactions
[A] 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.
[B] Stock Option Plan
Under the Company's Amended and Restated 1992 Stock Option Plan, incentive stock
options may be granted to purchase shares of the Company's stock at a price not
less than the fair market value of the Common Stock at the date of the grant.
Non-qualified stock options may be granted at a price not less than 85% of the
fair market value. No option may be exercised after ten years from the date of
the grant. In September of 1997, options for 175,000 shares were issued to
employees and consultants of the Company.
Information is summarized as follows:
Shares Under Options and Warrants
---------------------------------
Amended Weighted
And Restated Price Average
1992 Stock per Exercise
Option Plan Share Price
----------- ----- -----
Outstanding at March 31, 1995 249,245 $0.65 to $4.40 $3.44
Forfeited during the year
ended March 31, 1996 (94,527)
--------
Outstanding at March 31, 1996 154,898 $0.65 to $4.40 $4.00
Forfeited during the year
ended March 31, 1997 (154,898)
--------
Outstanding at March 31, 1997 - - -
Granted during the year
ended March 31, 1998 175,000 $0.06 $0.06
Forfeited during the year
ended March 31, 1998 (50,000)
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Outstanding at March 31, 1998 125,000 - $0.06
=========
The exercise price for the options outstanding at March 31, 1998 is $0.06 with a
vesting period of three years and a contractual life of ten years. The company
estimates that approximately 100% of such options will eventually vest.
On September 15, 1997, the Board of Directors granted to four individuals, a
total of 175,000 stock options to purchase company stock at an exercise price of
$0.06 per share for past services performed. The options are to vest over a
three year period, 50% the first year and 25% the remaining two years, with an
expiration date of September 15, 2007. The company applies APB Opinion 25 in
accounting for its fixed and performance based stock option compensation plans.
Compensation cost of $3,250, $0 and $0 was charged to operations for the three
years ended March 31, 1998, 1997 and 1996 respectively. Had compensation cost
been determined on the basis of fair value pursuant to FASB Statement No. 123,
net income and earnings per share would have been recorded as follows:
1998 1997
$ $
Net Income (Loss)
As reported (1,082,306) (753,346)
Pro forma (1,089,056) (753,346)
Earnings per Share
As reported (0.05) (0.05)
Pro forma (0.05) (0.05)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998: dividend yields of $0 for each year,
expected volatility of approximately 106% for each year, risk free interest
rates of 5.83% and an expected life of five years. The weighted-average fair
value of options granted was $0.06 for the year ended March 31, 1998.
[7] Closure of Irvine Studio
In the third quarter of the Company's fiscal year, management determined that
despite its substantial efforts to increase the revenues of the Irvine Studio,
it would be in the best interests of the Company to contain the negative cash
flow incurred by the Company, by determining an exit plan for the Irvine Studio.
In the fourth quarter of the fiscal year, the Company finalized its exit plan.
Following lengthy negotiations with the landlord of the Irvine Studio,
management reached an agreement with the landlord to close the Studio. The
closure was effected without the payment of any additional amounts to the
landlord. The Studio closed on April 22, 1998. Costs associated with the closure
of the studio totaled $164,745 and included approximately $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; $3,000 in termination
payments to staff; $5,000 to remove equipment from the studio and vacate the
premises; $7,000 in property tax obligations; and estimated additional operating
costs of approximately $14,000 through to the date of closure. It is
management's opinion that as of March 31, 1998, all costs associated with the
closure of the Irvine Studio have been accrued.
[8] Commitments
Lease Agreements - The Company leases its CityWalk Studio premises under a five
year lease, with an option to extend the lease for a period of seven years. The
initial lease term expired on May 31, 1998 and the Company has exercised its
option to renew the lease for a further seven years. The lease provides for an
annual rental payment of $123,250 and the payment of 10% of annual store
revenues in excess of $881,177. In addition, pursuant to the lease agreement,
the Company pays annual allocated property taxes for the CityWalk Studio of
approximately $600. Both the base rental amount and the percentage rental cut-in
point are adjusted annually for changes in the consumer price index. The lease
may be terminated by the lessor if the Company does not meet a minimum annual
sales requirement of $587,000.
Future minimum lease payments under non-cancelable operating leases as of March
31, 1999 are shown in the table below.
Year ended March 31
-------------------
1999 $ 123,250
2000 123,250
2001 123,250
2002 123,250
2003 123,250
Thereafter 267,041
---------
Total $ 883,291
=========
In the year to March 31, 1998 the Company paid $101,098 in rent for the Irvine
Studio. Following closure of the Irvine Studio on April 22, 1998, the lease was
terminated. There is no further obligation on the Company with respect to the
lease.
The Company has a month to month commitment of $2,450 per month for corporate
office space and a month to month commitment of $650 per month for storage
facilities.
Total rental charged to operations for the fiscal years ended March 31, 1998,
1997 and 1996 is broken down as follows:
1998 1997 1996
$ $ $
Base rental 256,141 278,128 183,301
Additional rent 13,351 62,287 56,862
-------- ------- --------
$269,492 $340,415 $240,163
======== ======== ========
The additional rent is a result of sales being in excess of the $881,177 sales
threshold.
Consulting Agreement - the Company has a consulting agreement with an
unaffiliated entity for the maintenance of the image technology at the CityWalk
Studio. Effective October 1, 1997 the agreement provides for the payment of
$50,000 per annum of consulting fees and a discretionary performance bonus of up
to 10% of the fees paid. The agreement may be terminated by either party with a
minimum of one month's notice. For the year ended March 31, 1998 the Company
expensed $49,000 in payments to this unaffiliated entity.
[9] Net Loss Per Share
Net loss per share was calculated based on the weighted average shares
outstanding during the year. Potential common shares have not been included as
their inclusion would be antidilutive.
[10] Trademark Registrations and Patent Applications
The Company has registered the marks Out-Takes(R), So You Want to be in
Pictures(R) , Photomation(R) and Create the Moment(R) with the U.S. Patent and
Trademark Office and has registered the Out-Takes(R) service mark in Japan, in
both Japanese and English.
[11] Income Taxes
As of March 31, 1998, the Company has a net operating loss carry forward of
approximately $10,700,000. The ability to offset $8,275,000 of these losses
against future taxable income has been restricted as a result of the change in
control which occurred on June 28, 1995 when a majority shareholding in the
Company was acquired by PCG. As of March 31, 1998, the Company has deferred tax
assets of approximately $729,000 arising from these operating loss carry
forwards which will expire in March, 2011. However, due to uncertainty as to
whether the Company will generate income in the future sufficient to fully or
partially utilize these loss carry forwards, an allowance of $729,000 has been
established to offset this asset. The Company recorded an increase in its
valuation allowance of $66,000 over the allowance at March 31, 1997.
[12] Notes Payable
The Note Payable of $48,000 is unsecured and 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 litigation, 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.
[13] New Authoritative Pronouncements
The FASB has issued 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 annual 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.
[14] Going Concern
The Company commenced commercial operations on May 24, 1993 and as of May 29,
1998, the Company has been unsuccessful in generating net cash from operations.
The net cash used by the Company in operating activities in the year ended March
31, 1998 was $482,207. The Company incurred a net loss of $1,082,306 for the
year ended March 31, 1998 and has a working capital deficit as of March 31, 1998
of $918,299.
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. 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,
continuing the reduction of expenses throughout the Company and continuing in
its efforts to find suitable locations in which to open additional studios.
There can be no assurance that management will be successful in these endeavors
and if it is not, the Company will be dependent on the willingness and the
ability of the major stockholder, PCG, to continue to provide additional
financing and no assurance can be given that such additional financing will be
provided.
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
THIS ANALYSIS CONTAINS FORWARD-LOOKING COMMENTS WHICH ARE BASED ON CURRENT
INFORMATION. ACTUAL RESULTS IN THE FUTURE MAY DIFFER MATERIALLY.
The Company is engaged in the business of providing digital photography
portraiture. The Company opened its first portrait studio on May 24, 1993 at
the MCA/Universal CityWalk project in Los Angeles, California. The Company
opened a second studio on December 9, 1995 at the Entertainment Center at Irvine
Spectrum located in Irvine, California. The Company closed the Irvine Studio on
April 22, 1998.
Results of Operations
Three months ended June 30, 1999 Compared to three months ended June 30, 1998
The net loss for the three months ended June 30, 1998 was $77,777,
compared with $89,032 for the three months ended June 30, 1999. The primary
reasons for the increase in the net loss was lack of revenues from the
continuation of the photo studio operations at a loss due to increased
competition and reduced MCA/Universal CityWalk traffic. The Company's lease
formerly provided that it was the only such photo studio permitted to operate at
CityWalk. Since the renewal of the lease, that provision has been eliminated
and the landlord has allowed competing business to lease space at CityWalk.
The Company overall generated $245,918 in revenues in the three months ended
June 30, 1998, compared to revenues of $45,328 in the fiscal year ended June
30, 1999. Management attributes this decline to the increase in competition
and lack of foot traffic at Universal CityWalk.
Liquidity and Capital Resources
At June 30, 1999, the Company had a working capital deficit of $1,378,788 as
compared to a working capital deficit on June 30, 1998 of $702,274. The
increase is primarily attributable to operating losses incurred. Funds have
been provided by PCG during the year to enable the Company to meet the costs
associated with its day to day operations and to fund the payments due to
former officers of the Company.
Net cash used in operating activities was $40,990 for the three months
ended June 30, 1999, compared to the utilization of $48,300 of cash for the same
period last year.
The Company does not anticipate that it will have any problems in meeting its
obligations for continuing fixed expenses, materials procurement or
operating labor.
PART II. OTHER INFORMATION
Item 1. Legal proceedings NONE
Item 2. Changes in securities and use of proceeds NONE
Item 3. Defaults on senior securities NONE
Item 4. Submission of items to a vote NONE
Item 5. Other information NONE
Item 6.
a) Exhibits NONE
b) Reports on 8K
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Out-Takes, Inc.
Dated: March 7, 2000 By: /s/ James Harvey
---------------------------
James Harvey, President
Secretary and Chief Finanal Officer
[TYPE]EX-27
<SEQUENCE>2
[DESCRIPTION]FINANCIAL DATA SCHEDULE
[ARTICLE] 5
[MULTIPLIER] 1
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] MAR-31-1999
[PERIOD-START] JUN-30-1999
[PERIOD-END] SEP-30-1999
[CASH] 0
[SECURITIES] 0
[RECEIVABLES] 0
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 4,477
[PP&E]
0
[DEPRECIATION] 0
[TOTAL-ASSETS] 261,930
[CURRENT-LIABILITIES] 1,749,124
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 207,882
[OTHER-SE] (1,378,788)
[TOTAL-LIABILITY-AND-EQUITY] 261,930
[SALES] 45,238
[TOTAL-REVENUES] 45,238
[CGS] 30,567
[TOTAL-COSTS] 30,567
[OTHER-EXPENSES] 72,744
[LOSS-PROVISION] (58,073)
[INTEREST-EXPENSE] (30,959)
[INCOME-PRETAX] (89,032)
[INCOME-TAX] 0
[INCOME-CONTINUING] (89,032)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (89,032)
[EPS-BASIC] (.01)
[EPS-DILUTED] (.00)
