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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(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, 1997
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 12,
1997 was 20,495,726.
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OUT-TAKES INC.
FORM 10Q - QUARTERLY REPORT FOR
QUARTERLY PERIOD ENDING JUNE 30, 1997
TABLE OF CONTENTS
Page
PART 1 FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS 1
Balance Sheets
As of June 30, 1997 and March 31, 1997 [Unaudited] 1
Statements of Operations [Unaudited] for the three months ended
June 30, 1997 and 1996 2
Statements of Stockholders' Equity [Unaudited] for the three months
ended June 30, 1997 3
Statements of Cash Flows [Unaudited] for the three months ended
June 30, 1997 and 1996 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 10
PART II OTHER INFORMATION 11
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURE 12
PART 1
ITEM 1. FINANCIAL STATEMENTS
OUT-TAKES INC.
As of BALANCE SHEETS As of As of
June 30, 1997 [Unaudited] June 30, 1997 March 31, 1997
-------------- --------------
Assets
Current Assets:
Cash and Cash Equivalents $ 22,275 $ 70,908
Inventory 16,197 22,879
Due from Related Party 2,314 7,343
Prepaid Insurance 10,081 10,796
Prepaid Taxes 3,220 7,829
Other Current Assets 8,354 8,132
---------- -----------
Total Current Assets $ 62,441 $ 127,887
Plant and Equipment - Net $ 718,588 $ 845,198
Other Non-Current Assets:
Deposits 32,753
38,378
Total Non-Current Assets $ 751,341 $ 883,576
---------- -----------
Total Assets $ 813,782 $ 1,011,463
========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable $ 106,418 $ 113,803
Accrued Payroll 30,380 42,868
Accrued Expenses 104,326 104,331
Accrued Interest - Related Party 15,202 7,871
Compensation payable - Related Parties 91,339 115,375
Due to Related Party 315,500 260,500
---------- -----------
Total Current Liabilities $ 663,165 $ 644,748
Non-Current Liabilities:
Notes Payable $ 48,000 $ 48,000
Compensation Payable - Related Parties - 5,962
---------- -----------
Total Non-Current Liabilities $ 48,000 $ 53,962
Commitments $ - $ -
Stockholders' Equity:
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 10,014,980 10,014,980
Accumulated Deficit (Includes $6,990,000 in
accumulated losses during the development stage and
a $762,129 loss on impairment of assets) (9,867,839) (9,657,703)
Totals $ 355,023 $ 565,159
Less: Treasury Stock - At Cost (108,406) (108,406)
Deferred Compensation (144,000) (144,000)
---------- -----------
Total Stockholders' Equity $ 102,617 $ 312,753
---------- -----------
Total Liabilities and Stockholders' Equity $ 813,782 $ 1,011,463
========== ===========
The Accompanying Notes are an Integral Part of These Financial Statements.
1
OUT-TAKES INC.
STATEMENTS OF OPERATIONS
[Unaudited]
Three months ended
June 30, 1997 June 30, 1996
Revenues $ 333,149 $ 468,187
----------- -----------
Cost of Revenues:
Compensation and Related Benefits 140,276 169,108
Depreciation and Amortization 105,935 79,577
Rent 64,726 66,805
Other Cost of Revenues 94,491 134,272
----------- -----------
Total Cost of Revenues 405,428 449,762
----------- -----------
Gross (Loss) / Income (72,279) 18,425
------------ -----------
General and Administrative Expenses:
Compensation and Related Benefits 35,672 102,601
Professional Fees 32,153 16,034
Management Fee - Related Party - 31,000
Rent of Offices 8,700 10,440
Depreciation and Amortization 22,294 22,736
Other General and Administrative Expenses 30,285 22,275
----------- -----------
Total Expenses 129,104 205,086
----------- -----------
Loss from Operations (201,383) (186,661)
----------- -----------
Other Income (Expense):
Interest Income 89 141
Interest Expense - Related Parties (8,842) (18,048)
----------- ------------
Total Other (Expense) Income (8,753) (17,907)
----------- ------------
Net Loss ($ 210,136) ($ 204,568)
========== ==========
Net Loss Per Share ($ 0.01) ($ 0.02)
========== ===========
Weighted Average Common
Shares Outstanding 20,495,726 11,661,439
=========== ===========
The Accompanying Notes are an Integral Part of These Financial Statements.
2
OUT-TAKES INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
[UNAUDITED]
Common Stock Capital in
Number of Excess of Accumulated Treasury Deferred Total
Shares Amount Par Value Deficit Stock Compensation
Balance - March 31, 1997 20,788,122 $ 207,882 $10,014,980 ($9,657,703) ($108,406) ($144,000) $ 312,753
Net Loss for the three months
ended June 30, 1997 - - - (210,136) - - (210,136)
--------- --------- ----------- ---------- --------- --------- ---------
Balance - June 30, 1997 20,788,122 $ 207,882 $10,014,980 ($9,867,839) ($108,406) ($144,000) $ 102,617
========== ========= =========== ============ ========= ========= =========
The Accompanying Notes are an Integral Part of These Financial Statements.
3
OUT-TAKES INC.
STATEMENT OF CASH FLOWS
[UNAUDITED]
Three months ended
June 30,
1997 1996
Operating Activities:
Net Loss ($ 210,136) ($ 204,568)
--------- -----------
Adjustments to Reconcile Net Loss to Net Cash
Used for Operating Activities:
Depreciation and Amortization $ 128,229 $ 102,313
Changes in Assets and Liabilities:
(Increase) Decrease in Assets:
Due from Related Party 5,029 -
Deposits 5,625 335
Inventory 6,682 3,691
Prepaid Insurance 715 -
Prepaid Taxes 4,609 -
Other Current Assets (222) (6,697)
Increase (Decrease) in Liabilities:
Accounts Payable (7,385) 2,393
Accrued Payroll (12,488) (6,355)
Accrued Expenses (5) 7,938
Notes Payable - (15,036)
Accrued Interest - Related Parties 7,331 16,094
Accrued Management Fee - Related Party - 31,000
Compensation payable - Related Parties (29,998) -
----------- -----------
Total Adjustments $ 108,122 $ 135,676
---------- -----------
Net Cash used in Operating Activities ($ 102,014) ($ 68,892)
---------- -----------
Investing Activities:
Acquisition of Equipment and Leasehold Improvements ($ 1,619) ($ 24,080)
----------- ------------
Net Cash used in Investing Activities ($ 1,619) ($ 24,080)
---------- -----------
Financing Activities:
Proceeds from Issuance of Stock $ - $ 130,000
Due to Related Party 55,000 -
---------- -----------
Net Cash provided by Financing Activities $ 55,000 $ 130,000
---------- -----------
Net (Decrease) Increase in Cash and Cash Equivalents ($ 48,633) $ 37,028
Cash and Cash Equivalents - Beginning of Periods 70,908 61,672
---------- -----------
Cash and Cash Equivalents - End of Periods $ 22,275 $ 98,700
========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES
On May 7, 1996 the majority stockholder, Photo Corporation Group Pty Ltd,
converted $130,000 of its then $649,500 loan payable into 650,000 shares of the
Company's Common Stock.
The Accompanying Notes are an Integral Part of These Financial Statements.
4
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, 1997 and 1996 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, 1997.
Plant and Equipment and Depreciation - The Company's plant and equipment is
shown net of accumulated depreciation of $1,904,929 as of June 30, 1997, and
$1,776,700 as of March 31, 1997.
[2] Net Loss Per Share
Net loss per share was calculated based on the weighted average number of shares
outstanding during the periods. Neither the 292,396 shares held in Treasury nor
the 750,000 shares held in escrow pursuant to an escrow agreement between the
founding stockholders and the Company have been included in the weighted average
shares outstanding during the year as their inclusion would be anti-dilutive.
The effect of outstanding stock warrants and options was not included in the
calculations as their effect would also be anti-dilutive.
[3] Notes Payable
A note payable of $48,000 is due to a former financial consultant to the Company
pursuant to a settlement agreement dated August 17, 1994. The note is
non-interest bearing and payment is subject to availability of future cash flows
from the Company's operations.
[4] Going Concern
The Company commenced commercial operations on May 24, 1993 and as of August 12,
1997 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, 1997 was $102,014. The Company incurred a net loss of
$210,136 for the three month period ended June 30, 1997 and has a working
capital deficit as of June 30, 1997 of $600,724.
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 increasing revenues from the Irvine Studio or a
reconfiguration of the site into a smaller Studio, or closing the Studio to
reduce the negative cash flow which the Studio has been generating. Given that
the Company has not met either of the criteria for renewal of the Irvine Studio
lease, management cannot state with certainty that the seven year option period
will be exercised.
Management is also continuing the reduction of expenses throughout the Company
and is seeking to obtain additional equity or debt financing. 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 ability of the major
stockholder, Photo Corporation Group Pty Ltd ("PCG"), to continue to provide
additional financing. No assurance can be given that such additional financing
will be provided.
5
OUT-TAKES INC.
NOTES TO FINANCIAL STATEMENTS
[Unaudited, continued]
[5] 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 are being paid over the period through April 17,
1998. The outstanding liability as of June 30, 1997 of $91,339 is presented on
the balance sheet as "Compensation payable - Related Parties". 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 PCG. Interest expense is incurred at the prime rate of
interest (approximately 8.5%) and in the three months ended June 30, 1997, was
$1,511.
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 $315,500 ($260,500 as of March 31, 1997) was
advanced by PCG. The funds have been used 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, 1997, was $7,331. As of June 30, 1997, interest of $15,202 was accrued.
The amount Due from Related Party represents monies advanced by the Company on
behalf of Photo Corporation of Australia Pty Limited ("PCA"), a subsidiary of
PCG.
The weighted average interest rate on short term borrowings as of June 30, 1997
was approximately 10%.
[6] Subsequent Events
During the period July 1, 1997 to August 12, 1997, PCG provided an additional
$70,000 of cash to assist the Company in funding its day to day operations and
to enable the Company to make the required payments due to former officers of
the Company.
6
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 two photographic portrait studios, the first of
which was opened on May 24, 1993 at the MCA/Universal CityWalkSM project in Los
Angeles, California ("the CityWalk Studio"). The second studio opened on
December 9, 1995 at The Entertainment Center at Irvine Spectrum located in
Irvine, Orange County, California ("the Irvine Studio"). The following table
summarizes the Company's results for the three month periods ended June 30, 1997
and June 30, 1996.
Three months ended June 30,
1997 1996
---- ----
Gross Sales Revenue $ 333,149 $ 468,187
Gross (Loss) / Income (72,279) 18,425
Net Loss for the Period (210,136) (204,568)
Net Loss Per Share ($0.01) ($0.02)
Closing Bid Price per Share
of Common Stock $ 0.06 $ 0.22
As noted in the table presented above, the Company continues to operate at a net
loss. This is predominantly due to the poor performance of the Irvine Studio.
Management is focusing on improving revenues from the Irvine Studio by
developing a marketing program to attract more customers and creating a
background image portfolio that is more suitable for the market in which the
Irvine Studio is located. There is no assurance that this program for the Irvine
Studio will be successful and accordingly, the Company will continue to
implement overhead reductions to improve the Company's operating margins and
reduce the cash outflow from operations.
Having regard to the length of time that the Irvine Studio has now been open and
the poor performance of the Studio, notwithstanding the substantial efforts that
have been made to improve the performance of the Studio, management is
considering the reconfiguration of the Studio to a smaller size, or the closure
of the Studio to reduce the negative cash flow effect of the Studio continuing
to operate.
The Company's short term objectives are to increase revenue from the Irvine
Studio, source opportunities and venues for the utilization of the Traveling
Studio, continue the reduction of expenses and raise capital for opening
additional studios.
Notwithstanding, net losses (which include depreciation expenses of
approximately $100,000 per quarter) are expected to continue unless and until
the Company opens additional studios or the revenue stream from the two existing
studios, especially the Irvine studio, increases substantially.
To assist the Company in funding its day to day operations and to enable the
Company to make the payments due to former officers of the Company, Photo
Corporation Group Pty Limited ("PCG") provided the Company with $125,000 of cash
during the period April 1, 1997 to August 12, 1997. 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.
7
Results of Operations
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996.
The following table shows Revenues, Cost of Revenues and Gross Income/(Loss)
during the three months ended June 30, 1997 and 1996, by studio.
June 30, 1997 June 30, 1996
------------------------ ----------------------
City Walk Irvine City Walk Irvine,
Studio Studio Studio Studio
Revenues $ 247,116 $ 86,033 $ 333,297 $134,890
--------- ---------- --------- --------
Cost of Revenues:
Compensation and
Related Benefits 84,980 55,296 109,086 60,022
Depreciation and
Amortization 42,688 63,247 35,835 43,742
Rent 35,158 29,568 43,949 22,856
Other Cost of
Revenues 57,181 37,310 77,829 56,443
--------- ---------- --------- --------
Total Cost of
Revenues 220,007 185,421 266,699 183,063
--------- ---------- --------- --------
Gross Income/(Loss)$ 27,109 ($ 99,388) $ 66,598 ($48,173)
========= ========== ========= ========
In the fiscal quarter ended June 30, 1997, the Company generated $333,149 in
revenues, compared to revenues of $468,187 during the same period last year, a
net decrease of $135,038.
CityWalk Studio revenues decreased by $86,181 to $247,116, a decrease of 26%.
Management attributes this decline to a number of factors including the opening
of additional digital photographic concessions within the theme park adjacent to
the CityWalk Studio in spring 1997. The Company's lease contains a restriction
that prevents the sale of computer generated photographs by any other stores
within CityWalk during the Company's initial lease term. This affords the
Company limited protection from competition, however this restriction does not
apply to photography products offered within the theme park. The opening of
additional photographic concessions within the theme park has increased the
number of photographic opportunities available to visitors to the area and has
diluted the CityWalk Studio's share of the market. Management also believes that
the Studio's performance is directly affected by the level of foot traffic
through the theme park, which has a flow on effect into the Studio. In May 1996,
a new "ride" opened in the theme park, which management believes attracted an
increased number of both new and repeat visitors to the area. Management
perceives that the absence of a significant new attraction in the corresponding
quarter this year, has resulted in a decline in the level of foot traffic
through the Studio. Also, in the first part of calendar 1996, a travel show
broadcast on national television in Japan, included an episode on "Hollywood"
which featured the CityWalk Studio. Throughout the quarter ended June 30, 1996,
an unusually high number of Japanese tourists, who had seen the segment on
television in Japan, visited the CityWalk Studio. There was no similar national
television broadcast in the quarter ended June 30, 1997. Management is exploring
promotional opportunities to return the Studio's sales to previous levels.
Irvine Studio revenues decreased by $48,857 to $86,033, a decrease of 36%. The
quarter ended June 30, 1996 represented the first spring season for the Studio.
The demographics of the area indicate many of the customers to the Irvine
Spectrum Entertainment Center in which the Studio is located are local or repeat
customers. While these people utilize the entertainment facilities of the center
on a regular basis, they view photography as a service to be used only
occasionally or infrequently, hence the Studio is not benefiting from the repeat
business experienced by other vendors in the Center. As already discussed, the
Company is continuing in its efforts to
8
expand the portfolio of products available at the Studio, which appeal to the
local market and is considering the reconfiguration of the Studio to a smaller
size, or the closure of the Studio.
Cost of revenues decreased to $405,428 overall during the fiscal quarter ended
June 30, 1997, compared to $449,762 for the same period last year.
Cost of revenues for the CityWalk Studio decreased by $46,692, or 18% in the
fiscal quarter ended June 30, 1997 to $220,007 as compared to $266,699 in the
same period last year, as a consequence of the reduction in sales. Compensation
and related benefits for the CityWalk Studio were $24,106 lower than in the
fiscal quarter ended
June 30, 1996, in line with the decrease in revenues. Cost of revenues, as a
percentage of sales, increased between the two quarters from 80% of sales in the
quarter ended June 30, 1996 to 89% of sales in the quarter ended June 30, 1997.
Depreciation for the CityWalk Studio was higher than the fiscal quarter ended
June 30, 1996, by $6,853. Rent for the CityWalk Studio was lower than the fiscal
quarter ended June 30, 1996 by $8,791 as a result of the Company paying rent
based on a percentage of revenues, such revenues being lower than in the fiscal
quarter ended June 30, 1996 by $86,181. Other cost of revenues for the CityWalk
Studio decreased by $20,648 or 27%, in line with the reduction in revenue. The
CityWalk Studio earned gross income of $27,109 during the fiscal quarter ended
June 30, 1997 compared to gross income of $66,598 for the same period last year,
a decrease of $39,489, or 59%.
Cost of revenues for the Irvine Studio increased by $2,358, or 1% in the fiscal
quarter ended June 30, 1997 to $185,421 as compared to $183,063 in the same
period last year. Although sales were lower than in the quarter ended June 30,
1996, there was no corresponding reduction in cost of revenues, as additional
funds were expended in an effort to improve revenues from the Studio.
Compensation and related benefits for the Irvine studio were $4,726 lower than
in the fiscal quarter ended June 30, 1996. Depreciation for the Irvine Studio
was higher than the fiscal quarter ended June 30, 1996, by $19,505 as a result
of the purchase and subsequent depreciation of additional equipment. Rent for
the Irvine Studio was higher than the fiscal quarter ended June 30, 1996 by
$6,712, as a result of an increase in base rent in accordance with the Company's
lease. Other cost of revenues for the Irvine Studio decreased by $19,133 or 34%,
in line with the reduction in revenue. The Irvine Studio incurred a gross loss
of $99,388 during the fiscal quarter ended June 30, 1997 compared to a gross
loss of $48,173 for the same period last year, an increase in gross loss of
$51,215.
Overall, the Company incurred a gross loss of $72,279 during the fiscal quarter
ended June 30, 1997 compared to gross income of $18,425 for the same period last
year. The reduction in gross income of $90,704 comprises the additional gross
loss of $39,489 incurred by the CityWalk Studio and the $51,215 additional gross
loss incurred by the Irvine Studio.
General and administrative expenses decreased by $75,982 to $129,104 in the
quarter ended June 30, 1997 from $205,086 in the same period last year, a
decrease of 37%. Compensation and related benefits decreased by $66,929 to
$35,672 as compared to $102,601 for the same period last year. This decrease was
the result of the cessation of employment of the Vice President Operations and
the Vice President Development as of September 1, 1996. Professional fees
increased in the fiscal quarter ended June 30, 1997 to $32,153 from $16,034 in
the same period last year. This increase includes approximately $7,700 of costs
associated with engaging a consultant 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, 1996 include
$31,000 of management fees payable to Photo Corporation of Australia Pty Limited
("PCA"), a subsidiary of PCG, pursuant to the Personnel Consulting Agreement
dated June 28, 1995. There is no corresponding expense in the quarter ended June
30, 1997 as PCG agreed not to charge management fees for services provided by it
or its related parties for two years from December 1, 1996. Rent decreased by
$1,740 to $8,700 in the quarter ended June 30, 1997 from $10,440 for the quarter
ended June 30, 1996. Depreciation and amortization costs were lower by $442.
Other general and administrative expenses increased by $8,010 to $30,285 for the
fiscal quarter ended June 30, 1997, compared to $22,275 for the same period last
year.
The loss from operations of the Company for the three month period ended June
30, 1997 was $201,383, compared with a loss from operations for the three month
period ended June 30, 1996, of $186,661, an increase in the loss from operations
of $14,722.
Interest charges totaling $8,842 were incurred on the loan from PCG and on the
Compensation payable to former officers of the Company, compared with $18,048 of
charges during the fiscal quarter ended June 30, 1996.
9
The net loss of the Company for the fiscal quarter ended June 30, 1997 was
$210,136 as compared to a net loss of $204,568, incurred in the same period last
year, an increase in the net loss of $5,568.
As of June 30, 1997, the Company has net operating loss carry forwards of
approximately $9.8 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, 1997, the Company had a working capital deficit of $600,724 as
compared to a working capital deficit on March 31, 1997 of $516,861. The
increase of $83,863 is attributable to the net loss from operations incurred in
the three month period ended June 30, 1997.
Net cash used in operating activities was $102,014 for the three months ended
June 30, 1997, compared to $68,892 for the same period last year. This increase
is primarily a result of payments made to former officers of the Company of
$29,998 - disclosed in the Statement of Cash Flows as "Compensation payable -
Related Parties".
The Company currently has no specific commitments for capital expenditure,
however management continues to evaluate opportunities to expand the business.
The development and construction of additional studios in the future may require
significant capital expenditure.
In the three months ended June 30, 1997, $55,000 of funds were loaned to the
Company by PCG for working capital requirements. A further $70,000 has been
loaned to the Company in the period July 1, 1997 to August 12, 1997.
The Company does not anticipate that it will have any problems in meeting its
obligations for continuing fixed expenses, materials procurement or operating
labor. Management believes the managerial assistance that is being provided to
the Company through its association with PCG and the willingness and ability of
PCG to continue to fund the cash flow deficiencies of the Company are necessary
to ensure the continued operating viability of the Company. The Company is
continuing to identify and evaluate opportunities for the building and bringing
into operation of additional studios, which would require funding from sources
external to the Company. Having regard to the current financial position of the
Company, the most likely source of funding for such growth is through additional
equity or a loan from PCG. There is no ongoing commitment by PCG to supply such
funds and there can be no assurance that such funds will be made available by
PCG. The Company is continuing to explore other opportunities for funding its
studio expansion, however no assurance can be given that appropriate sources of
finance will be found.
10
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
11
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: March 6, 1998 By:
----------------------------------------
Peter C. Watt
President and Principal Financial Officer
12